Commerce Trust Co. v. Aylward

• Decision Date: 02 October 1944
• Docket Number: No. 12831.,12831.
• Citation: 145 F.2d 113
• Parties: COMMERCE TRUST CO. et al. v. AYLWARD.
• Court: U.S. Court of Appeals — Eighth Circuit

145 F.2d 113 (1944)

COMMERCE TRUST CO. et al. v. AYLWARD.

No. 12831.

Circuit Court of Appeals, Eighth Circuit.

October 2, 1944.

Paul Barnett and Watson, Ess, Groner, Barnett & Whittaker, all of Kansas City, Mo., for appellants.

J. L. Milligan and John C. Grover, both of Kansas City, Mo., for appellee.

Roger S. Foster, Sol., Milton V. Freeman, Asst. Sol., and Theodore L. Thau and David Ferber, Attys., Securities and Exchange Commission, all of Philadelphia, Pa., for Securities and Exchange Commission as amicus curiae.

Before SANBORN, WOODROUGH and JOHNSEN, Circuit Judges.

JOHNSEN, Circuit Judge.

The question is as to the jurisdiction of the bankruptcy court, under an agreement which will be presently discussed, to fix the amount of the fees of an indenture trustee and its attorney, for services subsequent to the bankruptcy of the settlor, in administering the assets of three trusts securing some investment and savings certificates issued by the settlor — the indenture trustee being entitled under the indentures to liquidate the assets of the trusts and to make payment of the surrender-value liens of the certificate holders.

The indenture trustee has appealed from an order of the bankruptcy court, D.C., 53 F.Supp. 467, fixing an interim amount which the indenture trustee would be allowed to pay itself for such trustee services and an interim amount which it similarly would be allowed to pay its attorney for legal services. The contention here is that the bankruptcy court had no authority or right to fix any amounts to which the indenture trustee and its attorney were entitled for services, but that the fixing of such amounts was entirely the indenture trustee's own prerogative.

The trust indentures provided that the trustee should be entitled to "reasonable and proper compensation" and to "all proper outlays and expenses * * * including counsel fees", and that such compensation, outlays and expenses should constitute a prior lien on the trust assets. It was further provided that, on any default by the settlor under the indentures, the trustee should have the right to "realize" upon the securities and apply the proceeds to the payment of (1) "the reasonable compensation, costs and expenses of all kinds of the Trustee in the administration of the trust, including counsel fees", and (2) the surrender value of the certificates — with any surplus to go to the settlor, its successors or assigns.

After the bankruptcy of the settlor, however, the indenture trustee had entered into an agreement as to each of the trusts with the trustee in bankruptcy and the bankrupt — which had been filed in the bankruptcy proceedings and approved by the bankruptcy court — that the indenture trustee would thereafter "do none of the following things without first obtaining the approval of the bankruptcy court: (a) Sell any asset or assets in the trust fund; (b) Determine the surrender value of any * * * certificate for the purpose of liquidation and distribution as provided by the trust indenture; (c) Fix the date or amount or make payment of any distribution or partial distribution of cash to certificate holders pursuant to the provisions of the trust indenture; (d) Pay any attorney's fees for legal services rendered in connection with the administration of the trust estate; (e) Apply any of the assets of the trust estate to the compensation * * * for its services as trustee under the trust indenture." There was a further provision to the effect that it was agreed that the indenture trustee was entitled to reasonable compensation for its services and to its reasonable expenses including attorney's fees, "and that all of such compensation and expenses constitute reasonable charges against the trust estate in the possession of such trustee, all subject to the approval of the Court."

The agreement had been made after complications and disputes had begun to arise in connection with the liquidation and distribution of the trust assets. The indenture trustee wanted to submit some of the questions which confronted it to a court of equity for determination. The trustee in bankruptcy contended that any question in the liquidation and distribution ought to be determined by the bankruptcy court, because there was an excess of assets in the trusts over the surrender values of the certificates, which he argued would ultimately go into the bankruptcy estate, and hence the bankruptcy estate had an interest in and would be affected by the indenture trustee's actions.

Some time later, because of the agreement, the indenture trustee filed an application in the bankruptcy court for approval of the payment to itself of the sum of $46,500 out of the three trusts as trustee's compensation, the application stating that "it cannot at this time definitely fix the exact amounts of compensation that it is entitled to for all of the services it has already performed" but that "the reasonable value of the services already rendered are in excess of the amounts which it desires at this time to withhold and receive upon account." It filed a similiar application for approval of the payment of $10,000 on account to its attorney for legal services.

The bankruptcy court held a hearing on the applications and entered an order approving a payment of $27,900, in trustee's compensation "at this time" and a payment of $6,000 in attorney's fees. The court declared that the sums for which approval of payment was sought in the applications were "more than can be justified as an interim allowance" and that "The opportunity for subsequent adjustment of inequities after liquidation is complete * * * will insure against any mistakes." 53 F.Supp. at page 470.

The indenture trustee contends, as suggested above, that the bankruptcy court had no authority or right to fix the amount of its compensation or the fee of its attorney, even under the agreement made by it in attempted settlement of some of the controversies with the trustee in bankruptcy; that the indenture trustee always had had and continued to retain the prerogative of fixing the value of its own services and those of its attorney and was merely required by the agreement to submit any action which it proposed to take in effectuation of its determinations to the bankruptcy court for assent or veto; and that it of necessity must be held that the agreement "did not authorize the trial court to do more than could have been done by an...