Rowe v. Drohen

262 F. 15, 1919 U.S. App. LEXIS 1895

• Court: Court of Appeals for the Second Circuit
• Decided: November 26, 1919
• Docket: No. 5
• Status: Published

Opinions

WARD, Circuit Judge.

March 1, 1916, James L. Drohen was adjudicated a bankrupt on his own petition, and on September 15 his trustee, Rowe, filed a bill in equity against him and his wife under section 70e of the Bankruptcy Act (Comp. St. § 9654), praying that they might be required to convey to him certain pieces of real estate in the city of Dunkirk, N. Y., standing in the name of Mrs. Drohen, the leases in his and her names of certain moving picture theaters, together with their furniture and equipment, also a balance of account in the Merchants’ National Bank of Dunkirk in the name of Mrs. J. L. Drohen, all of which property the plaintiff charged was acquired out of the proceeds of J. I,. Drohen’s business and fraudulently transferred to Mrs. Drohen or purchased in her name for the purpose of hindering, delaying, and defrauding his creditors. Judge Hazel dismissed the bill, and his opinion is reported in 245 Fed. 684. The plaintiff’s counsel states his theory of the situation as follows:

“The complainant now feels that it lias justified the statement, made earlier in the brief, that in the latter part of December, 1906, or early in 1907, while the Dunkirk Theater was in contemplation, or about the time the parties were getting ready to open it, the two defendants entered into the fraudulent and unconscionable agreement or understanding that, if the venture should prove a success, they would both declare that the business was hers, and point to the bank account as proof, while, if it turned out a failure, they would both assert that the venture was his, and point to the lease and the contracts he had made as evidence thereof; the result of which would be that, if it should succeed, success should inure to their benefit through her apparent ownership, while, if it should fail, creditors on the executory agreements or his own future creditors might seek in vain for their money, for, to use Drohen’s own language, in a similar case later, where the venture did fail, T have a large judgment against me.’ ”

The bill alleges that on the 1st day of December, 1906, and for some time previous thereto, James L- Drohen was insolvent and at no time thereafter had any property whatever, unless that claimed in the bill belonged to him. Furthermore the plaintiff concedes that all of the property so claimed was the direct result of the success of a little moving picture show called the Bijou Theater opened in Dunkirk in February, 1907.

In March, 1906, Mrs. Drohen, her husband, and her mother lived in a small house inherited by Mrs. Drohen and her mother from her father. March 31 of that year Mrs. Drohen bought a small additional property, 414 Central avenue, paying $500 down, lent her by a warm personal friend, and securing the balance of the purchase money by mortgage. What property there was in the family at that time belonged to her, and the plaintiff does not contend that James L. Drohen had any interest whatever in these premises. In 1905 James R. Drohen was being sued for infringement of a patent, and April 23, 1906, an interlocutory decree was entered against him on the merits, which ripened in January, 1910, into a final decree for some $10,000.

In 1906 Mrs. Drohen opened a little notion store in the Central avenue house, and, and while engaged in that business her attention was attracted to a moving picture show. Concluding that this would be a good business venture, she sold out her stock in trade, and December 12, 1906, opened a bank account in the Merchants’ National Bank of Dunkirk in the name of Mrs. J. L. Drohen, with a credit of $300 given to her persónally by the bank, and in February, 1907, started the Bijou Theater in a vacant store, 303 Lion street. Subsequently, in 1909, she opened another little moving picture theater in the neighboring town of Silver Creek, where she employed a manager named Geitner, and in 1910 she built a larger theater in Dunkirk, known as the Drohen Theater.

During the whole of this period James L. Drohen managed the theaters, made some leases and contracts in his own .name, and often spoke and acted as if the business were his own. While the conduct of the defendants during this period of 10 years was sometimes more consistent with ownership in James L. Drohen, and sometimes with ownership in his wife, the plaintiff’s theory does not commend itself to us at all. To state in detail all the particulars and weigh the evidence would make an interminable opinion. Suffice it to say that in the small town of Dunkirk it could not but be perfectly apparent to every one that all the property here involved was the result of these moving picture enterprises. Whether the business failed or succeeded, the unpaid creditors of the business would look to these properties for payment. The creditors existing at the beginning of the business in 1906 were James L. Drohen’s and they were, in view of this moderate enterprise, of considerable amount. If it was intended to hinder, delay, or defraud creditors, these are the creditors who would have been considered. As against them it would have been more natural to put the bank account in the name of Mabel R. Drohen than in that of Mrs. J. E. Drohen, and Drohen could have drawn checks on such an account under authority from Mrs. Drohen. It would have been still more natural to let her sign the checks, as she might well have done, only about 3,000 checks having been drawn in about 10 years. Moreover as to such creditors he would have been careful not to speak of it as his, or to contract in his own name. Everything was done for a long time after the business was obviously a success openly and with such inconsistencies as preclude a premeditated purpose to defraud. Just such inconsistencies are what might be expected in dealings between husband and wife, and they rebut any inference of the calculated conspiracy which the plaintiff suggests. Schreyer v. Scott, 134 U. S. 405, 10 Sup. Ct. 575, 33 L. Ed. 955.

The real question is, With whose capital was this successful series of adventures started? because their profits belong to the owner of that capital. The evidence is quite clear that this capital was Mrs. Drohen’s, and though the success was largely due to her husband’s management and skill, her right to the profits was in no way affected by that fact. Aldridge v. Muirhead, 101 U. S. 397, 25 L. Ed. 1013; Merchant v. Bunnell, *42 N. Y. 539. It would be quite natural that, in managing, he would often act and speak as if he owned the business. We should not expect to find formal agreements to be made and the usual business precautions to be taken between husband and wife. If the conduct of the parties is consistent with honesty, we should adopt that theory, rather than the very artificial conspiracy which the plaintiff suggests. The conclusion of the trial judge, who saw and heard the witnesses, is entitled to great weight in an appellate court, and we are entirely satisfied with it.

The decree is affirmed.