Source: https://www.legalcrystal.com/case/97691/brown-vs-gerdes
Timestamp: 2017-08-21 08:27:34
Document Index: 85449499

Matched Legal Cases: ['§ 501', '§ 475', '§ 77', '§ 77', '§ 247', '§ 258', '§ 249', '§ 250', '§ 216', '§ 216', '§ 221', '§ 172', '§ 221', '§ 221', '§ 221', '§ 241', '§ 77', '§ 7', '§ 23', '§ 77', '§ 102', '§ 40', '§ 48', '§ 500']

Brown Vs Gerdes - Citation 97691 - Court Judgment | LegalCrystal
Brown Vs. Gerdes - Court Judgment
LegalCrystal Citation legalcrystal.com/97691
Case Number 321 U.S. 178
Respondent Gerdes
brown v. gerdes - 321 u.s. 178 (1944) u.s. supreme court brown v. gerdes, 321 u.s. 178 (1944) brown v. gerdes no. 183 argued january 4, 1944 decided february 7, 1944 321 u.s. 178 certiorari to the court of appeals of new york syllabus 1. in a reorganization proceeding under ch. x of the bankruptcy act, the bankruptcy court has exclusive jurisdiction to determine the amount which shall be allowed out of the bankrupt estate for services of attorneys who, by authority of the bankruptcy court, represented the bankrupt estate in litigation in a state court. p. 321 u. s. 180 . 2. the petition for reorganization in this case having been approved subsequently to the effective date of ch. x, the result is unaffected .....
Brown v. Gerdes - 321 U.S. 178 (1944)
U.S. Supreme Court Brown v. Gerdes, 321 U.S. 178 (1944)
1. In a reorganization proceeding under Ch. X of the Bankruptcy Act, the bankruptcy court has exclusive jurisdiction to determine the amount which shall be allowed out of the bankrupt estate for services of attorneys who, by authority of the bankruptcy court, represented the bankrupt estate in litigation in a state court. P. 321 U. S. 180 .
by the fact that the petition was filed and the main suit in the State court litigation was instituted prior to that date. P. 321 U. S. 184 .
3. Nor is the result affected by the fact that the litigation in the state court was within the exclusive jurisdiction of that court. P. 321 U. S. 185 .
4. It does not appear here that the State has imposed conditions for entry into its courts which are inconsistent with the authority of the bankruptcy court. P. 321 U. S. 186 .
5. Assuming that the state court could decline jurisdiction of the suits to enforce claims of the bankrupt estate, it could not take jurisdiction of them but fail to apply the federal rule governing the compensation of those who are employed by the bankruptcy court and who represent it in the state tribunal. P. 321 U. S. 186 .
In January, 1939, a petition for reorganization of Reynolds Investing Co., Inc. was approved under Ch. X of the Bankruptcy Act. 52 Stat. 883, 11 U.S.C. § 501 et seq. In August, 1938, while the petition was pending but before its approval, the bankruptcy court authorized the debtor to commence an action in the New York courts to enforce and collect certain claims which the debtor had against its former officers and directors. See Gerdes v. Reynolds, 28 N.Y.S.2d 622. It also authorized retention of petitioners as counsel in the suit. After the approval of the petition, the respondent trustees were authorized to prosecute the action and to be substituted as plaintiffs. That was done, and other actions were instituted by the trustees under order of the bankruptcy court with petitioners as counsel. In 1941, before final judgments were obtained in any of the suits, the trustees discontinued petitioners' services. Thereafter, petitioners, pursuant to a stipulation [ Footnote 1 ] which reserved respondents' right to question the jurisdiction of the state court, instituted this suit in that court to fix and enforce their liens on the actions under § 475 of the New York Judiciary Law, Consol.Laws N.Y. c. 30. [ Footnote 2 ] Respondents' objection to the jurisdiction
Sec. 77B, like § 77 of the Bankruptcy Act, [ Footnote 3 ] had as one of its purposes the establishment of more effective control over reorganization fees and expenses ( Dickinson Industrial Site, Inc. v. Cowan, 309 U. S. 382 , 309 U. S. 388 ; Callaghan v. Reconstruction Finance Corp., 297 U. S. 464 , 297 U. S. 469 ) in recognition of the effect which a depletion of the cash resources of the estate may have on both the fairness and feasibility of the plan of reorganization. United States v. Chicago, Milwaukee, St. P. & P. R. Co., 282 U. S. 311 , 282 U. S. 333 -340 (dissenting opinion). And Ch. X of the Chandler Act, which took the place of § 77B, set up even more comprehensive supervision over compensation and allowances (H.Rep. No.
1409, 75th Cong., 1st Sess., pp. 45, 46) and provided a centralized control over all administration expenses, of which lawyers' fees are a part. Watkins v. Sedberry, 261 U. S. 571 . Sec. 241 gives the judge authority to fix "reasonable compensation for services rendered" by various persons, including attorneys for the trustees. Allowances may be made only after hearing and upon notice to specified persons and groups of persons. § 247. Where the reorganization supersedes a prior proceeding in either the federal or state court, the bankruptcy court is the one which is authorized to allow the "reasonable costs and expenses incurred" in the prior proceeding. § 258. In all cases, persons who seek compensation for services or reimbursement for expenses are held to fiduciary standards. § 249; Woods v. City National Bank & Trust Co., 312 U. S. 262 , 312 U. S. 267 -269. And § 250 contains special appeal provisions governing orders granting or denying allowances. Dickinson Industrial Site, Inc. v. Cowan, supra. Moreover, a plan of reorganization must provide "for the payment of all costs and expenses of administration and other allowances which may be approved or made by the judge." § 216(3). In addition, the plan must provide, in furtherance of the purpose of the Act to protect the security holders against previous acts of mismanagement and to preserve all assets of the estate (S.Rep. No.1916, 75th Cong., 3d Sess., p. 22; H.Rep. No. 1409, supra, pp. 42-44), for retention and enforcement by the trustee of all claims of the debtor or the estate not settled or adjusted in the plan. § 216(13). Finally, § 221(4) provides that, in approving any plan, the judge must be satisfied that "all payments made or promised" by the debtor, the new company, or any other person "for services and for costs and expenses" are not only fully disclosed, but "are reasonable or, if to be fixed after confirmation of the plan, will be subject to the approval of the judge."
requires the plan to contain provisions for the payment of all allowances and places on the judge the duty to pass on their reasonableness. The approval of the plan of reorganization has been entrusted to the bankruptcy court exclusively. Even reports on plans submitted by the Securities and Exchange Commission are "advisory only." § 172. It could hardly be contended that the bankruptcy court might dispense with the finding required by § 221(2) that the plan is "fair and equitable, and feasible" and confirm the plan on another basis or delegate the task to another court or agency. See Case v. Los Angeles Lumber Products Co., 308 U. S. 106 , 308 U. S. 114 -115; Consolidated Rock Products Co. v. Du Bois, 312 U. S. 510 . But, if that cannot be done, it is difficult to see how a plan could be confirmed which left the approval of certain allowances to a state court. The finding as to allowances required by § 221(4) is as explicit and as mandatory as the finding of "fair and equitable, and feasible" required by § 221(2). On each, Congress has asked for the informed judgment of the bankruptcy court, not another court or agency. In the present case, the plan of reorganization which was approved in 1940 gave the trustees full power to retain or displace attorneys representing them, and it retained in the bankruptcy court continuing jurisdiction over all claims in favor of the debtor and the prosecution thereof. And, in accordance with the express requirements of § 241(3), it left to the bankruptcy court the power to fix the "reasonable compensation" to be paid the attorneys of the trustees. Those requirements, prescribed by the Act, cause any conflicting procedure in the state courts to give way. [ Footnote 4 ] Kalb v. Feuerstein, 308 U. S. 433 . The jurisdiction which Congress has conferred on the bankruptcy
court is paramount and exclusive. Gross v. Irving Trust Co., 289 U. S. 342 . Thus, the supervention of bankruptcy deprives a state court, in which a receivership was pending, of power to fix the compensation of the receivers and their counsel who were appointed by the state court and who rendered service in the state proceedings. Gross v. Irving Trust Co., supra; Emil v. Hanley, 318 U. S. 515 , 318 U. S. 519 .
It is said, however, that § 77B, rather than Ch. X, measures the jurisdiction of the bankruptcy court, since the main suit was instituted in the state court prior to the effective date of Ch. X, September 22, 1938. See § 7. But the short answer is that the petition was approved after that date, and the provisions of Ch. X were thus brought into play. [ Footnote 5 ] It is suggested that, since § 23 of
the Act [ Footnote 6 ] was applicable to reorganizations under § 77B but inapplicable [ Footnote 7 ] to those under Ch. X (§ 102), there was a greater limitation on the jurisdiction of the bankruptcy court over plenary suits at the time the main suit was instituted than there was after Ch. X became effective. [ Footnote 8 ] From that, it is argued that, since Congress left the enforcement of such claims to the state courts, it permitted them to control all incidents of the litigation, including the fixing of attorneys' liens. Sec. 23 deals with questions of the jurisdiction of federal district courts, e.g., whether, in suits by trustees in bankruptcy against adverse claimants, the jurisdiction of the district courts rests on consent of the parties, regardless of diversity of citizenship. Schumacher v. Beeler, 293 U. S. 367 . The fact that the suits against the former officers and directors of the debtor could have been brought in the state courts alone does not advance the solution of the present problem. A bankruptcy trustee who, by choice or by necessity, resorts to a state court for the prosecution of a claim is, of course, bound by the adjudication made in the state proceeding. Winchester v. Heiskell, 119 U. S. 450 ; Fischer v. Pauline Oil
& Gas Co., 309 U. S. 294 , 309 U. S. 303 . The state court has full control over the litigation. But, even as an incident thereto, it may not take action which involves the performance of functions which Congress has entrusted to the bankruptcy court. See Eau Claire National Bank v. Jackman, 204 U. S. 522 , 204 U. S. 537 -538.
The suggestion has been made that New York could open its courts to the prosecution of such suits as the trustees instituted on condition that New York control the legal fees incident to the litigation, and that, so long as New York did not discriminate against those asserting rights under the federal act, such condition would be valid. Cf. Douglas v. New York, N.H. & H. R. Co., 279 U. S. 377 . It does not appear, however, that New York has followed that course. The fact that New York has adopted measures designed to protect attorneys practicing in its courts does not demonstrate that New York has made its control over the fees a condition to the use of its tribunals. There is no such indication in the opinion of the New York Court of Appeals. Thus, we cannot say that New York has provided conditions for entry into its courts which collide with a Congressional enactment. We can only assume, therefore, that the case is no different in principle from the one where a state grants to creditors attachments in aid of the collection of their claims. There can be no doubt that such liens could be nullified by supervening bankruptcy, whether the creditor be lawyer or merchant.
But, if it is assumed that New York might have refused to entertain such suits as were brought against the old management ( cf. Mondou v. New York, N.H. & H. R. Co., 223 U. S. 1 , 223 U. S. 56 -59), it does not follow that it could take jurisdiction of them but fail to apply any federal law in which those claims might be rooted. Garrett v. Moore-McCormack Co., 317 U. S. 239 . Where Congress has prescribed the rule to govern the compensation of those employed
by the bankruptcy court, those claims are no less dependent on the federal rule because they are asserted as an incident to another suit. If the state court could disregard the federal rule in that situation, then any of the duties of administration which Congress has imposed on the bankruptcy court could be absorbed by the state tribunal. Eau Claire National Bank v. Jackman, supra. Congress has fixed the fees which various representatives or officers of the bankruptcy court may receive for their services. §§ 40, 48. Among these are the bankruptcy trustees. § 48(c). As in the present case, those trustees may at times choose to act as their own attorneys. But it would be novel doctrine indeed to hold that state courts could increase any maximum allowance which Congress might authorize bankruptcy trustees to receive from the estate merely because the trustees rendered some of their services in state tribunals. Yet, if Congress can protect bankruptcy estates by itself prescribing maximum fees for those representing or rendering service to the estate, it is not apparent why it may not reach the same result by delegating that authority to the bankruptcy court. Whatever doubts may have once existed as to the functions of a reorganization court, it is clear under this recent bankruptcy legislation that the approval of all fees as part of the plan has been entrusted to the bankruptcy court exclusively. The case is therefore controlled by the principle of Hines v. Lowrey, 305 U. S. 85 . In that case, we held that, where an Act of Congress limited to ten dollars the fees for services in connection with veterans' War Risk Insurance claims, the New York court could not award a greater amount to an attorney representing a guardian of an insane veteran even where the guardian was appointed by the New York court. We reversed a judgment of the New York court granting the attorney $1,500 for his services. The purpose of Congress to place the control of petitioners'
See Continental Illinois Nat. Bank v. Chicago, Rock Island & P. R. Co., 294 U. S. 648 , 294 U. S. 685 ; Reconstruction Finance Corp. v. Bankers Trust Co., 318 U. S. 163 .
The submission of the matter to the state court with objections to its jurisdiction was a procedure which gave that "due regard for comity" suggested by the Court in Gross v. Irving Trust Co., 289 U. S. 342 , 289 U. S. 345 .
1. Since 1789, rights derived from federal law could be enforced in state courts unless Congress confined their enforcement to the federal courts. This has been so precisely for the same reason that rights created by the British Parliament or by the Legislature of Vermont could be enforced in the New York courts. Neither Congress nor the British Parliament nor the Vermont Legislature has power to confer jurisdiction upon the New York courts. But the jurisdiction conferred upon them by the only authority that has power to create them and to confer jurisdiction upon them -- namely, the lawmaking power of the New York -- enables them to enforce rights no matter what the legislative source of the right may be. See, for instance, United States v. Jones, 109 U. S. 513 , 109 U. S. 520 .
Anglo-American Provision Co. v. Davis Provision Co. No. 1, 191 U. S. 373 , 191 U. S. 374 . The matter was well put by Judge Cuthbert Pound in connection with litigation under the Federal Employers' Liability Act in the state courts:
Claflin v. Houseman, 93 U. S. 130 , 93 U. S. 136 -137. Whether a state court is "competent to decide rights of the like character and class," whether the particular litigation is to be tried by jury, and, if so, how the jury
is to be composed, whether it is to be a jury of twelve or less, whether decision is to be by unanimity or majority, whether security is to be furnished, and of what nature -- in sum, whether a state court can take jurisdiction and what the incidents of the litigation should be -- all these are matters wholly within the control of the State creating the court, and without the power of Congress. See, for instance, Minneapolis & St. Louis R. v. Bombolis, 241 U. S. 211 . As it was put by Mr. Justice Story in Martin v. Hunter's Lessee, 1 Wheat. 304, 14 U. S. 330 -331, "Congress cannot vest any portion of the judicial power of the United States except in courts ordained and established by itself." Congress may avail itself of state courts for the enforcement of federal rights, but it must take the state courts as it finds them, subject to all the conditions for litigation in the state courts that the State has decreed for every other litigant who seeks access to its courts.
4. Congress, from the beginning, has allowed federally created rights to be enforced in state courts not only by the general implications of our legal system, but also by explicit authorization. The nature of the obligation of the state court under such legislation has been most litigated in connection with the Federal Employers' Liability Act, and, after thorough canvass, the matter was thus summarized by Mr. Justice Holmes in Douglas v. New York, N.H. & H. R. Co., 279 U. S. 377 , 279 U. S. 387 -388,
7. Hines v. Lowrey, 305 U. S. 85 , does not touch this problem. That case involved § 500 of the World War Veterans' Act, which limited to $10 the fee that may be allowed for services in pressing a claim before the United States Veterans' Bureau, and made it a crime to charge more. A New York court granted a fee of $1,500 for such services because the estate of the veteran was being administered by a committee appointed by the state court which had appointed an attorney to press the claim before the Veterans' Bureau. Of course, this Court held that a state court cannot sanction that which Congress has outlawed as a crime. The New York court, in effect, denied the authority of federal law to fix fees for litigation before a federal tribunal -- a very different thing from denying to the New York the authority to fix fees for litigation in its own courts. The limitations in the Hines case fixed by Congress did not run counter to any requirement of New York law governing the conduct of suits in its courts. That case was not concerned with such a situation, and therefore could not possibly hold that, if New York had a policy for litigation in its courts contrary to that expressed by Congressional enactment, a federal right could be pursued in disregard of the conditions for entry