Opinion
Case No. 09-42060-wsd.
November 16, 2010
OPINION GRANTING TRUSTEE'S MOTION FOR TURNOVER OF PROPERTY AND DENYING APPLICATION FOR APPOINTMENT OF COUNSEL
BACKGROUND
Machinery Maintenance Specialists, Inc. ("Debtor") filed a Chapter 11 bankruptcy petition on January 28, 2009. Nathaniel H. Herdt of the law firm William C. Babut, P.C. ("Babut") acted as Debtor's Chapter 11 bankruptcy counsel. Babut was paid a retainer and the Trustee has filed a Motion for Order Compelling Nathaniel H. Herdt and William C. Babut, P.C. to Turn Over Property of the Estate (i.e.: the said retainer).
On the filing date, on behalf of the corporate debtor, the principal of the Debtor, Arnold Primak, signed the petition and the various documents incident to the filing. This included a statement pursuant to F. R. Bankr. P. 2016(b) indicating that Babut had received $4,461.00 as a retainer, with other provisions more relevant to, and consistent with, such statements in individual consumer cases. It appears that Mr. Primak was the sole shareholder and principal of the Debtor. On February 11, 2009, an amended Statement of Financial Affairs was signed by Mr. Primak and filed, indicating that Babut had received $3,961.00 as a retainer. On February 26, 2009, the 341 Meeting of Creditors was held and concluded, and it would appear that Mr. Primak appeared there on behalf of the Debtor. On March 12, 2009, the Court issued it's usual case management order requiring a plan and disclosure statement to be filed by July 27, 2009, and setting, among other things, a confirmation hearing for September 2, 2009. On May 6, 2009, the United States Trustee filed a Motion to Convert Case from Chapter 11 to Chapter 7 and said in that pleading that he had met with the principal of the Debtor. Debtor did not respond to that motion and an Order converting the case to Chapter 7 was entered on June 3, 2009. As of that date, Babut had not (1) filed an application for approval of Babut's employment as Debtor's attorney, as is required by 11 U.S.C. § 327(a) and E.D. Mich. LBR 2014-1(a); or (2) sought the concurrence of the United States Trustee to any such application, as is required by E.D. Mich. LBR 2014-1(b).
Various matters went forward in the Chapter 7 case, including the Trustee's filing of a Motion to Turnover Records of the Debtor, the response to which, among other things, stated that Mr. Primak had passed away shortly before the entry of the Order converting the case was entered. Eventually a stipulated Order for Turnover of Debtor's Records was entered, and other proceedings followed.
On August 16, 2010, the Trustee filed a Motion seeking an order compelling Babut to turnover the attorney fee retainer on grounds that Babut had never been properly appointed as counsel for the Debtor. As of that time, a year and a half after the case was initially filed as a Chapter 11, and two months after it was converted to a Chapter 7, Babut had failed to file any application for appointment as Debtor's counsel. The Trustee's motion points out, as noted, that the originally filed 2016(b) statement stated receipt of a $4,461.00 retainer, whereas the amended Statement of Financial Affairs filed on February 22, 2009 stated receipt of a $3,961.00 payment. At the initial hearing on the Trustee's motion, held on September 23, 2010, the Court took the matter under advisement but gave Babut 20 days to file an appropriate pleading of its choosing which the Court would review incident to rendering an opinion on the Trustee's motion. On October 26, 2010, Babut tardily filed a Motion for Approval of Employment of Counsel for Debtor Nunc Pro Tunc Due to Extraordinary Circumstances. That Motion noted that Mr. Primak had passed away "in the months after the Chapter 11 Petition was filed" and that Babut had prepared an employment application but it was not signed by Mr. Primak prior to his passing away. Attached to that pleading was a copy of a document purporting to be an Application for Authority for Debtor to Employ Counsel signed by Mr. Primak on behalf of the Debtor on April 3, 2009, accompanied by an affidavit signed by Mr. Babut and notarized that same date.
DISCUSSION
11 U.S.C. § 542(a) provides:
Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
The Trustee primarily argues that Babut is not entitled to the retainer because the firm was never properly retained as Debtor's counsel pursuant to 11 U.S.C. § 330(a) and § 327, and, in the alternative, the compensation sought (i.e.: the paid retainer) exceeds the reasonable value of the services provided. The Court is also considering the indicated Nunc Pro Tunc Application.
Section 330(a) of the bankruptcy code permits the court to award reasonable compensation and reimbursement for actual, necessary expenses to a professional person "employed under section 327[.]" 11 U.S.C. § 330(a). Pursuant to § 327, a Chapter 11 debtor must first obtain court approval for retention of its attorney. 11 U.S.C. § 327. Once such approval is obtained, "[i]n order to receive payment under § 330, an attorney must comply with Federal Rule of Bankruptcy Procedure 2016, which requires professional services providers to submit to the court a detailed statement of services rendered and expenses incurred." In re 5900 Assoc., L.L.C., 468 F.3d 326, 329 (6th Cir. 2006). "11 U.S.C. Section § 330(a) establishes the exclusive means by which a claim for professional fees relating to a bankruptcy case is allowed and a debtor is simply not liable for professional fees for services performed on a chapter 11 case which have not be allowed by the bankruptcy court." In re 5900 Assoc., L.L.C., 317 B.R. 332, 335 (Bankr. E.D. Mich. 2004), aff'd, 326 B.R. 402 (E.D. Mich. 2005), aff'd, 468 F.3d 326 (6th Cir. 2006). E.D. Mich. LBR 2014-1 covers the contents of the required application and the need to submit the same to the United States Trustee for prior approval.
Babut never filed an Application to be appointed as Debtor's Chapter 11 Counsel and the Court never approved Babut's employment. Despite the fact that Debtor's owner apparently passed away after April 9, 2009, in the months after the petition was filed, Babut had more than adequate time to comply with the requirements of § 327. The failure to have done so, in and of itself, is sufficient basis for granting the Trustee's motion. In addition, Babut, in any event, has even to this day failed to file the required detailed statement of services rendered and expenses incurred (the need for which, however, is moot given the basis for the Court's conclusion).
As to the Motion for Approval of Employment, Nunc Pro Tunc, the applicable considerations and guidelines are that approval should not be given merely because it would have been if timely requested; simple negligence is an insufficient reason, and, it should only be given upon a finding that exceptional circumstances warrant such equitable treatment. Matter of Diamond Mortg. Corp., 77 B.R. 597, 600-01 (Bankr. E.D. Mich. 1987). In acting on such an application, the Court should consider whether or not approval would have been granted if timely requested, and also consider equitable factors such as: (1) whether the applicant or some other person had the responsibility for applying for approval; (2) whether the applicant was under time pressure to begin before the approval was obtained; (3) the amount of delay before the applicant tried to obtain nunc pro tunc approval after the applicant learned, or should have learned, that timely approval had not been granted or was required; (4) the extent to which compensation to applicant would prejudice third parties; and (5) other relevant factors. See In re Pica Systems, Inc., 124 B.R. 30, 32-33 (Bankr. E.D. Mich. 1991).
In this case, counsel had the sole responsibility to timely prepare and file the application; the record does not indicate any time pressures of the relevant type; the delay was long and neither explainable nor excusable; and compensation, if awarded, would clearly prejudice the unsecured creditors in this Chapter 7 case. Based on the indicated facts, there are no exceptional circumstances here and almost all of the indicated considerations weigh against granting a Nunc Pro Tunc application. Simply put, Babut's unavailed of opportunities and failures are ones of negligence and/or lack of familiarity with the Chapter 11 process and they are simply too weighty, numerous, and inexcusable. Babut provided little or no equitable bases upon which to afford any relief other than to both grant the Trustee's Motion for Turnover and deny Babut's Application.
CONCLUSION
Accordingly, the Trustee's motion is granted and Babut's Application to be Appointed Counsel is denied. The Trustee shall present an order consistent with this opinion requiring Babut to account for all monies paid to it and pay over the same to the Trustee within 20 days from the entry of the order.