Court Opinion

ID: 6879444
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:12:30.045061+00
Date Added: 2024-06-11T16:05:33.520212
License: Public Domain

EVANS, Circuit Judge
(concurring in part).
Approving the reversal, I nevertheless cannot subscribe to the view that the court is powerless to protect, through civil contempt proceedings, one, or a group, who as creditor parties before the court, are working with and under the direction of the court to reorganize an insolvent debt- or, against a third party or group of third parties, who, in order to discourage bondholders and to depress bond prices that they may purchase bonds at greatly depressed prices, circularize the bondholders with false and defamatory statements, known to be false and injurious to the plan which the court has oMered submitted and the creditors or creditors’ committee suffer special damage.
I believe the order directing the payment of $600 to the creditors must be reversed in this case because of failure to properly prepare the issues and to provide a separate hearing of the contempt issues. Against denying relief in such proceedings altogether because beyond the powers of the District Court, I protest.
To briefly capitulate the essential facts: The court on petition duly and properly filed under section 77B, of the Bankruptcy Act acquired jurisdiction of the property and of the debtor corporation.1 The property was thenceforth in custodia legis.2 The court was in duty bound to conserve and protect it. Against one who invaded that possession (to burn it, say), criminal contempt proceedings would lie.3 Not only was there a duty on the part of the court to conserve ' the property, it was required to direct and assist in a. reorganization of the debtor.4 The handicaps and embarrassments of- insolvency, or of inability to meet debts as they be'came due, with consequent preferences and advantages, were to be avoided. In this effort the creditors were necessary participants. Without them and the assent of a certain percentage of them, reorganization was impossible.5 They were in a sense quasi officers of the court. In the instant case there was apparently but a single bond issue, so no clash of interests between groups" of security holders was possible. Even in such cases, the court could expect or reasonably demand conduct usually accorded by a quasi court official.
Under such circumstances, a bondholder who steals the list of creditors, falsifies their addresses or effects a misstatement of the plan of reorganization to thwart the effort of the court and its officers and the creditors who helped in its preparation would clearly be guilty of criminal contempt. Only in degree would this act differ from that of the incendiarist who burns the building in the court’s custody.
Likewise distinctions are only in degree between the incendiarist, the creditor who stole and falsified the list of creditors or the terms of the plan, and an unscrupulous creditor who, cunningly and maliciously, seeks to defeat the. action of the court, its officers, and the creditors who in good faith participated in preparing and submitting a plan of reorganization by wilfully and maliciously circulating false statements in order that bondholders will react unfavorably to the plan proposed and also in despair and discouragement conclude to rid themselves of their holdings. As their bonds áre not widely salable, the overreaching creditor profits by his false and fraudulent statements at the expense of the parties whose interests the court is in duty bound to protect. Worse still the false statements of the intriguer are made to discredit the integrity of the action and conduct of the court and of the numerous creditors who participated in preparing the plan of reorganization. It indirectly reflects on the court, as being either stupid, indifferent or possibly not free of improper influences. In a case such as described,, the power to punish for criminal contempt is as clear as it would be to deal *543with one who burned the building. The duty to protect the plan and its sponsors against false and malicious assault is quite similar to the duty the court owes to the creditors to protect their physical property in the court’s custody.
In speaking of contemners, it should be made clear that I am speaking of one who writes falsely and maliciously and with evil intent to defeat a plan made in good faith and who misstates the material facts to security holders. It is material representations maliciously made to deceive in order to enrich the maker of them which is the action that is here condemned. It is not the desire of the court to criticise or condemn efforts honestly made in good faith, to point out weaknesses in plans or oppose adoption of a plan which the opposer honestly believes might be improved.
Ioam convinced that upon facts stated, a court of equity has, through civil contempt proceedings, the power to protect litigants and the property in its custody against false and malicious attacks by adversaries or even third parties.
All the parties were before the court. The property had been turned over to the court. But the parties and property were in court with the understanding that the court would expeditiously turn the property back to the parties entitled thereto, after a fair plan of reorganization has been made effective, which will give to all security holders, greater security and better assurance of protection of their respective rights.
The majority opinion holds, as the contemner (described in class three above) argued, that punishment remedial in character which would' make the injured parties whole, can not be had. The accused may be held in criminal contempt, perhaps (although that is not expressly held), but he cannot be punished for civil contempt.
On innumerable occasions courts have considered the differences between civil and criminal contempt.6 The procedural differences were pretty well settled in Gompers v. Buck’s Stove & Range Co., 221 U. S. 418, 31 S.Ct. 492, 55 L.Ed. 797, 34 L. R.A.,N.S., 874.7
Likewise the differences in purposes and objectives are well defined.8 In one case the fine goes to the Government. In the other the amounts paid by contemner usually go as damages to the party who has been injured. In civil contempt the punishment is remedial, serves only the purposes of a party to the litigation, and is not intended as a deterrent to offenses against the public. McCrone v. U. S., 307 U.S. 61, 64, 59 S.Ct. 685, 83 L.Ed. 1108.
The act or acts out of which the' contempt arises may be the basis of either civil or criminal contempt or both.9 Just as one who assaults and beats another may be sued for damages in a civil suit or prosecuted in a criminal action, or both, so, to take an illustration, may one who, in a divorce action, is ordered to turn over property to his spouse, and in wilful open defiance thereof destroys it, be pursued either in criminal or in civil contempt proceedings. In fact both courses may be pursued, at the same time.
It is argued, however, by counsel for contemner, and his views are accepted by the majority of the court, that one is amenable to punishment for civil contempt only when it appears that an order of court has been made which is violated and this is s.o because the power of the court is limited by statute. Sec. 268 of the Judicial Code, 28 U.S.C.A. § 385.
Is this position sound? Differences of opinion account for the variance in our conclusions.
The power to punish for civil contempt has always been recognized as an inherent power of the court, necessary to the performance of the court’s duties and necessary to fulfil its obligation to settle differences between litigants or controversies *544pertaining to property turned over to the court.10
A proper construction of the Federal statute involved, necessitates our keeping in mind these purposes. The exercise of this power by courts of equity grew out of the court’s performance of its duties and was necessary to their performance.
The exercise of the power was, of course, not the action of a judicial officer seeking an enforced outward manifestation of obsequious respect or homage.
The statute reads:
“The said courts shall have power to impose and administer all necessary oaths, and to punish, by fine or imprisonment, at the discretion of the court, contempts of their authority. Such power to punish contempts shall not be construed to extend to any cases except the misbehavior of any person in their presence, or so near thereto as to obstruct the administration of justice, the misbehavior of any of the officers of said courts in their official transactions, and the disobedience or resistance by any such officer, or by any party, juror,- witness, or other person to any lawful writ, process, order, rule, decree, or command of the said courts.”
This statute is a declaration of the law of criminal contempt. It is not a statute of inhibition, but rather, in the field of criminal contempt, it is a recognition of the courts’ power to punish for contempt under certain conditions.
It does not deal with civil contempts nor restrict courts in the exercise of their duty to control, through civil contempt proceedings, the conduct of litigants in pending litigation or protect property in their custody.
If it were an attempt so to do, it might well be doubted whether Congress could take from- a court of equity, the power to protect property in its custody. Congress may properly limit or restrict the jurisdiction of the United States District Courts. But, if equity jurisdiction is conferred on the District Court, the latter’s powers to effectuate its jurisdiction, through contempt proceedings, can hardly be disputed. Certainly no restrictions should be implied for it is inconsistent with the grant of jurisdiction to deny effective means of exercising and enforcing it.
And the argument becomes more persuasive, as here, where the source of the legislation (bankruptcy) is traceable directly to the Constitution. Congress, it is true, may undoubtedly grant to, or withhold from, District Courts, such jurisdiction. Having granted11 it, may it say that in the exercise of such jurisdiction, the court is powerless to carry out the objects of bankruptcy proceedings and bankruptcy legislation.
The authority of a court in contempt cases seemingly has always been somewhat clouded in doubt and dispute.12 For reasons more human than logical, contempt cases usually produce more fire, heat, and smoke than other litigation. The court’s authority is more readily challenged and the exercise of this power more quickly denied than in other litigation. Perhaps this is due to the fact that two common fields wherein contempt proceedings arise are in divorce and labor cases, and in both classes of litigation the temper of litigants is apt to be easily inflamed. Likewise courts are rather quick to resent the charge that their action is unauthorized and autocratic instead of in protection of an aggrieved litigant. See discussion in Michaelson v. United States, 7 Cir., 291 F. 940; Id., 266 U.S. 42, 45 S.Ct. 18, 69 L.Ed. 162, 35 A.L.R. 451, a case decided by this court.
Some of the confusion which exists in contempt cases arises out of the fact that the Supreme Court has not passed on certain questions and inferior courts have not been in accord in their rulings. Likewise, we find decisions of inferior courts cited and followed, which have been expressly or inferentially overruled by later Supreme Court decisions.
*545The discussion of questions somewhat similar to ours by the Supreme Court in Michaelson v. United States, supra, and the opinion of the Circuit Court of Appeals in the same case are enlightening.
Although the authority was sharply challenged by counsel for the contemner, the Supreme Court ruled [266 U.S. 42, 45 S. Ct. 20, 69 L.Ed. 162, 35 A.L.R. 451]:
“That the power to punish for contempts is inherent in all courts, has been many times decided and may be regarded as settled law. It is essential to the administration of justice.”
Likewise, the attachment of such power when courts are created by legislative enactment is expressly recognized, for the Court said:
“The courts of the United States, when called into existence and vested with jurisdiction over any subject, at once become possessed of the power.”
Perhaps more significant is the statement:
“The attributes which inhere in that power and are inseparable from it can neither be abrogated nor rendered practically inoperative.”
Equally clearly the Court recognizes the power of Congress to regulate its use in criminal contempt for it said:
“It may be regulated within limits not precisely defined.”
That there is a difference between regulating the exercise of criminal contempt and taking from a court of equity its inherent power is also made clear.
“ * * * We first inquire whether the proceeding contemplated by the statute is for a civil or a criminal contempt. If it be the latter — since the proceeding for criminal contempt, unlike that- for civil contempt, is between the public and the defendant, is an independent proceeding at law, and no part of the original cause * * * we are at once relieved of the doubt which might otherwise arise in respect of the authority of Congress to set aside the settled rule that a suit in equity is to be tried by the chancellor without a jury unless he choose to call one as purely advisory. * * * The statutory extension of this constitutional right to a class of contempts which are properly described as ‘criminal offenses’ does not, in our opinion, invade the powers of the courts as intended by the Constitution or violate that instrument in any other way.”
Passing for the moment the question of the power of Congress to abrogate a court of equity’s inherent power to enforce through contempt its control of litigants and litigation and coming to a construction of the section in question, the canon which is largely controlling requires us to avoid unconstitutionality and invalidity, if possible.
The first sentence of this section reads:
“The said courts shall have power to impose and administer all necessary oaths, and to punish, by fine or imprisonment, at the discretion of the court, contempts of their authority.” 28 U.S.C.A. § 385.
The reference to fine and imprisonment and the other italicized words, rather clearly indicates that Congress had in mind, and was speaking only of, criminal contempt. The balance of the section (see majority opinion) is likewise indicative of a construction which restricts it to criminal contempt.
This statute was in force when Justice Sutherland, speaking for the Court in the Michaelson case, made the distinction (in so far as congressional power goes) between civil and criminal contempt. To hold therefore that Congress was restricting the power of a court of equity to exercise its inherent powers to punish for contempt when it spoke of courts having power, to punish by fine or imprisonment is to ignore the distinction between an inherent power in a court of equity and the court’s power in an independent proceeding, in the nature of a criminal action, wherein the punishment is a fine or imprisonment and the Government is the complainant. The latter power is subject to reasonable regulation by Congress. The former is an inherent power of the court which attaches when the jurisdiction of the court is created, and its abridgement is inconsistent with the action of Congress which gave to the court jurisdiction in such equity matters.
The word “such” in the second sentence seemingly refers to the same class of contempt as is defined in the first sentence, to-wit, criminal contempt.
The conclusion that the statute in question was not- intended to curtail, and did not curtail the inherent power of a court of equity to protect, through civil contempt proceedings, litigants before it, or property in its custody is supported by at least one case in the Supreme Court and by one de*546cisión of this court.13 True, the decision of this court was reversed because the contempt there under consideration was criminal in character and therefore subject to regulation by Congress within certain limits. The discussion by Judge Baker of the power of Congress to abridge the court’s authority to proceed in civil cases by civil contempt proceedings was not overruled, but on the other hand, was not unfavorably received.
In the opinion in Lamb v. Cramer, 285 U.S. 217, 52 S.Ct. 315, 76 L.Ed. 715, we search in vain for an order which the contemner had violated. It does appear, however, that the court was dealing with' property that was within gremio legis.
In the face of the two last named decisions, one by this court and one by the Supreme Court, we are not justified in holding that the statute in question took away from the court of equity its power to protect property within its jurisdiction. A court of bankruptcy must, if it is to render the service which the statute exacts of it, be authorized to protect litigants and property. In other words, it must be given the power to punish for civil contempt which impliedly attends the grant of jurisdiction in bankruptcy matters to District Courts and without which the grant of judicial power is ineffectual.

 11 U.S.C.A. § 207 sub. a; Straton v. New, 283 U.S. 318, 51 S.Ct. 465, 75 L.Ed. 1060.

 Straton v. New, 283 U.S. 318, 51 S. Ct. 465, 75 L.Ed. 1060; Acme Harvester Co. v. Beekman Co., 222 U.S. 300, 32 S. Ct. 96, 56 L.Ed. 208; Cameron v. U. S., 231 U.S. 710, 34 S.Ct. 244, 58 L.Ed. 448; Lazarus, Michel & Lazarus v. Prentice, 234 U.S. 263, 34 S.Ct. 851, 58 L.Ed. 1305.

 11 U.S.C.A. § 11; White v. Schloerb, 178 U.S. 542, 20 S.Ct. 1007, 44 L.Ed. 1183; Mueller v. Nugent, 184 U.S. 1, 22 S.Ct. 269, 46 L.Ed. 405; see also Ex Parte Tyler, 149 U.S. 164, 181, 13 S. Ct. 785, 37 L.Ed. 689; Wiswall v. Sampson, 55 U.S. 52, 65, 14 How. 52, 14 L. Ed. 322.

 11 U.S.C.A. § 207, sub. c.

 11 U.S.C.A. § 207 sub. c.

 McCrone v. U. S., 307 U.S. 61, 59 S.Ct. 685, 83 L.Ed. 1108; Gompers v. Buck’s Stove & Range Co., 221 U.S. 418, 31 S.Ct. 492, 55 L.Ed. 797, 34 L.R.A., N.S., 874; Longsdorf, Cyclopedia of Federal Procedure, Sec. 3711; Dakota Corp. v. Slope County, 8 Cir., 75 F.2d 584; American Jurisprudence, Vol. 15, “Contempt,” Sec. 6; 17 Corpus Juris Secundum, “Contempt,” §§ 5, 6; Lamb v. Cramer, 285 U.S. 217, 52 S.Ct. 315, 76 L.Ed. 715

 Michaelson v. United States, 266 U.S. 42, 45 S.Ct. 18, 69 L.Ed. 162, 35 A.L.R. 451; McCann v. N. Y. Stock Exchange, 2 Cir., 80 F.2d 211; Cyclopedia of Federal Procedure, See. 3711, Secs. 3716-3733; American Jurisprudence, Vol. 15, “Contempt,” Sec. 66, et seq.

 Lamb v. Cramer, 285 U.S. 217, 52 S.Ct. 315, 76 L.Ed. 715; American Jurisprudence, Vol. 15, “Contempt,” Sec. 6.

 Lamb v. Cramer, 285 U.S. 217, 52 S. Ct. 315, 76 L.Ed. 715.

 Michaelson v. United States, 7 Cir., 291 F. 940; Id., 266 U.S. 42, 45 S.Ct. 18, 69 L.Ed. 162, 35 A.L.R. 451; Longsdorf, Cyclopedia of Federal Procedure, Sec. 3705; Bessette v. W. B. Conkey Co., 194 U.S. 324, 24 S.Ct. 665, 48 L.Ed. 997; Ex parte Robinson, 19 Wall. 505, 22 L.Ed. 205; Marcus v. Pennsylvania Trust Co., 3 Cir., 23 F.2d 303; American Jurisprudence, Vol. 12, “Contempt,” Sec. 40 et seq.; Ex parte Savin, 131 U.S. 267, 9 S.Ct. 699, 33 L.Ed. 150; Ex parte Terry, 128 U.S. 289, 9 S.Ct. 77, 32 LEd. 405; Corpus Juris Secundum, Vol. 17, “Contempt,” § 43.

 11 U.S.C.A. §§ 11 (13) (16).

 Toledo Newspaper Co. v. United States, 247 U.S. 402, 38 S.Ct. 560, 62 LEd. 1186.

 Lamb v. Cramer, 285 U.S. 217, 52 S.Ct. 315, 76 L.Ed. 715; Michaelson v. United States, 7 Cir., 291 F. 940; 17 Corpus Juris Secundum, “Contempt,” § 21, and cases there cited.