In re La Rowe

• Decision Date: 12 June 1950
• Docket Number: No. 17598.,17598.
• Citation: 91 F. Supp. 52
• Parties: In re LA ROWE.
• Court: U.S. District Court — District of Minnesota

91 F. Supp. 52

In re LA ROWE.

No. 17598.

United States District Court D. Minnesota, Fourth Division.

June 12, 1950.

Grant W. Anderson, Minneapolis, Minn., for the petitioner Northwestern Nat. Bank of Minneapolis.

C. J. Wagner, Minneapolis, Minn., for the trustee.

JOYCE, District Judge.

This matter came on for hearing on a petition to review an order of the referee in bankruptcy dated August 19, 1949. In this order the referee ordered the trustee to withhold, (1) three per cent of the total moneys due the petitioning secured creditor and to pay the same to the Clerk of Court for credit to the referees' salary and expense funds, and (2) the sum of $900 representing the petitioner's share of the costs incurred by the trustee in the care, custody and liquidation of encumbered property.

The debtor was adjudicated a bankrupt on May 13, 1948. Petitioner, Northwestern National Bank of Minneapolis, held chattel mortgages on a portion of the bankrupt's equipment and machinery which was taken over by the trustee. On June 28, 1948 the referee approved a sale by the trustee of certain property free and clear of encumbrances. Included in the property sold was the equipment upon which petitioner claimed mortgage liens in the amount of $23,015.84. Of the sale price of $26,375, the referee determined by order dated December 12, 1948 that $23,970 had been realized from the sale of the property covered by petitioner's chattel mortgages. Thus, the amount realized from the sale of the encumbered property exceeded the encumbrances thereon by $954.16. Over the objections of the trustee, the referee held petitioner's mortgage liens valid and enforceable and ordered payment to petitioner. This order of December 12, 1948 further provided "that the bank shall bear, and the Trustee shall deduct from the lien payments herein provided for, all costs and expenses incurred by the Trustee in connection with the preservation, custody, care and liquidation by the Trustee of all the machinery and equipment involved in this controversy * * * and of the administration of affairs incidental thereto, and that if the parties to this controversy cannot agree upon the proper amount of such costs and expenses, then and in that event the Trustee shall seasonably bring on for hearing the matter of the determination thereof by the Referee".

Thereafter, the trustee and petitioner agreed that, subject to approval by the referee, the trustee should be paid $900 in reimbursement for costs and expenses incurred in connection with the care, custody, preservation and liquidation of the encumbered property. The trustee understood the agreement to be that the $900 should be deducted from the amount payable on petitioner's claims. Petitioner contends the agreement merely called for payment from the proceeds of the sale of the encumbered property, and, since the proceeds realized exceeded petitioner's lien claims by more than $900, the payment due petitioner remained unaffected by the agreement. After hearings relating to the assessment of fees and expenses had been held, the referee entered the order under review. This order of August 19, 1949, in addition to adopting findings stipulated to by the trustee and petitioner, found as a fact that petitioner had impliedly consented to the sale of the encumbered property free and clear of petitioner's liens. Petitioner contends that the referee erred in finding an implied consent upon its part to the sale free and clear and in ordering the trustee to withhold from payment of its lien claim any part of the fees and expenses.

Petitioner's denial of consent, either express or implied, to the sale of the encumbered property free and clear of liens is not borne out by the record before the court. Petitioner admits that it had knowledge of the fact that the sale was being made and offered no objection thereto. The trustee in his verified petition seeking authorization for the sale states that "the trustee has explained this sale to the Northwestern National Bank, and has their agreement to the property being sold, and that any liens that they may claim will attach to the proceeds". To escape the necessary conclusion of consent from this conduct, petitioner points to the fact that no written notice of the proposed sale was given as required by 11 U.S.C.A. § 94, sub. a(4), and claims that objection would have been made upon receipt of such notice. I fail to see where written notice would have added anything to the knowledge of the sale which petitioner admits having, and conclude, therefore, that its omission is of no significance on the question of petitioner's consent. The record fully sustains the referee's finding that petitioner impliedly consented to the sale of the encumbered property free and clear of liens.

It is also claimed that the referee erred in requiring petitioner to pay any part of the assessment for the referees' salary and expense funds, or of the costs and expenses incurred by the trustee in the preservation and liquidation of the encumbered property.

Payments to Referees' Salary and Expense Funds.

Section 40, sub. c(2) of the Bankruptcy Act, as amended, 11 U.S.C.A. § 68, sub. c(2), provides: "(2) Additional fees for the referees' salary fund and for the referees' expense fund shall be charged, in accordance with the schedules fixed by the conference (a) against each estate wholly or partially liquidated in a bankruptcy proceeding, and be computed upon the net proceeds realized; * * *."

Pursuant to the authority thus vested in it, the Conference of Senior Circuit Judges, at the April 1947 and September 1947 sessions, fixed the fees for the referees' salary fund in straight bankruptcy cases at 1½% and the charges for the referees' expense fund in straight bankruptcy cases at 1½%. The Conference further provided that, "In determining the amount of net proceeds realized in asset cases for the purpose of Section 40, sub. c(2) of the Bankruptcy Act as amended, the term `net proceeds realized in asset cases' shall mean, in the case of sale or liquidation, the amount of money coming into the estate of a bankrupt as assets of such estate * * *; Provided, however, that where property is sold or transferred subject to a valid existing mortgage, lien or other encumbrance, the amount of such mortgage, lien or other encumbrance not affected by such sale shall not be included in determining the amount of net proceeds realized".

On the basis of the foregoing statute and Conference provision, the referee imposed the 3% assessment on the funds payable to petitioner on its lien claims.

Petitioner contends that the referee erred in two respects with reference to the assessments thus made. First, it is argued that the phrase "net proceeds realized" in Section 40, sub. c(2) of the Bankruptcy Act as amended, 11 U.S.C.A. § 68, sub. c(2), should be read as "net proceeds realized for the general estate", and that the 3% assessment for the benefit of the referees' salary and expense funds should not, therefore, be computed on the basis of funds coming into the estate subject to liens. If this argument be accepted, Section 40, sub. c(2) as amended works a decided change in the law as it existed prior to 1947. The 1903 Amendment to the Bankruptcy Act had as one purpose a change in the law designed to permit referees to base their fees on the total moneys disbursed to creditors by trustees regardless of whether such disbursements were to secured or unsecured creditors. In re Columbia Cotton Oil & Provision Corp., 4 Cir., 210 F. 824; Collier on Bankruptcy, 14th Ed., Sec. 40.06, p. 1551. There is nothing to indicate that Congress, in 1946, intended to depart from the long established practice in this regard.

Reading Section 40, sub. c(2), as amended, I believe it clear that "net proceeds realized" refers to the amount realized from the liquidation of the bankrupt's assets, and not just to that portion thereof which constitutes the equity of the general creditors. That the Conference so construed the phrase is apparent from the definition adopted by that body. In other words, "net proceeds realized" would be the balance remaining after the expenses incurred by a trustee in effecting a liquidation had been deducted from the total sale price...