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February 19, 1968

In the Matter of Philip A. DIORIO, Bankrupt

Mansfield, District Judge.

The opinion of the court was delivered by: MANSFIELD

MANSFIELD, District Judge.

On November 3, 1965, Philip A. Diorio filed a voluntary petition in bankruptcy, accompanied by schedules sworn to by him which represented that he had liabilities of approximately $750,000, of which approximately one-third were for taxes and other non-dischargeable debts, and no assets other than a home in which he had no equity. Kreisler-Borg Construction Co., a creditor, petitions for review of a decision of Referee in Bankruptcy, Asa S. Herzog, dismissing its six specifications of objection to the bankrupt's discharge under § 14c of the Bankruptcy Act, 11 U.S.C.A. § 32(c), which were as follows: (1) failure to keep books; (2) and (3) transfer within 12 months with intent to hinder, delay or defraud creditors; (4) withholding of records; (5) false oath in relation to schedules; and (6) false testimony at the first meeting of creditors.

 The bankrupt had been president and part owner of Elite Concrete Construction Corp. (hereinafter "Elite Corp."), a company engaged in the reinforced concrete construction business which assigned for the benefit of creditors in March 1963. Its successor, "D" Concrete Construction Corp. (hereinafter "'D' Corp."), acquired most of its equipment from Elite Corp., for which it paid the latter's payroll expenses. Although no stock of " D" Corp. was formally issued, the bankrupt had "a mutual agreement" with his younger brother, Thomas Diorio, under which each owned 50% of the equity of the corporation. The bankrupt was president, Thomas was treasurer, and Catherine Gerber (Contino) was secretary. Sometime in 1964, " D" Corp. ceased to do business and became "defunct," although it was never formally dissolved or liquidated. About June or July 1963, Diorio Construction Corp. (hereinafter "Diorio Corp.") was organized with Thomas Diorio as president, Louis Schein as secretary, and the bankrupt as "general manager." Diorio Corp. apparently acquired its equipment from "D" Corp. Diorio Corp. became "defunct" about December, 1965.

 At issue in all six specifications of objection is the question of whether the bankrupt was merely an employee of Diorio Corp., as he claims, or whether he had a financial interest therein, with his younger brother Thomas Diorio and Louis Schein acting as "nominees" with respect to his interest. *fn1" This issue of whether the bankrupt was an officer or stockholder of Diorio Corp. is closely tied in with the bankrupt's failure to reveal in his sworn bankruptcy schedules his presidency and 50% ownership interest of "D" Corp., the immediate predecessor of Diorio Corp., and his falsely stating under oath in an affidavit filed with the Court on January 18, 1966, that he had no interest in "D" Corp. or Diorio Corp. If these false statements were knowingly and fraudulently made, the bankrupt's discharge must be denied. Furthermore, a determination that the bankrupt had fraudulently concealed his position and interest in "D" Corp. would be sufficient, when coupled with other evidence before the Court, to create reasonable grounds for believing that the bankrupt also fraudulently concealed a similar position and interest in Diorio Corp. In the case of both corporations ("D" Corp. and Diorio Corp.) the representations made to the Court by the bankrupt and his younger brother Thomas were substantially the same, and in addition to this parallel relationship, the bankrupt, although also claiming not to have been an officer or stockholder of Diorio Corp., had received or cashed Diorio Corp. checks drawn in substantial amounts. The chronology of events leading to discovery of the bankrupt's interest in "D" Corp., which had been concealed by him, is as follows:

 Following the filing of his petition in bankruptcy and sworn schedules on November 3, 1965, the bankrupt appeared at the first meeting of creditors on November 22, 1965, at which time he reaffirmed under oath the statements made in his petition and schedules. He further testified that he resided at 128 Central Park South, New York City, the address given in his petition, *fn2" and that he was employed by Columbus Corp. in Puerto Rico. In his testimony he did not reveal any interest in Diorio Corp. or in its predecessor, "D" Corp.

 On December 16, 1965, at the adjourned first meeting of creditors, the bankrupt did not appear. However, his wife, from whom he had separated, appeared and testified that he had an ownership interest in both Diorio Corp. and its predecessor, "D" Corp., contrary to his sworn schedules and testimony.

 At the adjourned first meeting of creditors held on January 18, 1966, the bankrupt, who was working in Puerto Rico, again failed to appear. In view of his wife's testimony as to ownership interest in Diorio Corp. and "D" Corp., however, he executed an affidavit in Puerto Rico on January 10, 1966, presented by his attorney at the meeting, as follows:

"PHILIP DIORIO, being duly sworn, deposes and says:
1. I am the bankrupt herein.
2. That at the request of WILLIAM STEPHEN BROWN, the Trustee in the above matter, I hereby state under oath that I have no interest nor have I ever had an interest, nor have I been promised an interest in any corporation known as 'D' Construction Corp. or Diorio Construction Corp.
3. That I was at one time employed by the aforementioned corporations prior to any present employment.
4. That the principal officer, stockholder and director of both corporations is my brother THOMAS DIORIO and I am neither, a director, officer or stockholder of the said corporations.
5. That all my assets are set forth in the schedules annexed to my petition in bankruptcy.
6. That I further state that all moneys which were deposited by me in a special account opened by me in the bank in Puerto Rico were moneys of COLUMBUS CONSTRUCTION CORP. and were deposited for the purpose of defraying such expenses as might be incurred on behalf of COLUMBUS CONSTRUCTION CORP. in connection with the establishment of its business in Puerto Rico and that none of the funds so deposited were intended for my own personal ...

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