In re Pinsky-Lapin & Co.

• Citation: 98 F.2d 776
• Decision Date: 01 August 1938
• Docket Number: No. 368.,368.
• Parties: In re PINSKY-LAPIN & CO., Inc. MALES v. PINSKY et al.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

98 F.2d 776 (1938)

In re PINSKY-LAPIN & CO., Inc.

MALES v. PINSKY et al.

No. 368.

Circuit Court of Appeals, Second Circuit.

August 1, 1938.

Abraham H. Sarasohn, of New York City, for appellants.

Kaufman & Weitzner, of New York City (Eugene M. Parter, of New York City, of counsel), for appellee.

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The order appealed from directs the appellant Herman Pinsky, the secretary and treasurer of Pinsky-Lapin & Co., which was adjudicated a bankrupt on February 27, 1937, on an involuntary petition filed on February 11, 1937, to turn over to its trustee in bankruptcy moneys and merchandise or the proceeds thereof, amounting in the aggregate to $6,648.05. It also directs the appellant Vineland Farmers Corporation to turn over $321.30 in cash. The trustee instituted this proceeding on September 28, 1937, and obtained the "turnover" order on November 30, 1937. That order may be summarized as follows:

So far as it relates to Pinsky it embraced: (a) $1,269 representing two items derived from the bankrupt, one of $720 on January 25, 1937, and the other of $549 on January 28 in the same year. It was claimed by Pinsky that they were paid to one William B. Stone for alleged purchases from him by the bankrupt. The referee found that in fact neither the purchases nor the payments were made but that Pinsky withdrew this money himself in fraud of the creditors of the bankrupt. (b) $1,258.30 representing cheese, or the proceeds thereof, obtained from the bankrupt under the guise of a sale of merchandise to Joseph Golembe, Pinsky's brother-in-law. The referee found the alleged transactions fictitious and only a means of diverting assets to Pinsky. (c) $3,346.27 representing merchandise derived from the bankrupt, or the proceeds thereof, found by the referee to have been similarly diverted by Pinsky under the guise of sales to himself for the ostensible purpose of conducting an egg, butter and cheese business in Harlem taken over from one Werba. He paid nothing for this merchandise. (d) $591.14 representing moneys withdrawn by Pinsky from the bankrupt. This amount consisted of three items, namely, $251.77 which he said he received in cash and turned over to his wife Mollie Pinsky in payment of loans by her to the bankrupt, $227 and $112.37 which he could not explain. (Minutes 238, 551-53). The referee found each item represented a fraudulent concealment and was not accounted for in any credible way. In spite of the wholly inconclusive testimony as to the $227 and $112.37 items we shall treat all three as representing sums received by Pinsky and claimed to have been held adversely as agent for his wife, because all parties seem to have argued the appeal on that assumption. (e) $183.34 representing six checks of the bankrupt signed by Pinsky as managing agent. The moneys were admittedly received by him and never repaid. The referee found that each of the items represented a fraudulent concealment.

Vineland Farmers Corporation was directed to turn over $321.30 which it received through a check of the bankrupt dated December 2, 1936. The referee found that it was transferred by the bankrupt without any consideration and with intent to defraud creditors.

Two problems confront us at the outset: (1) The respondents argue that the bankruptcy court was without power to entertain a summary proceeding to compel the restitution of property alleged to belong to the estate. (2) The trustee argues that no appeal will lie from the order in the proceeding without leave of this court.

The first point is met by the fact that the respondents raised no timely objection to the summary proceeding. They answered the trustee's petition and went to trial without contending that the referee lacked power and that only a plenary suit would lie. Such a submission to the jurisdiction was sufficient even though there was no formal consent. Page v. Arkansas Natural Gas Corp., 286 U.S. 269, 271, 52 S.Ct. 507, 508, 76 L.Ed. 1096, affirming 8 Cir., 53 F.2d 27, 35; In re Hopkins, 2 Cir., 229 F. 378, 380. Objection was first made after the referee had issued his "turnover" order and at the time when the proceeding was on review before the district judge. That was too late.

The second problem relates to the sufficiency of the appeal. It was taken only under Section 24a of the Bankruptcy Act, 11 U.S.C.A. § 47(a), by allowance of the District Court. An application to this court for leave to appeal was thereafter made by the respondents under Section 24b, 11 U.S. C.A. § 47(b), but denied. The trustee moved to dismiss the appeal taken under Section 24a as to all six amounts directed to be turned over, on the ground that only proceedings in bankruptcy were involved and leave of this court was necessary. We held in Re Byrd Coal Company, 2 Cir., 83 F.2d 190, that if an officer of a bankrupt makes no claim personally to property involved in a "turnover" proceeding but "merely asserts that he does not have it" (page 192), the matter is a proceeding in bankruptcy within Section 24b and may be heard only if an appeal has been duly allowed by the Circuit Court of Appeals. An allowance by this court was, therefore, necessary in respect to all items except (c) and (d), the $3,346.27 and $591.14 sought to be recovered from Pinsky, and $321.30 sought to be recovered from Vineland Farmers Corporation, all of which present controversies and are appealable as a matter of right under Section 24a. The motion to dismiss the appeal is granted as to (a), (b) and (e) because Pinsky makes no claim to these sums himself. It is to be noted that no matter what form of appeal were allowed the order would have to stand as concerns (a) because that item has not been attacked by any assignment of error and appellants' counsel apparently does not contend that Pinsky is not accountable for the moneys represented thereby.

There remains for our consideration the question whether the items (c) amounting to $3,346.27 and (d) amounting to $591.14 were properly held recoverable from Pinsky and the item amounting to $321.30 was properly held recoverable from Vineland Farmers Corporation.

The first question as to these three items is whether they were in the possession or within the control of the respondents at the time of bankruptcy and the second is whether the items were in their possession or within their control at the time when the "turnover" order was made. In re Schoenberg, 2 Cir., 70 F.2d 321; In re H. Magen Co., 2 Cir., 10 F.2d 91, 96; In re Epstein, 206 F. 568, 569, D.C.Pa.

Item of $3,346.27.

This item was found by the referee to be derived from a fraudulent appropriation by Pinsky under the guise of alleged purchases by him from the bankrupt of 400 cases of eggs, 100 packages and boxes of cheese and 100 packages, boxes and tubs of butter. Pinsky testified that on September 30, 1936, he started business in Harlem with one Werba who owed the bankrupt $300 or $400 and that the purpose of the venture was to enable Werba to liquidate that indebtedness. Pinsky contributed to the business $1,000 borrowed from the Austro-Hungarian Credit Union, and about $500 more from the Morris Plan, which he deposited in his personal account in the Manufacturers Trust Company, and eggs, butter and cheese obtained from the bankrupt. It was proved by the latter's books that Pinsky obtained the merchandise between September 30, 1936, and February 2, 1937, to the value of $13,487. He made payments sufficient to leave an unpaid balance of $3,470.97 on February 2, 1937, when Pinsky-Lapin & Co. ceased doing business. The referee deducted from the last mentioned amount $124.70 for the estimated profit of the bankrupt included in the charge on its books for the eggs, butter and cheese, leaving Pinsky responsible for $3,346.27. Of the merchandise so purchased $4,780 was delivered in January and February 1937. Pinsky accounts for the disposition of the merchandise by alleged losses of $1,000 in October, 1936, $1,500 in November, 1936, and $500 in December, 1936. This could hardly be, for he had paid the bankrupt for all purchases prior to January 1, 1937, and at that time had left cash of about $700 in his bank and a stock of goods worth about $1,000. He admitted that the egg market was not down in January, 1937. The only expenses of the Harlem venture would seem to have been $8 per week for two stands, $8 per month for rent of a store, $25 per week paid to Werba as salary, $11 per week paid to a man named Raisin, and $40 to $50 per week taken as salary by himself. These expenses between January 1 and February 2 would aggregate about $500. It would seem to follow from the testimony that he had paid all current expenses as the business went on, so that even if he made no profit prior to February 2 he should have had on hand $3,346.27 plus ($1,000 plus $700 minus $500) or $4,546.27. He testified, however, that the merchandise then left was only about $600 or $700. It is to be observed that he does not claim to have had losses during the period prior to February 2 except in eggs bought from unidentified farmers whom Werba testified he did not purchase from at all. He also attempted to account for the disposal of the Harlem assets prior to February 2 (after paying running expenses of the business) by unverified statements that he made payments to relations and friends who were creditors. The referee did not believe him. The case is apparently the old and conventional one of the officer of a bankrupt corporation who secures for it enlarged deliveries in the last few weeks preceding bankruptcy, appropriates the proceeds personally and attempts to cover his tracks by false entries and alleged payments to unidentified creditors or those whom he does not produce as witnesses.

When Pinsky was asked what became of the $600 or $700 which he said was all that remained of the Harlem assets on February 2, 1937, he replied: "I had been...