Court Opinion

ID: 9636744
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:41:29.185516+00
Date Added: 2024-06-11T18:09:48.812165
License: Public Domain

PHILLIPS, Circuit Judge
(dissenting).
It is true that the fuel bonds were adequately secured. However, they covered only a portion of the plant; hence foreclosure would dismember the plant and disrupt the business and was not desirable and reorganization was necessary for the protection of the fuel bonds.
The largest single block of the fuel bonds, approximately 10 per cent, was owned by the same interests which owned 65 per cent of the industrial bonds and large amounts of the preferred and common stock. The remaining 90 per cent of the fuel bonds were widely scattered., Hence, an independent committee to represent the fuel bonds was necessary. The appellant committee was formed consisting of Mr. Brown, senior partner of the firm of Brown Brothers, Harriman & Co., Mr. Kountze, president of the Colorado National Bank of Denver, Mr. Mabon, a member of the New York Stock Exchange firm of Mabon & Co., and Mr. Traphagen, president of the Bank of New York and Trust Company.
The appellant committee did not request deposit of fuel bonds, but it secured the names and addresses of bondholders, carried on voluminous correspondence with them, and kept them fully informed as matters developed.
The first of the earlier plans which was submitted to the committees in August, 1933, gave the fuel bondholders the choice of receiving for each fuel bond either (a) a $1,000.00 general mortgage bond payable only out of income until January 1, 1938, and subject to a new issue of first mortgage and prior lien bonds, or (b) a $400.00 general mortgage bond, plus common stock and warrants to purchase common stock of the new corporation. This plan offered the industrial bondholders the same treatment accorded the fuel bondholders under option (b).
Thereafter and until the fall of 1934, various other plans were submitted by the reorganization managers, including one which gave both fuel and industrial bondholders only stock of the new corporation. None of these plans accorded the fuel bondholders the treatment they were entitled to or left their bonds and lien undisturbed. All involved the issuance of securities by the new corporation and the allocation of these securities among the fuel and industrial bondholders and would have required extremely complicated appraisals and intricate adjustments as between the various classes of security holders.
The appellant committee persisted in its contention that in order for a plan to be fair and equitable the fuel bondholders must be accorded a preferred status in the allocation of the new securities or its old securities left undisturbed.
In June, 1934, a plan was submitted which appellant committee accepted but which the committee for the industrial bondholders rejected. Under this plan the fuel bondholders were to receive for each bond a $1,000.00 first mortgage bond of the new corporation, plus 10 shares of its stock at $35.00 ppr share, and the industrial bondholders were to receive for each bond a $400.00 income debenture of the new corporation, plus 20 shares of its common stock.
In the fall of 1934 the reorganization managers finally concluded to leave the fuel bonds undisturbed and prepared a plan that so provided.
From the foregoing it will be seen that it took much time and effort on the part of the appellant, committee to convince the reorganization managers and the committee for the industrial bondholders of what would be fair and equitable relative treatment of the fuel bondholders.
Section 77B(c) (9) of the Bankruptcy Act, 11 U.S.C.A. § 207(c) (9), provides that the, court “may allow a reasonable compensation for the services rendered and reimbursement for the actual and necessary expenses incurred in connection with the proceeding and the plan by officers, parties in interest, depositaries, reorganization managers and committees or *224other representatives of creditors or stockholders, and the attorneys or agents of any. of the foregoing and of the debtor.”
The trial court concluded that the services of the appellant committee were not rendered “in connection with the proceeding and the plan.”1
It seems to me that the appellant committee and its counsel made a valuable contribution to the proceeding and the plan in inducing the acceptance by the reorganization managers and the other committees of a plan which recognized the superior rights of the fuel bondholders and the rejection of the earlier plans which failed so to do. Had any of the earlier plans been presented to the court it would have been necessary for the appellant committee to oppose confirmation and no doubt it could have done so successfully. It was, of course, necessary to arrive at a plan that was fair and equitable. Instead of permitting the earlier plans to be presented to the court and objecting to confirmation the appellant committee and its counsel persisted in their efforts to induce the reorganization managers to formulate and the other committees to accept a fair and equitable plan and finally succeeded in those efforts. In so doing they contributed to the formation of a fair, equitable and feasible plan.
I think the court in finding otherwise committed a fundamental error of fact. I grant that the allowances should be kept within reasonable limits and that the trial court should be accorded a broad discretion in the fixing and allo-yvance of fees in these matters, but I think that discretion should be predicated on a correct factual basis 'and not on an erroneous premise.
For these reasons, it is my view that* a reasonable allowance should be made to the appellant committee and its counsel and I respectfully dissent from the conclusion reached in the majority opinion.

 In his memorandum on rehearing the trial court said:
“Counsel have not discussed the point made in our memorandum of March 1, 1937 (citing In re Paramount-Publix Corporation, etc., D.C., 12 F.Supp. 823; Id., 2 Cir., 85 F.2d 588), that mere participation in the hearings and reorganization does not necessarily entitle committees and counsel to be compensated out of the debtor’s estate and that those are services for which they should look to their clients for payment. It is my opinion that the services of this Committee and their counsel were not rendered in connection with the plan and reorganization.”