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In re Bendix

April 23, 1942


Appeal from the District Court of the United States for the Northern District of Indiana, South Bend Division; Thomas W. Slick, Judge.

Author: Minton

Before EVANS, MAJOR, and MINTON, Circuit Judges.

MINTON, Circuit Judge.

This is an appeal from an order of the District Court denying a petition for review of an order of the referee, granting a discharge in bankruptcy.

On an involuntary petition, Vincent Bendix was adjudicated a bankrupt on June 7, 1939. Mr. Bendix was reputed to have a net worth as of June 30, 1929, of over thirty-eight million dollars. In that year, he paid a federal income tax of approximately one million dollars. He had many business connections and literally thousands of transactions. As the depression progressed, his assets dwindled rapidly until in ten years, he had gone from an estimated fortune of thirty-eight million dollars in 1929 to bankruptcy in 1939. His creditors were numerous and their claims totaled several million dollars. Some of the claims were very large, one amounting to over two million dollars. On the last day for filing objections to the bankrupt's discharge, it remained for a creditor whose claim amounted to $85 and who had never appeared in the proceedings before, to file objections. His claim grew out of an $85 deposit he had in a closed bank in Chicago, in which bank Bendix was a stockholder and owed a stockholder's liability. The objecting creditor claimed to act for all the creditors of this bank. The objecting creditor never put in his personal appearance and his specifications of objections were verified by his attorney on information and belief. The specifications as originally filed numbered forth-five. The referee overruled the motion of the bankrupt to dismiss the specifications because not properly verified. The referee then permitted the objecting creditor to proceed with an exhaustive examination covering a period of eight days and accumulating a record of 882 pages of evidence. At the conclusion of the evidence, the case was briefed and argued, and the referee made his findings, which were adopted by the District Court. The referee concluded that the discharge should be granted, and the District Court sustained this conclusion on review.

The questions argued here are:

1. That the bankrupt did not discharge the burden of proof that was on him to show that he did not conceal his property from the trustee.

2. That the bankrupt gave no satisfactory explanation of the loss of his assets.

3.That he had not kept books as required by the statute relating to discharge in bankruptcy.

4. That the court erred in refusing to consider as concealed any assets surrendered by various parties in compromise settlements with the trustee.

These questions bring us face to face with the findings of fact and conclusions of law by the lower court. The objecting creditor's argument on the burden of proof is bottomed upon Paragraph c of Section 32, Title 11 U.S.C.A., which provides: "Provided, That if, upon the hearing of an objection to a discharge, the objector shall show to the satisfaction of the court that there are reasonable grounds for believing that the bankrupt has committed any of the acts which, under this subdivision c, would prevent his discharge in bankruptcy, then the burden of proving that he has not committed any of such acts shall be upon the bankrupt."

If the referee and the District Court thought there was reasonable ground to believe the bankrupt had committed the alleged acts, then of course the burden shifted to the bankrupt to explain. That called for an exercise of discretion, after a consideration of the facts. We have no way of knowing whether the lower court considered the burden was upon the objecting creditor or upon the bankrupt. All we know is that after eight days of hearing testimony and piling up a record of 882 pages, the referee found the charges were not sustained, and the District Court sustained the referee.

We have read the abstract of some 164 pages of the testimony contained in the record, and we think the referee could not have found otherwise than he did.

The evidence shows thousands of transactions. Mr. Bendix had many transactions with his close business associates in which he sold them stocks that for the most part had no market listing. In his extremity, he sold to his business associates stocks and other assets at prices that years afterwards seem inadequate. His business associates were able to and did make some substantial profits out of their transactions with Mr. Bendix. But there is not one scintilla of evidence that the property or the proceeds therefrom were held for Mr. Bendix or that any of such property or proceeds ever found its way back into his hands. Six or seven years before the bankruptcy, when the bankrupt still had property valued at several millions of dollars, and at a time when he had every reason to believe he was solvent, he gave some ...

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