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In re Imperial 400 National Inc.

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT


decided: March 15, 1972.

IN THE MATTER OF IMPERIAL "400" NATIONAL, INC., A DELAWARE CORP., ET AL. APPEAL OF UNION BANK, IN NO. 71-1550. APPEAL OF CHEMICAL BANK, NEW YORK TRUST COMPANY, IN NO. 71-1551. APPEAL OF FIRST NATIONAL BANK OF AKRON, IN NO. 71-1552. APPEAL OF BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, TRUSTEE FOR AEROJET-GENERAL CORPORATION NONCONTRIBUTORY PENSION PLAN TRUST PWP-12829, IN NO. 71-1553. APPEAL OF BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, TRUSTEE FOR AEROJET-GENERAL CORPORATION SALARIED EMPLOYEES RETIREMENT PLAN TRUST PNP-13840, IN NO. 71-1554. APPEAL OF OFFICIAL CREDITORS' COMMITTEE, IN NO. 71-1555. APPEAL OF JOSEPH M. NOLAN, IN NOS. 71-1550 TO 71-1556

McLaughlin, Van Dusen and Adams, Circuit Judges.

Author: Van Dusen

Opinion OF THE COURT

VAN DUSEN, Circuit Judge.

These cases, consolidated for appeal, involve the possible liability of a trustee in reorganization and his attorney for the payment of interest on, or a similar charge for the use of, that portion of a third interim allowance and fee granted by the district court without specification of a payment date, paid subsequent to such grant, and later found to be excessive by this court. We find on this record that payments for the use of this money improperly taken from the bankruptcy estate should be made by the above-mentioned fiduciaries.

The factual background of these reorganization proceedings for the debtor corporation is set out in In re Imperial "400" National, Inc., 429 F.2d 671 (3d Cir. 1970). On December 29, 1969, the district court entered an order, over the unanimous objections of the Creditors Committee, awarding third interim allowances to the trustee of $90,000 and third interim fees of $125,000 to the trustee's counsel. At the time this order was entered, the court and the abovementioned fiduciaries were notified by at least one creditor, counsel for the General Tire Pension Funds, that an appeal of the order would be filed. Prior to the filing of notices of appeal on January 20, 1970, payments of the third interim allowance and fee were made to the trustee and his counsel.*fn1 This court, in its August 1970 opinion, In re Imperial "400" National, Inc., 432 F.2d 232 (Appeals Nos. 18,804-18,809), reversed the district court order of December 22, 1969, and remanded for further proceedings, stating that "In no event, however, shall awards of interim compensation for the third period exceed $27,500. to the trustee or $45,000. to his attorney."*fn2

On October 13, 1970, a hearing was held before the district court and all parties consented to interim awards of $27,500 to the trustee and $45,000 to his counsel. Subsequently the excess of the earlier allowances over these agreed upon allowances were returned to the estate. On October 15, 1970, the trustee's counsel reimbursed the debtor's estate in the amount of $80,000 and the trustee made a similar reimbursement of $62,500 on November 9, 1970.

At the October 13, 1970, hearing, the question of interest on the above sums to be returned to the bankruptcy estate was raised. Upon motion of a creditor, the question of interest charges on the above-mentioned $80,000 and $62,500 was reconsidered on December 14, 1970.*fn3 On March 10, 1971, the district court entered an order exempting the trustee from any interest payments but requiring the trustee's counsel to pay the interest which had accrued on that portion of the allowance which he was required to return to the estate.*fn4

A trustee in reorganization is an officer of the court*fn5 who occupies a special fiduciary position,*fn6 and counsel for the trustee has equivalent fiduciary responsibilities to the estate in reorganization and the creditors.*fn7

On this record, we have concluded that the trustee and his counsel are required to repay to the bankruptcy estate interest at the prevailing rate of return being earned by the estate on its invested funds during 1970 on the above-mentioned $62,500 and $80,000,*fn8 from the above-mentioned applicable payment dates in January 1970 until the applicable dates of repayment in November and October 1970, respectively,*fn9 particularly because of these reasons presented by the facts of this case:

A. All members of the Creditors Committee and the creditors having the largest claims, as well as the SEC, objected to these interim fees and allowances, and at least one creditor notified the court and the above-mentioned fiduciaries of its intention to appeal from the December 22, 1969, order before any payments were made pursuant to that order. See, also, note 1 above.

B. The allowance and fee authorized by the district court were withdrawn by the trustee prior to the expiration of the time allowed for taking an appeal from the creditor-opposed court order granting the awards and after oral notice had been given that such an appeal would be taken. We agree with the position expressed by Judge Learned Hand in Central Hanover Bank & Trust Co. v. Herbst, 93 F.2d 510, 512 (2d Cir. 1937), that a fiduciary who has been awarded money by a court order is charged with notice that the award is conditional until the time to appeal it has expired and that the award will not protect him if reversed. In a case such as the instant action, where notice of an appeal has been given, the fiduciary who withdraws funds is guilty of a breach of his fiduciary duty.*fn10 The danger of such withdrawals, where a fiduciary is paying fiduciary funds to himself, is illustrated by the Central Hanover case, where the receiver who withdrew his allowance became insolvent prior to a reversal of the award of the allowance.*fn11

C. When a trustee has violated any duty which he owes as a trustee to the beneficiaries,*fn12 he is chargeable with:

"(a) any loss or depreciation in value of the trust estate resulting from the breach of trust; or

"(b) any profit made by him through the breach of trust; or

"(c) any profit which would have accrued to the trust estate if there had been no breach of trust."*fn13

D. This bankruptcy estate has been in reorganization for six years under the management of the trustee and his counsel and there has been widespread dissatisfaction with the failure of the above-mentioned fiduciaries to secure action by the court on a reorganization plan. See In re Imperial "400" National, Inc., supra ; brief for appellant, Union Bank, No. 71-1550, at pp. 31-33; N.T. 13-15, hearing of 12/14/70 (Document 943); N.T. 13-21, 36, hearing of 2/8/71 (Document 944); pp. 5-6 of 1/21/72 letter from counsel for the Burnham Group (proponents of a reorganization plan).

We have concluded that interim allowances and fees should not be paid in the future to a trustee, receiver or his counsel without an order of the court authorizing the payment of such fees on a specific date. Such orders should only be granted prior to the decision on appeal in those instances where the recipient of the award has demonstrated a compelling need for an early award and the estate is protected by a bond or in some equivalent manner.*fn14

In accordance with the foregoing opinion, an order will be entered vacating the district court order of March 10, 1971, and directing:

(A) payment individually by the trustee of interest at the rate earned by the reorganization estate in 1970 on $17,500 for the period from 12/29/69 to 11/9/70, and on $45,000 for the period from 1/12/70 to 11/9/70;

(B) payment individually by counsel for the trustee of interest at the rate earned by the reorganization estate in 1970 on $80,000 from 1/17/70 until 10/15/70;

(C) the inclusion in costs in this court, to be paid by the trustee and his counsel individually, of the expenses of reproducing the briefs of appellants, except that the expenses of only 10 pages of the Union Bank briefs*fn15 shall be so included, as well as the docketing fees;

(D) payment of the charge for printing the appendix by the debtor's estate; and

(E) that other costs shall be paid by the party incurring them, provided, however, that the expenses of reproducing (1) the Statements In Lieu of Briefs and (2) the briefs filed by the trustee and his counsel shall be paid by such fiduciaries individually.


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