Sheehan & Nugent, P.L.L.C. v. United States Trustee

Filing 14

MEMORANDUM OPINION AND ORDER AFFIRMING ORDER OF THE BANKRUPTCY COURT. Court directs the Clerk to remove this case from the Courts active docket. Signed by District Judge Irene M. Keeley on 8/11/2014. (Copy counsel of record via CM/ECF)(jmm)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
SHEEHAN & NUGENT, P.L.L.C.,
Appellant,
v.

//

CIVIL ACTION NO. 1:13CV194
BK. NO. 1:12BK9
(Judge Keeley)

UNITED STATES TRUSTEE,
JOHN CHARLES SCOTCHEL, JR.,
and HELEN HOLLAND SCOTCHEL,
Appellees.

MEMORANDUM OPINION AND ORDER
AFFIRMING ORDER OF THE BANKRUPTCY COURT
The

appellant,

Sheehan

&

Nugent,

P.L.L.C.

(“Sheehan

&

Nugent”), appeals from an order of the United States Bankruptcy
Court for the Northern District of West Virginia (the “Bankruptcy
Court”)

denying

the

firm’s

application

for

nunc

pro

tunc

employment. (Dkt. No. 1-13). For the reasons that follow, the Court
AFFIRMS the order of the Bankruptcy Court.
I.
On January 5, 2012, John and Helen Scotchel (the “Scotchels”)
filed for Chapter 7 bankruptcy protection, pursuant to 11 U.S.C. §§
701-784.

On January 5, 2012, Martin P. Sheehan (“Sheehan”) was

appointed

as

the

chapter

7

Scotchels’ bankruptcy estate.

trustee

(the

“Trustee”)

for

the

From February 2012 through June

2013, Sheehan, through his law firm Sheehan & Nugent, performed

SHEEHAN & NUGENT, P.L.L.C. v. UNITED STATES TRUSTEE

1:13CV194

MEMORANDUM OPINION AND ORDER
AFFIRMING THE ORDER OF THE BANKRUPTCY COURT
legal work for the Trustee, such as filing objections to the
Scotchels’ exemptions and filing complaints on behalf of the
Trustee.

Sheehan admits that such work exceeded the scope of his

duties as the Trustee. (Dkt. No. 3)(conceding that Sheehan & Nugent
assisted Sheehan “by performing legal work outside the duties that
are part of his ordinary duties as a trustee”).
Under 11 U.S.C. § 327(a) and Fed. R. Bankr. P. 2014(a), the
Trustee was required to obtain the approval of the Bankruptcy Court
in order to employ counsel. The Trustee, however, failed to comply
with this requirement before Sheehan & Nugent performed legal
services on its behalf. In June 2013, after recognizing its error,
the Trustee filed an application to employ Sheehan & Nugent nunc
pro tunc, as well as a motion for approval to compensate the firm
in the amount of $9717.50 for its work over the course of seventeen
months.

The United States Trustee and the debtors objected to the

untimely application and motion for approval of fees and expenses.1
On July 18, 2013, the Bankruptcy Court held a hearing on the
Trustee’s application and motion, during which Sheehan explained

1

Sheehan & Nugent argues that the Scotchels lack standing to object
because they lack a pecuniary interest in the result. However, the United
States Trustee does have standing to object under 11 U.S.C. § 307.
Therefore, whether or not the Scotchels have standing to object is
irrelevant to the outcome of this appeal.

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SHEEHAN & NUGENT, P.L.L.C. v. UNITED STATES TRUSTEE

1:13CV194

MEMORANDUM OPINION AND ORDER
AFFIRMING THE ORDER OF THE BANKRUPTCY COURT
that his firm’s filing of the objections to the debtors’ exemptions
“turned into a more prolonged exercise” than he had originally
anticipated.

(Dkt. No. 1-12 at 3).

As a result, “one thing led to

another” and Sheehan “didn’t realize [he] had failed to hire
[Sheehan & Nugent]” until later on in the case.

Id.

In an order entered on July 24, 2013, the Bankruptcy Court
granted the application for employment of Sheehan & Nugent from the
date it was filed, but denied it retroactively, and also denied the
motion for fees and expenses.
nunc

pro

tunc

application,

(Dkt. No. 1-13).
the

Bankruptcy

In denying the

Court

applied

the

extraordinary circumstances test it had previously adopted in In re
Augusta Apartments, LLC, No. 10-303, 2013 WL 3358002 (Bankr. N.D.W.
Va. July 3, 2013), and

reasoned that the Trustee’s delay in

seeking court approval for the application did not stem from
extraordinary

circumstances.

It

acknowledged

Sheehan’s

candor

regarding the circumstances, but orally explained that “courts have
consistently denied retroactive employment applications where the
basis for it . . . is simple oversight or neglect.” (Dkt. No. 1-12
at 6).
On August 27, 2013, Sheehan & Nugent appealed this order,
arguing that the Bankruptcy Court had abused its discretion.
Specifically, Sheehan & Nugent contends that the “extraordinary
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SHEEHAN & NUGENT, P.L.L.C. v. UNITED STATES TRUSTEE

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MEMORANDUM OPINION AND ORDER
AFFIRMING THE ORDER OF THE BANKRUPTCY COURT
circumstances” test, as applied by the Bankruptcy Court, gives way
to the more proper “excusable neglect” test.

According to Sheehan

& Nugent, this Court should vacate the Bankruptcy Court’s order and
remand the case with directions to apply the excusable neglect
test.
II.
Pursuant to Fed. R. Bankr. P. 8013, this Court functions as an
appellate court whenever it reviews a bankruptcy court’s order. It
may affirm, modify, reverse, or remand with instructions for
further proceedings.

While the bankruptcy court’s conclusions of

law are reviewed de novo, its findings of fact are reversed only
for clear error.2

In re Deutchman, 192 F. 3d 457, 459 (4th Cir.

1999).
III.
This case presents the Court with the option to adopt one of
two tests to be applied when granting or denying a trustee’s nunc
pro tunc application for employment under 11 U.S.C. § 327.

Under

the more demanding extraordinary circumstances test, a trustee must

2

There is some dispute between the parties as to whether the issue
in this case, i.e., the proper legal test to be applied, requires this
Court to review the Bankruptcy Court’s decision under a de novo or an
abuse of discretion standard of review. Although this Court will review
the issue de novo, the standard does not affect the outcome.

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SHEEHAN & NUGENT, P.L.L.C. v. UNITED STATES TRUSTEE

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MEMORANDUM OPINION AND ORDER
AFFIRMING THE ORDER OF THE BANKRUPTCY COURT
demonstrate, and the court must decide, “whether the particular
circumstances

attendant

to

the

application

are

sufficiently

extraordinary to warrant after-the-fact approval.” In re Jarvis, 53
F.3d 416, 420 (1st Cir. 1995). The more lenient excusable neglect
test requires a trustee to establish that “the trustee and counsel
have taken the appropriate precautions, and something nonetheless
[went] awry . . . .” In re Singson, 41 F.3d 316, 319 (7th Cir.
1994). Rather than adopting one test over the other, the Court
finds that, under either test, Sheehan’s nunc pro tunc application
should be denied.
A.

11 U.S.C. § 327
Under 11 U.S.C. § 327(a), a trustee may employ an attorney by

filing an application consistent with the requirements of Fed. R.
Bankr. P. 2014(a) and obtaining court approval.

See, e.g., In re

Shirley, 134 B.R. 940, 943 (B.A.P. 9th Cir. 1992).

Moreover,

failure to obtain approval prior to performing legal services may
lead to the denial of untimely fee requests.
States Trustee, 540 U.S. 526, 529 (2004).

See Lamie v. United

That said, bankruptcy

courts may grant nunc pro tunc approval of an attorney’s employment
application in certain circumstances because retroactive employment
applications are equitable in nature and “the court’s ultimate

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SHEEHAN & NUGENT, P.L.L.C. v. UNITED STATES TRUSTEE

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MEMORANDUM OPINION AND ORDER
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decision

to

grant

discretionary.”

or

deny

such

application

is

necessarily

In re Jarvis, 53 F.3d 416, 421 (1st Cir. 1995).

Although the Fourth Circuit has yet to address the applicable
standard

for

determining

when

nun

pro

tunc

employment

is

permissible, the majority of circuit courts that have addressed the
issue have found that such employment is warranted only where (1)
the court would have authorized employment had the application been
timely submitted, and (2) the delay in seeking court approval
resulted from extraordinary circumstances.

See In re Keren Ltd.

P’ship, 189 F.3d 86, 87 (2d Cir. 1999); In re Jarvis, 53 F.3d 416,
421 (1st Cir. 1995); In re Land, 943 F.2d 1265, 1267 (10th Cir.
1991); In re Arkansas, 798 F.2d 645, 649-60 (3rd Cir. 1986). In
point of fact, only one circuit has adopted the excusable neglect
standard.

See also In re Singson, 41 F.3d 316 (7th Cir. 1994)

(“[W]hen the trustee establishes “excusable neglect,” the court may
give retroactive authorization under § 327(a) and Rule 2014(a) for
the provision of professional services.”).
B.

The Extraordinary Circumstances Test
The

Third

Circuit

has

identified

several

factors

to

be

considered when deciding whether to grant retroactive approval of
applications under the extraordinary circumstances standard. In re

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SHEEHAN & NUGENT, P.L.L.C. v. UNITED STATES TRUSTEE

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MEMORANDUM OPINION AND ORDER
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Arkansas, 798 F.2d 645, 650 (3d Cir. 1986). These factors include:
1) whether the applicant or some other person bore responsibility
for applying for approval; 2) whether the applicant was under time
pressure to begin service without approval; 3) the amount of delay
after the applicant learned that initial approval had not been
granted; 4) the extent to which compensation to the applicant will
prejudice innocent third parties; and 5) other relevant factors.
Most courts that have addressed the issue have held that
ignorance,

negligence,

extraordinary

and

circumstances.

oversight
See

2

do

Collier

not
on

constitute

Bankruptcy

¶

327.03[3] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.
2013)(“The

majority

of

courts

hold

that

simple

neglect

or

inadvertence on the part of the applicant in failing to file a
timely retention application under section 327 is not a sufficient
basis

for

granting

retroactive

approval

of

employment.”).

If

bankruptcy courts were routinely to allow nunc pro tunc employment
in such cases, the requirement that attorneys seek prior approval
before performing services on behalf of the bankruptcy estate would
have no effect.
Here, Sheehan, as the Trustee, bore the responsibility of
applying for employment approval under 11 U.S.C. § 327 and Fed. R.
Bankr. P. 2014. He indicated that he has failed to do so because he
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SHEEHAN & NUGENT, P.L.L.C. v. UNITED STATES TRUSTEE

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MEMORANDUM OPINION AND ORDER
AFFIRMING THE ORDER OF THE BANKRUPTCY COURT
was under some time pressure to begin service based on the need for
filing objections to the Scotchels’ exemptions at the onset of the
case, (dkt. No. 3 at 6), and inexplicably waited over seventeen
months before filing his application.
After hearing the parties’ arguments, the Bankruptcy Court
concluded

that

Sheehan

had

not

met

his

burden

under

the

extraordinary circumstances test. It acknowledged the array of
factors on which a nunc pro tunc applicant may rely to demonstrate
extraordinary

circumstances,

but

determined

Sheehan’s

simple

oversight or neglect did not warrant retroactive approval of his
application.
The Court agrees. Sheehan’s only explanation for failing to
file a timely application is oversight, an excuse that does not
rise to the level of extraordinary circumstances. “In explaining
this oversight,” Sheehan stated that “there was a short deadline to
file an objection to [the Scotchels’] exemptions and that he
originally believed that the objection would be ‘pro forma.’” (Dkt.
No. 3 at 6)(“Mr. Sheehan got swept up by the unexpected turn in
litigation

and

did

not

contemporaneously

realize

[application] had not been filed or approved . . . .”).

8

that

the

SHEEHAN & NUGENT, P.L.L.C. v. UNITED STATES TRUSTEE

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MEMORANDUM OPINION AND ORDER
AFFIRMING THE ORDER OF THE BANKRUPTCY COURT
B.

The Excusable Neglect Test
Even under the excusable neglect test, Sheehan’s nunc pro tunc

application was properly denied.

In the single circuit court

decision adopting the excusable neglect standard, the Seventh
Circuit clearly explained that excusable neglect requires something
more

than

simple

neglect.

In

re

Singson,

41

F.3d

at

319.

Importantly, Singson affirmed the district court’s denial of nunc
pro tunc authorization even though that court had applied the
extraordinary circumstances test.

Id. at 320.

In In re Aultman Enterprises, 264 B.R. 485, 488 (E.D. Tenn.
2001), the district court adopted the extraordinary circumstances
test.

In

dicta,

however,

it

explained

that,

even

under

the

excusable neglect test, the appellant’s simple oversight was an
insufficient basis for nunc pro tunc approval of the application.
Id. 264 B.R. at 488. Similarly, in this case, Sheehan offers no
excuse other than “oversight.”

(Dkt. No. 3 at 6).

Bankruptcy

pro

Court

noted,

nunc

tunc

approval

Thus, as the
of

Sheehan’s

application is unwarranted even under the excusable neglect test.
(Dkt. No. 1-12 at 6).

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SHEEHAN & NUGENT, P.L.L.C. v. UNITED STATES TRUSTEE

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MEMORANDUM OPINION AND ORDER
AFFIRMING THE ORDER OF THE BANKRUPTCY COURT
IV. CONCLUSION
Application of either standard yields the same result; the
Bankruptcy

Court

correctly

denied

the

Trustee’s

retroactive

employment application. The Court therefore AFFIRMS the Bankruptcy
Court’s order.
It is so ORDERED.
The

Court

directs

the

Clerk

to transmit

copies

of

this

Memorandum Opinion and Order to counsel of record, and to remove
this case from the Court’s active docket.
DATED: August 11, 2014.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE

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