In re Thomas

• Citation: 204 F.2d 788
• Decision Date: 15 June 1953
• Docket Number: No. 10729.,10729.
• Parties: In re THOMAS. THOMAS v. LURIE et al.
• Court: U.S. Court of Appeals — Seventh Circuit

204 F.2d 788 (1953)

In re THOMAS.

THOMAS v. LURIE et al.

No. 10729.

United States Court of Appeals Seventh Circuit.

June 15, 1953.

Michael Gesas, Leonard Gesas, Chicago, Ill., Urban A. Lavery, Chicago, Ill., Max Chill and Theodore D. Kahn, Chicago, Ill., for appellant.

Harry H. Ruskin and Joseph Rosenbaum, Chicago, Ill., for appellees.

Before MAJOR, Chief Judge, and LINDLEY and SWAIM, Circuit Judges.

MAJOR, Chief Judge.

Appellant, Richard H. Thomas, Jr., on his voluntary petition, was adjudicated a bankrupt July 31, 1936. After the usual proceedings, an order of discharge was entered June 26, 1937. The instant proceeding was instituted August 31, 1948, on the petition of appellees Samuel C. Lurie and R. L. Feltinton, alleging that they were, by assignment, creditors, that the bankrupt had failed to schedule all his property in the bankruptcy proceedings, and requesting that the order of discharge be vacated and set aside and that the bankruptcy estate be reopened for the administration of nonscheduled assets. The petition was by order referred to Honorable Wallace Streeter, a referee in bankruptcy, "to hear and determine the question as to whether there are any assets in this cause that have not been fully administered."

Thereupon, appellees (hereinafter referred to as petitioners) filed with the referee an amended petition in which the sole relief sought was the reopening of the bankruptcy proceedings and which described in more specific detail the property which the bankrupt was alleged to have concealed. Extensive hearings were conducted by the referee who heard the testimony of many witnesses and examined a great amount of documentary evidence. These hearings were participated in by petitioners as well as the bankrupt. At the conclusion, the referee made his report, including his findings of fact and conclusions of law. Subsequently, the court upon petition of the bankrupt again referred the matter to the referee for the purpose of hearing additional testimony. Further hearings were held and a supplemental report made by the referee in which his previous findings and conclusions were reaffirmed and additional findings and conclusions made. On July 9, 1952, the court entered an order overruling the objections filed by the bankrupt and confirming the report and supplemental report of the referee. The order, among other things, decreed the reopening of the bankruptcy estate, with a re-reference to the referee for the purpose of taking such further proceedings as are authorized by the Bankruptcy Act. It is from this order the appeal comes to this court.

In the view which we take of the case, there is no occasion to make a detailed narration of the voluminous testimony heard by the referee or of his findings. An examination of the record indicates that such findings are substantially supported; in any event, there is no reason to think that they are clearly erroneous. Furthermore, the findings are not seriously challenged by the bankrupt. As subsequently disclosed, the argument here involves in the main questions of procedure, of law, or mixed questions of law and fact.

As a premise, however, for the discussion to follow, it appears appropriate to state briefly some of the salient and undisputed facts, leaving to a later point such facts as pertain to particular issues. The bankrupt scheduled liabilities of $326,875.01, and claims were allowed in the amount of $56,041.35. The petition stated that the bankrupt had no real estate except one described lot, later sold in the proceedings for $250 by order of the court, that he owned no property held in trust for him or subject to any power or right to dispose of or to charge, and the only personal property listed consisted of furniture and other items of small value claimed as exempt. The property which the bankrupt was found to have concealed and which admittedly was not scheduled as assets divides itself generally into two classes, (1) real estate and (2) fees earned as a State Court trustee but not paid to the bankrupt at the time of the filing of his petition in bankruptcy. A good portion of the testimony heard by the referee related to the real estate found to have been unscheduled and concealed. This real estate consisted of twenty-nine parcels, included in a larger number of parcels acquired in 1934 from the trustee of the Pelham Company, a bankrupt (sometimes referred to as the Pelham property) and taken in the name of Fred R. Freda and Palmera Freda. The referee found that Thomas at the time he filed his petition in bankruptcy "had a substantial interest in certain real estate and in the net profits that might arise from the sale thereof," and listed the twenty-nine separate pieces of property. The reason why this Pelham property was acquired in the name of a third party and the manner in which its ownership and control was finally traced to the bankrupt presents a rather intriguing story. It need not be told here, however, inasmuch as we accept the finding of the referee that the bankrupt owned a substantial interest in such property. The referee also found that the bankrupt had a substantial interest in a real estate mortgage which he subsequently sold for the sum of $500.

The bankrupt, on August 1, 1935, was appointed trustee of the John Blue Trust by order of the Circuit Court of Cook County, Illinois. For services rendered in such capacity the State Court, by an order entered August 18, 1939, allowed the bankrupt the sum of $3500 for continuous services rendered from August 1, 1935 to and including August 18, 1939. Admittedly this claim for services was not scheduled by the bankrupt. The referee found that the compensation for services rendered by the bankrupt between August 1, 1935 and July 27, 1936 (the date of the filing of his voluntary petition) was an asset of the estate which was concealed by his failure to schedule it.

We shall first consider the authority of a court to direct the reopening of a bankruptcy estate for the purpose of administering unscheduled assets, and we do that at this point because, in the view which we take, a proper understanding of this authority is dispositive of numerous of the issues argued on this appeal. The court's authority, or perhaps more accurately stated, its jurisdiction, is found in the Bankruptcy Act as amended in 1938, Title 11 U.S.C. § 11, sub. a, paragraph (8), wherein it is provided that a court of the United States (as a court of bankruptcy) is vested with original jurisdiction in proceedings to "reopen estates for cause shown." The words "for cause shown" were added by the amendment of 1938, and it has been held that by such amendment greater power was conferred upon a bankruptcy court in the matter of reopening estates. In re Cirillo, D.C., 102 F.Supp. 715, 717; In re Zimmer, D.C., 63 F.Supp. 488, 490. Irrespective, however, of any change intended or resulting from the amendment, it is significant that Congress prescribed no formal procedure to be followed in the reopening of an estate. The statute is silent as to the requisite cause, the manner by which or the parties by whom "cause" may be called to the attention of the court. It is also significant that no limitation is placed upon the time when such "cause" may be shown. In Gerber v. Fruchter, 2 Cir., 147 F.2d 120, 122, the court stated, "The statutory authority for the reopening of bankruptcy estates `for cause shown,' * * * prescribes no formal procedure; but it has become customary to grant orders for further administration ex parte upon a showing by affidavits. Citing cases."

This court, in In re Joslyn's Estate, 7 Cir., 171 F.2d 159, had occasion to consider the matter under discussion. In that case, some eight years after the bankrupt had been discharged, a petition to reopen the proceeding was filed by the Elks Lodge, and the application was referred to a special master who reported that assets had been concealed. Based upon such report, the court ordered the estate reopened. It was argued that the Elks was not a creditor and therefore was not entitled to initiate the proceeding for reopening. In response to that contention, this court stated, 171 F.2d at page 164, "We think this argument is without merit, and this irrespective of the status of the Elks as a creditor. We see no reason why the court, when its attention was called to the fact that the bankrupt had fraudulently concealed assets, could not on its own volition have conducted an investigation or referred the matter to a Special Master, as it did, for the purpose of conducting such inquiry and making a report." We pointed out that the reopening order was not predicated upon the application made by the Elks but upon the report by the special master. We cited cases in support of the proposition that it is the duty of a bankruptcy court "to re-open closed bankruptcy estates whenever prima facie proof has been made that they have not been fully administered."

In addition to the cases which we cited in the Joslyn case, there is Schofield v. Moriyama, 9 Cir., 24 F.2d 473, 475, in which the court, after pointing out that no formal procedure was required for reopening, stated, "* * * the important requisite being only that in some competent manner the court be convinced that there are unadministered assets belonging to the estate. It may very well be that, if so satisfied, whatever the source of the information, the court could make a reopening order sua sponte."

No claim is made here that our ruling on this point in the Joslyn case was erroneous; in fact, the bankrupt does not even mention the case. However, in view of the fact that the holding in that case is determinative of a number of issues which the bankrupt here argues, we have again carefully considered our previous decision. We have done this also for the reason that it is an important precedent in the administration of the Bankruptcy Act. Our further study and consideration of that case as it relates to the...