In Re Tamasha Town and Country Club, Bankrupt. Don Rothman, Trustee v. United States
483 F.2d 1377
9th Cir.
1973
Check Treatment

*2 HUFSTEDLER, Before ELY and Cir Judges, cuit TURRENTINE, Dis Judge.* trict OPINION Judge: HUFSTEDLER, Circuit July 31, Tamasha Town and On Country (“Tamasha”) peti- filed a Club tion for an section 322, Chapter Bankruptcy Act XI of the 722.) (“Act”). Opera- tions were continued under “debtor possession” First status. Tamasha’s Arrangement Amended Plan of con- was January firmed on 1965. In accord- arrangement, ance with the of $14,000 deposited by was Tamasha to pay creditors, priority pursuant Act. However, any signifi- 737(2).) before payments1 cant made were from this fund,2 ailing company al- succumbed together adjudicated bankrupt and was on November The trustee then 1965.3 deposits unpaid transferred to the trustee’s account. January

On the United priority $6,774.09 States filed a claim of $7,603 expense and a claim as an represent Both claims administration. unpaid respect accrued and taxes. With Ralph (argued), Sulmeyer, E. Schub priority claim, $5,328.95 pre- Kupetz Alberts, Angeles, Cal., & Los for Chapter debt, obligations XI tax which appellant. filing peti- arose before the (argued), Karl Schmeidler Johnnie M. remaining tion for an Walters, Atty. Div., Gen., Asst. Tax $9,048.14 post-Chapter debt, tax Dept, Justice, Washington, C., D. obligations which accrued after the fil- Meyer, Atty., Robert L. U. S. Alan H. ing petition the now Friedman, Atty., Ange- Asst. S.U. Los period. aborted les, Cal., Meyer Rothwacks, T. Crombie required The referee the trustee to sat- Garrett, Estabrook, III, J. D. S. William isfy priority ($6,774.09) claim Div., Dept, Justice, Tax Washington, any other distribution and al- C., appellee. D. expense lowed the of administration * sitting Southern District of California disbursing agent having for not designation. pended the total fund. here, 3. For reasons not relevant the first expended 1. reporter $263.20 was for court adjudicating order Tamasha fees, payment, bookkeeping bond costs. vacated and identical order was entered September 28, 1966. Suggestions negligence were not pressed, presented and no evidence was $1,445.14 priority plus claim, from the support wrongdoing culpability claim $7,603 expense of administration. ($7,603) pro tory legislative claim to share rata change with has tinuously other such claims.5 subordinated tax claims and elevated the priority of administrative dispute does trustee the rul- concluding expenses, costs and “We ing expense on the statutory policy think the of subordinat- argues, however, $1,445.- claim. He ing expenses taxes to costs and of ad- (the post-Chap- claim *3 by ministration would not be served cre- filing portion) ter XI should also be ating enforcing up or trusts which eat expense treated as an leaving estate, nothing little or for remaining $5,328.95 (pre- and that the goods creditors and court officers whose Chapter given debt) should not be (401 services created and the assets.” superpriority, but should in be treated 517, 994.) U.S. at 91 S.Ct. at The ra- accordance with section of the holding compel tionale and in Randall (11 104(a).) Act. U.S.C. Claims for reversal here. Chapter taxes accrued ing the before fil-XI given are a fourth under' distinguish The Government would 64(a), well behind and costs ex- (1) Randall on three bases: Randall in- penses of administration. We hold interplay acts, volved the of two federal segregation plan of funds under a of ar- while the instant ease involves the rangement, transfer, absent actual does Bankruptcy Act; (2) in Randall no priorities not establish that survive an actually segregated; fund for taxes was adjudication bankruptcy. of (3) arrangement the of judicial instant case firmation, after aborted theory by The trust fund advanced the par- and therefore after the Government here is similar to that re ties’ had vested. None of these jected in United States v. Randall factors is determinative. (1971) 513, 991, 401 U.S. 91 28 S.Ct. The trust asserted in Randall Randall, was that In L.Ed.2d 273. the Govern specifically by general theory ment’s created trust fund 7501(a).6 Here the us explicit Government asks bolstered reference to the implied trust, to enforce an said to trust created the Internal Revenue 337(2) (26 found in 7501(a)). the nexus sections Code The Court Bankruptcy of the Bankruptcy Act.7 held that the “an Act is over However, riding depends the rule on Randall policy statement of federal on this claimed, question priorities” the effect of the trust and not and made refer alleged strong on policy 64(a)(1) ence to “the its source. will not create We of § implied Bankruptcy (401 of the or enforce an trust which would Act.” at U.S. congression- 515, accomplish 517, 992, 994; a reversal of the at S.Ct. see also favoring policy ex- (1966) al administration Nicholas v. United States fully 678, penses 1674, 1683, claims as as would 691, U.S. over tax S.Ct. 16 L. 853.) opinion express Ed.2d trust in Nor does The Randall. traced the his- expenses 5. All administrative the United States. amount su- perseded collected, period assessed, are such fund shall be subordi- subject expenses paid nated to the manner administrative in the same of the (in- ensuing bankruptcy proceeding. (See and limitations same Unit- applicable cluding penalties) (1971) ed as are with States v. Randall 991; Collier, respect Bankruptcy such S.Ct. taxes from which 519; Collier, Bankruptcy 3A arose.” ed. only to referred not 7. The Randall Court Act, policy 7501(a) provides: overriding 6. Section any “strong policy” person required of § “Whenever is but also to any collect or withhold internal S.Ct. revenue at U.S. any person thought possess pay generally the attraction other and to pri- ordering States, being repository over such tax to the for all Collier, (3A bankruptcy. Bank- amount tax so collected or orities in withheld 1972).) special ruptcy 2074, shall be held to be a fund in rule is, best, depend upon at uncertain.10 the Randall rule isolation debtor op- a debtor particular Randall, is that where this circuit funds. of erating argued under trustee that since adjudication bankrupt, segregate adjudicated possession had failed to original filing of the withheld, relates back taxes no trust favor (E. arrangement petition. Chapter XI United States resulted. U.S. Woolley 991.) adopting g., Instead of Miller v. 841.) Any rule place other argument, 141 F.2d the Court chose attempting to ruling legislative penalize survey debtor its on the de- supervised velopments favoring redeem itself arrangement administrative pro- penses vis-a-vis claims and on the over- over tax bankruptcy.11 ceeding directly No riding policy 64(a), of section as dis- contemplated result is cussed above. such permitted Randall. Finally, nothing is added the Gov- *4 pressed by Thus, the distinctions ernment’s ease its assertion that the none of rights persuade to resur- parties’ upon by us “vest” confirmation the Government in- fund theories plan a of the the sort of Such rect holding pro- by merely characterization restates the is- Randall. terred objective preserving presented Normally, policy here. confir- sue the motes integrated system plan mation of a not freeze the Indeed, as an does section bankruptcy. Re- parties.8 allocating priorities in of the superpriorities fur- 377(2) 777(2)) fusing also of the Act to create U.S.C. § in provides goal that even after confirmation of sound administration the thers bankruptcy by continuing the may adjudge to insure in de- the court expenses neces- subject bankruptcy and primacy fault and to the costs administer, close proceedings.9 parties liquidate, sary The cannot bind ensuing bankruptcy. bankruptcy the avoid When the court and in estate the collapsed, arrangement ac- statutory Chapter the of section XI subject agreements by unpaid their under a of ar- taxes became crued but rangement very specified in section priorities it made at the moment to the permitting apparent 64(a). in of the erred that the future The referee becomes ipso arrangement, Collier, Bankruptcy fac life of the the Cf. 1972) upon ar the dismissal : to terminates pursuant carrying proceedings rangement § in a defaults out “Where debtor arrangement (after 3FF(1) otherwise To hold the terms of his .... deposit plain firmation) made intendment but before defeat bankrupt disbursed, pursuant Chapter has been The XI ... § policy automatically strange money cy a is forfeited ana advance law would estate, attempts debtor, reha becomes an asset of the if a who indeed financially deposited his and benefit it was least where himself bilitate arrangement himself, through but a third debtor rather an creditors upon party fails, may in debts [footnote omitted].” his behalf saddled with be left petition bankruptcy, discharge while in options open 9. This is identical to the adjudication immediate seeks an er who § court to confirmation. 11 U.S.C. arrange undertaking without 776(2). upon discharge. goes See debt free ment Hunt, supra, 292 U.S. v. Local Loan Co. arrangement 10. This does not mean that 244-245, L.Ed. 234 at initio, simply is void ab but it is su- that 195.” 93 A.L.R. perseded. certainly lasts, While it is v. Cir. also Scott Wood binding. Gerson Booth Lumber Co. 253: 1955) 230 F.2d 631. obligation make “[T]he payments contin- (S.D.Cal.1947) under In re F. Setzler Cf. only during Supp. 314, and termi- its existence ued 316-317: arrange- upon my opinion, however, of the nated discontinuance “It the obli proceedings gation 377 of under § of a debtor to make ac ment cording omitted].” [citations to a continues bankruptcy $6,774.09. priority no trusts Of were to be tax claim created or enforced. $1,445.14 amount, constitutes supersed- pense for the course, guided by Of we are the rea- remaining period. The ed soning Supreme of the as well as Court debt, pre-Chapter $5,328.95 holding. Underlying its the Randall such, and, a fourth is to be accorded as statutory poli- application of the Court’s 64(a). priority under section cy subordinating taxes to costs expenses of administration was Reversed. statutory premise to enforce the trust under the facts of Randall would Judge (dis- TURRENTINE, District up” “eat the estate created creditors senting) : here, officers.5 The fund court though, deposit pay- respectfully is a for the dissent. I priority ment all creditors as distin- reversing majority, the Court guished created in from the accounts below, v. Ran States relies ordinary case,6 Randall. In the dall, L. U.S. deposited pursuant Act is (1971), con involved Ed.2d 273 bankrupt’s derived from the estate flicting Internal Revenue sections creditors enti- and is not created compet Bankruptcy Act2 and the Code1 (2), 64(a)(1), tled ing fund.3 same (3) .7 Congress held that because Court case, neither of this Under facts *5 intend, does not did not so § Randall, holding of nor the Court’s create a trust for taxes withheld invoking statutory policy for reason proceeding. The Court applicable. pur- deposited did not hold that a authority contrary the absence of In of the Act suant to § § cases, I to found in the statutes be 737) disbursed, after confir- was mandatory give lan- effect would mation, rath- in accordance with § Bankruptcy guage 367(2) of the of § er than of the Act4 § Act, the Referee and the orders of 767(2).) Moreover, held it was not § by imposing Bankruptcy constructive 7501(a). 1. 26 U.S.C. § ordinary may case that 6. It be said Bankruptcy 64(a), 2. 11 U.S.C. problem arise because here does not 104(a). deposit the time have been disbursed will Bankruptcy powers, On Collier 3. Pursuant liis the referee or- termination. (14th 1972). ¶ dered three accounts ed. [4.2] to establish 10.12 payments them. I infer and to make cannot be used 7. assets of the estate [T]he was not con- deposit, so authorized make the unless firmed was entered two since order Payments the distribu- made to the court. days petition was filed. Had a after payments deposit aof are not tees of the procedure confirmed, been such to which the the debtor’s estate share of plan. have been contained in the entitled, are are but distributees authority point 4. The sole on this Col deposit fund which their share of the Bankruptcy (14th ¶ lier 10.13 at 531 On provide in with the accordance debtor must majority at note 8 ed. cited his the Act and Gollier, however, proposition. for another at 742 5.36 On 8 Collier Portage Co., cites re Wholesale ed. 1951), aff’g, F.Supp.. the referee before the Court In the ease (W.D.Wis.1950), wherein district deposit was the source found deposit opinion was court’s recites Apparently issued no order unknown. indemnify rather estate authorizing the de- funds the estate upon be disbursed to creditors con Bankruptcy, posit. Form 10 Collier On firmation. for form Nos. generated from order. 5. The fund in Randall was such operation the business possession. the fund to the extent that should have been disbursed arrangement.8 termination of the

result avoids strained construction of comports

Randall equitable with the Bankruptcy.9

nature a Court of SQUIBB SONS, INC.,

R.E. & Petitioner,

Casper Secretary WEINBERGER, W. Health, Education Welfare, Edwards, Charles C. Commissioner Drugs, Food Respondents.

No. 71-2138. Appeals,

United States Court of

Third Circuit.

Argued 18,, Jan. Aug. 24,

Decided *6 majority’s charged 8. The refusal “freeze” in default from according of the creditors ter- where failure was unintentional simply gratuitous. inability comply. minated one No resulted argues remains effect adjudication. Co., Setzler, E.Supp. Realty In re Comm’n v. U. S. See Securities (S.D.Cal.1947), is a correct statement L.Ed. 1293 (1940). the law. A debtor is entitled dis-