Nolte v. Hudson Nav. Co.

• Decision Date: 12 January 1931
• Docket Number: No. 61.,61.
• Citation: 47 F.2d 166
• Parties: NOLTE et al. v. HUDSON NAV. CO. et al., and three other cases.
• Court: U.S. Court of Appeals — Second Circuit

47 F.2d 166 (1931)

NOLTE et al. v. HUDSON NAV. CO. et al., and three other cases.

No. 61.

Circuit Court of Appeals, Second Circuit.

January 12, 1931.

George Pfeil, of New York City (Ambrose C. Hindman and Boardman Wright, both of New York City, of counsel), for appellants.

Arthur J. W. Hilly, Corporation Counsel, of New York City (Isaac F. Cohen and Joseph H. Miles, both of New York City, of counsel), for claimant.

Taylor, Blanc, Capron & Marsh, of New York City (Mansfield Ferry and Edward E. Watts, Jr., both of New York City, of counsel), for appellee City Bank Farmers' Trust Co.

Graham, McMahon, Buell & Knox, of New York City (Edward W. McMahon, of New York City, of counsel), for appellee National Commercial Bank & Trust Co.

Taylor, Blanc, Capron & Marsh, of New York City, for appellee Reorganization Managers.

Mansfield Ferry, of New York City, for appellee New Jersey Steamboat 5's.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

CHASE, Circuit Judge.

Following the remand by this court when this cause was last here, see 31 F.(2d) 527, an application was made by the attorneys for certain unsecured creditors for an allowance for counsel fees on the ground that through their efforts a fund had been preserved for distribution to the general creditors. As appears in the above-mentioned opinion, there were three classes of creditors: (1) Holders of Hudson Navigation 6's, for whose benefit funds known as parcel A were held; (2) holders of New Jersey Steamboat 5's, for whose benefit funds known as parcel B were held; and (3) unsecured creditors who were to share ratably in what was known as the free assets fund. A former decree, which will be referred to as that of December 1, 1925, was and is controlling, and provided that, when and if the funds in parcel A were exhausted before the Hudson Navigation 6's were fully paid, any balance over would share in the free assets fund. There was a similar provision as to parcel B in regard to the New Jersey Steamboat 5's. The attorneys whose petition for fee allowance was denied did not increase the total of the funds held for distribution to the creditors as a whole, but did succeed, under the decision above referred to, in having the proceeds of the security applied to bond principal so that the extent to which the bondholders may share in the free assets fund was limited and the New Jersey Steamboat 5's will not share at all. This had the effect of releasing about $42,000 already in that fund for application to the claims of unsecured creditors who would not otherwise have shared in that amount, since it would have gone to the bondholders.

These petitioning attorneys were actually employed by only 12 per cent. of the amount of the unsecured claims. While the remaining 88 per cent. will benefit ratably in the distribution of that portion of the fund which would have gone to the bondholders, the District Court refused to allow fees out of the fund to these attorneys on the ground that they had brought no new money into court for distribution, prevented none from going out, or done more than "cause the transfer of a portion of an existing sum held in court from one set to another set of the parties to the cause." In view of this, the court was of the opinion that it was without power to make the allowances. For the reasons below, we think the court, in holding as a matter of law that it was without the power, denied the petitioners a right they had to have it exercise its discretion in the matter of whether or not to make an allowance. Trustees of Internal Improv. Fund v. Greenough, 105 U. S. 527, 26 L. Ed. 1157. To be sure, any allowance, in strictness should be only to creditors who have incurred expenses for the benefit of the entire class, but, "when an allowance to the complainant is proper on account of solicitors' fees, it may be made directly to the solicitors themselves, without any application by their immediate client." Central Railroad & Bkg. Co. v. Pettus, 113 U. S. 116, 5 S. Ct. 387, 28 L. Ed. 915. See, also, Colley v. Wolcott (C. C. A.) 187 F. 595.

While the result of the efforts for which an allowance is asked was not to increase the total of the funds to be distributed, as in the Greenough Case, supra, the amount to be distributed to creditors of the class to which the clients of the petitioning attorneys belonged was increased, and they were benefited exactly as much as they would have been had the free assets fund itself been increased enough to give them the added dividend on their claims. The principle on which allowances are made is broadly that those who share in a benefit which has been obtained at the expense of one, or a part only, of their number should justly share the expense by which they are enabled to benefit. Adams et al. v. Kehlor Milling Co. et al. C. C. 38 F. 281; Harrison v. Perea, 168 U. S. 311, 325, 18 S. Ct. 129, 42 L. Ed. 478; Woodruff v. New York, L. E. & W. R. Co., 129 N. Y. 27, 29 N. E. 251; Davis v. Bay State League, 158 Mass. 434, 33 N. E. 591. We see no reason why this should be confined to benefits which result solely from additions to the total of the fund held for distribution, or why it does not equally apply to an increase in the distributable amounts to each creditor of the class brought about by the exclusion of claims which, but for the expenses incurred, would have shared in the fund to the proportionate disadvantage of the general creditors, who, by the shutting out of such claims, have received more than they otherwise would. The petitioners have preserved the fund for application to the claims of creditors entitled to share exclusively in it, and those who have been thus benefited should share ratably in the reasonable and necessary expense. Compare McCormick v. Elsea, 107 Va. 472, 59 S. E. 411; Hutchinson Box Board & Paper Co. v. Van Horn (C. C. A.) 299 F. 424.

The application of the general rule to this case presents some...