Opinion
No. 4116.
February 12, 1930.
Appeal from the District Court of the United States for the District of New Jersey; Wm. N. Runyon, Judge.
In the matter of the bankruptcy of the Concentrated Products Corporation. From an order granting a petition of John Munroe Co. and another for reduction of allowance to Julian Hartridge, as an ancillary receiver of the bankrupt and counsel, the ancillary receiver and others appeal.
Affirmed.
The opinion of Runyon, District Judge, was as follows:
On August 11, 1924, Julian Hartridge was appointed ancillary receiver of the estate of the above named bankrupt, and after completing his duties as such, and filing his final report and vouchers, was discharged by order of this court on May 20, 1925.
The special master, in making his report regarding the various allowances, recommended $3,500 for the ancillary receiver for his services, and $4,000 for counsel, and these recommendations were later confirmed by the order of this court.
The petitioners object to the above awards and urge as their grounds of objection:
(1) That the compensation of a receiver appointed by a court of bankruptcy exercising either primary or ancillary jurisdiction is definitely limited by the Bankruptcy Act (11 USCA), and that the allowance of $3,500, made to the receiver appointed by this court, exceeded such statutory limitations.
(2) The petitioners were given no notice of the applications of the receiver and his attorneys for compensation.
(3) The allowance of $4,000 to the attorneys for the receiver was excessive.
The ancillary receiver and his attorneys oppose the prayer of the petition on the grounds that:
(1) Sections 48 and 58 of the Bankruptcy Act (11 USCA §§ 76, 94) have no application to accountings by ancillary receivers who are subject solely to the rules and orders of the court appointing them, ancillary jurisdiction being a well-recognized branch of equity jurisprudence, and an ancillary receiver being uniformly treated as an equity receiver.
(2) Petitioners, having acquiesced in the terms of the decree with full knowledge thereof for approximately nine months, are estopped by their own laches from reopening the same, especially after respondents have changed their position in reliance thereon.
Petitioners' first claim seeks its justification in the language of section 48, subdivision (d) of the Bankruptcy Act of 1898 (11 USCA § 76(d), which provides in part that "Receivers or marshals appointed pursuant to section 11, subdivision 3, of this title" shall receive for their services certain fixed percentages.
Section 2 (11 USCA § 11) has many subdivisions, and reads in part as follows: "The district courts of the United States * * * are made courts of bankruptcy, and are invested, within their respective territorial limits, * * * with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings * * * to * * * (3) appoint receivers or the marshals, upon application of parties in interest, in case the courts shall find it absolutely necessary, for the preservation of the estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified; * * * (5) authorize the business of bankrupts to be conducted for limited periods by receivers, the marshals, or trustees, if necessary in the best interests of the estates, and allow such officers additional compensation for such services, as provided in section 76 of this title; * * * and (20) exercise ancillary jurisdiction over persons or property within their respective territorial limits in aid of a receiver or trustee appointed in any bankruptcy proceedings pending in any other court of bankruptcy."
The pertinent inquiry is, therefore, whether a receiver appointed in an ancillary jurisdiction is one appointed pursuant to section 2, subdivision 3, and consequently bound, as to fees, by the provisions of section 48, subdivision (d), and in this connection it is to be observed that both section 48, subdivision (d) and subdivision (20) of section 2, dealing with the subject of ancillary jurisdiction, are portions of the 1910 amendment to the Bankruptcy Act.
Section 48, subdivision (d) of the Bankruptcy Act, as amended by the Act of 1910 (11 USCA § 76), reads in part as follows:
"Receivers or marshals appointed pursuant to section two, subdivision 3, of this Act shall receive for their services, payable after they are rendered, compensation by way of commissions upon the moneys disbursed or turned over to any person, including lien holders, by them, and also upon the moneys turned over by them or afterwards realized by the trustees from property turned over in kind by them to the trustees, as the court may allow, not to exceed [certain specified percentages] * * *;
"Provided further, That before the allowance of compensation notice of application therefor, specifying the amount asked, shall be given to creditors in the manner indicated in section fifty-eight of this Act."
Subdivision (e) provides in part that "where the business is conducted by trustees, marshals, or receivers, as provided in clause five of section two of this Act, the court may allow such officers additional compensation for such services by way of commissions upon the moneys disbursed or turned over to any person; * * * such commissions not to exceed [certain specified percentages]."
That these percentages represent the maximum permitted by the Bankruptcy Act is seen when section 72 as amended by the Act of 1910 (11 USCA § 112) is considered, and which reads as follows: "That neither the referee, receiver, marshal, nor trustee shall in any form or guise receive, nor shall the court allow him, any other or further compensation for his services than that expressly authorized and prescribed in this Act."
The term "ancillary receiver" does not appear in any section of the Bankruptcy Act now under consideration. Section 2, subdivision (3), gives bankruptcy courts, among other powers, original jurisdiction to appoint receivers, and by the provisions of subdivision (20) to exercise "ancillary jurisdiction * * * in aid of a receiver or trustee appointed in any bankruptcy proceedings pending in any other court of bankruptcy."
An "ancillary receiver," so called, therefore, is not appointed by reason of any specific statutory provision authorizing the appointment of receivers in ancillary jurisdictions, but simply as an indictment, and as a means for the enforcement of such measures in the secondary jurisdiction as shall aid a receiver or trustee in the primary bankruptcy jurisdiction.
A court of bankruptcy is and must be recognized as a court of equity, by reason of the very nature of much of the work which it is called upon to undertake and carry through to completion. For instance, when the all-embracing arm of the bankruptcy court is thrown about an estate, a literal "hands off" policy obtains, and, in consequence, to that court must come as petitioners all who would vary in any way the regular procedure of bankruptcy operation. In dealing with all such questions, the equity powers of the court must of necessity be invoked.
But, despite the equitable nature of much of the bankruptcy courts undertakings and procedure, the fact remains that there is a wealth of statutory enactment which places definite limits on the court's action, and which the court has no right to vary.
As I read the bankruptcy law, I find nothing which can give rise to the thought that any feature involved in the exercise of ancillary jurisdiction belongs in a larger sense to the equity branch of the court than do those features of operation which are confined to the primary jurisdiction. And in the case of Fidelity Trust Co. v. Gaskell (C.C.A.) 195 F. 865, 871, it appears to me that Judge Sanborn gives utterance to a like conclusion when he says: "A proceeding in bankruptcy is a proceeding in equity, and a district court sitting in bankruptcy, whether it is exercising its primary or its ancillary jurisdiction, is a court of equity. It is an established principle of equity jurisprudence that whenever a court of chancery takes into its legal custody, and thereby withdraws and withholds property from replevin, attachment, or other legal proceedings, it hears and adjudges the claims to the title and to legal and equitable liens upon that property of all parties who intervene in the suit or proceeding before it in their own behalf and submit their claims to its adjudication."
In this excerpt he classifies the equitable powers of a court exercising ancillary jurisdiction as identical with those of the court in the primary jurisdiction. Both are courts of equity. But, even so, the primary receivers' fees in this court of equity are strictly limited by statute, and the announced object of the 1910 amendment, dealing with ancillary jurisdiction, is to furnish aid to the receiver or trustee in the primary jurisdiction.
To argue, in view of the various provisions of the act already quoted, that while a primary receiver's fees are prescribed and strictly limited by statute, an assisting receiver, whose appointment is made only as a means of carrying into effect another provision of the same statute, is not limited in anywise as to fees, is in effect to argue that in every feature but one of ancillary administration the ancillary receiver is a creature of statute, but that when it comes to the very important question of fees, he is solely the creature of the inherent equity power of the court.
This forced conclusion, as I see it, is neither tenable nor logical, nor does it accord with a reasonable interpretation of the statutory sections involved, which, when read together, certainly deal with the subject of receivers' fees in comprehensive fashion.
The court, In re Judith Gap Commercial Co., etc. (C.C.A.) 5 F.2d 307, at page 309, in speaking of the limitation of equitable powers in bankruptcy administration, says in part: "The argument that there is inherent power to remove the trustee rests upon the clause in section 2 of the Act of 1898, providing that nothing in that section shall be construed to deprive a court of bankruptcy of any power it would possess were certain specific powers not therein enumerated. But that clause does not extend to the powers beyond those expressly conferred by Congress and those necessary to give full effect to the jurisdiction specifically conferred; nor is it inconsistent with the established doctrine that always is jurisdiction in bankruptcy limited by statute, and that though bankruptcy proceedings are equitable in their nature and must be carried on as such, nevertheless they are to be administered in accord with the Bankruptcy Act and general orders, and not by virtue of any broad unlimited equity power. Bardes v. Bank, 178 U.S. 524, 28 S. Ct. 1000, 44 L. Ed. 1175; Westall v. Avery, 171 F. 626, 96 C.C.A. 428; Nelson v. Svea Pub. Co. (D.C.) 178 F. 136."
Finally, it appears to me that the very fact that Congress, by its amendatory Act of 1910, gave courts of bankruptcy ancillary jurisdiction, extends not only the statutory powers and rights of the primary jurisdiction to the ancillary jurisdiction, but the limitations also. And within the scope of these limitations must be included the matter of receivers' fees.
The conclusions above noted will necessitate the rescission of the former order confirming the special master's report, and the awarding of amended allowances.
Having due regard for the statutory requirements governing commissions, and the bases in fact upon which they must rest, I have determined the amount to which the ancillary receiver is entitled. This computation leaves out of consideration the matter of the $25,000 mortgage, and also the checks and accounts assigned to the Merklen Soap Company, because, as I view the situation, the moneys involved in these transactions never came into the receiver's hands in the sense contemplated by the statute as a basis for the award of allowances.
With these items eliminated, the total upon which commissions may be computed is the sum of $42,723.32 and the statutory commission thereon amounts to $567.23. Doubling this, because of the fact that the receiver continued the business for a time, I find the total amount to which the receiver is entitled to be the sum of $1,134.46.
And with these amended figures for the receiver, I believe the attorney is entitled to no more than double the amount earned by the receiver, and will therefore fix fees at the sum of $2,268.92.
The point advanced by petitioner's counsel, as to lack of notice of the original application for allowances, I believe to have been well taken. I am presuming, however, that the present disposition of the matter will obviate the necessity of taking further action thereon, and am acting accordingly.
An order in accordance with the foregoing may be presented.
Harvey T. Mann and Julian Hartridge, both of New York City, for appellants.
Hamilton Hicks, of New York City, for appellees.
Before WOOLLEY and DAVIS, Circuit Judges, and JOHNSON, District Judge.
Affirmed on the opinion of Judge Runyon.