Thomas v. Peyser

• Decision Date: 06 January 1941
• Docket Number: No. 7528.,7528.
• Citation: 118 F.2d 369
• Parties: THOMAS et al. v. PEYSER et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

118 F.2d 369 (1941)

THOMAS et al. v. PEYSER et al.

No. 7528.

United States Court of Appeals for the District of Columbia.

January 6, 1941.

W. Bissell Thomas, William B. O'Connell and William A. Gallagher, all of Washington, D. C., for appellants.

Paul E. Lesh and Hugh H. Obear, both of Washington, D. C., for appellees.

Before GRONER, C. J., and EDGERTON and RUTLEDGE, JJ.

RUTLEDGE, Justice.

The appeal is from an order of the District Court dismissing appellants' petition for allowance of attorneys' fees out of funds in the hands of receivers, appellees Peyser and Tumulty.

The pertinent facts are substantially as follows: July 2, 1931, appellants as attorneys for Leslie M. Shaw filed a bill for receivership and foreclosure of the property of Wardman Real Estate Properties, Inc. After the defendants named in the bill, including the present appellee Central Hanover Bank & Trust Company, had been served and had appeared, on July 10, 1931, appellants as attorneys requested and were granted ten days within which to amend their bill. July 14, 1931, the appellees began the present receivership proceeding, and obtained from another justice the appointment of receivers. July 24, 1931, after amending their bill, appellants as attorneys sought to enjoin the prosecution of the later receivership proceeding, but the injunction was denied on September 30, 1931. The Shaw suit was dismissed later on motion by the defendants therein. It was appellants' position at the outset, and they have consistently maintained by various forms of attack on the subsequent receivership proceedings, that the receivership and the corporate reorganization which developed under it were collusive and fraudulent. The basis for this claim has been that secondary creditors of the old corporation were given preference over the first mortgage bondholders by a reorganization committee (known as the "bondholders' protective committee") which was secretly controlled by the secondary creditors. Some of the details of this reorganization, together with evidence of appellants' diligence in combatting it, may be found in Thomas v. Central Hanover Bank & Trust Co., 1934, 64 App.D.C. 96, 75 F.2d 227, a former appeal in the pending receivership proceeding.

Appellants' petition, filed May 25, 1939, recited most of the facts stated above, together with others, some of which will appear later; alleged that they had performed valuable services to the first mortgage bondholders by doing "everything legally possible to protect" their interests; alleged that the receivers held a fund of $200,000 which was subject to proper charges growing out of the receivership; and prayed that they be allowed attorneys' fees in the amount of $1,000 for the services allegedly performed by them. June 2, 1939, a motion to dismiss the petition was filed and it was granted June 22, 1939. On June 30, 1939, appellants filed a motion requesting the trial court to make findings of fact. This was denied. The appeal is taken from these actions of the court.

Appellants contend that they are entitled to be reimbursed out of the common fund because: (1) they brought the property into court; and (2) they have protected the property from wrongful diversion and deflation in value by services rendered in connection with the pending receivership, chiefly by action in the nature of opposition to various steps taken in the course of its administration by the lower court. It is well settled that if one who has an interest in a common fund brings a successful suit to preserve, protect or increase that fund, or if he creates or brings into court a fund in which others may share with him, he is entitled to an allowance of counsel fees to be paid out of the fund. Trustees v. Greenough, 1881, 105 U.S. 527, 26 L.Ed. 1157; Notes, 1927, 49 A.L.R. 1149; 1937, 107 A.L.R. 749; cf. Fletcher v. Coomes, 1922, 52 App.D.C. 159, 285 F. 893. The principle which supports the rule is that the benefit of the suit enures not only to the one who brought it, but also to all others entitled to participate in the fund so created, increased or protected, and therefore, when the claimant is an attorney, the law will imply an attorney-client relationship as to all who accept the benefit. We think the rule is not applicable to the facts of this case.

I. The short reason which might be assigned for this is that neither appellants' original receivership proceeding nor other actions taken by them in connection with the pending one (with an asserted exception which we do not regard as sufficient to justify relief) have been successful. Uniformly their efforts have resulted in failure. As the principle has been applied by the courts, success has been an essential condition of recovery. No case has been cited or found in which unsuccessful efforts have been rewarded as appellants claim they are entitled to have done here. Benefits normally flow only from successful action.¹ Even if suit is successful, attorneys' fees may not be allowed unless some benefit is conferred.² Perhaps the reason for the limitation is not only that benefits generally do not flow out of efforts which fail (on the contrary actual harm may ensue by dissipation of assets in the expense of the litigation), but that such benefits as might arise would be too speculative, remote and indefinite to permit allowance of the claim for creating them, in the absence of the concrete measuring rod of success.

But the fact that relief of a particular sort has not been given previously is not conclusive that it should not be granted,³ although ordinarily it is highly persuasive to that effect. Growth in the law requires advance from time to time into new areas of liability. Here appellants' claim, in effect, is that such an advance should be made. They assert that despite their failure their efforts have created benefits in fact and in one instance were successful. The argument so put requires further consideration, upon principle and upon the facts of the case.

II. Appellants say they "brought the property into court" by filing their receivership proceeding, although it was later dismissed without appointment of receivers, and receivers were appointed in the second suit. Their argument is two-fold: (1) that by filing their suit they brought about the filing of the second one, and in consequence not only brought the property within the court's jurisdiction but also brought about the benefits which enured from the subsequent proceedings in the second suit; (2) that by filing the first suit for receivers they (or their client) acquired a right to have receivers appointed and to carry forward the receivership, with the consequence of course that the second suit rather than the first should have been dismissed.

In support of the first reason, appellants say that the second suit was commenced fraudulently and surreptitiously in order to defeat their prior one; that the appointment of receivers was obtained without notice to them or their client and without knowledge by the justice who appointed them that a prior suit was pending;⁴ and that the suit was in fact but a step in the alleged conspiracy to defraud the first mortgage bondholders. Notwithstanding the later suit was successful and theirs was dismissed, appellants assert that it was the filing of their suit which caused the plaintiffs in the second one to rush into court in order to secure control of the litigation and prevent them and their client from doing so. Consequently, it is claimed, but for the filing of the first, the second would not have been commenced and therefore the benefits which accrued from it must be attributed to their action in filing the first one.

The argument amounts to an effort to apply in the present circumstances the "but for" rule of causation, which has been applied in others but rarely and dubiously. Except as to facts which have been adjudicated in previous phases of this litigation, we find nothing in the record to show that the contention is based on anything more substantial than the time sequence in the commencement of the two proceedings. That in itself, of course, is hardly probative that filing the first induced filing of the second suit. To the contrary, both the record and appellants' argument show that the second one was planned long before appellants filed the first one. This is implicit in their charge that the later suit was but a step in the alleged conspiracy to defraud. In view of this, the conclusion is equally tenable, though we do not draw it, that appellants' suit was begun in order to anticipate and defeat the other one.

But we are not at liberty on this appeal to determine whether the pending suit was begun fraudulently, surreptitiously or to defeat the earlier one. Those issues have been determined adversely to these contentions in previous phases of this litigation. The trial court not only dismissed the suit filed by appellants, but also denied an injunction which they sought against prosecution of the later one. A special appeal from this denial was refused by this court. These actions were taken, of course, when the court was fully advised of the pendency of both suits and it must be assumed that it would have given the earlier one preference if it had found that the later one was designed merely to forestall it or that for any reason it was entitled to preference. The record shows that the bill filed by appellants was dismissed for multifariousness, even after it had been amended in an effort to perfect the statement of the cause of action. Although appellants may not have been technically parties to the litigation when these determinations were made, they acted as attorneys and by filing their claim in the pending proceeding must be taken to have accepted them for the purposes of disposing of it. They have in effect made themselves parties to the suit for this purpose and to that extent they and we are bound by previous decisions made in the course of...