Kersh Lake Drainage District v. Johnson

delivered the opinion of the Court.

Kersh Lake Drainage District was organized, in 1912, under the general drainage law of Arkansas.^[1] An assessment of the value of benefits to accrue to each of the tracts of land embraced in the District was duly made, upon the basis of which annual levies were extended against each tract. And the District issued interest bearing certificates of indebtedness in payment of construction work done for it by contract.

Respondent Johnson, a landowner in the District,. brought suit against the District and its Commissioners in the Lincoln Chancery Court of the State of Arkansas in order to establish that he had fully paid the share of benefit taxes apportioned to his land and was therefore entitled under Arkansas law to have his land declared free from any further drainage tax liability. In 1931; thajb state court rendered its final decree to the effect that the lien of the District for such taxes had already been “fully satisfied and released,” and enjoined further extension of drainage taxes against his lands. In 1932, the same state court rendered a like decree in favor of W. A. Fish and other named landowners of the District.

The District Court decreed that a mandatory injunction issue compelling the- “County Clerks and County Collectors to perform their duties in the collection of the drainage taxes upon the lands in suit”; that there be extended taxes “of six and one-half per cent of the benefits assessed against each tract of land . . . until .the whole of this decree has been satisfied”; that the “Commissioners . . . be required to institute suits for the collection of all delinquent 'taxes of said District, and to prosecute the same with due diligence to a conclusion, . . .”; and

Pursuant to this mandatory injunction, the drainage taxes were extended on the tax books but respondent-;Johnson and other landowners in whose favor the . decrees of the Lincoln Chancery Court had been rendered, refused to pay. Suit for collection was filed against their lands in the Lincoln Chancery Court by the Commissioners. In reliance upon the 1931 and 1932 State Chancery Court decrees as final determinations that the assessments apportioned to their respective tracts of lands had been discharged, pleas of res judicata were interposed by the landowners. Referring to this answer of the landowners, the Commissioners amended their complaint and alleged (1) that the state court decrees of 1931 and 1932 were void because certificate holders had not been made parties, and (2) that the certificate holders’ judgment against the District and the mandatory injunction decree of the federal court were “res judicata of all the questions . . . raised by the” landowners. The trial court decided against the landowners, but the Supreme Court of Arkansas reversed and held that the unappealed Chancery Court decrees in 1931 and 1932 amounted to conclusive adjudications that the particular lands here involved were responsible for no further benefit taxes, thus sustaining the landownfers’ pleas of res judicata:^[4]

First. The unappealed 1931 and 1932 Decrees, of the Lincoln Chancery Court of the State of Arkansas.

As stated by the Supreme Court of Arkansas, the general jurisdiction of the Lincoln Chancery Court, under the state law, to render the 1931 and 1932 decrees is “acknowledged,”^[5] and this determination by the state’s highest court is binding upon us. However, petitioners’ argu

Although the Drainage District was not in terms legislatively declared to be a corporation, its powers and limitations were similar to those of corporations and its Commissioners were comparable to corporate directors.^[7] Among the duties of the Commissioners — as provided by the very statute upon which the certificates involved here rest — were those of protecting and enforcing creditors’ rights on obligations issued by the District.^[8] And the Commissioners in 1931 and 1932 litigated with the landowners the disputed question of proportionate amounts of taxes due the District by .virtue of drainage benefits received by the particular tracts here in question.

These certificate holders were not entitled to be made parties in the Lincoln Chancery proceedings, just as in practice creditors of a corporation are not, unless otherwise provided by statute, made parties in a suit between a stockholder and the corporation to determine liability on a stock subscription, between the corporation and a. third person to recover corporate assets, or in a suit brought against the corporation by creditors, stockholders' or officers. It has been held that'bondholders are'not necessary parties to and are bound by the decree — even if adverse to their interests — in litigation wherein an indenture trustee under a bond issue is a party and exercises in good faith and without neglect his contractual authority to represent and assert the lien securing the issue.^[10] And so are these petitioners bound by the decrees in the Chancery suit in which the Commissioners as parties appropriatély asserted the lien for benefit of certificate holders — unless there was fraud or collusion.

But petitioners nevertheless insist that the' state court’s chancery decrees cannot avail the landowners because of the subsequent judgments of the Federal District Court.

Second. The Judgments of the Federal District Court.

Petitioners pleaded the final judgments of the Federal District Court as conclusive adjudications of the issues raised by the landowners’ defense based upon the Chancery decrees. The refusal of the court below to accept the District Court’s judgments as determinative of the individual landowners’ liabilities constituted, petitioners claim, a denial of full faith and credit to those federal judgments. With this contention we do not agree.

In order that the District might be afforded a basis for suits in the state courts to_ recover .taxes with which to pay the judgment against it, the District Court ordered a mandatory injunction requiring county officials to extend on their books drainage taxes against all the lands in the District as a whole, including those here involved. This preliminary to state court suits in which the actual respective liabilities of the individual landowners could be determined was performed, and thereby this provision of the injunction was carried out. The Commissioners were also enjoined to file and prosecute suits in the state

The substantial effect of the District Court’s judgments was no more than a determination that a total balance was still due the complaining certificate holders by the District; that drainage taxes sufficient to discharge this

These landowners were neither served with process nor heard - in either the certificate holders’ suit against the District or the mandatory injunction proceeding. No relief against them as individuals was either sought or adjudged. The Commissioners did represent all landowners in unsuccessfully defending the certificate holders’ suit for an adjudication of the total collective corporate obligation of the District as an entity. In'the present suit the landowners have not asserted, and the Supreme Court of Arkansas has not upheld, any attack upon that judgment, -which might be valid although uncollectible against the District or any individual landowners.^[16] The fact that the Commissioners, in the injunction proceedings against the District, unsuccessfully attempted to interpose defenses peculiar and personal to the individual landowners cannot foreclose the individual landowners, who were not present, from thereafter pleading a defense otherwise valid. Certainly, the decree in the injunction suit in the federal court would not prevent an individual property owner from subsequently interposing the de

The judgments of the federal court were not denied full faith and credit by the Supreme Court of Arkansas.

Affirmed.

Mr. Justice McReynolds took no part in the decision of this case.