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U.S. Supreme Court

Guardian Savings & Trust Co. v. Road Imp. Dist., 267 U.S. 1 (1925)

Guardian Savings & Trust Co. v. Road Improvement District No. 7

No. 389

Argued January 8, 1925

Decided January 19, 1925

267 U.S. 1




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. 267 U. S. 6.

298 F.2d 2 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. chanrobles.com-red

Page 267 U. S. 4

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 chanrobles.com-red

Page 267 U. S. 5

statute 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. Road Imp. Dist. No. 7 of Poinsett County, Ark. v. Guardian Savings & Trust Co., 298 F.2d 2.

The acts from which the district got its existence and power were Act No. 322 of Road Laws 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 percent added, in the proportion of the benefits, to be paid in annual installments, not to exceed ten percent for any chanrobles.com-red

Page 267 U. S. 6

one 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 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. St. Bernard Mining Co., 196 U. S. 239; Road Improvement District v. St. Louis Southwestern Ry. Co., 257 U. S. 547, 257 U. S. 555. The state law is not merely an enlargement of the remedial powers of a local court as in Pusey & Jones Co. v. Hanessen, 261 chanrobles.com-red

Page 267 U. S. 7

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 F.7d 8; Stansell v. Levee Board, 13 F.8d 6; 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.


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