In re Owl Drug Co.

Decision Date07 August 1936
Docket NumberNo. 480.,480.
Citation16 F. Supp. 139
PartiesIn re OWL DRUG CO.
CourtU.S. District Court — District of Nevada

COPYRIGHT MATERIAL OMITTED

William M. Kearney, of Reno, Nev., for bankrupt.

Thatcher & Woodburn, of Reno, Nev., and Grant H. Wren and Clarence A. Shuey, both of San Francisco, Cal., for trustee, George K. Edler.

Walter Rowson, of Reno, Nev., for referee, Felice Cohn.

YANKWICH, District Judge.

As a part of the proceedings for the final distribution of this estate, there are before the court petitions for the allowance of additional fees for the trustee's attorneys and of fees for the bankrupt's attorney, and the approval of the referee's account.

The attorneys for a few of the smaller creditors have filed a formal objection to the allowance to the trustee's attorneys of a fee in excess of $32,500, and of a fee in excess of $7,500 to the bankrupt's attorney. Other small creditors have expressed their disapproval in letters to the referee and to the clerk of the court. The objectors do not represent more than $20,000 in claims.

The representatives of practically all the merchandise creditors and of the larger creditors have approved in open court, and in statements read into the record, the fee of the trustee's attorneys. They have not approved, but have protested, the allowance of the amount asked by the bankrupt's attorney.

(1) Fees for the Trustee's Attorneys.

The trustee's attorneys, upon an order dated March 12, 1935, have received $50,000 for services up to November 30, 1933, and other attorneys assisting them have received $5,000. The order signed by the Honorable Jeremiah Neterer contained the following proviso: "Provided, however, that unless services of an extraordinary character are rendered by the attorneys for the Trustee to be determined by the Court, any additional compensation for services herein should be limited to the sum of $25,000.00."

An additional allowance of $45,000 is asked. The services for which an extraordinary character is claimed are: (1) Defending proceedings instituted by stockholders to set aside the bankruptcy proceedings; (2) claims of twelve affiliates of the bankrupt; (3) claims of a subsidiary of the bankrupt and certain assignees; (4) claims of B. F. Schlessinger & Sons for rent; (5) claim of Elizabeth Mansur for rent (the last two disposed by the writer); and (6) claim of Fidelity & Deposit Company of Maryland.

Counsel claim to have devoted 614 days since November 30, 1933, in the performance of legal services, of which 344 were devoted to what they consider services of an extraordinary character.

The adjudication of the Owl Drug Company as a bankrupt, upon a voluntary petition, was made on October 10, 1932. On November 22, 1932, George K. Edler was appointed trustee, qualifying on November 28, 1932. He operated certain properties for about ten months. He then sold the assets, and the property in the hands of the trustee consists of money which has come into his hands chiefly through this sale. The sale brought $1,550,000. Altogether the trustee will disburse $1,619,448.66. The expenses of administration (including operation) to date, amount to $283,151.39. This does not include the referee's fee, the trustee's fee, or the fees of the attorney for the bankrupt or the additional fees for the trustee's attorneys. The number of claims filed and finally allowed was 1,495, of which 113 were contested. The total amount for which the claims were allowed was $3,373,675.94. The controverted claims amounted to $8,731,440.64. They were reduced to $1,995,687.03. Most of the claims were disposed of without litigation by the trustee or by compromises approved by the writer, or before the referee.

In six claims reviews were had before the court and heard by the writer.

These claims, arising under leases, were filed before the decision in Manhattan Properties v. Irving Trust Co. (1934) 291 U.S. 320, 54 S.Ct. 385, 78 L.Ed. 824, for large sums. After that decision, the controversy was reduced to comparatively small amounts. So, ultimately, the Altill Company claim involved $12,500, disallowed by the court; the B. F. Schlessinger & Sons claim $16,658.66, disallowed by the court; the Phelan Improvement Company claim, finally allowed for $1,315.39; the Douglas Realty Company claim, allowed for $1,315.39; the Swetland Building Company claim, allowed for $620.90. Of these, two only — the Schlessinger and Mansur claims — resulted in appeals. Full details on the claims, except the Mansur claim, in which an oral opinion only was rendered, may be found in the writer's opinions on them. See, In re Owl Drug Co. (D.C.Nev. 1935) 12 F.Supp. 431; Id. (D.C.) 12 F. Supp. 439; Id. (D.C.) 12 F.Supp. 446; Id. (D.C.) 12 F.Supp. 447.

Fees for the trustee's attorneys are allowable as an expense of administration under section 62 of the Bankruptcy Act (11 U.S.C.A. § 102). The amount is left to the sound discretion of the District Judge See Harrison v. Perea (1897) 168 U.S. 311, 18 S.Ct. 129, 42 L.Ed. 478; Page v. Rogers (1909) 211 U.S. 575, 29 S.Ct. 159, 53 L.Ed. 332; McCartney, Foster & McGee v. Moore (C.C.A.5, 1926) 16 F.(2d) 113; Weil v. Neary (C.C.A.2, 1927) 22 F.(2d) 893; In re Barceloux (C.C.A.9, 1935) 74 F.(2d) 288, 289. But this power "is not discretionary in the sense that the courts are at liberty to give anything more than a fair and reasonable compensation." Brewer, C. J. in Central Trust Co. v. Wabash, St. L. & P. Ry. Co. (C.C.Mo.1887) 32 F. 187, 188. And because extravagant costs of bankruptcy administration have been recognized as a "crying evil" (Realty Associates Securities Corporation v. O'Connor 1935 295 U.S. 295, 299, 55 S.Ct. 663, 79 L.Ed. 1446), judges have been warned by the Supreme Court against vicarious generosity in these matters. In re Gilbert (1928) 276 U.S. 294, 296, 48 S.Ct. 309, 72 L.Ed. 580.

So, the test of reasonableness and the aim of economy of administration are always borne in mind in determining the amount. And in applying them certain criteria are followed which are a modification of the usual ones adopted by court decisions and by the ethics of the profession in determining the value of all legal services. They are: The time spent, the intricacy of the problems involved, the size of the estate, the opposition met, the results achieved — all subject to the economical spirit of the Bankruptcy Act. See In re Barceloux, supra; In re Osofsky (D.C. N.Y.1931) 50 F.(2d) 925; In re Lane Lumber Co. (D.C.Idaho, 1913) 206 F. 780; In re Curtis (C.C.A.7, 1900) 100 F. 784; In re National Accessories (D.C.Neb.1936) 13 F.Supp. 278; 2 Collier on Bankruptcy (13th Ed.) pages 1353, et seq.; Gilbert's Collier on Bankruptcy (3rd Ed.) § 1223; 6 Remington on Bankruptcy (3rd Ed.) § 2676 et seq.

The instances in which fees over and above the customary fees are allowed in bankruptcy are those "where it is shown to the satisfaction of the court that the services rendered have been unusual and extraordinary, where the bankrupt estate has been materially increased through the diligent efforts of attorneys in discovering assets, or where the duties of the attorneys have been onerous and burdensome with litigation incident to the winding up of the bankrupt estate." In re W. B. Terrell Company (D.C.S.C.1917) 250 F. 317.

In determining the fee in the instant case, I do not think the order of Judge Neterer should be taken as determining definitely the additional amount that should be received for services of an ordinary character. Rather is it to be interpreted as seeking to establish the ordinary maximum which, in his opinion, the estate should and could bear as a fee for the trustee's attorneys. An examination of the record shows that all the matters which are deemed of an extraordinary character were already pending when the order was made, the last of them, the petition to set aside the adjudication, having been instituted on March 7, 1934.

It is to be borne in mind that while, as a result of negotiations, the claims were reduced approximately 75 per cent., the result did not mean the bringing of any new property or money into the estate. The assets of the estate remained the same at all times. The trustee's attorneys are, no doubt, sincere in their belief that the negotiations over the complex claims of the affiliates and a subsidiary of the bankrupt should be compensated as services of an extraordinary character. We believe, however, that Judge Neterer, knowing the character of the estate and of the legal work which it required, took them into consideration in making the allowance and in imposing the limitation.

The transcript of proceedings shows that not only did both Judge Neterer and counsel have in mind the difficulties involved in the matters already pending, but that they agreed that the services which would warrant a greater allowance than the maximum would be what Mr. Woodburn called "ultra extraordinary." Judge Neterer interpreted these words as meaning that not more than the $25,000 additional should be allowed, "unless there is some very extraordinary service that could not now be anticipated."

We quote the colloquy between court and counsel:

"The Court: What additional compensation would you likely expect?

"Mr. Woodburn: The attorneys have agreed that except for some ultra extraordinary services, such as being compelled to go to the Supreme Court of the United States, that the ultimate compensation of all attorneys, the three sets of attorneys in the case, shall be not more than an additional $25,000.00. We have a great deal of work yet to perform. There is pending I think around ninety-six objections; some of them are a matter of great amount. There is an objection to a two million dollar claim, which it is expected will involve an immense amount of work.

"The Court: What have you to say to that, Mr. Wilson. That, of course, would be a matter to be determined by the Court, what additional fees should be allowed.

"Mr. Wilson: (Attorney for certain creditors and large claim...

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