In re Strauss
| Decision Date | 26 October 1933 |
| Docket Number | No. 20892.,20892. |
| Citation | 4 F. Supp. 810 |
| Parties | In re STRAUSS. |
| Court | U.S. District Court — Eastern District of New York |
Strongin & Hertz, of Brooklyn (Milton Hertz, of Brooklyn, of counsel), for Nathan Strauss.
Breed, Abbott & Morgan, of New York City (William L. Hanaway of New York City, of counsel), for Underwriters Trust Co. Kerfoot & MacArthur, of New York City (Callan Moroney, of New York City, of counsel), for Brooklyn Nat. Bank.
On August 7, 1931, an involuntary petition was filed against the bankrupt and on the 24th day of August, 1931, he was duly adjudicated.
His schedules, filed November 8, 1931, show liabilities: Secured claims $496,783. Unsecured claims $208,424.82. Notes and bills which ought to be paid by other parties $52,945.51. Accommodation paper $202,751.66, making a total of $960,904.99, while his assets are stated as real estate, value unknown, cash on hand none, debts due $85,653.58, stock bonds, etc., value unknown, deposit in bank $76.71, property claimed to be exempt $250, making a total of $85,980.29.
On or about April 22, 1932, the bankrupt's petition for discharge came before the court and specifications of objections were duly filed by certain bank creditors.
The trustee of the bankrupt's estate was duly authorized by the creditors to object to the discharge, but, beyond noting his appearance in opposition seems to have relied upon the specifications filed by others.
The specifications were duly referred to a referee and proof was taken by him. Several witnesses were presented by the banks, including the introduction of documentary evidence. The bankrupt likewise was a witness.
The learned referee has dismissed the specifications of objection and recommended the bankrupt's discharge.
Most of the material facts appear not to be disputed.
In view of the long experience of the referee, I would hesitate to disagree with his conclusions were it not that the consideration of these undisputed facts results, in my opinion, in conclusions contrary to those held by him.
I need only consider one of the specifications of objection filed by the Underwriters Trust Company.
This specification is predicated upon section 14b, subdivision 3 of the Bankruptcy Act, as amended in 1926, 44 Stat. 663, § 6, 11 USCA § 32 (b) (3).
Under this section the bankrupt must be denied his discharge if the evidence shows that he "obtained money or property on credit, or obtained an extension or renewal of credit, by making or publishing, or causing to be made or published, in any manner whatsoever, a materially false statement in writing respecting his financial condition." It is also provided under the amended act (section 14b (7), 11 USCA § 32 (b) (7), and pursuant to the proviso therein contained, a creditor has the burden of showing to the satisfaction of the court that "there are reasonable grounds for believing that the bankrupt has committed" this act complained of, and, having done so, "then the burden of proving that he has not committed any of such acts shall be upon the bankrupt." In re Tobias (D. C.) 49 F.(2d) 651.
This creditor claims that on February 13, 1931, the bankrupt signed and gave to this bank creditor a written statement, which was materially false, purporting to set forth his assets and liabilities. This statement is as follows:
FINANCIAL STATEMENT
NATHAN STRAUSS
February 2, 1931
Assets
Cash in Banks................................. $ 49,500.00
Accounts Receivable........................... 79,300.00
74,400* Shares Nathan Strauss
Inc., Stock at $9............... $669,600.00
100 Nathan Strauss 6% 10 yr
Con. Bonds...................... 60,000.00
Other Securities.................. 310,500.00
___________
1,040,100.00
Real Estate Equity............................ 1,574,500.00
_____________
$2,743,400.00
Liabilities
Notes Payable.................................. 59,000.00
Net Worth...................................... 2,684,400.00
_____________
$2,743,400.00
Real Estate Schedule:
Net Equity:
37 Nevins St., Brooklyn, N. Y.................. 60,000.00
383-385 Bridge St., Brooklyn, N. Y............. 50,000.00
455 Atlantic Ave., Brooklyn, N. Y.............. 25,000.00
524 Carlton Ave., Brooklyn, N. Y............... 10,000.00
Flushing Acreage............................... 250,000.00
Elton Ave., Brooklyn, N. Y..................... 6,000.00
24-165 Puntine St., Jamaica, N. Y.............. 12,000.00
99 Water Street, Stapleton, S. I............... 45,000.00
114-10 Liberty Ave., Richmond Hill,
N. Y......................................... 15,000.00
3¼ acres, Flushing, N. Y................ 10,000.00
228 Livingston St., Brooklyn, N. Y............. 45,000.00
119 Willoughby St., Brooklyn, N. Y............. 15,000.00
189 Duffield St., Brooklyn, N. Y............... 12,000.00
191 Duffield St., Brooklyn, N. Y............... 7,500.00
626-628 Pacific St., Brooklyn, N. Y............ 30,000.00
79 Bond St., Brooklyn, N. Y.................... 12,000.00
245 Bergen St., Brooklyn, N. Y................. 10,000.00
Cash paid for Leasehold (to run 48 yrs)
426 Fulton St., Jamaica, N. Y................ 220,000.00
Cash paid for Leasehold (to run 44 yrs)
569 Fulton Street, Brooklyn, N. Y............ 200,000.00
Garage Property-Puntine St., Jamaica,
N. Y......................................... 40,000.00
Emmons Ave., Sheepshead Bay, N. Y.............. 100,000.00
571 Fulton St., Brooklyn, N. Y., Leasehold
............................................. 400,000.00
_____________
$1,574,500.00
Nathan Strauss
February 13, 1931.
Exhibit A The reason for the making and the giving of the above statement was as follows:
During the year 1929 this bank had personally loaned the bankrupt $40,000 taking his promissory note, unsecured. This loan had been on the books since that time and had been reduced from time to time so that on February 2, 1931, it had been reduced to $21,000 and was due on that date.
During the month of January, 1931, the bank, knowing that this note would soon become due, requested the bankrupt to "furnish the bank with an up-to-date financial statement." The bankrupt did not comply at that time but promised to do so.
When February 2, 1931, arrived, the note was not renewed by the bank. The bankrupt then attempted to renew it by sending a new note for $20,000 together with a check for $1,100 representing interest and a payment on account. He was told, however, by the bank officials that this "could not be accepted until the statement was given." The proposed renewal note for $20,000 was returned to him.
Accordingly, on or about February 13, 1931, the bankrupt made and presented to the bank the financial statement above set forth.
An officer of the bank testified that after receiving this statement he gave instructions that the note be renewed. That he made this order based on what "he had observed in the statement and noting the statement of assets and liabilities contained therein."
There is sufficient evidence in the record, unexplained, to show that, therefore, this renewal or credit was extended to the bankrupt because of the financial statement.
Later, on April 3, 1931, the bankrupt paid $500, on May 13, $1,500, and on July 2, 1931, about a month before his bankruptcy, $500. The loan remaining unpaid, at the time of the bankruptcy, was $13,500. At this time the bankrupt had less than $100 on deposit in the bank.
No new statement was furnished after February 13, 1931. Gerdes v. Lustgarten, 266 U. S. 321, 45 S. Ct. 107, 69 L. Ed. 309.
The burden of making a prima facie case, under the statute, rested upon the creditor. In re Wolff (D. C.) 11 F.(2d) 293.
It was not sufficient, to make a prima facie case, simply to show some error or omission in the statement, but facts must also be shown sufficient to reasonably indicate directly or by reasonable inference, unrebutted, that material error or omission was made in the statement and that it was intentionally and knowingly false. In re Kerner (C. C. A.) 250 F. 993; In re Smith (D. C.) 232 F. 248.
The learned referee has found that while the statement was untrue, it was not false. He also finds that it did not mislead the bank.
Because of this fact, it has become necessary to carefully examine all the testimony before the referee in order to see whether or not there is some evidence to support such findings.
In the first place there is no dispute that the statement was signed and delivered by the bankrupt and that it purports to relate to his personal liabilities and assets.
The loan and note were his personally.
It would also seem to be plainly shown that credit was extended on and because of the statement.
In fact, counsel for bankrupt, at the close of the hearing, stated, The referee then stated that that "phase of it is eliminated from further discussion."
The bankrupt started in the meat business thirty-five years ago, commencing with a single store. The corporations formed by him accumulated several chains of such stores until he had approximately 224 stores. He testifies: "I worked that business up myself, without owing anybody a dollar, until this...
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