Judith Basin Irr. Dist. v. Malott

• Decision Date: 15 October 1934
• Docket Number: No. 6878.,6878.
• Citation: 97 ALR 504,73 F.2d 142
• Parties: JUDITH BASIN IRR. DIST. v. MALOTT et al.
• Court: U.S. Court of Appeals — Ninth Circuit

97 ALR 504, 73 F.2d 142 (1934)

JUDITH BASIN IRR. DIST. v. MALOTT et al.

No. 6878.

Circuit Court of Appeals, Ninth Circuit.

October 15, 1934.

L. A. Foot, Atty. Gen., of Montana, C. E. Baker, Co. Atty., of Lewistown, Mont., E. K. Cheadle, of Lewistown, Mont., and L. V. Ketter and John C. Erickson, both of Helena, Mont. (John G. Brown, of Helena, Mont., of counsel), for appellant.

Gunn, Rasch, Hall & Gunn, of Helena, Mont., for appellees.

Dana E. Brinck and Albert Olsen, both of Spokane, Wash., amici curiæ.

Before WILBUR, SAWTELLE, and GARRECHT, Circuit Judges.

WILBUR, Circuit Judge.

This is an appeal from an order of the District Court of the United States directing the issuance of a writ of mandate. An action had been brought in that court to secure judgment against the Judith Basin Irrigation District upon certain outstanding bonds issued by the district which were issued and sold in 1921. A judgment had been rendered in that action. The petition for writ of mandamus was filed in that action for the purpose of enforcing the judgment which was rendered on the 19th of October, 1931 in the sum of $77,716. It is alleged in the petition that the district had no property subject to execution and that there are no funds in the county treasury of Fergus county in which the irrigation district is situated applicable to the payment of the judgment. It is alleged that the petitioners and judgment creditors are the owners of all the bonds of the district excepting four, numbered 21, 27, 39, and 119 for $1,000 each. The judgment was for the principal of the first 40 bonds, to wit, $40,000, and for the unpaid coupons, excepting bonds numbered 21, 27, and 39. The judgment does not cover bonds to 160, which the petitioners alleged they now own. The bonds, by their terms, accrue at different times, ten or twelve bonds, as the case may be, being payable annually until January 1, 1940. It would follow that since the rendition of the judgment other bonds now owned by the plaintiff in that action have matured and other interest coupons have matured upon the bonds which are not yet due. The county commissioners are acting ex officio as commissioners for the irrigation district. All the property within the limits of the irrigation district, amounting to 4,253.35 acres, has been sold at tax sales by the county treasurer of said county to Fergus county for

"* * * delinquent taxes or assessments levied by said irrigation district and delinquent general taxes, together with penalties and interest, constituting liens thereon, and certificates of tax sales were issued to said county by said treasurer and filed in his office.

"13. That the time for redemption from said tax sales and all thereof having expired, and no part of said lands having been redeemed, tax deeds were issued by said county treasurer to said Fergus County, conveying to said county all of said lands, and said county is now in possession and holding title to all of said lands by virtue of said tax deeds."

It is alleged that the board of county commissioners have fixed the "* * * fair market value of said land and parcels thereof for the purpose of such sale upon the assumption that said lands are not subject to future irrigation district taxes or assessments for the payment of any part of the principal or interest of said bonds, and threaten to and will, unless otherwise commanded by this court, notify and advise the purchaser, or purchasers, of the lands at said sale that the said lands will be sold and conveyed by said county free and clear from any and all liability to future taxation for the payment of any part of the principal or interest of said bonds."

It is further alleged that the price fixed by the county commissioners is less than the amount due and to become due upon the bonds by over $50,000.

It is alleged that the county commissioners have advertised and offered said lands for sale as provided by section 2235 of the Revised Codes of Montana of 1921, as amended by section 3, c. 85, Laws of Mont. 1927. That section provides that the sale shall not be made for less than the market price.

It is further alleged that the county commissioners "* * * claim and assert that the purchaser, or purchasers, of said lands when so sold will obtain title thereto free and clear from any and all liability for future taxes or assessments to pay the principal and interest of said bonds which may remain unpaid after the distribution and application of the proceeds of said sale as provided in said section 2235 as amended."

That section (2235) was subsequently amended by the Legislature of Montana in 1929 (chapter 162) by providing that the sale should be made to the highest bidder, but the Supreme Court of Montana, in State ex rel. Malott v. Board of County Commissioners, 89 Mont. 37, 296 P. 1, held that this amendment was unconstitutional, in that it violated the contract rights of the bondholders of irrigation districts because it impaired the obligation of the contract between the district and the bondholders. They are further "commanded, in the event a levy of the taxes or assessments shall not be made for said Irrigation District by the Commissioners of said District for any year, to ascertain the total amount necessary to be raised for all purposes of said district, and make a levy for that year for said district as provided in chapter 59 of the Laws of Montana, 1931, and furnish the county clerk and recorder of said county with a list of said lands and the amount of the taxes or assessments, as required by section 7240 of the Revised Codes of Montana, 1921, until the judgment in this action and said bonds are fully paid."

The basic question in this case is as to the nature of the obligation of the district upon the bonds issued and sold by it. At the time of the issuance of the bonds there were no decisions by the Supreme Court of Montana as to whether or not the bonds were the general obligation of the district. Later the matter came before that court in Cosman v. Chestnut Valley Irr. Dist., 74 Mont. 111, 238 P. 879, 40 A. L. R. 1344, and in Clark v. Demers, 78 Mont. 287, 254 P. 162, and the case of Drake v. Schoregge, 85 Mont. 94, 277 P. 627. In these cases it was held that the bonds of the irrigation district were general obligations of the district. Later, however, the matter was again presented to the Supreme Court of Montana in State ex rel. Malott v. Board of County Commissioners, 89 Mont. 37, 296 P. 1, supra. The Supreme Court of Montana expressly overruled its previous decisions and decided the bonds were not the general obligation of the district, but merely a charge against the lands within the district, and that each tract of land was only liable for its proportion of the entire bonded indebtedness. It was also held in that case that when the land had been sold for taxes and conveyed to the county by tax deed and subsequently sold to the county, as provided by law, that the purchaser acquired the lands free and clear from any lien of the bonds or any future taxation for the payment thereof. Ordinarily, it is the duty of the federal court to follow the decisions of the state court with reference to state legislation. But one of the exceptions to this rule is that when there is no decision of the state court interpreting a statute and that statute has been the basis for the issuance of obligations the statute becomes a part of the contract between the purchaser of the bond and the political corporation issuing the same and the federal courts will exercise their independent judgment in determining the proper construction of the state statute regardless of subsequent decisions of the Supreme Court of the state upon the question, leaning strongly, however, to the adoption of such interpretation if reasonably possible. This case presents a situation of that nature. At the time the bonds involved in this action were issued and sold there was no interpretation of the statute by the Supreme Court of Montana. Under these circumstances this court must exercise its own independent judgment as to the meaning of the statute under which the bonds were issued. Davenport v. Lord, 9 Wall. 409, 19 L. Ed. 704; Bolles v. Town of Brimfield, 120 U. S. 759, 7 S. Ct. 736, 30 L. Ed. 786; Folsom v. Township Ninety-six, 159 U. S. 611, 16 S. Ct. 174, 40 L. Ed. 278; Bourbon County v. Block, 99 U. S. 686, 25 L. Ed. 491; Carroll County v. Smith, 111 U. S. 556, 4 S. Ct. 539, 28 L. Ed. 517; Burgess v. Seligman, 107 U. S. 20, 2 S. Ct. 10, 27 L. Ed. 359; Kuhn v. Fairmont Coal Co., 215 U. S. 349, 30 S. Ct. 140, 54 L. Ed. 228.

The law of Montana authorizing the formation of irrigation districts, like that of many western states, is patterned after the Wright Act of California (St. Cal. 1887, p. 29). Tomich v. Union Trust Co., 31 F.(2d) 515. As stated by the Supreme Court of Montana in Re Crow Creek Irrigation District, 63 Mont. 293, 207 P. 121, 122: "In its general legislative plan, our statute is modeled after the Wright Law of California (O'Neill v. Yellowstone Irr. Dist., 44 Mont. 492, 121 P. 283), the constitutionality of which has been established by numerous decisions of the California court and by the decision of the Supreme Court of the United States in Fallbrook Irr. Dist. v. Bradley, 164 U. S. 112, 17 S. Ct. 56, 41 L. Ed. 369."

See, also, State ex rel. Malott v. Board of County Commissioners, 89 Mont. 37, 76, 80, 296 P. 1, supra.

It has been uniformly held that the bonds of an irrigation district issued in pursuance of the Wright Act (St. Cal. 1887, p. 29, as amended) are general obligations of the district and this has been true in states where the state legislation has varied slightly from the provisions of the Wright Act but has been based upon it. In Rialto Irr. Dist. v. Stowell, 246 F. 294, 305, this court held that bonds issued under the Wright Act of California were general obligations of the district. We there stated: "We regard it as clear that the bonds...