Opposition Brief — Mehrtens v. Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc.

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Ju the Supreme Court of the United States

OCTOBER TERM, 1972

No. 71-1610

HoNORABLE WILLIAM O. MEHRTENS, JUDGE, UNITED

STATES DISTRICT COURT FOR THE SOUTHERN DIs-

TRICT OF FLORIDA, PETITIONER

uv.

PROTECTIVE COMMITTEE FOR INDEPENDENT STOCK-

HOLDERS OF TMT TRAILER FERRY, INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

BRIEF FOR THE SECURITIES AND EXCHANGE

COMMISSION IN OPPOSITION :

OPINIONS BELOW

The two opinions of the court of appeals (Pet.

App. A. 263- A. 265; A. 267- A. 272) are reported

*The Securities and Exchange Commission has been par-

ticipating actively and continuously in this reorganization

proceeding in the district court as a party pursuant to Section

208 of Chapter X of the Bankruptcy Act, 11 U.S.C. 608, since

shortly after the commencement of the proceeding in 1957.

As in Protective Commitiee v. Anderson, 390 U.S. 414, 420

n. 3, and Caplin v. Marine Midland Grace Trust Co., No. 70-

220, decided May 22, 1972, the Commission is “an unnamed

respondent before this court.” See Rule 21(4) of the Rules of

this Court.

—_

(1)

at 457 F.2d 104 and 457 F.2d 100, respectively. The

opinion of the district court (Pet. App. A. 80) re

viewed in 457 F.2d 104 and the orders of the district

court reviewed in 457 F.2d 100° are unreported,

JURISDICTION

The judgments of the court of appeals were en-

tered on February 7, 1972 (Pet. App. A. 263, A.

267), and petitions for rehearing and rehearing en

bane were denied on March 13, 1972 (Pet. App. A.

266; 457 F.2d 100, 103). The petition for a writ

of certiorari was filed on June 9, 1972. The juris-

diction of this Court is invoked under 11 U.S.C. 47

(c) and 28 U.S.C. 1254(1).

QUESTIONS PRESENTED

1. Whether, on a petition for extraordinary relief,

the court of appeals properly vacated an order of the

district court that it held contravened an earlier

mandate of the court of appeals and properly ordered

the district court to take further action to implement

that mandate.

2. Whether the court of appeals properly limited

both present and future awards of interim compen-

sation to the general counsel for a trustee in a re-

2These orders granting interim compensation to the

trustee’s counsel are not reproduced in the petitioner’s ap-

pendix. They can be found in the record below under Docket

Numbers 1334, 1408, and 1409.

. ~ 5 ee ee 1 te Sa Ses Sonar ze

PRALINE ES GEL ELIE LOL LIT OTN eS EE ecient

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organization proceeding under Chapter X of the Bank-

ruptey Act.

STATEMENT

1. Petitioner is the district judge in the reorgan-

ation of TMT Trailer Ferry, Inc. under Chapter xX

of the Bankruptcy Act, 11 U.S.C. 501 et seg., which

was begun in 1957. An aspect of this proceeding was

before this Court in Protective Committee v. Ander-

son, 390 U.S. 414. After that decision, the proceed-

ing was transferred to petitioner, the trustee resigned,

a successor trustee was appointed, and a new gen-

eral counsel for the trustee was retained. Counsel

for the Protective Committee for Independent Stock-

holders (the “Committee”) sought an award of $100,-

000 interim compensation for services rendered dur-

ing the first eleven years of the proceeding, and re-

imbursement of expenses of $22,000.

The successor trustee sought to delay any award

of fees to counsel for the Committee and to depose

the members of the Committee and its counsel in an

exploratory investigation into whether there might

be grounds for denying Committee counsel a fee. The

Committee sought a protective order against the depo-

sitions and instructions from the district judge as

to its future role in the case. In a single order, the

district judge awarded $10,000 interim compensation

and $5,000 reimbursement of expenses and denied

the request for a protective order and instructions

(Pet. App. A. 2). The Committee and its counsel

appealed (Pet. App. A. 3).

In Protective Committee v. Kirkland, 434 F. 24

804 (C.A. 5) (Pet. App. A. 2-A. 8), the court of

appeals held that Committee counsel should be given

$60,000 interim compensation and $10,000 reim-.

bursement of expenses (the amounts which had been

recommended to the district court by the Commis-

sion),® and provided that the award should “not be

subject to vacation, setting aside, reduction or modifi-

cation except upon proof of legal disqualification”

(Pet. App. A. 5-A. 6). The court of appeals stated

that the protective order sought by the Committee

and its counsel from the trustee’s proposed deposi-

tions “should have been issued by the District Judge

to prevent undue harassment” (Pet. App. A. 7).

The court of appeals also directed that petitioner

“should, in the firmest and most emphatic manner

possible, state to the Trustee and its counsel the ab-

solute need of coopertaion and harmony with the Pro-

tective Committee and its counsel to insure a proper

determination and final wind-up of this reorganiza-

tion” (ibid.). A petition by the trustee for rehear-

ing and rehearing en banc was defiied (Pet. App.

A. 10) and this Court denied certiorari. 402 U.S.

907.

On remand, petitioner entered an “Order on the

Mandate” (Pet. App. A. 80) specifying the detailed

manner in which Committee counsel were to divide

the $60,000 interim compensation and $10,000 reim-

’ The efforts of Committee counsel are described in Pro-

tective Committee v. Anderson, 390 U.S. 414, 420-423, 429,

431-433, 439, 451.

5

pursement of expenses which the court of appeals

had awarded, permitting the trustee to pursue dis-

qualification proceedings against the Committee and

its counsel and authorizing the trustee to conduct

discovery proceedings in connection therewith. The

disqualification proceedings were based on essentially

the same charges which the trustee had previously

raised with respect to the Committee counsel’s fee

and which the court of appeals had rejected ( Pet.

App. A. 264).

The Committee and its counsel petitioned the court

of appeals for an extraordinary writ in order to

require the district court to follow the court of ap-

peals’ previous decision (Pet. App. A. 89). The Com-

mission supported the petition. The court of appeals

granted the petition, stating that petitioner had “mis-

construed and misapplied” its mandate (Pet. App.

A. 264) and that its previous decision had accord-

ingly been “frustrated” (Pet. App. A. 265). The

court ordered petitioner (1) to rescind his order on

the mandate, (2) to direct the estate to pay the

amounts allowed Committee counsel without restric-

tion, and (3) to cancel the proposed discovery pro-

ceedings in connection with the disqualification mo-

tions (Pet. App. A. 265).

9. In another order, petitioner allowed the trus-

tee’s counsel, Irving M. Wolff, who assumed office in

January 1969, $60,583 in interim compensation for

his services in 1969 (Pet. App. A. 268). In Novem-

ber 1970, petitioner awarded Wolff interim compen-

sation for services rendered during the first six

a. iis Ga Perea oy

6

months of 1970 of $46,620, at a rate of $60 per hour

(Pet. App. A. 268 - A. 269). Pursuant to Section 250

of Chapter X, 11 U.S.C. 650, the court of appeals

authorized the Committee to appeal from that award,

While that appeal was pending, in March 1971, peti-

tioner awarded Wolff interim compensation for sery-

ices rendered during the last six months of 1970 of

$42,400, also at a rate of $60 per hour (Pet. App.

A. 269). The court of appeals authorized the Com-

mittee to appeal from that award also. The court

of appeals consolidated the two appeals.

Referring to the fact that little had been accom-

plished toward concluding the reorganization pro-

ceeding in the four years since the remand from this

Court, and to “the intramural squabbling and fight-

ing which has been going on between counsel,” the

court of appeals reversed the district court, holding:

(1) that the $89,020 allowed the trustee’s counsel as

interim compensation for services rendered during

1970 was “excessive” and should be reduced to $30,-

000; and (2) that in the future the trustee’s counsel

should be allowed no more than $30,000 interim com-

pensation for services rendered in any one year, with

the determination of final fees to await the comple-

tion of the reorganization proceeding (Pet. App. A.

270- A. 271).

ARGUMENT

The decisions of the court of appeals were correct

and present no issues warranting review by this

Court.

7

1. In vacating petitioner’s order with respect to

the fees for counsel for the Committee, the court of

appeals has determined that the charges which the

trustee made against the Committee and its counsel

in both the district court and the appellate courts do

not warrant continued interruption of the reorganiza-

tion proceeding for a protracted investigation looking

toward disqualification of the Committee and its coun-

sel. In 1970, the court of appeals considered and re-

jected those charges and ordered petitioner to reor-

ganize the debtor and wind up this lengthy case as

quickly as possible (Pet. App. A. 2-A. 8).

The trustee nevertheless continued his attacks on

the Committee and its counsel.t Under these circum-

stances, the court of appeals properly held that the

actions of the district court had “frustrated” its ear-

lier mandate and that extraordinary relief was thus

appropriate. See, ¢.9-, United States v. Haley, 371

U.S. 18; United States v. United States District

Court, 334 U.S. 258; In re Potts, 166 U.S. 263.

2. The petitioner district judge has no standing to

seek review of the ruling of the court of appeals fix-

ing a maximum of $30,000 interim compensation to

be allowed counsel for the Chapter X trustee in any

one year, since he was not a party to the appeals in

‘While the court of appeals had stated that the fees it was

awarding counsel for the Committee might be recovered on

proof of legal disqualification (Pet. App. A. 5-A. 6), its

opinion made clear that there was no need for an investigation

of the conduct of the Committee or its counsel and did not

contemplate a general discovery seeking evidence of dis-

qualification.

PORN ON IEEE MELO LLL DOA ALD ALIN SO OT a

which the ruling was made. In any event, the court

of appeals acted properly.

Chapter X does not expressly provide for payments

of fees and allowances during a reorganization pro.

ceeding, and generally they are not paid until the

reorganization has been completed, since that is the

time when the judge is in the best position to evaly-

ate the overall result of the proceeding, the contriby-

tions made by the several applicants and the amount

available to pay all fees and allowances. In re Key.

stone Realty Co., 117 F.2d 1003, 1006 (C.A. 3). An

exception is normally made, however, with respect

to interim allowances to the trustee and his counsel

to alleviate possible economic hardship in lengthy re-

organization proceedings.’ Interim awards are not

intended to reflect the full value of the services ren-

dered during the period, but are payments on ac-

count of a future final allowance and should be suffi-

cient only to prevent undue hardship. Jn re McGann

Mfg. Co., Inc., 188 F. 2d 110, 112 (C.A. 3).

The court of appeals here did not fix the amount

of final compensation to be allowed the trustee’s

counsel. All that it determined was that a maximum

of $30,000 a year would be sufficient to alleviate any

hardship which the length of the proceeding might

® See e.g., Rule 10C, Local Bankruptcy Rules, United States

District Court for the Southern District of Florida (Rev.

1968). On occasion, awards of compensation to parties other

than the trustee and his counsel may be appropriate prior to

the conclusion of the proceeding. E.g., Protective Committee

v. Kirkland, supra (Pet. App. A. 2); In re Inland Gas Corpora-

tion, 73 F. Supp. 785 (E.D. Ky.).

ERE EO TT OS Pe ee ee ~ weoye™ ee _—

2 ; 2 : et

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work. The record before the court of appeals was

adequate to make such a determination. An allow-

ance of more than $30,000 a year interim compensa-

tion could tend to encourage procrastination by the

trustee’s counsel, particularly in light of the fact

that there has been little progress made toward re-

organization and substantial time has been spent in

fruitless litigation during the years when counsel

was awarded annual interim compensation of about

$60,000 and $90,000.

CONCLUSION

For the foregoing reasons, the petition for a writ

of certiorari should be denied.

Respectfully submitted.

ERWIN N. GRISWOLD,

Solicitor General.

G. BRADFORD Cook,

General Counsel,

DAVID FERBER,

Solicitor,

PauL GONSON,

Assistant General Counsel,

RoBERT E. GINSBERG,

Special Counsel,

Securities and Exchange Commission.

JULY 1972.

Yl U.S. GOVERNMENT PRINTING OFFICE; 1972 470793 3