Hitner v. Diamond State Steel Co.

• Decision Date: 08 August 1913
• Docket Number: 260.
• Citation: 207 F. 616
• Parties: HITNER et al. v. DIAMOND STATE STEEL CO.
• Court: U.S. District Court — District of Delaware

207 F. 616

HITNER et al. v. DIAMOND STATE STEEL CO.

No. 260.

United States District Court, D. Delaware.

August 8, 1913

Ward Gray & Neary, of Wilmington, Del., for receivers.

William Clarke Mason, of Philadelphia, Pa., and Anthony Higgins, and Horace G. Eastburn, both of Wilmington, Del., for bondholders and creditors.

BRADFORD District Judge.

This case has been heard on exceptions taken, on the one hand, by James P. Winchester and Howard T. Wallace, receivers of the Diamond State Steel Company, hereinafter referred to as the steel company, and, on the other, by sundry bondholders and general creditors of that company, to the report of William G. Mahaffy, special master, to whom the accounts of the said receivers and certain matters relating to the adjustment settlement and distribution of the estate of the steel company were referred. The order of reference to the special master was made July 27, 1910, in consequence of certain petitions filed in this case by the receivers, as follows:

(1) A petition filed June 20, 1910, for an apportionment of the expenses of the administration of the estate of the steel company between the funds arising from the sale of its real estate and its general assets; (2) a petition filed also June 20, 1910, for a further allowance to the receivers as compensation for them and their counsel; and (3) a petition filed July 27, 1910, for the appointment of a special master to audit the accounts theretofore filed by the receivers, etc. On the day of the filing of the last mentioned petition Mahaffy was appointed special master, and it was ordered by the court as follows:

1. That said receivers shall forthwith file in this court their twenty-third and final account, (being subsequent to the accounts referred to in the last named petition) showing their receipts and disbursements since the date of their twenty-second, being their last, report and account, and showing the net amount of money then remaining in their hands as receivers as aforesaid.

2. That William G. Mahaffy be and he is hereby appointed special master of this court, with the usual powers and for the following purposes:

(a) To audit the accounts of said receivers now filed and of record in said cause, together with the account above provided for in this order. And it is further ordered by the court that said receivers shall forthwith file with said master all vouchers showing expenditures made by them as receivers during the term of their said receivership.

(b) To take evidence in respect of, to consider and state an account upon said petition praying for an apportionment of the expenses of said cause and receivership between the fund representing the proceeds of sale of the real estate and plant covered by the mortgage and bonds of said company and the fund constituting the general assets derived from the balance of the estate of said company.

(c) To take evidence in respect of, to consider and report upon said petition of said receivers for an allowance to said receivers for their compensation and compensation of their counsel.

(d) To ascertain and report the docket and all other costs in said cause.

(e) To state an account showing the net amount of money belonging to the estate of said receivership after the payment of all proper expenditures therefrom in view of his findings upon the matters hereinbefore referred to him, and to state an account showing the distribution of said net balance of the funds of said estate among the persons entitled thereto.

(f) With all convenient speed to report his findings and awards upon the several subject-matters herein referred to him.

3. It is further ordered by the Court that the said master shall, before proceeding to hearings upon this reference, give public notice to all creditors, stockholders and bondholders of said the Diamond State Steel Company, and all other persons interested therein, by advertisement inserted in the Morning News, a daily newspaper published in the city of Wilmington, Delaware, once a week for four successive weeks, of the time and place of his commencing proceedings and hearings hereunder, and of the day on or before which all persons will be required to file exceptions or objections, if any, to the accounts of said receivers.

4. For the purposes of this reference the three above recited petitions of said receivers are referred to the said matter, together with the said reports, accounts and vouchers of said receivers.

After duly giving notice as required by the order the master proceeded with the taking of evidence, oral and documentary, touching the matters referred to him. The evidence is voluminous, filling between 3,400 and 3,400 and 3,500 typewritten pages, wholly aside from a large mass of documentary evidence consisting of books, vouchers and other papers. The taking of evidence began October 6, 1910, and was finished April 4, 1911, sessions for the purpose having been held by the master on forty-eight days. After the conclusion of the evidence the master proceeded to consider the same, hearing protracted arguments from counsel, consuming four full days. After laboriously considering the evidence in connection with the arguments, and ruling upon numerous objections taken to his draft report, not only by the receivers, but sundry bondholders and general creditors of the steel company, the master filed the same as his report, embodying therein his findings, conclusions and recommendations November 15, 1912. To the report as filed the receivers and the said bondholders and general creditors respectively filed exceptions in this court December 13 and 14, 1912. At the time appointed for the hearing of these exceptions, objection having been taken by the said bondholders and general creditors to the generality and form of the exceptions of the receivers, leave was asked and obtained to file amended exceptions on both sides. This was done by the general creditors March 3, 1913, and by the bondholders and receivers March 8, 1913. The amended exceptions contained certain specifications not set forth in any objections theretofore taken before the master to his report, and the same were referred to him for consideration, disposition and further report in connection with his original report filed November 15, 1912. Thereafter the master reported his findings and conclusions upon the amended exceptions April 4, 1913; and final argument was heard upon the master's report as amended in connection with the amended exceptions April 28, 1913, and the three succeeding days.

Generally speaking, and without going into details at this point, the master in his report concluded and recommended (1) that the unpaid taxable costs of this cause be apportioned equally between the fund representing the proceeds of sale of the real estate and plant covered by the mortgage and bonds of the steel company and the fund constituting the general assets derived from the balance of the estate of that company; (2) that the expenses of the administration of the estate of the steel company should be apportioned between the two above mentioned funds in manner as therein recommended. To the above two findings and recommendations no objection or exception has been interposed by anybody, and those findings and recommendations are unobjectionable. The master in and by his report further finds that the receivers be surcharged in their account in the sum of $21,467.85, representing credits claimed by the receivers for expenditures held by the master to have been improperly, unnecessarily and extravagantly made for wages and salaries, office expenses, rents, travelling expenses, and divers other items unnecessary to enumerate. And he further finds that the receivers are not entitled to compensation in the amount claimed for them by their counsel. July 6, 1907, they received for their own services and those of their counsel $25,000, of which $6,250 was paid to their counsel; the remaining $18,750 being retained by them for their own benefit. In their petition of June 20, 1910, above referred to, they pray for a further allowance of 'fifty thousand dollars or such other sum as to the court may seem proper' for the compensation of themselves and their counsel. The master finds and recommends that a total allowance of $37,000 be made to the receivers for compensation of themselves and their counsel, of which $20,000, including what they had retained for their own benefit as above stated, should go to the receivers, and $17,000, including what their counsel had already received as above stated should go to such counsel; the result being that were it not for the surcharges made by the master against the receivers they would receive in addition to the sum already paid to them for their own benefit the additional amount of $1,250, while they would receive for the benefit of their counsel the sum of $10,750, in addition to what they had already received for the benefit of such counsel. To the findings and recommendations of the master touching surcharges as above mentioned and his failure to find that the receivers were entitled to the amount of compensation claimed for them and their counsel, exceptions have been filed on the part of the receivers. On the other hand, the said bondholders and general creditors have excepted to the findings and recommendations of the master in that, as claimed, he did not surcharge the receivers in a sufficient amount, and also in that he allowed to the receivers for the benefit of themselves and their counsel a larger sum than was justifiable under the circumstances.

A question which should be preliminarily disposed of relates to the conclusiveness or weight which attaches to the findings and conclusions of a master in chancery upon disputed...