JOINT INDUSTRY BOARD v. U.S.
Legal provision: Bankruptcy Code, Bankruptcy Act or Rules, or Bankruptcy Reform Act of 1978
Argument of Harold Stern
Chief Justice Earl Warren: Number 616, Joint Industry Board of the Electrical Industry et al., petitioner versus United States.
Mr. Harold Stern: Thank you, Your Honor.
May it please the Court?
This case is here pursuant to a petition for certiorari granted by this Court on December 6th -- December 4th, 1967.
The issue involved in this case is whether payments made by employers to the annuity fund of the Electrical Industry, which payments are earmarked for the employees of the contributing employers and credited to their respective accounts and establish fixed vested interests for those employees, constitute wages within the meaning of Section 64a (2) of the Bankruptcy Act.
Chief Justice Earl Warren: May I ask you, is that precisely the same issue we had here in United States against the Embassy Restaurant?
Mr. Harold Stern: I don't believe it's the same case --
Chief Justice Earl Warren: You do not believe it's the same?
Mr. Harold Stern: I think it's -- Very frankly, I don't know whether the Court wants to review the Embassy case.
I'm representing the annuity plan here.
I think the facts in this case are a little different from the Embassy case and that's what I intend to argue.
I think, from my argument and as a general principle and from the developments of pension funds, which during the last 10 years after the decision of the Embassy case have fixed vested rights --
Justice William J. Brennan: That's your distinction, isn't it?
Mr. Harold Stern: Yes.
Justice William J. Brennan: These are vested rights (Voice Overlap).
Mr. Harold Stern: Vested rights and --
Justice William J. Brennan: -- that was not include of what is before us in Embassy, is that it?
Mr. Harold Stern: Yes.
Now, in this case, the A & S Electric Company filed an arrangement for the benefit of creditors, Chapter XI proceeding and was subsequently adjudicated a bankrupt.
In the bankruptcy proceeding, the Joint Industry Board of the Electrical Industry, which supervises all of the various trust funds, filed a claim on behalf of several trust funds.
One was the Welfare and Pension Fund of the electrical industry, which was Welfare and Pension Fund as distinguished from the annuity plan in this case.
Another was a vacation fund; another was the employees' Disability Fund where the employee was to contribute for the state disability; and a number of others, including the annuity fund.
The total amount of the claim was some $10,000 but the payment to the annuity plan amounted to $5114 and covered some 40 employees who are employed there to whom moneys were owed.
And this annuity plan was established Your Honors in 1954.
It is a plan which was unique at that time.
A simple plan but there wasn't a similar plan in existence.
What happened when a collective bargaining agreement was negotiated, Your Honors, was that the union in negotiating an agreement requested that an annuity plan should be established and instead of the wage rate being increased with the result that there would be a withholding tax on the increased wages, deemed it advisable for the benefit of its members to provide them with security when they retired, when they're permanently disabled, if they left the industry and to the Armed Services or in case of death.
So instead of taking an increase in wages to the extent of $4 a day, they agreed that this $4 a day should be submitted to this annuity plan so that they would save the withholding tax at the time the wages were paid and would pay the taxes at a later date when they retire or in the event of death, which would be in a much lower bracket.
Now, this is not to be criticized as the plan.
It's a very laudable situation.
This plan was approved by the Treasury Department of the United States.
This government -- this country has been thinking in terms of security for people so that they do not become the subjects of charity in case of death or disability or upon retirement, and the thought was that these fixed interests, when the man retired, should supplement his regular pension which he received from the pension plan.
In case he became disabled that he should have relief.
In case he left the industry, he should have relief.
In case of death, then in addition to the moneys which was credited to his account, the equity, a sum would be paid of a $125 a month to the widow who was usually the designated beneficiary until the equity was entirely paid.
And in addition thereto, there would be approximately $5,000 in death benefit paid to over a $125 a month which $5,000 death benefit was earned from the investment of the payments made by the employers and which would be invested in earned income.
In addition to that, on the moneys that were on deposit, there would be interest credited which has been done over the last several years.
Now, in this case, we claim that this case is different and can be distinguished from the Embassy case on this ground.
In the Embassy case, the payment was made for the purpose of purchasing life insurance, medical benefits and surgical benefits, which were all contingent on the happening of an event.
Justice Abe Fortas: Do you remember whether the life insurance was a term insurance or was it straight life?
Mr. Harold Stern: No, it was group life insurance I believe.
Justice Abe Fortas: And that was term insurance, was it?
Mr. Harold Stern: Yes, and that was all contingent.
If a man left the industry, he would have no interest in the life -- he had no benefit on the life insurance.
If he didn't become sick or needed no surgical benefit, he received no benefit from it.
This case is entirely different.
This is $4 a day instead of wages.
It's fixed in a man's account.
It must be paid to him whether he retires, whether he is disabled, whether he leaves the industry, whether he dies.
Secondly, in the Embassy case, this Court spoke in terms that I think it was $8 a month was paid for each workmen, and the Court stated, it had no relation to the production or times or conditions of employment.
In this case, the $4 a day is a time and condition of employment.
The $4 a day is paid when and only if the man works and produces a days work.
In other words, it is the same situation as if it were $4 an hour or $5 an hour plus $4 away a day, which are his wages.
Justice Abe Fortas: What was the man worked (Voice Overlap)
Chief Justice Earl Warren: What are the differences between the $4 and the $8?
Mr. Harold Stern: The $8 is merely a sum which is paid to workmen.
A workman may be employed by a company and may not work half the time because he's sick.
He is still -- they would still make the payment to him of that $8 a month.
In the $4 a day, he doesn't work any day, there's no money paid on his behalf.
Chief Justice Earl Warren: I see.
Justice Abe Fortas: Suppose a man works for the company for three to four years and then he is discharged or he resigns not to retire from the industry but go to work for another company, is he entitled to any of these funds?
Mr. Harold Stern: Your Honor, if he goes to work for another company that is covered by this agreement --
Justice Abe Fortas: Yes, but suppose it's not?
Mr. Harold Stern: If he's not, if he isn't covered by this agreement, you mean another company, he is entitled to receive moneys at the rate of $60 a month.
Justice Abe Fortas: Just be careful, if you were because I want to be precise about this to make sure I understand it.
Suppose he goes to another -- he resigns from the company in which he is employed.
He goes to another company, in the electrical industry that is not covered by this agreement
Mr. Harold Stern: He would receive $60 a month just the same as if he went into business for himself.
Justice Abe Fortas: I see.
Suppose he is discharged by the company at the end of let's say three or four years, what happens then?
Mr. Harold Stern: And he leaves the industry?
Justice Abe Fortas: And he leaves the industry first?
Mr. Harold Stern: If he leaves the industry, the money is credited to his account plus his accumulated interest, which is usually 4% in the last few years, would be paid to him at the rate of $60 a month until the money is credited to his account has been exhausted.
Justice Abe Fortas: So discharge and voluntary resignation from the same company are treated the same?
Mr. Harold Stern: That's right.
Justice Abe Fortas: Is there any minimum period during which he has to work for the company or under this industry wide agreement before he is entitled to receive payments from the company?
Mr. Harold Stern: The $4 a day, which is paid by the employer, is credited to his account from the first day that he starts employment in is earmarked.
And I might say --
Justice Abe Fortas: And if he retires from the industry, let's say at the end of six months, then he is entitled to what has been accumulated?
Mr. Harold Stern: Yes, and I might say that every single month, and this is not disputed, the annuity plan of the Electrical Industry sends to each participant of the plan a statement like a bankbook which shows how much money he has credited to his account and at the end of the year, the statement contains likewise a crediting of the amount of interest that has been earned and the moneys deposited to his account.
Now, in the Embassy case, the Court spoke about the purpose of Section 64a (2), was to provided a protective cushion in times of financial distress.
Of course, this is not in the statute.
It was a practical matter.
I think the Court can take judicial notice of the fact that in case of bankruptcy, before the estate of a bankrupt, estate is wound up when the wages -- the priority wages are paid, it may be a period of a year or two or three may elapse till the thing is wound up.
Now, I agree with the Court on protective cushion and this is the purpose why this plan was adopted.
This provides a protective cushion to the man who is disabled, the man who has retired, the man in the event of his death plus payments taken.
He can never be deprived of one cent.
And when the Court spoke in the Embassy case, and I want to be very frank about making a payment to the trustees of which Mr. Justice Black dissented, we say here that the trustees are merely the agents for these people who act on their behalf and these people have a vested interest.
And if the annuity plan didn't pay them their right, they will have a right to go into court under the decisions and collect the moneys due them under the provisions of the plan.
The cases covering this point are in my brief and I won't argue before the Court.
Now, I do want to spend a minute on the question that in a case decided after the Embassy case by this Court in 1962 in the Sulmeyer against Southern California Pipe Trades Company case, the Court of Appeals held there “That moneys contributed to a vacation and holiday fund, and earmarked for the benefit of the participants, constituted wages within the meaning of Section 64(2)(a) of the Bankruptcy Act”.
The Court in that case, despite the Embassy case, distinguished it and held that they were entitled to priority.
The government would distinguish that case on the ground that in the Sulmeyer case, the withholding taxes were taken out when it was paid when, Your Honors, the Court in the Embassy case makes no mention of withholding taxes.
The Bankruptcy Act was adopted originally in 1841 long before we ever had any income tax.
It was within the contemplation of Congress.
Secondly, the Bankruptcy Act is not predicated on a definition that it should be given into a priority, provided that withholding tax is not taken.
Nothing illegal, nothing wrong has been done here.
In fact, the President's Commission has commended the adoption of vested pension funds for the protection of society which is nothing more than an extension of the provisions of our Social Security Act.
Justice John M. Harlan: Have there been any efforts of the Congress to --
Mr. Harold Stern: I'm coming to that, Your Honor.
I'll say to that, I'm coming to that.
I'll get to that skip and bounce my argument.
Now, the government contends that there were efforts in Congress made to amend Section 64a (2) of the Bankruptcy Act meaning.
In the first place, it is my contention that under the particular facts of this case, of this particular case, it's fixed vested interest which constitute wages.
Secondly, under the amendments of the Bankruptcy Act, which has been spoken about, they refer to lengthening and shortening the period that It was a bankrupt to State, increasing or decreasing the amounts of the priorities, inclusion of individuals who are not prior included within the Bankruptcy Act.
To say, distinct say point is that the attempts which were made in Congress to amend the Bankruptcy Act refer in language to all fringe benefits which could include welfare, pension, vacation, annuity and a month or two about the fringe benefits which are far greater than the situation in this case.
And in this same connection, may I point out, if you consider the proposed amendments, to Section 64 of the Bankruptcy Act, how can one reconcile that with the provisions, with the decision in the Sulmeyer case which did grant the priority by Court of Appeals and which were related to the fringe benefit namely holiday and pension funds fairly.
The next point, I'm going to make on this point, Your Honors, and I'd like to have permission of the Court to submit a letter which I received from Congressman Leonard Foxely (ph) who introduced all of these Bills in Congress, which shows that these Bills were produced/introduced.
They weren't debated.
They weren't voted on.
It was a proforma Act and in his letter says, “He hopes in the argument of this case, the Court will extend in his language the meaning of wages or interpret the meaning of wages to cover situation”.
Chief Justice Earl Warren: Is that on the record or is that written for this case --
Mr. Harold Stern: No, I --
Chief Justice Earl Warren: -- as an argument for the fact?
Mr. Harold Stern: I said I would ask the permission of this Court.
I have submitted a copy to my adversary and I wrote it for the purpose of this case when I saw the brief of the government.
If the Court doesn't want me to submit it, I won't.
Chief Justice Earl Warren: Well, I think we all know.
Maybe the counsel will say whether he has any objection to it and not to --
Mr. Harold Stern: Well, he knew -- he knew that we would want to submit it, but I'm just so not submitted, Your Honor.
I don't think that this is the time.
Justice John M. Harlan: You solicited the letter?
Mr. Harold Stern: Pardon me?
Justice John M. Harlan: You solicit --
Mr. Harold Stern: I wrote a letter asking him to give me any information that he could about the presentation of Bills in Congress with reference to legislation concerning fringe benefit plans.
And the reason I wrote the letter Your Honor is, because I have read the brief and I refer it to Bills and I didn't know how they came about and so forth.
Certainly, there was no intention to perform any act of impropriety.
Your Honor, for all of those reasons, we claim that this Court should reverse the decision of the United States Court of Appeals.
I would like to have a few minutes for rebuttal if necessary, Your Honor.
Chief Justice Earl Warren: Mr. Wallace?
Argument of Lawrence G. Wallace
Mr. Lawrence G. Wallace: Mr. Chief Justice and may it please the Court.
I think it's important in this case not to loss sight of the fact that the issue is not whether the petitioner has a just claim provable in bankruptcy, but the issue is whether Congress has seen fit to give the petitioner's claim priority over other just claims that are provable in bankruptcy.
Now it's elementary that under our bankruptcy system, losses are suffered by creditors recognized by Congress as having just claims.
We do not appropriate public funds in order to pay all the just claims in full.
They can be paid only to the extent that there are assets in the estate available to cover them and priorities are preferred status which can be achieved only through subsidization by other creditors whose just claims will be wholly or partially eclipsed by payment of the priority claim in full.
It happens that in this case, the contest is between a claim under the second priority and the government's claim under the fourth priority.
But of course, the issue of statutory interpretation transcends the facts of this particular case and its resolution will affect the distributions in all bankruptcy cases.
Now, Congress has been very cautious in granting priorities as this Court has noted on many occasions.
The Court, in Nathanson against the National Labor Relations Board, speaking through Mr. Justice Douglas, pointed out that the theme of the Bankruptcy Act is equality of distribution.
At the outset then, before addressing ourselves to the relevant statutory provisions and cases, which of course must govern the case, it might be observed that at least in ordinary human affairs, when there is a time of financial exigency, the tendency is not to give primacy at all cost to continuing to put money aside for anticipated future needs.
It might have been as an original proposition seem somewhat remarkable if Congress were to single out for among all the just claims on the estate and at the time of bankruptcy, contributions owing to a pension fund, anyone's pension fund as being a claim of such pressing need and of such overriding importance as to require subsidization at the expense of the other just claims on the estate.
Well, but of course, the case must be governed and controlled by what Congress has done in the statute and the interpretations that have been rendered, but keeping in mind again in the words of this Court in the Nathanson case, that if one claimant is to be preferred over others, the purpose should be clear from the statute.
Justice Abe Fortas: Well here, don't you have a difference here that this -- there's a very close resemblance to wages in the sense that there was $4 per day.
And I note that in your brief you talked about the possibility that some workman may be favored over others, but if all of them get the credit of the additional $4 a day, doesn't that put the matter in a different light?
In Embassy, the situation was different in the sense that there's no money that was credited to the account of the individual workers as I understand it.
Mr. Lawrence G. Wallace: Well, the insurance benefits were credited to the account of the individual workers.
I really don't think that the rationale of the Embassy case would rest on so insignificant a distinction in terms of the purposes of the priorities of the Bankruptcy Act.
I think that the phrase “Wages due to workman” as used in Section 64a and the second priority was very carefully interpreted by the Court in Embassy, not in a mechanical, technical way, but in an interpretation based on the review of the entire history of that provision and an assessment of the statutory purpose in granting that priority.
Justice Abe Fortas: Well this provision in Embassy are these -- there are these words in Embassy?
Let us examine the nature of these contributions.
It reflects on some $8 per month for each workman.
The amount is without relation to his hours, workers, wages or productivity, it is due to the trustees not the workman and the latter has no legal interest in it whatever.
A workman cannot even compel payment by defaulting employer.
In other words, that looks as a -- reads as if the Court was quite concerned with the particulars of the arrangement?
Mr. Lawrence G. Wallace: As a matter of fact Mr. Justice Fortas, most of the same things can be said about the present contributions, but I think that the essential part of the rationale in Embassy, after an examination of these individual attributes of the contribution and what the Court subsequently have used as the guiding post in such cases as Sulmeyer as to be found on the next page in the opinion on page 33 in the last paragraph that begins on that page.
After the Court satisfied itself that the terms of the statute do not require that these contributions be held to be within the meaning of the priority, the Court said, “Thus, they cannot be treated as being within the clear, unequivocal language unless it is clear that they satisfy the purpose for which Congress established the priority”.
Justice Abe Fortas: And just before that though the sentence says “the contributions here are not due to workman nor have they, the customary attributes of wages”.
Do you think that's equally true of the $4 a day in this case?
Mr. Lawrence G. Wallace: I would say as the Court in Embassy defined the customary attributes of wages as sums immediately due to the workers, it is equally true and it's certainly is true of the Courts view of due to workmen since the sums are paid to the trustees and the workmen are limited in the same way they were in Embassy as to the control that they can exercise over the funds.
Chief Justice Earl Warren: Well, under Embassy, if a man was in the industry for four years under this agreement, let's say and he either quit or was fired from his employment and went out of the industry, what was he entitled to receive under that contract?
Mr. Lawrence G. Wallace: Under Embassy's?
Chief Justice Earl Warren: Embassy.
Mr. Lawrence G. Wallace: Yes, he was entitled not to receive benefits under this Welfare Fund that he was entitled to have health and life insurance during the period of his employment if the premiums were paid.
Chief Justice Earl Warren: No, but I'm talking about after he leaves, is he entitled to anything if he gets out and leaves the industry?
Mr. Lawrence G. Wallace: Only on the basis of the contingency that he should become ill or die before the insurance policy expires.
Chief Justice Earl Warren: Alright, now what is he entitled to under this contract if he is fired and leaves the industry?
Mr. Lawrence G. Wallace: If he leaves the industry, there are benefits payable to him under this contract but that is --
Chief Justice Earl Warren: Now what benefits is he entitled to?
Mr. Lawrence G. Wallace: It depends on the extent to which he has built up a claim within the fund.
Chief Justice Earl Warren: Isn't he entitled to $60 a month?
Mr. Lawrence G. Wallace: In some cases yes.
It depends on how long he has worked in the industry that he -- but he is entitled to various amounts.
Chief Justice Earl Warren: But anyway, it depends on how much he put in?
Mr. Lawrence G. Wallace: It depends on how much he put in in part.
He gets that back but he also get certain payments depending merely on the length of time he has been in the industry.
Chief Justice Earl Warren: Now how long do those payments exist?
Mr. Lawrence G. Wallace: It's a period of some months to those particular payments exist, again varying with --
Chief Justice Earl Warren: Isn't he entitled to get the return of the total amount that he put in?
Mr. Lawrence G. Wallace: Yes, he is.
He is entitled to the return of the amount that he put in, in the event that he should leave the industry.
Chief Justice Earl Warren: Yes, that's what I'm talking about.
Well isn't that a great variation from Embassy?
Mr. Lawrence G. Wallace: Well, I think it's a variation from the Embassy in the atypical case of the worker who leaves the industry.
These men are professionals in the electrical industry in New York and I don't think it's uncommon for them to work for one employer and then another.
Chief Justice Earl Warren: No, but automation itself brings about attrition doesn't it in employments of that kind?
Mr. Lawrence G. Wallace: It can, of course --
Chief Justice Earl Warren: It does, doesn't it?
Mr. Lawrence G. Wallace: But the contention of the petitioners is not that the priority should be limited only to those claimants who have left the industry and will receive immediate benefits.
Their contention is that the priority should be granted to all arrearages owing to the fund regardless of whether there is any immediate benefit to be secured, which is -- of course, in some atypical instances, there will be a benefit secured.
Yet I think it's arguable that in the Embassy case itself, having health and life insurance is a much more immediate benefit for everyone than having additional contributions made to a pension fund.
For most of the beneficiaries, there won't be any benefits received until the remote future.
Chief Justice Earl Warren: Well, that's the question as to bargaining on wages and working conditions, isn't it?
Mr. Lawrence G. Wallace: Well, it's true in both cases that there is collective bargaining as to this union welfare and pension funds, yes sir.
I do believe that under the rationale of Embassy, the facts of Embassy really represented a closer case as to whether there was a present benefit to the workers than to the facts of the present case.
It's quite conceivable that in a time of displacement, a financial distress worker needs his health and life insurance as much as he needs funds for his immediate subsistence where he's not apt to be thinking in terms of putting away moneys for the time of his retirement during this period of displacement so that in one sense, Embassy represented more immediate benefits to the worker than is true in this case.
Chief Justice Earl Warren: More immediate --
Mr. Lawrence G. Wallace: In terms of his having the insurance.
The insurance itself is an immediate benefit even though he may not meet the contingency that would allow him the payment.
Justice Byron R. White: Do you have -- do you think he has the protection --
Mr. Lawrence G. Wallace: The protection now of the insurance whereas he does not loss the protection of the moneys in his pension fund during the period in which the contributions are not made to the pension fund.
It's not insurance in that sense.
He still don't have his annuities --
Justice Byron R. White: But in Embassy it was term insurance and money paid for a certain period of protection?
Mr. Lawrence G. Wallace: That's correct.
I think under the rationale of Embassy, Embassy was really a closer case with typical workman covered than this case is.
The rationale really is based in that case on a look at the history of the statute and the purpose which that priority must be deemed to have served.
And in interpreting the provision, the Court very carefully noted that from its inception in 1841 and throughout its history, the wage priority has always been limited in three ways.
It has been limited in the dollar amount that will be awarded to each claimant.
It has been limited in the period of coverage.
Presently, the dollar amount is $600 maximum.
The period of coverage must be earned within three months of the employer's bankruptcy in order to come within the wage priority; and thirdly, it has been limited in terms of the kinds of employee's eligible, which is a particularly interesting limitation in terms of the interpretation to be given to the priority, it seems to me.
For example, cases have held the following kinds of employees not to be eligible to receive the priority: accountants, actors, buyers, designers, editors, engineers, foremen, teachers and others.
It has been a difficult matter of statutory interpretation, but it is quite clear that Congress was attempting to identify a particular category of employees who would be particularly vulnerable to the exigencies of the period of unpaid wages and should be afforded some special protection in order to equalize their status with the status of other creditors of the State such as the kinds of employees I just mentioned or any other creditors who have afforded to the petitioner in bankruptcy their services or their label or their property.
And the purpose then of awarding the priority was the limited one of equalizing the status of the workman who were thought to be in a more financially vulnerable position but not putting them in a more favorable position than the other creditors.
And that is why --
Justice John M. Harlan: [Inaudible] these are distinctions that have been drawn to refer to the type of eligible worker to step on.
The legislative history or what were the statutes?
Mr. Lawrence G. Wallace: Yes, they do stem for the legislative history and the fact that the statute refers to certain kinds of workers.
The present language of the statute at page 2 -- well, in our brief, I'm afraid I don't have the complete language in our Brief, but the references to workmen whether paid by commission or otherwise, to salesmen and the like kind of workers.
There has been amendments in the kinds of workers who will receive the benefit of the priority over the years.
But nonetheless, the priority has not been extended to cover the wages of all employees.
Many kinds of employees are still merely general creditors who have to stand behind these priorities.
Within this context that this Court in Embassy pointed out that the purpose was to provide the workmen a protective cushion against the economic displacement caused by his employer's bankruptcy and to the extent that a particular claim exceeds $600 or to the extent that a particular claimant was able to continue on the job for more than three months without being paid, Congress did not see fit to grant him priority as against other claimants.
The purpose would be fulfilled if his priority were recognized only within those limitations; limitations which originally were only $25 maximum incidentally and it slowly been increased over the years.
Justice Byron R. White: [Inaudible] particular state where the case of one worker $1200 claim for back wages and a $300 claim with respect to that or say $100 claim with respect to that worker from the pension fund.
He would not get his -- I gather under the position that your adversary takes, the worker would not get his full $600 in his pocket.
Mr. Lawrence G. Wallace: Well, that is one of the great difficulties with the present structure of the Act being stretched to try to accommodate this kind of claim within the meaning of wage priority.
There is no statutory basis --
Justice Byron R. White: So you would prefer the post -- the future payment to a current claim?
Mr. Lawrence G. Wallace: The purpose of the second priority could actually be underlined in some cases in that way by having some of the funds siphoned off from the worker and not available to him to meet his immediate needs.
That would be true in the case in which his own claims plus the claims of the fund that his account would exceed $600 and it would also be true as noted by this Court in Embassy in the case in which there were not assets enough left in the estate to pay off the claims in the second priority in full.
And, this Court and other courts would really have to overturn a settled line of cases in attempting distinguish between classes of claimants as to which the statute draws no distinction.
While the Court has been recognized just having equity power to rearrange priorities in response to the facts of a particular case.
For example --
Justice Abe Fortas: From here, is it your position that the $600 limitation per workman, per claimant as excess will have no application here?
Mr. Lawrence G. Wallace: Oh, it would have to have an application because that's the limit of the second priority to the extent that the claimant's claim exceeds $600, it is relegated to the general creditors.
Justice Abe Fortas: Well, here you have the trustee of the fund who is claiming the amounts due under the -- due to the fund, in fact due to workman payable to the fund.
Now, what you would actually have then would be that you take the wages due to a particular work and compute those which are entitled to the second priority.
If those were under $600, you would have the amount to be credited to that workman up to $600, is that right?
Mr. Lawrence G. Wallace: Well, the ordinary rule is that if a claim within a certain priority cannot be fully satisfied then they share proportionally and for example if --
Justice Abe Fortas: No, I am wasn't talking about satisfying now.
I'm talking about how much would be allowed as a second priority.
Let's take workman pay and he has a claim for wages in the amount of $500 dollars, which is entitled to second priority.
Let us assume that the trustee has a claim for money to be credited to workman pay in the amount of $200.
Now, the total amount that would be given a class 2 priority would be $600, is that correct?
Mr. Lawrence G. Wallace: That is correct.
Justice Abe Fortas: So that you do have an automatic limitation on the aggregate amount?
Mr. Lawrence G. Wallace: On the aggregate amount, but the $500 would presumably be diminished.
He would receive only 5/7th's.
Justice Abe Fortas: Well, assuming that this estate were not adequate to pay the entire amount of the second priorities?
Mr. Lawrence G. Wallace: No.
Justice Byron R. White: Even if it was, even if it was the amount of the $600, it has to be allocated between the $500 and the $200, is that what you're saying?
Mr. Lawrence G. Wallace: That's right.
The $600 -- 5/7th's of the $600 would go to the workman and 2/7th's would go to the fund.
Justice Abe Fortas: I see.
You're making a distinction between what goes to the workman direct and what goes to the workman plus trustees of the fund.
Mr. Lawrence G. Wallace: That is the distinction because the purpose of granting the priority was to be sure that the workman would have funds to get him through the period of economic displacement.
And if those funds will be siphoned off into the pension fund, their purpose will be to that extent undermined.
Justice Abe Fortas: That was my confusion because you were saying siphoning off and that's a word that may mean transfer from one pocket to another pocket that they can't get in to quite as fast.
That's what siphoning --
Mr. Lawrence G. Wallace: That's what I meant to convey by it.
I meant the word to be helpful in understanding this problem.
There's another problem in the present structure of the Act with recognition of these claims and that is the fact that Section 17 of the Act makes wage claims a non-dischargeable debt.
I've asked the Clerk for the convenience the Court to distribute the text of Section 17 to each of you because it wasn't included in the briefs and I've underlined the applicable provision there.
You notice that it is virtually identical with the provision in the priority section with the exception that there is no limitation in Section 17 to $600.
And this Court recognized in the Embassy Restaurant case itself that the meaning of wages due to workmen in the two sections is intended to be the same and that is corroborated in the legislative history of Section 17, which we have cited in our brief in note 23 on page 20.
Yet, the Court has said that “In view of the well-known purposes of the Bankruptcy Law, exceptions to the operation of its discharge thereunder should be confined to those plainly expressed.
There's a -- the tendency has been, not only in the courts but in the Congress itself to construe the discharge provision very narrowly.
And when Congress amended Section 17 in 1966 so as to decrease the extent to which tax claims are not discharged, the House report noted that nondischargeability “operates in a manner which is unfairly discriminatory against the private individual or the unincorporated small businessmen.
Because in most cases, when a corporation is the petitioner in bankruptcy, that the nondischargeability of the debt is without significance because the corporation is liquidated after the bankruptcy proceedings, but these debts remained with individuals and partnerships and small businessmen.
Now, if Congress were to change the rule of the Embassy case, it might well decide not to make fund contributions a nondischargeable debt even if it wished to grant them priority and it's certainly might further decide that their priority should be subordinate to the present wage claim priority.
Indeed, the Bills that have been introduced expressly provided that the priority to be granted by an extension of the wage claim would be subordinate to the present wage claim and that if there were not assets enough to pay both the worker and the fund, the worker would be paid first.
These are reasons why it might seem more advisable for Congress to consider how to accommodate the structure of the Act to granting of the claim priority that the petitioner has asked in this Court to grant if indeed Congress thinks that such a priority should be granted at all.
In the nine years since the decision in the Embassy Restaurant case, Congress has been most unresponsive to Bills that have been introduced in every session to repeal that case by statutory amendment.
And this is true even though --
Justice Hugo L. Black: How was it unresponsive?
Mr. Lawrence G. Wallace: It's been unresponsive and not enacting them even though as you yourself, sir, noted in your dissent in Embassy Restaurant, Congress has on other occasions, been quick to amend the Section 64 in response to judicial decisions that it has disagreed with and we've cited those in our brief on pages 11 and 12.
And in this particular instance, it seems it's especially questionable to attribute the failure of Congress to take action to congressional neglect of the subject due to oppressive other affairs because the fact is the Congress has in 1966 amended Section 64 in other respects.
And in 1967, it completely reenacted the Section as we noted in our brief at page 11.
Chief Justice Earl Warren: Were there any Bills in the Congress specifically to overrule the Embassy?
Mr. Lawrence G. Wallace: Yes, there were, sir.
We have cited --
Chief Justice Earl Warren: Limited to that or would that just be included in a broad provision?
Mr. Lawrence G. Wallace: Well, the purpose of the Bills, as they were drafted, they're set out in our Brief at pages 11 and 12, was to make pension fund contributions a claim that would have priority under the bankruptcy laws.
Chief Justice Earl Warren: All pension funds?
Mr. Lawrence G. Wallace: All welfare funds, that is correct.
So that it would embrace Embassy and the present case as well if this Bill --
Chief Justice Earl Warren: It might embrace it but it wasn't directly specifically toward Embassy as it was decided, was it?
Mr. Lawrence G. Wallace: Well, it was directed toward Embassy and toward the subject in general.
The response was narrow to the particular facts of the Embassy case, that is true.
But there's every indication that funds, such as the petitioner have continued to prosper under the rule of the Embassy case and the voices of these funds and of the unions with which they are affiliated are not denied in attempt of hearing in the halls of the legislature or in the political process in this country.
And in fact, it is rather difficult to imagine any interest group of comparable political influence that would be motivated to oppose these amendments that have been submitted year after year.
Nevertheless, Congress has never been persuaded to amend the law in granting additional priority.
And now this Court is being asked to adopt the amendment instead.
It seems clear to me what the response of this Court should be to such a request.
Chief Justice Earl Warren: Very well.
We will recess now.
Rebuttal of Harold Stern
Mr. Harold Stern: May I just have a minute?
Chief Justice Earl Warren: You may have one minute, yes because --
Mr. Harold Stern: I want to point out that I didn't make it clear that the claim in this case does not include any wages, due wages to the point that the man didn't get paid his regular wages at the end of the month, but is limited only to the moneys which were due to the annuity fund.
And the reason for that is and I think it would be merely theoretical to talk about $500 or $300 in a building industry because in a building industry, if a man didn't receive his weekly pay at the end of that week, that would be it.
He wouldn't work the next week so that be no possibility of that.
Now, in this case, the moneys which were due to his account for the annuity fund and the reason that it became due is because if an employer don't pay money on time to a trust fund just like you don't pay his taxes on time.
The union doesn't act to pull them in out and put them out of business and that's how it happened.
Chief Justice Earl Warren: Very well.
We will recess.