ACBA Symposium- PI/Special Counsel Panel...d. PACER checks at intake/ initial consultation. e. BK...

ACBA Symposium- PI/Special Counsel Panel

I. Introduction

a. Jason Matzus

b. Matthew Burne

c. Abagale Steidl

II. In re F/S Airlease II, 844 F.2d. 99, 105 (3rd Cir. 1988). What is it? What does it require?

What are the exceptions?

III.Property of the bankruptcy estate

a. What is property of the estate? Difference between Chapter 7 and Chapter 13

i. §541 – All legal and Equitable Interests of the Debtor as of the Petition

Date, as defined under state law. Butner v. United States, 440 U.S. 48

(1979).

ii. This includes any cause of action including personal injury claims which

arose before the petition date, including those already pending in another

forum and those which could have been acted on by the Debtor on or

before the petition date. See Bd. of Trs. v. Foodtown, Inc., 296 F.3d 164,

169 n. 5 (3d Cir. 2002) Northview Motors, Inc. v. Chrysler Motors Corp.,

186 F.3d 346, 350 (3d Cir. 1999); Kollar v. Miller, 176 F.3d 175, 178 (3d

Cir. 1999).

iii. Courts have applied three tests to determine if the cause of action (COA)

arose pre-petition:

1. State Law Accrual Approach: looks to state law to determine when

the cause of action is actionable by the Debtor. Focht v. Focht, 613

Pa. 48, 32 A.3d 668, 671 (2011).

a. Under PA Law it accrues the date “the plaintiff could have

first maintained the action to a successful conclusion” by

holding an enforceable claim or right after sustaining an

injury that gives rise to damages. Id. (quoting Fine v.

Checcio, 582 Pa. 253, 870 A.2d 850, 857 (2005)).

2. Rooted in Pre-Petition Approach: when the claim is “sufficiently

rooted in the pre-bankruptcy past and so little entangled with the

bankrupt's ability to make an unencumbered fresh start that it

should be regarded as [property of the estate.]” Segal v. Rochell,

382 U.S. 375, 380 (1966); See also In re Webb, 484 B.R. 501

(Bankr. M.D. Ga. 2012).

3. Blended Approach: blending the Accrual and Rooted Approach.

a. Three-step process:

- (1) determine the extent to which the claim is rooted

in the pre-bankruptcy past using the accrual

approach;

- (2) determine the extent to which it is entangled

with the debtor's ability to make an unencumbered

fresh start; and then

- (3) with both considerations in the balance,

determine whether, in view of the purposes of the

Bankruptcy Code, the claim is more properly

categorized as prepetition property that should

come into the estate or a postpetition asset that the

Debtor should take free of the claims of pre-

bankruptcy creditors.

b. At least one Court in this district has followed the blended

approach and looked at whether a substantial portion of the

elements of the state law cause of action occurred pre-

petition to see if the it would be inequitable to remove this

asset from the estate. See In re Harber, 553 B.R. 522, 532

(Bankr. W.D. Pa. 2016) (J. Taddonio).

b. What is not covered?

i. Generally:

1. Post-Petition Injuries: Claims which arise after the petition date,

i.e. where the injury is not suffered until after the bankruptcy

petition is filed. See Cantu v. Schmidt (In re Cantu), 784 F.3d 253,

259 (5th Cir. 2015).

2. Claims which stem from the Debtor’s injuries but which are held

by a non-Debtor, e.g. loss of consortium for a non-Debtor spouse.

3. Claims or portions thereof claimed as exempts under §522(d).

c. Chapter 7 v. Chapter 13:

i. Chapter 7: all non-exempt property of the estate is held by the Chapter 7

Trustee, to be administered in a manner in the best interests of the estate’s

stakeholders. Killmeyer v. Oglebay Norton Co., 817 F.Supp. 2d 681, 689

(W.D. Pa. 2011); §704(a).

a.

ii. Chapter 13: under §1306(a), property includes both pre-petition and post-

petition property obtained up to conversion, dismissal or until the case is

closed and is held in possession of the Debtor unless distributed under the

confirmed plan pursuant to §1306(b).

iii. Converting a case from Chapter 13 to Chapter 7:

1. Although under Chapter 13 Post-Petition COAs are property of the

estate, upon conversion to Chapter 7 those COAs are not included

in the new Chapter 7 estate absent a bad faith conversion by the

Debtor. See §348(f).

2. They are then returned to the Debtor. Harris v. Viegelahn, 135

S.Ct. 1829, 1837 (2015).

d. Disclosure of Personal Injury Claim:

i. Duty to Disclose

1. Under §521(a)(1)(B), the Debtor has statutory duty to list assets

including personal injury causes of action. See FRBP 1007; In re

Kane, 628 F.3d 631, 636 (3d Cir. 2010).

2. This includes even those which are not pending and only remote.

In re Harber, 553 B.R. 522, 534 (Bankr. W.D. Pa. 2016) (citing

Krystal Cadillac, 337 F.3d, 314, 322–23 (3d Cir. 2003)).

ii. Where to Disclose:

1. Schedule “A/B”, Item 33 “Claims against third parties, whether or

not you have filed a law suit.”

2. Schedule “A/B” Item 34 “Other Contingent unliquidated claims of

every nature.”

3. Statement of Financial Affairs, Part 4: “Identify Legal Actions . . .”

a. Within 1 year before the bankruptcy, were you a party in

any law suit, court action, or administrative proceeding.

b. List all such matters including personal injury cases.

iii. When to Disclose:

1. At Commencement or within 14 days after. FRBP 1007(c), unless

and extension is obtained FRBP 9006(b).

2. Amending to Schedules and SOFA:

a. Debtor has an ongoing duty to amend schedules throughout

the bankruptcy case “whenever it becomes necessary in

order to insure the accuracy and reliability of the

information.” In re Okan's Foods, Inc., 217 B.R. 739, 752

(Bankr. E.D. Pa. 1998).

b. FRBP 1009 allows amendments any time before a case is

closed.

iv. Failure to Disclose:

a. Judicial estoppel – If the PI claim is not disclosed on

Schedules or SOFA in bad faith, the debtor is barred from

pursuing the claim. Killmeyer v. Oglebay Norton Co., 817

F. Supp. 2d 681, 691 (W.D. Pa. 2011) (citing Krystal

Cadillac–Oldsmobile–GMC Truck, Inc. v. Gen. Motors

Corp., 337 F.3d 314 (3d Cir. 2003)); Ryan Operations v.

Santiam-Midwest Lumber Co., 81 F.3d 355 (3d Cir. 1996);

Oneida Motor Freight, Inc. v. United Jersey Bank, 848

F.2d 414 (3d Cir .1988)).

- However this does not bar a Chapter 7 Trustee from

pursuing the claim in the event the case is

converted from Chapter 13 or if the claim is not

abandoned by the Trustee. illmeyer v. Oglebay

Norton Co., 817 F. Supp. 2d at 692.

- Elements of Judicial Estopple:

1. The debtor must have taken positions that

are irreconcilably inconsistent with each

other;

2. He must have done so in bad faith; and

3. The estoppel must be tailored to address the

specific harm, such that a lesser sanction

would not adequately remedy the damage

done by the debtor's dishonesty. Id. at 691

(citing Krystal Cadillac, 337 F.3d at 319–

20).

b. Loss of Discharge:

- §727(a)(2) Fraudulently concealing assets .

- §727(a)(4) Making False Oaths or Representations

on Schedules and SOFA and through testimony at

§341(a) Meeting of Creditors. In re Lybrook, 544

B.R. 537, 544 (Bankr. W.D. Pa. 2015).

- §727(d) Revocation of Discharge after received.

c. FRBP 9011(c) Sanctions: Filing a Schedule or SOFA with

improper purpose makes Debtor and the Attorney subject to

sanctions by the Court.

- Safe Harbor – Allows 21 days after service of the

Motion, for the Party to cure the filing at issue.

See FRBP 9011(c)(1)(A).

IV. P.I. Attorney / Bankruptcy Attorney Best Practices

a. Intake questions – phrasing your questions in plain language to get full and

complete answers during initial consultations.

b. Written intake questionnaires.

c. Statement of Financial Affairs – asking each and every question in plain

language.

d. PACER checks at intake/ initial consultation.

e. BK counsel should check county prothonotary’s dockets.

f. Client signing a statement as to whether a bankruptcy is filed or being considered.

g. Inclusion of duty to disclose bankruptcy in P.I. retainer agreement.

h. Inclusion of duty to disclose P.I. matters in bankruptcy retainer agreement.

i. Monitoring clients’ financial condition in order to coordinate financial relief with

chosen bankruptcy counsel.

V. Who appoints Special Counsel?

a. Chapter 7 – .§327

i. Generally, if the Personal Injury Case has not been abandoned, the

Chapter 7 Trustee will retain Special Counsel to prosecute the case.

ii. §327(e) eliminates the requirement that Special Counsel be a disinterested

person as defined under §101(14) after having represented someone with

an interest adverse to the estate.

1. Under §327(e), as trustee may retain the same counsel that

represented the Debtor in the Personal Injury Case so long as:

a. The retention is not for conducting the bankruptcy case;

and

b. In the Personal Injury Case, i.e., the matter retained for, the

attorney must not hold an interest adverse to the estate or

the debtor.

c. However, just holding a claim for pre-petition fees does not

disqualify counsel. In re EBW Laser, Inc., 333 B.R. 351

(Bankr. M.D. N.C. 2005) (special counsel not disqualified

solely by reason of counsel holding a prepetition claim).

iii. When to Retain:

1. Chapter 7 Trustee should seek to retain counsel as early in the case

because nunc pro tunc retention is not allowed in the Third Circuit

unless extraordinary circumstances exist. Otherwise the Trustee

risks having the Court deny the retention and/or disallow

compensation. F/S Airlease II, Inc. v. Simon, 844 F.2d 99, 105 (3d

Cir. 1988).

iv. Potential Conflicts:

1. As a practical matter, Special Counsel typically builds a personal

relationship with the Debtors and feels an obligation to them.

2. However, the Trustee steps into the Debtor’s shoes as the Plaintiff

and once retained, Special Counsel’s attorney client relationship is

with the Trustee.

3. Conflict may arise if a settlement offer is sufficient to cover

exemptions, all claims and admin expenses, with no surplus back

to the debtor, but if the Personal Injury Claim could garner a

higher amount.

v. Special Counsel’s fees: for the portion attributable to the post-petition

work, the fees would be §503(b) Administrative Claim subject to priority

payment under §507(a). However, as these are typically contingency fees,

the claim may not arise until post-petition, so bifurcating may be

impractical.

b. Chapter 13:

i. In Chapter 13 since the debtor maintains possession of the Personal Injury

claim and controls the litigation, her or she alone has standing in that

action, it is incumbent on the debtor to retain Special Counsel for the

Personal Injury Claim. In re Goines, 465 B.R. 704, 707 (Bankr. N.D. Ga.

2012); In re Bowker, 245 B.R. 192, 194 (Bankr. D.N.J. 2000).

ii. The Chapter 13 Trustee is not the appropriate party to retain special

counsel. Id.

c. Documents for Retention

i. When do you file to appoint special counsel?

ii. Why that matters

iii. What do you file?

d. Nothing can be settled on a final basis without prior court approval:

VI. Responsibility of Chapter 7 Trustee

a. Trustee is the representative of the Chapter 7 estate. See §323(a).

b. Trustee acts on behalf of the creditors:

i. Chapter 7 Trustee has a statutory duty to “collect and reduce to money the

property of the estate . . . and close such estate as expeditiously as is

compatible with the best interests of parties in interest.” See §704.

Therefore, the Trustee must act in the best interests of the estate.

ii. If there are not enough claims to justify pursuing a Personal Injury case

beyond a settlement offer which will pay 100% of creditors, the debtor’s

exemptions and all administrative expenses.

iii. Practice Tip: Be aware of the creditor base which may limit the amount

the Trustee needs in a settlement offer and make sure the debtor knows

this.

c. Trustee steps into the shoes of the Debtor as the real party in interest to a pre-

petition Personal Injury Cause of Action. Killmeyer v. Oglebay Norton Co., 817

F. Supp. 2d 681, 689 (W.D. Pa. 2011).

d. The Debtor can only pursue them if the Cause of Action is abandoned by the

Trustee under §554(a)-(b), or by way of closing the case under §554(c).

e. Practice Tip- the filing of a Report of No Distribution by the Trustee does not

constitute formal abandonment, so you may want to reach out to the Trustee to get

a comfort Order before pursuing the case.

VII. Responsibility of Chapter 13 Trustee

a. Obtains any funds that cannot be protected through exemption

b. Pays creditors

c. Ensures fair creditor treatment

VIII. Exemptions

a. What are they?

i. Congress has allowed the Debtor to keep certain assets to preserve the

Debtor’s fresh state codified under §522.

b. What and how much can you keep? §522(d)(11)

i. §522(d(11)(B): Wrongful death damages of an individual the Debtor is a

dependent of, but only to the extent reasonably necessary for support of

the Debtor or the Debtor’s dependent.

ii. §522(d)(11)(D): up to $23,675 on account of personal bodily injury” of

the Debtor or individual who the debtor is a dependent of.

1. Because present tense is used in this statute Debtor must be a

dependent of the person who sustained the bodily injury on the

petition date to qualify for this exemption. In re White, 2009 WL

8556809 at 9 (Bankr. W.D. Pa. Aug. 10, 2009).

2. “On account of” has been interpreted as including the Debtor’s

recovery under a loss of consortium count for injuries suffered by

the Debtor’s spouse. In re White, 2009 WL 8556809, at *5 (Bankr.

W.D. Pa. Aug. 10, 2009).

3. Excluding pain and suffering and pecuniary losses:

a. The language of §522(d)(11)(D) expressly excludes pain

and suffering damages and actual and pecuniary losses.

b. The legislative history explains that this exemption was

“intended to include the attendant costs that accompany

such a loss, such as medical payment, pain and suffering, or

loss of earnings. In re Claude, 206 B.R. 374, 377 (Bankr.

W.D. Pa. 1997) (J. Bentz) (quoting H.R. REP. No 95-595 at

362).

c. Authorities are split on this issue and this District has not

yet ruled on this issue. See In re Kelin, 341 B.R. 521, 528

(Bankr. W.D. Pa. 2006) (J. Markovitz) (noting split of

authorities).

d. However, as all exemptions are presumed valid, the burden

would fall on the objecting party to show that the

exemption is excluded as “pain and suffering damages.”

See In re Reschick, 343 B.R. 151, 157 (Bankr. W.D. Pa.

2006).

e. Also, if the courts have looked at whether the Debtor

suffered serious enough bodily injury alone to warrant the

amount of the exemption. In re Claude, 206 B.R. 374, 377

(Bankr. W.D. Pa. 1997) (J. Bentz).

iii. §522(d)(11)(E): loss of future earnings damages for the Debtor or person

the Debtor is or was a dependent of, only to the extent reasonably

necessary for the support of the Debtor and any dependent of the Debtor.

1. The use of past tense will qualify a Debtor for this exemption if not

a dependent on the petition date. See In re White, 2009 WL

8556809, at *7 (Bankr. W.D. Pa. Aug. 10, 2009).

iv. §522(d)(5): Wildcard Exemption: up to $13,100, so long as the Debtor

does not use any §522(d)(1) homestead exemption, and so long as the

Debtor has in interest in the action.

c. Wording of settlements: Does Phrasing Matter?

i. Typically, Personal Injury Settlements do not delineate the amount

attributable to each Count in the claim for damages, disputes over

exemptions arise when a trustee or creditor objects based on the strict

reading of the statute.

ii. However, as a particle matter exemptions are presumed valid and the

objecting party will carry the burden of proving the amounts claimed

exempt fall outside the plain language of the exemption.

iii. Additionally, interpretations of exemptions are to be interpreted in a light

most favorable to the debtor. In re Claude, 206 B.R. 374, 377 (Bankr.

W.D. Pa. 1997) (citing In re Dealey, 204 B.R. 17 (Bankr. C.D. Ill. 1997)).

d. Does the tax exempt status of some recoveries affect the bankruptcy exempt

status?

IX. Liens

a. Child support liens

b. Medicare liens

c. Workers’ Comp (Does it need to be paid back?)

d. How do these come in to play?

e. Who pays them/How are they paid, how do they effect creditor distribution and

Trustee’s Commissions?

UNITED STATES CODE SERVICECopyright © 2016 Matthew Bender & Company, Inc.

a member of the LexisNexis Group (TM)All rights reserved.

*** Current through PL 114-244, approved 10/14/16 ***

TITLE 11. BANKRUPTCYCHAPTER 5. CREDITORS, THE DEBTOR, AND THE ESTATE

SUBCHAPTER II. DEBTOR'S DUTIES AND BENEFITS

Go to the United States Code Service Archive Directory

11 USCS § 522

THE CASE NOTES SEGMENT OF THIS DOCUMENT HAS BEEN SPLIT INTO 2 DOCUMENTS.THIS IS PART 1.USE THE BROWSE FEATURE TO REVIEW THE OTHER PART(S).

§ 522. Exemptions

(a) In this section--(1) "dependent" includes spouse, whether or not actually dependent; and(2) "value" means fair market value as of the date of the filing of the petition or, with respect to property that becomes

property of the estate after such date, as of the date such property becomes property of the estate.

(b) (1) Notwithstanding section 541 of this title [11 USCS § 541], an individual debtor may exempt from property of theestate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. In joint casesfiled under section 302 of this title [11 USCS § 302] and individual cases filed under section 301 or 303 of this title [11USCS § 301 or 303] by or against debtors who are husband and wife, and whose estates are ordered to be jointlyadministered under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, one debtor may not elect to exemptproperty listed in paragraph (2) and the other debtor elect to exempt property listed in paragraph (3) of this subsection.If the parties cannot agree on the alternative to be elected, they shall be deemed to elect paragraph (2), where suchelection is permitted under the law of the jurisdiction where the case is filed.

(2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that isapplicable to the debtor under paragraph (3)(A) specifically does not so authorize.

(3) Property listed in this paragraph is--(A) subject to subsections (o) and (p), any property that is exempt under Federal law, other than subsection (d) of

this section, or State or local law that is applicable on the date of the filing of the petition to the place in which thedebtor's domicile has been located for the 730 days immediately preceding the date of the filing of the petition or if thedebtor's domicile has not been located in a single State for such 730-day period, the place in which the debtor's domicilewas located for 180 days immediately preceding the 730-day period or for a longer portion of such 180-day period thanin any other place;

(B) any interest in property in which the debtor had, immediately before the commencement of the case, an interestas a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant isexempt from process under applicable nonbankruptcy law; and

(C) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation undersection 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986 [26 USCS § 401, 403, 408,

Page 1

408A, 414, 457, or 501(a)].If the effect of the domiciliary requirement under subparagraph (A) is to render the debtor ineligible for any

exemption, the debtor may elect to exempt property that is specified under subsection (d).(4) For purposes of paragraph (3)(C) and subsection (d)(12), the following shall apply:

(A) If the retirement funds are in a retirement fund that has received a favorable determination under section 7805 ofthe Internal Revenue Code of 1986 [26 USCS § 7805], and that determination is in effect as of the date of the filing ofthe petition in a case under this title, those funds shall be presumed to be exempt from the estate.

(B) If the retirement funds are in a retirement fund that has not received a favorable determination under suchsection 7805 [26 USCS § 7805], those funds are exempt from the estate if the debtor demonstrates that--

(i) no prior determination to the contrary has been made by a court or the Internal Revenue Service; and(ii) (I) the retirement fund is in substantial compliance with the applicable requirements of the Internal Revenue

Code of 1986 [26 USCS §§ 1 et seq.]; or(II) the retirement fund fails to be in substantial compliance with the applicable requirements of the Internal

Revenue Code of 1986 [26 USCS §§ 1 et seq.] and the debtor is not materially responsible for that failure.(C) A direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section 401, 403,

408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986 [26 USCS § 401, 403, 408, 408A, 414, 457, or501(a)], under section 401(a)(31) of the Internal Revenue Code of 1986 [26 USCS § 401(a)(31)], or otherwise, shall notcease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such direct transfer.

(D) (i) Any distribution that qualifies as an eligible rollover distribution within the meaning of section 402(c) of theInternal Revenue Code of 1986 [26 USCS § 402(c)] or that is described in clause (ii) shall not cease to qualify forexemption under paragraph (3)(C) or subsection (d)(12) by reason of such distribution.

(ii) A distribution described in this clause is an amount that--(I) has been distributed from a fund or account that is exempt from taxation under section 401, 403, 408, 408A,

414, 457, or 501(a) of the Internal Revenue Code of 1986 [26 USCS § 401, 403, 408, 408A, 414, 457, or 501(a)]; and(II) to the extent allowed by law, is deposited in such a fund or account not later than 60 days after the

distribution of such amount.

(c) Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debtof the debtor that arose, or that is determined under section 502 of this title [11 USCS § 502] as if such debt had arisen,before the commencement of the case, except--

(1) a debt of a kind specified in paragraph (1) or (5) of section 523(a) [11 USCS § 523(a)] (in which case,notwithstanding any provision of applicable nonbankruptcy law to the contrary, such property shall be liable for a debtof a kind specified in such paragraph);

(2) a debt secured by a lien that is--(A) (i) not avoided under subsection (f) or (g) of this section or under section 544, 545, 547, 548, 549, or 724(a) of

this title [11 USCS § 544, 545, 547, 548, 549, or 724(a)]; and(ii) not void under section 506(d) of this title [11 USCS § 506(d)]; or

(B) a tax lien, notice of which is properly filed;(3) a debt of a kind specified in section 523(a)(4) or 523(a)(6) of this title [11 USCS § 523(a)(4) or 523(a)(6)] owed

by an institution-affiliated party of an insured depository institution to a Federal depository institutions regulatoryagency acting in its capacity as conservator, receiver, or liquidating agent for such institution; or

(4) a debt in connection with fraud in the obtaining or providing of any scholarship, grant, loan, tuition, discount,award, or other financial assistance for purposes of financing an education at an institution of higher education (as thatterm is defined in section 101 of the Higher Education Act of 1965 (20 U.S.C. 1001)).

(d) The following property may be exempted under subsection (b)(2) of this section:(1) The debtor's aggregate interest, not to exceed $ 23,675 in value, in real property or personal property that the

debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or adependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

(2) The debtor's interest, not to exceed $ 3,775 in value, in one motor vehicle.

Page 211 USCS § 522

(3) The debtor's interest, not to exceed $ 600 in value in any particular item or $ 12,625 in aggregate value, inhousehold furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments,that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(4) The debtor's aggregate interest, not to exceed $ 1,600 in value, in jewelry held primarily for the personal, family,or household use of the debtor or a dependent of the debtor.

(5) The debtor's aggregate interest in any property, not to exceed in value $ 1,250 plus up to $ 11,850 of any unusedamount of the exemption provided under paragraph (1) of this subsection.

(6) The debtor's aggregate interest, not to exceed $ 2,375 in value, in any implements, professional books, or tools, ofthe trade of the debtor or the trade of a dependent of the debtor.

(7) Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract.(8) The debtor's aggregate interest, not to exceed in value $ 12,625 less any amount of property of the estate

transferred in the manner specified in section 542(d) of this title [11 USCS § 542(d)], in any accrued dividend orinterest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured isthe debtor or an individual of whom the debtor is a dependent.

(9) Professionally prescribed health aids for the debtor or a dependent of the debtor.(10) The debtor's right to receive--

(A) a social security benefit, unemployment compensation, or a local public assistance benefit;(B) a veterans' benefit;(C) a disability, illness, or unemployment benefit;(D) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and

any dependent of the debtor;(E) a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness,

disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and anydependent of the debtor, unless--

(i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the timethe debtor's rights under such plan or contract arose;

(ii) such payment is on account of age or length of service; and(iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), or 408 of the Internal Revenue

Code of 1986 [26 USCS § 401(a), 403(a), 403(b), or 408].(11) The debtor's right to receive, or property that is traceable to--

(A) an award under a crime victim's reparation law;(B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent

reasonably necessary for the support of the debtor and any dependent of the debtor;(C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a

dependent on the date of such individual's death, to the extent reasonably necessary for the support of the debtor andany dependent of the debtor;

(D) a payment, not to exceed $ 23,675, on account of personal bodily injury, not including pain and suffering orcompensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or

(E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or wasa dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

(12) Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986 [26 USCS § 401, 403, 408, 408A, 414,457, or 501(a)].

(e) A waiver of an exemption executed in favor of a creditor that holds an unsecured claim against the debtor isunenforceable in a case under this title with respect to such claim against property that the debtor may exempt undersubsection (b) of this section. A waiver by the debtor of a power under subsection (f) or (h) of this section to avoid atransfer, under subsection (g) or (i) of this section to exempt property, or under subsection (i) of this section to recoverproperty or to preserve a transfer, is unenforceable in a case under this title.


(f)(1) Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien

on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would havebeen entitled under subsection (b) of this section, if such lien is--

(A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5) [11USCS § 523(a)(5)]; or

(B) a nonpossessory, nonpurchase-money security interest in any--(i) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical

instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent ofthe debtor;

(ii) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or(iii) professionally prescribed health aids for the debtor or a dependent of the debtor.

(2)(A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum

of--(i) the lien;(ii) all other liens on the property; and(iii) the amount of the exemption that the debtor could claim if there were no liens on the property;

exceeds the value that the debtor's interest in the property would have in the absence of any liens.(B) In the case of a property subject to more than 1 lien, a lien that has been avoided shall not be considered in

making the calculation under subparagraph (A) with respect to other liens.(C) This paragraph shall not apply with respect to a judgment arising out of a mortgage foreclosure.

(3) In a case in which State law that is applicable to the debtor--(A) permits a person to voluntarily waive a right to claim exemptions under subsection (d) or prohibits a debtor

from claiming exemptions under subsection (d); and(B) either permits the debtor to claim exemptions under State law without limitation in amount, except to the extent

that the debtor has permitted the fixing of a consensual lien on any property or prohibits avoidance of a consensual lienon property otherwise eligible to be claimed as exempt property;

the debtor may not avoid the fixing of a lien on an interest of the debtor or a dependent of the debtor in property if thelien is a nonpossessory, nonpurchase-money security interest in implements, professional books, or tools of the trade ofthe debtor or a dependent of the debtor or farm animals or crops of the debtor or a dependent of the debtor to the extentthe value of such implements, professional books, tools of the trade, animals, and crops exceeds $ 6,425.

(4)(A) Subject to subparagraph (B), for purposes of paragraph (1)(B), the term "household goods" means--

(i) clothing;(ii) furniture;(iii) appliances;(iv) 1 radio;(v) 1 television;(vi) 1 VCR;(vii) linens;(viii) china;(ix) crockery;(x) kitchenware;(xi) educational materials and educational equipment primarily for the use of minor dependent children of the

debtor;(xii) medical equipment and supplies;(xiii) furniture exclusively for the use of minor children, or elderly or disabled dependents of the debtor;(xiv) personal effects (including the toys and hobby equipment of minor dependent children and wedding rings) of

the debtor and the dependents of the debtor; and


(xv) 1 personal computer and related equipment.(B) The term "household goods" does not include--

(i) works of art (unless by or of the debtor, or any relative of the debtor);(ii) electronic entertainment equipment with a fair market value of more than $ 675 in the aggregate (except 1

television, 1 radio, and 1 VCR);(iii) items acquired as antiques with a fair market value of more than $ 675 in the aggregate;(iv) jewelry with a fair market value of more than $ 675 in the aggregate (except wedding rings); and(v) a computer (except as otherwise provided for in this section), motor vehicle (including a tractor or lawn

tractor), boat, or a motorized recreational device, conveyance, vehicle, watercraft, or aircraft.

(g) Notwithstanding sections 550 and 551 of this title [11 USCS §§ 550 and 551], the debtor may exempt undersubsection (b) of this section property that the trustee recovers under section 510(c)(2), 542, 543, 550, 551, or 553 ofthis title [11 USCS § 510(c)(2), 542, 543, 550, 551, or 553], to the extent that the debtor could have exempted suchproperty under subsection (b) of this section if such property had not been transferred, if--

(1)(A) such transfer was not a voluntary transfer of such property by the debtor; and(B) the debtor did not conceal such property; or

(2) The debtor could have avoided such transfer under subsection (f)(1)(B) of this section.

(h) The debtor may avoid a transfer of property of the debtor or recover a setoff to the extent that the debtor could haveexempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if--

(1) such transfer is avoidable by the trustee under section 544, 545, 547, 548, 549, or 724(a) of this title [11 USCS §544, 545, 547, 548, 549, or 724(a)] or recoverable by the trustee under section 553 of this title [11 USCS § 553]; and

(2) the trustee does not attempt to avoid such transfer.

(i) (1) If the debtor avoids a transfer or recovers a setoff under subsection (f) or (h) of this section, the debtor mayrecover in the manner prescribed by, and subject to the limitations of, section 550 of this title [11 USCS § 550], thesame as if the trustee had avoided such transfer, and may exempt any property so recovered under subsection (b) of thissection.

(2) Notwithstanding section 551 of this title [11 USCS § 551], a transfer avoided under section 544, 545, 547, 548,549, or 724(a) of this title [11 USCS § 544, 545, 547, 548, 549, or 724(a)], under subsection (f) or (h) of this section, orproperty recovered under section 553 of this title [11 USCS § 553], may be preserved for the benefit of the debtor to theextent that the debtor may exempt such property under subsection (g) of this section or paragraph (1) of this subsection.

(j) Notwithstanding subsections (g) and (i) of this section, the debtor may exempt a particular kind of property undersubsections (g) and (i) of this section only to the extent that the debtor has exempted less property in value of such kindthan that to which the debtor is entitled under subsection (b) of this section.

(k) Property that the debtor exempts under this section is not liable for payment of any administrative expense except--(1) the aliquot share of the costs and expenses of avoiding a transfer of property that the debtor exempts under

subsection (g) of this section, or of recovery of such property, that is attributable to the value of the portion of suchproperty exempted in relation to the value of the property recovered; and

(2) any costs and expenses of avoiding a transfer under subsection (f) or (h) of this section, or of recovery of propertyunder subsection (i)(1) of this section, that the debtor has not paid.

(l) The debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section. If thedebtor does not file such a list, a dependent of the debtor may file such a list, or may claim property as exempt fromproperty of the estate on behalf of the debtor. Unless a party in interest objects, the property claimed as exempt on suchlist is exempt.


(m) Subject to the limitation in subsection (b), this section shall apply separately with respect to each debtor in a jointcase.

(n) For assets in individual retirement accounts described in section 408 or 408A of the Internal Revenue Code of 1986[26 USCS § 408 or 408A], other than a simplified employee pension under section 408(k) of such Code [26 USCS §408(k)] or a simple retirement account under section 408(p) of such Code [26 USCS § 408(p)], the aggregate value ofsuch assets exempted under this section, without regard to amounts attributable to rollover contributions under section402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8) of the Internal Revenue Code of 1986 [26 USCS § 402(c),402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8)], and earnings thereon, shall not exceed $ 1,283,025 in a case filed by adebtor who is an individual, except that such amount may be increased if the interests of justice so require.

(o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in--(1) real or personal property that the debtor or a dependent of the debtor uses as a residence;(2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;(3) a burial plot for the debtor or a dependent of the debtor; or(4) real or personal property that the debtor or a dependent of the debtor claims as a homestead;

shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of inthe 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditorand that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (b), if on suchdate the debtor had held the property so disposed of.

(p) (1) Except as provided in paragraph (2) of this subsection and sections 544 and 548 [11 USCS §§ 544 and 548], as aresult of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt anyamount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of thepetition that exceeds in the aggregate $ 160,375 in value in--

(A) real or personal property that the debtor or a dependent of the debtor uses as a residence;(B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;(C) a burial plot for the debtor or a dependent of the debtor; or(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.

(2)(A) The limitation under paragraph (1) shall not apply to an exemption claimed under subsection (b)(3)(A) by a

family farmer for the principal residence of such farmer.(B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a

debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period) into thedebtor's current principal residence, if the debtor's previous and current residences are located in the same State.

(q) (1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may notexempt any amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1)which exceeds in the aggregate $ 160,375 if--

(A) the court determines, after notice and a hearing, that the debtor has been convicted of a felony (as defined insection 3156 of title 18 [18 USCS § 3156]), which under the circumstances, demonstrates that the filing of the case wasan abuse of the provisions of this title; or

(B) the debtor owes a debt arising from--(i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of

1934 [15 USCS § 78c(a)(47)]), any State securities laws, or any regulation or order issued under Federal securities lawsor State securities laws;

(ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any securityregistered under section 12 or 15(d) of the Securities Exchange Act of 1934 [15 USCS § 78l or 78o(d)] or under section6 of the Securities Act of 1933 [15 USCS § 77f];


(iii) any civil remedy under section 1964 of title 18; or(iv) any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death

to another individual in the preceding 5 years.(2) Paragraph (1) shall not apply to the extent the amount of an interest in property described in subparagraphs (A),

(B), (C), and (D) of subsection (p)(1) is reasonably necessary for the support of the debtor and any dependent of thedebtor.


IN THE UNITED STATES BANKRUPTCY COURTFOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: )) Case No.

Debtor ) Chapter 13) Docket No.)

Movant ))

VS. ))

All parties on case mailing matrix ))

Respondents )

MOTION TO APPROVE SETTLEMENT WITH (ALL ENTITIES PARTY TOTHE SETTLEMENT)

AND NOW, come the debtor, _____________, by and through his attorney_____________, and _______________, and respectfully represents as follows:

1. This case was commenced on _______________, when the debtor filed avoluntary petition under Chapter 13 of the Bankruptcy Code.

2. (WHY ARE YOU HEAR? GIVE SOME BACKGROUND THATEXPLAINS THE INJURY/NEED FOR THE SETTLEMENT)

3. A motion to hire special counsel, ______________, Esquire, or______________ was filed, and an order of court was entered at Docket No. ____on _______________ (date) approving the employment of special counsel. Acopy of that Order of Court is attached hereto, made a part hereof, and labeledExhibit “A”.

4. A settlement has now been reached with the defendant(s) involved in thislawsuit.

5. (OUTLINE THE SETTLEMENT. HOW MUCH IS IT? WHAT IS THETOTAL? )

6. The settlement money shall be distributed as follows (DETAIL THESETTLEMENT. EXPLAIN WHERE ALL OF THE MONEY GOES):

a) ___________________ (contingency fee percentage/flat rateamount/billable hours?) to special counsel, _____________.

b) Reimbursement of fees and costs to special counsel ______________ inthe amount of $_____________________.

c) Payment of the workmen’s compensation lien to ______________ in theamount of $___________________. (ONLY INCLUDE IF IT APPLIES TO

YOUR SITUATION)

d) The sum of $________________ to be paid directly to_______________(Your firm) for all motions, hearings and service ofdocuments needed to have special counsel appointed and to have thissettlement court approved. That work is detailed in the attached Exhibit“B”.

e) The sum of $___________________ directly to the Debtor,______________, for the Debtor’s exemption under _______________(GIVE APPLICABLE EXEMPTION STATUTES).

f) The remaining balance of settlement proceeds will be paid to RondaWinnecour, Trustee and mailed to P.O. Box 84051, Chicago, IL 60689-4002.

WHEREFORE, the debtor, _________________, respectfully requests thisHonorable Court to approve this settlement.

Respectfully submitted,

___________________ __________________________DATE Signature Block


IN RE: )) Case No.

Debtor ) Chapter 13) Docket No.)

Movant ))

VS. ))

All parties on case mailing matrix ))

Respondents )

ORDER OF COURT

AND NOW, to wit, this ___________ day of _____________________, 20____,

it is hereby ORDERED, ADJUDGED, and DECREED, that the settlement between the

debtor __________________and the defendant(s), __________________ is hereby

approved. The total proceeds of the settlement shall be distributed by special counsel as

follows:

a) ______________________ (amount of legal fees for special counsel) feeto special counsel, Patrick Murray.

b) Reimbursement of fees and costs to special counsel ______________ inthe amount of $_______________.

c) Payment of the workmen’s compensation lien to ______________ in theamount of $_________________.

d) The sum of $_____________ to be paid directly to ______________(yourlaw firm) for all motions, hearings and service of documents needed tohave special counsel appointed and to have this settlement courtapproved. That payment should be made payable to____________________ (your law firm name and address).

e) The sum of $_____________________ directly to the Debtor for theirapplicable exemption(s) under____________________ (code sections).

f) The remaining balance of settlement proceeds will be paid to RondaWinnecour, Trustee, and mailed to ________________________.

It is the responsibility of special counsel __________________ to ensure that all fundsare distributed in accordance with this Order.

FURTHER ORDERED:

_______________________________________________J.


IN RE: ) Case No.) Chapter

Debtor, )) Docket No.)

Movant ))

vs. ))

List all parties on the case mailing matrix )Respondents )

APPLICATION TO EMPLOY (NAME OF ATTORNEY), AS SPECIAL COUNSEL

AND NOW, comes the Debtor, __________, by and through his/her attorney,

______________________, and _____________________ (law firm), and respectfully represent

as follows:

1. This case was commenced on _________________, when the Debtor filed a

Chapter _____ voluntary petition under Title 11 of the Bankruptcy Code.

2. (Explain why special counsel has been hired. What happened? When did it

happen?)

3. The Debtor has retained Attorney ____________________, and the

_____________________ (law firm), as special counsel to represent the Debtor in

his/her potential ________________(type of action) action. To date, no legal

action has been filed.

4. ________________, and the _________________ (law firm) have offices located

at ______________________ (address).

5. The Debtor believes that _____________________ (special counsel) would be

able to adequately represent him/her having done similar cases in the past.

6. _________________ (special counsel) does not have any connection with any

creditor in this case. He/She does not represent any adverse interest to the

bankruptcy estate. Attached hereto, made a part of and labeled Exhibit “A” is a

signed and notarized affidavit provided by __________________ (special counsel

name).

7. The Debtor believes that this Honorable Court should approve

________________(special counsel name) as special counsel in this case because

a recovery could be beneficial to the Debtor and the Bankruptcy Estate.

8. Attached hereto, made a part of and labeled Exhibit “B” is a Fee Agreement

Power of Attorney form signed by the Debtor on _______________ (date).

9. The fee to be awarded to _________________ (special counsel name) is a

___________ (type of payment: flat fee, contingency fee, billable hours) on all

monies recovered in this case plus expenses and costs. The Debtor believes that

this fee is reasonable and should be approved by this Honorable Court.

WHEREFORE, the Debtor, ______________, respectfully request this Honorable Court

enter and Order of Court approving _______________ (special counsel name), and the

_________________ (law firm) as Special Counsel for representation in his/her personal injury

claim.

Respectfully submitted,

____________________ _________________________DATE Signature Block




Movant ))

vs. ))


AFFIDAVIT

I, ________________ (special counsel name), Esquire, of the _________________ (law firm)

hereby swear that I am the attorney hired by the Debtor, ___________________, for

representation in a personal injury case. I have no connection to any creditor or any other party

in interest of this Chapter 13 case, and I represent no interest adverse to the Chapter 13 estate.

__________________________ __________________________DATE Special Counsel Signature Block

SWORN TO AND SUBSCRIBED

Before, me this _________________

Day of __________________, 2016

_____________________________Notary Public

Exhibit “A”




Movant ))

vs. ))


ORDER APPROVING SPECIAL COUNSEL FOR THE DEBTOR

AND NOW, this _________ day of ____________, 20__, upon consideration of the Applicationfor Approval of ________________ (special counsel name) as Special Counsel filed atDocument No. ____, it is ORDERED, ADJUDGED and DECREED as follows:

1. The Application is approved as of the date the Application was filed.

2. _______________ (special counsel name), and ______________ (law firm), is/arehereby appointed as Attorney for the Debtor in this bankruptcy proceeding for thereasons set forth in the Application.

3. Professional persons or entities performing services in this case are advised thatapproval of fees for professional services will be based not only on the amountinvolved and the results accomplished, but other factors as well, including: the timeand labor reasonably required by counsel, the novelty and difficulty of the issuespresented, the skill requisite to perform the legal service properly, the preclusion ofother employment due to acceptance of this case, the customary fee, whether the feeis fixed or contingent, the time limitations imposed by the client or the circumstances,the experience, reputation and ability of the attorneys involved, the undesirability ofthe case, the nature and length of the professional relationship with the client, and,awards in similar cases.

4. Approval of any application for appointment of counsel in which certain terms ofcompensation are stated for various professionals is not an agreement by the Court toallow fees at the requested hourly rates or compensation terms. Final compensation,awarded only after notice and hearing, may be more or less than the requested hourlyrates/compensation terms based on application of the above-mentioned factors ingranting approval by Court Order.

5. Applicant shall serve this Order on all interested parties and file a certificate ofservice

__________________________________________UNITED STATES BANKRUTPCY JUDGE

cc: DebtorCounselOffice of the U.S. Trustee

(Note: check each judge’s forms. Some of the forms for appointing special counsel can differslightly. This is a self-scheduled motion that is served on the full matrix, with a 17 day responseperiod. Also, if you have not amended your exemptions to provide for your lawsuit, you shoulddo it now. Make sure you appoint special counsel as soon as you know that they exist.)

CautionAs of: Jul 16, 2015

In Re F/S Airlease II, Inc. v. Lewis Simon and S-J Corporation Greycas, Inc., TheSwig Investment Company Aircraft Trust No. 1, one of the creditors above named in

this bankruptcy proceeding; F/S Airlease II, Inc., appellant-debtor above named,Lewis Simon and S-J Financial Corporation; In Re F/S Airlease II, Inc. v. Greycas,

Inc.; The Swig Investment Company Aircraft Trust No. 1, one of the creditors abovenamed in this bankruptcy proceeding, F/S Airlease II, Inc., appellant-debtor abovenamed, Lewis Simon and S-J Financial Corporation, F/S Airlease II, Inc. v. Swig

Investment Company, Greycas, Inc., The Swig Investment Company Aircraft TrustNo. 1, one of the creditors above named in this bankruptcy proceeding, F/S AirleaseII, Inc., appellant-debtor above named, Lewis Simon and S-J Financial Corporation

Nos. 86-3712, 86-3713, 86-3714, 86-3715, 86-3716, 86-3717, 86-3718, 86-3719,86-3720, 86-3731, 86-3732, 86-3733

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

844 F.2d 99; 1988 U.S. App. LEXIS 3479; Bankr. L. Rep. (CCH) P72,242; 18 CollierBankr. Cas. 2d (MB) 959; 17 Bankr. Ct. Dec. 734

September 9, 1987, ArguedMarch 21, 1988, Filed

PRIOR HISTORY: [**1] On Appeal from theUnited States District Court for the Western District ofPennsylvania D.C. Civil No. 86-1047. On Appeal fromthe United States District Court for the Western Districtof Pennsylvania D.C. Civil No. 86-1048. On Appealfrom the United States District Court for the WesternDistrict of Pennsylvania D.C. Civil No. 86-1050.

DISPOSITION: The court reversed the judgmentsince there were no extraordinary circumstanceswarranting nunc pro tunc approval of the broker'semployment.

CASE SUMMARY:

PROCEDURAL POSTURE: Debtor and two principalcreditors appealed from a judgment of the United StatesDistrict Court for the Western District of Pennsylvaniathat affirmed the bankruptcy court's nunc pro tuncappointment of a broker for professional servicesrendered to debtor. The broker cross-appealed from theportion of the judgment vacating the bankruptcy court'smonetary award.

OVERVIEW: Debtor petitioned for bankruptcy underChapter 11. Approximately one year after commencingwork, the broker petitioned for administrative expensesassociated with his remarketing of debtor's aircraft. Thebankruptcy court approved the broker's employment nunc

Page 1

pro tunc and awarded him his requested fee. The districtcourt upheld the nunc pro tunc appointment, but foundthe award to be insufficiently substantiated. On appeal,the court reversed, holding that there were noextraordinary circumstances to support the broker's nuncpro tunc appointment. The court found that the broker, aprofessional who was advised by an attorney during hisattempts to obtain a lessee for debtor, was responsible forensuring that debtor obtained prior court approval forprofessional services. The court also found that there wasno substantial time pressure excusing the broker fromobtaining prior approval before rendering services andthat debtor's need to have its plane expeditiouslyremarketed was an insufficient excuse.

OUTCOME: The court reversed the judgment sincethere were no extraordinary circumstances warrantingnunc pro tunc approval of the broker's employment.

LexisNexis(R) Headnotes

Bankruptcy Law > Practice & Proceedings > Appeals >Standards of Review > Abuse of DiscretionBankruptcy Law > Practice & Proceedings > Appeals >Standards of Review > Clear Error ReviewBankruptcy Law > Practice & Proceedings > Appeals >Standards of Review > De Novo Review[HN1] A court of appeals reviews a bankruptcy court'sruling by the same standards the district court shouldapply. District court review of the bankruptcy court'sfactual findings is under the "clearly erroneous" standard.A decision to grant nunc pro tunc approval is in thediscretion of the bankruptcy court, and is reviewed forabuse of discretion only. The court of appeals has plenaryreview over legal questions.

Bankruptcy Law > Practice & Proceedings > Appeals >Jurisdiction[HN2] See 28 U.S.C.S. § 158(d).

Bankruptcy Law > Practice & Proceedings > Appeals >Jurisdiction[HN3] See 28 U.S.C.S. § 158(a).

Bankruptcy Law > Practice & Proceedings > Appeals >Jurisdiction

[HN4] Courts of appeals have jurisdiction over appeals inbankruptcy cases in which district courts have enteredfinal decisions, judgments, orders, and decrees. 28U.S.C.S. § 158(d). District courts, on the other hand, havejurisdiction not only over such final judgments but also,with leave of the court, over interlocutory orders anddecrees. 28 U.S.C.S. § 158(a).

Bankruptcy Law > Practice & Proceedings > Appeals >General OverviewCivil Procedure > Appeals > Appellate Jurisdiction >Interlocutory Orders[HN5] Bankruptcy cases frequently involve protractedproceedings with many parties participating. To avoid thewaste of time and resources that might result fromreviewing discrete portions of the action only after a planof reorganization is approved, courts have permittedappellate review of orders that in other contexts might beconsidered interlocutory. The factors that are consideredin making a decision on finality have included the impactof the matter on the assets of the bankruptcy estate, thepreclusive effect of a decision on the merits, and whetherthe interests of judicial economy will be furthered.

Bankruptcy Law > Case Administration > Examiners,Officers & Trustees > General OverviewBankruptcy Law > Case Administration > ProfessionalServices > Retention of Professionals > GeneralOverviewGovernments > Courts > Court Records[HN6] Bankruptcy courts may, in extraordinarycircumstances, grant retroactive approval of professionalemployment. There is a two-part test to determine thepropriety of such retroactive approval: first, thebankruptcy court must find, after a hearing, that theapplicant satisfies the disinterestedness requirements of11 U.S.C.S. § 327(a) and would therefore have beenappointed initially; and, second, the court must, in theexercise of its discretion, determine that the particularcircumstances presented are so extraordinary as towarrant retroactive approval.

Bankruptcy Law > Case Administration > Examiners,Officers & Trustees > General OverviewBankruptcy Law > Case Administration > ProfessionalServices > Retention of Professionals > Court Approval[HN7] See 11 U.S.C.S. § 327(a).

Page 2844 F.2d 99, *; 1988 U.S. App. LEXIS 3479, **1;

Bankr. L. Rep. (CCH) P72,242; 18 Collier Bankr. Cas. 2d (MB) 959

Bankruptcy Law > Case Administration > ProfessionalServices > Retention of Professionals > Debtors inPossession & TrusteesBankruptcy Law > Reorganizations > Debtors inPossession > DutiesBankruptcy Law > Reorganizations > Debtors inPossession > Powers & Rights[HN8] Under 11 U.S.C.S. § 1107(a), a debtor inpossession has substantially the same rights, powers,functions, and duties of a trustee and is thereby entitled toemploy professional persons under 11 U.S.C.S. § 327(a).

Bankruptcy Law > Case Administration > ProfessionalServices > Retention of Professionals > GeneralOverviewGovernments > Courts > Court Records[HN9] To guide the bankruptcy court in the exercise ofits discretion regarding the existence of "extraordinarycircumstances" sufficient to warrant nunc pro tuncapproval of professional services, the factors to beconsidered include: whether the applicant or some otherperson bore responsibility for applying for approval;whether the applicant was under time pressure to beginservice without approval; the amount of delay after theapplicant learned that initial approval had not beengranted; the extent to which compensation to theapplicant will prejudice innocent third parties; and otherrelevant factors.

Bankruptcy Law > Case Administration > Examiners,Officers & Trustees > General OverviewBankruptcy Law > Case Administration > ProfessionalServices > Retention of Professionals > CommitteesBankruptcy Law > Case Administration > ProfessionalServices > Retention of Professionals > Debtors inPossession & Trustees[HN10] Although Fed. R. Bankr. P. 2014(a) states that anorder approving the employment of attorneys,accountants, appraisers, auctioneers, agents, or otherprofessional persons pursuant to 11 U.S.C.S. § 327 or 11U.S.C.S. § 1103 shall be made only on application of thetrustee or committee, this requirement cannot relieve theprofessional person who seeks appointment fromresponsibility to know that such approval is necessaryand to insure that it has in fact been sought.

Bankruptcy Law > Case Administration > ProfessionalServices > Retention of Professionals > General

OverviewGovernments > Courts > Court Records[HN11] The fact that an applicant's services arebeneficial to the debtor's estate is immaterial to a court'sdecision regarding nunc pro tunc approval.

Bankruptcy Law > Case Administration > Examiners,Officers & Trustees > General OverviewBankruptcy Law > Case Administration > ProfessionalServices > Retention of Professionals > GeneralOverview[HN12] See 11 U.S.C.S. § 327(b).

Bankruptcy Law > Case Administration > Examiners,Officers & Trustees > General OverviewBankruptcy Law > Claims > Types > Unsecured PriorityClaims > Administrative Expenses > ProfessionalServicesReal Property Law > Brokers > FiduciaryResponsibilities[HN13] The authority to pay administrative expenses forprofessionals, and a real estate broker, like an attorney, isa professional, is found not in 11 U.S.C.S. § 503(b)(1)(A)but in § 503(b)(2), which permits payment as anadministrative expense for compensation andreimbursement awarded under § 330(a). 11 U.S.C.S. §330(a), in turn, empowers the court to award reasonablecompensation to, inter alia, a professional personemployed under 11 U.S.C.S. § 327.

COUNSEL: Thomas S. Galey (Argued), Pamela J.Giarla, Pittsburgh, Pennsylvania, Attorneys, for F/SAirLease II, Inc.

Jack Weinberg (Argued), Graubard, Moskovitz, Dannett,Horowitz & Mollen, New York, New York, Kirkpatrick& Lockhart, Pittsburgh, Pennsylvania, Of Counsel:George M. Cheever, Stoddard D. Platt, Robert K. Gross,Attorneys for the Swig Investment Company AircraftTrust No. 1.

Alan M. Epstein (Argued), Kelley Drye & Warren, NewYork, New York, Reed, Smith, Shaw & McClay,Pittsburgh, Pennsylvania Attorneys for Greycas, Inc.

Philip J. Nathanson (Argued), Kasdin & Nathanson,Chicago, Illinois, Dickie, McCamey & Chilcote,Pittsburgh, Pennsylvania, Attorneys for Lewis Simon andS-J Financial Corporation.



JUDGES: Sloviter and Stapleton, Circuit Judges, andFisher, District Judge. *

* Hon. Clarkson S. Fisher, Chief Judge, UnitedStates District Court for the District of NewJersey, sitting by designation.

[**2]

OPINION BY: SLOVITER

OPINION

[*101] OPINION OF THE COURT

SLOVITER, Circuit Judge.

The debtor in a Chapter 11 bankruptcy and its twoprincipal creditors appeal from an order of the districtcourt affirming the bankruptcy court's nunc pro tuncappointment of a broker for professional servicesrendered to debtor. The broker cross-appeals from thatportion of the district court's order vacating thebankruptcy court's monetary award and remanding thecase to the bankruptcy court for recalculation of theamount due the broker. We must first decide whether wehave jurisdiction. If so, we will reach the issue whetherthis case presents such "extraordinary circumstances" asset forth in In re Arkansas, 798 F.2d 645 (3d Cir. 1986),to warrant non-compliance with the prior approval rule ofsection 327(a) of Chapter 11 of the Bankruptcy Code.

I.

Facts

F/S AirLease II, Inc. is a Delaware corporationengaged solely in the business of buying, selling,financing, and leasing a Boeing airplane. It purchasedthat plane in 1980 and then leased it to Air Florida for aten-year term. Greycas, Inc. provided the financing forthat transaction; its interest in the [**3] plane wassecured by a first mortgage, and Greycas also wasentitled to an assignment of rental proceeds from the AirFlorida lease as partial security. In 1980, AirLease soldthe plane to Comet Leasing Corporation, which then soldit to Swig Investment Company, which in turn leased itback to AirLease for an eighteen-year term. Thesetransactions were each carried out subject to Greycas'security interest.

The Air Florida lease had been negotiated andprocured for AirLease by Lewis Simon, a broker who

does business through S-J Financial Corporation(collectively referred to as "Simon"), and who performedbrokerage services for AirLease's affiliated companies aswell. As a result of a dispute over commissions, Simonsued AirLease's parent corporation to obtain commissionsallegedly due for, inter alia, his brokerage services inobtaining the Air Florida lease. A settlement agreementwas reached in May of 1983 which gave Simon "theexclusive right to remarket" the Boeing aircraft, subjectto the rights of the owner and other creditors, for acommission of one-half of one month's rent for each yearof the re-leasing term, net of expenses.

In July 1984, Air Florida filed for bankruptcy [**4]under Chapter 11 of the Bankruptcy Code, therebyterminating its lease with AirLease and deprivingAirLease of its sole source of income to satisfy itsobligations to Swig and Greycas. According to anappraisal conducted at that time by AirLease's appraiser,the plane, which was missing one of its two engines, wasvalued at $ 5,242,000 and would require $ 763,500 worthof repairs to restore it to an airworthy condition.

Upon Air Florida's bankruptcy, AirLeaseimmediately contacted Simon and enlisted his servicesfor the remarketing of the plane. In response, on July 20,1984, Simon wrote a letter to AirLease's Vice Presidentand Treasurer, offering to remarket the plane for a flat feeof $ 100,000, net of expenses, "in lieu of the re-leasingfee set forth in [the May 1983 settlement agreement]."App. at 1664. This letter also requested a $ 20,000advance from AirLease to cover expenses. On July 23,1984, AirLease [*102] responded with a letter proposingadditional terms and enclosing both a check for $ 20,000and an escrow agreement.

In a second letter to AirLease, dated July 30, 1984,Simon confirmed that he would undertake to remarket theplane for a $ 100,000 flat fee. [**5] Simon also statedthat he understood that AirLease would use its bestefforts to obtain Swig's agreement to pay him the $100,000 fee if he was successful in releasing the plane.Simon made this offer on the condition that he be notifiedof Swig's decision by August 3, 1984. AirLease acceptedSimon's July 30, 1984 offer on August 21, 1984, butapparently Swig did not consent to this arrangement.

On August 3, 1984, AirLease filed a voluntarybankruptcy petition under Chapter 11 of the BankruptcyCode. Greycas, the first mortgagee, asserted that it had aright to possession of the plane; on August 30, 1984, the



bankruptcy court enjoined Greycas from instituting anyaction to obtain possession of the plane other than inAirLease's bankruptcy proceedings. The bankruptcy courtsubsequently awarded possession of the plane toAirLease and Greycas jointly.

Throughout the months of September and October1984, Simon attempted to remarket the plane. At thistime Greycas also was attempting to secure a new lessee,and Greycas did, in fact, make a proposal to AmericaWest Airlines which did not culminate in an agreement.

Thereafter, Simon reached an agreement with AlohaAirlines, which was [**6] memorialized in a letteragreement dated October 25, 1984, and finalized in alease agreement at the end of November. That agreementprovided for a ten-year lease term, with monthly rentalpayments of $ 90,000. The agreement further providedthat Aloha would furnish the necessary engine at its ownexpense, and would return the plane to AirLease at theend of the lease term with two operable engines. The dealwas contingent on the lease being executed bymid-December 1984, because the December holidayseason was Aloha's busiest time.

AirLease quickly filed a motion in the bankruptcycourt for approval of the lease to Air Florida. On the daybefore the bankruptcy court was to hold a hearing on themotion, counsel for Simon, in a letter dated November28, 1984 to counsel for AirLease, confirmed hisunderstanding reached in a telephone conversationbetween them that day that in the forthcoming bankruptcycourt hearings AirLease would not seek to obtain anyruling from the bankruptcy court "regarding thedistribution or allocation of the proceeds from the AlohaAirlines lease," but, rather, would only seek approval ofthe lease itself. App. at 792. The issue of "allocation anddistribution [**7] of the payment derived from the lease[was to] be resolved at a later date." However, Simonunderstood that AirLease would "spread of record andinclude in any order approving the lease the fact that[Simon] initiated, procured and negotiated the AlohaAirlines lease." App. at 792.

After two days of hearings held on November 29 and30, 1984, at which AirLease "spread of record" Simon'srole in the transaction, the bankruptcy court approved theAloha lease over Greycas' objections, finding it to be inthe estate's best interests. Simon testified at the hearingabout the lease; however, he did not seek his appointmentas broker or approval of his services at that time. Rather,

as Simon and AirLease had agreed, the sole issue raisedat that hearing was the confirmation of the lease.

In June 1985, ten months after he began his efforts toremarket the plane and seven months after the Alohalease was executed and approved by the bankruptcycourt, Simon filed a petition in the bankruptcy court forpayment of administrative expenses pursuant to 11U.S.C. § 503 (1982 & Supp. IV 1986). He requested $450,000, which amounted to one-half of one month's rentfor [**8] each year of the Aloha lease. The bankruptcycourt approved his employment nunc pro tunc andawarded him the $ 450,000 fee he requested. In re F/SAirLease II, Inc., 59 B.R. 769 (Bankr. W.D. Pa. 1986).

AirLease, Greycas, and Swig appealed to the districtcourt which affirmed the nunc pro tunc approval ofSimon's appointment [*103] but vacated the $ 450,000award, finding the amount to be insufficientlysubstantiated. The district court therefore remanded thecase to the bankruptcy court on the issue of the amount ofthe award. In re F/S AirLease II, Inc., 84 Bankr. 389(W.D. Pa. 1986). These appeals followed. 1

1 AirLease and Swig appeal from so much of thedistrict court's order that affirms the bankruptcycourt's nunc pro tunc approval; Greycas appealsfrom both the nunc pro tunc approval and theremand; and Simon cross-appeals from thatportion of the order vacating the monetary awardand remanding the case to the bankruptcy court.

[**9] We [HN1] review the bankruptcy court'sruling by the same standards the district court shouldapply. Universal Minerals, Inc. v. C.A. Hughes & Co.,669 F.2d 98, 102 (3d Cir. 1981). District court review ofthe bankruptcy court's factual findings is under the"clearly erroneous" standard. See In re Baron v. AlliedArtists Pictures Corp., 717 F.2d 105 (3d Cir. 1983); seealso Universal Minerals, 669 F.2d at 102. A decision togrant nunc pro tunc approval is in the discretion of thebankruptcy court, see Arkansas, 798 F.2d at 650, and isreviewed for abuse of discretion only. We have plenaryreview over legal questions. See Universal Minerals, 669F.2d at 102.

II.

Appealability

All parties construe 28 U.S.C. § 158(d) (Supp. III

Page 5844 F.2d 99, *102; 1988 U.S. App. LEXIS 3479, **5;


1985) 2 as giving us jurisdiction. We are obliged,however, in [**10] every appeal presented to us tosatisfy ourselves not only of our jurisdiction but also ofthe jurisdiction of the lower court. Bender v.Williamsport Area School District, 475 U.S. 534, 541, 89L. Ed. 2d 501, 106 S. Ct. 1326 (1986); see also In reWalsh Trucking Co., 838 F.2d 698 (3d Cir. 1988).

2 Section 158(d) of title 28 of the United StatesCode provides that:

[HN2] The courts of appealsshall have jurisdiction of appealsfrom all final decisions, judgments,orders, and decrees entered undersubsections (a) and (b) of thissection.

28 U.S.C. § 158(d) (Supp. III 1985).

Subsection (a) of section 158 provides, inturn, that:

[HN3] The district courts of theUnited States shall havejurisdiction to hear appeals fromfinal judgments, orders, anddecrees, and, with leave of thecourt, from interlocutory ordersand decrees, of bankruptcy judgesentered in cases and proceedingsreferred to the bankruptcy judgesunder section 157 of this title. Anappeal under this subsection shallbe taken only to the district courtfor the judicial district in which thebankruptcy judge is serving.

28 U.S.C. § 158(a) (Supp. III 1985). Subsection(b) of section 158, governing appeals frombankruptcy appellate panels, is not relevant here.

[**11] [HN4] Courts of appeals have jurisdictionover appeals in bankruptcy cases in which district courtshave entered "final decisions, judgments, orders, anddecrees." 28 U.S.C. § 158(d); see In re Brown, 803 F.2d120, 122 (3d Cir. 1986). District courts, on the otherhand, have jurisdiction not only over such finaljudgments but also, "with leave of the court," overinterlocutory orders and decrees. 28 U.S.C. § 158(a). In

this case, no motion was filed for leave to appeal aninterlocutory order, see Bankruptcy Rule 8001(b), andthus it appears that the district court and the partiestreated the bankruptcy court's order as final.

The unique characteristics of bankruptcy cases haveled us to "consistently consider[] finality in a morepragmatic and less technical way in bankruptcy casesthan in other situations." In re Amatex Corp., 755 F.2d1034, 1039 (3d Cir. 1985). 3 We [*104] have explainedthat [HN5] "bankruptcy cases frequently involveprotracted proceedings with many parties participating.To avoid the waste of time and resources that might resultfrom reviewing discrete portions of the action [**12]only after a plan of reorganization is approved, courtshave permitted appellate review of orders that in othercontexts might be considered interlocutory." Id. at 1039.The factors that we have considered in making a decisionon finality have included the impact of the matter on theassets of the bankruptcy estate, the preclusive effect of adecision on the merits, and whether the interests ofjudicial economy will be furthered. See, e.g., In reMeyertech, 831 F.2d 410, 414 (3d Cir. 1987).

3 Prior to 1984, the jurisdiction of the courts ofappeals in bankruptcy cases was governed by 28U.S.C. § 1293(b), (omitted by Pub. L. 98-353, tit.I, § 113, 98 Stat. 333, 343 (1984)), whichprovided that courts of appeals had jurisdiction"from a final judgment, order, or decree of abankruptcy court." This provision was supersededby section 158(d) when Congress enacted theBankruptcy Amendments & Federal JudgeshipAct of 1984, Pub. L. No. 98-353, tit. I, § 104(a),98 Stat. 333, 341 (1984), in response to theSupreme Court's decision in Northern PipelineConstruction Co. v. Marathon Pipe Line Co., 458U.S. 50, 73 L. Ed. 2d 598, 102 S. Ct. 2858 (1982).Because both statutes contain the finalityrequirement, this court has stated that Congressdid not intend any substantive change when itenacted section 158(d), and, indeed, thelegislative history reveals none. In re Pacor, Inc.,743 F.2d 984, 987 n.4 (3d Cir. 1984). We maytherefore rely on cases decided under section1293(b) to assess our jurisdiction under section158(d). See In re Brown, 803 F.2d 120, 122 n.3(3d Cir. 1986).

[**13] Applying these factors, we have found the



requisite finality in an order denying a right to appoint alegal representative for potential future claimants, In reAmatex Corp., 755 F.2d at 1039-41; an order lifting theautomatic stay of the bankruptcy code, In re Comer, 716F.2d 168, 171-74 (3d Cir. 1983); an order stayingproceedings pending action by a state agency,Wheeling-Pittsburgh Steel Corp. v. McCune, 836 F.2d153, 157-58 (3d Cir. 1987); an order denying thecreditors' motion to dismiss the debtor's Chapter 7petition, In re Christian, 804 F.2d 46, 47-48 (3d Cir.1986); and an order granting a creditors committee leaveto intervene in an adversary proceeding brought by thebankruptcy trustee in a Chapter 11 proceeding, In reMarin Motor Oil, Inc., 689 F.2d 445, 447-49 (3d Cir.1982), cert. denied, 459 U.S. 1206, 103 S. Ct. 1196, 75 L.Ed. 2d 440 (1983). See also In re Walsh Trucking Co.,838 F.2d 698, slip op. at 4-8 (3d Cir. 1988) (applying thesame analysis to appeals from the bankruptcy court to thedistrict court).

Application of this approach [**14] leads to ourconclusion in this case that the orders of both thebankruptcy court and the district court granting nunc protunc approval of Simon's employment as a broker werefinal. See In re Arkansas, 798 F.2d 645 (3d Cir. 1986)(assuming without discussion that a bankruptcy courtorder, affirmed by the district court, denying nunc protunc approval of employment of a law firm under 11U.S.C. § 327(a) was appealable).

A resolution of this discrete dispute at this timewould further the goal of judicial economy because itcould obviate the need for further action by thebankruptcy court. Even more important, the order has asignificant impact on the assets of the bankruptcy estate;the amount Simon seeks represents a substantial portionof the assets of the estate, and an award to him at thispoint will severely affect the rights of the other creditors.In fact, a delay in the final resolution of this matter couldhave an adverse impact on the debtor's successfulreorganization under Chapter 11. In letter memorandasubmitted to this court in response to its request forbriefing on the issue of appealability, AirLease, Greycas,and [**15] Swig expressed their belief that the remandof the case to the bankruptcy court and subsequentpayment of some fee to Simon could transform thisChapter 11 reorganization into a Chapter 7 involuntarybankruptcy. Richard Uhl, the president of AirLease,testified to that effect in the hearing on Simon's petitionfor payment of administrative expenses, stating that, "if

the available funds were hit as heavily as we are talkingabout here today . . . there would be no basis for a plan ofreorganization." App. at 1343. As we stated In re Comer,716 F.2d at 172, the fact that determination of thedisputed issue may require conversion of the procedurefrom one under Chapter 11 to one under Chapter 7demonstrated that, "the matter . . . is not one that canawait final resolution of the bankruptcy proceedings."

The district court's remand of the portion of thebankruptcy court's order dealing with the amount ofSimon's compensation does not affect our jurisdictionover the portion of its order approving Simon's nunc protunc employment. 4 In [*105] Universal Minerals, Inc.v. C.A. Hughes & Co., 669 F.2d 98, 101 (3d Cir. 1981),we held that [**16] we could review the district court'sdetermination in an adversary proceeding against thedebtor with respect to ownership of a certain coal minenotwithstanding that the district court had remanded tothe bankruptcy court for an accounting. See also In reMeyertech Corp., 831 F.2d at 414 (district court orderremanding to the bankruptcy court for reconsideration ofthe amount and propriety of a favorable award in anadversary proceeding is appealable final order). In thiscase, as in those, "the judgment of the district courtconclusively determined the question presented by thisappeal." Universal Minerals, 669 F.2d at 101. 5 For thesereasons, we conclude that the district court's orderapproving the nunc pro tunc employment of Simon is afinal order, 6 and we turn to the merits of the appeal.

4 One authority has concluded that the issue ofwhether a court of appeals has jurisdiction over anorder of the district court remanding to thebankruptcy court is "hopelessly unresolved." 1 L.King, Collier on Bankruptcy, para. 3.03 at 3-176(15th ed. 1987) (citing cases). This case is unlikethose where courts of appeals have dismissedappeals when the district court's remand to thebankruptcy court involved the development of"further factual findings related to a central issueraised on appeal." In re Stanton, 766 F.2d 1283,1287 (9th Cir. 1985) (citing In re Martinez, 721F.2d 262, 265 (9th Cir. 1983)); see also In reVekco, 792 F.2d 744 (8th Cir. 1986). Compare Inre Bowman, 821 F.2d 245, 248 (5th Cir. 1987)(finding no final order when remand involves"significant further proceedings") with In re Lift& Equipment Service, Inc., 816 F.2d 1013, 1016(finding final order when remand involves "no



more than a mechanical and ministerial task"),modified in part on rehearing, 819 F.2d 546 (5thCir. 1987).

[**17]5 The two instances in which we have dismissedappeals because the district court had remandedare, on close examination, inapposite here. In Inre Jeannette Corp., 832 F.2d 43 (3d Cir. 1987),the district court had affirmed the bankruptcycourt's order that the debtor's attorney violatedFed. R. Civ. P. 11 and Bankruptcy Rule 9011 andremanded for a hearing to determine whethersanctions should be imposed. We dismissed theappeal because the "liberal construction" offinality in bankruptcy proceedings "does notapply in situations unrelated to the special needsof bankruptcy litigation." Id. at 45. In In reBrown, 803 F.2d 120 (3d Cir. 1986), the districtcourt had reversed the bankruptcy court's orderthat a creditor's letter violated the automatic stayof the Code and remanded for a determination ofdamages due the debtor. We explicitly predicatedour dismissal of the appeal on the fact that thedistrict court's order did not "affect thedistribution of the debtor's assets or therelationship among the creditors." Id. at 123.6 Because of our resolution of the nunc pro tuncemployment issue, we have no occasion to reachthe issue of the amount of Simon's compensation,which is raised by the cross-appeals. Therefore,we do not decide whether we have jurisdictionover the cross-appeals.

[**18] III.

Retroactive Approval

A.

Our analysis of whether the bankruptcy court, asaffirmed by the district court, properly approved Simon'sappointment under section 327(a) 7 nunc pro tunc isinformed in large measure by our recent decision in In reArkansas, 798 F.2d 645 (3d Cir. 1986), handed downafter the bankruptcy court's decision in this case. InArkansas, we held that [HN6] "bankruptcy courts may, inextraordinary circumstances, grant retroactive approvalof professional employment." Id. at 646 (emphasisadded). We adopted a two-part test to determine thepropriety of such retroactive approval: first, thebankruptcy court must find, after a hearing, that the

applicant satisfies the disinterestedness requirements ofsection 327(a) and would therefore have been appointedinitially; and, second, the court must, in the exercise of itsdiscretion, determine that the particular circumstancespresented are so extraordinary as to warrant retroactiveapproval. Id. at 650.

7 11 U.S.C. § 327(a) (1982) provides that:

[HN7] Except as otherwiseprovided in this section, thetrustee, with the court's approval,may employ one or more attorneys,accountants, appraisers,auctioneers, or other professionalpersons, that do not hold orrepresent an interest adverse to theestate, and that are disinterestedpersons, to represent or assist thetrustee in carrying out the trustee'sduties under this title.

[HN8]

Under 11 U.S.C. § 1107(a) (1982), AirLease,as a debtor in possession, has substantially thesame rights, powers, functions, and duties of atrustee and is thereby entitled to employprofessional persons under section 327(a).

[**19] [HN9] To guide the bankruptcy court in theexercise of its discretion regarding the existence of"extraordinary circumstances", we directed it to considersuch factors as:

whether the applicant or some otherperson bore responsibility for applying for[*106] approval; whether the applicantwas under time pressure to begin servicewithout approval; the amount of delayafter the applicant learned that initialapproval had not been granted; the extentto which compensation to the applicantwill prejudice innocent third parties; andother relevant factors.

Id.

Applying these factors in Arkansas, we upheld thedistrict court's decision that no extraordinarycircumstances justified the retroactive approval of



attorneys for a creditors committee, where the attorneyswere experienced in bankruptcy practice and had allegedno time pressure that would justify their failure to applyfor approval, but simply, through oversight, hadneglected to do so. Id. at 650-51. Noting that we hadpreviously stated that the prior approval requirement is a"means of 'ensuring that the court may know the type ofindividual who is engaged in the proceeding, their [**20]integrity, their experience in connection with work of thistype, as well as their competency concerning the same,'"id. at 648, (quoting In re Hydrocarbon Chemicals, Inc.,411 F.2d 203, 205 (3d Cir.) (in banc), cert. denied, 396U.S. 823, 90 S. Ct. 66, 24 L. Ed. 2d 74 (1969)), weconcluded in Arkansas that "the prophylactic statutoryrule that approval must be sought in advance ofperformance of services is too strong to be overcome by amere showing of oversight." Id. at 651.

AirLease, Swig, and Greycas contend that Simonwould not have met the requirements of section 327(a)for appointment of professionals even had approval of hisappointment been sought in a timely fashion. 8 Theyargue that because Simon has a potential claim againstAirLease arising out of his 1983 settlement agreementwith AirLease's parent, he is not a "disinterested person"eligible for appointment under section 327(a). 9 Such adispute demonstrates the congressional wisdom inrequiring prior approval of professional persons with theattendant notice to creditors. Had prior approval beensought in this case, the issue of Simon's disinterestedness[**21] would have been brought out in the open duringthe hearing and resolved prior to his having performedthe services for which he now seeks a fee. Because weconclude, after applying the relevant factors in this case,that there were no extraordinary circumstances to supporthis nunc pro tunc appointment, we do not reach the issueof Simon's disinterestedness.

8 In light of this argument, we find the positionof appellants Swig and AirLease that Simon isentitled only to the $ 100,000 fee described in hisletter of July 20, 1984 and July 30, 1984 trulymystifying. If Simon holds interests adverse tothose of the estate, then he would not have beenappointed under section 327(a), or alternatively,would not have qualified for retroactiveappointment in any case and would not thereforebe entitled to any fee whatsoever.9 11 U.S.C. § 101(13)(A)(1982) defines"disinterested person" as a person who "is not a

creditor." A "creditor" is a person who "has aclaim against the debtor that arose at the time ofor before the order for relief concerning thedebtor." 11 U.S.C. § 101 (9)(A). A claim includesa "right to payment, whether or not such right isreduced to judgment, liquidated, unliquidated,fixed, contingent, matured, unmatured, disputed,undisputed, legal, equitable, secured orunsecured." 11 U.S.C. § 101(4).

[**22] B.

The two factors enumerated in Arkansas of particularrelevance here are who bore the responsibility forcompliance with the statutory mandate that prior approvalbe sought from the court for employment of aprofessional and whether the applicant was under suchtime pressure to begin services that prior approval couldnot reasonably be sought. Simon argues that under theBankruptcy Code and Rules AirLease bore theresponsibility for seeking court approval of theappointment of professional persons, and that it was onlythrough AirLease's oversight that the petition forapproval was never filed. [HN10] Although BankruptcyRule 2014(a) states, in relevant part, that "an orderapproving the employment of attorneys, accountants,appraisers, auctioneers, agents, or other professionalpersons pursuant to § 327 or § 1103 of the Code shall bemade only on application of the trustee or committee,"this requirement cannot relieve the professional [*107]person who seeks appointment from responsibility toknow that such approval is necessary and to insure that ithas in fact been sought. [**23] See In re Carolina SalesCorp., 45 B.R. 750, 755 (Bankr. E.D.N.C. 1985).Otherwise, the prior approval requirement of the Codecould be avoided for all non-attorney professionalpersons merely by citing the debtor's oversight, with theattendant difficulty of determining whether it wasinadvertent or not. To the extent that the bankruptcy courtheld that Simon, as a non-attorney, "cannot be held to becharged with the knowledge of this requirement,"AirLease, 59 B.R. at 775, it committed legal error.

Simon is a sophisticated businessman who wasrepresented by attorneys throughout the course of hisdealings with AirLease. This is not a case in which aperson, completely ignorant of the requirements of theBankruptcy Code and without legal representation,justifiably relied on the superior expertise of another. SeeIn re Freehold Music Center, Inc., 49 B.R. 293 (Bankr.



D.N.J. 1985). The evidence here suggests that Simon'sattorney was familiar with the requirements of theBankruptcy Code, including the requirements of section327(a). In the November 28, 1984 letter written by hisattorney to AirLease, Simon agreed to limit the request[**24] for court approval to the lease only, reservingquestions "regarding the distribution or allocation of theproceeds from the Aloha Airlines lease." App. at 792.Even if Simon believed that AirLease had theresponsibility for filing the application, we see no basis torelieve Simon from his obligation under section 327(a) toinsure that the application was timely filed.

Simon argues that the second factor articulated inArkansas -- whether the applicant was under timepressure to begin services -- supports the nunc pro tuncapproval because Aloha Airlines needed the use of theplane for the 1984 Christmas season. The bankruptcy anddistrict courts also found that Simon "operated undersevere time pressures to locate another lessee for theaircraft." In re F/S AirLease II, Inc., 84 Bankr. 389, 393(W.D. Pa. 1986). This finding reflects amisunderstanding of the "time pressure" factor, whichrelates solely to whether there is sufficient time to requestcourt approval before the professional's services mustbegin.

Simon began negotiating with AirLease in July 1984regarding his services and compensation therefor.AirLease declared bankruptcy on August 3, 1984. Simon[**25] first contacted Aloha in September 1984, and theapproval of the lease was sought from the bankruptcycourt in the end of November 1984. Simon did not seekthe requisite prior approval from the court whenAirLease's bankruptcy began, nor did he seek approval atany time during the four-month period in which he wasperforming his services. Not until June 3, 1985 -- almosta year from when he had commenced his services and afull seven months from the date he had concluded them --did Simon petition the court for payment ofadministrative expenses. The estate's need to have theplane expeditiously remarketed can hardly excuseSimon's extreme laxity in seeking approval.

The time pressures on which Simon and the courtsbelow rely are simply not the sort of exigenciescontemplated by Arkansas. In Arkansas we werereferring to an emergency situation in which services hadto be initiated within a very short period before approvalcould be sought. We cited, as an example, In re Bible

Deliverance Evangelistic Church, 39 B.R. 768 (Bankr.E.D. Pa. 1984), in which counsel was retained by acreditors committee only two weeks before a crucialmeeting and was required [**26] to begin immediatepreparation. Under these circumstances, the bankruptcycourt found that counsel had acted with "reasonablepromptness" in seeking court appointment within twoweeks of being retained. 39 B.R. at 772. The facts of thiscase do not approximate the exigent time pressurespresented in Bible, and, indeed, do not indicate thatSimon was faced with any time pressure at all withrespect to seeking the court's approval of his prospectiveservices.

[*108] Simon contends that his appointment shouldbe approved because of his successful efforts in securingthe Aloha lease. The bankruptcy court stated, in a findingamply supported by the record, that, "were it not for theefforts of S-J [Simon] in obtaining this lease, there wouldbe no estate with which a reorganization could beeffected." 59 B.R. at 777.

In most cases in which nunc pro tunc approval hasbeen sought, the applicant has performed services ofvalue. To this extent, there will be some unjustenrichment if compensation is not authorized. Becausethat is the unavoidable consequence of the statutoryrequirement of prior approval, we agree with thestatement by the court [**27] in In re Mason, 66 B.R.297, 307 (Bankr. D.N.J. 1986), that [HN11] the "fact thatthe applicant's services were beneficial to the debtor'sestate is immaterial to this court's decision regardingnunc pro tunc approval."

Simon treats the "prejudice" factor referred to inArkansas as relating to prejudice vel non to any partyfrom Simon's failure to seek prior approval. Simon andGreycas thus dispute whether Greycas, if permitted to doso by the bankruptcy court, could have performedequivalent services to Simon's at less cost. This issue isirrelevant because the statutory requirement of priorapproval is not limited to those cases in which therewould otherwise be prejudice. The "prejudice" factor towhich we referred in Arkansas was only whether, in"extraordinary circumstances" cases, there would beprejudice if compensation were paid after nunc pro tuncemployment were approved. Arkansas, 798 F.2d at 650.We do not reach that factor in this case because a reviewof the relevant factors shows that there is no evidence inthis record of [**28] the "extraordinary circumstances"



that would warrant nunc pro tunc approval of Simon'semployment.

IV.

Simon's Additional Contentions

In addition to his contentions under section 327(a),Simon argues that nunc pro tunc approval is unnecessarybecause he is entitled to a fee for his brokerage servicesunder either section 327(b) or 503(b)(1)(A) of Chapter 11of the Bankruptcy Code, 11 U.S.C. §§ 327(b),503(b)(1)(A) (Supp. IV 1986). 10 We find bothprovisions inapplicable. Simon does not fall withinsection 327(b) 11 because he was not a "regularlyemployed . . . professional person[] on salary."

10 Neither the bankruptcy court nor the districtcourt reached these issues, as they decided thecase in Simon's favor pursuant to section 327(a).11 11 U.S.C. § 327(b) (Supp. IV 1986) provides,in full, that:

[HN12] If the trustee isauthorized to operate the businessof the debtor under section 721,1202, or 1108 of this title, and ifthe debtor has regularly employedattorneys, accountants, or otherprofessional persons on salary, thetrustee may retain or replace suchprofessional persons if necessary inthe operation of such business.

[**29] We likewise reject Simon's argument undersection 503(b)(1)(A) of the Code, which permits prioritypayment as an administrative expense of "the actual,necessary costs and expenses of preserving the estate,including wages, salaries, or commissions for servicesrendered after the commencement of the case." 11 U.S.C.§ 503(b)(1)(A). Section 503(b)(1)(A) encompasses costssuch as outlays for repairs, upkeep, rent, taxes and "othercosts incidental to protection and conservation" of theestate. 3 L. King, supra, para. 503.04, at 503-20.

[HN13] The authority to pay administrative expensesfor professionals, and a real estate broker, like anattorney, is a professional, is found not in section503(b)(1)(A) but in section 503(b)(2) which permitspayment as an administrative expense for "compensation

and reimbursement awarded under section 330(a)."Section 330(a), in turn, empowers the court to award"reasonable compensation" to, inter alia, a "professionalperson employed under section 327." Because Simon is aprofessional person who was hired to "assist the[debtor-in-possession] [**30] [*109] in carrying outthe [debtor-in-possession's] duties," see 11 U.S.C. §327(a), and he failed to comply with that section'srequirement to obtain prior approval of his appointment,he cannot rely on section 503(b)(1)(A) as a way ofcircumventing section 327(a). See In re Mansfield Tire &Rubber Co., 65 B.R. 446, 465-66 (Bankr. N.D. Ohio1986). If Simon were able to be compensated undersection 503(b)(1)(A), it would render section 327(a)nugatory and would contravene Congress' intent inproviding for prior approval. 12

12 Several of the parties had filed a series ofmotions to strike and for sanctions. We find eachof these motions to be devoid of merit, especiallyin light of our disposition of this case, and willtherefore deny them.

V.

Conclusion

We are mindful that the result may seem harsh in thiscase. In Arkansas, we explained our formulation of the"extraordinary circumstances" standard by reference tothe legislative history and [**31] the important policiesat stake. We noted that without such a standard, "thebankruptcy court may be overly inclined to grant suchapproval influenced by claims of hardship due to workalready performed." 798 F.2d at 649. We stated that, "ifretroactive approval were freely granted, it would subvertthe prophylactic purpose underlying the statutoryrequirement of prior approval." Id. Our holding in thiscase reiterates and reinforces that bright-line position.

The bankruptcy court did not have the benefit ofArkansas when it gave its nunc pro tunc approval, andhence did not apply the appropriate legal standard. Thedistrict court also erred as a matter of law because itmisapplied the Arkansas factors. For the reasons set forthabove, we will reverse the order of the district courtaffirming the bankruptcy court's order granting nunc protunc approval of Simon's employment and remand to thedistrict court for the entry of an appropriate orderconsistent with this opinion.



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