Danning v. United States

• Decision Date: 28 August 1958
• Docket Number: No. 15568.,15568.
• Citation: 259 F.2d 305
• Parties: Sarah B. DANNING, Trustee in Bankruptcy of the estate of Samuel N. Sherman, dba Southern California College of Business, Bankrupt, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

259 F.2d 305 (1958)

Sarah B. DANNING, Trustee in Bankruptcy of the estate of Samuel N. Sherman, dba Southern California College of Business, Bankrupt, Appellant, v. UNITED STATES of America, Appellee.

No. 15568.

United States Court of Appeals Ninth Circuit.

August 28, 1958.

Gendel & Raskoff, Los Angeles, Cal., for appellant.

George C. Doub, Asst. Atty. Gen., Hershel Shanks, Samuel D. Slade, William W. Ross, Attorneys, Department of Justice, Washington, D. C., Laughlin E. Waters, U. S. Atty., Los Angeles, Cal., for appellee.

Before STEPHENS, Chief Judge, and CHAMBERS and BARNES, Circuit Judges

BARNES, Circuit Judge.

This is a case where appellant urges that sovereign immunity is not in the case — only a question of whether the government consented to be sued by filing a claim in bankruptcy. But this is mere semantics, for if the government by its action "consented" to be sued, it had waived its sovereign immunity, even though its sovereignty was not in-paired.

There is but one question involved in this case. Does a court of bankruptcy have jurisdiction to hear and determine a counterclaim for affirmative relief asserted by the trustee in bankruptcy against the United States arising out of the same transaction as the claim filed by the government in the bankruptcy proceedings? The Referee in Bankruptcy held that it did not have such jurisdiction, and a petition for review was denied by the District Court. The appeal here is timely and proper.¹ A recital of facts seems unnecessary.

It is apparently conceded by both parties here that if the United States Government were not the party claimant, and a mere creditor had filed a claim against the bankrupt's estate, then the bankruptcy court would have jurisdiction to enter a summary judgment against the claimant upon a counterclaim asserted by the trustee as an objection to the claim. In re Nathan, D.C.1951, 98 F. Supp. 686; 26 So.Cal.L.Rev. 167 (1952)

The government recognizes this general rule, but claims the doctrine of sovereign immunity overcomes the usual rule of law expressed in the Nathan case, prevents recovery, and requires a dismissal of the counterclaim, this being an "unconsented" claim against the government.

The government suggests that this rule of law respecting the sovereignty of the United States has been made clearly applicable to claims against the United States in summary bankruptcy proceedings by many cases, and particularly by United States v. United States Fidelity & Guaranty Co., 1940, 309 U.S. 506, 60 S.Ct. 653, 84 L.Ed. 894, holding void for lack of jurisdiction the affirmative decree of a summary bankruptcy court on a trustee's counterclaim against the United States.

Appellant replies that the Chandler Act Amendment of 1938² was enacted subsequent to the bankruptcy court judgment in the United States v. United States Fidelity case, supra; that the Second Circuit in United States v. Roth, 1948, 164 F.2d 575, held that the 1938 amendments to the Bankruptcy Act repealed the ruling of the Supreme Court in the United States Fidelity & Guaranty Co. case in that while § 68, sub. a of the Bankruptcy Act (11 U.S.C.A. § 108, sub. a) deals with set-offs and does not specifically name the United States (and hence there was no waiver of sovereignty with regard to set-offs), taxes owed to the United States are dealt with separately in § 64 sub. a; that before the 1938 Amendment, taxes could not be proved as claims and the court could only "order the trustee to pay all taxes legally due and owing by the bankrupt to the United States;" but that after the Amendment, taxes owed the United States were classed as "debts" and provable as any other claim.

Although the United States is a claimant for purposes of collecting taxes under the 1938 Amendment, and thus there has been enacted a waiver of its sovereign immunity in that respect, has there been a waiver of immunity with respect to other "claims" against the United States? Such was the intent of Congress, says appellant, and "a reading of the Bankruptcy Act," and "particularly the provisions of § 57,³ demonstrates that Congress intended that the Government as a claimant should be upon exactly the same basis as any other claimant;" that "Section 68, sub. a,⁴ * * * permitting set-offs, must be construed in harmony with the other provisions of the Act," and that "the absence of a specific reference to the United States in the set-off section can no longer be deemed significant." United States v. Roth, supra, 164 F.2d at page 578.

If we are to follow United States v. Roth reasoning, then we must agree

"that the Act, as it now stands, treats the tax claim as a debt and the United States as a creditor which, like other creditors, must make proof of claim on a form containing a statement about set-offs. Section 68, sub. a, 11 U.S.C.A. § 108, sub. a, permitting set-offs, must be construed in harmony with the other provisions of the Act * * * the absence of a specific reference to the United States in the set-off section can no longer be deemed significant.

Consequently we are able to find legislative authorization for set-offs against tax claims of the United States." United States v. Roth, supra, 164 F.2d at page 578.

But to reverse here, we would be required to go one step further than does the Roth case. It will be remembered that in Roth, Judge Swan, on the question of affirmative relief against the government, states "whether the bankruptcy court could enter an affirmative judgment against the United States, if the bankrupt's counterclaim had exceeded the Government's tax claim, is not presented by this record and need not be considered." (Emphasis added.) United States v. Roth, supra, 164 F.2d at page 578, note 7.

The court then cites United States v. Shaw, 1940, 309 U.S. 495, 502, 60 S.Ct. 659, 84 L.Ed. 888 and United States v. Biggs, D.C.E.D.Ill.1946, 46 F.Supp. 8, 11. The reason that issue was not determined in Roth was the holding in United States v. Shaw, which is, of course, binding on the Second Circuit as it is on us. And Shaw specifically holds:

"It is not our right to extend the waiver of sovereign immunity more broadly than has been directed by the Congress. We, of course, intimate no opinion as to the desirability of further changes. That is immaterial. Against the background of complete immunity we find no Congressional action modifying the immunity rule in favor of cross-actions beyond the amount necessary as a set-off." United States v. Shaw, supra, 309 U.S. at page 502, 60 S.Ct. at page 662.

United States v. Biggs, supra, examined the immunity problem from the standpoint of the Tucker and Miller Acts, and said:

"The principal purpose of the Court of Claims is to examine and determine claims for money against the United States. Ex parte Bakelite Corporation, supra 279 U.S. 438, 49 S.Ct. 411, 73 L.Ed. 789; Williams v. United States, supra 289 U.S. 553, 53 S.Ct. 751, 77 L.Ed. 1372. * * *

"Under this state of the law can this counterclaim be allowed? If a suit is brought by the United States against a defendant for an amount allegedly due the United States, defendant may properly set up by way of defense any amount owing him to the extent of such claim. The court, however, has no jurisdiction to render an affirmative judgment against the United States on a counterclaim. United States v. Shaw, 309 U.S. 495, 60 S.Ct. 659, 84 L.Ed. 888; United States v. Nipissing Mines Co., 2 Cir., 206 F. 431; United States v. Eckford, 6 Wall. 484, 18 L.Ed. 920. In United States v. Nipissing Mines Co., supra, 206 F. 434, the court said: `In our opinion, the Tucker Act of 1887 which gives the District Courts jurisdiction over certain suits against the United States, is not broad enough to permit the recovery of demands upon counterclaims. We think that that statute refers to original suits and prescribes procedure inconsistent with its use as the basis of a counterclaim.\' In United States v. Shaw, supra, 309 U.S. 495, 60 S.Ct. 662, 84 L.Ed. 888, the court said: `Against the background of complete immunity we find no Congressional action modifying the immunity rule in favor of cross-actions beyond the amount necessary as a set-off.\' If this court were to take cognizance of defendant\'s counterclaim and give judgment upon it, it would exceed its specifically defined jurisdiction of suits against the United States under the Tucker Act. The United States is merely a nominal party plaintiff and made plaintiff only because of the requirement expressed in the Miller Act. It has no actual pecuniary interest. The suit is for the benefit of the subcontractors, and upon its successful prosecution, they only will receive the benefits of the judgment. That this is true is indicated by the provision in the Miller Act that `the United States shall not be liable for the payment of any costs or expenses of any such suit.\' 40 U.S.C.A. § 270b." Id., 46 F.Supp. at page 11.

Thus we prefer to distinguish United States v. Roth on its facts, and on those facts it did not pass upon, rather than on the government's argument that the Chandler Act Amendment of 1938 changed § 64, sub. a ((11 U.S.C.A. § 104, sub. a) taxes became claims) and did not change § 68, sub. a (11 U.S.C.A. § 108, sub. a). In the opinion of the second circuit, it did change the set-off provisions by including the United States as a "creditor" for certain purposes, though not for all. With this, we agree.

But appellant also relies heavily upon In re Ward, D.C.D.Colo.1955, 131 F.Supp. 387. There an opinion and a supplemental opinion rendered by Referee Hilliard were upheld by Chief Judge Knous. The latter does not discuss the law, being satisfied with the Referee's reasoning. The Referee's supplemental opinion took the position that § 23, sub. b of the Bankruptcy Act (11 U.S.C.A. § 46, sub. b)⁵

"is as applicable to the United States as it would be to any other unsecured claimant who has filed a claim in the proceeding, for there is nothing in the

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