Source: https://law.justia.com/cases/federal/appellate-courts/F2/362/453/59805/
Timestamp: 2020-08-08 16:07:20
Document Index: 359881346

Matched Legal Cases: ['§ 11', '§ 47', '§ 93', '§ 35', '§ 35', '§ 771', '§ 9', '§ 17', '§ 17', '§ 64', '§ 64', '§ 64', '§ 64', '§ 64', '§ 64', '§ 64', '§ 64', '§ 107', '§ 67', '§ 77']

Poly Industries, Inc., Appellant, v. Don S. Mozley et al., Appellees, 362 F.2d 453 (9th Cir. 1966) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1966 › Poly Industries, Inc., Appellant, v. Don S. Mozley et al., Appellees
Poly Industries, Inc., Appellant, v. Don S. Mozley et al., Appellees, 362 F.2d 453 (9th Cir. 1966)
US Court of Appeals for the Ninth Circuit - 362 F.2d 453 (9th Cir. 1966) June 17, 1966
Adrian Kuyper, County Counsel, Arthur C. Wahlstedt, Jr., Deputy County Counsel, Santa Ana, Cal., for appellees.
This is an appeal from an order of the district court which affirmed an order of a referee in bankruptcy. The district court had jurisdiction pursuant to 11 U.S.C. § 11. This court has jurisdiction pursuant to 11 U.S.C. § 47.
On July 30, 1963 appellee Mozley filed claims 168 and 169 in the arrangement proceedings, representing the unpaid 1962-1963 taxes of Ador, together with interest and penalties. These claims aggregated in excess of $46,000. Appellant filed objections to the tax claims of appellee and a hearing was set and continued on three occasions. The hearing was finally held on December 20, 1963 without Mozley or his counsel putting in an appearance. In his findings and conclusions filed on January 2, 1964, the referee sustained appellant's objection to the tax claims on the basis of sections 57j and 64a(4) of the Bankruptcy Act, 11 U.S.C. §§ 93j, 104a(4). Section 57j disallows debts owing to the United States or the States which are penalties or forfeitures except for the amount of actual loss or cost to the taxing entity arising from the transaction from which the penalty arose. Section 64a(4) provides that although tax claims shall have a priority over payment to creditors, "no order shall be made for the payment of a tax assessed against any property of the bankrupt in excess of the value of the interest of the bankrupt estate therein as determined by the court. * * *" The referee found that at the time the personal property taxes were assessed, Ador's assets were all encumbered to the hilt and that Ador actually had an interest in none of the assets which it possessed with the exception of $350 in cash which was on hand on June 7, 1963 when Ador petitioned for a Chapter XI arrangement. The referee allowed the tax claims of appellee to the extent of the unencumbered $350, and disallowed the remainder of the claims pursuant to sections 57j and 64a(4) of the Bankruptcy Act.
Armed with his recorded statutory liens, and alleging excusable neglect in not having appeared to oppose Poly's petition for injunction, Mozley petitioned the referee to vacate his order of April 24, 1964 and the injunction contained in that order. Poly responded with a petition to the referee to broaden the injunction he had granted in the April 24, 1964 order so as to compel Mozley to withdraw his lien or to file satisfactions of the recorded delinquency certificates. The referee held hearings on the petition and counter-petition and on July 22, 1964 vacated his order and injunction of April 24, 1964, and denied Poly the additional injunctive relief which it sought. In reaching this decision the referee relied upon section 17 of the Bankruptcy Act, 11 U.S.C. § 35, and the case of Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964) to find that the recorded tax liens were nondischargeable debts and that it would be an abuse of his discretion to enjoin Mozley from collecting a nondischargeable debt. The effect of this decision was to permit Mozley to satisfy his tax claim in full out of the $50,000 deposit made pursuant to the hold-harmless agreement between reorganized Ador (Reinhard) and Poly.
Section 17a(1) of the Bankruptcy Act, 11 U.S.C. § 35a(1), provides in pertinent part that "(a) A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as (1) are due as a tax levied by the United States, or any State, county, district, or municipality; * * *." Section 371 of the Bankruptcy Act, 11 U.S.C. § 771 (which is one of the provisions of the Chapter XI arrangement provisions) provides that "The confirmation of an arrangement shall discharge a debtor from all his unsecured debts and liabilities provided for by the arrangement, except as provided in the arrangement or the order confirming the arrangement, but excluding such debts as, under section 17 of this act, are not dischargeable." The effect of section 17 is to make county taxes such as those involved in this case nondischargeable in bankruptcy, and to leave the bankrupt still liable for the taxes even after he has received a discharge in bankruptcy. The effect of section 371 is to specifically carry section 17 into the Chapter XI arrangement proceedings and in effect to provide that while the confirmation of a Chapter XI arrangement acts the same as a discharge in bankruptcy as to most debts and liabilities, it does not act as a discharge from liability for county taxes which are made nondischargeable by section 17. See 9 Collier, Bankruptcy §§ 9.25 [6], 9.32 [9].
"It is undisputed that, under § 17, petitioner remained personally liable after his discharge for that part of the principal amount of the tax debt and pre-petition interest not satisfied out of the bankruptcy estate.
"As the Court of Appeals noted, § 17 is not a compassionate section for debtors. Rather, it demonstrates congressional judgment that certain problems — e.g., those of financing government — override the value of giving the debtor a wholly fresh start. Congress clearly intended that personal liability for unpaid tax debts survive bankruptcy." 376 U.S. at 360-361, 84 S. Ct. at 907-908.
The second reason that the order of the district court must be affirmed springs from appellee Mozley's recordation of the certificates of delinquency on April 2, 1964. By recording, the certificates of tax delinquency became tax liens, and tax liens are not subject to the limitation on their payment during the pendency of bankruptcy or arrangement proceedings that mere tax priorities are subject to under section 64a(4) of the Bankruptcy Act. This position is recognized, and supporting authority cited, in 3 Collier, Bankruptcy § 64.403:
"The principle expounded by the Supreme Court in City of Richmond v. Bird, and the cases which concur therewith — that § 64 does not apply to tax claims which are secured by valid liens — is apparently broad enough to limit all the provisions of § 64a(4) to unsecured tax claims alone. Nevertheless, there has been some authority for the proposition that the provision of § 64a(4) which gives the bankruptcy court the power to determine the legality and amount of tax claims is meant to include taxes secured by valid liens as well, and that the bankruptcy court can re-examine the assessment of taxes even after they have become perfected liens. This particular doctrine itself must be re-examined, however, in view of the recent Supreme Court decision in Arkansas Corporation Commission v. Thompson, which limited the bankruptcy court's general power to determine and revise the assessment of taxes. It is settled, however, that the proviso of § 64a(4) limiting the payment of a tax assessed against property of the bankrupt to the value of the interest of the estate therein does not affect the recognition of valid liens.
"Although, in general, the priority status of a claim is fixed as of the date of filing the petition, tax claims which are entitled only to priority under § 64a(4) may subsequently become perfected liens, even after an adjudication. It has also been decided that a tax claim which would have been entitled to be secured as a lien, but which was not perfected in accordance with the statutory procedure, may still be paid as a tax claim under § 64a(4)." (Footnotes omitted.) Cf. also 3 Collier, Bankruptcy § 64.401 [2].
Moreover, it has been recognized that a lien does not lose its preferred standing by reason of the fact that it is not perfected until after the commencement of bankruptcy or Chapter XI proceedings. Section 67b of the Bankruptcy Act, 11 U.S.C. § 107b, specifically authorizes such perfection, and Collier supports the practice with text and authority. 4 Collier, Bankruptcy § 67.20 [8]:
"The first sentence of subdivision b states clearly that statutory liens
`may be valid against the trustee, even though arising or perfected while the debtor is insolvent and within four months prior to the filing of the petition initiating a proceeding under this Act or by against him.'
Certainly this provision is applicable where proceedings are begun under Chapter X, XI, XII, XIII and are subsequently followed by adjudication of the debtor as a bankrupt. But a reasonable interpretation would also give effect to the quoted provisions in Chapter X, XI, XII, or XIII proceedings that are successfully terminated thereunder and hence do not end in bankruptcy, whether (1) the proceeding is begun in bankruptcy and is followed by a successful Chapter X, XI, XII or XIII proceeding, or (2) is originally begun and successfully ends as a Chapter X, XI, XII or XIII proceeding. Moreover the subdivision now clearly applies in railroad reorganization proceedings under § 77.
"The second sentence of subdivision b authorizes the perfection of statutory liens that arise but are not perfected before bankruptcy and makes no reference to the perfection of liens after the filing of a petition under the debtor relief chapters. Since, however, `bankruptcy' when used with reference to time means `the date when the petition was filed,' and `petition' means a `document initiating a proceeding under this Act,' the second sentence appears to have as broad an application as the first sentence of subdivision b. There would seem to be no fundamental policy or principle peculiar to reorganization or arrangement proceedings which would be nullified by permitting perfection of inchoate liens after their commencement." (Footnotes omitted.)