Central Railroad Banking Company of Georgia v. Pettus/Opinion of the Court

by by John Marshall Harlan

United States Supreme Court

113 U.S. 116

Central Railroad Banking Company of Georgia  v.  Pettus

In Trustees v. Greenough, 105 U.S. 527, we had occasion to consider the general question as to what costs, expenses, and allowances could be properly charged upon a trust fund brought under the control of court by suits instituted by one or more persons suing in behalf of themselves and of all others having a like interest touching the subject-matter of the litigation. That suit was instituted by the holder of the bonds of a railroad company, on behalf of himself and other bondholders, to save from waste and spoliation certain property in which he and they had a common interest. It resulted in bringing into court or under its control a large amount of money and property for the benefit of all entitled to come in and take the benefit of the final decree. His claim to be compensated, out of the fund or property recovered, for his personal services and private expenses was rejected as unsupported by reason or authority. 'It would present,' said Mr. Justice BRADLEY, speaking for the court, 'too great a temptation to parties to intermeddle in the management of valuable property or funds in which they have only the interests of creditors, and that, perhaps, only to a small amount, if they could calculate upon the allowance of a salary for their time and having all their private expenses paid.' In respect, however, of the expenses incurred in carrying on the suit and reclaiming the property subject to the trust, the rule, upon a careful review of the authorities, was held to be different. After stating it to be a general principle that a trust estate must bear the expenses of its administration, and that where one or more of many parties having a common interest in a trust fund takes, at his own expense, proper proceedings to save it from destruction and to restore it to the purposes of the trust, he is entitled to reimbursement either out of the fund itself or by a proportional contribution from those who accept the benefit of his efforts, the court said that 'the same rule is applicable to a creditor's suit where a fund has been realized by the diligence of the plaintiff.' It was consequently held that the complainant in that case was properly allowed his reasonable costs, counsel fees, charges, and expenses incurred in the fair prosecution of the suit, and in reclaiming and rescuing the trust fund and causing it to be subjected to the purposes of the trust. Are the principles announced in that case applicable to the one now before us?

We have seen that the purchase, by the Western Railroad Company, of the property of the Montgomery & West Point Railroad Company, and the surrender by the latter of its charter, left the unsecured creditors of the vendor company unprovided for, except as the vendee company assumed and agreed to meet the outstanding debts and obligations of the other company. But when the present appellants became purchasers at the sale in the suit instituted by Morris and Lowery, trustees, they asserted their right to hold the property originally belonging to the Montgomery & West Point Railroad Company, freed from any claim against it by the unsecured creditors of that company. Those creditors resided in several states, and their claims aggregated a large amount. Co-operation among them was impracticable. If some did not move, the interests of all would have suffered. Hence Branch, Sons & Co. and their co-complainants instituted suit for the benefit of themselves and other creditors of the same class. They and their solicitors bore the entire burden of the litigation until the lien was finally declared, and the property ordered to be sold to pay all claims filed pursuant to the decree. The supreme court of Alabama held conclusively as between the parties before it-that the Montgomery & West Point Railroad Company, like any other private corporation chartered to transact business, was a trustee of its capital, property, and effects, first, for the payment of its creditors, and afterwards for the benefit of its stockholders; that while it was in operation, according to the design of its charter, its general creditors would have no specific lien entitling them to sue in equity; yet, having left its debts unpaid, and having distributed its capital, property, and effects among its stockholders, or transferred thm to third persons, who were not bona fide purchasers, without notice, and having become disorganized, so that it could not be efficiently sued at law, 'a court of equity will pursue and lay hold of such property and effects, and apply them to the payment of what it owes to its creditors;' and, consequently, that its creditors had a lien, for the payment of their debts, on its road, appurtenances, and other property, superior to that created by the trust deed or mortgage of September 15, 1870, executed by the Western Railroad Company. Montgomery & W. P. R. Co. v. Branch, 59 Ala. 139.

It thus appears that by the suit instituted by Branch, Sons & Co. and others, the property was brought under the direct control of the court, to be administered for all entitled to share the fruits of the litigation. Indeed, the suit itself was an equitable levy upon the property, and the lien arising therefrom remained until discharged by order of the court. It is true that the bill states that it was brought for the benefit of all creditors who should become complainants therein; but it was intended to be, and throughout was, conducted as a suit for the benefit, not exclusively of the complainants, but of the class to which they belonged. It was so regarded by all connected with the litigation.

It is clear that, within the principles announced in Trustees v. Greenough, Branch, Sons & Co. and their co-complainants are entitled to be allowed, out of the property thus brought under the control of the court, for all expenses properly incurred in the preparation and conduct of the suit, including such reasonable attorneys' fees as were fairly earned in effecting the result indicated by the final decree. And when an allowance to the complainant is proper on account of solicitors' fees, it may be made directly to the solicitors themselves, without any application by their immediate client. But on behalf of appellants, it is insisted that the utmost which the court may do is to charge upon the property such reasonable expenses as complainants themselves incurred, and became directly and personally bound to meet; and, since appellees have received from the creditors, specially engaging their services, all that those creditors agreed to pay, it cannot be said that the compensation demanded in respect of such as were not parties, otherwise than by filing their claims with the register, constitute a part of the expenses incurred by the complainants. This is an aspect of the general question not presented in Trustees v. Greenough.

It is true that the complainants are not shown to have incurred any personal responsibility for solicitors' fees, beyond those stipulated, by special contract, to be paid to the appellees; and it is equally true that there was no express contract on their part to pay appellees such additional compensation as the court might allow and charge upon the property. Yet, it is proven that when the appellees engaged their professional services to Branch, Sons & Co., and other complainants named in the bill, it was understood by the latter that their solicitors entered upon the preparations of the suit in the belief that they had the right to demand, and would demand, such additional compensation as was reasonable, in respect of unsecured creditors who accepted the fruits of their labors by filing claims; that, but for this understanding, appellees would have stipulated for larger compensation than was agreed to be paid by their particular clients; and that, in this belief, and upon that understanding, they conducted the suit. Mr. Watts, in his deposition, says that on the occasion of his contract for a fee with Branch, he 'stated to him that the bill which we should file, although it should be in the name of his firm, would be for the benefit of all the creditors of the Montgomery & West Point Railroad Company not secured by mortgage, and that in such cases the lawyer who filed the bill would be entitled to a fee from all the creditors who participated in the benefit of their labors; and that we should charge him so small a fee, with the expectation that we should be paid a large fee out of the fund brought into court or condemned by our labors; and that such fee would be allowed by order of the chancery court, and a lien declared on the fund for the payment of such compensation, and with such understanding the paper [special contract for fee] was signed.' Mr. Pettus says: 'The bonds and other claims on which the bill was filed were less than a sixth of the unsecured debts of the Montgomery & West Point Railroad Company of the same class, and at the time that Pettus & Dawson were employed to bring the suit, that fact was known and discussed between the parties making the contract, and it was also discussed between said parties that the suit, if successful, would inure to the benefit of all the unsecured creditors who might claim the benefit of the decree, and that everbody who claimed the benefit of the services rendered by the complainants' solicitors would be bound to allow complainants' solicitors compensation out of that part of the fund distributable to them.'

There is no evidence in contradiction of these statements. Had Branch, Sons & Co., and their co-complainants, expressly stipulated to make such reasonable compensation, in addition to the fees they agreed to pay their solicitors, as the court might allow, in respect of other creditors filing claims, the dase, it could not well be doubted, would come within the very letter of the decision in Trustees v. Greenough. Without at all conceding that an express contract of that character would have added to the power of the court in the premises, it seems to us that the present case is embraced by the reason of the rule announced in Trustees v. Greenough. When the litigation was commenced, the unsecured bonds of the Montgomery & West Point Railroad Company was without any value in the financial market. That litigation resulted in their becoming worth all, or nearly all, that they called for. The creditors who are entitled to the benefit of the decree had only to await its execution in order to receive the full amount of their claims; and that result was due to the skill and vigilance of the appellees, so far as the result of litigation may, in any case, be referred to the labors of counsel. When creditors filed their claims they had notice, by the bill, that the suit was brought, not exclusively for the benefit of the complainants therein, but equally for those of the same class who should come in and contribute to the expenses of the litigation. Those expenses necessaruily included reasonable counsel fees, which, upon every ground of justice, should be estimated with reference as well to the claims of the complainants who undertook to protect the rights of all the unsecured creditors, as of the claims of those who accepted the fruits of the labors of complainants and their solicitors. We are of opinion that the appellees are entitled to reasonable compensation for their professional services in establishing a lien in behalf of the unsecured creditors of the Montgomery & West Point Railroad Company, upon the property described in the suit instituted by Branch, Sons & Co. and others, and that such compensation should be made with reference to the amount of all claims filed in the cause, although the evidence thereof may have been retained in the custody of the respective creditors; excepting from such estimate or calculation not only the claims of the complainants named in the bill, and of other unsecured creditors who may have had special contracts with appellees, or settled with them, but also such claims purchased by appellants as were not filed for allowance under the decree. The decree below proceeded upon this basis.

The court below did not err in declaring a lien upon the property in question to securesuch compensation as appellees were entitled to receive; for, according to the law of Alabama, by one of whose courts the original decree was rendered, and by which law this question must be determined, an attorney at law or solicitor in chancery has a lien upon a judgment or decree obtained for a client to the extent the latter has agreed to pay him, or, if there has been no specific agreement for compensation, to the extent to which he is entitled to recover, viz., reasonable compensation for the services rendered. Ex parte Lehman, 59 Ala. 632; Warfield v. Campbell, 38 Ala. 527. That lien could not be defeated by the corporations which owned the property purchasing the claims that were filed by creditors under the decree. The lien of the solicitor rests, by the law of that state, upon the basis that he is to be regarded as an assignee of the judgment or decree, to the extent of his fees, from the date of its rendition. This right of the solicitors is superior to any which the defendant corporations acquired subsequent to the decree by the purchase of the claims of unsecured creditors.

It remains only to consider whether the sum allowed appellees was too great. We think it was. The decree gave them an amount equal to 10 per cent. upon the aggregate principla and interest of the bonds and coupons filed in the cause, excluding those in respect of which there was, between appellees and complainants and others, special contracts for compensation. It is shown that appellees had with the complainants contracts for small retainers and 5 per cent. upon the sums realized by the suit. We perceive no reason for this discrimination against creditors who were not parties, except by filing their claims after decree. One-half the sum allowed was, under all the circumstances, sufficient. For the error last mentioned the decree is reversed, and the cause remanded, with directions to modify the decree so as to award to appellees only the sum of $17,580, with interest from March 7, 1881, with the benefit of the lien upon the property as established by the decree. Each party will pay his costs in this court, and one-half the cost of printing the record.

Notes