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In re South Beardstown Drainage & Levee Dist

December 12, 1941

IN RE SOUTH BEARDSTOWN DRAINAGE & LEVEE DIST; BUCHHOLZ
v.
SOUTH BEARDSTOWN DRAINAGE & LEVEE DIST.



Appeal from the District Court of the United States for the Southern District of Illinois, Southern Division; J. Leroy Adair, Judge.

Author: Evans

Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.

EVANS, Circuit Judge.

The South Beardstown Drainage and Levee District was authorized by order of the County Court of Cass County, August 14, 1913, pursuant to an Act of the State of Illinois to "Provide for the construction, reparation and protection of drains, ditches and levees," etc., enacted May 29, 1879, and amendatory acts thereto, Smith-Hurd Stats. Ill. c. 42, § 1 et seq. Since its organization it has functioned as a drainage district and as an instrumentality for the improvement of land in said district for agricultural purposes.

Its petition for confirmation of a proposed composition of its debts was presented to the United States District Court, and upon a showing that there were outstanding bonds amounting to $481,800 with unpaid interest in 1936 of $158,822, and upon a further showing that the holders of outstanding bonds, aggregating $467,800, or 96,8%, had consented to the plan, the order of confirmation was entered by the District Court. Appellant, the executrix of the will of E. A. Buchholz, and holder of bonds of $12,000 par value, objected to the jurisdiction of the court and to the authority of the Drainage District Commissioners to file these proceedings and to make this composition. Her objections were overruled, and she now appeals from the order approving the composition. She raises several legal disputes which her counsel state in question form:

(1) Does a political subdivision of the State of Illinois in general, and a drainage district in particular, have the right to maintain a proceeding for composition of its indebtedness, pursuant to Chapter IX of the Bankruptcy Act, 11 U.S.C.A. § 401 et seq., in the absence of a provision in the Illinois statutes giving consent to the filing of such proceedings?

(2) Under the statute of Illinois (Chapter 42, Sec. 38a, Ill. Rev. Stat.), is a drainage district, organized under the laws of Illinois, prohibited from filing a petition for composition with its creditors under Chapter IX of the Bankruptcy Act?

(3) Under the said statute of Illinois, does a drainage district have authority to borrow money for the purpose of scaling down its indebtedness?

(4) Under the said statute of Illinois, can a drainage district maintain proceedings for composition of its indebtedness in the absence of express approval of the county court which organized the district?

(5) Under said statute of Illinois, can a holder of drainage district bonds which are not due, be compelled to surrender such bonds and accept therefor 25% of their par value?

(6) Are the acts of appellee, in attempting to carry out the proposed plan of composition, ultra vires?

Arguing that a drainage district can only exercise the express, or necessary implied, powers given it by the State of Illinois, appellant contends that the drainage district did not possess the power, or authority, to apply to the District Court for a composition of its debts, or to seek relief under the Bankruptcy Act. Counsel also argue that the district's authority is further restricted to action which first meets the approval, and the authorization, of the county court which created it.

A lengthy discussion of interesting and serious legal questions is made unnecessary by the decision of the Supreme Court in United States v. Bekins, 304 U.S. 27, 58 S. Ct. 811, 82 L. Ed. 1137, and the numerous decisions of inferior courts (Luehrmann v. Drainage Dist. No. 7, 8 Cir., 104 F.2d 696; West Coast Life Ins. Co. v. Merced Irr. Dist., 9 Cir., 114 F.2d 654; Bekins v. Lindsay-Strathmore Irr. Dist., 9 Cir., 114 F.2d 680; Moody v. James Irr. Dist., 9 Cir., 114 F.2d 685; Newhouse v. Corcoran Irr. Dist., 9 Cir., 114 F.2d 690; Jordan v. Palo Verde Irr. Dist., 9 Cir., 114 F.2d 691; American National Bank, Nashville v. City of Sanford, 5 Cir., 112 F.2d 435; Davis v. City of Homestead, 5 Cir., 112 F.2d 438) in all of which lower court decisions, certiorari has been denied by the Supreme Court. While the denial of certiorari is of itself not of any significance, the rejection of numerous petitions, all in drainage district cases wherein this same statute was invoked and applied by the lower courts, can hardly be ignored. In fact they are of impelling weight.

Appellant's numerous objections to the court's jurisdiction may be said to depend primarily upon the necessity of consent by the state (here allegedly absent) to the institution of proceedings to compromise debts under said section of the ...


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