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United States v. Larchwood Gardens Inc.

decided: December 12, 1968.


Hastie, Chief Judge, and Seitz and Van Dusen, Circuit Judges.

Author: Hastie


HASTIE, Chief Judge.

Larchwood Gardens, Inc. is a Pennsylvania corporation organized in 1953. John A. Robbins Co., a construction company, was then and has continued to be the sole owner of Larchwood common stock. This is an appeal by those corporations from orders of the district court determining and allowing compensation to two court appointed receivers, their attorney and their accountant.

Larchwood purchased a tract of land and built garden apartments on part of it. The construction was financed by a grant from the Commonwealth of Pennsylvania and a Federal Housing Administration insured million dollar mortgage loan from a bank. About 20 acres of the tract were not included in the housing project or covered by the mortgage.

After the housing development was completed Larchwood entered into a contract with Robbins under which Robbins, for a fee of 3 percent of gross rental, undertook to manage the rental property. In 1963, with this arrangement in effect, the mortgage became seriously in default. At that time, Larchwood also owed Robbins a large sum for advances made by Robbins from time to time to cover taxes, operating costs and mortgage payments for which rental income had been insufficient.

In these circumstances the United States instituted the present action in the District Court for the Eastern District of Pennsylvania to foreclose the mortgage. The indenture gave the mortgagee the right to have a receiver appointed in connection with such a foreclosure. Accordingly, on the motion of the United States, the court appointed two receivers, N. L. Wymard and David Walker, "to take charge and possession of the mortgaged premises and to manage and operate the same, and to collect the rent and income therefrom * * * during the pendency of this action." Thereafter, on motion of the receivers, the court appointed James McHale, Esquire, to be attorney for the receivers. The court also authorized the receivers to employ a firm for accounting services.

The receivership was instituted in September 1963 and, almost exactly a year later, in September 1964 FHA took possession of the property pursuant to the foreclosure sale thus ending the interim stewardship for which the receivers had been appointed and leaving them with no substantial responsibility under the terms of their appointment other than accounting for income and generally winding up the affairs of the receivership.

In the spring of 1964, pursuant to the receivers' petition, the court awarded an interim allowance of $1,250 to each of them and a fee of $500 to their attorney. In October 1965, a year after the receivers had surrendered possession of the housing project and over the objections of Larchwood and Robbins, the court made additional awards of $4,000 to each receiver, $3,000 to their attorney and a $3,515.25 fee to their accountant. Thus, for managerial and custodial service over a period of one year and work incidental thereto the receivers were awarded $10,500; their attorney was awarded $3,500, and their accountant $3,515.25.

The court below correctly stated the guiding principles which this court has applied to determine the reasonableness of fees in such situations as this. Generally, the applicable considerations are the time and labor required, but not necessarily that actually expended, in the proper performance of the duties imposed by the court upon the receivers, the fair value of such time, labor and skill measured by conservative business standards, the degree of activity, integrity and dispatch with which the work is conducted and the result obtained. United States v. Code Products Corp., 3d Cir. 1966, 362 F.2d 669, 673. And in this process vicarious generosity should receive no countenance. In re Gilbert, 1928, 276 U.S. 294, 296, 72 L. Ed. 580, 48 S. Ct. 309; United States v. Code Products Corp., supra.

The district court did not indicate what circumstances or analysis led it to conclude that the fees requested here were reasonable. Consequently we must consider each aspect of the case without the guidance of the district court as to the considerations it viewed as compelling or decisive.

When the receivers took possession of the apartment project only 68 of the 178 apartments were rented. They have stated that they requested authority from the FHA to operate the apartment complex in an effort "to increase the number of tenants and, if possible, to have it fully rented. It was the thought of the receivers that if the Apartment House was fully rented, a sale would produce an increase in the value of the property."

Their efforts toward this end were notably unsuccessful. They make no claim of increasing rental income. The appellants contend, and it is not disputed, that in fact rental income decreased during the receivership while expenses, other than the fees of the receivers, remained about the same. No purchaser was found for the property and it was bid in by FHA at the foreclosure sale.

The receivers did not inform the district court how much time they devoted to their duties,*fn1 a practice which cannot be approved. Court appointed officers should keep contemporary time records of their work and report such information in any petitions for fees. Moreover, in this case most of the services were not performed in the presence of the court. Consequently it could not take judicial notice of the effort expended. See Coskery v. Roberts & Mander Corp., 3d Cir. 1952, 200 F.2d 150, 153. In these circumstances the only fair determinant of allowable fees for management of the ...

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