In re Boggs-Rice Co.

• Decision Date: 13 July 1933
• Docket Number: No. 3469.,3469.
• Citation: In re Boggs-Rice Co., 66 F.2d 855 (4th Cir. 1933)
• Parties: In re BOGGS-RICE CO., Inc. ATHENS STOVE WORKS, Inc., et al. v. FLEMING et al.
• Court: U.S. Court of Appeals — Fourth Circuit

66 F.2d 855 (1933)

In re BOGGS-RICE CO., Inc ATHENS STOVE WORKS, Inc., et al. v.FLEMING et al.

No. 3469.

Circuit Court of Appeals, Fourth Circuit.

July 13, 1933.

Benjamin Stone Gore, of Bristol, Va., for appellants.

Donald T. Stant, of Bristol, Va. (William H. Woodward and S. Bruce Jones, both of Bristol, Va., on the brief), for appellees.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from an order in a bankruptcy proceeding disallowing claims of priority asserted by appellants.Bankrupt was a Virginia corporation engaged in business and having assets within the state of Tennessee.Appellants are corporations of Tennessee doing business in that state.Their contention is that debts due them by the bankrupt are entitled to priority in payment from the assets in Tennessee over the claims of foreign corporations, although not over the claims of nonresident individuals.The District Court disallowed this claim of priority; and the correctness of this ruling is the only question raised by the appeal.

Appellants rely on the provisions of section 4134 of the Code of 1932 of Tennessee, the relevant portion of which is as follows: "That the corporations and the property of all corporations coming under the provisions of this act, shall be liable for all the debts, liabilities and engagements of the said corporations, to be enforced in the manner provided by law, for the application of the property of natural persons to the payment of their debts, engagements and contracts.Nevertheless, creditors who may be residents of this State shall have a priority in the distribution of assets, or subjection of the same, or any part thereof, to the payment of debts over all simple contract creditors, being residents of any other country or countries. * * *"

In Blake v. McClung, 172 U. S. 239, 19 S. Ct. 165, 173, 43 L. Ed. 432;Id., 176 U. S. 59, 20 S. Ct. 307, 44 L. Ed. 371, this statute was held violative of the "privileges and immunities" clause of the Constitution of the United States, article 4, § 2, in so far as it applied to individuals, but valid in so far as it gave a priority in the distribution of assets as against foreign corporations.With respect to its validity to this qualified extent, the court said:

"As to the plaintiff in error, the Hull Coal & Coke Company of Virginia, different considerations must govern our decision.It has long been settled that, for purposes of suit by or against it in the courts of the United States, the members of a corporation are to be conclusively presumed to be citizens of the state creating such corporation (Louisville, Cincinnati & Charleston Railroad Co. v. Letson, 2 How. 49711 L. Ed. 353;Covington Draw Bridge Co. v. Shepherd, etc., 20 How. 227, 23215 L. Ed. 896;Ohio & Miss. Railroad Co. v. Wheeler, 1 Black, 286, 29617 L. Ed. 130;Steamship Co. v. Tugman, 106 U. S. 118, 1201 S. Ct. 58, 27 L. Ed. 87;Barrow Steamship Co. v. Kane, 170 U. S. 10018 S. Ct. 526, 42 L. Ed. 964, above cited); and therefore it has been said that a corporation is to be deemed, for such purposes, a citizen of the state under whose laws it was organized.But it is equally well settled, and we now hold, that a corporation is not a citizen within the meaning of the constitutional provision that `the citizens of each state shall be entitled to all privileges and immunities of citizens in the several states'(Paul v. Virginia, 8 Wall. 168, 178, 17919 L. Ed. 357;Ducat v. Chicago, 10 Wall. 410, 41519 L. Ed. 972;Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566, 57319 L. Ed. 1029).The Virginia corporation, therefore, cannot invoke that provision for protection against the decree of the state court denying its right to participate upon terms of equality with Tennessee creditors in the distribution of the assets of the British corporation in the hands of the Tennessee court. * * *

"It is equally clear that the Virginia corporation cannot rely upon the clause declaring that no state shall `deny to any person within its jurisdiction the equal protection of the laws.'That prohibition manifestly relates only to the denial by the state of equal protection to persons `within its jurisdiction.'* * * We adjudge that the statute, so far as it subordinates the claims of private business corporations not within the jurisdiction of the state of Tennessee(although such private corporations may be creditors of a corporation doing business in the state under the authority of that statute) to the claims against the latter corporation of creditors residing in Tennessee, is not a denial of the `equal protection of the laws' secured by the fourteenth amendment to persons within the jurisdiction of the state, however unjust such a regulation may be deemed."

And in the decision in Re Standard Oak Veneer Co. (D. C.)173 F. 103, 105, 22 A. B. R. 883, Judge Sanford, later of the Supreme Court, thus stated the rule of Blake v. McClung, which has since been universally accepted as a correct statement of the law: "In Blake v. McClung, 172 U. S. 239, 19 S. Ct. 165, 43 L. Ed. 432, it was held that, while this provision of the act was unconstitutional in so far as it gave the claims of Tennessee creditors of a foreign corporation priority over those of natural persons who were citizens of other states, it was a constitutional exercise of the power of the state to prescribe the conditions upon which a foreign corporation might enter its territory for purposes of business, in so far as it gave the claims of Tennessee creditors priority over those of other foreign corporations not doing business in Tennessee under the act, or under any statute directly bringing them within the jurisdiction of the courts of Tennessee."

The priority accorded Tennessee creditors over foreign corporations under this statute is enforced in bankruptcy proceedings because of the provisions of section 64b (7) of the Bankruptcy Act (11 USCA § 104 (b)(7), which is as follows: "The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment shall be * * * (7) debts owing to any person who by the laws of the States or the United States is entitled to priority: Provided, That the term `person' as used in this section shall include corporations, the United States and the several States and Territories of the United States."

And the reason for holding that the priority given by the statute is one which will be enforced under this provision of the Bankruptcy Act, and not a priority in distribution under state insolvency laws which will be disregarded, was well stated by Judge Sanford in the Standard Oak Veneer Co. Case, supra, as follows:

"It is also urged in behalf of petitioners that, although section 64b (5) of the bankruptcy act (ActJuly 1, 1898, c. 541, 30 Stat. 563 U. S. Comp. St. 1901, p. 3447) provides that in the administration of the bankrupt's estate priority shall be given to `debts owing to any person who by the laws of the state or the United States is entitled to priority,' the provision of the act of 1877 should be regarded as an insolvency law in reference to foreign corporations, which was superseded by the federal bankruptcy act, and that hence the priorities which it gives should not be recognized.While, however, it is true that the enactment of the federal bankruptcy act superseded all state insolvency or bankruptcy laws relative to persons or acts declared by the Congress to be subjects of bankruptcy, so that no further proceedings could be had under such state laws (1 Remington on Bankruptcy, p. 993, § 1628), yet this rule relates merely to the administration of the state laws in proceedings in the state courts, and does not prevent the enforcement in the federal bankruptcy proceedings of any general priorities recognized by the state laws, where such priorities are conferred by the statestatutes as substantive rights of priority not dependent upon the resort to particular remedies accessible only in proceedings in the state courts, and where such priorities are not in conflict with the express priorities declared by the federal bankruptcy act itself or otherwise in conflict with...