Interstate Record Distributors, Inc. v. Columbia Broadcasting System, Inc.

430 F.2d 1017

• Court: Court of Appeals for the Second Circuit
• Decided: August 3, 1970
• Docket: No. 759, Docket 34693
• Status: Published

Opinions

PER CURIAM:

Appellants (hereinafter sometimes referred to as “Interstate”) are debtors in possession, under a plan entered in 1966 on the completion of proceedings on their Chapter XI petitions pursuant to section 332 of the Bankruptcy Act. They seek $19,534.85 from Columbia Broadcasting System (“CBS”), one of their principal creditors in the bankruptcy proceedings. Interstate were and are dealers, jobbers, and distributors of phonograph records; CBS manufactured and sold such records to Interstate. Until July 22, 1965, CBS and other manufacturers were subject to an excise tax measured by the sales price of the records, 26 U.S.C. § 4141 (1964). Under the statutory scheme, the manufacturers exacted the tax from their wholesalers, who in turn passed it along to the retailers and, ultimately, to the consuming public.

The excise tax was repealed effective July 22, 1965, P.L. No. 89-44. The re-pealer provided for refunds of taxes paid upon records remaining in the hands of distributors and retailers. The refunds were to be claimed by the manufacturers based upon the requests of their purchaser-dealers. Upon Interstate’s request, CBS filed and received a refund of $19,534.85, the amount here in dispute. Between Interstate’s request and CBS’ filing, Interstate filed their Chapter XI petitions. In due time CBS received the refund and issued credit memos against Interstate’s accounts with it.

By motion to the referee Interstate sought an order requiring CBS to pay the sum over to it as debtor in possession. Opposing the motion, CBS which had filed unsecured claims in the Chapter XI proceeding totalling over $80,000 claimed that the tax refund should be retained by it as a set-off under section 68(a) of the Bankruptcy Act, 11 U.S.C. § 108(a) (1964). With the situation unresolved, a plan paying creditors 12%% of their unsecured claims was confirmed by the referee.

Sometime later, the referee decided the motion in favor of Interstate and ordered CBS to turn over the sum. The district court reversed, holding that “the heavy weight of precedent and the business sense of the matter support the contention of CBS that it is entitled to set off the tax refund against its much larger claim upon the debtor.” 307 F. Supp. at 1144. This appeal followed.

Appellants raise a host of arguments, all of which were considered and rejected by the district court. We are in substantial agreement with the position taken by the court below, and affirm on the basis of Judge Frankel’s opinion, 307 F.Supp. 1142 (S.D.N.Y.1970).

Affirmed.