246 F.2d 70 (9th Cir. 1957), 15484, Lines v. State of California, Dept. of Employment

Docket Nº15484.
Citation246 F.2d 70
Party NameKal W. LINES, Appellant, v. STATE OF CALIFORNIA, DEPARTMENT OF EMPLOYMENT, Appellee.
Case DateJuly 08, 1957
CourtUnited States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 70

246 F.2d 70 (9th Cir. 1957)

Kal W. LINES, Appellant,

v.

STATE OF CALIFORNIA, DEPARTMENT OF EMPLOYMENT, Appellee.

No. 15484.

United States Court of Appeals, Ninth Circuit.

July 8, 1957

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

Edmund G. Brown, Atty., Gen., James E. Sabine and Eugene B. Jacobs, Deputy Attys. Gen., Irv Shore, Atty., Labor Commission, State of California, San Francisco, Cal., for appellee.

Before STEPHENS, POPE and HAMLEY, Circuit Judges.

STEPHENS, Circuit Judge.

On March 28, 1957, this Court rendered an opinion in this case affirming the judgment of the District Court in which it was held that a trustee in bankruptcy is required to pay to the State of California, Department of Employment, the tax imposed upon employers by the California Unemployment Insurance Code on wages which had been earned, but not paid at the time of bankruptcy, by employees of the bankrupt within the three month period preceding the filing of the bankruptcy petition. See Lines v. State of California, Department of Employment, 9 Cir., 242 F.2d 201.

Page 71

A petition for rehearing was filed by appellant trustee. In addition, the Labor Commissioner of the State of California filed an amicus curiae brief in support of the Trustee's petition for rehearing. We entered an order in the following words:

'The Labor Commissioner of the State of California appears to be a California official separate and apart from the appellee, State of California, Department of Employment, and, as such commissioner, has filed a petition as a friend of the Court in support of the petition for rehearing.

'Inasmuch as the points raised indicate divergent views by officials of the State of California relating to the same subject matter, and inasmuch as the case was submitted to us without oral argument, we deem it appropriate to and we do now order:

'That the petition for a rehearing be set down for oral argument on the 11th of June, 1957, and that the Labor Commissioner or his attorney be, and hereby is, invited to participate therein as the friend of the Court.'

Appellee, Department of Employment, filed a brief June 10, 1957, and the appellant Trustee filed a brief June 19, 1957, subsequent to oral argument. We now discuss the case based on the briefs, petitioners and oral argument, and the opinion filed March 28, 1957, is hereby amended by adding the following.

We discuss only one point, 1 and that is whether we are correct, in holding that the employer's tax on wages, earned within the three month period preceding the filing of the bankruptcy petition but not paid prior to bankruptcy, is correctly held to be an expense of administration and thus entitled to first priority under § 64, sub. a of the Bankruptcy Act, Title 11 U.S.C.A. § 104 sub. a.

The trustee initially argues that our earlier opinion is inconsistent with the opinion of this Court in Diamond Laundry Corp. v. California Employment Stabilization Commission, 9 Cir., 1947, 162 F.2d 398. In that case we held that contributions of an employer under the California Unemployment Insurance Act, West's Ann.Unempl.Ins.Code, § 1 et seq. constituted taxes. 2

The Trustee argues that this is inconsistent with our holding in the instant case that such 'taxes' are 'expenses of administration.' We fail to see any inconsistency. In Diamond Laundry, the wages had been paid. A claim can be called a 'tax' and yet at the same time take on the character of an expense of administration due to the facts giving rise to the creation of such tax. We merely held in our earlier opinion that because the employer's tax accrued subsequent to the filing of the petition in bankruptcy, such tax had the character of an expense of administration; and thus was entitled to a first priority. In the instant case, the Trustee did not operate or run the business. The Trustee admits that if he had run the business, taxes accruing during his operation would be entitled to be classified as expenses of administration. Any inconsistency is in the Trustee's argument.

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