Baker v. Druesedow

• Decision Date: 28 June 1917
• Docket Number: (No. 7339.)
• Parties: BAKER et al. v. DRUESEDOW, Tax Collector, et al.
• Court: Texas Court of Appeals

Page 1043

197 S.W. 1043

BAKER et al. v. DRUESEDOW, Tax Collector, et al.

(No. 7339.)

Court of Civil Appeals of Texas. Galveston.

June 28, 1917.

On Motion for Rehearing, October 11, 1917.

Appeal from District Court, Harris County; J. D. Harvey, Judge.

Suit by James A. Baker and another, as receivers for the International & Great Northern Railway Company, against Karl L. Druesedow, Tax Collector, and others. Judgment for defendants, and plaintiffs appeal. Reversed and rendered.

On motion for rehearing. Motion denied.

Wilson, Dabney & King, of Houston, for appellants. Sewall Myer, of Houston, and B. F. Looney and Luther Nickels, both of Austin, for appellees.

PLEASANTS, C. J.

This suit was brought by the appellants, as receivers for the International & Great Northern Railway Company, against appellee, Druesedow, tax collector of Harris county, and the county judge and members of the commissioners' court of said county, to restrain the collection of the tax assessed against the International & Great Northern Railway Company upon the value of the intangible property found by the state tax board to be owned by said road and apportioned by said board to Harris county. The taxes assessed upon said intangible property so apportioned to Harris county, the collection of which is sought to be enjoined by this suit, amount to the sum of $6,605.34.

Plaintiff's petition is necessarily voluminous, and it would serve no useful purpose to set out its allegations at length, or to give the substance of all of them. The tax is attacked as illegal, and its collection asked to be enjoined upon the ground, among others, that the railway company had no intangible value upon which the tax could be levied. It is charged, in substance, that the valuation of the whole intangible property of the railway at $10,743,223 by the state tax board was the arbitrary fixing and attempting to create value that had no actual existence. We adopt the following summary of most of the material allegations of the petition, which we copy from appellants' brief:

"And that in finding the same did exist, the board did not endeavor, in the words of the statute, `to bring about a just, fair, equitable and lawful valuation,' but did state the existence of intangible property which did not exist, and against all evidence, upon a deliberated plan to suppose the existence of such fictional property, and that the board did act for the purpose of subjecting to illegal taxation the properties of the International & Great Northern Railway, and for the purpose of collecting out of these properties, under the security of tax liens and preferences created by law, great sums of money because of the claimed intangibles."

It was further charged that the railway had no intangibles, but that if it had any, which is not admitted, but denied, then that they were of no such value as stated by the tax board; that the plaintiffs were grossly discriminated against in the valuations made, by discrimination in favor of other and competing railroads arbitrarily and wilfully made, and that the board, by a false formula and by methods which no reasonable mind could in good faith follow, and through gross error and mistake, as well as by deliberate plan, did make this assessment.

It is then alleged that plaintiffs, in response to a notice issued by the tax board under the provision of the statute to show cause why the preliminary assessment should not be made final, appeared before said board, and in writing and orally protested against the preliminary assessment and mathematical formula which the board applied in ascertaining the intangible values of the railway, and requested the board to explain the formula and the board's process in making the valuation. The board refused to explain its process, or to state the basis of its action, and on what basis or evidence it was acting in making this assessment, and refused to state why, in the formula, they had valued the stock of the insolvent and foreclosed railroad at $12,934,533, its par being $4,822,000, except that the board insisted that the formula was correct.

At this hearing no evidence was offered in support of the board's action, and no reason given therefor, except the formula, but the plaintiffs proved without controversy the following facts:

"(a) The amount of stocks and bonds of the railway outstanding on December 31, 1914, including equipment notes, all taken at par, was $32,154,000, of which $4,822,000 was stock and the railroad commission's valuation was $32,471,027.05, to which might be added additions and betterments not then valued by the railroad commission of book cost of $1,542,065.02.

"(b) The railroad paid interest at 6 per cent. on its first mortgage bonds amounting to $11,290,500, and partly out of receivers' certificates, and that the second mortgage had been foreclosed and interest on its bonds was in default.

"(c) The tax board was placing a premium of $8,112,533 on the capital stock of par $4,822,000, although this stock had been foreclosed and was worthless.

"(d) The properties had been foreclosed in 1910-11, and sold out, and unsecured debts of over $7,000,000, and third mortgage bonds of approximately $3,000,000, and a stock capitalization of $9,755,000 were eliminated and thrown away.

"(e, f, g) The net income above operating expenses for 1914 was $65,405, which would capitalize at 7 per cent. $934,361, and for the calendar year of 1913, $1,153,660.92, which would capitalize at 7 per cent. $16,523,727.43, and for the calendar year of 1912, $2,084,149.50, which would capitalize at 7 per cent. $29,773,564.28. It was shown that no income had ever been paid on the stock of the railroad, except on preferred stock for one year, and that the taxes had increased on the properties from 1904 $127,304.81 to, for 1914, $371,420.22."

"Other testimony was offered on said hearing by the plaintiffs, and they offered to furnish all information in their possession, and requested the board to make complete and full investigation, which it refused to do."

"The plaintiffs invoke the Constitution of the state of Texas and the laws of Texas against the illegal valuation and assessment, and section 1, of article 14 of the Amendments to the Constitution of the United States, in bar of the taxation attacked and the valuation made, and represent that if the court does not intervene, the property will be illegally taken and diverted to the extent of such illegal taxation from its lawful owners, or the persons entitled thereto, and that taxes will be levied and taken without due process of law and in violation of the equal protection of the law."

It is further alleged:

"That if any intangibles existed, which was not admitted, then that they were assessed and taxed at par, or enormously over par, by the state tax board's valuation, and that there existed in Harris county a scheme, custom, use, and design, participated in by the tax assessors and the defendants, whereby it was agreed, understood, or permitted that other tangibles in the county should be assessed at far below the true values, and a large amount of moneys, stock, bonds, loans, and choses in action and household furniture, subject to taxation, were understood and agreed not to be taxed at all, and were not taxed, and that it was understood and agreed or permitted that no intangibles, except those of railroads, should be taxed, and that by reason of these facts not less than one-half of the property in the county, subject to taxation, escaped all taxation whatever, and that tangibles were taxed at not over 38 per cent. of their true value, or true cash and market value, and that all of these undervaluations and all of these permissions of property to escape from taxation were done systematically by the defendants and the Board of Equalization and the tax assessor, and were intentional and arbitrary, whereby it was asserted that the plaintiffs were unjustly, arbitrarily, and willfully discriminated against, even if the International & Great Northern Railway had intangible values, which was not admitted, wherefore, adhering to the first branch of this case and subject to the same, the plaintiffs claim that if they had any intangibles, they must be taxed in Harris county on a basis of the taxation of the property of others in this county, also taking into consideration the failure and refusal of the taxing authorities to value or tax great bodies of property. Upon this branch of the case the plaintiffs invoked the Constitution of the state of Texas, and its laws, against such illegal valuations, assessments, and discrimination, and section 1 of article 14 of the Amendments to the Constitution of the United States, and represented that, if the court did not intervene, the property would be illegally taken and diverted to the extent of the illegal taxation by reason of such discriminations.

"Plaintiffs prayed for a temporary injunction (which was never sued out) and that upon final trial the defendants and their successors be forever enjoined from collecting the taxes in litigation, and that in the event the court should hold that some parts of the taxes in controversy were due, and not all, then that the amount should be ascertained upon the principles set out above, but this was subject to all of the contentions of the plaintiffs, as above made, that there were no taxes due. The plaintiffs prayed for the removal of every cloud or burden resting upon the properties of the railway by reason of these illegal claims, and for general relief."

The defendants answered first by pleas in abatement, setting up proceedings instituted in the District Court of the United States for the Southern District of Texas against the state tax board seeking to enjoin said board from certifying to the various county tax assessors the intangible valuations attacked in this suit, which proceedings and the judgment of said court denying plaintiffs' prayer for temporary...