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In re Mabson Lumber Co.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT


decided: April 26, 1968.

IN THE MATTER OF MABSON LUMBER CO., INC.

Lumbard, Chief Judge, Friendly, Circuit Judge, and Clarie, District Judge.*fn*

Author: Friendly

FRIENDLY, Circuit Judge:

Lauren D. Rachlin, attorney for the trustee in bankruptcy of a retail lumber firm in the Western District of New York, requested $3,815 compensation for services to the bankrupt estate, and appeals from the referee's allowance of only $1,500, which the district court confirmed. He asserts that he devoted 74 hours to preparing the sale of some real estate (12 hours of which were spent in locating a buyer), 15 hours to endeavoring to collect accounts receivable (though his legal expertise concededly was required for only half of this time),*fn1 11 1/2 hours to examining the bankrupt's books, records and officers (which he conceded not to require legal training), and 8 3/4 hours to miscellaneous matters (2 1/4 of which were not specifically legal work). He computed his requested fee by multiplying this total of 109 hours by his "customary" time charge of $35 per hour. Chief Judge Henderson, in confirming the referee's award, noted that

"A review of the petition of the attorney for the trustee indicates that counsel here also undertook general management of the estate and that while much of his effort may have required the exercise of sound judgment, it did not require his legal expertise,"

and "found the present allowance reasonable for legal services performed."

The referee and the judge were clearly correct in denying compensation for services which did not require legal expertise. The Bankruptcy Act, § 47, contemplates that it is the trustees who shall "collect and reduce to money the property of the estates for which they are trustees" and "examine the bankrupts"; and § 48 sets the maximum allowance the trustees may receive for these services. While General Order 44 permits the bankruptcy court to authorize the trustee to employ an attorney where it is satisfied "that his employment would be to the best interests of the estate," General Order 42 ensures that the mandate of § 72 be respected by providing that "No allowance of compensation shall be made to any attorney for a * * * trustee * * * except for professional services."*fn2 Indeed, in a similar case decided by this court thirty-seven years ago, in which the attorney also requested compensation "for arranging for the sale of the assets, * * collecting accounts due, * * * examining the bankrupt's papers, and more of the sort," Judge Learned Hand went out of his way to dispel "the curious notion," apparently widespread then too, "that an attorney may recover for what are not legal services at all." He pointed out that except for this notion "it would seem scarcely necessary to say that the receiver or trustee, and he alone, can recover for services in collecting the estate," and that while the line between legal and non-legal services "is not always easy to draw, * * * it is there, and referees should draw it straitly, else the estate will be burdened with a duplication of charges." In re Eureka Upholstering Co., Inc., 48 F.2d 95, 96 (2 Cir. 1931).*fn3 See Connelly v. Hancock, Dorr, Ryan & Shove, 195 F.2d 864, 869 (2 Cir. 1952).

Appellant argues that even if the nonlegal work he performed was non-compensable,*fn4 he should still receive more than $20 per hour for the 76 hours he claims to have spent on purely legal matters. He buttresses this by pointing out that the Erie County Bar Association minimum fee schedule calls for $25 to $50 per hour for legal work, and contends that smaller allowances will tend to drive competent men out of bankruptcy practice.

Attorneys' fees in bankruptcy liquidation are governed by "the economical spirit of the Bankruptcy Act," and the amounts which "private clients are expected and wont to pay for similar services" are not determinative. See 3 Collier on Bankruptcy § 62.12, and cases cited therein at nn. 76 & 85. Rather, a "balance must be struck between two competing interests; that the cost of bankruptcy should not itself consume the very res the proceedings are designed to protect; and that fees allowed be such as not to discourage competent counsel from active and effective participation." Jacobowitz v. Double Seven Corp., 378 F.2d 405, 409 (9 Cir. 1967) (Merrill, J., dissenting). The referee, who is required by § 35(4) of the Act to reside and have his office in the district for which he is appointed, and the district judge, both directly engaged in supervising the administration of bankrupt estates, are in a better position than circuit judges, often in a distant city, to assess the supply curve of competent attorneys and strike the proper balance. See In re Paramount Merrick, Inc., 252 F.2d 482, 485 (2 Cir. 1958); General Order 47. Moreover, an attorney's compensation is a function not only of time spent but of other factors as well. We have often indicated our adherence to the generally accepted formula that the "principal factors which enter into a determination of what is reasonable are," in addition to "the time spent, the intricacy of the questions involved, the size of the estate, the opposition encountered, the results obtained and the 'economic spirit' of the Bankruptcy Act to curtail unnecessary expenses." In re Paramount Merrick, Inc., supra, 252 F.2d at 485.*fn5

We have no reason to doubt that the referee took these factors into account in determining the allowance for the services that were properly compensable. Although a somewhat higher allowance might have been warranted, courts of appeals are properly "reluctant," as we stated in In re Paramount Merrick, Inc., supra, "to overturn the determination" of the referee and the district judge "unless it can be shown that the allowance was arbitrary and unreasonable." The allowance amounts to 6.5% of the estate, only.6% less than the 1966 national average, see Administrative Office of the United States Courts, Division of Bankruptcy Administration, Tabulation of Costs of Administration 1966. While this would not be determinative if unusual services were involved, see Jacobowitz v. Double Seven Corp., 378 F.2d 405, 407 (9 Cir. 1967) (majority opinion), it provides some assurance that there was no unfairness in a case like this where the services required, while not insubstantial, were in no way extraordinary.

Judgment affirmed.

Disposition

Affirmed.


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