United States v. King

• Decision Date: 13 September 1963
• Docket Number: No. 14297.,14297.
• Citation: 322 F.2d 317
• Parties: UNITED STATES of America, Appellant, v. Elizabeth Simonson KING, Executrix of the Estate of George Stewart King, Deceased, and National Surety Corp., a corporation of the State of New York.
• Court: U.S. Court of Appeals — Third Circuit

322 F.2d 317 (1963)

UNITED STATES of America, Appellant, v. Elizabeth Simonson KING, Executrix of the Estate of George Stewart King, Deceased, and National Surety Corp., a corporation of the State of New York.

No. 14297.

United States Court of Appeals Third Circuit.

Argued June 3, 1963.

Decided September 13, 1963.

Alan S. Rosenthal, John W. Douglas, Acting Asst. Atty. Gen., David M. Satz, Jr., U. S. Atty., Morton Hollander, Mark R. Joelson, Attys., Dept. of Justice, Washington, D. C., for appellant.

Paul T. Murphy, Crummy, Gibbons & O'Neill, Newark, N. J., for National Surety Corp.

David S. Bate, Boyd, Dodd, Keer & Booth, Montclair, N. J., for Elizabeth S. King.

Before BIGGS, Chief Judge, and McLAUGHLIN and GANEY, Circuit Judges.

BIGGS, Chief Judge.

This is an appeal from a judgment dismissing the complaint of the United States on the ground that the evidence fails to support the cause of action alleged.

The action was brought by the United States against the executrix of George S. King,¹ a distributing agent for the Seeley Tube and Box Company, a bankrupt in a Chapter XI proceeding, and against National Surety Corporation, the surety on King's bond. The complaint alleges that the United States has a debt entitled to priority pursuant to 11 U.S.C.A. § 104 and Rev.Stat. § 3466, 31 U.S.C.A. § 191², against Seeley's assets, that King, as Seeley's distributing agent, paid Seeley's other creditors before attempting to satisfy the priority claim in favor of the United States, and that as a result the bankrupt's assets were depleted so as to prevent full payment to the United States of its claim. The complaint further alleges that King, or his surety to the extent of the bond, is personally liable to the United States for the unpaid portion of the claim under Rev.Stat. § 3467, 31 U.S.C.A. § 192³.

The stipulated facts, as found below by the court below are as follows: On October 1, 1946, Seeley filed a petition for an arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq. King, the president of the debtor corporation, was appointed distributing agent⁴ by an order of the referee filed on March 22, 1947, and he filed a bond in the amount of $10,000 underwritten by the defendant surety company. King's duties were to receive a fund of $160,193.68 deposited by Seeley, deposit the fund in an account subject to the control of the bankruptcy court, and to distribute the fund by checks drawn by him and countersigned by the referee in accordance with orders of distribution to be made by the referee.

A hearing on an amended plan of arrangement was held on March 21, 1947. The plan did not contain any "written provisions" for payment of the claim of the United States. However, during the course of the hearing counsel for Seeley admitted that the United States might have a claim as a result of terminated executory contracts between Seeley and Picatinny Arsenal, an installation of the War Department at Dover, New Jersey. Seeley's counsel further stated that $94,000 would be available to pay the Government's claim and that "there will be at all times $20,000 or more available to dispose of that claim, in cash." On April 14, 1947, the referee entered an order directing the United States to file its claim on or before May 9, 1947.

On that due date, May 9, 1947, the United States filed a preliminary contingent proof of its claim in the amount of $26,818.82, and alleged that it was a priority creditor. However, during the time between the hearing on March 21, 1947 and the date on which the Government filed its claim, May 9, 1947, King, in his capacity as distributing agent, had paid out all but $6,085.01 of the fund deposited with him⁵ to other creditors of Seeley. Each check drawn by King for these other creditors had been issued pursuant to specific court orders and had been countersigned by the referee.

On March 30, 1949, the United States amended its claim of May 9, 1947 to $34,125.03, the final allowed amount of the claim. Of the $6,085.01 remaining of the fund in the hands of King, $3,620.39 was paid to the United States and the balance to other creditors.

On December 8, 1953, the referee determined that the claim of the United States had been filed in time and that the amended plan of arrangement had been confirmed upon the condition as had been stated by Seeley's counsel, that there would be an adequate sum available to satisfy the claim of the United States. The United States District Court for the District of New Jersey reversed the decision of the referee. In re Seeley Tube & Box Co., 120 F.Supp. 269 (D.N.J.1954). This court reversed the district court and held that "The disclosure by the debtor at the referee's hearing on confirmation of the plan that the Government had become a creditor was * * * in performance of its duty under the Act and amounted to an informal amendment of the list of creditors included in the debtor's schedules." In the Matter of Seeley Tube & Box Co., 219 F.2d 389, 391 (3 Cir., 1955), cert. denied, 350 U.S. 821, 76 S.Ct. 46, 100 L.Ed. 734 (1955).

On August 2, 1956, the referee approved King's final report and accounting and discharged both King and the surety. The final amount outstanding on the claim in favor of the United States was $25,831.08 after allowance of proper deductions and credits.

On July 3, 1958, the United States commenced the suit at bar against King's executrix for the sum of $25,831.08, the balance outstanding on the claim, and against the surety for $10,000, the amount of its bond. The case was submitted to the district court below, sitting without a jury, upon the stipulated facts. The complaint was dismissed by an order entered on October 8, 1962. In its opinion⁶ the court held that 31 U.S.C.A. § 192 did not apply to a distributing agent, and as King's executrix could not, therefore, be liable, the surety must be exonerated as well.

It is the position of the United States on this appeal that King, as distributing agent, is within the class of persons on whom personal liability is imposed by 31 U.S.C.A. § 192 to the extent of a priority claim due the United States where such person exhausts or partially exhausts the debtor's fund by paying other creditors before the United States. The pertinent statute, 31 U.S.C.A. § 192, is as follows: "Every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid."

It appears therefore that the question for our determination is whether a distributing agent in a Chapter XI proceeding is an "executor, administrator, or assignee, or other person," within the meaning of the statute quoted.

Sections 191 and 192 of 31 U.S. C.A. must be interpreted in pari materia, as parts of a "common statutory scheme." United States v. Crocker, 313 F.2d 946, 947 (9 Cir., 1963). See United States v. Butterworth-Judson Corp., 269 U.S. 504, 513, 46 S.Ct. 179, 70 L.Ed. 380 (1926). See also United States v. Lutz, 295 F.2d 736, 742 (5 Cir., 1961): "The statutes §§ 191 and 192 have an historical relation to the early efforts of the founding fathers to make this country a union and not a confederation of states. The precursor of Section 191 was enacted in 1797 to give the government a priority in the recovery of its debts from insolvent persons. When that section was reenacted in 1799 the forerunner of Section 192 was passed as a companion measure. This coincidence of enactment raises an inference that the two provisions should be read together as parts of a single legislative plan. The inference is confirmed by consideration of the operation and effect of Section 192. Construed in conjunction with Section 191, * * * the section promotes obedience to the requirement of Section 191 that government debts be given priority when a corporation is insolvent, and it protects the government's interest when that requirement is violated. It accomplishes this without overshooting the coverage of Section 191 and without burdening business operations except in cases of insolvency, when the government is in danger of being unable to collect its debts. It imposes the danger of personal liability on the corporate officers only at times when because of the shortage in funds they should be alert to the necessity for paying debts according to their priorities."

Taken together, then, Sections 191 and 192 impose two requirements both of which must be met if the United States is to prevail in an action such as that at bar. First, the debt owing to the United States must be one afforded priority under Section 191. Secondly, the fiduciary sought to be held personally liable for the debt under Section 192 must be either an "executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate * * *." See United States v. Crocker, supra, 313 F. 2d at 947-948. See also Bramwell v. United States Fid. & Guar. Co., 269 U.S. 483, 490, 46 S.Ct. 176, 70 L.Ed. 368 (1926).⁷

That the debt owing from Seeley to the United States is one afforded priority under Section 191 is an issue that requires no extended discussion for the debt is clearly one within the list enumerated in that section. The fact that the United States did not formally file its claim or proof of claim at the hearing on the amended plan of arrangement does not alter the debt's priority status, nor can this factor alter the fiduciary's liability under Section 192. United States v. Kaplan, 74 F.2d 664 (2 Cir., 1935).

The second of these two requirements, that is,...