In re American Mail Line

• Decision Date: 30 October 1940
• Docket Number: No. 9434.,9434.
• Citation: 115 F.2d 196
• Parties: In re AMERICAN MAIL LINE, Limited. FORBES v. AMERICAN MAIL LINE, Limited.
• Court: U.S. Court of Appeals — Ninth Circuit

115 F.2d 196 (1940)

In re AMERICAN MAIL LINE, Limited FORBES v. AMERICAN MAIL LINE, Limited.

No. 9434.

Circuit Court of Appeals, Ninth Circuit.

October 30, 1940.

Julian O. Matthews and Beverly S. Wilkerson, both of Seattle, Wash., for appellant.

Lawrence Bogle, Cassius E. Gates, John Ambler, and Warren Brown, Jr., all of Seattle, Wash., for appellees American Mail Line, Limited, et al.

Before WILBUR, GARRECHT, and HANEY, Circuit Judges.

HANEY, Circuit Judge.

Appellant Forbes seeks review of an order fixing his compensation and allowance for expenses in a corporate reorganization proceeding.

The American Mail Line, Limited, a Nevada corporation, debtor, owned 5 vessels. The United States Maritime Commission held mortgages of about $600,000 on four of them. A mortgage of about $200,000 was held by Admiral Oriental Line, which also held all the debtor's stock. Debtor owed other lien creditors about $300,000 and unsecured creditors about $500,000. The debtor operated under a temporary subsidy from September, 1937, to June, 1938, and received about $475,000 in subsidies, but sustained a net loss for that period of $564,596.49. The debtor abandoned operations on August 12, 1938. Some attempts to reorganize were made prior to April 6, 1939, but to no avail.

Forbes believed a reorganization was feasible, and began work thereon on April 6, 1939, upon the understanding that he would get no compensation unless the reorganization was successful. He made several trips to the east, had many discussions with the Commission, and devoted his entire time to the reorganization from April 6, 1939, to November 1, 1939.

Under the plan of reorganization as approved, the Commission accepted four vessels in satisfaction of its mortgages; the fifth vessel was sold for cash to be used in payment of certain claims and to provide working capital; Admiral Oriental Line accepted preferred stock in the new corporation for its mortgage on the fifth vessel, at the rate of one share for each $10 of the mortgage debt; and the remaining creditors received Class A and Class B common stock. The Class A and Class B stock were practically identical except as to voting rights. Class B stock had no voting rights.

Forbes requested compensation of $14,166 and 10,000 shares of Class A stock, and requested $5,160.84 as expenses. The special master, to whom the matter was referred, reported "that a reasonable compensation to be allowed to Mr. Forbes for his services is the sum of $6,667 in cash and 5,000 shares of the Class A common stock of the reorganized corporation". The master allowed expenses in the amount of $1,812.19.

Exceptions were filed to the report of the special master. Upon hearing of the exceptions, the court below heard further testimony, and followed the special master's recommendation except as to the amount and kind of stock to be allowed. The court below allowed Forbes 2,000 shares of Class B stock instead of 5,000 shares of Class A stock as recommended by the special master.

First. Forbes contends that the court below abused its discretion in failing to make the allowances demanded by him. He further contends that the special master's findings were not clearly erroneous and should have been followed. The latter contention disposes of the former with respect to the cash allowance. If the special master's finding was not clearly erroneous, then the court below committed no error in accepting it. General Order In Bankruptcy No. 47.

With respect to the stock allowance, however, the court below declined to accept the special master's finding. Forbes contends that the skill and efficiency evidenced by him, the successful solution of a problem many people thought to be insolvable, and the work performed, entitle him to a greater allowance than was made.

The court below "may allow reasonable compensation for services rendered" by Forbes. 11 U.S.C.A. § 642. By the use of the word "may" it is indicated that an allowance is discretionary. Dickinson Industrial Site v. Cowan, 309 U.S. 382, 389, 60 S.Ct. 595, 84 L.Ed. 819. If the court exercises discretion, and makes an allowance, then the allowance is required to be "reasonable". Where the court makes an allowance, the person to whom it is made has no standing to urge that the court below in granting his petition wrongly exercised its discretion in his favor. Abuse of discretion may be urged by such person only where the court has declined to allow him any compensation. Where, however, the court has made an allowance, then the person to whom it is made may urge that the court below violated the statute in making an allowance which was not "reasonable". While an adverse party is in a position to urge abuse of discretion where the court makes an allowance, the person to whom such allowance is made may not.

Since the court below made an allowance to Forbes, the latter cannot urge that the court abused its discretion in determining that he, Forbes, was entitled to an allowance. Forbes may urge that the allowance made to him did not comply with the command of the statute that the allowance must be "reasonable". The difference between the two questions is important. Whether the court abused its discretion is a question of law or at least a mixed question of law and fact, whereas the question as to whether an allowance is reasonable is one of fact.

When the special master's report came before the court below, the latter was required to accept the special master's finding unless "clearly erroneous". General Order In Bankruptcy No. 47. However, and as permitted by that order, the court...