Spreckels v. Spreckels Sugar Corporation, 460.

• Decision Date: 15 July 1935
• Docket Number: No. 460.,460.
• Citation: 79 F.2d 332
• Parties: SPRECKELS v. SPRECKELS SUGAR CORPORATION et al. CITY OF YONKERS v. HOLTON et al.
• Court: U.S. Court of Appeals — Second Circuit

79 F.2d 332 (1935)

SPRECKELS v. SPRECKELS SUGAR CORPORATION et al. CITY OF YONKERS v. HOLTON et al.

No. 460.

Circuit Court of Appeals, Second Circuit.

July 15, 1935.

Morris L. Rosenwasser, First Asst. Corp. Counsel, and Leonard G. McAneny, Corp. Counsel, both of Yonkers, N. Y., for appellant.

Mitchell, Taylor, Capron & Marsh, of New York City (John B. Marsh and B. A. Brand, both of New York City, of counsel), for appellees.

F. W. H. Adams, U. S. Atty., of New York City (Walter H. Schulman, Asst. U. S. Atty., of New York City, of counsel), for the United States.

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

This is an appeal by the city of Yonkers from a decree in equity directing the property of the two defendants to be sold free and clear of all liens, including taxes. The nature of the original suit does not appear in the record beyond the statement that receivers had been appointed with the customary powers of "equity receivers." Probably it was a creditor's sequestration bill, common in federal courts, and in any case, since the record is silent, we are to suppose that the court had power to sell the assets. The property consisted of a large sugar refinery in the city of Yonkers on the shore of the Hudson river, next to which was a distillery, to convert into alcohol the molasses which is a by-product of sugar refining. The sugar company owned the refinery and all the shares of the syrup company; the syrup company owned the distillery. The receivers for the sugar company were appointed on January 18, 1932, but as the business had been already closed down for nearly two years, they did nothing but sell the product and raw material, after which their activities were limited to preserving the property. Before suit filed the city had imposed taxes upon both properties for the year 1931, and by the time the decree on appeal was entered, January, 1935, taxes for four more years were added, practically all of which were unpaid. The total of principal, interest, and penalties upon the refinery, which was assessed for $2,700,000, was $527,627.05; and upon the distillery, assessed for $363,700, was $66,239.87. The United States asserts excise taxes upon the distillery of $7,000,000 for alcohol unlawfully diverted during prohibition. The receivers wished to dispose of the assets as speedily as possible, for the mere expenses of upkeep were about $15,000 a month; and in 1933 they got a decree for the sale of the refinery and the shares of the distillery. The matter was delayed and the decree was modified in some respects, and in January, 1934, the syrup company was joined as a defendant in the suit, and the receivership extended to it. Finally between March 26 and 31, 1934, a sale was attempted of both properties, separately and jointly in bulk, and the refinery also piecemeal. Its land was divided into parcels, of which at least three, numbered I, J, and K were to be sold free from taxes and the others subject to them. The machinery was divided between fixtures which were subject to taxes and chattels which were not. All three bulk sales were to be subject to taxes. The receivers advertised extensively, distributing over three thousand catalogues and five thousand circulars, but in spite of every effort the sale was a failure. It is true that a bid of $475,000 was made for the distillery but it was payable over ten years, one-tenth a year; while for the free parcels, I, J, and K, of the refinery only $4,150 was bid, and $200 for all the rest of the realty. A bid of about $200,000 was received for the machinery, of which substantially $195,000 was for the free chattels. The court rejected all these bids, and the receivers thereupon asked leave to sell again, this time free from taxes. The United States consented, as it had to the earlier sale, but the city objected, insisting that its liens could not be cleared in this way, and that if they could, there was no evidence of any equity above them. Neither side put in any evidence upon the value of the properties, but it does appear that the receivers had tried in 1933 to reduce both assessments; that upon the refinery to $1,200,000, that upon the distillery to $188,700. The city officials heard them at length, but were willing to make only trifling reductions and the receivers had no money to appeal to the courts. Against the refinery the United States claims income taxes of $1,800, and the state of New York about $90,000, franchise taxes. The district judge upon this showing overruled the objection of the city and passed a decree directing a sale free of tax liens without upset price, all bidders to deposit 25 per cent. in cash to hold their bids; all liens to be transferred to the proceeds. This is the decree from which the city appeals.

The power of a court of bankruptcy to sell free of taxes was settled in Van Huffel v. Harkelrode, 284 U. S. 225, 52 S. Ct. 115, 76 L. Ed. 256, 78 A. L. R. 453, and had been exercised over protest in a suit in equity in Broadway Trust Co. v. Dill, 17 F. (2d) 486 (C. C. A. 3), a decision cited with approval in Van Huffel v. Harkelrode. Indeed the Supreme Court made no distinction between such a lien and any other, and unless a state be...