Court Opinion

ID: 9448498
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:37:57.670416+00
Date Added: 2024-06-11T17:31:27.489832
License: Public Domain

CAMERON, Circuit Judge
(dissenting).
The basic question presented by this confusing record is whether the court below was justified in adjudging the appellant, Sanford Grossbart, and his attorney, Arnold S. Kaye, guilty of civil contempt for refusing to comply with a verbal order of the Referee in Bankruptcy to turn over to the Trustee and her attorney the books and records (consisting of some three or four thousand pages) of Grossbart Jewelers, Inc. This corporation was engaged in the jewelry business in Atlanta, Georgia. The pro*303eeeding was ancillary to an involuntary bankruptcy proceeding against one Strauss in Miami, Florida.
Appellant Grossbart was served with a subpoena duces tecum as an individual to bring before the Referee in Atlanta, Georgia these corporate records of which he was custodian. He brought the records and presented them to the Referee. His attorney, Kaye, offered, on three or more occasions, to turn over all of the books to the Referee, but he refused to turn them over to the Trustee in Bankruptcy and her attorney for their unchaperoned examination. The Referee would not accept this proffer of the books, stating that he did not feel that it was his function to examine books, but that he was commissioned rather to hear evidence; and he stated that he would certify to the District Court for a contempt hearing, the refusal to turn the books over unconditionally to the Trustee. The District Court, acting upon the certificate and briefs, agreed with the Referee and sentenced both Grossbart and his attorney, Kaye, for contempt. I think the court committed error in so doing.
I.
In offering to turn over the books for the examination of the Referee, the appellants were proceeding in specific conformity with our recent decision in Herron et al. v. Blackford, Trustee in Bankruptcy, 5 Cir., 1959, 264 F.2d 723. I think that appellants were justified in following that opinion. Appellant Grossbart was examined as a witness by the attorney for the Trustee, and he testified to something like a half dozen transactions between him or the corporation and the bankrupt Strauss; and in one or more instances he located the original cancelled checks or other papers covering those transactions and delivered them to the Trustee and they were offered in evidence.
He testified that he was not very familiar with the books, but he gave the name of the bookkeeper who was familiar with them. Presumably she was available to the Referee and her attendance could have been procured by subpoena. No effort was made to do this. Clearly if she had been brought before the Referee and had testified to transactions between Grossbart and the bankrupt, or possibly the corporation and the bankrupt, she could have been called upon to locate those transactions as recorded in the books of the corporation.1 But no portions of the record could, under the law, have been ordered turned over to the Trustee or her attorney until the Referee had examined them and had determined in advance that such records were relevant and were subject to compulsory order of submission to the Trustee. This is the rule announced in Herron, and no contrary authority is referred to in the majority opinion. It is not sufficient to say that Herron is applicable only when the duty of prior examination by the referee or the court is a simple or easy one. Protection of private property rights and of the free enterprise system cannot be made to depend upon the convenience of judicial officers who are called upon to consider such matters.
As pointed out fully in Herron, the statutes regulating bankruptcy practice, including also the regulations, provide that the Federal Rules of Civil Procedure are applicable in bankruptcy hearings. We quoted in Herron (264 F.2d p. 725) the general rule covering situations such as this as it is set forth in 5 Moore’s Federal Practice, Second Edition, page 1719.
I have been unable to find any order as broad and unlimited as this one which has been approved by any court. Under F.R.Civ.P., even the books and records of a litigant are available to his adversary only for good cause shown. Rule 34, F.R.Civ.P., 28 U.S.C.A. The turning *304over of books and records of a third party to an adversary litigant for his unlimited examination is, as far as I can find, wholly without sanction under the Federal Rules. No authority now appears for such action beyond the ipse dixit of the majority opinion.
II.
In Volume 2, Collier on Bankrupcty, 14th Edition, § 23.10, pp. 533-534, it is stated:
“One of the more frequent forms of the exercise of summary jurisdiction is the issuance of an order to turn over property or its proceeds to the supervision and control of the bankruptcy court and its officers, and is commonly called a ‘turn over’ order. Such an order may apply to any kind of property of the bankrupt estate [Note 2. Thus, for example, a stock exchange seat may be ordered transferred and the proceeds turned over * * *; or more commonly, books, documents or papers of account * * *], and will require the person affected to turn over the property in his possession or under his control to the receiver or trustee. The bankruptcy court has power to cause the assets of the bankrupt to be collected, and may take such orders as are necessary to effect that result, subject to the requirement, however, that a plenary action must be taken where the circumstances demand it * * ”
Without question, the books which lay at the base of these contempt proceedings were the books of a bona fide corporation, which was separate and distinct from the bankrupt. Its business was conducted in Georgia while the bankrupt was a resident of Florida, and the two were separated by several hundred miles. The Referee was engaged in a commendable effort to turn up property of the bankrupt, and Grossbart and the corporation he operated were suspected of being in possession of property to which the Trustee in Bankruptcy might have some claim. But this effort, legitimate as it may be, was required to be conducted in a way consonant with substantive law and the rules of procedure.
The attorney for the Trustee had, as shown in the majority opinion, produced evidence that the corporation owned some of the stock in Grossbart Jewelers, which it had acquired from the bankrupt’s wife; that Grossbart, individually, had borrowed $7,000 from her, which Grossbart delivered to Strauss, as the result of which Mrs. Strauss acquired some stock in Grossbart Jewelers, which she later transferred to another corporation; and that Grossbart had borrowed other small amounts from the bankrupt. This was competent proof and if followed by examination of the bookkeeper of Grossbart Jewelers and by other witnesses, might have made competent limited portions of the voluminous records produced to the Referee in response to the subpoena duces tecum.
The proof was not strong, but it was sufficient to engender in the Trustee a desire to get a long look at the corporation’s books. If he had proceeded legally, it may be that this right would have been given to him; although, in my judgment, the proof so far adduced in this record is not of the kind or character which standing alone would produce such a result. Mr. Chief Justice Taft rendered a decision involving bankruptcy proceedings such as this one in Oriel et al. v. Russell, Trustee and a companion case, 278 U.S. 358, 49 S.Ct. 173, 73 L.Ed. 419. Oriel, the bankrupt, had been committed for contempt “in failing to deliver books and property to their trustees in bankruptcy as required by orders of the court.” Concerning the character and quantity of proof necessary to sustain an order that books be turned over to the trustee, this was written (Pp. 361-362, 49 S.Ct. pp. 173, 174) :
“In the Oriel case, the order, the breach of which led to the commitment, was against Oriel and Confino, directing them to turn over to their trustee in bankruptcy their books for the year 1925. * * *
*305"We think a proceeding for a turnover order in bankruptcy is one the right to which should be supported by clear and convincing evidence. The charge upon which the order is asked is that the bankrupt, having possession of property which he knows should have been delivered by him to the trustees, refuses to comply with his obligation in this regard. It is a charge equivalent to one of fraud, and must be established by the same kind of evidence required in a case of fraud in a court of equity. A mere preponderance of evidence in such a case is not enough. The proceeding is one in which coercive methods by imprisonment are probable and are foreshadowed. The Referee and the Court in passing on the issue under such a turnover motion should therefore require clear evidence of the justice of such an order before it is made. * * * ”
If, therefore, the order to turn the books over to the Trustee for examination had been made against the bankrupt himself, it is doubtful if the proof was sufficient for the issuance of such an order. A fortiori the evidence was not sufficient to require an outsider operating a separate and distinct business, even though a business having relationship with the bankrupt, to surrender his books to the Trustee.
III.
I do not think, moreover, that the Referee had jurisdiction to order the books turned over to the Trustee in a summary proceeding where, as here, such an action was not consented to but was resisted so vigorously that the impatience of the Referee was patently raised to a considerable degree. The books were the property of a third person, and the bankruptcy court had no possession of them, and the possession claimed by the appellant Grossbart was in no sense colorable. This Court has, in a series of cases participated in at least twice by each member of this panel, made clear that under such circumstances, the surrender of property of any character to the trustee may not be compelled in a summary proceeding.2 A quotation from the headnote in Fox Jewelry Co., supra (264 F.2d 720), will serve to epitomize the holding of these cases:
“A corporation appealed from a turnover order issued against it by the United States District Court * * *. The Court of Appeals, * * * held that fact that control of bankrupt and corporation against which turnover order was directed existed by a one man stockholder and president of each, fact that they acted together, and fact that purchasing of their stock of goods were all done by the same man, was not determinative of the question of whether the corporations were, in fact, two corporations or simply one, with possession of one the possession of the other, and therefore, there was no basis for exercise of summary jurisdiction, although there might be ample basis for a finding in a plenary proceeding that the bankrupt was imposed upon by corporation subjected to the turnover order.”
Maulé Industries, supra, was cited as discussing the philosophy and theory of such summary jurisdiction and the reasons which deny such asserted jurisdiction. The action of the Referee in this case was ostensibly directed towards uncovering sufficient connection between Grossbart, Inc. and the bankrupt to justify subjecting Grossbart’s assets to the bankruptcy proceeding. It is, as demonstrated by those cases, of great importance that such drastic action be taken only upon observance of all legal requirements.
*306IV.
Treating of the general subject of “production of Books and Papers Upon Examination,” Collier on Bankrutcy, Volume 2, pp. 294-296, quotes at length, in the footnotes, from two decisions of the Court of Appeals for the Third Circuit 3 language confirming that the foregoing authorities apply to a turnover order covering books and records, as well as one covering other forms of property. (And, cf. Oriel et al. v. Russell, Trustee, supra.) In the former case, In re Fox, D.C., 16 F.Supp. 950, the district judge had before him on review the order of the referee in bankruptcy directing, under strict safeguards, delivery to the trustee in bankruptcy of the books of account of the All Continent Corporation. There was strong proof of the identity of the bankrupt and the corporation. In entering his order, the district judge used these words:
“I am satisfied that the trustee is entitled to have from the books [of All Continent] any information which may be relevant to the present inquiry. What is relevant is primarily to be passed upon in the judicial discretion of the referee.
“I cannot agree with the referee’s order requiring the complete delivery of the books to the trustee for a period of six weeks. I believe the books and accounts should be deposited in some secure neutral place —probably in the safe deposit vaults of some bank—to be examined and audited in said building by an accountant selected by the trustee or referee, said accountant to have no responsibility to any of the creditors of said bankrupt. The examination of the books, etc., should be in the presence of a representative of All Continent Corporation and Mrs. Fox, if they desire to have such representatives present, upon reasonable notice which should be given in all instances when books, etc., are to be examined and audited.”
Even as thus safeguarded, the Third Circuit Court of Appeals would not permit All Continent’s books to be turned over to the trustee. Its language (96 F.2d 21-22) spells out a standard which is not questioned by any case cited by Collier, and certainly by none appearing in the majority opinion:
“In granting the trustee’s request, the referee said: T cannot find any case in which the exact question here involved has been directly raised and passed upon by our courts.’
“He thought, however, that he had power under section 21a of the act to allow the examination of the books of the All Continent Corporation in accordance with the prayer of the petition. Under the authority of Looschen Land & Building Company et al. v. Milson, 3 Cir., 266 F. 359, we do not think he had such power. The All Continent Corporation claims to be an adverse party in the bankruptcy proceedings and that the title to the books and other properly is in it and not in the bankrupt. If such be the fact the referee may not have the books surrendered to the trustee and examined, as though they belonged to the bankrupt. Whether or not the books are in fact the property of the bankrupt and not of the All Continent Corporation has not been determined and under the authority of the Looschen Case, cited above, that question must be determined by a plenary suit. Until it has been determined the trustee is not entitled to the books under the facts in this case. * * *
“But we know of no rule of law requiring the delivery of the appellant’s books to the trustee so that he may examine the transactions be*307tween appellant and others having no interest in, or connection with, the bankrupt. Neither do we know of any rule of law which permits counsel to obtain indirectly the same result by having a witness read into evidence from the books the record of a transaction with which the bankrupt had no connection. Of course, this could be done if it were established that the appellant belonged to the bankrupt and was simply his alter ego, but this could be established only by a plenary suit. The error of the referee was the assumption that this was a fact and then proceeding as though the fact has been established. Until this fact had been established the trustee did not have the right to possession of the appellant’s books. What the trustee could not do could not be done by his accountants or counsel nor by counsel for creditors.” [Emphasis added.]
Much along the same line is said in the other case reported in 96 F.2d on pages 25 and 26, but the foregoing is sufficient, I think, to establish that the order here entered by the Referee was beyond his powers and was void, and the appellants were not required to obey it. It follows that the court below was without jurisdiction to adjudge appellants guilty of contempt of court for violating the void order.
The hearings before the Referee were not conducted in language altogether chaste or diplomatic. The appellants were not alone in this transgression. It is pointed out that the appellants were not cooperative with the Referee. Wherever the fault for this may lie, they were merely insisting on the right to which, under the law, the client was entitled. The duty of an attorney to protect the interests of his client is an important one, not less important than that of the Referee. In exercising these rights the attorney and the client he represents should, in my opinion, have full protection. There are no short-cuts to liberty.
I think the learned trial judge was without power to punish the attorney and the client for contempt, and I respectfully dissent from the majority opinion holding otherwise.

. This is not free from doubt, because Grossbart was subpoenaed as an individual and it was doubtful if the corporate records were really properly before the court. In view of their proffer to the Referee, however, this point will not be belabored,

. Maule Industries v. Gerstel, 5 Cir., 1956, 232 F.2d 294; Nicholas, Trustee v. Cohn, Trustee, 5 Cir., 1958, 255 F.2d 301; Fox Jewelry Co. v. Lee, 5 Cir., 1959, 264 F.2d 720; Feldser v. Lee, 5 Cir., 1959, 264 F.2d 721; and Jackson v. Sports Company of Texas, Inc., 5 Cir., 1960, 278 F.2d 716.

. In re Fox, All Continent Corp. et al. v. Steelman, 3 Cir., 96 F.2d 20, certiorari granted 304 U.S. 554, 58 S.Ct. 1040, 82 L.Ed. 1524, certiorari dismissed, 305 U.S. 665, 59 S.Ct. 247, 83 L.Ed. 431, reversing D.C., 16 F.Supp. 950; and In Re Fox, Leitstein v. Capital Co., 3 Cir., 96 F.2d 23.