CONSERVATOR IN BANKRUPTCY WEDNESDAY, MARCH 25, 1936 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE OF THE COMMITTEE ON JUDICIARY, Washington, D. C. The subcommittee met at 10:30 a. m., Hon. Walter Chandler presiding. Mr. CHANDLER. The committee will be in order. Since the hearing on the bill on March 6, the members of the Sabath committee, as I understand it, have been engaged in preparing amendments to meet objections which were made at the hearing. And I am told this morning that they have prepared a bill which is designed to meet all of the objections which they thought valid and which is in itself a complete bill; and I have been handed the committee print prepared by the Sabath committee. Mr. Sabath, my thought about the matter is to have some explanation of this new bill so that our committee may go to work immediately on the final bill, or whichever bill the committee wants to act upon. STATEMENT OF HON. ADOLPH J. SABATH-Resumed Mr. SABATH. That is our desire, Mr. Chairman and gentlemen of the committee. We have done just what you suggested in conjunction with the legal advisors and drafted a bill in compliance with your views. Some of the objections that have ben raised we have worked out, and we have prepared a new bill which does, I think, eliminate every objectionable feature. We have a bill here which was introduced yesterday, but merely for information. There are here this morning Judge Fuller and Mr. Dirksen, and the other members will be here shortly. I hope that I myself will not be needed, Mr. Chairman, as I have a committee meeting which is very important, and I have made my statement. In addition, we have three other gentlemen who have been working on the rewriting and perfecting of this bill ever since the last meeting. I am going to ask that you give Mr. Garsson an opportunity to explain the provisions of the bill, because he is familiar with it and he is familiar with the reports made by three former committees and the recommendations of these committees in the years gone by, and I know that there are very few men who are better informed than Mr. Garsson. For your information, gentlemen, I have here a number of telegrams and letters from Governors, judges, et cetera, that I would like to submit to the committee. (The documents are as follows:) Hon. ADOLPH J. SABATH, UNITED STATES DISTRICT COURT, House Office Building, Washington, D. C. DEAR CONGRESSMAN: I am in receipt of your communication of August 10 relative to the work done by your committee and the assistance it has rendered me personally. I very gladly consent to the use of my letter of August 7, and I am sure that undoubted good will result to any court that uses the facilities of your committee. With kindest personal regards, I am, Sincerely yours, ERNEST A. O'BRIEN. UNITED STATES DISTRICT COURT, Hon. ADOLPH J. SABATH, JUDGE KNOX'S CHAMBERS, Chairman of Select Committee to Investigate Real Estate Bondholders Reorganizations, Washington, D. C. DEAR CONGRESSMAN SABATH: Upon my return from vacation I find your circular letter of August 15 advising me that your committee will be glad to lay before me such facts as it may have with respect to any reorganization pending before me. Please be assured that in any matter coming within my jurisdiction I shall be glad to have your committee throw any light upon the proceeding that is within your power. Very truly yours, JNO. C. KNOX, United States District Judge. UNITED STATES DISTRICT COURT, Hon. A. J. SABATH, M. C., House Office Building, Washington, D. C. MY DEAR CONGRESSMAN: I have your letter of the 18th instant and shall be glad to avail myself of the services of the accountants who served the congressional committee. I know they will be a great help to me. Sincerely, W. H. HOLLY. UNITED STATES COURT, Hon. ADOLPH J. SABATH, Chairman, Committee to Investigate Real Estate House of Representatives, Washington, D. C. DEAR CONGRESSMAN: Replying to your favor of March 28, 1936, I would say that I have read the copy of your bill, H. R. 12064, which you enclosed. I am fully in accord with the policy of making proceedings under sections 74 and 77B of the Bankruptcy Act more administrative and less judicial, but it appears to me that much delay will be occasioned if all papers must be sent to Washington and the matter administered from there. There should be positive provision for the establishment of branch offices of the Conservator in the large centers of population and the appointment of a Deputy Conservator to have charge of cases in each area esablished, and that service of papers in cases filed in the area established should be made at such branch office. I do not think that 6 months should be allowed in every case for the filing of a plan, but that the court should have the right, in its discretion, to provide for a shorter or longer time for good cause shown. I see no particular objection to the plan of a panel from which trustees, receivers, etc., are to be selected, but believe that much better results would be secured through salaried official receivers. Yours respectfully, MARCUS B. CAMPBELL, United States District Judge. UNITED STATES DISTRICT COURT FOR THE Detroit, August 7, 1935. Hon. ADOLPH J. SABATH, House Office Building, Washington, D. C. DEAR CONGRESSMAN: I desire to acknowledge my debt of gratitude for the services that your representatives of the House special investigating committee in this city has rendered to me. I enlisted their services in connection with two hotel estates that are presently in this court. Last week the Honorable Carl Weideman, the local attorney of your committee, presented in court a report of your representatives' investigation of these properties. I have just finished reading these reports and they show a detailed and accurate examination of the conduct of these hotels, together with many intelligent and useful recommendations. I feel that this report will be of very definite service to me in the handling of these estates. I trust that I will be able to have the facilities of your committee in other matters now pending, as I am convinced they will be of great help to the court. I wish to compliment you on the work already accomplished and with your continued success in your endeavors. Very truly yours, ERNEST A. O'BRIEN, United States District Judge. UNITED STATES DISTRICT COURT, Mr. ADOLPH J. SABATH, House Office Building, Washington, D. C.: DEAR SIR: Your letter of recent date, tendering the service of your committee, was received. We will be glad to have the assistance of your committee in the difficult and trying matter of these corporate reorganizations. Thanking you for your kindness in writing me, I am, Yours sincerely, CHARLES B. DAVIS, United States District Judge. UNITED STATES DISTRICT COURT, Hon. ADOLPH J. SABATH, DISTRICT OF NEW JERSEY, Newark, N. J., January 24, 1936. Chairman, Select Committee to Investigate House Office Building, Washington, D. C. DEAR CONGRESSMAN SABATH: I had the pleasure of inviting your legal assistant, Mr. George Corrigan, Jr., to sit with me during the hearings on a plan of reorganization under section 77B of the Bankruptcy Act. Mr. Corrigan was of great assistance in examining into the fairness of the plan and finally, I think, in convincing the bondholders that they were being given a square deal. I had had some previous knowledge of Mr. Corrigan, but in this case I was impressed with his industry and effectiveness. In our talks together we both wondered why your committee had so far, at least, been able to do nothing in regard to the guaranty-mortgage situation in this State. I realize that you have been most usefully busy in all parts of the country. I think Mr. Corrigan can assure you that New Jersey presents a fertile field for reform. Out of our 48 guaranty-mortgage companies I understand 43 have had to be liquidated with very serious losses to the innocent investors. In the neighboring States of New York and Pennsylvania, the State authorities have done something to bring the criminally negligent directors to the bar of justice. Here, as I understand it, there has not been even an attempt at a single prosecution and the general feeling is that the improprieties and worse have been gotten away with. Our State banking department has not, so far as I can see, the slightest interest in remedying this condition and it would seem to be therefore a particularly glaring instance for the attention of your committee. Sincerely yours, Hon. A. J. SABATH, WILLIAM CLARK, United States District Judge. UNITED STATES DISTRICT COURT, Chairman, Select Committee, Washington, D. C. MY DEAR CONGRESSMAN: Thank you very much for sending me a copy of your letter to Mr. Paul Freeman, 12 South Twelfth Street, Philadelphia, Pa., which letter is dated February 3, 1936. You are quite correct in the fact that courts are compelled to rely to a great extent, upon the affidavits and exhibits submitted by attorneys, and I agree with you also that it is the duty of the attorney to present all the facts and it is likewise the duty of the court to examine each application carefully before making any allowance. I appreciate the burden which this important committee has placed on your shoulders in addition to your many other congressional duties. I can assure you that anything I can do to cooperate with you and your committee will be done to the best of my ability. With best regards, I am, Sincerely yours, ROBERT A. INCH. UNITED STATES DISTRICT COURT, Hon. A. J. SABATH, House Office Building, Washington, D. C. DEAR SIR: I have your letter of August 15, 1935, describing the work of your committee in connection with the investigation of real-estate bondholders reorganizations. I feel sure that your committee will be able to render some valuable service to the courts and to those who should be the beneficiaries of corporate reor ganizations under section 77B of the Bankruptcy Act. I will be pleased to cooperate with your committee in any way that I can. By reason of the fact that my district is comparatively rural in character I do not have so many cases of this nature to deal with as do the judges in the more populous centers. Very truly yours, FRED L. WHAM, United States District Judge. UNITED STATES DISTRICT COURT, DISTRICT OF NEW JERSEY, ADOLPH J. SABATH, House of Representatives, Washington, D. C. MY DEAR MR. SABATH: In reply to your letter of the 28th instant, relating to H. R. 12064, would say that I have hurriedly read the bill, and today I have had the privilege of consulting with Messrs. Corrigan and Garsson relating to its provisions. I have made many suggestions to them on the subject involved, and I assume you will be advised by them as to the points I have raised. I am in full accord with the major premise that it would be well to set up standing receivers, trustees, and custodians, and that the conservator, as contemplated in the bill, should have the same inquisitorial powers in bankruptcy proceedings as are now possessed by bank examiners in examining banks. With certain clarifications and changes, I feel that your bill may be whipped into such shape as ought to meet with universal approval. If I can be of any further assistance, do not hesitate to call upon me, as I, for one, am very anxious to have these matters handled in better shape. Yours truly, (Signed) GUY L. FAKE, Judge. UNITED STATES COURT, EASTERN DISTRICT OF NEW YORK, Hon. ADOLPH J. SABATH, House of Representatives, Washington, D. C. DEAR CONGRESSMAN SABATH: I wish to thank you for your letter of March 30, 1936, enclosing copy of bill H. R. 12064. I haven't had an opportunity to analyze the bill thoroughly, but I would say that I am in favor of a plan of having a conservator in bankruptcy proceedings. On February 1, 1936, I had occasion to write to Senator McAdoo, who, as you know, is chairman of the Special Committee to Investigate Receivership and Bankruptcy Proceedings and Administration of Justice in United States Courts, as follows: "The whole question of appointment of receivers and the administration of estates has placed a very difficult burden upon the courts. I rather prefer the English system. I believe that the handling of bankruptcy estates should be administrative rather than judicial. It is doubtful whether the court should be called upon to pass upon purely business matters. It seems to me that it would be better if such matters were decided by a public administrator who would be fully equipped to perform that work. He should have the power to appoint agents and investigators and such additional help as would be required in the administration of bankruptcy estates; he should have the power to subpena and be fully equipped to administer an estate. Legal questions arising in the administration could then be presented to the court for its determination. There should be a cleavage between the judicial and the business administration of a bankruptcy estate." This expresses my view on the subject of a public administrator or a conservator. It doesn't make any difference by what name such official is called. I also had occasion in that same letter to say: "I believe that there are entirely too many bankrupts discharged in bankruptcy. I think the law should be modified so that the court could grant a full or limited discharge, depending upon the circumstances. Perhaps it would be desirable to have the United States attorney or some other official appear in bankruptcy cases throughout all of its proceedings and vigorously oppose the dishonest bankruptcy proceedings. Most applications for discharge are not opposed because the creditors are disinterested or do not wish to pay for the services of an attorney. Bankruptcy laws were intended as a protection to honest debtors to relieve them of obligations which they could not pay and to give them an opportunity to rehabilitate themselves. It certainly was not intended to permit dishonest persons to receive their discharge. A United States attorney, or some other official, or a public administrator, such as I have suggested, could do much to prevent a great number of dishonest bankruptcy proceedings.' Perhaps some provision could be made in this bill or in some other bill to protect the honest debtor but to prevent the discharge of a dishonest one. I enclose herewith a copy of an opinion which I wrote on March 13, 1934, in the case of United States of America, Ex. Rel. Morrison Jackson Oswald, Jr., v. Peter McGarry, Sheriff of the County of Queens. This case illustrates the need for some change in the law with respect to discharges in bankruptcy. With kindest regards, I am Sincerely yours, (Signed) GROVER M. MOSCOWITZ |