Podolin v. Lesher Warner Dry Goods Co.

• Decision Date: 26 January 1914
• Docket Number: 1752.
• Parties: PODOLIN et al. v. LESHER WARNER DRY GOODS CO.
• Court: U.S. Court of Appeals — Third Circuit

210 F. 97

PODOLIN et al. v. LESHER WARNER DRY GOODS CO.

No. 1752.

United States Court of Appeals, Third Circuit.

January 26, 1914

Clinton O. Mayer, of Philadelphia, Pa., for petitioners.

J Howard Reber, of Philadelphia, Pa., for respondent.

Before GRAY and BUFFINGTON, Circuit Judges, and YOUNG, District Judge.

GRAY Circuit Judge.

This is an appeal from the decree of the court below affirming, with a modification, the order of the referee in bankruptcy, that the bankrupts above named should, within 30 days, complete their schedules in bankruptcy by the addition of a list of creditors holding securities; a list of creditors whose claims are unsecured; a list of liabilities in notes or bills discounted which ought to be paid by makers, drawers and acceptors; a list of stock in business and the valuation thereof; a list of personal property of whatever description and the place where situate, and a list of debts due bankrupts on open accounts; as required by the bankrupt law and the orders in bankruptcy.

On the 17th day of October, 1911, a petition in involuntary bankruptcy was filed against Israel Podolin, Louis Brod, and Benjamin Dein, individually and trading as the Franklin Suit & Skirt Company.

On the 3d day of November, 1911, a receiver having been appointed he filed a petition for an order on one Samuel Rudsky, to deliver over unto him certain merchandise claimed to be the property of the alleged bankrupts. An issue was made, the case proceeded with before a special referee, the bankrupts called for examination therein, and a report made. It was therein found that the bankrupts, in conjunction with Rudsky and others, had fraudulently removed these goods from their place of business under an alleged delivery of the same as collateral security for a loan, and that the property was the property of the receiver, and not of Rudsky. This finding was affirmed by the court below, and there has been no appeal therefrom.

On December 19, 1911, a warrant was issued in the District Court, on information filed by the Postal Department against the bankrupts, alleging a conspiracy to defraud creditors by fraudulent use of the mails. An indictment was found against the three bankrupts at the March sessions, 1912, of that court, charging them with having sent through the mails a statement of their financial worth which was false and fraudulent and gotten up for the purpose of cheating and defrauding creditors. This indictment is pending and undisposed of.

An adjudication in bankruptcy was made on the 28th day of June 1912, and the bankrupts declined to file schedules in the case, as required by the bankrupt act and the orders in bankruptcy made thereunder, on the ground that they would tend to incriminate them. The referee, upon argument, decided that the bankrupts should file their schedules in bankruptcy, and that whenever particular information required under those schedules was such as might incriminate them, they should refuse to furnish it, upon the specific ground that in doing so it might incriminate them. The referee's decision was sustained by the District Court.

The bankrupts then filed schedules, which answered certain of the questions which they were required to answer, but declined to answer questions or give lists under the following heads:

List of creditors holding securities;

List of creditors whose claims are unsecured;

List of liabilities in notes or bills discounted which ought to be paid by drawers, makers, acceptors, or indorsers;

List of stock in trade in business and the value thereof;

List of goods or personal property of any other description, with the place where it is situated;

List of debts due bankrupts on open accounts.

A petition was then filed by a creditor of the bankrupt, asking for an order that the bankrupts should complete their schedules in bankruptcy so as to contain the matter omitted. The bankrupts filed an answer, averring that they had replied to all the questions except such as should tend to incriminate them.

The learned referee, whose statement of the case we have so far followed, in the course of his clear and well reasoned report, says:

'The indictment found against the bankrupts is based upon an alleged statement of theirs, dated September 6, 1911, containing a statement of their accounts as of June 10th of the same year. It embraces a list of book accounts and merchandise on hand on the asset side, and open accounts and loans on the liability side, and they allege that if they are compelled to set forth a list of their creditors as of the date of the filing of the petition in bankruptcy, even though it were several months after the date of the statement, it would furnish the names of the parties with whom they dealt and from it could be obtained a statement of the accounts of the bankrupts with them as of June 10, 1911, the sum total of which might differ entirely from the statement of liabilities as set forth in the bankrupts' statement upon which they were indicted.

'It has been repeatedly held that a bankrupt pleading his constitutional privileges must give such information to the court as will enable it to judge whether he is within such privilege, and the question before the referee is therefore, whether under the circumstances of this case, the filing of the omitted lists would furnish information to sustain the criminal charge. It is not, in the referee's opinion, material that these lists might in some unlikely contingency, give such information. They must be such as would evidently do so.'

The referee concludes with an order that the bankrupts should, within 30 days, complete their schedules in bankruptcy, above referred to, as required by law.

On the petition of the bankrupts, the referee certified to the District Court, under General Order No. 27 (89 F. xi, 32 C.C.A. xxvii) the facts in the case touching the refusal by the bankrupts to give complete lists in the schedules required by law to be filed by them, on the ground that to do so would incriminate them, and the order and action of the referee in regard thereto, as above stated.

The matter having been heard before the District Court on this certificate, the learned judge thereof filed a memorandum, as follows:

'The referee's order of May 12, 1913, will be so modified, ex majori cautela, as to provide expressly that the bankrupts may omit from their schedules any reference to the transaction with Rudsky. They are still exposed to the danger of prosecution in connection with that transaction, and they should not be compelled to run the not remote risk of having their statements used against them in such a prosecution. The connection between such statements and the evidence required to sustain the prosecution is direct and immediate.

'But their objection to filling out the other schedules cannot be sustained. These (A3, A4, B2c and B3a) require them to set forth certain facts about their financial condition in October, and I have not been convinced that these facts have so close a connection with the written representations about their condition that were mailed in the preceding June as would tend to convict them of a postal crime in making such representations. In my opinion the connection, if it exists at all, is remote and contingent, and need not be taken into account.

'With the foregoing modification, and with a slight change in date, so that the bankrupts are now directed to file their schedules on or before June 16th. instead of the date fixed by the referee-- his order is affirmed.'

Thereafter, a decree was entered, directing the bankrupts to file the schedules as required by the bankrupt law, and the general orders made thereunder, showing their financial condition in October, 1911, but omitting any reference to their transaction with Rudsky. We recognize the importance of the question involved in this case, and have given it due consideration. No decision of the supreme court, or of any federal court, has been cited exactly in point and covering the precise question here involved. That question is, whether the bankrupts are justified, under the fifth amendment of the Constitution of the United States, which declares that 'no person * * * shall be compelled in any criminal case to be a witness against himself,' in refusing to comply with the requirement of section 7 of the Bankrupt Act of 1898 (30 Stat. 548, c. 541 (U.S. Comp. St. July 1, 1901, p. 3424)), that they should, within 10 days after adjudication, make oath to and file a schedule of their property, showing the amount, kind, and location thereof, its money value in detail, and a list of their creditors, showing their residences, if known, the amounts due each of them, the consideration therefor, and the security held by them, if any, in the manner prescribed by the orders in bankruptcy.

Whatever may have been the opinion, therefore, as to the scope of the privilege conferred by this constitutional provision, it has been settled ever since the Counselman Case, 142 U.S. 547, 12 Sup.Ct. 195, 35 L.Ed. 1110, that the privilege is not confined to a criminal case against the person himself who claims it.

Counselman had been subpoenaed before a grand jury in the Northern district of Illinois, to testify in an investigation requested by the Interstate Commerce Commission, and then being conducted by the district attorney for that district as to whether certain railroads engaged in interstate commerce had violated the provisions of the act in that behalf, by charging to certain shippers less than their published tariff rates for the transportation of grain, and in this manner giving preference to such shippers. Counselman was a large shipper of grain, with offices in Chicago, and in his examination h...