Danish v. Sofranski

• Decision Date: 13 December 1937
• Docket Number: No. 146.,146.
• Parties: DANISH v. SOFRANSKI et al. In re SOFRANSKI & BODNER, Inc.
• Court: U.S. Court of Appeals — Second Circuit

93 F.2d 424 (1937)

DANISH v. SOFRANSKI et al.^*

In re SOFRANSKI & BODNER, Inc.

No. 146.

Circuit Court of Appeals, Second Circuit.

December 13, 1937.

Henry E. Coleman, of New York City, for appellants.

Herman G. Robbins, of Brooklyn, N. Y., for appellee.

Before MANTON, L. HAND, and SWAN, Circuit Judges.

L. HAND, Circuit Judge.

The respondents, Sofranski and Bodner, appeal from an order directing each to pay the sum of $2,532.80 to the bankrupt's trustee on the ground that he has it in his possession and that it belongs to the bankrupt. They were respectively the president and the secretary-treasurer of the bankrupt, and they and their wives owned all its stock; it was adjudicated a voluntary bankrupt on May 2, 1935, and on November 13th the trustee initiated a summary proceeding before the referee to compel them to surrender funds of the bankrupt which they were alleged to be withholding. They appeared specially, and protested that they were not subject to summary jurisdiction, but the referee overruled their objection and heard the case on the merits. He first reported that they had in their possession $3,282.80 which he directed them to turn over, but on appeal to the district court, the cause was referred back, and upon a new hearing he reduced the amount to the sum just mentioned. The judge affirmed this order and the respondents appealed. The facts are as follows. The respondents had been millinery salesmen in the employ of others, earning, as Sofranski swore, about $90 a week. Their employer went out of business, and in 1930 they organized the bankrupt under the name of Sofranski & Bodner, Inc.; they were engaged in jobbing women's hats. During the year 1932 their average withdrawals were $56 a week and during 1933, $46; for the first nine months of 1934, they were $55. In that year, and apparently earlier as well, their custom was to withdraw $50 a week regularly, and at rare intervals, to borrow additional amounts, but the total of these withdrawals was no more than they might use in their daily living. They paid the bankrupt's bills for the most part, as they went along, and at bankruptcy they owed only three debts, a tax of $25, a judgment of $766.12 for rent up to December 31, 1934, and another judgment of a little more than $3,000 in favor of one Katz, for goods sold. They had had a trade dispute with Katz and sued him for $10,000; Katz countered in April 1934, with an action which was pending until April 1935, when he got judgment and the bankrupt's action (then in the form of a counterclaim) was dismissed.

The business had been poor in the autumn of 1934 and the respondents began to withdraw much larger sums than ever before. In October each took out $300, which alone would not have been very excessive, but on the 15th each withdrew $1,500 more, of which however, he restored $1,000 by the beginning of November; we may take the October withdrawals therefore at $800. In November each withdrew $1,257.80, and in December, $500. Thus the average weekly withdrawals for the last thirteen weeks of the year had increased from about $55 to nearly $200. It was a fair, indeed an inevitable, inference, coupled with their other conduct at the time, that the respondents were looting the company preparatory to winding it up. It had had some fixtures and the like; these they bought on December 6th for $250; substantially its only stock of goods consisted of an assortment of hats for the spring trade of 1934; these they bought on January 21st for $400. These sales may have been at too low a figure, but the trustee does not now press the point. In December in conjunction with others, they organized a new company, and all business of the bankrupt ended at the latest with the sale of the hats; yet they each kept on drawing $50 a week until March 15th. If, as Sofranski said, this was to keep in touch with the trade, it could not benefit the bankrupt.

The referee adopted the simple calculation of adding up all that they had withdrawn from January 1, 1934 to March 15, 1935, and crediting this amount with $50 a week as salary. He thus reached a deficit of $2,532.80 which he concluded on July 15, 1937 — the date of his second report — that the respondents were withholding. We shall assume that, if the only issue were whether they had abstracted that much from the bankrupt's creditors at a time when they knew that by no pretence they could be entitled to it, the evidence is conclusive enough to overcome their adverse claim. Over a period of three years they had shown what they supposed their services to be worth, and the sudden increase in their withdrawals, coupled with the abandonment of the business and their entry into a new one, may perhaps leave no room for reasonable doubt. Moreover, while the amount properly creditable to them is necessarily somewhat elastic, it may be permissible to say that it could not have been more than $55 a week. From October 1st, 1934 to January 21st, 1935, that would establish a credit of about $900, and the deficiency unaccounted for would therefore be $3,132.50 less $900, or $2,232.50.

However, the trustee was obliged to prove not only that the respondents had wrongfully abstracted this money, but how much of it they had in their hands when the referee's order passed, at least his first order of March 2d, 1937. In re Schlesinger, 102 F. 117 (C.C.A.2); Sinsheimer v. Simonson, 107 F. 898, 907 (C.C.A.6); In re Holden, 203 F. 229, 233 (C.C.A.6); In re Redbord, 3 F.2d 793 (C.C.A.2). Most of the money was taken in the last three months of 1934; the rest, in the first ten weeks of 1935; the...