In re Diamond Fuel Co.

• Decision Date: 02 March 1925
• Docket Number: No. 165.,165.
• Citation: 6 F.2d 773
• Parties: In re DIAMOND FUEL CO.
• Court: U.S. Court of Appeals — Second Circuit

6 F.2d 773 (1925)

In re DIAMOND FUEL CO.

No. 165.

Circuit Court of Appeals, Second Circuit.

March 2, 1925.

Frank M. White, of New York City (R. H. McNeill, of Washington, D. C., of counsel), for petitioner.

Stetson, Jennings & Russell, of New York City (Theodore Kiendl and Frederic W. Girdner, both of New York City, of counsel), appearing pro se as respondents.

Before ROGERS, MANTON, and HAND, Circuit Judges.

ROGERS, Circuit Judge (after stating the facts as above).

It appears, from the statement of facts which precedes this opinion, that a petition was filed on behalf of three creditors, who asked to have the Diamond Fuel Company adjudged a bankrupt, on the ground that it had committed an act of bankruptcy by granting a preference within four months of the time of filing the petition, and was insolvent. Before the matter was adjudicated, and pending investigations, which were being carried on by the attorneys who had filed the petition, relative to the alleged bankrupt's affairs, a petition was filed on behalf of two other creditors. This was filed some seven months after the original petition was filed, and long after the time had expired within which the alleged preferential deed could have been attacked, had it not been for the filing of the original petition. The petition for the intervening creditors stated no reason why they should be permitted to intervene. It did not question in any way the validity and sufficiency of the original petition, or cast the slightest reflection upon the manner in which the counsel for the original petitioners were conducting the proceeding, nor was it intimated that the matter of final adjudication was being unduly delayed, or that the interests of the intervening creditors were likely in any way to be prejudiced unless they were permitted to intervene. The only reason they assigned was that they desired to join in the petition which had been previously filed. Neither was it necessary that the petition should contain any such allegations. This application to be permitted to join is a right secured to creditors by Bankruptcy Act, § 59f (Comp. St. § 9643), which provides that creditors other than original petitioners may at any time enter their appearance and join in the petition. An order was entered on September 19, 1921, permitting the intervention.

Section 59f of the Bankruptcy Act declares that "creditors other than original petitioners may at any time enter their appearance and join in the petition, or file an answer and be heard in opposition to the prayer of the petition." By granting the application to be permitted to intervene, or to use the specific language of the Bankruptcy Act to be permitted to "join in" the original petition, the intervening creditors thereby necessarily acquired the status of petitioning creditors as of the date on which the original petition was filed. This right of additional creditors to come in, being a right secured to them by law, is not limited in time, and it has been held that they may come in at any time before final judgment is rendered on the original petition; that is, before the court either makes the adjudication or dismisses the petition. In re Freeman Cotting Coat Co. (D. C.) 212 F. 551; In re Lewis F. Perry & Whitney Co. (D. C.) 172 F. 744; In re Plymouth Cordage Co., 135 F. 1000, 68 C. C. A. 434; In re Ryan (D. C.) 114 F. 373; In re Frisbee, Fed. Cas. No. 5,129; In re Lacey, Fed. Cas. No. 7,965.

The provision in the Bankruptcy Act authorizing the allowance of counsel fees to the attorneys for the petitioning creditors is contained in section 64b (Comp. St. § 9648), and is as follows: "The debts to have priority, except as herein provided, and to be paid in full out of bankrupt estates, and the order of payment shall be * * * (3) the cost of administration, including * * * one reasonable attorney's fee, for the professional services actually rendered, irrespective of the number of attorneys employed, to the petitioning creditors in involuntary cases. * * *"

In case of an adjudication the attorney for the petitioning creditors is entitled to this fee as of right, and its allowance or refusal is not a matter within the discretion of the court of bankruptcy. In re Curtis, 100 F. 784, 41 C. C. A. 59. But the amount of the fee to which the attorney is entitled in such cases does not rest in the arbitrary discretion of the court, but is within its judicial discretion, subject to review by the appellate court.

The counsel for the original petitioning creditors, in their application for an allowance of fees, asked for the sum of $30,000, together with an allowance of $909.59 for expenses actually incurred. In their petitions for allowance they set forth in much detail the services they rendered extending over a considerable period of time, and which included their service in getting at the facts which justified the filing of the original petition, and in successfully conducting the case in the District Court, the Circuit Court of Appeals, and the Supreme Court. It is stated in their petition that "in not a single instance was an order asked for in any of the courts that was not opposed in most instances by counsel for the preferred creditors and continuously by the opposing creditors. But in every instance your petitioner was sustained, and the order allowed and entered by the court, and further that not a single proceeding was participated in, from the time of the filing of the original and involuntary petition herein by your petitioner and associate counsel, until the final disposition of all matters involved herein in the Supreme Court of the United States, that did not result successfully for the bankrupt estate." And it is very evident that the preliminary investigations which it was necessary for them to make, and which were carried on for a very considerable period prior to the filing of the petition, were of great importance, and conducted under great difficulties, and resulted in very substantial benefits to the bankrupt's estate, enabling them to file the involuntary petition which is the basis of the subsequent proceedings.

The counsel for the intervening petitioners applied to the District Court for an allowance of an attorney's fee of $5,000, together with an allowance for $476.34 for their disbursements and expenditures. The petition filed on their behalf sets forth in some detail the services rendered by them after the petition to be permitted to intervene was granted. The petition for attorney fees indicates that it is chiefly based on the assumption that the original petition was defective, and that the decision in the District Court, which adjudicated the fact of bankruptcy, was made possible because the petition of the intervening creditors cured the defect in the original petition, by bringing in a third creditor; the original petition, they would have us understand, being defective, in that one of the three creditors who signed it was not shown to have been a creditor, so that, if the petition of the intervening petitioners had not been filed, the whole proceeding would have failed, and in support of that contention their petition for allowance sets forth quotations from the opinions rendered in the District Court, the Circuit Court of Appeals, and the Supreme Court.

As this case comes here on petition to revise, this court is not asked to increase or diminish the amount of the allowance. We can simply review the question of law, which is whether the order entered in the District Court was erroneous in law, in that it directed that the counsel for the intervening petitioners should share with the counsel for the original petitioning creditors in the fee of $13,500 awarded to the attorneys, or whether the fee so fixed should have been directed to be paid solely to the attorneys for the original petitioning creditors.

This court, in Re Grant, 238 F. 132, 151 C. C. A. 208, again had before it an appeal from an allowance of fees to the attorneys for the bankrupt. We declined in that case to interfere and said: "In a proceeding in bankruptcy there are many matters which are not governed by a fixed rule, but are confided to the sound judicial discretion of the judge. His decision in such cases may be brought before the Circuit Court of Appeals for review. But the appellate courts have established the rule that in such cases they will not reverse, unless the decision below was unmistakably wrong, or unless a plain abuse of discretion is shown. In re S. B. Judkins Co., 205 Fed. 892, 124 C. C. A. 205; Black on Bankruptcy, § 48." We adhere to what the court said in that case. We have the right to review such cases for the purpose of ascertaining whether the court below has proceeded, in our opinion, contrary to correct principles of law, or has in some way abused the sound discretion with which it is invested by the Bankruptcy Act.

This court, in the earlier case of In re Fischer, 175 F. 531, 99 C. C. A. 153, had before it a petition to revise an order fixing the attorneys' fees. It appeared in that case that a petition in involuntary bankruptcy was filed. It was signed by two creditors only; and on the day after it was filed other attorneys filed a second petition of different creditors. The court below, in fixing attorney fees, made the allowance to the attorneys who filed the second petition disregarding those who filed the first one. This court (Judges Lacombe, Coxe, and Ward) denied the petition to revise. Although signed by two creditors only, it averred on information and belief that the bankrupts had "creditors less than 12 in number," and an affidavit showed that there were about 75 creditors. As there was no defect in form, the court proceeded to examine the whole record.

The court, on rehearing, adhered to its former conclusion for reasons having no relation to the question now under consideration, and denied the petition to revise. It disposed of the question as to the attorney's fee in...