In re Goodson
| Decision Date | 27 September 1962 |
| Docket Number | No. 9159.,9159. |
| Citation | 208 F. Supp. 837 |
| Court | U.S. District Court — Southern District of California |
| Parties | In the Matter of Robert Junior GOODSON, Bankrupt. |
Richard A. Peterson, San Diego, Cal., for trustee.
Philip Crittenden, San Diego, Cal., for bankrupt.
The petition in bankruptcy was filed by the bankrupt Goodson on November 30, 1960. During the whole of the year 1960 Goodson received wages, and his employer made income tax withholdings therefrom for income tax purposes. For several years previous, Goodson had been supporting his aunt and his mother-in-law, in addition to himself, his wife and his child. The mother-in-law and aunt did not work, except for occasional baby-sitting jobs, and there was no other person residing in the United States who contributed to their support. Occasional contributions came from a relative in Mexico, when he worked, but this source was uncertain. In the years 1958 and 1959 the bankrupt supported the mother-in-law and aunt, but did not claim them as exemptions for withholding purposes until the end of the year, and in each of these years received a refund. He followed the same procedure in the year 1960. At and prior to the time he filed bankruptcy proceedings November 30, 1960 Goodson was and had been during the year, the sole support of the persons last mentioned, and there was a possibility that by claiming them as dependents at the end of the taxable year, he would receive a refund from the excess of the amounts withheld from his wages over the amount of income tax due.
At the first meeting of creditors on December 20, 1960, the Referee signed an order requiring Goodson to furnish the trustee in bankruptcy with a copy of his federal income tax return for the year 1960 and endorse any refund check received to the order of the trustee and turn the same over to said trustee. The bankrupt's tax return had not been filed at the time of the first meeting of creditors, and would not be filed until January 1, 1961, or after the close of the taxable year.
The bankrupt complied with the terms of the income tax order and on April 21, 1961, furnished to the trustee a copy of the federal income tax return for the income year 1960, and endorsed the refund check received in the amount of $282.39 to the trustee and turned the same over to said trustee.
On August 21, 1961 the bankrupt filed a petition that the Referee determine that the trustee was not entitled to any part of the income tax refund and that discharge be granted forthwith.
The Referee held a hearing on said petition and under date of October 25, 1961 made findings to the effect that the amount of the refund attributable to withholdings from the wages of the bankrupt prior to bankruptcy was the sum of $233.55, and the amount of the refund attributable to withholdings from the wages of the bankrupt after bankruptcy was the sum of $48.44. (This computation has not been questioned by either party to this review.)
The Referee concluded that the refund arose from the unlawful collection or detention of the bankrupt's property, and that the sum of $233.55 vested in the trustee by operation of law, and that the sum of $48.84 should be returned to the bankrupt.
The Referee further concluded that since no petition for review of the December 20, 1960 order (directing the bankrupt to file with the trustee a copy of his income tax return and turn over to the trustee any refund check) until after partial compliance with said order, the same was res judicata, and that the petition for an order that the trustee was not entitled to said moneys should be denied.
The Referee then ordered the trustee to cash the refund check, pay to the bankrupt the sum of $48.84 and retain the sum of $233.55.
The bankrupt has petitioned to review the order of October 25, 1961, claiming that the Referee erred in determining that the trustee was entitled to any portion of the refund.
If we understand correctly the trustee's position, it is asserted that the bankrupt is barred from questioning the trustee's title because he did not seek a review from the Referee's original order of December 20, 1960 within the 10 day period provided by law, and that he is likewise barred because when he complied with the Referee's order to turn the refund check over to the trustee he waived the right to contest the trustee's title to said moneys.
It is evident to us that when the Referee made the order of December 20, 1960 that the bankrupt should turn over to the trustee his income tax return check she did not, by such order, adjudicate that the trustee had title to it; the order does not mention such a finding or conclusion. It is the order here sought to be reviewed, the order of October 25, 1961, that gives to the trustee the right to part of the proceeds of the check; further, in a transcript of a hearing held February 7, 1962 in a similar case (In re William Van Meter, D.C., 208 F.Supp. 835) we note at page 32 of Vol. 1, the following:
It appears from the Referee's statement above quoted that it was her intention that the turning over of the check to the trustee would stand in the nature of a "deposit in Court" with title to be adjudicated later.
We do not feel, under the circumstances and the practice of the Referee, it was obligatory upon the bankrupt to seek a review until the Referee adjudicated the title to the money.
We now pass to a consideration of the respective rights of the trustee in bankruptcy and the bankrupt in the refund paid on the bankrupt's income tax. The trustee argues that he is entitled to the portion of the refund allocated to him by the Referee as the amount of withholdings attributable to wages earned by the bankrupt prior to November 30, 1960, the date of the filing of the petition in bankruptcy, and the bankrupt argues that the trustee has no right to any of the refund, that all of said money is property acquired after the filing of the petition in bankruptcy and belongs to the bankrupt free of the claims of any creditor.
Section 70, sub. a of the Bankruptcy Act (11 U.S.C.A. § 110, sub. a), in the portions which we deem pertinent to the case at bar, reads as follows:
"(a) The trustee of the estate of a bankrupt * * * shall in turn be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title, except insofar as it is to property which is held to be exempt, to all of the following kinds of property wherever located * * * (5) property, including rights of action, which prior to the filing of the petition he could by any means have transferred * * * (6) rights of action arising upon contracts, or usury, or the unlawful taking or detention of or injury to his property; * * *."
The trustee in the instant case cites the opinion in the case of Chandler v. Nathans (3 Cir. 1925) 6 F.2d 725, as supporting the order of the Referee in Bankruptcy awarding to said trustee a portion of the bankrupt's income tax refund. In the opinion of the Court of Appeals the facts in such case showed that the bankrupt, Chandler, purposely set out on his return for the year 1919, an income substantially larger than he actually received. This resulted in assessment of taxes in excess of the amount actually due. Chandler made three payments on the taxes so assessed; then, in need of money he filed a claim for a refund of excess taxes previously paid and unlawfully collected. While his claim was pending, he went into bankruptcy, and his trustee prosecuted the application for a refund, and received the sum of $44,549.60 from the Government. Chandler then filed a petition with the Referee that he be allowed the money, the Referee denied the petition and the District Court affirmed, 3 Cir., 290 F. 988. The Court observed that the right to apply for a refund of taxes, and the refund, when granted, vested in the trustee under Subdivision 6 of Section 70, sub. a of the Bankruptcy Act which includes rights of action arising upon contracts or from the unlawful taking or detention of, or injury to, the bankrupt's property; that his property was the money he had paid for taxes, which had left him and had been received and detained by the Government; the money was no longer in his possession, yet he was the owner of a claim upon the United States for its return, and Congress had given him the right to recover the property which he had improvidently turned over to the Government and which the Government had unlawfully received and detained.
At page 728 of its opinion, the Court stated:
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