Court: District Court, S.D. New York; May 14, 1981; Federal District Court
On April 22, 1975, Howard N. Garfinkle filed a voluntary bankruptcy petition, leading to the appointment of Alex L. Rosen as trustee on June 20, 1975. Rosen was later retained as co-counsel, and on October 27, 1976, the firm Hershcopf, Graham, Esqs. became successor counsel, with Gerald T. Hershcopf appointed as successor trustee on December 15, 1976. Other applicants include the accounting firm Sobel Weissman, Co., retained on November 20, 1975, and the firm Podell Rothman David, Schechter, Esqs., appointed as special counsel on May 8, 1980, for ongoing certiorari proceedings.
An application for statutory notice of hearing regarding interim and final compensation for these parties was submitted on November 17, 1980. Hearings were held on December 19, 1980, and February 24, 1981, allowing all parties to present supporting documentation and arguments.
Rosen, well-regarded in bankruptcy law with over 47 years of experience, seeks final compensation for his dual role as trustee and attorney. However, his application lacks a clear distinction between trustee services and professional legal work. The memorandum references a prior decision by District Judge Thomas F. Murphy, which emphasized the importance of compensating attorneys for their professional efforts, even for non-traditional tasks. Ultimately, considering the circumstances and the financial pressure from other pending applications, Rosen is awarded $35,000 in compensation, with the option to apply for additional allowances in the future if substantial benefits to the estate arise.
Mr. Rosen's efforts led to a general unsecured claim of $1 million against the estate of Barbara Garfinkle from the Howard Garfinkle estate, though the benefits to the estate are yet to be determined. The application submitted by Hershcopf, Graham, the trustee's counsel, details substantial legal services performed, with the court recognizing the high quality and effectiveness of these services despite opposition and complexity. The Hershcopf, Graham firm’s vigorous representation was crucial in ensuring there were assets available for distribution, as their efforts have led to significant recoveries for the estate.
Key highlights of their work include a complex investigation into the bankrupt's business activities, resulting in litigation against multiple parties for bankruptcy fraud and property concealment. This culminated in a settlement that recovered $270,056.56 after extensive legal proceedings. Additionally, the firm recovered $130,890.18 through various claims, including $70,000 from Commercial Trading Co., Inc. and $60,890.18 from the City of New York. Overall, their efforts increased the estate's value by $442,595.40, with over 2,054.4 hours of billable time amounting to $237,236. Given the extended duration of their engagement, the court finds an interim allowance of $180,000 to be fair and reasonable.
The salvage theory of compensation applies to this case, supporting the principle that attorneys who significantly enhance or create a bankruptcy estate from minimal assets are entitled to generous compensation. This theory is rooted in public policy, as articulated in Hammer v. Tuffy and In re Osofsky, which liken attorney efforts in bankruptcy to maritime salvage operations, emphasizing the need for sufficient rewards to incentivize attorneys in challenging cases.
The court finds an interim allowance of $180,000 to the firm of Hershcopf, Graham appropriate due to their substantial contributions to increasing the estate's assets. Conversely, Sobel, Co. Certified Public Accountants requests $29,702.25 for their services, but their application lacks sufficient detail, making it difficult for the court to assess the value provided; however, their disbursements of $182.67 are approved.
Podell Rothman David, Schechter, Esqs. sought compensation for approximately nine years of special counsel services in certiorari proceedings, estimating a minimum of 500 hours worked. Despite the absence of contemporaneous time records, the court grants them an interim allowance of $23,057.89, including $2,761.17 for disbursements. The court acknowledges the Government's opposition to these fee applications and notes that the awarded sums constitute a high percentage of the estate's total value, aligning with precedents like In re Osofsky, where attorneys' fees accounted for 33⅓ percent of the estate.
In the case of S. R. Stern Laboratories, Inc., the court addressed the refusal of Referee Stephenson to compensate the trustee's attorneys for their collection efforts, which generated $16,000 from 140 debtors over 18 months through extensive correspondence. Although the attorneys did not file legal papers or appear in court, their work involved significant skill due to the complexities of the bankrupt's sales conditions, including potential defenses from debtors. The referee applied General Order 42 and referenced Judge Learned Hand's ruling in Eureka Upholstering Co., asserting that only the trustee could recover for collection services, thereby limiting the attorneys' compensation to statutory fees. However, the court found that the unique circumstances of this case elevated the attorneys' letter-writing efforts to a level warranting professional recognition and compensation. The opinion concluded that the referee's strict application of the law was inappropriate given the attorneys' contributions, resulting in a directive to reassess the value of their services. This decision aims to prevent confusion and ensure effective administration of bankrupt estates. The proceedings noted that co-counsel Krause Hirsch, Gross, Esqs. did not participate actively or apply for compensation. The overall figure of $442,595.40 includes interest accrued on the principal recovered by another firm involved.
