Mellon v. Michigan Trust Co.
Headline: Federal railroad administrator denied priority to collect transportation claims from an insolvent company's voluntary assignment, so other creditors share assets equally and the lower courts' refusal of U.S. preference is affirmed.
Holding:
- Prevents federal railroad operator from getting paid before other creditors in voluntary assignments.
- Leaves creditors to share the insolvent company's assets equally under ordinary rules.
- Affirms lower-court rulings denying United States preference in this case.
Summary
Background
Creditors of the Rathbone Manufacturing Company asked a federal court to appoint a receiver because the company was insolvent. The company admitted insolvency and consented to a receiver, and the Michigan Trust Company took control of the assets. The Director General of Railroads presented claims for transportation charges and conversion of a shipment of pig iron and asked to be paid first. Trial and appellate courts denied that request. The statutory question involved an older law that gives the United States priority in some insolvency situations and a 1918 statute that governs carriers while under federal control.
Reasoning
The Court asked whether the Director General could use the older priority rule when a debtor made a voluntary assignment while railroads were operated by the federal government. The Court concluded that the 1918 law treated the Director General, as operator, like a private carrier for substantive rights and prevented him from claiming special treatment as a federal instrumentality to leap ahead of other creditors. The Justices emphasized congressional intent to preserve ordinary rights and the recent national policy against special preferences in insolvency. Allowing the claimed preference would conflict with the statute’s purpose, so the Court upheld the lower courts’ denial of priority.
Real world impact
This decision means that when the federal government operates railroads, its administrator cannot automatically take priority over other creditors from a company’s voluntary assignment. Creditors in similar receiverships will generally share assets under ordinary distribution rules. The ruling affirms the lower courts’ outcome in this case.
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