In re Aero Services, 44420.
| Decision Date | 31 December 1947 |
| Docket Number | No. 44420.,44420. |
| Citation | 75 F. Supp. 347 |
| Court | U.S. District Court — Southern District of California |
| Parties | In re AERO SERVICES, Inc. |
Harold W. Kennedy, County Counsel, and Andrew O. Porter, Deputy County Counsel, both of Los Angeles, Cal., for John R. Quinn, County Assessor, and H. L. Byram, County Tax Collector.
Hugo A. Steinmeyer and John E. Walter, both of Los Angeles, Cal., for Bank of America.
Francis Cobb (of Cobb & Utley), of Los Angeles, Cal., for debtor.
The above entitled matter was before this court on a prior hearing. At that time the County Assessor, John R. Quinn, and H. L. Byram, the County Tax Collector, of Los Angeles County, filed petitions for a Writ of Prohibition praying that same be directed to the Honorable Benno M. Brink, Referee in Bankruptcy, prohibiting him from proceeding to re-determine, amend, or alter the assessed valuation of the property of the Aero Services Inc., a California corporation, the debtor corporation, as fixed by the County Assessor; and prohibiting him from otherwise proceeding in excess of his jurisdiction in the matter of said tax claim.
On January 16, 1947, the Referee announced his conclusion that he had jurisdiction, overruled the objection to the jurisdiction, but refused to make an Order from which an appeal would lie, and continued the matter to February 24 for the taking of testimony. The petitioners alleged that unless the Honorable Benno M. Brink is restrained, he will take testimony and redetermine the assessed valuation of said property.
The Referee overruled the objection to the jurisdiction.
This Court, on May 21, 1947, concluded as follows: "It is the opinion of the court that the Referee Benno M. Brink, should enter a written Order, either sustaining or denying jurisdiction, and that after the entry of said Order, either party may appeal."
On September 8, 1947, Benno M. Brink, Referee in Bankruptcy, filed in this court, pursuant to said direction, Findings of Fact and Conclusions of Law. Finding of Fact IX was as follows: "That said debtor owned and had control on the first Monday in March, 1946, of all the personal property listed in the declaration made in its behalf by V. W. Nelson, auditor, and assessed by the County Assessor; that the sole question before this court is the determination of the value of such property for county tax purposes on the first Monday in March, 1946;"
The Referee's Conclusions of Law were as follows: "That, at the time the aforesaid petition under Chapter Eleven of the Bankruptcy Act was filed in this proceeding, the assessment for County tax purposes on the personal property here involved had not become final, and that, if the said petition had not been filed, the debtor corporation could have applied to the Board of Supervisors of Los Angeles County, sitting as a Board of Equalization, for an equalization or reduction of said assessment, and that, accordingly, this Court, ever since the filing herein of the said petition under Chapter Eleven of the Bankruptcy Act, has had and still has exclusive jurisdiction under section 64, sub. a (4) and section 311 of the Bankruptcy Act 11 U.S.C.A. § 104, sub. a (4), 711 to determine the value of the said personal property for County tax purposes."
The Court has examined the file and concludes as follows:
On the first Monday in March, 1946, the debtor herein was the owner of certain real and personal property. On May 14, 1946, a declaration for county tax purposes was made and verified on behalf of the debtor by one V. W. Nelson, its auditor, and the same was thereupon filed with the County Assessor; said statement shows that the value of the debtor's personal property was $355,710 as of the first Monday in March, 1946. Thereafter, on an undisclosed date, the County Assessor valued the said personal property for county tax purposes at said sum of $355,710.
On June 3, 1946, the debtor commenced this proceeding by filing herein its petition under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq., and, on the same date, appropriate orders were made herein permitting it to remain in possession of its assets and to continue the operation of its business under the control of this Court. The said petition under Chapter XI of the Bankruptcy Act is still pending, but no order has thus far been entered confirming the debtor's plan of arrangement with its creditors. The debtor still continues in possession of its assets, but all of its business operations have been suspended.
In the latter part of 1946, the debtor received from the County Tax Collector a tax bill covering the taxes on its real and personal property as of the first Monday in March, 1946. Said taxes became a lien on the real property of the debtor as of such first Monday in March. The said tax bill shows the assessed value of the personal property of the debtor to be the aforesaid sum of $355,710 and that the amount of the tax thereon is the sum of $22,333.25.
On December 6, 1946, the debtor filed herein its petition for an order to show cause requiring the County Assessor and the County Tax Collector to show cause why the Referee should not determine the amount of taxes due by it to the County of Los Angeles and why the Referee should not direct the debtor as to the manner and time of payment of such taxes. An order to show cause being issued on the said petition, the Assessor and the Tax Collector, in due course, filed their answer thereto and also their objections to the jurisdiction of the Referee to proceed in the premises.
After a hearing the Referee made an oral ruling overruling the objections to the jurisdiction and directing that the hearing proceed on the merits.
Thereupon a Motion for Permission to File Petition for Writ of Prohibition was filed by the claimant and upon the hearing thereon an Order was made on May 21, 1947, directing the Referee to enter a written order upon his said determination on the jurisdictional controversy. Such an order was made on September 8, 1947, and thereafter this matter came before this Court upon the Petition for Review by the County Assessor and County Tax Collector.
The debtor's original Order to Show Cause to determine the amount of taxes due the County of Los Angeles still pends before the Referee awaiting the determination there of the power, right, and jurisdiction of the Referee to ascertain and determine the tax in question.
The tax in question was an obligation of the debtor as of a date prior to the filing of the Chapter XI proceedings. It was not an obligation within the classification of administration expenses since it arose on the first Monday of March, 1946, and prior to the proceeding under Chapter XI, and in so far as we are here concerned, the claimant was a creditor with a provable claim in bankruptcy proceedings. This was not a claim coming into being as a result of the operation of a business by a receiver, trustee, or as here, the debtor in possession. Boteler v. Ingals, 308 U.S. 57, 60 S.Ct. 29, 84 L.Ed. 78.
The question to be answered is: "Does the Referee have jurisdiction to pass upon the amount of tax claim which the debtor maintains is grossly excessive?"
Section 64, sub. a(4) of the Bankruptcy Act provides: "* * * in case any question arises as to the amount or legality of any taxes, such question shall be heard and determined by the court."
Following the amendment to the Bankruptcy Act, Chandler Act effective September 22, 1938, the tax agencies were placed upon the same general basis as all other claims. The taxing agencies were required to file their claims in the manner of and within the time fixed for other claims. Prior to the said amendment, the Referee in ordering the disbursement of the funds of the bankruptcy estate was admonished by the prior Section 64, sub. a as follows: "The court shall order the trustee to pay all taxes legally due and owing by the bankrupt * * *."
and under this statute the law as developed by many cases uniformly held that the bankruptcy court had not only the duty but also the power and jurisdiction to hear and determine the matter of the amount of tax "legally due". In fact, the bankruptcy services and text books treated the subject as a settled condition of the law of bankruptcy distribution, and we observe that many of the state taxing statutes were cast with this power of the bankruptcy court in contemplation. For example, Section 18649, California State Personal Income Tax provides: "Upon bankruptcy * * * any deficiency * * * may be immediately assessed." and Section 18651: Approximately the same language appears in Section 19(i) of the State Corporation Income Tax Act and under the State Bank and Corporation Franchise Tax Act, Gen.Laws Acts 8488, 8494a.
Section 25(i). "Upon the adjudication of bankruptcy of any taxpayer in any bankruptcy proceeding * * * any deficiency * * * determined by the commissioner * * * may be immediately assessed * * * claims for deficiency * * * may be presented, for adjudication in accordance with law, to the court before which the bankruptcy * * * is pending, despite the pendency of proceedings for the redetermination of the deficiency in pursuance of a petition to the State Board of Equalization but no petition for any such redetermination shall be filed with said board after the adjudication of bankruptcy."
Some reported cases went so far as to indicate that the bankruptcy court could redetermine the question as to the amount and legality of the tax after the same had been passed upon by the state tax board or agency. See numerous cases cited in...
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IN RE KEEP ELECTRIC & MANUFACTURING CO.
...the decisions in State of New Jersey v. Anderson and Arkansas Corporation Commission v. Thompson, supra. * * *" See also In re Aero Services, D. C., 75 F. Supp. 347, holding that where the time for objection to county tax assessments on personal property of the debtor had not expired prior ......
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Quinn v. Aero Services
...res judicata. In re Monongahela Rye Liquors, Inc., et al., 3 Cir., 141 F.2d 864, was relied upon.2 The court, in our case, concluded 75 F. Supp. 347, 353: "In the instant case the time for objection to the assessment before the Board of Equalization had not expired at the time of the within......