represent the value of anything which ever in any sense belonged or could have belonged to the estate. The estate could not have earned them without illegal rebating, and, if the receiver had not, some third party would.
The matter is wholly administrative and disciplinary, quite as much so as depriving the receiver of all compensation in cases of more serious dereliction. Parenthetically, it is conceded by all parties that the court has discretionary power to do that in the present case, but I doubt that anyone would argue that creditors have a standing, by virtue of any substantive right to the receiver's compensation, to demand its forfeiture, altough the estate would be increased thereby. The doctrine that a receiver may not retain a personal profit made out of his trust is a prophylactic rule. It implements the law's precept that a trustee must give undivided loyalty to his trust. The surcharge is the sanction.
In a broader aspect, the integrity of the federal court itself is involved. "'When a court exercising jurisdiction in equity appoints a receiver of all the property of a corporation, the court assumes the administration of the estate; the possession of the receiver is the possession of the court; and the court itself holds and administers the estate, through the receiver as its officer,' * * * Porter v. Sabin, 149, U.S. 473, 479, 13 S. Ct. 1008, 1010, 37 L. Ed. 815, 818." Atlantic Trust Co. v. Chapman, 208 U.S. 360, 371, 28 S. Ct. 406, 409, 52 L. Ed. 528, 13 Ann.Cas. 1155. It seems to me inconceivable that the Supreme Court in Erie R. Co. v. Tompkins had the slightest intention of compelling federal courts to adjust their standards for the proper administration of property committed to their care to local conceptions of official duty which might easily be completely foreign to their own. Such an inroad upon the power of the court to regulate the conduct of its own officers and agents is not to be made except upon the unmistakable mandate of the Supreme Court.
By the federal rule, as stated in Magruder v. Drury, supra, neither the fact that the receiver acted in good faith or that what he did resulted in no loss to the estate is ground for withholding the penalty. To that extent the rule is inflexible and rightly so and I have no desire to whittle it down or relax it. It is highly desirable that every receiver should definitely understand that he may not put his judgment in the conduct of the trust business toi the hazard of a possible conflict with his own personal interests.
But it is a universal qualification that a trustee may retain a personal profit if he made it with the full knowledge, consent and approval of the beneficiary. That factor was not in the Magruder case. In the present case a substantial majority of the ultimate and only beneficiaries of the trust knew of and consented to the receivers earning these commissions by placing the insurance through his own agency. I think that is a controlling factor and that it gives the court full discretion to deny the surcharge.
I recognize the fact that less than 100 percent of the creditors consented (though in this connection it is of at least passing interest to note that of the 30 percent of security holders who did not expressly consent, not one appeared before the special master to object) and, if it were a question of property rights of the creditors, the receiver might not be relieved or, at best might be relieved only pro tanto. But the conduct of the receiver, not the right or title to the money earned, is the thing involved, and the question is, Is the receiver guilty of a breach of the duty of loyalty when, with the knowledge, consent and approval of 70 percent of the creditors he performs in good faith services for the estate by which the estate benefits and for which he receives pay from outside parties? I think that he is not.
I agree that 70 percent of the creditors of a receivership cannot, by any principle of waiver or estoppel, destroy property rights of an uninformed minority, but, again, we are examining the conduct of the receiver. An operating receivership is a practical business matter as well as a trust and, in a large estate with numerous and scattered creditors, consultation with the authorized representatives of a large majority is usually highly desirable. Of course, acting in accordance with their wishes, in the absence of court approval, will not always absolve the receiver. Each case depends on its own circumstances, but I think that, where the services rendered were beneficial, as in the present case, the receiver's disclosure to the creditors and their consent frees his course from any taint of disloyalty and makes it unnecessary to surcharge him, even on the strictest application of the rule.
Failure to apply for court authorization is, of course, not to be approved. Had this receiver applied for authorization, I have little doubt that it would have been promptly granted. His failure to do so does not make the surcharge mandatory or remove it from the court's discretion. Specialty Products Co., Inc., v. Universal Industrial Corporation, D.C., 21 F.Supp. 92. See also N. & G. Taylor Co. v. Berger, D.C., 49 F.Supp. 524.
The recent decision of the Supreme Court in Crites, Inc., v. Prudential Insurance Co., 64 S. Ct. 1075, has been called to my attention. It is not directly in point but is interesting in view of the stress laid throughout the opinion upon the fact that the receiver failed to advise anyone, either the court or the creditors, of the transaction from which he made a profit.
I, therefore, hold in the present case that there is no ground for surcharge of this receiver and the exceptions to the master's report are dismissed.
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