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In re W. F. Breuss Inc.

decided: November 1, 1978.

IN THE MATTER OF W. F. BREUSS, INC., A CORPORATION OF THE STATE OF NEW JERSEY, TRADING AS KAYE WALL CREATIONS AND ELY-NAN CREATIONS, BANKRUPT, JOHN J. MORTIMER, APPELLANT.


ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (No. B-76-1382, D. N.J.)

Before Seitz, Chief Judge, and Adams and Rosenn, Circuit Judges.

Author: Seitz

Opinion OF THE COURT

Appellee, the trustee of the bankrupt, W. F. Breuss, Inc., applied to the bankruptcy court for an order directing appellant, John J. Mortimer, an accountant for the bankrupt, to appear for examination and to produce certain documents in his possession relating to the bankrupt's financial affairs. The purpose of this examination was to secure an adequate audit of the bankrupt. The bankruptcy judge, pursuant to Rule 205 of the Rules of Bankruptcy Procedure, issued the requested order and authorized the trustee to obtain a subpoena duces tecum if needed to effectuate Mortimer's examination. A subpoena was served upon Mortimer, and he filed a motion to quash with the bankruptcy court, in which he contended that the requested documents contain matters which may tend to incriminate him. The bankruptcy judge denied Mortimer's motion, and ordered that the requested material be produced and subjected to a judicial determination as to the applicability of the fifth amendment privilege.

Mortimer appealed the denial of his motion to quash to the United States District Court for the District of New Jersey. The district court modified the bankruptcy judge's order and directed that Mortimer appear before the district court or, at his election, the bankruptcy court, for a hearing pursuant to the guidelines established by the Supreme Court in Hoffman v. United States, 341 U.S. 479, 71 S. Ct. 814, 95 L. Ed. 1118 (1951), to determine the validity of his claim that his testimony at a Rule 205 examination and the requested document production would tend to incriminate him. The execution of that order was stayed pending appeal to this Court.

I.

Mortimer's principal contention before this Court is that the incriminatory nature of the requested documents is self-evident, and that a "Hoffman " hearing would be both superfluous and itself violative of his fifth amendment privilege. Before reaching the merits of that contention, we must first confront the question whether this Court has jurisdiction to decide this appeal.

Mortimer initially asserted in his brief that the order appealed from was final with respect to him under 28 U.S.C. § 1291 because he is a non-party witness to the bankruptcy proceedings, or, alternatively, that it was a collateral order within the meaning of the Supreme Court's decision in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528 (1949). The trustee of the bankrupt, in his initial brief, did not contest this Court's subject matter jurisdiction over this appeal. The Court directed the parties to submit additional briefs on the jurisdictional issue, and the trustee now contends that the order appealed from is not a final or a collateral order under § 1291, nor is it appealable under § 24(a) of the Bankruptcy Act, 11 U.S.C. § 47(a).

We hold that this Court has jurisdiction of this appeal under § 24(a), establishing the jurisdiction of appellate courts in bankruptcy proceedings. That section provides, in pertinent part:

The United States courts of appeals . . . are invested with appellate jurisdiction from the several courts of bankruptcy in their respective jurisdictions in proceedings in bankruptcy, either interlocutory or final, and in controversies arising in proceedings in bankruptcy, to review, affirm, revise, or reverse, both in matters of law and in matters of fact: . . . And provided further, That when any order, decree, or judgment involves less than $500, an appeal therefrom may be taken only upon allowance of the appellate court. (emphasis in original).

The foregoing provision establishes this Court's jurisdiction over appeals from all orders, either interlocutory or final, entered in "proceedings in bankruptcy." By way of contrast, this Court only has jurisdiction over appeals from those orders entered in "controversies arising in proceedings in bankruptcy" that are final.

As this Court has recently had occasion to observe, "The differentiation between "controversies arising in proceedings in bankruptcy' and "proceedings in bankruptcy' is hardly pellucid." In the Matter of Penn Central Transportation Co., 570 F.2d 1189, 1193 (3d Cir. 1978) (Adams, J.). In Penn Central this Court quoted with approval the distinction adopted by the Second Circuit in United Kingdom Mutual Steamship Assurance Association v. Liman, 418 F.2d 9 (2d Cir. 1969), that "a matter falls within the rubric of "controversies' if it involves a claimant who "raises a dispute with regard to the propriety of including property in the estate for distribution, rather than a question with regard to the administration of the estate once it is amassed.' " 570 F.2d at 1194, Quoting Liman, supra at 10.

The denial of appellant's motion to quash the subpoena duces tecum and the order that he appear for a "Hoffman " hearing clearly involves a question with regard to the administration of the bankrupt's estate; thus, it was entered in a "proceeding" in bankruptcy. This holding is in accord with the rule adopted in 2 Collier on Bankruptcy P 24.16, at 741 (14th ed. 1976) that "(a)n order of the bankruptcy court directing an examination of a debtor's books and records Or of designated witnesses is appealable as an order in a "proceeding in bankruptcy.' " (emphasis supplied).

Although the rule quoted above has not been uniformly followed by the courts of appeals, See Carolina Mills, Inc. v. Corry, 206 F.2d 76 (4th Cir. 1953); In re Manufacturers Trading Corp., 194 F.2d 948 (6th Cir. 1952), it is worthy of note that it is a rule derived from the case law of this Court. In In ...


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