In re Paramount-Publix Corporation

• Decision Date: 23 October 1935
• Parties: In re PARAMOUNT-PUBLIX CORPORATION.
• Court: U.S. District Court — Southern District of New York

12 F. Supp. 823

In re PARAMOUNT-PUBLIX CORPORATION.

District Court, S. D. New York.

October 23, 1935.

COPYRIGHT MATERIAL OMITTED

Root, Clark, Buckner & Ballantine, of New York City, for receivers and trustees.

Choate, Hall & Stewart, of Boston, Mass., Cobb, Hoke, Benson, Krause & Faegre, of Minneapolis, Minn., Pillsbury, Madison & Sutro, of San Francisco, Cal., Sonnenschein, Berkson, Lautmann, Levinson & Morse, of Chicago, Ill., Strauss & Hedges and Kiddle, Margeson & Hornidge, all of New York City, Harry Meyer, of Butte, Mont., Hornidge & Dowd, of New York City, Winston, Strawn & Shaw, of Chicago, Ill., and Johnston, Tory & Johnston, of Toronto, Ont., Canada, for trustees.

Rosenberg, Goldmark & Colin, of New York City, for debtor.

Cook, Nathan & Lehman, of New York City, for debtor and Stockholders' Protective Committee.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City, for Debenture Bondholders' Committee.

Beekman, Bogue & Clark, of New York City, for Bank Group Committee.

Cravath, de Gersdorff, Swaine & Wood, of New York City, for Kuhn, Loeb & Co.

Szold & Brandwen, of New York City, for Munger Debenture Bondholders' Committee.

Nathan Burkan, of New York City, for Creditors' Committee.

Malcolm Sumner and Edwin L. Garvin, both of New York City, for petitioning creditors.

Milbank, Tweed, Hope & Webb, of New York City, for trustee under indentures.

Stroock & Stroock, of New York City, for Paramount Broadway Corporation Bondholders' Committee.

Weiss, Pels & Grant, of New York City, for Schenk Paramount Broadway Corporation Bondholders' Committee.

Cotton, Franklin, Wright & Gordon, of New York City, for trustee under indenture of Paramount Broadway Bonds and Depositary of Committee.

A. J. Schanfarber, of Chicago, Ill., A. M. Frumberg, of New York City, Edgar J. Schoen, of Chicago, Ill., and Samuel Zirn, of New York City, for plaintiff in case of Robert S. Levy v. Paramount Publix Corporation et al. in the Supreme Court New York county.

Samuel Zirn, of New York City, for holders of debenture bonds.

Adolph Feldblum, of New York City, for petitioning creditors in involuntary bankruptcy proceedings.

Saul E. Rogers, of New York City, for holders of debenture bonds and shares of stock.

Louis Martin Levy, of New York City, for holders of shares of stock.

Bibb, Dederick & Osbourne, of New York City, for holders of debenture bond of debtor.

Archibald Palmer, of New York City, for holders of shares of stock of debtor.

Jacob J. Lesser, of New York City, for a stockholder.

Samuel Spring, of New York City, for creditor.

Louis Boehm, of New York City, for stockholders.

Simpson, Thacher & Bartlett, of New York City (Thomas D. Thacher, of New York City, of counsel), for Paramount Pictures, Inc.

COXE, District Judge.

These are applications by fifty-three petitioners for the allowance of fees and expenses in connection with the equity, bankruptcy, and reorganization proceedings of Paramount-Publix Corporation, the debtor, which, in one form or another, has been under the jurisdiction of this court for about two and a half years. The aggregate amount of the allowances requested is $3,239,828.15, of which $2,841,031.84 is for services, and $398,796.31 for expenses. There have been prior allowances in the equity and bankruptcy proceedings, amounting to $458,029.99.

The various applications were heard by me in open court on notice to all creditors, stockholders, and persons interested in the proceeding; and I was assisted at the hearings and in the consideration of the different applications by Mr. Joyce, the special master, who has been in charge of the case generally since the commencement of the section 77B proceedings (Bankr. Act, 11 U.S.C.A. § 207).

The debtor was a large company, operating through approximately 500 subsidiary and affiliated corporations, with many outstanding securities distributed widely among the general public. Its business comprised all branches of the motion picture industry, including production, distribution, and exhibition. Through one group of subsidiaries the company produced motion pictures and distributed them in all parts of the world; and through another it exhibited pictures in theaters in many parts of the United States and Canada, and in some places in England and France. At the time of the appointment of the equity receivers the company held interests of varying character in more than 1,100 theaters in which its motion pictures were exhibited.

On January 26, 1933, equity receivers were appointed in this District. This was followed, on March 14, 1933, by the adjudication of the company as a bankrupt on its own petition; and on April 17, 1933, bankruptcy trustees were appointed. The business remained in their hands until June 16, 1934, when the section 77B petitions were approved and the bankruptcy trustees were appointed temporary trustees under section 77B. The appointments were made permanent on July 10, 1934.

The reorganization plan, which included also a plan of reorganization of Paramount Broadway Corporation, was formally proposed on December 3, 1934, and, after prolonged hearings before the court, final confirmation was obtained on April 4, 1935; and on July 1, 1935, the debtor became revested with all of its assets.

During the course of the proceedings there were separate reorganizations of many of the subsidiaries, and this necessarily consumed considerable time and effort on the part of the trustees and their attorneys. There are other subsidiaries still in the process of reorganization, on which a large amount of work has been performed. But by and large the work of liquidation, readjustment, and reorganization has been substantially completed, and the business has now been turned back to the reorganized company, with the properties intact and well integrated, the fixed charges greatly reduced, the finances in sound condition, and the good will unimpaired. This is an achievement for which those who have been in positions of responsibility, both in the administration of the estate and the reorganization of the company, are entitled to substantial recognition.

The court, in the order confirming the plan of reorganization, reserved jurisdiction to fix and direct the payment of administrative expenses and to allow reasonable compensation in this proceeding, in the prior equity and bankruptcy proceedings, and in connection with the plan. This provision of the order is in harmony not only with subsection (c), subdivision 9, of section 77B, 11 U.S.C.A. § 207 (c) (9), but is a substitute for the alternative procedure indicated by subsection (f), subdivision 5, 11 U.S.C.A. § 207 (f) (5).

The general rule in equity is (1) that a trust estate must bear the expenses of its administration, and (2) that where one of many persons having a common interest in a fund, at his own expense, recovers or preserves the fund, he is entitled to be reimbursed from the fund for his actual and necessary expenses, including reasonable attorneys' fees. Trustees of I. I. F. v. Greenough, 105 U.S. 527, 26 L.Ed. 1157; United States v. Equitable Trust Co., 283 U.S. 738, 51 S.Ct. 639, 75 L.Ed. 1379; Nolte v. Hudson Nav. Co. (C.C.A.) 47 F.(2d) 166. It is also well settled that action taken adversely to the common interest in an effort to deplete the fund does not give rise to any claim for compensation or reimbursement. Hobbs v. McLean, 117 U.S. 567, 582, 6 S.Ct. 870, 29 L.Ed. 940; Kimball v. Atlantic States Life Ins. Co. (D.C.) 223 F. 463. The rule has, however, an important limitation in insolvency proceedings where a receiver or trustee has been appointed and is represented by competent counsel. Ordinarily, there is then no room for independent participation in the administration of the estate and any one who, without court authorization, performs administrative services, no matter how meritorious, or incurs expense, must look solely to his own clients for payment. In re New York Investors, 79 F.(2d) 182, opinion of C.C.A.2d Circuit, July 22, 1935. In bankruptcy proceedings under the general Bankruptcy Act, the limitation is even more stringent than in equity. In re Eureka Upholstering Co. (C.C.A.) 48 F.(2d) 95; In re Faour (D.C.) 11 F.Supp. 462, affirmed by C.C.A.2d Circuit, 78 F.(2d) 1015, July 1, 1935. The limitation has general application also to proceedings under section 77B.

Under the practice prior to the reorganization statute, costs, including compensation of committee members and committee charges, were customarily taken care of outside of the court proceedings. This gave rise to grave abuses, and, in an effort to control such costs, courts frequently resorted to the expedient of making confirmation of the plan, or of the judicial sale, contingent upon the approval by the court of all reorganization expenses. Bethlehem Steel Co. v. International C. E. Corp. (C.C.A.) 66 F.(2d) 409. In composition proceedings under the general Bankruptcy Act, committees were, however, denied compensation or reimbursement from the estate as not being authorized by the statute. In re Realty Associates Sec. Corp. (C.C.A.) 69 F.(2d) 41.

All reorganization expenses are now expressly declared to be proper subjects of judicial scrutiny and determination. Indeed, there can now be no judicial confirmation of a corporate reorganization plan unless the reorganization expenses "have been fully disclosed and are reasonable, or are to be subject to the approval of the judge." Section 77B (f) (5), 11 U.S.C.A. § 207 (f) (5).

Section 77B (c), 11 U.S.C.A. § 207 (c), provides as follows:

"Upon approving the petition or answer or at any time thereafter, the judge, in addition to the jurisdiction and powers elsewhere in this section conferred upon him * * * (9) may allow a reasonable compensation for the services rendered and reimbursement for the actual and necessary expenses incurred in connection with the proceeding and the plan by officers, parties in interest, depositories, reorganization...