Druesdow v. Baker

• Decision Date: 23 March 1921
• Docket Number: (No. 202-3272.)
• Citation: 229 S.W. 493
• Parties: DRUESDOW et al. v. BAKER et al.
• Court: Texas Supreme Court

229 S.W. 493

DRUESDOW et al. v. BAKER et al.

(No. 202-3272.)

Commission of Appeals of Texas, Section A.

March 23, 1921.

Error to Court of Civil Appeals of First Supreme Judicial District.

Suit by James A. Baker and others, as receivers, etc., against Karl L. Druesdow and others, wherein defendant Druesdow brought cross-action. From judgment for such defendant, plaintiffs appealed to the Court of Civil Appeals, which reversed and rendered judgment in favor of plaintiffs (197 S. W. 1043), and defendants bring error. Judgment of Court of Civil Appeals reversed, and that of the trial court affirmed.

B. F. Looney, Atty. Gen., Luther Nickels, Asst. Atty. Gen., Fisher, Campbell & Amerman, and Sewall Myer, all of Houston, for plaintiffs in error.

Wilson, Dabney & King, of Houston, for defendants in error.

SPENCER, J.

This suit was instituted by plaintiffs as receivers of the International & Great Northern Railway Company, hereinafter referred to as railway company, against defendants, the tax collector, county judge, and county commissioners of Harris county, to restrain the collection of taxes assessed against the railway company for the year 1915 upon the value of its intangible property, as found by the State Tax Board, and apportioned by the board to Harris county.

In the district court, plaintiffs were denied relief, and judgment was rendered in favor of Druesdow, tax collector, on his cross-action for the amount of the tax with interest. On appeal the judgment of the district court was reversed, and judgment rendered in favor of plaintiffs granting an injunction restraining the collection of the taxes. 197 S. W. 1043.

The Act of the Twenty-Ninth Legislature, approved April 17, 1905 (Laws 1905, c. 146), as amended in 1907 (Laws 1907 [1st Call. Sess.] c. 17), constituting title 126, c. 4, arts. 7407 to 7426, inclusive, Revised Civil Statutes 1911, and commonly known as the "Intangible Assets Act," created a State Tax Board composed of the Comptroller of Public Accounts, the Secretary of State, and the Tax Commissioner of the State, the latter to be appointed by the Governor.

The act provides that certain enumerated corporations, including railroad companies, doing business within the state, shall pay, in addition to the ad valorem taxes on tangible properties, an annual tax to the state on their intangible assets and property, and local taxes thereon to the counties in which its business is carried on.

In order to assist the Board in arriving at the intangible values, the corporation coming within the scope of the act, is required to deliver to the Tax Commissioner, for the information of the Board, a statement duly verified by affidavit, showing, among other things, the market value of the outstanding stock, or if no market value, the actual value thereof; the assessed value, and also the true value of its tangible property; each and every existing lien, mortgage, or other charge upon the whole or any part of its property, and the amount of unpaid debt secured by each such mortgage or lien, including the unpaid interest thereon and the true market value of every such debt; the gross receipts and net income and earning from all sources for the next preceding twelve months, and the amount used for repairs, betterments, and extensions. Articles 7415 and 7416, Revised Civil Statutes 1911.

If, upon examination, the Board shall deem the statement insufficient, or shall believe further information necessary, it may demand such additional information as it may deem necessary and may hear evidence, to enable it to make a preliminary estimate of the intangible. With the information thus before it, it is required to make a preliminary estimate of the value of intangibles of the corporation, and on or before the 31st day of May to notify the corporation, whose property is sought to be taxed, of such preliminary estimate; and the corporation shall have 15 days from the time of mailing the notice in which to appear before the Board, on a date to be fixed by the notice, to contest the preliminary estimate. Upon or after the hearing, the Board may make such changes as it may deem just and proper. Articles 7418 and 7419, Revised Civil Statutes 1911.

The act then provides:

"In apportioning the value of the aforesaid properties, said State Tax Board shall have the right and it shall be its duty to make use of and consider all evidence which may be put before it and all material facts at its command; and, if it shall believe that some method of calculation other than that specifically prescribed in this chapter is necessary in order to produce just and lawful results, said Board shall follow that method of calculation which it believes best calculated, under all circumstances, to bring about a just, fair, equitable and lawful valuation and apportionment of such property." Article 7420.

The Board fixed the preliminary valuations of the entire property, and of the intangible property for the year 1915, giving the railway company the required notice, and set the hearing for the 18th day of June, 1915.

Prior to the hearing, the Tax Commissioner, at the request of the railway company, exhibited certain formulas by which the calculations, as to values, were made. An error appearing upon the face of the formula prepared for valuations of the railway company, was called to the attention of the Tax Commissioner, whereupon the figures were amended and the railway company notified of the amended preliminary valuations.

Under the preliminary estimate, the true value of the entire property was fixed at $39,116,033; the physical at $28,372,810; and the intangibles at $10,743,223. From the formula, it appeared that the capital stock issued and outstanding amounted to $4,822,000; the mortgage debt at par $26,181,500.

At the hearing upon the date fixed, the railway company introduced evidence which may be summarized as follows: Valuation of tangible, $32,471,027; betterments made since such valuation, the cost of which added to the valuation made a total of $34,013,092.07; net income for 1912, $2,084,149.50; for 1913, $1,155,660.92; and for 1914, $65,405.21; outstanding capital stock and lien indebtedness, the same as that used by the board in its formula.

Upon the conclusion of the hearing, the board adhered to its preliminary valuations and upon a mileage basis apportioned to Harris county $603,227 of the amount of intangibles so found, which at the rate of taxation applied by Harris county, state and county, amounted to $6,605.34.

Plaintiff contends that the Intangible Asset Act is unconstitutional, being in violation of the Constitution of the state of Texas, and also of section 1 of the Fourteenth Amendment to the Constitution of the United States; that in fact it had no intangible property; that, if in fact it had intangibles, the same were, by the use of a fundamentally false formula and method which no reasonable mind could in good faith follow, grossly and arbitrarily overvalued, resulting in discrimination against it and in favor of competing roads; and that whatever motive prompted the Board, its acts constituted fraud in law.

The decisions of the Tax Board in the matter of valuations are quasi judicial in their nature. This action is therefore a collateral attack upon the judgment of a quasi judicial tribunal. Such an attack cannot be justified in the absence, of fraud, or something equivalent thereto; lack of jurisdiction; an obvious violation of the law, or the adoption of a fundamentally wrong principle or method, the application of which substantially injures complainant. No mere difference of opinion, as to the reasonableness of its valuation, when such valuations, though deemed erroneous, are the result of honest judgment, will warrant interference by the courts. Pittsburgh, C., C. & St. L. R. Co. v. Backus, 154 U. S. 434, 14 Sup. Ct. 1114, 38 L. Ed. 1039; Western Union Telegraph Co. v. Taggart, 163 U. S. 30, 16 Sup. Ct. 1054, 41 L. Ed. 49.

The formulas, which the railway company attacked as fundamentally wrong, were used as the bases for the preliminary estimate or valuation. These formulas were exhibited to the representatives of the railway company prior to the hearing and were the subject of discussion at the hearing. The process used by the Board in reaching its preliminary valuation is wholly immaterial, the ultimate conclusions or final valuations being the matters under investigation; and unless it be shown that the method used brought about unjust and unlawful results, its judgment will not be disturbed.

The evidence by the Tax Commissioner is to the effect that the Board, in assessing intangibles of all railroads, considered all the evidence and information, and that, disregarding the mathematical calculation, the valuation finally determined represented in each instance the best judgment of which the Board was capable under the circumstances; that the Board withheld its decision in each instance until the evidence was all in, and if the formula did not reflect what the Board considered a fair and just valuation, the Board changed it.

From this and other evidence of the same character, supporting the finding of the trial court, that in making the valuation complained of the...