The opinion of the court was delivered by: POLLACK
In this bankruptcy, a specific fund of $2,473,070.12 has been brought into the Estate through a settlement of an anti-trust action prosecuted for the benefit of the Estate. The present issue relates to allowances of compensation to be assessed for creation of the fund and paid by the Estate to those whose services are said to have brought about the benefit, in whole or in part.
On February 8, 1974, the Bankruptcy Judge [Referee in Bankruptcy, heretofore] issued a Certificate on Allowances recommending to this Court that fees and disbursements be awarded herein to Joseph L. Alioto, Esq. and his predecessor who acted as Special Counsel to the Trustee. The recommended fee is $369,626 and the disbursements are $28,070.12. The Bankruptcy Judge has recommended against a claim for an allowance to Winthrop, Stimson, Putnam & Roberts, Esqs. who represent two creditors herein and claim to have contributed substantially to the creation of the fund in Court. The Bankruptcy Judge seemingly doubted that he had power to recommend any award to them and said they "must look to their clients for compensation and cannot be allowed any compensation from this estate", citing among other authority, Sartorius v. Bardo, 95 F.2d 387 (2d Cir. 1938) (L. Hand, C.J.).
The Bankruptcy Judge also disallowed compensation at this time to the attorneys for the Trustee for services related to the creation of this fund, on two grounds: (1) that a payment for such services by the Special Counsel for the Trustee out of his allowance would be legally improper and a sharing agreement therefor could not be honored, and (2) that the Trustee's "compensation will be determined when the case is concluded" and any services rendered in connection with the anti-trust suit will be taken into consideration at that time.
It appears that the Bankruptcy Judge did not give effect to overriding equitable principles which are applicable to the special facts herein that require payment of compensation for services rendered for the benefit of all creditors as a class. Moreover, again on equitable principles, an interim allowance to the Trustee's counsel payable out of the particular fund could and in these circumstances preferably should also have been considered at this time apart from any separate ultimate claim for other general services as attorneys for the Trustee to be evaluated when the case is concluded. The true value of such services can be gauged without waiting for the termination of the proceedings generally. The determination of the net recovery for the Estate, net of the fees and disbursements payable for the creation of the fund, ought reasonably be related to and be a current part of the settlement itself as a matter of judicial husbandry. Since the overall allowances payable for the creation of a fund must be viewed as against the amount of the benefit, all applicable claims for fees properly assessable in relation to the benefit ought to be determined at the same time and in the perspective of the grand total to avoid any distortion that might arise from separate or staggered determinations.
The prior proceedings in this matter so far as pertinent here were as follows.
Prior to bankruptcy, Sapphire Steamship Lines, Inc. instituted an anti-trust action to recover $12-million as treble damages from a number of steamship lines and transport companies, for alleged violation of the anti-trust laws by alleged conspiracy to fix freight rates and monopolize the trade. After bankruptcy intervened the Trustee was substituted as plaintiff, and was duly authorized by court order to retain Joseph L. Alioto, Esq. as Special Counsel to the Trustee to prosecute the action. After considerable procedure, an offer was received in about July 1970 to compromise the action for a total of $1,600,000. Upon due notice to creditors of a hearing to consider the proposed compromise, and over the objection of a number of creditors as well as the United States Attorney on behalf of the government, the Referee in Bankruptcy entered an order dated September 29, 1970 authorizing the Trustee to compromise the action by accepting $1,600,000 and authorizing him to execute all the necessary legal documents to consummate such a settlement.
In support of the settlement proposed, the Special Counsel to the Trustee furnished a report letter of July 16, 1970 to the Trustee's attorney stating among other things that "it is clear to the members of this office that the settlement agreements entered into with the defendants in this litigation represent a fair and favorable settlement of the Bankrupt's outstanding claims against said defendants. We, therefore, request that you seek the Court's approval of these agreements."
The Referee's decision approving this compromise dated September 21, 1970 recited, inter alia,
Special counsel has given what I find to be adequate reasons to doubt the probability of success, or even if successful, that a judgment would exceed $1,600,000, especially in the district where the action is pending. . . . .
The only thing which has given me pause, is the views of the creditors. I would indeed like to honor those views if I could find justification therefor. But I can find no such justification . . . It seems to me that in this instance I must exercise an independent judgment based upon the full and complete disclosures made by the trustee and his special counsel, albeit my conclusion is at variance with the wishes of the objecting creditors. I therefore accept the recommendation of the trustee, his general counsel, and his special counsel, and I approve the compromise.
Thereafter, the United States of America and two creditors in this proceeding, the Bergandahl companies, objected to the compromise and jointly moved for reconsideration of the Referee's order of September 29, 1970 and for a rehearing on the proposed compromise. Opposing this application, the Special Counsel's partner filed an affidavit reciting that "I see nothing in this presentation which is new or which alters my strong conviction that this is a favorable settlement offer which should be accepted by the Trustee . . . I am certain that if attorneys from their offices familiar with anti-trust cases were to devote the time required to make a full study of this case, as we have done, they, too, would conclude that this is an excellent settlement."
On the basis of the analyses and presentation of those moving for a rehearing, the Referee found however, that "this now paints an entirely different picture from that presented when the compromise first came on for hearing." The Referee granted the motion for reconsideration and thereupon disapproved the compromise and vacated his order of September 29, 1970. Objecting to this rejection of the compromise, the Special Counsel to the Trustee and the attorney for the Trustee moved for reconsideration and rehearing. They contended that the Referee had applied an erroneous legal standard in rejecting the proposed compromise and had erroneously accepted as factually correct the representations contained in the creditors' papers and the conclusions based thereon. The Special Counsel again set out his reasons at length for approval of the $1,600,000 compromise offer.
In a decision dated May 24, 1971, the Referee adhered to his decision of December 18, 1970 disapproving the ...