In re Insull Utility Investments

• Citation: 6 F. Supp. 653
• Decision Date: 22 December 1933
• Docket Number: No. 49943.,49943.
• Parties: In re INSULL UTILITY INVESTMENTS, Inc.
• Court: U.S. District Court — Northern District of Illinois

6 F. Supp. 653

In re INSULL UTILITY INVESTMENTS, Inc.

No. 49943.

District Court, N. D. Illinois, E. D.

December 22, 1933.

White & Hawxhurst and Jacobson, Merrick, Nierman & Silbert, all of Chicago, Ill., for petitioning creditors.

Rosenthal, Hamill & Wormser, of Chicago, Ill., for trustee.

William L. Latimer, of Chicago, Ill., for bankrupt.

Samuel A. & Leonard B. Ettelson, of Chicago, Ill., for Amy B. Ettelson.

Cassels, Potter & Bentley, of Chicago, Ill., and Allen & Dalbey, of Danville, Ill., for Calvin Fentress.

EVANS, Circuit Judge.

The questions which are here presented grow out of the petition of Calvin Fentress for compensation for services rendered as receiver and compensation to Allen & Dalbey and Cassels, Potter & Bentley for legal services rendered.

Fentress was appointed receiver of the Insull Utility Investments, Inc. upon motion of plaintiff Cherry, who filed a suit in the District Court for the Northern District of Illinois against said company. After his appointment as receiver in the main suit brought in the Northern District of Illinois, he was appointed ancillary receiver in New York and was later appointed receiver in the bankruptcy proceedings instituted in the Northern District of Illinois against the same company. He asks for compensation for himself and for the attorneys who acted as his counsel. Although his request for compensation is for services rendered by him and his attorneys in the bankruptcy matter, the court is required, under the rule laid down in Gross v. Irving Trust Co., 289 U. S. 342, 53 S. Ct. 605, 77 L. Ed. 1243, to finally pass upon the reasonableness of the compensation allowed in the equity receivership matters and, to do so, must determine the value and the necessity of the services rendered by the receiver and his attorneys.

One Ettelson, an unsecured creditor, objects to the allowance of any fees either to the receiver or his attorneys, Allen & Dalbey, on the ground that the suits were collusively instituted to secure, through the practice of fraud on the court, the appointment of receiver and counsel who would not, and could not, adequately represent those not parties to the fraudulent agreement. No objection is made to the allowance of fees to Cassels, Potter & Bentley, who were employed some weeks after the receiver was appointed, and who are admittedly outside the scope of the alleged collusive agreement; nor is there any objection to the reasonableness of the sums sought, if the court be of the opinion that fees should be allowed.

All of the receiverships above mentioned have been terminated, and the receiver Fentress has turned over all of the assets, which he received or collected as receiver, to his successor, the trustee of the bankrupt estate of Insull Utility Investments, Inc.

The application for the appointment of a receiver of Insull Utility Investments, Inc. was made April 16, 1932. The receiver Fentress was appointed April 16, 1932. He was named ancillary receiver in New York on the 19th day of May, 1932. He was named receiver in the matter of the bankrupt estate of Insull Utility Investments, Inc. on the 22nd day of September, 1932. The trustee of the bankrupt estate was appointed March 9, 1933.

There are two specific questions which the court must determine: (a) Was there such collusion in the institution of the original suit wherein Fentress was appointed receiver, or in the ancillary proceedings wherein he was appointed ancillary receiver, or in the proceedings leading to his appointment as receiver in the bankruptcy matter, as to justify the refusal of any compensation to him and to his attorneys? (b) If not, what sum would compensate him for work performed and what sum should be allowed his counsel for services rendered?

In order that we may apply the rule, it is necessary first to ascertain what constitutes collusion. It has been frequently defined by various courts, including the Supreme Court.

In Dickerman v. Northern Trust Co., 176 U. S. 181, 20 S. Ct. 311, 314, 44 L. Ed. 423, the court said:

"We have no doubt that this judgment was collusive in the sense that it was obtained by the plaintiff and consented to by the defendant company for the purpose of giving the trustees a legal excuse for declaring the principal and interest of the mortgage to be due, and to give authority for a foreclosure. But this did not constitute collusion in the sense of the law, nor does it meet the exigencies of the petitioners' case. Collusion is defined by Bouvier as `an agreement between two or more persons to defraud a person of his rights by the forms of law, or, to obtain an object forbidden by law,' and in similar terms by other legal dictionarians. It implies the existence of fraud of some kind, the employment of fraudulent means, or lawful means for the accomplishment of an unlawful purpose; but if the action be founded upon a just judgment, and be conducted according to the forms of law and with a due regard to the rights of parties, it is no defence that the plaintiff may have had some ulterior object in view beyond the recovery of a judgment, so long as such object was not an unlawful one."

In Re Metropolitan Ry. Receivership, 208 U. S. 90, 28 S. Ct. 219, 224, 52 L. Ed. 403, the court said:

"It is asserted also, that there was collusion between the complainants and the street railway companies, on account of which the court had no jurisdiction to proceed * * *. Whether the suit involved a substantial controversy we have already discussed, and the only question which is left under that act is as to collusion.

"In this case we can find no evidence of collusion, and the Circuit Court found there was none. It does appear that the parties to the suit desired that the administration of the railway affairs should be taken in hand by the Circuit Court of the United States, and to that end, when the suit was brought, the defendant admitted the averments in the bill and united in the request for the appointment of receivers. This fact is stated by the Circuit Judge; but there is no claim made that the averments in the bill were untrue, or that the debts, named in the bill as owing to the complainants, did not in fact exist; nor is there any question made as to the citizenship of the complainants, and there is not the slightest evidence of any fraud practiced for the purpose of thereby creating a case to give jurisdiction to the Federal court. That the parties preferred to take the subject matter of the litigation into the Federal courts, instead of proceeding in one of the courts of the State, is not wrongful. So long as no improper act was done by which the jurisdiction of the Federal court attached, the motive for bringing the suit there is unimportant. Dickerman v. Northern Trust Co., 176 U. S. 181, 190; South Dakota v. North Carolina, 192 U. S. 286, 311; Blair v. City of Chicago, 201 U. S. 400, 448; Smithers v. Smith, 204 U. S. 632, 644."

Other decisions dealing with the same subject are to be found in: Harkin v. Brundage, 276 U. S. 36, 48 S. Ct. 268, 72 L. Ed. 457; Black & White Taxicab Co. v. Brown & Yellow Co., 276 U. S. 518, 48 S. Ct. 404, 72 L. Ed. 681, 57 A. L. R. 426; Street v. Maryland Central Ry. Co. (C. C.) 58 F. 47; Burton v. R. G. Peters Salt & Lumber Co. (C. C.) 190 F. 262; May Hosiery Mills, Inc., v. F. & W. Grand 5-10-25 Cent Stores, Inc. (D. C.) 59 F.(2d) 218; Williams v. Nottawa, 104 U. S. 209, 26 L. Ed. 719; Lake County Commissioners v. Dudley, 173 U. S. 243, 19 S. Ct. 398, 43 L. Ed. 684.

A general statement of what constitutes collusion appears in Corpus Juris, volume 11, page 1220, section 2, from which the following quotation is taken:

"Collusion in judicial proceedings is a secret agreement between two persons that the one should institute a suit against the other, in order to obtain the decision of a judicial tribunal for some sinister purpose, and appears to be of two kinds: (1) When the facts put forward as the foundation of the sentence of the court do not exist. (2) When they exist, but have been corruptly preconcerted for the express purpose of obtaining the sentence. In either case the judgment obtained by such collusion is a nullity. The term is nearly allied to covin, and has been judicially defined as a secret agreement between two or more persons, whose interests are apparently conflicting, to make use of the forms and proceedings of law in order to defraud a third person, or to obtain that which justice would not give them, by deceiving a court or its officers; a secret understanding between two parties who plead or proceed fraudulently against each other to the prejudice of a third person; an agreement between two or more persons unlawfully to defraud a person of his rights by the forms of law, or to obtain an object forbidden by law * * * or where two persons apparently in a hostile position, or having conflicting interests, by arrangement do some act in order to injure a third person, or to deceive a court, or by keeping back evidence of what would be a good answer, or by agreeing to set up a false case; a deceitful agreement or compact between two or more persons, for the one party to bring an action against the other for some evil purpose, as to defraud a third person of his right; an agreement to obtain an object forbidden by law; a concerted or agreed purpose to commit a fraud or to accomplish a wrong; fraud."

A few illustrations of collusion which clearly fall within the condemnation of the courts may be helpfully stated.

A sues B on a debt when there is no debt, and B by his answer admits the indebtedness pursuant to an agreement between A and B to defraud other creditors of B. Here we have a clear case of collusion. Again, A is indebted to B in a sum less than $3,000 and through agreement with B raises the sum to an amount in excess of $3,000 so that the jurisdiction of the Federal court may be invoked; and B, in his answer, admits indebtedness in excess of $3,000. Here we have...