Opinion
No. 315, Docket 20277.
July 11, 1946.
Appeal from the District Court of the United States for the Eastern District of New York.
In the matter of the Realty Associates Securities Corporation, debtor. On exceptions to a special master's report on the applications of a bondholders' protective committee, its secretary and counsel, for allowance of compensation. From an order 65 F. Supp. 116, approving the special master's recommendations, the debtor, and Consolidated Realty Corporation and others appeal.
Affirmed.
The business of the debtor "is to buy, sell, administer and deal generally in mortgages and real estate securities and real property * * *" On September 28, 1943, the debtor filed a voluntary petition for reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. It had outstanding, in the hands of the public, bonds in the principal amount of $5,710,400, due on October 1, 1943, on which the unpaid accumulated interest as of October 1, 1943, amounted to $1,285,060.21, making a total obligation of $6,995,460.21. The debtor had assets consisting of cash in the sum of $1,081,737.63, and "legals" in the sum of $1,793,192.15, a total of $2,901,929.78. Its other assets consisted principally of mortgages and real estate; its total assets had a book value of approximately $9,282,000, which assets were subsequently appraised at $8,548,000.
Before filing its voluntary petition, the debtor had attempted to effect a voluntary extension of its bond issue, pursuant to an arrangement whereby the bondholders were to receive 15% of the principal due and 25% of accumulated interest, and the bonds were to be extended for a ten-year period at a reduced rate of interest. The debtor succeeded in obtaining the consents of 60% of the bondholders to this proposal. But since this percentage was apparently too low to suit its purpose and since the bonds were to become due on October 1st, the debtor filed its petition, alleging that while it was solvent, the condition of its assets was such that it could not meet its obligations on the due date without sacrifice resulting from forced sale, to the injury both of the creditors and the debtor, and, therefore, it sought reorganization under the auspices of Chapter X of the Bankruptcy Act. The petition annexed the proposed voluntary plan of extension, recited that 60% of the bondholders consented thereto, and expressed the belief that a speedy and effective reorganization could be effected.
The appellees and the appellants, other than the debtor, after the petition was filed, in divers ways vigorously resisted the efforts of the debtor to consummate a plan for extension of the bonds, their purpose being to bring about the maximum possible distribution of cash to the bondholders. They succeeded in causing the removal of an additional trustee, improperly appointed because not adequately independent of the debtor; see Meredith v. Thralls, 2 Cir., 144 F.2d 473. They procured the disqualification of certain "friendly" bondholders' committees. They successfully prosecuted an appeal which resulted in the reversal of an order impounding a list of bondholders; see Delatour v. Meredith, 2 Cir., 144 F.2d 594. They procured an order providing that all cash, except an inconsiderable amount, should be invested solely in "governments," with the result that the estate became increasingly liquid. They procured orders for substantial cash distributions to the bondholders. They induced the Trustees against the protest of the debtor, on March 5, 1945, to seek an order for the sale of one of the most valuable parcels of real estate owned by the estate. Finally, on March 7, 1945, the debtor filed a proposal for payment in full of the amounts due on all the bonds and for dismissal of the proceedings after such payment. Such an order was entered, the bonds were fully paid, and the proceedings were dismissed, except for the payment of compensation for services rendered. The court referred the matter of such compensation to a Special Master, and, having received the Master's report, in most respects followed it, and entered compensation orders. The debtor and the appellants appeal from certain of the allowances.
Hooker, Alley Duncan, of New York City (James B. Alley, of New York City, of counsel), for Realty Associates Securities Corporation, debtor.
Root, Ballantine, Harlan, Bushby Palmer, of New York City (William P. Palmer, Irving L. Schanzer, and L. Robert Driver, Jr., all of New York City, of counsel), for appellant, Consolidated Realty Corporation.
Newman Bisco, of New York City (Perry A. Hull, of New York City, of counsel), for appellant Manufacturers Trust Company and pro se.
Lewis, Marks Kanter, of Brooklyn, N.Y. (Julius Silver, of New York City, Lloyd B. Kanter, of Brooklyn, N.Y., and Bernard D. Cahn, of Washington, D.C., of counsel), for Bondholders' Protective Committee and for appellants Lewis, Marks Kanter and Julius Silver.
Herrick Feinstein, of Brooklyn, N.Y., pro se.
Percival E. Jackson, of New York City (Theodore N. Tarlau, of New York City, of counsel), pro se.
Joseph R. Margulies, of New York City, pro se and for appellees Ernestine Needles and others, bondholders.
Archibald Palmer, of New York City, pro se.
Before SWAN, CLARK, and FRANK, Circuit Judges.
1. We think the services for which the lower court allowed compensation were, as it held, rendered "in connection with the administration of an estate" (see § 242), and were "beneficial in the administration of the estate" within the meaning of § 243. These services surely were connected with the administration. Also, they were "beneficial"; an estate, under Chapter X, is administered primarily for the creditors; and administration which aids in bringing about full payment of all creditors, while leaving the debtor with an equity, is patently beneficial to the estate.
Accordingly, we need not and do not consider these alternative suggestions: (a) The dismissal order was, in legal effect, approval of a plan, an approval brought about by the services in question. (b) Debtor's motion for dismissal was a motion for leave to discontinue which the court could properly grant on condition that the debtor pay for those services, pursuant to Federal Rules of Civil Procedure, rule 41, 28 U.S.C.A. following section 723c, and General Order No. 37, 11 U.S.C.A. following section 53.
In not considering them, we are not to be understood as holding them without merit.
Although we need not and do not adopt it, we confess that we have much sympathy with the following suggestion made in the brief of Herrick and Feinstein, appellees: "Through the medium of the proceeding initiated by the Debtor, a solvent corporation which only required additional time to refinance its obligations, procured such time for a period of eighteen months. It is ridiculous to suppose, that having gained all the time it needed and having been afforded the protection of the court against the dissipation of its assets through forced liquidation, it should be relieved from the burden of paying the costs and expenses which would have been an obligation of the estate had further time been required and obtained through a proposed plan of reorganization."
2. The trial judge found the services not needlessly duplicative. As no abuse of discretion appears, we will not disturb his judgment.
In re Long Island Properties, Inc., 2 Cir., 150 F.2d 313.
3. The Bondholders' Protective Committee and its counsel rest their appeal in large part on the failure to pay them for services rendered before the debtor filed its petition. As these services consisted chiefly of successful pre-petition efforts to induce bondholders not to accept debtor's pre-petition proposal, we think they were not directly beneficial to the estate. In re Ulen Co., 2 Cir., 130 F.2d 303. On the facts, we see no reason to disturb the judge's conclusion as to the worth of the compensable services either of the committee or its counsel. There is more room for doubt about the amounts awarded for the services of Manufacturers Trust Company, the indenture trustee, and its counsel. Nevertheless, since the judge, in charge of the proceedings, was familiar, as we are not, with the actual work done and therefore far better able to appraise it than we can from mere study of the paper record, we are unwilling to disturb his conclusion.
Affirmed.