Mitchell v. Whitman, 10799.

• Citation: 94 F.2d 917
• Decision Date: 15 February 1938
• Docket Number: No. 10799.,10799.
• Parties: MITCHELL v. WHITMAN et al.
• Court: U.S. Court of Appeals — Eighth Circuit

94 F.2d 917 (1938)

MITCHELL v. WHITMAN et al.

No. 10799.

Circuit Court of Appeals, Eighth Circuit.

February 15, 1938.

Henry S. Mitchell, of Minneapolis, Minn. (James L. Hetland, of Minneapolis, Minn., on the brief), for appellant.

James E. Dorsey, of Minneapolis, Minn., for appellee E. A. Whitman, receiver, etc.

Warren S. Ege, of St. Paul, Minn. (M'Cready Sykes, of New York City, George W. Morgan, of St. Paul, Minn., Stewart & Shearer, of New York City, and Kellogg, Morgan, Chase, Carter & Headley, of St. Paul, Minn., on the brief), for trustees of First General Mortgage and Trustees of Superior and Duluth Division and Terminal First Mortgage.

John L. Erdall, of Minneapolis, Minn., for intervener Minneapolis, St. P. & S. St. M. Ry. Co.

Before STONE and WOODROUGH, Circuit Judges, and DAVIS, District Judge.

STONE, Circuit Judge.

This is an appeal from an order denying an allowance of attorney fees for services claimed to have been rendered by appellant to the receivership estate.

Appellant is an attorney of ability and standing who has, for some years, been the general counsel of the Minneapolis, St. Paul & Sault Ste. Marie Railway Company (popularly called the "Soo") upon an annual salary. The Soo has long been the owner of a railway system extending from the cities of Minneapolis and St. Paul eastward to Sault Ste. Marie, Mich., westward to the Missouri river, and northwest and west across North Dakota and Minnesota to the Canadian boundary, with connections at various points with the Canadian Pacific Railway and also with branch lines in Minnesota, North Dakota, Wisconsin, and Michigan. The Wisconsin Central Railway Company is a railway line connecting the cities of Ashland and Superior (both in Wisconsin), Duluth, Minneapolis, and St. Paul with Chicago and Milwaukee.

For the highly important purpose of securing connection with and entry into the great freight and passenger point of Chicago, the Soo leased all of the line and all of the property of the Wisconsin in 1909 for a term of ninety-nine years. This lease passed the sole control and exclusive operation of "said railways and every part thereof" to the Soo. The lease also passed "sole control of all the funds and other assets of the Lessor, whether current or accumulated, and also of all earnings of said leased railways and other properties during the term hereof (including any proceeds from the sale, rent or royalties of any and all lands now held and owned by the Lessor or held in trust for its benefit, or which it shall acquire during the term of this lease over which the Lessor has or may have control) to be used, however, wisely and prudently according to its best judgment for the sole purpose of operating, maintaining and improving the railways and other properties hereby leased, and for meeting and discharging the taxes, charges, liabilities and obligations of the Lessor pertaining thereto and any interest payable on account of the same, and, so far as may be legally possible, for the payment of such dividends on the outstanding capital stock of the Lessor as the Board of Directors of the Lessor may from time to time declare, provided, however, that the Lessee shall not in any event, commingle said earnings, funds or assets with its own, and that it shall keep and maintain with respect thereto, a separate and complete system of accounting and auditing during the full term of this lease. But said earnings, funds and assets shall stand charged in favor of the Lessors with the payments to be made for the said purposes or for other purposes in accordance with the provisions contained in this lease."

Further the lease provided for payment, "out of the earnings of the properties hereby demised," of all management, maintenance, and operating expenses and all interest on indebtedness of lessor and all taxes, license fees, duties, and assessments against the leased property or on the gross earnings thereof. The lease provided that the obligations of the lessee as to payment of operation, taxes, fixed charges, etc., "shall not be construed as requiring the Lessee to become financially responsible in any such respect, but that all such expenses may be paid by the Lessee out of the earnings of the railways and other properties of the Lessor." There was a provision for termination of the lease upon failure of performance by the lessee. The above provisions of the lease are stated to outline the character of the control given the lessee, the source and method and scope of the compensation to be paid therefor, and the term and condition of earlier termination of the lease. Such outline is sufficient for the purposes here.

Prior to November 30, 1932, the revenues of the Wisconsin became insufficient and the Soo made advances from its own funds. On that date, the Wisconsin was served with notice that the Soo "will as soon as may be cease to operate and maintain the Wisconsin Central properties unless satisfactory arrangements be forthwith made to furnish this company with funds with which to meet the deficits to be incurred in such operations and maintenance; that, if such arrangements be forthwith made, this company will be pleased to continue such operations and maintenance in all other respects on the present basis and with the same diligence and efficiency as are used in the operations of this company's own properties; and that this company stands ready to deliver possession of the said properties to said Wisconsin Central Railway Company upon demand."

On the same day the Wisconsin board of directors served its reply to this notice on the Soo. This reply was as set forth in the footnote.¹

On December 2, 1932, occurred the following: A bondholding creditor filed a complaint praying receivership; the Wisconsin answered, joining in the prayer for a receiver; the Soo sought an order allowing intervention; the order was entered; the intervening petition was filed; an order was entered making the Soo a party plaintiff; the Soo, as intervener, filed a bill of complaint against the defendant; the Wisconsin answered; a receiver was appointed and qualified; the receiver filed a petition for authority to take possession and to execute a designated operating agreement with the Soo; and an order was entered authorizing the receiver to execute the operating agreement effective as of 12:01 a. m., December 3, 1932.

This operating agreement was in force during the time appellant performed the services in respect to Wisconsin tax controversies which are a part of the services for which recovery is sought. In so far as here material, an outline of that agreement is as follows: "The Railway Company is hereby appointed the agent and representative of the receiver to operate and maintain said properties in behalf of the receiver on the operating and maintenance basis provided in such lease and the schedule hereto attached, said Railway Company to collect the revenues of such properties and apply the same in discharge of the costs of the operation and maintenance thereof, including taxes and assessments, allocating to the costs of such operation and maintenance all directly assignable costs and apportioning costs not so directly assignable on the basis of said schedule hereto attached."

Monthly reports of the results of operation and maintenance were to be made by the Soo to the receiver with settlements resulting in payment to the receiver of net credit balances and by him to the Soo of deficits. The "schedule hereto attached" consisted of an extended and detailed statement of "Bases for Dividing Operating Revenues and Expenses between Soo and Wisconsin Central Railway Companies." The parties here seem in agreement that the salary of appellant as general counsel of the Soo is provided for in schedule items "451 — Sal. & Exp. Gen'l. Off." and "452 — Sal. & Exp. Clks. & Att." under the general heading of "Operating Expenses — Miscellaneous — General"; and, also, that allocation thereof was on the basis of all charges for maintenance of way and maintenance of equipment and transportation, which resulted in 60 per cent. to the Soo and 40 per cent. to the receiver.

Appellant divides the services for which he seeks recovery into nine items. Of these, six items had to do with different steps in a rather extended controversy with the State of Wisconsin over taxation of the Wisconsin Central. The three other items had to do with initial and early proceedings in the receivership of the Wisconsin Central.

In the order denying the allowance, the court stated the reasons therefor as follows: (1) As to the services in connection with the initiation of the receivership, such services were within appellant's duties as general counsel for the Soo; (2) as to the services in connection with the Wisconsin taxes, (a) the regular client (the Soo) of appellant had a special interest in this tax litigation and, although appellant's services were beneficial to the receivership estate, he had not applied for nor been appointed special counsel for the receiver and that official had his own counsel, appointed by the court, who represented the receiver in the tax controversy; (b) these services were covered by the provisions of the operating agreement and under a prior lease (in many respects continued by the operating agreement as a basis of mutual action) and had been paid by the receiver.

I. Receivership Services.

The services in connection with initiation of and in the early stages of the receivership for which appellant makes claim for compensation are stated in his brief as follows:

"(1) Making the preliminary investigations of law and facts and drafts of legal papers required for placing the Wisconsin Central properties in receivership in the Federal Court.

"(2) Collaborating with counsel for the plaintiff Northwestern Fire & Marine Insurance Company, in submitting to him the results of the foregoing preparations, and in appearing with him in Court to explain the situation...