Mosser v. Darrow

Supreme Court of the United States · 1951 · Corporations

341 U.S. 267 (1951)

Updated August 22, 2026

CorporationsBankruptcy reorganization trusteesFiduciary dutyreorganization trusteepersonal liabilitysurchargeadverse interestself-dealing

Facts

Darrow was appointed reorganization trustee for two holding-company debtors whose principal assets were securities of subsidiary companies. He employed Kulp and Miss Johnson under an express agreement allowing them to continue personal trading, including through their own company, in securities of the debtors' subsidiaries while they worked for him. During their employment, they repeatedly bought subsidiary bonds for themselves and then resold them to Darrow at a profit, sometimes using information, opportunities, office access, and even advance payments from the trustee's operations. Darrow filed very few accounts during his eight-year trusteeship, and after investigation the District Court surcharged him $43,447.46 for permitting this conduct.

Issue

May a reorganization trustee be personally surcharged when, though he made no personal profit, he knowingly authorized key employees to trade in securities of the debtors' subsidiaries and profit from transactions connected with the trust's buying program? Does liability depend on negligence or proof of direct loss to the estate?

Rule

In a strict trusteeship, a reorganization trustee may not permit interests adverse to the trust in himself or authorize others to engage in conduct that he himself would be forbidden to undertake. Where the trustee knowingly and deliberately authorizes employees to profit from trading in trust-related securities, personal surcharge may be imposed without resort to negligence principles and without requiring proof that the trustee personally profited; equity forbids not only injury to the estate but also profiting out of a position of trust.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A federal court appoints Lena Ortiz as reorganization trustee for a group of apartment-holding entities in Ohio. She hires Noah Price, her lead analyst, under an express agreement allowing him to buy distressed notes issued by the entities' property subsidiaries and later resell them to the estate whenever the estate decides to retire that debt; Ortiz never receives any of his profits.

If creditors seek to surcharge Ortiz personally, which is the strongest basis for imposing liability?

Explanation. A reorganization trustee serves in a strict trusteeship. The majority held that such a trustee may not authorize subordinates to do what the trustee could not do personally—profit from trust-related transactions through an adverse interest. Personal profit by the trustee is unnecessary, and the issue is not governed by negligence principles when the arrangement was knowingly authorized.