In Re Stavin, 12 F.2d 471 (S.D.N.Y. 1925)

*472 *473 Samuel Sturtz, of New York City, for trustee, in support of petition for review.

Meyer London, of New York City, for priority creditors opposed.

THACHER, District Judge.

The question certified by the referee is whether the referee in bankruptcy can limit the time of the United States and the state of New York within which to file any claims they may have, notwithstanding that the one-year limitation for filing claims by creditors (section 57n of the Bankruptcy Act [Comp. St. § 9641] has not expired.

Under date of October 5, 1925, on motion of certain priority creditors, the referee filed an order directing the United States of America to file within 60 days after service any and all claims which it may assert against the bankrupt estate. The order provides that, upon failure of the United States to file such claim within the time specified, it shall be barred from asserting any claim against the estate or against the trustee. This order was served on Frank K. Bowers, collector of internal revenue, Second district, on October 6, 1925, and on the attorney for the trustee. A similar order, under date of October 5, 1925, directing the state tax department to file claims within 60 days, was filed by the referee, and a copy served upon the attorney for the state tax department on October 6, 1925, and on the attorney for the trustee.

Adjudication in this proceeding took place April 29, 1925, and the time for filing proofs of claim, as provided in section 57n of the Bankruptcy Act, will not expire until April 28, 1926. The petition to review these orders was filed by the trustee. Notice of the hearing upon the petition to review was served upon Frank K. Bowers, collector of internal revenue in the Second district, and upon a deputy commissioner and appraiser of the New York state tax department. There has been no appearance in behalf of the state or of the United States.

Under section 64a of the Bankruptcy Act (Comp. St. § 9648), the bankruptcy court is required to pass upon and determine the amount and the validity of taxes claimed to be owing by the bankrupt to the state and to the United States. In re General Film Corporation (C. C. A.) 274 F. 903; In re Anderson (C. C. A.) 279 F. 525; In re Brezin (D. C.) 297 F. 300; In re Wyley Co. (D. C.) 292 F. 900. Inasmuch as this section expressly provides that the court shall order the trustee to pay such taxes "in advance of the payment of dividends to creditors," the intention is clear that all sums due for taxes should be promptly ascertained and determined before the first dividend is declared.

Section 65b (Comp. St. § 9649) contemplates payment of a first dividend within 30 days after the adjudication, provided the estate is in funds sufficient to pay priority debts and a dividend of 5 per cent. But under section 64a taxes legally due and owing by the bankrupt must first be determined and ordered paid. For this purpose the bankruptcy court may by proper notice bring the state and the United States before it, to the end that claims for all taxes legally due and owing may be ascertained and their validity determined. In the Anderson Case, supra, this was done by an order similar to the orders here in question. Such orders are proper, and clearly within the jurisdiction of the court in the exercise of its power under section 64a.

But it is insisted that there is no power to enter such an order, if it requires the presentation of tax claims before the expiration of one year, within which claims generally are required by section 57n to be proved. Section 57n has no relation to the procedure required under section 64a. On the contrary, the latter section is mandatory in its requirement that taxes shall be paid before dividends are declared, and when read in connection with section 65b, providing for a first dividend within 30 days, it is quite obvious that claims for taxes should be promptly determined without waiting for the expiration of the year allowed for the filing of ordinary claims.

The Circuit Court of Appeals in this circuit has said: "Under section 64a of the Bankruptcy Act of 1898 (Comp. Stat. § 9648) it is the duty of the court to order the trustee to pay all taxes legally due and owing by the bankrupt to the United States in advance of the payment of dividends to creditors." In re Finkelstein, 298 F. 11. The practice pursued in the Anderson Case, supra, was approved in the case of In re J. Menist Co., Inc. (C. C. A.) 294 F. 532, where the court said: "We appreciate that section 57n is one of the provisions of the Bankruptcy Act which has for its purpose an expeditious winding up of a bankruptcy estate; but, under our decision in Re Anderson, 279 F. 525, the trustee may avail of a simple and practical method, whereby the United States receives notice and thus is required promptly to prove its claim for *474 taxes." To postpone the determination of tax claims for a year following adjudication is neither simple nor practical, nor is it in accordance with the plain provisions of section 64a, and there is nothing in the opinion in the Anderson Case to suggest that the orders there approved might not with equal propriety have been entered immediately after adjudication.

The form of the orders here under review is perhaps open to criticism, in that they relate to all claims which the state or the United States may have, and not merely to claims for taxes. It may well be doubted if such orders can effectively bar claims other than tax claims determinable under section 64a. Tax claims, which are to be ascertained and determined under that section, are on quite a different footing from other debts, even of the United States, which are required to be proved and are dischargeable. U. S. v. Wood (C. C. A.) 290 F. 109, affirmed, 44 S. Ct. 134, 263 U.S. 680, 68 L. Ed. 503. But the question of form does not seem to me to be fatal upon this appeal. The orders are sufficient for the purpose for which they were intended, namely, the determination of tax claims under section 64a, and it will be time enough to consider objections as to form when the United States or the state has appeared and made objection on that score. The trustee's only concern is that the orders, if invalid, may not protect him in the payment of dividends, if as a matter of fact taxes are legally due and owing from the bankrupt estate, although such claims are unknown to him.

Whatever justification there may be for such concern (see U. S. v. Eyges [D. C.] 286 F. 683), the procedure here under review is certainly adequate for the trustee's protection in this regard, and his petition to review will accordingly be dismissed.