In re Delta Petroleum (P.R.) Ltd.

164 B.R. 425, 1994 Bankr. LEXIS 714, 1994 WL 70506
CourtDistrict Court, D. Puerto Rico
DecidedFebruary 17, 1994
DocketBankruptcy No. 93-00043 (SEK)
StatusPublished

This text of 164 B.R. 425 (In re Delta Petroleum (P.R.) Ltd.) is published on Counsel Stack Legal Research, covering District Court, D. Puerto Rico primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Delta Petroleum (P.R.) Ltd., 164 B.R. 425, 1994 Bankr. LEXIS 714, 1994 WL 70506 (prd 1994).

Opinion

OPINION AND ORDER

SARA E. de JESUS, Bankruptcy Judge.

The issue is whether Jose Jaime Folguera Belvis (Folguera) may collect for his services performed after the petition was filed from estate assets, even though Debtor did not procure his appointment as a professional person within the meaning of 11 U.SC. Section 327(a) and Rule 2014 of the Federal Rules of Bankruptcy Procedure.

The uncontested facts show:

1. Delta Petroleum (PR) Ltd. (Delta), filed a petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code on January 7, 1993.1

2. Mr. Folguera had been Delta’s marketing director for the greater San Juan area pursuant to a contract executed in 1991. This contract provided Folguera was to be paid commissions for sales he procured for Delta. He was not required to be Delta’s exclusive representative, so that he did have other clients for whom he could perform similar services to those rendered to the Debtor in possession. The contract also provided Delta would pay for his health insurance and provide him with a car. Folguera was assured a minimum monthly income regardless of sales. He was also paid commissions on sales he procured.

3. Pursuant to this contract, Folguera rendered his usual services after the petition was filed, from January, 1993 until March of that year, when the Trustee terminated his services. He then filed both an application for payment for his post petition services and a proof of claim registered as claim number 11 in the case for services rendered pre-petition.

4. The Trustee objected to this application because Folguera failed to procure a prior appointment, could not circumvent the provisions of 11 U.S.C. Section 327 by claiming his contract was executory in nature and had been assumed de facto by the Debtor in possession, and did not fall within the exception of 11 U.S.C. Section 327(b).

5. The parties were heard, the issue was briefed.

Our starting point is the law. 11 U.S.C. Section 327 and Rule 2014 of the Federal Rules of Bankruptcy Procedure govern appointment of professionals who will perform services for the benefit of the estate. Sections 327(a) and (b) provide:

“a) Except as otherwise provided in this section, the trustee, with the court’s approval may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee’s duties under this title.
b) If the trustee is authorized to operate the business of the debtor under section 721, 1202, or 1108 of this title, and if the debtor has regularly employed attorneys, accountants, or other professional persons on salary, the trustee may retain or replace such professional persons if necessary in the operation of such business.”

Mr. Folguera states that his request for payment is governed by 11 U.S.C. Section 365, which addresses the assumption or rejection of executory contracts and leases. He claims he is entitled to payment of his fees and expenses because his services were performed pursuant to an executory contract executed in 1991, which Debtor de facto assumed when its President asked him to continue performing these services post petition. Hence, he is entitled to payment pursuant to its terms as an administrative Chapter 11 expense.

[427]*427Trustee disagrees with this theory stating most, if not all, professional services performed by professionals are performed pursuant to executory contracts. However, contracts for professional services to be performed on behalf of the estate and paid by estate funds are governed by the specific provisions of Code Section 327 which supersedes the general provisions of Section 365, generally applied to executory contracts. Hence, the applicable Code section to this contested matter is Section 327. At best, the Trustee argues, what has occurred here is the rejection of an executory contract, .in which case Folguera would be entitled to payment of damages as a general unsecured claim, as per his claim number 11. Lastly, the Trustee argues the exception to the procurement of an appointment to act as a professional person on behalf of the estate contained in Section 327(b) is not applicable here because Mr. Folguera was not “on [a] salary”.

We agree with the Trustee that if we apply the traditional test to determine whether a contract is executory in nature, this 1991 contract governing the professional services rendered by Folguera could be classified as an executory contract within the purview of Code Section 365.2 However, we believe the specific provisions of Code Section 327 concerning employment of professional persons supersede the Code’s section pertaining to executory contracts. Moreover, most jurisdictions hold that an assumption of an execu-tory contract must be stated in writing, and is subject to the Court’s approval.3 Hence, Mr. Folguera’s theory must also fail because there is no entry whereby the Debtor in possession assumed the 1991 contract and the Court approved the assumption. Furthermore, Folguera has cited no cases to support his claim that the assumption may occur verbally or de facto.

Do the services rendered by Folgu-era to the Debtor in possession fall within the purview of Code Section 327(b) which does not require a court appointment? The need for a trustee or a debtor in possession to obtain a court appointment for the employment of professional persons depends upon whether the person was regularly employed by the debtor in the ordinary course of its business and continues to be so employed after the petition is filed.4 To determine whether the employment is regular, in the ordinary course of business, and therefore does not need a court appointment,

“Some courts have focused on whether the professional was employed on salary or on a commission basis and others have focused on the nature of the services performed. The most appropriate way, however, of distinguishing persons whose employment requires court approval is not the manner in which they are compensated, but the role such persons play in the administration of the case.”5

Stated in another fashion:

“In the context of a debtor proceeding, persons in occupations ordinarily considered professionals are not necessarily professionals whose retention by the estate requires court approval. For purposes of section 327(a), ‘professional person’ is lim[428]

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Cite This Page — Counsel Stack

Bluebook (online)
164 B.R. 425, 1994 Bankr. LEXIS 714, 1994 WL 70506, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-delta-petroleum-pr-ltd-prd-1994.