The opinion of the court was delivered by: MILLER
In this straight bankruptcy proceeding the United States seeks to review the Bankruptcy Court's order which denied its petition for payment of penalties and post-bankruptcy interest.
The appeal fosters this general question:
May the United States collect penalties and post-petition interest from proceeds realized by the sale of the debtor's property which, while levied upon by the government prior to filing of the bankruptcy petition, was later surrendered, in accordance with a court-approved stipulation, to the Trustee for purposes of disposition?
To understand our approach to answering this question we deem it important to become familiar with the procedural background of the case.
Nearly three weeks later, April 2, 1974 to be exact, Chantler filed a voluntary petition in bankruptcy and this Court appointed John E. Reynolds Receiver in Bankruptcy. On April 15, 1974 the Receiver filed in this Court a pleading styled "Petition To Terminate Possession Of The Internal Revenue Service Of Assets Of The Bankrupt And To Place The Receiver In Possession". The thrust of this petition was that while the property levied upon by IRS was valued at $75,000.00, the amount of the government's claim was much less. Therefore, the Receiver averred --
that it would be inequitable to permit the Internal Revenue Service to sell the property at a forced sale without an opportunity for your petitioner as Receiver to realize the equity which the bankrupt has in said real and personal property. (para. 4.)
Accordingly, the Receiver prayed for an order directing the IRS to turn over possession of the seized property to him.
The United States, which responded the very same day, moved that the petition be denied for three reasons which can be summarized as follows:
1. The Court lacked summary jurisdiction to enter a turnover order because the property in dispute had been seized prior to institution of bankruptcy proceedings;
2. The Receiver's petition, being filed in the bankruptcy proceeding, was not a plenary suit; and
3. The United States did not consent to the Court's obtaining jurisdiction of the petition. (Emphasis added.)
It became unnecessary for the Court to decide the issues raised at that time, however, because on May 2, 1974, after oral argument on the petition, IRS and the Receiver entered into a Stipulation which provided in essence that IRS would relinquish possession of the real and personal assets of the bankrupt to the Receiver in exchange for the Receiver's promise to satisfy the tax liens from whatever proceeds were generated by a sale of the property. The Stipulation, which we approved by order on the same date, is silent on the matters of penalty and interest; however, its terms do provide for payment of the "tax liens" then being asserted by the government (paras. 2, 3, 6 and 7). The Stipulation further provided for a distribution schedule in that it obligated the Receiver to pay, with the exception of any secured creditors, the tax liens first and "prior to payment of all administrative expenses . . . ." (paras. 2, 3.)
Thereafter the matter was referred to the Bankruptcy Judge. The Receiver became Trustee for the bankrupt and proceeded to fulfill the obligations attendant to administering the estate. The United States declined to file a proof of claim evidently wanting to preserve its unwillingness to assent to jurisdiction of the Bankruptcy Court.
The Trustee eventually sold the real estate for $75,000.00 and paid Union National Bank of Pittsburgh $10,932.27, the amount due on the mortgage. The United States was paid the sum of $16,593.83 on its tax claim. This amount represented the principal amount of the government's liens with interest to the date of bankruptcy.
In ruling against the government the court below reasoned that, while it normally would not have jurisdiction over debtor property seized prior to the date of bankruptcy, the Stipulation, which gave possession and control of the assets to the Receiver-Trustee, effected a transfer which necessarily made the property part of the bankrupt estate. Since the property was liquidated and the resultant proceeds were being distributed by the Trustee, the court perceived no difficulty in disallowing the additional amount under the Bankruptcy Act and case law. Because the court did not attach importance to the fact that the government filed no proof of claim, it apparently viewed the Stipulation as consent to its ...