South Dakota v. North Carolina

Background

South Dakota accepted ten bonds given to it by a private holder and brought suit against North Carolina to collect on them. The bonds had been issued long earlier by North Carolina to aid railroads and were endorsed with a statutory mortgage of railroad stock that remained in North Carolina’s possession. South Dakota asked the Court to find the bonds valid, enforce the mortgage, and, if necessary, sell state-owned railroad shares to satisfy the debt; individual bondholders named in the suit were also joined as defendants.

Reasoning

The Court addressed whether it could hear a suit between two States and what relief it could order. Relying on the Constitution’s grant of original power over "controversies between two or more States," the majority held South Dakota had a valid title to the bonds, the statutory mortgages were effective even though the stock stayed in North Carolina’s hands, and the Supreme Court could enter a decree. The Court found $27,400 due on the bonds (no interest recoverable) and ordered North Carolina to pay by the set date or face a public sale of one hundred shares of the North Carolina Railroad to satisfy the debt. The Court dismissed claims that individual bondholders should receive relief in this action.

Real world impact

The decision lets one State enforce certain transferred debt claims against another State and authorizes foreclosure-style sales of state-owned corporate stock to satisfy those claims. It creates a path for state-level litigation to resolve some old public-debt disputes, while leaving open questions about how other creditors and competing liens will be treated.

Dissents or concurrances

Justice White (joined by three others) dissented, warning this ruling conflicts with the Eleventh Amendment and national practice shielding States from suits founded on private claims transferred to other States; he argued necessary parties were absent and the decree should not stand.