In re Tamburo, 10000.

• Decision Date: 25 February 1949
• Docket Number: No. 10000.,10000.
• Citation: 82 F. Supp. 995
• Parties: In re TAMBURO.
• Court: U.S. District Court — District of Maryland

82 F. Supp. 995

In re TAMBURO.

No. 10000.

United States District Court D. Maryland.

February 25, 1949.

Emanuel Gorfine, of Baltimore, Md., for creditor.

Alfred F. Walker, of Baltimore, Md., for bankrupt.

WILLIAM C. COLEMAN, Chief Judge.

This matter is before the Court on petition of the Atlas Assurance Company, Ltd., a judgment creditor of the bankrupt, to review the action of the Referee in refusing, in his order discharging the bankrupt, affirmatively to exempt the judgment from the effect of the discharge, instead of leaving, as he did, the question of such exemption for future determination when the petitioning creditor seeks to enforce the judgment.

The material facts relative to this judgment are these: it was obtained in this Court in a suit brought by the Liggett & Myers Tobacco Company Inc. for the benefit of the Atlas Assurance Company, Ltd., against four individuals, one of whom is the bankrupt, based upon a claim for reimbursement of payment which the Atlas Company had made in accordance with a policy of insurance issued by it to the Tobacco Company for the loss of a shipment of cigarettes, the property of the Tobacco Company, while in transit from Richmond, Virginia, to consignees in Baltimore. In this civil suit it was proved to the satisfaction of a jury that the four individual defendants, knowing this shipment to have been stolen, and with intent to deprive the Tobacco Company of it, by conspiracy among themselves acquired and secreted this shipment and later disposed of it in such manner that the cigarettes were never recovered. Accordingly, a verdict was obtained against the defendants for $22,728.87, with interest, for which judgment was entered in favor of the Tobacco Company to the use of the Insurance Company. No appeal was taken from this judgment and it remains unpaid.

Thereafter, Joseph Tamburo filed a voluntary petition in bankruptcy, listing this judgment on his schedule of debts. The Atlas Assurance Company, Ltd. filed specifications in opposition to Tamburo's discharge, claiming that the judgment should not be included in any discharge granted the bankrupt, relying upon Section 17 of the Bankruptcy Act, 11 U.S.C.A. § 35, sub. a(2) which provides that "A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as * * * (2) are liabilities * * * for willful and malicious injuries to the person or property of another, * * *." It is not claimed by the Insurance Company that the circumstances giving rise to the bankrupt's liability to it as represented by the judgment constitute grounds for denial of a discharge to the bankrupt under any one of the seven grounds set forth in Section 14, 11 U.S.C.A. § 32, the Insurance Company's position being, as above stated, that it is entitled to an affirmative declaration that its judgment is exempt from discharge instead of being required, when it seeks to realize on its judgment against the bankrupt, to again prove all the facts and circumstances which formed the basis of the judgment.

The Referee in Bankruptcy, however, rejected this contention of the Insurance Company and granted the bankrupt a discharge from all debts and claims made provable by the Bankruptcy Act against his estate, except such debts as are by the Act exempted from the operation of a discharge in bankruptcy, reciting in his order that the petition of the Insurance Company "is hereby dismissed without prejudice to the claim of said Liggett & Myers Tobacco Company, Inc. to its own use and to the use of Atlas Assurance Company, Ltd. that their debt is not discharged hereby, on which point no adjudication or decision of any kind has been made."

In his memorandum accompanying this order, the Referee recites four grounds for his refusal to grant the Insurance Company's petition, which are as follows: "1. All courts have throughout the history of Anglo-American jurisprudence been only too often criticized for their wrongfull extension of their jurisdiction. The federal court, whose powers are limited to those conferred by statute, should be particularly careful to keep itself free of the charge of extension of jurisdiction `by encroachment'; 2. No section of the Bankruptcy Act specifically confers upon the bankruptcy court the power it is here requested to exercise and there is no need of bankruptcy administration requiring it to assume the power; 3. The bankruptcy court would be bold and assertive to presume to act for a fear that when the question is raised in a court of appropriate jurisdiction on suit or execution by the creditors, that court would not decide the action according to the applicable law and facts; and 4. In most instances (and for the innovation proposed by the creditors to be approved its operation in the average case is the test to apply) the creditor holding a debt claimed to be exempted from the discharge will not have obtained judgment prior to the bankruptcy and the erstwhile bankrupt, when sued on a money claim, has the constitutional right by both the federal and state constitutions to a jury trial, which right would be usurped and mostly eliminated did the bankruptcy court undertake to decide which debts are discharged and which are not."

With respect to the first and third grounds, we are in accord with the Referee. As for the first ground, a court of bankruptcy must confine the exercise of its authority within the limits that are either expressed or clearly and reasonably implied by the provisions of the Bankruptcy Act. As to the third ground, it is likewise true that it is not the function of the bankruptcy court to anticipate that a court of appropriate jurisdiction will not accord to a judgment creditor, in a suit on a judgment obtained in another court, every right to which he is entitled for the enforcement of that judgment.

We are also in agreement with the Referee with respect to the first sentence of the second ground on which he has rested his decision, namely, that "No section of the Bankruptcy Act specifically confers upon the bankruptcy court the power it is here requested to exercise." However, we believe that the Referee is in error in concluding from this that "there is no need of bankruptcy administration requiring it to assume the power" in a case such as the one now before us. Furthermore, we feel that on the facts here presented the Referee's fourth ground for denying the judgment creditor's petition is not sufficient, namely, that should the bankruptcy court undertake to decide which debts are discharged and which are not, this would be tantamount to usurpation by it of the bankrupt's constitutional right to a jury trial when sued on a money claim. In the present instance the bankrupt has already had his jury trial, as a result of which his liability to the Insurance Company has been determined, and it is now res adjudicata.

Section 14 of the Bankruptcy Act, 11 U. S.C.A. § 32, provides that after hearing objections to an application for discharge, the applicant shall be discharged unless he has committed one or more of six enumerated acts. Section 17, 11 U.S.C.A. § 35, enumerates six types of debts which are not dischargeable. The right to a discharge under Section 14 and the effect of it are distinct matters since Section 14 authorizes a general discharge while Section 17 expressly excepts certain debts from the operation of such discharge.

It is conceded that the judgment in the present case represents a liability of the bankrupt for wilful and malicious injury to property as defined in the second type of excepted debts as set forth in Section 17. See Tinker v. Colwell, 193 U.S. 473, 24 S.Ct. 505, 48 L.Ed. 754; McIntyre v. Kavanaugh, 242 U.S. 138, 37 S.Ct. 38, 61 L.Ed. 205.

Normally the bankruptcy courts have been accustomed merely to determine whether or not the bankrupt is entitled to discharge under Section 14 and to leave the effect of the discharge upon a particular claim for determination when the discharge is pleaded as a defense to the enforcement of such claim. However, a bankruptcy court has inherent equity jurisdiction to control the effect of its own order of discharge, although not bound to exercise such jurisdiction and should not do so except under special circumstances that clearly warrant its exercise. See Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L. Ed. 1230, 93 A.L.R. 195, in which it was held that a court of bankruptcy has jurisdiction by ancillary proceedings to enforce an order of discharge by enjoining the prosecution of suits brought against the debtor. See also In re Devereaux, 2 Cir., 76 F.2d 522, certiorari denied Devereaux v. Belsey, 296 U.S. 589, 56 S.Ct. 100, 80 L. Ed. 416. In other words, such power should be exercised only when a failure to act will result in unfairness either to the bankrupt or the creditor. When a court of bankruptcy does elect to exercise this equitable jurisdiction to determine the status of a particular debt which, as in the present case, has been reduced to judgment prior to the adjudication in bankruptcy, the character of the debt is to be determined from the record of the proceedings in the court which entered the judgment.

While instances of the exercise of such jurisdiction are relatively quite rare, we are satisfied that the facts in the present case fully warrant its exercise. Otherwise, the judgment creditor would be subjected to duplicating proof of the details of the conversion of the property which have already been fully disclosed by lengthy testimony in a jury trial on the civil side of this very Court. Indeed, because of lapse of time it may not be possible for the judgment creditor to duplicate this testimony. But in any event, since the bankrupt's liability for this judgment is res adjudicata, it would be unreasonable to subject the judgment creditor, when attempting to realize on his judgment, to the expense and labor of presenting again the same...