author: PHILLIPS, Circuit Judge.

text:
    TOWN OF CLAYTON v. COLORADO &. S. RY. CO. et al.
    No. 325.
    Circuit Court of Appeals, Tenth Circuit.
    July 21, 1931.

      Myles P. Tallmadge, of Denver, Colo., and Hugh B. Woodward, of Albuquerque, N. M. (Frank O. Blue, of Clayton, N. M., and Pershing, Nye, Tallmadge, Bosworth & Dick, of Denver, Colo., on the brief), for appellant.
    J. L. Rice, of Denver, Colo. (O. P. Easterwood, of Clayton, N. M., J. Q. Dier and A. C. Scott, both of Denver, Colo., and J. C. James, of Chicago, Ill., on the brief), for appellees.
    Before LEWIS, PHILLIPS, and McDERMOTT, Circuit Judges.
   PHILLIPS, Circuit Judge.

The Town of Clayton brought this suit against the railway company and the two trust companies to foreclose a street improvement lien against the property of the railway company abutting on the street improved. The trial court sustained a motion to dismiss the bill, and the town has appealed.'

The town initiated a street improvement proceeding under the so-called Provisional Order Street Improvement statute of New Mexico, chapter 42, N. M. Laws 1903 (sections 3665 to 3671, N. M. St. Ann. 1915 [Code]), as amended by chapter 152, N. M. Laws 1919, and chapter 16, N. M. Laws 1927. Among the streets improved was Front Street between the northerly line- of its intersection with Chestnut Street and the southerly line of its intersection with Maple Street. The right-of-way of the railway company abuts the western boundary of sueh portion of Front Street. Such abutting portion of the right-of-way is 300- feet in width and on it are located the main line and sidetracks of the railway company, and grain elevators, warehouses, coal-yards, and other industrial structures and plants of lessees of the railway company.

The town adopted Ordinance No. 172 on August 27, 1928, which assessed against such abutting portion of the right-of-way east of the center median line thereof as abutting property $6,590.39 as its proportionate share of the cost of sueh improvement, under the provisions of section 3669, supra, as amended by chapter 152, §• 3, supra. This section, before its amendment in 1919, read as follows :

“After the making of such contract, said city council or board of trustees shall determine what portion of such work shall be paid by such abutting property, and the owners thereof, and shall assess to each lot or parcel of land abutting upon sueh street or alley or part thereof so to be improved its proportionate share of such total amount.”

The amendment added the following language:

“In case of the improvement of any street except as otherwise provided herein, the cost of the improvement of each street intersection, except the share to be paid by street or other railway companies, shall be assessed upon all the frontage of the street to be improved, and on the intersecting streets within a distance of one-half bloek in eaeh direction from sueh intersection, in the proportion that the frontage of each piece of real estate on the street improved or on anyinter- - seating street, or on both within said distance bears to the total frontage of all real estate similarly situated; and the cost of each alley intersection shall be assessed upon all of the real estate in the same block in proper-tion to the frontage on the street improved; provided, that in the ease of lots or parcels of irregular shape or of less than the regular length, the governing body shall be clothed with full authority to determine what property should be assessed for the costs of improving such lots or parcels, and to make •equitable assessments against such property as shall have been determined to be benefited by the improvement of the street or streets, alley or alleys, abutted on. by such lots of irregular shapes or sizes. The governing body of any municipality shall have power to assess against the owner or owners of any railroad or street railroad occupying or abutting any highway ordered to be improved as aforesaid, the whole cost of the improvements between or under the rails and tracks of said railroad or street railroad, and the two feet on each side of said track or tracks, and shall have power by ordinance to levy a special assessment upon said railroad or street ■railroad and its roadbed, ties, rails, fixtures, chattels, rights and franchises, which shall constitute a lien thereon, superior to any other lien or claim, except state, county and municipal taxes, and which may be enforced either by sale of said property in the manner provided here, or by suit against the owner. The ordinance levying said assessment shall prescribe when the same shall become due and delinquent and the rate of interest payable thereon.”

Counsel for defendants contend that the effect of this amendment was to limit the assessment of railway company property for a street improvement to the cost of the improvement between or under the rails and tracks of such railway company and for two feet on each side thereof, situated within the boundaries of such improvement, and to exempt it from all other assessments for such improvement.'

The primary rule in the construction of statutes is to ascertain and give effect to the intent of the legislative body. Stevens v. Nave-McCord Merc. Co. (C. C. A. 8) 150 F. 71, 75; Balanced Rock S. A. v. Manitou (C. C. A. 10) 38 F.(2d) 28, 30; Moffat Tunnel Imp. Dist. v. Denver & S. L. R. Co. (C. C. A. 10) 45 F.(2d) 715, 723. Where the language of a statute is plain and unambiguous, and conveys a clear and definite meaning, resort must not be had, ordinarily, to rules of construction, but the statute must be given its plain and obvious meaning. United States v. Mo. Pac. R. Co., 278 U. S. 269, 277, 49 S. Ct. 133, 73 L. Ed. 322; Duke Power Co. v. Commissioner (C. C. A. 4) 44 F.(2d) 543; Eclipse Lumber Co. v. Iowa Loan & T. Co. (C. C. A. 8) 38 F.(2d) 608, 610. Where, however, the language is of doubtful meaning, or where adherence to the strict letter would lead to injustice or absurdity, or result in contradictory provisions, it devolves upon the court to ascertain the true meaning. United States v. Katz, 271 U. S. 354, 357, 46

S. Ct. 513, 70 L. Ed. 986; In re Chapman, 166 U. S. 661, 667, 17 S. Ct. 677, 41 L. Ed. 1154; United States v. Kirby, 7 Wall. 482, 486, 487, 19 L. Ed. 278. The general design and purpose of a statute should be kept in mind and its provisions should be given a fair and reasonable construction with a view to effecting its purpose and object. Low Wah Suey v. Backus, 225 U. S. 460, 475, 32 S. Ct. 734, 56 L. Ed. 1165; Takao Ozawa v. United States, 260 U. S. 178, 194, 43 S. Ct. 65, 67 L. Ed. 199; Feitler v. United States (C. C. A. 3) 34 F.(2d) 30, 33.

It frequently happens that the true intention of a legislative body is not expressed by the language employed in a statute, when literally construed. In such cases, the intent of such legislative body can only be effectuated by a departure from a literal interpretation of the language employed. Where such intention is plainly discernible from the provisions of the statute when considered as a whole, the real purpose and intent'of the legislative body will prevail over the literal import of the words employed. Holy Trinity Church v. United States, 143 U. S. 457, 12 S. Ct. 511, 36 L. Ed. 226; U. S. for use of Hill v. American Surety Co., 200 U. S. 197, 203, 26 S. Ct. 168, 50 L. Ed. 437; Jones v. Guaranty & I. Co., 101 U. S. 622, 626, 25 L. Ed. 1030; Barrett v. Van Pelt, 268 U. S. 85, 90, 45 S. Ct. 437, 69 L. Ed. 857; Fleischman Const. Co. v. United States, 270 U. S. 349, 360, 46 S. Ct. 284, 70 L. Ed. 624; Baltzell v. Mitchell (C. C. A. 1) 3 F.(2d) 428, 430; London & L. I. Co. v. Smoot, 52 App. D. C. 378, 287 F. 952, 956.

The original act made express provision for assessing the cost of the improvement against abutting property. The phrase abutting property includes abutting railroad property without specific mention thereof. Louisville & Nashville R. Co. v. Barber Asphalt Paving Co., 197 U. S. 430, 25 S. Ct. 466, 49 L. Ed. 819; Heman Const. Co. v. Wabash R. Co., 206 Mo. 172, 104 S. W. 67, 12 L. R. A. (N. S.) 112, 121 Am. St. Rep. 649,12 Ann. Cas. 630; Marion B. & E. Traction Co. v. Simmons, 180 Ind. 289, 102 N. E. 132; C., M. & St. P. R. Co. v. Churdan, 196 Iowa, 1057, 195 N. W. 996; Figg v. Louisville & N. R. Co., 116 Ky. 135, 75 S. W. 269; Forest v. Atlantic Coast Line R. Co., 159 N. C. 547, 75 S. E. 796; Kinston v. Atlantic & N. C. R. Co., 183 N. C. 14, 110 S. E. 645; Mo., K. & T. R. Co. v. Tulsa, 45 Okl. 382, 145 P. 398; Okla. R. Co. v. Severns Paving Co., 67 Okl. 207, 170 P. 216, 10 A. L. R. 157.

Had the legislative body intended to exempt railway property from assessment as abutting property, the natural and ordinary method would have been to have added an exception to the general language- of the original act. This it did not do. Instead it left undisturbed the original act which included abutting railway property and added thereto an amendment purporting to grant additional power to assess railway property.

The introductory language of the next to the last sentence of the amendment, “the governing body of any municipality shall have power to assess against the owner or owners, of any railroad or street railroad occupying or abutting,” is in the form of a grant of power rather than an exemption. Nevertheless, counsel for the railway company maintain that the word abutting was inserted therein to exempt abutting railway property from assessment.

In that portion of such sentence which reads, “the whole cost of the improvement between or under the rails and tracks of said railroad or street railroad, and the two feet on each side of said track or tracks,” the legislature dealt with the assessment proper or the cost to be assessed, and not with the person or property against which the assessment should be made. It dealt also with the cost of a limited portion of the improvement, to-wit, the improvement between or underneath the tracks and for two feet on both sides thereof. Since it was dealing with the cost of a specific portion of the improvement and used the railway rails and tracks to locate and define that portion, it of course referred to only that portion of the railway property which occupied or is- situated within the improved section of the street.

A railway which crosses, or a part of which is situated within the improved section of a street, both abuts upon and occupies such street. In an exceptional ease the whole of a railway might occupy or be situated within the improved section of a street. In such a case it would occupy but not strictly abut upon the street. Such an exceptional instance existed in Albuquerque when this statute was enacted. One of the street railways was wholly situated within a street. It connected with another street railway, the property of which both abutted upon and occupied the city streets.

The language last above quoted' clearly shows that the legislature by such amendment was providing for an assessment only in eases where a railroad in whole or in part occupies the improved section of a street. It was providing for those specific situations.

In that portion of such sentence which reads, “the governing body of any municipality shall have power to assess against the owner or owners of any railroad or street railroad occupying or abutting any highway,” the legislature undertook to specify the person against whom the assessment might be made. In designating such owners, it referred to the railroad as a whole and not to a limited portion thereof lying within the section of the street improved, but it necessarily referred only to a railroad occupying in whole or in part the improved section of the street, because of the provision which limits the assessment to the cost of the improvement between or under the rails and tracks and for two feet on each side thereof.

Sinee abutting railroad property, to come within the purview of this amendment, must not only abut upon but also in part occupy the portion of the street improved, the word abutting must have been used in the sense of abutting and occupying. Therefore, instead of saying “a railroad, the whole or a part of which is situate within the improved section of the street”, which is necessarily implied, the legislature, in designating the owners -against whom the assessment should be made, referred to the railroad as a whole and used the word abutting in the sense of abutting and occupying, and the word occupying in the Sense of wholly occupying; abutting and occupying applying where the railroad was partially within and partially without the improved section of the street, and occupying applying where the railroad was wholly within the improved section of the street.

Counsel for defendants also bottom their contention upon the language of the amendment providing for the assessment of the cost of improving street intersections. They assert that the clause, “except the share to be paid by street or other railway companies,” shows an intent to exempt abutting railway property from assessment for cost of improving the street intersections. We cannot agree with this contention. The clause is an exclusion of a portion of the cost of improving the intersections instead of an exclusion of a portion of the abutting property from assessment therefor. In other words, the amendment provides that the cost of improving that section o-f the street intersection situated between or under the tracks of.a railway company and for two feet on both sides thereof shall be assessed against the railway company, and the balance of the cost of improving intersection shall be assessed against the abutting property including abutting railroad property.

Furthermore, at the time this amendment was adopted, there was an optional improvement statute in New Mexico known as the Petition Proceeding Law, chapter 22, N. M. Laws 1913, as amended by chapter 40, N. M. Laws 1915, and chapter 157, N. M. Laws 1919, sections 90-1219 to 90-1230, inclusive, N. M. St. Ann. 1929, which provided for the assessment of the whole cost of that portion of the improvement between or under the tracks of a railway company and for two feet on both sides thereof against the railway company, and for the assessment of the balance of the cost of the improvement against abutting property including abutting railway property. Under this optional statute, proceedings are initiated by petition of abutting property owners. Under the statute involved in the instant case, proceedings are initiated by the provisional order of the governing body of the city or town. In other respects the statutes are substantially alike. There is no rational basis for making abutting property of railway companies liable for assessment for the cost of such improvement when the proceedings are initiated under such a provisional order, and exempting it therefrom when the proceedings are initiated under such a petition; and it is unreasonable to impute such intention to the legislature when it enacted the 1919 amendment.

It is our opinion that the specific language of the amendment and the provisions of the street improvement statutes considered as a whole compel the conclusion that abutting property of the railway company was subject to assessment for the cost of such improvement.

Counsel for defendants further assert that it is against public policy to permit a lien for local improvements to be foreclosed against a fragment of railway property, because the result would be the dismemberment of a common carrier.

The rule that an assessment for public improvements cannot, in the absence of specific statutory authority, be enforced by a sale of a portion of the right-of-way of a railway against which the assessment is levied, •even though the assessment itself is valid, on the ground that public policy forbids the dismemberment of a common carrier, finds support in many adjudicated cases. See note 37 A. L. R. 243. However, a number of courts, including the Supreme Court of the United States, have held otherwise. Choctaw, O. & G. R. Co. v. Mackey, 256 U. S. 531, 41 S. Ct. 582, 65 L. Ed. 1076; Illinois C. R. Co. v. East Lake Fork Special Drainage Dist., 129 Ill. 417, 21 N. E. 925; Wabash Eastern R. Co. v. East Lake Fork Special Drainage Dist., 134 Ill. 384, 25 N. E. 781, 10 L. R. A. 285; Troy & L. R. Co. v. Kane, 9 Hun (N. Y.) 506, affirmed 72 N. Y. 614. The New Mexico supreme court has not passed on the question and therefore we are bound by the decision of the United States Supreme Court.

Sections 3670 and,3671, supra, as amended by chapter 152, § 4, N. M. Laws 1919, provide that the amount assessed under the provisions of section 3669, as amended, against each lot or parcel of land shall be a lien thereon with the effect of a first mortgage from the time of such assessment, and that such lien may be foreclosed in the same manner as a mortgage on real estate. We think these sections clearly provide for a lien against abutting railway property and for the foreclosure thereof. There is no constitutional inhibition against such a legislative provision; it is solely a question of state policy. Northern Pac. R. Co. v. Richland County, 28 N. D. 172, 148 N. W. 545, L. R. A. 1915A, 129, Ann. Cas. 1916E, 574; Ludlow v. Cincinnati Sou. R. Co., 78 Ky. 357; Georgia R. & Elec. Co. v. Atlanta, 144 Ga. 722, 87 S. E. 1058; Louisville & N. R. Co. v. Barber Asphalt Co., 197 U. S. 430, 25 S. Ct. 466, 49 L. Ed. 819.

Moreover, it is to be supposed that, if the validity of the assessment is established, the railway will pay its obligation without resort to foreclosure proceedings. H it is unable to do so and a foreclosure will result in the dismemberment of the physical property of the railway company, the court below, proceeding on the equity side, will no doubt find some other way to protect the town as a creditor without resort to foreclosure sale.

The decree is reversed with instructions to overrule the motion of defendants to dismiss the bill of complaint.

The costs of this appeal will be assessed against defendants.


source: Caselaw Access Project

author: AUGUSTUS N. HAND, Circuit Judge.

license: Public Domain

text:
    THE ASFALTO. THE JOHN ENGLIS. THE RED ASH NO. 3. O’BOYLE v. CARTERET FERRY CORPORATION et al.
    No. 396.
    Circuit Court of Appeals, Second Circuit.
    July 10, 1931.
    On Application to Correct Mandate July 28, 1931.
    William F. Purdy, of New York City (William F. Purdy and John E. Purdy, both of New York City, of counsel), for appellant Red Ash Towing Line.
    Haight, Smith, Griffin & Deming, of New York City (Henry M. Hewitt, James McKown, Jr., and W. Parker Sedgwick, all of New York City, of counsel), for appellee Carteret Ferry Corporation.
    Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.
   AUGUSTUS N. HAND, Circuit Judge.

No attempt is made to review the decision of the District Court that all three of the colliding vessels were at fault and, upon the merits, equally responsible for the damages resulting from the collision. This appeal presents only the question of the extent of the liability of the Red Ash, and her stipula-tors for value, because of the fact that no claim has been asserted against the Red Ash. except for the damage to the Asfalto.

The owner of the barge Asfalto libeled the John Englis and the Red Ash, alleging damage “in the making of repairs, towing, survey fees, demurrage,” etc. The Red Ash suffered no damage. The Asfalto claimed $1,929 damage from the collision. The Red Ash filed a stipulation for value in the sum of $1,929, and obtained the release of that vessel. The stipulation was in terms to secure payment of the “amount awarded by the final decree.” After the libel was filed by the owner of the Asfalto, the owner of the John English filed a libel against the Asfalto and the Red Ash, but only arrested the As-falto. This libel claimed damages suffered by it in the sum of $9,209. The trial judge made an order consolidating the two libels.

If, for the sake of argument, the claims for damage set up in the respective libels be taken at their face value, the decision of the District Court would impose upon the stipulators for value of the Red Ash a liability of one-third of $9,209, as well as one-third of $1,929, although the Red Ash was never arrested in the libel by the Carteret Ferry Corporation on behalf of the John Englis and did not appear in that suit. The imposition upon the stipulators of this liability, far in excess of the agreed value of the Red Ash, is sought to be justified on the ground that, when the Red Ash was arrested by the Asfalto, she was made a party to the litigation for the purpose of adjusting all her liabilities resulting from the collision, including her liability to the Carteret Ferry Corporation which owned the John Englis. But the stipulators undertook no such obligation, for the vessel was only libeled by the owner of the Asfalto for damages in respect to that barge and the stipulators who furnished the bond to take the place of the vessel entered into an undertaking limited to an agreed value of $1,929. The Red Ash was seized under no process, nor did her owner appear in the libel of the Carteret Ferry Corporation. There is therefore no pleading properly before the court which charges her with liability for any portion of the damages sustained by the John Englis.

It is well settled that the obligations of a stipulator in admiralty are limited to the amount stipulated and to the cause of action set up, and that they cannot be increased by the claims of persons intervening after the vessel has been released and the stipulation for value filed, or by any amendments to the libel which introduce a completely new claim. The Oregon, 158 U. S. at page 210, 15 S. Ct. 804, 39 L. Ed. 943; The Beaconsfield, 158 U. S. 303, 15 S. Ct. 860, 39 L. Ed. 993; The Haytian Republic, 154 U. S. at page 128, 14 S. Ct. 992, 38 L. Ed. 930; The Shreveport (D. C.) 42 F.(2d) 524, at page 536; Hawgood & Avery Transit Co. v. Dingman (C. C. A.) 94 F. 1011; The T. W. Snook (D. C.) 51 F. 244. Such a rule is the only one to apply here, for the cause of action set up in the libel was to recover damages to the Asfalto. Consequently it was the only liability that the stipulators had any reason to contemplate when they furnished their undertaking.

The cross-libelant argues that the rule of The Oregon, supra, does not apply where several vessels are at fault and two libels are filed and consolidated. In support of its contention it cites The Eugene F. Moran v. N. Y. Cent. & H. R. R. Co., 212 U. S. 466, 29 S. Ct. 339, 53 L. Ed. 600. In that ease a libel-ant was compelled to pay damages occasioned by one of its barges which was not made a party to the libel upon the theory that the libelant had subjected itself and its property to the exigency of the suit. In The Manhattan (D. C.) 181 F. 229, where one vessel was not arrested, Judge Hough decreed that the share of damages payable by the vessel not attached should be paid by another vessel of the same owner. In other words, he used the absent vessel as a means of making a just mathematical calculation as to the liability of the claimant, one of whose vessels had been seized. This is different from subjecting a vessel and still more different from subjecting its stipulators to a claim when neither have been brought into court at all. Yet it is the result of the decree below that the Red Ash has to pay its share of the damages suffered by the John Englis, though the owner of the latter never served any process upon the Red Ash Towing Line, Inc., nor arrested the Red Ash.

The further contention is made on behalf of the Carteret Ferry Corporation that in any event the owner of the Asfalto ought to be allowed to recover from the stipulators of the Red Ash up to the face value of the stipulation not only one-third of the damages suffered by the Asfalto, but also the amount her owner will have to pay to the Carteret Ferry Corporation because of .the injury done it by the Red Ash. One answer to this is that the latter corporation has filed no assignment of error. A further answer is that the owner of the Asfalto has asked to recover no- such sum in its libel.

Whether or not the Asfalto, as a joint tort-feasor, might have been held liable to the Carteret Ferry Corporation for the damage done to the John Englis by the Red Ash as well as, by the Asfalto, the libel in which the stipulation was filed asserted no such claim, and the decree recognized no such liability. As the decree stands, the Asfalto is only liable for its own one-third of the damage to the John Englis, and not for that occasioned by the Red Ash. Accordingly, if we assume that $1,929, the amount claimed in the first libel, should be established against the Red Ash for physical damages to the Asfalto arising out of the collision or for repairs, towing, survey fees, or demurrage caused thereby, recovery by the owner of the Asfalto against the stipulators of the Red Ash would be $643, and no more.

It seems clear from the foregoing that, in so far as the interlocutory decree increased the liability of Red Ash, its owner or stipu-lators, by the addition of a portion of the damages sustained by the John Englis, it proceeded upon a wrong theory and must be reversed, but in other respects should be affirmed.

The decree is modified in accordance with the views expressed in this opinion.

Application to Correct Mandate.

PER CURIAM.

An application is made that the mandate should direct that the damage to the John Englis be shared equally by the Asfalto.

The District Court decreed that the Red Ash should pay one-third of the damage suffered by the John Englis. Under our decision holding that the Red Ash was not liable for' this one-third, the John Englis is forced to bear not only its own one-third of the damage imposed upon it through its contributory fault, but also the one-third which it received from the Red Ash. This is so because we relieved the Red Ash from liability on the ground that it was never impleaded to answer such a claim. No one but the Red Ash has appealed. Therefore the decree as to all other parties must stand.

Application denied.


text:
    In re H. L. STRATTON, Inc. GENERAL MOTORS ACCEPTANCE CORPORATION et al. v. UPDIKE et al.
    No. 285.
    Circuit Court of Appeals, Second Circuit.
    July 7, 1931.
    John Thomas Smith, of New York City (Albert M. Levert and Anthony J. Russo, both of New York City, of counsel), for appellants.,
    Jonas & Neuburger, of New York City (David Haar and Murray L. Jacobs, both of New York City, of counsel), for appellees.
    Before MANTON, SWAN and AUGUSTUS N. HAND, Circuit Judges.
   AUGUSTUS N. HAND, Circuit Judge.

This is an appeal from an order denying a petition by.certain creditors of H. L. Strat-ton, Inc., a bankrupt, that the trustees in bankruptcy be enjoined from employing as attorneys Jonas & Neuburger and David Haar and from paying them any fees, and that Jonas & Neuburger be ordered to repay the estate of the bankrupt $15,000 received by them as fees for services as attorneys for the receivers. These fees were allowed by the court in 1927.

On December 29, 1926, schedules were prepared for H. L. Stratton, Inc., in which were set forth among its assets cash on deposit with Manufacturers’ Trust Company of the approximate amount of $10,000. On December 30, 1926, a voluntary petition in bankruptcy was filed, and H. L. Stratton, Inc., was adjudicated a voluntary bankrupt. On the same day Manufacturers’ Trust Company set off the moneys of the bankrupt that it had on deposit against a larger claim which it had. Jonas & Neuburger, as attorneys for the Manufacturers’ Trust Company, thereafter prepared its claim against the bankrupt estate, amounting, less the offset, to $39,811.-53, and filed it on January 25,1927.

On December 30, 1926, Edwin H. Updike and J. Newton Gunn were appointed receivers of the estate of the bankrupt upon the petition of George L. McCoy, who was a stockholder, director, and secretary of the bankrupt, as well as a small creditor. The petition for this appointment was prepared by David Haar, who was requested by Jonas & Neuburger to prepare it in the absence of one of the partners.

On December 31, 1926, the receivers Updike and Gunn, Haar, Lyle Mahan, a lawyer associated with Jonas & Neuburger, and an attorney representing the Seaboard National Bank, which was a large creditor, went before Judge Bondy in chambers and discussed the appointment of attorneys for the receivers. Gunn recommended Jonas & Neu-burger, and Updike said they would be satisfactory as general attorneys, but he would like independent advice from Mr. Bernard Hershkopf, without consultation with Jonas & Neuburger, or their associate Haar in respect to the claim of the Manufacturers’ Trust Company which Jonas & Neuburger represented. Judge Bondy is said to have “thought well” of these suggestions, but, however that may be, no formal application for the appointment was made to him. On January 4, 1927, a petition by the receivers was presented to Judge Mack, who had succeeded Judge Bondy in the hearing of motions. It had been prepared by Haar. It contained the request for permission to employ Jonas & Neuburger as attorneys, and stated that “ * * * these attorneys represent a very large creditor and are thoroly competent in our opinion to act as our attorneys. They are in no way connected with the bankrupt and have no interests adverse to those of the creditors herein in so far as we are informed and verily believe.”

Accompanying this petition was an affidavit by Mahan, on behalf of Jonas & Neu-burger, saying that “the * * * firm of Jonas & Neuburger represents a very large creditor of the * * * bankrupt and it has not become the attorney in any capacity in this proceeding at the suggestion or thru the influence direct or indirect exercised in any form or guise of the bankrupt or of any relative or officer, director or stockholder of the bankrupt except that the attorney for the bankrupt informed your petitioner’s firm that a voluntary petition was about to be filed and your petitioner was present at the time of the application for the receiver. Your petitioner’s firm has been requested by the receivers herein'to act as their attorneys subject to the permission of this court and this affidavit is made under the Buies in connection with the said petition for an order appointing Messrs. Jonas & Neuburger as their attorneys. I know of no reason why the said firm of Jonas & Neuburger may not be appointed as attorneys for the receivers herein.”

The foregoing is the substance of the affidavits filed to secure the appointment of the attorneys for the receivers. Hershkopf, upon data furnished by Jonas & Neuburger, at the request of Updike, advised the receivers that the set-off by the bank was proper. Nothing in the record before us indicates that his advice was not correct. Hershkopf valued his services at $500. That sum was paid to him by Jonas & Neuburger without any petition being filed on his behalf. Murray Jacobs, of that firm, says in his affidavit that the payment was made “out of the allowance made to the attorneys for the receivers.”

The grievance of the creditors who have taken this appeal is (1) that Jonas & Neu-burger did not set forth their relations with the Manufacturers’ Trust Company in the affidavit upon which they procured employment as attorneys for the receivers (virtually that they did not repeat in writing what they had orally stated to Judge Bondy), and that in failing to do this they violated rule XLIY of the General Orders of the Supreme Court; (2) that because Jonas & Neuburger were attorneys for George L. McCoy, a creditor, director, officer, and stockholder of H. L. Stratton, Inc., and had applied on his behalf for the appointment of the receivers, by rule 4 of the Bankruptcy Rules of the District Court for the Southern District of New York, they were disqualified from appointment as attorneys for the receivers and barred from obtaining any compensation for professional services -rendered to the receivers or trustees; (3) that, by paying Hersh-kopf $500 out of the $15,000' fee allowed them as attorneys for the receivers without a court order, they were barred from compensation.

General Orders of the Supreme Court XLII and XLIV (11 USCA § 53) and rules 4 and 11 of the United States District Court for the Southern District of New York, which were in effect at the time of the transactions under consideration, are as follows:

“XLII. Compensation of Attorneys, Receivers and Trustees.
“1. Every attorney, receiver and trustee seeking an allowance of compensation from a bankrupt estate for services rendered shall file with the referee a petition under oath, setting forth a full and detailed statement of sueh services and the amount claimed therefor, and in the ease of an attorney or receiver, the amount of the partial allowance, if any, theretofore made. And such petition shall be accompanied by an affidavit of the applicant stating that no agreement has been made, directly or indirectly, and that no understanding exists, for a division of fees between the applicant and the receiver, the trustee, the bankrupt, or the attorney of any of them. In the absence of sueh petition and affidavit no allowance of compensation shall be made.
“2. Such petition shall be heard at a meeting of creditors; and the referee in sending the notice of sueh meeting, prescribed by section 58 of the Bankruptcy Act, shall state by whom and in what amount the allowance of the compensation is asked.”
“XLIV. Appointment of Attorneys for Receivers or Trustees. In any district in which there is a city having at the last federal census a population of 250,000, or more, no attorney for a receiver or a trustee shall be appointed except upon the order of the court, which shall be granted only upon the petition of the receiver or trustee, stating the name of the counsel whom he wishes to employ, the reasons for his selection, and the necessity for employing counsel at all; and there shall be submitted with this petition an affidavit of the person recommended, showing that he- is not employed by or connected with the bankrupt or any person having an interest adverse to the receiver, trustee or creditors.”
“4. Attorneys for Receivers and Trustees.
“No Receiver or Trustee in Bankruptcy shall employ an attorney, except upon the order of this Court. Such order shall be granted only upon the petition of the Receiver or Trustee setting forth the name of the attorney whom he wishes to employ, the reasons for the selection of sueh attorney and the necessity of employing any attorney.
“No attorney for any of the petitioning creditors nor any attorney shall be appointed attorney for the Receiver or Trustee; nor receive any compensation for professional services rendered to sueh Receiver or Trustee, unless such attorney, before his appointment, shall make and file his affidavit that he did not become attorney for any of said petitioning creditors, or any creditor, nor become attorney in any other capacity in the proceeding, at the suggestion or through the influence, direct or indirect, exercised in any form or guise, of any of the bankrupts or of any relative or attorney of any of the bankrupts —bankrupts in this instance including officers, directors and stockholders of bankrupt corporations — save and except, for good cause shown by sueh attorney’s affidavit, the Court may notwithstanding allow the Receiver or Trustee to retain as his attorney, the attorney for the petitioning creditors.”
“11. Allowances. All applications for allowances to Receivers, Trustees, Appraisers, Accountants or Attorneys shall be filed in the first instance with the Referee in Bankruptcy in. charge of the case and shall be heard on notice sent by mail to the creditors, to the applicants and to the Trustee and his attorney. Sueh applications must state the sums claimed by the applicants and the notice of the hearing shall contain the amounts demanded. No sum shall be allowed greater than those contained in the notice. * * * ”

The District Judge denied the petition of the creditors on the ground that the affidavits submitted to procure the appointment of attorneys for the receivers were “in substantial conformity to General Order XLIV and the then existing Rule 4.” He held that the disclosure to Judge Bondy of the relations of Jonas & Neuburger to the Manufacturers’ Trust Company and the consideration by him of those relations and the proposed selection of Hershkopf as the way out was a sufficient compliance with the rules. He held that, because the trust company in fact had a right to set off the $10,000 account of the bankrupt, there was no adverse interest on the part of the trust company. He held that “the mere fact that McCoy, who had formerly been connected with the bankrupt, was used to make the formal application for the receivership had no particular significance or bearing on the situation.” He held, finally, that the payment of $500 to Hershkopf out of the allowance of Jonas & Neuburger did not disqualify them from acting as- attorneys for the receivers or trustees, and that, as Jonas & Neuburger were acting as attorneys for the trustees under the appointment of Referee Olney by order of February 11, 1927, and had long before been allowed compensation for their services for the receivers, the matter could not be reopened.

We ought to say at the outset that we. find no intention to violate the rules, or other moral culpability in the conduct of any of the attorneys. They disclosed to Judge Bondy the relations of the bankrupt with the trust company, and the receivers selected a lawyer of ability ’and standing to look into the matter, who found that the set-off taken was proper. If, through any mistake, it had not been, the counsel who have contested some of their actions with acrimony would doubtless have insisted upon further investigation. They may never have thought that they would not be dealing with Judge Bondy when the formal application to appoint attorneys was made and they knew that they had disclosed the situation to the court, but Judge Mack, who actually signed the order, had none of the information given orally to Judge Bondy. Though the attorneys manifestly acted in good faith, their procedure was in disregard of rules made to safeguard insolvent estates, and was of the slipshod sort which often has characterized bankruptcy practice. We cannot too emphatically insist that the rules are to be strictly observed and that oral statements made to a judge are no lawful substitute for the affidavits which are prescribed. Compliance with the rules is not only imperative as a matter of law, but is of special importance in a district where a court has many judges sitting alternately in bankruptcy, for in such circumstances no one judge can know what occurred when his predecessor was in charge of that branch of the court.

[S] General Order XLIY requires that an affidavit “of the person recommended” shall be submitted with the petition for the appointment of an attorney for a receiver or trustee, showing that he is “not connected * * * with any person having an interest adverse to the receiver, trustee or creditors.” The affidavit submitted by Mahan on behalf of Jonas & Neuburger only met this requirement by saying that the firm represented “a very large creditor of the * * * bankrupt,” and that he knew “of no reason why the * * * firm may not ],e appointed as attorneys for the receivers. * * * ” In other words, it said nothing about the set-off taken by the Manufacturers’ Trust Company, though Updike had thought the claim of this bank so worthy of investigation that he had declined to have Jonas & Neuburger represent the receivers in respect to it and had insisted upon having the independent advice of Hershkopf. While the right to take the set-off seems to have existed, we are clear that the interest of the trust company was adverse within the meaning of General Order XLIV.

Whether an interest is adverse cannot be determined by the event of an investigation or a litigation. At the time the application for appointment of the attorneys was made, the $10,000 balance with the bank appeared in the schedules as a debt due the bankrupt estate, and the schedules did not list the claim of the trust company among the liabilities. Yarious questions might arise as to the validity of the seboff. Shortly before the petition in bankruptcy was filed, the trust company had refused to pay cheeks of H. L. Stratton, Inc., amounting to about $4,000. The dishonoring of these checks was evidence that the trust company had reason to believe that H. L. Stratton, Inc., was insolvent and intended to apply the balance in its hands to the payment of its claim. Deposits might have been made shortly before the bankruptcy to facilitate reduction of the claim by means of a set-off. Such matters plainly called for investigation, and without it no one could tell whether the set-off was proper or not. But the attorneys, instead of filing an affidavit setting forth all the facts, including the set-off, said no more than that they represented “a very large creditor,” without naming it, and chose to rely on the oral statement to Judge Bondy as a sufficient disclosure. Judge Mack made the order of appointment without the benefit of the disclosure.

However unfortunate the result may be to them, General Order XLIY precludes the appointment of counsel except upon an order of court founded on such an affidavit as is prescribed. It is not enough that they believed that the set-off was lawful and that an investigation finally bore out the correctness of their conclusion.

Local District Court Rule 4 requires the filing of an affidavit that the applicants for appointment did not become attorneys in any capacity in the proceeding at the suggestion, or through the influence, of any officer, director, or stockholder of the bankrupts, and provides that no attorney shall “receive any compensation” unless such affidavit is filed. This rule was violated because Jonas & Neuburger moved for the appointment of the receivers on the petition of McCoy, who was an officer, director, and stockholder of the bankrupt.

It is probably true that this rule was mainly aimed at friendly involuntary petitions where the petitioning creditors were virtually selected by’the bankrupt, or his attorneys, and the latter in turn procured the appointment of attorneys. But it was very sweeping, and required the disclosure by affidavit of the relation of the attorneys who sought to be appointed in the case, and precluded them from acting if they had come into it through the influence of the bankrupt, and, if it was a corporation, of its officers, directors, or stockholders. The rule forbade compensation in the absence of the prescribed affidavit. The fact that a mere application for the appointment of receivers was thought by the attorneys and found by the court to be outside the rule cannot avoid its rigorous terms.

The employment of Hershkopf, without a court order, was plainly forbidden by General Order XLIY and local rule 11. The amount paid was relatively small, and doubtless would have been allowed if the proper procedure had been followed, but the regulations were mandatory.' It did not suffice that trouble was saved by the expedient adopted. Compensation for the services should have been fixed by the court and not included in the allowance to Jonas & Neuburger, who could not employ Hershkopf or fix his fee.

The contention is made that allowances fixed and paid nearly four years ago cannot be questioned now. The rules were made by courts for the protection of bankrupt estates and no negleet of private litigants to question payments can create an estoppel. The courts have power to enforce and cure the disregard of their rules so long as the estate is open. In re De Ran (C. C. A.) 260 F. 732.

On February 11, 1927, when Jonas & Neuburger were appointed attorneys for the trustees, Hershkopf had made his report that the set-off was properly taken. In view of the long acquiescence in his conclusion and the absence of any evidence that it was not perfectly sound, we can hardly suppose that any adverse interest, real or apparent, has existed since the date of his report.

The affidavit upon which Referee Olney appointed Jonas & Neuburger attorneys for the trustees is not before us. If it failed to disclose’ the application made by Jonas & Neuburger on behalf of McCoy for the appointment of receivers, it was subject to the same defect that inhered in their application for appointment as attorneys for the receivers, but their status as attorneys for the trustees should not be determined when we do not know the contents of the affidavits upon which the referee acted.

Although everything indicates that the attorneys rendered valuable services to the estate of the bankrupt, we are constrained to hold that they are barred from receiving compensation as attorneys for the receivers because of failure to comply with General Orders XLIV and XLII and local rules 4 and 11, and that they must restore to the trustees the $15,000 which they have been paid. This is a drastic order, but the rules were made to be followed, and require the result we have reached. Weil v. Neary, 278 U. S. 160, 49 S. Ct. 144, 73 L. Ed. 243; In re Rogers-Pyatt Shellac Co., 51 F.(2d) 988, decided by us at this term.

The proceeding is remanded to the District Court, with directions to enter.an order requiring Jonas & Neuburger to repay to the trustees the $15,000, which they have received. The order denying the motion to enjoin the trustees from employing Jonas & Neu-burger and David Haar and from paying them any fees is affirmed, but without prejudice to the right of the creditors appellants to institute a new proceeding, if they be so-advised.


author: SWAN, Circuit Judge.

text:
    In re ROGERS-PYATT SHELLAC CO.
    No. 336.
    Circuit Court of Appeals, Second Circuit.
    July 7, 1931.

      For opinion below, see (D. C.) 43 F.(2d) 863.
    David W. Kahn and Bonynge & Barker, all of New York City, for appellants.
    Alexander & Green, of New York City (James H. McIntosh and Edward W. Bourne, both of New York City, of counsel), for respondents.
    Before L. HAND, SWAN, and CHASE, Circuit Judges.
   SWAN, Circuit Judge.

During the autumn of 1928, the chief creditors of Bogers-Pyatt Shellac Company found that it was in financial difficulties, and a creditors’ committee was formed and put in charge of its business with the consent of its officers and directors. Without the concurrence or knowledge of this committee, an involuntary petition in bankruptcy was filed against the corporation on January 4, 1929. The appellants were attorneys for the three petitioning creditors, two of whom, Byrnes and Dean, were stockholders and directors of the bankrupt corporation, and Byrnes was also its secretary. Moreover, Byrnes’ claim was one which the corporation disputed, as his attorneys knew. None of these facts was disclosed by the petition in bankruptcy. Forthwith the petitioning creditors by an ex parte order obtained the appointment of a receiver in bankruptcy. On January 5,1929, upon the petition of the receiver, supported by the affidavit of Mr. McMahon, one of the appellants, an ex parte order was entered authorizing the receiver to employ the appellants as his attorneys. Through inadvertence, as Mr. McMahon later deposed, this affidavit did not mention that the appellants were attorneys for the petitioning creditors or that two of such creditors were stockholders and directors of the bankrupt, or that Byrnes was the secretary and his claim in dispute. The stockholdings of Byrnes and Dean, but not the fact that they were directors, were set forth in a second affidavit by Mr. McMahon which was filed pursuant to an ex parte order entered on February 27, 1929, upon petition of the receiver asking leave to file it. The receivership continued for some months, and ón May 9, 1929, appellants petitioned for an allowance of $100,-000 as compensation for their services as attorneys for the receiver. The creditors’ committee objected to the granting of any allowance, and the matter was referred to a referee. While hearings before the referee were in progress, the creditors’ committee applied to the District Court to vacate its order of February 27th which had permitted the filing of Mr. McMahon’s supplemental affidavit. This resulted in a memorandum opinion and an order of November 8, 1929, by which the court refused to vacate the order of February 27th, but amended it to provide that it should not be deemed “either an authorization nunc pro tune or a ratification” of the employment of the appellants. Thereafter the referee concluded that he could not with propriety pass upon the status of appellants as attorneys for the receiver and certified the entire record to the court. Upon motions by the appellants and by the creditors’ committee, the question of the appellants’ right to compensation was presented to the court and resulted in the order of May 16, 1930, from which this appeal was taken. This order denied the appellants’ motion to ratify nunc pro tune the order Of January 5, 1929, authorizing their employment, refused them any compensation whatever, and dismissed their petition for an allowance.

The questions presented by this appeal are whether appellants obtained their appointment in violation of General Order 44 of the Supreme Court (11 USCA § 53) and rule 4 of the local Bankruptcy Bules; and, if they did, whether they are barred from obtaining compensation . for services actually rendered as counsel for the receiver. The value of their services to the estate and the appellees’ charges that they injured rather than benefited it need not be considered.

The affidavit of McMahon, upon which was based the order of January 5, 1929, authorizing the receiver to employ the appellants as his attorneys was apparently filed in an attempt to comply with General Order 44, which provides as follows:

“ * * * No attorney for a receiver or a trustee shall be appointed except upon the order of the court, which shall be granted only upon the petition of the receiver or trustee, stating the name of the counsel whom he wishes to employ, the reasons for his selection, and the necessity for employing counsel at all; and there shall be submitted with this petition an affidavit of the person recommended showing that he is not employed by or connected with the bankrupt or any person having an interest adverse to the receiver, trustee or creditors.”

Mr. McMahon’s affidavit stated that neither the affiant nor his firm “represent said alleged bankrupt,” and that “he and they are in no way connected with said alleged bankrupt ; they represent no interests adverse to Samuel S. Koenig, the Receiver in Bankruptcy of the above named estate, and deponent knows of no reason why they should not act as attorneys and counsel for said receiver in this proceeding.” The mention of Mr. Koenig as receiver was an error, as Mr. Ottinger was the person appointed receiver; but the erroneous name may be ignored as surplusage, and the allegation may be considered as a statement that the appellants represent no interests adverse to the receiver. It will be observed that this allegation omits the words “trustee or creditors” which follow the word “receiver” in the final line of the general order. However, if we consider, as we think we may, the statement “no interests adverse to the receiver” as meaning generally “no interests adverse to the estate,” the omission of “trustee or creditors” becomes a merely formal defect. But so construed the statement is untrue. A creditor whose claim is disputed and doubtful certainly has an interest adverse, to the trustee and to the other creditors. Byrnes’ claim was of this character, and his attorney, who was Mr. McMahon, had discussed it with counsel for the corporation in July, 1928. Moreover, Byrnes and Dean owned one-sixth of the stock of the bankrupt. Surely the bankrupt is “adverse” to the creditors; and, if so, its stockholders, who are the real owners of the corporate enterprise, likewise represent adverse interests. These facts should have been disclosed in the affidavit, and, had they been, the affidavit would not have made the showing required by General Order 44 to authorize the appointment of the appellants as attorneys for the receiver; for there is a plain implication in the language of the general'order that an attorney employed by any person having an interest adverse to the receiver, trustee, or creditors is not to be appointed counsel for the receiver. Even if it be assumed that in spite of the general order the court had power to make the appointment, it cannot be assumed that the court would have done so, had the facts been known. There is some suggestion that the relationship of Byrnes and Dean as stockholders and directors had been orally stated to the court at the time the receiver was appointed, although this was not at the time the order of appointment was made; but, as we have recently held in the case of In re Stratton, 51 F.(2d) 984, decided July 6, 1931, oral statements cannot take the place of the affidavit which is required by the general order. The relevant facts which the court is to consider must be made a matter of record. Hence the appellants obtained the order authorizing their appointment by a suppression, however innocent and inadvertent, of facts which, if disclosed, should, and doubtless would, have precluded their appointment, and the question is whether they can now rely upon an appointment so obtained as the basis for asking compensation for services actually performed.

Even if General Order 44 stood alone, we think that question would require a negative answer; but we need not so decide, for it does not stand alone. Rule 4 of the local rules in bankruptcy provides:

“No receiver or trustee in bankruptcy shall employ an attorney, accountant or investigator except on the order of this Court to be made by a Judge thereof and not by a Referee. Such order shall be granted only upon the petition of the Receiver or Trustee setting forth the name of the attorney, accountant or investigator whom he wishes to employ, the reasons for the selection of such attorney, accountant or investigator and the necessity of employing any attorney, accountant or investigator.
“No attorney for any of the petitioning creditors nor any attorney shall be appointed attorney for the Receiver or Trustee, nor receive any compensation for professional services rendered to such Receiver or Trustee unless such attorney, before his appointment, shall make and file his affidavit that he did not become attorney for any of said petitioning creditors, or any creditor, nor become attorney in any other capacity in the proceeding, at the suggestion or through the influence, direct or indirect, exercised in any form or guise, of any of the bankrupts or of any relative or attorney of any of the bankrupts —bankrupts in this instance including officers, directors and stockholders of bankrupt corporations — save and except, for good cause shown by such attorney’s affidavit, the Court may notwithstanding allow the Receiver or Trustee to retain as his attorney, the attorney for the petitioning creditors.”

We can construe this only as expressly prohibiting any allowance, even if an attorney is appointed, unless “before his appointment” he makes and files the affidavit required by the rule. The rule starts with a prohibition against employment of an attorney by a receiver without a court order— apparently a repetition of the similar prohibition contained in General Order 44. Without an order of appointment, there could be, no allowance for services rendered even though the rule were silent on the subject of compensation. In re Robertson, 4 F.(2d) 248 (C. C. A. 3), approved in Weil v. Neary, 278 U. S. 160, 169, 49 S. Ct. 144, 73 L. Ed. 243. But it is not silent. It specifies that no compensation shall be received by the attorney unless the affidavit required by the. rule is filed before his appointment. This cannot mean only in case there is no order authorizing employment of an attorney; that was already forbidden. It must mean that the attorney is to take the risk of losing his compensation if he fails to file the required affidavit. And why should he not take this risk, if his failure has caused the court to make an appointment which it would not have made had the facts been disclosed? We do not say that he must lose if his affidavit is defective in some purely formal respect; but that is not this ease. Here, had the appellants filed the required affidavit, they would have disclosed that two of the petitioning creditors whom they represented were directors and stockholders of the bankrupt corporation. If it be assumed that, notwithstanding, the rule would have permitted the court to authorize their employment, this could only have been “for good cause shown by such attorney’s affidavit”; and no such showing was. made. Nor does the entire record disclose any reason why the appellants, rather than other attorneys of equal professional standing and competence who had no relation to the petitioning creditors, should have been chosen to represent the receiver, except the reason that they already represented the petitioning creditors. But that fact is a reason for not employing them, which may be overcome only for good cause. Therefore, so far as appears, they would not have been appointed had the affidavit made the disclosure which rule 4 required. Coneededly, they did not make such disclosure; and by the literal terms of the rule they are denied compensation.

But it is contended that the defects in Mr. McMahon’s first affidavit were cured by his second affidavit, filed pursuant .to leave granted by the order of February 27th. This affidavit disclosed that Byrnes and Dean were stockholders, but it showed no reason why in spite of that fact the attorneys who represented them should be appointed counsel for the receiver. There was still no such compliance with the rule as to justify the appointment of the appellants. Nor can the order of February 27th, granting leave to file the affidavit, be construed either as an order ratifying the former appointment or as a new order of appointment as of February 27th. The District Judge himself clearly indicates in the memorandum opinion accompanying the order of November 8th that it was not so intended; and certainly we are not to say that he unintentionally entered an order which was forbidden by the rule and by the General Order.

Nor is there merit in the contention that the appointment should now be authorized nunc pro tune. The only argument in favor of a nunc pro tunc order is that of hardship. But the hardship is of the appellants’ own making. The rule is clear, and they are charged with knowledge of it. To give heed to the argument of hardship in such circumstances would nullify the requirement that the affidavit be filed before the appointment is made. One reason for that requirement is obviously to allow the court to consider the grounds advanced for selecting counsel presumptively disqualified by representation of the petitioning creditors, unaffected by the emotional pressure which inevitably arises in their favor after the services have been rendered. Attorneys who seek appointment as counsel for an officer of the court owe the duty of complete disclosure of all facts bearing upon their eligibility for such appointment. If that duty is neglected, however innoefently, surely they should stand no better than if it had been performed. In the present ease, had the facts been disclosed, the appellants would not have been appointed counsel for the receiver. If the rule is to have vitality and the evils against which it is aimed are to be eliminated, it should be enforced literally. Impliedly' it forbids a nunc pro tunc order to validate for purposes of compensation an appointment which could not properly have been made had the required affidavit been filed.

The order is affirmed.