Zwick v. Freeman

• Decision Date: 14 February 1967
• Docket Number: No. 64,Docket 30344.,64
• Parties: Louis ZWICK and Joseph Zwick, individually and as co-partners of Louis Zwick and Son, and Louis Zwick & Son, Appellants, v. Orville L. FREEMAN, as Secretary of Agriculture of the United States of America and the United States of America, Appellees.
• Court: U.S. Court of Appeals — Second Circuit

373 F.2d 110 (1967)

Louis ZWICK and Joseph Zwick, individually and as co-partners of Louis Zwick and Son, and Louis Zwick & Son, Appellants, v. Orville L. FREEMAN, as Secretary of Agriculture of the United States of America and the United States of America, Appellees.

No. 64, Docket 30344.

United States Court of Appeals Second Circuit.

Argued December 12, 1966.

Decided February 14, 1967.

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Arthur Slavin, Slavin & Carr, New York City, for appellants.

Robert E. Duncan, Atty., Dept. of Agriculture, John W. Douglas, Asst. Atty. Gen., Morton Hollander, Dept. of Justice, Neil Brooks, Asst. Gen. Counsel, Daphne M. Anderson, Atty., Dept. of Agriculture, for appellees.

Before WATERMAN, MOORE and KAUFMAN, Circuit Judges.

WATERMAN, Circuit Judge:

Petitioners seek to review an order of the Judicial Officer of the United States Department of Agriculture, acting for the Secretary of Agriculture, based upon his findings and conclusions that petitioners' partnership, Louis Zwick & Son, had engaged in repeated and flagrant violations of the Perishable Agricultural Commodities Act (hereinafter sometimes "Commodities Act") § 2, 7 U.S.C. § 499b(4).¹ The individual petitioners seek review because the effect of this order under 7 U.S.C. § 499h(b) results in barring them from employment by any licensee under the Commodities Act for a minimum period of one year because they were "responsibly connected" with the partnership licensee against which the order was issued.²

The facts underlying the proceedings were not disputed and the parties entered into a stipulation which was the basis of the Judicial Officer's determination. The stipulation indicates that petitioners Louis Zwick and Joseph Zwick were engaged in business as partners under the name Louis Zwick & Son. The partnership conducted business in New York City and had been licensed under the Perishable Agricultural Commodities Act as a commission merchant and dealer since August 1947, said license having been renewed annually. Between May 1963 and August 1964 Louis Zwick & Son received 132 lots of fruits and vegetables from seven shippers, sold them, and failed to pay for them. Between June and August 1964 the partnership received 20 lots of fruits and vegetables from five shippers on a joint account basis, sold them and failed to pay for them. Between January 1961 and September 1964 the partnership purchased and received 140 lots of perishable agricultural commodities from 22 shippers but failed to pay for them although some installment payments were paid upon purchases made prior to 1964. During 1963 and 1964 the partnership engaged various brokers to negotiate purchases on its behalf. Three brokers negotiated such purchases, earned their fees, and were not paid by the partnership. In summary, Louis Zwick & Son failed to pay sums due upon 295 transactions covered by the Commodities Act and owed a total of $254,394.55.

On September 25, 1964 the partnership filed a petition in bankruptcy under Chapter XI and submitted a plan of arrangement by which it offered to pay creditors 30% on their claims. The schedules filed in these proceedings listed all the creditors in the 295 transactions described above. The plan of arrangement was approved and confirmed by the Referee by an order dated February 25, 1965. The bankruptcy proceedings included a report that an adverse survey of the partnership books by certified public accountants showed no evidence of irregularity or wrongdoing on the part of the partnership. The license of the partnership under the Commodities Act terminated automatically upon the approval of the plan.

Petitioners object to the Judicial Officer's findings and order on a number of grounds which we will consider in turn. We find no merit to any of their contentions and we therefore deny their petition to review the Judicial Officer's order.

Petitioners first contend that their failure to make full payment to their creditors in the 295 transactions described above does not constitute repeated or flagrant violations within the meaning of the statute. Their argument seems to be that inasmuch as the violations were mainly in one short period during the spring and summer of 1964, when petitioners were in the process of becoming insolvent, all the violations should be considered together as one bundle of violations in point of time and not as "repeated" violations in a continuing series of violations. This is a strained interpretation of a common word which we must interpret in its conventional sense. United States v. Gilbert Associates, Inc., 345 U.S. 361, 364, 73 S.Ct. 701, 97 L.Ed. 1071 (1953); Folker v. Johnson, 230 F.2d 906, 907 (2 Cir. 1956). The 295 violations did not occur simultaneously and therefore they must be regarded as "repeated" violations within the meaning of the Commodities Act.

Petitioners likewise attack the Judicial Officer's conclusion that their violations were "flagrant" although the report filed in the bankruptcy proceeding showed that there was no evidence of wrongdoing on their part. As the statute only requires a finding that the violations are repeated or flagrant³ and we have already found them to be "repeated" it is not necessary also to find them to be "flagrant" in order to support the Judicial Officer's conclusion. But we think that these 295 violations were in fact "flagrant" violations within the meaning of the statute. Petitioners' reference to the report filed in the bankruptcy proceeding which showed that there was no evidence of wrongdoing on their part is an irrelevant reference for it is clear that the failures of the petitioners to pay the accounts that caused the institution of the bankruptcy proceedings made petitioners guilty of flagrant violations of the Perishable Agricultural Commodities Act before the bankruptcy proceedings were ever instituted. As there was a series of 295 transactions which occurred over a period of several months and which involved a deficit in excess of a quarter of a million dollars, it is inconceivable that petitioners were unaware of their financial condition and unaware that every additional transaction they entered into was likely to result in another violation of the Commodities Act. It would be hard to imagine clearer examples of "flagrant" violations of the statute than were exemplified by petitioners' conduct.

The next contention of the petitioners is that the institution of the within proceedings before the Judicial Officer pursuant to the Perishable Agricultural Commodities Act after the order of confirmation of petitioners' plan of arrangement under the Bankruptcy Act contravened Section 17 of the Bankruptcy Act and the goals the Bankruptcy Act was intended to foster.

Section 17 of the Bankruptcy Act, 11 U.S.C. § 35 provides: "A discharge in bankruptcy shall release a bankrupt from all of his provable debts." To be sure, a discharge is intended to accomplish just exactly that, offering the bankrupt a fresh start in life. However, the discharge provided by Section 17 does not extinguish debts; it only bars, if pleaded, legal proceedings to enforce payment of the discharged debts. Helms v. Holms, 129 F.2d 263, 266, 141 A.L.R. 1367 (4 Cir. 1942); 1 Collier, Bankruptcy, ¶ 17.27 at 1693 (14th ed. 1966). Only "provable debts" are discharged by the operation of Section 17; all other obligations of the bankrupt remain in full force. Crawford v. Burke, 195 U.S. 176, 186, 25 S.Ct. 9, 49 L.Ed. 147 (1904); 1 Collier, Bankruptcy, ¶ 17.03 at 1580 (14th ed. 1966).

"Provable debt" is defined in § 63 of the Bankruptcy Act and "debt" is defined somewhat circuitously in § 1 (14) of the Bankruptcy Act which states "`Debt' shall include any debt, demand, or claim provable in bankruptcy." While "debt" in the bankruptcy law is not restricted to its strict legal meaning, In re Fife, 109 F. 880 (W.D.Pa.1901) it does require that something be "owed" to the creditor. In re A & G Knitting Mills, 144 F.2d 125 (3 Cir. 1944); In re Greenebaum Bros. & Co., 62 F.Supp. 769 (E.D. Pa.1945); 3 Collier, Bankruptcy, ¶ 63.02 at 1762 (14th ed. 1966); cf. Ivanhoe Building & Loan Assn. v. Orr, 295 U.S. 243, 55 S.Ct. 685, 79 L.Ed. 1419 (1935). The distinction here is an obvious one; here the petitioners "owe" nothing to the Government. The statutory provision with which we are concerned can best be described as a sanction imposable upon the petitioners by the Government because of their conduct by which their debts to others came into being. Inasmuch as governmental sanctions are not regarded as debts even when they require monetary payments, Parker v. United States, 153 F.2d 66, 71, 163 A.L.R. 379 (1 Cir. 1946); In re Moore, 111 F. 145 (W.D.Ky.1901), it is obvious that petitioners here do not owe a debt to the Government. Nothing could be more ridiculous than to hold that an imposable sanction upon a bankrupt's actions unrelated to a debt owed to the Government would be a "provable debt" the bankrupt could render unenforceable by obtaining a discharge in bankruptcy. Thus there is no direct conflict between the Commodities Act and the provisions of the Bankruptcy Act in this particular.

Petitioners further claim that even if these provisions of the Commodities Act do not conflict with any express provisions of the Bankruptcy Act they conflict with its goals. They also claim that the institution of this proceeding below and the order entered therein were arbitrary and capricious and were improper exercises of the Secretary's discretion in view of the petitioners' discharges in bankruptcy and the report filed in the bankruptcy proceeding that there was no evidence of wrongdoing by the petitioners. We consider all these contentions together. We find nothing improper in the Department's action in instituting the proceeding, or in the Judicial Officer's order imposing the statutorily authorized sanctions, for we do not discover any unconscionable clash between the...