Case Name: NISONOFF v. IRVING TRUST CO.
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 1933-12-11
Citations: 68 F.2d 32
Docket Number: No. 54
Parties: NISONOFF v. IRVING TRUST CO.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 68
Pages: 32–37

Head Matter:
NISONOFF v. IRVING TRUST CO.
No. 54.
Circuit Court of Appeals, Second Circuit.
Dec. 11, 1933.
House, Holthusen & McCloskey, of New York City (Victor House, Spencer Pinkham, and Henry F. Holthusen, all of New York City, of counsel), for appellant.
Clarence J. Shearn, of New York City, for appellee.
Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

Opinion:
CHASE, Circuit Judge.
The plaintiff, who owns thirteen shares of the capital stock of the defendant corporation whieh she purchased either in February, 1929, or about then, brought this action in behalf of herself and all other stockholders similarly situated who might become parties and share the expenses of the suit to restrain the corporation from doing certain acts claimed to be unlawful and so ultra vires. An injunction pendente lite ivas sought and denied, and the cause is now before us on the plaintiff's appeal from the refusal to. grant her motion for such temporary injunction.
Since about July 1, 1929) the defendant has been the designated standing receiver in bankruptey in the Southern district of New York under a rule of the District Court. It has been appointed receiver in a large number of actions by the judges sitting in bankruptcy causes in that district. In many such eases it has subsequently been elected trustee and has aeted in that capacity also. To complement this practice of the courts in accordance with the rule to appoint the defendant receiver whenever it is not disqualified by interest, the defendant has undertaken to accept all such appointments. A rule of the District Court also provides for giving notice to ered-itors that the defendant is available to act as trustee, and its election has often, no doubt, been a result of the practical effect of such notice. This practice prevails at present and in all likelihood will continue unless enjoined, Although one object of the present action was to restrain the defendant from carrying out its agreement to accept all appointments as receiver in bankruptcy, that broad aspect of the suit is nob now pressed, and we are now concerned only with three specific charges of conduct in acting as receiver or trustee which it is claimed should bo enjoined as unlawful. They axe:
"(a) Making charges against and taking out of estates in bankruptcy of which it acts as receiver and/or trustee, in. addilion to its statutory commissions, money for the services of its own employees.
"(b) Making charges against and hiking out of estates in bankruptcy for which it acts ag r0C(¿ver an(j/or trustee in addition to its gfcatntory fees KOneys for collections made by a group, of its own employees functioning ag privato collection agency under the name of 'Estates Collection Service? and
"(c) (faking, profits on moneys deposited with it as Depository by estates of: which it was or is, at the same time, receiver and/or trustee."
The record fairly shows that the defendant does what it is thus charged with doing, It seeks to justify its conduct in these respeete by showing as to (a) and (b) that what it receives is lawfully allowed to it as expenses, and as to (c) that it acts by express authorization under Rule 30 of the District Court, duly approved, and within the scope of General .Order in Bankruptcy 46 pronmlgated by the Supreme Court (11 USCA § 53). As the facts are clear on the record, the plaintiff's right to an injunction pendente lite involves no element of discretion, but depends rather on her right to a permanent injunction. The element of time when the restraint shall become effective, if ever, is alone the distmguishing feature, and so, while the general rale is that the grant or refusal of a pxehminary injunction falls within the exercise °T a sound discretion by the trial court, that does not obtain where there has been a refusal or failure to- follow clearly established principhs of law properly applicable to faels not in dispute. Winchester Repeating Arms Co. Olmsted (C. C. A.) 203 F. 493. Compare Union Tool Co. v. Wilson, 259 U. S. 107, 112, 42 S. Ct. 427, 66 L. Ed. 848. Consequently tho denial of the injunction pendente lite cannot be supported merely as a ruling within the proper hounds of the discretion of the trial °nrfc, but must be considered on the basis o-f legal right.
Before giving effect, however, to any conduct of the defendant which may contravene the Bankruptcy Aet (11 TJSCA) and so be ultra vires because unlawful, it is essential to determine a preliminary question which the defendant has raised, and that is whether the plaintiff may maintain this action as a stockholder of the defendant suing for herself and other stockholders in like situation who may join in the suit. This appeal does not question the power of the defendant under its charter to accept an appointment as receiver in bankruptcy and to aet thereunder nor to aet as a duly elected trustee in bankruptcy, The appeal has, on the contrary, been narrowed to. put in issue (1) the right of the defendant to perform its duty as such receiver or as such trustee by using its own employees in doing the work and receiving in addition to its statutory fees and commissions extra compensation by way of payment, under al-lowanee by the court, of charges it makes for the work such employees do; (2) the right of the defendant to deposit with itself the funds it holds as a receiver or trustee. The method by which (1) is accomplished to the greatest extent is by charging a separate collection commission on accounts receivable which it collects through a department of its own organized and conducted by its employees under the name of Estates Collection Serviee. In respect to (2), it is enough for the present to notice that the practice is expressly permitted by General Order 46 of te Supreme Court and Rule 30 of the Dis-triet Court duly approved.
Beyond question no receiver or trustee may lawfully receive, directly or indirectly, 1- n -U - - _i» as compensation for his services more than is allowed by the Bankruptcy Act (section 72 [11 TJSCA § 112]). The terms of the act ¿re explicit and are strictly enforced. In re George Halbert Co., 134 F. 236 (C. C. A. 2); In re Detroit Mortgage Corp., 12 F.(2d) 889 (C. C. A. 6); In re Sol Gross & Co., 274 F. 741 (D. C. S. D. N. Y.).
Beyond question also both a receiver and a trustee may be allowed and receive out of the estate payment for "aetual and neeessary expenses incurred," in accordance with the provisions of section 62 of the aet (11 US CA § 102). What are aetual and necessary expenses must be determined by the court in the light of the attendant facts in each ease, Lerner Stores Corp. v. Electric Maid Bake Shops (C. C. A.) 24 F.(2d) 780. Yet in taking this view of the law it must be remembered that, whenever a corporation acts as receiver or trustee, everything it does must be done by some one acting for it, and ordinarily it must pay for the services rendered: To that extent the cost to it of such services is actual and necessary, but we do not mean to he understood that, because the corporation must pay its regular employees for the services it performs through them for the estates for which it acts as receiver or trustee, the expense to it of maintaining a personnel qualifled to do that work, or the expense, more broadly stated, of being and keeping itself competent to perform its duties as receiver or trustee, can be charged in whole or in part as expenses to the estates. Its compensation for being a competent receiver or trustee and for doing the work such a receiver or trustee eustomarily does himself must be found solely in the statutory fees and commissions; and it is tbe duty of the court to see to it that nothing more is allowed. It is obvious that, until ail<l unless the defendant is allowed by the court and has received more than the law permits, it has done nothing unlawful and so ultra vires in respect to compensation. We point this out, not-for the purpose of indieating what our decision will be when the subject-matter may be presented in an action which permits a decision on the merits, but to bring into clear relief the fact that the claimed ultra vires acts in respect to compensation consist in the receipt of allowances unlawful only when erroneously authorized by courts having jurisdiction of the subjeet-matter. So any danger of injury to the corporation or to the plaintiff as a result lies in real- % only m the danger of such courts making erroneous decisions which remain uncorrecte(j_
Regardless of this, however, the need of L ' , a Plamt^ of an aetl011 "ak® a «"f effort before brmgmg suit to proeme ^dress within the corporation itself requires an affirmance. It would be hard to ¿ find a more striking instance of the worth of , _ " c -a • i i a such a rule. The need for it is clearly shown . Y, m Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 827, which expresses the general conditions for its application. Where the wrong claimed to have been done the plaintiff is one with which the corporation, is threatened in the first instance and can reach the plaintiff only through stock ownership by reason of the injury to the corporation which all stoekholders must suffer, if any do, in proportion to their holdings, the cause of action is derivative, and it is necessary as a condition precedent for the plaintiff to show that an earnest effort has been made to correct, within the corporation itself, the conduct of which complaint is made. Only when such a plaintiff has done that is he entitled in his own name to maintain an action which is essentially that of the corporation. Sneh threatened injury to the plaintiff is too remote to support an action in Ms own name until he can satisfy the court either that he has been unable to seek redress within his corporation, or that the circumstances make it unreasonable, beeause practically useless, to attempt it, or that he has honestly tried and failed. Bartlett v. New York, N. H. & H. R. Co., 221 Mass. 530, 109 N. E. 452; Ulmer v. Maine Real Estate Co., 93 Me. 324, 45 A. 40; Niles v. New York Cent. & H. R. R. Co., 176 N. Y. 119, 68 N. E. 142; Hodge v. Meyer (C. C. A.) 252 F. 479; Dickinson v. Consolidated Traction Co. (C. C.) 114 F. 232; Clarke v. Eastern Building & Loan Ass'n (C. C.) 89 F. 779.
.i There is no allegation m this bill that the plaintiff has ever tried m any way to have her grievances redressed within the corporation; or that she has ever been danwd «my opportumty to do so to the fnU extent that her ownership of stock entitles her to do it; or that there is any reason to believe that any abuses in the management would not be corrected if she did so; or that there is anything which would make it unreasonable to require such , , , action on her part as a condition precedent to ,. . .Union this suit. Although none of the directors or a, " , , , . . , officers of the corporation have been joined, ., , , . , , . , ¿ j lt may not be amiss to press the point that, it r ,. * " , ' , there is any cause of action on the facts alleged, it is because they, or some of them, have been derelict iii their duty to the corporation, and the primary right of action is in the corporation against them. Accordingly a proper joinder of parties would require allegations which conform to the requirements of Equity Rule 37 (28 USCA § 723). The motion for an injunction was therefore properly denied,
Affirmed