Maggio v. Zeitz In re Luma Camera Service, Inc

Decision Date09 February 1948
Docket NumberNo. 38,38
Citation333 U.S. 56,68 S.Ct. 401,92 L.Ed. 476
PartiesMAGGIO v. ZEITZ. In re LUMA CAMERA SERVICE, Inc
CourtU.S. Supreme Court

Mr. Max Schwartz, of Brooklyn, N.Y., for petitioner.

Mr. Joseph Glass, of New York City, for respondent.

Mr. Justice JACKSON delivered the opinion of the Court.

Joseph Maggio, the petitioner, was president and manager of Luma Camera Service, Inc., which was adjudged bankrupt on April 23, 1942. In January of 1943 the trustee asked the court to direct Maggio to turn over a considerable amount of merchandise alleged to have been taken from the bankrupt concern in 1941, and still in Maggio's possession or control. After hearing, the referee found that 'the trustee established by clear and convincing evidence that the merchandise hereinafter described, belonging to the estate of the bankrupt, was knowingly and fraudulently concealed by the respondent (Maggio) from the trustee herein and that said merchandise is now in the possession or under the control of the respondent.' A turnover order issued and was affirmed by the District Court and then unanimously affirmed by the Circuit Court of Appeals, Second Circuit, without opinion other than citation of its own prior cases. Zeitz v. Maggio, 2 Cir., 145 F.2d 241. Petition for certiorari was denied by this Court. 324 U.S. 841, 65 S.Ct. 587, 89 L.Ed. 1403.

As Maggio failed to turn over the property or its proceeds, the Referee found him in contempt. After hearing, the District Court affirmed and ordered Maggio to be jailed until he complied or until further order of the court. Again the Circuit Court of Appeals affirmed. 2 Cir., 157 F.2d 951, 955.

But in affirming the Court said: 'Although we know that Maggio cannot comply with the order, we must keep a straight face and pretend that he can, and must thus affirm orders which first direct Maggio 'to do an impossibility, and then punish him for refusal to perform it." Whether this is to be read literally as its deliberate judgment of the law of the case or is something of a decoy intended to attract our attention to the problem, the declaration is one which this Court, in view of its supervisory power over courts of bankruptcy, cannot ignore. Fraudulent bankruptcies probably present more difficulties to the courts in the Second Circuit than they do elsewhere. These conditions are reflected in conflicting views within the Court of Appeals, which we need not detail as they are already set out in the books: In re Schoenberg, 2 Cir., 70 F.2d 321; Danish v. Sofranski, 2 Cir., 93 F.2d 424; In re Pinsky-Lapin & Co., 2 Cir., 98 F.2d 776; Seligson v. Goldsmith, 2 Cir., 128 F.2d 977; Rosenblum v. Marinello, 2 Cir., 133 F.2d 674; Robbins v. Gottbetter, 2 Cir., 134 F.2d 843; Cohen v. Jeskowitz, 2 Cir., 144 F.2d 39; Zeitz v. Maggio, 2 Cir., 145 F.2d 241.

The problem is illustrated by this case. The court below says that in the turnover proceedings it was sufficiently established that, towards the end of 1941, a shortage occurred in this bankrupt's stock of merchandise. It seems also to regard it as proved that Maggio personally took possession of the corporation's vanishing assets. But this abstraction by Maggio occurred several months before bankruptcy and over a year before the turnover order was applied for. The only evidence that the goods then were in the possession or control of Maggio was the proof of his one time possession supplemented by a 'presumption' that, in the absence of a credible explanation by Maggio of his disposition of the goods, he continues in possession of them or their proceeds. Because the Court of Appeals felt constrained by its opinions to adhere to this 'presumption' or 'fiction' it affirmed the turnover order. Now it says it is convinced that in reality Maggio did not retain the goods or their proceeds up to the time of the turnover proceedings and that the turnover order was unjust. But it considers the turnover order res judicata and the injustice beyond reach on review of the contempt order.

The proceeding which leads to commitment consists of two separate stages which easily become out-of-joint because the defense to the second often in substance is an effort to relitigate, perhaps before another judge, the issue supposed to have been settle in the first, and because while the burden of proof rests on the trustee, frequently evidence of the facts is entirely in possession of i § adversary, the bankrupt, who is advantaged by nondisclosure. Because these separate but interdependent turnover and contempt procedures are important to successful bankruptcy administration, we restate some of the principles applicable to each, conscious however of the risk that we may do more to stir new than to settle old controversies.

I.

The turnover procedure is one not expressly created or regulated by the Bankruptcy Act. It is a judicial innovation by which the court seeks efficiently and expeditiously to accomplish ends prescribed by the statute, which, however, left the means largely to judicial ingenuity.

The courts of bankruptcy are invested 'with such jurisdiction at law and in equity as will enable them' to 'cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto * * *.' Title 11 U.S.C. § 11(a)(7), 11 U.S.C.A. § 11, sub. a(7), and the function to 'collect and reduce to money the property of the estates' is also laid upon the trustee. 11 U.S.C. § 75(a)(1), 11 U.S.C.A. § 75, sub. a(1). A correlative duty is imposed upon the bankrupt fully and effectually to turn over all of his property and interests, and in case of a corporation the duty rests upon its officers, directors or stockholders. 11 U.S.C. § 25, 11 U.S.C.A. § 25.

To compel these persons to discharge their duty, the statute imposes criminal sanctions. It denounces a comprehensive list of frauds, concealments, falsifications, mutilation of records and other acts that would defeat or obstruct collection of the assets of the estate, and prescribes heavy penalties of fine or imprisonment or both. 11 U.S.C. § 52(b), 11 U.S.C.A. § 52, sub. b. It also confers on the courts power to arraign, try and punish persons for violations, but 'in accordance with the laws of procedure' regulating trials of crimes. 11 U.S.C. § 11(a)(4), 11 U.S.C.A. § 11, sub. a (4). And it specifically provides for jury trial of offenses against the Bankruptcy Act. 11 U.S.C.A. § 42(c), 11 U.S.C.A. § 42, sub. c. Special provisions are also made to induce vigilance in prosecuting such offenses. It is the duty of the referee and trustee to report any probable grounds for believing such an offense has been committed to the United States Attorney, who thereupon is required to investigate and report to the referee. In a proper case he is directed to present the matter to the grand jury without delay, and if he thinks it not a proper case he must report the facts to the Attorney General and abide his instructions. 11 U.S.C. § 52(e), 11 U.S.C.A. § 52, sub. e.

Courts of bankruptcy have no authority to compensate for any englect or lack of zeal in applying these prescribed criminal sanctions by perversion of civil remedies to ends of punishment, as some judges of the Court of Appeals suggest is being done.

Unfortunately, criminal prosecutions do not recover concealed treasure. And the trustee, as well as the Court, is commanded to collect the property. The Act vests title to all property of the bankrupt, including any transferred in fraud of creditors, in the trustee, as of the date of filing the petition in bankruptcy, 11 U.S.C. § 110, 11 U.S.C.A. § 110, which puts him in position to pursue all plenary or summary remedies to obtain possession.

To entertain the petitions of the trustee the bankruptcy court not only is vested with 'jurisdiction of all controversies at law and in equity' between trustees and adverse claimants concerning property acquired or claimed by the trustee, 11 U.S.C. § 46, 11 U.S.C.A. § 46, but it also is given a wide discretionary jurisdiction to accomplish the ends of the Act, or in the words of the statute to 'make such orders, issue such process, and enter such judgments, in addition to those specifically provided for, as may be necessary for the enforcement of the provisions of this title.' 11 U.S.C. § 11(a)(15), 11 U.S.C.A. § 11, sub. a(15).

In applying these grants of power, courts of bankruptcy hav fashioned the summary turnover procedure as one necessary to accomplish their function of administration. It enables the court summarily to retrieve concealed and diverted assets or secreted books of account the withholding of which, pending the outcome of plenary suits, would intolerably obstruct and delay administration. When supported by 'clear and convincing evidence,' the turnover order has been sustained as an appropriate and necessary step in enforcing the Bankruptcy Act. Oriel v. Russell, 278 U.S. 358, 49 S.Ct. 173, 73 L.Ed. 419; Cooper v. Dasher, 290 U.S. 106, 54 S.Ct. 6, 78 L.Ed. 203. See also Farmers' & Mechanics' National Bank v. Wilkinson, 266 U.S. 503, 45 S.Ct. 144, 69 L.Ed. 408.

But this procedure is one primarily to get at property rather than to get at a debtor. Without pushing the analogy too far, it may be said that the theoretical basis for this remedy is found in the common law actions to recover possession—detinue for unlawful detention of chattels and replevin for their unlawful taking—as distinguished from actions in trespass or trover to recover damages for the withholding or for the value of the property. Of course the modern remedy does not exactly follow any of these ancient and often overlapping procedures, but the object possession of specific property—is the same. The order for possession may extend to proceeds of property that has been disposed of, if they are sufficiently identified as such. But it is essentially a proceeding for restitution rather than...

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