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In re Marine Maintenance Corp.

decided: March 28, 1950.


Author: Mclaughlin

Before McLAUGHLIN and O'CONNELL, Circuit Judges, and FEE, District Judge.

McLAUGHLIN, Circuit Judge.

These matters embrace four separate appeals in a Chapter Ten reorganization proceeding.

The first appeal is by the Trustee from the amount of fees awarded him and from two surcharges against him.

Edward R. McGlynn was one of two trustees appointed in this matter on February 23, 1943. The other trustee resigned on October 11, 1943, and McGlynn thereafter functioned alone. The Debtor owned and operated a shipyard in Bayonne, New Jersey. On February 18, 1943, just prior to the Trustee's appointment, the Government took possession of the shipyard pursuant to an order of possession in a related condemnation proceeding. That possession was not relinquished until March 15, 1945. Thereafter, the Trustee leased the yard to a new corporation. He never actually operated the shipyard himself.

The Referee found that the administration of the Chapter Ten proceeding was extremely successful. A plan of reorganization was confirmed by order of June 26, 1947, and the shipyard was returned to the Debtor with a cash working capital of $150,000.

At the time of the appointment of the trustees, the United States had instituted condemnation proceedings against all of the Debtor's real and personal property (cash, accounts receivable and choses of action excepted). An indictment had been returned against the Debtor, its president and treasurer. This involved numerous charges of fraud in connection with work performed and materials furnished the Maritime Commission.There was also pending a civil action by the Government for penalties arising out of the criminal charges.

The Trustee assisted his attorneys materially in the criminal trial.That case lasted eight weeks and resulted in acquittals of the Debtor and its president, and in the conviction of the treasurer. The treasurer's conviction was later reversed on appeal. The Trustee also rendered important help in various matters arising out of the condemnation and in the Government's civil litigation. Throughout the period of his trusteeship it was necessary for him to maintain a bookkeeping and accounting staff to assist him in attending to the numerous details connected with preparation of the trial of the indictment, collection of accounts, settlement negotiations with the Maritime Commission, review of employees' records for the purpose of refunding of war bond deductions, processing some 550 proofs of claim, taking care of New Jersey Unemployment Compensation and Federal Social Security returns for a considerable period prior to the trusteeship and various problems regarding the financing of the Debtor.

There were approximately 170 petitions, orders, reports, stipulations and memoranda filed with the Clerk in the proceeding. The Trustee prepared most of these and participated in all of them. The trusteeship entailed voluminous correspondence. The Trustee had assistance on occasion from various members of his law office personnel and one of his associate lawyers spent practically full time on trusteeship affairs for over two years.

The Trustee filed two itemized petitions for services of 151 pages and 55 pages respectively. He was allowed a total of $25,000 for his services; $15,000 of this by way of ad interim compensation. There is a dispute between the parties regarding the correctness of the Referee's calculation of the sum available for fees and disbursements. It is not necessary for us to go into that because there is no indication that the Referee's recommendation of additional compensation to the Trustee was based on anything but the value of the latter's services. Later that whole dispute was aired before the District Judge on the Trustee's specific exception to that part of the Referee's report. Having considered the Trustee's petition for allowance in connection with the Referee's report and the exceptions thereto, the Court, without any qualification, found: "That the sum of $10,000.00, in addition to the allowance of $15,000.00 heretofore made, is reasonable and just compensation for the services rendered by Edward R. McGlynn, Esq., the Trustee, and he hereby is allowed the sum of $10,000.00 as compensation for such services, in addition to the sum of $15,000.00 heretofore allowed."

The Trustee is an experienced lawyer. Generally speaking, he performed an excellent job of work in this tedious, exacting matter. He was instrumental in the good over-all results obtained. However, we cannot say that the sum awarded him is so unreasonable as to warrant interference by this Court. Dickinson Industrial Site v. Cowan, 309 U.S. 382, 389, 60 S. Ct. 595, 84 L. Ed. 819; In re Standard Gas & Electric Co., 3 Cir., 106 F.2d 215, 216; Newman v. Ambassador Apartments, Inc., 3 Cir., 101 F.2d 307, 308; Oklahoma Ry. Co. v. Johnston, 10 Cir., 155 F.2d 500, 502; In re Long Island Properties, Inc., 2 Cir., 150 F.2d 313, 314.

The two surcharges against the Trustee present a radically different situation. The first involves weekly payments by him to his chief accountant in reimbursement to the latter for expenses incurred and payments made by him in the discharge of his duties.These totalled $1,340.08. The Court found that the payments "cover expenses necessarily incurred by the Trustee in the discharge of his duties * * *." But because the Court felt that if it allowed the payments it would be lending its approval to the "bad accounting practice" of "paying the sums without supporting vouchers or receipts" the Court sustained this exception to the Trustee's account.

We agree that the method, or lack of method, displayed by the Trustee in this very minor phase of a business reorganization in which he handled total cash receipts of $3,534,700.68 and disbursed $3,468,954.33, was slipshod and deserving of censure. But in the light of the finding that the payment covered expenses necessarily incurred by the Trustee in the discharge of his duties, we do not think the surcharge warranted. He has not been found in positive fault, Gutterson & Gould v. Lebanon Iron & Steel Co., C.C.MD.Pa., 151 F. 72, 75, 77, 78, or negligent. In re Lambertville Rubber Co., 3 Cir., 111 F.2d 45, 50; In re Schoenfeld et al., 3 Cir., 183 F. 219, 221. Since the District Judge in both his memorandum opinion and his order has given clear expression to the thought that he does not approve of the Trustee's accounting practice, which is the Court's sole reason for the surcharge, and since this phase of the matter was before the Court for the first time with no opportunity of warning the Trustee that his method was frowned upon, it does seem that the surcharge is too drastic a remedy, reflecting as it does upon the Trustee in a manner not supported by the findings.

The second surcharge concerns a disbursement for rent. This amounts to $1,725.00 at the rate of $50 a month. It was paid for an unused room in the Trustee's suite of law offices. The room was available because the lawyer who had occupied it was in the Army. Office space was admittedly almost impossible to obtain in the desired location. The rent for the premises during the Trustee's occupancy was paid by him directly to the landlord's agent. The Court accepted the Trustee's explanation that his only reason for taking over the particular quarters was that no other space was readily available in the years 1944, 1945 and 1946. The Court did not question the necessity of the expenditure, but because it considered that approval should have been first obtained, it made the surcharge. What the Court said was: "The third exception is directed to rents in the total amount of $1,725.00, for office space occupied by the Debtor during the period of reorganization, but formerly occupied by the Trustee. It is admitted that a monthly rental of $50.00 was paid to Albert Greenfield & Co., for this space, which was apparently released by the Trustee. The only explanation of the Trustee is that no other space was readily available during the years 1944, 1945, and 1946, and we accept this explanation as true because we know that office space ...

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