Standard Oil Company v. Kurtz

• Decision Date: 15 April 1964
• Docket Number: No. 17299.,17299.
• Citation: 330 F.2d 178
• Parties: STANDARD OIL COMPANY, an Indiana Corporation, Appellant, v. Edward H. KURTZ, Trustee of Meadow Rock Company, Bankrupt, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

330 F.2d 178 (1964)

STANDARD OIL COMPANY, an Indiana Corporation, Appellant, v. Edward H. KURTZ, Trustee of Meadow Rock Company, Bankrupt, Appellee.

No. 17299.

United States Court of Appeals Eighth Circuit.

April 15, 1964.

Joseph J. Barmettler, Omaha, Neb., for appellant, James W. R. Brown and Lyle E. Strom, of Fitzgerald, Hamer, Brown & Leahy, Omaha, Neb., on the brief.

Robert H. Berkshire, of Swarr, May, Royce, Smith, Andersen & Ross, Omaha, Neb., for appellee.

Before VAN OOSTERHOUT and BLACKMUN, Circuit Judges, and DAVIES, District Judge.

BLACKMUN, Circuit Judge.

Standard Oil Company appeals from the district court's order affirming the Referee's denial of Standard's claim for priority under § 64, sub. a(4) of the Bankruptcy Act, 11 U.S.C.A. § 104, sub. a(4).¹ The controversy concerns the Nebraska tax imposed by R.R.S. Neb.1943, ch. 66, art. 4, with respect to "motor vehicle fuels". The facts are stipulated.

On an involuntary petition, Meadow Rock Company, Springfield, Nebraska, was adjudged bankrupt on October 3, 1960. Standard filed its claim in the amount of $49,519.11 for gasoline and other petroleum products sold to the bankrupt on open account and not paid for at the time of the bankruptcy. Later Standard moved that two components of this claim be classified as entitled to the fourth priority. One component, comprising $5,860.84, was the amount of the Nebraska "Motor Fuel Excise Taxes". The other component was the amount of the federal gasoline and lubricating oil excise taxes imposed under §§ 4081 and 4091, as amended, of the Internal Revenue Code of 1954. The Referee refused these priorities but he allowed the claim in its entirety as a general claim. Standard appeals only with respect to the Nebraska tax and no longer asserts priority for the federal taxes.

By written contract Standard agreed to sell and deliver gasoline to the bankrupt at the latter's plant in Nebraska. Meadow Rock agreed to pay, in addition to the stated price, "any tax, excise * * * or other like charge levied, assessed or imposed upon the products sold hereunder, or on the manufacture, storage, sale, transportation, delivery, use and/or consumption thereof". Pursuant to this contract, Standard sold the bankrupt the gasoline now covered by its claim. This gasoline was delivered between October 1959 and July 1960 in transport trucks operating from Standard's terminal in Iowa, near Council Bluffs, direct to the bankrupt's facilities in Nebraska. The fuel was for Meadow Rock's own use and was not for resale; it was in fact consumed by the bankrupt.

Standard prepared an invoice for each delivery. The invoice, as did those covering earlier deliveries for which Meadow Rock had made payment, stated the price of the commodity sold, exclusive of all taxes, and then separately itemized the Nebraska tax and the federal tax. Standard made fuel tax reports monthly to the Nebraska Motor Fuels Division of the Department of Agriculture and Inspection. It set forth therein, with clear and appropriate designation of its vendees, the deliveries it had made during the month including those to the bankrupt. These reports carried a computation, after a deduction (hereinafter referred to) of 3% for shrinkage, of the 7¢ per gallon Nebraska tax. The tax, less a collection charge (also hereinafter referred to), was remitted by Standard to the State with the report. These Nebraska payments made by Standard were substantial (aggregating $3,342,556.18 for the ten months from October 1959 to July 1960, both inclusive), and included the $5,860.84 now in controversy. The bankrupt filed no report and made no payment direct to Nebraska.

The Referee in his conclusions observed that the fourth priority clause "is to protect the sovereign"; that, however, such protection was not involved here because Nebraska had been paid and was not "interested in any degree or in any manner in these particular funds"; that it is not sufficient under the Act that taxes are involved; that they must be taxes "legally due and owing"; that this means taxes due and owing on the date the bankruptcy proceeding was instituted; that there were no taxes then due and owing because they had been paid; that all that remained was Standard's right to collect an equivalent amount of money from the bankrupt; that the bankrupt owed Standard no taxes but only reimbursement; and that subrogation cannot clothe Standard with the cloak of sovereignty.

The district court in affirming stated merely that it was "satisfied from the record that the Referee's findings of fact are supported by the evidence and that he reached a proper conclusion".

Standard's argument here is that the Nebraska tax is one imposed upon the consumer; that the latter is primarily liable for it; that when Standard, as dealer, paid the tax it became subrogated to the State's priority in the bankruptcy proceedings; and that the bankrupt's obligation did not cease when Standard paid the tax. The trustee, on the other hand, asserts that the tax is not on the bankrupt; that Standard is thus not entitled to priority; and that the claim is not one for "taxes legally due and owing * * * to * * * any State".

For purposes of this case, we may accept the trustee's argument that the fourth priority clause of § 64, sub. a, is to be strictly construed and that the burden of establishing a priority is on the claimant. See Goldie v. Cox, 130 F.2d 690, 693 (8 Cir. 1942); In re North Atlantic & Gulf S. S. Co., 192 F.Supp. 107, 108 (S.D.N.Y.1961); In re American Anthracite & Bituminous Coal Corp., 171 F.Supp. 377, 382 (S.D.N.Y.1959), aff'd 280 F.2d 119 (2 Cir.); In re Witt Dairy Co., 48 F.Supp. 964, 968 (N.D.Cal. 1942); 3 Collier on Bankruptcy (14th ed.), Par. 64.02 6. Compare In re Oshkosh Foundry Co., 28 F.Supp. 412, 413 (E.D.Wis.1939); In re Raflowitz, 37 F.Supp. 202, 204 (D.Conn.1941). "The broad purpose of the Bankruptcy Act is to bring about an equitable distribution of the bankrupt's estate", Kothe v. R. C. Taylor Trust, 280 U.S. 224, 227, 50 S.Ct. 142, 143, 74 L.Ed. 382 (1930), and "if one claimant is to be preferred over others, the purpose should be clear from the statute". Nathanson v. NLRB, 344 U.S. 25, 29, 73 S.Ct. 80, 83, 97 L.Ed. 23 (1952); United States v. Embassy Restaurant, Inc., 359 U.S. 29, 31, 79 S.Ct. 554, 3 L.Ed.2d 601 (1951).²

Furthermore, whether a given obligation is a tax within the meaning of the fourth priority clause is a federal question and is not to be controlled "by the particular characterization by local law or the state's demand". New York v. Feiring, 313 U.S. 283, 285, 61 S.Ct. 1028, 1029, 85 L.Ed. 1333 (1941); New Jersey v. Anderson, 203 U.S. 483, 492, 27 S.Ct. 127, 51 L.Ed. 284 (1906); City of New York v. Rassner, 127 F.2d 703, 706 (2 Cir. 1942); 3 Collier on Bankruptcy (14th ed.), Par. 64.404, p. 2155. Nevertheless, one is to turn to the state statute, and to state court decisions interpreting it, "not to learn whether they have denominated the obligation a `tax' but to ascertain whether its incidents are such as to constitute a tax within the meaning of § 64", that is, whether it is a pecuniary burden "laid upon individuals or their property, regardless of their consent, for the purpose of defraying the expenses of government or of undertakings authorized by it". New York v. Feiring, supra, p. 285 of 313 U.S., p. 1029 of 61 S.Ct., 85 L.Ed. 1333; New Jersey v. Anderson, supra, p. 492 of 203 U.S., p. 140 of 27 S.Ct.; United States v. New York, 315 U.S. 510, 515-516, 62 S.Ct. 712, 86 L.Ed. 998 (1942).

With these general principles in mind, we examine the Nebraska statutes. This material, as has been noted, is contained in Article 4, Chapter 66, R.R.S.Neb.1943, and consists of some 60 sections.

A "dealer" is defined by § 66-401(3) to include, among others, any corporation which imports motor vehicle fuel into Nebraska for use in that state. The dealer shall procure a license and deposit cash or furnish a bond conditioned for the payment of all taxes and penalties which may be assessed against it under the first 25 sections. § 66-403. It must keep a complete and accurate record and by the 15th³ of each calendar month it shall file a gallonage statement on prescribed forms. §§ 66-408 and 66-409. When the statement is filed the "dealer shall * * * pay a tax of seven cents per gallon upon all motor vehicle fuels as shown by such statement". § 66-410. But the dealer who has so paid "said tax * * * or being liable for its payment, shall collect the amount thereof from any person, firm or corporation to whom said motor vehicle fuel is sold in this state, along with the selling price thereof". § 66-411. A dealer's failure to pay the tax when due results in the imposition of interest and a civil suit for collection, § 66-416, and such failure to pay or to file the required statement may result in license suspension or revocation and an automatic penalty per gallon. §§ 66-417 and 66-418. Under certain circumstances the failure may constitute a misdemeanor. § 66-419.

The dealer is allowed 3% shrinkage. § 66-414. Also, "in lieu of" its collection, remittance and bond expense the dealer "shall be entitled to a commission" of a designated percentage "upon the amount remitted each month". § 66-407. These shrinkage and collection allowances are asserted in the prescribed monthly statement form. There are provisions for refund of tax paid on fuel destroyed by fire or act of God, or consumed by the United States government or its agencies, or sold in a state other than Nebraska, § 66-413, and against double taxation, § 66-415.

These statutes, §§ 66-401 to 66-425, inclusive, thus far described appear to have their origin primarily in Laws 1925, ch. 172, and Laws 1927, ch. 151. They have, of course, been amended and added to from time to time.

Sections 66-428 to 66-431, inclusive, on the other hand, have their origin in Laws 1931, ch. 130. Section 66-428 imposes "upon the use"⁴ of all motor vehicle fuels a...