Petition for Writ of Certiorari — United States v. Bloom

a oo a

INDEX

Page

Opinions below 1

Jurisdietion 9

Question presented 4

Statutes involved 4

Statement 6

Reasons for granting the writ 8

Conelusion 15

CITATIONS

Cases:

Am. Iron Co. v. Seaboard Air Line, 233 U.S, 261 12

American Surety Co, vy. Carbon Timber Co., 263 Fed.

295 10, 12

Billings v. United States, 232 U. 8. 261 ll

Board of Com’rs of Sweetwater County, Wyo, v. Ber-

nardin, 74 ¥, 2d 809, certiorari denied, 295 U.S, 731 12

Bramwell v. U.S. Fidelity Co,, 269 U.S, 483 14

Illinois v. United States, 328 U, 8. 8 14,15

Manning vy. Seeley Tube d& Box Co,, 338 U.S. 561 11

Maasachusetts vy. United States, 333 U.S, 611 15

Mothersead v. United States Fidelity & Guaranty Co.,

22 F. 2d 644, certiorari denied. 276 U. 8, 637 10,12

New York vy. Saper, 336 U. 8, 328 12, 13,15

Pearsall vy. Central Oil & Gas Co,, 23 ¥, 2d 716 10,12

Pennsylvania Steel Co, v. New York City Ry. Co., 216

Fed. 458 12

Powell v. Link, 114 F, 2d 550 ll

Price v. United States, 269 U. 8. 492 14

Richmond & I, Const. Co, v. Richmond, N., I. d& B. R.

Co., 68 Fed. 105 11,12

Rodgers vy. United States, 332 U. 8. 371 11

Sawyer Tanning Co. v. C. J. O'Keefe Shoe Co., 23 F.

2d 717 10, 12

Spokane County v. United States, 279 U. 8. 80 11

Spring Coal Co. v. Keech, 239 Fed, 48 12

Thomas v. Western Car Co., 149 U. 8. 95 12

United States v. Emory, 314 U. 8. 423 2,10, 14,15

United States y. Knott, 298 U.S. 544 2

United States v. Remund, 330 U. 8. 539 2,15

United States v. State Bank of North Carolina, 6 Pet.

Lh te tay cas ce pea eas RU Ras te w ee iG 14

United States v. Teras, 314 U.S. 480 2

United States v. Waddill Co., 323 U. 8. 353 2

(1)

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ll

Statutes:

Page

Act of March 3, 1797, ¢. 20, 1 Stat. 512, 515, See. 5... 14

Act of May 27, 1926, «. 406,44 Stat.662 sss 13

Bankruptey Act of 1898, ¢. 541, 30 Stat. 544, as amended

by the Chandler Act of June 22, 1938, e. 575, 52 Stat.

WR kc ee aso wheter dea eee 13

Internal Revenue Code:

See. 1420 (26 U.S.C. 1946 ed., See. 1420) 4,

See. 1627 (26 U.S.C. 1946 ed., See. 1627) 4,11

Revised Statutes:

See. 3466 (31 U.S.C. 1946 ed., See. 191) 2,5, 10,11, 13, 14

See. 3467 (31 U.S.C. 1946 ed., See. 192), 5

os eed

eS ee

Guthe Supreme Court of the Wnited States

OcroBer TeRM, 1951

No. 100

UNITED STATES OF AMERICA, PETITIONER

Vv.

Haro_tp BLoom, GENERAL ASSIGNEE FOR THE BENE-

FIT OF CREDITORS OF Pavone TexTILe Corp.

PETITION FOR A WRIT OF CERTIORARI TO THE

COURT OF APPEALS OF THE STATE OF NEW YORK

The Solicitor General, on behalf of the United

States, prays that a writ of certiorari issue to re-

view the judgment of the Court of Appeals of the

State of New York, entered in this case on March

9, 1951.

OPINIONS BELOW

The opinion of the New York Supreme Court,

Special Term, New York County (R. 16-18), is re-

ported in 195 Mise. 702. The opinion of the New

York Supreme Court, Appellate Division, First

Department (R. 22-24), is reported in 276 App.

(1)

—

2

Div. 596. The opinion of the Court of Appeals of

the State of New York (R. 25-27), is reported in

302 N. Y. 206.

JURISDICTION

The judgment of the Court of Appeals was en-

tered on March 9, 1951 (R. 27-28). The juris-

diction of this Court is invoked under 28 U.S. C.,

Section 1257 (3), on the ground that the decision

below denies a title, right, privilege or immunity

claimed by the United States under Section 3466 of

the Revised Statutes of the United States. The

cases relied upon to sustain the jurisdiction of this

Court are United States v. Knott, 298 U.S. 544;

United States v. Emory, 314 U. 8. 423; United

States v. Texas, 314 U. S. 480; United States v.

Waddill Co., 323 U. 8. 353; and United States v.

Remund, 330 U.S. 539.

Ina general assignment proceeding for the bene-

fit of creditors, the court below held that Section

3466 of the Revised Statutes did not require, as

comprehended in the priority conferred upon the

United States, allowance of post-assignment inter-

est on tax claims of the United States to the date of

payment of such claims (R. 25-26). The United

States asserted by affidavit and urged on argument

before the New York Supreme Court at Special

Term, New York County, its right under Section

3466 of the Revised Statutes to payment of post-

assignment interest as included in the priority

granted under that statute, by way of objection to

——7_

3

settlement and allowance of the final account of the

assignee and to confirmation of the report of the

referee designated in the assignment proceeding to

take and state the account of the assignee (R. 2, 7,

20). The court at Special Term refused to allow

interest to the United States subsequent to the date

of the filing of the general assignment (R. 12-14).

On appeal to the Appellate Division of the New

York Supreme Court, First Department, the

United States made the same contention in brief

and argument. The Appellate Division sustained

the contention of the United States on the basis of

Section 3466 of the Revised Statutes; held that the

cited federal statute compelled allowance of post-

assignment interest on the tax claims of the United

States (R. 22-23); and reversed the order of

Special Term on the law (R. 22).

On appeal by the assignee to the Court of Ap-

peals of the State of New York, the same conten-

tion, based on Section 3466 of the Revised Statutes,

was made by the United States in brief and on oral

argument. The Court of Appeals, however, re-

jected this contention and in its opinion held that,

while Section 3466 of the Revised Statutes applied

to the proceedings (R. 25-26), the priority granted

by Congress does not include nost-assignment in-

terest (R. 26). The judgment of the Court of

Appeals reversed the Appellate Division and af-

firmed the order of Special Term (R. 27-30). The

-court below thus passed upon the federal question

oe

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adversely to the contention of the United States

and denied the right claimed under the federal

statute.

The question presented is one of substance, as is

more fully developed under the reasons for grant-

ing the writ (pp. 8-15, infra).

QUESTION PRESENTED

Whether, in general assignment proceedings for

the benefit of creditors, Section 3466 of the Revised

Statutes entitles the United States to priority in

the payment of interest on its tax claims for the

period from the date of the filing of the assignment

until the taxes are paid.

STATUTES INVOLVED

Internal Revenue Code:

Sec. 1420, COLLECTION AND PAYMENT or TAXES.

* * - * *

(b) Addition to Tax in Case of Delin-

quency.—If the tax is not paid when due, there

shall be added as part of the tax interest (ex-

cpt in the case of adjustments made in accord-

ance with the provisions of sections 1401 (c)

and 1411) at the rate of 6 per centum per an-

num from the date the tax became due until

paid,

* * * * *

(26 U.S.C. 1946 ed., See. 1420.)

Sec. 1627. [As added by See. 2 (a), Current

Tax Payment Act of 1943, ¢. 120, 57 Stat.

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(26

5

126]. OTHER Laws APPLICABLE.

All provisions of law, including penalties,

applicable with respect to the tax imposed by

section 1400 shall, insofar as applicable and

not inconsistent with the provisions of this

subchapter, be applicable with respect to the

tax under this subchapter.

U.S.C. 1946 ed., See. 1627.)

Revised Statutes:

(31

Sec. 3466. Whenever any person indebted

to the United States is insolvent, or whenever

the estate of any deceased debtor, in the hands

of the executors or administrators, is insuffi-

cient to pay all the debts due from the deceased,

the debts due to the United States shall be first

satisfied; and the priority hereby established

shall extend as well to cases in which a debtor,

not having sufficient property to pay all his

debts, makes a voluntary assignment thereof,

or in which the estate and effects of an ab-

sconding, concealed, or absent debtor are at-

tached by process of law, as to cases in which

an act of bankruptey is committed.

U.S.C. 1946 ed., See. 191.)

Sec. 3467 [As amended by Sec. 518(a) of the

Revenue Act of 1934, ¢. 277, 48 Stat. 680].

Every executor, administrator, or assignee, or

other person, who pays, in whole or in part,

any debt due by the person or estate for whom

or for which he acts before he satisfies and

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pays the debts due to the United States from

such person or estate, shall become answerable

in his own person and estate to the extent of

such payments for the debts so due to the

f United States, or for so much thereof as may

remain due and unpaid.

(31 U.S.C. 1946 ed., See. 192.)

STATEMENT

The facts were stipulated and are not in dispute

(R. 3, 4-8, 22). Pavone Textile Corp. executed an

assignment to Harold Bloom for the benefit of cred-

itors on April 26, 1948, which was filed in the office

of the clerk of the county of New York on May 17,

1948 (R. 2, 4). The United States duly filed a

claim with the assignee for social security and

withholding taxes in the sum of $2,345.34, inclusive

of penalties and interest, to September 30, 1948

(R. 4). The proof of claim contained a demand

for payment of interest to date of payment (R. 2).

The claim inclusive of penalties and interest up to

the date of filing of the assignment amounted to

$2,302.81, and that sum, pursuant to order made

at Special Term of the New York Supreme Court,

dated August 2, 1949, has been paid (R. 4, 13),

Previously, on April 1, 1949, the state court had

made an order appointing a referee to take and

state the final and supplemental accounts of the

assignee, hear any and all objections thereto and

take proof of all services rendered (R. 5). In

a EEE. eee

7

his report the referee denied to the United States

post-assignment interest on its tax claims (R. 5-7).

Thereafter the assignee moved at Special Term to

confirm the referee’s report, to settle and allow

his final account and to direct the distribution of

assets (R. 7,12). The United States filed objections

to that part of the referee’s report which denied

post-assignment interest on its tax claims, but the

New York Supreme Court at Special Term over-

ruled its objection and confirmed the report in

all respects (R. 7, 13-14). Although the opinion at

Special Term (R. 16-18) does not specifically refer

to Section 3466 of the Revised Statutes, the United

States, in making its objection, expressly invoked

this statute and based its contention upon the

priority right there conferred by Congress.’ In

the order entered at Special Term on August 2,

1949, the assignee was directed to retain a reserve

fund in the amount of $413.44, pending the prose-

cution of any appeal by the United States, as

interest on the tax claims of the United States

‘In the filed affidavit of objection submitted by Clark 8.

Ryan, Assistant United States Attorney (R. 12), which

is not ineluded in the printed record on appeal, the following

statement appears:

31 U.S.C. Section 191, provides that “the debts due to the

United States shall be first satisfied”. This section is

to be liberally interpreted so as to protect the Government

revenue. United States v. Emory, 314 U.S. 423 (1941).

In the light of these statutes and decisions, it is clear

that the Referee’s report is in error in so far as it denies

interest after the date of the General Assignment.

i

8

from May 17, 1948 (the filing date of the assign-

ment), until June 30, 1951 (R. 14). On appeal

by the United States from so much of the order

of Special Term as directed payment of interest

on its tax claim only to the date of the filing of

the assignment (R. 10) the Appellate Division

of the State Supreme Court, First Depart-

ment, on April 25, 1950, reversed on the law and

held that Section 3466 of the Revised Statutes com-

pels allowance of post-assignment interest on the

claims of the United States (R. 21-24). However,

on the assignee’s appeal, the Court of Appeals of

the State of New York, on March 9, 1951, reversed

the Appellate Division and affirmed the order of

Special Term (R. 27-28), holding that Revised

Statutes, Section 3466, does not entitle the United

Statutes te post-assignment interest * (R. 25-27).

REASONS FOR GRANTING THE WRIT

1. This case presents a question of continuing

administrative importance in the functioning of

the tax laws. The issue involved arises inter alia,

whenever a taxpayer being insolvent makes a volun-

tary assignment for the benefit of creditors or a

receiver is appointed to distribute an estate in

a nonbankruptey proceeding. The records of the

office of the Chief Counsel, Bureau of Internal

Revenue, indicate that there are currently pending

? The Appellate Division and the Court of Appeals also

passed on claims of the State of New York to post-assignment

interest (R. 23, 26-27), which, however, being set up under

state statutes, are not here relevant.

>"

9

approximately 810 cases involving assignments for

the benefit of creditors, of which about 362 are in

the State of New York, and in which the amount

of intevest approximates $430,000, computed from

the respective dates of assignment.’ A survey con-

ducted by the same office shows that there are 985

pending receivership cases in state and federal

courts involving federal tax claims upon which the

estimated interest to May 31, 1951, exceeds $7,-

000,000. All of this interest has accrued subse-

quent to receivership and none of the proceedings

are in bankruptcy or brought under any chapter

of the Bankruptey Act, as amended. We are

further informed by the Treasury Department

that the number of pending cases and the amount

of interest involved continue substantially constant

from year to year.

Moreover, this question appears certain to arise

in the courts of substantially every one of the forty-

eight states, as well as in numerous federal courts,

and, while in the aggregate the tax money involved

is huge, in individual cases it may be very small.

The following cases, decided by federal courts in

nonbankruptcy insolvency proceedings, in which

interest was allowed to date of payment of claims,

§ Letter from Charles Oliphant, Chief Counsel, Bureau of In-

ternal Revenue, to Assistant Attorney General Caudle, dated

May 22, 1951.

‘ Letter from Charles Oliphant, Chief Counsel, Bureau of In-

ternal Revenue, to Assistant Attorney General Caudle, dated

May 25, 1951.

CEST NR

10

pursuant to the priority conferred by Section 3466

of the Revised Statutes (p. 5, supra) conflict with

the decision of the state court below. American

Surety Co. v. Carbon Timber Co., 263 Fed. 295, 302

(C. A. 8th) (assignment proceeding for the benefit

of creditors) ; Mothersead v. United States Fidelity

& Guaranty Co., 22 F. 2d 644, 654 (CLA. 8), cer-

tiorari denied, 276 U. 8. 637; Pearsall v. Central

Oil & Gas Co., 23 F. 2d 716 (W. D. Pa.) ; Sawyer

Tanning Co. v.C. J. O’Keefe Shoe Co., 23 F. 2d 717

(D. Mass.).

Moreover, as discussed below (pp. 14-15), the

holding of the court below (R. 26) conflicts

with the ruling of this Court in United States v.

Emory, 314 U.S. 423, that the Bankruptey Act was

not intended t« eliminate either partially or wholly

the statutory priority conferred by Section 3466

upon claims of the United States in nonbankruptey

proceedings.

Hence, to avoid inequality and unnecessary liti-

gation expense, it becomes a matter of considerable

practical importance in the administration of the

revenue laws and of Section 3466 of the Revised

Statutes, supra, p. 5, both from the viewpoint

of the taxpayers and the Government, that the

question here involved be settled by the Supreme

Court.

2. In tax cases, interest allowance to the Gov-

ernment rests ‘‘on the basic necessity of the Gov-

ernment to collect a carefully estimated sum of

_—~S

11

money by a particular date in order to meet its an-

ticipated expenditures”’ (Rodgers v. United States,

332 U. 8. 371, 374), and is granted even in the ab-

sence of statutory provision therefor (Billings v.

United States, 232 U. 8.261). Interes: is not to be

denied unless Congress has specifically so provided

(Manning v. Seeley Tube & Box Co., 338 U. 8.

561). On the contrary, Congress has directed by

the relevant taxing acts that interest shall be added

‘‘as part of the tax’’ from the date the tax becomes

due ‘‘until paid.’’ Internal Revenue Code, Sec-

tions 1420 (b), and 1627 (pp. 4-5, supra). Even

without this express mandate of the taxing act, the

interest is just as much a part of the debt claimed

as the principal thereof. Richmond & I. Const. Co.

v. Richmond, N., I. & B. R. Co., 68 Fed. 105, 116

(C. A. 6); Powell v. Link, 114 F. 2d 550, 552-554

(C, A. 4). Thus, here interest is an integral part

of the ‘debts due to the United States,’ for which

Congress commands priority against estates which

have been made subject to voluntary assignments

(R. S. See. 3466, p. 5, supra). Clearly no state

law may abridge a tax liability due the United

States established by Congress, nor may any state

law deny priority to any part of a debt due the

United States from an insolvent, for which Con-

gress specifically directs first payment. Spokane

County v. United States, 279 U.S. 80.

The general rule applied by the federal courts

in receivership and assignment proceedings, even

12

as to non-governmental debts, allows interest on

priority debts to time of payment if they can be

paid in full, notwithstanding that what remains

is not sufficient to pay claims of a lower rank in

full. Am. Iron Co. vy. Seaboard Air Line, 233 U.S.

261, 266-267, and cases there cited; Pennsylvania

Steel Co. v. New York City Ry. Co., 216 Fed. 458,

471-472 (C. A. 2); Spring Coal Co. v. Keech, 239

Fed. 48 (C.A. 4); American Surety Co. v. Carbon

Timber Co., 263 Fed. 295, 302 (C.A. 8); Mother-

sead V. United States Fidelity & Guaranty Co., 22

F. 2d 644, 654 (C.A. 8), certiorari denied, 276 U.S.

637; Pearsall v. Central Oil & Gas Co., 23 F. 2d 716

(W.D. Pa.) ; Sawyer Tanning Co, v. C. J. O'Keefe

Shoe Co., 23 F. 2d 717 (Mass.) ; Board of Com’rs

of Sweetwater County, Wyo. v. Bernardin, 74 F. 2d

809, 814-815 (C.A. 10), certiorari denied, 295 U.S.

731.

Reliance by the state court (R. 25-26) upon

New York v. Saper, 336 U.S. 328, is not well |

taken. Indeed, the reasoning of the Saper

case supports the Government's contention here

rather than the holding of the court below. There,

this Court held that the 1926 amendment (Act of

* Notwithstanding its citation by the court below as support-

ing a contrary rule (R. 25), Thomas v. Western Car Co.,

149 U.S. 95, 116-117, has not generally been so understood.

American Iron Co. v. Seaboard Air Line, supra, p. 267; Rich-

mond & I, Const. Co. v. Richmond, N., 1. & B. R. Co., supra,

pp. 115-116, eited by this Court in the American Tron Co. case;

Pennsylvania Steel Co. v. New York City Ry. Co., supra,

pp. 471-472; American Surety Co. v. Carbon Timber Co.,

supra, pp. 302-303.

13

May 27, 1926, c. 406, 44 Stat. 662) and the Chandler

Act amendments (Act of June 22, 1938, ¢. 575, 52

Stat. 840), to the Bankruptcy Act, manifested an

intent by Congress to assimilate taxes to other

debts in bankruptey proceedings, and so to deny

them, also, post-bankruptey interest (pp. 337,

340, fn. 18). On the other hand, as discussed in the

Saper opinion (pp. 333-335), the Bankruptey Act,

before these amendments, was for many years con-

strued not to intend an exception to the general

rule nor to negative allowance of interest on tax

claims until paid. It follows that since, in assign-

ment proceedings, as distinguished from bank-

ruptecy proceedings after the amendments above

referred to, Congress has not manifested an intent

to limit the specific long-standing statutory prior-

ity of the United States, that priority still stands

and post-assignment interest continues to be pay-

able.

Hence, it by no means follows, as the court be-

low suggests (R. 26), that Section 3466

clearly extends the Federal priority in bank-

ruptey proceedings to assignment proceedings,

and, inasmuch as the priority in bankruptcy

does not include post-bankruptey interest,

City of New York v. Saper, supra, so the prior-

ity in assignment proceedings does not include

post-assignment interest.

On the contrary, while Section 3466 enumerates

the events (including an act of bankruptcy) which

—

14

shall provide the foundation for the existence of

priority, it does not, by its terms or import, limit

the scope of the priorities therein granted to those

provided in the Bankruptcy Act, either in its origi-

nal form or as amended. Bramwell v. United States

Fidelity Co., 269 U.S. 483, 489-490). Unless the

insolvent estate is administered under the Bank-

ruptey Act, this Court has held, directly contrary

to the quoted ruling of the court below, the

provisions of the Bankruptcy Act do not extend

to, nor affect, the priority conferred by Section

3466, for the Bankruptcy Act was not intended to

eliminate either partially or wholly the priority

of claims of the United States in nonbankruptey

proceedings. United States v. Emory, 314 U. S.

423, 427-429. The purpose of Section 3466 is to

secure adequate public revenues to sustain the pub-

lie burden, and it is to be liberally construed in

order to effectuate that purpose. United States vy.

State Bank of North Carolina, 6 Pet. 29, 35; Bram-

well v. U. 8. Fidelity Co., supra, p. 487; United

States v. Emory, supra, p. 426. These provisions

have been in force since 1797 without significant

modification (Act of March 3, 1797, ¢. 20, 1 Stat.

512, 515, See. 5; United States v. Emory, supra, p.

428), and, indeed, derive from earlier statutes en-

acted for the collection of taxes (Price v. United

States, 269 U. S. 492, 500-501).

Section 3466 provides an important means for

the collection of federal taxes (Illinois v. United

=~7—7""

15

States, 328 U. S. 8), and must be applied, as here,

where not inconsistent with other expressions of

congressional intention. Indeed (United States v.

Emory, supra, p. 433)—

Only the plainest inconsistency would warrant

our finding an implied exception to the opera-

tion of so clear a command as that of § 3466.

Illinois v. United States, supra, pp. 11-12; United

States v. Remund, 330 U. S. 539, 544-545; Massa-

chusetts v. United States, 333 U. 8. 611.

Since under Section 3466 federal indebtedness

enjoys a priority status entirely different from all

other claims, the reasons of practical convenience

stopping interest on ordinary claims do not apply.

See New York v. Saper, supra, pp. 333-334. If in-

equity exists through allowing interest during the

period the fund is in custody of the courts, the argu-

ment must be addressed to Congress and not to

the courts. United States vy. Emory, supra, p. 431.

CONCLUSION

For the foregoing reasons this petition for a writ

of certiorari should be granted.

Respectfully submitted,

Puivip B. PeRtMan,

Solicitor General.

JUNE 1951.

w U. S| GOVERNMENT PRINTING OFFICE. 1951 949737 690

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