Grande v. Arizona Wax Paper Co.

• Decision Date: 26 July 1937
• Docket Number: No. 8411.,8411.
• Citation: 90 F.2d 801
• Parties: GRANDE v. ARIZONA WAX PAPER CO. et al.
• Court: U.S. Court of Appeals — Ninth Circuit

90 F.2d 801 (1937)

GRANDE v. ARIZONA WAX PAPER CO. et al.

No. 8411.

Circuit Court of Appeals, Ninth Circuit.

June 21, 1937.

Rehearing Denied July 26, 1937.

James Donovan, of Los Angeles, Cal., for appellant.

Benj. W. Shipman, of Los Angeles, Cal., for appellees.

Before WILBUR, GARRECHT, and MATHEWS, Circuit Judges.

GARRECHT, Circuit Judge.

In view of the varied attacks made by the appellant upon the bankruptcy proceedings in this matter, we will set them forth in a somewhat detailed manner.

The appellant filed a petition in voluntary bankruptcy in the court below, on October 10, 1934, and was adjudicated a bankrupt on the same day.

The trustee filed an amended application for a turnover order against the appellant, his wife, Daisy Grande, their daughter, Hazel D. Grande, and their attorney, James Donovan.

After receiving oral and documentary evidence, the referee in bankruptcy, on February 4, 1935, issued an order commanding the trustee to take immediate possession of the appellant's entire assets, using "all necessary force so to do," and restraining the appellant and the above-named members of the appellant's family and others from interfering with the trustee's possession of such assets.

The findings that formed part of the turnover order included the following:

That prior to the formation of the corporation Grande California, Inc., the appellant did business under the name of Grande California; that on or about March 2, 1934, he had many debts, and one or more creditors had obtained judgment against him; that thereupon, for the purpose of hindering, delaying, and defrauding his creditors, the appellant transferred, without consideration, certain assets to a corporation that he then caused to be formed, namely, Grande California, Inc., for the sole purpose of permitting him to retain possession of his property under the corporate name; that no person invested any money, either as a contribution to capital assets, or otherwise, in the corporation at any time; and that the appellant is the owner in fact of the corporation, its corporate stock, and all of its assets.

It was also found that the corporate assets had not been turned over to the trustee, and that there was insufficient property then held by the trustee to pay the appellant's debts.

From the foregoing facts, the referee concluded that Grande California, Inc., is the alter ego of the appellant, and that all of its assets should have been turned over to the trustee by the appellant at the time that the latter was adjudicated a bankrupt.

On February 21, 1935, seventeen days after the referee's turnover order was made and served upon the appellant's attorney, the appellant filed a motion in the court below for an order to show cause why the appellant should not be granted an extension of time in which to present to the referee a "petition for a review of the ruling of the Referee," and why the referee should not certify to the court below a transcript of his proceedings in support of the findings, etc.

In his petition, the appellant set forth that his attorney did not have the rules of procedure in bankruptcy matters in his office, and added: "He the appellant's attorney discovered in the local Court rule 84, that he should have filed with the Referee a petition for a review of the Order made by the Referee, within ten days from the service of the Findings upon him. He has examined a few decisions under this rule and finds that this being a rule established by the Court, its construction of the rule gives it the full force and effect of a statutory enactment; however, believing that it is within the judicial discretion of the Court making the rules to relieve one of an error of this character, he should be relieved from this default and be granted an opportunity to have a review of the Findings and Order of the Referee, and the time be extended in which to prepare his exceptions to Findings of the Referee."

The petition thereupon set forth a number of reasons why the appellant should be relieved from the consequences of his attorney's admitted error and default: That the referee who heard the case is the only one who can certify it to the court; that the referee left his office on February 5 or 6, 1935, and was not scheduled to return until March 15, 1935, so that even if the petition for review had been prepared within the prescribed ten days, the referee would not have been present to certify it to the court; that the attorney for the trustee announced there would be a further hearing of the evidence of Mrs. Daisy Grande upon the return of the referee; that the trustee would suffer no hardship by the delay; that there was a direct charge of fraud against the appellant bankrupt, and an implication of a participation and direction of the appellant's acts by his attorney, in incorporating the Grande California, Inc., company; and that the court could exercise its judicial discretion to relieve either an attorney or a litigant from embarrassment, etc.

Hearing was had on the foregoing petition on February 25, 1935, and two days later the court below denied the appellant's request. In its opinion and order denying the petition, the court said: "The counter showing made by the trustee quite clearly shows that the hearing was duly had as to the matter determined and that due notice of the decision was given to counsel for the bankrupt. * * * It is generally held that ignorance of counsel of the provisions of a rule of court is not sufficient to authorize vacation of judgments or orders. This because counsel is presumed to be acquainted with such rules. California Juris. (see Vol. 14, Sec. 99)."

The court below, however, did not rest its decision entirely upon the procedural point alone, although, in our view, it might well have done so without abuse of sound judicial discretion. The learned District Judge proceeded to say:

"Considering the merits of the case, it is not made to appear that injustice will result to the bankrupt by the enforcement of the order. There seemed to have been no conflict as to the fact that the Grande California, Inc., was a mere vehicle used by the bankrupt for the conducting of business. Where such is the case, and as is apparent here, bankrupt was the mere alter ego of the corporate organization. He owned all of the stock, except perhaps some qualifying shares, and was, in fact, necessarily the owner in turn of all of the corporate property. * * *

"Counsel for the bankrupt, who is a reputable practitioner at this bar, seems to be of the opinion that there is some reflection cast upon him by reason of the terms of the order of the referee, because that counsel was employed to organize the corporation in question. I am not of the view that counsel should make any such assumption," etc.

"I am of the view: (1) That the showing as to the mistake of counsel is not sufficient to justify the making of the order here sought; (2d) Assuming that the omission to act was excusable, the facts as presented touching the propriety of the order made by the referee are insufficient to support a substantial claim for error."

On September 26, 1935, the referee filed in the court below a "certificate of compliance" containing the following averment: "* * * that so far as appears from the records and files of my office and matters coming to my attention said Bankrupt has complied with all the orders of the Court and the requirements of the Bankruptcy Act and has committed none of the offenses and done none of the things prohibited by said act."

On October 8, 1935, the appellant filed a petition for discharge. The court fixed December 2, 1935, at 10 a. m., as the date on which a hearing would be had upon that petition, at which time creditors and other interested persons might appear to show cause why the petition should not be granted.

At the appointed hour, the Arizona Wax Paper Company, one of the appellees herein, filed specifications of grounds of opposition to the appellant's discharge. Among the averments contained in those specifications were the following: "That, within eleven (11) months immediately preceding the filing of the petition herein by the said bankrupt, said bankrupt transferred and concealed his property, with the intent to hinder, delay and defraud his creditors. That such transfer and concealment was accomplished by the bankrupt by the transfer of his assets to a corporation under the name of Grande California, Inc., and was sic so transferred within said period for the purpose of defrauding his then existing creditors. That, at said time, this objecting creditor was a creditor of said Joseph H. Grande. That said Joseph H. Grande has turned over to said corporation more than one dollar ($1.00) in cash, and various other assets."

After referring to the turnover order of February 4, 1935, which was attached to the specifications and made part thereof, and reciting that such order had become final and had not been revised, the specifications continued: "That said bankrupt knowingly and fraudulently omitted the property turned over to the corporation, and in existence at the time of bankruptcy, from his schedule of assets herein, and failed to reveal to said trustee the existence of the same or the facts as to the title of said corporation to said property, and fraudulently and knowingly concealed the said facts from said trustee, and, on the contrary, maintained that he had but a small stock interest in said corporation, while, in truth and in fact, said corporation belonged wholly to said bankrupt, was controlled and dominated by him, and was his alter ego. That said corporation had no permit to issue stock at any time before October 10, 1934."

The specifications also charge that the appellant, within four months prior to the filing of his petition, transferred property to his wife, for the purpose of defrauding his then existing creditors, and that, for the purpose of concealing his title to the...