Court Opinion

ID: 8880804
Source: CourtListenerOpinion
Date Created: 2022-11-26 20:29:18.272892+00
Date Added: 2024-06-11T17:06:38.353210
License: Public Domain

HASTIE, Chief Judge, with whom ALDISERT and STAHL, Circuit Judges,
join, dissenting.
In controversy here are applications for compensation made in a reorganiza*208tion proceeding under Chapter X of the Bankruptcy Act for services rendered by attorneys during a preceding Chapter XI proceeding. The economic benefit of the services is said to have been realized by the bankrupt estate in the Chapter X reorganization, but the district court concluded as a matter of law that it lacked authority to allow the requested compensation. Thus the question now presented is not whether in the exercise of equitable discretion the court should or probably would have awarded compensation but merely whether it had power to do so.
In the Chapter XI proceeding the court had appointed a receiver who, with the court’s approval, had retained attorneys. Thereafter, the claimants were retained by the debtor’s attorney to render special legal services designed to facilitate the proposed arrangement. Pending discussion of the point later in this opinion, it will be assumed that for purposes of compensation the claimants became and should be treated as attorneys for the debtor.
It is the position of a majority of this court that the fact that the employment of the claimants was not authorized by the bankruptcy court made it unlawful for that court to award them any compensation out of the debtor’s estate. With that conclusion I disagree.
Undergirding the majority position is the provision of General Order 44 in Bankruptcy, admittedly applicable to Chapter X, that “no attorney for a receiver, trustee or debtor in possession shall be appointed except upon the order of the court.” But on its face this provision does not cover an attorney for a debtor who is not in possession. See 8 Collier, Bankruptcy, 14th ed. 1966, 716. And there is no valid reason that it should. General Order 44 is designed to enable a bankruptcy court to prevent court officers who are administering an insolvent estate from burdening the estate with compensation of unneeded professional personnel. See Widett v. D’Andria, 1st Cir. 1957, 241 F.2d 680, 682. This control is needed because an attorney for a trustee, receiver or debtor in possession is entitled to reasonable compensation for work he is authorized to perform in due course of the administration of the estate, even though the estate has not been enriched by his services.
In contrast, a debtor not in possession does not function as an officer of the court, and neither does his attorney. The court is not concerned with and has no authority over the debtor’s appointment of counsel as in his view his situation may require. At the same time the work of such counsel may materially benefit the estate and to that extent only may be and, on proper petition, normally is compensated from the estate. In re Prudence Co., 2d Cir. 1938, 96 F.2d 157; Vermilion Bay Land Co. v. Fitzgerald, 6th Cir. 1946, 157 F.2d 640; Greensfelder v. St. Louis Public Service Co., 8th Cir. 1940, 114 F.2d 53, cert. denied sub nom. Stein v. St. Louis Public Service Co., 311 U.S. 714, 61 S.Ct. 396, 85 L.Ed. 464; In re Ritz Carlton Restaurant & Hotel Co., D.N.J.1945, 60 F.Supp. 861; see In re McGann Mfg. Co., 3d Cir. 1951, 188 F.2d 110, 112. Indeed, for Chapter X proceedings section 241 of the Bankruptcy Act, 11 U.S.C. § 641, expressly authorizes compensation for attorneys for debtors. And though Chapter XI itself contains no comparable provision, the general provisions of section 62, 11 U.S.C. § 102, apply and authorize the compensation of a debtor’s attorney in a Chapter XI arrangement. Application of Pinetree Associates, E.D.N.Y.1948, 77 F.Supp. 270.
None of the cases cited above, and none that research has discovered, even suggests that court approval of the appointment of the debtor’s counsel is prerequisite to judicial approval of compensation measured by the value of the attorney’s services to the estate. Indeed, in some cases compensation includes the value to the estate of services rendered by the attorney for the debtor even before the court acquired jurisdiction through the filing of a Chapter X or Chapter XI proceeding. In re Prudence *209Co., supra, Stein v. Hemker, 8th Cir. 1946, 157 F.2d 740.
The foregoing considerations lead to the conclusion that a bankruptcy court in a Chapter X reorganization has ample power to compensate a debtor’s attorney, who has been retained and has served without judicial authorization, for services rendered in connection with a preceding Chapter XI proceeding with value redounding to the estate in the Chapter X reorganization.
Heretofore, it has merely been assumed that legal power to compensate the attorney for the debtor includes power to pay for services actually rendered by attorneys retained in the debtor’s interest by the attorney for the debtor. Since the determinant of power to compensate the debtor’s attorney is the value of services to the estate,, it would be technicality without justifying purpose to deny such power with reference to similarly valuable work performed by assisting counsel. Moreover, in this case any technical requirement seems to be satisfied and any danger of duplicating claims minimized by the filing of the claims of the appellants through the attorney for the debtor and in conjunction with his own claim. The one case that has been found in which a court considered such a situation resulted in the allowance of compensation for the assisting attorney in the present appellant’s position. Application of Pinetree Associates, supra.
It remains to consider the contention advanced in the concurring opinion that the receiver’s authority was broad enough so that he, through his own court approved attorney, might have rendered the services which the present claimants performed at the behest of the debtor. Therefore, it is argued, the present claimants should be treated as intermeddling volunteers, denied any judicial award of compensation out of the debtor’s estate, and thus discouraged from exercising such initiative as this case disclosed.
I disagree with this reasoning because I think it does not sufficiently take into account significant differences between an ordinary bankruptcy, administered by a court-appointed trustee, and a debtor proposed Chapter XI arrangement in which a receiver has been appointed.
When ordinary bankruptcy is decreed, the bankrupt’s estate is irretrievably lost to him and all that remains to be done is the disposal and distribution of his assets for the benefit of creditors. He has no responsibility for and no active role in this essentially judicial function. But in a Chapter XI arrangement petition an embarrassed debtor is asking the court’s assistance in his efforts so to rearrange his affairs that he will salvage some significant part of his estate while making acceptable provision for his creditors. Even though custody of the debtor’s assets and the management of his business may temporarily be entrusted to a receiver during the pendency of the arrangement proceeding, the debtor’s continuing activity and initiative are contemplated and required if the arrangement he has proposed is to succeed. Ordinarily, he participates actively in making his proposals workable and acceptable to creditors. Indeed, negotiations with creditors are not likely to succeed without his initiative and active participation. If the plan must be revised, it is his responsibility to do so. If new financing must be obtained, he usually must seek it. If particular impediments to. creditor acceptance can be removed or surmounted, he may properly try to accomplish this result.
Much of a debtor’s activity in shaping and reshaping a plan and in removing impediments to its acceptance by creditors is lawyer’s work properly entrusted to the debtor’s attorney. This case presents a good example. A jeopardy tax assessment in the amount of $1,250,000.-00 had been levied by the United States against the debtor. Believing that this assessment was not justified, the attorney for the debtor retained a firm of tax law experts, one of the present claimants, to attempt to remove this obviously serious impediment to any acceptable arrangement. This effort was notably successful, resulting in a.removal of the *210jeopardy assessment and a reduction of the government’s tax claim to $37,026.10.
The other attorney who is an appellant here, also acting pursuant to employment by the debtor’s attorney, claims to have succeeded in reducing or eliminating some 600 claims against the debtor. Again, such improvement of the debtor’s financial situation was an appropriate way of aiding the debtor’s effort to accomplish an arrangement acceptable to creditors.
It is recognized that, while the debtor had a vital interest in thus facilitating his proposed arrangement, the elimination of claims is also a legitimate concern to the receiver in his temporary management and administration of the estate pending arrangement. We do not know why the receiver took no initiative in these matters in this case. We do know that the debtor was properly concerned to eliminate or reduce claims, the existence of which necessarily made an arrangement more difficult. On the present record, it cannot properly be decided that the debtor was an inter-meddler in his successful initiative exercised through the present lawyer claimants. On an examination of all of the relevant circumstances, the district court might well conclude that the debtor’s action was proper and of such value to the estate that the attorneys who did the work should be compensated out of the estate. It is also possible that there were circumstances which would justify a contrary result. But, in my view, that determination should be made by the district court in the exercise of equitable power and discretion.
Finally, the concurring opinion takes the position that this case is like In re National Tool & Mfg. Co., 3d Cir. 1954, 209 F.2d 256. But in that case compensation was sought by a Chapter X trustee’s attorney whose appointment had not been approved by the court. That appointment violated the express mandate of General Order 44. It has been explained earlier in this opinion that General Order 44 does not cover the attorney for the debtor not in possession and that the court should not extend the- requirement of court approval beyond the Order’s terms to the appointment of the debtor’s attorney.
For these reasons I would vacate the order of the district court and remand the cause with instructions to consider and adjudicate the appellants’ claims on their merits.