Guardian Sav. & Tr. Co. v. Rd. Improvement Dist. No. 7 of Poinsett Cnty., 267 U.S. 1 (1925)
Case details
Bluebook Citation
Guardian Sav. & Tr. Co. v. Rd. Improvement Dist. No. 7 of Poinsett Cnty., 267 U.S. 1 (1925)
Full caption
GUARDIAN SAVINGS & TRUST COMPANY, TRUSTEE, v. ROAD IMPROVEMENT DISTRICT NO. 7 OF POINSETT COUNTY, ARKANSAS.
Country
United States
Jurisdiction
Federal
Court
Supreme Court of the United States
Decided
Jan. 19, 1925
Majority
Holmes (Justice)
GUARDIAN SAVINGS & TRUST COMPANY, TRUSTEE, v. ROAD IMPROVEMENT DISTRICT NO. 7 OF POINSETT COUNTY, ARKANSAS.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE EIGHTH CIRCUIT.
No. 389. Argued January 8, 1925.—Decided January 19, 1925.
When state legislation has authorized and confirmed assessments of benefits on lands of a special improvement district and the mortgaging of these taxes as security for bonds to be sold to the public, and has provided in terms for collection of the taxes through a receiver to be appointed by a state court to pay the bonds in case of default, and the bonds are bought by the public upon this assurance, the power thus conferred upon the state court may be exercised by the federal District Court, in a suit to foreclose the mortgage in which jurisdiction otherwise exists through diversity of citizenship. P. 6. 298 Fed. 272, reversed.
Certiorari to a decree of the Circuit Court of Appeals which reversed a decree of the District Court and directed that the bill be dismissed. The decree of the District Court was made in a suit brought by a trustee for bondholders, alleging diversity of citizenship, against a road improvement district, to foreclose a mortgage covering the assets of the district, including assessments for benefits already made and confirmed against the lands of the district. The decree directed a receiver to collect these taxes to-the extent necessary to pay outstanding bonds and coupons.
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Argument for Petitioner. 267 U. S.
Mr. G. B. Rose, with whom Mr. D. H. Cantrell, Mr. J. F. Loughborough and Mr. A. W. Dobyns were on the briefs, for petitioner.
The question is whether the statute creates a substantive right, or whether it deals merely with a remedy. If a substantive right is given, it will be enforced in the federal courts, according to the practice established in those tribunals. If only a remedy is given, unknown to federal jurisdiction, that remedy must be sought in the state courts.
Along with every mortgage there goes the right to the appointment of a receiver, where that course is essential to the protection of the mortgagee’s interests. An improvement district is merely a creature of the Legislature, and the Legislature can impose upon it such liabilities as it deems fit. The Legislature has provided that so long as there is no default in the payment of the bonds, the property owners shall have a right to pay their taxes through the county collector. It has provided also that in case of such default the taxes shall be collected by a receiver appointed by the court on the application of the bondholders. That this right to the appointment of a receiver is a substantive one of the greatest value must be apparent to this Court, from its long and painful experience in matters of mandamus against public corporations.
By the terms of the statute creating the district, the bondholders were solemnly assured that if there should be default for thirty days in the payment either of principal or interest of the bonds a receiver would be appointed. It was upon the faith of this assurance that they bought the bonds. The law under which an obligation is issued enters into it and forms a part thereof, as completely as if fully set forth therein. It would be monstrous to hold that this solemn promise held out to the bondholders as an inducement to buy the bonds did not confer upon them p. 3a substantive right which will be enforced by the federal courts.
This is particularly the case because the appointment of a receiver in a suit to foreclose a mortgage lien is a part of the ordinary equity jurisdiction of the federal courts; so that there is no attempt in the state statute to grant a remedy unknown to those courts, but merely to create a right which those courts will enforce in the manner provided by their rules and the practice in chancery.
What are substantial remedial rights is illustrated by numerous decisions of this Court. Holland v. Chdllen, 110 U. S. 15; Devine v. Los Angeles, 202 U. S. 313; The Case of Broderick's Will, 21 Wall. 503; Ellis v. Davis, 109 U. S. 485; Farrell v. O'Brien, 199 U. S. 89; Sutton v. English, 246 U. S. 199; Gormley v. Clark, 134 U. S. 338; Louisville & N. Ry. Co. v. Western Union Tel. Co., 234 U. S. 370; Reynolds v. Crawfordsville Bank, 112, U. S. 405; United States Mining Co. n. Lawson, 134 Fed. 769, 207 U. S. 1.
This case comes exactly within the principle of the exception laid down in Pusey & Jones Co. n. Hanssen, 261 U. S. 491. See also Butz v. City of Muscatine, 8 Wall. 575; Bronson v. Kinzie, 1 How. 311; Howard v. Bugbee, 24 How. 461; Bamitz v. Beverly, 163 U. S. 118, Sheffield v. Witherow, 149 U. S. 574.
Mr. Henry D. Ashley, with whom Mr. J. F. Gautney was on the brief, for respondent.
United States courts will not assume all jurisdiction that the State courts could assume. Heine v. Board of Levee Commissioners, 19 Wall., 655.
The right to have a receiver appointed for the purpose set out in the Act is not substantive but is purely remedial. No court has an inherent right to appoint a receiver to collect or levy taxes.
The right to levy and collect taxes can only be acquired by express delegation from the legislative body and can be exercised by no other body or person than the one designated by the Legislature.
The appointment of the receiver to levy and collect taxes is not on account of the equity powers of the Chancery Court of Poinsett County, but on account of an express delegation from the Arkansas Legislature. The right, therefore, is purely remedial and is not substantive so as to be administered by any other court.
The court erred in exercising jurisdiction herein, the Chancery Court of Poinsett County having first acquired jurisdiction. Kline v. Burke Construction Company, 260 U. S. 226.
A proceeding had in a proper court for the laying out of a public road is in the nature of a proceeding in rem and binds all the world. Milcreek Tp. v. Reed, 29 Pa. St. 195; Farmers Loan & T. Co. v. Lake St. Elevated, 177 U. S., 51.
Section 13 of Act 322 provides that the Board of Commissioners shall enforce the collection by chancery proceedings in the Chancery Court of Poinsett County in the manner provided by Sections 23 and 24 of Act 279. Sec. 23 provides “Said proceedings and judgment shall be in the nature of proceedings in rem.”
The case brought in the United States District Court was a proceeding in rem and the suit in the Chancery Court of Poinsett County was begun before the suit in the United States District Court.
Mr. Justice Holmes delivered the opinion of the Court.
This is a bill in equity brought by the petitioner against Road Improvement District No. 7 of Poinsett County, Arkansas. It alleges that the District was organized under acts creating the District and in the second p. 5statute confirming the District’s assessment of benefits; that after the assessment the District issued its negotiable bonds, as authorized by the acts; that the bonds are in the hands of innocent purchasers for value before maturity; that, as also authorized, the bonds are secured by a mortgage of the assessments and all other assets of the District, to the plaintiff as trustee for the bondholders; and that by the terms of the acts after a default for more than thirty days in payment of interest or principal, a receiver shall be appointed to take charge of the affairs of the District. A default is alleged and is explained by a decree of the Chancery Court of Poinsett County that set aside the assessment securing the bonds and enjoined the District from paying any money belonging to it. The plaintiff and the bondholders were not parties to the suit and the decree saved their rights, but of course it prevents their getting any payment until they are relieved. The District Court made a decree for the plaintiff and directed a receiver appointed by it to collect the taxes theretofore levied to the extent necessary to pay the outstanding bonds and coupons. The Circuit Court of Appeals held that the District Court had no jurisdiction and ordered the bill to be dismissed. 298 Fed. 272.
The acts from which the District got its existence and power were Act No. 322 of the State for 1919, and Act No. 45 of the Acts of 1920, the second being an amendment of the first and a declaration and enactment that the assessments of benefits have been made and are confirmed. The plan of the first was that the assessment should be made at the outset and that thereupon the county court should enter an order ‘ which shall have all the force of a judgment’ that there should be assessed upon the real property of the district a tax sufficient to pay the estimated cost of the improvement with ten per cent, added, in the proportion of the benefits, to be paid in annual instalments, not to exceed ten per cent, for any p. 6one year. The tax is made a lien upon the land and in this way a security is created and the statute allows it to be mortgaged, as was done in this case. If any bond or coupon is not paid within thirty days of its maturity it is made the duty of the Chancery Court of Poinsett County to appoint a receiver to collect the taxes and pay what is due, and power is given to direct the receiver to foreclose the lien on the lands.
The ground on which jurisdiction was denied by the Circuit Court of Appeals was that the power to levy and collect taxes was a legislative function of the State which could not be usurped by a federal court. But while that may be true as a general doctrine, it cannot apply when a State has authorized and confirmed an assessment and a mortgage of it as security for bonds that the public is invited to buy, and has provided in terms for a collection by a receiver appointed in equity if there should be a default. There is no longer any legislative act to be done, and there is no usurpation of powers in following the course provided by state law. It seems to be recognized in Meriwether v. Garrett, 102 U. S. 472, that a receiver might be appointed by a Court of Chancery when that remedy was contemplated by the contract, as it fairly may be said to have been contemplated here. The subject matter of the mortgage and the possible foreclosure of the lien require the intervention of such a Court if right is to be done. In the argument before us there was some suggestion that the chancery power was confined to the state court named in the statute. But the decisions have done away with such a limitation and it was not relied upon by the Circuit Court of Appeals. Madisonville Traction Co. v. Saint Bernard Mining Co., 196 U. S. 239; Road Improvement District v. St. Louis Southwestern Ry. Co., 257 U. S. 547, 555. The state law is not merely an enlargement of the remedial powers of a local court as in Pusey & Jones Co. v. Hanssen, 261 p. 71 Syllabus.
U. S. 491, it recognizes the inadequacy of the remedy at law and is an attempt to give to purchasers of bonds the assurance of adequate relief against shortcomings that experience has taught the business world to apprehend. We see no reason why it should not succeed. Campbellsville Lumber Co. v. Hubbert, 112 Fed. 718. Stansell v. Levee Board, 13 Fed. 846. Supervisors v. Rogers, 7 Wall. 175.
The respondent attempted to open the general merits of the case. If there is anything in the effort, which we do not imply, we shall leave that for further consideration below. The Circuit Court of Appeals regarded the case as stopped at the outset by want of jurisdiction. In that we think it erred.
Decree reversed.
STATE OF OKLAHOMA v. STATE OF TEXAS.
UNITED STATES, INTERVENER.
IN EQUITY.
No. 13, Original. Orders entered January 19, 1925.
Receivership Orders: 1 and 2. For payments to Kirby Petroleum Company by way of reimbursement for expense of drilling certain wells prior to receivership.
3. Requiring one Testerman to accept within 40 days moneys hereinbefore allowed him (265 U. S. 516, Par. 11) in discharge of claim; otherwise claim to be deemed abandoned and moneys paid to Secretary of Interior for United States.
4. Requiring contesting claimants as to expense of drilling of Burke-Senator well prior to receivership to adjust differences and accept reimbursement (265 U. S. 516, Par. 13) or show cause why claims should not be denied and moneys paid to Secretary of Interior for United States.
5 and 6. Pursuant to stipulations, moneys derived from certain wells to be paid to persons named as trustees, to hold pending determination of rights of rival claimants through litigation in Texas courts.
Orders. 267 U. S.
7. Motion of Texas for leave to file claim of interest in part of impounded funds denied because claim not presented within time hereinbefore limited (265 U. S. 518, Par. 18,) and of inequitable results were it now entertained. 8. Conflicting claims to funds derived from various wells referred to a special master to take evidence and report it with findings of fact, conclusions of law and recommendations; special directions as to time limits of proceedings, exceptions, authority to subpoena witnesses, use of existing evidence, allowances and expenses of master. 9. Disputed funds referred to in par. 8, may be paid over by receiver in accordance with stipulations of claimants effecting settlement or providing for further settlement by media other than this Court, provided such stipulations be filed before time fixed for taking of evidence by special master.
On consideration of the thirteenth report of the receiver herein the court makes the following orders:
1. The receiver is instructed to pay the net proceeds derived from well 155 amounting to $4,514.47, to the Kirby Petroleum Company by way of partly reimbursing it for expense incurred by it or its predecessor in drilling that well prior to the receivership—such payment to be in full discharge of all possible claims against the receivership by reason of that work and expense.
2. The receiver is instructed to pay a balance of $1,097.76 out of the net proceeds of well 156 to the Kirby Petroleum Company on its claim for expense incurred by it or its predecessor in drilling that well prior to the receivership—such payment to be in full discharge of all possible claims against the receivership by reason of that work and expense.
3. Unless within forty days from this date Tom Testerman shall accept the moneys directed to be paid to him by paragraph 11 of the order of June 9, 1924, in discharge of the claim therein described, he shall be deemed to have abandoned that claim and the moneys reserved to cover the same shall be paid over by the receiver to the Secretary of the Interior, as the representative of the United p. 97 Orders.
States, as a part of the net impounded funds derived from the receiver’s operations within the river-bed area. The receiver is instructed to deliver or transmit forthwith to Tom Testerman a copy of this order.
4. Unless within forty days from this date the operators who presented claims for reimbursement out of the proceeds of well 139 (known as the Burke-Senator well) for the cost of drilling that well prior to the receivership shall adjust the differences between them and accept reimbursement as contemplated in paragraph 13 of the order of June 9, 1924, they are directed to show cause, within five days after the expiration of that period, why those claims should not be denied and why the moneys reserved to cover them should not be paid over to the Secretary of the Interior, as the representative of the United States, as part of the net impounded funds derived from river-bed wells. The receiver is instructed to deliver or transmit forthwith to such claimants copies of this order.
5. Pursuant to a stipulation made and presented by the conflicting claimants thereto, the receiver is instructed to pay the balance of the net royalty interest in the proceeds of wells 97, 98, 99, 100, 102, 109, and 119 to A. H. Carrigan, as the joint agent and trustee of such claimants, to the end that he, according to such stipulation, may deposit such moneys in the First National Bank of Wichita Falls, Texas, there to be held to await the outcome of litigation now pending in the courts of Texas to determine the rights of such claimants in such royalty interest.
6. Pursuant to a stipulation made and presented by the conflicting claimants thereto, the receiver is instructed to pay to Rhea S. Nixon, Receiver of the Southwest Petroleum Company and trustee of certain claimants, 27/96 of the net balance of the operating interest in the proceeds of well 180 (after deducting the overriding royalty belonging to C. J. Ferguson), and also to pay to the Security
Orders. 267 U. S.
National Bank of Wichita Falls, Texas, 1/6 of the said balance—the 27/96 to be held by Rhea S. Nixon, as receiver and trustee, to await the outcome of litigation now pending in the courts of Texas to determine the rights of those who are claiming interests therein, and the 1/6 to be held by the Security National Bank to await the outcome of litigation now pending in those courts to determine the rights of those who are claiming interests therein.
7. The motion of the State of Texas presented January 16, 1925, for leave to file a claim for a royalty or owner’s interest in a part of the impounded funds in the receiver’s custody is denied,—because, as appears from the receiver’s thirteenth report before mentioned, no claim thereto was presented by that State within the period prescribed by paragraph 18 of the order of June 9, 1Q24, because that period has long since expired, and because to permit such a claim by the State to be presented and entertained at this time would unreasonably prolong the receivership and would be inequitable to other claimants whose claims were seasonably presented.
8. The several conflicting claims to impounded funds derived from wells 152,153,154,157,159,160,162,165,169, 170 and 172 presented to the receiver under paragraph 18 of the order of June 9, 1924, and reported in his thirteenth report before mentioned, are referred to Joseph M. Hill, Esquire, of Fort Smith, Arkansas, as a special master, with directions that such special master take the evidence bearing on such claims and report the same to the court, together with his findings of fact, conclusions of. law and recommendations in the premises, for the ultimate consideration and action of the court. The evidence shall be taken at Wichita Falls, Texas, and the taking thereof shall begin February 16, 1925, and shall proceed with reasonable expedition and be concluded not later than March 7, 1925. The report of the special master shall be p. 117 Orders.
filed with the clerk within thirty days after the evidence is taken, and shall be printed by the clerk. Claimants shall have fifteen days after the filing of the report within which to prepare, print and file exceptions to it accompanied by supporting briefs. The special master shall have authority to issue subpoenas to secure the attendance of witnesses, and also authority to employ competent stenographic and clerical assistance. Claimants shall be permitted to introduce and use in evidence any documents or other instruments appearing in the printed records in this cause without procuring new exemplifications thereof or presenting other proof of their authenticity or identification. The special master shall receive an allowance covering his actual expenses and a reasonable compensation for his service. This allowance, together with the cost of his stenographic and clerical assistance and the cost of printing his report, shall be charged against and be borne by the several claimants in such proportions and in such manner as the court hereafter may direct. Each claimant, however, shall make to the clerk an advance payment of fifty dollars towards such costs within twenty days from this date; and in default thereof the claimant shall be deemed to have abandoned his claim.
9. If, before the time fixed for taking evidence under the last paragraph, the several conflicting claimants to any particular fund make and present to the receiver a stipulation adjusting their differences and settling their rights to such fund, or providing that the fund shall be paid over to a trustee of their selection to await an adjustment or adjudication of their claims through some medium other than this court, the receiver shall be authorized to give effect to such stipulation and to pay over the fund as therein provided, and the stipulation shall operate to withdraw the claims covered by it from the reference to the special master.