# Petition for Writ of Certiorari — United States v. Bloom

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1951
- **Citation:** 342 U.S. 864

## Text

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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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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
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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

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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

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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

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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

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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.

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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.

>"

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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

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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""

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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

a — RARE m3 Re 9AM IES ENE IPERS UE ITE RE LITO LT SS NE Re ge
ate i ited atten . .

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