Case Name: In the Matter of CROFOOT, NIELSEN & CO., Alleged Bankrupt. CONTINENTAL AUTOMOBILE LEASING SYSTEMS, INC., Appellant, v. CROFOOT, NIELSEN & CO., and Nathan Yorke, Assignee for Benefit of Creditors, Appellees
Court: United States Court of Appeals for the Seventh Circuit
Jurisdiction: United States
Decision Date: 1963-01-22
Citations: 313 F.2d 170
Docket Number: No. 13789
Parties: In the Matter of CROFOOT, NIELSEN & CO., Alleged Bankrupt. CONTINENTAL AUTOMOBILE LEASING SYSTEMS, INC., Appellant, v. CROFOOT, NIELSEN & CO., and Nathan Yorke, Assignee for Benefit of Creditors, Appellees.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 313
Pages: 170–173

Head Matter:
In the Matter of CROFOOT, NIELSEN & CO., Alleged Bankrupt. CONTINENTAL AUTOMOBILE LEASING SYSTEMS, INC., Appellant, v. CROFOOT, NIELSEN & CO., and Nathan Yorke, Assignee for Benefit of Creditors, Appellees.
No. 13789.
United States Court of Appeals Seventh Circuit.
Jan. 22, 1963.
Rehearing Denied Feb. 27, 1963.
Ralph G. Scheu and Jerome Berkson, Chicago, Ill., for appellant.
Norman H. Nachman, Chicago, Ill., Louis W. Levit, Gerald F. Munitz, Chicago, Ill., of counsel, for appellees.
Before SCHNACKENBERG, KILEY, and SWYGERT, Circuit Judges.

Opinion:
KILEY, Circuit Judge.
The District Court affirmed an order of the Referee dismissing Continental's involuntary petition in bankruptcy. Continental has appealed.
Crofoot, Nielsen & Co. made a general assignment for the benefit of creditors and on August 30, 1961, Continental, through its secretary-treasurer Healy, filed, as a single creditor, the involuntary petition against Crofoot. The Referee conducted a hearing on Crofoot's motion to dismiss the petition, alleging more than twelve creditors, Continental's answer, and affidavits of both parties. He concluded that there was no genuine issue of fact, and dismissed Continental's petition. No notice was given Crofoot's creditors before dismissal. The District Court affirmed the dismissal order, and this appeal followed.
The question is whether the District Court erred in affirming the order dismissing the petition without notice to Crofoot's other creditors.
11 U.S.C.A. § 95, sub. b (Supp.1961) provides that if all the creditors are less than twelve, a single creditor may file the involuntary petition. If " less than three creditors have joined as petitioners therein, and the answer avers the existence of a large number thereupon the court shall cause all such creditors to be notified and shall delay the hearing for a reasonable time, to the end that the parties in interest shall have an opportunity to be heard." 11 U.S.C.A. § 95, sub. d. But if a single creditor files a petition with knowledge that the allegation (less than twelve creditors) is false, the petition will be dismissed as a fraudulent attempt to confer jurisdiction upon the court where none exists and intervention "presumably" will be denied. 3 Collier on Bankruptcy 601-02 (14th ed. 1961). Navison Shoe Co. v. Lane Shoe Co., 36 F.2d 454 (1st Cir. 1929), Matter of Security Motor Co., 51 F.Supp. 559 (W.D.Mo.1943), and In re Gibraltar Amusements, Ltd., 187 F.Supp. 931 (E. D.N.Y.1960) are cited to Collier's prophecy.
The Referee's conclusion was based on findings that Continental's petition alleged there were less than twelve Crofoot creditors; that Crofoot's affidavit listed more than a hundred creditors; that the number was not questioned by Continental ; and that Continental's attorney was informed the day before the petition was filed that there were more than twelve creditors.
The Referee expressly stated there was no finding of fraud. The basis of his decision to dismiss appears to have been the "uncontroverted" list showing there were in excess of twelve creditors.
On review, the District Court did not expressly find fraud. It found that petitioner's attorney was told by bankrupt's attorney there were in excess of twelve creditors; and that Continental made no showing of the basis for its allegation, on information and belief, of "less than twelve." It concluded that petitioner and its attorney had no reason to believe there were less than twelve creditors.
The only finding relating to the implication of fraud by the District Court is that of the Referee regarding the conversation between the attorneys the day before the petition was filed. But when the Referee's order was entered, Continental's attorney, by affidavit, had raised an issue on what was said between the attorneys. In a somewhat dis connected hearing, the Referee heard testimony and statements of the attorneys, and expressly found, orally, that there was no fraud. The District Court had before it only the record of that proceeding.
We decide that there was not a sufficient hearing of the issue raised before the Referee; that there are not sufficient findings of fact upon which to support a conclusion that Continental's attorney knew the allegation "less than twelve" was false; and that there is no conclusion to justify dismissing the petition as a fraudulent attempt to confer bankruptcy jurisdiction on the court where none exists. 3 Collier on Bankruptcy 601-02 (14th ed. 1961).
If there was no fraud in filing of the petition, 11 U.S.C.A. § 95, sub. d required notice to other creditors. In re Plymouth Cordage Co., 135 Fed. 1000, 1007 (8th Cir. 1905), 3 Collier on Bankruptcy 601-02 (14th ed. 1961). If there was fraud notice was not required. This is a vital point on which a clearcut finding and conclusion must be made.
The judgment is reversed, and the cause remanded for further proceedings.
. 11 U.S.C.A. § 95, sub. b (Supp.1961) provides that if there are less than twelve creditors, one creditor, with a claim of $500.00 or more, may file a petition to have the debtor declared a bankrupt,
. 11 U.S.C.A. § 95, sub. d.
. Fraud must be proved by clear and convincing testimony. Matter of Security-Motor Co., 51 F.Supp. 559 (W.D.Mo.1943).
. The implication of fraud could have grave consequences for the attorney under Rule 11, Federal Rules of Civil Procedure.,