Otis & Co. v. Insurance Bldg. Corporation, 3544.
| Decision Date | 15 March 1940 |
| Docket Number | No. 3544.,3544. |
| Parties | OTIS & CO. v. INSURANCE BLDG. CORPORATION et al. |
| Court | U.S. Court of Appeals — First Circuit |
Henry E. Foley, of Boston, Mass., for appellant.
Joseph P. Rooney, of Boston, Mass. (Chester T. Lane, Samuel H. Levy, W. Crosby Roper, Jr., and Raoul Berger, all of Washington, D. C., and Coleman Silbert, of Boston, Mass., on the brief), for Securities and Exchange Commission, appellee.
Before MAGRUDER, and MAHONEY, Circuit Judges, and PETERS, District Judge.
This is an appeal from an order of the District Court for the District of Massachusetts denying to Otis & Co. compensation for services and expenses in the proceeding for the reorganization of the appellee corporation. The court held that Sec. 249 of Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 649, prohibited the granting of any compensation under the facts which appeared, in substance, as follows:
The petition in the proceeding was filed and approved June 3, 1938. Thereafter and during the proceeding Otis & Co. acted as "agent and representative" of the bondholders of the debtor, functioning as a bondholders protective committee, and in that capacity asked for an allowance for services and disbursements.
It seems that in August, 1938, Otis & Co. took over from one of its affiliates $12,000 of the debtor's bonds at cost. On September 14, 1938, Otis & Co. sold $2,000 of these bonds, and between December 2 and December 5, 1938, it sold the balance — in all at a loss of $2,405.
Between December 12, 1938, and March 24, 1939, Otis & Co. purchased and sold an additional $12,500 of the debtor's bonds at a profit of $115 before payment of transfer taxes.
There is no doubt that in all the transactions Otis & Co. acted in good faith. The sellers of the bonds knew that Otis & Co. was acting as representative of the bondholders in the proceeding and it was "for the accommodation" of its customers that Otis & Co. entered into the later transactions.
A decisive question is whether the Section of the statute referred to is an absolute bar to the allowance of compensation or reimbursement under the circumstances mentioned. We think it is. It provides that:
"No compensation or reimbursement shall be allowed to any committee or attorney, or other person acting in the proceedings in a representative or fiduciary capacity, who at any time after assuming to act in such capacity has purchased or sold such claims or stock, or by whom or for whose account such claims or stock have, without the prior consent or subsequent approval of the judge, been otherwise acquired or transferred."
There are two situations in which compensation to a person acting in a representative or fiduciary capacity is prohibited:
1. Where such person has bought or sold claims against or stock in the debtor;
2. Where such "claims or stock have, without the prior consent or subsequent approval of the judge, been otherwise acquired or transferred".
The appellant questions the above paraphrase of the statute and urges that the words "approval of the judge" apply to purchases and sales as well as to other methods of acquisition, such as a bequest; and contends that its petition for approval by the judge of its transactions in the securities, — later filed in the proceeding, — if granted, will remove any statutory bar to compensation.
The construction contended for does violence to the plain language of the Section (249) and is not in harmony with its legislative history and the manifest purpose of Congress.
Had Congress intended to give the judge authority to approve all acquisitions and transfers, including purchases and sales, it would have been a simple thing to say so. The differentiation between purchases and sales, as one classification, and securities "otherwise" acquired or transferred, as another, would be unnecessary unless they were to be separately treated — as they are by our construction.
The legislative history of the Section, although relied upon by both parties, strongly supports our...
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