Court Opinion

ID: 6873564
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:04:30.961165+00
Date Added: 2024-06-11T16:05:27.122510
License: Public Domain

THOMPSON, Circuit Judge
(dissenting).
This is an appeal from an order óf the District Court for the District of New Jersey affirming with modifications an order of the referee. The trustee in bankruptcy of William Fox obtained an order from the referee directing that All Continent deliver its books for examination. This order was affirmed with modifications by the District Court. All Continent and Eva-Fox, the wife of the bankrupt, who claims to be the sole stockholder of All Continent, objected upon the ground that the referee had no authority to make such a summary order. They contended that a plenary suit was necessary. . .
Justice Cardozo in Steelman v. All Continent Corporation, 301 U.S. 278, 57 S.Ct. 705, 706, 81 L.Ed. 1085, dealing with another phase of this case, tersely summarized the situation as follows: “William Fox was" adjudicated a bankrupt on- May 29, 1936, in the United States District Court for the District of New Jersey. ‘ On the petition of two creditors an order was made under section 21a of the Bankruptcy Act (11 U.S.C. § 44(a), 11 U.S.C.A. § 44(d), for the examination of All Continent Corporation (a Delaware corporation)', its president Eva Fox, who was also the bankrupt’s wife, his daughters', and other witnesses. The wife refused to submit to examination, and was cited for contempt. When this record was made up, the proceeding, to punish her was still undetermined. Meanwhile the examination proceeded with the aid of-the witnesses.responding-to the order. After seventeen or more hearings the Referee made an order on August 18, 1936, whereby All Continent Corporation was directed to deliver all its books and records to the trustee in bankruptcy (petitioner in this court) for examination and audit. As a basis for the order, which was confirmed by the court with unimportant changes (In re Fox [D.C.] 16 F.Supp. 950), the referee certified the facts as they had been de-. veloped through the evidence before him. By this it appeared that All Continent Corporation was the creation of the bankrupt himself, who had supplied every dollar of its capital; that in doing this he had divested himself of a substantial portion of his property; that the entire capital stock, then claimed by his wife, had been kept in his name upon the corporate books; that he had retained in his possession and under his control the assets of the corporation, made up of securities, and had dealt with them on many occasions' as if they were his own; that he held a power of' attorney, broad in its terms, authorizing him to act for the corporation in the transaction of its business; that such books and records as were already in evidence disclosed disbursements for his account, discrepancies between the entries and those in his private books, and also erasures, corrections and interlineations affecting the scrutinized transactions, as well as sales to the corporation on the eve of bankruptcy. In the view of the Referee,-this chain of facts combined with many others in the testimony before1 him, was proof ‘that the affairs of the All Continent Corporation were so related to and intertwined with the property and affairs of the bankrupt’ as to show the need-for an exhaustive examination and audit of all the documents available.”
I think the right of the trustee and of' the creditors to examine the books can be found in section 21a of the Bankruptcy Act, as amended, 11 U.S.C.A. § 44(a), which provides for examination, of third parties as well as of the bankrupt.
Being of the opinion -that the order of the learned judge of the court below is in accordance with the law and that his order should be affirmed, I am constrained to dissent from the majority opinion.