Schoenfield, In re

• Decision Date: 12 October 1979
• Docket Number: D,No. 863,863
• Parties: , Bankr. L. Rep. P 67,235 In re Lee SCHOENFIELD, bankrupt. Steven H. DICKMAN, as Trustee in Bankruptcy of Lee Schoenfield, bankrupt, Plaintiff-Appellant, v. Lee SCHOENFIELD, Defendant-Appellee. ocket 79-5007.
• Court: U.S. Court of Appeals — Second Circuit

Page 930

608 F.2d 930

5 Bankr.Ct.Dec. 905, Bankr. L. Rep. P 67,235

In re Lee SCHOENFIELD, bankrupt.

Steven H. DICKMAN, as Trustee in Bankruptcy of Lee

Schoenfield, bankrupt, Plaintiff-Appellant, v. Lee SCHOENFIELD, Defendant-Appellee.

No. 863, Docket 79-5007.

United States Court of Appeals, Second Circuit.

Argued June 7, 1979.

Decided Oct. 12, 1979.

Max Ornstein, Brooklyn, N. Y., for plaintiff-appellant.

Stanley B. Hendler, New York City (Leinwand, Maron, Hendler & Krause, New York City, of counsel), for defendant-appellee.

Before KAUFMAN, Chief Judge, OAKES and MESKILL, Circuit Judges.

MESKILL, Circuit Judge:

Defendant-appellee Lee Schoenfield (hereinafter "the bankrupt") filed a voluntary petition in bankruptcy on April 25, 1975, and was adjudicated bankrupt on that date. One year later, plaintiff-appellant Steven H. Dickman, as Trustee in Bankruptcy of Lee Schoenfield, instituted two adversary proceedings in connection with the Schoenfield matter. One of these proceedings involved the trustee's objection to the discharge of the bankrupt on the grounds, Inter alia, that the bankrupt had given false testimony under oath, had fraudulently concealed assets belonging to the estate, and had destroyed or concealed or failed to keep records of his business transactions. See section 14-c of the Bankruptcy Act, 11 U.S.C. § 32(c) (repealed 1979); See also 18 U.S.C. § 152. In the second proceeding, which was directed against both the bankrupt and his wife Louise and which has been referred to by the parties as the "plenary action," the trustee sought a declaratory judgment with respect to certain properties involved in allegedly fraudulent transfers by the bankrupt to his wife. Although both cases were set down for trial before Bankruptcy Judge William J. Rudin on July 7, 1976, because of numerous adjournments the trials were not commenced until 1978 the discharge proceeding in February and the plenary action in May. Most important for purposes of this appeal is the fact that neither trial had been concluded when Bankruptcy Judge Rudin's term of office expired in July of 1978.

Upon the expiration of Bankruptcy Judge Rudin's term, the Schoenfield matter was referred to Bankruptcy Judge Robert John Hall. The bankrupt immediately moved for a trial De novo in each of the two pending adversary actions. In a decision signed October 12, 1978, Bankruptcy Judge Hall stated:

In the court's opinion, it would be unconscionable to have to start the trial over again since more than three (3) years have gone by since the trials have commenced and the estate cannot bear the burden of new trials.

The defendants have not shown any pressing need, in this case, why trials de novo should be granted.

In an order dated November 2, 1978, Bankruptcy Judge Hall made clear his intention to pick up the trials where they had left off: ¹

ORDERED, that the trial of the above proceedings be continued before me with the same effect as though I had presided at the trials thereof from the beginning and the trial of said proceedings shall continue where they were left off until each is concluded, and it is further

ORDERED, that pursuant to the preceding paragraph, I will consider the transcripts of the evidence thus far and the exhibits of the parties.

The bankrupt appealed to the district court. In a decision and order dated December 12, 1978, District Judge George C. Pratt of the United States District Court for the Eastern District of New York reversed the orders of Bankruptcy Judge Hall and directed him to commence trials De novo. The district court order was in turn appealed to this Court by the trustee. On April 3, 1979, a panel of this Court dismissed the appeal insofar as it challenged the order of a trial De novo in the plenary action. ² Consequently we review today only so much of Judge Pratt's order as applies to the discharge proceeding.

I. APPELLATE JURISDICTION

Before reaching the merits of the case, we must consider the bankrupt's challenge to the appealability of the portion of the district court order that pertains to the discharge proceeding. Our appellate jurisdiction is based on § 24(a) of the Bankruptcy Act, 11 U.S.C. § 47(a) (repealed 1979), which provides:

The United States courts of appeals . . . are invested with appellate jurisdiction from the several courts of bankruptcy in their respective jurisdictions in proceedings in bankruptcy, either interlocutory or final, and in controversies arising in proceedings in bankruptcy, to review, affirm, revise, or reverse, both in matters of law and in matters of fact . . . .

The bankrupt concedes that the hearing on the trustee's objection to the discharge of the bankrupt was a "proceeding in bankruptcy," and that "the general rule is that an appeal from an order or decree entered in a 'proceeding in bankruptcy,' either interlocutory or final, may be taken as of right, without any necessity for the securing of an allowance from the court of appeals." 2 Collier on Bankruptcy P 24.11(3) at 734 (14th ed.) (footnote omitted). See also id. P 24.24. The bankrupt contends, however, that the order appealed from falls within the "triviality exception," which significantly modifies the general rule. To be appealable, an interlocutory order in a proceeding in bankruptcy " 'must have the character of a formal exercise of judicial power affecting the asserted rights of a party; that is, it must substantially determine some issue or decide some step in the course of the proceeding.' " Dubnoff v. Goldstein, 385 F.2d 717, 722 (2d Cir. 1967), Quoting 2 Collier on Bankruptcy P 24.39. See also In Re The Duplan Corporation, 591 F.2d 139, 143-44 (2d Cir. 1978), and cases cited therein.

We cannot characterize as trivial the order under consideration. By specifying the type of hearing that is to be afforded to the parties, this order, clearly a formal exercise of judicial power, decides a major step in the course of the discharge proceeding and affects both the asserted right of the trustee not to have to litigate his objection De novo and the asserted right of the bankrupt to have his case decided by a judge who has heard all the testimony. This appeal cannot be said to present a "mere administrative matter beyond our jurisdiction to review," In re Ira Haupt & Co., 361 F.2d 164, 166 (2d Cir. 1966), and therefore the "triviality exception" is inapplicable. Consequently, there is no need to classify the disputed order as either final or interlocutory before turning to the substantive question raised by this appeal: that is, whether Judge Pratt erred in ordering a new trial in the discharge proceeding when the term of the presiding bankruptcy judge expired before the parties had finished presenting their evidence.

II. TRIAL DE NOVO

The paucity of federal cases involving the mid-trial substitution of judges indicates either that such substitution rarely occurs or that when it does, it does so with the consent of the parties. Either way, this seems like a healthy situation. Unfortunately, however, the rarity of this occurrence also means that there are few cases illuminating the question before us. Nor is the issue directly addressed by statute or rule we have found no provision in either the Bankruptcy Act or the rules promulgated thereunder to be precisely on point. ³

As Judge Pratt noted, however, there is a federal rule that does authorize, under certain conditions, the substitution of a successor judge for one who is unable to proceed further with a trial that has already begun. Rule 63, Fed.R.Civ.P., provides:

If by reason of death, sickness, or other disability, a judge before whom an action has been tried is unable to perform the duties to be performed by the court under these rules after a verdict is returned or findings of fact and conclusions of law are filed, then any other judge regularly sitting in or assigned to the court in which the action was tried may perform those duties; but if such other judge is satisfied that he cannot perform those duties because he did not preside at the trial or for any other reason, he may in his discretion grant a new trial.

However, whether Rule 63 does in fact have any bearing on the issue before us can be determined only after consideration of two subsidiary questions: (1) what is the relevance of Rule 63 to adversary proceedings in Bankruptcy, and (2) what is the relevance of Rule 63 to bench trials in which the presiding judge becomes disabled Before findings of fact and conclusions of law have been filed.

Unlike many of the Federal Rules of Civil Procedure, Rule 63 has not been incorporated into the bankruptcy rules. Rule 81(a)(1), Fed.R.Civ.P., specifically declares that the rules of civil procedure do not apply to proceedings in bankruptcy "except in so far as they may be made applicable thereto by rules promulgated by the Supreme Court of the United States." ⁴ However, where, as here, specific questions are left unanswered by governing statutes, regulations and cases, we look to general principles of law for guidance. Cf. In re Yale Express System, Inc., 362 F.2d 111 (2d Cir. 1966) (applying general principles of suretyship in bankruptcy case where Bankruptcy Act is silent). Thus, although Rule 63 is concededly not controlling in bankruptcy proceedings, it is both logical and useful to consult the rule and the cases interpreting it and to distill from these sources whatever principles can contribute to the reasoned decision of this appeal.

Since no findings of fact or conclusions of law were filed before Bankruptcy Judge Rudin's term expired, Rule 63, even if fully applicable to bankruptcy proceedings, would not authorize the substitution that occurred. The Sixth Circuit has recently taken the position that the clear implication of Rule 63 is that a new trial is always required when prior to filing findings and conclusions a judge is disabled from proceeding further with a bench trial. Arrow-Hart, Inc. v. Philip Carey Co., 552 F.2d...