King Mfg. Co. v. City Council of Augusta, 277 U.S. 100 (1928)

This is a suit brought in a state court in Georgia to restrain the enforcement of an ordinance of the City of Augusta fixing rates for water power supplied from a canal owned and maintained by the city. The plaintiff is a manufacturing company which operates a mill adjacent to the canal with water power supplied therefrom. The objection urged against the ordinance is that it is repugnant to the contract clause of the Constitution of the United States, and therefore invalid, in that it impairs the obligation of a prior contract whereby the city undertook to supply water power for the plaintiff’s mill in perpetuity at a lower rate than that fixed in the ordinance. The court of first instance held the ordinance valid and accordingly dismissed the suit. This was affirmed by the Supreme Court of the State, 164 Ga. 306; and the case is [p. 102] here on writ of error allowed by the Chief Justice of that court.

It of course rests with each State to determine in what form and by what agencies its legislative power may be exerted. It may legislate little or much in its constitution, may permit the electorate to make laws by direct vote, may entrust its legislature with wide law-making functions and may delegate legislative authority to subordinate agencies, such as municipal councils and state [p. 104] commissions. But whether this power be exerted in one form or another, or by one agency or another, the enactments put forth, whether called constitutional provisions, laws, ordinances or orders, are in essence legislative acts of the State; they express its will and have no force otherwise. As respects their validity under the Constitution of the United States all are on the same plane. If they contravene the restraints which that instrument places on the legislative power of a State they are invalid, no matter what their form or by what agency put forth; for, as this Court has said, the protection which these restraints afford applies, “ whatever the form in which the legislative power is exerted; that is, whether it be by a constitution, an act of the legislature, or an act of any subordinate instrumentality of the State exercising delegated legislative authority, like an ordinance of a municipality or an order of a commission.” Standard Scale Company v. Farrell, 249 U. S. 571, 577.

The three provisions—the third as so amended—were carried into § 709 of the Revised Statutes of 1873 and into § 237 of the Judicial Code of 1911. By the act of September 6,1916, c. 448, 39 Stat. 726, the third provision was [p. 106] eliminated so far as a review on writ of error is concerned; and by the act of February 13, 1925, supra, the first and second provisions were amended by omitting from both the words “ or an authority exercised under ” and with that change were reenacted in § 237(a).

Before coming to decided cases which we deem relevant it is well to refer to some which, although cited as in point, appear to us not to be so. Weston v. Charleston, 2 Pet. 449 and Home Insurance Company v. Augusta, 93 U. S. 116, are examples. The first is a case where a tax ordinance of Charleston was sustained by the state court over the objection that it was in conflict with the Constitution of the United States. This Court’s jurisdiction was invoked, and was by it sustained, p. 463, on the ground that the city’s action in adopting the ordinance was the “ exercise of an authority ” under the State. Whether the ordinance was a statute of the State was not considered. The other case also involved a municipal [p. 107] ordinance which the state court had upheld against the contention that it was in conflict with the contract clause of the Constitution. This Court took jurisdiction, p, 121, on the grounds (a) that the validity of an authority exercised under the State was in question and (b) that a right claimed under the Constitution was denied. There was no negation of other grounds.

a The pleas aver that a confederation was formed by Virginia and other States, called the Confederate States of America, and that under a law of this confederation, [p. 108] enforced in Virginia, the debt due to the plaintiffs was sequestrated. Now, the Constitution of the United States prohibits any treaty, alliance, or confederation by one State with another. The organization whose enactment is pleaded cannot, therefore, be regarded in this Court as having any legal existence. It follows that whatever efficacy the enactment possessed in Virginia must be attributed to the sanction given to it by that State. Any enactment from whatever source originating, to which a State gives the force of law is a statute of the State, within the meaning of the clause cited relating to the jurisdiction of this Court. It would be a narrow construction to limit the term to such enactments as have gone through various stages of consideration by the legislature. There may be many acts authorized by the constitution of a State, or by the convention that framed it, which have not been submitted to the consideration of its legislature, yet have all the efficacy of laws. By the only authority which can be recognized as having any legal existence, that is, the State of Virginia, this act of the unauthorized confederation was enforced as a law of the Commonwealth. Its validity was drawn in question on the ground that it was repugnant to the Constitution of the United States; and the decision of the court below was in favor of its validity.”

Ford v. Surget, 97 U. S. 594, is much like the case just cited. The plaintiff sued in a state court in Mississippi to recover for cotton belonging to him which the defendant had destroyed in that State during the Civil War in obedience to an enactment of the Confederate States. By special pleas the defendant set up that enactment in justification of the trespass; and the plaintiff insisted by demurrers that the enactment was contrary to the Constitution. The demurrers were overruled and judgment was given for the defendant, which the Supreme Court affirmed. The case was brought to this Court by [p. 109] writ of error. The jurisdiction, although contested, was sustained in an opinion of Mr. Justice Harlan. He quoted with approval the above extract from Williams n . Bruffy, and added, p. 603:

Zucht v. King, 260 U. S. 174, was brought here on writ of error solely on the ground that the state court had upheld a municipal ordinance against the contention that [p. 112] it was invalid under the Constitution of the United States. This Court dealt with the initial question of jurisdiction as follows, p. 176:

5963°—29----- 8 [p. 114] where—especially in connections indicative of its use in a different sense—we are not now concerned.

The adoption and terms of the ordinance are not in dispute. Nor is it questioned that the city became obligated long before the ordinance to supply water power from its canal for the plaintiff’s mill. But it is questioned that there was any engagement for a designated price or rate in perpetuity. Both courts below found for the city on this point. That finding is entitled to respect, but is not conclusive; for it rests with this Court in cases like this, where contract obligations are said to have been impaired by subsequent legislation contrary to the constitutional restriction, to determine whether there was a contract and what obligations arose from it. St. Paul Gas Light Com- [p. 115] 100 Bra nd eis and Hol mes , JJ., dissenting.

I think that the writ of error should be dismissed. The judgment below was entered after the effective date of the Act of February 13, 1925, c. 229, 43 Stat. 936, 937, 942. That Act struck from § 237 of the Judicial Code the words “ or an authority exercised under any State.”1 The section as so amended limits the right of review by writ of error to cases where the highest court of a State has denied the validity of a treaty or statute of the United States, or has affirmed the validity of a statute of a State, challenged as repugnant to the Constitution, treaties, or laws of the [p. 116] United States. Other cases can be reviewed only if this Court, in the exercise of its discretion, grants a writ of certiorari. Here the challenge was to the validity of an ordinance of a city. I cannot believe that if Congress had intended to maintain our jurisdiction to review judgments sustaining such ordinances on writ of error, it would not have found clearer language in which to express its purpose.

The question before us is the interpretation, not of the word “ laws,” used in the Constitution, but the narrower term “ statute,” employed in the Judiciary Act of 1789, c. 20, § 25, 1 Stat. 73, 85. And our task is to construe, not the single word 11 statute,” but the phrase “ statute of any State.” Laws or regulations adopted by a municipality are called, in common speech, either ordinances or by-laws, not 11 statutes.” 2 In some connections, rules established by an institution are referred to as statutes. Thus, the rules adopted by a university or its founder are sometimes spoken of as statutes of the university. But no one would call them statutes of the State under whose law the university is incorporated. Nor would any one, in refer- [p. 117] 100 Bra nd ei s and Hol mes , JJ., dissenting.

The second of the categories mentioned in Home Insurance Co. v. City Council of Augusta, was eliminated, so far as the right to review by writ of error was concerned, by the Act of September 6, 1916, c. 448, § 2, 39 Stat. 726. In cases where the showing was merely that a title, right, privilege or immunity guaranteed by the Constitution had been claimed and denied, that Act provided that there could be no review except by certiorari. But as it left unchanged the clause regarding the validity of an authority, on which Mr. Chief Justice Marshall had based the power of this Court to review judgments sustaining municipal ordinances, our jurisdiction over such judgments remained unaffected. When, in 1925, the “ authority ” clause was [p. 119] 100 Bra nd eis and Hol mes , JJ., dissenting.

review of any judgment of the Supreme Court of a Territory or of the District of Columbia where “ is drawn in question the validity of a treaty or statute of or an authority exercised under the United States.” Thereafter, that provision, as modified by the Act creating the Court of Appeals for the District, February 9, 1893, c. 74, § 8, 27 Stat. 434, 436; District Code, § 233, 31 Stat. 1189, 1227, governed our appellate jurisdiction over the highest courts of the continental territories (other than Alaska) and of the District until the enactment of the Judicial Code, in which it was embodied as § 245 and, with important changes, as § 250. That our appellate jurisdiction over judgments involving the validity of acts of territorial legislatures and of the legislative body of the District, depended on the clause in the Act of 1885 allowing such review where the validity of an authority exercised under the United States had been challenged, was indicated in Maricopa & Phoenix R. R. Co. v. Arizona, 156 U. S. 347, 350-351, and Parsons v. District of Columbia, 170 U. S. 45, 49-50. The subject was fully discussed in more recent opinions. Thus, in McLean v. Denver & Rio Grande R. R. Co., 203 U. S. 38, 47-48, our jurisdiction to review a judgment of the Supreme Court of New Mexico upholding the validity of a territorial law was sustained on the ground that “ the validity of an authority exercised under the United States in the passage and enforcement of the law is directly challenged, and the case does involve the validity of an authority exercised under the power derived from the United States.” The right to review on appeal a judgment involving the validity of an ordinance or regulation of the District of Columbia was rested upon the same ground in Smoot v. Heyl, 227 U. S. 518, 522, although the statute authorizing the District Commissioners to make regulations provided that they should “ have the same force and effect within the District of Columbia as if enacted by Congress.” Act [p. 123] 100 Bra nde is and Hol mes , JJ., dissenting.

The difference between a statute and an ordinance for purposes of appellate review—a difference which rests wholly on expediency—had been acted upon by Congress half a century earlier, when it undertook to deal with the congestion of business in this Court by regulating the [p. 126] priority of hearings in revenue cases. Act of June 30, 1870, c. 181, 16 Stat. 176; Davenport City n . Dows , 15 Wall. 390, 392.10 It was reaffirmed when Congress, in 1925, withdrew the right to a direct appeal from the District Court in cases involving the validity of municipal ordinances, though allowing such an appeal in certain cases involving the validity of statutes and orders of commissions. On the other hand, the essential identity of statutes, ordinances, and orders, where the question concerns substantive rights, has always been recognized. Since all regulations established by competent authority are laws, the comprehensive term “ laws ” has been used when it was desired to include all forms of legislative action.11 Thus, as the enactments of a subordinate body exercising legislative authority are a part of the laws of a State, an ordinance or an order is a law within the meaning of the contract clause and is state action within the prohibitions of the Fourteenth Amendment. North [p. 127] 100 Bran dei s and Hol mes , JJ., dissenting.

Prior to the Act of 1925, final judgments of a district or circuit court involving the constitutional validity of a municipal ordinance could be brought directly to this Court by writ of error or appeal under § 5 of the Court of Appeals Act, Act of March 3, 1891, c. 517, 26 Stat. 826, 827-828, and § 238 of the Judicial Code, because such review was authorized “ in any case that involves the construction or application of the Constitution of the United States,” and “ in any case in which the constitution or law of a State is claimed to be in contravention of the Constitution of the United States.” Davis & Farnum Manufacturing Co. v. City of Los Angeles, 189 U. S. 207, 216; Boise Artesian Water Co. v. Boise City, 230 U. S. 84, 90; see Standard Scale Co. v. Farrell, 249 U. S. 571, 577. And likewise a case involving the constitutional validity of an [p. 128] ordinance could be brought here on writ of error to or on appeal from the Circuit Court of Appeals if the jurisdiction of the district or circuit court had been invoked in part on constitutional grounds. City of Vicksburg v. Henson, 231 U. S. 259, 267. But in 1925 Congress amended § 238 so as to confine the right to a direct appeal in cases involving the validity of state action to those which fell within the provisions of § 266—provisions which had already been construed as not including municipal ordinances. Unless the phrase “ statute of any State” as used in §§ 237(a) and 240(b) of the Judicial Code as amended, includes municipal ordinances, no case from any lower court involving only the validity of a municipal ordinance can now be reviewed by this Court otherwise than upon certiorari.

When it is borne in mind that the severe limitations upon the right of review by this Court imposed by the Act of 1925 were made solely because the increase of the Court’s business compelled, the reasons why Congress should have taken away the right to a review by writ of error to the highest court of a state in cases involving the validity of ordinances, while leaving unaffected the right in cases involving the validity of statutes, becomes clear. There are only 48 States. In 1920 there were 924 municipalities in the United States of more than 8,000 inhabitants.13 The validity of ordinances of even smaller municipalities had come to this Court for adjudication.14 [p. 129] 100 Bran dei s and Hol mes , JJ., dissenting.

peals had held the zoning ordinances of small suburban districts to be [p. 130] effect of the amendment,18 must be deemed to have been its purpose in so amending the section. That is, to relieve this Court, in many cases, of the burden of obligatory review. For, other than these, there had been considered by this Court, in the nine years between the effective dates of the Jurisdictional Acts of 1916 and 1925, and decided with opinions, not more than eight cases involving the validity of an authority exercised under a State or under the United States.17 On the other hand the forty cases in which judgments of state courts sustaining municipal ordinances or commission orders had been reviewed on writ of error, had entailed a burden out of all proportion to their number. The evidence introduced to establish the facts in cases involving the validity either of orders or of municipal ordinances is often both volum-

19 That the sole question discussed was whether the act of the Congress of the Confederate States was an act of “ any State ” appears from the briefs on file in the office of the Clerk. See Supplemental Brief of Enoch Totten for the Plaintiff in Error, pp. 10-11; Brief of Henry W.-Garnett for the Defendant in Error, p. 3; Brief of William A. Maury, as amicus curiae, pp. 4, 5, 7. The question was thus stated by Mr. Maury on p. 5 of his brief; “ Upon what ground, then, can it [p. 133] 100 Bra nd ei s and Hol mes , J J., dissenting.

be maintained that a statute of, or authority exercised under, the hostile de facto Government of Virginia was the statute of or authority of a State, in the sense of the law which is this Court’s commission to take cognizance of appeals from the state tribunals? (5. How., Scott vs. Jones).” The case cited by Mr. Maury, 5 How. 343, 376, held that the statutes of an unorganized political body were not statutes “ of a State ” within the meaning of § 25 of the Judiciary Act, although that body later became a State. In Miners Bank n . Iowa, 12 How. 1, a territorial statute was held not to be a statute “ of a State ” within § 25, though the Territory had since become a State. The language in Ford V. Surget, 97 U. S. 594, 603, 604, and Stevens v. Griffith, 111 U. S. 48, 50, also makes clear the exact point of the decision in Williams v. Bruffy, [p. 134] Rock, have never been repeated in any later case dealing with municipal ordinances, even where the decisions in the two cases have been relied upon. Some care seems to have been taken not to repeat the expression that a municipal ordinance was a statute of a State. See Thomas Cusack Co. v. Chicago, 242 U. S. 526, 529; Zucht v. King, 260 U. S. 174, 176. To construe the phrase 11 statute of any State ” as applying to a municipal ordinance disregards the common and appropriate use of the words; ignores decisions which for nearly a century have governed our jurisdiction to review judgments of state courts sustaining the validity of such ordinances; and tends to defeat the general purpose of the Act of 1925 “ to relieve this Court by limiting further the absolute right to a review by it.” Moore v. Fidelity & Deposit Co., 272 U. S. 317, 321; Smith n . Wilson, 273 U. S. 388, 390.20 It completely frustrates the particular purpose which Congress must have had in striking from § 237 the clause “ or an authority exercised under any state.” 21 The trival character of the substan-

All that a patentee obtains by his patent is the right to exclude others from the use, manufacture, or sale of the process patented. A patent once granted is merely [p. 143] an intangible property interest of the patentee. The right to exclude alone is unique. Missouri v. Bell Tel. Co., 23 Fed. 539; Grant v. Raymond, 6 Pet. 220; Bloomer v. McQuewan, 14 How. 539; Paper Bag Patent Case, 210 U. S. 405; Bauer v. O’Donnell, 229 U. S. 1; Motion Picture Patents Co. v. Universal Film Co., 243 U. S. 502.

In order that a property interest may be permitted to escape state taxation as a federal instrumentality, it must [p. 144] appear that the interest in question bears some substantial and intimate relation to the continued operation of a federal constitutional purpose. A patent is merely the reward given for the disclosure of an invented process by virtue of a contract with the government which by its terms includes no provision that the reward or its avails shall be exempt from state taxation. By far the greater number of cases dealing with the implied prohibition of the exercise of the States’ taxing power with respect to federal instrumentalities have dealt with the taxation by the State of property interests in active use in accomplishing a decided federal purpose. McCulloch v. Maryland, 4 Wheat. 316; Home Savings Bank n . Des Moines, 205 U. S. 503; Farmers Bank v. Minnesota, 232 U. S. 516; Smith n . Kansas City Title & Trust Co. 255 U. S. 180; Clallam County n . United States, 263 U. S. 341; First Nat. Bank v. Anderson, 269 U. S. 341; Northwestern Mut. Life Ins. Co. v. Wisconsin, 275 U. S. 136.

Railroad Co. v. Peniston, 18 Wall. 5, so clearly supports the jurisdiction of a State under the Constitution to lay a “tax which remotely affects the efficient exercise of a federal power” that it would be difficult to see how it could be contended that taxation of a patent or of the avails of a patent in any way hampered the Federal Government in promoting science and the useful arts by the process of exclusion (the only constitutional method available to the Federal Government), were it not for the dictum in McCulloch v. Maryland, 4 Wheat. 316, and for the decisions in the Oklahoma tax cases where the Federal Government’s functions with respect to the [p. 145] protection of the Indians were held to be impeded by the state taxes there involved. Distinguishing Choctaw & Gulf R. R. Co. v. Harrison, 235 U. S. 292; Railroad Co. v. Peniston, 18 Wall. 5; Indian etc. Oil Co. v. Oklahoma, 240 U. S. 522; Gillespie v. Oklahoma, 257 U. S. 501; Jaybird Mining Co. v. Weir, 271 U. S. 609. See Dyer v. Melrose, 197 Mass. 99.

5963°—29----- 10 [p. 146] exclusive right to their respective writings and discoveries; . . . ” The first Congress provided for issuance, in the name of the United States, of letters patent granting “ for any term not exceeding fourteen years, the sole and exclusive right and liberty of making, constructing, using and vending to others to be used, the said invention or discovery ...” Act April 10, 1790, Sec. 1, Chap. 7, 1 Stat. 109.

“ To promote the progress of useful arts, is the interest and policy of every enlightened government. . . . This subject was among the first which followed the organization of our government. It was taken up by the first congress . . . The amendatory act of 1793 contains the same language, and it cannot be doubted that the settled purpose of the United States has ever been, and continues to be, to confer on the authors of useful inventions an exclusive right in their inventions for the time mentioned in their patent. It is the reward stipulated for the advantages derived by the public for the exertions of the individual, and is intended as a stimulus to those exertions. The laws which are passed to give effect to this purpose ought, we think, to be construed in the spirit in which they have been made. . . . The public yields [p. 147] nothing which it has not agreed to yield; it receives all which it has contracted to receive. ...”

In California v. Pacific Railroad Co., 127 U. S. 1, the State sought to sustain a tax laid upon a franchise granted by the United States; but its power therein was denied. Through Mr. Justice Bradley this court said—“Recollecting the fundamental principle that the Constitution, laws and treaties of the United States are the supreme law of the land, it seems to us almost absurd to contend that a power given to a person or corporation by the United States may be subjected to taxation by a State.” The same general doctrine was approved by McCullough v. Maryland, 4 Wheaton, 316; Home Savings Bank n . Des Moines, 205 U. S. 503; Farmers, etc. Bank v. Min- [p. 148] Hol mes , Bra nd eis , Sut he rla nd , and Sto ne , JJ., dissenting. 277 U. S.

These are complaints brought by the respondent against the Commissioner of Corporations and Taxation of Massachusetts for the abatement of income taxes for the years 1921 and 1922. The question raised as stated by the Supreme Judicial Court of the State is whether the Commonwealth has the right to tax the income received from royalties for the use of patents issued by the United States. That Court held that the Commonwealth had no such right under the Constitution of the United States [p. 149] 142 Hol mes , Bra nd eis , Sut he rl an d , and Sto ne , JJ., dissenting,

The reasoning of the Court is simple. If the State ‘ cannot tax the patent, it cannot tax the royalties received from its use’. The postulate is founded on the casual intimation of Chief Justice Marshall in McCulloch v. Maryland, 4 Wheat. 316, 432, and is said to have been conceded below by the Commissioner. It hardly is conceded here and, whether it is or is not, if this Court should be of opinion that the conclusion urged by the Commissioner can be supported upon broader grounds than he felt at liberty to take, the Court is not estopped by his doubts. Why then cannot a State tax a patent by a tax that in no way discriminates against it? Obviously it is not true that patents are instrumentalities of the Government. They are used by the patentees for their private advantage alone. If the Government uses them it must pay like other people. Richmond Screw Anchor Co. v. United States, 275 U. S. 331. The use made by the patentee may be not to make and sell the patented article but simply to keep other people from doing so in aid of some collateral interest of his own. Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U. S. 405, 422, 424. National banks really are instrumentalities of the Government and directly concern the national credit. Indians are wards of the nation. Interstate commerce is left expressly to regulation by Congress and the States can intermeddle only by its consent. In this case the advantages expected by the Government are mainly the benefits to the public when the patent has expired and secondarily the encouragement of invention, Pennock v. Dialogue, 2 Peters, 1, 19. The most that can be said is that a tax is a discouragement so far as it goes and to that extent in its immediate operation runs counter to the Government intent. But patents would be valueless to their owner without the organized societies constituted by the [p. 150] Hol mes , Bra nd eis , Sut he rl an d , and Sto ne , JJ., dissenting.277 U.S.

The fact that the franchise came from a grant by the United States is no more reason for exemption, standing by itself, than is the derivation of the title to a lot of land from the same source. Tucker v. Ferguson, 22 Wall. 527. In Baltimore Shipbuilding & Dry Dock Co. n . Baltimore, 195 U. S. 375, the land was conveyed subject to a condition that a dry-dock should be built upon it which the United States was to have the right to use free from charge for docking and which was to revert to the United States on a diversion of the land to any other use or on [p. 151] the dry-dock being unfit for use for six months. Certainly a case in which the United States was much more clearly interested than in an ordinary patent. Yet there it was held that neither the company nor the land was an instrumentality of the United States and that there was nothing to hinder the right of the State to tax. See further Forbes v. Gracey, 94 U. S. 762.