Argument of Mr. Sumners. 304 U.S. their obligations and creditors are helpless. A remedy through composition of the debts of the district could not be afforded by state law unaided, because of the contract clause of the Federal Constitution. Held that the statute is a valid exercise of the bankruptcy power. Ashton v. Cameron County District, 298 U. S. 513, distinguished. P. 49. 6. The ability to contract and to give consents bearing upon the exertion of governmental power is of the essence of sovereignty. P. 51. 7. The reservation to the States by the Tenth Amendment, did not destroy, but protected, their right to make contracts and give consents where that action would not contravene the provisions of the Federal Constitution. P. 52. 8. Coöperation between Nation and State through the exercise of the powers of each, to the advantage of the people who are citizens of both, is consistent with an indestructible Union of indestructible States. P. 53. 9. Chapter X of the Bankruptcy Act, held not violative of the Fifth Amendment, as applied to creditors of a state irrigation district, which sought a composition of its debts under that chapter. P. 54. 21 F. Supp. 129, reversed. APPEALS from a decree of the District Court dismissing a petition for confirmation of a plan of composition presented by the above-named Irrigation District under c. X of the Bankruptcy Act. The District and the United States, which had been notified and had intervened, took separate appeals. The following arguments are extracted from a stenographic report of the hearing. Mr. Hatton W. Sumners for the Committee on Judiciary of the House of Representatives of the United States, as amicus curiae, by special leave of Court. As we understand the issues here presented, there is no question involving the rights of individuals, and there is no question with regard to the mechanics of the law. The sole question is whether or not legislation embodied in §§ 81, 82 and 83 of the Bankruptcy Act, as amended, which sections we know as the Municipal Bankruptcy Act, impinges upon the sovereignty of the State. 27 Argument of Mr. Sumners. In this particular litigation the question arises with reference to an irrigation district. Briefly visualizing the transactions with reference to that district and the character of the district, we observe that a group of farmers owning contiguous lands, desiring to cultivate those lands under irrigation, availed themselves of the facilities provided by the State of California for putting a blanket mortgage on those lands for the purpose of bringing water to those lands to aid them in the business of farming. That district exercised, under delegation from the State, power of eminent domain and power of taxation. It did not relieve the State of California of any governmental responsibility theretofore exercised by it. It seems to us that in so far as drainage and irrigation districts are concerned, they have more the characteristics of a railroad corporation than they do of an ordinary municipality. A railroad corporation, by delegation, exercises the right of eminent domain-probably as high a right and power as Government has yet it does not thereby become a part of the State. But I do not desire to take the time of the Court in discussing the differences, whatever they may be, between an irrigation district and an ordinary municipality, because the provisions of this Act cover them all. When we come to examine what happened as the result of this legislation with reference to the sovereignty and dignity of the municipality, or of the State, however it may be considered, we discover that every debt which could be composed under this Act is a debt which, under the then existing law, would constitute a basis of litigation in an ordinary suit against the municipality. The municipality, therefore, before this law was enacted, could be brought into court for these same debts by the process of the court, against the will of the municipality, the issues tried as though the municipality were Argument of Mr. Sumners. 304 U.S. an ordinary defaulter, judgment had in the ordinary way; and if the judgment of the court were not complied with, the municipality could be brought into court again and subjected to the coercion of the court, even to the extent of the incarceration of its officers. . In a similar situation this same municipality, which theretofore could be brought into court by the might of the court and without regard to its consent, under this Act comes into that court as a sovereign would come, a complete sovereign. It comes in under its own will. Nobody is compelling it to come. Nobody can compel it to come under this Act. In the exercise of its sovereign right to arrange its indebtedness-it had been sitting around a table with its creditors, and they had agreed. In the instant case 87 per cent. agreed that 59 cents on the dollar was the best thing for everybody concerned. So this municipality, by authority of this Act, goes into that same courthouse, before the same judge, leading a procession of its consenting creditors, and says to the judge, "We have entered into this agreement, 87 per cent. There are 13 per cent. who do not consent. Will you be good enough to examine to determine whether or not this agreement is fair to the 13 per cent. and that it does not do some other things provided against in the law." It tells the court also, "I am here because, first, I was created by a sovereign State in the exercise of its sovereign powers. That sovereign gave me authority to come. here. There is nowhere else myself and my creditors can go, and won't you please write our agreement into the book of judgments." Even if it were an ordinary lawsuit, as we understand it, there is no higher act of sovereignty than for the sovereign voluntarily to submit itself to the judgment of a 27 Argument of Mr. Sumners. court. The Federal Government does it all the time, the States do it; and we have never understood that, when a sovereign voluntarily submits itself to trial and judgment, by that submission it impairs its sovereignty or thereby makes it possible to be sued without its will. May I respectfully submit to the Court that, instead of impinging upon the sovereignty of the State, this Act clearly is in line with the nature and philosophy of sovereignty of the State, and that to declare this Act unconstitutional would impinge upon the sovereignty of the State. Such a determination would deny to the State of California, in this matter, the right to have a sovereign will with reference to what it will permit its creatures to do. All the way down the line there has been consent. First, the consent of the creator, California; consent of the Congress, the policy-fixing agency of the Federal Government; consent of the municipality itself, and consent of the creditors. Now, if we are to deny these agencies, which speak the voice of sovereignty and the judgment and will of the private citizen, the right thus to speak, what becomes of their sovereignty? If the creditors consent, and the municipality consents, and the State consents, and the policy-fixing agency of the Federal Government consents, with all respect, whose else business is it, if they are sovereign? We respectfully submit that to deny to a sovereign the right to have a sovereign will and to make that will effective, denies to it the very essence of sovereignty. I am privileged to take a longer time of the Court, but I could not add to the substance of what I have said. We appreciate very much the Court permitting me to appear. Argument for the United States. 304 U.S. Solicitor General Jackson, with whom Assistant Attorney General Whitaker, and Messrs. Vincent N. Miles, Warner W. Gardner, and Henry A. Julicher were on the brief, for the United States in No. 757. The District is utterly unable to meet its obligations in due course, and it is authorized by law to carry out a plan of composition. It asks the bankruptcy court to serve the notice required by statute to bring in the dissenting creditors, to grant hearings, to hold inquiry as to the reasonableness and fairness of the plan, to stay all suits that might be brought to interfere with the District or its property meanwhile, and that the court, if it finally approves the plan, enter an order as provided for in the Act, discharging the District from all further obligations under these outstanding bonds which would be composed by a payment of 59 cents on the dollar. The measure received careful consideration before the committees of the House and Senate, amendments were made with a view to insuring constitutionality, and the Congress concluded after full discussion that the bill as enacted was free from the objectionable features which had been held fatal to the original Act. [c. IX. See Ashton v. Cameron County Dist., 298 U. S. 513.] The only jurisdiction that is conferred, is the jurisdiction to compose ". . . indebtedness of or authorized by any taxing agencies or instrumentalities hereinafter named, which are payable out of assessments or taxes or both, or out of property acquired by foreclosure by the District, or out of income by such taxing districts." These districts are then enumerated in separate subdivisions. The purpose of the subdivisions and of the separability clause was clearly stated on the House floor by Judge Sumners. |