Chicago, R. I. & P. Ry. Co. v. Ludwig

156 F. 152, 1907 U.S. App. LEXIS 5328

• Court: U.S. Circuit Court for the District of Eastern Arkansas
• Decided: October 5, 1907
• Docket: No. 1,600
• Status: Published

Opinion

TRIEBER, District Judge.

1. In Western Union Telegraph Co. v. Andrews, 154 Fed. 95, this court had occasion to pass upon the jurisdiction of national courts in actions against officers of the state, and determine when such an action is in effect a suit against the state within the meaning of the eleventh amendment to the Constitution. In that case the court reviewed the authorities quite fully, and it would serve no useful purpose to repeat them in this opinion. Among the conclusions there reached, and which the court adheres to now, are the following:

“(c) The exemption of the state from judicial process does not protect its officers and agents from being personally liable to an action of tort by a private person whose rights or property they have wrongfully invaded or injured, even by authority of the state, and, when the remedy at law is inadequate, its officers may be restrained by injunction from doing positive acts for which they would be personally liable for taking or injuring plaintiff's property in violation of the Constitution or laws of the United States.”

“(e) The fact that the state has a governmental interest in the welfare of its citizens in compelling obedience to the legal orders of its officials for the benefit of the public at large is not that which makes the state as the organized political community a party in interest to the litigation. The interest must b« on? in the state as an artificial person, as distinguished from that of a government for the benefit of its citizens.”

“(g) That an action to prevent the enforcement of a tariff which is unreasonable and confiscatory, and which is to be enforced by a commission or other ofilcials who are merely acting as administrative agents for the stale, is not one against the state, if the act itself is unconstitutional and void as against the complainant.”

A franchise to a railroad company to own and operate a railway is a valuable right, and has always been held to be property. Dartmouth College v. Woodward, 4 Wheat. 518, 4 L. Ed. 689, and numerous cases cited and followed with approval collected in 1 Roses’ Notes on 13. S. Reports, 9J4.

An interesting case showing that such a franchise is property of which a corporation cannot be deprived without compensation, even under the power of eminent domain, is Monongahela Navigation Co. v. United States, 148 U. S. 312-329, 13 Sup. Ct 622, 627, 37 L. Ed. 463, where the court said, in speaking of such franchise:

“The latter [meaning the franchise] can no more be taken without compensation than can its tangible corporeal property.”

Upon the allegations of the bill, which for the purpose of determining the demurrer are confessed to be true, this is not an action against the state within the meaning of the eleventh amendment.

2. Thai the state has the power to prevent a foreign corporation from doing business at all within its boundaries unless such prohibition is so conditioned as to violate the federal or its, own Constitution has been finally determined in Security Mutual Life Ins. Co. v. Prewilt, 202 U. S. 246, 26 Sup. Ct. 619, 50 L. Ed. 1013, and is now no longei open to question. As stated in the opinion of the court:

"As a state has the power to refuse permission to a foreign insurance company to do business at all within its confines, and as it has the power to withdraw that permission when once given, without stating any reason for its action, the fact that it may give what some may think a poor reason or none for a valid act is immaterial.”

But, on the other hand, it is equally well settled that if the state has induced a corporation to enter it by the granting of a franchise, which is in the nature of a contract, then it is protected in the enjoyment thereof by article 1, § 10, of the national Constitution, prohibiting any state from passing any law impairing the obligations of a contract. Without citing the numerous authorities on that subject, it is sufficient to refer to the American Smelting Co. v. Colorado, 204 U. S. 103, 27 Sup. Ct. 198, 51 L. Ed. 393, decided at the last term of the court. Therefore the only thing now left for determination in this case is what acts of a state constitute a contract with a foreign corporation to do business in the state. The statutes of Colorado construed in that case are not quite as strong as those of this state; for, while that statute provided that “such corporations [foreign corporations permitted to do business in the state] should be subject to all the liabilities, restrictions and duties which are or may be imposed upon corporations of like character organized under the general laws of this state, and shall have no other or greater powers” (section 499, Mills’ Ann. St. Colo.) the Constitution of this state contains a similar provision (article 12, § 11, supra), and, in addition thereto, the statute regulating the right of foreign railroad corporations to do business in this state provides:

“And upon the filing of such articles of incorporation or such charter, etc., ■* * * such railroad company shall to all intents and purposes become a railroad corporation of this state,' subject to all the laws of the state now in force or hereafter enacted, the same as if formally incorporated in this state,” etc. Act March 13, 1889, p. 44, c. 34, § 2.

That these provisions clearly entitle a foreign corporation complying therewith to 'all rights and privileges of a domestic corporation can hardly be doubted in view of what was decided in the American Smelting Co. Case'; but, were there any room for doubt on that subject, it has been removed by the decision of the Supreme Court of the state of Arkansas when construing the effect of that act. As will be noticed by reference to the constitutional provision of the state set out in the statement of facts, the power “to condemn or appropriate private property” was expressly excluded, but the Supreme Court in Russell v. St. L. & S. W. R. R. Co., 71 Ark. 451, 75 S. W. 725, expressly held that under the statute in question a foreign railroad corporation complying with the terms of the act (as is charged in this bill to have been done by complainant) became a domestic corporation of this state “with all its rights and powers, subject to all its duties and obligations,” including the right of eminent domain. The fact that a corporation for jurisdictional purposes in the courts of the United States was still held to be a foreign corporation, as was decided by the Supreme Court in St. L. & S. F. R. R. Co. v. James, 161 U. S. 545, 16 Sup. Ct. 621, 40 L. Ed. 802, was held not to affect that question; the court distinguishing that case from the one before it. This was reaffirmed by that court in St. L. & S. F. Ry. v. Hale, 100 S. W. 1148, decided March 18,1907. Since the rendition of the opinion in the American Smelting Co. Case, the identical question came before the Supreme Court of South Carolina in British-American Mortgage Co. v. Jones, 56 S. E. 983, and that court, following the decision of the Supreme Court of the United States, held that:

“Where a foreign corporation" paid the license fee required by the act of 1893 to enable It to do business in the state, it cannot be required by the act of 1904 to pay an additional tax not levied on domestic corporations; such a requirement being an impairment of the contract of admission to do business in the state on the same terms as domestic corporations.”

But, assuming that such foreign corporation when entering the state in pursuance to the laws of Arkansas has not become a domestic one, it must still be held that the decision of the Supreme Court in the Prew-itt Case is limited by the proviso that the revocation of the right of a foreign corporation to do business in a state other than that of its ere-' ation must not in any way impair the obligations of a contract entered into by the state with a foreign corporation. The learned Attorney General of the state appearing for the defendant frankly admitted that the decision of the Supreme Court of the United States on questions of this nature involving a right claimed under a provision of the Constitution of the United States is conclusive, not only on this, but also all other courts, including the Supreme Court of the State. But he insists, and very ingeniously argues, that:

"If the foreign corporation became entitled to all the rights and privileges of a domestic corporation of like nature, as the Constitution of this state also provides that ‘it shall exercise no other regular powers, privileges or franchises than may be exercised by a like corporation of this state,’ it is subject to section 6' of article 12 of that instrument, which provides that the General Assembly shall have the power to alter, revoke, or annul any charter of incorporation now existing and revocable at the adoption of this constitution, or that may hereafter be created whenever in their opinion it may be injurious to the citizens of this state, in such maimer, however, that no injustice shall be done to the corporators, and therefore,” he proceeds to argue, "the Legislature has the right to revoke their charter or right to do business in this state as a foreign corporation, without stating any reason for its action, or what it may think a proper reason.”

Assuming, without deciding, that this provision giving to the Legislature the right to amend, revoke, or annul any charters granted by it applies to foreign corporations as well as domestic corporations, and also assuming that the courts are powerless to inquire as to its reasons, the determination by the Legislature being conclusive, still this provision must be taken in connection with the constitutional provision prohibiting the impairment of the obligations of a contract, as the national Constitution provides that:

"This Constitution and the laws of the United States which shall be made in pursuance thereof, and all treaties made, or which shall be made under the authority of ihe United States shall be the supreme law of the land and the judges in every state shall be bound thereby, anything in the Constitution or laws of any state to the contrary notwithstanding.”

When the corporation entered the state by authority of its laws, it was not, in the language of the court in the Smelting Company Case, “a mere license to come into the state and do business therein upon payment of a sum named, liable to be revoked or the sum increased at the pleasure of the state, without further limitation. It was a clear contract that the liability, etc., shall be the same as the domestic corporations and the .same treatment shall be measured out to both.” Such being the case, did the power retained by the state to alter, revoke, or amend any charter of a corporation, with the proviso “that no injustice shall he done to the corporators,” authorize the impairment of the obligations of a contract?

It is urged that, when the corporation came into the state, it knew that its charter could be revoked, as the constitutional provision was as much a part of the statute authorizing it. to enter the state as if included therein. The framers of the Constitution, composed as it was of some of the ablest lawyers of the state of Arkansas, were, of course, familiar with the provisions of the Constitution of the United States, and no doubt knew that to retain the power to revoke it absolutely, regardless of any contract rights of the parties might be in violation of that instrument prohibiting the states from enacting laws impairing the obligations of contracts, and for this reason added the proviso: “In such manner, however, that no injustice shall bé done to the corporators.” The effect of such a constitutional proviso was passed upon in Vicksburg v. Waterworks Co., 202 U. S. 453, 26 Sup. Ct. 660, 50 L. Ed. 1102, distinguishing Hamilton Gas, etc., Co. v. Hamilton, 146 U. S. 258, 13 Sup. Ct. 90, 36 L. Ed. 963. But, even if it he assumed that the proviso has not that effect, still it cannot in any way affect the determination of this cause. The contract between the foreign corporation and the state, as declared in the American Smelting Company Case, was “a clear contract that the liabilities,” etc., should be the same as the domestic corporations, and the same treatment should be measured out .to both. If it was desired to increase the liabilities of the foreign corporation, it could only be done by increasing those of the domestic corporation at the same time and to the same extent

That the act of 1907 deprived foreign corporations then doing business in the state under the acts in force prior thereto of valuable rights and privileges, and imposed on them onerous liabilities of which domestic corporations are not deprived nor have imposed on them, is too clear to require argument. Section 1 of the act deprives them of the right, without the consent of the other party, to remove any suit or proceeding brought by any one against it in any court of the state to any federal court, or to institute any original suit or proceeding against any citizens of this state in any federal court, and as a penalty it forfeits its right to do business in the state. Corporations organized under the laws of the state are not deprived of this privilege or right. They may institute proceedings in the federal courts originally or remove such a cause, if, under the acts of Congress, there is authority to do so. This is a valuable right conferred by Congress in pursuance of the authority of the Constitution of the United States of which the states cannot deprive a citizen or corporation. Insurance Co. v. Morse, 20 Wall. 445, 22 L. Ed. 365; Barron v. Burnside, 121 U. S. 186, 7 Sup. Ct. 931, 30 L. Ed. 915; Sou. Pac. Co. v. Denton, 146 U. S. 202, 13 Sup. Ct. 44, 36 L. Ed. 942; Martin v. Railroad Co., 151 U. S. 673, 14 Sup. Ct. 533, 38 L. Ed. 311; Barrow Steamship Co. v. Kane, 170 U. S. 100, 18 Sup. Ct. 526, 42 L. Ed. 964. Section 3 of the act requires all foreign corporations, although they have complied with the laws of the state when they entered the state, to pay again heavy incorporating fees, while domestic corporations chartered before the passage of the act are not subject to this burden.

It is impossible to distinguish this case from American Smelting Co. v. Colorado; and, for this reason, the demurrer to the bill must be overruled.