St. Louis Southwestern Ry. Co. v. Yates

• Decision Date: 08 December 1927
• Docket Number: No. 7697.,7697.
• Parties: ST. LOUIS SOUTHWESTERN RY. CO. v. YATES, Tax Collector.
• Court: U.S. Court of Appeals — Eighth Circuit

23 F.2d 283 (1927)

ST. LOUIS SOUTHWESTERN RY. CO. v. YATES, Tax Collector.

No. 7697.

Circuit Court of Appeals, Eighth Circuit.

November 10, 1927.

December 8, 1927.

J. R. Turney, of St. Louis, Mo., and T. J. Gaughan, J. T. Sifford, J. E. Gaughan, and E. E. Godwin, all of Camden, Ark., for appellant.

H. W. Applegate and John L. Carter, both of Little Rock, Ark., and B. E. Carter, of Texarkana, Ark., for appellee.

Before STONE, Circuit Judge, and REEVES and OTIS, District Judges.

STONE, Circuit Judge.

Appellant brought an action against the state tax assessing and collecting officials to restrain the assessment and collection of taxes on a hospital property located in Arkansas. A pro confesso decree was taken April 20, 1925, and on May 21st, following, no appearance having been made by any defendant to the suit, a decree granting a permanent injunction in accordance with the petition was entered. On September 17th, following, the state of Arkansas and the city of Texarkana filed applications to set aside the decree and permit them to intervene and make defense. This application was opposed but resulted in an order on October 21st, following, permitting such interventions and on October 28th, the court set aside the former decree. All of these proceedings were within the term in which the decree was entered. Thereafter, the other defendants filed answers, the cause was heard, the petition dismissed for want of equity on the merits and judgment rendered against plaintiff for taxes then due. From this order of dismissal, this appeal is brought.

Four matters are presented on this appeal. One of them, a claim by appellees of res adjudicata, is unnecessary of decision in view of our determination of the three other points.

The first of these is that the court erred in setting aside its decree and permitting the parties thereafter to defend. This contention is that under equity rule 17, a pro confesso decree is deemed absolute "unless the court shall, at the same term, set aside the same or enlarge the time for filing the answer upon cause shown upon motion and affidavit." It is not disputed that sufficient motions were here made within the term but it is urged that the rule requires that cause shall be shown and that no cause was shown. The evidence is to the effect that the marshal's return shows service upon the taxing officials who were the only defendants at the time the pro confesso decree was entered. But those defendants, with one exception, deny having ever received such service or that they had ever heard or known about the suit until after the decree. One of the defendants claims that he found the summons after the decree but did not know it had been served before. We think this situation of the record would justify, though it might not compel, exercise of the discretion of the chancellor in favor of setting aside the pro confesso decree.

The second point is that the court erred in permitting the state and the city of Texarkana to intervene and defend. It may be that neither of these two parties were necessary parties (though there is grave doubt that such is true in regard to the city) but, at any rate, they were proper parties. It is urged also, as to the state, that it could not be made a party under the Constitution of the state. Article 5, ß 20, of that Constitution provides that "the state of Arkansas shall never be made defendant in any of her courts." We are not cited to any Arkansas Supreme Court decisions construing this section. We think it should be construed to mean that the state cannot be compelled to defend in any action in a court of that state, but that the state may voluntarily appear and ask to be made a party in any action, either in the state or the federal courts.

The third point is the important matter in this action. Article 16, ß 5, subd. (h), of the state Constitution exempts from taxation "buildings and grounds and materials used exclusively for public charity." The property involved here is a hospital located in Texarkana, Arkansas, with the usual appurtenant and useful personal property. This hospital and property is owned by the appellant, as trustee, and is owned and operated under a declaration of trust which defines its purposes, control, use, and sources of income.

The question here is whether this hospital and property are, under the terms of this trust, used exclusively for public charity within the meaning of the above quoted provision of the state Constitution.

It is an established rule of construction that state and statutory provisions allowing exemption from taxation are to be strictly construed and that the property sought to be exempted must be clearly shown to be within the provisions of such law. Ph˜ìnix F. & M. Insurance Co. v. Tennessee, 161 U. S. 174, 16 S. Ct. 471, 40 L. Ed. 660; Bailey v. Magwire, 22 Wall. 215, 22 L. Ed. 850; Philadelphia, etc., R. Co. v. Maryland, 10 How. 376, 13 L. Ed. 461; 37 Cyc. 907, and citations in note 30 thereto.

With these rules of construction in mind, the character of usage of this hospital and property, as defined in the declaration of trust, may be examined. The substance of this trust declaration is that all of this property is held in trust by appellant "for the establishment and maintenance of a system of hospitals in order to secure and provide medical and surgical services for the officers and employÈs of it and its affiliated companies." The beneficiaries are defined as follows:

"Any bona fide officer or employÈ (including employÈs on agreed leave of absence) of the St. Louis Southwestern Railway Company of Texas, the Valley Terminal Railway, the Gray's Point Terminal Railway Company, the Paragould Southeastern Railway, the Central Arkansas & Eastern Railway Company, Pine Bluff, Arkansas River Railway, Shreveport Bridge & Terminal Company, Dallas Terminal Railway & Union Depot Company, Stephenville North & South Texas Railway, and any other railway company now or hereafter similarly affiliated with the trustee, shall be entitled to become and continue a beneficiary hereunder, so long as he or she remains in such employment and contributes to the trust fund as provided in the Code of Rules and Regulations, provided, that nothing herein shall limit the right of the trustee to extend the trust so that the same will embrace as beneficiaries the families of all employÈs of the companies, upon such terms and conditions as to it may seem fair and just."

It is also provided as follows:

"Leaving Service.

"Section 29. Inasmuch as contributors are entitled to all the benefits of the Hospital Trust, so long as they remain in the service of the Railroad Company there will be nothing returned when leaving the service, of the payments made into the fund.

"Section 30. EmployÈs who leave the service of the Railroad Company, or the Hospital Trust, voluntarily, or who are discharged shall not be entitled to any benefits beyond the date of their voluntary or involuntary retirement; but will, upon making application therefor to the chief surgeon, on the date their employment terminates, be given treatment for disabilities incurred while so employed, and such treatment will be continued until they are discharged by the surgeons of the trust."

Funds to support the institution are to be obtained by assessments, based on a wage-earning scale, collected monthly from the employees. There are other provisions which emphasize those above quoted or outlined but sufficient has been said to show the general plan of the trust to be that the use of the property is confined to the employees (and their dependents) of appellant and its affiliated lines. The public in general, nor any part thereof, nor any indefinite class have any right to any use in this property and it is in no wise supported by any charitable gifts or donations, but only by the direct beneficiaries thereof and by contributions, in the form of loans, from the railways whose employees are protected. In short, it is simply the familiar plan of a hazardous business providing hospital and medical services for those engaged therein. It seems to us that this is clearly not a usage "exclusively for public charity." We base the above conclusion on an independent...