In re Rogers-Pyatt Shellac Co.

• Decision Date: 07 July 1931
• Docket Number: No. 336.,336.
• Citation: 51 F.2d 988
• Parties: In re ROGERS-PYATT SHELLAC CO.
• Court: U.S. Court of Appeals — Second Circuit

51 F.2d 988 (1931)

In re ROGERS-PYATT SHELLAC CO.

No. 336.

Circuit Court of Appeals, Second Circuit.

July 7, 1931.

COPYRIGHT MATERIAL OMITTED

David W. Kahn and Bonynge & Barker, all of New York City, for appellants.

Alexander & Green, of New York City (James H. McIntosh and Edward W. Bourne, both of New York City, of counsel), for respondents.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

SWAN, Circuit Judge.

During the autumn of 1928, the chief creditors of Rogers-Pyatt Shellac Company found that it was in financial difficulties, and a creditors' committee was formed and put in charge of its business with the consent of its officers and directors. Without the concurrence or knowledge of this committee, an involuntary petition in bankruptcy was filed against the corporation on January 4, 1929. The appellants were attorneys for the three petitioning creditors, two of whom, Byrnes and Dean, were stockholders and directors of the bankrupt corporation, and Byrnes was also its secretary. Moreover, Byrnes' claim was one which the corporation disputed, as his attorneys knew. None of these facts was disclosed by the petition in bankruptcy. Forthwith the petitioning creditors by an ex parte order obtained the appointment of a receiver in bankruptcy. On January 5, 1929, upon the petition of the receiver, supported by the affidavit of Mr. McMahon, one of the appellants, an ex parte order was entered authorizing the receiver to employ the appellants as his attorneys. Through inadvertence, as Mr. McMahon later deposed, this affidavit did not mention that the appellants were attorneys for the petitioning creditors or that two of such creditors were stockholders and directors of the bankrupt, or that Byrnes was the secretary and his claim in dispute. The stockholdings of Byrnes and Dean, but not the fact that they were directors, were set forth in a second affidavit by Mr. McMahon which was filed pursuant to an ex parte order entered on February 27, 1929, upon petition of the receiver asking leave to file it. The receivership continued for some months, and on May 9, 1929, appellants petitioned for an allowance of $100,000 as compensation for their services as attorneys for the receiver. The creditors' committee objected to the granting of any allowance, and the matter was referred to a referee. While hearings before the referee were in progress, the creditors' committee applied to the District Court to vacate its order of February 27th which had permitted the filing of Mr. McMahon's supplemental affidavit. This resulted in a memorandum opinion and an order of November 8, 1929, by which the court refused to vacate the order of February 27th, but amended it to provide that it should not be deemed "either an authorization nunc pro tunc or a ratification" of the employment of the appellants. Thereafter the referee concluded that he could not with propriety pass upon the status of appellants as attorneys for the receiver and certified the entire record to the court. Upon motions by the appellants and by the creditors' committee, the question of the appellants' right to compensation was presented to the court and resulted in the order of May 16, 1930, from which this appeal was taken. This order denied the appellants' motion to ratify nunc pro tunc the order of January 5, 1929, authorizing their employment, refused them any compensation whatever, and dismissed their petition for an allowance.

The questions presented by this appeal are whether appellants obtained their appointment in violation of General Order 44 of the Supreme Court (11 USCA § 53) and rule 4 of the local Bankruptcy Rules; and, if they did, whether they are barred from obtaining compensation for services actually rendered as counsel for the receiver. The value of their services to the estate and the appellees' charges that they injured rather than benefited it need not be considered.

The affidavit of McMahon, upon which was based the order of January 5, 1929, authorizing the receiver to employ the appellants as his attorneys was apparently filed in an attempt to comply with General Order 44, which provides as follows:

"* * * No attorney for a receiver or a trustee shall be appointed except upon the order of the court, which shall be granted only upon the petition of the receiver or trustee, stating the name of the counsel whom he wishes to employ, the reasons for his selection, and the necessity for employing counsel at all; and there shall be submitted with this petition an affidavit of the person recommended showing that he is not employed by or connected with the bankrupt or any person having an interest adverse to the receiver, trustee or creditors."

Mr. McMahon's affidavit stated that neither the affiant nor his firm "represent said alleged bankrupt," and that "he and they are in no way connected with said alleged bankrupt; they represent no interests adverse to Samuel S. Koenig, the Receiver in Bankruptcy of the above named estate, and deponent knows of no reason why they should not act as attorneys and counsel for said receiver in this proceeding." The mention of Mr. Koenig as receiver was an error, as Mr. Ottinger was the person appointed receiver; but the erroneous name may be ignored as surplusage, and the allegation may be considered as a statement that the appellants represent no interests adverse to the receiver. It will be observed that this allegation omits the words "trustee or creditors" which follow the word "receiver" in the final line of the general order. However, if we consider, as we think we may, the statement "no interests adverse to the receiver" as meaning generally "no interests adverse to the estate," the omission of "trustee or creditors" becomes a merely formal defect. But so construed the statement is untrue. A creditor whose claim is disputed and doubtful certainly has an interest adverse to the trustee and to the other creditors. Byrnes' claim was of this character, and his attorney, who was Mr. McMahon, had discussed it with counsel for the corporation in July, 1928. Moreover, Byrnes and Dean owned one-sixth...