Before MAJOR, Chief Judge, and KERNER and MINTON, Circuit Judges.
These are appeals from a decree entered June 1, 1948, dismissing sua sponte a bankruptcy proceeding. The appeals are by Horace A. Young, trustee in bankruptcy, the Benevolent and Protective Order of Elks, an asserted creditor (hereinafter referred to as the Elks), and Armin F. Hillmer, as representative of all creditors of the Chicago Bank of Commerce.
The issues before this court are numerous and not easy of exact ascertainment. Preliminary to what we regard as the more important issues, it appears pertinent to state briefly the salient events which have occurred in this prolonged and in many respects unsavory proceeding, and in doing so we shall take no cognizance of the many charges and counter-charges made by and against numerous of the attorneys who have participated in the proceedings, some of which do no credit either to those participating or to the Bar.
George R. Joslyn was adjudicated a voluntary bankrupt on March 5, 1936. The case took its usual course, and an order of discharge was entered on June 29, 1936. Almost eight years later, on May 29, 1944, an application to re-open the proceeding was filed in the District Court by the Elks, acting through its attorney, Thomas H. Fisher. For the present it is sufficient to note that it was alleged in the application to re-open the proceeding that the Elks was a creditor of the Chicago Bank of Commerce of Chicago, Illinois, then in the process of liquidation in the state court in the amount of $120,073.51, and that George R. Joslyn was the owner of 1142 shares of the capital stock of said bank and was liable as such stockholder in the sum of $57,100.00.The application also alleged that the bankrupt had fraudulently concealed assets and had fraudulently concealed from the applicant and other creditors the existence of the bankruptcy proceeding.
The application to re-open was referred to Referee Nathan William MacChesney, acting as Special Master, who conducted long and protracted hearings which were participated in by all interested parties. The Special Master's report was filed on November 15, 1945, and found in substance and effect that the purpose of the bankruptcy was fraudulent in that the bankrupt sought to escape his stockholder's liability of $57,100.00 to the creditors of the defunct Chicago Bank of Commerce by (1) failing to schedule his assets, and (2) failing to list his true creditors.
While there are numerous items of assets found by the Special Master to have been concealed, they are of minor importance except the bankrupt's interest in two trusts (called the Joslyn trusts) created by his father and mother respectively on August 14 and 15, 1935. It was claimed before the Master as well as throughout the proceedings that the bankrupt on February 27, 1936, at the time he filed his voluntary petition, had received and then owned two vested equitable life estates in 11,250 shares of the capital stock of Joslyn Manufacturing and Supply Company, which formed the corpus of said trusts.
The finding by the Referee concerning the bankrupt's failure to list his true creditors arises in the main from the fact that in his original schedules he listed as a creditor William L. O'Connell, Receiver of the Chicago Bank of Commerce. The Referee found that there was no debt on account of such stockholder's liability running to O'Connell. The Elks contends in its application to re-open and still contends that it, as a depositor in the defunct bank, was entitled to maintain a claim on account of such stockholder's liability. This is a controversial question which has persisted throughout the litigation.
On May 20, 1946, Judge John P. Barnes, to whom the report of the Referee had been made, entered an order re-opening the bankruptcy proceedings and directing that a meeting of creditors be held for the purpose of acting upon the matter of the appointment of a trustee. Such meeting was held and Horace A. Young was elected trustee. He is still acting in such capacity and, as noted, is an appellant in the instant matter. The bankrupt was given leave to file amended schedules and under schedule 4 described the trust instruments and his interest therein without prejudice to his right to establish that said interests are not property which may be administered in bankruptcy.
With regard to the question of costs, the Elks moved for an order taxing the costs of the proceedings before the Special Master against the bankrupt, and Judge Barnes on December 3, 1946, over the objection of the bankrupt, allowed the motion. On the same date he entered an order in which he itemized such costs, including the Master's, Referee's and court reporter's fees in the total amount of $6,632.50, and "ordered, adjudged and decreed that George R. Joslyn pay said fees and expenses." In the same order he directed that the Special Master return to Thomas H. Fisher, attorney for the Elks, certain fees which had been advanced by him. This order directing that the costs be paid by Joslyn enters into the picture for the reason that in the order appealed from such costs were taxed to the Elks.
On December 23, 1946, the trustee filed what is designated as a cross-petition against the bankrupt for a turn-over order, claiming that the bankrupt's vested life estates in the Joslyn trusts were subject to administration as a part of the bankruptcy estate. It was also alleged that in addition to the bankrupt's interest in such trusts there had been discovered certain assets of the bankrupt totaling $4,195.47. (A portion of these assets were conceded in the amended schedule as filed by the bankrupt.) On December 26, 1946, the trustee filed another petition for a turnover order against the First National Bank and the trustees under the Joslyn trusts, in which he claimed that the bank held deposited funds of $89,057.35, derived from the bankrupt's vested life estates in the Joslyn trusts, and that under the provisions of the Bankruptcy Act and the laws of the State of Illinois, the trustee was entitled to this income as of the date of the bankrupt's original jurisdiction.
Answers to such turn-over proceedings were filed by the bankrupt, the First National Bank and the Joslyn trustees, in all of which the summary jurisdiction of the bankruptcy court over the deposited funds and the bankrupt's vested equitable life estates in the Joslyn trusts was challenged.
It is also pertinent to note without going into detail that a divorce proceeding was pending in the state court of Chicago between Charlotte C. Joslyn, represented by Thomas H. Fisher, and her husband, George R. Joslyn. Fisher, in connection with the application to re-open the bankruptcy proceeding, obtained a restraining order against the First National Bank, enjoining it from paying out the money which it held, being the income from the trusts. The impact which the restraint on this fund had upon the bankruptcy proceeding furnished the basis for much controversy, which we think is immaterial at this time. It should be mentioned perhaps that certain of these funds were by order of the bankruptcy court released for the benefit of Mrs. Joslyn, a portion of which found their way into the hands of her attorney, Fisher.
On January 13, 1947, the trustee filed a petition for a turn-over order against both Mrs. Joslyn and Fisher, in response to which Fisher on January 15, 1947 filed his answer, in ...