MEMORANDUM OPINION AND ORDER

D. MICHAEL LYNN, Bankruptcy Judge.

Before the court is the Amended First and Final Application for Allowance of Special Counsel's Fees (the "Application"), at docket no. 689, filed by Attorney Mark B. French on behalf of Cotten Schmidt & Abbott (the "Firm") for work done principally by Randall Schmidt ("Schmidt") as special counsel to the above-named debtors ("Debtors," and, respecting Broughton Ltd. Partnership, "Broughton") during their time as chapter 11 debtors in possession. The United States trustee (the "UST") filed an objection to the Application (the "Objection"), and the court considered the Application and Objection during a hearing held on January 30, 2012 (the "Hearing"). During the Hearing, the court heard testimony from Schmidt and Debtors' attorney, St. Clair Newbern III ("Newbern"), and received into evidence exhibits identified as necessary below. At the court's invitation, the Firm and the UST filed supplemental briefs following the Hearing.

This matter is subject to the court's core jurisdiction. 28 U.S.C. §§ 1334 and 157(b)(2)(A). This memorandum opinion constitutes the court's findings of fact and conclusions of law. FED. R. BANKR.P. 7052 and 9014.

I. Background

These cases were commenced by the filing of voluntary petitions under chapter 7 of the Bankruptcy Code (the "Code")1 on April 5, 2010. Shortly after filing their petitions, on June 1, 2010, Debtors filed motions to convert the cases to cases under chapter 11 of the Code. On June 28, 2010, the court entered its order granting that motion. As a result of the conversion of the cases, the trustees appointed in the chapter 7 cases were automatically terminated. Code § 348(e). The Debtors then assumed responsibility as the representatives of their estates. Code § 1107.

Debtors' business was the development of high-end residential subdivisions and sales of the developed lots. Because of various currents in the national economy, Debtors were unable to sell sufficient lots to service their debt, and the filing of these bankruptcy cases became necessary.

In late 2010, in furtherance of their efforts to reorganize, Debtors located a prospective buyer, Standard Pacific of Texas, Inc. ("SPOT"), for 22 lots owned by Broughton. At that time, Debtors engaged, pursuant to an order of this court, the Firm and Schmidt as special counsel to negotiate a contract with SPOT.

Schmidt undertook his duties as special counsel2 and over time attempted to negotiate a satisfactory contract with SPOT. SPOT, however, as a condition to the purchase of the 22 lots, required a release of certain claims asserted by the Colleyville Home Owners Rights Association, Inc. ("CHORA"). When Schmidt, acting for Broughton, and SPOT were unable to negotiate a satisfactory agreement with CHORA, SPOT declined to proceed with the purchase of the 22 lots, and, on February 24, 2011, the deal Schmidt was working on fell through.

Neither Schmidt nor the Firm thereafter performed work for Debtors, though Schmidt testified at a hearing held on March 8, 2011, regarding the failure to close the SPOT deal (Application at p. 4). Subsequently, on May 20, 2011, Debtors' chapter 11 cases were converted back to chapter 7 by the court, acting sua sponte, and trustees were appointed to sell the assets of Debtors, including all property of Broughton. The 22 lots that were the subject of the SPOT deal were subsequently sold at auction to another buyer; SPOT did not bid on the lots at the auction.

II. The UST's Objection

The UST initially objected to the Firm's fees on the basis that the Firm did not comply with the UST's guidelines in its original application. The court understands that the Application, as amended, resolves that problem.

The UST next objects to the Application on the basis that the Firm received a retainer of $10,000, $7,500 of which was paid by Debtors after commencement of these chapter 11 cases without court approval. Schmidt testified that he had been informed that the retainer the Firm was to receive would come from a non-debtor third party.3 He further testified that he was unsure whether he had seen Debtors' $7,500 check to the Firm but that the check had been deposited into the Firm's IOLTA trust account.4

At the Hearing, the court directed the return to Debtors of the $7,500. Although this should have been done without court intervention as soon as Schmidt realized the Firm was holding funds advanced by Debtors without court approval, the court finds that Schmidt and the Firm acted in good faith. The court also finds that initially the Firm and Schmidt believed that the entire retainer held by the Firm was advanced by a nondebtor. The court therefore holds that the Firm should not be denied compensation based on Debtors' unauthorized payment to it, and the Objection, to the extent it is based on the retainer, will be overruled.

Next, the UST argues that Schmidt's work did not result in an "identifiable, tangible, and material benefit to the estate." These words are drawn from Andrews & Kurth, L.L.P. v. Family Snacks, Inc. (In re Pro-Snax Distribs., Inc.), 157 F.3d 414, 426 (5th Cir.1998). Pro-Snax is generally viewed as requiring the court, from the vantage point of "the Monday after," to assess the benefits to the estate of a professional's work in awarding compensation.5 Although the UST, in the Objection and in argument at the Hearing, argued Pro-Snax and did so, it seemed to the court, in terms of the need for a retrospective consideration of the Firm's efforts, in his post-Hearing brief, the UST asserts that the court need not engage in a retrospective analysis because Schmidt should have early recognized that no benefit was likely to accrue to Broughton's estate from pursuit of the SPOT deal. See United States Trustee's Post-Hearing Brief at p. 3.

The court does not agree with the UST. The proposed sale to SPOT was viewed in late 2010, not only by the court, but by the various parties, as the keystone of Debtors' potential reorganization. As Schmidt testified, he spent considerable time not only negotiating with SPOT respecting contract terms, but also attempting to resolve the problems with CHORA.6 He believed, up until the time SPOT withdrew from the negotiations, that the transaction would close.7 There certainly was no question about SPOT's interest in the 22 lots or its financial ability to purchase them. That the transaction was a difficult one to put together and that the idiosyncrasies of the parties might frustrate the efforts of counsel does not mean that counsel was required to cease work and give up. Rather, so long as a professional is doing its principal's bidding and there is a reasonable prospect of success,8 the professional is entitled to work in the expectation of being paid. Based on the record before it, the court thus holds that "the services [of the Firm] were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, [the bankruptcy case]." See Code § 330(a)(3)(C).

III. Identifiable, Tangible, and Material Benefit

The court's holding respecting the last-quoted portion of Code § 330(a)9 means that Schmidt and the Firm have satisfied the "prospective" test for compensation set by the Code. However, the UST has urged that they have not provided an "identifiable, tangible, and material benefit to the estate" and so, under Pro-Snax, are not eligible for compensation. The court will accordingly address whether the Firm and Schmidt would be entitled to compensation for their work under Pro-Snax. In doing so, if the court concludes a benefit commensurate with the fees sought was provided, it need go no further to determine Pro-Snax has been satisfied.10

A. Pro-Snax

In Pro-Snax, the Court of Appeals was faced with two questions. In that case, Andrews & Kurth, LLP ("A & K") represented the debtor first in response to an involuntary chapter 7 petition, next in an ensuing chapter 11 case and, finally, after appointment of a chapter 11 trustee. The questions the Court faced were, first, whether A & K could be compensated for work done after the trustee's appointment, and, second, what standard should be applied in determining A & K's compensation.

Most of the Court's opinion is devoted to the first of these questions. Based on the plain meaning of section 330(a)(1), the Court concluded that A & K could not be compensated for services rendered to the debtor after appointment of the trustee. Though courts had come down on both sides of this issue, the Supreme Court ultimately resolved it in the same way as did the Pro-Snax court in Lamie v. U.S. Tr., 540 U.S. 526, 531, 124 S.Ct. 1023, 1029, 157 L.Ed.2d 1024 (2004), which cites Pro-Snax with approval.

As to the second issue, the one germane to the court's consideration of the Application, the Court of Appeals held that A & K could only be compensated to the extent its "services represented an identifiable, tangible, and material benefit to the estate." Pro-Snax, 157 F.3d at 426. In so holding, the Court cited only one other decision, In re Melp, Ltd., 179 B.R. 636 (E.D.Mo.1995).11

Pro-Snax, though it can be read simply to require that benefit to the estate be reasonably foreseeable at the time a professional's services are performed,12 has generally been viewed as requiring that the court evaluate the benefit of the services retrospectively.13 Requiring an after-the-fact evaluation of the benefit brought to a case by a professional's work has been generally rejected by courts in other circuits.14 Thus, while Pro-Snax is, of course, binding precedent for this court in the case at bar, the court believes it appropriate to perform its retrospective analysis of the Firm's work in a fashion that minimizes rather than maximizes differences in result between the Fifth and other circuits.15

B. The Pro-Snax Problem

The problem posed by Pro-Snax is that use of the word "benefit" suggests a positive contribution is required. An "identifiable, tangible, and material" benefit to the estate at first blush would appear to be something that augments the estate. Yet it seems clear that professionals serving a debtor or other fiduciary in a chapter 11 case cannot be limited in their compensation to those activities that actually add to the estate. First, such a determination would exclude from compensation many critical functions performed by professionals in the course of a chapter 11 case. Administrative matters, operational oversight, disputes respecting control, steps in the plan process such as extensions of exclusivity and many other matters dealt with by professionals covered by Pro-Snax do not increase the debtor's estate or reduce the claims against it — yet the chapter 11 case could not work if professionals did not perform services in connection with these functions.

Second, as with the Firm's work, that work which a professional undertakes doesn't always lead to success.16 Deals — as with SPOT — fall through. Litigation on behalf of the estate may offer the prospect of substantial recoveries, but will not necessarily be won. It may be that counsel representing Stern, the estate representative in Stern v. Marshall, ___ U.S.___, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), was unsuccessful, ultimately losing the estate's case in the United States Supreme Court in a 5-4 decision. It is unthinkable that that counsel's work leading to that result should be uncompensated.

The very fact that section 328(b) permits (but does not require) retention of professionals on, inter alia, a contingency basis demonstrates that Congress did not intend all professional services to be compensable only on that basis. Yet, as some courts have noted,17 to apply Pro-Snax as requiring estate augmentation would be tantamount to doing so.18

The UST in the case at bar claims the Firm should not be paid because Debtors' estates did not benefit from the Firm's services. In so arguing, the UST seems to adopt the view that benefit to the estate should be taken at face value as requiring an accretion of value. The court disagrees.

C. The Benefit Requirement

The Court of Appeals does not provide clear guidance in Pro-Snax respecting what is required to show an "identifiable, tangible, and material benefit," but the court can look to two different possible sources for direction.19 First, Pro-Snax does cite Melp, which in turn provides factors for determining whether an attorney's work provided an "identifiable, tangible, and material benefit to the estate." Melp, 179 B.R. at 640. Second, the court might utilize District Judge Jane Boyle's connection between the benefit test of Pro-Snax and the requirement of Code § 330(a)(1) that a professional's services be "actual" and "necessary." See section 330(a)(1); Kaye v. Hughes & Luce, LLP, (In re Gadzooks, Inc.), 2007 WL 2059724, at *9 (N.D.Tex. Jul. 13, 2007).

1. Melp

Melp was cited by the Pro-Snax court in support of the proposition that, to warrant compensation, "any work performed by legal counsel on behalf of a debtor must be of material benefit to the estate." Pro-Snax, 157 F.3d at 426. In explaining how work should be assessed to determine whether a lawyer had provided "an identifiable, tangible, and material benefit," the Melp court stated:20

179 B.R. at 640. While, as noted above, the Melp court applied this test to determine whether a debtor's attorney could be paid for work done after appointment of a trustee,21 these factors arguably represent — given the reliance of the Pro-Snax court on Melp — the factors the Court of Appeals considered important to deciding whether counsel's services have provided the benefit requisite to justify compensation.

Applying the Melp factors to the case at bar, the first factor appears to be tied to a trustee in place or about to be appointed. In other words, that counsel did work that the trustee or trustee's counsel would hypothetically perform pursuant to Code § 1106 is not the test;22 rather it is whether the actual work performed by debtor's counsel duplicated work done or about to be done by the trustee or the trustee's counsel. As SPOT ultimately did not proceed with the purchase of the 22 lots and did not participate in the trustee's auction, the trustee did not do the same work as the Firm.23 In the context in which Pro-Snax dictates the Melp factors be applied, the services of debtor's counsel, to be duplicative of the work of the trustee, must be more proximate in time to the trustee's tenure24 and more similar to the work done by the trustee than is the case here.

As to the second Melp factor, the Firm's work neither obstructed nor impeded the administration of the estate.25 Rather, the Firm provided services to Broughton in its role as debtor in possession consistent with the latter's duty to administer the estate. Indeed, the Firm's efforts were at the behest of Broughton acting as estate representative and pursuant to court order.

As to the final Melp factor, it is clear that, just as duplication of the trustee's duties cannot bar compensation for work done when no trustee is yet even in prospect and which work the trustee will not later be required to perform again, the reference to a debtor's duties under section 521 of the Code does not constitute a limit on that for which a professional working for a debtor in possession may be compensated. To read Pro-Snax and Melp to prevent compensation except for services rendered in furtherance of section 521 is to exclude a debtor's professionals from assisting the debtor in possession with its duties under Code §§ 1107, 1106, and 1108. Rather, once appointment of a trustee has been ordered, then the debtor and its counsel must limit their work in so far as possible, consistent with the debtor's remaining duties as estate representative, to that authorized by section 521. In the context of the Application, the court need only determine — and so finds — that the efforts of the Firm were in no way inconsistent with section 521. Thus, if Melp and similar cases are used to explain the requirements of Pro-Snax, Schmidt and the Firm meet those requirements and have shown the necessary benefit to the estate and the Application should be granted.

2. Actual and Necessary

The Gadzooks court, which applied the benefit test to counsel representing an equity committee, struggled with how to reconcile the Pro-Snax requirement of an "identifiable, tangible, and material benefit" to the estate, including its suggestion of a retrospective review of counsel's work, with section 330(a)(3)(C) which indicate a professional's efforts should be assessed prospectively, as of the time they were to be performed. Judge Boyle, in Gadzooks, concluded that the requirement set by the Court of Appeals of a benefit to the estate constituted a gloss on the provision in section 330(a)(1)(A) that counsel be awarded "reasonable compensation for actual, necessary services rendered by the ... professional person." See In re Gadzooks, 2007 WL 2059724, at *9. That is, services will benefit the estate if they are actual and necessary.26

As it happens, the term "actual, necessary" is found not only in section 330(a)(1)(A) but as well in section 503(b)(1)(A), where it modifies the words "costs and expenses of preserving the estate" and limits what costs and expenses are entitled to priority payment as administrative claims.27

As used in section 503(b)(1)(A), "actual, necessary" clearly does not mean administrative expenses are limited to only those that enhance or at least preserve a debtor's estate. It has been black letter law since the Supreme Court rendered its decision in Reading Co. v. Brown, 391 U.S. 471, 478, 88 S.Ct. 1759, 20 L.Ed.2d 751 (1968), that torts committed by an estate representative in the course of performing his, her or its duties give rise to claims entitled to administrative priority.28 This is because, as the Court reasoned in Reading, a bankruptcy estate, just like any other participant in the business world, must pay those costs necessarily incident to its operations, including satisfying claims arising from torts attributable to the estate.

Similar reasoning can be applied to the efforts of the professionals of a debtor in possession (or other statutory bankruptcy fiduciary). It is the duty of a debtor in possession — like any estate representative — to realize any possible value from assets of the estate. If it eventually proves true that an asset cannot be realized upon, that does not mean it should not be investigated and its liquidation (or other means of realization) pursued, so long as, as the Pro-Snax court observed, "the chances of success ... outweigh the costs of pursuing the action." 157 F.3d at 426. Thus, for example, in Stern v. Marshall, pursuit of Stern's counterclaim was appropriate and compensable, since the chances of success were good. That the case ultimately was lost 5-4 in the Supreme Court (on the basis of the bankruptcy court's constitutional inability to enter a final judgment on Stern's counterclaim) does not change the fact that the estate representative and estate professionals were doing their duty in pursuing it.

The same can be said of the Firm's work. It was entirely appropriate for Broughton to pursue the transaction with SPOT. That the deal fell through does not mean the Firm should not be compensated — there was never any question that SPOT could perform or that the sale of the 22 lots would produce fair value for the estate; that the principals were difficult to deal with or that CHORA created obstacles is hardly reason for counsel charged with negotiating and documenting the deal to refuse to work to make the sale happen.

Success cannot be a prerequisite to compensation outside of a contingency arrangement.29 Rather, the conclusion that a professional was justifiably pursuing a legitimate, realizable goal of the fiduciary client should be enough benefit to the estate to satisfy Pro-Snax.

IV. Conclusion

The court today holds that a professional provides an "identifiable, tangible and material benefit" to a bankruptcy estate within the meaning of Pro-Snax through assisting the estate representative in administering an asset of the estate, whether or not the effect of administration of the asset is enhancement of the estate, so long as the professional's services are performed at the direction of the estate representative and the estate representative is acting in accordance with the Code and its sound business judgment.30 In doing so, the court focuses on the nature of the benefit provided but also takes account of public policy and an estate representative's decision making authority in bankruptcy.

With regard to the latter, the court relies on an estate representative's sound business judgment in approving acts outside the ordinary course of business. See Inst. Creditors of Cont'l Air Lines, Inc. v. Cont'l Air Lines, Inc. (In re Cont'l Air Lines, Inc.), 780 F.2d 1223, 1226 (5th Cir.1986) (discussing the "sound business judgment" test for transactions outside the ordinary course of business); In re Borders Group, Inc., 453 B.R. 459, 473 (Bankr. S.D.N.Y.2011). Unless the manner in which an estate representative arrives at a decision is seriously flawed, the court will defer to the estate representative. See Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1309 (5th Cir.1985); In re Pilgrim's Pride Corp., 403 B.R. 413, 426, 427 (Bankr.N.D.Tex.2009). A professional should similarly be able to rely on its client's business judgment in acting in accordance with the client's instructions.

As to public policy, professionals are retained by an estate representative to advise and assist the representative in carrying out his, her or its duties under the Code.31 To burden professionals by making their compensation contingent upon the result of the estate representative's decisions must necessarily skew the regime intended in the Code and will surely create conflicts where a professional believes its client's decision, though arrived at through due diligence, is not the right one. Had Congress wished professionals retained under section 327 of the Code to second-guess and perhaps veto decisions of a trustee or debtor in possession, it surely would have said so.

Based on the foregoing, the court concludes the Firm may, under the Code and Pro-Snax, be compensated. The Application is therefore approved in full and the Objection overruled.

It is so ORDERED.