Petition for A Writ of Certiorari — Oliver v. United States

N

Iu the Supreme Court

OF THE

United States

OcToBER TERM, 1923

A. J. OLIVER, as Trustee in Bankruptey |

of the Estate of West Coast Rubber

Corporation, Inc. (a corporation),

and Oscar Courtrin, Dorotny E.

Knicut, D. C. TuHry, H. Buack and

Huau V. CASssERLY,

Petitioners,

i

Unirep States OF AMERICA (a sover-

eign corporation), and Crry AND

County oF SAN FRANCIsco (a munic-

ipal corporation),

Respondents.

PETITION FOR WRIT OF CERTIORARI.

To the Honorable William Howard Taft, Chief

Justice of the United States, and the Associate

Justices of the Supreme Court of the United

States:

Comes now your petitioners, A. J. Oliver, as

trustee in bankruptcy of the estate of West Coast

2

Rubber Corporation, Inc., a corporation, and Oscar

Courtin, Dorothy E. Knight, D. C. Tuhey, H. Black

and Hugh V. Casserly and respectfully petition

this honorable court that a writ of certiorari may

be granted directing the United States Circuit

Court of Appeals for the Ninth Circuit to certify

to this honorable court for its review and deter-

mination the case of ‘‘United States of America (a

sovereign icorporation) and the City and County

of San Francisco (a municipal corporation), peti-

tioners, v. A. J. Oliver, as Trustee, and Oscar

Courtin, Dorothy E. Knight, D. C. Tuhey, H. Black

and Hugh V. Casserly, respondents—In the Matter

of West Coast Rubber Corporation, Ine. (a cor-

poration), Bankrupt, No. 3966’’, pending in that

court, and in thai behalf your petitioners respect-

fully show to this honorable court as follows:

Statement of Facts.

I.

In the bankruptey matter of the West Coast

Rubber Corporation, Inc., a corporation, pending

before A. B. Kreft, Esq., a Referee in Bankruptcy

of the United States District Court for the Southern

Division of the Northern District of California,

there were filed during the course of administra-

tion priority labor claims amounting to $1217.65,

priority attachment cost claims amounting to $99.70,

a claim for manufacturer’s excise tax and penal-

ties due the United States Government for $3048.01,

and a claim for personal property taxes and penal-

pcan naaeaea

3

ties due the City and County of San Francisco

for $1008.61.

II.

There were not sufficient funds in the bankrupt

estate wherewith to pay all expenses of administra-

tion and all of these claims in full as finally al-

lowed, and the question arose before the referee

as to the relative order of priority between labor

claims, attachment cost claims, and tax claims, in

the distribution of the balance of the estate after

payment of expenses of administration.

ITT.

The labor claimants and the attachment costs

claimants are the same; that is to say, shortly prior

to bankruptcy certain employees of the bankrupt,

your petitioners Oscar Courtin, Dorothy E. Knight,

D. C. Tuhey, H. Black and Hugh V. Casserly, who

did not receive their wages earned within three

months of the filing of the bankruptcy petition,

brought suit in the state court of California and

caused an attachment to be levied upon certain

property of the bankrupt and in that suit expended

certain costs. As against taxes, said petitioners

herein asserted before the referee the right to

priority of payment of their wages by virtue of the

provisions of Sec. 64-b (4) of the Bankruptcy Act,

and of their attachment costs by virtue of the pro-

visions of Sec. 64-b (5) of the Act taken in con-

junction with Sec. 69 of the Insolvency Act of the

State of California. In the case of in re Amoratis,

————

4

178 Fed. Rep. 919, decided by the Cireuit Court

of Appeals for the Ninth Circuit, it was held that, —

inasmuch as attachment costs are given a priority

by the insolvency law of California, they should

also be given priority in bankruptcy under See,

64-b (5) as they are debts given priority by state

law.

IV.

The referee made an order on April 7, 1922, fix-

ing the amount of the labor and attachment costs

claims and holding that these should be paid in

full prior to any payment on the tax claims. This

order was reviewed by District Judge Dooling, who

on July 8, 1922, affirmed it; and the matter was

then taken to the Circuit Court of Appeals for the

Ninth Circuit, which, on July 2, 1923, handed down

a decision reversing the order of the lower court

and holding that taxes should be paid first.

Statement of Reasons Relied on for Allowance

of Writ.

I.

The sole question involved in this case is the

proper construction of Sec. 64, subdivisions “a

and ‘‘b”’, of the Bankruptcy Act. It was eontended

by your petitioners before the Referee, the District

Judge and the Circuit Court of Appeals, that this

section establishes the following order of priority:

”

5

Cost of preserving estate. Sec. 64-b (1).

(b) Filing fees. See. 64-b (2).

(c) Costs of administration. See. 64-b (3).

(d) Wages. See. 64-b (4).

(e) Debts entitled to priority by the laws of

the United States or of the various states

(such as attachment costs). See. 64-b (5).

(f) Taxes. See. 64-a.

(g) General creditors.

This contention was upheld by the Referee and

District Judge, but the Cireuit Court of Appeals

placed taxes ahead of wages and attachment costs.

IT.

The decision of the District J udge is specifically '

based upon the language used by the Supreme

Court in the recent case of City of Richmond y.

Bird (249 U. S. 174, 43 Am. B. R. 260, 39 Sup.

Ct. 186), which he thought settled the question,

where the court said:

“Section 64a directs that taxes be paid in

advance of dividends to creditors; and divi-

dends as commonly used throughout the act

means partial payments to general ereditors’’.

Collier on Bankruptcy, Thirteenth Edition, takes

the same view as the District J udge, for in Vol. 2,

page 1441, it states:

“The tendency of the earlier cases was to con-

strue subsection ‘a’ as putting taxes in a dif-

ferent and really higher class than the debts

ennmerated in subsection ‘b’, but it is now

definitely settled that tax claims have priority

over claims of general creditors only and not

over the claims mentioned in subsection ‘b’ ”

and then cites City of Richmond v. Bird, supra.

The Court of Appeals for the Seventh Circuit in

the case of in re Utt, 5 Am. B. R. 383, 105 Fed

754, takes the same view as the Supreme Court as

to the meaning of the word “‘dividends”’.

III.

The decision of the Ninth Circuit Court of Ap

peals reversing the District Judge is specifically

based upon the language used by the Supreme

Court in the earlier case of Guarantee Title and

Trust Co. v. Title Guaranty & Surety Co., 224 U.S.

152, 27 Am. B. R. 873, where the court said:

**Labor claims are given priority and it is

provided that debts having priority shall be

paid in full. The only exception is taxes leg-

ally due and owing by the bankrupt to the

United States, state, eounty, distriet or muni-

cipality.”’

The Supreme Court evidently had in mind in

making such a statement that the words “‘except

as herein provided’’ at the commencement of See.

64-b refer to some exception contained in that see-

tion only and, therefore, necessarily in the tax

portion, 64-a; but your petitioners are of the opin-

ion that such words really mean “except as in the

act otherwise provided”’ and refer to liens upon the

property of the estate not affected by the act such

7

as vendors’ liens, mechanics’ liens, materialmen’s

liens, landlords’ liens, mortgage liens, liens on spe-

cial funds, pledges, warehousemen’s liens, ete., which

are protected by See. 67-d of the Aet and must be

recognized in the distribution of the estate; and

that the Supreme Court was of the same opinion

when it made the statement it did in City of Rich-

mond v. Bird, supra. Similar language as to ex-

ceptions is to be found in See, 21-b and See. 38-4,

but in both cases it is obvious that the words really

mean “‘except as in the act otherwise provided.’’

The Court of Appeals refers, in its decision, to

City of Richmond v. Bird, supra, but holds that

the language of the court in that case was not

necessary to the decision, and, while conceding that

the language of the court in the Guarantee Title

& Trust Co. v. Title Guaranty & Surety Co. case

may have been unnecessary to the decision, holds

that the statement of the Supreme Court in that

earlier case should be taken as the expression of

the view of the court upon the question of the re-

lative rank of taxes and labor claims and that it

is not inconsistent with what is said on the sub-

ject in City of Richmond vy. Bird. It seems to

your petitioners that the two expressions of the

Supreme Court are in direct conflict and cannot be

reconciled, and that the later expression in City

of Richmond y. Bird controls, if either.

The Court of Appeals, also, in its deeision, says:

“The power to levy and collect taxes is not

*nly an indispensible attribute of sovereignty

but it is absolutely necessary to the support

of the government, the maintenance of law

and order and the protection of life and prop-

erty. It is not to be supposed that the power

to tax would be subordinated to the claim of

any creditor however meritorious that claim

may be’’.

and yet Justice McKenna, in the Guarantee Title

& Trust Co. v. Title Guaranty & Surety Co. case,

said:

‘*The act takes into consideration, we think,

the whole range of indebtedness of the bank-

rupt—national, state and individual——and as-

signs the order of payment. The policy which

dictated it was beneficent and well might in-

duce a postponement of claims, even of the

sovereign, in favor of those who necessarily

depended upon their daily labor. And to give

such claims priority could in no ease seriously

affect the sovereign. To deny them priority

would in all cases seriously affect the claim-

ants.”’

TV.

In view of the statement of the Supreme Court

in City of Richmond v. Bird, supra, when consider-

ing the meaning of the language in the tax section,

64-a, that ‘‘taxes be paid in advance of dividends

to creditors’, that the word ‘‘dividends’’ means

“partial payments to general creditors’’, your peti-

tioners contend that the payments required to be

made by Sec. 64-b, which includes labor and at-

tachment costs claims, must be paid in advance of

taxes as the estate is not ready to pay dividends to

general creditors until all such payments have been

made. The words ‘‘in advance of’ really mean

——e—~~"

9

“next preceding’’. If, therefore, Sec. 64a is given

this construction, it would read: ‘‘The court shall

order the trustee to pay all taxes legally due and

owing by the bankrupt to the United States, state,

county, district or municipality, next preceding par-

tial payments to general creditors.’”

¥.

In the case of Matter of Kittenplan, 49 Am. B. R.

410, 285 Fed. 62, the District Court for the Southern

Division of New York, held in conformity with the

decision of the Court of Appeals for the Ninth Cir-

cuit, but in the case of in re Essenkay Produets Co.,

No. 3459, in the District Court for the Eastern

District of Illinois, District Judge Carpenter on

Jan. 8, 1923, in an unreported case held in con-

formity with District Judge Dooling’s decision that

labor claims come first. There is an expression in

Matter of Anderson, 279 Fed. 525, 48 Am. B. R.

350, 353, which may be obiter dicta, as follows:

“The order of payment to the United States

is next after wages due workmen, clerks or

servants which have been earned within three

months before the date of the commencement of

the proceedings. The Guarantee Title and

Trust Co. v. Title Guaranty & Surety Co., 224

U. S. 152, 27 Am. B. R. 873, 32 Sup. Ct. 457,

56 Law Ed. 706.”

It is to be noted that the Circuit Court of Ap-

peals for the Second Circuit takes a different view

of Guarantee Title & Trust Co. v. Title Guaranty

& Surety Co., than the Court of Appeals for the

Ninth Cireuit in the case at bar.

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Va.

There is another and more serious conflict among

the decisions as to whether, in view of the fact

that the tax section, 64-a, precedes 64-b providing

for the priority of costs of administration, labor

claims, ete., taxes should not be placed ahead of

everything and be paid in advance of costs of ad-

ministration. A number of the early cases held

that taxes must be paid first even in advance of

expenses of administration. See

In re Weiss (D. C. N. Y.), 20 Am. B. R. 247,

159 Fed. 295;

In re Prince & Walter (D. C. Pa.), 12 Am.

B. R. 675, 131 Fed. 546;

In re Cramond (D. ©. N. Y.), 17 Am. B. R.

22, 145 Fed. 966;

In re Weissman (D. C. Conn.), 24 Am. B.

R. 150, 178 Fed. 115.

Later cases have repudiated this doctrine and

held that expenses of administration must be paid

before taxes. See

State of New Jersey v. Lovell (C. C. A. 3rd

Cir.), 24 Am. B. R. 562, 179 Fed. 321;

Matter of Jacobson (C. C. A. 7th Cir), 45

Am. B. R. 1, 263 Fed. 883;

Polk County, Iowa v. Burnes (C. C. A. 8th

Cir.), 40 Am. B. R. 727, 247 Fed. 399;

In re Oxley (D. C. Wash.), 30 Am. B. R.

406, 204 Fed 826;

In re Hessler Foundry & Mfg. Co., 45 Am.

B. R. 382.

cages aera i

11

Vil.

The question as to the proper place for taxes

in the distribution of bankrupt estates has be-

come important throughout the United States ow-

ing to the many cases in which large claims for

back income taxes have been filed by the United

States Government and in which labor claims have

also been filed. Trustees and referees have been

in doubt, owing to the conflict in decisions above

noted, as to which should be paid first. Your peti-

tioners have been informed through the office of

the Attorney-General of the United States that

there are now pending in the various Federal Courts

throughout the United States seven cases in which

the precise question is the same as the one in the

ease at bar.

Your petitioners believe that, in view of the con-

flict in the decisions, and the divergent opinions

respecting the meaning of the language of the

Supreme Court used in City of Richmond v. Bird,

supra, and Guarantee Title & Trust Co. v. Title

Guaranty & Surety Co., supra, it is essential to a

uniform contruction throughout the United States

of Sec. 64, subdivisions ‘‘a’’ and,‘“‘b’’, of the Bank-

ruptey Act, that an authoritative ruling be made

by the Supreme Court in the ease at bar.

Wherefore, your petitioners pray that a writ

of certiorari be issued out of and under the seal

of this court directed to the United States Circuit

Court of Appeals for the Ninth Circuit commanding

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said court to certify and send to this court on a

day certain to be designated a full and complete

transcript of the record and all proceedings of said

court of appeals in this ease, being Cause No. 3966

in said court, to the end that said cause may be

reviewed. by this court as provided by law; and

that your petitioners may have such other relief

or remedy in the premises as to this court may

seem appropriate; and that the judgment of said

United States Court of Appeals for the Ninth

Circuit so complained of herein may be reversed

by this honorable court.

Dated, San Francisco,

September 15, 1923.

A. J. OLIVER, as Trustee in Bank-

_ ruptey of the Estate of West

Coast Rubber Corporation,

Inc., (a corporation),

Oscar CouRTIN,

DororHy E. Kniant,

D. C. Tuney,

H. Brack,

Huan V. Casserry.

Petitioners.

RevBEN G. Hunt,

Attorney for Petitioners.

Lovis V. CRowLEY,

Of Counsel.

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State of California,

City and County of San Francisco,—ss.

A. J. OLIVER, being first duly sworn, deposes and

says:

I am one of the petitioners named in the fore-

going petition, and make this verification also on

behalf of the other petitioners. I have read the

said petition and know the contents thereof and

the same is true of my own knowledge, except as

to the matters therein stated on information or

belief and as to those matters T believe it to be

true.

A. J. Ouiver,

Subscribed and sworn to before me this 15th day

of September, 1923.

(Seal) J. D. Brown,

Notary publie in and for the City and County

of San Francisco, State of California.

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CERTIFICATE OF COUNSEL.

I hereby certify that I am counsel for petitioners

in the above entitled cause and that in my judg-

ment the foregoing petition for writ of certiorari is

well founded in point of law as well as in fact an

that said petition for writ of certiorari is not inter

posed for delay.

Dated, San Francisco,

September 15, 1923.

Louis V. CROWLEY,

Of Counsel for Petitioners