United States v. Marxen

Background

The dispute involves a bank, a brewing company that borrowed money, and the Federal Housing Administrator, the government agency that issued an insurance policy to the bank. The Administrator insured the bank on August 10, 1934. The bank lent money to the Monterey Brewing Company on January 2, 1936. The company defaulted on February 2, 1937 and went into bankruptcy on April 5, 1937. The bank waited to present its insurance claim until July 3, 1937; the Administrator paid on August 4, 1937 and caused the note to be assigned to the United States. The bankruptcy referee allowed it only as a general claim, and the district court approved. The Ninth Circuit asked whether the assigned claim had priority under federal law.

Reasoning

The Court focused on whether the United States had a provable, priority claim when the bankruptcy petition was filed. The Court found no facts in the record showing the borrower had agreed to reimburse the Government or that the claimant had a right at the time of filing. The Government relied on a regulation and a credit form in its brief, but the certificate did not show those applied here or which State's law governed. The Court explained that bankruptcy fixes creditors' rights at the moment the petition is filed, and therefore §3466 cannot give priority to claims the United States acquires after that filing. The Court answered the certified question “no.”

Real world impact

The decision means the United States cannot leap ahead of other creditors for a loan claim it gets or pays for after a borrower files for bankruptcy. Creditors' priorities are set at the bankruptcy filing date, so banks and government insurers must assert and prove claims before or when the bankruptcy begins to seek priority. The ruling resolves a split in lower courts on this point and clarifies that post-filing assignments to the United States do not get the special federal priority.