William J. Brennan, Jr.

“ To hold that one who trades in violation of § 249 forfeits only his right to future compensation would place a premium on concealment of transactions in the Debtor's stock and thereby jeopardize the salutary policies of the statute. Moreover, it is well settled that when the question arises in a terminal application for compensation or reimbursement under § 247, an applicant who has engaged in forbidden transactions near the end of the proceeding is to be denied compensation for all services he has rendered to the Debtor, however valuable those services may have been. ”

“ Access to inside information or strategic position in a corporate reorganization renders the temptation to profit by trading in the Debtor's stock particularly pernicious. The particular dangers may take two forms: On the one hand, an insider is in a position to conceal from other stockholders vital information concerning the Debtor's financial condition or prospects, which may affect the value of its securities, until after he has reaped a private profit from the use of that information. ”

“ The difference in an officer's status and responsibilities before and after the start of a reorganization is most clearly reflected in the § 191 requirement of judicial approval upon which an officer's or director's continued service is contingent. The broader principle which underlies that requirement and emphasizes the change in responsibility is that the court's willingness to leave the Debtor in possession is premised upon an assurance that the officers and managing employees can be depended upon to carry out the fiduciary responsibilities of a trustee. ”

“ On the other hand, one who exercises control over a reorganization holds a post which might tempt him to affect or influence corporate policies-even the shaping of the very plan of reorganization-for the benefit of his own security holdings but to the detriment of the Debtor's interests and those of its creditors and other interested groups. ”

“ The approval of an officer's rate of compensation does not confer an immunity from equitable sanctions, nor can it immunize him from § 249. Section 191 does no more than vest the court with additional authority to pass in advance upon the qualifications and the salary of an officer of the Debtor before he assumes or continues in office. ”

“ On the other hand, it is not entirely correct to say that Article XIII authorizes allowances only for 'strangers' whose services would neither have been rendered nor become compensable save for the reorganization. Both the indenture trustee and the attorney for the Debtor are, for example, expressly named as Article XIII applicants, required under § 247 to seek compensation, at least for services pursuant to the reorganization. Neither can properly be considered a 'stranger' whose relationship to and services for the corporation arise solely out of the petition for reorganization. ”

“ That the rule occasionally bars compensation to those whose conduct might not have been considered inequitable or disloyal in the absence of such a statute is no reason to suspend or make selective the operation of the statute's sanctions. ”

“ While a bankruptcy court possesses extensive power over the tenure and the conduct of officers and employees, and might find that trading during the reorganization rendered an officer unfit for further service to the Debtor, even without compensation, that result does not follow inexorably. [24] In the present case the District Court apparently relieved Fried and Weinstein of their corporate responsibilities solely because of the violation of § 249. ”

“ Consideration of the function and responsibility of the officers of a Debtor corporation left in possession also supports our construction. The concept of leaving the Debtor in possession, as a 'receivership without a receiver,' [15] was designed to obviate the need to appoint a trustee for the supervision of every small corporation undergoing reorganization, even though it appeared capable of carrying on the business during the proceeding. ”

“ Fried has actively managed the business, the principal asset of which is a farmers' market located in Eastern Pennsylvania. Weinstein, a New York attorney, has acted primarily in a consultative or advisory capacity. The Debtor's business has prospered under their management despite considerable friction and dissension between factions contending for stock and managerial control.
The District Court, after hearings upon the nature and extent of Weinstein's and Fried's duties and activities, concluded that each was a 'fiduciary' within the meaning of § 249. ”

“ There is no doubt that proof of trading in contravention of the statute requires at least the denial of any application for past compensation then pending, and the disallowance of all future compensation. [20] The District Court went so far but declined to go further. We must now consider whether the District Court was also required, in order fully to effectuate the policies of § 249, to order restitution or recoupment of salaries already received by Fried and Weinstein for their beneficial services to the Debtor. ”

“ That the officers of a Debtor in possession are not 'trustees' for all purposes is beyond dispute, but that proposition does not provide an answer to the question before us which of those persons who are not disinterested and could not therefore serve as trustees under § 156 may nonetheless be regarded as fiduciaries within the meaning of § 249. ”

“ There is no suggestion in that section or elsewhere that such approval was intended to diminish in any way the court's statutory powers over fees and allowances conferred broadly by the Chandler Act. That officers and other employees may receive their compensation on a weekly or monthly basis while other persons subject to § 249, such as attorneys and trustees, customarily serve without compensation until the conclusion of the proceeding, is a difference without legal significance in this context. ”

“ Later Fried's salary was increased to $150 and eventually to $200 weekly, while provision was made for payment of $50 weekly to Weinstein. The District Court's orders with respect to Weinstein were apparently made pursuant to § 191 of the Act, 11 U.S.C. § 591, which permits a debtor in possession to 'employ officers of the debtor at rates of compensation to be approved by the court.' Since Fried was not an officer of the Debtor, but merely a salaried employee, explicit judicial approval of his continued employment and salary may not have been required. ”

“ We disagree with the Court of Appeals. We hold that persons performing fiduciary functions such as those which the District Court found Weinstein and Fried had performed are subject to § 249.
The virtual immunity which active participants in corporate reorganizations enjoyed from judicial superintendence of abuses in the payment of compensation and allowances was one of the principal reasons for the enactment of § 77B of the Bankruptcy Act in 1934. ”

“ In other words, the mere shifting of titles could enable the very class at which the regulation was directed to avoid its prohibitions. Congress plainly did not indulge in an exercise in futility in enacting § 249. ”