FILED
AUG 06 2014
1 NO FO PUBL A IO
T R IC T N
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-13-1252-TaDKi
)
6 MALCOLM D. OWENS, ) Bk. No. 13-14740-WJ
)
7 Debtor. )
______________________________)
8 )
MALCOLM D. OWENS, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
UNITED STATES TRUSTEE, )
12 )
Appellee. )
13 )
14 Argued and Submitted on June 26, 2014
at Pasadena, California
15
Filed – August 6, 2014
16
Appeal from the United States Bankruptcy Court
17 for the Central District of California
18 Honorable Wayne E. Johnson, Bankruptcy Judge, Presiding
19
Appearances: David Akindele Akintimoye for Appellant Malcolm D.
20 Owens; Noah M. Schottenstein of the Executive
Office for U.S. Trustees for Appellee United
21 States Trustee.
22
Before: TAYLOR, DUNN, and KIRSCHER, Bankruptcy Judges.
23
24
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
1
1 Debtor Malcolm Owens retained David Akintimoye as bankruptcy
2 counsel in a chapter 111 case that culminated in case dismissal.
3 Debtor filed a second chapter 11 case and again sought court
4 approval of Akintimoye’s employment. The bankruptcy court denied
5 the employment application without prejudice; Akintimoye,
6 facially on behalf of Debtor, appealed.
7 We determine that the bankruptcy court did not abuse its
8 discretion in denying the employment application without
9 prejudice; we, thus, AFFIRM.
10 FACTS
11 The Debtor filed a chapter 11 bankruptcy petition; it was
12 his second chapter 11 case in approximately eight months.2 The
13 Debtor previously retained Akintimoye as counsel in his first
14 case. In his second case, he again moved for an order approving
15 Akintimoye’s employment. In support of the employment
16 application, he submitted Akintimoye’s declaration and statement
17 of disinterestedness.
18 The United States Trustee (“UST”) objected, arguing that
19 Akintimoye was not disinterested as he appeared to hold a claim
20 against the Debtor for unpaid legal fees owing from the first
21 case. The UST also asserted that the oral retention agreement
22 between the parties precluded approval of the employment based on
23 § 528 and § 526 and that notice of the application failed to
24
1
Unless otherwise indicated, all chapter and section
25 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
26 2
We exercised our discretion to take judicial notice of the
27 Debtor’s first chapter 11 case and documents electronically filed
in that case. See Atwood v. Chase Manhattan Mortg. Co.
28 (In re Atwood),
293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
2
1 clearly state whether Akintimoye sought compensation under § 328
2 or § 330.
3 Akintimoye, facially on behalf of the Debtor, contested the
4 UST’s objection. He argued that the UST incorrectly assumed that
5 he held a prepetition claim for “post-petition services rendered
6 in the [first] case even though the [employment] application []
7 state[d] otherwise.” ECF No. 34 at 5. Akintimoye pointed out
8 that both his declaration and statement of disinterestedness
9 expressly provided that neither he nor his firm held a
10 prepetition claim against the Debtor or the estate for fees
11 incurred in the first case. As a result, he argued that it was
12 reasonable to infer his intent not to seek compensation in
13 connection with the first case, based on both his declaration and
14 statement of disinterestedness and the fact that he did not file
15 a compensation application in the first case.
16 At the hearing on the matter, Akintimoye clarified that the
17 Debtor sought approval to employ him as chapter 11 general
18 counsel under § 328. The bankruptcy court then indicated that it
19 likely would require additional briefing on the § 328 issue and,
20 accordingly, it was not inclined to rule on the employment
21 application that day. In response, Akintimoye expressed
22 reluctance to continue to work on the case if the issue of his
23 employment was “dicey” and stated that he was not prepared to
24 continue working “in vain.” Hr’g Tr. (May 14, 2013) at 10:17-18,
25 24-25; 11:1-2. The bankruptcy court then denied the application
26 without prejudice and expressly allowed Akintimoye to file
27 another and better supported employment application.
28 The bankruptcy court subsequently entered an order denying
3
1 the employment application. This appeal followed.
2 JURISDICTION
3 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
4 §§ 1334 and 157(b). We have jurisdiction under 28 U.S.C. § 158.3
5 ISSUE
6 Did the bankruptcy court err in denying the application to
7 employ Akintimoye as bankruptcy counsel?
8 STANDARD OF REVIEW
9 We review a decision regarding an application for the
10 employment of a professional for an abuse of discretion. Elias
11 v. Lisowski Law Firm, Chtd. (In re Elias),
215 B.R. 600, 603 (9th
12 Cir. BAP 1997), aff’d,
188 F.3d 1160 (9th Cir. 1999). A review
13 of an abuse of discretion determination involves a two-pronged
14 test; first, we determine de novo whether the bankruptcy court
15 identified the correct legal rule for application. See United
16 States v. Hinkson,
585 F.3d 1247, 1261-62 (9th Cir. 2009) (en
17 banc). If not, then the bankruptcy court necessarily abused its
18 discretion. See
id. at 1262. Otherwise, we next review whether
19 the bankruptcy court’s application of the correct legal rule was
20 clearly erroneous; we will affirm unless its findings were
21
3
The UST moved to dismiss the appeal based on the fact that
22
the order denying the employment application was interlocutory.
23 A BAP motions panel denied that motion as the chapter 11 case had
been dismissed; thus, the order became final.
24 Apparently, the case was subsequently reopened in order to
“fully administrate” the case. Other than an order for stay
25 relief, the case has remained dormant. While it is unclear why
26 the case was reopened (and the entry of a stay relief order in a
dismissed case is slightly mystifying), the order to reopen did
27 not vacate the dismissal order. The case, thus, remains
dismissed and the order denying the employment application
28 remains a final order subject to review.
4
1 illogical, implausible, or without support in inferences that may
2 be drawn from the facts in the record. See
id.
3 DISCUSSION
4 In an individual chapter 11 case, the employment or
5 retention of general bankruptcy counsel is governed by § 327.
6 Section 327(a) provides that, with the bankruptcy court’s
7 approval, a debtor-in-possession (pursuant to § 1107(a)) may
8 employ, among other professionals, an attorney to represent the
9 debtor-in-possession in carrying out statutory duties under the
10 Code. As a condition to approval, the attorney: (1) may not hold
11 or represent an interest adverse to the bankruptcy estate; and
12 (2) must be disinterested. Id.; see also Tevis v. Wilke, Fleury,
13 Hoffelt, Gould & Birney, LLP (In re Tevis),
347 B.R. 679, 687
14 (9th Cir. BAP 2006).
15 When so employed, an attorney is generally entitled to
16 compensation for services rendered to a debtor. The Code
17 addresses attorney compensation in various provisions, including
18 § 328. Employment under § 327 is, however, a condition precedent
19 to compensation under § 328(a). See Michel v. Federated Dep’t
20 Stores, Inc. (In re Federated Dep’t Stores, Inc.),
44 F.3d 1310,
21 1319 (6th Cir. 1995).
22 Importantly, § 328(a) permits a professional to seek
23 pre-approval from the bankruptcy court as to terms and conditions
24 of employment, including compensation, “such that the bankruptcy
25 court may alter the agreed-upon compensation only ‘if such terms
26 and conditions prove to have been improvident in light of
27 developments not capable of being anticipated at the time of the
28 fixing of such terms and conditions.’” Circle K Corp. v.
5
1 Houlihan, Lokey, Howard & Zukin, Inc. (In re Circle K Corp.),
2
279 F.3d 669, 671 (9th Cir. 2002) (quoting 11 U.S.C. § 328(a));
3 see also Friedman Enters. v. B.U.M. Int’l, Inc. (In re B.U.M.
4 Int’l, Inc.),
229 F.3d 824, 829 (9th Cir. 2000) (“There is no
5 question that a bankruptcy court may not conduct a § 330 inquiry
6 into the reasonableness of the fees and their benefit to the
7 estate if the court already has approved the professional’s
8 employment under [] § 328.”). Pre-approval of an attorney’s
9 compensation, thus, is not lightly permitted.
10 To obtain § 328(a) compensation in the Ninth Circuit, the
11 employment application must unambiguously specify that
12 compensation pre-approval is sought under § 328. See
13 In re Circle K
Corp., 279 F.3d at 671. Otherwise, an attorney’s
14 right to payment of fees, by default, is governed by § 330 and
15 subject to § 330 review. See
id.
16 Here, Akintimoye’s continued reference to approval of
17 employment pursuant to § 328 is inapt. It may be a term drawn
18 from the bankruptcy lexicon, but the Code is clear that an
19 attorney’s retention is governed by § 327 while his or her
20 compensation is subject to either § 328 or § 330. Thus, while
21 Akintimoye’s stated goal was § 328 employment, what he really
22 sought was retention under § 327 and compensation under § 328, as
23 opposed to § 330.4
24
25 4
The confusion relating to § 328 is exacerbated by a local
26 Central District of California bankruptcy form. See F2081-1.5
Order RE Motion in Individual Chapter 11 Case For Order Employing
27 Professional, available at
http://www.cacb.uscourts.gov/forms/local_bankruptcy_rules_forms
28 continue...
6
1 A. The bankruptcy court did not abuse its discretion in denying
2 the employment application.
3 Akintimoye argues that the bankruptcy court erred in
4 determining that: the Debtor could not employ Akintimoye if his
5 compensation was based on an hourly fee rate; §§ 528 or 526
6 provided appropriate grounds for denial of employment; and
7 Akintimoye held a prepetition claim against the Debtor. He also
8 contends error in the bankruptcy court’s judicial notice of
9 events in his first case.
10 We conclude that the bankruptcy court did not abuse its
11 discretion in denying retention under § 327 without prejudice
12 based on questions regarding Akintimoye’s lack of
13 disinterestedness. There was also no error in its discussion of
14 the first case as it related to prospective compensation under
15 § 328.
16 1. Denial of the application was not based on §§ 528 and
17 526 or Akintimoye’s request for hourly compensation.
18 As a preliminary matter, we dispense with Akintimoye’s
19 assertions of error based on §§ 528 and 526 and his request for
20 hourly compensation. The record belies Akintimoye’s arguments.
21 At the hearing, the bankruptcy court expressly stated that
22 it was not addressing the § 528 issue (and, by extension, the
23 § 526 issue) unless and until other case status issues were first
24 resolved. The bankruptcy court’s denial of the employment
25
26 4
...continue
27 (last visited Aug. 6, 2014). In particular, the form provides
for only two options as to a debtor’s request to employ a
28 professional: § 327 or § 328.
7
1 application, thus, was not based on the UST’s §§ 526 and 528
2 objections. Nor does the record reflect that the bankruptcy
3 court made any determination as to Akintimoye’s proposed hourly
4 compensation structure, let alone that it denied the employment
5 application for that reason. As a result, we disregard these
6 arguments and do not consider this issue.
7 2. The bankruptcy court did not err in determining that
8 Akintimoye was not disinterested for § 327(a) purposes.
9 The Code defines a “disinterested person” as a person that
10 is not a creditor and “does not have an interest materially
11 adverse to the interest of the estate . . . by reason of any
12 direct or indirect relationship to, connection with, or interest
13 in, the debtor, or for any other reason.” 11 U.S.C. § 101(14);
14 see also First Interstate Bank of Nev., N.A. v. CIC Inv. Corp.
15 (In re CIC Inv. Corp.),
192 B.R. 549, 553 (9th Cir. BAP 1996).
16 Akintimoye alleges error in the bankruptcy court’s
17 determination that he held a prepetition claim against the Debtor
18 and, thus, that he was a creditor of the Debtor. He reiterates,
19 verbatim, his response to the UST’s opposition before the
20 bankruptcy court: that the UST erroneously assumed that he held a
21 prepetition claim and that, based on his declaration and
22 statement of disinterestedness, it was reasonable to infer that
23 he did not intend to claim the unpaid legal fees from the first
24 case.
25 The bankruptcy court correctly determined that Akintimoye
26 was a prepetition creditor. Akintimoye does not dispute that
27 there remained unpaid legal fees from the first case. As a
28 result, he was a prepetition creditor. See 11 U.S.C.
8
1 § 101(10)(A) (creditor is an “entity that has a claim against the
2 debtor that arose at the time of or before the order for relief
3 concerning the debtor.”); § 101(5)(A) (claim is a right to
4 payment). And, therefore, Akintimoye was not disinterested for
5 the purposes of § 327(a). See In re Kings River Resorts, Inc.,
6
342 B.R. 76, 88 (Bankr. E.D. Cal. 2006) (“A professional holding
7 a potential prepetition claim against a debtor . . . is a
8 creditor of the estate and therefore not ‘disinterested’
9 . . . .”). On this record, the bankruptcy court’s finding was
10 not clearly erroneous.
11 The bankruptcy court also found that, insofar as Akintimoye
12 purported to disavow his prepetition claim, he did not
13 sufficiently do so. At the hearing, the bankruptcy court stated
14 to Akintimoye: “I don’t see any way that you can get around the
15 disinterestedness requirement without unconditionally,
16 irrevocably waiving any claim that the Debtor or the estate owes
17 you from the prior case.” Hr’g Tr. (May 14, 2013) at 14:9-12
18 (emphasis added). Again, on this record, the bankruptcy court’s
19 finding was not clearly erroneous.
20 An attorney may rectify disqualifying creditor status by
21 waiver of his or her prepetition claim prior to court approval of
22 employment. See generally In re Pillowtex, Inc.,
304 F.3d 246,
23 253 (3d Cir. 2002) (collecting cases). Waiver of the
24 prepetition claim, however, must be express, unconditional, and
25 unequivocal. See In re Princeton Med. Mgmt. Inc.,
249 B.R. 813,
26 816 (Bankr. M.D. Fla. 2000); In re E. Charter Tours, Inc.,
27
167 B.R. 995, 997 (Bankr. M.D. Ga. 1994).
28 The bankruptcy court here was well within its discretion to
9
1 determine that inferences, all Akintimoye offered, did not
2 constitute an express, unconditional, and unequivocal waiver of
3 his prepetition claim. The bankruptcy court also had discretion
4 to determine that Akintimoye’s representations at the hearing
5 were insufficient and to require additional, formal evidence of
6 Akintimoye’s purported disclaimer. See generally White v. Mintz,
7 Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (In re CK
8 Liquidation Corp.),
408 B.R. 1, 7-8 (1st Cir. BAP 2009)
9 (“Bankruptcy courts are accorded wide discretion in determining
10 whether a conflict of interest exists . . . and appellate courts
11 should give appropriate deference to the bankruptcy court's
12 'front line' position, because the bankruptcy judge is in the
13 best position to gauge the ongoing interplay of factors and to
14 make what is often a very fact driven judgment call.”) (internal
15 citation omitted).
16 Based on the foregoing, the bankruptcy court did not clearly
17 err in finding that Akintimoye held a prepetition claim or that
18 he failed to clearly and unconditionally waive the claim. It is
19 significant that the bankruptcy court offered to continue the
20 matter to allow Akintimoye to supply an unconditional waiver.
21 Akintimoye, however, declined this opportunity and, indeed,
22 affirmatively requested denial. Even then, the bankruptcy court
23 denied the application without prejudice and invited Akintimoye
24 to file a more complete employment application and express
25 waiver. Here, the bankruptcy court did not abuse its discretion.
26 3. On this record, the bankruptcy court’s reference to the
27 first case did not constitute error.
28 Akintimoye finally contends that the bankruptcy court erred
10
1 in considering the first case (and dismissal therein) when
2 evaluating the employment application. We disagree.
3 The record shows that the bankruptcy court emphasized
4 Akintimoye’s need to prove that the second chapter 11 case was
5 not simply a rehash of the first case, which it described as
6 “fruitless and only served to delay creditors.” Hr’g Tr.
7 (May 14, 2013) at 15:12-14. It stated to Akintimoye:
8 The prior Chapter 11 case [] was not fruitful. Nothing
happened in the case except the Court had to deal with
9 about a dozen motions for relief from stay. There was
no plan filed. There was no disclosure statement
10 prepared. There were no motions that I can recall that
were filed at all.
11
It appears that you filed the [first] case just to park
12 [the Debtor] there for a year and get the benefit of
the automatic stay. That’s not what Chapter 11 is for.
13 And the Court would be -- well, the Court is currently
unconvinced that we won’t have a repeat of that this
14 time.
15
Id. at 10:3-13.
16 As previously discussed, an attorney’s employment or
17 retention is approved by the bankruptcy court pursuant to § 327.
18 Our review of the record makes clear that the bankruptcy court’s
19 discussion of the first case related to prospective compensation
20 under § 328, not proposed employment under § 327. It questioned
21 whether Akintimoye was competent to represent the Debtor in the
22 second case based on the events in the first case culminating in
23 case dismissal. In this respect, the bankruptcy court was
24 addressing the reasonableness of the terms and conditions of
25 Akintimoye’s prospective compensation as general bankruptcy
26 counsel and, in particular, the appropriateness of limiting its
27 ability to review compensation by allowing compensation under
28 § 328, as opposed to § 330.
11
1 Given that the bankruptcy court denied the employment
2 application based on lack of disinterestedness under § 327, it
3 was not required to address § 328 and reasonableness of
4 compensation. Its concerns, however, were reasonable. Further,
5 its comments were relevant to a future employment application
6 that the bankruptcy court’s denial without prejudice expressly
7 allowed. This discussion did not constitute error.
8 CONCLUSION
9 Based on the foregoing, we AFFIRM the bankruptcy court.
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