Eli Gingold, Syracuse, N. Y. (Victor Levine, Syracuse, N. Y., on the brief), for petitioner-appellant.

Gorman & Waszkiewicz, Utica, N. Y. (Alexander H. Rockmore, New York City, on the brief), for respondent-appellee.

Before WATERMAN and SMITH, Circuit Judges, and LEVET,* District Judge.

LEVET, District Judge:

This is an appeal by Herman Dubnoff from an order of Judge Edmund Port of the Northern District of New York, dated March 10, 1967, which disposed of appellant's petition seeking an order (a) prohibiting the respondent, Hon. David J. Goldstein, Referee in Bankruptcy in the United States District Court for the Northern District of New York, from acting any further in the proceedings on remand in McNellis v. Dubnoff, 367 F.2d 513 (2nd Cir. 1966) on the ground that the respondent-Referee was indirectly interested in said bankruptcy proceeding; (b) removing the said respondent for misconduct; and (c) granting such other and further relief as may be just and proper.

The primary basis alleged by appellant for the relief sought was that the Referee was claimed to have violated Title 11 U. S.C. § 67(b) (Section 39 of the Bankruptcy Act), providing that "Referees shall not * * * act in cases in which they are directly or indirectly interested * * *."

The violation of Section 67(b) alleged was that the Referee had authorized the appointment of the law firm of Smith & Sovik as special counsel for Phillip J. McNellis, Trustee in Bankruptcy of Donald S. Potter, a bankrupt, and that the Referee impliedly had an indirect interest in the case because of the benefits purportedly derived by his son by way of commissions on the sale of insurance policies to the Smith & Sovik firm.

This contention of Dubnoff consisted of allegations that prior to the trial on remand before the Referee, his attorney "heard" that the Sovik firm had purchased seven or eight years before from the respondent's son a group life insurance policy on the lives of the members of the Sovik firm, its staff and its employees consisting of "14 attorneys, 9 stenographers, a bookkeeper and a receptionist." (Pars. 9 and 10 of petition; Appellant's Appendix, 6a) Paragraph 16 of the petition alleged as follows:

"16. * * * that the premiums payable on the said group life insurance policy are very large, and that the respondent's son derives a large periodic income as his share of the said income, and this income will cease if the Sovik firm cancels said policy. * * *"

Paragraph 18 of the petition alleged as follows:

"18. The petitioner and his attorney have received information also that the respondent has been soliciting life insurance business for his son from lawyers actively practicing before the respondent and that this solicitation comes at a time when the lawyers are making applications for allowances."

At a hearing in the proceedings above mentioned on January 3, 1967, Victor Levine, Esq., counsel for Dubnoff, called this "information" to the attention of the Referee (see Minutes, Appellant's Appendix, 15a) and endeavored to submit evidence in reference to the sale of life insurance to the Sovik firm (Appellant's Appendix, 18a). To this end Levine examined Sovik, who answered three questions. At that point Sovik refused to answer further queries and was sustained by the Referee (Appellant's Appendix, 19a).1

The Referee thereupon commented: "Is there anything wrong with my son earning a living?" and directed Levine to move to disqualify him (Appellant's Appendix, 21a, 26a). In turn, Sovik, for some reason, threatened to prefer "charges" against Levine (Appellant's Appendix, 24a). Levine demanded a record of "all the details of that transaction." The Referee refused, saying: "If the Referee is disqualified, he isn't going to take any of this testimony. You get yourself another Referee. You asked for it" (Appellant's Appendix, 32a). Later in the hearing the Referee offered to take the testimony if Levine stipulated that the Court had a right to do so (Appellant's Appendix, 33a). After some scolding of Levine, the Referee stated that Levine might file an affidavit of disqualification (Appellant's Appendix, 35a) by Thursday (apparently January 5, 1967). By a letter written the same day, but after the hearing, the Referee directed that "the hearing" continue on January 6, 1967 and that appellant should file his affidavit (Appellant's Appendix, 7a, 8a).

On February 3, 1967, Judge Port, upon appellant's petition, signed an order requiring the Referee to show cause on February 13, 1967 why Dubnoff should not have the relief hereinabove mentioned (Appellant's Appendix, 3a-4a). Upon a countering petition of the Referee, dated February 6, 1967, Judge Port signed an order dated February 7, 1967 requiring Dubnoff to show cause on the same return date why the order to show cause signed for appellant on February 3, 1967 should not be vacated and "quashed" and the proceedings dismissed (Appellant's Appendix, 41a).

On February 13, 1967, lengthy arguments of the conflicting motions took place before Judge Port, and on March 10, 1967 the Judge signed a dispositive order which, in substance:

(1) vacated that part of the appellant's show cause order of February 3, 1967 which directed respondent-Referee to show cause why he should not be removed for misconduct;

(2) expunged from the District Court's records the portions of the appellant's motion with reference to that part of the show cause order of appellant dated February 3, 1967, relative to removal, which had been vacated in (1) above, and sealed all papers filed on both appellant's and appellee's said respective motions as to removal;

(3) denied appellee's motion insofar as it requested a vacation of the balance of appellant's order to show cause of February 3, 1967, but

(4) denied the motion of appellant to prohibit the Referee-appellee from acting because of "interest."

Unfortunately, the "hearing" before the Referee with respect to his alleged interest under Section 67(b) appears to have been halted by the Referee himself and, hence, never to have resulted in any definitive determination by the Referee.

The District Court filed no findings of fact, no conclusions of law and no opinion and only from an examination of the lengthy record of argument, from which we are forced to quote extensively, are we able to ascertain the Court's views. In a bankruptcy case, the scope of this Court's review is limited to the record and to that which was presented below. Fortner & Perrin, Inc. v. Smith, 327 F.2d 801, 809 (9th Cir. 1964). We are compelled to observe that the District Judge had an inadequate record before him since the Referee himself had limited it.

I.

Interest — Title 11 U.S.C. § 67(b)

This section in its pertinent part is as follows:

"(b) Referees shall not * * * act in cases in which they are directly or indirectly interested * * *."

We agree with the two Circuits which have considered the matter that 28 U.S.C. § 144 referring to disqualification of a "judge" does not apply to disqualification proceedings brought against bankruptcy referees. Ginger v. Cohn, 255 F.2d 99 (6th Cir. 1958); Fish v. East, 114 F.2d 177 (10th Cir. 1940). See In re J. P. Linahan, 138 F.2d 650, 651 n. 3 (2nd Cir. 1943) in which we left open the question of the applicability of Section 144's predecessor to a special master. Even though Section 144 is not applicable by its terms, practice under that section is germane to a proceeding against a referee. See In re McFerren, 5 F. Supp. 180, 181 (E.D.Ill.1933); 2 Collier on Bankruptcy, ¶ 39.13 (1966).

Practices under Section 144 are as follows:

(1) The trial court has a duty to pass on the application and is required to assume the truth of the affidavit submitted if accompanied by counsel's certificate of good faith. Green v. Murphy, 259 F.2d 591, 593 (3rd Cir. 1958); Albert v. United States District Judge for Western District of Michigan, 283 F.2d 61 (6th Cir. 1960), cert. denied, 365 U.S. 828, 81 S. Ct. 713, 5 L. Ed. 2d 706 (1961); Simmons v. United States, 302 F.2d 71, 75 (3rd Cir. 1962); United States v. Bell, 351 F.2d 868, 878 (6th Cir. 1965), cert. denied, 383 U.S. 947, 86 S. Ct. 1200, 16 L. Ed. 2d 210 (1966). See also United States v. Hoffa, 245 F. Supp. 772 (E.D. Tenn. 1965).

(2) A determination of a District Judge not to disqualify himself is ordinarily reviewable only upon appeal from a final decision on the cause in which the application by affidavit was filed. 28 U.S.C. §§ 144, 1291, 1292; Collier v. Picard, 237 F.2d 234 (6th Cir. 1956); Green v. Murphy, 259 F.2d 591 (3rd Cir. 1958); Rosen v. Sugarman, 357 F.2d 794 (2nd Cir. 1966). See also Freed v. Inland Empire Insurance Company, 174 F. Supp. 458, 465 (D.Utah 1959); Baltuff v. United States, 35 F.2d 507 (9th Cir. 1929).

No other tribunal is provided for the initial determination of "interest" of a referee under Section 67(b). The proof of any alleged "interest" perforce must be developed by affidavits or, if necessary, by testimony of witnesses or other evidence. Sovik presumably had knowledge of the alleged facts. The Referee closed the door to such elicitation from a witness by barring Levine from interrogation.

In respect to the "interest" problem, Judge Port commented to Levine: "* * * you wanted to examine concerning possible bias of the Referee * * *" (Appellant's Appendix 59a), and, again, addressing Levine, said: "* * * your purpose obviously and statedly so was to get this immaterial matter in the record so that a reviewing court would change the standard of affirming or reversing the Referee's findings as to whether or not the record supports it in the light of this extraneous evidence * * *" (Appellant's Appendix 60a).

Judge Port further stated that "the Referee has passed, I believe, on the question of his interest"2 and "I am not concerned at this point with the merits, with what I should do as to the disposition of that, I am concerned as I was in the initial instance with whether or not the order to show cause which I granted bringing this matter on was improvident or illegal" (Appellant's Appendix, 63a-64a). Without stating reasons, the Judge indicated, however, that the questions asked by Levine at the hearing before the Referee were not in order (Appellant's Appendix, 79a).

Thus, the District Court implied that there was no dispute about the facts (Appellant's Appendix, 86a). The Judge said that the Referee had the burden of deciding, on the facts, whether there was interest (Appellant's Appendix, 90a). The District Court denied the request for an order of writ of prohibition or mandamus prohibiting the respondent-Referee from acting any further in the bankruptcy proceeding on the grounds of indirect interest.

It is our opinion that the Referee was required to take appellant's proof as to any alleged interest under Section 67(b), ordinarily to assume its factual truth and to rule on its legal sufficiency. This is, we believe, the duty of the Referee in the first instance as a trial tribunal, a duty which, though distasteful, may not be avoided.

We do not intend hereby to determine or to intimate the sufficiency or insufficiency of the totality of any facts which were submitted or which may be supplied with respect to alleged "interest." However, we believe that the appellant is entitled, under primary rules of judicial administration, to submit whatever appropriate proof he may have and to secure a definitive ruling by the Referee on its sufficiency.

The jurisdiction of the Court of Appeals in bankruptcy matters is governed by Title 11 U.S.C. § 47(a). Unless the order sought to be reviewed determines with finality any substantive issue in dispute, it is not reviewable. Dutch American Mercantile Corporation v. Eighteenth Ave. Land Co., 302 F.2d 636, 637 (2nd Cir. 1962).

Smith, C. J., in Lesser v. Migden, 328 F.2d 47, 48 (2nd Cir. 1964) wrote: