EQUITABLE R. ASS'N v. DARDANELLE S. SCHOOL DIST, ETC., 12597.
| Decision Date | 25 October 1943 |
| Docket Number | No. 12597.,12597. |
| Parties | EQUITABLE RESERVE ASS'N et al. v. DARDANELLE SPECIAL SCHOOL DIST. NO. 15 OF YELL COUNTY, ARK. |
| Court | U.S. Court of Appeals — Eighth Circuit |
L. P. Biggs, S. L. White, and John S. Gatewood, all of Little Rock, Ark., for appellants.
Wallace Townsend and Lee Cazort, Jr., both of Little Rock, Ark., for appellee.
Before WOODROUGH, THOMAS, and JOHNSEN, Circuit Judges.
On November 23, 1942, the Dardanelle Special School District No. 15 of Yell County, Arkansas, filed its petition for composition with its creditors pursuant to the provisions of §§ 81-84 of the Bankruptcy Act, 50 Stat. 654, as amended June 28, 1940, c. 438, §§ 1-4, 54 Stat. 670, June 22, 1942, c. 434, 56 Stat. 377, 11 U.S.C.A. §§ 401-404. On February 19, 1943, the district court, after notice and hearing, filed findings of fact and conclusions of law, and entered an interlocutory decree confirming a plan for the composition of the debts of the school district. The Equitable Reserve Association and American United Life Insurance Company, creditors, having objected to the confirmation of the plan, have appealed.
The plan contemplated the composition and liquidation of the bonded indebtedness of the district. The outstanding bonds included in the plan consisted of $1,000 of an issue dated October 1, 1917, bearing 6% interest; $53,000 of an issue dated March 1, 1926, at 5%, due October 1, 1932, and $102,000 of an issue dated January 1, 1931, at 5½%, and maturing July 1, 1932, through July 1, 1942. Interest on all of the bonds was in default.
The assessed valuation of lands in the district in 1930 was $1,276,645. Because of adverse conditions prevailing in the district since then, the assessed value of all the property in the district has dropped in 1943 to $821,318.
Article 14, § 3, of the Constitution of Arkansas, as amended in 1917, see Acts 1917, p. 2304, limited the power of a school district to levy a tax to "twelve mills on the dollar in any one year for school purposes." Amendment No. 11, adopted in 1926, authorized such districts to levy a tax "not to exceed eighteen mills on the dollar in any one year for the maintenance of schools, the erection and equipment of school buildings and the retirement of existing indebtedness for buildings." Both amendments provided "that no such tax shall be appropriated for any other purpose nor to any other district than that for which it was levied."
These constitutional limitations on the taxing power and the depreciation in the assessed value of property in the district made it impossible for the district to operate its schools and pay interest on its bonded indebtedness.
In 1935 suit was brought in the federal court against the district upon the bonds, and a decree was entered in June, 1938, in favor of the bondholders awarding judgments aggregating more than $166,000 with interest at 6%. The decree, as amended, directed the district to set aside in a separate fund the equivalent of six mills of its annual tax revenues for the liquidation of the judgment. The fund so provided has not been adequate to pay the interest; and the remainder of the revenues has not been sufficient to operate the schools for eight months in the year without charging tuition.
Under the decisions of the Supreme Court of Arkansas, construing the Arkansas statutes, an urban special school district is without power, in the absence of a special election, to secure bonds by a lien upon its revenues. See Morton v. Dardanelle Special School District No. 15, 8 Cir., 121 F.2d 423.
A statute of Arkansas, Pope's Dig. § 11546 et seq., authorizes a school district to borrow from a revolving loan fund, administered by the State Board of Education, up to 10% of the assessed valuation of the taxable property for payment of its bonded indebtedness, provided such indebtedness after settlement with creditors does not exceed 10% of such valuation, and provided such indebtedness can be bought at the same discount. The state board has approved such a loan in this case; and the court has found that the amount thereof is equivalent to $523 per $1,000 of bonded indebtedness of the district.
The plan proposed by the district provides for the use of the loan from the state and of certain other funds available to pay an amount equal to approximately 60% of the face amount of the bonded indebtedness.
The owners of $1,000 of the 1917 issue of bonds, $4,000 of the 1926 issue and $2,000 of the 1931 issue have not filed claims in this proceeding. Claims in the amount of $149,000 have been filed. Of those filing claims the following owners have consented in writing to accept the plan of composition:
T. J. Raney & Sons ............ $121,000
Fred A. Smith ................. 3,000
________
Total $124,000
The following owners have not consented to accept the plan:
American United Life Ins. Co. .. $13,000
Equitable Reserve Association .. 10,000
J. F. O'Melia .................. 1,000
Citizens Bank and Trust Co. .... 1,000
_______
Total $25,000
O'Melia and the Citizens Bank and Trust Co. have not appealed.
The dissenting creditors seek reversal of the interlocutory decree confirming the plan of composition on the grounds —
1. That the Act of August 16, 1937, as amended, entitled "Composition of Indebtedness of Local Taxing Agencies", is unconstitutional and void;
2. That the plan of composition was not consented to by creditors holding the requisite amount of indebtedness against the debtor district;
3. That the plan of composition is unfair, inequitable and discriminatory; and
4. That the petition was not filed in good faith.
The contention that the Act of Congress invoked by the school district in this proceeding is unconstitutional is based upon the assertion that it deprives the appellants of vested substantive rights in specific property contrary to the Fifth Amendment to the Constitution. These specific rights derive, they assert, from a provision in the deeds of trust securing the bonds and giving the bondholders a lien upon the school houses owned by the district, and from the judgment rendered by the district court in 1938 in favor of the bondholders. To support this contention appellants rely upon Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593, 97 A.L.R. 1106, and Ashton v. Cameron County Water Imp. Dist. No. 1, 298 U.S. 513, 56 S.Ct. 892, 80 L.Ed. 1309.
The question thus presented was neither raised in nor passed upon by the district court. Further, neither the deeds of trust nor the decree referred to is set out in the record. There is, therefore, no basis in the record to support this contention. It may be observed on this point, however, that subsequent to the decision of the Ashton case, supra, the Act was amended and was thereafter held to be valid by the Supreme Court in United States v. Bekins, 304 U.S. 27, 58 S.Ct. 811, 82 L.Ed. 1137. Moreover, whatever rights appellants have in specific property such rights are the same as the rights of all the bondholders. The trust deeds and the decree of the district court in 1938 are for the benefit of all the bondholders. The composition proposed in the plan confirmed is for the purpose of adjusting all the rights of all the creditors in the same property; and, as this court observed in the case of Luehrmann v. Drainage District No. 7 of Poinsett County, 8 Cir., 104 F.2d 696, 702, composition under...
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