Opinion
No. 34254.
October 24, 1938.
In Bankruptcy. Proceeding in the matter of Philip Moskowitz, bankrupt, on petition for allowance by assignee for benefit of creditors, attorneys for assignee, attorney for petitioning creditors, and attorney for bankrupt. On report of the referee recommending that assignee's report be approved and that he be discharged and that allowances be made.
Referee's report confirmed and amounts ordered paid.
Referee's Report.
To the Honorable Judges of the United States District Court for the Eastern District of New York:
Assignee's report and the following allowance applications have been filed with me as Referee:
Morris R. Cipin, Assignee $390.58 Benjamin H. Wicksel, and Charles Feldman, Assignee's attorneys, Services...................... 750.00 Alvin A. Licht, Petitioning Creditors' Attorney, Services...................... $500.00 Disbursements................. 36.60 536.60 ------- Reuben Hirsch, Bankrupt's attorney, Services...................... $350.00 Disbursements................. 14.25 364.25 ------- --------- Total $2,041.43
Pursuant to District Rule 28 of Revised Bankruptcy Rules effective September 22d 1938, I respectfully state:
(1) Gross assets $6,118.39.
(2) Net assets as shown by Assignee's report are $6,118.39 which he has transferred to Benjamin H. Wicksel as Trustee Funds of this estate are deposited in the Manufacturers Trust Company, 32 Court Street, Brooklyn, N. Y.
(3) Estimated amount remaining after payment of recommended allowances, any other deductions and estimated expenses of trusteeship is $4,000.
(4) No dividend has been declared.
(5) The amount necessary to pay a dividend of 1% is $323.66.
(6) No allowances have heretofore been made.
(7) Services referred to herein have not been subject of compensation to any other person.
(8) There was no receiver.
In accordance with Rule 22 of the rules of this court, a meeting on ten days' notice by mail to the creditors, as set forth in the annexed Certificate of Mailing, was held on June 30th, 1938, to consider these applications for allowance at which Trustee appeared and stated Assignee's allowance should not exceed those allowed receiver under Section 48 of the act, 11 U.S.C.A. § 76, Assignee's attorneys should not exceed twice Assignee's allowance, and opposed bankrupt's attorney's application on the ground that his services had not been beneficial to the estate except in filing schedules. Letters of protest from two creditors are annexed. There is also annexed letter from bankrupt's attorney dated July 11th, 1938, with reference to opposition to his allowance.
Gross receipts of the Assignee were $7,811.70. He sold the assets and paid over net balance of $6,118.39 to the Trustee. He asks an allowance of $390.58 being five per cent of the monies that passed through his hands pursuant to Section 21 of the Debtor and Creditor Law of the State of New York (Consol. Laws, c. 12). But his compensation does not depend on the state law when this court has assumed jurisdiction. It rests upon the equitable principle that services beneficial to the fund brought into the bankruptcy court should be compensated out of the fund so benefited. Randolph v. Scruggs, 190 U.S. 533, 23 S.Ct. 710, 47 L.Ed. 1165; In re Cohen, 2d Cir., 64 F.2d 103; In re White, 2d Cir., 58 F.2d 203.
Ordinarily this court does not allow an Assignee compensation in excess of the commissions provided for bankruptcy receivers under Section 48 of the Act. The services performed are identical. Under Section 48 the commissions would be as follows:
6% on $500.00... $30.00 4% on 1,000.00... 40.00 2% on 6,311.70... 126.23 --------- ------- $7,811.70 $196.23
Have the services of this Assignee been beneficial to the estate? From an examination of his report and account, I find that they have with one exception. And that exception cost the estate twice as much as was necessary. He engaged an auctioneer to sell at a commission of ten percent. Pursuant to that agreement the auctioneer received $769.69 in addition to his expenses.
Under District Rule 16 governing sales under the control of this court, the auctioneer's commissions would have been $306.23. The sale, however, was not held under the jurisdiction of this court and the Assignee was free to make any agreement he wished as to auctioneer's compensation.
Section 21 of the General Business Law of New York (Consol. Laws, c. 20) regulates auctioneers' commissions. It fixes 21/2;%, in the absence of previous written agreement, as maximum compensation except in the counties of New York and Kings where there appears to be no limit by statute.
It thus appearing that the Assignee had the authority and right in law to agree to pay a 10% sales commission, was it beneficial to the estate?
It is common knowledge among those who have to do with insolvency proceedings both under the state and federal courts that there is sharp competition in the auctioneer business; that auctioneers, good auctioneers, auctioneers as competent as the auctioneer who served the Assignee here, and plenty of them, can be engaged to sell at not more than a five percent commission.
So it seems to me that the Assignee paid $463.46 more than was necessary to sell the assets. The sale was confined to one day. One day or part of one day's services of an auctioneer would not appear to be of the value of $769.69.
My conclusion is that the services of the Assignee were not beneficial with respect to auctioneer fee he agreed to pay and I am taking the same into consideration in recommending his allowance.
I suggested to the Trustee that an effort be made to recover half the auctioneer's fee. I annex copy of my letter and the replies of the Trustee and Messrs. Feldman and Barrett, one of the attorneys for the Assignee. The other attorney for the Assignee is the Trustee herein. I am not impressed by the reasons they advance in justification of the fee paid to the auctioneer.
Not for publication.
Reference is made by the Trustee, the Assignee and his attorneys to the excellent business reputation of the Assignee and the auctioneer, the good faith of their acts and the very satisfactory sale result.
I am glad to state that my criticism of the auctioneer fee agreement is not intended to reflect in the slightest degree on the reputation or good faith of the Assignee.
I understand that he is secretary of the Textile Board of Trade which represents a majority of the claims here. Both he and his organization enjoy excellent standing in the business community.
The auctioneer effected an excellent result on the sale — substantially better than average. Creditors appraised the assets at $10,826.33. The gross received on the sale was $7,696.92 or about 71% of the appraised value. On the other hand, the cost of the sale i. e., auctioneer's commissions of $769.69 plus necessary disbursements of $313.18 or a total of $1,082.87 appears to be 14% of the proceeds.
I am satisfied that the auctioneer conducted the sale most ably and he bears good reputation in credit circles. His report filed in the County Clerk's office in the assignment proceeding is not all that could be desired and is not up to the standard required of auctioneers who conduct sales under the supervision of this court. In fact, it is nothing more than a memorandum in pencil of items and prices. Several deficiencies have been supplied at my request as appears from affidavits and papers annexed hereto.fn_
The inference is made by the Assignee's attorneys that the creditors approved the auctioneer's commissions of $769.69. In order to obtain definite information as to the views of creditors I wrote a circular letter to them, asking them to let me know whether they approved the action of the Assignee in retaining an auctioneer on a 10% basis. I annex the replies.fn_ The result is as follows:
Creditors Amount
Opposed to 10% auctioneer commission............... 41 $13,364.06 In favor of 10% auctioneer commission............... 14 4,158.38 Opposed but no claim filed. 10 850.05 In favor of but no claim filed.................... 1 229.85 No reply................... 50 14,843.24 --- ---------- Total................... 116 $33,445.58
Attention is invited to the annexed letter of the Adjustment Bureau of the New York Credit Men's Association stating their general rule to be not more than 6% commission for Assignee's sales.
Both the Assignee and his attorneys assert that a commission of 10% is uniformly approved by the Supreme Court. There is no rule or regulation of the Supreme Court recognizing a 10% commission. I have no doubt that in many cases, particularly where there is no objection by creditors and no adequate protection of the creditors by the Assignee, sales are approved where a 10% commission is paid. If the assets here had yielded only $700 and $70 was paid to the auctioneer, I would raise no question.
Article 21 of title B of chapter 32 of the Administrative Code of the City of New York, a part of the Revised Charter, Section B32-146.0, rigidly restricts auctioneers' fees in selling real property but is silent as to personal property.
With further reference to the Assignee's report, comment should be made on two items. He retained accountants and paid them $200. The accountants have filed a statement that they will not ask further compensation and will render any additional services necessary without further charge. The item will be approved on this basis. The practice by Assignees of retaining accountants without an order from the Supreme Court is not to be encouraged.
The Assignee paid his custodian $6 a day. Under present conditions, a rate of $5 a day is ample but considering the small amount involved the item will be passed.
The Assignee's attorneys took care of the drawing and filing of the papers necessary to the institution of the assignment proceeding and the sale of the assets. The assignment had been in effect one month when the involuntary bankruptcy petition was filed. Adjudication took place almost two months later. Much of the services set forth in the petition for allowance were not legal services. In bankruptcy, a Receiver is not permitted to have an attorney for similar services. The legal services here rendered were limited in extent.
The bankruptcy petition was contested by the bankrupt up to the day of trial when consent was given to adjudication. Petitioning creditors' attorney was obliged to prepare for trial. His disbursements should be allowed.
The petition for allowance by the bankrupt's attorney was opposed at the hearing on the ground that his services were in behalf of the bankrupt rather than the estate or in assisting the bankrupt in carrying out the duties required of him by the Bankruptcy Act. It should be understood that the bankrupt and his attorney have the right to oppose the bankruptcy and the character and justification of legal services rendered for that purpose should not be the subject of adverse comment. But they are not appropriate for compensation out of the estate. Rather, the attorney must look to the bankrupt for his compensation. The objection of the creditors is well taken, except only, the attorney should be compensated for preparation and filing of schedules. Disbursements should not be allowed.
I recommend that the Assignee's report be approved; that he be discharged; that the surety on his bond be released from further liability on the matters contained in said report and account, and the following allowances be made:
Morris R. Cipin, Assignee, Services.................... $100.00 Benjamin H. Wicksel and Charles Feldman, Assignee's attorneys, Services.................... 200.00 Alvin A. Licht, Petitioning creditors' attorney, Services.................... $400.00 Disbursements............... 36.60 436.60 ------- Reuben Hirsch, Bankrupt's attorney, Services.................... $25.00 Disbursements............... 25.00 ------- ------- Total $761.60
Dated, at Brooklyn, New York, October 5th, 1938.
Respectfully Submitted,
Theodore Stitt,
Referee in Bankruptcy.
Feldman Barrett, of New York City, for assignee.
Benjamin H. Wicksel, of New York City, trustee.
Referee's report confirmed. Amounts ordered paid.