FILED OCT 3 2013 1 SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NC-12-1482-DJuPa ) 6 GROTH BROTHERS OLDSMOBILE, ) Bk. No. 11-45396-RLE INC., dba Groth Brothers ) 7 Chevrolet, ) ) 8 Debtor. ) ______________________________) 9 ) GROTH BROTHERS OLDSMOBILE, ) 10 INC., ) ) 11 Appellant, ) ) 12 v. ) M E M O R A N D U M1 ) 13 JOHN T. KENDALL, TRUSTEE; ) GREEN VALLEY CORPORATION; ) 14 BORDONI RANCH, LLC, ) ) 15 Appellees. ) ______________________________) 16 Argued and Submitted on September 20, 2013 17 at San Francisco, California 18 Filed - October 3, 2013 19 Appeal from the United States Bankruptcy Court for the Northern District of California 20 Honorable Roger L. Efremsky, Bankruptcy Judge, Presiding 21 22 Appearances: William L. Needler argued for himself and Appellant William F. Ghiringhelli; Johnson C. W. 23 Lee argued for Appellee John T. Kendall, chapter 7 trustee. 24 25 Before: DUNN, JURY and PAPPAS, Bankruptcy Judges. 26 1 27 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 28 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. 1 Sorting out the parties in this appeal requires an 2 explanation. Although this appeal is captioned with Groth 3 Brothers Oldsmobile, Inc. (“Groth”) as the appellant, Groth is 4 currently a chapter 72 debtor, and its role in this appeal is 5 purely passive. The active appellants are William L. Needler of 6 Needler Law P.C. (“Needler”) and William F. Ghiringhelli of the 7 Law Offices of William F. Ghiringhelli (“Ghiringhelli”), who are 8 appealing the bankruptcy court’s denial of their employment nunc 9 pro tunc as Groth’s chapter 11 counsel. (Needler and 10 Ghiringhelli are collectively referred to herein as Appellants.) 11 Likewise, although John T. Kendall, the chapter 7 trustee for 12 Groth (“Trustee”), Green Valley Corporation (“Green Valley”) and 13 Bordoni Ranch, LLC (“Bordoni Ranch”) all are listed as appellees, 14 only the Trustee has participated actively in this appeal. We 15 AFFIRM. 16 I. FACTUAL BACKGROUND 17 At the outset, we are concerned that the Appellants did not 18 provide us with a complete or adequate record in this appeal. It 19 is the appellant’s burden generally to provide a record that is 20 adequate for purposes of appellate review. See, e.g., 21 Rule 8009(b); Kritt v. Kritt (In re Kritt), 190 B.R. 382, 387 22 (9th Cir. BAP 1995). We particularly are concerned that 23 2 Unless otherwise indicated, all chapter and section 24 references are to the federal Bankruptcy Code, 11 U.S.C. §§ 101- 25 1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Local Rules of the 26 District Court for the Northern District of California are 27 referred to as “LR’s” and the Local Rules for the Bankruptcy Court for the Northern District of California are referred to as 28 “LBR’s.”
-2- 1 Appellants did not provide us with a number of documents from the 2 record that were filed in opposition to their positions taken 3 before the bankruptcy court. See Burkhart v. FDIC 4 (In re Burkhart), 84 B.R. 658, 661 (9th Cir. BAP 1988) 5 (“Appellants should know that an attempt to reverse the trial 6 court’s findings of fact will require the entire record relied 7 upon by the trial court be supplied for review.”). Fortunately, 8 the Trustee has supplied sufficient missing documents that we can 9 conduct a meaningful review in this appeal.3 10 A. Groth’s operations preceding its bankruptcy filing. 11 Some understanding of Groth’s history and the difficulties 12 it encountered leading up to and following its bankruptcy filing 13 is necessary to provide context for the issues raised in this 14 appeal. Groth Brothers Oldsmobile, Inc. dba Groth Brothers 15 Chevrolet was established and had been operating as a Chevrolet 16 Automotive Dealer in Livermore, California since 1934. 17 Unfortunately, like many other automobile dealerships, Groth 18 suffered a significant downturn in its business during the 19 recession of recent years. At some point in 2010, Groth lost its 20 flooring line of credit with General Motors Acceptance 21 Corporation (“GMAC”). Without credit from GMAC, Groth was unable 22 to secure financing to acquire new automobile inventory. In 23 24 3 The Trustee also argues that this appeal should be 25 dismissed for Appellants’ late filing of their opening brief after two extensions had been granted. See Trustee’s Brief at 26 10. Appellants’ Opening Brief ultimately was filed five days 27 after the second granted extension expired. We exercise our discretion to waive that procedural defect and proceed to 28 consider the substance of this appeal.
-3- 1 order to acquire a limited supply of new vehicles, Groth depended 2 for a time on loans from its owners. However, by the time of its 3 bankruptcy filing, Groth’s operations were essentially limited to 4 the operations of its service department and body shop and sales 5 of vehicles on consignment. 6 B. Groth’s short sojourn in chapter 11. 7 Groth filed its petition under chapter 11 on May 18, 2011. 8 In its original filed schedules, Groth listed personal property 9 assets with a total asserted value of $2,579,501.43, including 10 $2,000,000 for Groth’s Chevrolet Automobile Franchise. The only 11 secured debt listed was a $359,324.52 Internal Revenue Service 12 (“IRS”) lien that Groth questioned as a potential preference. 13 However, Groth listed other tax debt on its Schedule E totaling 14 $877,818.71, including $738,901.78 of additional debt to the IRS. 15 General unsecured debts listed in Groth’s Schedule F totaled 16 $2,426,344.98. In its Statement of Financial Affairs (“SOFA”), 17 Groth listed payments to its owners and their relatives totaling 18 $436,763.64 during the year preceding its bankruptcy filing.4 19 Groth filed a proposed plan of reorganization (“Initial 20 Plan”) along with its petition. However, in the Article of the 21 Initial Plan titled “Means and Execution of the Plan,” Groth 22 merely stated that it would “continue its sale of new and used 23 cars and continue to operate its body shop and extensive service 24 facilities” while it investigated selling its dealership 25 franchise. 26 4 27 Amended schedules and an amended SOFA were filed on June 5, 2011, but the amendments did not change the information 28 set forth above from the original schedules and SOFA.
-4- 1 Following the § 341(a) meeting, the bankruptcy court held a 2 status conference (“Status Conference”) in the case on June 28, 3 2011. At the Status Conference, Needler appeared in behalf of 4 Groth and advised the bankruptcy court that, “We’re operating in 5 the black,” and Groth was investigating both a potential sale of 6 the dealership franchise and obtaining new floor financing. 7 Needler further reported, 8 I think we can have a workable, feasible plan on file by 60 days. We may precede that with a [sale] motion 9 under [section] 363, which would be an avenue to get this thing moving faster. 10 11 June 28, 2011 Hr’g Tr. at 4:16-19. 12 Counsel for the United States Trustee (“UST”) saw things 13 very differently. Based on information received from Groth’s 14 principal at the initial debtor interview and the § 341(a) 15 meeting, the UST’s understanding was that Groth was operating “at 16 about a $30,000-a-month loss.” Only nine cars were left in 17 inventory. Groth was not making lease payments for its 18 facilities, and it was not making current contributions to its 19 union pension plan. The UST was preparing a motion to convert 20 the case. 21 I know that Mr. Needler believes that the debtor needs to sell it in Chapter 11. And I think that they need 22 to do that very, very quickly, if just to get that done before a hearing on a motion to convert because there’s 23 no – there’s no possibility of reorganization here. 24 June 28, 2011 Hr’g Tr. at 165:20-24. 25 At the Status Hearing, Needler also gave the bankruptcy 26 court a preview of potential floor financing for Groth. 27 I basically have a letter of intent. It’s at 14- to 16-percent interest. It provides for us to borrow 28 $2.5 million for a floor plan, of which a hundred
-5- 1 vehicles would be used, 50 vehicles would be new. The problem is . . . that the fee, the upfront fee involved 2 is roughly $75,000. So I’m not sure that Your Honor would approve of such a floor plan, but it’s the only 3 [one] that we’ve been able to come up with. 4 June 28, 2011 Hr’g Tr. at 169:17-24. Needler further conceded 5 that Groth’s schedules did not support an ability to reorganize. 6 The potential for reorganization would depend on the value of 7 Groth’s dealership franchise. 8 The UST filed a motion to convert or dismiss (“Conversion 9 Motion”) Groth’s chapter 11 case on July 11, 2011. The reasons 10 given in support of the Conversion Motion included the following: 11 1) Groth had lost its floor financing from GMAC in March 12 2010 and had not been able to obtain replacement floor financing. 13 2) Groth reported only $21,680 in available cash on its 14 Schedule B, its cash having been depleted by distributions to 15 insiders for repayment of unsecured loans, compensation and 16 dividends/draws. In item 3(c) of its SOFA, Groth reported that 17 it had made payments to five insiders totaling $436,763 in the 18 year preceding its bankruptcy filing. 19 3) Groth’s President Robin Groth-Hill had consistently paid 20 herself a weekly salary of $2,600 but had recharacterized the 21 payments as credits against her loans to Groth, consequently not 22 paying payroll tax on her compensation and not accounting for 23 these payments as wages for income tax purposes. 24 4) A judgment for $387,489, that was being appealed, had 25 been entered against Groth in union litigation on May 12, 2011. 26 However, in addition to the judgment, Groth owed the union’s 27 pension plan $1.3 million for Groth’s share of unfunded pension 28 liabilities.
-6- 1 5) Groth admitted owing $1,237,143 in tax liabilities to 2 state and federal taxing authorities in its schedules. Groth 3 further had failed to pay payroll tax payments to the IRS and the 4 state of California since 2009. 5 6) Groth’s monthly operating losses in chapter 11 would 6 exceed $40,000. 7 Based on the foregoing, the UST argued that Groth was 8 incurring substantial continuing losses from operations and 9 diminution of the estate and had no reasonable likelihood of 10 reorganizing its affairs in chapter 11. 11 On July 24, 2011, Groth filed an emergency motion 12 (“Financing Motion”) to approve floor financing and a capital 13 loan (“Emergency Financing”). Attached as “Group Exhibit A” to 14 the Financing Motion was a letter agreement for the Emergency 15 Financing. According to its terms, the Emergency Financing 16 totaled $3,000,000, $2,500,000 for floor financing and $500,000 17 for working capital, bearing interest at 12% per annum, maturing 18 in twelve months, with a possible six months extension. The loan 19 fee would be $65,000. In addition, the lender would receive a 20 warrant to purchase up to 20% of Groth’s outstanding stock “for a 21 nominal price,” $0.01 per share, that Groth would be able to 22 repurchase from the lender for up to one year following its 23 reorganization in chapter 11 for $50,000, so long as any 24 outstanding portion of the working capital loan component of the 25 Emergency Financing was paid in full at the same time. Needler 26 characterized the warrant as, “It’s really – it’s really 20 27 percent, really, for nothing. That’s really what it is.” 28 July 27, 2011 Hr’g Tr. at 226:21-22.
-7- 1 A hearing (“Financing Hearing”) on Groth’s Financing Motion 2 was held on July 27, 2011. General Motors, LLC (“GM”) objected 3 to the Emergency Financing proposal based on the 20% equity 4 transfer provided for in the letter agreement and warrant. 5 Counsel for GM noted that its dealer agreement with Groth 6 provided that any ownership transfer was subject to GM’s 7 approval. GM was not familiar with the new proposed 8 lender/equity holder and had “no basis to consider let alone 9 approve” the proposed equity transfer. In addition, GM argued 10 that the letter agreement for the Emergency Financing was 11 deficient in that it did not specify line of credit arrangements 12 with a financial institution that GM would be allowed to draw 13 against as it supplied vehicle inventory. 14 Noting that there was no evidentiary support for the 15 Financing Motion in terms of supporting declarations, the 16 bankruptcy court denied the Financing Motion. 17 But to say that you want to approve this deal, with no evidence to support it, you’re going to take a 18 $3 million loan out, you’re going to pay it back in a year at 12 percent interest, you’re paying $65,000 19 upfront, and you’re effectively giving 20 percent of the business away, or $400,000 if the value is 20 $2 million, without doing a notice of sale and then complying with the Guidelines? No. And so I’m saying 21 – all I’m going to say today is the motion is denied and I’m going to leave it at that. 22 23 July 27, 2011 Hr’g Tr. at 230:19-25; 231:1-2. 24 Groth filed its opposition (“Opposition”) to the Conversion 25 Motion on August 10, 2011. Noting the denial of its Financing 26 Motion, Groth stated that it had negotiated an agreement to sell 27 its business to Green Roads, L.L.C. (“Green Roads”), for 28 $1,600,000, $1,000,000 for its dealership franchise and $600,000
-8- 1 for the balance of its assets. Groth argued that, as the primary 2 owners of Green Roads already owned a Chevrolet dealership, Groth 3 did not expect any difficulty in securing GM’s approval for the 4 sale. Part of the proposed deal, “to provide future incentives,” 5 would be to give a total 30% equity interest in Green Roads to 6 two Groth insiders, Robin Groth-Hill, Groth’s President, and 7 David Groth, who managed Groth’s body shop. Groth hoped to file 8 a motion to approve the proposed sale within the next five days 9 and further hoped that the motion could be heard on an expedited 10 basis. In conjunction with the proposed sale, Groth would be 11 filing a liquidating plan shortly. 12 Groth argued that its proposed sale would be in the best 13 interests of its creditors and the estate because it would 14 preserve value for the dealership franchise that otherwise would 15 be lost in a chapter 7 liquidation. Groth did not contest the 16 UST’s arguments that Groth was experiencing substantial 17 continuing losses and diminution of the estate postpetition. 18 However, it argued that its projected sale and liquidating plan 19 satisfied the reorganization objective of chapter 11, maximizing 20 the distributions that would be available to creditors. 21 The UST filed a reply (“Reply”) to the Opposition on 22 August 17, 2011. At the outset, the UST noted that the promised 23 sale motion had not been filed by Groth. The UST further noted 24 that from its filed monthly operating reports, Groth’s financial 25 condition was deteriorating, and it was unable to pay its 26 postpetition financial obligations. 27 Groth filed an emergency motion (“Sale Motion”) to sell its 28 dealership franchise and all other assets free and clear of liens
-9- 1 under § 363 on August 19, 2011. As indicated in the Opposition, 2 the proposed sale was to Green Roads for $1,600,000. The Sale 3 Motion was supported by a copy of a nonbinding letter of intent, 4 attached as Exhibit 2 to the Sale Motion. Needler’s supporting 5 declaration advised that counsel for the principal of Green Roads 6 was contacting GM to obtain tentative approval for the proposed 7 sale. Both the Sale Motion and Needler’s declaration advised 8 that Robin Groth-Hill and David Groth would receive a 30% equity 9 ownership interest in Green Roads. 10 On August 19, 2011, the UST opposed the Sale Motion on the 11 following grounds: 12 1) Under Rule 2002(a), a proposed sale of estate property 13 outside the ordinary course of business must be noticed to all 14 creditors of the estate. Groth noticed only its list of twenty 15 largest creditors. 16 2) Throughout the case, Groth had maintained that its 17 business was worth at least $2 million; yet, the proposed sale 18 was for only $1.6 million. On its face, there was no explanation 19 for the lower price, except that insiders of Groth were to 20 receive a 30% equity interest in the proposed buyer. The 21 expedited consideration of the Sale Motion requested by Groth 22 would not allow for sufficient investigation of the proposed sale 23 transaction by interested parties. 24 On August 22, 2011, Groth filed a further memorandum in 25 support of the Sale Motion. While side-stepping the notice issue 26 raised by the UST, Groth urged the proposed sale as supported by 27 good business reasons, i.e., it would allow for continued 28 employment of Groth’s employees, would include payment of
-10- 1 $1 million for “Blue Sky” (Groth’s dealership franchise), and 2 would include an additional $600,000, which nearly approximated 3 the value for Groth’s other assets as stated in its schedules. 4 On August 23, 2011, Groth filed its amended plan of 5 reorganization, incorporating the proposed $1.6 million sale to 6 Green Roads. On the same date, Groth also filed an amended 7 certificate of service, reflecting service of the Sale Motion on 8 all parties with addresses on Groth’s mailing matrix on August 9 19, 2011. 10 Groth requested an expedited hearing on the Sale Motion. 11 Groth’s motion for expedited hearing was denied by order entered 12 on August 19, 2011. 13 On August 23, 2011, the bankruptcy court held a hearing 14 (“Conversion Hearing”) on the Conversion Motion and granted the 15 motion. Neither of the Appellants nor any other representative 16 of Groth appeared at the Conversion Hearing. At oral argument, 17 Needler advised that he had tried, but had been unable to connect 18 to the Conversion Hearing by telephone. 19 An order converting Groth’s chapter 11 case to chapter 7 was 20 entered on August 24, 2011. The Amended Report of Unpaid 21 Chapter 11 Debtor-in-Possession Expenses, filed by Needler on 22 September 16, 2011, reflected the following unpaid postpetition 23 expenses of Groth, totaling $458,296.09 as of the conversion 24 date: a) wages and vacation pay – $62,987.82; b) unsecured vendor 25 payables – $261,518.27; and c) unpaid taxes – $133,790.00. The 26 conversion order was not appealed. 27 /// 28 ///
-11- 1 C. Appellants’ efforts to obtain approval of employment as Groth’s chapter 11 counsel. 2 3 On May 23, 2011, Needler filed his application for pro hac 4 vice admission that was approved by order entered on May 26, 5 2011. 6 Groth filed an application to employ Needler as its lead 7 attorney in the chapter 11 case, supported by Needler’s 8 declaration, on May 27, 2011. In his Disclosure of Compensation, 9 Needler disclosed a retainer of $45,000. In its SOFA, Groth 10 stated that prepetition, it had paid Needler $20,000 “against a 11 Corporate Retainer of $45,000 plus $1,039 Filing Fee.” 12 On June 3, 2011, the UST objected to Needler’s employment 13 application on the following grounds: 1) The application made no 14 statement as to whether Needler had any prepetition ties to 15 Groth. 2) No application of Ghiringhelli for employment as 16 Needler’s local co-counsel had been filed. 3) A copy of 17 Needler’s Retainer Agreement with Groth was not attached to the 18 application. 4) The application did not adequately describe 19 funds received from Groth and the financial terms for Needler’s 20 employment. 5) After citing three prior disgorgement orders 21 directed against Needler in other cases, the UST wanted an 22 explanation as to “why out of state counsel is necessary in this 23 case, how travel expenses would be dealt with and why his 24 employment would benefit the estate given his past performance in 25 other cases.” 6) Needler did not serve a copy of his proposed 26 employment order on the UST. 27 Ghiringhelli’s application for employment as Groth’s co- 28 counsel was filed on June 19, 2011. In his application for
-12- 1 employment, supported by his declaration, Ghiringhelli advised 2 that while he had no experience in chapter 11 matters, he was a 3 CPA, and he previously had represented Groth with regard to other 4 legal issues, including tax matters. He further advised that he 5 was a disinterested person and did not represent any interests 6 adverse to Groth. 7 At the Status Conference, the bankruptcy court noted that 8 Needler’s employment application was scheduled for hearing the 9 following day, but the bankruptcy court would not approve his 10 employment until California co-counsel was approved as well. 11 Accordingly, Needler needed to tie his application for employment 12 in with Ghiringhelli’s, and both should be set for hearing 13 together. Needler agreed to continue the hearing on his 14 employment application. 15 On June 30, 2011, the UST objected to Ghiringhelli’s 16 employment application, incorporating by reference its objections 17 to Needler’s application, but also objecting based on 18 Ghiringhelli’s failure to include a copy of his retainer 19 agreement with the application, and Ghiringhelli’s further 20 failure to submit a proposed order. 21 On July 24, 2011, Ghiringhelli filed his “ATTORNEY-CLIENT 22 FEE CONTRACT.” 23 Needler’s employment application was on the calendar for 24 consideration at the Financing Hearing, but the bankruptcy court 25 noted that Ghiringhelli’s employment application, which had been 26 objected to by the UST, had not been scheduled for hearing. The 27 bankruptcy court reiterated what it had stated at the Status 28 Hearing, namely that it would not approve Needler’s employment
-13- 1 until the employment of his California co-counsel was approved. 2 Accordingly, the bankruptcy court suggested that both employment 3 applications be set for hearing at the same time, and in the 4 meantime, Needler could talk with the UST in the hope that any 5 issues as to employment approval could be resolved. Needler 6 subsequently filed an “emergency” motion to have his and 7 Ghiringhelli’s employment applications heard together on 8 August 10, 2011. The hearing on Needler and Ghiringhelli’s 9 employment applications and the UST’s objections thereto was 10 scheduled for August 24, 2011 at 2:00 pm. 11 Ghiringhelli filed an amended employment application, 12 advising that his representation of Groth would be limited to 13 questions of state law and tax law, on August 15, 2011. In the 14 meantime, the UST had filed an amended objection to 15 Ghiringhelli’s employment application on August 2, 2011. 16 As noted above, the UST’s Conversion Motion was granted on 17 August 23, 2011, and the August 24, 2011 hearing on Needler and 18 Ghiringhelli’s employment applications was removed from the 19 calendar. 20 On September 3, 2011, Needler filed a motion 21 (“Reconsideration Motion”) to “reconsider, amend, modify and 22 vacate” the bankruptcy court’s decision to cancel the hearing on 23 Needler and Ghiringhelli’s applications for approval of 24 employment. Needler asserted that removing the hearing on the 25 employment applications from the calendar was unfair, and his and 26 Ghiringhelli’s employment applications should be approved nunc 27 pro tunc to Groth’s chapter 11 filing date, May 18, 2011, 28 effective immediately. The UST opposed the Reconsideration
-14- 1 Motion, essentially arguing that nothing in the Reconsideration 2 Motion and its supporting papers adequately refuted the UST’s 3 filed objections to the employment of Needler and Ghiringhelli. 4 Needler filed a supplemental memorandum in support of the 5 Reconsideration Motion, setting forth in detail the efforts 6 Needler and Ghiringhelli had made to obtain employment as Groth’s 7 chapter 11 counsel and focusing on his experience in various 8 federal courts and in representing multiple automotive 9 dealerships in chapter 11 bankruptcy proceedings. 10 The bankruptcy court held a hearing (“Reconsideration 11 Hearing”) on the Reconsideration Motion on October 12, 2011. At 12 the Reconsideration Hearing, the bankruptcy court emphasized that 13 it never had ruled on Needler and Ghiringhelli’s employment 14 applications. The scheduled hearing on the employment 15 applications simply had been taken off calendar as a result of 16 the conversion of Groth’s chapter 11 case. “So there is no order 17 to vacate, modify or reconsider at this juncture.” October 12, 18 2011 Hr’g Tr. at 4:8-9. The bankruptcy court went on to deny the 19 Reconsideration Motion without prejudice, referring Needler to 20 the Ninth Circuit’s decision in Atkins v. Wain, Samuel & Co. 21 (In re Atkins), 69 F.3d 970 (9th Cir. 1995), as setting forth the 22 factors that Needler would need to address in moving for nunc pro 23 tunc approval of the employment applications. The bankruptcy 24 court then advised that such a motion should be set for hearing 25 on appropriate notice. 26 On January 29, 2012, Needler filed an application for 27 approval of fees and expenses as a chapter 11 administrative 28 expense in Groth’s chapter 7 case. Needler requested fees of
-15- 1 $115,978.32 and reimbursement of expenses of $8,310.35, for a 2 total of $124,288.67. Needler later increased his request for 3 approval of fees and costs by $52,826.94, for an ultimate total 4 request of $177,115.61. 5 Needler filed a motion for rehearing (“Rehearing Motion”) of 6 Needler and Ghiringhelli’s applications for employment as Groth’s 7 chapter 11 counsel nunc pro tunc to the petition date on 8 January 30, 2012. In the Rehearing Motion, Needler requested the 9 bankruptcy court to reconsider its action in removing the 10 August 24, 2011 hearing on Needler and Ghiringhelli’s 11 applications for employment from the calendar and “[f]or such 12 other and further Relief as is just and Equitable under the 13 circumstances.” As support for the Rehearing Motion, Needler 14 refiled the Reconsideration Motion with its supporting papers. 15 On February 7, 2012, Needler filed a memorandum (“Rehearing 16 Memorandum”) in further support of the Rehearing Motion. In the 17 Rehearing Memorandum, Needler recapitulated Groth’s history in 18 bankruptcy. He went on to compare the underlying facts in the 19 Ninth Circuit’s Atkins decision and certain facts in the Groth 20 case, and he addressed at length the standards for consideration 21 of nunc pro tunc employment of professionals set forth in the 22 Atkins decision and in In re Twinton Props. P’ship, 27 B.R. 817 23 (Bankr. M.D. Tenn. 1983), discussed at length in Atkins. 24 On February 21, 2012, the Trustee filed his opposition 25 (“Rehearing Opposition”) to the Rehearing Motion. In the 26 Rehearing Opposition, the Trustee primarily argued that 27 1) Needler and Ghiringhelli had not adequately established 28 “exceptional circumstances” for their failure to obtain prior
-16- 1 approval of their employment applications, and 2) they had not 2 demonstrated that their services significantly benefitted Groth’s 3 estate, both as required by Atkins. Green Valley and Bordoni 4 Ranch joined in the Opposition. 5 On February 29, 2012, the bankruptcy court held a hearing 6 (“Preliminary Hearing”) on the Rehearing Motion and Needler’s 7 application for approval of fees and reimbursement of expenses. 8 At the Preliminary Hearing, during colloquy with counsel, the 9 bankruptcy court advised Needler that the standards for nunc pro 10 tunc approval of employment, “whether there’s a satisfactory 11 explanation for the delay in obtaining approval and then also a 12 demonstration of benefit,” had not been met. February 29, 2012 13 Hr’g Tr. at 4-5. The bankruptcy court went on to deny the 14 Rehearing Motion without prejudice and the fee application as 15 premature, again without prejudice. An order consistent with the 16 bankruptcy court’s oral rulings at the Preliminary Hearing was 17 entered on March 6, 2012. 18 On August 13, 2012, over five months later, Needler filed a 19 motion (“Further Rehearing Motion”) for a further rehearing of 20 the Rehearing Motion and for the entry of final orders on his 21 motion for nunc pro tunc approval of his and Ghiringhelli’s 22 employment as chapter 11 counsel for Groth and on Needler’s final 23 application for allowance of fees and expenses. Needler relied 24 on his prior motions, memoranda, applications and declarations in 25 support of the Further Rehearing Motion and on a further 26 memorandum, readdressing Needler’s understanding of the Atkins 27 and Twinton Properties standards for nunc pro tunc approval of 28 professional employment.
-17- 1 On August 28, 2012, the Trustee filed his renewed opposition 2 (“Renewed Opposition”). The Trustee focused on the lack of any 3 demonstration of significant benefit to the estate in Needler’s 4 papers. As to Needler’s application for approval of fees and 5 reimbursement of expenses, the Trustee argued that no payment to 6 Needler was appropriate unless and until an order for his 7 employment was entered. The fee application also was defective 8 in that it had only been noticed to the twenty largest unsecured 9 creditors rather than to the entire body of Groth’s creditors. 10 Accordingly, the fee application should be denied as premature 11 and improperly noticed. Green Valley and Bordoni Ranch again 12 joined in the Trustee’s Renewed Opposition. 13 Needler responded to the Renewed Opposition on September 4, 14 2012. In addition to revisiting the history of Needler’s and 15 Ghiringhelli’s efforts to obtain approval of their employment as 16 Groth’s chapter 11 counsel, Needler argued that through “the 17 continued Court instituted delays,” his and Ghiringhelli’s 18 constitutional due process rights were violated. Needler also 19 discussed services that he performed in the Groth chapter 11 case 20 that were essential to the bankruptcy process so that there 21 actually were assets for the Trustee to administer and sell. 22 Needler again referenced his prior work on chapter 11 automotive 23 dealership cases in other jurisdictions in support of his and 24 Ghiringhelli’s employment applications. 25 On September 5, 2012, the bankruptcy court held its final 26 hearing (“Final Hearing”) on Needler and Ghiringhelli’s 27 applications for nunc pro tunc employment as Groth’s chapter 11 28 counsel and Needler’s final fee application. After hearing
-18- 1 argument from Needler and counsel for the Trustee, the bankruptcy 2 court 1) adopted the points made in the Renewed Opposition; and 3 2) incorporated its previous rulings denying Needler and 4 Ghiringhelli’s applications for employment and Needler’s fee 5 application. The bankruptcy court found that the “exceptional 6 circumstances” required by Atkins to justify nunc pro tunc 7 approval of professional employment had not been demonstrated in 8 this case. The bankruptcy court denied the Further Rehearing 9 Motion with prejudice. On September 17, 2012, the bankruptcy 10 court entered an order denying with prejudice Needler and 11 Ghiringhelli’s applications for nunc pro tunc employment as 12 Groth’s chapter 11 counsel and further denying with prejudice 13 Needler’s final application for allowance of fees and 14 reimbursement of expenses. 15 On September 16, 2012, Appellants filed a notice of appeal 16 from the bankruptcy court’s oral rulings at the Final Hearing. 17 Appellants filed an amended notice of appeal on September 24, 18 2012. 19 II. JURISDICTION 20 The bankruptcy court had jurisdiction under 28 U.S.C. 21 §§ 1334 and 157(b)(1) and (b)(2)(A). We have jurisdiction under 22 28 U.S.C. § 158. 23 III. ISSUES 24 The Appellants feel mightily aggrieved by the bankruptcy 25 court’s denial of their applications for employment as Groth’s 26 chapter 11 counsel, and that sense of grievance is reflected in 27 their statement of ten issues, some with multiple subparts, over 28 six pages in their opening brief. See Appellants’ Opening Brief
-19- 1 at 3-8. We limit our consideration to the relevant issues 2 actually argued in Appellants’ Opening Brief, stated as follows. 3 See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 919 4 (9th Cir. 2001) (“[I]ssues which are not specifically and 5 distinctly argued and raised in a party’s opening brief are 6 waived.”), citing Barnett v. U.S. Air, Inc., 228 F.3d 1105, 1110 7 n.1 (9th Cir. 2000) (en banc). 8 1. Did the bankruptcy court abuse its discretion in 9 declining to consider Needler’s application for employment until 10 his local California co-counsel was employed? 11 2. Did the bankruptcy court abuse its discretion in denying 12 Appellants’ nunc pro tunc applications for employment as Groth’s 13 chapter 11 counsel after Groth’s bankruptcy case had been 14 converted to chapter 7?5 15 3. Did the bankruptcy court abuse its discretion in denying 16 compensation and reimbursement of expenses to Needler? 17 IV. STANDARDS OF REVIEW 18 A bankruptcy court’s interpretation and application of its 19 5 20 In light of the early filing of Needler’s application for employment, less than a week after Groth’s chapter 11 filing, and 21 the filing of Ghiringhelli’s application approximately three 22 weeks later, it is not clear to us exactly when it became appropriate or necessary for Appellants to request nunc pro tunc 23 approval of their employment as Groth’s chapter 11 counsel. Apparently, Needler first raised the issue in the Reconsideration 24 Motion, filed after Groth’s chapter 11 case had been converted to 25 chapter 7. In any event, in all proceedings thereafter, the parties and the bankruptcy court operated under the assumption 26 that Appellants’ employment applications should be considered for 27 nunc pro tunc approval under the Atkins standards. That is how the issues in this appeal have been briefed, and that is how we 28 consider them.
-20- 1 local rules is reviewed for an abuse of discretion. See United 2 States v. Heller, 551 F.3d 1108, 1111 (9th Cir. 2009). A 3 bankruptcy court’s consideration of an application for nunc pro 4 tunc approval of professional employment also is reviewed for 5 abuse of discretion. See In re Atkins, 69 F.3d at 973. 6 Finally, a bankruptcy court’s denial of a motion for 7 reconsideration likewise is reviewed for abuse of discretion. 8 Smith v. Pac. Props. & Dev. Corp., 358 F.3d 1097, 1100 (9th Cir. 9 2004); Branam v. Crowder (In re Branam), 226 B.R. 45, 51 (9th 10 Cir. BAP 1998). 11 A bankruptcy court abuses its discretion if it applies an 12 incorrect legal standard or misapplies the correct legal 13 standard, or its factual findings are illogical, implausible or 14 without support from evidence in the record. TrafficSchool.com 15 v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011). Only if the 16 bankruptcy court did not apply the correct legal standard, or if 17 its fact findings were illogical, implausible, or without support 18 in inferences that can be drawn from facts in the record, is it 19 proper to conclude that the bankruptcy court abused its 20 discretion. United States v. Hinkson, 585 F.3d 1247, 1262 (9th 21 Cir. 2009) (en banc). If the bankruptcy court’s view of “the 22 evidence is plausible in light of the record viewed in its 23 entirety, the court of appeals may not reverse it even though 24 convinced that had it been sitting as the trier of fact, it would 25 have weighed the evidence differently. Where there are two 26 permissible views of the evidence, the factfinder’s choice 27 between them cannot be clearly erroneous.” Anderson v. City of 28 Bessemer City, N.C., 470 U.S. 564, 574 (1985).
-21- 1 We may affirm on any basis supported by the record. Shanks 2 v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008). 3 V. DISCUSSION 4 A. The bankruptcy court did not abuse its discretion in declining to consider Needler’s employment as Groth’s 5 chapter 11 counsel until Ghiringhelli’s employment as local co-counsel had been approved or set for hearing in 6 conjunction with Needler’s employment application. 7 Appellants argue at length in their opening brief that they 8 met the standards for employment as estate professionals under 9 § 327(a), and the bankruptcy court erroneously thwarted Groth’s 10 selection of its chapter 11 counsel by delaying consideration of 11 their employment applications based on objections of the UST. 12 See Appellants’ Opening Brief at 18-32. However, these arguments 13 ultimately are beside the point because the reason for delays in 14 considering the substance of the Appellants’ employment 15 applications prior to the conversion of Groth’s case resulted 16 from the delay in filing Ghiringhelli’s employment application 17 and a further delay in setting Ghiringhelli’s employment 18 application for hearing with Needler’s after the UST had objected 19 to Ghiringhelli’s employment. 20 LBR 9010-1(a) provides that, “A corporation, partnership, or 21 any entity other than a natural person may not appear as a . . . 22 debtor in a bankruptcy case except through counsel admitted to 23 practice in this District.” (Emphasis added.) LBR 9010-1(b) 24 further provides that, “A corporation, partnership, or any entity 25 other than a natural person may not serve as a debtor-in- 26 possession in a Chapter 11 case unless represented by counsel.” 27 As recognized by Appellants, LR 11-3(a)(3), incorporated in the 28 LBR’s by reference in LBR 1001-2(a), required for Needler’s pro
-22- 1 hac vice admission, “That an attorney, identified by name and 2 office address, who is a member of the bar of this Court in good 3 standing and who maintains an office within the State of 4 California, is designated as co-counsel.” (Emphasis added.) See 5 Appellants’ Opening Brief at 23. In fact, Ghiringhelli signed 6 Groth’s chapter 11 petition and was designated as Needler’s 7 “Co-Counsel” in Needler’s pro hac vice application. 8 Where out of district counsel is to appear in a bankruptcy 9 case, the requirement to associate local counsel serves a useful 10 function. Local counsel can be assumed to be familiar with local 11 procedures and practices and make that knowledge and expertise 12 available to out of district counsel, thus promoting efficiency 13 and lowering costs. Particularly in bankruptcy proceedings, 14 where assets are limited and every available dollar needs to 15 count, serving those objectives is vitally important. 16 Needler filed his application for employment as Groth’s 17 chapter 11 counsel on May 27, 2011, but Ghiringhelli’s employment 18 application was not filed until June 19, 2011, over three weeks 19 later. Needler’s employment application was first discussed with 20 the bankruptcy court at the Status Conference. At the Status 21 Conference, the bankruptcy court advised Needler that it would 22 not approve his employment until local counsel was employed. The 23 bankruptcy court further stated that it was aware that although 24 California co-counsel did not have chapter 11 experience, he was 25 knowledgeable about Groth’s dealership and pension fund issues, 26 and the bankruptcy court did not have an issue there. The matter 27 was essentially wrapped up in the following colloquy: 28 THE COURT: [Y]ou’ve got to tie [your employment
-23- 1 application] in with California counsel. 2 NEEDLER: So you want me to continue that motion? 3 THE COURT: I think that would be best. . . . 4 NEEDLER: That’s fine. 5 June 28, 2011 Hr’g Tr. at 14:7-12. 6 The UST subsequently filed its objection to Ghiringhelli’s 7 employment application. 8 At the Financing Hearing, Needler’s employment application 9 was on the calendar, but no hearing had been set on 10 Ghiringhelli’s application. The bankruptcy court advised Needler 11 again that his employment application would not be approved until 12 local California counsel’s employment had been approved. The 13 bankruptcy court went on to suggest that the problem with 14 Ghiringhelli’s employment application was that the proposed fee 15 arrangement was not consistent with local compensation 16 Guidelines. However, the bankruptcy court also suggested that 17 any issues could be resolved in discussions with the UST. 18 THE COURT: I think it’s something that could be easily worked out, I’m assuming. But until he is employed, I 19 can’t pick up your employment application aspect. 20 NEEDLER: That’s fine. 21 . . . 22 THE COURT: . . . [W]hat you need to do is set his [employment application] for hearing along with yours 23 and we can take them up together, and then hopefully I would suggest talk to the UST, see what their concerns 24 are. If you can get his [Ghiringhelli’s employment] worked out, then we can pick up your employment 25 application. That’s – so that would deal with that. 26 July 27, 2011 Hr’g Tr. at 5:7-18. 27 Whatever discussions subsequently took place between either 28 of the Appellants and the UST, the UST’s objections were not
-24- 1 resolved, and the Appellants’ employment applications were set 2 for hearing together on August 24, 2011. When the Conversion 3 Motion was granted the day before, the hearing on Appellants’ 4 employment applications was taken off the calendar. 5 The record reflects that consideration of Needler’s 6 employment application was set over twice preconversion based on 7 the bankruptcy court’s concerns, consistent with the requirements 8 of its local rules, that local California co-counsel’s employment 9 be approved before, or at least contemporaneously, with approval 10 of Needler’s employment. We perceive no abuse of discretion in 11 the bankruptcy court’s insistence on compliance with its own 12 local rules concerning retention of counsel by a corporate 13 chapter 11 debtor-in-possession. 14 B. We conclude that the bankruptcy court did not abuse its discretion in declining to approve Appellants’ employment 15 nunc pro tunc as Groth’s chapter 11 counsel. 16 The parties agree that the controlling authority in the 17 Ninth Circuit, applied by the bankruptcy court, stating the 18 standards for consideration of nunc pro tunc employment of estate 19 professionals is In re Atkins, 69 F.3d 970 (9th Cir. 1995). In 20 Atkins, former chapter 11 debtors Mr. and Mrs. Howard Atkins 21 (“Debtors”) appealed the decision of this Panel affirming the 22 bankruptcy court’s order approving the employment of Wain Samuel 23 & Co. (“Wain Samuel”) as estate accountants and awarding Wain 24 Samuel compensation for services rendered. 25 The Debtors filed their chapter 11 petition on March 30, 26 1990. On May 21, 1991, Debtors’ counsel contacted Wain Samuel, 27 advising “that the [Debtors] urgently needed an experienced 28 certified public accountant to assist their defense in an
-25- 1 imminent trial” with the IRS, in which the IRS sought 2 “approximately $200,000 from the [Debtors] in unpaid taxes, 3 interest and penalties, including penalties for civil fraud.” 4 Id. at 971. Debtors’ counsel further informed Wain Samuel that 5 the Debtors needed to respond to IRS interrogatories immediately. 6 Otherwise, the IRS “would be entitled to summary judgment.” Id. 7 Approximately one week later, on May 29, 1991, Wain Samuel 8 representatives met with Mr. Atkins and his counsel. At that 9 meeting, Wain Samuel agreed to review the IRS interrogatories and 10 the Debtors’ work papers promptly and immediately prepared an 11 engagement letter for the work involved. Mr. Atkins signed the 12 engagement letter the following day. Id. One of Wain Samuel’s 13 partners also referred the Debtors to an experienced tax 14 attorney, whom the Debtors subsequently hired. Id. 15 Wain Samuel then proceeded to review and analyze the 16 Debtors’ financial records, a task characterized as “mammoth,” 17 and prepared and delivered draft responses to the IRS 18 interrogatories by June 7, 1991. Id. Wain Samuel charged $4,000 19 for their services, which the Debtors paid. Id. 20 Thereafter, in mid-June 1991, the Debtors’ tax attorney 21 requested Wain Samuel to prepare more detailed and specific 22 responses to the IRS interrogatories. The revised responses were 23 completed by Wain Samuel by the end of July 1991. Also, in July 24 1991, Wain Samuel representatives prepared for and attended a 25 lengthy meeting with the U.S. Attorney concerning the IRS 26 litigation. In August 1991, Wain Samuel assisted the Debtors’ 27 tax attorney in preparing witnesses for depositions in the IRS 28 litigation. Eventually, the IRS reduced its claim against the
-26- 1 Debtors to $85,000. Id. at 971-72. 2 In a sworn declaration, Wain Samuel asserted that throughout 3 the firm’s representation of the Debtors, Wain Samuel repeatedly 4 raised the issue of bankruptcy court approval of the firm’s 5 employment with the Debtors and their attorneys and were 6 repeatedly reassured that an application for their employment 7 would be submitted, and they would be paid. Id. at 972. In 8 November 1991, Wain Samuel contacted the Debtors’ chapter 11 9 counsel to discuss the issue. Debtors’ counsel requested that 10 the firm prepare letters confirming services performed and 11 payments received to date, which Wain Samuel prepared and sent. 12 The Debtors refused to sign the letters. However, the Debtors 13 continued to assure Wain Samuel that the firm would be paid when 14 the IRS litigation was finally settled. Id. Thereafter, 15 communications broke down between Wain Samuel and the Debtors, 16 and Wain Samuel filed a motion seeking nunc pro tunc approval of 17 their employment and compensation for their work as an 18 administrative expense. Id. 19 On or about October 16, 1992, the bankruptcy court found the 20 Debtors solvent and dismissed their chapter 11 case. All of the 21 Debtors’ creditors were paid in full. Id. However, the Debtors, 22 acting pro se, continued to oppose Wain Samuel’s application for 23 approval of their employment nunc pro tunc. Id. The bankruptcy 24 court ultimately found that “exceptional circumstances” justified 25 approving compensation to Wain Samuel retroactively for the bulk 26 of their services. The bankruptcy court specifically found “that 27 Wain Samuel’s work on the IRS litigation project was performed 28 very quickly in an emergency setting, and that the firm’s work
-27- 1 benefitted the estate by helping to reduce the IRS’ claim from 2 over $200,000 to $85,000.” Id. at 973. The bankruptcy court 3 further found that the timing of Wain Samuel’s motion was not 4 dispositive in light of the facts that the Debtors repeatedly had 5 represented to Wain Samuel that they would secure approval for 6 Wain Samuel’s employment, and they had not made clear that they 7 did not want Wain Samuel to perform services in their behalf. 8 This Panel affirmed the bankruptcy court’s rulings. Id. 9 In affirming the decisions of this Panel and the bankruptcy 10 court, the Ninth Circuit noted that there are a number of factors 11 that a bankruptcy court can consider in determining whether nunc 12 pro tunc approval of professional employment should be 13 authorized, citing, among other things, the nine-factor test set 14 forth in In re Twinton Props. P’ship, 27 B.R. at 819-20. 15 However, at an irreducible minimum, two standards had to be 16 satisfied to establish the “exceptional circumstances” required 17 to allow for retroactive approval of professional employment: The 18 subject professionals “must (1) satisfactorily explain their 19 failure to receive prior judicial approval [of their employment]; 20 and (2) demonstrate that their services benefitted the bankruptcy 21 estate in a significant manner.” In re Atkins, 69 F.3d at 974 22 and 975-76, citing Halperin v. Occidental Fin. Grp., Inc. 23 (In re Occidental Fin. Grp., Inc.), 40 F.3d 1059, 1062 (9th Cir. 24 1994); and Okamoto v. THC Fin. Corp. (In re THC Fin. Corp.), 25 837 F.2d 389, 392 (9th Cir. 1988). 26 At the Reconsideration Hearing, after noting that it had 27 never ruled on the substance of Appellants’ applications for 28 approval of employment, the bankruptcy court advised Needler that
-28- 1 he needed to address the factors for nunc pro tunc approval of 2 employment specified in In re Atkins. On appeal, while citing 3 and discussing In re Atkins, the Appellants focus, as they did 4 before the bankruptcy court, on their argument that they 5 satisfactorily addressed all nine of the Twinton factors. 6 Appellants’ Opening Brief at 35-37. However, the bankruptcy 7 court’s final denial of the Further Rehearing Motion, adopting 8 the Renewed Opposition, was based on its determination that the 9 Appellants had not met the two Atkins requirements to establish 10 the “exceptional circumstances” necessary to support nunc pro 11 tunc approval of their employment: 1) an adequate explanation as 12 to why they failed to receive prior judicial approval of their 13 employment; and 2) a demonstration of significant benefit from 14 their services to the bankruptcy estate. We first address the 15 question of “significant benefit.” 16 “Significant” is a relative rather than a fixed standard, 17 requiring a case-by-case analysis of the evidence. In Atkins, 18 the significant benefit to the estate was an approximate $115,000 19 reduction in the IRS tax claim. So, the Ninth Circuit recognized 20 a substantial financial benefit to the Debtors’ estate realized 21 from Wain Samuel’s services. 22 In this case, it is hard to argue that Ghiringhelli 23 contributed any significant benefit. As recognized in 24 Appellants’ Opening Brief, Ghiringhelli’s only service to the 25 estate was that he signed Groth’s bankruptcy petition. 26 Appellants’ Opening Brief at 24. On the other hand, there is no 27 question that Needler did a number of things for Groth while it 28 was in chapter 11. We characterize Needler’s services in two
-29- 1 categories. 2 First, Needler contributed services that kept Groth’s 3 chapter 11 case going: He advised Groth’s personnel as to how 4 operations were to be conducted in chapter 11. He prepared 5 Groth’s original and amended schedules and SOFA and other filed 6 documents. He attended and assisted at Groth’s initial interview 7 with the UST. He discussed Groth’s situation and prospects with 8 various creditors and service providers in order to maintain 9 operations. He made certain that a timely appeal of the judgment 10 in the union litigation was filed. He entered into discussions 11 and negotiations with various potential financers of Groth’s 12 operations and purchasers of Groth’s dealership franchise. He 13 drafted the Initial Plan and an amended plan. 14 Second, Needler performed services that potentially added 15 value to the estate: He negotiated the Emergency Financing and 16 filed and advocated the Financing Motion. He also negotiated and 17 presented the proposed sale, as described in the Sale Motion. 18 However, the Emergency Financing was rejected as proposing 19 financing arrangements with high up-front fees, at a high 20 interest rate and a short maturity, and requiring as a condition 21 that the lender be given a substantial equity interest in Groth 22 for essentially no consideration. The proposed sale never was 23 considered by the bankruptcy court, but it entailed selling 24 Groth’s dealership franchise for half Groth’s stated value at the 25 outset of the case and provided for granting a 30% equity 26 interest to insiders. The proposed sale was subject to GM’s 27 approval, and such approval was only at the negotiating stage. 28 Based on the obligations reflected in Groth’s schedules, the
-30- 1 proposed sale would likely generate no distribution to general 2 unsecured creditors. Groth’s amended plan, prepared by Needler, 3 in fact did not project any dividend to unsecured creditors. In 4 the meantime, while Groth was in chapter 11, a period of 5 approximately three months, it generated operating losses of more 6 than $150,000 a month, before considering Needler’s requested 7 fees and costs as administrative expenses of $177,115.61. The 8 Trustee argued that Needler’s efforts merely delayed Groth’s 9 inevitable liquidation and contributed to the estate’s accrual of 10 unpaid postpetition debts that diluted the interests of 11 prepetition creditors in any ultimate distribution from the 12 estate. In these circumstances, the Trustee argued and the 13 bankruptcy court found that Appellants’ services contributed no 14 significant value or benefit to Groth’s estate. 15 Based on the record before us, we have no doubt that Needler 16 performed many services in Groth’s behalf, and reasonable minds 17 can differ as to the significance and benefit of those services. 18 However, the bankruptcy court found that Needler’s services did 19 not confer a significant benefit on Groth’s estate, and we are in 20 no position to second-guess the bankruptcy court’s fact finding 21 on that issue. Since we conclude that the bankruptcy court did 22 not clearly err in its fact finding concerning one of the two 23 essential Atkins standards, we do not need to reach the other, 24 i.e., the question as to whether the bankruptcy court clearly 25 erred in finding that the Appellants did not provide a 26 satisfactory explanation for their failure to receive earlier 27 approval of their applications for employment. Ultimately, on 28 this record, we cannot conclude that the bankruptcy court abused
-31- 1 its discretion under the Atkins standards in denying nunc pro 2 tunc approval of Appellants’ employment as Groth’s chapter 11 3 counsel. 4 C. The bankruptcy court did not err in denying compensation and reimbursement of expenses to Needler. 5 6 The Bankruptcy Code authorizes compensation and 7 reimbursement of expenses to estate professionals only after they 8 have been employed pursuant to § 327 or § 1103. 9 Section 330(a)(1); McCutchen, Doyle, Brown & Enerson v. Official 10 Comm. of Unsecured Creditors (In re Weibel, Inc.), 176 B.R. 209, 11 212-13 (9th Cir. BAP 1994); DeRonde v. Shirley (In re Shirley), 12 134 B.R. 940, 943-44 (9th Cir. BAP 1992) (“Court approval of the 13 employment of counsel for a debtor in possession is sine qua non 14 to counsel getting paid. Failure to receive court approval for 15 the employment of a professional in accordance with § 327 and 16 Rule 2014 precludes the payment of fees.”); 3 Collier on 17 Bankruptcy ¶ 330.02[2][a] (Alan N. Resnick & Henry J. Sommer 18 eds., 16th ed. 2013). 19 Since the bankruptcy court declined to approve the 20 Appellants’ employment as Groth’s chapter 11 counsel, a decision 21 that we affirm, the bankruptcy court did not err in denying 22 Needler’s application for compensation and reimbursement of 23 expenses as Groth’s chapter 11 counsel. 24 VI. CONCLUSION 25 For the foregoing reasons, we AFFIRM the bankruptcy court’s 26 decisions declining to approve Appellants’ applications for 27 employment as Groth’s counsel in chapter 11 and further declining 28 to approve Needler’s application for approval of compensation and
-32- 1 reimbursement of expenses as Groth’s counsel. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
-33-