# Petition for a Writ of Certiorari — Jeskowitz v. Carter > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_0539%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for a Writ of Certiorari - **Published:** January 1, 1946 - **Citation:** 328 U.S. 839 ## Text Supreme Court of the Auite OCTOBER TERM 1945 No. 10 78 ABRAHAM .JESKOWITZ, Petitioner, against Lroxarp H. Carter, Trustee in Bankruptey of Union Fabrics, Inc., Respondent. PETITION FOR WRIT OF CERTIORARI ArcuipaLpD PALMER, Counsel for Petitioner. INDEX PAGE Opinions Below 1 Jurisdiction 9 Statement of Facts 2 Questions Presented 10 Statutes Involved 11 Specifications of Error to be Urged 12 Reasons for Granting Writ a Porxt A—A trustee in bankruptey who, in a turnover proceeding, relies upon a presumption that the property was sold at a price not less than cost, under the provisions of Section 21-L of the Bank- ruptey Act, and a presumption of continued possession between the time of the filing of the petition and the date of the turnover, may not, in connection with a motion to punish for contempt for failure to comply with such order, rely upon a further presumption that the order once made carries with it the presumption that petitioner continues to have possession and control of the property in question 13 Point B—The right of a Trustee to rely upon a pre- sumption that the turnover order earries with it the presumption of continued possession should depend upon the time that elapses between the date of the filing of the petition and the date of the turnover order, where such order is predicated upon a mathematical computation, as in the case at bar 20 ii PAGE Porxt C—The failure to take testimony on the ques- tion of possession or control of the property and on the question of whether the refusal to comply with the turnover order is wilful and deliberate where petitioner, in his affidavit in opposition to the motion to punish for contempt, requested that a hearing be held and testimony be adduced on such issues, violated the constitutional rights of petitioner ConxcLvUsion 23 26 CASES CITED Brady v. United States, 24 Fed. } i Saas 18 Brown v. Maryland Casualty Co., 55 Fed. (2d) 159... 18 Cohen v. Jeskowitz, 144 Fed. (2d) 39 16 Fisher, In re, 32 Fed. Supp. 69 26 General Reinsurance Corporation v. Southern Surety Co., 27 Fed. (2d) 265 19 Lincoln Nat. Life Ins. Co. v. Erikson, 42 Fed. (2d) 997 18 Looney v. Metropolitan Railroad Co., 200 U. S. 480, 487, 488, 26 S. Ct. 303, 50 L. Ed. 564 18 Manning v. Insurance Co., 100 U. S. 693, 699, 25 L. Ed. 761 18 Marin v. Ellis, 15 Fed. (2d) 321 20 Oriel v. Russell, 278 U. S. 358, 13 A. B. R. (N. S.) 121 10, 13, 14, 19, 23 Prela v. Hubschman, 278 U. S. 358, 13 A. B. R. (N. 8.) 121 10, 13, 14, 15, 23 Robbins v. Gottbetter, 134 Fed. (2d) 843 16 iii PAGE Rosser, In re, 101 Fed. 562, 567, 568 24 Seligson v. Goldsmith, 128 Fed. (2d) 977 16 State of Kansas ex rel. Beck, Atty. Gen. et al. v. Occidental Life Ins. Co. et al., 95 Fed. (2d) 935... 25 United States v. Ross, 92 U.S. 281, 285, 93 L. Ed. 707... 18 Walt, In re, 17 Fed. (2d) 588 21, 22 STATUTES CITED Bankruptcy Act: Section 21-L 11, 12, 13, 16, 23, 24 United States Constitution: Fifth Amendment 11, 24 Supreme Court of the United States OCTOBER TERM 1945 No. ABRAHAM JESKOWITZ, Petitioner, against Lronarp H. Carter, Trustee in Bankruptey of Union Fabries, Inc., Respondent. PETITION FOR WRIT OF CERTIORARI ‘ To vHE HonoraBLe THE CHIEF JUSTICE AND ASSOCIATE JusTICESs OF THE SUPREME CouURT OF THE Unrrep STATES: The petition of Abraham Jeskowitz prays that a return of certiorari issue to review the order and decree of the Cireuit Court of Appeals for the Second Cireuit entered on the 14th day of February, 1946 (R. 51, 52°), affirming an order of the District Court of the United States for the Southern District of New York, dated the 10th day of Sep- tember, 1945 (R. 41 to 44). Opinions Below The order was affirmed by the Cireuit Court of Appeals without opinion (R. 49, 50). The District Judge rendered an opinion granting the motion to punish for contempt (R. 41). * Numbers in parentheses refer to page numbers in the record. ' Jurisdiction The decree of the Cireuit Court of Appeals was entered on the 14th day of February, 1946 (R. 51, 52). The jurisdiction of the Court is under Section 24 (ce) of the Bankruptey Act and under Section 240 (a) of the Judicial Code as amended by the Act of February 13, 1925. Statement of Facts Abraham Jeskowitz, the petitioner herein, was the presi- dent of the Union Fabries, Inc. On December 20, 1939, an involuntary petition in bankruptey was filed against said Union Fabrics, Inc., and thereafter, and on January 6, 1940, an order of adjudication was entered referring the proceedings to the Honorable Peter B. Olney, Referee in Bankruptey. At a first meeting of creditors Leonard H. Cohen was duly appointed Trustee in Bankruptey and qualified by filing the bond as required of him. Subse- quently examinations under Section 21-A of the Bank- ruptey Act were conducted (R. 31). The turnover proceedings were commenced by the peti- tion of the Trustee, verified the 25th day of October, 1940, charging the petitioner, as president and sole stockholder of said bankrupt, with having failed to account for certain merchandise or the proceeds of the sale thereof, a diamond ring received as collateral by the bankrupt, or the pro- ceeds of the sale thereof, and certain of the bankrupt’s books and records, as follows: general ledger for 1937, journal for 1938, records and inventories of the bankrupt’s merchandise taken as of January 25, 1937; May 31, 1937; January 1, 1938; May 31, 1938; October 31, 1938; December 31, 1938; January 31, 1939, and June 30, 1939, and all pur- chase invoices for the year 1937. Petitioner appeared and interposed an answer denying the material allegations of the petition (R. 32). 3 Hearings were commenced on January 27, 1941, and con- tinued until October 25, 1941, by which time there had been adduced 315 pages of testimony. Petitioner, who had no legal training, had no alternative, because of lack of funds, but to conduct his own defense to the proceedings up to September 24, 1941, when he was able to retain Chester A. Lessler, Esq., to conclude the hearing on the original pe- tition (R. 32). On October 25, 1941, the Referee granted a petition of the Trustee for leave to amend the original turnover peti- tion predicated upon the dollar value of an opening inven- tory alleged to have existed as of January 31, 1938, the amount of its purchases from that date to September 238, 1939 (the date of the general assignment for the benefit of creditors by the Union Fabrics, Inc.}, the cost of the mer- chandise sold during that period at 10 percent gross profit or at cost, and the value of the inventory on hand on September 28, 1939. The amended petition did not seek the turnover of the purchase invoices for the year 1937 (R. 32). Additional testimony was taken based upon the amended petition and answer thereto, which denied the material allegations of said petition and thereafter, and on the 23rd day of February, 1943, a period of three and a half years after the general assignment for the benefit of eredi- tors was made, the Referee handed down a memorandum decision in which he accepted the figure of $197,785.05 as representing the cost of the merchandise on hand on Janu- ary 1, 1939, and the figure of $322,587.36 as representing the cost of the merchandise sold between January 1, 1939, and September 28, 1939. The latter figure was based upon a presumption under Section 21-L of the Bankruptcy Act that the merchandise was sold at a price not less than cost. This presumption was indulged in by reason of the Trus- tee’s contention that the bankrupt did not turn over to the Trustee the books and records which were necessary to determine the cost of the merchandise sold by the Union LE RR PEON A NE 4 Fabrics, Inc., during the said period from January 1, 1939, to September 28, 1939. Then, by a series of presumptions, the Referee concluded that petitioner had in his possession and under his control merchandise of the cost value of $69,921.24 (R. 32, 33). The various presumptions which resulted in the making of the turnover order are as follows: The first presumption was that allowed by Section 21-L which resulted in the Referee finding that the merchandise sold during the period as charged was sold at a price not less than cost. The accountant for the Trustee testified that the bankrupt had failed to turn over the books and records from which the cost price of the merchandise sold could be ascertained. Petitioner, during the course of the hearings, did not have an accountant and was not ad- vised that the Trustee did have books and records from which the cost price of the merchandise could be ascer- tained. Consequently the Referee accepted the testimony offered by the Trustee and, based upon the legal presump- tion, found that the merchandise sold was at a price not less than cost. As a result of the figure adopted as the price of the merchandise sold, the Referee came to: the con- clusion that the bankrupt failed to account for merchan- dise of the cost value of $69,921.24. The second presumption adopted by the Referee was to the effect that if the bankrupt did fail to account for said merchandise, then said merchandise must have been in the possession of petitioner, who was the sole stockholder and officer of the corporation as of the date of the execution of the general assignment for the benefit of creditors, to wit, September 28, 1939. There was never any factual proof that petitioner did come into possession or have in his possession or under his control merchandise of the cost value of $69,921.24 on September 28, 1939, or at any other date. The third presumption adopted by the Referee was that petitioner continued to have possession and control of the 5 property or the proceeds thereof, namely, $69,921.24, on February 23, 1943, when the order was made, since on the basis of the prior presumptions he should have had that property in his possession or under his control on Sep- tember 28, 1939, more than three and a half years previous to the making of the order. The Trustee neither by the original petition nor the amended petition set forth that he was relying upon a pre- sumption of law under Section 21-L of the Bankruptcy Act to establish that the merchandise sold between Janu- ary 1, 1939, and September 28, 1939, was at a price not less than cost. Petitioner was therefore not advised that the Trustee sought to rely on the presumption under Section 21-L and did not endeavor to meet such an issue. Had the Trustee indicated in either the original or amended petition that he would seek to establish his contentions by relying upon the presumption that the merchandise was sold at a price not less than cost, the appellant would have sought to introduce evidence to show that the Trustee had books and records in his possession from which he could ascertain the actual cost of the merchandise sold by the bankrupt (R. 33). Although the Trustee failed to offer any actual proof to support the petition for the turnover, the respondent offered proof to show that there was no basis for the mathe- matical computation prepared by the Trustee and subinit- ted as proof in support of the turnover and that he did not have any property of any kind, nature or deserip- tion and was unable even to support his family and pay the rent for his apartment (R. 34). Testimony was introduced on behalf of petitioner that the Union Fabrics, Inc, was a corporation formed in 1937 and was in the business of converting rayon and silk fabries, with offices in the City of New York. Said co~poration had previously taken over the assets and lia- bilities of a corporation known as Union Silk Mills, Inc., which was jointly controlled by petitioner and Louis Berk- 6 man. The formation of the new corporation was due to the withdrawal of Louis Berkman and the sale of his stock to petitioner, who took over the entire assets of the Union Silk Mills, Inec., at a price arrived at through an agreement between the parties. Petitioner continued the business as sole owner and manager with the same inventory, assets, liabilities and records, and continued in business until Sep- tember, 1939. In September, 1939, the Union Fabrics, Inc., was forced to make an assignment for the benefit of the ereditors because of the financial condition of the busi- ness. Petitioner and his witnesses offered testimony to the effect that no piece goods of any kind were ever with- drawn from the corporation except in the regular course of business and that entries in connection with all sales had been made in the books and records of the Union Fabrics, Inc., and that petitioner had made no withdrawals from the Union Fabrics, Ine., except in the regular course of business and only withdrew such moneys as he was entitled to and for which a record was duly made. The Union Fabrics, Ine., used, in the main, the same type of book- keeping as was used by its predecessor corporation and carried forward the identical perpetual inventory used by the Union Silk Mills, Inc., for a period of five years prior to the incorporation of the bankrupt firm. This inventory book was continued where the old corporation left off, with its many errors and omissions. These perpetual inven- tory books were used as a basis for arriving at one of the Trustee’s theories in his petition for the turnover. The Referee, however, accepted the figure of $194,785.05 as representing the cost of the merchandise on hand on Janu- ary 1, 1939, even though evidence was offered to show that there were many errors and omissions totaling ap- proximately 113,000 yards of merchandise in the inventory record. The Referee applied Section 21-L of the Bank- ruptey Act and considered the merchandise sold during the period January 1, 1989, to September 28, 1939, at not less than eost even though the Trustee had on hand the 7 sales book, the perpetual inventory book and the dye book, as well as the purchase invoices for the years 1938 and 1939 (R. 34, 35). Testimony was also introduced on behalf of petitioner that he never removed any property of any kind from the Union Fabrics, Inc.; that he had not withdrawn any moneys from the Union Fabries, Inc., except in the regu- lar course of business and except as was entered in the books and records of account; and that he did not have, either on September 28, 1939, or at any time during the turnover proceedings, any portion of the said sum of $69,924.21 (R. 35). A petition to review the order of the Referee was filed by petitioner, and upon such review before the District Court the Referee’s order was affirmed on May 6, 1943, mainly upon the theory that it could not be said that the Referee’s finding was so clearly erroneous as to warrant the District Court to reach a different determination (R, 35). An appeal was taken to the Circuit Court of Appeals and on August 8, 1944, the Circuit Court of Appeals affirmed the order of the District Court. The Cireuit Court accepted the findings of the Referee since “ * * * The inven- tory sheets and the records that would disclose the cost were missing. Section 21, subdivision (L) of the Bank- ruptey Act, 11 U. S. C. A., Section 44, subdivision (L), required the Referee to presume ‘until the contrary shall appear that such property was sold at a price not less than cost * * *’”. Circuit Judge Frank, in a concurring opinion, stated as follows: “T concur but with the hope, expressed by Judge Learned Hand in Robbins v. Gottbetter, 2 Cir., 134 F. Qnd 843, 844, and Seligson v. Goldsmith, 2 Cir., 128 F. 2d 977, 978, 979, that the Supreme Court will soon grant certiorari in some such case as this and over- rule precedents that fasten upon us what seems to him and me an irrational rule of presumption, obvi- 8 ously contrary to fact, which enables trustees in bank- ruptey to employ civil actions as substitutes for crimi- nal proceedings” (R. 35-36). Petitioner thereupon filed a petition for a writ of cer- tiorari to review the order of the Circuit Court of Appeals for the Second Circuit entered on August 8, 1944. This petition for writ was denied by the Supreme Court on De- cember 11, 1944. After the Circuit Court of Appeals rendered its decision petitioner sought the advice of Morris H. Gotthilf & Com- pany, certified public accountants, and Archibald Palmer, attorney, with respect to this matter. Said accountant made a study and analysis of the books and records and found that it was possible for the Trustee to ascertain the cost of merchandise sold from the books and records which had been in possession of the Trustee in Bankruptcy. Based upon such findings petitioner made an application to the Referee to reopen the turnover proceeding for the purpose of enabling him to submit testimony that the Trustee was not entitled to rely upon the presumption afforded by Section 21-L of the Bankruptcy Act and that the said Trustee was required to prove the actual cost of the merchandise sold. The Referee denied this motion upon the ground that he could not entertain the same unless petitioner had first obtained permission from the Circuit Court to apply for such relief to the Referee (R. 38). Petitioner thereupon made an application to the United States Circuit Court of Appeals for an order authorizing him to apply before the Referee to reopen the turnover proceedings and to take additional testimony thereon, This motion was denied by the Cireuit Court of Appeals on the 9th day of February, 1945. An application was made for a writ of certiorari from the order denying said motion. The said writ was denied (R. 38). On September 28, 1944, an order was signed by the Hon- orable Alfred C. Coxe, District Judge, directing that peti- tioner show cause why he should not be punished for con- 9 tempt for failure to comply with the turnover order. Said order to show cause was based upon the petition of Leonard H. Carter, Trustee in Bankruptcy, verified September 26, 1944, a certificate of contempt of the Honorable Peter B. Olney, Referee in Bankruptcy, and various exhibits an- nexed thereto. Said order to show eause was returnable on October 4, 1944, and was adjourned from time to time. A supplemental petition of Leonard H. Carter, verified May 29, 1945, was filed in connection with said order to show cause. The motion for contempt was predicated on still another presumption to the effect that if petitioner had possession or control of the merchandise, or its proceeds, when the original order passed, then he still continues to have possession and the failure to turn over to the Trustee was a wilful disobedience of said order (R. 3-9). Petitioner filed an affidavit in opposition to said peti- tion and order to show cause, verified June 29, 1945, in which, in addition to the facts as already set forth herein, he again stated that at the time of the assignment for the benefit of creditors by the Union Fabrics, Inc., he did not have any moneys of any kind, nature or description. As a matter of fact, he was absolutely penniless and did not have sufficient moneys to give his wife and children the bare necessities of life and while the turnover proceed- ings were pending, and being conducted by him without the aid of an accountant or attorney until September 25, 1942, he had incurred a liability for rent, which he could not pay, to the extent of $1,800. Petitioner was unem- ‘ployed for about a year and a half after the assignment for the benefit of creditors was made, during which time he borrowed moneys from friends and relatives for the pur- pose of buying food and clothing for his family. After that he obtained employment from 8S. T. Paley & Company, of No. 1412 Broadway, New York, as a salesman, and con- tinued in that employ for a period of one year, when that employment ended. It was as a result of this employment that petitioner was able, in the latter part of 1942, to re- ee er ne os ” Rete 10 tain Chester A. Lessler to represent him in the turnover proceedings. In 1942 petitioner obtained employment with the firm of Fortune Fabrics, Inc., at a salary of $50 a week, and continued in that employ until approximately Decem- ber, 1943, and beginning with 1944 he acted as a free lance broker and in such way was able to earn a livelihood. Peti- tioner in said affidavit stated that he never had the ability to comply with the turnover order made by the Referee on February 23, 1943, and still did not have the ability to com- ply with said turnover order at that time and requested that a hearing be held and testimony be adduced on the question of whether petitioner has possession or control of the property and whether the refusal to comply with the turnover order is wilful and deliberate (R. 39, 40). District Judge Conger, without taking any testimony but upon the moving papers and opposing affidavit granted the motion upon the authority of Oriel v. Russell, 278 U. S. 358, and Prela v. Hubschman. Petitioner appealed to the Cireuit Court of Appeals and the Cireuit Court, on February 14, 1946, affirmed the order of the District Court (R. 51, 52). Questions Presented 1. Whether a Trustee in Bankruptcy, who, in a turnover. proceeding, relies upon a presumption that the property was sold at a price not less than cost, under the provisions of Section 21-L of the Bankruptcy Act, and a presumption of possession based upon a mathematical computation and and continued possession between the time of the filing of the petition and the date of the turnover order, may, in connection with a motion to punish for contempt for failure to comply with such order, rely upon a further presumption that the order once made carries with it the presumption that the respondent continues to have possession and con- trol of the property in question. >" 11 2. Whether the Trustee, in connection with a motion to punish for contempt for failure to comply with a turnover order may rely upon a presumption that the respondent still has possession and control of the property in ques- tion, should depend upon the length of time that elapsed between the date of the filing of the petition and the date of said turnover order where such turnover order is predi- cated upon a mathematical computation, as in the case at bar. 3. Whether the failure ta take testimony on the question of possession or control of the property and on the ques- tion of whether the refusal to comply with the turnover order is wilful and deliberate where petitioner, in his affi- davit in opposition to the motion to punish for contempt, requested that a hearing be held and testimony be adduced on such issues, violated the constitutional rights of peti- tioner. Statutes Involved 1. Section 21-L of the Bankruptcy Act: “In any proceeding under this Act against a bank- rupt for an accounting by him for his property or the disposition thereof, or to compel a turnover of prop- erty to him, if his books, records, and accounts shall fail to disclose the cost to him of such property sold by him during any period under consideration, it shall be presumed, until the contrary shall appear, that such property was sold at a price not less than the cost thereof to him.” 29. Amendment V to the Constitution of the United States: “No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when Te, nao hse Cod a we on ta be ee Lae cal cee ia ae Uh aks 12 in actual service in time of War or public danger; nor shal) any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be maated in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just com- pensation.” Specifications of Error to be Urged 1. The Courts below erred in holding that a turnover order once made carries a presumption that the respondent continues to have possession and control of the property, even though the said order was predicated upon three separate presumptions, to wit: (a) presumption under Sec- tion 21-L of the Bankruptcy Act to the effect that mer- chandise sold during a certain period was sold at a price not less than cost; (b) presumption that if the bankrupt failed to account for certain merchandise which, according to a mathematical computation, should have been on hand on the date of the filing of the petition, such merchandise must have been in the possession of the petitioner, who was the sole stockholder of the bankrupt corporation; and (ec) presumption that if petitioner had possession of the property on September 28, 1939, he continued to have the property on February, 1943, when the order was made. 2. The Courts below erred in failing to hold that where the turnover order is based upon a mathematical computa- tion and there is no actual proof of possession at the time of the filing of the petition but possession is presumed, such presumption grows weaker as time passes and where there is a long delay between the time of the filing of the petition and the date of the turnover order, the Trustee, in connec- tion with a motion to punish for contempt, should not be permitted to rely upon a presumption that the turnover order carries with it the presumption that petitioner still continues to have possession and control of the property. 13 3.. The Court erred in granting the motion to punish for contempt without permitting petitioner to introduce evi- dence to show an inability to comply with the turnover order and to show that the failure to comply is not wilful or deliberate. Reasons for Granting Writ POINT A A trustee in bankruptcy who, in a turnover proceed- ing, relies upon a presumption that the property was sold at a price not less than cost, under the provisions of Section 21-L of the Bankruptcy Act, and a presump- tion of continued possession between the time of the filing of the petition and the date of the turnover, may not, in connection with a motion to punish for con- tempt for failure to comply with such order, rely upon a further presumption that the order once made car- ries with it the presumption that petitioner continues to have possession and control of the property in question. The Court below based its decision upon the law as laid down in the cases of Oriel v. Russell; Samuel Prela v. Louis Hubschman, 278 U. 8S. 358, 13 A. B. R. (N. S.) 121. The principle of law as laid down in those cases cannot be fol- lowed in the case at bar. By reason of the creation of Section 21-L of the Bankruptey Act by Congress in 1938 and other factors which have not been considered previ- ously by the United States Supreme Court, the case at bar requires a consideration of the issues unaffected by the principle of law enunciated in Oriel v. Russell; Prela v. Hubschman, cited supra. Oriel v. Russell and Samuel Prela v. Louis Hubschman (cited supra) were decided on January 14, 1929, prior to the enactment of Section 21-L of the Bankruptey Act, which De SR OLA Tete tes ABERDEEN LSE T LS BELLE LLG LIEN GOIN LEE AICE NE SEO LE LE LPL RANE 14 created another presumption in favor of a Trustee in Bank- ruptcy. The Supreme Court, in the cases of Oriel v. Russell and Prela v. Hubschman, cited supra, not only discussed the question of the weight which should be given to a turn- over order but also the degree of proof which was neces- sary to support the original turnover order. As to the degree of proof necessary to establish the turnover order the Supreme Court in Re Oriel v. Russell, 15 A. B. R. (N. S.) 121, at page 123, stated as follows: “We think a proceeding for a turnover order in bank- ruptey is one the right to which should be supported by clear and convincing evidence. The charge upon which the order is asked is that the bankrupt, having posses- sion of property which he knew should have been de- livered by him to the trustees, refused to comply with his obligation in this regard. It is a charge equiva- lent to one of fraud, and must be established by the same kind of evidence required in a case of fraud in a court of equity. A mere preponderance of evidence in such a ease is not enough. The proceeding is one in which coercive methods by imprisonment are probable and are foreshadowed.” As to the question of the weight which should be given to the turnover order on a motion to punish for contempt for failure to comply therewith, the Supreme Court at page 126 stated as follows: “We find ourselves in general accord on this subject with the remarks of the late Circuit Judge McPherson of the Third Circuit, who used the following language in the case of In re Epstein (D. C., Pa.), 30 Am. B. R. 387, 206 F. 568: ‘In the case in hand, the consequence is that, as the order to pay or deliver stands without sufficient reply, it remains what it has been from the first— an order presumed to be right, and therefore an oyder that ought to be enforeed.’” (Italics writer’s.) 15 The entire reasoning of the Supreme Court is that the moving party in a motion to punish for contempt is entitled to rely upon the presumption that the turnover order which is based upon clear and convincing proof is presumed to be correct and that the burden is upon the respondent to establish his inability to comply with the turnover order. It is important at this point to understand that the pre- sumption which the Supreme Court had been discussing was the presumption that the turnover order once made continues to be correct. In other words, if a turnover order is made and the respondent refuses to comply with such turnover order it is presumed that the respondent has possession of the property referred to in the turnover and he wilfully and deliberately refuses to comply therewith. This analysis may be better illustrated by the language in the majority opinion of In re Prela, cited supra, where the Circuit Court at page 414 stated as follows: “A disobedience of the order to turn over presents a prima facie case of contumacy for punishment. The burden rests upon the moving party to establish, not beyond a reasonable doubt, but by a fair preponder- ance of proof, such contumacy. Having been directed to turn over property, it is presumed that the offender continues in his wilful and deliberate conduct when he fails to obey the order. Applying the rule stated in that opinion, it follows that this order must be affirmed.” (Italies writer’s.) In the case at bar the Referee, upon a mathematical com- putation which resulted from testimony of the accountant for the Trustee, held that as of the 28th day of September, 1939, the Union Fabrics, Inc., bankrupt, should have had on hand merchandise of the value of $69,921.24 and based upon that finding presumed that petitioner, who was the sole stockholder and an officer of the corporation, con- tinued to be in possession or control of that property or its proceeds on the date of the making of the turnover or- as SEEING PI LE EE RTES LE EE LON E FN 16 der on February 23, 1943, approximately three and a half years later. This question of presumption has never been considered or decided by the United States Supreme Court. Seligson v. Goldsmith, 128 Fed. (2d) 977; Robbins v. Gottbetter, 134 Fed. (2d) 843. In connection with the appeal from the order directing the turnover Cireuit Judge Frank, who wrote the concur- ring opinion, in Cohen v. Jeskowitz, 144 Fed. (2d) 39, stated, at pages 40 and 41, as follows: “T eoneur but with the hope, expressed by Judge Learned Hand in Robbins v. Gottbetter, 2 Cir., 134 KF. 2d 843, 844, and Seligson v. Goldsmith, 2 Cir., 128 F. 2d 977, 978, 979, that the Supreme Court will soon grant certiorari in some such case as this and overrule precedents that fasten upon us what seems to him and me an irrational rule of presumption, obviously con- trary to fact, which enables trustees in bankruptcy to employ civil actions as substitutes for criminal pro- ceedings.” The turnover order itself is based upon a series of pre- sumptions. Section 21-L of the Bankruptcy Act, which went into effect in September of 1938, provides as follows: “In any proceeding under this Act against a bank- rupt for an accounting by him for his property or the disposition thereof, or to compel a turnover of prop- erty by him, if his books, records, and accounts shall fail to disclose the cost to him of such proprty sold by him during any period under consideration, it shall be presumed, until the contrary shall appear, that such property was sold at a price not less than the cost thereof to him.” The Trustee in the case at bar did rely upon such pre- sumption and submitted figures as to the cost of the mer- chandise sold, predicated upon such presumption. The figure of $69,921.24 is hased upon a mathematical compu- ae at Re TA Tae é PUR ALAIN ELE IY A IEG TET BS eK EE IS Pic: 17 tation to the effect that the bankrupt had on hand, as of December 31st, according to a certain perpetual inventory sheet, a certain amount of merchandise; that between Janu- ary 1 and September 28, 1939 it sold merchandise of a cost value in a given amount; that it had purchased a given amount of merchandise according to its purchase invoices ; and that it therefore should have had on hand the amount directed to be turned over on September 28, 1939. In order to arrive at the amount alleged to be unaccounted for, the Trustee relied on the presumption that the mer- chandise was sold at a figure not less than cost, and the Referee adopted the figures as submitted by the Trustee’s accountant. The courts below, in granting the turnover order, per- mitted the Trustee to rely upon a presumption under Sec- tion 21-L; the presumption that if there was a failure to account, according to the mathematical computation of the Trustee’s accountant, petitioner was in possession or con- trol of the property unaccounted for as of the date of the filing of the petition in bankruptcy, and the presumption that if petitioner had possession on the date of the filing of the petition in bankruptcy he had possession and con- trol on the date of the making of the turnover order, three and a half years later. Petitioner contends that the Trustee cannot now again rely upon a further presumption that petitioner still con- tinues to hold the property and that his refusal to turn same over is deliberate and wilful but, on the other hand, that the Trustee should be required to prove, by clear and convineing evidence, that petitioner still has possession and control of the property and that petitioner wilfully and deliberately refuses to turn the same over to the Trustee in Bankruptey. This contention is based primarily upon the theory that the Trustee, in connection with a motion to punish for contempt for failure to comply with a turn- over order, should not be permitted to rely upon a pre- sumption that the order, once made, carries a presump- GL Sy AY MALIA A BRET LE IIMS ERY IOS ML FEE ELE NG HEBER PE 8 OEE ETE IGE Bren RittD ty IMR ZINC MPR eae 18 tion that petitioner continues to have possession of the property where the order itself was based upon three sep- arate presumptions. Such a situation has not been dis- cussed by the United States Supreme Court or by any other Court in connection with contempt proceedings aris- ing out of a turnover order. One presumption cannot be built upon another. Looney v. Metropolitan Railroad Co., 200 U. S. 480, 487, 488, 26 S. Ct. 303, 50 L. Ed. 564; United States v. Ross, 92 U. S. 281, 285, 23 L. Ed. 707; Manning v. Insurance Co., 100 U. 8S. 693, 699, 25 L. Ed. 761. _ In Brady v. United States, 24 Fed. ( 2d) 399, the court at page 404 stated as follows: “It is well settled that presumptions cannot be based on presumptions. Vernon v. U.S. (C. C. A. 8) 146 F. 121, 126; 22 C. J. p. 84, See. 27, page 99, See. 40. We conclude that the evidence was insufficient to support the verdicts of guilty. See Freeman v U.S. (C. C. A. 3) 20 F. (2d) 748.” In Lincoln Nai. Life Inc. Co. v. Erikson, 42 Fed. (2d) 997, the court at page 1002 stated as follows: “The result is that plaintiff’s case is built upon pre- sumptions based one upon another. Such a course of procedure is not allowable, either in a civil or crim- mal case. 22 C. J. p. 84, See. 27; 9 Encye. of Evid. p. 880; Brady v. United States, 24 F. (2d) 399, 404 (C. C. A. 8); General Reins. Corp. v. Southern Sur. Co., 27 F. (2d) 265, 272 (C. C. A. 8) and cases cited.” (Italics writer’s.) To the same effect see: Brown v. Maryland Casualty Co., 55 Fed. (2d) 159. DPS POT LE OTL, THEN LEP LLL SES TLTL II LISELI PLETE OLEAN LLOEGR LMI IS I ERI LTE ‘ co BS eae , ; P 19 In General Reinsurance Corporation v. Southern Surety Co., 27 Fed. (2d) 265, the court at pages 272, 273, stated as follows: “The argument does not appear to us to be sound. In the final analysis it bases one presumption upon another presumption. The first presumption is that, if the surety company had investigated, it would have obtained knowledge of the insolvency of the trust com- pany and of Bell. The second presumption is that, if the surety company failed to disclose such knowledge, it would be guilty of a fraudulent concealment. ‘he second presumption, viz. of fraudulent concealment, is thus based upon the first presumption, of knowledge. But a presumption, in order to be valid, must be based upon facts, not upon another presumption. 9 Encye. of Evid. p. 880; United States v. Ross, 92 U. 8. 281, 23 L. Ed. 707; Manning v. Ins. Co., 100 U. 8S. 693, 698, 25 L. Ed. 761; United States v. Carr, 132 U.S. 644, 653, 10S. Ct. 182, 33 L. Ed. 483; Looney v. Metropolitan R. Co., 200 U.S. 480, 488, 26 S. Ct. 303, 50 L. Ed. 564; Cun- ard S.S. Co. v. Kelley (C. C. A.) 126 F. 610, 615; Uhlman v. Brewing Co. (C. C.) 53 F. 485; U. S. F. & G. Co. v. Bank, 145 F. 273, 279 (C. C. A. 8); Vernon v. United States, 146 F. 121 (C. C. a 8); Missouri, K. & T. Railway v. Foreman, 174 F. 377, 383 (C. C. A. 8); Smith v. Pennsylvania R. Co. (C. C. A.) 239 F. 103; Ringrose v. Sloane (D. C.) 266 F. 402; Atchi- son, T. & S. F. Ry. Co. v. DeSedillo, 219 F. 686, 689 (C. C. A. 8); Wagner v. United States, 8 F. (2d) 581, 586 (C. C. A. 8); In re Elias (D. C.) 240 F. 448; Keen v. United States, 11 F. (2d) 260 (C. C. A. 8); Nieder- luecke v. United States, 21 F. (2d) 511 (C. C. A. 8).” It is clear therefore that the principle of law laid down by the Supreme Court in Re Oriel v. Russell, cited supra, that a turnover order raises the presumption that the order was correct and that the respondent still has possession of the property and his refusal constitutes a deliberate and wilful violation of the order does not apply to the facts in the case at bar since the order itself was based upon at least three separate presumptions. Under such eireum- ES AER, Aaa mete GRAS LIME IEEE GOEL AS TELE ECA — 20 stances another rule of law should apply, namely, that the Trustee must establish by clear and convincing proof, through facts rather than presumptions, that the order is correct and that petitioner has ability to comply and that his refusal constitutes a wilful and deliberate violation thereof. POINT B The right of a Trustee to rely upon a presumption that the turnover order carries with it the presump- tion of continued possession should depend upon the time that elapses between the date of the filing of the petition and the date of the turnover order, where such order is predicated upon a mathematical computation, as in the case at bar. The Trustee in the case at bar relied upon a mathematical computation. The assignment for the benefit of creditors was executed on September 28, 1939, and the turnover order was not made until February 23, 1943, a period of three and a half years later. Petitioner contends that the presumption that a bankrupt continues to hold assets which at the time of adjudication he unlawfully withheld from the Trustee grows weaker as time passes until it finally ceases. In the case of Marin v. Ellis, 15 Fed. (2d) 321, the bank- rupt was adjudicated on December 27, 1922. The Trustee filed his petition for a turnover on November 27, 1923, ap- proximately ten months after the adjudication, and did not bring his petition on for hearing before the referee until June 17, 1924. An order denying the turnover was made by the referee on August 27, 1925. The Trustee filed his petition to review on October 19, 1925. The denial of the petition was based upon the fact that the Trustee had failed to prove that the bankrupt, at the time that the order was made, had possession or control, or could turn over to the Trustee merchandise or its cash equivalent of the 21 value of $15,000. The District Court confirmed the order of the referee dismissing the Trustee’s petition for a turn- over order and the Circuit Court of Appeals also confirmed the referee and, in so doing, stated at page 321 as follows: “The legal presumption is that a bankrupt, who at the time of his adjudication in bankruptcy has and un- lawfully holds back from his trustee in bankruptcy a part of his property, or of its proceeds, continues to hold it or them, but this presumption grows weaker as time passes, until it finally ceases to exist.” (Italics writer’s.) Another case which is directly in point and supports the contention of petitioner is /n re Walt, 17 Fed. (2d) 588. In connection with the motion to punish for contempt in that ease testimony was adduced on the question of the bank- rupt’s inability to comply with the turnover order and the court, at pages 592, 693, stated as follows: “The testimony which the bankrupt has offered as an excuse for not complying with the order of the ref- eree is not convincing. I am of the opinion that he has been dishonest with reference to this creditors; that if he was ordered to go to jail, he would probably find the $2,500 and pay it over. In fairness, however, I must admit that I am not morally certain that he now has possession or control of this $2,500, and that, if I made an order committing him for contempt, it would he upon my belief merely that he has it or can get it. It must be conceded that it is now two years since he failed, that he has a wife and children, and that they have been sick. Whether the business has made money or not does not appear. The presumption that the bankrupt still has this money ts not as strong as it was when the referee made his order. If the trus- tee had procured the turnover order sooner, and had brought a contempt proceeding more mptly, the sit- uation would be we Aobere It ts probable that the bank- rupt has been guilty of concealment of assets and of false swearing; but, being in doubt as to the sufficiency of the evidence to justify a commitment for contempt, I shall give the bankrupt the benefit of the doubt. 22 “The order to show cause will be discharged, and the order of January 18, 1927, entered prior to the last hearing, will be vacated and set aside.” (Italics writer’s.) In the case at bar the general assignment was made on September 28, 1939. An involuntary petition was filed on December 20, 1939. The turnover proceedings were not instituted until October 25, 1940, and as late as October 25, 1941, the Trustee served an amended petition with re- spect to the turnover. The order for the turnover was not made until February 23, 1943, three and a half years after the assignment was made. An order to show cause to punish for contempt was not obtained by the Trustee until June 14, 1943, returnable on June 30th. Because of ap- peals from the turnover order to the Cireuit Court of Appeals and the Supreme Court of the United States, the motion to punish was not decided until September 10, 1945. Using the language of the Court in Jn re Walt, cited supra, even if the Trustee was entitled to rely upon the presumption of continued possession in connection with the obtaining of the order, the lapse of time has created more than sufficient doubt of the evidence of possession and control of the property in question to warrant the refusal to grant an order to punish the respondent for contempt. The least that can be said under the circumstances is that because of the lapse of time involved the Trustee should not be permitted to rely upon a presumption that the appellant still has possession and control of the prop- erty in question and wilfully withholds the same from the Trustee, but he should be relegated to prove such posses- sion and control by facts separate and distinct from the presumption relied upon by him. 23 POINT C The failure to take testimony on the question of possession or control of the property and on the ques- tion of whether the refusal to comply with the turn- over order is wilful and deliberate where petitioner, in his affidavit in opposition to the motion to punish for contempt, requested that a hearing be held and testimony he adduced on such issues, violated the con- stitutional rights of petitioner. In the cases of Oriel v. Russell and Prela v. Hubschman, cited supra, the Supreme Court at page 127 stated as follows: “In the two cases before us, the contemnors had ample opportunity in the original hearing to be heard as to the fact of concealment, and in the motion for the contempt to show their inability to comply with the turnover order. They did not succeed in meeting the burden which was necessarily theirs in each case, and we think, therefore, that the orders of the Circuit Court of Appeals in affirming the District Court were the proper ones.” (Italics writer’s.) The Trustee in his petition on the original turnover proceedings made no reference to Section 21-L of the Bank- ruptey Act. After all of the testimony was adduced and the hearing was closed the Referee made a finding that the merchandise was sold at a price not less than cost, based upon the presumption under Section 21-L and not upon proof as to actual cost. Petitioner, during the course of the hearing, was not advised of any contention by the Trus- tee that he relied on Section 21-L of the Bankruptcy Act and therefore did not present testimony that the Trustee did have in his possession books and records from which the price of the merchandise sold during the period in question could be ascertained and although an opportunity 24 was sought to introduce such evidence by a motion to re- open the proceedings such application was denied and petitioner never obtained an opportunity to prove these facts. Further, in the affidavit submitted in opposition to the motion to punish for contempt petitioner requested that a hearing be held and testimony be adduced on the question of whether petitioner had possession or control of the property in question and as to whether the refusal to com- ply is wilful and deliberate, but the motion to punish for contempt was granted without affording petitioner an opportunity to adduce such testimony. The Fifth Amendment to the Constitution of the United States provides that no person shall be deprived of life, liberty or property without due process of law. In the case at bar petitioner will be deprived of his liberty if an opportunity is not given to present the evidence which is necessary to refute the proposition that the Trustee is entitled to rely on a presumption of law under Section 21-L and to present evidence that he does not have in his possession or control the property set forth in the turn- ‘over order, and that the failure to comply with said turn- over order is not wilful and deliberate. One of the basic requisites of due process when applied to judicial proceedings is that the parties shall have notice and an opportunity to present every available defense. To that effect see In re Rosser, 101 Fed. 562, 567, 568, where the Court stated: “And the opportunity to be heard must be such that he may, if he chooses, cross-examine the witnesses pro- duced to sustain the claim, and produce witnesses to refute it, if a question of fact is in issue, and, if a question of law is presented, the opportunity to be heard must be such that his counsel may, if they de- sire, argue the justice and propriety of the judgment or order proposed. Judicial orders or pengnen af- fecting the lives or property of citizens in the absence of such a notice and opportunity to the party affected 25 are violative of the fundamental principle of our laws, and cannot be sustained. Gentry v. U. S. (C. C. A.), 101 Fed. 51; Burton v. Platter, 10 U. S. App. 657, 663, 4 C. C. A. 95, 99, 53 Fed. 901, 905; Windsor v. MeVeigh, 93 U. 8. 274, 277, 278, 23 L. Ed. 914; Capel v. Child, 2 Cromp. & J. 558, 574; Hovey v. Elliott, 167 U. S. 409, 414, 416, 446, 17 Sup. Ct. 841, 42 L. Ed. 215; Galpin v. Page, 18 Wall. 350, 368, 21 L. Ed. 959; Un- derwood v. McVeigh, 23 Grat. 409, 413; Henry v. Carson, 96 Ind. 412; Hovey v. Elliott, 145 N. Y. 126, 39 N. E. 841; Taussig’s Ex’rs v. Glenn, 4 U. S. App. 524, 541, 2 C. C. A. 314, 318, 51 Fed. 409, 413; Merrill v. Rokes, 12 U. S. App. 183, 188, 4 C. C. A. 433, 435, 54 Fed. 450, 452.” In State of Kansas ex rel. Beck, Atty. Gen. et al. v. Occidental Life Ins. Co. et al., 95 Fed. (2d) 935, the Court, at page 937, stated as follows: “The basic requisites of due process when applied to judicial proceedings are that, having due regard to the form and nature of the proceeding and the char- acter of the rights which may be affected, the order, judgment, or decree be entered by a court clothed with jurisdiction of the subject matter and that the party or parties bound by it have notice and be afforded an opportunity to present every available defense.” It appears that in a case where the turnover order was based upon three separate presumptions, as herein dis- cussed, though the law is well settled that a presumption cannot be based upon a presumption, the due process of law clause of the Constitution of the United States and justice require that petitioner be permitted to introduce evidence to show his inability to comply with the turnover order and to show that his failure to comply was not wilful or deliberate. The failure of the Courts below to afford petitioner an opportunity to submit such testimony will deprive him of his liberty without due process of the law. PEEL ORATOR OS FE EEL 26 In Jn re Fisher, 32 Fed. Supp. 69, the Court, at page 73, stated as follows: “Even if the bankrupt still fails to give any credible explanation of the disposition of the missing mer- chandise and books, or otherwise to account therefor, still the turnover order should not be passed if the referee is satisfied from further evidence that it is entirely beyond the power of the bankrupt to comply with the order. May v. Henderson, supra, 268 U. S. page 120, 45 S. Ct. 456, 69 L. Ed. 870; Kirsner v. aliaferro, supra, 202 F. page 60.” The granting of the motion to punish for contempt with- out the taking of testimony has, therefore, deprived peti- tioner of his constitutional rights. CONCLUSION It is respectfully submitted that this case is one calling for the exercise by this Court of its supervisory powers in order that this important question may be determined and that to such end a writ of certiorari be granted and that this Court review the decision of the Circuit Court of Appeals and finally reverse it. ARCHIBALD PALMER, Counsel for Petitioner. mY --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_0539%3A1. Public record. Not legal advice.