Source: http://www.law.cornell.edu/supremecourt/text/333/56
Timestamp: 2013-12-12 06:50:10
Document Index: 436840379

Matched Legal Cases: ['§ 11', '§ 75', '§ 25', '§ 52', '§ 11', '§ 42', '§ 42', '§ 52', '§ 110', '§ 46', '§ 11', '§ 11', '§ 11', '§ 69', '§ 12', '§ 78', '§ 79', '§ 409', '§ 161', '§ 49', '§ 1005', '§ 1816', '§ 210', '§ 369']

MAGGIO v. ZEITZ. In re LUMA CAMERA SERVICE, Inc. | Supreme Court | LII / Legal Information Institute
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333 U.S. 56 (68 S.Ct. 401, 92 L.Ed. 476)
The courts of bankruptcy are invested 'with such jurisdiction at law and in equity as will enable them' to 'cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto * * *.' Title 11 U.S.C. 11(a)(7), 11 U.S.C.A. § 11, sub. a(7), and the function to 'collect and reduce to money the property of the estates' is also laid upon the trustee. 11 U.S.C. 75(a)(1), 11 U.S.C.A. § 75, sub. a(1). A correlative duty is imposed upon the bankrupt fully and effectually to turn over all of his property and interests, and in case of a corporation the duty rests upon its officers, directors or stockholders. 11 U.S.C. 25, 11 U.S.C.A. § 25.
To compel these persons to discharge their duty, the statute imposes criminal sanctions. It denounces a comprehensive list of frauds, concealments, falsifications, mutilation of records and other acts that would defeat or obstruct collection of the assets of the estate, and prescribes heavy penalties of fine or imprisonment or both. 11 U.S.C. 52(b), 11 U.S.C.A. § 52, sub. b. It also confers on the courts power to arraign, try and punish persons for violations, but 'in accordance with the laws of procedure' regulating trials of crimes. 11 U.S.C. 11(a)(4), 11 U.S.C.A. § 11, sub. a (4). And it specifically provides for jury trial of offenses against the Bankruptcy Act. 11 U.S.C.A. § 42(c), 11 U.S.C.A. § 42, sub. c. Special provisions are also made to induce vigilance in prosecuting such offenses. It is the duty of the referee and trustee to report any probable grounds for believing such an offense has been committed to the United States Attorney, who thereupon is required to investigate and report to the referee. In a proper case he is directed to present the matter to the grand jury without delay, and if he thinks it not a proper case he must report the facts to the Attorney General and abide his instructions. 11 U.S.C. 52(e), 11 U.S.C.A. § 52, sub. e.
Unfortunately, criminal prosecutions do not recover concealed treasure. And the trustee, as well as the Court, is commanded to collect the property. The Act vests title to all property of the bankrupt, including any transferred in fraud of creditors, in the trustee, as of the date of filing the petition in bankruptcy, 11 U.S.C. 110, 11 U.S.C.A. § 110, which puts him in position to pursue all plenary or summary remedies to obtain possession.
To entertain the petitions of the trustee the bankruptcy court not only is vested with 'jurisdiction of all controversies at law and in equity' between trustees and adverse claimants concerning property acquired or claimed by the trustee, 11 U.S.C. 46, 11 U.S.C.A. § 46, but it also is given a wide discretionary jurisdiction to accomplish the ends of the Act, or in the words of the statute to 'make such orders, issue such process, and enter such judgments, in addition to those specifically provided for, as may be necessary for the enforcement of the provisions of this title.' 11 U.S.C. 11(a)(15), 11 U.S.C.A. § 11, sub. a(15).
But this procedure is one primarily to get at property rather than to get at a debtor. Without pushing the analogy too far, it may be said that the theoretical basis for this remedy is found in the common law actions to recover possessiondetinue for unlawful detention of chattels and replevin for their unlawful takingas distinguished from actions in trespass or trover to recover damages for the withholding or for the value of the property. Of course the modern remedy does not exactly follow any of these ancient and often overlapping procedures, but the object possession of specific propertyis the same. The order for possession may extend to proceeds of property that has been disposed of, if they are sufficiently identified as such. But it is essentially a proceeding for restitution rather than indemnification, with some characteristics of a proceeding in rem; the primary condition of relief is possession of existing chattels or their proceeds capable of being surrendered by the person ordered to do so. It is in no sense based on a cause of action for damages for tortious conduct such as embezzlement, misappropriation or improvident dissipation of assets.
However, no such presumption, and no such fiction, is created by the bankruptcy statute. None can be found in any decision of this Court dealing with this procedure.
Since no authority imposes upon either the Court of Appeals or the Bankruptcy Court any presumption of law, either conclusive or disputable, which would forbid or dispense with further inquiry or consideration of other evidence and testimony, turnover orders should not be issued, or approved on appeal, merely on proof that at some past time property was in possession or control of the accused party, unless the time element and other factors make that a fair and reasonable inference.
Under some circumstances it may be permissible, in resolving the unknown from the known, to reach the conclusion of present control from proof of previous possession. Such a process, sometimes characterized as 'presumption of fact,' is, however, nothing more than a process of reasoning from one fact to another, an argument which infers a fact otherwise doubtful from a fact which is proved.
Unlike the judicially developed turnover proceedings, contempt proceedings for disobedience of a lawful order are specifically authorized by two separate provisions of the Act and are of two distinct kinds. The court is authorized to 'enforce obedience by persons to all lawful orders, by fine or imprisonment, or fine and imprisonment.' 11 U.S.C. 11(a)(13), 11 U.S.C.A. § 11, sub. a(13). This creates the civil contempt proceeding to coerce obedience, now before us. There is also provision for a criminal contempt proceeding whose end is to penalize contumacy, the court also being authorized to 'punish persons for contempts committed before referees.' 11 U.S.C. 11(a)(16), 11 U.S.C.A. § 11, sub. a(16). These contempts before referees are defined to include disobedience or resistance to a lawful order, and the statute provides for a summary proceeding before the District Judge who, if the evidence 'is such as to warrant him in so doing,' may punish the accused or commit him upon conditions. 11 U.S.C. 69, 11 U.S.C.A. § 69.
The court order is increasingly resorted to, especially by statute,
to coerce performance of duties under sanction of contempt. It would be a disservice to the law if we were to depart from the long-standing rule that a contempt proceeding does not open to reconsideration the legal or factual basis of the order alleged to have been disobeyed and thus become a retrial of the original controversy. The procedure to enforce a court's order commanding or forbidding an act should not be so inconclusive as to foster experimentation with disobedience. Every precaution should be taken that orders issue, in turnover as in other proceedings, only after legal grounds are shown and only when it appears that obd ience is within the power of the party being coerced by the order. But when it has become final, disobedience cannot be justified by re-trying the issues as to whether the order should have issued in the first place. United States v. United Mine Workers of America, 330 U.S. 258, 259, 67 S.Ct. 677; Oriel v. Russell, 278 U.S. 358, 49 S.Ct. 173, 73 L.Ed. 419. Counsel appears to recognize this rule, for the record in the case now before us does not include the evidence on which the turnover order was based. We could learn of it only by going outside of the present record to that in the former case, which would be available only because an application was made to this Court to review that earlier proceeding.
This Court said in the Oriel case that 'a motion to commit the bankrupt for failure to obey an order of the court to turn over to the receiver in bankruptcy the property of the bankrupt is a civil contempt and is to be treated as a mere step in the proceedings to administer the assets of the bankrupt as provided by law, and in aid of the seizure of those assets and their proper distribution. While in a sense they are punitive, they are not mere punishmentthey are administrative but coercive, and intended to compel, against the reluctance of the bankrupt, performance by him of his lawful duty.' 278 U.S. 358, at page 363, 49 S.Ct. 173, at page 174, 73 L.Ed. 419.
Of course, to jail one for a contempt for omitting an act he is powerless to perform would reverse this principle and make the proceeding purely punitive, to describe it charitably. At the same time, it would add nothing to the bankrupt estate. That this Court in the Oriel case contemplated no such result appears from language which it borrowed from a Circuit Court of Appeals opinion which, after pointing out that confinement often failed to produce the money or goods, said, 'Where it has failed, and where a reasonable interval of time has supplied the previous defect in the evidence, and has made sufficiently certain what was doubtful before, namely the bankrupt's inability to obey the order, he has always been released, and I need hardly say that he would always have the right to be released as soon as the fact becomes clear that he cannot obey.'
Moreover, the authorities relied upon in Chief Justice Taft's opinion
make it clear that his decision did not contemplate that a coercive contempt order should issue when it appears that there is at that time no wilful disobedience but only an incapacity to comply.
Indeed, the quotation from In re Epstein, cited supra (note 4) also stated: 'In the pending case, or in any other, the court may believe the bankrupt's assertion that he is not now in possession or control of the money or the goods, and in that event the civil inquiry is at an end * * *'
In Oriel's case, this Court said: '* * * on the motion for commitment the only evidence that can be considered is the evidence of something that has happened since the turnover order was made showing that since that time there has newly arisen an inability on the part of the bankrupt to comply with the turnover order.' This language the Court of Appeals has construed to mean that the accused can offer no evidence to show that he does not now have the goods if that evidence, in the absence of an affirmative showing of when and how he disposed of the goods, might tend to indicate that he never had them and hence to contradict findings of the turnover order itself. We agree with the Court of Appeals that the turnover order may not be attacked in the contempt proceedings because it is res judicata on this issue of possession at the time as of which it speaks. But application of that rule in these civil contempt cases means only that the bankrupt, confronted by the order establishing prior possession, at a time when continuance thereof is the reasonable inference, is thereby confronted by a prima facie case which he can successfully meet only with a showing of present inability to comply. He cannot challenge the previous adjudication of possession, but that does not prevent him from establishing lack of present possession. Of course, if he offers no evidence as to his inability to comply with the turnover order, or stands mute, he does not meet the issue. Nor does he do so by evidence or by his own denials which the court finds incredible in context.
This duty has nowhere been more clearly expressed than in the Oriel case:
'* * * There is a possibility, of course, of error and hardship, but the conscience of judges in weighing the evidence under a clear perception of the consequences, together with the opportunity of appeal and review, if properly taken, will restrain the courts from recklessness of bankrupt's rights on the one hand and prevent the bankrupt from flouting the law on the other. * * *'
Such a careful balancing was said to be required in turnover proceedings because 'coercive methods by imprisonment are probable and are foreshadowed.'
Certainly the same considerations require as careful and conscientious weighing of the evidence relevant in the contempt proceeding. At that stage, imprisonment is not only probable and foreshadowedit is imminent. And, without such a weighing, it becomes inevitable.
When such a misapprehension of the law has led both courts below to adjudicate rights without considering essential facts in the light of the controlling law, this Court will vacate the judgments and remand the case to the District Court for further proceedings consistent with the principles laid down in this Court's opinion. Manufacturers' Finance Company v. McKey, Trustee in Bankruptcy, 294 U.S. 442, 453, 55 S.Ct. 444, 449, 79 L.Ed. 982; Gerdes, Trustee in Bankruptcy, v. Lustgarten, 266 U.S. 321, 327, 45 S.Ct. 107, 109, 69 L.Ed. 309, and cases cited.
Had the petitioner been charged with embezzling this same property after the 1943 turnover order, doubtless no one would even argue that a doctrine of res judicata barred him from introducing evidence to show that the turnover findings of possession were wrong, and that in truth, he did not have possession of the property or its proceeds either on, before, or after August 9, 1943, or April 18, 1945. One basic reason why the findings of fact in a turnover proceeding would not be res judicata in an embezzlement proceeding is that the burden of proof is different in the two types of proceedings. In the first, a turnover proceeding, 'clear and convincing proof' is enough; in the second, embezzlement, 'proof beyond a reasonable doubt' is required. The burden of proof is heavier in the embezzlement case because a judgment of conviction may embody a criminal punishment, while a turnover judgment does notit is merely an order for the surrender of property, similar to an order of delivery in a replevin suit.
The foregoing is written on the assumption that the turnover-contempt procedure is legal, an assumption which I do not accept. I share the opinion of the Circuit Court of Appeals that this procedure is unauthorized by statute and that it should not be permitted to take the place of criminal prosecutions for fraud as apparently was done here.
This whole procedure flavors too much of the old discredited practice of imprisonment for debts debts which people are unable to pay. For here, if petitioner did wrongfully dispose of the property, whether or not he was guilty of a crime, he ws probably liable in some sort of civil action, basically similar to, if not actually one for debt. Had a judgment been obtained against him in such a civil case, I doubt if it would be thought at this period that the bankruptcy court could have thrown petitioner in jail for his failure to obey what would have been in effect a court order to pay the debt embodied in the judgment.
Furthermore, the finding of possession of the merchandise as of 1943 may rest on an evidential foundation firm enough to support a civil turnover order but it is too shaky to support a sentence to prison. Accepting that finding, however, the presumption of present or 1945 possession from the possible 1941 or 1943 possession achieves a procedural result which runs counter to basic practices in our system of laws. For as the District Court said, it gave the prosecution the advantage of a 'presumption' which, of itself, was held to relieve it from offering further proof of petitioner's guilt in a case where forfeiture of his personal liberty and property was sought; it threw upon the petitioner the burden of proving his innocence.
This is one of those rare cases where I find myself in substantial agreement with the direction and main views of an opinion, but am thereby led to a different conclusion. Too often we are called upon to disentangle a snarled skein of facts into a thread of legal principles. In this case, the Court's opinion seems to me to snarl a straight thread of facts into a confusing skein of legal principles. It was the record in a prior case involving the same litigants that invited correction of a rule of bankruptcy administration in the Second Circuit. We denied review.
The precise question before us may be simply stated. The District Court ordered the bankrupt to turn over goods withheld by him from the trustee. On the basis of two prior cases,
the Circuit Court of Appeals affirmed this order, per curiam. 2 Cir., 145 F.2d 241. These earlier cases in turn relied on a previous case.
All three enforced a rule of the Second Circuit that goods in the possession of a bankrupt on the day of bankruptcy are presumed to continue in his possession regardless of the time that may have elapsed. In all three cases, the Circuit Court of Appeals had affirmed the turnover orders although it was maintained that the bankrupts could not obey them.
Likewise, in all three cases, that court had declared is impotence to change what it regarded as an untenable rule of bankruptcy administration, although fashioned by it and not by this Court.
In almost imprecating language review and reversal by this Court in these cases were invited.
In one of these cases, the bankrupt filed a petition for certiorari, which this Court denied.
In Oriel v. Russell, 278 U.S. 358, 49 S.Ct. 173, 73 L.Ed. 419, a unanimous bench, including in its membership judges of wide experience with bankruptcy law,
held that upon a citation for contempt to compel obedience of a turnover order the issues adjudicated by that order could not be relitigated. That case decided nothing if it did not decide that what the turnover order adjudicatedthat the bankrupt withheld certain property from the bankrupt estate and was still in control of this property on the day he was ordered to turn it overis the definitive starting point for contempt proceedings to exact obedience to the turnover order. In short, the contempt proceedings must proceed from the turnover order and cannot go behind it. We should not ignore this relevant sentence in Oriel v. Russell: 'Thereafter on the motion for commitment the only evidence that can be considered is the evidence of something that has happened since the turnover order was made showing that since that time there has newly arisen an inability on the part of the bankrupt to comply with the turnover order.'
The Court today reaffirms Oriel v. Russell. At the same time it makes inroad on the practical application of Oriel v. Russell. On virtually an identical record
it reverses where Oriel v. Russell affirmed. The nature and scope of the inroad are uncertain because the Court's opinion, to the best of my understanding, leaves undefined how the District Court is to respect both Oriel v. Russell and today's decision.
About some aspects of our problem there ought to be no dispute. We are all agreed that while the bankrupt cannot relitigate the determination of a turnover order that he had such and such goods on the day of the order, he can avoid the duty of obedience to that order if he 'can show a change of situation after the turnover order relieving him from compliance.'
The right to be relieved from obeying the turnover order by sustaining the burden of inability to perform, on proof of circumstances not questioning the turnover order, has never been disputed. Again, if a judgment of civil contempt is rendered and the bankrupt is sent to jail until he chooses to obey the court's command, he will not be kept there when keeping him no longer gives promise of performance. Oriel v. Russell so pronounced.
On the record and the findings of the District Court this is the precise question now presented. There is nothing else in the record, except Judge Frank's statement below that the bankrupt was ordered to perform although the court knew that it was impossible for him to perform.
But this assertion of 'impossibility' was not derived from the record in these contempt proceedings. It derives from Judge Frank's familiar hostility to what he deems the unfairness of his court's rule of presumption in ordering turnover.
Judge Frank here merely repeats his conviction that a turnover order like that rendered against Maggio is an order to turn over goods which could not be turned over. But that was water over the dam in the contempt proceeding. To give it legal significance when enforcement of the turnover order is in issue is to utter contradictory things from the two corners of the mouth. It is saying that the turnover order cannot be relitigatedthat we cannot go back on the adjudication that the bankrupt had the goods at the time he was ordered to turn them overbut we know he did not have the goods, so we contradict the turnover order and do not respect it as res judicata.
I cannot reconcile myself to saying that we adhere to Oriel v. Russell and yet reject its only meaning, namely, that we cannot go behind the judicial determination made by the turnover order that the bankrupt on such and such a day had the enumerated goods. Moreover, the authorities relied upon in Chief Justice Taft's opinion
make it clear that his decision did contemplate that a coercive contempt order should issue when it appears that the bankrupt has introduced no evidence or, what is the same, evidence tht may properly not satisfy the District Court by establishing incapacity to comply since the turnover order.
In this case, the District Court was entirely warranted in finding that the bankrupt had produced no evidence to contradict the adjudication of the turnover order that he had the goods when he was told to turn them over, unless, in place of what is usually deemed evidence, an infirmity has been found to seep, by a process of osmosis, into the turnover order respect for which in its entirety is the starting point of our problem.
The time to have acted on the inference of impossibility of performance of the turnover order, or to have taken notice of the imprisoning rule of the Second Circuit as to the presumption of continued possession of a bankrupt's withheld goods, was when we were asked to review the Circuit Court of Appeal's denigrating affirmance of the turnover order.
When we declined to review that turnover order, it became a final and binding adjudication. Neither court below was under a misapprehension as to the applicable law in the instant contempt proceeding. The District Court relied on In re Siegler, 2 Cir., 31 F.2d 972. But surely reliance on a case that was correctly decided is hardly an indication of misapprehension of law. If the Siegler dicision had preceded instead of followed
Oriel v. Russell, it might well have been one of the authorities relied upon in Chief Justice Taft's opinion.
Nor do we have to speculate as to whether Judge Frank's conclusion that Maggio was unable to comply was based on evidence in this record or on doubt as to the propriety of the turnover order. We have the same printed record before us that he had and it is barren of such evidence. Presumably Judge Frank did not travel outside this record and act on undisclosed private knowledge. The whole course of this issue in the Second Circuit in recent years makes it obvious that his observation was merely another animadversion on that Circuit's practice in issuing turnover orders. The Circuit Court of Appeals did not purport to make an independent evaluation of Maggio's evidence bearing on his incapacity to obey the turnover order. It was beyond its power to do so. The Circuit Court was not at large. Its power was limited to a consideration of the justifiability of the District Court's findings on the basis of the record before that court.
The cure for this procedural situation, if cure is called for, is correction of the rule of the Second Circuit regarding presumptions in turnover orders.
It ought not to be dealt with indirectly and at the cost of beclouding the doctrine of res judicata in proceedings for civil contempt. If Maggio has become the unhappy victim of the procedural snarl into which the Circuit Court of Appeals for the Second Circuit has involved itself by its decisions on the appeals of turnover orders and by this Court's refusal to review such adjudications, the law is not without ample remedies. The District Court has power to discharge a contemnor when confinement has become futile, or release may be had through use of habeas corpus, which, in the now classic language of Mr. Justice Holmes, 'cuts through all forms and goes to the very tissue of the structure. It comes in from the outside, not in subordination to the proceedings * * *.' Frank v. Mangum, 237 U.S. 309, 346, 35 S.Ct. 582, 595, 59 L.Ed. 969. These are means available to correct whatever specific hardship this case may present without generating cloudiness indeterminate in range upon a legal principle of such social significance as that of res judicata and upon a remedy so vital as civil contempt for the sturdy administration of justice.
How is the conscientious District Court to carry out the directions conveyed by the Court's opinion? If the District Court gives unquestioned respect, as it is told to do, to the turnover order of August 9, 1943, it will start with the fact that on August 9, 1943, the bankrupt was able to comply with that order. With that as a startingpoint will the District Court not be entitled to find again, as it has already found,
that nothing presented by the bankrupt in exculpation for not complying with the turnover order disproves that he continued to have the property, which he was found to have had as of August 9, 1943. If the District Court should so find, would not the Circuit Court of Appeals and this Court if the case came here for review, be under duty bound to hold that, on the basis of the situation as adjudicated by the turnover order, the District Court could reasonably make such a finding? Or is the District Court to infer that in view of the snarl into which these proceedings have got by reason of the failure to upset the turnover order when directly under review, this Court was indulging in benign judicial winking that while the fact of the possession of the property had been adjudicated by the turnover order and could not verbally be questioned, the District Court need not accept the determination of that order as facts? But if the District may so drain the adjudication of the turnover order of is only legal significance, why assert that Oriel v. Russell is left without a scratch? Why reaffirm that an adjudication sustaining a turnover order may not be relitigated when obedience is sought to such turnover order? These are questions which will confront not merely the district judge to whom this case will be remanded. After all, we are concerned with the practical administration of the Bankruptcy Act by district judges all over the United States.
For examples of statutory provisions, see Interstate Commerce Act, 49 U.S.C. 12(3), 49 U.S.C.A. § 12(3); Securities Exchange Act of 1934, 15 U.S.C. 78u(c), 15 U.S.C.A. § 78u(c); Public Utility Holding Company Act of 1935, 15 U.S.C. 79r(d), 15 U.S.C.A. § 79r(d); Communications Act of 1934, 47 U.S.C. 409(d), 47 U.S.C.A. § 409(d); National Labor Relations Act, 29 U.S.C. 161(2), 29 U.S.C.A. § 161(2); Federal Trade Commission Act, 15 U.S.C. 49, 15 U.S.C.A. § 49; Administrative Procedure Act of 1946, 5 U.S.C. 1005(c), 5 U.S.C.A. § 1005(c); and Atomic Energy Act of 1946, 42 U.S.C. 1816(d), 42 U.S.C.A. § 1816(d).
Other decisions are to the same effect. See, for example, American Trust Co. v. Wallis, 3 Cir., 126 F. 464; Samel et al. v. Dodd, 5 Cir., 142 F. 68, certiorari denied 201 U.S. 646, 26 S.Ct. 761, 50 L.Ed. 903; In re Nisenson, D.C., 182 F. 912; In re Holden, 6 Cir., 203 F. 229, certiorari denied 229 U.S. 621, 33 S.Ct. 1049, 57 L.Ed. 1355; In re McNaught, D.C., 225 F. 511; Dittmar v. Michelson, 281 F. 116; In re Davison, D.C., 143 F. 673; In re Marks, D.C., 176 F. 1018; In re Elias, D.C., 240 F. 448; Freed v. Central Trust Co. of Illinois, 7 Cir., 215 F. 873; In re Nevin, 6 Cir., 278 F. 601; Johnson et al. v. Goldstein, 6 Cir., 11 F.2d 702; In re Magen, D.C., 14 F.2d 469; Id., D.C., 18 F.2d 288; In re Walt, D.C., 17 F.2d 588; Clark v. Milens, 9 Cir., 28 F.2d 457; Berkhower v. Mielzner, 6 Cir., 29 F.2d 65, certiorari denied 279 U.S. 848, 49 S.Ct. 345, 73 L.Ed. 992; In re Tabak et al., D.C., 34 F.2d 209; In re Weisberger, D.C., 43 F.2d 258. See also Collier, Bankruptcy (14th ed.) pp. 244249; 2 id. pp. 535542; 5 Remington, Bankruptcy (4th ed.) pp. 624681; 8 C.J.S., Bankruptcy, § 210; 6 Am.Jur. § 369, pp. 752753.