United States v. Birmingham Trust & Sav. Co.

• Decision Date: 12 April 1919
• Docket Number: 3304.
• Citation: 258 F. 562
• Parties: UNITED STATES v. BIRMINGHAM TRUST & SAVINGS CO. In re STANDARD HOME CO.
• Court: U.S. Court of Appeals — Fifth Circuit

258 F. 562

UNITED STATES v. BIRMINGHAM TRUST & SAVINGS CO.

In re STANDARD HOME CO.

No. 3304.

United States Court of Appeals, Fifth Circuit.

April 12, 1919

Walker Circuit Judge, dissenting. [Copyrighted Material Omitted]

Oliver D. Street, Sp. Asst. U.S. Atty., of Guntersville, Ala.

John P Tillman and Wm. Bew White, both of Birmingham, Ala., for appellee.

Before PARDEE, WALKER, and BATTS, Circuit Judges.

PARDEE, Circuit Judge (after stating the case as above).

The right of the United States to present a claim in a bankruptcy case at any time while the bankruptcy is pending and the funds thereof are not distributed cannot be disputed.

The right of the United States to claim priority under section 3466, R.S. (comp. St. Sec. 6372), was unquestionably modified and restricted by section 57j of the Bankruptcy Act (Comp. St. Sec. 9641). Guarantee, etc., Company v. Title Guaranty, etc., Company, 224 U.S. 152-160, 32 Sup.Ct. 457, 56 L.Ed. 706. And see Robertson v. Howard, 229 U.S. 254, 33 Sup.Ct. 854, 57 L.Ed. 1174. Section 57j of the Bankruptcy Act reads as follows:

'Debts owing to the United States, a state, a county, a district, or a municipality as a penalty or forfeiture shall not be allowed, except for the amount of the pecuniary loss sustained by the act, transaction, or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby and such interest as may have accrued thereon according to law.'

Under the provision of this section it seems clear the right of the United States to claim the penalty or a forfeiture is denied, except as to the actual pecuniary loss suffered by the United States. The fine of $1,000 claimed in this case is unquestionably a penalty. C.C. Sec. 215. See Words and Phrases, vol. 6, verbo 'Penalty'; United States v. Reisinger, 128 U.S. 398, 9 Sup.Ct. 99, 32 L.Ed. 480. As there is no question or suggestion that in the matter of this penalty the United States suffered any pecuniary loss, it cannot be allowed.

As to the costs claimed, a different question is presented, to wit, for the pecuniary loss suffered by the United States in the prosecution and conviction under which the penalty was inflicted. The suggestion made that the costs incurred in such prosecution should be included as a part of the penalty, because when awarded the matter was in the discretion of the court imposing the penalty, does not seem to need consideration. Under the showing made the United States suffered pecuniary loss in all the costs of the case which they paid or incurred in the prosecution of the suit.

The judgment appealed from is reversed, and the cause is remanded, with instructions to permit the United States to prove all their pecuniary loss as charged.

WALKER Circuit Judge (dissenting).

I concur in the conclusion that the decree should be reversed, but not in the conclusion that the claim asserted is not entitled to priority, so far as the amount of the fine adjudged against the bankrupt is concerned.

The question is: Was it intended by section 57j of the Bankruptcy Act to deal with such penalty as the one imposed on the bankrupt corporation following its conviction of the criminal offense charged against it? The language of the provision, considered in the light of the connection in which it was used and of the previously existing law, which was not expressly repealed or modified, furnished some basis for an inference that the subject intended to be dealt with was debts due as penalties or forfeitures arising out of an act, transaction, or proceeding in which creditors of a class mentioned had some pecuniary interest, and that the object was to limit the amount allowable to such a creditor out of the debtor's estate in bankruptcy to the amount of the pecuniary loss sustained, whatever may be the amount of the penalty or forfeiture incurred. The claim asserted in this case is not based on a forfeiture. It is based on a judgment assessing a fine and costs on conviction of a criminal offense. The transaction out of which such penalty arose was one which did not affect the claimant in a pecuniary way. It was the crime of using the mails in the execution of a scheme to defraud parties other than the United States. The language of the provision is such as to indicate that it was assumed or presupposed that the act, transaction, or proceeding referred to is one in which the beneficiary of the penalty or forfeiture has a pecuniary interest. The effect of the provision is to limit the amount allowable to such beneficiary out of the debtor's estate in bankruptcy.

To say the least, it is not made clear that a penalty for criminal misconduct, at any rate such misconduct as does not pecuniarily affect the party entitled to enforce the penalty therefor, was in contemplation. Penalties may be divided into two classes, namely: First, such as are prescribed to secure compliance with pecuniary or contractual obligations; and second, such as are imposed for breaches of duty without regard to pecuniary loss resulting from...