Lane v. Industrial Com'r of State of New York, 201

• Decision Date: 07 December 1931
• Docket Number: No. 201,202.,201
• Parties: LANE v. INDUSTRIAL COM'R OF STATE OF NEW YORK. AUERBACH v. INDUSTRIAL COM'R OF STATE OF NEW YORK et al.
• Court: U.S. Court of Appeals — Second Circuit

54 F.2d 338 (1931)

LANE v. INDUSTRIAL COM'R OF STATE OF NEW YORK.

AUERBACH v. INDUSTRIAL COM'R OF STATE OF NEW YORK et al.

Nos. 201, 202.

Circuit Court of Appeals, Second Circuit.

December 7, 1931.

John J. Bennett, Jr., Atty. Gen., and Joseph A. McLaughlin, Asst. Atty. Gen. in Charge (Isaac Frank, Dep. Asst. Atty. Gen., and H.A. Robichon, of Huntington, N.Y., of counsel), for appellant.

Rosenberg, Goldmark & Colin, of New York City (Godfrey Goldmark, of New York City, of counsel), for respondent Irving Trust Co., Trustee.

Samuel C. Duberstein, of New York City (Jacob Frummer, of Brooklyn, N.Y., of counsel), trustee and attorney for trustee.

Before MANTON, L. HAND, and SWAN, Circuit Judges.

MANTON, Circuit Judge.

These appeals involve substantially the same questions and will be considered and disposed of in one opinion.

The industrial commissioner of the state of New York, claiming a legal right so to do, files claims for injured employees against the estates in bankruptcy of Lane and Auerbach. Benjamin Lane employed Topal and Garguilo, both of whom, while engaged in such employment, sustained injuries for which the State Industrial Board awarded compensation which was not fully paid before adjudication in bankruptcy, on April 19, 1928. Compensation was awarded to Topal on June 20, 1927, and to Garguilo on March 21, 1928.

Lane was covered by a policy of compensation insurance as approved by the Compensation Act, and D. Auerbach & Sons were self-insurers as permitted by section 50 of the Compensation Law (Laws 1914, c. 41, as amended Consol. Laws, c. 67) which provides that, upon satisfactory proof as to financial ability to compensate for himself, the employer may be permitted by the commission to be a self-insurer, and may be required to make a deposit to secure his liability to pay compensation provided for. Auerbach deposited $5,000. Awards were made to the four employees of Auerbach who were injured while in the bankrupt's employ. The payments were not made in full before adjudication in bankruptcy on August 22, 1930. The commissioner filed these claims asking priority in payment of them as debts under section 64b (5) and (7) of the Bankruptcy Act, 11 USCA § 104(b) (5) and (7).

The state Compensation Act (section 34) grants preferences as follows: "Compensation shall have the same preference or lien against the assets of the carrier or employer without limit of amount as is now or may hereafter be allowed by law to the claimant for unpaid wages or otherwise."

And section 22 of the Debtor and Creditor Law of the state of New York (Consol. Laws, c. 12) prefers wages, salaries, and claims of workmen in the distribution of assets under all assignments made pursuant to that act which are actually owing to the employees of the assignor at the time of the execution of the assignment, for services rendered within three months prior to the execution of the assignment, not exceeding $300 to each employee. It is argued that, by virtue of these state acts, the respective employees, having a claim for workmen's compensation, are entitled to preferences under the provisions of the Bankruptcy Act. Section 64b of the Bankruptcy Act provides:

"The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment shall be. * * *

"(5) 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 the proceeding, not to exceed $600 to each claimant; * * *

"(7) debts owing to any person who by the laws of the States or the United States is entitled to priority: Provided, That the term `person' as used in this section shall include corporations, the United States and the several States and Territories of the United States."

But section 22 of the Debtor and Creditor Law of the state of New York grants preferences only in case there is a general assignment. There has been no general assignment here, but bankruptcy has ensued and the provision of the state law is inapplicable, unless it might be said that the debt here considered falls within section 64b (7) of the Bankruptcy Act. It will be noted that a debt owing to any person preferred by the laws of a state or the United States is entitled to priority. The Legislature of the state of New York could not give priority in bankruptcy proceedings for a wage claim or for a claim arising out of compensation for workmen's injury, and the state Legislature did not attempt to do so. It granted priority in the case of a general assignment under the Debtor and Creditor Law. Nor may the claims here in question be regarded as wages due to workmen under subdivision 5, § 64b, of the Bankruptcy Act, or debts entitled to priority. At the time of the enactment of the 1898 Bankruptcy Act, there was no basis of employers' liability fixed by a compulsory compensation for injuries to employees. It was not until after 1913, when a state constitutional amendment was adopted, effective in 1914, that the New York Legislature enacted a valid Workmen's Compensation Law (Laws 1914, c. 41). This act was sustained by the state's highest court. Matter of Jensen v. Southern Pac. Co., 215 N.Y. 514, 109 N.E. 600, L.R.A. 1916A, 403, Ann. Cas. 1916B, 276; White v. N.Y.C.R.R., 216 N.Y. 653, 110 N.E. 1051. This latter case was later affirmed in the Supreme Court (N. Y. Central R.R. v. White, 243 U.S. 188, 37 S. Ct. 247, 254, 61 L. Ed. 667, L.R.A. 1917D, 1, Ann.Cas. 1917D, 629), where the court said: "And we recognize that the legislation under review does measurably limit the freedom of employer and employee to agree respecting the terms of employment, and that it cannot be supported except on the ground that it is a reasonable exercise of the police power of the state. In our opinion it is fairly supportable upon that ground. And for this reason: The subject matter in respect of which freedom of contract is restricted is the matter of compensation for human life or limb lost or disability incurred in the course of hazardous employment, and the public has a direct interest in this as affecting the common welfare."

In Cudahy v. Parramore, 263 U.S. 418, 44 S.Ct. 153, 154, 68 L. Ed. 366, 30 A.L.R. 532, the Supreme Court pointed out that workmen's compensation legislation rests upon the idea of status, not upon that of implied contract, and said: "The liability is based, not upon any act or omission of the employer, but upon the existence of the relationship which the employee bears to the employment because of and in the course of which he has been injured."

See, also, North Alaska Salmon Co. v. Pillsbury, 174 Cal. 1, 162 P. 93, L. R. A. 1917E, 642; Ocean Accident & Guaranty Corp. v. Industrial Commr., 32 Ariz. 265, 257 P. 641.

The New York Court of Appeals at first said, in Post v. Burger, 216 N.Y. 544, 111 N.E. 351, Ann. Cas. 1916B, 158, that the liability imposed by the state Compensation Law was impliedly read into the contract of employment, and later in Doey v. Howland, 224 N. Y. 30, 120 N.E. 53, 54, said: "These payments are made irrespective of whether or not...