American Guaranty Corporation v. United States

• Decision Date: 18 October 1968
• Docket Number: No. 408-66.,408-66.
• Citation: 185 Ct. Cl. 502,401 F.2d 1004
• Parties: AMERICAN GUARANTY CORPORATION and Harry H. Burton, Receiver v. The UNITED STATES.
• Court: U.S. Claims Court

185 Ct. Cl. 502, 401 F.2d 1004 (1968)

AMERICAN GUARANTY CORPORATION and Harry H. Burton, Receiver v. The UNITED STATES.

No. 408-66.

United States Court of Claims.

October 18, 1968.

George E. McMurray, Jr., Washington, D. C., attorney of record, for plaintiffs; W. John Kenney, Washington, D. C.; Claude R. Branch, Providence, R. I.; and Anthony Zell Roisman, Washington, D. C., of counsel.

James G. Greilsheimer, with whom was Asst. Atty. Gen. Edwin L. Weisl, Jr., for defendant. Edward Weintraub, Washington, D. C., of counsel.

Before LARAMORE, Acting Chief Judge, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges.

DURFEE, Judge.

Plaintiff filed a voluntary petition under Chapter XI of the Bankruptcy Act to effect an arrangement with its creditors, which was subsequently confirmed by the District Court. As part of the expense of the bankruptcy proceedings, plaintiff was required to deposit $141,077.11 for additional fees for the Referees' Salary and Expense Fund. This sum was computed at one percent of the face amount of debts paid in cash in distribution to creditors under the Bankruptcy Act.

Plaintiff now seeks to recover the amount of additional fees it deposited in the Bankruptcy Court on the ground that the one percent fee schedule promulgated by the United States Judicial Conference was not a "graduated" fee as required by the Act.

Plaintiff has already presented its case to the District Court, where it was dismissed for lack of jurisdiction because it was an action against the United States to which the Government had not consented. The Court of Appeals for the First Circuit affirmed dismissal below on the same jurisdictional ground, and also concluded that "whether the case is to be disposed of on the issue of jurisdiction or treated on the merits, the District Court was correct in dismissing the action against all defendants". We first determine that plaintiff is not barred or estopped by the doctrine of res judicata, inasmuch as both the District Court and the Court of Appeals have found that they had no jurisdiction of the action. See, American Guaranty Corp. v. Burton, et al., 1 Cir., 380 F.2d 789 (1967). Accordingly, plaintiff is not barred by res judicata by virtue of that suit. United States v. United States Fidelity & Guaranty Co., et al., 309 U.S. 506, 60 S.Ct. 653, 84 L.Ed. 894 (1940). See generally, Restatement of the Law, Judgments, § 49, Comment C:

* * * If, however, the court decides that it has no jurisdiction over the defendant and also that no cause of action is shown, the latter decision is so clearly unnecessary to the result that it is not a bar to a subsequent action in a different court.

The money in question represented fees authorized by the Bankruptcy Act to be collected for the Referees' Salary and Expense Fund. 11 U.S.C. § 68(c) (2), and determined thereunder by the Judicial Conference of the United States. 11 U.S.C. § 65(b) (1). The purpose of such fees is to bear the costs and expenses to the Government of the proceedings. 11 U.S.C. § 737(2). As of the time involved in this action, the fees set by the Conference pursuant to the statute providing for a "graduated" fee were one percent (1%) of the total obligations paid or extended in a Chapter XI arrangement proceeding. The validity of these fees for the referees' fund is challenged by plaintiff and asserted to be void, invalid, and of no effect because it established a "fixed fee" not in any way "graduated" as required by the enabling statute.

Section 11 U.S.C. § 65(b) (1) authorizes the Judicial Conference to determine, among other requirements, "* * * schedules of graduated additional fees to be charged in * * * arrangement * * * cases." * * * Emphasis supplied.

The decision of the Court of Appeals First Circuit on this same factual and legal issue, while not binding on us as res judicata because of the court's lack of jurisdiction, is nevertheless cogent and persuasive:

We do not find the clear purport in the word "graduated" that plaintiff finds. We grant that in common parlance the phrase "graduated income tax" connotes the idea of progressivity. But we find the word defined as:

"* * * 2a: marked with or divided into degrees: divided into or arranged in grades, steps, or successive levels usu. * * * proportional to the size of a taxable base * * *." Webster\'s Third New International Dictionary 985 (unabridged ed. 1966). American Guaranty Corporation v. Burton, Receiver, et al., 1 Cir., 380 F.2d 789 (1967) at p. 792.

Although plaintiff asserts that the definition in Webster's Dictionary relied upon by the Court of Appeals is in error, as evidenced by the affidavit of the dictionary publisher, the affidavit fails to point out any specific error in the definition of "graduated" accepted by the Court of Appeals.

The court added, at p. 792:

And we note the distinction between the statutory "graduated * * * fees" and "graduated rates". The former is the progressive product of a static rate and changing amounts; the latter, of progressive rates and changing amounts. When we view the statute, 11 U.S.C. § 65(b) (1), we find that the first reference to additional fees is in the context of the initial surveys of the need for bankruptcy referees to be made by the Director of the Administrative Office of the United States Courts. The statute requires that he shall report to the Conference concerning "the schedules of additional fees to be charged in * * * arrangement * * * cases." Only later comes a solitary reference to the Conference\'s duty to determine "graduated" additional fees. The key adjective is absent in 11 U.S.C. §§ 68 and 79.

The statute directs that it is the "fee", the dollar amount paid into the referees' fund by the debtor, which is "graduated". Under the one percent schedule determined by the Judicial Conference, these fees will vary in accordance with the amount of debts paid or extended in the proceedings, i. e., the larger the obligation paid by the debtor, the larger the additional one percent fee due the referees' fund. This method of computation certainly does not result in a flat fee, fixed in amount without regard to the size of the estate in arrangement, such as the $32.00 filing fee imposed in every bankruptcy case by 11 U.S.C. § 68 (c) (1); it results in a fee graduated in amount according to the amount of the obligations paid or extended in the proceeding.

The interpretation of "graduated additional fees" by the United States Judicial Conference, is entitled to great weight, since the Conference was delegated by the Congress with the responsibility for establishing such fees under the statute.

This court in its recent decision in Crawford et al. v. United States, 376 F.2d 266 at p. 274, 179 Ct.Cl. 128, at p. 142 (1967), cert. den. 389 U.S. 1041, 88 S.Ct. 781, 19 L.Ed.2d 831 (1968), stated:

These circumstances call for application of the rule that administrative practice consistent and generally unchallenged "has peculiar weight when it involves a contemporaneous construction of a statute by the men charged with the responsibility of setting its machinery in motion, of making the parts work efficiently and smoothly while they are yet untried and new." * * *

In Udall v. Tallman et al., 380 U.S. 1, at p. 16, 85 S.Ct. 792 at p. 801, 13 L.Ed. 2d 616 (1965), Supreme Court stated:

When faced with a problem of statutory construction, this Court shows great deference to the interpretation given the statute by the officers or agency charged with its administration. * * *

Although the Schedule of Fees and Charges was changed in 1966 to provide under Part II thereof, changes in the percentages on total obligations paid or extended, to be used in computing additional fees under 11 U.S.C. § 65(b) (1) for three different periods of time since 1947, this was not a change in the interpretation of "graduated fees" by the Conference, and was not retroactive.¹ When it became apparent in 1966 that there was over $10 million in the Referees' Fund which was more than sufficient to pay referees' salaries and expenses and other authorized expenditures, the Conference merely changed the amount of percentages to be used in computing graduated fees under the new schedule.

There has been no material change by Congress in the provisions of the statute as to graduated fees in arrangement cases since 1946. The legislative history at that time is significant. The Report of the Senate Committee on Judiciary accompanying this legislation, stated:

The bill contemplates a simplified system based upon two essential levies: (1) a fixed filing fee, and (2) an additional fixed charge in asset, arrangement, and wage-earner cases according to the size of the estate. These charges will replace the present varied and often complex ones. S.Rep. No. 959, 79th Cong., 2d Sess., U.S.Code Cong. Serv., p. 1235 (1946). Emphasis supplied.

The House Judiciary Committee interpreted graduated fees in its Report, as follows:

The bill contemplates a simplified system based upon two essential levies: (1) a fixed filing fee and (2) an additional fixed charge in asset, arrangement and wage-earner cases graduated according to the size of the estate. H. Report No. 2666, 77th Cong., 2d Sess., p. 17. Emphasis supplied.

The Judicial Conference construed a "graduated" fee (as opposed to a "fixed" or flat fee) to be one that changes in amount as the amount of debts in the bankrupt estate under arrangement, changes in total amount. By computing the fee at one percent of this amount, the fee is "graduated" according to the total amount of obligations paid or extended in a Chapter XI arrangement proceeding.

An impressive array of contrary opinion was offered by plaintiff from expert lexicographers and etymologist, as to the exact meaning and definition of the word "graduated", when used in connection with computing legal fees.

Justice Holmes has given us a classic and more flexible definition when he said:²

* * * A word is not a crystal,

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