United States v. State of Texas v. 19 8212 21, 1941

• Decision Date: 22 December 1941
• Docket Number: No. 44,44
• Citation: 86 L.Ed. 356,314 U.S. 480,62 S.Ct. 350
• Parties: UNITED STATES v. STATE OF TEXAS et al. Argued Nov. 19—21, 1941
• Court: U.S. Supreme Court

314 U.S. 480

62 S.Ct. 350

86 L.Ed. 356

UNITED STATES

v STATE OF TEXAS et al.

No. 44.

Argued Nov. 19—21, 1941.

Decided Dec. 22, 1941.

Messrs. Francis Biddle, Atty. Gen., and Arnold Raum, of Washington, D.C., for petitioner.

Mr. Pat M. Neff, Jr., of Austin, Tex., for respondents.

Mr. Justice BYRNES delivered the opinion of the Court.

W. L. Nix was a manufacturer and distributor of motor fuel, doing business in Texas under the name of Texas Refinery. On November 20, 1933, M. R. Ingraham, who held a demand note secured by a chattel mortgage on certain tanks belonging to Nix, brought an action in the District Court of Gregg County, Texas. He alleged that demand had been made on the note, that it had not been paid, that Nix owned no property in Texas other than that of Texas Refinery, that the value of the mortgaged tanks was insufficient to discharge the note, that the tanks were not used 'for a separate purpose' but in the 'operation of the said refinery as a unit,' and that Nix was insolvent. He asked that judgment be entered in his favor for the amount of the note, that the mortgage be foreclosed, and that in the meantime a receiver be placed in charge of 'the whole of the property' of Texas Refinery. On the same day a receiver was appointed, and he was subsequently authorized to sell all of the refinery property.

On November 21, R.P. Ash intervened in the proceedings as the holder of an overdue note secured by a mortgage on the physical plant of the refinery not subject to the Ingraham mortgage. Both the state of Texas and the United States then intervened with the claims for state and federal gasoline taxes which are the subject of the present dispute. Later both the Ingraham and Ash mortgage notes were assigned to Howard Dailey.

The District Court found that Nix was insolvent on November 20, 1933, and continued to be insolvent thereafter. The sum available for distribution after sale of the refinery property by the receiver was $7466.92. The court found that of these proceeds $1294.80 was allocable to those assets which were subject to the mortgages held by Dailey, and it ordered that his claim to that amount be first satisfied. It determined that Nix was liable to the United States for $19,343.91 in federal gasoline taxes, and to Texas for $40,312.51 in state gasoline taxes. As between the state and federal claims, it decided that the United States was entitled to priority and concluded that nothing would be left to apply to the Texas claim.

From this order Texas appealed to the Court of Civil Appeals for the Second District. That court certified the controlling questions to the Supreme Court of Texas. The Supreme Court, on the authority of State v. Wynne, 134 Tex. 455, 133 S.W.2d 951, a companion case decided the same day, answered the questions in such a way as to require that the claim of Texas be first satisfied, that of Dailey second, and that of the United States third. State v. Nix, 134 Tex. 476, 133 S.W.2d 963. The Court of Civil Appeals thereupon so ruled, noting that the assets available would not completely satisfy even the claim of Texas and that Dailey and the United States would receive nothing. State v. Nix, 138 S.W.2d 924. A motion by the United States for a rehearing was denied, and the Supreme Court of Texas refused to review the decision of the Court of Civil Appeals. We granted the petition of the United States for certiorari because of the important question of the fiscal relationship between state and federal governments which is involved. 313 U.S. 554, 61 S.Ct. 1085, 85 L.Ed. 1516.

No question as to the rights of Dailey, the mortgagee, is raised by this appeal. We confine ourselves, therefore, to the only question presently open to decision: the relative priority of the claims of the United States and Texas.

The United States rests its assertion of priority upon § 3466 of the Revised Statutes.¹ Despite the contention of Texas to the contrary, that section clearly applies to this proceeding. As we recently remarked in United States v. Emory,² § 3466 covers in terms the case of an insolvent debtor who has committed an act of bankruptcy, and there are few more familiar examples of an act of bankruptcy than the appointment of a receiver because of the debtor's insolvency. Cf. § 3, sub. a(4), of the Bankruptcy Act, U.S.C., Title 11, § 21, sub. a(4), 11 U.S.C.A. § 21, sub. a(4). Here the district court expressly found that Nix was insolvent, and it appointed a receiver. It is true that the original petition was filed by a mortgagee rather than by a general creditor. But if any limitations upon the operation of § 3466 might otherwise have flowed from this circumstance they were removed by the subsequent character of the proceeding. The receiver was placed in control of all of Nix's assets, rather than only those subject to the mortgage, and all of the assets were eventually liquidated. Parties other than the mortgagee, including Texas itself, intervened and were heard. We think that realities require us to treat the proceeding as a general equity receivership within the scope of § 3466.

We are thus brought to the important issue in the case. Article 7065a—7 of the Vernon's Annotated Texas Civil Statutes declared that all gasoline taxes due by any distributor to the state 'shall be a preferred lien, first and prior to any and all other existing liens, upon all of the property of any distributor, devoted to or used in his business as a distributor * * *.'³ It is the state's position that under this section it held a specific and perfected lien upon the refinery property which entitled it to priority despite § 3466 of the Revised Statutes.

Section 3466 mentions no exception to its requirement that 'the debts due to the United States shall be first satisfied.' It is nevertheless true that in several early decisions this Court read an exception into the section in the case of previously executed mortgages. Thelusson v. Smith, 2 Wheat. 396, 426, 4 L.Ed. 271; Conard v. Atlantic Insurance Co., 1 Pet. 386, 7 L.Ed. 189; Brent v. Bank of Washington, 10 Pet. 596, 611, 612, 9 L.Ed. 547. This doctrine seems to have been based on the theory that mortgaged property passes to the mortgagee and is no longer a part of the estate of the mortgagor. See Conard v. Atlantic Insurance Co., supra, 1 Pet. at pages 441, 442, 7 L.Ed. 189. The question of whether the priority of the United States under § 3466 would also be defeated by a specific and perfected lien upon property whose title remained in the debtor was reserved in those cases. Id; Brent v. Bank of Washington, supra, 10 Pet. at pages 611, 612, 9 L.Ed. 547. However, it was determined that a general judgment lien upon the lands of an insolvent debtor does not take precedence over claims of the United States unless execution of the judgment has proceeded far enough to take the land out of the possession of the debtor. Thelusson v. Smith, supra, 2 Wheat. at pages 425, 426, 4 L.Ed. 271.

In more recent years the Court has had occasion to consider the argument that liens created in favor of states or counties by state statutes entitled them to priority over the United States under § 3466. In Spokane County v. United States, 279 U.S. 80, 49 S.Ct. 321, 73 L.Ed. 621, the priority of the United States was upheld. The state statutes involved provided that if a certain personal property tax was not paid, and if the personal property against which it had been assessed was no longer in the hands of the delinquent taxpayer, the amount of the unpaid tax should become a lien upon all the real and personal property of the taxpayer. They went on to prescribe the procedure by which the lien was to be enforced. The Court determined that the statutory lien did not become specific until this procedure had been followed. Since these procedural conditions had not been satisfied in the case before it, the Court refused priority to the tax claims of the county. It specifically declined to consider what 'the effect of more completed procedure in the perfecting of the liens under the law of the state' would have been. 279 U.S. at page 95, 49 S.Ct. at page 325, 73 L.Ed. 621.

The New York statute in New York v. Maclay, 288 U.S. 290, 53 S.Ct. 323, 77 L.Ed. 754, declared that the corporate franchise tax there involved should 'be a lien and binding upon the real and personal property of the corporation * * * until the same is paid in full.' 288 U.S. at page 292, 53 S.Ct. at pages 323, 324, 77 L.Ed. 754. Although the franchise taxes in question were overdue, the state had taken no steps to perfect and liquidate its lien at the time the receiver was appointed for the insolvent corporation. Under such circumstances, the Court was of the opinion that the tax claim of the state did not deprive the claim of the United States of its priority under § 3466. It was at pains to make clear, however, that it intended by its decision to lend no support to the assumption that the doctrine of the mortgage cases, whatever its current vitality, would require the subordination of unsecured claims of the United States to a specific and perfected lien. 288 U.S. at pages 293, 294, ...