Bogart v. S. Pac. Co., 228 U.S. 137 (1913)

really presented, and whether so presented or not this court will determine for itself. Darnell v. Illinois Cent. R. R. Co., 225 U. S. 243. p. 138Neither § 737, Rev. Stat., nor Equity Rule 47 defines what an indis-

The suit was originally brought in the New York Supreme Court for the County of Queens by Walter B. Lawrence, who has since died and for whom the appellants have been substituted, against the Southern Pacific Company, Frederick P. Olcott, Central Trust Company of New York, Farmers’ Loan & Trust Company, Metropolitan Trust Company of the City of New York, The Houston & Texas Central Railroad Company (which we will call the “Railroad Company”) and The Houston & Texas Central Railway Company (which we will call the “Railway Company”). Upon the petition of the p. 142Southern Pacific Company, Olcott and the Railroad Company, the case was removed to the United States Circuit Court. Lawrence alleged in his complaint that he was a stockholder of the Railway Company, of which the Southern Pacific Company owned a majority of the stock; that the Railway Company became involved in various foreclosure suits, to which it set up certain defenses claimed by Lawrence to be valid and sufficient; that the Southern Pacific Company entered into a certain reorganization agreement, whereby, in consideration of the withdrawal of the defenses, which was procured by the Southern Pacific Company, the mortgages were foreclosed and all the property of the Railway Company bought in by defendant Olcott, who transferred the lines of railroad, rolling stock, etc., to the defendant Railroad Company, organized pursuant to the agreement; that new bonds were issued by the Railroad Company to retire the old bonds and the lands of the Railway Company purchased by Olcott were conveyed to the three Trust Companies under the new mortgages, defendants herein, as further security for the bonds; and that under the plan the Southern Pacific was given more favorable terms than the minority stockholders in the matter of receiving the benefits of the reorganization agreement, and that consequently all the stock of the Railroad Company was taken over by the Southern Pacific Company. Lawrence prayed that the Southern Pacific Company be decreed trustee of all benefits received under the plan and for an accounting, and prayed that the Trust Companies convey the surplus arising from the sale of land, after the bonds have been liquidated, to the Railway Company, and for certain other refief.

After the removal of the case to the Circuit Court, a motion was made to remand to the state court, which was overruled. Thereafter the defendants the Southern Pacific Company, Olcott and the Railroad Company filed p. 143a plea in which it was set up that the Railway Company was a necessary and indispensable party to the suit; that it was beyond the jurisdiction of the court and could not be brought in by process, and without its presence no decree could be rendered in the case, and therefore prayed that the bill be dismissed. Special pleas were filed by the Central Trust Company of New York, the Farmers’ Loan & Trust Company and the Metropolitan Trust Company of the City of New York.

The question to be decided is whether the case was p. 145dismissed for the want of jurisdiction in the Circuit Court as a Federal court, for if it be found that the case was dismissed because of the decision of a question not peculiar to the Federal jurisdiction and involving only a general question of procedure in equity, this court need not consider it. From what has been stated it is apparent that the case was duly removed because of diverse citizenship, and what was done afterwards was in pursuance of the jurisdiction thus acquired. The defendants, the Southern Pacific Company, Olcott and the Railroad Company, by plea claimed that the cause should not proceed because the Railway Company was an indispensable party to the suit. This, it is contended, presented a question of the jurisdiction of the court as a Federal court, and the dismissal of the suit was the denial of such jurisdiction.

“So that, while this act removed any difficulty as to jurisdiction, between competent parties, regularly served with process, it does not attempt to displace that principle of jurisprudence on which the court rested the case last mentioned. And the 47th rule is only a declaration, for the government of practitioners and courts, of the effect of this act of congress, and of the previous decisions of the court, on the subject of that rule. Hagan v. Walker, 14 p. 147228 U. 8. Opinion of the Court.

A state statute giving compensation for consequential damages caused by p. 149change of grades of streets does not merely provide a remedy but creates a property right; to repeal such a statute so as to affect rights actually obtained thereunder is a deprivation of property without due process of law as guaranteed by the Fourteenth Amendment. The statute of Washington repealing the foipner statute which gave a right to consequential damages from change of grade, as construed by the state courts as destroying rights to compensation which had accrued while the earlier act was in effect, amounts to a deprivation of property without due process of law.

At the time the grading was done there was in force an act of the Washington legislature which required the city p. 150to make compensation for consequential damages due to an original street grading. Pending these suits and while they were actually being heard, the provision of the act referred to which expressly required the city to provide for or make compensation for all such damage, was amended so as to provide that the act should not apply to the original grading of any street. Laws of Washington, 1907, c. 153, p. 316, and Laws of 1909, c. 80, p. 151. When the attention of the trial court was called to this repealing act, it directed a verdict for the city upon the theory that the right of action was statutory and fell with the statute, there being no saving clause. This judgment, upon the same ground, was affirmed by the Supreme Court of the State.

In the absence of legislation requiring compensation for such damage the general rule of law is that a municipality in making, grading and improving streets is the agent of the State, exercising in the performance of such work a governmental power, and is not liable for consequential injuries to property abutting, if it keep within the street and use reasonable care and skill in doing the work. 4 Dillon Municipal Corporations, 5th ed., §§ 1674, 1677; Smith v. Corporation of Washington, 20 How. 135; Transportation Co. v. Chicago, 99 U. S. 635, 641; Humes v. Knoxville, 1 Humph. (Tenn.) 403. This was the general law as announced by the Supreme Court of Washington in its first opinion in the case of Fletcher v. City of Seattle, p. 15143 Washington, 627, and is the general law of the State as announced by the court’s opinion in the instant case. Where the benefits equalled the injury, there was, of course, no injustice in the application of the general rule. But where the damage exceeded the benefits there was an apparent injustice in casting upon such an owner an undue share of the cost of an improvement for the public benefit. This was recognized in Transportation Co. v. Chicago, supra, where municipal non-liability was said to be due to the fact that in improving its highways the municipality was but the agent of the State, and that as the State could not be sued, its agents were equally immune for improvements authorized by the law of the State, without the consent of the State. But this equity which exists when the benefits are less than the damage affords a strong foundation for legislation requiring compensation in such circumstances. This consideration doubtless led to the legislation of the State requiring compensation for such damage, under which the rights of the plaintiffs in error are asserted.

The act of 1893 was construed and applied by the p. 152Supreme Court of the State in Fletcher v. Seattle, 43 Washington, 627. The action was by the owner of premises which had sustained damage while the act was in force, in consequence of an original grading. He recovered a judgment, which, upon a first hearing, was reversed by the Supreme Court, that court holding that consequential damages arising from an original grading when the work had been done with due care, was neither a taking nor a damaging of private property within the meaning of the constitution of the State requiring compensation for taking or damaging private property for public purposes. But, upon a rehearing, the attention of the court was for the first time called to the act of 1893, and the contention advanced that the only authority of the city to take or damage the property of the plaintiff for the purpose of grading the street was under that act, and that, by its terms, the city was required to make compensation for damage arising from an original grading. The construction of that act upon facts like those in the present case was thereby directly involved. It was urged that the forty-seventh section did not require compensation for consequential damages, but in answer to this, the court said (p. 633):

“It was said that the title of the act shows that it is legislation concerning the exercise of the right of eminent domain, but we think the title is sufficient to cover the p. 153section objected to equally as well as the other sections in the act, and it was evidently the intention of the legislature to pass an act covering the whole subject of opening streets, and of providing methods of making compensation for damages where damages followed. The title not only provides for the exercise of the right of eminent domain, but , also, the taking and damaging of land and property for public purposes, and section 1 of the act empowers the city to condemn and also empowers it to damage any land or other property for the purpose of opening streets. Section 2 says, when the corporation authorities of any such city shall desire to condemn land or other property or damage the same for any purpose authorized by this act such city shall provide, etc. In this case the city had the power to damage respondents’ land, and it was found that it did damage it and it damaged it in a way that it was authorized by § 47 of this act; namely, by establishing a grade on the street upon which their property abutted. And this idea is manifested throughout the act. That the section does not contemplate such damages as are caused by an encroachment or actual trespass upon the lands of the owner, as is suggested by the appellant, is manifest from the language of the section itself which evidently contemplates that the work will be upon the street and not upon the abutting property.

The opinion so construing the act of 1893 was filed in September, 1906. In March, 1907, the act of 1893, then m force, was extended to a larger class of cities and p. 154reenacted, without any change in any material respect, the first, second and forty-seventh sections being reenacted, the forty-seventh section becoming in the later act § 48. While this act of 1907 was in force, the city directed the grading in question and made or caused the railroad company to make cuts and fills in the street in front of the premises of the plaintiffs in error which resulted in large injury to their property. The city did not provide for compensation for the damage so done by any special assessment upon the property benefited. This brought into effect the provision of the second section requiring the payment of such damage to be made out of the general funds of the city. Payment not having been made as required, the plaintiffs in error brought these actions to recover compensation.

Neither of the acts provided any remedy for the enforcement of the obligation to make compensation. Both provided that the city might by ordinance arrange for the ascertainment of the damages, and for their collection by special assessment on the property benefited, or within a special assessment district. But the plain requirement of the first and second sections of both acts is that if the city does not so provide for special assessments, that it I should make the compensation out of its general treasury. The repealing clause of the act of 1909 does not touch the p. 155general features of the law beyond the provision that the forty-eighth section of the act, which extended the obligation of compensation to original gradings, should not apply to damage arising from such gradings. It is a mistake to say that the act of 1907 gave a remedy where none existed before. What it did was to impose an obligation to compensate abutters injured by an original grading, an obligation which, however meritorious, had no sanction in positive law. The remedy, if the city disregarded the obligation, was that afforded by the common law for the breach of any valid contractual or statutory duty. That was the remedy which was enforced by the Washington court in Fletcher v. City of Seattle, supra.

The court below gave a retrospective effect to the amendatory and repealing act by holding that the effect of the repeal was to destroy the right to compensation which had accrued while the act was in force. The obligation of the city was fixed. The plaintiffs in error had a claim which the city was as much under obligation p. 156to pay as for the labor employed to do the grading. It was a claim assignable and enforceable by a common-law action for a breach of the statutory obligation.

Certain cases have been cited in support of the action of the state court, among them Yeaton v. United States, 5 Cranch, 281. But that was a case of a forfeiture to the United States. The repeal of the statute was held to end the proceeding, although a sentence had been pronounced and was pending upon appeal when the act under which it had been entered was repealed. No private right had p. 157vested, and the Government could abandon its own proceeding if it saw fit at any stage. Another case cited is Salt Company v. East Saginaw, 13 Wall. 373. For the purpose of encouraging the manufacture of salt the State of Michigan, by a general statute addressed to no particular person or corporation, offered a bounty upon salt produced and exempted from taxation the property engaged in the business. After a time the act was repealed. The claim was that the exemption constituted a contract, and that it could not be repealed without impairing the obligation of the contract. But this court said that the exemption did not constitute a contract and was nothing more nor less than a law dictated by public policy for the encouragement of an industry. So long as the law was in force the State promised the exemption and bounty, but there was no pledge that it should not be repealed at any time. In Wisconsin & Michigan Ry. v. Powers, 191 U. S. 379, 385, 387, the case was said to point out the distinction between “an exemption in a special charter and general encouragement to all persons to engage in a certain enterprise,” and the same principle was applied to an act which provided an exemption to any corporation building a line of railroad north of certain lines of latitude. The court held that it was addressed to no one in particular and constituted a mere announcement of policy not constituting a contract, and was therefore subject to repeal at any time. The case of Louisiana v. New Orleans, 109 U. S. 285, has been cited. That case merely held that a judgment against the city under a statute for damage to private property inflicted by a mob did not constitute a contract, the obligation of which had been impaired by the repeal of a statute under which the city might have been compelled to levy a special tax for its satisfaction. The case turned upon the distinction between liability for a tort and liability under a contract.