WEIL V. NEARY
| Decision Date | 02 January 1929 |
| Citation | 278 U. S. 160 |
| Court | U.S. Supreme Court |
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE SECOND CIRCUIT
1. When, in a common law suit in a district court, the issues have been referred to a referee in accord with the local practice by consent of parties, and the referee's findings of fact and conclusions of law have been approved and adopted by that court, the appellate court may examine the findings and determine whether they support the judgment. Rev.Stats. § 649. P. 163.
2. A bankruptcy rule of a district court forbidding trustees in bankruptcy to retain as their attorney the attorney for creditors of the bankrupt, is valid and has the force of law. P P. 165-169.
3. A contract between an attorney for trustees in bankruptcy and an attorney for creditors whereby the compensation to be allowed the former by the court for his services for the trustees shall be shared with the latter and such services shall be performed under the latter's supervision, is contrary to public policy and professional ethics, and is void, even though there was no actual fraud and the results were beneficial to the estate. P P. 167, 278 U. S. 171.
4. Upon review of a judgment recovered on such a contract by the attorney who had acted for creditors against the one who had acted for the trustees in bankruptcy, this Court can only reverse the judgment and direct a dismissal of the action, leaving the successful party to restore the fees in controversy to the bankrupt estate by appropriate steps in the bankruptcy court. P. 174
22 F.2d 893 reversed.
Certiorari, 276 U.S. 613, to a judgment of the Circuit Court of Appeals affirming a judgment recovered against Weil and Thorp on their contract with Untermyer. The contract provided that the compensation to be received by Weil and Thorp as attorneys for the trustees in a bankruptcy proceeding should be enjoyed in part by Untermyer, and that their services as such attorneys should be performed under his supervision. The contract had been assigned by Untermyer to Neary.
In May, 1921, Neary, a citizen of New York -- assignee of Samuel Untermyer and acting for him -- brought suit in the supreme court of that state for more than ,000 against A. Leo Weil and Charles M. Thorp, citizens of Pennsylvania. The defendants removed the cause to the District Court for the Southern District of New York on the ground of diverse citizenship. In oral argument, it was conceded that Untermyer is the real party in interest as plaintiff, so we shall hereinafter refer to him as such.
By his complaint, amended by leave of court to conform to the evidence, Untermyer alleged that he had been retained as attorney and counsel for many creditors of one Josiah V. Thompson, a Pennsylvania banker and coal operator, to collect indebtedness amounting to millions of dollars. To that end, Untermyer retained the defendants, Weil & Thorp, of Pittsburgh, to conduct bankruptcy proceedings under his supervision, upon an agreement that they were to accept ,000 in full payment for their services. Such proceedings were accordingly instituted against
Thompson on the petition of three creditors in the District Court of the United States for the Western District of Pennsylvania, and he was adjudicated a bankrupt. Trustees were chosen, and Weil & Thorp were selected as their counsel.
Plaintiff's complaint avers that because of complications which arose, it was thereafter agreed that the compensation of the defendants for services in the bankruptcy proceedings should not be limited as stipulated, and that the plaintiff and his firm, Guggenheim, Untermyer & Marshall, should collaborate with the defendants under the supervision of the plaintiff in the performance of services to the trustees. Also that the defendants should retain, out of allowances eventually made by the bankruptcy court in payment for their services, such sum as the plaintiff considered just and equitable, the remainder to be paid to Untermyer himself. Pursuant to this agreement, the defendants continued to render services in the bankruptcy proceedings under the general supervision of the plaintiff, for which seven allowances were made and paid to them out of the bankrupt estate from July 18, 1919, to May 10, 1924. The complaint further alleges that, in pursuance of the contract, the plaintiff fixed a fair and reasonable division between plaintiff and defendants, but that they refused to pay the plaintiff the sums claimed under that division.
Weil & Thorp filed separate answers. They denied that there was any agreement, express or implied, between the plaintiff and them regarding the performance of services after appointment of the trustees in bankruptcy, or regarding the compensation for services performed by them thereafter. They admitted receipt of the allowances made to them by the court, but alleged that the services rendered after their designation and confirmation as general counsel to the trustees were rendered in collaboration with other counsel, and not in collaboration with or
under the direction of the plaintiff or his firm; also that any services rendered by the plaintiff and his firm were rendered as counsel to the creditors' committee, and not otherwise. They further said that any such agreement or understanding as that alleged by plaintiff would have been unprofessional, contrary to public policy, illegal, and void.
There was no jury. The case was referred to a referee as under the New York Practice Act, who concluded that Weil & Thorp were jointly and severally indebted to the plaintiff in the sum of ,064, with interest from November 15, 1920. A judgment accordingly was directed.
Pursuant to a written stipulation, signed and filed by the parties, the court ordered:
"That the trial of the above entitled action be and the same hereby is referred to Allan Wardwell, Esq., as Referee, to hear, try and determine the same, with all the powers to act and rule upon the said trial possessed by the Court."
Requests for findings were submitted to the referee by both sides. He marked his rejection, modification, or approval of each, and filed a report of his findings of fact and conclusions of law. All were approved and adopted by the court. A bill of exceptions, prepared by the defendants, was not allowed because tendered out of time. In this situation, the defendants concede that they are bound by the findings.
The plaintiff contends that this Court may not examine the findings to determine whether they support the judgment, and he relies on Campbell v. United States, 224 U. S. 99. That was a common law case in a district court at a time when no provision for waiver of a jury or for findings of fact by such court had been made by statute. Since then, §§ 649 and 700 of the Revised Statutes have been extended to district courts. Now, under § 649, if, in a common law suit in a district court, the parties consent to refer the issues in accord with local practice
to a referee to make findings of fact and report conclusions of law thereon which the court approves and adopts, the appellate court may examine the findings and determine whether they support the judgment. Shipman v. Straitsville Mining Co., 158 U. S. 356, 361; Chicago, Milwaukee & St. Paul Ry. v. Clark, 178 U. S. 353, 364; Boogher v. New York L. Insurance Co., 103 U. S. 90, 97; Paine v. Central Vermont R. Co., 118 U. S. 152, 158; David Lupton's Sons v. Auto Club of America, 225 U. S. 489, 493.
A summary of the findings follows:
In 1915, Untermyer was retained as attorney for from 90 to 95 percent of the creditors of Thompson to collect his indebtedness out of his property, amounting to many million dollars. The affairs were greatly involved, and it was agreed among the creditors that the debtor's extensive properties should be conserved so that they might be applied equitably to the payment of the claims. In January, 1915, application was made to a state court in Pennsylvania for receivers, and they were appointed, and this held the estate together. But, when the case was carried to the supreme court of the state on error, the receivership was set aside on the ground that it had been erroneously created. The defendants, Weil & Thorp, had no interest in or connection with Thompson, his estate, or his creditors until after the close of the receivership, when, in August, 1917, Untermyer employed Weil & Thorp to secure the adjudication of Thompson as a bankrupt, and retained the firm to initiate and carry through the proceedings under his supervision, fixing their compensation at ,000. This was accepted, and accordingly, on the petition of three of the creditors of Thompson, on Sepember 10, 1917, he was adjudicated a bankrupt. Weil & Thorp, after their employment by Untermyer and before the bankruptcy, had helped in the effort to sell the properties under several plans, one of them called the Young plan, with the hope that all the properties could
be sold; but the plans as such failed, except that there was carved out of the Young plan the sale of what was called the Frick property.
At a meeting of the creditors, trustees were selected on October 17, 1917, and their appointment was duly confirmed on the 18th. The defendants, Weil & Thorp, were, on October 18th, elected general counsel for the trustees upon their individual certifications in writing that they did not represent any interests which would in any way be antagonistic or adverse in the event that they were so employed. Untermyer, who had appeared previously in the record as counsel for the committee of creditors, was not elected counsel for the trustees, and did not so certify. The certificate was filed by Weil & Thorp in accord with rule 5 of the Rules of Bankruptcy of District Court of the United States for the Western District of Pennsylvania:
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