In re T. L. Kelly Dry-Goods Co.

SEAMAN, District Judge. Buie 27 of tbe general orders in bankruptcy (82 C. C. A. xxvii., 89 Fed. xi.) provides for “review by tbe judge of any order made by tbe referee”; but I do not understand that a general review of tbe proceedings before tbe referee, or review of rulings not directly affecting an order made, is intended either by tbe act or rules. Specific questions as tbey arise in tbe proceedings are to be presented on certificate of tbe referee, or, in tbe case of orders entered, on petition for review. This petition is in. tbe form of an assignment of errors in tbe proceedings before the referee, and not within either view thus indicated. Questions of importance, especially of jurisdiction and procedure, are shown, however, if not properly raised; and, to tbe extent in which tbe facts are sufficiently stated, I have given consideration, and state tbe following rulings: 1. Tbe bankrupt is a corporation, and tbe petition is filed by creditors as an involuntary application, but is based upon an alleged confession of insolvency on tbe part of tbe corporation, and of willingness to be adjudged a bankrupt, which appears to have been resolved by tbe corporate authorities on tbe day preceding tbe making of the petition. It is contended that tbe application is in effect voluntary, and therefore within tbe exception in tbe act which excludes corporations from tbe benefit of voluntary bankruptcy. It must be conceded that this view is not entirely without force. See In re Bates Mach. Co. (D. C.) 91 Fed. 625. I concur, however, in tbe opinion of Judge Brown in Re Marine Machine & Conveyor Co., Id. 630, which upholds the jurisdiction; and, in the absence of controlling interpretation contra, tbe objection upon that ground is overruled. The act of the corporation in such case is treated as an act of bankruptcy, and leaves it optional with creditors to move thereupon, or not, as advised. [749] 2. The absence of the district judge vested jurisdiction of the petition, of the application for a receiver and other duties thereupon, in the referee (section 38, Eankr. Act), and in the appointment of the receiver and order of sale the referee was exercising the powers of the district judge. It has been the uniform practice of this court, under the act, to make no order of sale until after adjudication of bankruptcy; and, unless the property is of such nature that immediate sale is necessary to preserve its value, such rule will be maintained. Whether the facts stated justified departure in this instance —consent appearihg on the part of the bankrupt and other creditors — is not deemed material for present purposes, as a fair sum was realized, and no showing is presented of injurious effect upon any interests. Objections to the several orders, including that of confirmation of the sale, are overruled. 3. Exception is taken to the allowances made; upon the claims of the creditor in question (1) in reducing the general claim for rent from $400 to $260.67; and (2) in allowing the claim for rent against the receiver at $133.34, instead of $250, as claimed. It is plain that this apportionment was in favor of the claimant, as an allowance of the $400 would have so extended the term of the lease that no allowance could he made for occupancy by the receiver; thus depriving him of the preferential claim. The rulings appear to be just, on the whole, and the rate at which the lease was running was properly adopted as the rate of allowance for the receiver’s occupancy. They are therefore approved. 4. It is stated in the same connection that the creditor was not permitted to vote, pending hearing of his claim, upon the election of a trustee; hut no question is raised as to the election, and no facts are presented on which to raise the question of the rights of creditors in such case. Purely no construction is admissible which would permit other creditors, through the mere filing of objections to a claim, to exclude a bona fide claimant from voting on the election of a trustee. 5. Exception is stated to the ruling by the referee that he was without jurisdiction to entertain a claim presented against the receiver “for fixtures separated and removed from the demised freehold during the time of the receiver’s occupancy,” and for not granting leave to. the claimant to sue the receiver. Xo leave to sue the receiver in such case is necessary under the recent legislation by congress, and, the district judge being within the district when the applications were made, the matters were not within the cognizance of the referee. Xo issue is presented, nor are the conceded facts sufficient, on which to determine the claim upon the merits, as argued on behalf of the claimant. 6. The final objection is to an allowance made in the account of the receiver of $200 for services of his attorneys, and I am constrained to the opinion that this objection is well founded. It is the well-recognized rule in equity that the receiver shall engage counsel who stands independent of the parties to the litigation (Beach, Rec. § 262), and the estate is not chargeable for services which may he given to the receiver by the attorney for eithér party during the continu750 anee of sueli relation. So, in tlie case at bar, unless tbe service for wbicb tbe charge was allowed was botb necessary and independent in tbe sense of tbe rule referred to, it is not allowable as an expense of tbe receivership. Tbe purpose of tbe appointment of a receiver in bankruptcy is one of mere temporary custody, and tbe duties are generally of tbe utmost simplicity. If complications arise in wbicb tbe parties before tbe court have opposing interests, be should not take counsel of either; and, if under any circumstances tbe attorney of either party is engaged by him, there must at least be complete severance of all service and duty to tbe litigant party. Otherwise, any service rendered must be deemed either gratuitous or in tbe interest of tbe original client. Here tbe attorneys for whom tbe charge is made appear botb of record and in fact for tbe petitioning creditors before and after tbe receivership, are on tbe petition for adjudication of bankruptcy, on tbe application for a receiver, and subsequently appear for tbe creditors at tbe meetings held during tbe continuance and after tbe close of tbe receivership. Under such conditions, any service rendered must be referable to their engagement for their clients, and, if chargeable to the estate for any amount, are in that relation only, and upon special order of tbe court. Tbe objection to tbe allowance must therefore be sustained. So ordered.