Source: https://supreme.justia.com/cases/federal/us/289/472/case.html
Timestamp: 2016-05-24 15:56:02
Document Index: 464582048

Matched Legal Cases: ['§ 60', '§ 96', '§ 60', '§ 21', '§ 64', '§ 64']

U.S. Supreme CourtConrad, Rubin & Lesser v. Pender, 289 U.S. 472 (1933)Conrad, Rubin & Lesser v. PenderNo. 718Argued May 9, 1933Decided May 29, 1933289 U.S. 472CERTIORARI TO THE CIRCUIT COURT OF APPEALS
By an order made by a referee in bankruptcy under § 60(d) of the Bankruptcy Act (11 U.S.C. § 96(d)), appellants were directed to turn over to the trustee in bankruptcy the sum of $2,000, which was part of an amount paid to them by the bankrupt corporation for legal services Page 289 U. S. 474 rendered shortly before the filing of an involuntary petition. The order was sustained by the District Court (In re David Bell Scarves, Inc., 52 F.2d 755) and by the Circuit Court of Appeals. 61 F.2d 771. This Court granted certiorari.
The only question presented is raised by the appellants' challenge of the jurisdiction of the referee to reexamine the payment under § 60(d). The payment was made on November 5, 1930, and the petition in bankruptcy was filed twelve days later. There is no room for controversy as to the facts, which are thus stated by the Court of Appeals: the corporation was in financial difficulties and unable to meet its maturing obligations. Prior to retaining the appellants, it had engaged another attorney to negotiate a settlement with its creditors, and a meeting with some of its creditors had been held. Apparently the appellants were retained to supplement the efforts of that attorney, to whom $750 had already been paid upon a promised fee of $2,000. The testimony of one of the appellants, given at an examination under § 21(a), was to the effect that he was to negotiate with creditors for a 50 percent cash settlement and was to assist the corporation in hypothecating its accounts receivable in order to obtain the necessary money to carry out such a settlement. His affidavit, submitted in opposition to the referee's jurisdiction, stated that the most extreme course which was within the contemplation of himself and David Bell, bankrupt's president, was continuance of the business under an equity receivership, although that course was not contemplated if the business could be continued under the supervision of a a committee of creditors or of a representative of the New York Creditors' Adjustment Bureau, Inc. It also appeared that, within two weeks prior to November 5th, when the appellants' retainer was paid, David Bell had withdrawn Page 289 U. S. 475 $1,500 from the corporation, and his brother, an employee, had withdrawn $750. The cash resources of the corporation were so low that appellants' retainer could not be paid until a sale of merchandise was made, and the purchaser's check for $2,500 was then indorsed to appellants.
The language of the provision, and the indicated scope of the legal services embraced within it, distinguish it Page 289 U. S. 476 from the provision of § 64(b)(3), 11 U.S.C. 104(b)(3), [Footnote 2] with respect to the priority of a reasonable attorney's fee in the distribution of an estate in bankruptcy. [Footnote 3] See Furth v. Stahl, 205 Pa. 439, 442, 55 A. 29, 30; Pratt v. Bothe, 130 F. 670, 673. Section 60(d) relates to payments and transfers made by the bankrupt prior to bankruptcy from his own property for services to be rendered to him, § 64(b)(3) to an allowance to be made for legal services out of the estate under administration. See In re Rolnick, 294 F. 817, 819. The services within the latter provision are those rendered in aid of the administration of the estate and the carrying out of the provisions of the Act. See Randolph v. Scruggs, 190 U. S. 533, 190 U. S. 539; In re Kross, 96 F. 816; In re Mayer, 101 F. 695; In re Rosenthal & Lehman, 120 F. 848; In re Christianson, 175 F. 867. Section 60(d), authorizing a reexamination of payments and transfers by the bankrupt for services to be rendered, has a broader scope. It contains no intimation of an intention to limit the jurisdiction to reexamine to a particular sort of legal services for the payment of which the debtor has disposed of his property. The point of the provision conferring jurisdiction for a summary reexamination is not the specific nature of the legal services to be rendered, but that the Page 289 U. S. 477 payment or transfer to provide for them is made "in contemplation" of bankruptcy. The purpose is shown by the sweeping description of payments or transfers "to an attorney and counselor at law, solicitor in equity, or proctor in admiralty."
"recognizes Page 289 U. S. 478 the temptation of a failing debtor to deal too liberally with his property in employing counsel to protect him in view of financial reverses and probable failure. It recognizes the right of such a debtor to have the aid and advice of counsel, and, in contemplation of bankruptcy proceedings which shall strip him of his property, to make provisions for reasonable compensation to his counsel. And, in view of the circumstances, the act makes provision that the bankruptcy court administering the estate may, if the trustee or any creditor question the transaction, reexamine it with a view to a determination of its reasonableness."
In this view, we are unable to conclude that the question whether the services for which the payment or transfer is made are "germane to the aims of the Bankruptcy Act," as suggested in some of the decisions, [Footnote 4] furnishes the test of the jurisdiction to reexamine. The test of jurisdiction, we repeat, is given by the express language of the statute. In the exercise of jurisdiction, all questions bearing upon the reasonableness of the transaction, including the purpose and nature of the services, are open to consideration. But it is insisted in the instant case that the payment to appellants could not properly be regarded as made in contemplation of bankruptcy, and hence within the jurisdiction to reexamine, because the payment was for the purpose of engaging appellants to conduct negotiations with creditors in order to arrange for an extension of time, and, if necessary, for the operation of the business under the creditors' supervision, and thus to avoid a forced liquidation and ultimately to restore the business to a sound basis. We find no ground for saying that the fact that such purposes were in view establishes, as matter of law, that the payment was not in contemplation Page 289 U. S. 479 of bankruptcy. On the contrary, negotiations to prevent bankruptcy may demonstrate that the thought of bankruptcy was the impelling cause of the payment. "A man is usually very much in contemplation of a result which he employs counsel to avoid." Furth v. Stahl, supra. See also In re Klein-Moffett Co., 27 F.2d 444; Slattery v. Dillon, 17 F.2d 347; In re Lang, 20 F.2d 239.