author: SWAN, Circuit Judge.

text:
    UNITED STATES ex rel. KLEIN v. MULLIGAN, Acting United States Marshal.
    No. 368.
    Circuit Court of Appeals, Second Circuit.
    June 25, 1931.
    See also 46 F.(2d) 85.
    D. Basil O’Connor, of New York City (Arnold T. Koch, of New York City, of counsel), for appellant.
    Edward H. Lockwood, of New York City (Thomas Gregory, of New York City, of counsel), for appellee.
    Before MANTON, SWAN, and CHASE, Circuit Judges.
   SWAN, Circuit Judge.

Upon complaint of the British consul general at New York, the appellant, Arthur J. Klein, a British subject sought as a fugitive from justice, was arrested on December 27, 1930, and, after a hearing before a United States commissioner, was committed to. the custody of the marshal to await the receipt of an extradition warrant from the Secretary of State. The complaint and warrant of arrest charged that on specified dates during the year 1930 Klein had received in the city of London, England, from Harry Wise, who passed under many aliases, two sums of money aggregating £250,000, and other specified sums from a corporation named Broad Street Press Limited, “knowing the same to have been fraudulently obtained.” An information supported by depositions charging "receipt of the same sums, “knowing the same to-have been obtained under circumstances which amount to a misdemeanor, to wit, conspiracy to defraud, in each case contrary to section 33 (1) of the Larceny Act, 1916,” had been lodged against Klein in London on December 10, 1930, and forthwith a warrant of arrest thereon had been issued. This is the charge upon which the extradition proceedings must be supported, although the record also shows two earlier British informations and warrants against Klein. Copies of the British documents, duly authenticated, were received in evidence on behalf of the demanding government upon the hearing before the United States commissioner. Klein offered no evidence whatever. The commissioner having ordered him committed, he sued out writs of habeas corpus and certiorari, which the District Judge dismissed after a hearing. This appeal followed.

Under the Treaty of 1842 (8 Stat. 572, 576) as amended in 1889 (26 Stat. 1508, 1509), the crime of “receiving any money, * * * knowing the same to have been em-

bezzled, stolen, or fraudulently obtained” is an extraditable offense. The treaty (article 10) also provides that extradition may he had only “upon such evidence of criminality as, according to the laws of the place where the fugitive or person so charged shall be found, would justify his apprehension and commitment for trial, if the crime or offence had there been committed.” The acts charged against Klein are' a crime under the laws of the state of New York (N. Y. Penal Law [Consol. Laws N. Y. c. 40] § 1308) as well as in England, and since they are also an extraditable offense under the treaty, commitment for extradition was proper, provided there was evidence to warrant a finding of reasonable ground to believe the accused guilty. Glucksman v. Henkel, 221 U. S. 508, 512, 31 S. Ct. 704, 55 L. Ed. 830; Collins v. Loisel, 259 U. S. 309, 312, 42 S. Ct. 469, 66 L. Ed. 956; Fernandez v. Phillips, 268 U. S. 311, 312, 45 S. Ct. 541, 69 L. Ed. 970. The authorities just cited also make clear that competent evidence to establish reasonable ground is not necessarily evidence sufficient to convict, nor only such as can pass technical rules governing the admissibility of evidence in criminal trials.

For purposes of this appeal Klein admits his receipt of the several sums of money which , he is charged with receiving, but he contends that the evidence is insufficient to establish reasonable ground for believing that Wise' or the Broad Street Press obtained the money fraudulently, or, if they did, that he had knowledge of it. All the money received by Klein came from the Broad Street Press, for the sums he received from Wise were obtained by the latter from that corporation. Broad Street Press was organized to do a stock brokerage business, and it is the claim of the demanding government that Wise and his confederates used this corporation as a tool to defraud investors who were induced to purchase stocks through it. It published a- weekly financial paper which the District Court aptly characterized as a “tipster sheet,” and its method of attracting clients was the familiar one of “baiting” its victims by allowing them to make a profit on their initial dealings and then inducing them to invest in unlisted and worthless stocks of three companies which were controlled by persons charged to be confederates of Wise. The depositions of Stacy, Hedley, Turner, and Cockrane relate the experiences of four such victims, and from the deposition of Newman, an examiner in the Department of the Official Receiver in Companies Liquidation, it appears that large numbers of clients were induced to buy shares in the same worthless companies. It is urged that there is a complete failure of proof as to the worthlessness of the shares, since the only evidence thereof is hearsay. This contention is without merit. By virtue of the Act of August 3, 1882 (18 USCA § 655), the depositions taken in England, and properly authenticated were competent evidence. Indeed, the objection urged is not to their reception in evidence but to the sufficiency of what they contain. The hearsay character of a statement is of course a factor to be considered in determining the weight to be accorded it, but that is as far as the hearsay objection goes in a proceeding like the present. See Collins v. Loisel, 259 U. S. 309, 317, 42 S. Ct. 469, 66 L. Ed. 956; 1 Wigmore, Evidence (2d Ed.) p. 21. Newman, an official examiner, deposed that the government brokers with whom he had been in communication reported to him that the shares were entirely worthless. This is enough on the issue of probable cause. Without going into further details, it will suffice to say' that we consider the evidence ample to furnish reasonable ground for believing "that Broad Street Press was a fraudulent enterprise and that a part, if not all, of the money in its bank account which Klein received directly or through Wise’ was money which it had fraudulently obtained.

Likewise there is good reason to believe that Klein had knowledge of the fraudulent character of the enterprise and realized the taint attaching to the money he received from it. He was intimate with Wise, a man of many aliases and apparently the ring leader; he frequently consulted with him at the corporation’s office, occupied its “Board Room,” appeared to one of its clerks to be taking an active part. in the conduct of its business and in the correspondence, and finally received more than a million dollars of the company’s money just before it ceased busi- ■ ness, which money he transferred by cable to How York, where he himself arrived shortly thereafter.

It is urged that the evidence, if enough to establish probable cause for believing Klein guilty of any crime, shows Klein to have participated in the conspiracy to defraud investors to sueh an extent as to make him a principal in the conspiracy rather than a receiver of money fraudulently obtained by others. It may be conceded arguendo that a conspiracy to defraud is not within the extradition treaty (see Ex parte Greene, 7 Can. Cr. C. 389; United States v. Gaynor, [1905] A. C. 128); but that is not the crime upon which Klein’s extradition is sought. It may also be conceded that one who is proved guilty of obtaining property by theft or fraud cannot be convicted as a “receiver” of the property so obtained, but the courts are far from agreement as to what degree of participation will preclude a confederate of a thief from being held as a receiver. See Smith v. State, 59 Ohio St. 350, 52 N. E. 826; Weisberg v. United States, 49 App. D. C. 28, 258 F. 284; People v. Romanelli, 197 App. Div. 876, 189 N. Y. S. 902, 903; Reg. v. Smith, 6 Cox C. C. 554. Cf. Reg. v. Coggins, 12 Cox C. C. 517. In Hew York it is apparently not enough for a defendant charged as. a receiver to show merely that he might have been indicted as a principal to the larceny by virtue of a statute making all accessories principals. People v. Rivello, 39 App. Div. 454, 57 N. Y. S. 420. Whether the decision just cited represents the present law of this state we need not now determine; nor need we attempt to ascertain the exact confines of the doctrine under English law. In the ease at bar the question is not whether Klein can successfully establish this alleged defense upon a trial in England, but whether the commissioner had probable cause to believe him guilty of the crime charged. The contention that he was shown to be a conspirator and not a receiver is'based on the unwarranted assumption that the record so clearly demonstrates Klein’s active participation in the fraud as to make it wholly unreasonable to believe that he was the recipient of the fruits of a fraudulent scheme carried out by others. It does not. Prom the evidence before him, we think the commissioner was justified in finding, as we may assume from his order of commitment that he did find,'reasonable ground for believing that Klein received the money with knowledge of the fraud but without being himself an active participant in its perpetration.

Accordingly the order appealed from should be, and is, affirmed.


source: Caselaw Access Project

author: L. HAND, Circuit Judge.

license: Public Domain

text:
    SCHAEFER v. BOWERS, Collector of Internal Revenue.
    No. 200.
    Circuit Court of Appeals, Second Circuit.
    June 24, 1931.

      George Z. Medalie, U. S. Atty., of New York City (Frank W. Ford, Asst. U. S. Atty., of New York City, of counsel), for appellant.
    John W. Davis, of New York City (Marion N. Fisher, of Washington, D. C., and Marvin Lyons, of New York City, of counsel), for appellee.
    C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Eldon 0. Hanson, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for Commissioner of Internal Revenue.
    Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.
   L. HAND, Circuit Judge.

Schaefer, the plaintiff, was an employee of the Standard Oil Company of New Jersey, and became a party to a stock subscription plan, inaugurated by his employer on December 30,1920, for a period of five years. The plan provided that any employee might contribute to a fund so much of his pay as he chose up to twenty per cent., to which the employer would add one-half. Trustees, appointed by the employer, were to receive the joint contribution, and from time to time invest it in shares of the employer’s stoek, at a price fixed on January first of each year, no greater than the average price for the preceding three months, and not less than ten per cent, below it. The title to the shares was to be in the trustees, but they were to be credited upon the trustees’ books to the employees in proportion to the joint contribution. Their rights in the shares were to be “only as hereinafter declared.”

(1) An employee might remain in the service of the company and withdraw from the fund. In that ease he got back only his own deposits with interest, or if the trustees so decided, an “equivalent thereof” in shares at their average cost. (2) He might leave the employer’s services voluntarily, or be “discharged for good cause (of which the trustees shall be the sole judges).” In either event he should also have only his money back with interest, or “at the option of the trustees,” an equivalent in shares. (3) He might be retired or quit “on account of total disability or for other satisfactory cause (of which the trustees shall be the sole judges),” or he might be discharged through “no fault of his own.” In either of these cases he was to receive the full amount of the shares to his credit at the time. If he died, his successors had the same rights.

Any shares or money accruing through withdrawals swelled the fund as a whole, and at its “termination the fund shall forthwith be liquidated by the distribution of all the stock and cash therein to and amongst the then participants.” The employer reserved' the right to recall, abolish or amend the plan, as provided in the New Jersey law (chapter 175 of the Laws of 1920, P. L. p. 354 [Comp. St. Supp. §§ 47 — 183 to 47 — 187]), which gave such a power to an employer, provided he restored their contributions to the employees.

Schaefer made his contributions regularly to the end of the five year period, and received certain shares of stoek as his distribution. He had already paid an income tax upon what he contributed in the years when it was credited to his account with the trustees, and the question is whether the shares which he received at the conclusion of the plan are taxable as income at their value at that time, or at their purchase price. If the last, he was taxable in 1925 only upon the amount contributed by the employer, upon the accrued dividends and upon the surplus accruing from withdrawals. If the first, he was taxable upon the value at the time of distribution of all that he then received, less his contributions. The relevant section is 219 (f) of the Revenue Act of 1926 (26 USCA § 960 note).

The plaintiff’s argument is that, when the trustees bought shares of stock by means of the joint contribution of employer and employee, they became his in equity. Their distribution at the end of the period was not income; his property had merely appreciated, and under well-settled law appreciation cannot be taxed until he sells. When he does, he will be chargeable with the profit then received, to be determined by the difference between the cost, that is, the joint contribution, and the price he receives on their sale. While it might theoretically have been more proper to. tax the employer’s contribution when made, the statute has postponed it. But that contribution, together with the dividends and surplus due to withdrawals, are all that are meant by the phrase, “amount actually distributed or made available.”

The defendant’s argument is that no part of the fund was ever unconditionally the employee’s property except his own contributions and interest upon them, these alone being all that he was ever certainly entitled to receive. Everything else — the shares, the dividends and the surplus from withdrawals —he might or might not get, depending upon his continuance in the company’s employ till the period was completed, and upon the company’s carrying on the plan to its termination. Hence it was right to tax him originally upon his contributions when they were received and invested; but upon the shares, etc., at distribution, when they first became his. The fact that he received them in kind, not in cash, is irrelevant. The issue so drawn obviously turns upon the character of the employee’s interest in the fund before distribution. Each side is right upon its own interpretation of the plan, and we have to choose which one to accept; so far as concerns any general principles of the income tax, there is no difference to resolve.

When shares were unconditionally allocated to an employee under a kindred scheme, we held that they were taxable when credited to him [Rodrigues v. Edwards, 40 F.(2d) 408], but here the employee’s right to anything but his own contribution was conditional until the period expired. We do not question the existence of a conditional equitable interest in the shares when purchased; or that an employee might file a bill against the trustees, if they abused their powers. Nor do we rest upon the fact that the legal title was in the trustees; an equitable interest is often, perhaps usually, now treated as more than a right in personam. Brown v. Fletcher, 235 U. S. 589, 35 S. Ct. 154, 59 L. Ed. 374. Moreover, even a right in personam is property whose appreciation we can assume to be as little taxable as any other.

We rely first upon the fact that the right, whatever it was, was conditional on the employee’s continuance in the company’s service for five years. The plaintiff answers that this was a condition depending wholly upon his own volition, and cannot properly be regarded as a condition at all. We cannot agree. He might be discharged, and the trustees were to be the “sole judges” whether or not it was for “good cause.” It is idle to say that a man subject to discharge for reasons resting in the decision of a third person, voluntarily abandons the service, because his discharge presumably depends upon his own conduct. He may prove incompetent, or arouse the displeasure of his employer for reasons of which he could not anticipate such a result. Even though the decision of the trustees was subject to eventual review in cases of plain abuse, the occasions for its lawful exercise might be such as he could not control or foresee.

Moreover, even if it can be thought that any discharge is voluntary, still his rights changed upon distribution. Until then, his interest was charged with the obligation to remain; that is as true a condition as though his employment did not rest in his pleasure. Practically it might prove onerous; he might find it much to his advantage to go elsewhere, but his decision to do so was clogged by the fact that he would lose his shares. Certainly he had not that untrammelled dominion over property so limited which he has over property in general. An executory limitation is none the less a condition because performance rests with the grantee. The release from such a condition changed the character of the interest as much as in a number of cases where the new property was treated as income. U. S. v. Phellis, 257 U. S. 156, 42 S. Ct. 63, 66 L. Ed. 180; Rockefeller v. U. S., 257 U. S. 176, 42 S. Ct. 68, 66 L. Ed. 186; Cullinan v. Walker, 262 U. S. 134, 43 S. Ct. 495, 67 L. Ed. 906; Marr v. U. S., 268 U. S. 536, 45 S. Ct. 575, 69 L. Ed. 1079; Allen v. Commissioner, 49 F.(2d) 716 (C. C. A. 2).

Second, the right to cancel the plan was reserved in the widest terms allowed by the New Jersey statute; that is, at the pleasure of two-thirds of the shareholders. If it was cancelled, the company need return only the contributions of the employees. Section 3 of the act (Comp. St. Supp. § 47 — 185) provides that any cancellation of such a plan shall be subject “to the restoration by the corporation of any moneys contributed by employees *' * * for which no stock or other equivalent has been issued.” The plaintiff argues that, once the trustees bought shares and credited them to an employee, the company had no power under the statute to deprive him of them. We do not so read it.' Shares are not “issued,” whose title remains in the trustees, merely because they are provisionally credited to the employees upon the books. They may never be “issued” at all; it was precisely the purpose of the plan at bar to hold them back until it appeared whether the employee was entitled to receive them at the close of the period. The meaning of the section is different. It is in limitation of the obligation to “restore.” The company need repay only those contributions for which the employees have not already received an “equivalent,” in “stock” or otherwise.. The employer is to be allowed at any time to abandon the venture, if it turns out impracticable, either because the shares fall in value, or for other reasons. The' only limitation is that he must always insure his employees against loss. The bonus is viewed as a favor which he may withdraw, so long as they come out whole. Nor can we accept the interpretation placed by the plaintiff on that clause in the plan which is headed “Time of Delivery of Stock.” This refers only to a “termination” by lapse of time and in due course, as the heading shows. A rescission of the plan as a whole would not be such a termination; the power to rescind was reserved in other language, borrowed from the statute; it was not circumscribed by the clause quoted.

The plaintiff further argues that, if so, then section 219 (g) of the act (26 USCA § 960 note) applies, and the company is taxable upon the income of all the trust except the employees’ contributions. But the situation covered by section 219 (g) is quite different from that at bar; it refers to settlements of the common kind, in which the set-tlor either alone, or with some third person, is vested with powers of revocation. Assuming — what is not altogether clear as matter of language — -that the company may be called the “grantor of a trust,” the general section is not to be read as in' limitation of the specific provision of section 219 (f), which affects to deal generally with all such arrangements, and is the exclusive measure of the taxes imposed in their execution.

Therefore, we think that when the shares were distributed at the dose of the five-year period, the plaintiff got for the first time the income which had theretofore been accumulating, conditionally upon his continued service and the company’s continued purpose to complete. Appeal of Lister, 3 B. T. A. 475. Until then it was uncertain whether he would ever receive the shares; they had become his 'only provisionally. To be sure section 219 (f) uses only the word “amount”; but the purpose was to cover all sorts of plans, cash or stock, and the word used was apt to include both. Moreover, if it be thought that the defendant must do some violence to' the language, certainly the plaintiff does much more. He must say that the tax is levied on the theory that the employee receives upon distribution, not the shares themselves, which is all that in fact he gets, but only so much as the employer has contributed from time to time in the past, a quite different “amount.” Why it should be supposed that Congress had in mind so artificial a use of words we cannot conceive. Had it been the purpose to tax that “amount” on the theory that the employee became the owner of the contributions when they were credited to him, that was the time to tax them. A tax at that time would have disclosed a purpose to treat him as owner of the shares when they were purchased, and it could with some cogency have been argued that any subsequent appreciation must be treated as appreciation elsewhere. But this was not the method; nothing was to be taxed till distribution, and then the amount distributed. The change effected by section 165 of the Revenue Act of 1928 (26 USCA § 2165), did expressly accomplish just this, but it cannot be used as interpretative of the act of 1926. Indeed, if it ehaneed that the shares purchased had fallen in value, the employees would have had to pay a tax upon income to which they hgd never had access, and over which they had never had control. Although this is a possibility under the act of 1928, it appears to us an unreasonable interpretation without express warrant.

Our reasoning would indeed include all the shares purchased, as well the two-thirds bought with the employee’s money, as the third bought with the employer’s. However, we have not that question to decide because the defendant’s attorney has withdrawn any claim to more than the third. The Commissioner of Internal Revenue has indeed filed a brief in which, as we gather, though this is not altogether clear, he asserts that all the shares are to be treated alike. But we cannot look upon the Commissioner as other than an amicus in this action, which is against the collector’s representative, for whom the district attorney appears. So far as he is content to admit any part of the plaintiff’s claim, no dispute arises, and we can dispose of only what remains. Therefore, we hold only that in so far as the tax was levied upon that third of the shares bought by the employer’s contribution, it was valid. By virtue of the defendant’s concession a judgment may be rendered for the remainder.

Judgment reversed.


author: MANTON, Circuit Judge.

text:
    In re FOSTER CONST. CORPORATION. Appeal of POPKIN.
    No. 431.
    Circuit Court of Appeals, Second Circuit.
    June 24, 1931.
    See, also, 49 F.(2d) 213.
    Louis Jersawit, of New York City, for appellant.

      Leo J. Linder, of New York City, for creditor-appellee and intervener trustee in bankruptcy.
    Before MANTON, SWAN, and CHASE, Circuit Judges.
   MANTON, Circuit Judge.

The appellee is a creditor of the bankrupt, which was adjudicated such on failure to answer a petition filed against it on September 23, 1929, in the Eastern district of New York. The trustee qualified June 30, 1930. Appellee, on January 27, 1930, procured an order in the Eastern district of New York for the arrest of the appellant, president of the bankrupt. The order of arrest was based on a petition of Mr. Lind-er, appellee’s attorney, and the affidavit of one Satloff. On December 4, 1930, on the sole petition of the appellee, the bankrupt’s trustee not joining therein, a District Judge in the Eastern district of New York authorized and empowered the appellee “to apply to the United States District Court for the Southern District of New York and for the District of New Jersey, and for an ancillary order of examination of such witnesses within the jurisdiction of said courts as may be necessary as to the acts, conduct or property of the bankrupt corporation herein, and for orders ne exeat directed to the Marshals for the Southern District of New York and for the District of New Jersey.”

On the same day, appellee, on its sole petition, without the trustee joining therein, obtained ex parte, in the Southern district of New York, an ancillary order ne exeat, and an ancillary order for the examination of the appellant before a special commissioner in bankruptcy was signed. It was therein ordered : “That the United States Marshal for the Southern District of New York, or any of his deputies, be and he is hereby commanded that, without delay, he apprehend and take into custody Joseph Popkin, an officer of the bankrupt corporation above named, and bring him forthwith before me for examination or, at his option, cause him to give sufficient bail or security in the sum of $10,-000 to be approved by this Court or the Clerk thereof, that he, the said Joseph Popkin, will not depart from or go, or attempt to depart from or go beyond the territorial juiisdietion of this Court without its leave, and will at all times and in all manner, respect and things, obey and comply with the lawful orders and decrees of the Court herein for his examination, which shall or may be made on behalf of the said petitioner or other creditor of the said bankrupt.”

A warrant of arrest was executed by the marshal in the Southern district, and the appellant taken into custody^ Appellant furnished the required bail, and moved to vacate the ancillary order ne exeat. Prom an order denying this motion, this appeal is taken.

It is conceded that the order ne exeat was made pursuant to such authority as is found in section 2, subd. 15, of the Bankruptcy Act, 11 USCA § 11 (15). It provides: “That the courts of bankruptcy * * * are hereby invested * * * with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings * * * [to] (15) 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.”

Neither the court of primary jurisdiction nor the court below of ancillary jurisdiction has authority to issue such an order unless it be so pursuant to section 9, subd. b, of the Bankruptcy Act, 11 USCA § 27 (b). A writ obtained under section 9, subd. b, of the Bankruptcy Act, requires a petition against a person to be obtained before the expiration of one month, after the qualification of the trustee upon satisfactory proof by affidavits of at least two persons that the bankrupt is about to leave the district in which he resides or has his principal place of business and is attempting, by his departure, to avoid examination and defeat the proceedings in bankruptcy. The section also provides for the arrest of the bankrupt and holding under bail for his appearance and examination.

No attempt was made by the appellee to comply with section 9, subd. b, 11 USCA § 27 (b), and the appellee rests its contention as to the validity of the order on section 2, subd. 15,11 USCA § 11 (15), giving authority to the District Courts to make such orders, issue such process, and enter such judgments provided for and necessary for the enforcement of the provisions of the Bankruptcy Act.

The writ and use of the writ of ne exeat is referred to and limited by section 261 of the Judicial Code (28 USCA § 376) in equity proceedings, where it is provided that it’ may be granted by a judge, “but no writ of ne exeat shall be granted unless a suit in equity is commenced, and satisfactory proof is made to the court or judge granting the same that the defendant designs quickly to depart from the United States.”

Limitations for permitting such, an arrest are made clear by tbe statute. If tbe bankrupt is to be taken into custody, be may be detained only ten days, and be must be arrested upon an order based upon the affidavits of two persons, which must show the facts, not opinions, and must be reasonably conclusive. The bankrupt cannot actually be imprisoned within these limitations. Collier on Bankruptcy, 13th Edition, vol. 1, p. 390. The writ is punitive in its effect, and Congress recognized, by section 9, subd. b, of the act, 11 USCA § 27 (b), the high degree of proof necessary upon which to base such a writ. It is to be issued only as an order of arrest with the care that Congress intended. The general authority to issue orders contained in section 2, subd. 15, 11 USCA § 11 (15), cannot be regarded as extending a writ so specifically granted to a District Judge. The only other statutory authority to issue the writ is section 261 of the Judicial Code, which applies to suits in equity, and the writ can only be issued against a party defendant.

This writ is intended to be issued against the bankrupt only. In re Hale, Fed. Cas. No. 5,911. In the Hale Case, Judge Choate said: “It can hardly be doubted that so great a power, practically reviving imprisonment for debt, and touching so seriously the personal liberty of a very large class of' citizens, would, if intended to be given, have been given expressly and not left to be inferred merely from the grant of other powers, and that, if given, its exercise would have been carefully limited by the act, to prevent hardship and abuse. The express grant of the power in one case shows that the attention of the framers of the law was called to the subject, and they are silent as to all other cases. This raises a presumption of some strength against the existence of the power in other eases. & * * And the fact that no provision has been made * * for a warrant of arrest in any other case than that expressly provided for in the act, indicates the opinion of the supreme court that no such remedy is available.” See In re Hassenbusch (C. C. A.) 108 F. 35.

In the court below, In re Lipke (D. C.) 98 F. 970, 971, was referred to, but the question there presented was whether a bankrupt, about to abscond with the assets, can be detained by a writ, and under the general power of section 2, subd. 15, 11 USCA § 11 (15), it was ruled that he could. Judge Brown said: “The necessity of the occasional exercise of this power for the efficient administration of the bankrupt law is evident. Without it the bankrupt might easily defy, and largely nullify, all adverse proceedings against him, by absconding with his assets.”

In re Cohen (D. C.) 136 F. 999, and the Matter of Berkowitz (D. C.) 173 F. 1012, to which our attention is also called, both District Court cases, we think disregard the limitations of section 9, subd. b, 11 USCA § 27 (b), and erroneously hold the power, did exist to issue the writ of ne exeat under section 2, subd. 15. However, in both instances, the writ was against the bankrupt. We think it better to follow the apparent intent of Congress to permit the writ to issue when and as specifically granted under section 9, subd. b, and when the terms of that section are complied with.

Moreover, there is no provision in section 9, subd. b, which vested jurisdiction or authority in the court below to issue a writ of ne exeat against an officer of a bankrupt corporation. And there is no inherent power to issue such an order and thus hold him to be examined concerning the acts of the bankrupt. Congress by the general provision of section 2, subd. 15, did not intend the issuance of orders of arrest, for, at the same time, by section 9b, it provided specific requirements before arrests might be granted. An officer of a bankrupt corporation is not the bankrupt. Kaufman v. United States (C. C. A.) 212 F. 613, Ann. Cas. 1916C, 466. The section is without application to him. Congress recognized this in prescribing punishment for crime (section 29b) under the Bankruptcy Act, 11 USCA § 52 (b). Such a drastic remedy as an arrest provided for by section 9 (b) of the Bankruptcy Act, 11 USCA § 27 (b), is one directed against the liberty of a person, and should be strictly construed and carefully applied. In re Schenkein (D. C.) 113 F. 421. It is the bankrupt, not an officer, who is referred to as subject to arrest in section 9 (b). It was intended to be issued only against the bankrupt, not a third party. If an officer of the corporation fails to appear for examination under section 21 (a) of the act, 11 USCA § 44 (a), or becomes a recalcitrant witness, he may be punnished for contempt. This remedy is ample; at least it is all Congress has provided.

Another sufficient reason why the order was improperly granted below is the fact that it was applied for by a creditor and not the trustee in bankruptcy. In re Lewensohn, 121 F. 538, 539 (C. C. A. 2). There the court said: “The trustee represents every creditor. • * * If the trustee should, without sufficient reason, refuse to proceed, tlie'court, by its order, could compel him to do so, or remove him for disobedience. It has been held under the present act that a creditor cannot prosecute an appeal from the judgment of a court of bankruptcy allowing the claim of another creditor, and that the trustee is the only party who can do so.” See, also, In re Rogers-Johnson Bldg. Co. (C. C. A.) 30 F.(2d) 359.

While the trustee is serving as such, any controversy arising out of and connected with the bankrupt’s estate must be instituted by the trustee, for no useful purpose can be served by a creditor’s duplication. Any other interpretation of the act would leave the bankrupt at the mercy of every creditor for his real or fancied wrongs. The creditor cannot usurp the power conferred upon the trustee while the trustee is in office.

Order reversed, and motion to vacate granted.


author: DENISON, Circuit Judge.

text:
    HEINEMANN v. HEINEMANN et al.
    No. 5717.
    Circuit Court of Appeals, Sixth Circuit.
    June 9, 1931.
    A. L. Heiskell, of Memphis, Tenn. (M. J. Anderson and J. O. Bomer, Jr., both of Memphis, Tenn., on the brief), for appellant.
    W. H. Fisher, of Memphis, Tenn., and J. M. Nixon, of Nashville, Tenn. (W. P. Armstrong and W. H. Fisher, both of Memphis, Tenn., on the brief), for appellees.
    Before DENISON, HICKS, and HICK-ENLOOPER, Circuit Judges.
   DENISON, Circuit Judge.

The soldier, J os. T. Heinemann, on April 13, 1917, applied for and received $10,000 of renewable yearly term war risk insurance, payable to himself during permanent total disability, and in ease of death to his mother, Caroline Heinemann. He was honorably discharged April 14, _ 1919. This policy was kept in force by the regular monthly payments until a date which this record indicates was September, 1921; then it lapsed. Shortly after his discharge it developed that he had tuberculosis, and he consistently thereafter claimed that it was contracted during active service. On July 24, 1922, he applied for compensation, stating that he was disabled by tuberculosis, was confined to bed, and required constant nursing, was married, and wished vocational training. The record does not show the disposition of this claim for compensation; but probably allowance should be inferred.

On March 9, 1923, he applied for reinstatement of his insurance, and at the same time applied for the conversion of $5,000 of renewable term insurance into a twenty payment life government policy, which should provide for its payment upon his death to his wife, Jeannette Heinemann. His disease was then well advanced and active, and, apparently for this reason, the application for conversion was denied. No separate action was taken upon the application for reinstatement. He died May 28 or 29,1923.

On February 1, 1929, Jeannette, in her own right and as administratrix of her husband’s estate, brought suit against the United States in the court below upon this $10,000 policy, claiming that the proceedings at the time of the attempted conversion amounted to a- change of beneficiary, whereby she became substituted for the mother. Her declaration also alleged, more or less inartifieially, that the policy was in force because the soldier had been totally and permanently disabled and because the granted allowance for compensation should have been made so retroactive as to prevent the lapse. The claim of total and permanent disability does not fix the date thereof, but the intent must have been to allege it as of the date of the supposed lapse. To this declaration the United States filed no plea, but the Bureau entered into negotiations with plaintiff, and they reached an understanding that the lapsed policy had been revived by force of section 305 of the World War Veterans’ Act as amended July 2, 1926 (title 38, § 516, USCA); but that the amount of compensation owing to the soldier, and which under this statute should be applied in mitigation of the lapse, was sufficient only to revive $4,354 of the policy, payable in monthly installments of $24.27 each, commencing February 14,1923; and that, whether by virtue of substitution of beneficiaries or by virtue of section 305, this amount was payable to the widow. Accordingly, they filed a stipulation of fact to this effect, and the plaintiff amended her declaration so as to claim only the reduced amount. Apparently judgment would have gone for plaintiff by consent, excepting that the Bureau thought best to clear away any question as to rights in the policy by the original beneficiary, the mother. So the United States “interpleaded” the mother, by giving her notice to present any claim she had to the fund in controversy. On October 7,1929, she filed what she called her answer and petition. In substance, she claimed that there had been no effective substitution of beneficiaries/ or that at most the wife had been substituted only to the extent of a half interest in the $10,000, and that thus the mother was entitled either to the whole or a half of the true amount owing. She joined in the claim of the original declaration that the entire policy had been kept alive by the effect of the unpaid compensation, and expressly repeated the claim of total and permanent disability. This claim also was without date of occurrence, but, to be intelligible, it must be referred to the date of supposed lapse. To this answer and petition the plaintiff, the widow, replied, denying any right in the mother. The United States filed no plea, but moved to dismiss so much of the mother’s claim as went beyond $4,354 to which the widow had restricted her claim. This motion was upon the ground that any action by the mother had become barred on March 28, 1929, by the expiration of six years. The court below sustained this motion, and accordingly dismissed her claim to the excess; and upon final hearing held that the reinstatement and conversion proceedings amounted to a request for reinstatement and conversion of $5,000 of the policy, thus making the widow the sole intended beneficiary, and that for this reason, and perhaps as well under the statute, the widow was entitled to recover the whole of the modified amount agreed upon. The mother brings this appeal.

The so-called interpleader pleadings are informal and irregular. Plainly, in a true interpleader proceeding, the mother could not claim against the United States any greater sum than it admitted owing to some one; and yet, by calling the proceeding an interpleader when it was not, her right to make her full claim should not be cut off. We think, the situation calls for a disregard of all formalities of pleading and for treating the case as one where the United States is offering to pay the full amount, which it owes under this policy, to whatever person or persons may be entitled by law to recover the sum from it, and that the original and amended declaration and the cross-petition, and the rightly to be implied position of the government create, by analogy to interpleader, the consolidation in an equitable suit of the claims made under this policy by the widow and by the mother.

When the mother filed her cross-petition, her independent right of action under the policy was plainly barred by the limitation of time, which-limitation expired on May 28 or 29, 1929. Whether she could by relation claim the sufficiently early date of February 1, 1929, when the original declaration whs filed, would call for consideration, except for the act of July 3> 1939, which extended her time for suit until July 3, 1931 (title 38, § 445, USCA), and which applied to all existing suits. Although this statute was passed after the decree below, which was March 30, 1939, yet, upon the authority of Sligh v. U. S., 277 U. S. 582, 48 S. Ct. 600, 72 L. Ed. 998, so much of the decree below as dismissed the mother’s petition, so far as it amounted to a claim of more than the modified amount, should he reversed, and the mother permitted to establish' the merits of her claim, if she can, by taking necessary proofs, unless it is clear on the present record that her claim can have no merit.

The amount of compensation which was owing to the soldier in such a manner that under section 516 of 38 USCA, it should be applied to revive the lapsed policy, cannot be determined from this record. The mother should be allowed to prove, if she can, that the entire policy was continued in force, either by total and permanent disability existing, or by sufficient compensation owing, at the date of the claimed lapse; and since, if this should be established, it would be evident that the settlement reached between the United States and the widow was made under mistake of fact, it would he at least within the discretion of the court below to allow the widow to take the benefit of that proof as affecting her interests and rights in the policy.

The claim that the .“hex’eafter revived” policy under section 395 (516), if this statute turns out to he applicable, would be for the sole benefit of the widow, the beneficiary-apparent named in the statute, and could not benefit the mother, is ruled by our contrary decision in U. S. v. Woolen, 25 F.(2d) 673, to the effect that this statutory designation does not apply to policies in which the soldier had named his beneficiary.

We cannot accept the reinstatement and conversion proceedings, as indicating an intent to make the wife the sole beneficiary of the soldier’s insurance. In the application for conversion to a twenty payment life $5,-909 policy, payable to the wife, there is nothing inconsistent with an intent that the entire policy should be reinstated and the remaining $5,000. be continued as renewable term insurance payable, as it had been, to the mother. The application for reinstatement says that it is made under the $10,000 policy; and the space which is provided for stating the amount to be reinstated is left blank. The controlling facts, as showing the intent, are the manner and extent in and to which the soldier complied with the requirement that all premiums in default must be paid. His monthly premium was $6.50. According to his statement the policy had been lapsed for eighteen months. The amount necessary to reinstate $5,000 of the policy would have been, including interest, as exactly computed by the Bureau upon its “work sheet,” $61.75 ($58 plus interest). The amount which he remitted — furnished to him by his mother — was $157.45. His application showed that he was uncertain about the date of lapse, hut the total amount which he sent was just about enough to reinstate the whole policy if, the lapse had continued for two years. Further, his application for conversion made reference to the monthly premium of $9.90 on his converted $5,000, and the monthly premium of $3.30 upon his term insurance. This latter item might of itself refer either to the old term insurance or to the continued term insurance for $5,000, but $3.30 is the appropriate amount (substantially) for $5,000, and not at all appropriate to $10,000. Considering both the statement of premium to he paid and the total amount remitted for past -payments, it is fairly clear that the soldier’s intent was to reinstate the whole policy, to leave one-half of it payable to his mother in its existing form, and to convert the other half into another form payable to his wife.

While the application for conversion seemingly does not satisfy the formalities required for a request for change of beneficiary, we think the intent to make a change to the extent of one-half of the renewable term policy is entirely clear; and we accept it, as the Bureau did, as a sufficient change of beneficiary, applicable, however, to only a one-half interest in the policy.

Our conclusion is that the mother and the widow are entitled to share equally in whatever sum may be rightly payable under the policy. The decree below should be reversed, and the ease remanded for further-proceedings in accordance herewith.

       We learn that the modification made in this case by the Supreme Court affected only the matter of interest. United States v. Woolen, 278 U. S. 665, 49 S. Ct. 249, 73 L. Ed. 571.