Source: https://www.legalcrystal.com/case/93914/watkins-vs-sedberry
Timestamp: 2018-02-21 05:23:31
Document Index: 750824972

Matched Legal Cases: ['§ 70', '§ 67', '§ 62', '§ 70', '§ 67', '§ 3171', '§ 6097', '§ 70', '§ 6097', '§ 67']

Watkins Vs Sedberry - Citation 93914 - Court Judgment | LegalCrystal
Watkins Vs. Sedberry - Court Judgment
LegalCrystal Citation legalcrystal.com/93914
Case Number 261 U.S. 571
Appellant Watkins
Respondent Sedberry
.....in a state court are to remove a cloud from property of the bankrupt and vest it all in the trustee (bankruptcy act, § 70), and not merely to assert his right as a creditor to set aside a fraudulent conveyance under the state law for the satisfaction of debts ( id., §§ 67e, 70e), the attorney's allowance for service in the litigation is chargeable against a surplus of the property remaining after paying all the bankrupt's debts, and not against the debts, as it might be under the state law if the suit were of the latter character. p. 261 u. s. 577 . 6. where property vested in a trustee in bankruptcy, through litigation, as part of the bankrupt's assets exceeds in value the amount of the bankrupt's debts, the amount of the recovery, for the purpose of fixing.....
Watkins v. Sedberry - 261 U.S. 571 (1923)
U.S. Supreme Court Watkins v. Sedberry, 261 U.S. 571 (1923)
1. The amount of attorney's fees to be charged against a bankrupt estate as an expense of administration is subject to examination and approval by the Court (Bankruptcy Act, § 62a); the trustee is not authorized to dispose of property of the estate by contract with an attorney on a contingent basis. P. 261 U. S. 574 .
2. A contract by which an attorney undertook to recover property of a bankrupt estate, indemnifying the trustee against damages and expenses, and the trustee agreed that any property so recovered should be first chargeable with the expenses incurred by the attorney and the balance be then equally divided between them, held grossly excessive, champertous, and invalid. P. 261 U. S. 575 .
3. The contract here involved is not malum in se, and the attorney is not debarred from recovering on quantum meruit. P. 261 U. S. 576 .
5. Where the purpose and result of a suit brought by a trustee in bankruptcy in a state court are to remove a cloud from property of the bankrupt and vest it all in the trustee (Bankruptcy Act, § 70), and not merely to assert his right as a creditor to set aside a fraudulent conveyance under the state law for the satisfaction of debts ( id., §§ 67e, 70e), the attorney's allowance for service in the litigation is chargeable against a surplus of the property remaining after paying all the bankrupt's debts, and not against the debts, as it might be under the state law if the suit were of the latter character. P. 261 U. S. 577 .
6. Where property vested in a trustee in bankruptcy, through litigation, as part of the bankrupt's assets exceeds in value the amount of the bankrupt's debts, the amount of the recovery, for the purpose of fixing the attorney's fee, is not the whole property, but the sum of the debts and attorney's fee and expenses. P. 261 U. S. 580 .
This case involves fees and expenses of an attorney for a trustee in bankruptcy. Claims therefor are made on a written contract between the trustee and the attorney, Jordan Stokes, Jr. [ Footnote 1 ] The amount claimed for fees is about $49,000, [ Footnote 2 ] and for expenses $1,127.28. The debts, existing at the time of the filing of the petition in bankruptcy and since proved and allowed amount to $21,000 with interest. The services were rendered in the prosecution of a suit brought by the trustee in the state chancery court against the respondents, the bankrupt and his family, to recover a farm and personal property thereon. The suit was successful, and the value of the property is $99,743.01. After the recovery of that judgment, the respondents petitioned in the bankruptcy case for an order fixing the amount of indebtedness of the bankrupt as finally allowed, and the expenses of administration, including a reasonable fee for the attorney of the trustee, to the end that all debts and expenses might be fully paid out of money raised by mortgage of the land so recovered, and that the bankruptcy proceedings be dismissed. After hearing, the referee decided that the trustee had no authority to contract in advance for the amount to be paid for legal services, and that the attorney be allowed a fee of $10,000 and $750 for expenses, and that both items be paid out of the property so recovered. The petitioners and respondents
The essential provisions of the contract have been stated. There is no ground for the claim that the attorney had an interest in the proposed litigation that would make it proper for him to pay the expenses of the suit and indemnify the trustee. It is true, as contended by the petitioners, that the severity of the old rule of the English common law against champerty, regarding it as an offense malum in se, has been somewhat relaxed. Burnes v. Scott, 117 U. S. 582 , 117 U. S. 589 ; Roberts v. Cooper, 20 How. 467, 61 U. S. 484 ; Byrne v. Kansas City, etc., R. Co., 55 F. 44, 47; Courtright v. Burnes, 13 F. 317, 320.
No statute of Tennessee authorizes such a contract. C. 66, Acts of 1821 (Shannon's Code, §§ 3171-3184), denounced champerty and required the dismissal of suits, whenever it was made to appear they were prosecuted pursuant to champertous arrangements. Heaton v. Dennis, 103 Tenn. 155, 160; Robertson v. Cayard, 111 Tenn. 356, 367; Staub v. Sewanee Coal Co., 140 Tenn. 505, 508. By c. 173, Acts of 1899, this requirement was eliminated, but no decision of the supreme court of that state has been called to our attention which would sustain this contract. It is champertous under the rule generally prevailing in this country. Peck v. Heurich, 167 U. S. 624 , 167 U. S. 630 , and cases there cited; Jones v. Pettingill, 245 F. 269, 275; Casserleigh v. Wood, 119 F. 308, 312-315; Stearns v. Felker, 28 Wis. 594, 596; Butler v. Legro, 62 N.H. 350; Huber v. Johnson, 68 Minn. 74; Moreland v. Devenney, 72 Kan. 471.
defeat the trustee's suit. Burnes v. Scott, supra; Staub v. Sewanee Coal Co., supra, 509; Robertson v. Cayard, supra, 365; Boone v. Chiles, 10 Pet. 177, 35 U. S. 219 . They should have handed over the property to the trustee without suit, because, as it was adjudged in that case, the bankrupt was the real owner. After judgment went against them in the chancery court, they petitioned the bankruptcy court to fix a reasonable fee for the trustee's attorney. They did not then know of the existence of the contract, and, while they may successfully oppose payment of the amount therein provided for, they have no standing now to object to a reasonable fee. The attorney rendered valuable services in the prosecution of a proper and legitimate suit. Through his efforts, there was recovered more than enough to pay expenses and debts in full. The trustee joins the attorney in asking that a reasonable fee be allowed. The making of the contract was not malum in se. The attorney's right to fair and reasonable compensation is not forfeited. Brush v. City of Carbondale, 229 Ill. 144, 152; Stearns v. Felker, 28 Wis. 594, 597; In re Snyder, 190 N.Y. 66, 75; Gammons v. Johnson, 69 Minn. 488; Rust v. Larue, 4 Litt. (Ky.) 412, 428; Elliott v. McClelland, 17 Ala. 206, 209; Holloway v. Lowe, 1 Ala. 246, 248.
The respondents cite cases which hold that champerty defeats the attorney's right to recover on quantum meruit, [ Footnote 3 ] but we think that they are not applicable to the facts of this case hereinbefore stated.
(Shannon's Code, §§ 6097, 6099), [ Footnote 4 ] but was prosecuted under the provisions of § 70 of the Bankruptcy Act, and especially under subsection a(4) [ Footnote 5 ] and (5), and that, under these provisions, the trustee was entitled to recover the entire property for the purpose of administration in the bankruptcy court as general assets of the estate, citing Globe Bank v. Martin, 236 U. S. 288 , 236 U. S. 304 ; Bunch v. Smith, 116 Tenn. 201, 216. The circuit court of appeals held that the payment should be made out of the amount of debts, and thus be borne by the creditors. Its decision went upon the ground that, under the laws of Tennessee (Shannon's Code, §§ 6097, 6099), where a conveyance is set aside as fraudulent to creditors, counsel fees must be paid out of the debts recovered, and cannot be charged against the surplus; that the suit was brought under §§ 67e [ Footnote 6 ] and 70e of the Bankruptcy Act,