333 U.S. 56 (1948) ]
[333 U.S. 56 , 58] Mr. Max Schwartz, of Brooklyn, N.Y., for petitioner.
Mr. Joseph Glass, of New York City, for respondent.
Mr. Justice JACKSON delivered the opinion of the Court.
Joseph Maggio, the petitioner, was president and manager of Luma Camera Service, Inc., which was adjudged bankrupt on April 23, 1942. In January of 1943 the [333 U.S. 56 , 59] trustee asked the court to direct Maggio to turn over a considerable amount of merchandise alleged to have been taken from the bankrupt concern in 1941, and still in Maggio's possession or control. After hearing, the referee found that 'the trustee established by clear and convincing evidence that the merchandise hereinafter described, belonging to the estate of the bankrupt, was knowingly and fraudulently concealed by the respondent (Maggio) from the trustee herein and that said merchandise is now in the possession or under the control of the respondent.' A turnover order issued and was affirmed by the District Court and then unanimously affirmed by the Circuit Court of Appeals, Second Circuit, without opinion other than citation of its own prior cases. Zeitz v. Maggio, 2 Cir., 145 F. 2d 241. Petition for certiorari was denied by this Court. 324 U.S. 841 .
As Maggio failed to turn over the property or its proceeds, the Referee found him in contempt. After hearing, the District Court affirmed and ordered Maggio to be jailed until he complied or until further order of the court. Again the Circuit Court of Appeals affirmed. 2 Cir., 157 F. 2d 951, 955.
But in affirming the Court said: 'Although we know that Maggio cannot comply with the order, we must keep a straight face and pretend that he can, and must thus affirm orders which first direct Maggio 'to do an impossibility, and then punish him for refusal to perform it." Whether this is to be read literally as its deliberate judgment of the law of the case or is something of a decoy intended to attract our attention to the problem, the declaration is one which this Court, in view of its supervisory power over courts of bankruptcy, cannot ignore. Fraudulent bankruptcies probably present more difficulties to the courts in the Second Circuit than they do elsewhere. These conditions are reflected in conflicting views within the Court of Appeals, which we need not detail as they are [333 U.S. 56 , 60] already set out in the books: In re Schoenberg, 2 Cir., 70 F.2d 321; Danish v. Sofranski, 2 Cir., 93 F.2d 424; In re Pinsky-Lapin & Co., 2 Cir., 98 F.2d 776; Seligson v. Goldsmith, 2 Cir., 128 F.2d 977; Rosenblum v. Marinello, 2 Cir., 133 F.2d 674; Robbins v. Gottbetter, 2 Cir., 134 F.2d 843; Cohen v. Jeskowitz, 2 Cir., 144 F.2d 39; Zeitz v. Maggio, 2 Cir., 145 F.2d 241.
The problem is illustrated by this case. The court below says that in the turnover proceedings it was sufficiently established that, towards the end of 1941, a shortage occurred in this bankrupt's stock of merchandise. It seems also to regard it as proved that Maggio personally took possession of the corporation's vanishing assets. But this abstraction by Maggio occurred several months before bankruptcy and over a year before the turnover order was applied for. The only evidence that the goods then were in the possession or control of Maggio was the proof of his one time possession supplemented by a 'presumption' that, in the absence of a credible explanation by Maggio of his disposition of the goods, he continues in possession of them or their proceeds. Because the Court of Appeals felt constrained by its opinions to adhere to this 'presumption' or 'fiction' it affirmed the turnover order. Now it says it is convinced that in reality Maggio did not retain the goods or their proceeds up to the time of the turnover proceedings and that the turnover order was unjust. But it considers the turnover order res judicata and the injustice beyond reach on review of the contempt order.
The proceeding which leads to commitment consists of two separate stages which easily become out-of-joint because the defense to the second often in substance is an effort to relitigate, perhaps before another judge, the issue supposed to have been settle in the first, and because while the burden of proof rests on the trustee, frequently evidence of the facts is entirely in possession of i adversary, the bankrupt, who is advantaged by nondisclosure. [333 U.S. 56 , 61] Because these separate but interdependent turnover and contempt procedures are important to successful bankruptcy administration, we restate some of the principles applicable to each, conscious however of the risk that we may do more to stir new than to settle old controversies.
The turnover procedure is one not expressly created or regulated by the Bankruptcy Act. It is a judicial innovation by which the court seeks efficiently and expeditiously to accomplish ends prescribed by the statute, which, however, left the means largely to judicial ingenuity.
The courts of bankruptcy are invested 'with such jurisdiction at law and in equity as will enable them' to 'cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto * * *.' Title 11 U.S.C. 11(a)(7), 11 U. S.C.A. 11, sub. a(7), and the function to 'collect and reduce to money the property of the estates' is also laid upon the trustee. 11 U.S.C. 75( a)(1), 11 U.S.C.A. 75, sub. a(1). A correlative duty is imposed upon the bankrupt fully and effectually to turn over all of his property and interests, and in case of a corporation the duty rests upon its officers, directors or stockholders. 11 U.S.C. 25, 11 U.S.C.A. 25.
To compel these persons to discharge their duty, the statute imposes criminal sanctions. It denounces a comprehensive list of frauds, concealments, falsifications, mutilation of records and other acts that would defeat or obstruct collection of the assets of the estate, and prescribes heavy penalties of fine or imprisonment or both. 11 U.S.C. 52( b), 11 U.S.C.A. 52, sub. b. It also confers on the courts power to arraign, try and punish persons for violations, but 'in accordance with the laws of procedure' regulating trials of crimes. 11 U.S.C. 11(a)(4), 11 U.S.C.A. 11, sub. a (4). And it specifically provides for jury trial of offenses against the Bankruptcy [333 U.S. 56 , 62] Act. 11 U.S.C.A. 42(c), 11 U.S.C.A. 42, sub. c. Special provisions are also made to induce vigilance in prosecuting such offenses. It is the duty of the referee and trustee to report any probable grounds for believing such an offense has been committed to the United States Attorney, who thereupon is required to investigate and report to the referee. In a proper case he is directed to present the matter to the grand jury without delay, and if he thinks it not a proper case he must report the facts to the Attorney General and abide his instructions. 11 U.S.C. 52(e), 11 U.S. C.A. 52, sub. e.
Courts of bankruptcy have no authority to compensate for any englect or lack of zeal in applying these prescribed criminal sanctions by perversion of civil remedies to ends of punishment, as some judges of the Court of Appeals suggest is being done.
Unfortunately, criminal prosecutions do not recover concealed treasure. And the trustee, as well as the Court, is commanded to collect the property. The Act vests title to all property of the bankrupt, including any transferred in fraud of creditors, in the trustee, as of the date of filing the petition in bankruptcy, 11 U.S.C. 110, 11 U.S.C.A. 110, which puts him in position to pursue all plenary or summary remedies to obtain possession.
To entertain the petitions of the trustee the bankruptcy court not only is vested with 'jurisdiction of all controversies at law and in equity' between trustees and adverse claimants concerning property acquired or claimed by the trustee, 11 U.S.C. 46, 11 U.S.C.A. 46, but it also is given a wide discretionary jurisdiction to accomplish the ends of the Act, or in the words of the statute to 'make such orders, issue such process, and enter such judgments, in addition to those specifically provided for, as may be necessary for the enforcement of the provisions of this title.' 11 U.S.C. 11(a)(15), 11 U.S.C.A. 11, sub. a(15).
In applying these grants of power, courts of bankruptcy hav fashioned the summary turnover procedure as one [333 U.S. 56 , 63] necessary to accomplish their function of administration. It enables the court summarily to retrieve concealed and diverted assets or secreted books of account the withholding of which, pending the outcome of plenary suits, would intolerably obstruct and delay administration. When supported by 'clear and convincing evidence,' the turnover order has been sustained as an appropriate and necessary step in enforcing the Bankruptcy Act. Oriel v. Russell, 278 U.S. 358 ; Cooper v. Dasher, 290 U.S. 106 . See also Farmers' & Mechanics' National Bank v. Wilkinson, 266 U.S. 503 .
But this procedure is one primarily to get at property rather than to get at a debtor. Without pushing the analogy too far, it may be said that the theoretical basis for this remedy is found in the common law actions to recover possession-detinue for unlawful detention of chattels and replevin for their unlawful taking-as distinguished from actions in trespass or trover to recover damages for the withholding or for the value of the property. Of course the modern remedy does not exactly follow any of these ancient and often overlapping procedures, but the object- possession of specific property-is the same. The order for possession may extend to proceeds of property that has been disposed of, if they are sufficiently identified as such. But it is essentially a proceeding for restitution rather than indemnification, with some characteristics of a proceeding in rem; the primary condition of relief is possession of existing chattels or their proceeds capable of being surrendered by the person ordered to do so. It is in no sense based on a cause of action for damages for tortious conduct such as embezzlement, misappropriation or improvident dissipation of assets.
The nature and derivation of the remedy make clear that it is appropriate only when the evidence satisfactorily establishes the existence of the property or its proceeds, [333 U.S. 56 , 64] and possession thereof by the defendant at the time of the proceeding. While some courts have taken the date of bankruptcy as the time to which the inquiry is directed, we do not consider resort to this particular proceeding appropriate if, at the time it is instituted, the property and its proceeds have already been dissipated, no matter when that dissipation occurred. Conduct which has put property beyond the limited reach of the turnover proceeding may be a crime, or, if it violates an order of the referee, a criminal contempt, but no such acts, however reprehensible, warrant issuance of an order which creates a duty impossible of performance, so that punishment can follow. It should not be necessry to say that it would be a flagrant abuse of process to issue such an order to exert pressure on friends and relatives to ransom the accused party from being jailed.
It is evident that the real issue as to turnover orders concerns the burden of proof that will be put on the trustee and how he can meet it. This Court has said that the turnover order must be supported by 'clear and convincing evidence,' Oriel v. Russell, 278 U.S. 358, 174 , and that includes proof that the property has been abstracted from the bankrupt estate and is in the possession of the party proceeded against. It is the burden of the trustee to produce this evidence, however difficult his task may be.
The trustee usually can show that the missing assets were in the possession or under the control of the bankrupt at the time of bankruptcy. To bring this past possession down to the date involved in the turnover proceedings, the trustee has been allowed the benefit of what is called a presumption that the possession continues until the possessor explains when and how it ceased. This inference, which might be entirely permissible in [333 U.S. 56 , 65] some cases, seem to have settled into a rigid presumption which it is said the lower courts apply without regard to its reasonableness in the particular case.
However, no such presumption, and no such fiction, is created by the bankruptcy statute. None can be found in any decision of this Court dealing with this procedure. 1 Language can, of course, be gleaned from judicial pronouncements and texts that conditions once existing may be presumed to continue until they are shown to have changed. But such generalizations, useful enough, perhaps, in solving some problem of a particular case, are not rules of law to be applied to all cases, with or without reason.
Since no authority imposes upon either the Court of Appeals or the Bankruptcy Court any presumption of law, either conclusive or disputable, which would forbid or dispense with further inquiry or consideration of other evidence and testimony, turnover orders should not be issued, or approved on appeal, merely on proof that at some past time property was in possession or control of the accused party, unless the time element and other factors make that a fair and reasonable inference. 2 Under some circumstances it may be permissible, in resolving the unknown from the known, to reach the conclusion of present control from proof of previous possession. Such a process, [333 U.S. 56 , 66] sometimes characterized as 'presumption of fact,' is, however, nothing more than a process of reasoning from one fact to another, an argument which infers a fact otherwise doubtful from a fact which is proved.
Of course, the fact that a man at one time had a given item of property is a circumstance to be weighed in determining whether he may properly be found to have it at a later date. But the inference from yesterday's possession is one thing, that permissible from possession twenty months ago quite another. With what kind of property do we deal? Was it salable or consumable? The inference of continued possession might be warranted when applied to books of account which are not consumable or marketable, but quite inappropriate under the same circumstances if applied to perishable merchandise or salable goods in considerable demand. Such an inference is one thing when applied to a thrifty person who withdraws his savings account after being involved in an accident, for no apparent purpose except to get it beyond the reach of a tort creditor, see Rosenblum v. Marinello, 2 Cir., 133 F.2d 674; it is very different when applied to a stock of wares being sold by a fast-living adventurer using the proceeds to make up the difference between income and outgo.
Turnover orders should not be issued or affirmed on a presumption thought to arise from some isolated circumstances, such as one time possession, when the reviewing court finds from the whole record that the order is unrealistic and unjust. No rule of law requires that judgment be thus fettered; nor has this Court ever so prescribed. Of course, deference is due to the trial court's findings of fact, as prescribed by our rules, but even this presupposes that the trier of fact be actually exercising his judgment, not merely applying some supposed rule of law. In any event, rules of evidence as to inferences from facts are to aid reason, not to override it. And [333 U.S. 56 , 67] there does not appear to be any reason for allowing any such presumptio to override reason when reviewing a turnover order.
We are well aware that these generalities do little to solve concrete issues. The latter can be resolved only by the sound sense and good judgment of trial courts, mindful that the order should issue only as a responsible and final adjudication of possession and ability to deliver, not as a questionable experiment in coercion which will recoil to the discredit of the judicial process if time proves the adjudication to have been improvident and requires the courts to abandon its enforcement.
Unlike the judicially developed turnover proceedings, contempt proceedings for disobedience of a lawful order are specifically authorized by two separate provisions of the Act and are of two distinct kinds. The court is authorized to 'enforce obedience by persons to all lawful orders, by fine or imprisonment, or fine and imprisonment.' 11 U.S.C. 11(a)(13), 11 U.S.C.A. 11, sub. a(13). This creates the civil contempt proceeding to coerce obedience, now before us. There is also provision for a criminal contempt proceeding whose end is to penalize contumacy, the court also being authorized to 'punish persons for contempts committed before referees.' 11 U.S.C. 11(a)(16), 11 U.S.C.A. 11, sub. a(16). These contempts before referees are defined to include disobedience or resistance to a lawful order, and the statute provides for a summary proceeding before the District Judge who, if the evidence 'is such as to warrant him in so doing,' may punish the accused or commit him upon conditions. 11 U.S.C. 69, 11 U.S.C.A. 69.
The proceeding before us sought only a coercive or enforcement sanction. The petition asked commitment 'until he shall have complied with the aforesaid turnover order.' The commitment was only until he 'shall have [333 U.S. 56 , 68] purged himself of such contempt by complying with the turnover order or until the further order of this court.' Thus no punishment whatever was imposed for past disobedience, and every penalty was contingent upon failure to obey. This is a decisive characteristic of civil contempt and of the truly coercive commitment for enforcement purposes, which, as often is said, leaves the contemnor to 'carry the key of his prison in his own pocket.' Penfield Co. v. Securities & Exchange Commission, 330 U.S. 585 . We thus have before us now a civil contempt of the same kind that was before the Court in Oriel v. Russell, 278 U.S. 358, 363 , 174. What we say, therefore, is not applicable to criminal contempt proceedings designed solely for punishment and vindication of the court's flouted authority, such, for example, as a proceeding to sentence one for destroying or mutilating books of account or property in his possession which the court had ordered him to turn over.
The question now arises as to whether, in this contempt proceeding, the Court may inquire into the justification for the turnover order itself. It is clear however that the turnover proceeding is a separate one and, when completed and terminated in a final order, it becomes res judicata and not subject to collateral attack in the contempt proceedings. This we long ago settled in Oriel v. Russell, 278 U.S. 358 , and, we think, settled rightly.
The court order is increasingly resorted to, especially by statute,3 to coerce performance of duties under sanction [333 U.S. 56 , 69] of contempt. It would be a disservice to the law if we were to depart from the long-standing rule that a contempt proceeding does not open to reconsideration the legal or factual basis of the order alleged to have been disobeyed and thus become a retrial of the original controversy. The procedure to enforce a court's order commanding or forbidding an act should not be so inconclusive as to foster experimentation with disobedience. Every precaution should be taken that orders issue, in turnover as in other proceedings, only after legal grounds are shown and only when it appears that obd ience is within the power of the party being coerced by the order. But when it has become final, disobedience cannot be justified by re-trying the issues as to whether the order should have issued in the first place. United States v. United Mine Workers of America, 330 U.S. 258, 259 ; Oriel v. Russell, 278 U.S. 358 . Counsel appears to recognize this rule, for the record in the case now before us does not include the evidence on which the turnover order was based. We could learn of it only by going outside of the present record to that in the former case, which would be available only because an application was made to this Court to review that earlier proceeding.
We therefore think the Court of Appeals was right insofar as it concluded that the turnover order is subject only to direct attack, and that its alleged infirmities cannot be relitigated or corrected in a subsequent contempt proceeding.
But does this mean that the lower courts 'must thus affirm orders which first direct a bankrupt 'to do an impossibility, and then punish him for refusal to perform it."?
Whether the statement by the Court of Appeals that it knows Maggio cannot comply with the turnover order [333 U.S. 56 , 70] is justified by the evidence in this record, we do not stop to inquire. We have regarded turnover and contempt orders, and petitions for certiorari to review them, as usually raising only questions of fact to be solved by the careful analysis of evidence which we expect to take place in the two lower courts. The advantage of the referee and the District Court in having the parties and witnesses before them, instead of judging on a cold record, is considerable. The Court of Appeals for each circuit also has the advantage of closer familiarity with the capabilities, tendencies, and practices of the referee and District Judge. Both lower courts better know the fruits of their course of decision in actual practice than can we. Consequently, we have been loath to venture a review of particular cases, especially where the turnover order carries approval of the referee, the District Court and the Court of Appeals.
However the court below appears to have affirmed the order for commitment in this case, by relying on the earlier finding of previous possession to raise a presumption of wilful disobedience continuing to the time of commitment, even though that conclusion is rejected by the court's good judgment. While the court protests that such a presumed continuance of possession from the time of bankruptcy to the time of the turnover order is unrealistic, it seems to have affirmed the contempt order by extending the presumption from the time of the turnover order to the time of the contempt proceedings, although persuaded that Maggio had overcome the presumption if it were rebuttable.
The fact that the contempt proceeding must begin with acceptance of the turnover order does not mean that it must end with it. Maggio makes no explanation as to the whereabouts or disposition of the property which the order, earlier affirmed, declared him to possess. But time [333 U.S. 56 , 71] has elapsed between issuance of that order and initiation of the contempt proceedings in this case. He does tender evidence of his earnings after the turnover proceedings and up until November 1944; his unemployment after that time allegedly due to his failing hel th; and of his family obligations and manner of living during the intervening period. He has also sworn that neither he nor his family has at any time since the turnover proceedings possessed any real or personal property which could be used to satisfy the trustee's demands. And he repeats his denial that he possesses the property in question.
It is clear that the District Court in the contempt proceeding attached little or no significance to Maggio's evidence or testimony, although the Court gave no indication that the evidence was incredible. The District Court in its opinion cites only In re Siegler, 2 Cir., 31 F. 2d 972, in which the Court of Appeals reversed a District Judge who, because he believed the bankrupt's testimony, had refused to commit him for contempt. The Siegler case and other cases decided by the Court of Appeals apparently led the District Judge to conclude that no decision other than commitment of Maggio would be approved by that court.
Nor did the Court of Appeals reject this view. Indeed it affirmed the commitment for contempt because it considered either that present inability to comply is of no relevance or that there is an irrebuttable presumption of continuing ability to comply even if the record establishes present inability in fact. It seems to be of the view that this presumption stands indefinitely, if not permanently, and can be overcome by the accused only when he affirmatively shows some disposition of the property by him subsequent to the turnover proceedings. We do not believe these views are required by Oriel v. Russell, 278 U.S. 358 , despite some conflicting statements in the opinion, [333 U.S. 56 , 72] which the Court of Appeals construed as compelling affirmance of the contempt decree.
This Court said in the Oriel case that 'a motion to commit the bankrupt for failure to obey an order of the court to turn over to the receiver in bankruptcy the property of the bankrupt is a civil contempt and is to be treated as a mere step in the proceedings to administer the assets of the bankrupt as provided by law, and in aid of the seizure of those assets and their proper distribution. While in a sense they are punitive, they are not mere punishment-they are administrative but coercive, and intended to compel, against the reluctance of the bankrupt, performance by him of his lawful duty.' 278 U.S. 358 , at page 363, at page 174.
Of course, to jail one for a contempt for omitting an act he is powerless to perform would reverse this principle and make the proceeding purely punitive, to describe it charitably. At the same time, it would add nothing to the bankrupt estate. That this Court in the Oriel case contemplated no such result appears from language which it borrowed from a Circuit Court of Appeals opinion which, after pointing out that confinement often failed to produce the money or goods, said, 'Where it has failed, and where a reasonable interval of time has supplied the previous defect in the evidence, and has made sufficiently certain what was doubtful before, namely the bankrupt's inability to obey the order, he has always been released, and I need hardly say that he would always have the right to be released as soon as the fact becomes clear that he cannot obey.' 4 Moreover, the authorities relied upon in Chief Justice Taft's opinion5 make it clear that his decision did not contemplate that a coercive contempt order should issue when it appears that there is at that [333 U.S. 56 , 73] time no wilful disobedience but only an incapacity to comply. 6 Indeed, the quotation from In re Epstein, cited supra (note 4) also stated: 'In the pending case, [333 U.S. 56 , 74] or in any other, the court may believe the bankrupt's assertion that he is not now in possession or control of the money or the goods, and in that event the civil inquiry is at an end * * *'7
The source of difficulties in these cases has been that in the two successive proceedings the same question of possession and ability to produce the goods or their proceeds is at issue, but as of different points of time. The earlier order may not be impeached, avoided or attacked in the latter proceedings and no relief can be sought against its command. But when the trustee institutes the later proceeding to commit, he tenders the issue as to present wilful disobedience, against which the court is asked to direct its sanctions. The latter issue must be tried just as any other issue, and the court is entitled to consider all evidence relevant to it. The turnover order [333 U.S. 56 , 75] adjudges the defendant to be in possession at the date of its inquiry, but does it also cut off evidence as to nonpossession at the later time? Thus, the real problem concerns the evidence admissible in the contempt proceeding. Of course we do not attempt to lay down a comprehensive or detailed set of rules on this subject. They will have to be formulated as specific and concrete cases present different aspects of the problem.
In Oriel's case, this Court said: '* * * on the motion for commitment the only evidence that can be considered is the evidence of something that has happened since the turnover order was made showing that since that time there has newly arisen an inability on the part of the bankrupt to comply with the turnover order.' This language the Court of Appeals has construed to mean that the accused can offer no evidence to show that he does not now have the goods if that evidence, in the absence of an affirmative showing of when and how he disposed of the goods, might tend to indicate that he never had them and hence to contradict findings of the turnover order itself. We agree with the Court of Appeals that the turnover order may not be attacked in the contempt proceedings because it is res judicata on this issue of possession at the time as of which it speaks. But application of that rule in these civil contempt cases means only that the bankrupt, confronted by the order establishing prior possession, at a time when continuance thereof is the reasonable inference, is thereby confronted by a prima facie case which he can successfully meet only with a showing of present inability to comply. He cannot challenge the previous adjudication of possession, but that does not prevent him from establishing lack of present possession. Of course, if he offers no evidence as to his inability to comply with the turnover order, or stands mute, he does not meet the issue. Nor does he do so by [333 U.S. 56 , 76] evidence or by his own denials which the court finds incredible in context.