In re Consolidated Factors Corporation

• Decision Date: 06 June 1932
• Docket Number: No. 346.,346.
• Citation: 59 F.2d 193
• Parties: In re CONSOLIDATED FACTORS CORPORATION. Appeal of QUINTAL et al.
• Court: U.S. Court of Appeals — Second Circuit

59 F.2d 193 (1932)

In re CONSOLIDATED FACTORS CORPORATION Appeal of QUINTAL et al.

No. 346.

Circuit Court of Appeals, Second Circuit.

June 6, 1932.

Gleason, McLanahan, Merritt & Ingraham, of New York City (Burgess Osterhout and John W. Simpson, 2d, both of New York City, of counsel), for trustees-appellants.

Milbank, Tweed, Hope & Webb, of New York City, and William M. Evarts and John G. Clancy, both of New York City, for appellees.

Before MANTON, SWAN, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

This appeal is from an order in the bankruptcy court granting Messrs. Milbank, Tweed, Hope & Webb, an allowance of $7,500 for their services as attorneys for the petitioning creditors, and $707.22 as their disbursements. The court below overruled the referee who made an allowance to them as attorneys for the petitioning creditors in the sum of $950, together with their disbursements.

The services rendered were (a) obtaining adjudication; (b) opposing the appointment of a receiver; and (c) protecting and liquidating assets during the interim between the filing of the petition and the election of the trustees.

The principal creditors, to whom 97 per cent. of the total indebtedness was due, were large banking institutions in the city of New York. As found by the referee, it was in behalf of these creditors that "the petitioners investigated the financial condition of the bankrupt and possible acts of bankruptcy, prepared and filed the petition, studied the answer, moved the issues for hearing, prepared for hearing on the issues, had various conferences with the attorneys for the bankrupt and its Board of Directors resulting in the withdrawal of the answer and the consent to adjudication. * * *"

The services of attorneys for petitioning creditors may be compensated for as provided by section 64b (3) of the Bankruptcy Act, 11 USCA § 104 (b) (3). The allowance, however, must be confined to services actually rendered in preparing and filing the petition and prosecuting it to an adjudication of bankruptcy. In Re Consolidated Distributors, 298 F. 859, 863, this court said: "When an adjudication has been obtained, the bankrupt's estate passes under the control and jurisdiction of the court and its officers. Thereafter there is no necessity and no opportunity for the attorneys of the creditors to render actual service to the estate." See, also, In re Eureka Upholstering Co., 48 F. (2d) 95 (C. C. A. 2); In re Curtis, 100 F. 784 (C. C. A. 7).

Mr. Dannenberg, before the election of the trustees, was retained as associate counsel by the appellees to conduct the examination of the officers of the bankrupt under section 21a of the Bankruptcy Act, 11 USCA § 44 (a). He performed such services. When retained on May 31, 1930, he agreed in writing to share the fee or allowance made with the appellees. Adjudication, which had been contested, was ordered June 12, 1930. Mr. Dannenberg was elected a trustee with two others on July 15, 1930. The agreement between Mr. Dannenberg and the petitioners provided that disclosure thereof should be made to the court on any application for an allowance. General Order XLII (11 USCA § 53) refers to a petition for an allowance and provides in part: "And such petition shall be accompanied by an affidavit of the applicant stating that no agreement has been made, directly or indirectly, and that no understanding exists, for a division of fees between the applicant and the receiver, the trustee, the bankrupt, or the attorney of any of them. In the absence of such petition and affidavit no allowance of compensation shall be made."

It was impossible for the appellees, when they made the application, after Mr. Dannenberg had been appointed trustee, to say that they were not sharing by agreement any division of fees. This General Order was promulgated by the Supreme Court, April 13, 1925 (267 U. S. 613), and was effective and prohibitory with respect to the appellees' application for allowance. Weil v. Neary, 278 U. S. 160, 49 S. Ct. 144, 73 L. Ed. 243. In the absence of an affidavit truthfully stating that no agreement had been made, directly or indirectly, and that no understanding existed, for the division of fees between the appellees and any or all of the trustees, the allowance below should not have been made. This applied to the services rendered as attorneys for the petitioning creditors. For services rendered after the adjudication, they could not be compensated. The purpose of General Order XLII, was to require all receivers and trustees in bankruptcy, who represent the estate for the benefit of creditors, to be free from all engagements as attorneys for petitioning creditors before they accept the office of receiver or trustee. The reasons for the rule need not be repeated. They are fully stated in Weil v. Neary, supra. Therefore the application of the appellees for an allowance for services after the appointment of Mr. Dannenberg as trustee, in view of their agreement with him, should have been disallowed. Weil v. Neary, supra; Holland v. McIlwaine, 223 F. 777 (C. C. A. 4).

The rule, however, does not forbid the allowance of disbursements incurred by appellees as attorneys for the petitioning creditors. Its restriction applies to services only.

The order below will be reversed, and an order may be entered allowing for the disbursements incurred as attorneys for the petitioning creditors, the amount to be determined below unless otherwise agreed upon.

Order reversed.

SWAN, Circuit Judge (dissenting in part).

The referee divided the appellees' services into the three subdivisions mentioned in the majority opinion: (a) Obtaining adjudication; (b) opposing the appointment of a receiver; and (c) protecting and liquidating assets during the interim between the filing of the petition and the election of trustees. He found the value of services classified as (a) to be $950, and the disbursements connected with such services to be $103.14. This item for disbursements the referee allowed, but he refused to allow a fee for the (a) services because of a supposed violation of General Order XLII (11 USCA...