Source: http://www.law.cornell.edu/supremecourt/text/379/329
Timestamp: 2014-09-22 22:09:54
Document Index: 624895088

Matched Legal Cases: ['§ 3467', '§ 64', '§ 3466', '§ 192', '§ 191', '§ 192', '§ 192', '§ 192', '§ 191', '§ 18', '§ 192', '§ 191', '§ 192', '§ 192', '§ 192', '§ 192', '§ 192', '§ 192', '§ 192', '§ 192', '§ 322', '§ 337', '§ 191', '§ 3467']

Elizabeth Simonson KING, etc., et al., Petitioners, v. UNITED STATES. | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews Elizabeth Simonson KING, etc., et al., Petitioners, v. UNITED STATES.
379 U.S. 329 (85 S.Ct. 427, 13 L.Ed.2d 315)
[HTML] David S. Bate, Montclair, N.J., for petitioners.
a deceased distributing agent for a debtor in a Chapter XI proceeding, and against his surety. The Government alleged that King was personally liable under R.S. § 3467, 31 U.S.C. 192 (1958 ed.), because he satisfied claims of non-priority creditors with knowledge of an outstanding government priority claim, in consequence of which the Government could not be paid in full.
Thereafter the court entered an order directing the Government to file its claim on or before May 9, 1947. On May 9 the Government duly filed its preliminary contingent proof of claim in the amount of $26,818.82, later amended to $34,125.03, alleging a priority under § 64 of the Bankruptcy Act, 11 U.S.C. 104 (1958 ed.), and R.S. § 3466, 31 U.S.C. 191 (1958 ed.). However, in the seven weeks between the hearing and the filing of this claim, King, as distributing agent, had paid out by checks duly countersigned by the referee, all but $6,085.01 of the.$160,193.68 deposited with him; $42,829.76 was paid to King himself as a creditor of the company.
A long litigation then commenced on the issue of whether the Government had timely filed its claim, with an ultimate determination being made in January 1955, in favor of the Government by the Court of Appeals for the Third Circuit. The court stated, 'The disclosure by the debtor at the referee's hearing on confirmation of the plan that the Government had become a creditor was * * * in performance of its duty under the Act and amounted to an informal amendment of the list of creditors included in the debtor's schedules.' In re Seeley Tube & Box Co., 219 F.2d 389, 391, cert. denied, 350 U.S. 821, 76 S.Ct. 46, 100 L.Ed. 734.
After King had distributed the $6,085.01 which still remained in his hands ($3,620.39 had gone to the United States) August 2, 1956, the Bankruptcy Court August 2, 1956, the Bankruptcy Court approved them and discharged King and his surety.
for $25,831.08, the balance outstanding on the claim as finally determined, and against the surety for $10,000. The Government's contention was that King incurred personal liability under § 192 for the unpaid amount by paying the claims of the debtor's nonpriority creditors and thereby so depleting the debtor's assets that the Government's § 191 priority claim could not be paid in full. Section 192 provides:
The District Court dismissed the complaint on the theory that a distributing agent is not included within § 192 as an 'executor, administrator, or assignee, or other person' because he, unlike those fiduciaries mentioned specifically in the statute, is not a personal representative of the debtor but an arm and a representative of the bankruptcy court. 208 F.Supp. 697. The decision was reversed on appeal, 322 F.2d 317, and, because of a conflict among the circuits on the proper interpretation of § 192,
we granted certiorari, 375 U.S. 983, 84 S.Ct. 519, 11 L.Ed.2d 472.
which establishes government priorities on any debts owed by an insolvent debtor to the United States, and § 192, which gives assurance that such debts will be paid, are part of a single statutory structure. The precursor of § 191 first appeared in 1789 in an act establishing customs duties (
1 Stat. 29, 42). Section 21, relating to collection on bonds for the payment of duties, provided: '(A)nd in all cases of insolvency, or where any estate in the hands of executors or administrators shall be insufficient to pay all the debts due from the deceased, the debt due to the United States on any such bonds shall be first satisfied.' In 1792 the Government's priority was extended to voluntary assignments for the benefit of creditors and to attachments of the property of 'absconding, concealed or absent' debtors as well as to cases in which 'an act of legal bankruptcy shall have been committed,' § 18, 1 Stat. 263. Prior to passage of the Act of 1797, 'An internal revenue had been established, and extensive transactions had taken place; in the course of which, many persons had necessarily become indebted to the United States.' United States v. Fisher, 2 Cranch 358, 392. By the Act of 1797, the section was extended to cases involving 'any revenue officer, or other person hereafter becoming indebted to the United States, by bond or otherwise.' 1 Stat. 515. See Price v. United States, 269 U.S. 492, 501, 46 S.Ct. 180, 181, 70 L.Ed. 373. Then, in 1799, Congress took the step which concerns us here by adding the provision now embodied in § 192, establishing personal liability for those who frustrated the Government's priority:
Petitioners' emphasis on a distinction between a personal representative and an agent of the court is misplaced in the context of §§ 191 and 192. The purpose of § 192, as recognized in Bramwell, is to make those into whose hands control and possession of the debtor's assets are placed, responsible for seeing that the Government's priority is paid. Whether or not King falls within the category of fiduciaries on whom such responsibility should be placed depends, not on the title of his position or the mode of his appointment, but, in practical terms, upon the degree of control he is in a position to assert over the allocation among creditors of the debtor's assets in his possession. That appointment as an officer of the court does not decisively inhibit operation of § 192 is shown by the express inclusion within the scope of the statute of court-appointed administrators.
And Bramwell showed that others besides personal representatives of the debtor may be included in § 192, for in that case this Court indicated that s 192 would apply to a state official charged with the function of liquidating a bank's assets, although the official was clearly not acting as the personal representative of the bank. Petitioners would distinguish Bramwell in that the state official had a large measure of control, whereas King did not,
but this, on the one hand, does not vitiate the point that one need not be a personal representative to come within the coverage of § 192, and, on the other, emphasizes that it is the element of control over the assets which is decisive.
It remains to inquire whether King, by acting as an arm of the court under court instruction and approval lacked the degree of control necessary to make § 192 operative as to him. Petitioners argue that distributing agents exercise no discretion in the discharge of their duties, but perform only the ministerial function of paying out the deposited funds in conformity with the court's orders. Indeed, it is contended that inclusion of distributing agents within the coverage of § 192 would have placed King on the horns of a dilemma, in that he must either have incurred personal liability to the Government or risked being held in contempt by the Bankruptcy Court. But this assumes that the plan of arrangement, once submitted to the court, was immutable. In fact, if King had objected at the confirmation hearing to paying out the deposited funds to nonpriority creditors before the Government's claim was surely provided for, there can be little doubt that he would have obtained satisfaction.
As president of the debtor corporation he must have been aware of the Government's potential claim; most likely he took an active role in the formulation of the plan of arrangement which appended a reference to the Picatinny contracts. He had been appointed distributing agent before the day of the confirmation hearing, and was present in court on that day. In all likelihood, he was present at the time when the possibility of the government claim arose and Mr. Freeman, the company's counsel, made the representation that $94,000 was available to meet it. Finally, he himself ws one of the major distributees in the distribution plan. In these circumstances we think King was possessed of a sufficient degree of control over the allocation among creditors of the assets in his possession to give rise to responsibility under § 192 for seeing that the government priority was paid, a responsibility which King, so far as the record reveals, made no effort to discharge. This is not to say that King acted dishonestly in any way or that he positively intended to thwart the Government's claim. He may well have relied either on the representation that $94,000 was available, or, as president of the corporation with full knowledge of its finances, on whatever underlying facts led Mr. Freeman to make that representation. But § 192 required more of King than an honest belief that the Government would be paid. It imposed upon him a duty to see that this was done.
In the typical Chapter XI case initiated by the debtor under § 322 it is the debtor that remains in possession and that has prepared and filed the petition and schedules and that proposes the arrangement. It is only after the arrangement has been approved by the creditors that a distributing agent is appointed and charged with the distribution to specified recipients of the deposit required by the Act. The agent, qua agent, has no reason or duty to know or to learn of unscheduled debts, priority or otherwise, and lacking such knowledge from some other source such as his prior or current position with the debtor I would think he would be beyond the reach of 31 U.S.C. 192 (1958 ed.) if a government priority claim is unscheduled and unpaid.
But the agent does have the task of distributing the deposit and the deposit is required to include a sufficient sum to pay all priority claims (with some exceptions), even those which are scheduled as disputed and unliquidated. Bankruptcy Act, § 337(2), 11 U.S.C. 737(2) (1958 ed.); 8 Collier on Bankruptcy, 5.33(2), at 696 (14th ed. 1963). His responsibility under Chapter XI and under 31 U.S.C. 191 and 192 extends far enough to impose the obligation to ascertain that the deposit he is handling is ample to pay the claims specified in the statute and is disbursed as required by law. And as to scheduled claims, liquidated or not, disputed or undisputed, the distributing agent is furnished with sufficient knowledge to fasten upon him the responsibility of not paying out the deposit so as to defeat the priority of the Government under § 191, at least without a court determination that he should do so.
King died testate after commencement of the suit and his executrix was substituted as a party defendant by court order. An action by the United States against a fiduciary under R.S. § 3467, 31 U.S.C. 192 (1958 ed.), survives against his estate. See United States v. Dewey. C.C., 39 F. 251.