147 F.Supp. 93 (N.D.Cal. 1956), 42807, In re Blackwood

Docket Nº42807.
Citation147 F.Supp. 93
Party NameIn the Matter of Roy R. BLACKWOOD, Bankrupt.
Case DateDecember 26, 1956
CourtUnited States District Courts, 9th Circuit, Northern District of California

Page 93

147 F.Supp. 93 (N.D.Cal. 1956)

In the Matter of Roy R. BLACKWOOD, Bankrupt.

No. 42807.

United States District Court, N.D. California, Southern Division.

Dec. 26, 1956

Judgment Affirmed March 28, 1957, See 242 F.2d 201.

Page 94

Karl V. Bledsoe, Palo Alto, Cal., for Bankrupt.

Max H. Margolis, San Francisco, Cal., for Trustee.

Edmund G. Brown, Atty. Gen., James E. Sabine, Asst. Atty. Gen., Eugene B. Jacobs, Dep. Atty. Gen., San Francisco, Cal., for State of California through its Department of Employment.

OLIVER J. CARTER, District Judge.

Blackwood filed a petition in bankruptcy on April 2, 1954, and was adjudged a bankrupt the same day. He was then indebted to nine employees for wages which had been earned within the three month period preceding the filing of the petition, and a claim for these wages was filed by the Labor Commissioner. Eleven months later a hearing was held and the Referee entered his order settling and following the Trustee's First and Final Report. The estate was only large enough to pay the expenses of administration, and a 52% dividend toward the wage claims filed. These the trustee paid, after first deducting from the wage dividend state and federal taxes of the employees.

The State of California, acting through the Department of Employment, then demanded of the trustee that he pay the tax imposed upon employers by the California Unemployment Insurance Code. This tax is based upon wages paid to employees, and becomes payable when the wages have been actually paid.

Under § 64, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 104, sub. a, the order of priority for payment of debts is (1) expenses of administration, (2) wages, (3) certain costs incurred by creditors, and (4) taxes. The estate is insufficient to pay any 4th priority tax claims, but it is the contention of the State that their claim should be classified and paid as a 1st priority expense of administration. The Trustee petitioned the Referee for instructions and was ordered not to comply with the demands of the State and the case comes here on a Petition for Review of the Referee's Order.

There is not dispute as to the basic facts, although petitioner challenges some of the facts found by the Referee. The Court has reviewed the findings of fact made by the Referee and finds that they are supported by the record. The remaining questions are questions of law arising out of interpretations of the Bankruptcy Act and the California Unemployment Insurance Code.

The Referee held that the Trustee, in paying the dividend toward the wage claims which had been filed against the estate, incurred no liability for taxes under the California statute. Section 976 of the California Unemployment Insurance Code declares that 'Employer contributions to the Unemployment Fund shall accrue and become payable

Page 95

by every employer for each calendar year with respect to wages paid for employment.' An employer is defined in § 675 as being 'any employing unit, which for some portion of a day, has within the current calendar year or had within the preceding calendar year in employment one or more individuals and pays wages for employment in excess of one hundred dollars ($100) during any calendar quarter'. An employing unit under § 135 is 'any individual * * * corporation * * * and the receiver, trustee in bankruptcy, trustee or successor thereof, * * * which has, or subsequent to January 1, 1936, had, in its employ one or more individuals performing services for it within this State'. Since the Trustee had not employed the persons to whom the wage dividend was paid, the Referee concluded that the employer's contribution did not become payable.

A similar problem was before the Court of Appeals for the Eighth Circuit in United States v. Fogarty, 8 Cir., 164 F.2d 26, 174 A.L.R. 1284, where the Trustee's liability for unemployment taxes under the Federal Social Security Act, 26 U.S.C.A. § 1400 et seq. was examined. As in this case, the Trustee paid a wage dividend toward wages which had been earned before bankruptcy and filed as a claim against the estate. The District Court, In re Inland Waterways, Inc., D.C.Minn., 71 F.Supp. 134, 136, held the tax claim invalid because 'the Trustee was not the 'employer' of these laborers as defined in Section 1621(d) of the Internal Revenue Code (26 U.S.C.A. § 1621(d)) nor did the Trustee pay these men 'wages' as defined in Section 1621(a) * * * as the laborers never rendered services to the Trustee'. But the Circuit Court reversed the holding, and held that for purposes of the unemployment tax, the Trustee stood in the shoes of the employer-bankrupt, and the reasoning of the Court in sustaining his liability is applicable...

To continue reading

Request your trial
2 practice notes
  • 246 F.2d 70 (9th Cir. 1957), 15484, Lines v. State of California, Dept. of Employment
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (9th Circuit)
    • July 8, 1957
    ...2, Remington on Bankruptcy, 797, and Vol. 6, Remington on Bankruptcy, § 2818. [3] On this point the District Court in the instant case (147 F.Supp. 93, 96) cited In re Berkshire Hardware Co., D.C., 39 F.Supp. 663, as standing for the proposition that where the tax liability has not yet accr......
  • 242 F.2d 201 (9th Cir. 1957), 15484, Lines v. State of Cal., Dept. of Employment
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (9th Circuit)
    • March 28, 1957
    ...STEPHENS, Circuit Judge. This is an appeal from a decision of the District Court in bankruptcy proceedings entitled Matter of Blackwood, 147 F.Supp. 93. Appellant is the trustee in bankruptcy. 1 We are here asked to determine whether a trustee in bankruptcy is required to Page 202 pay to th......
2 cases
  • 246 F.2d 70 (9th Cir. 1957), 15484, Lines v. State of California, Dept. of Employment
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (9th Circuit)
    • July 8, 1957
    ...2, Remington on Bankruptcy, 797, and Vol. 6, Remington on Bankruptcy, § 2818. [3] On this point the District Court in the instant case (147 F.Supp. 93, 96) cited In re Berkshire Hardware Co., D.C., 39 F.Supp. 663, as standing for the proposition that where the tax liability has not yet accr......
  • 242 F.2d 201 (9th Cir. 1957), 15484, Lines v. State of Cal., Dept. of Employment
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (9th Circuit)
    • March 28, 1957
    ...STEPHENS, Circuit Judge. This is an appeal from a decision of the District Court in bankruptcy proceedings entitled Matter of Blackwood, 147 F.Supp. 93. Appellant is the trustee in bankruptcy. 1 We are here asked to determine whether a trustee in bankruptcy is required to Page 202 pay to th......