IN RE INLAND GAS CORPORATION, 14682.

• Decision Date: 19 October 1962
• Docket Number: No. 14682.,14682.
• Citation: 309 F.2d 176
• Parties: In re INLAND GAS CORPORATION, Kentucky Fuel Gas Corporation, American Fuel & Power Company, Debtors. GREEN COMMITTEE, INDEPENDENT COMMITTEE FOR AMERICAN FUEL & POWER COMPANY NOTEHOLDERS, Appellant, v. Ben WILLIAMSON, Jr., Trustee of Inland Gas Corporation and Kentucky Fuel Gas Corporation, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

309 F.2d 176 (1962)

In re INLAND GAS CORPORATION, Kentucky Fuel Gas Corporation, American Fuel & Power Company, Debtors GREEN COMMITTEE, INDEPENDENT COMMITTEE FOR AMERICAN FUEL & POWER COMPANY NOTEHOLDERS, Appellant, v. Ben WILLIAMSON, Jr., Trustee of Inland Gas Corporation and Kentucky Fuel Gas Corporation, Appellee.

No. 14682.

United States Court of Appeals Sixth Circuit.

October 19, 1962.

Oscar S. Rosner, Rosner & Rosner, New York City (Charles E. Steinberg and Seth Rosner, New York City, of counsel), for appellant.

Robert K. Emerson, Huntington, W. Va. (Campbell, McNeer, Woods & Bagley, Huntington, W. Va., on the brief), for Ben Williamson, Jr.

David Ferber, Associate Gen. Counsel, Securities and Exchange Commission, Washington, D. C. (Peter A. Dammann, Gen. Counsel, Paul J. Kemp, Atty., and J. Kirk Windle, Sp. Counsel, Securities & Exchange Commission, Chicago, Ill., on the brief), for S.E.C.

Before MILLER, Chief Judge, McALLISTER, Circuit Judge, and STARR, Senior District Judge.

SHACKELFORD MILLER, Jr., Chief Judge.

Reorganization proceedings involving the debtors, Inland Gas Corporation, Kentucky Fuel Gas Corporation and American Fuel & Power Company, were started in the United States District Court for the Eastern District of Kentucky in the fall of 1935. A plan which embraced reorganization of the three debtors was finally approved and confirmed by the District Court on June 2, 1958, but did not become effective until the conclusion of litigation by denial of certiorari by the Supreme Court on June 6, 1960. During this period of time numerous appeals have been considered and passed upon by this Court, starting with In re Inland Gas Corporation, 91 F.2d 113, C.A.6th, June 28, 1937, and continuing through In Re Inland Gas Corporation, 275 F.2d 509, C.A.6th, January 27, 1960, certiorari denied, 363 U.S. 813, 80 S.Ct. 1246, 4 L.Ed.2d 1154. As pointed out in the dissenting opinion in the last cited case, 275 F.2d 509, at p. 515, this long period of time consumed in bringing these proceedings to a conclusion was due largely to the fact that the operations by the Trustee for the Inland Gas Corporation were most successful with the most unusual result that proposed plans of reorganization had to be amended or superseded by later plans so as to properly reflect for the benefit of creditors the materially improving financial and economic condition of the debtor under the management of the Trustee. Reference is made in the opinion in 275 F.2d 509, to the numerous other opinions of this Court rendered in these proceedings. A factual statement of the background out of which these proceedings arose is given in Columbia Gas & Electric Corporation v. United States, 151 F.2d 461, C.A.6th, and will not be repeated here. Other recent opinions dealing with the closing phases of the litigation are In Re Inland Gas Corporation, 241 F.2d 374, C.A.6th, and In Re Inland Gas Corporation, 262 F.2d 510, C.A.6th.

Following the denial of certiorari on June 6, 1960, reported at 363 U.S. 813, 80 S.Ct. 1246, 4 L.Ed.2d 1154, the District Judge held a three-day hearing starting October 31, 1960, on 42 applications for allowances for services rendered and for reimbursement of expenses. At that time compensation and expenses had been previously paid in the amounts of $1,634,349.41 and $18,845.00, respectively. Additional compensation and reimbursement for expenses were requested in the amounts of $1,422,072.39 and $304,381.27, respectively. The Securities & Exchange Commission, hereinafter referred to as the Commission, recommended that these additional claims be approved and paid in the reduced amounts of $1,085,383.03 and $76,374.16, respectively. The District Judge properly recognized that, although such recommendations were entitled to great weight, the ultimate responsibility for determining fair and reasonable compensation for services rendered rested upon the Court. He approved in the main the recommendations of the Commission, but made a substantial reduction in the total amount finally allowed by order of April 8, 1961. Only one appeal was taken from the order of the District Judge making the final allowances, namely, an appeal by the Independent Noteholders Committee for American Fuel & Power Company 7% Secured Notes, hereinafter referred to as the Green Committee, which appeal is the matter presently before us for consideration.

The facts leading up to the present issue are as follows.

The Green Committee was formed in 1939 with Louis A. Green as Chairman and Robert Heilbrunn as Secretary. Green resigned in April 1955 and was succeeded by Thomas Keogh. Heilbrunn resigned May 22, 1959, and Keogh served alone after that time. Neither Green nor Heilbrunn requested any compensation for their services.

During the years 1942 through 1947 Green and Heilbrunn traded extensively in the securities of the debtors. When the Commission learned of this trading it took the position that their profits should be paid over to the debtors. Under date of July 17, 1947, Green, acting for himself and for Heilbrunn, proposed a compromise settlement, which the trustees reported to the Court, asking the Court to determine whether or not said offer of compromise should be accepted and to advise and direct the trustees with respect to their rights and duties in the premises. Following a hearing, the Court entered an order on August 2, 1947, authorizing and directing the trustees to accept the proposed settlement, which was done. Under the settlement Green paid to the Trustee all of his profits from trading in American Note and one-third of his profits from trading in the securities of the other two debtors. Heilbrunn paid one-third of his profits from trading in bonds of Inland Gas Corporation. He neither purchased nor sold any securities of the other two debtors. These payments by Green and Heilbrunn totaled $14,844.41.

In June 1951 the Green Committee filed a petition for reimbursement of expenses to May 31, 1951, in the total amount of $43,888.38, consisting of its own out-of-pocket expenses in the amount of $30,449.47 and its counsel's out-of-pocket expenses in the amount of $13,438.91, for which the Committee had reimbursed counsel. The payment or rejection of this claim was controlled by the provisions of Section 249 of the Bankruptcy Act, Section 649, Title 11, United States Code, which provides in part as follows:

"No compensation or reimbursement shall be allowed to any committee or attorney, or other person acting in the proceedings in a representative or fiduciary capacity, who at any time after assuming to act in such capacity has purchased or sold such claims or stock, or by whom or for whose account such claims or stock have, without the prior consent or subsequent approval of the judge, been otherwise acquired or transferred."

It appears to be well settled that the operation of this statute is mandatory, rather than discretionary, regardless of good faith or lack of fraud on the part of a claimant or profit or loss in such transactions. Otis & Co. v. Insurance Bldg. Corporation, 110 F.2d 333, C.A.1st; Finn v. Childs Co., 181 F.2d 431, 441, C.A.2nd; In re Midland United Co., 159 F.2d 340, 345, C.A.3rd. In Surface Transit, Inc. v. Saxe, Bacon & O'Shea, 266 F.2d 862, at page 868, C.A.2nd, the Court said:

"This result may well work harshly in individual cases as here. But in § 249 of the Bankruptcy Act Congress clearly intended drastic results and thought them necessary to eliminate the serious abuses of insider information which had long been existent in equity reorganizations. * * * In the past excuses of inadvertence or de minimis have not been permitted to undermine the section, and we do not feel we can narrowly constrict it here. * * *"

However, in construing an analogous situation, the Supreme Court ruled in Woods v. City Bank Co., 312 U.S. 262, 61 S.Ct. 493, 85 L.Ed. 820, that under certain circumstances, irrespective of the bar, reimbursement for proper costs and expenses incurred in connection with the administration of an estate may be allowed. It said that those expenditures normally should be allowed which have clearly benefited the estate. "Thus where taxes have been paid, needful repairs or additions to the property have been made, or the like, equity does not permit the estate to retain those benefits without paying for them. Such classification of expenses, at times difficult, rests in the sound discretion of the bankruptcy court."

The amount of the Committee's own out-of-pocket expenses was arrived at after conferences with counsel for the Commission, as a result of which numerous items, which were proper committee charges but not expenditures of funds inuring to the benefit of the estate within the ruling in the Woods case, were objected to and not included in the claim. The Commission audited the schedule of disbursements and in a memorandum filed with the Court on August 27, 1951, expressed the opinion that the out-of-pocket expenses of counsel was a proper charge against the estate, that real work in representing and protecting the interests of the American Fuel creditors emanated from the Green Committee, that the services were such as might have been rendered by a trustee, that the out-of-pocket expenses incurred in rendering this type of service were in the nature of expenses which the estate would otherwise have had to expend, that they were such as to make...