Ashton v. Cameron County Water Improvement District
In Ashton v. Cameron County Water Improvement District, 298 U.S. 513, 56 S.Ct. 892, 896, 80 L.Ed. 1309 (1936) the Supreme Court had under consideration the question of the constitutionality of the first Act as applied to a Texas water improvement district.
The Court examined the corporate structure of the improvement district, and decided that it was a political subdivision of the State of Texas.
It held that the statute under consideration was invalid because an "application of the statutory provisions in the old Act might materially restrict the district's control over its fiscal affairs".
In Ashton v. Cameron County District, 298 U.S. 513 (1936), the court considered that the provisions of Chapter IX of the Bankruptcy Act authorizing the bankruptcy court to entertain proceedings for the "readjustment of the debts" of "political subdivisions" of a State "might materially restrict its control over its fiscal affairs," and was therefore invalid; that if obligations of States or their political subdivisions might be subjected to the interference contemplated by Chapter IX of the Bankruptcy Act, they would no longer be "free to manage their own affairs."
In enacting Chapter X the Congress was especially solicitous to afford no ground for this objection. In the report of the Committee on the Judiciary of the House of Representatives, which was adopted by the Senate Committee on the Judiciary, in dealing with the bill proposing to enact Chapter X of the Bankruptcy Act, the subject was carefully considered.
The Committee said:
"Compositions are approvable only when the districts or agencies file voluntary proceedings in courts of bankruptcy, accompanied by plans approved by 51 per cent of all the creditors of the district or agency, and by evidence of good faith. Each proceeding is subject to ample notice to creditors, thorough hearings, complete investigations, and appeals from interlocutory and final decrees. The plan of composition cannot be confirmed unless accepted in writing by creditors holding at least 66 2/3 percent of the aggregate amount of the indebtedness of the petitioning district or taxing agency, and unless the judge is satisfied that the taxing district is authorized by law to carry out the plan, and until a specific finding by the court that the plan of composition is fair, equitable, and for the best interests of the creditors. . . .
"The Committee on the Judiciary is not unmindful of the sweeping character of the holding of the Supreme Court above referred to in the Ashton v. Cameron County District case, and believes that H.R. 5969 is not invalid or contrary to the reasoning of the majority opinion. . . .
"The bill here recommended for passage expressly avoids any restriction on the powers of the States or their arms of government in the exercise of their sovereign rights and duties. No interference with the fiscal or governmental affairs of a political subdivision is permitted. The taxing agency itself is the only instrumentality which can seek the benefits of the proposed legislation. No involuntary proceedings are allowable, and no control or jurisdiction over that property and those revenues of the petitioning agency necessary for essential governmental purposes is conferred by the bill. . . .
"There is no hope for relief through statutes enacted by the States, because the Constitution forbids the passing of State laws impairing the obligations of existing contracts. Therefore, relief must come from Congress, if at all. The committee are not prepared to admit that the situation presents a legislative no-man's land. . . . It is the opinion of the committee that the present bill removes the objections to the unconstitutional statute, and gives a forum to enable those distressed taxing agencies which desire to adjust their obligations and which are capable of reorganization, to meet their creditors under necessary judicial control and guidance and free from coercion, and to affect such adjustment on a plan determined to be mutually advantageous."