Opposition Brief — Fields v. Hartford Casualty Insurance Co., 112 S. Ct. 371 (1991) (No. 91-110)

Supreme Court, U.S.

FILED

OCT § $91

iGE OF THE CLERK

NO. 91-0110

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1991

HERBERT W. FIELDS, JR.,

Petitioner,

Vv.

HARTFORD CASUALTY INSURANCE COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

RESPONDENT'S BRIEF IN OPPOSITION

Gary L. Wickert

Counsel of Record

Loren R. Smith

HUGHES, WATTERS & ASKANASE

1415 Louisiana, 37th Floor

Houston, Texas 77002

(713) 759-0818

ATTORNEYS FOR RESPONDENT,

HARTFORD CASUALTY INSURANCE

COMPANY

EDITOR'S NOTE

THE FOLLOWING PAGES WERE POOR HARD COPY

AT THE TIME OF FILMING. IF AND WHEN A

BETTER COPY CAN BE OBTAINED, A NEW FICHE

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Lo) peer ewnconery

Suse:

a SRE LONGER oS

--

NO. 91-0110

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1991

HERBERT W. FIELDS, JR.,

Petitioner,

Vv.

HARTFORD CASUALTY INSURANCE COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

RESPONDENT'S BRIEF IN OPPOSITION

Gary L. Wickert

Counsel of Record

Loren R. Smith

HUGHES, WATTERS & ASKANASE

1415 Louisiana, 37th Floor

Houston, Texas 77002

(713) 759-0818

ATTORNEYS FOR RESPONDENT,

HARTFORD CASUALTY INSURANCE

COMPANY

QUESTION PRESENTED

Whether a surety who pays a tax debt

of another is subrogated to the State's

right to an exception from discharge under

11 U.S.C. § 523(a) (1) (A).

LIST OF PARTIES

Herbert W. Fields, Jr.

- Petitioner

Michael J. Pledger,

PLEDGER & PLEDGER

- Counsel for Petitioner

Hartford Casualty Insurance Company

- Respondent

Gary L. Wickert, Loren R. Smith,

HUGHES, WATTERS & ASKANASE

~ Counsel for Respondent

ii

QUESTION PRESENTED . .

LIST OF PARTIES. .

TABLE OF CONTENTS.

TABLE OF AUTHORITIES.

CONSTITUTIONAL PROVISIONS

AND STATUTES. .

STATEMENT OF THE CASE .

A.

B.

Factual Background

Procedural History

REASONS THE PETITION SHOULD

BE DENIED...

Le

ISSUE OF THIS CASE HAVE HELD THAT A

SURETY IS SUBROGATED TO THE

NONDISCHARGEABLE RIGHT OF A TAXING

AUTHORITY. .. .

Il.

THIS CASE CONTAINS NO SUPREMACY

ALL COURTS BUT ONE FACED WITH THE

-6

CLAUSE ISSUE BECAUSE FEDERAL BANKRUPTCY

LAW SUPPORTS HOLDING HARTFORD'S CLAIM

NONDISCHARGEABLE.

A. 11 U.S.C.

Nondischargeable.

iii

§ 523(a)(1) (A) Supports

Holding Hartford's Claim

8

PAGE

B. 11 U.S.C. § 509(a) Supports

Holding Hartford's Claim

Nondischargeable. ......... .11

Cc. 11 U.S.C. § 507(d) Supports

Holding Hartford's Claim

Nondischargeable. ......... .12

III. PUBLIC POLICY SUPPORTS HOLDING

HARTFORD'S CLAIM NONDISCHARGEABLE. . 13

CONCLUSION . . . «+ «6 © © © © «© « «© « 18

APPENDIX e . es a . e e . . e . e o 7 e 19

iv

UTHO =}

CASES PAGE

Cooper v. Cooper (In re Cooper),

83 Bankr. 544 (Bankr. C.D.

poh F 1988). e o e . + . * . e e oFe@eBeaa

Crimmins v. Lowry, 691 S.W.2d 582.

(Tex. 1985) se . se . 7 . _ = e. 7 . . o . 8

Federal Mutual Ins. Co. v. Gibbs

(In re Gibbs), 11 Bankr. 320

Fees Welle Gs BOOED. 2 0 ec ee te 2

Fidelity & Casualty Co. v. Whitaker,

176 Ga. 656, 168 S.E. 607

ye eee

Garton v. Zoglman (In re Zoglman),

78 Bankr. 213 (Bankr. W.D.

Wane Beerhs & © 6 «0 4 02k les ee ee 9

Gilbert v. United States Fidelity &

Guaranty Co., 180 F. Supp. 794

(M.D. Ga. 1959), aff'd, 274 F.2d 823

[eae Gees Bee 6) es ee ee cee ee 8

Gordon's Jewelry Co. of New Jersey,

Inc. v. Goldstein (In re Goldstein),

66 Bankr. 909 (Bankr.

4.0. Pe. 1906). « « « « « «-3,10,113,1312,13

Hancock v. Country Mutual Ins. Co.

(In re Hancock), 36 Bankr. 709

ees Gale Bees BOOOh« « « © * 0s 6 oF

CASES (continued) PAGE

Hartford Casualty Insurance Company

v. Fields (In re Fields), 926 F.2d

501 (Sth Cir. 1991)... . .2,6,7,9,10,18

In re Trasks' Charolais, 84 Bankr. 646

(Bankr. DO. @.0. 1966)... « «© © © «© « of

Nat'l Collection Agency, Inc. v.

Trahan, 624 F.2d 906

(9th Cir. 1980). ..... .7,10,11,15,16

Rankin v. Alloway (In re Alloway),

37 Bankr. 420 (Bankr. E.D.

eC ER i rn

Safeco Ins. Co. of America v. Norris

(In re Norris), 107 Bankr. 592

(Bankr. E.D. Tenn. 1989). . 7,12,14,16,17

St. Paul Mercury Indemnity Co. v.

Donaldson, 225 S.C. 476, 83 S.E.2d 159

(S.C. 1954) e es o _ > . _ o . . o . . a 7

Salaki v. Caffrey (In re Caffrey),

77 Bankr. 219 (Bankr. W.D.

aes Gen. «©» «+ « « © else 's @ © © @ oF

Thomas Int'l Corp. v. Morris

(In re Morris), 31 Bankr. 474

(Bankr. N.D. Ill. 1983). ........7

Western Surety Co. v. Waite

(In re Waite), 698 F.2d 1177

[5i0e Ge. Beene es a «ee we % os a BSE

vi

CASES (continued) PAGE

Woerner v. Farmers Alliance Mutual

Ins. Co. (In re Woerner), 19

Bankr. 708 (Bankr. D. Kan. 1982)... .7

STATUTES

“Se SO Ne ne

13 0.4.¢..% aoe en) torte Ss wtih ae

renumbered 1984}... . ° eo « « «i

11 U.S.C. § 507(a)(7) ..... . « 8,9,10

41 U.S.C. § SO7(G)s «© « «© © «© «© « 012,33

tek oS eee eer

Os Se es ne Sk ree. KO tae

11 U.S.C. § 523(a)(1)(A). . . .6,7,9,10,12

Tex. Alco. Bev. Code Ann.

§ 204.01(a) (3) (Vernon 1978). .....2

Tex. Bus. & Comm. Code Ann.

§ 34.04(b) (Vernon 1987). ....... 8

MISCEL OUs

Redmond, B., Annotation--Bankruptcy:

Codebtor's Subrogation Rights under

11 USCS § 509, 86 A.L.R. Fed.

SSG, G95. «© « © © © © © © © «© «© © ec 41,12

vii

eee

CONSTITUTIONAL PROVISIONS AND STATUTES

11 U.S.C. § 523(a) (1) (A):

(a) A discharge under section 727, 1141,

1228(a), 1228(b), or 1328(b) of this title

does not discharge an individual debtor

from any debt-

(1) for a tax or a customs duty-

(A) of the kind and for the

periods specified in section

507(a)(2) or 507(a)(7) of this

title, whether or not a claim

for such tax was filed or

allowed;

11 U.S.C. § 509(a):

(a) Except as provided in subsection

(b) or (c) of this section, an entity that

is liable with the debtor on, or that has

secured, a claim of a creditor against the

debtor, and that pays such claim, is

subrogated to the rights of such creditor

to the extent of such payment.

11 U.S.C. § 507(d):

(d) An entity that is subrogated to

the rights of a holder of a claim of a

kind specified in subsection (a)(3),

(a) (4), (a)(5), or (a) (6) of this section

is not subrogated to the right of the

holder of such claim to priority under

such section.

viii

NO. 91-0110

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1991

HERBERT W. FIELDS, JR.,

Petitioner,

We

HARTFORD CASUALTY INSURANCE COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

RESPONDENT'S BRIEF IN OPPOSITION

Respondent, Hartford Casualty

Insurance Company ("Hartford")

respectfully requests that this Court deny

the petition for writ of certiorari,

seeking review of the judgment of the

United States Court of Appeals for the

Fifth Circuit in this case. The opinion

of the Fifth Circuit is reported at 926

F.2d 501 (Sth Cir. 1991).

STATEMENT OF THE CASE

A. Factual Background

Petitioner Herbert W. Fields, Jr.

("Fields") filed for protection under

Chapter 11 of the Bankruptcy Code on

December 28, 1984. Hartford issued two

surety bonds for corporations owned by

Fields in favor of the State of Texas.

These surety bonds covered a mixed

beverage permit bond for corporations

owned by Fields known as Corky's Country

and Carlos' 'N Charlie's Del Norte, Inc.

The bonds, required by Tex. Alco. Bev.

Code Ann. § 204.01(a)(3) (Vernon 1978),

bound Fields as principal and Hartford as

surety to the State of Texas for payment

of all permit fees, service fees, taxes

——

and penalties assessed by the Texas

Alcoholic Beverage Commission. The bonds

covered taxes for the periods of December

28, 1984 to October 16, 1985 and February

19, 1985 to October 2, 1985.

Fields failed to pay the taxes.

Pursuant to the surety bond requirements,

Hartford paid $15,479.58 to the State of

Texas on November 21, 1985. Fields's

bankruptcy case was administratively

consolidated with Corky's Country and

Carlos' 'N Charlie's Del Norte, Inc. on

January 11, 1986. Then, on October 29,

1986, the bankruptcy case was converted to

a case under Chapter 7.

B. Procedural History

Hartford Casualty Insurance Company

filed its "Complaint to Determine

Dischargeability of Debt Pursuant to 11

¥.8.¢. 523(a) (1) (A)" in Fields's

bankruptcy case on February 9, 1988. The

United States Bankruptcy Court for the

Southern District of Texas, Houston

Division, ruling in Hartford's favor,

entered an order on March 416, 1989

declaring Hartford's claim against Fields

based on its payment to the State of Texas

as a surety for Fields's tax debt

nondischargeable. The United States

District Court for the Southern District

of Texas, Houston Division, affirmed the

Bankruptcy Court's order of

nondischargeability on July 13, 1990. The

United States Court of Appeals for the

Fifth Circuit affirmed the District Court

and Bankruptcy Court rulings on March 21,

1991. This case is an appeal of the Fifth

Circuit's decision.

REASONS THE PETITION SHOULD BE DENIED

Fields fails to raise any special or

+

important reasons to warrant granting its

petition for a writ of certiorari. The

arguments made by Fields have been decided

against him by every court reviewing the

issue with only one aberration. The only

Circuit that has decided the issue

contrary to Hartford's position did so in

a case under the Bankruptcy Act, and the

two Circuits ruling on the issue under the

Bankruptcy Code have ruled in favor of

Hartford's position. Contrary to Field's

argumentative statement of the question

presented, this case does not involve

preemption. The Fifth Circuit's ruling

that Hartford is subrogated to the rights

of the State of Texas is supported by the

provisions of the Bankruptcy Code.

It is uncontested that the tax debt

owed by Fields to the State of Texas is of

the type that is excepted from discharge

5

pursuant to 11 U.S.C. § 523(a) (1) (A).

Fields, 926 F.2d at 503, fn.3. As the

Fifth Circuit observed, "if there had been

no surety arrangement in this case and the

claim was asserted by the State of Texas

rather than Hartford, the debt would be

nondischargeable under 120 «68. S.C. §

523(a)(1)(A)." Id. Hartford, which paid

the debt as a surety, should be subrogated

to the State of Texas's right to an

exception from discharge.

I. ALL COURTS BUT ONE FACED WITH THE

ISSUE OF THIS CASE HAVE HELD THAT A SURETY

IS S8UBROGATED TO THE NONDISCHARGEABLE

RIGHT OF A TAXING AUTHORITY

Every court dealing with the issue of

this case has ruled that a surety is

subrogated to a taxing authority's

standing to assert nondischargeability

under 11 U.S.C. § 523(a) (1) (A),' with only

one aberration. The only contrary

decision, the case upon which Fields

principally relies,’* was decided under the

Bankruptcy Act. Since there is almost

‘See Fields, 926 F.2d at 504; Western Surety

Co. v. Waite (In re Waite), 698 F.2d 1177 (llth

Cir. 1983); Gilbert v. United States Fidelity &

Guaranty Co., 180 F. Supp. 794 (M.D. Ga. 1959),

aff'd, 274 F.2d 823 (5th Cir. 1960); Safeco Ins.

Co. of America v. Norris (In re Norris), 107 Bankr.

592 (Bankr. E.D. Tenn. 1989); In re Trasks’

Charolais, 84 Bankr. 646 (Bankr. D. S.D. 1988);

Cooper v. Cooper (In re Cooper), 83 Bankr. 544

(Bankr. C.D. Ill. 1988); Garton v. Zoglman (In re

Zoglman), 78 Bankr. 213 (Bankr. W.D. Wis. 1987);

Salaki v. Caffrey (In re Caffrey), 77 Bankr. 219

(Bankr. W.D. Mo. 1987); Gordon’s Jewelry Co. of New

Jersey, Inc. v. Goldstein, 66 Bankr. 9309 (Bankr.

W.D. Pa. 1986); Thomas Int’l Corp. v. Morris (In re

Morris), 31 Bankr. 474 (Bankr. N.D. Ill. 1983)[not

to be confused with Iowa State Dept. of Social

Services v. Morris (In re Morris), 10 Bankr. 448

(Bankr. N.D. Iowa 1981), cited by Fields without

page reference]; Rankin v. Alloway (In re Alloway),

37 Bankr. 420 (Bankr. E.D. Pa. 1984); Hancock v.

Country Mutual Ins. Co. (In re Hancock), 36 Bankr.

709, (Bankr. S.D. Ill. 1984); Woerner v. Farmers

Alliance Mutual Ins. Co. (In re Woerner), 19 Bankr.

708 (Bankr. D. Kan. 1982); Federal Mutual Ins. Co.

v. Gibbs (In re Gibbs), 11 Bankr. 320 (Bankr. W.D.

Mo. 1981); Fidelity & Casualty Co. v. Whitaker,

176 Ga. 656, 168 S.E. 607 (Ga. 1933); St. Paul

Mercury Indemnity Co. v. Donaldson, 225 S.C. 476,

83 S.E.2d 159 (1954).

*Nat’l Collection Agency, Inc. v. Trahan, 624

F.2d 906 (9th Cir. 1980).

7

universal agreement on the issue of this

case, it does not merit certiorari.

II. THIS CASE CONTAINS NO SUPREMACY

CLAUSE ISSUE BECAUSE FEDERAL BANKRUPTCY

LAW SUPPORTS HOLDING HARTFORD'S CLAIM

NONDISCHARGEABLE.

This -case does not’ present a

Supremacy Clause issue. The question

facing this court is not aé_ conflict

between Federal Bankruptcy law and state

law, but is one of interpretation of the

provisions of the Bankruptcy Code.’

3Pields contends that the Fifth Circuit chose

state subrogation law over Federal Bankruptcy law.

The state law Fields refers to is Tex. Bus. & Comm.

Code Ann. § 34.04(b) (Vernon 1987) which provides

that a surety "is subrogated to all of the judgment

creditor's rights.” Also, the Supreme Court of

Texas has held that a surety is subrogated to all

of the rights of the original creditor: "Because

the surety promises to pay the debt of another,

equity confers the right of subrogation. If the

surety or party in the position of a surety pays

the debt of the principal, the surety is subrogated

to all of the rights, remedies, equities, and

securities of the creditor.” Crimmins v. Lowry,

691 S.W.2d 582, 585 (Tex. 1985).

However, the Fifth Circuit based its holding

in part on the language of 11 U.S.C. § 507(a)(7):

"Because Texas required the bond specifically to

secure payment of the taxes, we think the debt paid

8

Hartford's right of subrogation is

supported by a careful reading of Federal

Bankruptcy statutes 11 U.S.C. §

523(a) (1) (A), 11 U.S.C. § 509(a), and 11

U.S.C. § 507(d).

A. 11 U.8.C § 523(a) (1) (A) Supports

Holding Hartford's Claim

Nondischargeable.

Section 523(a) (1) (A) supports holding

Hartford's claim nondischargeable. On its

face, 11 U.S.C. § 523(a)(1) (A) may be read

to allow such subrogation.

While the Court is aware of the

rFule- tbat (sic) the

nondischargeability provisions are to

be read liberally in favor of a

debtor's fresh start, to read section

523(a)(1) to be limited to debts

actually owed to the tax collector or

those obligations actually entitled

to priority under section 507(a) (7)

of the Code would be to read into the

statute language that is simply not

there.

by the surety is a tax "of the kind” specified in

§ 507(a)(7)(sic).” Fields, 926 F.2d at 504, fn.8.

9

Cooper, 83 Bankr. at 544.

The Debtor argues that (the

surety] is not entitled to this

subrogated status, claiming that this

status is for governmental entities

only. The very face of the various

sections of the Bankruptcy Code speak

otherwise. Section 523(a) (1) (A)

holds nondischargeable any debt for a

tax of the kind specified in §

507 (a) (6) [now § 507(a) (7), renumbered

1984].

Goldstein, 66 Bankr. at 920 (emphasis

original). A debt paid by a surety for

nonpayment of taxes is a tax of the kind

specified in 11 U.S.C. § 507(a)(7). As

the Fifth Circuit reasoned, since Texas by

statute specifically requires the bond for

payment of taxes, the debt falls under the

Bankruptcy Code's definition of "tax".

Fields, 926 F.2d at 504, fn.8.‘

‘It should be noted that Trahan was decided

under the former 11 U.S.C. § 35, a statute which

did not have the "of the kind” language which is

now contained in § 523(a)(1)(A). "The exception

appears in altered form in the new statute, which

does not have retroactive applicability. See 11

U.S.C. § 523." Trahan, 624 F.2d at 907, fn.1. As

10

B. 11 U.S.C. § 509(a) Supports

Holding Hartford's Claim

Nondischargeable.

Section 509(a) also supports holding

Hartford's claim nondischargeable. The

express provision of subrogation for a

surety in § 509(a) extends to the right of

nondischargeability as well:

While the Court has_ previously

explained its reason for finding the

Debtor's equitable claims here

inappropriate, we find that even if

this characterization were

appropriate, (the surety) would still

have the rights requested, under §

509(a) of the Code.

As (the surety] paid the taxing

authority, it is subrogated to the

taxing body's right to payment, which

includes the right to have _ the

payment held to be nondischargeable.

Goldstein, 66 Bankr. at 920. See also

Redmond, B., Annotation--Bankruptcy:

Codebtor's Subrogation Rights under 11

such, the holding of Trahan has been undercut by

the enactment of the Bankruptcy Code.

11

USCS § 509, 86 A.L.R. Fed. 886, 895.

Cc. 11 U.S.C. § 507(d) Supports

Holding Hartford's Claim

Nondischargeable.

Section § #507(d) also supports

holding Hartford's claim nondischargeable.

This section provides that a surety is not

subrogated to the priority status of a

taxing authority. However, courts have

held that this section does not prevent a

surety from being subrogated to

nondischargeability status of a taxing

authority.* Instead, if a surety's claim

Swaite, 698 F.2d at 1178; Cooper, 83 Bankr.

at 548, & fn.12 ("The fact that section 507(d)

denies the priority to that claim does not alter

the character of the claim and is wholly irrelevant

to dischargeability. Nothing in section 523(a)(1)

makes dischargeability of a tax claim of this type

ontingent on actual entitlement to priority.");

Goldstein, 66 Bankr. at 920 ("We read this as it is

stated-that the taxes held nondischargeable are the

same taxes listed as having priority status under

§ 507-not that the priority itself has any effect

on the debt's nondischargeable status."); Norris,

107 Bankr. at 594 ("However, the right to priority

under § 507 is not required in order for a tax debt

to be nondischargeable under § 523(a)(1)(A).").

12

was not subrogated to the nondischargeable

status, § 507(d) would be unnecessary.

This section evidences two

things to this Court:

(1) a tax claim can be

subrogated; and,

(2) the subrogee is not entitled

to the subrogor's priority

status.

If another entity, such as [the

surety], could not be subrogated to a

tax claim, the language including tax

claims in § 507 (da) would be

unnecessary. As it must be assumed

that Congress would not _ include

superfluous language in the statute,

it must be given its clear meaning.

Clearly then, it appears to this

Court that [the surety] has a right

to be subrogated to the right of the

(taxing authority], to the extent of

having its claim be held

nondischargeable.

Goldstein, 66 Bankr. at 920 (emphasis

original).

IItr. PUBLIC POLICY SUPPORTS HOLDING

HARTFORD'S CLAIM NONDISCHARGEABLE.

Public policy also supports a holding

13

that these tax debts nondischargeable. A

holding that these debts are dischargeable

would ultimately harm tax-paying

businesses, and would hinder businesses

reorganizing under Chapter 11. Initially,

it would encourage businesses with unsure

financial standing to delay in paying

their taxes.

A debtor who fails to pay taxes

before bankruptcy usually bears the

burden of that failure after

bankruptcy by being liable for a

nondischargeable tax debt. However,

if the debt to the surety is

dischargeable, then the debtor can

choose not to pay taxes with the

knowledge that he can escape

liability by filing bankruptcy and

discharging the surety's claim. A

debtor should not be given this

choice. Therefore, the court adopts

the view that the policy behind the

dischargeability statute is better

served by making the surety's claim

non-dischargeable to the extent the

surety paid a nondischargeable tax.

Norris, 107 Bankr. at 596. It would be

especially unfair to a surety in

14

Hartford's position to hold these debts

dischargeable, having dealt with Fields

after he had filed for protection under

Chapter 11. If it is determined that

these debts are dischargeable, few

sureties will deal with principals whose

businesses are in financial trouble,

especially those in reorganization under

Chapter 11, out of fear that’ the

principals or their businesses will later

file or convert their cases to Chapter 7.

The Ninth Circuit recognized that their

holding would increase the cost of

contracting with sureties. Trahan, 624

F.2d at 907, fn.2. However, this

increased cost would ultimately be passed

on to tax-paying bys inesses. ”

Fields relies on the Trahan rationale

that the purpose of the statutory

exception to discharge is to assure tax

15

collection by taxing authorities. Trahan

rationalizes that the taxing authority

will get paid one way or the other, either

by the debtor or the surety. Trahan, 624

F.2d at 907. However, even if this was

the only purpose behind the statutory

exception, the argument is not convincing.

One court, in criticizing this postulation

of Trahan, stated:

Suppose, however, that the

exception from discharge is

intended purely to preserve

government revenue. If the

policy of the exception from

discharge is to promote the

collection of taxes, then that

policy is served indirectly by

excepting the surety's

subrogation claim from

discharge. The question is

whether the policy behind the

exception is a narrow policy to

allow the collection of

nondischargeable taxes from

debtors or a broader policy of

promoting the payment of

nondischargeable taxes by

debtors and sureties. This

court adopts thr broader view of

the policy behind the exception.

16

Norris, 107 Bankr. at 595 (emphasis

original).

Finally, the argument proposed

by Fields that a ruling of

nondischargeability frustrates the

policy of a "fresh start" is not

compelling. The weakness of this

argument is readily apparent:

A debtor's fresh start is

not overburdened by excepting a

surety's subrogation claim from

discharge. The debtor's fresh

start is the same; he owes the

same amount of nondischargeable

tax debt; the only difference is

whether the debtor owes the debt

to the government or the surety.

Norris, 107 Bankr. at 596; Fields,

926 F.2d at 504, fn.8.

CONCLUSION

Congress intended certain tax

debts to be, nondischargeable in

Bankruptcy. All courts but one

dealing with the issue of this case

17

have held that a surety should be

subrogated to the rights of a taxing

authority in seeking an exception to

discharge. To remove the surety's

right of subrogation would ultimately

put an unfair burden on tax-paying

businesses and businesses seeking to

reorganize. Finally, a debtor's

fresh start will not be hampered, for

the debtor will still owe the same

amount of nondischargeable tax debt.

WHEREFORE, Hartford Casualty

Insurance Company prays that

certiorari be denied.

Respectfully submitted,

Counsel/of Record

Loren R. Smith

1415 Louisiana, 37th Floor

Houston, Texas 77002

(713) 759-0818

18

Appendix "A"

Appendix "B"

Appendix "Cc"

APPENDIX

Tex. Alco. Bev. Code

Ann. § 204 (Vernon

1978).

U.S. Bankruptcy Court

Memorandum Opinion

signed March 15, 1989.

Published Opinion of

the U.S. Court .of

Appeals for the Fifth

Circuit, entered March

21, 1991.

19

APPENDIX "A"

CHAPTER 204. BONDS

Section

204.01. Bond Required.

204.02. Form and Conditions.

204.03. Amount of Bond.

204.04. Multiple Permits, One Bond.

204.05. Cancellation of Bond.

Section 204.01. Bond Required

(a) Except as otherwise provided in this section, the following li-

censees and permittees shall furnish a bond:

(1) those authorized to import alcoholic beverages into the

state;

(2) manufacturers cf beer and brewers of ale or malt liquor

in the state;

(3) permittees subject to the gross receipts tax on mixed bev-

erages imposed by Section 202.02 of this code; and

(4) all other permittees.

_

(b) No bond is required of a holder of a carriers, local cartage,

wine and beer retailers, nonresident seller's, manufacturer’s agent’s,

or agent’s permit.

(c) No bond is required of a retail licensee or permittee who is not

responsible for the primary payment of an alcoholic beverage excise

tax to this state. This subsection does not exempt permittees subject

to the gross receipts tax on mixed beverages imposed by Section 202.-

02 of this code.

(d) A permittee required to furnish a bond to secure the payment of

the gross receipts tax on mixed beverages may furnish, in lieu of ail or

part of the amount of the bond required:

(1) one or more certificates of deposit or savings assigned to

the state, issued by one or more banks or savings institutions au-

thorized to do business in this state; or F

(2) one or more letters of credit issued by one or more banks

or savings institutions authorized to do business in this state.

(e) If certificates of deposit or savings or letters of credit are fur-

nished under Subsection (d) of this section, the administrator shall

keep them in his possession. Interest earned on a certificate of de-

posit or savings is not subject to the assignment and remains the

property of the owner of the certificate.

Amended by Acts 1977, 65th Leg., p. 1183, ch. 453, § 11, eff. Sept. 1, 1977.

580

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS

ENTERED

APPENDIX "B"

MAR — 1989

IN THE UNITED STATES BANKRUPTCY COURT’

FOR THE SOUTHERN DISTRICT OF TEXASess¢ Ec) tit

HOUSTON DIVISION

IN RE:

HERBERT W. FIELDS, JR. CASE NO. 84-06303-H1-7

Debtor

HARTFORD CASUALTY

INSURANCE COMPANY

Plaintiff

L > Pe ADVERSARY NO. 88-0109-H1

HERBERT W. FIELDS, JR.,

OMMUWWMWW MMW Mmm ww

Defendant.

MEMORANDUM OPINION

Pending before this court is a complaint to

determine dischargeability of debt pursuant to 11

U.S.C. §523(a)(1) (A), filed by Hartford Casualty

Insurance Company. Also pending before this court is

defendant, Herbert W. Fields’, Jr., motion to dismiss

complaint. After careful consideration of the

pleadings and points of law raised, this court

concludes that Hartford’s claim is nondischargeable and

that defendant’s motion to dismiss is denied.

This court has jurisdiction of this proceeding

pursuant to 28 U.S.C. sections 1334 and 157(b) (2) (I)

and the Order of Reference of Bankruptcy Cases and

Proceedings Nunc Pro Tunc issued on August 9, 1984 by

the Chief District Judge of the Southern District of

Texas.

Hartford issued two surety bonds on a mixed

beverage permit for corporations owned by Fields in

favor of the State of Texas. The surety bonds bound

Fields as principal and Hartford as surety to the State

of Texas for the payment of permit fees, service fees,

taxes and penalties assessed by the Texas Alcohol

Commission. Taxes covered by the surety bonds were for

the periods of December 28, 1984 to October 16, 1985

and February 19, 1985 to October 2, 1985. Fields

failed to pay the taxes, and pursuant to the surety

bond requirements, Hartford paid $15,479.58 to the

State on November 21, 1985. Fields filed a chapter 11

bankruptcy petition on December 28, 1984. This case

was administratively consolidated with Carlos and

Charlies Inc. and Corkey’s Country, Inc. on January 11,

1986. The case was converted to a chapter 7 on October

29, 1986.

Hartford seeks recovery from Fields for the amount

paid to the state. The claim for taxes arose after the

filing of the chapter 11 petition but prior to

conversion to chapter 7. Under 11 U.S.C. § 348(d)

(a) claim against the estate or the debtor

that arises after the order for relief but

before conversion in a case that is converted

under section 1112, 1307, or 1208 of this

title, other than a claim specified in

secticn 503(b) of this title, shall be

treated for all purposes as if such claim had

arisen immediately before the date of the

filing of the petition.

With the exception of administrative claims under this

section, claims arising prior to conversion are treated

as prepetition claims. In its complaint, Hartford

contends that the debt pursuant to surety bond

qualifies as a tax falling within the ambit of 11

U.S.C. § 507(a)(7) and is excepted from discharge under

11 U.S.C. § 523(a) (1) (A).

This court is presented with the issue of whether

the debt owed is nondischargeable. Initially, this

court notes that the party seeking an exception to

discharge bears the burden of proof as to

nondischargeability. In the matter of Binich, 311 F.2d

943 (Sth Cir. 1987). Fields contends that because

Hartford is not a taxing authority, it has no right to

levy taxes and is not entitled to nondischargeability

status under 11 U.S.C. § 523(a)(1)(A), providing an

exception to discharge for taxes. Fields contends that

the exception was promulgated to facilitate tax

collection and that because Hartford is not a taxing

authority, this policy concern is not promoted by

rendering Hartford’s claim nondischargeable. The fees

charged by Hartford, for the issuance of surety bonds

according to Fields, are designed to protect Hartford

against losses. Fields contends that the debt due

Hartford arose as a result of an indemnity agreement

rather than as a tax.

Fields contends that dischargeability of debts

should take precedence over state law theories of

equitable subrogation. Fields relies on The National

Collection Agency, Inc. v. Trahan, 624 F.2d 906 (9th

Cir. 1980), as authority for the proposition that the

dischargeability exception is mot applicable to a

surety which pays a tax to the state. in Yrehan, a

surety contracted with Trahan to post a bond with the

state. Trahan failed to pay the tax, and an action was

brought in state court by the surety’s assignee to

recover the amount paid by the surety to the state.

Trahan filed bankruptcy and sought a declaration that

the debt was discharged. The court focused on two

policy considerations: the favoring -of discharge of

debts and the collection of taxes by governmental

entities. JId. at 907. The Ninth Circuit ruled that

the policy promoting dischargeability of debts

overrides an application of equitable subrogation,

rendering the debt dischargeable. The court concluded

that the policy of promoting tax collection would not

be furthered if subrogation was permitted, reasoning

that the state had been paid by the surety,

irregardless of the status of the surety’s claim

against the debtor. Id; See also In re Smothers, 60

B.R. 733, 735 (Bankr. W.D. Ky. 1986}.

The Court in Trahan, 624 F.2d at 908, specifically

rejected the analysis provide earlier in Gilbert v.

United States Fidelity and Guaranty Co., 180 F. Supp.

794 (M.D. Ga. 1959), aff’d, 274 F.2d 823 (Sth Cir.

1960). In Gilbert, 180 F. Supp 794, the guarantor,

pursuant to a surety agreement, paid a Georgia state

tax, which the principal had failed to pay. The

principal was subsequently adjudicated bankrupt and

discharged. The principal contended that enforcement

of liability to the guarantor was barred as a result of

the discharge. The court reasoned that pursuant to a

a

Georgia subrogation statute, it was as if the taxes

remained unpaid and still due, rendering the debt

nondischargeable under the Bankruptcy Act. Id. at 796.

The line of reasoning set forth in Gilbert, 180 F.

Supp. 794, was later adopted by the Eleventh Circuit

in In the matter of Waite, 698 F.2d 1177 (11th Cir.

1983). -A similar situation involving payment by the

surety of an alcoholic beverage tax arose in Waite.

The court reasoned that if the tax had gone unpaid, the

state would have been vested with a right to prevent

discharge of the tax debt, and consequently, the surety

should be subrogated to this right. In In re Hancock,

36 B.R. 709 (Bankr. S.D. Ill. 1984) the court also

concluded that a debt which is owed a surety under a

bond providing for payment of a state sales tax was

nondischargeable. The court appears to have followed

the holding in Gilbert, 180 F. Supp. 794, noting that

“the policy considerations underlying the

nondischargeability provisions of the Baxskruptcy Act

remain unchanged in the Bankruptcy Code.” Hancock, 36

B.R. at 710.

Subrogation, by its nature, is an equitable right,

dependent on the circumstances in a particular instance

for its application. In re Co-Build Companies, Inc.,

21 B.R. 635 (Bankr. E. D. Pa. 1982); In re Alloway, 37

B.R. 420, 423 (Bankr. E.D. Pa.1984). The principal of

subrogation is well recognized in Texas. In Crimmins

Vv. Lowry, 691 S.W. 2d 582, 585 (Tex. 1985) the Texas

Supreme Court stated that this equitable right springs

from the surety’s promise to pay a debt of the

principal, permitting the surety to bring an action

against the principal on the debt.

It appears to this court that the majority of

cited authority holds that a surety which pays a tax

debt steps into the shoes of the taxing authority to

claim nondischargeability status.! See In re Caffrey,

77 B.R. 219, 221 (Bankr. W.D. Mo. 1987); In re Woerner,

19 B.R. 708, 712 (Bankr. Kan. 1982); In the matter of

Waite, 698 F.2d 1177; Thomas International Corp. v.

Morris International Corp. v. Morris (In re Morris), 31

B.R. 474 (Bankr. N.D. Ill. 1983). In In re Cooper, 83

lAlthough this court rules in accordance with the majority

of authority, it notes the weakness of the logic employed in

these cases. The purchase of the surety bond constituted

contractual payment for protection. Whereas the relationship

between Hartford and Fields was contractual, the relationship

between Hartford and the taxing authority was not.

B.R. 544, 548 (Bankr. C.D. Ill. 1988) the court

apparently viewed the position of the Eleventh Circuit

in Trahan to go beyond the parameters of the Bankruptcy

Code. The court concluded that:

{wjhile the court is aware of the rule that

that {sic.] the nondischargeability

provisions are to be read liberally in favor

of a debtor’s fresh start, to read section

523(a)(1) to be limited to debts actually

oved to the tax collector or those

obligations actually entitled to priority

under section 507(a)(7) of the Code would be

to read into the statute language that is

simply not there.

Id. See also, In re Woerner, 19 B.R. at 712

(Code does not expressly preclude

nondischargeability of subrogated claim).

,

Hartford appears to this court to have shouldered

its burden of proof regarding the nondischargeability

status of its claim. Having paid the beverage tax on

behalf of Fields, Hartford is to be provided the

opportunity to seek reimbursement. The motion to

dismiss the complaint is denied and Hartford’s claim is

determined tu be nondischaigeable. ‘lartfori ic awarded

attorneys fees and costs.

0 to NL iste

Signed this the 15th da

UNITED STATES BANKRUPTCY JUDGE

ere Ca eas

tt le ea

were ts

ee Cane

APPENDIX "C"

MATTER OF FIELDS 501

Cite as 926 F.2d S01 (Sth Cir. 1991)

time, Crawford tipped his shoulder and

reached further down.

Under these circumstances, a reasonable

officer could well fear for his safety and

that of others nearby. He could reason-

ably believe that Crawford had retrieved a

gun and was about to shoot. That is, an

officer would have probabie cause to be-

lieve that “the suspect pose{d] a threat of

serious physical harm.” Garner, 471 U.S.

at 11, 105 S.Ct. at 1701. Anderson had

repeatedly warned Crawford to raise his

hands and was now faced with a situation

in which another warning could (it ap-

peared at the time) cost the life of

Anderson or another officer. Under such

circumstances, an officer is justified in us-

ing deadly force to defend himself and oth-

ers around him. Accordingly, the individu-

al defendants are entitled to commary

judgment as a matter of law... -~ --

The fact that the vehicle was “totally

surrounded” by police does not change

matters; had Crawford in fact retrieved a

gun from beneath his seat, he could have

caused injury or death despite the presence

of numerous police officers. Also irrele-

vant is the fact that Crawford was actually

unarmed. Anderson did not and could not

have known this. The sad truth is that

Crawford's actions alone could cause a rea-

sonable officer to fear imminent and seri-

ous physical harm.*

Conclusion

Since the individual defendants are enti-

tled to summary judgment, we must re-

verse the district court’s denial of their

motion. In addition, since no federal

claims remain against the individual defen-

dants, we instruct the district court to dis-

miss the pendent state claims against those

defendants as well, without prejudice to

refiling those claims in state court?

a Tne Siegitiets Miimetiasdentitnies thinner i cet

to the contrary. There, the Court found unrea-

sonable the shooting of an unarmed felony sus-

Pect, but the officer could see that the suspect's

were empty and was “reasonably sure” he

US. at 1, 105 S.Ct. at 1694.

evident that the suspect posed “no immediate

threat to the officer and no threat to others.”

A case of this gravity demands the ut-

most care. Here, for reasons neither ex-

plained nor evident, there was a complete

failure to provide the evidence required in

response to a summary judgment motion.

The rules in this regard are clear and well-

established; we are without authority to

waive them.

For the reasons stated above, we RE-

VERSE the district court’s denial of sum-

mary judgment for the individual defen-

dants; DISMISS the appeal of the City of

Waco; and REMAND for entry of summa-

ry judgment in favor of the individual de-

fendants, dismissal without prejudice of

pendent state claims against the individu-

als, and further proceedings consistent

with this opinion.

. ‘in the Matter of Herbert Ww.

FIELDS, Jr., Debtor.

HARTFORD CASUALTY INSURANCE

COMPANY, Appeilee,

- 2

Herbert W. FIELDS, Jr., Appellant.

No. 90-2735

Summary Calendar.

United States Court of Appeals,

Fifth Circuit.

March 21, 1991.

Surety which had paid Chapter 7 debt-

or’s gross receipts taxes levied by Texas

Id at 11, 105 S.Ct. at ‘1701. Here, all signs were

to the contrary.

9. Such dismissal is perhaps the practice in this

circuit, see, eg., McKee, 877 F.2d at 416; Jac-

quez, 801 F.2d at 793, although there is disagree-

ment as to whether it is mandaatory, see McKee,

877 F.2d at 426 (dissenting in part); Mintz v.

Barthelemy, 722 F Supp. 273, 282 & n. 16 (ED.

La.), aff'd, 891 F.2d $20 (Sth Cir.1989).

502

Alcoholic Beverages Commission filed com-

plaint to determine dischargeability of

debt. The United States Bankruptcy Court

for the Southern District of Texas deter-

mined that surety’s claim was nondis-

chargeable, and debtor appealed. The Dis-

trict Court, Norman W. Black, J., affirmed,

and debtor appealed. The Court of Ap-

peals, E. Grady Jolly, Circuit Judge, held

that surety, having paid debtor’s taxes to

Commission, became subrogated to state of

Texas’ right to exception from discharge.

Affirmed.

1. Bankruptcy ©3352

Gross receipts tax liability under Texas

law for licensees and permittees of mixed

beverages are nondischargeable in bank-

ruptcy cases of such licensees and permit-

tees. Bankr.Code, 11 U.S.C.A.

§ 523(aX1XA); V.T.C.A., Alcoholic Bever-

age Code § 204.01.

2. Bankruptcy ©°3420(1)

Party seeking exception to discharge

bears burden of proof as to nondischarge-

ability.

3. Bankruptcy 493385

Surety, having paid debtor's gross re

ceipts taxes levied by Texas Alcoholic Bev-

erages Commission, became subrogated to

all rights that state of Texas had againat

debtor under Bankruptcy Code, including

state's right to exception from discharge

for tax liability. Bankr.Code, 11 U.S.C.A.

§ 523(aX1XA); V.T.C.A., Alcoholic Bever-

age Code § 204.01.

Michael J. Pledger, Houston, Tex., for

sppellant ala k Lk, sae

Gary L. Wickert, Houston, Tex., for ap-

pellee. - . er

1. Section $23(e)1)A) of the Bankruptcy Code

provides: ° ’ e . - .

(a) A section 727, 1141,

discharge under

1228(a), 1228(b), or 1328(b) of this title does

to discharge an individual Debtor from any

926 FEDERAL REPORTER, 2d SERIES

Appeal from the United States Distr

Court for the Southern District of Texy

Before JOLLY, HIGGINBOTHAM, an

JONES, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

The debtor, Herbert W. Fields (“Dey

or’), appeals from the district court’s nm

fusa!l to discharge a certain debt to hy

surety, Hartford Casualty Insurance (4

(“Hartford”), incurred when Hartford pad

taxes on his behalf to the State of Texy

The issue presented by this case is whether

Hartford can be subrogated to the State of

Texas’ right to an exception from discharge

under 11 U.S.C. § 523(a)(1XA)' of the

Bankruptcy Code. Holding that Hartford

is entitled to subrogation, we affirm. uf

. ° . : rT

;

of

' I ba me : 4

The facts are brief and uncontested

Hartford issued a surety bond covering 8

mixed beverage permit to Debtor as th

owner of two corporations known #

Corky’s Country and Carlos’ 'N Charlies

Del Norte, Inc.* The surety agreement

bound Debtor as principal and Hartford us

surety to the rights of the State of Texas

for payment of all fees, taxes and penalties

levied by the Texas Alcoholic Beverages

Commission (“TABC”).

Debtor filed for bankruptcy protection in

late December 1984. Subsequently, during

the periods of December 28, 1984 to Octo

ber 16, 1985, and February 19, 1985 &

October 2, 1986, Debtor failed to pay taxes

covered by the surety bonds. Pursuant ©

the surety bond requirements, Hartford

paid $15,479.58 to the State on November,

21, 1986. ee ee

"whether or not a claim for such tax was filed

or allowed; Wee

2. Texas Alcoholic Beverage Code § 204.01 (Ver ;

non 1978 & 1991 Supp.) requires licensees a04

permittees of mixed beverages to furnish a boo! |

to secure the payment of the gross receipts 4 3

MATTER OF FIELDS

503

Cite aa 926 Fld SO1 (Sth Cie. 1991)

I]

On December 28, 1984, Debtor filed his

Chapter 11 bankruptcy petition and proper-

ly scheduled Hartford as a creditor. The

case was converted to a Chapter 7 case on

October 29. 1986. The Chapter 7 Creditor’s

Meeting was noticed and held on December

16, 1986, and the deadline for filing com-

plaints to determine dischargeability under

11 U.S.C. 523(c) was established as Febru-

ary 16, 1987. Hartford failed to file a

Complaint to Determine Dischargeability of

Debt until February 9, 1988, nearly one

year after the bar date. Debtor filed his

Motion to Dismiss Complaint on March 9,

1988.

The Bankruptcy Court denied Debtor's

motion, determining that Hartford's claim

was nondischargeable under 11 U.S.C.

§ 523(aX1A). Debtor appealed to the dis-

trict court on the grounds that the debt

was not automatically nondischargeabie as

taxes and that under any other theory

Hartford’s Complaint was not timely filed.

The district court, however, affirmed the

Bankruptcy Court’s decision. Debtor time

ly appeals. .-6. “a8 & ,

III

{1,2] Initially, we note that if there had

been no surety arrangement in this case

and the claim was asserted by the State of

Texas rather than Hartford, the debt would

be nondischargeable under 11 U.S.C.

§ 523(aX 1A). We must decide, however,

whether a surety who pays a tax debt of

another is subrogated to the State’s right

to an exception from discharge. As with

exception, according to Debtor, was prom-

ulgated to facilitate tax collection and be

cause Hartford is not a taxing authority,

this policy concern is not promoted by ren-

dering Hartford's claim nondischargeable.

Similarly, there is no need to protect the

surety, argues the Debtor, as the fees

charged by Hartford for the issuance of

surety bonds are designed to protect Hart-

ford against losses. Debtor concludes that

because Hartford is not a taxing authority,

it has no right to levy taxes and is not

entitled to nondischargeability status under

11 U.S.C. § 523(aX1A). We are unper-

suaded.

We last confronted this issue over thirty

years ago in Gilbert v. United States Fi-

delity 2 Guaranty Co., 180 F.Supp. 794

(M.D.Ga.1959), aff'd per curiam, 274 F.2d

823 (Sth Cir.1960). Gilbert is similar to the

case at bar. Pursuant to a surety agree-

ment, USF & G paid taxes due the State of

Georgia that Gilbert had failed to pay. Af-

ter Gilbert was adjudicated bankrupt, he

sought a determination that the debt owed

the surety was discharged in his bankrupt-

cy. The district court, however, held that

the surety benefitted from a Georgia sub-

rogation statute, and the taxes were treat-

ed as still due for the benefit of the surety.

Gilbert, 180 F.Supp. at 796. We affirmed

the holding that under the Bankruptcy Act,

& surety who pays a debtor’s tax liability is

subrogated to the taxing authority's status

to prevent the discharge of a claim for

unpaid taxes. 274 F.2d at 823.

(3) Gilbert was decided, however, un-

504

from the precedential restraint of Gilbert.

We believe that the adoption of the Bank-

ruptcy Code, however, did not alter in any

significant way, the bankruptcy law with

respect to this issue.‘ We are therefore

bound by our previous decision in Gilbert.

See Ford v. United States, 618 F.2d 357,

361 (5th Cir.1980). As stated in Gilbert, “it

is as if the taxes themselves have not been

paid and are still due and, of course, are

not dischargeable in bankruptcy.” 180

F.Supp. at 796. Accordingly, we hold that

Hartford, having paid Debtor's taxes to the

TARC, is subrogated to all the rights that

the State of Texas had against Debtor un-

der the Bankruptcy Code.’

The Eleventh Circuit has also concluded

that our holding in Gilbert survives the

adoption of the Bankruptcy Code. In /n re

Waite, 698 F.2d 1177 (11th Cir.1983), the

surety made an identical claim as Hartford.

The surety argued that it was entitled to be

4. ee the Bankruptcy Act provided that

rupt from ... all of his provable debts .

except such as (1) are due as a tax .. "11USC.

Section $23(a}(1) of the

§ 35 (1964) (repealed).

’. Bankruptcy Code states that a ~

does not par < an individual debtor from

any debt for a tax..

S. Gilbert relied on a Georgia law that permitted

subrogation. Similarly, we note that the princi-

ple of subrogation is well recognized in Texas.

Texas law provides that a surety “is subrogated

to all of the judgment creditor's rights.” Tex.

Bus. & Comm.Code Ann. § aap agen 1990).

Crimmins v. Lowry, 691 S.W.2d $82, 585 (Tex.

1985).

5. Now 307(aX7), renumbered 1984, m

7. Because decisions of the Fifth Circuit inn

were decided on or before September 20, 1981,

are binding on the Eleventh Circuit, the Waite

court necessarily had to address the same issue

with respect to the precedential effects of Gil-

bert. See, eg, Bonner v. Prichard, 661 F.2d

1206, 1209 (itth Cir-1981).

8. See, eg, In re Norris, 107 B.R. 592 (E.D.Tenn.

1989); Jn re Trasks’ Charolais, 84 B.R. 646 (DS.

D.1988); In re Cooper, 83 B.R $44 (C.D.III.

926 FEDERAL REPORTER, 2d SERIES

subrogated to the rights and standing y

the State of Tennessee to assert nondiy

chargeability under 11 U.S.C. § 523(ayxiya,

for unpaid liquor sales taxes of the kind

specified by 11 U.S.C. § 507(ax6).* Ty

Eleventh Circuit agreed, holding specifica).

ly that Gilbert survived the enactment oy

the Bankruptcy Code.’ The Waite coun

reasoned that:

While Gilbert concerned the old Bank.

ruptcy Act, the new Bankruptcy Code

does not furnish a principled basis for

distinguishing this case. Neither statute

expressly indicates whether the nondis

chargeability of tax debts extends tp

debts owed to a surety which has paid

the Debtor's tax debts.

698 F.2d at 1178. We note that the major:

ty of courts that have addressed this issue

have likewise held that a surety is entitled

to subrogation under § 523(aX1)A).* 'v]

1988); In re Zogiman, 78 B.R. 213 (W.D.Wis

1987); In re Caffrey, 77 B.R. 219 (W.D.Mo. 1987}

In re Morris, 31 B.R. 474 (N.D.111.1983); Inve

Alloway, 37 B.R. 420 (E.D.Pa.1984); Im re Han-

cock, 36 B.R. 709 (S.D.i1!.1984); in re Woerne,

19 B.R. 708 (D.Kan.1982); In re Gibbs, 11 BAY

320 (W.D.Mo.1981).

The Ninth Circuit is the one notable exceptioa

to this majority. See, eg., National Collection

Agency, Inc. v. Trahan, 624 F.2d 906 (9th Cir.

. The Trahan court expressiy refused to

i

i

i

fl

Hi

L

Tr

ti

Reis

the same; he owes the amount of not

_ dischargeable debt; the only differen

whether the

|

)

!

HULL v. CUYAHOGA VALLEY BD. OF EDUC. 505

Cite as 926 F.2d $05 (6th Cir. 1991)

IV

Because Hartford has met its burden of

proving that it is entitled to be subrogated

to the nondischargeability rights of the

State of Texas, the decision of the district

court is

AFFIRMED.

Stella HULL, Plaintiff-Appellant,

v.

CUYAHOGA VALLEY JOINT VOCA-

TIONAL SCHOOL DISTRICT BOARD

OF EDUCATION, et al., Defendants—

Appellees.

No. 90-3360.

United States Court of Appeals,

Sixth Circuit.

Argued Jan. 23, 1991.

Decided Feb. 15, 1991.

Nontenured black female teacher

brought civil rights action against school

board, superintendent, execttive director,

and school administrator after she was

nonrenewed. The United States District

Court for the Northern District of Ohio,

John J. Manos, J., granted defendants’ mo-

tion for summary judgment. Employee ap-

pealed. The Court of Appeals, Contie, Sen-

ior Circuit Judge, held that: (1) nonrenewal

of contract did not give rise to action under

§ 1981; (2) defendants were not two sepa-

rate “people” to form conspiracy; (3) dis-

trict court erred in applying two-year stat-

ute of limitations to all but discriminatory

discharge claims; and (4) evidence did not

Support actions aguas panpanes oe

dants or board. ~ -

Affirmed in part, and ese ie re

manded in part. Pore

In re Norris, 107 BR $92, $96 (E.D.Tenn. 1989).

1. Civil Rights 144

Nonrenewal of black female employ-

ee’s contract did not impede employee's

right to “make or enforce” contracts and

thus was not cognizable under § 1981. 42

U.S.C.A. § 1981; Ohio R.C. §§ 3319.11,

3319.11(E).

2. Conspiracy 2

As general rule, corporation cannot

conspire with its own agents or employees.

3. Conspiracy 7.5

School district superintendent, execu-

tive director of district, and school adminis-

trator were not two separate “people” so

as to be able to form conspiracy, and thus

could not be found to have conspired to

violate civil rights statute; all three were

employees or agents of school board, and

thus all were members of same collective

entity. 42 U.S.C.A. § 19852, 3).

4. Civil Rights €=210

Under Ohio law, applicable limitations

period for § 1983 claims is two-year limita-

tions period for actions involving bodily

injury or injury to personal property. Ohio

R.C. § 2305.10; 42 U.S.C.A. § 1983.

5. Limitation of Actions €58(1)

“Continuing violation” theory applied

to render § 1983 claims by nontenured

black female teacher timely; teacher al-

leged discriminatory working conditions

throughout term of her employment which

were related to her discharge, and, prior to

events surrounding her discharge, teacher-

was not warranted in filing race discrimina-

tion suit. Ohio R.C. §§ — oa(D), 2306.-

10; 42 U.S.C.A. § 1983. :

6. Civil Rights ¢=192, 196 -

.. To establish personal liability of indi-

vidual defendants under § 1983, plaintiff

was required to show that they deprived

her of federal right while acting under

color of state law. 42 US.C.A. § 1983.

7. Civil Rights ¢°240(2)

Superintendent’s racial animus to

wards nontenured black female teacher

.". 2 “ou ‘ ts '