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In re Solar Mfg. Corp.

decided as amended september 1 1954: August 2, 1954.


Author: Hastie

Before GOODRICH, KALODNER and HASTIE, Circuit Judges.

HASTIE, Circuit Judge.

This dispute is about fees allowed in a proceeding under Chapter X of the Bankruptcy Act. The record is familiar to us. On prior appeals we have (1) reversed an order approving a sale of the debtor's assets because not included in a plan, 1949, 176 F.2d 493; (2) reversed an order denying a motion to reduce the number of trustees and affirmed an order granting interim allowances, 1951, 190 F.2d 493; (3) affirmed an order, D.C., 102 F.Supp. 859, asserting jurisdiction as to counterclaims against a creditor, 1952, 200 F.2d 327, and (4) vacated an order for final allowances, remanding for further hearings, 1953, 206 F.2d 780. That most recent remand led to a new order allowing the same fees as before. In the present appeals parties dissatisfied with the allowances claim that certain persons, particularly the trustees and their counsel, have received unreasonably large allowances while other parties whose services have benefited the estate have received unreasonably small allowances.

The dissatisfied parties are the appellant Samuel Marion and the appellants Milton Unger and Edward Endelman, all attorneys, who came into the proceeding representing certain holders of debtor's debentures; Morton Stavis, attorney for the debtor's employee creditors; and the Securities and Exchange Commission, appearing in its statutory role as provided in Section 208 of Chapter X, 11 U.S.C.A. ยง 608. The Commission supports the contention of each of the above named parties that his fee should be increased, though not by as much as each claimant would like. Appellant Marion and the Commission also urge very forcefully that the fees allowed the trustees, their attorneys and certain others are too large.

We consider first the size of the estate and, in broad outline, what its administration has involved. The debtor manufactured electronics equipment. A voluntary petition for reorganization under Chapter X was filed December 14, 1948.The court appointed trustees who continued the business for eight months. However, on August 1, 1949, the debtor's business was discontinued. Activities during the ensuing months resulted in April 1950 in the sale of all of the debtor's assets except cash and causes of action for $815,000. Since April 1950, the responsibilities of the trustees in the solely of $1,230,000 in cash and claims administration of the estate, consisting solely of $1,230,000 in cash and claims not been significantly different from incidents of an ordinary bankruptcy administration with attorneys retained to handle both legal routine and contested matters. Progress has been slow. No suit on behalf of the debtor has yet resulted in any substantial addition to the estate. Finally, priority claims against the estate have been paid and general creditors have received 25 percent of their claims. Miscellaneous fees, disbursements and reservations had further reduced the unreserved funds of the estate to about $185,500 when the now contested allowances were made.

The order appealed from has brought the total of fees and allowances approved by the district court to $212,000. An aggregate of $166,000, or about three-fourths of the total allowances has gone to the trustees and their attorneys. Allowances are now stated as final, but only for a period ending November 15, 1952. There is yet to be compensation in connection with the prosecution of pending litigation on behalf of the debtor and presumably supplementary allowances will be claimed for other things which have transpired since November 1952.

When the trustees liquidated the debtor's business the value of the estate was revealed as about a million and a quarter dollars, plus claims of unknown and in 1954 still unascertained value. Fees and allowances have already consumed about 17 percent of the liquidated value. And, the history of this proceeding considered, it is a reasonable assumption that supplementary claims for the period since November 1952, not including counsel fees for pending litigation, will be such as would, if allowed, increase that 17 percent to about 20 percent. Allowances to trustees and their counsel, including these now challenged, have represented about 14 percent of the value of the estate with more to come. On the other hand, general creditors will get little more than 25 percent of their claims, unless pending litigation results in very substantial recovery.

Thus viewed, these allowances seem very high. In Coskery v. Roberts & Mander Corp., 3 Cir., 1952, 200 F.2d 150, where receivers and their counsel had wound up a business and thereafter administered and distributed an estate of about the same value as this one, we held that allowances of $125,000 to receivers and their counsel were "grossly excessive". And we acted in the absence of any complaint that the awards were excessive, the order determining fees having been appealed for a different reason.It is true that the eight month operation of the business here seems to have been a larger task than the winding up of the business in the Coskery case; but not enough larger to make $166,000 in allowances here look any more reasonable here than $125,000 looked there.

Our concern is all the greater when we remember that after the second round of allowances to the trustees - we are now on the fourth - the district court, granting the allowances, admonished that "* * * any subsequent fees or allowances made to the Trustees must of necessity be small." But now that a second judge has exercised his discretion in the granting of further allowances, we find that allowances have more than doubled since the quoted warning. At that time the trustees alone had received $41,000. Now they have received $86,000.

In greater detail, the trustees, John J. McGirl and George Furst, were appointed at the inception of the Chapter X proceeding on December 14, 1948. For convenience we break down their administration into periods, the first covering approximately the calendar years 1949 and 1950. During the first eight months of that period the trustees operated the substantial electronics manufacturing business of the debtors. But there has been no going business since August 1, 1949. From August 1949 to April 1950 there were negotiations and litigation concerning the disposition of the debtor's saleable assets. In April 1950 all assets except cash and causes of action were sold for $815,000. The estate then consisted of about $1,230,000 in cash and, in addition, potential causes of action. Thereafter the administration of the estate involved only the disposition of outstanding claims and causes of action and the distribution of money.

For this first period, 1949 and 1950, the court approved two interim allowances to the trustees aggregating $41,000 divided equally between them pursuant to their petitions for equal amounts, although these same petitions alleged a total of about 3600 hours of work by McGirl and about 2000 hours by Furst. The trustees were, of course, equally responsible for the administration of the debtor's estate and their combined efforts could properly be evaluated as a unit. And they are in no position to complain of equal allowances which they requested.

In these circumstances we attach great significance to the already quoted observation of the District Judge in his opinion of December 28, 1950, approving the second interim allowances, that "* * * any subsequent fees or allowances made to the trustees must of necessity be small." He also added that the joint allowance of $25,000 then being requested might not be excessive compensation for the services rendered but that $16,000 would be granted since full payment was not then being made. Thus, it seems to have been the thinking of the District Judge who was actively supervising the reorganization and had fresh in mind what had been and normally would be required of the trustees that something close to $50,000 would be fair compensation for the entire trusteeship.

This court reviewed and approved the $16,000 interim allowance. At the same time we expressed doubt that we would have made further interim payment to the trustees and added that "* * * we wish to guard against the impression that we have concluded that it is only a small payment on account." And as to what lay ahead we pointed out that "* * * There is now no business to run. * * * The business, except for distribution of the assets * * * is legal business * * *" 190 F.2d 273, 274. Our conclusion from this is that there was every reason to anticipate, and the trustees were clearly on notice, that no large additional allowances to them beyond the $41,000 already received would be approved either by the district court or this court. Certainly, it was not contemplated that allowances would more than double.

We come now to a second period, the year 1951, ending with the submission and acceptance of the resignations of the trustees in December. At the beginning of this period the Securities and Exchange Commission asked that the number of trustees be reduced from two to one. To us it has seemed clear that soon after the sale of the assets of the business there ceased to be any need for two trustees to administer the cash on hand and to assist counsel with litigation of contested claims. See our opinion in 190 F.2d 273, 274. However, the trustees fought for their plurality all the way to the Supreme Court. Certiorari denied, McGirl v. Minty, 342 U.S. 893, 72 S. Ct. 200, 96 L. Ed. ...

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