302
85 FEDERAL RI1:PORTER.
Rev. St., and involves a trial by jury. The only remedy which can be alIorded in this proceeding is a decree of injunction. Fat the reasons given, the decree of the circuit court dismissing the bill must be reversed, with instructions to enter a decree for the United States perpetually enjoining the defendants from maintainpipe described in the bill, and subing the combination in stantially admitted in the answer, and from doing any business thereunder. RAILROAD AND TELEPHONE COS. v. BOARD OF EQUALIZERS TENNESSEE.
OF
(Circuit Court, M. D. Tennessee. 1.
December 23, 1897.)
TAXATION-CONSTITUTIONAJ, REQ,UIREMENT OF UNIFORMlTy-EQUALIZATION.
Where, under the system of taxation a:dopted by a state, assessments are made by different officers or boards, the state is equally represented by each, and the legal effect is the same as though it acted through a single board. In such case a constitutional reqUirement of uniformity in taxation between different species of property of the same value imposes on the state the duty of providing for the equalization 6f the assessments made by the different boards, to the end that the same measure of value shall be applied to all property.
2.
SAME-JURlsDIOTION OF .EQUI'l1Y-ACTION OF STATE BOARD.
Const. Tenn. art. 2; §2S, reqUiring the ,uniform taxation of different species of property of the same value, is. mandatory and self-executing. applying equally to the assessment of property and the levy of taxes thereon; and a determination by'the state 'board of equalizers that under the statute it is not its dUty to,equalize certain assessments of different species of property made by different officers or boards does not render such assessments legal, nor. depJ;ive a court of equity of jurisdiction to inquire into their legality, and enjoin the collection of taxes levied thereon, if not uniform. A court may take judicial notice of an established custom of the assess' ors of a state to assess property for taxation at less than its actual value. Neither the par value nor the stock-market quotations of the stock and bonds of a railroad or telephone company furnish a proper basis for the assessment of its property; nor do its gross earnings, leaving out of consideration the operating expenses.
8.
EVIDENCE-AsSESSMENT-JuDICIAI, NOTICE OF RATE.
4.
TAXATION-BASlS OF ASSESSMENT.
6.
8AME-U:tlIFORMITY.
The assessment of property at its actual value, though nominally authorized .01' required by tlj.e statutes, is excessive lind void, as In violation of the constitutional provision requiring uniformity in taxation, when liJI other property in the state is assessed upon a loWer basis. A constitutional provision that "all property shall be taxed according to Its value" does not require that It shallbe assessed at full value. ,
SAME-CONSTITUTIONAl,
7.
SAME-I"JUNCTION TO RES'I'ttAIN ENFORCEMENT OF TAX.
It was shown that the assessment by the state of railroad and telephone property was at its full value, instead ofa percentage only of such value, in accordance with the usage prevailing and'recognized in the assessme.ntof other pJ:Operty. It was also shown. that the assessed value of tilUroad property was thereby increased over the· preVious year, on an average, 74 per cent., and telephone property 500 per cent., while the value of the property of the state, as a Whole, had decreased. Held, that such shOWing made JI.. pr\llla facie case which entitled the owners of railroad and telephone property to an Injullctlon agaiJist the enforcement of the tax based on 'such assessment.
RAILROAD AND
<JOS.
OF EQUALIZERS.
a03
JURISDICTION OF FEDERAl- COUllTB-FEDERU .QUESTION.'
An assessment of property which violates the provision of a state constitution requiring uniformity in taxation, and .which· is a class discrimination. also deprives the owner of the equill protection of the law guarantied by the fourteenth amendment to the federal constitution, altbough the statute under which the assessment was made may have been constitutional. and the lllegality is in its admiIlistration. . . Equity has jurisdiction to grant relief: agalnstunequai taxation by enjoining the enforcement of a tax based on an illegal assessment. SAME.....,TEMPORARY INJUNC1.'ION. AGAINST ILLEGAL TAX-INJUNCTION.
9. 10.
In a suit by railroad companies to determine the validity of a state assessment clflimed to be illegal because unconstitutional., the court will grant a temporary injunction on a showing making a prima facie case, restraining the collection of so much of the tax as is claimed to be illegal pending the suit, where, It paid, it would be distributed among numerous counties and municipal corporations, requiring separate actions for its recovery, if found to have been illegally exacted. . This decision throughout proceeds upon the ground that the tax laws of the state, as actually executed, result in a discrimination against a .large species of property and a large class of taxpayers, and the case is to be so understood in all its aspects.
.
lL
TAXATION-DISCRIMINATION.
These are bills filed by various railroad and telephone companies against the board of equalizers of Tennessee, to restrain said board from certifying the assessed valuation of their properties for taxation for the biennial period including the years 1897 and 1898, alleging that said assessments are invalid for various reasons specifically mentioned. The board of equalizers certify the assessments to the state comptroller, and the comptroller then certifies the apportioned assessment to the various municipal corporations and counties in the state entitled to collect taxes in proportion to the mileage of railway lying within such counties, cities, and towns. The object of the bills is to arrest the certification in both methods by preventing the initial step by the board of equalizers. Edward Colston, Shields & Mountcastle, Richmond, Chambers & Head, William A. Henderson, Dickinson & Waller, and Vertrees & Vertrees, for complainants. . W. L. Granbery, and G. W. Pickle, Atty. Gen., for defendant. CLARK, District Judge. The bills in these cases raisefundamental questions of far-reaching importance. The cases have had, in the discussion at the bar, and in the briefs filed, the study and attention which their importance demands. The cases must now be disposed of in the light of what some of the best legal talent in the state can say on both sides of the question. In the industry which has been upon the cases, a great accumulation of authorities has been in support, as. is a'ssumed, of each side of the controversy. The number of the cases cited is so great that counsel readily understand I cannot, in the limits which must be put to an opinion, and, most of all, an opinion upon this application, undertake to review these cases, nor to point out w.herein I think particular cases are apt plicable or inapplicable. At the same time, I have carefully read the
804
, S5
FEDERAL REPORTER.
cases except some cases referred to in the brief for plaintiffs to which I have not had access. As I cannot discuss at length the cases referred to as bearing on the different points, I think it may be just as well to state, in a very general way, my impressiof<lS after studying the cases, and to cite but few authorities. The cases are of a kind which will, and should, go up for review, and this makes it less necessarythatI should express my opinion ,more in detail upon the points at issue. As is well understood, the bills involve an attack upon the validity of the a.ssessmernt of railroad and telephone properties for the biennial period including the years 1897 and 1898. The validity of the assessment is called in question mainly up'on the grounds: (1) That the assessment is, in and of itself, excessive, and above the real value of the property. (2) That the assessment is relatively out of proportion to the taxable value at which other species of property in the s,tate assessed, Whereby the property of, these companies is made to bear an undue proportion of the burden of the government, in violation of the constitution of the state, and that they are also deprived of the equal protection of the law, under the fourteenth of thel)nited States. (3) That the amendment to the railroad c,ommi'ssion act is unconstitutional, and that the commissioners appointed thereunder are not de jure officer'S .of the state, and are not authorized legally to discharge the duties of tax assessors; these duties being attached, as ex officio power, to the office of railIload oommissioners. (4) That these properties were legally assessed in the year 18116 for the years 1896 and 1897, by a valid assessment, and that the new assessment made for 1897 i,s null and void. Some minor questions are made, relative to the procedure by the boo.rd of equalizers, such as the lack of proper notice of taking depositions. the exclusion of competent evidence, and the admission of incompetent evidence. I shall take up and dispose of what may be regarded as .the mOSlt fundamental objection made to this assessment. I refer to the '6bjection that the properties of these, companies have not been equalized in the taxable vallIe fixed with the assessment of all other property in the state, and bave been overvalued. The particular provisions of the constitution of the state which affect the matter now under consideration are found in article 2, § 28, and read as follows: "All property shall be taxed according to its value, that value to be ascertained in such manner as the legislature shall direct, so that taxes shall be equal and uniform throughout the state. No one species of property from which a tax may be collected shall be taxed higher than any other SPecies ot property of the same value."
It is conceded that reilroad and telephone properties have been assessed at their full value, and this is not to be regarded as a disputed fact in theooses. The answer filed by the board of equalizers must be taken as admitting that they made no effort Whatever to equalize the assessment on this class of property with the assessments made on other classes of property in the state. The answer clearly admits of no other interpretation. The aot contains no provision directing the assessors or board of equalizers specmcally to enter upon the duty of equalization for the purpose of avoiding a disprQ-
ItAILROAD A.ND TELEPHONE COS. V. BOARD 01' EQUA.LIZERS.
805
poNion between the taxable values of different properties, and the assessors and board of equalizers did nat regard it as a duty resting on them to make any effort at equalizati'on, the statute not furnish· ing, specifically, any means of discharging such a function or duty in any satisfactory or successful manner. Beyond what is thus admitted, the plaintiffs have been put strictly upon proof as to every other fact involved in the issues here raised. The answer of the defendants i,s extremely guarded and cautious throughout, and contains no intimation as to the exact method by which the results complained of were reached. The defendants, in their answer, content themselves with meeting the charges of the bills by saying, in the most general terms, that they have acted legally. This is, of course, the averment of a mere conclusion of law. In the answer, as well as in the argument, the position taken, in general, is that the board of equalization has jurisdiction to proceed, that the board proceeded regularly, and that its action is final and conclusive until and unless set aside by certiorari proceedings in the state court, this proceeding being called a direct one. Stated in another form, the contentiOiIl for the defendants is that thi,s court cannot inquire into the facts in the absenoe of allegations of fraud or bad faith on the part of the board of equalization. It is said, further, that, if errors of law occurred, these must be co,rrected in the certiorari proceedings, and the jurisdietion of this court to interfere by injunction is denied. It is conceded, and could not be controverted, that the bill contains no specific allegation of fraud on the part of the board of equalization. While I do not regard this as a controlling point at all in the case, it must be stated, to avoid misapprehension, that, although acting with perfect houesty, if the assessors or board of equalizers pursued methods calculated to bring about a substantial inequality in the taxable value of the properties here in question, as compared with other species of property in the state, the innocent intent in such a procedure would be no justification whatever, in law, for a wrong result. Full legal responsibility is recognized for the necessary, legitimate, and natural result of acts, and a systematic course of procedure and an innocent mistake about the matter does not change the effect. For legal purposes, all persons are presumed conclusively to contemplate and intend the necessary and natural result of their acts. Agnew v. U. S., 165 U. S. 36, 17 Sup. Ct. 235. If the board of equalization was under a duty to equalize, a mistaken view that such was not its duty could not change the law, and could not render a result legal which would otherwise be illegal. Was the board of equalization under obligation, constitutional or legal,..to equalize the assessment on railroad and telephone property with the assessment on other specieI!.' of property subject to taxation? It is obvious enough that if the state adopts a system of taxation by which assessments are made through different officers, agencies, or boards, the state is equally represented by every such board or agency, and,so far as substantial results are concerned, the case is ju9l:the same as if the state acted through one board only. This is plainly so, and is recognized as being so in Missouri v. Hannibal & St. ;1. R. Co., 135 :Mo. 37 S. W. 532. The provisions of the constitution 85F.-20
306.
.:81)0 FJliDllR,A.L·RlllPORTEIt.. ".
referred to, It must be borne in mittd, aM mandatory and'se1f:exeeating. Levee Dist. v. Dawson, 97 Tenn. 160, 36 S.W. 104.1; Hyatt v. Allen, 54 Cal. 353; and Board v. Patten, 62 Mo. 444. This being 60, no legislation was necessary to give effectto:these provisions of the constitution. The constitution is· the. paramount law of the land, and its mandatory directions impoSe a duty upon the legislature in the exercise of the taxing power, and equally upon every admInistrative board or agency provided for the execution of the tax system. If there is, a discrimination against this species of propecty, impQilingan unconstitutional burden thereon, the result .eannot be sustained; and this is equally so whether such a' result is due to erroneous acUon by the board, or to defect in the legislation,' In not requiring equalization, and furnishing the means whereby this might be made real and effective. If the leg-islature had, in terms, undertaken to exempt this from the duty of equalization, no person of ordinary intelligence would make any question that such act would have been unconstitutional. Again, if this pacticular revenue act be construed as not requiring equalization of the assessment on property of this character with assessments on othet kinds of property separately treated, and could be regarded as constitutional in respect to the equality guaranty, although not making such requirement of equalization, we would clearly have an instance of special, partial, and class legislation of the most obnoxious ,kind; for, it is well known that the state, in regard to every other considerable class of property, has provided a board of equalization, charged with the duty of equalizing, and no disorlmination in that respect could be made between the property now in question, and other taxable property in the state. It is to: be remembered that the constitution is a consistent, systematic, outline limitation, and it will generally be found that an effort to evade one proV'isIonof that instrument will bring about a directanta;gonism with lliDother. Returning to the point under examination, it is. very clear that the board of equalization, in 'confirming the 'assessment made, without any effort whatevc¢r to.equalize the assessment so thatthe rate of valuation would bear a substantially"jnst proportion to the rate of ass,essment on otherpr(lpel'ty, disregarded the constitution. Notwithstanding this, to entitle. the complainants to relief, and to make out a prima fade case for injunction, it sbould.p.I'obablyalso appear that the assessment has brought about a sub.stantial disproportion between the taxable value placed on this property, and that at which other property in the state is assessedjand here it is to be observed that a constitutional and legal inequality in taxation does not refer to individual hardship, Hkethe difference in t.he assessm placed on the property ,pf two nts individuals, nor does it relate to those differences in value which grow out of mere, differences in opinioD, nor does .it relate to those inequalitieswlIich arise by reason of an essential difference in the kind and propecty, with a proportionate difficulty in getting at the real value. Inequa,lity, in the legal and constitutional sense, refers to substantial relating to large classes of property, and to differences -in the system or methods by which such
COS. T. BOARD OF EQUALIZERS.
307
properties are a,ssessed for taxation. In· Railway Co. v. Guenther, 19 Fed. 398, the doctrine upon the subject was stated by Judge Key as follows: "¥ere'lnequallties In taxation will not vitiate a tax, If they be accidental and unintentional. These must occur under any system of assessment, and especially under that In force In this state, In which every civil district and ward has Its own assessor. There will, of necessity, be many Instances In which property will be assessed at more than Its value; and more, perhaps, In which It wlll be assessed at less than its value. These errors and discrepancies wlll not vitiate the tax. They are inevitable. But a different result I'ollows, should a standard of valuation be used for one species of property which .Isdifferentfrom that used for another, if the end reached, necessarily, Is taxation of one species higher than the other. The constitution of Tennessee established that all property shall be taxed according to its value, that value to be ascertained In such manner as the legislature shall direct, 80 that' taxes shall be equal and uniform throughout the state. No one species of. property from which a tax may be collected shall be taxed higher than other species of property of the same value. Article 2, § 28. With ilomethlng of Iteration, the principle is emphasized. that taxation shall be equal and uniform. If. unjust discrimination and difference Is made, the tax 80 Iniposed may be restrained, and its collection prevented. Pelton v. Bank, 101 U. S. 143; Cummings v. Bank, Id. 153; City of Ohattanooga v. Nashville, C. & St. L. R. Co., 7 Lea,
This statement of the law is in harmony with all of the cases. So, whenever a system of taxation is adopted in a legislative enactment, Or ofpl'ocedure are followed by administrative boards unger SUCh enactment, by which a large class of individuals or a large of property is discriminated against,. either in respect of the rate of assessment or the rate of levy, and such a result violates a fun4amen,tal principle of the constitution, courts of equity may properly interfere to restrain the operation of such an unconstitutional exerCise of power. In Cummings v. Bank, 101 U. S. 157, the rule was thus s t a t e d : ' . "Independently of this statute, however, we are of opinion that when a rule or system of valuation Is adopted by those whose duty It Is to make the assessment, which Is designed to operate unequally, and to violate a fundamental principle of the constitution, and when this rule Is applied, not solely to one IndiVidual; but to a large class of Individuals or corporations, that eqUity may properly Interfere to restrain the operation of this unconstitutional exercise of power. That is precisely the case made by this bill, and, if supported by the testimony, relief ought to be given."
Other cases, both state and federal, are now agreed upon this proposition. It may be as well to say, in this connection, that it is now established that the constitutional requirement of uniformity in taxation applies to the mode of assessment, as well as the rate of levy, and the constitution may be violated in a lack of just proportion in the value at which property is assessed for taxation, quite as much as in the rate or percentage at which the tax is actually laid on the assessed value. This is the doctrine on which the Guenther and Cummings Oases proceeded, a,nd was brought out in Railroad Tax Cases, 13 Feet 722; Bank v.Rines, 3 Ohio St. 15; Board of Sup'rs of Bureau 00. v. Ohicago,:' B; & Q: R. 00., 44 ID. 228; Chicago & N. W. By. Co. v. Board of Snp'rs of Boone 00., Id. 240; and People v.
308
:.85 FEDERAL RljlPORTER.
Weaver, 10Q U,.·;S. 544.. The principle of these cases has been often case. The reaffirmed, and .pever .questioned in ,any .. case of Sanford v. Poe,' 37 U. S. App. S9t>; 398, 16 C. C. A.305, and 69 Fed. 546, clearly recognizes, by implication, the rule ..of these cases,-that where is departure from provisions of the Ute law' relating to assessment, or a violation of the fundamental law, a court of equity will or may enjoin the assessment, as being invalid. Being of opinion that there has been a departure from the constitutional mandate in the assessment here made, I do not find it necessary to decide defi:nitely whether a fundamental error of this kind would, in and of itself, render the assessment invalid, and entitle the taxpayer to an injunction against further proceedings to collect under such assessment. I shall take it for granted, without deciding, that it is necessary, as before stated, for the taxpayer to go further, and -establish prima facie, at least, that the unconstitutional method complained of has resulted in a substantial want of equality and uniformity in fact to the injury of the plaintiffs; and this leads up to the question whether or not the plaintiffs have, a1l a matter of fact, shown a strongly probable right to relief, or, as otherwise stated, whether the plaintiffs have made out a prima facie case. In Flippin v. Knaflle, 2 Tenn. Ch. 238, one of the state's great judges flaid:
a
"Upon the prel1mlua,ry, application tor an Injunction, all that the judge should, as a general rule, require, Is a case ot probable right, and probable danger tb that right without the interposition of the court; and his discretion should then be regulated by the balance ot Inconvenience or Injury to the one party or the other."
This is the recognized rule of the cases, both English and American, state and federal. Blount v. Societe, 3 C. C. A. 455, 53 Fed. 101; Southern Ry. Co. v. City of Asheville, 69 Fed. 361; Africa v. City of Knoxville, 70 Fed. 729, 740; New Memphis Gas & Light Co. v. City of Memphis, 72 Fed. 952; Griffith v. Blake, 13 Eng. Ruling Cas. 112, and English and American nortes to that case; Indianapolis Gas Co. v. City of Indianapolis, 82 Fed. 245. The question recurs, then, have plaIntiffs made out a prima facie or probable right to injunctive relief? And this opens up the case on its facts. Whether or not, in treating the case in this aspect, it is competent for the court judicially to recognize and know what is very well understood and common knowledge with all intelligent people in the state, becomes a question. It is a matter of familiar and common knowledge with every citizen of the state that ordinary real property is assessed for general taxation at a percentage ranging from 50 to 75 per cent. of actual value. This is a general Iilystem. This has been the practice in by the legislative and executive departments of the government from an early day in the state's history. With full knowledge of this method of assessment, the legislatures of the have recognized the custom.; and, in the exercise of the taxing power, the varying demands of the state from. time to time for revenue have been met by legislation directed, not to a higher rate. in assessment, but to a variation in the rate of levy. This is a long, well-
RAILROAD AND TELEPHONE COS. V. BOARD OF EQUALIZERS.
309
understood, and well-settled usage in this state. In the Guenther Oase, before referred to (19 Fed. 399), Judge Key observed: "But from the other proof in the cause, and from what a court may judicially know of the history of. tax assessments in this region of the country, we think that lands in Roane county were taxed at a valuation, on the average, of one-fourth belo·w their real value. It is quite apparent that the property of complainants was assessed at a valuation much above its real value. It does not distinctly appear what rule was adopted in the valuation of lands, but it is clear that it was not intended to assess them at their real value, but below it; nor were they assessed, as a rule, according to their cost. It is equally clear that it was intended to assess railroad property at its full value, and that in doing so there was fixed upon it an exaggerated and unreasonable valuation. 'rhis difference was not accidental."
So, too, in Oummings v. Bank, after saying that the oonstitution and statutes of nearly all the states contained enactments designed to put assessments at the actual value of all property, the court observed: "But it is a matter of common observation that in the valuation of real estate this rule is habitually disregarded."
And the supreme court of TIlinois, in Board of Sup'rs of Bureau Co. v. Chicago, B. & Q. R. Co., 44 TIl. 238, 239, it seems, proceeded upon the ground that the oourt might take judicial notice of a custom or rule adopted by as-sessors in the state. The question involved in that case was very similar to the one here, and what was said by that court is fully applicable to the point nQW under examination, as well as other issues in this case. The court said: adopting a system of taxation which commends itself to the favor and approbation of all well-organized minds. It Is no argument to urge that the fault is with the assessors, In the case of individuals, and with railroad companies, in making out their schedules for the county clerk. If the assessors violate their duty, are railroad companies to be the sufferers? If they neglect to act fUlly up to all the requirements of the law, is that any reason why A. E:hould pay 40 per cent. more taxes, in proportion to value, than B.? The rule adopted by the assessors in this state has grown into a custom, and has been tacitly sanctioned by every department of the government for a long course of years, and It is now too late to challenge it. Even . so late as the last special session of the legislature, that body, by clear impli.cation, acknowledged the custom, and yielded to its influence, by the provisions of the act to tax the shares in national banks. They therein impliedly declare that such shares are to be taxed the same as other property. A share of bank stock, under that bill, is not required to pay more state or lucal taxes than a piece of land or a house of equal value; and the plain inference Is, if such property be assessed on only one-third of its actual value, bank stock shall be assessed on the same per cent. of .Its actual value. 'Vould not tbe sense of justice of every man In this community be outraged by allowing this or any other depreciation to one class of people, and demanding of another a higher tax on a similar article of the same actual value? The proposition cannot commend itself to the favor of any just man, and can receive no countenance in any court of justice. It is anu(tmltted fact on both sides to this controversy that the property of no one owner in the county of Bureau has been taxed on its real value, and that the per cent. added by the board of supervisors to the valuation of the property of appellees imposes on them a greater proportionate bUrden than the law requires them to bear.. We are of this opinion, and therefore consider the action of the board unfounded in justice, and in direct opposition to the constitution. The great and attractive feature of uniformity has been disregarded by the board, and appellees victimized. It may be desir"The framers of our constitution, and our lawmakers, to their credit be it said, have kept steadily in view the principle of equality and justice, in
85 FJilDERAL REPORTER.
able that the greatest share of the public's burdens shall be borne by these corporations, bUt, until there be a radical change in our fundamental law, it cannot be done. They stand on the platfol'm of equality before the law, and no greater burden for the support of governl\1ent can be imposed upon them than can, be placed on the individual taxpayer.".
Other cases are to the saine effect. If, therefore, the court may judicially know an established custom in regard to tax assessment in the: state, it would not be controverted for a moment that the court must kriow that ordinary real property in the state is assessed for taxationat a,rate not exceeding 75 per cent. of actual value. In addition to this, the proof in the case, so far as developed, establishes that a lower P lrcentage than this is the prevailing rate of assessment in some of the largest cities and coullties in the state. It further appears that the state poard of assessors and equalizers, established under the act of 1895, undertook, after considerable labor, and extensive travel ave!' the state, to equalize assessments for 1896 on a 75 per cent. basis; thus yielding to the influence of a long-established usage in this state. ,It is truR, tl,lat the board does not appear to have officially recorded, or prodaimed this resUlt, but, as it was acting at the time as the authorized representative of the state in the exercise of the taxing power, it is 110t perceived how its action is diminished in importance by this fact. The rate at which tb.at.board undertook to equalize throughout the, state was confessedlycQDsidera,bly above the average rate of assessment prevailing in many localities. In regard" to railroa!l and telephone properties, assessed for the, years 1,S91' and 1898, it is, frankly conceded that the assessors have brought this property up to its full, ,actual value, and that they have done so understandingly, believing that it was their duty to assess it at its full value, in liccordancewith the provisions of the constitution of the state hereinbefore referred to. In addition to these, certain other very' striking circumstances are now to be refel'red to, a;s bearing upon the question of overvaluation of these properties, as well as arelative excess under the constitutional provision requiring equality. It appears that the aggregate assessed value of all taxable property has been declining somewhat since 1891. It is a matter of common knowledge and obs'ervation that there ha,s been a constant shrinkage in values of all properties during these same years, and in no class of properties more than in railroad properties. r:f'he numerous receiverships in the courts of the country over such property furnish one, among many, elements of evidence showing this to be so. The legislature has not undertaken to meet this variation by securing a different rate of assessment, but by changes in the percentage of levy. There has been no raise, confessedly, in the aSlsessed valuation of other classes of taxable property in the state. It appeal'S that railroad and telephone properties in Tennessee, localiied property, were assessed for 1896 and 1897, in the aggregate, as follows: Railro,ads Telephones '. .···· " .· ,. ..·····. $40,979.108 :;'........ 243',(j60
The same properties have been reassessed for 1897 and 1898 as follows;
RAILROAD AND TELEPHONE COS· .,.
OJ' EQUALIZERS.
311
Telepbones
Railroads' ..··.· :.'. It";' '
:. . . . . . · "· · · -· · · ;· · · · · · · · · · · · · · ,a · · · · · · · ·
'. · ............ It · · · · · · · · · "a ·
$70,000,000
The percentage of increase is much higher upon some of these properties than others. On certain lines of railway, and cel1ain the increase is enormous and startling; and,as appears from the foregoing figures, the aggregate increase on railroads is, approximately, 74 per cent., and that on telephones, approximately, 500 per cent. It is certain that, if this result is even approximately correct, all previous assesSllllents and equalizations in the state of Tennessee have been remarkably inefficient, and the conduct of all officials charged with duties under the tax system of the state extremely negligent, to say no more of it. The present assessed valuation will be found similarly out of proportion to the taxable value fixed upon similar property in the adjoining states. This is not seriouslycontroverted. I have before referred to the fact that the defendants have, so far, refused to disclose the methods by whicn this result .was reached. It would seem only fair, after having brought about so striking a result as that referred to, under the circumstances just mentioned, that the defendants should have been willing to furnish at least an outline of the facts and figures which form the basis of estimates or calculations which have resulted in an increase in taxable values so enormous as we here have. The plaintiffs constitute a large class of taxpayers, and are complaining that they have been denied a carefully guarded constitutional right, whereby their property is about to be made to bear an unjust and oppressive proportion of the government burden of taxation. It would seem that at least some reasonable explanation should have been furnished under the circumstances. As I have said, the charges in the bill are met by the statement that the defendants have acted legally, and that their action is conclusive. While the board of equalizers have thus declined to furnish any facts and figures, counsel, in argument, have diligently sought to furnish prima facie justification for a result so far out of proportion to anything in past history in this or adjoining states, and in a time with prOperty of all kinds stea.dilyon the declille in value. This showing was in the way of handling on paper certain figures, based on stock and bond quotations and earning statements, presumably furni,shed to counsel by the railroad The.statute does not, as has been well said, authorize a stpCk and bond basis as a standard of value, but only permits the market value of these to be looked to as an element in the evidence. Notwithstanding anything. that may halVe been said in judicial decision!! and ,legislative enactments, no more uncertain, or delusive element in the attempt to fix values was ever resorted to than this stock and bond oosis, unless handled with extreme caution, and with those qualifications for such a task which come only from special training and experience in such matters; The necessity for .training and experience was distinctly recognized and stated by the supreme court pf Minnesota in Steenerson v. Railway Co.,. 72 N. W. 716. That court said: "The members of such a commission be men of great financial ability, who have had a large amount of training and to fit them f{)r
312
85 FEDERAL REPORTER.
their responsible and difficult duties, and ,they should be thoroughly familiar with the mauy financial and economic problems which enter Into the business of and operating railroads."
This observation was made in regard to placing valuation on this particular kind of property generally; for the court in that case rejected the stock and bond basis for fixing value, and went far towards the adoption of the New York rule. To the person familiar with such matters, it is well known thatthe stock and bonds do not, as a rule, at any time represent the money actually invested in a property of the character here in question. It is only necessary to note the case of bonds sold belo'w par, and, again, the fraudulent practice of "watered stock," to show the utter unreliability of 'such an element. Again, the value of a bond in market depends almost entirely on whether or not the interest coupons are promptly paid, and money which ought to go to betterments and improvements is often required for the payment of such interest, and is so applied, while the physical condition and .value of the railroad property is rapidly running down from day to day, with not a cent of net earnings. On the other hand, as a result of applying gross income to betterments and improvements on the property; default is made in the payment of interest on bonds or dividends on the stock, and these securities rapidly decline in the market, while the actual value, of the property has been rendered constantly greater. So, too, the effect of good or bad management of a railway on the market quotations of stock and bonds is well known. And, still more, the effect of the operations o,f what in speculative parlance are called the ''bulls and bears" of Wall street, is quite well understood. All that can be had are Wall-street quotations, which vary widely from day to day, as the result of the conClitions alluded to, and this is practically not different from a speculative process. If there were at any time a real market value for such securities, a'S bona fide investments, it might be otherwise. But, whatever may have been the conditions in former years, it has come to pass that there is no real market value to these securities, fixed by purchases for permanent holding and for intrinsic value. Wall-street operations and quotations are constantly influencing the figures at which they are held and sold, and such figures are largely speculative. These observations relate, of course, to interstate railroads, or important lines in an interstate system. When dividends are paid on stock, and interest on bonds, these become important, more as showing earning capacity, and in that way the value of the railroad property, as operated and used in connection with the franchise. This earning value will be found to vary greatly at different times, but is always more reliable than Wall-street quotations, or the par value of stock and, bonds; no real investment market value being obtainable, and the manipulated figures of the stock exchange being no just criterion whether these be high or low at a given time. Apart from these particular objections to values fixed by stock-exchange quotation,as .shown by the Financial Chronicle, or other like sources O'f information relied on by the board in this case, and speaking of stock as a criterion of value generally, the court, in Ootting v. Stock-Yards Co., 82 Fed. 854, said:
RAILROAD AND TELEPHONE COS. V. BO.\RD OF EQUALIZERS.
313
"Again, when property has been capitalized by issuing stock, neither the market value nor the par value of the can be accepted in all cases as a proper criterion of value, because the stock may not represent the money actually invested; and, furthermore, beca.use the property may have been capitalized mainly with reference to its income-producing capacity, on the assumption that it is ordinary private property, which the owner may use as he thinks proper, withcmt being subject to legislative control. On the other hand, however, when property is valued for the purpose last stated, it is clear tha.t the owner thereof is entitled to the benefit of any appreciation in value, above the original cost and the cost of improvemep.ts, which is due to what may be termed 'natural causes.' If improvements made in the vicinity of the property, the growth of the city or town where it is located, the building of railroads, the development of the surrounding country, and other like causes, give property an increased vaiue, the owner cannot be deprived of such increase by legislative action which prevents him from realizing an income commensurate with the enhanced value of his property. Applying these general principles to the case in hand, the court conCludes that neither the ,sum for which the property of the stock-yards company has been capitalized, to wit, $7,368,650, nor the market value of it!'! stock,can be accepted in this proceeding as a correct test of its value. In the 1Irst place, the outstandiIlg stock represents property of the value of upwards of $1,000,000, not used for the purpose of yarding and feeding which must be excluded in computing the value of the company's property which will be affected by the statute in question. ln the second place, a large percentage of the stock now outstanding does not represent money actually paid in by the shareholders, or property COlilveyed to the corporation, but represents, l"ather, an assumed appreciation in the value of the company's propel"ty over first cost, and the good will, of its business. On one occasion, the stock of the company was doubled (that is to say, It was Increased from $1,000,000 to $2,000,000), without the payment of any money, each stockholdel" receiviIlg an additional amount of stock equal to the amount which he then held. It is fair to Infer that a large amount of stock has been issued by the company. not so much with reference to the actual value of its physical property, as with reference to' the income which it could be made to produce, and the dividends it could ;be ,made to pay. That this latter considel"atlon has been a potent factor in producing the present volume of stock is a necessary inference from all the
It is noteworthy, too, that the legislature ,and the court of appeals of New York state, in the very atmosphel'e of these Wallstreet quotations called. "market prices," have, ;as it would seem, reo pudiated these quotations as an element calculated to determine true values. The legislation of that state is rapidly coming to a sound and practical basis for the assessment of railroad property. This is done by determining what it would cost to reproduce the prOlperty in its present condition, and at its present value, and to this is added. the value of the franchise, which may be ascertained by looking to the actual earnings of the property as a basis; for it is this which shows the true value of the franchise and its use in connection with all of the tangible property. The stock and bond basis is liable to be erroneous and misleading in other practical particulars, which I will not stop to point out. When we come to actual earnings, a sensible and safe element is. reached, which may be Pl'operly regarded in determining actual, as distinguished from purely speculative, values on property. Earnings, however, furnish a safe basis on which to stimate values only when net earnings are considered. Indeed, no just result can ever be had by treating any element in a method of figuring on paper only. It is familiar knowledge that properties of this kind are operated at an enormously great expense, when com·
'85' FEDE'llAL
REPORTER.
of arid in be large, lUg whatever would be left, as a ,net relilUlt to pay a dividend or interest on the property actually'invested, after deducting proper charges. It was apparent in the figtltes handledin argument that this process was to was assuillEld to be .net earnings (but in fact, as. I think, not net earningsatall),.apportion this on a mileage basis on so much of the railroad as lies within the state, and then capitalize at, say, a rate of 10 per cent. from ·this income, In other words, fot illustration, if the income appeared to be $10,000 per mile; itwas supposed that this would justify capitalization at the sum of $100,000, and that this capitalized sum could be regarded as the interest-producing principal. ,. ',l'his was an effort to apply the familiar problem of having the amount arid the rate of interest with which to determine the principal. So, on $10,000 earnings, it would be found that the property for taxation was worth $100,000; and this was the process, although' it was apparent that on the capitalized sum, wheJ;i operating expenses, includ· !ng of were' deducted, there would be little or no net mcome whatever. It needs no comment to show the fallacy of a pro, cess like this. Section, 5 of, 5 of the act, .insetting out what may be lQ'Qked to by the assessors, specifies "gross receipts," and no, where, apparently, permits the aSf$easors to have regard to net earnings as an evidential fact in arriving at the valuation. It is obvious tbat the gross-receipts as .applieq toa manufllcturer, farmer, or other property .. klllctor,cparacter, would be destructive, in the burden of taxation imposed:' 1 refer, of course, to gross earnings only. Uilil now· well settled that legislation' prescribing tariff rates by r¢lroads, by gascompallies, and water rates by water companies;' inust be reasonable, as regards both the oompany and;thepublic,alnd that whether thelegislation is so or not is eminently a question fur judicial investigation. Whenever such legislation prevents.a faimand reasonable return on the capital bona -fide invested .in"bdsiness, such legiSlation is in conflict with the constitutionof the United ,States,' ,as deprivillg 'a citizen of his property without due process of'law, and as depriving him of the equal protection of the law. This reasonable return or interest on the capital invested means a reasonable net income or dividend after deducting operating expenses, and repair charges.. " The rule takes into account capital actually invested, only, and excludes fraudulent or "watered" stock, commorily called. It is not difficult to see that taxation -based directly on gro&s receipts, as SUCh;, could easily be carried to a point that would ;contravene this constitutional limitation. Railway Co. v. Gill,156U;R 649, 15 Sup. Ct. 484; Chicago,M. & St. P. Ry. 00. ,y'. Minnesota,'134 U:. ,8. 458, 10: Sup.Ct. 462,. 702; Ames v. Railway Co., 64 Fe<!. 165; .New Memphis Gas & Light Co. v. City of Memphis, 72 Fed. 952; Cotting v. Stock-Yards Co;, 79 Fed. 679; last Indianapolis Gas Co. v;, City ,of Indianapolis, 82 Fed. case, iUs said, bas just been affirmed on appeal; Reaganv. Trust Co., 154 U. S. 36.2, ·14: Sup. Ct. 1047. . It would seeDt to follow th'lt if the tax could not be\aid directly on gross receipts, prevent a reaI
,witH; t1iWoperating
of ot,her
RAILROAD AND TELEPHONE COS., V. BOARD OF EQUALIZERS.
,315
Jl(mable return on property actually invested, the same result could not be effected by using gross receipts as a basis on which to estimate large values, and, by excessive taxation, prevent a reasonable return in an indirect method. And it is curious to note the apparent tendency in some decisions to hold to the and bond basis in fixing values at high figures for the purpose of taxation, while. rejecting such a method in arriving at true value for the purpose of regulation of cllarges in cases where the question is whether a statute regulating charges and tariff rates is reasonable or confiscatory, as permitting or not permitting a reasonable return on qapital invested bona fide in the business. Where true value is a constitutional requirement, as in Tennessee, it would seem to follow logically that such value, for the purpose of taxation, must be substantially the same thing as when is inquired about for the purpose of regulation. Much stress· has been placed in argument upon the language of the constitution providing "that all property shall be .taxed according to its value." Defendants say the proper interpretation of these terms value, and that, requires that property shall be assessed at its unless .plaintiffs can show that their own property has been in fact assessed at more than its actual value, it is not open to them to CO'Ill.plain that all other property in the state is assessed only at a percentage of its actual value. The contention is that if the assessors have obeyed the constitutional direction, and assessed plaintiffs' property at its full value, it is no just or legal cause of complaint, and no ground for relief, that other assessars have put a taxable value on other property much less than its actual value. There are, however, two sufficient answers to tbis contentian: Conceding, for the purpose of testing the soundness of this proposition, that the constitutional terms "according to its value" mean the same thing as "at its full value," the contention of the state, then,stated with reference to its effect, is this: That it may assess the property of A. at its full value, in obedience to the constitution, and the property of D. at onehalf its value, in violation of the constitution, and, when A. complains that the result has been to violate the constitution in respect to the equality provision, the answer is that the objection is not open to A., because he is taxed on no more than the full value of his own property, and that he must pay 50 per cent. more on the same actual value than D. Now, it will certainly be admitted tMt the simple statement of such a proposition suggests its utter untenableness. If decisions may be found which apparently uphold a result such as this, they promulgate a doctrine which cannot be accepted as good law. But a second and decisive answer t6 this contention is that the terms of the constitution, "according to its value," hl;tve no such import and. convey no such meaning as that attributed to them. I have already pointed out that long-established usage in the executive and legislative departments of the state government has placeda different constitutiOIll. .These. words, interpretation upon this provision of their originaJ nor in any derivative .sense atta.ched. to, them .by usage,necessarily convey any such idea as that· imputed to them -in this new interpretation, that the meaning is, "at its full value."
316
85
The purpose of this provision in the constitution was to make actual value the basis on which the tax should be laid, at whatever rate. The state was left to assess at full value, or at a percentage of value; but the a'ssessment could only be on value, as distinguished from any other mode of assessment. The tax could not be fixed, for example, by the acre, by the 100 acres, by frontage, by the selling price, as shown by the vendee's deed, nor, again, according to locality, nor by any other of the numerous methods in vogue from time to time, butimly upon actual value as the true basis. And, with a definition such as this, this constitutional provision reads naturally and intelligently along with the other provisions which are equally binding as to equality and uniformity. In the case before referred to (4·1 TIL 240), the constitution of lllinois required a taxable value to be fixed in proportion to actual value. The legislation enacted under that constitution specifically required that "each separate parcel of property shall be valued at its true value in money," but further provided that the price for which such real estate might be t;old at a forced sale should not be taken as a criterion of such value. Notwithstanding the specific statutory injunction, the assessors had placed property at a percentage of actual value only, below the real cash value; and, with respect to the property of the railroads, the supervisors, sit· ting as a board to equalize valuations, raised the assessed value 20 per cent. on rolling stock, and 50 per cent. on fixed and stationary personal property, without making a similar increase on any other class of prope'rty. The supreme court of lllinois, referring to this, used this language: "It cannot be that one portion Of the taxpayers in a county, owning taxable property. shall be required to pay more taxes in proportion to its value. no matter how that may be ascertained, than ll-nother portion in the same county. If the of the strict injunction of ,the law, shan place a value upon propertyl'arbelow its real cash value, and such a practice goes on Unchallenged, an(i is recognized by the authorities having special charge of the revenue of the state,that misconduct must also contain within Itself the great and cardinal principle ,of uniformity. No warrant is given, if the law is not strictly observed.in the case of individuals, and their property is not assessed at its actual value, that the property of a corporation situate in the same county shall be assessed at greater Ilroportional value than that of in'dividuals, even though the enhanced assessment is not on the actual cash value of the property o·f such corporation. The, same rule wh·ich is applied to. individuals,' justice and the constitution demand, shall be applied to corporations. To demand of appellants that they should schedule their property at its cash value, while individuals may ,schedule their property at one-third, or less,of such value, would be to demand of the former three times the amount of tax:es demanded of the latter.. A.s we said in the Bureau County Case, such a proposition is so monstrous as to be indefensible by fair argument. Such discrimination is condemned, not only by the constitution, but by the indignant, yet no le.ss just, judgment of an honest people. On the facts, however, we express no opinion, as the case will go to another jury."
And referring to an early and long-continued construction of the law, which has ripened into a usage, the court observed: "A.nd h,ere we might say, more explicitly than was said in that case, that .a klllg, uniform, and unchallenged practice under a law is strong evidence 'of the real meaning of the law. To the hoary maxim, 'Contemporanea expositlo est optima et fortissima in lege,' is accorded full force in all courts. and we have ever rendered it due respect."
BAILRO}_D AND TELEPHONE COS. V.BOARD OF EQUALIZERS.
817
So, too, in the .:well-co'llsidered case of Levee Dist. v. Dawson, 97 Tenn. 161, 36 S. W. 1043, Judge Caldwell; speaking for the supreme court of the state, said: "Under the constitution ot 1796, lands were taxed by the hundred acres, 'but the constitution ot 1834, like that ot1870, contained the' provision that 'all property shall be taxed according to Its value.' This means that every property tax shall be graduated by the value or the property on which It Is laid. Jenkins v. Ewin, 8 Heisk. 478; Mayor, etc., of City of Chattanooga v. Nashville, C. & St. L. R. Co., 7 Lea, fiJI; Railroad Co. v. Morrow, 87 Tenn. 406, 11 S. W. 348." This interpretation of the constitution, sanctioned by long custom,
is the natural, practical, and just construction. . I conclude that the plaintiffs have made out a probable or prima. facie right to relief, both on the ground of constitutionally prohibited inequality in the rate of aSSfssment applied to this and also in regard to certain lines or divisions,-a strongly-probable overvaluation of the property, considered in and of itself, regardles& of any constitutional ratio or proportion. My opinion is that the plaintiffs, on the facts, are enUtled to a judicial investigation, and are entitled to know the actual processes by which their property has been assessed at a value so out of proportion to that of former years. It may be very true that properties of this kind have not been adequately assessed heretofore, and that such properties are not bearing a just proportion of the government burden of taxation. If this be true, it dOes not justify the application to this class of property of methods that do violence to the constitution and the settled custom in our tax system. The makers of American forms of constitutional government 'were by recent lesson fully mindful of the teachfng of history that the power to tax is the power to destroy, and that oppressive exactions were generally made under the guise of tax,ation. A recognition of this truth is everywhere manifested in the constitutional limitations with which the, taxing power is guarded. 'l'he lapse of time, 'and the absence O;f unconstitutional /lnd forced tribute, may diminish our appreciation of the wisdom of the constitutional principle; but neither lapse of time, nor the absence of a remindful lesson, will diminish its value or importance as the constitution's peaceful and wisely-provided shield. against oppressive discrimination and destructive exaction under color of a tax burden. A di!lregard of just constitutional restraint sets an evil precedent, which does not pass away with the occasion which gives rise to it, but returns to torment in unexpected forms. An unequal and unjust exaction is no longer a tax, but confiscation. As the supr-eme court of t}1e state well observed, "Equality is of the very essence O'f the taxingp(}wer itself." Taylor v. Chandler, 9 Heisk. 357. We have here a serious contention that a constitutional guaranty has been denied to these plaintiffs, and, if such is the case, it would seem to be equally a deprivation CYf a right secured by the fourteenth amendment to the federal constitution. , County of San Mateo v. Southern Pac. R. Co., 13 Fed. 722; County of Santa Clara v. Southern Pac. R. Co., 18 Fed. 385; Fraser v. McConway & T. Co., 82 Fed. 257;' Indianapolis Gas Co. v. 'City of Indianapolis, Id. 245; Railroad Co. v. Ellis, 165 U. S. 150, 17 Sup. Ct. 255. Nor doe. it change the effect to say that the statute
318
85 FEDERAL REPORTER. 1 1, ·
itself and that .error was one merely in the administratiop."qf tne law. The injury is,just the same. In Reagan v. TJ;ust Co., 154' V. S. 390, 14 Sup. Ct. 1051, the supreme court of the Umted States said in respect to .1,his point: "Neither: will the constitutionality of the statute, if that be conceded, avaiL to oust the federal court of jurisdiction. .A. valid law may be wrongfully administered by officers of the state, and so as to make such administrationan illegal burden and exaction upon the individual. A tax law, as it leaves the legislative ,handS',. IDay not be obnoxious to any challenge; and yet the officers charged with the administration of that valid tax law may so act un,der it, in the matter ,of assessment or, collection, as to work an illegal trespass tl.pon the 'property rights of the individuaI.Tbey may go beyond the powers thereby conferred, a nd, when they do so,. the fact tha t they are· assllllling. ·to act: under a valjd law will not oust the courts of juri:>· diction ,to restrain their excessive and,iilegal acts."
It must be repeated that the question is one of the denial of a right secured both by the state and federal constitutions, and all that is now said must be read in the light of this statement; and as limited by the proposition to whiclithis question gives rise. BeH¢vlllg'that plaintiffs have a case for investigatiou, and, prima facie, for relief, I am brought to the of the appropriate' anQ .'the rerlledy. Diversecitizenshi'p and the federal question constitute" the grounds of federal, as distinguished from state, jurisdiction; but the chief objection :urged is that of equitable jurisdiction, as distinguished jurisqiGtion at law. It is sa!!'l, tJ;lat the remedy is anaw, and by a and that al3uit is peridingillthe state court. It is adll,itted that the ,pendency of a suit in th,e .state is no suit in this court for' tlle same purpose. 1Il regarq to the judsdiction in equity, and 1:J;J.,e 'injunctive remedy, it is sufficient to refer to Sanford v. Poe, 37 App. 378, 1,6 O. Q. A,. 305, and 69 Fed. 546, and Ogden City by the, supreme. court the Uniled v. Arpistrpng (just 'States) 18 Sup. Ot. 98.,. ,'In regard to, relief frolll an unequal tax, as well eq:qitable jurisd,icti9n to furnish. such' r:elief, the following cases Will 'be found instructive: Darling v. Gunn,,50 lll. 424; Ex parte:Ft: Smith & V. B.)3ridge Co. (4-rk.) 36 S. W.l000; Chicago, B. &.Q:,R. CO. v. Board of Qom'rs of Atchison. Co., 54 Ran. 781" 39 Pac. 1039; Chicago,. B. Q. R. ,'Co. Y. Board, etc., of Repuplic Co., 14, C. C. A. 456, 67 Fed. 411; Andrews v. Kings Co., 1 Wash. St;46, 23 Pac. 409; Railway Co. v. GueJith 19 Fed,. 395; Investment. 00.' v.Charlton, r, 32 Fed.:192;Benn v.Ohehalis Co. (Wit'sh.)39 ;Pac. 36p; Bankv. Uun· gate, 62 Fed,. 548; Ohicagq & A. R. Co.y. Livingstone Co., 68 TIL 458; Y. 14. 527; Inyest· ,mentCo,v..ParTIsh,24 Fq'G.;l.91; v. Lllldsay,45 Fed. 619, 627; Stanleyv. 'Supervi/ilOfS, 121'· U. S, 551, '7 Sup. ,Ct. 1234; Merrill v. ;ttuID,phrey,24, Micll.170; ''Peffertsv. Supervisors,:21 Wis; 68$; Ma.son v. TT"''tstees,of Lallcaste,r,4 Busp., 406; Fuller v. 'Vt, 643. eonside,v ;w.J;iat will be ,prrbable' Of con· venience or injury aide or the other ilf ma,intaininglpat· tera in statu 'fhe adju'stment of rig'ht('l J},t the hearlug. 'Looking, of the plaintiffs, it this: ' I f this enormous' increase the value of property is aI-
as
to
819
lowed to be certified before investigation, theywHl'be required to pay the rate of levy on that assessment to the state, and to all the counties and municipalities in the state; and conceding, for the purpose of this case, that the payment under protest statute is a remedy available to the plaintiffs in the event this assessment should turn out to be invalid, the plaintiffs would nevertheless not only be compelled to raise an unexpectedly large amount of revenue to pay the tax on this assessment, but would be left to i:lhe necessity of instituting separate suits throughout the state agains,t the various counties and municipalities oollecting part,s of these taxes. 'rhese suits would be prosecuted at great expense and delaY,and, in the event Of judgments obtained, would or might require further mandamus proceedings to compel a levy and collection. At least, we should not regard this as very imp1"obable, in the light of history. Then, for any taxes paid to the state after a recovery of judgment, its satisfaction could only be had by an appropriation act through the legislature; and th.e certainty or success of this remedy, in addition to other difficulties, could hardly be regarded as safe or certain. On the other hand, it is within the power of this court, in g,rantingan interim injunctIon, to do so on express condition that these companies shall p,ay an amount of taxes equal to the sum paid on the assessment made for the yeal'S 1896 and 1897, with the further express condition that tbJis &hall in no event prejudice the right of the s.tate to collect the balance due under the present assessment, if held valid on the final determination of these suits. This will prevent the writ of injunction from operating unjustly against the state, counties, lmd municipalities, and nothing short of this affoNls any adequate protection to the plaintiffs. From the order granting an injunction an appeal may be taken to the circuit court of appeals, and the case, when appealed, takes precedence in the appellate court,so thM a hearing can be had, and the action of this court promptly reviewed. This can be easily done at the February term of that court, and the case is one which. being of public importance, that court will promptly dispose of. There is also a case involving the same assessment, pending in the state court, which can without difficulty be carried to the supreme court of the state, and a prompt decision had in that court, as well as in the court of a,ppeals,during the month of February or sooner, and any possible injurious delay a'V'oided; and, should a decisiOOl be had by the supreme court of the 'state, I would cheerfully accept its views" so far as the state constitutional ques,tion is concerned, and I have no doubt that its condusiollis could be readily accepted as sound on any other question, such as the question under the fourteenth amendment. In the view thus taken of the ce.ntral question in this litig:ttion, I do not find it necessary to consider or decide upon the other' questions raised, such as the constitutional validity of the railroad commissdoilaet. It is always a delicate duty, in this COUN, to pass upon the validity ()f a state enactment, in relatio'll to the state constitution, in adv;mce of any utterance by the' court of authority in the state, the peculiarly appropriate tribunal for the set-
320
tleIhent of such question. It will be open to both sides to urge in the couvt of· appeals every question made as suppor/ting or opposing the present action of the court, regardless of the fact that I have not pa,ssed on it at this hearing, for the queS/Hon in that court will be Whether the, action of this court is righ.t or wrong for any reason offered in the pleadings and evidence on either side. I should have said, in another connection, that my opinion is that, so far as the constitutional question is concerned, it is always open to the courts on both law and fact,and it is not competent for the legislature, as aga.inst a question of this kind, to declare that the action of an executive board shall be final and conclusive, any more than a statute could be permitted to declare for itself its constitutional validity and finality. Whether the constitution, as the supreme law' of the land, has,been violated, is a question for the judicial, and not the legislative, department, and an inquiry like this can no more be s'hut off indirectly than it can directly. If we should suppose the case of the board of equalization making a superficial or perfunctory showing of equalization, no one would venture, as I think, to claim that tbis would exclude a judicial investigation as to. whether,in fact, there was nevertheless an oppressive discrimin.ation in respect of a large class of property. The constitution can only be satisfied by an equalization made in good faith, upon adequate means and data, and after devoting to the subject a reasonable amount of time and attention. The constitution will never tolerate a merely sham observance. The result is that the provisional injunction is allowed on the express condition that these plaintiffs pay to the proper authorities a sum equal to the taxes due on the assesiSments for 1896; this sum to bE: paid as taxes for 1897, and to go as a credit on the present assessment, if sustained on final hearing, and without preju· dice to the state's rights. The taxes hereby required to be paid must be paid on or before the first Tuesday in February nex,t, and on notice of the failure to so pay, and application by the defendants, the injunction will be promptly dissolved. Nothing has been said in argument in respect to any injunction bond. As the law makes whatever is a just tax a fixed lien on the property, prior to all other liens, and a sum equal to the former taxes is required to be naid in at so early a date, I suppose an injunction bond will hardly be insisted upon; but, if so, that question, and the amount of the bond, unless agreed upon, may be presented to the court. NOTE 1.
By way of contrasting the assessment called In questIon by these sults with former assessments In Tennessee and 'other states, the followIng tables will be useful: ' The, average assessments per mUe, of, the .railroads in Tennessee for the past 10 yell:fS were as fpl,lows: 1887 ',' $14,514 1888 ··············.··········································· 14,514 1889 ·············.··...············ '. · · · · · · · · · . · · . . · · · · · · . · · · ·· 13,422 1.890 ·····...·....·.··.....··.·····.·.·······.. ; · . . · · · · · · · · . · .· 13,422 18,91 ·····.. .. .. ·.·· ·. ·... ··.··. .···..···· ·. ·... .. ·.··.····.··· 13,853
RAILROAD AND TEL;EPHONE COS. V. BOARD OF EQUALIZERS.
821
1896 .···························.·······.···········.·····.··· 13,284 The average assessment per mile o!' the railroads In the 12 states traversed by the lines of the Illinois Centra!. Southern, Louisville & Nashville, and ClncinnatJ Southern Railways are as follows: Alabama $11,171 Arkansas ························· " · ·· ·· ·. · · · ·· ·· ·· · · · · · · · · · · · 8.577 Georgia 8.505 Dllnois 4.958 Kentucky ;................................... 15.898 Loulsiana ··········..··.··.····.·····.··.·····..········.····· 6,652 '. ·· · · · · 10,000 Missouri North Carollna 6,848 South Carolina 8,911 Texas 8,010 Virginia ...·.·..······ · ·· ·· · · ·· ·· ·· ·· ·· ·· ·· ·· · . ·· · . ·· ·· · · ·· ·· · 13.939 Tennessee (heretofore) 13,284 By way of illustrating tbe Increase In tbe present overassessments beretofore made In regard to certain lines, the following may be mentioned: Olnclnnatl Southern (In bands of receiver): Tennessee, per mile (beretofore) , .. .. .. ·· .. ·· .. .. ·· $ 27,500 Tennessee, per mile (present assessment). ·· · · ·· ·· · · ·· ·· · · ·· ·· · 45,000 Soutbern, one line: Tennessee, per mile (heretofore) .·· ". · · · · · · ·· · · ·· ·· ·· · · ·· ·· · ·· $ 22,000 Tennessee, per mile (now). . . . . ·· ·· .. .. ·· .. · · ·· ·· ·· ·· · · · · · ·· · 31,000 Wlnols Central, Mississippi Division: Tennessee, per mile (heretofore) ······.······················ $ 22,000 Tennessee, per mile (now). . . . . ·· · . .. .. ··· · ···········'. ·· ·· · 45,000 Louisville & Nashville, "main stem": Tennessee (beretofore) per mlle··· o. $ 31,000 Tennessee (now) per mile. .. .. .. ·· .. ... · . ·· .. ·· .. . ·· .. .. .. .. · 60,000 Gumberland Telephone & Telegraph Company: ' $ 40.00 Tennessee (heretofore) per wire mile ·····.···· 300.00 Tennessee (now) per wire mlle ...······ The state comptroller has made public the general assessments of property for 1lB97, and, as compared with 1896, they appear to be as follows: Property In general, 1896 $312,472,633 Property In general, 1897·········· o. o. · · · ·· ·· · 311,075,545 00' ·· 0 ········· 0 · · · · · · · ·· 0 ········· 0 ·· 0 ·· · · · · · · · · · · · · · · · · 0 · · · · ·
1892 1893 1894 1895
...···.·..·.··....· ···0 ..·......0. 't · · · · · · · · · ,e · · . · · · ·0.. . . . . . .·····.·...···..··.·······...·. .·········.·.·..··········..··.······..·.·· .··············.·········.·.···.· ;. · ·· · . · . .. . · ·· . . . · · · · · · · · 'I · · · · · · · · · · ·
'I. .
13,853 13,420 1:3.420 13,284
0 ············
Decrealle In 1897.······ $ 1,3\)7,088 The assessments of the railroad, telegraph, and telephone companies for the same rears, with the increase on them, will appear by the following comparison: RaJlroads: o ··· o ··························· $41,882,010 1896 · 1891 ..··········· 73,300,863 Telegraphs: o. $ 519,396 1896 ..···· 1897 751,039 Telephones: 1896 ..······..··.············.·..·...····.····.········· $ 194,660 1897 ..··········································· 1,440,515 It thus appears that the general assessments for 1897 decreased about 4 per cent., while the assessments of the railroads were Increased about, 74 per cent. When the county and municipal taxes are laid on the basis of the new assessment, It appears that railroads will pay about double the amount of taxes which they have heretofore paid in Tennessee. In 1871, the comptroller's report to the legislature showed that lands were assessed at about one-third their value; the 85F.-21 0 0 ···· 0 ··· 0 0 ······ 0 · 0 .0 · ·· · · · · · · 0 0 ·························· 0 · 0 ··· 0 ··································· 0 .'. 0 ··· 0 · · · 0 ···· 0
').. L'"
I.
':"r
comptroller) :(ri. :.tlie abbot' Otle-l111lf the true values; and It appears. that the present comptroller, . rn "1895,' that the property I)f Tennessee, v9.1ued ??ght to. be' taluedll.t $700;000,000; .
NO'i'E2. In Investment 00. T. Parrish, 24 Fed. 202, Judge Deady said: "Bl1t It Is not necessary that there should be any actual conspiracy or expressed design to disregard the law In this respect, on the part of the assessor, to render an assessment Illegal. Whenever the assessor of a district of a county as large as one, of these counties uniformly estimates' real property at only one-third of the value 'he places on mortgages, It is hnposSlble to attribute the result to the Infirmity of human judgment, and the only' conclusion poss'lble In the premises Is' that It was deliberately and wlllfully'done, In pursuance of a settled purpose or rule on his part; and where the same thing occurs In a number of counties tn various parts Of the state, It Is manifest that the action of tbp assessors Is not only willful and deliberate; but that It Is the result of general and well-understood custom to substitute this conventional value of real property for 'the true cash' one which the statute requires. Indeed, the practice Is so universal and well known that the court might take judicial notice of It, and safely assume that there Is not an acteof land In Oregon that Is valued for taxation at more than one-half Its 'true cash value,' and that generally It Is not valued at more than one-third of such value. · · ." "Valuations must be the result of honest judgment, and not of mere will." If arbitrary, reckles!l, and grossly unreasonable assessments are made, relief will be granted. 1 SpeU. Ext. Relief, § 654, and cases cited. And see Railroad Co. V. Cole, 75 Ill. 591; Land Co. v. Gowen, 48 Fed. 771, opinion by Deady, J. The courts In these cases consider what facts show such fraud In law as justifies relIef. . . The cases of Railway Guenther, 19 Fed. 395; Telegraph Co. v. Poe, 61 Fed. 449; Sanford v.. POe, 16 C. C. A. 305, 69 Fed. 546; Telegraph CO. T. Norman, 77 Fed. 13; Chicago, B. & Q. R. 00. v. Board of Com'rs of Republic Co., 14 C. C. A. 456, 458, 67 Fed. 411, 413,-were regarded as reaffirming equity jurisdiction by Injunction to arrest an Invalid assessment of taxes, and as illustrating by 'the doctrine generally recognized. In the decisIon by the circuit court of appeals for the Eighth circuit, the decIsIons of the supreme court Kansas were followed. The constitution of Kansas provided that ":the leglslahire shall provide for a uniform and equal rate of assessment and taxation." Article 11, § 1. Rallroad property had been assessed at Its full value by a state board, whIle the board of county commissioners assessed other property In the county at one-third of Its value. The railway company ten. dered the taxes due if Its property had bee\l. asse!;sed upon the same basis as other property In the county. of Republic. Collection of the remainder of the tax was restrained by Injunction. In Taylor v. Chandler, 9 Helsk. 350, tile power to Impose taxes under the constitution of Tennessee was much considered by the supreme court of Tennessee. It was held that the legislative department, In the employment of this power, must be restrained by the limitations Imposed In the constitution, and that It devolved upon the judicIary to determine whether It had exceeded these limitations, "declaring its action void when It goes beyond Its legItImate powers." In City of Chattanooga v. Nashvllle, O. & St. L. R. Co., 7 Lea, 561, the same court said there must not be one rule for raIlroad companies and another for private cItizens; the constitution dId not permit this. In Levee Dlst. v. Dawson, m Tenn. Til, 36 S. W. 1046, the supreme court of Tennessee, referring to the state constitutional limitations on the taxing power, used this language: "Taxes laid primarily for the state must be laid on ali nonexempt property. according to value, so as to make them equal and uniform throughout the state; and taxes laid primarily for county, municipal, or other authorized local purposes must be laid on all nonexempt property accord· lng to value, so as to make them equal and uniform throughout the more restrlctedterritory to be especially benefited thereby." Railroad Co. v. Bate, 12 LE'a. 574, is a well-considered case. Judge Turney, delivering the judgml!nt of the, court, laid down the folloWing propositions: "I am of opinion with Judge Totten that the revisory jurisdiction extends to any ques-
v.
RAILROAD AND TELEPHO"E COS. V. BOARD OF EQUALIZERS.
323
tion of error or illegality, in the proceedings which has the effect to prejudice the rights of a party. I also think the legislature has no power to say that any citizen shall be deprived of the right to have all questions touching his life, liberty, or property heard, passed upon, and determined by the regular and constitutional courts of the state. Such right is Inalienable. It Is unnecessary, In the present case, to go beyond themajolity opinion In Wade v. Murry [2 Sneed, 56]. · * · Although the boards may be officers of the state, and proposing to discharge their duties as such, yet, jf they overleap the prescribed limits of the law under which they act, it is the right of those about to be injured to ask for, and the duty of courts to grant, a restraining relief. We think the petitions make prima facie cases for relief." A bill In equity exactly similar to those In the principal cases was considered by Judge Matthews In Railroad Co. v. Bate, 22 Fed. 480. The board of equalIzers was then called the board of examiners, and was composed of Gov. Bate and others. The preliminary Injunction was denied, on the ground that the blllwas' prematurely filed. A lack of equity jurisdiction was a question which does not seem to have been suggested by the eminent counsel in that case, nor was It considered by the court, but the case was treated on the merits of the application. These are mentioned specially because they were cases in the circuit court of the United States for the Middle diStrict of Tennes!lee, while the Guenther (lase, before Judge Key (19 Fed. 3!:l5), was an original suit in the circuit court of the United States for the Eastern district of Tennessee. In this last case, Jtidge Key, upon the proof before him, declared what he thought was a reasonable valuation ,at which to assess the property for and enjoined the remainder of the tax laid on the overvaluation. The decision in this particular was substantially similar to the decision of the circuit court of appeals for the Eighth clrcutt, referred to above, In Wilson v. Lambert, 18 Sup. Ct. 217, 168 U. S. 611, the supreme court of the United States agiLIn affirmed the jurisdiction of courts o( equity in this clasS of cases, saying: "Courts of equity undoubtedly have jurisdiction to hear the complaints of those who assert that their lands are about to be assessed and subjected to Ilens by a board or commission, acting in pUrsuance of the provisions of a statute which has been enacted under the forlns of law, but which Is unconstitutional, and therefore does not avail to confer the powers sought to be exercised. Dows v. Chicago, 11 Wall. 108; Railway Co. v. Cheyenne, 113 U. S. 516, 5 Sup. Ct. 601; Ogden City v. Armstrong, 168 U. S. 224, 18 Sup. Ct. 98; 2 DI1l. Mun.Corp. (4th Ed.) § 922." And a precisely similar bl1l was entertained before Judge Jackson (afterwards Mr. Justice Jackson) in Morrow v. Telegraph Co., which on appeal was affirmed by stipulation. 154 U. S. 511, 14 Sup. Ct. 1149. "A proper case for equitable Interference Is presented where the record of the tax proceeding is prima facie valid and regular, and extrinsic evidence Is required to show Its Invalidity, so that there Is not a full and adequate remedy at law to correct an abuse of the taxing power. * · * The illegality of the tax, or fraud In levying It, coupled with the fact that It may result in a cloud being cast upon complainant's title, presents a clear case for eqUitable Interference. The :Jurisdiction to Interfere for the prevention of a cloud· upon the title resultIng from· an illegal tax assessment Is regarded as pertaining to the well-settled powers of equity." 1 Spell. Ext. Relief, §§ 664, 065. In reviewing a tax case OIl certiorari, the court Is confined to the record of the board of equalization, and cannot examine evidence dehors that record, in the absence of special statutory provision for bringing In such evidence. In the ordinary case, therefore. certiorari Is no adequate remedy. Ogden City v. Armstrong. 168 U. S. 237, 18 Sup. Ct. !:l8; Shelby Co. v. Railroad Co., 16 Lea, 413,1 S. W. 32. InRe Tyler, 149 U. S. 164, 13 Sup. Ct. 785. the supreme court siLId: "Manifestly the object of this legislation was to confine the remedy of the taxpayer for illegal ll,ssessment and taxation to the payment of taxes under protest, and bringing suit against the county treasurer for recovery back; but all this is nothing to the purpose. The legislature of a state cannot determine the jurisdiction of the courts of the United States, and the action of such courts in according a remedy denied to the courts of a state does not involve a question of The dIstinction, recognized by some of the cases, between arresting the assessment ot , -.... !
324
85 FEDElRAt. REPORTER.
a tax and restraining Its collection after It Is assessed, Is adverted'to In the opinion in this case. When constitutional provisions are self-executing, and when legisiation is needed to give them effect, were questions consiueredin Railroad Co. v. Ihienberg, 43 U. S. App. 726,21 C. C. A. 546, and 75 Fed. 873. In respect of iegislation prescribing a tariff of rates, and the application of the fourteenth amendment as a limitation, Road Co. v. Sandford, 164 U. S. 578, 17 Sup. Ct. 198, is a leading and instructive case. As illustrating the purpose and effect of the fourteenth amendment, see 6 Am. & Eng. Enc. Law (2d Ed.) 965, and cases referred to. See, also, Fraser v. McConway & Torley Co., 82 Fed. 257; 1 Kent, Comm. (14th Ed.) *391, *392, and cases in notes. In Munn v. Illinois, 94 U. S. 123, the court, discussing the effect of the fourteenth amendment, said: "The constitution contains no definition of the word 'deprive,' as used in the fourteenth amendment. To determine its signification, therefore, it is necessary to ascertain the effect which usage has given it, when employed in the same or a like connection. While this prOVision of the amendment is new in the constitution of the United States, as a limitation upon the powers of the states, it is old as a principle of civilized government. It is found in Magna Charta, and in substance, if not in form, in nearly or quite all the constitutions that have been from time to time adopted by the several states of the Union. By the fifth amendment, it was introduced into the constitution of the United States as a limitation upon the powers of the national government, and by the fourteenth, as a guaranty against any encroachment upon an acknowledged right of citizenship by the legislatures of the states." See, also, the recent case of Railway v. Ellis, 165 U. S. 150, 17 Sup. Ct. 255. In an interstate railway line or system, there would seem to be no insuperable difficulty in taking all the unlocated personal property actually used in the operation of the llne, and distributing and apportioning the aggregate vaiue on a mileage basis. This, added to the value per mile of so much of the line as lies within the state, would give such state a just portion of the entire value, besidelil localized property. The vaiue of. the franchise might be ascertained, and similarly distributed. and apportioned, and thus the unit value reached. This might be estimated by net earnings and other conditions relating to the actual facts. If all the states traversed by the line would adopt a similar method, equitable results would follow; otherwise, more likely, injustice would be done. The diffiCUlty of dealing with this last feature could not be denied. Substantially such a scheme of taxation )Vas approved as valid in RaIl way Co. v. Wright, 151 U. S. 479, 14 Sup. Ct. 396. , As to the difficulty and uncertainty in dealing with intangible eiements based on such ..data as the income, etc., on an interstate system, see People v. Clapp, 152 N. Y. 490, 46 N. E.8:42. "It is of the very essence of taxation that it be levied, with equallty and uniformity, and that there should be some system of apportionment. Cooley, Const. Lim. 49'5." Bank v. Maher, 9 Fed. 885. This language is almost identical wlt)l that of the supreme court of Tennessee in the 9 Heisk. case referred to in the opinion. . "It is ob1l"iously unjust to make the gross earnings the basis of calculation, as is sometim2ll done. A large volume of business may signify large profits, or it may mean a loss; nor do extensive operations necessarily result from a large investment. On the other hand, a comparatively small investment in an operation of .a· line extending for a short distance through fertile and populous sections, and enjoying a monopoly of the business, may. on a much less volume of gross reeelpts, yield a large aggregate profit." 2 Spell. Priv. Corp. § 1117. In Bank v. Maher, 9 Fed. 884, 20 Blatchf. 341, It had been decided, upon motion for a preliminary Injunction, that the assessment in question was void for failure on the part of the assessors to comply with the statute, After the decision, an act of the legislature of the state of New York was passed, designed to cure the invalidity of the assessment, and the act was then relied on as a defense to the action. But the curative statute was declared void, on the ground that it was, in effect, a legislative assessment of a tax upon a body of individuals selected out of a general class, without apportionment or equality as between them and a general class, or as between themselves, and also without giving them any opportunity to be heard. The opinion was by Wallace, J. It was pointed out in that case that a tender of the amount justly due was required
DEWEY V· WHITNEY.
825
only Itl cases where there was an excessive, as distinguished from a void, assessment. Bank v. Maher, 6 Fed. 417. In Association v. Topeka, 20 Wall. 663, the court said: "The theory of our government, 8tate and national, Is opposed to the depoS'lt of unlimited power anywhere. The executive, the legislative, and the judicial branches of these governments are all of limited and defined powers." It was In McCulloch v. Maryland, 4 Wheat. 346, that Chief Justice Marshall !ald: "That the power to tax Involves the power to destroy." This destructIve effect of the power to tax was referred to In Association v. Topeka, supra, the court saying: "A striking Instance of the truth of the proposition Is seen In the fact that the existing tax of 10 per cent., Imposed by the United States on the circulation of all other banks than the national banks, drove out of existence every state bank of circulation within a year or two after Its passage. This power can as readily be employed against one class of individuals, and in favor of another, so as to ruin the one class and give unlimIted wealth and prosperity to the other, It there is no implied limitation of the uses for which the power may be exercised." And in Vanzant v. Waddell, 2 Yerg. 260, decided 1829, Judge Catron (after· wards Mr. Justice Catron) said: "That a partial law, tending, directly or indirectly, to deprive a corporation or an Individual of rights to property, or to the equal benefits of the general and public laws of the land, Is unconstitutional and void, we do not doubt. · · · And every partial or private law which directly proposes to destroy or affect individual rights, or does the same thing by affording remedies leading to similar consequences, is unconstitutional and void. Were this otherwise, odious individuals and corporate bodies would be governed by one rule, and the mass of the community who made the law by another. The idea of a people, through their representatives, making laws wtlereby are swept away the life, liberty, and property of one or a few citizens, by which neither the representatives nor their other constituents are willing to be bound, is too odious to be tolerated In any government where freedom has a name." See Scott v. Donald, 165 U. S. 107,17 Sup. Ct. 262. The better opinion, probably, is that a court of equity can only declare an assessment megal and void, or excessive, and restrain further actlon by injunction accordingly, leaving It to the legislature to correct or make a new assessment. Heine Y. Levee Com'rs, 19 Wall. 655; State Railroad Tax Cases, 92 U. S. 575.
DEWEY
T.
WHITNEY et a1. February 21, 1898.)
(CIrcuit Court, N. D. New York.
SPECIFIC PERFORMANCE-CONTRACT TO CONVEY.
This was a suit in equity by Melvil Dewey against Maria Whitney and Elizabeth W. Whitney to compel conveyance of title to certain parcels of land. Richard L. Hand, for complainant. Edward B. Whitney, for defendants. COXE, District .Judge. In October, 1893, the defendant, Miss Maria Whitney, held the record title to the premises described ill