Court Opinion

ID: 3373210
Source: CourtListenerOpinion
Date Created: 2016-07-05 18:15:05.330417+00
Date Added: 2024-06-11T12:47:21.973614
License: Public Domain

The only question involved in this appeal is whether Reuben Golin, of the firm of Hahn  Golin, is entitled to an allowance from the receivership estate of Public Service Holding Corporation as counsel for the intervening preferred stockholders.
In order to get a clear understanding of what has transpired it is necessary to review the litigation and the activities of those connected therewith.
After a bill had been filed in the Court of Chancery alleging that Public Service Holding Corporation, a Delaware corporation, was insolvent, and an answer admitting the allegations of said bill, Clair J. Killoran was appointed receiver for said corporation on May 26, 1939.
Public Service Holding Corporation, as its name implies, was a holding corporation, not actively engaged in business. It had both preferred and common stock, the latter which was the voting stock, being largely held by certain interests which controlled the corporation. It either controlled or was interested in a number of other corporations and had various complicated stock transactions with them. The common stock of Automatic Signal Corporation, of which it held 251,925 shares, appeared to be its most valuable asset. This stock appears to have had very little market value at the time the receiver was appointed.
In 1940 and 1941 Co-operative Finance Corporation, which held a majority of the common stock of Public Service Holding Corporation, submitted plans for the payment of *Page 505 
its debts and the expenses of the receivership, and thus bring about the discharge of the receiver. An additional effort was made by another stockholder in 1941 to accomplish the same purpose.
These efforts to discharge the receiver were opposed by the preferred stockholders committee representing about seventy-five percent of that stock. After a full hearing these applications were denied by the Chancellor on the grounds that the corporation not only had no income but had no reasonable prospects of any, and the additional ground that the common stock had little, if any, equity in the corporate assets.
An appeal from the order of the Chancellor was taken by Co-operative Finance Corporation to this court where it was affirmed. In re Public Service Holding Corporation, 26 Del. Ch. 436,24 A.2d 584.
A bill was filed in the Court of Chancery asking that the appointment of the receiver be revoked on the ground of fraud but said request was refused.
Another appeal was taken to this court from an order made by the Chancellor which was finally dismissed by agreement of counsel.
Three petitions were filed in the United States District Court, two in the State of New York and one in the State of Connecticut, under Chapter X of the Federal Bankruptcy Act all of which were eventually dismissed.
On more than one occasion the receiver contemplated selling the assets of the corporation and asked for authority to offer them at public auction, but in view of the fact that said assets consisted entirely of stock which was not listed on the stock exchange, it was deemed unwise to sell because of the uncertainty of obtaining a fair price.
During all of this time Stewart Lynch, Esq., of Wilmington, had been acting as attorney for the receiver and *Page 506 
had appeared for him in the various proceedings whenever it was necessary for any one to appear.
Reuben Golin, Esq., first appeared in the litigation as attorney for the intervening preferred stockholders who were allowed to intervene by order of the Chancellor dated November 1, 1939. Acting in that capacity he opposed efforts made in 1940 and 1941 to discharge the receiver, also the attempt made by the receiver to sell the assets of the corporation at a time when they seemed to have little value. From that time on he participated in every phase of the litigation. He conferred a number of times, both in New York and Wilmington, with Mr. Lynch, the attorney for the receiver, Mr. Devlin, Mr. Irvine, Mr. Hershenstein and the New York brokerage firm of Amos Treat 
Company, about the best course to pursue in order to raise the necessary money to meet the financial needs of the corporation and bring about the discharge of the receiver.
Mr. Lynch testified that since September, 1939, he had been trying to learn if Public Service Holding Corporation had any interest in 50,000 shares of the common stock of Automatic Signal Corporation. Finally in 1945 it was disclosed to him by a supplemental and additional response, filed in the Court of Chancery, by Public Service Holding Corporation, that a loan was made by Public Service Holding Corporation of certain shares of stock to the Sterlen Corporation which stock was subsequently pledged as collateral security for a loan made by Automatic Signal Acceptance Corporation. By this information he was able to identify the 50,000 shares of common stock of Automatic Signal Corporation above referred to as the property of Public Service Holding Corporation.
The common stock of Automatic Signal Corporation increased in value and by 1946 it was realized that the shares of said stock owned by Public Service Holding Corporation were worth approximately $750,000.
About this time the interested parties began to talk *Page 507 
about a settlement of the affairs of the corporation and the discharge of the receiver. After conferences in New York and Wilmington between Mr. Irvine, Mr. Devlin, Mr. Lynch and Mr. Golin a plan by which to accomplish this purpose was practically agreed upon. This plan was to include payment of the administration fees and expenses, claims entitled to priority of payment, claims of general creditors, claims of preferred stockholders and claims of common and Class A stockholders. The funds with which to bring about its consummation were to be obtained by the sale of all holdings of stock in companies other than Automatic Signal Corporation, and if the amount derived from that source was not sufficient by the employment of the brokerage firm of Amos Treat and Company, as agents, to sell as much of the stock of Automatic Signal Corporation as was found to be necessary.
It was agreed that the administration fees and expenses were not to exceed $100,000, which was to be used for the purpose of paying the receiver, the receiver's attorney, Stewart Lynch, the preferred stockholders committee and their attorneys, Hahn 
Golin and the common stockholders committee and their attorney.
The plan as above described was not carried out, but in lieu thereof the same persons, with the exception of Mr. Golin, and without consulting him, agreed upon another plan which was approved by the Chancellor and in pursuance of which the receiver was discharged. The material difference between this later plan and the former one, seems to have been that a loan was obtained for the corporation by Amos Treat and Company with which to finance it.
The Chancellor allowed Stewart Lynch, attorney for the receiver, $22,500, but did not make any allowance for Mr. Golin, attorney for the intervening preferred stockholders.
I am not unmindful of the fact that the funds in question *Page 508 
belong to others, consequently the court is not as free to dispose of them as is one who is spending his own money.
The original bill filed in this case alleged that Public Service Holding Corporation was insolvent and that allegation was admitted in the answer.
Mr. Lynch, the attorney for the receiver, claimed that he located 50,000 shares of stock of Automatic Signal Corporation which belonged to Public Service Holding Corporation but had been loaned by it to the Sterlen Corporation by which it had been pledged for a loan. The funds to be used for the payment of the necessary debts of the corporation and the expenses of the receivership were not received from this source however, but from a loan which was obtained for the corporation by the brokerage firm of Amos Treat and Company.
The plan which provides for obtaining the money in this manner was the result of many conferences, both in New York and Wilmington, in practically all of which Mr. Golin took part.
I am convinced from an examination of the record that these conferences above referred to, played a leading part in the ultimate agreement of the interested parties to bring about the discharge of the receiver by the plan adopted.
The principles controlling the right to compensation in cases of this character are well established in this State. A receiver having been appointed by the court to assist it in the administration of an estate, is an officer of the court; both he and his attorney are entitled to be paid for their service and their actual expenses incurred in connection therewith. Other persons than receivers, including stockholders, by whom funds are created for the benefit of the estate, or existing funds are preserved, are entitled to be reimbursed out of the fund for the amount paid out by them as costs and expenses including their *Page 509 
attorney's fees. But stockholders of a corporation for which a receiver has been appointed, who became active in the affairs of the receivership, are not entitled to compensation therefor as a matter of course. If such were the rule many estates might be dissipated.
Pennington v. Commonwealth Hotel Construction Corp.,18 Del. Ch. 238, 158 A. 140; McWilliams, Jr., Co. v. Missouri-KansasPipe Line Co., 21 Del. Ch. 308, 190 A. 569; In the Matter ofPerrine, et al., v. Pennroad Corporation, et al., 30 Del. Ch. 517,64 A.2d 412.
The principle is also well settled, that where a receiver has been appointed who is represented by competent counsel, there is no necessity for others to assist in the administration of the estate. If other persons, including counsel, do take part in the affairs of the estate, they must look to those by whom they are employed for compensation; unless their services are of very material assistance in creating or preserving funds for the estate. McWilliams, Jr., Co. v. Missouri-Kansas Pipe Line Co.,21 Del. Ch. 308, 190 A. 569; In re Paramount-Publix Corp., (D.C.),12 F. Supp. 823, 825, 827; In re New York Investors, (2 Cir.)79 F.2d 182.
It seems clear that the major service rendered by any one in this case, was in preserving the assets of the corporation until the stock which it owned became more valuable and it was possible to borrow money for the purpose of settling its financial difficulties without a sale.
More than one attempt was made to have the assets sold in order to wind up the affairs of the receivership and secure the discharge of the receiver. The fact that this was not done made it possible to take the course which was finally taken.
The many conferences which were held were largely responsible for keeping the assets intact and for the plan *Page 510 
which was finally agreed upon to settle the affairs of the corporation.
Mr. Golin took an active part in all of these conferences except the last one. The record shows that his efforts were very helpful in the preservation of the assets of the corporation, and the agreement upon the plan for the settlement of its affairs.
The preponderance of the testimony introduced at the hearing before the Chancellor, establishes that Mr. Golin took a major part in the preservation of the assets of Public Service Holding Corporation, and the conferences which led to the adoption of the plan by which its debts were paid and the receiver discharged, with the exception of the method finally agreed upon for raising the money.
For these reasons, I think that an allowance should be made for his services from the fund in the hands of the receiver. I cannot agree with the opinion of the majority of the court.