Veeder v. Public Service Holding Corp.

In 1939, the Chancellor appointed a receiver for the defendant corporation. Its sole assets consisted of stock in certain subsidiary corporations, which then had little value. For various reasons, the progress of the receivership was delayed over a period of several years, and eventually (for causes unrelated to the receivership) its assets so increased in value as to make it possible to terminate the receivership without disposing of those assets. For present purposes, there is no necessity to recapitulate all the various events which took place during the period of receivership. They are summarized in the opinion of the court below (29 Del. Ch. 396, 51 A.2d 321). It will here suffice to mention only certain facts.

The present appellants constitute a committee of preferred stockholders representing about 75% of that class of stock. They were permitted to intervene and have taken an active part in all the proceedings. The receiver was discharged in 1946 according to a plan whereby the corporation borrowed enough funds to pay its creditors and the receiver's expenses, and the preferred stockholders were given the option to surrender their stock for cancellation at par, plus accrued dividends up to the date of appointment of the receiver. Thereafter, petitions were presented for allowances to the receiver and the various attorneys. Among them was a petition of these appellants for an allowance from corporate funds for the legal services rendered by Reuben Golin, of the firm of Hahn Golin. The court below refused to make such an allowance, and the committee took this appeal. The sole question before us is whether under the circumstances of this case, we should reverse the Chancellor's refusal to make the requested allowance.

The power of an equity court in proceedings of the present nature to allow, out of corporate funds, counsel fees to the parties who have created or preserved such funds is unquestioned. It is said to rest upon the broad principle that those who share in a benefit which has been obtained at the expense of one, or a part only, of their number ought justly to share the expense by which they are enabled to benefit. 16 Fletcher Cyc. Corp., (Perm.Ed.) 555. In this State, the power has been exercised with considerable restraint, since courts ought not to be overly generous with money belonging to others. McWilliams, Jr., Co. v.Missouri-Kansas Pipe Line Co. (The Mokan case), 21 Del. Ch. 308,190 A. 569. Moreover, a wide discretion must be reposed in the Chancellor, both in determining whether to make an allowance and in setting its amount, since he, in contrast to the appellate court, usually has direct first-hand knowledge of the nature and quality of the services rendered. On appeal, reversal should occur only where it appears that he has abused that discretion or that in exercising it he has been guided by a misapprehension of law. 16 Fletcher Cyc. Corp., (Perm. Ed.) 556.

With these general observations in mind, we turn now to appellants' contentions. They are based upon two types of services rendered: first, the preservation and protection of the corpus of the receivership estate; and, second, the formulation of a plan of reorganization which ultimately resulted in the termination of the receivership.

In connection with the first type of service, appellants refer to Mr. Golin's work in contesting three proceedings in federal courts in New York and Connecticut under Chapter X of theNational Bankruptcy Act, 11 U.S.C.A. § 501, et seq. In one of those actions, the federal court refused to let the receiver intervene, and the burden of contesting that petition was successfully borne by Mr. Golin. In the other two cases, he worked with the receiver's counsel. It is urged that this work, although done without any direction from the Chancellor, was necessary in preserving the corpus in that it maintained the jurisdiction of the Delaware court over the corporation, exposed and defeated certain invalid claims and avoided a duplication of expenses. It is pointed out that the work, at least in the one case, was not a duplication of the receiver's efforts, since he was not an interested party and therefore could not resist the petition.

With respect to this part of the claim, we cannot say that the court below either abused its discretion or based its finding upon a misapprehension of law. As the Chancellor indicated, it cannot be assumed that administration of the corporate assets by a federal court would result either in the payment of unjust claims or in greater administration expense. Under the facts shown, it was not reversible error to determine that the action of appellants' counsel in maintaining or helping to maintain the jurisdiction of the Delaware court did not amount to a "preservation of assets", especially where that action was voluntarily taken without prior direction of the court. We do not now decide that the defeat of attempted bankruptcy proceedings in cases of this type can never be compensable out of corporate assets, under any and all circumstances. The existence or non-existence of such special circumstances as will justify an allowance is to be determined from the facts of a particular case, and the Chancellor's finding should not be disturbed in the absence of manifest error. He found no such special circumstances here, and we think the record contains enough to support his view of the case.

With respect to the second type of service performed by Mr. Golin, to wit, formulation of a plan of reorganization, he claims considerable credit for the conception and negotiation of the plan eventually approved, except for the method of raising funds necessary to pay debts and expenses and to redeem the preferred stock. This detail was, of course, a very important part of the transaction. His idea was to sell stock for that purpose, whereas the scheme actually adopted was to borrow the money. That part of the negotiation was carried on without his knowledge and in his absence.

The appellants seek to draw an analogy between these services and those of Warrick in the Mokan case, supra. Actually, the differences are material. We shall mention only the most important one. In the Mokan case, Chancellor Wolcott found that Warrick's services in formulating and negotiating a settlement was largely responsible for the creation of the fund. Here, the elevation of the corporation from insolvency to solvency was the result of fortuitous circumstances. The settlement plan resulted in no corporate reorganization or readjustment of rights of parties.

Here again, the Chancellor found no justification for an allowance, and we cannot say that his conclusion is so unreasonable or unwarranted as to merit reversal. Whether we would have drawn the same conclusion from the evidence is unimportant.

Nothing said herein is meant to belittle the extent or quality of Mr. Golin's services. It would appear that he represented his clients ably and faithfully. Whether he should be compensated by them is a question not before us.

The decree of the Chancellor will be affirmed.