Petition for Writ of Certiorari — Davis v. Pringle

Page

De a Ra I a ee ee ye Re Te eC yn eT 1

Acceptance of service_.....-.......-....--------------------- 2

IS TI. OU ad icine cn nmi ime ate anise winin nena on otamne am niece manatee t

eens DOP WEG ook ke ritncimn ce anat manne manneewanmann a 5

Brief in support of petition..............-.......-.....----- j1

1. The Court erred in holding that the U nited States was

not entitled to priority except for tares_.-._--------- 11

(a) Section 3466 R. S. was not repealed by the puas-

sage of the Bankruptcy Act of 1898__-------- 15

(b) The United States is a“ person” within the mean-

ing of Section 64(b)5 of the Bankruptcy Act--- 16

2. The questions involved are of such importance writ of

certiorari should be granted........................... 20

CASES CITED

Davis vy. Coyle, 260 U. 8. 721.........-..............-------- 18

Davis v. Miller Link Lumber Co., 296 Fed. 649_..------------- 20, 32

ele ©. Pollen, 277 P60, G00... nnnnccncewcunnncemesceconans 20, 32

Dupont v. Davis, 264 U. S. 456_------------------------------ 8

Forsyth v. Hammond, 166 U. S. 514_------------------------- 21

Guarantee Title & Trust Co, v.

Harford v. U.

Title Guaranty & Surety Co.,

224 U. S. " TS, he Ae Sa ere eee

, 8 Cranch 109

In re Atlantic r & P. Steamship Co., 289 Fed. 146

In re Hibuer Oil Co., 264 Fed. 667

16, 19, 28, 35

15

19, 32

17, 19, 31

In re Lau Ow Bew, 141 U. 8. 588..-...-.--...............--- 21

In re Tidewater Coal Exchange, 280 Fed. 648_.------- 8, 16, 17, 25, 31

In re Western Implement Co., 171 Fed. 80___.-------------- 8, 16,19

Lewis, Trustee, v. U. S., 92 U. 8. 618_..---------------------- 14,27

Lott vy. Saliebury, 287 Fed. 191.........-..-............--..---- 19

North American eye’ Co. V. eS: eh) | es 15

Sloan Shipyards vy. U. 8. Fleet eS 58 : S. 549__. 16, 18, 33

The Three Friends, pe Bt Ase cca bee exec neni dials ease abate 21

a Ww Beker: 2 COPANO BOG. cnc cncnnnnenccescnsmnntmananmes 15

U. S. vy, Gooding, 12 Wheaton 460...-..--.------------------- 15

U. S. v. National Surety Co., 254 U. 8S. 73.-------------- 16, 18, 20, 32

7, &. vy; Oklahoma, 261 U.S. 208.........-...-.-- eee =e 16, 19, 26, 82

U. 8S. v, State Bank of North Carolina, 6 Peters 29_----------- 14

22796——-24——_1

(1)

Inthe Supreme Court of the Wnited States

Ocroser TerM, 1924.

James C. Davis, Director GENERAL AND AGENT

(Seapoarp Arr Line RatLroap) PETITIONER,

v.

FE. H. Prrnare, as Truster tN BANKRUPTCY OF

THE Estate or Cuaries F. Boyp Company,

Inc., Bankrupt. RESPONDENT.

NOTICE

T. H. Prinewr, as Trustee in Bankruptcy of the

Estate of Charles F. Boyd, Inc., Bankrupt, or

MircHect AND Horipeck, AND WHALEY, Barn-

WELL & GrimBALL, his Attorneys of Record:

This is to notify you that the petitioner will,

on the 5th day of January, 1925, or as soon there-

after as counsel may be heard, present to the

Supreme Court of the United States, in its court

room at Washington, D. C., his motion for a writ

of certiorari upon his verified petition and a copy

of the entire record in this cause; and a copy of

said motion, said petition and brief accompanying

(1)

“rr : nd RE Ry RSE ENTREE ES FH LE

”

—

same are herewith delivered to you this 5th day

of December, 1924.

JAMES C, Davis,

Director General and Agent.

By AveustinE T. SMYTHE,

A. A. McLAUGHLIN,

ALEx KOopLIN,

LAMBERT MCALLISTER,

Counsel for Petitioner.

ACCEPTANCE OF SERVICE

The foregoing notice, and delivery of copy

thereof and of motion and petition for writ of

certiorari and brief are hereby acknowledged this

5th day of December, 1924.

WHALEY, BARNWELL & GRIMBALL,

MITCHELL AND HOoRLBECK,

Attorneys for Respondent.

PEERED, NR PRN so st ma eran

In Tue Supreme Court or THE UNITED STATES

OCTOBER TERM, 1924

James C. Davis, Direcror GENERAL AND AGENT

(Seapoarp AiR Lint RAtLroap), PETITIONER

v.

EK. H. Priveve, as Trustee tN BANKRUPTCY OF

Ture Estate oF CHartes F. Boyp Company,

Inc., Bankrupt, RESPONDENT

MOTION FOR WRIT OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE FOURTH

CIRCUIT

Now comes James ©, Davis, Director General

and Agent, petitioner, by his counsel, and moves

this Honorable Court that it will by certiorari, or

other process, directed to the Honorable Judges of

the United States Cireuit Court of Appeals for

the Fourth Circuit, require said Court to certify

to this Court for its review and determination a

certain cause in said United States Cireuit Court

of Appeals for the Fourth Circuit lately pending,

wherein the petitioner, James C, Davis, Director

General and Agent, was appellant and E. H.

Pringle, as Trustee in Bankruptcy of the estate of

Charles F. Boyd, Ine., Bankrupt, was appellee;

(3)

er wy WENGER RIMES SD RI PU NIE TON ER MEH YET Od’ Tey SBMTL ALREADY

fa has tea tate

4

and to that end the petitioner now tenders here-

with his petition and brief with a certified copy of

the entire record in said cause in said United States

Cireuit Court of Appeals for the Fourth Circuit.

AveustTInE T. SMYTHE,

A. A. McLavuGuHLin,

ALEx. Kop.in,

LAMBERT MCALLISTER,

Counsel for Petitioner.

IN THE SUPREME CovurRT OF THE UNITED STATES

OCTOBER TERM, 1924

JAMES C. Davis, Director GENERAL AND AGENT

(SEABOARD AIR LINE RAILROAD), PETITIONER

v.

E. H. Prinetr, as TRusTEE IN BANKRUPTCY OF

THE Estate oF CHARLES F. Boyp Company,

Inc., BANKRUPT, RESPONDENT

PETITION FOR WRIT OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE FOURTH

CIRCUIT

To the Honorable, the Chief Justice and the

Associate Justices of the Supreme Court of the

United States:

The petition of James C. Davis, Director Gen-

eral and Agent, hereinafter called petitioner, res-

pectfully shows to this Honorable Court:

1, On January 15, 1924, Honorable H. A. M.

Smith, United States District Judge for the

Eastern District of South Carolina, in bank-

ruptey, affirmed the report of Lionel K. Legge,

Esq., Special Referee in the matter of Charles

F. Boyd, Inc., bankrupt, denying priority to a

claim filed in the bankruptey proceedings by

petitioner.

(5)

ERTS ee aye ek WP

6

The claim filed by petitioner for $2,207.43 duly

itemized covered freight, storage, and demurrage

earned and accruing on and after December 26,

1918, on a shipment to Charles F. Boyd & Com-

pany, Charleston, 8S. C.

These claims accrued in the operation during

the period of Federal control of railroads by the

Director General of Railroads of the properties

of the Seaboard Air Line Railroad.

No question was raised as to the amount due

by the bankrupt to petitioner. The sole question

raised on the record was whether the claims of

petitioner were entitled to priority in the distri-

bution of the assets of the bankrupt under the

provisions of Sections 3466 and 3467 of the Re-

vised Statutes of the United States and Section

64 (b) 5 of the Bankruptey Act of 1898 (30 Stat.

544). In the opinion confirming the Referee’s

order the District Court said:

The sole question is whether the claims

preferred by the petitioner, James C. Davis,

Federal Agent, are entitled to priority over

all other claims under the provisions of

Section 3466 of the Revised Statutes. In

the opinion of the Court the provisions of

Section 3466 do not apply to the claims of

the petitioner. That Statute contemplates

debts to the United States accruing to it

directly under any statutory or contractual

directions. The present claims do not fall

into those categories. They are claims

arising only incidentally to the temporary

LEST PLANS AE NT OL POISE MEN CET RIN ERNE SPIE NN ———————

7

operation by the Government of the plant

of a transportation corporation, operated

by the Government in like manner as it

would have been operated by the corpora-

tion itself had the Government not taken

possession. The very description of the

claims shows this. They are all for freight,

storage, and demurrage charges on mer-

chandise transported as shipped by private

parties. The Government in possession of

the Railway plant of a corporation under-

took the commercial transportation of ar-

ticles shipped by private persons in like

manner as the same were transported by

the corporation when in possession of the

Railway plant and lines. For all these

charges the Government Agent has a lien

upon the articles transported. It was the

duty of that Agent to have collected all

these charges before delivery of the articles

to the consignees. Having seen fit to waive

that lien and deliver the articles to the

consignee without collecting the charges

for which he had a lien, the Agent of the

Government under the circumstances of this

ease is not entitled to a prior lien upon the

general estate of the bankrupt consignee.

2. An appeal was taken from the order of the

District Court to the United States Cireuit Court

of Appeals for the Fourth Circuit. Upon this ap-

peal on June 12, 1924, a hearing was had in the

United States Cireuit Court of Appeals for the

Fourth Cireuit, and on September 29, 1924, the

Court rendered an opinion affirming the decision

22796—24-—-—-2

8

of the District Court. Copies of this decision and

of the decision in case No. 2245 referred to therein

are hereto attached as Exhibit ‘‘A.”’

3. The Cireuit Court of Appeals for the Fourth

Circuit in affirming the judgment of the lower

court held, under the decision of this Court in the

ease of DuPont v. Davis, 264 U.S. 456, that debts

due to petitioner were debts due to the United

States, but held that the United States was not

entitled to priority in the distribution of assets

of a bankrupt estate except for taxes, and there-

fore affirmed the decision of the District Court.

4. The opinion of the Cireuit Court of Appeals

states that its conclusion is in conflict with the

decision of the Cireuit Court of Appeals for the

Second Circuit in re Tidewater Coal Exchange,

280 Fed. 648, and of the Circuit Court of Appeals

for the Eighth Circuit in re Western Implement

Company, 171 Fed. 81.

5. Petitioner respectfully submits that the Cir-

euit Court of Appeals for the Fourth Circuit in

affirming the judgment of the District Court for

the Eastern District of South Carolina erred as a

matter of law in holding.

(a) that the United States was not a ‘‘ person ”’

within the meaning of Section 64 (b) 5 of the

Bankruptey Act of 1898, and

(b) that the United States was not entitled to

priority in bankruptcy except for taxes.

6. That the judgment of the Circuit Court of

Appeals in this case is a final judgment.

9

7. The judgment of the Circuit Court of Ap-

peals for the Fourth Cireuit being one arising

in bankruptey is final and is reviewable by this

Court only by certiorari under the provisions of

the Act of September 6, 1916 (C. 448, 39 Stat. 726).

8. Certiorari should be granted in this case be-

cause the question involved is one of great public

importance since the effeet of the decision is to

deny to the United States priority in bankruptey

except for taxes.

9. The question involved is also one which

calls for a decision by the Court in order to settle

and harmonize the conflicting decisions of the

Circut Court of Appeals for the Second, Eighth,

and Fourth Circuits.

Wherefore, upon due consideration of this peti-

tion, of the annexed brief, and a certified copy of

the record of the United States Circuit Court of

Appeals for the Fourth Circuit filed herewith,

petitioner respectfully prays that a writ of

certiorari be issued under the seal of this Court,

directed to the United States Cireuit Court of

Appeals for the Fourth Circuit, commanding that

Court to certify and send to this Court on a date

to be designated a full and complete transcript

of the record of al! proceedings had in this cause

to the end that the same may be reviewed and

determined by this Honorable Court under said

writ as provided by law. And petitioner prays

that upon the final consideration of this cause and

of said writ, the said judgment of the United

LOL P EOS LELT HEIL AT IS NIUE IBERIA AR RNAS OR

10

States Circuit Court of Appeals for the Fourth

Circuit will be reversed by this Honorable Court

and judgment rendered in favor of the petitioner.

Petitioner further prays for such other equi-

table and general relief as may appertain to this

case and as may be competent for this Honorable

Court to grant.

AUGUSTINE T. SMYTHE,

A. A. McLAvGHLIn,

ALEX. KOoPLin,

LAMBERT MCALLISTER,

Counel for Petitioner.

A. A. McLAvGHLIn,

of Counsel.

District OF CoLUMBIA,

City of Washington, to wit:

Before me, the undersigned notary public, per-

sonally appeared A. A. McLaughlin, who being

duly sworn, deposes and says: That he is a

member of the bar of the Supreme Court of the

United States, and is of counsel for petitioner

herein; that he has read the foregoing application

for a writ of certiorari; and that all the facts

therein stated are true and correct to the best of

his knowledge and belief.

A. A. McLAvuaGHuin.

Subscribed and sworn to before me this 3rd day

of December, 1924.

W. B. Rosinson,

Notary Public, District of Columbia.

My commission expires March 23, 1925.

IN THE SupREME Court oF THE UNITED STATES

OCTOBER TERM, 1924

JAMES C, Davis, DiREcTOR GENERAL AND AGENT

(AtLtantic Coast LINE RatILroaD), PETITIONER

v.

E. H. Prineue, as TRUSTEE IN BANKRUPTCY OF

THE Estate oF CuHartEs F. Boyp Company,

Inc., BANKRUPT, RESPONDENT

BRIEF IN SUPPORT OF APPLICATION FOR WRIT OF

CERTIORARI

I

THE COURT ERRED IN HOLDING THAT THE UNITED

STATES WAS NOT ENTITLED TO PRIORITY EXCEPT FOR

TAXES

The sole question involved in this case is

whether the United States is entitled to priority

in bankruptey for debts other than taxes.

It is admitted that prior to the passage of the

Bankruptey Act of 1898 (30 Stat. 544), the

United States was entitled to priority for all

debts. (Lewis, Trustee, v. U. S.,92 U. S. 618.)

The provisions of section 64 of the Bankruptey

Act of 1898, as amended, are as follows:

(a) The court shall order the trustee to

pay all taxes legally due and owing by the

bankrupt to the United States, State,

(11)

12

county, district, or municipality in advance

of the pavment of dividends to ereditors,

and upon filing the reeeipts of the proper

public officers for such payment he shall

be credited with the amount thereof, and

in case any question arises as to the amount

or legality of any such tax the same shall

be heard and determined by the court.

(b) The debts to have priority, except

as herein provided, and to be paid in full

out of the bankrupt estates, and the order

of payment shall be (1) the actual and

necessary cost of preserving the estate sub-

sequent to filing the petition; (2) the filing

fees paid by the creditors in involuntary

eases, and, where property of the bankrupt

transferred or concealed by him either be-

fore or after the filing of the petition, shall

have been recovered for the benefit of the

estate of the bankrupt by the efforts and

at the expense of one or more creditors,

the reasonable expenses of such recovery;

(3) the cost of administration, including

the fees and mileage payable to witnesses

as now or hereafter provided by the laws

of the United States, and one reasonable

attorney’s fee, for the professional services

actually rendered, irrespective of the

number of attorneys employed, to the pe-

titioning creditors in involuntary cases, to

the bankrupt in involuntary cases while

performing the duties herein prescribed,

and to the bankrupt in voluntary cases, as

the court may allow; (4) wages due to

—

13

workmen, clerks, traveling or city sales-

men,* or servants, which have been eared

within three months before the date of the

commencement of proceedings, not to ex-

eeed three hundred dollars to each claim-

ant; and (5) debts owing to any person

who by the laws of the States or the United

States is entitled to priority.

(c) In the event of the confirmation of

a composition being set aside, or a dis-

charge revoked, the property acquired by

the bankrupt in addition to his estate at

the time the composition was confirmed or

the adjudication was made shall be applied

to the payment in full of the claims of

creditors for property sold to him on

credit, in good faith, while such compo-

sition or discharge was in force, and the

residue, if any, shall be applied to the pay-

ment of the debts which were owing at the

time of the adjudication.

Petition.2r contends that under the provisions

of section 64 (b) 5, supra, the United States is en-

titled te priority for debts other than taxes since

a vebt to the United States is one which ‘* by the

iaws of * * * the United States is entitled

to priority.”’ Section 3466 of the Revised

Statutes is as follows:

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 in-

sufficient to pay all the debts due from the

14

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 suffi-

cient property to pay all his debts, makes a

voluntary assignment thereof, or in which

the estate and effects of an absconding, con-

cealed or absent debtor are attached by

process of law, as to cases in which an act of

bankruptey is committed.

It is well to bear in mind the rule of construc-

tion uniformly followed by this Court that Acts

granting priority being based on public policy are

to be construed liberally.

In United States v. State Bank of North Caro-

lina, 6 Peters 29, this Court said:

The right of priority of payment of debts

due to the Government, is a prerogative of

the crown well known to the common law.

It is founded not so much upon any per-

sonal advantage to the sovereign, as upon

motives of public policy, in order to secure

an adequate revenue to sustain the public

burdens and discharge the public debts.

The claim of the United States, however,

does not stand upon any sovereign preroga-

tive, but is exclusively founded upon the ae-

tual provisions of their own statutes. The

same policy, which governed in the case of

the royal prerogative, may be clearly traced

in these statutes; and as that policy has

mainly a reference to the public good, there

is no reason for giving to them a strict and

15

narrow interpretation. Like all other stat-

utes of this nature, they ought to receive a

fair and reasonable interpretation, accord-

ing to the just import of their terms.

See also U. S. v. Fisher, 2 Craneh, 358.

The terms of the Acts involved are clear and we

“must take the law as we find it.” (U. S. v.

Gooding, 12 Wheaton, 460-478.)

Section 64 (b) 5 contains the words “ debts

owing to any person who by the laws of * * +#

the United States is entitled to priority ’’ and

section 3466 contains the words “‘ debts due the

United States.’’ Petitioner, therefore, contends

that Revised Statutes 3466 created the priority

referred to in the above quoted provisions of sec-

tion 64 (b) 5 of the Act of 1898.

To sustain the position taken by the Circuit .

Court of Appeals for the Fourth Circuit this

Court must hold either (a) that section 3466 was

repealed by the passage of the Bankruptey Act of

1898, or (b) that the United States is not a “ per-

‘son ’’ within the meaning of section 64 (b) 5.

Section 3466, Revised Statutes, was not repealed by the

passage of the bankruptey act of 1898

It is elementary that a repeal will not be im-

plied unless there is an irreconcilable conflict

between the statutes (Harford v. U. S., 8 Cranch

109; North American Commercial Company v.

U. S., 171 U. S. 110, 129), and that this Court

22796—24——3

16

should so construe the statutes as to give effect

to both, if possible.

In fact this Court in the case of Guarantee

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

224 U. S. 152, held that section 3466 of the

Revised Statutes and the Bankruptcy Acts of 1867

and 1898 should be construed in pari materia and

that the Act of 1898 superseded Revised Statutes

3466, only in so far as the two statutes were in-

consistent.

That section 3466 Revised Statutes was not re-

pealed by the Bankruptcy Act of 1898 is clearly

indicated by the decisions of this Court in U. S.

v. National Surety Co., 254 U.S. 73; Sloan Ship-

yards v. U. S. Flect Corporation, 258 U. 8S. 549,

and U.S. v. Oklahoma, 261 U. S. 253.

There is no inconsistency in holding as this

Court did in the Guarantee case, supra, that ex-

cept as to taxes, debts due the United States were

deferred until certain other claims such as labor

had been paid, as that was clearly the intention

of Congress in passing the Act of 1898.

The United States is a “ person” within the meaning of

section 64 (b) 5 of the bankruptcy act

That the United States is a ‘‘ person ”’ within

the meaning of section 64 (b) 5 was decided by the

Circuit Court of Appeals for the Second Circuit

in In re Tidewater Coal Exchange, 280 Fed. 648.

See also In re Western Implement Co., 171

Fed. 81.

17

The decision of the lower Court in this case

admits that the conclusion reached by it is in con-

flict with the decision of the Circuit Court of

Appeals for the Second Circuit in the case of

In re Tidewater Coal Exchange, 280 Fed. 648, in

which the same question was involved. In that

case the Court said:

The Circuit Court of Appeals for the

Seventh Circuit, in In re E. H. Hibner Oil

Co., 264 Fed. 667, A. L. R. 629, declared

that unpaid freight charges for shipments

by railroad during the period of federal

control are the property of the United

States, and the claim therefore is entitled

to priority in bankruptcy under section 62

b of the Bankruptcy Act (Comp. St. see.

9648) and section 3466 of the Revised Stat-

utes (Comp. St. See. 6372). The Bank-

ruptcy Acts of 1800 (Act April 4, 1800, c. 19,

sec, 62 (2 Stat. 36)), of 1841 (Act August

19, 1841, c. 9, sec. 5 (5 Stat. 444)), and of

1867 (Act March 2, 1867, ¢. 176, see. 28 (14

Stat. 530)) expressly recognized the priority

of debts due the United States, thus pre-

serving in all its essential features the pro-

vision in the act of 1797, reproduced in sec-

tion 3466 of the Revised Statutes relating

to priorities. The Bankruptcy Act of 1898

contains no similar express provision; and,

if, under that act, priority is given, it must

be because of Clause 5, subd. (b), Sec. 64

18

(Comp. St. See. 9648), which reads as fol-

lows:

**(5) Debts owing to any person who by

the laws of the States or the United States

is entitled to priority.”’

We have no doubt that the United States

is to be regarded as a person within the

meaning of the clause cited, and can assert

its priority as given to it under section

3466 of the Revised Statutes (Comp. St.

Sec. 6372), which is reproduced in the

margin 1. The priority secured to the

United States is priority over all creditors.

The statutory provision referred to is

simply declaratory of the common-law rule

which entitles a sovereign to priority over

other creditors of an insolvent. United

States v. National Surety Co., 254 U. S.

73, 75, 41 Sup. Ct. 29, 65 L. Ed. 143.

The attention of this Court is directed to the

fact that an application for certiorari in the last

cited case was denied (Davis v. Coyle, 260 U. S.

721), and that on the application respondent sug-

gested to this Court that in view of the dissent

in the case of Sloan Shipyards v. U. S. Fleet

Corporation, 258 U. S. 549, the writ of certiorari

should be granted.

Petitioner submits that the decision of the

lower Court in this ease is not only in conflict

with the decision of the Circuit Court of Appeals

for the Second Circuit in the Tidewater case,

supra, but is also in conflict with the decision of

this Court in the case of U. S. v. National Surety

19

Company, 254 U. S. 73; U. S. v. Oklahoma, 261

U. S. 253, and with the decisions of the Circuit

Court of Appeals for the Seventh and Eighth

Circuits in the cases of In re Hibner Oil Co., 264

Fed. 667, and In re Western Implement Co., 171

Fed. 81, as well as with the decision of Judge Rose

of the Circuit Court of Appeals for the Fourth

Circuit in the case of In re Atlantic G. & P.

Steamship Co., 289 Fed. 146.

Petitioner also suggests that the decision in this

ease is in actual conflict with the decision of the

lower Court in the ease of Lott v. Salisbury, 237

Fed. 191, in which that Court said, page 203:

The case most strongly relied upon is

Guarantee Title & Trust Co. v. Title Guar-

antee & Trust Co., 224 U. S. 152, 32 Sup.

Ct. 457, 56 L. Ed. 706. That case holds that

the United States, except for taxes due, had

not in the enactment of the bankruptcy law

exercised its sovereign right of providing a

preference for its own claims against the

bankrupt. It is conceded that the Govern-

ment has such a right and frequently exer-

cises it. In the case just referred to the

Court held that the Government had, except

as to taxes, put itself in the plight of an

ordinary unsecured creditor, and under

section 64b was postponed till certain

claims, wages among others, were paid.

The attention of this Court is directed to the

fact that the Cireuit Courts of Appeal for the

First and Fifth Cireuits have held that the Direc-

20

tor General is entitled to priority in receivership

proceedings. (Davis v. Pullen, 277 Fed. 650; Davis

v. Willer Link Lumber Co., 296 Fed. 649.)

Petitioner respectfully submits that this Court

in the Guarantee case, supra, merely held that

claims of the United States except for taxes were

subordinated to labor claims by the Act of 1898,

and that the dissent in the Sloan case, supra, ean

not be considered as controlling in this ease.

If the position of the Circuit Court of Appeals

for the Pourth Circuit in this case is correct then

it was not necessary for the majority of this Court

to base its decision in the Sloan case, supra, on the

ground that a debt due the Fleet Corporation was

not a debt due the United States; nor was it neces-

sary for this Court to pass on the question in-

volved in U. S. v. National Surety Co., 254 U.S.

73, since a finding by the Court that the United

States was not entitled to priority except for taxes

would have disposed of these cases.

It is respectfully submitted, therefore, that the

Cireuit Court of Appeals for the Fourth Circuit

erred in its conclusion in the instant case and that

this Court should grant the petition for certiorari

in order that the error may be corrected.

It

The questions involved are of such importance writ of

certiorari should be granted

It is submitted that the writ herein should be

granted since the question involved in this case is

21

one of great publie interest, of gravity and im-

portance (Re Law Ow Bew, 141 U. S. 583), and

that the writ should be granted in order that the

conflict in the decisions of the various courts may

he corrected. (Forsythe v. Hammond, 166 U. 8.

514, and The Three Friends, 166 U. 8. 49.)

Respectfully submitted.

AveusTInE T. SMYTHE,

A. A. McLAUGHLIN,

ALEx. KOoPLIN,

LAMBERT MCALLISTER,

Counsel for Petitioner.

EXHIBIT A

Unitep States Circuit Court or APPEALS

FOURTH CIRCUIT

No. 2246

JAMES ©. Davis, FEDERAL AGENT FOR CLaIMs Dut

IN OPERATION OF SEABOARD AIR LINE RatLway

Company, APPELLANT

versus

E. H. Prineie as TRUSTEE IN BANKRUPTCY OF THI

Estate oF CHaRLES F. Boyp Company, INc.

Bankrupt, APPELLEE

Appeal from the District Court of the United

States for the Eastern District of South Caro-

lina, at Charleston. In Bankruptcy

(Argued June 12, 1924. Decided Sept. 29, 1924)

Before Woops and WappiLL, Circuit Judges, and

Wess, District Judge

ALEX. Kopuin, General Attorney for U. S. Rail-

road Administration, and AUGUSTINE T. SMYTHE

(LAMBERT McALLIsTER on brief) for Appellant,

and N. B. Barnwett (F. H. Hor_pecx;

WHALEY, BARNWELL & GRIMBALL and MITCHELL

& HoriBeck on brief) for Appellee, Woops.

Circuit Judge:

‘This appeal involves the claim of the Director

General to priority of the debt due by the bank-

(22)

23

rupt, acruing on the line of the Seaboard Air

Line Railway Company during Federal control.

The questions made are discussed and decided in

the opinion filed this day in No. 2245, Davis,

Federal Agent, vs. E. H. Pringle, Trustee. For —

the reasons therein stated the decree of the Dis-

trict Court must be

Affirmed.

7654 Certified Copy

Unitep Sratres Circuit Court OF APPEALS

FOURTH CIRCUIT

No. 2245

James C. Davis, FeperaL AGENT FoR CLarms DUE

IN OPERATION oF AtrLaANTIC Coast LINE RalIt-

ROAD COMPANY, APPELLANT

versus

E. H. Prinete as TRUSTEE IN BANKRUPTCY OF

THE ESTATE OF CHARLES F. Boyp Company, INC.,

BaNkKRuPT, APPELLEE

Appeal from the District Court of the United

States for the Eastern District of South Caro-

lina, at Charleston. In Bankruptcy

(Argued June 12, 1924. Decided Sept. 29, 1924)

Before Woods and Waddill, Circuit Judges, and

Webb, District Judge

Atex Kopuin, General Attorney for U. S. Rail-

road Administration (StmEon Hype; LAMBERT

McAtuisteR and RutLepGeE, Hype, Mann &

Fiaa on brief), for Appellant, and N. B.

—

24

Barnweuu (F. H. Horipeck; WHALEY, Bary-

weEiL & GrimMBALL, and MircHEtt & HorBecK

on brief for Appellee

Woops, Circuit Judge:

Charles F. Boyd Company, Inc., was adjudged

bankrupt on August 20, 1920. The Director Gen-

eral on February 3, 1921, filed claims amounting

to $2,213.70 for freight, storage, and demurrage

accruing to the Atlantic Coast Line Railroad

Company during Federal control. Afterwards,

on February 27, 1922, the Director General by

petition claimed priority over general creditors in

the distribution of the assets. No point seems

to have been made before the Referee or the Dis-

trict Court that the claim for priority was not

properly set up.

If demurrage, freight, and storage charges in

favor of the Director General are debts due to

the United States, and as such are entitled to

priority, the priority was inherent in the debts

and required recognition by the court when called

to its attention at any time before distribution of

the assets.

The Referee reported against the claim of pri-

ority and the District Judge confirmed his report.

We are unable to agree with the Referee and

the District Judge that the debts due to the Di-

rector General were not debts due to the United

States of the character given priority by Section

3466 of the Revised Statutes. The Supreme

Court has decided otherwise. In DuPont vs.

Davis, April 7, 1924, the Court says: ‘‘ In taking

over and operating the railroad systems of the

25

country the United States did so in its sovereign

capacity, as a war measure, ‘ under a right in the

nature of eminent domain.’ North Carolina R.

R. Co. vs. Lee, 260 U. S. 16; Missouri Pacific R.

R. Co. vs. Ault, 256 U. S. 554; Northern Pacific

R. R. Co. vs. North Dakota, 250 U. 8. 135; In re

Tidewater Coal Exchange, 280 Fed. 648, 649; and

it may not be held to have waived any sovereign

right or privilege unless plainly so provided.

Moneys and other property derived from the oper-

ation of the carriers during Federal control, as we

have seen, are the property of the United States,

See. 12, 40 Stat. 457. An action by the Director

General to recover upon a liability arising out of

such eontrol is an action on behalf of the United

States in its governmental capacity. Ches. & Del.

Canal Co. vs. United States, 250 U. 8. 123; In re

Tidewater Coal Exchange, 280 Fed. 648.’’ Davis

vs. Corona Coal Co., decided by the Supreme Court

May 26, 1924.

The question of priority of debts, other than

taxes, owing to the United States in the distribu-

tion of bankrupt estates is one of difficulty. It is

not to be decided on the general doctrine of prior-

ity of debts due the sovereign, for the Congress

has undertaken to cover the whole subject by stat-

utes. The Act of 1797, R. S. 3466, provides:

‘‘ 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 insufficient 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

~

26

in which a debtor, not having sufficient property

to pay all his debts, makes a voluntary assign-

ment thereof, or in which the estate and effects

of an absconding, concealed, or absent debtor are

attached by process of law, as to cases in which

an act of bankruptcy is committed.’’

By virtue of this statute the United States had

a preference in the payment of its debts under

any of the conditions mentioned in the statute—

but not in a distribution which for any reason

did not come within the statute. United States

vs. Oklahoma, 261 U. S. 253. In that ease the

State setting up a claim in behalf of the depos-

itors of a bank under authority of a State statute |

was held to have priority over debts due the

United States, on the express ground that the

bank assets in the hands of a State commission | 7

did not present a condition under which the stat-

ute gave the United States priority.

The Bankruptcy Statute of 1867, R. S. 5101,

provided the following order of priorities:

‘*In the order for a dividend, the following

shall be entitled to priority, and the first paid

in full in the following order:

‘¢ First. The fees, costs, and expenses of suits,

and of the several proceedings in bankruptcy

under this Title and for the custody of property,

as herein provided.

‘¢ Second. All debts due to the United States,

and all taxes and assessments under the laws

thereof.

‘‘ Third. All debts due to the State in which

the proceedings in bankruptcy are pending, and

all taxes and assessments made under the laws

thereof.

an

_—

‘‘ Fourth. Wages due to any operative, clerk or

house servant, to an amount not exceeding fifty

dollars, for labor performed within six months

next preceding the first publication of the notice

of proceedings in bankruptcy.

‘“ Fifth. All debts due to any person, who, by

the laws of the United States, are, or may be, en-

titled to a priority, in like manner as if the pro-

visions of this Title had not been adopted. But

nothing contained in this Title shall interfere with

the assessment and collection of taxes by the

authority of the United States or any State.”’

Thus not only taxes but all debts due the United

States were given priority over all other liabilities,

except costs and expenses of bankruptcy proceed-

ings. In other words, the priority given all debts

due to the United States by R. 8. 3466 was sanc-

tioned and re-enacted by the Bankruptcy Statute

of 1867. As the court said in Lewis, Trustee, vs. <

United States, 92 U. S. 618, the statute contained

no qualification of priority of the United States,

and the court could not interpolate one.

What limitation, if any, in the distribution of

bankrupt assets did the subsequent Bankruptey

Act of 1898 put upon the general priority given the

United States under the previous statutes? The

Act of 1898 was intended to cover completely all

matters of adjudication, administration, discharge,

priorities, and distribution of assets. The Statute

and rules made under it supplanted and annulled

all previous inconsistent statutes and rules of the

courts of common law and equity. United States

Fidelity d} Guaranty Company vs. Bray, 225 U.S.

205, 217. ‘* The Act takes into consideration, we

27

——

28

think, the whole range of indebtedness of the bank-

rupt, national, State and individual, and assigns

the order of payment.’’ Guarantee Company vs.

Title Guaranty Company, 224 U. S. 152, 160.

The Statute provides the following order of

priority :

(a) The court shall order the trustee to pay all

taxes legally due to the United States, State,

county, district, or municipality in advance of the

payment of dividends to creditors.

(b) Debts to have priority, except as herein

provided, and to be paid in full, * * * and the

order of payment shall be: (4) wages due to work-

men, clerks, traveling or city salesmen, or servants,

which have been earned within three months be-

fore the date of the commencement of the pro-

ceedings; and (5) debts owing to any person who

by the laws of the States or the United States is

entitled to priority.

The Congress thus took from debts due the

United States, other than taxes, the priority

given such debts along with taxes by the Act of

1867 by leaving out of the Act of 1898 other

debts in providing for priority of taxes. This

seems too clear for discussion; and so the court

decided in Guaranty Company vs. Title Guar-

anty Company, supra. There it was held that

the Act of 1797, R. S. 3466, the Bankruptcy

Statute of 1867, R. S. 5101, and the Bankruptcy

Statute of 1898 must be considered in pari

materia; and that in bankruptcy proceedings the

Act of 1895 superceded Section 3466, R. S., so

far as the two statutes were inconsistent.

It is argued, however, that priority is given

the United States next in order to debts for

ees

29

wages, by Sec. 64-b (5), “‘Debts owing to any

person who by the laws of the States or the United

States is entitled to priority."" This grade of

priority is not given to the United States by

virtue of R. S. 3466 unless the United States

falls under the designation of ‘“tany person.”

The Statute itself gives this definition: ‘‘(19)

‘persons’ shall include corporations except where

otherwise specified, and officers, partnerships, and

women, and when used with reference to the com-

mission of acts which are herein ferbidden shall

include persons who are participants in the for-

bidden acts, and the agents, offices, and mem-

bers of the board of directors or trustees, or

other similar controlling bodies of eorporations.’’

See. 1, el. (19), Bankruptey Act of 1898.

The failure to include the United States and

the States in the definition could aot have been

inadvertant. The United States and the several

States of the Union are not persons and are not

commonly thought of as persons, and if it had

been intended that ‘‘persons’’ should have such a

comprehensive and unusual meaning as to include

them, the framers of the definitioa would have

said so.

Again, when the Congress had already dealt

with claims of the United States under the name

of the United States and had deliberately limited

its priority to taxes, it is hardly reasonable to at-

tribute to the Congress an intention to deal again

with the claims of the United States and include

them in provision relating to debts of ‘‘ any per-

son. *’

It will be noticed further that the language of

(5) Seetion 64-b of the Act of 1898 is taken al-

i,

30

most literally from the corresponding sub-division

of the Bankruptey Act of 1867, and in the absence

of the expression of a contrary intention the lan-

guage should be held to have the same meaning

in the latter statute as in the former from which

it was taken. In the Act of 1867 ‘‘ persons ”’ in

sub-division (5), R. 8. 5101, could not have been

intended to include the United States because all

the debts due to the United States had been pro-

vided for and given priority over all other debts

of any kind by sub-division (2) of the same See-

tion.

The record of the passage of the Bankruptey

Act of 1898 is significant. The bill as passed by

the Senate contained the following priorities:

‘* See. 9. That the following debts shall have

preference in the order named, over other debts in

the distribution of the estate of the bankrupt, to-

wit:

‘* First. Debts due to servants or laborers em-

ployed by the bankrupt * * *

‘* Second. Taxes or revenues due the United

State.

‘* Third. Taxes due any State or Territory or

the District of Columbia.

‘* Fourth. Taxes due any County,

‘‘But none of such debts shall be recognized

or paid unless duly proved and allowed as pre-

seribed in reference to other debts and claims

against the bankrupt.”’

All that followed the enacting clause of the

Senate bill was struck out by the Committee of

the House, and the House bill with about eighty

amendments was substituted. The original House

* 5 * 9)

Be ob et er

31

bill as introduced and referred to the Committee

contained the following as to priorities:

‘‘See. 64. Debts which have priority: (a)

Debts owing to the United States, a State, a

county, a parish, or a municipality, after being

proved and allowed, shall have priority only in

the event and to the extent that they constitute

a lien upon the property of the estate.’

The Committee changed this Section to the form

in which it was enacted in the Act of 1898.

Thus it appears that after consideration of

the question the Congress struck out a provision

for priorities of all lien debts owing to the

United States, the States and municipalities, and

substituted for it a provision in the Act of 1898

limiting the priority of the United States, the

States and municipalities to taxes.

As it seems to us, the analysis of the statutes

and the record of the passage of the Act of 1898

require the holding that the law making power

of the United States has limited its priority in

bankruptey to its claim for taxes.

This conclusion is opposed to the high authority

of the Cireuit Court of Appeals of the Second

Cireuit: In re Tidewater Coal Exchange, 280

Fed. 648, 650; and of the Eigbth Cireuit; Jn re

Western Implement Company, 171 Fed. 81. In

the view of these courts the United States and

States are persons within the meaning of sub-

division (5) of Section 64-b of the Bankruptcy

Act of 1898, and, therefore, entitled to priority

under R. 8S. 3466 over general creditors after pay-

ment of wages. In the Tidewater case the court

cited as authority for the holding In re Hibner Oil

32 2

Company, 264 Fed. 667. But the Circuit Court of

Appeals of the Seventh Cireuit in the latter case

was called on to discuss and decide only the ques-

tion whether a debt due to the Director General

was a debt due to the United Stites; the court did

not discuss the priority of a debt due to the United

States, for in the opinion it is stated the priority

of such a debt was conceded. Judge Rose in the

District Court of Maryland expressed assent to

these authorities Zn re Atlantic, G. d& P. S. 8.

Company, 289 Fed. 146, but as the court held there

was no debt to the United States the point was not

really involved. The State of Minnesota was held

to be ** a person *’ within the meaning of Section

64-) of the Bankruptey Act of 1898 by Judge

Purdy in the District Court for that State, Jn re

Western Implement Company, 166 Fed. 578; and

the judgment was affirmed by the Circuit Court

of Appeals of the Eighth Cireuit for the reasons

stated by the District Judge, 171 Fed. 81. The

United States v. National Surety Company, 254

U. S. 73, does not decide the question. There

the priority of debts due the United States over

general creditors seems to have been conceded by

the parties, for the court is careful to say that the

sole question presented was whether in the dis-

tribution of a bankrupt estate the United States

has priority over a surety company claiming sub-

rogation to the rights of the United States. Mar-

shall, Receiver, vs. The People, 254 U. 8S. 380;

United States vs. Oklahoma, 261 U. S. 253; Davis,

Director General, vs. Pullen (First Circuit), 277

Fed. 650, and Davis, Director General, vs. Miller-

Link Lumber Company (Fifth Circuit), 296 Fed.

649, are not authorities for either side, for the

—

question of the right to priority arose in receiver-

ship proceedings, and, therefore, did not involve

the meaning of the provisions of Section 64 of the

Bankruptey Act of 1898 fixing priority.

We find no binding authority opposed to the

conclusion that the United States has no priority

in bankruptey except for taxes. On the contrary

we venture to think it is supported by the reason-

ing and conclusion of the court in Guarantee

Company vs. Title Guaranty Company, 224 U. S.

152. In Sloan Shipyards vs. United States Flect

Corporation, 258 U. 8. 549, the majority of the

court denied priority in a bankruptcy proceeding

set up by the Emergency Fleet Corporation on

the ground that even if the United States would

| be entitled to priority, the Emergency Fleet

Corporation was a separate entity and its claim

for priority could not be sustained. The majority

intimated no opinion on the question whether a

debt to the United States other than for taxes

would have been entitled to priority. The Chief

Justice and Justices Van Devanter and Clark

dissented from the reasoning of the majority,

but as to the claim to priority concurred in the

result in this language used by the Chief Justice:

‘‘And to the preference claimed against a bank-

rupt in No. 526 by the Fleet Corporation, I con-

eur in the conclusion of the court that it can not

be allowed under the statute as to preferences in

bankruptcy, because I do not think it extends to

claims of the United States except those for

| tues.”

For the reasons stated, and on the authority

of Guarantee Company vs. Title Guaranty Com-

pany, supra, and the views expressed by the Chief

30

34

Justice and Justices Van Devanter and Clark

above quoted, we hold that in bankruptcy, debts

due to the United States other than for taxes

have no priority over general creditors.

No sound principle of public policy can be

invoked in support of preference to the Federal

Government and to the States over citizens in

the collection of ordinary debts. On the contrary,

the contractual operations of the Federal Govern-

ment and of the States have become so extensive

and so involved with the business of private

citizens that priority to the Federal Government

and to the States except for taxes would operate

as an oppressive hardship on other creditors of

bankrupts.

Affirmed.

True copy,

Teste:

[SEAL | CLAUDE *M. DEAN,

Clerk, U. S. Circuit Court of Appeals, 4th Ct.

Deputy Clerk.

O