US SUPREME COURT DECISIONS

In a proceeding under Chapter X of the Bankruptcy Act for the reorganization of a debtor corporation, the Court permitted the debtor to remain in possession pursuant to § 156 of the Bankruptcy Act, authorized its President and General Manager to continue to serve in those capacities and approved salaries for each of them. The General Manager actively managed the business and the President acted primarily in a consultive or advisory capacity. After hearings, the District Court concluded that each of them was a "fiduciary" within the meaning of § 249 of the Bankruptcy Act and that they had traded in stock of the debtor corporation without the consent or approval of the judge, and it ordered that their compensation be terminated, that the General Manager be discharged and that the President have nothing more to do with the management of the business.

Held:

1. The purpose of § 249 was to give pervasive effect in Chapter X proceedings to the historic maxim of equity that a fiduciary may not receive compensation for services tainted by disloyalty or conflict of interest; and no congressional purpose to exclude insiders, such as a President or General Manager of a debtor corporation, can be perceived. Pp. 372 U. S. 639-645.

2. On the record in this case, the District Court correctly found that the President and General Manager of this debtor corporation were fiduciaries, and that § 249 applies to them. Pp. 372 U. S. 646-653.

(a) Section 249 was not intended to apply only to those persons specifically listed in §§241-243 who are required to apply to the Court for compensation or reimbursement under § 247. Pp. 372 U. S. 646-647.

(b) Approval by the Court of the compensation of an officer or an employee under §191 does not immunize him from the sanctions of § 249. Pp. 372 U. S. 647-649.

(c) Since officers of a debtor corporation left in possession under § 156 perform essentially the functions which otherwise would be performed by a disinterested trustee, they incur similar responsibilities and obligations to the creditors and shareholders, chanrobles.com-red

Page 372 U. S. 634

which may make them fiduciaries within the meaning of § 249. Pp. 372 U. S. 649-652.

(d) Since the District Court took evidence concerning the activities and responsibilities of the President and General Manager here involved and concluded that each of them was a "fiduciary" for the purpose of § 249, and the record supports these findings, they were properly held subject to § 249. Pp. 372 U. S. 652-653.

3. Although respondents' trading involved small amounts of the debtor's stock and apparently was carried on in good faith, the pervasive policies of § 249 require not only the denial of all future compensation but also the restitution of all compensation received since the start of the reorganization; but they do not necessarily require the removal of respondents from their corporate offices. Pp. 372 U. S. 653-657.

4. Certiorari was also granted in this case to review a judgment of the Court of Appeals reversing an order of the District Court determining a controversy over the rights of numerous claimants to stock interests in the debtor corporation, but oral argument revealed that the controversy primarily involved questions of state law, and presented no federal question of substance. Therefore, the writ of certiorari as to the judgment of the Court of Appeals concerning that controversy is dismissed as improvidently granted. P. 372 U. S. 636.

296 F.2d 678, reversed and remanded.