In re Madway, 25662.
| Decision Date | 23 December 1959 |
| Docket Number | No. 25662.,25662. |
| Parties | Matter of A. Alan MADWAY and Nathan Raynes, Individually and trading as Washington Lumber & Millwork Co., Bankrupts. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Sidney Chait, Goff & Rubin, Philadelphia, Pa., for petitioner. Miller, Adelman & Lavine, Philadelphia, Pa., for bankrupts.
This matter is before the Court on a Certificate of Review taken by a creditor of the bankrupts objecting to their discharge. A. Alan Madway and Nathan Raynes, individually and trading as Washington Lumber & Millwork Company, filed a voluntary petition in bankruptcy on November 28, 1958. Originally appointed as receiver, B. Paul Pillion was thereafter elected trustee by the creditors. The history of the partnership shows that it had been formed in 1946 and in the five-year period prior to July 1, 1957, had operated successfully with an average profit in excess of $50,000 per year. On July 1, 1957, the partnership had a listed inventory in the amount of $306,265.34 and a net worth of $270,527.52. At the date of the filing of the petition in bankruptcy (seventeen months later) the partnership had an inventory of $100,000 and a net deficit in the amount of $295,634.51 — thus establishing a gross loss suffered by the bankrupts of $566,162.03 in this 17 months prior to bankruptcy.
The trustee originally filed objections to the discharge on the grounds that the bankrupts had failed to satisfactorily explain the loss of assets as required by § 14, sub. c(7) of the Bankruptcy Act, Title 11 U.S.C.A. § 32. A hearing was held on the trustee's objection. The Referee thereafter filed his opinion and order granting the discharges. He ruled that bankrupts' explanation was "satisfactory" within the meaning of the statute (§ 14, sub. c(7)). That evidence consisted of what might be termed the best evidence of losses in the operation of a business; namely, the books and records of the business supported by the bankrupts' "explanation".
The record indicates that bankrupts' own explanation was given in the first general meeting of creditors. No testimony was adduced by bankrupts at the hearing on the discharge, although Madway was present and available for call by any party. The explanation advanced by the bankrupts was that the partnership engaged in a radical, but unsuccessful, price-cutting promotion in order to meet competition and attract new business. At the same time the bankrupts explained that the partnership was saddled with tremendous fixed operating overhead charges as a result of the operation of three separate places of business, plus extremely high fixed mortgage and lease payments. This combination soon proved fatal to the business.
The petitioning creditor, having unsuccessfully requested the trustee to appeal the Referee's decision, filed an appeal in this Court. He maintains that (1) the facts here (i. e., sudden and substantial depletion of assets immediately prior to bankruptcy) raise a prima facie case under § 14, sub. c(7), thus shifting the burden to the bankrupt to come forward with evidence to satisfactorily explain his bankruptcy; (2) the testimony of the bankrupt taken at the general examination and not made part of the record in the discharge hearing cannot be considered by the Referee as evidence in the discharge proceeding; and (3) at any rate the bankrupt has not satisfactorily explained his sudden losses as required by § 14, sub. c(7).
The bankrupts argue (1) that petitioner has no standing to file a petition for certificate of review of a referee's order dismissing the trustee's objection to discharge, since the trustee himself had refused to do so, and (2) he had, at any rate, satisfactorily explained his losses. These contentions will be briefly discussed below.
The basis of the right to object to the discharge of a bankrupt is found in Title 11 U.S.C.A § 67, sub. c which provides that, "a person aggrieved by an order of a referee may * * * file with the referee a petition for review of such an order by a district court judge * * *." See also Title 11 U.S.C.A. § 32, sub. b. This language is very broad. There are numerous instances in which a single creditor having originally objected to the discharge has been allowed to petition for review under this section. Losey v. Losey, 9 Cir., 1953, 204 F.2d 684; In re Dockins, 7 Cir., 1939, 107 F. 2d 33; In re Hochberg, D.C.W.D.Pa. 1936, 17 F.Supp. 916. Although the section authorizes a trustee to object, this does not take away the right of an individual creditor to independently oppose the discharge. In re Ruhlman, 2 Cir., 1922, 279 F. 250. However, there appears to be no case specifically granting review to an individual creditor where only the trustee originally protested to the discharge and thereafter failed to seek review.
Section 67, sub. c, which was formerly Rule 27 of the Bankruptcy Act, has been liberally construed and is not intended to limit the jurisdiction of the district court. Biggs v. Mays, 8 Cir., 1942, 125 F.2d 693. Rather, it was intended to provide a means for speedy review. In re Stark Shoe Co., Inc., D.C. N.H.1942, 46 F.Supp. 899, and to obviate the need for petitioning the court for permission to seek review, In re Ragozinno, D.C.E.D.N.Y.1941, 37 F.Supp. 524. It in no way affects a district court's discretion to allow such a review where certain provisions of the section have not been met. In re Ragozinno, supra.
The bankrupts' position in this regard (petitioner's standing to proceed here) must be rejected. The plain language of Title 11 U.S.C.A. § 67, sub. c would appear to be broad enough to authorize such a petition. Moreover, the discharge of a debtor is the essence of the Bankruptcy Act and it affects every party to the proceedings. The right of such a party to be heard in such a matter would appear to outweight any danger of inconvenience or delay to the bankrupt. The same does not appear to hold true with regard to those matters involved in the cases in which the...
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In re Capitano
...former cannot participate in the bankruptcy distributions. Nor is the trustee alone the proper person to file the petition. In re Madway, E.D.Pa.1959, 179 F.Supp. 400, a well-considered opinion by Judge Clary, relates to this problem, though it does not indicate whether the petitioning cred......