Falter v. Reinhard

DAY, Circuit Judge (after stating the facts as above). Section 44 of the bankruptcy act provides that the creditors shall appoint one or more trustees at their first meeting after the adjudication. The act further provides (section 55, subd. “b”) that at the first meet ing of creditors the judge or referee shall preside, and before pro ceeding with the other business may allow or disallow the claims of creditors there present, and may publicly examine the bankrupi, or cause him to be examined, at the instance of any creditor. The allowance of claims determines which creditors may participate in the proceedings of the first meeting, including the choice of a trustee. Bankr. Act, § 1, cl. 9, provides “creditor” shall include any one who owns a demand or claim provable in bankruptcy, and may include his duly-authorized agent or proxy. Other duties than those specified intended to be devolved upon the judge or referee at the meeting are not defined in the statute, and we are left to ascertain the extent and scope of his duties in view of the express provisions of the act and the manifest purpose in clothing the judge or referee with the powers named. Clause 15, § 2, c. 2, Banla*. Act, provides that the court can make such orders, issue such process, and enter such judgments, in addition to those specifically provided for, as may be necessary for the enforcement of the provisions of the act. The case under consideration had been referred to the referee to take such further proceedings as are required by law. Rule 12 of the general orders -in bankruptcy (32 C. C. A. xvi., 89 Fed. vii.) requires that all such proceedings, except such as are required to be had before the judge, shall be had before the referee. Section 38 of the act provides that referees are invested, subject always to review by the judge, with jurisdiction to perform such part of4 Uie duties, except as to questions arising out of the applications of bankrupts for compositions or discharges, as are by the act conferred on courts of bankruptcy of their respective districts, except as in the act otherwise provided. Section 2 of the a,ct confers powers on courts of bankruptcy, pursuant to which powers the said courts perform the duties invested in them with jurisdiction to make such orders, issue such process, and enter such judgments, in addition to those specifically provided for. as may be necessary for the enforcement of the provisions of the act. In General Orders, rule 13 (32 C. C. A. xvii., 89 Fed. vii.), it is provided that the appoint [62] ment of a trustee by the creditors shall be subject to approval or disapproval by the referee or judge. It is to be observed that either the judge or the referee is to preside'at the first meeting of creditors. It is to be presumed that, when the referee acts instead of the judge, his duties are judicial in their nature, and he is to pass upon such questions of that character as may arise in carrying forward the objects and purposes of the meeting. Loveland, Bankr. § 106; Coll. Bankr. p. 268. The exact question made in this review is, may the referee, in the exercise of the power given by the statute, determine the qualification and right to vote of one holding the proxy of creditors to the extent of inquiring as to whether such proxy is the duly-authorized power of the creditor? The authorities, both under the present act and the act of 1867, are united in maintaining the proposition that the bankrupt has no right to a voice in the choice of an assignee or trustee. Such officer is the representative of the creditors. He is often required to act in opposition to the bankrupt. He must investigate conveyances alleged to have been made in violation of the bankrupt law. He must see to it that the estate is administered to the end that creditors may be benefited, and as large a sum as practicable realized for the payment of their claims. Interference by the bankrupt — the voting of claims in his interest or at his direction — has always been discountenanced by the courts, and held to invalidate a choice of trustee thus secured. In re Wetmore, Fed. Cas. No. 17;466, and In re Bliss, Fed. Cas. No. 1,543, cases decided under the act of 1867; In re Lewensohn (D. C.) 98 Fed. 576, decided under the present act. In the last case, Judge Brown, speaking upon this subject, says: “The beneficiaries are not the bankrupt, but the creditors. For that reason the law gives to them alone the choice of trustee. The bankrupt has no part in it, because presumably he has no interest in it.” It may be taken, then, as an established proposition, upon reason and authority, that interference by the bankrupt, certainly when such as to control the election, - will avoid the choice thereby attained, as it is the policy of the law to secure a trustee wrho is the selection of the creditors, and not the bankrupt. Under the facts found by the referee, there can be no question that the proxies held by Neydon were procured by the bankrupt to be voted for a trustee of the bankrupt’s choice. The findings disclose that the creditors were solicited to come to the banking house of the bankrupt, where the attorney and the agent of the bankrupt were present assisting in fhe preparation of proofs of debt and proxies, with the declared purpose of voting for and electing the choice of the bankrupt for trustee. To permit such an election to stand would be in fact, as was said by Judge Blatchford in Re Bliss, supra, “to permit the bankrupt to 'elect the assignee, which is against the policy o’f the law.” Such selection, in the exercise of the power conferred by rule 13 (32 C. C. A. xvii., 89 Fed. vii.), the referee could not approve. In view of his powen of revision, must the referee act upon it alone, or may he hear and determine an objection when the power of attorney thus obtained is sought to be used as the authority for voting for a trustee? It is urged upon the one hand that such is [63] llie sole authority of the referee over the election, and that creditors whose claims are duly proven may vote for whomsoever they please, subject to the final approval or disapproval of the referee or court'. Under the act; of 1807 the holdings do not seem to have been uniform, bat it is to be remembered that, under the present act, subject to review by the court, the referee ⅛ given broader powers than were conferred upon the register under the act of 1867. Under the latter act: the register could make no decision, but must certify disputed questions to the court for determination. Under that act authority is not wanting to support the proposition that the register should not receive votes under proxies obtained by the bankrupt with a view to the selection of an assignee; of his choice. In lie Wetmore, above cited, Judge Brown, now Mr. Justice Brown of the supreme court, held, when there was good reason to suspect I hat the assignee liad been chosen in the interest of I he bankrupt, confirmation should be refused, and in directing a new election, after setting aside such a" selection, instructed the register to receive no votes at such election cast by the bankrupt or his solicitor under powers of attorney from other creditors. In the case of In re Noble, Fed. Cas. No. 10.282, Mr. Justice Blatchford, then district judge, held that the register had no power, without a special order of the court, to inquire into the right of creditors to vote, where it had been charged that the votes had been influenced by the bankrupt. The same judge, however, in the case of In re Holmes, Fed. Cas. No. 6,632, held, speaking of the powers of the register presiding at a meeting to consider a proposition for a composition made by the bankrupt: “Under the language of the general order, which requires llie register to hold and preside at the meeting, and to report to the court the proceedings thereof, with his opinion thereon, he must be held to possess the power to regulate the form and order of proceeding a.t Hie meeting, and to decide questions that may arise, subject to review by this court. Fie must necessarily decide who are entitled to vote, and In iespect to what amount of debts, and to pass upon the regularity and propriety of form of proofs of debt and of letters of attorney. Whether he has the right to reject a vote because the claim is disputed on its merits is a question which must be passed upon by the court hereafter.” In Re Frank, Fed. Cas. No. 5,050, the register had inquired info the question as to- whether claims had been procured for the pur-post; of controlling and influencing the election of an assignee, and whether that was sufficient reason for postponing the payment of debts, and the court affirmed the propriety of the register’s action. Under the present statute, as we have seen, the referee presides in the place of a judge, and he must certainly determine who are entitled to participate in the meeting as creditors. Bankr. Act, c. 1, § 1, provides that a creditor may include a duly-authorized proxy. Therefore, when the creditor presents his claim, the referee has the authority of the statute to inquire, for the purpose of the meeting, into the claim presented, and to determine that such person is or is not a creditor. Likewise, we see no reason, when the creditor does not appear in person, but undertakes to qualify another to represent him, why the referee may not inquire into his status to determine [64] whether he is a duly-authorized and lawful attorney in fact. We think the duty of the judge or referee presiding at such meeting includes the decision of questions necessary to determine the legal rights of those asking to participate, to the extent, at least, of ascertaining whether they are creditors or duly-authorized representatives of creditors. It was not intended by the act that these questions should be determined by the creditors. Certainly the referee would be compelled to decide between persons claiming to hold different powers of attorney from the same creditor, or, where the execution of the power was denied, to determine the fact. We can see no difference in principle in the determination of these questions and passing upon the validity of powers of attorney which are alleged not to be the authorization required by the statute, but to have been procured by the bankrupt in his interest by one in his employ. These objections go to the qualifications of the voter in the meeting, and must necessarily be determined by the judge or referee,who is authorized to preside thereat. Nor do we see anything inconsistent with this conclusion in the right given the referee to disapprove the choice of the creditors. In the one case, he is determining who may participate in and vote at the election; in the other, he is called upon to pass upon, and affirm or disaffirm, the choice of the meeting composed of those qualified to vote. Before the meeting is organized, the referee presiding must determine who are to make up its constituent members, and we think it is a valid objection that one offering to qualify is shown to be the representative of the bankrupt acting under a power of attorney, nominally executed by the creditors, but in fact procured by the bankrupt in his interest, in order to vote his choice for trustee. It is urged that the power thus exercised may result in the postponement of the choice of an assignee owing to the delay incident to an inquiry into these preliminary questions. Delay would seem to more naturally result from permitting an election under powers of attorney obtained in the interest of the bankrupt which make it clear that the referee must disapprove of the choice and order a new election. The argument of convenience, however, should not abridge the right of creditors to choose an' assignee free from interference by the bankrupt. It is urged that, assuming Neydon should not have been permitted to vote under the power executed to him, the meeting should have been adjourned to permit the creditors to appear and vote for a trustee. The act provides that a majority of the creditors present in number and amount who have proven their claims is essential to a choice, and it is claimed that such majority had authorized Neydon to represent them. After the powers of attorney to him were rejected, it is claimed an election was held by a minority of the creditors present. All the creditors had an opportunity to be present at the meeting. They could appear in person or by lawful proxy. It is the object of the bankruptcy act that the proceedings shall be rapidly carried forward, that the estate may be distributed to those entitled to share therein. The creditors who authorized JSTeydon to act could only be counted in making up the number of [65] those present if the powers of attorney to him were regarded as lawfully authorizing him to appear and participate in the meeting. When it appeared that the powers of attorney were in the interest of “the bankrupt, and that Neydon was representing the bankrupt, he could not be taken as present representing creditors. The referee might have postponed the meeting. How much delay would have resulted does not appear. How much the creditors were scattered, and to what inconvenience they would have been put in attending a postponed meeting, the record does not disclose. One of the prime objects of the first meeting is to choose a trustee to administer the estate, and we think there is nothing in the record disclosing an abuse of discretion in declining to adjourn. Entertaining, these views, we. think the district court did not err in approving the action of the referee, and its judgment is therefore affirmed.