In re A.J. Waterman Mfg. Co.

• Decision Date: 05 September 1923
• Docket Number: 427.
• Citation: 291 F. 589
• Parties: In re A. J. WATERMAN MFG. CO.
• Court: U.S. District Court — District of Maine

291 F. 589

In re A. J. WATERMAN MFG. CO.

No. 427.

United States District Court, D. Maine, Southern Division.

September 5, 1923

Frederick R. Dyer, of Portland, Me., for the United States.

Harry C. Wilbur, of Portland, Me., for city of Portland.

Irving Vernon, of Portland, Me., for petitioning creditors.

Hinckley & Hinckley, of Portland, Me., for bankrupt.

HALE District Judge.

I appointed a special master to report to the court a list of all the unpaid expenses of administration and all the priority claims against the bankrupt company, with a statement of the amount in the hands of the trustee available to pay the expenses and claims. The special master reports that a final account of the trustee shows an amount of $10,851.71 available to pay the expenses of administration and priority claims. The amount of such expenses and claims greatly exceed the amount of $10,851.71. It is therefore necessary to decide with reference to the priorities to be allowed.

1. Among these claims for priority is a claim by William F Spear and John T. Neff, as common-law assignees, for a balance amounting to $3,417.97, claimed for services and disbursements preceding bankruptcy. There is also a claim for taxes by the collector of internal revenue, in behalf of the United States of America, in the sum, with interest exclusive of penalties, of $8,827.03. There is a claim, also by the city of Portland for taxes amounting to $6,210.19. There are also three small claims, one founded on breach of contract, and two for wages.

The learned counsel for the United States calls the attention of the court to section 3466 of the United States Statutes (Comp. St. Sec. 6372), which provides:

'Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied; and the priority hereby established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate, and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed.'

He urges that the above statute controls the Bankruptcy Act, so far as establishing priority of the government over trustees, assignees, or taxes due any city, state or municipality; that the statute is in pari materia with the Bankruptcy Act; that the United States has priority as to the debts due it, to the extent of the entire amount in the hands of the trustee, and that such priority is over all claims of every nature; that the city of Portland is not entitled to share with the government, but must await payment of the government debt for taxes, before it can collect the taxes due to the city. Reference is made to the following cases: United States v. Barnes (C.C.) 31 F. 705; Bayne v. United States, 93 U.S. 643, 23 L.Ed. 997; In re Stoever (D.C.) 127 F. 394; Lewis, Trustee, v. United States, 92 U.S. 618, 23 L.Ed. 513; and other cases.

In Guarantee Title & Trust Co. v. Title Guaranty & Surety Co., 224 U.S. 152, 32 Sup.Ct. 457, 56 L.Ed. 706, the Supreme Court had under consideration section 3466 and the two following sections, they being a reproduction of the United States statute of 1797, with immaterial changes. The court held that in the Bankruptcy Act of 1867 is found a reaffirmation of this statute of 1797; but there is no such affirmation of that statute in the Bankruptcy Act of 1898. The court found a change in the provisions of the law, and also a change of purpose on the part of Congress, so that the Barnes Case, and other cases cited by the district attorney in the case before me, applied to proceedings under the act of 1867, but do not apply to proceedings under the present Bankruptcy Act of 1898. In Re Jacobson, 263 F. 883, in 1920, the Circuit Court of Appeals of the Seventh Circuit passed upon this statute. In speaking for the Circuit Court of Appeals, Judge Evans cited sections 64a and 64b of the present Bankruptcy Act of 1898 (Comp. St. Sec. 9648), as follows:

Bankruptcy Act, Sec. 64a: 'The court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States, state, county, district, or municipality in advance of the payment of dividends to creditors, and upon filing the receipts of the proper public officers for such payment he shall be credited with the amount thereof, and in case any question arises as to the amount or legality of any such tax the same shall be heard and determined by the court.'

Bankruptcy Act, Sec. 64b: 'The debts to have priority, except as herein provided, and to be paid in full out of bankrupt estates, and the order of payment shall be (1) the actual and necessary cost of preserving the estate subsequent to filing the petition; (2) the filing fees paid by creditors in involuntary cases; * * * (3) the cost of administration, including the fees and mileage payable to witnesses as now or hereafter provided by the laws of the United States, and one reasonable attorney's fee, for the professional services actually rendered, irrespective of the number of attorneys employed, to the petitioning creditors in involuntary cases, to the bankrupt in involuntary cases while performing the duties herein prescribed, and to the bankrupt in voluntary cases, as the court may allow: (4) wages due to workmen, clerks, traveling or city salesmen, or servants which have been earned within three months before the date of the commencement of proceedings, not to exceed three hundred dollars to each claimant; and (5) debts owing to any person who by the laws of the States or of the United States is entitled to priority.'

He then observed:

'The first section quoted is a general statute. It existed prior to the passage of the Bankruptcy Act and was partly superseded by that act. In other words, sections 64a and 64b of the Bankruptcy Act are in pari materia with section 3466. Debts due the United States, other than taxes are not given the same protection in the two cited sections of the Bankruptcy Act as existed under the general statute, section 3466, or under the Bankruptcy Act of 1867.'

Judge Evans cites the decision of Justice McKenna in Guarantee Title & Trust Co. v. Title Guaranty & Surety Co., quotes from it, and adds:

'We have quoted thus freely to justify the elimination from this case * * * of section 3466, Revised Statutes, confidently relied upon by * * * the government.'

Judge Evans concludes that, in that case, if the petitioners' claim were entitled to priority, it must be by section 64a of the Bankruptcy Act, and he found that the priority given to taxes must be over 'creditors'; that 'creditors' of the bankrupt shall not be entitled to dividends until the taxes are paid, but there is no recognition of priority in favor of taxes, except as to creditors; and that the term 'creditors' cannot be construed by any stretch of the definition of that term to include--

'clerk, trustee, referee, or any one whose relation with the bankrupt, or the bankrupt's estate began subsequent to the filing of the petition in bankruptcy.'

In concluding, Judge Evans holds that it is not conceivable that Congress should confer on the District Court power to administer bankrupt estates, and sequester and preserve property, and yet deny to the court the right to protect its officers in the performance of their duties, notwithstanding such performance of duties and such administration of the insolvent estate is for the benefit of the taxing powers, even more than it is for the general creditors. New Jersey v. Lovell, 179 F. 321, 102...