In re Cook's Motors

• Decision Date: 06 December 1943
• Docket Number: No. 64900.,64900.
• Parties: In re COOK'S MOTORS, Inc.
• Court: U.S. District Court — District of Massachusetts

52 F. Supp. 1007

In re COOK'S MOTORS, Inc.

No. 64900.

District Court, D. Massachusetts.

December 6, 1943.

Frederick M. Myers and Stephen B. Hibbard, both of Pittsfield, Mass., for Berkshire Trust Co., creditor, and Stephen B. Hibbard, trustee in bankruptcy.

Lincoln S. Cain, of Cain & Chesney, all of Pittsfield, Mass., for Gar Wood Industries, Inc., creditor.

WYZANSKI, District Judge.

Pursuant to § 39, sub. c, of the Bankruptcy Act, Act of June 22, 1938, c. 575, 52 Stat. 840, 858, 11 U.S.C.A. § 67, sub. c, The Berkshire Trust Company, a creditor of the bankrupt, has petitioned this Court for review of Referee Stevens' order allowing priority to the $813.90 claim of Gar Wood Industries, Inc., another creditor of the bankrupt.

The statute, § 64, sub a(1), of the Bankruptcy Act, Act of June 22, 1938, c. 575, 52 Stat. 840, 874, 11 U.S.C.A. § 104, sub. a (1), under which the referee allowed priority, provides that "the debts to have priority * * * shall be (1) * * * where property of the bankrupt, transferred or concealed by him either before or after the filing of the petition, shall have been recovered for the benefit of the estate of the bankrupt by the efforts and at the cost and expense of one or more creditors, the reasonable costs and expenses of such recovery * * *."

Gar Wood initiated its claim under this section of law by filing with the referee a sworn proof of priority claim. In substance, that document stated that before bankruptcy the bankrupt transferred $2,563.30 to the Trust Company; that Gar Wood over many months repeatedly requested the trustee in bankruptcy to take the necessary steps to recover these funds; that Gar Wood's representatives conferred with the representatives of the Trust Company; that the Trust Company filed a motion before the referee as a step toward being allowed to keep these funds as a set-off; that Gar Wood successfully opposed that motion; that, as a result of Gar Wood's efforts the Trust Company turned over to the trustee in bankruptcy $2,563.30; and that Gar Wood incurred itemized out-of-pocket expenses of $63.09 for stenographic and witness fees and for telephones and $750 expenses for the services of attorneys. The petition came before the same referee who had sat in all the preceding stages of the bankruptcy. At that time he heard some further evidence relating to matters other than the size of the fee. The referee ordered that the claim of $813.90 be allowed in full and given priority.

There can be no doubt that the Trust Company is entitled to seek a review of the referee's order. Its claim has been diminished in value by the allowance of another claim and by the admission of that claim to priority. The Trust Company, therefore, is an "aggrieved person" within the meaning of § 39, sub. c, of the Bankruptcy Act. Cf. Lawless v. Securities & Exchange Commission, 1 Cir., 105 F. 2d 574, 578. Moreover, the trustee in bankruptcy having also sought review, there is another handle by which this Court can take and does take jurisdiction of this case.

The first important question is what evidence the referee has a right to consider in forming his judgment as to whether services were rendered by Gar Wood and what their value was. The referee can plainly take into account the sworn proof of claim. "A sworn proof of claim is some evidence, even when it is denied." Whitney v. Dresser, 200 U.S. 532, 536, 26 S.Ct. 316, 317, 50 L.Ed. 584. He may also take into account any services, such as oral or written arguments, which he personally observed the creditor perform during hearings in connection with or proceedings for the administration of the bankrupt's estate. Tracy v. Spitzer-Rorick, Trust & Savings Bank, 8 Cir., 12 F.2d 755, 756. The underlying principle is that these services are a form of real evidence or autoptic proference. Wigmore, Evidence, 3rd Ed. §§ 24, 1169. And courts commonly take such services into account without requiring supplemental proof through witnesses on the stand. Cf. Hutchinson v. William C. Barry, Inc., D.C.Mass., 50 F.Supp. 292, 296. However, it is clearly desirable for a referee or court which does fix a fee upon facts learned in open court but not appearing on a written record to state those facts expressly. Otherwise the parties and appellate courts cannot know the basis of his action and hence cannot effectively review it.

On the basis of the evidence before him, so far as disclosed in the record before the Court, the referee could reasonably have found as facts, that the bankrupt transferred assets to the Trust Company; that the trustee in bankruptcy and his counsel, when requested by Gar Wood, refused to take steps to recover those assets; that the identical counsel represented both the Trust Company and the trustee in bankruptcy; and that the efforts of Gar Wood led to the recovery of assets which would not otherwise have been available for the benefit of the estate. There was a reasonable basis for the referee's findings of fact, and I agree with them.

The question for this Court is whether even on his findings the referee could as a matter of law conclude that Gar Wood's claim was entitled to priority under Section 64, sub. a(1).

The first part of this inquiry turns on the issue whether a creditor may make a valid claim for priority under Section 64, sub. a(1), of the Bankruptcy Act if he took the steps for which he seeks compensation without having first secured authorization from the referee. Apparently the established rule in several circuits is that under ordinary circumstances a creditor cannot receive any compensation whatsoever unless he has such authorization. In re Eureka Upholstering Co., 2 Cir., 48 F.2d 95, 96; In re Progress Lektro Shave Corporation, 2 Cir., 117 F.2d 602; Cox v. Elliott, 8 Cir., ...