Before SPARKS, Circuit Judge, and LINDLEY, District Judge.
This action, by City National Bank and Trust Company of Chicago, referred to hereafter as claimant, is based on a claim made by it as successor Trustee under a trust indenture from the debtor to Chicago Trust Company, as trustee, on September 1, 1928, and duly recorded on October 1, 1928, on behalf of such successor trustee, and of the holders of bonds and interest coupons appertaining thereto, issued and outstanding under the indenture. The Chicago Trust Company, the Central Republic Bank and Trust Company, and eventually the claimant, were successively trustees under this first mortgage trust deed, securing the first mortgage bond issue above referred to, on the Granada Hotel, which was the property of the debtor.
Default in the payment of these bonds occurred prior to August 7, 1933, and on that date a foreclosure suit was begun in the Superior Court of Cook County, Illinois, by the Chicago Trust Company, the then trustee. The decree of sale by the Superior Court was entered December 18, 1936, finding there was due claimant certain prior lien items, consisting of its trustees' and attorneys' fees and certain costs, all incurred in connection with the foreclosure proceedings. During the pendency of the State court foreclosure proceeding, claimant was operating the property not as a receiver of Court officer, but as trustee in possession under the terms of its mortgage indenture.
The petition under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, was filed April 23, 1937, and approved as properly filed on May 17, 1937, at which time claimant, as trustee in possession, by order of the Bankruptcy Court, turned over the property to the trustee in bankruptcy. During the foreclosure proceedings, a bondholders' committee was organized, which consisted of certain officers of claimant. It tendered a plan of reorganization which was approved on July 15, 1937, and carried into effect. On June 23, 1937, claimant filed a proof of claim in the Referee's office, and on September 14, 1937, it was filed in the clerk's office of the Bankruptcy Court. It is referred to as Claim No. 9, paragraph 5 of which relates to fees of claimant as trustee under the mortgage and the trustee's attorney fees, and court reporter charges as fixed and allowed in the foreclosure decree. The various items of such alleged indebtedness, as set forth in paragraph 5 of the claim are:
Fees for services as successor trustee $2,560.
Solicitor's fees, less those not rendered at date of decree 8,250.
Court reporter's and stenographer's fees 39.90
On July 8, 1937, the trustee filed general objections to the claim on the ground that it was informal, lacked the original documents and was unfounded and lacking in merit.
On August 30, 1937, claimant filed in the bankruptcy proceeding a report of its operation of the property, as trustee during its incumbency as such. It disclosed the balance on hand which it had theretofore been directed by the bankruptcy court to deliver to the bankruptcy trustee, and asked that court's approval of the account.
To this report and petition, Woods, the bankruptcy trustee, on September 9, 1937, filed wtat he terms an enlargement of his objections filed on July 8, 1937, together with a counterclaim under which he sought to surcharge and falsify certain items in claimant's account as trustee in possession, and to recover moneys alleged to be due from it.
The remainder of this pleading is divided into three separate headings: (1) "Facts to Sustain Denial of Claims Made Herein by City National, Its Committee and Its Counsel"; (2) "Additional Facts to Sustain Counterclaim by Debtor Estate"; and (3) "Suggestions Against Account and Report by City National and Its Counsel Filed August 30, 1937 in This Court."
Under the first heading Woods alleged that the decree of the Superior Court of Cook County is void because claimant and its counsel have sought to serve conflicting interests, and that Granada Hotel Corporation was dissolved more than two years before the complaint to foreclose was filed. He further alleged that as claimant was in ...