United States v. Vibradamp Corporation

• Decision Date: 07 September 1966
• Docket Number: Civ. No. 65-792.
• Citation: 257 F. Supp. 931
• Parties: UNITED STATES of America, Plaintiff, v. VIBRADAMP CORPORATION et al., Defendant.
• Court: U.S. District Court — Southern District of California

257 F. Supp. 931

UNITED STATES of America, Plaintiff, v. VIBRADAMP CORPORATION et al., Defendant.

Civ. No. 65-792.

United States District Court S. D. California, Central Division.

September 7, 1966.

COPYRIGHT MATERIAL OMITTED

Manuel L. Real, U. S. Atty., Frederick M. Brosio, Jr., and M. Morton Freilich, Asst. U. S. Attys., Los Angeles, Cal., for plaintiff.

Gibson, Dunn & Crutcher, Frederic H. Sturdy, Irwin F. Woodland, Los Angeles, Cal., for defendant Libbey-Owens Ford Glass Co.

Joseph T. Thompson, Beverly Hills, and Stephens, Jones, La Fever & Smith, Los Angeles, Cal., for defendants Frank J. Muller; James Muller; John Muller; Margaret Muller; Mark David Muller; Timothy Muller; Walter Muller; Mary Margaret Thompson; Diana Marite Thompson; Estate of Walter Muller through Frank Muller, Coexecutor, and through United California Bank, a national banking association, Coexecutor; and Frank Muller, in his capacity as Coexecutor of Estate of Walter Muller and as Trustee; and United California Bank, a national banking association, as Trustee.

Swanwick, Donnelly & Proudfit, Los Angeles, Cal., for United California Bank, a national banking association, individually.

Conroy & Conroy, Edward L. Conroy, Los Angeles, Cal., McDermott, Will & Emery, Theodore A. Groenke, Chicago, Ill., for defendant Frank Muller, individually.

MEMORANDUM OF DECISION AND ORDER

GRAY, District Judge.

All of the defendants in this action have moved to dismiss the Government's amended complaint for various reasons that will be discussed in this memorandum. The matter has been argued and submitted for decision. The facts are as follows:

In 1951, Frank and Walter Muller were principal owners of Vibradamp Corporation, which company sought and obtained, on March 31, 1951, a manufacturing contract from the Department of the Navy. As an inducement to the Navy to execute the contract, Frank Muller, acting for himself and his brother Walter, gave to the Government a written guaranty "that they would provide all necessary working capital to facilitate the Vibradamp Corporation to complete any contract it might receive from the plaintiff" (amended complaint, paragraph XII).

The articles presumably were satisfactorily manufactured, delivered to the Navy, and paid for at least by July 10, 1953, because on about that date the Navy announced that, pursuant to the price determination provisions in the contract, it had determined that the total price should be reduced by about $590,000.00. Vibradamp appealed to the Secretary of the Navy, but apparently did not prosecute the appeal to the bitter end, because, on about May 22, 1957, the Navy Department and Vibradamp made voluntary amendments to the contract which resulted in an agreed determination that the net overpayment by the Government was $663,211.93. No part of this sum has been repaid to the Government, and the present action seeks recovery accordingly.

In the meantime, between December, 1951 and May, 1952, the Muller brothers sold their stock in Vibradamp to Glass Fibers, Inc., which corporation promptly took unto itself substantially all of Vibradamp's assets. Most of these assets were transferred by Glass Fibers, Inc., to itself; the balance were sold to others. In so disposing of Vibradamp's assets, Glass Fibers, Inc., failed to publish and record the notice required by the California Bulk Sales Act, Section 3440.1 of the California Civil Code.

The complaint further alleges that when Glass Fibers, Inc., obtained the principal stock interest in Vibradamp, it wrote, on about May 17, 1952, to the Navy Department that it agreed to guarantee the performance of any contracts with Vibradamp entered into on or after January 4, 1952 that showed the approval of Glass Fibers, Inc.

In 1955, Glass Fibers, Inc., became part of L-O-F Glass Fibers Company, which took all of its assets and assumed its liabilities. The complaint alleges that at all times here concerned, Libbey-Owens Ford Glass Company was the parent company and responsible for the operations of L-O-F Glass Fibers Company.

Walter Muller died early in 1961, and on February 3 of that year Frank Muller and the United California Bank became executors under his will. The estate was administered in due course, including the publication of the notice to creditors and the payment of all creditors' claims filed within the six months' period following such publication, all as provided in the California Probate Code (Sections 700-716).

California Probate Code Section 707 states in relevant part that "All claims arising upon contract, whether they are due, not due, or contingent, * * * must be filed or presented within the time limited in the notice * * *; and any claim not so filed or presented is barred forever * * *." No creditor's claim arising under the contract here concerned was filed by the Government in the probate proceedings or asserted in any other manner to the executors.

On April 14, 1965, pursuant to final decree of distribution issued by the probate court, the net estate, consisting of property worth about three million dollars, was distributed by the executors to Frank Muller and the United California Bank as trustees under the will of the decedent. The other individual defendants are beneficiaries of the testamentary trust.

The present action was filed on May 26, 1965 and prays judgment against all of the defendants for $663,211.93, plus interest and costs.

The Claim Against The Executors

Both the executors are sued on the ground that, by making full distribution of the probate estate without having withheld sufficient funds to pay the Government's claim, they caused the estate to become insolvent, thereby violating 31 U.S.C. Section 191 and becoming personally liable for the entire claim under Section 192.¹ The executors challenge such contention, and we shall first consider the issues thereby raised.

At the outset, the Government must be upheld in its argument that, because of its sovereign status, it is not foreclosed simply because it did not file its creditor's claim within the six months' period provided by the California Probate Code. This is the square holding in the case of United States v. Summerlin, 310 U.S. 414, 60 S.Ct. 1019, 84 L.Ed. 1283 (1940).

However, the question still remains whether the Government may remain silent throughout the course of probate and while the estate is distributed pursuant to the order of the probate court, and then hold the executor personally liable for not having paid the Government's claim before making distribution, irrespective of his awareness of such a claim. It is the Government's position that Sections 191 and 192 call for just such a result. The Government argues that, despite the promulgation by the probate court of a final decree directing such distribution, the executor acts at his peril if he distributes the estate without first making certain that no branch of the Federal Government is holding a claim against the estate that it might assert at some time in the near or remote future. It requires little imagination to visualize the extent to which the validity of such a doctrine would impair the closing of probate estates throughout the country.

The decision in Summerlin does not sustain the plaintiff's contention in this respect. There, the Government had filed a claim in the probate action and appealed from the order disallowing the claim as "void" because of its having been filed after the statutory period. The Supreme Court ruled that a state statute of limitations could not invalidate the Government's claim, and accordingly reversed the state court decision and remanded the cause "for further proceedings not inconsistent with this opinion." Insofar as appears from Chief Justice Hughes' opinion, the estate had not been distributed and the probate proceedings were still pending. Thus, the probate court retained control of the property of the estate and could, pursuant to the Supreme Court's command, reverse its earlier disallowance of the Government's claim and require it to be paid. Here, the entire estate had been distributed, the executors had received their discharge, and the probate proceedings were concluded, before the plaintiff asserted its claim.

The Government meets the last mentioned circumstances head-on by asserting that "* * * the plaintiff was not a party to the above probate proceeding and is therefore not bound by any of its determinations" (amended complaint, paragraph XXIII), and it cites the following cases in support of its contention: Viles v. Commissioner, 233 F.2d 376 (6th Cir., 1956); United States v. Weisburn, 48 F.Supp. 393 (E.D.Pa., 1943); and United States v. Munroe, 65 F.Supp. 213 (W.D.Pa., 1946).

In each of these cases, an executor was held personally liable, under Section 192, for having distributed the estate pursuant to a decree of distribution without first paying the debt due to the Government, and even though the Government had not submitted a creditor's claim in the probate proceedings. However, in each of the cases, the executor, at the time of making such distribution, was well aware that the Government was actively asserting its claim.

In Viles, the Revenue Agent has advised the executrix of his computation indicating further tax liability and had suggested that no distribution should be made of the remaining assets until settlement of such tax liability.

In Weisburn, the Collector of Internal Revenue filed with the executrix a proof of claim for the back taxes due from the decedent, but she nonetheless sought and obtained a confirmation of her account and a decree of distribution which ignored the Government's claim.

Similarly, in Munroe, the executrix had been negotiating with representatives of the Commissioner of Internal Revenue for settlement of liability for back income taxes due from the decedent.

In the present case, the Government's claim stems from a guaranty executed by the decedent in 1951, and the...