United States v. Swink

• Decision Date: 26 September 1941
• Docket Number: Civil Action No. 120.
• Citation: 41 F. Supp. 98
• Court: U.S. District Court — Eastern District of Virginia
• Parties: UNITED STATES v. SWINK.

41 F. Supp. 98

UNITED STATES v. SWINK.

Civil Action No. 120.

District Court, E. D. Virginia.

September 26, 1941.

Samuel O. Clark, Jr., Asst. Atty. Gen., Andrew D. Sharpe and Stephen J. Angland, Sp. Assts. to Atty. Gen., and Sterling Hutcheson, U. S. Atty. and Russell T. Bradford, Asst. U. S. Atty., both of Norfolk, Va., for the United States.

Swink, Swink & White, of Norfolk, Va., for defendant.

WYCHE, District Judge.

This is an action by the United States against F. G. Swink, Trustee of Consolvo and Overmyer, Inc., for the recovery of federal unemployment compensation taxes under Title IX of the Social Security Act, c. 531, 49 Stat. 620, 42 U.S.C.A. § 1101 et seq., for the year 1937, in the amount of $250, federal insurance contribution tax under Title VIII of the Social Security Act, 42 U.S.C.A. § 1001 et seq., of a portion of the year 1938, in the amount of $9.68, and a capital stock tax for the year 1938, all of which was assessed against Consolvo and Overmyer, Inc., of the City of Norfolk.

Consolvo and Overmyer, Inc., a Virginia corporation, was operating a stone cutting and contracting business in the City of Norfolk, Virginia, and on January 6, 1938, the plant and equipment, books, records, etc., were totally destroyed by fire. The only assets remaining after the fire were a small quantity of stone, damaged by fire and water, together with a few receivables.

On January 25, 1938, the corporation, by deed of assignment for the benefit of creditors, conveyed these remaining assets to F. G. Swink, Trustee, and on February 8, 1938, the Trustee sold the property conveyed to him, and after the payment of the costs and expenses, of executing the trust, realized the sum of $356.92, which was deposited in a special account in his name as Trustee. The deed of assignment provided, after the payment of the costs and expenses, the Trustee should "pay all taxes, levies, liens, debts, and charges given priority by law." The Trustee not having any records or books showing what, if any, taxes were owing, communicated with the United States Collector of Internal Revenue, Workman's Compensation Commission of Virginia, the Department of Taxation of the State of Virginia, and the Treasurer of the City of Norfolk, inquiring as to what, if any, taxes were owing, and if so, to send him a statement. He received promptly a statement from the Treasurer of the City of Norfolk, showing taxes due the City of $14.84, plus interest and penalties. He also received from the Department of Taxation of the State of Virginia, a statement of personal property of $22.80, and on February 19, 1938, received statement of taxes from the United States Collector of Internal Revenue, as follows: Balance 1936 Social Security Tax, $136.05, and $30 capital stock tax. (The item of $136.05 was a penalty assessment on the 1936 Social Security tax by reason of delay in the payment. This was later abated by the Collector of Internal Revenue.)

The Corporation had no records from which it could make up its unemployment tax return, either to the United States or the State of Virginia for the year 1937. These taxes were required to be paid on or before March 15, 1938. All statements furnished the Trustee by the various claimants were made out against the Corporation, and not against the Trustee as Trustee. The claim of the United States for the $30 capital stock tax, was not disputed, as it was assessed against the Corporation on December 28, 1937, and the Trustee admitted the validity of the lien obtained by the United States under this assessment.

The amount in the hands of the Trustee was not sufficient to pay all of the tax claims in full, and the Trustee made repeated efforts to get the various parties to prorate their respective claims, and finally, the City and State agreed, without waiving their claims to priority, to prorate, if the United States would do likewise. This was declined by the United States.

On May 23, 1940, the Commonwealth of Virginia filed in the Clerk's Office of the Corporation Court of the City of Norfolk, Virginia, a notice of lien and demand for payment, under Section 382 of the Tax Code of Virginia, Code Va.1936, Appendix § 382. This notice of lien and demand for payment was against the Corporation. On the same date, a summons under this section was issued and served on the Trustee, and a petition was filed in the Corporation Court of the City of Norfolk, to subject the funds in the hands of the Trustee to the payment of the taxes due the State of Virginia, and to a lien on the funds in the hands of the Trustee. An order was entered on this petition, making the Unemployment Compensation Commission of Virginia, the City of Norfolk, and the United States, parties defendant. The City of Norfolk and the Unemployment Compensation Commission of Virginia followed the same procedure, and asserted their claims of priority against said fund. The United States did not come in, although the United States Collector of Internal Revenue, and the United States District Attorney's Office, were furnished copies of the pleadings, and were kept fully advised of all steps taken in this litigation.

The matter was heard at the June, 1940, term of the Corporation Court of the City of Norfolk, Virginia, and the Court, after full argument, announced its decision, and requested the attorneys for the various parties appearing, to submit an order in accordance with its opinion. The entry of this order was delayed, at the request of the Trustee, so that the United States could appear and assert its rights, if any it had.

The warrant of distraint and notice of levy for taxes due the United States were served July 12, 1940, and on the same day notice of lien for the taxes was filed with the United States District Court for the Eastern District of Virginia, and with the Corporation Court of the City of Norfolk, and final notice of demand for payment of taxes was served on the defendant July 13, 1940. In the fall of 1940, the District Attorney's office was given a copy of the proposed order of the Corporation Court, and advised that the Corporation Court would hear argument on the proposed order on October 25, 1940, and if this order was entered, the Trustee was required to comply with such order, unless restrained.

The present suit was brought against the Trustee on October 5, 1940, and on November 9, 1940, the Corporation Court of the City of Norfolk entered an order directing the Trustee to pay to the United States Collector of Internal Revenue the sum of $73.22, covering the $30 capital stock tax, $9.68 contribution for the portion of 1938 tax assessed, and 10% of the 1937 assessment, under Section 1601, Title 26 of the United States Code Annotated Int.Rev. Code, and the balance of the fund to be prorated and paid to the other claimants.

Counsel for the United States during the course of his oral argument stated that he was not seeking judgment against F. G. Swink as Trustee, but against F. G. Swink individually, and moved first to strike the words "Trustee, Consolvo and Overmyer" and later to add "F. G. Swink, individually", and contends in his argument that this motion should be granted under Rule 21, Rules of...