United States v. Middle States Oil Corporation

• Decision Date: 14 March 1927
• Docket Number: No. 7511.,7511.
• Citation: 18 F.2d 231
• Parties: UNITED STATES v. MIDDLE STATES OIL CORPORATION et al.
• Court: U.S. Court of Appeals — Eighth Circuit

18 F.2d 231 (1927)

UNITED STATES v. MIDDLE STATES OIL CORPORATION et al.

No. 7511.

Circuit Court of Appeals, Eighth Circuit.

March 14, 1927.

Philos S. Jones, Asst. U. S. Atty., of Wilburton, Okl. (Frank Lee, U. S. Atty., of Muskogee, Okl., on the brief), for the United States.

Edward P. Marshall, of Tulsa, Okl. (C. E. Cooper and Bird McGuire, both of Tulsa, Okl., on the brief), for appellees.

Before LEWIS and KENYON, Circuit Judges, and TRIEBER, District Judge.

KENYON, Circuit Judge.

The appellee in interest is the Cotton Belt Petroleum Company, a corporation (hereinafter referred to as the petroleum company), which has been in the hands of receivers since September 9, 1924. The original case, involving a large number of oil companies, of which the Middle States Oil Corporation was the parent one, was brought in the United States District Court for the Southern District of New York. The proceedings out of which this appeal arose took place in the United States District Court of the Eastern District of Oklahoma, and were ancillary to the New York suit. It will be unnecessary to burden this opinion with any extended statement of facts as to the New York case. It is sufficient to say that the affairs of the Middle States Oil Corporation and the affairs of the various subsidiary companies thereof reached such condition that the assets of the various companies became intermingled and confused to such an extent that it became advisable, in order to protect the interests of the several corporations, the creditors, and stockholders, that the courts should take charge of the respective companies by receivership proceedings. The original ancillary proceedings in Oklahoma did not include the petroleum company, but, on September 9, 1924, a supplemental bill of complaint was filed covering said company, to which complaint it filed answer, confessing the allegations of the supplemental complaint, and joining in a prayer for ancillary receivers, and such were duly appointed. Appellee petroleum company and its receivers are the parties complained of in this appeal. Immediately after, or at the time of, the appointment of ancillary receivers, the court required notice to be given the creditors of the petroleum company to file their claims within 40 days. Notice by publication in one of the Oklahoma papers of general circulation was provided for, and such notice was duly given for four consecutive weeks. It was provided by court order that all creditors failing to file claims with the ancillary receivers within 40 days from the date of the first publication of the notice required thereby should be barred, and should not be allowed or permitted to participate in any payments from the estate of the defendant companies or from the proceeds of the sale thereof. On November 8, 1924, upon petition of the ancillary receivers, the court enlarged the time theretofore given to creditors to file their claims to an additional term of four months from the expiration of the time originally provided. January 7, 1925, upon further petition of the ancillary receivers, the court further enlarged the time for the filing of tax claims against the petroleum company, and other defendant companies for a period of 30 days from January 8, 1925, and also ordered the ancillary receivers to transmit a certified copy of the order by registered mail to each tax claimant. The order provided that tax claimants, failing to file claims with the ancillary receivers within the time therein provided, should be barred in their demands. Under date of January 12, 1925, duly certified copies of this order were transmitted by registered mail to the collector of internal revenue at Oklahoma City, Okl., and to the United States district attorney at Muskogee, Okl. The collector of internal revenue did not file with the ancillary receivers any claim of indebtedness on account of supposed taxes due the United States until March 4, 1926, more than 13 months after the time allowed by the order of the trial court for filing such claims. The claims of all creditors entitled to payment were submitted to, and determined by, a special master in chancery on February 15, 1926. The surviving ancillary receiver asked for an order for the distribution of funds in his hands in payment of said creditors' claims, and alleged that, while the collector of internal revenue had filed certain claims for unpaid taxes claimed to be due the United States from several defendant corporations, there had been no such claim filed as against the petroleum company. The court thereupon issued an order and rule upon the said collector of internal revenue to show cause why a distribution of the funds of the petroleum company then on hand should not be made in payment of the claims of creditors which had been established pursuant to the orders of the court. This hearing was set for March 5, 1926, and notice duly given to the collector of internal revenue, with copy of the order. On March 4, 1926, said collector filed with the ancillary receiver a claim for additional income taxes alleged to be owing the government by the petroleum company for the years 1920, 1921, and 1924, aggregating $102,636.82, and claimed priority in the payment of these alleged taxes under "section 3466 of the Revised Statutes and section 64 (a) of the Bankruptcy Act." The response of the collector of internal revenue to the show cause order, among other things, recites as follows: "That your petitioner, United States of America, has not had sufficient time to investigate said claim recently filed, as aforesaid, and is not informed as to the merits of said claim, but states and avers that the United States of America believes, and therefore alleges, that said claim is correct, and should be paid, * * * and therefore protests against any distribution whatever until the claims of the United States of America for taxes are fully satisfied."

The claims filed, allowed, and approved, with interest thereon, amounted to approximately $147,000. The court decided against the claim of priority of the government, and made a number of findings, the principal ones being that the assets of the petroleum company largely exceeded in value the actual or probable liabilities of such company, and were of the reasonable value of more than $600,000; that all claims against the petroleum company, including that of the government for taxes, would not exceed $250,000; that the approximate sum in the hands of the surviving ancillary receiver was about $116,000; and that the probable net income from the estate of said company would be for some time in the future at least $12,000 per month; that the claims of the creditors allowed constituted judgments, and became entitled to priority payment over the tax claims of the United States. The decree provided that the claim filed by the collector of internal revenue under date of March 4, 1926, should be accepted by the receiver, and filed out of time as of March 4, 1926.

The issues presented are clear cut:

First. Was the tax claim of the government entitled to priority of payment over established claims by virtue of section 3466 of the Revised Statutes (Comp. St. § 6372), which is as follows: "Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States, shall be first satisfied; and the priority hereby established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed."

Second. Was the government compelled under the orders of the United States District Court to file its claim for taxes within the time provided by such orders, and, if it did not do so, was it barred from claiming priority?

We discuss these questions in their order:

I. The court found "* * * that Cotton Belt Petroleum Company is a solvent corporation, and that the assets of the defendant Cotton Belt Petroleum Company largely exceed in value the actual or probable liabilities of Cotton Belt Petroleum Company to general lien and preferred creditors, and to the United States; * * * that the government of the United States and said collector of internal revenue did not file any claim herein until March 4, 1926, and long after notice to all creditors of said defendant corporation had been given by receivers to file their claims herein, in accordance with the previous orders of this court; and to this time there has not been filed in the office of the clerk of the United States District Court for the Eastern District of Oklahoma any notice or statement of claim by said collector or by the United States of taxes due to the United States from said Cotton Belt Petroleum Company."

If section 3466 applies to the situation arising upon these facts, and if the government is not barred by failure to file the claims within the time ordered by the court, then the claim for taxes, if found to be legally due, is entitled to priority payment.

Section 3466 provides for a priority of payment of debts due the United States (a) when the person indebted is insolvent; (b) whenever the estate of any deceased debtor in the hands of the executors or administrators is insufficient to pay all the debts due from the deceased; (c) cases in which a debtor not having sufficient property to pay all his debts makes a voluntary assignment thereof; (d) cases in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law; (e) cases in which an act of bankruptcy is committed. Of course, the term "person," as here used, covers corporations.

It is apparent that subdivisions (b), (c), and...