National Foundry Co. of NY v. Director of Int. Rev., 151
| Decision Date | 20 January 1956 |
| Docket Number | No. 151,Docket 23778.,151 |
| Citation | 229 F.2d 149 |
| Parties | NATIONAL FOUNDRY CO. OF N. Y., Inc., Debtor-Appellant, v. DIRECTOR OF INTERNAL REVENUE, Claimant-Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
Max Schwartz, Brooklyn, N. Y. (Schwartz, Rudin & Duberstein, Brooklyn, N. Y., on the brief), for debtor-appellant.
Elliott Kahaner, Asst. U. S. Atty. for Eastern Dist. of N. Y., Brooklyn, N. Y. (Leonard P. Moore, U. S. Atty., Brooklyn, N. Y., on the brief), for claimant-appellee.
Before CLARK, Chief Judge, and MEDINA and WATERMAN, Circuit Judges.
The debtor, National Foundry Co. of N. Y. Inc., filed its petition for arrangement below on March 9, 1954, and on August 2, 1954, a bankruptcy referee confirmed its plan of arrangement. The confirmation order contained an express provision precluding the United States, as well as the State and City of New York, from asserting any claim against the debtor for penalties and interest other than those already filed and allowed, thus excluding any such penalties and interest accruing after the filing of the petition. Thereafter the debtor moved to enjoin the District Director of Internal Revenue in Brooklyn from asserting and taking any steps to collect these tax penalties and interest, and the Director filed a cross motion to set aside the order of confirmation or in the alternative to strike out the restraining order as to the claims of the United States. The referee denied the motion of the debtor and granted the Director's alternative motion to eliminate the constraint upon the United States. On petition for review by the debtor the referee's order was affirmed by Judge Bruchhausen, whose reasoned opinion is reported in D.C.E.D.N.Y., 130 F.Supp. 678. The debtor's appeal followed.
In his opinion the district judge, while stating that "It is questionable whether the tax assessment and interest thereon are legally collectible," went on to say, "Collectibility, however, is not an issue in this case." 130 F.Supp. 678, 680. And the appellee argues vigorously that the remedy sought by the debtor is not available in tax cases, whether the tax is collectible or not. Nevertheless it is quite apparent that this is not a mere sham battle over the niceties of remedy, but is and is intended to be a direct and necessary step by the appellee toward attempted collection of these claims. In his brief appellee quotes the referee to define the issue now before us as being whether or not the court can restrain the Director from taking action "to assess and collect penalties arising in connection with the tax claim filed and allowed in the arrangement proceeding, with post bankruptcy interest alleged to be due on the tax claim." He supplements this by saying, "While the Appellee agrees with Referee Castellano's memorandum that the tax items are proper, as they were not discharged in the Bankruptcy proceedings," though he concludes with what seems to us the non sequitur that "this issue is not before the Court." For we conceive the decisive question to be whether or not there are any penalties or interest now due the government.
In truth, we had supposed that previous decisions had settled that there were none due under the circumstances. The question of the accruing of interest and tax penalties during bankruptcy had divided the courts, including different panels of our own court, until the case of City of New York v. Saper, 336 U.S. 328, 69 S.Ct. 554, 93 L.Ed. 710, and other companion cases settled that such claims, whether federal or state, were not collectible in bankruptcy, including reorganization and arrangement proceedings. Thereafter we construed the meaning and intent of this principle to be that such claims could not thereafter be used to harass a reorganized corporation as it attempted anew to face the vicissitudes of business life. It is true that Sword Line v. Industrial Commissioner of State of New York, 2 Cir., 212 F.2d 865, certiorari denied 348 U.S. 830, 75 S.Ct. 53, 99 L.Ed. 654,...
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Boston and Maine Corp., In re
...358, 96 L.Ed. 682 (1952); direct actions against a debtor after the confirmation of an arrangement, National Foundry Co. v. Director of Internal Revenue, 229 F.2d 149, 150-51 (2d Cir.1956); and Section 77 railroad reorganizations, In re Penn Central Transportation Co., 358 F.Supp. 154, 170 ......
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...seq. Again, in Sword Line v. Industrial Commissioner of State of N. Y., 2 Cir., 1954, 212 F.2d 865 and National Foundry Co. of N. Y. v. Director of Int. Rev., 2 Cir., 1956, 229 F.2d 149 the Court went further and held that post-bankruptcy interest on tax claims was not collectible in a dire......
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