Court Opinion

ID: 9653206
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:41:09.467753+00
Date Added: 2024-06-11T18:12:56.996426
License: Public Domain

MANTON, Circuit Judge
/ • s (concurring).
This stockholder seeks an injunction against the continuation of what she regards as unlawful practices by her corporation, amounting to ultra vires acts. The suit is to be distinguished from a derivative suit seeking to sue for waste or injury to the corporation. If the acts complained of are illegal, they give rise to a cause of action in favor of a shareholder. General Investment Co. v. Lake Shore & M. S. R. Co., 250 F. 160 (C. C. A. 6); Du Pont v. Northern Pac. R. Co. (C. C.) 18 F. 467; Jacobson v. Brooklyn Lumber Co., 184 N. Y. 152, 161, 76 N. E. 1075; Manderson v. Commercial Bank of Pa., 28 Pa. 379, approved in Zabriskie v. Cleveland, Col. & Cinn. R. Co., 23 How. (64 U. S.) 381, 395, 16 L. Ed. 488. As stated in an English ease, a shareholder who finds Ms corporation committing ultra vires acts, may come into court and say, “ ‘This company is going to do an act which is beyond its powers: stop it,’ and the Court has no discretion in the matter.” Tomkinson v. South-Eastern Ry., 35 Ch. D. 675, 677. And as Cook says, in his Principles of Corporation Law, p. 479, “A stockholder may enjoin any illegal act without alleging actual injury, present or future to himself.” If the suit be one to recover damages for injury to the corporation, and is lodged against a third party or the officers of the corporation, the suit must be brought by the shareholder in Ms own interest and in behalf of others only after reasonable efforts hav0 been made to bave tbe eoi,poratioil sue. ^ tMg ig ^ appIÍMtíDn to e -oin threatened future ^ ^ actg. It bo h u b R stoekllolder as sueb. Gen. Investment Co. v. Lake Shore & M. S. R. Co., 250 F. 160, 173 (C. C. A. 6).
. 4s J^dge CHASE states, the facts are not m dispute and the determination below should *est upon the court’s discretion, but must be decided on the question ol law presented, TT . m i ^ ip-., TT „ Tool Co. v. Wilson, 259 U. S. 167, 42 Q „„ T , „ .Q’ T c S. Ct. 427, 66 L. Ed. 848; In re Sobol, 242 th AQrr ,¿n rrt n -Tr. , , ’ P* 4=87, 489 (C. C. A. 2); Winchester Be- ,■ . V, m \ i nmn ,™ m peatmg Arms Co. v. Olmsted, 203 F. 493 (C. q f) ’ ’ ’
. . Ordinarily and necessarily, pursuant to ^io Bankruptcy Act (11 USCA), allowances nia.de to receivers and trustees are under the direct supervision of the court. If error is committed in making allowances, the parties to ^at' litigation have a remedy, and ordinarily that should be a sufficient corrective medium. As such it avoids the need of restraining in advance the hand of the District Judge in making allowances, including reimbm.„t ^ ]awM expen(¿lureí, may not assume that error in this respect will be made continuously by the judges supervising bankruptcy cases. Therefore it is proper to deny the injunction sought here to restrain (a) making charges against and taking out of estates in bankruptcy for which appellee acts as receiver and/or trustee, in addition to its statutory commission, moneys for the services of its own employees; (b) making eharges against and taking out of estates in bankruptey for which appellee acts as receiver and/or trustee, in addition to its statutory fees, moneys for collection made by its employee, functioning as its private collection agency, under the name of the Estates Colleetion Service. But, as Judge CHASE says *36in his opinion, the denial of the injunction should not be intended to license or authorize any unlawful charges.
Admonition against such practices may well be stated. These difficulties arise because of the practice of corporate receiverships and trusteeships in the Southern district of New York. An examination of the provisions of the Bankruptcy Act leaves no doubt that its major purpose is to preserve the assets of the bankrupt estate for distribution to its creditors. To obtain that result, compensation and expenses allowed to judicial officers engaged in administering the bankrupt estates are carefully regulated. Compensation of referees, trustees, receivers, clerks, and marshals is expressly provided by the act, sections 40, 48, 52 (11 USCA §§ 68, 76, 80). . As an additional precaution, the act of 1898 was n t i ü t inno j min m i amended by the acts of 1903 and 1910 which • J nn /-¡i ttci rtk a added a new section, section 72 (11 USCA § i n A- ,, n 112), expressly forbidding any other or further compensation “in any form or gin** The Supreme Court, by General Orders 35, .*.n ttoha e roi , , 40, and 42 11 USCA § 53), promoted the purpose of the act by farther regulation of compensation. The District Courts have pursued the same purpose by rules of court See So. District N. Y. Bankruptcy Rules, 31, 36. Although compensation is strictly limited^ and regulated,^ the Bankruptcy Act, reeognizing the necessity of expenses of administering estates in addition to statutory compensation, has provided in section 62 of the act (IT USCA § 102) that i(Th© actual and necessary expenses incurred by officers in the administration of estates shall, except where (T . . , * ’ . * , other provisions are made for their payment, he reported m detail, under oath, and exam-med and approved or disapproved by the court. If approved, they shall be paid or allowed out of the estates m which they were incurred.” General Orders 10, 26, 35, 42, 43, and 45 (11 USCA § 53) regulate expenses to he charged against bankrupt estates in addition to compensation of judicial officers. The rules of the court do likewise. See So. Distriet N. Y. Bankruptcy Rules, 8, 9,10,11,13, 16,17,18, 21, 29, 31, 34, and 36.
This corporate receiver in its report to the District Court stated under date of No-vembex 30,1932:
“Of the 163 employees on the payroll of the Division at September 30, 1932, whose aggregate salaries would amount to $365,588.-04 per year, some charge was being made for the services of 67 representing an annual salary-cost to us of $178,040.28. * * *
“Since July 1, 1929, charges have been made to the respective estates as above described. During the period from July 1,1929 to September 30, 1932, the salary paid by us to those employees, for part of whose time a charge was made against the several estates as described above, was $589,526.73 whereas the amount charged to the several estates for their services was $404,873.35. * * *
“From July 1,1929, to September 30,1932, there have thus been devoted to the administration of estates, services of the aggregate salary cost to ns of $1,241,575.73, of which only $404,873.35 has been charged to the several estates. The difference, amounting to $836,702.38, has been absorbed by ns and represents a charge against the amount of our fees commissions during that period. « * * »
T m ,, „ . . i ■, It would seem, therefore, to stand ad- . ’ ,, , ’ , , nutted on the record that over and above the . , , _ • • ,, n . statutory commissions the appellee has ch / inst estates from 1929 to September 30, 1932, $404,873.35 for the time * 9 „ ' \ , and services of its regular employees ana eontilmes makfsimilar In. deed ^ is ^ intimation that ¿ ^ in a ^ heneñeeiu¡e that it does not chal.ge aU ^ salarieg of ^ persons employed j* its re_ ceivership division against the estates which administers. On the argument, when counse,j £or ^ appeiie0 was asked what services were rendered for the statutory allowances, jfe angwer was, “the advice and supervision given a^d the moral support” of this, the corporatc, receiver.
expenses of administration ^ busi. A ,, . ness expenses generally, vary widely with the mtur0 ^ complesity of tlie estate being administerecL Unlike statlltory fees ffld eom.. pensati0D) n0 feed rule can he stated except kroafl precautionary rules which forbid officers to incur certain types of expenses without express approval of the court, ge6 Qeneral Order 45 (11 USCA § 53) and g0< District N. Y. Bankruptcy Rules 8, 9,10, 13; 18> 29j ^ 34 Section 62 of the Bankruptcy Act indicates the procedure which must foe followed in each case. The actual and neeessary expenses shall be reported in detail, under oath, and examined and approved or disapproved by the court. This section places upon the court the duty to examine claimed expenses and to determine whether they are necessary and actually ineurred before allowing them. A discretion wisely exercised by the District Court will not be disturbed here.
The eases are ample authority for the guidance of the District Court in exercising *37its discretion in this matter. As expenses o£ administration trustees and receivers have been allowed rentals [Gardner v. Gleason, 259 F. 755 (C. C. A. 1)], wages of custodians if their employment was prudent [In re Mitchell, 212 F. 932 (C. C. A. 2) ], reasonable attorney’s fees [In re Consolidated Distributors, 298 F. 859 (C. C. A. 2)], and the fees of accountants, auctioneers, and appraisers when General Order 45 has been obeyed [In re Benjamin Kaufman, Inc. (D. C.) 21 F.(2d) 799].
But it must he assumed that receivers and trustees are appointed because of their known fitness and qualifications to discharge their duties under the Bankruptcy Act. Section 45 (1.1 USCA §73) expressly provides that trustees shall be competent to perform the duties of the office. The receiver or trustee primarily and personally must discharge the duties of the judicial office as the consideration for his statutory compensation. He is allowed expenses for the assistance of others only for matter’s a competent individual cannot be held reasonably to do personally. In re Pickhardt (D. C.) 198 F. 879. ITe cannot occupy the judicial office passively and charge as an expense for work performed by his attorneys which he himself should have done. In re Union Dredging Co. (D. C.) 225 F. 188; Ohio Valley Bank Co. v. Mack (C. C. A.) 163 F. 155, 161, 24 L. R. A. (N. S.) 184; Mason v. Wolkowich (C. C. A.) 150 F. 699, 708, 10 L. R. A. (N. S.) 765; Remington on Bankruptcy, § 2687.
The application of this rule, requiring a receiver or trustee to perform much of his judicial duty personally as consideration for tho statutory fee, is difficult in the Southern district of New York because of the existence of a standing corporate receiver and the prae-tico of that corporation acting as trustee. Its mere appointment does not entitle it to the statutory compensation, and it has no right to charge as expenses the cost of services of some or all of its employees who do the actual work. Section 62 of tho Bankruptcy Act allows actual and necessary expenses and no more. A corporation, depriving the estate of tho personal services of an individual, who would receive only the statutory compensation, cannot increase expenses because of its own nonpersonal existence by ehai’ging the services of some or all individual employees to expenses. Services which an individual re-eeiver or trustee would perforin for his statutory compensation, the ’ corporation must perform for the statutory compensation. See In re Cameo Curtains, Inc., 4 F. Supp. 672 (D. C. S. D. N. Y.).
If the collection agency receives its eolleetions by writing letters or other methods, short of collecting through the assistance of attorneys, it should not be allowed percentage compensation. Such services must be regard-e¿ ag the service of the receiver for which payment is included in the statutory allowanee. In re Cameo Curtains, Inc. (D. C.) 4 F. Supp. 672.
A corporation, in a less advantageous position than an individual, necessarily forms an organization to perform services for it. Indeed it can act only through its officers and employees. But it is for the service which an individual would perform as receiver or trustee that tho statutory compensation is allowed. To include other allowances violates section 72, for expenses are not to be allowed for work of regular employees. An individual trustee who, in addition to the usual service, gives the estate additional professional services as attorney, can obtain no additional compensation. Holland v. McIlwaine, 223 F. 777 (C. C. A. 4); In re Halbert Co., 134 F. 236 (C. C. A. 2). Likewise, a corporation engaged in various forms of business is not entitled to additional compensation allowed under the guise of expenses if it chooses to place its various services at the disposal of the estate. In re Detroit Mortg. Corp. 12 F.(2d) 889 (C. C. A. 6).
-^he injunction was sought also against Pairing profits on moneys deposited with it as Depositary by estates of which it was or is, at tte sa]ne time, receiver and/or trustee.” ^he Praetiee of this corporate receiver accept-in£ deposits of tho trust funds received from the various estates in bankruptcy is permitted under General Order 46 of the Supreme Court (DL DSCA § 53) and Rule 30 of the District Court for the Southern District of New York, duly approved. The corporation is a banking institution, and, when it receives these money% it does so as a hanking depositary. It aets in this dual capacity as receiver and depositary by permission of the court. As a banking institution it is permitted to receive these deposits. It may make such use of the deposits as a banker as the law permits,
I concur in the result.