Manchester Fire Ins. Co. v. Herriott

• Decision Date: 12 January 1899
• Citation: 91 F. 711
• Parties: MANCHESTER FIRE INS. CO. et al. v. HERRIOTT, Treasurer of State of Iowa, et al.
• Court: U.S. District Court — Southern District of Iowa

91 F. 711

MANCHESTER FIRE INS. CO. et al. v. HERRIOTT, Treasurer of State of Iowa, et al.

United States Circuit Court, S.D. Iowa, Central Division.

January 12, 1899

McVey &amp McVey, for complainants.

Milton Remley, Atty. Gen. of Iowa, for defendants.

SHIRAS District Judge.

The bill in this case is filed on behalf of some 32 fire insurance companies doing business in the state of Iowa, but incorporated under the laws of Great Britain, and other states foreign to the United States, the ultimate purpose of the bill being to test the constitutionality of section 1333 of the Code of Iowa, which in substance, provides that all insurance companies incorporated under the laws of a state or nation other than the United States shall, at the time of making the annual statements as required by law, pay into the state treasury 3 1/2 per cent. of the gross amount of premiums received for business done in the state of Iowa during the preceding year that all insurance companies incorporated under the laws of a sister state of the Union shall pay into the treasury 2 1/2 per cent. of the gross amount of premiums received during the preceding year; and that all insurance companies incorporated under the laws of the state of Iowa, not including county mutual, and fraternal beneficiary associations, shall pay into the treasury 1 per cent. of the gross amount received from premiums and assessments after deducting amounts paid for losses and premiums returned; it being further provided that upon payment of the proper sums duplicate receipts therefor should be issued, one of which must be filed with the auditor of state, who is then authorized to issue the annual certificate requisite to enable the company to continue in business during the coming year. In the bill filed it is averred that the complainant companies, more than 15 years ago, were admitted into the state of Iowa for the purpose of transacting the business of insurance, and that they then fully complied with all the provisions and requirements of the laws of Iowa necessary to secure their lawful admission into the recognition by the state, and that they have since complied each year with the requirement of the state laws, and have each year had issued to them the certificate showing their authorization to continue in business in Iowa. It is further averred that in reliance upon this action on part of the state the complainants have expended large sums of money in establishing agencies, in securing offices, in advertising, and in providing the materials necessary to conduct their business in Iowa, and that they have entered into many contracts of insurance with the citizens of Iowa, which are now in force, and have expended large amounts in meeting the obligations arising in Iowa in connection with the business which they were authorized by the state to undertake in Iowa. It is further charged in the bill that up to the year 1897 no discrimination in the burden of taxation had been made between foreign and domestic corporations engaged in the business of insurance in the state of Iowa, but that in that year the legislature enacted the existing Code of Iowa, which contains the section already cited, imposing upon foreign companies a heavier and unequal burden of taxation as compared with corporations created under the laws of the states of the Union other than Iowa; and it is averred in the bill that the provisions of this section are in violation of the fourteenth amendment of the constitution of the United States, of the provisions of the civil rights act, and of article 8, Sec. 2, of the constitution of the state of Iowa, which provides that 'the property of all corporations for pecuniary profit shall be subject to taxation the same as that of individuals. ' The bill filed is quite lengthy, covering some 34 printed pages, but the foregoing brief summary is perhaps all that is needed to show the grounds upon which complainants rely in seeking an injunction to restrain the enforcement of the provisions of the section of the Code already cited.

To this bill the defendants have interposed a demurrer practically based upon two grounds: First, that, although nominally against the treasurer and auditor of state, yet in fact the suit is one against the state of Iowa, and is, therefore, not within the jurisdiction of this court; and, second, that the facts averred in the bill fail to show that the legislation complained of contravenes any provision of the federal or state constitution, it being in fact but the exercise, on the part of the state, of its undoubted right to impose such terms as it may deem best upon foreign corporations seeking to enter the state, or, having entered, seeking to continue in business therein. In support of the proposition that in fact the state is the real party in interest, and therefore the suit is within the prohibition of the eleventh amendment to the constitution of the United States, which declares that 'the judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects or any foreign state, ' counsel for the defendants cite the cases of In re Ayers, 123 U.S. 443, 8 Sup.Ct. 164, New Hampshire v. Louisiana, 108 U.S. 76, 2 Sup.Ct. 176, and Cunningham v. Railroad Co., 109 U.S. 446, 3 Sup.Ct. 292, 609, which read in connection with the later cases of Pennoyer v. McConnaughy, 140 U.S. 1, 11 Sup.Ct. 699, and In re Tyler, 149 U.S. 164, 13 Sup.Ct. 785, give the test to be applied in determining whether a given suit is or is not to be deemed one against a state. In the latter case (page 190, 149 U.S., and page 793, 13 Sup.Ct.) it is said:

'The object of this petition was, we repeat, to protect the property; but, even if it were regarded as a plenary bill in equity, properly brought for the purpose of testing the legality of the tax, we ought to add that, in our judgment, it would not be obnoxious to the objection of being a suit against the state. It is unnecessary to retravel the ground so often traversed by this court in exposition and application of the eleventh amendment. The subject was but recently considered in Pennoyer v. McConnaughy, 140 U.S. 1, 11 Sup.Ct. 699, in which Mr. Justice Lamar, delivering the opinion of the court, cites and reviews a large number of cases. The result was stated to be that, where a suit is brought against defendants who claim to act as officers of a state, and, under color of an unconstitutional statute, commit acts of wrong and injury to the property of the plaintiff, to recover money or property in their hands unlawfully taken by them in behalf of the state, or for compensation for damages, or, in a proper case, for an injunction to prevent such wrong or injury, or for a mandamus in a like case to enforce the performance of a plain, legally duty, purely ministerial, such suit is not, within the meaning of the amendment, an action against the state.'

In Pennoyer v. McConnaughy, supra, a bill was filed by a citizen of California in the United States circuit court for the district of Oregon against the governor, secretary, and treasurer of the state of Oregon to restrain them from selling and conveying certain lands claimed by the state under the act of Congress of March 12, 1860. The supreme court held that, although the suit was against the officers of the state, it was not against the state, within the meaning of the eleventh amendment to the constitution; and the decision in that case, and others upon which it is based, clearly establish the principle that the fact that the suit is against the officials of a state does not necessarily show that the action is within the prohibition of the eleventh amendment, as being, in essence, a suit against a state, but that in determining that question regard must be had to the substance of the relief sought. If the purpose of the action is to secure protection to property or to personal or contract rights against injurious attacks thereon by state officials in seeking to enforce an unconstitutional law, the federal courts will not be debarred from taking jurisdiction simply because the defendants are in fact state officials. The eleventh amendment protects the state from being sued directly, and from suits against its officials wherein affirmative action is sought affecting the property, powers, or rights of the state; but it does not deprive individuals, personal or corporate, of the right to invoke judicial protection for personal, property, and contract rights against invasions by state officials assuming to act under illegal or unconstitutional enactments. Board v. McComb, 92 U.S. 531; Poindexter v. Greenhow, 114 U.S. 270, 5 Sup.Ct. 903, 962; Allen v. Railroad Co., 114 U.S. 311, 5 Sup.Ct. 925, 962. Treating this case, therefore, as a proceeding to restrain the enforcement of an illegal or unconstitutional tax, it would fall within the class of cases which are not deemed to be within the inhibition of the eleventh amendment; but, if the real purpose sought to be accomplished is to compel the defendants, acting in their capacity as state officials, to take affirmative action, which, when taken, will bind the state, then the case falls within the class deemed to be in fact against the state, and therefore within the constitutional inhibition.

What then, is the real purpose of the present proceeding? It is averred in the bill that, if not restrained from doing so, the state treasurer will seek to collect the tax assessed against the several complainant companies by distraint upon their property, or by suit to recover the amount of the tax; but in connection with the bill the parties have filed a written stipulation to the effect...