Court Opinion

ID: 8772153
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:48:30.656423+00
Date Added: 2024-06-11T17:02:17.506764
License: Public Domain

BUFFINGTON, Circuit Judge
(dissenting). J dissent from the construction placed by the majority opinion on section 21, cl. “a,” of the bankrupt act, which provides:
“A court of bankruptcy may, upon application of any officer, bankrupt, or creditor, by order require any designated person, including the bankrupt and bis wife, to appear in eourt or before a referee of the judge of any state court, to be examined concerning the acts, conduct, or property of a bankrupt whose estate is in process of administration under this act.”
By that construction a court of bankruptcy is powerless, until adjudication of an alleged bankrupt, to examine him thereunder.' As this construction is based on the ground that until that time there is no “bankrupt whose estate is in process of administration,” it follows that no other person can be examined until after adjudication, for such inquiry being limited to “the acts, conduct or property of a bankrupt whose estate is in process of administration,” and prior to adjudication there being no such person, it follows that no witness can be called under this section until after adjudication. Now, as 20 days must elapse, whether the bankruptcy is contested or conceded, before adjudication, during this time the court is powerless to act under this section. Of this period Judge Hough, of the Southern District of New York, has, in Re Fleischer, 18 Am. Bankr. Rep. 197, 151 Fed. 81, well said:
“The desirability and importance of promptly conducting an investigation into the affairs of any person petitioned into the bankruptcy court has been too often shown to be open to doubi. To wait until adjudication to ascertain from the bankrupt’s own lips the situs of his property and ids own explanations of the situation in which the creditors find themselves is in many cases *336giving to those guilty o'f fraud the necessary time to permit the fraud to be consummated and the fruits thereof secured. In my opinion it is not too much to say that a skillful and vigorous use of early examinations of involuntary bankrupts is the one thing which enables creditors to prevent this statute being easily turned into a shield for dishonesty and a potent aid to fraud.’-’
And in the case now before us such construction made a court powerless to act, although the facts are as stated by the untraversed petition of the court’s receiver that—
“the alleged bankrupt” was “guilty of removing property and assets, * * * that it is essential for the interests of this estate that an investigation be commenced immediately for the purpose of discovering what disposition has been made of the assets which were in the possession of the alleged bankrupt immediately before the filing of the petition in bankruptcy,” and “that the delay incident to an adjudication * * * would render practically impossible the proper investigation of the fraudulent acts which have been committed.”
The bankrupt law has two objects: One to collect all the bankrupt’s property ^nd marshal it; the other to discharge him from all liabilities when he has surrendered all his property. To enable the court to accomplish this, the act makes different provisions. Thus it is made the duty of the bankrupt by section 7, cl. 1, “to attend the first meeting of his creditors, if directed by the court or a judge thereof to do so,” and by clause 9, “when present at the first meeting of creditors and at such other times as the court shall order, submit to an examination concerning the conduct of his business, the cause of his bankruptcy, his dealings with his creditors and other persons, the amount, kind and whereabouts of his propertjr, and in addition, all matters which may affect the administration of his estate.” Now it is clear that, while this section makes it the duty of the bankrupt to be examined at the first meeting of creditors and also “at such other times as the court shall order,” it makes no provision when those other times are; but as the creditors’ meeting can be adjourned and the bankrupt examined at such adjourned creditors’ meeting — Collier on Bankruptcy (4th Ed.) p. 234 — it is evident we must look elsewhere in the act for provisions for examinations “at such other times as the court shall order.” And since provision was thus made for examinations first and subsequent before the referee, it would seem the act would naturally make the other examinations in advance of adjudication. Such we find to be the case. Thus by section 9, cl. “a,” the court is authorized, “at any time after the filing of a petition by or against a person,” on proof that “such bankrupt is about to leave the district * * * to avoid examination,” to cause his arrest and to imprison him or commit him to bail “for his appearance for examination, from time to.time, not exceeding in all ten days.”
Now two things are to be here noted: First, that the person against whom a petition is filed is herein described as a bankrupt; and, secondly, that if such bankrupt is arrested within 10 days after the petition is filed against him, the examination ordered must necessarily take place before adjudication, since no adjudication can be made short of 20 days. So, also, section 3, cl. “d,” compels a person against whom a petition is filed and who denies insolvency- to appear in advance of adjudication and “submit to an examination and give testimony as to all matters tending to establish *337solvency or insolvency.” And section 2, cl. 3, authorizes the appointment of receivers, a power exercised without question in advance of adjudication, and authorizes them “to take charge of the bankrupt’s property after the filing of the petition,” thus recognizing both the court’s administrative duty in advance of adjudication and the use of the word bankrupt to describe the debtor. Moreover, as by section 2, cl. 7, the court is authorized to cause the estates of bankrupts to be collected, reduced to money, and distributed, and by clause 15 “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 this act,” it would seem, if to collect the property of the bankrupt it became necessary to obtain from him information that would aid in its collection, that apart from any section specifically authorizing thereto this general power in clause 15 would warrant the court in taking effective summary proceedings. Indeed, the plain, direct, and simple agencies of the bankrupt court in its administrative capacity is recognized in Mueller v. Nugent, 184 U. S. 14, 22 Sup. Ct. 274, 46 L. Ed. 405, where the court say:
“Til other words, the question reduces itself to this: Has the bankrupt court the power to compel the bankrupt, or his agent, to deliver up money or other assets of the bankrupt, in bis possession or that of some one for him, on petition and rule to show cause? Does a mere refusal by the bankrupt or bis agent so to deliver up oblige the trustee to resort to a plenary suit in the Circuit Court or a state court, as the case may be? If it be so, the grant of jurisdiction to cause the estates of bankrupts to be collected, and to determine controversies relating thereto, would be seriously impaired, and, in many respects, rendered practically inefficient. The bankruptcy court would be helpless indeed if the bare refusal to turn over could conclusively operate to drive the trustee to an action to recover as for an indebtedness, or a conversion, ci-to proceedings in chancery, at the risk of the accompaniments of delay, complication, find expense, intended to be avoided by the simpler methods of the bankrupt law.”
And there is no reason for withholding, and every reason for exercising, the power of the court to act by these “simpler methods of the bankrupt law” during these 20 days. True, the alleged bankrupt may not he adjudicated; true, his property, of which the court had taken constructive possession by the filing of the petition and actually by the appointment of its receiver, might subsequently be abandoned to him; but from the moment the petition was filed the jurisdiction of the court attached, and because jurisdiction had attached the administration of the trust and estate had begun. As was said in Mueller v. Nugent, supra:
“It is ns true of the present law as of that of 1867 that the filing of the petition is a caveat to all the world, and in effect an attachment and injunction.”
But, while all the provisions cited enable a court of bankruptcy to call before it the bankrupt for examination, section 21, cl. “a,” provided for calling before it other designated persons, “including the bankrupt.” Its purpose, so far as the bankrupt is concerned, is well stated in the referee’s opinion in Re Cobb, 7 Am. Bankr. Rep. 104, which was adopted by Judge Lowell:
“It is to be noted in the first place that ilie examination of a witness summoned under section 21a, upon the application of the trustee, is an entirely *338distinct and independent proceeding from the ordinary bankrupt's examination held at the first meeting of creditors or at some adjournment thereof. * * • * The examination of, a witness by the trustee under section 21a is taken solely for his information, to enable him to act intelligently in the premises and to take such steps as may be necessary for the protection and preservation of the estate.”
That the examination of the bankrupt ordered under section 21a is different from the examination before the referee at creditors’ meetings is also the view of the text-writers. Collier on Bankruptcy (4th Ed.) p. 2-34, says:
“It should be noted, however, that while this subsection (21a) makes the bankrupt a compulsory witness as to his own ‘acts, conduct or property,’ by section 7 (0) he must also be ready to testify concerning the same things at the first meeting of creditors. * * * In effect, the only difference, as far as the bankrupt goes, is one of practice. Where first meetings are kept alive by continuances, as is customary, his examination can be had or resumed so long as the meeting lasts. If the meeting had been adjourned, an examination can. under section 7 (9), still be had at such times as the court shall order, or it can be required under the section now discussed. Clearly, therefore, the main purpose of section 21a is to authorize and regulate the examination of third parties, rather than that of the bankrupt. * * * Without the power to so examine, the remedy of the statute against preferences and fraudulent transfers would often be unavailing.”
So, also, in Loveland’s Bankruptcy (2d Ed.) p. 615, it is said:
“The language of these provisions is very general. They give the referee power to summon any person who could give evidence in a court of law. They authorize the examination of them upon all matters which are likely to arise in respect to the bankrupt or his property. The only limitation as to time within which this power may be exercised is that the estate shall be in process of administration in bankruptcy. The judge or referee may therefore summon a witness at any time after the commencement of proceedings until the estate is closed by order of court. The referee, of course, can only summon witnesses while the case is pending before him upon reference.”
The construction thus placed on this section makes a complete system of the bankrupt law, enables’ courts to thwart fraud and fulfill the purpose of the law, gives effect to this clause, and gives to its words the same meaning as in other parts of the act. The act clearly makes no provision that the court’s jurisdiction shall be divided into two periods, viz., a nonadministrative period prior to adjudication, and an administrative one after adjudication. On the contrary, the whole tenor of the act is to regard the time from the filing of the petition to the close of the proceeding as an administrative whole. Thus section 1, cl. 4, provides that the word “bankrupt” shall “include h person against whom an involuntary petition * * * has been filed, or who has filed a voluntary petition, or who has been adjudged a bankrupt”; clause 10, that the word “bankruptcy” “with reference to time, shall mean the date when the petition was filed.” Moreover, the examination of the bankrupt in advance of adjudication is no new departure in bankruptcy administration. Act Aug. 19, 1841, c. 9, § 4, 5 Stat. 443, provided:
“And such bankrupt shall at all times be subject to examination, * * * and his acts and doings and his property and rights of property, which, in the judgment of such courts, are necessary and proper for the purposes of justice.”
*339And in Ex parte Lee, Fed. Cas. No. 8,178 (a voluntary case), it was held by Judge Betts that both voluntary and involuntary bankrupts could be examined in advance of adjudication. He there says:
“It is said that Congress ini ended only that lie should be subject to an examination after being declared a bankrupt. But in referring to another section of the act it will be found that he lakes the name of bankrupt before he is pronounced so by the court. On tiling their petitions they are deemed bankrupts, and that is the descriptio personae.”
Under Act March 2, 1867, c. 176, 14 Stat. 517, the examination was not deferred until after adjudication, but the court was authorized to “at all times require the examination of the bankrupt.” And so, also, the word “administration" in the clause before us is in our judgment used in a broad sense as descriptive of the whole bankruptcy proceeding, rather than in the narrower, technical sense of that part of the administrative work which begins after adjudication. In other words, the administration which proceeds from adjudication is simply the continuation of that which preceded adjudication. This is most clearly implied in section 22, cl. “a,” which provides:
“After a person 1ms been adjudged a bankrupt, the judge may cause tlie trustee to proceed with (lie administration of the estate or may refer it.”
Proceeding- with an administration implies that administration has already begun. Moreover, since by section 64, cl. “b,” the first item paid out of a bankrupt’s estate is “the actual and necessary cost of preserving the estate subsequent to filing the petition,” it is hard to say that the court, which was preserving and keeping intact the property prior to the appointment of a trustee, was not administering. The word “administer” means literally to minister to, to serve, and surely preliminary preservation, getting trace of assets, preventing concealed goods from being spirited away, in other words, preventing the scattering and dissipating of property, so that there may be an estate to sell and distribute, is the very gist of administration. To say that administration, the duty of the court to administer by conservation, does not begin until after adjudication, is to lose sight of the most effective scope of the court’s jurisdiction. With adjudication and the selection by the creditors of a trustee the creditors assume charge. But before adjudication, and when creditors have no representative, the court is their representative, and is either by its own process or its own receiver administering for their benefit. We may rightfully use, of the administration of a bankrupt court, mutatis mu-tandis, the language of the Supreme Court of Alabama, in Martin v. Ellerbe’s Adm’r, 70 Ala. 326, and say:
“The term ‘administration' includes more1 than the collection of assets and the payment of debts and legacies and distribution to the next of kin, and involves anything that may he done rightfully in the preservation of the assets of the estate and which may he done legally by the administrator in his diallings with creditors, distributees, or legatees, or which may be done by them in securing their rights.”
Holding, then, that an estate in bankruptcy is aptly described as “in process of administration itnder this act” from the time the clerk files a petition in bankruptcy, which is “a caveat to all the world and in effect an attachment and injunction,” T am of opinion the order of reference in this case was within th« statutory powers of the court.