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Estate Professionals Can Be Compensated for Services Performed Before Entry of a Retention Order, Even Without Nunc Pro Tunc Orders
Bankruptcy professionals in the Eastern District of New York should be relieved by Judge Grossman's recent decision holding that although nunc pro tunc orders approving a professional's retention are now considered "inappropriate" in light of the Supreme Court's decision in Roman Catholic Archdiocese of San Juan, Puerto Rico v. Acevedo Feliciano, 140 S.Ct. 696 (2020), there is nothing in the Bankruptcy Code, Bankruptcy Rules, or applicable case law preventing an award of compensation before a retention order is entered. In re Benitez, 19-70230 (REG), 2020 WL 1272258 (Bankr. E.D.N.Y. Mar. 13, 2020). Note that estate professionals must at some point be retained, and as mentioned below, sooner rather than later remains best practice.
Nunc Pro Tunc Orders Were a Common Practice In Bankruptcy
In bankruptcy matters, it was common practice to seek authority to retain professionals nunc pro tunc to the date the case was filed. This is because estate professionals may not be compensated under Bankruptcy Code Section 330 unless they are retained under Bankruptcy Code Section 327, which until recently was generally interpreted to mean that estate professionals could not be compensated for work performed prior the entry of (or the effective date of) a retention order. The inevitable delay in a bankruptcy case of obtaining entry of such retention orders, notwithstanding that estate professionals render essential services from day one, seemingly necessitated entry of nunc pro tunc orders.
The Supreme Court's Holding in Acevedo Effectively Eliminated Nunc Pro Tunc Retention Orders
On Feb. 24, 2020, the U.S. Supreme Court held, among other things, that "[f]ederal courts may issue nunc pro tunc orders, or 'now for then' orders, … to 'reflect[] the reality' of what has already occurred. … 'Such a decree presupposes a decree allowed, or ordered, but not yet entered, through inadvertence of the court.' … Put colorfully, '[n]unc pro tunc orders are not some Orwellian vehicle for revisionist history — creating 'facts' that never occurred in fact.' … Put plainly, the court 'cannot make the record what it is not.'" Roman Catholic Archdiocese of San Juan, Puerto Rico v. Acevedo Feliciano, 140 S.Ct. 696, 701 (2020).
In light of the Supreme Court's holding in Acevedo, many bankruptcy practitioners were concerned about how their retention applications would be treated, whether they would be able to obtain approval for compensation and reimbursement of expenses for services rendered and expenses incurred post-filing but before entry of a retention order, and mechanically how to resolve those issues.
Judge Grossman's reading of Acevedo was similar to that of many bankruptcy practitioners, that "utilizing nunc pro tunc orders to approve the retention of estate professionals retroactive to some date prior to the actual date of court approval is inappropriate." In re Benitez, 19-70230 (REG), 2020 WL 1272258, at 1 (Bankr. E.D.N.Y. Mar. 13, 2020). In Benitez, Judge Grossman considered and ultimately denied, without prejudice, a Chapter 7 trustee's application to retain counsel seeking nunc pro tunc approval to a date that was eleven months earlier. Id. The Bankruptcy Court sua sponte decided to "review its practice of nunc pro tunc retentions" in light of Acevedo, and decided that "[b]ased upon its analysis of the law, this Court will no longer require or grant nunc pro tunc retentions." Id.
Estate Professionals Are Entitled to "Reasonable" Compensation, Even Without a Nunc Pro Tunc Order
Thankfully, Judge Grossman did not leave bankruptcy practitioners without a lifeline, and determined "that retroactive approval of the retention of an estate professional, whether it be nunc pro tunc, post-facto or any similar nomenclature, is not mandated under the Code or Rules." Benitez, at 1. Judge Grossman looked carefully at Bankruptcy Code Sections 327 and 330, and Bankruptcy Rule 2014, considered bankruptcy practitioners' concern that they need to provide services immediately upon filing but practically cannot be immediately retained by court order, and concluded that as long as an estate professional is at some point (not too late of course) retained under Bankruptcy Code Section 327, he or she may be awarded "reasonable compensation" or reimbursement for "actual, necessary expenses" under Bankruptcy Code section 330 for services rendered prior to entry of such order. Id., at 3 ("Assuming the court has approved the professional's retention under section 327 prior to an award of compensation, neither the Code nor the Rules states that the professional may not be compensated under section 330 for services provided to the estate prior to court approval of their retention.").
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