Leonard W. Gunzburg, D/B/A Manners Jewelers v. Ingard Johannesen, Trustee in Bankruptcy
300 F.2d 40
April 3, 1962 · Docket 19283_1
Headnotes
Generated summaries- Headnote 1
The court noted overwhelming evidence that the United States had reasonable grounds to believe the debtor did not keep or preserve adequate books of account and failed to satisfactorily explain asset losses, thereby meeting the statutory requirement.
- Headnote 2
The opinion explains that once reasonable grounds are shown, § 14(c) turns the burden onto the bankrupt, requiring him to persuade the court he did not commit the statutory violations; if the evidence is in equilibrium, discharge is denied.
- Headnote 3
General Order 47 directs that a judge accept the referee’s findings of fact unless they are clearly erroneous, and the court applied this standard, citing United States v. Twin Cities Power Co. as authority.
- Headnote 4
The opinion cited Federal Provision Co. v. Ershowsky, stating that once a prima facie case is made, the debtor bears the burden of proof.
- Headnote 5
The court applied this standard, citing United States v. Twin Cities Power Co., and held that the referee’s denial of discharge was supported.
- Headnote 6
The opinion held that once a prima facie case is established, the debtor bears the risk of persuasion and must demonstrate his innocence concerning the alleged failures to keep books or explain asset deficiencies.
- Headnote 7
The court reiterated General Order 47’s directive that a judge accepts a referee’s findings of fact unless they are clearly erroneous, meaning the evidence is such that a reasonable person could not reach the same result.
- Headnote 8
The court held that once the government established reasonable grounds, the debtor bore the risk of persuading the court he had maintained proper books and explained asset losses; failure to meet that burden warranted denial of discharge.
- Headnote 9
The appellate court applied this standard, concluding that the evidence was sufficient to support the referee’s conclusions and therefore not clearly erroneous.
- Headnote 10
The Court explained that when the government presents such reasonable‑grounds evidence, the statutory burden‑shifting mechanism is triggered, allowing the Act to shift the evidentiary burden to the debtor.
- Headnote 11
The opinion noted that the debtor now bears the risk of persuasion and must demonstrate that the allegations are untrue; failure to do so warrants denial of discharge.
- Headnote 12
Citing General Order 47 and § 53, the Court held that the judge shall accept the referee’s findings of fact unless they are clearly erroneous, and referenced precedent that applies this standard to bankruptcy referee decisions.
- Headnote 13
The shift requires the debtor to persuade the court that the allegations in the specifications are untrue; failure to meet this burden results in denial of discharge.
- Headnote 14
The clearly erroneous standard limits appellate courts from substituting their own judgment for that of the referee, requiring a high threshold to reverse.
- Headnote 15
The court found overwhelming evidence that the United States had reasonable grounds to believe Gunzburg failed to keep proper records and to explain asset losses, thereby meeting the statutory showing before the burden shifts to the debtor.
- Headnote 16
The opinion explains that once the United States meets its showing, the Bankruptcy Act shifts the burden to the bankrupt, who must persuade the court that he did not fail to keep records or explain asset deficiencies.
- Headnote 17
Citing General Order 47 and § 53, the court held that a judge must accept the referee’s factual findings unless they are clearly erroneous, reaffirming the referee’s denial of discharge.
- Headnote 18
The opinion emphasizes that the judge accepts the referee’s findings of fact unless they are clearly erroneous, allowing affirmation of the discharge denial without a new weighing of the evidence.
Opinion
This is another phase of the activities relating to the bankruptcy of Leonard W. Gunzburg. Frellsen v. Johannessen, 5 Cir., 1961, 289 F.2d 925; Gunzburg v. United States, 5 Cir., 1962, 297 F.2d 829 [No. 18727, January 12, 1962], Presented here is the Bankrupt’s contention that the District Court erred in approving the Referee’s denial of discharge. After a lengthy hearing on a record which is here over 1,000 pages long, the Referee denied discharge for the failure of the Bankrupt (1) “ * * * to keep or preserve books of account or records, from which his financial condition and business transactions might be ascertained * * * ” and (2) “ * * * to explain satisfactorily * * * losses of assets or deficiency of assets to meet his liabilities * * § 14, sub. c(2) (7), 11 U.S.C.A. § 32, sub. c(2) (7).
To the extent that these conclusions rested on findings of fact, they have almost a triple insulation. First, there being overwhelming evidence showing the existence of “ * * * reasonable grounds for believing that the bankrupt has committed * * * ” the two actions specified above, the Bankruptcy Act turns the table by providing that upon such a showing “ * * * then the burden of proving that he has not committed any of such acts shall be upon the bankrupt.” § 14, sub. c, 11 U.S.C.A. § 32, sub. c. This is more than the burden of going forward with the evidence. For “ * * * the bankrupt now has the risk of ultimately persuading the Court that the allegations in the specifications are untrue. If the evidence is in a state of substantial equilibrium, the discharge must be denied since the bankrupt has failed to carry his burden of proof.” 1 Collier, Bankruptcy § 14.12, at 1292-93 (footnotes omitted). In a figure mdigenous to a financial foundering, “ * * * once a prima facie case appears, the laboring oar passes to his hands and he must bring the boat to shore.” Federal Provision Co. v. Ershowsky, 2 Cir., 1938, 94 F.2d 574, 575. Second, the terms of General Order 47 are explicit. The Referee is ordinarily to make, as he did here, “his findings of fact and conclusions of law.” And when so done, “the judge shall accept his findings of fact unless clearly erroneous,” General Order 47, 11 U.S.C.A, following section 53. 2 Collier, Bankruptcy § 39.-16, at 1473. Third, we review the action of the District Judge whose affirmance of the Referee’s order brings into play for application to this stage of the judicial proceeding principles akin to the “clearly erroneous” concept. Cf. United States v. Twin Cities Power Company of Georgia, 5 Cir., 1958, 253 F.2d 197.
There was evidence which amply warranted the Referee’s finding that the Bankrupt had not satisfactorily overcome the piima facie showing. Indeed, there was quite enough to ^ warrant the Referee s affirmative finding that the books and records were inadequate in serious and substantial respects, and that the Bankrupt had failed to explain satisfactorily the diminution in assets exceeding $100,000. It is equally clear that as to the sufficiency of the books the Referee evaluated the facts in the light of the proper legal standards. See In re Under-hill, 2 Cir., 1936, 82 F.2d 258; Nix v. Sternberg, 8 Cir., 1930, 38 F.2d 611; International Shoe Co. v. Lewine, 5 Cir., 1934, 68 F.2d 517; In Re Marx, 7 Cir., 1942, 125 F.2d 335; In Re Leichter, 3 Cir., 1952,197 F.2d 955; Hedges v. Bushnell, 10 Cir., 1939, 106 F.2d 979. So it was also as to loss of assets. In Re Shapiro & Ornish, N.D.Tex.1929, 37 F.2d 403, affirmed 5 Cir., 37 F.2d 407. 1 Collier, Bankruptcy § 14.59, at 1401.
Affirmed