In re Wein

BREWSTER, District Judge. This is a petition to review on the following certificate of the referee: “I, Arthur Black, referee in charge of the above-named proceeding, do hereby certify that the trustee of the bankrupt has brought a petition, alleging that Nathan Douglas and William Grossman, doing business under the name of Bell Dress Company, are withholding property of the bankrupt, and in which he asks that the respondents be ordered to turn over. “At a hearing on this petition counsel appeared for the respondents and objected to the jurisdiction of the referee. After a preliminary hearing. on. the facts I stated to counsel that I would take jurisdiction and hear the matter on its merits. Counsel for the respondents seeks a review of this decision, and the hearing on the merits has. been suspended until the determination of this review. The facts disclosed are as follows: “The bankrupt was - in the business of selling ready-made dresses. The respondents, doing business as the Bell Dress Company, were contractors, who manufactured dresses. The bankrupt was accustomed to having dresses made by the Bell Dress Company, and his practice for some time had been to ship to the Bell Dress Company the necessary materials, which the Bell Dress Company in turn made up into finished dresses. As a means of convenience the unfinished materials'were charged to the Bell Dress Company when shipped, and the finished dresses were charged to the bankrupt [427] when returned; credit being given for the materials furnished. I find that this procedure was one of convenience only. In reality, the bankrupt owned the .materials and never parted with the title. The Bell Dress Company furnished the labor, and for such undoubtedly had a lien on the finished goods. “This exact procedure was followed in the case of four bales of cloth shipped to the Bell Dress Company a short timo before bankruptcy. Finished dresses were made from this shipment of materials. The Bell Dress Company was unable to obtain pay for its labor before bankruptcy. After bankruptcy, and without consultation with any representative of the estate, the Bell Dress Company proceeded to sell these finished dresses for $342.03, which was much less than they were worth, and kept the proceeds. In defense of this procedure the Bell Dress Company contends that the bankrupt himself directed that the sale be made. “Under these circumstances, I believe the referee has jurisdiction. The respondents had no title to the goods in question, though they had an undoubted lien for the labor of manufacture. The disposal of the goods after bankruptcy, and with knowledge of bankruptcy, was without justification, and was either a deliberate step to gain a preference over other creditors, or was part of a plan.to aid the bankrupt in concealing his assets.” On the facts recited in this certificate, I can readily concur with the learned referee in his belief that he has jurisdiction to proceed further. Apparently the alleged adverse claimants, when before the referee, sought to justify their conduct by showing that they acted with the consent of the bankrupt; but, the sales having been made after bankruptcy proceedings had been instituted, the referee was entirely correct in holding that the disposition made of the property by the claimants was wholly unlawful. May v. Henderson, 268 U. S. 111, 45 S. Ct. 456, 69 L. Ed. 870. When the case was submitted to this court, apparently for the lii'st time, the Bell Dress Company asserted a claim of ownership in the property. They now claim that they had title to the materials and finished dresses, and were at liberty to dispose of them as their own property. But the mere assertion of a claim is not enough to prevent the referee from taking jurisdiction. Mueller v. Nugent, 184 U. S. 1, 22 S. Ct. 269, 46 L. Ed. 405; May v. Henderson, supra. The claim must be more than colorable. I am of the opinion in this case that the claimants present only a- colorable claim, with no basis in fact or in law. The property was in their possession as agents, or bailees, of the bankrupt, and was constructively in custodia legis at the time the claimants undertook to dispose of it. They should account to tho trustee for the property which they hold as such bailees.