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In re Rubin

decided: June 5, 1967.


Staley, Chief Judge, and Kalodner and Smith, Circuit Judges.

Author: Staley


STALEY, Chief Judge.

This is an appeal from an order adjudging appellants guilty of contempt of court. The citation arises out of a violation of a court order issued in an Arrangement Proceeding filed under Chapter XI of the Bankruptcy Act. 11 U.S.C. § 701 et seq. The debtor in that proceeding, Herman Rubin, an individual and surviving partner of Rubin's Pastries, had employed the appellants as "driversalesmen" in the distribution of baked goods and pastries to retail establishments. On the day the Petition for an Arrangement was filed, February 23, 1966, an order was entered appointing a receiver and restraining the debtor and others from interfering with the debtor's property. The appellants were made aware of the restraining provision in the order. They continued to service their regular customers by purchasing the baked goods and pastries directly from one of the debtor's primary suppliers. Shortly thereafter, the receiver filed a petition for the citation of appellants for contempt, alleging a violation of the restraining order.

The matter was referred to the referee for a hearing. He concluded that the service on the alleged contemnors was improper and dismissed the petition. The district court granted the receiver's certificate for review, overruled the referee's dismissal, and remanded the case to the referee for a hearing on the merits. In the Matter of Rubin, 242 F. Supp. 408 (E.D.Pa., 1965).*fn1 On remand, the referee took testimony, made extensive findings, and concluded that there had been no interference with the debtor's property. He dismissed the petition. Once again, a certificate for review was filed; and once again, the referee was overruled. In the Matter of Rubin, 256 F. Supp. 874 (E.D.Pa., 1966). The district court held that the routes travelled by the "driver-salesmen" were the property of the debtor, that the property of the debtor was in custodia legis from the time the petition was filed, and that the driversalesmen who purchased baked goods directly from Rubin's suppliers rather than through Rubin had interfered with the debtor's property and violated the court's order prohibiting such interference. Finding the driver-salesmen in contempt,*fn2 the district court remanded the case to the referee for a determination of damages. 256 F. Supp. at 876-878.

On this appeal, appellants raise two issues: whether the bankruptcy court had summary jurisdiction over this dispute; and whether the bankruptcy court had made proper service on the appellants. The resolution of those questions ultimately will depend on whether the property in question -- the routes -- was in the constructive possession of the debtor at the time the petition was filed or any time subsequent thereto. Cf., Katchen v. Landy, 382 U.S. 323, 327, 86 S. Ct. 467, 15 L. Ed. 2d 391 (1966).*fn3 There is, however, another matter of paramount importance which requires our attention.

The issue to which we turn is essentially one of jurisdiction, and requires us to examine with a critical eye the procedure employed by the district court in finding the appellants guilty of contempt. Aside from the distinctions between civil and criminal contempts, there are two types of contempts which can arise in bankruptcy cases. The first is unique and indigenous to bankruptcy proceedings and deals with contempts committed before referees or violations of their orders. While referees are vested with the powers of the district court, Bankruptcy Act § 2(a) (15), 11 U.S.C. § 11(a) (15), matters relating to commitment, Bankruptcy Act § 38(2), 11 U.S.C. § 66(2), and punishment for contempts committed in their presence and/or of their orders, Bankruptcy Act § 41, 11 U.S.C. § 69, are beyond their jurisdiction. 1 Collier, Bankruptcy P2.67; 9 Remington, Bankruptcy § 3524. All contempts, whether they be committed in the presence of the district court or the referee or of their orders, are punishable only by the district court. O'Hagan v. Blythe, 354 F.2d 83 (C.A.2, 1965).

Once the citation is before the district court, it has been said that its power to punish is no broader than its power in other cases. See Isaacs v. Hobbs Tie & Timber Co., 76 F.2d 209 (C.A.5), cert. denied, 295 U.S. 753, 55 S. Ct. 834, 79 L. Ed. 1697 (1935). The procedure is the same as in regular contempt cases. 1 Collier, Bankruptcy P2.58 [3]; 9 Remington, Bankruptcy §§ 3546 at n. 4, 3554. The only distinction between contempts of the district court and contempts of the referee is that the latter must be certified to the district court in accordance with the provisions of § 41(b) of the Bankruptcy Act. In re Gitkin, 164 F.71 (E.D.Pa., 1908); 2 Collier, Bankruptcy para. 41.09; 9 Remington, Bankruptcy § 3544; see generally Goldfarb, The Contempt Power at 115-17.

Having outlined the procedure prescribed by the Act, it is apparent that the proceedings below are not in accord with it. We cannot perceive why this matter was referred to the referee. This is not a case which required his certification under § 41(b) since no contempt was committed in his presence or in violation of one of his orders. If there was a contempt at all, it was of the district court's general restraining order. Since the district court remarked in its first opinion that "It cannot be argued that established routes of a wholesale distributor with established retail customers are not property and therefore not an asset of the debtor's estate,"*fn4 it appears to us that the sole reason for referring the case to the referee would be the determination of punishment.*fn5 As we have pointed out, the referee has no such power under the Bankruptcy Act.

Regardless of the procedural faults, the fact remains that the district court and not the referee found the appellants guilty of contempt. We must therefore examine and determine what effect, if any, these procedural defects had on the district court's finding of contempt. We note that no testimony was adduced or evidence offered before the district court. We are, therefore, in no different position than it in determining whether there was a contemptuous violation of its order.

The order reads as follows:

"* * * that the debtor and all other persons * * * are hereby enjoined and restrained from in any wise interfering with the exclusive possession and control by said receiver of said business and property of the debtor * * *."

There is no specific mention in the order that the "driver-salesmen's" routes were the property of the debtor nor were they listed on the schedule of property.

It cannot be doubted that routes such as those that are here can be property. Numerous cases and authorities have so concluded. Many of these sources were cited by the ...

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