Narrative Opinion Summary
In this bankruptcy case, the court addressed whether attorney Brian M. Garvine and Hemphill and Associates were required to obtain court approval for their employment by the Debtor, Butterfliez Services, LLC, which had made payments for their professional services without such authorization. The United States Trustee and the Debtor initially argued that Garvine and Hemphill should not be considered 'professionals' under 11 U.S.C. § 327(a), thus not requiring prior approval. However, the court rejected this argument, clarifying that both individuals performed functions necessitating approval under the Bankruptcy Code. The Debtor also claimed an exception under § 327(b) for retaining professionals without court approval, but the court found this inapplicable since Garvine and Hemphill were not salaried employees prior to the bankruptcy. Additionally, the court ordered Garvine to return fees paid for services that benefited an individual rather than the estate. The Show Cause Order was discharged with the stipulation that applications for employment be filed by specified dates, and proper compliance with the court's directives was required. The court also noted that previously cited case law did not support the Debtor's interpretation of the statute concerning professionals on retainer.
Legal Issues Addressed
Court Approval for Hiring Professionals under 11 U.S.C. § 327(a)subscribe to see similar legal issues
Application: The court held that Garvine and Hemphill, providing business and accounting services, required court approval as 'professionals' under § 327(a).
Reasoning: The court rejected this interpretation, emphasizing that the statutory language of § 327(a) is clear and mandates court approval for hiring professionals to assist in the duties of a debtor in possession.
Discharge of Show Cause Order and Compliance Requirementssubscribe to see similar legal issues
Application: The court discharged the Show Cause Order but required the Debtor to file applications for employment by specific deadlines.
Reasoning: The Court discharges the Show Cause Order and mandates the Debtor to file the applications for employment by December 30, 2016, and, if unopposed, to submit a corresponding approval order.
Exclusion from the Exception in 11 U.S.C. § 327(b)subscribe to see similar legal issues
Application: The court found that Garvine and Hemphill were not salaried employees prior to bankruptcy and thus did not qualify for the § 327(b) exception.
Reasoning: Additionally, the Court rejects the Debtor’s claim that Mr. Garvine and Hemphill qualify for the exception in § 327(b) allowing the retention of professionals without court approval, as they were not salaried employees of the Debtor prior to bankruptcy and were not employed as replacements for such employees.
Improper Use of Estate Assetssubscribe to see similar legal issues
Application: The court determined that legal fees paid to Garvine for services benefiting an individual were improper and ordered disgorgement.
Reasoning: During the Show Cause Order hearing, it was acknowledged that some legal fees paid to Mr. Garvine were for services benefiting Ms. Hawkins individually, which the Court deemed an improper use of estate assets.
Relevance of Case Law on Professionals on Retainersubscribe to see similar legal issues
Application: The court clarified that the cited case law did not address the applicability of § 327(b) to professionals on retainer.
Reasoning: Debtor's reliance on the court's general explanation of 11 U.S.C. § 327(b) is misplaced, as that section's applicability to professionals on retainer was not addressed in the Lowry case.