HAVEMEYER v. LOEB

HAVEMEYER v. LOEB. U. S. District Court, Southern District of New York; December, 1877. Again, June, 1878. Allowances to Assignee for Benefit of Creditors, for Expenses and Counsel Pees, when Assignment HAS BEEN SET ASIDE, AS IN PRAUD OF the Bankrupt Act. The principles governing allowances for services of counsel to State assignees, laid down in Platt «. Archer (13 Blatehf. 351), approved. Where a voluntary assignment is set aside, because made in violation of the bankruptcy statute, the expense incurred in caring for the property prior to the bringing of the suit, which was proper and reasonable in amount, should be allowed. The expense was incurred for the property within this rule, if the services were properly or necessarily rendered to the State assignee and those services were properly rendered, so far as they benefited and preserved the property assigned, and were not hostile to the suit in bankruptcy. Where the voluntary assignee acts in good faith in accepting the assignment, his disbursements for services of counsel, made in good faith, which are necessarily and properly incurred down to the time that he received notice of an intention to attack the assignment as in violation of the bankrupt law, are to be allowed. Exceptions to a master’s report granting allowances for counsel fee. This action was brought by James Havemeyer, assignee of Daniel Prey, Isidor Prey and Jacob L. Haas, bankrupts, against Charles Loeb, their assignee for the benefit of creditors under the general assignment law of the State of New York. The said Daniel Frey, Isidor Frey and Jacob L. Haas made a general assignment for the benefit of creditors to the defendant on April 28, 1876. On August 1, 1876, they were adjudicated bankrupts, and the plaintiff qualified as assignee in bankruptcy on February 19, 1877, and began this action on April 2, 1877. I. December, 1877. An interlocutory decree was made by the district judge on June 2, 1877, declaring that the said general assignment was adjudged void and of no legal force as against the plaintiff as such assignee, because made in fraud and violation of the provisions of the bankruptcy statute of the United States ; and referred to a special master to report to the court an account of the payments, expenses and charges of the defendant as such assignee; including his own fees for his services. The said special master reported, among other things, that the defendant produced an account from May 3 to December 20,1876, showing receipts $3,073.32, and disbursements $2,154.92, leaving a balance on hand of $918.40; that two of the disbursements were for counsel fees, each of $500, which were paid, one on July 18, and the other on August 1, 1876, for services, without specification ; that as the payment of this $1,000 for counsel fee was made subsequent to the filing of the petition in bankruptcy, and the net balance in the hands of the defendant was only $918.40, and the assignment to him was void, it should not be allowed; that the defendant’s attorney conducted no suits and defended none but this one ; that the sum of $244.70, paid by the defendant to one Haas, should be disallowed; and that the defendant should be charged with interest at 6 per cent, per annum on the two sums of $500 each, and on the $244.70, from the times respectively when they were paid. The defendant excepted to this report, 1. For disallowing $1,000 for counsel fee, and claimed that he should have found that the plaintiff in this action qualified as assignee in bankruptcy on February 19, 1877 ; that no steps or proceedings were taken by any creditor or other person until the service of the subpoena in this action on April 2, 1877, notifying the defendant that any proceedings had been begun or that any demand would be made upon him for the return to any person of the assets of the estate originally assigned to him ; that the defendant from April 28, 1876, to the commencement of this action, acted in good faith in the administration of the trust under the assignment, and had accounted for all the property assigned to him ; that in the execution of said trust he was obliged to employ counsel, and that the counsel fee of $1,000 paid was reasonable and fair; that a large part of said business was rendered necessary by the laches and neglect of the creditors of said assignors, and who remained idle and did not proceed to adjudicate said assignors bankrupts, nor to elect an assignee in bankruptcy until many months after the defendant had realized upon the assignors’ estate. 2. For charging interest on the counsel fee and the $244.70, and claimed that he should have found that the said sums were paid out by the defendant in the exercise of his judgment prudently exercised, and that he did not have or enjoy the use thereof. 8. For neglecting and failing to rule upon or dispose of a large number of objections raised during the pendency of the examination before him, so that defendant could not ascertain from, the report what amount of testimony so objected to the master relied upon in forming his judgment, and what he excluded. In passing upon the foregoing exceptions the following opinion was rendered: William A. Abbott and T. H. Barowsky (Abbott Brothers, attorneys), for plaintiff. Melmlle H. Regensberger, for defendant. Blatchford, J. — The principles which must govern the allowances for the services of Counsel to the defendant in this case, as assignee under the voluntary assignment, are those which are laid down in Platt v. Archer (13 Blatchf. 351). I do not think that as to the particulars covered by the exceptions to the master’s report herein, in respect to counsel fees, the master has observed, in his report, such principles. The interlocutory decree does not, as stated in the report, adjudge the assignment in this case to be fraudulent and void. It adjudges it to be “void and of no legal force and effect, as against the plaintiff as such assignee, because made in fraud and violations of the provisions of the bankruptcy statutes of the United States, hereinafter referred to in the particulars set forth in the bill herein.” No fraud, in fact, was established, and the only fraud found was a constructive fraud, consisting in doing what, under the bankrupt statute, the assignee has a right to avoid. Nor does the fact that the $1,000 was paid after the petition in bankruptcy was filed, operate of itself to make such $1,000 not allowable, as seems to be supposed by the master. I do not intend to imply that the $1,000 or any part of it ought, to be allowed. But if it was an expense incurred for and on account of the property, prior to the bringing of this suit, and was reasonable in amount, and necessary or proper, it ought to be allowed, or so much of it ought to be allowed as comes within the above description. ' ■It was incurred for and on account of the property, if the services it applied to were properly or necessarily rendered to the defendant, and those services were properly rendered, so far as they benefited and preserved the property assigned and were not hostile to the suit. The master seems to have proceeded on a different principle.' The disallowance of the two items amounting to $1,000 is excepted to. A reconsideration of the case by the master, on the principles herein laid down, may result in the same conclusion, but, if so, the determination will have been arrived at on the proper principles. The second exception must also be allowed, and the question of interest must be reported on anew. I do not now approve or disapprove the charge of interest as to any one of the three items on which the master charged it. It will come up on the new report. As to the third exception, the proper course is to call on the master to make rulings on the point referred to, and embody them in the testimony. The matters covered by the three exceptions must be referred back to the master for a report in conformity with the views contained in this opinion, which report will also embody all the matters referred by the interlocutory decree. II. June, 1878. The matter having been before the special master a second time, according to the foregoing direction of the court, he made another report, dated March 12, .1878, in which he found in respect to defendant’s exceptions in brief as follows: That Daniel Frey and others were adjudicated bankrupts on August 1, 1876, ,and that the plaintiff qualified as assignee on February 19,1877, and the action against the defendant was commenced April 2,1877; that no steps were taken by any one until then by which the defendant was notified that he would be required to return the assets to anyone ; that the defendant from April 28, 1876, to the commencement of the action, acted in good faith in the administration of the trust, and had rendered an account of all the property that was assigned to him ; that he was obliged, in the execution of the trust, to employ counsel, and that the payments therefor were reasonable and fair to the extent set forth as follows : 1. Services in drawing schedule, . $100 2. Preparing accounting, . . .75 3. Preparing and filing bond, . 20 4. Services respecting pledges, . . 130 5. Services canceling bond, . . 75 6. Services fifty interviews, . . 100 7. Accounting in equity action, . 200 that two other items, amounting to $300, should be disallowed, because not beneficial to the estate ; that the payment of $244.70 to Haas should not be allowed, and defendant should be charged interest thereon from July 12, 1877, when he made payment of a balance of $918.40 to the plaintiff; that after the petition in bankruptcy was filed the creditors delayed the election of an assignee for eight months, and for seven months after the defendant had realized upon the assignors’ estate, and that a part of said services were rendered during that period, but what proportion thereof particularly the evidence did not enable him to find ; that the interest mentioned in the former report should not be paid except as above stated; and that'the objections raised on the hearing had been examined and disposed of. To this report both parties excepted. Abbott Brothers and T. H. Barowsky, for plaintiff. Melville H. Regensburger, for defendant: I. The laws of the State of New York regulate the payment of fees to the assignor, whenever the assignment itself does not contain a clause in that respect: when it does, the acceptance of the trust binds the trust estate in respect to every reasonable provision therein made for the compensation of the assignee and his counsel. II. An assignment for the benefit of creditors, made in good faith, without preferences and in accordance with the law of the State where the assignors reside, is not fraudulent and void per se (Mayer v. Hellman, 1 Otto, 496; Haas v. O’Brien, 66 N. Y. 597; S. C., 1 Abb. New Cas. 173; Sedgwick v. Place, 1 Nat. Bankruptcy Reg. 204, 673; Langley v. Perry, 2 Id. 180). Therefore the defendant was justified in proceeding with the due execution of his trust and incurring the reasonable charges of his counsel. III. None of the services for which compensation is asked in this proceeding were hostile to this suit in bankruptcy in this court (Platt v. Archer, 13 Blatchf. 351; In re Stubbs, 4 Nat. Bankruptcy Reg. 376; In re Burkholder v. Stump, Id. 597; In re Street v. Dawson, Id. 207; MacDonald v. Moore, 1 Abb. New Cas. 58). Those services benefit and preserve the property, which make it impossible for the estate to diminish, and which result in having the fund in a shape for immediate use. IV. The plaintiff is guilty of inexcusable neglect and gross laches in permitting the defendant to proceed with his trust after the commencement of the proceedings in bankruptcy. V. The disbursements and allowances to the State assignee are recognized by the bankrupt court (MacDonald v. Moore, supra). The practice in the State courts is similar (Bostwick v. Beizer, 10 Abb. Pr. 197; Grover v. Wakeman, 11 Wend. 187, 192; Colburn v. Morton, 1 Abb. Ct. of App. Dec. 378, and cases cited). The $300 rejected by the master should be allowed. [MAJORITY — Choate, J.] Choate, J. Exceptions to master’s report, allow-i-ng the defendant, who held the property of the bankrupt under a voluntary assignment for the benefit of creditors, certain disbursements for services of counsel. The case has been before the court once already on exceptions to a former report, and the principles governing these allowances were clearly stated by Judge Blatchrord. The defendant acted in good faith in accepting the assignment, and his disbursements for services of counsel, made in good faith, and which ai’e found to have been necessarily incurred down to the time that he received notice of an intention to attack the assignment as in violation of the bankrupt law, are to be allowed. I see no reason to dissent from the conclusions of the master as to the amounts allowed for the services rendered. The question is, therefore, whether the several items are proper charges. The items for $100 for perfecting the debtors’ schedule ; $75 for services in preparing for an accounting before the State court; $20 for preparing and filing the bond required of the assignee ; $75 for getting «the bond canceled; $130 for' services respecting pledges; and $100 for interviews on the business of the trust seem to be proper within the rule. Counsel for plaintiffs insists that it must appear that the services rendered actually, benefited the fund,, and he relies on some expressions in the opinion of the learned judge in this case for excluding these items on the ground that they are not shown to have benefited the fund. But I understand the opinion to mean that while the assignee is acting in good faith and without notice of any intention on the part of creditors or a bankrupt assignee to attack the assignment, all disbursements of this character which are rendered necessary and proper by the duty and trust which the assignee has assumed towards the estate are to be deemed beneficial to the fund (see McDonald v. Moore, 15 Nat. Bankruptcy Reg. 26). The item of $200 for services rendered by counsel in the accounting in this case, being services rendered in defense of this suit brought to set aside the voluntary assignment, therefore hostile to this suit, cannot be allowed. Defendant’s exceptions overruled. Plaintiffs’ exceptions sustained as to item of $200. Decree in accordance with this opinion.