Walley v. United States

• Decision Date: 02 October 1958
• Docket Number: No. 15924.,15924.
• Citation: 259 F.2d 579
• Parties: Jack J. WALLEY, Executor of the Estate of Murrey London, Deceased, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

259 F.2d 579 (1958)

Jack J. WALLEY, Executor of the Estate of Murrey London, Deceased, Appellant, v. UNITED STATES of America, Appellee.

No. 15924.

United States Court of Appeals Ninth Circuit.

October 2, 1958.

Milton Davis, Los Angeles, Cal., for appellant.

Charles K. Rice, Asst. Atty. Gen., Meyer Rothwacks, Lee A. Jackson, A. F. Prescott, John J. Pajak, Attorneys, Department of Justice, Washington, D. C., Laughlin E. Waters, U. S. Atty., Edward R. McHale, Asst. U. S. Atty., Los Angeles, Cal., for appellee.

Before STEPHENS, Chief Judge, and ORR and BARNES, Circuit Judges.

ORR, Circuit Judge.

The question for determination on this appeal is — does the filing of a claim by the United States for taxes against a bankrupt's estate, and its allowance without contest, constitute a personal judgment against the bankrupt for any balance not realized from the estate?

Appellant is the executor of the estate of Murrey London, deceased. Murrey London died in 1954. For a period prior to his death, he was engaged in business under the fictitious name of the London Construction Company. In 1948 the decedent filed a voluntary petition in bankruptcy and in that proceeding the Commissioner of Internal Revenue presented a claim for taxes due under Chapter 9, Subchapters A, C, and D of the Internal Revenue Code of 1939, 26 U.S. C.A. Chapter 9, relating to insurance contribution, unemployment, and withholding taxes. The taxes were regularly and timely assessed and the Bankruptcy Court allowed the claim in the amount of $5,759.04 without contest having been made. A dividend of $243.29 was paid to the government on the claim. Nothing further was realized from the estate.

Subsequent to London's death the United States filed an action against his estate (not the bankruptcy estate) for the amount remaining unpaid on the claim previously allowed by the Bankruptcy Court. Said action was commenced in 1957, more than six years after the taxes were assessed in 1948. The government contends that the ordinary period of the statute of limitations, which bars suits to collect assessments commenced after six years¹, does not apply in the instant case because it is not an original suit on the assessment but rather a suit on a prior judgment entered by the Bankruptcy Court, and there is no limitation against the United States in bringing suit on a judgment. Investment & Securities Co. v. United States, 9 Cir., 1944, 140 F.2d 894. It is conceded that the claim was not discharged in the bankruptcy proceeding because tax claims of the United States are not so dischargeable. Bankruptcy Act Section 17, sub. a(1), 11 U.S.C.A. § 35, sub. a(1).

The instant suit was not barred if there existed a prior valid judgment against the decedent. Appellant's contention is that since the claim in bankruptcy was not contested it could not have the effect of a judgment, and further, that even if it were a judgment it was not one against the decedent personally, but only operated against the estate in bankruptcy.

The jurisdictional grant of the Bankruptcy Court is contained in Section 2, sub. a(2) of the Bankruptcy Act, 11 U.S.C.A. § 11, sub. a(2). It is given the power to "Allow claims, (and) disallow claims * * * against bankrupt estates" (Emphasis added). We think the wording of the statute is clear and confines the operation of the allowance of a claim to the bankrupt estate in existence at the time of the institution of the bankruptcy proceedings. This harmonizes with the purpose of the Bankruptcy Act and was said to be the law as far back as 1931 in the case of In re McChesney, D.C.S.D.Cal.1931, 58 F.2d 340, wherein it was said "While the allowance of a claim is in effect a judgment, it is only such for the purpose of the Bankruptcy Act * * * and to the extent of the assets belonging to bankruptcy estate in which it is filed." A similar result was reached on comparable facts in Goldstein v. Pearson, Mun.Ct. App.D.C.1956, 121 A.2d 260.

We are impressed with the reasoning contained in these cases notwithstanding the argument that other cases have detracted from their value as precedents. Among the cases said to so detract is the case of Lewith v. Irving Trust Co., 2 Cir., 1933, 67 F.2d 855. That case is readily distinguishable on its facts as it was merely concerned with the res judicata effect of a prior claim as between the Trustee and a creditor with respect to the estate in bankruptcy.

Other cases cited are United States v. Coast Wineries, 9 Cir., 1942, 131 F.2d 643, and United States v. American Surety Co. of New York, 2 Cir., 1932, 56 F.2d 734. These two cases deal with the res judicata effect of bankruptcy proceedings pursuant to a proof of claim. The reason for their citation seems to be that inasmuch as the disallowance of a claim in a bankruptcy proceeding is res judicata as to the validity of the debt in a subsequent proceeding, the said proceeding must therefore be a judgment in favor of anyone capable of asserting it. We think such a conclusion confuses the doctrine of estoppel with the effect of a judgment. These cases do not involve the question of whether the bankruptcy proceeding resulted in a personal judgment against the bankrupt. They deal with the question of whether creditors who were parties in the bankruptcy proceeding are estopped to deny certain findings of fact and conclusions of law in those...