The opinion of the court was delivered by: WARD
ROBERT J. WARD, District Judge.
Pursuant to Section 241 of the Bankrupty Act, 11 U.S.C. § 641,
the trustee, Mortimer M. Caplin, and his counsel, Marshall, Bratter, Greene, Allison & Tucker, have applied for final allowances in this Chapter X proceeding. The trustee, in addition to $80,000 previously received as interim compensation, has requested a final allowance in the amount of $170,000 for services rendered since his appointment on May 18, 1965. He also has requested $1,104.25 as reimbursement of disbursements. Counsel for the trustee have received interim allowances of $460,000 for services rendered since their retention in May 1965. Their application is for a final allowance for services rendered in the amount of $1,110,000 in addition to the interim allowances. Counsel also have requested $17,886.72 as reimbursement of disbursements.
For the reasons discussed below, the trustee's application is granted in the amount of $150,000 and counsel's application is granted in the amount of $790,000 for services rendered to the estate. Both allowances are in addition to previous interim payments. The requests for reimbursement of disbursements are granted in full.
I. Webb & Knapp, Inc., a publicly owned corporation with approximately 40,000 stockholders, was engaged in the real estate business and for a time conducted one of the largest real estate operations in the world. By 1959 its gross assets were almost $300,000,000 from its activities in the United States and Canada.
Webb & Knapp last reported net income in 1961. It had expanded its operations into urban renewal, hotels, the amusement park field and shipping centers. However, none of these were financial successes. Rather, they resulted in huge deficits. For example, reported operating losses for 1962 and 1963 were $19,000,000 and $32,000,000, respectively.
An involuntary petition for reorganization under Chapter X of the Bankruptcy Act was filed on March 7, 1965, by Marine Midland Grace Trust Company. The debtor did not even have sufficient cash at this time to pay its ninety employees. Its balance sheet on May 17, 1965 showed $21,500,000 in assets and $60,000,000 in liabilities. In addition, approximately $84,000,000 in claims were outstanding.
Although Webb & Knapp had interests in many properties throughout the United States at the time of the filing of the Chapter X petition, these properties were subject to liens in excess of equities, their mortgages were in default, and taxes were in arrears.
After over eight years of administration of this estate by the trustee and his counsel, the estate has accumulated $8,320,000 in cash receipts and expects an additional $735,000. The Securities and Exchange Commission ("the SEC") participated in the hearings on the applications for allowances and has submitted a most thorough and helpful memorandum summarizing the important aspects of the applicants' activities during this proceeding which have led to this improved position. In the Court's view, the most important of these activities were the following:
A. Sale of Assets: These sales were complicated by claims of mortgagees and other lien claimants. Many of the sales of real estate were possible only after settlements with secured creditors. One of the most favorable sales was the sale of the net lease on a large parcel of land in Washington, D.C., known as L'Enfant Plaza, an urban development projject. This transaction required reinstating the lease on which the debtor was in default and the closing of a contract of sale. The debtor realized $1,550,000 from the sale.
B. Claims Against Third Parties: More than twenty actions were filed by the applicants, two of which were against former officers and directors; one for waste and mismanagement, and the other for usurpation of corporate opportunities. These were settled for approximately $900,000. Assertion of counterclaims against the National Development Corporation ("NDC") in a suit it brought for damages from defaults by Webb & Knapp, resulted in a settlement in which NDC paid the trustee $785,000.
C. Settlement of Claims: Claims against the estate have been reduced from $84,000,000 to approximately $19,880,000. As the SEC points out, the "major achievement" in this area was the settlement of Internal Revenue priority claims for taxes in excess of $35,000,000 for $2,750,000. The Court acknowledges the major efforts required to settle these claims without costly litigation and delay. Had it not been for these settlements there would have been no funds available for distribution to general unsecured creditors. As a result of these favorable settlements, a plan of liquidation was formulated and approved by the Court.
II. The legal principles which are to be employed in determining fair and reasonable compensation are clear. The success of reorganization is one factor to be considered in awarding fees. Nevertheless, the failure of reorganization and the unsuccessful outcome of litigation involving issues pursued by the trustee and counsel do not bar reasonable compensation for efforts expended. In re Engineers Public Service Co., 116 F. Supp. 930 (D. Del. 1953), aff'd, 221 F.2d 708 (3rd Cir. 1955).
Of course, no compensation is awarded for services which were unnecessary or wasteful. In re Porto Rican American Tobacco Co., 117 F.2d 599, 601 (2d Cir. 1941). Applicants are required to submit accurate and current time records, and estimates made at the "eleventh hour" are discouraged. In re Hudson & Manhattan Railroad Co., 339 F.2d 114, 115 (2d Cir. 1964).
Compensation in reorganization proceedings does not usually equal that of other litigation because it comes directly from the debtor's estate which belongs to others who have not requested the services of the trustee and his counsel. Finn v. Childs Co., 181 F.2d 431, 435-436 (2d Cir. 1950). Thus, in determining fees, the Court must be fair to the applicants so that qualified trustees and counsel will not be discouraged from serving in these matters, but at the same time they must not be over-compensated to the detriment of creditors. Massachusetts ...