Court Opinion

ID: 9460660
Source: CourtListenerOpinion
Date Created: 2023-08-04 21:57:12.939819+00
Date Added: 2024-06-11T17:36:43.758356
License: Public Domain

THORNBERRY, Circuit Judge
(dissenting) :
In this case we are called upon to construe the meaning of “debts due to the United States” as used in 31 U.S.C.A. § 191 (hereinafter the “Priority Statute”). In selecting among the various definitions of “debt” that have been applied in varying contexts, the majority inexplicably turns to the highly technical definition of the common law action of debt. In so doing the majority fails to construe the statute, in accordance with guidance from the Supreme Court, breaks with prior judicial interpretation without discussing the relevant cases, and creates an unexplained and unwise deviation from the interpretation of the term under the Bankruptcy Act, despite the analogous factual bases for application of the two statutes. Therefore, with deference, I dissent.
The Priority Statute is founded on the public policy of securing an adequate revenue to sustain public burdens and discharge the public debts. United States v. State Bank of North Carolina, 1832, 6 Pet. (31 U.S.) 29, 8 L.Ed. 308; Small Business Administration v. McClellan, 1960, 364 U.S. 446, 81 S.Ct. 191, 5 L.Ed.2d 200; City of Sherman v. United States, 5 Cir. 1968, 400 F.2d 373; Viles v. Commissioner of Internal Revenue, 6 Cir. 1956, 233 F.2d 376. The statute is to be liberally construed in order to effectuate that purpose. United States v. State Bank of North Carolina, supra; Bramwell v. United States Fidelity & Guaranty Co., 1926, 269 U.S. 483, 46 S.Ct. 176, 70 L.Ed. 368; United States v. Emory, 1941, 314 U.S. 423, 62 S.Ct. 317, 86 L.Ed. 315; United States v. Gotwals, 10 Cir. 1946, 156 F.2d 692; Lakeshore Apartments, Inc. v. United States, 9 Cir. 1965, 351 F.2d 349. By adopting a narrow, technical definition of “debt” so as to defeat the United States’ priority, the majority, it seems to me, flies in the teeth of these well established general principles of construction.
The few cases that have directly considered whether the Priority Statute applies to unliquidated obligations also point toward an affirmative answer. The strongest case support for the majority’s position is Massachusetts v. United States, 1948, 333 U.S. 611, 68 S.Ct. 747, 92 L.Ed. 968, where the Court held that the option of an assignee for the benefit of creditors to pay state unemployment compensation taxes and take credit against federal taxes was cut off by the insolvency of the debtor. In rationalizing this result, the Court appeared to adopt a narrow definition of “debt” for purposes of the Priority Statute.
[I]t is at least doubtful on the statute’s wording that obligations wholly contingent for ultimate maturity and obligation upon the happening of events after insolvency can be said to fall within the reach of “debts due” as of the time of insolvency.
333 U.S. at 626-627, 68 S.Ct. at 756. In footnote 26, the Court explained further.
[The fact that] all of the decisions sustaining the priority were for debts clearly due and owing, adds force to the clear inferences implicit in the statute’s wording, viz., that Congress *980not only created a conclusive priority attaching as of the time of insolvency but in doing so drew the line for its operation close to, if not at, the commonly accepted meaning of “debt” as distinguished from other forms of obligation.
68 S.Ct. at 756-757. The Massachusetts case does not directly support the majority’s result in this case, however, since there the Court’s primary concern was the contingency of the very fact of liability. In our case, all the events necessary to fix liability for the excess cost of reprocurement had occurred prior to insolvency, as the majority opinion makes clear. This liability was not contingent in any sense; it was merely unliquidated in amount. Therefore it was not the sort of obligation excluded from the coverage of the Priority Statute in Massachusetts.
Two cases have given priority to government claims that were wholly unliquidated at the time of insolvency. In King v. United States, 1964, 379 U.S. 329, 85 S.Ct. 427, 13 L.Ed.2d 315, the Seeley Tube & Box Company filed a petition for reorganization under Chapter XI of the Bankruptcy Act. Soon thereafter the United States notified Seeley that it intended to terminate two contracts between Seeley and the Picatinny Arsenal due to Seeley’s default. King, Seeley’s president, was appointed as distributing agent. He distributed the bulk of the assets with court approval before the United States liquidated its claim by reletting the contracts at a higher cost. As a consequence, there were insufficient funds remaining to pay all of the Government’s claim. Under these circumstances the Court held King’s estate liable for the unpaid portion because the Government’s claim, though unliquidated at the time of insolvency, had been entitled to its statutory priority. The implicit holding that an unliquidated claim may be a “debt” within the Priority Statute so long as it is capable of liquidation is not directly controlling here, despite the identity of factual settings, since it was not a disputed issue in the case, King having admitted the Government’s priority in oral argument. See United States v. L. A. Tucker Truck Lines, Inc., 1952, 344 U.S. 33, 73 S.Ct. 67, 97 L.Ed. 54; United States v. Mitchell, 1926, 271 U.S. 9, 46 S.Ct. 418, 70 L.Ed. 799; Webster v. Fall, 1925, 266 U.S. 507, 45 S.Ct. 148, 69 L.Ed. 411. Nevertheless the King case provides some support for the proposition that an unliquidated claim may be a “debt” within the Priority Statute, as the district court in our case noted.
Finally, in United States v. Barnes, C.C., S.D.N.Y.1887, 31 F. 705, the court held that a claim of the United States had been entitled to its priority despite the fact that the amount of the claim was the subject of pending litigation both at the time of adjudication of bankruptcy and of distribution of the debtor’s assets. The court said plainly that unliquidated claims of the Government are entitled to priority.
It is established by many adjudications, in which the meaning and effect of these provisions have been discussed, that such priority extends to all classes of debts, whether liquidated or unliquidated, joint or several, legal or equitable ....
Id. at 707. The antiquity of the case, coupled with its explicit reliance on prior adjudications, undercuts the majority’s assertion that its narrow definition was “the meaning of the word ‘debt’ at the time of the earliest priority enactment.” On the contrary, a broad and liberal interpretation of the term was the rule from the first, a rule from which the majority departs today.
The Bankruptcy Act’s analogy also points strongly toward allowance of priority for claims that are unliquidated as of the time of insolvency. In relevant part, the Act provides that
The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment, shall be . . . (5) debts owing to any person, including the *981United States, who by the laws of the United States i[s] entitled to priority
11 U.S.C.A. § 104(a). The Act also provides that
Debts of the bankrupt may be proved and allowed against his estate which are founded upon . . . (8) contingent debts and contingent contractual liabilities ....
11 U.S.C.A. § 103(a). Unliquidated claims are also provable and allowable, so long as the amount of the claim can be fully liquidated or estimated within the time set by the court. 11 U.S.C.A. § 93(d); 1 Collier Bankruptcy Manual, ][ 57.11 (2d ed. 1973).
Both the Bankruptcy Act and the Priority Statute apply to disposition of assets that are insufficient to meet all of the debtor’s liabilities. The issue under both statutes is whether obligations to the United States will be first satisfied in full or only satisfied in the same proportion as other obligations. The public policy of securing an adequate revenue so as to sustain public burdens and discharge public debts applies equally under both statutes. The Government is entitled to fifth priority in Bankruptcy Act proceedings for debts unliquidated at the time of insolvency solely by virtue of the existence of the Priority Statute, which is the only law of the United States giving priority to debts owing to the United States within the meaning of 11 U.S.C.A. § 104(a). 1A Collier Bankruptcy Manual, j[ 64.501 (2d ed. 1973). It seems to me that Congress has clearly shown what it means when it uses the term “debts” in this factual context in § 63 of the Bankruptcy Act, 11 U.S.C.A. § 103, and that definition clearly includes the sort of unliquidated obligation involved in this suit, so long as the claim can be liquidated or estimated, as it was in this case, within a reasonable time so as to avoid undue delay in distributing the debtor’s assets to the creditors. I think we should apply this entirely sensible reading of the term absent some good reason to deviate, and no good reason, in my opinion, has been offered.