Newman & Bisco v. Realty Associates Securities Corp.

• Decision Date: 08 April 1949
• Docket Number: No. 177,Docket 21230.,177
• Citation: 173 F.2d 609
• Parties: NEWMAN & BISCO et al. v. REALTY ASSOCIATES SECURITIES CORPORATION et al.
• Court: U.S. Court of Appeals — Second Circuit

173 F.2d 609 (1949)

NEWMAN & BISCO et al. v. REALTY ASSOCIATES SECURITIES CORPORATION et al.

No. 177, Docket 21230.

United States Court of Appeals Second Circuit.

March 16, 1949.

On Rehearing April 8, 1949.

William P. Palmer, of New York City (Root, Ballantine, Harlan, Bushby & Palmer, of New York City, on the brief for appellant Consolidated Realty Corp., and Hooker, Alley & Duncan and James B. Alley, all of New York City, on the brief for appellant Realty Associates Securities Corp.), for appellants.

David Barnett, of New York City (Newman & Bisco, of New York City, on the brief), for Manufacturers Trust Co., as indenture trustee, and pro se.

Bernard D. Cahn, of New York City (Lewis, Marks & Kanter, of Brooklyn, N. Y., and Julius Silver, of New York City, on the brief), for appellees Bondholders' Protective Committee and Lewis, Marks & Kanter and Julius Silver.

Percival E. Jackson, of New York City (Theodore N. Tarlau, of New York City, on the brief), for appellee Percival E. Jackson, pro se.

Before L. HAND, Chief Judge, and SWAN and CLARK, Circuit Judges.

CLARK, Circuit Judge.

On petition of a debtor in reorganization and its sole stockholder pursuant to Bankruptcy Act, § 250, 11 U.S.C.A. § 650, we agreed to review these allowances to representatives of various creditors in order that we might examine both the legality and the reasonableness of the awards made. The proceeding in reorganization was unique in that after about a year and a half it was dismissed, save for the settlement of certain reserved questions and the making of allowances, upon the payment by the debtor of its debts in full by funds advanced by its sole stockholder, a subsidiary of the Reconstruction Finance Corporation. For earlier activities in the proceeding the present appellees were awarded various amounts totaling $51,000 fees and $2,596.67 expenses, and these awards were affirmed by us. In re Realty Associates Securities Corp., 2 Cir., 156 F.2d 480. Their present claims, which were for additional allowances in all of $52,000, plus expenses, resulted in actual awards of $36,800 in fees and $3,800.22 in expenses.

The services for which allowances are now being sought were rendered in the litigation in the district court and here of two matters, which are conveniently distinguished by the parties as the "guaranty" question and the "interest" question. As to the first, the debtor acknowledged its liability upon certain indenture bonds issued by it, but as to a certain sum, $128,305.52, asked for a determination whether under the circumstances it owed the amount to its bond creditors, represented by the appellees herein, or as a return to its guarantor, New York Investors, Inc., of which Lulu R. Kelby was trustee. In Kelby v. Manufacturers Trust Co., 2 Cir., 162 F.2d 350, we affirmed Judge Moscowitz' decision, In re Realty Associates Securities Corporation, D.C.E.D.N.Y., 66 F.Supp. 416, awarding the fund to the bond creditors. The second concerned the interest rate to be paid by the debtor on its unpaid bonds after their maturity date, whether at the rate stated in the original indenture of 5 per cent or at the legal rate of 6 per cent. Our decision — with the writer hereof dissenting — was against the bondholders, thus sustaining the debtor's appeal for the lower rate against the decision of Judge Moscowitz, 66 F.Supp. 416, for the higher rate. In re Realty Associates Securities Corp., 2 Cir., 163 F.2d 387. These appellees sought certiorari for the various interests they represent, but their several petitions were denied. Manufacturers Trust Co. v. Realty Associates Securities Corp., 332 U.S. 836, 68 S.Ct. 218.

These petitions for allowances did not come before the district court until after the death of Judge Moscowitz, who, as the judge in charge, was the only judicial officer of the court below thoroughly familiar with the prosecution of the litigation in question. The district court referred the present issues to a special master for hearing and report. The master's report recommending the allowances in question was accepted in full by the court. Even though the original judge had died we see nothing to be gained by the reference, which is contrary to the admonition of the rules, Federal Rules of Civil Procedure, rule 53(b), 28 U.S.C.A., and the precedents. Ira S. Bushey & Sons v. W. E. Hedger Transp. Corp., 2 Cir., 167 F.2d 9, 17, certiorari denied W. E. Hedger Transp. Corp. v. Ira S. Bushey & Sons, 335 U.S. 816, 69 S.Ct. 36; In re Irving-Austin Bldg. Corp., 7 Cir., 100 F.2d 574, 577; Adventures in Good Eating v. Best Places to Eat, 7 Cir., 131 F. 2d 809, 814, 815; McCullough v. Cosgrave, 309 U.S. 634, 60 S.Ct. 703, 84 L.Ed. 992. The debtor has not appealed, however, from the order of reference or from the allowances made the master. The master has found, and the court has accepted the findings, that the services were reasonable and proper, were not duplicative, and were reasonably worth the sums allowed. We are constrained to disagree in several important respects and feel justified in relying upon our own observations; for we personally heard these previous appeals and, unlike the court and master below, each of us can say "quæque ipse miserrima vidi et quorum pars magna fui."¹ We think the services were duplicative and excessive. But before we reach that point we must decide whether any allowances should be made, i. e., whether the services were rendered in connection with either the administration of the estate or a plan approved by the judge within the meaning of the governing statute, 11 U.S.C.A. § 642.

In making the allowances the master and the district court did not distinguish between the two issues or allot definite amounts for the services performed by the several groups of claimants on each issue. Of the allowances made, $25,000 went to Newman & Bisco, attorneys for Manufacturers Trust Company, the indenture trustee; $300 to the Bondholders' Protective Committee, and $7,500 to its attorneys, Lewis, Marks & Kanter and Julius Silver; and $4,000 to Percival E. Jackson, attorney for Vanneck Realty Corporation, a bondholder. We shall find it necessary to distinguish between the two issues, because we think the governing principles are different.

So far as the guaranty issue is concerned, we have already indicated a belief that the debtor here should pay the expenses of settling it. At page 353 of 162 F.2d we said that this, unlike a creditor's claim pure and simple, was a case where the debtor had admitted liability to one party or the other and that title to the fund must be determined before the estate could be wound up. "That the debtor might have resorted to interpleader and thus avoided the cost of the proceeding is immaterial; for reasons it deemed sufficient, it resorted instead to a proceeding in reorganization. Costs must be governed by the provisions governing it." We see no occasion to change this view. The debtor had sought this means of establishing the identity of the persons to whom it should make payment and the reasonable and proper costs of so doing are properly chargeable to it.

The situation is otherwise as to the interest question. In Warren v. Palmer, 2 Cir., 132 F.2d 665, 668, we held — in connection with a railroad reorganization, but drawing analogies from the general law — that allowances to creditors for services going only to the establishing of their own claims were not justified. We said that a ruling making such allowances would encourage claimants "to fight tooth and nail to their last unsubstantial contention." We have reiterated this position more lately in Manhattan Co. v. New York, New Haven & Hartford R. Co., 2 Cir., 171 F.2d 482, 484, where we pointed out that, while allowances in adjusting the status of a claim in order to proceed with the adoption of a plan may be...