Source: https://supreme.justia.com/cases/federal/us/336/1/
Timestamp: 2020-05-24 23:21:11
Document Index: 549657151

Matched Legal Cases: ['§ 77', '§ 221', '§ 77', '§ 212', '§ 221', '§ 228']

Leiman v. Guttman :: 336 U.S. 1 (1949) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 336 › Leiman v. Guttman
In a corporate reorganization proceeding under Chapter X of the Bankruptcy Act, the bankruptcy court allowed petitioners certain fees for legal services rendered to and payable out of the estate, but held that it had no jurisdiction over certain additional fees to be paid under the terms of a private escrow agreement between them and a committee representing a group of stockholders. 69 F. Supp. 656. Without appealing from this ruling, petitioners sued in a state court for specific performance of the escrow agreement. The trial court denied a motion to dismiss for lack of jurisdiction. 71 N.Y.S.2d 200. The Appellate Division affirmed. 272 App.Div. 896, 72 N.Y.S.2d 406. The Court of Appeals reversed. 297 N.Y. 201, 78 N.E.2d 472. This Court granted certiorari. 335 U.S. 808. Affirmed, p. 336 U. S. 10.
Petitioners were attorneys for a protective committee representing public holders of the preferred stock of the debtor. The committee had on deposit 584 shares of the preferred stock from four stockholders. The committee agreed to hold those shares in escrow for the purpose of affording petitioners "additional compensation" for their services in the reorganization proceedings of the debtor. [Footnote 1]
court allowed them $37,500 out of the estate. It concluded that, while that amount was all the estate should bear, their services were worth more than the allowance. But it held that it had no jurisdiction to pass on the amount of the allowance which should be paid under the escrow agreement. In re Pittsburgh Terminal Coal Corp., 69 F. Supp. 656.
We reviewed in Woods v. City Bank Co., 312 U. S. 262, and Brown v. Gerdes, 321 U. S. 178, the design of Ch. X insofar as fees and allowances are concerned. There, we were dealing with fees and allowances payable out of the estate. Here, we are dealing with fees which are incident to the reorganization but not payable out of the estate. Under the less comprehensive language of § 77B, the leading authority was that the bankruptcy court had jurisdiction over the latter claims as well. In re McCrory Stores Corp., 91 F.2d 947. We would be unmindful of history and heedless of statutory language if we held
that the power of the bankruptcy court in this respect had been contracted [Footnote 2] as a result of Ch. X.
The control of the judge is not limited to fees and allowances payable out of the estate. Section 221(4) places under his control "all payments made or promised" (1) by "the debtor" or (2) "by a corporation issuing securities or acquiring property under the plan" or (3) "by any other person" for services rendered "in connection with" the proceeding or "in connection with" the plan and "incident to" the reorganization. The services of petitioners concededly met those requirements, and the committee against whose stock a lien is sought to be asserted would plainly be included within the words "any other person." Moreover, these petitioners are included in the classes of claimants to whom the judge is empowered to allow reasonable compensation. [Footnote 3] To lift petitioner's claim from § 221(4) would therefore be to rewrite it or to hold that, when extended so far, it was unconstitutional. The latter has not even been intimated. The former is not permissible.
The aim of the expanded controls over reorganization fees and expenses is clear. The practice had been to fix them by private arrangement outside of court. [Footnote 4] The deposit agreement under which committees commonly functioned was viewed as a private contract, [Footnote 5] which granted the committee a lien on the deposited securities for its fees and expenses. By terms of the agreement, the committee was normally the sole judge of their amount. [Footnote 6]
This gave rise to serious abuses. There was the spectacle of fiduciaries fixing the worth of their own services and exacting fees which often had no relation to the value of services rendered. [Footnote 7] The result was that the effective amount received by creditors and stockholders under the plan was determined not by the court, but by reorganization manager and committees.
Hence, Congress instituted controls -- controls which became more pervasive as § 77B was evolved into Ch. X. Section 211 requires that a committee file with the court a statement disclosing specified information including the agreement under which it operates. [Footnote 8] The scrutiny clause of § 212 gives the court power to set aside any of
the provisions of such an agreement which it finds to be "unfair or not consistent with public policy." And § 221(4) is written in pervasive terms -- it applies to "all payments" for services "in connection with" the proceeding or "in connection with" the plan and "incident to" the reorganization, whoever pays them. [Footnote 9] A statute establishing such broad supervision over committees cannot be presumed to be niggardly in its grant of authority when it deals with the matter which of all the others has the most direct impact on those whom it aims to protect.
claims. But no reason is apparent why the petitioners may not apply to the District Court for an allowance, even at this date. We were advised during the course of argument that the final decree under § 228 has not been entered. [Footnote 10] Yet, though it has been, there is no reason in view of the special circumstances of this case why application cannot be made at the foot of the decree.
"In the instant case, no sufficient fund has been credited to the depositing stockholders against which any allowance to claimants could be charged. The judgment, if any were entered, would be directly against the stockholders."