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June 10, 1947


The opinion of the court was delivered by: KIRKPATRICK

The petitions for allowances now before the Court are the final phase of the Debtor's reorganization, which began with the filing of a petition under section 77B, Bankr. Act, 11 U.S.C.A. § 207, in 1934 and terminated 12 years later, in 1946, with the consummation of a satisfactory plan and the transfer of the property to a new company. From the beginning it was recognized that the Debtor was insolvent and a formal finding to that effect was made in March, 1943. The Debtor remained in possession and throughout the period of reorganization its business was operated efficiently and with profit by its directors and officers in collaboration with representatives of the bondholders.

Three successive plans of reorganization filed by the Debtor have been before the Court. The first plan, presented in July, 1935, was approved and confirmed in 1937, but it was never consummated because it became evident very shortly after its confirmation that a decline in the company's business made it unworkable. The second plan was presented in May, 1939, but was disapproved in July, 1941 by the Pennsylvania Public Utilities commission, after which it also was abandoned. The third plan was presented in March, 1942. Just before its confirmation, in January, 1944, a fourth plan was presented by a group representing about 40 per cent of the bonds. This has been referred to throughout the proceedings as the P.S.T. (Philadelphia Suburban Transportation Co.) plan. Thereafter, the third plan was amended by incorporating some of the provisions of the P.S.T. plan and, as so amended, was finally consummated and is now in operation.

 Drinker, Biddle & Reath.

 The claimants request $ 75,000. They represented the Debtor for 12 years. The fee is not objected to, is reasonable and will be allowed, together with disbursements claimed. Five thousand dollars has been paid and the present allowance is $ 70,000 plus disbursements.

 Hannum, Hunter, Hannum & Hodge.

 These claimants were retained before the enactment of 77B and did some research looking toward an equity receivership. They cooperated with Mr. Reath in the 77B proceeding, submitted a plan and obtained its approval by the Pennsylvania Public Service Commission. In so doing, the firm did most of the spade work necessary for the presentation to this Court and in general did a great deal of work directly beneficial to the company. However, in view of the non-beneficial nature of the early work in connection with the projected equity receivership, the full time (40 days) spent by the firm is not compensable. I fix the reasonable value of the services allowable in this proceeding at $ 3,500.

 The claimants further ask for compensation for services in connection with the reduction of penalties upon state taxes. A member of the firm had several conferences with a tax expert and with officials of the Debtor and prepared briefs and memoranda. Together, they were successful in their efforts and saved the Debtor $ 25,00. The expert has already been paid a fee of $ 3,500. The reasonable value of the claimants' services in this connection is $ 2,000.

 The third item of the application of this firm which must be discussed is the claim for work done by Mr. Hodge, another member of the firm, in connection with the Penfield wreck. Two of the Debtor's cars had collided and there were 67 passengers who, it was believed, might have claims. Liability could not be disputed. The Debtor had no claims department and retained private investigators with instructions to obtain releases where practicable. Fifteen claims were disposed of with any supervision on the part of the lawyers. Twenty-five others were disposed of for small amounts and involved little more than phone calls from the investigator requesting permission to pay the claims. The remaining 27 were of a more substantial nature and were finally settled for $ 16,741.50. In six of them, suits had been brought, three of which were defended by other counsel, although it was understood that Mr. Hodge would try all the cases. None came to trial. There was the investigations usual in negligence cases, supervised by Mr. Hodge, and there was other work incident to the handling and settling of the claims. Mr. Hodge, who did similar work for insurance companies, ordinarily received $ 100 a day for actual trial. The work done was directly beneficial to the company and I believe that its reasonable value under the circumstances was $ 3,000. There is an item of $ 2.90 for postage asked for as part of their expenses. This item should properly be absorbed in overhead and therefore must be disallowed. The balance of their application will be allowed.

 Pepper, Bodine & Stokes.

 This firm in the early part of the proceedings represented the indenture trustee and certain bondholders who acted as an informal committee. Throughout the early stages of the reorganization this was the only bondholders' committee. The claimants did work in connection with the abortive 1935 and 1939 plans.

 In 1945 the firm defended the Debtor's president against a claim by certain bondholders against him for profits derived from trading with the bonds of the company while it was in reorganization. Their representation of him does not affect their present claim. There was no conflict of interest, because the bondholders whom the firm originally represented had sold their bonds in September, 1943, some two years before.

 The more difficult question is whether the fact that the firm represented both the indenture trustee and a group of bondholders makes it necessary to disallow the claim, and the answer depends entirely upon the scope of the decision of the Supreme Court in Woods v. City National Bank, 312 0u.s. 262, 61 S. Ct. 493, 496, 85 L. Ed. 820. The Commission argues that that decision lays down the rule that an attorney who represents an indenture trustee at the same time that he is representing bondholders may not under any circumstances be allowed compensation from the estate. I do not think that it goes so far as that.

 There are certain situations in which conflict of interest is always present, of necessity, arising from the nature of the interests themselves. Debtor and creditor, stockholder and bondholder or underwriter are illustrations of these. In such relationships actual conflict is conclusively presumed and the mere fact that counsel represents both sides is enough to forfeit his right to compensation.

 In other cases, while conflict may arise, there is no conclusive presumption that the interests are hostile and whether or not a lawyer represents more than one party must be denied compensation depends upon the existence, as a matter of fact, of a conflict in each particular case. The mere possibility is not sufficient. As a matter of fact the possibility of conflict exists in almost every case of multiple representation. Thus, where an attorney represents a large number of individual bondholders there is always a possibility that a minority will find that their interests lie in one direction and the majority in another. When this situation arises the attorney may not continue to represent all but until it does it has never been suggested that his representation of the group is improper. Plainly, representing an indenture trustee and a group of bondholders is in this latter class. An indenture trustee, of course, must act for what it conceives to be the benefit of all the bondholders. There may be no division of opinion among them. So long as that is ...

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