The Debtor filed an application to employ special counsel on March 4, 2020, which served as the effective date of employment, but special counsel had already performed the bulk of its compensable services prior to that date.
Finding that it was restricted from using nunc pro tunc employment orders to backdate a professional’s effective employment date under 11 U.S.C. § 327 by the Supreme Court’s decision in Roman Catholic Archdiocese of San Juan v. Acevedo Feliciano, 140 S. Ct. 696 (2020), the court held that it was not prohibited from compensating professionals under 11 U.S.C. § 330 for work performed prior to an effective date of employment. That all allowance, however, requires a reasonable justification for why services were performed prior to the employment effective date.
Factors in such a determination include:
- The reason for the delay in filing an application to employ;
- Whether the applicant was under pressure to begin service without approval; and
- The extent to which compensation to the applicant will prejudice third parties.
- Any explanation that amounts to negligence or inadvertence would be viewed with skepticism.
Applying this standard to the context of this application, the Court found that special counsel’s pre-employment services were of an unexpected and emergency nature and further, that would be no prejudice to creditors by awarding pre-employment compensation in this case. That notwithstanding, the the Court reduced the requested compensation by 10 percent due to the Debtor’s previous failures to filing applications to employ.
While employment of professionals to represent a Chapter 13 debtor are reviewed under a different standard, namely whether under 11 U.S.C. § 330(a)(4)(B) whether they benefited the debtor, with any benefit or lack thereof to the estate being irrelevant, to the extent such employment is required, including for professional outside the immediate scope of the bankruptcy, such as personal injury attorneys, tax professionals, realtors, etc., this same standard should be applicable for tardy application to employ. Whether such applications are necessary at all, remains a hotly contested with differing trends between the three North Carolina bankruptcy courts.
For a copy of the opinion, please click here: