275 F. 894 | 6th Cir. | 1921
Sedberry, the bankrupt, caused the title to a farm and the personal property thereon to be conveyed to his wife. At a later date he became financially involved and filed a voluntary bankruptcy petition. The trustee in bankruptcy entered into a contract with Mr. Stokes, an attorney, to endeavor to recover the property. Accordingly, Mr. Stokes, in the name of the trustee, filed a bill in the state chancery court, alleging that the conveyance to Mrs. Sedberry was in fraud of creditors, and finally obtained a decree accordingly. The property which Mrs. Sedberry held and which was affected by this decree was worth about $100,000. The total claims against the bankrupt estate were about $21,500. The contract with Mr. Stokes provided for a. contingent fee of 50 per cent, of the amount recovered, and specified that he should advance and pay all the expenses of the litigation, without liability therefor on the part of the trustee in case of failure. The questions upon which controversy arose, and which now remain important, were whether the 50 per cent, contract was valid; if it was not, whether the attorney could recover the value of his servicés as upon a quantum meruit; if he could, whether the fee allow
Whether the fee should be charged against the fund devoted to pay the creditors, or should be added to that fund and charged against the surplus, is a question of difficulty, and often may be of importance. The District Judge here allowed a fee of $7,500.
There seems to be a distinct difference in the theories of the two sec
Whether property which the assignee recovers under section 70e, in the special right of some particular creditors, should be distributed in bankruptcy only to them, or should be distributed, also, among creditors who could not have avoided the transfer, is a question which is now immaterial. We are concerned only with the extent of the recovery. See Globe Bank v. Martin (C. C. A. 6) 193 Fed. 841, 113 C. C. A. 627; s. c., 236 U. S. 288, 35 Sup. Ct 377, 59 L. Ed. 583; In re Stuart (C. C. A. 6) 272 Fed. 938, 941.
The last part of section 70e, as applied to the facts in this case, helps us to interpret. For the purpose of such an action as was had here, the trustee may resort to the state court or to the bankruptcy court. The counsel fee being a part of the expenses of the trustee, the state court con'd have no jurisdiction to fix its amount, and yet, if resort was had to the state court to avoid the transfer, only that court could fix the amount which the defendants must pay in order to have the case dismissed, or for which, under the Tennessee statute, the creditor should have a lien. In the instant case, the state court could award a lien or recovery of only $21,500, while the bankruptcy court, upon the some facts, awarded $29,000. Certainly it was not intended that the statutory right of election between the courts should involve such a difference in the result.
We do not overlook that the form of the decree by the state court purported to transfer the whole title to the trustee; but the form which happened to be taken by the state court decree cannot control either the substantial right or the construction of the federal statute. Whatever the form of the decree, the trustee would doubtless be. required to malee a release of his lien or a conveyance of his title—-whichever
Our conclusion is that Under section 70e, the property to be reached by the trustee is only that interest which would have satisfied the demands of the creditors who might have avoided the transfer, and that the recovery cannot include the costs of the bankruptcy administration. The rightfulness of this conclusion is indicated by the discussion by Judge Lowell (D. C., Mass.) in Re Mullen, 101 Fed. 413, and by Judge Clark (C. C., E. D. Tenn.) in Bush v. Storage Co., 136 Fed. 918. The court below relied on Rogers v. Page (C. C. A. 6) 140 Fed. 596, 606, 72 C. C. A. 164, s. c., 149 Fed. 194, 79 C. C. A. 153, s. c., 211 U. S. 580, 29 Sup. Ct. 159, 53 L. Ed. 332, to the effect that such a counsel fee should be paid out of the surplus which would be returned to the grantee or bankrupt. If we are correct as to the substantial distinction in this respect between sections 67e and 70e, the inapplicability of Rogers v. Page appears, for that suit was brought under section 67e.
We also observe that, from our stated conclusion, it would follow that, where a fraudulent conveyance was within four months and there is a surplus above the claims of creditors, the bankruptcy administration expenses can be charged against the surplus, while, if the conveyance was more than four months old, this cannot be done, and that this seems an anomaly. However, the Bankruptcy Act is full of anomalies and contradictions, if every clause is literally applied. Further, we think this suggestion of conflict is only superficial, and that there is good reason for the distinction. Such a conveyance, made within four months, is forbidden equally in every state by the' express terms of the uniform system of bankruptcy which Congress has established, and it is logical to consider, as the estate of the bankrupt in the District Court for distribution, all the property, the presence of which in that court is required by the direct operation of the law itself. On the other hand, if the conveyance is more than four months old, it is reached only through calling upon some state law for aid; its liability to attack is no part of the uniform bankruptcy system. In some states, such attack would bring general relief to creditors; in others, partial relief; in others, none. It is fitting that the administration of such a feature shall conform fully to the state law—that the same law which creates tire right shall measure the remedy.
^ [8, 10] So far as the amount of the fee involves the discretion of the trial judge or his conclusion of fact as to what was reasonable, we cannot review it upon a petition to revise in matter of law. The opinion of the trial judge, which he expressly made his finding of fact, discloses the reasons or rules which controlled him in reaching the amount, and we can observe what these were. We think that the supposedly rather small chance of successful outcome, and the fact that for lack of assets the attorney could get no pay unless he succeeded, rightfully tend to justify a liberal fee; also, the amount of the recovery is a material element; but the District Judge considered the amount of recovery as $29,000, while we think the amount should be treated as $23,500.
In view of the changes in the situation which our conclusion makes necessary, the award should be vacated, leaving the District Judge at liberty to use his discretion in again fixing the amount, with due regard to the modified character of the recovery and the change in the source from which payment must be made.
We have examined the complaints made by Mr. Stokes and the trustee in their petition to revise. So far as these are not already covered hereby, we think they are without substantial merit.
The order under review should be modified, to the extent here indicated, and the case is remanded for that purpose. The Sedberrys will recover their costs.
All figures nerein are approximate, and intended only to identify the sum involved, not to fix it.