Bloomfield Village Drain Dist. v. Keefe

• Decision Date: 14 March 1941
• Docket Number: No. 8583.,8575,8561,8573,No. 8560,8560,8583.
• Citation: 119 F.2d 157
• Parties: BLOOMFIELD VILLAGE DRAIN DIST. et al. v. KEEFE et al., and four other cases.
• Court: U.S. Court of Appeals — Sixth Circuit

119 F.2d 157 (1941)

BLOOMFIELD VILLAGE DRAIN DIST. et al. v. KEEFE et al., and four other cases.

Nos. 8560, 8561, 8573, 8575, No. 8583.

Circuit Court of Appeals, Sixth Circuit.

March 14, 1941.

COPYRIGHT MATERIAL OMITTED Nos. 8560, 8561:

Frank C. Cook and John P. O'Hara, both of Detroit, Mich. (Charles L. Wilson and Harry J. Merritt, both of Pontiac, Mich., and John Conway Cook, of Detroit, Mich., on the brief), for appellants.

Irvin Long, of Detroit, Mich., and David M. Wood, of New York City (Goodenough, Voorhies, Long & Ryan and Dykema, Jones & Wheat, all of Detroit, Mich., and Thomson, Wood & Hoffman, of New York City, on the brief), for appellees.

Nos. 8573, 8575, 8583:

Hugh Francis and John H. Yoe, both of Detroit, Mich., Charles Retzlaff, of East Detroit, Mich., and Bert V. Nunneley, of Mt. Clemens, Mich. (Alex J. Groesbeck, of Detroit, Mich., Kenneth J. McCallum, of East Detroit, Mich., and Younglove & Chockley, of Detroit, Mich., on the brief), for appellants.

Elroy O. Jones, of Detroit, Mich., David M. Wood, of New York City, and William N. Gall, of Detroit, Mich. (Goodenough, Voorhies, Long & Ryan and Dykema, Jones & Wheat, all of Detroit, Mich., and Thomson, Wood & Hoffman, of New York City, on the brief), for appellees.

Before ALLEN, HAMILTON, and MARTIN, Circuit Judges.

ALLEN, Circuit Judge.

Appellees, a committee for holders of bonds of certain Michigan drain districts, brought class suits against appellants, the five drain districts, Oakland County and Macomb County, the City of East Detroit, the Village of Centerline, and the Townships of Erin, Lake, and Warren, and various officials and taxpayers thereof, asking that the bonds be decreed to be valid obligations of the drain districts, that the special assessments therefor be held enforceable, and for other equitable relief. Each of the drain projects has already been found in Michigan state court actions to be predominantly a sewer project and therefore illegal and void under Michigan law, the Bloomfield Village drain and the Bloomfield No. 1 storm sewer drain in Meyering Land Co. v. Spencer, 273 Mich. 703, 263 N.W. 777, and Detroit Fire & Marine Ins. Co. v. Oakland County, 284 Mich. 130, 278 N.W. 791, the Nine Mile-Halfway drain in Township of Lake v. Millar, 257 Mich. 135, 241 N.W. 237, and Center Line relief drain and the Martin drain and Branches drain in a judgment of the Circuit Court of Macomb County, Michigan, in Townshop of Erin v. County of Macomb, and other similar cases in which no appeal was taken from the judgment rendered in the Circuit Court. The question of the liability of the county is not present as to the Nine Mile-Halfway or Bloomfield Village bonds, since they antedated the enactment of Act 331 of Michigan Public Acts of 1927, c. 10, Section 15, p. 796, which provides in substance that if the amount available in the drain fund is insufficient, the county shall advance the sum out of its general fund. Otherwise the controlling questions are identical in all cases, and we decide them as one. The cases were referred to a special master, and his report in each case was confirmed by the court. The master decided that all of the projects are illegal under Michigan law; that the bonds are in the hands of purchasers in good faith without notice; that the drain commissioner had the power to issue them; that the bondholders were entitled to rely upon the truth of the recitals in the bonds, and that appellants were estopped to deny the truth of such recitals and to set up the defense of illegality. In each case the District Court held that the bonds were binding obligations; that the assessments levied to pay the bonds were legal and valid, and ordered the officials of the drain districts, and Oakland and Macomb counties, to enforce collection of the special assessments, and ordered that funds to pay the maturing bonds be advanced by the counties of Oakland and Macomb in the event the funds of the drain districts are insufficient. Appellants were enjoined from interfering in any manner with the collection of assessments or payment of the bonds. In the cases involving the two Bloomfield projects the decree specifically enjoined the institution of any proceedings to enforce the decrees of the Supreme Court of Michigan in Meyering Land Co. v. Spencer, supra.

Appellants urge that the judgments must be reversed because (1) under the Judicial Code, the federal court has no judisdiction; (2) appellees sought to confer jurisdiction upon the District Court by collusion; (3) the burden is on appellees to prove that they are holders in good faith and for value without notice of the illegality of the projects, and no such evidence exists in the record; (4) the bond issues are not negotiable under Michigan law; (5) the decisions in the state courts listed above are binding upon appellees because the county drain commissioner represented their interests in those cases.

The jurisdictional question arises under Section 24(1) of the Judicial Code, Title 28, U.S.C., Section 41(1), 28 U.S.C.A. § 41(1) which provides:

"* * * No district court shall have cognizance of any suit (except upon foreign bills of exchange) to recover upon any promissory note or other chose in action in favor of any assignee, or of any subsequent holder if such instrument be payable to bearer and be not made by any corporation, unless such suit might have been prosecuted in such court to recover upon said note or other chose in action if no assignment had been made. * * *"

While the bonds were originally purchased by residents of Michigan, they were resold to various individuals, some of them nonresidents, at not less than par and accrued interest. Since they were bearer bonds, the jurisdictional question turns upon the point whether they were issued by "any corporation."

The master decided that while the bonds were choses in action, the drain districts were corporations and that the case therefore falls within the exception of the statute. Appellants attack this conclusion upon the ground that the bonds clearly were not issued by a corporation, relying mainly upon the decision in Spiegel v. Barrett, 189 Mich. 111, 155 N.W. 456, rendered in 1915, to the effect that special assessment drainage districts are not corporations. The Supreme Court of Michigan stated in that case:

"Under our drainage law, the special assessment drainage districts are not corporations, as have been created in certain states — Illinois, for example — where the statute bestows powers to contract and be contracted with, to sue and be sued, upon such districts. Here they have no corporate entity, and are created simply for the purpose of collecting taxes from the benefited land for the construction of the drain." 189 Mich. at page 114, 155 N.W. at page 456.

This opinion was announced at a time when under Michigan law a drainage district was not empowered to issue bonds. In 1917 the Michigan Constitution was amended to provide (Art. VIII, § 15a) that a drainage district "may issue bonds for drainage purposes within such district," and subsequently, but prior to the issuance of the bonds in suit, statutes were enacted specifically providing for the exercise of this power. Obviously the Spiegel case is not controlling here, for drainage districts now have the power to contract and be contracted with, to sue and be sued, as do the Illinois drainage districts alluded to in the Spiegel case.

Since no subsequent Michigan decision is cited upon the point, we lack the authoritative guidance of the state courts. Bearing in mind that the drain district is not denominated a corporation either in the Constitution or statutes of Michigan, we think that the holding of the master and the District Court is correct. Within the meaning of Section 24(1), the term "corporation" includes municipal corporations (Loeb v. Trustees of Columbia Tp., 179 U.S. 472, 21 S.Ct. 174, 45 L.Ed. 280) and counties. Scott County, Ark., v. Advance-Rumley Thresher Co., 8 Cir., 288 F. 739, 36 A.L.R. 937. In the Scott County case, a state statute had sought to repeal any laws making counties corporations and authorizing them to sue and be sued; but the court held that while counties are different and distinguishable from municipal corporations, and have generally a less measure of corporate life, they are corporations under the federal statute. Cf. Cowles v. Mercer County, 7 Wall. 118, 19 L.Ed. 86, which held the board of supervisors of a county to be a corporation within the meaning of the statute.

Under the reasoning of these cases, while the drain district has a less measure of corporate life than a city, it exhibits the essential characteristics of a public corporation. It is capable of acting as an entity (Royal Oak Drain Dist. v. Keefe, 6 Cir., 87 F.2d 786, 790), with an existence independent of its members and capable of being sued as obligor on its bonds. It acts in a single name fixed by law, and has succession. Hancock v. Louisville & N. R. Co., 145 U.S. 409, 12 S.Ct. 969, 36 L.Ed. 755. Bodies exercising similar functions have been held to be corporations, although not specifically so named in the statutes, as, for instance, trustees of schools and school lands (Connell v. Woodard, 5 How. 665, 6 Miss. 665, 37 Am.Dec. 173), a board of water commissioners (O'Leary v. Board of Fire & Water Com'rs, 79 Mich. 281, 44 N.W. 608, 7 L.R.A. 170, 19 Am.St.Rep. 169), a board of managers of an exposition. Gross v. Kentucky Board of Managers, 105 Ky. 840, 49 S.W. 458, 43 L.R.A. 703. The drain district has officers, for the county drain commissioner is an officer representing the drain district. Brooks v. County of Oakland, 268 Mich. 637, 256 N.W. 576. The drain district exercises property rights, and is treated by the Michigan Legislature as an entity for assessment purposes. Comp.Laws of Michigan, 1929, Sections 4917, 4940. The funds of the drainage district, while in the custody of the county, must be kept separate from...