Walker v. Wilkinson

• Decision Date: 22 January 1925
• Docket Number: 4373.,No. 4335,4335
• Citation: 3 F.2d 867
• Parties: WALKER v. WILKINSON. WILKINSON v. WALKER.
• Court: U.S. Court of Appeals — Fifth Circuit

3 F.2d 867 (1925)

WALKER v. WILKINSON.

WILKINSON v. WALKER.

Nos. 4335, 4373.

Circuit Court of Appeals, Fifth Circuit.

January 22, 1925.

W. E. Spell, of Waco, Tex., Jas. A. Templeton, of Fort Worth, Tex., G. A. Stultz, of Wichita, Kan., and Clay Cooke, of Fort Worth, Tex., for appellant and cross-appellee.

Stanley Boykin and H. C. Ray, both of Fort Worth, Tex. (George M. Conner, Capps, Cantey, Hanger & Short, and Boykin & Ray, all of Fort Worth, Tex., on the brief), for appellee and cross-appellant.

Before WALKER and BRYAN, Circuit Judges, and DAWKINS, District Judge.

WALKER, Circuit Judge.

The appellee, as trustee in bankruptcy of Walker Grain Company, filed his bill in equity against the appellant, J. L. Walker. The bill contained averments to the following effect:

Walker Grain Company, a corporation organized in 1911, was adjudged a bankrupt on August 16, 1918, upon an involuntary petition filed on that date. Since its organization appellant has been its principal stockholder, its president, and has controlled and dominated its affairs. The business of the bankrupt was confined to the purchase and sale of grain. It bought grain in carload lots, with draft attached to bill of lading, and would resell and divert shipments upon their delivery. It kept its assets concealed by fraudulently transferring them to the appellant. Assets belonging to the bankrupt were kept concealed in the following manner: The bankrupt kept in the American National Bank of Fort Worth a bank account styled "Walker Grain Company," or "The Walker Grain Company," and another account was kept in the same bank, that account until February, 1917, being in the name of appellant, and after that date being in the name of "J. L. Walker, Trustee." The deposits to, and drafts against, the bankrupt were so managed that customarily at the close of each day's business the bankrupt's account would show an overdraft, which overdraft would be met by the bank, pursuant to authority given to it, transferring the amount of the overdraft from the above-mentioned "J. L. Walker," or "J. L. Walker, Trustee," account to the bankrupt's account; such amount being retransferred to the account from which it had been transferred when additional deposits were credited to the bankrupt's account. The moneys that went into said "Trustee" account were transferred to it by the bankrupt, and at all times were the earnings of the bankrupt, and in reality its concealed assets.

The agreement with the bank as to that account was that no checks would be drawn against it, except to cover the bankrupt's indebtedness to the bank, without the special permission of the bank. No substantial balance was ever allowed to accumulate in the account in said bank in the name of the bankrupt. By permission of said bank and the bankrupt, appellant, in June, 1917, withdrew $75,000 from the "Trustee" account and invested that amount in United States Liberty bonds, which bonds were registered in the name of the appellant, and were then placed in said bank as collateral to secure the bank against overdrafts and indebtedness of the bankrupt to said bank in the same manner as the "Trustee" account. Within four months prior to the filing of the bankruptcy petition the bankrupt, while it was insolvent, with the purpose of effectuating the concealment of its assets, and for the purpose of giving appellant, who claimed to be a creditor of the bankrupt, a preference and advantage over other creditors of the bankrupt of the same class, and with full knowledge of appellant that such transfers would give him a preference over other creditors, transferred to appellant the balance then remaining in said "Trustee" account, to wit, the sum of $45,000, and after the filing of the bankruptcy petition transferred to appellant said Liberty bonds, of the par value of $75,000.

The bill also contained averments to the effect that moneys aggregating the sum of at least $300,000, constituting assets of the bankrupt, were invested in described real estate, the title to which was taken in the name of the appellant. The bill contained prayers that appellee have judgment against appellant for the above-mentioned sums, that appellant be required to account for the sums of money transferred to him as alleged in the bill, and for general relief.

After the above-mentioned allegations had been put in issue, a trial of the case was begun before Judge Wilson, and some evidence was adduced in his presence. Thereafter appellant filed an affidavit of disqualification of Judge Wilson on account of alleged bias and prejudice. Judge Wilson refused to certify his disqualification, and made an order referring the cause to a master, to hear and determine the same and report to the court his findings of fact, and conclusions of law, with recommendations thereon; that order providing for a reference to the master of the testimony already stenographically taken in the case, and for the master hearing such additional evidence as may be material, relevant, and pertinent to the cause. Thereafter, pursuant to a request of Judge Wilson, the hearings in the case were before Judge Atwell. Judge Atwell overruled a motion made by the appellee to set aside the above-mentioned order of reference made by Judge Wilson. The master made a report stating his conclusions of fact and of law, and recommendations thereon. Upon hearing by the court of appellant's exceptions to the master's report, some of those exceptions were sustained, and the remainder thereof were overruled. Thereupon the court rendered its decree, which adjudged that the appellee have and recover of and from appellant $19,000, with interest thereon at 6 per cent. per annum from November 2, 1918, and costs of court. The appellant appealed from that decree, and the appellee sued out a cross-appeal.

Some contentions made in behalf of appellant, and grounds on which those contentions are adversely disposed of, are indicated by the following statement: As the averments of the bill showed voidable transfers of assets of the bankrupt within four months before the filing of the petition in bankruptcy, the court of bankruptcy had jurisdiction of the suit by the trustee in bankruptcy for the recovery of such assets. Bankruptcy Act, §§ 60b, 67e and 70e, as amended (Comp. St. §§ 9644, 9651, 9654). As the legal title to the bankrupt's assets in question stood in the name of the appellant, averments of the bill showing that he held those assets in trust for the bankrupt, with the result that the bankrupt's asserted right was an equitable one, a bill in equity for the enforcement of that asserted right was maintainable. Even if Judge Wilson's right to act in the case was effected by the filing of the affidavit of bias and prejudice after the trial of the case was commenced by him (Judicial Code, § 21 Comp. St. § 988), the action of Judge Atwell in overruling the motion to set aside the order of reference made by Judge Wilson amounted to a ratification of such order by Judge Atwell.

Equity rule 59 does not deprive a court of the power in such a case as the instant one to make such an order of reference to a master as the one which was brought into question. There was ground for the conclusion that the case was an exceptional one, involving matters of account, the investigation of books and accounts with reference to apparently complicated transactions. In such a situation it is within the discretion of the court to refer the case to a master, to hear the evidence and report his findings and conclusions; the court retaining the power to review such findings and conclusions. Holt Mfg. Co. v. Best Gas Traction Co. (D. C.) 245 F. 354. The appellee's right to institute and prosecute this suit was not affected by the pendency and prosecution of another suit brought by the appellee against the appellant (Walker v. Wilkinson C. C. A. 296 F. 850), the latter suit not involving the alleged transfers of alleged concealed assets of the bankrupt which were brought into question by this suit. Reversible error was not committed by permitting a witness for the appellee, who testified as to admissions made by the appellant, when examined as a witness in another proceeding, to refresh his memory by reading a stenographic report of that testimony made by another person;...