when, from time to time, I was called upon to approve the sale or disposition of certain assets." The valuation was based "simply upon the valuation of services rendered." In compensating the Receiver's attorney, the Referee used as a test "what is fair and reasonable under all of the circumstances" and awarded him $5,000.
The Referee indicated several times in the course of the hearing on October 20, 1965, that he did not think $18,000 was an excessive fee and in fact stated that he might have given the Receiver more (N.T. p. 39 hearing 10/20/65) if he had so requested.
After the Bankruptcy Court has assumed jurisdiction, § 2a(21) of the Bankruptcy Act requires equity receivers, trustees, assignees and agents to deliver the property in their possession and under their control and "to account to the court for the disposition by them of the property of such bankrupt." And § 69d requires them to account "for any action taken * * * subsequent to the filing of such bankruptcy petition."
Under § 2a(21) and § 70a(8) the summary jurisdiction of the bankruptcy court has been held to extend not only to the review of amounts withheld by the assignee for expenses and compensation, Shor v. McGregor, 108 F.2d 421 (5th Cir. 1939), but also to a determination that the assignee should be denied any compensation because he acted for the benefit of the debtor and to the injury of creditors. In re Lucille's, Inc., 26 F. Supp. 943 (D.Me.1939). However, it has been held that § 2a(21) does not support the conclusion that a referee has jurisdiction to make allowances for a state court official for services to the estate, although § 2a(21) is not inconsistent with that conclusion. In re Marks, 267 F.2d 108 (7th Cir.1959).
The Bankruptcy Act does not expressly provide for a maximum fee or a standard for the determination of compensation of state court receivers. However, the task is not left to the state court whose jurisdiction is superseded once the petition is filed. In re Cohen, 64 F.2d 103 (2d Cir.1933). There seems to be little doubt, though, that under some theory the state court official, whether he is assignee for the benefit of creditors or equity receiver, is entitled to compensation for his services. See generally 3 Collier on Bankruptcy (14th Ed.) § 62.32 et seq. P. 1615. Section 18 of the Bankruptcy Act would be applicable if the Receiver herein had been appointed in the bankruptcy proceeding.
Randolph v. Scruggs, 190 U.S. 533, 23 S. Ct. 710, 47 L. Ed. 1165 (1903) is the leading case in the area of pre-bankruptcy expenditures and has influenced allowances far beyond its narrow bounds. There the Supreme Court announced the principle that costs of a superseded assignment for the benefit of creditors, including the attorney's fees for representing the assignee were entitled to first payment out of the bankrupt estate as a lien, to the extent they were beneficial and tended to the preservation of the assets. Counsel fees in connection with resisting the involuntary petition, however, could not qualify as services beneficial to the estate. The Court reasoned that reimbursement or allowances are due not as provable claims or even as costs of administration, but on the theory that the assignee would be entitled to deduct his allowable expenses from the property that he is required to surrender to the bankruptcy court.
The Supreme Court reasoning has been called into question because of the Chandler amendments in 1938 which make the right of an assignee to withhold an asset still in his possession at bankruptcy doubtful. See §§ 2a(21) and 69d. Treister, The Effect of Bankruptcy on the Administration Expenses of a Superseded General Assignment, 17 Bus.Law 332, 335 (1962). In this case there does not appear to be any conflict with any priorities, however, and the criticism is irrelevant. Moreover, the state receiver of Garrett Road did most of his work under the auspices of the Bankruptcy Court and would be entitled to a priority under § 64 to the extent that the costs and expenses preserved the estate. At any rate, counsel for the objecting creditors does not dispute the continued vitality of Randolph.
In determining what has been of benefit to the estate, the Referee, of course, is not restricted to those services which have enlarged the estate or reduced the claims. Flaxman v. Gardner, 353 F.2d 764, 767 (9th Cir.1965). Thus employment of an auditor or an accountant to determine the assets and liabilities of the estate would certainly be beneficial in most cases to the estate. The following elements may be considered in evaluating the services of these state officers: "The time spent, the intricacy of the problems involved, the size of the estate, the opposition met, the results achieved - all subject to the economical spirit of the Bankruptcy Act." In re Owl Drug Co., 16 F. Supp. 139, 142 (D.C.Nev.1936), aff'd sub nom. B. F. Schlesinger & Sons, Inc. v. Edler, 81 F.2d 1015 (9th Cir.1936). See 3 Collier on Bankruptcy (14th Ed.) § 62.12, page 1491. The preceding factors are of course to be noticed only insofar as the services have tended to preserve or benefit the estate.
It is well settled that debts and fees of a state court receiver are in the same category as debts and fees of an assignee for the benefit of creditors prior to bankruptcy.
"Any real services, either of an assignee under a deed of assignment or of a receiver acting under judicial authority, will be allowed as a preferred claim in the administration of the property and the distribution of its proceeds to the extent that the services have benefited the estate."
Hume v. Myers, 242 F. 827, 830 (4th Cir.1917). See also, Paine v. Archer, 233 F. 259 (9th Cir.1916) and Chase Bag Co. v. Schouman, 129 F.2d 247 (6th Cir.1942).
Services performed after the petition in bankruptcy has been filed have also been held to be compensable only under the rule of the Randolph case. This view was formed on the equitable principle enunciated in that case that one should be compensated out of a fund which he has benefited or created. In re Cohen, 64 F.2d 103 (2d Cir.1933); In re Stewart, 179 F. 222 (6th Cir.1910). Although both cases discussing this point were instances where an assignee had been appointed, we see little reason for departing from the rationale. Both are performing services after the petition has been filed under the authority of the Bankruptcy Court and will in all event probably have their administrations superseded. Section 2a(21). Moreover, it has been said that only when the result of the efforts of officers are known do the elements on which the value of their services depend, appear in their proper perspective. In re Paramount-Publix Corp., 10 F. Supp. 504, 510 (S.D.N.Y.1934).
The Court in Randolph also concluded that "[no] ground appears for allowing the item for services [to the assignee] in resisting an adjudication in bankruptcy." It has further been determined that this rule applies regardless of the intention of those resisting bankruptcy, since the injury and expense caused to the estate were unaffected by their motives. The reason in support was that general creditors should pay for services which have actually benefited them. In re M. Zier & Co., 127 F. 399 (D.C.Ind.1904); Aff'd. 142 F. 102 (7th Cir.1905). It was never intended to make them pay for unsuccessful assaults upon their interests as well as for resistance to those assaults. Obstruction of bankruptcy had been so great and persistent therein that even beneficial incidental services were held not compensable. See also In re Evenod Perfumer, Inc., 67 F.2d 878 (2d Cir. 1933) where the court refused to allow compensation to a bankrupt's attorney for his efforts in resisting bankruptcy. The sole claim to any reward must be measured by the extent of the labors of the state officers in preserving and keeping the estate. In re Sobol, 230 F. 652 (S.D.N.Y.1915) The unsecured creditors for whose sake and that of the bankrupt the procedures for bankruptcy exist, should not be unfairly deprived of assets when as it is they will not receive the full portion of their claims.
Compensation in this case is a question which is primarily for the discretion of the Referee who should not be reversed unless he has abused such discretion or has applied an erroneous standard in determining compensation. In re F. P. Newport Corp., 137 F. Supp. 58 (S.D.Cal.1955). See § 38(6). If the Referee's decision is free from error of law and sufficiently supported by evidence, it should be affirmed. Collier on Bankruptcy § 62. 12 P. 1486. The Referee's judgment in these matters is primary and the district court should not substitute its judgment for that of the Referee. The matter is at best a very ticklish problem and deserves careful consideration.
"To leave the question to the referees tends to create uniformity of charges and allowances, while to repass upon the question here and substitute the judgment of this court for that of the referee would tend to create inequality and confusion. There is nothing more difficult nor embarrassing than to appraise the value of professional services. The appraisal must be based largely upon the personal opinion of the one who makes it." Matter of American Range & Foundry Co., 41 F.2d 845, 847, 848 (D.Minn.1926).
In the matter of compensating bankruptcy officials, although a great deal of discretion resides in the Referee, it is clear that "the judges of the courts, in fixing allowances for services to court officers, should be most careful, and * * * vicarious generosity in such a matter [should] receive no countenance." In re Gilbert, 276 U.S. 294, 296, 48 S. Ct. 309, 310, 72 L. Ed. 580 (1927). See also United States v. Code Products Corp., 362 F.2d 669, filed 6/28/66, 3rd Cir. The rights of those who ultimately pay must be carefully protected. Newton v. Consolidated Gas Co., 259 U.S. 101, 42 S. Ct. 438, 66 L. Ed. 844 (1921).
The objecting creditor argues strenuously in his well-written brief that § 48 of the Act should apply to officials appointed outside of bankruptcy proceedings as it applies to those appointed in bankruptcy. Their major support is that both officials do the identical work and thus should be compensated in an identical fashion. They have cited several referees who have taken the position that § 48 should be used as a rule of thumb to guide a referee in awarding compensation to a nonbankruptcy official.
While we agree that § 48 may be appropriate for a referee as a guideline, it should not become a hard and fast principle without approval of Congress. There is nothing in the Act itself or in any court decisions which have suggested this position.
The only case cited to us by counsel was In re Moskowitz, 25 F. Supp. 341 (E.D.N.Y.1938) wherein the District Judge approved an order of a referee allowing an assignee no more than a receiver in bankruptcy would receive. Section 48 was used by the Referee therein as a starting point and no more. He was not bound to apply § 48 and we do wish to so bind a referee.
Another referee in bankruptcy who has had occasion to consider the compensation of state officials has adopted this position:
"You may ask whether there may be a useful yardstick to measure the value of the services of such a receiver or assignee for the benefit of creditors. To a large extent he has performed the same functions as a receiver in bankruptcy. Therefore, it seems logical to allow him the same commissions which the bankruptcy receiver might be allowed under similar circumstances. * * * This is the rule of thumb method we have used to advantage and so far without controversy." Snedecor, Fees and Allowances in Straight Bankruptcy, 40 J. of Nat'l Conf. of Referees in Bankruptcy, 26, 29 (1966).