USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 94-2215
IN RE: DONALD JARVIS and JOYCE JARVIS,
Debtors.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Francis J. Boyle, Senior U.S. District Judge]
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Before
Selya, Circuit Judge,
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Bownes, Senior Circuit Judge,
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and Boudin, Circuit Judge.
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Andrew S. Richardson, Trustee in Bankruptcy, with whom
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Boyajian, Harrington & Richardson was on brief, for appellant.
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Robert D. Wieck, Special Counsel for the Estate, with whom
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MacAdams & Wieck, Inc. was on brief, for appellees.
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April 28, 1995
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SELYA, Circuit Judge. Under 11 U.S.C. 327(a) and
SELYA, Circuit Judge.
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Fed. R. Bankr. P. 2014(a), a Chapter 11 trustee may employ
professionals, with the bankruptcy court's approval, to assist
him in fulfilling his duties.1 In this appeal, we uphold a
ruling denying an afterthought application for the employment of
a professional. In the process, we address two questions of
novel impression in this circuit. First, may a bankruptcy court
approve a professional's employment when no application is filed
until after the services in question have been rendered? Second,
if belated applications are cognizable at all, what legal
standard should the bankruptcy courts apply in passing upon them?
We hold, in general concordance with several other
circuits, that a bankruptcy court may grant such a post facto
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application, but only if it can be demonstrated (1) that the
employment satisfies the statutory requirements, and (2) that the
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1The statute provides that
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 . . . .
11 U.S.C. 327(a) (1988). Bankruptcy Rule 2014(a) implements
the statute. It provides in pertinent part that a trustee's
application for the employment of a professional person pursuant
to section 327(a) shall state, inter alia, "the specific facts
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showing the necessity for the employment, the name of the person
to be employed, the reasons for the selection, the professional
services to be rendered, [and] any proposed arrangement for
compensation . . . ." Although the statute and the rule operate
in tandem, we shall for simplicity's sake refer mainly to the
former.
2
delay in seeking court approval resulted from extraordinary
circumstances. Relatedly, we hold that tardiness occasioned
merely by oversight cannot qualify as an extraordinary
circumstance under the second prong of the aforesaid test.
I
I
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Statement of the Case
Statement of the Case
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The material facts are not in dispute. On August 27,
1992, the debtors, Donald and Joyce Jarvis, filed a voluntary
petition seeking relief under Chapter 11 of the Bankruptcy Code.
On February 17, 1993, the bankruptcy court appointed Andrew S.
Richardson, a veteran insolvency lawyer, as trustee.
In executing his duties, Richardson deemed it desirable
to evaluate several parcels of real estate in which the debtors
held ownership interests. To this end, he retained Peter Scotti,
a prominent Rhode Island appraiser and broker. Although both
Richardson and Scotti were familiar with the need for prior
judicial approval of professional employment, neither man sought
authorization from the bankruptcy court before or during the
period in which services were rendered.
Scotti did yeoman work for the estate. Among other
things, he arranged a sale of a two-acre parcel in Portsmouth,
Rhode Island, for $275,000. The bankruptcy court granted
Richardson's petition for permission to sell the land and
approved the sales agreement (which made provision for a 5%
brokerage commission). When the time came to pay the fee,
Richardson realized that the court had never authorized Scotti's
3
employment. He then assembled a "Nunc Pro Tunc Application to
Employ Broker" and submitted it to the bankruptcy court in a
belated effort to remedy the oversight.2
After holding a hearing, the bankruptcy court found no
extraordinary circumstances and denied the application. See In
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re Jarvis, 169 B.R. 276, 277-79 (Bankr. D.R.I. 1994). The
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trustee appealed to the district court. On October 26, 1994,
that court, ruling ore tenus, refused to disturb the bankruptcy
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court's order. This appeal ensued.
II
II
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Discussion
Discussion
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A.
A.
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Post Facto Authorization
Post Facto Authorization
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In surveying the terrain occupied by section 327(a),
the threshold question is whether the statute permits the post
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facto authorization of professional services at all. Because
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this inquiry is strictly a matter of statutory construction, our
power of interpretive scrutiny is plenary. See, e.g., United
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States v. Holmquist, 36 F.3d 154, 158 (1st Cir. 1994), petition
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for cert. filed (U.S. Dec. 27, 1994) (No. 94-7485); United States
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v. Gifford, 17 F.3d 462, 472 (1st Cir. 1994); Liberty Mut. Ins.
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Co. v.Commercial Union Ins. Co.,978 F.2d 750, 757(1st Cir. 1992).
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2Although courts and lawyers routinely describe such
applications, as did Richardson, by using the appellation "nunc
pro tunc," we agree with Judge Easterbrook that such a
designation is unfaithful to the accepted usage of that term in
connection with the correction of court records. See In re
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Singson, 41 F.3d 316, 318-19 (7th Cir. 1994). To avoid this
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linguistic snare, we prefer the term "post facto."
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4
If possible, a statute should be construed in a way
that conforms to the plain meaning of its text.3 See, e.g.,
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Estate of Cowart v. Nicklos Drilling Co., 112 S. Ct. 2589, 2594
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(1992); Pritzker v. Yari, 42 F.3d 53, 67-68 (1st Cir. 1994),
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petition for cert. filed, 63 U.S.L.W. 3692 (U.S. Mar. 13, 1995)
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(No. 94-1517); Holmquist, 36 F.3d at 159. When a statute's
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language is ambiguous, however, a court must often venture into
extratextual territory in order to distill an appropriate
construction. See Pritzker, 42 F.3d at 67; see also Sullivan v.
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CIA, 992 F.2d 1249, 1252 (1st Cir. 1993) (noting the power of
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courts to "look behind statutory language" when the legislature
"blow[s] an uncertain trumpet").
In this instance, the statutory language, for all
intents and purposes, is indeterminate. Section 327(a) neither
expressly sanctions nor expressly forbids the post facto
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authorization of outside professional services. Courts have
repeatedly remarked this ambiguity. See, e.g., In re Singson, 41
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F.3d 316, 319 (7th Cir. 1994); In re Triangle Chems., Inc., 697
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F.2d 1280, 1289 (5th Cir. 1983). What is more, Rule 2014(a) does
not fill the void. The most that fairly can be said is that the
language of both statute and rule contemplates prior
authorization, see Triangle Chems., 697 F.2d at 1284, 1289;
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3There are, of course, certain exceptions to this rule.
See, e.g., United States Nat'l Bank v. Independent Ins. Agents of
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Am., Inc., 113 S. Ct. 2173, 2186 (1993) (discussing "a simple
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scrivener's error"); Sullivan v. CIA, 992 F.2d 1249, 1252 (1st
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Cir. 1993) (observing exception when an absurd or legally
unacceptable result would otherwise obtain). The case at bar
does not require us to probe the exceptions to the general rule.
5
Stephen R. Grensky, The Problem Presented by Professionals Who
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Fail to Obtain Prior Court Approval of Their Employment, 62 Am.
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Bankr. L.J. 185, 188-89 (1988),4 without explicitly prohibiting
authorization after the fact.
The discerned ambiguity in section 327(a) necessarily
moves us beyond the four corners of the statute's text. Since
there appears to be no explicatory legislative history, we
proceed to a consideration of the overarching equitable design of
the Chapter 11 process. See Pioneer Inv. Servs. Co. v. Brunswick
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Assocs. Ltd. Partnership, 113 S. Ct. 1489, 1495 (1993).
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Bankruptcy courts, after all, are courts of equity, traditionally
governed by equitable principles. See, e.g., Bank of Marin v.
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England, 385 U.S. 99, 103 (1966); In re Arkansas Co., 798 F.2d
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645, 648 (3d Cir. 1986); Triangle Chems., 697 F.2d at 1288. In
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light of the purposefully nonmechanical nature of equity, we
think it is appropriate that bankruptcy courts should be
permitted to entertain post facto applications for professional
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services under section 327(a). We so hold, thereby joining
several of our sister circuits. See, e.g., Singson, 41 F.3d at
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319-20; In re Land, 943 F.2d 1265, 1267-68 (10th Cir. 1991); In
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re F/S Airlease II, Inc., 844 F.2d 99, 105 (3d Cir.), cert.
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denied, 488 U.S. 852 (1988); In re THC Fin. Corp., 837 F.2d 389,
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392 (9th Cir. 1988); Triangle Chems., 697 F.2d at 1289.
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4For what it may be worth, we note that Mr. Grensky's
article bears the alternative title "Nunc Pro Tunc Est Bunc."
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While this alternative is rhythmic, the piece is rarely cited in
that fashion. Sic biscuitas disintegrat.
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6
B.
B.
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Nature of the Power; Standard of Review
Nature of the Power; Standard of Review
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Because the bankruptcy court's power to entertain
belated applications for the employment of professionals is
equitable in nature, we believe that the court's ultimate
decision to grant or deny such applications is necessarily
discretionary. The cases and the commentators are in accord.
See Arkansas, 798 F.2d at 650; Triangle Chems., 697 F.2d at 1289;
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see also 2 Lawrence P. King, Collier on Bankruptcy 327.02, at
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327-20 (15th ed. 1995) [hereinafter Collier on Bankruptcy]
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("Generally it has been concluded that bankruptcy courts are
empowered with discretion to grant nunc pro tunc retention orders
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and allow compensation.").
By like token, the bankruptcy court's ruling on an
attempt to secure post facto approval of an application for the
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employment of a professional should be reviewed by the district
court under the abuse-of-discretion rubric. See Land, 943 F.2d
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at 1266. In the event of a further appeal, the court of appeals
will independently review the bankruptcy court's ruling for abuse
of discretion, ceding no special deference to the district
court's previous determination. See Grella v. Salem Five Cent
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Sav. Bank, 42 F.3d 26, 30 (1st Cir. 1994) (describing levels of
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appellate review in bankruptcy cases).
C.
C.
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The Appropriate Legal Standard
The Appropriate Legal Standard
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7
By recognizing the discretionary authority of
bankruptcy courts to consider post facto applications under
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section 327(a), we have reached the end of the beginning rather
than the beginning of the end. We must yet select the precise
legal yardstick by which such applications are to be measured.
We conclude that the applicant must demonstrate both the
professional person's suitability for appointment and the
existence of extraordinary circumstances sufficient to excuse the
failure to file a timely application.5
A bankruptcy court confronted by a post facto
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application for the employment of a professional should begin by
inquiring into suitability; the timing of the application does
not matter unless the court makes a supportable finding that the
services were reasonably necessary for the due performance of the
trustee's duties, that the professional is licensed or otherwise
qualified to render such services, and that the disinterestedness
requirements of section 327(a) are not at risk. In other words,
the bankruptcy court must satisfy itself that, had the
application been filed on time, the court would have authorized
the professional's employment then and there.
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5In connection with post facto applications, courts appear
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to use the terms "extraordinary circumstances" and "exceptional
circumstances" interchangeably. Compare, e.g., F/S Airlease II,
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844 F.2d at 105 (referring to extraordinary circumstances) with,
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e.g., Triangle Chems., 697 F.2d at 1289 (referring to exceptional
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circumstances). From all that we can discern, any differences
between these terms are semantic and, in this context, we treat
them as fungible.
8
Assuming that the application clears this first hurdle,
the bankruptcy court must next, in the exercise of its informed
discretion, decide whether the particular circumstances attendant
to the application are sufficiently extraordinary to warrant
after-the-fact approval. See F/S Airlease II, 844 F.2d at 105.
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In fleshing out the extraordinary circumstances requirement, the
Third Circuit has indicated that bankruptcy courts may consider
several factors, including
whether the applicant or some other person
bore responsibility for applying for
approval; whether the applicant was under
time pressure to begin service without
approval; the amount of delay after the
applicant learned that initial approval had
not been granted; [and] the extent to which
compensation to the applicant will prejudice
innocent third parties . . . .
Id. at 105-06 (quoting Arkansas, 798 F.2d at 650). Although we
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do not regard this compendium of considerations as exhaustive, it
is a useful checklist and we commend it to the bankruptcy courts.
The second half of this two-part test has deep roots in
both precedent and policy. A virtually unbroken skein of federal
appellate cases have determined that "extraordinary
circumstances," or something very close thereto, see supra note
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5, constitutes the appropriate legal standard. See, e.g., Land,
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943 F.2d at 1267-68; F/S Airlease II, 844 F.2d at 105; Triangle
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Chems., 697 F.2d at 1289; In re Kroeger Properties & Dev., Inc.,
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57 B.R. 821, 822-23 (Bankr. 9th Cir. 1986); see also 2 Collier on
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Bankruptcy, supra, 327.02, at 327-20. Indeed, apart from the
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Seventh Circuit, which recently adopted a slightly more lenient
9
"excusable neglect" standard, Singson, 41 F.3d at 319-20, those
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courts of appeals that have considered the matter are consentient
in their views. We can discern no basis for rejecting this
imposing array of well-reasoned opinions.
The policies underlying the Chapter 11 process also
favor adoption of the extraordinary circumstances test. Prior
approval is to be preferred because it permits the bankruptcy
court to supervise the administration of the estate more closely,
and minimizes the chance that the court will be confronted with a
fait accompli. To achieve these desirable ends, the prior
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approval requirement must have teeth. A relatively strict
standard, such as extraordinary circumstances, serves this
purpose. At the same time, it encourages compliance with the
statute and eliminates opportunities for manipulation. See id.
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at 319; see also Kroeger Properties, 57 B.R. at 822-23
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(suggesting that restricting post facto authorization to
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situations involving extraordinary circumstances will curb
general nonobservance of section 327(a)'s requirements); see
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generally 2 Collier on Bankruptcy, supra, 327.02, at 327-20.
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Finally, a rule that lends itself to a relatively small number of
exceptions will inevitably help to conserve overtaxed judicial
resources. We find that these policy considerations point
unerringly toward a stricter, rather than a softer, standard.
We hold, therefore, that a bankruptcy court may, in its
discretion, grant a post facto application for professional
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services, provided that the applicant can demonstrate, inter
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alia, the existence of extraordinary circumstances sufficient to
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justify the application's untimeliness.6
D.
D.
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The Merits
The Merits
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Having settled upon the proper legal standard, we make
short shrift of the merits of this appeal. We assume arguendo
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that the bankruptcy court would have authorized the trustee to
employ Scotti had a timely request been forthcoming. Withal, no
such request was made. Because the trustee's tardiness in
seeking approval was due entirely to inadvertence, our inquiry
reduces to whether mere oversight falls within the universe of
extraordinary circumstances that may justify post facto
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authorization of a professional's employment. We conclude that it
does not.
Our conclusion is buttressed by nothing less than logic
and experience, on one hand, and by precedent, on the other hand.
Logic and experience dictate that if the category of
extraordinary circumstances were expanded to include mere
oversight, the modifying adjective "extraordinary" would be
completely emptied of its meaning. Consequently, the standard
itself would be stripped of its efficacy. At some point, one
must pause and inquire, like Alice to Humpty Dumpty, whether
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6In so holding, we respectfully decline to follow the
Seventh Circuit's transplantation of "excusable neglect" from
Fed. R. Bankr. P. 9006(b)(1) to Fed. R. Bankr. P. 2014(a). See
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Singson, 41 F.3d at 319-20. We are both more concerned on policy
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grounds about the risk of condoning or encouraging any form of
neglect and less convinced that the term "excusable neglect" can
be coherently administered over time.
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words are infinitely elastic. See generally Lewis Carroll, Alice
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in Wonderland 163 (D. Gray ed., 1971) ("When I use a word . . .
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it means just what I choose it to mean neither more nor
less.").
The weight of authority pushes in the same direction.
Most courts have flatly refused to accept mere oversight, without
more, as a legitimate basis for granting post facto approval.
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See, e.g., Land, 943 F.2d at 1268 ("Simple neglect will not
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justify nunc pro tunc approval of a debtor's application for the
employment of a professional."); Arkansas, 798 F.2d at 651
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(holding that "a mere showing of oversight" does not constitute
extraordinary circumstances); In re Shirley, 134 B.R. 940, 943
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n.4 (Bankr. 9th Cir. 1992) ("Mere negligence does not constitute
an exceptional circumstance justifying the entry of a retroactive
order."). But see Triangle Chems., 697 F.2d at 1289. This tenet
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prevails even though the professional's services have benefitted
the estate. See F/S Airlease II, 844 F.2d at 108; In re Grimes,
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115 B.R. 639, 649 (Bankr. D.S.D. 1990); In re Mason, 66 B.R. 297,
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307 (Bankr. D.N.J. 1986); In re Ladycliff Coll., 35 B.R. 111, 113
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(Bankr. S.D.N.Y. 1983); In re Morton Shoe Cos., 22 B.R. 449, 450
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(Bankr. D. Mass. 1982).
To the extent that the outcome of this appeal demands
further justification and we think it does not it should be
noted that, here, the bankruptcy court was not only applying
section 327(a) and Fed. R. Bankr. P. 2014(a), but also was
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applying its own local rule.7 The significance of this
circumstance is three-fold. First, the rule gives plain notice
of the "extraordinary circumstances" standard. Second, once
local rules have been properly promulgated, lawyers and litigants
are duty bound to comply with them. See Air Line Pilots Ass'n v.
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Precision Valley Aviation, Inc., 26 F.3d 220, 224 (1st Cir.
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1994). Third, a special degree of deference above and beyond
the traditional standards of decisionmaking and appellate
oversight attaches to a court's interpretation of its own local
rules. See, e.g., id. (explaining that "[d]istrict courts enjoy
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broad latitude in administering local rules" and "are entitled to
demand adherence to specific mandates contained [therein]");
United States v. Diaz-Villafane, 874 F.2d 43, 46 (1st Cir.)
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(remarking "the widely-accepted idea that a district court should
be accorded considerable latitude in applying local procedural
rules of its own making"), cert. denied, 493 U.S. 862 (1989).
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III
III
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Conclusion
Conclusion
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7The applicable local rule provides in full:
Absent extraordinary circumstances, nunc pro
tunc Applications for appointment of
professional persons pursuant to Sections 327
and 1103 of the Bankruptcy Code, and
Bankruptcy Rule 2014, will not be considered.
An Application is considered timely if it is
filed within thirty (30) days of the date of
the filing of the petition in bankruptcy or
the date the professional commences rendering
services, whichever occurs later.
D.R.I. Bankr. R. 25(A)(1).
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To recapitulate, we hold that under 11 U.S.C. 327(a)
and Fed. R. Bankr. P. 2014(a), a bankruptcy court may, in its
discretion, consider an application to approve the employment of
a professional even though the professional person's services
have already been rendered. But the court should grant the
authorization only if it can be shown that the professional
person meets all the requirements of section 327(a) and that the
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untimeliness of the application results from extraordinary
circumstances. Because the lack of punctuality in this case was
attributable entirely to inadvertence, the district court did not
err in affirming the bankruptcy court's denial of the trustee's
post facto application. Mere oversight does not fall within the
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realm of extraordinary circumstances for these purposes.
Although we need go no further, we elect to add a final
note. We are aware that Scotti rendered valuable services to the
estate, and we take no pleasure in denying him the fruits of his
labor. But we do what we must, for the greater good lies not in
the transient lure of ad hoc decisionmaking, but in the
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evenhanded application of the rule of law.
Affirmed.
Affirmed.
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