Fidelity Trust Co. v. Board of Education

• Citation: 174 F.2d 642
• Decision Date: 19 May 1949
• Docket Number: No. 9549.,9549.
• Parties: FIDELITY TRUST CO. v. BOARD OF EDUCATION OF CITY OF CHICAGO.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

174 F.2d 642 (1949)

FIDELITY TRUST CO. v. BOARD OF EDUCATION OF CITY OF CHICAGO.

No. 9549.

United States Court of Appeals Seventh Circuit.

May 19, 1949.

Frank R. Schneberger, Richard S. Folsom, Chicago, Ill. (Frank S. Righeimer, James W. Coffey, Chicago, Ill., of counsel), for appellant.

Howard B. Bryant, Avern B. Scolnik, Benjamin S. Adamowski, Joseph F. Grossman, Herman Smith, and Leonard C. Mead, Chicago, Ill., Arthur W. Henderson and Moorhead & Knox, Pittsburgh, Pa., for appellee.

Before MAJOR, Chief Judge, MINTON, Circuit Judge, and LINDLEY, District Judge.

MINTON, Circuit Judge.

There is only one appeal here and only one question presented. The Board of Education of the City of Chicago, hereafter referred to as the Board, is the only appellant. It appeals from that portion of a judgment of November 12, 1947, which vacated a permanent injunction and a reference for an accounting entered July 13, 1937, against the Board and others, enjoining them from paying on outstanding tax warrants, issued in anticipation of the payment of taxes, from funds then on hand or thereafter collected from the 1929 levies for educational and school building purposes, in their numerical order or in any way except pro rata.

In 1936, as holder of certain of these warrants, the Union Trust Company of Pittsburgh, a predecessor in trust of the Fidelity Trust Company, hereafter referred to as Fidelity, brought suit in the District Court for the Northern District of Illinois against the Board of Education of the City of Chicago, a municipal corporation; James B. McCahey, the Board's President; the City of Chicago; Edward J. Kelly, the Mayor; Gustave A. Brand, the City Treasurer; and Robert B. Upham, the City Comptroller, for an accounting and for an injunction restraining the defendants from paying any of the tax funds collected or to be collected under the 1929 educational and school building levies to warrant holders except upon a pro rata basis. The Board answered, contending that the statutory law of Illinois required the warrants to be paid numerically instead of pro rata and that the obligation under the warrants was not one of the Board but was payable exclusively from the particular tax levied against which the warrants were drawn. The District Court, following the mandate and opinion of this Court in Board of Education v. Norfolk & Western R. Co., 7 Cir., 88 F.2d 462, involving the same kind of warrants, entered a decree enjoining the defendants from paying on the anticipation tax warrants from the proceeds of the respective 1929 tax levies in any manner except pro rata, and ordered an accounting as to all moneys at any time received by said defendants, or either of them, as proceeds of the aforesaid tax levies against which the tax anticipation warrants owned and held by the plaintiffs were issued; and that the plaintiff Union Trust Company, and each of the interveners-coplaintiffs, Chase National Bank, First National Bank of Boston, First Service Corporation, and Marie L. Reuther, have and recover of the defendant a pro rata share of the proceeds of these tax levies received and to be received by the defendants. A pro rata share was defined as that proportion of the proceeds of each levy which the total amount of warrants owned and held by each plaintiff bore to the total amount of warrants issued against the levy from which the warrants were to be paid.

The cause was referred to a master to take and state an account between the parties and ascertain the amounts due the plaintiffs from the defendants; to hear the parties and take testimony with respect to the issues referred to the master; and to report his findings of fact and conclusions of law to the court with all convenient speed.

No attempt was made to appeal from this decree. What the master did does not appear from this record, but it is undisputed that, in pursuance of the decree of July 13, 1937, and in conformity therewith, the Board disbursed to warrant holders, including Fidelity and the other plaintiffs, over three million dollars of the 1929 tax collections, of which Fidelity received $298,800.

In the meantime, proceedings were going on in the state courts of Illinois to determine whether the warrants should be paid pro rata, as the federal court had ordered at the suit of Fidelity and the other plaintiffs, or numerically, as the Board had contended. In fact, Fidelity, after having received $298,800 on its warrants on a pro rata basis pursuant to the decree which it had obtained in the District Court, realized that it could now get more by claiming payments on a numerical basis, since its warrant numbers were low and since the Supreme Court of Illinois had clearly held on January 17, 1945, in Lubezny v. Ball, 389 Ill. 263, 59 N.E.2d 645, that these warrants were payable numerically under the Illinois law and not pro rata. Fidelity therefore filed a mandamus suit in the state courts against the Board to require the Board to pay its...