Northern Pac. Ry. Co. v. Adams County

• Decision Date: 09 July 1932
• Docket Number: No. E-4300,E-4338,E-4305.,E-4314,E-4300
• Citation: 1 F. Supp. 163
• Court: U.S. District Court — District of Washington
• Parties: NORTHERN PAC. RY. CO. v. ADAMS COUNTY et al. CHICAGO, M., ST. P. & P. R. CO. et al. v. SAME. SPOKANE, P. & S. RY. CO. v. SAME.

1 F. Supp. 163

NORTHERN PAC. RY. CO. v. ADAMS COUNTY et al.

CHICAGO, M., ST. P. & P. R. CO. et al. v. SAME.

SPOKANE, P. & S. RY. CO. v. SAME.

Nos. E-4300, E-4314, E-4338, E-4305.

District Court, E. D. Washington, N. D.

July 9, 1932.

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D. F. Lyons, of St. Paul, Minn., and C. A. Murray and L. B. daPonte, both of Seattle, Wash., for Northern Pac. Ry. Co.

F. M. Dudley, I. S. Crawford, and A. J. Laughon, all of Seattle, Wash., and Garrecht & Twohy, of Spokane, Wash., for Chicago, M., St. P. & P. R. Co.

Charles A. Hart and Carey, Hart, Spencer & McCulloch, all of Portland, Or., for Spokane, P. & S. Ry. Co.

R. M. Burgunder, Pros. Atty. for King County, and Harry A. Rhodes, both of Seattle, Wash., Bertil E. Johnson, Pros. Atty. for Pierce County, and D. D. Schneider, Deputy Pros. Atty. for Pierce County, both of Tacoma, Wash., Charles W. Greenough, Pros. Atty. for Spokane County and A. O. Colburn, Deputy Pros. Atty. for Spokane County, both of Spokane, Wash., John H. Dunbar, Atty. Gen., John A. Homer, Asst. Atty. Gen., and William G. Graves, of Spokane, Wash., for King, Pierce, and Spokane Counties.

John W. Brisky and Thomas K. Chambers, both of Mt. Vernon, Wash., for Skagit County.

Charles R. Denney, of Everett, Wash., for Snohomish County.

R. G. Sharpe, of Seattle, Wash., Charles L. Powell, of Kennewick, Wash., George O. Beardsley, of Prosser, Wash., Dale McMullen and Joseph E. Hall, both of Vancouver, Wash., Cecil O. Hallin and J. E. Stone, both of Kelso, Wash., Paul O. Manley and J. C. Graham, both of Aberdeen, Wash., Spencer D. Short, of Ellensburg, Wash., Fred A. Smith, of Goldendale, Wash., R. M. Wright, of Stevenson, Wash., E. W. Schwellenbach, of Ephrata, Wash., William H. Grimm, of Centralia, Wash., Harold P. Troy, of Olympia, Wash., Bernard J. Lehrer, of Walla Walla, Wash., Lawrence M. Keplinger and Frank M. Allyn, both of Bellingham, Wash., and Ole Sandvig, of Yakima, Wash., for Benton, Clarke, Cowlitz, Grays Harbor, Kittitas, Klickitat, Skamania, Grant, Lewis, Thurston, Walla Walla, Whatcom, and Yakima Counties.

George H. Freese, of Ritsville, Wash., Wm. W. Bruce, of Port Angeles, Wash., E. W. Clark, of Dayton, Wash., C. M. O'Brien, of Pasco, Wash., John I. O'Phelan, of Raymond, Wash., W. J. Daly, Jr., of Port Townsend, Wash., Maurice W. Orth, of Bremerton, Wash., Floyd J. Underwood, of Davenport, Wash., J. W. Graham, of Shelton, Wash., E. L. Sheldon, of Newport, Wash., and John D. Evans, of Colfax, Wash., for Adams, Clallam, Columbia, Franklin, Jefferson, Kitsap, Lincoln, Mason, Pacific, Pend Oreille, and Whitman Counties.

WEBSTER, District Judge.

These causes are now before the court on exceptions to the report of the special master to whom the cases were duly referred. The exceptions go to the merits of the entire controversies involved in the cases respectively. Milwaukee cases Nos. E-4314 and E-4338 were consolidated, and all of the cases were tried together to the special master who has dealt with them in a single report. Since there are many fundamental questions to be considered which are common to all the cases, I shall treat them in a single memorandum, resorting to separate discussion where such course is imperative or deemed convenient.

All of the cases have to do with the assessment and taxation of the operating property of the complainants, respectively, located in the state of Washington and properly subject to taxation therein. The Northern Pacific Company case assails assessments of its property for the years 1925 and 1926; the Milwaukee Company cases the assessments of its property for the years 1926 and 1927, and the Spokane, Portland & Seattle Company case the assessment of its property for the year 1926 only. In each case the use of fundamentally erroneous principles and grossly excessive base valuation of the property is charged, and it is also claimed that there was unjust discrimination practiced in allocating base value to the several counties through which the railroads respectively run, in that the railroad property was assessed at a higher ratio of assessed to actual value than that used in the case of other taxable property. Hence both base value and county ratios are involved, and independent consideration must be given to each.

It is insisted by the complainants that the state assessing authorities either proceeded upon fundamentally erroneous principles, or adopted fundamentally erroneous methods in valuing the property, or were guilty of fraud, actual or constructive. The special master found that there was no actual fraud on the part of the assessing officials in making the assessments complained of, but found constructive fraud both in fixing base values and in allocating such values to the counties entitled to share in the resulting taxes. In respect of base value, he found that the properties of the complainants had been grossly overvalued, and in the case of allocation found that such property had been valued on a grossly excessive ratio of assessed to actual value, as compared with the assessment of other property in the counties involved. With regard to the master's finding that there was no actual fraud in fixing base value, it will suffice to say that I entertain the same view, and no useful purpose would be served by elaborating on this feature of the cases. Whether there was constructive fraud, or the application of fundamentally erroneous principles or methods, in making the assessments complained of, is therefore the primary question presented for decision. I shall first consider base values, and then pass to the question of alleged discriminating county ratios.

In the complaint of the Northern Pacific Company it is alleged that in 1925 and 1926 the value of its property was $85,000,000; that for 1925 it was assessed at $126,460,000, and for 1926 at $131,200,000. The consolidated complaints of the Milwaukee Company allege that the value of its property in 1926 was $19,968,000, and in 1927 was $20,081,647, but was assessed for both years at $50,100,000. The Spokane, Portland & Seattle Company alleges that in 1926 the value of its property was $24,010,446, but for that year was assessed at $36,000,000.

At the threshold we encounter the question of, How is the operating property of a railroad in the state of Washington to be assessed for taxation therein, and by what standard shall the conduct of the state's assessing authorities in valuing such property for taxation be tested when their official action is collaterally assailed in equity upon the ground of constructive fraud or the use of fundamentally wrong principles or methods?

Section 1 of article 7 of the Constitution of Washington provides: "All property in the state not exempt under the laws of the United States, or under this constitution, shall be taxed in proportion to its value, to be ascertained as provided by law."

Section 2 of the same article provides: "The legislature shall provide by law a uniform and equal rate of assessment and taxation on all property in the state, according to its value in money, and shall prescribe such regulation by general law as shall secure a just valuation for taxation of all property, so that every person and corporation shall pay a tax in proportion to the value of his, her, or its property."

Section 3 of the same article provides: "The legislature shall provide by general law for the assessing and levying of taxes on all corporation property as near as may be by the same methods as are provided for the assessing and levying of taxes on individual property."

The statute of Washington under which the offending assessments were made is chapter 130, p. 227, Laws of Washington, Extraordinary Session 1925. Under this act, railroad operating property is assessed by the state tax commission between the 1st day of March and the 1st day of June in each year. Section 43 (page 253). This assessment is required to include "all franchises, rights of way, road beds, tracks, terminals, rolling stock equipment and all other real and personal property of such company, used or employed in the operation of the railroad or in conducting its business, and shall include all title and interest in said property, as owner, lessee or otherwise." Section 36, par. 4 (page 245). Real property not adjoining a railroad company's tracks, stations, or terminals, and real property not used in the operation of the railroad, are excepted, and shall be assessed in the same manner as like property of individuals. This act provides that all property shall be assessed at 50 per cent. of its true and fair value in money, and it further provides: "The true cash value of property shall be that value at which the property would be taken in payment of a just debt from a solvent debtor." Section 52 (page 259).

Section 44 of the act (page 254) in part reads: "In case of railroad or telegraph companies which own or operate railroad or telegraph lines lying partly within and partly without the state the said commission shall only value and assess the property within this state. In determining the value of the portion within the state, the commission shall take into consideration the value of the entire system, the mileage of the whole system, and of the part within this state, together with such other information, facts and circumstances as will enable the commission to make a substantially just and correct determination."

From the foregoing it will be seen that under the Constitution and laws of Washington all nonexempt property must be taxed in proportion to its value; that there must be a uniform rate of assessment and taxation of all property according to its value in money, that is to say, that value at which the property would be taken in payment of a just debt from a solvent debtor, so that every person shall be taxed in proportion to the value of his property; that corporate property shall be assessed...