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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_2399%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1991

## Text

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

WILL BE ISSUED.

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 '

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_2399%3A2. Public record. Not legal advice.