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. 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.
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
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. 272.
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
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
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. 718;
Stansell v. Levee Board, 13 F. 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.