Price of Services

In Manhattan last week Federal-Judge Alfred Conkling Coxe saved Paramount Pictures Inc. $2,000,000. For 29 months Paramount had struggled through receivership, bankruptcy and Section 77b reorganization proceedings. Last July it emerged as a free and solvent corporation. But receivers, trustees, committeemen, lawyers, experts, banks and others sent in a $3,239,828 bill for services and expenses. Paramount was the debtor, as the law provides that "a trust estate must bear the expenses of its administration." But Judge Coxe had the authority to deny or to reduce claims, since Section 77b provides: "The judge . . . may allow a reasonable compensation for services rendered . . . and expenses incurred." Last week Judge Coxe granted payments of $1,026,711, said "nothing doing" to two-thirds of the claims advanced.

The judicial decision stressed four major points:

Services must be necessary. Thus when Malcolm Sumner and Edwin L. Garvin claimed $150,000 for representing debenture holders, they got nothing because their clients held only $15,000 in debentures and another committee represented $14,800,000 in debentures. Messrs. Sumner and Garvin, said Judge Coxe, "contributed little if anything."

Services must be disinterested. An $80,000 claim for services put in by the Vanderlip debenture holders' committee was reduced to $7,500 because Frank A. Vanderlip and Lawrence Stern traded profitably in Paramount securities during the reorganization period. Claims brought by Kuhn, Loeb & Co., sponsors of many Paramount issues, and by Cravath, de Gersdorff, Swaine & Wood, attorneys for the banking house, were disallowed because Kuhn, Loeb withdrew from the proceedings when the trustees in bankruptcy were planning to sue Paramount directors and Kuhn, Loeb partners.

Services must be in behalf of the debtor Twelve banks, to which Paramount owed $14,000,000, were represented by a committee which valued its services at $50,000. The Paramount trustees were suing the banks, which they claimed had been treated as preferred creditors. Judge Coxe said that the bank committee's efforts were "adverse to the debtor," hence no allowance was justified.

Compensation must be reasonable. Most of the claims rendered were for the performance of useful and legitimate services but only in a few instances did Judge Coxe agree with the claimant's estimate of what those services were worth. Thus it was admitted that Cook, Nathan & Lehman, attorneys for the stockholders' committee, were "responsible in large measure for the fact that the stockholders' rights have been preserved." But where Cook, Nathan & Lehman claimed $250,000, Judge Coxe allowed them $115,000. Similarly Root, Clark, Buckner & Ballantine, attorneys for the receivers and trustees, specified that partners of the firm had put in 9,545 hours on the Paramount case and that their associates had put in 62,568 hours. But of a claim for $700,000, Judge Coxe allowed only $200,000, partly because the law firm had previously been allowed $250,000 for services rendered.

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