OFFICIAL CREDITORS'COMMITTEE OF FOX MARKETS, INC. v. Ely

• Decision Date: 15 December 1964
• Docket Number: No. 18923.,18923.
• Citation: 337 F.2d 461
• Parties: The OFFICIAL CREDITORS' COMMITTEE OF FOX MARKETS, INC., Appellants, v. Walter ELY and Stuart L. Kadison, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

337 F.2d 461 (1964)

The OFFICIAL CREDITORS' COMMITTEE OF FOX MARKETS, INC., Appellants, v. Walter ELY and Stuart L. Kadison, Appellees.

No. 18923.

United States Court of Appeals Ninth Circuit.

October 20, 1964.

Rehearing Denied December 15, 1964.

Charles J. Katz, Louis C. Hoyt, Los Angeles, Cal., for appellants.

Paul R. Hutchinson, Los Angeles, Cal., for appellees.

Before MAJOR and McALLISTER, Senior Circuit Judges, and LA BUY, Senior District Judge.^*

MAJOR, Senior Circuit Judge.

On June 7, 1963, Walter Ely and Stuart L. Kadison, appellees (claimants), filed in the United States District Court for the Southern District of California, Central Division, an application for the allowance of attorney fees in the amount of $200,000 ($100,000 for each claimant), for services rendered as associate counsel for the trustee in a proceeding for reorganization of Fox Markets, Inc. (debtor), under Chapter X of the Bankruptcy Act (11 U.S.C.A. § 656).

Objections to the claim were interposed by the Official Creditors' Committee of the debtor corporation (appellants). On September 4, 1963, after extended hearings, the Court made its findings and conclusions and entered its order awarding each of the claimants the sum of $85,000 as and for his reasonable attorney fees for services rendered to the Trustee. From this order the Creditors' Committee appeals.

The jurisdiction of this Court is based upon Sec. 250 of the Bankruptcy Act (11 U.S.C.A. § 650), and that of the District Court upon Sec. 241 of the same Act (11 U.S.C.A. § 641). The latter section provides, so far as herein material:

"The judge may allow * * * reasonable compensation for services rendered * * * in a proceeding under this chapter — * * *

(3) by the trustee and other officers, and the attorneys for any of them * * *."

The ultimate question for decision is whether the allowances made by the District Court were reasonable within the contemplation of the Bankruptcy Act. Claimants argue in support of the award, and the Creditors' Committee to the contrary. In doing so, the latter contends that the fee allowance was grossly excessive, so much so that as a matter of law it constituted an abuse of discretion by the District Court and was clearly erroneous.

Due consideration to the history and purpose of the Bankruptcy Act, a careful study of the voluminous record before us and the many cases called to our attention which have considered and dealt with similar problems lead us to the definite conviction that the allowances were clearly excessive and must be substantially reduced. The importance of the conclusion thus reached suggests a discussion of the situation in some detail.

A brief statement of the proceedings prior to the time claimants were appointed as associate counsel for the Trustee is pertinent. On March 7, 1961, a petition was filed by debtor, then engaged in the operation of a large chain of markets, for leave to file proceedings under Sec. 322, Chapter XI of the Bankruptcy Act (11 U.S.C.A. § 722), which on the same date was allowed by the Court. Throughout this proceeding, Irving Sulmeyer was the duly appointed Receiver in Bankruptcy of the debtor, and the law firm of Buchalter, Nemer, Fields and Savitch was his duly appointed attorneys (hereinafter referred to as the Nemer firm).

The store properties of the debtor at the time of the commencement of the proceedings were some 54 in number, variously located, and all held under lease. The stores most involved in this controversy are known as No. 7 and No. 62. While the aforesaid arrangement proceedings were pending, the lessors of Stores Nos. 7 and 62, respectively, sought termination of their leases and reclamation of the premises. On December 5, 1961, after hearing, the Referee made his order, supported by findings of fact and conclusions of law, terminating the leases as of April 12, 1961, and decreeing that the lessors were entitled to possession. A petition for review was filed by the Receiver, and the enforcement of the Referee's order was suspended pending a ruling on the petition for review.

While this petition was pending, the debtor, on March 7, 1962, filed a petition for reorganization under Chapter X of the Bankruptcy Act, which on the same date was approved by the Court, and Sulmeyer who had served as Receiver under the Chapter XI proceeding was appointed Trustee. On March 9, 1962, the Court authorized the Trustee upon his application to employ the Nemer firm, who had represented him in his capacity as Receiver in the Chapter XI proceedings. The Trustee's application stated among other things that said attorneys were "fully familiar with the said presently pending matters" before the Referee and the Court, and "have represented your applicant, as Receiver, in said matters"; that in addition thereto, the services of the law firm were needed to "defend suits and proceedings concerning the assets of the said estates" and to take all necessary and proper steps in other matters "connected with the affairs of the said estates"; and that the said attorneys "had considerable experience in these matters," were "well qualified" to represent the Trustee in the proceedings, and had "extensive familiarities with the matters" involved in the prior proceedings.

On March 26, 1962 (seventeen days later), the Trustee applied to the Court "to employ attorneys for specified purposes." His application pointed out that the two review proceedings involving Stores Nos. 7 and 62 were then pending before the Court. The need for additional counsel was described in the Trustee's application, "in order that a completely new approach to the above mentioned matters may be taken * * *, your applicant wishes to employ Walter Ely and Stuart L. Kadison as associate counsel * * * for the specific purpose of representing your applicant in the matters set forth above." On March 26, 1962, the Court granted the application and appointed claimants associate counsel as requested.¹ It may be noted that this was claimants' first connection with the proceedings which had then been pending in court in one form or another for more than a year.

On May 14, 1962, a stipulation was entered into in open court between claimants as associate counsel and the Nemer firm as general counsel, all representing the Trustee, counsel for the debtor and counsel for the lessors in Stores Nos. 7 and 62, by which it was agreed that the petitions for reclamation filed by the lessors in the Chapter X proceeding be heard on the record made before the Referee in the Chapter XI proceeding. Briefs were filed by the respective parties and a court hearing had on the lessors' petitions for reclamation, resulting in a decision adverse to the lessors, each of which prosecuted appeals to this Court. On December 28, 1962, Sulmeyer, by the Nemer firm as his attorneys, filed a proposed plan of reorganization of Fox Markets, Inc. and its subsidiary debtors. On February 12, 1963, the Court entered an order approving the plan of reorganization, and the name of the debtor became Reorganized Fox Markets, Inc.

In the successful reorganization, Food Fair Stores, Inc., one of the largest retail grocery chains in the United States, purchased control of the debtor and obligated itself to "provide funds or assets for expansion, remodeling and working capital in an amount up to $4,000,000." The approved plan enumerated the stores included therein, but expressly excepted Stores Nos. 7 and 62.

On June 7, 1963, claimants filed a joint application for compensation. This was subsequent to the date of the approval of the plan of reorganization and during the pendency of the two lessor appeals in this Court.² The hearing on this application commenced June 18, 1963, despite a motion for continuance by the Creditors' Committee, repeatedly renewed, on the basis that adequate time had not been allowed for preparation. The hearing continued on June 20, June 21 and July 3, 1963. In the meantime, counsel for the Committee sought from this Court a writ directing the Trial Court to grant a continuance which, on July 23, 1963, was allowed on the basis that notice of the hearing was not in compliance with the Federal Rules of Civil Procedure. On the day following, counsel agreed that all evidence previously received might be considered and the hearing was continued to August 14, 1963. At the conclusion of the hearing, on August 23, the Court announced that it would allow $85,000 to each claimant, or a total of $170,000.

In their application for an allowance in the sum of $200,000, claimants place great stress upon their services rendered in connection with Stores Nos. 7 and 62. They allege that the retention of these stores was "an indispensable condition" to the implementation of any plan; that without the successful services of claimants both of these markets would have been lost; that the sales and profits would have been lost; that the probability of a successful reorganization would have been "greatly lessened"; and that the entire proceedings would have fallen into an "adjudication in bankruptcy and piece-meal liquidation." They allege that the questions involved were novel and difficult, and in support thereof incorporate by reference "all papers, pleadings, testimony, depositions and other material" in both the Chapter XI and Chapter X proceedings. They allege that at the time of the initiation of the Chapter XI proceedings there were about 1,500 creditors, some of whom "might have employed" one or both of the claimants; that at the time they assumed their responsibilities the value of the debtor estates was $8,000,000, with $20,000,000 of claimed obligations, and that it is estimated that "by virtue of the successful reorganization" there will be a substantial net worth rather than the insolvent condition existing at the time of the filing of the Chapter XI proceeding "and existing at the time of the employment of your Applicants herein." They allege with respect to "the...