A lawyer who forgets to file a retention application is not eligible for compensation, nor can the lawyer be paid for work performed after chapter 11 confirmation, according to a Nov. 3 opinion from the Tenth Circuit.
The lawyer filed a chapter 11 petition for a corporation but forgot to file retention papers until reminded one month later by the U.S. Trustee. The reorganization concluded with confirmation of a creditors’ plan in which the property was sold by a liquidating trustee and the debtor corporation was dissolved.
Over objection from creditors, the bankruptcy judge approved the fees for work before formal retention and for work after confirmation, because the lawyer had disclosed the fee arrangement alongside the petition. The creditors appealed and won when the bankruptcy appellate panel reversed, disallowing pre-retention and post-confirmation fees. A dissenter would have allowed post-confirmation fees.
Writing for a unanimous panel, Circuit Judge Timothy M. Tymkovich upheld the appellate panel.
When a retention application is filed late, the standard for allowing fees is “extraordinary circumstances,” not the lower threshold of “excusable neglect,” Judge Tymkovich said. Merely forgetting to file is not extraordinary, he held.
The lawyer argued unsuccessfully that he was entitled to post-confirmation fees because the debtor retained some responsibilities after plan consummation. Judge Tymkovich held there was no entitlement for fees for at least two reasons: The post-confirmation duties were mostly ministerial, and the plan’s confirmation extinguished the corporation’s status as a debtor in possession. Absent the equivalent of a trustee to represent, the lawyer had no basis for charging the estate, the opinion holds.
The opinion does not say whether the result would have been different had the plan called for continuing work and contemplated fee applications after confirmation.