In re Klein-Moffett Co.

• Decision Date: 01 June 1928
• Docket Number: No. 4861.,4861.
• Citation: 27 F.2d 444
• Parties: In re KLEIN-MOFFETT CO.
• Court: U.S. District Court — District of Maryland

27 F.2d 444 (1928)

In re KLEIN-MOFFETT CO.

No. 4861.

District Court, D. Maryland.

June 1, 1928.

Jacob M. Moses, of Baltimore, Md., for trustee.

Frederick W. Brune, of Baltimore, Md., for defendants.

COLEMAN, District Judge.

The question for decision here involves the payment of a fee of $1,500 by a bankrupt to his counsel one week before bankruptcy. The trustee in bankruptcy has questioned the legality of this payment, and has petitioned the court to review it, on the ground that the services covered by the fee were not directly connected with the bankruptcy proceedings, and that, entirely apart from the question of their value, the services were such as the court would not have allowed compensation for if the attorney, instead of having secured the fee in advance of bankruptcy, had been placed in the position of other creditors required to file their claims in the customary manner.

It appears that the services covered a period from December 7, 1926, up to and after December 22, 1926, when the Klein-Moffett Company was adjudged an involuntary bankrupt. The payment was made on December 15th. The general nature of the services, in so far as is here material, was that they were rendered in an effort to adjust the financial difficulties of the company. But this was unsuccessful, and receivership in the state court and finally bankruptcy ensued. The fee may be considered as made up of three parts: (1) For services between December 7th and 15th, the date of payment, during which time counsel was engaged in an endeavor to rehabilitate the corporation, a clothing manufacturing concern, which had a capitalization of $225,000, and whose affairs were found to be in a very unsatisfactory condition. His work involved numerous conferences with stockholders and creditors, and, in general, such labor as is usually incident to efforts to reorganize and avoid bankruptcy. (2) For services between December 15th and 22d, the date of the filing of the petition in involuntary bankruptcy, during which time the attorney acted as counsel to the receiver for the corporation in the state court. (3) For services rendered subsequently to the filing of the petition, which included such legal work necessarily incident to the preparation of all papers filed in the bankruptcy proceedings.

There are two sections of the Bankruptcy Act which deal with the allowance of attorneys' fees, sections 60 (d) and 64 (b) (3), 11 USCA §§ 96 (d), 104 (b) (3). Section 60 (d) provides as follows:

"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." (Italics inserted.)

Section 64 (b) (3) provides 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 the fees and mileage payable to witnesses as now or hereafter provided by the laws of the United States, and 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, to the bankrupt in involuntary cases while performing the duties herein prescribed, and to the bankrupt in voluntary cases, as the court may allow." (Italics inserted.)

The obvious expressed intention of 60 (d) is to allow the retention of reasonable compensation paid to an attorney for any services to be rendered before and in contemplation of bankruptcy. In re Cummins (D. C.) 196 F. 224; In re Stolp (D. C.) 199 F. 488; In re Rolnick (C. C. A.) 294 F. 817; Pratt v. Bothe (C. C. A.) 130 F. 670; Furth v. Stahl, 205 Pa. 439, 55 A. 29. See, also, In re Wood & Henderson, 210 U. S. 246, 28 S. Ct. 621, 52 L. Ed. 1046; Slattery v. Dillon (C. C. A.) 17 F.(2d) 347. Therefore compensation for part 2 of the services, hereinbefore described as having been rendered, is properly allowable under this section if reasonable in amount. Although rendered over a period of extreme financial difficulty in an effort to keep the business out of bankruptcy, the services were nevertheless in contemplation of bankruptcy. As was said in Furth v. Stahl, 205 Pa. 439, 443 (55 A. 29, 30):

"They were none the less rendered in contemplation of the filing of a petition in bankruptcy, because directed primarily and principally to the prevention of such petition. A man is usually very much in contemplation of a result which he employs counsel to avoid."

There is also strong authority to the effect that a liberal construction is to be given to this section to the extent that the payment need not actually be made before, but may be made after, the services are rendered, provided both the payment and the services antedate bankruptcy and are in contemplation thereof. As was said in Re Cummins, supra, at page 226:

"In other words, a lawyer is not to be deprived of the safeguard of the statute because he has the decency not to insist on an immediate retainer in money or property, and is willing to wait until he can decide what his fee ought to be in the light of service actually rendered. There is no reason why statutes, under familiar canons, cannot be construed sensibly.

"The Congress has given the court full power to re-examine such a transaction with a view of ascertaining its good faith, and then determining whether the fee is reasonable. What is meant, by the statute, is that a debtor, under the circumstances therein described, may fully pay an attorney reasonable compensation for services to be rendered, and it is immaterial whether the payment is made at or after the professional engagement is entered into."

See, also, Pratt v. Bothe, supra.

The court does not subscribe to the minority view, which holds that section 64 (b) (3) makes the only allowance of attorneys' fees, and that section 60 (d) merely provides a means for payment in advance. In re Kross (D. C.) 96 F. 816; In re Secord (D. C.) 296 F. 231; In re Habegger (C. C. A.) 139 F. 623, 3 Ann. Cas. 276. Therefore, if the compensation be reasonable for part 1 of the services, hereinbefore described, it is allowable under this section.

We have next to consider whether there is authority for allowance of part 3 of the fee here in question, independently of the matter of its reasonableness. Since this part covered services rendered ...