People of State of Illinois Gordon v. Campbell

Decision Date23 December 1946
Docket NumberNo. 35,35
Citation67 S.Ct. 340,329 U.S. 362,91 L.Ed. 348
PartiesPEOPLE OF STATE OF ILLINOIS ex rel. GORDON, Director of Labor, v. CAMPBELL, Collector of Internal Revenue. Re
CourtU.S. Supreme Court

[Syllabus from pages 362-364 intentionally omitted] Mr.Albert E. Hallett, of Chicago, Ill., for petitioner.

Mr. J. Louis Monarch, of Washington, D.C., for respondent.

Mr. Justice RUTLEDGE delivered the opinion of the Court.

This case was companion to People of State of Illinois ex rel. Gordon v. United States, 328 U.S. 8, 66 S.Ct. 841, decided last term, but brings for settlement other problems raised by a conflict of claims between the United States and the State of Illinois. The conflict concerns whether one or the other claimant is entitled to priority of payment from assets of a common debtor. The Illinois Supreme Court dealt with both cases in a single opinion. 391 Ill. 29, 62 N.E.2d 537. Certiorari was granted in each. 327 U.S. 771, 66 S.Ct. 683; 327 U.S. 772, 66 S.Ct. 683. On the same day that People of State of Illinois ex rel. Gordon v. United States, supra, was decided this case was restored to the docket and assigned for reargument before a full bench, People of State of Illinois ex rel. Gordon v. Campbell, 66 S.Ct. 957, because of the presence of the questions not determined by that decision.

The controversy arose on June 29, 1942, when the Director of Labor of Illinois brought suit in the Circuit Court of Cook County, Illinois, to enforce against the Chicago Waste and Textile Company a statutory lien for unemployment compensation contributions due the state. Associated Agencies, Inc.,1 was a creditor of the Chicago Waste and Textile Company. In his complaint the Director alleged that Associated Agencies had obtained a judgment against its debtor in the Municipal Court of Chicago and that execution had issued on this judgment June 3, 1942, but that the interest of Associated Agencies was subordinate to that of the lien sought to be foreclosed. This, 'for the reason that the execution upon said judgment was issued long after notice of the lien of the Director of Labor was recorded with the Recorder of Deeds.'2 The Director alleged further upon information and belief that the Chicago Waste and Textile Company was insolvent and that 'the personal property subject to the lien herein being foreclosed, is scant secu ity for the debt due the Director of Labor * * * and that unless a receiver be appointed for all of said property, pending a full and complete hearing upon the issues herein, the plaintiff will suffer financial loss and said property will be wasted.'

Granting the immediate relief requested, the Circuit Court enjoined all creditors of the Chicago Waste and Textile Company from interfering with the property of the company, whether by judicial action3 or otherwise, and also appointed a receiver 'for the property of the Chicago Waste and Textile Company.'

Subsequently respondent, the Collector of Internal Revenue for the First District of Illinois, filed claims on behalf of the United States amounting to $1,954.07 plus interest. Of this amount, $522.91 was for federal insurance contribution taxes and $1,431.16 was for federal unemployment taxes. Of the federal insurance contribution taxes, $229.91 represented employees' taxes, see Helvering v. Davis, 301 U.S. 619, 57 S.Ct. 904, 81 L.Ed. 1307, 109 A.L.R. 1319, collected by the employer under stat- utory withholding provisions. Internal Revenue Code §§ 1400, 1401, 26 U.S.C.A. Int.Rev.Code, §§ 1400, 1401. The Collector also filed an intervening petition, alleging that the debtor was insolvent and asking that the claims of the United States be allowed as claims entitled to priority of payment immediately after costs of administration and before payment of other creditors. The Director of Labor answered, denying that the claims of the United States were entitled to priority over the claims of Illinois.

The receiver realized $677.81 from sale of the debtor's property and this amount was deposited with the clerk of the Circuit Court. A hearing was held, and the court ordered that ninety per cent of the funds on deposit be given to the Director of Labor and the other ten per cent to the United States. The Collector appealed to the Appellate Court for the First District. On motion of the appellee, the cause was transferred to the Supreme Court of Illinois on jurisdictional grounds.

The state Supreme Court held that the United States was entitled to priority over the State of Illinois as to its claim for federal insurance contribution taxes.4 Whether it was correct to award this priority is the issue we now have to decide.

People of State of Illinois ex rel. Gordon v. United States, 328 U.S. 8, 66 S.Ct. 841, held that in circumstances which called into application Rev.Stat. § 3466, 31 U.S.C. § 191, 31 U.S.C.A. § 191, the claims of the United States for federal insurance contributions taxes under Title 8 of the Social Security Act, 49 Stat. 620, 636, 42 U.S.C.A. § 1001 et seq., and for federal unemployment compensation taxes under Title 9 of the Social Security Act, 49 Stat. at page 639, 42 U.S.C.A. § 1101 et seq., had priority over claims of Illinois for taxes under its Unemploy- ment Compensation Act.5 That decision is controlling, of course, upon the same feature of this case, although the federal insurance contributions taxes claimed by the United States arise under the 1939 am ndments of the Social Security Act, rather than, as in the case last term, under the original act itself. Compare §§ 801, 802, 804, 807(c) of the original Social Security Act, 49 Stat. 620, 42 U.S.C.A. §§ 1001, 1002, 1004, 1007(c), with §§ 1400, 1401, 1410, and 1430 of the Internal Revenue Code, 53 Stat. 175 as amended by 53 Stat. 1381, 26 U.S.C.A. Int.Rev.Code, §§ 1400, 1401, 1410, 1430.


But the state urges that § 3466 does not apply in the facts of this case. This argument, as well as another, that the lien of the state was so specific and perfected as to defeat the priority, if any, of the United States under Rev.Stat. § 3466, must be met before the case can be affirmed on the authority of People of State of Illinois ex rel. Gordon v. United States, supra.

Rev.Stat. § 3466 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 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.'

The fifth act of bankruptcy, which is the one on which the Government relies as having brought § 3466 into operation, consists of a person's6 having,

'(5) while insolvent or unable to pay his debts as they mature, procured, permitted, or suffered voluntarily or involuntarily the appointment of a receiver or trustee to take charge of his property.' 52 Stat. 844, 11 U.S.C. § 21, sub. a, 11 U.S.C.A. § 21, sub. a.

The state contends, first, that the receiver appointed at its instance was not a receiver within the meaning of this provision and, second, that the Chicago Waste and Textile Company was not shown by the record to be insolvent.

This Court has noted that the view has been expressed that to satisfy the fifth act of bankruptcy 'the receivership must be general, as contrasted with a receivership incidental to the enforcement of a lien.' Duparquet Huot & Moneuse Co. v. Evans, 297 U.S. 216, 224, 56 S.Ct. 412, 416, 80 L.Ed. 591. 7 It has not determined the correctness of that view, Emil v. Hanley, 318 U.S. 515, 521, note 5, 63 S.Ct. 687, 690, 8 L.Ed. 954, nor need we do so now. For, though the receiver was appointed at the instance of a secured creditor, as in United States v. State of Texas, 314 U.S. 480, 483, 484, 62 S.Ct. 350, (351), 352, 86 L.Ed. 356, 'any limitations upon the operation of § 3466 (with) might otherwise have flowed from this circumstance * * * were removed by the subsequent character of the proceeding.' The receiver was placed in control of all the assets of the Chicago Waste and Textile Company, and all of the assets were liquidated. At least one party other than the secured creditor which had instituted the proceeding, namely, the United States, was allowed to intervene and was heard. 'We think that realities require us to treat the proceeding as a general equity receivership within the scope of § 3466.' United States v. State of Texas, supra.

Moreover, it is questionable whether the fact of insolvency is properly contestable by the State of Illinois. The receiver was appointed upon the allegations of its complaint, which included insolvency, and the state admitted in its answer to the Government's intervening petition that the debtor was insolvent. Although ordinarily the doctrine of estoppel or that part of it which precludes inconsistent positions in judicial proceedings is not applied to states,8 in the present litigation Illinois is in the position of any lien creditor.

It would seem therefore that in these circumstances the state should be held estopped to contest insolvency. But in any event the record demonstrates that the debtor was insolvent at the time of the appointment of the receiver for when its property was liquidated there was not enough to satisfy the claims of the two contesting creditors at the bar.

Thus, the fifth act of bankruptcy was committed and in consequence the United States has the benefit of the priority given it by Rev.Stat. § 3466. We therefore turn to the argument of the state that the specificity of its lien defeated this priority.


The United States was given the priority now incorporated in Rev.Stat. §...

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