Court Opinion

ID: 3632546
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:11:38.929058+00
Date Added: 2024-06-11T13:45:11.301151
License: Public Domain

The complaint in this equity suit contains, after the allegations summarized in Judge THACHER'S opinion, a prayer for judgment requiring defendants to deliver up to plaintiff the stock in question, and for a determination of the rights of defendant Berkman in said stock, also a prayer "that the plaintiffs have such other, further and different relief against the defendants as may be just and proper". The motion for dismissal was made on the sole ground that the Supreme Court of the State of New York has no jurisdiction at all to entertain this suit or to hear the parties or to grant or deny any relief. The majority opinion for reversal here grounds itself on the sweeping holding that since the legal services rendered by plaintiffs to defendants were in a chapter X reorganization, the State courts are totally without power or authority to furnish any relief, no matter what the precedent circumstances, even the most unusual circumstances here disclosed.
I do not doubt that the Federal bankruptcy courts have plenary power to review all fees and expenses in connection with a reorganization, from whatever sources they may be payable, as the Supreme Court said in Woods v. City Nat. Bank  Trust Co.
(312 U.S. 262, 267). The plain intent of the statute, for reasons easy to discover (see 1 Collier on Bankruptcy [14th ed.], § 11.09), is that fee arrangements for services in chapter X proceedings, are to have the scrutiny and approval or disapproval of the Federal district courts sitting in bankruptcy. These plaintiffs, doing what they could to comply with the spirit and intent of that statute, made frank and full disclosure to the bankruptcy court of the agreement sued upon here. The district judge examined that contract and, in his opinion of January 22, 1947, made these *Page 208 
statements which can be treated as findings of fact (Matter ofPittsburgh Terminal Coal Corp., 69 F. Supp. 656, 657-658):
"The court has had no difficulty in determining that the claimants rendered services to the preferred stockholders named in the escrow agreement which were not compensable from the fund distributed by order of the court. Among such services were those rendered in connection with the sinking fund claims, Guttman's criticism of the Trustee's sales of machinery and his management of the real estate, his rent collections and the repair of the debtor's houses and other property.
"That such services to the Preferred Stockholders Committee, at the request of its members, are entitled to a reasonable recompense seems unquestionable if the escrow agreement is to be reasonably interpreted. As to the method of recompense, however, considerable controversy has arisen."
After having made those findings to the effect that extra compensation in some amount was due, and having, inferentially, found that the payment thereof would not be inconsistent with the approved reorganization plan or otherwise illegal, the district judge — mistakenly, it seems — went on to hold that (pp. 659-660) he was "without present jurisdiction to determine the value of the additional services" or to "charge the amount thereof to said stockholders."
Regardless of the Federal judge's erroneous views as to his own powers, the events above related show, I think, that the full purpose of the Federal statute was accomplished, at least under these special circumstances. If we hold that the State courts now have no jurisdiction to grant any relief at all to plaintiffs, on the breach by defendants of the fee agreement on which the Federal judge held that something was due, we are depriving these plaintiffs of their day in court. Since such is not a necessary construction of the Bankruptcy Act provisions, I prefer to hold that the State courts are not totally without jurisdiction.
On a proper trial the State Supreme Court may construe any doubtful terms of the agreement sued on, may pass on any defense of its invalidity on any asserted ground, and any controversy as to the amount due. Assumption by the State court of jurisdiction of the subject matter, to that extent, will not violate the letter or spirit of the Federal law. *Page 209 
The order should be affirmed, with costs and the certified question answered in the affirmative.
LOUGHRAN, Ch. J., LEWIS and FULD, JJ., concur with THACHER, J.; DESMOND, J., dissents in opinion in which CONWAY and DYE, JJ., concur.
Orders reversed, etc.