In re Tidewater Coal Exchange

• Decision Date: 20 February 1922
• Docket Number: 195.
• Citation: 280 F. 648
• Parties: In re TIDEWATER COAL EXCHANGE. v. COYLE. DAVIS, Director General of Railroads,
• Court: U.S. Court of Appeals — Second Circuit

280 F. 648

In re TIDEWATER COAL EXCHANGE.

DAVIS, Director General of Railroads, v. COYLE.

No. 195.

United States Court of Appeals, Second Circuit.

February 20, 1922

Harry M. Daugherty, Atty. Gen., and William A. Riter, Asst. Atty Gen. (William Hayward, U.S. Dist. Atty., of New York City John F. Finerty, of St. Paul, Minn., and Evan Shelby and Claude A. Thompson, both of New York City, of counsel), for appellant.

James F. Curtis and Root, Clark, Buckner & Howland, all of New York City, for appellee.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

ROGERS Circuit Judge.

This cause comes here on petition to revise an order entered in the District Court on November 17, 1921, dismissing the petition of the Director General to review the order of the referee approving the appointment of William R. Coyle as trustee of the bankrupt and refusing to set aside the order approving Mr. Coyle's appointment.

The order adjudicating the Exchange a bankrupt having been entered on July 27, 1921, the matter was referred to the referee in bankruptcy, who called a meeting of creditors on August 25, 1921. At that meeting of the creditors the Director General of Railroads attempted to vote for one Frank C. Wright as trustee, on the ground that as Director General of Railroads he represented the United States and had filed a proof of debt in favor of the United States in the sum of $971,611.70, and represented a debt (other than taxes) due the United States, through the Director General of Railroads arising out of the operation of various railroads of the United States during the period of federal control.

Two other creditors, who had filed proofs of debt in an amount aggregating $10,746.76, voted for Wright as trustee. But 29 other creditors, who had filed proofs of debt in an amount aggregating $927,452.20, but who had not deducted $139,866.84 shown on the books of the Exchange and on the bankrupt's schedules as due from them, voted for William R. Coyle. Thereupon the referee, over the objection of the Director General, approved of the appointment of Coyle as trustee by an order dated August 25, 1921. Thereafter, on September 22, 1921, the Director General, proceeding in accordance with the provisions of the Bankruptcy Act (Comp. St. Secs. 9585-9656) and General Order No. XXVII (89 F. xi, 32 C.C.A. xxvii), filed a petition to review the order of the referee approving the appointment of Coyle.

The referee, however, refused to permit the United States, through the Director General, to vote, basing his refusal on the ground that the United States, through the Director General, was a creditor holding a claim which had priority, and as such was not entitled to vote by virtue of the provisions of section 56b of the Bankruptcy Act (Comp. St. Sec. 9640), which reads as follows:

'Creditors holding claims which are secured or have priority shall not, in respect to such claims, be entitled to vote at creditors' meetings.'

The District Judge after a hearing dismissed the petition, and entered an order to that effect on November 17, 1921. And this is alleged to be error.

That the Director General represented the United States in matters growing out of and connected with the operation of the railroads during the period of federal control was decided by this court in Globe & Rutgers Fire Insurance Co. v. Hines, 273 F. 774. He was during the period involved a part of the government of the United States, and as such entitled to the rights, privileges, and immunities inherent in the sovereignty. Missouri Pacific Railroad Co. v. Ault, 256 U.S. 554, 41 Sup.Ct. 593, 65 L.Ed. 1087, decided by the Supreme Court June 1, 1921. Moreover, at the argument it was conceded by all parties concerned in the present litigation that the Director General represents the United States respecting the matters herein involved, and may assert whatever rights and privileges the United States is entitled to exercise respecting the debt due from the Exchange to it.

The United States, in operating the railroads during the period of federal control, was engaged in the performance of a governmental function, and was not carrying on a merely private commercial enterprise. See In re Western Implement Co. (D.C.) 166 F. 576. The Director General, in claiming on behalf of the United States the moneys arising out of the operation of the railroads, is seeking to recover public money, and he is acting in a governmental capacity, as much so as though the money to be recovered were taxes. See Chesapeake & Delaware Canal Co. v. United States, 250 U.S. 123, 126, 127, 39 Sup.Ct. 407, 63 L.Ed. 889.

The Circuit Court of Appeals for the Seventh Circuit, in In re E. H. Hibner Oil Co., 264 F. 667, 14 A.L.R. 629, declared that unpaid freight charges for shipments by railroad during the period of federal control are the property of the United States, and the claim therefor is entitled to priority in bankruptcy under section 64b of the Bankruptcy Act (Comp. St. Sec. 9648) and section 3466 of the Revised Statutes (Comp. St. Sec. 6372). The Bankruptcy Acts of 1800 (Act April 4, 1800, c. 19, Sec. 62 (2 Stat. 36)), of 1841 (Act Aug. 19, 1841 c. 9, Sec. 5 (5 Stat. 444)), and of 1867 (Act March 2, 1867, c. 176, Sec. 28 (14 Stat. 530)) expressly recognized the priority of debts due the United States, thus preserving in all its essential features the provision in the act of 1797, reproduced in section 3466 of the Revised Statutes, relating to priorities. The Bankruptcy Act of 1898 contains no similar express provision; and if, under that act, priority is given, it must be because of clause 5, subd. (b), Sec. 64 (Comp. St. Sec. 9648), which reads as follows:

'(5) Debts owing to any person who by the laws of the states or the United States is entitled to priority.'

We have no doubt that the United States it to be regarded as a person within the meaning of the clause cited, and can assert its priority as given to it under section 3466 of the Revised Statutes (Comp. St. Sec. 6372), which is reproduced in the margin. ^[1] The priority secured to the United States is priority over all creditors. The statutory provision referred to is simply declaratory of the common-law rule which entitles a sovereign to priority over other creditors of an insolvent. United States v. National Surety Co., 254 U.S. 73, 75, 41 Sup.Ct. 29, 65 L.Ed. 143

It is necessary to determine whether the language of section 56b above cited, and which declares that creditors holding claims which have priority shall not be entitled to vote at creditors' meetings applies to the United States; the government not being expressly mentioned in the section. In the interpretation of statutes the principle is old and well established that the crown is not bound by a statute unless named in it. It seems to rest upon the theory that the law is prima facie presumed to be made for subjects only. Willion v. Berkley, Plowd. 236. In Maxwell on the Interpretation of Statutes (5th Ed.) 220, that writer declares that the crown is not reached, except by express words or by necessary implication, in any case where it would be ousted of an existing prerogative or interest. 'Where,' he says, 'the language of the statute in general, and in its wide and natural sense would divest or take away any prerogative or right from the crown, it is construed so as to exclude that effect. When the king has any prerogative estate, right, title, or interest, he shall not be barred of them by the general words of an Act of Parliament. ' See Bacon's Abr. 'Prerogative' (E) 5(c); Co. Litt. 43b; Chit. Prerogative, 382; Ascough's Case, Cro. Cas. 526; Magdalen College Case, 11 Rep. 74b.

In another way it is expressed by saying that in the construction of general words or dubious provisions there is a presumption against any intention to surrender public rights, or to affect the government. Lewis' Sutherland, Statutory Construction (2d Ed.) vol. 2, p. 931; Attorney General v. Donaldson, 10 M. & W. 117; Huggins v. Bambridge, Willes, 241; Stoughton v. Baker, 4 Mass. 522, 3 Am.Dec. 236; State v. Kinne, 41 N.H. 238.

Mr. Justice Story, in 1827, in United States v. Greene, 4 Mason, 427, 26 Fed.Cas. 33, No. 15,258, had before him the right of the United States to sue in the federal courts on a note as the indorsee, the maker and payee being citizens of the same state. The question arose under the Judiciary Act of 1789, c. 20, 1 Stat. 78. Section 11 of that act provided that no civil suit should be brought in either a District or Circuit Court to recover on a promissory note or other chose in action in favor of an assignee, unless such suit might have been prosecuted in such court if no assignment had been made, except in cases of foreign bills of exchange. If that provision applied to the United States, the suit could not be brought. It was held that the language of section 11 could not be construed as applicable to the United States as the government was not expressly named; and section 9 of the Act gave the District Courts jurisdiction of all suits at common law where the United States sues and the matter in controversy amounted, exclusive of costs, to the sum or value of $100.

In United States v. Hoar, 2 Mason, 311, 26 Fed.Cas 329, No. 15,373, Mr. Justice Story, in 1821, declared that, where the government is not expressly or by necessary implication included, it ought to be clear, from the nature of the mischiefs...