Custom Molders, Incorporated

1 The trustee has filed an adversary proceeding to avoid the
deed of trust.
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
CUSTOM MOLDERS, INCORPORATED
DEBTOR
CASE NO.
05-01858-5-ATS
ORDER ALLOWING APPLICATION FOR COMPENSATION
The 	matter 	before 	the 	court 	is 	the 	Application 	for
Compensation 	of 	East 	Coast 	Environmental, 	P.A. 	filed 	by 	the
chapter 7 trustee. 	A hearing took place in Raleigh, North Carolina
on May 9, 2006.
An 	involuntary 	bankruptcy 	petition 	was 	filed 	against 	Custom
Molders, Incorporated on May 9, 2005, and an order for relief was
entered on May 13, 2005, with the consent of the debtor. 	Joseph N.
Callaway was appointed the chapter 7 trustee. 	Among the assets of
the 	estate 	is 	real 	property 	located 	at 	1731 	Camden 	Road, 	Durham,
North Carolina, which is subject to a deed of trust in favor of Hwa
Yong Jo and Hun Jong Jo (“Jo Brothers”) in the original principal
amount of $1,345,000. 1
SO ORDERED.
SIGNED this 10 day of May, 2006.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
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In 	March 	and 	May 	2005, 	the 	North 	Carolina 	Department 	of
Environmental and Natural Resources ("NC DENR") advised the debtor
of 	concerns 	about 	possible 	environmental 	contamination 	at 	the
Durham property. 	To assess whether the environmental issues were
so 	substantial 	in 	nature 	that 	a 	sale 	would 	be 	impossible 	and 	the
property 	should 	be 	abandoned, 	the 	trustee 	asked 	East 	Coast
Environmental 	to 	make 	an 	initial 	analysis 	of 	the 	property.
Believing that only minimal work would be required, the trustee did
not seek the employment of East Coast Environmental. 	The initial
analysis 	was 	performed, 	and 	East 	Coast 	found 	no 	environmental
problem. 	The 	trustee 	and 	East 	Coast 	understood 	NC 	DENR 	to 	have
indicated that the initial test would resolve its action letters,
but, 	in 	fact, 	NC 	DENR 	found 	that 	questions 	still 	remained 	and
further testing would be required.
East 	Coast 	performed 	further 	tests 	and 	prepared 	a
comprehensive 	report 	showing 	that 	no 	soil 	contamination 	had
occurred. 	NC DENR issued a letter dated March 27, 2006, indicating
that no environmental clean-up work was required or necessary. 	As
a result, the trustee determined that the property may be sold for
its true value and will bring substantial value to creditors of the
estate.
East 	Coast 	submitted 	a 	bill 	to 	the 	trustee 	in 	the 	amount 	of
$6,475.00. 	The 	trustee 	seeks 	authorization 	to 	pay 	the 	bill, 	and
seeks 	employment 	of 	East 	Coast 	as 	a 	professional 	nunc 	pro 	tunc.
The trustee contends that exceptional circumstances exist, in that
the 	property 	would 	not 	have 	been 	marketable 	with 	the 	cloud 	of
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environmental contamination present, the NC DENR's assessment of an
environmental 	problem 	would 	not 	have 	been 	resolved 	absent 	East
Coast's 	work, 	substantial 	value 	for 	the 	estate 	was 	preserved 	by
East 	Coast's 	work, 	and 	the 	claim 	will 	be 	a 	§ 	506(c) 	claim 	to 	be
paid 	by 	the 	Jo 	Brothers 	should 	their 	deed 	of 	trust 	be 	upheld 	as
valid. 	The bankruptcy administrator objects, contending that the
failure 	to 	employ 	East 	Coast 	as 	a 	professional 	is 	fatal 	to 	the
application, 	and 	that 	the 	trustee 	has 	not 	shown 	exceptional
circumstances to justify employment nunc pro tunc.
The bankruptcy administrator relies upon this court's opinion
in 	In 	re 	Carolina 	Sales 	Corp., 	45 	B.R. 	750, 	752 	(Bankr. 	E.D.N.C.
1985), which held that "section 327 and Bankruptcy Rule 2104 make
it abundantly clear that only those professionals whose employment
is 	authorized 	by 	the 	court 	may 	be 	compensated 	under 	11 	U.S.C. 	§
330." 	Otherwise, the court noted, "the person rendering services
may 	be 	an 	officious 	intermeddler 	or 	a 	gratuitous 	volunteer."
Carolina Sales at 752 (citation omitted). 	More specifically, the
court considered the potential for abuse in chapter 11 cases:
To avoid the enormous potential for abuse in the hiring
of consultants, appraisers, business advisors, and others
who 	offer 	their 	professional 	services 	and 	expertise 	to
beleaguered 	chapter 	11 	debtors, 	the 	court 	should
carefully scrutinize applications for employment before
the 	trustee 	or 	debtor 	contracts 	for 	such 	services. 	To
hold otherwise could be to invite officious intermeddlers
and 	additional 	unwarranted 	and 	unnecessary 	financial
burdens to an already troubled estate, to the detriment
of 	other 	creditors 	and 	to 	the 	benefit 	of 	none 	except
those employed by the debtor.
Carolina Sales at 753.
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Having 	set 	forth 	the 	strict 	statutory 	rule, 	the 	court 	also
acknowledged 	that 	it 	does 	have 	the 	discretion 	to 	enter 	nunc 	pro
tunc orders, but such an order should be entered only in the most
extraordinary circumstances. 	Carolina Sales at 753. 	Extraordinary
circumstances 	did 	not 	exist 	in 	Carolina 	Sales, 	but 	the 	court's
review of authorities finding extraordinary circumstances to exist
shows 	that 	the 	value 	of 	the 	services 	to 	the 	estate, 	particularly
where a measurable economic benefit is identified, is a factor to
consider in making this determination. 	See Carolina Sales at 753-
54. 	Similarly, this court has found extraordinary circumstances to
warrant the entry of an order employing professionals nunc pro tunc
where a substantial recovery for the estate would not have occurred
absent 	the 	investigation 	and 	pursuit 	of 	a 	fraudulent 	conveyance
action by an unemployed professional. 	In re Johnson, 72 B.R. 115
(Bankr. E.D.N.C. 1987).
Exceptional circumstances do exist in this case. 	East Coast
Environmental 	is 	not 	an 	"officious 	intermeddler" 	that 	approached
the 	trustee 	to 	undertake 	services 	for 	the 	estate 	that 	benefitted
only 	itself. 	The 	trustee 	retained 	East 	Coast 	to 	do 	an 	initial
analysis 	that 	he 	believed 	would 	be 	of 	little 	cost 	but 	of 	great
benefit 	to 	the 	estate, 	and 	the 	scope 	of 	the 	work 	was 	later
expanded, 	not 	by 	East 	Coast 	but 	by 	the 	requirements 	of 	NC 	DENR.
The 	estate 	has 	received 	a 	substantial 	benefit, 	in 	that 	property
that 	was 	in 	danger 	of 	being 	unmarketable 	due 	to 	an 	environmental
"cloud" 	is 	now 	likely 	to 	be 	sold 	for 	full 	value. 	Should 	the 	Jo
Brothers' 	deed 	of 	trust 	be 	found 	to 	be 	valid, 	they 	will 	bear 	the
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cost of East Coast's work 	as a § 506(c) claim. 	Should their deed
of trust be found to be invalid, all of the estate's creditors will
benefit from the increased marketability of the property. 	Without
East Coast's work, it is questionable whether the Durham property
would 	be 	of 	any 	value 	to 	the 	estate, 	but 	instead 	could 	have 	cost
the estate substantial expenses for its maintenance and upkeep.
Finally, the court observes that the Jo Brothers, who stand to
gain 	the 	most 	from 	the 	value 	of 	the 	property 	either 	as 	secured
creditors 	or 	as 	the 	largest 	unsecured 	creditor 	(depending 	on 	the
outcome 	of 	the 	adversary 	proceeding), 	did 	not 	object 	to 	the
trustee's application for compensation and for employment nunc pro
tunc. 	The 	Jo 	Brothers 	were 	in 	court 	for 	a 	hearing 	on 	another
matter 	in 	this 	case 	just 	prior 	to 	the 	trustee's 	and 	bankruptcy
administrator's arguments on this issue, and they could have raised
an 	objection 	had 	they 	deemed 	it 	in 	their 	interests 	to 	do 	so.
Because the Jo Brothers are likely to bear the cost of East Coast's
work, it is notable that they chose not to object.
Based on the foregoing, the court will allow the application
to 	employ 	East 	Coast 	Environmental 	nunc 	pro 	tunc 	to 	November 	1,
2005, 	and 	the 	application 	for 	compensation 	in 	the 	amount 	of
$6,475.00 is ALLOWED.
SO ORDERED.
END OF DOCUMENT
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