McCutchen, Doyle, Brown & Enersen v. Official Committee of Unsecured Creditors (In Re Weibel, Inc.)McCutchen, Doyle, Brown & Enersen v. Official Committee of Unsecured Creditors (In Re Weibel, Inc.)
OPINION
I
The court denied the appellant’s application to be employed as counsel for the debtor in possession on the basis that counsel was not disinterested. Later, the appellant filed a fee application requesting administrative claim status for the fees it charged in providing services to the debtor in possession. The court denied this application.
We AFFIRM, but base our ruling on grounds other than those set forth in the bankruptcy court’s opinion found at
In re Weibel, Inc.,
II
FACTS
Weibel, Inc. (“Weibel”) was a client of long standing with the law firm of McCutchen, Doyle, Brown & Enersen (“McCutchen”). On May 5, 1993, Weibel filed for protection under Chapter 11 of the Bankruptcy Code (“Code”). Four days after the petition was filed, and pursuant to local practice in the Northern District of California, McCutchen submitted its Motion of Debtor to Employ McCutchen (“Motion”) to the Office of the United States Trustee (“United States Trustee”).
The United States Trustee objected to the Motion, arguing that McCutchen was not disinterested under Code Section 101(14)(D) because a partner of the firm had been on Weibel’s board of directors until the month before the bankruptcy filing; furthermore, McCutchen currently represented or had represented several creditors of Weibel. The United States Trustee recommended that McCutchen give notice of the Motion to the twenty largest creditors and those requesting special notice.
On May 21, 1993, McCutchen obtained an order shortening time and brought its Motion on for hearing on June 3. Weibel’s largest creditor, Pacific Coast Farm Credit Sendees (“Pacific”), filed an objection to the Motion. Pacific reiterated the United States Trustee’s argument and also alleged that McCutchen had been Weibel’s largest unsecured creditor, but had agreed to look to the principals of Weibel for payment of outstanding bills. Furthermore, Pacific asserted that McCutchen continued to represent the individual principals in other matters, it had received approximately $32,000 in payments prepetition which appeared to be preferential payments and it had converted Pacific’s cash collateral when it took a retainer from Wei-bel of $100,000. Based on these allegations, Pacific argued that McCutchen had an actual
The bankruptcy court denied the Motion. Within a month substitute counsel was brought into the case with court approval. On August 18, 1993, McCutchen filed its Application for Compensation and Reimbursement of Expenses (“Fee Application”) requesting $127,699 in fees and $9,877.74 in costs. Both Pacific and the Committee opposed the Fee Application.
At the hearing on September 22, 1993, the bankruptcy court stated that, since MeCutehen had never been employed under Section 327, the court did not have the discretion to award fees. The court entered the order denying the Fee Application on November 30,1993 (“Order”). The Order reiterated the court’s ruling that, as a matter of law, it did not have discretion to award any compensation. The court then entered an Amended Memorandum of Decision on December 1, 1993. In it, the court ruled it did have discretion to award fees. However, the court found McCutchen had unreasonably delayed in bringing the Motion on for hearing and that McCutchen clearly was not disinterested because of the partner’s position as director of Weibel. Therefore, according to the court, an award of fees was inappropriate in this case.
Ill
STANDARD OF REVIEW
The Panel reviews an award of fees under an abuse of discretion standard.
In re
Shirley,
IV
DISCUSSION
On appeal, McCutchen essentially makes three arguments: (1) Section 330 specifically provides for compensation to the debtor’s attorney apart from professionals employed under Section 327; (2) Section 503(b)(1)(A) 1 allows for compensation; and (3) its claim should be allowed based on quantum meruit. The bankruptcy court applied a combination of quantum meruit and Section 503(b)(1). However, we rule that neither that theory, nor any part of the Code, provides a basis for allowing fees under these facts.
A. Quantum Meruit and In re Shirley
The Panel first addresses McCutchen’s argument that it should be compensated under the theory of
quantum meruit.
The bankruptcy court, citing
Matter of Grabill Corp.,
The BAP has previously stated that:
[ c]ourt approval of the employment of counsel for a debtor in possession is sine qua non to counsel getting paid. Failure to receive court approval for the employment of a professional in accordance with § 327 and Rule 2014 precludes the payment of fees.
In re Shirley, supra,
B. Sections 330 and 503(b)(2)
Courts generally rely on Section 503(b)(2) as a basis for granting administrative status to compensation to professionals such as MeCutchen. That Section grants administrative status to claims for “compensation and reimbursement awarded under section 330(a) of this title.” If Section 330 allows for compensation to MeCutchen, then it may have an administrative claim under Section 503(b)(2).
Section 330(a) states that “the court may award to a trustee, to an examiner, to a professional person employed under section 327 or 1103 of this title, or to the debtor’s attorney” reasonable compensation for actual and necessary services, (emphasis added). Without question, MeCutchen does not qualify as a professional person employed under Section 327. Instead, MeCutchen argues that the underscored language above allows it to receive compensation because it was the debtor’s attorney. 2
Section 330 places attorneys into two categories — those employed pursuant to Section 327, and those who serve as the debtor’s attorney. Section 327 states that the trustee, with court approval, may employ one or more attorneys or other professional persons. The professional can be employed only if it does not hold an interest adverse to the estate and it is disinterested. The professional is employed to act on behalf of the bankruptcy estate, not the debtor or any creditor.
When the debtor is a debtor in possession, it essentially steps into the shoes of the trustee and has control over the bankruptcy estate. See Section 1107. The professional, employed now by the debtor in possession, is still expected to act only in the best interests of the estate. Therefore, court approval of its employment is necessary. If the debtor is not in possession, these same concerns do not come into play. Counsel for the debtor then, to the extent it gets involved in the case, represents the debtor and not the estate or the creditors. Therefore, court approval of employment is not necessary.
The reference to the debtor’s attorney found in Section 330 simply acknowledges that there will be instances where the debtor is not a debtor in possession, but the debtor’s counsel still confers a benefit upon the estate for which it should be compensated.
3
See, e.g., In re Xebec,
C. Section 503(b)(1)
If compensation cannot be awarded under Section 503(b)(2), then the question is whether it can be awarded under Section 503(b)(1). MeCutchen argues that it can. However, such an interpretation of Section 503 renders Section 503(b)(2), as well as Section 327, “nugatory.”
See F/S Airlease II, Inc. v. Simon,
For an attorney, the test for receiving compensation would appear nearly identical under both Sections. It is reasonable then, to construe Section 503(b)(2), with its specific reference to compensation to professionals under Section 330, as the only part of Section 503(b) under which such professionals can receive compensation.
D. Guidance from Nunc Pro Tunc Cases
Finally, we take further guidance from those cases in which a professional has applied for “nunc pro tunc” or retroactive employment. Typically, in such cases the professional neglects to obtain court approval of employment prior to rendering services to the estate. At some later point, often in connection with a fee application, the professional finally moves for court approval of its employment. The decisions in this Circuit make it clear that such court approval of employment should be limited to exceptional circumstances.
In re THC Financial Corp.,
y
CONCLUSION
When a debtor is a debtor in possession, professionals it desires to employ must be disinterested pursuant to Section 101(14). If the bankruptcy court finds the professional is not disinterested, the professional cannot receive compensation from the estate. The bankruptcy court did not allow MeCutchen to be employed as counsel for the debtor in possession because MeCutchen was not disinterested. The bankruptcy court’s ruling, that MeCutchen could not be compensated from the bankruptcy estate, is AFFIRMED.
Notes
. Section 503, in pertinent part, provides:
(b) After notice and a hearing, there shall be allowed administrative expenses ..., including—
(1)(A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case;
(2) compensation and reimbursement awarded under section 330(a) of this title.
. This argument does not appear to have been specifically raised below. However, since it involves purely an issue of law and is fully supported by the record, we exercise our discretion to consider it.
See In re Hall, Bayoutree Associates, Ltd.,
. The law under the Bankruptcy Act was essentially the same. An attorney for a debtor in possession was treated as acting as the functional equivalent of the attorney for the trustee or receiver and the appointment had to be approved by the court.
See In re Designaire Modular Home Corporation,