309 U.S.

485
60 S.Ct. 640
84 L.Ed. 881

KERSH LAKE DRAINAGE DIST. OF JEFFERSON,

LINCOLN AND DESHA COUNTIES, ARK., et al.
v.
JOHNSON.
No. 595.
Argued March 8, 1940.
Decided March 25, 1940.
Rehearing Denied April 22, 1940.

See 309 U.S. 699, 60 S.Ct. 886, 84 L.Ed. -.

Messrs. George B. Rose and George Rose Smith, both of Little Rock,
Ark., for petitioners.
[Argument of Counsel from page 486 intentionally omitted]
Mr. Walter G. Riddick, of Little Rock, Ark., for respondent.
Mr. Justice BLACK delivered the opinion of the Court.

Kersh Lake Drainage District was organized, in 1912, under the general
drainage law of Arkansas.1 An assessment of the value of benefits to accrue to
each of the tracts of land embraced in the District was duly made, upon the
basis of which annual levies were extended against each tract. And the District
issued interest bearing certificates of indebtedness in payment of construction
work done for it by contract.

Respondent Johnson, a landowner in the District, brought suit against the

District and its Commissioners in the Lincoln Chancery Court of the State of
Arkansas in order to establish that he had fully paid the share of benefit taxes
apportioned to his land and was therefore entitled under Arkansas law to have
his land declared free from any further drainage tax liability. In 1931, that State
court rendered its final decree to the effect that the lien of the District for such

taxes had already been 'fully satisfied and released', and enjoined further
extension of drainage taxes against his lands. In 1932, the same State court
rendered a like decree in favor of W. A. Fish and other named landowners of
the District.
3

November 1, 1935, a judgment against the District was obtained by certificate

holders in the federal court for the Eastern District of Arkansas. The Circuit
Court of Appeals affirmed.2 To enforce their judgment, these creditors then
instituted proceedings in the same Federal District Court, for mandatory
injunction to require the appropriate County clerks to extend drainage benefit
taxes for the District upon their tax books; to require County officials to collect
these taxes; and to provide that 'if any property owners fail to pay their drainage
tax the defendant, Kersh Lake Drainage District and its Commissioners be
required to institute suit for the collection of the delinquent taxes, and to
prosecute the same with due diligence to a conclusion, and to see that the
delinquent lands are sold promptly under the decree of foreclosure, * * *.'
Answering, the District set up among other defenses that 'a large number of
tracts of land in the District have fully paid the entire value of assessed benefits
against said lands and that said property owners obtained a decree in the
Lincoln Chancery Court in the case of W. A. Fish, et al. v. Kersh Lake
Drainage District on June 15, 1932, enjoining and restraining the
Commissioners of the defendant District from levying or extending any tax
against these lands, the assessed benefits of which have been fully paid.'

The District Court decreed that a mandatory injunction issue compelling the
'County clerks and County collectors to perform their duties in the collection of
the drainage taxes upon the lands in suit'; that there be extended taxes 'of six
and one-half per cent of the benefits assessed against each tract of land * * *
until the whole of the decree has been satisfied'; that the 'Commissioners * * *
be required to institute suits for the collection of all delinquent taxes of said
District, and to prosecute the same forthwith to a conclusion, * * *'; and that
'the said Commissioners are deemed receivers of this court * * *.' And the
Circuit Court of Appeals affirmed.3

Pursuant to this mandatory injunction, the drainage taxes were extended on the
tax books but respondent Johnson and other landowners in whose favor the
decrees of the Lincoln Chancery Court had been rendered, refused to pay. Suit
for collection was filed against their lands in the Lincoln Chancery Court by the
Commissioners. In reliance upon the 1931 and 1932 State Chancery Court
decrees as final determinations that the assessments apportioned to their
respective tracts of lands had been discharged, pleas of res judicata were
interposed by the landowners. Referring to this answer of the landowners, the

Commissioners amended their complaint and alleged (1) that the State court
decrees of 1931 and 1932 were void because certificate holders had not been
made parties, and (2) that the certificate holders' judgment against the District
and the mandatory injunction decree of the federal court were 'res judicata of
all the questions * * * raised by the' landowners. The trial court decided against
the landowners, but the Supreme Court of Arkansas reversed and held that the
unappealed Chancery Court decrees in 1931 and 1932 amounted to conclusive
adjudications that the particular lands here involved were responsible for no
further benefit taxes, thus sustaining the landowners' pleas of res judicata.4
6

As stated by the Supreme Court of Arkansas, the general jurisdiction of the

Lincoln Chancery Court, under the State law, to render the 1931 and 1932
decrees is 'acknowledged',5 and this determination by the State's highest court
is binding upon us. However, petitioners' argument is that these decrees were
void because certificate holders were not made parties in and had no notice of
the chancery proceedings. Therefore, they contend that in giving effect to the
State court decrees and treating them as res judicata in the present proceeding
the court below deprived certificate holders of their property without due
process of law in violation of the Fourteenth Amendment.6 Petitioners also add
the contention that the 1932 State court decree was 'collusive as a matter of
law.'

Although the Drainage District was not in terms legislatively declared to be a

corporation, its powers and limitations were similar to those of corporations and
its Commissioners were comparable to corporate directors.7 Among the duties
of the Commissionersas provided by the very statute upon which the
certificates involved here restwere those of protecting and enforcing
creditors' rights on obligations issued by the District.8 And the Commissioners
in 1931 and 1932 litigated with the land owners the disputed question of
proportionate amounts of taxes due the District by virtue of drainage benefits
received by the particular tracts here in question.

When these certificates were issued, purchasers were charged with notice of
and bound by Arkansas statutes in existence when, and pursuant to which, the
debt was contracted and which provided for determination of the proportionate
liabilities of lands in the District by chancery proceedings between the
Commissioners and landowners with no requirement of notice to creditors of
the District.9 Thus, the very statutory plan from which the certificate
obligations sprang contemplated that the Commissioners should represent the
collective and corporate interests of the District, in litigation between the
District and the landowner involving matters personal to the landowner.

These certificate holders were not entitled to be made parties in the Lincoln
chancery proceedings just as in practice creditors of a corporation are not,
unless otherwise provided by statute, made parties in a suit between a
stockholder and the corporation to determine liability on a stock subscription,
between the corporation and a third person to recover corporate assets, or in a
suit brought against the corporation by creditors, stockholders or officers. It has
been held that bondholders are not necessary parties to and are bound by the
decreeeven if adverse to their interestsin litigation wherein an indenture
trustee under a bond issue is a party and exercises in good faith and without
neglect his contractual authority to represent and assert the lien securing the
issue.10 And so are these petitioners bound by the decrees in the chancery suit
in which the Commissioners as parties appropriately asserted the lien for
benefit of certificate holdersunless there was fraud or collusion.

10

It is sufficient to state as to this contention that the issues of fraud and collusion
raise no questions which the Supreme Court of Arkansas was not competent
finally to decide. And the Supreme Court of Arkansas points out that under
controlling Arkansas law the chancery decrees 'could only have been set aside
on appeal or by direct action to annul them on the ground of fraud, and as we
have said no appeals were taken, and no fraud on the court in which the decrees
were rendered, is reflected by this record.'11

11

But petitioners nevertheless insist that the State court's chancery decrees cannot
avail the landowners because of the subsequent judgments of the Federal
District Court.

Second. The Judgments of the Federal District Court.

12
13

Petitioners pleaded the final judgments of the Federal District Court as

conclusive adjudications of the issues raised by the landowners' defense based
upon the chancery decrees. The refusal of the court below to accept the District
Court's judgments as determinative of the individual landowners' liabilities
constituted, petitioners claim, a denial of full faith and credit to those federal
judgments. With this contention we do not agree.

14

In order that the District might be afforded a basis for suits in the State courts to
recover taxes with which to pay the judgment against it, the District Court
ordered a mandatory injunction requiring County officials to extend on their
books drainage taxes against all the lands in the District as a whole, including
those here involved. This preliminary to State court suits in which the actual
respective liabilities of the individual landowners could be determined was

performed, and thereby this provision of the injunction was carried out. The
Commissioners were also enjoined to file and prosecute suits in the State courts
to collect all such taxes that were delinquent. This was done. Irrespective of
whether the District was empowered to represent the landowners when the
extension of taxes as a whole was ordered, by its mandatory injunction the
District Court did not attempt to foreclose the State court from hearing all
matters of personal defense which individual landowners might plead in the
suits for collection. Instead, the District Court appropriately left for the State
court's determination any such personal defenses available under Arkansas
law.12 And here the Supreme Court of Arkansas has sustained as personal
defenses the decrees of payment and discharge obtained by individual
landowners in Arkansas courts of competent jurisdiction. Accordingly,
petitioners misconstrue entirely the decree of the District Court in arguing that
unless its injunction is carried out without any reference to the prior State court
decrees, injunctions by a State court will be permitted to obstruct the execution
of a federal court's judgment.13 In view of our construction of the mandatory
injunction and the fact that its mandates have been fully carried out, it is
unnecessary for us to consider the existence or present vitality of the doctrine
said to be established by the cases relied upon by petitioners.14
15

The substantial effect of the District Court's judgments was no more than a
determination that a total balance was still due the complaining certificate
holders by the District; that drainage taxes sufficient to discharge this balance
should be extended on the proper County tax books in accordance with
Arkansas law; and that suits against individual landowners be filed for judicial
ascertainment of their proportionate shares of the total. Neither the adjudication
of the total liability nor the order for extension of drainage taxes on the local
tax books was an adjudication of the varying proportionate liabilities of the
respective landowners. Determination of these liabilities was properly left for
the State court. A decreed total liability for the District was still consistent with
the principle that 'when the proportion (taxable against a particular tract) is
ascertained and paid, it is no longer or further liable. It is discharged. The
residue of the tax is to be obtained from other sources.'15

16

These landowners were neither served with process nor heard in either the
certificate holders' suit against the District or the mandatory injunction
proceeding. No relief against them as individuals was either sought or
adjudged. The Commissioners did represent all landowners in unsuccessfully
defending the certificate holders' suit for an adjudication of the total collective
corporate obligation of the District as an entity. In the present suit the
landowners have not asserted, and the Supreme Court of Arkansas has not
upheld, any attack upon that judgment, which might be valid although

uncollectible against the District or any individual landowners.16 The fact that
the Commissioners, in the injunction proceedings against the District,
unsuccessfully attempted to interpose defenses peculiar and personal to the
individual landowners cannot foreclose the individual landowners, who were
not present, from thereafter pleading a defense otherwise valid. Certainly, the
decree in the injunction suit in the federal court would not prevent an individual
property owner from subsequently interposing the defense that his property was
not in fact included within the Drainage District.17 Cognate personal defenses,
such as the one that a landowner's proportionate drainage tax liability has been
declared by the judgment of a competent tribunal to have been 'ascertained and
paid', were not foreclosed by the Federal District Court's judgments.
17

The judgments of the federal court were not denied full faith and credit by the
Supreme Court of Arkansas.

18

Affirmed.

19

Mr. Justice McREYNOLDS took no part in the decision of this case.

Acts of Ark.1909, p. 829.

Kersh Lake Drainage Dist. v. State Bank & Trust Co., 8 Cir., 85 F.2d 643.

Kersh Lake Drainage Dist. v. State Bank & Trust Co., 8 Cir., 92 F.2d 783.

198 Ark. 743, 131 S.W.2d 620, 132 S.W.2d 658.

First. The unappealed 1931 and 1932 Decrees of the Lincoln Chancery Court of
the State of Arkansas.

Cf. Protho v. Williams, 147 Ark. 535, 547, 229 S.W. 38.

Because of this and the further contention that the Supreme Court of Arkansas
had denied full faith and credit to the judgments of the Federal District Court,
certiorari was granted. 309 U.S. 642, 60 S.Ct. 468, 84 L.Ed. -.

See, e.g., reference to 'the board of directors', Acts of Ark.1909, p. 849.

The Act of 1909 set up detailed standards for creation and control of the
District; provided for management of District affairs by a Board of
Commissioners under outlined supervision by Arkansas Courts; and intrusted

the Commissioners with the conduct and control of litigation for the collection
and enforcement of unpaid benefits against lands in the District. Such litigation
was required to be conducted in the State Chancery Court having jurisdiction in
the County where the particular lands were located; and the lands covered by
the 19311932 Lincoln Chancery Court decrees were located in Lincoln
County. Arkansas Acts 1909, p. 829.
9

Rees v. City of Watertown, 19 Wall. 107, 120, 22 L.Ed. 72; United States v.
County Court of Macon, 99 U.S. 582, 590, 25 L.Ed. 331.

10

Elwell v. Fosdick, 134 U.S. 500, 512, 513, 10 S.Ct. 598, 600, 601, 33 L.Ed.
998; Richter v. Jerome, 123 U.S. 233, 246, 247, 8 S.Ct. 106, 111, 112, 31 L.Ed.
132.

11

198 Ark. 743, 131 S.W.2d 620, 625, 132 S.W.2d 658.

12

Cf. Arkansas v. St. Louis-San Francisco Ry. Co., 269 U.S. 172, 176, 46 S.Ct.
66, 67, 70 L.Ed. 210; Chandler v. Peketz, 297 U.S. 609, 611, 56 S.Ct. 602, 603,
80 L.Ed. 881.

13

Petitioners rely upon Riggs v. Johnson County, 6 Wall. 166, 18 L.Ed. 768;
United States v. Council of Keokuk, 6 Wall. 514, 18 L.Ed. 933; Davenport v.
Lord, 9 Wall. 409, 19 L.Ed. 704; Washington County v. Durant, 9 Wall. 415,
19 L.Ed. 732; Hawley v. Fairbanks, 108 U.S. 543, 2 S.Ct. 846, 27 L.Ed. 820.

14

But see Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed.
1188, 114 A.L.R. 1487, and Ruhlin v. New York Life Ins. Co., 304 U.S. 202,
205, 58 S.Ct. 860, 861, 82 L.Ed. 1290.

15

Rees v. City of Watertown, supra, 19 Wall. 119, 120, 22 L.Ed. 72.

16

Barkely v. Levee Com'rs, 93 U.S. 258, 265, 266, 23 L.Ed. 893.

17

Ocean Beach Heights v. Invest. Co., 302 U.S. 614, 58 S.Ct. 385, 82 L.Ed. 478.
Cf. Normandy Beach Dev. Co. v. United States, 5 Cir., 69 F.2d 105.