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In re Stolkin

decided: January 18, 1973.

IN THE MATTER OF RALPH E. STOLKIN, DEBTOR. RALPH E. STOLKIN, APPELLANT,
v.
NORMAN H. NACHMAN, ET AL., APPELLEES. RALPH E. STOLKIN, APPELLANT, V. JOSEPH H. SCHWARTZ AND MALCOLM M. GAYNOR, APPELLEES



Duffy, Senior Circuit Judge, Pell, Circuit Judge, and Durfee, Senior Judge.*fn*

Author: Pell

PELL, Circuit Judge.

These appeals*fn1 are from orders of the district court entered on March 3 and April 20, 1971, confirming the awarding of fees in Chapter XI proceedings of the Bankruptcy Act to Norman H. Nachman, as attorney for Ralph E. Stolkin, debtor; to Craig Phelps, receiver, and Nicholas G. Manos, the attorney for the receiver; and to J.H. Schwartz and Malcolm M. Gaynor, as attorneys for the official creditors' committee. Although one significant issue concerns all of the fee allowance recipients, separate issues are presented as to various appellees or groups of appellees. We therefore first turn to the matter presented as to Nachman.

Although not regularly employed in the ordinary sense of that word, Ralph E. Stolkin, as an investor, by the middle 1960's had become the possessor of a substantial quantity of worldly goods. His gross receipts during the year 1966 were in excess of $9,600,000. In addition to such indicia of wealth as automobiles, objects of art, residences, and oil property investments, Stolkin owned substantial blocks of stock in National Video Corporation (NVC) and MPI Industries, Inc. (MPI). Apparently unable to live within his income, Stolkin experienced pressure in 1965 and 1966 for liquidation of ever-increasing indebtedness. Liens and high interest obligations, levies and litigation followed. Stolkin's shares of NVC and MPI were held as collateral by Bankers Life & Casualty Co. (Bankers) which was threatening to liquidate the collateral. A minacious foreclosure sale was postponed upon assurances from Stolkin that he was obtaining immediate refinancing. Upon his failing to carry out his promise, Bankers rescheduled a foreclosure sale for August 7, 1968.

Nachman was retained in June 1968 to assist in the financial problems. The foreclosure sale being imminent, and with very little time for studied action, Nachman instituted on behalf of Stolkin Chapter XI arrangement proceedings so as to enable Stolkin to obtain a reasonable period of time to refinance his loan and pay his creditors in full. The foreclosure sale was enjoined over objections.

Stolkin, as of August 6, 1968, owed taxes in excess of $2,000,000, secured debts of approximately $14,000,000, and unsecured debts of approximately $500,000. Also there was a claim for $1,200,000 filed by Syracuse University and other smaller claims.

Stolkin's affairs were intricate and snarled, debtors continued to press through the bankruptcy court, and Nachman, who had filed the petition for an arrangement, continued to represent Stolkin as debtor in possession. Claims were compromised and it is not unfair to say that there is substantial supportive evidence for Nachman's claim that he rendered yeoman service for a debtor whose proclivities for indebtedness and wheeling and dealing made the attorney's services not easy of rendition.

By 1969, NVC having become without particular value, arrangements were made for the merger of MPI with DeSoto, Inc. Bankers was concerned because of the fluctuations in the stock values as emphasized by the filing of Chapter X proceedings by NVC within three weeks after its stock was traded at $16 per share. Objection was made to Stolkin speculating with the Bankers' collateral to increase his personal wealth. Nevertheless, the details of the merger were finally worked out to everyone's apparent satisfaction. In October 1969, the referee ordered the sale of the stock resulting from the merger. The relationship became strained between Nachman and Stolkin about this time because of Nachman's insistence that Stolkin obey the agreed order to sell and Stolkin's disinclination to do so.

Interim fees were paid pursuant to an order of the referee in late December 1969 of $150,000 to Nachman and $60,000 to Schwartz. Stolkin or no one on his behalf objected to the payment of the interim fees, which Stolkin deducted from his 1969 income taxes, until the appellant's brief in the present appeals. Relationships between Nachman and Stolkin worsened when in August 1970 Nachman refused to sign a revised petition for reconsideration of the allowance of Stolkin's former wife's claim, the subject of appeal No. 71-1095. In October 1970 Nachman attempted to withdraw but was not permitted to do so by the referee. Eventually a receiver was appointed.

In mid-1970 following a hearing, counsel for a group of creditors presented a motion to disqualify the referee who had been handling the matter until that time. This motion was granted by the district court and proceedings were transferred to Referee Tieken in July 1970. Although Nachman had not been permitted to withdraw, other attorneys also appeared for Stolkin during the last six months of 1970 and thereafter.

The telling of the complete tale of these complex proceedings would take many pages without particularly bringing us to a point of decision. It is sufficient to say that the upshot was that all of Stolkin's creditors were paid in full and Stolkin was revested with title to assets estimated at close to $10,000,000.

As is customary in proceedings of this type, upon completion of services, claims were filed for fees. On January 18, 1971, the referee entered an order for payment of fees. Nachman's claim was $625,000, which the referee allowed in the amount of $500,000 from which was to be deducted a $15,000 retainer originally paid by Stolkin to Nachman and the $150,000 interim fees. Phelps claimed $56,000 and was awarded $53,000. Manos claimed $60,000 and was awarded $57,000. Schwartz and Gaynor claimed $250,000 total fees and were allowed $200,000 less $60,000 interim fees.

Although there were general objections to the allowance of fees at the time the matter was under consideration, Stolkin for the first time on this appeal raises a question which challenges the payment of any fees whatsoever to Nachman. A similar question was raised as to the fees allowed Manos.

The basis for the contention with regard to Nachman is that there was no compliance whatsoever with General Order in Bankruptcy 44 and Rule 13 of the Bankruptcy Rules of the United States ...


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