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In re Xaviers Inc.

Decided: April 3, 1961.

IN THE MATTER OF THE GENERAL ASSIGNMENT FOR THE BENEFIT FOR CREDITORS OF XAVIERS, INC., T/A THE WELL, A NEW JERSEY CORPORATION, ASSIGNOR, TO MYRON S. LEHMAN, ASSIGNEE. UNITED STATES OF AMERICA, APPELLANT,
v.
MYRON S. LEHMAN, RESPONDENT



Conford, Freund and Kilkenny. The opinion of the court was delivered by Freund, J.A.D.

Freund

This appeal by the United States, a priority creditor of the corporate assignor, Xaviers, Inc., t/a The Well, is from a judgment of the Essex County Court, Probate Division, awarding commissions to the assignee and counsel fees to his attorneys, as well as reimbursing both for out-of-pocket disbursements on behalf of the estate.

The assignor had been engaged in the operation of a tavern-restaurant in West Caldwell, N.J. The corporate estate was assigned to Myron S. Lehman, Esq., a member of the bar of this State, on August 13, 1959, and recorded the following day. Inventory and appraisal of the estate revealed only one asset -- a plenary retail consumption license, estimated to have a worth of $1,000. Without seeking the approval of the court, the assignee engaged the services of his present attorneys. The latter arranged for the sale of the license at public auction, and a transfer of the license for the sum of $3,100 was made and was confirmed by the Probate Division.

The list of claims filed with the assignee indicated 33 general unsecured creditors with claims totalling $16,965.57 and three priority claimants in the amount of $7,196.85. The United States, more specifically the Director of Internal Revenue, asserts a claim of $4,696.60.

The complaint and final account of the assignee recited distributions of $446.51, leaving an estate balance of $2,653.49. The assignee then made application for and was granted commissions of $620 and $46.30 for his disbursements. His attorneys, by separate application, prayed that they be allowed $600 as compensation, plus $22.24 for out-of-pocket disbursements. The court awarded the requested reimbursement but limited their counsel fee to $400.

The Government's principal objections to the awards are shaped in the following contentions: (1) an assignee may engage an attorney only upon prior approval of the court, and approval was not obtained in the instant case; (2) the

statutory 20% maximum of "commissions and allowances" permitted an assignee for the benefit of creditors by N.J.S. 2 A:19-43 is inclusive of fees to counsel engaged by the assignee; and (3), in any event, the commissions and allowances approved by the probate judge are unreasonable and excessive under the prevailing circumstances.

I.

We will consider first the failure of the assignee to obtain a court order prior to engaging counsel and the effect of that omission on his attorneys' right to separate fees. Respondent unequivocally states in his affidavit of services that immediately upon receiving the deed of assignment from the assignor, he "retained the services of Kleinberg, Moroney & Masterson to act as my counsel in these proceedings."

Appellant maintains that the engagement of counsel can only be accomplished by motion and affidavit seeking a court order, pursuant to R.R. 4:68-4, which provides that:

"No receiver shall employ an attorney, counsel or accountant except upon the order of the court supported by an affidavit of the receiver setting forth the necessity for the employment. The court before authorizing the employment of an attorney, counsel or accountant, shall be satisfied that he is not interested in the suit, or in any of the parties thereto, in such a way as to disqualify him from serving in good faith the receiver as a fiduciary for all of the stockholders and unsecured creditors of the corporation, or the unsecured creditors of the partnership or individual. The employment of more than one counsel may be authorized, but the total fees allowed them shall in no event be increased because of the number of counsel employed."

The Government notes that the practice with respect to the employment of counsel in receiverships is made applicable to assignment proceedings by R.R. 4:69, which simply states that "the practice relating to assignments for the benefit of creditors under N.J.S. 2 A:19-1 et seq. shall conform as nearly as practicable to the procedure relating to insolvent corporations."

Respondent, on the other hand, contends that the cited rules are entirely inapplicable to the instant proceedings. He notes that the assignee is given a choice, by N.J.S. 2 A:19-7, to record his assignment either with the surrogate of the county where the assignor resides or with the clerk of the Superior Court, and should he choose the former alternative, the proceedings -- by virtue of N.J.S. 2 A:19-1(c) -- are held, as here, in the County Court, Probate Division. Once jurisdiction is established in the Probate Division, he reasons, R.R. 4:69 and R.R. 4:68 of the Superior Court rules no longer govern. Respondent predicates this last conclusion on R.R. 5:2-1, extending the applicability of most of the Superior Court rules to matters of a civil nature cognizable in the County Courts, "other than probate matters." He notes that probate practice in the County Courts is governed by R.R. 5:3-1, providing inter alia that "the practice in the probate division of the county courts with respect to all probate matters cognizable in those courts shall be governed by Rules 4:55-7(b), (d) and (e), 4:81-4 to 4:81-6, 4:83-6 to 4:83-8, 4:84-1 to 4:84-6, and 4:99 to 4:117, inclusive insofar as applicable * * *," with certain listed exceptions not here relevant. Since the pertinent rules are not included therein, the assignee concludes that the instant proceedings were not affected by R.R. 4:68-4 and R.R. 4:69.

This line of argument is at odds with both the rationale behind R.R. 4:69 and the policy which inspired the requirement of prior judicial sanction for the appointment of receivers' attorneys. It ignores the very significant policy question of whether the right of the assignee to engage counsel without preliminary court approval should differ according to the tribunal in which he chooses to file his assignment.

R.R. 4:69 was designed to conform, as nearly as practicable, the procedural aspects of assignments for the benefit of creditors to the practice relating to insolvent corporations, set forth in R.R. 4:68. Most prominent among the

receivership rules are those regulating the appointment and manner of compensation of attorneys. See e.g., R.R. 4:68-4, 4:68-5, 4:68-6. It is therefore beyond dispute that assignees filing in the Superior Court are bound by these rules in their engagement of counsel.

We find no logical basis upon which to distinguish identical statutory proceedings brought in the County Court, Probate Division. Nor do our rules of court impel such a distinction. One purpose of our revised rules, adopted September 15, 1948, was to make uniform, as far as practicable, Superior Court procedure in Law, Chancery, and Probate actions, as well as to provide substantially similar procedures for actions cognizable in the Law or Probate Divisions of the County Court. See 7 N.J. Practice (Clapp, Wills and Administration) , ยง 950, p. 517. Thus is explained the broad scope of Part IV procedure, encompassing "all actions of a civil nature" in the Superior Court, R.R. 4:1-1, and, with the exception of certain enumerated rules, all matters of a civil or probate nature conferred by statute on the County Court, a tribunal of constitutionally limited jurisdiction. R.R. 5:2-1; 5:3-1. While R.R. 5:3-1 makes specifically applicable, in the County Court, to matters traditionally characterized as "probate," those of the Superior Court rules concerned with similar proceedings, it neither includes nor excludes R.R. 4:68 and 4:69. The silence at this juncture is not fatal, however. The list of rules in R.R. 5:3-1 is not intended to ...


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