Brief for Petitioner — New Hampshire Fire Insurance v. Scanlon

Supreme “Court, U.S;

Pte i te

OBL 23 1959

JAMS R, | ii? 3, Clee

“Supreme Court of the Buited States

OcTORER TERM, 1959

No. 339 ay et

oNEW HAMPSHIRE FIRE INSUR. ANCE CO.,

Petitioner,

s

US.

SC. ANL OX DISTRICT DIREC TOR OF INTERN. AL.

REVENUE, et at.,

Respondents. . |

On Wrre oF CERTIORARI TO THE UNITED SFATES COURT OF

APPEALS FOR THE SECOND-CIRCUIT »

BRIEF FOR PETITIONER

ad

Jack Hart

Myron’ ENGEUMAN

10 East 40th Street

New York 16,N. Yo 0

Counsel for Petitioner —

New Hampshire Fire.

Insurance Co.

\

Ree fi uae UNDEN

: = ; tx PAGE

r Ipiniotis- Bek WY Se ate reved \e padudes Cn

"Jurisdiction rae Ns are Sep ee ea . eer ee me

Question Presented | ee ; eee et es ret een = eet ]

| Statenwnt ‘of the Case be seas ee. ee re é

ARGU MENY Rice ee ee ieee ee att eee Ayes ae 4

The eae Stat es District Courts Have Jurisdiction

urder 28 UOS. ©. ¥ 2463 to Determine in a Sui >

marys Proceedmy “the: Rights to Property Im-

properly Detained under the MMlegec Authority of

thy Revenue Taw a aa) ee eS we aaa Sos e

CASES IN THE Court or? \erears ror rite Tire.

TG a erated ee oe ea en eek Bee

CASES INTHE Court or \ereAts foR THEE: SECOND -

RAMOUOE: Soteet a on te es ach ep ape eee eer

meee eee fr 82 See eee eee eee eens Aiea Soa aes

a oo. + CASES CITED. s 3

. e , 7 .

Pefarae€ ety alt \ GC i \ i iY ae 4 a Pes 2d 39 ( 1958 ) oe =

Central Republis Bank and Trast Co, v. Caldwell, 38

‘ oP Fe AEs etc7 wee ae (a GW, Peas Daleks eee Ve

» Padelity €> Grerranty ( om Pay V2 Triborough Bridge

= Lathovity. 20; Nav. SL LOR : es

Midelity De posit Company view City’ Housing” :

Litharay. 4p! fe, 2d M2. (2d Cir, 1957): FSP ar peeel oa

Jt tt,

or PAGE |

Gobir Importing Co anv. Unite ds States, 2%2 U. Ss. 344

(1931)

Goldman V. meric av Dealers Serv tee, 135 °F. 2d 398 ae

. (24 Cir, 1943) : &

2.5 Ae Se Oe eS Oe. 6. 6 66 264 6. Ce ee OO 68

In re Behrens, 39 F. 24 Sool ¢ 2d Ci ir. 1930) ° Deca Aas Se

Krippendorg ©. Hyde, NOLES, 270. (ARR4) 22s. 10

i:rsa, tne: % Dintic Ay 234+ ¥. 2 17%, 180 t 1930), Sl teen i

. Massachusetts Ronding (> Jisuranc : Company \. j

N.Y’, 239 F; Mae 35 620 Cw. 1958) ol ee co

Rafiact lev. Granger, 196 F. 2d20 | 3d Ci ir. 1052) ee

Roth nsies v. Clim ay 110 F.2d. 590) ( |) ee eon 7 '

Seattle pr ree iation of Credit Pree v. 28. +9 Cie. -...

1957) 240 fy 5 Sie ere es re ae ak

laubel- Scott- Kitsmiller he X. Fox, 64 tp 426 ;

ae (1924). en Gettea Mee Orta seabed exalts cxcet cn 10

Cnited Stale Vv. re mven, AO F’2d 393 (2d Cir. 1930) ee

Cnited States vo Hiland: 223 FQ 118 (Ath Cir. 1955 Pica

Opinions Below '

The opinion of the Court of Appeals (R/17). is reported

at 267 F. 2d°941. The opinion of the.District our (R..14)

is = at 172 F. Supp. $92, |

te

| Jurisdiction c

The judgment bt the Court of Appeals was entered on

June 2 £2,.1959 (R. 17).° The petition for certiorari was -

filed on August 22, 1959 and waS-granted on November 9,

1959. The jurisdiction of this Court’ is invoked and rests

on 28 USS. C, § 1254( I).

Question Presented. a: ve

Do the United States District Courts have jurisdic-

tion under 28 U. S. ©. $2463 to determine, in a.

: summary proceeding instituted: by order to show

cause and petition, the rights-to. property improperly

* detained under the. alleged authority of the revenuc

laws. ae

2 The Statute involved is 28 UL S.C. $2463. which

provides: 7 F nls . Waar Rot ; oe

§$ 2463.) Property taken under revenue law not

repleviable. | Miata Peta ian

-

All property taken or-detained under any revenue.

law. of the United States shall not be repleviable, but. .

shall be deemed to bein the custody. of the law and

subject only to the orders and decrees of the courts oy

“ot the United States hi Wing jurisdiction thereof.

\“

' Statement of ‘the Case

The petition (R. 4-9) alleges that a construction con-

tract was: entered into between Acme.Cassa;y Inc., a con-.

‘tractor, and the City \of New. York.” .\ condition to. the |

making of the contraet was the furnishing of performance

-and payment surety bonds by the contractor. The petitioner,

» New Hampshire Fire Insurance Company, as surety, exe-

cuted these bonds, on behalf of \eme Cassa, Ine... as prin-

cipal, in favor of the City,of New York, as obligee.

After commencement of performance of the contract. e |

Acme Cassa, Inc. became financially unable to continue per-

formance or to pay its stibeontractors and suppliers of labor

and’ material. Petitioner, as surety, financed completi ion of

the contract and, made payments to unpaid subcontrac tors,

laborers and suppliers. ‘As of November 25, 1958 these

payments totalled $82,990.17 tte fete Ma bet

Since January 7, 1958, the City of New York has had

- available for delivery to’ petitioner, a warrant in the amount

ot $68,015. 50. Another avarrant for the final contract: pay

ment-in the’ amount of $35.9. 30.20 will’ be issued by the City

of New Y ork in the future.* The available w arrant has not

, been delivered to petitioner because of certain notices OL

lien.and notices of levy served upon the City of New York

by Respondent Scanlon, District. Director of Internal Rey-

ehue. These notices of liens and levies. arise out-of unpaid .

taxes, tot alling $39,004.67 ‘as of January 21, 1959, claimed

to be due from the contrac tor. Acme Cassa. Ine. Respond-.

ent Scanlon’ consented te. the. payment te, the: surety of

S28, 515. 30 from the $68,015.50 warrant. : | v

*$36,132.93 was issued and delivered to petitioner saith conserit

a Respondent on October 7, 1950. after the fling of thy petition

, ° , \ ° . ; °¢

.

,

ae

.

"In its petition to the DistrietCourt thé petitioner herein

claimed (1) that under the Jaw of the Siaie vt New: York,

it is subrog: ited tu the ights of the City of New York, its

obligee, tothe unpaidcontract balance and that, as subrogee.

it is entitled to the contract balance in question against any

“claims or the Government based’ on, unpaid taxes of its

principal: and (2) that 28. U.S. C. § 2403 place’ its prop:

erty which has been impraperly, det ained by the District.

Director of Internal Revenue “in the custody of .the law”

and that the District Court’ must render an- appropriate

order, or. decree refuting to the disposition of the property.

Upon the petition the District Court issued am: order

directing res

Acme Cassa, Ine. 7

notices of levy should ‘not be quashed (R. 2). Only Re-

apondent Scanlon appeared in opposition to the petition.

S61 (2d Cir. 19304) and Goldman y Imerican Dealers

Service, [35 F/ 2d 398 (2d Cir. 1943), ‘dismissed the: pey

htion, holding that tlic District Court had-no jurisdiction ;

ina summary proceeding to adjudicate: rights to the prop- ,

erty even theugh the property was placed by statiite in

the custody ot the Jaw. ‘The applicability of Section: 2403

Wis not in question, the District Court saying :"*** 1 will

assume that the - funds, have been dét ained within the

meaning: of Section 2463. (ct. Seattle’ eI ssociation of Credit

ae nv lS (SC 'r, 1057) 240 EF, 2d B00)".

| Ube ( ‘ourt at Appeals tor the. Second Circuit aftirmed,

n a per curiam opinion reading as follows : '

. ,

—. “Upon, the opinion of Judge. Cashin, D.C. D.

~ ONS Y.. April 16; 1959. 4 KF. “Supp. (392). the.

order is affirmed.”

wdents Scanlon, the City of New Y ork and °

‘show cause why. the above mentioned *

The-Distriet Court, relying’ upon Inve Behrens, 39 F. PA

.

s

_ 7e

ARGUMENT eae 4h

The United States District Courts . Have Jurisdiction

under 280.8. €. § 2463 to.Determine in a Summary

Proceeding 2 Rights to Property Improperly Detained

under the Alleged Authority of the Revenue Laws.

& ; ‘

The: soles question presented to this Court is whether

“a party, whrose pre perty. has be ‘en impre " erly detained under

the purported curt he TILY of the révenue laws of the United

States to .satisty the tax Tabilitvvot another, may have his

claim to the property adjudiedted j iN’a summary pre ceeding.

Petitioner does not complain of action by the tb nited

States, buteer action by Respondent Scanlon in his Personal

capacity, Tn short, petitioner alleges that it is not a delin-

quent taxpayer and that Scaplon plunty is acting outside

athe seopetof his autharity in seizing petitioner's property

to Satisty the tax lialsilits of another: that the seizure,

theretore, ‘constitutes oC trespass which, in the absence of

Section 2463. could be speedily redre ssed in ai state court;

and that Sectian 2463. while ousting the state courts Tio

jurisdiction. places the seized property a the custody ot

the law’) so that the Federal court Way sumnin wily remedy”

the wrong inflicted upon the injured petitioner,

The differences hetweem stummary proceedings and

plen: iry suits have heen set terth in Central Republic Bank

“and Trust Ca, v. Caldzvell (BN FE 20 721, 731-32 ¢8th Cir.

1932);

“The arain characteristic differences between a sim

inary proceeding and a plenary suit are: Uhe-fornier

Is based upon petition, and proceeds Witit vt fothial

pleadings; the litter proces “ds apon rorinal ple; dings.

rs the former, the necessary parties are etted in by

‘Th le inter seslins history of Section 2463, first enacted in 1833. to

meet the problems created by South. Carolina's Ordinance of Nulliti-

cation appears nn TX Gale & Seat on, Register of Debates in Congress

"244 et seq (1833 |

8 ee gee eee

“st

order to show cause; in the latter, formal summons

brings in the parties other than the plaintiff. In

the former, short time notice of hearing is fixed by

the court: im the latter, time for pleading and hearing

is fixed by statute’ or by rute of court. In the former,

the hearing is quite generally upon affidavits; in the

latter, examinationsof witnesses is the usual method.

[n the former, the hearing is sometimes eX parte:

>in the latter, a. full hearing is had.

“It is apparent. that the differences are largely

preiaed Father than, substantive.” '

«

Due process. of course, must be satisfied by ‘proper

notice to the parties with opportunity. to answer and be

heard. Petitioner does not contend that Scanlon should not

“be afforded an opportunity: to dispute petitioner's claim on:

the facts and a

That Responde nt Scanlon’s actions in serving the notices

of liens and levies constituted a detention within the mean-

ing of 22U.S.C.8 2463 is not open to serious question. .t

“owas “assumed” by the District Court (R. 15) and Scanlon

did not contend to the contrary.*, In addition to Seattle:

A ssociatioit of Credit Men v. United States, 240 F. 2d 906,

(9th Cir. 1937), cited-in the ‘District Court's opinion, the

~ “Phird and Fdurth, Cireitits appear to be in accord that the’

- service of a notice of levy effects a “detention” within the

meaning of Section 2403. Raffacle v. Granger, 196 F. 24d.

- 620 (3d Cir. 1952 ).. United State vv. Edland, 223 F.2d 118

(4th Cir, 1955). |

—

aw,

*Similarly the allegations ot the spetition concerning Xe ‘wo Hamp-

shire’s claim th: to \ 1s subrogated to the rights of the City have not

heen questioned. ‘tonder New York law, it Js clear that a completing _

surety which pays Jaber: +s.tnd material mento complete a contract

is emitled, as subrogee, to any unpaid contract balance as against

any claims af the goverm nent based_on unpaid taxes of the principal.

Mossachusetts Bond: ng o> insurance Company. NV. V., 259 F. 2d 33

— (2d Cir. 1958); Fidelity « & Deposit Company v. N. Y. City Housing

Authority, 241 F.2d 142 (2d Cir. 1957 ), leina ¢ ‘asualty Colv. &. S.,

tN. Y. 2d 639 ¢1938 %, Fidelity cy Guaranty Company Vv. Triboraugh.

Bridge Authority,.297 NX. Y..31 (1957

6 2 ¢« . . a

* CASES IN THE COURT OF APPEALS ©

, FOR THE THIRD CIRCUIT

The problem: presented to this Court arose. before the

Court of Appeals tor the Vhird Cireuit in Ruffaele

“Granger, 196 FL 2d 620 (1952). In that case a levy was:

made on bank accounts standing in the name of a delinquent

taxpayer dnd his innocent wifé A petition by the spottses

praying thi tt the warrants of distraint be quashed was

granted. The petition was based on the. Pennsylv ania law

Which made the interests of the spouses in the accounts

‘inse] arable so-that the effect of the Collector's action was

te take the property of the wife ‘to satisty the hie ibility of

the husband. ,

The Court of Appeals, atter pointing out that the , nited

“Statesshas ne pow er to take prépe rly from oe person te

satisiy the tax ability of another, rejected the Collector’ ~

sontention that a plenary action was heeded.

T he Court stated at page 623: 0.

“Distrairit is a suminary, extra judicial remedy hav-

Ing its origin in- the Commoen Taw: ‘There, attorm

of self help, it consisted of seizure and holding Of

personal property by individual action without inter-

vention of legal process for the purpese of compelling

payment of debt. Reliel of one aggrieved by the

levy of distraint, at common Lew. was by an action

‘land, History of the English Law, Vol. 1, page. LP

In our time: distraint, together with ‘t power of sale.

has been made available to the Collector of Internal

Revenue as a sanction for securing payment of taxes

} which ie rsons liable have: refttsed or neglected to

pay. But property taken or detained under any

-revenue law, unlike pri yperty seized at comman law,

is not repleviable. By Section 2403 of Title 28 of the. -

United States Code, however, it is ‘deemed to be .in

-the custody of the law’ and issubject to the ‘orders

of replevin against the distrainor. Pollock & Mait-.

eae.

e

and yin oi the court: Of the United Stites having

jurisdiction theecat” *'* * Noreover, a plenary civil

suit is not necessary to enable a court to exercise

jurisdietion ovér property thus me custodia legis, * * *

Quee due process has been satisiied by notige to the

dnterest parties and opportunity Coie? heard, the court

may proceed summarily to adjudicate the righttul-

ness Ofescizure. Ct. nore Behrens supra, Gilliam

. Parker, supra.” Sa

.

e

In addition 1 Raffacle, the Court of Appeals tor the

Third Circuit, in two other cases, has relied on Section 2463 -

as a basis for granting summary reliel to-one whose property

has been seized to pay the taxes of another. Ersa, Lite. )

Dudley, 234 F. 2d 178, 180 (1950) and Rothe ustes V.

UE liman. O04, 2d 590 ( 1940).

CASES-IN THE COURT OF APPEALS.

FOR THE SECOND CIRCUIT

The district court's opinion in the instant case, whic h

was adopted by. the. Court of Appeals. based its decision

that the court was avithout summary jurisdiction On twee.

Second Circuit cases: Jin Ke Behrens, 39K. 2d 308 (2d

Cir, 1930) aiid Goldman ve. cdimerican Dealer's Service,

135 FF. 2d. 398 (2d -Cir. 1943). We submit that both of

these cases contirm and do not deny the summary jurisdic-

tion of the District. Gourt. Jtach case acknowledges the

summary jurisdiction, and deals only with the discretion

éxercised. by the District Court in a pending summary pro:

ceeding,

In United. States v. Given, 40 EK. 2d 593 (2d Cir. 1930).

the Second, Cirenit Court of Appeals detined its holding in

the Behrens case as Hows : ae ; se arin sar

“In Matter of Behrens. supra, we held that; when <f

forfeitable property is seized and held. by. prohi-

_ bition officers. the legality of their seizure was to.

,

er

a ee RS eae eee <aentnapectimemenenan

rm -

*

S

-

.

“~

‘he determined in the forfeiture proceedings, not on

sunMary: motion tor an order directing return of

thie property, ( page 598) . sols at tie .

In Behrens, however, Hie Court of Appeals, considering

‘the applicahility of Section 2463, concluded "* + * that the

‘District Court lies Jurisdiction to direet the officer avhe

detains the setzed property as i its’ disposition” (page -

563). The Court then held that "* * * the owner's proper

and orderly’ “procedure is to determine this question. upon

proceediags, for forfeiture” (page 563). Finally, the Court.

said at page SOF: 7 | |

“Our cs nlusion: is that. upon the. appellant's ; peti:

tion, the court should not have passed upon. the.

legality of the Seizure, but should have directed the

_ prohibition administrator, assuming he was served

with the shew cause order or voluntarily appeared,

seither to institute proceedings promptly’ (and we |

peed suppose ten days would be sufficient: time )

“to abandon the seizure and return the property.”

. : pth. :

. it ts evident: we believe, that in Behrens, the Court of

~ Appeals assumed the EXISTENCE wi the power of the District ;

Cougt to exercise summary jurisdiction over the seized prop-

pa held that in the interest of “proper and orderly

procedure’. the order that should have been.made by the

District Court, pursuant tothe provisions of Seetion 2463,

was to direct the hor reiture proceedings to be istituted in

* ten days or to require the returmot the property. Such an’

~ order invelved ‘the, discretion of the District’ Court, not its

power, for obviorsly.-in order to direet the return of the

said prope riv, even in the alternative (it a forfeiture pro- |

céeding were not stituted), the [istrict Court needéd to.

have the power to. make such an order‘in the summary pro-

ceeding pending before it. ache i

Similarly in Goldian, the District Court in a summary

proceeding directed the return of the seized property

.

+

* * * unless within ten days trom the service of this U*,

order * * * Jorteiture proceedings or other proceedings

toctest the validity of the seizure are commenced, in which

event the Motion is denied”. Cpage 399). The ¢ Court st

fe Appeals atiirmed, saying : &

“Consequently, Ter purposes cor construing the

nin statute, we are required to. aspunic that appellants.

Oe government officials, witheut.a shadow of lawtul

—authorjty, have seized a citizen's property. Officials,

- when they. thus beliave, are stripped of their official

character; what they de ‘is the miere wrong and

. trespass: of © those individual persons who falsely:

“\ speak and act’ in the name of the government: an

official, who has acted in that manner. ‘éeased. to

be an officer Of the law, and became a private wrong- |

\ = doer’: ‘though professing to act as officers. appel-. e

\ lants were. on’ the assumed facts now* betore us,

\. ‘individual trespassers enilty of a wrong. in taking

\ the property’ of appellee ‘iHegally’.” ( page 400) -

‘ ‘. * * * * % : :

\y e therefore interpret 39 ULS. CA. § 498, taken

together with 28 &.8.-C. AL § 747, [S$ 2463] oa

- meaning that the <cized property may he held for

two months atter termination of proceedings begun

by the government; that such proceedings niust he

~ brought not {ater than Six months after the seizure:

but that, under 28 Cis. ©. AL + 747. [S$ 2463] the

court may direct thi it the prope iy be returned un-

less the government brings such proceedings with

reason thle promptness short of the full six ‘months ;

what is reasonable promptness will, of course, de-

pend.on the particular facts: there might be situz-

‘tions in which a delay for six months would be

reasonable: that would be particularly true where

“the citizen admitted (what appellee does not admit )

“that the property had been lawfully taken. Under

the statutes thus interpreted, the order ‘of the trial

judge was proper, Appellants made not the slightest

| showing and in fact did not suggest that any injury

é ;

: md °

We oN

or inconvenience. would -result to the government

from instituting a prosecution six weeks and more

atter the seizure; on the other hand, the retention

of the checks, might impair or even destroy appellees’

business, cand t the possible loss ef the cash discounts

‘appeared not unlikely to cause serious loss. Accord-

ingly, the trial court did not abuse its discretion.

need not here decide: but when the court is required.

as here, to assume legality. in the seizure, .it would

seem that too miuc h of a burden should not be put

; on the. citizen. ( page 401-2)

In summary, we have —_— imable-to find any case cither

in the Seéond ¢ ‘irenit or any other Girenit which has not

recoguized the samm: Tas jurisdiction of the District Court

-—awhere Section 2463 was applicable and the property was in .

the custody, of the law. Our contention is merely that the

District’ Court must recognize ‘its summary jurisdiction

and cannot dismiss for lick of jurisdiction. The manner in

which it exercises its jurisdiction with respect to the merits

of apartionlar case, is. of course, another matter and not

-

involved in the question here presented. .

Finally. it may -be noted that it has been uniformly

held that. court has summary jurisdiction over property

in its custody. GeLart Importing Co. y. United States,

282 U.S. 344. 61931) CTmpri perly seized evidence ) :

Arippendort \. Hyde, WO U.S. 276 C1884) Clmproperly

attached property: Taubel-Scoit-Kitzmiller’ €o.°v. Fox.

24 US. 426 (1924) 6 Pre yperty of a bankrupt ).

CONCLUSION

- Petitioner's petit) 1 asserts that its property: has been..

intproperly: Wetained under the, purported authority of a

reveane law of the United States. Under 28 US. C. § 2463:

sg |

In re. Behrens, 2 Cir. 39 F. 2d 561. How much --

- showing citizens must make in- every ‘such case we:

”

>

‘claim adjudic ee, Se ae ee ss

9?

a

property so. detained 1s placed in the custody of the law

and made subject tothe District ¢ court s orders and decrees.

The District Court has thus heen invested with, the author:

_ity to deal with such inmreperly scized or detained property’

ina summary proccediny. The order appealed from should

be reversed and this mutter remanded to the Distriet Court

~ »

so-that appropriate epee nes may be held and petitioner’ s

4 \

s . . a ” >

Respect _ submitted.

Jack Fa

os Myron ENGEL MAN, |

i: Counsel for ‘Petitioner

10 Teast 40th areet.*.

‘New ae 6N. YY.