Guaranty Trust Co. of New York v. Chicago Rys. Co.

KOHLSAAT, Circuit Judge (after stating the facts as above). The substance of the contention of the several petitioners is that complainant’s counsel rendered valuable services to the receivers subsequently to March 10, 1904, for which they are equitably and lawfully entitled to compensation. There is no question but that they performed faithful and extensive service in the course of the litigation growing out of the three suits brought by them as counsel for the Guaranty Trust Company of New York, after said date. The only question is whether these services were performed for the receivers or for their own client, the Guaranty Trust Company. It is conceded that up to March 10, 1904, they were in the service of the receivers. The burden is upon the receivers to show that such services terminated on that date. It does not appear that there was any change at that date in the character of their work in relation to these cases. The main ground upon which respondents rest is found in the fact that on March 10, 1908, the Circuit Judge, before whom the causes were heard, wrote to the receivers a letter instructing them to make certain disbursements, including the sum of $35,000 on account of fees and $5,000 on account of disbursements to the petitioners Davies, Stone & Auerbach, and concluding: “Since tlie reorganisation of tlie receivership the only standing counsel of the receivers are Mr. Miller and Mr. Gurley. Other counsel may be employed from time to time as the exigencies of the matter require, but only after conference with the court.-” This letter was forthwith shown to the petitioners Davies, Stone & Auerbach. It does not appear that petitioning counsel had any connection with said litigation other than that growing out of the fact of their being solicitors for the Guaranty Trust Company in instituting the proceedings. There was no special retainer. They were up to March 10, 1904, engaged as general counsel by the receivers along with several others, under the order of the court permitting the receivers to employ counsel. On that date the court, finding the multitude of counsel both unnecessary and burdensome to the estate in litigation, undertook, by the letter just quoted, to limit the number of general counsel, and provide for the employment of counsel in special cases. There is no claim that the receivers thereafter obtained leave of court to retain the services of petitioners in terms in any capacity. So far as the record discloses, the receivers took no other steps than to show the letter to the petitioner. The latter insist: (1) That the letter was not tantamount to an order of court, and could not be given that effect 'as against the contract of retainer entered into under order of court at about the time the suits were brought. (2) That, even if it could be so construed, it referred to litigation thereafter arising and not to matters then being litigated. As to the first point, the receivers could have dispensed with the services -of petitioners at any time. It required no order of court. It is as ir the receivers and the court had said to the petitioners: “We shall no longer require your- services as general counsel, and you may consider your retainer terminated as of this date.” [415] Whether petitioners fully comprehended the significance of the notification seems doubtful from the fact that their course of action with relation to the litigation does not seem to have been in any way modified thereby. Relying, perhaps, upon their construction secondly above noted, they may have felt that the future would take care of itself. Rut we can see no justification for the limitations which they seek to place upon the definite language of the letter. They were notified that they were no longer to act as general counsel, and tliey never had been nor were then specially retained. They were clearly advised that they would not be further employed except upon application to the court. This provision they never availed themselves of. That throughout so long a period of intense litigation incidents should have arisen, and remarks be made by one or more of the receivers, being laymen, which might seem to indicate a disposition on the part of some of the receivers to modify the absoluteness of the order of discharge, is not surprising or of moment. Petitioners’ own client was greatly interested, sufficiently so to account for their lively interest in and attention to the protracted litigation. Therefore there can he no ground for claiming that their activity should have put the court or receivers upon notice that they supposed themselves to be in the receivers’ employment. Indeed, at the time of the filing of the said original bill, complainants represented only unsecured creditors, whose only chance of payment was in the success of reorganization. There seems to have been no step taken which did not vitally affect petitioner’s clients. Their rights must be satisfied from the- equities in the several companies which at the time suits were instituted were of the most unpromising character. Their client’s interests were such ttiat they could not have done less, even though they had never been retained by the receivers. It is apparent from the record that much of the litigation arose out of the petitioner’s purpose to protect- that part of the properties in suit from which their clients must be paid, such as the relative rights of these companies,-and other questions which did not directly affect the fund in court. There would seem to be no good reason why other parties representing much larger interests should contribute to the fees of counsel seeking to obtain, without prejudice, it is true, to the larger interests, an advantage for the unsecured creditors. Then, too, it appears from the record that petitioners were particularly active, as they should have been, in caring for the rights of the unsecured creditors in the matter of reorganization, calling upon the receivers for an accounting with that in view, and opposing several plans for reorganization to that end. If other evidence of their loyalty to their unsecured clients be wanting, it is found in their threat to dismiss the original suits as to necessary parties unless their clients’ judgments were paid in full, a proceeding which was inimical to the interests of the other parties to the proceedings. It is not perceived how petitioner could, in view of the delicate character of professional ethics, have unqualifiedly sustained the rights of others than the unsecured creditors, as well as those of the latter, in many phases of the legal proceedings set out in the record. “As a general rule, the practice in equity does not sane [416] tion the employment by a receiver of the solicitors of any of the parties in the suit, or one whose interests may be opposed to those of the parties, since such solicitors are bound to watch the proceedings of the receiver in the interest of their clients, and the undertaking to act for the receiver at the same time might impose upon them incon-. sistent and conflicting duties.” 34 Cyc. 291. The court below found the services rendered to the receivers up to March 10, 1904, to be of value, and made allowance therefor which was accepted in full. Under the facts in the record covering the period subsequent to that date, such an allowance could not have been properly made. Clients are entitled to a whole-hearted service. In the main, even what might have been deemed useful service failed to result in benefit to the funds in court. Some authorities, as, for instance, Heffron v. Flower, 35 Ill. App. 200; Farwell v. Great Western Telegraph Co., 161 Ill. 522, 44 N. E. 891, and MacDonald v. Wagner, 5 Mo. App. 56, hold that in no case can counsel be allowed for fees while acting for one of the parties and the receivers at the same time. Such, however, is not the rule in the federal courts, but, where a conflict of interests is thus attempted to be represented, the courts will assuredly not presume any obligation on the part of tire receivers to pay counsel fees, especially when they are themselves fully represented by counsel, and in face of a state of facts such as appear here. Certainly no acquiescence can be assumed. For the reasons above stated, we find no basis for allowing petitioner’s fees on the ground of an equitable lien. There was not such a service to the fund as would invoke this rule. The Circuit Court seems to have conceded to petitioner the full iimit of this principle in the allowances made, and its action in the premises went quite as far as was justifiable under the doctrine of Trustees v. Greenough, 105 U. S. 527, 26 L. Ed. 1157, Central R. R. Co. v. Pettus, 113 U. S. 116, 5 Sup. Ct. 387, 28 L. Ed. 915, and Harrison v. Perea, 168 U. S. 311, 18 Sup. Ct. 129, 42 L. Ed. 478, as applied to reorganizations of insolvent corporations in Central Trust Company v. Condon, 67 Fed. 84, 14 C. C. A. 314, and Burden v. Ferris Mfg. Company, 87 Fed. 810, 31 C. C. A. 233. It seems too self-evident to require further argument that the several parties in interest in said fund did not have a common interest in the results sought to be obtained by the greater part of the litigation for which payment is now asked. In the judgment of this court petitioners have been given ample allowance for all their efforts calculated to confer benefit upon the parties to the case, other than the unsecured creditors. In further support of the foregoing conclusions, reference is made to the opinion of this court rendered at this term of the court in the case of Einen Thread Company et al. v. A. Booth & Co., No. 1,727, 192 Fed. 515. It is not deemed necessary to pass upon exceptions other than those above considered. The decree of the Circuit Court is affirmed.