Marshall v. New York
Headline: New York’s unpaid state taxes get priority over unsecured creditors in a federal receivership, letting the State be paid first from a company’s assets even without a prior levy
Holding: The Court held that New York’s common-law prerogative gives the State priority to be paid from a debtor’s assets in a federal receivership ahead of unsecured creditors, even absent a prior statutory lien or physical levy.
- Allows New York to be paid before unsecured creditors in federal receiverships within the State.
- Requires federal receivers to honor New York’s state priority on debtor assets.
- Does not displace pre-existing secured liens created before the receiver’s appointment.
Summary
Background
A federal court appointed a receiver for a Delaware corporation that did business and owned property in New York. The State of New York claimed two unpaid charges: annual franchise taxes under §182 and one-time license taxes under §181. The District Court treated both as taxes, gave priority to the annual franchise tax because of §197’s lien language, but denied priority for the license tax because no levy had been made. The Circuit Court of Appeals held that New York law independently gives the State a prerogative priority over unsecured creditors; the case reached this Court to decide that question.
Reasoning
The Court framed the core question as whether New York’s common-law prerogative lets the State be paid before other unsecured creditors from a debtor’s general assets in a receivership. Relying on the State’s constitutional adoption of English common law and long-standing New York court decisions, the Court concluded the State succeeded to the crown’s priority. That priority applies to all property within the State, including assets in the custody of a federal receiver, and functions as a broad equitable lien or privileged claim. Because the receiver prevented a levy that would have created a statutory lien for license taxes, the proper remedy was an application to the court for payment. The ruling does not disturb pre-existing specific liens created before the receiver’s appointment.
Real world impact
The decision means New York can recover unpaid state taxes from assets in a federal receivership before unsecured creditors are paid. Federal receivers must take assets subject to the priorities and privileges established by New York law. The practical result leaves secured creditors and liens created before receivership intact and does not alter the usual protections for prior incumbrances.
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