Lazzo v. Rose Hill Bank (In Re Schupbach Investments, L.L.C.)
808 F.3d 1215
| 10th Cir. | 2015Background
- Debtor Schupbach Investments filed Chapter 11 on May 16, 2011 but did not file a § 327 employment application for its counsel, Mark J. Lazzo, until weeks later; Lazzo had filed a disclosure of compensation with the petition.
- Lazzo filed an initial employment application on June 17, 2011 and a supplemental application on September 1, 2011 seeking retroactive approval to the petition date; creditors objected.
- A Creditors’ Plan of Liquidation was confirmed, which dissolved the Debtor, transferred secured property to secured creditors, vested unsecured assets in a liquidation trust, and charged the trustee with administering the trust and paying administrative claims.
- The bankruptcy court granted Lazzo retroactive (post facto) approval and allowed fees incurred both before approval and after plan confirmation, treating them as administrative expenses; creditors RHB and the Liquidation Trustee appealed to the BAP.
- The BAP reversed: it disallowed retroactive approval of Lazzo’s employment (finding no extraordinary circumstances) and disallowed post-confirmation fees because the Debtor lost debtor-in-possession powers upon plan confirmation; the district court (10th Cir.) affirmed the BAP.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court may grant post facto approval of counsel’s employment and allow pre-approval fees | Lazzo: apply "excusable neglect"; retroactive approval acceptable here because disclosure was filed and the omission was inadvertent | Creditors: retroactive approval requires "extraordinary circumstances"; simple neglect insufficient | Court: retroactive approval requires extraordinary circumstances; Lazzo’s neglect was not extraordinary; disallow pre-approval fees |
| Proper standard for retroactive employment approval | Lazzo: excusable neglect standard (more lenient) | Creditors: extraordinary/exceptional circumstances standard (prevailing approach) | Court: adopts and applies the extraordinary-circumstances test; rejects excusable-neglect argument |
| Whether fees for services performed after confirmation of a liquidation plan are allowable as administrative expenses paid from estate | Lazzo: Debtor retained debtor-in-possession status (§ 1101(1)) and could employ counsel post-confirmation; services were necessary to administer the estate | Creditors/Trustee: confirmation terminated debtor-in-possession status and transferred estate powers to the liquidating trustee/trust; post-confirmation services not authorized | Court: confirmation terminated debtor-in-possession authority here; post-confirmation fees not authorized and are disallowed |
| Appellants’ standing to challenge entire fee award | Lazzo: RHB lacks standing to contest fees beyond its pro rata share | Trustee: as respondent and trustee responsible for administrative claims, has standing to defend entire award; RHB also benefits if award reduced | Court: entire fee award properly before court on appeal; standing sufficient |
Key Cases Cited
- In re Interwest Bus. Equip., 23 F.3d 311 (10th Cir. 1994) (professionals who lack court approval are considered volunteers and generally not entitled to payment from the estate)
- Land v. First Nat’l Bank of Alamosa (In re Land), 943 F.2d 1265 (10th Cir. 1991) (retroactive approval appropriate only in extraordinary circumstances)
- Matter of Singson, 41 F.3d 316 (7th Cir. 1994) (takes minority view rejecting extraordinary-circumstances test for retroactive approval)
- Lamie v. U.S. Trustee, 540 U.S. 526 (2004) (termination of debtor-in-possession status also terminates § 327 authorization to retain counsel)
- United Operating, LLC v. Dynasty Oil & Gas, LLC (In re United Operating, LLC), 540 F.3d 351 (5th Cir. 2008) (plan confirmation can terminate debtor-in-possession status)
- In re Albrecht, 233 F.3d 1258 (10th Cir. 2000) (assumes courts may grant retroactive retention orders in exceptional cases)