In re Southern Steel Co.

• Decision Date: 18 May 1909
• Docket Number: 7,977.
• Citation: 169 F. 702
• Parties: In re SOUTHERN STEEL CO.
• Court: U.S. District Court — Northern District of Alabama

169 F. 702

In re SOUTHERN STEEL CO.

No. 7,977.

United States District Court, N.D. Alabama, Southern Division.

May 18, 1909

Campbell & Johnston, for trustees.

Percy &amp Benners, for first petitioning creditors.

Ward &amp Rudulph, Lee J. Marx, Powell & Blackburn, and A. Leo Oberdorfer, for second petitioning creditors.

HUNDLEY District Judge.

On the 25th day of October, 1907, a petition on behalf of certain creditors named therein was filed in this court praying that the Southern Steel Company be adjudged a bankrupt.

In that petition, which is designated as the petition of the first petitioning creditors, Messrs. Percy & Benners appeared as counsel for petitioners. At the same time there was presented to me another petition for other creditors seeking to have the same corporation adjudged a bankrupt, and for these creditors, who are designated as the second petitioning creditors, Messrs. Ward & Rudulph, Lee J. Marx, Powell &amp Blackburn, and A. Leo Oberdorfer appeared as counsel. The referee, in fixing the amount of compensation for the attorneys for the various petitioning creditors fixed the amount at $2,500 for the attorneys for the first petitioning creditors, and $2,500 for the attorneys for the second petitioning creditors; making a total of $5,000 for all the attorneys for the petitioning creditors. This action of the referee is here presented for review on petitions filed by Percy & Benners, Ward & Rudulph, Lee J. Marx, Powell & Blackburn, A. Leo Oberdorfer, and the trustees in bankruptcy.

The questions now before the court are: First. Is the sum of $5,000 a reasonable and proper compensation to be paid to the attorneys for the petitioning creditors for preparing the petition and procuring the adjudication in bankruptcy? Second. Should the attorney's fee for petitioning creditors when allowed in this case be equally divided between the attorneys for the first petitioning creditors and the attorneys for the second petitioning creditors, or should the said fee be paid alone to the attorneys for the first petitioning creditors or alone to the attorneys for the second petitioning creditors?

The law in reference to the allowance of attorney's fees in bankruptcy to the petitioning creditors has been fixed by statute and has been construed by the courts. The decision of the Court of Appeals of the Seventh Circuit (In re Curtis, 4 Am.Bankr.Rep. 17, 100 F. 785, 786, 41 C.C.A. 61) upon this question has been approved by the Court of Appeals in this circuit (Smith v. Cooper, 9 Am.Bankr.Rep. 755, 120 F. 230, 56 C.C.A. 578), as the rule upon which such fees are to be fixed and determined. In the Curtis Case, supra, the court said:

'In the administration of an estate in bankruptcy the law permits the allowance of 'one reasonable attorney's fee for the professional services actually rendered * * * to the petitioning creditors in involuntary cases.' Act July 1, 1898, c. 541, Sec. 64b, subd. 3, 30 Stat. 563 (U.S. Comp. St. 1901, p. 3447). * * * The attorney for the petitioning creditors is entitled to this reasonable fee as of right. Its allowance or disallowance is not matter of discretion. So, also, the amount to be allowed does not rest in mere discretion. The amount must in all cases be reasonable, to be determined upon evidence of the service performed and of its value, and, in the absence of evidence of its value, by the court from knowledge of its worth. The amount to be allowed rests in legal judgment and judicial discretion, but not in unrestrained discretion.'

Basing the remuneration to be paid as a fee for the petitioning creditors upon the services performed by their attorneys in preparing the petition and in procuring the adjudication, it is the opinion of the court that the amount of $5,000, as fixed by the special referee herein, is reasonable and proper, and the conclusion of the referee in that respect is approved and affirmed.

The next question to be determined is, to which attorneys shall this fee be paid, or shall it be divided equally between the attorneys for the first petitioning creditors and the attorneys for the second petitioning creditors? At the time of the presentation of the petition for the first petitioning creditors the second petition was also presented, and the good faith in reference to the filing of the first petition was brought into question by the second petitioning creditors, and it was contended: First, that the petition filed by the first petitioning creditors was a collusive one with the bankrupt, the Southern Steel Company, for the purpose of permitting the bankrupt to secure the appointment of receivers of its own choice, who would conduct the business of the corporation not for the benefit of the creditors, but in reality for the benefit of the bankrupt corporation itself; and, second, that the averment of the act of bankruptcy in the first petition could not be sustained as matter of law, and was but a mere subterfuge on the part of the bankrupt corporation to permit it to secure the appointment of receivers of its own naming.

Upon the first proposition this court by a decree rendered on the 21st day of January, 1908, determined that upon the evidence then presented the contentions of the second petitioning creditors were sustained. Birmingham Coal & Iron Company v. Southern Steel Company (D.C.) 160 F. 212. From that decree no appeal was ever taken, and subsequent proceedings in this cause only tend to sustain the contention of the second petitioning creditors made at the time of the filing of their petition.

Upon the second proposition the only evidence to sustain the averment in the first petition that 'the Southern Steel Company committed an act of bankruptcy in that it did admit in writing its inability to pay its debts, and its willingness to be adjudged bankrupt on that ground,' was the proof that at a meeting of the board of directors of the Southern Steel Company in New York City on October 22, 1907, a resolution was adopted in words and figures as follows, to wit:

'Whereas, certain creditors have threatened to institute proceedings in voluntary bankruptcy against the company and thereby secure advantage in the appointment of temporary receiver, and, in order to avoid permitting them to secure this advantage, we deem it to the benefit of all interested that the assent of the company be given to the appointment of a temporary receiver, or receivers, in bankruptcy, if it becomes necessary.

'Now, therefore, be it resolved, that O. R. Hood, attorney for the company, be, and he hereby is, authorized and empowered to represent the company generally in any suit or suits, or bankruptcy proceedings, that are now pending, or that may be brought against the company looking to the placing of it in involuntary bankruptcy and to the appointment of the temporary receivers, and that he be, and is hereby, given full power and authority to exercise his discretion in agreeing in the name of and on behalf of the company in such a proceeding to the appointment of a temporary receiver or receivers, and to authorize and give its assent to all things necessary or expedient in connection therewith.'

Subsequently, at Birmingham, Ala., O. R. Hood, as attorney for the Southern Steel Company, wrote the Sayre Mining & Manufacturing Company as follows:

'Birmingham, Alabama, October 24, 1907.

'Sayre Mining & Manufacturing Company, Birmingham, Alabama.

'Gentlemen: In regard to your claim against the Southern Steel Company, I beg to say that we are in a position where we cannot pay it. We regret to make this statement and admission; under these circumstances we are forced to make the admission to you and all other concerned, that the Southern Steel Company is unable to pay its debts and is willing to be adjudged a bankrupt on that ground.

'Very truly yours,

Southern Steel Company, 'By O. R. Hood, Atty.'

There can be but one conclusion from a reading of these resolutions, in connection with the other evidence in this case, and that is that their...