Clark v. Goldman, 85.

• Decision Date: 22 December 1941
• Docket Number: No. 85.,85.
• Parties: CLARK et al. v. GOLDMAN et al. (two cases).
• Court: U.S. Court of Appeals — Second Circuit

124 F.2d 491 (1941)

CLARK et al. v. GOLDMAN et al. (two cases).

No. 85.

Circuit Court of Appeals, Second Circuit.

December 22, 1941.

Edward F. Clark, of New York City, and Leonard J. Reynolds (John A. Shorten, Albert B. Gins, all of New York City, of counsel) for appellants.

Thomas Keogh, of New York City, and Barnet Kaprow and Edwin A. Tennant, pro se for appellees creditors' committee.

Willian A. Shea and Samuel Boksenbom, both of New York City, for appellee the New York Superintendent of Insurance.

Before L. HAND, CLARK, and FRANK, Circuit Judges.

L. HAND, Circuit Judge.

The plaintiff's attorneys in two representative creditors' actions appeal from a joint order made in both actions denying them any additional allowance for their services. The actions were begun on August 18, 1933, at the suggestion and request of the New York Superintendent of Insurance; the defendants consented to judgment and receivers were appointed on the same day and qualified at once. They resigned during the long course of the litigation and others were substituted; all have been either assistants of the Superintendent, or have acted in harmony with him. The defendants were corporations, wholly-owned subsidiaries of the New York Title and Mortgage Company, which used them as dummies in realizing upon its assets — mortgages on real estates. When any mortgages were foreclosed, the property was taken over in the name of one of the defendants which held it in trust for those individuals to whom the New York Title and Mortgage Company had either assigned the mortgages, or had issued "participation certificates" in them. The parent company became unable to fulfill its obligations and went into a "rehabilitation," as it was called, in the state court of which the Superintendent of Insurance had charge. Believing it to be in the interest of all to liquidate the subsidiaries in representative creditors' actions in a federal court, he procured the institution of the actions at bar. The liquidation of the properties took nearly eight years, but was finally accomplished by the acceptance of "plans" by the District Court under which the secured creditors took over all the properties at a bid price, agreeing to pay in addition all expenses of administration including allowances to attorneys. The attorneys for the plaintiff — the claimants here — who had received $11,500 as interim allowances, made a single application in both actions for a further allowance which the judge denied. This appeal is from that order.

There were two groups of creditors of the defendants — secured and unsecured — of which the first were by far the more numerous; against the defendant, Liberdar company, secured claims were proved of about $3,400,000, and unsecured, of about $47,000; against the defendant, Land Estates, Inc., secured claims were proved of about $2,500,000, and the unsecured, of about $21,000. The security for the secured claims in the case of Liberdar was appraised at about $2,800,000, and in the case of Land Estates, Inc. at about $2,330,000. The claimants busied themselves about many things during the course of the receivership, and the appeal turns upon which, if any, of their services they may be paid for. The liquidation of the estate involved a multitude of details; among other matters the liens upon the real estate owned by the defendants were being constantly foreclosed; and the disposition of these and other controversies required a great deal of negotiation and supervision. The claimants regarded themselves as charged with a duty to supplement the work of the receivers, and in general to oversee the progress of the actions; and a large part of the services for which they claim were of this kind. They also appear to have concerned themselves with the changes in receivers, at each of which the retiring receiver presented his accounts to be passed by the court; but their chief claim is for services rendered in a litigation which they pressed through the District Court and this court to determine the distribution of the unincumbered assets. On behalf of the unsecured creditors they unsuccessfully attempted to secure a ruling that the secured creditors must credit upon their claims against those assets the appraised value of their security, instead of proving for the full amount of the claim. Prudential Insurance Co. v. Land Estates, Inc., 2 Cir., 110 F.2d 617. No committee of creditors was formed until 1938 — near to the end of the liquidation period — and then only for the secured creditors. Thus the unsecured creditors never had any representatives at any time except as the plaintiff and the claimants were such. They say that, in spite of their failure to reduce the secured claims by the value of the security, the result of the litigation was to increase the amount of the secured creditors' bid, and raise the dividend of the unsecured creditors by nine per cent. This is nowhere denied, and while it appears to involve only about $6,000, upon this record the unsecured creditors do appear to have benefited by their efforts to that extent.

Earlier decisions under representative creditors' actions customarily treated the plaintiff as in general charged with protection of the estate until a receiver was appointed, and allowed his solicitors for their services. Indeed, the courts at times went further, and made an allowance for such services even after a receiver was appointed. Burden Central Sugar-R. Co. v. Ferris Sugar-Mfg. Co., 5 Cir., 87 F. 810; Bowker v. Haight & Freese Co., 2 Cir., 170 F. 67; Edwards v. Bay State Gas Co., C. C.Mass., 172 F. 971; Robinson v. Mutual Reserve L. I. Co., C.C.S.D.N.Y., 182 F. 850, 864; Muskegon Boiler Works v. Tennessee Valley I. & R. Co., D.C.M.D.Tenn., 274 F. 836. In none of these cases does it seem to have been noticed that if the receiver was doing his duty, this resulted in a quite unnecessary...