Union Parlor Furniture Co. v. A. Weiser, Inc.

ANDERSON, Circuit Judge. This is an appeal from orders of the District Court, adjudicating the appellant a bankrupt, denying a motion to' recommit the [712] referee’s report, and to- strike out parts of the referee’s report, and refusing to confirm appellant’s application for confirmation of composition. On February 3, 1930, three creditors filed an involuntary petition against the appellant, alleging insolvency and assignment for the benefit of creditors. The next day the appellant filed a petition for a meeting to consider a composition offer of 2ñ per cent, cash; and on the same day the ease was ferred to the referee “to hear and determine all matters of fact relating to said meeting and the proposed offer in composition.” On February 12, 1930, the appellant raised its offer in composition to 30 per cent, and duly prayed for a meeting to'consider said offer. On March 4, it made a third offer of 35 per cent., with a like petition. No new order of reference was made to the referee. On May 22, 1930, the referee filed his report. In it he dealt with a loan obtained from one Poorvu for $65,000, two days before the assignment for the benefit of creditors; he expressly found that this transaction “was made with intent to hinder, delay and defraud creditors.” His report sets forth that, after he had expressed his belief that the composition ought not to be confirmed, and could not be confirmed if objections then vigorously urged by a substantial group of the creditors were pressed, Glunts, who had up to that time acted as counsel for the bankrupts, withdrew, and new counsel appeared (Guterman & Guterman), who thereupon, withdrew the offer of 30 per cent, and made a new offer of 35 per cent. So far as appears, up to that time no objection had been made to the referee’s hearing the whole ease, and dealing with the merits of the ob jections of creditors to the composition offer. But on May 21 the new counsel did file an objection, upon the ground that the referee had no jurisdiction to go into such questions under the order of reference of February 4, 1930, and that such proceeding was in direct contravention of section 12 of the Bankruptcy Act (11 USCA § 30). The referee dealt with the matter as follows : “The procedure of the referee in this case is objected to by counsel for the alleged bankrupt, who contend that when a majority of creditors accept an offer in composition the referee has no other duty or right than to make the necessary clerical record and computation and forward the ease to the clerk of the District Court without comment. Such is the usual practice. When a case is thus received by the clerk of the District Court, notices are sent to all creditors, who have ten days in which to file objections to the confirmation of the offer. If no objections be received in that time the composition is confirmed as a matter of course. If objections are filed they are then referred back to the referee for a hearing and a report. “The procedure in this ease is in reality a short cut to the same result. I believe it is founded on good sense. When a responsible group of creditors, represented by reputable counsel, appear at the meeting to consider an offer in composition, and state a real reason in opposition, and satisfy the referee that they intend to press their objection to a final determination, why should that issue be postponed? It will eventually eome back to the same referee for a finding and report on the same question. Why put the clerks of two offices to hours of extra labor, the estate to added expense, and the creditors to a serious delay ? This referee must pass on this particular question sooner or later anyway. Why not the former? If he decides the objections are not sustained he so reports and the composition will go through without any delay, which would not have been caused had the ease followed the usual procedure. If he decides that the objections are'sustained and are sufficient in law to prevent confirmation of the composition, then considerable clerical labor of two offices is avoided, at least two weeks in time is saved and oftentimes a considerable sum of money. “I recommend that the alleged bankrupt be adjudicated forthwith.” He also supplemented his report by finding that the formal requisites of a composition had been met. On June 3 the bankrupt filed an application for confirmation of the composition. On June 26, 1930, two creditors filed objections (with specifications) to such confirmation; on the same day the bankrupt filed motions to recommit the referee’s report, “for the purpose of striking out from said report so much thereof as goes into and deals with (he merits of the objections of creditors to the offer in composition”; and that the same matter be struck out by the court. Both motions were denied by the District Court, and orders entered that the offer of composition be not confirmed, and for adjudication. On July 26 a petition for appeal was allowed by the District Court. There are seven [713] assignments of error, all of which, except the last, are grounded on the court’s refusal to deal with the referee’s alleged extrajurisdictional conduct of the case. The seventh assignment is that the adjudication of bankruptcy was not warranted in law. The petitioning creditors (appellees) move to dismiss the appeal as to all matters except the question of adjudication, on the ground that the other matters sought to he reviewed are proceedings in bankruptcy, appeals concerning which may be allowed only in the discretion of the appellate court, and no petition for appeal has ever been presented to this court. This motion must be granted. In re McVoy Hardware Co. (C. C. A.) 200 F. 949; In re Graham & Sons (C. C. A.) 252 F. 93. See also Taylor v. Voss, 271 U. S. 176, 46 S. Ct. 461, 70 L. Ed. 889; Ahlstrom v. Ferguson (C. C. A.) 29 F.(2d) 515; Broders v. Lage (C. C. A.) 25 F.(2d) 288. But it appears that the decree of adjudication was based on, or involved, these orders of the court below relating to the referee’s report, and therefore they may be considered under the rule laid down in Miller’s Apparel v. Simonoff (C. C. A.) 29 F.(2d) 507. It is far from clear that the referee’s proceedings were extra-jurisdictional. The original order of reference, dated February 3, 1930, povided, inter alia, that he should “hear and determine all matters of fact relating to said meeting and the proposed offer in composition.” What the referee did was merely to deal with “all matters of fact relating * * * to the proposed offer in composition.” The order was broad enough to give him the jurisdiction he assumed, to deal with the facts, including the fraud of the bankrupt on his creditors. Support is lent to this conclusion by the sixteenth bankruptcy rule of the District Court, which provides: “Upon the acceptance of terms of composition by the creditors, the referee shall send to the clerk’s office a list of the claims proved and his report concerning * * * (5) the propriety of confirming the composition.” This rule seems to contemplate the exact procedure before the referee in this case. We find nothing showing prejudicial error. The decree of the District Court is affirmed, with costs to the appellees.