449 B.R. 306
Bankr. E.D. Tenn.2011Background
- This bankruptcy case began as involuntary Chapter 7 (Nov 20, 2008) and was voluntarily converted to Chapter 11 (Feb 2009) with substantive consolidation; an Official Committee of Unsecured Creditors was appointed.
- GKH contested three matters involving the trustee’s counsel F. Scott LeRoy and his firms Evans LeRoy & Hackett (ELH) and LeRoy & Bickerstaff (L&B).
- The Fourth Fee Application (Sept 22, 2010) sought interim fees for LeRoy for Apr 1–Jun 14, 2010; the Fourth Fee Order (Oct 26, 2010) approved compensation to LeRoy; questions arose whether LeRoy was properly employed or if L&B existed then.
- LeRoy withdrew from ELH around May 2010, formed L&B in July 2010, and then sought retroactive Chapter 7 employment as special counsel for the Chapter 7 trustee after conversion (June 2010).
- GKH objected to retroactive employment and to the Fifth Fee Application (Nov 24, 2010) for fees in the Chapter 7 case, arguing improper employment and misidentification of the paying entity.
- The court ultimately held that LeRoy was properly employed as an individual (not limited to ELH) for the Fourth Fee Application, approved retroactive Chapter 7 employment for LeRoy and L&B, and modified the Fifth Fee Application by excluding the time June 15–30, 2010 and directing reimbursement for any excess already paid.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Fourth Fee Application properly authorized payment to LeRoy/L&B. | GKH contends fees were paid to an entity not approved by the court. | LeRoy asserts he was individually employed and that the Fourth Fee Order authorized payment. | Fees awarded to LeRoy individually; Fourth Fee Application denied as to need for retroactive L&B payee clarification. |
| Whether retroactive Chapter 7 employment of LeRoy and L&B was permissible. | GKH opposes retroactive relief without proper pre-employment approval. | Court should applyTwinton/Aultman framework to permit nunc pro tunc relief. | Retroactive employment approved to July 1, 2010, under In re Twinton Properties factors. |
| Whether the Fifth Fee Application should be modified for pre-employment time and potential holdbacks. | GKH opposed benefits for work not pre-approved; objected to overreach. | Fees generally appropriate; only specific pre-employment period time and holdback adjustments needed. | Disallow time 6/15–6/30/2010; modify Fifth Fee Application; require reimbursement of overpayments if any. |
Key Cases Cited
- In re Keravision, Inc., 273 B.R. 614 (N.D. Cal. 2002) (Rule 2014(b) supports employment of named attorney's firm members without new applications)
- In re Aultman Enters., 264 B.R. 485 (E.D. Tenn. 2001) (Nunc pro tunc relief may be allowed under limited circumstances)
- In re Twinton Properties Partnership, 27 B.R. 817 (Bankr. M.D. Tenn. 1983) (Adopted factors for nunc pro tunc relief under §327 and Rule 2014)
- In re Singson, 41 F.3d 316 (7th Cir. 1994) (Excuse neglect standard for retroactive employment; reasonableness of compliance)
- In re Jarvis, 53 F.3d 416 (1st Cir. 1995) (Extraordinary circumstances required for retroactive relief (contextual consideration))