United States v. Speers

PETITIONER:United States
RESPONDENT:Speers
LOCATION:Juvenile Court

DOCKET NO.: 17
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 382 US 266 (1965)
ARGUED: Oct 20, 1965
DECIDED: Dec 13, 1965

Facts of the case

Question

Audio Transcription for Oral Argument – October 20, 1965 in United States v. Speers

Earl Warren:

Number 17, the United States, Petitioner, versus Ray F. Speers, Trustee in Bankruptcy of the Kurtz Roofing Company Incorporated.

Mr. Roberts.

Richard M. Roberts:

Mr. Chief Justice and may it please the Court.

This case is before the Court on a writ of certiorari to the United States, Court of Appeals for the Sixth Circuit.

The Court of Appeals decision affirmed a holding by the District Court for the Northern District of Ohio, which it upheld a holding by the referee in bankruptcy’s determination that the Trustee in Bankruptcy was a “judgment creditor” as that term is used in Title 26 of the United States Code, Section 6323.

And therefore the tax mean notice of which had not been filed prior to the petition in bankruptcy and prior to the appointment of the trustee was not had been — not filed prior to his appointment and that he therefore had priority over the federal tax lien.

The issue involved in this case is the interpretation of the term “judgment creditor” as it is used in the Internal Revenue Code from Section 6323 and an interpretation of the powers given to the trustee under Section 70 of the Bankruptcy Act.

The facts in this case are very simple and are not in dispute as they affect the case.

On June 3, 1960, the District Director of Internal Revenue assessed withholding tax and interest in the amount of slightly more than $14,000 against the Kurtz Roofing Company.

On that same day, the District Director made demand for the taxes from taxpayer.

Seventeen days later on June 20, 1960, the Kurtz Roofing Company filed a voluntary petition in bankruptcy.

Notice for the federal tax lien had not been filed prior to the date of bankruptcy.

The trustee rule that the United States was not a secured creditor and held that the United States was an unsecured claimant entitled only to the fourth priority of payment under Section 64 (a) (4) of the Bankruptcy Act for unsecured claims for taxes legally due and owing.

As a result of this holding by the trustee, although other secured creditors were paid in full, the trustee proposed to pay on a pro rata dividend slightly over 53% on the federal tax claims.

No amounts were distributed to the general creditors or the bankrupt.

The Section 6323 of the Revenue Code of 1954 provides in part except as otherwise provided in subsection c.

The lien imposed by Section 6321 shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the Secretary for his delegate.

Section 70 of the Bankruptcy Act provides in part subsection c, the trustee as to all property whether or not coming into a possession for control of the Court upon which a creditor of the bankrupt could have obtained a lien by legal or equitable proceedings at the time of the bankruptcy shall be deemed vested as of such date with all the rights, remedies, and powers of a creditor, then holding a lien thereon by such proceedings whether or not such a creditor actually exists.

The only issue involved in this case is whether the languages used in that Section 70 of the Bankruptcy Act makes the trustee a “judgment creditor” for purposes of Section 6323 of the Internal Revenue Code of 1954.

Potter Stewart:

Did the statute used to use the phrase “judgment creditor”?

Richard M. Roberts:

In his — did it one time.

Yes, Your Honor.

Potter Stewart:

And it was amended to the present phraseology long ago?

It’s not very important.

I wonder if there’s —

Richard M. Roberts:

It was 1952.

I think it was in 1952.

Potter Stewart:

— is there any.

There’s no claim that that means anything less than a “judgment creditor” that is then been the phrase “judgment creditor” use to me is in —

Richard M. Roberts:

We make no claims with the change in language makes any difference, Your Honor.

Richard M. Roberts:

That is correct.

Potter Stewart:

With respect to this case.

Richard M. Roberts:

Right.

Now, we submit that in the interpreting Section 70 of the Bankruptcy Act.

There’s — there should be read in conjunction with the language that is used in Section 70.

Language that is used in Section 67 as it applies to federal taxes and other lien holders.

By its terms Section 67 allows statutory liens for tax and debts owing to the United States could be perfected after bankruptcy.

Section 67 states in part whereby such laws, such liens are required to be perfected and arise but are not perfected before bankruptcy.

They may nevertheless be valid if perfected within the time permitted by and in accordance with the requirements of such laws.

Now, under 67, there a number of other creditors besides tax liens holders, who may perfect their liens and they will take under the priority set forth.

Now, it is difficult to believe that Congress intended federal taxes — included federal taxes under Section 67 to go out and to be perfected and then what have repudiated that by saying in Section 70 using language that the courts withhold that the trustee was a “judgment creditor” because as the “judgment creditor” you can’t perfect the taxes under the Revenue Code.

Now, to uphold the trustees’ position in effect creates two categories of priorities.

One, it would be in effect in a lien priority contest where there was no bankruptcy as many other cases were before this Court.

And a different priority in those cases where there is bankruptcy because Rule 67 allows a landlord, county, other lien holders to perfect their lien.

Under the holdings of this Court, those same lien holders cannot perfect their lien after the taxes have been assessed and you would have two sets of priorities then.

You would have the mechanics liens and the landlords, if there have been a bankrupt.

They would leap frog the federal tax lien because of the status given the trustee.

Whereas in a straight lien priority contest not involving bankruptcy, the federal tax lien would come ahead.

It is difficult to believe that Congress intended such a result.

Byron R. White:

What invalidates the lien if this affected those other statutory liens?

Richard M. Roberts:

I beg your pardon?

What invalidates the lien?

Byron R. White:

Yes.

Under 67, you said the liens may be valid — may be —

Richard M. Roberts:

Maybe perfected.

Byron R. White:

— after bankruptcy.

Richard M. Roberts:

After bankruptcy.

Byron R. White:

What if they aren’t?

Richard M. Roberts:

Well, if they’re not perfected —

Byron R. White:

That’s with the Act?

Richard M. Roberts:

— I assume they — they then remain and retain the status of the general creditor, if they’re not perfected lien holder?

Byron R. White:

Under what provision.

Well, later you can answer that.

Earl Warren:

Mr. Roberts, you may continue your argument.

Richard M. Roberts:

Mr. Chief Justice, Justice White in response to your question of what is — is there a provision in the Act regarding a lien holder who does not perfect his liens?

I know of no provision in the Act specifically dealing with the case where lien holder fails to perfect his lien as he’s allowed to do under 67.

But I think that it’s reasonable that where he does fail to protect his lien perfect it.

He is no longer a lien holder and he comes in then as a general creditor.

The only instance I can conceive where he would fail to perfect his lien, is where from the total assets in the bankruptcy proceeding.

He has concluded that there are prior liens that have already been established —

Byron R. White:

Why doesn’t 70 (c)?

Richard M. Roberts:

Why doesn’t 70 (c)?

Well, 70 (c) does provide for the general creditors, yes.

And that’s why I’m saying that there is he comes in then as a general creditor.

It doesn’t —

Byron R. White:

(Inaudible) the trustees cut out the lien and practically (Inaudible)

Richard M. Roberts:

But he cuts it out for the benefit of the unsecured creditors of which this man would then become an unsecured creditor.

Byron R. White:

Do you — do you think that would see its relevance here.

Richard M. Roberts:

Yes.

Byron R. White:

Then that would apply the situation?

Richard M. Roberts:

It would apply in that — he would be one of those benefited by the trustee.

Yes, but it’s not specifically.

Byron R. White:

The trustee would have the power to really cut this, (Inaudible) cut out the lien.

Richard M. Roberts:

Yes.

Not cut it out entirely.

Byron R. White:

Well, I don’t understand.

They could cut out the lien.

Richard M. Roberts:

Yes, it’s —

Byron R. White:

Lien holders are (Inaudible)

Richard M. Roberts:

He can only cut it out, Your Honor, if the man does fail to perfect it himself.

Byron R. White:

Now, do you say that United States tax lien is assessed.

Richard M. Roberts:

No.

But United States tax lien ones it’s assessed is a perfected lien.

It doesn’t — nothing has to be done.

I didn’t get notice in demand which relates back to the assessment to perfect the tax lien.

This Court has held that it is a perfected lien in the Snyder case which produced the forerunners of 60 —

Byron R. White:

(Inaudible) or filed, you would be making the same argument.

Richard M. Roberts:

Had not filed a notice of lien or not filed a proof of claims.

What part of the lien?

Richard M. Roberts:

We would be making the same argument.

Yes, sir.

We have a perfected lien.

We’re relying on a later filing or notice of tax lien.

No, sir.

Byron R. White:

What made us do that?

Richard M. Roberts:

We did later file a notice of tax lien, yes.

What made us do that?

I don’t know what made the District Director do that in this instance.

Potter Stewart:

Except it’s against real “judgment creditors” the lien so good until its final, isn’t it?

Richard M. Roberts:

Well, that is true if someone else came in with the real “judgment creditor” after that.

You could have a purpose in filing the notice of lien.

Now, it seems clear that from the legislative history of 70 (c) and the changes in 70 (c) that the right’s of the trustee that Congress was attempting to protect unsecured creditors because that is who the trustee is really to benefit for is to benefit the unsecured creditors.

Now, in 64 (a) and this case illustrates, even if you hold that the trustee is a “judgment creditor” the United States still comes ahead of the unsecured creditors for its tax claim under a 64 (a) (4) priority.

We got part of our tax claims here.

The unsecured creditors got nothing and we say that it’s the language in 70 (c) defines the trustee in bankruptcy right is to protect the people who really adds for and they’re the unsecured creditors.

But if you read that to mean that he is a “judgment creditor” under the priority statute 6323, that he really is not — that holding does not benefit unsecured creditors or whatsoever because the federal tax lien then still comes in ahead of them under 64 (a) (4).

I think —

Abe Fortas:

Do you — I beg your pardon sir.

Do you construe the law as meaning that a trustee is a “judgment creditor” and has a status has say as if he were a “judgment creditor” with respect to all private claimants?

Forget about United States and the tax lien now under 70 (c) of the Bankruptcy Act, is the trustee a “judgment creditor” with respect all other types of claims?

Richard M. Roberts:

As to unsecured claims, yes.

As to secured claims, if there is a prior secured claim —

Abe Fortas:

I’m — I’m not talking about that.

Richard M. Roberts:

As to unsecured claims, yes, Your Honor.

Abe Fortas:

Well here, the trustee is a “judgment creditor” for whatever that may mean.

With respect to everybody except the United States tax liens, is that your position?

Richard M. Roberts:

Yes.

Abe Fortas:

The tax lien — that is it.

Richard M. Roberts:

That is our position.

Abe Fortas:

So what you’re saying is that somehow we ought to read 6323 (a) of the Internal Revenue Code and 70 (c) of the Bankruptcy Act together.

So as to come out with the result that 70 (c) is subject to an exception that is to say.

That under 70 (c) of the Bankruptcy Act, the trustee has a status of a “judgment creditor” with respect to everybody except the United States tax lien even if that tax lien has not been filed.

Richard M. Roberts:

That is correct, Your Honor because we say that this Court has held a “judgment creditor” as Congress used that term in Section 6323 and its predecessors to be a “judgment creditor” in the conventional sense, that is one who has a judgment Court of record.

Abe Fortas:

Well, you’re asking that “judgment creditor” in 6323 (a) being construed so as to mean “judgment creditor” except for the trustee in bankruptcy?

Richard M. Roberts:

Well, a “judgment creditor” except for in several instances, in the Gilbert Associates case, the new — State of New Hampshire, Supreme Court had said that its tax lien was in affect a judgment.

And this Court said that “judgment creditor” that the state could not characterize what it wanted to as a “judgment creditor”.

That you use judge that the Congress had use “judgment creditor”, to mean a conventional “judgment creditor” is one who’d obtain the judgment in the court of law.

Abe Fortas:

But it did not expressly — this Court did not expressly pass it on whether in the Gilbert Associates on whether “judgment creditor” the purposes of 6323 (a) did or did not include the trustee in bankruptcy?

Richard M. Roberts:

It did not Your Honor and that has been was — when Simonson was before this Court, the late Justice Frankfurter has pointed out that in 6323 and in the cases interpreting “judgment creditor” that they had not considered the Bankruptcy Act.

But while this Court did not since the Gilbert Associates case and since the other cases that have come up interpreting Gilbert Associates and applying it to the bankruptcy situation.

There had been amendments not only of the Internal Revenue Code of 1954 some more extensive than others but there have also been amendments to the Bankruptcy Act in 1960 and 1962 and Congress has not seen fit to say that those cases holding the trustee not to be a “judgment creditor” within 6323 wearing out and change the priority either by amending the Bankruptcy Act which they could do.

They could amend Section 70 to provide definitely that he is a “judgment creditor” under the internal revenue laws or they could amend 6323 and add trustee and bankruptcy to the four classes who have been accepted.

Byron R. White:

What do you get from the Commission, if they are going to upheld that you wouldn’t get if you had a right as you do as a trustee, your perfected lien (Inaudible)

Is that your relative priority in effectuating it?

Richard M. Roberts:

Yes.

Well, yes, the relative priority under other statutory liens plus the fact that if we are a secured —

Byron R. White:

You don’t have to — you never have to tax the lien and had to require (Inaudible)

Richard M. Roberts:

Now, I was going to say, Your Honor, plus the fact that — our position is that if we are a secured — if it is the secured lien, we believe it is that and if it’s real property, we don’t have to really rely on the bankruptcy court to establish our priority, we’re ahead.

Byron R. White:

67 (b) wouldn’t do that.

Richard M. Roberts:

Because there are some instances where we have not perfected.

Richard M. Roberts:

In the code —

Byron R. White:

We didn’t hear?

Richard M. Roberts:

In the Fidelity Tube case, Your Honor.

We had made no notice and demand prior to bankruptcy.

We made that notice and demand and that case held at filling the proof of claim in the bankruptcy proceeding with the trustee perfected our lien.

There was no perfected lien there.

There are instances being having the assessment and not a perfect lien.

Byron R. White:

You stated in this case, in this instant case, your argument is to the effect (Inaudible) doesn’t give you a credit?

Richard M. Roberts:

It is correct.

Byron R. White:

(Inaudible)

Richard M. Roberts:

The only thing it would give us is as you can see from reading the Bankruptcy Act itself, it does not really go into priorities.

The Bankruptcy Act does not go into who would perfects his lien comes first.

It sets out that certain people can perfect their lien.

Now, it would give us the right if we perfect our lien first.

We would say you would go back to the line of cases that then say, you take first in time, gets paid first.

And if we had a perfected — if we had a lien that we perfected after the bankruptcy proceeding had been done and other lien holders had liens that they perfected, we would say that it was then first in time.

Hugo L. Black:

It did not protect — perfected your lien by filing?

Richard M. Roberts:

Your Honor, we don’t have to file our notice of lien to perfect our lien.

We have a perfected lien.

The Court held in Snyder that this was a perfected lien even as opposed to a benefited purchaser who had no knowledge, the Snyder case was before the requirements of filling the notice of tax lien.

Congress enacted the four runners of Section 6323 to protect certain persons.

It didn’t enacted saying, we had no lien until we filed our notice of lien.

Hugo L. Black:

But now there’s requirement of filing.

Richard M. Roberts:

There’s a requirement of filing only to make the lien perfected as to four classes of persons, a “judgment creditor”, a purchaser, a mortgagee, or a pledgee as to anyone else, we have a perfected lien without filing of a notice of lien.

Hugo L. Black:

You don’t — the statute does not require you to file a certain certification?

Richard M. Roberts:

No, sir.

Not at any time.

Hugo L. Black:

How many days (Inaudible)

Richard M. Roberts:

No, we can file it at any time.

There’s no requirement of time as to filing the notice of tax lien.

Richard M. Roberts:

Now, the Congress has considered several times amending the Section 70 to include and point out specifically that they want the trustee to have a status of a judgment creditor under 6323.

It has not seen fit to change the law.

There have been numerous cases, other Circuit Courts, the other Circuit Courts who’ve considered this have all ruled in favor of the Government.

The Sixth Circuit is the only one that has ruled adverse to the Government’s position here.

And we believe that where the courts have consistently interpreted the statute where there is a regulation setting out the trustee, that a “judgment creditor” — is a “judgment creditor” within the conventional sense as that term is used in 6323, that this Court should not upset what has been the term of the law and that it would be congressional intent.

In fact, two of the cases, the Simonson case, the concurring opinion in Simonson and the majority opinion in the Fidelity Tube point out that the Congress could change the law.

There had been several bills.

There is one pending notice, passed to House.

It’s now pending in the Senate where it has been put over to next year for report back to the committee that would change the law.

We submit that the law that the Circuit Court here misconstrued the congressional intent that there’s no reason to give the trustee and bankruptcy the status of a “judgment creditor” under 6323.

Earl Warren:

Mr. Gosline.

Robert B. Gosline:

Thank you, Your Honor.

I think it might help the Court to understand this case if we start where the present appeal started and that is with the conflict between the circuits.

The statutes which we have here are two federal statutes and this case as we’ve argued it to the Court to the Sixth Circuit dealt with the meaning and relationship between these two statutes.

Now, Section 6323, Section 5321 creates what sometimes called the secret federal tax lien by assessment and demand on the taxpayer alone that is the completed perfected lien.

That lien, however, is by Section 6323 said to be not valid and it uses the word valid until notice is filed with a county recorder or a District Court depending upon where it is to be filed where the District Director desire to file.

So that after assessment and demand, the simple filing of a notice the next day, the same day, makes this lien valid not only against the debtor and most all unpreferred classes but also against these four preferred classes including the judgment creditor.

Now, in this case, bankruptcy — voluntary bankruptcy intervened between the time of the assessment and demand and later and I think superfluous filing of the notice with the county recorder.

So that the referee in bankruptcy relying upon the grant of Section 70 (c) said, that because by the same Act — the same Congress which said a “judgment creditor” is entitled to freedom from the secret lien, also said, that a trustee in bankruptcy shall be deemed vested with the rights of — with all the rights of a lien holder holding a lien by legal or equitable proceedings was by inclusion of that though general terms a “judgment creditor” and his right was not subject to the prior secret lien of the federal tax.

Now, the controversy, I think, arose from the controversy and the interpretation of Section 70 (c) and 6323 arose from a decision some years ago of this Court in the Gilbert Associates case.

In that case, this Court was confronted with an interpretation of the phrase “judgment creditor” in 6323 and only that.

The controversy was between the federal tax lien and a local tax lien in New Hampshire, I believe.

And this Court said, that “judgment creditor” means a person holding a judgment of a court of record.

Now, I don’t think anyone can argue with that and we agree with it.

The next case, in order of time, would be Fidelity Tube Company case.

That case was heard en banc and there was a majority opinion and a dissent and I think the division was something like four to two or five to two.

But the principal — the majority opinion said that in the Gilbert Associates case, the Supreme Court said, you have to have a judgment in a court of law.

The trustee in bankruptcy does not have a judgment in the court of law.

Therefore, the trustee in bankruptcy is not a judgment creditor within 6323.

In rather inconsistent situation — discussion, the majority went on to say that Congress could amend this Section 70 (c) to say that a trustee in bankruptcy would be a “judgment creditor”.

Robert B. Gosline:

Now, the dissent in that case is a careful consideration of this question and in the dissent Judge Kalodner said, that a trustee in bankruptcy should not be considered a “judgment creditor” for one purpose and not for other purposes because Section 70 (c) is broad in its statement and said, that he shall have all the rights of a creditor holding a lien by legal or equitable proceedings.

He went on to say that the words of Section 70 (c) were general and broad enough to cover the elements which made up a ‘judgment creditor”.

Certainly, a creditor holding a lien by judicial proceedings, as anyone would ordinarily interpret it, include the “judgment creditor”.

He suggested in the majority or the majority opinion suggested that if Congress did amend the law to include a trustee in bankruptcy as a “judgment creditor”, it would solve the problem.

Now, this is inconsistent with the original position that under the Gilbert Associates case, there can only be a “judgment creditor” who has judgment by a court of law.

And I think that that is one of the keys to the efficiency in the Government position here.

They admit in their brief the Congress has the power to grant a trustee in bankruptcy the status of a “judgment creditor” but yet they say that only first holding a judgment in the court of law can have that position.

Those two are inconsistent and cannot be resolved.

They say leave it up to the Congress to change it.

I think that that’s not necessary because the Congress has already stated in the present 70 (c) which was decided — which was amended in 1952 that a trustee in bankruptcy has these rights.

Byron R. White:

Mr. Gosline, I think in this case, the Court of Appeals said the bankruptcy (Inaudible)

Robert B. Gosline:

That’s correct.

That’s —

Byron R. White:

(Inaudible) in the normal case, what — what would the trustee get by winning this case?

What would the usual trustee — when the Government could perfect its lien against him under 67 (b)?

Robert B. Gosline:

Well, I don’t think — I don’t think that the Government can perfect the lien under 6323 after the date of bankruptcy and that is the 67 (b) discussion.

Byron R. White:

67 (b) says it can?

Robert B. Gosline:

I don’t believe so, Your Honor.

When you read it with 6323 because 6323 says that —

Byron R. White:

You want 70 (c) to control 6323 but not 67 (b)?

Robert B. Gosline:

No, both, because 6323 says that in the federal tax lien shall not be valid until —

Byron R. White:

Until?

Robert B. Gosline:

Until, so that there is no — if the trustee in bankruptcy is a “judgment creditor” there is no validity in your federal tax lien until the filing.

Byron R. White:

Exactly.

Robert B. Gosline:

So that if a filing is subsequent to the date of bankruptcy, the rights of the trustee will always be prior to your date of validity —

Byron R. White:

Section 67 (b) says expressly that nevertheless it’s valid against the trustee.

Robert B. Gosline:

I don’t believe so, Your Honor.

I think that what 67 (b) refers to is a situation —

Byron R. White:

Let’s — let us assume for a minute that 67 (b) did say that.

That — that the Federal Government may nevertheless file its lien and perfected against the trustee after bankruptcy.

Byron R. White:

Let’s assume that for the moment.

Then normally the trustee wouldn’t — a normal trustee wouldn’t win much by winning this case.

Robert B. Gosline:

I don’t think so, Your Honor, because there is no time limit.

He would — he would win freedom from tremendous confusion.

There’s no time limit on the time within which the notice can be filed.

Now, normally with the mechanic’s lien or some of the other statutory lien, the filing has to be within 20 days.

Byron R. White:

Yes.

Robert B. Gosline:

Within 60 days in the case of Ohio mechanic’s lien, so that if 67 (b) has given affect in that situation, you have a cut-off period within which you know that there will be no more filings under 67 (b).

With this case with an unlimited time, if you are going to consider 6323 under 67 (b) you might complete your bankruptcy, sell all your property and distribute the proceeds, have a filing subsequently and have the bankruptcy reopened again because the lien which was filed under 6323 is then claimed at being perfected.

Byron R. White:

But 67 — 67 (b) does express from this in the federal statute or the federal tax lien?

Robert B. Gosline:

I don’t think it does, Your Honor.

I may be incorrect on that but I didn’t think it did.

I thought it referred to state statutory liens.

Hugo L. Black:

(Inaudible)

Robert B. Gosline:

Statutory lien.

Byron R. White:

Including liens for taxes going to United States?

Robert B. Gosline:

Well, Your Honor, then my answer to this line of argument goes back to 6323.

It says, it is not valid until the notice is filed.

There is no relation back, no retroactive effect of the filing of that notice so that it is not valid until the notice is filed.

Byron R. White:

So 67 — you just read 67 (b) out of it.

Robert B. Gosline:

No.

Byron R. White:

Go ahead.

I don’t want to interrupt your argument.

Robert B. Gosline:

Well, this is important and I’m happy to address myself to it.

I don’t read 67 (b) out of it.

But I read 67 (b) as in relation to the limitation that the filing of notice the federal tax lien is operative until it is filed and that the right of the trustee at the date of bankruptcy, so that the date of bankruptcy will always in your assumption precede the operative debate of Section 6323 and that —

Byron R. White:

Is the emphasis on the validity part of that argument?

Robert B. Gosline:

That’s correct, Your Honor.

Validity, and the word until so that no — as far — if the trustee in bankruptcy or the “judgment creditor”.

William J. Brennan, Jr.:

Well, may I ask this, does that mean, you treat 60 (b) as applicable under the so-called valid as you define valid liens which require filing of notice?

Robert B. Gosline:

Yes, I think that would be —

William J. Brennan, Jr.:

That isn’t the language of course.

It says statutory liens should act —

Robert B. Gosline:

Correct.

William J. Brennan, Jr.:

— and that’s all under United States.

Robert B. Gosline:

It’s a broader language than that.

But otherwise, the trustee would be confronted with an unlimited possibility of filing and with an indeterminate situation in the bankruptcy administration.

I’ll move back briefly to the opinion of the Sixth Circuit, that was written by Judge Sullivan and it states in very succinct and precise terms, the position on which we basically rely and that is that the Congress had the right to give this exemption to “judgment creditor”.

The Congress also have the power to define who would be considered a “judgment creditor” and in Section 70 (c), Congress had given that definition and broaden up terms so that the trustee in bankruptcy as Judge Sullivan quote as clearly his words can state the trustee in bankruptcy is entitled to all of the rights of a “judgment creditor” although, obviously, he is not one and that language he quoted from the concurring opinion of Judge Hamley of the Ninth Circuit in the other conflict case of Simonson versus Granquist.

The Government has relied upon the committee report in recent years and I think it’s appropriate to comment on those very briefly.

We have — they have quoted committee reports of the House Ways and Means Committee and we have quoted committee report to the Senate Finance Committee of the committee report of the House Ways and Means Committee and the Senate Finance Committee which were dealing with Section 6323 and those committees are of course in favor of a strict construction of a “judgment creditor” in aid of the collection of taxes.

We have relied upon reports of the bankruptcy subcommittee of the House Judiciary Committee and of the Senate Judiciary Committee.

These reports are considering the status of the trustee and the efficiency of the operation of the bankruptcy procedures and they are in favor of expanding the rights of the bankruptcy trustee.

These committee statements, I think, have to be somewhat of a stand off and the legislative history which has had in this statutes since about 1910, a provision that trustee and bankruptcy shall be considered as if you were a “judgment creditor” as well as the present form which grants to the trustee in bankruptcy rights well beyond those of a “judgment creditor” because in some states and in particular in Ohio, a “judgment creditor” is not a lien holder until a certificate of judgment is filed or until a levy of execution is filed, so that the rights of a “judgment creditor” in Ohio are substantially less than the rights of a creditor holding a lien by legal or equitable proceedings.

Government makes reference to the practical effect of the ruling and of the statute and makes the point that in this case, the Government was not treated as an unsecured creditor.

And I think in that, he falls in the error of distinguishing between priority unsecured creditors and unsecured creditors which have no priority.

Now, state and federal taxes are given a priority over other unsecured creditors under 64 (a) of the Bankruptcy Act.

The result is that in this case the Federal Government shared with the state taxing agencies in the dividend which was proposed, the 53% dividend, and that represents just exactly what the purpose of Section 70 (c) is and that is to bring the right of an unsecured creditor ahead of a creditor claiming a secret lien.

I think with respect to the practical effects, we always come down to the very simple answer, that the only thing that the Government has to do to protect itself completely in this type of situation is to file its notice and when that notice is filed mortgagees, pledgees, judgment creditors, trustee in bankruptcy are all subsequent in their priority to the federal tax lien.

I think, probably, the arguments in favor of trustees’ position as the “judgment creditors” are fully summarized in Judge Sullivan’s opinion, it is brief and it is precise.

They also summarized the memorandum of the referee in bankruptcy which is in the record and the word of the two statutes, I believe, are clear and unambiguous and don’t require any resort to legislative history comparisons to practical effect or other collateral sources.

But proper construction is possible from a simple reading of their provisions.

Perhaps the heart of the argument here is the power of Congress to define the word “judgment creditor” to include a trustee in bankruptcy.

We believe that the Government concedes this power, that this power was exercised in 70 (c) and 70 (c) defines the trustee as the statutory “judgment creditor”.

With these reasons which are set out in the publications that are on file, we believe that the judgment of the Sixth Circuit Court of Appeals should properly be affirmed in preference to the conflict cases.

Thank you, Your Honor.

Earl Warren:

Mr. Roberts?

Richard M. Roberts:

No rebuttal, Your Honor.

Earl Warren:

Very well.