Gelson v. Rudin et al, 200 F.2d 31 (2d Cir. 1952)
Annotate this CaseDecided November 7, 1952
This appeal is from orders entered in a voluntary bankruptcy proceeding filed June 9, 1944, in which an order of adjudication was made. The trustee engaged in litigation to collect assets of the estate. The bankrupt sought a discharge which was successfully opposed by an objecting creditor. Subsequently, on April 5, 1951, the bankrupt, the trustee in bankruptcy, the attorney for the trustee, and the attorney for a creditor, entered into a "stipulation" with one Scheinick, not a party to the proceedings, and his attorney Katz. It provided, inter alia, that the bankruptcy proceedings would be dismissed, and that, out of funds deposited with Katz and advanced by Scheinick (none of which funds belonged to the bankrupt), there were to be paid stated sums to the trustee in bankruptcy and Lucien Nemser, his attorney, for fees and disbursements, and also the disbursements of the creditor who had successfully opposed the bankrupt's discharge, and the fees of that creditor's attorneys, the firm of Nemser & Gelosky, of which Lucien Nemser was a member; fifteen hundred dollars was to be paid to Nemser & Gelosky out of which they were "to pay themselves a fee as attorney for the objecting creditor, and to Lucien Nemser a fee as attorney for the trustee, and to William J. Rudin, as trustee, his commission as such trustee."
Thereafter the bankrupt petitioned for an order vacating the adjudication and dismissing the voluntary petition in bankruptcy. Before this relief was granted, the bankrupt obtained a stay of payments under the stipulation and procured a hearing on the question of the compensation and disbursements of the trustee and his attorney, and of the objecting creditor and his attorneys. The Referee made a report recommending the allowance of (1) the compensation and disbursements of the trustee, (2) the disbursements of the objecting creditor, and (3) $1,000 as the fee of the trustee's attorney. The Referee reported that there was no power to allow any fee to the attorney for the objecting creditor and recommended that no such fee be allowed. On April 22, 1952, the district court entered an order allowing the fees and disbursements as thus recommended, and directing the bankrupt to pay the same. The order concluded: "Ordered that Honour B. Gelson pay these allowances and disbursements as neither the Trustee and/ or his attorney assembled any funds or assets during the proceeding. There are no funds in the estate." Included in these disbursements was the sum of $164.30 for disbursements of the objecting creditor in connection with the opposition to the discharge. On motion, this order was resettled by an order dated June 2, 1952; this order likewise directed the bankrupt to pay those fees and disbursements, and vacated the stay. From these orders of April 22 and June 2, 1952, the bankrupt appeals.
Honour B. Gelson, pro se, appellant.
Lucien Nemser, pro se, appellee.
Before SWAN, Chief Judge, and L. HAND and FRANK, Circuit Judges.
FRANK, Circuit Judge.
The bankruptcy court had jurisdiction to fix the allowances and disbursements. It also had jurisdiction to condition an order to vacate the adjudication and to dismiss the voluntary petition on payment of such sums. See Bankruptcy Act, § 59, sub. g;1 3 Collier, Bankruptcy (14th ed.) p. 631; Matter of Lavine, D.C., 20 F. Supp. 362; In re Salaberry, D.C., 107 F. 95; In re Riordan, 7 Cir., 95 F.2d 454. But, with one exception, the Act confers no power to order the bankrupt to pay such items other than as such a condition. Consequently, the orders on appeal are clearly invalid, except as noted in the next paragraph of this opinion.
Subdivision a(18) of § 2 of the Bankruptcy Act, 11 U.S.C.A. § 11, sub. a(18), authorizes the bankruptcy court to " [t]ax costs and render judgments therefor against the unsuccessful party, against the successful party for cause, in part against each of the parties, and against estates, in proceedings under this title; * * *." In several cases it was held that this provision authorizes the taxing against the bankrupt personally of the expenses (not including attorney's fees)2 of the trustee or creditors in successfully opposing a bankrupt's discharge. See Bragassa v. St. Louis Cycle, 5 Cir., 107 F. 77, 80; In re Simon, D.C.Mass., 279 F. 794; In re Kyte, D.C.Pa., 189 F. 531, 532; In re Katz, D.C. E.D.N.Y., 23 F. Supp. 431, 432.3 Cf. 3 Collier, supra, p. 2105. The reason given in these cases for assessing such costs against the bankrupt was that they could not be validly ordered to be paid out of the estate. With that reason we do not agree, since subdivision a(18), above quoted, specifically provides that the bankruptcy court may tax costs "against estates." By the 1938 amendment, § 64, sub. a, 11 U.S.C.A. § 104, sub. a, was amended to provide that there should be paid out of the estate in class (1) "the costs and expenses of administration, including the trustee's expenses in opposing the bankrupt's discharge, * * *" and in class (3) "the reasonable costs and expenses" of "creditors in obtaining" a "refusal" of the bankrupt's discharge. This change gives such items priority as against the estate. But this does not mean that the court may not assess such costs against the bankrupt; and it is peculiarly appropriate that they shall be so assessed where there are no funds in the estate to pay them.
We do not pass on the liability of any of the parties to the "stipulation," for such liability must be asserted in a suit on that stipulation. Nor do we consider an order, not appearing in the record, said to have been entered ex parte on the bankrupt's motion and while this appeal was pending, which vacated the adjudication and dismissed the petition. Nothing we have said is to be taken as precluding a motion to vacate such order, if any, and to substitute an order making dismissal conditional upon the bankrupt's payment of the fees and disbursements referred to in the order of June 2, 1952.
Modified by striking the provision in each order which directs the bankrupt to pay or cause to be paid anything other than the expenses of the objecting creditor.
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