Source: http://www.chanrobles.com/usa/us_supremecourt/321/178/case.php
Timestamp: 2017-10-19 14:46:40
Document Index: 298889347

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

The question in this case is whether the New York court or the federal bankruptcy court has the power to fix the fees of petitioners who, as attorneys, represented the bankruptcy estate in litigation in the state courts. The chanroblesvirtualawlibrary
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 chanroblesvirtualawlibrary
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. chanroblesvirtualawlibrary
Thus, Ch. X not only contains detailed machinery governing all claims for allowances from the estate. It also chanroblesvirtualawlibrary
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 chanroblesvirtualawlibrary
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 chanroblesvirtualawlibrary
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; 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.
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 chanroblesvirtualawlibrary
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' chanroblesvirtualawlibrary
2. In short, subject to only one limitation, each State of the Union may establish its own judicature, distribute judicial power among the courts of its choice, define the conditions for the exercise of their jurisdiction and the modes of their proceeding, to the same extent as Congress is empowered to establish a system of inferior federal courts within the limits of federal judicial power, and the States are as free from control by Congress in establishing chanroblesvirtualawlibrary
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 chanroblesvirtualawlibrary
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 @ 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.
6. The exercise of a right which Congress has not sought to exercise since 1789 and evidently has not exercised because of the constitutional relation of federal rights to their enforcement in state courts should not be read into Chapter X. C. 575, 52 Stat. 883, 11 U.S.C. § 501 et seq. We should hesitate long before we find that Congress has assumed the power to render unconstitutional state legislation by which access to a state court would be allowed to a litigant on no different terms than those which the State has prescribed for its own litigants to whom access to its courts is given in like cases. And certainly such a wholly novel doctrine of constitutional law should not be resorted to gratuitously when the case before us can be disposed of on the conclusive ground that the litigation conducted in the New York courts was conducted under an arrangement consonant with New York law -- namely, that the attorneys' fees were to be fixed not by the New York courts, chanroblesvirtualawlibrary
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 chanroblesvirtualawlibrary