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In re Mayfair Building Corp.

July 2, 1938

IN RE MAYFAIR BUILDING CORPORATION; ROSSET ET AL.
v.
MAYFAIR BUILDING CORPORATION.



Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; Wilkerson, District Judge.

Author: Treanor

Before MAJOR and TREANOR, Circuit Judges and LINDLEY, District Judge.

TREANOR, Circuit Judge.

This is an appeal by a Bondholders' Protective Committee from an order of allowance of fees and and expenses upon the petition of the Committee. The order was made in the course of proceedings for the reorganization of a property known as the Mayfair Hotel. A plan of reorganization was confirmed and the order in question allowed the Committee for their services and expenses the sum of $8,150, subject to a deduction of $3,000 which represented a sum received by the appellants prior to the reorganization proceedings from the mortgage trustee in charge of the property. It was further provided in the order of allowance that the members of the Bondholders' Protective Committee aid in the prompt distribution of certificates of beneficial interest under the plan of reorganization to the holders of first mortgage bonds or of certificates of deposit of such bonds; and the order further required the members of the Committee not to seek or accept, directly or indirectly, any compensation or reimbursement from the holders of such first mortgage bonds or of such certificates of deposit or interest, on account of or in connection with any services or expenses heretofore rendered or incurred by the Committee or any member thereof.

The Bondholders' Protective Committee came into existence on January 31, 1931, for the purpose of enforcing and collecting the bonds solely of those bondholders who because parties to a deposit agreement of that date. The deposit agreement provided that the Committee should be entitled to compensation for services and expenses and that the Committee should be given a first lien upon the deposited bonds as security for such compensation; and that the Committee should look solely to the security of the deposited bonds for payment

On April 23, 1935, a petition for reorganization of the debtor corporation under Section 77B, Bankr. Act, 11 U.S.C.A. ยง 207, was filed by certain creditors. Threafter the Bondholders' Protective Committee was permitted to intervene and later filed its petition for allowance of fees for services and expenses. The petition requested allowances for services rendered and for expenses incurred as far back as 1932, and apparently covered services and expenses which were not connected" with the proceeding and plan"; but the petition requested allowances for services and expenses without distinguishing between those connected with the proceeding between those and those not in connection with the proceedings. The Master to whom the allowance of fees was referred understood the petition to cover all claims of the Committee for all services and expenses before the institution of 77B proceedings, as well as after. In his report the Master stated that he was resolving in favor of the Committee the question whether its services before 77B were compensable; and the fees which he recommended for allowance were recommended as payment in full for all services and expenses. The Master recommended an allowance of $7,500 for the Committee, subject to a deduction of $3,000 on account of previous payment. The District Court modified the recommendation of the Master by increasing the allowance from $7,500 to $8,150.

The substance of the Committee's contentions on appeal may be stated as follows: (1) The District Court should have found and ordered the allowance in full only for services rendered and expenses in curred in connection with the proceedings and plan approved by the court.

(2) The court should have found that appellants were at liberty to enforce their rights under the deposit agreement for such services rendered and expenses incurred as were not compensable in the proceedings below out of the debtor's estate.

(3) That the District Court's requirement that the Committee aid in the prompt distribution of the certificates of beneficial interest under the plan of reorganization to the holders of bonds or certificates of deposit of such bonds was an unlawful interference with their lien rights provided for in their deposit agreement.

(4) It was error for the District Court to order the $3,000 deduction since the $3,000 was received by the Committee for expenses not compensable in the reorganization proceedings and should not be credited against compensable allowance to the Committee.

(5) Th allowance of $8,150 in full for the Committee's services and expenses was inadequate.

We shall first consider whether the District Court erroneously found and ordered an allowance for services rendered and expenses incurred prior to and not in connection with the proceedings and plan approved by the court. As a general proposition it would be improper for a District Court to make an allowance in a reorganization proceedings to a Bondholders' Protective Committee for services rendered and expenses incurred which did not contribute to the formation and adoption of a plan of reorganization. But in the instant case the Committee included in its petition for allowance the services and expenses which it now insists were not compensable in the reorganization proceedings. The Master resolved any doubt respecting their compensability in the reorganization proceedings in favor of the Committee and the District Court, with some modification as to amount, approved the Master's recommendation. The Committee's exceptions to the Masterhs report presented no objection to the allowance of all of the Committee's compensation out of the debtor's fund and in the reorganization proceedings. It was urged in the exceptions that the amount recommended by the Master was grossly inadequate; that the deduction of the $3,000 was "arbitrary, totally unsupported by the record and inequitable," and that the recommendation that the allowance of $7,500 be made to and include all and any services, expenses and obligations performed or incurred by the Committee, both prior and subsequent to the institution of these proceedings, was in derogation of the lien which was authorized by the Committee's deposit agreement; and that such recommendation was arbitrary and inequitable in that it impaired the contractual and lien rights of the Committee. At the hearing before the Master no evidence was introduced for the purpose of determining what services were rendered and what expenses were incurred in connection with the proceedings and the plan approved by the court as distinguished from services and expenses not connected with such proceedings and plan.

It is apparent that the Committee had no objection to losing any claimed rights under the deposit agreement if the court had been willing to allow a sum which the Committe thought would adequately compensate it for all services rendered and expenses incurred both prior to and after the institution of the reorganization proceedings, regardless of the connection of such services and expenses with the reorganization proceedings.

No objection was made either by the debtor or by any creditor to the allowance of fees to the Committee as compensation in full for all services and expenses before and after the proceedings; the petition of the Committee requested such action, and the Committee made no effort in the hearing before the Master or by its exceptions to the report to differentiate between expenses and services connected with the reorganization proceedings and those not connected. Whatever grounds for complaint the Committee might have as to the adequacy of the compensation allowed, it cannot complain on appeal that the District Court erred in not finding and ordering that the allowance awarded was in full, only for services rendered and expenses ...


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