Respondents Opposing Brief — Goggin v. Division of Labor Law Enforcement of Cal.

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~ GEORGE T. Chad: Trustee: in Bankruptey. of the Estate. ee

of "Kessco Engineering Corpofation, and Harry. C.

‘Westover, ‘Collector of Internal Revenue for the Ninth ~

Collection District of California,

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*. Division: OF ee Law Enroncemeir, Sra Si Cant.

ees FORNIA, Statutory, Assignee, etc.

Respondent

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"RESPONDENT'S OBPOSING BRIEF.

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- Frep N. Howser, © ;

Attorney General of the State of C alifornia,

Frank W. RIcHArps,

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Epwarp M. BELASCO, *

503 California State Building:

‘Los Angeles’ 12, California, .-

Attorneys of Division of Laber Low

Enforcement, Department of Industrial -

_ Relations, State of California,

Of Counsel. aie evs cee

Parker & Company, Law Printers, Los. Angeles. Phone TR. 5206.

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Deputy Attorney G eneral “f the State of

2 California,

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Los Angeles o& “California, Z

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_ + PAULINE NIGHTINGALE One So tg See

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TABLE OF AUTHORITIES CITED, ee

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Acme Harvester Co. v. Beekman Lumbér Co., 222 U. S. 300... 3

‘Bailey v. Baker Ice Machine Co., 239°U..S. 268: Peed ee

City of New Orleans vy. Harrell, 134 £. (2d) ae oe 6

City of New York v. Hall, 130 F. (2d) aT AE asatatae _ oe

Everett v: Judson, 228. BA Ss AE ccasictnipivccnisins stteeteneeeeieeeeeseeeesmenes 3

International Harvester Co. of America, 9 | Fef2dy 299 Pama 4, 3

Myeis v. Matley, 318 U. ee ie ee ccclitesd &

Pennsylvania Central Brewery Co., i re, 114 F. “(2a 1010;

cert. den. 312 U.S. OBS .-necneescesseesnnecesogerconeresecesennaseseesecey Raicoaties <

United States v. Marxen, Me i “3

White 'v. Stump, 266.U. S. 310....0.:... aes oe iO oR PART a

: 7 STATUTES: — ees er

Bankruptcy Act, Sec.. 64, Subd. (a) as U. S. C., Chap. 7, Sec.

104). ieniaielidaied Tosctnsasatanancnsnseeenseeesacecasassateceiecesensereiaceee a, #

Bankruptcy Act, Sec. 67, Subd.- i) (11 U. S.C, Chay. 7, Sec.

. sopcesen ti ccceeeengensenlngetnnsnnnnnseconnseeenteceeecesesaies BSAPSPSOE: BE SO ee

“ TEXTBOOKS |

4 Collier on Bankruptcy (14th Ed. )s pp. 157, 235 CRORES i, 7

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IN THE

Supreme Court af the United States.

Ocroser’ TERM, 1947. -

»

GEorGE T, ost. Trustee in - Bankruptcy of the Estate:

of. Kessco Engineering Corporation, and Harry - C.

Westover, Collector of. Internal ‘Revenue, for the Ninth

Collection District of California, — |

: . Petitioner,

VS.

Division OF LABOR Law cpa STATE OF CALI-

‘FORNIA, Statutory Assignee, etc., ;

i Se Respondent.

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eT OPPOSING BRIEF.

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Petitioner seeks a.rev ew by this Honorable Court ‘of a

final judgment of the United States Circuit Court of -

Appeals | for the Ninth Circuit. The judgment holds that

by voluntarily relinquishing possession to the Receiv er in

Bankruptcy personal property on which thére was a tax

lien, the Collector of Internal Revenue, although retaining

his lien claim, subrogated the lien to payment of. prior

; wage claims by virtue of the specific provisions of Section )

67(c) 0% the Bankruptey Act; that a bargain between the

Collector of Internal Revenue and the Receiv er in Bank- =

| ruptey prov iding that the lien oi ‘siab tythe property

and proceeds. from. the lien sai after: relinguishment_ pf

_ possession, “could not set asidé statutory rights of the prior .

_ wage élaimants. ;

Opinion Below.

The opinion. of the Circuit Court: ot Appeals, set forth

_-in full in the appendix of Petitioner’ s feats is s reported at

165 F. (2d) 155. ,

Statement of Case.

The facts set forth in Petitioner’ S Petition, pages 5 to

9 inclusive, are accurately stated’ and for purposes of,

_-

: brevity are not here repeated.

Statutes Involved.—~ ae

The statutes teedheed: Section 64, Subdivision (a)

of the Bankruptcy Act ¢ United’ States Code, Title. 11,

: Chap. 7, Sec. . 104); and Section 67, Subdivision (c) of

the Bankruptcy Act ( United’ States Code, T itle 11, Chap..

7, Sec. 107); are set forth in Petitioner’s Petition, pages

3 to 5 inclusive, and for purposes of breyity are not

. here repeated.

Pars

Question: Presented. - -

Does the decision rendered herein by the United States

Circuit Court of - Appeals. for the Ninth Circuit conflict

with applicable decisions of the- Supreme Court of the

United States, conflict with the Bankruptey Act or con-

- flict with decisions rendered in other Circuits of «the

United States Circuit Court of. Appeals? :

ie

Argument. . -

wv The decision of the United ia: Circuit Court of

Appeals is not in conflict with: |

A. ‘Applicable decisions of the Supreme Court of the

United States.

‘B. The decisions rendered in other Ci ircuits of the

United States Circuit Court of Appeals.

C. ° The. Bankruptcy Act.

A. On: page 10 of Petitioner’s Petition six cases .de-

cided by this Court are cited. These cases enunciate the :

established bankruptcy rule that rights of all creditors

and their prioritiés are determined at. the time bank- pe

ruptcy proceedings are instituted. ot

- Myers v. Matley (19837, 318 U.S. 6 622: peat ae

U.S. v. Marxen (1939), 307 U.. S: 200; |

ae White v. v. Stump (1924), 266. V.. 5: 310; :

am . * Batleyv. Baker Ice Machine es. (1913) 0239 UL 1

S268; . -

Everett v. Sadia (1913), 228 U.S. 474: |

. Acme Harvester Co. v. Beekman Lumber Co. | (

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(191k), 222 U. S$. 300.

‘This rule is not an isstie in the instant case for the rule . °

concerns itseli avith the rights and status of creditors of 7

the bankrupt as against the trustee in hankruptey and. has —

" nothing to do with the question of priority in payvme nts as

sbetween creditors from the assets | of the bankeupt's —

estate.

“ Bailey.~. Raker: Ice ‘Mac hine Co. “: pny tt is said: :

ane hen not otherwise specially” i: Woy the rights.

remedies, and powers of .the trustee are determined: -

: So =: ;

with reference to the conditions existing when. the _

petition is filed. It is then that the bankruptcy pro--

_ ceeding is initiated, that the hands of the bankrupt —

-and of his creditors are stayed, and that his estate |

_ passes actually or potentially into the control of the.

| _ bankruptcy court.. We have said: ‘The. filing of the -«

petition is an assertion of jurisdiction witha. view. ~ -

to the determination of the status of the bankrupt

_. and a settlement and distribution of his, estate.’ ”

There is-no conflict with that rule: respondent has never

- sought, nor has the court below- granted, any “enlargement

of the prior labor claims. The prior wage claims were”

‘a definitely and irrev revocably fixed in amount as a liability of

___the-estate of the bank bankrupt under the provisions of Section.

"64, Subdivision’ (a) of the Bankruptcy Act; they were

correctly calculated as being amounts due for wages

earnied and unpaid during the three-months’ period i imme-

‘diately prior to the filing of the parted in bankruptcy, not

“in excess of $600.00 each

‘The decision of the United States Ci ircuit. Court of i

Appeals for the Ninth Circuit interpreting a section of

the Bankruptcy Act concerning /| priority payments of -

: established prior wage claims ayer. established lien claims

on personal property does not’ violate ‘the rule of this

‘Court set forth above. or any other ‘rule or. interpretation

of law enunciated by this C ourt. > is

_ _B. On page, f0 of Petitioner's Pétition it is stated that

_, the decision of the Circuit Court 0% Appedls for the Ninth

. Circuit is in conflict with the decision rendered in the ~

Sixth Circuit in the petition of International Hariester

Co. of America (C. C. A. 6th), 9 F. (2d)- 200, _ There

is'no such conflict and the cases -are clearly distinguish:

able.

Oo

In. the International Harvester case the issue was

whether the chattel mortgagee had possession prior to and,

at the time of bankruptcy, since the existence of the lien

- depended on possession. [In the instant case existence

of the lien does not depend on possession, and it-has never

been contended by Respondent that the lien fell following

surrender of possession by the C ollector of Internal

Revenue to the Receiver. - Respondent urged helow that™

‘surrender of possession merely, withdrew from. the lien

elaim its: suprior position over prior wage claims. The“

‘Court below ipheld this contention, stating: — S

“In the instant cage the government had actual

possession, but it. surrendered ‘that possession by

virtue of a‘ bargain with the receiver without taking

- into account the wage and creditor claimants. The

“Act provides that wage claims come ahead of the

governrient, lien in distribution of the proceeds of

: sale of. property not in ponecesion of the government

tien holder.’ “J

Further, the general qugstion a surrender of possession :

was ‘not decided in the / ternational Harvester case. The

Court states: , cee *

“Therefore. notwithstanding our concurrence ..

the construction of the statute the petition to revise

is granted; and the cause’ “remanded, to permit the

parties to amend the pleadings, and thereupon to

deterniine whether or not, in the circumstances, peti-

tioner obtained a valid lien by virtue of its possession

‘prior to and at the time of filing the petition in bank

ruptey (see Peter Schultler Co. v.. Gunther; 222 :

Mich. 430, 192 N. W. 661, 49 Am, Bank Rep.

, 678), and. if se, whether or not it waived! this lien

by reason of the surrender of ‘the actual possession

, to the receiver.’

Actually ‘the decision of the United States Circuit Court

.of Appeals for the Ninth Circuit is: in accord w ith. all

decisions of .the United States. ‘Circuit Court of Appeals

rendered i in other Circuits. Judge Stephens ‘in lis opinion F

cites and_agreés with the decision of ‘the Second ‘Circuit

——tendered in the case of City of New York.v. Hall, (C. C.

A. “(2d). 1944), 139 F. (24) 935. The decision follows -

the enunciation of principle laid ‘down by the Third Cir- :

cuit in the case of Jn re Pennsylvania C entral Brewery

ix -<. £ A. 3; 1940), 114 F. (2d) 1010 (certiorari

denied, 312 U.-S . 685). There the Court in interpreting —

Section 67, cceticiaiion (c) of the Bankruptcy Act stated:

“Tf there is a a statutory lien upon personal property

not accompanied by possession or a distress for rent

- (which is always upon personal property) whether

statutory or not, such liens are postponed in pay-

‘ment to expenses of administration and wage claims.”

The Fifth Circuit in the case of City» of New Orleans

v. Harrell (C. C. A. 5, 1943), 134 F, (2d) 399, at page

401, in interpreting the effect of Section 67, sttbdivision.

(c) of the Bankruptcy Act’ on a: lien claim refers to the

class in which the C dllector of Internal Revenue finds him-

- self in the instant ¢asé@, that is “a special class of secured

creditors whose’ claims are postponed in payment to the f

debts specified in clauses ( I) and (2) of Section 64, sub.

_a of said Act.” .

Respondent aeons: at no case decided by the Circuit

Court of Appeals contrary to the deeisiy 1 rendered by the |

Ninth: Circuit in the instant case. ‘

ra The decision of the Cireui

the Ninth Circuit is completely An -accord with. the letter

and spirit of the Bankruptey Act and. not in conflict with

bd

Court of Appeals for. |.

ne anf —

ff:

; ~ The Congress in 1938 when it amended the Bink 4

pa Act sought to further protect.the wage elaims of

‘unpaid employees of.a bankrupt and the decision follows

this intent. aes ;

The icchaiiead of this legislation j is set forth 3 in Collier

on Bankruptcy, 14th ed.. Vol. 4. At page 157 it states:

“And undér the Act of 1898 all liens valid in bank-_

tcy. had precedence over unsecured claims entitled.

to priority under Sec. 64: only after the discharge of

. such liens were assets available for distribution, first -

to priority claimants, and second to other unsecured

creditors having no ‘priority. This general principle. . -

remains true under thé Act of 1938, subject to the

- fact. that Sec. 67c subordinates statutory liens under ©.

certain circumstances to debts having first and second

priority under Sec.”

At. page.235 it. states:

\ “The function of: Sec. 67¢ is: entirely different: In’

effect Sec: 67c says that’ statutory liens on ‘personal

property not accompanied -by possession, and liens,

_ whether. statutory or not, of distress for rents, re- :

gardless of possession, are inferior to all administra- _

tive costs and expensés of the bankruptcy proceeding

-and wage claims, which are entitled, respectively, to

a first. and. second priority ufder Sec. 64a. This

principle whereby certain liens are subordinate to-

certain priorities is new to bankruptcy lay, being

first introduced by the Act of 1938. It is a statutory

principle -which. Congress introduced to provide a-

_ measure of much-needed protection, - . . (2) for

wage claims in the interest of protecting a weak but °

deserving economic class, against the r ravages of cer-

‘tain accumulated liens on the bankrupt’s property.”

(I-mphasis theirs.)

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Conclusion. neo a

We respectfully urge that the petition filed eel for

a writ of certiorari to the ‘United States Circuit Court of

— for the ‘Ninth. Circuit be denied.

Respectfully submitted,

Frep N. ‘Howsér,- as ie

Attorney General of the State of C alifornia,

Frank W. HARDS, | a

- Deputy Soica Alas General. of the State of

| . Salifornia, -

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A Honeys for Respondent.

PAULINE Nigutincare. and.

EDWARD M: ‘BELASco,

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Aiivnsige of Division of . Labor Lew?

oe Enforcement, Department of Industrial

= Relations, State of Lakfornia,

. Of Counsel. : °

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