# Appendix — Calhoun v. Hertwig > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_0392%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1967 - **Citation:** 386 U.S. 1033 ## Text 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 é 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. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_0392%3A2. Public record. Not legal advice.