debtors' counsel out of the estate, should such ultimately be sought, unless counsel's appointment is first approved by the Court. There is a dearth of authority on the subject of formal appointment of counsel for debtors out of possession in chapter X proceedings. Our investigation has indicated that it is not the practice, at least in this District, to appoint counsel for the debtor, and apparently the subject has never before created a problem.
The Bankruptcy Act provides that a debtor in reorganization under chapter X has the right to be heard on all questions arising in the proceedings.
The act also provides that counsel for the debtor in or out of possession may be compensated for services which benefit the estate.
However, we can find no express authority in the Act for the appointment of counsel for the debtor.
Neither does General Order 44 applicable in chapter X proceedings, authorize appointment.
That Order, which sets out the procedure which must be adhered to when making application to the Court for appointment, provides, inter alia, that: "No attorney for a receiver, trustee or debtor in possession shall be appointed except upon the order of the court * * *." (emphasis supplied). Since, by its terms, General Order 44 does not apply to appointment of counsel for the debtor not in possession, as the case is here, under the doctrine of expressio unius, it might be argued that it precludes appointment.
Despite the absence of express authority in the Act or authority in General Order 44, it is possible to construe the Hydrocarbon opinion as inferring authority for the Court to appoint counsel for a debtor out of possession in chapter X proceedings, since the Hydrocarbon court held that the attorneys for counsel for the debtor were not entitled to compensation because their appointment had not formally been approved.
With the exception of Hydrocarbon and the two Second Circuit cases cited below, we have found no case dealing directly or indirectly with the subject, and accordingly, resolution of the matter before us requires a construction of the Hydrocarbon decision. Such construction is not without some difficulty in view of the fact that, of the eight judges participating in the decision, three judges dissented, there were two concurring opinions in which a total of three judges joined, and the concurring opinions approached the matter with different emphasis from the majority, which also consisted of three judges, one of whom had also joined in one of the concurring opinions.
The facts of Hydrocarbon are as follows:
Counsel for the debtor had originally filed a petition under chapter XI and retained appellants as counsel to assist him in the course of the proceedings. The court appointed a receiver who was authorized to operate the business of the debtor. The receiver was empowered to retain counsel, and did. Shortly thereafter, the receiver, because of the complexity of the proceedings, sought and obtained the court's permission to retain additional counsel, as well as an accountant. After five months, the chapter XI proceedings were abandoned and a petition was filed under chapter X in which a trustee and counsel were appointed. At no time during these events did appellants, attorneys for the counsel for the debtor, whose services were useful in both the chapter XI and X proceedings, particularly with respect to elimination of a federal tax lien, seek or obtain court approval of this appointment. Appellants submitted their bill to the court when counsel for the debtor failed to pay them.
Affirming the district court, which had denied compensation to appellants, the majority found that the services performed by the appellants were properly the function of the receiver and trustee and their counsel, since elimination of the federal tax lien was in aid of the proper administration of the estate. The majority characterized appellants as "at least de facto counsel for the trustee". Judge Ganey, speaking for the majority, with Judges Van Dusen and Kalodner concurring, stated:
"In so doing, they were, in effect, operating under General Order 44 in Bankruptcy. It is well-settled that unless counsel have been approved by the court, though their services were of value to the court in a Chapter X proceeding, they must be denied compensation. * * *" Id. 411 F.2d at 205-206 (emphasis added).
Admitting the harshness of the result,
the majority nonetheless concluded that, as a matter of law, appellants should have sought the approval of the court, for otherwise, "The court has no control whatsoever over them and it is imperative that their competency, experience and integrity therefor have the approbation of the court." Id. at 206.
Eschewing the somewhat broad scope of the language used by the majority in the two quotations just recited, Judge Freedman, in a concurring opinion, viewed the matter more narrowly:
"I believe that the relevant portions of the Bankruptcy Act and the policy underlying General Order 44, which are discussed in the comprehensive opinion of Judge Ganey, forbid compensation to an attorney for a debtor out of possession where a receiver and his court-approved counsel have had conferred upon them the full authority to perform those services, even though they permit them to be performed instead by the attorney for the debtor." Id. at 207.