Court Opinion

ID: 9653768
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:53:55.673597+00
Date Added: 2024-06-11T18:13:01.439951
License: Public Domain

SIMONS, Circuit Judge
(dissenting).
I agree with the opinion of the majority that the exaction imposed by Kentucky law for failure to pay past-due unemployment contributions constitutes a penalty.' I am unable to agree that § 57, sub. j of the Bankruptcy Act, 11 U.S.C.A. § 93, sub. j, does not come into operation because the Bankruptcy Act preserves liens valid under state law, and this with all due respect for the views of my associates and the opinion of the Circuit Court of Appeals for the Ninth Circuit in the Knox-Powell-Stockton Company case.
A lien is a charge upon property for the payment or discharge of a debt. It *268is therefore dependent upon the existence, the amount of, and the provability of the debt. If the debt has been paid or otherwise expunged as for fraud' or by set-off, the lien is extinguished. An inchoate lien does not ripen into security until a debt comes into existence. In the case of private liens, it may be impermissible to prove a debt because of the Statute of Frauds or the running of the Statute of Limitations.
Section 57, sub. j, provides that debts owing to the United States or any state or subdivision thereof, as a penalty or forfeiture, shall not be allowed except for the amount of pecuniary loss sustained. I am unable to see how a lien, however valid it may be under state law, will breathe life into an unprovable debt in the face of a provision which deals expressly with debts owing to any state or subdivision. The two provisions of the Bankruptcy Act are not irreconcilable. The tax lien is preserved to the extent that it does not include a penalty and the tax debt, other than the amount of the penalty, is provable. To the extent that the debt is not provable in bankruptcy, the lien ceases for all practical purposes to exist. Nor is this taking of property in contravention of the Fifth Amendment because the bankruptcy power is paramount in respect to the debts of adjudicated insolvents. Billings v. United States, 232 U.S. 261, 282, 34 S.Ct. 421, 58 L.Ed. 596; McCray v. United States, 195 U.S. 27, 24 S.Ct. 769, 49 L.Ed. 78, 1 Ann.Cas. 561. I think the judgment should be affirmed.
Another consideration contributes to this view. It has long been held that the grant of the taxing power to the Federal Government is wholly inconsistent with the concept that the states can, by legislation, interfere with assessments or set up a limitation of time within which they must be collected. United States v. Snyder, 149 U.S. 210, 13 S.Ct. 846, 37 L.Ed. 705. So with other constitutional grants of power which includes the bankruptcy power. Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573. This is on the ground, among others, that the granted powers are to be exercised with uniformity throughout the states. It seems to me, therefore, wholly incongruous that a penalty must be disallowed as a. claim against a bankrupt estate in one state and a similar penalty allowed in another, merely because of a statutory lien in one case and not the other, or that one penalty may be allowed, and another disallowed in the same state against the same bankrupt. Section 57, sub. j, deals specifically with penalties for nonpayment of state taxes, and so it seems likewise incongruous and not within the intention of the Congress, to permit states wholly to nullify it by providing statutory liens for all penalties. As was said in Paul v. United States, 6 Cir., 127 F.2d 64, 66, affirmed Detroit Savings Bank v. United States, 317 U.S. 329, 63 S.Ct. 297, “Provisions of the Michigan statute governing liens for property taxes are not here applicable; and if they were, being in derogation of federal law, would not control.”