Jarvis, In re
| Decision Date | 15 April 1995 |
| Docket Number | No. 94-2215,94-2215 |
| Parties | , 33 Collier Bankr.Cas.2d 618, 27 Bankr.Ct.Dec. 213, Bankr. L. Rep. P 76,481 In re Donald JARVIS and Joyce Jarvis, Debtors. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Andrew S. Richardson, Trustee in Bankruptcy, with whom Boyajian, Harrington & Richardson, Providence, RI, was on brief, for appellant.
Robert D. Wieck, Sp. Counsel for the Estate, with whom MacAdams & Wieck, Inc., Providence, RI, was on brief, for appellees.
Before SELYA, Circuit Judge, BOWNES, Senior Circuit Judge, and BOUDIN, Circuit Judge.
Under 11 U.S.C. Sec. 327(a) and Fed.R.Bankr.P. 2014(a), a Chapter 11 trustee may employ professionals, with the bankruptcy court's approval, to assist him in fulfilling his duties. 1 In this appeal, we uphold a ruling denying an afterthought application for the employment of a professional. In the process, we address two questions of novel impression in this circuit. First, may a bankruptcy court approve a professional's employment when no application is filed until after the services in question have been rendered? Second, if belated applications are cognizable at all, what legal standard should the bankruptcy courts apply in passing upon them?
We hold, in general concordance with several other circuits, that a bankruptcy court may grant such a post facto application, but only if it can be demonstrated (1) that the employment satisfies the statutory requirements, and (2) that the delay in seeking court approval resulted from extraordinary circumstances. Relatedly, we hold that tardiness occasioned merely by oversight cannot qualify as an extraordinary circumstance under the second prong of the aforesaid test.
The material facts are not in dispute. On August 27, 1992, the debtors, Donald and Joyce Jarvis, filed a voluntary petition seeking relief under Chapter 11 of the Bankruptcy Code. On February 17, 1993, the bankruptcy court appointed Andrew S. Richardson, a veteran insolvency lawyer, as trustee.
In executing his duties, Richardson deemed it desirable to evaluate several parcels of real estate in which the debtors held ownership interests. To this end, he retained Peter Scotti, a prominent Rhode Island appraiser and broker. Although both Richardson and Scotti were familiar with the need for prior judicial approval of professional employment, neither man sought authorization from the bankruptcy court before or during the period in which services were rendered.
Scotti did yeoman work for the estate. Among other things, he arranged a sale of a two-acre parcel in Portsmouth, Rhode Island, for $275,000. The bankruptcy court granted Richardson's petition for permission to sell the land and approved the sales agreement (which made provision for a 5% brokerage commission). When the time came to pay the fee, Richardson realized that the court had never authorized Scotti's employment. He then assembled a "Nunc Pro Tunc Application to Employ Broker" and submitted it to the bankruptcy court in a belated effort to remedy the oversight. 2
After holding a hearing, the bankruptcy court found no extraordinary circumstances and denied the application. See In re Jarvis, 169 B.R. 276, 277-79 (Bankr.D.R.I.1994). The trustee appealed to the district court. On October 26, 1994, that court, ruling ore tenus, refused to disturb the bankruptcy court's order. This appeal ensued.
In surveying the terrain occupied by section 327(a), the threshold question is whether the statute permits the post facto authorization of professional services at all. Because this inquiry is strictly a matter of statutory construction, our power of interpretive scrutiny is plenary. See, e.g., United States v. Holmquist, 36 F.3d 154, 158 (1st Cir.1994), cert. denied --- U.S. ----, 115 S.Ct. 1797, 131 L.Ed.2d 724 (1995); United States v. Gifford, 17 F.3d 462, 472 (1st Cir.1994); Liberty Mut. Ins. Co. v. Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir.1992).
If possible, a statute should be construed in a way that conforms to the plain meaning of its text. 3 See, e.g., Estate of Cowart v. Nicklos Drilling Co., --- U.S. ----, ----, 112 S.Ct. 2589, 2594, 120 L.Ed.2d 379 (1992); Pritzker v. Yari, 42 F.3d 53, 67-68 (1st Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 1959, 131 L.Ed.2d 851 (1995); Holmquist, 36 F.3d at 159. When a statute's language is ambiguous, however, a court must often venture into extratextual territory in order to distill an appropriate construction. See Pritzker, 42 F.3d at 67; see also Sullivan v. CIA, 992 F.2d 1249, 1252 (1st Cir.1993) ().
In this instance, the statutory language, for all intents and purposes, is indeterminate. Section 327(a) neither expressly sanctions nor expressly forbids the post facto authorization of outside professional services. Courts have repeatedly remarked this ambiguity. See, e.g., In re Singson, 41 F.3d 316, 319 (7th Cir.1994); In re Triangle Chems., Inc., 697 F.2d 1280, 1289 (5th Cir.1983). What is more, Rule 2014(a) does not fill the void. The most that fairly can be said is that the language of both statute and rule contemplates prior authorization, see Triangle Chems., 697 F.2d at 1284, 1289; Stephen R. Grensky, The Problem Presented by Professionals Who Fail to Obtain Prior Court Approval of Their Employment, 62 Am.Bankr.L.J. 185, 188-89 (1988), 4 without explicitly prohibiting authorization after the fact.
The discerned ambiguity in section 327(a) necessarily moves us beyond the four corners of the statute's text. Since there appears to be no explicatory legislative history, we proceed to a consideration of the overarching equitable design of the Chapter 11 process. See Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. Partnership, --- U.S. ----, ----, 113 S.Ct. 1489, 1495, 123 L.Ed.2d 74 (1993). Bankruptcy courts, after all, are courts of equity, traditionally governed by equitable principles. See, e.g., Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 277, 17 L.Ed.2d 197 (1966); In re Arkansas Co., 798 F.2d 645, 648 (3d Cir.1986); Triangle Chems., 697 F.2d at 1288. In light of the purposefully nonmechanical nature of equity, we think it is appropriate that bankruptcy courts should be permitted to entertain post facto applications for professional services under section 327(a). We so hold, thereby joining several of our sister circuits. See, e.g., Singson, 41 F.3d at 319-20; In re Land, 943 F.2d 1265, 1267-68 (10th Cir.1991); In re F/S Airlease II, Inc., 844 F.2d 99, 105 (3d Cir.), cert. denied, 488 U.S. 852, 109 S.Ct. 137, 102 L.Ed.2d 110 (1988); In re THC Fin. Corp., 837 F.2d 389, 392 (9th Cir.1988); Triangle Chems., 697 F.2d at 1289.
Because the bankruptcy court's power to entertain belated applications for the employment of professionals is equitable in nature, we believe that the court's ultimate decision to grant or deny such applications is necessarily discretionary. The cases and the commentators are in accord. See Arkansas, 798 F.2d at 650; Triangle Chems., 697 F.2d at 1289; see also 2 Lawrence P. King, Collier on Bankruptcy Sec. 327.02, at 327-20 (15th ed. 1995) [hereinafter Collier on Bankruptcy ] ("Generally it has been concluded that bankruptcy courts are empowered with discretion to grant nunc pro tunc retention orders and allow compensation.").
By like token, the bankruptcy court's ruling on an attempt to secure post facto approval of an application for the employment of a professional should be reviewed by the district court under the abuse-of-discretion rubric. See Land, 943 F.2d at 1266. In the event of a further appeal, the court of appeals will independently review the bankruptcy court's ruling for abuse of discretion, ceding no special deference to the district court's previous determination. See Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 30 (1st Cir.1994) ().
By recognizing the discretionary authority of bankruptcy courts to consider post facto applications under section 327(a), we have reached the end of the beginning rather than the beginning of the end. We must yet select the precise legal yardstick by which such applications are to be measured. We conclude that the applicant must demonstrate both the professional person's suitability for appointment and the existence of extraordinary circumstances sufficient to excuse the failure to file a timely application. 5
A bankruptcy court confronted by a post facto application for the employment of a professional should begin by inquiring into suitability; the timing of the application does not matter unless the court makes a supportable finding that the services were reasonably necessary for the due performance of the trustee's duties, that the professional is licensed or otherwise qualified to render such services, and that the disinterestedness requirements of section 327(a) are not at risk. In other words, the bankruptcy court must satisfy itself that, had the application been filed on time, the court would have authorized the professional's employment then and there.
Assuming that the application clears this first hurdle, the bankruptcy court must next, in the exercise of its informed discretion, decide whether the particular circumstances attendant to the application are sufficiently extraordinary to warrant after-the-fact approval. See F/S Airlease II, 844 F.2d at 105. In fleshing out the extraordinary circumstances requirement, the Third Circuit has indicated that bankruptcy courts may consider several factors, including
whether the applicant or some other person bore responsibility for applying for approval; whether the applicant was under time...
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