In re Barber, 8410.

• Decision Date: 31 January 1944
• Docket Number: No. 8410.,8410.
• Citation: 140 F.2d 727
• Parties: In re BARBER.
• Court: U.S. Court of Appeals — Third Circuit

140 F.2d 727 (1944)

In re BARBER.

No. 8410.

Circuit Court of Appeals, Third Circuit.

Argued December 10, 1943.

Decided January 31, 1944.

Charles S. Barrett, Jr., of Newark, N. J. (Lum, Fairlie & Wachenfeld, of Newark, N. J., and Jackson R. Collins, of New York City, on the brief), for appellant.

Meyer W. Stein, of Paterson, N. J., for appellee.

Before JONES, GOODRICH, and McLAUGHLIN, Circuit Judges.

JONES, Circuit Judge.

This is an appeal by a creditor of the bankrupt from an order of the District Court affirming the referee's refusal to adjudicate with respect to the alleged non-dischargeability of the creditor's claim under circumstances hereinafter to be related.

Barber was adjudicated a bankrupt on April 4, 1941, upon his voluntary petition filed the same day. Approximately a year before (May 4, 1940), he had obtained from the Globe Family Finance Company a small loan which was evidenced by his promissory note. At the time of obtaining the loan, Barber gave Globe a statement of his then financial condition upon which Globe claims to have relied in making the loan and which it alleges was false. As later developed, the statement failed to list several debts owing by Barber at that time in addition to those listed in his statement. The bankrupt scheduled Globe as a creditor in the net amount due on the loan at the date of bankruptcy. Shortly after the institution of the bankruptcy proceeding and before an order discharging the bankrupt had been entered or any action looking to the entry of such an order had been taken before the referee, Globe petitioned the referee for an adjudication that its claim against the bankrupt was not dischargeable within the intent of Sec. 17 of the Bankruptcy Act, as amended, 52 Stat. 851, 11 U.S.C.A. § 35.

The bankrupt filed an answer denying the pertinent averments of Globe's petition and praying that the petition be dismissed. Thereafter the referee, without passing on the merits of Globe's allegations of fraud on the part of the bankrupt in procuring the loan or the legal effect of the alleged fraud, dismissed the petition. Upon a certificate of review the District Court affirmed the action of the referee. Globe's petition for leave to file the pending appeal followed.

It is the appellant's contention that, upon a creditor's application (even in advance of an order discharging a bankrupt), a referee in bankruptcy is under a legal duty to determine whether the creditor's claim against the bankrupt is dischargeable. In circumstances not materially distinguishable from those present in the instant case, the Court of Appeals for the First Circuit answered a similar contention adversely to the petitioning creditor. Watts v. Ellithorpe, 135 F.2d 1, 2. The appellant has failed to advance any persuasive reason why we should come to any different conclusion.

The appellant argues that the decision in Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 698, 78 L.Ed. 1230, 93 A.L.R. 195, accords a creditor of a bankrupt a legal right to have the non-dischargeability of his claim determined by the bankruptcy court even before the entry of an order discharging the bankrupt. We do not so construe the Supreme Court's ruling in the Local Loan case. The question there was not as to a creditor's right to a determination with respect to the effect of his debtor's discharge as a bankrupt. The bankrupt in the Local Loan case had been discharged prior to his application to the bankruptcy court for an order defining the effect and scope of his discharge. Obviously, the duty resting upon a bankruptcy court in such regard, prior to the entry of a discharge, was not even inferentially involved. The Supreme Court held that a bankruptcy court has jurisdiction, as a court of equity, to protect and effectuate its order of discharge by enjoining the prosecution of suits against the debtor but said that, — "It does not follow, however, that the bankruptcy court was bound to exercise its authority. And it probably would not and should not have done so except under unusual circumstances such as here exist." The "unusual circumstances" which existed in the Local Loan case were that "the wholly disproportionate trouble, embarrassment, expense, and possible loss of employment", which the bankrupt faced from the many suits instituted against him in the State courts (with probable appeals), would have rendered his right to plead his discharge in defense an inadequate remedy. But even in such circumstances the jurisdiction exercisable by a bankruptcy court is discretionary. That such is the intent of the ruling in the Local Loan case has elsewhere been so construed. In re Devereaux, 2 Cir., 76 F.2d 522, 523.

A fortiori, must the jurisdiction of the bankruptcy court be discretionary, when, as here and as in Watts v. Ellithorpe, supra, the invocation is by a creditor to have the non-dischargeability of its debt...