farm and home foreclosures, mercantile and manufacturing company reorganizations, as well as a considerably increased volume of personal bankruptcy cases. All of this is in addition to the ordinary calendar of the Federal courts, which includes equity, admiralty, tax, and criminal cases.

The situation confronting a competent Federal judge under prevailing conditions is well outlined in an article by Judge Clarence G. Galston, of New York, included in the extension of remarks of Hon. F. Wagner, of New York, in the Senate on Monday, January 27, 1936. A relevant portion of the judge's article is as follows:

One of the weaknesses of 77B is the immense volume of administrative detail which it casts upon judges. Every important policy in the management of a corporation which is brought under its provisions may be and frequently is submitted to the judge for his determination. This is so whether the debtor remains in possession or whether a trustee is in control. The act is but a year old and nevertheless the business cares cast upon the judge who fathers the proceeding are vastly burdensome. New petitions multiply far beyond the number of pending petitions disposed of. Reorganizations take time. Most Federal judges, at least in the southern and eastern districts of New York, begin and end their day with administrative problems arising out of 77B proceedings. Such duties are not judicial in nature. The main function of a court should be to decide controversies and not to operate a business.

Nevertheless, judges are confronted daily with such purely business questions as what the terms of a lease shall be, the salaries to be paid officers, whether and when and in what quantities commodities to be used in manufacture should be purchased, whether money may be borrowed and machinery bought, whether seasonable commodities held by a secured creditor as collateral should be sold, and, if so, under what condition. Equally numerous, and indeed greater in variety, are the business enterprises that come to the Federal courts on the wings of 77B. Thus, we have a swing from dairies to breweries, coal yards, lumber, cement, wines and liquors, hotels and apartment houses, shoes, furni. ture, and even kiddie shops have sought relief in our court. An administrative medium, even at the risk of setting up another bureau of control, would seem to be indicated as a wise expedient, providing always there be reserved the right of judicial review.

Mr. MICHENER. All of that historical background is very interesting; but I think most of the committee will recall that in 1926 a special committee was sent by, I think, the New York Bar Association to Europe, who made a study of the English system and came back and reported on it. If you don't have a copy of that report, you can get it from the clerk here.

There is a vast difference between the conditions in England and our conditions here. We don't care to go so much into a discussion of the conditions over there. We have an entirely different set-up here now. We certainly don't want to go too far into matters of that kind in trying to help this bondholders' committee situation. I think it is academic so far as this particular bill is concerned.

Mr. POWERS. I am merely pointing out that in all cases, both in the Canadian system and in the British system, after trying out various kinds of things like we are trying out in this country, they finally settled it by administering it by the board of trade in England and the supervisor in bankruptcy in Canada.

Mr. MICHENER. Of course, the board of trade in England is not an official body. They can do a lot of things there that we cannot do here. The set-up is entirely different. If

you contemplate in this bill to accomplish something similar to what is accomplished in England under the board of trade—is that your purpose ?

Mr. POWERS. The reason that I have given you this résumé is because I have been asked several times by Congressmen in regard to this Canadian situation or the British situation and how they handle it there. This is a brief résumé of something that you would have to read 50 or 60 pages to get it out of other documents.

Mr. SABATH. Pardon me, gentlemen, Mr. Powers is one of the many attorneys in the city of Chicago whom I have requested without pay to keep me informed relative to the system that is now in vogue in Canada and Great Britain, because I heard, and the evidence disclosed, that they have had similar troubles over there until the time that they passed something similar to what we are trying to do here.

Mr. MICHENER. The reason I interrupted was that this has all been gone into and studied by this other committee.

Mr. SABATH. We didn't know that.

Mr. MICHENER. It was studied by this board for at least 4 years by their special committee. A very active study was made by the American Bar Association, the bar association of the city of New York and, I think, Chicago; and we tried to see if we could work out some way to adopt the official trusteeship, or whatever you call it, similar to the British custom. But we found that it would not operate in this country at all. Everybody agreed to that, and they abandoned it.

Mr. POWERS. In favor of court receivers?
Mr. MICHENER. Yes; in favor of the present system.
Mr. POWERS. The Attorney General made a report on it.

Mr. MICHENER. That was in 1926, wasn't it, that he made that report?

Mr. CHANDLER. The Attorney General's report was about 1930.

Mr. SABATH. 1932; at that time the Attorney General, Mr. Mitchell, ordered a special investigation.

Mr. MICHENER. And at that time I think they criticized Daley for introducing one of the bills,

Mr. SABATH. They found that it couldn't be done.

Mr. Powers. They found that under the English system particularly they had to elect trustees.

Mr. CHANDLER. Now, Mr. Powers, Judge Sabath and I and the committee feel at this time that we can absorb just so much in one day, as you very well know. So, as far as I am personally concerned, although it is very interesting to hear this background of the matter, I would suggest that Mr. Powers complete his address and have it put into the record. Then, when these gentlemen come back with the suggested amendment, you can let Mr. Blaustein look at the record and come before the committee and give his final expression of what he thinks should be done, because every member of the committee has some work that he has to do before he goes home this evening; and I believe that Mr. Powers will probably find it much easier to express himself if he thinks about what has been done and said here today and then finishes his address.

Mr. Powers. I, of course, am not familiar with the finding of your committee. I have gone into the Federal bankruptcy courts every day. I have gone into cases-for instance, last Wednesday I was in a case that had been in the Federal courts for 4 years, where a receiver had been operating at large fees. The judge had been assuming that a large corporation had title to the hotel.

I disclosed to the court as the result of an independent investigation of the records of the corporation that all the claims had been filed against a dummy corporation; that the title to the property then stood in the name of Mr. O'Connor, who does not even appear in the case. He has the legal title to the assets. If that had not been disclosed to the judge, that whole case would have been wound up and everybody would have assumed that that was a large hotel company.

Mr. McLAUGHLIN. What was the consideration for the transfer to Mr. O'Connor?

Mr. POWERS. $10.

Mr. McLAUGHLIN. In your investigation that you made what was your finding as to whether a case could be maintained to set aside the composition?

Mr. POWERS. That would not be possible. Our purpose was to sustain the title.

Mr. McLAUGHLIN. Regardless of what the purpose was, what was your view? If it was a fraudulent transfer, isn't there some remedy?

Mr. POWERS. Oh, yes; you can go in and try to set it aside on the ground of fraud.

But the answer to that is that the bondholders still have a lien on that particular property. It is the real property and not the corporation that the lien was on. The thing was that this whole proceeding in bankruptcy was an attempt to defraud the court by making the court say that this was a corporation that had the property.

Mr. SABATH. The most unfortunate part of this situation is this: That nearly all of these bondholders have been wiped out. They do not have enough money to engage outstanding counsel to go in and be able to combat these expert lawyers who have devoted years and years to a study of this situation and are thoroughly familiar with nearly every point involved.

For that reason, where this committee has discovered some of these cases where fraud has been shown, we have sent our special lawyers in there to bring to the court the information and evidence which we have obtained from the investigations that we have conducted.

It is the hardest thing in the world to get these bondholders together and get them to engage an attorney that would be competent and capable to cope with the men representing these committees. That has been a most unfortunate situation.

Mr. SHULL. Might I have permission to ask Judge Sabath a question?

Mr. SABATH. Yes.

Mr. SHULL. Didn't one of the lawyers that your committee appointed in Chicago apply for a fee of $25,000 on behalf of your committee?

Mr. SABATH. No. He did not. I will tell you members of the committee if you want to know something about that. However, the question of Mr. Shull with respect to one of the attorneys of the committee claiming a $25,000 fee raises an issue which has nothing to do with this bill and I wonder where the gentleman who so gratuitously injected this matter into the record, obtained this information. This is on a par with the other gentleman, representing the various interests who have been and will continue to be the beneficiaries, responsible for this deplorable situation, and, who in every way possible thwart and malign this committee's work. This also applies to a few of the judges themselves who permitted themselves to be used for that purpose, and were I not so vitally interested in putting an end to these outrageous practices and secure legislation, I would have long ago taken up the matter relative to some of the judges.

Mr. SHULL. I haven't examined the official record.
Mr. SABATH. All right, Mr. Shull.

Mr. SHULL. You must know what it is. It states something like that.

Mr. SABATH. The committee has a body of over forty-two odd lawyers without pay to aid and cooperate with the committee. Naturally, we could not ask them that they should divest themselves of all or such little business that they might have had because we couldn't pay them.

In this case that lawyer has been fighting one of the outstanding cases in Chicago, the Chicago Title & Trust Co. That was a case where 12 million dollars was involved.

Since we started that investigation and it was assigned to that gentleman, I have obtained $1,300,000, which has been paid back to the trust fund. And there were some other fees that have developed. Because, unforunately, he has not been strong enough to cope with the outstanding gangsters or lawyers that represented some of these gentlemen; and finally, due to some mishap, the court ruled adversely to the bondholders.

He applied to the appellate division, and in that appeal he filed a claim for $25,000, as he stated that he believed—and he knew in advance that it would not be allowed—that it would give him a chance to appeal that case and to reach the object that he was after, which was to get a reconsideration or retrial of the original case.

He had no authority to do that; and I have stated that this committee does not approve of such methods; that we have gone as far as we could.

One of the attorneys of the committee filed an application for change of venue before one of the judges, who resented it very much because the application that was filed was very strong in its language.

He didn't have the authority of the committee to do that, but some of these gentlemen are desirous to aid the committee and to aid the bondholders; and sometimes they naturally are inclined to go further than the committee feels that it has a right to go.

We don't wish to exceed our authority; and we have held down the lawyers and the investigators and examiners as much as we could. But, nevertheless, sometimes we get some of these attorneys who do desire to go after the people that they believe are guilty of these fraudulent acts; and it is not so easy to succeed in view of the conditions that exist; that I do not wish to mention now. I may bring them to your attention later on.

Mr. POWERS. May I reply to Mr. Shull?
Mr. CHANDLER. Certainly.

any fees.

Mr. POWERS. I happen to know something about that case.

I attended four or five of the hearings.

Mr. McCartney, who is counsel for this company, intervened and offered certain information to the court. The court declined to receive the information. Sometime later Mr. McCartney was approached by some indigent bondholders and asked to intervene on their behalf, which he did.

Subsequent to that he presented before a special master what were known as the 17,400 cases. The master just ruled last week that he was not appearing at that time as a friend of the court; that he was representing private parties; and that he was not entitled to

Mr. CHANDLER. Didn't Mr. McCartney represent the regular bondholders' committee in those things?

Mr. SABATH, Oh, no. I don't think that he would be engaged by any of those old companies. He was a young man, full of determination and a desire to penetrate and put an end to these abuses. But I don't think he represented anybody else outside.

Mr. CHANDLER. We will notify you, Judge Sabath, next week.

Mr. MICHENER. You say that you had 40 or 50 lawyers who would go into the courts?

Mr. SABATH. Yes.

Mr. MICHENER. Did your committee go to the expense of appear. ing in lawsuits on behalf of bondholders?

Mr. SABATH. I will tell you what we did do. The resolution that you passed last year gave the committee the right to submit it to the court, if we found any fraud or evasion of the law. Shortly after this committee had been created, realizing the tremendous task and the small amount of money that was appropriated, I tried to obtain the cooperation of a number of associations and others. But I learned within a short space of time that that would be impossible.

So I succeeded in obtaining many independent lawyers who felt that these abuses should be eliminated; and they have volunteered their services; and I have assigned them, or the committee has assigned them, to some cases here and there that came in by the complainants or by these unfortunate bondholders where they have shown that fraud is being perpetrated and that they are being wiped out or that their bonds have been obtained from them by fraud, and that the charges against the management of the properties were unjustifiably high, and that their rights were being jeopardized.

Mr. MICHEN ER. Then, as a matter of fact, your committee has been sort of taking the position as attorney for the people?

Mr. SABATH. Yes, sir.

Mr. MICHENER. And you have been going into court and prosecuting or defending suits

Mr. SABATH. No; just calling attention of the court to certain facts.

Mr. MICHENER. With voluntary lawyers.

In other words, some lawyer comes to you; and as chairman of the committee you appoint him as your representative to go into court and appear in behalf of certain litigants.

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