Sexton v. Sword SS Line

• Decision Date: 31 March 1941
• Docket Number: No. 201.,201.
• Parties: SEXTON v. SWORD S. S. LINE, INC.
• Court: U.S. Court of Appeals — Second Circuit

118 F.2d 708 (1941)

SEXTON v. SWORD S. S. LINE, INC.

No. 201.

Circuit Court of Appeals, Second Circuit.

March 31, 1941.

Charles E. Wythe, of New York City (Horace M. Gray, of New York City, on the brief), for petitioner-appellant.

Arthur G. Syran, of New York City, for respondent-cross-appellant.

Arthur Abrams, of New York City (Maurice V. Seligson, of New York City, of counsel), filed a brief for minority stockholders.

Before L. HAND, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

These appeals concern the correctness of the allowance, recommended by the bankruptcy referee as special master and confirmed by the district court, to Emory Sexton, a cotrustee in reorganization of the debtor herein, Sword Steamship Line, Inc. The proceedings began April 19, 1938, with the filing of a voluntary petition under the then § 77B of the Bankruptcy Act, 11 U.S. C.A. § 207, by the debtor, owner and operator of six cargo vessels in the coastwise trade. At that time the debtor had liabilities of about $314,000, some of its vessels were not in service, hull insurance premiums were in default, and it obviously sought court protection as the only alternative to liquidation. It was allowed to remain in possession, and to continue the operation of its business, but Emory Sexton, a creditor and ship broker, was named cotrustee.

Working capital was procured through the issuance of trustee's certificates, and after the reinstatement of hull insurance, premiums were met in the same way. For almost two years the business was continued without any decisive development, until the winter of 1939-40, when the value of bottoms began to rise rapidly, owing to the ravages of the European war. By March, 1940, Sexton was able to charter three of the debtor's vessels to the Ocean Dominion Steamship Corporation at a favorable rate of rental for a period of ten months, with an option of renewal for an additional eight months, and as a part of the contract to obtain from the same company a $500,000 loan secured by a first mortgage on all six vessels. This sum was $55,000 more than sufficient to pay all claims and charges in full. After this was done the proceedings were terminated by an order permitting Sexton and others to file petitions for allowances. Appeals from the order approving the loan and charters and the order terminating the proceedings were taken by Cost Vendramis, minority stockholder (in whose behalf alone apparently is filed the brief on this appeal for "minority stockholders"). Recently we affirmed the first order, modified the second order to allow minority stockholders to object to the trustees' accounts, and affirmed the denial of Vendramis' motion for an examiner to investigate alleged misconduct of debtor's officers and directors. Sword S. S. Line v. Vendramis, 2 Cir., 116 F.2d 665; Vendramis v. Sword S. S. Line, 2 Cir., 116 F.2d 669.

Upon Sexton's application for $40,000, that of his attorney for $22,500, and that of the debtor's attorney for $15,000, a total of $77,500 or nearly a quarter of the amount of the debtor's liabilities at the outset, the special master recommended allowances of $22,000, $7,000, and $9,000, respectively, or $38,000, but with a set-off against Sexton's allowance of one-half the commissions payable to his partner, Chester B. Kellogg, as brokerage on the charters with Ocean Dominion. The total commissions payable on these charters will amount to about $13,000 if the option to renew is not exercised, $27,000 if it is. On exceptions filed by Sexton alone these recommendations were in every respect adopted by the court, reserving payment to Sexton, however, until it should determine the exact amount of the offset. Sexton petitioned this court for leave to appeal, which the debtor opposed, but, in turn, asked leave to appeal for a reduction "in the event that leave is granted to the Appellant." We granted both leaves.

Both parties attack the finding that $22,000 represents the reasonable value of Sexton's services during the two-year period. In his favor it may be said that he kept in close daily contact with the affairs of the debtor and devoted much time to its business, and that he, principally, conducted the two most important series of negotiations of the period, leading to the reinstatement of the debtor's hull insurance and the $500,000 loan from Ocean Dominion which made termination of the proceedings possible.

On the other hand, his own services are not shown to have been of critical importance in either case. The evidence indicates that the reinstatement of the insurance, with the same company, although through different brokers, was effected largely by the issuance of trustee's certificates, which were acceptable in payment of premiums, and that it did not require more than five days of his time. The contract with Ocean Dominion was obviously of the utmost importance; nor should Sexton's part in arranging it be belittled — in fact, much more credit seems to be due him than Kellogg. But again the evidence showed that he was more nearly the chance instrument of the event, while the very sharp increase in the value of shipping was the effecting cause.

Most of Sexton's time was devoted to "Operations," was supplementary to the administration of the four regular officers of the debtor, and does not seem to have effected any changes in policy or to have relieved the debtor of any former expenses. His financial services were hardly more than the issuance of trustee's certificates to obtain loans on the order of the court. In other respects his services, although diligent and faithful, were of a routine nature.

On the whole, we conclude that the special master, who carefully noted and weighed all relevant considerations in his report, was justified in his recommendation and there is no error in this allowance. If the final estimate of the value of Sexton's services was somewhat overly liberal, we think that it did not pass the limits of a reasonable discretion with which this court will not interfere on appeal. Newman v. Ambassador Apts., 3 Cir., 101 F.2d 307; In re Albert Dickinson Co., 7 Cir., 104 F.2d 771, affirmed sub nom. Dickinson Industrial Site, Inc. v. Cowan, 309 U.S. 382, 60 S.Ct. 595, 84 L.Ed. 819.

The propriety of setting off against Sexton's allowance one-half the commissions paid or to be paid Kellogg on the charters to Ocean Dominion is based by the special master on a finding that Kellogg and Sexton were general brokerage partners at...