Port Angeles Western R. Co. v. Clallam County, Wash., 20 F.2d 202 (W.D. Wash. 1927)

*203 *204 Lewis & Church, of Port Angeles, Wash., and A. C. Shaw, of Spokane, Wash. (Barthell & Rundall, of Chicago, Ill., of counsel), for plaintiff.

John M. Wilson and Frank L. Plummer, both of Port Angeles, Wash. (John H. Dunbar, Atty. Gen., and R. G. Sharpe, Sp. Asst. Atty. Gen., of counsel), for defendants.

Before Statutory Court DIETRICH, Circuit Judge, and CUSHMAN and NETERER, District Judges.

NETERER, District Judge (after stating the facts as above).

The writer, in United States v. Clallam County (D. C.) 283 F. 645, held that the railroad in issue was constructed as an instrumentality of the government as a war necessity, and under section 4, subd. 2, Enabling Act, and article 26 of the Constitution of Washington, no taxes could be lawfully assessed. This was affirmed by the Supreme Court. 263 U.S. 341, 44 S. Ct. 121, 68 L. Ed. 328.

The bill alleges title to the railroad to be vested in the United States Spruce Production Corporation, and that the plaintiff bears the same relation as though the contract had been executed by the United States.

Courts are loathe to interfere with the collection of public revenue. Taxation is an attribute of sovereignty, and delay may derange the operations of government and thereby seriously interfere with public functions. Dows v. Chicago, 78 U. S. (11 Wall.) 108, 20 L. Ed. 65. See, also, P. S. P. & L. Co. v. City of Seattle (D. C.) 300 F. 441. In the latter case, the basis for suit was a street car purchase contract between the city of Seattle and the power company as to the division of taxes for the year in issue, under the terms of the contract, and the tax was admittedly valid and delinquent, and the proper county officials were proceeding in the collection. Neither the county nor the state were parties to the contract. The court also held that the plaintiff had a plain and adequate, although not as speedy, a remedy at law.

Under the laws of Washington, sec. 104, chap. 130, Extraordinary Session, 1925 "* * * the tax assessed upon each item of personal property assessed shall be a lien upon such property. * * *"

The property is entered upon the personal property tax roll of the defendant county and stands as an assessment against the main track and siding, equalized by the county board and apportioned as provided by law, although it is contended by the defendant that the state tax commission sought only to assess "the contract" between the United States Spruce Production Corporation and the plaintiff. Upon the record, the tax is upon the railway personal property, and is therefore a lien, and casts a cloud upon all of the property until removed by decree of court or payment, and the complaint discloses equitable jurisdiction.

The Washington courts have held without any dissent that, from the time that the taxes are spread upon the tax roll until paid or set aside by decree of court, there is created "a substantial cloud upon the title to the property" (Benn v. Chehalis County, 11 Wash. 134, 39 P. 365) and in Phelan v. Smith, 22 Wash. 397, 61 P. 31, that complete and adequate remedy at law was not afforded where the treasurer was threatening to sell personal property for the satisfaction of personal property tax levied thereon; and applied the same rule in Northwestern Lumber Co. v. Chehalis County, 24 Wash. 626, 64 P. 787; and affirmed the same remedy in Phillips v. Thurston County, 35 Wash. 187, 76 P. 993, in Spokane & East. Trust Co. v. Spokane County, 70 Wash. 48, 126 P. 54, Ann. Cas. 1914B, 641, and in State v. Turner, 113 Wash. 214, 193 P. 715. In State ex rel. S. & I. E. R. Co. v. State Board of Equalization, 75 Wash. 90, 134 P. 695, the court said:

"An original action on the equity side of the court, where evidence may be received bearing upon the merits of the question of the proper amount of the relator's assessment, as well as the alleged arbitrary and unlawful action of the board of equalization, is, in our opinion, the only practical remedy available to the relator, since the board of equalization for 1912 has been dissolved. * * *"

And state procedure in such actions should be given weight in federal courts. Cummings v. National Bank, 101 U.S. 153, 25 L. Ed. 903; McConihay v. Wright, 121 U.S. 201, 7 S. Ct. 940, 30 L. Ed. 932.

The allegations of the bill, for present purposes, must be taken as true, and jurisdiction in a court of equity to remove a cloud upon a title to personal property is recognized in a federal court by section 8 of the Act of March 3, 1875, incorporated into section 57 of the Judicial Code, being Comp. St. § 1039 *205 (see Thompson v. Emmett Irrigation District [C. C. A.] 227 F. 561), and to supersede this jurisdiction a legal remedy must be plain, adequate, and as complete, practical, and efficient to the ends of justice in its prompt administration as the equitable remedy. Walla Walla v. Walla Walla Water Co., 172 U.S. 1, 19 S. Ct. 77, 43 L. Ed. 341. Frequently parties illegally taxed would be subjected to vexatious litigation or suffer irremedial damage, if resort to legal remedy consisted only in payment under protest and an action to recover back the money. See U. P. R. Co. v. Cheyenne, 113 U.S. 516, 5 S. Ct. 601, 28 L. Ed. 1098. In this case the court said:

"* * * Even the cloud cast upon his title by a tax under which such a sale could be made would be a grievance which would entitle him to go into a court of equity for relief."

In the Ohio Tax Cases, 232 U.S. 576, 34 S. Ct. 372, 58 L. Ed. 737, the court said:

"Right to invoke the equity jurisdiction is clear; for the act specifically" creates "a lien upon the real estate of appellants, from the cloud of which they" seek "to free it; * * * and the bills alleged threatened irreparable injury through the enforcement of the penalties and coercive features."

"When, however, the collection of an illegal tax on personal property involves a threat or irreparable injury and inconvenience to the public, an injunction may issue. Thus when the business and traffic of a railroad company will be stopped by a seizure of its cars an injunction is proper." Pomeroy, Equity Jurisprudence (4th Ed.) vol. 4, p. 4169, § 1796. See, also, Clearwater Timber Co. v. Shoshone County (C. C.) 155 F. 612, 630.

The law of Washington, as the law of Georgia, gives no right of action to recover taxes voluntarily paid, even under protest, on the ground that they were illegally assessed. But the Washington courts recognize this right and have followed such procedure. Justice Taft, for the court, in Bohler v. Callaway, 267 U.S. 479, 45 S. Ct. 431, 69 L. Ed. 745, said:

"The remedy to be taken by the taxpayer against excessive assessment is by petition in equity. * * * No reason existed why a federal court sitting in the same jurisdiction might not grant equitable relief to the taxpayer against the executions on the assessments, provided there were stated in the bill grounds for federal equity jurisdiction. * * * It was properly in equity because there was no adequate remedy at law, the assessments being final except as subject to equitable intervention. The Georgia law gives no right of action to recover taxes voluntarily paid, even under protest on the ground that they were illegally assessed and collected."

By the same token, this applies to taxes unlawfully assessed.

The taxes being spread without limitations upon the tax roll against the railway property owned by the United States, cast a cloud upon such property, to the removal of which a court of equity alone can do substantial justice. See King County, Washington, v. Nor. Pac. Ry. Co. (C. C. A.) 196 F. 323.

The property being exempt and the tax illegal, no tender was necessary. Lewiston Water & Power Co. v. Asotin County, 24 Wash. 371, 64 P. 544; Fargo v. Hart, 193 U.S. 490, 24 S. Ct. 498, 48 L. Ed. 761.

Until the title to the property is conveyed, the power in the state to tax the tangible property does not obtain. The payment of the purchase price is a condition precedent to obtaining title, and the state cannot be permitted to embarrass this title by sale of any of the property for taxes. See U. P. R. Co. v. McShane, 89 U. S. (22 Wall.) 444, 22 L. Ed. 747. The defendants say that only plaintiff's interest in "the contract" was assessed, but on the tax roll, which is controlling, it is assessed against "main track, 35 miles," and "siding, 4.7 miles." The Supreme Court, in Choctaw, O. & G. R. Co. v. Harrison, 235 U.S. 292, 35 S. Ct. 27, 59 L. Ed. 234, held an imposed tax of 2 per centum on gross receipts from the total production of coal from the mine held under lease of Indian patent containing restrictions on alienation for 25 years could not be collected; and in Gillespie v. Oklahoma, 257 U.S. 501, 42 S. Ct. 171, 66 L. Ed. 338, held that a tax on the net income derived by lessee from lease of restricted Indian land, was unlawful. In Jaybird Mining Co. v. Weir, 271 U.S. 609, 46 S. Ct. 592, 70 L. Ed. 1112, an ad valorem tax assessed on the ore in the bins on restricted Indian lands, the royalties on the equitable interest of the Indians not having been segregated, was denied. Here the assessment is not limited to income or interest, but is assessed against the entire property.

The interest of the plaintiff in the contract, no doubt, is property intangible. Whether it can be assessed for taxes need not now concern this court. The assessment is made against the tangible property, title to which is in the United States. The board of equalization is dissolved, and equity alone can afford relief.

The motion to dismiss is denied, and the *206 motion for a temporary restraining order is granted.

DIETRICH, Circuit Judge, concurs in the above.

CUSHMAN, District Judge (concurring).

There being no substantial difference, in reason or principle, distinguishing a case such as the present from McCulloch v. State of Maryland, 4 Wheat. 316, 4 L. Ed. 579, Jaybird Mining Co. v. Weir, County Treasurer, 271 U.S. 609, 46 S. Ct. 592, 70 L. Ed. 1112, Irwin v. Wright, County Treasurer, 258 U.S. 219, 42 S. Ct. 293, 66 L. Ed. 573, Choctaw, Oklahoma & Gulf R. R. v. Harrison, Sheriff, 235 U.S. 292, 35 S. Ct. 27, 59 L. Ed. 234, Indian Territory Illuminating Oil Co. v. Oklahoma, 240 U.S. 522, 36 S. Ct. 453, 60 L. Ed. 779, upon the authority of these decisions I concur in the conclusion reached by Judge NETERER as to the disposition that should be made of this case. See, also, Page v. Pierce County, 25 Wash. 6, 64 P. 801.