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IN RE IMPERIAL "400" NATL.

August 31, 1967

In the Matter of IMPERIAL "400" NATIONAL, INC., a Delaware corporation, Bristol Financial Corporation, a New Jersey corporation, Imperial "400" Corporation, a Nevada corporation, Imperial "400" Land Corporation, a Delaware corporation, Motor Hotel Properties, Inc., a New Jersey corporation, Trans-National Development Corporation, a New Jersey corporation, Four Hundred Construction Corporation, a Delaware corporation, National Motel Construction Company, a California corporation, and Trans-World Motel Supply Corporation, a California corporation, Debtors


The opinion of the court was delivered by: SHAW

 The proceedings pending herein are on a Chapter X petition filed pursuant to the Bankruptcy Act. The instant matter before the Court is on petition of the Trustee and Order to Show Cause issued by the Court pursuant thereto. The Order to Show Cause is directed to the attorneys for the debtors (Imperial) pursuant to the provisions of Section 60(d) of the Bankruptcy Act, 11 U.S.C. § 96(d) *fn1" relating to payment of fees made for services rendered or to be rendered in contemplation of filing a Chapter XI petition under the Act.

 On June 3, 965 Imperial filed a petition under Chapter XI. On February 18, 1966 an amended petition under Chapter X was filed. (See Opinion of this Court filed January 31, 1966, 274 F. Supp. 342 as a result of which the Chapter X petition was filed.)

 A trustee and counsel were appointed and investigation conducted as to the affairs of Imperial prior to the filing of the Chapter XI petition. The investigation brought to light the propriety of the present application to the Court to examine the amount of fees paid to attorneys for Imperial in contemplation of filing the Chapter XI petition and to determine whether such fees were reasonable.

 The attorneys are Albert S. Gross of the firm of Gross and Gross, Morris M. Ravin and Nathan Ravin of the firm of Ravin and Ravin, and Myron S. Lehman. In response to the petition of the Trustee, the supporting affidavit of counsel for the Trustee, and the Order to Show Cause, affidavits were filed by these attorneys stating the circumstances pursuant to which each was separately retained, the amounts of fees received, and the legal services allegedly rendered. On application of the Securities and Exchange Commission (S.E.C.) each was examined under oath as to the statements made by affidavit and related subject matter. The pertinent facts developed on the affidavits filed and by testimony, as the Court finds them, may be summarized as follows:

 Albert S. Gross was admitted to the practice of law in 1932. The firm of Gross and Gross, in which he was a partner, engaged in the general practice of law. Any services rendered to Imperial were by Albert S. Gross. He had very little experience in Chapter XI proceedings, never having handled one as a principal attorney. He represented Imperial since 1962 on matters which were not assigned to house counsel. According to his testimony, his retainer during 1964 was $5,000 per annum and the total amount of retainer and fees received by him during that year was $11,291.18. He testified that the retainer was increased to $15,000 during March of 1965. Reference is made to the retainer arrangement and gross amount of retainer and fees received in 1964 because of a claim of $26,000 for legal services which will be discussed later.

 On May 28, 1965 three checks were drawn on an Imperial account in the Franklin National Bank in New York payable to the order of "Gross and Gross Attorneys" in the following amounts:

 
$ 15,000.00
 
$ 24,000.00
 
$ 11,000.00

 These checks in the sum total of $50,000 were endorsed for deposit in the account of "Gross and Gross, Regular". They were returned by the bank with a notation "Refer to maker". The date upon which Gross and Gross or officers of Imperial had knowledge that the checks would not be honored by the Franklin National Bank has not been established. But it seems from the stamped endorsements, notations of June dates, reasonable clearance time, and usual time for return of the checks to Gross and Gross, that receipt of return probably occurred after June 1, 1965. It may be that officers of Imperial or Gross and Gross had knowledge prior to the return of these checks that they would not be honored, but, as stated above, the record is silent on this. The attempt, however, to clear $50,000 out of Imperial's account by checks dated May 28, 1965 is significant in the light of what followed. On that same day, May 28, 1965, two checks payable to the order of "Gross & Gross Attorneys" were drawn on an Imperial account in the Union Bank of California. These checks were certified. *fn2" The amounts were $24,000 and $15,000, a total of $39,000. These were endorsed for deposit in the account of "Gross & Gross, Attorneys" and the proceeds retained by Gross and Gross as fees. Albert S. Gross testified that $15,000 was for services in connection with the Chapter XI petition and $24,000 was for other legal services.

 An invoice of Gross and Gross dated May 28, 1965, found in Imperial files recites:

 
Retainer: Petition for Re-organization or other appropriate proceedings in the United States District Court, District of New Jersey
 
$24,000.00

 On June 30, 1966 Albert S. Gross wrote to counsel for the Trustee stating:

 
June 30th, 1966
 
Joseph M. Nolan
 
Attorney for Trustee
 
Imperial "400" National, Inc.
 
460 Sylvan Avenue
 
Englewood Cliffs, New Jersey
 
Dear Mr. Nolan:
 
I forgot to tell you that the $15,000 check represented services in connection with the petition for re-organization and these of course have continued from that time to the present.
 
This letter is likewise written without prejudice.
 
Yours very truly,
 
GROSS AND GROSS
 
s/ Albert S. Gross lcl
 
ALBERT S. GROSS

 According to the statements of Mr. Gross under oath, the proceeds of the check in the amount of $15,000 were credited against the $24,000 invoice and the $24,000 check was credited against an antecedent bill for legal services in the amount of $26,000. At this juncture it might be mentioned that the Trustee, acting upon the assertion of Mr. Gross that the amount of $24,000 was paid for antecedent legal services, instituted a plenary action against "Albert S. Gross, Nelson G. Gross and R. Michael Gross, Individually and as a partnership trading as Gross and Gross * * *" in this Court, Civil No. 1145-66 to void ...


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