In bankruptcy cases, professionals must be employed pursuant to court order and, later, have their fees and costs approved by court order in order to be paid. 11 U.S.C. §§ 327, 330; Fed. R. Bankr. P. 2014.
Work done before the date an employment order is entered is generally not compensable, especially when there is an unwarranted delay in seeking entry of an employment order. But in Chapter 11 cases, professional services to a debtor-in-possession are required immediately for first-day matters such as motions for orders approving the immediate use of cash collateral, authorizing retention of key employees, and so on. Bankruptcy professionals have dealt with this “gap” by drafting employment orders which provide that the orders are effective “nunc pro tunc” (in Latin, “now for then”) to the date the professional started doing otherwise compensable work, or to the date the application for employment was filed. Nunc pro tunc orders provided a workaround to Fed. R. Bankr. P. 6003, which provides in part that unless it is “necessary to avoid immediate and irreparable harm,” an employment order “shall not” be entered within 21 days of the bankruptcy petition date. Support for nunc pro tunc employment orders can be found in the official comments to the 2011 Amendments to Fed. R. Bankr. P. 6003, which state in part that “[t]he rule is amended to clarify that it limits the timing of certain orders, but does not prevent the court from providing an effective date for such an order that may relate back to the time of the filing of the application or motion, or to some other date.”
The U.S. Supreme Court appears to have thrown a wrench into the use of nunc pro tunc employment orders.. In Roman Catholic Archdiocese of San Juan v. Feliciano, 140 S. Ct. 696, decided February 24, 2020 (“Feliciano”), the Supreme Court ruled, among other things, that a federal court’s order remanding a matter to a Puerto Rico court nunc pro tunc to an earlier date (the date the bankruptcy of a party was dismissed) was ineffective.
The Supreme Court stated that a nunc pro tunc order “presupposes” that the court has made a decree that was not entered on account of “inadvertence,” citing Cuebas y Arrendondo v. Cuebas y Arrendondo, 223 U.S. 376, 390 (1912).
But in Feliciano, as of the date the order of remand was entered, nothing had happened in the federal court that issued the remand order in terms of remand, so there was no inadvertence to correct. It appears that a bankruptcy court can make a nunc pro tunc order only if the court makes an oral ruling but does not immediately enter the order.
But it is unclear what effect Feliciano will have on the ability of bankruptcy courts to enter orders authorizing the payment of professionals for work done before entry of the employment order. Is Feliciano a narrow clean-up of the term “nunc pro tunc” or is broader? Future case law will sort this out. A bankruptcy court decision filed on March 13, 2020, made a narrow reading of Feliciano, finding that nothing in the bankruptcy code or rules prevents entry of an order approving compensation for services performed before entry of the employment order. In re Benitez, 19-709230 (Bankr. E.D. N.Y.).
Time will tell.