In re Hare , 119 F. 246 ( 1902 )

RAY, District Judge

(after stating the facts). It is plain that the order appointing Eugene F. Perry trustee of the property of this bankrupt cannot be sustained and should not be sustained. Chapter 5 of the bankruptcy act [U. S. Comp. St. 1901, p. 3434] is devoted to “Officers, Their Duties and Compensation.” Section 44 [U. S. Comp. St. 1901, p. 3438] reads as follows:

“Appointment of Trustees, (a) The creditors of a bankrupt estate shall, at their first meeting after the adjudication or after a vacancy has occurred in the office of trustee, or after an estate has been reopened, or after a composition has been set aside or a discharge revoked, or if there is a vacancy in the office of trustee, appoint one trustee or three trustees of such estate. If the creditors do not appoint a trustee or trustees as herein provided, the court shall do so.”

This is plain, unequivocal, and imperative. The creditors at their first meeting (in the case at bar) were to appoint the trustee. This they proceeded to do. The creditors having appointed a trustee, there was nothing for the referee to do in that regard except approve or” disapprove such appointment.

General Order 13 (32 C. C. A. xvii, 89 Fed. vii) says:

“The appointment of a trustee by the creditors shall be subject to be approved or disapproved by the referee or by the judge; and he shall be removable by the judge only.”

“Judge” does not include the referee. Section i, subd. 16 [U. S. Comp. St. 1901, p. 3419].

It is plain that, the appointment by the creditors having been actually made, the referee was called upon to approve or disapprove the appointment. This he could not do by mental action or words alone. It was his duty to make an order in writing disapproving the appointment, if he disapproved, and on this the parties had a right to be heard before the judge, as “he [the trustee] shall be removable by the judge only.” This general order confers no power on a referee to announce, as was done in this'case, that he will not appoint the trustee already appointed by the creditors. It does authorize him to disapprove such appointment by order, and should this be done at the time the appointment is made by the creditors it is probable that the creditors might proceed at once to appoint some other person, as this would be an acquiescence in such disapproval; but should they not do this the matter should be reported to the judge, who may remove the trustee appointed by the creditors, and order another appointment by the creditors. In no event can the referee ignore the appointment made by the creditors, and proceed summarily to appoint the trustee without holding another election, as was done in this case. He cannot compel the creditors to vote, but he can give them an opportunity. If they do not vote, they have neglected to appoint or recommend.

Chapter 2 of the bankruptcy act [U. S. Comp. St. 1901, p. 3420] creating the courts of bankruptcy, and defining their jurisdiction, being section 2 of said act, provides (subdivision 17) that courts of bankruptcy have power to; “pursuant to the recommendation of creditors, or when they neglect to recommend the appointment of trustees, appoint trustees, and, upon complaints of creditors, remove trustees for cause upon hearings and after notices to them.” This confers no power to disregard the recommendation of the creditors. Nor have they failed to recommend when they have, so far as voting at all, unanimously appointed a trustee, and the referee disapproves such action. The referee cannot control the action of the creditors in any such arbitrary manner. The law places, and was intended to place, the appointment of the trustee in the hands of the creditors, subject to the power of the judge to remove the person so appointed in case the referee disapproves, or for cause shown on application by other interested persons. This is a plain and a sensible construction of the act and general order, taken together. There is no failure to appoint when the referee disapproves the appointment. The trustee is appointed, and may be removed by the judge on the disapproval of the referee.

But, even if we assume that there is a vacancy in the office of trustee where the creditors appoint and the referee disapproves (which this _court denies, but see In re Lewensohn [D. C.] 98 Fed. 576), the act itself is plain and explicit that the creditors shall make the appointment to fill the vacancy. It is only when the creditors fail or neglect, after full and fair opportunity, to appoint a trustee that the court or referee may step in and make an appointment. The return of the referee states that “said Dennison insisted that he would have no other man than Mr. Richardson.” This, if true, was no justification for the appointment made by the referee. Even, if the referee had power to make an appointment at that meeting, on the failure of the creditors to make an appointment that should meet his approval,—a proposition to which this court cannot assent,—this statement of Mr. Dennison was not in execution of his power, nor did it constitute a failure by the creditors to appoint, and it is probable that had the referee taken another vote on the election of a trustee Mr. Dennison would have cast the votes represented by him for some one, perhaps some other person. In any event, that was the only proper and legal course to-pursue, assuming the referee had the power to take any action other than report the appointment and disapproval to- the judge.

It is unnecessary to comment on the insufficiency of the objections to Mr. Richardson. If he was not a proper person, because he resided 15 miles from the bankrupt stock and had dealings with one- of the creditors, how forcible are the objections to Perry, who evidently was the choice of the bankrupt himself, and was not voted for by any creditor? Nor is it necessary to more than suggest the impropriety of conferences between the bankrupt and referee or creditors and the referee outside of court, and in the absence of other interested parties, as to the personality, fitness, etc., of' the trustee appointed. The parties having objections to Mr. Richardson should have come into court, and there presented the objections which the referee states were made to him outside. Had this been done, the bankrupt could have been examined as to the truth of the charge made, and Mr. Crouse and other creditors would have had an opportunity to reply. Again,, the seven creditors residing at Syracuse, the six residing at Utica, the two residing at Earlviile, the one residing at Philadelphia, the one residing at Oneida, and the one residing at Fairport had equal rights with all others, and quite likely and quite properly they objected to a trustee suggested, it would seem, by the bankrupt, and residing in his town and village. In this case the interests and wishes of the creditors who took interest enough in the proceedings to avail themselves, of the law made for the protection of creditors “were improperly disregarded.

The order of the referee appointing Eugene M. Perry trustee of the bankrupt, William A. Hare, must be vacated and set aside, and an. order to that effect will .be entered.