And in section 72 of the act (Comp. St. § 9656) it is said:

"That neither the referee, receiver, marshal, nor trustee shall in any form or guise receive, nor shall the court allow him, any other or further compensation for his services than that expressly authorized and prescribed in this act."

In the face of these limitations I do not see how the bankrupt properly can pay to the receiver the said sum of $800. I am frank to say that in cases of this character the compensation allowable by the act is altogether inadequate. The demands upon the time and attention of a receiver during the period preceding a composition may be, and indeed frequently are, as great and exacting as when the administration proceeds in ordinary course, and yet, in the latter event, the commissions of a receiver are far in excess of those which lawfully may be paid in composition.

At section 21194 of Remington on Bankruptcy it is suggested that"The 'consideration' deposited by or for the bankrupt in composition cases is for the purpose of redeeming the estate (rather than for administering it) and manifestly is an entirely different fund, in theory at least, from the bankrupt estate itself, and creditors are not interested in what allowance may be made out of that fund to the distributing agent for his care in making the distribution of the consideration to creditors. The 'consideration' is to be 'distributed as the court may direct' and the distributing agent who performs the distribution may be compensated as the court deems suitable. It is only upon the supposition that the court will appoint the receiver or trustee in composition cases distributing agent that the allowance of one-half of 1 per cent., respectively, for the receiver's and trustee's services before the composition, is endurable."

This argument, in view of the court's desire to adequately compensate the persons chosen to aid in the administration of the law, is engaging, and one I should be glad to adopt, were it not for section 72 of the act, supra. Indeed, this practice has unquestionably been followed in a great number of cases. Judge Augustus N. Hand, in the Matter of Julius S. Rosenthal, Bankrupt, decided June 15, 1917, permitted a receiver to be paid, out of the redemption fund, a larger amount than one-half of 1 per cent. There, however, the payment was consented to by all parties. Here it does not appear that the creditors have ever had brought to their attention the cost of administration under the composition, and while no objection is now voiced upon the part of any creditor, I am unable to say that no objection would have been filed had the creditors been informed of the costs. The size of a redemption fund and the ability of a bankrupt to pay administration costs bears, I am sure, some relation to the value of the estate it is sought to redeem. I also admit that a bankrupt has a right to "trade" with his creditors as to what the composition shall be; but such right of bargaining should be upon even terms and with an appreciation by the creditors as to the size of the payments being made outside of the composition. Only by the possession of such knowledge can creditors fairly determine if a composition is for their best interests.

It is doubtless true that no obligation rests upon a receiver to act as a distributing agent, and that, if such services be performed, he may be compensated therefor. Nevertheless, the compensation to be paid

(274 F.)

must be commensurate with the worth of such services. Otherwise, the payment of such compensation would be a "form" and "guise" whereby the court's officer would receive "further compensation" for his services than that expressly authorized and prescribed by the act. I therefore reach the conclusion that I cannot sign the order confirming the bankrupt's composition, and such refusal must continue. until the court is assured that its receiver has not and will not receive compensation in excess of that allowable by law.

By what has been said I do not mean to indicate that I consider the receiver's agreed compensation as excessive. I do not know what he has done, or the extent of his responsibility. I mean only that he is the victim of a harsh statutory enactment, but must, none the less, be subject thereto.

CRAMPTON v. LAUTZ BROS. & CO., Inc.

(District Court, W. D. New York. April 1, 1921.)

Courts 363-Priority of claims for wages given by state law followed in distribution of assets of domestic corporation.

In the distribution by a federal court of the assets of a domestic manufacturing corporation in a suit to preserve the good will and property of the corporation, effect may equitably be given to a state statute giving priority to claims of employés for wages.

In Equity. Suit by William C. Crampton against Lautz Brothers & Co., Inc. On petition for allowance of priority to claims for wages. Granted.

Love & Keating, of Buffalo, N. Y. (George P. Keating, of Buffalo, N. Y., of counsel), for petitioner.

Franklin R. Brown, of Buffalo, N. Y. (John E. Durkin, of Buffalo, N. Y., of counsel), for receivers.

HAZEL, District Judge. This action was brought to preserve the good will and property of the defendant, a domestic corporation, and as the order appointing receivers contained a direction that the business be continued as a going concern the receivers retained in the service of the corporation the petitioner and other employees to maintain it. Thereafter this court, on application of the receivers, made an order directing them to pay the back wages of all employees.

The question now arises, after sale of the assets of the defendant company, whether this court has power to direct priority payment of the wages of workmen over other unsecured debts, as provided by section 9 of the Labor Law of this state. The statute of the state of New York, true enough, as contended, does not control this proceeding; still upon a question of priority of payment of wages it should be taken into consideration, in view of the fact that defendant is a domestic manufacturing corporation. Dickinson v. Saunders, 129 Fed. 16, 63 C. C. A. 666. If there had been an adjudication in bankruptcy of the defendant company, the petitioner would have been entitled to his earnings for a period of three months before the proceeding was begun, not

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

exceeding, however, $300, but instead a bill in equity prayed to preserve the assets on the theory of solvency.

The receivers took the property, not only subject to existing liens, but also as to any priorities of payment of wages for labor as against unsecured creditors. There is persuasive authority for this holding. In Dickinson v. Saunders, supra, the facts were not unlike those here. There it was urged that the claims of employees were on no different footing than those of the unsecured liabilities, but the Circuit Court of Appeals for the First Circuit reached a different conclusion, and in its opinion said:

"It is simply a question between different classes of unsecured creditors; that is, between those who, on the one hand, are understood to give credit, and those, who, on the other, furnish labor with no intention of credit, but with the expectation of immediately being paid from day to day out of the accruing earnings of the property. Therefore the questions arise whether there is such an equity, and, if yes, what is its extent? This equity, if it exists at all, is, of course, applicable to all classes of employers whose property comes into the hands of chancery for administration."

The court approved of the decision in Jones v. Arena Publishing Co., 171 Mass. 22, 50 N. E. 15, wherein it was substantially stated that it would be plainly inequitable if a general creditor in an action to preserve assets of a corporation secured an equitable division of the assets and the further advantage of reducing to the level of common creditors the wages of workmen who would be entitled to priority if the assets were left to be administered at law. Moreover, I think the priority of employees under the Labor Law of this state over other unsecured creditors is fairly implied in this circuit in Schmidtman v. Atlantic Phosphate & Oil Corp., 230 Fed. 769, 145 C. C. A. 79, and in this district whenever the question has heretofore arisen, it has been held that since receivers represent the corporation, and generally are authorized to continue the business and good will of the company, the state Labor Law giving to wage-earners a preference in payment over other unsecured creditors was equitable and just, and should be applied by analogy.

The decisions cited in opposition to the priority of payment herein deal with corporations of a quasi public character wherein such payments are justified; but I am unable to draw the inference from them that as to manufacturing corporations such priorities of payment would be inequitable to other unsecured creditors. It is perhaps not difficult to conceive of a situation where it would be inequitable and unjust to grant employees priority of payment over the general creditors, but such a situation is not presented. In this case the circumstances of the order appointing receivers to continue the business as a going concern necessitating retaining the employees, or some of them, the subsequent order directing payment of back wages, and the knowledge of such orders possessed by the purchaser at the sale equitably require, I think, applying the Labor Law of the state and directing prior payment in full of the claim in question.

So ordered,

(274 F.)

CUMBERLAND TELEPHONE & TELEGRAPH CO. v. STEVENS et al. (District Court, S. D. Mississippi, Jackson Division. July 5, 1921.)

1. Injunction 137 (4)—Preliminary injunction denied, where rights in doubt.

A suit by a telephone company against a number of patrons, as individuals and as representing other patrons, to enjoin them from bringing suits which are threatened in case complainant raises its present rates, which it claims are confiscatory, involves no federal question, in the ab sence of a state statute or order of the state Railroad Commission commanding the continuation of the alleged confiscatory rates; but where the telephone company is threatened with innumerable suits by its patrons, who are all citizens of a different state, in all of which suits there is involved a common question of law and fact, a federal court has jurisdiction on the ground of diverse citizenship, and a court of equity on the ground of preventing a multiplicity of suits, but where the confiscatory character of the present rates and the reasonableness of the, proposed rates are sharply contested a preliminary injunction will not be granted. 2. Courts 508 (2)—Federal court held without jurisdiction to enjoin suit in state court.

A federal court held without jurisdiction, under Judicial Code, § 265 (Comp. St. § 1242), to enjoin prosecution by the Attorney General of a state of certiorari proceedings in a state court against a telephone company.

In Equity. Suit by the Cumberland Telephone & Telegraph Company against J. M. Stevens and others. On motion for preliminary injunction and motion to dismiss bill. Motion for injunction denied, and motion to dismiss sustained in part.

E. D. Smith, of Atlanta, Ga., A. S. Bozeman, of Meridian, Miss., Stone Deavors, of Laurel, Miss., and George Butler, of Jackson, Miss., for plaintiff.

Frank Roberson, Atty. Gen., F. A. Lotterhos, Asst. Atty. Gen., and Hugh V. Wall, of Brookhaven, Miss., for the State of Mississippi.

HOLMES, District Judge. [1] This is not a suit to restrain the enforcement of a state statute, or any order of the Mississippi Railroad Commission, as violative of the Fourteenth Amendment. Far from being an attack upon any order of the Commission, one of its main purposes is to have such an order adjudicated valid, because. if the validity of the order is upheld, it will settle the legality of the rates in question. This was practically conceded, when it was agreed by all parties that it was not necessary to have three judges sit upon the hearing of the motion for a preliminary injunction.

While it is true that the plaintiff is entitled to a fair return at all times, while rate-making is in process as well as when completed, yet the Constitution of the United States does not guarantee it such a return, except in so far as the Fifth and Fourteenth Amendments forbid the deprivation thereof by federal or state action. Neither the state nor the Railroad Commission has done anything to prevent the plaintiff from charging reasonable rates pending a determination of the certiorari proceedings. It was the action of the plaintiff's patrons in threatening innumerable suits and to discontinue service that forced it to return to the old rates, which are alleged to be confiscatory. This was the action of private citizens, and not of the state or rate-making body.

There is no federal question in this case. The suit does not arise under the Constitution or laws of the United States, but is purely a controversy between the plaintiff and its patrons over the exchange rates it should charge them. The plaintiff is incorporated under the laws of Kentucky, and the defendants, who are sued individually and as representatives of all patrons of the plaintiff in this state, are all citizens of Mississippi.

This is a rate controversy, and this court has jurisdiction of it solely because it is wholly between citizens of different states. In this controversy between the plaintiff and its patrons, it may be necessary for the court to pass upon the validity or status of the order of March 2, 1921, by the Railroad Commission, and while a decision of that question may settle this controversy, it will not necessarily do so, as the plaintiff contends, even if the order be suspended or invalidated, that it is nevertheless entitled to charge the increased rates contended for by it, because, without those rates, it is not receiving a fair return on its investment. No statute in Mississippi subjects the plaintiff to a penalty for a violation of an unreasonable and unjust tariff of charges. Section 4883, Code 1906.

The bill alleges that the rates it is now operating under are confiscatory, and have been for some time, and that since last September it has been seeking relief from the rate-making body of the state without avail. It sets out a schedule of alleged reasonable rates which it desires to establish and put into effect, pending final fixation of reasonable rates by the proper body. This may be done, pending an unreasonable delay in the processes of rate-making which have not taken final form, if the controversy is wholly between citizens of different states, or if the court has jurisdiction on other grounds. On the motion to dismiss, the allegations that the present rates are confiscatory, that the proposed rates are fair and reasonable, that there has been an unnecessary delay in the promulgation of new rates, as well as all other facts well pleaded, are taken to be true.

The sole proper ground of equitable jurisdiction is to avoid a multiplicity of suits, and not conspiracy. A conspiracy is an agreement between two or more parties to do an unlawful thing, or to do a lawful thing in an unlawful manner. The bill does not state facts which show the defendants to have agreed to do anything unlawful, or to do any lawful thing in an unlawful way. The bill does show a bona fide dispute between the plaintiff and defendants, and numerous other parties. similarly situated, over the legality of rates or charges, and equity should take jurisdiction of the controversy to prevent the plaintiff from becoming involved in a multiplicity of suits with its thousands of patrons, in all of which suits there would be a common question of law and fact to be determined, and no question of amount of damages to be fixed by a jury. The expense of litigating separately with each one of its patrons would exceed the small fixed amounts involved in each case, in which exactly the same principles of law and exactly the same proof would be necessary. In such circumstances it is proper that a court of equity should settle all of the controversies in one suit, and stay separate proceedings at law.