Opinion
The following is the opinion of William B. Woods, Referee in Bankruptcy.
That in the course of the proceeding, Charles F. Schnee, Trustee in Bankruptcy of Robert Edward Moore, bankrupt herein, filed Specifications of Objections to Discharge of this bankrupt. Said specifications were eight in number, and as to these bankrupt on Dec. 21, 1953, filed Exceptions to the Specifications.
Upon considering said Exceptions to Specifications of Objection to Bankrupt's Discharge, on Feb. 10, 1954, a motion to sustain said exceptions to specifications was granted as to Specifications Nos. 1, 2, 3, and 8, and denied as to Exceptions to Specifications Nos. 4, 5, 6, and 7; thus the objections relied upon by the objector are those under Sec. 14, sub. c(2) of the Bankruptcy Act, 11 U.S.C.A. § 32, sub. c(2) which charges that bankrupt has destroyed or failed to keep books of account, under Sec. 14, sub. c(6) that bankrupt refused to answer material questions, and under Sec. 14, sub. c(7) that bankrupt has failed to satisfactorily explain losses of assets or deficiency of assets to meet his liabilities; and no exception or petition to review said order of Feb. 10th was filed, if the legality of such order is challenged herein; and an order was entered on May 22, 1954, overruling said objections and discharging bankrupt.
Thereafter, on May 29, 1954, Charles F. Schnee, Trustee of said bankrupt, being aggrieved thereat, filed his Petition for Review of the order of Referee granting the discharge of bankrupt.
Findings of Fact
(1) That Robert Edward Moore of Akron, Summit County, Ohio, was adjudicated a bankrupt on June 9, 1953, and Charles F. Schnee is the duly elected Trustee in Bankruptcy.
(2) That bankrupt's schedules name only three creditors, Jesse M. Limbach, on a judgment in the Summit County Pleas Court in a suit versus Robert E. Moore, et al., for a judgment against him on June 8, 1953 of $23,005.31, claim of attorney Charles G. Schnee for Attorney's fees and of the Bricklayers' Union Local No. 7 of Akron 'liquidated $126.00 advanced on salary borrowed for purposes of filing petition'. Total liabilities $23,381.37, assets none except those claimed for exemptions.
(3) That Specifications of Objections to the discharge of the bankrupt were filed by Charles F. Schnee, Trustee, with Attorney Merryl F. Sicherman as his Attorney and attached to the Specifications was the affidavit of Jesse M. Limbach. Also the claim of Jesse M. Limbach for $23,005.31 with Merryl F. Sicherman having the power of attorney was filed and allowed at the First Meeting of Creditors on July 2, 1953. To the said claim is attached the copy of the Journal Entry of the Summit County Common Pleas Court No. 183043, Jesse M. Limbach v. Union Trades Social Club et al., in which Robert E. Moore confessed judgment in the amount named in the proof of claim.
(4) That Robert E. Moore, the bankrupt, is now 65 years old and has been a journeyman bricklayer all his life. He was often employed by Jesse M. Limbach, a contractor and the active objecting creditor who did work for the Renner Brewing Co. of Akron. Since January, 1942, the bankrupt has been business agent for the Bricklayers' Union Local No. 7 at a salary the same as the wages paid to journeymen bricklayers.
(5) That the Union Trades Social Club is composed of members of all trade unions of Akron, of which bankrupt was a member as a journeyman bricklayer, and Limbach often frequented the club. The club operated in rented property on West Center Street in Akron and when that property was sold in 1946, the Union Trades Social Club was forced to vacate the premises.
(6) That in 1947 Limbach asked bankrupt as business agent of the union what had happened to the Union Trades Social Club licenses, and was informed that they were in escrow; and after some talk, Limbach suggested that the Renner Brewing Co. had many properties and perhaps if he and bankrupt visited the Diebels, who owned the Renner Brewing Co., a new location for the club might be found and buildings remodeled for its purpose.
(7) That as a result the Diebels agreed to rent a building to the Union Trades Social Club as an outlet of Renner beer, remodeling was discussed and Diebels gave the social club a one-year lease on the premises.
(8) That after the former Union Trades Social Club closed, upon inquiry by Limbach, bankrupt Moore told him the licenses were in escrow as appears in the records of the examination of bankrupt, as to the reopening of a Union Club (record July 17, 1953, pg. 32-3-4).
(9) That Limbach told bankrupt he had a contract with the Union to remodel the building which was on 354 E. Exchange St.; also he claimed in the affidavit with the Specifications that he had a contract with the bankrupt, and in the suit filed in the Common Pleas Court, Limbach signed an affidavit alleging a contract with the Union Trades Social Club. The evidence fails to establish that Limbach had a contract with anyone. He did go forward and remodel the premises. After remodeling and furnishing, the premises were opened by the club late in 1948 and it continued to operate until 1952, when its license was not renewed; the club died a natural death in August, 1952.
(10) That the Union Trades Social Club had only a one-year lease on the premises of E. Exchange Street.
(11) That Limbach testified on several occasions that he had a contract with (A) the bankrupt; (B) the Union Trades Social Club; and (C) the union, but the proof failed to show a contract with anyone, and it is also undisputed that the Diebels and the Renner Brewing Co. benefited from the repairs on said property.
(12) That for the work of remodeling the building, Jesse M. Limbach as contractor and builder on August 2, 1949, to the Union Trades Social Club, 354 E. Exchange St., the statement as of May 23rd for $18,349.98. (Trustee's Exs. Q 1-2-3.) The bill is marked 'Adt Mr. Moore and Joe Rublin, I need money bad. Jess' and following in pencil, 'would like $5,000 as soon as possible. Jess'; it further appears from other exhibits in the case, Trustee's Ex. L, an installment note to the Firestone Bank, dated Jan. 3, 1949, was signed 'Union Trades Social Club by Joe Rublin, Pres. and by Robert E. Moore, Treasurer'. So that when Limbach furnished the bill shown in Ex. Q, he knew that Moore and Rublin were officers of the Union Trades Social Club.
(13) That the Union Trades Social Club was operated as a non-profit club. The bankrupt was answered all material questions relative to the existence and operation of the club of which he was secretary-treasurer. The answer 'None' in the Statement of Affairs to the question, 'Have you ever been in partnership with anyone or engaged in any business during the six years immediately preceding the filing of the original petition herein?', was made on advice of counsel and explained in these proceedings that the bankrupt did not consider himself as entrepreneur but an officer of a nonprofit club. Thereafter, bankrupt answered to all questions put to him about the club, its operations and affairs.
(14) That the Union Trades Social Club had kept complete records and the records, together with the personal income tax returns of the bankrupt, are all in evidence here.
(15) That two years after the remodeling, and more than a year before any action was brought against the bankrupt by Limbach, both of the Diebels died. Limbach testified that he will continue suing whoever he can find to sue and, at the time of these proceedings, had at least one other action pending in the Summit County Common Pleas Court for collection of the same debt.
(16) That in Nov., 1951, Limbach sent a bill for this repair job to the bankrupt; and when bankrupt did not pay, filed suit in the Common Pleas Court of Summit County, Ohio, Case No. 183043; the defendants in the suit being Union Trades Social Club, Arthur F. Witten and Robert E. Moore. When the case came on for trial, bankrupt with the advice of counsel consented to a judgment being entered against him and the Journal Entry in the Common Pleas Court is as follows:
'Plaintiff having dismissed this action as against all defendants except the defendant Robert E. Moore, and said defendant Robert E. Moore having offered to confess judgment in the amount prayed for in the petition, and plaintiff having accepted said offer, it is now by the court considered that said plaintiff, Jesse M. Limbach, recover of said defendant, Robert E. Moore, the sum of twenty-three thousand five and 31/100 dollars ($23,005.31), together with the costs of this action, and judgment is rendered in favor of said plaintiff, Jesse M. Limbach, and against said defendant, Robert E. Moore, for said sum of twenty-three thousand five and 31/100 dollars ($23,005.31), together with the costs of this action, taxes at $29.79.'
(17) That while books and records were not produced at earlier hearings, at a later hearing it developed that some of the books were in the possession of or produced by Limbach, the objecting creditor; and the other books and records offered were offered in evidence by the Trustee by his counsel and by the bankrupt so that the charge of failure to produce books and records was not proven.
(18) That the bankrupt was charged with failure to explain losses or deficiencies of assets and failure to answer questions from which his financial condition might be ascertained, and the proof only shows that he was a working man, a bricklayman also serving as the secretary of the bricklayer's union, and that as its club manager had no means or income except as such working man, so that the proof fails to establish or sustain such charge.
Conclusions of Law
(1) That the Bankruptcy Act provides in Sec. 14, sub. c:
'The court shall grant the discharge unless satisfied that the bankrupt has * * * (2) destroyed, mutilated, falsified, concealed, or failed to keep or preserve books of account or records, from which his financial condition and business transactions might be ascertained, unless the court deems such acts or failure to have been justified under all the circumstances of the case; * * * or (6) in the course of a proceeding under this Act refused to obey any lawful order of, or to answer any material question approved by, the court; or (7) has failed to explain satisfactorily any losses of assets or deficiency of assets to meet his liabilities * * *.'
The proof herein fails to establish the charges of the objector.
(2) That an untrue statement in the Statement of Affairs or Schedules is not sufficient to deny discharge unless it was knowingly or fraudulently made.
(3) That the proof offered by the objector fails to establish or sustain the specifications of objections to the discharge of this bankrupt, so that same should be denied, dismissed, and discharge granted.
Memorandum
Early in the proceedings Exceptions to the Specifications of Objection to his discharge were filed by the bankrupt. On Feb. 10th an order was entered sustaining such exceptions in part and dismissing exceptions in part; exceptions to Specifications Nos. 1, 2, 3, and 8 were sustained and exceptions to Specifications Nos. 4, 5, 6, and 7 were overruled. The hearing then proceeded on the Specifications to the Discharge that were not sustained and which were as follows:
4. The bankrupt failed to keep books of accounts or records from which his financial condition and business transactions might be ascertained.
5. The bankrupt failed to preserve books of account or records from which his financial condition and business transactions in the operation of Union Trades Social Club might be ascertained, to wit: record of assets, record of receipts and disbursements in the operation of said club and records showing relations with persons who leased from bankrupt or said club or otherwise occupied the premises at 354 East Exchange Street, Akron, Ohio.
6. The bankrupt failed satisfactorily to explain loss or deficiency of assets to meet his liabilities in that, in the course of this proceeding when the trustee at the creditors' meeting attempted to elicit answers from the bankrupt as to his financial condition and business transactions and to discover assets other than those listed in the bankrupt's petition, the bankrupt said he was not able to remember anything respecting his transactions in the operation of Union Trades Social Club.
7. On July 17, 1953, at the first meeting of creditors of the bankrupt, in the course of this proceeding and during the taking of testimony of the bankrupt, it developed that the debt incurred by the bankrupt with one Jesse M. Limbach was incurred by bankrupt doing business as Union Trades Social Club, that he, the bankrupt, was the Union Trades Social Club, and that thereupon the trustee demanded that the bankrupt produce the books and records of the bankrupt showing receipts and disbursements and any other papers showing operations of said club and especially the federal income tax returns of the bankrupt during the operation of said club by him in order to ascertain his financial condition and his business transactions and for the purpose of making a possible discovery of assets held by bankrupt in the operation of said business; that the bankrupt upon coaching and direction of his attorney failed and refused to answer any question which related to the operation of said club or its relation or the bankrupt's relation to the Bricklayers' Union Local No. 7, A. F. of L., Akron, as aforesaid.
The relevant statute as to discharge of bankrupts is Sec. 14, sub. c of the Bankruptcy Act which provides as follows:
'The court shall grant the discharge unless satisfied that the bankrupt has * * * (2) destroyed, mutilated, falsified, concealed, or failed to keep or preserve books of account or records, from which his financial condition and business transactions might be ascertained, unless the court deems such acts or failure to have been justified under all the circumstances of the case; * * * or (6) in the course of a proceeding under this Act refused to obey any lawful order of, or to answer any material question approved by, the court; or (7) has failed to explain satisfactorily any losses of assets or deficiency of assets to meet his liabilities * * *.'
Thus the specifications in short are that bankrupt under Sec. 14, sub. c(2) failed to keep books of account, under Sec. 14, sub. c(6), failed to answer material questions, and under Sec. 14, sub. c(7), failed to explain losses or deficiencies of assets to meet his liabilities.
Probably with the entry of consent judgment against bankrupt any claim that he might have as personally made, never having made any contract with Limbach for repairs for the club, has become a closed transaction and that claim made has been concluded by the judgment which was allowed as a valid claim in this bankruptcy proceeding.
In view of the fact that the consent judgment as entered does not bring the case under Sec. 17 of the Bankruptcy Act, 11 U.S.C.A. § 35, as a debt not affected by discharge in bankruptcy, the question remaining here is, was bankrupt's conduct as a member or manager of a social club such as to prevent his discharge under the provisions of Sec. 14, sub. c of the Bankruptcy Act.
Under Sec. 14, sub. c(2) Specification No. 4 is that bankrupt failed to keep books of account from which his transactions could be ascertained. On this it appears that while the books and records were not presented at the early hearings, it developed some of these were in the possession of or produced by Limbach, the objecting creditor. The Trustee and his counsel also offered books at later hearings and these are in evidence. So it can not be charged that the bankrupt failed to produce when these were in the possession of the Trustee or the objecting creditor.
As to Specification No. 5, the same comment is applicable as made above as to Specification No. 4. Specification No. 6, on the charge of failure to explain losses is not proved as all books that were kept were produced in court and are offered in evidence as Exhibits. (See Cash Book Trustee's Ex. 9 and Day Book, Bankrupt Ex. g together with check books, stubs, returned checks, and income tax returns, Bankrupt Ex. 1 to 10 inclusive.)
Specification No. 7 that failure of bankrupt to explain losses or deficiency of assets to meet liabilities as alleged in the specifications that bankrupt was doing business as the Union Trades Social Club, when in fact, Limbach as contractor and now as objector visited the premises and knew that the club was operated by Moore and Rublin; see Trustee's Ex. Q 1, 2, and 3, dated Aug. 2, 1949, when the bill was sent to the club for their attention, with penciled note, 'I need money bad. Jess'.
Specification No. 7 further charges that bankrupt failed to answer questions as to his financial condition when examined in the Bankruptcy Court on July 17, 1953, that his financial condition might be ascertained. This hearing was at the office of the attorney for the Trustee in Akron, at which hearing the referee was not present, and at a later hearing in court before the referee, any question as to what the records were or the assets were, asked by counsel were answered. The answers given seemed all that could be expected under the facts as developed in the way this job for repairing the quarters of the social club was taken after the conferences of Limbach and Moore with the Diebels of the Renner Brewing Co. and carried out and billed for by Limbach.
Apparently the Diebels were willing to rent the building to the Union Trades Social Club for one year, and on their property Limbach made the repairs which he billed to the social club. The record fails to show any other arrangement between Limbach and Diebel, the owner of the Renner Brewery, who in fact benefited by the repairs on their property.
Finally the objector urges that the bankrupt failed to explain losses or deficiencies of assets to meet his liability, and the proof fails to show that the Club ever had anything but a liquor license which failed of renewal in 1952. Bankrupt Moore while secretary of the club was a wage earner all his life and Limbach, the real objector, knew this as they had been long-time friends; bankrupt having in former days worked for Limbach as a bricklayer. The proof fails to show that the bankrupt had anything but his salary and no witness other than Limbach appeared for objector to establish any financial standing of bankrupt.
The case settles down to this: Limbach as contractor did a repair job for the club, billed it for $18,394.98 in August of 1949. The Renner Brewing Co. did not pay, and Diebel Brothers, who owned the brewery, did not pay, in fact the two Diebels died in 1950 (Record July 17, 1953, p. 22, Record Feb. 24, 1954, p. 65). In November 1951, Limbach sued the Union Trades Social Club in which suit a default judgment against bankrupt was entered on June 8, 1953. On June 9, 1953, Moore became a voluntary bankrupt and the claim of Limbach against him for $23,005.31 was filed and allowed at the First Meeting of Creditors on July 2, 1953, the power of attorney presenting the claim being Merryl F. Sicherman, who later appeared as attorney for Charles F. Schnee, who was elected Trustee at the First Meeting of Creditors and who now prosecutes objection to bankrupt's discharge.
At the outset it may be noted that this controversy has become a grudge contest between two old friends, the contractor who did the repair job on the old house to make it into a club and headquarters for the bricklayers of Akron. Moore, a bricklayer and former employee of Limbach was manager of the club and the old house which was repaired was rented to the club by the Renner Brewery of which the two Diebels were officers. Limbach, the objecting creditor, was the only witness called by the Trustee. Since the claim of Limbach is now in a judgment entered by consent, it might seem that the evidence was a recital of facts before the judgment was entered and consideration thereof might seem out of order. However, such a rule cannot be applied here, at least the objector and his counsel apparently do not so believe, for all the grounds of objection are based or the acts of parties which concern the repair job for the club and were about their relations before that suit and judgment in the State Court.
Also it might be noted that Jesse M. Limbach, the objecting creditor has recently filed another suit on the same claim for repairs against the Bricklayers' Local No. 7 as was testified to by Attorney Walter Vogel who represents the Union in this last suit (record pg. 54), recently filed in Summit County.
The burden of proving that he has not committed an act, which will prevent his discharge, is upon the bankrupt after the objector has made a prima facie case; that is, to show that there are reasonable grounds for believing bankrupt has not committed the acts alleged, Sec. 14, sub. c provision of Bankruptcy Act, 1 Collier 14th Ed. pg. 1291-2, Remington Vol. IV, Sec. 3407. Upon proof answering and overcoming the prima facie case of objector, as has been produced here, the finding is that the Specifications of Objections to Discharge be overruled and the discharge granted.
Judge Davis said in Taback v. Arai, 3 Cir., 1927, 21 F.2d 161, 162, 10 A.B.R., N.S., 538, that:
'Intent of the bankrupt is the touchstone by which his right to a discharge must be tested.'
This case was confirmed on review in Morimura, Arai & Co. v. Taback, 1929, 279 U.S. 24, 49 S.Ct. 212, 73 L.Ed. 586, 13 A.B.R.,N.S., 277.
The cases cited by counsel for the objector afford little help in this controversy; in In re Beck, D.C.S.D.N.Y.1942, 43 F.Supp. 526, where bankrupt had answered 'none' in the Statement of Affairs to the question as to the transfer of realty, is of no help here, for Limbach, objector, who knew all the facts or could have had them upon inquiry before the repair job was started.
In re Lovich, 2 Cir., 1941, 117 F.2d 612, 133 A.L.R. 673, 45 A.R.B.,N.S., 113, there had been a false statement by bankrupt and the discharge was denied by the court and upon appeal was reversed and discharge granted. Judge Swan reviewed the evidence and quoted from Morimura, Arai & Co. v. Taback, supra; in In re Peters, D.C., 39 F.Supp. 38, 53 A.B.R.,N.S., 515. Judge Moscowitz followed the Lovich case, supra, and this is particularly pertinent here as the question arose as to the statements made in the Statement of Affairs.
Congress in passing the law never intended to make the Bankruptcy Court a collection agency. Other recent unsuccessful efforts to make the Bankruptcy Court a collection agency are to be found in In re Barnhart, D.C.1950, 91 F.Supp. 453, and In re Parnell Lumber Co., D.C.1951, 107 F.Supp. 794.
Upon proof introduced, the bankrupt established a case entitling him to a discharge and the burden has shifted to the objector to establish by a preponderance of evidence that bankrupt was guilty of fraud. This burden the objector failed to meet and it was found that the objections to the discharge be overruled and the discharge granted.
Herewith is handed up for the consideration of your Honors on the pleadings, orders, transcript, and papers in the proceeding.
Robert Edward Moore, Akron, Ohio, Charles F. Schnee, Akron, Ohio, Johnson, Whitmer & Sayre, Akron, Ohio, for bankrupt.
Merryl F. Sicherman, Akron, Ohio, for trustee.
JONES, Chief Judge.
This matter is before the court on review of an order of the Referee in Bankruptcy discharging Robert Edward Moore, the bankrupt herein. The petition for review is grounded on three basic objections which have been succinctly stated by the Referee to be: '* * * that bankrupt under Sec. 14, sub. c(2) (of the Bankruptcy Act, Title 11, Section 32, U.S.C.A.) failed to keep books of account, under Sec. 14, sub. c(6), failed to answer material questions, and under Sec. 14, sub. c(7), failed to explain losses or deficiencies of assets to meet his liabilities.'
There being no conflict as to the law, the only issue of concern here is whether the Referee was sufficiently accurate in his findings of fact, and conclusions upon those findings to justify the discharge order. For only if the Referee appears clearly in error should the court overturn his order.
While it may be conceded that there were several irregularities in the bankrupt's conduct, the court agrees with the Referee that none of them were of such consequence as to prevent the discharge of the bankrupt. The records of the bankrupt, although not filed promptly nor expertly kept, appear to have been filed in time to permit the trustee adequate opportunity to appraise the bankrupt's financial condition, and were sufficiently comprehensive to give the trustee a fairly clear picture of the bankrupt's tangled affairs. The matter of the bankrupt's indirectness or evasiveness in answering certain questions propounded to him could well be explained by his manifest confusion. At any rate, upon oral examination before the referee, the bankrupt was satisfactorily responsive to satisfy the referee on that point.
It is important to bear in mind that the bankrupt was not a business or a professional man, and that he is not to be charged with the same standard of conduct as such person. Rather, he was a bricklayer earning only wages; and while the court does not condone his carelessness, it will consider his limitations in arriving at a just conclusion. Accordingly, the referee's order will be confirmed and the petition for review dismissed.