In re Marcus, 91332.

• Decision Date: 07 March 1957
• Docket Number: No. 91332.,91332.
• Citation: 149 F. Supp. 496
• Parties: In the Matter of Pincus MARCUS, Bankrupt.
• Court: U.S. District Court — Southern District of New York

149 F. Supp. 496

In the Matter of Pincus MARCUS, Bankrupt.

No. 91332.

United States District Court S. D. New York.

March 7, 1957.

Seaver & Feigenbaum, New York City, for objecting creditor, New York Credit Men's Adjustment Bureau, Inc., as Trustee in Bankruptcy of P. M. Undergarment Corp., Irving J. Seaver, New York City, of counsel.

Curran, Mahoney, Cohn & Stim, New York City, for bankrupt, Menahem Stim, John F. Kelly, New York City, of counsel.

FREDERICK VAN PELT BRYAN, District Judge.

This is a petition for review of an order of the Referee in bankruptcy discharging the bankrupt.

Petitioner, New York Credit Men's Adjustment Bureau, Inc., is the Trustee in bankruptcy of P. M. Undergarment Corporation, and as such Trustee is a judgment creditor of the bankrupt Marcus.

Marcus was adjudicated a bankrupt on his voluntary petition on September 30, 1955. Specifications of objection to his discharge were filed by petitioner in due course. After a hearing on the specifications the Referee made findings which in effect overruled them and entered the order dismissing the specifications and discharging the bankrupt.

Marcus had been the sole stockholder, president and principal officer of P. M. Undergarment Corporation and controlled its affairs. The P. M. Undergarment Corporation was adjudicated a bankrupt in 1953 and petitioner was duly elected its Trustee in Bankruptcy. As such Trustee petitioner obtained a judgment of $88,000 against Marcus which was listed by Marcus in his schedules in the instant proceeding and represented considerably more than half of his scheduled non-tax liabilities.

There were two specifications of objection passed upon by the Referee, others having been withdrawn. The first alleged that discharge was barred by § 14 sub. c(6) of the Bankruptcy Act, 11 U.S. C.A. Chap. 3, § 32, sub. c(6), because, in the bankruptcy proceedings of P. M. Undergarment Corporation, Marcus had refused to answer material questions approved by the Court. The second alleged that discharge was barred by § 14, sub. c(3) of the Act, 11 U.S.C.A. Chap. 3, § 32, sub. c(3), since Marcus had obtained property by making a materially false statement in writing concerning his financial condition.

As to the first specification.

At the adjourned first meeting of the creditors of P. M. Undergarment Corporation on May 26, 1953, Marcus was examined as a witness called by the Trustee and was asked a number of questions relating to the property and affairs of the bankrupt. The questions were plainly material to the proceedings and concerned matters on which he, as president and in sole control of the corporation, must have had knowledge. Marcus refused to answer practically all of them pleading privilege against self-incrimination. The questions were then specifically approved by the Referee as to both form and merits and Marcus was directed to answer. He still refused to answer upon the same grounds. Petitioner claims in its first specification that these acts barred Marcus' discharge under § 14, sub. c(6) of the Bankruptcy Act.

Section 14, sub. c, provides that the Court shall grant the discharge unless satisfied that the bankrupt has committed any of the acts specified in subdivisions (1) through (7) of that sub-section. The act specified in Subdivision (6) of § 14, sub. c, is that the bankrupt has "in the course of a proceeding under this Act refused to obey any lawful order of, or to answer any material question approved by, the court."

It is plain that Marcus refused to answer a number of material questions approved by the Court in the P. M. Undergarment proceeding. The question is whether such refusal barred his discharge under the circumstances of this case.

The learned Referee concluded his discharge was not barred because the refusal of Marcus to answer material questions approved by the Court had taken place in the course of the bankruptcy proceedings of P. M. Undergarment Corporation and not in the bankruptcy proceedings of Marcus himself. He felt constrained to reach this conclusion on the basis of the opinion of the Court of Appeals of this Circuit in Raphiel v. Morris Plan Industrial Bank of New York, 2 Cir., 146 F.2d 340, 341, which stated that its previous decision on this subject in In re Lesser, 2 Cir., 234 F. 65, was overruled as an "obviously unsound precedent". This, the Referee felt, indicated the correctness of the decision of the District Court in the Lesser case, D.C., 232 F. 368, which had been reversed by the Court of Appeals in 234 F. 65. As he construed the holding of the District Court in the Lesser case he felt that it bound him to hold that the discharge of bankrupt could not be barred unless he had refused to answer questions in his own personal bankruptcy proceeding.

I disagree with the conclusion reluctantly reached by the Referee. I think that the Bankruptcy Act bars discharge of the bankrupt under the circumstances of this case. It does not seem to me that either the Raphiel case or the decision of the District Court in the Lesser case compels any different conclusion.

Section 14, sub. c(6) provides that refusal to answer material questions "in the course of a proceeding under this Act" bars discharge. The bankruptcy proceeding of the P. M. Undergarment Corporation was certainly "a proceeding under this Act." The bankrupt refused to answer material questions approved by the Court in the course of that proceeding. There is nothing in the literal language of the statute precluding barring of discharge under these facts.

Moreover the refusal to answer in the case at bar took place in the bankruptcy of a corporation of which the bankrupt was the president, director and sole stockholder, and the affairs of which he controlled. Section 7, sub. b, of the Act, 11 U.S.C.A. § 25, sub. b, provides that:

"Where the bankrupt is a corporation, its officers, members of its board of directors or trustees, * * * its stockholders * * *, or such of them as may be designated by the court, shall perform the duties imposed upon the bankrupt by this Act."

The duties of the bankrupt required to be performed by officers of a bankrupt corporation under § 7, sub. b, are specified in § 7, sub. a, which provides in subdivision (10) that the bankrupt shall:

"at the first meeting of his creditors, * * *, submit to an examination concerning the conducting of his business, the cause of his bankruptcy, his dealings with his creditors and other persons, the amount, kind, and whereabouts of his property, and, in addition, all matters which may affect the administration and settlement of his estate."

Marcus, in the bankruptcy of his wholly owned and controlled corporation, in refusing to testify as to the material questions approved by the Referee, failed and refused to perform one of the duties expressly imposed upon him by the Bankruptcy Act itself as the principal and directing officer of the bankrupt corporation.

The judgment creditor of Marcus who is objecting to his discharge is the Trustee in Bankruptcy of that corporation having a judgment against Marcus individually for some $88,000 which plainly arose out of Marcus' dealings with the corporate bankrupt.

This case does not present the broad question of whether a bankrupt is barred from discharge because at any prior time, or under any circumstances, or in any proceeding in bankruptcy other than his own, the bankrupt refused to answer material questions. The question here is whether the bankrupt's discharge is barred where he refused to answer material questions in the course of the bankruptcy proceeding of a corporation which he wholly owned and controlled, in which he had the duty under the Act as the principal officer to answer such questions, and where he was personally indebted to a judgment creditor who is Trustee in Bankruptcy of that corporation upon a large debt arising out of his dealings with the corporation.

As I view them, neither the Raphiel or Lesser cases hold that the answer to the question presented here should be to discharge the bankrupt.

In the Raphiel case objections were made to the discharge of the bankrupt in his personal bankruptcy proceeding in 1943 upon the ground that it was barred under § 14, subdivision c(1) of the Bankruptcy Act because he had committed a crime punishable by imprisonment under then § 29 of the Act, now 18 U.S.C. § 152. The crime for which bankrupt had been convicted was the fraudulent concealment of assets from his Trustee in Bankruptcy in a prior bankruptcy proceeding in 1928, and the destruction of documents relating to his affairs as a bankrupt in that proceeding. No application for discharge had been made or granted in the 1928 proceeding. The bankrupt had listed in the 1943 proceeding both his debts incurred since the 1928 proceeding, and his scheduled debts in the 1928 proceeding.

The Referee denied discharge as to all creditors of the bankrupt, both those whose claims had been filed in the 1928 proceeding and those whose claims had arisen subsequent thereto. The District Court affirmed. The Court of Appeals reversed, holding that the bankrupt should be granted discharge from all debts except those involved in the 1928 proceeding, but that he was barred from discharge as to the 1928 debts.

The Court stated, 146 F.2d at page 340:

"Under § 14, sub. c of the Bankruptcy Act, 11 U.S.C.A. § 32, sub. c, there are seven grounds for refusing a discharge. Where a discharge is barred under § 14, sub. c(2-7) because of a wrongful act of the debtor, a future discharge will be denied only in regard to those who were creditors at the time that the wrongful act occurred, or became creditors within the time specified by the Act. But the doctrine adopted by the district court would prevent the discharge in bankruptcy as to all creditors for all time when the wrong committed is a bar under § 14, sub. c(1). Neither § 14, sub. c nor any other provision of the Act makes such a differentiation, and there is

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