In re Green River Jockey Club

• Decision Date: 01 May 1925
• Citation: 5 F.2d 259
• Parties: In re GREEN RIVER JOCKEY CLUB. Petition of RASH.
• Court: U.S. District Court — Western District of Kentucky

5 F.2d 259 (1925)

In re GREEN RIVER JOCKEY CLUB.

Petition of RASH.

District Court, W. D. Kentucky.

May 1, 1925.

Vance & Heilbronner, of Henderson, Ky., for petitioner.

Dorsey & Dorsey, of Henderson, Ky., for trustee.

DAWSON, District Judge.

This matter is before me on petition of O. W. Rash to review the order of the referee, declining to allow as preferred a claim against the bankrupt estate for $29,300, with interest from April 2, 1923, filed by O. W. Rash, and allowing as an unsecured claim against the estate $28,800 of said claim, with interest thereon at the rate of 6 per cent. per annum from April 2, 1923.

The facts out of which this claim grows, as shown by the record, are as follows:

The bankrupt, Green River Jockey Club, is a corporation, organized under the laws of the state of Kentucky, with authority to own and operate a race course, and in the month of July, 1922, it operated and conducted, for a period of 10 days, a race meet at Dade Park, near Henderson, Ky. This meeting was held under the jurisdiction and supervision of the Kentucky State Racing Commission, and under the provisions of chapter 19, p. 103, of the Acts of 1920, it became obligated to pay to the state of Kentucky a license tax of $2,500 for each day of said 10-day race meet, or a total of $25,000.

In conformity to the law, the bankrupt, prior to December 1, 1922, reported to the auditor of public accounts of the commonwealth of Kentucky the fact that it had conducted said race meeting for 10 days, and thereupon, in due course, the auditor notified the bankrupt that it owed the state of Kentucky $2,500 for each day of said 10 days' meeting, and made demand upon the bankrupt for a total tax of $25,000. This tax was not paid, and on the 19th day of March, 1923, the revenue agent for the state at large, W. O. Mays, instituted suit in the Franklin circuit court against the Green River Jockey Club to recover the amount of the tax, with interest thereon at the rate of 6 per cent. per annum from December 1, 1922, together with a penalty of 20 per cent. of the amount of said license tax and interest.

One of the moving spirits in the organization and conduct of the Green River Jockey Club was Lee Baskett, who was a large stockholder, director, and president of the corporation. At a meeting of the board of directors, held on March 24, 1923, Baskett proposed to the board of directors that he would furnish the money to pay off this claim of the state for license taxes, provided the company would reimburse him, and that he could be substituted to all the rights, priorities, and liens of the state of Kentucky in the premises. This proposition was accepted by the board of directors, by resolution regularly adopted on that date; the acceptance of the proposition being in this language:

"On motion duly seconded, it was unanimously resolved that Mr. Lee Baskett be requested to advance the money for the payment of said tax, penalty and interest to the state of Kentucky, and that he be substituted, upon the payment thereof, to all the rights, priorities, and liens of the state of Kentucky."

Baskett did not have the money with which to pay this claim of the state, and the claimant, O. W. Rash, agreed to lend to Baskett the money, upon his note, with J. H. Baskett, Thomas Baskett, and G. W. Ragan as sureties, and C. C. Crafton as indorser thereon. It developed later, however, that Mr. Rash did not find it convenient to lend the entire amount necessary. It was thereupon arranged that Mr. Rash would lend to Baskett $20,000 of the sum, to be evidenced by two notes of Lee Baskett, each for the sum of $10,000 with Thomas Baskett, G. W. Ragan, and J. H. Baskett as sureties, and with C. C. Crafton as indorser thereon, and that the remainder of the money necessary to be raised should be borrowed from the Farmers' Bank & Trust Company, of Henderson, Ky., upon the note of Lee Baskett, Thomas Baskett, G. W. Ragan, and J. H. Baskett to C. C. Crafton, which was to be discounted by said Crafton to the Farmers' Bank & Trust Company, of Henderson, Ky., and that the money received on this note should be turned over to the claimant, O. W. Rash, and this sum, together with the sums realized on the two $10,000 notes executed by the parties above named to O. W. Rash, should be by said Rash paid to Lee Baskett, with the understanding that he would use this sum in satisfying the claim of the commonwealth above referred to.

This arrangement was carried out, and the tax claim of the commonwealth was satisfied by Lee Baskett paying to the commonwealth of Kentucky the sum of $25,000, together with penalty and interest, aggregating in all the sum of $29,300. Thereupon the following order was entered upon the records of the Franklin circuit court in the suit which had been filed to collect said license tax:

"Franklin Circuit Court, April Term April 2, 1923. "The Commonwealth of Kentucky, by Wm O. Mays, Revenue Agent for the State at Large, Plaintiff, v. Green River Jockey Club, a Corporation, Defendant.

"Order.

"This day came the plaintiff by W. O. Mays, revenue agent for the state at large, and stated to the court that the tax and penalty in this case had been paid by Lee Baskett, president of the Green River Jockey Club, out of his individual funds and, on his motion, the said Baskett is substituted...