of the Trustee's sales of machinery and his management of the real estate, his rent collections and the repair of the debtor's houses and other property.
That such services to the Preferred Stockholders Committee, at the request of its members, are entitled to a reasonable recompense seems unquestionable if the escrow agreement is to be reasonably interpreted. As to the method of recompense, however, considerable controversy has arisen.
The claimants contend that this court is without jurisdiction to determine the amount. The present counsel for the preferred stockholders who have deposited the stock asserts that the court has power to pass upon the claim, but should deny any recovery to claimants in view of the testimony of Alexander Guttmann. The Securities and Exchange Commission, on the other hand, contends that the court not only may pass upon the claim, but has the duty of so doing, and that the testimony entitles claimants to a determination of the amount to which claimants are entitled and to an order awarding that amount to them.
The Securities and Exchange Commission bases its contention upon its interpretation of Section 221(4) of Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 621(4), which provides:
'The judge shall confirm a plan if satisfied that -- * * *
'all payments made or promised by the debtor or by a corporation issuing securities or acquiring property under the plan or by any other person, for services and for costs and expenses in, or in connection with, the proceeding or in connection with the plan and incident to the reorganization, have been fully disclosed to the judge and are reasonable or, if to be fixed after confirmation of the plan, will be subject to the approval of the judge.'
It will be noted that the conditional deposit of the stock in question was made prior to the confirmation of the reorganization plan.
Undoubtedly Section 221(4) requires the court to scrutinize the proposed plan in respect to all the phases mentioned in it, and to determine whether the payments made or promised are reasonable or whether they tend to vitiate the plan. But nowhere in it is it recited that the court has the duty of both determining that such an amount paid or promised is reasonable and of making an order requiring the payment of such amount even though it cannot be charged to the fund for distribution. Under Chapter X administrative expenses are authorized, and those who have aided in the reorganization are entitled to compensation for their efforts; but they are awarded such compensation by means of an order upon the trustee by the court. If one had promised compensation to his counsel for his services in a reorganization, but his counsel has not aided in the proceeding, Section 221(4), in the opinion of the court, furnishes no authority for an order, upon the promisor to pay the counsel the amount promised or what, in the opinion of the court, is the reasonable value of his services. The existence and scope of the promise creates an issue not before the court.
In Re Standard Gas & Electric Co., 3 Cir., 106 F.2d 215, 216, the court awarded counsel part of the claim, and stated as to the balance: 'It is clear that much of his work duplicated that of others and was, therefore, not properly compensable out of debtor's estate. This, of course, is not to say that these services were not properly rendered to his clients, but merely that they should be paid by those clients alone.'
The court did not undertake to order the payment by the clients.
In Greensfelder v. St. Louis Public Service Co., 8 Cir., 114 F.2d 53, 54, the court, after awarding part of the claim, held: 'In reorganization proceeding under the Bankruptcy Act, the court in allowing fees, was not concerned with the amount of fees which note holders' committee, or the clients of attorney retained thereby, might be obligated to pay him.'
In Zweifel, Tuohy & Crager v. Trans-State Oil Co., 5 Cir., 99 F.2d 650, 651, the agreement between the president of the debtor and his counsel was that counsel, in addition to the amount which would be awarded him by the court, should receive the sum of $ 10,000.00 payable after payment of the creditors as set out in the plan. The lower court held that such agreement was binding on the debtor, and failed to award counsel any compensation for his services, although finding that his compensable services, had the agreement not been in evidence, were worth a sum less than $ 10,000.00. The Court of Appeals held: 'We concur with the court below that such agreement was binding on it (the debtor) in this proceeding, and that it had no jurisdiction to determine its validity as an obligation of the debtor; but we think the court erred in declining to allow any compensation to appellants payable out of the assets of the estate. There was no intention on the part of the debtor or its attorneys that the agreed amount of ten thousand dollars in lieu of any such allowance by the court.' See also, In re Watco Corpration, 7 Cir., 95 F.2d 249.
As against the foregoing authorities, which reflect the opinion of this court, a quite respectable authority has been cited, and one which requires some courage when a lower court presumes to accept a contrary view.
In re McCrory Stores Corporation, 2 Cir., 91 F.2d 947, a committee of creditors engaged an attorney, paying him a retainer of $ 25,000, and agreeing to pay him 10% of any proceeds paid to creditors represented by him. The creditors were paid in full and in addition received interest to amount of 19%. By the agreement the attorney would have received $ 84,000. The District Court, sustained by the Court of Appeals, found that the services were reasonably worth only $ 35,000. The Court of Appeals stated that the 'scrutiny clause' of Section 77B, sub. b(10), 11 U.S.C.A. § 207, sub.b(10) (which is embodied in Chapter X, § 212, 11 U.S.C.A. § 612) 'Authorized him (the District Judge) to restrain the committee from proceeding under the contingent fee agreement after the reorganization petition was filed.' 91 F.2d at page 949. The order of the District Court allowed counsel $ 10,000, the $ 25,000 part of the fee having been paid when he was retained. This sum, by the order, was to be paid from an allowance to the creditors theretofore approved.
In respect to the charge to the creditors' allowance, the instant matter differs from the case cited. In the instant case no sufficient fund has been credited to the depositing stockholders against which any allowance to claimants could be charged. The judgment, if any were entered, would be directly against the stockholders. Even if it were admitted that the court had jurisdiction to reduce the amount of the fee contract, where such course is practicable, a direct charge against the depositing stockholders, who are disputing the right to recover any amount, in view of the uncertainty as to the value of the stock deposited seems to stretch the interpretative powers of the court too far.
Feeling that the court has not jurisdiction to make such a charge against the depositing stockholders, an order will be made in substance repeating the order of this court of November 26, 1945.
And, now, to wit, January 22, 1947, it appearing after due hearing that the allowance of $ 37,500.00, granted to Samuel Marion, Allen H. Berkman and Nathan D. Leiman by order of this court of November 16, 1945, as compensation for services rendered the estate of the debtor in the reorganization proceeding at No. 20716 In Bankruptcy, was without prejudice to such rights as said Marion, Berkman and Leiman may have in an agreement whereby certain stockholders of said debtor deposited 584 shares of debtor's preferred stock in escrow with the Preferred Stockholders' Protective Committee of said debtor as additional compensation to said claimants for their services to said stockholders, as more fully appears in a letter from Alexander Guttman to said claimants (which letter is referred to on page 34 of claimants' petition for allowances and offered in evidence at the hearing for allowances held October 3, 1945), and the court further finds that it is without present jurisdiction to determine the value of the additional services rendered to said depositing stockholders by said Marion, Berkman and Leiman and to charge the amount thereof to said stockholders.
© 1992-2004 VersusLaw Inc.