In re Mt. Forest Fur Farms of America

• Decision Date: 09 October 1946
• Docket Number: No. 10160 to 10170.,10160 to 10170.
• Citation: 157 F.2d 640
• Parties: In re MT. FOREST FUR FARMS OF AMERICA, Inc. VERMILION BAY LAND CO. v. FITZGERALD et al., and ten other cases.
• Court: U.S. Court of Appeals — Sixth Circuit

157 F.2d 640 (1946)

In re MT. FOREST FUR FARMS OF AMERICA, Inc.

VERMILION BAY LAND CO. v. FITZGERALD et al., and ten other cases.

Nos. 10160 to 10170.

Circuit Court of Appeals Sixth Circuit.

October 9, 1946.

COPYRIGHT MATERIAL OMITTED

Lester S. Moll, of Detroit, Mich. (Moll, Desenberg & Purdy, of Detroit, Mich., on the brief), for Vermilion Bay Land Co.

Noble Lawson, of Detroit, Mich. (Anderson, Wilcox, Lacy & Lawson, of Detroit, Mich., on the brief), for John S. Anderson et al.

Harold M. Shapero, of Detroit, Mich., for Harold M. Shapero et al.

Edward T. Kelley, of Detroit, Mich. (Frederick B. Darden, of Detroit, Mich., on the brief), for Darden & Brashear et al.

Edward T. Kelley, of Detroit, Mich., for Edward T. Kelley et al.

Julian G. McIntosh, of Detroit, Mich., per se.

Richard Ford, of Detroit, Mich. (Fischer, Brown, Sprague, Franklin & Ford, of Detroit, Mich., on the brief), for Harley C. Waitman et al.

Harold R. Smith, of Detroit, Mich., for Ernest D. Skinner et al.

Harley G. Fowler, of Knoxville, Tenn. (Fowler & Fowler, of Knoxville, Tenn., on the brief), for J. A. Fowler et al.

Hugh Francis, of Detroit, Mich., for Hugh Francis, receiver.

Ross Shumaker, of Toledo, Ohio (Fraser, Shumaker, Kendrick & Winn and Robert S. Dunn, all of Toledo, Ohio, on the brief), for Fraser, Shumaker, Kendrick & Winn.

Robert S. Marx, of Cincinnati, Ohio (Carl Runge and Lawrence I. Levi, both of Detroit, Mich., and Nichols, Wood, Marx & Ginter, of Cincinnati, Ohio, on the brief), for Frank Fitzgerald et al.

Charles J. Odenweller, Jr., of Cleveland, Ohio (Roger S. Foster, Theodore L. Thau, and W. Victor Rodin, all of Philadelphia, Pa., on the brief), for Securities and Exchange Commission.

Before ALLEN, MARTIN, and MILLER, Circuit Judges.

MARTIN, Circuit Judge.

The tangled trial through the Mt. Forest Fur Farms of America has led again to this court. We have previously published three opinions upon jurisdictional phases of the attempt to reorganize the distressed debtor corporation, and to bring in as assets its asserted valuable mineral rights in Louisiana lands. A part of the case history is revealed in these opinions: Mount Forest Fur Farms of America v. Farnsworth, 6 Cir., 92 F.2d 342; In re Mt. Forest Fur Farms of America, 6 Cir., 103 F.2d 69; In re Mt. Forest Fur Farms of America, 6 Cir., 122 F.2d 232. A more complete history, which brings the chronicle to date in clear-cut narrative form, will be found in findings numbered two to fifteen, inclusive, at pages 63-68, of the findings of fact and conclusions of law of the district court in the present controversy which are published in 62 F.Supp. 59. For brevity, the excellent narrative of the district judge will not be repeated or rewritten. All his findings are grounded upon substantial evidence and certainly cannot be said to be clearly erroneous.

A plan of reorganization has been confirmed by the district court. We are now asked by numerous claimants to reverse the disallowance of fees and expenses claimed in their individual cases. The Securities and Exchange Commission, which became a party to the reorganization proceeding, contends that the rejected fee claims of certain attorneys should be allowed because the services rendered were as a matter of law compensable from the assets of the debtor. The reorganized debtor, Vermilion Bay Land Company, invokes a reduction of the fee allowances to the trustee, his general counsel and his special counsel, and to the attorneys for the debtor corporation; and resists the fee claims of the various appellants.

The eleven separate appeals from the respective orders of allowance and disallowance entered in the district court were consolidated. A full day's court session was consumed in hearing the arguments of thirteen attorneys who appeared for the respective parties in interest. Fifteen printed briefs have been read and the authorities cited have been consulted.

There is no printed record in the cases; but the appeals have been submitted upon one set of typewritten material consisting of numerous volumes containing miscellaneous matter, such as copies of pleadings and motions; testimony taken before the special master, and also before the district judge; claims; schedules of objections; corporate minutes and minutes of the meetings of the reorganization committee; copies of miscellaneous letters, papers, documents and financial statements; and copies of briefs and of various orders entered from time to time in the proceedings below. Printed records and briefs in other litigation in connection with the affairs of the Mt. Forest Fur Farms of America, Inc., have been included also. This single set of miscellaneous material submitted in lieu of a printed record weighed 54 pounds when shipped by express in two 10½' × 17¼' × 11½' cardboard containers.

Even though the court has been burdened with checking and considering this type of material, in lieu of a printed record, the economy of counsel in avoiding the heavy cost of printing such voluminous material is commended. A display of like economy-mindedness in the claims for fee allowances would have been even more commendable. Had all the petitions for fee claims been allowed as presented, the total amount would have aggregated $319,235.54, plus reimbursement of $8,407.10 in claimed expenses. Fees and expenses uncontested by appeal in the amount of $185,339.45 in connection with the mineral litigation had already been allowed and paid, and claims for fee allowances arising from the state court receivership had been compromised for more than $55,000, at the expense of the debtor corporation, when the present claims were considered in the district court. Thus, the total cost in fees and expenses of reorganizing the debtor corporation would have substantially exceeded one half million dollars, had all claims for fees and expenses been allowed.

As found by the district court, the debtor corporation had on hand, at the time of action upon the final fee claims, $125,000 in cash, was receiving an annual income of approximately $80,000 from oil, sulphur, and muskrat trapping royalties, and owned some 50,000 acres of cheaply purchased land of doubtful value in Louisiana. In the plan of reorganization, the trustee stated his "considered opinion" that the debtor's assets were worth, conservatively, not less than $1,500,000. This amount, however, is essentially speculative, inasmuch as the record does not reveal with any degree approaching certainty the reasonable value of future royalties. The debtor insists that the trustee's estimated value of its contingent assets is entirely too high. There would seem to be justification for the argument. Even accepting the trustee's estimated valuation, however, a total allowance of more than one-third of the debtor's assets in expenses of administration and reorganization would be unconscionably high.

Many years ago, Chief Justice Taft sounded a note of economy in expressing the desire of the Supreme Court that judges, in fixing allowances for the services of court officers, "should be most careful"; and that "vicarious generosity" in such function should "receive no countenance." In re Gilbert, 276 U.S. 294, 296, 48 S.Ct. 309, 310, 72 L.Ed. 580.

In 1935, the present opinion writer, as district judge, pointed out that the policy of the Bankruptcy Act, manifest in all its provisions regarding expenses and fees, is to reduce to a minimum the cost of administering estates, and that the courts are bound to give the statute such construction and application as will fulfill the intention of Congress. In re King, D.C.W.D.Tenn., 11 F.Supp. 351, 357. Among other authorities, reference was made to the opinion of Mr. Justice Cardozo in Realty Associates Corporation v. O'Connor, 295 U.S. 295, 299, 55 S.Ct. 663, 79 L.Ed. 1446, where he declared for the unanimous court that extravagant costs of administration in winding up estates in bankruptcy have been denounced as crying evils; that, in response to those complaints, Congress had attempted to fix the limit for expenses growing out of the services of referees and receivers; and that a court should not forget that Congress meant to hit the evil of extravagance, wherefore the meaning of the words of the Bankruptcy Act, if doubtful, must be adapted to its aims.

In 1936, Mr. Justice Stone (later Chief Justice), in delivering the again unanimous opinion of the highest court, cited his colleague's earlier decision and declared that it had been the consistent policy of Congress that proceedings in bankruptcy and under Section 77B, 11 U.S.C.A. § 207, should be economically administered; that one of the controlling reasons for the enactment of Section 77B was the desire to reduce the costs of reorganization; and that limitations upon prescribed expenses have been strictly construed "even when the compensation allowed was, in special circumstances, materially less than that which otherwise might have been considered reasonable." Callaghan v. Reconstruction Finance Corporation, 297 U.S. 464, 468, 469, 56 S.Ct. 519, 521, 80 L.Ed. 804.

Certainly, these two opinions made crystal clear the Supreme Court's denouncement of the allowance of excessive or exorbitant compensation in proceedings for the conservation and preservation of the estate of the bankrupt and the interest of creditors.

More recently, the Supreme Court has stated that "the history of fees in corporate reorganization contains many sordid chapters", and that "one of the purposes of § 77B was to place those fees under more effective control." Dickinson Industrial Site v. Cowan, 309 U.S. 382, 388, 60 S.Ct. 595, 599, 84 L.Ed. 819. "And Ch. X of the Chandler Act which took the place of § 77B set up even more comprehensive supervision over compensation and allowances (H.Rep.No. 1409, 75th Cong. 1st Sess., pp. 45-46) and provided a centralized control over all administrative expenses, of which lawyers' fees are a part", said the highest court in...