Watkins v. Sedberry, 261 U.S. 571 (1923)

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Watkins v. Sedberry

No. 248

Argued January 19, 1923
Decided April 9, 1923
261 U.S. 571

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Syllabus

1. The amount of attorney’s fees to be charged against a bankrupt estate as an expense of administration is subject to examination and approval by the Court (Bankruptcy Act, § 62a); the trustee is not authorized to dispose of property of the estate by contract with an attorney on a contingent basis. P. 574.

2. A contract by which an attorney undertook to recover property of a bankrupt estate, indemnifying the trustee against damages and expenses, and the trustee agreed that any property so recovered should be first chargeable with the expenses incurred by the attorney and the balance be then equally divided between them, held grossly excessive, champertous, and invalid. P. 575.

3. The contract here involved is not malum in se, and the attorney is not debarred from recovering on quantum meruit. P. 576.

4. A bankrupt who resisted recovery of property belonging to the bankrupt estate has no standing to oppose payment of a reasonable fee to the attorney who recovered the property upon the ground that a champertous contract existed between the attorney and the trustee. Id.

5. Where the purpose and result of a suit brought by a trustee in bankruptcy in a state court are to remove a cloud from property of the bankrupt and vest it all in the trustee (Bankruptcy Act, § 70), and not merely to assert his right as a creditor to set aside a fraudulent conveyance under the state law for the satisfaction of debts (id., §§ 67e, 70e), the attorney’s allowance for service in the litigation is chargeable against a surplus of the property remaining after paying all the bankrupt’s debts, and not against the debts, as it might be under the state law if the suit were of the latter character. P. 577.

6. Where property vested in a trustee in bankruptcy, through litigation, as part of the bankrupt’s assets exceeds in value the amount of the bankrupt’s debts, the amount of the recovery, for the purpose of fixing the attorney’s fee, is not the whole property, but the sum of the debts and attorney’s fee and expenses. P. 580.

275 F. 894 reversed.

CERTIORARI to an order of the circuit court of appeals revising an order of the district court in bankruptcy fixing attorney’s fees.