Source: https://supreme.justia.com/cases/federal/us/313/132/
Timestamp: 2019-04-22 04:14:13+00:00

Document:
1. Assumed, without deciding, that § 64(a) of the Bankruptcy Act is applicable in railroad reorganization proceedings under § 77. p. 138.
2. Section 64(a)(4) of the Bankruptcy Act giving priority to "taxes legally due and owing by the bankrupt to . . . any State," and providing "[t]hat, in case any question arises as to the amount or legality of any taxes, such question shall be heard and determined by the [bankruptcy] court," does not empower that court to revise the valuation of a railroad which has been finally fixed, pursuant to the state law, as the basis for a state tax. P. 313 U. S. 142.
So held where the valuation was by a state commission having broad authority in the regulation of railroads and other public utilities and over valuations for tax purposes, in quasi-judicial proceedings in which the reorganization trustee had been fully heard and from the result of which he took no appeal to the state courts, as permitted by state law. New Jersey v. Anderson, 203 U. S. 483, distinguished.
Certiorari, 312 U.S. 673, to review the affirmance of an order in a railroad reorganization proceeding which overruled a motion by the present petitioners for the dismissal of a petition filed by Thompson, Trustee. His petition alleged that certain state taxes laid on the railroad were excessive and unlawful, and sought to have their validity determined by the bankruptcy court.
for state tax purposes the property value of a railroad (Missouri Pacific) in reorganization under § 77 of the Bankruptcy Act, the state (Arkansas) having already determined such value through its own taxing officials and in accordance with the procedure prescribed by valid state legislation.
"The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates . . . shall be . . ."
"(4) taxes legally due and owing by the bankrupt to the United States or any State . . . : Provided, . . . That, in case any question arises as to the amount or legality of any taxes, such question shall be heard and determined by the [bankruptcy] court. . . ."
to the bankruptcy court power to determine the "amount or legality" of taxes does not mean that the court is given power to redetermine and revise the property value finally fixed by a state under the circumstances revealed by the trustee's petition, even though that value is the basis used in computing the amount of taxes "legally due and owing."
An explanation of the power, functions, and action of the Arkansas Corporation Commission is essential to a clear understanding of this case. That Commission is a state agency created pursuant to state constitutional requirements. [Footnote 2] It is vested with broad authority in the regulation of railroads, canals, turnpikes, public utilities, motor vehicles, sleeping cars, telephone and telegraph companies, and companies transmitting and distributing gas, oil, and electricity. [Footnote 3] Also, in the administration of the state tax laws, the Corporation Commission has general and complete supervision and control over the valuation, assessment, and equalization of all property. Before entering upon his duties in the assessment of property, each member of the Commission must subscribe to an oath that he will well and truly value and assess all property required to be assessed. [Footnote 4] The Commission has full power to summon witnesses and hear evidence, but further, before assessments are finally determined, all persons interested have the right, on written application, to appear and be heard.
"Within thirty days after the entry on the record of the said Arkansas Corporation Commission of any order made by it, any party aggrieved may file a written motion with any member of such commission or with the secretary thereof praying for appeal from such order to the circuit court of Pulaski County, and thereupon said appeal shall be automatically deemed as granted as a matter of right without any further order. [Footnote 5]"
Any party aggrieved by the Circuit Court's decision may then obtain as a matter of right an appeal to the Supreme Court of the state. [Footnote 6] It is provided by statute that preferential standing on the docket be given to appeals from the Commission to the Circuit Court, and from the Circuit Court to the Supreme Court.
the language of section 64(a), "legally due and owing" to the state in the "amount" fixed by the Commission, and were not subject to further judicial review, unless the special circumstance that a taxpayer is in bankruptcy or reorganization places it in a separate tax classification different from that of all other Arkansas taxpayers.
"predominant weight . . . to original cost and to cost of reproduction, and wholly inadequate consideration . . . to the market value of the railroad's stocks and bonds and to an enormous reduction in earnings occasioned by general business consideration and to rapid increase of competition from buses, trucks, water, and air."
provides that all property shall be taxed according to its value, and that no one species of property from which a tax may be collected shall be taxed higher than another species of property of equal value, and that all values shall be ascertained so as to make the same equal and uniform throughout the state. (3) The alleged excessive valuation fixed by the Commission was in violation of the Fourteenth Amendment of the Constitution of the United States.
"It may well be doubted whether the board had power to tax any other stock [except that outstanding]. But be that as it may, § 64(a) specifically provides that, in case any question arises as to the amount or legality of taxes, the same shall be heard and determined by the court with a view to ascertaining the amount really due. We do not think it was the intention of Congress to conclude the bankruptcy courts by the findings of boards of this character, and that the claim should have been upon the basis of the capital stock actually outstanding."
The Arkansas Corporation Commission, however, does not act ministerially. On the contrary, it is a quasi-judicial agency entrusted with wide responsibilities in connection with the general tax system of the state. Upon it the state relies for the hearing and determination of matters essential to the maintenance and fair functioning of a uniform tax system. For reasons deemed suitable to it, the state has elected to confide this duty to the same agency which has power to exercise statewide regulatory supervision over public utilities, including railroads. The difficulties in fixing railroad valuations are well known, and have been many times adverted to by this Court. [Footnote 10] The Corporation Commission has been chosen by Arkansas as the ultimate guardian of the rights of the state and its taxpayers, subject only to that judicial review provided for by the state.
"The state has confided those rights to its protection and has trusted to its honor and capacity as it confides the protection of other social relations to the courts of law."
Chicago, B. & Q. Ry. v. Babcock, 204 U. S. 585, 204 U. S. 598.
to impose upon the bankruptcy court the unusual power and delicate duty of trying out afresh the facts found by the state with relation to the value of property. And there is no more reason to assume that Congress intended that the bankruptcy court should fail to give respect to an unappealed determination of value made by the Arkansas Corporation Commission. Bankruptcy and reorganization proceedings today cover a wide area in the business field. But there is nothing in the history of bankruptcy or reorganization legislation to support the theory that Congress intended to set the federal courts up as super assessment tribunals over state taxing agencies. The express legislative purpose of Arkansas to move towards a more nearly uniform and fairly distributed tax burden through relying on supervision by a single agency could be in large part frustrated by the construction of the Bankruptcy Act for which the trustee here contends. Section 64(a), thus construed, would tend to obstruct, and not to facilitate, the enforcement of state tax laws. [Footnote 11] Nothing in the language of the Act requires such a construction. And the policy of revising and redetermining state tax valuations contended for by the trustee would be a complete reversal of our historic national policy of federal noninterference with the taxing power of states.
For the reasons given, it is our opinion that the District Court should have dismissed the trustee's petition.
"In proceedings under this section and consistent with the provisions thereof, the jurisdiction and powers of the court, . . . and the rights and liabilities of creditors, . . . shall be the same as if a voluntary petition for adjudication had been filed and a decree of adjudication had been entered on the day when the debtor's petition was filed."
Among the federal court decisions cited in briefs supporting the petition as bearing on the issue of inconsistency between sections 64(a) and 77, either directly or indirectly, are the following: Lowden v. Northwestern National Bank & Trust Co., 298 U. S. 160, 298 U. S. 164; In re Chicago, M., St. P. & P. R. Co., 27 F.Supp. 685; City of Springfield v. Hotel Charles Co., 84 F.2d 589; In re A. V. Manning's Sons, 16 F.Supp. 932; In re New York, O. & W. Ry. Co., 25 F.Supp. 709; Texas Co. v. Blue Way Lines, 93 F.2d 593; Henderson County v. Wilkins, 43 F.2d 670. And see Finletter, The Law of Bankruptcy Reorganization (1939) pp. 343-344.
Ark.Dig.Stats. (Pope, 1937) § 1930.
Among the lower federal court decisions discussing the power of bankruptcy courts under section 64(a)(4) are: In re Gould Mfg. Co., 11 F.Supp. 644; In re 168 Adams Building Corp., 27 F.Supp. 247, aff'd, 105 F.2d 704; In re Schach, 17 F.Supp. 437, 439; In re Lang Body Co., 92 F.2d 338; Henderson County v. Wilkins, 43 F.2d 670.
In advancing this argument, counsel called attention to the case of People's Investment Co. v. State Board of Assessors, 66 N.J.L. 175, 48 A. 579, in which the court had said that it was beyond the jurisdiction of the tax agent to levy a tax on any but the outstanding capital stock. Counsel also relied on Arimex Copper Co. v. State Board of Assessors, 69 N.J.L. 121, 54 A. 244.
E.g., Nashville., C. & St.L. Ry. v. Browning, 310 U. S. 362, 310 U. S. 370; Rowley v. Chicago & N.W. Ry. Co., 293 U. S. 102, 293 U. S. 109, and cases cited.
Boteler v. Ingels, 308 U. S. 57, 308 U. S. 61; Healy v. Ratta, 292 U. S. 263, 292 U. S. 270; Pennsylvania v. Williams, 294 U. S. 176, 294 U. S. 185. Cf. Bankruptcy Act of 1867, § 28(5), 14 Stat. 531; Act of June 18, 1934, 28 U.S.C. § 124a, 48 Stat. 993.

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