Chicot County Drainage Dist. v. Baxter State Bank, No. 11342.

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Writing for the Court: GARDNER and WOODROUGH, Circuit , and OTIS
• Citation: 103 F.2d 847
• Parties: CHICOT COUNTY DRAINAGE DIST. v. BAXTER STATE BANK et al.
• Docket Number: No. 11342.
• Decision Date: 18 May 1939

103 F.2d 847 (1939)

CHICOT COUNTY DRAINAGE DIST.
v.
BAXTER STATE BANK et al.

No. 11342.

Circuit Court of Appeals, Eighth Circuit.

April 29, 1939.

Rehearing Denied May 18, 1939.

E. L. McHaney, Jr., of Little Rock, Ark. (James R. Yerger, of Lake Village, Ark., Grover T. Owens and S. Lasker Ehrman, both of Little Rock, Ark., on the brief), for appellant.

Arthur J. Johnson, of Star City, Ark. (G. W. Hendricks, of Little Rock, Ark., on the brief), for appellees.

Before GARDNER and WOODROUGH, Circuit Judges, and OTIS, District Judge.

GARDNER, Circuit Judge.

This is an appeal from a judgment entered in favor of appellees, who were plaintiffs below, in an action on certain bonds owned by them and issued by the appellant Drainage District. The parties will be referred to as they appeared in the lower court. No question is raised as to the sufficiency of the pleadings. The defendant answered plaintiffs' complaint, which was in conventional form, pleading that in a bankruptcy proceeding brought in the United States District Court for the Eastern District of Arkansas, it had been adjudged in effect that the bondholders of the district, including the plaintiffs, were entitled to recover in that proceeding the sum of approximately $360 on each $1,000 bond; that under the terms and provisions of said decree, plaintiffs had no valid claim against the defendant but were forever restrained and enjoined from asserting any claim or demand whatever against defendant, except as provided in said decree.

The bankruptcy proceedings referred to were initiated on June 17, 1935, by filing in the United States District Court for the Eastern District of Arkansas, a petition for

103 F.2d 848

authority to effect a plan of debt readjustment, pursuant to amendments to the Bankruptcy Act, adopted May 24, 1934, and designated as U.S.C.A. Title 11, Sections 301, 302 and 303. No question is raised as to the regularity of these proceedings as prescribed by the Act. Plaintiffs were made parties to said proceedings by publication of a notice thereof pursuant to order of the bankruptcy court, and by mailing to them personally a notice of said proceedings, which notice was received by each of them, but neither of them appeared therein either in person or by attorney. The decree which was entered therein on March 28, 1936, provided in part as follows: "(c) That all the old bonds and other obligations of the petitioning district affected by the plan of debt readjustment approved in this cause, whether heretofore surrendered and cancelled or remaining outstanding, and by whomsoever held, are hereby cancelled, annulled and held for naught as enforceable obligations of the petitioning district, except as herein provided, and that the holders thereof be and they are hereby forever restrained and enjoined from other wise asserting any claim or demand whatsoever therefor as against the petitioning district or its officers, or against the property situated therein or the owners thereof;"

No appeal was taken by the plaintiffs from the bankruptcy decree above referred to.

The lower court held that the decree in bankruptcy entered March 28, 1936, was void because the court was without jurisdiction of the parties plaintiff or of the subject matter; that the plaintiffs were therefore entitled to recover the full amount of their bonds, and judgment was entered accordingly.

The determining question on this appeal is whether the bankruptcy decree constituted a defense to the maintenance of this action. The act amendatory of the bankruptcy laws under which the proceedings were had, culminating in the above-mentioned decree, was, subsequent to the entry of the decree, held to be unconstitutional because it materially restricted the states in the control of their financial affairs. Ashton v. Cameron...