Before KERNER and MINTON, Circuit Judges, and STONE, District Judge.
On February 27, 1936, George R. Joslyn filed a voluntary petition in bankruptcy in the District Court of the United States for the Northern District of Illinois, and was on that day adjudicated a bankrupt.
The schedules listed no administrable assets, the total value being given as $375.50 of exempt personal property. The schedules disclosed as a debt, the claim of William L. O'Connell, Receiver of the defunct Chicago Bank of Commerce, Chicago, Illinois, arising out of the bankrupt's stock holder's liability on 1,142 shares of the bank's capital stock having a par value of $50.00 per share. There being no administrable assets, no claims were filed, no trustee was appointed, and the bankrupt was thereafter, on June 29, 1936, discharged and the proceedings closed.
Approximately ten years later, on May 20, 1946, the bankruptcy proceedings were reopened on the Application of the Benevolent and Protective Order of Elks, a creditor of the defunct Chicago Bank of Commerce, and an alleged creditor of the bankrupt by virtue of the bankrupt's statutory liabilities as a stockholder of the bank. The attorney for the petitioner was Thomas Hart Fisher, hereinafter referred to as Fisher.
The Application to Reopen alleged that six months prior to the filing of the voluntary bankruptcy proceedings, the bankrupt's parents had created two so-called "Joslyn Trusts", dated respectively August 14 and 15, 1935, pursuant to which the bankrupt had received and then owned a vested equitable life estate in 11,250 shares of the capital stock of Joslyn Mfg. and Supply Company.
On January 4, 1946, the bankrupt filed an amended schedule of his assets in which he valued his life estates under the Joslyn Trusts at the sum of $546,757.30. The schedules included the additional item of $70,312.50 as income from the trust estates that had accrued from June 5, 1944, to January 4, 1946, the income being approximately $40,000.00 per year.
During the period from January 1938 to June 1946, Fisher claims to have rendered services as attorney for the bankrupt's wife in a divorce action and other State Court litigation. That during such time he expended on her behalf the sum of $12,846.36, exclusive of the sum of $5,320 that he advanced to her for living expenses for herself and four children in 1944 and 1945, and repaid to him by Mrs. Joslyn in January 1946, and that there is now a balance due him from her for services and disbursements, in the sum of $65,674.22.
When Fisher was employed to file the petition to reopen the bankruptcy proceedings he terminated his employment as Mrs. Joslyn's attorney in relation to any action she might thereafter commence in said proceedings.
In the bankruptcy proceedings a restraining order was entered enjoining The First National Bank of Chicago, the Trustees of the Joslyn Trusts, and the bankrupt from disposing of any of the property or funds in their possession belonging to the bankrupt. Thereafter, on December 27, 1945, the bankrupt's attorney represented to the District Judge that the bankrupt was then in arrears on his alimony and support payments to his wife and children to the extent of $9,000; that he had borrowed $4,000 to make alimony payments to his wife; that at that time the bankruptcy funds on deposit were approximately $70,000. Fisher at that time informed the Court that the alimony payments were based on a contract arising out of a judgment in a divorce action that said contractual rights constituted an equitable lien in Mrs. Joslyn's behalf upon the Joslyn trust funds and all further moneys accruing to the trust estate.
The attorneys had requested the Court to modify the restraining order so as to release to the bankrupt the sum of $13,000 on condition that $9,000 thereof would be paid immediately by the bankrupt to his former wife as alimony and for the children's support, and that the balance of $4,000 would be used by the bankrupt to reimburse him for disbursements he had previously made.
Relying upon statements made by the bankrupt's attorney and by Fisher, the Court entered an order releasing unconditionally $13,000 of the bankruptcy funds on deposit to the bankrupt.
At that time Fisher had written assignments from Mrs. Joslyn assigning to him her equitable lien on the trust funds to insure the payment of her indebtedness to him. He withheld knowledge of this fact from the Court and the bankrupt's attorney.
Upon receipt of the $13,000 the bankrupt paid his divorced, wife, Mrs. Joslyn, who then resided in Williamstown, Massachusetts, the sum of $5,500. She thereafter paid Fisher $5,320 of said sum to reimburse him for moneys alleged to have been advanced to her by Fisher for the support and maintenance of herself and children during the time that ...