Crestview Funeral Home, Inc.

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Crestview Funeral Fone, Inc. 95- 11923
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re

CRESTVIEW FUNERAL HOME, INC.

Debtor. No. 11-95-11923 MA

FINDINGS OF FACT AND CONCLUSIONS OF LAW

THIS MATTER came before the Court upon the objection of the United
States Trustee to the debtor's application to employ the law firm of Puccini and
Little, P.A. ("Puccini"). The Court having heard the arguments of counsel,
examined the pleadings and briefs, and being otherwise fully advised, makes
the following findings of fact and conclusions of law:

FINDINGS OF FACT

1. This bankruptcy was commenced by the filing of a Chapter 11 petition
on July 5, 1995. An application to employ Puccini as attorney for the debtor was
filed simultaneously.

2. After the application to employ was noticed out to all creditors, the
United States Trustee and creditor Phyllis Ferguson filed objections to the
application.

3. On January 4, 1996, Puccini filed a motion to withdraw as attorney for

the debtor. At that time Puccini had never requested a hearing on his

INFORMATION

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application for employment, and the application remained pending. On
February 6, 1996, the Court entered an order approving the employment of
Linda Bloom as counsel for the debtor, pursuant to a notice of substitution of
counsel filed January 5, 1996.
4. On January 22, 1996, the United States Trustee filed a motion to require
Puccini to file a fee application.
5. On February 20, 1996, Puccini wrote a letter to Leonard Martinez-
Metzgar, assistant United States Trustee, expressing his intention to file a fee
application "soon."
6. By March 12, 1996, Puccini still had not filed a fee application, and the
United States Trustee filed a request for hearing on his motion to require the filing.
The matter was set for preliminary hearing on March 27, 1996. When Puccini
failed to appear, the Court directed the United States Trustee to submit an order
setting a deadline for the filing of the fee application. An order setting April 11,
1996, as the deadline for the filing of the fee application was entered on March
28, 1996.
7. Puccini did not file a fee application by April 11, 1996.
8. On June 12, 1996, the United States Trustee filed a motion for an order
to show cause why Puccini should not be required to disgorge all fees received
from the debtor.
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9. On July 3, 1996, Puccini finally filed the fee application required by the
March 28th order.
10. On July 5, 1996, exactly one year after the filing of the Chapter 11
petition, Puccini filed a request for hearing on his application for employment by
the debtor.
11. Puccini explains his failure to seek timely approval of his application to
be employed by the debtor as being the result of an oversight by his office staff.
He further asserts that his employment should be approved on the grounds that
his work provided a benefit to the estate and that denial of employment would
result in a hardship on the firm.
12. On October 3, 1996, the Court heard the United States Trustee's
motion for an order to show cause and for disgorgement of fees. The Court
granted the motion and ordered Puccini to disgorge all sums previously
received on account of work done for the debtor.
13. On October 9, 1996, the United States Trustee filed notice of a
presentment hearing on the order resulting from the Court's ruling on the motion
to require disgorgement.
14. On October 10, 1996, Puccini moved for a continuation of the
presentment hearing, objecting to the hearing on due process grounds. He also
filed a motion to amend the order requiring disgorgement, or in the alternative,
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a motion for reconsideration.
15. On October 11, 1996, Puccini filed a pleading captioned as a
response to the objections to his application for employment and a response to
the motion for an order to show cause and for disgorgement of fees (upon
which the Court had already ruled).
16. The presentment of the order requiring Puccini to disgorge fees was
eventually heard on March 17, 1997. The Court entered the order, amending
the language to provide for disgorgement of all sums previously received rather
than any specific dollar amount.
17. Despite the Court's order, Puccini did not disgorge any of the money
received pursuant to his representation of the debtor and remains in
noncompliance with the order.
18. In his statement disclosing compensation, Puccini certified that the
firm of Puccini & Little had received, prior to the filing of the statement on July 5,
1995, only a retainer from Lester Salazar in the amount of $5000.00.
19. According to Exhibit A attached to Puccini's application for fees,
Puccini received a "miscellaneous trust receipt" from the debtor on July 3, 1995,
in the amount of $14,813.25.
20. According to Exhibit A attached to Puccini's application for fees, the
total of all "payments and credits" received by Puccini during the period from
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July 5, 1995, through January 29, 1996, was $45,757.25.
21. Prior to his representation of the debtor in this bankruptcy, Puccini
represented John Salazar regarding certain issues in his divorce settlement.
John Salazar is the president of the debtor.
22. Puccini states, in his application for compensation, that he has
represented only the debtor and not John Salazar.
23. In letters to Darrell Arne dated April 18, 1995, and May 2, 1995, Puccini
refers to John Salazar as "my client" and states that "on behalf of John Salazar"
he is advising Arne of a position regarding payment of Arne's expenses.
24. Puccini does not disclose this prior representation at all in his
application for employment; the application states that the firm has had "no
prior connection with Debtor, other than in filing this Petition, and the firm does
not represent any of the creditors or any other party in interest . . .."
25. Puccini has exhibited a pattern of failing to obtain Court authority for
his employment prior to representation of Chapter 11 debtors.
26. Puccini has exhibited a pattern of collecting fees from Chapter 11
debtors prior to obtaining Court authority for his employment.
CONCLUSIONS OF LAW
27. Employment of an attorney by a debtor-in-possession requires prior
approval of the court pursuant to §327(a) of the Bankruptcy Code and Rule
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2014(a) of the Federal Rules of Bankruptcy Procedure. Professionals who
perform services for a debtor-in-possession cannot recover fees for services
rendered to the estate unless those services have been previously authorized by
court order. In re Atkins, 69 F. 3d 970 (9th Cir. (Cal.) 1995); In re Auto Parts Club,
Inc., 191 B.R. 848 (Bankr. S.D. Cal. 1996).
28. The requirement of prior approval is not satisfied by filing an
application for approval but only by securing an order of the court granting the
application.
29. Local Rule 9013-1(c)(1) provides that a movant "shall promptly request
a hearing" when an objection to a motion is filed.
30. Puccini's filing of a request for hearing one year after the filing of his
application for approval of employment does not satisfy the requirement for
promptness found in Local Rule 9013-1(c)(1).
31. The Court concludes that Puccini did not timely seek prior court
approval of his employment by the debtor.
32. The 10th Circuit has found retroactive approval of the employment of
professionals to be permissible only in "the most extraordinary circumstances." In
re Land, 943 F.2d 1265, 1267 & 8 (10th Cir. (Colo.) 1991).
33. The majority of cases in which an attorney seeks retroactive
employment as counsel for a debtor involve failure to file a timely application
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for approval of employment; however, the general requirement that
extraordinary circumstances are necessary to excuse a professional's failure to
get advance approval for employment is applicable even where the
application has been pending while services were being performed for the
estate by the professional. See: In re Rheam of Indiana, Inc., 133 B.R. 325 (E. D.
Pa. 1991).
34. Puccini cannot excuse his failure to obtain timely court approval of his
employment on the basis of inadvertence. Inadvertence or negligence does
not constitute exceptional circumstances which justify the retroactive approval
of the appointment of counsel. See: In re Shirley, 134 B.R. 940 (9th Cir. BAP (Cal.)
1992). Tardiness occasioned merely by oversight does not qualify as
extraordinary circumstances. In re Jarvis, 53 F.3d 416 (1st Cir. (R.I.) 1995).
35. The Court concludes that no extraordinary circumstances exist in this
case which would justify Puccini's failure to obtain timely approval of his
employment. Whether extraordinary circumstances exist which justify
retroactive employment of a professional is a matter within the sound discretion
of the bankruptcy court. 	In re Rheam of Indiana, 133 B.R. 325 (E.D. Pa. 1991); In
re Jarvis, 53 F.3d 416 (1st Cir. (R.I.) 1995).
36. Even if the Court were to apply the more lenient standard of
"excusable neglect," Puccini's pattern of doing work first and seeking approval
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from the bankruptcy court later is definitely not "harmless neglect," but instead is
neglect of a nonexcusable kind. See: Matter of Singson, 41 F.3d 316 (7th Cir.
(Wis.) 1994).
37. It is immaterial and irrelevant to a decision on retroactive approval of
an application for employment as counsel for a Chapter 11 debtor whether
counsel has provided beneficial services to the debtor. In re T & D Tool, Inc., 132
B.R. 525 (E. D. Pa. 1991).
38. Any hardship on a professional if compensation is denied and the
value of the services that a professional has provided to the estate are factors
that may not properly be considered in an application for retroactive
employment of a professional. In re Rheam of Indiana, 133 B.R. 325 (E.D. Pa.
1991).
39. The Court concludes that Puccini is not entitled to retroactive
approval of his employment as counsel for the debtor on the basis of excusable
neglect, hardship, or benefit provided to the estate.
40. The Court also concludes that Puccini made no full and appropriate
disclosure of his prepetition representation of John Salazar. To employ a
professional in a bankruptcy case, the professional's connections with creditors,
insiders, and parties-in-interest must be disclosed, no matter how trivial. The
purpose of these disclosure requirements is to ensure that all relevant facts are
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revealed, thereby allowing the court and other parties-in-interest to determine
whether further inquiry should be made before approving the application. See:
Matter of Crivello, 194 B.R. 463 (Bankr. E.D. Wis. 1996).
41. Puccini's prior representation of John Salazar raises the possibility of a
conflict. Puccini cannot satisfy the requirement found in §327(a) that a
professional must be disinterested before employment may be approved. In
exercising discretion to limit fees when a professional representing the
bankruptcy estate ceases to be disinterested, the bankruptcy court should lean
strongly toward denial of fees. Gray v. English, 30 F.3d 1319 (10th Cir. (Okl.)
1994).
42. The Court also concludes that Puccini has failed to make full and
appropriate disclosure regarding his compensation by the debtor and that
Puccini's disclosures regarding his compensation are incomplete, contradictory,
and misleading. The failure to provide the bankruptcy court with a complete
and accurate disclosure of prepetition transactions may result in the denial of
the attorney's retention application and in the disgorgement of all payments
made and retainers provided. In re Lincoln North Associates, Ltd. Partnership,
155 B.R. 804 (Bankr. D. Mass. 1993); In re Maui 14k, Ltd., 133 B.R. 657 (Bankr. D.
Hawaii 1991).
43. Since October 3, 1996, Puccini has been and remains in violation of
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the Court's order requiring disgorgement of all sums received in connection with
his representation of the debtor.
44. Puccini's application for employment by the debtor should be and
HEREBY IS DENIED. An appropriate order will be entered.
____________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
I certify that on the above stamped date I mailed a copy of the above to:
Mr. Louis Puccini, Jr.
Attorney at Law
PO Box 30707
Albuquerque, NM 87190-0707
Mr. Leonard K. Martinez-Metzgar, Attorney
Office of the United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
Ms. Linda S. Bloom
Attorney at Law
PO Box 218
Albuquerque, NM 87103-0218
(505) 764-9600
______________________________
Dinah N. Martinez
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Secretary to Judge McFeeley
(505) 248-6526

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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re
CRESTVIEW FUNERAL HOME, INC.
Debtor. 	No. 11-95-11923 MA
ORDER DENYING APPLICATION
TO EMPLOY ATTORNEY FOR DEBTOR
IN ACCORDANCE WITH the Findings of Fact and Conclusions of
Law entered herewith, the application of Puccini & Little, P.A.
to be employed as counsel for the debtor is denied.
____________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
I certify that on the above stamped date I mailed a copy of the
above to:
Mr. Louis Puccini, Jr.
Attorney at Law
PO Box 30707
Albuquerque, NM 	87190-0707
Mr. Leonard K. Martinez-Metzgar, Attorney
Office of the United States Trustee
PO Box 608
Albuquerque, NM 	87103-0608
Ms. Linda S. Bloom
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Attorney at Law
PO Box 218
Albuquerque, NM 	87103-0218
(505) 	764-9600
______________________________
Dinah N. Martinez
Secretary to Judge McFeeley
(505) 248-6526
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