In re Rainbow Press of Fredonia

• Decision Date: 28 June 1996
• Docket Number: Bankruptcy No. 86-11599 B.
• Citation: 197 BR 428
• Parties: In re RAINBOW PRESS OF FREDONIA, Debtor.
• Court: U.S. Bankruptcy Court — Western District of New York

197 B.R. 428 (1996)

In re RAINBOW PRESS OF FREDONIA, Debtor.

Bankruptcy No. 86-11599 B.

United States Bankruptcy Court, W.D. New York.

June 28, 1996.

Thomas Gaffney, Buffalo, New York, pro se.

Christopher K. Reed, Assistant U.S. Trustee, Buffalo, New York.

CARL L. BUCKI, Bankruptcy Judge.

During the lengthy administration of this difficult case, the Chapter 7 trustee rendered legal services for the benefit of the estate. Upon completing these tasks, however, the case trustee discovered that he had neglected to secure his own appointment as general counsel. Accordingly, after submitting his final report and application for allowance of legal fees, the trustee moved for his retroactive appointment as attorney. Objecting to this motion and to the allowance of legal compensation, the United States Trustee contends that the case trustee is unable to justify his failure to arrange the timely appointment of counsel.

Section 330 of the Bankruptcy Code authorizes this court to award reasonable compensation to "a professional person employed under section 327." Any such employment, however, requires the approval of the Bankruptcy Court. Subdivision (a) of section 327 provides generally that "the trustee, with the court's approval, may employ one or more attorneys . . . 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." Further, subdivision (d) provides that "the court may authorize the trustee to act as attorney or accountant for the estate if such authorization is in the best interest of the estate."

The Second Circuit has traditionally upheld a strict standard requiring prior appointment as a condition for professional compensation. See, for example, In re Eureka Upholstering Co., 48 F.2d 95 (1931) and In re Progress Lektro Shave Corp., 117 F.2d 602 (1941). This rule is not absolute, however. In his decision in In re Piecuil, 145 B.R. 777 (Bankr.W.D.N.Y.1992), the Honorable Michael J. Kaplan carefully examined the relevant precedents of this Circuit. Having nothing to add to that analysis, I fully adopt my colleague's reasoning and conclusion. As stated by Judge Kaplan, "the applicable case law permits this Court, as a court of equity, latitude to grant relief where the failure to file a timely application has been explained, and the explanation has been found reasonable." Id. at 783.

The reasonableness of an explanation will always depend upon the facts and circumstances under which the omission or error occurred. In the Western District of New York, it has become a common and regular practice for Chapter 7 trustees to seek the appointment of themselves as attorneys. Without opposition from the Office of the United States Trustee, case trustees generally view such self selection as being in the estate's best interest, in that it avoids the expense of educating an independent counsel about relevant facts. Thomas Gaffney, the case trustee in the present instance, is a member of the panel of private trustees established pursuant to 28 U.S.C. § 586(a)(1). Having been selected by the Office of the United States Trustee to serve as trustee for numerous estates, Mr. Gaffney closed 158 cases during the 1995 calendar year. His specific appointment as trustee for Rainbow Press of Fredonia, Inc., occurred on September 15, 1986. For whatever reason, the estate apparently did not require legal services during the early stages of administration. Mr. Gaffney's application for attorney compensation indicates that he first rendered legal services on June 12, 1992, and that he provided only two hours of such services prior to January of 1995.

The requirement for prior approval of counsel is designed to facilitate a careful consideration of qualifications for appointment. As noted by Judge Swan in In re Rogers-Pyatt Shellac Co., 51 F.2d 988, 992 (2nd Cir.1931), this policy seeks to avoid "the emotional pressure which inevitably arises in the attorney's favor after the services have been rendered." By reason of the confidential relationship between attorney and client, any ethical concerns are best resolved before, rather than subsequent to the commencement of representation. Otherwise, the trustee risks the release of proprietary information to parties whose interests may conflict with those of the estate. Indeed, such ethical considerations are the focus of 11 U.S.C. § 327(a), which mandates that the attorney be a disinterested person who does not hold or represent any adverse interest. By expressly authorizing the appointment of the trustee as counsel, section 327(d) rejects the notion that status as trustee would itself create a conflict of interest. Because an individual would have qualified to serve as trustee only if he or she were otherwise disinterested, the selection of trustee as counsel must necessarily satisfy the requirement of disinterestedness. In circumstances such as the present instance, therefore, the imperative for prior approval of counsel is substantially muted.

Even when disinterestedness is not a subject for concern, prior approval of counsel is always appropriate and generally required under section 327(a). Pursuant to section 327(d), the Court may authorize a trustee to act as counsel only "if such authorization is in the best interest of the estate." Although the trustee's...