United States v. Bekins Irr Dist v. Same
| Decision Date | 25 April 1938 |
| Docket Number | Nos. 757,772,LINDSAY-STRATHMORE,s. 757 |
| Citation | 82 L.Ed. 1137,304 U.S. 27,58 S.Ct. 811 |
| Parties | UNITED STATES v. BEKINS et al.IRR. DIST. v. SAME |
| Court | U.S. Supreme Court |
Appeals from the District Court of the United States for the Southern District of California; Leon R. Yankwich, Judge.
Mr. Hatton W. Summers, of Dallas, Tex., for Committee on Judiciary of the House of Representatives of the United States as amicus curiae, by special leave of Court.
[Argument of Counsel from pages 28-31 intentionally omitted] Messrs. Homer S. Cummings, Atty. Gen., and Robert H. Jackson, Sol. Gen., for the United States.
[Argument of Counsel from Pages 32-37 intentionally omitted]
Messrs. Guy Knupp, of Los Angeles, Cal., and James R. McBride, of Lindsay, Cal., for appellant Lindsay-Strathmore Irr. Dist.
[Argument of Counsel from page 38 intentionally omitted]
Messrs. W. Coburn Cook, of Turlock, Cal., and Charles L. Childers, of El Centro, Cal., for appellees.
[Argument of Counsel from pages 39-44 intentionally omitted]
These are direct appeals from the judgment of the District Court for the Southern District of California under the Act of August 24, 1937, c. 754, 50 Stat. 751, 28 U.S.C.A. §§ 401, 349a, 380a, and note 17 and note. They present the question of the constitutional validity of the Act of August 16, 1937, 50 Stat. 653, 11 U.S.C.A. §§ 401—404, amending the Bankruptcy Act by adding chapter 10 providing for the composition of indebtedness of the taxing agencies or instrumentalities therein described. A certificate was issued to the Attorney General and the United States intervened. The District Court held the statute invalid as applied to the appellant and dismissed its petition for composition. The court considered itself bound by the decision in Ashton v. Cameron County District, 298 U.S. 513, 56 S.Ct. 892, 896, 80 L.Ed. 1309.
Appellant the Lindsay-Strathmore Irrigation District was organized in the year 1915 under the california Irrigation District Act of March 31, 1897, Stat.Cal. 1897, p. 254. It comprises about 15,260 acres in Tulare county. It is an irrigation district and taxing agency created for the purpose of constructing and operating irrigation projects and works devoted to the improvement of lands for
agricultural purposes. On September 11, 1937, it presented its petition for the confirmation of a plan of composition. The petition alleged insolvency; that its indebtedness consisted of outstanding bonds aggregating $1,427,000 in principal, with unpaid interest of $439,085.15; that no interest or principal falling due since July 1, 1933, had been paid; that the low price of agricultural products had prevented the owners of land within the irrigation district from meeting their assessments; that upon the assessment levied by the District in the year 1932 there was a delinquency of 47 per cent. and that since that year there had been levied only an assessment of sufficient amount to maintain and operate its works; that the District's plan for the composition of its debts provided for the payment in cash of a sum equal to 59.978 cents for each dollar of the principal amount of its outstanding bonds in satisfaction of all amounts due; that creditors owning about 87 per cent. in the principal amount of the bonds had accepted the plan and consented to the filing of the petition; and that payment of the amount required was to be made from the proceeds of a loan which the Reconstruction Finance Corporation had agreed to make upon new refunding serial bonds equal to the amount borrowed and bearing interest at 4 per cent.
The District Court approved the petition as filed in good faith and directed the creditors to show cause why an injunction should not issue staying the commencement of suits upon the securities affected by the plan. The appellees as bondholders appeared and moved to dismiss the petition upon the ground that chapter 10 of the Bankruptcy Act, 11 U.S.C.A. §§ 401—404, violated the Fifth and Tenth Amendments of the Federal Constitution. It appeared from the return to the order to show cause that these creditors had obtained an alternative writ of mandate from the state court directing the county board of supervisors to levy an assessment upon the lands within the District sufficient to pay
the amounts due the complaining creditors, and that the proceedings in that court had been suspended pending the proceeding in the bankruptcy court.
First. Chapter 10 of the Bankruptcy Act is limited to voluntary proceedings for the composition of debts. Aside from the question as to the power of the Congress to provide this method of relief for the described taxing agencies, it is well settled that a proceeding for composition is in its nature within the federal bankruptcy power. Compositions were authorized by the Bankruptcy Act of 1867, § 43, 14 Stat. 538, as amended by the Act of 1874, c. 390, § 17, 18 Stat. 182. It is unnecessary to the validity of such a proceeding that it should result in an adjudication of bankruptcy. In re Reiman, 20 Fed.Cas. 490, 496, 497, No. 11673; Continental Illinois National Bank & Trust Co. v. Chicago, Rock Island & Pacific R. Co., 294 U.S. 648, 672, 673, 55 S.Ct. 595, 604, 605, 79 L.Ed. 1110. In the Continental Bank Case, in the course of a full consideration of the scope of the federal bankruptcy power and of the evolution of its exercise, we said:
Second. It is unnecessary to consider the question whether chapter 10 would be valid as applied to the irrigation district in the absence of the consent of the State which created it, for the State has given its consent. We think that this sufficiently appears from the statute of California enacted in 1934. St. of 1934, Ex.Sess.,
c. 4, p. 5. This statute (section 1) adopts the definition of 'taxing districts' as described in an amendment of the Bankruptcy Act, to wit chapter 9 approved May 24, 1934, 11 U.S.C.A. §§ 301 303, and further provides that the Bankruptcy Act and 'acts amendatory and supplementary thereto, as the same may be amended from time to time, are herein referred to as the 'Federal Bankruptcy Statute." Chapter 10 of the Bankruptcy Act is an amendment and appears to be embraced within the state's definition. We have not been referred to any decision to the contrary. Section 3 of the state act then provides that any taxing district in the State is authorized to file the petition mentioned in the 'Federal Bankruptcy Statute.' Subsequent sections empower the taxing district upon the conditions stated to consummate a plan of readjustment in the event of its confirmation by the federal court. The statute concludes with a statement of the reasons for its passage, as follows: Section 13.
While the facts thus stated related to conditions in California, similar conditions existed in other parts of the
country and it was this serious situation which led the Congress to enact chapter 9 and later chapter 10.1
Our attention has been called to the difference between section 80(k) of chapter 9 and section 83(i) of chapter 10 of the Bankruptcy Act, 11 U.S.C.A. §§ 303(k), 403(i), in the omission from the latter of the provision requiring the approval of the petition by a governmental agency of the State whenever such approval is necessary by virtue of the local law. We attach no importance to this omission. It is immaterial, if the consent of the State is not required to make the federal plan effective, and it is equally immaterial if the consent of the State has been given, as we think it has in this case. It should also be observed that chapter 10, section 83(e), 11 U.S.C.A. § 403(e), provides as a condition of confirmation of a plan of composition that it must appear that the petitioner 'is authorized by law to take all action necessary to be taken by it to carry out the plan,' and, if the judge is not satisfied on that point as well as on the others mentioned, he must enter an order dismissing the proceeding. The phrase 'authorized by law' manifestly refers to the law of the state.
Third. We are thus brought to the inquiry whether the exercise of the federal bankruptcy power in dealing with a composition of the debts of the irrigation district, upon its voluntary application and with the State's consent, must be deemed to be an unconstitutional interference with...
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