In Re Tamasha Town and Country Club, Bankrupt. Don Rothman, Trustee v. United States

Dissent — Turrentine

TURRENTINE, District Judge (dissenting) :

I respectfully dissent.

The majority, in reversing the Court below, relies upon United States v. Randall, 401 U.S. 513, 91 S.Ct. 991, 28 L.Ed.2d 273 (1971), which involved conflicting sections of the Internal Revenue Code1 and the Bankruptcy Act2 competing for the same fund.3 The Court held that because Congress did not so intend, § 7501(a) does not create a trust for taxes withheld during an arrangement proceeding. The Court did not hold that a fund deposited pursuant to § 337 of the Act (11 U.S.C. § 737) was to be disbursed, after confirmation, in accordance with § 64(a) rather than § 367(2) of the Act4 (11 U.S.C. § 767(2).) Moreover, it was not held that no trusts in bankruptcy were to be created or enforced.

Of course, we are guided by the reasoning of the Supreme Court as well as its holding. Underlying the Randall Court’s application of the statutory policy of subordinating taxes to the costs and expenses of administration was the premise that to enforce the statutory trust under the facts of Randall would “eat up” the estate created by creditors and court officers.5 The fund here, though, is a § 337 deposit for the payment of all priority creditors as distinguished from the accounts created in Randall. In the ordinary case,6 the fund deposited pursuant to § 337 of the Act is not derived from the bankrupt’s estate and is not created by the creditors entitled to priority under § 64(a)(1), (2), (3) .7 Under the facts of this case, neither the holding of Randall, nor the Court’s reason for invoking the statutory policy is applicable.

In the absence of contrary authority to be found in the statutes or cases, I would give effect to the mandatory language of § 367(2) of the Bankruptcy Act, and the orders of the Referee in Bankruptcy by imposing a constructive *1382trust upon the fund to the extent that it should have been disbursed prior to the termination of the arrangement.8 This result avoids a strained construction of Randall and comports with the equitable nature of a Court of Bankruptcy.9 . The majority’s refusal to “freeze” the rights of the creditors according to the terminated plan is simply gratuitous. No one argues that the plan remains in effect upon adjudication. In re Setzler, 73 E.Supp. 314 (S.D.Cal.1947), is a correct statement of the law. A debtor is entitled to be discharged from payments in default under a plan where the failure was unintentional and resulted from inability to comply.

. See Securities Comm’n v. U. S. Realty Co., 310 U.S. 434, 60 S.Ct. 1044, 84 L.Ed. 1293 (1940).

. 26 U.S.C. § 7501(a).

. Bankruptcy Act § 64(a), 11 U.S.C. § 104(a).

. Pursuant to liis powers, the referee ordered the debtor to establish three accounts and to make payments from them. I infer that a plan of arrangement was not confirmed since this order was entered two days after the petition was filed. Had a plan been confirmed, such procedure would have been contained in the plan.

. The sole authority on this point is 9 Collier On Bankruptcy ¶ 10.13 at 531 (14th ed. 1972), cited by the majority at note 8 for another proposition. Gollier, however, cites to In re Portage Wholesale Co., 187 F.2d 387 (7th Cir. 1951), aff’g, 88 F.Supp.. 3 (W.D.Wis.1950), wherein the district court’s opinion recites that the deposit was to indemnify the bankrupt estate rather than to be disbursed to creditors upon confirmation.

. The fund in Randall was generated from the operation of the business by the debtor in possession.

. It may be said in the ordinary case that the problem here does not arise because the deposit will have been disbursed by the time of termination. 9 Collier On Bankruptcy ¶ 10.12 [4.2] (14th ed. 1972).

. [T]he assets of the estate cannot be used to make the deposit, unless so authorized by the court. Payments made to the distribu-tees of the deposit are not payments of a share of the debtor’s estate to which the distributees are entitled, but are payments of their share of the deposit fund which the debtor must provide in accordance with the provisions of the Act and his arrangement. 8 Collier On Bankruptcy § 5.36 at 742 (14th ed. 1972).

In the ease before the Court the referee found that the source of the deposit was unknown. Apparently no order was issued authorizing funds of the estate for the deposit. See 10 Collier On Bankruptcy, Form Nos. 3108, 3109 (14th ed. 1972) for form of such order.