author: COLLET, District Judge.

text:
    In re KANSAS CITY JOURNAL-POST CO. SCHAPIRO v. MIDDLETON.
    No. 17236.
    District Court, W. D. Missouri, W. D.
    April 30, 1945.
    Caldwell, Downing, Noble & Garrity and John W. Oliver, all of Kansas City, Mo., for plaintiff.
    Roy W. Rucker, Clif Langsdale, and Roach & Brenner, all of Kansas City, Mo., for defendant.
   COLLET, District Judge.

The plaintiff herein was the plaintiff in reclamation proceedings in the Bankruptcy Court in which latter proceedings the question of whether he was entitled to enforce certain liens against the bankrupt’s property was decided in his favor. In re Kansas City Journal-Post Co., D. C., 51 F.Supp. 1009. Three separate actions had been filed in the state court against plaintiff, Harry Newman and the bankrupt company (prior to bankruptcy) by K. P. Middleton for himself and as assignee of other employees of the bankrupt. The present action seeks a permanent injunction restraining the prosecution of the three pending actions against him in the state court. K. P. Middleton and his assignees are former employees and creditors of the bankrupt corporation, The Kansas City Journal-Post Company.

In one of those suits entitled “Petition in Equity” an accounting and the appointment of a receiver is asked. It is also prayed that a foreclosure sale under which Mr. Schapiro acquired title to the physical assets of the bankrupt be set aside.

In the first count of suit No. 482708 pending in the state court entitled “Petition for Money Due” recovery is sought by the plaintiff therein for money due him from the Journal-Post Corporation upon the theory that Morris Schapiro completely owned the Journal-Post, operated it through Newman, and both are personally liable for the obligations of the Journal-Post Corporation.

In the second count of that petition it is alleged:

“That defendant Harry Newman, in October, 1941, was elected president of the Kansas City Journal-Post Company, and did act as publisher of the Kansas City Journal until it ceased publication, on March 31, 1942; that in November 1941, the said defendant Harry Newman, acting for and on behalf of defendant Morris Schapiro, orally promised and agreed that all monies due or thereafter to become due to plaintiff or to the assignors named herein, from the Kansas City Journal-Post Company, would be promptly paid them; that relying on said agreements and promises, the plaintiff and his assignors continued to work for the said Kansas City Journal-Post Company, but notwithstanding said promises and agreements, the said defendant Morris Schapiro and the other defendants have refused to pay plaintiff and his assignors the amounts due them; that there is due from said defendants to plaintiff the sum of $89,066.80.”

The third count alleges that Schapiro became obligated when' he purchased the bonds and stock of the Journal-Post to deposit $100,000 in cash to the credit of the Company, which, it is asserted, was not done. Wherefore it is alleged that he should be held liable for the unpaid salaries of Middleton and his assignors to the extent of $100,000.

In the third action No. 482709, entitled “Petition for Damages,” after alleging plaintiff Middleton’s employment by the Journal-Post and its indebtedness to him and those he represents it is alleged in substance that at the time Mr. Schapiro purchased the stock and bonds of the Journal-Post and became its actual owner, Mr. Newman was elected President of the Company and promised Middleton and other employees that their salaries then due and to become due would be promptly paid; that Schapiro obligated himself to deposit $100,000 to the credit and use of the Company which he did but immediately withdrew; that such withdrawal was a part of a malicious, wanton and fraudulent conspiracy between Newman and Schapiro to induce these employees to continue the operation of the Company and defraud them of their compensation. Actual damages in the amount of $100,000 and punitive damages in the same amount are prayed.

The Company was adjudicated a bankrupt soon after its acquisition by Schapiro. The Trustee in Bankruptcy made strenuous efforts to subrogate Schapiro’s rights to those of creditors. Those efforts and the history of the bankruptcy proceedings are fully disclosed in In Re Kansas City Journal-Post Co., D. C., 51 F.Supp. 1009; In Re Kansas City Journal-Post Co. (Bostian v. Schapiro), 8 Cir., 144 F.2d 791; Bostian v. Rosen, 8 Cir., 144 F.2d 808, Bostian v. Schapiro, 8 Cir., 144 F.2d 812; Bostian v. Schapiro, 8 Cir., 144 F.2d 815, Schapiro v. Bostian, 8 Cir., 144 F.2d 816; and Bostian v. Newman, 8 Cir., 144 F.2d 819.

The present action is based on the assumption that the Trustee in Bankruptcy represented Middleton and his assignors in the Trustee’s efforts to subrogate Schapiro’s liens to the rights of all creditors; that all issues involved in the state court proceedings relating to Middleton’s claims were fully adjudicated in the bankruptcy proceedings and decided; that thereafter a full and final compromise and settlement was made, with the Court’s approval, of all Schapiro’s obligations to the bankrupt and its creditors including defendant Middleton herein; and, that as an incident to the bankruptcy proceedings this Court has the power to and should enjoin the further litigation of these questions in the state court.

That jurisdiction to grant the relief sought exists seems well established. 11 U.S.C.A. 11(a) (15), 28 U.S.C.A. § 377, Sec. 262 of the Code, Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230, 93 A.L.R. 195; Continental Illinois Nat. Bank & Trust Co. v. Chicago R. I. & P. R. Co., 294 U.S. 648, 55 S.Ct. 595, 79 L.Ed. 1110; Steelman v. All Continent Corporation, 301 U.S. 278, 57 S.Ct. 705, 81 L.Ed. 1085; In re Swofford Bros. Dry Goods Co., D. C., 180 F. 549, Zeleznik v. Grand Rivera Theater Co., 6 Cir., 128 F.2d 533; In re Standard Gas & Electric Co., 3 Cir., 139 F.2d 149. But the relief granted must be confined to the restraint of the further litigation of those matters which are res adjudicata. See In re Swofford Bros. Dry Goods Co., supra.

The employees of the bankrupt corporation had no right of action against Schapiro or Newman to compel the performance of any obligation either or both owed the corporation. That right rested in the corporation primarily and passed to the Trustee in Bankruptcy upon the adjudication in bankruptcy of the corporation. 11 U.S.C.A. § 110, Collier on Bankruptcy, 14th Ed., Vol. 4, p. 1179; Gochenour v. Cleveland Terminals Bldg. Co., 6 Cir., 118 F.2d 89; Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281; Riggs v. Price, 277 Mo. 333, 210 S.W. 420.

It is asserted that since the state court actions are based on fraud and since unliquidated choses in action for fraud are not provable claims in bankruptcy, such claims of creditors do not pass to the Trustee in Bankruptcy. That is partially correct and partially incorrect. Unliquidated choses in action for fraud, against the bankrupt are not ordinarily provable as claims against the bankrupt estate. It is also true that the right of action on such claims of creditors against third parties or other creditors does not vest in the Trustee in Bankruptcy. But it does not follow that the right of action on unliquidated choses in action of the bankrupt corporation against creditors or others does not vest in the Trustee in Bankruptcy as the representative of the bankrupt estate and its creditors. In the state court cases the defendant Middleton seeks to enforce an alleged right of action to the return of $100,000, said to be due the bankrupt corporation. He has no such right. His interest as a creditor in that controversy was represented by the Trustee in the bankruptcy proceedings and the respective rights of the bankrupt and Schapiro were determined by those proceedings. He may not therefore mow maintain an action in the state court upon any alleged obligation of Schapiro" to the bankrupt.

But a careful examination of the petitions discloses that in the second count of the “Petition for Money Due,” Middleton appears to be asserting a cause of action based on a promise or representations alleged to have been made by Newman for both himself and Schapiro which may or may not give rise to an obligation on the part of one or both to Middieton and other employees to pay their past and future salaries. There is no authority vested in this Court to enjoin the prosecution of such an action. For an action of that character would constitute a controversy between those employees on the one hand and Schapiro and Newman on the other, entirely independent of any obligation "owed by Schapiro or Newman to the Bankrupt Corporation.

The relief prayed should be granted to the extent that the defendant Middleton be enjoined from prosecuting the actions in the state court insofar as those actions seek an accounting, the appointment of a receiver, the recovery of damages for failure to deposit $100,000.00 to the credit of the bankrupt corporation, or the withdrawal of such sum after deposit. Formal findings of fact, conclusions of law and judgment will be entered.


source: Caselaw Access Project

author: ST. SURE, District Judge.

license: Public Domain

text:
    SAWYER v. DUFFY.
    No. 24690.
    District Court, N. D. California, S. D.
    May 23, 1945.
    Fred D. Goss, of San Rafael, Cal., for petitioner.
    Robert W. Kenny, Atty. Gen., of California, and David K. Lener, Deputy Atty. Gen., for respondent.
   ST. SURE, District Judge.

Petitioner, who is confined in the California State Prison at San Quentin, has filed a verified petition for a writ of habeas corpus upon the ground that he was denied a public trial as provided for by the VI Amendment to the Constitution of the United States.

On September 24, 1936 petitioner was convicted in the Superior Court of the State of California in and for the County of Los Angeles for violation of § 288 of the Penal Code of the State of California (exciting lust of child under age of fourteen). It is alleged in the petition that “before the said trial commenced the Judge asked petitioner if he wished the courtroom cleared; petitioner replied that he wished to have the witnesses excluded but not the spectators; this same question was asked petitioner three times and the same answer given three times, and petitioner alleges that on the last occasion of such asking, petitioner’s attorney, namely John J. Hill, Esq., stated to him that if he kept insisting on his right to a public trial he would ,be without counsel. Whereupon, petitioner stated to the Judge that since his attorney wished it that way there was nothing he could do. Thereafter said trial, as stated above, was had in closed court over petitioner’s objections.”

It is also alleged in the petition that “an application for a Writ of Habeas Corpus was filed in the Superior Court of the State of California in and for the County of Marin on July 27, 1944; in the District Court of Appeal in the State of California, in and for the First Appellate District, Division One, on August 29, 1944, and in the Supreme Court of the State of California on November 14, 1944; that all of said Writs were denied.”

Respondent objects to the jurisdiction of this court and cites as authority a case decided by this court on April 19, 1941, J. Frank Hogue v. Clinton T. Duffy, Warden, San Quentin Penitentiary, No. 23463-S, in which this court said: “The petitioner is confined at San Quentin under state process. Under such circumstances the law is settled that even where a defendant has exhausted his state remedies, the United States District Courts will ordinarily not interfere by habeas corpus, but will leave him to take his case direct to the United States Supreme Court. Mooney v. Holohan, 294 U.S. 103, 55 S.Ct. 340, 79 L.Ed. 791, 98 A.L.R. 406; Urquhart v. Brown, 205 U.S. 179, 181, 27 S.Ct. 459, 51 L.Ed. 760; Mooney v. Holohan, D.C., 7 F.Supp. 385, 390; Ex parte Jefferson, 9 Cir., 106 F.2d 471.” That case may be distinguished from the case at bar. In that case the petition for writ of habeas corpus was denied by the State Supreme Court on March 17, 1941, and petitioner filed his petition for a writ of habeas corpus in this court on April 18, 1941. By statute (28 U.S.C.A. § 350) petitioner had three months within which he might appeal direct to the Supreme Court of -the United States, hut he chose to apply to this court, and under the cases cited the court refused jurisdiction. In the present case the three month period allowed for appeal to the Supreme Court of the United States has elapsed and petitioner would be remediless if not allowed to file in this court. Ex parte Hawk, 321 U.S. 114, 117, 118, 64 S.Ct. 448, 88 L.Ed. 572. I am therefore of the opinion that this court has the right to entertain this petition.

Since the VI Amendment to the Constitution of the United States does not apply to trials in state courts, Betts v. Brady, 316 U.S. 455, 62 S.Ct. 1252, 86 L.Ed. 1595, no federal question is presented. And even if the VI Amendment did apply, in cases of the type upon which petitioner was convicted, it has been held that the court may properly exclude the spectators from the trial without prejudice to the defendant. People v. Swafford, 65 Cal. 223, 3 P. 809; Reagan v. United States, 9 Cir., 202 F. 488, 490, 44 L.R.A.,N.S., 583; Callahan v. United States, 9 Cir., 240 F. 683.

Therefore, upon the hearing of the return to the order to show cause, and after due consideration of the entire matter the petition for writ of habeas corpus will be denied and the order to show cause will be discharged.

       No opinion for publication.


author: JAMES ALGER FEE, District Judge.

text:
    UNITED STATES v. CROWN ZELLERBACH CORPORATION et al.
    Civ. No. 1921.
    District Court, D. Oregon.
    April 16, 1945.

      Bernard H. Ramsey, Sp. Asst, to the Atty. Gen., and Bert C. Boylan, Sp. Atty., of Portland, Ore., for petitioner.
    Clarence D. Phillips, of Portland, Ore., for defendants.
   JAMES ALGER FEE, District Judge.

An action for condemnation of a large tract of land in different ownerships was instituted under title of United States of America v. William Sherlock Company et al., No. Civil 1885. Thereafter a declaration of taking was filed in that cause and possession of the entire tract granted the Government by order of the court. Subsequently, in accordance with the procedure prescribed for the state courts, the particular parcel was severed by order of the court and a new action commenced against Crown Zellerbach Corporation as the owner thereof. The complaint sets up a hybrid form of interest in land which the United States is to acquire.

Crown Zellerbach Corporation filed an amended answer which consists of a general denial on information and belief of all important allegations of the complaint. Included is a “Further and Separate Answer to Petitioner’s Petition and by way of a Petition for Compensation”. The gist of this further and separate answer is a claim that the United States agreed to take fee-simple title to the land by means of friendly condemnation and pay $10,000 therefor. There is an allegation that $500 per year for exclusive possession is inadequate and the further allegation that $900 rental for the first year, and each succeeding year, should be allowed “in any judgment or decree entered.”

The reply denies the affirmative matter set up in the further answer and denies that any sum greater than the sum of $500 plus the actual taxes for state, county and municipal purposes levied against said lands, is a just and reasonable rental for the interest taken by the petitioner for the period of one year.

The course of the case upon the pleadings is highly interesting. The Lands Division and the landowner have each been inflexible adherents of the respective theories and each has rigidly followed its own method of pleading. The result is that no issue has been formulated. The landowner has presented evidence that the United States was obligated to and actually did take a fee-simple estate. The Government pleads that it is taking a lease for one year plus an alleged hybrid interest in futuro, but alleges only deposit of rental for a year, and in the reply is guilty of departure in alleging a different reasonable value for a year than that alleged in the complaint. This is not permissible procedure under the Oregon statutes and no system should permit such a hodgepodge which prevents either court or counsel from discovering what the dispute is about. Had these pleadings been recited orally, the court might have well exclaimed with the testy justice of common law: “Get to your business. You plead about one point, they about another, so that neither strikes the other.”

These defects persisted through the hearings. Upon the presentation of testimony one side testified about one thing, the other side about another. It was a clear demonstration of the principle that the function of pleadings in any system should be to make an issue. The case came before the court for hearing upon motion of the Government on July 27, 1943. No agreement was made by either side to submit the cause to the court sitting without a jury. Crown Zellerbach introduced proof which tended to show that there were negotiations between agents of Crown Zellerbach and representatives of the Housing Authority of the Government. There was mention made of a lease of the premises by representatives of the Government, but the suggestion did not get a favorable response by the Crown Zellerbach Corporation. The testimony indicated that after a proposition was made of condemnation in fee for the sum of $10,000, the Crown Zellerbach Corporation granted a license to the Government and delivered it to one James S. Whitney, a land advisor for the Federal Public Housing Authority. This license, which was introduced, was irrevocable for a period of ninety days beginning January 13, 1943, and gave permission to enter into and upon the lands herein involved with specific authority “to do and perform any act which the government deems necessary to expedite the construction of its project,” and was not by its terms conditioned either upon the commencement of a condemnation case, or the taking of a fee. The proof shows that the agents of the United States did. enter and commence the construction of a federal housing project and there was evidence that an agreement was expressly arrived at for the taking in fee at the price mentioned.

There was no attempt by the United States to meet this proof. After a continuance, the United States introduced one witness who testified that he had been engaged to set the fee value upon this piece of land and that in his opinion the reasonable market value of such interest was the sum of $10,000. Theré was an attempt upon the part of the Government to get this witness to testify as to a yearly rental value based upon a lease with the right of perpetual renewal, but he refused to so testify. However, upon further examination, he said that a fair annual rental value of the property would be $500 a year provided that the Government paid the taxes.

The Government at this point, on August 10, 1943, requested the court for an indefinite continuance in order to get witnesses who would testify upon its theory. Counsel for the Government stated that in his opinion the evidence offered was not sufficient to found a judgment and an order fixing value. Upon December 18, 1943, the matter was called to counsel’s attention and counsel again stated that there was no further testimony which could be submitted. The court thereupon declared the case under submission and took the matter under advisement. The Lands Division attorney thereupon took exception to this action of the court. No determination was possible on the Government’s theory, and the court made none. No further proceedings were had in the case at that time.

After some time, a statement was made in open court by one of the attorneys of the Lands Division, to the effect that the United States was about to negotiate a lease in the Crown-Zellerbach case. Based upon this statement, on the 15th day of June, 1944, the court orally stated from the bench that if the matter could have been submitted to the court on the basis of the counterclaim, a finding that the land was taken in fee simple and a just compensation therefor of the sum of $10,000 might have been justified, but since the United States desired to negotiate a lease, time was extended for the purpose of filing an amended complaint. Immediately the Lands Division asked attorneys for Crown Zellerbach to draw a judgment for $10,000. This was done, but the court refused to sign the entry since there had never been any intention to grant a judgment in that state of the record, as will hereafter abundantly appear. Then the Lands Division served notice that it was the intention to appeal from the supposed judgment. Since no. judgment was ever pronounced, this gesture was futile.

Many months later, the United States Lands Division reversed its former position that the matter could not be treated as under submission and filed a motion that the court should grant judgment appropriating the lands to the United States and finding the value of occupancy for one year to be in accordance with the testimony above reviewed.

The evidence adduced by the ■ defendant might justify a finding that the United States, through its agents, had agreed to. take the fee at a price of $10,000 and intended entry under the option and condemnation proceedings to be taken in accordance therewith.

If such were the situation, the finding would bear weight of a judgment. Danforth v. United States, 308 U.S. 271, 280, 281, 60 S.Ct. 231, 84 L.Ed. 240. But there is no intention upon the part of this court, upon this record, to enter such a judgment now anymore than there was when the court first mentioned the possibility.

Entirely other principles must control the disposition of the instant case. The pleadings must rule. It is clear that the further and separate answer is a counterclaim. If there were any doubt, the limited applicability of the evidence introduced by Crown Zellerbach would be conclusive. But the United States has not consented to the maintenance of a counterclaim here. Furthermore, under Oregon procedure, no pleading of a counterclaim is possible in an action for the condemnation of land.

“The counterclaim in which damages for wrongful detention of the property are alleged was properly stricken out by the trial court. Section 7101, Or.L., provides:

“ ‘The defendant in his answer may set forth any legal defense he may have to the appropriation of such lands or any portion thereof, and may also allege the true value of the lands and the damage resulting from the appropriation thereof.’

“Whatever damages, if any, defendants sustained by having been kept out- of possession of their property cannot be assessed in this action. The statutory enactment above quoted specifies the defenses available, and defendants are limited thereby. We are concerned with a proceeding in the exercise of the right of eminent domain, and not with an action in ejectment or trespass. * * * ” State v. Mohler et al., 115 Or. 562, 576, 237 P. 690, 695, 239 P. 193.

Based upon this authority, the court strikes the counterclaim from the files. The result is that Crown Zellerbach has produced no relevant evidence. The hypothetical proof brought forward as to the market value of a fee is incompetent upon the counterclaim thus stricken. It is likewise incompetent as to any other interest sought to be taken because no founding evidence was adduced. Hypotheses have no basis unless there is proof of facts to sustain the inferences or deductions. The trier of the facts must test the validity of the opinion, but his judgment must be based on factual evidence.

The United States did not prove a case either. The United States produced one witness who testified he had seen the land and gave his opinion of the value of the fee and likewise as to his opinion of the value of a leasehold for a year. Continuance was granted to permit the Lands Division to produce a witness who would testify as to value of the exact interest sought by the Government. But no such witness was ever produced.

The reason the United States was unable to get a witness to testify as to the value of the particular interest which the declaration indicated was taken, appears not to be casual, but practical and fundamental. This appears clearly by the responses of witnesses questioned in other cases of this sort. The perils for the landowner in the taking of this type of estate are therein indicated.

In the particular case at this time, no judgment for the United States would be possible for several reasons. The year originally contemplated by the declaration of taking has long since expired. There is no allegation that the United States has remained in possession and thereby taken a longer term. A supplemental complaint is necessary to set up events transpiring subsequent to the filing of an original complaint. Neither the present complaint nor the declaration are sufficient. It is true that the Second War Powers Act gives authority to condemn interests in land or personal property, or temporary occupation of land. But a declaration of taking was filed in this case. The act permitting the filing of a declaration of taking admits of a deposit to cover an estate or interest in land. There is grave doubt under the authorities above cited whether an option can be a property interest under the terms of the statute. If it is not a property interest, the inclusion of the clause in this case would be surplusage.

Thus, the difficulties raised by this form of description of the interest taken are for all practical purposes insuperable. First, under one construction, without consent of the landowner it creates an interest hostile to him which may run beyond a life or lives in being and twenty-one years. Although historically such a result could be accomplished consensually, it is an anomaly and is contrary to modern policy. Here, without consent of the landowner, the title might be clouded and rendered unmarketable without compensation for a period of years unless the situation is alleviated by evaluating the interest taken as a fee. Second, the effect of the option clause might be viewed as rendering the leasehold of indefinite duration and perhaps void on the common law principles unless the vagueness were eliminated by construing it as a term for one year, or some specified period. Third, under certain decisions an option for renewal was not property for which compensation need be paid if it were voided in a third party by eminent domain. If these decisions be followed, the United States did not obtain any right to occupy the premises beyond the definite time specified and acquired no property interest by the inclusion of the “duration clause”.

All of which brings us to a dilemma inescapable except by two routes. Either the United States, under this clause, obtains a property interest and pays the present value thereof (which may equal the fee value), or the United States acquires a leasehold for one year and pays for that term.

Some decisions have been called to the court’s attention in which judgment has been granted upon a petition and declaration of taking such as exemplified here. But the answer is equally clear. If in the proceeding here, or in any condemnation proceeding where the judgment was given in the exact language of the declaration here, but the United States deposited only the rental value for one year and paid nothing for a property interest attempted to be created by such language for an additional period, the United States could hold only for one year under the judgment. It is axiomatic that the United States will obtain only the exact property for which “just compensation” has been paid no matter what the recitals of the judgment. An attempt to exercise the so-called option would be invalid. At the end of the year the landowner would be entitled to maintain ejectment notwithstanding the inclusion of such language in the judgment. The United States is required to pay just compensation for property taken. If just compensation has not been paid, and its officers wrongfully hold possession, they may be ejected. United States v. Lee, 106 U.S. 196, 1 S.Ct. 240, 27 L.Ed. 171.

Even if all the difficulties were avoided in this particular case, there was no scintilla of evidence as to the market value of the interest which it is claimed the United States obtained in this proceeding. No one pretended even hypothetically to testify as to the value in this land of “the exclusive use thereof for a period of one year with the right to renew from year to year for the duration of the War Emergency as determined by the President and three years thereafter together with the improvements thereon, if any, with the right of the Government to remove all improvements placed thereon by the Government at the termination of such use.”

But passing all this, the attorneys for the Lands Division have conceded that there is not sufficient evidence to found a judgment for the Government, as above noted. This is clear to anyone who reads the transcript. No evidence was introduced as to the lie or character of the land; no physical description was given. The improvements were not described. .The surrounding property was not described. The access and facilities in the neighborhood were not demonstrated. The court did not see the premises. The sales of similar property in the vicinity were not detailed. There is no basis for independent valuation or exercise of judgment on evidence as to just compensation. The unsupported opinion of one witness who had himself seen the land but who gave no testimony as to the facts observed, was not sufficient, without any other evidence, to give a basis to a trier of the facts for the value of the fee or of a leasehold for a year. The attorneys of the Lands Division properly took exception when the court previously, upon the same record, took the case under advisement. The “trial” was therefore abortive. The present motion of the Government is denied. The parties are directed to amend or supplement their respective pleadings as they may be advised in the light of this opinion,, and thereafter, when an issue has been made, the' cause will be set for trial.

       United States v. Hayden Island Amusement Co., an unpublished opinion of this court dated November 6, 1939. There the court held that the joinder of several tracts of land in diverse ownership did not affect jurisdiction. However, it was indicated that there was, under the Oregon Code, a misjoinder of causes of aetion.

       The complaint alleges: “That the estate taken for said public use is the exclusive use of the lands hereinafter described for a period of one year with the right to renew from year to year for the duration of the War Emergency as determined by the President and three years thereafter, together with the improvements thereon, if any, with the right of the Government to remove all improvements placed thereon by the Government at the termination of such use.” And: “That in said Declaration of Taking the Acting Commissioner of the Federal Public Housing Authority allocated the sum of $500.00 to be just compensation for the taking of the exclusive use of the lands above described for a period of one year with the right to renew from year to year for the duration of the War Emergency as determined by the President and three years thereafter together with the improvements thereon, if any with the right of the Government to remove all improvements placed thereon by the Government at the termination of such use; * * *.”

       Paragraph 3, Page 3, Amended Answer of Defendant Crown-Zellerbach: “That prior to the commencement of the above entitled proceeding the Petitioner negotiated with the answering defendant for the sale and purchase of the fee simple title to the above described property; that in said negotiations the above Petitioner offered to purchase the above described premises from this defendant for the sum of Ten Thousand Dollars ($10,000.00), and represented to this defendant that if immediate possession of said properties was granted by this defendant to the said Petitioner that immediate friendly proceedings would be commenced in the court for the condemnation of the said fee simple title of said premises at an appraised value of Ten Thousand Dollars ($10,-000.00) and that said amount would be paid to this answering defendant pursuant to said condemnation proceedings; that this answering defendant accepted said offer and, pursuant thereto, immediately relinquished possession of said premises to the above Petitioner, and that the said Petitioner went into immediate possession of said premises and erected structures thereon prior to the time of the commencement of this cause of action.”

       United States v. Bauman, D.C., 56 F.Supp. 109.

       Bereford, J. in Y.B., 3 Ed.H 169 (S.S.) quoted from Holdsworth’s History of English Law, Yol. H, p. 551.

       It was afterwards explained that another action of the same title was intended.

       Wigmore say-s (Evidence, Third Edition, § 672), relating to opinion testimony: “The reasoning may be explained in the following propositions: 1. Testimony in the shape of inferences or conclusions rests always on certain promises of fact. * * * If the witness has not considered or had "in mind these premises, his inference or opinion is good for nothing. 2. These premises, a consideration of which is essential to the formation of the conclusion or opinion, must somehow■ he supplied to the jury hy testimony.

      “The key to the situation, in short, is that there may be two distinct subjects of testimony — premises and inferences or conclusions; that the latter involves necessarily the former; * * * i.e. of distinguishing conclusions properly founded from conclusions improperly founded.” See Wigmore, Evidence, Third Edition, §§ 1962, 1969.

       In United States v. City of Portland et al., Civil 1880, a portion of the ex-animation of one of tke experts for the Government is as follows:
      “Q. Did you have occasion to make an appraisal of these lands in connection with their acquisition by the United States in this proceeding and for this project for the purpose of determining the fair rental value of the lands as of the date of March 11, 1943, taking into consideration that the estate and interest being acquired by the United States in this proceeding is described as the exclusive possession and the exclusive use in and to the lands described for the period of one year, with the right to renew from year to year for the duration of the war emergency as determined by the President and three years thereafter, with the right of the Government to remove all improvements placed thereon by the Government at the termination of -such use? A. I would like to say that I appraised the value— appraised the property to find the value of the fee. I think I am competent to judge what the rental value or the leasehold value or what the rate of payment is.
      “Q. Well, the question is, have you formed an opinion as to the rental value? A. Yes, I have.
      “Q. Now, taking both the parcels together, based upon that opinion, is it your conclusion and opinion that the sum of $675 constitutes the full, fair r'ental value for the period taken as described for the leasehold interest in the particular premises? A. Yes, sir.
      “Q. That being an annual rental? A. Yes, sir.
      * * * * ‡ * *
      “Q. What is your fee value? A. On the parcel A, $4,900, and parcel B it is $9,000.
      “Q. How long is the war going to last? A. Well, of course, none of us know that, but with vacant property it is questionable. Now, for somebody to pay the taxes for you and to give you a fair return on that investment is something that a lot of people would like to have, and, of course, this appraising real estate, as you know, is not, perhaps, an exact enough science that you can put your finger right on the exact penny, but on the other hand the return of 4% to 5 percent net on vacant land does not seem out of order or out of line.
      “Q. Taking a term of this sort, do you think that it is not comparable to taking the fee? A. Well, I could see how it might be comparable to taking the fee because if they could continue year after year to lease the property it would be tantamount to taking the fee.
      “Q. For how long are they going to take the property? A. Well, that we don’t know, but I dare say that the majority of vacant property owners would be eager to grasp just such an opportunity as these vacant property owners have.
      “Q. Well, are you appraising their state of mind or are you appraising the land? A. Well, I am sorry, but when you brought the question up about how long the war was going to last, why, that, you see, other things came to my mind; that is probably argumentative, and I shouldn’t have done it.
      “Q. No, I am just trying to test out the basis of your judgment. A. Well, vacant properties have been in the doldrums so long and it is taxed so heavily in proportion to its value that to get a fair return on it is, as I say, something that a lot of people would be very eager to grasp.
      “Q. Oh, a lot of people might be eager to sell it at a fair market appraisal, too, of the fee value. A. Yes, that is true.
      “Q. And, actually, you can’t state what the length of the war is going to be, and likewise you can’t state the period of the emergency afterwards. For instance, do you remember the length of time that the emergency lasted in this country after the last war? A. Yes.
      “Q. Do you remember about what time that was? A. Well, I don’t know exactly what you mean by the emergency.
      “Q. Well, there was a period when the President of the United States declared the emergency was ended. A. Uh-huh.
      “Q. Do you know when that was? A. I don’t remember the date.
      “Q. Well, it was approximately at the end of 1920, and the Armistice was November 11, 1918. A. Yes.
      “Q. Can you appraise how long it is going to take the President of the United States when this war is ended— A. (interrupting) No.
      “Q. (continuing) — to declare the end of the emergency? A. No.
      “Q. In other words, the basis of your judgment is speculation as to what length of time this land is going to be under Government control? A. Yes. Perhaps "no one would buy the land with the idea of making this kind of — at the fee value for the idea of making the lease, because the lease wouldn’t be made for a long enough period to warrant anybody in buying it for that purpose.
      “Q. About what do realtors ordinarily consider a leasehold value as against a fee value? In other words, the term of years? What term of years do you figure makes the fee value so nebulous that you can’t appraise the difference between them? It is ordinarily considered about twenty years, isn’t it? A. Yes.
      “Q. But you are not sure that this leasehold is going to last for twenty years? A. No, we don’t figure that it is going to last that long. Of course, my viewpoint is that, in the first place, they should not be allowed to — if you are going to take somebody’s property, just my own viewpoint is that you should take it and not just lease it, because you might get the land back at a time when there isn’t any market, and you might be taking it at a time when there is a market; but if the property is to be leased and the Government has a right to take it, then I would say that 4% to 5 percent is a fair return to the property based upon its. value.
      “Q. The obligation of the Government of the United States is to pay just compensation. If the Government is taking the land under a lease that may last and absorb the fee value, should you not appraise it at the fee value of the property? A. Well, appraise the property at the full fee value ?
      “Q. No, I mean appraise the taking at the full fee value? A. Well, I can see your point.

       No opinion rendered. See United States v. Fee, 9 Cir., 138 F.2d 158, 159.

         50 U.S.C.A.Appendix, § 632.

       40 U.S.O.A. § 258a.

       United States v. Bauman, supra.

       Accordingly, it should be given the value of a fee simple. Gray Perpetuities, 4th Ed., § 230. See also cases which treat such an interest as a fee: J. W. Perry Co. v. Norfolk, 220 U.S. 472, 31 S.Ct. 465, 55 L.Ed. 548; Connecticut S. C. M. Association v. East Lynne, 54 Conn. 152, 5 A. 849.

       United States v. Bauman, supra.

       The fee title is rendered unmarketable by the existence of an interest in a third party which involves the possession of the real property for a time the duration of which is not definitely fixed. See Note, 59 A.L.R. 233-248; Fruhauf v. Bendheim, 127 N.Y. 587, 28 N.E. 417; Downey v. Levenson, 247 Mass. 358, 142 N.E. 85.

       The interest of the holder of the fee-simple title subject to the interest taken by the Government in this case, of indefinite duration would seem to be comparable to that of a party holding a possibility of reverter. A possibility of reverter is of negligible value according to the authorities and so depends upon possibility that there may never be a breach that is not compensable in a damage action. Romero v. Department of Public Works, 17 Cal.2d 189, 109 P.2d 662; Chandler v. Jamaica Pond Aqueduct Corp., 125 Mass. 544. See Lyford v. Laconia, 75 N.H. 220, 72 A. 1085, 22 L.R.A.,N.S., 1062, 139 Am.St.Rep. 680.

       As to leases with a consensual basis containing such a clause, see 1 Plow. Rep. 269; Co.Lit. 45B; 4 Bacon’s Abridgment 836; Cooley’s Blackstone, 4th Ed., § 546; Stanmeyer v. Davis, 321 Ill.App. 227, 53 N.E.2d 22, 25; Lace v. Chandler, C.A.1944, 1 All-England Law Reports 305; Illinois Law Review, Vol. XXXIX, May-June 1944, No. 1, p. 85.

       Commenting on the indefinite character of the clause, the Illinois Court of Appeals say: “If we could regard the end of the war as a certainty, this alleged agreement would still leave us in doubt for the reason that it does not refer to any particular war of the several in which we are engaged.” Stanmeyer v. Davis, supra.

       See Note 7.

       The practical results of accepting, in an uneontested ease, such opinion testimony as a basis for finding of value without the benefit of a factual background are exemplified in E. C. Shevlin Co. v. United States, 9 Cir., 146 F.2d 613. In that instance the United States suffered. In United States v. Miller, 317 U.S. 369, 63 S.Ct. 276, 280, 87 L.Ed. 336, 147 A.L.R. 55, opinion testimony as to value of real property is accurately described as “at best, a guess by informed persons” and as such it is not binding upon the trier of the facts whether judge or jury. In Head v. Hargrave, 105 U.S. 45, 49, 26 L.Ed. 1028, it is said, “To direct them to find the value of the services from the testimony of the experts alone, was to say to them that the issue should be determined by the opinions of the attorneys, and not by the exercise of their own judgment of the facts on which those opinions were given. The evidence of experts as to the value of professional services does not differ, in principle, from such evidence * * as to the value of property.” If the per curiam opinion of the Circuit Court of the Seventh Circuit in United States v. 685.2 Acres of Land in Lake County, Ill., 146 F.2d 998, holds anything to the contrary, it is wrong and unsupported by the authority which is therein cited. See United States v. 2.4 Acres of Land, 7 Cir., 138 F.2d 295; The Conqueror, 166 U.S. 110, 131, 17 S.Ct. 510, 41 L.Ed. 937; United States v. Miller, supra; Standard Oil Co. v. Southern Pacific Co., 268 U.S. 146, 45 S.Ct. 465, 69 L.Ed. 890.

       The declaration of taking can properly be amended to restate the interest taken. Since an order granting possession upon a declaration of taking is simply an intermediate step and not a final judgment, the court must have power under proper circumstances to permit the agency or officer to file an amended declaration. See Catlin v. United States, 65 S.Ct. 631.


author: FORMAN, District Judge.

text:
    In re RITZ CARLTON RESTAURANT & HOTEL CO. OF ATLANTIC CITY.
    No. 28776.
    District Court, D. New Jersey.
    May 19, 1945.

      Bergerman & Hourwich, of New York City, for Real Estate Bondholders Protective Committee and pro se.
    Rosenberg, Goldmark & Colin, of New York City, for Walter Nestel, indenture trustee, and pro se.
    Hannold & Hannold, of Woodbury, N. J., for executrix of estate of Alexander L. Rogers, successor indenture trustee.
    Pilgrim & Ritger, of Newark, N. J., pro se.
    Charles C. Trelease, of Newark, N. J., for Burnett & Trelease.

      Sundheim, Folz, Kamsler & Goodis, of Philadelphia, Pa., pro se.
    Charles A. Wolverton, of Camden, N. J., pro se.
    Alfred E. Driscoll, of Camden, N. J., trustee, pro se.
    Thomás L. Gaskill, of Camden, N. J., special master, pro se.
    George Zolotar, by Kiva Berke, both of New York City, for Securities and Exchange Commission.
   FORMAN, District Judge.

Petitions have been filed herein for the allowance of fees and disbursements pursuant to the authority contained in the provisions of the Bankruptcy Act, 11 U.S.C.A. §§ 641-650, inclusive. The Securities and Exchange Commission has presented an analysis of the applications and arguments have been heard thereon pro and con.

A plan of reorganization of the debtor has been submitted and approved by this court. The first mortgage bondholders alone will participate in the plan. Under the provisions of the plan the bonds presently outstanding in the amount of $3,-523,000 will be exchanged for common stock in the new company (one share of stock for each $100 in principal amount of bonds).

The first mortgage bond issue was created by the debtor on, July 1, 1923, in the principal amount of $5,500,000. S. W. Straus & Co. underwrote the issue. The debtor, with the aid of this company, was able to make payments on principal and interest until 1931 by which time the bond issue was reduced to $3,523,000. Upon default under the terms of the mortgage the property was placed in the possession of an Indenture Trustee. Said trustee took possession in August of 1931 and commenced to operate the Ritz Carlton properties. Proceedings to foreclose the mortgage were instituted by the Indenture Trustee in February of 1932. The following month a bondholders committee, formed by S. W. Straus & Co. and consisting of its officers and áppointees, resigned. The Real Estate Bondholders Protective Committee, known also as the Roosevelt Committee and hereinafter referred to as the “Committee,” succeeded the Straus Committee. The Indenture Trustee Nicholas Roberts, the president of S. W. Straus & Co., also resigned and was replaced by Walter Nestel, an employee of George E. Roosevelt, the chairman of the Committee. ■ The property was managed by the Reliance Property Management Company at this time. Later a management contract was entered into with the National Hotel Management Company which agreed to manage the hotel and to advance money necessary to maintain its credit.

Tax arrears owed to the City of Atlantic City presented a problem in view of the passage of the Stout Act in New Jersey, N.J.S.A., App. A:4 — 1, which permitted a municipality to have a receiver appointed for the property. A lease was executed in 1934 with William Malamut for a period of five years, providing for a payment of $25,000 upon execution and .a fixed rental in an amount equal in the aggregate of current taxes, insurance premiums, payment of $15,000 a year in advance to be paid to trade creditors and a percentage of the gross receipts for the four months of the summer season. As a result it was possible to reach an agreement with the City of Atlantic City whereby it waived its rights under the Stout Act for five years.

The Bankers Securities Corporation, which owned or controlled approximately 38% of the first mortgage bonds outstanding, objected to the Malamut lease, among other reasons, because the rent was inadequate. It filed a bill in equity in this court :■ -eking a cancellation of the lease and the removal of the Indenture Trustee. The suit went to trial and the lease was not ordered to be cancelled. However, as a result of this litigation the Indenture Trustee Nestel was removed. In directing such action the court commented:

“No dishonesty of any character has been shown, but the trustee has not in any way exercised his own judgment with relation to the matters of the trusteeship. He has acted only as a rubber stamp to put into effect the decisions of the Committee, without questioning their judgment.”

The court further stated:

“This conclusion is not based upon any charge of dishonesty, but upon a failure to fully and competently execute the duties of his trust.” Opinion of Judge Avis filed in this court, in the case of Bankers Securities Corp. v. Nestel, Trustee, E-4984, on November 4, 1936.

Alexander L. Rogers, now deceased, was appointed Successor Indenture Trustee by the court.

The Committee attempted to persuade the debtor to initiate reorganization proceedings under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, about this time but was unsuccessful. The Committee, working together with William Malamut, the lessee, devised a plan to reorganize the debtor, whereby the latter would acquire control of the voting stock of the debtor which he would then turn over to the Committee, which would then cause a petition for reorganization to be filed by the debtor. Under this plan, all of the stock of a new corporation to be formed would have been owned by Malamut and the claims of the first mortgage bondholders would have been cut approximately. 50%, in return for Malamut’s promise to provide funds for reorganization expenses and taxes. The petition was filed on September 16, 1937. It was attacked by the Bankers Securities Corporation as not presented in good faith because of the arrangement between the Committee and Malamut.

Nevertheless, the petition was approved by this court and the Bankers Securities Corporation appealed to the Circuit Court of Appeals which reversed the order of this court and directed the dismissal of the petition.

Following the mandate of the Circuit Court of Appeals, issued in May of 1938, a new petition of reorganization was filed in this court on June 20, 1938. The court approved the petition and appointed the Successor Indenture Trustee Rogers as temporary trustee in the proceedings. Various objections to this petition were made by the Bankers Securities Corporation, and questions were raised as to whether the then recently enacted Chandler Act, 11 U. S.C.A. § 1 et seq., was applicable and whether the appointment of the Successor Indenture Trustee Rogers as temporary trustee was that of a disinterested trustee. The district court, 24 F.Supp. 78, declined to sustain the objections and the Bankers Securities Corporation again appealed. The Circuit Court of Appeals, 99 F.2d 51, reversed the district court and directed proceedings in accordance with the provisions of Chapter X of the Chandler Act, 11 U.S.C.A. § 501 et seq. On January 17, 1939, the Committee procured Successor Indenture Rogers to file a petition for reorganization under Chapter X. The order of the court approving this petition included the appointment of Alfred E. Driscoll as trustee of the debtor. This petition was likewise attacked by the Bankers Securities Corporation, but the objections were cured by an agreement of the parties and the petition upon which the present proceedings are based was amended by the order of this court on March 10, 1939.

A claim was filed in the present reorganization proceedings for $1,856,052.60 on behalf of the receiver of S. W. Straus & Co., the house of issue of the first mortgage bonds, which was alleged to represent cash advanced by this company for the account of the debtor and used to acquire first mortgage bonds at their maturities. The receiver claimed a right to the security of the first mortgage on a parity with the other outstanding first mortgage bonds amounting to $3,523,000. The Committee and the Bankers Securities Corporation filed objections to the claim and hearings were had on it before this court, which later referred the matter to Referee Thomas L. Gaskill, appointed as special master for these proceedings. A trial was had before the special master who rendered an opinion in favor of the objectors and against the receiver of S. W. Straus & Co. Before the report of the special master could be approved by the court, negotiations looking toward a settlement were commenced and the claim was finally compromised, with the approval of the court, for the sum of $2,000.

The property was operated by Malamut under the lease until October of 1939, several months after the filing of the present petition for reorganization. Negotiations were commenced about that time for a renewal of the lease with Malamut. It was agreed that the lease should be for a short term in order that a reorganization might be- consummated about the time when a new lease would begin.

Malamut made an offer to the Trustee Driscoll to conclude a lease for three years, which guaranteed a new rental of $25,000 for the entire term, in addition to the payment of taxes, insurance and other charges, totaling approximately $73,000 a year, plus rent for the summer months at 20% of the gross hotel business during that period.

The Bankers Securities Corporation appeared in opposition to the Malamut offer, which, it claimed, was inadequate, and presented an offer of Albert M. Greenfield, of that corporation, which would have netted the trustee $20,000 per year for the rental of the hotel, plus taxes, insurance and like charges, and, in addition,. 20% of the gross business during the summer months, with a guaranteed minimum gross rent of $90,-000.

The offer submitted by the Bankers Securities Corporation was met by Malamut who raised his earlier offer substantially. This resulted in his final agreement to pay approximately $17,000 per year more than the offer first approved and submitted to the court by the trustee.

In June of 1942 the government took possession of the hotel property in its program of using' this area in Atlantic City as a training center for the Army Air Forces.

The hotel property was operated under the second Malamut renewal lease until approximately four months before its date of expiration. The lease with the government was not approved until June of 1943. During the government’s occupancy of the premises various problems arose, the more important of which follow: the claim of Malamut who felt that he had certain rights because of dispossession prior to the end of his term, sundry questions concerning the government’s occupancy, a disposition on the part of the government to withdraw from the premises, tax difficulties with the City of Atlantic City, and claims and problems with respect to insurance. These problems were eventually settled satisfactorily.

A plan of reorganization has been presented by Trustee Driscoll and was approved by the court on November 24, 1944.

We will deal with each petition for allowance individually:

1. Real Estate Bondholders Protective Committee.

This Committee was organized by the first mortgage bondholders and commenced its activities in March of 1932. Apetitionhas been filed on its behalf for services from that time to date in the sum of $26,000 and for reimbursement of its expenses in the ■sum of $52,621.28.

The Committee was instrumental in negotiations leading up to the leasing of the property at various times and participated in activities which dealt with many problems of the hotel, as for example, the tax situation with the City of Atlantic City, the claim of the receiver of the S. W. Straus & Co. and the Malamut claim. It also participated in the plans and conferences which led up to the filing of the various reorganization petitions in this court, two of which it unsuccessfully attempted to support in the Circuit Court of Appeals. In addition, it operated an office from which it relayed information to the bondholders, which information was in the form of approximately a score of published reports.

The Securities and Exchange Commission made two principal objections against the application of the Committee: First, it submitted that the Committee was not entitled to any compensation for its activities up to 1937 for the reason that during such time Indenture Trustee Nestel, was acting for, and at the instance of, the Committee without exercising his own judgment. Secondly, that certain disbursements claimed by the Committee are not compensable.

On the first point we turn to the case of Bankers Securities Corporation v. Walter Nestel, Trustee, supra, in which the late Judge Avis of this court considered allegations that the conduct of Indenture Trustee Nestel in handling the property involved was detrimental to the interest of the bondholders and that the Committee exercised an influence over the. trustee in directing his policies so that the trustee only nominally managed the property while the Committee had the actual management in its hands, resulting in large losses due to mismanagement. In the opinion filed in that case Judge Avis held:

“The more important question is whether the trustees should be removed. Without going into detail, I am satisfied that the trustee is too closely allied with the Roosevelt Committee to act independently. No dishonesty of any character has been shown, but the trustee has not in any way exercised his own judgment in relation to the matters of the trusteeship. He has acted only as a rubber stamp to put into effect the decisions of the Committee, without questioning their judgment. A trustee of this character should be entirely independent in action, for the benefit of all the bondholders, regardless of whether they have deposited their bonds with a committee or are still holding them in possession. The Committee’s power or authority does not extend beyond the rights of the individual bondholders, and their collective rights and interests are represented by the trustee who stands in a fiduciary capacity as such representative. He cannot delegate his duties to a committee.

“I am convinced that the trustee has so executed his duties as to require the Court to remove him or to permit him to resign. * * jjs

No question can be raised against the opinion of Judge Avis as expressed above. It amply demonstrated that a conflict of interests actually existed between the Committee and the Indenture Trustee.

In such a situation the United States Supreme Court has held that compensation may not be awarded. In the case of Woods v. City Bank Co., 312 U.S. 262, 61 S.Ct. 493, 85 L.Ed. 820, that Court made the following cogent comments:

“The indenture trustee represents all the bondholders; the committee those who have given it authorizations — in this case about 50 per cent. Where the interests of majorities and minorities do not coincide, the interests of the indenture trustee and the committee will tend to be antagonistic. Beyond that is the fact that an indenture trustee closely affiliated with a committee shares the committee’s conflicts of interest.” 312 U.S. at pages 266, 267, 61 S.Ct. at page 496, 85 L.Ed. 820.

“Where a claimant, who represented members of the investing public, was serving more than one master or was subj ect to conflicting interests, he should be denied compensation. It is no answer to say that fraud or unfairness were not shown to have resulted. * * * Where an actual conflict of interest exists, no more need be shown in this type of case to support a denial of compensation.” 312 U.S. at page 268, 61 S.Ct. at page 497, 85 L.Ed. 820.

“Protective committees, as well as indenture trustees, are fiduciaries. (Cases cited.) A fiduciary who represents security holders in a reorganization -may not perfect his claim to compensation by insisting that, although he had conflicting interests, he served his several masters equally well or that his primary loyalty was not weakened by the pull of his secondary one. Only strict adherence to these equitable principles can keep the standard of conduct for fiduciaries ‘at a level higher than that trodden by the crowd.’ See Mr. Justice Cardozo in Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546, 62 A.L.R. 1.” 312 U.S. at pages 268, 269, 61 S.Ct. at page 497, 85 L.Ed. 820.

Since the Committee was the controlling instrumentality that caused the conduct of Indenture Trustee Nestel to be considered incompatible with his fiduciary relationship and since the Committee itself was chargeable as a fiduciary, it follows that its claim for services up to the time of removal of Indenture Trustee Nestel must be denied.

The other point upon which the Securities and Exchange Commission objects concerns disbursements made by the Committee in the aggregate sum of $11,685.49. Included in this amount were three items, namely:

Payroll of clerical staff........ $ 7,406.88

Office Rent .................. 2,581,07

T elephone.................... 602.07

Total .................... $10,590.02

A supplementary affidavit has been filed by Wadsworth Garfield, Secretary of the Committee, concerning these three items and the court has seen the voluminous accounts kept by the Committee, a complete audit of which would entail expense unwarranted by the amount of the items to which objection has been made. A month to month allocation of the entire expenses of all of the issues handled by the Committee during the complete period of time was made. The over all expenses amounted to $122,587.36. All of the issues involved were given a value of approximately $35,-000,000. The bonds of the debtor in this case were valued at $1,000,000. The Ritz Carlton issue is the sole survivor in the Committee’s files and hence had to bear the burden of allocation of expense during a longer period of time than any other issue. Of course an acceptance of the evaluation of this and the other issues "must be on an arbitrary basis because again a review of those evaluations would entail disproportionate costs. The evaluation for purpose of expense of $1,000,000 placed on the Ritz Carlton issue seems fair. The same appraisers who evaluated this issue also evaluated all the others. The fact that the total share of the expenses allocated to the Ritz Carlton for the entire 13-year period amounted to only about % of 1% of the principal amount of the bonds and that the annual average share of these bonds was charged at the rate of $814.61, or on an average monthly basis of $67.88, would likewise seem to indicate a reasonably fair expense allocation.

In the light of the results and the lack of any reason behind the objection to the allowance of these expenses, the system used seems to have been fair, reliable and logical. We will not sustain the objection to the three items of expenses totalling $10,590.02.

Three other items to which exception was taken by the Securities and Exchange Commission are as follows:

Root, Clark, Buckner & Ballantine, Stenographic Services......... $150.85

Rosenberg, Goldmark & Colin, Postage and Carfare.......... 101.48

Overtime Meals and Conferences.. 93.14

Total ...................... $345.47

These items are pf an extraordinary nature, justification of which is dubious or not shown. They will be disallowed.

The final item in this record to which objection was made by the securities and Exchange Commission was the sum of $750 to cover “total estimated future expense.” It will also be disallowed as such need not be anticipated. If, as and when expenses are actually incurred they may be the subject of a further allowance.

A review of the proceedings indicates that the judgment of the Committee was not always of the best. This view, however, is easy to take now in the retrospect of hindsight. No bad faith involving the element of carelessness can be charged to the Committee and it did serve the purpose of contact with thousands of bondholders by correspondence and afforded many of them personal interviews concerning the status of the proceedings.

Counsel for the Bankers Securities Corporation joined the Securities and Exchange Commission in objecting to the request of the Committee for the sum of $26,000 for services. We agree that the request for this allowance under all of the circumstances is excessive and we find that a fair and reasonable award for the services of the Committee extending over the period from the date of the resignation of Indenture Trustee Nestel to the present, which contributed to the reorganization and were beneficial in the administration of the estate, will be the sum of $10,000.

In addition to the allowance for services we will allow reimbursement for expenses as requested in the petition, namely, $52,-621.28, with the exception of the extraordinary items totalling $345.47 and the item of $750 for future expenses, or a net allowance for expenses in the sum of $51,-525.81.

2. Walter Nestel, Indenture Trustee.

In discussing the application of the Committee we have adverted to its relationship with Walter Nestel, Indenture Trustee, in whose behalf an application has been made for a fee of $5,000, and our comment concerning the court’s finding with regard to his fiduciary status applies to this application.

This petitioner held the office of Indenture Trustee from June 24, 1932, until May 21, 1937, at which time-he resigned because he was found not to be a disinterested trustee within the purview of the Bankruptcy Act, 11 U.S.C.A. § 556, and the decision of the Supreme Court in the case of Woods v. City Bank Co., supra. His petition for compensation will be disallowed.

3. Rosenberg, Goldmark & Colin, Attorneys for Walter Nestel.

The petitioner applies for an allowance of $25,000, as attorneys for the Indenture Trustee, Walter Nestel. The same reason for the disallowance of the petition for services rendered by the Committee and Walter Nestel applies to the application of the attorneys for this Indenture Trustee, and their petition for an allowance will likewise be disallowed.

4. Estate of Alexander L. Rogers, Successor Indenture Trustee.

Grace C. Rogers, as Executrix of Alexander L. Rogers, has filed a petition claiming allowance for services by the decedent in the sum of $10,062.50 and for reimbursement of his expenses in the amount of $1,277.36. He was named on May 24, 1937, as Successor Indenture Trustee following Walter Nestel in that office. He served until his death on October 12, 1944.

His services were of a formal nature, consisting mainly of making payments to general creditors from time to time. Very little work was done in connection with the operation of the hotel property.

During his lifetime he paid to his own account funds as compensation on account of his services in the amount of $2,180. He also paid himself for expenses as Successor Indenture Trustee the sum of $1,-277.36.

The amount of $2,180 which the Successor Indenture Trustee allowed to himself adequately compensated him for his services and the sum of $1,277.36 with which he reimbursed himself repaid in full his expenses. Such payments will be approved, but the petition for further allowance of fees and expenses will be denied.

5. Bergerman & Hourwich, for Itself and as Successors to the Firm of Rosenberg, Goldmark & Colin, as Attorneys of the Committee.

The firm of Bergerman & Hourwich has filed a petition asking for an allowance in the sum of $70,000 for services rendered to the Committee. This firm came into existence on January 1, 1943. Mr. Berger-man while associated in the firm of Rosenberg, Goldmark & Colin performed services for the Committee from the year 1932 until and through the year 1942. Thereafter he served the Committee through the firm of Bergerman & Hourwich. Various associates collaborated with him during the over all period. In a supplementary statement filed herein on May 10, 1945, signed by the firms of Bergerman & Hourwich and Rosenberg, Goldmark & Colin, they have evidenced their agreement that any compensation granted on the petition of Bergerman & Hourwich will be distributed between the two firms and received in full discharge of the claims of both of them as counsel for the Committee.

We have already held that neither the Committee, the Indenture Trustee Nestel, nor Rosenberg, Goldmark & Colin as attorneys for him, is entitled to be compensated in view of the decision in the case of Woods v. City Bank Co., supra. In so far as the application of Bergerman & Hourwich concerns itself with services rendered to the Committee until the date of the resignation of the Indenture Trustee Nestel, the decision has like applicability and compensation for such services cannot be awarded. Until May 21, 1937, the date that Indenture Trustee Nestel resigned, inconsistent relationship existed between the Committee and the Indenture Trustee, and the representation by counsel was similarly affected.

However, important service was rendered by petitioner as representative of the Committee after the resignation of Indenture Trustee Nestel. Petitioner represented the Committee in many reorganizations and brought the fruits of its abundant experience to this estate, including that gained in the reorganization of large hotel interests in Atlantic City. We will not attempt to list petitioner’s services in detail. Among other services rendered resulting it), direct and indirect benefits to the estate, we include such areas of work as participation in the filing of the petition for reorganization in 1937 and legal services throughout that proceeding, including an appeal thereof in the Third Circuit Court of Appeals. Although unsuccessful in sustaining the petition the services had some value since they contributed at least to giving a form of action to the administration of the property. We feel compensable services were rendered in the second reorganization litigation and in the work of petitioner of originating, exploring and presenting various reorganization plans.

The petitioner also participated with effect in dealing with claims for and against the trustee appointed herein in 1939. The principal of these was the defense entered to the claim made by Fink, Successor Receiver for S. W. Straus & Co., Inc. There activities are fully described by petitioner in its application. The denial of this claim and subsequent settlement thereof for the nominal sum of $2,000 was undoubtedly an important conservation of this estate. Of course, others participated in the proceedings, but it cannot be denied that the petitioner played an important role in the defense set up against the claim.

Other negotiations on claims in important fields were the disposition of the Malamut claim, the trustee’s claim against the government and claims for damages covered by insurance policies. In these petitioner likewise rendered effective service. Other negotiations of importance in which the petitioner participated included the negotiation of the renewal lease with the tenant Malamut, the subsequent lease with the United States Government and the various ramifications arising therefrom.

The. petitioner, in addition, directed its services naturally to advising and counseling its immediate principal, the Committee. Its service in this respect is considered by us as practically of a continuous nature since May 21, 1937. The normal service consisted of advising the Committee with reference to correspondence and depositors, and attendance at practically all conferences concerning the hotel property. Its services were also extraordinary in nature, as for instance, extension of the deposit agreement and similar matters.

We have reflected an allowance for the year to year work performed by the petitioner since May 21, 1937, and the special services rendered by it, and conclude a reasonable allowance for all of these services, consistent with its contribution to the ultimate plan of reorganization and its benefits in the administration of the estate, will be the sum of $26,500.

6. Pilgrim & Ritger, Attorneys for Walter Nestel and Alexander L, Rogers.

This firm was attorney of record for Indenture Trustee Nestel and his Successor Indenture Trustee Rogers. It worked in cooperation with Rosenberg, Goldmark & Colin and its services consisted of the filing and serving of the necessary papers in the foreclosure proceeding which was commenced and proceeded to the point where a decree pro confesso was entered, whereupon the suit was enjoined. For this and other services rendered to Indenture Trustee Nestel it claims the sum of $2,500. It also claims for services to Alexander L. Rogers as Successor Indenture Trustee the sum of $500, as well as the sum of $2,500 for services rendered to Indenture Trustee Walter Nestel in the suit brought against him by Bankers Securities Corporation, amounting in all to $5,-500.

The last mentioned litigation was in defense of the position of Indenture Trustee Nestel heretofore discussed and in which he was replaced by the late Alexander L. Rogers as Successor Indenture Trustee. We have heretofore enlarged upon the proposition that services in behalf of Indenture Trustee Nestel are not, in our judgment, compensable. The petitioner may be compensated only for its services to the Successor Indenture Trustee Rogers, and therefore an allowance limited to the sum of $500 will be granted.

7. Burnett & Trelease, Attorneys for the Debtor.

The work of this petitioner extended from July 1937 to April 1940. It was retained by the debtor as New Jersey counsel and it assisted in the proceedings under Chapter X, advised on the preparation of tax returns, served various papers, made court appearances and handled the usual correspondence. . In effect its activities dovetailed with the efforts of the Committee which really controlled the debtor. Petitioner applies for the sum of $5,000, but an allowance of $1,000 will be made.

8. Sundheim, Fols, Kamsler & Goodis, Attorneys for the Creditor, Bankers Securities Corporation.

The petitioner appeared for the Bankers Securities Corporation, a substantial creditor of the estate. It applied for the sum of $25,000 as a fee and $1,168.21 as reimbursement for costs incurred by it. The activities of petitioner in behalf of the administration of the estate and its contribution to the ultimate plan of reorganization which resulted therefrom consisted mainly of its successful opposition to the Committee. Its objections to the original Malamut lease and the Indenture Trustee, Walter Nestel, resulted in the resignation of the latter. Its objections to the first two reorganization proceedings were sustained on appeals prosecuted in the Circuit Court of Appeals. As a consequence of these decisions, the arrangements, whereby William Malamut would have acquired ownership of the hotel property and the equity of the bondholders would have been dismissed approximately 50%, were defeated. Petitioner’s persistent objections contributed largely to the form of the reorganization under Chapter X and it participated importantly in the. negotiations and plans which led to the confirmation of the present plan of reorganization.

Together with the attorneys for the Committee it carried the burden of trying the claim of Fink, Receiver of S. W. Straus & Co., which resulted in its defeat and a nominal settlement, eminently satisfactory. Its objection to the renewal of the Malamut lease and the offers which it made on behalf of its client to lease the property, made it possible to consummate a renewal lease with Malamut upon a rental per year substantially higher than his original offer and thus effected a decided annual increase in the income of the estate.

Objections were also made to the Malamut claim which resulted in their settlement at a saving to the debtor.

It appeared in the tax hearings at a time when the City of Atlantic City could have taken advantage of the provisions of the Stout Act of New Jersey and added its weight to that of others to avert a tax receivership of the debtor which would have been calamitous. Its efforts showed constant supervision and scrutiny of all the activities of the debtor. While these services were in the nature of enlightened self-interest in behalf of its client, they formed a type of loyal opposition that continued a constant surveillance over the affairs of the debtor and which contributed effectively to the architecture of the ultimate plan of reorganization and substantial benefit to the estate.

A reasonable allowance for these services will be $17,750. Expenses in the amount of $1,168.21, as set forth in the petition, will be allowed. There is reflected in the fee allowed above, the sum advanced by petitioner to its New Jersey counsel of record in the sum of $250.

9. Charles A. Wolverton, New Jersey Attorney for the Creditor, Bankers Securities Corporation.

This petitioner was engaged on September 22, 1937, as the attorney of record in behalf of the Bankers Securities Corporation and he has acted in that capacity up to the present time. His services consisted of the usual filing, service and transmittal of papers and formal court appearances. He has had a retainer of $250 from his Philadelphia correspondent and a reasonable allowance for his services is an additional sum of $750.

10. Alfred E. Driscoll, Trustee.

The trustee took office in January of 1939 and has continued to serve the estate since that time. During the first three years of his tenure the hotel was in the hands of the lessee and managerial problems were at a minimum. However, from the time the hotel property was taken over by the government, which is presently in possession, the trustee has been compelled to assume numerous duties which heretofore were handled by the lessee.

His services consisted mainly of the original investigation of the property and the financial condition of the debtor, extensive negotiations and problems which led ultimately to the leasing of the property, the operation of the business and management of the property during the government lease, the negotiations with the City of Atlantic City with reference to the tax arrears and the successful avoidance of foreclosure upon the part of the City, other tax claims of the federal and state governments, the settlement of the claims of the Ambassador Hotel and the Guarantee Trust Company, the problems of storage, personal property assessment, insurance settlements, payroll, preparation of tax and other government departmental forms, dis? bursements, and the preparation, filing and consummation of the plan of reorganization.

The trustee requests the sum of $60,000 as a fee and $6,719.91 as reimbursement for expenses paid by him. The services of the trustee were substantial in nature and the benefits to the estate derived therefrom were many. Since the trustee is a competent lawyer no counsel was appointed for him and the estate is not confronted with a separate application for counsel fees. He is a member of a leading law firm and his associate or associates were called upon for frequent service.

We have reflected in our allowance month to month service by the trustee, himself, or that furnished by him. This we have considered in periods of approximately thirty months each, the first comprising the earlier portion of his service during the operation of the property by the tenant Malamut and the second during the tenancy of the government.

We have also reflected the large number of special services enumerated at the head of this discussion. The most notable of these which inured maximum benefits to the estate consisted of the services rendered in the adjustment of the claim of the City of Atlantic City for taxes and the enormous amount of negotiations and attention involved in the execution of the government lease. The trustee has demonstrated consummate skill and ability in conserving the best interests of the estate and in marshaling the support of the divergent interests so as to consummate the reorganization scheme to the vest advantage of the estate.

A reasonable allowance for these services will be made in the amount of $35,000. This figure includes the amount already received by the trustee, i. e., $2,500. Disbursements will also be granted in the amount of $6,719.91.

11. Thomas L. Gaskill, Special Master.

The special master appointed by this court heard the claim of the S. W. Straus & Co. for $1,856,052.60. Many days were consumed in the hearing and he prepared a 99-page report embodying his findings.

His services were commended and his request for an allowance of $3,000 was approved by a number of the parties who appeared before him. No opposition was registered to it. His petition for $3,000 will be granted. This figure includes the sum of $1,000 already received by him.

An order should be presented by the trustee in conformity with this opinion.

Recapitulation of Allowances

Amount Requested Amount Allowed

Disburse-Fees ments Disburse-Fees ments

1. Real Estate Bondholders Protective Committee $ 26,000.00 $52,621.28 $10,000.00 $51,525.81

2. Walter Nestel, Indenture Trustee 5,000.00 0 0 0

3. Rosenberg, Goldmark & Colin, Attorneys for Walter Nestel 25,000.00 0

4. Estate of Alexander L. Rogers, Successor Indenture Trustee 10,062.5o 1,277.36 2,180.00 1,277.36

5. B'ergerman & Hourwich, Attorneys for Real Estate Bondholders Protective Committee 70,000.00 26,500.00 0

6. Pilgrim & Ritger, Attorneys for Walter Nestel and Alexander L. Rogers 5,500.00 0 500.00 0

7. Burnett & Trelease, Attorneys for Debtor 5,000.00 0 1,000.00 0

8. Sundheim, Folz, Kamsler & Goodis, Attorneys for creditor Bankers Securities Corporation 25,000.00 1,168.21 17,750.00 1,168.21

9. Charles A. Wolverton, Attorney for Bankers Securities Corporation 2,500.00 0 750.00 0

10. Alfred E. Driscoll, Trustee. 60,000.00 6,719.91 35,000.00 6,719.91

11. Thomas L. Gaskill, Special Master 3,000.00 0 3,000.00 0

Total $237,062.50 $61,786.76 $97,180.00 $60,691.29

       No opinion for publication.

       Includes the sum of $2180 which was received by decedent.

       This amount was received by the decedent.

       Includes the sum of $2500 which was received.

       Includes the sum of $1000 which was received.