Nicholas v. United States

RESPONDENT: United States
LOCATION: Where Penn was killed

DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 384 US 678 (1966)
ARGUED: Apr 19, 1966
DECIDED: Jun 13, 1966

Facts of the case


Media for Nicholas v. United States

Audio Transcription for Oral Argument - April 19, 1966 in Nicholas v. United States

Earl Warren:

Number 650, John Nicholas, Trustee, the Estate of Beachcomber Motel, Incorporated, Petitioner, versus United States.

Mr. Gunn.

John H. Gunn:

Mr. Chief Justice and members of the Honorable Court.

The importance of the matter that we have before you today is reflected by an analysis in the Government's brief with which we hardly concur showing the increase nationally in debtor's relief proceedings.

Now, the Government also points out that in, what I compute to be about 60% of those instances, we're referring to the Chapter XI analysis, the arrangement proceedings.

The proceeding results or the proceeding has failed and there is a resulting adjudication in bankruptcy with the replacement by the debtor of a creditors and the trustee.

The question, therefore, of the case at hand is to what extent is the trustee or stated even more directly, to what extent is the general estate responsible for income taxes withholding taxes that is to say and other taxes, federal taxes which have been collected by the Debtor in Possession dissipated prior to the adjudication not handed over to the creditor's representative.

And must the trustee respond on a claim and pay interest on those funds which he did not receive as well as paying the principal of the funds which we concede.

And is he subject to penalties if he fails to return?

Those are the problems of with which we're faced today.

Problem receives a little added emphasis from the fact that in 1952, presumably because of this increase in debtor's reli -- debtors relief provisions and compositions of creditors, Congress changed Section 64 of the Bankruptcy Act.

And in changing it, they subordinated the costs and expenses of the abortive debtor's relief provision to those of the liquidating bankruptcy.

When the debtor was taken out after adjudication and the creditor's representative, the trustee replaced him.

And in essence, these are the facts of the case of John Nicholas versus the United States that were before Your Honors on today decided coincidentally only ten days apart from an opposite decision on a virtually the same set of facts in the Eighth Circuit.

In this case there was a voluntary petition by a motel in Miami for an arrangement with its unsecured creditors.

For 40 days under court order, this debtor in possession managed its affairs.

And then on a petition drawn by creditors, it was adjudicated as its plan could not succeed.

It had in fact been dispossessed of the hotel premises.

And a trustee was elected.

The Government filed its tax claims subsequently.

They claimed not only pre-petitioned interest or pre-petitioned taxes.

They claimed as well certain taxes which had been withheld, had been collected as cabaret taxes and as unemployment and social security taxes by the Debtor in Possession but never handed over to the trustee.

And presumably, used in the operations of the business or otherwise dissipated.

Accordingly, when the Trustee in Bankruptcy took over as the record shows, he received nothing in the way of transferred assets.

He subsequently was able by certain proceedings to gather together in the State.

And now the Government in its tax claim as the principal of these taxes, as to assess the interest to the date that it filed its claim, as accrued interest thereafter up until the date of payment, and as to penalties against this trustee for his failure to make returns as to the Debtor in Possession's tax collection.

William J. Brennan, Jr.:

Are there any of these come out of the trustees' own pocket or --?

John H. Gunn:

No sir.

William J. Brennan, Jr.:

Thank you.

John H. Gunn:

The point that I first made, this is a fight between the general state and the United States rather than the trustee and the United States.