In Re McKenzie
MEMORANDUM REGARDING (A) MOTION TO RECONSIDER OR FOR RELIEF FROM THE ORDER RELATING TO THE FOURTH FEE APPLICATION, (B) OBJECTION TO APPLICATION FOR EMPLOYMENT OF F. SCOTT LEROY NUNC PRO TUNC, AND (C) RELIEF FROM THE ORDER APPROVING FIFTH FEE APPLICATION
Grant, Konvalinka & Harrison, P.C. (“GKH”) filed three contested matters involving the employment and compensation of the attorney for the trustee in this case. It filed a Motion to Reconsider or For Relief from Order (Doc. No. 969) requesting that the court set aside an order entered on October 27, 2010, approving the Fourth Application for Interim Compensation of Counsel to the Trustee filed on behalf of F. Scott LeRoy for the period April 1, 2010 through June 14, 2010 (the “Fourth Fee Application”). GKH alleges that (1) Mr. LeRoy filed the Fourth Fee Application on behalf of a firm that did not exist when the application was filed; and (2) the court mistakenly entered an order in violation of
GKH filed two additional and related contested matters regarding Mr. LeRoy’s employment and compensation. These involve his subsequent employment by the Chapter 7 trustee after the conversion of the case from Chapter 11 to Chapter 7 in June of 2010. First, GKH objects to the retroactive authorization of Mr. LeRoy’s employment as counsel for the Chapter 7 trustee, C. Kenneth Still. Second, GKH seeks reconsideration of an order granting compensation to Mr. LeRoy and the firm of LeRoy & Bickerstaff, PLLC, for its work in the Chapter 7, which compensation was granted pursuant to the Fifth Fee Application for Compensation. 1
With respect to the Chapter 7 matters, the primary issues are whether employment in the Chapter 7 case may be authorized retroactively and whether any mistake exists that would necessitate the court reconsidering the order granting the Fifth Fee Application.
The court finds that Mr. LeRoy was appointed as “named counsel” for the trustee. Consequently payment to him pursuant to the Fourth Fee Application was
This memorandum constitutes the court’s findings of fact and conclusions of law as required by
I. Background
A.Procedural History
This case was originally filed as an involuntary Chapter 7 bankruptcy on November 20, 2008, and assigned case number 08-16378. 2 The debtor filed a voluntary Chapter 11 bankruptcy on December 20, 2008, and that case was assigned case number 08-16987. Upon request of counsel for the debtor, the two cases were consolidated. The case has since proceeded with the earlier filing date of November 20, 2008, as the effective date of the petition. On January 15, 2009, the Court entered an agreed order cоnverting the involuntary Chapter 7 case no. 08-16378 to a Chapter 11 proceeding and substantively consolidating the proceeding with case no. 08-16987. An Official Committee of Unsecured Creditors was appointed by the United States trustee.
B. Employment of Mr. LeRoy by the Committee
The Official Committee of Unsecured Creditors filed an application to employ Mr. LeRoy and the law firm, Evans LeRoy
&
Hackett, PLLC (“ELH”), on January 30, 2009.
Committee Application
(Doc. No. 75). The Committee Application represented that the Committee desired to employ Mr. LeRoy specifically and ELH. Mr. LeRoy and Ms. Allison Bickerstaff were both listed as attorneys who would be working on the matter along with Mr. David Evans.
Id.
at p. 2, ¶ 5. A verified statement signed by Mr. LeRoy accompanied the Committee Application as required by
C. Employment by Chapter 11 Trustee
On February 11, 2009, one day prior to approval of Mr. LeRoy as Committee counsel, the United States trustee filed an Emergency Motion for the Appointment of a Chapter 11 Trustee.
UST Emergency Motion
(Doc. No. 101). Thе court conducted a hearing on the emergency motion on February 19, 2009. After hearing all
On the same date, the United States trustee appointed C. Kenneth Still as the Chapter 11 trustee. Thereafter, on February 20, 2009, the Chapter 11 trustee filed an application to employ Mr. LeRoy and ELH as special counsel for the Chapter 11 trustee, and Mr. LeRoy again filed a verified statement which accompanied the employment application. Application [sic] Chapter 11 Trustee for Employment of Evans LeRoy & Hackett, PLLC as Special Counsel (Doc. No. 138) (Chapter 11 Employment Application). Numbered paragraph 3 of the Chapter 11 Employment Application provides that “... the Trustee wishes to employ F. Scott LeRoy (“FSL”) and the law firm of Evans LeRoy & Hack-ett, PLLC.... ” Id. at pp. 1-2, ¶ 3. In the final paragraph the Chapter 11 trustee asked that his “employment of F. Scott LeRoy and the law firm of ELH represent the Trustee in this case as counsel at the rates of compensation indicated, be approved, and that it have such other and further relief as is just.” Id. at p. 5.
On February 24, 2009, the court notified Mr. LeRoy that because the application disclosed conflicts, 3 the order could not be entered ex parte pursuant to the court’s local rules. E.D. Tenn. LBR 9013-l(g)(xiv). The court authorized the Chapter 11 trustee to file an amended motion within 10 days. Rejected Order Authorizing Employment (Doc. No. 142). The following day, on February 25, 2009, the Chapter 11 Application was amended. It provided notice under E.D. Tenn. LBR 9013-l(h). Amended Chapter 11 Application at p. 1 (Doc. No. 143). The proposed order attached to the Amended Chapter 11 Employment Application was also amended from the order attached to the initial Chapter 11 Employment Application to provide for the employment to be nunc pro tunc to February 20, 2009, the date the initial application and affidavit were filed.
Notice of the Amended Chapter 11 Employment Application was provided to the United States trustee, the debtor, and the members of the Official Committee of Unsecured Creditors. No objections were filed to the Amended Chapter 11 Application by the deadline. The court entered the amended order granting
nunc pro tunc
relief on April 3, 2009.
Order Granting Application to Employ Evans LeRoy & Hackett, PLLC nunc pro tunc to February 20, 2009
(Doc. No. 238) (“Chapter 11 Employment Order”). The court ordered “that the employment by the trustee of ELH, 920 McCallie Avenue, Chattanooga, Tennessee, (423) 648-7890, as counsel for the trustee is hereby authorized and approved, nunc pro tunc to February 20, 2009; ... and it is further ORDERED AND ADJUDGED that the Application of the Chapter 11 Trustee for Employment of Evans LeRoy & Hackett, PLLC, as special counsel is hereby granted and said attorneys may be compensated and reimbursed pursuant to
D. Conversion
After over a year in Chapter 11 and upon the motion of the Chapter 11 trustee, the court converted the case to one under
E. Fourth Fee Application
On September 22, 2010, Mr. LeRoy filed the Fourth Application for Interim Compensation of F. Scott LeRoy, Counsel for C. Kenneth Still, Chapter 11 trustee. Fourth Fee Application (Doc. No. 850). It requested $29,760 for fees and proposed a holdback of 10%. It covered the period from April 1, 2010 to June 14, 2010. Parties were given 21 days to object. The Fourth Fee Application was signed “Le-Roy & Bickerstaff PLLC by F. Scott Le-Roy.” Paragraph 1 states that “[t]he Trustee filed an application to employ Mr. LeRoy as attorney to represent the Trustee.” Fourth Fee Application at ¶ 1. Paragraph 2 refers to “F. Scott LeRoy’s application.” Id. at ¶ 2. The remaining paragraphs refer to “Applicant,” which is not a defined term in the pleading.
Notice of the Fourth Fee Application was given electronically to Harry Cash who had appeared on behalf of GKH in addition to other creditors who had appeared in the case and by mail to ten other creditors. No objection to the application was filed. The court entered the order submitted with the Fourth Fee Application on October 26, 2010, after the deadline for objections had passed. Order Granting Application for Compensation (Doc. No. 913). Paragraph 1 of the Order stated that “F. Scott LeRoy of L & B seeks compensation.... ” Fourth Fee Order at ¶ 1 (emphasis added). The decretive paragraph approved “the request for compensation by F. Scott LeRoy, LeRoy & Bick-erstaff, PLLC.” Id. at p. 2.
F. Mr. LeRoy’s Firm Affiliations
Based on his testimony at the hearing, Mr. LeRoy withdrew from ELH in mid May of 2010, approximately a month before his work for the Chapter 11 trustee was completed. He practiced as a solo practitioner from mid-May until June 22, 2010. At that time he signed articles of organization for a new entity, LeRoy & Bickerstaff, PLLC (“L & B”), and became a member of that professional limited liability corporation. The new firm was composed of two members, Mr. LeRoy and Ms. Bickerstaff, who was previously an employee of ELH. Certified records from the Office of the Secretary of State of Tennessee reflect that on July 28, 2010, L & B was “formed or qualified to do business in the State of Tennessee on 7/28/2010.” Hearing Exhibit 2 at p. 1. Mr. LeRoy could not provide an explanation of why there was a delay of almost a month between the signing of the articles of organization and the acknowledgment of the entity’s existence by the Tennessee Secretary of State. On January 3, 2011, L & B adopted an amendment to change its name to LeRoy Hurst & Bickerstaff, PLLC. Id. at 3. None of the work involved in the current contested matters was performed after the date of the name change.
ELH continued in existence after Mr. LeRoy’s withdrawal. It changed its name first to Evans & Hackett, PLLC on May 19, 2010, then to Evans Harrison & Hack-ett, PLLC (“EHH”), on June 3, 2010, and it changed its address from 920 McCallie Avenue to One Central Plaza.
Hearing Exhibit 1.
Mr. LeRoy testified that in his withdrawal agreement, he had agreed with his former associates that the fees from the
G. Employment as Chapter 7 Attorney
On July 1, 2010, for the third time in the case, Mr. LeRoy filed an application for employment — this time as attorney for the Chapter 7 trustee. Chapter 7 Employment Application (Doc. No. 804). The first version of the Chapter 7 employment application contained several typographical errors. It named Mr. LeRoy’s firm as Evans LeRoy & Bickerstaff, PLLC, (“ELB”) instead of L & B; it named L & B rather than ELH as the firm that had been employed to represent the Creditor’s Committee; and it provided that objections be sent to ELH, although the address given was Mr. LeRoy’s. • Later that same day an amended application was filed which changed the name of the firm from ELB to L & B. Amended Chapter 7 Employment Application (Doc. No. 805). The body of the Amended Chapter 7 Employment Application stated that a conversion had occurred and the Chapter 7 trustee had used Mr. LeRoy and ELH in the Chapter 11 and had selected Mr. LeRoy and L & B to represent the trustee in the converted case. Id. at p. 2.
The Amended Chapter 7 Application provided notice and an opportunity for hearing pursuant to E.D. Tenn. LBR 9018 — 1(h) and provided twenty-one (21) days to object. The Amended Application did not correct the name and address for serving copies of objections, indicating that they were to be served on “Mr. LeRoy at Evans, LeRoy and Hackett, PLLC [sic] at 920 McCallie Ave.” Notice was sent to the United States trustee, the debtor, and the former members of the Official Committee of Unsecured Creditors. In addition, parties who were on the court’s electronic notice list also received notice. Mr. Harry Cash on behalf of GKH was one of those parties. No party filed an objection to the Amended Chapter 7 Employment Application on or before July 22, 2010.
On August 3, 2010, the court rejected the order, and noted that no verified statement (“Chapter 7 Affidavit”) had been filed with the Amended Chapter 7 Employment Application. Rejected Order re: Chapter 7 Employment Application (Doc. No. 815). No Chapter 7 Affidavit was filed until several months later. When filed, the only difference between the Chapter 7 Affidavit and the prior two verified statements by Mr. LeRoy was the deletion of Regions Bank and SunTrust Bank.
4
Chapter 7 Affidavit
(Doc. No. 958, filed on December 21, 2010). On the same day that he filed the Chapter 7 Affidavit, Mr. LeRoy tendered an order granting the Amended Chapter 7 Employment Application which added that the employment would be authorized
nunc pro tunc
to the filing date of the Amended Chapter 7 Employment Application. The original proposed order attached to the Chapter 7 Employment Application had not contained the
nunc pro tunc
language.
Chap
H. Efforts For the Estate and Prior Applications
Since his first appointment, Mr. Still has investigated the various assets and holdings of the debtor, seeking to administer the property of the estate and recover assets. The debtor was a wealthy individual with many complicated business ventures. Mr. LeRoy has been the trustee’s attorney for the past 24 months. He and Mr. Richard Banks, counsel for the debtor and additional special counsel for the Chapter 7 trustee, have been recognized by all of the parties as the two individuals who have represented Mr. Still in the case. Their efforts have generated a benefit to the estate, and the Chapter 7 trustee currently has just over $1,000,000 on hand.
Since Mr. LeRo/s initial employment as counsel for the Chapter 11 trustee, he has applied for and received the following attorney fees in the Chapter 11: (a) 1st App. Period of 2/20/09 — 5/20/09: $41,088.75 granted 7/15/09 w/10% holdback (Doc. No. 424); (b) 2nd App. Period of 6/1/09— 9/30/09: $48,082.50 granted 11/24/09 w/10% holdback (Doc. No. 565); (c) 3rd App. Period of 10/1/09 — 3/31/10: $34,448.75 granted 5/20/10 w/10% holdback (Doc. No. 713); and (d) 4th App. Period of 4/1/10 — 6/14/10: $29,760.00 granted 10/27/10 w/10% hold-back (Doc. No. 913). The holdbacks for the Chapter 11 period total approximately $15,300. The first three orders granted fees to “F. Scott LeRoy, Evans LeRoy & Hackett.” The fourth granted fees to “F. Scott LeRoy, LeRoy & Bickerstaff.”
I. Chapter 7 Fee Application (“Fifth Fee Application”)
On November 24, 2010, Mr. LeRoy also applied for fees and expenses of $25,224.00 incurred in representing the Chapter 7 trustee. Fifth Fee Application, Doc. No. 935. It covered the period from 6/15/10— 9/30/10. The pleading requested an order awarding fees for services rendered by Mr. LeRoy, specifically. Fifth Fee Application at 1. It states that the Chapter 7 trustee “filed an application to employ F. Scott LeRoy as attorney to represent the Trustee on February 20, 2009.” Id. at 1. Beginning with the second paragraph, the Fifth Fee Application refers to “the applicant” which is not a defined term in the document. The pleading is signed “LeRoy & Bickerstaff, PLLC by F. Scott LeRoy.” Id. at 3. No designation is made in the signature line as to whether the firm is the Applicant or counsel for Mr. LeRoy.
Mr. LeRoy provided notice of the Fifth Fee Application to parties in interest that they had twenty-one (21) days to object. The Fifth Fee Application cоntained a certificate of service that included GKH and counsel for Mrs. Rebecca McKenzie. No objection was filed to the Fifth Fee Application on or before the deadline of December 15, 2010. On December 23, 2010, the court authorized the payment of the fees requested in the Fifth Fee Application to L & B subject to a 10% holdback. Order Approving Compensation (Doc. No. 963).
On December 21, 2010, following the filing of the verified statement and amended Chapter 11 order on the Employment Application, GKH filed an objection to the Amended Chapter 11 Employment Application. Objection to Employment of F. Scott LeRoy (Doc. No. 961). As a result of that objection, the court set the Amended Chapter 11 Employment Application and GKH’s objection for hearing on January 13, 2011.
On January 5, 2011, GKH filed a Motion to Alter or Amend or for Relief from Order. (Doc. No. 967) (“Fifth Fee Application Motion”). GKH sought to have the order granting the Fifth Fee Application
On January 6, 2011, GKH fíled a Motion to Reconsider or For Relief from Order seeking to have the order granting the Fourth Fee Application set aside on the basis that it also provided nunc pro tunc relief. (Doc. No. 969) (“Fourth Fee Application Motion”). These motions were set for hearing January 27, 2011, and continued to February 15, 2011.
On January 26, 2011, Mrs. Rebecca McKenzie filed a document which she entitled Objection by Rebecca McKenzie to Scott Leroy’s [sic] fees. (Doc. No. 991). The Chapter 7 trustee’s response to Mrs. McKenzie’s objection asserted that she lacked standing to object to the fee application because of a previous settlement agreement between Mrs. McKenzie and the trustee.
These matters came on for hearing on February 15, 2011. Counsel for C. Kenneth Still, the United States trustee, the debtor, Mrs. McKenzie, and GKH appeared. Mr. LeRoy and Mr. Still testified. At the hearing on Fеbruary 15, 2011, Mrs. McKenzie announced that she had concerns about events in the case but no longer believed that those concerns were related to Mr. LeRoy’s fees. The court will treat her objection as withdrawn and therefore there is no need to address the standing issue.
GKH has standing to bring these motions and objection because it is a creditor in this case holding a claim for $750,000 of which $385,000 is for unpaid legal services provided to the debtor. Claims Docket, Claim no. 86-2, filed February 9, 2011. GKH has also made a claim against Mr. Still and Mr. LeRoy, among others for malicious prosecution based on litigation previously filed by Mr. Still against the firm. See, Still v. Nelson Bowers II et al, Adv. No. 10-1407; Grant Konvalinka & Harrison v. Banks et al, Adv. No. 11-1016.
II. Analysis
The court will consider the relief requested in the chronological order in which Mr. LeRoy provided the services to the estate: first, the Fourth Fee Application Motion; second, the Objection to the Employment of Mr. LeRoy; and finally, the Fifth Fee Application Motion. This court has jurisdiction under
A. Fourth Fee Application Motion
GKH asks the court to reсonsider the approval of the Fourth Fee Application. The motion states that “the approval of the fees requested in the Fourth Fee Application for Compensation to the Trustee’s counsel was improperly entered and should be set aside pursuant to
On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect.
A
The decision to grant a
In deciding whether relief is warranted, three factors are relevant: (1) whether the party seeking relief is culpable; (2) whether the party opposing relief will be prejudiced; and (3) whether the party seeking relief has a meritorious claim or defense. Culpability is “framed” by the specific language of the rule; i.e., a party demonstrates a lack of culpability by demonstrating “mistake, inadvertence, surprise, or excusable neglect.”
Id.
at 613 (citing
United Coin Meter v. Seaboard Coastline R.R.,
In applying these factors to the case at hand, the court will look first at whether there is any “culpability.” The “culрability” cited by GKH in this case is the court’s. GKH argued at the hearing that the court made a mistake, and awarded fees to someone or something whose employment had not been approved by the court. Such an award would be contrary to the statutory requirements of the Bankruptcy Code.
The Bankruptcy Code authorizes payment to those professionals who have been approved by the court.
Mr. LeRoy counters those contentions by arguing that he was individually employed and that the fees were awarded to him and the name of the firm should not be controlling. L & B was listed because it was the name of the firm of which he was a member at the time he filed the Fourth Fee Application.
The court must determine who was employed and whom did the Fourth Fee Order authorize to be paid. The Fourth Fee Order did not authorize ELH to be paid. That firm’s name does not appear in the Fourth Fee Application or Fourth Fee Order. Therefore, the court must determine whether Mr. LeRoy was hired individually. If he was not, then any payment to him was not approved and was a mistake.
The Federal Rules of Bankruptcy Procedure contemplate the employment of both firms and specific attorneys,
i.e. “a
named attorney.”
This case presents the court with the opposite fact pattern. The Chapter 11 Employment Order unquestionably approved the employment of a firm by name, but it is the individual attorney, a former member of that firm, who is seeking to be paid.
Based on the pleadings filed in the case, the court finds that the Fourth Fee Order incorporated Mr. LeRoy’s individual employment by reference by providing that the application was approved and that “said attorneys may be compensated and reimbursed.” Chapter 11 Employment Order at p. 2. Despite the application’s title, the Chapter 11 Employment Application sought to employ Mr. LeRoy and the firm of ELH. Chapter 11 Employment Application at p. 2 (emphasis added). The application repeats the phrase of “Mr. Le-Roy and ELH” in eight different places, including the prayer for relief.
After the entry of the Chapter 11 Employment Order, each order authorizing compensation in the Chapter 11 authorized the payment to Mr. LeRoy with a reference to the firm of which he was a member, not to the firm. Having determined that Mr. LeRoy was employed individually in the case, the court must address who was authorized to be paid in the Fourth Fee Application Order.
The Fourth Fee Application states that it is “Mr. LeRoy’s application” and that “he is the attorney for the estate.”
Fourth Fee Application
at p. 2. In retrospect, it would have been clearer for Mr. LeRoy to
The mention of L & B in the application and order require the court to address whether the party being paid is L & B which was not an authorized firm. In reviewing the applicable pleadings the court notes that despite the appearance of the name L & B, the application was for Mr. LeRoy individually. The order is drafted with the same distinction and does not award fees to a firm. To the extent that Mr. LeRoy had an arrangеment to share those fees with either members of his former firm or his new firm, he was not required to disclose the specifics of those arrangements.
The court’s decision should not be construed as a ruling that changing firms does not require a new application. A new application would be required if the new firm had different members.
See In re Maller Restaurant Corp.,
For these reasons, the court does not find that fees were awarded to L & B, but rather to Mr. LeRoy, individually. The use of the name of his new firm in the context in which it was used does not change the party who was being paid. The fact that the new firm is composed of parties previously disclosed to the court alleviates any policy concern which the court might have about the existence of the new affiliation. Having found that fees were only awarded to the individual and that he was employed from the beginning, the court does not need to address whether retroactive relief has been properly requested or warranted for Mr. LeRoy or L & B.
With respect to the second factor in the
The court does not find thаt refusing to vacate its order will be detrimental to the policies of the Bankruptcy Code regarding procedures for the employment of professionals. This is not a situation where the requirements of the Bankruptcy Code were ignored. Mr. LeRoy’s employment comes as a surprise to no one involved in these matters. The Chapter 11 Employment Application was filed timely with a verified statement. No issues related to eligibility under
With respect to the third factor, a “meritorious defense”, nеither GKH nor any other party in interest filed a timely objection to the Fourth Fee Application. The one objection that GKH has raised — that payment should not have been made to Mr. LeRoy and/or L & B — has been fully addressed and found not to be sufficiently “persuasive” to cause the court to set aside the Fourth Fee Order.
For the forgoing reasons, the Fourth Fee Application Motion is DENIED.
B. Objection to Nunc Pro Tunc Employment
The second matter for the court is whether the court should authorize the employment of Mr. LeRoy and L & B in the Chapter 7 retroactively. The court has not entered an order in the case authorizing this employment, but it has entered an order approving the fee application. If the employment is not authorized retroactively, the fee application will have to be vacated. To the extent that the period in which the fees were incurred does not correspond to the period of employment, the Fifth Fee Application Order will have to be modified.
The purpose of
The language of
There has not been a Sixth Circuit opinion on the appropriate standard for the application of retroactive relief.
Hunter Savings Assoc. v. Baggott Law Offices Co., L.P.A. (In re Georgetown of Kettering, Ltd.),
The United States District Court for the Eastern District of Tennessee has reviewed the issue of
nunc pro tunc
orders in bankruptcy. The District Court adopted the factors set forth by the Bankruptcy Court for the Middle District of Tennessee in
In re Twinton Properties Partnership,
The factors set forth in In re Twinton Properties Partnership and adopted by Judge Collier in In re Aultman Enters, are as follows:
1. The debtor, trustee or committee expressly contracted with the professional person to perform services which were thereafter rendered;
2. The party for whom the work is performed approves the entry of the nunc pro tunc order;
3. The applicant has provided notice of the application to creditors and parties in interest and has provided an opportunity for filing objections;
4. No creditor or party in interest offers reasonable objection to the entry of the nunc pro tunc order;
5. The professional satisfied all the criteria for emplоyment pursuant to11 U.S.C. § 327 and Rule 2[014] of the Federal Rules of Bankruptcy Procedure at or before the time services were actually commenced and remained qualified during the period for which services were provided;
6. The work was performed properly, efficiently, and to a high standard of quality;
7. No actual or potential prejudice will inure to the estate or other parties in interest;
8. The applicant’s failure to seek pre-employment approval is satisfactorily explained; and
9. The applicant exhibits no pattern of inattention or negligence in soliciting judicial approval for the employment of professionals.
In applying the
In re Twinton Properties
factors in this case, Mr. Still testified that he had employed Mr. LeRoy to perform the services which were rendered. He did not object to the entry of a
nunc
Mr. LeRoy and L & B have satisfied the employment criteria in both the statute and the rule and have remained eligible to be employed as special counsel at all times during the period of the Fifth Fee Application. Furthermore, based on the lack оf objections filed in the case, the testimony of Mr. Still and the statements of Mr. Sonnenburg, Assistant for the Unites States Trustee, the work has been performed to the satisfaction of the Chapter 7 trustee, the United States trustee, and the creditors in the case, except for GKH and initially, Mrs. McKenzie. The estate would suffer no actual or potential prejudice from allowing the fees; and, in fact, there would be an unjust windfall to the estate if the Chapter 7 trustee’s counsel is not paid for the services rendered. Mr. LeRoy sought pre-employment approval as required by the Bankruptcy Code. His only failure was in not filing in July 2010 a verified statement which contained disclosures he had already made two other times in the case.
The reason for that failure is the most difficult factor for Mr. LeRoy to meet. One of the
Twinton Properties
factors is a satisfactory explanation of the failure to comply. GKH contends that this is the primary factor the court should consider and relies on the standard expressed in the First Circuit decision in
In re Jarvis
for the proposition that
“nunc pro tunc
authorization may only be approved upon a finding of extraordinary circumstances.” In
In re Jarvis,
the court found that simple failure to file an application was not such an extraordinary circumstance.
In re Jarvis,
In this case, Mr. LeRoy testified that he was leaving ELH at the time the court noted the omission of the verified statement with his application. The logistics of his withdrawal from his previous law firm presented a challenge to his practice. He testified that he did not realize that his employment application had not been granted until he was preparing his Fifth Fee Application. If this explanation were the only circumstance which the court had before it, the court would be hard pressed to find “extraordinary circumstances.” However, this case is not a situation in which a professional did all of the work and filed an application for the first time when he was finished, as the realtor did in
In re Jarvis.
Here, the record contains two other verified statements by Mr. Le-Roy on his and ELH’s behalf which had been approved without objection by GKH
This case has involved dozens of entities and properties and the docket contains over one thousand entries. With this level of complication, corrections to filings to change docket numbers and names have been all too common. “Because bankruptcy is a mass-production operation, errors and oversights are inevitable.”
In re Singson,
In conclusion the court finds that
In re Twinton Properties
does not require an extraordinary explanation of the failure to file a complete application, only a satisfactory one. What is a satisfactory explanation will depend on the other circumstances of the case. The court’s analysis of the
In re Twinton Properties
factors in this case permits the court to exercise its discretion and to retroactively approve the employment of Mr. LeRoy and the firm of L & B. In light of the prior verified statements and the disclosure contained in the Chapter 7 Application, the court finds that this case is one in which this court’s “blind adherence to procedural formalities would work an injustice.”
In re Aultman Enters.,
C. The Motion to Alter or Amend or for Relief From Order
On January 5, 2010, GKH filed a Motion to Alter or Amend or For Relief From Order regarding the Order granting the Fifth Application of F. Scott LeRoy and LeRoy & Bickerstaff for Compensation. The Fifth Fee Application, filed on November 24, 2010, sought compensation for
Having retroactively approved the employment to July 1, 2010, the court must look to see whether there is any mistake that should be remedied as a result of that holding and the evidence presented at the hearing regarding the formation of L & B. Rule 9023 provides that the court may alter or amend a judgment.
See
GKH raised whether L & B could be approved and paid based upon that approval since it was not “in existence” at the time the application was filed. This issue is bаsed on the Secretary of State’s records showing that L & B was formed on July 28, 2010.
Hearing Exhibit 2
at p. 1. TenmCode Ann. § 48-203-102 provides that a limited liability company’s “existence begins when the articles are filed with the secretary of state.”
From its review of the Fifth Fee Aрplication, the court has determined that there is a mistake which should be remedied. The retroactive employment of Mr. LeRoy and L & B is effective as of the day the Chapter 7 Employment Application was filed. That was July 1, 2010. The application contains time worked for approximately two weeks before that date. Mr. LeRoy did not seek retroactive relief back to the date of the conversion, and he is therefore not entitled to be compensated for time prior to his employment. That time represents 8.1 hours and $1944.00 in fees. The fees allowed in the order will be reduced by that amount. To the extent that fees have already been paid, Mr. Le-Roy or L & B shall reimburse the estate 90% of $1944.00.
There was no timely filed objection to the substance of the fee application. Ex
III. Conclusion
For the foregoing reasons, the Fourth Fee Motion is denied. GKH’s objection with respect to lack of court approval is overruled. The employment of F. Scott LeRoy and L & B is approved retroactively to July 1, 2010. The Fifth Fee Application Order will be modified to reflect the reduction for the time expended between June 15, 2010 and June 30, 2010. To the extent that fees have been paid in excess of the amount approved, Mr. LeRoy will be ordered to reimburse the estate for that excess. A separate order will enter.
Notes
. The parties refer to this fee application as the Fifth Fee Application, although it is actually the first fee application filed in the Chapter 7 proceeding. For ease of reference, the court will use the title given to the fee application by the parties.
. The three petitioning creditors were FSG Bank, Community Trust & Banking and First Volunteer Bank of Tennessee. The petitioning creditors were represented by Richard Klinger, Mr. LeRoy and Douglas Johnson, respectively.
. Mr. LeRoy's verified statement disclosed that his firm represented Community Trust & Banking Co., which was the creditor Mr. Le-Roy represented in the involuntary, as well as Regions Bank and SunTrust Bank, other creditors in the case. Chapter 11 Employment Application, Affidavit of F. Scott LeRoy at p. 2 (Doc. No. 138-1).
. Presumably, these clients were not included in the Chapter 7 Affidavit because they (a) were clients of either Mr. Evans or Mr. Hacked: who were not a members of L & B, and (b) Mr. LeRoy had no connections with these clients. No issue has been raised in the case at this time that Mr. LeRoy had a connection to either of these two banks. He acknowl edged that he had represented Community Trust & Banking Co. and disclosed that representation in his verified statement. Chapter 7 Affidavit at p. 2. The contingency for that conflict was addressed in the Chapter 7 Employment Application. Chapter 7 Employment Application at p. 4, ¶ 9.
. The court notes that the record reflects that GKH tendered an order separately from its motion but incorrectly linked its order to a different motion located at docket entry no. 963 in the record. As such, on January 7, 2011, the clerk’s office had to re-link the order to the motion to which it applied, which was docket entry no. 967. The docket text explains that the re-linking procedure was "to correct [the] relationship from 963 to 967.” (Doc. No. 970).
. GKH submitted a certified copy of records from the Secretary of State’s office that L & B’s articles of incorporation were not filed until July 28, 2010, approximately six weeks after the Chapter 11 ended on June 14, 2010.
. The court recognizes the complications Mr. LeRoy faced in describing his status for the month of June 2010. He could not have filed the application using the name of ELH since he was no longer a member, and ELH no longer had a contractual right to seek payment because of the withdrawal agreement with Mr. LeRoy.