122 F.2d 258 | 2d Cir. | 1941
This case embraces a large number of consolidated appeals from orders granting or refusing allowances in a corporate reorganization initiated under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, on June 29, 1934. In passing upon the applications for allowances the district judge ruled 'that the provisions of the Chandler Act 11 U.S.C.A. § 1 et seq., were applicable. The appeals came to this court in two groups. The first group, which included appeals from orders entered in February 1939, was argued in May of that year, but decision was held in abeyance until the district court should pass upon additional pending applications for compensation in order that we might know the aggregate of the administration costs. In re Prudence-Bonds Corporation, 2 Cir., 106 F.2d 44. By order entered November 6, 1939, the additional allowances were fixed. They were brought to this court by a supplemental record and constitute the second group of appeals. Argument as to this group was heard in February, 1940. Before decision was rendered motions to dismiss both groups of appeals for lack of jurisdiction were made and granted. In re Prudence-Bonds Corporation, 2 Cir., 111 F.2d 37. This order was reversed on January 6, 1941. Reconstruction Finance
When Prudence-Bonds Corporation, hereafter called the debtor, filed its petition for reorganization, there were outstanding eighteen issues or series of its bonds, of the aggregate principal amount of some $56,000,000. The bonds had been sold to the investing public and were held by some 30,000 different owners. Payment of the bonds and interest thereon was guaranteed by The Prudence Company, Inc., hereafter called the guarantor. Each series of bonds was secured by a pledge of collateral deposited with a corporate trustee under a trust agreement. The pledged collateral consisted mainly of real estate mortgages, which were being “serviced” by the guarantor, although it was in default under its guaranty. Much of the delay and much of the expense incident to the debtor’s reorganization was due’ to litigation caused by the guarantor’s unwillingness to give up such “servicing.” The debtor and the guarantor were affiliated corporations, the stock of each being owned by New York Investors, Inc., hereafter called the stockholder. The stockholder filed reorganization proceedings on January 7, 1935, and the guarantor did likewise on February 1, 1935. The same individuals who had been appointed reorganization trustees for the debtor, were also appointed trustees for the stockholder and the guarantor.
In addition to its eighteen series of bonds the debtor had also put out some $53,000,000 of mortgage participation certificates, but these certificates did not represent debts of the debtor and were not reorganized in this proceeding.
Against the background of this brief outline we pass to a consideration of the present appeals. The allowances made by the orders of February, 1939, were nearly $480,000, those fixed by the order of November 6, 1939, come to about $626,000, and prior interim allowances add about $350,000 more, making a grand total of some $1,450,-000. The new corporation and Reconstruction Finance Corporation appealed on the ground that the total cost of the reorganization was excessive and allowances to specified claimants too high. Appeals were
Of the appeals which survive we will take up first those of the appellants who were refused any award whatever.
1. Claim of Harry H. Oshrin. He represented several bondholders on whose behalf he brought suits in the state courts to compel the corporate trustees of the issues involved to settle their accounts and distribute the income then in their possession. These suits were stayed by order of the bankruptcy court, one of the stay orders being affirmed by this court. In re Prudence-Bonds Corporation, 75 F.2d 262. The appellant asserts that his fees for services in the state court suits are secured by an attorney’s lien, but he does not say to what property the lien attaches. Certainly not to anything which the suits brought into the bankruptcy court, for they brought in nothing. In so far as the suits sought distribution of income, their object was to dissipate the reorganization estate. Denial of any allowance was plainly right. The order is affirmed.
2. Claims of London, Klupt, Herz and McKercher & Link. This is a joint appeal by attorneys who severally represented individual bondholders. Since the district court ruled that it was feasible to apply the provisions of the Chandler Act, the appellants claim that they are entitled to compensation by virtue of section 243, 11 U.S.C.A. § 643. But these provisions do not mean fees as of course; compensation is to be awarded only for services which contributed to the plan confirmed or were beneficial in the administration of the estate. We, see no adequate reason to reverse the denials of compensation. They are affirmed.
3. Claim of Condon. This appellant has not even thought enough of his appeal to file a brief. The order is affirmed.
4. Claim of Alfred T. Davison. He requests an allowance of (a) $1600 for services in preparing a plan for readjustment under the Schackno Act, N.Y.Laws 1933, ch. 745, Unconsol.Laws, § 1796 et seq., of the Seneca issue of mortgage certificates, and (b) $350 (plus $7.25 disbursements) for services in preparing a proof of claim based on a lease of the property covered by the Seneca mortgage. The services covered by item (a) were performed under employment by the debtor and the guarantor and before the debtor’s reorganization proceedings were instituted. These proceedings necessitated abandonment of the attempt to reorganize under the Schackno Act, but the appellant claims that his services were beneficial to the plan confirmed in the debtor’s proceedings and that his right to compensation, if the services were beneficial, was recognized by the order of July 2, 1936, setting up a $15,000 reorganization expense fund. The master, however, found against him on the issue of benefit. While there are similar features in the two plans, that is something to be expected even between plans independently prepared. We see no adequate ground for reversing the master’s finding. The services covered by item (b) relate to a proof of claim filed in the name of The Prudence Company, Inc. against Paramount Publix Corporation. The claim was subsequently expunged without notice to Mr. Davison, thereby destroying his attorney’s lien. If entitled to redress, he should seek it from The Prudence Company rather than the debtor. Denial of the Davison claim is affirmed.
5. Claim o'f William T. Cowin, trustee of the guarantor. This is a claim for some $249,000 for the alleged cost of “servicing” sixteen of the series of bonds from February 1, 1935, to about July 1, 1936. Prior to the debtor’s petition for reorganization one of the corporate trustees brought a suit to terminate “servicing” of the collateral by The Prudence Company, Inc., which was in default as guarantor. Decision for the plaintiff was rendered January 24, 1935. President & Directors of Manhattan Co. v. Prudence Company, Inc., 266 N.Y. 202, 194 N.E. 408. Forthwith the guarantor took shelter under section 77B and its trustees continued to hold on to the “servicing” business. That they were not entitled to do so was decided by this court
6. Claim of Charles H. Kelby, Trustee of New York Investors, Inc. This claimant seeks reimbursement of $50,954.64 expended by him as trustee of the debtor’s sole stockholder in connection with promulgating plans of reorganization. The expenditures were for printing, mailing, advertising, soliciting bondholders’ consents to the plans, and employing clerical help incident thereto. They were incurred at the request of the debtor’s directors because the debtor itself had no money and its trustees were not authorized to propose plans under section 77B of the Bankruptcy Act. The special master treated the expenditures as a loan to the debtor to which no recognition could be given in view of the debtor’s insolvency. The appellant’s contention that the record does not support the theory of a loan must be sustained. The expenditures were expenses incurred by the stockholder in trying to put through a reorganization in the interest of the debtor, i.e. a plan which would preserve some value for the stock. That plan failed when the debtor’s insolvency was found. Nevertheless, the stockholder’s efforts were of some benefit to the plan ultimately confirmed because the consents of bondholders obtained as a result of them were turned over to the debtor and made up about half of the necessary percentage of acceptances. Under section 243 of the Chandler Act, 11 U.S. C.A. § 643, which the district court declared applicable, we think the stockholder’s disbursements should have been allowed to the extent of the benefit conferred. This amount cannot be determined with mathematical certainty. When the debtor was found to be insolvent the stockholder’s trustee ceased its activities in respect to obtaining consents and the debtor’s trustees undertook the work with a fund provided by order of the court. The sum so spent by the debtor’s trustees and approved by the court was roughly $40,000 in obtaining about the same amount of consents as had the stockholder’s trustee. The order is reversed and the claim allowed in the sum of $40,000.
7. Claim of Edward Endelman and Jacob A. Freedman. These appellants filed jointly with Cullen & Dykman an application for an allowance of $50,000 for services as counsel to the General Committee for Prudence Securities. This committee was given leave to intervene by order of March 19, 1936. It represented bondholders in each of the debtor’s eighteen series of bonds, and only bondholders. The master found Cullen & Dykman disqualified to receive compensation as counsel for the
We pass now to a consideration of awards, other than those to the corporate trustees and their attorneys, which are questioned as béing either excessive or inadequate.
1. Award to Jacob A. Freedman. This is sufficiently covered by the discussion of the claim of Endelman and Freedman, supra.
2. Award to Samuel Silbiger. The master recommended $1,000, which the judge increased to $5,000. Mr. Silbiger came into the proceeding at an early stage as the representative of two bondholders. Normally an attorney for a creditor must look to his own client for his compensation. See Straus v. Baker Co., 5 Cir., 87 F.2d 401, 407. Since the master and the district judge considered his services of some general benefit to the estate we are not disposed to deny him any allowance but we think $5,000 too high. One of the grounds on which he attempts to sustain it is that he was the first to move for an adjudication that the debtor was insolvent. As this motion was overruled, he can claim no credit on that account. We think an allowance of $3,000 adequate. The order will be modified accordingly.
3. Award to Prudenqe Bondholders Protective Association. This committee intervened on December 24, 1936. It represented some 2,100 holders of bonds, aggregating nearly $4,000,000, although other committees claimed to represent over half of the same bondholders. The committee applied for $15,000 for services and $25,228.52 for disbursements. There were already six committees in the case and the master was of opinion that this committee was not needed and contributed nothing of value for which they should be compensated out of the estate. He recommended that nothing be allowed. The district judge awarded the committee $2,500. The committee appealed as did also the new corporation and Reconstruction Finance Corporation. Quite evidently the award of $2,500 was a sop and we should be disposed to disallow it entirely except for the concession in the briefs of the new corporation and Reconstruction Finance Corporation that the committee obtained some acceptances to the plan confirmed. The allowance is affirmed.
4. Award to Kadel, Sheils and Weiss. These attorneys were counsel for Prudence Bondholders Protective Association. They requested an allowance of $50,000. The master recommended that no award be made; the judge granted an al
5. Award of $20,000 to Delafield, Marsh, Porter & Hope. This firm of attorneys was employed at the instance of the special master to prepare a general form of supplemental trust agreement for use in each of the 18 series. They spent 911 hours in the work. We think $10,000 would be adequate compensation for this service. The order is modified accordingly.
C. We come now to the awards to the corporate trustees and their attorneys. The amounts requested by the eleven corporate trustees and their attorneys totaled approximately $1,424,000. They were awarded $626,097.20.
“Lien “Reorgani-Services” zation Services**
Bank of Manhattan........... $56,333.41 5 3,380.94
Its attorneys ................. 50,000.00 6,000.00
City Bank Farmers Trust Co. 54,384.74 6,829.60
Its attorneys ................. 50,000.00 14,148.02
Manufacturers Trust Co...... 41,174.80 6,236.92
Its counsel .................... 27,500.00 5,299.57
Chase Bank .................. 21,555.93 3,536.13
Its counsel .................... 17,500.00 4,557.01
Chemical Bank ............... 12,545.29 7,899.99
Its counsel .................... 20,000.00 5,620.94
Attorneys for State St. Tr. Co. 6,403.76
In arriving at the amount of the “lien” awards the master allowed for servicing collateral at the annual rate for the period of servicing of % of one per cent, of the outstanding bonds; and in addition included for so-called normal services under the trust indenture at the rate of Yzo of one per cent, annually of the outstanding bonds. The corporate trustees complain that these rates are inadequate; but both the master and the district court found that they provided reasonable compensation for the services rendered. The bankruptcy court had power to determine what was reasonable compensation for services protected by liens under the trust indentures and this court is disinclined to disturb the district judge’s decision in such matters. Gross v. Busch Terminal Co., 2 Cir., 105 F.2d 930, 932. Before the special master the new corporation specified sums which should not be exceeded in making allowances to the corporate trustees. In each instance the master allowed less than the maximum suggested by the new corporation. We are satisfied to let the allowances stand. This is likewise true as to the fees awarded to attorneys of the trustees. The attorneys strenuously urge that a comparison of their awards with allowances made to the attorneys of committees, of the debtor and of the debtor’s trustees shows unfair discrimination. We have already expressed the view that the allowances to those attorneys were much too high, but the discontinuance of the appeals respecting them precludes reduction of the allowances by this court. With the allowances still before us to attorneys of the corporate trustees we are satisfied.
The order of November 6, 1939, directed that payment of the sums classified as lien services be withheld pending disposition of proceedings for the judicial settlement of the accounts of the respective corporate trustees. In this respect the order is unnecessarily severe. There is no suggestion that the corporate trustees are not financially responsible and able to meet any surcharge which may be made in the accounting proceedings. They and their attorneys have waited long for the fees and payment should not be longer deferred.
The orders before us on appeal are modified as indicated in this opinion; as thus modified they are affirmed. No appellate costs are allowed except in the Endelman and Freedman appeal.
The Seneca issue of certificates is an exception to this statement. It is of no significance in any of the present appeals except that of Alfred T. Davison.
Counsel for the new corporation stated that settlements effected in the appeals which have been severed and discontinued have produced a saving of $178,939.57.
This excludes the $20,000 awarded to Delafield, Marsh, Porter & Hope discussed in the preceding paragraph. Including this sum and also $56,626.16 received by the corporate trustees and their attorneys during the course of the proceedings, the total awarded them is some $702,000, of which $40,000 was for reimbursement of expenses.