In re Berke

• Decision Date: 06 October 1972
• Docket Number: No. 69 B 343.,69 B 343.
• Parties: In the Matter of Robert D. BERKE, Bankrupt.
• Court: U.S. District Court — Eastern District of New York

350 F. Supp. 326

In the Matter of Robert D. BERKE, Bankrupt.

No. 69 B 343.

United States District Court, E. D. New York.

October 6, 1972.

Chester A. Lessler, New York City, for bankrupt.

Hahn, Hessen, Margolis & Ryan, New York City, for trustee, by William R. Fabrizio, New York City, of counsel.

RE, Judge:^*

This is a petition to review an order of the Referee in Bankruptcy which sustained certain objections to the discharge of the bankrupt, and ordered that the discharge be denied.

Robert D. Berke, a salesman, was adjudicated a bankrupt on his voluntary petition filed on April 17, 1969. Bankruptcy Act, § 18.f. The case was referred to a Referee in Bankruptcy. Bankruptcy Act, § 22.a. The list of the bankrupt's creditors which he filed with his petition, as required by § 7.a.(8) of the Bankruptcy Act, shows that he was required to seek relief under that Act because he had personally guaranteed the obligations of Prime Knits, Inc., a corporation in which he held a one-third stock interest, and which failed financially.

Ralph Heyman, Esq., was appointed trustee in bankruptcy. Bankruptcy Act, § 44.a. On November 9, 1970, the trustee in bankruptcy filed with the Referee in charge of the case twenty four specifications of objections to discharge. After a lengthy trial, the Referee in Bankruptcy sustained the objections numbered I through V, inclusive. The other objections were either not sustained or were withdrawn by the trustee. On October 27, 1971, having sustained objections to the discharge of the bankrupt, the Referee in Bankruptcy made an order which provided that the discharge of Mr. Berke be denied. Bankruptcy Act, § 14.c.(1). It is this order which is now before the court on this petition to review. Bankruptcy Act, § 39.a.(8).

The first four specifications of objections to discharge relate to the bankrupt's transactions pertaining to a one-family residence located at 3 Woodland Gate, Syosset, New York. The fifth objection to discharge relates to the bankrupt's treatment of an income tax refund in the sum of $1,339.57.

Specifications I and V accuse Mr. Berke of the commission of offenses punishable by imprisonment, as provided under Title 18, United States Code, Section 152. Specifically, he is accused of the knowing and fraudulent concealment from the trustee in bankruptcy of property belonging to the estate of the bankrupt, viz., an interest in the real estate located at 3 Woodland Gate, Syosset, New York, and the income tax refund in the sum of $1,339.57. Specification II accuses Mr. Berke of knowingly and fraudulently omitting from the schedule of his property an interest in that real estate. Specification III alleges that the bankrupt further violated Title 18, U.S. C. § 152, in that, in contemplation of his bankruptcy proceedings, he knowingly and fraudulently transferred his interest in premises 3 Woodland Gate to his parents. Specification IV alleges that that transfer of real property to the bankrupt's parents was made with intent to defeat the bankruptcy law, knowingly and fraudulently.

In limine, on this petition to review the order of the Referee in Bankruptcy pursuant to Section 39.c. of the Act, it is appropriate to refer to the scope of the review. This is not a trial de novo; the question is not what this court would have found on the evidence which was before the Court of Bankruptcy. In Re Cox, 244 F.Supp. 430 (W.D.Mo.1965). The "clearly erroneous" rule applies by virtue of the express mandate of General Order 47. "The judge shall accept (the referee's) findings of fact unless clearly erroneous." See, 2 Collier on Bankruptcy, ¶ 39.28 (14th ed. 1967).

It should be noted that if the presumption of correctness, and the "clearly erroneous" rule were to make findings of fact conclusive, judicial review would be a mere empty right. Judicial review, however limited in scope, must be meaningful. As has been stated by Justice Reed, in an analogous situation "a finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1947). The presumption of correctness, however, which applies to a referee's findings of fact, does not apply to his conclusions of law. In Re Dejay Stores, Inc., 220 F.Supp. 497 (S.D.N.Y.1963).

A statement of the essence of the clearly erroneous rule is a simple matter. Its application is often difficult and complex. It has been said that, "of course, with regard to the findings of law or the application of a legal standard to fact . . ., this Court is in no wise bound by the Referee's decision." In Re Anjopa Paper & Board Manufacturing Co., 269 F.Supp. 241, 250 n. 3 (S.D.N.Y.1967).

Little can be added to Judge Friendly's scholarly discussion of the nuances of the clearly erroneous rule found in In Re Hygrade Envelope Corp., 366 F.2d 584 (2d Cir. 1966). In the present case the court is of the opinion that the review of the Referee's order is uniquely analogous to the question presented in In Re Hygrade Envelope Corp., where Judge Friendly, at page 588, stated:

"To be sure, an appellate court must respect findings of the trial judge as to what in fact happened and in addition should give due weight to his superior opportunity to acquire the true feel of the case, . . . . But when the issue is his application of a legal standard to facts undisputed or reasonably found, reversal is not limited to results that are `clearly erroneous'; it is enough that the appellate court should be convinced . . . that the result does not jibe with the applicable rule of law.4"

In footnote 4 of that opinion, Judge Friendly stated further:

"Although reversal in such a case could often be deemed justified under the principle that the `unless clearly erroneous' rule does not protect when the reviewing court has `the definite and firm conviction that a mistake has been committed,' United States v. United States Gypsum Co., 333 U.S. 364, 394-395, 68 S.Ct. 525, 92 L.Ed. 746 . . . clarity is promoted by recognizing that the application of a legal standard to the facts is not a `finding of fact' within the rule."

The court, in the case at bar, is of "the definite and firm conviction that a mistake has been committed" and "that the result does not jibe with the applicable rule of law."

In this petition for review where "conclusions of law" are in reality findings of fact, they will be treated as factual findings rather than legal conclusions.

The Referee's findings of fact and conclusions of law, pertinent to the objections to discharge which were sustained, are as follows:

Findings of Fact

1. On the 17th day of April, 1969, Robert D. Berke filed a voluntary petition in bankruptcy in this Court and was adjudicated bankrupt on that day.

2. In September 1961, the bankrupt purchased a one family dwelling located at 3 Woodland Gate, Syosset, New York. Title was taken in the name of the bankrupt and his wife, Rhoda Berke. The purchase price was $22,000. of which $14,000. was paid in cash above an existing mortgage in the sum of $8,000.00 held by the Dime Savings Bank. (S.M. p. 45).

3. At the time of his purchase of his dwelling the bankrupt borrowed the sum of $10,000. from his father Ben Berke, which was used as part of the cash down payment.

4. No note or other documentary evidence of this loan was not sic given by the bankrupt to his father. (S.M. p. 14).

5. The bankrupt paid his father interest on the aforesaid loan at the rate of 4½% to 5% per month by checks in sums of $37.50 to $42. (S.M. pp. 294-298, 343-346, Exh. E).

6. In or about March 29, 1968, Ben Berke obtained a check in the sum of $6000. from Rose Stern, his mother-in-law and endorsed it over to the bankrupt. (S.M. p. 12).

7. The bankrupt claims this $6000. was an additional loan from his father. (S. M. pp. 10-15).

8. By deed dated March 29, 1968, and recorded in the Nassau County Clerk's Office on April 8, 1968, one year and nine days prior to the filing of the voluntary petition in bankruptcy herein, the bankrupt and his wife, conveyed their interest in their home to his parents, Ben and Beatrice Berke.

9. At all times from September 1961 through this date, the bankrupt and his wife resided and continues sic to reside in the property, making all payments for maintenance and repairs of the dwelling, (S.M. pp. 153-156) except payments of principal and interest on the first mortgage and insurance premiums which were made by Ben Berke.

10. At the time of the transfer of the property, as aforesaid, the bankrupt was indebted to various persons in an amount in excess of $150,000. (S.M. pp. 161, 162, 261, 262, 263).

11. The consideration and reason for the transfer of the real property by the bankrupt and his wife to his parents were as testified to by the bankrupt:- (S.M. pp. 136-137).

"The Referee: What was the reason for executing this deed?

The Witness (bankrupt): Well, the original $10,000.00 loan, Your Honor, when the house was purchased in 1961, plus the fact that my parents also loaned me more money after the business had gone bankrupt, and I didn't have a job for about three months— in other words, there was a total sum of $16,000.00 that I was indebted to them for.

The Referee: But why did you execute this deed?

The Witness: Well, my father and mother wanted to be protected because I was in bankruptcy or the business had gone into bankruptcy, and I probably had to declare personal bankruptcy, so they wanted their monies loaned from them to me to be protected. In other words, I told them, you know, that the $10,000.00—I asked them to loan me an additional sum of $6000.00 because I had bills and everything to pay, and that in return for that my wife and I would turn over the deed to the house to them."

12. Ben Berke, bankrupt's father, testified (S.M. pp. 322-323) as follows:—

"By

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