City of New Orleans v. Malone

WALKER, Circuit Judge.

The appellant complains of the action of the court, on its application (filed October 16, 1924) to require the appellee, the receiver of the Hernsheim Company, Limited, a corporation,. to pay personal property taxes due from that corporation to the appellant for the years 1921, 1922, and 1923, with interest thereon, aggregating $6,275.52. The appellee was ordered to show cause why those taxes should not be paid out of funds in appellee’s hands. By the decree appealed from, which was entered June 16, 1925, the appellee was required to pay only $688.03 on those tax claims, the correctness of which was not controverted. The following is disclosed by the record:

On January 15, 1923, one Cobb, who was then ■ a director of said corporation, filed a bill against it, which alleged that he owned $10,000 of past-due debenture bonds or notes of said corporation, that said corporation was unable to pay its debts as the same matured and that it was necessary and for the benefit of all the creditors of said corporation that a receiver be appointed, to preserve and administer the assets of said corporation for the benefit of all concerned. To that bill was attached as an exhibit a copy of the minutes of a meeting of the corporation’s board of directors, at which was adopted the following preamble and resolution:

“Whereas, it is the consensus of opinion of this board of directors that, for the preservation of the property of the corporation and for the best interest of all concerned, a receiver be appointed; and whereas, the company, while not insolvent, is without funds to meet its obligations as they mature, but that, through the appointment of a receiver, outstanding accounts could be collected and merchandise on hand could be manufactured and marketed, so that the company could meet its obligations as they mature: Therefore, be it resolved that this corporation declares that it is unable to meet its obligations as they mature, and that the appointment of a receiver for the operation of the company is in its opinion for the benefit of all concerned.’.’

The minutes of that meeting showed that the appellee, in addressing the meeting, stated “ * * * that he was of the opinion that it would be to the best interest of every one concerned if the corporation applied for .a receivership, as that would give the corporation a chance to work out its stock of goods .and collect outstanding obligations, which would take care of the corporation’s debts, as they matured.”

On the filing of that bill, the appellee, who was then the president of said corporation, was appointed receiver of its assets. On the order of the court he appointed as his .attorneys Louis B.. Hoover and Warren Y. Miller, the last named being a director of said corporation, the attorney for the plaintiff in the suit- in which the receiver was appointed, and the person who verified the bill. The appellee operated the cigar factory of said corporation continuously from January 15, 1923, until the court ordered it closed on April 21, 1923. On a petition filed by appellee on April 14, 1923, the court on the same day ordered him to sell all the movable effects of the corporation. Those effects, consisting of machinery, fixtures, supplies, etc., were sold for $4,476.25. Pursuant to a petition filed by appellee on May 9, 1923, the court on that day ordered the receiver to pay his attorneys $500 “towards compensation for their services as attorneys for the receiver.”

Pursuant to a petition filed by the appellee on January 11, 1924, the court on that day made an order authorizing him to withdraw from the funds in his hands, as compensation for himself, $300 per month from January 15,1923, to January 15,1924. On January 3, 1925, appellee filed his final account, with a petition that the account be approved. That account showed a balance for distribution of $2,738.03, and contained a recommendation that $2,000 of that amount be paid to the receiver and his attorneys, $1,000 to the receiver and $1,000 to his attorneys; the account showing that the receiver had already disbursed $3,995.46 for his fees, legal costs, and expenses.

The record, including the appellee’s account, is very meager in its disclosures of the receivership transactions. It does not show what assets were received and administered by the appellee. It shows no collection on obligations in favor of the corporation, and no action taken by the receiver in reference to such obligations. It shows no litigation to which the receiver was a party. It does not show that, after the cigar-making operations were ended pursuant to the above-mentioned order, the appellee did anything, except sell the machinery, equipment, etc., on hand, and get orders for disbursements to himself and his lawyers. While appellee’s account shows that the amount of his receipts from sales of cigars was $2,168.18 in excess of his disbursements for operations, it does not show to what extent the tobacco manufactured was paid for prior to the receivership. It shows that, of the total amount realized by the appellee, $6,834.03, all except $688.03 went to pay fees to the receiver and his lawyers, and other court costs, most of it being absorbed by the receiver and his lawyers.

It does not appear that the matter of the past-dne and unpaid taxes was called to the attention of the court until the appellant filed its petition on October 16, 1924. As the receiver was the president of the debt- or corporation, it is not to be supposed that he was ignorant of that liability. It was his duty, so far as it was practicable to do so, to provide for the payment of those taxes, for which the appellant had a lien or privilege prior to all other liens whatsoever except judicial costs. Louisiana Oil Exporting Co. v. Pelican Oil Refining Co., 155 La. 297, 99 So. 226; Union Trust Co. v. Great Eastern Lumber Co., 248 F. 46, 160 C. C. A. 186. The receivership was brought about by the concurrent action of one of the corporation’s directors and his codirectors, with the result that, upon .a showing that the corporation was solvent and could meet its obligations, if it was given a chance to work out its stock of goods and collect its outstanding obligations, the corporation^ property was sheltered from its creditors while it was administered by the corporation’s president with the assistance of one of its directors acting as the receiver’s attorney.

To say the least, the appellee and his attorneys should not be permitted to profit unduly from the act of the court in taking into its custody the property of the corporation under the circumstances disclosed. In determining the amount of their compensation, due consideration should be given to the amount realized, as well as the labor and skill needed or expended, and other circumstances having a hearing on the question of the value of the services. While allowances by a trial court for such services are presumptively correct, as it has better means of knowing what is just and reasonable than an appellate court can have, yet where, in view of circumstances disclosed, the allowances made are so exorbitant as to indicate that the court’s discretion in dealing with the situation presented was not properly exercised, appropriate relief should be granted. Newton v. Consolidated Gas Co., 259 U. S. 101, 42 S. Ct. 438, 66 L. Ed. 844; Stuart v. Boulware, 10 S. Ct. 242, 133 U. S. 78, 10 S. Ct. 242, 33 L. Ed. 568; Standard Cotton Seed Oil Co. v. Refining Co., 108 La. 74, 32 So. 221.

Appellee’s account, considered in connection with what'is otherwise disclosed by the record, cannot well he regarded as showing good cause why only $688.03 should be paid on the taxes due to the appellant. In view of the facts that the manufacturing business was operated by the appellee for the period of only three months, that the selling of what was left on hand and the closing up of the business could not have kept him actively occupied much longer, and that less than $7,-000 was realized, we do not think that, however meritorious the services of the appellee and his attorneys may have been, allowances of more than $1,500 to the appellee and $500 to his attorneys would be justifiable. The total allowances to the appellee and his attorneys are reduced.to the sums of $1,500 and $500, respectively. The deeree is reversed, and the cause is remanded for further proceedings not inconsistent with this opinion.

Reversed.