United States v. Knott, 643

Citation104 A.L.R. 741,298 U.S. 544,56 S.Ct. 902,80 L.Ed. 1321
Decision Date25 May 1936
Docket NumberNo. 643,643
PartiesUNITED STATES v. KNOTT, State Treasurer, et al. *
CourtUnited States Supreme Court

Messrs. Homer S. Cummings, Atty. Gen Alger Hiss and Stanley F. Reed, Sol. Gen., both of Washington, D.C., James W. Morris, Asst. Atty. Gen., and Hadley W. Libbey and Paul A. Sweeney, both of Washington, D.C., for the United States.

Mr. C. L. Waller, of Tallahassee, Fla., for respondent, D. M. Lowry, receiver.

Mr. H. E. Carter, of Tallahassee, la., for respondent, W. V. Knott, State Treasurer.

Messrs. John Milton and Saul Nemser, both of Jersey City, N.J., and Herbert U. Feibelman, of Miami, Fla., for respondent, Carl K. Withers, as Commissioner of Banking and Insurance of the State of New Jersey.

Mr. Justice BRANDEIS delivered the opinion of the Court.

The New Jersey Fidelity & Plate Glass Insurance Company is a surety company organized under the laws of that state. In 1932, it became insolvent; was upon its petition placed by a New Jersey court for liquidation in the hands of Kelly, the New Jersey Commissioner of Banking and Insurance; and he sought to take possession of its assets wherever situated. In 1930, the company had deposited securities of the face value of $75,000 with the state treasurer of Florida in order to qualify there pursuant to sections 6302 and 6303 of Florida Compiled General Laws. It entered into many surety obligations in Florida prior to its insolvency; but no unsatisfied judgment against it was outstanding there when the New Jersey liquidation proceeding was begun.

Kelly brought suit in Florida against State Treasurer Knott to restrain disposition of the deposited securities except upon order of that court. After the institution of his suit, an amendment to section 6303 made by chapter 16248 of the Florida Laws 1933, provided that in case the assets of a surety company should be placed in liquidation in the state of its incorporation, a Florida court 'shall have jurisdiction, upon bill filed by any party in interest, to take charge of the securities so deposited with the State Treasurer' and 'distribute the proceeds of the sale of said securities proportionally among all of the Florida creditors who may make proof of their claims,' 'the surplus, if any, to be disposed of by proper order of such court.' Thereupon, a Florida creditor brought suit under the amendment; that suit was consolidated with the one which Kelly had instituted; and a receiver was appointed who took possession of the securities and sold them.

In the receivership proceeding the United States filed, and under Revised Statutes, § 3466 (31 U.S.C.A. § 191), claimed priority for, a debt of $14,075, that sum being the aggregate of twenty judgments which it recovered against the company in Florida on estreated appearance, or bail, bonds given there. The Florida officials insisted that the claim of the United States must be postponed to those of Florida creditors; the New Jersey commissioner, that priority can be accorded the United States, in any event, only in the domiciliary proceeding. The trial court denied it priority; and directed that debts due Florida, its political subdivisions, citizens or residents, be paid. The decree left undetermined whether the United States was entitled to receive in Florida payment from the residue after satisfaction of such Florida debts, or whether the residue should be transmitted to the domiciliary liquidator. The United States appealed on the ground that it has been denied priority; the New Jersey commissioner on the ground that the domiciliary liquidator was entitled to the residue remaining after satisfying the claims of creditors reduced to judgment prior to the institution of the proceedings in New Jersey. The order of the trial court was affirmed by the Supreme Court, with some modification. Kelly v. Knott, 120 Fla. 580, 163 So. 64. We granted certiorari, because of the importance of the question involved. 297 U.S. 700, 56 S.Ct. 498, 80 L.Ed. 989.

First. Revised statutes, § 3466, provides that 'whenever any person indebted to the United States is insolvent' 'the debts due to the United States shall be first satisfied.' It is clear that, within the meaning of the section, the company had become insolvent, Bramwell v. United States Fidelity & Guaranty Co., 269 U.S. 483, 488—490, 46 S.Ct. 176, 70 L.Ed. 368, and that, ordinarily, debts due on judgments recovered by the United States are 'debts due to the United States.' Price v. United States, 269 U.S. 492, 499, 500, 46 S.Ct. 180, 70 L.Ed. 373. Compare Beaston v. Farmers' Bank, 12 Pet. 102, 134, 9 L.Ed. 1017; Pierce v. United States, 255 U.S. 398, 401, 402, 41 S.Ct. 365, 65 L.Ed. 697. See, also, United States v. Mack, 295 U.S. 480, 55 S.Ct. 813, 79 L.Ed. 1559. The Florida officials contend that, since the priority accorded the United States depends entirely upon the statutory provision and is not an attribute of sovereignty, United States v. State Bank, 6 Pet. 29, 8 L.Ed. 308, Congress may deny to the Government the right of priority; and that, by prescribing elsewhere the conditions under which a surety company may write certain surety bonds in favor of the United States, United States Code, title 6, § 1—11 (6 U.S.C.A. §§ 1—11), it has indicated its intention to exclude the liabilities here involved from the operation of section 3466. We do not construe the legislation concerning surety bonds as having such effect. The cases relied upon dealt with legislation of a different character. Davis v. Pringle, 268 U.S. 315, 45 S.Ct. 549, 69 L.Ed. 974; Mellon v. Michi- gan Trust Company, 271 U.S. 236, 46 S.Ct. 511, 70 L.Ed. 924; United States v. Guaranty Trust Co., 280 U.S. 478, 50 S.Ct. 212, 74 L.Ed. 556. We are of opinion that the claim presented is, in its nature, one entitled to priority.

Second. The main question for decision is whether the Florida statute divested the company's title to the deposited securities or created a perfected lien thereon, so as to give the Florida creditors precedence over the United States.

Section 6302 of the Florida Laws, which required the deposit, declares: 'And whenever such company ceases to do business in this State, and has settled up all claims against it, as hereinafter provided, and has been released from all the bonds upon which they have been taken as sureties said bonds (securities) shall be delivered up to the proper party on presentation of the Treasurer's receipt for said bonds.'

Section 6303, as amended, provides: 'Whenever a final judgment has been rendered against any surety company on a fidelity, appearance, supersedeas or surety bond, the surety on said bond shall pay the same within thirty days. Upon notice of failure to pay the amount due under said bond within said time, the State Treasurer shall retain the bonds or securities deposited with him by said surety company * * * to cover said judgment and costs, subject to the order of the Court trying any suit that may be brought upon said bond.' (Then follows the amendment of 1933 authorizing institution of the suit.)

The trial court found that, by the deposit, the securities had been segregated and set apart out of the general assets of the company prior to the accrual of any liens of, or obligations to, the United States. We accept that finding as conclusive of the facts. The Supreme Court declared that the securities deposited by the company with the state treasurer constituted 'a trust fund to be held by him for the protection and benefit of all Florida claimants entitled to seek satisfaction thereout, regardless of the continued solvency of the depositing corporation, or its voluntary cessation of business in the state of Flroida'; and that, in enacting the legislation requiring such deposit, Florida did so with the intention of protecting those whom it had the power and duty to protect. It held that the deposit with the state treasurer constituted a trust fund for the benefit of Florida, its political subdivisions,...

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