In re Cederbaum

• Decision Date: 23 May 1939
• Citation: 27 F. Supp. 1014
• Parties: In re CEDERBAUM.
• Court: U.S. District Court — Southern District of New York

27 F. Supp. 1014

In re CEDERBAUM.

District Court, S. D. New York.

May 23, 1939.

Lee Epstein, of New York City, for bankrupt (on this motion only).

Herman Koenigsberg, of New York City, for judgment creditor.

CONGER, District Judge.

This is an application on the part of the bankrupt herein for an order fixing the time within which his creditors may file objections to his discharge.

The adjudication was had on September 14, 1937. This petition was made and filed after eighteen months had elapsed since the petitioner's adjudication.

The problem which confronts the court is whether the provisions of Section 14a of the amendatory act, 11 U.S.C.A. § 32(a), shall be applied in a case where, on the effective date of the amendatory act, September 22, 1938, the time in which the bankrupt could file an application for a discharge under former Section 14a had expired.

Former Section 14a read as follows: "Any person may, after the expiration of one month and within twelve months, subsequent to being adjudged a bankrupt, file an application for a discharge in the court of bankruptcy in which the proceedings are pending, if it shall be made to appear to the judge that the bankrupt was unavoidably prevented from filing it within such time, it may be filed within but not after the expiration of the next six months." 44 Stat. 663, 11 U.S.C.A. § 32(a).

Section 14a of the amendatory act, so far as material, provides that: "The adjudication of any person, except a corporation, shall operate as an application for a discharge * * *."

And Section 14b of the same act reads as follows: "After the bankrupt shall have been examined, either at the first meeting of creditors or at a meeting specially fixed for that purpose, concerning his acts, conduct, and property, the court shall make an order fixing a time for the filing of objections to the bankrupt's discharge, notice of which order shall be given to all parties in interest as provided in section 58 94 of this Act title. Upon the expiration of the time fixed in such order or of any extension of such time granted by the court, the court shall discharge the bankrupt if no objection has been filed; otherwise, the court shall hear such proofs and pleas as may be made in opposition to the discharge, by the trustee, creditors, the United States attorney, or such other attorney as the Attorney General may designate, at such time as will give the bankrupt and the objecting parties a reasonable opportunity to be fully heard."

Section 6b of the amendatory act of the Chandler Act, 11 U.S.C.A. § 1 note, reads as follows: "Except as otherwise provided in this amendatory Act, the provisions of this amendatory Act shall govern proceedings so far as practicable in cases pending when it takes effect; but proceedings in cases then pending to which the provisions of this amendatory Act are not applicable shall be disposed of conformably to the provisions of said Act approved July 1, 1898, and the Acts amendatory thereof and supplementary thereto."

The first question to be decided is whether amended Section 14a can be applied, and if so, whether it is practicable to apply such provisions to the instant case.

It is settled that the failure of a bankrupt to apply for a discharge in the prior proceedings precludes him from procuring a discharge in subsequent proceedings from the debts scheduled and provable in the prior proceedings. Armstrong et al. v. Norris, 8 Cir., 247 F. 253, 40 Am.Bankr. Rep. 735; In re Moore, et al., D.C., 36 F.2d 429; In re McMorrow, D.C., 52 F.2d 643, 18 Am.Bankr.Rep.,N.S., 607; In re Brislin, D.C., 10 F.Supp. 181, 28 Am.Bankr.Rep.,N. S., 433. Such failure to apply for a discharge is a conclusive determination as to all parties then before the court, on the principle of res adjudicata. In re Von Borries, D.C., 168 F. 718, 21 Am.Bankr.Rep. 849. The failure of a bankrupt to file his application for discharge within the specified time is in effect a denial of his right to a discharge and in effect a judgment against him by default, which the court is powerless to open. In re Moore, supra.

In Armstrong et al. v. Norris, supra, the court said 247 F. 255, 40 Am.Bankr. Rep. 735: "Furthermore, a discharge must be affirmatively sought, as prescribed in the Bankruptcy Act. It is not granted as of course without application, and a failure to apply has the same effect as a denial of the right. The right is foreclosed by default, and will not thereafter be granted in another proceeding. Kuntz v. Young 8 Cir., 65 C.C.A. 477, 131 F. 719; Siebert v. Dahlberg 8 Cir., 134 C.C.A. 460, 218 F. 793, and cases cited."

The general view, that a failure to apply for a discharge within the statutory period bars an application under a second proceeding for a discharge from the same debts, is supported by obiter, in Freshman v. Atkins, 269 U.S. 121, 46 S.Ct. 41, 70 L.Ed. 193, where the court said: "Denial of a discharge from the debts provable, or failure to apply for it within the statutory time, bars an application under a second proceeding for discharge from the same debts." (Cases cited).

It is clear from the foregoing that the rights of all parties became fixed and determined at the expiration of the statutory time in which the application for a discharge could be filed. The rights of creditors as against the bankrupt became vested, and the bankrupt thereafter could never obtain a discharge from the debts provable in that bankruptcy proceeding.

Statutes will be interpreted prospectively unless the language admits of no other construction. In re John G. Gasteiger & Co., Inc., 2 Cir., 25 F.2d 642, 643. In that case, from an order affirming an order of the Referee in Bankruptcy disallowing priority to the claim of the Fidelity & Deposit Company of Maryland, the claimant appealed. Under the law as it stood, when the petition in bankruptcy was filed, when the order of adjudication was entered, and when the time expired within which claims could be filed, the claim had no priority. The appellant contended, however, "that, since by the amendment of May 27, 1926, to section 64(b) (7) of the Bankruptcy Act (11 U.S.C.A. § 104), claims of the United States were preferred, and since, under section 18 of the same statute (11 U.S.C.A. § 1 note) it was to `govern' pending cases, `so far as practicable and applicable'", and since claimant was subrogated to the claim of the United States, which it had paid, the order was wrong. L. Hand, Circuit Judge, speaking for the Court said that creditors' rights had been settled in accordance with the law as it stood prior to the time when the amendment was passed, and that the Court was to decide whether the change in Section 64b (7) was "practicable and applicable" in the situation before it. After pointing out that the canon was well settled which interpreted statutes prospectively, unless the language used admitted of no other construction, and stating his reasons therefor, he said: "*** we are not sure that the clause, `so far as practicable and applicable,' means to go further than to make the amendments `applicable' to pending proceedings in matters of procedure, though perhaps it may. Even if it does, it gives the courts a wide discretion in determining when it is `practicable' so to apply it, and by `practicable' we understand that we must decide whether it is just to disturb vested rights."

Judge Hand, after a discussion of the problem, then said: "For these reasons, it seems to us that it is not `practicable' to apply retroactively section 64(b) (7) to cases where the claims have all been filed and the rights all fixed."

The question of "practicability" must be determined by the effect of the application of the provisions of the amendment upon vested rights, although it would appear that in a case such as this, the provisions of the amendatory act cannot be applied and no question of practicability can be involved.

In the matter of In re Messinger, 2 Cir., 29 F.2d 158, 159, 68 A.L.R. 1205, the question arose as to "whether the life insurance policies made payable to the bankrupt's wife, but in which he had reserved the right to change the beneficiary, became exempt from the claims of his creditors under the provisions of section 55a of the state Insurance Law Consol.Laws, c. 28", which became effective March 31, 1927.

In discussing the applicability of that section, Augustus N. Hand, Circuit Judge, speaking for the Court, said: "Section 55a of the state Insurance Law took effect March 31, 1927. It is unlikely that there were not creditors existing at that time, seeing that bankruptcy followed so soon after. To the creditors whose claims arose prior to the passage of the law, it would not apply. Not only is a retroactive statute which disturbs existing rights unlikely to have been intended, but a state law which deprives existing creditors of their rights to resort to property for payment of their claims would impair the obligation of contracts, and contravene section 10, article 1 of the Federal Constitution U....