Santa Clara County v. Southern Pacific Railroad Company

Santa Clara County v. Southern Pacific Railroad Company
Docket number: 118 U.S. 394, 396
Term: 1885
Court: United States Supreme Court
Court membership
Chief Justice Morrison Waite • Samuel Blatchford • Joseph Bradley • Stephen J. Field • Horace Gray • John Marshall Harlan • Samuel F. Miller • Stanley Matthews • William B. Woods

Santa Clara County v. Southern Pacific Railroad Company was decided on May 10, 1886, by the U.S. Supreme Court. The case established, via a headnote, that corporations are considered persons under the 14th Amendment's Equal Protection Clause.

Questions presented: Are corporate entities considered persons and, thus, are entitled to the equal protection of the law under the 14th Amendment? Does California's taxation assessment scheme for railroad property violate defendants' rights of equal protection under the 14th Amendment?

Case background

This case was consolidated with two separate cases in which the state of California brought suit against both the Southern Pacific Railroad Company and the Central Pacific Railroad Company. Both railroad companies, under separate federal and state laws, had been granted permission to build and/or change railroad lines in the state of California for the purposes of connecting with interstate railways. In order to facilitate the requisite connections, these lines, by acts of Congress, were considered military and post roads. Additionally, both the Southern and Central Pacific Railroad Companies, via acts of Congress, were given grants of public lands in order to facilitate construction of the connecting lines. These grants were made prior to 1879.

In 1879, California adopted its constitution. The state constitution conveyed tax-exempt status to, inter alia, any property owned by either the government of the United States, the state of California, or any county or municipal entities created by the state. The constitution also conferred upon "bona fide residents" of the state the ability to deduct any outstanding mortgage against the assessed taxable value of property owned. This right, however, was purposefully denied to "railroads and other quasi-public corporations."

The specific language is found in Article 13, Section 4:

“

A mortgage, deed of trust, contract, or other obligation by which a debt is secured, shall, for the purposes of assessment and taxation, be deemed and treated as an interest in the property affected thereby. Except as to railroad and other quasi public corporations, in case of debts so secured, the value of the property affected by such mortgage, deed of trust, contract, or obligation, less the value of such security, shall be assessed and taxed to the owner of the property, and the value of such security shall be assessed and taxed to the owner thereof, in the county, city, or district in which the property affected thereby is situate. The taxes so levied shall be a lien upon the property and security, and may be paid by either party to such security. If paid by the owner of the security, the tax so levied upon the property affected thereby shall become a part of the debt so secured; if the owner of the property shall pay the tax so levied on such security, it shall constitute a payment thereon, and to the extent of such payment, a full discharge thereof: provided, that if any such security or indebtedness shall be ... paid by any such debtor or debtors, after assessment and before the tax levy, the amount of such levy may likewise be retained by such debtor or debtors, and shall be computed according to the tax levy of the preceding year.

”

The constitution also authorized a state public agency, the state board of equalization, to assess the actual value of franchise, roadway, road-bed, rails, and rolling stock of all railroads operated in more than one county; otherwise, privately-held property was to be assessed by a local governing authority or authorities in the jurisdiction(s) in which the property was located. Furthermore, Section 3664 of the Political Code of California, a law which had not been passed by the California legislature, specified statutory timetables for assessment and included the interests of railroads constituting taxable property. These interests were to be assessed by the equalization board at the actual value of the property.

Challenging both the denial of mortgage deductibility as well as the actual assessment reached by the equalization board, trials were held before a federal court in California, which took jurisdiction of the matter after the railroads filed a timely petition that the cases involved questions arising under the laws of the United States. The state court recognized this right, and transferred proceedings to the federal court. During the trial, no record of any assessment made by the state board was entered into evidence, except for a written communication from the state board to assessors in Santa Clara and Fresno counties in 1881. That communication included total assessed values of the taxable properties in those counties held by the railroads; however, the total assessment also included the value of fences erected on the roadways owned by the railroads. These fences were valued at $300 per mile.

At trial, the railroads articulated six special defenses:

“

(1) That its road is a part of a continuous postal and military route, constructed and maintained under the authority of the United States, by means in part obtained from the general government; that the company having, with the consent of the state, become subject to the requirements, conditions, and provisions of the acts of congress, it thereby ceased to be merely a state corporation, and became one of the agencies or instrumentalities employed by the general government to execute its constitutional powers; and that the franchise to operate a postal and military route, for the transportation of troops, munitions of war, public stores, and the mails, being derived from the United States, cannot, without their consent, be subjected to state taxation. (2) That the provisions of the constitution and laws of California, in respect to the assessment for taxation of the property of railway corporations operating railroads in more than one county, are in violation of the fourteenth amendment of the constitution, in so far as they require the assessment of their property at its full money value, without making deduction, as in the case of railroads operated in one county, and of other corporations, and of natural persons, for the value of the mortgages covering the property assessed; thus imposing upon the defendant unequal burdens, and to that extent denying to it the equal protection of the laws. (3) That what is known as section 3664 of the Political Code of California, under the authority of which, in part, the assessment was made, was not constitutionally enacted by the legislature, and had not the force of law. (4) That no void assessment appears in fact to have been made by the state board. (5) That no interest is recoverable in this action until after judgment. (6) That the assessment upon which the action is based is void, because it included property which the state board of equalization had no jurisdiction, under any circumstances, to assess; and that, as such illegal part was so blended with the balance that it cannot be separated, the entire assessment must be treated as a nullity.

”

Justice Stephen J. Field, on his authority as circuit justice, overruled the first of these defenses but sustained the second. Additionally, the circuit judge presiding over the trial held that Section 3664 of the Political Code had been passed in a manner that was inconsistent with the California constitution and, thus, could not be considered part of California law. Both Santa Clara County and the state of California appealed the circuit decision.

Oral argument

Oral argument was held from January 26 to January 29, 1886.

Decision

The decision of the U.S. circuit court for the district of California was affirmed.

The famous headnote

Written after the U.S. Supreme Court reaches a decision, and placed above every opinion for the court in the United States Reports, is a headnote. A headnote is "a short summary in which a court reporter summarizes the opinion as well as outlining the main facts and arguments. Headnotes are defined as 'not the work of the Court, but are simply the work of the Reporter, giving his understanding of the decision, prepared for the convenience of the profession." At the time of the Santa Clara decision, the court's reporter was J.C. Bancroft Davis. At one time, Davis was president of the Newburgh and New York Railway Company.

In his headnote for the case, Davis wrote, "one of the points made and discussed at length in the brief of counsel for defendants in error was that 'corporations are persons within the meaning of the Fourteenth Amendment to the Constitution of the United States.' Before argument, Mr. Chief Justice Waite said: The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does." According to author Thomas Hartmann, such a statement was made in open court by Chief Justice Waite to counsel prior to the reading of the court's opinion by Justice Harlan.

According to research by C. Peter Magrath, author of a biography on Chief Justice Waite, prior to the decision being published in the United States Reports, Davis wrote to the chief justice in May 1886 to ensure the verity of his headnote: "Dear Chief Justice, I have a memorandum in the California Cases Santa Clara County v. Southern Pacific &c As follows. In opening the Court stated that it did not wish to hear argument on the question whether the Fourteenth Amendment applies to such corporations as are parties in these suits. All the Judges were of the opinion that it does." Chief Justice Waite is said to have responded, "I think your mem. in the California Railroad Tax cases expresses with sufficient accuracy what was said before the argument began. I leave it with you to determine whether anything need be said about it in the report inasmuch as we avoided meeting the constitutional question in the decision."

Thus, as a result of the headnote's language in the Reports, Santa Clara is seen as the case that establishes a principle known as corporate personhood.

There is a question as to whether Davis' inclusion of the unconsidered 14th Amendment argument into the headnote was more purposeful. Thomas Van Flein, a one-time editor of the Alaska Bar Rag, a publication of the Alaska Bar Association, wrote a feature for the magazine's May/June 2003 edition entitled "Beware of those headnotes." Citing research by, among others, Professor Richard Behan, Van Flein asserts, "Some believe the reporter inserted the erroneous language on purpose. The question of whether corporations were 'persons' under the constitution was hotly litigated for over 20 years prior to this decision, mainly by railroads who sought such status—but perpetually lost in court. Professor Behan notes the reporter was a former railroad lawyer who had unsuccessfully tried to get the courts to establish the point he wrote into the headnote. Professor Behan believes that the reporter sought 'to achieve by deceit what corporations had so far failed to achieve in litigation.'"

Opinion

The 14th Amendment question

Justice John Marshall Harlan delivered the opinion for a unanimous court. Unlike Chief Justice Waite, who, at least according to the footnote, assumed unanimity on the 14th Amendment argument, Justice Harlan was of the view that, though important, the 14th Amendment question may not need to be addressed in this particular dispute:

“

The propositions embodied in the conclusions reached in the circuit court were discussed with marked ability by counsel who appeared in this court for the respective parties. Their importance cannot well be over-estimated; for they not only involve a construction of the recent amendments to the national constitution in their application to the constitution and the legislation of a state, but upon their determination, if it were necessary to consider them, would depend the system of taxation devised by that state for raising revenue, from certain corporations, for the support of her government. These questions belong to a class which this court should not decide unless their determination is essential to the disposal of the case in which they arise. Whether the present cases require a decision of them depends upon the soundness of another proposition, upon which the court below, in view of its conclusions upon other issues, did not deem it necessary to pass. We allude to the claim of the defendant, in each case, that the entire assessment is a nullity, upon the ground that the state board of equalization included therein property which it was without jurisdiction to assess for taxation.

”

In other words, if the court could determine that the assessment made by the state board of equalization should be nullified, then it need not reach the 14th Amendment question.

Was the assessment illegal?

Justice Harlan turned to an argument made by the railroad companies that the state board purposefully included the value of the fences erected on the roadway and that these were illegally included as part of the assessment. In Justice Harlan's words,

“

The argument in behalf of the defendant is that the state board knowingly and designedly included in its assessment of 'the franchise, roadway, road-bed, rails, and rolling-stock' of each company, the value of the fences erected upon the line between its roadway and the land of coterminous proprietors; that the fences did not constitute a part of such roadway, and therefore could only be assessed for taxation by the proper officer of the several counties in which they were situated; and that an entire assessment which includes property not assessable by the state board against the party assessed, is void, and therefore insufficient to support an action; at least, when-and such is claimed to be the case here-it does not appear with reasonable certainty, from the face of the assessment or otherwise, what part of the aggregate valuation represents the property so illegally included therein. If these positions are tenable, there will be no occasion to consider the grave questions of constitutional law upon which the case was determined below; for, in that event, the judgment can be affirmed upon the ground that the assessment cannot properly be the basis of a judgment against the defendant.

”

Justice Harlan again stipulated expressly that the 14th Amendment questions could be ignored in this case if the assessment was performed illegally.

Justice Harlan agreed with the railroad companies that the inclusion of the fences as part of the assessment went beyond the authority granted by the California constitution to the state board, and that the board erroneously assessed the fences as part of the taxable value of the property, not as an "improvement" to the property. Harlan wrote,

“

That the state board purposely included in its assessment and valuation the fences erected on the line between the railroads and the lands of adjacent proprietors, at the rate of $300 per mile, is undoubtedly true; for it is so stated in the special finding of facts, and that finding must be taken here to be indisputable. It is equally true that that tribunal has no general power of assessment, but only jurisdiction to assess 'the franchise, roadway, road-bed, rails, and rolling stock' of railroad corporations operating roads in more than one county, and that all other property of such corporations, subject to taxation, is assessable only 'in the county, city, city and county, town, township, or district in which it is situated, in the manner prescribed by law.' Such is the declaration of the state constitution ... We come back, then, to the vital inquiry, whether the fences could be assessed under the head of roadway. We are of opinion that they cannot be regarded as part of the roadway for purposes of taxation.

”

Justice Harlan noted that the state constitution provided that land, and improvements thereon, should be separately assessed and that Section 3617 of the Political Code of California declared that the term improvements included all buildings, structures, fixtures, fences, and improvements erected upon or affixed to the land. That said, this was the same law that the circuit judge below held was not consistent with state constitutional provisions for the passage of legislation in California and, as such, could not be considered part of California law

Justice Harlan noted that, in the absence of a record in evidence of the assessment, it was not possible to determine under what heading the fences were included in the assessment. For Justice Harlan, this presented an insurmountable problem for the state:

“

If the presumption is that the state board included in its valuation only such property as it had jurisdiction under the state constitution to assess, namely, such as could be rightfully classified under the heads of franchise, roadway, road- bed, rails, or rolling stock, that presumption was overthrown by proof that it did, in fact, include, under some one or more of these heads, the fences in question. It was then incumbent upon the plaintiff, by satisfactory evidence, to separate that which was illegal from that which was legal,-assuming, for the purposes of this case only, that the assessment was in all other respects legal,-and thus impose upon the defendant the duty of tendering, or enable the court to render judgment for, such amount, if any, as was justly due. But no such evidence was introduced. The finding that the fences were valued at $300 per mile is too vague and indefinite as a basis for estimating the aggregate valuation of the fences included in the assessment, or the amount thereof apportioned to the respective counties. Were the fences the property of adjacent proprietors? Were they assessed at that rate for every mile of the railroad within the state? Were they erected on the line of the railroad in every county through which it was operated, or only in some of them? Wherever erected, were they assessed for each side of the railway, or only for one side? These questions, so important in determining the extent to which the assessment included a valuation of the fences erected upon the line between the railroad and coterminous proprietors, find no solution in the record presented to this court.

”

Decision

As a result of the unconstitutionally improper assessment, Justice Harlan affirmed the lower court judgment. In his opinion for the court, Harlan once again stipulated that other questions raised (such as those under the 14th Amendment) need not be answered:

“

It results that the court below might have given judgment in each case for the defendant upon the ground that the assessment, which was the foundation of the action, included property of material value which the state board was without jurisdiction to assess, and the tax levied upon which cannot, from the record, be separated from that imposed upon other property embraced in the same assessment. As the judgment can be sustained upon this ground, it is not necessary to consider any other questions raised by the pleadings and the facts found by the court.

”

See also

• Supreme Court of the United States
• History of the Supreme Court

External links

• Supreme Court of the United States