Kersh Lake Drainage District v. Johnson (4-6332) And State Bank & Trust Company of Wellston, Missouri

• Decision Date: 08 December 1941
• Docket Number: 4-6332,4-6474
• Citation: Kersh Lake Drainage District v. Johnson (4-6332) And State Bank & Trust Company of Wellston, Missouri, 157 S.W.2d 39, 203 Ark. 315 (Ark. 1941)
• Parties: KERSH LAKE DRAINAGE DISTRICT v. JOHNSON (4-6332) and STATE BANK & TRUST COMPANY OF WELLSTON, MISSOURI, v. HOLTHOFF
• Court: Arkansas Supreme Court

157 S.W.2d 39

203 Ark. 315

KERSH LAKE DRAINAGE DISTRICT v. v. HOLTHOFF

JOHNSON (4-6332) and STATE BANK & TRUST COMPANY OF WELLSTON, MISSOURI,

4-6332, 4-6474

Supreme Court of Arkansas

December 8, 1941

Appeals from Lincoln Chancery Court; Harry T. Wooldridge Chancellor; reversed.

Decree reversed and cause remanded.

Robert A. Zebold, Rowell, Rowell & Dickey and Rose Loughborough, Dobyns & House, for appellants.

A J. Johnson, Coleman & Riddick and E. W. Brockman, for appellees.

MCHANEY J. HOLT, J., dissenting. Mr. Justice HUMPHREYS and Mr. Justice GREENHAW concur in this dissenting opinion.

OPINION

MCHANEY, J.

A. J. Johnson owned lands in the Kersh Lake Drainage District, hereinafter referred to as the District, against which betterments amounting to $ 1,600 were assessed. Prior to 1931, he had paid installments of these betterments in the total sum of $ 1,628. Anticipating that the district would attempt to collect additional assessments against his lands, he brought suit against the district, in which he alleged that he had fully paid all the assessments of benefits which could legally be imposed upon his lands. He prayed that it be adjudged that he had discharged the lien of the district against his lands, and that the district be enjoined from thereafter attempting to collect further assessments of benefits against his lands. A decree, which will hereinafter be referred to as the Johnson decree, was rendered in October, 1931, awarding the relief prayed.

That this decree was erroneous is now conceded. It ignored act 457 of the General Acts of 1919, p. 343, conferring the power upon drainage districts to collect interest on deferred payments of installments of benefits. This power has been upheld in numerous decisions of this court: Oliver v. Whittaker, 122 Ark. 291, 183 S.W. 201; Jones v. Fletcher, 132 Ark. 328, 200 S.W. 1034; Skillern v. White River Levee District, 139 Ark. 4, 212 S.W. 90; Pfeiffer v. Bertig, 141 Ark. 531, 217 S.W. 791; Summers v. Cole, 144 Ark. 494, 223 S.W. 721; Phillips v. Tyronza & St. Francis Road Imp. District, 145 Ark. 487, 224 S.W. 981; Chicago Mill & Lumber Co. v. Drainage District No. 17, 172 Ark. 1059, 291 S.W. 810; Benton v. Nowlin, 187 Ark. 738, 62 S.W.2d 16.

The effect of the Johnson decree was to relieve the tract of land owned by him from the payment of additional taxes for which his lands were liable under the law.

Quite naturally, other landowners similarly situated desired the same relief, and Johnson, who is an able and reputable lawyer, was employed to obtain for them the relief which he had secured for himself as an owner of lands in the district.

A suit for that purpose was filed in the names of W. A. and Clyde E. Fish, in which it was alleged that they sued for the benefit of themselves and all other landowners similarly situated. This suit eventuated in a decree rendered June 15, 1932, which will hereinafter be referred to as the Fish decree, which awarded the relief prayed.

There was uncertainty as to what landowners had paid taxes equaling or exceeding the benefits assessed against their lands, and to avoid a multiplicity of suits, it was agreed with the commissioners of the district that an audit be made, from which this fact could be ascertained. The commissioners directed that the audit be made and the cost thereof was paid with the funds of the district. It was upon this audit that the Fish decree was rendered awarding all landowners whose lands were similarly situated to those of Johnson exemption from the payment of any tax in excess of the original betterments assessed against those lands.

As created, the district contained 29,000 acres of assessed land. The effect of the Fish decree was to exempt something like 20,000 acres of land from all liability for interest on betterments. This action operated, of course, to cast upon the remainder of the lands which had not been thus relieved the burden of discharging the district's unpaid obligations. There is a limit to this liability, the limit being the full amount of betterments assessed, with interest thereon. In no event can any land be required to pay more; but all the lands which have not been relieved can be required to pay that much. It is a matter of common knowledge that there is usually, just as there is here, a wide spread between the amount of indebtedness and the amount of the assessed benefits. Assessors of benefits are generally very liberal and optimistic in assessing the benefits. Practically speaking, this gives the appearance of a wide margin of safety to the investing public where betterments largely exceed cost and consequent indebtedness. The injustice worked by the Fish decree to landowners who were not fortunate enough to be beneficiaries of that decree is obvious, unless, indeed, all landowners are excused from the payment of interest when they have paid the amount of their assessed benefits. When and if that is done, the innocent holders of the district's certificates of indebtedness will be left with worthless securities in their hands, and this as the result of a suit of which they were unaware and which we think was purposely concealed from them by the dominant commissioner of the district whose duty it was to protect their interests, but who chose rather to protect his own.

The district brought suit to enforce the payment of delinquent assessments for the years 1935 and 1936, to provide funds for the payment of the indebtedness of the district the validity of which no one questions. An answer was filed, which pleaded the Johnson and Fish decrees as a bar to this suit, it being alleged that the Fish decree was a class suit and that it inured to the benefit of all persons similarly situated, that is, all persons who had paid a sum equal to or in excess of the amount of their assessed benefits exclusive of interest.

The district filed an amendment to the complaint to collect the delinquent assessments in which it was alleged that the suit had been brought under the authority of and pursuant to the directions of the decree of the circuit court of appeals of this circuit in the case of Kersh Lake Drainage District v. State Bank & Trust Co. of Wellston, Mo., 92 F.2d 783.

This decree of the circuit court of appeals was pleaded as res adjudicata of the right of the district to collect the delinquent assessments. The landowners pleaded the Johnson and Fish decrees as res adjudicata of their liability for additional assessments. The chancellor who rendered the Johnson and Fish decrees had, through his death, been succeeded by another who overruled the landowners' plea and as it was admitted that the delinquent assessments had not been paid, he rendered a decree ordering the foreclosure of the delinquent assessments. That decree was reversed on an appeal to this court. Johnson v. Kersh Lake Drainage District, 198 Ark. 743, 131 S.W.2d 620, and this decision was affirmed on appeal to the Supreme Court of the United States. Kersh Lake Drainage District v. Johnson, 309 U.S. 485, 60 S.Ct. 640, 84 L.Ed. 881, 128 A. L. R. 386.

It was the theory and finding, both of this court and of the Supreme Court of the United States, that while the decree of the circuit court of appeals, supra, concluded the question of the liability to the district and its duty to levy an assessment of taxes against benefits to pay its indebtedness, this did not preclude any particular landowner from showing that he had, in fact, paid all the assessments of benefits legally chargeable against his lands, and that the Johnson and Fish decrees were res adjudicata of the fact that the persons whose lands were covered by the Fish decree had paid all the taxes for which their lands were liable.

In so holding it was said in the opinion of this court, supra, 198 Ark. 743, 131 S.W.2d 625, that "We hold that these decrees are res adjudicata, and we do not think it material in the present case whether those decrees of the state court were right or wrong, there being no allegation of fraud or want of jurisdiction," and further, that "The decrees in these suits rendered in 1931 and 1932, could only have been set aside on appeal or by direct action to annul them on the ground of fraud and as we have said no appeals were taken and no fraud on the court in which decrees were rendered is reflected by this record."

This language was quoted approvingly by the Supreme Court of the United States, and it was there said: "And so are petitioners bound by the decrees in the chancery suits, in which the commissioners, as parties, appropriately asserted the lien for the benefit of certain certificate holders, unless there was fraud or collusion." 309 U.S. 485, 60 S.Ct. 640, 84 L.Ed. 881, 128 A. L. R. 386. In other words, the Johnson and Fish decrees are res adjudicata of the right of the drainage district to collect any amount in excess of original betterment assessments, unless those decrees were obtained by fraud or collusion.

After the affirmance of the decision of this court, the attorneys for the State Bank & Trust Co. of Wellston, Mo., hereinafter referred to as the Bank, which is the principal creditor of the drainage district, applied to the federal district court for permission to institute suit. It was then in this federal district court that the litigation originated which determined the validity of the certificates of indebtedness owned by the bank, and also the duty of the district to levy taxes to pay the indebtedness. Kersh Lake Drainage District v. State Bank & Trust Co., 85 F.2d 643.

Permission was asked to file supplemental pleadings raising three points: (a) The question as to whether the Fish decree had been obtained by fraud; (b) the question as to whether that decree did not, by its terms, bar some of...