Brief Amicus Curiae — Callaghan v. Reconstruction Finance Corporation

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CITATIONS

Cases:

—— Bank v. Chicago, Beek Island & Pacific Ry.

A 8 ET Ta sae eee 6

nee York Investors, Inc., In Re (C. C. A. 2d, July 22, 1935),

ince ckdeennaesneeernneoereseoyece o

Paramount Publiz Corp., In Re (8. D. N. Y., Dec. 10, 1934),

Realty Corp. v. O’ Connor, 295 U. 8. 295........---------- 5, 6, 7

211 East Delaware Bldg. Corp. ” Inc., In Re, 7 F. Supp. 892. 7

Statutes:

National Bankruptcy Act as amended: :

Section 48 (11 U. 8. C. (1934 ed.), Sec. 76)_.-....--. Q

Section 72 (11 U. S. C. (1834 ed.), Sec. 112)2_______- 10

Section 77 B (11 U. 8. C. (1934 ed.), Sec. 207)__...- 10-13

rt Act of June 7, 1934, c. 424, Sec. 3, 48 Stat. 923 (11 U. 8. C.

r (1934 ed.), sep. 76a) .....--------- stele eiiahdaatanniiie a

~ Miscellaneous: ee

8. Rept. No. 482, 73d Cong., 2a oss pp. 8 4,7; 9 housewde 6

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‘ No. 539

STEPHEN ‘CaLLaGHAN PERCIVAL E. Jackson, ANd

- William M. Greve, individually and as trustees

in bankruptcy and as trustees in reorganization

of Allied Owners Corporation, Petitioners

° : . ‘”. ‘ ve ;

RECONSTRUCTION FINANCE CORPORATION

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE SECOND

CIRCUIT.

- BRIEF FOR RECONSTRUCTION FINANCE CORPORATION IN

OPPOSITION

A - OPINIONS BELOW

The opinion of the District Court (R. 377-385).

is not reported. . The opinion of the Circuit Court -

of Appeals (R. 416-423) is reported in 79 F. (2d)

187. Sigs eae, 2% ;

JURISDICTION

The judgment of the Circuit: Court of Appeals -

was entered August 1, 1935 (R. 423). The petition -

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for a writ' of certiorari was filed October 24, 19385.

The jurisdiction of this Court is invoked under

Section 240 (a) of the Judicial Code, as amended

by Act of Congréss of February 13, 1925.

“QUESTION PRESENTED

_ Whether Section 48 of the National. eT

Act fixes the maximum measure of compensation to

trustees for their services in a bankruptcy proceed-

ing when that proceeding has been superseded by a

Section TTB reorganization —

. STATUTES INVOLVED —

The applicable statutes are set forth in the Ap-

pendix, iad pp. 9-13..

STATEMENT

On August 8, 1933, Allied Owners Coxpairation

was adjudicated a bankrupt on its voluntary peti-

, tion (R. 141). Respondent is pledgee of all the

stock of the corporation, and is the principal unse-_

cured. creditor. Qn August 25, 1933, petitioners

Callaghan and Jackson became trustees in bank-

ruptcy, and, on September i4, 1933, petitioner

Greve became tle third trustee in bankruptey (R.

2). On June 22, 1934, the bankruptey. proceeding

was superseded by a Section 77B proceeding, at

which time petitioners became trustees in reorgani-

zation (R. 3). .

On or about January 98, 1935, vepiiettions for

allowances for serviees performed in the bank-

3

ruptcy proceedings were filed with the referee in

bankruptcy by petitioners, aS trustees in bank-

ruptcy (B.6—136),,and by others. After due notice

and hearing, at which respondent and other cred-

itors appeared in opposition, the referee, on March

2, 1935, filed his report, recommending allowances

that included an allowance of $60,000 to petitioners

for services performed. as trustees in bankruptey. '

(R. 287,300.)

On March 8, 1935, the District J udge filed his

: memorandum increasing, without further hearing,

the allowances to petitioners to. $90,000 and ap-

proving the other allowances (R. 305-306). On

March 11, 1935, orders were entered by the District

Judge, in aecordance with his menforandum opin-

ion, and a further order was ’ntered at the same

time in the reorganization proceeding directing the

_ trustees in reorganization to make the payments.

(R. 307-313).

Respondent moved to have the allowances re-

duced. The District Court filed its opinion over- .

ruling the motions (R. 377), and, on May 13, 1935,

entered an order accordingly (R. 386).

On appeal by respondent from the orders of

March 11, 1935,and May 13, 1935, the Circuit Court

of Appeals ruled that Section 48 of the Bankruptcy

Act fixed the maximum compensation for trustees

in bankruptcy proceedings and aceordingly reduced

the allowances to petitioners from $90,000 to

— 50 - 420-473).

= 4

ARGUMENT

1. The court below held that Section 48 of the

Bankruptcy Act fixes the maximum measure of

compensation to trustees for their services in the

bankruptcy proceeding, when that proceeding’ has

. been superseded. by a reorganization proceeding

_ under Section 77B. Petitioners here contend that

Section 48 is inapplicable, and rely on subdivisions

(i) and (k) of Seetion T7B. |

There is no reason to.deny to Section 48 its plain

meaning. That section provides i in part: |

Trustees shall receive for their services, pay-

able after they are rendered, * * * such

commissions on all moneys disbursed or .

turned over to any person, inéluding: lien-

holders, by them, as may be allowed by the

courts, not to exceed [certain percent-

ages]. * °. .

_ Subdivision (i) of Section 77B Sarey in part:

If a receiver or trustee of all or any part

of the property of a corporation has been

appointed by a Federal, State, or Territorial

court, * * *° a petition or answer may

be filed under this section * * * andthe

.jJudge shall make —_ orders as he may

deem equitable * * . for the payment ©

of such reasonable acd expenses

and allowances in the prior proceeding. as

may be fixed by the court cutiaettic

said * * * prior trustee. .

This subdivision expressly requires the prior court

.to fix the allowances. The prior bankruptcy

oD

court was bound by the provisions of Section 48.

Section 77B (i) does not remove this restriction on -

"the prior court. The word “‘reasonable” gives the

reorganization court the power to revise prior al-

lowanees, whether made in an equity receivership

or in bankruptcy. Subdivision (i), therefore, au- _

thorizes the reorganization court merely to make -

“equitable orders” for the payment of prior allow-

ances, in the words of the court below, ‘‘to the

extent that they are found reasonable.”

There is nothing in subdivision (k) of Section

77B which offers support to sineeiceehe -It pro- |

vides merely that:

None of the sections enumerated in this sub-

division (k) [including Section 48] * * *

shall apply to proceedings instituted under

this section 77B unless and until an order

' has been entered directing the trustee or

trustees to liquidate the estate. * * *

This subdivision, as pointed out by the court be-

low, refers only to proceedings instituted under :

Section 77B and does not render Section 48 inap- :

plicable to prior proceedings which are instituted |

and conducted.under the bankruptcy sections. _

_. This Court has recently had occasion to stress the

- independence from one another of bankruptcy pro-

ceedings and those under the recently enacted pro-

visions for the: relief of debtors.. Realty Corp. v. _.

O’Connor, 295 U. 8. 295, 301.

2. It. is universally recognized, and petitioners a

admit, that excessive fees to-those entrusted with

6

the administration of insolvents’ estates was one of _

: the evils that Congress sought to eliminate by the

enactment of Section T7B, See Senate Report No.

482, 73d Cong., 2d Sess., pp. 3, 4, 7,.9; ¢. 424, See. 3,

‘48 Stat. 923 (the Act which contains Section 77B) ;

Sec. 72 of the Bankruptey Act, 11: U. S. C. (1984

ed.), sec. 112; Realty Corp. v. Q’Connor, 295 U. 8.

295, 299. This Court, in Realts Corp. v. O’Connor,

supra, has declared (pp. ) that ‘fa court

will not forget that Congress meant to hit the evil

of extravagance, and that the meaning of its words,

if doubtful, must be adapted to its aim.”’’ Congress,

concerned with excessive and exorbitant fees, can-

not have intended by mere inference to disturb

existing restrietions upon allowances. :

Petitioners contend that the decision below will

be an incentive to trustees to liquidate in order to

procure maximum fees, rather than to look toward

the reorganization of insolvents’ estates. It would

seem rather, if trustees may be considered to be

SO motivated, that this’ decision should tend to

hasten transfers to proceedings under Section 77B,

and thus to give effect to the purpose of Congress

to- have economical and speedy reorganization of in- .

solvents’ estates. Cf. Realty Corp. v. O’Connor,

| ‘supra, p. 299 ; Continental Bank v. Rock Island Ry.,

(294 U. 8. 648, 685.

3, The same conclusion has been reached_ by a

District Court. In re Paramount. Public Corp. —

(S. D. N. Y., December 10, 1934, unreported, cited -

in the opinion below).

7

_ Petitioners do not contend that there is a con-

flict of decisions, but imply that the decision below

is inconsistent with a decision of the same court

rendered in Iu ‘re New York Investors, Inc., 79 F.

(24) 182. The Investors case involved the appli-

cability of Section 77B to allowances fixed by the

equity receivership court that preceded the re-

organization court. The court there referred to

the fixing of ‘‘reasonable’’ fees by the equity court

but only because the equity court was subject to

no statutory restrictions, and not because Section

77B provided the equity court with independent

power to fix the allowances. |

In In re 211 E. Delaware Building Corp,, ho 7-7

7 F. Supp. 892 (E. D. IL), the court, in dealing

with. allowances made in a prior equity receiver-

ship, had adopted substantially the same line of

reasoning as that in the New York Investors case.

4. None of the issues here presented will arise

unless Section T7B reorganization proceedings are

preceded by other Federal or State insolvenay pro-

ceedings. When the present transitional period is

passed, it is believed,that only isolated reorganiza-

' tion proceedings will be preceded by other insolv-

ency proceedings. |

CONCLUSION

The decision .of the court below is correct and is

in accord with the principles announced by this

. Court in: Realty Corp. v. O’Connor, supra. There

is no conflict of decisions.. The question presented

is not one of general or continuing importance.

‘It is therefore respectfully submitted that the peti-

tion should be a ,

SrantEy Rep,

‘ Solicitor General.

Max O’RELL Trout, ©

Solicitor Reconstruction Finance Corporation.

.' Of Counsel: |

. JaMEs B, ALLEY,

General Counsel :

Reconstruction Finance iii.

Et1 WHITNEY DEBEVOISE.

‘NovEMBER 1935.

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APPENDIX .

[NATIONAL BANKRUPTCY ACT AS AMENDED

Sec. 48. (a) [11 U. S. C. (1934 ed.), Sec. 76.]

Trustees shall receive for their services, payable

after they are rendered, * * *-~ such commis-

sions on all moneys disbursed or turned over to any ;

person, including lienholders, by them, as may be

allowed by the courts, not to exceed 6 per centum

on the first $500 or less, 4 per ¢entum on moneys in

excess of $500 and less than $1,500, 2 per centum

on moneys in excess of $1,500 and less than $10,000,

and 1 per centum on moneys in excess of $10,000.

And in case of‘the confirmation of a composition .

after the trustee has qualified the court may allow

him, as compensation, not. to exceed one-half of 1

per centum of the amount to be paid the creditors

on such composition. .

(b) In the event of an estate being administered

by three trustees instead of one trustee or by suc-

cessive trustees, the court shail apportion the fees

and commissions between them according to the

services actually rendered, so that there shall not

be paid to trustees for the administering of any

. estate a greater amount than one trustee would be

- entitled to. ue ae

+ * : *— * %

(e) Where the business is conducted by trustees,

*.* * as provided in clause 5 of section 11, the

court may allow. such officers additional compensa-

tion for such services by way of commissions upon

the moneys disbyrsed or turned over to any person,

(9)

10

including lienholders, by them, * * *; such

commissions not to exceed 6 per centum on the first

$500 or leas, 4 per ccutum on moneys in excess of

$500 and less than $1,500, 2 per centum on moneys

in excess of $1,500 and less than’ #10,000, and 1

per centum on*moneys in excess of $10,000. In

case of the confirmation of a composition Such com-

' missions shall not exceed one-half of 1 per ‘Goptum

of the amount to be paid creditors on such comipo-

sition. Before the allowance of compensation

notice of application therefor, specifying the

amount asked, shall be given to creditors in the

manner indicated in section 94. .

Seo. 72. [11 U. 8. C. (1934 ed.), Sec. 112.]

Neither the referee, receiver, marshal, nor trustee

shall in any form or guise receive, nor shall the

court allow lim, any other or further compensation

for his services than that expressly authorized and

prescribed in this title. ,

Section 77B.— .

. (i) (t U.S. C, (1984 ed.); Sec. 207 (i).] If

a receiver or trustee of all or any part of the. prop-

erty of a corporation has gga by a Fed-

eral, State, or Territorial co whether before

or after June 7, 1934, af 12 pth noon, a peti-

tion or answer may filed under this section

at-any time thereafter by the corporation, or its

creditors. as provided in subdivision (a) of this

section and if such petition or answer is approved,

the trustee or trustees apnginved under this section, .

ae or the debtor if no t is appointed, shall be

entitled forthwith open of and vested with

title to such pro and the judge’ shall make

such orders as he may deem equitable for the pro-

1!

testion of obligations incurred by the receiver or

prior trustee and for the payment of such reason-

‘ able administrative expenses and allowances in the

prior proceeding as may be fixed by the court ap-

pointing said receiver or prior trustee. If a re-

eeiver or trustee has been appointed by a Federal

or Stats or Territorial court prior to the institu-

tion of a proceeding under this section, and .such |

proceeding sha}] be dismissed under subdivision

(c), clause (8), of this section, the judge may in-

clude in the order of dismissal appropriate orders

directing the trustee or trustees, or the debtor if no

trustee is appointed, to transfer possession of the

debtor’s property within the territorial jurisdic-

tion of such court to the receiver or-prior trustee

80 appointed, upon such terms as the judge may

deem equitable for the protection of obligations in-

curred by any trustee or trustees appointed under

this section, and for the payment of administrative

expenses and allowances in the proceeding here-

under. For the purposes of this section the words

‘Federal court’’ shall include the district courts

; of the United States and of the Territories and

posséssions to which this section and section 206 -

of this title are ot may hereafter be applicable, the

Supreme Court of the District. of Columbia, and

the United States Court of Alaska, and the District

Court of the United States for the Territory of

Hawaii. - : ete

(k) [11 U. S. C. (1934 ed.), See. 207 (k).] If

an order is entered directing the trustee or trustees

to liquidate the estate pursuant to the provisions of

clause (8) of subdivision (c) of this section:. (1)

The case may be referred to a referee as provided

ini section 45 of.this title, who shall be compensated

!

‘as provided in section 68 of this title; (2) the first

meeting of creditors shall be held as provided in »

section 91 of-this title, upon notice as provided in ~

section 94-of this title; (3) a trustee ‘or trustees

-. shall be appointed as provided § in seetion 72 of this .

title, and be compe.isated as provided in sectiort 76

of this title; (4) claims which-are provable under |

section 103 of this title may be proved as provided

in section 93 of this title, except-that the time with-

in which proof may be made shal) not expire until

six months after thegdate of the last publication of

he- notice of the first meeting; (5) debts shall be

‘entitled to priority as provided in section 104 of this

titie ; (6) sales shall be made as provided in subdi-

vision (b) of section 110 of this title; gpmasne:

may be declared and paid as provided in s€ctigh 105

of this titlé. .None of the sections enumerated in’

this subdivision (k), except Subdivisions (g), yi),

(J); and (m). of section 93 of this title, and subdi-

visions (a) and (e) ¢ of section 110 of this title, shall |

apply to proceedings instituted under this séction

‘ugjess and until an order has been entered directing

‘ the trustee:or trustees te liquidate the estate: All

,other provisions of this-title, except such as are

inconsistent with the’ provisions of this section,

shall apply to proceedings instituted under this sec-

‘ tion, whether or. hot an order to liquidate the estate

‘has been entered. For the purposes of such appli-

cation, provisions relating to ‘tbankrupts”’ shalt be

deemed to relate also to ‘‘debtors’’; ‘‘bankruptcy

pfoceedings® ’ or “‘proceedings in bankruptey” shall —

be deemed tc include proceedings under this sec-

tion; the date of the order approving the petition

or answer under this section shall be taken to be the

date of adjudications.and such order shall have the

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a 2 mo | —

same consequences and effect as an order of adjudi-°

: cation.

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SEC. 3 OF THE ACT OF CONGRESS OF JUNDE. 7, 1934, ©. 424,

‘48 QTAT. 923 (itU.- 8.5C. (1984 ED.), SEC. Téa) —

“7 . The compensation allowed a re- |

- Celver or trustee or an attorney for a re- .. ~

‘veiver or trustee shall in no case be excessive .,

» *. or exorbitant, and the court in fixing such ma

} compensation. shall have in mind the conser-

1 vation and preservation of the estate of the ‘J

q bankrupt and the interests of the ¢ (creditors ;

q _ therein. ’

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©. S. GOVERNMENT PRINTING OFFICE: 1935