Commonwealth of Massachusetts v. United States, 4193

• Decision Date: 02 April 1947
• Docket Number: 4209.,No. 4193,4193
• Parties: COMMONWEALTH OF MASSACHUSETTS et al. v. UNITED STATES. UNITED STATES v. COMMONWEALTH OF MASSACHUSETTS et al.
• Court: U.S. Court of Appeals — First Circuit

160 F.2d 614 (1947)

COMMONWEALTH OF MASSACHUSETTS et al. v. UNITED STATES.

UNITED STATES v. COMMONWEALTH OF MASSACHUSETTS et al.

Nos. 4193, 4209.

Circuit Court of Appeals, First Circuit.

April 2, 1947.

Alfred E. LoPresti, Asst. Atty. Gen. (Clarence A. Barnes, Atty. Gen., and John A. Brennan, Chief Counsel, Division of Employment Security, of Boston, Mass., on the brief), for Commonwealth of Mass., intervenor, and Carlton W. Spencer, defendant.

Norman S. Altman, Sp. Asst. to the Atty. Gen. (Sewall Key, Acting Asst. Atty. Gen., and Helen R. Carloss, Sp. Asst. to the Atty. Gen., and George F. Garrity, U. S. Atty., and Thomas P. O'Connor, Asst. U. S. Atty., both of Boston, Mass., on the brief), for the United States.

Before DOBIE (by special assignment) MAHONEY and WOODBURY, Circuit Judges.

MAHONEY, Circuit Judge.

This case is here on cross appeals from the judgment of the district court. The question involves the application of Revised Statutes, § 3466 (1898),¹ 31 U.S.C.A. § 191, to payment of competing claims of the United States and the Commonwealth of Massachusetts against an insolvent taxpayer for unemployment compensation taxes under Title IX of the Social Security Act of 1935, 49 Stat. 620, 639, 26 U.S.C.A. Int. Rev.Code, § 1600 et seq., and the Massachusetts Unemployment Act. There is no dispute as to the facts which are briefly as follows: The Somerville Sales & Service, Inc., being insolvent in 1939 made a common law assignment for the benefit of creditors. The Commissioner of Internal Revenue filed with the assignee a claim against the assignor for 1938 federal unemployment compensation taxes under Title IX of the Social Security Act in the sum of $963.08, for 1938 and 1939 federal insurance contributions taxes under Title VIII of said Act, 26 U.S.C.A. Int.Rev.Code, § 1400 et seq., in the sum of $690.05, and for 1939 capital stock tax in the sum of $21. The Commonwealth of Massachusetts filed with the assignee its claim for state unemployment taxes under Massachusetts Unemployment Compensation Act in the sum of $803.72, representing contributions for 1938 and 1939. On October 6, 1939 the assignee paid out of the sum of $1,135.11 which he had realized from the sale of the assets of the assignor $803.72 in full payment of the claim of the Commonwealth of Massachusetts and the remainder of $331.39 he paid to the Collector of Internal Revenue. This latter sum was credited to Title VIII taxes due for 1938 and there remained unpaid the sum of $1,342.74 with interest. Massachusetts has agreed to pay over the above mentioned $803.72 to the United States if the payment to it was in disregard of the priority of the United States under Rev.Stat. § 3466, and the United States has agreed that if it prevails the judgment shall be limited to $803.72.

The lower court held that the United States had priority as to its capital stock taxes, its Title VIII taxes, and 10 per cent of its Title IX taxes, but that it could not recover 90 per cent of its Title IX taxes, stating that the taxpayer or his assignee had the alternative right to pay the 90 per cent of his obligation under Title IX to an approved state unemployment fund. It cited Illinois ex rel. Gordon v. United States, 1946, 328 U.S. 8, 66 S.Ct. 841, in support of its decision as to capital stock taxes and Title VIII taxes but said that the Supreme Court had no occasion in that case to consider the problem whether as to the 90 per cent of the amount due for Title IX taxes the statute had not given the taxpayer the option of making payment to a state instead of to the United States.

Since the lower court handed down its decision in the instant case, the Supreme Court in People of State of Illinois ex rel. Gordon v. Campbell, 67 S.Ct. 340, restated its position as follows: "Illinois ex rel. Gordon v. United States, 328 U.S. 8, 66 S.Ct. 841, held that in circumstances which called into application Rev.Stat. § 3466, 31 U.S.C. § 191, 31 U.S.C.A. § 191, the claims of the United States for federal insurance contributions taxes under Title 8 of the Social Security Act, 49 Stat. 620, 636, 42 U.S.C.A. § 1001 et seq., and for federal unemployment compensation taxes under Title 9 of the Social Security Act, 49 Stat., at page 639, 42 U.S.C.A. § 1101 et seq., had priority over claims of Illinois for taxes under its Unemployment Compensation Act. That decision is controlling, of course, upon the same feature of this case * * *."

Under said § 3466 it is stated that where a debtor is insolvent the debts due the United States must be paid first. There is no question but what these are debts due the United States. "The words of Section 3466 are broad and sweeping and, on their face, admit of no exception to the priority of claims of the United States." United States v. Waddill, Holland & Flinn, Inc., 1945, 323 U.S. 353, 355, 65 S.Ct. 304, 306, 89 L.Ed. 294. It has not been decided that taxes under Title IX of the Social Security Act are an exception which can be read into this statute and we do not think that they are. Nor do we think that § 902 amended by implication said § 3466. Recently the Supreme Court in United States Department of Agriculture v. Remund, 67 S.Ct. 891, 894, has said: "We reiterate what was said in United States v. Emory, 314 U.S. 423, 433, 62 S.Ct. 317, 322,...