Pyrites Co. v. Davison Chemical Co.

• Decision Date: 01 August 1933
• Docket Number: No. 2160.,2160.
• Parties: PYRITES CO., Inc., v. DAVISON CHEMICAL CO.
• Court: U.S. District Court — District of Maryland

4 F. Supp. 294

PYRITES CO., Inc., v. DAVISON CHEMICAL CO.

No. 2160.

District Court, D. Maryland.

August 1, 1933.

Rowland K. Adams and O. Bowie Duckett, Jr. (of Adams & Hargest), both of Baltimore, Md., for claimants.

G. Ridgely Sappington and Wilson K. Barnes, both of Baltimore, Md., for receivers of Davison Chemical Co.

CHESNUT, District Judge.

The Davison Chemical Company, a Maryland corporation, is in general equity receivership in this court. The receivers were appointed February 13, 1933. Prior to the receivership David E. Wilson and Frank Gaylor respectively, were employed by the Company. In the course of their employment both were injured prior to the receivership. The injury to Wilson occurred on October 5, 1928; that to Gaylor on December 19, 1931.

Acting under the Longshoremen's and Harbor Workers' Compensation Act (33 US CA §§ 901-950), the Deputy Commissioner made an award of compensation to Wilson by order dated May 8, 1933, to be paid at the rate of $6.34 per week beginning January 27, 1933, and to continue until there is a change in condition, payment to be made weekly. Prior to the making of said award the Davison Chemical Company had voluntarily made weekly payments of compensation to Wilson up to and including January 26, 1933, a total of $1,322.03. In the case of Gaylor, by order passed June 24, 1932, by the Deputy Commissioner, compensation was awarded at the rate of $8.54 per week for the period of 55.5 weeks beginning May 1, 1932, and terminating on or about May 23, 1933; and the Company made payments on account of the award up to and including February 4, 1933. At the time of the appointment of receivers the balance remaining unpaid was $132.37, being for 15.5 weeks at $8.54 per week.

Gaylor's petition asks for the payment of this latter amount as a preferred claim. Wilson's petition points out that under the award to him the maximum possible additional liability of the Company over and above what has previously been paid is $6,177.97, and that a commutation of this amount if made in accordance with the requirements of the Longshoremen's and Harbor Workers' Compensation Act would be the present capital payment of $4,041.80, for which amount he now asks a present preferential payment. The validity of the awards is not questioned. The Davison Chemical Company did not carry compensation insurance before the receivership but filed an indemnity bond which may prove to be insufficient in amount.

The act of Congress known as the Longshoremen's and Harbor Workers' Compensation Act became effective March 4, 1927 (title 33, United States Code, §§ 901-950 33 USCA §§ 901-950). Its constitutionality (with certain constructive implications) has recently been upheld by the Supreme Court in Crowell v. Benson, 285 U. S. 22, 52 S. Ct. 285, 76 L. Ed. 598, and the underlying philosophy and nature of the legislation, and its application, have been recently considered by the Circuit Court of Appeals for this Fourth Circuit in Wheeling Corrugating Co. v. McManigal, 41 F.(2d) 593, 595, and United States Casualty Co. v. Taylor (C. C. A.) 64 F.(2d) 521.

The claim for preference in this case is based on section 17 of the act (33 USCA § 917) which reads as follows: "Compensation a Lien Against Assets. Compensation shall have the same preference of 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."

So far as counsel or the court have been able to discover, there is no prior reported judicial decision construing or applying this section of the law as contained in this act of Congress. But, as stated by Judge Parker, in the Wheeling Corrugating Co. Case, supra, the statute is modeled upon the New York Workmen's Compensation Law (Consol. Laws, c. 67); and section 917 is apparently a reproduction of section 34 of the New York law (as it read before recent amendment). See Lane v. Industrial Commissioner of State of New York, 54 F.(2d) 338, 340 (C. C. A. 2). The question presented here is whether or not by the proper construction of the section, it applies to the compensation awards made to these claimants respectively or any part thereof. While the section is brief and seemingly verbally clear, it nevertheless presents, as a case of first impression, several points for consideration. The preference that is given is (a) the "same" (b) as is "allowed by law" (c) but "without limit of amount" (d) for "unpaid wages or otherwise." The expression "or otherwise" has no apparent application to this case. It is agreed by counsel that the phrase "by law" has reference to the law of the State where the question arises with respect to preference for "unpaid wages." No other meaning of the phrase is presently apparent unless perhaps if the case should arise in bankruptcy (as it does not here, this case being in equity), the bankrupt law may be comprehended by it. The only Maryland statute which is applicable is section 15 of article 47 of the Maryland Code of 1924 (Bagby's Annotated Code of Maryland), the pertinent provisions of which are:

"Whenever any person or body corporate * * * shall have * * * its property or estate taken possession of by a receiver under a decree of a court of equity, in the distribution of the property or estate of such person or body corporate, all the money due and owing from such person or body corporate for wages * * * contracted not more than three months anterior to the * * * appointment of receiver, shall first be paid in full out of such property or estate, after payment of the proper and legitimate costs, expenses, taxes and commissions, and shall be preferred to all claims against the property and estate of such insolvent person or body corporate, except the lien claims of such persons as shall hold liens upon such property or estate, recorded at least three months prior to such assignment, adjudication or decree."

So far as I am aware, there are no creditors holding recorded liens in substantial amount. The corporation was, prior to the receivership, engaged on a very large scale in the manufacture and sale of fertilizers and the business is now being continued by the receivers who have at the present time very substantial cash funds on hand. We are concerned here, therefore, only with the preference, if any, of these compensation awards as against the claims of common creditors.

It will be noted that the Maryland Act limits the preference for wage claims to those due and owing and contracted "not more than three months anterior to the * * * appointment of receiver." But section 917 of the Longshoremen's and Harbor Workers' Compensation Act expressly declares that the preference given by law to unpaid wages shall be "without limit of amount." The principal and important question of construction thus presented is whether or not the limitation as to time of origin of the wage claims, as provided for in the Maryland statute, is literally operative in this case to restrict the extent of the preference in view of the wording of section 917 of the Longshoremen's and Harbor Workers' Compensation Act, which gives the preference "without limit of amount." There is said to be no legislative history of the Act of Congress to aid in the construction.

The question is not free from all doubt. No doubt the Maryland statute must be considered in the light of its construction and application by the Maryland Court of Appeals; and it is entirely clear from a number of decisions therein that wage claims are not entitled to preference unless the wages were due and owing within the three month period prior to the receivership. For illustration see Roberts v. Edio, 85 Md. 181, 186, 36 A. 820; Baltimore Trust Co. v. Rowe, 141 Md. 155, 118 A. 405. See, also, In re Reliable Furniture Co. (D. C. Md.) 32 F.(2d) 805; sub nom. Manly v. Hood, 37 F.(2d) 212 (C. C. A. 4). It is also clear enough from section 917 that the local law determines the rank if not the measure of the lien. A merely literal application of the Maryland statute would give the petitioners only a small portion of the total compensation awards still due them, that is the weekly instalments thereof that matured within three months prior to the receivership on February 13, 1933. If this is the full extent of their preference it may be said that to them it would seem the effect of section 917 is to "keep the promise to the ear but break it to the hope."

There is, however, I think, another permissible view to be taken. It is a fair construction of section 917 that Congress intended in the expression "the same preference" to mean the rank or priority of preference given by the state law. And if so, then clearly by section 917 the extent of the preference here is without limit of amount. And I think it may fairly be said that the chief purpose of the Maryland act in prescribing the three month period was to limit the amount or extent of preference given to unpaid wages. I am not aware of any other local legislative policy in this respect.

A merely literal application of the Maryland statute would fall far short of the evident purpose of Congress in this modern social legislation. "Compensation" is given to the employee as a statutory measured indemnity for a capital...