United States v. General Engineering & Mfg. Co.

• Decision Date: 11 April 1951
• Docket Number: No. 14212.,14212.
• Citation: 188 F.2d 80
• Parties: UNITED STATES v. GENERAL ENGINEERING & MANUFACTURING CO.
• Court: U.S. Court of Appeals — Eighth Circuit

188 F.2d 80 (1951)

UNITED STATES v. GENERAL ENGINEERING & MANUFACTURING CO.

No. 14212.

United States Court of Appeals Eighth Circuit.

April 11, 1951.

Homer R. Miller, Sp. Asst. to Atty. Gen. (Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack and A. F. Prescott, Sp. Assts. to Atty. Gen., Drake Watson, U. S. Atty. and William V. O'Donnell, Asst. U. S. Atty., St Louis, Mo., on the brief), for appellant.

George C. Willson, III, St. Louis, Mo. (Willson, Cunningham & McClellan and James S. McClellan, all of St. Louis, Mo., on the brief), for appellee.

Before SANBORN, WOODROUGH, and JOHNSEN, Circuit Judges.

SANBORN, Circuit Judge.

This is an arrangement proceeding initiated by the debtor (appellee) on November 17, 1948, under Chapter XI of the Bankruptcy Act as amended, 30 Stat. 544, as amended by 52 Stat. 840, 11 U.S.C.A. § 1 et seq. The United States filed a claim for Social Security and withholding taxes with interest to November 17, 1948. It also claimed interest from that date until payment of the tax claim. The Referee in Bankruptcy, to whom the proceeding was referred, allowed the claim except as to interest after November 17, 1948. The United States, in the belief that its claim bore interest until paid, sought a review and reversal of the Referee's order. The District Court confirmed the order of the Referee, and this appeal followed.

The question for decision is whether, in an arrangement proceeding under Chapter XI, a tax claim bears interest after the date of the filing of the debtor's petition.

The facts are stipulated. They are stated in the opinion of the Referee as follows:

"Debtor's petition for an arrangement was filed November 17, 1948. Debtor was originally and for many years had been engaged in the manufacture of shapers (machine tools), but in recent years began the manufacture of commercial air conditioning equipment, which at the time of commencement of these proceedings was its chief business, the manufacture of shapers having been relegated to a secondary position. The plan proposed in the original petition was in the nature of an extension. However, the company's financial condition and lack of a line of products sufficient to sustain operations in the off season made continued operation of its air conditioning business impracticable, and the proposed plan was abandoned. It was apparent that the best interests of the creditors would be served if the air conditioning division of the business could be sold as a going concern rather than have an immediate liquidation of the company. In order to maintain the business, together with its distributorship system, for such sales purpose, operations were continued under Court order, during which time material inventories were processed into finished units, those remaining unsold being included in the subsequent sale of the business. A purchaser was obtained after several months of negotiations and the plan formulated which was subsequently approved by creditors and confirmed by the Court. Under this plan debtor's air conditioning division was sold to Automatic Firing Corporation, a manufacturer of heating equipment. This sale in addition to the air conditioning division included all debtor's real estate and buildings, but excluded its machinery and equipment for manufacture of shapers, which together with all other assets, including the proceeds of the sale to Automatic Firing Corporation, were transferred to a liquidating corporation, with the exception of shaper inventory not to exceed in value $135,000.00, and shaper patents, drawings, jigs, etc., which were retained by debtor. Debtor has no remaining facilities left for manufacture of shapers, but contracts with other tool manufacturing companies to so do under its patents and in the process using up the shaper inventory so retained. The stock of this liquidating corporation is held by a creditors' committee of four selected by the creditors and the assets transferred to it, are upon liquidation to be distributed upon a proportionate basis to the general unsecured creditors. This method was adopted, as part of the purchase price received from Automatic was in notes payable within four years and liquidation of certain inventories over a period of time involved. From the proceeds of sale of the real estate there was deposited in Court $204,000.00 for payment in full of claims for $100.00 each or less, as provided in the plan, and payment of priority claims. The deposit is for more than the amount required. Any balance remaining is to be paid to the liquidating corporation for the benefit of general creditors. No objections to this plan were filed at any time prior to its confirmation. Having been accepted by the required creditors affected it was, upon due notice to all parties in interest, confirmed September 13, 1949."

In denying the United States interest upon its tax claim from the date of the filing of the petition to the time of payment, the Referee and the District Court relied mainly upon the decision of the Supreme Court in City of New York v. Saper, 336 U.S. 328, 69 S.Ct. 554, 93 L.Ed. 710. In that case it was held that tax claims against a bankrupt bear interest only to the date of bankruptcy and not until payment. The Government argues that the rule of the Saper case is limited to tax claims in what are called ordinary or straight bankruptcy proceedings, namely, those in which there is an adjudication in bankruptcy and the assets of the bankrupt are liquidated by a trustee for distribution to creditors. The Government contends that the rule may not be extended to tax claims against a debtor in a proceeding under Chapter XI.

We think that no implication reasonably can be drawn from the Saper case that tax claims have any different status in an arrangement proceeding under Chapter XI than they have in ordinary bankruptcies. The Supreme Court said in the Saper case, pages 337-338 of 336 U.S., page 559, of 69 S.Ct.: "The Court of Appeals concluded that by the 1926 amendment and the Chandler Act, Congress assimilated taxes to other debts for all purposes, including denial of post-bankruptcy interest. We think this is a sound and logical interpretation of the Act after those amendments to §§ 64, sub. a, and 57, sub. n. Considered in conjunction with the general rule against post-bankruptcy interest as well as § 63's limitations of interest on other claims to date of bankruptcy, they compel...