207 F. 616 | D. Del. | 1913
This case has been heard on exceptions taken, on the one hand, by James P. Winchester and Howard T. Wallace, receivers of the Diamond State Steel Company, hereinafter referred to as the steel company, and, on the other, by sundry bondholders and general creditors of that company, to the report of William G. Maliaffy, special master, to whom the accounts of the said receivers and1 certain matters relating to the adjustment, settlement and distribution of the estate of the steel company were referred. The order of reference to the special master was made July 27, 1910, in consequence of certain petitions filed in this case by the receivers, as follows:
(1) A petition filed June 20, 1910, for an apportionment of the expenses of the administration of the estate of the steel companj^ between the funds arising from the sale of its real estate and its general assets; (2) a petition filed also June 20, 1910, for a further allowance to the receivers as compensation for them and their counsel; and (3) a petition, filed July 27, 1910, for the appointment of a special master to audit the accounts theretofore filed by the receivers, etc. On the day of the filing of the last mentioned petition Mahaffy was appointed special master, and it was ordered by the court as follows:
1. That said receivers shall forthwith file in this court their twenty-third and final account, [being subsequent to the accounts referred to in the last named petition] showing their receipts and disbursements since the date of*618 their twenty-second, being their last, report and account, and showing the net amount of money then remaining in their hands as receivers as aforesaid.
2. That William G. Mahaffy be and he is hereby appointed special master of tbis court, with the usual powers and for the following purposes:
(a) To audit the accounts of said receivers -now filed and of record in said cause, together with the account above provided for in this order. And it is further ordered by the court that said receivers shall forthwith file with said master all vouchers showing expenditures made by them as receivers during the term of their said receivership.
(b) To take evidence in respect of, to cpnsider and state an account upon said petition praying for an apportionment of the expenses of said canse and receivership between the fund representing the proceeds of sale of the real estate and plant covered by the mortgage and bonds of said company and the fund constituting the general assets derived-from the balance of the estate of said company.
(c) To take evidence in respect of, to consider and report upon said petition of said receivers for an allowance to said receivers for their compensation and compensation of their counsel.
(d) To ascertain and report the docket and all other costs in said cause.
(e) To state an account showing the net amount of money belonging to the estate of said receivership after the payment of all proper expenditures therefrom in view of his findings upon the matters hereinbefore referred to him, and to state an account showing the distribution of said net balance of the funds of said estate among the persons entitled thereto.
(f) With all convenient speed to report his findings and awards upon the several subject-matters herein referred to him.
3. It is further ordered by the Court that the said master shall, before proceeding to hearings upon. this reference, give public notice to all creditors, stockholders and bondholders of said the Diamond State Steel Company, and all other persons interested therein, by advertisement inserted in the Morning News, a daily newspaper published in the city of Wilmington, Delaware, once a week for four successive weeks, of the time and place of his commencing proceedings and hearings hereunder, and of the day on or before which all persons will be required to file exceptions or objections, if any-, to the accounts of said receivers.
4. Dor the purposes of this reference the three above recited petitions of said receivers are referred to the said matter, together with the said reports, accounts and vouchers of said receivers.
After duly giving notice as required by the order the master proceeded with the taking of evidence, oral and documentary, touching the matters referred to him. The evidence is voluminous, filling between .3,400 and 3,500 typewritten pages, wholly aside from a large mass of documentary evidence consisting of books, vouchers and other papers. The taking of evidence began October 6, 1910, and was finished April 4, 1911, sessions for the purpose having been held by the master on forty-eight days. After the conclusion of the evidence the master proceeded to consider the same, hearing protracted arguments from counsel, consuming four full days. After laboriously considering the evidence in connection with the arguments, and ruling upon numerous objections taken to his draft report, not only by the receivers, but sundry bondholders and general creditors of the steel company, the master filed the same as his report, embodying therein his findings, conclusions and recommendations November 15, 1912. To the report as filed the receivers and the said bondholders and general creditors respectively filed exceptions in this court December 13 and 14, 1912. At the time appointed for the hearing of these exceptions, objection having been takfen by the said bondholders and general creditors to the generality and form of the exceptions of the re
Generally speaking, and without: going into details at this point, the master in his report concluded and recommended (1) that the unpaid taxable costs of this cause he apportioned equally between the fund representing the proceeds of sale of the real estate and plant covered by the mortgage and bonds of the steel company and the fund constituting the general assets derived from the balance of the estate of that company; (2) that the expenses of the administration of the estate of the steel company should he apportioned between the two above mentioned funds in manner as therein recommended. To the above two findings and recommendations no objection or execution has been interposed by anybody, and those findings and recommendations are unobjectionable. The master in and by his report further finds that the receivers be surcharged in their account in the sum of $21,467.85, representing credits claimed by the receivers for expenditures held by the master to have been improperly, unnecessarily and extravagantly made for wages and salaries, office expenses, rents, travelling expenses, and divers other items unnecessary to enumerate. And he further finds that the receivers are not entitled to compensation in the amount claimed for them by their counsel. July 6, 1907, they received for their own services and those of their counsel $25,-000, of which $6,250 was paid to their counsel; the remaining $18,750 being retained by them for their own benefit. In their petition of june 20, 1910, above referred to, they pray for a further allowance of ‘‘fifty thousand dollars or such other sum as to the court may seem proper” for the compensation of themselves and their counsel. The master finds and recommends that a total allowance of $37,000 be. made to the receivers for compensation of themselves and their counsel, of which $20,000, including what they had retained for their own benefit as above stated, should go to the receivers, and $17,000, including what their counsel had already received as above stated should go to such counsel; the result being that were it not for the surcharges made by the master against the receivers they would receive in addition to the sum already paid to them for their own benefit the additional amount of $1,250, while they would receive for the benefit of their counsel the sum of $10,750, in addition to what they had already received for the benefit of such counsel. To the findings and recommendations of the master touching surcharges as above mentioned and his failure to find that the receivers were entitled to the amount of compensation claimed for them and their counsel, exceptions have been filed on the part of the receivers. On the other hand, the said bond
“As the case was referred by. the court to a master to report, not the evidence merely, but the facts of the case, and Ms conclusions of law thereon, we think that his finding, so far as it involves questions of fact, is attended by a presumption of correctness similar to that in the case of the finding by a referee, the special verdict of a jury, the findings of a circuit court in a case tried by the court under Rev. Stat. § 649 [U. S. Comp. St. 1901, p. 525], or in an admiralty case appealed to this court. In neither of these cases is the finding absolutely conclusive, as if there be no testimony tending to support it-; but so far as it depends upon conflicting testimony, or upon the credibility of witnesses, or so far as there is testimony consistent with the finding, it must be treated as unassailable.”
Where the reference is by the court, and not through the consent of the parties, a different rule applies; the finding of the master on questions of fact carrying with it less weight than in the former case. It has been said that in such case the findings and conclusions of a master are merely advisory to the court leaving the case open to be determined by the court upon the weight of the evidence. The weight of authority, however, and the better reason clothe the findings and conclusions of the master with a presumption of correctness, not lightly to be disregarded. Unless in a clear case the findings and conclusions of the master based upon conflicting testimony and evidence should not be disturbed; for the witnesses, not appearing before the court, but testifying before the master, the latter is in a more advantageous position from personal observation of the witnesses, their demeanor and their manner of testifying, to form a reliable opinion of the weight of the testimony than the court, not enjoying such an advantage. Hence the finding's of the master even where the reference is not by the consent of the parties are prima facie correct. Tilghman v. Proctor, 125 U. S. 136, 8 Sup. Ct. 894, 31 L. Ed. 664; Metzker v. Bonebrake, 108 U. S. 66, 2 Sup. Ct. 351, 27 L. Ed. 654; Callaghan v. Myers, 128 U. S. 617, 9 Sup. Ct. 177, 32 L. Ed. 547; Camden v. Stuart, 144 U. S. 104, 12 Sup. Ct. 585, 36 L. Ed. 363;
In Tilghman v. Proctor, supra, the court said:
•‘We are then brought to a consideration of the exceptions taken to the master's report in matters of fact, affecting the accuracy of Ms conclusions in respect to the amount of those profits, gains and savings. In dealing with these exceptions, the conclusions of the master, depending upon the weight of con flirting testimony, have every reasonable presumption in their favor, and are not to be set aside or modified unless there clearly appears to have been error or mistake on his part.”
In Camden v. Stuart, supra, the court said:
“In cases of this kind, referred to a master to state an account, depending, as they do, upon an examination of books, upon the oral testimony of witnesses, and, perhaps, as in this ease, upon the opinions of an expert, ‘his conclusions have every reasonable presumption in their favor, and are not to bo set aside or modified unless there clearly appears to have been error or mistake on his part.’ This was the rule laid down by this court in Tilghman v. Procter, 125 U. S. 136 [8 Sup. Ct. 894, 31 L. Ed. 664],” etc.
In Cimiotti Unhairing Co. v. American Fur Refining Co., supra, the court of appeals lor the third circuit, in 1909, approved the following proposition laid down by the court below:
“The well-settled rule is that the conclusions of a master on matters of fact have every reasonable presumption in tlieir favor, and are not to be set aside or modified, unless there clearly appears to have been error or mistake on Ills part.”
But were it otherwise, the evidence in connection with the briefs of coufasel and an independent examination of the law of the case, have satisfied me that the findings,, conclusions and recommendations of the master were proper and that his report should not be disturbed.
“That said receivers are hereby directed and required to keep proper books of account wherein shall be stated the earnings, expenses, receipts and disbursements of the said trust under this order of their appointment, and preserve vouchers for all payments made on account by them thereon.”
It goes without saying that the quarterly returns of merely receipts and disbursements were wholly inadequate to furnish the data requisite for the final settlement and adjustment of the affairs of the steel company, and could not be deemed a compliance with the obligation resting upon them, as trustees to keep proper books of account and vouchers as above stated. The fact that the quarterly accounts of the receivers largely failed to specify with particularity the items or classes of items for which expenditures were made, and the items or classes of items for which moneys were received by them, r'endered it all the more important that the books and vouchers, in contradistinction to the quarterly accounts, should be full, detailed and explicit. Had their books and vouchers been properly kept the reference of July 27, 1910, would have entailed but little trouble and the consumption- of but little time for the ascertainment and determination by the master of the matters submitted to him on the reference. But owing
Although the receivers were not or might not have been entitled to any credit by reason of the confusion of their accounts, the master using whatever light he could obtain upon the subject has erred, if erring at all, in treating the receivers with undue liberality in his determination of the amount to which they were entitled to credit by way of travelling expenses. And a statement similar to the above is applicable to the case of credits claimed by the receivers for travelling and other expenses of various officers employed by them with the difference that in the case of such subordinate officers the expenditures were usually stated with greater particularity and were in smaller amounts. The witness Frank W. Todd was permitted to draw from the “petit cash drawer” from time to time considerable sums of money upon depositing in the drawer receipts for the same specifying only that the sums therein mentioned were for “expenses,” without any itemization whatever.
Further, the evidence shows that the receivers were extravagant and at fault in employing and paying an unnecessary number of clerks
Further, the receiver Wallace was the owner of bonds and capital stock of the steel company to the amount of about $200,000. It does not appear that the receiver Winchester owned either bonds or stock of that company. A given plan for reorganization might be very advantageous to a large bondholder and stockholder, and at the same time detrimental to other bondholders and general creditors. The evidence points unmistakably to an effort on the' .part of the receivers to secure a reorganization of the steel company without any authority on their part so to do. The large amount of travelling expenses together with other evidence in the case cannot be reconciled with a mere intent on the part of the receivers to effect a sale in contradistinction to a reorganization of the company. And this accounts for much of the delay in the performance of their duties as receivers and in. their settlement of the estate.
The evidence shows that the receivers with respect to a number of matters affecting the interests of the bondholders and general creditors proceeded without due consideration of their authority, or any application through their counsel for instructions, and they seek to justify themselves for entering into sundry unauthorized transactions upon the ground that no loss resulted to the estate. This is particularly true of what was designated in the argument as the “trading account.” The receivers on their petition to the court had received authority to manufacture certain portions of unmanufactured materials as in their judgment would facilitate or render more profitable the sale and disposition of the product, and to purchase from time to time such materials as would “enable them to carry on such limited manufacture as above authorized, and to purchase such manufactured materials in the open market as in their judgment would be profitable to complete lots of manufactured products of said company for the purpose of the sales thereof hereinbefore authorized.” Instead of confining themselves within the limits of the authority thus conferred the receivers used the funds of the estate for the purchase of manufactured material to a large amount, not within the scope of their authority, and resold the same claiming that they had thereby made a profit of about $3,000, but without taking into consideration any expenses for carrying on the operation. The evidence in fact shows that the receivers improperly conducted the “trading account” prior to receiving any authority under their above mentioned petition.
Further, the management of the estate of the steel company by the receivers displays much improvidence, irregularity and negligence. Tffis court does not impute to either of the receivers a dishonest or immoral intent., But solely as illustrative of the laxity which marked their dealings with the property of the estate, it appears from the evidence that the receiver Wallace made use of its funds for the purchase of certain coal for himself and sundry employees of the receivers
It is claimed that the receiver Wallace is entitled to consideration and commendation by reason of the fact that he succeeded in collecting from certain pools the sum of $62,791.62, and turning it over to the receivers and that while he in his private capacity had no title to the above sum, or any part of it, yet it was solely on account of his personality that it was possible to collect the same. It should be said with respect to this matter that the evidence, documentary and circumstantial, shows to a moral demonstration that as bel ween Wallace and the estate of the steel company whatever right there was to receive the above sum was vested, not in Wallace, but in the estate and that it was obtained by the receivers by virtue of their receivership.
Wallace was the managing receiver and to him mainly attaches such culpability as is shown in the settlement of the estate of the steel company. But at the same time Winchester as a co-receiver who failed to scrutinize more closely what was done cannot be exonerated. If he be the victim of misplaced confidence he must nevertheless bear the consequences.
In the decision of this case the court is bound to consider the interests of the creditors of the steel company as well as those of the receivers, and it would be grossly at fault were it without sufficient cause to permit itself to lean in favor of the receivers and against the creditors who are the beneficiaries for whom the receivership was constituted.
I am satisfied after an examination of the record and of the arguments of counsel that his findings, conclusions and recommendations should not be disturbed. It may be that the court in the absence of a reference might have been less liberal to the receivers and their counsel, but on the whole I think there is np substantial ground of objection.
With respect to the disposition of the costs and expenses of the reference in question I am not prepared to overrule the finding of the master that they should be borne equally by the receivers and the estate.
The exceptions to the findings of the master must be overruled and his report in all respects approved and confirmed. Let a decree in accordance with this opinion be prepared- and submitted.