In re Bowen

• Decision Date: 13 November 1942
• Docket Number: No. 21101.,21101.
• Citation: 46 F. Supp. 631
• Parties: In re BOWEN.
• Court: U.S. District Court — Western District of Pennsylvania

46 F. Supp. 631

In re BOWEN.

No. 21101.

District Court, E. D. Pennsylvania.

September 3, 1942.

Supplemental Opinion November 13, 1942.

COPYRIGHT MATERIAL OMITTED

David Getz, of Allentown, Pa., Herbert S. Leman, of New York City, and Herman H. Krekstein, of Philadelphia, Pa., for petitioner Henry Baker.

Fred B. Gernerd, of Allentown, Pa., for trustee.

Charles M. Bolich, of Allentown, Pa., for bankrupt.

KALODNER, District Judge.

The bankrupt's estate consisted of real estate and a block of stock. The bankrupt owned five parcels of real estate, situated in Allentown, Lehigh County, Pennsylvania, all of which were encumbered by various mortgages, judgments, and tax liens of the Federal government. The stock was held by a creditor as collateral security for a loan.

Henry Baker, one of the petitioners who has filed the present certificate of review, owned five of the judgments. Prior to the bankruptcy proceedings he had issued execution on one of the judgments in the sum of $79,242.42 on one of the parcels of real estate (the Hamilton Street property) which was advertised for sale by the Sheriff of Lehigh County. On July 21, 1939, the bankrupt made an assignment for the benefit of creditors, and the assignees secured an order in the Court of Common Pleas of Lehigh County enjoining the sale. The assignees proceeded to advertise the sale of the real estate, and on November 8, 1939, the bankrupt filed his voluntary petition in bankruptcy and obtained an order from the referee to stay the sale.

As matters thus stood, the referee called the first meeting of creditors on December 8, 1939, and, at the outset, made the following statement (p. 04, N. T.):

"An examination of the schedules discloses that this is a non-asset case and order was filed upon the bankrupt by the referee to deposit $50.00 as required by the rules to cover the costs of administration, but this was not done.

"The only assets shown in the schedules consist of real estate amounting to as appraised by the bankrupt $593,000. The debts shown amount to $950,166.66, and of this amount, with the exception of $150. rent and $7,050. unsecured claims, is all represented by liens and taxes.

"This meeting was called primarily for the purpose of giving the secured creditors an opportunity of getting together and if they saw fit to formulate a plan of liquidating this estate. Under the law the administration costs and fees of the referee or the trustee are not deductible from any funds that should be applied to the payment of liens, and therefore the referee does not propose to move in this estate unless the lien creditors will file a stipulation with the referee asking that the referee sell the real estate under the proper orders, and the statutory fees and costs may be deducted from the amounts passing through his hands for distribution." (Emphasis supplied.)

In accordance with the suggestion of the referee, David Getz, Esq., of counsel for Henry Baker, on the adjourned meeting of December 11, 1939, placed the following stipulation of record (pp. 07, 08, N. T.):

"By Mr. Getz:

"On behalf of the lien creditors that I represent I am willing to stipulate that out of the amount that might be realized out of real estate owned by the bankrupt out of which fund distribution will be payable to lien creditors that a sum not to exceed $4,000. be retained by the referee for distribution of administration expenses in this estate, provided however that any fund realized out of the sale of personal property shall first be used for the payment of administration expenses.

"This statement is being made pursuant to request by the referee to the effect that because of the state of the record and it appearing that there will be no distribution for general creditors that before a trustee, who might in the future be appointed, can sell the real estate and incur expenses in connection therewith that he be assured that there be a fund out of which the said expenses could be paid.

"Such portion of the expenses that are allocated toward the real estate fund are to be borne according to the proportion as the lien creditors realize in their dividend."

"By the Referee:

"And the expenses above referred to shall include the statutory fees of the referee and the trustee, and the lien holders will join with the trustee in all applications for the sale of real estate."

Counsel for the lien creditors joined in this stipulation in the record of the said meeting. The trustee and his counsel thereafter negotiated with various purchasers and petitioned the referee for leave to sell all the real estate of the bankrupt free of all encumbrances and liens. The trustee's petition sought to sell each of the parcels separately except two properties (the Ninth Street and the Hamilton Street properties) which he prayed to sell together as a unit. Counsel for Henry Baker objected to the sale of these properties as a unit, and the referee overruled his objection. The following remarks appear on the record of the minutes of the meeting of February 8, 1940 (pp. XXX-XXX-XXX, N. T.):

"By Mr. Getz:

"Does this order provide for the sale of the Ninth Street and Hamilton Street jointly?

"By the Referee:

"Yes.

"By Mr. Getz:

"I would like to file objections to this method of sale and ask leave to present written objections to the referee.

"By the Referee:

"The order of the referee as to the sale has been made and any objections filed whether written or oral are overruled.

"By Mr. Getz:

"Will the referee please grant me an exception on the record?

"By the Referee:

"I can grant you one, but I doubt whether you are entitled to one. Grant Mr. Getz an exception."

* * * * *

"By Mr. Getz:

"I would like to put on the record that inasmuch as there has been an objection to the order of the referee as to the method of the sale, and inasmuch as our stipulation which we made at the beginning of this proceeding was based upon the fact that the Hamilton Street property would be sold separately that I withdraw the offer to have the fund realized from the property subject to administration expenses.

"By the Referee:

"I want to call Mr. Getz's attention to the fact that there is no such reference in his statement with reference to the payment of costs of this proceeding out of funds which are distributed or payable to the lien creditors.

"I want to call your attention right now to the fact that I am not going to permit any further delay in the administration of this bankruptcy estate by tactics such as you have employed just now. The last statement is not in accordance with the previous statement made and we will continue with the administration of this estate without these unwarranted interferences.

"By Mr. Getz:

"I would like to place this on the record that I am only associate counsel in this matter. I am acting on instructions with associate counsel and I have at no time attempted to hamper or delay the proceedings. On the contrary have requested and desired to have these proceedings go forward as speedily as possible.

"By the Referee:

"The appearance of Mr. Getz in this case is entered without associate counsel and his statements that bind his client are binding upon his client."

The ruling of the referee on the joint sale was upon Baker's review, reversed by this court (35 F.Supp. 60).

Subsequently, in August, 1940, all the parcels of real estate were sold by the trustee free and clear of liens and encumbrances with the exception of the Linden and North Third Street properties, which were abandoned.

The amounts realized from the sale were as follows:

                Hamilton Street property......$457,500.00
                Ninth Street property.........  35,000.00
                Factory building..............   3,000.00
                Vacant land...................      25.00
                

The proceeds from the sale of the real estate were not sufficient to pay off the liens and encumbrances, and produced nothing available for general creditors.

The audit of the trustee's first and partial account was had at a meeting before the referee on the 16th of December, 1940, wherein the referee announced that the account showed receipts of $497,525.60 and a balance of $149,134.60. At this meeting the various requests for allowances were considered as follows:

                Robert E. Haas
                   Trustee's commissions.........$ 4,095.25
                Fred B. Gernerd
                   Attorney for trustee.......... 15,000.00
                Charles M. Bolich
                   Attorney for bankrupt.........  2,500.00
                

The referee made a statement that he was entitled to a commission of $3,395.60 under the provisions of the Bankruptcy Act; approved the items spent or contracted for in the bankruptcy proceedings, and left open the items relating to the assignment for the benefit of the creditors which had been made prior to the bankruptcy.

Counsel for Henry Baker objected to all requests for allowances, including the referee's commissions, on the ground that they were in excess of the stipulation made at the hearing on December 11, 1939, which, he asserted, provided that only a sum not to exceed $4,000. could be charged against the lien holders for administration expenses. The referee overruled his objections. The referee orally allowed the request of the trustee in full, with the understanding that he might presently be paid $4,000 on account. The referee did not then pass on the request of the attorney for the trustee, but presently allowed him $5,000 on account. He also left open the request of the attorney for the bankrupt. The referee, however, stated that no payments whatsoever would be made in the face of counsel's objection, and that the trustee would hold up such payments until he was further directed by the referee. No formal order of allowance was made in any instance.

Much that transpired thereafter at private conferences with regard to allowances is in the realm of confusion and dispute. The various parties tried to get together and reach an agreement but apparently failed to do so. On March 11, 1941, the trustee made payments,...