Goldie v. Cox

• Decision Date: 08 September 1942
• Docket Number: No. 12003.,12003.
• Citation: 130 F.2d 690
• Parties: GOLDIE v. COX.
• Court: U.S. Court of Appeals — Eighth Circuit

130 F.2d 690 (1942)

GOLDIE v. COX.

No. 12003.

Circuit Court of Appeals, Eighth Circuit.

September 8, 1942.

Seth Lundquist, of Minneapolis, Minn. (D. J. Shama, of Minneapolis, Minn., on the brief), for appellant.

Benedict Deinard, of Minneapolis, Minn. (Oscar A. Brecke, of Minneapolis, Minn., on the brief), for appellee.

Before STONE, WOODROUGH, and JOHNSEN, Circuit Judges.

STONE, Circuit Judge.

The trustee for the bankrupt estate of the Calhoun Beach Club Holding Company recovered $31,001.89 in a suit upon a contractor's bond given the bankrupt prior to bankruptcy. Appellant filed a claim for $3,277.35, later amended to $5,618.55. This claim was for services and for expenditures "in collecting facts, records, information and data, which he claims greatly assisted the trustee to make the aforesaid recovery in the bond suit." Therefore, allowance of such claim was urged "as part of the expenses of the administration of this estate." This is an appeal from an order of the trial court affirming, on review, an order of the referee which "wholly disallowed" this claim.

The detailed statement of expenditures and of services attached to the claim, is divided into three stated and numbered periods of time. The first is July 18, 1932, to October 12, 1932; the second is October 13, 1932, to December 12, 1932; and the third is May 1, 1933, to April 13, 1934. The referee also divided the items of the claim into three time periods for consideration. This division by the referee was based upon differences in legal rules which he deemed applicable separately to each of the three periods. For convenience, we examine the claim under the three periods stated by the referee. Those periods are as follows:

"1. Items accrued before October 11, 1932, prior to the bankruptcy and prior to the date of the appointment of C. B. Cooper as Equity Receiver;

2. Items accrued during the Federal Equity Receivership Between October 11, 1932, and February 20, 1933, the date of the appointment of Paul E. Von Kuster as Receiver in bankruptcy;

3. Items accrued during the Bankruptcy and after February 20, 1933."

The referee made separate findings based upon each of these three periods. As to the first period, the referee sustained an objection to evidence "on the ground that any such disbursements made or services rendered can only constitute general claims against the bankrupt, and cannot be considered or allowed as expenses of administration." As to the second period, the referee found "that none of said alleged disbursements and services had any relation to the preparation or prosecution of said bond suit, or were of any assistance either to the Receiver in bankruptcy or to the Trustee, or to their counsel in the commencement, preparation, or prosecution of said suit, or were of any benefit or advantage to the above estate." As to the third period, the referee found: as to the claimed expenditures that "none of said disbursements were made pursuant to any employment or authorization to the claimant either from this Court, or from the Receiver in bankruptcy, or from the Trustee, or from their counsel, and did not enure to the benefit or advantage of the above estate." And, as to the claimed services, that "The only services rendered by the claimant during said period consisted of several conferences with counsel for the Trustee shortly before the trial of the bond suit, with respect to the testimony he might give upon the trial, and of actual attendance by him upon the trial; said services were rendered without any promise of compensation therefor, and were within the scope of the duties owed by petitioner, as managing officer of the bankrupt, to the Court, to cooperate and assist in the efficient and successful administration of said estate."¹

First Period.

This period covers expenditures and services before appointment of Mr. Cooper as equity receiver. The referee excluded evidence as to such. Section 64 of the Bankruptcy Act, as amended, 11 U. S.C.A. § 104, sets out the debts which are to have priority over unsecured creditors in the order of payment. Item three (3) therein is as follows: "(3) the cost of administration, including the fees and mileage payable to witnesses as now or hereafter provided by the laws of the United States, and one reasonable attorney's fee, for the professional services actually rendered, irrespective of the number of attorneys employed, to the petitioning creditors in involuntary cases while performing the duties herein prescribed, and to the bankrupt in voluntary and involuntary cases, as the court may allow;". The term "The cost of administration" is not definite. However, the general rule of construction recognized is that such costs must be strictly construed (In re Rothman, 2 Cir., 85 F.2d 51, 106 A.L.R. 1408; In re Ketterer Mfg. Co., D.C.Pa., 156 F. 719) because the policy of the Act is to enjoin strict economy in the administration of estates. Remington on Bankruptcy, 4th Ed., § 2632 and notes thereto. This means that a claim must clearly and convincingly come within the section to be entitled to priority. Counsel have cited us no case where expenditures made or services rendered while the bankrupt was in control of his property has been given priority. We have searched and not found such. The careful and detailed enumeration in section 64 suggests otherwise as does Randolph v. Scruggs, 190 U.S. 533, 539, 23 S.Ct. 710, 47 L.Ed. 1165. It is unnecessary for us to hold that such could never, under any circumstances, be the case. However, this record does not convince and we have been unable to imagine a set of circumstances where such could be true. The instances brought to our attention are those where certain expenditures during general assignment or during receivership proceedings, which preceded bankruptcy, have been allowed priority. Randolph v. Scruggs, 190 U.S. 533, 539, 23 S.Ct. 710, 47 L.Ed. 1165; In re Wishkah Logging Co., 9 Cir., 233 F. 259; In re Chase, 1 Cir., 124 F. 753. Such is not the situation as to the expenditures and services during this first period. There was no error in excluding this evidence.

Second Period.

This period is during the equity receivership up to the appointment of the receiver in the bankruptcy proceeding. The referee found that the expenditures made and the services rendered during this period had no relation to the bond suit; were no assistance in that suit; and did not benefit the estate. This finding was adopted by the trial court. Careful reading of all evidence bearing on this period convinces that the finding was fully justified. Since benefit to the estate is the prime requisite to entitle such expenditure or service allowance to priority (Randolph v. Scruggs, 190 U.S. 533, 539, 23 S.Ct. 710, 47 L.Ed. 1165), what has just been stated disposes of this issue. However, appellant stresses two particular items which we now examine.

Appellant emphasizes the expenditure for legal services to Stiles and Stiles (after the substitution therein of Mr. Cooper, receiver in equity) in the suit to set aside the foreclosure suit and sale. Obviously, these services had no connection with the bond suit and, in fact, were opposed thereto and to the interests of the general creditors. See In re Zier & Co., 7 Cir., 142 F. 102. Another item is $25.00 paid as premium for the bond of Mr. Cooper as receiver. Ordinarily, there would be no question as to this item being entitled to priority. However, the trial court approved the finding of the referee that Mr. Cooper was appointed in a collusive suit, at the instance of Mr. Goldie, never sought to take possession of any property of the bankrupt, and permitted Mr. Goldie to continue (during the receivership) to manage the affairs of the bankrupt as he saw fit. In this situation, it cannot be said that this receivership was conceived or conducted for the benefit of the creditors. A basis of giving expenditures of an assignee or a receiver (before bankruptcy) priority of payment over unsecured creditors in a subsequent bankruptcy proceeding is that the assignment or receivership was in good faith to protect the interests of and to secure equal distribution to the creditors. To accomplish these results by such means it is a prime requisite that the property of the debtor should pass, actually and in good faith, from him into complete control of the assignee or receiver. If this control does not pass, the assignment or receivership is merely a sham — the most probable result of which is to shield the debtor from his creditors while interfering little with his control over his assets. Such a sham assignment or receivership is not in good faith but, whatever the motives of the debtor, is a fraud upon and a hindrance to his creditors. To permit expenditures or services by the debtor, in connection with such...