In re US Hoffman Can Corp.

• Decision Date: 10 March 1967
• Docket Number: No. 15985.,15985.
• Citation: 373 F.2d 622
• Parties: In the Matter of U. S. HOFFMAN CAN CORP., a Corporation of the State of New York, and Commercial Can Corp., a Corporation of the State of New Jersey, Bankrupts. Robert Hirsch and Harold Roth, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

373 F.2d 622 (1967)

In the Matter of U. S. HOFFMAN CAN CORP., a Corporation of the State of New York, and Commercial Can Corp., a Corporation of the State of New Jersey, Bankrupts Robert Hirsch and Harold Roth, Appellants.

No. 15985.

United States Court of Appeals Third Circuit.

Argued December 1, 1966.

Decided March 10, 1967.

COPYRIGHT MATERIAL OMITTED

Frederic C. Ritger, Jr., Newark, N. J. (Van Riper & Belmont, Charles E. Villanueva, Newark, N. J., on the brief), for appellants.

Max L. Rosenstein, Newark, N. J., for appellee.

Before SMITH, FREEDMAN and SEITZ, Circuit Judges.

OPINION OF THE COURT

FREEDMAN, Circuit Judge.

This appeal concerns the contention of officers of bankrupt corporations that the privilege against self-incrimination justifies their refusal to file a statement of affairs of the bankrupts with verified supporting schedules.

On July 13, 1965 U. S. Hoffman Can Corp., and its subsidiary Commercial Can Corp., were adjudicated bankrupt on an involuntary petition. The Referee ordered three officers of the corporations, Roth, the Chairman of the Board of Directors, and Hirsch, the Secretary, who are the appellants, and Irving Holtz, the President, to prepare and file a statement of affairs with supporting schedules for the bankrupt corporations. Such an order is authorized by § 7(b) of the Bankruptcy Act (11 U.S.C. 25(b)) which provides: "where the bankrupt is a corporation, its officers, the members of its board of directors or trustees or of other similar controlling bodies, its stockholders or members, or such of them as may be designated by the court, shall perform the duties imposed upon the bankrupt by this title."

Appellants tendered a statement of affairs and schedule of assets and liabilities but they were unsigned and unverified, contrary to the requirements of § 7(a) (8), (9) of the Bankruptcy Act (11 U.S.C. § 25(a) (8), (9))¹ and the General Orders in Bankruptcy.² The Referee therefore refused to receive the documents for filing and initiated contempt proceedings against the three officers which in due course were brought before the district court. After a hearing the district judge held that the officers had not demonstrated adequate justification for their refusal to obey the Referee's order and therefore ordered the officers, Roth, Hirsch and Holtz, to prepare, swear to and file with the court the statement of affairs and supporting schedules of assets and liabilities of the bankrupt corporations. In response to the officers' claims that compelling them to file verified schedules would violate their privilege not to incriminate themselves, the district judge expressly provided that his order was to be without prejudice to the right of any of them to claim his privilege against self-incrimination. The order further provided that any officer claiming the privilege of self-incrimination must file with the court "in a sealed envelope, a statement by his counsel setting forth the basis upon which the privilege against self-incrimination is invoked. Said sealed envelope shall be for the use of the Court only."³ Appropriate action was reserved until after the judge had considered the contents of the envelopes.

Holtz agreed to comply with the order, but appellants, Roth and Hirsch, refused to do so on counsel's advice that they might incriminate themselves or waive their privilege against self-incrimination under the Fifth Amendment. The district court thereupon adjudged Roth and Hirsch in contempt of court and imposed the sentences from which this appeal is taken. Execution of sentence was stayed pending the appeal.

I.

A number of contentions must be disposed of before we reach the main issues in the case.

1. Appellants are not immune from possible criminal proceedings because of § 7(a) (10) of the Bankruptcy Act (11 U.S.C. § 25(a) (10)), which invests a bankrupt with immunity from criminal proceedings because of "testimony" given by him during his examination at the first meeting of creditors. The provision is inapplicable to the statement of affairs and the accompanying schedules of assets and liabilities, for under its settled construction the immunity refers only to testimony given in oral evidence and not to verified instruments filed with the court. 1 Collier, Bankruptcy (14th ed. 1966), ¶ 7.13. "It was reasonable for Congress to make a distinction between the schedule, which may presumably be prepared at leisure and scrutinized by the bankrupt with care before he verifies it, and the testimony that he is to give when he submits to an examination at a meeting of creditors or at other times pursuant to the order of the court — a proceeding more or less unfriendly and inquisitorial, as well as summary, and in which it may be presumed that even an honest bankrupt might, through confusion or want of caution, be betrayed into making admissions that he would not deliberately make." Ensign v. Commonwealth of Pennsylvania, 227 U.S. 592, 599-600, 33 S.Ct. 321, 323, 57 L.Ed. 658 (1913). See also Slakoff v. United States, 8 F.2d 9, 10 (3 Cir. 1925).

2. Appellants are not relieved of their duty under the Bankruptcy Act because, as they argue, the Referee could have called on the petitioning creditors⁴ or could have appointed a qualified accountant⁵ to prepare and file the necessary information. The Bankruptcy Court was entitled to have from the appellants themselves as officers of the corporation the requisite information, which may well have differed from that which would have been available from creditors or accountants.

3. Holtz's compliance with the court's order does not relieve appellants of their duty. Section 7(b) of the Bankruptcy Act (11 U.S.C. § 25(b)) authorizes the Bankruptcy Court to designate who among the officers, directors and stockholders of a corporation shall prepare and file on its behalf the requisite documents. The privilege against self-incrimination is applicable to all those designated by the court and, subject to it, all those whom the court designates must comply with the court's order. It is no excuse for their noncompliance that others have obeyed the order of the court. Each one may have information which none of the others possesses, and the Bankruptcy Court is entitled to the complete information which all of them combined may reveal.

4. Equally unavailing is the claim that the remedy of contempt to compel the filing of these documents is unnecessary because of the existence of the penalty of denial of a discharge in bankruptcy. The remedy of contempt seeks to enforce compliance, whereas the refusal of a discharge is a penalty for improper conduct. The contention is particularly unconvincing in the present case which involves bankrupt corporations. Here the denial of a discharge in bankruptcy would be lacking even in any indirect coercive quality since the corporate bankrupts are out of business and a discharge would be meaningless to them.

II.

We are thus brought to the contention of appellants that to require an answer to any of the numerous questions on the eleven schedules would violate their constitutional rights, since such a course would single out areas of inquiry which might provide incriminating evidence to the authorities.

It was established many years ago that a complete refusal by a bankrupt to file the schedules required under § 7 of the Bankruptcy Act is unjustifiable, and that a naked statement even under oath that the schedules may prove incriminating is not enough to justify noncompliance with the statutory requirement. In Re Arend, 286 F. 516 (2 Cir. 1922); cf. Podolin v. Lesher Warner Dry Goods Co., 210 F. 97 (3 Cir. 1914). Although the protection against self-incrimination has been broadened since that decision,⁶ we think this result is still sound. Thus, in United States v. Sullivan, 274 U.S. 259, 47 S.Ct. 607, 71 L.Ed. 1037 (1927), the Supreme Court held that a taxpayer was not excused from filing an income tax return because his income was derived from illicit traffic in liquor. "If", said Mr. Justice Holmes, "the form of return provided called for answers that the defendant was privileged from making he could have raised the objection in the return, but could not on that account refuse to make any return at all. * * * Most of the items warranted no complaint. It would be an extreme if not an extravagant application of the Fifth Amendment to say that it authorized a man to refuse to state the amount of his income because it had been made in crime. But if the defendant desired to test that or any other point he should have tested it in the return so that it could be passed upon. He could not draw a conjurer's circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law." (263-264, 47 S.Ct. 607). In a recent re-examination of the Sullivan case in Albertson v. Subversive Activities Control Board, 382 U.S. 70, 79, 86 S.Ct. 194, 15 L.Ed.2d 165 (1965), the Court pointed out that it was based on two grounds: (1) a claim of self-incrimination against every question on the tax return or on the mere submission of the return would be "virtually frivolous"; and (2) to honor the claim of privilege not asserted at the time the return was due would make the taxpayer rather than a tribunal the final arbiter of the merits of the claim of privilege. In Albertson the Subversive Activities Control Board required registration by individual members of the Communist Party when the Party itself refused to register under the Subversive Activities Control Act of 1950. The Court upheld the refusal of individual members of the Communist Party to answer any of the questions on the registration form because the area of inquiry was permeated with criminal statutes and responses to any of the questions in the form might involve the member in the admission of a crucial element of a crime. 382 U.S. at 79, 86 S.Ct. 194.

Here, absent special circumstances not yet...