In re Carolina Sales Corp.
| Decision Date | 18 January 1985 |
| Docket Number | Bankruptcy No. S-82-01564-4. |
| Citation | 45 BR 750 |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
| Parties | In re CAROLINA SALES CORPORATION, ID Number: XX-XXXXXXX, Debtor. |
Walter L. Hinson, Wilson, N.C., Trustee.
Mark C. Kirby, Raleigh, N.C., for Strategic Options.
This matter is before the court to consider the trustee's objection to claim # 135 (and duplicate claim # 206, hereinafter "claim") filed by Strategic Options, Inc. on December 17, 1982. Strategic Options' claim is for 11 U.S.C. § 503(b)(2) administrative expenses in the amount of $6,317.81 as compensation and reimbursement of expenses for professional management consulting services provided to Carolina Sales Corporation as debtor-in-possession.
The trustee, the debtor, and Strategic Options, Inc. filed Stipulations of Fact on November 20, 1984 which the court considered along with briefs and affidavits, in determining whether Strategic Options' priority claim should be allowed.
The debtor filed a voluntary chapter 11 petition on August 15, 1982. Prior to the filing, Strategic Options, a North Carolina corporation, provided professional consulting services to Carolina Sales Corporation at the rate of $65.00 per man hour or $500.00 per man day, the same rate of compensation requested in Strategic Options' priority claim.
Strategic Options markets itself as a professional organization providing a vast array of business support services including financial planning, strategic planning, organizational development, administrative advice, engineering, and marketing. All of these services are provided by a "unique combination of experienced professionals." (See generally, resumés attached to Strategic Options' September 4, 1984 Petition for Overruling of Trustee's Objections). Strategic Options' September 4, 1984 Petition admits that the "petitioner entered into a contract to supply certain professional (emphasis added) strategic, marketing, negotiating and search consulting services" to the debtor. (Petition at 1). In the November 20, 1984 Stipulations of Fact, Strategic Options stipulated that, at all pertinent times, it was "engaged in the business of rendering management level professional (emphasis added) consulting services." (Stipulations at 1).
Without obtaining prior approval of the court, the debtor-in-possession retained Strategic Options, and Strategic Options agreed to continue to provide professional services to the debtor on August 16, 1982, one day after entry of an order for relief in the case. Strategic Options was unaware of the 11 U.S.C. § 327(a) requirement that professional persons may only be employed with court approval.
The consulting services were performed by Strategic Options in a timely and competent manner and included consultation and negotiation with the officers and management level personnel of the debtor, and debtor's chapter 11 counsel and potential franchisors, and three appearances before this court during which Strategic Options' president qualified as an expert witness.
The parties stipulated that the services were "reasonably necessary in the administration" of the debtor's estate and assisted the debtor in performing its chapter 11 duties. It is further stipulated that the compensation sought is reasonable in light of the services performed.
The parties also stipulated that the services were performed "with the knowledge and consent of the Debtor, the Debtor's Chapter 11 Counsel and the Court." This case was assigned to Bankruptcy Judge Thomas M. Moore during the time Strategic Options' services were rendered. The court entered an order appointing a trustee on November 30, 1982. Shortly thereafter, the trustee received a telephonic status report and assessment of the likelihood of successful reorganization from Strategic Options and advised Strategic Options to stop providing services to the debtor. The trustee later proposed a plan of liquidation which was confirmed on June 13, 1984.
The basis of the trustee's objection to allowance of Strategic Options' claim is that no party ever sought or received an order from the court approving the debtor's employment of Strategic Options, a professional person, as required by 11 U.S.C. § 327. The trustee asserts that such failure is fatal to Strategic Options' claim for compensation and expenses made under 11 U.S.C. § 503(b)(2).
Administrative expenses, given first priority status under 11 U.S.C. § 507(a)(1), include compensation and reimbursement awarded under 11 U.S.C. § 330(a). 11 U.S.C. § 503(b)(2). Section 330(a)(1) and (2) allows payment of reasonable compensation and reimbursement of actual, necessary expenses to "a professional person employed under section 327" of title 11. If a professional's employment is not accomplished pursuant to the requirements of 11 U.S.C. § 327 and Bankruptcy Rule 2014, there is no right to compensation or reimbursement of expenses.
11 U.S.C. § 327(a) provides that a trustee (or debtor-in-possession pursuant to 11 U.S.C. § 1107):
... with the court\'s approval, may employ one or more . . . professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee\'s duties under this title.
Bankruptcy Rule 2014(a) provides:
An order approving the employment of attorneys, accountants, appraisers, auctioneers, agents, or other professional persons pursuant to § 327 or § 1103 of the Code shall be made only on application of the trustee or committee, stating the specific facts showing the necessity for the employment, the name of the person to be employed, the reasons for his selection, the professional services to be rendered, any proposed arrangement for compensation, and, to the best of the applicant\'s knowledge, all of the person\'s connections with the debtor, creditors, or any other party in interest, their respective attorneys and accountants.
The language of section 327 and Bankruptcy Rule 2014 make it abundantly clear that only those professionals whose employment is authorized by the court may be compensated under 11 U.S.C. § 330. 2 Collier on Bankruptcy ¶ 330.042, at 330-13 (15th ed. 1984). Otherwise, the person rendering services may be an officious intermeddler or a gratuitous volunteer. 2 Collier, supra. ¶ 327.02, at 327-6. See, e.g., In re Morton Shoe Companies, Inc., 22 B.R. 449, 450-51 (Bankr.D. MA 1982).
Strategic Options argues that its claim for compensation for postpetition management level consulting services should be allowed and accorded administrative priority treatment, notwithstanding the lack of prior approval, for any one of three reasons: (1) that Strategic Options did not act in the capacity of a "professional person" within the meaning of 11 U.S.C. § 327(a), rendering court approval of employment unnecessary; or, if the court determines that Strategic Options did act in a "professional" capacity, (2) that Strategic Options was employed by the debtor on salary within the meaning of 11 U.S.C. § 327(b); or, (3) that entry of an order nunc pro tunc approving Strategic Options' employment from the date of the debtor's chapter 11 filing would be appropriate given the facts of this case.
Strategic Options first argues that it is not a professional person within the meaning of 11 U.S.C. § 327, and therefore, court approval of its employment by the debtor is not necessary. We disagree and conclude that Strategic Options is a professional person within the meaning of 11 U.S.C. § 327.
Strategic Options is clearly within the definition of "person" found in 11 U.S.C. § 101(30), but since the term "professional" is nowhere defined in the Code, the court must consider various nonstatutory indicia in determining whether Strategic Options is a "professional person" within the meaning of section 327.
Strategic Options markets itself as a professional organization providing a vast array of business support services provided by a "unique combination of experienced professionals." Strategic Options itself referred to the services it contracted to render as professional services in its September 4, 1984 Petition and stipulated that at all pertinent times, it was "engaged in the business of rendering management level professional consulting services." The individuals who work for Strategic Options hold themselves out to the public as being specially trained and uniquely qualified (by both education and experience) to supply the type of superior quality consulting services provided by professionals. The conclusion that Strategic Options is a professional person within the meaning of 11 U.S.C. § 327 is further supported by the fact that Strategic Options' charged $65.00 per man hour or $500 per man day for their services, a professional rate of compensation.
Strategic Options contends that "professional person" is limited to persons involved in the administration of the estate and does not include those who only assist in the mechanics of the business. In re Seatrain Lines, Inc., 13 B.R. 980 (Bankr.S. D.N.Y.1981) and United States ex rel. Kraft v. Aetna Casualty & Surety Co., 43 B.R. 119, 12 BCD 510 (D.C.M.D.TN 1984). Even if "professional person" is so limited, which we need not determine, Strategic Options is still a "professional person" by virtue of the stipulated fact that the services were "reasonably necessary in the administration of the debtor's estate."
To avoid the enormous potential for abuse in the hiring of consultants, appraisers, business advisors, and others who offer their professional services and expertise to beleaguered chapter 11 debtors, the court should carefully scrutinize applications for employment before the trustee or debtor contracts for such services. To hold otherwise could be to invite officious...
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