Heath v. Helmick

Citation173 F.2d 157
Decision Date04 March 1949
Docket NumberNo. 11904.,11904.
PartiesHEATH et al. v. HELMICK.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Ernest R. Utley and J. Geo Ohanneson, both of Los Angeles, Cal., for appellants.

Leslie S. Bowden and J. M. Clements, both of Los Angeles, Cal., for appellee.

Before MATHEWS and HEALY, Circuit Judges, and FEE, District Judge.

JAMES ALGER FEE, District Judge.

This controversy arises out of the bankruptcy proceeding initiated by the filing of a voluntary petition by Melanie Douillard Woodd, resulting in adjudication August 29, 1945.

On December 31, 1946, trustee presented a petition to the court to the effect that certain real property belonged to the bankrupt estate, that the Heath estate and one Knapp claimed an interest therein, but that the claim was invalid. An order to show cause issued to claimants. Based upon an extended hearing, where all parties were represented, the referee held that the real property was an asset of the estate and claimants had no interests therein. The order was dated May 3, 1947. The Honorable C. E. Beaumont heard the petition to review this order, and on December 1, 1947, confirmed the orders and adopted the findings and conclusions of the referee.1 The estates of Heath and Knapp2 appeal, but Woodd does not.

The first question is as to the right of the referee to exercise summary jurisdiction over the property upon the petition of the trustee, after the discharge of the bankrupt and the closing of the estate. Neither of these propositions is squarely presented by the record, but each must be dealt with in order to solve questions formally argued in the briefs.

The estate was closed. The referee reopened the cause for administration of the assets not fully administered. This has been a ground for reopening under the statutes ever since the adoption of the Bankruptcy Act.3 There has been some question as to whether it can be done by referee or court. The question is a procedural one and has not been raised here. But the District Judge has now approved the reopening and has found specifically that there were grounds therefor. If a petition had been presented to him for reopening and he had granted it and referred the cause to the same referee for hearing and had affirmed the present result, no error would have been present. While it is by far the preferable practice for such petitions to be heard by a judge, in this instance there is no error.

The bankrupt was discharged July 3, 1946. But the discharge of a bankrupt has never been held to preclude the trustee from recovering or taking control of the property belonging to the estate and in which, therefore, the creditors have an interest. Since the bankrupt has not appealed, the sole question is whether the property was owned by or in possession of the bankrupt when the petition for adjudication was filed.

The fee simple title to the property in question had formerly been in bankrupt Woodd and she had remained in continuous possession thereof. It was discovered during the course of the hearing that the property in question had been deeded to bankrupt Woodd, and the deed taken was recorded October 18, 1946, although it had been made and delivered September 12, 1946, two days after closure. The referee found, "The said real property was at the date of the bankruptcy proceedings an asset of the bankruptcy estate." Taken in connection with the evidence herein set out, this is a finding of ultimate fact.4 The summary jurisdiction of the referee was founded. Possession either in bankrupt or an agent, subject to control of bankrupt, on the date of the filing of the petition for adjudication, establishes the right of the court to deal with claims thereto summarily. It is only when possession is at that date held by an adverse claimant that the trustee must resort to plenary suit in another forum. Once the fact of possession of bankrupt is established, the court determines all other claims to the property. Judge Healy, writing for this court in Bank of California, National Association v. McBride, 9 Cir., 132 F.2d 769, 771, says:

"The court had summary jurisdiction in the premises if, when the bankruptcy petition was filed, the property was actually or constructively in the possession of the bankrupt; or if at that time possession was held by a person who made no adverse claim to the property, or whose adverse claim was determined on inquiry to be merely colorable."

Since it was thus correctly found that the property was an asset of the bankrupt estate, the referee had the power to consider the claims of the attorneys, Heath and Knapp. He correctly found that neither had any interest. The evidence supports his finding and conclusions.

The referee made specific findings, from which, supplemented by the testimony in the record, a complete picture may be had. Woodd had owned title to this real property, including the Virginia Avenue parcel here in suit and the Glendale tract, in 1940. Emile A. Douillard, a nephew, together with other relatives, had brought an action against Woodd in the state court to recover on account of her dealings with her mother's estate. Heath and Knapp were her attorneys in that litigation. The judge had indicated judgment would be against her. She considered this outrageously unjust but there were indications that such a judgment would be affirmed on appeal. She had money to pay her attorneys, Heath and Knapp, at the time, but she held a conference with them over their fee. There may have been some slight disagreement over the amount. Heath and Knapp agreed to bring a friendly suit and attach all her property, including the Glendale and Virginia Avenue parcels, before judgment could be entered by her relatives. This arrangement was secret. Heath and Knapp assigned their claims to Hovey, who was her confidant and physician, and action was brought in his name on April 11, 1940, and proceeded as if it were adverse. The properties were therein attached. Emile A. Douillard received separate judgment, foreshadowed by the remarks of the judge above mentioned, April 25, 1940, as did the other plaintiffs in that proceeding.

Judgment for Heath and Knapp in the name of Hovey was entered July 8, 1941, and execution issued. On August 3, 1942, the judgments of Douillards were affirmed by the Supreme Court of California.5 On September 8, 1942, the Glendale property was sold under execution on the Hovey judgment. On March 15, 1943, Emile A. Douillard purchased the Glendale property at sheriff's sale on execution on his separate judgment. He then brought suit against Knapp, Heath, Hovey and Woodd to quiet title to this particular parcel on the ground that there had been a fraudulent transfer. This issue was decided against him. Douillard v. Smith, 70 Cal.App.2d 522, 161 P.2d 378. The particular property here under consideration (Virginia Avenue) was sold on sheriff's sale on the same execution April 12, 1943, and purchased by Dr. Hovey. The referee found that, after this last sale and before the filing of the petition for adjudication, Heath and Knapp, the attorneys, Dr. Hovey, the physician, and Woodd, the bankrupt, entered into a secret agreement that the property so purchased should be held by Hovey until the remainder of attorney fees were paid and until Woodd was discharged in bankruptcy, when the property was to be returned to bankrupt, "and in the meantime said bankrupt was to have the use and control of said property."

The evidence is uncontroverted that Dr. Hovey did not at the time have any interest in the claim or the judgment. He did not put up any money. When the sale was consummated, he was admittedly the holder of the bare legal title. Furthermore, it is admitted by all that he was tru...

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    ..."badges" or "marks" of fraud); see also BFP, 511 U.S. at 540-41, 114 S.Ct. 1757 (referring to the "badges of fraud"); Heath v. Helmick, 173 F.2d 157, 160 (9th Cir.1949) ("The badges of fraud with relation to creditors were early marked in the English mercantile community.... Twyne's Case is......
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