Appendix — Calhoun v. Hertwig

oe’

23 |

_ INDEX TO APPENDIX AND EXHIBITS

. % : Page

‘Appendix One , 24

Exhibit A eabase ne oe : $4

. Exhibit B . 36

Exhibit C: _ 37

_ Exhibit D 40

" Exhibit E 50.

Exhibit F

. Exhibit G 59

ae

53

24.

APPENDIX ONE

Footnote _ “* i

2 Los Angeles Lumber Co. v. Case,

380 .U.S.:186; 60 S. Ct. 1 (6): |

“The Court is not a mere ministerial register of

the vote of the several classes of security holders. All

=those interested in the estate are entitled to the

Court’s (both .trial~and appellate) protection.”

\(Parenthetical statement added.) . | See

> 8, Northern Pacific R.R. Co. v. Boyd,

19°..288 U.S. 482; 33 S. Ct. 554: :

“..to the extent of their “debts creditors are

entitléd.to priority over stockholders against all the

property of, a corporation.” Kansas City Terminal

v. Central Union Trust.Co.; 271 U.S. 445; 46 S. Ct.

549... ‘i.

*.. the stockholder’s interest in the property is —

‘subordinate to the rights of the.creditors. First, of .

secured, and-then unsecured creditors.” “... any

_ arrangement. of the parties by which the subordi-

‘ nate rights and interests of the ‘stockholders are

" attempted to be secured at the expense of the prior

rights of either class of creditors comes within judi-

cial denunciation.” Louisville Trust Co.“v: Louis-

- ville, New Albany & Chicago Ry. Co:, 174 U.S. 674;

19 S. Ct. 827, 684...pp. 6&7

~

.g2 F. 2d 579 (C.A. 2)

Judge August N. Hand in. his decision for the

4 In-re: Consolidated Motor Parts, Inc.,

&

«

25

<

Footnote

4 court in the C onsolidated Motor Parts case, at page

("4 580, dealt with a sittation almost parallel:

“The appellant was an attorney for creditors wad

as such may be allowed compensation for ‘services

rendered * * * in connection with the proceeding

and. plan.’ If he had been counsel for a. creditors’

committee and: had rendered substantial services in

preparation of a plan of.reorganization, he would

have come within a, familiar category. That he did

not represent .a large proportion of .the creditors

and that he assisted in bringing about the plan final:

ly adopted by objecting to the discriminatory fea-

tures of the original and alternative plans did not,

in our opinion, deprive him of a right to compensa-

tion. He rendered: no less important services ‘in

connection with. the * * * plan’ adopted , though

they were performed in court in assailing the plans

first proposed, rather than in working with'a com-

_ MInittee upon a plan prior to the presentation in

court. In the present case he seems to have been the

‘very person who brought about the non-discrimi-

- natory plan which finally prevailed. In doing this,

we think that he rendered substantial services ‘in

_connection with the proceeding and the plan’ with-

in the meaning of section 77B(c) (9). If he h

merely done work with opposing a plan that sub-

stantially prevailed, he would hardly have been

entitled to compensation from the estate.’’

“ (2) The services by appellant in connection with

a plan of reorganization which will justify an allow-

ance from the estate. under section 77B‘ must. have

contributed in some substantial way to the plan

finally atopeed, and in nearly. all cases the decision

26

Footnote eres .

4 of the District Court that they have not been sufh-

(c’’é ciently important or direct to deserve an allowance

must be regarded as final. But -here the appellant

contributed to the final adoption of the plan, and

the justice of the. plan does not “seem to be ques-

tioned. Under such, circumstances, and in spite of

the broad discretion lodged in the District Court,

we see no reason for.depriving him of*all compen-

sation for his contribution to a plan that will enable

the debtor, to -become ‘rehabilitated and resume

‘business. Section 77B (c) (9), 11 .U.S.C.A- 207, (€)

(9), appears to. empower the court to award com-

pensation to those persons who substantially con-

tribute to a plan of reorganization. The creditors:

as a whole are interested in having some workable

plan adopted, and the mere fact that work which

has substantially aided the plan finally approved

has been. performed by an attorney for creditors or

stockholders owning interests adverse to some of -

- the other parties, does not necessarily deprive him

5,

10, -

19.

of compensation. The question is whether the work .

in connection with the plan has been performed in

good faith and has substantially contributed to the

result finally achieved.” |

First National Bank of Cincinnati v. Flershem,

990 U.S. 504; 54S. Ct. 298, 806:

“In justifying the action taken, the Court of

Appeals called .the attention to the fact that the

non-assenting creditors had not introduced any evi-

dence to prove their contention that the sale should

+ not be. confirmed. In view of the undisputed facts

stated above, the introduction of such’ evidence was

not indispensable. The failure to.secure an adequate

27

Footnote.

5, price seems to have been due, not to. lack of oppos-

10, ing evidence but to the mistaken belief that it was

19 the duty of the court to aid in effectuating the plan

(C’’é) of reorganization, since a very large majority of the

debenture holders had assented to it. Moreover, the

- court-stood in a position different from that which

it occupies in ordinary ‘litigation, where issues .are

to be determined solely upon such evidence as. the

contending parties choose to introduce. In receiver-

ship proceedings, as was held in National Surety Co.

v. Coriell, 289 U.S. 426, 436;-53-S.:Ct..678; 77 L. -

Fa 1300, every important determination by the

- court calls for an informed, independent judgment;

and special reasons exist for requiring adequate,

trustworthy information-.where the jurisdiction rests

wholly upon the consent of the defendant who joins

in the prayers for relief. It would be unreasonable —

to impose upon a few dissenting creditors the heavy -

financial burden of making an adequate. appraisal

supported by the testimony. of competent experts,

where, as here, the assets includé extensive plants

and equipment located in nine states.”

6, Pepper v. Litton,

he

308 U.S. 295; 60 S. Ct. 238. _

Speaking of the obligations of managing or control-

ling ‘stockholders:

“He who is in such a fiduciary position cannot

serve himself first and his cestuis second. He cannot

manipulate the affairs of the corporation to their

detriment and in disregard ‘of the standards of com-

mon decency and honesty. Hé cannot by the inter:

vention of‘a corporate entity violate the ancient pre-

.

28 |

Footnote’

G, cept against serving ‘two masters. He cannot by the

7 use of the corporate device avail himself of privi-

(Cd) leges normally permitted outsiders in a race of

- creditors. He cannot utilize his inside information

and his strategic position for his own preferment.

He cannot violate rules of fair play by doing indi-

rectly through the corporation what he could not

do directly. He cannot use his power for personal

advantage and gain to the detriment of the stock-

holders and creditors no matter how absolute in.

-.ferms‘that power may be and. no matter how meticu-

lous he is to satisfy technical requirements. For that

power is at all times subject to the equitable limita- - >

tion that it miay not be exercised for the aggrandize- :

ment, preference, or advantage of the fiduciary to

the exclusion or detriment of the cestuis. Where

there is a violation of those principles, equity will

undo the wrong or intervene to prevent its consum-

meetin, FF ‘

No matter how ecbinieate legal each step in that

scheme may have been, once its basic ‘nature was

uncovered, it was the duty of the barckruptcy court .

in the exercise of its equity jurisdiction to undo it.

. (Emphasis supplied) Otherwise, the fiduciary duties

of dominant or management stockholders, would go

for naught; exploitation would become a substitute

for justice; and equity would be perverted as an

instrument for approving what it was designed to

~ thwart.”

4

For further discussion of the equitable rights of credi-

tors against self-dealing officers, directors and stockhold-

ers, see In Re. V. Loewer’s Gamrinus Brewery Co., 167.

F. 2d 318 (2d Cir. ); Goldie v. Cox, 130 F. 2d 695;

°

SN ee

bchinldlh

RAW bleh hain Nie a 2500s hist sie Se

29

Footriote

ay

Arnold v. ' Phillips, 117 F. od 497 (th Cir.) and for

a-very recent case, Bankers Life & Casualty Co. v.

Kirtley, 338 F. 2d 1006 (8th Cir., 1964) ..

12, Security Mortgage Co. v. Powers,

* 278 U.S. 149; 49'S. Ct. 84: |

“(Under Georgia law) The contingent obliga-

‘ tion to pay attorneys fees was.a part of the original

_ transaction. The consideration was not the attor-

ney’s services, but the $90,000 advanced ‘by the.

(lender) « |

“An | agreement to pay attorneys fees in promisory

notes is in the nature of liquid damages which in-

ures to benefit of the plaintiff, and is not a provi-

sion for the benefit of the attorney at law who

brings suit, on the notes to recover... principal

interest and attorneys fees.’’

Spence v. Phillips, 172 Ga. 782 (4).

“Where a promissory note provides for the pay-

ment by the maker of principal, interest, and attor-

ney fees, the attorney fees are of the principal .

debt.

Evans v. Atlantic National Bank, 147 Ga. 621 (2)

“The stipulation in: the note for the payment of

attorneys fees and presumably this suit counting

for attorneys fees is proceeding solely for the bene-

fit of plaintiff.” (lender)

' Carson v. Blair, 31 Ga. App. 60 (2).

“Obligations to pay attorneys fees upon any note

. in addition. to interest . .. shall be valid and en-

forceable and collectible as part. of the debt..

Code of Georgia, 20-506.

“oe

Footnote

13 Consolidated Rock Products v. sis,

wo 610; 61 S, Ct. 675:

. ‘any arrangement of the ‘parties by which the

subordinate rights and interests of the stockholders

are attempted to be secured at the expense of the. ~

prior rights’ of creditors ‘comes within judicial

denunciation.” Louisville Trust Co. v. Louisville,

New Albany & Chicago Ry. Co., 174 U.S. 674, 684; -

19 S. Ct. 827, 830; 43 L. Ed. 1130. And we indi- -

cated in Case v. Los Angeles Lumber Products Co.,

supra, that that rule was not satisfied even though

the ‘relative priorities’ of creditors and stockholders

were, maintained. (308 U.S. pages 119, ans 60 S.

me 4 page 9, 84 L. Ed. 110) .”

“The instant plan runs afoul of that principle.

In the first place, no provision. is made for the.

accrued interest on the bonds. This interest is en-

titled to the same priority as the principal.”

The very purpose of the Absolute Priority Rule is to

prevent the stockholders of a corporation with assets »

from using a-reorganization to wash out the creditors

-at.a fraction of their claims, and then take back the

corporation and remaining assets, sans creditors.

22. Irvin v. Life of Tennessee,

204 Ga. 582.

In the Irvin case all the insurance companies did

was fail to perform the task of collecting on col-

lateral which they held. In this case these stockhold-

ers removed the collateral assets. The Georgia Su-

preme Court would not let the insurance company

charge Irvin with the expense resulting from their

mere neglect; will this court let these stockholders

$1 .

Footnote . “

22 charge appéllants (by failirfg to reimburse appel-

‘*@) Jants) the expenses resulting from the stockholders’

fraudulent withdrawals and their further continued, —

wilful wrong in failing to returnthese assets which ~

are in effect collateral for all the creditors’ claims?

“...It is not alone fraud or illegality which will

prevent a suitor from entering a court of equity;

| any really unconscientious conduct, connected with

_ the controversy to- which he is a party, will repel

him from the forum wane very foundation i is good

conscience .

- Without cotkideratiod, these stockholders have re-

ceived the Calhoun heirs’ 5/110 right to all of the -

Den-Nap assets by appellants’ mistaken reliance upon

their full and truthful disclosure of the facts concerning

the condition of Den-Nap at the time of ‘the Reorganiza-

tion. To qualify for.equity it would appear that their

first responsibility would be to restore to the Calhoun’

Fstate’s minor heirs that 5/110 ofall the Den-Nap

assets.

. when applying for relief in court of equity,

pp nennntaier is as much bound to do equity as is a

private litigant. . :

Lacy v. United States, 216 F. 2d 233, 234.

(See also, Appellants Brief on Extraordinary Motion,

in the Circuit Court pages 39-46. Record, ss anes

certified and bound.) |

. One is forced to ask, can any other composition or

contract come out of a Chapter X_ proceeding besides

the written Chapter X Plan itself?

May separate and conflicting unwritten contracts be

re

" Footnote

22 enforced by the controlling stockholders when the

til plan i is their own Private Purchase Plan of Compe-

sion-With-Creditors?

Or, can controlling stockholders vary their written

Chapter X Plan of composition at will? -

We believe under Chapter X law and. under the gen-

eral Common Law of Compositions adhered to in Geor-

gia, all the .valid and controlling agreements must be

written into the ‘Plan of Composition to be enforceable

when contrary to the express provisions of that plan.

_ From the statute it would appear that under Chapter

X the Plan is the ultimate arbiter of all-rights and .

duties of creditors and stockholders, 11 U.S.C.A. § 623.

The same result will obtain for any sien, onruten under

Common Law. Ph

“If a debtor misrepresents or suppresses any

material fact in the statement of his affairs, either

as to the amount of his property or the amount of

his indebtedness, the Composition agreement is

void.”

Woodruff & Company v. Saul; 70 Ga. 271 (2).

“The rules which pertain to ‘composition of

debts’ by debtors in failing circumstances are. dis-

‘tinct from those which relate to accord and ‘satis-

faction.” :

' . Brown Shoe Co. v. “Rowell, 187 So, “498 (2).

“Composition (also) differs from... Compro-

mise and Settlement... ditto’ 15 C.J. s. Composi-

tions § 3, p. 644, C.).S. § 2, 672.”

“A composition with creditors contemplates that

all who participate shall do so on equal terms.

(per their respective classifications.) ”

Brown Shoe Co. v. Rowell, 187°So. 498 (3).

$8

Footnote

22 See also, Saul v. Buck Hefflebower & Neer, 72

(¥®) Ga. 254; Won Eberstein v. ‘Standard Oil Co. of

_ Kentucky, 41 Ga. App: 770 (1930).

“Any plan to be sufficient should be definite . . .

before being submitted for acceptance in order that

creditors :..may be apprised of their exact stand-.

ing if the plan is accepted . . .” ote

Down Investment Assn. v. Boston Management

_ Bldg., Inc., D.C. A. 1 (1930), 81 F.2d 314 (3):

“Corporate reorganization plan under amendment —

to Bankruptcy Act is in substance :a composition

. between creditors and debtors arid is merely exten-

sion of principal of composition agreement of origi-

nal Bankruptcy Act...”

and see also, Headnote 4: (at page 318)

| “Agreement to be binding must be-so definite

that promises and performances to be rendered by

each party are reasonably certain.” Paar

If in fact the intent to take away appellants’ Chapter .

_X fee was present, it’ was the stockholders’ duty to put ~

this provision in their private purchase-composition plan

when they reduced it to writing, and before it was sub- |

mitted to the creditors for their approval. {The plan Hav-

ing failed to set out any limitations on their rights, ap-

pellants’ clients and their attorneys, not having under-.

stood: or agreed to any waiver, are entitled ‘to equal

treatment with all others who contributed to this Estate

and to the composition plan, and who in fact were —

granted and paid their fair attorneys’ fees in accordance

with the standards. set by Chapter X.. aioe

. . 34

- EXHIBIT A |

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Jons K. CALHOUN, individually . and

as attorney for the . .

Estate of C. F. Calhoun,

Appamet, > No. 28847

versus

CHARLES C. HERTWIG, Trustee,

Et AL

Appellee. \. }

; rx

2

; : . ; F i

ON CONSIDERATION OF THE APPLICATION ©

of the Appellant in the above numbered and entitled —

cause for a stay of. the mandate of this Court: therein,

. _ to enable Appellant to apply for and to obtain a writ

of certiorari from the Supreme Court of the United

States, IT IS ORDERED that the issue of the mandate

of this Court in said cause be and the same is stayed for

a period of. 90 days; the stay to continue in force until the

final disposiiton of thé case by the Supreme Court, pro-

vided that within 90 days from the date of this order:

there shall be filed with the clerk of this Court the cer-

tificate of the clerk of the Supreme Court that certiorari

petition and record have been: filed. It is further or-

dered that the clerk shall issue the mandate upon the

filing of a.copy of an order of the Supreme Court deny-

| ing the writ, or upon the expiration of 90 days from the

ween vew we

| 35

date of this order, unless the above mentioned certificate

shall be filed with the clerk of this Court within =

time.

DONE AT NEW ORLEANS, LA., THIS 31st day

of October, 1966. :

~

/s/ Griffin B. Bell

United States. Circuit Judge

3. °

_(ORIGINAL FILED — NOVEMBER 2, 1966)

—~ Pd Fan

.

Gentlemen: :

36

EXHIBIT B

October 20, 1966

Re: 7 | .

_ No. 23347—John K. Calhoun, etc.

ny. ‘—vs—Charles C.” Hertwig

_ Trustee, Et Al

You are hereby advised that the court has today en-

tered an order denying the Petition for Rehearing in the °

above case. No opinion was rendered in connection

tesewkS. -- 2 FL % ie ,

Verv truly yours, ~~

: /s/ EDWARD W. Wapsworti

Epwarp W. Wapsworth,

Clerk |

Mr. Charles E. Watkins, Jr. | Mr. Wallace Miller, Jr.

_ Attorney atLaw - —_”. Attorney at Law -

-. . Atlanta, Georgia - Macon, Georgia’

_+ Mr. Charles M. Cork...’ Mr. Paul R. Ervin:

.., ‘Attorney at Law. ———Ss Attorney at Law ~

Macon, Georgia | Charlotte, N. C.

Mr. T. Baldwin Martin, Jr.

Attorney at Law © |

Macon, Georgia va ; ,

37

(Filed U. S. Court of Appeals, August 9, 1966.

Edward W. Wadsworth, Clerk) .

EXHIBIT €

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH. CIRCUIT dey

eerily NO. 23347

JOHN. K. CALHOUN, individually and_

_ as attorney for the Estate of C. F. Calhoun

Appellant

Versus

_ CHARLES, C. HERTWIG, Trustee, ‘Et Al

Appellees,

Appeal from the United States District Count for

the e Middle District of Coe

Before TUTTLE, Chief Judge, BELL, Circuit Judge

_and KILKENNY, District Judge. : |

BY THE COURT:—

IT IS ORDERED that the motion of Appellant to

accept his petition for rehearing and brief in support in

Na its present form and to accept. same out of tinre be, and |

| __ the’ same is hereby Coan ree The motion for rehear- __

| ~~ is DENIED.

4 aa 4

. 7 -

= .

38

EXHIBIT C

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

October Term, 1965

- NO. 23347

1). C. Docket Nos. 8286, 8287 and 8288—Bankruptcy .

sete K. CALHOUN, individually and as attorney

-for the Estate of C. F. Calhoun,

_ Appellant,

versus a:

CHARLES C. HERTWIG, Trustee, Et Al,

Appellees. -

Appeal from the United States District Court for the .

Micdlg District of Georgia. :

Before TUTTLE, Chief. Judge and BELL, Circuit

Judge and KILKENNY,* District Judge.

*. s JUDGMENT

This cause came.on to be heard on the transcript’ of

the record from the United States District Court for the

Middle District of Georgia, and was argued by counsel;

- ON CONSIDERATION WHEREOF, It is now here

ordered and adjudged by this Court that the judgment -

of the said District Court in this cause be, and the same

is hereby, a

39

It is further ordered and adjudged that the appellant,

John K. Calhoun, individually and as attorney for the

Estate of C. F. Calhoun, be condemned to pay the costs.

of this cause in this Court for which execution may. be

issued out of the said District Court.

June 28, 1966

*Of Portland, Oregon,

sitting by designation.

Issued as Mandate:

40 ie hens!

: [RECEIVED

| | 967

EXHIBIT D MAR 141

United States Court of Appeals _

_ FOR THE FIFTH CIRCUIT

No. 23347

JOHN K. CALHOUN, individually a as attorney for

the Estate of C. F. Calhoun,

x | Appellant,

a 3 versus

CHARLES c. HERTWIG, dente, ET AL.,

"Appellees

é

Appeal from the United States District Court for the

Middle District of Georgia.

- (June 28, 1966.)

Before TUTTLE, Chief Judge and BELL, Circuit Judge

and KILKENNY,* District Judge.

BELL, Circuit Judge: Appellants were the attorneys for :

the estate of C. F. Calhoun, a creditor involved in the re~

organization under Chapter X of the Bankruptcy Act of ©

-Den-Nap Electric Mold Co. and two related corporations,

* Of Portland, Oregon, sitting by designation. _

~ M * = LA 2

ee mire tak! COREE NGO SLRS TOL GEE ALAN GER ARLE LL REGO Ae IEA REN Ny OTR ALD ILLES LIES BAI EO AE

ance a le nk I a ne Ea ce SS AS eh a a paveee

OFFICE OF THE CLERK

IN THE — ~ SUPREME COURT, U.S. :

—

—_* Se eS ee ee ee

s a es

2 ~~ Calhoun v. Hertwig, et al.

Poplar Foundries, Inc. and Precision Recapping Equipment

Co. They petitioned the District Court for $11,367.60 in -

_ attorneys’ fees and $873.04 expenses to which they claim

that they are entitled for services rendered in the reorgan-

ization proceedings. This appeal is taken under § 250 of

the Bankruptcy Act, 11 USCA, § 650, from an order deny- —

_ ing their claim.

The facts are that these. corporations applied for relief

in 1961 under Chapter X of the Bankruptcy Act. The

_ dominant figures in each of the corporations were the ©

majority stockholders who were also the chief executive

officers. The three corporations were treated as one in }

the reorganization proceedings ‘so as to eliminate any

problem regarding inter-corporate debts or other obliga-.

tions’ or . arrangements. Appellants, Messrs. Calhoun, »

Russell and Watkins, participated in the proceedings as

counsel for the estate of C. F. Calhoun, the father of one

of appellants. Mr. Calhoun was ‘a stockholder in and a

creditor of Den-Nap by reason of its purchase of certain

patent rights and equipment from him. The exact amount:

- of his claim was disputed as we shall see. The creditor

corporations.were operated by a trustee from 1961 until

the date of the completed cis caren in 1965.

On iia 12, 1965, a meeting was held Per discuss an

initia] reorganization plan suggested by the’ debtors. This _

plan. provided. for payment - to the general creditors of —

forty cents on the dollar, together with full payment of

all secured and priority" claims and ‘costs of administra-

tion. Substantially all of the Calhoun claim was in the —

forty per cent category.. The trustee and all: creditors —

42 |

Calhoun v: Hertwig, et al. eee oe

except the Calhoun estate were willing to accept the

plan. Appellants, as the Calhoun attorneys, considered

the plan unfair and refused to accept it. They then con-

tacted numerous companies in an effort to find a purchaser.

for the debtors’ assets so as to make possible a better

plan. They were successful in finding a purchaser, the .

Super Mold Corporation: of Californid. This company in

. fact came to Macon and inspected the prdperties on’ the

very next day, ‘February 13, 1965.° A sale to Super Mold

would have made possible a. reorganizatién plan which

‘would more nearly satisfy the claims of the creditors.

Appellants drafted and filed a plan. on March 22, 1965,

- which was based on the increased assets from the sale

to Super Mold Corporation. The creditors’ committee

‘submitted their own revised plan on March 26, 1965. -On

March 30, 1965, a hearing was held: at which time the

court had all the submitted plans before it. After ex-

planation of the three plans the court adjourned until

the afternoon of the same day. This recess was taken for

the purpose of giving the interested parties an opportunity

to reach a mutually satisfactory agreement. The difficulty

in agreeing on a plan stemmed from the fact that the -

amount of the Calhoun claim was disputed. The disputed

amount was. approximately $26,000 which was largely

made up of interest accruing since: the initiation of the -

reorganization: proceedings in 1961 plus attorneys’ fees

on the accelerated portions of certain notes.’ Finally; an

_ agreement was reached which provided that. all of the

other general creditors. would voluntarily reduce their

claims by eleven per cent in order to raise ® the #26. 000

43

4 | . Calhoun v. Hertwig, et al.

Jf

——

which the Calhoun estate claimed and thus pay the Cal-

houn claim in full..

When the hearing was xeconvened in tHe afternoon, the

compromise agreement was explained; and the parties

agreed to submit to the court a written plan embodying

the features of it. At this time the following colloquy

took place between the court and Mr. oem, counsel

for his father’s estate: |

“THE COURT: The other thing I want to be :

sure of, if this plan goes through, Mr. Calhoun,

every matter concerning which you have sug-

' gested any issue and every question which you

_ have raised by any of the pleadings which you

have filed in connection with the matter or any

which could have been raised which you have not .

raised, will be terminated and disposed of; is

that understood? ant —

“MR. CALHOUN: . Your Honor, I’m happy to be.

bound by. the agreement and upon the approval of

a plan which provides $98,724.15 in cash, every-

_ thing that we have in this Pevegerng will he Gis-

missed.

~~ “THE COURT: Well, when you say ‘in cash’,

“ you mean at the same time all the other creditors

are paid?

_ “MR. CALHOUN: -At the same time as the -

other creditors. —

_ “THE COURT: At the same time all the other = -

creditors are paid. ~~

Pe Se ee

44

Calhoun v. Hertwig, et al. ) 5

“MR. CALHOUN: Yes sir, and yet, we wish to

reserve our right to dismiss until that date.

“THE COURT: Oh, yes, but the plan, when we

talk about ‘the plan’, when the plan is approved,

if the Court approves ‘it, that terminates every

question which you have raised or could have’

«MR. CALHOUN: Yes, sir, I would rather state

it that when a distribution is made under the

pian, that settles everything, terminates every-

tine

“THE COURT: All right, I wanted to be sure

Counsel for the pee objected to this payment to the

Calhoun estate on the ground of unjust enrichment but

counsel for the trustee and also for the creditors’ com-

mittee recommended that it be approved. Counsel for.

the creditors’ committee stated that he acceded to avoid

further delay and to recognize the efforts of counsel for

. the Calhoun estate in finding Super Mold and thus

_ bringing about a better payment plan for the creditors.

The plan was approved by the court, unanimously accepted

by the creditors and confirmed by the court. _

At the time of this colloquy between the court and _

Mr. Calhoun, the proposed plan of reorganization sub-

‘mitted by Mr. Calhoun, as executor of his father’s estate

and as counsel for the estate, was before the court. It - -

contemplated a purchase of the stock of the reorganized _

eo es

6 |. Calhoun v. Hertwig, et al.

corporation - by Super Mold Corporation, = _ Provided

‘for fees as follows:

| “Subject to the agreement of ‘the eucceistisl

‘ purchaser and/or: the order of the Court, the

_ Trustee shall deliver to the authors of ‘this

‘- Plan such amount of the Class A Common Stock

in the Reorganized Corporation’ as the parties ~

may agree upon as the reasonable fee for the

work done in connection with the prosecution of

the Petition to Confirm the Re-Consolidation

of all the Assets and Eliminate the Claims of Den-

nis and Mattox in this proceeding, and in connec-

tion with this Plan of Recrpniention for the

three corporations.” :

The proposed. plan which included this suggested fee

arrangement was filed on March 22, 1965. On March 9,

1965 a petition had been filed by Mr. Calhoun to set

aside certain claims of the majority stockholders against

: the corporatiori and the suggested ‘plan of reorganization

was spelled out to some extent in that pleading. A claim —

for attorneys’ fees to be payable in. stock was asserted

therein. Moreover, on. July, 3, 1964, Mr. Calhoun advised

‘counsel for the trustee in writing that counsel for the .

Calhoun estate were entitled to attorneys’ fees to the

extent that they had contributed to the reorganization.

Counsel for the trustee replied on July 7, 1964 that any

claim for attorneys’ fees- which they might make should

be submitted to the court. Thus, there was no doubt

that these lawyers had fees in mind at the time of the .

ae colloquy with the court. Nevertheless, on April 29, 1965

-..

Calhoun v. Herttig, et.al. 7

appellants applied for attorneys’ fees and costs. A has

on their application was’ held on May 4, 1965, with the

result that the application was denied. —

&

a

The, court gave two reasons for the denial. First, the -

court ‘deemed the question foreclosed by the foregoing

colloquy; and second, the claim was denied as a matter

of law on the ground that the services rendered had been,

_Wwhen considered in light ‘of their primary purpose of .

representing their client, “. . . too remote, unintended

and incidental to the primary purpose : ... to be sus-_ «

ceptible of valuation . . . or compensable by allowance

in this proceeding.” _ Bd

We think the District Court erred in finding that as a

matter of law appellants’ services were too remote and

incidental to be compensable. In being the only objecting —

party ‘to the first proposed plan, and in later making

possible a much more desirable plan through negotiation

with Super Mold. Corporation, appellants _ benefited

not only their own client but also the other creditors.

The record conclusively shows that they did substantially

contribute to the plan of reorganization. As was stated

in In Re Consolidated Motor Parts, Inc., 2 Cir., 1936, 85

F.2d 579, “. . . the question is whether the work in con-

nection with ‘the plan has been performed in good faith

and has ohana dl contributed to: the result finally

| achieved.”

We hold, however, that the order of the District Court

denying the award of attorneys’ fees and costs was correct -

and should be affirmed. The agreed’ ‘settlement, as stated

4

Lahti title la Rett ee b iy etek mnnnititivh ttgnaitenats ne ib 0s

«

7 ae

8 Calhoun v. Hertwig, et al.

above, was made possible by the fact. that’ the general

creditors accepted.an eleven per: cent reduction of their

‘claims in order to provide the additional $26, 000 on the

Calhoun estate claim. Appellants contend that. this sum

was rightfully due and should not militate against their

present claim. However, it appears that the general

creditors made the concession ‘in part in recognition of the’

. contribution made by appellants in procuring the Super —

-Mold bid. And it is worthy of note that the $26,000 in.

dispute, based on post Chapter X interest as well as at-

torneys’ fees, included, as near as can: be determined from

the record, some $10,000 in attorneys’ fees.’

_ The approach which we take to this matter is stated in _

6A Collier, Bankruptcy, § 13.02 at pp. 904-908, as follows:

“In determining the allowances to be made,

Chapter X . . . confers upon the judge a broad

discretion, with which an appellate court will >

not interfere except for an abuse thereof or an

. erroneous application of the law . . . . The

mere fact, however, that a claimant is a person

to whom Chapter X permits compensation or re-

imbursement, to be given does not mean that the

_clairnant must’ be accorded an allowance. Nor

does participation in the proceedings, howev

‘rightfully, create any eneptate right to com 4

. sation or reimbursement.

3: * ¢

- “since. the circumstances surrounding the par- -

ticular claim will govern, it is impossible, of °

' course,:to lay down any hard and fast rules which -

ee

Calhoun v. Hertwig, et.al. | 9

will fit all’ cases . . . Nevertheless, the ‘judge

on _shauld endeavor to exercise fairly the discretion

lodged in him with the double purpose of doing

equity to the distressed debtor and its security

holders and at the same time-rewarding the proper,

, activities of those: ia ted in the proceedings. ae

On ‘the face’ of things it would appear that. appellants

did produce such benefit to the estate as.would bring ther

- within the fee allowance section, 11 USCA, § 643," especial-

ly in. light of the liberal application of the test“... td

insure. the vigorous representation of allssecurity Meldies

and the protection of minority groups:” 6A Collier, Bank-

_ ruptey, § 13.02 at pp. 914-915. See also § 13.12, p. 974.

It is objective of Chapter X to: encourage the participation

of all interests and this should be kept in mind in at-_

tempting to- draw a line between services rendered in.

connection with the reorganization broadly. and those.

strictly in the interest of a particular claimant.

We hold, however, that the District Court did not abuse

| its discretion in dénying the cae of appellants for .

1 41 USGA, § 643:

“The judge may allow sili compensation ‘ for

_ services rendered and reimbursement for proper costs and

' expenses incurred by’ creditors and stockholders, and the

attorneys for any>of them, in connection with the sub-

‘mission by. -them of suggestions for a plan or of pro-

_posals in the form of plans, or in connection with ob: |

jections by them to the confirmation of a plan. or in

connection with the administration of the estate. In

fixing any such allowances, the judge shal give con-

mdeentionsgmly to the services which contributéd to the.

plan co ed or to the refusal of confirmation of a

plan, or which were beneficial in the administration of

the estate, and to the proper costs _ expenses in-

cidental thereto.”

i « RL LER GOOLE ALOIS te ITO EN LRM TEED *

snag as z

ee

"49 |

10 ‘Calhoun v. Hertwig, et al.

fees and costs when we consider the fact of the extra pay-

ment of $26,000 and the representations of appellants to

‘the court at the time. Mr. Calhoun had in mind claiming

a feé for services rendered in the reorganization, He was

‘ the leading counsel for his group. He had corresponded

with counsel for.the trustee relative to such a fee. He had

claimed. a fee in two pleadings -which were before the

court at’the time. He thus was aware of his right: to

claim a fee for himself and his co-counsel, and had full

opportunity to assert or reserve such a claim when the ©

matter of the settlement was before the court. He did

neither. The District Court did not err in holding them

. to the position Mr. Calhoun took at that time, especially

. in light of the fact of the attorneys’ fees which they re-

ceived as a part of the disputed $26,000 payment. -

Adm. Office, U. S. Courts—E. S. Upton Printing Co., N. O., La.

ew.

(Filed at 8:45 A.M., May 5, 1965.

John: P. Gowart, Glesh. U. S. District Court)

EXHIBIT E

IN THE DISTRICT COURT OF THE UNITED

. STATES, FOR THE MIDDLE DISTRICT OF

GEORGIA, MACON DIVISION.

- In the Matter of: | a> Proceedings for

: ; Shas Reorganization’ -

. DEN-NAP ELECTRIC MOLD | under ChapterX,

FOUNDRIES, INC. and

PRECISION RECAPPING Nos. 8286, 8287.

' EQUIPMENT COMPANY - J . and 8288

~

ORDER OF COURT AFTER HEARING ON |

TRUSTEE'S PETITION IN AID OF CONSUM-

rs ne OF THE PLAN .

After hearing pursuant to ptevious notice on the,

Trustee’s petition in aid of consummation of the plan,

IT IS ORDERED that:

(1) Charles C. Hertwig, Trustee, shall not convey_ Xe

title to any of the assets of the debtor corpor.tions, or

either of them, until-after he has in hand, or simulta-

neously with-his having in hand, the sum of $535,000.00, -

to be utilized by him in consummation of said plan, and a

which sum shall, by said Trustee, be deposited in an ;

account pursuant to, said plan and be disbursed only

upon order of the Court.

ae

(2) Upon Charles GC. Hertwig having in hand such’

cash sum, or simultaneously therewith, he is hereby or-

dered and directedto: y

(a) ‘Execute all instruments and conveyances of all.

kinds, as set forth in the plan, and to take such other ©

steps and perform such other acts as the plan embraces.

and as.are necessary for its consummation: ‘ ‘

(b) Pay in full the creditors of Precision Recapping

‘Equipment Company listed in his petition fer an order

__in aid of consummation of the plan, totaling $15,306.63,

- other than the amount shown on this company’s books

a due Eastern Air Lines in the amount of $709.72 “(it

appearing this amount béing shown on the company’s

‘books: ‘in error, and -no claim therefor .was filed.)

\

(c). Pay in full the tax claims against Poplar Foun- *

dries, Inc. and Den-Nap Electric Mold Company, shown -

in said petition as totaling $30,439.36; and pay in full |

the claim of Fickling & Walker, Inc.-in the amount of

$30,900 principal-and-interest~at the rate of 8% per

annum until date (the same amounting to $41,400, prin-

cipa. and interest, as of May 25, 1965) ; and pay in full

the claim ‘of the Calhoun Estate in the amount of

$98,724.15, upon the Calhoun Estate performing the

acts required of it under‘the plan in | consideration of

such payment,,

(d) Pay the other general caida of Poplar Foun-. :

dries, Inc. and Den-Nap Electric Mold Company the :

amount of their claims according to the plan, less their —

proportionate part of $26,424.15. (This amount is

shown in said petition as“$215,374.33, less $26,424. 15,

leaving $188,905.18, or 87. 73% of the claims to be paid:

: ‘(e) Upon payment of all such claims, whether the

, 52.

same is required in the plan or contemplated under the

law, the Trustee may demand such receipts, releases, ac- °

quittances, satisfactions of record, and other acts to be

_ done and accomplished by the recipients of the funds so

(f) The remainder of.the funds in the hands of the —

Trustee shall remain on deposit in said account, subject

_@ to disbursement only by further order of the Court. »

So ordered, this 4th day of May, 1965.

J. Robert ELLiorr :

United States District Judge

I hereby, certify that I have this date mailed one copy

of ‘the within to District Director of Internal Revenue,

Atlanta, Ga., one ‘copy to Secretary | of the —Freasury,

___Washington, D- C:;, and two copies to Securities and Ex-

change Commission, Washington, D. C.

_ At Macon, Ga. this May 5, 1965.

|. Lucire H. ROBINSON

Deputy Clerk

OT

53

(Filed at 10:30 A.M., Dec. 21, 1964. John P. Cowart,

Clerk, U. S& District Court.)

EXHIBIT F— ois?

aie IN THE UNITED STATES DISTRICT: COURT

_ FOR THE MIDDLE DISTRICT OF GEORGIA

: MACON: DIVISION

In the Matter of: eit > ere skisan

: : ne In Proceedings for

DEn-Nap. ELECTRIC Mo Lp -. Reorganization

. Company, Popiar Founpries,

Inc., AND PRECISION’ RECAPPING i - Nos. 8286

- EQUIPMENT. CoMPANY, _ 8287

8288

Debtors }

ORDER ON APPLICATION OF CHARLES M. CORK :

\ AND LOUIS REGENSTEIN, JR., FOR —

, COMPENSATION

The Creditors Committee in the above c cases through

its counsel Having orally moved at a hearing held in.

~~ Columbus, Georgia on November 4, 1964, for an early

assignment and determination of the: application of .

Charles M. Cork and Louis R. Regensiein, Jr:, for the

allowance of reasonable compensation for services ren-

_ dered and for reimbursement .of proper costs and ex-’

penses incurred by them as special counsel for Charles

C.. Hertwig, Trustee of the above named Debtors, the

same was by order of this Court assigned for a hearing

in Macon, Georgia on December 10, 1964, the hearing

to be held: on dans application and. objections thereto

‘54

filed es the Creditars Committee. The. hicaring was duly

held pursuant to said assignment. Evidence was pre-

sented and arguments of counsel. were heard. and the —

—_

same considered by the Court. = , |. =

The said attorneys, Charles M. Cork and Louis Reg-

_ enstein, Jr., were appointed to ‘Tepresent the Trustee in

opposing claims of the United States for alleged income

rae tax deficiencies for the years 1951 through 1960. As a

result of said services the claim of the United States in

amount of $1,710,223.77 was disallowed in its en- -

. This claim consisted of the principal amount of: .

_$918,639.04, interest accrued prior to the filing of the © -

petition under the Bankruptcy Act in the amount of

$327, 400.03, and penalties of $464,184.70 under Section

293 (b) of the Internal Revenue Code of 1939 and Sec.

. tion 6653 (b)- of the 1954 Code. As a further result, a

. net operating loss carry-forward from the years involved .

_ in the claim in the aggregate.afnount.of $574,015.91 was |

established and a refund of Federal income taxes there: .

_.tofore paid in the amount of $42,596.80, plus interest,

- against Den-Nap Electric Mold Company, the assets of .

was obtained. The denial of the claim of the United

States disposed of a corresponding ° liability for income

_ taxes to the State of Georgia in the amount of approxi--

-mately $150,000.00. Furthermore, the principles estab-

lished in this matter have saved these companies, and

will in the future save these companies substantial addi-'

tional income taxes in each year subsequent to 1960. _

. Although the claim of the United States was directed

Poplar Foundries, Inc., and of Precision Recapping

Equipment Company would have also heen subject to

the. claim. (Emphasis added) | =~ >

Had the United States succeeded in establishing the

—

SS neosoeth

55

validity rf its 9 ati substantially all of the sects of these

Debtors would have been taken by virtue of the priority

status of the United States’ claim, except for amounts |

_ owed to secured creditors. .

_ By order of this Court the value of these Debtots’

‘estates has been récently appraised by Mr. Thomas H. |

Hall, II, M.A.L, C.R.E. Mr. Hall finds that if inter-

company accounts are eliminated and if the claims of

two stockholders, C. O. Dennis and Zeb Mattox, are

eliminated, each of the Debtors is now solvent and on a

consolidated basis the Debtors L solvent. The appraisal

places a-net value upon the consolidated companies of

_ $1,238,500.00, after the deduction of all liabilities except

the liabilities to the aforesaid two stockholders. ‘,

The financia] statements of these companies similarly

show the companies to be solvent, both individually and

consolidated, .after the elimination of inter-company in- |

debtedness and the claims of the above stockholders. The

latest’ such financial statement made by-an indépendent

certified’ public accountant for the Trustee with the per-

mission of the Court and: prepared as of June 30, 1964,

‘shows gross consolidated assets of $2,076,215. 53 and

gross consolidated liabilities of $612,550.60 (after. elimi-

nating amounts owed to the above twa stockholders) .

Of the aforesaid liabilities approximately $100,000.00

. represents secured creditors and $512,550.60 general

~ creditors. In the asset figure) patents owned by Precision

are. included at ‘book value after amortization,

$568,558.63, arid the stock of Den-Air, Inc., a wholly -

owned subsidiary of Precision,” at approximately

$119,000.00. These patents were appraised by Mr. Hall

- for $388,000.00 and the stock of Den-Air, Inc. was ap-

praised by him at ee 000. 00.

.

SPER EER SETAE SE IN OP AES 9 LOOIIG

56

The results obtained by the petitioning attorneys re-

quired great skill, effort, and time. The assets of the

debtors were preserved and augmented and it is highly

"probable that the general creditors will ultimately re-

- ceive a substantial part of their. claims.

In the opinion , of the Court, were the subject Debtors _

solvent going coriterns a fee to the applicants of not less .

than 15% of the amounts»saved would be reasonable

compensation but in view of the financial condition of

the Debtors the.Court will allow only 714%. Since the

"amount of the net assets, as appraised by Mr. Hall,

$1,238,500.00, is less than the amount of taxes, penalties.

. and pre-reorganization interest, the Court will allow

~ only 714% of the ‘amount of Mr. Hall’s appraisal. Ac-

cordingly, it is determined that the sum of $92,887.50

is reasonable compensation for all services rendered by |

‘said petitioning’ attorneys in connection: with said. tax

claims and that $32.42 is the amount of proper costs and

expenses incurred by them in these proceedings and re-

maining -unreimbursed. The foregoing amounts are

hereby aJlowed as reasonable compensation : for‘ ‘services

rendered and as reimbursement of proper costs and ex- ©

penses. Charles°C. Hertwig, Trustee of said Debtors, is —

directed to make payment of such. allowance. i

IT Is SO ORDERS this 18th day of December,

1964. | |

Is/ J. Roserr ELLIOTT

J. Roserr-Evuiorr -

_ United States District Judge

es

ee. (Filed at 8:30 A.M., Jan. 27, 1965. John P. Cowart, |

3 Clerk, U. S. District Court.) : °

ere ‘EXHIBIT F (Cont.)

—

-IN-THE UNITED’STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT: OF GEORGIA

" MACON DIVISION - BS ies dar

- In the Matter af: AeA ee. x . * ve

ers anes ithe eae In, Proceedings for —

Den-Nap Exegraic Mow, Seorgatiization

“Company, PopLar FouNbRIES,

INC., AND PRECISION RECAPPING i Nos. 8286 -

: EquirMent Company, , i 8287

| 8288

Se} Debtors ay

2

4

ORDER ON | MPTION TO AMEND AND , MODIFY :

THE COUR JUDGMENT FIXING ATTORNEYS’ |

FEES FOR CHARLES M. CORK AND LOUIS |

REGENSTEIN, JK.; OR IN THE ALTERNATIVE pete

EP FOR A NEW TRIAL ° gg

: Upon motion of the Creditors Committee in the above

' cases this Court on December 10, 1964 heard evidence

and argument of counsel pertinent to a determination of

the application of Chiatles M. Cork and Louis Regen-.

stein, Jr., for the allowance of reasonable compensation 3

for services rendered and for reimbursement of proper

- costs and expenses incurred. by-them_as “special coursel

for Charles C. Hertwig, Trustee of the above named

debtors. Subsequently, on December 18, 1964, this Court’

: entered its order allowing certain aynounts asreasonable- ~- .

Pa

58

compensation to said attorneys for services rendered and

"as reimbursement of proper costs and expenses. There-

after, on December 24, 1964, the Trustee and the

Creditors Committee filed their motions suggesting that .

_ the Court amend and modify its order and judgment of: —

December 18, 1964, or, in the alternative, that a new —

- trial of the matter be granted. All parties concerned were |

invited. by the Court to subinit memoranda in support

of or in opposition to said motion and, the Court. has

now had the benefit of the views of the parties sea their

counsel as set forth in such memoranda.,

The. Court has given ‘careful sctidilietation to all of .

_ the conteritions made with respect to the Court's original

_ order of December 18, 1964 and the Court is not per-

' suaded that there should be any amendment, revision or

modification of said original order, and further, that no

constructive pyrpose would be served by the grant of a

_ new trial with: respect to the matter at issue. Accord-

_ingly, the opinion of the Court heretofore expressed is

adhered to and the motion to amend the Court’s order

and judgment entered December 18, 1964, or in the

alternative; for the grant of a new. trial, is hereby denied.

. IT IS SO ORDERED this 26th day. of January, 1965.

/s/ J. RoBERT ELLIOTT

J. Rosert ELuiorr

United States District Judge

59

." (Filed at 9:00 A.M., Jul. 15, 1965.. als ¥ Cowart,

Clerk, U. S. District Court.)

EXHIBIT G

IN THE UNITED STATES DISTRICT CUURT

FOR THE MIDDLE DISTRICT OF GEORGIA .

MACON DIVISION

In the Matter of: _) In Proceedings for .

: - Reorganization

Den-Nap Exectric Mop heros Chapter ‘X,

Company, PoPtar Founpries, ¢ Bankruptcy Act

INC. AND PRECISION RECAPPING |

EQUIPMENT COMPANY Nos. 8286, 8287

| and 8288

\

MEMORANDUM OPINION AND ORDER ON

APPLICATION OF MESSRS. RUSSELL, WATKINS

AND CALHOUN FQR ALLOWANCE OF

ATTORNEY’S. FEES AND EXPENSES

' Petitioners are attorneys for the Estate of C. F. Cal-

. houn, one. of the largest creditors of Den-Nap Electric

Mold Company. Den-Nap is one of the debtors in a com-

bined corporate reorganization proceeding instituted in

this Court in February, 1961, under Chapter X of the .

Bankruptcy Act of the ‘United States, said proceeding

. also relating to Poplar. Foundries, Inc.,.and Precision Re-

_ capping Equipment Company. Petitioners seek an allow- —

ance, as calculated in their Amended ‘Application, for.

$11,367.60 in attorney’s fees and $873.04 as reimburse-

*

/ t

Pte

60

ment for costs incurred in connection: with activities

Petitioners contend should be compensable in connéc-

tion with this proceeding. A hearing was held on Peti-

tioners’ application in Macon, © eorgia, on May 4, 1965,

at which time this Court also confirmed the reorganiza-

tion plan which had been previously approved by sub-

stantially more than the required creditors of the three

corporations, which plan envisioned the payment in full

of administrative expenses and creditor’s claims as proved

in the plan. |

In support of their application for allowance, Petition-

ers offered affidavits of two practitioners of the Atlanta,

Georgia, Bar as to the value of their services. One of

these affidavits estimated the value of Petitioners’ serv- |

ices at from $40,000.00 to $50,000.00, and the sécond at —

from $45,000.00 to $75,000.00. In substance, Petitioners

claim that it was through their efforts that the corpora-.

tion which they contend to be the most valuable (Pre-

cision) was placed by its stockholders into the reorganiza-

‘tion proceeding in 1961 only under threat of legal

proceedings designed to accomplish that end; that had

it not been for Petitioners a reorganization plan would

have been approved in February, 1965, which would

* have paid creditors forty cents on the dollar, whereas,

_ Petitioners contend that through their efforts, a competi-

8

tor of the debtor corporations was'brought in as an active _

_ bidder, offering to pay $400,000.00. for the assets of the. -

debtor corporations, which amount Petitioners contend

was sufficient to pay all administrative expenses and -

creditors in full; and that the presence of this outside -

bidder resulted in the debtor corporations submitting

an amended reorganization plan which paid administra-

‘tive expenses and.creditors in full.

,

DIENT LIEGE ALES VLE NOES ERLE ELIA IL I LIN ME I Am “~ ¢

“9°

&

eas Come

Attorneys for the debtor corporations filed objections

‘to Petitioners’ application, denying its allegations. Upon _

the hearing, attorneys for the debtor corporations, the:

purchaser under the reorganization plan, the creditors

committeé, one of the individual creditors, and the Trus-

tee spoke in opposition. to, the allowance. Briefs were

filed by the attorneys for the debtor corporation and the

purchaser in support of their position. Opposition to

the making of an allowance was based on two grounds:

(1) that Petitioners were estopped from seeking such

an allowance by virtue of certain statements made by

one of the Petitioners to this Court while sitting in

Columbus, Georgia on March 30, 1965, at which timé

the’ reorganization plan was amended through negotia-

tians and approved by this Court, and, (2) that the ©

Petitioners had failed to prove the allegations of their _

‘application and were not entitled to an allowance as a

matter of law. :

Based upon. uncontroverted statements by _inter-

ested parties made to this Court both on March 30th and ©

upon the hearing of this petition on May 4th, the fol-

lowing emerges as.to what transpired on the former date:

the debtor corporations had proposed to amend their

reorganization plan to pay creditors in full the amount.

of their respective claims .as-recognized by the Trustee,

‘there being a difference of some $26,000.00: between the

amount recognized by the Trustee as owing to Calhoun’s.

Estate ($72,300.00) and the amount claimed by said

Estate as owing to it ($98,451.15) . The difference in

amount was primarily composed of items the legitimacy —

- ‘of which were in dispute, i.e., attorneys fees on the

principal balance of the claim, exclusive of such fees on

pre-Chapter X judgments, post-Chapter X interest and

ee ae

62.

the crediting of payments made on the Estate’s claim .

during the reorganization period. The attorneys for the _

creditors committee thereupon offered’ to pay to the Cal-

houn Estate from funds otherwise available to general.

creditors this $26,000.00 difference in an effort to pre-

vent an appeal by Calhoun’s Estate from an approval |

and confirmation of the plan and to recognize the efforts

made by Petitioners in this proceeding. The attorneys

for the creditors committee and other interested parties

_ feared that an appeal and its resulting delay in consum-

mating any plan would greatly lessen’ the possibility of:

any disposition of the debtors’ assets other than by liqui-

dation ‘sale, “which would result in a substantial reduc-

tion, in funds available for payment of creditor’s claims. —

’ Petitioners, as attorneys for the Calhoun Estate, accepted

the creditors committee proposal and an outline of the

amended plan was thereupon announced to- this Court.

Because of the voluminous. pleadings-filed and the vari-

ous positions taken by the Calhoun Estate in this pro- |

ceeding, this Court of its own motion then made careful "

and diligent inquiry ‘of Petitioners whether payment to

the Calhoun Estate pursuant to the reorganization plan

. as then formulated would resolve all matters which had |

been raised or could have been raiged by Petitioners in

this proceeding. A transcript of the colloquy between

the Court and Mr. John K. Calhoun, chief attorney for

the Calhoun Estate and son of the deceased, is appended |

hereto as Appendix A.

I.

On the threshold, the Court rules that Pciitioners are

‘barred from seeking an allowance for services allegedly

rendered:the debtors’ estate as a result of the colloquy

63

between this Court and’ Mr. Calhoun in Columbus,

Georgia on March 30, 1965. At the May 4, 1965 hearing

Petitioners sought to minimize the effect of Mr. Cal-

- houn’s statement, contending that he had not had the

matter of attorneys fees in mind when making his state-

ment, Whatever Mr, Calhoun’s state of mind at that

’ time may have been, the Court and all. other interested

parties had regarded the procession of pleadings filed by

Petitioners to be at an end and were surprised when a

later petition was filed requesting the allowance now

sought. The Court’s interrogation of Mf. Calhoun was ~

made against a background, of ‘voluminous pleadings

filed and various positions asserted, including.a pro-

posed reorganization plan filed by Petitioners on March

29,1965, which. plan contained a provision that the

_ authors of-the plan would receive stock in the reorgan-— .~

= ized.corporation as compensation for their services. This |

plan of March 22nd was filed in expansion of an outline

of said. plan as set forth in a petition filed on March 9,

1965, which earlier petition sought to consolidate the .

assets of the three debtor corporations to pursue various

alleged remedies against the former stockholders of the |

_débtor corporations, and outlined a reorganization plan,

——

~. including an award. of stock in the reorganized corpora- -

tion for Petitioners. Petitioners having so specifically

referred to their desire for an allowance in pleadings

previously filed in this proceeding, the Court holds that

they are now barred from asserting a claim for such an

allowance by virtue of their statements made in open

court on March 30, 1965.: |

mie

%

The Court further holds that Petitioners are not en

ae

s o-

64

titled, as a matter of law, to compensation out of the

assets of the bankrupt estate. ,

Under § 242 of the Bankruptcy Act (11 US.C. §

642), allowances and reimbursement for cosfs and ex:

penses may be made to parties’in interest for services |

rendered and ,costs and expenses incurred.in connection

.. With the administration of an estate in a Chapter X pro.

ceeding or in connection with a plan. _—= by the

‘ Court. Alternatively, under § 243 of the B nkruptcy

Act (11 U.S.C. 643), compensation for services ren-

dered and reimbursement for proper costs.and expenses

incurred by creditors and their attornéys may be al-

lowed in connection with the submission by them of sug-

: gestions for a plan-or proposals in the form of a plan,

-or in connection with the administration of the estate

-only if those services contributed to the plan confirmed

_. or to the refusal of confirmation of a plan or were bene-

.. . ficial in the administration of the Estate. |

“The mere fact... that a clsimiant’’ 1s a person to

whom Chapter X permits compensation or reim-.

bursement to be given does not mean that the

claimant must be accorded an allowance. Nor does

‘participation in the proceedings, however right- ©

fully, create any absolute right to apmgpneation or

reimbursement.”

6 Collier, Bankruptcy, § 13.02 at p. 4502 (14th

Ed. 1964). }

The ultimate test under the statute is ‘whether the serv-.

ices performed benefited the Estate, Id. at p. 4509, a

question which must be determined by examination of

the particular factual situation under which an applica-

tion for allowance arises, :

TIENTS TENET IE) TORS Ne RENT TEE PL re x

—

| 65

Did Petitioners’ activities benefit the bankrupt estate?

Neither Petitioners nor their clients were involved in the

administration of the bankrupt estate. Petitioners’ ap-

pearance in this proceeding was in their capacity as attor-

_ heys for the largest creditor of one of the debtor corpora-

. tions. It dees, however, appear uncontroverted that Peti-

___— toners were the first parties in interest to contact the

officials of Super Mold Corporation, of Lodi, California,

_ @ principal competitor of the debtor corporations, with

reference to the possibility of purchasing either debtors’

going business or-the assets thereof. However, this con-

tact was made by Petitioners-at a time when the interests

of their client, the Calhoun Estate, were in a particular-

ly precarious position. Petitioners then had notice of a

petition filed by the Trustee requesting that this Court

value certain engraving machines on which ‘the Estate

_ had a bond to secure title as security for its claim. Peti-

_ tioners had always contended that the Estate was a se-

cured creditor entitled to, in their words as set forth in a

letter to this Court dated January 26, 1965, “the very

first priority”. The debtors’ plan sought to value the —

Estate’s: security at $2,500.00. Petitioners, on the other —

harid, in a petition mailed to this Court on January 26,

.. 1965, but never filed, contended that the Estate’s security

was of a value far in excess of this amount, if not in excess

“of its claim, and that the Estate was entitled to a fifteen

month delay in all matters connected with this proceed-

ing, during which time the Estate would have an oppor-.

tunity to establish the value of its security.. Petitioners

were notified of a creditérs meeting to be held on Feb-

ruary 12, 1965, at which time the creditors would con-

sider a plan submitted by the debtor corporation. This

plan envisioned the valuation of the Calhoun Estate’s

66 |

‘secured claim at $2,500.00 and would have paid general

creditors 40% of the amount of their claims. Petitioners

‘were thus confronted with the possibility that their client

would receive only $2,500.00 plus 40%, of any remaining -_.

balance of.its claim. Petitioners expressed their firm op-

position to such a plan and thereupon contacted the

‘officials of Super Mold Corporation

The officials of Super Mold Corporation, upon _be-

coming interested in acquiring the debtors’ assets, began

dealing with the attorneys for the Trustee and the

creditors committee, and indicated that it would bid not

less than “$400,000.00 upon a sale of the assets of the

debtors. Based upon this indication, the attorneys for the

| Trustee and creditors committee prepared a proposed .

plan of reorganization. Petitioners filed a somewhat simi-

lar proposed plan of reorganization on March 22, 1965,

_» except that in Petitioners’ plan, as previously indicated,

Petitioners sought attorneys fees as compensation for -

‘their efforts in the proceeding. In the meantime, attor-

. neys for the debtor and the ultimate purchaser of certain

of the debtors’ assets were seeking to amend their origi- -

nal plan. Ultimately, as previously outlined, an amended

debtors’ plan was worked out by interested parties ori

March 30, 1965, and was subsequently approved and con-

firmed. Petitioners. had continued to assert in their pro-

posed plan that their client was a secured creditor and

_ the Estate. was so designated in the debtors’ plan finally

approved and confirmed. The approved and confirmed

plan was not submitted by Petitioners nor were their

services rendered in connection with said plan. The plan

_. finally arrived at was made possible only by the attor-

neys for the creditors committee agreeing to pay Peti-

tioners’ client from funds otherwise available to general

\

|

- 67

creditors approximately $26,000. 00. Now, at this late

date, Petitioners contend that their efforts benefitedghe

_ estate asa whole, whereas, during the period-of negotia-

tions leading up-to the final plan Petitioners maintainedgs

a position diametrically opposed to the interests of gen-

eral creditors. :

Petitioners cite in support of their petition the case ~

of In Re Consolidated. Motor Parts, Inc., 85.F. 2d 579.

(2 Cir. 1936 ). Ini that case attornéys for a certain class ~

of creditots were awarded attorneys fees for their. oppo-

_ sition to a proposed reorganization plan which they con-

tended discriminated against their clients and thereafter

_ concurred in,a new plan more favorable to their clients. ©

The Court pointed out (p. 581) that:

““...the mere fact that work which has substan-

tially aided the plan finally approved has been per-

formed by an attorney for creditors or stockholders _ -

- owning interests adverse to some of the other parties,

does not necessarily. deprive him of compensation.

The question is whether ;the work. in connection

with the plan has been performed in good faith and

has substantially contributed to the —— ‘finally .

achieved. %

The ‘Court distinguished certain. ine cases in which

compensation had been’ denied on the ground ‘that in

those cases the Petitioners had not substantially assisted

in the formulation of the plan that was finally adopted.

A later case in the Secorid Circuit; Newman & Biscoe-v.

Realty Associates Securities Corporation, 173 F. 2d 609

(2 Cir. 1949), disallowed allowances awarded by the |

lower court to the extent sought in connection with an

unsuccessful attempt to require the debtor corporations

to pay increased _ interest on the applicant’ client’s

_ Claims. See also. Warren v. Palmer. 132 F. 2d 665 (2 Gir.

1942) referred to’ by the Court in the. Newman case. 7

In Glasser v. Doyle, 223 F. 2d 811 (2 Cir. 1955), the

Second Circuit refused to increase an allowance awarded

by the District Court to an attorney. The Court pointed

out (p. 813) that: Seuss as “

“. +. he is not a court appointed officer but is the

lawyer privately retained to represent the interests of

_ 4 preferred stockholders’ committee in the reorgani-

* zation proceeding .. . The legal services of an attor-

" Mey so situated may be competent, diligent and cal-

_Culated to serve the best ‘interests of his clients, yet.

prove to be of little benefit to the administration of

the debtor's estate: That such a situation existed

_ here was an entirely permissible conclusion on the

present record. We find no compelling reason for

holding, contrary to the trial court's best judgment,’ ’

that the debtor's estate was enriched or its adminis-. .

‘tration advanced to any great extent by the labors

“>of this claimant, however competent and conscien-

_ tious they may have been.” _ |

”

In:the case of In Re Vernan. Mfg. Co., 92-F. Supp. 861

(D. C.-W. D. Pa. 1950), the Court refused to make an

allowance in. connection with services of attorneys for a

stockholder and creditor of the debtor corporation.’ Peti-

tioner’s counsel had performed services in preparation

and formation of a plan of reorganization which was

- Fejected by the majority of creditors. The Court con-

cluded that petitioner's counsel had acted as mere vol- |

_ unteers as to their Proposed, but rejected plan. More-

over, the Court pointed out (p. 864) that: ,

1 altiiitnied diliinatia teased shad didaladan ania

‘mr

a : , i

“Petitioner cannot: reasonably contend that his

plan contributed «substantially ‘to rejection of the

himself avers that the plan exists in amended form;

or, if I conclude that’ the initial. plan has been re-

jected; petitioner’s opposition thereto was ‘only .a

fragment of the Opposition exerted by the sapeeny

of merchandise creditors.

- “Were I to conclude that’ the plan of petitioner’ s

counsel was beneficial to the estate, yet it is apparent

that counsel acted solely for the interest of peti-.

tioner, the creditor by whom he was named to act.

initial plan proposed by the Trustee, for Petitioner.

Even if services are beneficial to the administration

- of an estate, but were rendered in thé sole interest ;

of a creditor or stockholder, dur courts have. sus- _

tained the view that allowance may not be made for

such services" * (citing cases) .”

See also London v. Snyder, 163 ¥F. 2d 621 (8 Cir. 1947);

Matter of 32-36 N. State St. = gs 164 F. 2d 205

(7 Cir. 1947). | :

The standards governing this Court's deliberation on.

" Petitioners’ application have been best summed up in J] -__

Remington, Bankruptcy, § 4685 Oe Revised. de as

follows: oe

»

“The right of an attorney to receive-an allowance

depends upon his representation of a class or some —

meniber of a class entitled to participate in the |

proceeding. The allowance. is not for services ren-

dered to the client, but for services rendered’ in

assisting the client in rendering services which are

compensable. If the attorney's efforts are directed

er to ee his client’ s bind "ag the ~~

\

LA

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70

t

should pay him, and an allowance out of the estate

is not called for. Attorneys representing creditors,

security holders, or stockholders must look to theif

clients for compensation, rather than to the estate.

The basis for an allowance is that services of value

. to the estate have been rendered—services ‘which

. benefit all sets of interests in the estate.”’

This Court is of the opirtion that the benefits to the

_ bankrupt estate, if any there be, rendered by Petitioners

vin vigorously and diligently prosecuting the interests of

-their client, often to the possible detriment of other ~~

creditors of the debtor corporations, were too remote, un-

_~ intended, and incidental to the primary purpose of said

efforts to be susceptible of. valuation by this Court, or —

compensable by allowance in this proceeding. |

Accordingly, for the reasons set out in Section -I and

Section II of this opinion, Petitioners’ application for

attorney’s fees and expenses is denied.

| _ IT IS SO ORDERED this 14th day of July, 1965:

‘

. ry

J. ROBERT ELLIOTT

United States District ‘Judge

, a yo j

THE COURT: The other thing I want to be sure of,

if this plan goes through, Mr. Calhoun, every matter ©

concerning which you have suggested any issue and every .

question which you have raised by any of the pleadings

* which you have filed in connection with the matter or

any which could have been raised which you have not an

_ raised, will he terminated and disposed of; is that under-

_ stood?

P

we

_ MR. ‘ CALHOUN: Your Honor, I’m happy to be

‘bound by-the agreement and upon the approval of a plan

whiclfprovides $98,724.15 in cash, everything that we

have in this proceeding ‘will be dismissed.

THE: ‘COURT: Well, when you say “in cash”, you —

_ mean at the same time all the other creditors are paid?

MR. CALHOUN: At ~ same time as the other

‘ creditors. '

THE COURT: At the same time all the other cadi-

tors are paid.

“MR. CALHOUN: Yes sir, and yet, we wish to reserve

our right to dismiss until that date.

THE COURT: Oh yes, but the plan, when we talk

about “‘the plan”, when the plan is approved, if the

Court approves it, ‘that terminates every ‘question. which .

. you have raised or could have raised? | 7

MR. ‘CALHOUN: Yes sir, 1 would rather state it ‘este

when a distribution is madé under the plan, that settles

' everything, terminates everything. |

‘THE COURT: .All ‘ight; 1 ‘wanted to be sure of |

those two things.