11

12

even that the state was not a necessary party, the court was not justified by the precedents in considering the suit not to be against the state. For it seems to fall on the same side of the line as the cases which hold that a court has no jurisdiction to issue a mandate which virtually enforces the contract of the state, or compels affirmative action on the part of officials not charged with a clear ministerial duty, or affects the property of the state in the hands of its agents,10 or compels payment from the state's funds, or imposes a trust on the state's property.' On the other hand, this suit seems distinguishable from one against a corporation of which the state is a member, 18 since here the state has direct ownership of at least the surplus; or from a proceeding to determine the state's interest in a res not in its possession; or from an action of ejectment against state officers when the state shows no prima facie title.15 The two chief authorities for the court's position are early cases 16 in the circuit courts, scarcely mentioned in later discussions. Moreover, if an agency, not an assignment, should be found here, the result appears still less tenable.

14

The court hints at another ground for the decision, namely, that liquor selling is not a governmental function," and hence not intended by the adopters of the Eleventh Amendment to be protected from judicial interference. It is true that dicta have occurred to the effect that a state loses its sovereignty when it steps down into the marketplace.18 But no case will be found depriving a state of immunity from suit on this ground alone. Doubtless the constitutional prohibition cannot thus be narrowed in application; for it is based on an actual lack of power rather than a theory of government.19

FORMATION OF A CORPORATION FOR THE PURPOSE OF EFFECTING DIVERSITY OF CITIZENSHIP. Questions of federal jurisdiction over corporations under the diversity of citizenship clause first arose at a time when the federal judiciary was as anxious to extend its jurisdiction as it is now to restrict it. Although corporations are not citizens within the meaning of the Constitution, this did not prove fatal to federal jurisdiction, since the courts early declared that the stockholders were the real parties in interest and their citizenship the determining factor.1 The further difficulty, that

8 Louisiana v. Jumel, 107 U. S. 711.

9 Farmer's Nat'l Bank v. Jones, 105 Fed. 459.

10 Christian v. Atlantic, etc., R. Co., 133 U. S. 233. Contra, Sinking Fund Com'r's v. No. Bank, etc., I Metc. (Ky.) 174.

11 Brown University v. Rhode Island College, etc., 56 Fed. 55.

12 Lowry v. Com'r's Sinking Fund, 25 S. C. 416; Bd. Public Works v. Gannt, 76 Va. 455. Contra, Preston v. Walsh, 10 Fed. 315; Chaffraix v. Bd. Liquidation, II Fed. 638.

18 Southern R. Co. v. North Carolina R. Co., 81 Fed. 595.

14 U. S. v. Peters, 5 Cranch (U. S.) 115; Swasey v. North Carolina R. Co., Fed. Cas. No. 13679.

16 Tindal v. Wesley, 167 U. S. 204.

16 Chaffraix v. Bd. Liquidation, supra; Preston v. Walsh, supra.

17 Cf. South Carolina v. United States, 199 U. S. 437. But see Vance v. Vandercook, 170 U. S. 438; State v. Aiken, 42 S. C. 222.

18 See Charleston v. Murray, 96 U. S. 432; Bank of United States v. Planter's Bank of Georgia, 9 Wheat. (U. S.) 904; The Floyd Acceptances, 7 Wall. (U. S.) 666. 19 See Kawananakoa v. Polyblank, 205 U. S. 349.

1 Bank of U. S. v. Deveaux, 5 Cranch (U. S.) 61. When the corporate fiction was thus disregarded in an action at law it was in open violation of the principle that that

the stockholders might be citizens of different states was surmounted by the introduction of the artifice, now settled law, that for the purpose of acquiring jurisdiction the stockholders are conclusively presumed to be citizens of the state of incorporation.2

In a recent case the officers and stockholders of a California corporation, in order to bring into the federal courts an action against a California citizen concerning certain land, organized in Nevada a new corporation, to which the old corporation transferred the land, and the stock in the new corporation was issued to the old. The court dismissed the suit as collusive and fraudulent on its jurisdiction. Miller & Lux v. East Side Canal, etc., Co., U. S. Sup. Ct., December 7, 1908. The new corporation is legally a distinct person from the old, and a diversity of citizenship between it and the opposing party prima facie exists. But there is a rule that if a litigant is not the real person in interest, but appears merely for purposes of acquiring jurisdiction, there being no diversity between the real parties, the case will be dismissed as an attempted fraud on the court's jurisdiction. And the court, having once decided to disregard the corporate entity in order to obtain jurisdiction, is taking no greater step to do so in order to refuse jurisdiction, if collusion or fraud is apparent.

The test for fraud where land is conveyed from one individual to another for the purpose of getting into the federal courts is the reality of the transfer. No matter what the motive, if the title is really passed, free from any secret trust or agreement to reconvey, the grantee's right to sue or be sued there cannot be denied. This would seem to apply even where the transferee is a corporation organized for the purpose; for, unless its stockholders are themselves the original owners of the property, there is in fact as well as in law a new owner. But if both grantor and grantee are corporations, with the same officers and stockholders, the grantee having been organized for the collusive purpose, the validity of its ownership is open to attack; for when the veil is drawn it is plain that the person really benefited is the old corporation, that the stockholders control the disposition of the property, and that they can and probably will, effect a reconveyance when the suit terminates. The transaction is no more than a clever and fraudulent scheme to get into the federal courts. To prevent the perpetration of such a fraud, the court may well feel justified in disregarding the fiction, and in thus extending a well-settled but anomalous rule to cases better fitted for its application than those which established the rule itself. The present decision, therefore, is thoroughly desirable."

The opinion intimates that had the old corporation been dissolved before the suit by the new company was begun, a different decision might have been reached. This seems correct, as the transfer would then appear to be real in fact as well as in law.

step should be taken only in equity (except in the case of quo warranto proceedings. See People v. North River Sugar, etc., Co., 121 N. Y. 582).

2 St. Louis & San Francisco Ry. v. James, 161 U. S. 545, 562.

8 An Act of Congress orders the dismissal of a suit at any stage of the proceedings, when such fraud or collusion appears. 18 Stat. 460, 472.

4 Barney v. Baltimore City, 6 Wall. (U. S.) 280; Hurst's Lessee v. McNeil, 1 Wash. C. C. (U. S.) 70.

5 McDonald v. Smalley, 1 Pet. (U. S.) 620.

Lehigh Mining & Mfg. Co. v. Kelly, 160 U. S. 327.

7 The suit was in equity, but the court does not notice this distinction, and would probably have reached the same result if the action had been at law. See Lehigh Min. ing & Mfg. Co. v. Kelly, supra.

ENFORCEMENT OF ASSESSMENTS IN THE COURTS OF A FOREIGN JURISDICTION. While, in addition to the ordinary remedy by distress, a personal action can be maintained for general taxes at least if a statute so provides it is frequently held in this country that such an action cannot be brought to recover special assessments for local improvements, and that a statute allowing it is unconstitutional. But supposing that such a statute is valid, the question sometimes arises as to its enforcement in a foreign jurisdiction. An English court recently refused, at the suit of an Australian municipality, to enforce a special assessment, though a valid Australian statute gave the municipality a right of action. Sydney Municipal Council v. Cork, 25 T. L. R. 6 (Eng., K. B. D., Oct. 15, 1908). There seem to be no prior cases on the point either in England or in this country. The refusal to allow the action for assessments in a foreign jurisdiction may conceivably be rested on two grounds: first, that the action involves the title to real estate; second, that it is a penal action.

6

Courts universally refuse to entertain a suit to determine the title to foreign land. Such an action is in rem, and the courts where the land lies alone have jurisdiction. But the cases go further and hold that an action will not lie for a trespass to foreign land. So also it has been held that a quasi-contractual action cannot be entertained to enforce a rent charge on land in another jurisdiction. This is determined, at least in the case of a trespass, as a question of jurisdiction and not merely of venue, on the ground that the suit involves the question of title to the land. But that should not deprive the court of jurisdiction; for the suit is not in rem and the title is only incidentally in issue. Moreover, courts often do pass on the question of title to foreign land, as in the case of a contract to sell. In the case of a personal action to collect a tax or an assessment, it is true, the title to land is involved; but it is only incidentally. Hence the court is right in not placing its decision on this ground.

But the courts of one jurisdiction will not enforce the penal laws of another. Hence, by the weight of authority, the courts of a state will not entertain a suit brought by a foreign state or by a citizen of such a state to enforce a forfeiture, or any other right except specific performance of an obligation, or specific reparation, or compensation.10 Thus, an action will not lie in a foreign jurisdiction to compel a father to support his bastard child." Nor will the courts enforce an obligation imposed by a foreign statute to contribute to the support of a son-in-law. 12 Such matters are regarded as of purely local concern, in the nature of police regulations. This would seem to be clearly so in the case of foreign revenue laws, which are so lightly regarded that contracts made in evasion of them are not regarded as illegal.13 The principal case is, therefore, to be supported on this ground.

1 Ivanhoe v. Enterprise, 29 Ore. 245. See note in 35 L. R. A. 58.

2 See Henry v. Sargeant, 13 N. H. 321, 332.

3 Roberdeau v. Rous, I Atk. 543.

4 Livingston v. Jefferson, I Brock (U. S.) 203.

5 Whitaker v. Forbes, 1 C. P. D. 51.

6 British, etc., Co. v. Companhia de Moçambique, [1893] A. C. 602.

7 Little v. Ry., 65 Minn. 48.

8 Penn v. Lord Baltimore, I Ves. Sr. 444.

9 Dicey, Conflict of Laws, 220.

10 O'Reilly v. R. R., 16 R. I. 388. But see Huntington v. Attrill, 146 U. S. 657. See 6 HARV. L. REV. 154.

11 Graham v. Monsergh, 22 Vt. 543.

12 De Brimont v. Penniman, 10 Blatch. (U. S.) 436.

13 Holman v. Johnson, Cowp. 341.

SPECIAL ASSESSMENTS UNDER THE POLICE POWER WITHOUT REGARD TO BENEFITS. The levy of special assessments was first asserted to be an exercise of the police power.1 But when it was desired to levy such assessments for purposes unconnected with the public health and morals, it was necessary to find some new justification. This was sought in the power of eminent domain. Here also arose a difficulty: the power of eminent domain was exercised upon an individual and not upon the community, and, while the benefit was shared by the entire community, the whole burden was cast upon the individual whose property and money were both taken.2 Hence, some other justification was rendered necessary for the levying of these assessments. It was found in the taxing power. The entire theory of taxation requires that the taking by the state be in return for protection rendered to the individual. Accordingly, where the tax is special and levied on only a small part of the citizens, they must be compensated by benefits proportionate to the loss sustained by the taking.

8

These three powers of the state should not be exclusive. If a taking is compensated in money, it may be an exercise of eminent domain. If it is for the protection of public health or morals, it may be legislative action under the less restricted police power into which the principle of benefits does not enter at all. For instance, a Wisconsin municipality recently levied an assessment for building a sewer by the front-foot rule. The Wisconsin courts hold this an invalid method of assessment under the taxing power unless it appears that benefits conferred have been regarded." Yet the Wisconsin Supreme Court allowed it under the police power regardless of any benefits received by the railroad company whose property was assessed. Chicago, etc. Ry. Co. v. City of Janesville, 118 N. W. 182 (Wis.).

There has been a decided tendency in many courts to refuse to review the acts of the legislatures in levying these assessments. In the case of general taxes affecting the whole state there is little to fear from legislative usurpation. There is a natural protection in the fact that the legislature is taxing its constituents. Special assessments, however, relieve the mass of the citizens at the expense of the few, and are for this reason at least not unpopular measures. The rights of the citizen are therefore subject to serious encroachments if there is no appeal from the legislative decision. Furthermore, though there may be no express inhibition to the states in the federal Constitution against taking private property for public uses without compensation, such taking was undoubtedly against the whole principle of English liberties and was not due process before the Fourteenth Amendment. The United States Supreme Court considers such taking unconstitutional when it amounts to a complete confiscation of the property assessed. It is hard to see why incomplete confiscation to any substantial extent should not stand on the same plane.10

1 Petition of N. Goddard, 16 Pick. (Mass.) 504.

2 People v. Mayor of Brooklyn, 4 N. Y. 419.

3 Illinois Central R. R. Co. v. Decatur, 147 U. S. 190, 202. See Canal Trustees v. Chicago, 12 Ill. 403.

Horbach v. Omaha, 54 Neb. 83; Cone v. Hartford, 28 Conn. 363; Keese v. Denver, 10 Colo. 112; Van Wagoner v. Patterson, 67 N. J. L. 455.

5 Sanderson v. Herman, 108 Wis. 662.

6 See Spencer v. Marchant, 125 U. S. 345, 353.

Guest v. Brooklyn, 69 N. Y. 506.

8 State v. Lewis Co., 82 Minn. 390.

Norwood v. Baker, 172 U. S. 269; French . Barber Asphalt Co., 181 U. S. 324. 10 See Alleghany v. W. Pa. R. R. Co., 138 Pa. St. 375; Sears v. Street Comm'rs, 173 Mass. 350. But cf. Atlanta v. Hamlin, 96 Ga. 381.

THE SCOPE OF INTERPLEADER. The bill of interpleader is given to one in the position of an innocent stakeholder who is ready to do his duty in order to free him from subjection to two suits and the possibility of a double liability. The bill, being thus founded on obvious principles of equity and fairness, should be treated by the courts in a liberal spirit, and as far as possible be free from technical requirements. This has been the tendency in England, but our own courts and legislatures seem loath to extend the scope of the remedy.

The requisites of the suit are, roughly speaking, ten in number. 1. The adverse claims must be mutually exclusive.1 It would be manifestly unjust to make the claimants fight each other when the validity of one claim is not dependent upon the invalidity of the other; there can then be no dispute between the claimants. For this reason, if one of the claimants gets a verdict or judgment the bill no longer lies." 2. The complainant in the interpleader suit must be willing to bring into court or surrender all that is claimed by either defendant. If he has a counterclaim against either claimant he cannot have it determined in such a proceeding. 3. The position of the stakeholder must be such a precarious one that he really needs the help of equity to prevent injustice. Thus, one who is in possession of land claiming no title need only move out. So also the bill does not lie if all the claims would be settled in one suit at law, or if one of the claims is clearly invalid," or both are illegal. 4. There must be no collusion between the complainant and either claimant. The bill lies to help only a disinterested stakeholder. 5. The stakeholder must not have been placed in his precarious position through his own fault; and he must not be guilty of laches in pursuing his remedy. 6. If equity is unable to enjoin the prosecution of one of the claims at law, it can give no relief. This was brought out in a recent case where a state court declined to entertain a bill because it could not enjoin a federal court from enforcing its judgment. Smith v. Reed, 70 Atl. 961 (N. J., Ch.).

These six requisites are based on sound principles of justice. The following, although supported by authority, are extremely technical and will be found upon examination to have a doubtful equitable basis. 7. It is often required that all the claims be derived from a common source.9 This is a survival of the narrow view of interpleader held by the common law. The requisite of privity is foreign to the purpose of the bill; for the position of a stakeholder is equally precarious irrespective of the sources from which the defendants derive their claims. The refusal to allow an interpleader therefore seems unsound.10 8. It is sometimes required that the stakeholder have no claim or interest in the stake." If the

1 Nat'l Life Ins. Co. v. Pingrey, 141 Mass. 411; Bassett v. Leslie, 123 N. Y. 396. 2 See Maxwell v. Leichtman, 65 Atl. 1007 (N. J. Eq.).

8 M. & H. R. R. v. Clute, 4 Paige (N. Y.) 384.

4 Fitts v. Shaw, 22 R. I. 17.

5 M. & H. R. R. v. Clute, supra.

6 Applegarth v. Colley, 2 Dowl. N. S. 223.

7 Murietta v. South Amer. Co., 62 L. J. Q. B. N. s. 396.

8 Horner v. Willcocks, 1 Ir. Jur. o. s. 136.

This arises most often where a

9 First Nat'l Bank v. Bininger, 26 N. J. Eq. 345. bailee is seeking to interplead his bailor and one claiming by a paramount title. The requisite of privity in this case had some basis at common law where a bailee could not dispute his bailor's title; but it is now settled that he may if he claims under the authority of a third party. See Thorne v. Tilbury, 3 H. & N. 534; 17 HARV. L. Rev. 489.

10 See Crane v. McDonald, 118 N. Y. 648; 17 HARV. L. REV. 489.

11 See 4 Pomeroy, Eq. Jurisp., 3 ed., § 1325; Maclennan, Interpleader, 64.