J. M. Wells, Inc., In re

• Decision Date: 15 May 1978
• Docket Number: 77-1457,Nos. 77-1456,s. 77-1456
• Citation: 575 F.2d 329
• Parties: In re J. M. WELLS, INC., Bankrupt, Appellant. In re J. M. WELLS, INC., Bankrupt, Harold A. Leventhal, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 329

575 F.2d 329

In re J. M. WELLS, INC., Bankrupt, Appellant In re J. M. WELLS, INC., Bankrupt, Harold A. Leventhal, Appellant.

Nos. 77-1456, 77-1457.

United States Court of Appeals First Circuit.

Argued March 9, 1978.

Decided May 15, 1978.

Roy Frank Kipp, Boston, Mass., with whom Harold A. Leventhal, Boston, Mass., was on brief, for appellants.

Henry C. Ellis, Taunton, Mass., on brief for Philip J. Assiran, appellee.

Gerald P. Tishler and Richard Mikels, Boston, Mass., with whom Joseph Braunstein, Julius Thannhauser, Cohn, Riemer & Pollack, Kenneth Korb, and Brown, Rudnick, Freed & Gesmer, Boston, Mass., were on brief, for appellees.

Before CAMPBELL, Circuit Judge, BOWNES, Circuit Judge, PETTINE, District Judge. ^*

LEVIN H. CAMPBELL, Circuit Judge.

This case raises the question whether a bankrupt whose assets were substantially exceeded by his debts may appeal allegedly excessive attorneys' fees paid out of the estate. We answer the question in the negative, but in view of the nature of the allegations, we have nonetheless examined the fees in question.

Creditors filed an involuntary petition in bankruptcy against J. M. Wells, Inc. on February 22, 1973, and the company responded by filing for reorganization under Chapter XI. Ralph Cohn was appointed receiver on August 3, 1973, and was permitted to act as his own counsel on August 16, 1973. Although a plan of reorganization was initially approved by the creditors, on March 25, 1974, the bankruptcy judge ruled that the plan was not feasible and adjudicated the company a bankrupt. Cohn was appointed trustee on that date. On April 10, 1974, Cohn was authorized to prosecute a suit already commenced in state court against the Taunton Redevelopment Authority, and on April 18 Cohn was authorized to employ himself as attorney for the trustee. Claims for fees for various legal services were filed in April, 1976, and the bankrupt entered an appeal from orders of the court granting these claims in part. The attorneys filed motions to dismiss, alleging that Wells lacked standing to object to the fees. The district court after a hearing granted these motions, and Wells appealed.

At the time the fees were allowed, the assets of the bankrupt equalled $114,095.57, priority claims equalled $25,438.77, and unsecured claims equalled $192,057.65. The allowed attorneys' fees amounted to $35,421.28, leaving $53,235.52 for the unsecured creditors after the priority claims had been satisfied in full. On March 14, 1977, the referee ordered payment of all the priority claims and distributed $25,657.45 to the unsecured creditors. Because many of the creditors' claims, especially those of the family associated with the bankrupt, had been settled or eliminated through litigation, the payments to the unsecured creditors represented a 25% dividend on then outstanding claims of $102,629.51. The balance of the cash on hand will be distributed after resolution of this dispute. Assuming no future increase in fees, the total dividend of the unsecured creditors should approximate 50%.

The lion's share of the fees went to Cohn and his law firm, Cohn, Reimer & Pollack. Besides commissions of $4,552.31 for services as receiver and trustee, Cohn and his firm received $4,000.00 as counsel to the receiver and $15,000.00 as counsel to the trustees. Kenneth Korb and his firm, Brown, Rudnick, Freed & Gesmer, received a fee of $6,000.00 pursuant to 11 U.S.C. § 104(a)(3) as counsel for intervening creditors who opposed the attempt to reorganize the company under Chapter XI. Christopher Byron, the state court receiver, was awarded a fee of $2,500.00. Counsel for Wells, the bankrupt, received $1,500.

The only party to this proceeding that challenged the fee awards was Wells, the bankrupt. ¹ Wells does not argue, as on this record it could not, that the disallowance of the fees charged the estate could result in assets exceeding the claims of creditors. Instead Wells acknowledges that it has no financial interest in the outcome of this appeal but argues this court has inherent jurisdiction to redress this alleged despoliation of the estate by officers of the court. Wells cites York Intern. Building, Inc. v. Chaney, 527 F.2d 1061, 1077 (9th Cir. 1975), as authority for this court's jurisdiction.

The right to appeal from orders of a bankruptcy court is limited by11 U.S.C. § 67(c) to "persons aggrieved" by such orders, and traditionally " injury in fact" has been required of such persons. E. g., In re Harwald Co.,497 F.2d 443 (7th Cir. 1974). In particular a bankrupt that has no hope of obtaining any return from its estate consistently has been held to lack standing to contest orders affecting the size of the estate. Skelton v. Clements, 408 F.2d 353 (9th Cir.), cert. denied, 394 U.S. 933, 89 S.Ct. 1202, 22 L.Ed.2d 462 (1969); Hartman Corp. of America v. United States, 304 F.2d 429 (8th Cir. 1962); Castaner v. Mora, 216 F.2d 189 (1st Cir. 1954). The exception to the rule involved in York Intern. Building, supra, where the bankrupt would create an excess of assets over debts if it were to prevail on its appeal, does not apply here. The bankrupt's interest in the right administration of estates can be protected by the creditors themselves, without permitting the needless multiplication of lawsuits that would arise from permitting insolvent bankrupts standing to sue.

Wells argues that even if this court and the district court below lack jurisdiction to entertain this appeal, "equity" demands that the excessive fee awards be set aside. But federal courts even in proceedings of bankruptcy remain courts of limited jurisdiction, and "the equitable power of the bankruptcy court may only be exercised within the limits of the jurisdiction established by the Bankruptcy Act." In re Harwald Co., supra at 445. Consequently this court lacks jurisdiction over this appeal, as did the...