998 F.2d 338 (6th Cir. 1993), 92-3423, In re Suburban Motor Freight

Docket Nº:92-3423.
Citation:998 F.2d 338
Party Name:In re SUBURBAN MOTOR FREIGHT, INC., Debtor. Stephen K. YODER, Trustee, Plaintiff-Appellant, v. OHIO BUREAU OF WORKERS' COMPENSATION, Defendant-Appellee.
Case Date:June 29, 1993
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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998 F.2d 338 (6th Cir. 1993)


Stephen K. YODER, Trustee, Plaintiff-Appellant,



No. 92-3423.

United States Court of Appeals, Sixth Circuit

June 29, 1993

Argued Dec. 4, 1992.

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Quintin F. Lindsmith (argued and briefed), Harry Wright, IV (briefed), Bricker & Eckler, Columbus, OH, for plaintiff-appellant.

Gregory S. Severance (argued), Office of the Atty. Gen. of Ohio, Larry Rhodebeck (briefed), Columbus, OH, for defendant-appellee.

Before: MILBURN and BATCHELDER, Circuit Judges, and LIVELY, Senior Circuit Judge.

BATCHELDER, Circuit Judge.


Suburban Motor Freight went into bankruptcy owing premiums to the Ohio Bureau of Workers' Compensation. When the Bureau filed a proof of claim classifying the unpaid premiums as excise taxes under 11 U.S.C. § 507, the Trustee, Stephen Yoder, filed an objection, maintaining that these premiums were in fact fees, and not entitled to priority. The Bankruptcy Court found that the premiums were entitled to priority status, 134 B.R. 617, and the District Court affirmed, 156 B.R. 790. The Trustee appeals; we affirm.


The Bankruptcy Code 1 gives priority to certain "allowed unsecured claims of governmental units"; among other things, it gives priority to "an excise tax on ... a [prepetition] transaction." 11 U.S.C. § 507(a)(7)(E). The Code does not grant "governmental units" priority on all of their claims against debtors, however; creditors of all stripes must directly tie their priority claims to specific provisions of the statute. United States v. Embassy Restaurant, Inc., 359 U.S. 29, 79 S.Ct. 554, 3 L.Ed.2d 601 (1959).

For the purposes of priority under the Bankruptcy Act, the Supreme Court in 1941 defined taxes 2 as including

those pecuniary burdens laid upon individuals or their property, regardless of consent, for the purpose of defraying the expenses of government or of undertakings authorized by it.

City of New York v. Feiring, 313 U.S. 283, 285, 61 S.Ct. 1028, 1029, 85 L.Ed. 1333 (1941). The Court has defined "fees" for

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bankruptcy purposes as monies being paid to the Government "incident to a voluntary act" such as applying to the bar or obtaining a broadcast license, since such payments "bestow[ ] a benefit on the applicant, not shared by other members of society." National Cable Television Ass'n, Inc. v. United States, 415 U.S. 336, 340-41, 94 S.Ct. 1146, 1149, 39 L.Ed.2d 370 (1974). The question is one of Federal law; state characterizations of workers' compensation premiums, whether judicial or legislative, have no binding effect on how such premiums must be characterized for bankruptcy purposes. Feiring, 313 U.S. at 285, 61 S.Ct. at 1029.

The courts have disagreed as to whether a bankrupt's unpaid workers' compensation premiums constitute "excise taxes" which the Government may collect from the estate ahead of other creditors. 3 Courts which have looked at the issue in the context of the Ohio workers' compensation system have generally held unpaid premiums to be taxes, see In re Carlton Enterprises, Inc., 103 B.R. 876 (Bankr.N.D.Ohio 1989); In re Tri-Manufacturing and Sales Co., 82 B.R. 58 (Bankr.S.D.Ohio, W.Div.1988); In re Primeline Industries, Inc., 103 B.R. 861 (Bankr.N.D.Ohio 1987); In re International Automated Machines, Inc., 9 B.R. 575 (Bankr.N.D.Ohio, W.Div.1981); with only one exception, see In re Smith Jones, Inc., 36 B.R. 408 (Bankr.D.Minn.1984). Even though the result generally has been the same from case to case, the reasoning behind these decisions has unfortunately lacked consistency.

The Circuits which have looked at this issue have disagreed as to whether workers' compensation premiums are entitled to priority. Largely, their conclusions have turned on whether an individual State's program is monopolistic, requiring the participation of all employers operating within the State, or whether the state system merely "competes" with private insurers or requires employers to get private insurance. Compare...

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