Mr. Alfred E. Lo Presti, of Boston, Mass., for petitioner.
Mr. Albert E. Hallett, of Chicago, Ill., for the State of Illinois, as amicus curiae, by special leave of Court.
Helen Goodner, of Washington, D.C., for respondent.
Mr. Justice RUTLEDGE delivered the opinion of the Court.
This case is for all practical purposes a renewal of the litigation recently here in State of Illinois ex rel. v. United States, 328 U.S. 8 , and the companion case of People of State of Illinois ex rel. Gordon v. Campbell, 329 U.S. 362 . The former unanimously held that the United States has priority, by virtue of Rev.Stat. 3466, 31 U.S.C. 191, 32 U.S.C.A. 191, for payment from ani nsolvent debtor's estate of federal insurance contribution taxes under Title 8 [333 U.S. 611 , 613] and unemployment compensation taxes under Title 9 of the Social Security Act, 49 Stat. 620, 42 U.S.C.A. 1001 et seq., 1101 et seq., as against a state's claim for unemployment compensation taxes imposed by its statute conforming to the federal act's requirements. The Campbell case, which was reargued on other issues, rested on this ruling for disposition of the common issue concerning the effect of 3466.
The facts are substantially identical with those in Illinois v. United States, 1 except in two respects. One is that the fund available here for distribution is more than sufficient to pay either the Title 8 or the Title 9 taxes, though inadequate to pay both, while in Illinois v. United States the fund was not large enough to satisfy either tax in full. Here too the debtor's assignee has paid to the commonwealth the full amount of its claim, 2 while in the Illinois cases the fund remained in the assignee's hands for distribution.
The District Court sustained the federal priority for capital stock and Title 8 taxes in full, and for 10 per cent of the Title 9 claim. It therefore deferred payment of any part of the state's claim until those claims were fully paid. But the court held the United States not [333 U.S. 611 , 614] entitled to priority for the remaining 90 per cent of the Title 9 claim, on the ground that Title 9, 902, 3 gives the assignee 'the alternative right' to pay that amount to an approved state unemployment fund. Accordingly the judgment ordered Massachusetts to pay over to the United States, from the $803.72 received from the assignee, sufficient funds to satisfy in full the federal priorities sustained, and to retain the small balance remaining after making those payments to apply on its claim for 90 per cent of the Title 9 taxes. 65 F.Supp. 763. This action was taken in the view that, while our previous decisions had sustained the federal priority for the capital stock and Title 8 taxes, they had not determined the question for Title 9 claims. 4
However, on appeal by both parties, the Circuit Court of Appeals held the United States entitled, under the Illinois rulings, to priority for the full amount of all its claims, including the Title 9 taxes. That court therefore affirmed the District Court's judgment except insofar as it denied the Government's Title 9 claim. As to this it reversed the District Court's ruling. 160 F.2d 614. [333 U.S. 611 , 615] Because of the obvious confusion concerning the effects of our prior decisions and the asserted differences betwen this case and the Illinois cases, certiorari was granted. 332 U.S. 754 .
Massachusetts seeks to retain the entire $803.72 she has received, in priority to all the federal claims. She agrees with the district court that 902 gives the taxpayer an 'optional right' of payment, but does not accept its allocation creating priorities for all federal claims except 90 per cent of the Title 9 taxes. To sustain this broad claim would require reversal of both of the Illinois decisions. In no other way, on the facts, could Massachusetts retain the whole amount she was paid. 5
Illinois as amicus curiae takes a narrower position, conceding that the Illinois cases stand as decisive adjudications of priority for Title 8 taxes but disputing that effect for Title 9 claims. 6 This position seeks an allocation paying the state's claim after the Title 8 and other federal claims, including 10 per cent of the Title 9 taxes, but before or rather in 'satisfaction' of the remaining 90 per cent of them. 7 [333 U.S. 611 , 616] Notwithstanding their substantial differences, the two states rest their respective positions on the same basic arguments, which upon examination turn out to be identical with those vigorously presented by Illinois in the earlier cases, except for wording and detail. Much is made of the fact that here the debtor's assignee has paid to the commonwealth the full amount of its claim, while in Illinois v. United States, the fund remained in the assignee's hands. Both states urge that 902 gives the taxpayer, and here his assignee, the 'optional right' of payment to the state. Moreover, with respect to the requirement of Rev.Stat. 3466 that 'the debts due the United States shall be first satisfied,' it is said that payment to the state with resulting credit to the United States for 90 per cent of the Title 9 claim 'satisfies' the Government's debt as much as payment to it in cash.
In the Illinois cases the foundation for the state's claim to be paid in preference to any of the federal claims lay in the credit provision of 902, which is the identical provision for 'optional payment.' There was no question whatever that 902 gave the taxpayer the 'alternae right.' But the precise issue in both cases was whether that right had been cut off by Rev.Stat. 3466 when he became insolvent.
Obviously there could have been but little point or effect to our decisions if, despite them, the assignee could have turned around immediately and deprived the Government of the priorities established simply by exercising a right to make the optional payment to the state. Nor would the decisions have been much more sensible or [333 U.S. 611 , 617] effective, had they purported to sustain the federal priorities when the assignee has retained the fund, but to disallow them, if he has paid the state before the federal claims are filed. We made no such ineffective or capricious rulings. The decision was broadly that by intervention of the insolvency and the consequent bringing of Rev.Stat. 3466 into play, the taxpayer's right to pay the state and take federal credit had been cut off.