Myron M. Navison Shoe Co. v. Lane Shoe Co., 2383.

• Decision Date: 23 December 1929
• Docket Number: No. 2383.,2383.
• Citation: 36 F.2d 454
• Parties: MYRON M. NAVISON SHOE CO., Inc., v. LANE SHOE CO.
• Court: U.S. Court of Appeals — First Circuit

36 F.2d 454 (1929)

MYRON M. NAVISON SHOE CO., Inc., v. LANE SHOE CO.

No. 2383.

Circuit Court of Appeals, First Circuit.

December 23, 1929.

Mark M. Horblit (of Horblit & Wasserman) and Benjamin Goldman, both of Boston, Mass., for appellant.

Lee M. Friedman (of Friedman, Atherton, King & Turner), of Boston, Mass., for appellee.

Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.

BINGHAM, Circuit Judge.

This is an appeal from a decree of the District Court for Massachusetts adjudging the appellant, Myron M. Navison Shoe Company, Inc., a bankrupt on the involuntary petition of a single creditor, the Lane Shoe Company. The petition was filed November 10, 1928, and alleged that all of the creditors of the Navison Shoe Company, Inc., "are less than twelve in number." The only act of bankruptcy alleged and relied upon by the petitioner was a general assignment for the benefit of creditors made July 13, 1928, by the Navison Shoe Company, Inc., to Mark M. Horblit, as assignee or trustee. The answer to the petition was filed November 22, 1928. In it the making of the general assignment was admitted. It specifically denied the allegation of the petition that the creditors "are less than twelve in number"; averred that on the date of the filing of the petition the number of creditors were in truth and in fact twelve or more in number; and annexed thereto a list under oath of such creditors, exclusive of those who had previously assented to the general assignment. The answer also averred that the allegation of the petition as to the number of creditors (setting out the facts) was false, and was fraudulently inserted in the petition, with the purpose of circumventing the provisions of the Bankruptcy Act, and that the petitioner did not come into court with clean hands.

November 27, 1928, the petition and answer were sent to a special master to ascertain and report the facts. The hearings before him began January 16, 1929. He found, among other things, that it was admitted that on July 13, 1928, the Navison Shoe Company, Inc., made a general assignment of its property for the equal benefit of its creditors, and that, prior to filing the petition, four creditors having claims amounting to $71,857.42 assented to the assignment; that these creditors were the Green Bell Shoe Company, whose claim was $60,721.52, the Lion Shoe Company, whose claim was $8,610.90, the Beacon Trust Company, $2,500, and the Richmond Press, $25. The petitioning creditor, the Lane Shoe Company, had a claim of $41,109.72. It did not assent to the assignment.

Among the twenty-nine creditors outstanding on November 10, 1928, when the petition was filed, and who had not assented to the assignment, it was found that there were eighteen who then held provable claims; that they were original creditors, whose respective claims had been incurred prior to November 10, 1928; that each of these eighteen claims arose in the regular course of business, were duly entered in the ledger accounts of the company, and each was a valid provable claim on November 10, 1928.

As to these eighteen claims, the master ruled and found that only one of them could be counted for the purpose of determining the number of outstanding claims, for the reason that, after the filing of the petition, Joseph Navison purchased, or caused to be purchased, seventeen of these claims, and took assignments to himself of twelve of them and to his nominees the remaining five, viz. to Sylvia M. Navison two claims, and to Harry Lewis, William Sullivan, and Max Leibson one each; that the twelve claims assigned to Joseph Navison were paid for by him by checks drawn on his own personal bank account; that the other five were paid for by Sylvia, who had no financial interest in the business of the Navison Shoe Company, Inc., by checks drawn by her on her personal bank account; that ten of the seventeen claims were assigned after November 10, 1928, and on or before November 22, 1928, the date of the filing of the answer; and that the other seven were assigned thereafter and on or before November 30, 1928; and that these claims were procured so that intervening petitions could not be filed.

Of the remaining eleven claims, of the twenty-nine that had not assented to the assignment, the master ruled that only seven of them could be counted in determining the number of outstanding claims; that four of the eleven, to wit, the claims of Horblit & Wasserman, H. E. Thompson, the Klous Electric Company, and of Joseph Navison, should be excluded from the count; that the claim of Horblit & Wasserman, a firm of lawyers, of which Mr. Mark M. Horblit, the assignee or trustee under the general assignment, was a member, and which firm were the attorneys for the Navison Shoe Company, Inc., could not be counted, because it was for legal services rendered the Navison Shoe Company, Inc., the alleged bankrupt; that the claim of H. C. Thompson, an attorney, could not be counted, because it was for legal services (and he states that "there was evidence that after the petition was filed it had been bought by one of the Navisons," but he does not find that it had been); that the claim of Klous Electric Company could not be counted, although outstanding on the date of the filing of the petition, for the reason that on the 28th of January, 1929, one Schindler purchased the claim, and, although the master states "there was no evidence as to and in whose behalf Schindler acted," he made the inference that "it was purchased on behalf of the alleged bankrupt or of Joseph Navison," and therefore could not be counted; and that the claim of Joseph Navison consisted of the claims of two creditors, the Selwell Shoe Form Company and the Klein Shoe Store, aggregating $107.25, which he purchased and had assigned to him, prior to November 10, 1928, the date of filing the petition, and could not be counted.

The reason given by the master for excluding the seventeen claims assigned to Joseph Navison or his nominees, subsequent to the filing of the petition, and the two claims of $107.25 assigned to him prior to the filing of the petition, was that Navison was the beneficial owner of all of the stock of the Navison Shoe Company, Inc., the legal title to which was in the name of an employee in that company, and, he having purchased or caused to be purchased these nineteen claims, the Navison Shoe Company, Inc., the alleged bankrupt, was estopped.

With reference to the matter set up in the defendant's answer charging that the allegation of the petition that the number of creditors was less than twelve was knowingly false and fraudulent, the master found that, just before the general assignment was made, the Navison Shoe Company, Inc., and its larger creditors had a conference to see if its affairs could not be adjusted, and that, "at that time a representative of the Lane Shoe Company examined the books of the company the appellant, looking over the accounts payable"; that on or about July 14, 1928, the day following the making of the assignment, the assignee caused a letter to be sent to the creditors of the Navison Shoe Company, Inc., including the Lane Shoe Company, reading as follows:

"Dear Sirs: You are hereby notified that Myron M. Navison Shoe Co., Inc., has executed to our Mr. Horblit a deed of trust, which provides for the collection and conversion into cash of the assets conveyed thereby, and the distribution of the same among the creditors. Our Mr. Horblit has accepted the trust.

"There are about thirty creditors of the corporation, and several of them have already signified their intention to assent to the deed of trust. * * *

"The creditors are requested to sign and return the enclosed assent to the trustee, together with a statement of account. With the cooperation of the creditors a speedy and economical administration may be expected.

"Very truly yours "Horblit & Wasserman."

The master further found that about July 19, 1928, the Lane Shoe Company brought a suit in equity against the Navison Shoe Company, Inc., and others, in the Massachusetts Superior Court, "to reach and apply the property conveyed under the trust"; that, at preliminary hearings in the equity suit, counsel for the Navison Shoe Company, Inc., stated that only four creditors had assented to the assignment or deed of trust; and that on November 6, 1928, just four days prior to the filing of the petition, in answer to interrogatory 49, filed in the equity suit, there was furnished to counsel of the Lane Shoe Company an answer under oath made by one of the defendants, in which, among other things, the affiant stated: "As to the list of creditors of the Navison Shoe Company, Inc. there were in all on July 13, 1928, about thirty creditors."

But, having made these preliminary findings of fact upon this question, the master failed to find whether the Lane Shoe Company, on November 10, 1928, when it filed its petition in bankruptcy, in which it alleged that the creditors of the Navison Shoe Company, Inc., were less than twelve, did so knowing the allegation was false, or did so recklessly, not caring whether the allegation, which it affirmed as of its own knowledge to be true, was true or false, and that its conduct was fraudulent, if the allegation was false. He did, however, find that counsel for the Lane Shoe Company "was told at these several times, and prior to the bankruptcy proceedings, of the fact that there were thirty creditors," but he further states: "I also find as a fact that there is no evidence that he believed that there were this number of creditors." It was wholly immaterial what counsel for the Lane Shoe Company believed. The material question was what the Lane Shoe Company knew, or should have known and believed, on the date it filed its petition seeking the adjudication of the Navison Shoe Company, Inc., as a bankrupt, having previously received the information that it had.

Having made these findings and rulings excluding all of...