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July 9, 1953


The opinion of the court was delivered by: BYERS

On May 23, 1953 the trustee filed and served upon all parties to this proceeding a petition to approve a settlement of sundry taxes assessed by the City of New York since the filing of the petition by the debtor on March 2, 1949 to May 1, 1953, amounting to $ 14,513,863,36. Of this total there had been paid previously $ 5,722,409.21.

Answers in opposition were served and filed on behalf of Nassau County on June 1, 1953 and of Suffolk County on June 4, 1953, which were supplemented by oral argument and written briefs.

 Opposition to the petition was also presented by way of testimony, oral argument and printed brief on the part of The Long Island Transit Authority; also by oral argument on the part of the State of New York.

 Hearings have been held in open court on June 1, June 15, June 17, June 23 and July 2.

 The funds necessary to finance the proposed settlement have become available to the trustee as the result of the acquisition by the City of New York of the Rockaway lines of the debtor, in the sum of $ 8,500,000, which transaction has heretofore been sanctioned by this Court and the Interstate Commerce Commission.

 It is customary to think of the obligation to pay taxes as one of the primary duties of citizenship, and the striking anomaly confronting the Court arises from the opposition to the performance of that duty offered by the State of New York directly through the Attorney General, and indirectly through The Long Island Transit Authority, which is a state agency; and also by the Counties of Nassau and Suffolk.

 The Judicial Code, etc., contains the following pertinent provisions, Tit. 28 U.S.C. § 959(b) and § 960:

 '(b) A trustee, receiver or manager appointed in any cause pending in any court of the United States, including a debtor in possession, shall manage and operate the property in his possession as such trustee, receiver or manager according to the requirements of the valid laws of the State in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof.'

 'Sec. 960. Tax liability

 'Any officers and agents conducting any business under authority of a United States court shall be subject to all Federal, State and local taxes applicable to such business to the same extent as if it were conducted by an individual or corporation.'

 The opposition to the performance of this public duty rests upon arguments which have been earnestly and skillfully presented, and therefore invite appropriate discussion.

 The total tax liability as above stated, as of May 1, 1953 of $ 14,513,863.36, computed so as to include so much as was unpaid of the first half of 1948-1949 taxes, included real estate and special franchise taxes in the total principal sum of $ 12,867,529.43 and interest of $ 1,646,333.93.

 The foregoing figures have not been challenged by counsel who oppose the granting of the petition.

 Of the total taxes so assessed by the City as stated, there had been paid prior to May 22, 1953 the sum of $ 5,738,298.70, leaving $ 8,775,564.66 plus interest from May 2, 1953 to May 22, 1953, the date of the proposed settlement agreement, of $ 15,889.49, or $ 8,791,464.15 as the sum in dispute between the City and the debtor. As to so much of that figure as represented taxes assessed against real estate, many certiorari proceedings instituted by the trustee were pending, so that a legal basis was present for amicable adjustment of all tax controversies.

 The proposal is to authorize the trustee to pay $ 2,046,831.14 for that purpose, thus effecting a saving to the estate of the debtor of $ 6,744,623.01 according to the books.

 As part of the proposed settlement, the City exacted a down payment of $ 5,471,574, which was made on May 22, 1953, and that fact is in part relied upon to sustain the opposition to the petition, on the theory that pro tanto the Court has been short-circuited in the performance of its duty to pass upon the wisdom and expediency of the entire settlement.

 I do not subscribe to that view: The City is a party to this proceeding as a secured creditor and is therefore subject to the jurisdiction of the Court, and it is not to be anticipated that it would demean itself otherwise, should the occasion be deemed appropriate to order a return of the said payment on account; moreover, actual knowledge of the necessity for securing the approval of the Court to effectuate the settlement is attributable to the authorities who acted for the City. The matter is thus to be disposed of without reference to that aspect of the transaction.

 The trustee testified that the reduction of the annual charges against the estate for interest and penalties which will result from this proposed settlement will be, on the basis of ...

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