In re Benny

Decision Date14 April 1983
Docket NumberBankruptcy No. 3-82-00973-LK.
Citation29 BR 754
CourtU.S. District Court — Northern District of California
PartiesIn re George I. BENNY and Alexandra Benny, husband and wife, Debtors.



Richard M. Grant, Krause, Timan, Baskin, Shell & Grant, Larkspur, Cal., Kevin F. Bernie, San Francisco, Cal., for debtors George & Alexandra Benny.

Vernon D. Stokes, Stokes & Welch, San Francisco, Cal., for trustee John England.

PECKHAM, Chief Judge.


George I. Benny is currently under indictment on charges of mail fraud, in violation of 18 U.S.C. § 1341, and racketeering, in violation of 18 U.S.C. § 1962(c). Mr. Benny's estate is presently subject to a Chapter 7 proceeding in bankruptcy court. The criminal action was proceeding to trial on April 14 when, in early March, Mr. Benny discovered that the trustee in bankruptcy, Mr. John England, had caused Mr. Benny's mail to be rerouted from his business and residence addresses to the office of the trustee since mid-February, without providing Mr. Benny either notice or opportunity to object. This mail redirection, once discovered, occasioned a motion by Mr. Benny for myriad relief in the criminal action, i.e., for dismissal of the indictment, a continuance of the trial date, protective orders concerning the mail redirection and an evidentiary hearing in which evidence of the existence and impact of the mail redirection would be presented.

This court conducted such an evidentiary hearing on March 15, 1983, to investigate the extent of the mail redirection and its possible effect upon Mr. Benny's ability to defend himself in the criminal action. From affidavits submitted in advance of, and after, the hearing and from testimony elicited at the hearing itself, the following emerged:1

In mid-February, Mr. England filed three requests for change of address with the United States Postal Service; those notices requested that the mail of Mr. George I. Benny and Mrs. Alexandra Benny be rerouted from 115 Red Rock way, San Francisco (Mr. Benny's business address), 2135 Ralston Avenue, Hillsborough (the Benny's residence) and The River Inn, 9400 W. 4th St., Reno, Nevada, to the trustee's office at 55 New Montgomery Street, # 626, San Francisco.2 Mr. England testified that he submitted, along with the change of address card, a copy of an order from the bankruptcy court approving his bond.3 He did not obtain an order from the bankruptcy court specifically approving the mail redirection nor did he provide Mr. Benny with notice and an opportunity to object to the redirection prior to its commencement.

At a creditors' meeting in bankruptcy court on March 4, over two weeks after the redirection had begun, Mr. England delivered to Richard Grant, Mr. Benny's bankruptcy attorney, a cardboard box containing 150 letters which had been redirected pursuant to the trustee's request. Mr. Grant's declaration indicates that Mr. England stated that, as trustee in the pending bankruptcy proceeding, he had the right to operate the business of Mr. Benny and, accordingly, had the right to receive any mail addressed to that business. Ted Cassman, co-counsel for Mr. Benny in the criminal action, examined this mail and determined that it contained:

1) three letters from Richard Jaeger (Mr. Benny\'s trial counsel) to Mr. Benny concerning the progress of the criminal proceedings.
Each was addressed to Mr. Benny at his home and not to Red Rock Way;
2) several letters from Joseph Eisenberg, a Los Angeles attorney who represents Mr. Benny in the bankruptcy proceedings;
3) several responses from creditors and other interested parties to Mr. Benny\'s overtures concerning the possibility of settling their claims against him and having his affairs taken out of bankruptcy;
4) at least five letters from other attorneys who represent Mr. Benny in other civil matters;
5) approximately 30 to 40 notices of delinquency and of default on various loans, mortgages, utility bills, telephone bills, and credit cards;
6) many personal letters addressed not only to Mr. Benny, but also to his wife, Alexandra, his daughter and his son.

Thus, although the redirection requests purportedly related only to Mr. and Mrs. Benny, mail addressed to Mr. Benny's daughter and son was also intercepted.4 Mary Ann Benny and George I. Benny, Jr., are not debtors in the bankruptcy proceedings. Many of these documents were submitted in evidence during the hearing.5

Mr. England's secretary testified that she routinely opened all mail that was delivered to the trustee's office, scanned it to ascertain its nature,6 discarded the envelopes, and placed it on the trustee's desk. She customarily signed for certified mail which required a signature and a return receipt. Mr. England denied having read any communications between Mr. Benny and his attorneys, with the exception of one letter from Mr. Eisenberg, formerly Mr. Benny's bankruptcy attorney, in which he stated his reasons for withdrawing as attorney in the bankruptcy proceedings. The testimony was conflicting concerning Mr. England's awareness that he was receiving Mr. Benny's personal, as well as business, mail.

On the basis of the foregoing evidence, Mr. Benny proffered two arguments in support of the requested relief. First, he contended that the mail redirection had substantially frustrated his communication with his attorneys in the criminal action and thus had hindered his ability to answer the charges against him. The mail redirection, he averred, significantly delayed the transmission of important information and documents and created an atmosphere of mutual distrust, which damaged the attorney-client relationship.

Second, Mr. Benny suggested that privileged information may have been transmitted to the government by indirect routes. Testimony at the hearing established that Mr. Stokes, counsel for the trustee, had, pursuant to statute, 11 U.S.C. § 704(6), conveyed information pertaining to Mr. Benny's estate to Chicago Title Insurance Company, purportedly Mr. Benny's most substantial creditor. Mr. Benny further alleged that Chicago Title in large part precipitated, and assisted in, the criminal proceeding and, hence, that privileged information flowing from Mr. England and Mr. Stokes to Chicago Title had been provided to the government. However, toward the conclusion of the hearing, United States Postal Inspector David Smith testified that he, alerted by an article in the San Francisco Examiner, had initiated the investigation of Mr. Benny and had contacted the United States Attorney's office, which resulted in the instant prosecution.

Following the hearing, Mr. Benny filed a supplemental memorandum, reiterating his requests for a trial continuance, and requesting further that the court remove the present trustee, appoint a new trustee, stay the bankruptcy proceedings,7 enjoin further diversion of mail and reserve the issue of possible dismissal of the indictment.

On March 24, this court granted Mr. Benny's motion for a two-month trial continuance8 and, by separate order, temporarily restrained the trustee from continuing to divert the mail of George I. and Alexandra Benny from any address but that of 115 Red Rock Way.9 Mr. Benny was required to notify his attorneys to direct their correspondence to another address and to deliver to the trustee all business-related mail not addressed to him from his attorneys. The court did not rule on the motion to dismiss but noted that the present record did not support Mr. Benny's claim that he had suffered irreparable prejudice10 in his efforts to prepare a defense nor his theory that information relevant to the criminal proceeding had flowed from the trustee to Mr. Stokes, from Mr. Stokes to Chicago Title and from Chicago Title to the government or that either Mr. Stokes or Mr. England had directly communicated such information to the government. During a hearing on March 25, the court denied the Mr. Benny's motion to dismiss without prejudice to his right to seek dismissal in the futuree future should further evidence come to light.11

Subsequently, Mr. Benny, through his counsel in the bankruptcy action, moved this court, pursuant to General Order Number 24, to withdraw the entire bankruptcy proceeding from the bankruptcy court, to remove the trustee and to vacate the order of Bankruptcy Judge King requiring the Bennys to remove themselves from their Ralston Avenue residence. On April 5, this court conducted a hearing on the above motions. After considering the arguments and evidence adduced therein, we concluded that the record did not support Mr. Benny's contentions concerning the pervasiveness of the alleged "taint" resulting from the mail redirection. The trustee did, admittedly, act improperly in reading the previously-described letter from Mr. Eisenberg. However, this act of malfeasance was not sufficiently egregious to justify this court in removing a trustee who has performed competently and to the satisfaction of all creditors since he was appointed, nor has that act demonstrably affected the integrity of the bankruptcy proceeding. Aside from this transgression, Mr. England, in redirecting the mail, has merely followed a practice which has been uniformly utilized by trustees for decades. We impute no pernicious motive to the trustee in his adhering to this practice; rather, we wish to address the merits of the practice itself, both generally, and in the specific context of this case.

Therefore, although we otherwise deny the present motions for relief in the bankruptcy proceedings, see Order of April 5, we have determined to withdraw from those proceedings the limited issue of the extent of the trustee's power to redirect mail. While the issue was originally raised in the criminal proceeding, we conclude that we may more suitably address the matter within the bankruptcy context, having obtained limited jurisdiction thereof by means of a selective withdrawal of...

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