DocketNumber： 94-2215
Filed Date： 4/28/1995
Status： Precedential
Modified Date： 9/21/2015
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
_________________________
No. 94-2215
IN RE: DONALD JARVIS and JOYCE JARVIS,
Debtors.
__________________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Francis J. Boyle, Senior U.S. District Judge] __________________________
__________________________
Before
Selya, Circuit Judge, _____________
Bownes, Senior Circuit Judge, ____________________
and Boudin, Circuit Judge. _____________
__________________________
Andrew S. Richardson, Trustee in Bankruptcy, with whom ______________________
Boyajian, Harrington & Richardson was on brief, for appellant. _________________________________
Robert D. Wieck, Special Counsel for the Estate, with whom _______________
MacAdams & Wieck, Inc. was on brief, for appellees. ______________________
__________________________
April 28, 1995
__________________________
SELYA, Circuit Judge. Under 11 U.S.C. 327(a) and SELYA, Circuit Judge. _____________
Fed. R. Bankr. P. 2014(a), a Chapter 11 trustee may employ
professionals, with the bankruptcy court's approval, to assist
him in fulfilling his duties.1 In this appeal, we uphold a
ruling denying an afterthought application for the employment of
a professional. In the process, we address two questions of
novel impression in this circuit. First, may a bankruptcy court
approve a professional's employment when no application is filed
until after the services in question have been rendered? Second,
if belated applications are cognizable at all, what legal
standard should the bankruptcy courts apply in passing upon them?
We hold, in general concordance with several other
circuits, that a bankruptcy court may grant such a post facto ____ _____
application, but only if it can be demonstrated (1) that the
employment satisfies the statutory requirements, and (2) that the
____________________
1The statute provides that
the trustee, with the court's approval, may
employ one or more attorneys, accountants,
appraisers, auctioneers, or other
professional persons, that do not hold or
represent an interest adverse to the estate,
and that are disinterested persons, to
represent or assist the trustee in carrying
out the trustee's duties . . . .
11 U.S.C. 327(a) (1988). Bankruptcy Rule 2014(a) implements
the statute. It provides in pertinent part that a trustee's
application for the employment of a professional person pursuant
to section 327(a) shall state, inter alia, "the specific facts _____ ____
showing the necessity for the employment, the name of the person
to be employed, the reasons for the selection, the professional
services to be rendered, [and] any proposed arrangement for
compensation . . . ." Although the statute and the rule operate
in tandem, we shall for simplicity's sake refer mainly to the
former.
2
delay in seeking court approval resulted from extraordinary
circumstances. Relatedly, we hold that tardiness occasioned
merely by oversight cannot qualify as an extraordinary
circumstance under the second prong of the aforesaid test.
I I _
Statement of the Case Statement of the Case _____________________
The material facts are not in dispute. On August 27,
1992, the debtors, Donald and Joyce Jarvis, filed a voluntary
petition seeking relief under Chapter 11 of the Bankruptcy Code.
On February 17, 1993, the bankruptcy court appointed Andrew S.
Richardson, a veteran insolvency lawyer, as trustee.
In executing his duties, Richardson deemed it desirable
to evaluate several parcels of real estate in which the debtors
held ownership interests. To this end, he retained Peter Scotti,
a prominent Rhode Island appraiser and broker. Although both
Richardson and Scotti were familiar with the need for prior
judicial approval of professional employment, neither man sought
authorization from the bankruptcy court before or during the
period in which services were rendered.
Scotti did yeoman work for the estate. Among other
things, he arranged a sale of a two-acre parcel in Portsmouth,
Rhode Island, for $275,000. The bankruptcy court granted
Richardson's petition for permission to sell the land and
approved the sales agreement (which made provision for a 5%
brokerage commission). When the time came to pay the fee,
Richardson realized that the court had never authorized Scotti's
3
employment. He then assembled a "Nunc Pro Tunc Application to
Employ Broker" and submitted it to the bankruptcy court in a
belated effort to remedy the oversight.2
After holding a hearing, the bankruptcy court found no
extraordinary circumstances and denied the application. See In ___ __
re Jarvis, 169 B.R. 276, 277-79 (Bankr. D.R.I. 1994). The __________
trustee appealed to the district court. On October 26, 1994,
that court, ruling ore tenus, refused to disturb the bankruptcy ___ _____
court's order. This appeal ensued.
II II __
Discussion Discussion __________
A. A. _
Post Facto Authorization Post Facto Authorization ________________________
In surveying the terrain occupied by section 327(a),
the threshold question is whether the statute permits the post ____
facto authorization of professional services at all. Because _____
this inquiry is strictly a matter of statutory construction, our
power of interpretive scrutiny is plenary. See, e.g., United ___ ____ ______
States v. Holmquist, 36 F.3d 154, 158 (1st Cir. 1994), petition ______ _________ ________
for cert. filed (U.S. Dec. 27, 1994) (No. 94-7485); United States ___ _____ _____ _____________
v. Gifford, 17 F.3d 462, 472 (1st Cir. 1994); Liberty Mut. Ins. _______ __________________
Co. v.Commercial Union Ins. Co.,978 F.2d 750, 757(1st Cir. 1992). ___ _________________________
____________________
2Although courts and lawyers routinely describe such
applications, as did Richardson, by using the appellation "nunc
pro tunc," we agree with Judge Easterbrook that such a
designation is unfaithful to the accepted usage of that term in
connection with the correction of court records. See In re ___ _____
Singson, 41 F.3d 316, 318-19 (7th Cir. 1994). To avoid this _______
linguistic snare, we prefer the term "post facto." ____ _____
4
If possible, a statute should be construed in a way
that conforms to the plain meaning of its text.3 See, e.g., ___ ____
Estate of Cowart v. Nicklos Drilling Co., 112 S. Ct. 2589, 2594 ________________ _____________________
(1992); Pritzker v. Yari, 42 F.3d 53, 67-68 (1st Cir. 1994), ________ ____
petition for cert. filed, 63 U.S.L.W. 3692 (U.S. Mar. 13, 1995) ________ ___ _____ _____
(No. 94-1517); Holmquist, 36 F.3d at 159. When a statute's _________
language is ambiguous, however, a court must often venture into
extratextual territory in order to distill an appropriate
construction. See Pritzker, 42 F.3d at 67; see also Sullivan v. ___ ________ ___ ____ ________
CIA, 992 F.2d 1249, 1252 (1st Cir. 1993) (noting the power of ___
courts to "look behind statutory language" when the legislature
"blow[s] an uncertain trumpet").
In this instance, the statutory language, for all
intents and purposes, is indeterminate. Section 327(a) neither
expressly sanctions nor expressly forbids the post facto ____ _____
authorization of outside professional services. Courts have
repeatedly remarked this ambiguity. See, e.g., In re Singson, 41 ___ ____ _____________
F.3d 316, 319 (7th Cir. 1994); In re Triangle Chems., Inc., 697 ____________________________
F.2d 1280, 1289 (5th Cir. 1983). What is more, Rule 2014(a) does
not fill the void. The most that fairly can be said is that the
language of both statute and rule contemplates prior
authorization, see Triangle Chems., 697 F.2d at 1284, 1289; ___ _______________
____________________
3There are, of course, certain exceptions to this rule.
See, e.g., United States Nat'l Bank v. Independent Ins. Agents of ___ ____ ________________________ __________________________
Am., Inc., 113 S. Ct. 2173, 2186 (1993) (discussing "a simple _________
scrivener's error"); Sullivan v. CIA, 992 F.2d 1249, 1252 (1st ________ ___
Cir. 1993) (observing exception when an absurd or legally
unacceptable result would otherwise obtain). The case at bar
does not require us to probe the exceptions to the general rule.
5
Stephen R. Grensky, The Problem Presented by Professionals Who ____________________________________________
Fail to Obtain Prior Court Approval of Their Employment, 62 Am. ________________________________________________________
Bankr. L.J. 185, 188-89 (1988),4 without explicitly prohibiting
authorization after the fact.
The discerned ambiguity in section 327(a) necessarily
moves us beyond the four corners of the statute's text. Since
there appears to be no explicatory legislative history, we
proceed to a consideration of the overarching equitable design of
the Chapter 11 process. See Pioneer Inv. Servs. Co. v. Brunswick ___ _______________________ _________
Assocs. Ltd. Partnership, 113 S. Ct. 1489, 1495 (1993). ___________________________
Bankruptcy courts, after all, are courts of equity, traditionally
governed by equitable principles. See, e.g., Bank of Marin v. ___ ____ ______________
England, 385 U.S. 99, 103 (1966); In re Arkansas Co., 798 F.2d _______ ___________________
645, 648 (3d Cir. 1986); Triangle Chems., 697 F.2d at 1288. In _______________
light of the purposefully nonmechanical nature of equity, we
think it is appropriate that bankruptcy courts should be
permitted to entertain post facto applications for professional ____ _____
services under section 327(a). We so hold, thereby joining
several of our sister circuits. See, e.g., Singson, 41 F.3d at ___ ____ _______
319-20; In re Land, 943 F.2d 1265, 1267-68 (10th Cir. 1991); In ___________ __
re F/S Airlease II, Inc., 844 F.2d 99, 105 (3d Cir.), cert. __________________________ _____
denied, 488 U.S. 852 (1988); In re THC Fin. Corp., 837 F.2d 389, ______ ____________________
392 (9th Cir. 1988); Triangle Chems., 697 F.2d at 1289. _______________
____________________
4For what it may be worth, we note that Mr. Grensky's
article bears the alternative title "Nunc Pro Tunc Est Bunc." ________________________
While this alternative is rhythmic, the piece is rarely cited in
that fashion. Sic biscuitas disintegrat. ___ _________ ___________
6
B. B. _
Nature of the Power; Standard of Review Nature of the Power; Standard of Review _______________________________________
Because the bankruptcy court's power to entertain
belated applications for the employment of professionals is
equitable in nature, we believe that the court's ultimate
decision to grant or deny such applications is necessarily
discretionary. The cases and the commentators are in accord.
See Arkansas, 798 F.2d at 650; Triangle Chems., 697 F.2d at 1289; ___ ________ _______________
see also 2 Lawrence P. King, Collier on Bankruptcy 327.02, at ___ ____ _____________________
327-20 (15th ed. 1995) [hereinafter Collier on Bankruptcy] _______________________
("Generally it has been concluded that bankruptcy courts are
empowered with discretion to grant nunc pro tunc retention orders ____ ___ ____
and allow compensation.").
By like token, the bankruptcy court's ruling on an
attempt to secure post facto approval of an application for the ____ _____
employment of a professional should be reviewed by the district
court under the abuse-of-discretion rubric. See Land, 943 F.2d ___ ____
at 1266. In the event of a further appeal, the court of appeals
will independently review the bankruptcy court's ruling for abuse
of discretion, ceding no special deference to the district
court's previous determination. See Grella v. Salem Five Cent ___ ______ ________________
Sav. Bank, 42 F.3d 26, 30 (1st Cir. 1994) (describing levels of _________
appellate review in bankruptcy cases).
C. C. _
The Appropriate Legal Standard The Appropriate Legal Standard ______________________________
7
By recognizing the discretionary authority of
bankruptcy courts to consider post facto applications under ____ _____
section 327(a), we have reached the end of the beginning rather
than the beginning of the end. We must yet select the precise
legal yardstick by which such applications are to be measured.
We conclude that the applicant must demonstrate both the
professional person's suitability for appointment and the
existence of extraordinary circumstances sufficient to excuse the
failure to file a timely application.5
A bankruptcy court confronted by a post facto ____ _____
application for the employment of a professional should begin by
inquiring into suitability; the timing of the application does
not matter unless the court makes a supportable finding that the
services were reasonably necessary for the due performance of the
trustee's duties, that the professional is licensed or otherwise
qualified to render such services, and that the disinterestedness
requirements of section 327(a) are not at risk. In other words,
the bankruptcy court must satisfy itself that, had the
application been filed on time, the court would have authorized
the professional's employment then and there.
____________________
5In connection with post facto applications, courts appear ____ _____
to use the terms "extraordinary circumstances" and "exceptional
circumstances" interchangeably. Compare, e.g., F/S Airlease II, _______ ____ _______________
844 F.2d at 105 (referring to extraordinary circumstances) with, ____
e.g., Triangle Chems., 697 F.2d at 1289 (referring to exceptional ____ _______________
circumstances). From all that we can discern, any differences
between these terms are semantic and, in this context, we treat
them as fungible.
8
Assuming that the application clears this first hurdle,
the bankruptcy court must next, in the exercise of its informed
discretion, decide whether the particular circumstances attendant
to the application are sufficiently extraordinary to warrant
after-the-fact approval. See F/S Airlease II, 844 F.2d at 105. ___ ________________
In fleshing out the extraordinary circumstances requirement, the
Third Circuit has indicated that bankruptcy courts may consider
several factors, including
whether the applicant or some other person
bore responsibility for applying for
approval; whether the applicant was under
time pressure to begin service without
approval; the amount of delay after the
applicant learned that initial approval had
not been granted; [and] the extent to which
compensation to the applicant will prejudice
innocent third parties . . . .
Id. at 105-06 (quoting Arkansas, 798 F.2d at 650). Although we ___ ________
do not regard this compendium of considerations as exhaustive, it
is a useful checklist and we commend it to the bankruptcy courts.
The second half of this two-part test has deep roots in
both precedent and policy. A virtually unbroken skein of federal
appellate cases have determined that "extraordinary
circumstances," or something very close thereto, see supra note ___ _____
5, constitutes the appropriate legal standard. See, e.g., Land, ___ ____ ____
943 F.2d at 1267-68; F/S Airlease II, 844 F.2d at 105; Triangle _______________ ________
Chems., 697 F.2d at 1289; In re Kroeger Properties & Dev., Inc., ______ ______________________________________
57 B.R. 821, 822-23 (Bankr. 9th Cir. 1986); see also 2 Collier on ___ ____ __________
Bankruptcy, supra, 327.02, at 327-20. Indeed, apart from the __________ _____
Seventh Circuit, which recently adopted a slightly more lenient
9
"excusable neglect" standard, Singson, 41 F.3d at 319-20, those _______
courts of appeals that have considered the matter are consentient
in their views. We can discern no basis for rejecting this
imposing array of well-reasoned opinions.
The policies underlying the Chapter 11 process also
favor adoption of the extraordinary circumstances test. Prior
approval is to be preferred because it permits the bankruptcy
court to supervise the administration of the estate more closely,
and minimizes the chance that the court will be confronted with a
fait accompli. To achieve these desirable ends, the prior ____ ________
approval requirement must have teeth. A relatively strict
standard, such as extraordinary circumstances, serves this
purpose. At the same time, it encourages compliance with the
statute and eliminates opportunities for manipulation. See id. ___ ___
at 319; see also Kroeger Properties, 57 B.R. at 822-23 ___ ____ ___________________
(suggesting that restricting post facto authorization to ____ _____
situations involving extraordinary circumstances will curb
general nonobservance of section 327(a)'s requirements); see ___
generally 2 Collier on Bankruptcy, supra, 327.02, at 327-20. _________ ______________________ _____
Finally, a rule that lends itself to a relatively small number of
exceptions will inevitably help to conserve overtaxed judicial
resources. We find that these policy considerations point
unerringly toward a stricter, rather than a softer, standard.
We hold, therefore, that a bankruptcy court may, in its
discretion, grant a post facto application for professional ____ _____
services, provided that the applicant can demonstrate, inter _____
10
alia, the existence of extraordinary circumstances sufficient to ____
justify the application's untimeliness.6
D. D. _
The Merits The Merits __________
Having settled upon the proper legal standard, we make
short shrift of the merits of this appeal. We assume arguendo ________
that the bankruptcy court would have authorized the trustee to
employ Scotti had a timely request been forthcoming. Withal, no
such request was made. Because the trustee's tardiness in
seeking approval was due entirely to inadvertence, our inquiry
reduces to whether mere oversight falls within the universe of
extraordinary circumstances that may justify post facto ____ _____
authorization of a professional's employment. We conclude that it
does not.
Our conclusion is buttressed by nothing less than logic
and experience, on one hand, and by precedent, on the other hand.
Logic and experience dictate that if the category of
extraordinary circumstances were expanded to include mere
oversight, the modifying adjective "extraordinary" would be
completely emptied of its meaning. Consequently, the standard
itself would be stripped of its efficacy. At some point, one
must pause and inquire, like Alice to Humpty Dumpty, whether
____________________
6In so holding, we respectfully decline to follow the
Seventh Circuit's transplantation of "excusable neglect" from
Fed. R. Bankr. P. 9006(b)(1) to Fed. R. Bankr. P. 2014(a). See ___
Singson, 41 F.3d at 319-20. We are both more concerned on policy _______
grounds about the risk of condoning or encouraging any form of
neglect and less convinced that the term "excusable neglect" can
be coherently administered over time.
11
words are infinitely elastic. See generally Lewis Carroll, Alice ___ _________ _____
in Wonderland 163 (D. Gray ed., 1971) ("When I use a word . . . _____________
it means just what I choose it to mean neither more nor
less.").
The weight of authority pushes in the same direction.
Most courts have flatly refused to accept mere oversight, without
more, as a legitimate basis for granting post facto approval. ____ _____
See, e.g., Land, 943 F.2d at 1268 ("Simple neglect will not ___ ____ ____
justify nunc pro tunc approval of a debtor's application for the
employment of a professional."); Arkansas, 798 F.2d at 651 ________
(holding that "a mere showing of oversight" does not constitute
extraordinary circumstances); In re Shirley, 134 B.R. 940, 943 ______________
n.4 (Bankr. 9th Cir. 1992) ("Mere negligence does not constitute
an exceptional circumstance justifying the entry of a retroactive
order."). But see Triangle Chems., 697 F.2d at 1289. This tenet ___ ___ _______________
prevails even though the professional's services have benefitted
the estate. See F/S Airlease II, 844 F.2d at 108; In re Grimes, ___ _______________ ____________
115 B.R. 639, 649 (Bankr. D.S.D. 1990); In re Mason, 66 B.R. 297, ___________
307 (Bankr. D.N.J. 1986); In re Ladycliff Coll., 35 B.R. 111, 113 _____________________
(Bankr. S.D.N.Y. 1983); In re Morton Shoe Cos., 22 B.R. 449, 450 ______________________
(Bankr. D. Mass. 1982).
To the extent that the outcome of this appeal demands
further justification and we think it does not it should be
noted that, here, the bankruptcy court was not only applying
section 327(a) and Fed. R. Bankr. P. 2014(a), but also was
12
applying its own local rule.7 The significance of this
circumstance is three-fold. First, the rule gives plain notice
of the "extraordinary circumstances" standard. Second, once
local rules have been properly promulgated, lawyers and litigants
are duty bound to comply with them. See Air Line Pilots Ass'n v. ___ _____________________
Precision Valley Aviation, Inc., 26 F.3d 220, 224 (1st Cir. _________________________________
1994). Third, a special degree of deference above and beyond
the traditional standards of decisionmaking and appellate
oversight attaches to a court's interpretation of its own local
rules. See, e.g., id. (explaining that "[d]istrict courts enjoy ___ ____ ___
broad latitude in administering local rules" and "are entitled to
demand adherence to specific mandates contained [therein]");
United States v. Diaz-Villafane, 874 F.2d 43, 46 (1st Cir.) ______________ ______________
(remarking "the widely-accepted idea that a district court should
be accorded considerable latitude in applying local procedural
rules of its own making"), cert. denied, 493 U.S. 862 (1989). _____ ______
III III ___
Conclusion Conclusion __________
____________________
7The applicable local rule provides in full:
Absent extraordinary circumstances, nunc pro
tunc Applications for appointment of
professional persons pursuant to Sections 327
and 1103 of the Bankruptcy Code, and
Bankruptcy Rule 2014, will not be considered.
An Application is considered timely if it is
filed within thirty (30) days of the date of
the filing of the petition in bankruptcy or
the date the professional commences rendering
services, whichever occurs later.
D.R.I. Bankr. R. 25(A)(1).
13
To recapitulate, we hold that under 11 U.S.C. 327(a)
and Fed. R. Bankr. P. 2014(a), a bankruptcy court may, in its
discretion, consider an application to approve the employment of
a professional even though the professional person's services
have already been rendered. But the court should grant the
authorization only if it can be shown that the professional
person meets all the requirements of section 327(a) and that the ___
untimeliness of the application results from extraordinary
circumstances. Because the lack of punctuality in this case was
attributable entirely to inadvertence, the district court did not
err in affirming the bankruptcy court's denial of the trustee's
post facto application. Mere oversight does not fall within the ____ _____
realm of extraordinary circumstances for these purposes.
Although we need go no further, we elect to add a final
note. We are aware that Scotti rendered valuable services to the
estate, and we take no pleasure in denying him the fruits of his
labor. But we do what we must, for the greater good lies not in
the transient lure of ad hoc decisionmaking, but in the __ ___
evenhanded application of the rule of law.
Affirmed. Affirmed. ________
14
United States National Bank v. Independent Insurance Agents ... ( 1993 )
32-collier-bankrcas2d-530-bankr-l-rep-p-76224-in-the-matter-of ( 1994 )
Paul J. Grella, Trustee v. Salem Five Cent Savings Bank ( 1994 )
DeRonde v. Shirley (In Re Shirley) ( 1992 )
In Re Morton Shoe Companies, Inc. ( 1982 )
Matter of Ladycliff College ( 1983 )
Liberty Mutual Insurance Company v. Commercial Union ... ( 1992 )
Sherry Ann Sullivan v. Central Intelligence Agency ( 1993 )
In Re Kroeger Properties and Development, Inc. ( 1986 )
Jay A. Pritzker v. Bob Yari ( 1994 )
Bank of Marin v. England ( 1966 )
United States v. Holmquist ( 1994 )
Bankr. L. Rep. P 72,146 in Re Thc Financial Corp., a Hawaii ... ( 1988 )
United States v. Gifford ( 1994 )
Air Line Pilots Association v. Precision Valley Aviation, ... ( 1994 )
Estate of Cowart v. Nicklos Drilling Co. ( 1992 )
Pioneer Investment Services Co. v. Brunswick Associates Ltd.... ( 1993 )