King v. United States

PETITIONER:King
RESPONDENT:United States
LOCATION:Criminal District Court, Parish of New Orleans

DOCKET NO.: 16
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: 379 US 329 (1964)
ARGUED: Oct 19, 1964
DECIDED: Dec 14, 1964

Facts of the case

Question

Audio Transcription for Oral Argument – October 19, 1964 in King v. United States

Earl Warren:

Elizabeth Simonson King et cetera, Petitioner, versus United States.

Mr. Bate.

David S. Bate:

Mr. Chief Justice, members of the Supreme Court, may it please the Court.

The point that petitioners wish to emphasize on oral argument is point number four in the petitioner’s brief and the only point that is really thoroughly discussed.

Earl Warren:

Mr. Bate, may I interrupt you just a moment —

David S. Bate:

Yes.

Earl Warren:

— to say that the orders of the Court has been certified by the Chief Justice and filed with the clerk would not be (Inaudible).

You may proceed now.

David S. Bate:

Pardon.

The point that the petitioners wish to emphasize on oral argument is point four in the petitioner’s brief and the only point which the brief of the United States gives any emphasis to at all.

The point is that the court below ordered Mr. King, the distributing agent to distribute as he did.

He had no other duty by his orders than to distribute as he was told.

The Government’s claim was a priority claim but it was not liquidated, it further was disputed at the time that the Court made its order of distribution.

This action is against King as a distributing agent only.

It is not against him in any other capacity.

Therefore this order that we are speaking of is the only order that is important that the only — this principle fact that is important.

Mr. King is not being sued here or charge in any other capacity.

He was obliged to and he did follow orders.

He is not like therefore like a trustee in bankruptcy, an executor and assignee for the benefit of creditors that is one who examines claims and advices the Court and then distributes as either before — without the court order or as the Court directs.

He certainly is not as the trustees in bankruptcy, the assignees or the executors that are incited in the cases in the Government’s brief.

He is not a person as all those are who has distributed either without prior Court order or in — yes without prior court order who never — were obliged to get a court order at all.

Is there any dispute between your(Inaudible)

David S. Bate:

Mr. Justice Harlan, there is no dispute at all as to the priority.

The Government had a priority claim.

It was unliquidated and disputed at the time that the referee made his order.

Earl Warren:

Well, may I ask if you preserve the question with the applicability of Section 191 to the present case for review in this Court?

David S. Bate:

Your Honor, in other words in my preserving points one, two, and three of the brief, is that the —

Earl Warren:

The applicability of 191, I don’t know just how you’ll express it but —

David S. Bate:

Oh, well we are saying that —

Earl Warren:

The reason I asked you is because I understood that this case was tried on the theory below that 191 did apply.

Earl Warren:

Now did you preserve that issue for this Court or is it raised here for the first time?

David S. Bate:

In the court below, the applicability of 191 and 192 as read together were — I think Your Honor is referring to my bringing up the insolvency in — of the question of insolvency and the rest is that we’re — we did not properly preserve them idle in the Court.

Earl Warren:

Now, do you argue it here?

David S. Bate:

I am not arguing it here this morning.

Earl Warren:

Did you raise it in your brief though?

David S. Bate:

We’ve raised it in our brief.

Your Honor, the reason that we raised this in our brief and I will address myself immediately to that.

Initially this case was a case of simple — simply the case of whether King should be liable where he had followed the orders of the Court.

In the complaint, paragraphs 14 and 15 of the complaint say that King distributed — he distributed a $160,000 as distributing agent.

Then they go on to say this was in violation of Section 192.

In the answer which the defendant made in that case, we said that King followed explicitly the orders of the Court and therefore shouldn’t be liable.

On this narrow issue, we preceded to the District Court.

In the District Court, we had a stip — a — well, first of all we had a pretrial conference.

Then there was a stipulation of fact.

In both the pretrial conference and the stipulation of fact, the — absolutely the only issue was whether King as a distributing agent who distributed under orders of the Court was liable.

We reached the Third Circuit Court of Appeals.

We — and the — there, we — the Court found that there — reversed Judge Wortendyke in the District Court and stated that that — well, several things.

First of all they indicated that although Crocker and Stephens which are the two cases in conflict.

And by reason of which I believe this Court took cognizance of this case.

They said although in the — the Third Circuit opinion, they said although these cases are helpful, they’re not determinative.

And then they found — they made some statements such as that there was — that negligence in the case at bar is apparent.

Then Judge Biggs who is writing the opinion of the Court, said — made a further statement, the equities are not with King in this case.

It seemed to us from this opinion that we had gone entirely off the subject of the initial District Court opinion and the findings of that Court as well as the stipulation of facts as well as the complaint.

We felt that the Third Circuit Court was trying to hold Mr. King on some other basis and possibly raise him from the stature of a distributing agent.

We — so that at that point, we went back to the statutes and the cases and dug into them much more deeply and try to read these — the cases that have been interpreted 191 and 192.

And we did bring up these other issues.I do not propose to argue them here Your Honor unless you wish me to.

Earl Warren:

But do you have to rely on them for the conclusion that you ask us to make?

David S. Bate:

I do not have to rely on your — Your Honor, no, I think that what I rely on for the — we rely on for the conclusion that we wish you to make is that King should not be liable because he was a mere distributing agent.

Earl Warren:

That’s the sole issue?

David S. Bate:

That’s the sole issue and he followed precisely the orders of the Court.

(Inaudible)

David S. Bate:

Yes Your Honor.

(Inaudible)

David S. Bate:

Yes Your Honor.

Is that correct?

David S. Bate:

That is correct.

And as to the (Inaudible)

David S. Bate:

Yes Your Honor.

(Inaudible)

David S. Bate:

The — Mr. King — that statement was made by Mr. Freeman who was the attorney for the debtor corporation.

(Inaudible)

David S. Bate:

Mr. King was the president of the debtor corporation.

The —

(Inaudible)

David S. Bate:

Yes Your Honor.

But Mr. King — there is no — there isn’t — this case was not tried on any theory that Mr. King was at all responsible for that statement or that that statement —

(Inaudible)

David S. Bate:

We — it isn’t — it is not even known nor did we allow it to be stipulated that he was — he heard the statement.

He — the only thing in the Court and this is in the record is that he — Mr. King — there is in the stipulation of fact that had said that Mr. King was present in the Court on that day.

But there is no —

(Inaudible)

David S. Bate:

I think it is an inference, Your Honor, yes.

I — but it isn’t — there is no saying that that’s — there is nothing that — no proof or no allegation that that statement wasn’t true.

In other words, we went into this on the basis of what was said in the complaint and what was done on this stipulation.

It said in the stipulation of fact but nowhere was there an allegation that what King had done anything as president of the corporation or in any other capacity than as distributing agent, that may —

What we heard is that (Inaudible)

David S. Bate:

I — Your Honor I’m — I am not going to — I think that your inference is absolutely accurate that he would’ve been there.

What I am saying is that assuming all this, there is no statement anywhere that this or no accusation that this statement by King was not absolutely accurate.

There is no statement anywhere in the complaint or in the stipulation that this statement made by Mr. Freeman wasn’t accurate.

He wasn’t a very well respected member of the Bar of the State of New Jersey.

David S. Bate:

And a very well accustomed, this happened to be the area of his practice I think mostly.

And I am — there is no state — no statement, no charge has been made that this wasn’t accurate.

This is —

Hugo L. Black:

It turned out Mr. Bate, there will be (Inaudible) $20,000 or more dispose of that claim, that could turn out to be true.

David S. Bate:

We don’t know that but Your Honor what we do know is that that — and from this of course an inference could be drawn but we — that — that’s — there wasn’t.

We do know that some — that beside what was left in the $6000 at the end of the distribution which the Government took, there was also some $6000 received by the United States from the debtor corporation.

This is stated in the complaint itself.

But Your Honor the point that we’re — that I’m trying to make here is that we were not apprised that this was an accusation being made against Mr. King or Mr. Freeman that this was a false statement.

And if it had been so for Mr. King was alive when this complaint was filed, he died shortly after the complaint was filed but that would — I think six or eight months after he died in January of 1959, I think it was.

But he is — as he was alive and he could have defended — we at the time, the initial complaint was made.

Also Mr. Freeman was alive at that time of the stipulation of fact.

No accusation that this statement of his was false had ever been made at — he is now deceased also.

That isn’t a question in falsity, the question really hasn’t been addressed at the same time that this statement was made by counsel in the presence of Mr. King asking, on old terms, suppose (Inauidble) an order is entered, on that day allowing the (Inauidble) the United States filed this claim.

And everybody was aware on this colloquy in order to (Inauidble) that a claimed would be filed.

(Inauidble) is true that the dispatch (Inauidble), initially he chooses the money and the referee sounds as if that (Inauidble).

Now, it seems that (Inauidble) that everybody knew (Inauidble).

He wasn’t stipulating that, did they?

David S. Bate:

Not the latter Your Honor.

Not that — not — oh, excuse me, of the $160,000 that is accurate, yes, alright, I — that — that is true.

Of the $160,000 not enough was left to pay the claim of the United States.

But no statement was ever made as to what became of the $94,000.

We were not put on proof as to what happened to that.

And if Your Honor will note that at the end of the — that this case against us comes up in 1958.

And the case against the — that — or the point of time that we’re really interested in is March 21, 1947, 11 years has elapsed.

And no, we were put on no burden to find out what had happened to that money in the meantime.

You didn’t mean — does the record show that the (Inauidble)?

David S. Bate:

Yes.

(Inaudible)

David S. Bate:

Yes Your Honor.

It does show that and it shows that he is — he paid exactly in accordance with the schedules.

David S. Bate:

The schedules or in the schedules his two debt are shown.

But again as to the responsibility for this — for the schedules or — there is no proof that they were false or in anyway wrong and this was an unliquidated claim.

The — an undisputed claim and the referee and Mr. King and the Government undoubtedly were depending on this $94,000 that was outside.

And the referee went ahead and made this order, and told King to distribute and in the — in his distribution, these debts to King himself were there.

But I —

Earl Warren:

You said that both the distributor and the Government relied on this figure, $94,000.

David S. Bate:

Yes sir.

Earl Warren:

Who made that figure?

Who first presented that figure to the Court just being after it?

David S. Bate:

Mr. Freeman, the attorney for the debtor corporation.

Earl Warren:

And the attorney for Mr. King —

David S. Bate:

And —

Earl Warren:

— the distributor?

David S. Bate:

Your Honor, I don’t believe that he was the attorney for Mr. King.

I don’t really know.

He — Mr. King’s personal attorney I believe that — I handled the statement to somebody in New York.

I don’t know whether Mr. King had.

Mr. Freeman as his attorney, I don’t know that.

And certainly as distributing agent, he didn’t need an attorney.

As distributing agent and distributing agent as a mere menial officer who is suppose to follow his orders and do exactly as he’s told.

And that’s what Mr. King did.

He didn’t need an attorney for that.

Byron R. White:

Mr. Bate, do you really suggest that in a Chapter 11 proceeding is that the referee is on the offensive, that he manages the proceeding or does he, like another bankruptcy proceedings, wait for a receiver, a trustee, or a distributing agent to take the steps indicated in the approved plan.

And didn’t he — who for example prepared the order for distribution?

Do you say that King was told the distributor in a signed order, who prepared the order who gave them and do you think the referee drew that themselves?

David S. Bate:

I would guess that Mr. — I surmised quite frankly that Mr. Freeman, the attorney for the debtor corporation prepared that order.

That would be my guess.

Byron R. White:

And Mr. King had been president of the debtor corporation?

David S. Bate:

Mr. King had been president of the debtor corporation, yes sir.

Byron R. White:

So he was aware of the — he was — that he was aware, not only the — of the company’s assets but of its liabilities between the govern — liability to the Government?

David S. Bate:

Yes, I have no doubt that Mr. Freeman and Mr. King had discussed this liability.

There’s — the — and there were — Mr. King was the president of the corporation.

Mr. Freeman was the attorney for the debtor corporation.

Byron R. White:

Who prepared the plan?

David S. Bate:

The plan — this, I don’t know Your Honor.I really —

Byron R. White:

You came into Court with a petition for Chapter 11 with a plan prepared?

David S. Bate:

Yes Your Honor.

Byron R. White:

I supposed (Voice Overlap) —

David S. Bate:

Yes and it’s attached to it.

And the petitioner, I would assume would be the corporation and I — itself.

But as to whether miss — the work of preparing this —

Byron R. White:

Does Mr. King is in the position of a neutral trustee who comes in as appointed by the Court and he doesn’t have previous information about the debtor’s affairs or does not have the prior information about the contents of the plan.

He’s not in that position.

David S. Bate:

No, he’s — he is certainly would — what it seemed to be me being not in that position.

But he is not being sued in any of these other or nor are any of the acts that you are speaking of here the possibility that this — that he neglected something in the schedules.

These are not — we were not apprised of —

Byron R. White:

But if there’s on his liability under 192 because I doubt if the Government, I haven’t heard the Government, but I doubt if the Government would suggest that he is — that he would be liable for an unknowing and unknowing payment of assets without paying them the liability of the Government.

David S. Bate:

The liability of the Government was known by him.

Of course, he knew that he owed money to pick (Inaudible).

These are stated as executory contracts.

But the responsibility was taken off his shoulders by the referee because the referee was told in court — in that colloquy that you were — that has been — that Mr. Justice Goldberg referred to.

The referee is told that there is not enough money in the $160,000 to pay this plan.

He is told that it’s undisputed — I mean that is disputed by Mr. — Mr. Freeman makes the statement that we’re not — we don’t want to allow this claim.

And he is told that it — but he’s told that there would be enough money to take care of the plan.

Byron R. White:

I suppose the Board of Directors of the company approved a resolution authorizing the company, the qualification under Chapter 11.

David S. Bate:

Yes Your Honor.

Byron R. White:

And Mr. King presided at that meeting, I assume.

And I would assume also though that the content for the plan is prepared for the corporation but familiar to him, isn’t that true?

David S. Bate:

I would assume that the contents of the plan were familiar (Voice Overlap) —

Byron R. White:

But the responsibility is off of his shoulders that — but the responsibility if it became — it went off of his shoulders occurred when the referee approved the plan of distribution.

David S. Bate:

Yes sir.

Byron R. White:

And that plan of distribution was prepared by the company?

David S. Bate:

Yes Your Honor

Byron R. White:

At which he was present.

David S. Bate:

Right.

But the — but in that had been — omitted and it was told to the referee that the —

Byron R. White:

I understand that.

David S. Bate:

That it had been omitted.

Byron R. White:

I understand that.

David S. Bate:

So that —

I thought your real position here was irrespective of whether King ior — did or did not know about this claim of the Government as to — he is insulated so to speak because your claim that he doesn’t fall within one of those categories or persons under 192 and contrary wise I understood that the Government’s position was that irrespective of knowledge, he is liable under 192.

That — because of your case –(Voice Overlap)

David S. Bate:

Our —

If you’re — the issue between — that the issue between — turns on whether King did or did not know or should’ve known about this thing.

And maybe you got issues of fact in this case that are not — we can’t deal with on this record and we’re doing a lot of speculating about this.

But the Government’s position is a very straight forward one namely that irrespective of knowledge as I get it, the distributing agent who in good faith or bad faith pays out money that with respect to which the government has priority, he is liable.

And your converse position is I had assumed is that, that it isn’t so because the statute doesn’t apply to the distributing agent but only the person representatives of the debtor.

David S. Bate:

Yes Your Honor, that is exactly what the — our position is.

That the — that he is taken out of this — the only issue before us is whether King as a distributing agent can be liable but I do feel that there is involved here the question of good faith or bad faith but not because it was raised in the District Court, because it was not raised there.

There was no — nothing from which we knew that there was a question of bad faith or negligence in the complaint or in the stipulation of fact or in the District Court’s opinion.

And Judge Wortendyke in one point, he cites In re Pollak.

Now In re Pollak was a case in which the — Judge Wortendyke said In re Pollak relied on by the Government is distinguishable from Stephens and from the case at bar because the distributing agent met — in Pollak made the payments which depleted upon without proper court order.

Now then came — then he goes on and say — cites the other case of — that involved the distributing agent.

The only other case cited in the briefs and that was In re Empire Shoe and after that he says that there the agent was held liable where he had acted without fraud.

Now it seemed to me that Mr. — that Judge Wortendyke if he had thought there was fraud misrepresentation or bad faith, or any of these things that are now being brought up as issues, he would have said right there.

He said that — he would have said something to that effect but he does not.

He negatives bad faith.

And we had all along been under the impression that we were dealing with a — with the issue that Mr. Justice Harlan has said we were dealing with just now which is the simple issue of whether a distributing agent can be liable where he is — where the referee knew all about this thing, knew it was disputed, knew it was unliquidated and he knew that or thought that was — there was sufficient money to pay it and there’s no proof that there wasn’t.

He went ahead and made the order.

Earl Warren:

He was charged with a — was he charged with knowledge of that, that fact that there wasn’t enough money or was that something that he took on faith from the distributor’s figures?

David S. Bate:

Oh, I think he took it on faith but there is no saying that it wasn’t true.

This is the —

Earl Warren:

Right, but it didn’t turn out to be true?

David S. Bate:

In 1958, 11 years later, I don’t think Mr. Freeman should be liable when he said at all times — when the Government at all times had a right to come in and say, “Now, you put up the money.”

And they never did.

The Government — and the Government never asked us to put that money up.

They let us sit back as a matter of fact to all this time and dispute this claim.

I’m speaking of the — us, the debtor corporation.

And dispute the claim through the Third Circuit on the question of whether of — and up to your Court where you denied certiorari on the question of whether the Government had a right to file its claim on May 9th.

And it — and the Government whether it was within the category of the people who could file late claims like that and they decided yes, it was.

But there was — there was a great deal of litigation on this.

And now as Mr. Freeman who’s the attorney for the debtor corporation to be held responsible for that.

We didn’t realize that this was the type of issue that we were to be faced with in this Court.

Arthur J. Goldberg:

But the Court of Appeals have made it an issue (Inaudible) the opinion of the Court; I am looking at the case (Inaudible), and they deal with this specifically, negligence is apparent, essentially it was (Inaudible) that King was not only the distributing agent but president and have known or should’ve known of the unresolved claim when they spoke to this (Inaudible).

David S. Bate:

Mr. Justice Golberg, I agree with you and this was what — they did make it an issue, and this is what bothered us because it had not been an issue in the Court the first instance.

And here we are, we have no —

Arthur J. Goldberg:

Alright, it’s an issue that makes your position a very unsympathetic one.

David S. Bate:

Absolutely.

Arthur J. Goldberg:

The circumstances of this case but how do you address yourself to the proposition the Government says irrespective of good faith or bad faith this man was liable.

He acts to his peril, if he pays out money that — with respect to which the Government has a priority?

David S. Bate:

Your Honor, I say there —

Arthur J. Goldberg:

That’s the real issue, isn’t it?

David S. Bate:

Yes Your Honor and I say if we distribute — we extend Section 192 to make such a person as Mr. King liable or – then you had placed a mere distributing agent on the horns of the dilemma.

He’s either got to be liable in contempt or he’s got to be liable under Section 192.

Tom C. Clark:

But labeled the court.

He was in court (Inaudible).

David S. Bate:

But this — here the Court had already made that decision Your — Mr. Justice Clark.

I —

Tom C. Clark:

(Inaudible)

David S. Bate:

I don’t think this was pro format.

David S. Bate:

That is why in the stipulation of fact Mr. Murphy was so — like Pollak here was so careful to put that stipulation that colloquy in because in that colloquy he is told, the referee is told exactly what the situation — if something had been hidden from him.

If there had been a fraud committed here of some hiding then I can understand your —

Tom C. Clark:

Was that the matter (Inaudible)?

David S. Bate:

Your Honor, any person we contend does not extend to somebody who is a servant or a servant of a servant as in the Irwing Crest was in the Empire Shoe.

Tom C. Clark:

(Inaudible)

David S. Bate:

Yes Mr. Justice Clark.

Tom C. Clark:

(Inaudible)

David S. Bate:

Under the orders of the referee and the referee had knowledge, nothing had been hidden from the referee.

Byron R. White:

But Mr. Bate, I would — I don’t think that maybe the labels like distributing agents may not solve the case one way or another.

It might be this kind of distributing agent in one case and another kind in another case.

The real question even if there was room under 192 for excluding some people and — so that questions as to what kind of a distributing agent your — the deceased was and what is the knowledge and background and participation, and then — very relevant question.

And the — I’m not suggesting that there was bad faith and there’s a long distance between your knowledge and bad faith.

And that I’m just suggesting the circumstances of this particular distributing agent are very relevant.

David S. Bate:

Your Honor, could I —

Byron R. White:

Certainly, answer the question.

David S. Bate:

If I have time to answer that.

I think that they are.

They are absolutely relevant.

They are the important issue here but the — what we are saying is that we were not told that Mr. King was being accused for anything he had done as president, as make — for making up the schedules or in any other capacity then as distributing agent.

We — he — and the complaint does not tell us —

Byron R. White:

Did anyone — I didn’t know anyone had suggested anything disguise.

And there’s a — suggested that he’s liable under 192.

David S. Bate:

Yes Your Honor.

Byron R. White:

That’s all.

David S. Bate:

Yes.

Thank you.

Earl Warren:

Mr. Rosenthal.

Alan S. Rosenthal:

Mr. Chief Justice, may it please the Court.

As we understand it on the faces of the petitioner’s argument this morning, they recognized that the first, the second, and third questions which were presented in their brief in the merits, not properly before this Court because they were not raised in the petition for certiorari or indeed in either of the courts below.

For that reason if the Court pleases, I will confine myself to the single question which is properly before this Court as having been raised in the petition for certiorari, and having been an issue in the courts below.

Alan S. Rosenthal:

That question if the Court pleases is whether a distributing agent appointed in a Chapter 11 arrangement, who fails to honor the Government’s debt priority under Section 191, subjects himself to personal liability under Section 192 for the amount of the Government’s indebtedness that was entitled priority.

Now the question as it arises in the context of this case breaks down into two parts.

The first part is the part to which Mr. Justice Harlan referred.

Namely, are fiduciaries of this type called in this case the distributing agent, are fiduciaries of this type within the reach of Section 192 at all.

Now then on this question, there is concededly a conflict between the circuits.

And indeed it is because of this conflict that the United States acquiesces in the petition and presumably it was because of this conflict that this Court granted certiorari.

The second question is, assuming that distributing agents, this type of fiduciary, comes within the range or reach of Section 192 is that the defense in an action of this kind that the distribution made by the fiduciary was pursuant to a Court approved order.

Now it is the position, if the Court pleases, of the United States first that as the court below held Section 192 does reach fiduciaries such as Mr. King.

And secondly that in the circumstances of this case, admitted circumstances of this case, it is no defense that Mr. King’s payments were under a plan of distribution which had ben approved by the referee.

Tom C. Clark:

(Inaudible) in this case then you — I take it you — that explains the Government to me that now they’d had bear it?

Alan S. Rosenthal:

Your Honor, we would suggest this.

And that is that if the plan of arrangement is approved by the referee, first with full knowledge of the fact that there is a priority claim in the picture.

And second, with the United States having been given notice by the debtor or by the distributing agent of the fact that this plan arrangement is being considered for confirmation.

If then the Court or the referee were to disregard the Government’s priority with full knowledge of the existence of the priority, and with the full opportunity to the United States to defend this priority claim before the referee in that limited of circumstances, we’ve indicated in our brief, we would concede that the distributing agent would not be liable for executing the Court’s orders.

Tom C. Clark:

That’s the position you made in page 26 of your —

Alan S. Rosenthal:

That is correct Your Honor.

Now that is quite a different case from that which is presented here.

I might point out that the Bankruptcy Act itself in Chapter 11 specifically makes provision for priority claims.

Section 337 for example provides that the debtor shall deposit the money necessary to pay all debts which have priority.

Section 367 (2) provides that upon confirmation of the arrangement, the money which the debtor has deposited for priority debts shall be dispersed to the persons entitled thereto.

So there is a contemplation in the Act itself that the debtor as a condition proceeding to the approval of his plan of arrangement shall deposit the moneys which are necessary to pay off priority claims and upon confirmation of the arrangements, those claims will be paid properly.

Now the order which appointed Mr. King in this case, which appears at page 11 of the record, directed the debtors.

This is the corporation of which Mr. King was the president to deposit with Mr. King the moneys necessary to pay all debts which have priority.

So this was of course executing the provisions of Section 337.

Now what happened in this case was the plan of arrangement, amended plan of arrangement, came on for confirmation and at that point the referee raised the matter of this priority claim of the United States.

And as the Court has noted itself, Mr. Freeman, the counsel for the debtor, specifically stated that there would be at all times $94,000 available to pay that claim.

Now the referee has stated, and this can be found on page 16 of the record, that the confirmation on his part was conditioned upon a provision or payment of the Government’s claim if allowable up to $94,000, this was pursuant to what Mr. Freeman had stated.

The result of it here is that there was a plain violation by Mr. King of his duty.

When he drew up these checks and presented them to the referee for countersigning without having seen to it that the debt of the United States was protected as Mr. Freeman has stated it would be.

But we would say here tat the game that the issue of knowledge, the issue of whether or not there has been plans with the order that would come in again only in the context of whether a — it is a defense that there was a court order under which the payments had been made.

Alan S. Rosenthal:

And again we would say there that it is only a defense in the limited circumstance where the referee has been advised of the priority.

When he entered the order, he’s aware of the actual state of affairs and where he chooses to — the reasons best known to himself, not to honor the referee that is, not to honor the Government’s priority and honoring his order, and the United States as I say, has had notice and has an opportunity to convince the referee.

Now the really basic question that we think that is before the Court is the question which is presented by the question rather which relates to the coverage of Section 192 itself.

Does Section 192 extend to fiduciaries such as Mr. King?

Now it’s the Government’s position stated that the court below was quite correct in rejecting the position as we understand it of the petitioners that Section 192 does not reach a court appointed fiduciary unless he is one of the court appointed — types of court appointed fiduciaries or designated ao nominee in Section 192 itself.

Now we think that the starting point in any discussion of the reach of Section 192 must be this Court’s consistent recognition that Section 192 is (Inaudible) with Section 191.

As the Court is aware, both of these Sections date back to the early days of the republic and manifest the firmly rooted legislative interest in securing and protecting the public revenues.

As such, this Court has held that both Sections are to be liberally construed to effectuate their objectives not only Section 191 which establishes the Government’s debt priority but also Section 192 which subjects to personal liability any person who pays the debtor’s debts in disregard of it.

Supposing you were — supposing the taxpayer’s position was accepted on the construction of the statute, would that leave the Government without a remedy in the circumstances of this case?

Alan S. Rosenthal:

If it were held here Mr. Justice Harlan that Section 192 does not reach this class of fiduciary, it would leave the United States without a remedy.

And that is one of the appoint —

What if he — whether if you could prove the — that there was a fraudulent payment of this $42,000 with full knowledge of the Government’s priority and the pocketing of it by King?

Alan S. Rosenthal:

No.

Do you view that a remedy?

Alan S. Rosenthal:

No, I assume Your Honor that if there was a — if it could be established by the United States that the payment by Mr. King to himself was fraudulent, then the United States would have a remedy.

But in most of these cases, I doubt that the question of fraud could — the issue of fraud could be established by the United States.

Here for example, there’s no contest that Mr. King was a creditor of the United States.

The question here as in most of these cases is whether or not or — wasn’t the absence of any fraud.

The claim of the United States is going to be satisfied first as the statute directs that it shall be satisfied if it is entitled priority.

Your view of the statute naturally gives you an easier case on this.

Alan S. Rosenthal:

Well, we would submit if the Court pleases that in — that the position that the petitioners take here is that there is an entire class of fiduciaries, namely these fiduciaries who have court appointments and are not designated ao nominee in 192 or outside the reach of the statute.

Now that would mean that there’s a whole class of priority debts of United States which have no protection in the absence of a — at least of the Government’s being able to establish fraud.

Now we think that the argument of the petitioners which does derives support from the Fifth Circuit’s decision in United States against Stephens that there is this class of fiduciaries who were outside the ambit of the Act cannot even be squared with the language of Section 192 even if it were to be assumed that this language were to be taken in a vacuum divorced from the legislative purpose.

Section 192 applies to every executor, administrator, or assignee, or other person who pays any debt due by the person or state for whom or who which he acts.

Now as this Court noted in the Bramwell case, this language is very general.

And it said the generality of it before any person insignificant.

Now, a receiver or distributing agent in this case — in the context of this case Mr. King is plainly a person who pays the debts of another.

And in doing so, we respectfully submit he is acting in the most meaningful sense for the debtor.

Mr. King, we would say was acting clearly on behalf of the debtor corporation in paying its debts in accordance with the plan of distribution which the corporation has prepared.

Now it’s quite true whereas the petitioner’s stress that in discharging their functions, a distributing agent or receiver as it was involved in the Stephens case, maybe an officer armed with the Court because he’s acting under a court appointment, and additionally is the custodian of property which is under the supervision of the Court.

Alan S. Rosenthal:

And we don’t think it follows that for the purpose of Section 192 that a fiduciary is to be regarded as actig for the Court rather than for the debtors merely because of his status as the Court or appointee.

And in support of that argument, we don’t think we need to go beyond the fact that the administrators are designated ao nominee in Section 192 as being persons who pay the debts of the state for whom they act.

And of course, the Court well knows the administrator coming with a — Mr. King or a receiver is an officer — is appointed by the Court and as such is an officer of the Court.

Apart from the terms of the Section, we would say that the construction that the petitioner offers cannot squarely or cannot be squared rather with the underlying legislative purpose.

I would just point out in that connection that under this construction, there must be imputed to Congress on a petitioner’s construction an intent to give a higher dignity to the Government’s priority claims against the proceedings of states, insolvent proceedings of the states then against as here an insolvent corporation.

That follows from the fact that where you have an insolvent proceedings.

He invariably will have an administrator or an executor who are designated ao nominee and therefore within the reach of 192.

On the other hand, as the petitioner views it, where you’re having insolvent corporation anytime that the fiduciary is other than one of the classes of the fiduciaries designated ao nominee and is in addition a court appointee, there’s no protection afforded by 192 at all.

Earl Warren:

Would it make any difference in your case if the distributor here had no connection whatsoever with the company?

Alan S. Rosenthal:

No Your Honor, on the — we would not think it would make any difference.

It clearly would make no difference on the first phase of the case which is whether Section 192 reaches —

Earl Warren:

That’s right.

Alan S. Rosenthal:

— the class.

Now on the second phase of the case, that is whether or not the court approval provides immunization from liability.

We would say that that fact alone that he had no contact would make no difference.

It would still be his duty we submit, to make an inquiry into whether there are any priority claims.

Now if there — if we were dealing with a distributing agent who had nothing to do with the corporation, and the corporation feel from him the fact that there was an actual or potential priority claim of the United States in the picture, then I would suppose the distributing agent, the stranger in the position of distributing agent might be relieved of liability.

We would say here that these particular facts of this case with this distributing agent who is the president of the debtor corporation put forth the plan of arrangement, that these merely reinforced the fact that in the circumstances of this case, there was a breach of the duty which was owed, the referee, in which would owe the United States on the part of the distributing agent.

For these reasons if the Court pleases, we respectfully submit that the judgment below should be affirmed.