Board of Liquidation of New Orleans v. Louisiana, 179 U.S. 622 (1901)

MR. JUSTICE WHITE, after making the foregoing statement of the case, delivered the opinion of the Court.

The motion to dismiss is without colorable support. The contention that, as public bodies charged with the performance of ministerial duties, both the Board of Liquidation and the Drainage Commission had not the capacity to plead that the provisions of the state constitution impaired the obligations of contracts in violation of the Constitution of the United States is foreclosed by the decision of the court below. In that court, as we have said in the statement of the case, the want of capacity in both the bodies to urge the defenses in question was expressly put at issue and was directly passed on, the court holding that, under the statutes of the State of Louisiana, both the bodies occupied such a fiduciary relation as to empower them to assert that the enforcement of the provisions of the state constitution would impair the obligations of the contracts entered into on the faith of the collection and application of the one percent tax and of the surplus arising therefrom. Without implying that the reasoning by which this conclusion was deduced would command our approval were we considering the matter as one of original impression, and without pausing to note the ulterior consequences which may possibly arise from the ruling of the court below on the subject, we adopt and follow it as the construction put by the Supreme Court of the State of Louisiana on the statutes of that state in a matter of local and nonfederal concern.

Accepting, then, in this regard, the decision of the state court, the proposition now pressed reduces itself to this: although, under the state law, both of the bodies in question bore such a relation to the interests involved as to empower them to assert that the contract rights were impaired, nevertheless they do not possess the capacity to prosecute error to a decision if adverse to the contract rights. This, however, is but to say at one and the same time that there was capacity and incapacity to assert and protect the contract rights. The proposition that the judgment of the Supreme Court of the State of Louisiana rests upon an independent nonfederal ground finds no semblance of support in the record. It is true the court primarily considered the case from the point of view of the duty and rights of the defendant and intervener as depending on the law of Louisiana irrespective of the contract rights, but these considerations were by the court declared to be merely a prelude to the decision of the fundamental issue -- that is, whether, if the relief prayed was allowed, there would arise an impairment of the obligations of the contracts as specifically alleged both in the return made by the Board of Liquidation and in the petition of intervention of the Drainage Commission. Indeed, the opinion of the learned court, which we can consider, Egan v. Hart, 165 U.S. 188, expressly announced that the defenses asserted under the contract clause of the Constitution of the United States were the real issues, and were essentially necessary to be decided in order to dispose of the cause. The argument that no federal question is presented because the court below awarded to the contract creditors all the rights to which they were entitled involves the assumption that jurisdiction to review the decision of a state court disposing of a federal question depends upon the conception of the state court, or some of the parties to the record, as to the correctness of the decision rendered. This in effect denies the power to review a decision disposing of a federal question in every case where the state court assumes that such question has been by it correctly disposed of. But this necessarily imports that in no case whatever where a state court has decided a federal question can review in this Court be had, since in every case it must be assumed that a state court of last resort has decided, according to its understanding, the issues presented to it for determination.

On the merits, the errors assigned substantially raise all the controversies which were below decided. They hence embrace some subjects not essential to be considered in order to dispose of the federal question.

The power of the constituent body to direct the Board of Liquidation to sell the bonds, and the right to diminish the fund applicable to the drainage of the City of New Orleans, when viewed apart from the contract rights, involve purely local and nonfederal contentions. When the jurisdiction of this Court is invoked because of the asserted impairment of contract rights arising from the effect given to subsequent legislation, it is our duty to exercise an independent judgment as to the nature and scope of the contract. Nevertheless, when the contract which it is alleged has been impaired arises from a state statute, as said in Burgess v. Seligman, 107 U.S. 34,

for the sake of harmony and to avoid confusion, the federal courts will lean towards an agreement of views with the state courts, if the question seems to them balanced with doubt.

It is indeed disputable as a matter of independent judgment whether the rights of the contract creditors were as broad as the court below held them to be. Board of Liquidation v. McComb, 92 U.S. 531. Considering the many and in some respects ambiguous statutes of the State of Louisiana which are the sources of the contract rights, and permitting the opinion as to those rights entertained by the Supreme Court of the State of Louisiana to operate upon the doubt which must arise from a review of the statutes alone, we conclude, as a matter of independent judgment, that the contract rights were correctly defined by the Supreme Court of the State of Louisiana. The question then is, taking the contract rights to be as thus declared, were they substantially impaired by the conclusions reached by the supreme court of the state? If the answer to this question is to be deduced from the opinion of that court, a negative response is plainly required, since, in the most explicit terms, the opinion holds that the rights to arise in favor of the purchasers of the bonds which the new constitution directed to be sold were subordinate in each and every respect to all the prior contract rights. In the nature of things, it cannot be said that subsequent rights which are so limited as to prevent them in any degree from interfering with prior ones can, as a matter of legal conclusion, be held to impair such previous contract rights. But it is contended, and this is the controversy most strenuously pressed in the argument at bar, although by the opinion of the Supreme Court of the State of Louisiana the contract rights were protected, the decree of that court in effect brought about the destruction of the identical rights which the opinion held could not be lawfully impaired. This proceeds on the assumption that, as the decree of the trial court which was affirmed directed the Board of Liquidation to sell bonds under the refunding act and constitutional amendment of 1892, it therefore imposed the duty of offering bonds for sale exactly in the form required by the prior legislation without affixing any distinguishing statement to them, thereby causing the negotiable bonds, when sold, to be exactly on the same footing of legal right with those previously used for the purpose of retiring or refunding the debt. Under the law of Louisiana, it is asserted, the judgment, and not the reasoning used in the opinion of the court, is conclusive, and therefore the result above indicated must necessarily flow from the judgment which is now under review.

We do not stop to examine the Louisiana authorities cited to sustain the abstract proposition relied upon, as we consider the premise from which the contention is deduced to be unsound. It is to be borne in mind that, under the act of 1890 and the amendment of 1892, the City of New Orleans was to issue a series of ten millions of bonds, to be placed in the hands of the Board of Liquidation for the retiring and refunding operations, and these bonds, so delivered to the board for the purposes specified, were required to be countersigned and issued by that body before they became complete and perfect evidences of debt against the city. Now while it is true the mandamus which was awarded against the board directed it to sell bonds placed in its hands under the act of 1890, the ground for the allowance of the writ was the duty imposed upon the board to do so by the new constitution. Indeed, the opinion of the supreme court negatives the assumption that there was any authority conferred on the board to issue the bonds for the school debt by the act of 1890 or the amendment of 1892. Conceding arguendo only that there be, as contended, an exceptional and narrow rule in Louisiana excluding an examination of the pleadings for the purpose of elucidating the scope of a judgment rendered in a given cause, though the opposite doctrine is upheld by this Court, Hornbuckle v. Stafford, 111 U.S. 393, we do not think there is reason for the assertion that the effect of the judgment below is to preclude the Board of Liquidation, when countersigning the bonds in question for the purpose of sale, from affixing to them a statement that they are issued in virtue of the authority of the new constitution and as a result of the command of the supreme court of the state. This being done, beyond peradventure, the takers of such bonds would be affected with notice of the legal authority under which they were issued, and of the nature of the rights conferred by that authority, and therefore the inconvenience or possible wrong suggested in argument could not, in any event, arise. It would be beyond reason to assume that a judgment which commanded the performance of a particular act, because of the existence of a legal duty arising from a specified provision of a state constitution, should be construed as excluding the right and duty to refer, in issuing the bonds in obedience to its command, to the authority by which alone the power exercised could be brought into play. Not only does the reason of things require this conclusion, but so also does the respect which we entertain for the learned tribunal below preclude the possibility of our accepting the impossible and contradictory construction of the effect of the opinion and decree advanced in the argument which we are considering. Of course, if the judgment below was susceptible of the interpretation contended for, in view of the nature of the contract rights as recognized by the supreme court of the state and established by the opinion which we have just expressed, it would be our duty to reverse the judgment below rendered.

Our affirmance, however, will be without prejudice to the right of the Board of Liquidation and the Drainage Commission to hereafter assert the impairment of the contract rights, which would arise from construing the judgment contrary to its natural and necessary import, so as to deprive the Board of Liquidation of the power, in countersigning the bonds, to state thereon the authority in virtue of which they are issued.

Affirmed.

MR. JUSTICE PECKHAM took no part in the decision of this cause.

* At page 1870, the court said:

Defendants assume that the mere fact that constitutional bonds should be sold for the purpose of paying the certificates held by relators, or should be given in exchange for those certificates, would of necessity entitle the holders of such bonds to prime the holders of permanent improvement bonds, bonds drawn against the "surplus" of the one percent tax dedicated to permanent public improvements, and also to necessarily come in on a footing of equality with all the other holders of consolidated bonds, and they maintain, if this be true, the rights of contract creditors under the funding act would be impaired.

Relators, on the other hand, insist that the only portion of the one percent tax ever set aside for permanent public improvements was one-half of the surplus produced by the tax which would remain after having retained in the hands of the Board of Liquidation enough to meet the payment in full of a ten-million issue of consolidated bonds, and that therefore it would be legally immaterial to creditors basing contracts on such surplus, to whom the other portion of the fund would go; it would be enough for them to know it would not go to them, and relators urge that other holders of consolidated bonds would have no ground of complaint; that they should be permitted to share equally with them from the tax fund, as they had accepted their bonds on the expected basis of coming in concurrence with an issue of ten millions of bonds; that they might be interested that the limit as to the amount of the bonds should not be passed, but that they were without legal interest, when the limit should not have been passed, as to who should be the holders of the bonds sharing the fund with them.

In support of this last position, they rely upon the decision of the Supreme Court of the United States in Board of Liquidation v. McComb, 92 U.S. 531. If the collection of the one percent tax would suffice to pay each year the holders of consolidated bonds issued in taking up or retiring the bonds and claims such as were provided for by the Act No. 110 of 1890 and the constitutional amendment of 1892, without any conflict with the bonds ordered to be sold by article 317 of the constitution of 1898, the former, of course, would have no cause of complaint; but if from any cause the amount of the tax collected would be insufficient for that purpose, we do not think the holders of these latter bonds could force the former to prorate with them the amount in hand.

This condition of things is not existing. It may never arise, and should it arise, the Board of Liquidation would doubtless have taken steps to distinguish bonds issued under article 317 from those which had been otherwise issued.

Again the court said (ibid, p. 1872):

There is no constitutional objection to the convention’s ordering the Board of Liquidation to sell bonds to take up the relators’ certificate, but there would be constitutional objection to be urged if the effect of the issuing of such bonds would be to place the holders thereof on an equality with the holders of bonds issued to take up the bonds and claims provided for as to their funding and payment by Act No. 110 of 1890, Act No. 114 of 1896, and the constitutional amendment of 1892. Duperier v. Police Jury, 31 La.Ann. 710; Shields v. Pipes, 31 La.Ann. 765.

Yet further, in analyzing the rights of the drainage bondholders and contract creditors, the court said (ibid., p. 1871):

We do not take the same view that relators do as to what was meant and intended to be conveyed by the "surplus" referred to by Act 110 of 1890, Act 114 of 1896, and the constitutional amendment of 1892. We think the lawmakers intended that any portion of the one percent tax provided for in Act 110 not needed for the payment or retirement of the particular bonds or claims therein specially provided for as to payment or retirement should constitute the surplus of the tax. That it was not contemplated, when these laws were passed or the amendment of 1892 adopted, that in order to exhaust any portion of the ten millions of dollars originally expected to be needed to pay the existing bonds and the existing claims therein specially enumerated, which might not be necessary for the purpose, new classes of claims should or would be thrown under the provisions of the original funding law.

We think the "surplus" was intended to connect at once and follow immediately behind, as to its appropriation, the amount beyond that actually needed to carry out the plan as originally mapped out and planned. The surplus was provisionally ascertained each year in a manner particularly specified to be readjusted the next in a manner also particularly specified. All the surroundings and circumstances connected with the legislation negative the idea that the surplus mentioned was to be only any surplus over ten millions of dollars which might result from the collection of the one percent tax.

We think the Board of Liquidation, the Drainage Commissioners, and those with whom they contracted were justified in placing that interpretation upon the legislation, and that contract rights based upon the same should be protected from impairment. The convention, while ordering the payment of the certificates held by the relators, through sales of consolidated bonds, could not confer upon the holders of such bonds rights which in any way would come in competition with the contract rights of creditors existing against the tax at the time of the adoption of the Constitution. Though there was no mention in the Constitution as to the rank of the bonds which would be issued to take up relators’ certificates, that rank resulted from legally existing conditions which could not be constitutionally interfered with.

Summing up its conclusion, the court declared (ibid., p. 1873):

The consolidated bonds which relators seek to have issued upon their prayer will really be drawn against (when issued) any surplus which will remain of the one percent tax after the payment of all the bonds issued and to be issued by the Board of Liquidation, under Act No. 110 of 1890, and the constitutional amendment of 1892, in order to fund and retire and pay the bonds and debts therein specially enumerated, and also the bonds issued and to be issued by the Drainage Commission under the provisions and authority of Act No. 114 of 1896, to pay the contracts existing at the date of the adoption of the Constitution, which were entered into upon the faith of the surplus directed to be set aside to the credit of the permanent improvement fund by the Act No. 110 of 1890, Act No. 114 of 1896, and the constitutional amendment of 1892.

The effect of this will be to subordinate the rights of holders of bonds issued by the Drainage Commission to pay for contracts entered into after the adoption of the constitution of 1898 to those of the holders of consolidated bonds to be issued under the orders of article 317 of the constitution of 1898. This may check and impede the work of public improvement, but it is a matter which we cannot control.