People's Nat. Bank of Lynchburg v. Marye

107 F. 570, 1901 U.S. App. LEXIS 4646

• Court: U.S. Circuit Court for the District of Eastern Virginia
• Decided: February 5, 1901
• Status: Published

Opinion

WADDILL, District Judge

(after stating tlie facts). In the determination of the matters presented for the consideration of the-court, two preliminary questions arise: First, as to whether the banks, under the said statutes, have a right to maintain these suits in behalf of their stockholders; and, second, whether a case has been made for the interposition of a court of equity to restrain the state in the collection of its revenues. In -the consideration of these questions, in the view taken by the court, the original and supplemental bills should, for a moment, be considered separately, as the original bill only assails the act of March 6, 1890, and the act of the 3d of March, 1896, providing for the collection of delinquent taxes due by the stockholders of the banks.

Although it is alleged that the taxes under the act of the 6th of March, 1890, were regularly from year to year assessed and demanded of the banks, it is admitted that no steps were taken or threatened, looking to the collection of the same, until after passage of the act of March 3,1896, providing for the collection of delinquent taxes, and to that the averment is:

' "Your complainant is now informed, believes, and charges that the auditor of public accounts of Virginia is now demanding of your complainant the said several sums taxed against the stock upon the assessments aforesaid, and is proceeding to take such steps as are necessary for the purpose of collecting the same under the powers vested in him under said acts,” and “that the action on the part of the auditor in demanding said payments from your complainant and from its several stockholders is illegal and void.”

And in reference to the remedy by proceeding under the act of March 6,1900, against the bank’s cashier and his sureties, the allegation is:

“Whether it is proposed to resort to this remedy or not, for the purpose of enforcing- such payment from your complainant, it is not advise.d. The law undertakes to give the power, and the bank and its cashier are subject to the dangers of its operation.”

It is quite apparent that the object of the act of the 3d of March, 189(5, was to authorize the collection of delinquent faxes assessed upon bank’s stockholders under the act of March 6, 1890, and that until said act was passed no real effort was made to collect these taxes; and, if made, complainants apprehend no danger from such threat, as the bill in this cause was not filed until July, 1896, — more than four months after the passage of the delinquent act. And it is manifest that the threatened action was under the delinquent act of March 3, 189(5, and not against the bank’s cashier under the previous act. Complainants’ right to sue in behalf of their stockholders under the act of March 6, 1890, may be conceded, for the sake of argument; but no case for injunction against the state’s officers would exist upon the pleadings, as the only allegation of the hill justifying the granting of an injunction is the one as to the apprehension of a multiplicity of suits. Such ground for injunction could not be availed of by the banks under the act, as the banks, and not their stockholders, would be proceeded against, and in single actions, at the suit of the state against the hanks’ cashiers, respectively, and in which cases could he raised all the questions sought to he settled by way of injunction in these causes. The complainants do not charge that any threaiened action has been or is about to he taken either against the hank or its cashier, hut expressly negative the idea of either, and say that they are not advised as to what is the state’s purpose in these respects. Specific allegations as to the certainty of litigation ought at leas#: to he made, to justify a court of equity interfering to prevent a multiplicity of suits. Courts of equity are seldom called upon to exercise a more delicate power than that of granting injunctions to enjoin the collection of a state’s revenue. Such power on the part of courts is expressly inhibited by the federal statutes as to taxes due the United States, and federal courts should proceed with great caution in exercising such power as to taxes due the state. It is a prerogative the exercise of which may result in great harm, and only where the right is clear, the necessity for action urgent, and the inadequacy of any other remedy apparent, should a court of equity interpose. The supreme court of the United States, in Pittsburgh, C., C. & St. L. R. Co. v. Board of Public Works, 172 U. S. 32, 37, 39 Sup. Ct. 90, 92, 43 L. Ed. 354, 356, speaking through Mr. Justice Gray, said:

“The collection of taxes assessed under the authority of a state is not to bo restrained by writ of injunction from a court of the United States unless it clearly appears not only that the tax is illegal, but that the owner of the property taxed has no adequate remedy by the ordinary processes of the law, and that there are special circumstances bringing the ease under some recognized head of equity jurisdiction.”

In Dows v. City of Chicago, 11 Wall. 108, 20 L. Ed. 65, a citizen of the state of New York, owning shares in a national hank doing business in the city of Chicago, sought by hill in equity to enjoin the collection of a tax assessed by the city of Chicago upon its shares, for the reason, among others, that the tax was unconstitutional and void, because not equal and uniform, as required by the constitution of the state, and because, also, such shares were not taxable by the city at the domicile of the defendant. The supreme court, through Mr. Justice Field, at page 112, 11 Wall., and at page 66, 20 L. Ed., said:

“Assuming the tax to he illegal and void, we do not think any ground is presented by the bill justifying the interposition of a court of equity to enjoin its collection. The illegality of the tax and the threatened sale of the shares for its payment constitute of themselves alone no ground for such interposition. There must be some special circumstances attending a threatened injury of this kind, distinguishing it from a common, trespass, and bringing the case under some recognized head of equity jurisdiction, before the presentive •remedy of injunction can be invoked.”

In the State Railroad Tax Cases, 92 U. S. 575, 613, 615, 23 L. Ed. 669, 674, Mr. Justice Miller, speaking for the supreme court, after stating that it had been repeatedly decided that neither the mere illegality of the tax complained of, nor its injustice nor irregularity, of itself, gave the right of injunction in a court of equity, said:

“We do not propose to lay down in these cases any absolute limitation of the powers of a court of equity in restraining the collection of illegal taxes. But we may say that, in addition to illegality, hardship, or irregularity, the case must be brought within some of the recognized foundations of equitable jurisprudence, and that mere errors or excess in valuation, or hardship or injustice of the law, or any grievance which can be remedied by a suit at law, either before or after payment of taxes, will not justify a court of equity to interpose by injunction to stay the collection of a tax.”

Schulenberg-Boeckeler Lumber Co. v. Town of Hayward (C. C.) 20 Fed. 422.

Stopping the state’s revenue is a serious matter, except in cases where it is essential to the maintenance of the citizen’s rights; and the power of a court of equity to do full justice in such a case (to the taxpayer, on the one hand, or to the state, on the other) is so difficult of accomplishment, if, indeed, it can be done at all, that in doubtful cases the injunction should be denied. The case at hand is a striking illustration of the embarrassments resulting from the intervention of courts of equity by writs of injunction. Aside from other complications that might arise by reason of the inability of the court properly to deal with the matter of taxation, it appears that the state has not been paid its taxes either by the bank or its stockholders. Its hand is stayed at the instance of the bank. The stockholders from whom the tax is due are not before the court, and the result is, even in the event of a favorable decision to the state, it may lose all its dues entirely.

This brings us to the consideration of the „ct for the collection of delinquent taxes of the 3d of March, 1896, also assailed in the original bill. Have the complainants a right to institute these suits in behalf of their stockholders to prevent the enforcement of the provision of this act? They manifestly have not. As before stated, the object of the act is to provide for the collection of delinquent taxes due by the stockholders of banks under the act of March 6,1890; and, if the portion of the said act in reference to collecting the táxes due by the stockholders from the cashier of the bank is ndt repealed by implication, it is a remedy cumulative to that authorized by that act, and under it no duty or liability is imposed upon the banks, further than that the banks are authorized, should they so desire, upon receiving a list of the assessments against their stockholders remaining in arrears, to pay the same to the auditor of public accounts. It is entirely optional with the banks to do this. Xo requirement in this regard' is made of them, and no liability is prescribed for their failure to elect to pay. Upon the bank’s not electing to pay the money, it is the duty of the auditor to furnish a copy of such list to the attorney general, who shall proceed by motion in the circuit court of the city of Richmond against the individual stockholder, after giving the notice prescribed by the statute, to collect such taxes. The stockholder thus proceeded against could not, upon the theory of preventing' a multiplicity of suits, seek the intervention of a court of equity to restrain the collection of this tax. Upon the payment of the taxes his entire claim ought to be determined in a single action. Dows v. City of Chicago, 11 Wall. 108, 112, 20 L. Ed. 65; Pittsburgh, C., C. & St. L. R. Co. v. Board of Public Works, 172 U. S. 38,19 Sup. Ct. 90, 43 L. Ed. 354. And, moreover, a multiplicity of suits refers not to the number of persons liable to- suits, but to the number of suits which may be instituted against a particular person. The taxpayer, aside from the other remedies afforded him under the law, — of paying under protest, and suing to recover the money, or suing the officer who makes the collection, for damages, — is given a special remedy in a court of justice for the collection of the tax due by him, in which every defense he seeks to make here can be made, including the existence of a federal question, and the ease carried through the state courts, if need be, into the federal courts. The bank, upon whom no liability is thus imposed, should not be permitted, in behalf of its stockholders, to do what the stockholders themselves could not do. Cases in which banks are allowed to institute suits of the character here sought to be maintained in behalf of their stockholders are clearly distinguishable from these cases in so far as the right to sue under the act in reference to delinquent taxes is concerned. The leading case on the subject is that of Cummings v. Bank, 101 U. S. p. 154, 25 L. Ed. 903. In that case Mr. Justice Miller, at page 156, 101 U. S., page 904, 25 L. Ed., after reciting what the bank was required to do by the act of the state of Ohio (viz. among other things, to report to the auditor of the county for assessment the names of all its original stockholders, their places of residence, amounts held by each of them, with all facts necessary to a fair assessment, the authority of the bank to pay the tax on the shares of the stockholder, and deduct the same from the dividends or any funds of the stockholders in its hands, or coining afterwards in its possession, and forbidding the bank to pay any dividends on its stock, or transferring it or permitting it to be transferred on its books, as long as said tax remained unpaid), said:

“It is true, the statute of Kentucky went further than the Ohio statute, by declaring that the bank must pay the tax, while the latter only says it may. But the Ohio statute, by the remedies it provides, places the bank in a condition where it must pay the tax, or encounter evils of a character which create a right to avoid them by instituting legal proceedings to ascertain the extent of its responsibility before it does the acts demanded by the statute. It is next suggested that since there is a plain, adequate, and complete remedy by paying the money under protest, and suing at law to recover it back, there, can be no equitable jurisdiction of the case. ’The reply to that is that the bank is not in a condition where the remedy is adequate. In paying the money it is acting in a fiduciary capacity as the agent of the stockholders,— an agency created by the statute of the state. If it pays an unlawful tax assessed against its stockholders, they may resist the right of the bank to 6'ollect it from them. The bank, as a corporation, is not liable for the tax, and occupies the position of stakeholder, on whom the cost and trouble of litigation should not fall. If it pays, it may be subject to a separate suit by each shareholder. If it refuses, it must either withhold dividends, and subject itself to litigation by doing so, or refuse to obey the laws, and subject itself to suit by the state. It holds a trust relation which authorizes a court of equity to see that it is protected in the exercise of the duties appertaining to it. To prevent multiplicity of suits, equity may interfere.”

So far as the collection of this tax is concerned, under the act for the collection of delinquent taxes, no obligation or liability whatever is imposed on the bank; nor is it placed in any fiduciary relation as to its stockholders in reference to such tax by said act, or, indeed, placed in any position where it can be liable either for doing or for not doing any act whatever. Assuming that the bank may interpose in behalf of its stockholders, under this act, something more than a mere suggestion that, by so doing, it would prevent a multiplicity of suits, ought to appear, to justify a court of equity in restraining a state in the collection of- its taxes. If the stockholders themselves can, by having the state pursue the remedy provided by it for the collection of these taxes,- and in such proceedings, secure their rights, the bank, in any event, in a matter in which it is not personally involved, should not be allowed to interpose, except to prevent a manifest miscarriage of justice.

We are now to consider the second act of the 3d of March, 1890, under which the taxes for the years 1890-97 have been assessed. This is an amendment of section 17 of the original act, and the amendment provides an entirely different method and plan for assessing and collecting taxes against the stockholders in national banks; and as to it what has been said of the right of a bank to interpose in behalf of its stockholders under the act of- the same date in reference to delinquent taxes is not intended to apply, as under this act, upon a proper case made for injunction, it would seem that the bank, in behalf of its stockholders, would have a right to interpose by suit in equity, for upon it serious obligations are imposed, and against it heavy penalties enacted. Whether the mere allegation of the prevention of a multiplicity of suits would of itself suffice to justify the court’s interposition by injunction in the collection of the state’s revenue need not be passed upon in this case, with the view the court takes of this statute. The right of the bank so to proceed under this act in a proper case being apparent, it is necessary to pass upon the validity of this act. In determining this question the court has naught to do with the policy or wisdom of the act in question, but alone with the power of the state to pass it. It is assailed chiefly because of the separate tax upon the bank’s real estate, the failure to allow its stockholders to deduct the debts due by them for their stock before assessing it for taxation, as is done in reference to other classes of personal property in the state, and because of the alleged denial of due process of law to the taxpayer in the assessment of the taxes. The taxation by the state of the real estate of the bank, in addition to that plaegd upon the shares of the stockholders, is not unequal taxation, in the sense contemplated by the constitution, and does not, therefore, invalidate the act. Section 5219 of the Revised Statutes contemplates that the tax on real estate may he imposed independently of the tax upon the share of the stockholder. It may be said, in passing, that the taxation of the shareholders in national banks, independently of the real estate owned by the banks, is the same as that adopted in reference to taxation of the shareholders in state hanks, and, at least, does not appear to have been intended as any discrimination against national bank shares. The real estate is considered a part of the bank's capital or property, rather than that of the shareholders’ interest in its certificate of stock. ’This seems to have been the view taken by the supreme court in National Bank v. Com., 9 Wall. 353, 858, 19 L. Ed. 701, 702. Mr. Justice Miller, speaking for the court, said:

“In the several recent decisions concerning the taxation of the shares of national banks, as regulated by sections 40 and 41 of the act of congress of the 3d of June, 1804, it lias been established as the law governing this court that the property or interest of a stockholder in an incorporated hank commonly called a ‘share,’ the shares in their aggregate totality being called sometimes the ‘capital stock’ of the hank, is a different thing from the moneyed capital of the hank held and owned by the corporation. This capital may consist of cash, or of bills and notes discounted, or of real estate combined with these. The whole of it may lie invested in bonds of the government, or in bonds of the state, or in bonds and mortgages.”

Com. v. Charlottesville Perpetual Building & Loan Co., 90 Va. 792, 793, 20 S. E. 304.

It is insisted that the statute is void because the tax assessed is greater than that laid by the state of Virginia on other moneyed capital iu the hands of individuals residing within the state; the contention being that because the state allows its taxpayers the privilege of deducting before returning for taxation the amount of their individual indebtedness from taxes due by them from all “bonds, notes and other evidences of debts, including bonds due from canals and railroad companies, bonds of counties, cities and towns, and bonds of other states and corporations; demands and claims however evidenced and whether secured by deed of trust, judgment or not,”— therefore such act operates as a discrimination in favor of the owners of that class of property against the owners of shares in national bank stocks. The question of a right of a national bank shareholder to have his indebtedness deducted from his share of the stock before assessment of the same for taxation has recently been decided adversely by the supreme court of appeals of Virginia. Burrows v. Smith, 95 Va. 695, 29 S. E. 674. As to what is moneyed capital, within the meaning' of the national banking act, and what will be deemed a discrimination against the shareholders in national hanks by reason of allowing a deduction on account of indebtedness in favor of the owners of other classes of personal property, has been so often under review of late by the courts of last resort that any general discussion is unnecessary. Briefly, it may be said that absolute equality of taxation is not expected, and the purposes of the national banking act are satisfied when exemptions are not made from taxation on the investments in the shares of institutions or individuals carrying on a similar business to that of the bank, and upon persons engaged in operations and investments of a like character as the bank. The act does not make the tax on personalty generally the measure of tax on national bank shares, but the tax on the moneyed" capital is like use. Hepburn v. School Directors, 23 Wall. 480, 23 L. Ed. 112; Boyer v. Boyer, 113 U. S. 689, 5 Sup. Ct. 706, 28 L. Ed. 1089; Mercantile Bank v. City of New York, 121 U. S. 138, 7 Sup. Ct. 826, 30 L. Ed. 895; Bell’s Gap B. Co. v. Pennsylvania, 134 U. S. 232, 237, 10 Sup. Ct. 533, 33 L. Ed. 892; National Bank v. Mayor, etc., of Baltimore, 100 Fed. 24, 40 C. C. A. 254; First Nat. Bank v. Chehalis County, 166 U. S. 440, 17 Sup. Ct. 629, 41 L. Ed. 1069. In the last-named case will be found a very full discussion of the. whole subject, with a review of most of the cases bearing thereon, from which it appears that the act in question is not invalid for this reason.

Complainants insist that this act of the 3d of March, 1896, providing a new assessment for taxes against national banks, is void because of the lack of due process of law; and they most vigorously assail this, act and the act of the 6th of March, 1890, for this reason. The principles- governing the determination of this question under these two acts, by reason of the peculiar terms of the respective acts, depend upon entirely different considerations. Under the first-named act, the constitutionality of which the court deems it unnecessary to pass upon, the assessment seems clearly to be in the nature of a judicial act, and the bank’s cashier is made liable for the amount of the tax; but no provision is made for its becoming self-collectible or in the nature of an execution, and it is expressly provided that the same shall be recoverable of the bank’s cashier and sureties by motion upon 15 days’ notice in the circuit court of the city of Bichmond; and the question turns on whether or not this requirement of the state to seek the intervention of a court of justice in the collection of its revenues does not of itself constitute due process of law. Under the second act, upon the assessment being made of the taxes, the tax bills become self-executing and, can be. enforced by levy; and the question turns upon the character of the act performed by the assessor in making the assessment, — in a word, whether he acts judicially or otherwise. A careful, inspection of the act shows that the assessor performs no judicial act in what he does; the fair interpretation being that the assessment made by him is upon the market value of the stock as reported to him by the bank, and the act itself fixes the amount of the tax; and, under this view, further notice to the taxpayer of the assessment is not required. A most interesting discussion of this whole subject is to be found in the leading case of Hagar v. District No. 108, 111 U. S. 701, 4 Sup. Ct. 663, 28 L. Ed. 569. In this case Mr. Justice Field, at page 708, 111 U. S., page 667, 4 Sup. Ct., and page 572, 28 L. Ed., in discussing the question of the failure of the statute under which the assessment was made to provide for notice, and the citizen an opportunity to be heard, ordinarily, said:

“But, where the taking of property is in the enforcement of a tax, the proceeding is necessarily less formal; and whether notice to him is at all necessary may depend upon the character of the tax, and the maimer in which its amount is determinable. The necessity of revenue for the support of the government does not admit of the delay attendant upon proceedings in a court of justice, and they are not required for the enforcement of taxes or assessments. As stated by Mr. Justice Bradley in his concurring opinion in Davidson v. New Orleans, 96 U. S. 97, 24 L. Ed. 616, ‘in judging what is “due process of law,” respect must be had to the cause and object of taking, — whether under the taxing power, the power of eminent domain, or the power of assessment, for local improvements, or some of these; and, if found to he suitable or admissible in the special case, it will he adjudged to be “due process of law,” but if found to be arbitrary, oppressive, or unjust, it may he declared to be not “due process of law.” ’ ”

And at page 709, 111 U. S., page 668, 4 Sup. Ct., and page 572, 28 L. Ed., Mr. Justice Field said:

“Of the different kind of taxes which the state may impose, there is a vast number of which, from their nature, no notice can be given to the taxpayer, nor would notice he oí any possible advantage to' him, — such as poll taxes, license taxes (not dependent upon the extent of his business), a.nd, generally, specific taxes on things, on persons, or occupations. In such cases the legislature, In authorizing the tax, fixes its amount, and that is the end of the matter. If the tax he not paid, the property of the delinquent may he sold, and he be thus deprived of his property. Yet there can be no question that tlie proceeding is due process of law, as there is no inquiry into the weight of the evidence, or other element of a judicial nature, and nothing could he changed by hearing the taxpayer. No right of his is, therefore, invaded. Thus, if the tax on animals be a fixed sum per head, or on articles a fixed sum per yard or bushel or gallon, there is nothing the owner can do which can affect the amount to be collected from him. * * * But where a tax is levied on property, not specifically, but according to its value, to b'o ascertained by assessors appointed for that purpose upon such evidence as they may obtain, a different principle comes in. The officers in estimating the value act judicially, and in most of the states provision is made for the correction of errors committed by them, through boards of revision or equalization, sitting- at designated periods provided hy law, to hear complaints respecting the justice of the assessments.”

The bank itself having fixed the market value of its stock, and the statute the amount of the tax, the assessor’s duty was a mere ministerial one, and the act is not void because of the lack of due'process of law.

Complainants further assail the validity of the act of the 6th of March, 1890, and the amendment thereof of the 3d of March, 1896, because the rate of tax prescribed is not uniform, as reqtiired by the constitution of the state, and because, also, the original act is in violation of the provisions of the constitution, in that it fails to state distinctly the amount of the tax levied and the object to which it is to be applied, as required by article 10, § 16, of the constitution of the state. These objections do not appear to be well founded, and the acts themselves have been more than once passed upon by the court of last resort in this state, and, in so far as their validity is concerned under the state constitution, this court will follow the decisions of the state court. Com. v. Charlottesville Perpetual Building & Loan Co., 90 Va. 790, 20 S. E. 364; Burrows v. Smith, 95 Va. 694, 29 S. E. 674; Merchants’ & Manufacturers’ Nat. Bank v. Pennsylvania, 167 , 17 Sup. Ct. 829, 42 L. Ed. 236. A decree may be entered, dissolving the temporary restraining orders heretofore granted in these causes, and dismissing the complainants’ bills.