Surface Transit, Inc. v. Saxe, Bacon & O'Shea, 263

• Citation: 266 F.2d 862
• Decision Date: 11 May 1959
• Docket Number: No. 263,Docket 25474.,263
• Parties: SURFACE TRANSIT, INC., et al., Appellants, v. SAXE, BACON & O'SHEA et al., Appellees. In re Allowances in ESTATE of THIRD AVENUE TRANSIT CORPORATION, Debtor.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

266 F.2d 862 (1959)

SURFACE TRANSIT, INC., et al., Appellants, v. SAXE, BACON & O'SHEA et al., Appellees In re Allowances in ESTATE of THIRD AVENUE TRANSIT CORPORATION, Debtor.

No. 263, Docket 25474.

United States Court of Appeals Second Circuit.

Argued April 15, 1959.

Decided May 11, 1959.

John A. Wilson, of Shearman & Sterling & Wright, New York City (W. M. L. Robinson, of Shearman & Sterling & Wright, New York City, on the brief), for appellants Surface Transit, Inc., Westchester Street Transportation Co., Inc., and Warontas Press, Inc., the Reorganized Companies.

Abe Fortas, of Arnold, Fortas & Porter, Washington, D. C. (Abe Krash, of Arnold, Fortas & Porter, Washington, D. C., and Hiram S. Gans and Ernest Leff, New York City, on the brief), for appellant Hiram S. Gans.

Mortimer Brenner, of Lehman, Goldmark & Rohrlich, New York City (Jerome L. Abrams, of Lehman, Goldmark & Rohrlich, New York City, on the brief), for appellant I. Howard Lehman, Trustee.

James E. Freehill, New York City (James J. Geraghty, deceased, and Frederick G. Demarest, New York City, on the brief), for appellant Lester T. Doyle, Trustee.

Thomas G. Meeker, Gen. Counsel, and David Ferber, Asst. Gen. Counsel, Securities and Exchange Commission, Washington, D. C. (Richard V. Bandler, Special Counsel, and Harvey Frank, Atty., Regional Office, Securities and Exchange Commission, New York City, and Arthur Blasberg, Jr., and Peter H. Morrison, Attys., Securities and Exchange Commission, Washington, D. C., on the brief), for Securities and Exchange Commission.

Osmond K. Fraenkel, of Hays, St. John, Abramson & Heilbron, New York City (Morris Shilensky, of Hays, St. John, Abramson & Heilbron, New York City, on the brief), for appellants Hays, St. John, Abramson & Heilbron.

Thomas O'Gorman FitzGibbon, of Davis, Polk, Wardwell, Sunderland & Kiendl, New York City (Saxe, Bacon & O'Shea and William A. Kaynor, of Davis, Polk, Wardwell, Sunderland & Kiendl, New York City, on the brief), for appellee Saxe, Bacon & O'Shea.

Edward M. Garlock, New York City, pro se.

Morton E. Yohalem and Harold P. Seligson, New York City, for appellees Amott Committee and its counsel Harold P. Seligson, Edmund Burke, Jr., and Morton E. Yohalem.

Arthur Karger, New York City, for appellee Estate of Robert Irving Lennox.

John Dwight Sullivan, of Murphy, Block, Sullivan & Sawyer, New York City (Daniel W. Blumenthal, Victor S. Gettner, and Mendel Lurie, New York City, on the brief), for appellees the O'Connell Committee and counsel.

Harold I. Meyerson, of Kresel & Meyerson, New York City, for appellees Charles B. Wiggin, Edward A. Roberts, E. Ralph Sterling, and Kresel & Meyerson.

Frank H. Heiss, of Kelley, Drye, Newhall & Maginnes, New York City (John J. Loflin, Jr., of Kelley, Drye, Newhall & Maginnes, New York City, on the brief), for appellees The Hanover Bank, Indenture Trustee, and Kelley, Drye, Newhall & Maginnes, counsel for The Hanover Bank.

William Mertens, New York City, pro se and counsel for appellee Tort Claimants Committee.

Dennis M. Hurley and Joseph E. Swierzbinski, New York City, for appellee Edward C. Maguire, Special Counsel to Trustees.

Charles Poletti, New York City, Edmund B. Hennefeld, of Hoffman, Buchwald, Nadel, Cohen & Hoffman, and Buchman & Buchman, New York City, for appellees Charles Poletti, Hoffman, Buchwald, Nadel, Cohen & Hoffman, and Buchman & Buchman.

Sidney R. Nussenfeld and Wagner, Quillinan & Tennant, New York City, for appellee Wagner, Quillinan & Tennant.

Oscar S. Rosner and Abraham Altus, of Baker, Obermeier & Rosner, New York City, for appellee Baker, Obermeier & Rosner, co-counsel for Tinker Committee.

Before CLARK, Chief Judge, and SWAN and MOORE, Circuit Judges.

CLARK, Chief Judge.

This is the final round in the Chapter X reorganization of the Third Avenue Transit Corporation, a common carrier of passengers, and its subsidiaries instituted by the filing of an involuntary petition on October 25, 1948. The debtor at that time was enmeshed in what seemed to be insoluble problems involving limitations on the fares it could charge, heavy wage demands of its employees, and franchise tax demands of New York City. The parties to this appeal are in near unanimity that the reorganization was unusually successful in achieving a workable solution of these problems and in creating reorganized companies of considerable financial strength.¹ Amidst this genuine glow of success it is indeed difficult for any court or agency dispassionately to evaluate the several applications for compensation filed below. For nearly all the participants richly merit the heartfelt thanks of the court and the public, as well as those of the particular group or interest their efforts may have more directly benefited.

The granting of allowances, however, involves a more complex amalgamation of considerations which can be only imperfectly sketched out for application in future cases. Economy of administration, the burden the estate can safely bear, the value of the services to it, the duplication of service by many counsel representing the same interest, and the reasonableness and fairness of the compensation to each applicant are all steps along the way to a final determination. Finn v. Childs Co., 2 Cir., 181 F.2d 431; Newman & Bisco v. Realty Associates Securities Corp., 2 Cir., 173 F.2d 609; In re Porto Rican American Tobacco Co., 2 Cir., 117 F.2d 599; In re Paramount Publix Corp., 2 Cir., 85 F.2d 588, certiorari denied Palmer v. Paramount Pictures, 300 U.S. 655, 57 S.Ct. 432, 81 L. Ed. 865. And the recommendations of the Securities and Exchange Commission, representative of the public interest, are entitled to great weight. Scribner & Miller v. Conway, 2 Cir., 238 F.2d 905; Finn v. Childs Co., supra, 2 Cir., 181 F.2d 431. Ultimately, however, the court's determination must be made on the facts and circumstances of each case.

Some forty-five applications for compensation were filed in the instant proceedings below, requesting over $4,000,000 in fees and disbursements. While on the record before us we cannot say that Judge Dimock's aggregate allowance of $2,028,504.73 is more than the reorganized companies can safely bear, in a variety of respects we are constrained to disagree with specific awards made by the court below. We shall discuss the modifications we are ordering; in the matters not discussed the allowances are affirmed. And we shall limit our discussion to a brief exposition of our substantial reasons, assuming familiarity with the comprehensive opinion of the district court.

In any reorganization the trustee and his counsel normally bear by far the largest burden of any of the participants. This was particularly true here, where fare, wage and tax rates facing the debtor had first to be modified before any readjustment of its financial structure would be of value. But on the other hand the compensation of these participants was always assured, and not contingent on success, as, for example, that of bondholders' representatives largely is; and much of the total time logged by trustee's counsel was in the performance of essentially routine work actually done by firm associates. We affirm the district court's award to trustee Lehman and his successor Doyle, and reduce the award of $900,000 granted trustee's counsel Saxe, Bacon & O'Shea to the amount suggested by the S. E. C., namely, $800,000.

The district court awarded The Hanover Bank, trustee of the Refunding Mortgage, $35,000 — a substantial increase over the Commission's recommended award of $20,000. Although it considered the same factors as did the Commission in making its recommendation, the court also expressed the view that the bank's charge to a private client for the extraordinary services it rendered in this reorganization would be in the neighborhood of $70,000. Giving full weight to this holding, we are yet constrained to conclude that the increase granted below was overgenerous. We reduce this award to $30,000.

Because of their great assistance to the court, Judge Dimock also granted awards substantially in excess of the S. E. C.'s recommendations to Kelley, Drye, Newhall & Maginnes, counsel to the indenture trustee, to Edward M. Garlock, and to counsel for the Amott Committee, Messrs. Seligson, Burke, and Yohalem. While neither the Commission nor the reorganized companies on this appeal depreciate the value of these counsel's services, yet in view of the degree of duplication the Commission found in the efforts of the bondholders' representatives we must hold that the court's increases of the Commission's recommended allowances, ranging from 30% in the case of Mr. Garlock to 50% to Mr. Seligson and his associates, were excessive. We award the Kelley firm $117,500, Mr. Garlock $132,500, and Mr. Seligson et al. $125,000.

The allowance to Garlock raises another problem brought us by the appeal of Hays, St. John, Abramson & Heilbron. This firm was co-counsel for petitioning creditors, along with Garlock and, for a short time before he died, Mr. Robert Irving Lennox, whose estate also received an award. Prior to filing the petition the Hays firm and Garlock entered into an oral agreement to share equally in such compensation as they received from the reorganization. A falling out shortly occurred between them, however. While Garlock carried a substantial burden throughout the reorganization, the Hays firm, with the exception of a few instances, merely held itself ready to give assistance to Garlock, should he have required it. The trial court found that the oral agreement between them as to compensation clearly contemplated an equal division of work as well as of compensation. As this did not occur we see no error in the award of separate compensation to each. Clearly the court has the power to do so. Leiman v. Guttman, 336 U.S. 1, 69 S.Ct. 371, 93 L.Ed. 453; Brown v. Gerdes, 321 U.S. 178, 64 S.Ct. 487, 88 L.Ed. 659; Woods v. City Nat. Bank & Trust Co. of...