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Blut v. Katz

Decided: June 3, 1955.


Clapp, Jayne and Francis. The opinion of the court was delivered by Clapp, S.j.a.d.


This action was brought by the executrix of Isaac Blut against his two surviving partners for, among other things, an account as to his interest in the partnership. The defendants have continued the business, acknowledging, it is said, an obligation to pay plaintiff whatever is found to have been the value of Blut's interest as of his death. From a judgment awarding her a sum for the value of this interest, she appeals.

We deal with two points. The trial court held that the partnership estate is not a "fund in court" (R.R. 4:55-7(b)) from which a fee may be allowed her attorneys. This raises the first point. The other point has to do with the valuation of the partnership's good will: she by her appeal claims it undervalued in certain respects, and defendant surviving partners through a cross-appeal say it was overvalued in certain respects. Further as to this litigation, see Blut v. Katz , 13 N.J. 374 (1953).

The ruling of the trial court with respect to the matter of attorneys' fees was, we think, clearly proper. But at the risk of restating the obvious, we shall look back over the cases of the present Supreme Court on the matter.

The mere fact that, through some proceeding, a fund is subjected to the court's disposition, does not expose the fund to the allowance of fees. No fee was allowed in Driscoll v. Burlington-Bristol Bridge Co. , 8 N.J. 433, 496 (1952), where an illegal purchase was rescinded and injunctive control taken over a fund. The court noted that the action was not brought for the benefit of a class of which the plaintiffs were representatives. In what cases, then -- of those wherein a court subjects a fund to its disposition -- may an allowance be made from it?

The usual case is one where a party (sometimes a fiduciary or a cestui que trust , but others are comprehended), acting for the benefit of a number of persons, undertakes a judicial proceeding in the interest of a fund, to protect, recover, increase it or adjust rights in it. It is but fair that these persons bear their share of the expense of that proceeding.

Upon this basis, an allowance may be made, under familiar and settled practice, for the protection of the fund through "an accounting" by a fiduciary and a passage of his accounts -- or for the adjustment of rights in a fund through the "construction" of a will, where the creator of the fund, the testator, through a doubtful will, has brought down on his estate the litigation. Katz v. Farber , 4 N.J. 333, 344 (1950). See too In re Koretzky's Estate , 8 N.J. 506 (1951), where the beneficiary sued for the removal of an executor; Milberg v. Seaboard Trust Co. , 7 N.J. 236 (1951), abstracted in the Driscoll case, 8 N.J. , at page 495.

Upon the same basis, also, an allowance may be had in an action for interpleader, Farley v. Manning , 4 N.J. 571, 576 (1950), or in an action to adjust rights of parties in a fund deposited with the court "subject to the rules of court." Katz v. Farber , 4 N.J. 333 (1950), abstracted in the Driscoll case, 8 N.J. , at page 495. However, a plaintiff cannot put his attorney in line for a fee by paying money into court with a view to establishing that it belongs, not to the defendant, but to himself; he is acting only for himself. Janovsky v. American Motorists Ins. Co. , 11 N.J. 1 (1952).

But there are unusual cases which rest upon a somewhat different basis. Thus an allowance may be made in an action instituted by one in a quasi -fiduciary position on behalf of the sole beneficiary or owner of the fund, where the fund is recovered or preserved. United States v. Equitable Trust Co. of New York , 283 U.S. 738, 51 S. Ct. 639, 75 L. Ed. 1379 (1930) (an allowance made to an attorney for the next friend of an incompetent), abstracted in Katz v. Farber, supra , 4 N.J. , at page 342, and in State v. Otis Elevator Co. , 12 N.J. 1, 11 (1953).

Another unusual situation arises in an action for the escheat of personal property wherein an allowance may be made to defendant's and plaintiff's attorneys not only on the usual basis above stated, but also on another basis. Here the State, which is proceeding for the recovery of a fund, calls upon the defendant to assist it in the process. Again, as in the above cases, a party (here the defendant) has conferred in the nature of a quasi -contractual benefit on another (in this case the plaintiff) who has an interest in the fund; that is to say, his attorney renders legal services on the fund's behalf in the very action of account which subjects the fund to the court's control. State v. Otis Elevator Co. , 12 N.J. 1, 12, 19, 21 (1953).

There are or may be other bases upon which R.R. 4:55-7(b) may be invoked. As to cases in other jurisdictions, see Note, Allowance of Attorneys' Fees from a Fund in Court , 35 Col. L. Rev. 740 (1935). But -- without undertaking in any way to lay out an all-engrossing criterion -- we may say that the present case is clearly not within the compass of such philosophies as these.

It is true that in the case of a partnership the surviving partners or partner is in some measure a fiduciary for the estate of the deceased partner and accountable as such to his estate with respect to all assets of the partnership. Andrews v. Stinson , 254 Ill. 111, 98 N.E. 222, 225 (Sup. Ct. 1912); Jackson v. Jackson , 343 Ill. App. 31, 98 N.E. 2 d 169, 176 (App. Ct. 1951); Malden Trust Co. v. Brooks , 291 Mass. 273, 197 N.E. 100, 105 (Sup. Jud. Ct. 1935); Phillipson v. Phillipson , 302 Mich. 84, 4 N.W. 2 d 477, 479 (Sup. Ct. 1952); Losch v. Marcin , 251 N.Y. 402, 167 N.E. 514, 516 (Ct. App. 1929); 68 C.J.S., Partnership , ยง 285, p. 785; 40 Am. Jur. 342.

But plaintiff seeks a fee, not out of moneys recovered (nor out of moneys which were deposited by defendants with the court to avoid a receivership and which have now been paid over to her on account of her judgment), but out of the defendants' shares in the partnership. She has rendered no benefit to the entire partnership estate. She has not

attempted to preserve or perform any service for defendants' shares; nor has she in any way, directly or indirectly, acted for defendants' benefit. Indeed, the issue is directly controlled by what we had to say in Long v. Mertz , 21 N.J. Super. 401, 404 (App. Div. 1952).

As to the second question, namely, the valuation of good will, it is first to be noted that the parties here accept the formula employed below, and we therefore confine our attention to that formula. For the federal estate tax practice with respect to the valuation of closely held businesses, see Estate Tax Handbook , edited by J. K. Lasser (1951), 386-404; see also the formula once commonly relied on, A.R.M. 34, 2 C.B. 31, 32 (1919). In general as to the valuation of good will, see Tracy v. Alexander , 17 N.J. 397 (1955); Milberg v. Seaboard Trust Co. , 7 N.J. 236, 242 (1951); 53 Col. L. Rev. 660, 696 (1953); 47 Journal of Accountancy 429 (1929); 64 Id. 28 (1937); 31 Neb. L. Rev. 559 (1952). Some courts seem to have rejected a formulistic approach to the matter. Com'r of Corporations and Taxation v. Ford Motor Co. , 308 Mass. 558, 33 N.E. 2 ...

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