In re Middle West Utilities Co.

• Decision Date: 04 December 1936
• Docket Number: No. 49923.,49923.
• Citation: 17 F. Supp. 359
• Parties: In re MIDDLE WEST UTILITIES CO.
• Court: U.S. District Court — Northern District of Illinois

17 F. Supp. 359

In re MIDDLE WEST UTILITIES CO.

No. 49923.

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

September 29, 1936.

On Rehearing December 4, 1936.

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Jacobson, Merrick, Nierman & Silbert, Kirkland, Fleming, Green, Martin & Ellis, Cutting, Moore & Sidley, Taylor, Miller, Busch & Boyden, Tarnopol, Flamm & Sideman, Samuel A. & Leonard B. Ettelson, and Mayer, Meyer, Austrian & Platt, all of Chicago, Ill., White & Case, of New York City, and Thomas V. Sullivan, Patrick J. Lucey, Gannon, McGinn & Whitson, Julius Moses, Frank J. Loesch, Fisher, Boyden, Bell, Boyd & Marshall, Sims & Stransky, James H. Benjamin, Essington & McKibbin, Ryan, Condon & Livingston, Adams, Nelson & Williamson, D. Ryan Twomey, Frank L. Hume, Weil & Tell, and Tom D. McKeown, all of Chicago, Ill., pro se.

Burry, Johnstone, Peters & Dixon and William J. Froelich, all of Chicago, Ill., for trustees.

James B. Alley, General Counsel, Max O'Rell Truitt, Solicitor, and William Radner, all of Washington, D. C., and Lee Walker, Rex Bullinger, and Arthur A. Armstrong, all of Chicago, Ill., for Reconstruction Finance Corporation, objector.

WILKERSON, District Judge.

In the decree of November 27, 1935, approving the plan of reorganization as modified, the court reserved determination of allowances for expenses and services in connection with these proceedings. The court also reserved for consideration the question of allowances in the equity and bankruptcy proceedings which preceded the filing of the petition under section 77B, Bankr.Act, 11 U.S.C.A. § 207.

In exercising the reserved authority as to allowances under section 77B, the court is not bound by any agreements as to amounts which the parties seeking such allowances may have made among themselves. The statute imposes on the judge the duty of determining the amounts of such allowances in accordance with the standard prescribed by the statute. Provisions in a reorganization plan or agreement among those seeking allowances as to what each one is to receive cannot relieve the court from the responsibility. Under the statute, two-thirds of each class of creditors and the majority of each class of stockholders may agree upon a reorganization plan. The statute specifies what may be included in such a plan. Allowances for services and expenses are not expressly included in the enumeration of those things which may be a part of the plan. On the contrary, it is expressly provided that the judge may allow compensation for such services and expenses. The history of this legislation, as well as the language of the statute, indicates clearly that it was the intention of Congress to remove the fixing of allowances for services and expenses from the field of those things upon which the parties in a reorganization proceeding may agree among themselves. The reason behind this is obvious. One who is asking others to consent to an allowance for himself is not in a position to view impartially the services of those whose consents he is seeking to obtain.

Twenty-three applications for allowances were filed. In accordance with the direction of the court, the applications were accompanied by itemized statements of services rendered and expenses incurred. It was suggested that the statements cover the section 77B proceedings and the prior equity and bankruptcy proceedings. This seemed to be the simple and direct method of getting all of these claims before the court. All of the cases are in this court. Allowances made in the equity and old bankruptcy proceedings are subject to review as to reasonableness by the judge ordering payment under section 77B (i), 11 U.S.C.A. § 207 (i) in the reorganization proceeding. Callaghan et al. v. Reconstruction Finance Corporation, 297 U.S. 464, 56 S.Ct. 519, 80 L.Ed. 804. In adopting this course, it was considered that appropriate orders could be made in the prior cases with reference to allowances, if any, which come under the provisions of section 77B (i) and the payment of such allowances by the new company could be authorized in this proceeding.

The petitioners who seek allowances include the attorneys for plaintiffs in the equity suit, the receiver in the equity suit and his counsel, the attorneys for the executors of the estate of Edward N. Hurley, deceased, one of the receivers in the equity suit, the attorneys for the petitioning creditors in the bankruptcy suit and reorganization proceedings, the common stockholders' committee and its counsel, the preferred stockholders' committee and its counsel, the noteholders' committee and its counsel, and the reorganization committee and its counsel. In addition, there are seven petitions filed by those who claim as attorney or agent for creditors and stockholders to have made contributions to the formulation of the plan approved by the court.

The allowances requested amount to more than $1,600,000. Objections to some of the claims were filed by various parties in interest. Objections to all of the claims were filed by the Reconstruction Finance Corporation which holds 170,000 shares of the stock of the new company. Evidence was presented, oral arguments were heard, and briefs were submitted.

The statements of services are quite lengthy. In some cases the work of the court was increased by the indiscriminate intermingling of services as to which, plainly, the attorney must look to his client for compensation with services for which he is entitled to an allowance out of the fund within the court's control under some principle of equity or some provision of the bankruptcy statutes.

The bill in the equity suit was filed in April, 1932. Plaintiff was a simple contract creditor. The defendant consented to the appointment of receivers. The circumstances leading up to the filing of the bill and the principal steps in the equity suit are stated in Judge Lindley's opinion in Lincoln Printing Co. v. Middle West Utilities Co. (D.C.) 6 F.Supp. 663, and in the opinion of the Circuit Court of Appeals 74 F.(2d) 779.

At the time the bill was filed the Middle West Company had outstanding about 16,000,000 shares of no-par common stock of a stated value of $10 a share and 606,369 shares of preferred stock of a liquidation value of $100 per share. It was a holding company and owned a substantial interest in and controlled more than 85 public utility companies serving more than 5,000 communities in 32 states and Canada, with a population of more than 6,500,000. In addition, it had extensive investments in Commonwealth Edison Company, Peoples Gas Light & Coke Company, and Public Service Company. It owed more than $88,000,000. Of that amount $40,000,000 was represented by unsecured notes which had been sold to the public. About $25,000,000 of its indebtedness consisted of loans from the First National Bank of Chicago, the Continental Illinois Bank & Trust Company of Chicago, the Central Republic Bank & Trust Company, the Bankers Trust Company of New York, and Halsey, Stuart & Co. Most of its assets which had a market value had been pledged as collateral security for the bank loans, collateral of the value of more than $8,000,000 having been pledged within four months of the date of the filing of the bill.

The involuntary petition in bankruptcy was filed on April 15, 1932, the day on which the equity receivers were appointed. The assets of the respondent were in the possession of the banks and the equity receivers. The banks, obviously, were opposed to an adjudication in bankruptcy, as it would open the way to suits by a trustee to set aside the preferences alleged to result from the pledging of additional collateral within the four-month period. The right of the banks to retain that collateral could not be attacked by any of the parties or the receivers in the equity receivership. Counsel for the noteholders' committee intervened in the bankruptcy proceeding and later joined the attorneys for the petitioning creditors in an attempt to supersede the equity receivership by an administration of the estate in bankruptcy. The attorneys for the committees of preferred and common stockholders which had intervened in the equity suit applied for a rule on the receivers to resist the bankruptcy proceedings in the name of the Middle West Company. The court refused to make such an order, but authorized the attorneys for the preferred and common stockholders' committees to contest the petition for adjudication. Lincoln Printing Company v. Middle West Utilities Company, supra, 6 F.Supp. 663, at page 680. The counsel authorized to represent the respondent tried to have parts of the petition stricken. Their motions were overruled, and the ruling of the District Court was sustained on appeal. In re Middle West Utilities Co. (C.C.A.) 70 F.(2d) 825.

The petition under section 77B was filed before there was a final hearing on the petition in the original bankruptcy proceeding.

During the pendency of the equity suit, a question arose as to its alleged fraudulent or collusive character. Judge Lindley, sua sponte, directed a hearing on that issue and named special counsel to conduct a disinterested inquiry. A fee of $10,000, awarded to the special counsel in the equity suit, was paid in this proceeding. All of the counsel for the intervening committees of noteholders and stockholders, as well as counsel for the banks, participated in the hearing and resisted the charge of fraud and collusion. One intervener, Pollak, sought to prove that the suit was fraudulent and to have the suit dismissed and the receivers discharged. The ruling of the District Court is found in Lincoln Printing Company v. Middle West Utilities Company, supra. That ruling was affirmed in Lincoln Printing Co. v. Middle West Utilities Co. (C.C.A.) 74 F.(2d) 779. Certiorari was denied by the Supreme Court in Pollak v. McCulloch, 295 U.S. 746, 55 S. Ct. 659, 79 L.Ed. 1691.

The administrative...