In re Woodruff

• Decision Date: 30 June 1941
• Docket Number: No. 9612.,9612.
• Citation: 121 F.2d 152
• Parties: In re WOODRUFF. JACKSON v. LYNCH.
• Court: U.S. Court of Appeals — Ninth Circuit

121 F.2d 152 (1941)

In re WOODRUFF.

JACKSON v. LYNCH.

No. 9612.

Circuit Court of Appeals, Ninth Circuit.

May 1, 1941.

As Modified on Denial of Rehearing June 30, 1941.

Francis B. Cobb, of Los Angeles, Cal., for appellant.

Rupert B. Turnbull and Leonard J. Meyberg, both of Los Angeles, Cal., for appellees.

Hiram E. Casey, of Los Angeles, Cal., for bankrupt Woodruff.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

MATHEWS, Circuit Judge.

This appeal is from an order approving the accounts of a receiver in bankruptcy, allowing reimbursement of certain expenses incurred by the receiver, and allowing compensation to the receiver and his attorneys.

On July 5, 1939, Leonard J. Woodruff filed a voluntary petition in bankruptcy in the District Court of the United States for the Eastern District of Oklahoma (hereafter called the Oklahoma court) and, on the same day, was by that court adjudged a voluntary bankrupt.

On July 13, 1939, M. E. Heiser filed in the District Court of the United States for the Southern District of California (hereafter called the California court) an involuntary petition against Woodruff and, with it, a petition for the appointment of a receiver to take charge of Woodruff's property and to conduct his business; and, on the same day, the California court appointed E. A. Lynch as such receiver.

On July 20, 1939, the Oklahoma court caused a meeting of Woodruff's creditors to be held, at which meeting appellant, P. M. Jackson, was appointed as trustee in bankruptcy.

On July 27, 1939, upon an order granted by the California court upon the verified petition of the receiver, Leonard J. Meyberg and Rupert B. Turnbull were appointed as attorneys for the receiver.

On October 16, 1939, pursuant to § 32 of the Bankruptcy Act, 11 U.S.C.A. § 55, and Order 6 of the General Orders in Bankruptcy, 11 U.S.C.A. following section 53, the Oklahoma court, having determined that it was the court in which the cases could proceed with the greatest convenience to the parties in interest, ordered that the California case be transferred to the Oklahoma court.¹

A certified copy of the Oklahoma court's order of October 16, 1939, was filed in the California court on October 18, 1939. On October 19, 1939, the California court ordered that the receiver file his account and petition for compensation and for reimbursement of expenses, that his attorneys file their petition for compensation, and that the clerk of the California court "stay the transmittal of the records" in the California case to the Oklahoma court until the account should be settled and the petitions heard and determined.

Appellant filed a motion to vacate the order of October 19, 1939. The motion was denied on November 15, 1939. On November 17, 1939, appellant appealed from the order of October 19, 1939, and from the order of November 15, 1939 — the order denying his motion.² The orders were affirmed³ on May 10, 1940. Jackson v. Lynch, 9 Cir., 111 F.2d 1003. Rehearing was denied on June 21, 1940. Certiorari was denied on October 14, 1940, 311 U.S. 674, 61 S.Ct. 39, 85 L.Ed. ___. Our mandate was issued on October 21, 1940, and was filed in the California court on October 28, 1940.

The receiver's account and petition for compensation and for reimbursement of expenses and his attorneys' petition for compensation were filed on October 24, 1939. Appellant filed objections to the account and petitions on November 17, 1939. The receiver filed a supplemental account and petition on May 13, 1940. His attorneys filed a supplemental petition on May 20, 1940. A hearing was had on June 20, 1940. Thereafter, on June 27, 1940, the California court entered an order approving the accounts, allowing reimbursement of certain expenses incurred by the receiver, and allowing compensation to the receiver in the sum of $2,000 and to his attorneys in the sum of $7,500. This appeal followed.

Appellant contends that the California court had no jurisdiction to make the order of June 27, 1940, because, at that time, our mandate in Jackson v. Lynch, supra — decided May 10, 1940 — had not been issued. There is no merit in this contention. The orders reviewed in Jackson v. Lynch, supra, were not final judgments or decrees, but were interlocutory orders only. Consequently, the appeal therefrom did not remove the entire case to this court or preclude further proceedings in the court below. Foote v. Parsons Non-Skid Co., 6 Cir., 196 F. 951, 953. See, also, In re F. P. Newport Corp., 9 Cir., 98 F.2d 453, 456. Much less were such proceedings precluded by a mere stay of mandate.

Except on the jurisdictional ground above mentioned, appellant does not challenge that part of the order which allows reimbursement of expenses incurred by the receiver. As the ground mentioned is untenable, that part of the order is assumed to be correct.

Appellant contends that the allowance of $2,000 as compensation to the receiver was in excess of that which the Bankruptcy Act prescribes. By § 2 of the Act, 11 U.S.C.A. § 11, courts of bankruptcy are empowered to —

"(3) Appoint, upon the application of parties in interest, receivers * * * to take charge of the property of bankrupts and to protect the interests of creditors after the filing of the petition and until it is dismissed or the trustee is qualified. * * *"

"(5) Authorize the business of bankrupts to be conducted for limited periods by receivers * * * if necessary in the best interests of the estates, and allow such officers additional compensation for such services, as provided in section 48 of this Act 11 U.S.C.A. § 76."

Section 48 of the Act, 11 U.S.C.A. § 76, provides:

"a. Receivers. The compensation of receivers appointed under this Act, for their services payable after they are rendered, shall be as follows:

"(1) As custodians. Receivers appointed pursuant to clause (3) of section 2 of this Act 11 U.S.C.A. § 11 who serve as mere custodians shall receive such amount as may be allowed by the court, but in no event to exceed 2 per centum on the first $1,000 or less, and one-half of 1 per centum on all above $1,000 on moneys disbursed by them or turned over by them to any persons, including lienholders, and also upon moneys turned over by them to the trustee and on moneys subsequently realized from property turned over by them in kind to the trustee.

"(2) With full powers. Receivers appointed pursuant to clause (3) of section 2 of this Act 11 U.S.C.A. § 11 who serve otherwise than as mere custodians shall receive compensation by way of commissions upon the moneys disbursed or turned over to any persons, including lienholders, by them and also upon the moneys turned over by them or afterward realized by the trustees from property turned over in kind by them to the trustees, such amount as the court may allow, but in no event to exceed 6 per centum on the first $500 or less, 4 per centum on all in excess of $500 but not more than $1,500, 2 per centum on all above $1,500 and not more than $10,000, and 1 per centum on all above $10,000.

"(3) Conducting business. Receivers appointed pursuant to clause (3) of section 2 of this Act 11 U.S.C.A. § 11 who conduct the business of the bankrupt as provided in clause (5) of section 2 of this Act 11 U.S.C.A. § 11 shall receive such amount as may be allowed by the court, but in no event to exceed twice the maximum allowance permitted by paragraph (2) of this subdivision a."

In the case at bar, the court disregarded § 48 of the Act, 11 U.S.C.A. § 76, and made an unconditional allowance of $2,000. This was error. The receiver served from July 13, 1939, the date of his appointment, until October 18, 1939, when the Oklahoma court's order of October 16, 1939, was filed in the California court — a period of three months and five days. His services were chiefly those of a custodian. Other services performed by him were clearly unnecessary and of no value to the estate.

The receiver, during his brief period of service, conducted a small and highly unprofitable business which theretofore had been conducted by the bankrupt. The court's order authorized the receiver "to conduct the business and sell the same as a going concern, if it can be done with benefit to the estate." The receiver testified that he "figured right from the start that the business was a hobby and not a business;" that he knew at the start "it couldn't be operated at a profit." Yet, instead of reporting at once to the court that the business could not be conducted "with benefit to the estate," but could only be conducted at a loss, he did so conduct it for several months.

We conclude that the only services for which the receiver is entitled to be compensated are those which he performed as a custodian, and that his compensation, therefore, should not exceed the maximum allowance permitted by paragraph (1), subdivision a, of § 48 of the Bankruptcy Act, 11 U.S.C.A. § 76.

Appellant contends that the allowance of compensation to the receiver's attorneys was improper because their appointment was procured in violation of Order 44 of the General Orders in Bankruptcy, 11 U.S.C.A. following section 53. Order 44 provides: "No attorney for a receiver, trustee or debtor in possession shall be appointed except upon the order of the court, which shall be granted only upon the verified petition of the receiver, trustee or debtor in possession, stating the name of the counsel whom he wishes to employ, the reasons for his selection, the professional services he is to render, the necessity for employing counsel at all, and to the best of the petitioner's knowledge all of the attorney's connections with the bankrupt or debtor, the creditors or any other party in interest, and their respective attorneys. If satisfied that the attorney represents no interest adverse to the receiver, the trustee, or the estate in the matters upon which he is to be engaged, and that his...