Rivard v. Bijou Furniture Co.

• Decision Date: 23 July 1941
• Docket Number: No. 1552.,1552.
• Citation: 21 A.2d 563
• Parties: RIVARD et al. v. BIJOU FURNITURE CO.
• Court: Rhode Island Supreme Court

21 A.2d 563

RIVARD et al.

v. BIJOU FURNITURE CO.

No. 1552.

Supreme Court of Rhode Island.

July 23, 1941.

On Reargument Oct. 23, 1941.

On Reargument

Appeal from Superior Court, Providence and Bristol Counties; Jeremiah E. O'Connell, Judge.

Suit by Albert J. Rivard and others against the Bijou Furniture Company for the dissolution of the Bijou Furniture Company and for the appointment of a receiver, wherein the United States filed a claim for taxes due under the Social Security Act § 801 et seq, 42 U.S.C.A. § 1001 et seq. From the decree, the United States appeals.

Reversed.

Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, J. Louis Monarch, Alvin J. Rockwell, and C. Stanley Titus, Sp. Assts. to Atty. Gen., all of Washington, D. C, and George F. Troy, U. S. Atty., and Joseph Veneziale, Asst. U. S. Atty., both of Providence, for the United States.

Paul H. Hodge, of Providence, for Rhode Island Unemployment Compensation Board.

R. DeBlois LaBrosse, of Pawtucket, for the receiver.

CAPOTOSTO, Justice.

This is a bill of complaint praying for the dissolution of the defendant corporation and for the appointment of a receiver. The only question which is now before us in this cause is that of priority as to the following claims: A claim of $230.51 by the United States for taxes due to the federal government for the years 1937 to 1940, solely under Title VIII of the Federal Social Security Act, c. 531, 49 Stat. 620, as amended, 42 U.S.C.A. § 1001 et seq., hereinafter called the Federal Act; a claim by the State of Rhode Island for corporate excess taxes in the sum of $145.74; a claim of $155.09 by the State of Rhode Island for contributions to the unemployment compensation fund of this state, under general laws 1938, chapter 284, as amended, entitled Unemployment Compensation Act, hereinafter called the Compensation Act; and a claim of the city of Central Falls for taxes in the sum of $507.47.

For the purposes of this cause, it is admitted: First, that the claim of the United States under the Federal Act is correct in amount and was due prior to the receivership proceedings; second, that the claim of the State of Rhode Island under the Compensation Act falls in the same category; third, that no lien is involved; and fourth, that after payment of administration expenses, the total remaining assets of the insolvent's estate is the sum of $310.02. In these circumstances, the trial justice directed the receiver to pay in full the claim of the State of Rhode Island under the Compensation Act, and to pay, pro rata, the other three claims. The United States has appealed to this court from a decree of the superior court entered in accordance with this ruling.

The United States contends that under the U. S. Revised Statutes, sec. 3466, 31 U. S.C.A. § 191, its claim is entitled to priority over all other claims, and that such claim should be paid in full, if there is sufficient money in the hands of the receiver, before payment in any amount is made to other claimants. The pertinent part of that statute is as follows: "Whenever any person indebted to the United States is insolvent, * * * the debts due to the United States shall be first satisfied * * *."

Sec. 3466 is of ancient origin. Act of 1797, c. 20, 1 Stat. 515. It was amended by an Act of 1799, § 65, c. 22, 1 Stat. 676. Its language has been varied very little since these original enactments. The section has been repeatedly considered by the supreme court of the United States, which has consistently held that such section, when applicable, was to be liberally construed in favor of the federal government. United States v. Knott, 298 U.S. 544, 56 S.Ct. 902, 80 L.Ed. 1321, 104 A.L.R. 741; New York v. Maclay, 288 U.S. 290, 53 S.Ct. 323, 77 L.Ed. 754; Spokane County v. United States, 279 U.S. 80, 49 S.Ct. 321, 73 L.Ed. 621; United States v. Butterworth-Judson Corp., 269 U.S. 504, 46 S.Ct. 179, 70 L.Ed. 380; Stripe v. United States, 269 U.S. 503, 46 S.Ct. 182, 70 L.Ed. 379; Price v. United States, 269 U.S. 492, 46 S.Ct. 180, 70 L.Ed. 373; Bramwell v. United States Fidelity & Guaranty Co., 269 U.S. 483, 46 S.Ct. 176, 70 L.Ed. 368; United States v. National Surety Co., 254 U.S. 73, 41 S.Ct. 29, 65 L.Ed. 143; United States v. Snyder, 149 U.S. 210, 13 S.Ct. 846, 37 L.Ed. 705.

In Price v. United States, supra, where competing tax claims of federal and state governments were under consideration, the word "debts" used in the section was held to include taxes. That case, and other subsequent decisions of the United States Supreme Court to the same effect, were cited with approval in Spokane County v. United States, supra, where the issue also was the priority of federal non-lien tax claims over similar claims of the state government or subdivisions thereof. It is now beyond question that in an equity receivership non-lien tax claims of the United States, arising before the appointment of a receiver, have priority over all other competing claims of a similar character. Spokane County v. United States, supra.

In view of these decisions, firmly binding on us, we find clear error in the ruling of the trial justice, which denies priority to the claim of the United States over the claim of the State of Rhode Island for corporate excess taxes and the claim for taxes by the city of Central Falls. As the United States suggests, the trial justice may have fallen into this error by confusing the rule of priority in bankruptcy cases with that which controls in receivership proceedings. The priorities in these two classes of cases are quite different and must be kept in mind to avoid confusion and error. Sec. 3466, which applies in receivership proceedings, has no application in bankruptcy cases, and vice versa. Hence, federal claims have generally been preferred in equity receiverships, without regard to the order of payment established by the Bankruptcy Act, 11 U.S.C.A. § 1 et seq, or state priority laws. Matter of Kupshire Coats, Inc., v. United States, 1936, 272 N.Y. 221, 5 N.E.2d 715; Matter of Lincoln Chair & Novelty Co., Inc., 1937, 274 N.Y. 353, 9 N.E.2d 7; Matter of Dickson's Estate, 1938, 197 Wash. 145, 84 P.2d 661. For a discussion of this point, with the citation of numerous decisions, see Rogge, The Differences in the Priority of the United States in Bankruptcy and in Equity Receiverships (1929), 43 Harvard Law Rev. 251.

The real question in this case is whether sec. 3466 gives priority to the claim of the United States for taxes under the Federal Act over the claim of the State of Rhode Island for the "contributions" of employers and employees of this state to the state unemployment fund under the Compensation Act. This question is of first impression and not free from doubt. No authority, dealing even indirectly with the precise point now before us, has been cited by the parties, and we have found none.

We are aware that in Price v. United States, supra, the supreme court of the United States, in holding that the word "debts" in sec. 3466 included taxes, stated that the purpose of that section was not to be defeated by unnecessarily restricting the application of the word "debts" within a narrow or technical meaning. We do not construe this statement of that court as a mandate that, because of sec. 3466, all claims of the United States shall be accorded priority in equity receiverships without regard to existing circumstances, and in disregard of interrelated social legislation by federal and state governments which is designed to accomplish a common purpose. This brings us to a consideration of the character of the claims advanced by the United States and the State of Rhode Island in the instant cause.

It is clear that the Federal Act and the Compensation Act are comparatively recent enactments of progressive social legislation intended to alleviate the principal causes of insecurity in the economic life of this country. When a state compensation act is approved by the United States in accordance with the provisions of the Federal Act, the two statutes interlock in a number of material respects, the following being of special significance: First, the grant of money to the state by the federal government to help defray the cost of administering the Compensation Act; and second, the retention of custody and control by the United States over the compensation fund, which the state can use solely to pay unemployment benefits.

The Federal Act itself does not establish a system of unemployment compensation, since no provision is made therein for the payment of benefits to the unemployed. It defines such a system and seeks to encourage the state, by way of grants and other inducements, to establish that system for relief of its unemployed. Upon the adoption by the state and approval by the United States of such a system, the state is charged with direct responsibility for the administration of its own unemployment compensation laws, subject however to the guidance and assistance of the federal government.

The Compensation Act of this state which has been approved by the United States, in accordance with the provisions of the Federal Act, establishes an Unemployment Compensation Fund and an Unemployment Administration Fund. The moneys in each of these funds come from different sources and are to be used for entirely different purposes. The compensation fund receives only the moneys which the Compensation Act requires certain employers and employees to pay as their respective "contributions" to that fund, plus whatever other sums may accrue by way of interest or penalties for delay or nonpayment of such contributions. The administration fund consists of all moneys received by the state from the United States and other sources for the administration of the Compensation Act. The moneys in the former fund can be used solely for the payment of benefits to the unemployed, while the moneys in the latter fund can be used only for administrative purposes.

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