Court Opinion

ID: 7220610
Source: CourtListenerOpinion
Date Created: 2022-07-25 03:48:16.685178+00
Date Added: 2024-06-11T16:16:56.879669
License: Public Domain

McDUFFIE, District Judge
(dissenting).
In this case certain taxes were voted on certain conditions for sewerage and water bonds in the city of New Orleans. These bonds were issued and purchased with both a statutory and constitutional assurance that the conditions under which the taxes were voted would, not be disturbed. The act of the Second Extra Session of the Louisiana Legislature of 1934 (No. 36) strikes down certain conditions which, it is claimed by the bondholders, are, in effect, written in the bonds. The question arises therefore as to whether or not this act tends to postpone or retard the enforcement of the contract between the city of New Orleans and its taxpayers and the holders of the bonds. If such an act diminishes in value the quality, excellence, or strength, if it deteriorates, damages, weakens, or enfeebles the obligations of the contract, it, of course, violates section 10 of article 1 of the Federal Constitution.
In the case of Hendrickson v. Apperson, 245 U. S. 105, 38 S. Ct. 44, 45, 62 L. Ed. 178, it is held that whatever legislation lessens the efficiency of the means provided by law for the enforcement of a contract impairs the obligation. The court in that case said: “If it [the legislation] tend to postpone or retard the enforcement of the contract, the obligation of the latter is to that extent weakened.”
*805Believing that one of the considerations of the contract here under study was the major condition involving the composition of the sewerage and water board, I cannot agree with the conclusion of the majority of the members of this court that the interest of the holders of the bonds of the city of New Orleans, issued under Act No. 6 of 1899, Ex. Sess., for the purpose of securing the necessary funds for the construction, maintenance, and operation of a sewerage and water system to secure the permanent health of the city, was limited under the act to the mere enforcement of the special taxes provided for their payment.
The holders of the bonds were further interested and indeed had the statutory and constitutional guarantee that the control of the sewerage and water system by the taxpayers of the city through their majority representation by seven members of the board should never be changed, for by such control the sufficiency of the assessed value of the property in the city of New Orleans for the payment of such bonds, according to the obligations thereof, was reasonably assured.
As pointed out in the majority opinion, “Act No. 6 provided for the creation of a sewerage and water board for the purpose of constructing, controlling, maintaining, and operating a public water system and public sewerage system for the city, to be composed of the members of the drainage commission, as then constituted * * * and seven citizens, of two years previous residence, each possessing property in the city, assessed in his name, one in each of the seven municipal districts of the city.” Put differently, the seven citizens were to be:
(1) Persons who by two years residence were familiar with the sewerage and water needs of the city; (2) vitally interested as, themselves, owners of the property to be favorably or unfavorably affected by the new system as the case might be; and (3) familiar with and having a personal interest in the problems of their respective districts.
The requirements italicized were undoubtedly inserted to assure the taxpayers and other citizens of New Orleans that the construction, control, maintenance, and operations of the sewerage and water systems would be economical and efficient, and they voted the tax on their property therefore with that promise. It is reasonable to say that it constituted a promise that the usefulness and, consequently, the value of their property would not be diminished by the fact and the manner of the construction of the water and sewerage system, and the subsequent control, maintenance, and operation thereof, but, on the contrary, would be enhanced.
To the purchasers of the bonds, the italicized requirements were likewise a promise. Of what avail to them that the proceeds of the tax when collected would be impounded for their benefit, if the source from which the tax was to flow dried up by reason of diminution or destruction of the value of the assessed property by inefficient construction or maintenance of the sewerage and water system. They had a right to rely upon the promise written into the statute and therefore into their bonds that that source would not be dried up; that the value of the property would be maintained by management of the sewerage and water system by persons of whom nature’s first law (self-preservation) would require prudent and proper management.
It seems impossible to escape the conclusion that this guaranty that the control of the board should never be changed was inserted in the act to attract and satisfy investors and thereby obtain sufficient funds for the construction of the sewerage and water system to" permanently secure the health of the city, in which the state itself was materially interested, for the 2-mill tax had already been authorized by the vote of the taxpayers of the city and their petition for the holding of an election for such tax, and the issue of the bonds contained no stipulation that such control of the taxpayers should ever be changed. The Legislature doubtless had in mind the need of security for the payment of the bonds in order to make them attractive because section 1 of the act of 1899 provides that in the event the 2-mill tax should not be sufficient to pay all the interest on said bonds, the deficiency should be funded into the bonds, which the act provides “shall have all the guarantees and securities provided for the original bonds in said ordinance No. 15,391 C. S. and in this Act for their payment of principal and interest.”
The control of the sewerage and water board by taxpayers may have been inserted for the benefit of the taxpayers of the city of New Orleans, but the guarantee that such control should be, and (as affecting *806thte bonds in question) would be perpetual, was intended as a "guarantee and security” for the bondholders.
This guaranty constituted a part of the contract of each bond as if set forth therein and tended to secure its payment.
The business management of the sewerage and water system by taxpayers, who were resident citizens of the city of New Orleans, and owners of property therein, tended to secure not merely the health of the city, but also a taxable value of the property the.rein, which would be sufficient for the payment of the bonds.
The bonds have many years yet to run. Who can say that the danger of mismanagement, that it was deemed advisable in 1899 to guard against so carefully, may not, before the bonds mature, operate to “postpone or retard” enforcement of the obligation' of the contract evidenced by the bon.ds? While in the Kohnke Case (State ex rel. Saunders v. Kohnke), 109 La. 838, 33 So. 793, 803, the right of the bondholder was not directly the issue presented and 'decided, yet the decision undoubtedly strengthened the bondholders’ rights, because while the tax was being fastened'in the Constitution,' the Supreme Court of Louisiana 'said, in effect, that the composition of the sewerage and water board as set up by the Legislature of 1899, to plan,- maintain; and operate a sewerage and water' system for 'the city of New Orleans could not be changed. '
The .court said: “We hardly thinlc if would be'taking a practical or sensible view of the situation to' interpret the [constitutional] ' amendment so as to leave the matter' of the Bonding vel non of the avails of the tax, and the matter of the'constituting vel non of a special board to administer these avails, within the discretion of the Legislature, while the tax itself was being secured hard and fast in' the framework of the Constitution. We think that the practical and sensible view to take" is that the agents of the taxpayers who framed the amendment did their work with a view to conserving these conditions; in; other words, that the amendment means exactly and precisely what it says, namely, that ithe tax voted’ and ‘the tax' levied’ is ratified, and shall never be questioned; that is • the tax as voted and as levied, subject to the conditions upon which it was voted and levied.”
The purchaser of the'bonds relied upon the act as it was interpreted and written' in the constitutional amendment of 1900, construed in the Kohnke Case and reaffirmed in the Constitution of 1921. His rights must be considered as of the time and under the conditions he purchased the bonds.
Act No. 36 of the Louisiana Legislature, 2d Ex. Sess. 1934, repealing the provision for control of the system by taxpayers, substituting therefor the control of that system by officeholders of both city and state, selected without reference to their special interest in the proper management of such system, deprived the holders of the bonds of the aid to their enforcement by the control of the taxpayers which had been guaranteed statutorily and constitutionally and impaired the obligation of their contract.
■For the foregoing reasons, I am of the opinion that the interlocutory injunction prayed for should have been granted.-