In re Davison Chemical Co.

• Decision Date: 27 February 1936
• Docket Number: No. 8038.,8038.
• Citation: 14 F. Supp. 821
• Parties: In re DAVISON CHEMICAL CO.
• Court: U.S. District Court — District of Maryland

14 F. Supp. 821

In re DAVISON CHEMICAL CO.

No. 8038.

District Court, D. Maryland.

February 27, 1936.

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House, Holthusen & McCloskey, of New York City, and James U. Dennis, of Baltimore, Md., for Cray, McFawn & Co.

Piper, Carey & Hall, of Baltimore, Md., and Milbank, Tweed, Hope & Webb, of New York City, for E. J. Quintal et al., Reorganization Committee.

Brown & Brune, of Baltimore, Md., for Charles B. Gillett et al., Protective Committee.

Armstrong, Machen & Allen and Maloy, Brady & Yost, all of Baltimore, Md., for T. Nelson Strother et al., Protective Committee.

Clarke & Allen, of New York City, for Griswodl et al., Stockholders' Committee.

France, McLanahan & Rouzer, of Baltimore, Md., for Equitable Trust Co., trustee.

J. H. LeRoy, Jr., of Elizabeth City, N. C., for J. H. LeRoy, Sr., one of the receivers of Eastern Cotton Oil Co.

Kenneth C. Royall, of Raleigh, N. C., for receivers of Eastern Cotton Oil Co. and Davison Chemical Co.

Larry I. Moore, of New Bern, N. C., for Davison Chemical Co.

M. B. Simpson and P. W. McMullan, both of Elizabeth City, N. C., and Pickrell & McDonald, of New York City, for receivers of Eastern Cotton Oil Co.

Jay V. Champion, of Norfolk, Va., one of the receivers and trustees of Eastern Cotton Oil Co., in pro. per.

Chester F. Hockley, of Baltimore, Md., one of the receivers and trustees of Eastern Cotton Oil Co., Davison Chemical Co., and Davison Realty Co., in pro. per.

Henry E. Treide, of Baltimore, Md., one of the receivers and trustees of Davison Chemical Co. and Davison Realty Co., in pro. per.

G. Ridgely Sappington, of Baltimore, Md., for trustees of the debtor, Davison Realty Co., and one of counsel of the trustees of Eastern Cotton Oil Co.

James U. Dennis, George M. Brady, and Hilary W. Gans, all of Baltimore, Md., special counsel for receivers and trustees of Davison Realty Co.

Sylvan Hayes Lauchheimer, of Baltimore, Md., for Davison Chemical Co., Davison Realty Co., and Eastern Cotton Oil Co.

R. H. Kelley, of Houston, Tex., for receivers of Davison Chemical Co. et al., in ancillary proceedings in Texas.

Knight, Thompson & Turner, of Tampa, Fla., for receivers of Davison Chemical Co. et al., in ancillary proceedings in Florida.

Tazewell Taylor, Sr., of Norfolk, Va., for receivers for Eastern Cotton Oil Co., and for trustees of Eastern Co.

CHESNUT, District Judge.

The subject now before the Court is the allowances to be made to receivers, trustees, attorneys, committees, and depositories in the reorganization of the Davison Chemical Company, which includes therein also the reorganization of its subsidiaries, the Davison Realty Company and the Eastern Cotton Oil Company, and also receivership expenses of all three of these companies. The total amount asked for, excluding allowances previously made on account in the receivership proceedings, is the very large sum of nearly $500,000. It is the purpose of this opinion to state the reasons why the total allowances to be made will be very much less than this amount, and at the same time to state briefly the reasons for the amounts of the allowances as made to the several parties claimant.

The large amount that is asked for is explainable partly at least by the following considerations: (1) The services rendered for which compensation is asked include the operation of three separate receiverships and this separate reorganization proceeding involving the three corporations; (2) most of these activities have extended over a period of two or three years respectively; (3) some thirty parties are asking compensation, and (4) the compensation in the amount asked for seems in most cases to have been based on what the parties thought would be reasonable charges against a solvent going concern, without giving sufficient consideration to the fact that the reorganized companies are financially embarrassed and if not actually bankrupt, were insolvent or nearly so.

The authority and duty of the court to fix and determine such allowances is contained in the recent Act of Congress known as section 77B of the Bankruptcy Act, subdivision (c) (9) of which provides: The judge "may allow a reasonable compensation for the services rendered and reimbursement for the actual and necessary expenses incurred in connection with the proceeding and the plan by officers, parties in interest, depositaries, reorganization managers and committees or other representatives of creditors or stockholders, and the attorneys or agents of any of the foregoing and of the debtor, but appeals from orders fixing such allowances may be taken to the Circuit Court of Appeals independently of other appeals in the proceeding and shall be heard summarily."

The policy of this court in a somewhat similar case (In re Kelly Springfield Tire Company, 13 F.Supp. 724, 729), in applying this statutory provision was stated as follows:

"It will be noted that the classes of parties or persons to whom compensation for services and reimbursement for expenses may be allowed is very comprehensive but nevertheless compensation for services `must be reasonable' and reimbursement is limited to `actual and necessary expenses incurred in connection with the proceeding and the plan.' In interpreting what is `reasonable' compensation for services it is the view of the judges of this Court, as heretofore expressed in this and other cases, that, as the purpose of this new section of the bankruptcy law is for relief of financially embarrassed debtors, its spirit should be considered that of economy in administration. Pursuant thereto it has been the announced policy of this Court that the amount of such allowances must be moderate rather than liberal, in the interests of the parties affected, but nevertheless just allowances must be made to those who have performed services which have inured to the benefit of the parties in interest."¹

The numerous allowances here requested may be classified as follows: (1) Expenses of the reorganization proceedings proper; (2) current expenses of operation of the receivership of the Davison Chemical Company and the Davison Realty Company in this court; (3) extraordinary receivership expenses in litigation consequent upon controversies arising precedent to the receivership, and (4) allowances made to receivers and counsel in the receivership of the Eastern Cotton Oil Company in the Eastern District of North Carolina.

I will consider the several petitions falling within the particular classes in the order above stated:

Each of the several claimants has filed a petition in this case (many of them quite lengthy) reciting the services for which compensation is asked. Notices by publication and by mail were also given to all parties in interest, including stockholders and creditors, that these petitions for allowances were to be considered on February 10, 1936. On that day and the following days of February 11th and 12th, the court gave a hearing to all parties who desired to be heard. Most of the claimants appeared and testified orally with respect to their several petitions. In all, twenty-four witnesses were heard and thereafter arguments of counsel were submitted with respect to several points of law. The so-called Reorganization Committee (hereinafter more particularly referred to) submitted an extended report on the petitions for allowances stating its views as to their reasonableness respectively. It is to be noted, however, that apart from this report and recommendations therein neither the reorganized corporation, nor any stockholder by counsel or in person, appeared at the hearing to assist the court with information or argument regarding the reasonableness of the several allowances. While I appreciate very much the information and expression of views given in the report and realize that it represents in entire good faith the views of the Committee and of their counsel in its preparation, I have not found it possible to follow the recommendations except in a few instances. Both the Committee and its counsel have themselves submitted requests for large compensation and while their report makes no recommendation as to their own allowances, I have not been able to accept their views as entirely disinterested despite their entire good faith. The result necessarily is that the court must make its own determination of what are reasonable allowances without the benefit of argument or substantial opposition with respect to the several matters requested.

In approaching the consideration of the respective allowances, there are certain general features of the whole matter that should be borne in mind. The relation of the Davison Chemical Company to its subsidiaries, and something of the financial history of the Chemical Company and the basis on which it was reorganized, were stated in an extended opinion of this court confirming its plan of reorganization in the case, filed November 26, 1935. While this opinion has not been officially published, it was printed and I believe was mailed by the trustees to creditors and stockholders. As bearing on the reasonableness of the allowances to be made in this case, it may be noted that the receivership of the Davison Chemical Company was what may be referred to as a comparatively successful operating receivership. The receivership began February 13, 1933. It was succeeded by the reorganization proceedings on December 18, 1934. Operations of the company continued until confirmation of the plan of reorganization and its consummation as of January 1, 1936. The gross receipts of the receivers and the trustees during the nearly three years of operation were more than $9,000,000. For the same period the operating profit (after payment of taxes, charges for depreciation and all other expenses except interest on debt) was $885,714, exclusive of dividends from subsidiaries. While the principal plant and business of the Chemical Company was located on the...