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23 A.B.A. J. 683 (1937)
Has Congress Circumvented the Ashton Decision

handle is hein.journals/abaj23 and id is 709 raw text is: HAS CONGRESS CIRCUMVENTED THE ASHTON DECISION? By FORREST REVERE BLACK Member of the District of Columbia Bar N May 25, 1936, the Supreme Court of the United States held invalid the Sumners-Wilcox Munici- pal Debt Readjustment Act' in the case of Ash- ton v. Cameron County Water Improvement District No. i.1 Soon thereafter, the Subcommittee on Bank- ruptcy and Reorganization of the House Judiciary Committee undertook the task of drafting a new bill that would pass muster over there in the big white building.' H. R. 5969 passed the House on June 24, 1937, and passed the Senate on August 9, 1937.4 The Sumners-Wilcox act amended the Federal Bankruptcy Act to permit any municipality or other political subdivision of any state to obtain a voluntary readjustment of its debts through proceedings in the Federal courts. A Texas Water Improvement Dis- trict, claimed to be insolvent and unable to meet its debts as they matured, petitioned the United States Dis- trict Court for a readjustment under the Sumners- Wilcox Act. The Texas Legislature ip the meantime granted political subdivisions the express right to pro- ceed under the Federal law. The court in a five to four5 decision held that a county water improvement District organized pursuant to the Constitution and Statutes of Texas with power to sue and be sued, issue bonds, and levy and collect taxes is a political subdivi- sion of the state and that Section 80 of the act was an unconstitutional encroachment upon state sovereignty over the fiscal affairs of local governmental units, re- gardless of the express consent of the state. The precise scope and effect of the decision are difficult to determine. The court said, If Federal bankruptcy laws can be extended to respondent, why not to the state? . . . If obligations of states or their political subdivisions may be subjected to the interfer- ence here attempted, they are no longer free to man- age their own affairs; the will of Congress prevails over them; although inhibited, the right to tax might be less sinister. And really, the sovereignty of the state, so often declared necessary to the Federal system, does not exist. The court further said, The state cannot con- stitutionally impair the obligations or contracts by a law in the form of a bankruptcy law, nor can she reach the same end by granting permission necessary to en- able Congress to do so. . . Neither consent nor sub- mission by the states can enlarge the powers of Con- gress. The sovereignty essential to the proper function- ing of the state under the Constitution cannot be sur- rendered, nor can it be taken away by any form of legislation . . . in determining the existence of a con- stitutional power, inquiry is not limited to the results of its attempted exercise: it is of first importance to 1. 48 Stat. 798, c. 345; U. S. C., Title II, sec. 301, 302, and 303. 2. 298 U. S. 513. 3. Hearings, p. 101. 4. Cong. Record, Aug. 9, 1937, p. 10969. 5. Mr. Justice McReynolds spoke for the court, Cardozo, Hughes, Brandeis, and Stone dissent. consider what might be the results of its future exer- cise. What are the differences between H. R. 5969 and the statute involved in the Ashton case? 1. The statute in the Ashton case applied only to political subdivisions. The language of the statute involved in the Ashton case is as follows: Section 80 was entitled Municipal- Debt Readjustments and provided that Any munici- pality or other political subdivision of any State, in- cluding any county, city, borough, village, parish, town, or township, unincorporated tax or special assess- ment, district, and any school, drainage, irrigation, reclamation, levee, sewer, or paving, sanitary, port, im- provement or other districts (hereinafter referred to as a 'taxing district'), etc. It will be noted that the language of Section 80 limits its application to political subdivisions. The words other and including are significant in reach- ing this conclusion. Further, the scope of the Ashton decision as interpreted by the Circuit Court of Appeals in the case of In re Imperial Irrigation District,' out- laws all political subdivisions, from participating under the old Municipal-Debt Readjustment Act. Since the Act applies only to political subdivision, any district that does not fall under this category is neces- sarily ultra vires the statute and not entitled to relief. In the Imperial Irrigation District case, Circuit Judge Denman has this to say: In this case the petitioner for rehearing sought to present the argument that the Im- perial Irrigation District is not a 'political subdivision' of the State of California and relied upon the case of Wood v. Imperial Irrigation District, 216 Calif. 748 at 753, where the California court stated in the course of its reasoning that 'an irrigation district is not a political subdivision of the State or county, or a political sub- sidiary at all'. But the Circuit 'Court of Appeals held that if the Imperial Irrigation District is a political subdivision it is not entitled to relief since the case of Ashton v. Cameron County Water Improvement Dis- trict No. 1, 298 U. S. 513. On the other hand, if the Irrigation District be not a political subdivision, then Section 80 of the Municipal-Debt Readjustment Act affords no remedy for the reason that Section 80 is limited in its scope to political subdivisions. 2. The nww act, H. R. 5969, does not mention political subdivisions. By way of contrast it should be noted that the new act, Section 81, classifies the various districts within the scope of the act in six classes, only one of which (No. 6) would fall necessarily within the category of political subdivisions. As to the other five classes, it is believed that many of these special districts would not be construed to be political subdivisions' and there- fore could avail themselves of relief even in spite of the 6. 87 Fed. (2d) 355 (Ninth Circuit, December 31, 1936).

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