In re Falk

• Decision Date: 04 February 1929
• Docket Number: No. 138.,138.
• Citation: 30 F.2d 607
• Parties: In re FALK et al. MICHELBACHER v. HAAR.
• Court: U.S. Court of Appeals — Second Circuit

30 F.2d 607 (1929)

In re FALK et al. MICHELBACHER v. HAAR.

No. 138.

Circuit Court of Appeals, Second Circuit.

February 4, 1929.

C. Edward Benoit, of New York City (Julius J. Abeson, of New York City, of counsel), for appellant.

David Haar, of New York City, in pro. per.

Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The appellee, David Haar, is a counselor at law. Falk and Leibel consulted Haar about their financial condition, showed him their books, and he found that they were insolvent. He advised them not to sell their assets, consisting of women's wearing apparel, as was proposed, but to have bankruptcy proceedings instituted, and, at his suggestion, an involuntary petition in bankruptcy was filed against them. The assets were sold by the receiver and realized approximately $3,000. After the involuntary petition was filed, Haar attended examinations under section 21a (11 USCA § 44(a), at which the bankrupts had been called to testify; attended one meeting of creditors, as well as a meeting of a committee of creditors; prepared the schedules and gave such information as he had with respect to the bankrupt estate. He also advised the bankrupts in respect to their examination, and as to their life insurance policies, and was generally helpful as their attorney.

At the time when Falk and Leibel first consulted him, he told them that his fee for services would be $1,000, and, inasmuch as they had no money to pay him, they assigned to him accounts receivable, from which he realized $600, and afterwards $100 more through a settlement of an action to collect one of the accounts. Certain other of the assigned accounts were collected by the receiver.

The referee, evidently because he thought the compensation too large, directed the trustee to bring on a hearing under section 60d of the Bankruptcy Act (11 USCA § 96(d) for a re-examination. Accordingly the trustee, without filing a petition, served a notice upon Haar that a hearing under section 60d of the Bankruptcy Act would be brought on before the referee at a time and place named in the notice. Haar appeared on the return day and was directed by the referee to file a petition setting forth his services. He filed a petition enumerating the above services without making any objection to the form of the proceeding or to the jurisdiction of the referee. Thereafter the referee allowed him $250 in full of all services and disbursements, and ordered him to return the balance of the $700, namely, $450, to the trustee. Upon review, the District Court reversed this order, on the ground that the referee had no jurisdiction to make it, and that the proceedings were improperly brought before him. From the order of reversal by the District Judge, the trustee appealed to this court.

The questions of law involved on this appeal relate to the meaning and effect of section 60d of the Bankruptcy Act (11 USCA § 96 (d). That section provides:

"If a debtor shall, directly or indirectly, in contemplation of the filing of a petition by or against him, pay money or transfer property to an attorney and counselor at law, solicitor in equity, or proctor in admiralty for services to be rendered, the transaction shall be re-examined by the court on petition of the trustee or any creditor and shall only be held valid to the extent of a reasonable amount to be determined by the court, and the excess may be recovered by the trustee for the benefit of the estate."

Haar objected to the proceeding because it was not founded upon a petition by the trustee as prescribed by section 60d. It can hardly be doubted that the referee or the District Court had the power to order the trustee to institute such a proceeding, if the situation seemed to call for it, even though the trustee, as was the case here, thought that the accounts transferred did not constitute too high a fee for the services rendered. International Agricultural Corp. v. Cary (C. C. A.) 240 F. at pages 104, 105. It was doubtless an irregularity for the trustee to proceed without filing a petition setting forth the payments of money or the transfers of property to be re-examined, for section 60d provides that "the transaction shall be re-examined * * * on petition of the trustee. * * *" But the provisions of the statute are directory, and may be waived by the appearance of the respondent and his failure to object to the form of the proceeding, as was the case here. The proceeding is summary and administrative, and, while Haar was an adverse claimant, he was not one against whom a plenary suit had to be brought. In re Wood, 210 U. S. 246, 28 S. Ct. 621, 52 L. Ed. 1046, Slattery v. Dillon (C. C. A.) 17 F.(2d) 347.

The situation here differs from that of In re Rosser (C. C. A.) 101 F. 562, where there had been no notice served on the bankrupt. There a turnover order was sought, and the order was made solely as the result of an examination under section 21a. Such an examination is ex parte, and a turnover order, made upon it alone, was made without due process.

In re Raphael (C. C. A.) 192 F. 874, is likewise not in point. There the lower court had ordered a law firm to repay a fee received from the bankrupt in contemplation of bankruptcy, and within a few days prior to the filing of the petition. But the proceeding there, though begun by a petition, was in essence a plenary suit under section 23 of the Bankruptcy Act (11 USCA § 46) to recover moneys which belonged to the bankrupt estate. Neither by the pleadings nor the proof was notice given to the attorneys that the reasonableness of the payment of $1,000 as a fee was being inquired into. Under such circumstances the Circuit Court of Appeals for the Seventh Circuit held that the attorneys were not afforded due process and that the order directing them to return the fee should be reversed.

There can be no doubt that in the present case the attorney was informed in the notice served upon him that the proceeding was to re-examine the reasonableness of his fee. The reference to section 60d in the notice could have no other meaning. He filed a written statement under oath of the nature and extent of his services. He asked for no opportunity to testify or prove anything further, and the matter was submitted on his affidavit only. To be sure, he now complains of the lack of a hearing, and of a failure on the part of the referee to decide the matter upon oral testimony. Why such a mode of disposing of the case was necessary, when allowances after bankruptcy are almost always fixed upon affidavits cannot be readily understood. Collier, in his book on Bankruptcy (13th Ed.) at page 1338, says, when referring to section 60d: "The motion may be heard on affidavits or orally."

We can discover no reason for sending back a simple motion like the present in order to take testimony, especially when the attorney showed no sign at the time of the hearing that he desired such procedure, and his own affidavit was the only thing before the court. We hold that there was no failure of due process of law.

Under section 60d, the court had the power to order the return of any payments in excess of a reasonable amount. It is said that in the case of In re Wood, 210 U. S. 246, 28 S. Ct. 621, 52 L. Ed. 1046, nothing more was done than to re-examine the payments to determine the excess over what was reasonable compensation, and to direct the trustee to bring an action to recover such excess. But in that case personal service had not been made on the attorneys within the district. Here personal jurisdiction was obtained...