Petition for a Writ of Certiorari — United States v. Key

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CITATIONS

Case v. Los Angeles Lumber Co., 308 U.S. 106, re-

hearing denied, 308 U.S. 637. .............--.--.- 8

Cherry Valley Homes, Inc., In re, 255 F. 2d 706, cer-

tiorari denied sub nom. DuBois v. United States,

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Illinois v. Campbell, 329 U.S. 362__-.....-.-..-----.

Marine Properties v. Trust Co., 317 U.S. 78......---.-

Massachusetts v. United States, 333 U.S. 611...______-

Northern Pacific Ry. v. Boyd, 228 U.S. 482__..._______

Price v. United States, 269 U.S. 492___.._.__________-

Protective Committee v. Anderson, 390 U.S. 414_______-

Spokane County v. United States, 279 U.S. 80__.____--

United States v. Anderson, 334 F. 2d 111, certiorari

gS See re 5, 6,7

United States v. Butterworth Corp., 269 U.S. 504. ______ 5

5

5

amanwiawad @®&

United States v. Emory, 314 U.S. 423__...------

United States v. Marzen, 307 U.S. 200. ________._____.

(1)

858-179—69——_1

Statutes:

Bankruptcy Act, c. 541, 30 Stat. 544, as amended: he

Bi ae eee SR Sc ncccaccesecccuatignunel 5

Seg., 77 B (11, U,8.0. 205).. 4 ------2+-a-u2-.. 8

Sec. 199 (11 U.S.C. iP sentesansceqwhas rr

ee nara 17

Sec. 216(7) (11 U.S.C. 616(7))....---.-.--.... 7,9, 17%

en ee Ce SE int ccccnccasccsscncannn _™

Sec. 221(2) (11 U.S.C. 621(2)).......-..--222. , 188

Revised Statutes, Sec. 3466 (31 U.S.C. 191)... 4, 5, + pq

to § j pat

?

4 the Supreme Gout ofthe Waited States

OcropeR TERM, 1969

No. —

Untrep StaTes OF AMERICA, PETITIONER

v.

SHELDON A. KEY, TRUSTEE

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

The Solicitor General, on behalf of the United

States, petitions for a writ of certiorari to review the

judgment of the United States Oourt of Appeals for

the Seventh Circuit in this case.

OPINIONS BELOW

The order of the district court confirming the plan

of reorganization (Appendix C, infra, pp. 10a-15a) is

not officially reported. The opinion of the court of

appeals (Appendix A, infra, pp. la-8a) is reported at

407 F’. 2d 635.

JURISDICTION

The judgment of the court of appeals (Appendix B,

infra, p. 9a) was entered on February 27, 1969. On

May 20, 1969, Mr. Justice Marshall extended the time

for filing a petition for a writ of certiorari to and

(1)

2

including July 27 (a Sunday). The jurisdiction of

this Court is conferred by 28 U.S.C. 1254(1).

4! tt (: © QURSTIONG PRESENTED |, nf

1. Whether the Secretary of the Treasury's rejee-

tion of a debtor’s proposed plan of’ voluntary corpo-

rate reorganization under Chapter X of the Bank.

ruptey Act entitles the United States to have its un-

paid tax claims first satisfied under Section 3466 of

us Revised Statutes.

. If the United States is not entitled to absolute

for of payment, whether it must accept payment

later in time than junior ‘ereditors and without pee.

“vision for interest thiring the period gf délay“° ""*"

The pertinent provisions of Revised Statates, Sec-

tion 3466 and of. Seetions 199, 216 and 221 -of the

a a ae a

pendix D, infra, pp. 16a-18a-

On May 3, 1954, Hancock Trucking, Inc. (the

debtor) filed a voluntary petition for corporate reor-

ganization under Chapter X of the Bankruptey Act,

as amended, m which it alleged that it was unable to

meet its debts as they became due and requested the

appointment of a trustee to operate its business and

manage its property. The United States filed proofs

of claim for unpaid withholding of federal income,

employment and excise taxes in the amount of $377,

648.79. (Appendix A, txfra, p. la.)

An initial reorganization plan was confirmed by the

3

district court in 1957 but, for reasons not relevant

here, Was never consummated.’ Subsequently,. with

district court approval, the debtor agreed with Hennis

Freight Limes, Inc. that Hennis would purchase its

major asset, Interstate Commerce Commission operat-

ing rights for truck freight services. The agreement pro-

vided that Hennis would pay not more than $935,000

for the rights—$300,000. within 90 days of the Commis-

sion’s approval of the sale and the balance in 78

monthly installments. The Commission approved the

sale, with modifications, in March of 1965 (App. A,

infra, p. 2a).

On June 23, 1967, the trustees filed an amended

plan of reorganization, the terms of which reflected

this underlying sale. The $300,000 down payment was

to be exhausted by paying certain wage and local and

state tax claims in full, 20 percent of the claims of

the unsecured creditors, and 10 percent of the United

States’ tax claims and other local and state tax claims.

The remainder of the amount due to the United States

and to local and state tax authorities was to be paid

in 78 monthly installments, secured by an assignment

of the note and chattel mortgage Hennis had executed

on its purchase of the debtor’s operating rights. No

interest was to be paid in connection with the install-

ment payments; the plan did not contemplate the

‘Under this plan, the United States and certain states were

to be paid 25 percent of their tax claims in cash upon confirma-

tion, and the balance in four quarterly installments, with six

percent interest on the unpaid balance. The plan also provided

an acceleration clause in favor of the United States in the

event of default. The United States had indicated that it would

accept this plan.

—_---

4

continued existence of the debtor (App. A, infra,

p. 2a). -

The Secretary of the Treasury filed a timely notigg

that he rejected the amended plan but, following

hearing, the district court nonetheless confirmed it

(App. C, tnfra, p. 15a). Upon the United States’ ap.

peal from the order of confirmation, the court of ap-

peals affirmed (App. A, infra, p. 8a).

REASONS FOR GRANTING THE WRIT

The court of appeals has erroneously decided an

important question in the administration of the bank-

ruptey and federal tax laws, denying to the United

States in Chapter X reorganizations of insolvent

corporations the absolute priority of payment to which

Section 3466 of the Revised Statutes, 31 U.S.C. 191,

entitles it with respect to all debts, whether for taxes

or not. The court’s interpretation of Section 3466

deviates from this Court’s interpretation in equity

receivership proceedings, the forerunners of Chapter

X reorganizations, and conflicts with the interpre

tation given that section by other courts of appeals in

Chapter X proceedings. Moreover, even if Section 3466

were not applicable, the terms of the installment pay-

ments of the debtor’s tax obligations approved below

would deprive the United States of the “full payment”

of taxes to which it is independently entitled by Section

199 of the Bankruptcy Act, 11 U.S.C. 599.

1. Since virtually the beginning of the Republic,

Section 3466 and its predecessors have guaranteed an

unqualified priority of payment for all ‘‘debts due to

the United States’’ by an insolvent debtor. The gov-

5

ernment’s absolute priority under Section 3466 has been

uniformly held to apply to equity receivership proceed-

ings, the forerunner of Chapter X corporate reorganiza-

tions. Price v. United States, 269 U.S. 492, 502-503;

United States v. Butterworth Corp., 269 U.S. 504, 513;

Spokane County v. United States, 279 U.S. 80; United

States v. Emory, 314 U.S. 423, 426-429. And with equal

uniformity it has been held that the term “debts due to

the United States’’, as used in the statute, includes fed-

eral taxes.” Price v. United States, supra, p. 499;

Spokane County v. United States, supra, pp. 92-93;

Illinois v. Campbell, 329 U.S. 362, 366-367 ; Massachu-

setts v. United States, 333 U.S. 611, 625-626.

Other courts of appeals have applied the unequivo-

eal language of Section 3466 to give the United States

first access to insolvents’ assets in Chapter X reorga-

nizations. United States v. Anderson, 334 F. 2d 111

(C.A. 5), certiorari denied, 379 U.S. 879; In re

Cherry Valley Homes, Inc., 255 F. 2d 706 (C.A. 3),

certiorari denied sub nom. DuBois v. United States,

358 U.S. 864. To be sure, these cases involved non-tax

debts owed to the government. But there is nothing

in the simple language of Section 3466 that would

provide any basis for distinguishing between tax debts

and other kinds of debt. The court below argued that

Section 3466 cannot be applied to tax obligations un-

der Chapter X in view of the provisions of Section

*With respect to liquidating bankruptcies, the Act prescribes

in Section 64, 11 U.S.C. 104, a complete system of priorities that

supersedes Section 3466. See United States v. Marxen, 307 U.S.

200. But, as we shall show, there is no comparable superseding

provision in Chapter X.

6

199 of the Bankruptcy Act, which authorizes the

Seeretary of the Treasury to aecept or reject @ Chap.

ter X plan of reorganization in respect to the claims

of the United States, and provides that a reorganizg.

fion court may not confirm a plan which does not pro.

vide for the payment of the tax and customs claims

of the United States unless the Secretary agrees to

accept a lesser amount. The court reasoned that if

Section 3466 were applicable there would be “little

need’’ for Section 199 and that Section 199 must be read

as displacing “the more general and conflicting direetion

of § 3466” (App. A, p. 7a). But there is no ineonsisteney

or anomaly in applying both sections in a Chapter X re

organization. Seetion 199 applies to both solvent and in-

solvent corporations, and provides simply that the

United States eannot be compelled to accept less than

full payment of its taxes unless the Secretary of the

Treasury consents. If, as here, the Secretary insists

upon payment, the question of priority for that pay-

ment then arises, Section 199 does not purport to answer

the priority question ; in the case of an insolvent corpo-

ration like the debtor here, the general provision of Sec-

tion 3466 does answer it, stating that the United States

is entitled to payment first if it insists upon it. Thus, far

from being inconsistent, the two statutes dovetail per-

feetly in the situation presented by this case.

There is thus no basis for distinguishing away the

conflict between the decision below and the decisions

of the Fifth and Third Circuits in Anderson and

_ Cherry Valley Homes, supra. Indeed, examination of

the Anderson opinion reveals that the Fifth Circuit

1e

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8

2

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7

feasoned from the assumption that the government

would have Chapter X priority in tax debt cases to

its conclusion on the only disputed point, whether it

also had priority as to non-tax debts. The govern-

ment’s claims in the Chapter X proceedings in Ander-

son included tax as well as non-tax debts; the district

court accorded the tax debts priority and denied

it only as to the non-tax debts. 334 F. 2d at 113,

n, 2. Then it was argued in the court of appeals

that this differentiation was proper, because Section

199 specifically provided for tax debt priority in

Chapter X proceedings, but there was no similar

statement regarding other government debts. The

Fifth Cireuit refused to draw that inference in

light of the long history of undifferentiated govern-

ment priority under Section 3466 of the Revised Stat-

utes and the distinct functions of Section 199 in cases

not involving insolvency. Id. at 116-117.

The court of appeals considered that giving the

United States an absolute priority under Section

3466 would conflict with Sections 216(7)(d) and

221(2) of the Bankruptcy Act, which require that

a plan of reorganization under Chapter X must, in

substance, be fair, equitable, and feasible. In its

construction of the fair and equitable rule, however,

the court in effect eliminated the well established

distinetions between senior and junior creditors, hold-

ing the government entitled to nothing more than

reasonable protection. This construction of the rule

is contrary to the decisions of this Court first enun-

ciated in equity receiverships (Northern Pacific Ry.

v. Boyd, 228 U.S. 482) and subsequently under

358-179—69——-2

8

Section 77B of the Bankruptcy Act, 11 U.S.C, 29

(Case v. Los Angeles Lumber Co., 308 U.S. 106, re.

hearing denied, 308 U.S. 637; Consolidated Rock Co.y,

DuBois, 312 U.S. 510) and under Chapter X (Marine

Properties, Ine. v. Trust Co., 317 U.S. 78; Proteetive

Committee, etc. v. Anderson, 390 U.S. 414, 441). As these

eases held, the fair and equitable rule is applicable

initially to the senior claims, and each class of claims

must be satisfied in full for the rights surrendered,

in deseending order, before the next junior clags

may properly be paid in the distribution. If junior

creditors receive something of value at the expense

of the senior creditors, the requirements of the fair

and equitable rule are not met and thus the plan

‘‘comes within judicial denunciation.’’ Consolidated

Rock Co. v. DuBois, supra, p. 529. That in effect was

the result of the plan approved below. Far from being

required by the fair and equitable rule, the court of

appeals’ decision was actually inconsistent with that

rule.

2. The plan of reorganization confirmed by the dis-

trict court and approved by the court of appeals pro-

vides that the government’s tax claims are to be satis-

fied by payment of 10% of the amount of the claims in

cash within six months from confirmation and by the

payment of the balance, without interest, in 78 equal

monthly installments. The government is thus re-

quired to wait for more than 614 years for payment

and until after payment of lower ranking creditors, in

contrast to general unsecured creditors who are paid the

— Soy — — — —

9

entire amount of their recovery within six months of

confirmation. In view of the significantly discounted

present value of the installment payments to be made to

the government, it can scarcely be said that the govern-

ment is being paid in full, as is required by Section 199

of the Bankruptcy Act even if Section 3466 does not

apply. Thus, at the very least, interest would be required

to compensate the United States for the delay imposed

upon its receipt of the amount dut it.’ Moreover, the

delay of 644 years in payment of the Government’s tax

claims imposes upon it the risks of non-consummation of

the plan ; the government will not in fact receive its pay-

ments unless the purchaser remains solvent during the

78 months. In light of these factors, it is plain that even

apart from the obsolute priority conferred by Section

3466 the plan approved below does not provide for the

“payment” of the tax obligations guaranteed by Sec-

tion 199. Finally, independent even of Section 199, the

requirement that the United States accept discounted

value so that junior creditors may be paid is something

of value the junior creditors receive at the senior cred-

itors’ expense and thus “comes within judicial denunci-

ation,’’ Consolidated Rock Co. v. DuBois, supra, p. 529,

and the rule of Section 216(7) (d) and 221(2).

*The court of appeals’ observation (App. A, p. 7a) that the

United States is not entitled to post-petition interest is irrele-

vant here. The government’s contention was and is not that it

should receive interest on the amount of the tax obligation, but

rather that interest is required to give it eventual payment of

the full principal amount of the obligation by compensating for

the discount inherent in the installment plan.

10

CONCLUSION

The petition for a writ of certiorari ‘should be

granted. — roperll

eats cee

Erwin N. GRISWOLD, 7

. Soliciter General.

JoHNNIE M. WALTERS, ¢

Assistant Attorney General.

CroMBIE J. D. GARRETT,

Kart SCHMEIDLER,

Attorneys.

JuLy 1969.

|

=x ee ee

APPENDIX A

In the United States Court of Appeals for the

Seventh Circuit

September Term, 1968 September Session, 1969

No. 16857

In the Matter of

Hancock TRUCKING, INcCoRPORATED, Debtor,

UNITED STaTEs OF AMERICA, APPELLANT

v.

SHELDON A. Key, TRUSTEE, APPELLEE

Appeal from the Order of the United States District

Court for the Southern District of Indiana

February 27, 1969

Before FatRCHILD and KERNER, Circuit Judges, and

Gorpon, District Judge.’

Gorpon, District Judge. This appeal by the United

States involves an unpaid federal tax claim in the

stipulated amount of $375,386.55 and is taken from the

order of the district court confirming an amended

plan of reorganization under Chapter X of the Bank-

ruptey Act.

On May 3, 1954, the debtor filed a voluntary petition

for reorganization in the district court in which it

alleged its inability to meet its debts as they became

?The writer of this opinion is sitting by designation from the

United States District Court for the Eastern District of

Wisconsin.

(la)

2a

due, and in which it requested the appointment of a

trustee to operate its business and manage its prop.

erty. The United States filed proofs of claim for fed-

eral withholding, excise and employment taxes.

The trustee filed an amended plan of reorganization

on June 23, 1967. The plan provided that the tax

claims were to be satisfied by payment of 10% of the

amount of the claims in cash within six months from

confirmation, and by payment of the balance, without

interest, in 78 equal monthly installments. The install-

ment payments were to be secured by an assignment

of the note and chattel mortgage on the debtor's

operating rights, which documents were signed by

Hennis Freight Lines, Inc., the purchaser of said

operating rights. The amount of the note is substan-

tially in excess of the amount owed in connection with

the federal tax claims. The unsecured creditors were

to be paid 20% of their claims in cash within six

months of confirmation; certain wage claimants and

also certain state and local taxes were to be paid in

full. This amended plan did not contemplate the

continued existence of the debtor.

Previously, the district court had approved the

agreement between the debtor and Hennis Freight

Lines, Inc., whereby Hennis agreed to purchase all

of the debtor’s operating rights for an amount not

to exceed $935,000, payable $300,000 within 90 days

of approval of the sale by the Interstate Commerce

Commission, and the balance payable in 78 equal

monthly installments. The I.C.C. hearing examiner

recommended that the transaction be approved, sub-

ject, however, to certain modifications in the operat-

ing rights. The I.C.C. issued its order on March 1I,

1965 approving the hearing examiner’s findings.

The United States filed a timely notice of rejection

of the amended plan on November 20, 1967. Following

3a

a hearing, the district court issued an order confirm-

ing the plan; it found that the debtor was insolvent;

the plan was fair, equitable and feasible; and that the

plan afforded adequate protection to the United States

and to the state and local tax creditors by the assign-

ment of the note and chattel mortgage executed by

Hennis. The United States now appeals from the

order of confirmation.

The issue presented on this appeal may be stated as

follows: In a corporate reorganization under Chapter

X, is a plan which provides for payment of the gov-

ernment’s tax claims by installment payments with-

out interest “fair and equitable”, or is the govern-

ment, in addition to such payments, entitled to receive

its funds prior to the time payment is made to lesser

ranking creditors ?

Section 199 of the Bankruptcy Act (11 U.S.C.

4599) provides that

“Tf the United States is a secured or unsecured

creditor or stockholder of a debtor, the claims

or stock thereof shall be deemed to be affected

by a plan under this chapter, and the Secretary

of the Treasury is hereby authorized to accept

or reject a plan in respect of the claims or

stock of the United States. If, in any proceed-

ing under this chapter, the United States is a

secured or unsecured creditor on claims for

taxes or customs duties (whether or not the

United States has any interest in, or claim

against the debtor, as secured or unsecured

creditor or stockholder), no plan which does

not provide for the payment thereof shall be

confirmed by the judge except upon the ac-

ceptance of a lesser amount by the Secretary

of the Treasury certified to the court... .’’

{Emphasis added. ]

4a

Section 216(7) (11 U.S.C. § 616), provides in part as

follows:

“A plan of reorganizativn under this ehapter

es

**(7) shall provide for any class of creditors

which is affected by and does not accept the

plan by the two-thirds majority in amount re-

a under this chapter, adequate protection

r the realization by them of the value of their

claims against the property dealt with by the

plan and affected by such claims, either as pro-

vided in the plan or in the order co i

the plan . . . (d)} by such method as will, under

and consistent with the circumstances of the

particular case, equitably and fasrl ovide

such protection. .. .” [Emphasis add J

In addition, it is stated in § 221 (11 U.S.C. § 621) that

the judge shall confirm a plan “if satisfied’’ that the

provisions of § 199 have been complied with and the

plan is ‘‘fair and equitable, and feasible’’.

The government contends that these sections, when

read together, support the position that a plan which

requires the government to wait 64% years without

interest for full payment and which permits, in the

interim, payment to lesser ranking creditors, is not

fair and equitable. The trustee maintains that the

plan involved here adequately assures payment in

full of the government’s tax claim in a fair and equi-

table manner and urges that this is all that the appli-

cable statutes require.

Section 199 does not prescribe a particular method

of payment. It merely states that the district court

shall not confirm a plan ‘‘which does not provide for

the payment”’ of the government’s tax claim, unless

the government accepts a lesser amount. Nor do

§§ 216(7)(d) or 221 adopt a specific method of pay-

ment; rather, they are couched in terms of ‘‘equity”

and ‘‘fairness’’. As stated in 6A Collier, Bankruptcy,

10.

§.216

Sa

(10.17, pp. 490-491 (14th Ed. 1965), in speaking of

§216(7) (4)

“Tt has been said that these methods, properly

speaking, are not ‘methods’ at all, but merely

empower the judge, who must approve and

confirm the plan, to aeprere any means of

treatment which under the particular circum-

stances ‘equitably and fairly’ affords adequate

protection to the dissenters.’’

Unlike the foregoing statutes, other chapters of the

Bankruptcy Act do expressly provide that the govern-

ment shall be paid in cash. For example, see § 64(a)

(4) [11 U.S.C. § 104(a)].

The government stresses the importance of R. S.

§3466 (31 U.S.C. § 191) and contends that it entitles

the United States to immediate payment. Section 3466

provides that

‘*Whenever any person indebted to the United

States is insolvent, or whenever the estate of

any deceased debtor, in the hands of the execu-

tors 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 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, concealed,

or absent debtor are attached by process of law,

as to cases in which an act of kruptey is

committed.’’ [Emphasis added. ]

The government urges that § 3466 applies in Chap-

ter X matters, which are not conventional bankruptcy

proceedings. United States v. Anderson, 334 F. 2d 111

(5th Cir. 1964) ; Lowden v. N. W. National Bank, 298

U.S. 160, 163 (1936). There are a number of cases in

which the government’s priority under § 3466 has been

recognized in equity receivership proceedings, but

6a

such cases did not involve Chapter X. Price v. United

States, 269 U.S. 492, 499 (1926); United States vy,

Butterworth-Judson Corp., 269 U.S. 504, 513 (1926);

Spokane County v. United States, 279 U.S. 80 (1929),

New York v. Maclay, 288 U.S. 290 (1933).

A case in which the court did apply § 3466 to a

Chapter X matter is Untted States v. Anderson, 334

F. 2d 111 (5th Cir. 1964). By a divided court, the

court of appeals for the fifth circuit decided that the

government’s non-tax debts were to have priority,

However, the court did not specify whether such non-

tax claims were entitled to ‘‘payment in full’’ or to

‘first satisfaction’’.

It seems to us that if § 3466 is applied to a Chapter

X plan, the ‘‘fair and equitable’’ provisions of $§ 216

(7)(d) and 221 are effectively contradicted. Section

199 bars the court from confirming a plan ‘‘which does

not provide for the payment” of tax claims—unless

the Secretary of the Treasury assents. Section 216(7)

states that a plan under Chapter X shall ‘‘equitably

and fairly provide’ adequate protection for ‘any

class of creditors which is affected by and does not

accept the plan’’. Section 221 provides that the judge

shall confirm the plan if the requirements of § 199

have been complied with and the plan is “‘fair and

equitable, and feasible’’. In our opinion, these three

latter sections govern tax claims of the United States

in Chapter X proceedings.

The specific provisions of §§ 199, 216(7)(d) and

221 of Chapter X cannot be fairly construed to re-

quire, as a matter of law, that a plan insure the gov-

ernment total satisfaction of its tax claims before

other creditors receive anything, as a condition

precedent to the plans being ‘‘fair and equitable”.

Within Chapter X, §§ 199, 216 and 221 are inter-

related statutes and part of a studied statutory plan.

sn ey

7a

gection 199 outlines the nature of the government’s

tax claim ‘“‘priority’’, and the two other sections

establish an equitable standard to govern the method

of payment. If, as the government would have us

hold, § 3466 creates an absolute right to first payment

in addition to full payment, there would be little need

for §§ 199, 216(7) and 221. These sections apply

specifically to Chapter X proceedings and should

control over the more general and conflicting direc-

tion of § 3466. Baltimore Nat. Bank vy. State Tax

Commission of Maryland, 297 U.S. 209, 215 (1936)

and eases cited therein.

In the case at bar, the approved plan contemplates

that the United States will be paid in full, and the

record supports the trial court’s conclusion that the

plan affords reasonable protection to the government.

The district court had the benefit of its own fact-

finding, as well as that of the L.C.C., with respect to

the value of the operating rights and the ability of

the buyer to make payments under the plan. These

factual determinations have not been specifically

challenged here.

We hold that the trial court did not err in per-

mitting lesser ranking creditors to receive payment

simultaneously. Under the plan, the government does

not surrender its right to full payment.

The government maintains that it is receiving only

a “discounted value’’ of its claim because it does

not receive interest, and it must wait 78 months for

full catisfaction. The absence of interest is not a con-

trolling factor here, for the law is well settled that

the government is not entitled to post-petition interest

on its tax claims in these proceedings. United States

v. Edens, 189 F. 2d 876 (4th Cir. 1951), aff’d per

curiam, 342 U.S. 865 (1952); City of New York v.

Saper, 336 U.S. 328 (1949); In re Kerber Packing

Co., 276 F. 2d 245 (7th Cir. 1960).

8a.

The record sufficiently supports the district judge’s

exercise of the diseretion vested in him under Chapter

X. The order of the district court confirming the

amended plan is affirmed.

A true Copy:

Teste:

Clerk of the Untted States Court of

Appeals for the Seventh Circuit,

APPENDIX B

United States Court of Appeals for the Seventh Circuit

Chicago, Illinois 60604

Thursday, February 27, 1969

Before

Hon. THomas E. Farrcuiup, Circuit Judge

Hon. Orro KERNER, Circuit Judge

Hon. Myron L. Gorpon, District Judge

In the Matter of

Hancock TRUCKING, INCORPORATED, Debtor

Untrep Srates oF AMERICA, APPELLANT

v.

SHELDON A. KeEy, TRUSTEE, APPELLEE

Appeal from the United States District Court for the

Southern District of Indiana

Indianapolis Diviss

This cause came on to be heard on the transcript of

the record from the United States District Court for the

Southern District of Indiana, Indianapolis Division, and

was argued by counsel.

On consideration whereof, it is ordered and adjudged

by this court that the order of the said District Court

confirming the amended plan, in this cause appealed from

be, and the same is hereby, affirmed, in accordance with

the opinion of this Court filed this day.

(9a)

APPENDIX C

[Caption omitted]

OrpER CONFIRMING PLAN

At Indianapolis, in said District, on the 19th day of

December, 1967.

This cause having come on to be heard on the &th

day of December, 1967, pursuant to the orders of this

court of November 22, 1967, and September 21,

1967, for the consideration of the confirmation of the

amended plan of reorganization of Hancock-Trucking,

Incorporated, the above-named debtor, approved by

this court on September 21, 1967, under Section 174

of the Bankruptcy Act, and of such objections as

might be made to the confirmation thereof, and due

deliberation having been had thereon, the

CoURT DOES FIND:

1. That notice of the said hearing has been duly

given as required by Section 179 of the said Act, and

the said order of this court of September 21, 1967.

2. That for the purposes of the said plan and its

acceptance, this court on July 3, 1967, entered an

order fixing the division of creditors and stockholders

of the said debtor into eleven (11) classes, according

to the nature of their respective claims and stock;

namely

(1) Holders of claims for wages earned within

the three months prior to the filing of the petition

commencing these proceedings i.e. March 5, 1962,

not in excess of six hundred dollars ($600.00) per

person.

(2) The United States with respect to all

(10a)

Pg es ae

lla

claims against the debtor inclusive of but not

limited to taxes.

(3) The State of Indiana, Gross Income Tax

Division, for taxes arising under the Gross In-

come Tax Law.

(4) The State of Indiana, County of Vander-

burgh, for personal property taxes.

(5) The State of Ohio, Department of Tax-

ation, for Highway Use Taxes.

(6) The State of Indiana, State of Illinois,

State of Ohio, State of Pennsylvania and any

other state or political subdivision thereof with

respect to claims for all taxes inclusive of real

estate taxes, other than those taxes set forth in

paragraphs 3, 4, and 5 herein.

(7) Holders of claims for damages arising out

of personal injuries.

(8) Holders of claims arising out of cargo loss

and damage, freight and overcharge, exclusive of

claims previously allowed in the plan of reorga-

nization confirmed on January 31, 1957.

(9) Holders of general claims, including goods

sold and delivered, services rendered, independent

contractor freight and steel haulers, interline ac-

counts, trailer interchange, wage claims other

than those included in class (1) herein, inclusive

of claims not fully discharged under the reorga-

nization plan confirmed January 31, 1957, and not

otherwise classified.

(10) Holders of shares of preferred stock now

outstanding.

(11) Holders of shares of common stock now

outstanding.

3. That the plan provides that all costs and ex-

penses of administration and other allowances which

may be made by the Judge in this proceeding shall

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be paid in cash by Sheldon A. Key,' Trustee of said

debtor, out of the assets in his hands. ;

4, That the plan provides that all claims included in

classes (1) and (6) are to be paid in cash in’ full,

5. That class (2) consists of one creditor, the

United States of America, whose claim has been filed

and allowed in the sum of Three Hundred Seventy.

Seven Thousand Six Hundred Forty-Hight Dollars

and Seventy-Nine Cents ($377,648.79) ; the said plan

of reorganization has been rejected by said claimant

by the filing of a written notice of the General Counsel

for the Department of Treasury of the United States,

6. That class (3) consists of one creditor, the State

of Indiana, Gross Income Tax Division, which has

filed two claims for taxes in the aggregate amount of

Thirty-One Thousand Two Hundred Eighteen Dollars

and Ninety-One Cents ($31,218.91) ; and that the plan

of reorganization has not been accepted by said

creditor.

7. That class (4) consists solely of one creditor, the

Treasurer of Vanderburgh County, State of Indiana,

for taxes in the sum of Seventy-Six Thousand Six

Hundred Fifty Dollars and Fifty-Five Cents ($76,-

650.55) ; and that the plan of reorganization has not

been accepted by said claimant.

8. That class (5) consists solely of the State of

Ohio, Department of Taxation for Highway Use

Taxes, with a claim against the debtor for taxes in the

sum of One Hundred Eighty-Five Thousand Dollars

($185,000.00), allowed herein; and that the plan has

not been accepted by said claimant.

9. That pursuant to the order approving the

amended plan or reorganization, creditors in classes

(7), (8) and (9) have been determined to be holders

of general unsecured claims and consolidated into one

class for the purpose of determining whether said

13a

dass of creditors has accepted the plan; that on Jan-

uary 14, 1966, the court entered an order allowing

the claims of National Leasing Company, Inc. in the

amount of Seven Hundred Seventy-Eight Thousand

Three Hundred Forty-Five Dollars and Sixty-Four

Cents ($778,345.64) and the claim of Wilmark Insur-

ance Agency, Inc. in the amount of One Hundred Six

Thousand Eight Hundred Ninety-Nine Dollars and

Righty-One Cents ($106,899.81), but subordinating

said claims to all other ereditors in the proceeding;

that the aggregate of filed and allowed claims of

classes (7), (8) and (9), exclusive of the subordinated

claims of Wilmark Insurance Agency, Inc. and Na-

tional Ledsing Company, Inc., is Eight Hundred

Kighty-Three Thousand Three Hundred Fifty-Six

Dollars and Seventy-One Cents ($883,356.71); and

that the plan has been duly accepted in writing, filed

in court, by or on behalf of creditors of the said

debtor owing and holding Seven Hundred Five Thou-

sand Nine Hundred Seventy-Five Dollars and Sev-

enty-Three Cents ($705,975.73) of claims of classes

(7), (8) and (9), whose claims have been filed and

allowed, and which claims are at least two-thirds (34)

in amount of the said filed and allowed claims of

classes (7), (8) and (9), exclusive of aforesaid sub-

ordinated claims.

10. That on June 26, 1962, an order was entered

herein fixing September 30, 1962, as the time within

which the proofs of claim of creditors and of the in-

terests of stockholders might be filed and providing

that such claims and interests shall be deemed to be

allowed unless objections are filed ; and the

QCoURT IS SATISFIED:

11, That the provisions of Article VII, Section 199,

and Article X of Chapter X of the said Act have been

complied with.

l4a

12. That the said plan is fair and equitable, and

feasible.

13. That adequate protection for the realization by

the creditors in classes (2), (3), (4), and (5) is pro

vided by the plan by securing the payment of their

claims by an assignment of note and chattel mo

on the operating rights to be transferred to Hennis

Freight Lines, Inc., and that such method safeguards

the interests of such creditors and equitably and

fairly provides the protection for the payment of the

claims of said creditors.

14, That the proposal of the said plan and its ae.

ceptance are in good faith and have not been made

or procured by means of promise forbidden by the

said Act; that all payments made or to be made by

the said debtor or any other person for services and

for costs and expenses in, or in connection with, this

proceeding or in connection with the said plan and

incident to the reorganization, have been or will be

fixed by the Judge.

15. There are no persons who are to be directors or

officers or voting trustees upon the consummation of

the plan; and it is

,

ORDERED, ADJUDGED AND DECREED:

16. That the holders of claims included in classes

(1) and (6) are not affected by the said plan, and that

it is not requisite to the confirmation of such plan

that it be accepted by the holders of such claims.

17. That the debtor is insolvent.

18. That the claims of National Leasing Company,

Ine. and Wilmark Insurance Agency, Inc., as credi-

tors in class (9), being subordinated to all other

creditors, are of no value and that the acceptance

of the said plan by the holders of said claims is nota

prerequisite to the confirmation of such plan.

15a

19. That the interests in class (10) and (11) are of

no value and that the acceptance of the said plan by

the holders of the interests in class (10) and (11) is

not a prerequisite to the confirmation of such plan.

20. That the amended plan for the reorganization

of the said debtor approved by this court on Septem-

ber 21, 1967, under Section 174 of the said Act, and

as modified herein, a copy of which plan is annexed

hereto and marked Exhibit “A”, be, and it hereby is,

confirmed.

21. That on or before the 20th day of March, 1968,

Sheldon A. Key, Trustee of said debtor, be, and he

hereby is, authorized and directed to consummate the

sale of the operating rights of the debtor to Hennis

Freight Lines, Inc. in accordance with the terms of

the sale heretofore approved by this court pursuant

to orders entered on October 10, 1962, and Septem-

ber 21, 1967.

22. That objections to the allowance of all claims

in classes (1) through (9) not heretofore adjudicated,

may be filed by all interested parties on or before the

2th day of March, 1968, and the court reserves the

right and jurisdiction to adjudicate said claims.

23. That this court reserves the full right and juris-

diction to pass upon the allowance of compensation

for services rendered in accordance with Article XTIT

of the Bankruptcy Act.

24. That this court reserves the full right and juris-

diction to make at any time and from time to time

such orders in aid of the consummation of the said

plan as the court shall deem proper.

(S) Ww. E. StTeckter,

United States District Judge.

[Distribution omitted]

APPENDIX D .

Revised Statutes:

Seo. 3466. Whenever any person indebted to

the United States is insolvent, or whenever the

estate of any deceased debtor, in the hands of

the executors or administrators, is insufficient

to pay all the debts due from the deceased, the

debts due to the United States shall be fint

satisfied; and the priority established shall

extend as well to eases in which a debtor,

not having sufficient property to pay all his

debts, makes a volun assignment thereof, or

in which the estate effects of an abscond-

ing, concealed, or absent debtor are attached by

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

bankruptcy is committed.

(31 U.S.C. 191.)

Bankruptcy Act, c. 541, 30 Stat. 544 [as amended by

Sec. 1, Act of June 22, 1938, ¢. 575, 52 Stat. 840, 893]:

Sec. 199. If the United States is a secured or

unsecured creditor or stockholder of a debtor,

the claims or stock thereof shall be deemed to

be affected by a plan under this chapter, and

the Secretary of Treasury is hereby author-

ized to accept or reject a plan in respect of the

claims or stock of the United States. If, in any

roceeding under this chapter, the United

tates is a secured or unsecured creditor on

claims for taxes or customs duties (whether or

not the United States has any other interest in,

or claim against the debtor, as secured or un-

secured creditor or stockholder), no plan which

does not provide for the payment thereof shall

be Sunnenes Oy Se Dene rae the ac-

ceptance of a lesser amount by e Secretary of

the Treasury certified to the court: Provided,

(16a)

i7a

That if the Seeretary of the omy: shall fail

to or reject a = for more. ninety

days ipt of written notice so to do

from the court to which the plan has been pro-

posed, accompanied by a certified copy o

the plan, his consent shall be conclusively

presumed.

(12 U.S.C. 599.) =

Sec. 216. A plan of reorganization under this

’ (1) shall include in respect, te creditors

. generally or some class of them, secured or

unsecured, and may include in, to stock-

holders generally or sortie class of them, =

visions altering or modifyi their rights,

either through the issuance of new securities

of any character or otherwise;

(2) may deal with all or any part of the

pro of the debtor ;

(3) "shall provide for the payment of all costs

and expenses of administration and other al-

lowances which may be approved or made by

the judge;

* e a * _

(7) shall provide for any class of creditors

which is affected by and does not accept the plan

by the two-thirds majority in amount required

under this chapter, adequate protection for the

realization by them of ‘the value of their claims

— the property dealt with by the plan and

ected by such claims, either as provided in

the plan or in the order confirming the plan,

(a) by the transfer or sale, or by the retention

by the debtor, of such property subject to such

claims; or (b) by a sale of such property free

of such claims, at not less than a fair upset

price, and the transfer of such claims to the

proceeds of such sale; or (¢) by appraisal and

payment in cash of the value of such claims; or

(d) by such method as will, under and consist-

ent with the circumstances of the particular

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ease, equitably and fairly provide syd

protection ;

e 2 * _

(11 U.S.C. 616.)

Sec. 221. The judge shall confirm a plan if

satisfied that—

(1) the provisions of article VII, section

199, and article X of this chapter have bee

complied with ; ‘

(2) the plan is fair and equitable, and

feasible;

« e * Sd ®

(11 U.S.C. 621.)

U.S. GOVERNMENT PRINTING OFFICE: t969