Arnold S. Kaye and Sanford Grossbart v. May Spach, Trustee , 302 F.2d 298 ( 1962 )

TUTTLE, Chief Judge.

This is an appeal by Arnold Kaye, a lawyer, and Sanford Grossbart, his client, from an order of the trial court adjudging them in contempt of court by reason of their conduct in proceedings of the bankruptcy of one Robert L. Strauss.

The proceedings during which the attempt citation and conviction issued were ancillary proceedings in the bankruptcy of Strauss which was pending in the Southern District of Florida. They were part of a Section 21, sub. a, 11 U.S.C.A. § 44, sub. a, investigation “concerning the acts, conduct, or property of [the] bankrupt.” May Spach, the Trustee, represented by counsel, sought to examine Grossbart and sought an opportunity to see books belonging to Grossbart and Grossbart Jewelers, a corporation, purportedly in order to ascertain whether there had been any improper transfers of assets from the bankrupt’s estate to that of Grossbart or his interests, or whether there had been any preferences or other impermissible relations between the parties. In pursuit of this effort the Trustee caused a subpoena duces tecum to be issued calling on Grossbart to produce the corporate records. Grossbart, through his attorney, moved to quash the subpoena on the ground that they contended the records contained no entries disclosing any transactions with the bankrupt, either directly or indirectly. To counter this motion, the Trustee’s counsel produced several witnesses who testified to certain dealings between Grossbart or his jewelry company and the Bankrupt Strauss, or his wife. Included in this evidence was testimony that a corporation, which shared the ownership with Grossbart of Grossbart Jewelers, had acquired its stock in Grossbart Jewelers from Strauss’s wife. Included also is testimony that Grossbart had borrowed $7,000 from Mrs. Strauss, which transaction was handled by Strauss, and that the note for this $7,000 was actually delivered by Grossbart to Strauss. Grossbart testified that this note was later exchanged by Mrs. Strauss for stock (apparently 51%) in Grossbart Jewelers, the corporation whose books and records are here in issue. Before bankruptcy she had transferred this stock to another corporation. Furthermore Grossbart testified that a few months before bankruptcy he had borrowed several smaller amounts from Strauss, that certain amounts had been paid to Strauss and he answered in the affirmative when asked whether “the books and records of Grossbart Jewelers reflect when these moneys were repaid.” The Referee and the trial court both found that there was ample evidence warranting an order by the Referee directing that Grossbart’s books of account be submitted to the Trustee in order for her to have an opportunity to call to the attention of the Referee such matters as might be relevant upon the interrogation of Grossbart in the Section 21, sub. a proceeding.

The Referee entered an order directing Grossbart to submit the books to the Trustee through her counsel for examination. The following colloquy took place:

“Mr. Kaye: My client tells me that these records are confidential records concerning his sources of supply people from whom he has borrowed money and other highly personal communications and confidential records which would be detrimental and injurious to him for anybody to have access to other than himself.

“But there is no record, he tells me, in any of these books of any transactions with Mr. Robert L. Strauss directy or indirectly.

“For this reason, Your Honor, we are declining to submit to opposing counsel for his examination of the documents and the records which I have just identified. But I will restate once more that if the Court should so direct and is willing, we will make the court a repository of these records for its examination as to the truthfulness of the facts which I have represented on behalf of my client. And we have them all here and they are all available for the Court’s examination or inspection.

“The Court: Mr. Kaye, I was not appointed by this Court as a depository. The Clerk is a depositóry. ' I was appointed to conduct such judicial inquiries and hearings as prescribed by the law. This proceeding is a proceeding to take evidence. I have no recourse, I don’t believe, but to direct this witness, Mr. Grossbart, to produce those records and to testify and answer any questions asked him which are proper.

“And I now so direct you to do that, Mr. Grossbart.

“Mr. Kaye: And I have directed my client not to answer the questions, Your Honor.

“The Court: Have you declined to do that, Mr. Grossbart? Now, he’s the one that has to make the decision, not you, Mr. Kaye.

“Mr. Kaye: All right, sir.

“The Witness: On advice of counsel, yes.

“The Court: Well, I will certify the same thing that I have certified in the case of Mr. Karp.

“You understand what that is, do you, Mr. Grossbart? You will be certified to the Court whether the Court wants to deal with you for contempt or not.

“The Witness: Yes, sir.”

Thereafter the Referee certified the record to the District Court for a ruling by the court as to whether Grossbart and Kaye should be held in contempt of court. As a preliminary to its decision, the trial court made the following comments:

“(1) One of the alleged acts of contempt charged against both respondents was the failure of witness Grossbart upon advise of said attorney to produce in evidence ‘books of this witness * * * kept by a company affiliated or connected with the bankrupt.’

“The reason assigned by the witness for refusal to produce the books in Court, where they could be inspected by counsel for the Trustee, was that the books allegedly contained privileged matters pertaining to the business and upon the further ground that the transactions contained in the books and records did not pertain to Robert L. Strauss, the bankrupt.

“It appears from the record that the Referee explained to respondents that he, the Referee, was not able to take the records, search them, and determine which of the entries might or might not be material, and the Referee gave the witness opportunity to designate the items which the witness contended were immaterial, which the witness did not do.

“Sufficient evidence was adduced before the Referee to show that there were a number of transactions in fact had between the witness Grossbart and the bankrupt Strauss, or corporations with which they were identified sufficient to render it probable that the books and records would contain material evidence.

“It does not appear that the books ■contained any information which was privileged under the law, nor does it even appear that there was any effort made by respondents, to .select the items contained in the records which were allegedly business secrets, and therefore production of the books limited only to the Referee himself would have been of no benefit to counsel who sought their production, and such procedure would have rendered impossible the examination of the witness concerning the entries in the books.

“Frequently referees, judges and others acting in a judicial capacity will, regardless of legal requirements, cooperate with parties and witnesses in the matter of keeping secret their records even where the records are not clothed with any privilege under the law. Such protection however, can only be given where there is complete cooperation with the parties seeking the same. It is arbitrary and unreasonable, however, for respondents after being ordered by the Referee to produce records, to offer only to produce them for the perusal of the Referee and not for counsel, upon broad allegations that the contents of the records are immaterial and contain business secrets. The foregoing practice if permitted would obstruct the processes of the Courts in seeking to obtain the truth in all matters of this kind, as in fact the tactics of respondents have obstructed the processes in the instant case.

“This Court might be inclined to deal leniently with the aforesaid acts of the respondents did it not appear that there was definitely an intent and purpose upon the part of respondents in connection with these records, and in connection with other witnesses, as shown by the transcript to obstruct the investigations made by the Referee and to induce the witnesses to withhold all information possible.”

Other acts of an obstructionist nature were charged by the Referee against Kaye individually, and these were adverted to by the trial court in its determination that Kaye was guilty as charged. Because, however, we find that the flat refusal of the lawyer and the witness to comply with the court’s order as to the corporate records, fully justified the trial court’s judgment of contempt, we do not consider it necessary to consider these other matters.

Appellants contend here that their conduct in refusing to comply with the Referee’s order to make the books available to the Trustee in bankruptcy was fully justified by a recent decision of this Court, Herron v. Blackford, 5 Cir., 264 F.2d 723. In that case there was in dispute the question whether a third party witness in a Section 21, sub. a hearing should be required to submit to the trustee and his counsel copies of corporate minutes consisting only of eighteen pages, wherein it was stated by the objecting party that the minutes were silent as to any transactions with the bankrupt. In deciding that the trial court in that case should have itself examined the eighteen pages of corporate minutes, this Court said:

“The court is required also to exercise discrimination in determining the portions of writings which are reasonably relevant and material to such issues. The performance of this duty involves examination of the writings to the end that only so much thereof may be held within the boundaries of the subpoena as satisfy these limitations.”

The Court then further said:

“The task to be performed in this case by the district judge is not a hard one.”

The opinion then contained a footnote stating, “Our reading of the eighteen pages transmitted under seal to us— cursory because the primary duty and discretion belonged to the court below— reveals that the election of officers is mentioned at three places, the bankrupt corporation is mentioned in one place, and no reference is made to the two Schutter corporations.”

No such situation was present in the bankruptcy court here as was referred to in the above case. Here there were some three or four thousand pages of ledger sheets and financial records. Grossbart had commenced by swearing that there was no reflection in the records of any dealings with the bankrupt or any one connected with him directly or indirectly. He later, however, admitted, contrary to what he had previously sworn, that there were some such entries. Other witnesses also testified as to transactions between the parties or persons associated closely with them that would have normally appeared on the corporate books that were in question. The third party witness and his lawyer did not undertake to find these parts of the record and show them to the court or counsel, but simply stood upon their original claim that there were no such entries, that the books were all irrelevant, and offered simply to toss them on the desk of the Referee and leave it up to him to determine what, if anything, was relevant to the investigation.

We think there is nothing in What is said in the opinion in the Herron ease quoted above that prevents our finding that under the circumstances before the Referee here, he had strictly complied with his duty of ascertaining whether these particular documents and journal pages should be submitted to the Trustee and her counsel for examination. We think that the duty of “examination of the writings,” referred to in the Herron opinion, was fully met when the Referee, with the physical documents before him, heard Grossbart admit that the bankrupt Strauss had negotiated a loan of $7,000 by Grossbart from Mrs. Strauss, for which the note was delivered to Strauss, and further heard Grossbart’s testimony that this note held by Mrs. Strauss had later been paid off by exchanging it for stock (apparently 51%) of Grossbart Jewelers, with whose books we are here concerned, and then further heard Grossbart admit that “the books and records of Grossbart Jewelers reflect when [several small loans from Grossbart himself] were repaid.” These admissions by Grossbart, without his making any attempt to point to these entries in the records, authorized the Referee in requiring that the records be turned over to the Trustee for examination.

We think that the principle announced in the Herron case should not be extended beyond the facts of that case. Where, as here, it is undisputed that there are entries in books or records of the third party witness relevant to the Section 21, sub. a investigation, it is not the duty of the Referee then to make the initial analysis in order to ascertain just what is and what is not relevant.

The whole adversary nature of litigation can be maintained only if the party whose duty it is to serve his client is permitted to call to the attention of the judge or referee, as the case may be, points which he deems to be relevant based upon his study and understanding of his client’s case. Here the referee would become something other than an arbiter or judge if he were put in the position of having to construct a theory by which Grossbart’s records might be considered relevant and then go forward with seeking information from the several thousand pages of the records to sustain his theory. The construction of such a theory and the search for evidence to support the theory are matters normally addressed to counsel rather than to the judge.

We conclude, therefore, that the order of the Referee was a lawful one, which it was the duty of both appellants to obey. Their refusal to do so is an adequate basis for the judgment of contempt issued by the trial court.

The judgment is, therefore, affirmed as to both appellants.