Collier Bankruptcy Case Update January-8-01
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
January 8, 2001
CASES IN THIS ISSUE
(scroll down to read the full summary)
- 1st Cir.
§ 507(a)(8) Three year lookback period of section 507(a)(8) was equitably tolled by prior chapter 13 case.
Young v. United States of America (In re Young) (1st Cir.) 011009
§ 1329(a) Mortgage creditor could not revalue secured claim postconfirmation to reflect rapid appreciation of property.
Massachusetts Hous. Fin. Agency v. Evora (D. Mass.) 011026
§ 1129(a) Creditors did not have basis for objections to chapter 11 plan.
In re American Family Enters. (D.N.J.) 011021
Rule 3001(f) Debtor’s objection to proof of claim sustained.
In re L. Washington & Assocs., Inc. (Bankr. E.D. Pa.) 011029
Rule 7054 Motion for certification denied.
Official Committee of Unsecured Creditors v. Bock (In re Walnut Equip. Leasing Co.) (Bankr. E.D. Pa.) 011032
§ 546(a) Statute of limitations barred claims conveyed by trustee.
National American Ins. Co. v. Ruppert Landscape Co. (E.D. Va.) 011016
§ 348(f) Conversion was not a safe harbor for debtors.
Wyss v. Fobber (In re Fobber) (Bankr. E.D. Tenn.) 011004
§ 502(a) Chapter 7 debtor lacked standing to object to proof of claim.
United States v. Jones (E.D. Mich.) 011005
§ 502(b)(1) Creditor had an allowable prepetition claim.
In re Fretter, Inc. (Bankr. N.D. Ohio) 011006
Rule 7012(b) Trustee given an opportunity to amend complaint.
Wyss v. Fobber (In re Fobber) (Bankr. E.D. Tenn.) 011030
§ 548(a)(1)(B) Creditors’ committee failed to establish undisputed facts as to presumptively fraudulent transfers.
The Official Unsecured Creditors Committee of Intrastate Electrical Servs., Inc. v. Nastav (In re Intrastate Elec. Servs.) (Bankr. N.D. Ill.) 011018
28 U.S.C. § 157(e) Federal rules controlled rules of allocation of issues between judge and jury.
Whitlock Corp. v. Deloitte & Touche (In re Whitlock Corp.) (7th Cir.) 011027
§ 522(c) Objection to exemption sustained.
In re Norkus (Bankr. S.D. Iowa) 011011
§ 523(a)(4) Probate court order had collateral estoppel effect on determination of dischargeability.
Estate of Wilma Nelson v. Nelson (In re Nelson) (Bankr. D.N.D.) 011012
§ 523(a)(8) Debtor afflicted by chronic pain syndrome failed to meet burden of undue hardship.
Randall v. Norwest Student Loan Servs. (In re Randall) (Bankr. D.N.D.) 011013
§ 1325(b) 401(k) contributions were not reasonably necessary for chapter 13 debtor’s support.
In re Merrill (Bankr. D. Or.) 011025
§ 503(b)(1)(A) Court did not err in denying interim compensation.
In re Albrecht (D. Wyo.) 011007
Collier Bankruptcy Case Summaries
Three year lookback period of section 507(a)(8) was equitably tolled by prior chapter 13 case. 1st Cir. The debtors filed their 1992 federal income tax return on October 15, 1993, showing taxes due but accompanied by no payment. Thereafter, the debtors made modest payments and finally, in May 1996, filed a chapter 13 petition. The IRS filed a proof of claim for the 1992 taxes. The debtors did not comply with the chapter 13 plan and moved to dismiss their petition. The bankruptcy court granted the motion and the petition was dismissed. One day before the chapter 13 proceeding was closed, the debtors filed a chapter 7 petition, which in turn continued the automatic stay pendente lite. The debtors received a discharge. Thereafter, the IRS sought the unpaid balance of the 1992 tax debt. The debtors argued that, under section 507(a)(8)(A)(i), more than three years had elapsed between the filing of their 1992 tax return and the filing of the chapter 7 petition. The IRS argued that the court should exclude the period during which the chapter 13 stay had prevented it from collecting the debtors’ tax debt, which would bring the delay to well under three years. The bankruptcy court agreed with the IRS and held that the three year period was tolled during the chapter 13 stay. The district court affirmed, and this second appeal followed. The Court of Appeals for the First Circuit affirmed. The court held that some judge-made tolling adjustment was required for section 507(a)(8)(A)(i). The court noted that courts were capable of interpolating omissions into statutes where the concern was with ancillary matters such as remedies, exhaustion requirements and time period calculations, which were usually subordinate to Congress’s main concerns.Young v. United States of America (In re Young), 2000 U.S. App. LEXIS 30156, – F.3d. – (1st Cir. December 1, 2000) (Boudin, C.C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.10[a][i]
Mortgage creditor could not revalue secured claim postconfirmation to reflect rapid appreciation of property. D. Mass. The chapter 13 debtors valued their residence at $80,000, which was not disputed by the mortgage creditor holding a lien on the property, and the debtors’ chapter 13 plan was confirmed. But within two years, the value of the property had doubled. The creditor sought to benefit from the appreciation and asked that its allowed secured claim be redetermined in light of the new valuation. The bankruptcy court denied the request, holding that there was no authority for the proposition that the amount of the secured claim be redetermined. The creditor appealed. The district court affirmed, holding that while section 1329(a)(1) provided that a plan could be modified to increase or reduce the amount of payments, the provision did not state that the plan could be modified to increase or reduce the amount of the secured claim. The court also concluded that the valuation of a secured claim was adjudicated by an order of confirmation and was considered res judicata as to claim determinations.Massachusetts Hous. Fin. Agency v. Evora, 2000 U.S. Dist. LEXIS 17278, – B.R. – (D. Mass. November 13, 2000) (Young, C.D.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1329.04
Creditors did not have basis for objections to chapter 11 plan. D.N.J. The debtors filed chapter 11 petitions and continued to operate their respective businesses as debtors in possession. Subsequently, a creditors’ committee was appointed and the reference of the chapter 11 cases to the bankruptcy court was withdrawn to the district court. Prior to the petition filing, numerous class actions and individual lawsuits were filed against the debtor, primarily in response to a massive mailing which allegedly deceived various claimant creditors into believing that they had won sweepstakes or cash prizes from the debtor. After the petition filing, a settlement agreement was reached on the pending suits, releasing the debtors from claims by the class members, who would also be entitled to extensive injunctive relief and apportioning $33 million for distribution among subclass members. A total of 193 objections to confirmation of the plan or to the settlement agreement were submitted by the creditors. The various bases on which objections were made included attorney’s fees and costs, the adequacy of the settlement agreement based upon alleged prizes won, adequacy of the settlement agreement based on the debtor’s alleged fraud and specific terms or procedures embodied in the agreement. The district court determined that less than 25 percent of these responses satisfied the requirements for properly objecting to the confirmation plan pursuant to the preliminary approval order. Nonetheless, the court considered all the responses but finally held that to the extent that any response set forth an objection to the plan, all such objections were overruled. The court reasoned that certain objections stated no clear basis, neither articulating Code provisions or a standard of confirmation violated by the plan, that no objection specifically addressed the authority of the court to issue the injunction or the propriety of plan provisions that provided for the issuance of the injunction or third-party releases. The court concluded that objections to confirmation were already resolved by the court’s adjudication of the fairness of the settlement agreement or the court’s findings that the requirements of section 1129(a) had been met.In re American Family Enters., 2000 U.S. Dist. LEXIS 17325, – B.R. – (D.N.J. September 7, 2000) (Politan, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1129.03
Debtor’s objection to proof of claim sustained. Bankr. E.D. Pa. The chapter 11 debtor objected to a proof of claim asserted by its payroll services provider for charges imposed under a management agreement entered into by the parties. The bankruptcy court sustained the objection and allowed the claim in the amount calculated by the debtor as due and owing. The court held that the debtor rebutted the otherwise prima facie effect of the proof of claim filed by the payroll services provider. The court noted that under Rule 3001(f), if a proof of claim is executed and filed in accordance with the Rules, the proof of claim constituted prima facie evidence of the validity and amount of the claim. Under these circumstances, a party objecting to the claim carries the burden of going forward with evidence in support of its objection. If the objecting party succeeds in overcoming the prima facie effect of the proof of claim, the ultimate burden of persuasion then rests on the claimant. In this case, the court found that the debtor sustained its burden as to the principal amount of the claim and that the payroll services provided failed to come forward with evidence in response. In addition, since the claimant failed to attach an itemized statement certain of the interest it claimed was due, it retained the burden to prove this part of its demand and failed to sustain this burden.In re L. Washington & Assocs., Inc., 2000 Bankr. LEXIS 1427, – B.R. – (Bankr. E.D. Pa. November 22, 2000) (Sigmund, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 9:3001.09
Motion for certification denied. Bankr. E.D. Pa. After the bankruptcy court granted summary judgment to the chapter 11 creditors’ committee on the ground that the committee was immune from the counterclaims of the debtor’s officers and directors, the officers filed a motion for certification pursuant to Fed. R. Civ. P. 54(b). The bankruptcy court denied the motion for certification, holding that the officers would not be harmed by awaiting the outcome of the trial in order to appeal the dismissal of their counterclaims and the committee would be prejudiced by an immediate appeal. The court noted that the creditors would be prejudiced not only by the deferral of their opportunity for recovery but the risk that time would impair their ability to collect any judgment entered.Official Committee of Unsecured Creditors v. Bock (In re Walnut Equip. Leasing Co.), 2000 Bankr. LEXIS 1430, – B.R. – (Bankr. E.D. Pa. November 27, 2000) (Sigmund, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:7054.01, .03
Statute of limitations barred claims conveyed by trustee. E.D. Va. The bonding companies, which issued several bonds on behalf of the chapter 7 debtor, filed a complaint in district court against the debtor’s corporate successor for breach of contract and fraudulent conveyance. The bonding companies had previously purchased all claims that the trustee had against the debtor’s successor at an auction approved by the bankruptcy court. When the bonding companies purchased the trustee’s rights, the statute of limitations under section 546(a) had expired. The successor filed a motion for summary judgment, claiming that the limitations provision in section 546(a) barred any cause of action by the bonding companies. The district court granted the successor’s motion in part and denied the motion in part, holding that because the trustee could not transfer better rights that he possessed, the bonding companies’ actions were barred by the statute of limitations unless they could bring the action of their own right. The bonding companies had standing in their own right to bring a cause of action to avoid a fraudulent conveyance under state law. Because the cause of action for breach of contract did not exist independently of the trustee’s sale of his rights to them, that cause of action was barred. National American Ins. Co. v. Ruppert Landscape Co., 2000 U.S. Dist. LEXIS 17361, – F.Supp.2d – (E.D. Va. November 21, 2000) (Cacheris, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:546.02
Conversion was not a safe harbor for debtors. Bankr. E.D. Tenn. The chapter 7 trustee sought revocation of the debtors’ discharge pursuant to section 727(d)(2). The debtors originally filed a chapter 7 case which was converted to chapter 13 and then later reconverted to chapter 7. The trustee alleged that the debtors sold an unencumbered asset of the estate during the chapter 13 case without notice to the chapter 13 trustee and unknown to the chapter 7 trustee. The debtors filed a motion for summary judgment and argued that since the asset was sold and the proceeds distributed during the chapter 13 so that both were no longer in the debtors’ possession at the time their case reconverted to chapter 7, neither the tractor nor its proceeds were property of the chapter 7 estate as defined by section 348(f)(1)(A). The bankruptcy court denied the debtors’ motion for summary judgment, holding that because the chapter 13 status of the case did not render the proceeds property of the estate when they otherwise would not have been, section 348(f) was inapplicable. Notwithstanding section 348(f), a chapter 7 trustee in a case originally filed under chapter 7, converted to chapter 13, and then reconverted to chapter 7, could seek to revoke the discharge of the debtor who in the chapter 13 phase of the case disposed of property which was property of the estate in the original chapter 7 (citing Collier on Bankruptcy, 15th Ed. Revised).Wyss v. Fobber (In re Fobber), 2000 Bankr. LEXIS 1428, – B.R. – (Bankr. E.D. Tenn. November 29, 2000) (Parsons, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:348.07
Chapter 7 debtor lacked standing to object to proof of claim. E.D. Mich. The chapter 7 debtor objected to a proof of claim for federal taxes filed by the United States on behalf of the IRS. The debtor argued that the United States’ claim was not a secured claim, that liens filed by the United States on the debtor’s property should be removed, and that the United States’ claim should be restructured to show a priority unsecured claim and a general unsecured claim. The bankruptcy court entered an order that purportedly required the United States to remove its tax lien and also restructured the United States’ claim. The United States appealed. The district court reversed the bankruptcy court’s decision, vacated its order, and remanded the proceeding to the bankruptcy court. The district court held that the debtor lacked standing to object to the United States’ proof of claim. The court noted that almost every court that has considered the issue of a chapter 7 debtor’s standing to object to a proof of claim has held that unless there was going to be a surplus, a debtor did not have standing to object to a proof of claim. Since there was no surplus in this case, either the trustee had to object to the proof of claim or the debtor had to institute an adversary proceeding to determine dischargeability. Neither the debtor nor the trustee did so; thus, the debtor lacked standing to object to the United States’ proof of claim (citing Collier on Bankruptcy 15th Ed. Revised).United States v. Jones, 2000 U.S. Dist. LEXIS 17642, – B.R. – (E.D. Mich. October 23, 2000) (Borman, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.02
Creditor had an allowable prepetition claim. Bankr. N.D. Ohio The chapter 11 debtor and the creditor entered into an agreement prepetition which provided that, in the event of a bankruptcy filing, the creditor would be allowed to file a claim for the full amount of its debt subject to available defenses. After the creditor filed its claim for merchandise delivered prepetition, the creditors’ committee objected to the claim. The committee filed a motion for summary judgment, claiming that the creditor’s claim was unallowable because it could never be enforced outside of the bankruptcy. The bankruptcy court denied the committee’s motion for summary judgment, holding that the claim was allowable under section 502(b)(1). The committee failed to cite any support for its position that the agreement or bankruptcy contingency was unenforceable (citing Collier on Bankruptcy, 15th Ed. Revised).In re Fretter, Inc., 2000 Bankr. LEXIS 1429, – B.R. – (Bankr. N.D. Ohio September 29, 2000) (Morgenstern-Clarren, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.03
Trustee given an opportunity to amend complaint. Bankr. E.D. Tenn. The chapter 7 trustee sought revocation of the debtors’ discharge pursuant to section 727(d)(2). The debtors originally filed a chapter 7 case which was converted to chapter 13 and then later reconverted to chapter 7. The trustee alleged that the debtors sold an unencumbered asset of the estate during the chapter 13 case without notice to the chapter 13 trustee and unknown to the chapter 7 trustee. The debtors moved to dismiss the complaint for failure to state a claim upon which relief could be granted, claiming that there were no allegations that the debtors acquired property of the estate or that the acquisition was concealed. The bankruptcy court granted the trustee leave to file an amended complaint, holding that because the complaint did not allege knowing and fraudulent conduct on the part of the debtors, it failed to state a claim upon which relief could be granted. The court found that the deficiencies in the complaint could be corrected by amendment (citing Collier on Bankruptcy, 15th Ed. Revised).Wyss v. Fobber (In re Fobber), 2000 Bankr. LEXIS 1428, – B.R. – (Bankr. E.D. Tenn. November 29, 2000) (Parsons, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:7012.04
Creditors’ committee failed to establish undisputed facts as to presumptively fraudulent transfers. Bankr. N.D. Ill. The chapter 11 debtor was one of four corporations owned by an individual and members of his family. One of these affiliates was the first to occupy the premises on which all the affiliates operated business. The affiliate was to pay monthly rent to the individual under a written lease, which also contained a provision for automatic renewal. When the debtor filed its chapter 11 petition, it also moved to extend the time to assume or reject an oral lease of the premises from the individual. One creditor opposed, arguing that once the individual had leased the premises to the original affiliate, only that affiliate could sublease the property to the debtor. The debtor withdrew its motion and filed a second motion seeking authority to enter into a written sublease of a portion of the premises from the affiliate. The bankruptcy court granted the debtor’s motion to assume the sublease in March 1996. Subsequently, the unsecured creditors’ committee filed an adversary proceeding seeking to recover a series of monthly payments, ostensibly for rent, made by the debtor to the individual between 1994 and 1995. Based on the debtor’s financial statements, it appeared that most of these payments were made during the debtor’s insolvency, and the committee’s theory was that the payments were actually or constructively fraudulent. The committee argued that these payments to the individual were made in exchange for less than reasonably equivalent value, that the debtor’s right to occupy the premises arose under an oral sublease from the affiliate, and that the payments to the individual operated to relieve the affiliate of its obligations to the individual under the lease. The individual denied that a sublease arrangement ever existed at the times relevant to this dispute and that as each of the subsequent affiliates was formed, the lease was orally modified, with the original affiliate relinquishing a portion of the premises in return for reduced rental obligation. The committee moved for summary judgment. The court denied the motion, holding that the committee failed to establish as a matter of undisputed fact that the debtor made the challenged transfers to the individual at a time when it was obligated to make rental payments to the affiliate under an oral sublease, thereby establishing a question as to whether the individual gave value in exchange for payments to him.The Official Unsecured Creditors Committee of Intrastate Electrical Servs., Inc. v. Nastav (In re Intrastate Elec. Servs.), 2000 Bankr. LEXIS 1424, – B.R. – (Bankr. N.D. Ill. December 1, 2000) (Sonderby, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:548.05
Order denying creditors’ request for leave to sue trustee and special counsel affirmed. N.D. Ill. Creditors appealed a bankruptcy court decision that denied their request for leave to sue the debtor’s chapter 7 trustee and the trustee’s special counsel. The district court affirmed. The court rejected the creditors’ claim that the bankruptcy court erred by ignoring liberal notice-pleading standards. The court held that the bankruptcy court properly required the creditors to establish a prima facie case against the trustee. The court also upheld the bankruptcy court’s findings that the allegations contained in the complaint failed to establish a prima facie case of breach of fiduciary duty or malicious prosecution. Finally, the court concluded that the bankruptcy court did not err in deciding that policy considerations militated against exercising discretion to grant the creditors’ motion.Leighton Holdings, Ltd. v. Belofsky (In re Kids Creek Partners, L.P.), 2000 U.S. Dist. LEXIS 17718, – B.R. – (N.D. Ill. November 29, 2000) (Kocoras, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:5.02
Objection to exemption sustained. Bankr. S.D. Iowa The chapter 7 debtors claimed their homestead exempt under state (Iowa) law. The trustee objected, claiming that because the debtors acquired their homestead after incurring other debts that were listed on their schedules, they were not entitled to claim the state exemption. The debtors argued that the state homestead exemption exception was unconstitutional and preempted by section 522(c). The bankruptcy court sustained the trustee’s objection, holding that section 522(c) did not preempt the antecedent debt exception to the state homestead exemption.In re Norkus, 2000 Bankr. LEXIS 1425, – B.R. – (Bankr. S.D. Iowa October 25, 2000) (Jackwig, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522
Probate court order had collateral estoppel effect on determination of dischargeability. Bankr. D.N.D. One chapter 12 codebtor served as personal representative for his mother’s estate from April 1992 through April 1998. After his mother’s death, the codebtor raised crops on his mother’s land each year through 1999. In 1998, a probate hearing was held in state (North Dakota) court, resulting in an order which determined that the codebtor owed his mother’s estate $53,062 for rental of the estate farmland. In addition, it was determined that the codebtor owed other funds to the estate for a check drawn on estate funds. After the debtors filed a chapter 12 petition, the estate filed an adversary proceeding. The estate argued that the state court order established the elements necessary for nondischargeability under section 523(a)(4) and was entitled to collateral estoppel effect. The debtors argued that none of the state law elements for collateral estoppel were met. Principally, the debtors asserted that there was no identity of issues because the state court was not determining dischargeability and that the state court judgment was not a final judgment on the merits since the debt was deemed subject to reduction pending an accounting. The bankruptcy court declared the debt to the estate nondischargeable. The court found that the requisite elements for collateral estoppel under state law were met: the factual issues relevant to the question of dischargeability that were determined by the state court were entitled to collateral estoppel effect, since the state court found that the codebtor had used the land without paying rent during his tenure as personal representative of the estate and had also misappropriated funds, and the lack of a final accounting did not render the state court judgment interlocutory and that the state court’s judgment was final as to the factual findings bearing on the issue of dischargeability. The bankruptcy court concluded that the order of the probate court established, as a matter of law, the elements required for nondischargeability under section 523(a)(4).Estate of Wilma Nelson v. Nelson (In re Nelson), 2000 Bankr. LEXIS 1405, – B.R. – (Bankr. D.N.D. November 15, 2000) (Hill, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.10
Debtor afflicted by chronic pain syndrome failed to meet burden of undue hardship. Bankr. D.N.D. The chapter 7 debtor, an attorney who was diagnosed with chronic pain syndrome and fibromyalgia, sought to have her student loan debts discharged on the basis of undue hardship. The debtor claimed that she was no longer able to practice law and instead worked a clerical job, supporting herself and her son with additional income from public assistance. The student loan creditor challenged the debtor’s medical assessment. At the hearing on this issue, the debtor’s physician expressed the opinion that the debtor was completely disabled. Contradictory testimony by a neurologist contained the opinion that there was no scientific or objective basis for concluding that the debtor was under any physical or mental disability. Evidence of her treatment similarly showed the debtor to have no organic disorder. The bankruptcy court held that the debtor failed to meet her burden of proof under section 523(a)(8). The court found that the debtor’s evidence regarding an incurable medical condition was contravened by other testimony and concluded thatstudent loan dischargeability for undue hardship must present a certainty of hopelessness and not a mere present inability to meet financial commitments due to a current, temporary state of unemployment.Randall v. Norwest Student Loan Servs. (In re Randall), 2000 Bankr. LEXIS 1404, – B.R. – (Bankr. D.N.D. November 15, 2000) (Hill, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
401(k) contributions were not reasonably necessary for chapter 13 debtor’s support. Bankr. D. Or. The trustee objected to confirmation of the chapter 13 debtor’s plan. The trustee argued that the plan did not comply with the disposable income provision of section 1325(b)(1)(B) because the debtor proposed to pay $96 per month to his 401(k) retirement plan. The chapter 13 plan made no provision for payment to unsecured creditors. It was undisputed that if the debtor either stopped the monthly 401(k) contribution or extended his chapter 13 plan, the unsecured creditors would receive a dividend. The trustee asserted that as a matter of law a contribution to a voluntary retirement plan was not a reasonably necessary expense for maintenance and support, thereby rendering the monthly payment disposable income that must be applied to the plan. The debtor contended that there was no per se rule barring a chapter 13 debtor from making voluntary contributions to a 401(k) plan and that under the facts and circumstances of his case, the contribution should be allowed. The debtor cited case law holding that life insurance policies were a necessary expense because they were intended to protect the debtor’s dependents from destitution. The bankruptcy court sustained the trustee’s objection and denied confirmation of the plan. The court drew a distinction between life insurance and retirement accounts, holding that the intention to protect dependents in the event of the debtor’s death could be deemed reasonably necessary, retirement account contributions that were solely estate planning devices, or made to provide for the debtor’s future income, were unreasonable as a matter of law.In re Merrill, 2000 Bankr. LEXIS 1403, – B.R. – (Bankr. D. Or. November 21, 2000) (Brown, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.08[b][i]
Court did not err in denying interim compensation. D. Wyo. Special counsel to the chapter 11 trustee appealed an order of the B.A.P., which affirmed the bankruptcy court’s order denying the firm’s interim application for attorney’s fees and expenses. The firm provided services to the trustee prior to obtaining court approval of its employment and the bankruptcy court denied approval of the trustee’s application to employ the firm. The firm filed and the bankruptcy court approved an amended application a few months later, and the court awarded fees associated with that employment. Subsequently, the firm filed an interim application for fees for the work it performed prior to its appointment. The bankruptcy court denied the application and found that, because the unauthorized services were not retroactively warranted on equitable grounds, the law firm could not be compensated. The Court of Appeals for the Tenth Circuit affirmed, holding that the law firm which had been denied appointment as a professional under section 327(a) could not recover compensation under section 503(b)(1)(A) for services it rendered prior to and during the time that its application for employment was pending and after the application was disallowed. In re Albrecht, 2000 U.S. App. LEXIS 30762, – F.3d – (D. Wyo. December 4, 2000) (Baldock, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.06