Feltinton v. Grace

263 F.2d 287
CourtCourt of Appeals for the Seventh Circuit
DecidedJanuary 26, 1959
DocketNo. 12425
StatusPublished
Cited by1 cases

This text of 263 F.2d 287 (Feltinton v. Grace) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Feltinton v. Grace, 263 F.2d 287 (7th Cir. 1959).

Opinion

SCHNACKENBERG, Circuit Judge.

In this voluntary bankruptcy proceeding, which was commenced July 27, 1936, the district court, on March 16, 1955, vacated an order of reference theretofore entered and, on June 24, 1958, held a meeting of creditors, where it called for nominations for a successor trustee. Creditors present nominated Nathaniel Henry Du Sell. There were no other nominations. The attorney for creditors Robert L. Feltinton and Samuel C. Lurie (who are among the appellants herein), stated to the court that Du Sell

“ * * * is a resident of this district and division. He lives in Aurora, and is presently in the trust department in the Old Second National Bank of Aurora. He has been in the trust department for eight years. He previously had been for five years in the office of the Housing Expediter of Rent Control, and for many years before that was the assistant to the receiver for closed banks. He is a person who enjoys an enviable reputation for integrity, and I think in this situation, because of his position, experience and residence, would be in a position to administer this trusteeship impartially and with unimpeachable integrity.”

The correctness of this statement has not been challenged. However, the court stated that his “customary trustee is Gerald P. Grace, in these matters,” and adjourned the “matter until tomorrow”.

On the following day the court took s vote and announced that Du Sell was the “unanimous choice,” but refused to appoint him on the ground that he did not know him and that he knew nothing of him at all.

The court proceeded to say:

“ * * * lam certainly not going to approve any trustee whom I do not personally know. I have no reason but to know that he is a fine gentleman, his position as such he must be a fine gentleman, because I know the [289]*289institution for which he works and the fine reputation but he comes here upon the sponsorship yesterday and still the sponsorship of, some of the principal litigants herein, and I am going to refuse to appoint him, I will not show him and approve him as a qualified trustee.
“I now appoint Gerald P. Grace as a trustee in this case and direct him to proceed with the matter.”

The court added that he would not appoint anyone but Mr. Grace, and said:

“When I start deviating from that and the other judges start deviating from that, then the judges will cease to run the bankruptcy court, and I am going to run it.”

In its order the court fixed the bond of Mr. Grace, as trustee, in the amount of $1,000 and Feltinton, Lurie, O’Keefe Bros. Coal Company, a corporation, S. Benson and B. H. Molner, creditors, have appealed to this court.

§ 72, sub. a of the Bankruptcy Act1 provides:

“The creditors of a bankrupt, * * * shall, * * * after a vacancy has occurred in the office of trustee, * * * appoint a trustee * * * of such estate. If the creditors do not appoint a trustee or if the trustee so appointed fails to qualify as herein provided, the court shall make the appointment. * * * ” § 11, sub. a of that act2 provides:
“The courts [of bankruptcy] * * * are hereby invested * * * with such jurisdiction at law and in equity as will enable them to * * * (17) Approve the appointment of trustees by creditors or appoint trustees when creditors fail so to do; * « *»

§ 73 thereof 3 provides:

“* * trustees shall be (1) individuals who are competent to perform their duties and who reside or have an office in the judicial district within which they are appointed; * * *”

The general orders in bankruptcy, following 11 U.S.C.A. § 53, provide:

“Order 14. No Official or General Trustee
No official trustee shall be appointed by the court, nor any general trustee to act in classes of cases. * * * ”

In Bollman v. Tobin, 8 Cir., 239 F. 469, at page 471, the court said:

“ * * * One of the highest acts of the creditors is the choice of a trustee. That power is clearly committed to them by section 44 of the Bankruptcy Act. Their choice is subject to the approval of the court, but should be approved unless good cause exists for disapproving. One of the chief causes for disapproval is interference in the election by parties having an interest hostile to the general creditors, such, for example, as the bankrupts or their friends or kindred. Such interference has been frequently condemned by the courts. In the case of In re Lewensohn, 2 Cir., 98 F. 576, Judge Brown, after a careful examination of the decisions and the statute, uses this language :
“ ‘The beneficiaries are not the bankrupt, but the creditors. For that reason the law gives to them alone the choice of trustee. The bankrupt has no part in it, because presumably he has no interest in it.’ ”

To the same effect, see In re Hale Desk Co., 2 Cir., 89 F.2d 1, 2.

[290]*290■ The choice by a bankrupt’s creditors of a trustee,; although subject to the approval of the court, should be approved unless good reason exists for disapproving. If ¡any question ■ exists in the court’s minjd as to whether the choice of the creditors should be approved, it may hoik a hearing for that purpose, but the cburt has no power to peremptorily disapprove such choice either without any reason, or on the ground that the court has a trustee which he customarily appoints, that the choice is not personally known to the court, that he is sponsored by some of the creditors, or that he must be an “independent person” and not “suggested by any of the interested parties.”,

Every ju<ige, sitting in bankruptcy cases, mustj follow relevant provisions of the Bankruptcy Act. While we have no doubt that the district judge in this case was Sincere in taking the action which he did and believed that that action was for the benefit of the interested parties, we believe he was mistaken in failing to follow the Act. None of the district court’s reasons for rejecting Du Sell is valid when tested by the statutory provisions.

In this court, counsel for appellee does not rely, on the reasons given by the district court for its action. Instead appellee’s coupsel attempts to have us affirm the order below on other grounds. We have no quarrel with the rule that permits ub so to do. Ginsburg v. Black, 7 Cir., 237 F.2d 790, 792. However, we cannot apply that rule here, because we find that the álternative grounds relied upon in this court by appellee to sustain the order below, are likewise insufficient. Appellee states as grounds for affirmance:

. “The action of the District Court in appointing the trustee was within the power of the court for the reason that the creditors made no proof of the qüalificationb of their nominee. It was also within the power of the court to make t¿e appointment for the reason of the 18 months delay of the creditors in taking action to make the appointment. * * * ”

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Related

Thomas v. Grace
263 F.2d 287 (Seventh Circuit, 1959)

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Bluebook (online)
263 F.2d 287, Counsel Stack Legal Research, https://law.counselstack.com/opinion/feltinton-v-grace-ca7-1959.