United States v. Whiting Pools, Inc.

PETITIONER: United States
RESPONDENT: Whiting Pools, Inc.

DOCKET NO.: 82-215
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 462 US 198 (1983)
ARGUED: Apr 19, 1983
DECIDED: Jun 08, 1983

Lloyd H. Relin - on behalf of the Respondent
Stuart A. Smith - on behalf of the Petitioner

Facts of the case


Media for United States v. Whiting Pools, Inc.

Audio Transcription for Oral Argument - April 19, 1983 in United States v. Whiting Pools, Inc.

Warren E. Burger:

We will hear arguments next in United States against Whiting Pools.

Mr. Smith, I think you may proceed when you are ready.

Stuart A. Smith:

Mr. Chief Justice, and may it please the Court, this bankruptcy tax collection case comes here on writ of certiorari to the Second Circuit.

It presents an important question under the new Bankruptcy Code, whether a Bankruptcy Court in a reorganization proceeding under Chapter 11 may compel the government under Section 542(a) of the Bankruptcy Code to turn over to the debtor in possession property which the government had seized by levy to satisfy the debtor's delinquent federal tax liabilities prior to the filing of the bankruptcy petition.

The facts are relatively simple, and can be summarized as follows.

Respondent is a corporation engaged in the business of servicing swimming pools.

In 1979 and 1980, it had unpaid assessments for withholding, employee withholding and social security taxes amounting to some $92,000.

These liabilities had gone unpaid for almost as much as two years, and on January 14th, 1981, the Internal Revenue Service exercised its statutory rights to levy on Respondent's inventory equipment and other tangible property.

This was done by placing a padlock on the premises, and the property therefore was seized pursuant to Section 6331(a) of the Internal Revenue Code.

The very next day, January 15th, 1981, Respondent filed a petition for reorganization under Chapter 11 of the Bankruptcy Code.

Warren E. Burger:

What was the value of the property seized when the adjustment, $20,000 adjustment was made?

Stuart A. Smith:

Well, the value of the property was found by the Bankruptcy Court to have a liquidating value of $35,000.

Warren E. Burger:

What was the amount of the government's claim?

Stuart A. Smith:

The amount of the government's claim is $92,000.

The $20,000 adjustment, Mr. Chief Justice, is somewhat of a... well, it is really not before the Court, because it involves the adequate protection question, but let me simply say in passing that the government took the position, correctly, we think, below, that that $20,000 did not constitute adequate protection because that was $20,000 in the bank account that the government had exercised its seizure rights.

So what was being done essentially was saying... was the Bankruptcy Court saying, well, you have adequate protection here because I am going to take this $20,000.

You have got $20,000 already.

That was with respect to another seizure.

But in any event, it is not before the Court.

By doing this, by filing this petition, the Respondent became a debtor in possession, and one month later, in February, the Internal Revenue Service sought to exercise its statutory rights under Section 6335 of the Code to sell the seized property and to reduce it to cash and to apply it against the tax liability.

It then, because of that, because it wished to do that, it went into bankruptcy... it went into the Bankruptcy Court on February 18th and sought an order from the bankruptcy judge that the automatic stay provisions of Section 362 did not bar its sale of the property, principally because the property was seized.

It was not part of the bankruptcy estate.

Respondent counterclaimed and sought an order which is at issue here, the propriety of which is at issue here, requiring the government to turn over the seized property under Section 542(a) of the Bankruptcy Code.

The Bankruptcy Court upheld the government on the issue that is before the Court.

It held that Respondent was not entitled to compel a turnover order... to a turnover order under 542(a), and the District Court on review likewise upheld the government.

It basically held, in accordance with our submission here, that the seized property was not property of the estate within the meaning of the pertinent provisions of the Bankruptcy Code, and was hence not subject to turnover.

William H. Rehnquist:

Do you think the District Court or the Bankruptcy Court based that view on the... analogizing the government's position here to that of any seizing secured creditor, or on the basis of peculiar to the government's position?

Stuart A. Smith:

I think on the basis of peculiar to the government's position, that the government is not simply seizing secured credit, but operates, as the Court... as we point out in our brief, and the Court recognized in Phelps, the government... the government's position as tax collector is really quite different and distinct, and Congress has so made it different and distinct because of the involuntary nature of the government's creditor relationship.

In other words, we did not... unlike a bank, we did not enter into a voluntary relationship with Respondent to lend it money, and hope, you know, and take collateral.

We basically... Here we are in the position where, as the Court of Appeals itself recognized, the Respondent helped itself to the government's money.