655 B.R. 441
Bankr. N.D. Miss.2023Background
- Debtor John Coleman filed Chapter 11 on Sept. 29, 2021; attorney Craig Geno acted as lead counsel. WBS (Whittington, Brock & Swayze, P.A.) and attorneys Swayze and Swayze Jr. also performed work and received a $25,000 retainer the day the petition was filed.
- WBS participated in sale motions and other litigation-related work during the Chapter 11 case; sales closed and proceeds were deposited to the debtor-in-possession account.
- The Court appointed an examiner and approved several other professionals' fee applications; the case was converted to Chapter 7 on March 2, 2023, and William Fava became Chapter 7 trustee.
- On May 8, 2023 (about 18 months postpetition and after conversion), WBS filed: (1) an Application to Employ Attorneys and (2) a Fee Application seeking $14,881.28 for work from Sept. 27, 2021–May 2, 2023.
- The United States Trustee and the Chapter 7 Trustee objected, arguing WBS failed to timely seek § 327 approval, sought retroactive employment (nunc pro tunc) improperly after conversion, may have duplicate entries, and the $25,000 retainer is estate property.
- The Court found WBS provided insufficient justification for the delay, concluded retroactive employment was not warranted under Fifth Circuit standards and local rules given the lengthy delay and conversion, and disapproved both the employment and fee applications.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court may retroactively approve WBS’s employment under § 327 after an 18‑month delay and post‑conversion | WBS: relief appropriate; work benefitted estate; filing earlier could have been premature given dismissal efforts and ongoing work | UST/Trustee: employment applications must be timely; only trustee may employ post‑conversion; nunc pro tunc not available to create retroactive authority here | Denied — WBS failed to show exceptional circumstances or adequate justification for the delay; disapproved under Fifth Circuit standard and local rules |
| Whether WBS may be paid under § 330 for services performed without prior court approval | WBS: services were reasonable and necessary and benefited estate; retainer disclosed | UST/Trustee: lack of § 327 court‑approved employment precludes § 330 compensation; payment prejudices unsecured creditors; possible duplication | Denied — absence of § 327 approval during Chapter 11 precludes compensation under § 330; fee application disapproved |
| Whether Acevedo Feliciano bars all retroactive relief (nunc pro tunc) in bankruptcy employment contexts | WBS: Acevedo does not preclude bankruptcy courts from granting retroactive relief where jurisdiction exists and code permits | UST/Trustee: Acevedo narrows nunc pro tunc and counsels against retroactive authorizations that alter factual record or create jurisdictional defects | Court: Acevedo restricts nunc pro tunc to correcting court clerical/entry errors and jurisdictional limits, but does not categorically bar retroactive relief in bankruptcy where jurisdiction exists; scrutiny required |
| Effect of conversion to Chapter 7 on ability to employ/compensate debtor’s former Chapter 11 counsel | WBS: sought to have employment effective to Chapter 11 period and seek compensation | Trustee/UST: after conversion only trustee may employ professionals; retroactive employment during Chapter 11 requires exceptional showing | Court: Conversion strengthens bar—only trustee may employ post‑conversion, and WBS failed to meet Fifth Circuit’s exceptional‑circumstances standard to approve retroactive employment for the Chapter 11 period |
Key Cases Cited
- Roman Catholic Archdiocese of San Juan v. Acevedo Feliciano, 140 S. Ct. 696 (U.S. 2020) (Supreme Court limits nunc pro tunc to correcting court entry errors and cautions against creating jurisdiction retroactively)
- Fanelli v. Hensley (In re Triangle Chemicals, Inc.), 697 F.2d 1280 (5th Cir. 1983) (retroactive approval of counsel requires rare or exceptional circumstances in Fifth Circuit)
- In re Hunanyan, 631 B.R. 904 (Bankr. C.D. Cal. 2021) (bankruptcy court may approve retroactive employment/compensation where § 327 and § 330 permit and timing is reasonable; counsel on delayed applications warrants heightened scrutiny)
- In re Roberts, 618 B.R. 213 (Bankr. S.D. Ohio 2020) (court may deny nunc pro tunc retention yet still consider compensation for pre‑employment services under § 330)
- In re Nilhan Dev., LLC, 620 B.R. 385 (Bankr. N.D. Ga. 2020) (Acevedo precludes certain nunc pro tunc authorizations that would alter jurisdictional facts)
- In re Zvoch, 618 B.R. 734 (Bankr. W.D. Pa. 2020) (nunc pro tunc inappropriate to cure debtor’s failure to seek preapproval; Acevedo limits retroactive orders that rewrite the factual record)
- In re McKenzie, 449 B.R. 306 (Bankr. E.D. Tenn. 2011) (court discretion to approve former counsel’s employment retroactively in limited conversion contexts when no objection and preemployment sought)
- In re WDS, Inc., 336 B.R. 301 (Bankr. W.D. Ky. 2006) (after conversion to Chapter 7 only the trustee may seek employment of professionals)
- In re Schupbach Invs., L.L.C., 808 F.3d 1215 (10th Cir. 2015) (attorney who represents debtor without court approval may be treated as a volunteer for estate compensation purposes)