
    GARFIELD TRUST COMPANY v. THE UNITED STATES
    [No. 442-58.
    Decided January 11,1963]
    
    
      
      Llewellyn, A. Luce for plaintiff.
    
      Joan T. Berry, with whom was Acting Assistant Attorney General Josef h D. Guilfoyle, for defendant. Frances L. Nunn was on the briefs.
    
      
       Plaintiff’s petition for writ of certiorari denied by the Supreme Court, 373. U.S. 923.
    
   Whitaker, Judge,

delivered the opinion of the court:

Plaintiff’s petition asks recovery of the sum of $4,578.00 with interest from the United States. The basis of the claim is the unjust enrichment of the United States at the direct expense and to the detriment of the plaintiff. The facts, as stipulated by the parties, are these:

Plaintiff, a New Jersey trust company and financing institution, has held, since December 7, 1950, a duly recorded chattel mortgage of that date, in the principal sum of “not less than” [sic] $25,000 on goods and chattels of Pacific Wire Corporation. Subsequent to December 7, 1950, Pacific Wire transferred to the Wire Corporation of America all of its assets, subject to the chattel mortgage. The Wire Corporation, having sustained a fire loss which destroyed the goods and chattels underlying the chattel mortgage, collected from the insurance carrier $160,000 in settlement thereof.

On March 25, 1953, Wire Corporation, being unable to pay its debts as they matured, filed'its petition in the District Court of the United States for the Judicial District of New Jersey under Chapter XI of the Act of Congress relating to bankruptcy. After payment in full of administration expenses, the petition proposed, inter alia, an arrangement for paying all general unsecured creditors, whose claims came into existence after the debtor corporation was. formed, 50 percent in cash upon confirmation, and the balance of 50 percent, payable 25 percent one year after the confirmation date and 25 percent two years after the confirmation date, to be evidenced by promissory notes. The business of the debtor was to continue.

On May 28, 1953, the Director of Internal Revenue filed with the Referee in Bankruptcy proof of the tax claim of the United States in the amount of $15,700.80 with interest, covering withholding taxes and FUTA taxes for certain periods in 1952 and 1953.

On October 27, 1953, plaintiff filed in the District Court proof of its secured claim. On December 2, 1953, the District Court entered an order authorizing the Receiver to pay 50 percent of plaintiff’s claim, the balance to be paid in accordance with the terms and conditions of the amended plan of arrangement, the lien of the chattel mortgage, however, to be a first lien on the assets of the debtor corporation.

On December 23, 1953, the Referee signed an order directing the Receiver to pay to the Director of Internal Revenue the sum of $17,553.44, the total amount due the United States, which was paid by voucher dated March 3,1954.

Subsequently, the Receiver paid plaintiff, in three installments, a total of $7,206.32 on the amount of $11,784.32 due plaintiff in cash under the order by the Referee dated December 2, 1953, leaving a balance due on the cash payment of $4,578.00 plus interest.

The stipulation of facts, in section 4, recites:

A Receiver was appointed. On July 14, 1953, said Receiver filed “Receiver’s Final Report and Petition for Allowances” which showed that there was $160,686.75 available for distribution to the creditors of Wire Corporation of America.

On January 30, 1956, the Referee signed an “Order Closing Estate”, which reads as follows:

It appearing to the Court that the above named debtor filed a petition under Chapter XI of the Bankruptcy Act, and that its plan of arrangement was confirmed on the 14th day of July, 1953, and
It further appearing that all cash payments under the plan have been made and the Receiver having filed his final report and account showing all funds disbursed, It is on this 30th day of January, 1956 ORDERED that the report and account of the Receiver be and the same is hereby approved and that the Receiver be and he is hereby discharged of his trust and his bond cancelled, and
It is further ORDERED that the matter be closed.
Referee in Bankruptcy

There are no further assets of Wire Corporation with which to pay plaintiff the balance due and to become due.

As shown by the stipulation of facts, plaintiff made no protest to the District Judge, or otherwise attacked in the district court the orders disbursing the funds of the estate or the “Order Closing Estate.” Consequently, the Order of the Referee was a final and conclusive adjudication of the rights of all parties with notice of the proceedings before the Referee and who had filed their claims therein, and wa,s res judicata as to all issues presented or which could have been presented in those proceedings. It cannot be collaterally attacked in any other tribunal. Stoll v. Gottlieb, 305 U.S. 165 (1938); Chicot County Dist., v. Bank, 308 U.S. 371 (1940).

In the Stoll case the Federal District Court, in a reorganization proceeding, had entered an order cancelling a guaranty on corporate bonds, and plaintiff’s challenge of the jurisdiction of the bankruptcy court to cancel the guaranty was overruled. The Supreme Court held that the bankruptcy court’s decision on the issue of its jurisdiction to cancel the guaranty was res judicata and could not be collaterally attacked in a State court suit on the guaranty by plaintiff.

In Chicot County Dist., v. Bank, supra, the bank brought suit in the District Court for the Eastern District of Arkansas to collect on some bonds of the Chicot County District, the bank’s rights in which had been adjudicated by the same district court sitting in bankruptcy. In this suit the district court held that its former order in the bankruptcy proceedings were void because it was based on a statute subsequently declared unconstitutional by the Supreme Court. The Circuit Court of Appeals affirmed, but the Supreme Court reversed on the ground that the bank had not attacked the validity of the statute in the bankruptcy proceedings. At page 375 it said:

* * * As parties, these bondholders had full opportunity to present any objections to the proceeding, not only as to its regularity, or the fairness of the proposed plan of readjustment, or the propriety of the terms of the decree, but also as to the validity of the statute under which the proceeding was brought and the plan put into effect. Apparently no question of validity was raised and the cause proceeded to decree on the assumption by all parties and the court itself that the statute was valid. There was no attempt to review the decree. If the general principles governing the defense of res judicata are applicable, these bondholders, having the opportunity to raise the question of invalidity, were not the less bound by the decree because they failed to raise it. Cromwell v. County of Sac, 94 U.S. 351, 352; Case v. Beauregard, 101 U.S. 688, 692; Baltimore Steamship Co. v. Phillips, 274 U.S. 316, 319, 325; Grubb v. Public Utilities Comm'n, 281 U.S. 470, 479.

The foregoing opinion cited Stoll v. Gottlieb, 305 U.S. 165. In that case, in an opinion by Mr. Justice Need, the Court quoted with approval the following from Dowell v. Applegate, 152 U.S. 327, 340:

But that was a question which the Circuit Court of the United States was competent to determine in the first instance. Its determination of it was the exercise of jurisdiction. Even if that court erred in entertaining jurisdiction, its determination of that matter was. conclusive upon the parties before it, and could not be questioned by them or either of them collaterally, or otherwise than on writ of error or appeal to this court.

It is apparent from the Supreme Court’s opinions in the above cases that the action of the Referee in Bankruptcy was a final adjudication of the rights of the parties and cannot be collaterally attacked in this court. If the bank: was dissatisfied with the Referee’s orders in the Chapter XI pro-eeedings, its only recourse was by appeal to the District Judge, and from his decision to the Court of Appeals, and by certiorari to the Supreme Court. It cannot collaterally attack his action in this court.

Furthermore, it does not appear from the stipulation of facts that the payment in full of the United States tax claim so exhausted the funds of the bankrupt estate that there were not available funds sufficient to pay 50 percent of plaintiff’s claim, as ordered, inasmuch as it appears from the Receiver’s “Final Report and Petition for Allowances” that there was available for distribution to the creditors of Wire Corporation the sum of $160,686.75. To whom this was disbursed, we do not know. Plaintiff has, therefore, failed to show that the payment of the claim of the Director of In* temal Revenue was responsible for the failure to pay to it the sum which the Referee ordered the Receiver to pay in his order of December 2, 1953.

Plaintiff’s petition is, accordingly, dismissed.

Davis, Judge; Durfee, Judge; Laramore, Judge; and Jones, Chief Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the stipulation of facts entered into between the parties, and the briefs of counsel, makes findings of fact as follows:

1. The plaintiff is a trust company organized and existing under the laws of the State of New Jersey, with its principal office and place of business located in the City of Garfield, State of New Jersey. At all times mentioned in this petition and at the present time the plaintiff was and is engaged in business as a trust company and as a financing institution.

2. The plaintiff, since December 7, 1950, has held a duly recorded chattel mortgage dated December 7, 1950, in the principal sum of not less than $25,000 on the goods and chattels of Pacific Wire Corporation.

Subsequent to December 7, 1950, the said Pacific Wire Corporation conveyed its assets to Wire Corporation of America, a New Jersey Corporation, subject to the said Garfield Trust Company chattel mortgage.

After the transfer of the assets of Pacific Wire Corporation to the Wire Corporation of America, subject to the said chattel mortgage of Garfield Trust Company, the Wire Corporation of America sustained a fire loss and as a result thereof, the said chattels and goods underlying the said chattel mortgage of Garfield Trust Company were destroyed and the insurance carrier paid to Wire Corporation of America the sum of $160,000 in settlement of the aforesaid fire loss.

On or about March 25, 1953, Wire Corporation of America, being unable to pay its debts as they matured, filed its petition in the District Court of the United States for the Judicial District of New Jersey in proceedings under Chapter XI of the Act of Congress relating to bankruptcy. Said petition provided in pertinent part as follows:

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE JUDICIAL DISTRICT OF NEW JERSEY
In Proceedings for an Arrangement
No. B 129-53
In the matter of
Wire Coep. op America, Debtor
PETITION IN PROCEEDINGS UNDER CHAPTER XI
To the Honorable Presiding Judge of the District Court of the United States for the Judicial District of New Jersey
THE PETITION of Wire Corp. of America, a corporation engaged in the business of fabrication and manufacture of wire and wire products, which corporation has not been known by any other name or trade name for the past six years.
RESPECTFULLY REPRESENTS:
1. Your petitioner is a business corporation organized and existing under the laws of the State of New Jersey and has bad its principal office and its principal place of business at 264 21st Avenue, Paterson, New Jersey within the above judicial district, for a longer portion of the six months immediately preceding the filing of this petition than in any other judicial district.
2. No bankruptcy proceeding, initiated by a petition by or against your petitioner, is now pending.
None
3. Your petitioner is unable to pay its debts as they mature, and proposes the following arrangement with its unsecured creditors:
A. To pay present administration expenses in full.
B. The general unsecured creditors to be divided into two groups as follows:
Group I
To pay all general unsecured creditors whose claims came into existence after the formation of the debtor corporation in full as follows: 50% in cash upon confirmation and the balance of 50% payable 25% one year after date of confirmation and 25% two years after confirmation as evidenced by promissory notes.
Group II
To pay upon confirmation to holders of notes made by the debtor corporation payable to Pacific Wire Corporation and by it endorsed to creditors of Pacific Wire Corporation the amount of the notes matured and the balance thereof as they mature or to pay upon confirmation to creditors in Group II 50% in cash of all notes matured or unmatured.
C. The business of the debtor to be continued.
4. The schedule hereto annexed, marked Schedule A, and verified by the oath of the undersigned officer of your petitioner, contains a full and true statement of all its debts, and, so far as it is possible to ascertain, the names and places of residence of its creditors, and such further statements concerning said debts as are required by the provisions of the Act of Congress relating to bankruptcy.
5. The schedule hereto annexed, marked Schedule B, and verified by the oath of the undersigned officer of your petitioner, contains an accurate inventory of all its property, real and personal, and such further statements concerning said property as are required by the provisions of said Act.
6. The statement hereto annexed, marked Exhibit 1, and verified by the oath of the undersigned officer of your petitioner, contains a full and true statement of all its executory contracts, as required by the provisions of said Act.
7. The statement hereto annexed, marked Exhibit 2, and verified by the oath of the undersigned officer of your petitioner, contains a full and true statement of its affairs, as required by the provisions of said Act.
WHEREFORE your petitioner prays that proceedings may be had upon this petition in accordance with the provisions of chapter XI of the Act of Congress relating to bankruptcy.
Wire Corf, of America Petitioner
By
Edwin Goldman
President of said corporation
Attorney
Isadore B. Miller
(SEAL)

3. On May 28, 1953, the Director of Internal Revenue, filed with the Referee in Bankruptcy proof of the tax claim of the United States as follows:

IN THE COURT OF NEW JERSEY
In the matter of
Wire Corporation of America
264 21st Avenue
Paterson, New Jersey
Index of Docket No.
In ARRANGEMENTS CHAPTER XI
CLAIM OF UNITED STATES
State of New Jersey)
County of Essex )
Bruce E. Lambert, Director of Internal Revenue of Newark, New Jersey, a duly authorized agent for the United States in this behalf being duly sworn, deposes and says:
1. That corporation above-named, is justly and truly indebted to the United States in the sum of $15,700.80 with interest thereon as hereinafter stated.
2.That the nature of the said debt is internal revenue taxes due pursuant to law as follows:
With int. @ 0% Nature of tarn Year of Tax- Amount per annum Statute Involved able Period of Tax beginning
WITHHOLDING_ 9/S0/52 $5411.46 10/1/52
” 12/81/52 7961.05 2/1/53
FUTA _ 1952 2328.29 2/1/53
SUBJECT TO CLAIM BEING AMENDED
3. That no part of said debt has been paid, but that the same is now due and payable at the office of the Director of Internal Eevenue, Newark, N.J.
4. That there are no set-offs or counterclaims to said debt.
5. That the said indebtedness is now due and payable; that no note or other negotiable instrument has been received for said debt or any part thereof; and that no judgment has been rendered thereon.
6. That said debt has priority, and must be paid in full in advance of distribution to creditors, as and to the extent provided in Section 64 or Section 659 of the Bankruptcy Act. Section 3466 of the Eevised Statutes, or other applicable provisions of law. Attention is also called to the provisions of every executor, administrator, assignee or other person who fails to pay the claim of the United States in accordance with their priority.
Sworn and subscribed to before me this 28th day of May, 1953
John J. Eitz
Internal Eevenue Agent
Dated this 28th day of May 1953
Thos.C. Smith
Director

4. A Eeceiver was appointed. On July 14, 1953, said Eeceiver filed “Beceiver’s Final Eeport and Petition for Allowances” which showed that there was $160,686.75 available for distribution to the creditors of Wire Corporation of America.

5. On or about October 27, 1953, Garfield Trust Company, the plaintiff, filed in the District Court of the United States for the Judicial District of New Jersey proof of its secured claim (the said chattel mortgage referred to hereinabove, dated December 7, 1950, in Passaic County Eegister’s Office in Book K-14, page 368 in the principal sum of $25,000) against Wire Corporation of America.

6. On December 2, 1953, the following order was entered in the United States District Court, District of New Jersey, in the bankruptcy matter of Wire Corporation of America, Debtor, In Proceedings of Arrangement:

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
In the Matter of
Wire CokporatioN op America, Debtor
IN PROCEEDINGS OF ARRANGEMENT
ORDER
This matter being opened to the Court by Isadore B. Miller, attorney for the debtor herein, and it appearing to the Court that the Garfield Trust Company of Garfield, New Jersey, did file a secured claim herein in the sum of $23,568.64 and that under the terms and conditions of the amended plan of arrangement, the said Garfield Trust Company is to receive a payment on account thereof in the sum of 50% and the balance thereof to be paid in accordance with the terms and conditions of the said amended plan of arrangement; said lien, however, to be a first lien on the assets of the debtor corporation. It is therefore, on this 2nd day of December 1953, on motion of the attorney for the debtor,
ORDERED that Vincent C. Duffy, the disbursing agent herein, be and he is hereby authorized and em-gowered to pay 50% on the aforesaid claim of the arfield Trust Company in accordance with the amended plan or arrangement.
/s/ William T. Cahill
Referee in Bankruptcy

7. On December 23,1953, the Referee signed the following Order authorizing payment of $17,553.44 to the Director of Internal Revenue:

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
In the matter of
Wise Corporation of Amekica, a New Jersey corporation, Debtor
In Proceedings for an Arrangement under Chapter XI of the Bankruptcy Act
ORDER
This matter having come before the court on the motion of the debtor as to why the claims filed herein by the United States of America should not be reexamined and reduced, and it appearing that the parties have agreed upon the amounts due to the United States of America as hereinafter set forth;
It is on this 23rd day of December, 1953, on motion of David Stoffer, of counsel for the debtor, ORDERED that Vincent C. Duffyj Receiver of the debtor Wire Corporation of America pay to the Director of Internal Revenue the sum of $17,553.44, which is the aggregate of the following liabilities óf the debtor to the United States of America:
Withheld taxes for July, August and September 1952-$5,411.46
Interest on the previous item from October 1, 1952 to March 26,1953_■ 157. 83
Withheld taxes for October, November and December 1952_ 7,961. 05
Interest on the previous item from February 1,1953 to March 26, 1953_ 72.95
Federal Unemployment Tax for the year 1952 after credit as allowed by law on the payment of $2,369.16 to the New Jersey Division of Employment Security- 450.15
$14,053.44
Payment by debtor on account_ 1,500.00
$12, 553.44
Balance brought forward_$12, 553.44
Balance due on promissory notes of the debtor payable to the order of Pacific Wire Corporation, endorsed by latter and held by the United States of America, which filed against Pacific Wire Corporation in tbe Office of the County Clerk of Passaic County the following liens to be cancelled upon the receipt of payment hereunder_ $5,000.00
Book 7, Page 593, dated 9/12/51, recorded 9/13/51, W.T. Tax $2854.82
Book 8, page 111, dated 11/21/51, recorded 11/23/51, W.T. Tax $3417.86
Book 8, page 355, dated 2/25/52 recorded 2/26/52, W.T. Tax $1054.77
Total due United States of America-$17,553.44
Referee in Bankruptcy
Consent is given to the entry of the foregoing order.
William F. Tompkins
United States Attorney
By:
Jerome D. Schwitzer
Assistant United States Attorney
Isadore B. Miller
Attorney for Debtor

8. Thereafter one Vincent C. Duffy, Deceiver and disbursing agent in the bankruptcy proceedings in the Matter of Wire Corporation of America, Debtor, paid to the Director of Internal Revenue for the District of New Jersey the sum of $17,553.44. There is on file in the office of the Clerk of the United States District Court, District of New Jersey, Canceled Voucher No. 68, signed by Vincent C. Duffy, Receiver, drawn on January 4, 1953, at Paterson, N.J., payable to the order of Director of Internal Revenue in the sum of $17,553.44. It bears the following endorsement:

Pay to the Order of any Federal Reserve Bank or Branch or General Depositary For Credit to the Treasurer of the United States
Mar. 3, 1954
Internal Revenue Collections
Director of Internal Revenue
Newark, New Jersey

It bears the perforated cancellation stamp, “3-4-54”.

9. Subsequently the said Vincent C. Duffy, Eeceiver and disbursing agent in the Matter of Wire Corporation of America, Debtor, has paid to the plaintiff in three payments the sum of $3,431.07, $2,575.25 and $1,200, or a total of $7,206.32, on the amount of $11,784.32 due the plaintiff herein under the aforesaid order by the Eeferee in Bankruptcy dated December 2, 1953, in the bankruptcy matter of Wire Corporation of America in the District Court of the United States, District of New Jersey, leaving a balance due of $4,578.00, plus interest as required by law..

10. There are no further assets of Wire Corporation of America in bankruptcy, with which to pay unto the plaintiff the balance of $4,578.00 due on its claim plus interest as required by law.

The final payment of $1,200 on plaintiff’s claim referred to hereinabove was made to plaintiff by the aforesaid Vincent C. Duffy, Eeceiver and disbursing agent in the matter of Wire Corporation of America, Debtor, on the 22nd day of May, 1957 and since the assets of Wire Corporation of America are exhausted, plaintiff is unable to collect the balance due under its claim in the amount of $4,578.00 pursuant to the order entered by the Eeferee in Bankruptcy in the United States District Court, District of New Jersey, on December 2, 1953.

11. The Director of Internal Eevenue for the District of New Jersey is the duly appointed, designated and acting officer of the United States and, the said Director of Internal Eevenue paid to the Treasurer of the United States on or about March 3,1954, the sum of $17,553.44.

12. On January 30,1956, the Eeferee signed the following Order Closing the Estate:

UNITED STATES DISTRICT COUET DISTRICT OF NEW JEESEY
In the matter of
Wire Corp. oe America, Debtor
In Proceedings under Chapter XI
OEDEE CLOSING ESTATE
It appearing to the Court that the above named debtor filed a petition under Chapter XI of the Bankruptcy Act, and that its plan of arrangement was confirmed on the 14th day of July, 1953, and
It further appearing that all cash payments under the plan have been made and the Receiver having filed his final report and account showing all funds disbursed.
It is on this 30th day of January, 1956 ORDERED that the report and account of the Receiver be and the same is hereby approved and that the Receiver be and he is hereby discharged of his trust and his bond cancelled, and
It is further ORDERED that the matter be closed.
Referee in Bankruptcy

13. No protest or attack upon the Order Closing the Estate was or has since been made by Garfield Trust Company.

CONCLUSION OE LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is not entitled to recover and its petition is dismissed. 
      
       Moneyed, Business or Commercial.
     
      
       If Bankruptcy proceeding is pending and this petition is brought under Chapter XI, Section 321, strike out this allegation and recite proceedings heretofore had.
     