329 U.S. 362 (1946), 35, Illinois ex rel. Gordon v. Campbell
|Docket Nº:||No. 35|
|Citation:||329 U.S. 362, 67 S.Ct. 340, 91 L.Ed. 348|
|Party Name:||Illinois ex rel. Gordon v. Campbell|
|Case Date:||December 23, 1946|
|Court:||United States Supreme Court|
Argued March 28, 1946
Reargued November 19, 1946
CERTIORARI TO THE SUPREME COURT OF ILLINOIS
Having filed notice of a lien for state unemployment compensation taxes under Jones Ill.Stat.Ann., 1944, § 45.154, creating a lien "upon all the personal property" of an employer "used by him in connection with his . . . business," the state Director of Labor brought suit in a state court to enforce the lien, alleging that the employer was insolvent and that a creditor had obtained judgment and execution against him subsequent to the filing of notice of the lien. The court enjoined all creditors from interfering with the employer's property and appointed a receiver, who took charge of all his assets. Thereafter, the Collector of Internal Revenue filed claims on behalf of the United States for federal social security taxes
under § 1400 of the Internal Revenue Code and an intervening petition alleging that the debtor was insolvent, and claiming priority of payment. The receiver liquidated all of the debtors assets and realized less than enough to satisfy the claims of creditors.
1. Under R.S. § 3466, a claim of the United States for social security taxes under § 1400 of the Internal Revenue Code takes priority over a claim of a State for taxes under a state Unemployment Compensation Act. Illinois v. United States, 328 U.S. 8. Pp. 366-367.
2. The receiver having been placed in control of all the debtor's assets and having liquidated all of them, and another creditor having intervened, the proceeding must be treated as a general equity receivership. Pp. 368-369.
3. The debtor being insolvent, and a receiver having been appointed to take charge of his property, an act of bankruptcy was committed within the meaning of § 3 of the Bankruptcy Act, thus entitling the United States to the priority given by R.S. § 3466. Pp. 367-370.
4. Under Jones Ill.Stat.Ann., 1944, § 45.154(e), making it unnecessary for the Director of Labor to describe the property to which the lien is to attach and requiring the employer to file a schedule of "all personal property . . . used in connection with his . . . business," the Illinois lien was not sufficiently specific or perfected to defeat the priority of the United States, since neither the notice of lien nor the appointment of the receiver made definite and certain the property to which the lien was to attach. Pp. 370-376.
In a suit by the Director of Labor of Illinois to enforce a lien for unemployment compensation contributions due the State, a general equity receiver was appointed, and the Collector of Internal Revenue intervened and filed a claim for social security taxes due the United States, claiming priority of payment under R.S. § 3466. The Illinois Supreme Court held that the United States was entitled to priority. 391 Ill. 29, 62 N.E.2d 537. This Court granted certiorari, 327 U.S. 772, and, after hearing argument and disposing of a companion case ( Illinois v. United States, 328 U.S. 8), restored the case to the docket for reargument before a full bench. Affirmed, p. 376.
RUTLEDGE, J., lead opinion
MR. JUSTICE RUTLEDGE delivered the opinion of the Court.
This case was companion to Illinois ex rel. Gordon v. United States, 328 U.S. 8, decided last term, but brings for settlement other problems raised by a conflict of claims between the United States and the State of Illinois. The conflict concerns whether one or the other claimant is entitled to priority of payment from assets of a common debtor. The Illinois Supreme Court dealt with both cases in a single opinion. 391 Ill. 29, 62 N.E.2d 537. Certiorari was granted in each. 327 U.S. 771; 327 U.S. 772. On the same day that Illinois ex rel. Gordon v. United States, supra, was decided, this case was restored to the docket and assigned for reargument before a full bench because of the presence of the questions not determined by that decision.
The controversy arose on June 29, 1942, when the Director of Labor of Illinois brought suit in the Circuit Court of Cook County, Illinois, to enforce against the Chicago Waste and Textile Company a statutory lien for unemployment compensation contributions due the state. Associated Agencies, Inc.,1 was a creditor of the Chicago Waste and Textile Company. In his complaint, the Director alleged that Associated Agencies had obtained a judgment against its debtor in the Municipal Court of Chicago,
and that execution had issued on this judgment June 3, 1942, but that the interest of Associated Agencies was subordinate to that of the lien sought to be foreclosed. This
for the reason that the execution upon said judgment was issued long after notice of the lien of the Director of Labor was recorded with the Recorder of Deeds.2
The Director alleged further upon information and belief that the Chicago Waste and Textile Company was insolvent, and that
the personal property subject to the lien herein being foreclosed is scant security for the debt due the Director of Labor . . . , and that, unless a receiver be appointed for all of said property pending a full and complete hearing upon the issues herein, the plaintiff will suffer financial loss and said property will be wasted.
Granting the immediate relief requested, the Circuit Court enjoined all creditors of the Chicago Waste and Textile Company from interfering with the property of the company, whether by judicial action3 or otherwise, and also appointed a receiver "for the property of the Chicago Waste and Textile Company."
Subsequently, respondent, the Collector of Internal Revenue for the First District of Illinois, filed claims on behalf of the United States amounting to $1,954.07 plus interest. Of this amount, $522.91 was for federal insurance contribution taxes and $1,431.16 was for federal unemployment taxes. Of the federal insurance contribution taxes, $229.91 represented employees' taxes, see Helvering v. Davis, 301 U.S. 619, collected by the employer under statutory
withholding provisions. I.R.C. §§ 1400, 1401. The Collector also filed an intervening petition, alleging [67 S.Ct. 343] that the debtor was insolvent and asking that the claims of the United States be allowed as claims entitled to priority of payment immediately after costs of administration and before payment of other creditors. The Director of Labor answered, denying that the claims of the United States were entitled to priority over the claims of Illinois.
The receiver realized $677.81 from sale of the debtor's property, and this amount was deposited with the clerk of the Circuit Court. A hearing was held, and the court ordered that ninety percent of the funds on deposit be given to the Director of Labor and the other ten percent to the United States. The Collector appealed to the Appellate Court for the First District. On motion of the appellee, the cause was transferred to the Supreme Court of Illinois on jurisdictional grounds.
The state Supreme Court held that the United States was entitled to priority over the State of Illinois Illinois as to its claim for federal insurance contribution taxes.4 Whether it was correct to award this priority is the issue we now have to decide.
Illinois ex rel. Gordon v. United States, 328 U.S. 8, held that, in circumstances which called into application Rev.Stat. § 3466, 31 U.S.C. § 191, the claims of the United States for federal insurance contributions taxes under Title 8 of the Social Security Act, 49 Stat. 620, 636, and for federal unemployment compensation taxes under Title 9 of the Social Security Act, 49 Stat. at 639, had priority over claims of Illinois for taxes under its Unemployment
Compensation Act.5 That decision is controlling, of course, upon the same feature of this case, although the federal insurance contributions taxes claimed by the United States arise under the 1939 amendments of the Social Security Act, rather than, as in the case last term, under the original act itself. Compare §§ 801, 802, 804, 807(c) of the original Social Security Act, 49 Stat. 620, with §§ 1400, 1401, 1410, and 1430 of the Internal Revenue Code, 53 Stat. 175 as amended by 53 Stat. 1381.
But the state urges that § 3466 does not apply in the facts of this case. This argument, as well as another -- that the lien of the state was so specific and perfected as to defeat the priority, if any, of the United States under Rev.Stat. § 3466 -- must be met before the case can be affirmed [67 S.Ct. 344] on the authority of Illinois ex rel. Gordon v. United States, supra.
Rev.Stat. § 3466 provides:
Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or
administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied, and the priority established shall extend as well to cases...
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