Mr. Hatton W. Sumners for the Committee on Judiciary of the House of Representatives of the United States. as amicus curiae, by special leave of Court.

As we understand the issues here presented, there is no question involving the rights of individuals, and there is no question with regard to the mechanics of the law. The sole question is whether or not legislation embodied in §§ 81, 82 and 83 of the Bankruptcy Act, as amended. which sections we know as the Municipal Bankruptcy Act, impinges upon the sovereignty of the State.

In this particular litigation the question arises with reference to an irrigation district.

Briefly visualizing the transactions with reference to that district and the character of the district, we observe that a group of farmers owning contiguous lands, desiring to cultivate those lands under irrigation, availed themselves of the facilities provided by the State of California for putting a blanket mortgage on those lands for the purpose of bringing water to those lands to aid them in the business of farming.

That district exercised, under delegation from the State, power of eminent domain and power of taxation. It did not relieve the State of California of any governmental responsibility theretofore exercised by it.

It seems to us that in so far as drainage and irrigation districts are concerned, they have more the characteristics of a railroad corporation than they do of an ordinary municipality. A railroad corporation, by delegation, exercises the right of eminent domain — probably as high a right and power as Government has — yet it does not thereby become a part of the State.

But I do not desire to take the time of the Court in discussing the differences, whatever they may be between an irrigation district and an ordinary municipality, because the provisions of this Act cover them all.

When we come to examine what happened as the result of this legislation with reference to the sovereignty and dignity of the municipality, or of the State, however it may be considered, we discover that every debt which could be composed under this Act is a debt which, under the then existing law, would constitute a basis of litigation in an ordinary suit against the municipality.

The municipality, therefore, before this law was enacted, could be brought into court for these same debts by the process of the court, against the will of the municipality, the issues tried as though the municipality were an ordinary defaulter, judgment had in the ordinary way; and if the judgment of the court were not complied with, the municipality could be brought into court again and subjected to the coercion of the court, even to the extent of the incarceration of its officers. . . .

In a similar situation this same municipality, which theretofore could be brought into court by the might of the court and without regard to its consent, under this Act comes into that court as a sovereign would come, a complete sovereign. It comes in under its own will. Nobody is compelling it to come. Nobody can compel it to come under this Act. In the exercise of its sovereign right to arrange its indebtedness — it had been sitting around a table with its creditors, and they had agreed. In the instant case 87 per cent. agreed that 59 cents on the dollar was the best thing for everybody concerned.

So this municipality, by authority of this Act, goes into that same courthouse, before the same judge, leading a procession of its consenting creditors, and says to the judge, "We have entered into this agreement, 87 per cent. There are 13 per cent. who do not consent. Will you be good enough to examine to determine whether or not this agreement is fair to the 13 per cent. and that it does not do some other things provided against in the law." It tells the court also, "I am here because, first, I was created by a sovereign State in the exercise of its sovereign powers. That sovereign gave me authority to come here. There is nowhere else myself and my creditors can go, and won't you please write our agreement into the book of judgments."

Even if it were an ordinary lawsuit, as we understand it, there is no higher act of sovereignty than for the sovereign voluntarily to submit itself to the judgment of a court. The Federal Government does it all the time, the States do it; and we have never understood that, when a sovereign voluntarily submits itself to trial and judgment, by that submission it impairs its sovereignty or thereby makes it possible to be sued without its will.

May I respectfully submit to the Court that, instead of impinging upon the sovereignty of the State, this Act clearly is in line with the nature and philosophy of sovereignty of the State, and that to declare this Act unconstitutional would impinge upon the sovereignty of the State. Such a determination would deny to the State of California, in this matter, the right to have a sovereign will with reference to what it will permit its creatures to do.

All the way down the line there has been consent. First, the consent of the creator, California; consent of the Congress, the policy-fixing agency of the Federal Government; consent of the municipality itself, and consent of the creditors. Now, if we are to deny these agencies, which speak the voice of sovereignty and the judgment and will of the private citizen, the right thus to speak, what becomes of their sovereignty?

If the creditors consent, and the municipality consents, and the State consents, and the policy-fixing agency of the Federal Government consents, with all respect, whose else business is it, if they are sovereign?

We respectfully submit that to deny to a sovereign the right to have a sovereign will and to make that will effective, denies to it the very essence of sovereignty.

I am privileged to take a longer time of the Court, but I could not add to the substance of what I have said. We appreciate very much the Court permitting me to appear. Solicitor General Jackson, with whom Assistant Attorney General Whitaker, and Messrs. Vincent N. Miles, Warner W. Gardner, and Henry A. Julicher were on the brief, for the United States in No. 757.

The District is utterly unable to meet its obligations in due course, and it is authorized by law to carry out a plan of composition.

It asks the bankruptcy court to serve the notice required by statute to bring in the dissenting creditors, to grant hearings, to hold inquiry as to the reasonableness and fairness of the plan, to stay all suits that might be brought to interfere with the District or its property meanwhile, and that the court, if it finally approves the plan, enter an order as provided for in the Act, discharging the District from all further obligations under these outstanding bonds which would be composed by a payment of 59 cents on the dollar.

The measure received careful consideration before the committees of the House and Senate, amendments were made with a view to insuring constitutionality, and the Congress concluded after full discussion that the bill as enacted was free from the objectionable features which had been held fatal to the original Act. [c. IX. See Ashton v. Cameron County Dist., 298 U.S. 513.]

The only jurisdiction that is conferred, is the jurisdiction to compose

". . . indebtedness of or authorized by any taxing agencies or instrumentalities hereinafter named, which are payable out of assessments or taxes or both, or out of property acquired by foreclosure by the District, or out of income by such taxing districts."

These districts are then enumerated in separate subdivisions.

The purpose of the subdivisions and of the separability clause was clearly stated on the House floor by Judge Sumners.

Mr. Sumners frankly stated that the sixth classification, the political subdivisions, implied proceedings that would be unconstitutional under the Ashton case. He felt, however, it was not only the right, but the duty of Congress to present the question once more to this Court, since the decision, if allowed to stand, threatened grave impairment to the powers of the States, in that it forbade them to authorize their political subdivisions to enter into bankruptcy proceedings.

The case before this Court does not involve the sixth subdivision, but involves subdivision 1, so that if it be held that the law is constitutional in its application to this particular district, even though it could be held unconstitutional as applied to districts covered by subdivision 6, we are entitled to prevail.

The power to legislate on the subject of bankruptcies frequently has been passed upon by this Court. And the constitutional development of this clause at the hands of this Court in over a century has followed out the general conception of the breadth and sweep of that power as it seems to have been entertained at the time the power was given.

The whole method and purpose of bankruptcy has changed with that century of interpretation. Bankruptcy as it existed at the time, and as it existed in the first Bankruptcy Act passed by the Federal Government in 1800, was a remedy of the creditor, a further remedy, against the debtor.

It is now a new opportunity in life, and a clear field for further efforts to the bankrupt, unhampered by the pressure and discouragement of preexisting debts. Certainly if that is the purpose of this Act, no reason appears why it should be extended to private debtors and not to public debtors. Many subdivisions of the bodies which composed the United States at the time of the Constitutional Convention were themselves at that time in default, and in need, but there was no suggestion that public debtors should be excluded from the benefits of the bankruptcy power, although, we must grant, at that time the bankruptcy power was conceived to be a narrower power than it has since become.

There is equal urgency for applying this Act to public debtors — an urgency equal to any that has ever existed for extending it to private debtors.

The statistics are in the brief, and I will not dwell upon them at length, but over 2,000 improvement districts were in default in 1934. Cities as large as Detroit and Miami and Asheville were in default. 41 of the 48 States had defaults within their borders. The defaulted bonds were between one billion and two billion eight hundred million, and in 1938, when the Congress was reconsidering this matter, over 3,000 units of government were found to be in default.

The creditors in those cases stood without a practicable remedy. There is usually no property of a district subject to execution. Taxpayers are not personally liable. Mandamus to lay taxes is futile, because it results only in assessments that are defaulted. Tax sales drive down the value of property, and add further tax delinquencies. The experience of those creditors — who were themselves largely instrumental in the pressure which brought about the enactment of these Acts — the experience of those creditors was that they were without practicable remedies. This was because, though the only possible remedy was a remedy by agreement, it was almost always subject to defeat. Even though a great majority of the creditors agreed with the district on a practical course to restore some value to the defaulted bonds and to rehabilitate the district so that it could go on and exercise its public functions, any creditor who had a high estimate of the nuisance value of his particular security was in a position to block the settlement, which required unanimous action.

Therefore the only remedy available to districts, or available to creditors, is the practicable plan of composition, in which nuisance values shall be ruled out, and in which equality of treatment of these creditors will prevail.

And it is clear that that power, as attempted to be exercised by this statute, is within the general bankruptcy power of the Congress. It is equally clear it is not within the power of the State. The States granted their power over bankruptcies to the Federal Government. They were expressly forbidden to pass laws impairing the obligation of contracts. It seems impossible to say that a statute of Congress which exercises a power twice denied to the States — denied once by delegation to the Federal Government, and denied once by express prohibition — can be an invasion of States' rights.

There is one thing the States can do. The State can connive at repudiation. It can refuse to extend remedies. It can fall back on its power to nullify a contract and refuse to approve. That, neither in point of good finance, nor of good morals, is a desirable situation. In order that the situation may be frankly faced, and that sounder remedies may be practicably applied, there must be an escape from the limitation imposed upon the State, and that escape must be found in the power of the Federal Government.

This power not only was delegated to the United States, but it was denied to the States, and it is clear the Tenth Amendment under such circumstances has no function whatever to perform in this case. Once a delegated power is found there is then no room for the operation of the Tenth Amendment.

There is then no question of state sovereignty involved, since we have a granted power.

Then there is the argument advanced here that from the necessities of our form of government, because of the dual nature of our system, there is a necessity to preserve the independence of the State and to protect its sovereignty, and that therefore this power, even though it be a delegated power, cannot be exercised if it impinges upon what would be called sovereign powers or independent powers of the State. I submit that the Tenth Amendment itself denies that argument.

If the Federal Government must point out the delegation of its powers, the Tenth Amendment equally holds the advocates of the rights of sovereignty of the States to the wording of the instrument. It clearly prohibits using the theory of necessity, the theory of the nature of government, or other philosophical reasons, for cutting down granted powers.

Now, there is an effort in the brief of our adversary to compare this power with the taxing power, and to hold that because there are certain immunities to the State and to state agencies under the taxing power, a similar immunity must be written into the bankruptcy power. That argument starts by asserting the theory that the bankruptcy power is found in the same subsection of the Constitution as the grant of the taxing power. So are the powers to regulate interstate commerce, and to punish counterfeiters. The taxing and bankruptcy powers are not parallel powers; and no argument based on the one can be applied to the other. The power of the Federal Government to tax is subject to qualification, and the bankruptcy power is not. The power to tax is to provide for the common defense and the general welfare, and hence it may very well be that where you have a plan of which the tax is a part, such as this Court held the Agricultural Adjustment Act to be, or the Child Labor Act, then you are led to an inquiry as to whether the taxing plan itself is local or is general, is national or is within powers reserved to localities. The very nature of the taxing power, as it exists in the Federal Government, may demand that inquiry; but there is no such qualification in the bankruptcy clause. That requires only uniformity.

When we consider immunity as it exists in the States from federal taxes, and as it exists in the Government from state taxation, we are dealing with a totally different thing. The power of taxation derives from the relationship of sovereign and subject. That relationship derived originally from the duty of a sovereign to protect, and from the duty of the subject to assist the sovereign in maintaining that protection. We find no State has assumed such a duty toward the Federal Government; we find no State has assumed a relationship toward the Federal Government which in the nature of the taxing power makes it applicable, one to the other.

The very nature of the taxing power implies that it is exerted by the sovereign against the citizen, and not against another governmental body, regardless of whether the relationship is that of an equal sovereign, or that of a subsidiary governmental group.

Tax burdens, of course, are involuntary burdens and, as this Court has said, may be destructive. The power to tax may be the power to destroy, and it may be laid upon a State as a State only when it has assumed that obligation, or if the liability to taxation is to be implied from the nature of the activities of the taxpayer.

Bankruptcy is an entirely different kind of power. It is merely the opening, in this case, of a forum to which this State may resort, as we may open a forum to which foreign creditors or foreign debtors may resort.

No compulsion upon any State or State agency is here involved. This is a voluntary Act, and it raises no questions under the Eleventh Amendment.

This Court has held that, without any consent of a sovereign state, its taxing agencies may be sued. Mandamus may lie against a taxing district. And it has been held in one case that, where a state law provides a similar remedy, a receiver may be appointed to go into such a district and take over its affairs and operations.

Even the taxing immunity can be waived. This Court has held that a State may waive the tax immunity of its agencies, and that the Federal Government may waive the tax immunity of the agencies which it creates. In this case this Bankruptcy Act can never apply to any district unless there is a finding that the law of the State authorizes it to seek that remedy and authorizes it to carry that remedy to completion.

It is true we have a dual system of State and Federal Governments, but that does not mean that they can not cooperate for the common need. That question was settled by this Court in the Social Security cases. [ 301 U.S. 548, 619.]

Now, we find the State and the Nation confronted with this difficulty arising out of the limitation of the power of the State to deal with its own taxing agencies and their debts. We find these defaulted bonds in the channels of trade. We find taxing districts impaired in their capacity to carry on and perform the very functions for which they were created, and we say that there is no difficulty in the two units, the State and the Nation, without either one of them in the least receding from its sovereignty, setting up together a common remedy.

Acting Solicitor General Bell filed a memorandum for the United States in No. 757.

Messrs. Guy Knupp and James R. McBride for appellant in No. 772.

Mr. Knupp for the Irrigation District explained the character of the District, the history and extent of its indebtedness and the hopelessness of its financial situation. The court below had misconceived the Ashton case and the nature and purpose of the new legislation. The present Act aims to avoid interference with governmental functions, public agencies, and their fiscal affairs. It deals with voluntary composition. Chapter IX gave power to the court to change the proposed plan of composition. Not so Chapter X. Chapter IX gave power to interfere with fiscal powers and policies of the public debtor. Wright v. Vinton Branch, 300 U.S. 440, is applicable.

Messrs. W. Coburn Cook and Charles L. Childers, with whom Mr. Maurice E. Harrison was on the briefs, for appellees.

Mr. Cook on behalf of appellees explained the peculiar importance of irrigation in California. The control of water is a public trust, embedded in the state constitution and executed through its laws. The work of the Irrigation District is work that the State might itself directly perform, without giving the land owners within the District any voice in the selection of managers and trustees. But California, in order that it might carry out what it conceived to be a state function, has permitted the organization of something like 100 irrigation districts in the State and has conferred upon those districts sovereign powers, the power of taxation, the power to borrow money.

The legislature itself could perform those functions directly by some department of the State. Instead of that, it chose to give the people greater control, because they were vitally interested. It could have raised revenues by direct taxation upon the entire State, because the purpose would have been public. But realizing that greater justice would be done, it allocated the indebtedness to the districts more directly affected, and thereby permitted the people in those districts to have a voice in those affairs.

One of the greatest powers is that of borrowing money. There is a misunderstanding here as to what fiscal power is affected by this Act. It is true that in the Act everything has been done which could possibly have been thought of in order to relieve the court from the necessity of making a direct order on the district, but the effect upon the fiscal powers goes back to the time of the borrowing of the money.

Each holder of a bond and coupon is entitled to payment out of the bond values of the district in the order in which his bond or coupon has been presented. That makes each bond and coupon a separate class, and the one presented today is entitled to payment before the one presented tomorrow.

This Act would have the same effect as respects the fiscal powers of the district and State as would an exercise of powers to tax income from the bonds — it would tend much more to destroy, because under this Act you take the principal, whereas under the income act, you can take only a portion of the interest.

If this power under this Act is sustained, our great cities, — all the taxing districts, sewer districts, road districts, reclamation districts of California — could be forced into bankruptcy.

I believe it is true that a sovereign State as well as a sovereign nation does not have the right to abdicate any sovereign function which is essential to its sovereignty. Perry v. United States, 294 U.S. 330.

The Eleventh Amendment gives us no help. The State may waive its right not to be sued. The fact that these districts can be brought into court under certain conditions in no manner detracts from any essential of sovereignty, because the plaintiff in such case brought against the State is merely permitted to obtain an adjudication of whatever rights he may have. He is not by waiver of the immunity against suit given the right to assert other or different rights.

The Interstate Commerce Clause does not seem to us to be analogous.

I know of no principle permitting state or federal governments to waive their power to tax, — a power essential to sovereignty.

The bankruptcy power is not a power essential to the National Government. It was given to the National Government for convenience, for uniformity. It is a sort of regulatory or police power granted to the National Government, and therefore if it comes in conflict with the power of the State, which is essential to the maintenance of the sovereignty of the State, it must give way completely.

This is a bankruptcy act, whether it be called readjustment, or whether it be called composition. The effect of it is to compel certain persons to accept something which they have not contracted to accept. The difference in nomenclature between calling this district a taxing agency or a political subdivision, it seems quite obvious could have no effect upon the inherent powers which Congress may have.

Mr. Cook compared chapter X with chapter IX. One essential difference is that c. X does not require the consent of the State.

The California Enabling Act authorized the filing of a petition under c. IX.

Mr. Childers, on behalf of appellees, maintained that chapters IX and X were alike objectionable. The same classes of agencies are dealt with — arms of the sovereign power of the State. The Ashton case decides that the power of Congress does not extend over the sovereign function of a State.

If the power of bankruptcy extends over these state mandatories in a little way, that is, in a voluntary proceeding, it must follow that it may be exercised against these mandatories without their consent or without the consent of the State. The next logical step is to make that same power apply to the State itself. Congress must have all the power or none; and that is the principle that was announced in the Ashton case. We find nothing in this statute that would seem materially to differentiate it from the Ashton case.

To the great powers assigned to the United States by the Constitution, the States are powerless to add. Those powers are quite sufficient in themselves. The powers not delegated have been reserved to the States and to the people, and as this Court said in United States v. Butler, the Tenth Amendment was to make doubly sure.

It is the people who ultimately have the sovereign power; and the State is not in position to surrender those necessary elements of sovereignty by which it must exist.

A State, through its legislature, may consent to be sued, may surrender its sovereignty in a suit, because that is one of the powers not prohibited, and the legislature has the right to speak for the people to that extent. But it is prohibited from passing any law impairing the obligations of contract. Bankruptcy is necessarily an impairment of contract obligations. The taxing power is one of the highest attributes of sovereignty. If the United States can apply the bankruptcy power to a State, then it can control in the fiscal affairs of the State.

Though the Constitution does not expressly prohibit, State or Federal Governments may not tax each other's instrumentalities, because that would be to affect their sovereign functions. It is not a question of the size of the tax.

This must be true of bankruptcy. As soon as it touches the State in the remotest degree, it would seem that the power could not exist.

There surely cannot be a little bankruptcy. Surely Congress must have the whole power or none.

The power in bankruptcy would seem to be much more sinister than the power to tax, because the power to tax operates ordinarily in an even, like manner.

The State, of course, is prohibited by the contract clause from impairing the obligations of a contract. Now, it would seem that regardless of what sort of statute a State might pass, it can not add to or take away from the power of Congress in that regard. If a consent is needed to make an Act of Congress effective, then it must be that the power does not exist. If Congress must look to another sovereign for its power, it can not have the power.

Irrigation districts in California exercise governmental functions. The legislature has plenary power over them. They are State agencies.

The legislature can destroy them by simply repealing the Act under which they exist, and the State can go out and do the work itself, by its own agents directly. The better considered cases hold that the beneficial interest in the property acquired by one of these districts is in the State itself. It does not make much difference in this connection whether it is in the State or the land owner. The district, as a legal entity, is not the beneficial owner. If the beneficial interest is in the land owner, he must be brought into court.

How could there well be a bankruptcy of one of these public agencies that can not respond to a judgment? It has no property that is subject to execution.

In answer to questions from the Chief Justice, Mr. Childers conceded that, under chapter X, no plan of composition can go through unless approved by the district; and that the California Act of 1934 gave consent to the submission of such a plan under chapter IX, if not under chapter X; but he maintained that, even so, the federal bankruptcy power can not be applied.

All the power of government, whether possessed by the Nation or a State, can not be asserted to effect the composition of an indebtedness of such a district.

THE CHIEF JUSTICE. So that the State would be prohibited to effect a composition of 60 per cent., no matter how fair it is, and the Federal Government would be prohibited, although this district has an economic plight which needs relief for the benefit of the people of the district, and incidentally the people of the State. There is no power in the Government against a creditor to provide for that relief?

MR. CHILDERS. That is right. And the remedy would be much worse, I believe, than the disease.

THE CHIEF JUSTICE. Remedies often are.

MR. JUSTICE McREYNOLDS. What power is there in a State Government or Federal Government or any other government to repudiate debts?

MR. CHILDERS. I think that is answered. I don't think there is any power, and I don't think the power ought to be there. As a matter of economics, I believe it would do much more harm to these districts than it could possibly do good. And if the power existed, the power might be exercised all the way.

By leave of Court, briefs of amici curiae were filed by Messrs. U.S. Webb, Attorney General of California, Greek L. Rice, Attorney General of Mississippi, Ray McKittrick, Attorney General of Missouri, Gray Mashburn, Attorney General of Nevada, Frank H. Patton, Attorney General of New Mexico, I.H. Van Winkle, Attorney General of Oregon, and Ray E. Lee, Attorney General of Wyoming, on behalf of those States; Messrs. G.W. Hamilton, Attorney General of Washington, and Fred J. Cunningham, on behalf of the State of Washington; and Messrs. Jack Holt, Attorney General of Arkansas, and Chas. D. Frierson, on behalf of the State of Arkansas and certain drainage districts thereof, all in support of appellant in No. 772; by Messrs. Cary D. Landis, Attorney General of Florida, and Giles J. Patterson, on behalf of the State of Florida, in support of appellant in No. 757; and by Messrs. Francis V. Keesling and Charles L. Childers, on behalf of the West Coast Life Ins. Co., in support of appellees.