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In re Levy


November 1, 1937


Appeal from the District Court of the United States for the Eastern District of New York.

Author: Mack

Before MANTON, L. HAND, and MACK, Circuit Judges.

MACK, Circuit Judge.

Dorothy Levy, a voluntary bankrupt, appeals from an order confirming a referee's report which denied her discharge on the ground of fraudulent concealment of assets, in that she omitted to schedule a tort claim consisting of an action for fraud then pending against the sole objecting creditor, Pistchal. During hearings by the referee, this action was dismissed on motion of the defendant, for failure to prosecute. Appellee raises no question as to the other specifications of objection which the referee had overruled.

All of the claims against bankrupt arose from or were incurred in connection with real estate transactions in which she had acted as dummy for her father. Because the title had been put in her name, she was plaintiff in the fraud action brought, however, clearly for the sole benefit of the father. Bankrupt's schedules were prepared by the attorney from data furnished by the father; bankrupt accepted them without knowledge of their contents. There is no contradiction in the testimony as to these matters.

While reluctant to reverse the findings of the referee, concurred in by the District Court, on questions of fact and good faith, we can find no evidence in the record of fraudulent intent in the omission to schedule such a claim, clearly known to at least this objecting and scheduled creditor. The possibility of a hope to prosecute the fraud action after her discharge and an intent therefore fraudulently to omit the claim from the schedule of assets appear to us farfetched in the circumstances. There would appear to be no reasonable ground to doubt the truthfulness of the testimony that bankrupt relied entirely on her father's statement of assets and liabilities in the preparation of the schedules; furthermore, that she believed that this claim was her father's and not her property.

Bankrupt therefore was not guilty of a concealment with intent to hinder, delay, or defraud creditors, under section 14b (4) of the Bankruptcy Act, as amended by Act May 27, 1926, § 6, 11 U.S.C.A. § 32(b) (4), 11 U.S.C.A. § 32(b) (4). Having left everything to her father, she had no sufficient knowledge of what ought to be included in the schedules to be chargeable with fraud in the omission of at best a very doubtful asset. It is to be noted that the referee did not expressly find that the concealment was fraudulent; his report is apparently based on the erroneous assumption that she is responsible as dummy for the wrong of her principal. But the wrongful intent required by the act is personal to the bankrupt; consent to fraud of the father is not to be imputed merely from her leaving the management of affairs to him. Davis v. Jacobs, 35 F.2d 936 (C.C.A. 1st, 1929); In re Meyers, 105 F. 353 (D.C.S.D.N.Y. 1900). We are not dealing with the question of her civil liability for acts performed by her as dummy for her father and at his direction. The sole question before us is whether or not bankrupt shall be denied her personal discharge. The father's wrongs, not knowingly and fraudulently participated in by her, are no bar.

Order reversed, with directions to grant the discharge.


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