Court Opinion

ID: 8880801
Source: CourtListenerOpinion
Date Created: 2022-11-26 20:29:18.267691+00
Date Added: 2024-06-11T17:06:38.349889
License: Public Domain

OPINION OP THE COURT
GANEY, Circuit Judge.
The appellants here are claiming compensation for services allegedly beneficial to the bankrupt estate rendered as attorneys for the debtor. Robert Fried-lander who, for reasons not relevant here, was denied all compensation in connection with the proceedings, filed a petition under Chapter XI and, as counsel for the debtor, employed Leo Neiwirth, Samuel S. Starr, Meyer Weinberg and Edwin Fradkin as his counsel in connection therewith. At the inception of the proceedings under Chapter XI, Harry A. Margolis was appointed receiver on the 10th day of July, 1963, and filed a bond in the sum of $100,000. Paragraph 8 of the order provides: “Said Receiver be and he is hereby authorized to operate the businesses and manage the property of said Debtors until the further order of the Court.” Paragraph 9 thereof provides: “That without in any way limiting the generality of the foregoing, said Receiver shall have full power and authority under the further order of this Court * * * (g) * * * to do such other acts in the continuance of the business and preservation of same as he shall deem for the best interests of this estate and its creditors.”
On the same day, July 10, 1963, the court empowered the receiver to retain the firm of Kleinberg, Moroney & Master-son as his attorneys. In the petition for their appointment, dated July 10, 1963, it was represented by the receiver, paragraph 3, “That he has selected the aforesaid firm of Kleinberg, Moroney & Masterson because said attorneys are known to him to be experienced and thoroughly competent to perform their duties as attorneys to your petitioner in the administration of the estate of the above named Debtors.” In a petition dated July 19,1963, in paragraph 3 thereof, “Said firm of Kleinberg, Moroney & Masterson did thereupon enter upon the performance of their duties as attorneys for your petitioner, but your petitioner subsequently ascertained that the intricacies and complexities of the corporate structures and the affairs and transactions of the Debtors require that your petitioner be authorized to retain the services of an additional attorney so that he will have the benefit of Co-Attorneys in the within proceeding.”
In paragraph 5, the petitioner stated, “That he has selected the aforesaid firms of Kleinberg, Moroney & Masterson and Crummy, Gibbons & O’Neill because said attorneys are known to him to be experienced and thoroughly competent to perform their duties as Attorneys to your petitioner in the administration of the estate of the above named Debtors.” This order appointing additional counsel was entered on the 19th day of July, 1963.
On the 19th day of July, 1963, the receiver presented a petition to the court to appoint an accountant “to conduct certain audits and investigations in connection with the business of the debtor corporations, their books and records.” and on that date, Pogash & Co. was appointed as accountant to assist in the preparation of their work. At no time during the Chapter XI proceeding did any of the appellants employed by counsel for the debtor, Robert Friedlander, receive the approval of the court even though, as has been indicated, the receiver had retained two firms as co-counsel for the receiver, as well as an accountant to aid in the proceedings.
After some five months of futile attempts to reorganize the situation under Chapter XI, all proceedings thereunder were abandoned and a petition to proceed solely under Chapter X was filed. The services which had been performed by the appellants, counsel to the counsel for the debtor, were in good part used in the Chapter X proceeding, although a trustee *205and counsel were likewise appointed under the Chapter X proceeding.
We would deny compensation on the ground alone that there is no provision in the Bankruptcy Act for paying more than one fee to counsel for the debtor, nor is there any provision in the Act for employment of other counsel for the counsel for the debtor unless he compensates them himself. Here, there was no necessity whatsoever for counsel for the debtor employing counsel without the approval of the court when he was not a debtor in possession and there was a receiver who, as has been indicated, employed as co-counsel two reputable firms of lawyers, as well as an accountant, and later a trustee was appointed with counsel, since the work performed by the counsel to the counsel for the debtor in connection with the proceedings was the work properly of counsel for such receiver and such trustee. The work of eliminating the tax lien here was clearly the work of the counsel for the receiver and his counsel under Chapter XI, as well as the work of the trustee and his counsel, since it was in aid of the proper administration of the estate, looking to its preservation and clearly within the powers of the receiver and trustee under the orders of the court.
Furthermore, counsel for the counsel for the debtor never secured court approval for their services allegedly beneficial to the estate in the Chapter X proceeding and at the close thereof, Starr, Weinberg and Fradkin, the appellants, presented their bill to the counsel for the debtor and upon not being paid then presented their bill to the court for their services rendered. It seems that the appellants here were under the impression that they were to be paid by the counsel for the debtor since he presented a bill for $125,000 for his services and a scrutiny of the record shows that a far greater portion of the services performed were done by the appellants than by counsel for the debtor. In effect, during the Chapter X proceedings, the services which had been performed under the Chapter XI proceedings and were used in the Chapter X proceedings by the appellants rendered them at least de facto counsel for the trustee and as such they were acting without the approval of the court, which is required under a Chapter X proceedings. This is most essential in order that the court may know the type of individual who is engaged in the proceeding, their integrity their experience in connection with work of this type, as well as their competency concerning the same. In so doing, they were, in effect, operating under General Order 44 in Bankruptcy.1 It is well-settled that *206unless counsel have been approved by the court, though their services were of value to the court in a Chapter X proceeding, they must be denied compensation. This Court, speaking through Judge Maris, in In re National Tool & Mfg. Co., 209 F.2d 256, 257, stated as follows: “It is clear that General Order 44 applies to reorganization proceedings under Chapter X of the Bankruptcy Act. It is equally clear that Mr. Mode was not appointed as an attorney for the trustees of the debtor in the manner required by General Order 44. It is settled that under these circumstances an attorney may not be compensated out of the debtor’s estate even though he may have rendered valuable services to the trustees. It follows that the district court was without authority to make the order appealed from.” In In re Progress Lektro Shave Corp., 2 Cir., 117 F.2d 602, the court stated, in denying compensation to counsel: “There is no question but that the appellant acted throughout in good faith and a denial to him of compensation is a harsh conclusion. However, the law is unquestionably settled that the order of the district court was correct.” Gochenour v. Cleveland Terminals Building Co., 6 Cir., 142 F.2d 991, 993, cert. denied 323 U.S. 767, 65 S.Ct. 120, 89 L.Ed. 614; Albers v. Dickinson, 8 Cir., 127 F.2d 957; Beecher v. Leavenworth State Bank, 9 Cir., 184 F.2d 498; In re Pedisich, D.C., 103 F.Supp. 199; In re Robertson, 4 F.2d 248 (3rd Cir.).
That the gaining of the necessary approval of the court was a requisite, there can be no doubt, since the final sentence of Section 328 of the Bankruptcy Act, 11 U.S.C., states: “Upon the filing of such amended petition, or of such creditors’ petition, and the payment of such additional fees as may be required to comply with section 132 of this Act, such amended petition or creditors’ petition shall thereafter, for all purposes of Chapter X of this Act, be deemed to have been originally filed under this chapter.” (Emphasis supplied.) It is obvious that the language of this section is explicit, plain and unambiguous and the appellants, experienced attorneys, as attorneys for the debtor, knowing that the matter was in a Chapter X proceeding, should have in this proceeding likewise sought the approval of the court for the services which were to be utilized as the basis for the plan to be approved under Chapter X since their fees were to come out of the fund realized under the Chapter X proceeding.
It cannot be stressed too strongly here that, while the result reached is, as has been indicated above, “a harsh conclusion”, nevertheless, counsel who have performed services, especially under Chapter X of this proceeding, should seek the approval of the court for otherwise, as counsel for the debtor, the court has no control whatsoever over them and it is imperative that their competency, experience and integrity therefor have the approbation of the court. Cf. United States v. Larchwood Gardens, 1968, 3rd Cir., 404 F.2d 1108.
The judgment of the lower court will be affirmed.
Judge VAN DUSEN concurs in the foregoing opinion.

. General Order 44 in Bankruptcy reads as follows:
APPOINTMENT OP ATTORNEYS
No attorney for a receiver, trustee or debtor in possession shall be appointed except upon the order of the court, which shall be granted only upon the verified petition of the receiver, trustee or debtor in possession, stating the name of the counsel whom he wishes to employ, the reasons for his selection, the professional services he is to render, the necessity for employing counsel at all, and to the best of the petitioner’s knowledge all of the attorney’s connections with the bankrupt or debtor, the creditors or any other party in interest, and their respective attorneys. If satisfied that the attorney represents no interest adverse to the receiver, the trustee, or the estate in the matters upon which he is to be engaged, and that his employment would be to the best interests of the estate, the court may authorize his employment, and such employment shall be for specific purposes unless the court is satisfied that the case is one justifying a general retainer. If without disclosure any attorney acting for a receiver or trustee or debtor in possession shall have represented any interest adverse to the receiver, trustee, creditors or stockholders in any matter upon which he is employed for such receiver, trustee, or debtor in possession, the court may deny the allowance of any fee to such attorney, or the reimbursement of his expenses, or both, and may also deny any allowance to the receiver or trustee if it shall ajipear that he failed to make diligent inquiry into the connections of said attorney.
Nothing herein contained shall prevent the judge, in proceedings under section 77 of the Act, from authorizing the employment of attorneys who are attorneys *206of the corporation, or associated with its legal department, in connection with the operation of the business of the corporation by a trustee or trustees under subsection (c) of section 77, when such employment is found by the judge to be in the public interest in relation to such operation and is not adverse to the interests of the trustee or trustees or of the creditors of the corporation.