Albers v. Dickinson, 12040.

• Decision Date: 29 April 1942
• Docket Number: No. 12040.,12040.
• Citation: 127 F.2d 957
• Parties: ALBERS et al. v. DICKINSON et al. In re MORGAN. In re MUNICIPAL GAS CO. In re CHEROKEE PUBLIC SERVICE CO.
• Court: U.S. Court of Appeals — Eighth Circuit

127 F.2d 957 (1942)

ALBERS et al. v. DICKINSON et al. In re MORGAN. In re MUNICIPAL GAS CO. In re CHEROKEE PUBLIC SERVICE CO.

No. 12040.

Circuit Court of Appeals, Eighth Circuit.

April 29, 1942.

COPYRIGHT MATERIAL OMITTED

Arthur L. Adams, of Jonesboro, Ark., and D. D. Panich, of Little Rock, Ark. (J. W. House, of Little Rock, Ark., on the brief), for appellants.

A. S. Buzbee, of Little Rock, Ark. (Philip McNemer, Thomas S. Buzbee, H. T. Harrison, Edward L. Wright, and John M. Harrison, all of Little Rock, Ark., on the brief), for appellees.

Before THOMAS and JOHNSEN, Circuit Judges, and REEVES, District Judge.

JOHNSEN, Circuit Judge.

The questions presented arise out of an attempt to surcharge the final accounts of a trustee in bankruptcy. A Master, to whom the matter was referred, recommended that no surcharges be made, and the District Court approved and adopted the Master's report.

The accounts of the trusteeships of two bankrupt corporations are involved — Municipal Gas Company and Cherokee Public Service Company. Municipal Gas Company was engaged in distributing gas in the city of Muskogee, Oklahoma. The principal business of Cherokee Public Service Company was the piping and selling of natural gas to Municipal Gas Company, from some wells of doubtful sufficiency in Wagoner County, Oklahoma.

Both corporations were part of the general enterprises of S. R. Morgan, an Arkansas promoter. They went into voluntary bankruptcy in 1932. Because of their interdependent operations, W. D. Dickinson was appointed trustee of the two estates. The Referee permitted Dickinson to continue the operations of both corporations until 1938, when the District Court ordered the estates consolidated with the trusteeships of several other of Morgan's corporations and directed Dickinson to file his final accounts.

The receiver of Chicago Bank of Commerce, who had a beneficial interest in the Municipal Gas Company estate, and the trustee of the estate of S. R. Morgan, also in bankruptcy, who had a beneficial interest in both the Municipal Gas Company and Cherokee Public Service Company estates, filed petitions to surcharge Dickinson's respective accounts. By agreement, the petitions in both estates were consolidated for hearing, and the appeals in both estates have similarly been consolidated here.

1. The first contention is that Dickinson's compensation as operating trustee could not be computed in any manner upon disbursements made by him for business expenses, but only upon such profits, if any, as his operations might have contributed to the estates. The question here is controlled by section 48, sub. e, of the Bankruptcy Act, 36 Stat. 840, 11 U.S.C.A. § 76, sub. e, which provides that "Where the business is conducted by trustees * * * the court may allow such officers additional compensation for such services by way of commissions upon the moneys disbursed or turned over to any person, including lien holders, by them * * *", such commissions, however, not to exceed certain maximum percentages specified in the statute. The Chandler Act of 1938, 52 Stat. 861, 11 U.S.C.A. § 76, sub. c(2), provides that "Trustees who conduct the business of the bankrupts * * * shall receive such amount as may be allowed by the court, but in no event to exceed twice the maximum allowance" authorized by the Act for an ordinary trustee. This provision, however, was not in effect at the time here involved. We are of the opinion that under section 48, sub. e, as it then existed, the court was authorized to allow compensation to an operating trustee, computed upon the disbursements made by him for business expenses and not simply upon the profits resulting to the estate from his operation, such allowance, however, to be equivalent only to a reasonable amount for the services performed and in no event, of course, to be in excess of the percentages fixed in the statute. 2 Collier on Bankruptcy, 14th Ed., § 48.08; In re Morris Bros., D.C. Or., 8 F.2d 629.¹ See also In re Hart & Co., D.C.Hawaii, 17 A.B.R. 480; In re Wallace, D.C.Okl., 14 F.2d 534, 537; In re Pequod Brewing Co., D.C.N.Y., 18 A.B. R. 352. If the rule were as appellants contend, there might be situations in which the court would be prevented or at least seriously handicapped in continuing the temporary operation of some necessary business, such as a public utility, because of its inability to provide operating compensation. In the present case, the court did not allow compensation equivalent to the amount of the maximum percentage under the statute upon all disbursements which he had made, and the attack of appellants here is not upon the reasonableness of the amounts, as such, which the trustee has received, but rather upon the right to allow operating compensation at all upon anything except the measure of profits which the trustee's operations shall have contributed to the estates.

2. The further contention is made that the trustee's accounts ought nevertheless to be surcharged with all fees which he has collected, because he failed at the time to follow the requirements of General Order 42, as then in force, 11 U.S.C.A. following section 53, in their allowance. General Order 42, as it then existed, required that, in the allowance of trustee's fees, the trustee should file with the referee a petition for compensation, under oath, setting forth a full and detailed statement of the services performed and the amount claimed therefor, and that the petition should be heard only after notice to creditors. Here the trustee made compensation payments to himself, without petition and notice, but upon checks countersigned by the referee. Such payments were, of course, irregular and criticizable as against both the trustee and the referee, but, on final account, after the services have been fully performed and those beneficially interested in the estates have been given the opportunity for full examination and hearing, this previous irregularity in making payments does not require the inexorable forfeiting of all right to compensation for the services which have been performed. See In re Wallace, D.C.Okl., 14 F.2d 534, 537.

3. Appellants seek to surcharge the trustee's account with the sum of $349.04 paid to Dickinson & White, Inc., for engineering services rendered the Municipal Gas Company estate. The contention is that this payment was violative of section 72 of the Bankruptcy Act, 36 Stat. 842, 11 U.S.C.A. § 112, which provides that no trustee "shall in any form or guise receive, nor shall the court allow him, any other or further compensation for his services than that expressly authorized and prescribed in this title". Dickinson & White, Inc. was composed of the trustee Dickinson and Leonard White, operating as a corporation. White testified that "Mr. Dickinson and I do not work for the corporation on a salary. We merely divide what there is left after expenses are paid." He further testified that the engineering work here involved was done by one of the firm's employees at an expense to Dickinson & White, Inc. of $200. This apparently left the sum of $149.04 received from the Municipal Gas Company estate to be divided directly between White and Dickinson. While Dickinson & White, Inc. was in form a corporation, it was, as to the division of the $149.04 profit received from the bankrupt estate, in practical effect a partnership, because of its manner of operation and the immediate personal relationships involved, and to permit Dickinson to retain the $74.52 thus received by him personally would under the circumstances be violative of the spirit of section 72 of the Act. See 1 Perry on Trusts, 2d Ed., § 432; 2 Scott on Trusts, § 170.22; Restatement, Trusts, § 170n; In re Webster Loose Leaf Filing Co., D.C.N.J., 252 F. 959; In re George Halbert Co., 2 Cir., 134 F. 236, 237. Dickinson's account as trustee of Municipal Gas Company should accordingly be surcharged with the $74.52 which he has directly received for the engineering services rendered by Dickinson & White, Inc. to the bankrupt estate.

4. It is contended that Dickinson's accounts should be surcharged with $2,855.85 in the Municipal Gas Company estate and $5,649.67 in the Cherokee Public Service Company estate, for attorney's fees paid without compliance with General Orders 42 and 44, 11 U.S.C.A. following section 53, as then in force. Order 44, as then in force, 288 U.S. 635, does not permit the appointment of any attorney for a trustee except upon the order of the court, granted only upon a verified petition of the trustee, "stating the name of the counsel whom he wishes to employ, the reasons for his selection, the professional services he is to render, the necessity for employing counsel at all, and to the best of the petitioner's knowledge all of the attorney's connections with the bankrupt or debtor, the creditors or any other parties to the proceedings, and their respective attorneys". Order 42 requires that every attorney seeking an allowance of compensation from a bankrupt estate for...