Miners Sav. Bank of Pittston, Pa. v. Joyce, 6302

• Decision Date: 14 April 1938
• Docket Number: 6307,6310.,No. 6302,6302
• Citation: 97 F.2d 973
• Parties: MINERS SAV. BANK OF PITTSTON, PA., v. JOYCE et al. UNITED STATES v. SAME. ROBERTSON et al. v. SAME.
• Court: U.S. Court of Appeals — Third Circuit

97 F.2d 973 (1938)

MINERS SAV. BANK OF PITTSTON, PA., v.JOYCE et al.

UNITED STATES v.SAME.

ROBERTSON et al. v.SAME.

Nos. 6302, 6307, 6310.

Circuit Court of Appeals, Third Circuit.

April 14, 1938.

COPYRIGHT MATERIAL OMITTED

W. L. Pace, of Pittston, Pa., for Miners Sav. Bank of Pittston, Pa.

James W. Morris, Asst. Atty. Gen., Sewall Key and Clarence E. Dawson, Sp. Assts. to Atty. Gen., Frederick V. Follmer, U. S. Atty., of Scranton, Pa., and Herman F. Reich, Asst. U. S. Atty., of Sunbury, Pa., for the United States.

R. L. Levy, of Scranton, Pa., for Nelson Robertson.

John P. Kelly, W. J. Fitzgerald, and Edward J. Kelly, all of Scranton, Pa.(Kelly, Fitzgerald & Kelly, of Scranton, Pa., of counsel), for appellees.

Leo W. White, W. H. Gillespie, and Frank M. Flanagan, all of Pittston, Pa., and R. L. Coughlin, of Wilkes-Barre, Pa., amici curiae.

Before BUFFINGTON and BIGGS, Circuit Judges, and MARIS, District Judge.

MARIS, District Judge.

On June 30, 1934 the Howell & King Company filed a debtor's petition under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207 and note, in the District Court for the Middle District of Pennsylvania.On the same day the court appointed P. F. Joycetrustee and on October 2, 1934, C. Raymond Bensinger and Peter Noll were appointed additional trustees.The trustees were authorized to continue the business of the debtor.In accordance with its practice the court referred the proceeding to David Rosenthal, Esq., one of the referees in bankruptcy, as special master.

On June 19, 1935, the court entered a decree directing the trustees of the debtor to liquidate the estate and to make public sale of the assets and on the same day referred the case to David Rosenthal, Esq., as referee.Upon an appeal from that decree this court on August 30, 1935, by agreement and with the consent of the parties, ordered the trustees to proceed to cause the assets of the debtor and bankrupt to be liquidated, to sell all the said assets free and discharged of all liens, which were to be transferred to the proceeds.The order further provided that should the Miners Savings Bank of Pittston, Pa., the mortgagee and trustee for bondholders, or any holders of bonds secured by the mortgage, become the purchasers, it or they, "after the payment to said Trustees in cash at the time and in the manner provided by terms of sale on bid of an amount not exceeding $55,000.00," might deliver to the trustees bonds to be credited on account of the balance due on the bid.On October 14, 1935, pursuant to the order of this court, the trustees sold all of the real and personal property of the bankrupt at public sale as an entirety to the attorney for the Miners Savings Bank of Pittston, Pa., as mortgagee, for $55,000, which sale was confirmed absolutely on October 25, 1935.

On December 9, 1935, the trustees filed their first and final account and on July 30, 1936, pursuant to order of the court, they filed a restated account.Exceptions were filed to the account and to the order of distribution made by the referee.Upon review these exceptions were disposed of by the court below in an opinion filed November 17, 1936.In re Howell & King Co., D.C., 16 F.Supp. 984.From the decree confirming the account and awarding distribution of the balance shown thereby, which was entered pursuant to that opinion, appeals have been taken by the Miners Savings Bank of Pittston, Pa., as mortgagee and trustee for bondholders, by the United States of America, as a tax claimant, and by Nelson Robertson and others, as wage claimants.Each appeal raises distinct questions and we will, therefore, consider each separately.

Appeal of Miners Savings Bank of Pittston, Pa., Mortgagee and Trustee for Bondholders(No. 6302).

This appeal by the holder of the first mortgage upon the debtor's real estate and plant in turn raises a number of questions which require separate discussion.The first is raised by the second assignment of error and relates to the refusal of the court to allow the costs of the prior appeal, amounting to $45, to be paid out of the estate as an expense of administration.The court evidently overlooked the provision contained in the prior order of this court entered August 30, 1935, which directed that the cost in connection with the former appeal should be paid by the appellees, the trustees of the debtor.These costs should have been allowed as an expense of administration.

The next question arises under the third, fifth, sixth, and seventh assignments of error and relates to the amount of compensation allowed to the trustees of the debtor by the court below.As we have seen, the court on June 19, 1935, ordered the trustees to liquidate the estate and referred the matter to a referee in bankruptcy.The provisions of subdivision (k) of section 77B,11 U.S.C.A. § 207(k), therefore, applied to the liquidation from that time.In re Collins Hosiery Mills, D.C., 18 F.Supp. 89.It follows under the terms of that subdivision that the compensation of the trustees of the debtor, both in the reorganization proceeding prior to June 19, 1935, and in the liquidation proceeding thereafter, must be limited to the amounts specified in section 48 of the Bankruptcy Act, as amended, 11 U.S.C.A. § 76.Callaghan v. Reconstruction Finance Corp., 297 U.S. 464, 56 S.Ct. 519, 80 L. Ed. 804.In that caseMr. Justice Stone said on this point (297 U.S. 464, at page 469, 56 S.Ct. 519, 521, 80 L.Ed. 804): "Where the attempted reorganization results in liquidation, sections 40, 4811 U.S.C.A. §§ 68,76, regulating the fees of referees, receivers and trustees in bankruptcy, are incorporated by reference in Section 77B (k),11 U.S.C.A. § 207(k), and are likewise made to control the fees of such officers in the reorganization proceedings."

It is conceded that the compensation allowed the trustees by the court below exceeded the amounts allowable under section 48, 11 U.S.C.A. § 76.Their compensation must, therefore, be reduced to the amount fixed by the statute.

The next question is raised by the fourth and eighth assignments of error which refer to the compensation allowed by the court below to the special master and referee.David Rosenthal, Esq., referee in bankruptcy, was appointed special master during the pendency of the reorganization proceeding and on June 19, 1935, the liquidation proceedings were referred to him as referee.For his services as special master he is entitled to such reasonable compensation as the court may fix, Section 77B, subd. (c)(11),11 U.S.C.A. § 207(c)(11).In this case the first and final account of the trustees which was confirmed by the court shows that payment of $2,000 to Mr. Rosenthal "on account of fees."While $1,475 of this was actually paid to him after June 19, 1935, when his services as special master ceased, $1,000 of it appears to have been allowed to him by the court on January 24, 1935, and it was all claimed by him as special master.The sum does not seem to us to be unreasonable for his services as special master and we are satisfied that it should not be disturbed.

In addition the court below in the decree appealed from allowed him $1,000 more as referee.This allowance cannot be sustained since his fees as referee in a liquidation proceeding under subdivision (k) of section 77B,11 U.S.C.A. § 207(k), are limited to the amount allowed by section 40,11 U.S.C.A. § 68, and the sum allowed was conceded to exceed that amount.His allowance must, therefore, be recomputed under that section.Callaghan v. Reconstruction Finance Corp., 297 U.S. 464, 471, 56 S.Ct. 519, 522, 80 L.Ed. 804.

The ninth assignment of error relates to the finding by the court below that a minimum sale price for the property of the debtor was fixed at the request of the mortgagee.It is clear from an examination of the order of sale entered by this court on August 30, 1935, by agreement of the parties that no minimum sale price was fixed.Nor do we find in the record any evidence which would sustain a finding that such a minimum sale price was requested by this appellant.

The tenth assignment of error refers to the failure of the trustees in their account to segregate the proceeds of the sale of the debtor's property and to state separately the disbursements made therefrom.We think that the trustees should be required to state separately the proceeds of the sale and the disbursements made therefrom.The order of sale directed the liens on the property sold to be transferred to the proceeds of the sale.This made it imperative, if the rights of the lienholders were to be protected, to segregate the proceeds of the sale and to state an account of the proceeds separately.The failure of the trustees to do so in practical effect made it impossible for the court below to carry out the direction of the decree of sale entered by this court which transferred the liens on the property to the proceeds of the sale and authorized the lienholders to make their claims against the proceeds.It is impossible from the account as stated to determine whether the balance in the hands of the trustees was actually derived from the proceeds of the sale or from some other source.The account must, therefore, be restated.

The first assignment of error complains of the refusal of the court below to apply the proceeds from the sale of the debtor's property and the rentals collected from its real estate to the payment of administration expenses to the exclusion of the claim of appellant as mortgagee having a lien upon the fund.In considering this question it must of course be conceded that section 67d of the Bankruptcy Act, as amended, 11 U.S.C.A. § 107(d), protects the lien of the mortgagee in this case upon the property of the debtor.When the property was sold clear of liens the mortgagee's lien was expressly transferred to the fund realized from the sale.The question raised by this assignment is whether under the circumstances the mortgagee...