333 U.S. 56 (1948), 38, Maggio v. Zeitz

Docket Nº:No. 38
Citation:333 U.S. 56, 68 S.Ct. 401, 92 L.Ed. 476
Party Name:Maggio v. Zeitz
Case Date:February 09, 1948
Court:United States Supreme Court
 
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333 U.S. 56 (1948)

68 S.Ct. 401, 92 L.Ed. 476

Maggio

v.

Zeitz

No. 38

United States Supreme Court

Feb. 9, 1948

Submitted October 13, 1947

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT

Syllabus

1. In a civil contempt proceeding against a bankrupt for failure to comply with an order to turn over to the trustee assets of the estate found to be in his possession or under his control at the time such order was issued (20 months earlier in this case), the bankruptcy court should not adjudge the bankrupt in contempt and commit him to jail to coerce compliance if it appears that he is presently unable to comply, even though the previous finding that he had possession of the property when the turnover order was issued has become res judicata. Pp. 69-78.

2. Courts of bankruptcy have no authority to compensate for any neglect or lack of zeal in applying the criminal sanctions prescribed by the Bankruptcy Act by perversion of civil remedies to ends of punishment. P. 62.

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3. The summary turnover procedure, fashioned by bankruptcy courts as a means of retrieving concealed assets or books of account, is essentially a proceeding for restitution of property, rather than indemnification, and the primary condition of relief is possession of existing chattels or their proceeds capable of being surrendered by the person ordered to do so. Pp. 62-63.

4. Resort to a turnover proceeding is not appropriate when the property and its proceeds have already been dissipated, no matter when that dissipation occurred. Pp. 63-64.

5. In a turnover proceeding, the burden is upon the trustee to prove by clear and convincing evidence that the property has been abstracted from the bankrupt estate and is in the possession of the party proceeded against. Oriel v. Russell, 278 U.S. 358. P. 64.

6. The presumption that possession of property of a bankrupt, once proven, continues until the possessor explains when and how possession ceased is not a rule of law to be applied in all cases, but a rule of evidence to be applied only when the time element and other factors make that a fair and reasonable inference. Pp. 64-66.

7. A turnover order should not be issued or affirmed on a presumption thought to arise from some isolated circumstance, such as one-time possession, when the reviewing court finds from the whole record that the order is unrealistic and unjust. Pp. 66-67.

8. When a turnover proceeding is completed and terminated in a final order, it becomes res judicata, and is not subject to collateral attack in a subsequent proceeding in civil contempt to coerce obedience . Pp. 68-69.

9. Even though a turnover order has become res judicata as to the issue of possession of the goods in question at the time of the turnover proceedings, a subsequent proceeding in civil contempt to coerce compliance tenders the issue as to present willful disobedience, which must be tried like any other issue, and the Court is entitled to consider all evidence relevant to it. Pp. 74-75.

10. In a civil contempt proceeding to coerce compliance with a turnover order, the bankrupt may not challenge the previous adjudication of possession made when the turnover order was issued, but he may be permitted to deny his present possession and to give any evidence of present conditions or intervening events which corroborate such denial. Pp. 75-76.

11. In a civil contempt proceeding to enforce a turnover order, a trial court is obliged to weigh not merely the facts that a turnover order has issued and has not been obeyed, but also all other evidence

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properly before it, in determining whether or not there is actually a present ability to comply and whether failure to do so constitutes deliberate defiance which a jail term will break. Pp. 76-77.

12. This Court regards turnover and contempt orders, and petitions for certiorari to review them, as usually raising only questions of fact to be solved by a careful analysis of evidence, which should take place in the lower courts, and this Court is loath to review particular cases, especially where the order carries approval of the referee, the district court, and the circuit court of appeals. P. 70.

13. When a misapprehension of the law has led both courts below to adjudicate rights without considering essential facts in the light of the controlling law, this Court will vacate the judgments and remand the case to the district court for further proceedings consistent with the principles laid down in this Court's opinion. P. 77.

157 F.2d 951, judgments vacated and case remanded.

A referee in bankruptcy found the bankrupt in contempt for failure to comply with a turnover order previously affirmed by the District Court and the Circuit Court of Appeals. The District Court affirmed, and ordered the bankrupt committed to jail until he complied or until further order of the court. The Circuit Court of Appeals affirmed, although it said it knew that the bankrupt could not comply with the turnover order. 157 F.2d 951. This Court granted certiorari. 330 U.S. 816. Judgments vacated and case remanded to the District Court, p. 78.

JACKSON, J., lead opinion

MR. JUSTICE JACKSON delivered the opinion of the Court.

Joseph Maggio, the petitioner, was president and manager of Luma Camera Service, Inc., which was adjudged bankrupt on April 23, 1942. In January of 1943, the

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trustee asked the court to direct Maggio to turn over a considerable amount of merchandise alleged to have been taken from the bankrupt concern in 1941 and still in Maggio's possession or control. After hearing, the referee found that

the trustee established by clear and convincing evidence that the merchandise hereinafter described, belonging to the estate of the bankrupt, was knowingly and fraudulently concealed by the respondent [Maggio] from the trustee herein, and that said merchandise is now in the possession or under the control of the respondent.

A turnover order issued and was affirmed by the District Court and then unanimously affirmed by the Circuit Court of Appeals, Second Circuit, without opinion other than citation of its own prior cases. Zeitz v. Maggio, 145 F.2d 241. Petition for certiorari was denied by this Court. 324 U.S. 841.

As Maggio failed to turn over the property or its proceeds, the Referee found him in contempt. After hearing, the District Court affirmed and ordered Maggio to be jailed until he complied or until further order of the court. Again, the Circuit Court of Appeals affirmed. 157 F.2d 951, 955.

But, in affirming, the Court said:

Although we know that Maggio cannot comply with the order, we must keep a straight face and pretend that he can, and must thus affirm orders which first direct Maggio "to do an impossibility, and then punish him for refusal to perform it."

Whether this is to be read literally as its deliberate judgment of the law of the case or is something of a decoy intended to attract our attention to the problem, the declaration is one which this Court, in view of its supervisory power over courts of bankruptcy, cannot ignore. Fraudulent bankruptcies probably present more difficulties to the courts in the Second Circuit than they do elsewhere. These conditions are reflected in conflicting views within the Court of Appeals, which we need not detail, as they are

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already set out in the books: In re Schoenberg, 70 F.2d 321; Danish v. Sofranski, 93 F.2d 424; In re Pinsky-Lapin & Co., 98 F.2d 776; Seligson v. Goldsmith, 128 F.2d 977; Rosenblum v. Marinello, 133 F.2d 674; Robbins v. Gotthetter, 134 F.2d 843; Cohen v. Jeskowitz, 144 F.2d 39; Zeitz v. Maggio, 145 F.2d 241.

The problem is illustrated by this case. The court below says that, in the turnover proceedings, it was sufficiently established that, towards the end of 1941, a shortage occurred in this bankrupt's stock of merchandise. It seems also to regard it as proved that Maggio personally took possession of the corporation's vanishing assets. But this abstraction by Maggio occurred several months before bankruptcy, and over a year before the turnover order was applied for. The only evidence that the goods then were in the possession or control of Maggio was the proof of his one-time possession supplemented by a "presumption" that, in the absence of a credible explanation by Maggio of his disposition of the goods, he continues in possession of them or their proceeds. Because the Court of Appeals felt constrained by its opinions to adhere to this "presumption" or "fiction," [68 S.Ct. 404] it affirmed the turnover order. Now it says it is convinced that, in reality, Maggio did not retain the goods or their proceeds up to the time of the turnover proceedings, and that the turnover order was unjust. But it considers the turnover order res judicata, and the injustice beyond reach on review of the contempt order.

The proceeding which leads to commitment consists of two separate stages which easily become out of joint because the defense to the second often in substance is an effort to relitigate, perhaps before another judge, the issue supposed to have been settle in the first, and because, while the burden of proof rests on the trustee, frequently evidence of the facts is entirely in possession of his adversary, the bankrupt, who is advantaged by nondisclosure.

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Because these separate but interdependent turnover and contempt procedures are important to successful bankruptcy administration, we restate some of the principles applicable to each, conscious, however, of the risk that we may do more to stir new than to settle old controversies.

I

The turnover procedure is one not expressly created or regulated by the Bankruptcy Act. It is a judicial...

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