In re Press Printers & Publishers

• Decision Date: 21 May 1926
• Docket Number: No. 3368.,3368.
• Citation: 12 F.2d 660
• Parties: In re PRESS PRINTERS & PUBLISHERS, Inc. BABCOCK PRINTING PRESS MFG. CO. v. MURPHY.
• Court: U.S. Court of Appeals — Third Circuit

12 F.2d 660 (1926)

In re PRESS PRINTERS & PUBLISHERS, Inc. BABCOCK PRINTING PRESS MFG. CO. v. MURPHY.

No. 3368.

Circuit Court of Appeals, Third Circuit.

May 21, 1926.

A. P. Bachman, of New York City, for appellant.

Leon E. Cone, of Morristown, N. J., for appellee.

Before BUFFINGTON and WOOLLEY, Circuit Judges, and CLARK, District Judge.

CLARK, District Judge.

This is an appeal from the District Court of the District of New Jersey, sitting as a court of bankruptcy. At the outset we feel constrained to comment upon certain practices revealed by the record in this case. We hope that they are not typical of the administration of bankruptcy in the district of New Jersey. Dates are emphasized, in the hope that a reference thereto at this time may have a salutary effect in the future. The meager character of the record on appeal has necessitated our going to the docket entries of the District Court and to the files of the referee in bankruptcy, before whom the case came in limine.

On January 30, 1923 (three years ago), an involuntary petition in bankruptcy was filed in the District Court against Press Printers & Publishers, Inc., job printers and publishers in Morristown, N. J. The same day an attorney at law of New Jersey was appointed receiver, we assume by authority of section 2 of the Bankruptcy Act (U. S. Comp. Stat. ž 9586). The petition upon which his appointment was made assigns two reasons therefor: First, that such receiver is necessary in order to effect insurance. This thought is based upon an entirely mistaken conception of the legal effect of the mere filing of a petition in bankruptcy. In law, the title, though defeasible, remains in the bankrupt until the trustee's qualification. Remington on Bankruptcy, ž 1381. An insurance company, therefore, may not raise the defense that the title has been transferred. Fuller v. New York Fire Ins. Co., 184 Mass. 12, 67 N. E. 879; Gordon v. Mechanics' & Traders' Ins. Co., 22 Am. Bankr. Rep. 649, 120 La. 441, 45 So. 384, 15 L. R. A. (N. S.) 827, 124 Am. St. Rep. 434, 14 Ann. Cas. 886.

The second reason assigned for the exercise of powers which section 2 of the Bankruptcy Act limits by the words "absolutely necessary for the preservation of estates" is in our opinion equally untenable. It is simply that the assets are in the control of the alleged bankrupt. There is no allegation that such control will result in the dispersal or destruction thereof at the hands of dishonest agents of the bankrupt company.

It does not appear that any notice of the petition for the appointment of the receiver was given to the alleged bankrupt or the creditors who might be interested therein. We are not blind to the occasional necessity for the appointment of a temporary receiver without notice; for instance, to prevent the fraudulent disposal of assets, or to preserve for the estate such assets as are perishable, either physically or legally. The facts moving the court to dispense with the otherwise essential notice should be set forth in full in a sworn petition. In this way only is it possible to punish an abuse of the court's confidence by prosecution for perjury. Collier on Bankruptcy (13th Ed.) p. 72. We said in Latimer et al. v. McNeal, 142 F. 451, 73 C. C. A. 567:

"Furthermore, there occur well-recognized instances of such urgency as to dispense with notice; as where irreparable loss or injury is impending, or where notice might defeat the very purpose of the receivership. We are, indeed, clearly of opinion that, except in rare cases, a receiver ought never to be appointed without notice to the alleged bankrupt."

Attention of the District Judges in New Jersey is called to the provision contained in section 2 of the Bankruptcy Act authorizing the appointment of the marshals of their court for the preservation of estates. It is suggested that the facilities offered by the marshal's office might be made available for the purpose of the economical custody of the property of alleged bankrupts. See In re Adams Sartorial Art Co. (D. C.) 101 F. 215.

On February 21, an order permitting the receiver to retain another attorney at law of New Jersey as his solicitor was entered. In this connection, attention is called to rule 32 of the Rules in Bankruptcy of the District Court in New Jersey, which provides that, "where a solicitor has been appointed receiver or trustee, no order authorizing the employment of counsel shall be made unless it clearly appears that litigation or other cause makes the same necessary or advisable." We believe that this is a wise regulation, and one which should be strictly adhered to by the court which promulgated it.

In the instant case there is no showing, in the petition requesting permission to retain counsel, that such authorization was in any way necessary. It is merely suggested that an examination under section 21a of the Bankruptcy Act (Comp. St. ž 9605) is to be held. We imagine that the receiver would be unwilling to confess his incompetence to conduct such an examination. We may say, also, that it is difficult for us to imagine any need for the appointment of two lawyers to solve the legal problems incident to the ordinary bankruptcy matter.

The reference under section 21a appears from the order to have been made to the referee as special master. Such reference is directly authorized by the rules of the District Court for the District of New Jersey. See rule 16d. Attention is directed to the express wording of section 21a, which permits persons to appear for examination "in court or before a referee or the judge of any state court." This section must be read in connection with section 72 of the Bankruptcy Act (U. S. Comp. Stat. ž 9656), which forbids a referee to receive any compensation for his services "in any form or guise other than that expressly authorized by the Bankruptcy Act." It would seem, therefore, that the rule of the District Court and the practice thereunder are in direct violation of law. We freely concede that the present compensation of referees may be inadequate, in view of the important service rendered by them. We believe that the remedy lies in amendment of the Bankruptcy Act.

On March 19, having been served by publication and having failed to appear and plead, the Press Printers & Publishers, Inc., was adjudicated a bankrupt under subsection (e) of section 18 of the Bankruptcy Act (U. S. Comp. Stat. ž 9602). The same day the case was referred to one of the referees of that court by a deputy clerk of the District Court.

We are frankly curious about this method of reference and are inclined to question its propriety. Subsection (f) of section 18 of the Bankruptcy Act permits a reference by the clerk to the referee before adjudication, "if the judge is absent from the District." This obviously in order that the referee may then make the adjudication, and thus there will be no delay due to a judge's absence. We can find no provision for reference after adjudication, other than that contained in section 22 (Comp. St. ž 9606). This reads in part as follows: "After a person has been adjudged a bankrupt the judge may cause the trustee to proceed with the administration of the estate, or refer it generally to the referee or specially with only limited authority to act in the premises or to consider and report upon specified issues."

The above language seems to us sufficiently explicit in requiring the reference to be made by the judge. We can, at any rate, think of no phraseology more appropriate to that purpose. We are correspondingly, then, disturbed by form 14 appended to the General Orders in Bankruptcy, promulgated by the United States Supreme Court (General Orders in Bankruptcy, October Term, 1898, as amended, and also prescribed by rule 22 of the Rules in Bankruptcy for the District of New Jersey). This and others of the forms prescribed by these same General Orders, namely, forms 5, 8, 12, 30, 54, 62, and 63, conclude in the familiar style of a teste as follows:

"Witness the Honorable ____, judge of the said court, and the seal thereof, at ____, in said district, on the ____ day of ____, A. D. 19 ___.

"______, Clerk. "Seal of the Court."

The only authority for a teste by the judge and signature by the clerk in the United States courts is found in section 1534 of the Compiled Statutes (R. S. ž 911; Act of May 8, 1792). To include these Orders in Bankruptcy in the terms "writs and process" of that statute seems to us a strained construction, to say the least. See U. S. v. Murphy (D. C.) 82 F. 893. Assuming, however, that section 1534 may be so interpreted, we are still confronted with a more serious problem in the doctrine of the constitutional separation of powers.

Concededly the teste does not make the document to which it is appended the act of the judge. It is a matter of form, and its purpose is to give character and dignity thereto. Reynolds v. Damrell, 19 N. H. 394; Ripley v. Warren, 2 Pick. (Mass.) 592, 594; Union Tool Co. v. Wilson, 259 U. S. 107, 113, 42 S. Ct. 427, 66 L. Ed. 848. The order of reference remains, then, the act of the clerk, and not of the judge.

It is settled that a clerk of court is a ministerial officer and cannot exercise judicial functions. Washington National Bank v. Williams, 188 Mass. 103, 74 N. E. 470; Moneyweight Scale Co. v. Friedman, 79 N. J. Law, 214, 74 A. 270. And a statute conferring judicial powers upon a clerk has been held unconstitutional. Cleveland R. Co. v. People, 212 Ill. 638, 72 N. E. 725; Gregory v. State, 94 Ind. 384, 48 Am. Rep. 162. Whether the order of reference in the case at bar can be properly made by the clerk would depend, then, on whether such order is a ministerial act. The distinction between judicial and ministerial acts is clearly drawn and has often been adverted to in the cases. It has been thus stated:

"The distinction between ministerial and judicial and other official acts seems to be that where the law prescribes and defines the duty...