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Professionals Employed by Bankruptcy Estate Beware

Professionals seeking to be employed under Bankruptcy Code Section 328, most commonly when seeking to be employed on a contingency fee basis, should be careful to ensure the employment motion and order specifically state the professional is being employed under Section 328. Compensation under Section 330 is subject to a reasonableness test but under Section 328, compensation under the terms stated will be allowed absent the Court finding that such compensation terms were "improvident in light of developments not capable of being anticipated at the time of the fixing of such terms." As such, if the professional seeks compensation under the "easier" test of Section 328, the professional must be sure to explicitly seek employment under Section 328 in the employment motoin and to be safe, should also so state in the employment order.

The Ninth Circuit held in Circle K Corp. v. Houlihan, Lokey, Howard & Zukin, Inc. (In re Circle K Corp.), 279 F.3d 669 (9th Cir. 2001), "that unless a professional's retention application unambiguously specifies that it seeks approval under § 328, it is subject to review under § 330." Id. at 671 (emphasis added). In other words, "[t]o ensure that § 328 governs the review of a professional's fees, a professional must invoke the section explicitly in the retention application." Id. at 674 (emphasis added). In Circle K, the Ninth Circuit looked at the content of the application to employ a professional pursuant to Section 328 in holding that "a professional must invoke [Section 328] explicitly in the retention application." Circle K, 279 F.3d at 674. With respect to the order approving a retention application, the Ninth Circuit stated that "[p]referably, the retention order would specify that [Section 328] as well." Id.

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