Commonwealth of Virginia v. State of West Virginia

• Decision Date: 14 June 1915
• Docket Number: No. 2,O,2
• Citation: 35 S.Ct. 795,59 L.Ed. 1272,238 U.S. 202
• Parties: COMMONWEALTH OF VIRGINIA, Complainant, v. STATE OF WEST VIRGINIA, Defendant. riginal
• Court: U.S. Supreme Court

238 U.S. 202

35 S.Ct. 795

59 L.Ed. 1272

COMMONWEALTH OF VIRGINIA, Complainant,

v STATE OF WEST VIRGINIA, Defendant.

No. 2, Original.

Argued April 27, 28, and 29, 1915.

Decided June 14, 1915.

[Syllabus from pages 202-204 intentionally omitted] Messrs. Randolph Harrison and William A. Anderson, and Mr. John Garland Pollard, Attorney General of Virginia, for complainant.

Mr. A. A. Lilly, Attorney General of West Virginia, and Messrs. John H. Holt and Charles E. Hogg for defendant.

Messrs. Holmes Conrad and Sanford Robinson for the bondholding creditors.

Mr. Justice Hughes delivered the opinion of the court:

Upon the hearing in 1911, it was determined that the public debt of Virginia, as of January 1, 1861,—of which West Virginia agreed to assume 'an equitable proportion,'—amounted to $33,897,073.82; that, in view of a reduction secured by Virginia and with the consent of her creditors, the amount to be apportioned was $30,563,861.56; that the apportionment should be made according to the estimated value of the property of the two states at the time of their separation, June 20, 1863; and that upon this basis the proportion of West Virginia was 23.5 per cent, making her share of the principal of the debt $7,182,507.46. While the fundamental issues were thus decided, the controversy was not completely determined. In view of the consideration due to the character of the parties, and of the fact that the cause was 'a quasi international difference referred to this court in reliance upon the honor and constitutional obligations of the states concerned,' it was deemed advisable to go no farther at that stage, but to afford opportunity for conference and adjustment. Accordingly, the question of interest was left open. Virginia v. West Virginia, 220 U. S. 1, 35, 36, 55 L. ed. 353, 360, 361, 31 Sup. Ct. Rep. 330.

At the following term, a motion on the part of Virginia that the court should proceed at once to final decree was denied in the light of the public reasons urged for the granting of further time. 222 U. S. 17, 56 L. ed. 71, 32 Sup. Ct. Rep. 4. Another application of this sort was made by Virginia in November, 1913, and was again refused, and the cause was assigned for final hearing in April, 1914. 231 U. S. 89, 58 L. ed. 135, 34 Sup. Ct. Rep. 29.

At that time, West Virginia, as a result of her investigations, asked permission to file a supplemental answer asserting the existence of credits, which she claimed as against the portion of the principal debt assumed, and also alleging grounds why she should not be charged with interest. Without expressing an opinion as to the propriety of allowing any of the described items of credit, and refraining from applying the ordinary and more restricted rules of procedure which would govern in cases between private litigants, the court granted the application to the end that this public controversy should be determined only after the amplest opportunity for hearing and with full recognition of every equity that might be found to exist. The subject-matter of the supplemental answer, considered as traversed by Virginia, was at once referred to Charles E. Littlefield, Esq., the master before whom the former proceedings had been had, with directions to hear and consider such pertinent evidence as West Virginia might offer, and such counter-showing as Virginia might make, and to report the evidence with his conclusions deduced therefrom, together with a statement of his views 'concerning the operation and effect of the proof thus offered, if any, upon the principal sum found to be due by the previous decree of this court,'—that decree meanwhile to remain wholly unaffected. 234 U. S. 117, 58 L. ed. 1243, 34 Sup. Ct. Rep. 889.

The master's report has been filed, all the questions remaining to be determined have been fully argued, and the case is before us for final decree.

At the outset, the master states that the extensive investigation involved in the later reference, with respect to the existence and the value of the various assets claimed as credits, was then prosecuted for the first time; and that so far as these items had been referred to in the earlier proceeding, it was for an entirely different purpose in the main. The master reports that, in his view, the assets as detailed by him were applicable according to their value as of January 1, 1861, to the public debt of Virginia, which was to be apportioned as of that date; that the value of these assets then amounted to $14,511,945.74, of which West Virginia's share—23 1/2 per cent—would be $3,410,307.25. That if this amount were to be credited to her in reduction of her liability there should be offset certain moneys and stocks received by her from the Restored Government of Virginia aggregating $541,467.76, leaving a net credit to West Virginia of $2,868,839.49. This would reduce West Virginia's liability for principal from $7,182,507.46 to $4,313,667.97. The master also concluded that West Virginia, by virtue of her contract with Virginia, is liable for interest from January 1, 1861, the date as of which her share of the principal is determined.

The ground for the allowance of the credits is that the moneys and securities in question had been specifically dedicated to the payment of the public debt. The moneys embraced cash in the sinking fund on January 1, 1861, and the securities had been purchased with proceeds of the debt. In 1838, the general assembly of Virginia, in authorizing the engotiation of loans, provided that the stock of any joint stock company purchased with the money so borrowed, together with the dividends and other net income which might accrue therefrom to the commonwealth, should be, and were, 'appropriated and pledged' for the payment of the interest and for the final redemption of the principal borrowed. Act of April 9, 1838, § 3. The Constitution of 1851 directed the creation of a sinking fund which was to be applied to the debt (art. 4, § 29), and, with respect to the state's stocks, thus provided: 'The general assembly may, at any time, direct a sale of the stocks held by the commonwealth in internal improvement and other companies; but the proceeds of such sale, if made before the payment of the public debt, shall constitute a part of the sinking fund, and be applied in like manner.' Id. § 30. In 1853, the legislature in establishing the sinking fund enacted a corresponding provision. Act of March 26, 1853, § 3. The question then is not one of the division of public property, merely because of its character as such. In the light of the origin and nature of the investments which the master has reviewed and valued, and of the provisions of the Constitution and statutes of the state, it is clear that these particular assets must be regarded as a fund specially devoted to the payment of the debt to be apportioned. In this view, West Virginia is entitled to have these assets taken into account in fixing the amount of her liability. It cannot be conceived that, being held for the undivided debt, it was intended that they should be applied exclusively to Virginia's share. As West Virginia is to bear 23 1/2 per cent of the debt as it existed on January 1, 1861, she should be credited with a similar part of the fund, fairly valued, which had been pledged for its discharge. This equity is inherent in the obligation.

Both parties have filed exceptions to the report of the master. The first two exceptions on the part of Virginia, and of her committee of bondholding creditors, raise the same point,—that is, that the master erred in selecting January 1, 1861, instead of June 20, 1863 (the date of separation), as the time as of which the value of the assets should be ascertained.

The question must be determined by reference to the terms of the contract between the two states (220 U. S. p. 28) upon which the liability is based. The undertaking is found in the provision of the Constitution of West Virginia, which conditioned her admission to the Union. It is as follows (art. 8, § 8):

'An equitable proportion of the public debt of the commonwealth of Virginia prior to the first day of January in the year one thousand eight hundred and sixty-one, shall be assumed by this state; and the legislature shall ascertain the same as soon as may be practicable, and provide for the liquidation thereof, by a sinking fund sufficient to pay the accruing interest, and redeem the principal within thirty-four years.'

It is not to be doubted that this fixed January 1, 1861, as the date of cleavage with respect to the amount of the debt to be apportioned. It is not important that this date was prior to the separation of the two states. It was competent for the parties to fix a date, and they did so. The explanation of the selection may readily be found in the course of events, but it is sufficient to note that the selection was made. The ascertainment of the ratio of division must not be confused with the fixing of the amount to be divided. With regard to the former, we decided that we must look to the time when West Virginia became a state, that is, in determining the general resources of the two states when the separation was effected. 220 U. S. p. 34. But we did not refer to that time for the purpose of ascertaining the indebtedness which was to be apportioned. That, it was definitely stipulated by the agreement, was the debt as it stood on January 1, 1861. Id. p. 27. It follows that credits then existing were to be applied as of that date. Otherwise, the net amount which equitably was to be divided would not be determined. For example, it is not disputed that on January 1, 1861, there were over $800,000 in cash in the sinking fund. If the amount of the debt was to be ascertained as of that date for the purpose of equitable division, the sinking fund would have to be credited as of the same date, either in reduction of the debt, or by crediting to each state her proper share according to her proportion of the...