In re McCrory Stores Corporation, 456.

• Decision Date: 12 July 1937
• Docket Number: No. 456.,456.
• Parties: In re McCRORY STORES CORPORATION et al. COOPER v. IRVING TRUST CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

91 F.2d 947 (1937)

In re McCRORY STORES CORPORATION et al.^* COOPER v. IRVING TRUST CO. et al.

No. 456.

Circuit Court of Appeals, Second Circuit.

July 12, 1937.

Ernst, Gale, Bernays & Falk, of New York City (Murray C. Bernays and George G. Ernst, both of New York City, of counsel), for appellant.

Charles Rosenbaum, of New York City (Charles Rosenbaum and Maurice Gellar, both of New York City, of counsel), for appellees 57 Specific Creditors of McCrory Stores Corporation.

Stanchfield & Levy, of New York City (David S. Hecht, of New York City, of counsel), for appellee Hallgarten & Co.

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

AUGUSTUS N. HAND, Circuit Judge.

This appeal tests the power of the judge in charge of a proceeding for the reorganization of McCrory Stores Corporation under section 77B of the Bankruptcy Act (11 U.S.C.A. § 207) to revise the terms of a contingent fee retainer of the appellant Irving Ben Cooper and fix his fee at $35,000 on the ground that this sum was reasonable compensation for the services rendered. In our opinion he had such power under the terms of section 77B and his order thus fixing compensation should be affirmed.

McCrory Stores Corporation was adjudicated bankrupt on January 14, 1933, and its subsidiary corporations were so adjudicated on January 31, 1933. By order of February 2, 1933, these bankruptcy proceedings were consolidated and were thereafter conducted as a single proceeding.

At a meeting of creditors held on January 28, 1933, a committee known as the Wiley Committee was appointed and the need of retaining counsel was discussed. The following day the committee selected Mr. Cooper, with the approval of a large number of the creditors, under an arrangement by which he was to receive $25,000 and a percentage of the claims represented by the Wiley Committee. The arrangement was embodied in a letter by the committee to Cooper dated February 8, 1933, whereby it agreed to pay him for services rendered and to be rendered to the committee the sum of $25,000 and in addition 10 per cent. of any dividends to be paid to the creditors whom it represented whether payable "in the bankruptcy proceeding or as a settlement pursuant to a compromise offered by the bankrupt and confirmed by the court or otherwise," the retainer and contingent fee to cover all services to be rendered by Cooper and other attorneys engaged by him. The $25,000 was fully paid at the time the foregoing written retainer was delivered. On July 5, 1934, petitions for reorganization of McCrory Stores Corporation and its subsidiaries were approved by the District Court, and in December, 1935, a plan of reorganization was approved which provided for payment to the unsecured creditors (a large number of whom the Wiley Committee represented) of the full amount of their claims, together with about 19 per cent. interest. Mr. Cooper and his legal associates rendered services on behalf of these creditors from the end of January, 1933, until the plan of reorganization was carried out in May, 1936. The aggregate amount which they would have received under the contingent retainer would have been upwards of $84,000, instead of the $35,000 which was allowed by the District Judge.

The creditors represented by the Wiley Committee executed and delivered to the committee powers of attorney appointing the committee and each of them attorneys in fact, and "authorizing them and each of them to attend any and all meetings of creditors * * * of the bankrupt in any court of bankruptcy or before any referee in bankruptcy, and for said claimant and in the name of said claimant to vote for or against any proposal or resolution that may be submitted in reference to the estate of the * * * bankrupt and in the choice of trustee or trustees and for said claimant to appoint such trustee or trustees. To accept or refuse any composition in or out of bankruptcy proposed by said bankrupt. To receive and collect any payments of dividends or fees or monies due said claimant under any compositions or otherwise and in general to take such action and do such acts, execute such consents and documents for such claimant as said attorney may deem best, as fully as such claimant could do if personally present."

It is impossible to suppose that a creditors' committee concerned with such a substantial insolvency or reorganization of a system of chain stores could properly act without legal counsel, and it is entirely unreasonable to suppose that the committee was expected to defray the expense of counsel personally. We inevitably conclude that the power of the committee to employ counsel on behalf of the creditors whom it represented was implicit in the broad powers given above. Inasmuch as the committee was authorized to employ counsel and, under the powers of attorney, was to collect the claims and had agreed to pay 10 per cent. out of any dividends, which it received, as Cooper's contingent fee, the latter acquired a contractual lien. Barnes v. Alexander, 232 U.S. 117, 34 S. Ct. 276, 58 L.Ed. 530; Ingersoll v. Coram, 211 U.S. 335, 365-368, 29 S.Ct. 92, 53 L. Ed. 208; Wylie v. Coxe, 15 How. 415, 419, 14 L.Ed. 753. Whether the section 77B judge had power to reduce the amount of this lien and fix Mr. Cooper's compensation at $35,000 is the question raised by this appeal.

Judge Patterson, who made the order, held that under subdivision (b) (10) of section 77B "the duty is laid on the court to see to it that the amount to be received by counsel is no more than commensurate to the services rendered." Had the reorganization been less successful, he might well have thought the full 10 per cent. could fairly be paid, but believing as he did that the agreement was not binding on the court if the compensation under...