Old Colony Trust Co. v. City of Seattle

Background

In early 1919 a private utility company owned both a power-and-light system and a street railway. It transferred the railway to the City of Seattle on March 31, 1919, under an agreement that split 1919 taxes according to how long each owned the property. Large 1919 taxes became a lien on March 15, and the city refused to pay its share. The county treasurer then refused partial payment and moved to collect the full tax by distraint — seizure and sale — of the mortgaged power property. The mortgage trustee, Old Colony Trust Company, sued in federal court to stop the sale and to protect its mortgage security, alleging the collectors were acting wrongfully and collusively.

Reasoning

The core question was whether this suit was really a suit against the State and therefore barred by the Eleventh Amendment. The bills named tax officers and alleged wrongful conduct by those officers rather than a claim against the State itself. Relying on prior decisions cited in the opinion, the Court explained that public agents cannot use state immunity to shield wrongful acts done under color of office. Because the complaint sought to enjoin the wrongful acts of state agents and to protect a private mortgage interest, it was not in substance a suit against the State. The lower court’s dismissal for lack of jurisdiction was therefore erroneous, and the decree was reversed.

Real world impact

Private mortgage holders can bring federal suits to stop local tax officers from misusing collection powers to seize mortgaged property. The decision protects mortgage security against abusive tax-sales tactics but does not decide the ultimate validity of the taxes.