• The Sixth Circuit Court of Appeals Clarifies Fee Application Approval under Sections 327, 328 and 330 of the Bankruptcy Code
  • December 17, 2009 | Author: Eliot G. Bastian
  • Law Firm: Frost Brown Todd LLC - Office
  • In The Cadle Company, II, Inc. v. Fashion Shop of Kentucky, Inc.,1 Appellant The Cadle Company, II, Inc., appealed a decision by the district court affirming two orders by the bankruptcy court. The bankruptcy court awarded fees to Retail Consulting Services for services provided to Appellee, Fashion Shop of Kentucky, Inc., during Appellee’s Chapter 11 bankruptcy proceeding. The Cadle Company challenged the fees as not meeting the requirements of § 330 of the Bankruptcy Code. The bankruptcy court ruled that it had pre-approved the fees under §328 of the Code, eliminating the need for review under § 330. The district court affirmed. On appeal, The Cadle Company claimed that the bankruptcy court did not pre-approve the fees under § 328, and that the fees are unreasonable under § 330. The Sixth Circuit Court of Appeals affirmed the orders of the bankruptcy court based on the differences in §§ 327, 328, and 330 of the Bankruptcy Code. The Court went into detail as to the differences between these fee sections.

    As background, section 327 of the Bankruptcy Code authorizes the trustee, with the court’s approval, to employ professionals “to represent or assist the trustee in carrying out the trustee’s duties” under the Bankruptcy Code. 11 U.S.C. § 327(A). Section 328 permits a trustee, again with the court’s approval, to employ a professional under § 327 “on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis.” Id. § 328(a). Even if the court “pre-approves” a professional’s compensation pursuant to § 328, it ultimately may approve compensation different from that provided for “if such terms and conditions prove to have been improvident in light of developments not capable of being anticipated at the time.” Id. Absent pre-approval under § 328, the court may award “reasonable compensation” under § 330 for “actual, necessary services” rendered by professionals employed pursuant to § 327 “based on the nature, the extent, and the value of such services.” 11 U.S.C. § 330(a). In sum, “[s]ection 328 applies when the bankruptcy court approves a particular rate or means of payment, and § 330 applies when a court does not do so.” In re Airspect Air, Inc., 385 F.3d 915, 920 (6th Cir. 2004).

    The Sixth Circuit affirmed the bankruptcy court’s orders based on the “totality of the circumstances, looking at both the fee application and the bankruptcy court’s orders,” including “whether the debtor’s motion for appointment specifically requested pre-approval, whether the court’s order assessed the reasonableness of the fee, and whether the court’s order assessed the reasonableness of the fee, and whether either the order or the motion expressly invoked § 328.” In this case, the Court noted that the bankruptcy court had failed to cite to the specific Code provisions, but the totality of the circumstances indicated that approval was entered pursuant to sections 327 and 328 of the Code, so that § 330 was not a factor in this case. Id. at 922.

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    1 See The Cadle Company, II, Inc. v. Fashion Shop of Kentucky, Inc., 2009 U.S. App. LEXIS 23483, 2009 FED App. 0696N (6th Cir. Oct. 22, 2009) (Cole, J.).