Falter v. Reinhard

1 Bankruptcy — First Meeting op Creditors — Ecwer op Keeeree — Inquiry as to Proxy’? Eight to Vote. Bankr. Act 1898, § 44, provides that the creditors shall appoint a trustee at their first meeting after the adjudication. Section 55, subd. “b,” provides that at such meeting the judge or referee shall preside, and, before proceeding with (he other business, may allow or disallow the claims of creditors there present, such allowance determining which (auditors may participate In the proceeding of the inc ling, Including the choice of a trustee. Section 1. cl. 9, provides “creditor” shall include any one owning a provable claim, and may include his duly-authorized proxy. Chapter 2, §' 2, cl. 15, provides that the court can make such orders, issue such process, and enter such judgments, in addition to those specifically provided for, as may he necessary for enforcement of the act. Section 88 provides that referees are invested, subject to review by the judge, with jurisdiction to perform such part of the duties, except as to questions arising out of applications for compositions or discharges, as are conferred on the courts, except as otherwise provided. General Orders in Bankruptcy, rule 12 (32 O. O. A. xvi., 89 Fed. vii.) requires all proceedings, except such as are required to he had before the judge, to be had before the referee. Hule 13 (32 C. O. A. xvii., 89 Fed. vii.) provides that the appointment of a trustee by the creditors shall he subject to approval or disapproval by the referee or judge. IT eld, that a referee presiding at a first meeting of creditors may determine ihat creditors’ proxies are not entitled to vote because their powers of attorney have been obtained by the bankrupt to he voted for a trustee of his choice. Same — TOivoting Trustee — Creditors Present. Creditors represented at the first meeting of creditors of a bankrupt by proxies, whose powers of attorney do not lawfully authorize them to participate in the meeting, because obtained by the bankrupt to he voted for a trustee of his choice, will not he counted as present and necessary for choice of trustee. 3. Same — Postponing Election. The referee, at the first meeting of creditors of a bankrupt, will not he held to liave abused his discretion in not postponing election of a trustee, after having held proxies disqualified, it not appearing how much delay would have resulted.

Appeal from the District Court of the United States for the Eastern Division of the Southern District of Ohio, in Bankruptcy. This case comes into this court on a petition to review the decision of the district court rendered on a certificate by the referee in bankruptcy, which is as follows: “I, Charles ¾1. Rogers, one of the referees of said court in bankruptcy, do hereby certify that, in the course of the proceedings in said case before me, the following questions arose pertinent to the said proceedings: (1) Whether or not a referee presiding at the first meeting has power to hear and determine the question of the right of a creditor’s proxy to vote for the choice of trustee upon his offer to vote and the same being challenged by other creditors. (2) If a referee has such power, whether or not a creditor’s proxy, who, under authority of a special letter of attorney, offers to vote at the creditors’ meeting for the choice of trustee, shall, upon objection thereto by other creditors, be permitted to vote, when such letter of attorney has been obtained by interference of the bankrupt, and the casting of such vote will result in the appointment of a trustee who is the choice of the bankrupt. The above questions arose in the course of the voto as it was being-taken for trustee at the first meeting, beginning with said vote on the 11th and concluding the same on the 13th day of September, 1900, the undersigned presiding. One A. Neydon having presented to me, and the same having been filed, two hundred and forty-one special letters of attorney, executed by creditors whose claims had been allowed, aggregating in amount seventy-three thousand eight hundred and sixty is/ioo dollars, was present at said meeting, and pursuant to these letters offered to vote for Mr. Walter Zinn, to be trustee, the number and amount aforesaid of the claims of creditors represented by the proxies held by said Mr. Neydoiy whereupon the said votes, and each of them, so offered by him, were by other creditors present or duly represented objected to, and challenged, on the ground that said letters of attorney,, and all the votes offered to be east pursuant thereto, were obtained by the interference of the bankrupt. I thereupon heard the evidence in support of and in opposition to said challenge. A summary of such evidence is as follows: “On the 11th day of August, 1900, the next day after the adjudication of bankruptcy, Reinhard & Co., by authority of Henry A. Reinhard, one of the bankrupts, caused to be sent by mail letters addressed to probably five hundred of its creditors, requesting them to call at the bank (Reinhard & Co. having been, prior to their bankruptcy, engaged in the banking business in Columbus, Ohio) and have their respective claims proved without expense to the creditors, and further stating in the letter that they wished to talk with the creditors about the affairs of the bank. The letters as sent out to each creditor were prepared by Mr. George A. Fairbanks, who had been, and still is, the attorney of Mr. John G. Reinhard, and one of the bankrupts, and was the attorney of Reinhard & Co-., and of each of the individuals of' the partnership in the preparation of the respective deeds of assignment immediately preceding the bankruptcy proceeding. He is now, and has been since the receiver, Mr. Walter Zinn, was appointed, the attorney of such receiver. In response to these letters, and during a period of a week or ten days after they were sent out, a large number of the creditors came to the-bank, probably more than four hundred. The persons who were present during this period to receive creditors who called pursuant to these letters were-Mr. Fairbanks, Mr. John O. Reinhard a portion of the time, Mr. A. Neydon, and Mr. Frank H. Gale. Mr. Neydon has been for seventeen or eighteen years the bookkeeper of the Westbote Company, a corporation whose stock prior to the bankruptcy was all owned by John 0. Reinhard and Henry A. Reinhard, the bankrupts, the latter of whom was the manager and treasurer and'the former was its president. After these letters were sent, Mr. Fairbanks requested Mr.-Neydon to act in the capacity of attorney in fact to vote proxies that might be given in the interest of Mr. Zinn, and Mr. Neydon was by Henry A. Reinhard temporarily relieved of his duties as bookkeeper of the Westbote Company, whose business was conducted adjoining the bank building, and was directed to remain at the banking house, where he did remain during business hours practically all the time after the 11th of August for a week or ten days. Upon creditors presenting themselves from time to-time, in response to these letters, at the banking house, they were informed by Mr. Fairbanks principally, and part of the time by Mr. John G. Reinhard, that it was necessary to make proof of their respective claims in order to-have them allowed by’the referee, and that the preparation of their proofs would be without expense to them. They were also requested by Mr. Fairbanks, Mr. Reinhard, Mr. Neydon, or Mr. Gale, or some of them, to execute special letters of attorney, along with their proofs, to Mr. Neydon to vote for a trustee at the first meeting; saying to the creditors, in-substance, that they desired to- have Mr. Zinn elected as trustee, and wanted the proxies of the several creditors, in order that they might be cast for Mr. Zinn as such trustee. The banking house was at the time in charge of Mr. Zinn, the receiver, and under his control, and was kept open for the purpose, in the main, of receiving these creditors as they came in, and giving them the information as to what would be required of them in making their proofs, and to request of them to execute proxies to Mr. Neydon for the purpose of' voting them for Mr. Zinn. “It further appears from the evidence that one of the affairs of the hank about which, as stated in tlie letter, Iteinhard & Oo. wished to talk with tlieir creditors, was ‘tlie election of a trustee,’ and, so far as disclosed by the evidence, the a'ffairs of tlie bank proper — that is, the business of the bank — ■ was discussed but very little. Mr. Xeydon did a large portion of the writing of the proxies, and said that he was there as a favor to tlie Reinliards. He made it his business to and did importune the creditors, as they appeared there, to give their powers of attorney to him, that he might vote for Mr. Zinn. After their proofs were prepared, and Mr. Xeydon importuned (lie creditors to obtain the powers and received their assent, they were directed to Mr. Gale, as the notary, to administer the oath to the proofs and take rhe acknowledgment of the proxies. After proving tlieir claims, they left tlieir certificates of deposit, or pass book, as the ease might be, with Mr. Xeydon, who gave them a receipt therefor. Many of these receipts, probably from 25 to 100 in number, were signed by John 0. Re.inha.rd for Mr. Ney-don. The letter sent out, as well as the blank proofs and proxies, were printed at the printing house of the Westhote Company, by direction of Mr. Fairbanks, and nothing was said about paying for them, and no agreement was .made therefor, nor has any bill been rendered to anybody for the printing. "Xeither Mr. Fairbanks, nor Mr. Xeydon, nor Mr. Gale, nor Mr. Zinn had any Interest as creditors of tlie bankrupts, but. were strangers to tlie bankruptcy proceedings. After the powers were obtained, Mr. Fairbanks borrowed ¡00 revenue stamps’, of 25 cents each, of the Merchants’ & Manufacturers’ Rank of Columbus, Ohio, of which Mr. Zinn was and is a director. Mr. Xeydon, finding them on tlie table at Reinhard’s bank, placed them upon tlie powers of attorney, and canceled them. John G. Iteinhard was absent from the city at the time the letters were presented and addressed to creditors, and afterwards, returning, assented to the acts of ids brother, Henry A.' Ueinhard, in that behalf. ‘•While John G. Reiuhard testified that he did not request any creditors, except a Cincinnati bank, to execute powers to Mr. Xeydon for the purpose of voting for Mr. Zinn. the evidence of as many as 11, creditors, who were called as witnesses and testified on that point, was to the contrary. TTpon the statement by counsel in opposition to the challenge that they would not offer any testimony as to Rein hard's solicitation of creditors, no further testimony on this point was offered by counsel for objecting creditors. Mr. Ueinhard further testified that he was present at the banking house but little of the time while the proofs and proxies were being taken; bul tlie evidence of the creditors who were called as witnesses shows that he was there when they were present, and was actively engaged in seeing that the proxies wore given to Mr. Nejdon, and, when certain creditors refused to execute proxies, lie'made the remark that they could go with their books and papers; ‘We have enough without them to elect our man, Zinn.’ In referring to the proceedings at the bank in obtaining the proofs and proxies, lie used the words •‘,ve’ and ‘ns,’ and after the majority, if not all, the proxies were obtained, lie said at the Great Southern Hotel, in Columbus, Ohio, in presence of two witnesses (and Ills statement is not contradicted by him except that lie does not remember It), That I have over 400 proxies, and he is elected.’ repeating rhe remark, as to Mr. Zinn being elected, twice or three times. “It also appears from the evidence, as well as that it transpired in my presence at the first meeting, that the proofs and proxies were brought to Hie meeting in a large canvas sack, and spread out on a large table in the court room. The contents of the sack, consisting of numerous packages or bundles of papers inclosed in envelopes making up the different packages. During much of the time before the business of tlie election proper was begun, John G. Reinhanl was actively engaged with the various papers, on the table, examining and arranging them, and seemed to be familiar with them, and understood the system of tlieir arrangement, as well as tlieir contents, and assisted Mr. Gale and Air. Fairbanks in presenting to me the proofs and proxies for examination, and took an active interest in seeing that all tlie proofs and proxies so presented, over which they seemed to have control, were approved by me. During said meeting many creditors, who had theretofore proved their claims down at tlie bank' and executed proxies, appeared personally at tlie meeting, and demanded of Mr. Reinliard the return of the papers executed by them, and their certificates of deposit or pass books; whereupon either he destroyed the proofs and proxies, or the same were destroyed by Mr. Fairbanks or Mr. Gale, in his presence, delivering back to such creditors merely the original certificates or pass books, thereby necessitating the proofs of their claims to be executed before they could be presented for allowance to me. The proxies which Mr. Neydon presented at the meeting and offered to vote were proxies obtained in the manner above related. “From the evidence adduced I find that the object of tlie letters sent to creditors by Reinliard & Co. was to have the creditors call at the bank, and obtain their powers of attorney for the purpose of voting by proxy for Mr. Zinn as trustee, and that Mr. Neydon and Mr. Fairbanks were tlie agents of the Reinhards for the purpose of carrying this object into effect; that the Reinhards had accomplished the object, which, by tlieir letter, was intended to be accomplished, by obtaining the powers of attorney; and that it was the intention of the Reinhards to control the first meeting in the election of a trustee by means of these proxies; and that Mr. Neydon, in offering to vote said proxies, was acting as the agent of the Reinhards, in furtherance of the common design. I further find that, by solicitation, influence, and interference of the Reinhards themselves, and through their agents, Mr. Neydon and Mr. Fairbanks, these proxies have been obtained, and that but for such interference, aided by Mr. Zinn in allowing the bank to be opened and used by the Reinhards and their agents, those powers 'would not have been presented; that, while Mr. Neydon was ostensibly the agent of the creditors whose powers of attorney he held, he was in fact the agent of the Reinhards for the purpose of electing a trustee in their interest, and his object'in offering to vote under authority of these letters of attorney was to choose a trustee, not for the benefit of the creditors, but in the interest of his real principals, the Reinhards, by whom he was employed, — to which findings of fact, and each of them, said Neydon, and Joseph H. Dyer, as counsel for John F. McGill, excepted. “Thereupon, after hearing counsel in behalf of and in opposition to the challenge of the objecting creditors to the said votes offered by said Mr. Neydon, I made an order sustaining the said challenge of said objecting creditors, and denied to Mr. Neydon any right to vote pursuant to his said letters of attorney, to which Mr. Neydon, by his counsel, Frank H. Gale, and Joseph H. Dyer, as counsel for John F. McGill, creditor, whose claim of $533.52 was allowed, and whose proxy was held by said Neydon, excepted. And thereupon said Neydon, by his counsel, and said Joseph H. Dyer, as counsel for said McGill, demanded of me that a reasonable time be given for them to notify the creditors whose proxies said Neydon held, that .such creditors might be represented at the meeting either personally or by duly-authorized proxies; whereupon I refused to interfere with the business of the meeting of creditors as then constituted, and to grant said demand, on the ground that the demand requested was not a matter over which I, as presiding ofiacer, had power to act, and that the granting of such request, in my .judgment, would have been an assumption of authority not possessed by me“ and an interference with the deliberations of the creditors (the above grounds, however, not having been stated by me at the time of such refusal); to which refusal to grant said request the said Neydon, by his counsel, and Joseph H. Dyer, as counsel for said McGill, excepted. And the said creditors, present or duly represented at said meeting, concluded their business thereat in about an hour and thirty minutes after I had made the order sustaining the said challenge as aforesaid. And the creditors, present or duly represented at said meeting, exclusive of the proxies aforesaid, voted 189 votes in number and $103,126.11 in amount of claims proved and allowed, of which creditors 173 in number and $87,697.79 in amount voted for Mr. Fred C. Rector to be such trustee, and fixed the amount of his bond at $100,000.00; and 16 in number and $15,428.32 in amount voted for Mr. Walter Zinn to be such trustee, with the same amount of bond; and said Fred O. Rector, having received the majority of votes in number and amount of the claims of cre'd-itors present or duly represented at said meeting, was, by said creditors, appointed trustee; and said appointment coming on before me for approval, and said Mr. Neydon, by bis counsel, and Joseph H. Dyer, as counsel for John If. McGill, objecting thereto, and upon hearing said objections, I overruled the same, to which the parties excepted, and I thereupon a]¡proved the said appointment of Fred O. Rector as such trustee.”