Connelly v. Hancock, Dorr, Ryan & Shove, 157

• Decision Date: 10 April 1952
• Docket Number: Docket 22218.,No. 157,157
• Citation: 195 F.2d 864
• Court: U.S. Court of Appeals — Second Circuit
• Parties: CONNELLY v. HANCOCK, DORR, RYAN & SHOVE et al.

195 F.2d 864 (1952)

CONNELLY v. HANCOCK, DORR, RYAN & SHOVE et al.

No. 157, Docket 22218.

United States Court of Appeals, Second Circuit.

Argued March 11, 1952.

Decided April 10, 1952.

COPYRIGHT MATERIAL OMITTED

Laurence Sovik, Syracuse, N. Y. (William J. Mackay and Smith & Sovik, all of Syracuse, N. Y., on the brief), for appellant.

Morris Berman and Gerald H. Henley, both of Syracuse, N. Y. (Hancock, Dorr, Ryan & Shove, Syracuse, N. Y., on the brief), for petitioning and intervening petitioning creditors, appellees.

Joseph I. Butler, Syracuse, N. Y. (A. J. & A. P. Oot, Syracuse, N. Y., on the brief), for A. J. & A. P. Oot and Frank J. Cregg, Jr., trustee, appellees.

Before SWAN, Chief Judge, and CLARK and FRANK, Circuit Judges.

CLARK, Circuit Judge.

We have for review on this appeal certain allowances to counsel for petitioning and intervening petitioning creditors, and for the attorneys for the trustee, made from the bankrupt estate of Julian S. Brown. Brown's financial affairs have long been a bone of contention and a fruitful source of litigation in Syracuse. Beginning in 1929 with an inheritance from his father there followed a state court receivership and an abortive proceeding in bankruptcy, dismissal of which we affirmed in In re Brown, 2 Cir., 87 F.2d 306, certiorari denied Hotel Syracuse Men's Shop v. Haight, 301 U.S. 696, 57 S.Ct. 924, 81 L.Ed. 1352. Involuntary proceedings were again commenced in 1936 just after an attachment and judgment had been secured by Haight, appellant's predecessor as receiver of the Salt Springs National Bank, principal general creditor of the bankrupt and his estate. By that time Brown's mother had died, leaving an estate then valued at over a million dollars in trust for Brown and his brother, each to receive income, and at 60, one-half or, if the other had died before becoming 60, all the principal. Brown was then 49, his brother 51. We reversed the adjudication then made for errors in the proceedings, raising some question whether the three petitioners were bona fide creditors. Syracuse Engineering Co. v. Haight, 2 Cir., 97 F.2d 573. Thereafter other creditors were permitted to intervene and the ultimate adjudication was affirmed in Syracuse Engineering Co. v. Haight, 2 Cir., 110 F.2d 468. Yet another appeal was necessary to settle and confirm the selection of Frank J. Cregg, Jr., as trustee, In re Brown, 2 Cir., 118 F.2d 198. Naturally final settlement awaited the passage of years, but in due course Brown inherited his share of his mother's trust at 60 and this was the major asset of his estate. Even this brief survey, touching only the high lights, indicates the long and controversial litigation involved, though it does not set forth the bitterness engendered between the parties and lawyers, which we have noted earlier, see 110 F.2d at page 469, and which appears to have increased as time went on. Against this background and the statements in the earlier opinions, no further lengthy recitals of facts are justified.

Appellant, as general creditor, questions first the validity of an allowance in total amount of $30,000 — reduced by the court from $40,000, plus interim allowances of $2,082, as awarded by the bankruptcy referee — to attorneys for petitioning and intervening petitioning creditors, principally the Syracuse firm of Hancock, Dorr, Ryan & Shove; and second of an additional $50,000, beyond interim allowances of $30,700, to A. J. & A. P. Oot, the trustee's attorneys. Appellees contend that he has no standing to prosecute such an appeal without first requesting the trustee to do so or securing the permission of the district judge, citing Ross v. Drybrough, 2 Cir., 149 F.2d 676. This rule would not bar the attack on the allowance to the trustee's own counsel, In re New York Investors, 2 Cir., 130 F.2d 90; but as to others, the orderly administration of estates requires observance of the principle stated. This issue was, however, raised on an early motion to dismiss the appeal, which was denied on October 23, 1951, by a different panel of this court. While no opinion was filed, it appears that the court had before it a showing of implied consent by the district judge in granting permission to extend the time for appeal. Accordingly we are not disposed to reopen the issue now.

We therefore turn to the merits, taking up first the allowance to counsel for creditors. Appellant's general contention of invalidity is based on an allegation that the Hancock firm and their associate, Lionel O. Grossman, were never truly counsel for a genuine petitioning creditor, but actually represented the interests of the bankrupt himself, for which Hancock has already been reimbursed by him. General Order 43 provides that the court may deny the allowance to counsel for petitioning creditors if it appears that the proceedings were instituted in collusion with the bankrupt. But the only evidence before us sustaining appellant's position that such collusion in fact occurred is an affidavit by bankrupt himself prepared subsequent to the hearing on allowances before the referee and submitted to the district court as newly discovered evidence. Appellees have made a motion to strike this affidavit from the appellate record on the ground that it was not a part of the proceedings below.

It appears, however, that the lower court did consider the affidavit in deciding whether to permit Brown to testify personally. We therefore deny the motion to strike, since the affidavit is thus validly a part of the record before us, as indeed appellees stipulated. But we see no ground for overturning the district court's refusal to give any weight to Brown's allegations. These appear to have been a complete reversal of his former testimony and position. So when the district court, on order to show cause why Brown's testimony should not be taken, decided that the affidavit which this testimony was to duplicate was not made in good faith, the question of Brown's credibility on the issue should be held settled for purposes of appellate review. And on the admitted evidence the district court's findings were not clearly erroneous. Hence we accept the result absolving Hancock of collusion and of attempts to delay or hinder the proceedings or defraud the estate in other ways asserted in the Brown affidavit.

It is true that not only has this bankruptcy been tinged with bitterness, as we have noted, but also certain incidents, such as the destruction and transfer of bankrupt's assets, his own flight from the jurisdiction, and perhaps some excessive original creditor claims, appear to deserve judicial scrutiny. But the effective evidence introduced in the trial court is insufficient for us to say that Hancock and his firm are so implicated in these as to require denial to them of any allowance as creditors' counsel against the decisions of the referee and trial judge. Had the allegations to this effect been supported by proof we would have had no hesitation in invoking the requested sanction.

Appellant also contends that no compensation is allowable for work done on the first trial and first appeal, since that proved unsuccessful. It appears that, subsequent to this court's order of a new trial in Syracuse Engineering Co. v. Haight, 2 Cir., 97 F.2d 573, but prior to the time when it was had, Judge Bryant denied compensation to Grossman, then counsel for the petitioning creditors, on the ground that "thus far his clients have been unsuccessful." But adjudication was subsequently effected, and attorneys for the original petitioning creditors should thus be compensated for their work in the entire proceeding. For similar reasons we are not disposed to question the allowance on the ground that counsel for the intervening petitioning creditors are to share in it. Appellant contends that one of these two creditors was unnecessary. Creditor allowances, however, are made, as was this one, as a unit and it is the referee's and bankruptcy court's function to oversee in detail the component parts and total awards on compensable claims. Since there was, at the time that these creditors intervened, a real danger that the petition would be deficient, we think their intervention sufficiently justified for purposes of appellate review. As we pointed out in Syracuse Engineering Co. v. Haight, 2 Cir., 110 F.2d 468, 469, it avoided the necessity of determining the validity of the claims of...