Hubbell v. Leonard

• Decision Date: 05 January 1934
• Docket Number: No. 2579.,2579.
• Parties: HUBBELL et al. v. LEONARD (MITCHELL et al., Interveners).
• Court: U.S. District Court — Eastern District of Arkansas

6 F. Supp. 145

HUBBELL et al. v. LEONARD (MITCHELL et al., Interveners).

No. 2579.

District Court, E. D. Arkansas, W. D.

January 5, 1934.

David M. Wood, of New York City, and Joseph G. Gamble, of Des Moines, Iowa (Thomson, Wood & Hoffman, of New York City, and Gamble, Read & Howland, of Des Moines, Iowa, on the brief), for complainants.

Charles T. Coleman, of Little Rock, Ark., and Walter L. Pope, Asst. Atty. Gen. (Hal L. Norwood, Atty. Gen., and Walter G. Riddick, of Little Rock, Ark., on the brief), for defendant.

John C. Sheffield, of Helena, Ark., for interveners.

Before GARDNER, Circuit Judge, and MARTINEAU and RAGON, District Judges.

GARDNER, Circuit Judge.

This is a suit in equity, brought by the plaintiffs, who are citizens of states other than Arkansas, and are not citizens of the state of Arkansas, against the defendant Roy V. Leonard, individually, and as treasurer of state of the state of Arkansas, to enjoin and restrain him from paying out certain funds of the state derived from taxation of motor vehicles and gasoline.

Plaintiffs constitute a committee, and under the terms of a written agreement dated June 1, 1933, are assignees of certain bonds and interest coupons issued by the state of Arkansas, and as such assignees are empowered to bring this suit. There is therefore a diversity of citizenship between the plaintiffs and the defendant; the amount in dispute, exclusive of interest and costs, exceeds the sum or value of $3,000; and the suit, it is alleged by appropriate averments, arises under the Constitution of the United States.

The suit has been finally submitted on the pleadings and certain admitted facts.

There are two counts in the bill of complaint, each charging a violation of section 10, article 1, of the Constitution, providing that no state shall pass any law impairing the obligation of contracts, and of the Fourteenth Amendment, providing that no state shall deprive any person of life, liberty, or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws. The material facts in connection with count 1 are as follows: By Act of the General Assembly of the State of Arkansas, known in the record as Act No. 80 (page 215), approved March 4, 1927, which amended Act of the same legislature, known as Act No. 11 (pages 17, 20), approved February 4, 1927, it was, among other things, provided as follows:

"Section 5. To hasten the completion of the state highway system as rapidly as possible, the Commission shall for each of the years 1927, 1928, 1929, and 1930, allot for new construction a sum equal to twice the aggregate amounts allotted to road districts, and for each year thereafter, until the road system of the state is brought to a parity, shall allot as a minimum a sum at least equal to the aggregate amount allotted to road districts. To provide the funds to meet this requirement, the state shall borrow each year whatever amount may be necessary, in addition to the money derived from automobile licenses and fees, gasoline and motor oil taxes, and from Federal Aid, on such terms as to interest and maturities and subject to the limitations hereinafter set out, as may be determined to be for the best interest of the highway system, and to issue State Highway notes for the amount borrowed, to be secured by a pledge of the revenues derived from automobile licenses and fees, and gasoline and motor oil taxes, and to pledge said revenues, or so much thereof as may be necessary, for the payment of said notes, and the State of Arkansas hereby pledges to the purchasers and future holders of State Highway notes that the State of Arkansas will never so long as any of said notes are outstanding permit sections 35 and 36 of Act No. 5 of the Extraordinary Session of the General Assembly of the State of Arkansas, approved October 10, 1923, to be repealed or amended so as to in any manner reduce the revenue therein provided for, and the State of Arkansas further pledges that in the event of a substitute fuel for motor vehicles, or in the event of improvement in equipment that would reduce gasoline consumption or other change of conditions that would reduce the annual revenue from automobile licenses and fees, and gasoline and motor oil taxes below seven million five hundred thousand dollars ($7,500,000.00) that in such event the state will amend section 35 and 36 so as to provide for an annual minimum revenue from automobile licenses and fees and gasoline and motor oil taxes of seven million five hundred thousand dollars ($7,500,000.00) and the State of Arkansas further pledges that it will not issue in the aggregate more State Highway notes than can be fully paid, with interest thereon, from a revenue of seven million five hundred thousand dollars ($7,500,000.00) a year during the period beginning with the first maturity date and ending with the last maturity date of said notes.

"The State Treasurer shall set aside out of the first revenue collected from automobile licenses and fees, and from gasoline and motor oil taxes during the first half of each fiscal year, a sum sufficient to pay the interest on the State Highway notes, and the maturing notes, due and payable during the first half of the fiscal year, and shall set aside out of the first of said revenues collected during the last half of each fiscal year, a sum sufficient to pay the interest on the State Highway notes, and the maturing notes, due and payable during the last half of the fiscal year.

"Such notes issued by the state shall be known as State Highway notes, shall be signed by the Governor, the State Treasurer and the State Highway Commissioner, and attested by the Secretary of State, and shall state in the face of said notes that the revenues derived from automobile licenses and fees, and from gasoline and motor oil taxes, are pledged for the payment of such notes.

"The State Auditor, with the approval of the Governor, shall prepare the form of said notes. Said notes shall be in denominations of one thousand dollars or multiples thereof, and shall be payable to bearer, but shall contain a provision for being converted into registered notes by being registered in the office of the State Treasurer. Said notes shall be negotiable paper notwithstanding they are payable out of a special fund derived by the state from automobile licenses and fees, and gasoline and motor oil taxes.

"The state shall sell State Highway notes only as the Highway Commission finds that funds are needed, and shall not sell more than thirteen million dollars of notes in any calendar year. No notes shall be sold until the State Treasurer shall first have advertised for bids in newspapers, periodicals, or financial journals selected by him, the advertisement to be published not less than twenty (20) days before the day of sale. All bids shall be opened in public, and the state shall have the right to reject any and all bids, and may if it deems best, auction the sale of such notes. Said notes shall not be disposed of at less than par on the basis of interest at the rate of five per cent per annum plus accrued interest from date of notes to date of delivery, but if said notes should bear a less rate of interest, they may be disposed of at less than par, provided that on the basis of the amount at which the notes are sold, and the rate of interest they bear, the interest shall not exceed the equivalent of five per cent per annum on the par or face value of the notes, exclusive of the expenses incident to the sale of said notes."

By Act No. 6 of the General Assembly, approved October 3, 1928, it was provided that, in addition to the provisions contained in the above-quoted act, the state highway commission might sell short-term notes maturing within a year, the issuance of which, however, was not to affect the power to issue state highway notes pursuant to the terms of the statute, but the proceeds of the sale thereof were to be used to pay any outstanding short-term notes and interest. This statute further provided that not more than $18,000,000 par value of notes should be sold in any calendar year beginning with the year 1928, and, if in any year the sale of notes should be deemed inadvisable, sufficient in amount might be sold in subsequent years to bring the average up to $18,000,000 a year.

By Act No. 65 (page 264), approved February 28, 1929, the General Assembly again in substance re-enacted the provisions of the foregoing statutes.

Pursuant to the authority contained in these various acts, the state from time to time issued certain highway obligations amounting in the aggregate to the par value of $84,000,000, bearing interest at the rate of 4½ per cent. per annum, payable semiannually.

Plaintiffs are the owners and holders of the legal title to a large quantity of each of these issues of bonds under these various statutes, aggregating $41,833,000, and on all of which one semiannual installment of interest falling due in 1933 is past due and unpaid.

In each of these obligations, it is, among other things, provided:

"The State of Arkansas also covenants that this and all other obligations of this series shall be paid promptly as they mature, and to that payment the full faith and credit of the State are irrevocably pledged. As special security for the payment of this and the other obligations of this series, the State of Arkansas hereby pledges its revenues derived from automobile licenses and fees and from its tax on gasoline and on any substitute therefor used in propelling automobiles on its highways.

"The State of Arkansas covenants that its treasurer of state will set aside out of the first revenue collected from automobile licenses and fees and from taxes on gasoline and on any substitute therefor during each semi-annual period, funds sufficient to pay all obligations of this series and interest thereon maturing and accruing during such period."

By sections 35 and 36 of Act...