Rosenbaum v. Dutton

• Decision Date: 26 February 1913
• Docket Number: 3,845.
• Citation: 203 F. 838
• Parties: ROSENBAUM et al. v. DUTTON.
• Court: U.S. Court of Appeals — Eighth Circuit

203 F. 838

ROSENBAUM et al. v. DUTTON.

No. 3,845.

United States Court of Appeals, Eighth Circuit.

February 26, 1913

According to the statement of the referee: 'The Pittsburg Lead &amp Zinc Company, Consolidated, was adjudged a bankrupt on the 14th day of September, 1908, upon an involuntary petition filed August 28, 1908. The first meeting of creditors was held on the 13th of October, 1908, at which meeting a claim in favor of F. R. Dutton was proved and allowed in the sum of $7,352.69. Mr. S. A. Will was present at the meeting, and in answer to his inquiry was advised by the referee that he would be given time, and that, if he saw proper, he might file a motion to expunge the allowance. On October 18, 1908 claims were proved and allowed in favor of Rosenbaum and Will, respectively. On the 1st day of April, 1909, the trustee filed motions to expunge the allowance so made in favor of Will and Rosenbaum, respectively, and such proceedings were had thereon that on the 26th of April, 1909 the allowances of these claims were expunged. On the same day, April 1, 1909, the trustee filed a motion to expunge the claim allowed in favor of F. R. Dutton. Issues were made upon this motion, evidence heard, and a finding and judgment entered by the referee on the 15th day of July, 1909 sustaining the motion and expunging the allowance in favor of F. R. Dutton. On the 27th of July, 1909, Dutton filed a motion for a rehearing, which was granted on the 15th of November, 1909, and the cause set down for hearing on the 17th of December, 1909. On that day by consent of the parties a judgment was entered overruling the motion to expunge and permitting the claim to stand as allowed. On the 5th day of May, 1910, the trustee filed a motion for an assessment and call upon the unpaid stock of the stockholders of the bankrupt corporation to meet its unpaid debts, and notice was given to the stockholders thereof, and among others to Rosenbaum and Will, as such stockholders. On June 13, 1910, Rosenbaum and Will filed the motion now under consideration. This pleading, which is herein termed a 'motion,' is called a 'petition' by the pleader. It is, in effect, a motion to set aside the allowance of the claim, and also a motion to expunge the claim, as the pleading embraces both matters and the evidence is upon both points. The cause was submitted to the court upon both questions at the same time. The trustee also filed a paper, in which he stated he unites in the motion to set aside the order allowing the claim of Mr. Dutton and to expunge the same, but expressly refuses to adopt the pleading, so far as any improper act was done in the entering of the judgment sought to be set aside.'

It appears from the evidence that a large number of the items included in Mr. Dutton's account are very questionable; but we do not desire to express any opinion as to this on this appeal. No notice was given to the appellants, who were the objecting creditors to the allowance of Dutton's claim, that his motion for rehearing had been granted by the referee and the cause set down for hearing on November 17, 1909. Appellants reside in the city of Pittsburgh, Pa., and knew nothing of the motion for rehearing having been granted, nor of the date when it was set down. The petitions of appellants set forth that Rosenbaum is a creditor of the bankrupt corporation in the sum of $700 by reason of having been compelled to pay a note of the bankrupt on which he was an indorser, and the petition of Will alleges that he is a creditor of the bankrupt in the sum of $1,800 by reason of being compelled to pay a note of the bankrupt on which he was one of the indorsers. They further state that, in the petition of the trustee for an order of the court to assess the stockholders of the bankrupt corporation, it was alleged that there remained unpaid indebtedness of the bankrupt estate about $8,000; that in this statement of indebtedness of $8,000 is included the claim of the appellee in the sum of $7,352.69, which claim had been allowed by the referee; that afterwards the trustee filed a motion to set aside and expunge the allowance of the said Dutton on several grounds, and that upon the hearing of said motion the said Dutton was duly represented by counsel, and after a full and complete investigation of the claim of the said Dutton, the referee, on the 13th day of July, 1909, set it aside and expunged the same, the referee finding that the said Dutton was indebted to the bankrupt corporation for unpaid capital stock in the sum of $13,196, which amount was in excess of the allowance; that on the 15th day of November, 1909, the referee sustained a motion for rehearing filed by said Dutton, by consent of the parties, and the claim was allowed; that at the time said motion was made the trustee and the appellee were each represented by counsel at said hearing, and that after hearing the evidence the referee indicated that he would sustain the objections to the allowance of said Dutton, when counsel for the trustee, counsel for the creditors whose claims were undisputed, and counsel for Dutton retired from the room and entered into an agreement that Dutton should only receive $200 of the 5 per cent. dividend then declared on his claim of $7,352.69, and the balance of it was to be paid to the attorneys for the remaining creditors, whose claims were undisputed, and that thereupon his claim should be allowed by consent of all parties. It was also agreed between them that Dutton should collect the remainder of his claim from the appellants as stockholders of the corporation; that the referee had no information of this agreement, but was led to believe that it was an honest adjustment and final settlement, and for this reason reinstated the allowance of Dutton's claim in full; that Dutton is really indebted to the estate for the unpaid stock in the sum of $13,196.

The evidence shows that the attorneys for the trustee, who also appeared for other creditors of the bankrupt, whose claims amounted to about $800, were present, as well as Mr. Dutton and his attorneys; but neither the appellants nor their attorneys were present, having had no notice of the proceeding. An arrangement was then made by the attorney for the undisputed creditors, whose claims amounted to $700 or $800, who also acted for the trustee, and Mr. Dutton, that if he would pay them a certain part of the dividend which would be paid on his claim, everything over $200, they would consent to have his claim allowed in full. Neither the trustee nor the referee knew of...