240 F. 448 | E.D.N.C. | 1917
The referee certified that, after hearing the examination of the bankrupt and other evidence, on February 1, 1917, he found as a fact that the bankrupt was withholding from the trustee and concealing from his creditors $4,047.90 in merchandise, or its equivalent in money, upon which finding he made an order requiring him on or before 12 o’clock noon of February IS, 1917, to pay to A. B. Stainbac'k, trustee, the said sum. A copy of the order and the findings of fact were served on the bankrupt, delivered to his attorneys, and certified to the judge. The bankrupt failed to comply with the order, whereupon notice was issued to and served upon him, directing that he show cause before the judge, at Raleigh, on March 6, 1917, which, at the request of his attorney, was continued until Saturday, March 10, 1917. The bankrupt appeared in person, and was represented by counsel. He filed an answer averring his inability to comply with the order of the referee, and further averring that he has not, in his possession or under his control, said sum, either in money or merchandise, or any part thereof. He says:
“The entire assets, money, and property belonging to this respondent, at the time he filed petition in bankruptcy, was, so far as he coüld do so, correctly set out in the schedule filed by him at the time of his adjudication as a bankrupt.”
In his answer he sets out that he is a Syrian, born near Mt. Lebanon, and, until he came to America, was unable to speak the English language; that, since coming, he has learned to speak, but is unable to write, English. He further says that he was unable to keep books, or make any record of his business; that his sister, a young woman about 21 years of age, kept such books and made such records as she was able, regarding his business; that she is of very limited education. The petition in bankruptcy was filed, and respondent adjudged bankrupt, May 4, 1916. The case was referred to Jas. R. Gaskill, referee, and an examination of the bankrupt had before him (the examination and other evidence taken before him is certified by the referee). Mr. Gaskill died pending the proceedings in the cause. It was referred to Jos. B. Cheshire, Jr., Esq., referee, who proceeded to further examine the bankrupt and hear further evidence. He has made a very thorough and exhaustive examination and analysis of the evidence, such books and other papers as were furnished, and in his report he finds:
*450 “The bankrupt conducted a, general mercantile business at Weldon, N. C. His books were kept by bis sister. He could not read nor write. While he has been in business for several years, his only hook of record seems to run from January 1, 1916, only. He destroyed all of his invoices by burning them immediately before bankruptcy. The book shows but little, except some accounts bf some peddlers. While he kept a bank account, a large part of the money taken in from his business was not deposited in the bank. During the spring, April, 1916, the bankrupt went to Lynchburg, Norfolk, Philadelphia, and New York, where he made statements to persons, and firms from whom he purchased goods, showing his financial condition. In these statements he represented that he had a stock of goods on hand, March 1, 1916, amounting to about $4,000, and owed no debts. Between March 1, 1916, and May 4, 1916, it appears upon his own evidence that the bankrupt bought goods amounting to $5,500, all of which were shipped and delivered to him at Weldon and none of which have been paid for.” In his petition and schedules he states that he had only $700 worth of goods on hand, and no other goods, or other property, except cash from a bank balance of $20.20, have been received by the trustee. “The goods found by the receiver are largely old stock and in very poor condition. The weekly sales, estimated by the bankrupt and his sister, including peddlers’ accounts, between January 1 and May 1, 1916, are put at $300; exclusive of peddler accounts, $75.”
The referee has made analytical statements, based upon the bankrupt’s own evidence and estimates, showing what amount of goods he had on hand and received, what amount of sales he made, the expenses incurred, and the amount of accounts found on his books, from which he draws the following conclusions:
“The referee is clearly of the opinion that the bankrupt has defrauded his creditors. It is beyond all human possibility that a man can have On hand March 1, 1916, $4,000 in goods, buy $5,500 by May 4, 1916, and pay no creditor a cent, and have left only $900 in goods on May 4, 1916, when he voluntarily goes into bankruptcy, having only $1,794.61 due him on his books.”
There appears on the book produced by the bankrupt a number of accounts for goods alleged to have been sold to peddlers, aggregating some $6,000. The book was produced on this hearing. The accounts have, from any and every viewpoint,' the appearance of being “manufactured.” There is evidence strongly sustaining the suggestion that they were “raised” on the books after the adjudication, and before the books were turned over to the court and its officers. The evidence amply sustains the conclusion of the referee, who says that he—
“does not believe these accounts are bona fide. It is inconceivable that anybody would sell over $6,000 of goods on a credit to men who were almost absolute strangers, many of whom he knows nothing about. If such sales were made, the bankrupt acknowledges receiving a considerable amount of cash which is unaccounted for.”
The referee, in his report, makes and notes reference to the particular portions-of the testimony upon which his findings are based:
“The referee therefore finds as a fact that the bankrupt, J. A. Elias, has concealed from his creditors and is withholding from the trustee of his estate $4,047.90 in merchandise, or its equivalent in money, and that the bankrupt either has this property in his possession, or under his control, and that he should forthwith turn it over to the trustee.”
Upon this finding he makes the order, etc.
The bankrupt, in his answer to,the rule to show cause, contends that the conclusions of the referee are based upon deductions which are not
The referee has been very liberal in the allowance of expenses and support of the family of the bankrupt. There can be no reasonable doubt that the bankrupt, when filing his schedules, withheld from his-schedules, and from his trustee, goods and merchandise amounting to several thousand dollars. Adopting his estimate of-amount on hand as being $2,250, there is a shortage of $2,297, for which he gives no. account.. The evidence in regard to his conduct from March 1, 1916, when he had, as he represented to those from whom he was seeking credit, $4,000, and now says $2,250, and owed no debts', until May 4, 1916, during which period he bought goods on credit, amounting to $5,500, for which he has not paid $1, is incapable of any explanation otherwise than that he concealed either the goods or their proceeds from his creditors, and had them on hand, or under his control, when he filed his schedules^ The schedule shows debts, $5,149; stock on hand, $700, from which he claims his exemption of $500; open accounts, $3,500, which are fraudulent, and, if valid, worthless. The entire indebtedness was contracted between April 1, 1916, and May 1, 1916. He burned his invoices just before filing his petition. He says he did this because Mr. Gaskill, the former referee, who took a list of them, told him that he had no further use for them. Mr. Gas-kill has since that time died. The manifest effort to account for goods by “raising” accounts against the peddlers is too obviously fraudulent to impose on any intelligent person. It is in evidence that the bankrupt turned over the goods allotted to him from the stock, as his exemptions, to his wife, who opened up, and is now conducting, a mercantile business in the same storehouse occupied by the bankrupt, which is owned by his mother; that one Rabill, a Syrian merchant, in Weldon, N. C., holds a mortgage on the stock of goods with which the wife is conducting business.
The questions which have given me concern are: (l).The extent .to which the findings of fact by the referee are conclusive upon the judge. (2) The extent to which the question of present ability on the part of the bankrupt to comply with the order may be inquired into by the judge. The decisions made by the several federal judges, in regard to both questions, are to some extent conflicting. I do not find that the questions have been decided by either the Supreme Court or the Circuit Court of Appeals of this circuit. Because of the attitude taken by the bankrupt in his answer to the rule to show cause, and the condition of my mind in regard to both questions, I find it necessary to examine the variant decisions, and pursue such course as seems to me in accordance with a correct interpretation of the statute and general principles applicable to proceedings in contempt cases.
In Re Chiles, 22 Wall. 157, 22 L.Ed. 819, Justice Miller, after pointing out the distinction, says that in the latter case:
“The party refusing to obey should be fined and imprisoned until he performs the act required of him or shows that it is not in his power to do it.”
It was suggested on the argument that it was within, the power of the court to punish in this case, by imprisonment, for contempt. I do not deem it necessary to discuss this phase of the case, because, if the power be conceded, I do not think that in such cases it should be exercised. Whatever distinction may 'have been drawn by courts in balancing arguments advanced to sustain conflicting views as to whether a contempt proceeding is civil or criminal, it is, when used as a means of punishment, for all practical purposes punitive, and, when the act complained of is made by statute criminal, the person charged should be prosecuted “by due process of law,” by indictment and trial before those tribunals, grand and petit juries, with all of the safeguards which are guaranteed to the citizen by the Constitution and laws when his liberty is involved. I concur in the concurring opinion of Judge Shelby, in Stuart v. Reynolds, 204 Fed. 709, 123 C. C. A. 13, and this, I think, is sustained by the great weight of judicial opinion as expressed by our judges.
Judge Hand’s construction of the opinion was doubtless correct; at least he regarded it as of controlling force with him, although it is quite evident, from the concluding words of his opinion, that he was not fully persuaded that his first conclusion was not correct. The importance of the conclusion reached is illustrated by Judge Hand’s course in the Frankel Case. Upon the second hearing, logically following his construction of the decision of the Circuit Court, he passes the order of committal upqn the referee’s finding that, at the time the order was made, the bankrupt had the property in his possession, without considering or passing upon the question of his “present ability to comply” with the order. This he regards as foreclosed, unless it was shown that, since the date of the order, he had lost ability to comply. It is manifest, from his language in regard to the decision in Re Davison (D. C.) 143 Fed. 673, to be noted later, that he did not think the question decided by Judge Brown, in that case, open to him. Judge Lacombe (In re Stavrahn, supra), recognized the right of the bankrupt to have notice of the motion to attach for contempt for failure to obey the order, to have his “day in court,” and an opportunity to be heard, to make his defense; but the question arises: What may he say in his defense —that he did not have the property when the order was made by the referee, or only that since that time he has become disabled to deliver - it?
By some of the courts it is held that, unless he asks for a review of the findings of the referee, he is estopped, upon the hearing of the motion to commit, to say that the referee was in error, arid restricted to showing that, since the making of the order, he has lost his ability to deliver them. It is conceded, by all of the decisions, that before an order of commitment is made the judge must find that “tire bankrupt has the present ability to comply with the order of the referee." In re
“It is not necessary, however, to decide whether, upon contempt proceedings, the bankrupt is concluded as to matters involved in a former hearing, * * * since a portion of the bankrupt’s answer relates to her present ability to comply with the order of the court.”
It is manifest, however, that the judge considered and discussed the question whether, at the time the order was made, she had the property in her possession or control. He gives to the finding of the referee its full probative force, but says:
“It does not seem to me that the question of the present ability of a bankrupt to comply with an order should be determined upon an artificial rule of proof, to be applied irrespective of the circumstances in a particular case.”
Because he found himself “in very serious doubt as to the present ability of the bánkrupt to comply with the decree” the learned judge denied the order to commit the bankrupt.
In re Goodrich, 184 Fed. 5, 106 C. C. A. 207 (C. C. A. 5), it is held by Putnam, Judge:
“It is sufficient that we apply the principle that’ a judgment against a person in a civil case sustains none of the issues against the same person in criminal proceedings. In the present instance the order reported by the referee, and whatever occurred before him, may, under the liberal rules we have stated (In re Cole, 144 Fed. 392 [75 C. C. A. 330]; 163 Fed. 180 [90 C. C. A. 50, 23 L. R. A. (N. S.) 255]), be referred to as having some weight pro and con; but this cannot be accepted as justifying the District Court from failing to revise, on a proceeding like this, the question involved with an open mind. That court was holden to receive all material proofs relating to what preceded the referee’s report, as to what followed it.”
In that case the District Judge “substantially ruled out all evidence which might have been produced before the referee, and apparently all which related to the issues tried by the referee,” and confined the evi-
“It must be made to appear affirmatively that when the order was made the bankrupt had power to obey it and that the failure to obey was willful.”
The decision made in Re Cole, 163 Fed. 180, 90 C. C. A. 50, 23 L. R. A. (N. S.) 255, is the controlling authority in the First Circuit. In Re Marks (D. C.) 176 Fed. 1018, Judge McPherson denied the order because he found that the bankrupt was then unable to comply with the order of the referee. In Re Nisenson (D. C.) 182 Fed. 912, Judge Rellstab reviews the evidence and finding of the referee. He grants the order to commit for nonproduction of a part of the property and denies it as to the remainder. In re Cummings (D. C.) 188 Fed. 767. The question does not appear to have been definitely settled in the Third Circuit. Judge Sessions, in Re Haring (D. C. W. D. Mich.) 193 Fed. 168, says that he finds no controlling decision -in the Sixth circuit. He therefore “adopts the view which seems to be more consonant with reason,” saying that there are two distinct lines of decisions founded upon different and divergent conceptions of the law. He collects and cites those cases, many of which I have cited, holding that the finding of the referee that, at the time he makes, the order, the bankrupt has in his possession, or under his control, property which he unlawfully withholds from the trustee, is conclusive upon the judge, and those which hold that, in proceedings against the bankrupt for contempt for failure to obey the order, the findings of the referee are given due weight, but that the judge should make, a new and independent investigation, and should consider all material evidence relating to what preceded as well as what followed the referee’s order, and from such evidence determine whether the bankrupt has the present ability to comply with the order and contemptuously disobeys it. For,the reasons stated, the learned judge adopts the view of the decisions last cited.
“To hold that the investigation by this court of respondent’s guilt, or innocence, must begin where that of the referee terminates, is to deprive this court of the discretion vested in it by law, and to confer upon the referee the power to do indirectly that which he cannot do directly”
—or, as said by Judge Brown, to give an uncontrolled power “to an artificial rule of proof to be applied irrespective of the circumstances of the particular case.” It is to convert the judge into a more executive officer, with no power of investigation .or adjudging in regard to the fact upon which he makes an order which deprives, in a summary proceeding, a citizen of his liberty. I am not inadvertent to the fact that the bankrupt may have the findings of the referee reviewed upon a petition therefor.
“Tbe burden is upon him to satisfactorily account for its nonproduction, but in assuming such burden he, because of the drastic means that may be .invoked to enforce the order to turn over (imprisonment for contempt) is entitled to the benefit of the reasonable doubt.”
In Re Marks, supra, Judge McPherson declined to order imprisonment because he could “not escape from the conclusion that the bankrupt is now unable to comply with thé order.”
Upon a careful examination of many of the decided cases, it would seem that the courts have no invariable rule in regard to the burden of proof,, by which they are governed in such cases. It is undoubtedly true that, as a rule of law, based upon experience, when property is found in the possession of a person, a presumption of fact arises that he continues to have it; the strength of this presumption, or rather inference, is’dependent upon sp1 many conditions that it is of little value in determining the ultimate fact. There is a very strong presumption in this case that the bankrupt had the goods which he purchased during the month of April, 1916, on May 4th of the same year, when he filed his petition; but, in view of all that occurred between that date an,d February 1, 1917, and the character of the property, the presumption would be very weak that he had it February 1, 1917— hardly sufficient to justify an order of imprisonment to continue until he surrendered them.
A number of difficulties arise before we can, by presumption, find that he had' the money February 1, 1917. There is no evidence that the goods were scldj and no suggestion when, or for what sum, or to
“Tlie present proceeding is one of a summary nature, and is invoked for ttie purpose of bringing witliin tbe reach and control of the bankruptcy court specific property found to be in the possession of the bankrupt and by him unlawfully withheld. The order should describe the property with reasonable certainty in order to assure its identity, and the command of the court to the bankrupt should be to surrender the very property sought to be recovered. * * * It is not within the power of the court, in such a proceeding, to render judgment for the value of property ascertained to be in the possession of, and contumaciously withheld by, a bankrupt, and attach him for contempt upon his refusal to pay.”
In Re Reynolds (D. C.) 190 Fed. 967, Judge Jones said:
“While the evidence leaves no shadow of a doubt that the bankrupt had goods of that value ($19,722.98) for which he has not accounted, or has converted into money, and that at one time he had them under his control, I do not think the proof sustains the referee in the finding that at the time of the order, or at the time of his examination, the bankrupt still had in his possession, or under his control, either the goods or the money. After a very diligent investigation of his affairs, no.proof is offered showing the disposition of any specific goods, or tracing to him the possession of any considerable sum of money, or other evidence offered of such conduct as indicates that he now has any of the goods, or money derived from their conversion, in his possession or under his control.”
This language appropriately describes the conditions found in this record. The order denying committal was affirmed. Stuart v. Reynolds, 204 Fed. 709, 123 C. C. A. 13, Judge Meek saying that:
“In such a proceeding tlie court was restricted to ordering a return of the goods and merchandise in specie or kind, and this only when it was made clear by proof that the bankrupts were in possession or control of them.”
Judge Shelby, who had given the subject much thought, as indicated in his dissenting opinion in Re Purvine, 96 Fed. 192, 37 C. C. A. 446, and concurring in Samel v. Dodd, supra, wrote an exhaustive opinion in Stuart v. Reynolds. The subject seems to have been fully considered in the Fifth circuit, and there it is well settled that the judge is required to consider all of tlie evidence before the referee
“An order, requiring a bankrupt to deliver property alleged to have been withheld from his trustee, should only be granted in case it appears that the bankrupt is physically able to deliver the property.”
In that case (In re Epstein [D. C.] 206 Fed. 568) Judge McPherson says:
“I have considered the evidence, and approve the findings and order of the referee.”
He, however, modified the order by stating, specifically what articles were found to' be in the possession of the bankrupt and which he was ordered to deliver to the trustee. He evidently did not concur with the opinion of Judge Shelby, in respect to the burden of proof. There is not before me, nor was there before the referee, any evidence of conduct on the part of the bankrupt throwing light on the present possession or disposition of the goods since he filed his petition; nor is there any evidence that he had had, or invested, money. I thought that, probably, the purchase money of the house owned by his mother, might have come through this channel; but it is conceded that this was paid before the transactions involved in his bankruptcy. It seems also' impossible to trace any other connection of his wife’s business with the goods, except that he turned over his exemptions to her. It appears that one Rabill holds a mortgage on her stock, which is not very large; there is no suggestion of any fraud in that transaction. The conclusion that he had the goods or their equivalent, in money, on February 1, 1917, or at this time, is based upon the presumption or'inference of his possession of them May 4, 1916. Discarding his answer and looking at the question from the reason of the thing, reasonably natural deductions based upon what is apparent, I would find difficulty in .reaching the conclusion that he now has the specific goods which I feel certain he had May 4, 1916, or the specific money which he received for them, if sold. To1 find that he now has the money would require a presumption that he sold the goods, and a further presumption that he received $4,047.90 in money for them, and the further presumption that he had, and now has, the identical money which he received. This would violate a well-known rule of evidence which forbids the indulgence of a presumption upon a presumption.
While I can well understand the difficulty which the intelligent referee found in reaching the conclusion that the bankrupt had the specific goods in his possession, I am of the opinion that an order based upon an alternative finding cannot be made the basis of an order of
I have examined the cases cited by counsel for the trustee. In re Jacobs (D. C.) 147 Fed. 797, was a petition for discharge; no question of contempt was itivolved. In re Averick (D. C.) 170 Fed. 521, was on a petition for review of the findings of the referee; the question of present ability to comply with the order was not presented. In re Hershkowitz (D. C.) 136 Fed. 950, the District Judge ruled that he was concluded by the findings of the referee. The other cases discuss the question of power in the referee, which is .conceded. In the absence of any controlling decision in this circuit, and in view of the conflicting decisions in other circuits, I reach the conclusion that, upon the motion for an order of commitment, for failure, by the bankrupt, to obey the order of the referee to turn over property, or pay over money alleged to be withheld from his trustee, the/judge must find, not beyond a reasonable doubt, but by a preponderance-of the evidence, that the bankrupt has the present ability to comply with the order: That in doing so he must, giving due weight to the finding of fact by the referee, examine for himself the evidence in regard to the conduct of the bankrupt and all other relevant evidence beforehand since the passing of the order by the referee. That the order of the referee should find what specific property is in the possession of the bankrupt or under his control, and with a reasonable degree of certainty specify the property which he is ordered to deliver, or, if money is directed to be paid, the order should specify the amount and source from which it is derived.
Guided by these principles, I am constrained to deny the order imprisoning the bankrupt for contempt.