Brief for the Respondent in Opposition — Prudence-Bonds Corp. v. Silbiger

FILED j

MAY 2.3 1950 ©

CHARLES ELMORE CROPS]

IN THE OLE

Supreme Court of the United States

Ocroser TERM, 1949

No. 52

>

Prupence-Bonps Corporation (New Corporation),

Petitioner,

—_—V.—

SAMUEL Sixpicer, et al.

en

wa

BRIEF OF RESPONDENT ARTHUR MILLER IN

OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

ARTHUR MILLER

Respondent, Pro Se

Lester H. Marks

Counsel for respondent,

Arthur Miller

11 Park Place

New York 7, N. Y.

Ae eee Ne ON OR ORNS Termes

INDEX

PAGE

ener 1

BI Saccetacith.ccisnssilaiicip sdiinacin epeuceeqhens ihnamesaninntenioaeeieitt 1

Statement ‘ ia

SOMONE OE e Cor temTROe anne eccrine 4

Respondent’s Argument : i

Point | 5)

Point II oa oe

. 2. | Geena siscangiaenicaniens 11

Pornt IV ve EVAR PEA A AOE COON ET 13

PIII aise deicdamibishbAcniaesciee dinistecuticisacetiadlte otic 13

II iscsi pteniecspliteibisbd bc hirienh Rpingionninsntdlasticcadegdenihpicocualipabasaniseine’ 14

TABLE OF CasEs

Brown v. Gerdes, 321 U. S. 178 12

Central Railroad v. Pettus, 113 U.S. 116 7

Dickinson Industrial Site Inc. v. Cowan, 309 U.S. 382... 12

Manufacturers Trust Co. v. Becker, 338 U. S. 304 ........ 10

Midland United Co., In re, 64 Fed. Supp. 399, aff’d 159

i & Slee 6, 8, 10

Mortgage Guarantee Co., In re, 40 Fed. Supp. 226 ........ 5

Paramount Publix Corp., In re, 12 Fed. Supp. 828 ........ 6, 10

Republic Gas Corp., In re, 35 Fed. Supp. 300 ................ 6, 10

ii

PAGE

Securities and Exchange Commission v. Chenery Cor-

poration, 318 U. S. 80 ...... 10

Sprague v. Ticonic Bank, 307 U. S. 161 00. 12

Teasdale v. Sefton National Fibre Can Co., 85 F.2d 379 7

Young v. Higbee Co., 324 U. S. 204 7, 10, 12, 13

Young v. Potts, 161 F. 2d 597 7

SraruTEs

Bankruptcy Act:

See. 24(c), 11 U. S. C. See. 47(c) ... 1

Sees. 241-244, 11 U. S. C. Sees 641-644 200. 6

ae, Bes 22 Oy BC, ke: GOD nin ossiecccs snes 4, 5, 6, 7,

8, 9, 10, 13

Judicial Code:

Sec. 240(a), 28 U.S. C. Sec. 347 (a) eee 1

IN THE

Supreme Court of the United States

Octoper Term, 1949

No. 785

—<>>—

PrupENcE-Bonps Corporation (New Corporation),

Petitioner,

—vV.—

SaMvuEL Sipicer, et al.

>

BRIEF OF RESPONDENT ARTHUR MILLER IN

OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

Opinions Below

The opinion of the Court of Appeals for the Second

Circuit, dated March 7, 1950 (R. 755) is not yet reported.

The opinion of the United States District Court for the

Eastern District of New York, dated July 25, 1949 (R. 318)

is not reported.

Jurisdiction

Petitioner invokes the jurisdiction of this Court pur-

suant to section 240(a) of the Judicial Code, as amended,

298 U. S. C. 347 (a) and section 24(c) of the Bankruptcy

Act, as amended, 11 U. 8. C. 47(c).

bo

Statement

This respondent deems necessary a further statement of

the case than that submitted by petitioner, both to correct

inaccuracies and to furnish additional fact.

Although all of the awards to counsel which were made

in this matter were directed to be paid out of the funds

of Series AA, Fifth, Sixth, Kighth, Ninth, Twelfth, Seven-

teenth and Kighteenth of Prudence bonds, Mr. Miller ap-

peared only in the construction proceeding pertaining to

the Fifth Series and applied for an allowance only out of

the funds thereof (R. 10, 11, 70). The Fifth Series pro-

ceeding, which involved substantial issues of law govern-

ing all of the series, was instituted by an order to show

cause dated August 3, 1945, based on a petition verified

August 2, 1945, and was returnable September 4, 1945. Mr.

Miller’s first appearance was by affidavit sworn to on

August 31, 1945 (R. 122, 123, 622, 623).

The Special Master herein found on undisputed evidence

that in the “construction proceeding” Mr. Miller was the

first to contend that, in addition to payment of the princi-

pal amount of their bonds, the Fifth Series public bond-

holders were entitled to interest thereon at the 514% rate

to date of payment and that the collateral of the Fifth

Series should be applied thereto before being applied to

any of the subordinate purposes (R. 183, 268). The con-

struction proceedings were lengthy and difficult. Mr. Mil-

ler’s services, which were onerous and protracted, are men-

tioned by the Special Master in his report and findings and

may be found in detail in Mr. Miller’s direct testimony

thereon (R. 183, 184, 267-270, 735-743).

The Special Master specifically found that Mr. Miller

“performed his duties with fidelity and rendered legal

services of the highest calibre” (R. 270).

eee ee ” yous aC Or EER es SE tee fs wes

3

The results accomplished by counsel for the public bond-

holders in the “construction proceedings” were substan-

tial. As a result of their efforts $1,994,453.79 was preserved

for the public bondholders in various series which, without

their efforts, would have been diverted to others (R. 168,

169, 247). A great part of it would have passed to subordi-

nate lienors other than public bondholders of other series.

Using the figures given by petitioner itself in its brief in

the Court of Appeals (page 16) we find that $173,949.98

would have been paid to Bank of Manhattan on its subordi-

nate liens, $1,009,886.22 to Prudence Realization Corpo-

ration and $810,637.59 to bondholders in other series.

No claim is made here, nor was it made in the Court of

Appeals, that any conflict of interest existed so far as Mr.

Miller is personally concerned. It is not claimed that he

personally bought or sold Prudence securities or that he

personally had any interest in any way adverse to the

interests of the Fifth Series public bondholders, Petitioner

claims, however, that Mr. Miller’s clients dealt actively

in Prundence bonds (Pet. pp. 3, 4, 10, 11, 19-21) and for

that reason his allowance should be forfeited.

In his affidavit of August 31, 1945, Mr. Miller specified

the persons for whom he appeared (R. 611). At the hearing

before the Special Master herein he added the names of

two other persons (R. 553, 554). Petitioner would give the

unwarranted impression that Mr. Miller’s clients were a

group or syndicate united in interest so far as their in-

vestments in the Prudence bonds were concerned. That

impression finds no basis in the record. The record fails

to show other than that each acted for himself or herself

alone. Their only common characteristic was that Mr.

Miller was their attorney.

Unquestionably, some of them did no buying or selling

whatever (R. 155, 620, 621). One acquired bonds by inheri-

; TRI SALE LY NRPS 5 RoR ND TE RRL AS GE EHO ATA AR NOR A I OA RR

4

tance (R. 708-711). Others, in the regular course of their

business as securities brokers bought and sold some of the

bonds (R. 587, 613-618, 620). Thus viewed as the activities

of individuals, the buying and selling complained of by

petitioner take on an entirely different aspect.

On the basis of all the facts it is submitted that no

grounds are shown for granting a writ of certiorari against

respondent Miller.

Respondent’s Contentions

The respondent Arthur Miller makes the following con-

tentions:

1. With respect to his application for a counsel fee

herein section 249 of the Bankruptcy Act imposes only a

personal obligation upon the respondent. It does not pre-

clude the allowance to him by reason of the activities of

some of the individual clients for whom he appeared.

2. Even had his right to the award depended upon the

activities of his clients, their conduct was not such as would

bar a recovery.

3. Respondent’s services aided in establishing a fund

for the benefit of an entire class of bondholders and his

right to compensation out of that fund is not forfeited by

reason of the fact that he was retained by and appeared in

the proceeding on behalf of individual bondholders. Ac-

tually, the public bondholders would have been entirely

precluded from representing their class in the proceeding

unless as individuals they could appear therein by counsel.

4. No question is presented as to Mr. Miller warranting

a review by this Court.

Respondent’s Argument

I

Section 249 of the Bankruptcy Act does not bar the allow-

ance made herein to respondent Arthur Miller. Petitioner

complains of the activities of some of Mr. Miller’s clients.

There is no claim that Mr. Miller personally bought or

sold Prudence securities. It is also not claimed that Mr.

Miller’s clients bought or sold for his benefit or account.

In fact it is not even claimed that he was aware of their

transactions.

The provision with respect to forfeitures of allowances

by reason of transactions in securities, it will be noted,

clearly specifies the separate and distinct classes of per-

sons affected, one of them being attorneys. If it had been

intended to hold an attorney personally liable for the

acts of his clients, Congress would have so provided by

apt language. That the statutory intent was to impose

forfei - e only for the individual’s own acts becomes even

more clear when both sentences of section 249 are read

together.

Petitioner’s entire claim to certiorari against the re-

spondent Miller is based on an attempt to broaden the

application of section 249 of the Bankruptey Act. That

section is clearly a statute imposing a penalty. Conse-

quently, it is elementary that it must be strictly construed.

It certainly ought not, therefore, be held to impose vicari-

ously upon individuals, liability for the acts of others,

especially where its plain language is to the contrary.

The provision has been so construed. Thus in In re

Mortgage Guarantee Co., 40 Fed. Supp. 226, 237, 238, an

attorney was awarded compensation by the court, although

the very client for whom he appeared was denied com-

a MSPOIES ES SOCOM I REIL ER NORCENT AEE SNELL LE NEL, LRA EDEL PT EG

6

pensation by reason of transactions in the securities. In

the case of In re Midland United Co., 64 Fed. Supp. 399,

aff’d. 159 F. 2d 340 (cited by petitioner) the chairman of a

committee, one Lindley, was barred from recovering com-

pensation because of his trading in the stock concerned,

but neither the attorneys for the committee nor its other

members were denied allowances. Similar cases are In

re Republic Gas Corp., 35 Fed. Supp. 300, and Jn re Para-

mount Publix Corp., 12 Fed. Supp. 823, both cases cited

by petitioner in the Court of Appeals. In both, individual

committee members were denied compensation, on account

of trading in the securities, but the other members of the

committees who had not done so were compensated.

On this point the Court of Appeals in the instant case

said:

“The section does not expressly impute any fault to

the attorney for his client’s misconduct—assuming that

that is not too strong a word. It only declares what

his own disability shall be, if on his own account he

buys and sells. To charge him with his client’s deal-

ings would compel him, at the risk of losing all his

labor, either to keep an eye upon those dealings (which

in practice would be so irritating as to imperil the

continuance of their relations); or blindly to put any

right to be paid at his client’s mercy” (R. 763).

As specified in sections 241-244 of the Bankruptcy Act,

allowances to attorneys in reorganization proceedings are

made to them directly and not indirectly by way of an

expense to the parties for whom they appeared, as was

previously the practice in bankruptcy. The limitation of

the requirement of section 249 with respect to forfeiture

of an attorney’s allowance only for his own personal trans-

7

actions and not for those of his clients is, therefore, con-

sistent with the general provision of the law for compen-

sation to attorneys.

The present law follows the equity rule, which, at least

as far back as Central Railroad v. Pettus, 113 U. 8. 116,

124-127, decided in 1885, permitted the attorney in a class

action to apply directly for his fee. In fact, it seems to

be implicit in that case that the attorney’s right to an

allowance does not necessarily depend upon whether or

not the client could have claimed the amount as an expense

in the first instance. It can readily be seen that the con-

duct of a stockholder or creditor who might have a minute

interest in the result of a class action ought not to prej-

udice the right to recovery of an attorney whose services

have resulted in obtaining a large fund for a class of many

members, when the attorney himself has acted with com-

plete propriety and diligence.

Petitioner nevertheless contends that the attorney’s fee

should be treated as though it were an expense of the

party for whom he appeared and determined accordingly,

citing Young v. Potts, 161 F. 2d 597, 600 and Teasdale v.

Sefton National Fibre Can Co., 85 F. 2d 379, 382. Neither

case is in point. In Young v. Potts, the client, not the

attorney, sought to be allowed an amount that he claimed

he had actually expended for counsel fees. It was denied

to him by reason of his own positive wrongdoing, pointed

out by this Court in Young v. Higbee Co., 324 U. S. 204,

a prior decision in the same ease. In the Teasdale case the

court denied an allowance for the reason that it found

that counsels’ services had benefited only their own in-

dividual client and not the class as a whole. In the present

case, of course, it is not even disputed, that Mr. Miller’s

efforts aided in establishing a very substantial fund for

a definite class.

Ries NLR RS PaaS See He ies BEEE TE LES FUN IU NS IN LT OEE eb sat Bie ROE TN PEELE,

II

Not only is the attorney not held responsible for the

activities of his clients under the provisions of section 249

of the Bankruptcy Act but, we submit, the activities of

Mr. Miller’s clients were not such as would have barred

allowances, even to them, had they been the applicants

instead of him.

The recor’ is clear that three of Mr. Miller’s clients

did no buyin, or selling whatsoever (R. 155, 620, 621).

Two did no buying during the period of the construction

proceeding and sold no Fifth Series bonds, in which series

alone Mr. Miller appeared, and such selling of other series

as they did would come under the de minimis rule (In re

Midland United Co., 64 Fed. Supp. 399, 417) (R. 618, 619).

One did not sell any of his Prudence bonds of any series.

He did not buy any of the Fifth Series. (Bonds of that

series which were transferred to him he either inherited

or took as nominee of Adeson Corporation. He also in-

herited some bonds of other series.) There is no indication

whatever that his acquisition of bonds of other series in

addition to those he inherited either affected or were in

any way affected by the litigation (R. 155, 708, 711).

Some of Mr. Miller’s clients were connected with the

securities business (R. 587), but there was no evidence .

justifying the term “speculators” with respect to them

(petition, pp. 12, 20). In fact their transactions were quite

obviously in the regular course of their business. That

was their means of livelihood, just as sales of goods by a

merchant are his. Trading by a broker in the regular

course of his business is not the type of transaction pro-

scribed by section 249 of the Bankruptcy Act (/n re Midland

United Co., 64 Fed. Supp. 399, 417).

9

Mr. Miller’s clients were neither trustees or agents of

other bondholders nor did they constitute a committee.

They were individual bondholders who intervened in the

proceeding, being obliged to do so to protect their own

interests as no one was doing it for them. They acted at

their own risk and expense and, if their efforts had not

resulted in establishing a fund for the benefit of the class,

there would have been no obligation on the part of the

others to assist them or to contribute to their expense.

The proceeding in which they intervened was not the

reorganization proper. No plan was being considered, in

which suggestions and objections would be offered, in which

conferences and negotiations would be necessary and per-

sonal influences might tend to sway their acts. The “con-

struction proceeding” was, as its name indicated, a purely

legal proceeding brought for the interpretation of a plan

long in effect. There were submitted for determination

only questions of law. Neither Mr. Miller’s actions nor the

result of the litigation could have been influenced by any

of his clients’ transactions. The legal points he advocated

were unaffected by extraneous considerations.

Even if Mr. Miller’s allowance had depended on his

clients’ activities, it is clear that the latter do not come

within the classes proscribed by section 249 of the Bank-

ruptey Act. His clients acted neither as fiduciaries nor

as representatives of others. Several of them, further-

more, did no buying or selling whatever. Since those who

did not buy or sell were not united in interest with those

who did, there would have been no reason to deny them an

allowance, had they themselves been the applicants, even

though the attorney who represented them also represented

the others. In Point I of this brief cases are cited where

individual members of committees were denied compensa-

tion because of their transactions in the securities but in

10

those cases the other members of the committees and the

attorneys were not affected. (See /n re Midland United Co.,

64 Fed. Supp. 399, aff’d. 159 F. 2d 340; In re Republic Gas

Corp., 35 Fed. Supp. 300 and In re Paramount Publix Corp.,

12 Fed. Supp. 823.) The rule would appear to apply far

more strongly in the case of individuals who did not even

constitute a committee. Furthermore, even as to those who

did buy and sell, as we have previously shown, their trans-

actions also were not such as would have invoked the bar

of section 249, had they been the sole applicants for the

allowance.

Conceding that persons who, as individuals, prosecute a

class action have an obligation to other members of the

class, it cannot be held that their duty is coextensive with

that of the trustee of an express trust or one who, by his

status, assumes true fiduciary liability. This Court has

recognized that there are varying degrees of fiduciary duty.

(See Manufacturers Trust Co. v. Becker, 338 U.S. 304, 311,

and Securities and Exchange Commission v. Chenery Cor-

poration, 318 U. S. 80, 85, 86, 88, 89.)

The liability to other members of the class owed by in-

dividual litigants prosecuting a class action was considered

by this Court in Young v. Higbee Co., 324 U.S. 204. In that

case parties had literally sold the cause of action of their

class to its opponents for their own personal gain. This

Court condemned them for so doing. It held that such

individual litigants must refrain from deliberate injury

to the class rights. That is, however, as far as this Court

has extended the obligation of such individual litigants.

Other cases on the general subject of the duties of fidu-

ciaries, cited by petitioner, pertain either to trustees of

express trusts or, at least, to persons standing in a higher

degree of confidence than did Mr. Miller’s individual

clients.

11

It should be noted that petitioner in the construction

proceeding took a position that Mr. Miller aptly termed

“armed neutrality” (R. 331) as against the interests of

the public bondholders of the Fifth Series advanced by

Mr. Miller and other counsel for individual bondholders.

The fact that the interests of such public bondholders were

successfully defended against such covert opposition, as

well as other active and strenuous opposition, is pragmatic

proof in itself that Mr. Miller’s clients did nothing to thwart

the common cause of their class. The present opposition

to his fee cannot, therefore, be based on any claim that

either he or his clients were unfaithful to their obligation.

The statute in question should therefore not be given a

strained construction to accomplish an end opposed to the

equities involved.

III

Petitioner contends that respondent Miller may not be

awarded an allowance out of the fund of the class for the

reason that he represented only the interests of his indi-

vidual clients and was not bound to the class by fiduciary

ties. Concededly, Mr. Miller appeared for his own clients,

owners of Fifth Series bonds, in the construction pro-

ceeding involving that series. It was, however, impossible

for him to advocate his clients’ personal cause without at

at the same time espousing the cause of their class as a

whole. In fact, except for the appearance in the proceed-

ing by counsel for individual bondholders acting on their

own behalf, the interests of the class would not have been

advocated by anyone. Certainly, therefore, the circum-

stance that Mr. Miller represented individual clients is not

a basis for depriving him of a well earned fee out of the

class fund.

SE BMP EIEN ETS PR HNL ILE ENR ENE ET RELL RG RE,

12

Mr. Miller’s position was, in fact, analogous to that of

the attorneys whose claim to be paid out of a fund for the

benefit of a class which their efforts had created was sus-

tained by this Court in Sprague v. Ticonic Bank, 307 U. S.

161. In that case suit was brought on behalf of the settlor

and beneficiary of a trust of which the bank was trustee

to have the trust fund declared to be a preferred claim

against the bank in receivership. The plaintiffs ultimately

prevailed. Only by virtue of the rule of stare decisis and

not by reason of independent suits by them, several other

persons for whom the bank was also trustee under similar

trusts, obtained the same preference as did the plaintiffs.

The attorneys claimed compensation out of the entire fund

which the receiver was obliged to segregate for the benefit

of all of these preferred claims. Their right to be so com-

pensated out of the entire fund was sustained by this Court.

Patently, the attorneys in that case owed no direct duty

throughout the main litigation to any but the specific clients

who had retained them. Likewise, Mr. Miller was not re-

tained by all of the bondholders and, consequently, could

press his contentions only on behalf of those who had.

Nevertheless, while his direct obligation was to his own

clients, all of the others benefited from his services and

share equally in the fund thereby established. His right to

compensation out of the fund therefore follows the princi-

ple of the Sprague case implicitly.

Petitioner cites Dickinson Industrial Site Inc. v. Cowan,

309 U. S. 382; Brown v. Gerdes, 321 U.S. 178 and Young v.

Higbee Co., 324 U. S. 204 as authority for his contention to

the contrary. The first two cases did not concern the

question here at issue and are not in point. In Young v.

Higbee Co., as we have previously stated, this Court held,

merely, that individuals prosecuting a class action must

act in good faith to the extent, at least, of refraining from

13

affirmative injury to the other members of the class. There

is no claim that this respondent violated that requirement.

Except for the actual wrongdoing there specified, the Young

case does not preclude the right to an allowance out of a

class fund to the attorney for individual litigants whose

efforts have helped to create it, although of necessity his

immediate retainer was by specific individuals.

IV

‘So far as the respondent Arthur Miller is concerned,

no important question is presented requiring a review

by this Court. As we have endeavored to show, on all of

the facts in the record herein the allowance to him is amply

justified by well established principles of law and equity.

As applied to this case the meaning of section 249 of the

Bankruptcy Act is entirely clear and the attempt to broaden

its application to situations not therein contemplated is

not a proper basis to request this Court’s review.

The decision herein of the Court of Appeals does not

conflict with that of any other circuit, nor with any of the

other decided cases on the subject.

~

CONCLUSION

The petition for certiorari should be denied as to

the respondent Arthur Miller.

Respectfully submitted,

ArtHur MILLER,

Respondent, Pro Se

Lester H. Marks,

Counsel for respondent,

Arthur Miller.

May 23, 1950.

14

APPENDIX

Bankruptcy Act, Sec. 241, 11 U. S. C. See. 641: The judge

may allow reimbursement for proper costs and expenses

incurred by the petitioning creditors and reasonable com-

pensation for services rendered and reimbursement for

proper costs and expenses incurred in a proceeding under

this chapter—

(1) by a referee;

(2) by a special master;

(3) by the trustee and other officers, and the attorneys

for any ofthem; — —

(4) by the attorney for the debtor; and

(5) by the attorney for the petitioning creditors.

Such compensation of referees and trustees shall not be

governed by sections 40 and 48 of this Act.

Bankruptcy Act, Sec. 242, 11 U. 8S. C. Sec. 642: The judge

may allow reasonable compensation for services rendered

and reimbursement for proper costs and expenses incurred

in connection with the administration of air estate In & pro-

ceeding under this chapter or in connection with a plan

approved by the judge, whether or not accepted by creditors

and stockholders or finally confirmed by the judge—

(1) by indenture trustees, depositaries, reorganization

managers, and committees or representatives of creditors

or stockholders ;

(2) by any other parties in interest except the Securities

and Exchange Commission; and

(3) by the attorneys or agents for any of the foregoing

except the Securities and Exchange Commission.

: if

Bankruptcy Act, Sec. 243, 11 U. S. C. Sec. 643: The judge

may allow reasonable compensation for services rendered

and reimbursement ivr proper costs and expenses incurred

by ereditors and stockholders, and the attorneys for any

of them, in connection with the submission by them of

suggestions for a plan or of proposals in the form of plans,

or in connection with objections by them to the confirmation

of a plan, or in connection with the administration of the

estate. In fixing any such allowances, the judge shall give

consideration only to the services which contributed to the

plan confirmed or to the refusal of confirmation of a plan,

or which were beneficial in the administration of the estate,

and to the proper costs and expenses incidental thereto.

Bankruptey Act, Sec. 244, 11 U. S. C. Sec. 644: Where a

petition is filed under section 127 of this Act, the judge may

allow, if not already allowed, reasonable compensation for

services rendered and reimbursement for proper costs and

expenses incurred in the pending bankruptcy proceeding—

15

(1) by a marshal, receiver, or trustee, as provided in

subdivision g of section 48 of this Act, and the attorneys

for any of them;

(2) bs:

~

: titiomng creditors;

(3) by the attorney for the bankrupt; and

(4) by any other persons and the attorneys for any of

them entitled under this Act to compensation or reimburse-

ment in such bankruptcy proceeding.

Bankruptcy Act, Sec. 249, 11 U. S. C. See. 649: Any per-

sons seeking compensation for services rendered or reim-

bursement for costs and expenses incurred in a proceeding

under this chapter shall file with the court a statement

under oath showing the claims against, or stock of, the

debtor, if any, in which a beneficial interest, direct or in-

a SERIA RPO RT NCTE CS I ER EONAR LOE IE DAE NAY NY ORR Ne

16

direct, has been acquired or transferred by him or for his

account, after the commencement of such proceeding. No

compensation or reimbursement shall be allowed to any

committee or attorney, or other person acting in the pro-

ceedings in a representative or fiduciary capacity, who at

any time after assuming to act in such capacity has pur-

chased or sold such claims or stock, or by whom or for

whose account such claims or stock have, without the prior

consent or subsequent approval of the judge, been other-

wise acquired or transferred.

EEE —

Office - Supreme Ceurt, U.

FILED

MAY 22 1950

IN THE

Supreme Court of the United States

OCTOBER TERM, 1949

No. 7a 592

PRUDENCE BONDS CORPORATION

(NEW CORPORATION),

Petitioner,

against

SAMUEL SILBIGER, et al.

oor

_—_______—______

MEMORANDUM FOR RESPONDENT SILBIGER

ON PETITION FOR WRIT OF CERTIORARI

——

SAMUEL SILBIGER, pro se.

Attorney for Respondent.

———— eee

Supreme Printinc Co., Inc., 41 Murray Street, N. Y., BArcray 7-0349

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INDEX

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SUE Diet iwchneewedetebeeeeee |

Petitioner's Questions ......... phbAts :

TS SU te a

Position of Respondent Silluger

IN THE

Supreme Court of the United States

OCTOBER TERM, 1949

No. 785

AY

Vv

Prupence Bonps Corroration (New Corporarion)

Petitioner,

agaist

SAMUEL SILBIGER, ef al.

ray

Vv

MEMORANDUM FOR RESPONDENT SILBIGER

ON PETITION FOR WRIT OF CERTIORARI

Opinions Below

The opinion of the Court of Appeals for the Second Cir-

cuit dated March 7, 1950 (R. 755) is not yet reported. The

opinion on the petitions for Rehearing, dated April 5, 1950

(RX. 785) is not yet reported.

Jurisdiction

The decree of the Court of Appeals was entered on

March 7, 1950 (R. 765). The deeree denying rehearing was

entered April 5, 1950 (R. 786).

Petitioner invokes the jurisdiction of this Court under

Section 240 (a) of the Judicial Code, as amended, 28 U.S. C.

347 (a), and Section 24 (ce) of the Bankruptey Act, as

amended, 11 U. S. C. See. 47 (¢).

a SPU BAR Ny APSE PEROTNERO Sy TUT IR PEI ROD ENNIS HIE ERO RTA ES Nn tT

to

Petitioner’s Questions

So far as the issues relating to respondent Silbiger is

concerned, they may be summarized as follows:

On the premise that Silbiger represented conflicting

interests and violated the ‘‘rule of undivided loyalty’’ as

between attorney and client, did the Court below err in

deciding that he was entitled to receive compensation for

his services, and thus creating an exception to the general

rule that in such circumstances an attorney is debarred from

any fee whatever?

The Facts

For the determination of the limited issue presented,

the petition sets forth the facts sufficiently except for two

errors and one important omission. The statement on page

16 ‘* But it is true that the subordinated bondholder did not

speak for and was not authorized to speak for the Deficit

Series public bondholders’? is incorrect. Prudence Reali-

zation Corporation, the holder of the subordinated bonds,

was likewise holder of unsubordinated bonds, in the same

class as the public bondholders, aggregating $16,700 in the

Third, Thirteenth and Fifteenth Series, which are ‘‘ Deficit

Series’’ (R. 672). The subsequent statement, on the same

page, referring to the time the Court of Appeals rendered

its decision, ‘Then for the first time the subordinated bond-

holders undertook to speak for the Deficit Series public

bondholders,’’ is likewise contrary to the fact.

There was involved in the ‘Construction Proceedings”’

the rights to distributive shares in sums aggregating $1,994,-

453.79 of collateral in the ‘‘ Excess Series,’’ A.A., 5th, 6th,

Sth, 9th, 12th, 17th and 18th (R. 169). Of these sums the

Special Master recommended and the District Court di-

rected that $1,009,866.22 be paid to the subordinate bond-

holder Prudence Realization Corporation; $173,949.98 to

President and Directors of the Manhattan Co. for its liens

in the 5th and 9th Series; and the balance of $810,637.59 to

the public bondholders of the ‘‘ Deficit Series’? (R. 665).

Prior to the arrival of the amount of excess of $360,610.22

in the Fifth Series the Special Master recommended the

restoration of $81,565.14 from the principal to income ac-

count and its distribution to the public bondholders, of the

Fifth Series. (Prior record 50,57). Similarly in the Ninth

Series, prior to his arrival at the excess of $463,285.24 the

Special Master recommended the restoration of $46,631.51

from principal to income account and its distribution to the

public bondholders of the Ninth Series (Prior record 547)

and Prudence Realization Corporation filed exceptions

thereto. (Prior record 88, 552). From the decrees of the

Distriet Court overruling such exceptions, Prudence Realli-

zation Corporation appealed. (Prior record 78, 557). If

Prudence Realization Corporation was successful on its

appeals the respective items $81,565.14 and $46,631.51 would

have been added to the $810,637.59 claimed to be distribut-

able to the public bondholders of the Deficit Series.

The important fact omitted from the petition herein is

that Reconstruction Finance Corporation is a party to and

appeared in the ‘Construction Proceeding’’. Through its

wholly owned or controlled subsidiary corporations, it was

the holder of a $1,000 bond in the 4th Series, the same series

in which Katherine Born held bonds ; $28,500 of bonds in the

11th Series, the same series in which Bessie B. Rielly held

bonds; $20,400 in the 3rd series and $109,500 in the 13th

Series, (R. 672) each of which was a deficit series.

Position of Respondent Silbiger

Respondent Silbiger on May 18th, 1950, herein filed a

petition for a writ to review the decisions and decrees below,

docketed as October Term, 1949, No. 829. It is his con-

tention that the review of the decisions below should not

EEO eee

be limited or restricted as prayed by petitioner. The de-

cision of the Court of Appeals, which reversed the finding

of the Special Master and the District Court that respond-

ent Silbiger ‘‘did not represent conflicting interests’’ is

without warrant in fact or law.

The determination of respondent’s right to compensa-

tion and its amount was not arrived at in the calm and

judicial atmosphere that should pervade a Court of Jus-

tice. The trial of the issues deteriorated into a trial of

respondent Silbiger’s integrity as a member of the bar.

The atmosphere was polluted with unwarranted charges of

disloyalty and professional misconduct so as to deprive

respondent of a fair trial of his just claims on the merits.

Respondent therefore respectfully prays that the peti-

tion herein be considered in conjunction with his petition

filed May 18th, 1950 and that certiorari be granted to re-

view all issues raised below on the merits.

Dated: May 19th, 1950.

SAMUEL SILBIGER, pro se.

Attorney for Respondent.

nance the ae!

INDEX

Opinion Below 1

Jurisdiction 1

Questions Presented 2

Statute Involved 2

Statement 3

5

5

7

0

Argument

1. The Charge of Conflict of Interests

2. Client’s Dealings in Securities of the Debtor...

Conclusion 1

Citations, Statutes and Authorities

In re Midland United Company, 64 F. Supp. 399,

affd. 159 F. (2) 340 8

In re Mortgage Guarantee Company, 40 F. Supp.

226, 237, 238 8

Woods v. City National Bank & Trust Co., 312 U. S.

262 5

Bankruptey Act:

See. 214(c) 1

242 2

243 2

249 3,7

Judicial Code:

11 U.S. C., See. 47(¢) 1

642 2

643 2

649 ae 3

28 U.S. C., See. 347 (a) 1

Collier on Bankruptcy:

Vol. 6, 14th Ed., p. 4592 8