Bowen v. Hockley

• Decision Date: 11 June 1934
• Docket Number: No. 3581.,3581.
• Parties: BOWEN v. HOCKLEY et al.
• Court: U.S. Court of Appeals — Fourth Circuit

71 F.2d 781 (1934)

BOWEN v. HOCKLEY et al.

No. 3581.

Circuit Court of Appeals, Fourth Circuit.

June 11, 1934.

H. Hamilton Hackney and Washington Bowie, Jr., both of Baltimore, Md., for appellant.

G. Ridgely Sappington, of Baltimore, Md. (Wilson K. Barnes, of Baltimore, Md., on the brief), for appellees.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from an order denying a petition that the receivers of the Davison Chemical Company be directed to continue the payment of weekly compensation awarded against the company by the State Industrial Accident Commission of Maryland. Petitioner's husband died as the result of injuries received in the service of the company, which was a "self-insurer" under the Maryland Workmen's Compensation Act, and on January 30, 1932, an order was entered by the State Industrial Accident Commission awarding her under the act the sum of $5,000, or $18 per week for 2777/9 weeks beginning December 15, 1931. The compensation thus awarded was regularly paid by the company until February 13, 1933, when it was placed in the hands of receivers in a suit brought by a general creditor and a stockholder; but, although its business has been continued since that date by the receivers appointed, no further payments of compensation have been made to her. She filed petition on July 1, 1933, asking that the receivers be required to continue the payments. The court denied the petition on the ground that the Maryland statute gave no lien or preferential status to awards of compensation, and petitioner has appealed.

The statute in question, Bagby's Annotated Code of Maryland 1924, article 101, § 15, provides three optional plans for securing the payment of compensation awards to injured employees: (1) Insurance in the state accident fund, (2) insurance by private corporate insurers, and (3) the furnishing of satisfactory proof to the commission of the employer's financial ability to pay such compensation himself, in which case the commission may require him to deposit securities to secure his liability for the payment of the compensation specified under the act. No provision of the act gives any lien for the compensation awarded or any priority against the assets of an insolvent. The company here proceeded under the third provision and gave a bond, which is said to be inadequate to cover all the claims for compensation of injured employees.

As stated above, receivers were appointed for the company on February 13, 1933, on a bill filed by a general creditor and a stockholder. The bill alleged that the company had an outstanding indebtedness of exceeding $9,000,000, which it was unable to pay in the ordinary course of business, but averred that it had property of a value more than sufficient to pay its debts if the business were continued as a going concern. It was further averred that if the property of the company were sold under executions to satisfy the claims of creditors, it would not bring its true value or a sufficient amount to satisfy the claims of creditors, and that it was to the interest of creditors and stockholders to have the business of the company continued by receivers of the court and its going concern value thus preserved until such time as it could be sold as an entirety. The company filed answer admitting the allegations of the bill and consenting to the appointment of receivers as prayed; and an order was entered appointing receivers, empowering them to continue the operation of the business, enjoining interference with the receivership estate, and containing generally the provisions usually embodied in orders creating an operating receivership.

From this statement of facts it will be seen that the question presented to the court is, not whether a claim for compensation is entitled to preference or is provable in bankruptcy, as in Lane v. Industrial Commissioner (C. C. A. 2d) 54 F.(2d) 338, 86 A. L. R. 765, or whether such claim is entitled to preferential payment in a distribution of assets, as in T. H. Mastin & Co. v. Pickering Lumber Co. (D. C.) 2 F. Supp. 605, but whether receivers appointed for the purpose of operating a business and conserving its value as a going concern should be required to continue making compensation payments awarded against the business as a self-insurer by a Workmen's Compensation Commission. The answer to this question must depend upon the nature of compensation payments and the powers of courts of equity in receivership proceedings.

The award of compensation against a self-insurer by a state commission is not a debt or judgment, or liability arising out of contract express or implied. Lane v. Industrial Commissioner, supra. It is an obligation imposed by law and arises out of the status or relationship existing between employer and employee. The philosophy underlying the workmen's compensation laws is that industrial accidents are inevitable incidents of modern industry and that the burden thereof should be borne by industry rather than by the unfortunate victims of the accidents. The loss, distributed by insurance, enters into the cost of production and is eventually paid by the consuming public. Where a large business, such as the Davison Chemical Company, carries its own risk, it does so presumably because this is thought less expensive than insurance in the state fund or with private insurance companies; but in such a case the cost of industrial accidents is just as truly a part of the cost of doing business as is the cost of insurance where insurance is carried; and, where an award is made payable in installments, such installments constitute a continuing expense of the business, which under the law must be met as they fall due, just as taxes and other public charges must be met.

Compensation awards differ from ordinary debts of the corporation in a number of particulars, but there is this difference in their origin: the ordinary debt arises out of credit extended to the corporation by the claimant; the compensation claim arises out of the status or relationship existing between employer and employee. The ordinary debt represents loans or advancements made to the business. The compensation claim arises out of the business itself. A business is more than the property which it employs. It represents all of the intangible human values which are put into it including the labor and loyalty of its employees. The purpose of the compensation act is that this business, this going concern, shall bear the burden of industrial accidents, instead of the unfortunate injured employee. He has contributed to the building of the business. He has made one of the sacrifices which with statistical regularity it demands. He is to be compensated by a charge which the law imposes upon the business as a fixed expense. Uninjured laborers contribute by their labor to the operation of the business and are paid on the basis of that contribution. The employee who is injured or killed has made his contribution, just as the superannuated employee has made his; and in equity and good conscience the compensation award should be held a charge on the income of the business, just as is the wage of the laborer or the pension of the superannuated employee. Whether upon the winding up of the corporation and the distribution of assets such claims can be given priority in the absence of statute, is a question which we need not consider. The question here is whether they are payable from income earned by the business while it is being preserved and carried on as a going concern by the court. This brings us to the consideration of the principles which should govern courts of equity in dealing with such a situation.

The principle of equity applicable is that he who seeks equity must do equity. Creditors and lien claimants need not seek the aid of equity in enforcing debts and liens. When they ask a court of equity to grant the extraordinary relief of protecting a private corporation's business from the legal process of its creditors and to operate it under order of court so as to preserve its going concern value for their benefit, they should be willing that the claims of those who have helped to give it value as a going concern and whose claims have been imposed upon it by law as a fixed expense should be paid from the income derived from its continued operation.

The situation is closely analogous to that presented in the line of cases involving claims against railroad receivers for labor and supplies furnished railroads prior to receivership, which have enabled the business to be carried on and have been furnished with the expectation that they would be paid for out of current earnings. The leading case on the subject is Fosdick v. Schall, 99 U. S. 235, 253, 25 L. Ed. 339, the doctrine of which was applied in Hale v. Frost, 99 U. S. 389, 25 L. Ed. 419, as authority for paying from current earnings of the road while in receivership claims for supplies furnished it prior thereto. The controlling principle was thus stated in Fosdick v. Schall:

"The mortgagee has his strict rights which he may enforce in the ordinary way. If he asks no favors, he need grant none. But if he calls upon a court of chancery to put forth its extraordinary powers and grant him purely equitable relief, he may with propriety be required to submit to the operation of a rule which always applies in such cases, and do equity in order to get equity. The appointment of a receiver is not a matter of strict right. Such an application always calls for the exercise of judicial discretion; and the Chancellor should so mould his order that while favoring one, injustice is not done to another. If this cannot be accomplished, the application should ordinarily be...