Mercantile-Commerce B. & T. Co. v. SE ARKANSAS L. DIST.

• Decision Date: 31 October 1939
• Docket Number: No. 11396.,11396.
• Citation: 106 F.2d 966
• Parties: MERCANTILE-COMMERCE BANK & TRUST CO. et al. v. SOUTHEAST ARKANSAS LEVEE DIST. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

106 F.2d 966 (1939)

MERCANTILE-COMMERCE BANK & TRUST CO. et al. v. SOUTHEAST ARKANSAS LEVEE DIST. et al.

No. 11396.

Circuit Court of Appeals, Eighth Circuit.

October 31, 1939.

J. Merrick Moore, of Little Rock, Ark., and John M. Holmes and Thompson, Mitchell, Thompson & Young, all of St. Louis, Mo., for appellants.

J. W. House, of Little Rock, Ark., and O. C. Burnside, of Lake Village, Ark., for appellees.

Before THOMAS and VAN VALKENBURGH, Circuit Judges, and DEWEY, District Judge.

VAN VALKENBURGH, Circuit Judge.

This is an appeal from an order of the District Court for the Eastern District of Arkansas allowing appellants the sum of $1,000 to cover the fees of their attorneys for services rendered in receivership and bankruptcy proceedings through a period commencing July 21, 1937, and continuing approximately for a year and a quarter thereafter. Appellants contend that this allowance granted is unreasonably inadequate compensation for the services rendered.

A sufficient understanding of the question presented requires a somewhat complete recital of the litigation involved, and of the nature of the services for which compensation is claimed. In support of their claim appellants have filed a substantially complete itemization of the participation of their attorneys in the various phases of the pending litigation, together with the nature of the questions arising, and the time and effort expended in connection therewith. Without doubt the legal services rendered involved a high order of professional ability and were potentially of value. The only question to be determined is the propriety of the allowance under the circumstances and the controlling principles of law applicable thereto.

The litigation involved was commenced by the filing of a bill in equity February 5, 1932, by appellants herein as trustees under certain pledge agreements securing bonds outstanding aggregating $2,413,500 issued by the appellee Levee District. It prayed foreclosure of certain tax liens secured by said bonds, and the appointment of a receiver for the district. The taxes were in default, causing default in the payment of interest on the bonds. A receiver for the district was appointed by order entered on the same date. May 26, 1937, appellants, as trustees, filed a motion to terminate this receivership on the principal ground that the district had adopted a resolution to refund all of the principal of the bonded indebtedness by the issuance of new bonds, maturing in twenty years, at a reduced interest rate of 4%, the holders of the present bonds to waive substantially all delinquent interest. This plan was known as the "4% plan", and the motion alleged that the plan had been accepted by more than two-thirds of the bondholders.

June 17, 1937, the trustee for the Missouri Pacific Railroad Company, having a right of way in said district, filed a response, by way of intervention to this motion of appellants, objecting to the discharge of the receiver, and to the use of funds then in the hands of the receiver to pay a fee to bond-brokers for procuring the refunding, on the ground that the refund would not benefit the property owners.

June 28, 1937, appellants filed a supplemental petition showing that 82 percent of the outstanding bondholders had agreed to the four percent refunding plan, and praying the allowance of reasonable compensation and reimbursement for themselves and counsel in the performance of their duties as trustees. By order of September 24, this claim was allowed in the sum of $12,154, of which amount $1,700 was for expenses. Counsel received $10,454.

Coming now to the record after July 21, 1937, upon which the present claim is based, we find that on July 26, 1937, an intervening complaint was filed by Reba Poff and others owning taxable property in said Levee District, alleging depreciation of values of property within the district because of the Flood Control Act, known as the Jadwin Plan, damages for which were pending in the Court of Claims. In general this intervention opposed the four percent refunding plan on the ground that a better policy had been adopted by other levee districts of settling their indebtedness for various percentages on the dollar of the principal amount of their bonds; and that the property could be handled more equitably and at much less expense through the receivership. The prayer was that the court should not act hastily, but should give opportunity for property owners to be heard, and to inquire into the proposed refunding plan, retaining the receivership in the meantime.

July 28, 1937, a hearing was held on the discharge of the receiver. At its conclusion the receivership was continued, and there was also a hearing upon motion of appellants for a distribution of $363,000 cash on hand and in the custody of the receiver.

Next, on August 12, 1937, the appellee Levee District, through its Board of Directors, filed its petition to set aside the court's order of July 28, 1937; also in terms adopting appellants' allegations respecting the termination of the receivership; reciting a futile attempt to induce the R. F. C. to make a loan to the district of sixty-two and one-half cents on the dollar, and advocating the adoption of the four percent plan of refunding, which would result in immediate and great reduction in taxes and corresponding benefit to the landowners. It was alleged that in December, 1936, this plan was discussed with the late Judge Martineau who expressed willingness to discontinue the receivership if the said plan were agreed upon by the district and the requisite percentage of the bondholders. The prayer of the Board of Directors was that the court set aside its order continuing the receivership, and that the receivership proceedings be terminated as prayed by appellants in their motion.

August 19, 1937, appellants filed an amendment to their petition for order of partial distribution, and requested the court to order the receiver to make certain past due interest payments on the bonds, amounting to interest for two and one-half years. September 8, 1937, the district, through its Board of Directors, filed its answer to this motion, objecting to partial distribution, on the ground that these accumulated funds were withheld for the specific purpose of refunding the bonded indebtedness, and that the distribution would defeat the efforts to refund.

September 24, 1937, the district filed an amendment to its petition for rehearing on the order continuing the receivership, alleging that it had made application to the Reconstruction Finance Corporation for funds with which to make a cash settlement with its creditors. A loan of sixty cents on the dollar, together with fifteen cents from the district, would enable the district to offer a cash payment of seventy-five cents on the dollar. It was alleged that a similar offer had been accepted by a large majority of the bondholders. September 24, 1937, the St. Louis Union Trust Company, Trustee, by intervention joined in appellants' petition for an order of partial distribution. On this same day the intervening property owners (Reba Poff and others) filed a response to the Levee District's motion for rehearing and prayed that the motion be denied; also an answer to appellants' motion for partial distribution, praying that that motion be denied. At the hearing on the same day the court directed the continuance of the receivership and made no order for partial distribution. November 29, 1937, appellants filed a motion for a decree, on the pleadings, for immediate distribution of funds.

December 10, 1937, the State of Arkansas filed an intervention claiming that it had a tax lien on lands purchased by the district at foreclosure sales, prayed an accounting and judgment, and asked that the receiver be ordered to pay said judgment out of funds in his hands before distribution to other creditors. The Counties of Lincoln, Desha and Chicot filed similar interventions.

January 5, 1938, the district filed an answer and counter-proposal to the petition for disbursement of funds, announcing a new plan of refunding, which came to be known as the 3½% plan. Acceptance by two-thirds of the property of the district in value and acreage was alleged, and it was prayed that, upon acceptance by two-thirds of the holders of bonds, the receiver should be dismissed. January 14, 1938, appellants filed answer to the interventions of the State of Arkansas and the Counties of Lincoln, Desha and Chicot, denying that the district was indebted to the state or said counties on account of any general taxes by reason of purchases by the district through foreclosure. Next came the order authorizing the Levee District to file a petition for composition of debts under the Municipal Bankruptcy Act, required by the Reconstruction Finance Corporation as a condition of its loan of sixty cents on the dollar, to be supplemented by fifteen percent from the district to permit a composition of the debts of the district at seventy-five cents on the dollar. This composition was ultimately effected, and it was left to the federal court having charge of the receivership proceedings to settle therein all claims for services, attorneys' fees, etc., including those based on services rendered in the bankruptcy proceedings. These proceedings involved the representation by counsel for appellant Mercantile-Commerce Bank and Trust Company of over two million, three hundred thousand dollars of bonds, resulting in the payment to the bondholders of seventy-five cents on the dollar.

As alleged by claimants, "these proceedings involved examination of all the pleadings, orders, notices, attendance upon hearings, and the keeping in contact with these proceedings to see that they were successfully concluded in accordance with law and the responsibility necessarily attached thereto". It will be noted that the bondholders, represented by appellants and their counsel, were giving up,...