Nisonoff v. Irving Trust Co. (68 F.2d 32, 1933)

CHASE, Circuit Judge.

The plaintiff, who owns thirteen shares of the capital stock of the defendant corporation whieh she purchased either in February, 1929, or about then, brought this action in behalf of herself and all other stockholders similarly situated who might become parties and share the expenses of the suit to restrain the corporation from doing certain acts claimed to be unlawful and so ultra vires. An injunction pendente lite ivas sought and denied, and the cause is now before us on the plaintiff’s appeal from the refusal to. grant her motion for such temporary injunction.

Since about July 1, 1929) the defendant has been the designated standing receiver in bankruptey in the Southern district of New York under a rule of the District Court. It has been appointed receiver in a large number of actions by the judges sitting in bankruptcy causes in that district. In many such eases it has subsequently been elected trustee and has aeted in that capacity also. To complement this practice of the courts in accordance with the rule to appoint the defendant receiver whenever it is not disqualified by interest, the defendant has undertaken to accept all such appointments. A rule of the District Court also provides for giving notice to ered-itors that the defendant is available to act as trustee, and its election has often, no doubt, been a result of the practical effect of such notice. This practice prevails at present and in all likelihood will continue unless enjoined, Although one object of the present action was to restrain the defendant from carrying out its agreement to accept all appointments as receiver in bankruptcy, that broad aspect of the suit is nob now pressed, and we are now concerned only with three specific charges of conduct in acting as receiver or trustee which it is claimed should bo enjoined as unlawful. They axe:

“(a) Making charges against and taking out of estates in bankruptcy of which it acts as receiver and/or trustee, in. addilion to its statutory commissions, money for the services of its own employees.

“(b) Making charges against and hiking out of estates in bankruptcy for which it acts ag r0C(¿ver an(j/or trustee in addition to its gfcatntory fees KOneys for collections made by a group, of its own employees functioning ag privato collection ■ agency under the name of ‘Estates Collection Service? and

“(c) (faking, profits on moneys deposited with it as Depository by estates of: which it was or is, at the same time, receiver and/or trustee.”

The record fairly shows that the defendant does what it is thus charged with doing, It seeks to justify its conduct in these respeete by showing as to (a) and (b) that what it receives is lawfully allowed to it as expenses, and as to (c) that it acts by express authorization under Rule 30 of the District Court, duly approved, and within the scope of General .Order in Bankruptcy 46 pronmlgated by the Supreme Court (11 USCA § 53). As the facts are clear on the record, the plaintiff’s right to an injunction pendente lite involves no element of discretion, but depends rather on her right to a permanent injunction. The element of time when the restraint shall become effective, if ever, is alone the distmguishing feature, and so, while the general rale is that the grant or refusal of a pxehminary injunction falls within the exercise °T a sound discretion by the trial court, that does not obtain where there has been a refusal or failure to- follow clearly established principhs of law properly applicable to faels not in dispute. Winchester Repeating Arms Co. Olmsted (C. C. A.) 203 F. 493. Compare Union Tool Co. v. Wilson, 259 U. S. 107, 112, 42 S. Ct. 427, 66 L. Ed. 848. Consequently tho denial of the injunction pendente lite cannot be supported merely as a ruling within the proper hounds of the discretion of the trial °nrfc, but must be considered on the basis o-f legal right.

Before giving effect, however, to any conduct of the defendant which may contravene the Bankruptcy Aet (11 TJSCA) and so be ultra vires because unlawful, it is essential to determine a preliminary question which the defendant has raised, and that is whether the plaintiff may maintain this action as a stockholder of the defendant suing for herself and other stockholders in like situation who may join in the suit. This appeal does not question the power of the defendant under its charter to accept an appointment as receiver in bankruptcy and to aet thereunder nor to aet as a duly elected trustee in bankruptcy, The appeal has, on the contrary, been narrowed to. put in issue (1) the right of the defendant to perform its duty as such receiver or as such trustee by using its own employees in doing the work and receiving in addition to its statutory fees and commissions extra compensation by way of payment, under al-lowanee by the court, of charges it makes for the work such employees do; (2) the right of the defendant to deposit with itself the funds it holds as a receiver or trustee. The method by which (1) is accomplished to the greatest extent is by charging a separate collection commission on accounts receivable which it collects through a department of its own organized and conducted by its employees under the name of Estates Collection Serviee. In respect to (2), it is enough for the present to notice that the practice is expressly permitted by General Order 46 of te Supreme Court and Rule 30 of the Dis-triet Court duly approved.

Beyond question no receiver or trustee may lawfully receive, directly or indirectly, 1- n -U - - _____i» as compensation for his services more than is allowed by the Bankruptcy Act (section 72 [11 TJSCA § 112]). The terms of the act ¿re explicit and are strictly enforced. In re George Halbert Co., 134 F. 236 (C. C. A. 2); In re Detroit Mortgage Corp., 12 F.(2d) 889 (C. C. A. 6); In re Sol Gross & Co., 274 F. 741 (D. C. S. D. N. Y.).

Beyond question also both a receiver and a trustee may be allowed and receive out of the estate payment for “aetual and neeessary expenses incurred,” in accordance with the provisions of section 62 of the aet (11 US CA § 102). What are aetual and necessary expenses must be determined by the court in the light of the attendant facts in each ease, Lerner Stores Corp. v. Electric Maid Bake Shops (C. C. A.) 24 F.(2d) 780. Yet in taking this view of the law it must be remembered that, whenever a corporation acts as receiver or trustee, everything it does must be done by some one acting for it, and ordinarily it must pay for the services rendered: To that extent the cost to it of such services is actual and necessary, but we do not mean to he understood that, because the corporation must pay its regular employees for the services it performs through them for the estates for which it acts as receiver or trustee, the expense to it of maintaining a personnel qualifled to do that work, or the expense, more broadly stated, of being and keeping itself competent to perform its duties as receiver or trustee, can be charged in whole or in part as expenses to the estates. Its compensation for being a competent receiver or trustee and for doing the work such a receiver or trustee eustomarily does himself must be found solely in the statutory fees and commissions; and it is tbe duty of the court to see to it that nothing more is allowed. It is obvious that, until ail 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 its 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.