In the United States Bankruptcy Court

for the Northern District of Iowa


JIMMIE H. McKIBBEN and
JANET C. McKIBBEN
Bankruptcy No. X85-02156S
Debtor(s). Chapter 7

GEORGE R. REMER Adversary No. L-90-0021S
Plaintiff(s)
vs.
JIMMIE H. MCKIBBEN and
JANET C. MCKIBBEN
Defendant(s)

Ruling Re: Motion for Appointment


This matter is before the Court on remand from the United States District Court for the Northern District of Iowa for the sole purpose of considering the application for appointment nunc pro tunc under 11 U.S.C. § 327(1) of plaintiff, attorney, George R. Remer ("Remer"). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). The following opinion granting Remer's application nunc pro tunc for appointment but limiting his fees to $5,000 constitutes this Court's findings of fact, conclusions of law, and order pursuant to Fed.R.Bankr.P. 7052.

On February 11, 1991, this Court entered an order denying Remer's complaint seeking attorney's fees because he had never been appointed as the debtors' attorney under § 330. Remer appealed that decision to the United States District Court for the Northern District of Iowa. On December 19, 1991, the District Court (Judge O'Brien) entered an order remanding the case to this Court. The remand order, however, specifically noted that the District Court was not disagreeing with this Court's February 11, 1991 ruling. The remand order stated that the case was remanded only to give Remer a chance to file for nunc pro tunc appointment as debtor's attorney.

Remer now has filed for nunc pro tunc appointment as the attorney for the debtors, Jimmie and Janet McKibbin (the debtors). This Court heard arguments of the application for appointment nunc pro tunc in Sioux City, Iowa on February 24, 1992. The debtors oppose Remer's application for nunc pro tunc appointment. If the Court approves the nunc pro tunc application, the debtors ask the Court to limit the amount of fees payable to Remer to $5,000. Remer has requested nearly $20,000 in compensation should his application for nunc pro tunc appointment be approved.

In the February 11, 1991 order, this Court previously provided detailed findings of fact relating to the origin of this dispute. Those facts will not be recounted here. The Court, however, did take additional testimony and evidence at the February 24, 1992 hearing. Based on that evidence and testimony, the Court makes the following findings.

1. Remer provided valuable services to the debtors in handling their bankruptcy. when Remer took over the debtors' case he converted it from a Chapter 7 liquidation case into a very successful Chapter 11 reorganization.

2. Remer began his representation of the debtors in the spring of 1987.

3. The parties never entered a written contract for Remer's services, nor did Remer ever send the debtors an engagement letter of any kind.

4. The debtors believe that Remer agreed to do the case for a flat charge of $5,000. Remer believes that he agreed to do the work on an hourly basis.

5. Remer did not send the debtors regular monthly billing statements as work accrued. Remer sent his first bill to the debtors in the spring of 1989, nearly two years after he began work for the debtors.

6. The debtors inquired about the bill for Remer's services one time before the first billing. Remer informed them the bill had reached $9,000 to $10,000. The debtors expressed concern to Remer at that time about the fees being that high.

7. Remer's final bill exceeded $20,000. He demanded full payment from the debtors, refusing to take $5,000 which the debtors believed they had agreed to pay him.

8. Remer filed a lawsuit in Iowa District Court in the fall of 1989 in an attempt to recover the fees. This matter has been in litigation since that time. The debtors have incurred substantial attorney's fees defending this action.

9. Remer did not file for appointment as attorney in this case at an earlier time because he believed that he could promptly recover his fees from the debtors after the case closed. He believed that he could bill the McKibbins in their capacity as the debtors after the case closed, as opposed to billing their debtorin-possession estate during the bankruptcy. He asserts that if he had billed the McKibbins as debtors-in-possession during the pendency of the case, the costs may have jeopardized the reorganization attempt. He thought it was both prudent and allowable under the law to wait and recover the fees from the debtors in their own post-bankruptcy capacity.

Conclusions of Law

As this Court noted previously, the Eighth Circuit has stated:

An attorney hired to represent a debtor-in-possession must give notice to creditors and receive court approval prior to being compensated by the estate. 11 U.S.C. § 330; Bankruptcy Rule 2016. Without such prior approval, ordinarily subsequent applications for fees should be denied and the funds received should be ordered returned to the estate. However, in limited circumstances,the bankruptcy court as a matter of fundamental fairness may exercise its discretion and enter a nunc Rro-tunc order authorizing compensation. See In re Triangle Chemicals, Inc., 697 F.2d 1280, 128485 (5th Cir. 1983). This discretion arises from the bankruptcy court's powers as a court of equity. See Johnson v. First National Bank of Montevideo, 719 F.2d 270, 273, (8th Cir. 1983) cert. denied, 465 U.S. 1012, 104 S. Ct. 1015, 79 L. Ed. 2d 145 (1984).

Lavender v. Wood, 785 F.2d 247, 248-49 (8th Cir. 1986) (per curiam) (emphasis added). The Lavender v. Wood decision cites the case In re Triangle Chemicals, Inc.-, 697 F.2d 1280, 1284-85 (5th Cir. 1983) favorably as standing for the notion that bankruptcy courts are authorized "as a matter of fundamental fairness" to enter nunc pro tunc appointments. In Triangle Chemicals, the Fifth Circuit found that a nunc pro tunc appointment and an award of attorney's fees was appropriate as a matter of fundamental fairness when the "services of such attorney . . . have subsequently benefitted the debtor's estate and, consequently, its creditors."

Other circuit courts also have attempted to provide some guidelines for determining when, and to what degree, nunc pro tunc attorney fee awards are appropriate. The Third Circuit, for example, has stated that "bankruptcy courts may, in extraordinary circumstances, grant retroactive approval of professional employment." F/S Airlease II v. Simon, 844 F.2d 99, 105 (3rd Cir. Arkansas, 798 F.2d 645, 646 (3rd Cir. 1986)) 1988) (quoting In re Arkansas, 798 F.2d 645, 646 (3rd Cir. 19 (emphasis in original). The Third Circuit has adopted a two part test for determining when retroactive approval is appropriate:

first, the bankruptcy court must find, after a hearing, that the applicant satisfies the disinterestedness requirements of section 327(a) and would therefore have been appointed initially; and, second, the court must, in the exercise of its discretion, determine that the particular circumstances presented are so extraordinary as to warrant retroactive approval.

F/S Airlease II, 844 F.2d at 105 (citing In re Arkansas, 798 F.2d at 650). The Third Circuit provided additional elaboration on the second part of this test by stating:

To guide the bankruptcy court in the exercise of its discretion regarding the existence of "extraordinary circumstances", we directed it to consider such factors as:

whether the applicant or some other person bore responsibility for applying for approval; whether the applicant was under time pressure to begin service without approval; the amount of delay after the applicant learned that initial approval had not been granted; the extent to which compensation to the applicant will prejudice innocent third parties; and other relevant factors.

F/S Airlease II, 844 F.2d at 105-06 (quoting In re Arkansas).

The F/S Airlease II case also observed, however, that:

In most cases in which nunc pro tunc approval has been sought, the applicant has performed services of value. To this extent, there will be some unjust enrichment if compensation is not authorized. Because that is the unavoidable consequence of the statutory requirement of prior approval, we agree with the statement by the court in In re Mason, 66 B.R. 297, 307 (Bankr. D.N.J. 1986), that the "fact that the applicant's services were beneficial to the debtor's estate is immaterial to this court's decision regarding nunc pro tunc approval."

844 F.2d at 108. This Court notes that this particular conclusion seems to conflict with the Fifth Circuit's determination that it is appropriate as a matter of fundamental fairness not only to consider that value of the services to the estate, but also to make the nunc pro tunc appointment and allow the fees on that basis.

This Court believes the position of the Fifth Circuit on this issue is also the position of the Eighth Circuit. The Eighth Circuit stated in Lavender v. Wood that bankruptcy courts may in limited circumstances "as a matter of fundamental fairness . . . exercise its (equitable] discretion and enter a nunc pro tunc order authorizing compensation." 785 F.2d at 248. The Lavender court adopted a "fundamental fairness" approach and cited the Fifth Circuit's Triangle Chemical case as authority. In going on to affirm the bankruptcy court's denial of the nunc pro tunc application, the Lavender v. Wood court noted "the general lack of activity and success" on the part of the attorney making the application as an important factor weighing in favor of denying the nunc pro tunc application. 785 F.2d at 249. Hence, this Court believes the Eighth Circuit has recognized the value and success of the services provided as a factor to consider when bankruptcy courts apply their equitable discretion in deciding nunc pro tunc appointments.

This Court believes, however, that the benefit and success of services provided is only one factor to be considered. The factors laid out in Airlease II are equally important considerations in reaching a decision on Remer's appointment. Here, there is no dispute that Remer's services provided a substantial benefit both to the debtors as well as the creditors of the estate. When Remer took over the debtors' case in 1987, he immediately converted it from a Chapter 7 to a Chapter 11 proceeding. The Chapter 11 case was very successful, the creditors were paid and the debtors retained their land. The debtors acknowledge Remer's role and the value of his services.

However, under factors outlined in Airlease II by the Third Circuit, Remer's application is much less compelling. Here, Remer failed his responsibility to apply for appointment. That failure has been perpetuated over a five-year period. Remer's reasons for not applying are not compelling, and at a minimum, are based only on his own error. Remer is an experienced and knowledgeable bankruptcy practitioner. Even after he was informed of his need to file for appointment, in a letter from the U.S. Trustee, and at earlier proceedings before this Court, he failed to file for a nunc pro tunc appointment. Remer did not make his application for appointment until after the District Court (Judge O'Brien) remanded his case to this Court for one final opportunity to file for a nunc pro tunc appointment. In the meantime, the debtors were forced to retain an attorney and endure the time and costs of litigating this dispute before this Court and on appeal to the District Court.

This court, weighing these competing factors in exercising its equitable discretion, concludes that it is proper to approve Remer's application for approval of his appointment as debtors' attorney nunc pro tunc. This Court believes that as a matter of "fundamental fairness" Remer should be entitled to some fees in this case. His hard work on the debtors' behalf and the outstanding result he achieved weigh heavily in this conclusion.

This Court does not believe either as a matter of fundamental fairness or under legal standards, however, that Remer should receive the entire $20,000 he has requested. He has subsequently diminished the value of his services to the debtors by dragging them through a couple years of litigation, an appeal, and more litigation to remedy an error caused by his own oversight. The debtors have been forced to incur the costs of the litigation, and to endure the time commitment it requires. Hence, this Court believes this is sufficient reason alone to limit Remer's fees to $5,000, as the debtors requested in the event the Court granted the nunc pro tunc application.

Moreover, Remer has been unable to substantiate the full value of his fee request under applicable standards for appointed attorneys. He carries the burden to establish the "reasonableness" of his fees under § 330. In re Wilde Horse Enterprises, Inc., 136 B.R. 830, 839 (Bankr. C.D. Cal. 1991) (citing In re Wildman, 72 B.R. 700, 708 (Bankr. N.D. Ill. 1987); In re Harman SuRermarketsL. Inc., 44 B.R. 918, 920 (Bankr. W.D. Va. 1984); In re Four Star Terminals, Inc., 42 B.R. 419, 429 (Bankr. D. Ala. 1984)). He has failed to establish that $20,000 is reasonable in this case. He was unable to produce a contract for his services, or even an engagement letter detailing his fees and other arrangements. The evidence indicates no such contract ever existed. Moreover, he never provided the debtors with monthly billings detailing his services. The first billing came almost two years after he began working on the debtors' case. The debtors have stated that the fee arrangement was $5,000. Since that is the only credible evidence of any fee arrangement at all, the Court must adopt this amount as a "reasonable" award.

ORDER

IT IS THEREFORE ORDERED that George Remer's application for appointment nunc pro tunc is approved and George Remer's fees are limited to $5,000.

DONE AND ORDERED this 21ST day of April, 1992.

Michael J. Melloy
Chief Bankruptcy Judge


1. All statutory references are to Title 11 of the United States Code ("the Bankruptcy Code") unless otherwise indicated.