Appeal from an order entered in a Chapter XI proceeding in the Southern District of New York, John M. Cannella, District Judge, affirming an order of a referee in bankruptcy which had reclassified as a general unsecured claim a customs broker's claim for customs duties which it had paid voluntarily on behalf of the debtor importer. Affirmed.
Lumbard, Friendly and Timbers, Circuit Judges. Friendly, Circuit Judge (dissenting).
On this appeal from an order entered in a Chapter XI proceeding in the Southern District of New York, John M. Cannella, District Judge, the sole question is whether voluntary payment by a customs broker of United States custom duties due from an importer entitles the broker in the importer's Chapter XI proceeding to the priority to which the government would be entitled for debts due the government. The district court and the bankruptcy referee answered the question in the negative. We affirm.
Appellant Taub, Hummel & Schnall, Inc. (Taub) is a customs broker. Appellee I. C. Herman & Co., Inc. (Herman) is an importer of goods from abroad. Taub acted as customs broker for Herman. The goods without exception were imported in Herman's name.
A bond in amount of $50,000 was executed by Herman as principal pursuant to which Herman agreed to pay to the government customs duties on its imported goods. Taub did not execute this or any other bond, either as principal or surety, for the payment of Herman's customs duties.*fn1
During the period from March 3, 1972 through April 7, 1972, Taub voluntarily and without obligation advanced the sum of $32,048.45 in payment of Herman's customs duties due on Herman's imports.
On April 6, Herman filed a petition for an arrangement pursuant to Chapter XI of the Bankruptcy Act. 11 U.S.C. §§ 701 et seq. (1970). In due course, Taub filed in the Chapter XI proceeding a claim for $46,779.54. Of this total claim, Taub classified as a priority claim the $32,048.45 of Herman's customs duties which it had paid to the government.*fn2 Upon application to the bankruptcy referee, Herman obtained an order reclassifying Taub's $32,048.45 of Herman's customs duties which it had paid to the government.*fn2 Upon application to the bankruptcy referee, Herman obtained an order reclassifying Taub's $32,048.45 priority claim as a general unsecured claim.
On Taub's petition to review, the district court affirmed the referee's reclassification of Taub's claim as a general unsecured claim and held that it was not entitled to priority status.
Taub argues that, as a result of discharging Herman's obligations to the government arising from the assessment of import duties, it is entitled to the priority to which the United States would be entitled for debts due the government. Taub's priority claim in essence is based on principles of subrogation. Having paid customs duties due from Herman to the United States, Taub says that it is entitled to succeed to the government's rights against Herman, including the government's priority claim in bankruptcy proceedings for unpaid customs duties.
Priority by subrogation, however, has been granted only in the limited situation provided for in 31 U.S.C. § 193 (1970):
"Whenever the principal in any bond given to the United States is insolvent . . ., and . . . any surety on the bond . . . pays to the United States the money due upon such bond, such surety . . . shall have the like priority for the recovery and receipt of the moneys out of the estate and effects of such insolvent . . . as is secured to the United States. . . ."
In view of this statutory provision, the question before us is whether the fact that Taub was not a surety on the bond executed by Herman for the payment of customs duties forecloses Taub's priority claim.
We hold, as did the district court and the bankruptcy referee below, that the rationale of our decision in R. J. Saunders & Co., Inc. v. Vincent, 309 F.2d 65 (2 Cir. 1962), aff'g 202 F. Supp. 140 (S.D.N.Y. 1962), requires that Taub's claim be treated as a general unsecured claim without priority status. In Saunders, a customs broker, in order to expedite entry of imports, see Union Brokerage Company v. Jensen, 322 U.S. 202, 204, 88 L. Ed. 1227, 64 S. Ct. 967 (1944), had paid customs duties due from the bankrupt importer. We rejected the contention of the customs broker that it was entitled to succeed to the rights of the United States against the bankrupt, including the government's right to have its claim accorded priority status in the distribution of the bankrupt's estate. And we pointed ...