Chaffraix v. Board of Liquidation , 11 F. 638 ( 1882 )

Pardee, C. J.

The bill in this cause is brought by the complainant, a citizen of Prance, against the defendants, as members of the state board of liquidation, to prevent the diversion of certain funds, collected by taxation under the consolidated bond acts of 1874, to pay the coupons of the consolidated bonds falling due January Í, 1880, which funds are now in the hands on. deposit of one of the defendants. It is alleged that these funds are “trust funds,” and that the defendants threaten to divert them under authority of the third article of the state-debt ordinance, adopted with the constitution of 1879, reading: “That the coupon of said consolidated bonds falling duo the first of January, 1880, be and the same is hereby remitted, and any ntorest taxes collected to meet said coupon are hereby transferred to defray the expenses of the state government;” and under act No. 3 of the legislature of 1881, approved January 4, 1882, entitled “An act to provide for the funding of the interest fund now in the hands of the fiscal agent of the state and to accrue, into bonds of the United States government, and to provide for the payment of the reduced interest due or to become due on the bonds of the state,” and which act transfers the fund collected to pay the January, 1880, coupons of the consolidated bonds to a reduced interest fund. It will be noticed that this last act is in direct conflict with the third article of the debt ordinance, as the latter transfers the fund to pay the general expenses of the state government, while the former transfers the fund “to pay the reduced interest that is or may become due on state bonds converted or stamped under the ordinance of the constitution of 1879, in reference to the state debt.” The said article of the debt ordinance of the constitution, and the said act No. 3 of 1881, are alleged by the bill to be in violation of section 10, article 1, of the constitution of the .United States, as impairing the obligations of the contract under which complainant’s bonds were issued. The bill prays for a receiver and an injunction.

The question necessary to pass upon at this time is merely whether, under the showing made in the bill, an injunction may issue pending the suit; the only objection urged being that the state of Louisiana is the real party defendant, and that, therefore, the court is without jurisdiction by reason of the eleventh amendment to the constitution. This question has been settled in this court in the case of McComb v. Board of Liquidation, 2 Woods, 48, and affirmed by the supreme court, 92 U. S. 531, -which was a case arising under the very same act, amendment, and contract as the ease under consideration. In that case the defendants sought shelter under the sovereignty of the state as a cover to execute an unconstitutional law of the state; but the courts held that an injunction would lie against them as individuals and as officials of the state, notwithstanding the law or the interest of the state, to prevent them from violating the contract of 1874, and that to such a suit the state was not a necessary party.

If the court has jurisdiction to prevent the defendants from violating the contract between the state and the bondholders by issuing bonds at par, to the detriment of the bondholders’ security, what doubt can there be of the jurisdiction of the court to prevent the defendants from diverting the entire security.

No case yet decided in this court denies the jurisdiction to restrain the defendants as individuals from impairing the obligations and securities of the funding acts of 1874.

For my own part I have no doubt that the courts of the United States, if proper cases are made, can prevent any agent of the state, as well as any individual, from diverting a dollar from the fund actually collected under the act and amendment of 1874.

The difficulty is and has been, what use is there in merely tying up the funds ? If the bondholders cannot have their dues, why hinder the money from going to pay the expenses of the state ? As there is some force in these objections, it is necessary to examine further into the purposes of the present bill.

Every case that has been brought heretofore has been on the theory that the court should compel the levying and collection of the 5J-mill tax provided by act of 1874, or should reach into the treasury of the state and take the moneys of the state and apply them to the payment of the bonded debt of the state, or that the court should by mandatory process carry into full effect the act and amendment of 1874, levy and collect the tax, and pay the bondholders.

The present bill is brought only in relation to such funds as have been levied and collected from the tax-payers of the state under the act and amendment of 1874, and have passed from the tax collectors to the state treasurei*, and from the state treasurer to the fiscal agent of the state, where they are now held as a separate and distinct fund, to the credit of the interest -fund created by the act of 1874, and is based upon the following propositions of law and fact:

The act of the legislature of Louisiana of 1874, approved January 24th of that year, and the constitutional amendment of 1874, ratified by the people in that year, created a trust fund of all moneys collected and paid over to the state fiscal agent under the said law and amendment for the purposes therein specified, and of that fund, so coming into his hands, the state treasurer, state auditor, and the board of liquidation became the trustees; the holders of the consolidated bonds, issued under the said law and amendment, became primarily the beneficiaries, the state of Louisiana occupying the position of, and having only the interest of, a debtor who has created a trust for the payment of his creditors, and is not a necessary party to this suit.

These propositions seem to me to have great force and plausibility} and they can be supported by very respectable authority.

That a state, by its legislation, or by its public officers duly authorized, can create a trust, convoy property, and appoint trustees, see. Perry, Trusts, § 80; Com'rs v. Walker, 6 How. (Miss.) 143; State v. Rusk, 21 Wis. 216. That the trustees may be the officers of the state, see Perry, Trusts, § 47, and cases there cited. That the said act and amendment created a trust, see Perry, Trusts, § 82; Maenhaut v. New Orleans, 2 Woods, 108, and the numerous cases there cited by Judge Woods.

That the state treasurer, state auditor, and the board of liquidation are constituted the trustees, see latter part of section 7 of the act of 1874, and the latter part of the first amendment of 1874.

When the proceeds of the 5J-mill tax, under the act of 1874, reached this board of liquidation, no further act of the state — no order, no appropriation — was necessary. No discretion was given. The money was to be paid to the bondholders, and the law made it a^ felony to divert it. See section 7 of act of 1874, and article 1 of amendment.

The interest of the state, if she have any, is that of a cestui que trust subordinate to the bondholders. If a cestui que trust is entitled to a distinct and aliquot share of an ascertained fund, he may maintain a bill against the trustees for that share without joining the cestuis que trust of the remaining fund. See Perry, Trusts, § 882, and authorities there cited.

The bill shows that the fund sought to be reached is not sufficient to satisfy the legitimate demands of the bondholders, and the conclusion ought to follow that the state has no resulting interest.

If all the members of the board of liquidation were private citizens, as two of them are, not holding any state office, what doubt could there be among lawyers as to the fiduciary relation of the board to the bondholders ? And, under the authority of a number of adjudicated eases, the fact that the trustees are officials of the state creating the trust would seem to make no difference.

In Com’rs v. Walker, 6 How. (Miss.) 143, the commissioners of the sinking-fund were held to be trustees of that fund, and liable to sue and be sued, although officers of the state.

In State v. Rusk, 21 Wis. 216, the bank comptroller of the state was declared the trustee of the securities in his hands, although he was an official of the state, sworn and bonded.

It is elementary that particular formality is not required in the creation of a trust. Any agreement or contract in writing made by a person having the power of disposal over property, whereby such person agrees or directs that a particular parcel of property, or a certain fund, shall be held or dealt with in a particular manner for the benefit of another, in a court of equity, raises a trust in favor of such other person against the person making such agreement, or any other person claiming under him, voluntarily or with notice.

And it is said that “equity loves a trust,” and that “equity will never allow a trust to fail for want of a trustee.”

Now,-if the foregoing propositions in regard to the character of the funds levied and collected under the funding acts of 1874, and now in the hands of the defendants, are correct, there would seem to be no doubt as to the power of the court to grant the relief sought in the bill — first, by preserving the funds until an account can be taken, and then by a receiver, as prayed in the bill, distributing the funds to their proper owners.

But there is a broader view that may be taken of the quantum or relief that the courts may grant under the showing made by the bill. There can be no doubt that the act and amendment of 1874 constitutes a contract between the state of Louisiana and the holders of the consolidated bonds issued under said contract. The terms, provisions, stipulations, and agreements contained in said act and amendment leave no doubt on this point. But that the man who reads may know for certain, it is expressly declared in the act, and reiterated in the amendment, that it is “a valid contract between the state and each and every holder of said bonds, which the state shall by no means, and in no wise, impair.” v

Now, if the main contracting party, the state of Louisiana,,were an ordinary individual or corporation, what question could be made against enforcing this contract against all parties in a court of equity ? But the state of Louisiana cannot be sued in her own courts without her consent, nor in the courts of the United. States, by any citizen, native or foreign; and this difficulty in the way of putting the parties to the contract on equal terms before the law was obviated by the provision in the amendment that “no court shall enjoin the payment of the principal or interest thereof, (referring to the bonds,) or the levy and collection of the tax therefor. To secure such levy, collection, and payment the judicial power shall be exercised when necessary.”

Now, if a constitutional amendment, ratified by a vote of the people, can have any force, it seems as clear as words can make it, that as to the consolidated bonds, and the levy and collection of taxes to pay the interest thereof, and the payment of the interest, the state of Louisiana abdicated and renounced her exemption from suit, and contracted to stand before the courts as an ordinary litigant. And, moreover, provided that the various state officers might be coerced by the courts to perform the various duties devolving upon them under the said act and amendment. Has the state ever repealed or abrogated the contract ? If so, when ?

The state has defaulted on the payment of interest. She has repudiated five-sevenths of the stipulated interest. She has remitted the coupons falling due January 1,1880, and has undertaken to appropriate the interest taxes collected to pay the said coupons to other purposes. She has stopped her officers from levying and collecting the tax stipulated in the contract. She has violated her contract,but she has not in terms abrogated it, and she has not yet denied the jurisdiction of the courts “to secure such levy, collection, and payment.”

Concede that the state never consented that she might be sued like any other litigant, or that, having so consented, she has revoked her consent; the right to compel her officers to perform their various duties under the said act and amendment has never been revoked, and the courts of the state have entertained, and still entertain, suits to that end.

It is true that the present supreme court of Louisiana, in the case of Hart v. Burke, has decided that the courts of the state are, under the present constitution, powerless to compel the levy of the tax to pay the interest under the funding act, or to prevent the diversion of the accumulated interest fund collected under said act, and, so far, the state may be said to have revoked; but I deny that there is a scrap of constitution or law declaring a revocation of the declaration in the contract of 1874, that “to secure such levy, collection, and payment the judicial power shall be exercised when necessary.”

There is no doubt that if the courts of the state have such power, the United States courts in proper cases have the same power.

But be this question of jurisdiction of the state courts as it may, the contract of the state with the holders of the consolidated bonds cannot be impaired by any law or constitutional provision of the state without violating the constitution of the United States, and any such impairment the courts of the United States are bound to disregard.

Now it may well be that, notwithstanding the consent and renunciation of the state, the federal courts cannot entertain jurisdiction where the state is a necessary party in order to grant the relief sought; and yet, wherever the state is not absolutely required as a party, the courts can act upon the agents of the state to enforce the contract that the state has consented may be so enforced.

To compel the levy and collection of a tax, which is an exercise of sovereignty, may require the presence of the sovereign; but when the tax has been levied and collected, and paid over to the treasurer, and by him deposited and set apart, and nothing remains but a ministerial duty to be performed, what need is there of making the state a party, and why cannot relief be granted by injunction, mandatory or otherwise? See Davis v. Gray, 16 Wall. 203, and cases there cited, pp. 220 and 221; McComb v. Board of Liquidation, 2 Woods, 48, and 92 U. S. 531, and cases cited; Hancock v. Walsh, 3 Woods, 351; Vose v. Trustees, 2 Woods, 648.’

In the leading case of Osborn v. Bank, 9 Wheat. 738, the state of Ohio had a direct pecuniary interest in the funds reached. The seizure of the funds was her act, and they were carried on her books as part of the general funds in her treasury. Actually the funds were kept separate, but no more so than this interest fund now in the hands of the defendant, the fiscal agent.

The case of Davis v. Gray was not, as counsel have argued, decided wholly under the law of Texas. The court says: “Upon the grounds of the jurisdiction of both the United States and of Texas, we hold this bill well brought as regards the defendants.” And there is no adjudicated case in the federal courts called to my attention that is directly against this view of the ease.

The case of McCauley v. Kellogg, 2 Woods, 13, was a ease brought on bonds of the state, where there was no conceded contract that the judicial power might be invoked to secure the levy and collection of the necessary tax and payment of the interest, and the relief sought was to compel the officers of the state to levy and collect taxes.

The case of Elliott v. Nicholls, not reported, is a very strong case, and well reasoned, but that case was on a bill shaped directly against moneys in the state treasury, and originally against the state itself as a party. The case is now on appeal to the supreme court.

Two eases seem to have carried great weight in the Case of Elliott —tho celebrated Banker’s Case, 14 Howell’s State Trials, and U. S. v. Guthrie, 17 How. 284.

The Banker’s Case was overruled by the house of lords, following the opinion of Chief Justice Holt, and stands as authority only upon the argument of Lord Somers, who practically iustified a villainous fraud by sustaining the king’s prerogative.

The case of U. S. v. Guthrie was decided by a divided court, and the judgment was based by four of the judges on the ground that the treasurer of the United States could not be compelled by mandamus to pay money from, the treasury, although legally appropriated; by four others on the ground that a writ of mandamus on the secretary of the treasury was not a legal remedy to try relator’s right to office; Judge McLean dissenting entirely. So that case practically decides nothing, and Judge McLean’s reasoning is fully as strong as Judge Daniels’, and is more in accordance with the principles of republican government. And Judge McLean cites the case of Kendall v. U. S. 18 Pet. 608, where a mandamus was allowed against the postmaster general, as settling the question. And the case of U. S. v. Schurz, 102 U. S. 378, seems to settle the question again, that an executive officer of tho United States, even a cabinet minister, may be compelled by mandamus to perform a ministerial and positive duty.

It seems to me to go without argument that the ministerial and positive duty of the defendants to pay the relator’s coupons is just as plain as it can be made.

The case of Hart v. Burke, 33 La. Ann. 499, “simply decides that under the laws, jurisprudence, and system of practice prevailing in this state and regulating the powers of Louisiana courts, tho remedies invoked by the plaintiff in these cases are such as no courts of this state possess or ever possessed the power to grant in a proceeding of tho character of that presented;” in other words, that the state courts have no jurisdiction. The court repudiates attempting to pass upon the bondholders’ rights under the funding acts of 1874, or upon the jurisdiction of the United States courts in the premises.

It is easy to see that judges holding under the Louisiana constitution of 1879 might feel powerless to carry out contracts which they consider are repudiated by that instrument.

The attorney general of Louisiana, in argument, takes the position that the state of Louisiana has declared that she does not owe. these coupons of 1880, and that if her officers can be made to comply with the acts of 1874, the eleventh amendment to the United States constitution is so much waste paper.

The first proposition is not true in fact, for the state of Louisiana has never declared that she does not owe these coupons; but, on the contrary, her indebtedness is admitted by the terms of the state-debt ordinance, and the other proposition is non seqidtur. Article 1, § 10, Const. “No state shall pass any law impairing the obligation of contracts,” is the clause of that great instrument that is in danger of the waste basket if the constitution of Louisiana of 1879 is given the force that the representatives of the state claim for it.

It seems to me that many of the doubts arising with regard to the ability of the court to grant relief come from following decisions rendered either with a view of maintaining the kingly prerogative, or respecting the rights of some independent sovereignty.

It is -said that in England the arms of equity are short against the crown’s prerogatives, and that they are short in this country against the sovereign. But the fact is that in this country no person-, or set of persons, is above the law of the land, and in the courts of the United States “the arms of equity are never short” when the proper parties can be brought before the court, so that justice may be done according to equity and good conscience. It is not the interest of the state that defeats the case under the eleventh amendment. The court can grant relief in all cases where the state is not essentially necessary as a party.

From what has been shown herein it seems that the court may not be powerless to grant final relief in this case, either by holding the fund now in the hands of the defendants to be a trust fund, and ordering the distribution thereof through a receiver, or, by a broader view of the case, enforcing the performance of the contract by mandatory injunction; and that, therefore, the preliminary injunction prayed for, should be granted.

“If there be a prima facie or even a doubtful case shown, it is the interest of both parties that the interlocutory injunction should issue.” Justice Grier, 3 Wall. Appendix, 791. See Justice Bradley in Railroad Co. v. Drew, 3 Woods, 676.

“On a motion for a preliminary injunction the court is not hound to solve doubtful and difficult questions of law.” Parker v. Sears, 1 Fish. 93.

Particularly is this the case when nearly the identical, question is now pending before the supreme court, whose decision I have no desire to forestall, but which the defendants may render nugatory unless the preliminary injunction is granted.

I think the injunction prayed for should issue, hut I decide nothing further in this case than that this court has jurisdiction, under the bill as shaped, to prevent by injunction perulente lite the defendants from diverting the fund collected and set apart, under the funding act of 1874, to pay the coupons of the consolidated bonds falling due January 1,1880; and that such injunction ought to issue, to the end that the fund may he preserved intact until the rights of the parties, and the interest of the state of Louisiana, if any she has, may be determined contradictorily.

The other questions discussed herein are open questions.

Let the injunction issue pendente lite, and let the defendants demur, plead, or answer, as counsel may advise, by the third Monday in April next.