In Acevedo, the Supreme Court banned nunc pro tunc orders as they were often used by bankruptcy courts. Bankruptcy Judge Christopher D. Jaime of Sacramento, Calif., explained why Acevedo did not bar bankruptcy courts from granting retroactive relief.
What Acevedo Did and Didn’t Do
Handed down in February, Acevedo was a per curiam opinion that strictly limited the ability of federal courts to enter orders nunc pro tunc. Roman Catholic Archdiocese of San Juan, Puerto Rico v. Acevedo Feliciano, 140 S. Ct. 696 (2020).
Quoting one of its prior decisions, the Court said that a nunc pro tunc order must “‘reflect[] the reality’” of what has occurred. A nunc pro tunc order, the Court said, “presupposes” that a court has made a decree that was not entered on account of “inadvertence.” Id. at 700-701.
As Judge Jaime said in his October 13 opinion, Acevedo “effectively ends federal courts’ use of nunc pro tunc orders to the extent such orders rewrite history to retroactively make the record reflect something that never occurred in the first instance.” Those orders, he said, “have been common, particularly with respect to employment under Section 327.”
The high court “has necessitated a change in bankruptcy practice,” Judge Jaime said. To read ABI’s report on Acevedo, click here.
The Case Before Judge Jaime
In 2013, an elderly woman signed a contingency fee agreement for counsel to prosecute her personal injury claim in a class action involving an implanted medical device. At age 87 in 2017, she filed a chapter 7 petition and received a discharge in her “no asset” case. The debtor said she had forgotten about the personal injury claim and scheduled neither the claim nor the contingency arrangement.
Two years after bankruptcy, the debtor received an offer to settle the claim for $165,000. The court reopened the bankruptcy, and creditors filed claims for almost $33,000. The chapter 7 trustee later filed a motion to approve settlement of the claim, retain the lawyer nunc pro tunc as special counsel on the contingency agreement, and pay special counsel’s fee.
If all were approved, the lawyer would be paid almost $64,000, the debtor would have a $30,000 exemption in the proceeds, creditors and administrative claims would be paid in full, and the debtor would have a small surplus.
Retroactive Relief Is Ok; Nunc Pro Tunc Isn’t
Clearly, the trustee was not entitled to have the court retain special counsel nunc pro tunc as the foundation for paying the contingency fee. However, Judge Jaime said that Acevedo is “not a per se prohibition of all retroactive relief in all instances.” He went on to say that “[s]tatutes may also serve as a basis, express or implied, for orders that have retroactive effect without need for inherent power nunc pro tunc orders.”
For example, Judge Jaime said that the Bankruptcy Code contains express authority for a retroactive order in Section 362(d) by giving the court the ability to annul the automatic stay. Implied authority for retroactive orders resides in provisions “that do not mandate that such approval actually precede the statutory activity.”
Judge Jaime cited a Ninth Circuit opinion saying that postpetition financing could be approved under Section 364(c)(2) even if the loan had been made before entry of the financing order. Sherman v. Harbin (In re Harbin), 486 F.3d 510 (9th Cir. 2007). He cited a second Ninth Circuit opinion allowing retroactive approval of compensation for a professional’s unauthorized services. Atkins v. Wain Samuel & Co., 69 F.3d 970 (9th Cir. 1995).
Although a retention order is a prerequisite to the allowance of compensation, Judge Jaime said “there is no requirement that compensated services must have been performed only after the effective date of an employment order.” He therefore held that “the power to award pre-employment compensation remains unchanged” because the two circuit decisions were not overruled by Acevedo.
The debtor was an octogenarian, so Judge Jaime said that forgetting about the claim was “plausible.” He also said that counsel provided a “tremendous benefit” to the estate, allowing payment of claims in full with a surplus for the debtor. Furthermore, the contingent fee was “reasonable value” for the special counsel’s services.
Judge Jaime denied the motion for nunc pro tunc retention, approved retention as of the date of the retention order, and approved the special counsel’s compensation.
In Acevedo, the Supreme Court banned nunc pro tunc orders as they were often used by bankruptcy courts. Bankruptcy Judge Christopher D. Jaime of Sacramento, Calif., explained why Acevedo did not bar bankruptcy courts from granting retroactive relief.
What Acevedo Did and Didn’t Do
Handed down in February, Acevedo was a per curiam opinion that strictly limited the ability of federal courts to enter orders nunc pro tunc. Roman Catholic Archdiocese of San Juan, Puerto Rico v. Acevedo Feliciano, 140 S. Ct. 696 (2020).
Quoting one of its prior decisions, the Court said that a nunc pro tunc order must “‘reflect[] the reality’” of what has occurred. A nunc pro tunc order, the Court said, “presupposes” that a court has made a decree that was not entered on account of “inadvertence.” Id. at 700-701.
As Judge Jaime said in his October 13 opinion, Acevedo “effectively ends federal courts’ use of nunc pro tunc orders to the extent such orders rewrite history to retroactively make the record reflect something that never occurred in the first instance.” Those orders, he said, “have been common, particularly with respect to employment under Section 327.”
The high court “has necessitated a change in bankruptcy practice,” Judge Jaime said.