Gross v. Fidelity & Deposit Company of Maryland

• Decision Date: 17 April 1962
• Docket Number: No. 16675.,16675.
• Citation: 302 F.2d 338
• Parties: In the Matter of Everett W. GROSS, Bankrupt, Appellant, v. FIDELITY & DEPOSIT COMPANY OF MARYLAND, United States Fidelity & Guaranty Company, and Petroleum Trading and Transport Company, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

302 F.2d 338 (1962)

In the Matter of Everett W. GROSS, Bankrupt, Appellant, v. FIDELITY & DEPOSIT COMPANY OF MARYLAND, United States Fidelity & Guaranty Company, and Petroleum Trading and Transport Company, Appellees.

No. 16675.

United States Court of Appeals Eighth Circuit.

April 17, 1962.

A. E. Sheridan, Waukon, Iowa, made argument for appellant and was on the brief.

Thomas C. Lynch, Decorah, Iowa, made argument for appellee Petroleum Trading & Transport Company and was on the brief. Frank R. Miller of Miller, Pearson & Melaas, Decorah, Iowa, made argument for appellee Fidelity & Deposit Company of Maryland and U. S. Fidelity & Guaranty Company and was on the brief.

Before JOHNSEN, Chief Judge, and WOODROUGH and MATTHES, Circuit Judges.

MATTHES, Circuit Judge.

In this bankruptcy proceeding the broad question on appeal is whether Everett W. Gross is entitled to be discharged as a bankrupt in accordance with the provisions of § 14 of the Bankruptcy Act, 11 U.S.C.A. § 32. This section provides that the adjudication of a bankrupt shall operate as an application for a discharge; for the filing of objections to the discharge; and that the court shall grant the discharge unless satisfied that bankrupt has "(2) destroyed, mutilated, falsified, concealed, or failed to keep or preserve books of account or records, from which his financial condition and business transactions might be ascertained, unless the court deems such acts or failure to have been justified under all the circumstances of the case;" or "(6) in the course of a proceeding * * * refused to * * * answer any material question approved by, the court."¹

The three creditors of the bankrupt who appear here as appellees filed objections to the discharge. Two of the objections have relevancy here. For sake of brevity, they will be referred to as objection 1 and objection 2. Objection 1 is that "The Bankrupt has failed to keep books of account or records, from which his financial condition and business transactions might be ascertained." Objection 2 is "At the examination of the Bankrupt, the Bankrupt was un-cooperative and evasive and refused to give direct and factual answers to the interrogatories propounded to him." After a hearing on the objections, the referee overruled them; however, on petitions to review, the United States District Court reversed the action of the referee on objections 1 and 2, and entered an order denying the discharge, In re Gross, 188 F.Supp. 324, holding that the finding with respect to objection 1 "was clearly erroneous," 188 F.Supp. at p. 330, and as to objection 2 that the "Bankrupt's answers * * * were so evasive as to constitute a refusal to answer them." Bankrupt has appealed from the order denying the discharge.

At the outset we take cognizance of an apparent conflict in views with respect to the applicability of General Order No. 47, Title 11 U.S.C.A. following § 53.² The district court obviously was of the opinion that the provisions of that order apply to this proceeding, for it held at p. 327 of 188 F.Supp.: "On this review the findings of fact of the Referee are to be accepted, unless clearly erroneous. General Order in Bankruptcy No. 47, 11 U.S.C.A. following section 53." We observed in O'Rieley v. Endicott-Johnson Corporation, 8 Cir., 297 F.2d 1, at p. 4, footnote 1, that the Referee in Bankruptcy of the District of Minnesota is of the view that General Order No. 47 applies to situations where the referee acts as a special master and not as the court, and that "reviewing judges `time and again' have misconstrued General Order 47 and assumed power to substitute findings of their own for those of the referee." In any event, and regardless of the scope and applicability of General Order No. 47, under General Order 37, Title 11 U.S.C.A. following § 53, the Rules of Civil Procedure shall be followed in bankruptcy proceedings "as nearly as may be." Rule 52(a), Federal Rules of Civil Procedure, 28 U.S.C.A. providing that "findings of fact shall not be set aside unless clearly erroneous * * *" therefore applies to bankruptcy proceedings. United States Machinery Movers v. Beller, 8 Cir., 280 F.2d 91, 94, cert. den. 364 U.S. 903, 81 S.Ct. 236, 5 L.Ed.2d 195; O'Rieley v. Endicott-Johnson Corporation, supra, 297 F.2d at p. 4.

In this jurisdiction it is firmly settled that where, as here, the issue stems from a general reference, the "clearly erroneous" standard is to be applied to findings of the referee and not to the findings of the district court. O'Rieley v. Endicott-Johnson Corporation, supra, at pp. 4 and 5, and cases cited. Thus posited, the question is whether the findings of the referee on objections 1 and 2 are clearly erroneous. This determination must be made in light of the pronouncement of the Supreme Court of the United States that "A finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746. See also Mothner v. Ozark Real Estate Company, 8 Cir., 300 F.2d 617; O'Rieley v. Endicott-Johnson Corporation, supra, 297 F.2d at pp. 5 and 6, where we considered the test to be applied.

Before proceeding to further consideration of the issue before us, it is pertinent to observe that statutory provisions regulating discharges are remedial in nature; they should be construed liberally with the purpose of carrying into effect the legislative intent, and that the statutory grounds for opposing a discharge should not be extended by construction. Collier on Bankruptcy, 14th Ed., Vol. 1, § 14.023, p. 1256. Judicial recognition of this principle has been expressed with variations. Thus we stated in Becker v. Shields, 8 Cir., 237 F.2d 622, at p. 625: "A bankrupt is entitled to a discharge unless the evidence clearly shows that he has committed an act which bars it. Farmers' Sav. Bank of Grimes, Iowa v. Allen, 8 Cir., 41 F.2d 208, 212." In Dilworth v. Boothe, 5 Cir., 69 F.2d 621, at p. 624, the court observed: "(t)he reasons for denying a discharge to a bankrupt must be real and substantial, not merely technical and conjectural." (Followed in Jones v. Gertz, 10 Cir., 121 F.2d 782, 784). Again, in Johnson v. Bockman, 10 Cir., 282 F.2d 544, 545:

"It is settled law that the Bankruptcy Act, 11 U.S.C.A. § 1 et seq., is to be liberally construed in favor of a bankrupt. A bankrupt is entitled to a discharge unless it clearly appears that he has committed some act which precludes his right thereto. And the initial burden rests upon the one objecting to establish reasonable basis for believing that the bankrupt has committed an act or acts which prevent his discharge. But when a prima facie case has been made by the one objecting to the granting of the discharge, the burden shifts to the bankrupt to clear himself of the charge established by such prima facie case. Jones v. Gertz, 10 Cir., 121 F.2d 782; Dixon v. Lowe, 10 Cir., 177 F.2d 807; McMullin v. Todd, 10 Cir., 228 F.2d 139."

In light of the foregoing principles, we are satisfied from careful examination and consideration of the record that the findings of the referee were not clearly erroneous and that the trial court improperly set aside the findings and denied an order of discharge in bankruptcy.

It is unnecessary, in view of the factual summary appearing in the trial court's opinion, to again deal extensively with the evidence. Suffice to say that Gross filed a voluntary petition in bankruptcy on January 9, 1958. No assets were listed and a trustee was not appointed. However, on December 23, 1958, and on December 17, 1959, hearings were held before the referee, at which the bankrupt was examined rather extensively. He had been connected with the Gross Oil Company which sold petroleum products at wholesale and retail. Books and...