Chicot County Drainage District v. Baxter State Bank

Brief Fact Summary.

Baxter State Bank (Plaintiff) brought suit to enforce bonds after a statute that had allowed a bankruptcy court to readjust those bonds was found unconstitutional.

Synopsis of Rule of Law.

A party may not bring a subsequent suit based on the unconstitutionality of a statute when it did not challenge that statute at the earlier proceeding.

Facts.

The Chicot County Drainage District (Defendant) filed for bankruptcy based upon outstanding bonds and other debts. The trial court acted on the bankruptcy action and held a hearing on the matter. Plaintiff, as a bondholder, was a party to this hearing. As a result of the hearing, the court ordered the bonds to be readjusted and new bonds to be issued. The statute that had allowed this readjustment was later declared unconstitutional. Plaintiff then sued to recover under the old bonds, arguing that res judicata did not bar the suit because the statute had since been declared unconstitutional. Defendant argued that Plaintiff’s failure to challenge the constitutionality of the statute in the earlier action barred the new suit. The court found for Plaintiff and the court of appeals affirmed. The Supreme Court granted certiorari.

Issue.

When a party does not challenge a statute that is later found unconstitutional, is the party barred by the first judgment from bringing a subsequent action?

Held.

(Hughes, J.) Yes. A party may not bring a subsequent suit based on the unconstitutionality of a statute when it did not challenge that statute at the earlier proceeding. Plaintiff’s failure to challenge the constitutionality of the statute in the initial bankruptcy proceeding bars the new action, even though the statute has since been found to be unconstitutional. Reversed and remanded with direction to dismiss the complaint.

Discussion.

In Durfee v. Duke, 375 U.S. 106 (1963), two parties litigated a dispute concerning land lying on the border of two states. The matter was fully litigated in Nebraska and Durfee prevailed. Duke then brought a diversity action in Missouri on the same issue and succeeded on the merits. The trial court held that res judicata did not apply because the land was in Missouri and Nebraska had, therefore, not had subject matter jurisdiction in the original trial. The Supreme Court reversed, holding that the Nebraska judgment was entitled to full faith and credit and that Nebraska did not allow collateral attacks.