Retroactive Approval of Ch 11 Professional Employment Still Permissible

Retroactive Approval of Ch 11 Professional Employment Still Permissible

After Acevedo-Feliciano A professional that wishes to be compensated for representing or assisting the trustee (including the debtor-in-possession) in carrying out the trustee’s duties under the Bankruptcy Code in a chapter 11 case must seek court approval of its employment prior to the date the professional first renders the services.

There are circumstances under which courts will grant retroactive approval. However, courts seem to vary widely as to when such relief is appropriate. In what is perhaps one of the strictest approaches in practice, courts in the First Circuit require a showing of extraordinary circumstances. In re Jarvis, 53 F.3d 416, 418-20 (1st Cir. 1995). “Mere oversight” will not do.

In contrast, the Seventh Circuit requires a showing of “excusable neglect”, a standard which the First Circuit expressly rejected in Jarvis. See In re Singson, 41 F.3d 316, 318–19 (7th Cir.1994).

Although the Third Circuit requires a showing that the “delay in seeking approval was due to hardship beyond the professional's control,” in that circuit “[b]ankruptcy courts routinely authorize retroactive approval to the bankruptcy petition date, and district courts and courts of appeals routinely affirm such approvals under an abuse of discretion standard.” In Re Mallinckrodt PLC, No. 20-12522 (D. Del. Mar. 28, 2022).

The Second Circuit follows the same standard as the First Circuit. In re Keren Ltd. P'ship, 189 F.3d 86, 87 (2d Cir. 1999).

Yet, in practice, its bankruptcy courts have interpreted the standard more loosely. For example, in the Vice Media bankruptcy, debtor’s lead counsel requested that its its application for employment—filed two weeks after the petition date­—be granted with retroactive approval as of the petition date, which the court granted. Case No. 23-10738, Dkt.

No. 382 (Bankr.

S.D.N.Y. August 7, 2023). The application made no mention of “extroardinary” circumstances or a situation beyond the professional’s control and, in fact, cited numerous cases where similar requests were granted. Id. at Dkt. No. 77.

In a recent case, a district court—sitting on appeal—was called to decided whether retroactive approval of employment applications was still permissible after Roman Cath. Arch. of San Juan v.

Acevedo-Feliciano, 140 S. Ct. 696 (2020). The U.S. District Court for the Eastern District of Virginia held that it was, finding Acevedo-Feliciano distinguishable since the controversy there was whether the district court could restore the state court’s jurisdiction retroactively by issuing a nunc pro tunc remand order.

Although the district court cited five cases which have found retroactive approval of employment applications permissible after Acevedo-Feliciano, other courts have read the case more broadly and rejected requests for retroactive approval of employment. See In re Grinding Specialists, LLC, 625 B.R. 6, 15 (Bankr. D.S.C. 2021).