260 F. 732 (6th Cir. 1919), 3240, In re De Ran

Docket Nº:3240.
Citation:260 F. 732
Party Name:In re DE RAN. In re FREMONT LUMBER CO.
Case Date:October 07, 1919
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 732

260 F. 732 (6th Cir. 1919)

In re DE RAN.

In re FREMONT LUMBER CO.

No. 3240.

United States Court of Appeals, Sixth Circuit.

October 7, 1919

Page 733

W. H. Boyd, of Cleveland, Ohio (David B. Love, of Fremont, Ohio, and E. B. King, of Sandusky, Ohio, of counsel), for petitioner.

Harry W. Morgan, of Toledo, Ohio (Brown, Geddes, Schmettau & Williams and Smith, Beckwith & Ohlinger, all of Toledo, Ohio, of counsel), for respondent.

Before KNAPPEN and DENISON, Circuit Judges, and HOLLISTER, District judge.

KNAPPEN, Circuit Judge.

The Fremont Lumber Company (a corporation) was adjudicated bankrupt by the court below on June 8, 1908, and a general reference made. On the 26th of the same month De Ran was appointed attorney for the trustee in bankruptcy, one Eisenhour. On September 28, 1910, De Ran's account for services and expenses as such attorney from June 26, 1908, to July 27, 1910, was allowed at $1,336.05, and payment made in due course. On November 2, 1917, Judge Killits, on his own motion, instituted a formal investigation into the administration of the bankrupt's estate by citing the referee and the trustee to appear before him, later subpoenaing De Ran and others. As the result of this investigation, the judge made, on January 9, 1918, certain findings which, in connection with the amendment of February 16, 1918, may be summarized as follows:

(1) That while De Ran was assuming to act as attorney for the trustee, for which services the compensation in question was allowed him, he, in fraud of creditors and in violation of his duty as attorney for the trustee, prosecuted two claims in favor of one Christy against the estate, aggregating more than $10,000, and caused Christy to draw dividends on those claims, having at the time knowledge that one of them, aggregating more than $5,000, was not a primary liability of

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the bankrupt and under no circumstances allowable as such, and that as against the other, also allowed in the sum of more than $5,000, with knowledge that Christy had previous to the bankruptcy taken an assignment of the judgment against the principal debtor on said claim, the value of which was sufficient to reduce the general claim to $140.

(2) That while so acting as attorney for the trustee, and during the period covered by said allowed compensation, De Ran procured an appraisement of the assets of the bankrupt's estate at $20,888, with knowledge that a state court, which had jurisdiction over a receivership prior to the bankruptcy, had appraised the assets at upwards of $60,000, and by withholding such knowledge procured the referee to approve a sale of such assets upon the second appraisement, at a trifle more than $20,000, to one Zurhorst, the latter acting therein for certain parties including De Ran, the assets so sold being then fairly worth more than $45,000; that De Ran acquiesced and participated in the fact that such purchasers of the bankrupt's assets were exonerated from paying cash for their purchases and were permitted to distribute the purchase price over a period of four years without interest (which would have amounted to more than $1,600), and to retain the cash proceeds of the purchase of the estate subject to general distribution.

(3) That, had De Ran's conduct been brought to the attention of the bankruptcy court when his claim for allowance for services and expenses as attorney to the trustee was presented, it would have been altogether disallowed.

(4) That in conscience and equity De Ran ought not to be permitted to retain the compensation so paid to him as attorney for the trustee.

De Ran was accordingly ordered to show cause why he should not repay the $1,336.05 so paid him, with interest. Another order seems also to have been entered requiring De Ran to show cause why he should not be disbarred from practice, a committee being appointed to prosecute such proceeding. Thereafter Judge Killits, on March 4, 1918, entered an order reciting his own disqualification to sit in any matter in the case to which De Ran was a party defendant or a respondent to any issue raised therein, and directing notice accordingly to the senior Circuit Judge. Judge Tuttle was accordingly designated on the 16th of the same month to hear and determine all such matters and issues. 1 After hearing upon testimony and arguments of counsel, an order was entered by Judge Tuttle on April 27th which, as modified by action of July 17th following, found that the allegations contained in Judge Killits' rules of January 9th and February 16th, respectively were true, and requiring De Ran forthwith to pay the $1,336.05, with interest at 6 per cent. per annum from September 26, 1910, to a new trustee of the bankrupt estate, who had been elected upon the resignation of the former trustee pending the hearing mentioned. This proceeding is brought under section 24b of the Bankruptcy Act (Act

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July 1, 1898, c. 541, 30 Stat. 553 (Comp. St. Sec. 9608)) to review that order and judgment

The grounds relied upon for reversal, as we understand them, are these:

1. That the District Judge had no jurisdiction to make the orders complained of because--

(a) The estate had been fully administered and duly closed more than two years before the proceeding in question was instituted.

(b) The referee had sole jurisdiction over the allowance of petitioner's account as attorney for the trustee, that no creditor or person interested had ever objected to such allowance or applied for relief therefrom, that Judge Killits had no authority on his own motion to so interfere, and that the allowance of petitioner's claim was thus a final adjudication thereon.

(c) That the action of the District Court here complained of was barred both by laches and by statutes of limitation.

2. That if the subject-matter is open to trial, it can be litigated only in a plenary suit.

3. That Judge Tuttle's designation was invalid.

4. That no ground is stated in the rule to show cause empowering the court to enter the order complained of, and the grounds stated are contrary to the facts and the law, as shown by the record.

1. Was the estate fully administered and actually closed prior to November 2, 1917? So far (according to the record here) as shown by the records in the District Court, the immediately pertinent proceedings were these: The referee's record shows: January 7, 1911, final report of trustee filed; cash on hand $3,754.21. On the 10th, amended proof of First National Bank, Fremont, filed $2,888.93. On the 11th, notified creditors of meeting...

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