In re Allied Owners Corporation

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: MANTON, SWAN, and AUGUSTUS N. HAND, Circuit
• Citation: In re Allied Owners Corporation, 79 F.2d 187 (2nd Cir. 1935)
• Decision Date: 22 July 1935
• Docket Number: No. 499.,499.
• Parties: In re ALLIED OWNERS CORPORATION. RECONSTRUCTION FINANCE CORPORATION v. CALLAGHAN et al.

79 F.2d 187 (1935)

In re ALLIED OWNERS CORPORATION.^* RECONSTRUCTION FINANCE CORPORATION v. CALLAGHAN et al.

No. 499.

Circuit Court of Appeals, Second Circuit.

July 22, 1935.

Debevoise, Stevenson & Plimpton, of New York City, and Max O'Rell Truitt, of St. Louis, Mo. (E. W. Debevoise, William E. Stevenson, and D. F. McGlinchey, all of New York City, of counsel), for appellant Reconstruction Finance Corporation.

Goldwater & Flynn, of New York City (Monroe Goldwater, Nathan Goldstein, and Oliver T. Cowan, all of New York City, of counsel), for trustee in bankruptcy in reorganization.

Robert P. Levis, of New York City, for Allied Owners Corporation.

Cullen & Dykman, of Brooklyn, N. Y. (Maximilian Moss and John B. Bennett, both of Brooklyn, N. Y., of counsel), for William M. Greve.

Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The questions raised by these appeals all relate to allowances which the court in charge of a proceeding for the reorganization of Allied Owners Corporation under section 77B of the Bankruptcy Act (11 US CA § 207) ordered to be paid to persons engaged in a prior bankruptcy proceeding of that company. On August 8, 1933, the company was adjudicated a bankrupt on its voluntary petition. Stephen Callaghan and Percival E. Jackson became trustees in bankruptcy on August 25, 1933, and William M. Greve became a trustee on September 14, 1933. The delay between the date of his election and the date of taking office was due to his rejection by the referee because of a supposed disqualification. After the referee's ruling, he employed Cullen & Dykman as his personal counsel and was reinstated by the court. On June 22, 1934, the bankruptcy proceedings were superseded by proceedings for reorganization under section 77B, and the former trustees in bankruptcy were appointed trustees in reorganization. Messrs. Goldwater & Flynn were attorneys for the trustees in each proceeding. The tenure of the trustees in bankruptcy and their counsel lasted about ten months, and the amounts to which they are entitled as compensation for services during that period are in dispute on the present appeal. There is also before us the question of the compensation of Robert P. Levis, the attorney for the bankrupt, of Cullen & Dykman, who performed legal services in securing the reinstatement of William M. Greve as trustee, and of William Stitt, who as referee was in charge of the bankruptcy proceeding.

The referee awarded compensation to the persons engaged in the bankruptcy proceeding other than himself, and submitted to the District Judge the question of the amount of his own compensation. The judge entered an order fixing the compensation of the referee at $25,000 and approving the awards made by the latter to the other persons. He fixed them at the same amounts except in the case of the three trustees in bankruptcy, whose award he raised from $60,000, allowed by the referee, to $90,000. After this was done, the same judge made an order in the section 77B proceeding directing the payment of these allowances out of the estate of the debtor. As finally ordered, they were as follows:

  To the trustees in bankruptcy ..... $90,000.00
                  To Goldwater & Flynn, attorneys
                   for the trustees in bankruptcy ...  75,000.00
                  To Robert P. Levis, attorney for
                   bankrupt .........................  10,000.00
                  To Theodore Stitt, referee ........  25,000.00
                  To Cullen & Dykman, attorneys
                   for William M. Greve, for
                   services and disbursements prior
                   to his qualifying as trustee .....   2,474.35
                

The Reconstruction Finance Corporation, a large creditor of Allied Owners Corporation, seeks by this appeal to have the allowances to the trustee, their attorneys, and the attorney for the bankrupt reduced, and those to the referee and Messrs. Cullen & Dykman entirely eliminated.

The appellant objects to the allowance to the trustees not only because it is excessive, but because their compensation was governed by section 48a of the Bankruptcy Act (11 USCA § 76 (a), and, under that section, they were limited to "such commissions on all moneys disbursed or turned over to any person, including lienholders, by them, as may be allowed by the courts, not to exceed 6 per centum on the first $500 or less, 4 per centum on moneys in excess of $500 and less than $1,500, 2 per centum on moneys in excess of $1,500 and less than $10,000. * * *" They may also, under section 48e of the act (11 US CA § 76 (e), receive an additional 1 per centum if, as here, they conduct the business. If section 48a and section 48e had been applied, the trustees in bankruptcy would have been limited to the statutory fees on $731,425.57 cash turned over by them, or $14,628.50. But it is argued that their compensation was subject to no such limitations and that the language of section 77B (i) of the act (11 USCA § 207 (i) leaves the amount of compensation for services in the prior bankruptcy proceeding to the discretion of the judge in the reorganization proceeding, guided only by the "rule of reason." In our opinion, however, section 48a fixes the bounds of the fees which the trustees in bankruptcy can claim.

We have discussed the application of section 77B (i) in Matter of New York Investors, Inc. (C. C. A.) 79 F.(2d) 182, so far as it relates to the fixing of fees in a prior equity receivership. The principles involved where the prior insolvency proceeding is in bankruptcy are the same. Section 77B (i) provides that, if a receiver or trustee has been appointed by a federal, state, or territorial court and if thereafter a reorganization proceeding under section 77B supervenes, "the trustee or trustees appointed under this section, or the debtor if no trustee is appointed, shall be entitled forthwith to possession of and vested with title to such property, and the judge shall make such orders as he may deem equitable for the protection of obligations incurred by the receiver or prior trustee and for the payment of such reasonable administrative expenses and allowances in the prior proceeding as may be fixed by the court appointing said receiver or prior trustee. * * *" The foregoing section, in our opinion, requires that the prior insolvency court shall fix allowances and the reorganization court shall provide for their payment in so far as they are found to be "reasonable." It seems quite unlikely that such a provision, made, as we believe, in order that the reorganization court might benefit by the experience of the prior court and its familiarity with the details of the business, was intended to leave the prior court free (within its statutory limitations) to fix conclusively any allowance it might deem reasonable. No such freedom had existed where ordinary bankruptcy had succeeded a state receivership. Taylor v. Sternberg, 293 U. S. 470, 55 S. Ct. 260, 79 L. Ed. 599; Gross v. Irving Trust Co., 289 U. S. 342, 53 S. Ct. 605, 77 L. Ed. 1243, 90 A. L. R. 1215; Hume v. Myers (C. C. A.) 242 F. 827. We think it plain that the words "equitable" and "reasonable" were intended to mean "reasonable" in the eyes of the reorganization court, and were to serve only as a check by the section 77B court on payments which might affect the proposed reorganization unfairly. If the parties whose compensation was fixed by the prior insolvency court felt aggrieved, they would seem to have had an obvious remedy by an appeal from the court which had fixed their compensation.¹ Under sec-awarding compensation in excess of limition 77B (i), the reorganization court is given power to pay allowances which have been fixed by the prior court only to the extent that they are found reasonable. Nothing in the language of the subdivision suggests the removal of any restriction which may exist upon the prior court in the determination of allowances. Indeed, it is impossible to imagine that court tations imposed by a statute to which its orders are made subject. It seems equally unlikely that the reorganization court should be empowered by mere implication to make allowances for services by the agencies of another court which the statutes governing the action of that court forbid.

Judge Goddard in Matter of Paramount Publix Corp. (D. C.) 12 F. Supp. 16, December 10, 1934, held that section 77B of the Bankruptcy Act did not enlarge the fees which might be granted under section 48a to trustees in bankruptcy, and we think his decision was entirely correct. In Re National Dept. Stores, Inc., supra, Judge Nields recently held that under section 77B (i) the reorganization court had no power to revise allowances fixed by the prior court. With all due respect, we cannot agree with an interpretation of the subdivision that would seem to make the words "equitable" and "reasonable" mere exhortations to the prior insolvency court which could result in no effective control by the reorganization court over excessive allowances. We believe that it was the purpose of Congress to lessen the cost of insolvency proceedings which have long been regarded as too great. Cf. remarks of Cardozo, J., in Realty Associates Securities Corp. v. O'Connor, 295 U. S. 295, 55 S. Ct. 663, 79 L. Ed. 1446.

It is argued that section 77B (k) of the act (11 USCA § 207 (k) makes section 48a inapplicable to the prior bankruptcy proceeding. This is plainly unsound. Subdivision (k) in terms relates only to "proceedings instituted under this section 77B." It provides that certain sections of the Bankruptcy Act, including section 48 (11 USCA § 76), shall not "apply to proceedings instituted under section 77B this section unless and until an order" of liquidation has been entered. This means that the judge fixing fees for services in a section 77B proceeding shall not be limited by section 48, and not that the bankruptcy judge in fixing fees in that proceeding is not so bound.

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