New Orleans v. Warner (175 U.S. 120)

[Syllabus from pages 120-121 intentionally omitted]

This was a bill in equity filed November 26, 1894, in the circuit court for the eastern district of Louisiana by John G. Warner, a citizen of the state of New York, on behalf of himself and all other parties holding obligations of the same nature and kind as himself, to charge the city of New Orleans as the debtor of specific taxes averred to have been levied by lawful authority for the payment of certain warrants, issued for the purchase of a drainage plant and franchise, the collection of which was made the duty of petitioner by statutes hereinafter set forth. A liability on the part of the city was averred as the result of a contract alleged to have been broken by it, and a disregard and violation of duties imposed upon it by statute as to the prosecution of the work of drainage and the collection of assessments therefor.

The facts of the case are so fully set forth in the cases of Peake v. New Orleans, 139 U.S. 342, 35 L. ed. 131, 11 Sup. Ct. Rep. 541, and Warner v. New Orleans, 167 U.S. 467. 42 L. ed. 239, 17 Sup. Ct. Rep. 892, that a succinct statement of such facts, taken largely from the opinion of the circuit court of appeals, is all that is deemed necessary here.

By an act approved March 18, 1858, the legislature of Louisiana provided for a system of draining certain lands within the city of New Orleans and elsewhere, which was to be carried out by boards of commissioners appointed for the three districts into which the territory was divided. The act further provided for plans of the work to be prepared by the commissioners, for assessments to be levied upon the lands benefited, and for the entry of judgments decreeing the lands to be subject to a lien for such amount as might be assessed.

By a supplemental act, approved March 17, 1859, the boards of commissioners were authorized to borrow money to carry on the work, and to issue bonds therefor. It was contemplated that the money should be raised at once for the payment of the work, in anticipation of the collection of the assessments.

By an act approved March 1, 1861, the prior acts were amended by providing for a summary mode of collecting the assessments, authorizing the commissioners to apply to certain courts for the approval and homologation of the assessment rolls, which approval and homologation the act declared 'shall be a judgment against the property assessed and the owners thereof, upon which execution may issue in the ordinary mode of proceeding.'

The commissioners made plans of the work proposed to be done, including therein the streets, squares, and public places within the several districts, as the property of the city of New Orleans, and from time to time judgments were rendered charging these public places, as well as private property, with the amounts that had been assessed for drainage purposes. The city was named as the owner of these public places in the tableau, and judgments were rendered against it as such owner for sums amounting in the several districts to $719,926.63.

On February 24, 1871, the legislature passed an act entitled 'An Act to Provide for the Drainage of New Orleans.' This act abolished the several boards of drainage commissioners, transferred their assets to the board of administrators of the city of New Orleans, subrogated this board to all the rights, powers, and facilities then possessed by the commissioners, directed it to collect the balance due on the assessments as shown by the books of the drainage districts, 'which said assessments are hereby confirmed and made exigible at such time and in such manner as the board of administrators may designate.' It further authorized the Mississippi & Mexican Gulf Ship Canal Company to undertake the work of draining the city, required the board of administrators to place all collections of drainage assessments to the credit of such company, and hold the same as a fund to be applied to the drainage of New Orleans and Carrollton. Under these and the prior acts assessments were made and reduced to judgment against the city on the area of the streets and other public places within the drainage districts, to the amount of $696,349.30, and against private persons to the amount of $1,003,342.98, of which about $330,000 have been collected from private property in cash and drainage warrants, leaving outstanding at the date of the filing of the bill in this case uncollected assessments to the amount of $1,469,714.47, of which the city owes $696,349.30.

By an act passed February 24, 1876, after more than two thirds of the drainage system had been completed, the city of New Orleans was authorized to purchase, if the common council deemed it advisable, the property and franchises of the ship canal company or its transferee, including all tools, implements, machines, boats, and apparatus belonging to said company or its transferee, on a valuation to be fixed by appraisers to be appointed by the common council, the amount to be paid in warrants drawn against the drainage assessments. It further provided that the city should have exclusive control of all the powers and franchises granted to the ship canal company, and should alone have the power to do all the drainage work required to be paid for by assessment upon property or from the city treasury. Meantime, however, the ship canal company, having become embarrassed, on May 22, 1872, assigned all its rights to Warren Van Norden.

Acting under the authority of this act of February 24, 1876, the city accepted the option, appointed an appraiser of the property of the ship canal company, and authorized the mayor to purchase of said company, or its transferee, all its property, and to stipulate for a full settlement of all its claims for damages. Thereupon the mayor entered into a contract with the canal company and with Van Norden, its transferee, for the purchase of their property and the relinquishment of all their claims for damages, for the sum of $300,000, payable in drainage warrants. In this contract of sale the city covenanted and agreed 'that the existing rights and powers of the holders of drainage warrants, under the civil acts of the legislature of this state relative to drainage and drainage assessments, shall remain unimpaired and that the drainage tax and assessment shall be administered, collected, and paid' in the manner and under certain terms specified, and that 'the collection of drainage assessments shall be assigned to an officer who shall be selected by the said W. Van Norden and be confirmed by the city council.' The city further agreed 'not to obstruct or impede, but, on the contrary, to facilitate, by all lawful means, the collection of the drainage assessments as provided by law, until said warrants have been fully paid it being well understood by and between the said parties hereto that collections of drainage assessments shall not be diverted from the liquidation of said warrants and expenses as hereinabove provided for, under any pretext whatsoever, until the full and final payment of the same.'

The bill, after reciting these facts, averred in substance that upon acquiring the drainage plant and franchises of the canal company the city abandoned all drainage work and suffered the dredge boats and machinery purchased as above stated to decay and become valueless, and that by reason of the city's failure to complete the drainage and benefit the lands the courts have refused to enforce the collection of the assessments; that, having thus abandoned all drainage work, the city, by its ordinances and by a proclamation of the mayor, then advised property holders not to pay the assessments, and that in consequence of these ordinances and said proclamation and the decisions of the courts the drainage assessments became practically valueless and uncollectible. The bill further averred that the city had issued bonds in exchange for drainage warrants given for work done prior to the sale, under the authority of the act of the legislature of 1872, to an amount in excess of all the drainage assessments, which it will claim operated as a discharge of its liability, as assessee of the streets, etc., and of all liability it may have incurred by any dereliction of duty in regard to the assessments against private property, but that this claim was not made known to Van Norden at the time of the purchase, and that he would not have parted with his property for a consideration payable out of drainage assessments, if he had known that such claim would be set up to defeat the payment of the price. The bill closed with a prayer for an accounting of the drainage fund, including the amounts due by the city and the application thereof to the payment of the complainant's warrants and those held by others similarly situated who might come in and avail themselves of the benefits of the bill.

To this bill the defendant demurred for want of jurisdiction and of equity, and because the matters sought to be litigated had been decided adversely to complainant's pretensions by the circuit court in the case of Peake v. New Orleans, and by the Supreme Court on appeal in the same case, 139 U.S. 342, 35 L. ed. 131, 11 Sup. Ct. Rep. 541. This demurrer was sustained, the bill dismissed by the circuit court, and the case carried to the circuit court of appeals for the fifth circuit. That court, being in doubt as to the application of the Peake Case, certified to this court the questions: First, whether the city, under the warranties, expressed and implied, contained in the contract of sale of June 7, 1876, by which it acquired the property and franchise from Warner Van Norden, was estopped from pleading against the eomplainant the issuance of bonds to retire $1,672,105.21 of drainage warrants, issued prior to said sale, as a discharge of its obligation to account for drainage funds collected on private property, and as a discharge of its own liability to that fund as assessee of the streets and squares; and, second, whether the decision in Peake v. New Orleans should be held to apply to the facts of this case and operate to defeat complainant's action.

The first of these questions this court answered in the affirmative; the second it declined to answer. Warner v. New Orleans, 167 U.S. 467, 42 L. ed. 239, 17 Sup. Ct. Rep. 892.

Thereupon the court of appeals held that the city was estopped from pleading the issue of the bonds, and that the Peake Case did not necessarily apply to the facts of this case nor operate to defeat the plaintiff's action. The decree of the circuit court sustaining the demurrer was reversed, and the case remanded with instructions to proceed to a decision upon the merits. 52 U.S. App. 348, 81 Fed. Rep. 645, 26 C. C. A. 508.

The case subsequently went to a hearing upon the pleadings and proofs in the circuit court, and resulted in a decree dismissing the bill. Thereupon an appeal was taken to the circuit court of appeals, which reversed the decree of the circuit court and remanded the case to that court, with directions to enter a decree that the city was indebted to Warner in $6,000 with 8 per cent interest from June 6, 1876, to be paid out of the drainage assessments set forth in the bill; that such assessments, including those against the city, as the owner of its streets and squares, constituted a trust fund in the hands of the city for the purpose of paying complainant and other holders of the same class of warrants; and that the case be referred to a master to state an account. Whereupon the city applied for and obtained a writ of certiorari from this court.

Messrs. Branch K. Miller and Samuel L. Gilmore for petitioner.

Messrs. Wheeler H. Peckham, Richard De Gray, John D. Rouse, and William Grant for respondent.

Mr. Justice Brown delivered the opinion of the court: