In re Minot Auto Co., Inc.

• Citation: 298 F. 853
• Decision Date: 21 April 1924
• Docket Number: 233.
• Parties: In re MINOT AUTO CO., Inc. v. HINES. UNITED STATES
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

298 F. 853

In re MINOT AUTO CO., Inc.

UNITED STATES v. HINES.

No. 233.

United States Court of Appeals, Eighth Circuit.

April 21, 1924

Melvin A. Hildreth, Sp. Asst. U.S. Atty., of Fargo, N.D. (S. L Nuchols, Asst. U.S. Atty., of Bismarck, N.D., on the brief) for the United States.

Robert H. Bosard, of Minot, N.D. (G. W. Twiford, of Minot, N.D., on the brief), for respondent.

Before SANBORN and LEWIS, Circuit Judges, and McGEE, District Judge.

McGEE District Judge.

In this, a bankruptcy proceeding, the United States of America as petitioner, seeks to have revised an order of the court below of date August 5, 1922, the nature of which will appear later herein. On the 11th of February, 1922, the Minot Auto Company, Inc., on its own petition, was adjudicated a bankrupt, and on the 25th of the same month the respondent Hines, was duly elected trustee. On March 23, 1922, the Commissioner of Internal Revenue made assessments against the bankrupt, on account of its income for the years 1917 and 1918, which, with penalties, aggregated $12,892.60.

On March 27, 1922, the collector of internal revenue for the district of North Dakota filed with the referee in bankruptcy claims for the taxes aforesaid, and on the same date Hines, as trustee, filed a petition with the referee in which he assailed the assessments so made by the Commissioner as illegal, denied that the bankrupt was indebted to the petitioner in any sum whatever for or on account of income taxes for either 1917 or 1918, alleged that the bankrupt within the period prescribed by law therefor duly made its reports to the proper collector of internal revenue, showing correctly its income for the two years mentioned, that within the period prescribed therefor the bankrupt paid all income taxes due the petitioner from it for the years 1917 and 1918, and further denied that the petitioner had any valid or legal lien against the estate of the bankrupt for any income taxes whatever, and prayed that an order be issued requiring the petitioner to show cause before the referee why the Commissioner's assessments referred to should not be declared illegal, and an order made declaring that the petitioner had no lien or claim by reason thereof in, on, or to any of the property or assets of the estate of the bankrupt. Thereupon the referee issued an order requiring the petitioner to show cause before him, the said referee, on the 18th of April, 1922, why the assessments made as aforesaid should not be declared to have been illegally made, and for that reason to be invalid.

On the 3d of April, 1922, the petitioner, by its attorney for the district of North Dakota, appeared specially and objected to the jurisdiction of the referee to hear and determine the matters presented by the petition and order to show cause, and took the position that the referee in bankruptcy was without jurisdiction to--

'hear, try, and determine the amount and validity of any assessments of income tax against the above-named Minot Auto Company, a corporation, bankrupt, for the reason that the income tax so assessed against the said bankrupt by the Commissioner of Internal Revenue by reason of such assessment becomes a first, valid, and superior lien upon all the assets of said bankrupt until the validity of said assessment and said lien has been determined by a court of competent jurisdiction in a proceeding in equity in the District Court of the United States to determine the validity of said lien and until and unless said lien is declared to be invalid in such proceeding in equity.'

The case proceeded to trial before the referee, and resulted on April 20, 1922, in a finding by the referee in favor of the petitioner, establishing the claim of the latter at $1,956.90, and finding the assessments in excess of that amount void. The time for filing a petition for review under the rules of the District Court for the District of North Dakota is limited to 15 days, and expired on May 5, 1922, without a petition having been filed. After the expiration of the 15-day period the referee went forward with the distribution of the estate. He ordered the trustee to pay the federal, state, county, city, and school taxes, which was done. These payments practically exhausted the estate.

On the 5th day of May, 1922, the United States attorney was directed by the Attorney General to file a petition for review, which, if it had been done on that day, would have been within the 15-day period, but no step in that direction was taken until 52 days later, on June 26, 1922, when on an ex parte application an order was obtained extending the time within which a petition for review might be filed to and including July 1, 1922. Pursuant to the leave so granted a petition was filed on June 27, 1922.

The trustee thereupon objected to the court hearing the petition for review, and sought a vacation of the order authorizing it to be filed after time, on the grounds that it had been improvidently granted in this: That the time had expired within which a petition could be filed before such petition was filed, and before any order extending the time had been made; that it was not filed until after the referee had ordered the trustee to pay, and the trustee had paid, the preferred claims, consisting of taxes in favor of the United States, as well as the state, county, city, and school taxes, and the expenses of administration, which, as stated, practically exhausted the funds in the hands of the trustee, and that the petitioner had received and accepted full payment from the trustee of the amount awarded to it by the decision of the referee, and was thereby precluded from seeking a review of the order of April 20, 1922.

On August 5, 1922, the court made its order sustaining the objections of the respondent, vacated the order enlarging the time within which a petition for review might be filed, ordered the record returned to the referee, with directions to proceed with the due and orderly administration of the estate, with a stay of 15 days to permit the government to take proceedings for the review of the order, if it should be so advised. The case is before the court at this time on a petition to revise the order last mentioned.

The question whether or not the order should be vacated was one addressed to the discretion of the court below, and the order made must be sustained, unless it can be said on the record that the action of the court in vacating it amounted to an abuse of discretion. No such claim is made, and on the record none such could be made.

If we correctly understand the position taken by counsel for the petitioner, as outlined in his brief, it is:

(a) 'The United States are in no wise bound by the Bankruptcy Act. (b) As the United States are in no wise bound by the Bankruptcy Act, then it follows as a logical conclusion that the United States are in no wise bound by a rule of the court made pursuant to and by the authority of the Bankruptcy Act. The greater always includes the lesser, and, if the United States are not bound by the act of Congress, surely it cannot be bound by any rule or order of court made pursuant to the act. (c) The rule of court limiting the time to 15 days from the date of the order of the referee in bankruptcy within which a petition for review of such order may be filed with the referee, if applied to the government, would diminish and restrain the right of the government to have such order reviewed, and therefore such rule cannot apply to the United States government.'

The fundamental error which pervades the argument of counsel is the assumption that the Bankruptcy Act of 1898 (Comp. St. Secs. 9585-9656) does not operate upon and bind the government of the United States. That the Bankruptcy Acts of 1800 (2 Stat. 19), 1841 (5 Stat. 440), and 1867 (14 Stat. 517) did not have that effect may be conceded; but the Bankruptcy Act of 1898 evinces a change of policy in that respect on the part of Congress and is binding upon the government of the United States.

The exact proposition advanced by counsel for petitioner, and supported by the...