Opinion
Hearing Granted June 22, 1944.
Appeal from Superior Court, Los Angeles County; Joseph W. Vickers, Judge.
Action by Glenn Winslow and another on behalf of themselves and on behalf of all other holders of certificates of beneficial interest in a trust against Harold G. Ferguson Corporation and others to terminate the trust and secure judicial administration and liquidation of trust assets wherein R. E. Allen was appointed receiver and Ella Stromgren, as executrix of the estate of L. G. Prentiss–Baker, deceased, was substituted plaintiff in intervention. The Fidelity & Deposit Company of Maryland filed a claim and Raymond Tremaine filed a motion to vacate an order subordinating his fee as attorney to claims of creditors of the trust fund. From an order denying the motion, Raymond Tremaine appeals.
Affirmed.
MOORE, P. J. dissenting.
COUNSEL
Tuttle & Tuttle, of Los Angeles, for appellant.
Meserve, Mumper & Hughes, of Los Angeles, for respondent R. E. Allen, receiver.
OPINION
W. J. WOOD, Justice.
Appellant, who is now an officer in the army, was practicing law in the city of Los Angeles before the commencement of the war. He has appealed from a minute order made on June 8, 1943, denying his motion made under section 200 of the Soldiers’ and Sailors’ Civil Relief Act of 1940, 50 U.S.C.A. Appendix § 520, to vacate an order which was made during his absence in military service. He complains of the order because it subordinates his fees as attorney to the claims of creditors of a trust fund which he asserts was preserved through his efforts.
The action was commenced on January 30, 1931, by the owners of two "certificates of beneficial interest" in the Ferguson Trust No. 50. By the declaration of trust, which was executed in 1927, Metropolitan Trust Company was named as trustee and Harold G. Ferguson was appointed executive agent with power to bind all of the beneficiaries under the trust in all matters relating to its administration. It is alleged in the complaint that the Ferguson Corporation was the syndicate manager with "uncontrolled discretion" to invest, reinvest, loan, secure or lease all of the property of said trust; that according to the terms of the trust the beneficiaries bound themselves to pay all taxes, insurance, expenses, liens, charges and expenses necessary for the maintenance of the trust property and the expenses of the trust. It is further alleged in the complaint that the Ferguson Corporation became insolvent and for this and other reasons it became impossible to carry out the purposes of the trust, that it was impossible to appoint a succeeding trustee and that the appointment of a receiver was necessary. Plaintiffs sought by their complaint to terminate the trust and secure judicial administration and liquidation of the trust assets. At the request of plaintiffs R. E. Allen was appointed receiver pendente lite. The litigation was brought to a close in 1940 and an interlocutory judgment entered dissolving the trust and making the receivership permanent for the purpose of completing the liquidation of the trust assets. Appellant was one of the attorneys for plaintiffs and succeeds to the interests of his associate attorneys in the matter of claims for legal services rendered. On April 25, 1934, the court made an order "that the fee of Raymond Tremaine, attorney for said plaintiffs, shall be not less than $500 and shall be not more than 2 1/2% of all moneys or of the value of other property ordered distributed by this court to the beneficiaries of that certain trust heretofore described as P.T. 50. * * *" On August 11, 1941, the court made a further order fixing appellant’s fees at the total sum of $5,000 and directing the receiver to "pay from sums available to him as receiver, the balance of $4,500 to Raymond Tremaine, for such services when said receiver shall have sufficient sums available to make the entire payment, or part thereof, or whenever this court shall determine there are sufficient funds available to pay these attorney fees."
A current account was filed by the receiver in December, 1942, in which he reported on the claims and petitioned for instructions as to their priority. On December 18, 1942, the court made an order by which the receiver was directed to pay appellant’s fees for services rendered after the payment of the claims of creditors. This order in effect makes the fees for plaintiffs’ attorney payable from funds which would belong to the beneficiaries of the trust. On February 17, 1943, appellant filed a notice of appeal from the order of December 18, 1942, and on March 22, 1943, he filed a notice of motion in the superior court to vacate that part of the order of December 18, 1942, by which his fees were subordinated to the claims of creditors, on the ground that he was in military service and had not been given notice before the order was made. This motion was denied without prejudice, for lack of jurisdiction because of the appeal. Thereafter appellant filed with the clerk of the superior court a written abandonment of the appeal and on May 28, 1943, appellant again filed a notice of motion to vacate the portion of the order of December 18, 1942, which affected his interest, basing his motion on the fact that he was in military service and was entitled to relief under the Soldiers’ and Sailors’ Civil Relief Act of 1940. The present appeal is from the order denying this motion.
Assuming that the order of December 18, 1942, did not become final by virtue of the fact that appellant filed an appeal therefrom and later abandoned it, a point which is argued in the briefs, nevertheless appellant is not now in position to demand that the order from which the appeal is prosecuted be reversed, for the reason that it does not appear that he was prejudiced by the order of December 18, 1942. Section 200, sub. (4) of the Soldiers’ and Sailors’ Civil Relief Act of 1940 provides: "If any judgment shall be rendered in any action or proceeding governed by this section against any person in military service * * * and it appears that such person was prejudiced by reason of his military service in making his defense thereto, such judgment may * * * be opened * * * and such defendant * * * let in to defend; provided it is made to appear that the defendant has a meritorious or legal defense to the action or some part thereof."
More than 2,000 persons became purchasers of certificates of beneficial interest in Trust No. 50 and the plaintiffs are the beneficial owners of a very small fractional part of the trust property. They and the other owners in like position purchased the certificates with the view of making an advantageous business investment in a concern dealing in real estate. The just debts of the concern should be paid before any part of the investments made by the certificate holders is returned to them. Likewise the debts of the trust should be paid before certificate owners are reimbursed for expenses incurred by them in protecting their interests as investors. If only ten individuals had become the owners of the certificates of beneficial interest and all ten had joined as parties plaintiff in the action to terminate the trust they would not be in position to ask that the creditors of the trust be required to forego their prior claims on the theory that the plaintiffs in taking action to terminate the trust were preserving the trust property for the creditors as well as for the owners. In the present action it is not alleged that the complaint was filed on behalf of creditors but it is specifically alleged that "the plaintiffs bring this action on behalf of themselves and on behalf of all other holders of certificates of beneficial interest as represented by a series of certificates issued by said trustee under said declaration of trust who may hereafter become parties to this suit."
The general rule is well established that in case of the existence of a common fund to which a number of persons are entitled, where one files a representative action for the benefit of himself and others in like situation to obtain, preserve, or protect the fund, the party commencing the action may be awarded costs, including counsel fees, out of the fund. In re Pacific Coast Building-Loan Ass’n, 15 Cal.2d 155, 157, 99 P.2d 261; Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157. Counsel have cited many decisions both in this and other jurisdictions in which the rule is applied that contribution to reimburse for expenses incurred in preserving the common fund can be compelled from others having a common interest in the fund. But no case has been cited to us, and we have found none, where the precise point under discussion has been submitted for judicial review. In Muskegon Boiler Works, v. Tennessee Valley I. & R. Co., D.C., 274 F. 836, 837, the court follows a statement of the general rule with this observation: "Such fees, however, are to be based only on the fund applicable to claims of creditors of the same class as the plaintiff, and the fund on which others have liens superior to such claims cannot be subjected to such payments." It should be noted, however, that the facts in the Muskegon case and also the facts in Buell v. Kanawha Lumber Corp., D.C., 201 F. 762, cited in the Muskegon case, are different from the facts of the case now under review.
The plaintiffs and other certificate holders do not have a common interest with the creditors in the property of trust No. 50. Since the creditors have the right to subject the trust property to the payment of their claims, it follows that plaintiffs may not subordinate any part of the claims of the creditors to their own right to a distributable interest in the property of the trust or to the payment of their expenses, including the fees of their counsel, incurred in procuring disposition of the trust property to them.
Appellant cannot demand his fees as a part of the expense of administration. Indeed, the record discloses that fees have been allowed and been made payable from the trust fund in favor of counsel engaged by the receiver. Since the trial court properly held that appellant’s fees should be subordinated to the claims of the creditors it is apparent that appellant has not been prejudiced by the order from which the appeal is taken.
The order is affirmed.
McCOMB, Justice.
I concur in the judgment, on the sole ground that the alleged errors urged by appellant may not be reviewed on this appeal. See Neighbours v. Neighbours, 62 Cal.App.2d 840, 145 P.2d 688; Smith v. Superior Court, 21 Cal.App.2d 160, 164, 69 P.2d 176.
MOORE, Presiding Justice.
I dissent from the opinion of Justice Wood in so far as it subordinates the right of appellant to his fee to the claims of creditors.
On April 25, 1934, following a hearing on counsel’s application for attorney’s fees the court ordered that the fee should be not less than $500 and should be no more than 2 1/2 percent of assets to be distributed to the beneficiaries of trust P. T. 50 of the Metropolitan Trust Company, "the exact amount and time of payment of said fee to be determined later."
Seven years passed during which an intervener came into the case represented by her counsel. During that time extensive services were performed by both counsel for plaintiff and counsel for intervener in recovering and protecting the assets of the involved trust. On August 11, 1941, following a joint application of plaintiff and plaintiff in intervention, the court made its order that the total attorneys’ fees for the several counsel appearing "be and they are hereby fixed at $5,000, the reasonable value thereof of which $500 has been heretofore paid to Raymond Tremaine." The order then directed that the receiver pay from "sums available to him as receiver the balance of $4,500 * * * when said receiver shall have sufficient sums available to make the entire payment or part thereof. * * *"
The respondent contends that the first order was final and decisive as to the amount of fees to be paid and the order of its payment with reference to the payment of the creditors of the trust. He argues that, inasmuch as the first order restricted the payment of counsel fees out of the fund available for the beneficiaries after the payment of the claims of creditors, appellant may not be paid out of the gross fund saved to the trust and also that he is limited to 2 1/2 percent of the net fund available for division among the beneficiaries.
With this contention I disagree. The original order was interlocutory only in its effect. It provided for plaintiff’s expenses while acknowledging that other extensive labors should be performed in order to effect the ultimate purpose of the litigation. During the seven years, numerous and valuable services were performed by counsel for interveners as well as counsel for plaintiff. In August, 1941, following the hearing on the joint application of all counsel for an order fixing their fees a definitive order was made for counsel fees and costs of plaintiffs and the intervener. It contained no limitations. It prescribed a sum to be paid based upon its implied finding that services had been rendered to the trust. This order is both final and conclusive. Tyrrell v. Baldwin, 67 Cal. 1, 5, 6 P. 867; Semple v. Wright, 32 Cal. 659, 668. The amount of the fee finally determined is some indication of the extent and value of the service which the court considered had been rendered to the trust. In view of such finding it would seem unjust to turn counsel away without fair compensation. Such is necessarily the effect of subordinating counsel fees of appellant to the payment of the numerous creditors of the trust. There is nothing sacramental about a creditor that should exempt him from contributing to the compensation of those who make it possible for him to collect his claim. In extending credit to a corporation or a trust the creditor knows that frequently mismanagement and sometimes dishonesty results in a dissipation of the assets. The attorney who attempts to protect or recover the assets of a trust represents the creditors as well as its beneficiaries. Hence, if his service is necessary to recover a fund, he is entitled to an equitable lien upon the share due the creditors as well as upon the excess which might be distributable to the beneficiaries. If he recovers the fund from which the creditors are to be paid, in equity they are obligated for the payment of the services of that instrumentality which has avoided the total loss of their claims. Tanner v. Superior Court, 43 Cal.App.2d 732, 111 P.2d 713.
The order of August 11 awarding counsel fees and costs to be paid out of the trust fund was based solely upon a long prevailing rule in equity which allows attorneys’ fees and costs for the preservation of a fund for all who are interested in it. Under that rule such counsel fees are customarily made senior to other claims against the fund. The court could have made the award to Tremaine on no other theory. Scott v. Superior Court, 208 Cal. 303, 281 P. 55. That the order of August 11 was based upon this long-established rule readily appears from the nature of the action itself as revealed by all of the pleadings of the plaintiff and of the intervener. The predominance of that rule was recognized by the original order of 1934 in requiring the immediate payment of $500 counsel fees to which no objection appears to have been made by the receiver, but who, on the contrary, made the payment. Practically all of the claims given precedence over that of Tremaine were those of general creditors only. The solitary exception appears to be that of the government for income tax which is supported by a statutory lien. Since the claims of the general creditors accrued long prior to the institution of this litigation in equity, they should have been subordinated to the payment of counsel fees.
Creditors are daily seeking judicial intervention to collect claims from solvent debtors. In such endeavors they voluntarily pay for legal services. There is no good reason why the creditor of a failing trust should be exempt from the payment for the service of a lawyer by whose diligence he has been protected from total loss. Where a lawyer has rendered such valuable service as to make available a fund for a class, even though he appeared for only one claimant, it is equitable that his compensation and expenses should come from the entire fund saved for all classes concerned before it is distributed. Sprague v. Ticonic Nat. Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184. The attorney’s right to compensation under such circumstances arises from the benefit conferred upon those who would have suffered loss but for his timely intervention and not by reason of an agreement to pay his fees. Buford v. Tobacco Growers’ Co-op. Ass’n, 4 Cir., 42 F.2d 791.
It is wholly out of line with the traditional concept of equity practice to pay the expenses of a receiver and the fees of his counsel prior to the participation of any creditor or beneficiary and at the same time to deny the payment of fees to the lawyer who has invoked the powers of the chancellor to appoint that same receiver. The expenses of the plaintiff in causing the appointment of the receiver and in sustaining the incumbency of that official is as much an expense of administration as the attorney’s fees and should have priority to the same extent. Muskegon Boiler Works v. Tennessee Valley I. & R. Co., D.C., 274 F. 836; McLane v. Placerville & Sacramento Valley R. Co., 66 Cal. 606, 622, 6 P. 784. In Re Estate of Marre, 18 Cal.2d 191, 192, 114 P.2d 591, the court held that plaintiffs who protect and preserve a fund for the benefit of themselves and others are entitled to the payment of their counsel fees out of such fund. This principle is derived from the equitable concept that where one of a group has borne the cost of litigation resulting in the benefit to the entire group the latter should contribute to such expenses. Nolte v. Hudson Nav. Co., 2 Cir., 47 F.2d 166.
Not only is it established that the litigant is entitled to be compensated for the expense he has incurred in the prosecution of such an action but an equitable lien is created in favor of the attorney who actually performs the service. Muskegon Boiler Works v. Tennessee Valley I. & R. Co., supra.
Appellant and his associates having rendered a valuable service over a period of ten years and having thereby saved a fund which avoided total loss to the creditors should now be paid from the fund recovered prior to the payment of creditors. To do otherwise is to discharge without compensation a faithful and efficient servant who has recovered a fund without which the receiver would sit with empty hands and the creditors would write off their claims as "uncollectible."
The order appealed from was made on June 8, 1943, in response to appellant’s petition to have the judgment of December 14, 1942, amended by striking therefrom that portion which subordinates the allowance of counsel fees and costs to all other creditors. The petition was based upon a federal statute, to wit: The Soldiers’ and Sailors’ Civil Relief Act, Chapter 888, § 100, 50 U.S.C.A.Appendix § 510, which authorizes any court to open a judgment that may have been rendered in any proceeding if it appears that the soldier was prejudiced, by reason of his military service, in making his defense thereto, provided it appear that such soldier has a meritorious defense to the action or some part thereof. The order of December 14 was a judgment in contemplation of the federal statute. In re Cool’s Estate, 18 A.2d 714, 19 N.J.Misc. 236. Before it was entered no affidavit was filed as required by subdivision 1 of Section 200 of the statute, nor was an attorney appointed to represent the absent soldier who had received no notice of the hearing on the receiver’s application. For the reasons stated herein the court should have modified its order of December 14 as requested by Tremaine.
The judgment should be reversed.