In re Tabibian

• Decision Date: 26 April 1961
• Docket Number: No. 270,Docket 26594.,270
• Parties: In the Matter of Herman TABIBIAN, Bankrupt-Appellant, and Hyacinth Rubin, Ralph Proskauer, and Nathan Krefetz, Co-partners, Objecting Creditors-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

289 F.2d 793 (1961)

In the Matter of Herman TABIBIAN, Bankrupt-Appellant, and Hyacinth Rubin, Ralph Proskauer, and Nathan Krefetz, Co-partners, Objecting Creditors-Appellees.

No. 270, Docket 26594.

United States Court of Appeals Second Circuit.

Argued March 20, 1961.

Decided April 26, 1961.

Ludwig M. Wilson, New York City (Harry Rosenberg, West Hempstead, N. Y., of counsel), for appellant.

Maxwell A. Rubin, New York City, for appellees.

Before MOORE, FRIENDLY and SMITH, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge.

The bankrupt operated, between 1945 and 1959, the Nassau Rug & Carpet Company, primarily a one-man business dealing in retail sales, laying and cleaning of carpets. The objecting creditors, in January and February of 1959, obtained two judgments against Tabibian in the New York state courts totaling almost $4,000. On March 11th of that year, Tabibian filed a voluntary petition with the bankruptcy court in the Eastern District of New York and he was adjudicated a bankrupt the same day. The present controversy concerns Tabibian's right to a discharge.

The referee conducted a hearing on the objectors' specified grounds for the denial of a discharge. The only testimony offered was that of Tabibian himself and that of the appellees' attorney. The creditors claimed that the bankrupt had concealed or transferred his assets in fraud of his creditors, Bankruptcy Act § 14, sub. c(7), 11 U.S.C.A. § 32, sub. c(7); and that he had "committed an offense punishable by imprisonment as provided under Section 152 of Title 18," Bankruptcy Act § 14, sub. c(1), 11 U.S.C.A. § 32, sub. c(1), by "knowingly and fraudulently mak(ing) a false oath."¹ The referee found that none of the objections were substantiated by the evidence and ordered Tabibian's debts discharged. On a petition for review, Judge Abruzzo reversed that order, holding that three of the specifications, concerning the concealment of property, failure to account for assets and false oaths, had been proven.²

The basic facts upon which the referee and district court reached opposite conclusions are these. As noted above, Tabibian and his small business got into financial straits early in 1959; the entry of judgments against him in favor of the objecting creditors pushed him over the brink. Having trouble meeting the rent and unable to get out from under his lease, he transferred headquarters to his house and turned the "business" over to a newly formed corporation, the Nassau Carpet Cleaning Corporation, owned wholly by his wife. Neither Mrs. Tabibian nor the corporation paid anything for the "assets" turned over by the individual proprietorship (nor was there any evidence that any physical assets were actually transferred). The bankrupt's principal assets, prior to filing of the petition, were a panel truck and a late model station wagon. He claims to have sold the truck at the end of January 1959 for $300, which funds he used to finance his bankruptcy. He claims that he notified the vendor of his station wagon that he would be unable to continue payments at which point the vendor, purported holder of a chattel mortgage or a conditional bill of sale on the vehicle, repossessed the wagon. (Tabibian did not obtain a receipt from the person who picked up the car and he apparently did not demand to see his credentials. A letter written to the alleged chattel mortgagee by the objecting creditors was not answered.)

The false oaths relied upon below also center principally upon the two motor vehicles. The bankrupt, in filling out the necessary verified forms for his petition, answered "none" to a query as to what, if any, transfers of property he had made in the preceding year. A fortnight later, however, at the first meeting of creditors, he testified openly and rather spontaneously as to both transactions involving the motor vehicles. In addition, Tabibian exhibited a good deal of confusion concerning his working activities during the two weeks directly preceding the filing of his petition and also concerning the business address of his wife's newly formed corporation.

The rule in this circuit is that the findings of a referee in bankruptcy are to be upheld unless found "clearly erroneous" under the test of Rule 52(a), F.R.Civ.P., 28 U.S.C. Stim v. Simon, 2 Cir., 1960, 284 F.2d 58; In re Di Palo, 2 Cir., 1955, 218 F.2d 816. There is authority in other circuits supporting the thesis that findings of "ultimate fact" should be reviewed on a much broader basis by both the District Court and the Court of Appeals. In re Pioch, 3 Cir., 1956, 235 F.2d 903; Costello v. Fazio, 9 Cir., 1958, 256 F.2d 903. In the instant case, especially on the issue of the alleged "false oaths," the credibility of the bankrupt is a very important factor. Since only the referee heard that testimony and observed the bankrupt giving it, the scope of review should be relatively narrow in accordance with the earlier cases in this circuit.

The general rule as to the burden of proof in a contested discharge is that the objectors must make a prima facie case, i. e., establish "reasonable grounds for believing" that there was fraud, etc., at which point the burden shifts to the bankrupt to "satisfactorily explain" the questioned transactions. McMullin v. Todd, 10 Cir., 1955, 228 F.2d 139, 142; In re Roberts, D.C.M.D.N. Car.1959, 176 F.Supp. 361. It is true that a discharge is a privilege granted the honest debtor and not a right accorded to all bankrupts. In weighing the facts put forward in a contest over a discharge, however, a court should keep in mind the beneficial policy allowing the honest debtor to get a new start in business and life — and should construe § 14 strictly against the objectors and liberally in favor of the bankrupt. In re Leichter, 3 Cir., 1952, 197 F.2d 955.

The referee was correct in finding that the objectors had failed to prove their case concerning the alleged fraudulent concealment or disposition of assets. Appellees, and the court below, make much of the fact that the wife paid nothing for the assets of the business; the objectors did not make the slightest showing, however, that there were any assets transferred.³ The "good will" of a continuing business, divorced from any physical assets, is exactly the type of asset which the Bankruptcy Act leaves with the bankrupt to continue his economic career. The fact that this asset, of no monetary value when separated from the bankrupt's future business prospects, was "transferred" to the wife's corporation, which in turn "employed" Tabibian, is not significant. Such a...