Massachusetts Mutual Life Insurance Company v. Brock

• Decision Date: 06 January 1969
• Docket Number: No. 25303.,25303.
• Citation: 405 F.2d 429
• Parties: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY and College Inn, Inc. Appellants, v. J. H. BROCK, as Trustee of the Wingreen Company, et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

405 F.2d 429 (1968)

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY and College Inn, Inc. Appellants, v. J. H. BROCK, as Trustee of the Wingreen Company, et al., Appellees.

No. 25303.

United States Court of Appeals Fifth Circuit.

December 5, 1968.

Rehearing Denied January 6, 1969.

COPYRIGHT MATERIAL OMITTED

Carl K. Hoffmann, Dixon, DeJarnette, Bradford, Williams McKay & Kimbrell, Miami, Fla., for appellants.

Irving M. Wolff, Miami, Fla., for appellees.

Before THORNBERRY and SIMPSON, Circuit Judges and SUTTLE, District Judge.

SIMPSON, Circuit Judge:

This appeal involves an objection by a creditor to the amount of the allowances by the District Court of interim fees to the trustee and his attorney in a corporate reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. This appeal was allowed by this court under the authority of § 250 of the Bankruptcy Act, 11 U.S.C.A. § 650.¹ There is no merit in the contention of appellee that the order in question was not appealable.

There is no merit in the contention of appellee that Massachusetts Mutual, a secured creditor, has not been adversely affected by the order in question and thus has no right to appeal. We hold that § 206² of the Act, 11 U.S. C.A. § 606, accords the right to maintain this appeal. Cf. In re Keystone Realty Holding Co., 3 Cir., 1941, 117 F.2d 1003, 133 A.L.R. 1378. See also 6A Collier on Bankruptcy (14 Ed.), ¶ 9.23(2). Massachusetts Mutual is the holder of a first mortgage on one of the properties of the Wingreen Company and its interest lies in the fact that the fees in question may result in the assessment of administrative costs against that property.

The trustee also urges that this court is without jurisdiction for the reason that Massachusetts Mutual failed to obtain leave to appeal prior to the expiration of the time allowed within which to seek permission from the circuit court to appeal. This is answered adversely to the trustee by the case of Reconstruction Finance Corporation v. Prudence Securities Advisory Group, 1941, 311 U.S. 579, 582, 61 S.Ct. 331, 333, 85 L.Ed. 364, 367. The court there held that the appeal must be taken to the court of appeals within the time prescribed in 11 U.S.C.A. § 48(a), but that it was not the fair intendment of § 250, supra, that the appeal must be allowed within that time.

There is thus no impediment whatever to our reaching the merits of this controversy: Whether the District Court abused its discretion in awarding the interim fees in question to the trustee and his counsel. We are constrained to the view that the awards were excessive under the facts and, as such, constituted an abuse of discretion.

The facts are of great importance in answering a question such as is posed here. There are three debtor corporations, The Wingreen Company, The Dania Corporation, and The Lake Worth Company, all controlled by the same individuals, and being interrelated as to indebtedness. Their petitions, filed on January 25, 1966, seeking to have their affairs reorganized under the Chapter X provisions, were consolidated.

The thrust of the reorganization proceedings is one of virtual liquidation. The Dania Corporation and The Lake Worth Company were holding companies, controlling shares of the capital stock of banks. These corporations have been liquidated and washed out for all practical purposes by the sale of the stocks to liquidate indebtedness, and to dispose of pending litigation. The Wingreen Company is in operation but on a much reduced basis. It is a real estate holding company and its business consisted of acquiring real estate and developing the same by improving the parcels with apartment houses, office buildings and motels. The reorganization proceedings involved in excess of 900 creditors, with some 50 claiming secured status.

Mr. Brock was appointed receiver of the debtors on February 8, 1966 and Mr. Wolff was appointed attorney for the receiver. On May 23, 1966, the court approved the petitions for reorganization and appointed Mr. Brock as trustee and Mr. Wolff as attorney for the trustee. Mr. Brock is a retired vice president of Eastern Airlines while his counsel is an able lawyer having broad experience in the bankruptcy field.

This appeal involves the interim award of fees to the trustee and his counsel for the period September 1, 1966-December 31, 1966. Detailed statements of services rendered were filed with the court by the trustee and his counsel. These reflected that the trustee had spent a total of 396.5 hours on the affairs of the debtors during the period. He was awarded his requested fee, $20,000 or approximately $50.00 per hour. His counsel was awarded his requested fee of $25,000 for 222.5 hours or approximately $113.00 per hour.

There have been two previous interim fee awards from which no appeal was taken. They are pertinent to the question presented on this appeal. The entire picture must be assessed to the extent possible. Moreover, the District Court has consistently taken the position in these proceedings that all interim fee awards were to be considered in making the final award of fees and we think that this is the proper approach. One of these previous awards was for services rendered by Mr. Brock as receiver and for his counsel as attorney for the receiver. These fees covered the period February 8, 1966-May 26, 1966. The receiver sought a fee of $15,000 for himself and $25,000 for his counsel. The receiver was awarded $12,500 for services entailing 352.5 hours or approximately $35.00 per hour. Counsel was awarded $20,000 for services of 320 hours or approximately $62.50 per hour. The other award was for the period May 24, 1966-August 31, 1966 when each was awarded his requested fee. The trustee was awarded $13,500 for services of 356.5 hours or approximately $37.00 per hour while counsel was awarded $12,500 for 174 hours or approximately $72.00 per hour.

Our relation of the awards to an hourly basis is not to imply that the District Court purported to use the time involved as anything more than one factor to be considered in arriving at the amount of the fees to be awarded. The court considered as other factors the complexity of the problems involved and the results obtained by the trustee and his counsel.

The District Court has a broad discretion in the award of fees. Calhoun v. Hertwig, 5 Cir., 1966, 363 F.2d 257; Campbell v. Green, 5 Cir., 1940, 112 F.2d 143. This discretion is not to be interfered with short of a showing that it has been abused. Such an abuse may stem from a factual basis or from the application of an improper legal standard. Our conclusion that the fees here in question are excessive results from a difference in view as to the applicable legal standard.

Our difference with the District Court is that we apply an additional factor: The public interest which is inherent in bankruptcy matters must be considered in awarding fees. The object is to draw a balance to the end that competent trustees and counsel are obtainable in matters of this kind because of the knowledge that they will be fairly compensated. They must not and cannot expect, however, to be overcompensated, for the court must exercise its discretion for the double purpose of fairly treating the trustee and his counsel while at the same time doing equity to the debtor and creditors. Calhoun v. Hertwig, supra, 363 F.2d p. 261. The result likely to accrue to the debtor estate from the standpoint of overall value must also be given prime consideration in drawing the balance. A good statement of the problem is contained in Finn v. Childs Co., 2 Cir., 1950, 181 F.2d 431, a reorganization proceeding where the appeal was from final allowances for trustee and counsel fees. The court contrasted ordinary litigation with a reorganization proceeding and said:

"We have examined the applications for allowances of each of the parties involved here, with their detailed record of amount of time spent and the kind of work performed. We are not disposed to question the reasonableness of such fees by metropolitan practitioners for services of this kind when performed in the course of ordinary litigation. But in a reorganization proceeding, where the lawyers look for compensation to the debtor\'s estate which may belong, in equity, largely to others than those who have requested their services, they should have in mind the fact that the total aggregate of fees must bear some reasonable relation to the estate\'s value. Under these circumstances they cannot always expect to be compensated at the same rate as in litigation of the usual kind * * *"

The court then held that an award to the trustee whose overhead, as here, had been paid out of the estate, of $22.50 per hour, and to the law firm representing the trustee at the rate of $18.50 per hour was excessive. See also Official Creditors' Committee of Fox Markets, Inc. v. Ely, 9 Cir., 1964, 337 F.2d 461; and London v. Snyder, 8 Cir., 1947, 163 F.2d 621.

With respect to the overall result and the total of the fees sought, we are fortunate in having facts and circumstances not in the record of this case which we may consider in addition to the prior awards. We judicially know from our own court records that interim fees for subsequent periods are being challenged. It is...