Opinion ID: 226726
Heading Depth: 1
Heading Rank: 2

Heading: The vacation pay claims.

Text: 27 The master found that the lien of the United States for taxes had priority over all other claims, except administrative expenses. That finding is accepted by all parties. Therefore, the claims for vacation pay can be paid only if they qualify as administrative expenses of the receivership. 18 28 On August 21, 1947, Receiver Smith, then in effective control of Kensington, entered into a collective bargaining agreement, in the name of Kensington, with the Union. The effect of the agreement was, inter alia, to continue the vacation pay provisions of former contracts. Under these contracts, 750 hours of work in any given year was a condition precedent for the ripening of the right to a vacation or vacation pay. The special master found that Heerman and Williams adopted the collective bargaining agreement of August 21, 1947. 29 Numerous claims for vacation pay for 1947 were resolved by the special master in the following manner. The claims of employees who completed 750 hours of work in 1947, but who did not work for Heerman and Williams, were disallowed. These employees were deemed not to have benefited the receivership. On the other hand, those workers who completed 750 hours of work in 1947 and, in addition, worked for Heerman and Williams, were allowed vacation pay. Those payments were held to be administrative expenses on the theory that those claimants benefited the receivership. 30 The vacation pay claimants here on appeal contend that Smith's management of Kensington and Heerman and Williams' management constituted one receivership. Hence, even assuming arguendo the validity of the law applied by the master — i. e., that only those employees who worked for the receivership are entitled to vacation pay as an administrative expense — the decision of the district court should be reversed. 31 The government argues that Smith's control of Kensington was completely independent of the Heerman and Williams receivership; that Smith was appointed by a completely different court; that Smith's management of Kensington was based on his possession of all of Aerodynamic's property in the District of Columbia, which included all the shares of Kensington stock. It is, however, the transferee assessment against a fraudulent transferee which is the basis of the second receivership. 32 We cannot accept the position of the government because it fails to face the realities of the situation. The Smith management and the Heerman and Williams management were realistically but a single legal entity superimposed on Kensington by the courts. When, on April 3, 1947, the government filed its notice of lien against Kensington, it elected to treat Kensington as a fraudulent transferee. From that date on, the government proceeded to collect its tax claim as a good huntsman relentlessly tracks down his game. This court, in an earlier appeal, made the following observation: The government's methods in seeking to collect this sizable tax, far from resembling participation in an unseemly receivership scramble, show a succession of orderly, sound, legal moves in accordance with the statute. United States v. Kensington Shipyard and Drydock Corp., supra, 169 F.2d at page 12. 33 At any time after April 3, 1947, the government could have petitioned the District Court for the Eastern District of Pennsylvania to appoint a receiver to enforce its tax lien. At first, no such step was taken, and Smith was allowed to manage Kensington through the medium of stock control. With subsequent developments, however, a local receiver became necessary. Smith had been negotiating for the sale of Kensington, but an order of the court below would have been necessary in order to convey clear title to the purchaser. In addition, the Commonwealth of Pennsylvania, seeking the appointment of a receiver, had started an action in the state court. When, on November 19, 1947, Kensington's preliminary objections to the complaint in the state action were overruled, the government decided it must move quickly. Seven days later, the instant action was commenced. 34 The public policy underlying the rule that administrative expenses of a receivership are given priority over a vested lien is that such a rule is necessary to encourage suppliers of materials and labor to extend credit to the receivership. The lienor, having elected to continue the business as a going concern, is held to have agreed to yield his privileged status. 19 Colorado Wool Marketing Ass'n v. Monaghan, 10 Cir., 1933, 66 F.2d 313, 315; 16 Fletcher, Cyclopedia of Private Corporations § 7954 (1942 revis.). Certainly this public policy would indicate that those who supplied Kensington, during the period from June 1947 to November 1947, with the labor and materials necessary for day to day operation should be equally protected. 20 35 The circumstances of this case are such that a court of equity should pierce the veil of technicality and treat the two receiverships as one continuous receivership. See Trustees System Co. of Pennsylvania v. Payne, supra, and footnote 15, supra. 36 We believe that the decision in this appeal is a logical result of our decision in the appeal of Receiver Smith. Having decided that the assets fradulently conveyed to Kensington are assets of Aerodynamic and that the Heerman and Williams receivership was in reality ancillary to the Smith receivership of Aerodynamic, we conclude that the ancillary receivers' management is a continuation of the primary receiver's management. 37 The general proposition underlying the special master's findings of fact and conclusions of law was that all employees who were employed by a given receivership, if they otherwise qualified, were entitled to vacation pay as an administrative expense of that receivership. This general proposition was approved by the district court and is not now questioned by any party. Since we now hold that the Smith receivership and the Heerman and Williams receivership should be considered for the purpose of this case as one continuous receivership, it necessarily follows that the claims of all employees who worked 750 hours in 1947 and who were employed by the Smith-Heerman and Williams receivership, if they otherwise qualified, should have been allowed. 38 The decree of the district court in No. 10,281 will be affirmed. 39 The order of the district court in No. 10,198 will be reversed and the cause remanded for further proceedings in accordance with this opinion. 40