Guterman v. Parker & Co.

• Decision Date: 20 November 1936
• Docket Number: No. 3147.,3147.
• Citation: 86 F.2d 546
• Parties: GUTERMAN et al. v. C. D. PARKER & CO., Inc., et al.
• Court: U.S. Court of Appeals — First Circuit

86 F.2d 546 (1936)

GUTERMAN et al. v. C. D. PARKER & CO., Inc., et al.^*

No. 3147.

Circuit Court of Appeals, First Circuit.

November 20, 1936.

Martin Witte, of Boston, Mass. (Harry N. Guterman, Harold Horvitz, and Guterman & Guterman, all of Boston, Mass., on the brief), for appellants.

David Stoneman, of Boston, Mass. (Emanuel Kurland, of Boston, Mass., on the brief), for appellee C. D. Parker Co., Inc.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

WILSON, Circuit Judge.

This is an appeal from a decree of the District Court for the District of Massachusetts dismissing an involuntary petition in bankruptcy for want of the requisite number of petitioning creditors entitled to file a petition.

On April 11, 1935, the superior court for the county of Suffolk in the commonwealth of Massachusetts, on a petition duly filed by the creditors of the C. D. Parker & Co., Inc., appointed a receiver of the property and assets of said C. D. Parker & Co., Inc. The receiver qualified and took possession of all the assets and property of the corporation, and has since been administering said estate and liquidating its assets under the supervision and direction of said superior court.

On August 10, 1935, one day before the four months' period had expired following the appointment of the receiver in the state court, Annie B. Gilberte, Russell T. Shay, and Daniel S. Santry, claiming to be creditors of the C. D. Parker & Co., Inc., and having provable claims amounting in the aggregate, in excess of any securities held by them, to more than the sum of $500, filed a petition in the bankruptcy court for the District of Massachusetts, praying that the C. D. Parker & Co., Inc., be adjudged a bankrupt.

On August 22, 1935, the C. D. Parker & Co., Inc., appeared and answered, denying that it had committed an act of bankruptcy as set forth in the petition of Annie B. Gilberte, Russell T. Shay, and Daniel S. Santry, petitioning creditors therein, or that they have provable claims against said C. D. Parker & Co., Inc., which amount in the aggregate, in excess of the value of securities held by them, to more than $500; but, on the contrary, the C. D. Parker & Co., Inc., alleged that none of the said petitioners were creditors of said C. D. Parker & Co., Inc., and further said that the above-named petitioning creditors did not sign said petition in good faith.

On August 30, 1935, one Harry N. Guterman filed his appearance in said bankruptcy court and a petition stating that he was a creditor of the above-named bankrupt, having a provable unsecured claim in the form of a promissory note for $600, and praying that said C. D. Parker & Co., Inc., be adjudged an involuntary bankrupt, and that he desired to join in the petition as an intervening creditor therein; whereupon the said Harry N. Guterman intervened and joined in said petition.

On October 28, 1935, the H. J. Dowd Co., Inc., filed its petition setting forth that it was a creditor of C. D. Parker & Co., Inc., to the amount of $5.20 for merchandise sold and delivered, and that it desired to join as an intervener in the petition in bankruptcy filed in the bankruptcy court on August 10, 1935, praying that said C. D. Parker & Co., Inc., be declared a bankrupt; whereupon the said H. J. Dowd Co., Inc., intervened and joined in said petition.

On October 8, 1935, the issue of adjudication of said C. D. Parker & Co., Inc., was referred to a special master to ascertain and report facts. The report of said special master was filed January 22, 1936.

After prolonged hearings before the special master it was agreed by all parties, including counsel for the alleged bankrupt, that the assets of the alleged bankrupt would amount to less than $100,000, and that its liabilities would exceed $5,000,000; that an act of bankruptcy had been committed; and that the alleged bankrupt was insolvent at the time of the alleged act of bankruptcy. The alleged bankrupt, however, contended before the master that all the creditors, except the H. J. Dowd Co., Inc., were not creditors of the alleged bankrupt and that the petitioning creditors had not acted in good faith in presenting their petitions.

The special master found that Annie B. Gilberte had participated in the receivership proceedings in the state court to the extent of filing a petition for the reclamation of certain bonds which she claimed had been entrusted to the possession of the alleged bankrupt, which could be traced into its hands at the time of the receivership; but that there was on the books of the alleged bankrupt an entry disclosing that the bankrupt was indebted to the said Annie B. Gilberte in the sum of $381.24 for funds collected by the bankrupt in 1927, of which she was not notified and had no knowledge until approximately a month before the filing of the petition in bankruptcy.

The special master also found that Russell T. Shay and Daniel S. Santry were creditors of the alleged bankrupt and that Harry N. Guterman and H. J. Dowd Co., Inc., intervening creditors, also had provable claims against the alleged bankrupt.

As to the charge of bad faith and bad motives of the petitioning creditors, the special master held that bad faith on the part of the creditors was not shown and that bad motives of petitioning creditors were not a defense, unless, perchance, it amounted to fraud on the court, which did not exist in this case. In re Automatic Typewriter & Service Co. (C.C.A.) 271 F. 1, 4; Bank of Elberton v. Swift (C. C.A.) 268 F. 305, 308.

While the activity of counsel in obtaining signatures of the necessary creditors to the petition may not have been commendable under the circumstances disclosed in this case, the special master did not find that they did anything illegal in seeking creditors to join in a petition in bankruptcy, or that the act of counsel in advancing the necessary funds for filing the petition indicated bad motives or bad faith on the part of the petitioning creditors, and recommended that the C. D. Parker & Co., Inc., be adjudged a bankrupt.

Counsel for the receiver in the state court has criticized the activities of counsel in securing the necessary creditors to sign the petition in bankruptcy on the ground that his activities were motivated solely by a desire to "get in on the proceedings" against the bankrupt in order to obtain the fees allowed in such cases; but the amount of counsel fees allowed in a bankruptcy case under sections 62 and 64 (as amended) of the Bankruptcy Act (11 U.S.C.A. §§ 102, 104) is within the control of the bankruptcy court resting in a sound judicial discretion. One important consideration in determining what are reasonable fees of an attorney under sections 62 and 64, either when acting for the petitioning creditors or for any services rendered, is the benefit derived from his services by the entire body of creditors of the bankrupt. In re Consolidated Distributors (C.C.A.) 298 F. 859; In re Rozinsky et al. (D.C.) 101 F. 229; In re Zier & Co. (C.C.A.) 142 F. 102; In re Covington (D.C.) 132 F. 884; In re Sage (D.C.) 225 F. 397; Randolph v. Scruggs, 190 U.S. 533, 539, 23 S.Ct. 710, 47 L.Ed. 1165; vol. 2, Collier on Bankruptcy (13th Ed.) pp. 1360, 1460.

The District Court, however, found that Annie B. Gilberte had participated in the said receivership to the extent of filing a petition for reclamation of certain securities and at the instance of her attorney had signed the petition in bankruptcy some days before receiving her securities in the reclamation proceedings, and that on the advice of her counsel the petition in bankruptcy was not filed until a day after she had received her securities, and was disqualified from joining in the petition in the bankruptcy court and dismissed the petition for want of the requisite number of petitioning creditors entitled to file a petition, and refused to allow the interveners having provable claims to make up the deficiency in the original number of petitioners. The District Court, in addition, held that, since the affairs of the bankrupt had been in the hands of a receiver for nearly a year, he was warranted in exercising a discretion to allow the state court to finish the work it had begun, and thereupon dismissed the petition.

Wherefore the original petitioners, Annie B. Gilberte, Russell T. Shay and Daniel S. Santry, together with the intervening creditors, Harry N. Guterman and H. J. Dowd Co., Inc., appealed from the decision of the District Court dismissing the petition under section 25 of the Bankruptcy Act (11 U.S.C.A. § 48), and in part assigned as errors:

That the District Court erred in refusing to adjudge the C. D. Parker & Co., Inc., a bankrupt.

That Annie H. Gilberte was disqualified as a petitioning creditor, having presented her reclamation claim in the receivership proceedings in the state court.

That the District Court erred in holding that the involuntary petition in bankruptcy was an invalid petition.

That the petition was dismissed for want of the requisite number of petitioning creditors entitled to file a petition.

That the court erred in refusing to allow interveners having provable claims to make up for the deficiency in the original number of petitioners, even if it be assumed that the court was correct in holding there was such deficiency.

That the court erred in failing to regard the interveners as having a status as the original petitioners.

That in so far as the order of the District Court dismissing the involuntary petition is based upon an exercise...