405 F.2d 1326 (D.C. Cir. 1968), 20478, Freeman v. Seligson

Docket Nº:20478, 20482.
Citation:405 F.2d 1326
Party Name:Orville L. FREEMAN, Secretary of Agriculture, Appellant, v. Charles SELIGSON, Trustee in Bankruptcy of Estate of Ira Haupt & Company, Appellee. Charles SELIGSON, Trustee in Bankruptcy of Estate of Ira Haupt & Company, Appellant, v. Orville L. FREEMAN, Secretary of Agriculture, Appellee.
Case Date:June 28, 1968
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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405 F.2d 1326 (D.C. Cir. 1968)

Orville L. FREEMAN, Secretary of Agriculture, Appellant,


Charles SELIGSON, Trustee in Bankruptcy of Estate of Ira Haupt & Company, Appellee.

Charles SELIGSON, Trustee in Bankruptcy of Estate of Ira Haupt & Company, Appellant,


Orville L. FREEMAN, Secretary of Agriculture, Appellee.

Nos. 20478, 20482.

United States Court of Appeals, District of Columbia Circuit.

June 28, 1968

Argued March 17, 1967.

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Miss Kathryn H. Baldwin, Atty., Dept. of Justice, with whom Acting Asst. Atty. Gen., J. William Doolittle and Mr. David G. Bress, U.S. Atty., were on the brief, for appellant in No. 20, 478 and appellee in No. 20, 482.

Mr. Carl D. Lobell, of the Bar of the Court of Appeals of New York, pro hac vice, by special leave of court, New York City, with whom Mr. Ira M. Millstein, of the Bar of the Court of Appeals of New York, New York City, and Mr. Michael A. Schuchat, Washington, D.C., were on the brief, for appellee in No. 20, 478 and appellant in No. 20, 482. Mr. Milton M. Gottesman, Washington, D.C., also entered an appearance for appellee in No. 20, 478 and appellant in No. 20, 482.

Before BAZELON, Chief Judge, and LEVENTHAL and ROBINSON, Circuit judges.


Judge Robinson files an opinion in Parts I through V of which Chief Judge Bazelon and Judge Leventhal concur. Judge Leventhal files an opinion in which Chief Judge Bazelon concurs, Judge Robinson dissenting for the reasons stated in Part VI of his opinion. Thus Parts I through V of Judge Robinson's opinion and Judge Leventhal's opinion together constitute the opinion of the court. In No. 20, 478, the order appealed from is reversed and the case is remanded to the District Court for proceedings not inconsistent with that opinion. In No. 20, 482, the appeal is dismissed as moot.

So ordered.


In November, 1963, Ira Haupt & Company 1 sustained huge financial losses in brokerage transactions in cottonseed oil and soybean oil futures on the New York Produce Exchange and the Chicago Board of Trade. 2 Shortly thereafter, it was adjudged a bankrupt in the District Court for the Southern District of New York and a trustee for its estate was appointed. By leave of that court, the trustee instituted an ancillary proceeding 3 in the District Court for the District of Columbia to enable exploratory examinations, pursuant to Section 21(a) of the Bankruptcy Act, 4 of agencies and persons within its jurisdiction.

Under the Commodity Exchange Act, 5 the New York Produce Exchange and the Chicago Board of Trade are designated 'contract markets, ' where contracts for future delivery of certain agricultural products are bought and sold. The continuance of their status as such is conditioned upon compliance with specified requirements, which include considerable

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self-regulation of trading activities. 6 The Secretary of Agriculture is empowered to investigate the operation of contract markets 7 and, by virtue of his rule-making authorities, 8 he requires certain participants to file with the Commodity Exchange Authority of the Department of Agriculture daily reports of their transactions thereon. 9

The trustee petitioned in the ancillary proceeding for a Section 21(a) examination of the Secretary, alleging a need, in order to delve adequately into the bankrupt's affairs, to inspect documents in the Secretary's custody, access to which had been barred. The purpose of the examination, the petition stated, was to determine whether the bankrupt had a cause of action for the losses it had suffered on the exchanges. The referee in bankruptcy, to whom the ancillary proceeding had been referred, ordered the Secretary's appearance, and the production of documents categorized in a schedule into nineteen separate classifications covering varying periods of time. The demand embraced about a half-million items, including daily reports of trading in cottonseed oil and soybean oil futures, investigative reports of market conditions, and communications between the Commodity Exchange Authority and the exchanges. The trustee also obtained the issuance of a subpoena duces tecum commanding the production of the same documents.

The Secretary moved to quash, or alternatively to modify, the subpoena, 10 averring that it was too sweeping in scope and that obedience would sorely burden his agency. He asserted also that the Commodity Exchange Act 11 banned outside scrutiny of many of the documents, and that others were in current use by the Departments of Agriculture and Justice in searches for possible infringements of federal law.

The referee conducted a hearing, after which he denied the motion, expressing his reasons in a written opinion. He acknowledged the existence of limitations on compulsory documentary exhibitions 'in connection with judicial hearings in private litigation' but, characterizing the trustee's effort as 'not one of litigation, but one of investigation, ' 12 felt that 'the rules should be interpreted with greater liberality than would be the case in matters of litigation.' He expressed concern 'that, in the conduct of such a far reaching examination of documents, information concerning persons having no connection with the problem would be opened to the trustee or his agents, ' 13 but concluded that 'the material sought, insofar as the individual citizen was concerned, was essentially of a public nature, filed in connection with rules regulating the activity they were engaged in, quite distinguishable from private papers maintained in their personal files.' 14

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Countering the suggestion that response to the subpoena might involve disclosure of trade secrets, the referee stated that 'whatever trade secrets might be divulged by the examination of the documents under order to be produced have now so mellowed with age by the passage of time that they can be of little importance.' And noting that 'the subpoena is broad and sweeping in its scope, ' he opined that 'it has to be because of the subjects under consideration. But by subject matter it is as limited as it can possibly be.' He added that 'the fact that a great number of documents are involved is indicative of the fact that a great number of documents were required by the government to regulate and 'police' the market. If it was necessary for the government to accumulate these documents in this endeavor, then it is necessary for the trustee to have access to them in order to fulfill his duties.'

The Secretary filed a timely petition for review. 15 After a hearing, the District Court entered its order which, as finalized, denied the petition 16'without prejudice to petitioner's contention herein.' 17 The Secretary noted an appeal, 18 and the trustee cross-appealed. 19

We reverse and remand the case to the District Court for reconsideration, and utilize this opportunity to delineate the legal principles which the court should then observe. In Part I we discuss the nature and scope of Section 21(a) examinations

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and their relationship to the discovery provisions of the Federal Rules of Civil Procedure. In Part II we consider the problem of relevance, in Part III the requirement of good cause, and in Part IV the burden of response incidental to the trustee's subpoena. In Part V we deal with a miscellaneous group of privileges the Secretary intends to invoke. Judge Leventhal's opinion delineates the applicability and effect of provisions of the Commodity Exchange Act upon the production sought, matters upon which I state my views in Part VI of this opinion.


A trustee in bankruptcy by operation of law is invested with title to the bulk of the bankrupt's nonexempt property, 20 including transferable or leviable causes of action. 21 He is under a duty to maximize the realization on liquidation of the estate, and to this end to institute all necessary litigation. 22 Fulfillment of these responsibilities obviously entails careful exploration into the bankrupt's affairs with a view to discovery and recovery of assets.

Section 21(a) of the Bankruptcy Act is designed to facilitate efforts in that direction. It authorizes examination of 'any designated persons * * * concerning the acts, conduct, or property of a bankrupt, ' 23 and within this limitation the latitude for investigation is wide. 'The inquiry may even be a fishing examination;' 24 it may be 'exploratory and groping.' 25 Broadly speaking, the examination of a third person may be as comprehensive as that permitted of the bankrupt himself. 26

We do not, however, share the referee's view that Section 21(a) examinations are occasions for relaxation of the prerequisites to discovery in civil actions generally. While the Civil Rules are in terms applicable to bankruptcy proceedings only to the extent made so by the Supreme Court, 27 the Bankruptcy Act, with a proviso immaterial here, confers 'in all proceedings under this title' upon interested parties 'all rights and remedies granted' by the Civil Rules 'pertaining to discovery' and 'inspection and production of documents.' 28 And the general

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orders in bankruptcy promulgated by the Supreme Court provide broadly that 'in proceedings under the Act' the Civil Rules 'shall * * * be followed as nearly as may be, ' and more specifically that 'the examination of witnesses before the referee * * * shall be governed' by the Civil Rules, in each instance 'in so far as they are not inconsistent with the Act or with these general orders.' 29

Perceiving no such discordance, 30 we cannot attach controlling significance to the distinction...

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