In Re 211 East Delaware Place Bldg. Corporation, 59144.
| Decision Date | 04 February 1936 |
| Docket Number | No. 59144.,59144. |
| Citation | 13 F. Supp. 473 |
| Parties | In re 211 EAST DELAWARE PLACE BLDG. CORPORATION. |
| Court | U.S. District Court — Northern District of Illinois |
Courshon, Carson & Freeman, of Chicago, Ill., and Taylor, Chasnoff & Willson, of St. Louis, Mo., for bondholders' committee.
Johnson, Swanstrom, Wiles & Clawson, of Chicago, Ill., for trustee.
Joseph Fisher and Deneen, Healy & Lee, all of Chicago, Ill., for debtor and its stockholders.
Thomas Sullivan, of Chicago, Ill., for petitioning creditors.
Pritzker & Pritzker, of Chicago, Ill., for bondholders' committee and Chicago Title & Trust Co., trustee.
Topliff & Horween, Edward Berkson, and Adams, Emerson & Branand, all of Chicago, Ill., for creditors.
In determining the amounts which the court should allow the attorneys and bondholders' protective committee and others, it is necessary to announce a few principles which will be my guide.
First. It is necessary for the court to determine the total amount which may be allowed before taking up individual items. If this be not done, there is a probability or at least a possibility of the sum total of individual claims exceeding the gross estate. To illustrate, under the statute "* * * the judge * * * (9) may allow a reasonable compensation for the services rendered and reimbursement for the actual and necessary expenses incurred in connection with the proceeding and the plan by officers, parties in interest, depositaries, reorganization managers and committees or other representatives of creditors or stockholders, and the attorneys or agents of any of the foregoing and of the debtor, but appeals from orders fixing such allowances may be taken to the Circuit Court of Appeals independently of other appeals in the proceeding and shall be heard summarily; * * *" Bankr.Act § 77B (c) (9), 11 U.S.C.A. § 207 (c) (9).
This entire section is unfortunate in its wording and is the origin and support of many duplicated and excessive charges. Its amendment or repeal would be advisable.
There is no limit to the number of groups of bondholders or individual creditors who may appear and "render helpful assistance," and if the number of hours devoted to such assistance by counsel for such groups be the sole basis of determining compensation, the total allowance may and doubtless will exceed any sum which the court can recognize as reasonable.
Second. There must be a point where services actually rendered, and measured by hours, cannot be charged to the estate but must be paid by the client. To illustrate: The property in custodia legis belongs to creditors and stockholders. Among the former are the first, second, and third mortgage bondholders, unsecured creditors, judgment creditors, and other lien holders. The stock may be either common or preferred, with the latter entitled to preference as to dividends and assets. The plan of reorganization from the debtor's standpoint may be simple. In fact, it would be a matter of but a few days' work at most to present a feasible, intelligent, workable plan under section 77B of the Bankruptcy Act, as amended (11 U.S.C.A. § 207), but for the contest between those representing stockholders and those representing bondholders or for a controversy between bondholders and unsecured creditors, etc. In all cases where the decline in value has been sharp and the flotation of bonds excessive in the first instance and the equity of the stockholders, as a result, has disappeared, the basis of the appeal is predicated, as stated by counsel in one case, on the hope that the secured creditors "will have a heart." At the same time these creditors expressed the hope that the stockholders will display "less nerve." The courts have heard the claims of the two sides so many times that they could prompt counsel if either temporarily forgot his story.
As the property belongs to the litigants, these parties must be given a reasonable time within which to attempt to arrange the ratio of securities in the new company among the secured, the unsecured creditors, and the stockholders. The precise question is: When should the court terminate the compensation from the estate for the time that counsel thus spends in disputations or in conferences, as they term them, over such ratio. To call such meetings "conferences over a plan of reorganization" is a misnomer. The services rendered are strictly and solely for clients. The interests of said clients are adverse. It may be between two classes of creditors or between stockholders and creditors. The estate is not benefited one cent by such disputes. The fund is not increased a mill by such conferences. In the case before me, there was in existence the building which was rented when the foreclosure proceedings were started and a receiver appointed in the state court five years ago. The income has been used in controversies and disputes, but not one cent has been contributed to the estate, not one cent has reached the pocket of a bondholder.
And worse still, if compensation be allowed for all services thus rendered in disputes between different classes of creditors, there is encouragement extended to counsel to prolong negotiations and encouragement to representatives of certain interests to create a nuisance value which it is the avowed purpose of section 77B to prevent. Such results can only be prevented by the court's refusing compensation to those thus engaged and by rejecting as a charge against the estate, the fees of counsel who are representing claims and in no way improving the conditions or the assets of the estate or offering a constructive suggestion to the plan of reorganization. In fact, too often, about 90% of the time for which counsel make charges against the estate is directed to the allocation of securities among various creditors and bondholders rather than to the details of the plan.
Third. Finally there must be a determination of the relative contribution of counsel other than on a basis of hours of service rendered. Much of the court's difficulty would be avoided if it knew who "did the work." Trying as that task is and impossible as it may be to always answer the question correctly, the responsibility must be met if a fair division of fees is to be made and the estate relieved of charges for many duplications of services. The court cannot, under the existing statute, limit the number of c...
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