O'HAGAN v. Blythe

• Decision Date: 15 December 1965
• Docket Number: Docket 29574.,No. 9,9
• Parties: Thomas L. O'HAGAN, Trustee in Bankruptcy, Petitioner-Appellant, v. Robert BLYTHE, Respondent-Appellee. In the Matter of LIBERTY RETURN LOADS ASSOCIATION, Inc., Bankrupt.
• Court: U.S. Court of Appeals — Second Circuit

354 F.2d 83 (1965)

Thomas L. O'HAGAN, Trustee in Bankruptcy, Petitioner-Appellant, v. Robert BLYTHE, Respondent-Appellee In the Matter of LIBERTY RETURN LOADS ASSOCIATION, Inc., Bankrupt.

No. 9, Docket 29574.

United States Court of Appeals Second Circuit.

Argued September 23, 1965.

Decided December 15, 1965.

Sidney N. Zipser, New York City, for petitioner-appellant.

Arthur Neukrug, New York City, for respondent-appellee.

Before MOORE, SMITH and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge:

On November 25, 1958 several creditors of Liberty Return Loads Association, Inc., filed an involuntary petition in bankruptcy. Thereafter the debtor petitioned for an arrangement under Chapter XI of the Bankruptcy Act and continued in possession and operation of its trucking business. On March 16, 1961, the Referee dismissed the debtor's Chapter XI petition and on April 7, 1961 ordered the debtor to cease carrying on the business and to turn its assets over to the Trustee appointed pursuant to the original involuntary proceedings. Contrary to these orders, the appellee, Blythe, who was at all times president of the debtor corporation, continued to operate the debtor's business, refused to comply with the turn-over orders and misappropriated to his own use and that of his wife $28,029.81 of the debtor's funds.

Appellant Trustee obtained a judgment in the Supreme Court of the State of New York against Blythe to recover the misappropriated money but the Trustee's request for a body execution was denied. In April of 1963 the Trustee petitioned the Referee¹ to certify that Blythe was in contempt of the orders of April 7, 1961 and of certain other orders issued by the United States District Court for the Southern District of New York in the terminated Chapter XI proceedings. After a hearing on the petition the Referee found that Blythe had, as alleged, misappropriated the debtor's funds and had wilfully failed to comply with the orders but he made no finding as to the ability of Blythe to comply with the orders at the time of the hearing. A certificate stating that Blythe was in contempt was issued by the Referee; and there ensued from the District Court an order to show cause why Blythe should not be punished for contempt. At the hearing Judge Metzner found that Blythe was unable to comply with the orders, the violation of which gave rise to the certificate of contempt, and denied the Trustee's motion to impose a criminal sanction upon Blythe.

On this appeal the Trustee argues that the District Court was bound to accept the findings of the Referee unless they were clearly erroneous and that, as this was not the case, the District Court should be reversed. Alternatively, the Trustee asserts that if the District Court was free to make its own findings, it was in error in concluding that Blythe was unable to comply.

There is, of course the general principle of bankruptcy law that

"* * * the report of a referee * * * shall set forth his findings of fact and conclusions of law, and the judge shall accept his findings of fact unless clearly erroneous. * *"

General Order No. 47. See 2 Collier, Bankruptcy ¶ 39.28, at 1521-28 (14th ed. 1964).

Punishment for contempt, following a certificate by a Referee, does not however, come within this rule. The Referee has no power to punish for contempt. Bankruptcy Act §§ 2, sub. a (13), 2, sub. a(15) and 2, sub. a(16); 11 U.S.C. § 11, sub. a(13), (15) and (16); Bankruptcy Act §§ 38(2) 11...