# Amicus Curiae Brief — San Antonio Independent School Dist. v. Rodriguez

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1973
- **Citation:** 411 U.S. 1

## Text

7 2 JUL 21 72

Supreme Court of the United States

OCTOBER TERM, 1972 | Miche RDT IA. e

No. 71-1332

SAN ANTONIO INDEPENDENT SCHOOL DisTRICT, et al.,
Appellants,

V.

DEMETRIO P. RODRIGUEZ, et al.,
Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS

— — ——— ____________________

BRIEF FOR REPUBLIC NATIONAL BANK OF DALLAS,

FIRST CITY NATIONAL BANK OF HOUSTON, MER-

CANTILE NATIONAL BANK AT DALLAS, BANK OF

TEXAS, AND SECURITIES INDUSTRY ASSOCIATION,
INC. AS AMICI CURIAE

LAWRENCE E. WALSH
1 Chase Manhattan Plaza
. New York, New York 10005
212 422-3400

VICTOR W. BouLDIN
2100 First City National
Bank Building
Houston, Texas 77002
713 225-2411
CLIFFORD W. YOUNGBLOOD
Of Counsel

Attorneys for Amici Curiae

TABLE OF CONTENTS

PT CE Ore TTT OTS
Tnterest of Anstol Curiae ... occ ccc ccccvccccces
— m! mx ð . wham RS

1. The Nature of Texas School Distriet Bonds

2. The District Court’s Clarification of Orig-
UN MI ²² a oh oss cae ks bess

8. Judicial Protection of Outstanding and In-
terim-Issued Bonds in Other Jurisdictions

— | ee ·˙

ARGUMENT:

I—This Court Should Reaffirm the District
Court’s Protection of Outstanding and In-
// ⁰ oo•HÄ Q ccwicce xcs

II— This Court’s Decisions Establish That the
District Court’s Holding Should Not Be

Applied Retrospectively ................

III— Retrospective Application of the District
Court’s Holding Would Offend the Prin-
¢iples Embodied in the Contract Clause and
the Due Process Clause

13

14

15

20
22

ii
TABLE OF AUTHORITIES

Cases
PAGE
Atchison, T. & S. F. Ry. v. Public Util. Comm’n, 346
U.S. 346 (195hÿ2ͤꝛ:ttir:ʒtʒ : 20-21

Burruss v. Wilkerson, 310 F. Supp. 572 (W.D. Va.
1969), aff'd mem., 397 U.S. 44 (1970) ......... 17-18

Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) ..... 17-19
Cipriano v. City of Houma, 395 U.S. 701 (1969) . . . 18,16
City of Phoenix v. Kolodziejski, 399 U.S. 204

„„ arene rn rea 13, 16-17
City of Waco v. Mann, 133 Tex. 163, 127 S.W.2d 879
PPTP. · 0 cheung sake 6
Desist v. United States, 394 U.S. 244 (1969) 18
Erie R. R. v. Tompkins, 304 U.S. 64 (19389) 19
Gelpcke v. City of Dubuque, 68 U.S. (1 Wall.) 175
PUPPTPV(!(Ä „f A vas 19
Hollins v. Shofstall, Ariz. Super. Ct., Maricopa
County, No. C-253652, June 1, 1972 ........... 12
Laconia Bd. of Educ. v. City of Laconia, 285 A.2d
TOG GORE: SPEED 6nd banc ceTidenc ce ceeacwesos 11
Linkletter v. Walker, 381 U.S. 618 (1965) ........ 18, 19
Love v. City of Dallas, 120 Tex. 351, 40 S.W.2d 20
rr ˙ ] ̃ʃͤ1Ä— 1! 6
Melnnis v. Shapiro, 293 F. Supp. 327 (N. D. III.
1968), affd mem. sub nom. McInnis v. Ogilvie,
nnen... 17-18
McPhail v. Tax Collector, 280 S. W. 260 (Tex. Civ.
h ĩ˙ imm 6
Morley Construction Co. v. Maryland Cas. Co., 300
U.S. 185 (1987y0˙7)•öD7ennrũꝗO eee eee 14

Nashville, C. & S.L. Ry. v. Walters, 294 U.S. 405
„ „ „ 666660 21

iii

PAGE
National Surety Corp. v. Friendswood Ind. School
Dist., 433 S.W.2d 690 (Tex. Sup. Ct. 1968) 6
Robinson v. Cahill, 118 N.J. Super. 223, 287 A.2d
„ . . 11-12, 18
Rodriguez v. San Antonio Ind. School Dist., 337 F.
Supp. 280 (W.D. Tex. 1971) ............ 6, 7, 8, 14, 18
Serrano v. Priest, 5 Cal. 3d 584, 487 P. 2d 1241, 998
Cal. Rptr. 601 (19717777777. 9-10

Spano v. Board of Educ., 68 Misc. 2d 804, 328

N. Y. S. 2d 229 (Sup. Ct. Westchester County 1972) 15
Swarb v. Lennow, 405 U.S. 191 (1972) 14
Sweetwater County Planning Committee v. Hinkle,

491 P. 2d 1234 (Wyo. 1971), 493 P. 2d 1050 (Wyo.

PPTP T!wͤã ³ KO od cdnce 10-11
Van Dusartz v. Hatfield, 334 F. Supp. 870 (D. Minn.

„ pew edewakieweceue R 10
Von Hoffman v. City of Quincy, 71 U.S. (4 Wall.)

535 (186600ů . 20
Walz v. Tax Comm’n, 397 U.S. 664 (1970) 21

Sup. Ct. Rule 4ꝶiwjijijijijii ..
Texas Const., Art. 7, 8 ũ iii.. 5,
Texas Educ. Code § 12.2ù·0ũuu

Texas Educ. Code § 18.102 ....................

Texas Educ. Code § 18.107 ....................

Texas Educ. Code § 20.01 ................ e 5,
Texas Educ. Code § 20.04 iii
Texas Educ. Code § 20.06 ......................
Texas Educ. Code § 28.28 ......................
Texas Educ. Code § 28.76 ......................
Wyo. Const., Art. 16,§5 ......................
Wyo. Stat. § 21.1-258 ¶ .

A222 to

— —

iv
Other Authorities

American Banker, Nov. 11, 1971 ................

Comment, The Evolution of Equal Protection: Edu-
cation, Municipal Services, and Wealth, 7 Harv.
Civ. Rights—Civ. Lib. L. Rev. 103 (1972) ......

Daily Bond Buyer, Nov. 15, 1971 ................

Moore, Local Nonproperty Taxes for Schools, in
Johns, Alexander & Stollar, eds., Status and Im-
pact of Educational Finance Programs (National
Educational Finance Project, Volume 4) (1971)

Slawson, Constitutional and Legislative Considera-
tions in Retroactive Lawmaking, 48 Calif. L. Rev.
% „.

U.S. Bureau of the Census, G~-ernmental Finances
in 1969-70 (Series GF. %, No. 5) (1971) ......
U.S. Department of Hes ich, Education, and Welfare,
Bond Sales for Publie School Purposes 1970-71
(DHEW Publication No. (OE) 72-68) (1972) ..

15

IN THE

Supreme Court of the United States

October Term, 1972
No. 71-1332

a
*

SAN ANTONIO INDEPENDENT SCHOOL DisrRior, et al.,
Appellants,
v.

DEMETRIO P. RODRIGUEZ, et al.,

Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS

dp.
*

BRIEF FOR REPUBLIC NATIONAL BANK OF DALLAS,

FIRST CITY NATIONAL BANK OF HOUSTON, MER-

CANTILE NATIONAL BANK AT DALLAS, BANK OF

TEXAS, AND SECURITIES INDUSTRY ASSOCIATION,
INC. AS AMICI CURIAE

Amici curiae, four Texas banks which hold more than
$100 million in principal amount of Texas school district
bonds and the Securities Industry Association, Inc. (herein-
after “SIA”), many of whose members are underwriters
of Texas school district bonds, submit this brief to urge
this Court, if it should affirm the decision of the District
Court, to make clear that its decision should only be applied
prospectively from the ultimate determination of the action,
and should not affect the enforceability of Texas school
district bonds outstanding at the time of the District

2

Court’s decision (hereinafter “outstanding bonds”) and
bonds authorized and issued prior to the ultimate disposi-
tion of this action (hereinafter interim- issued bonds”).
Counsel for all parties have given written consent to the
filing of this brief pursuant to Rule 42 (2).“

Question Presented

The amici banks and the SIA do not wish to, and do not,
take any position with respect to the District Court’s basic
holding that the present Texas system of financing public
education denies equal protection. This brief is addressed
solely to the following question:

Should any restructuring of the system of financing
public education in the State of Texas pursuant to
this Court’s decision on the present appeal protect the
continuing collectibility of property taxes levied to
pay the principal and interest on outstanding and
interim-issued Texas school district bonds?

The District Court in its Clarification of Original Opinion
dated January 26, 1972 held that this question should be
answered in the affirmative, and we support this holding.

* The amici banks and the SIA were denied leave to intervene of
right in the District Court, and appealed directly to this Court from
this denial in order to establish their right to participate as parties and
to present two issues not then fully presented by the existing parties,
(1) the need to assure the continuing enforceability of outstanding
and interim-issued bonds, and (2) the need to allow the states broad
flexibility in framing any new system of financing public education.
Republic Nat'l Bank v. Rodriguez, Oct. Term, 1971, No. 71-1339.
This Court dismissed the appeal for want of jurisdiction, but granted
leave to file the jurisdictional statement as a brief amici curiae in con-
nection with the jurisdictional statement on the present appeal pur-
suant to Rule 42(1). 40 U.S.L.W. 3575 (June 7, 1972). This brief
is limited to the first issue presented in the earlier appeal, because we
believe that the need for flexibility has now been adequately presented
by the earlier jurisdictional statement and by other amici.

3

Interest of Amici Curiae

About $3 billion in principal amount of Texas school
district bonds were sold during the 25 years 1946-1971 (R.
199, 2"), of which over $2 billion are still outstanding (R.
184, 3-4). About $250 million in principal amount of Texas
school district bonds were sold in 1971 alone (R. 200, Ex.
F). Members of the SIA, a voluntary national organization
of more than 700 securities firms and banks, served as un-
derwriters for the great majority of these bonds (R. 199,
1-2) and intend to continue to underwrite Texas school
district bonds (R. 204, Masterson Aff., 2). Many SIA
members also hold outstanding Texas school district bonds
as investments (ibid.), and the four amici banks hold over
$100 million in principal amount of Texas school district
bonds (almost five per cent of the total outstanding) for
their own account and as trustees for various charitable,
testamentary, and other trusts.**

Any impairment of the continuing collectibility of the
property taxes levied to pay the Texas school district bonds
held by the amici banks and other SIA members would
adversely affect their value and their status as legal invest-
ments for fiduciaries, and would jeopardize the market-
ability of future issues of Texas school district bonds.***
Thus the interest of the amici banks and the SIA in the
continuing enforceability of outstanding and interim-
issued Texas school district bonds is immediate and
substantial.

* Citations in the form “R. 199, 2” refer to page 2 of document 199
of the record on .
2 R. 204, Roberts Aff., 1-2, Rogers Aff., 1, Lyne Aff., 1-2, Hazard
.
ee R. 204, Roberts Aff., 2, Rogers Aff., 2, Lyne Aff., 2, Hazard
a 3

4 *

The members of the SIA have a similarly direct and sub-
stantial interest in outstanding school district bonds
throughout the nation, all of which would be affected by
this Court’s decision in this case. Approximately $50
billion of public school bonds were issued in the United
States during the 25 years 1946-1971, and at least 90%
of these bonds were underwritten and distributed by SIA
members (R. 204, Masterson Aff., 1). $3.9 billion of pub-
lic school bonds were sold in 1970-1971 alone.* The national
total of public school bonds outstanding on June 30,
1970 was more than $31.5 billion.** It is estimated that
95% of these bonds have remaining maturities ranging
from one to twenty years, and 57% have remaining maturi-
ties ranging from five to twenty years.*** The continuing
collectibility of the property taxes which support these
bonds will thus remain of vital importance for years to
come.

* U. S. Department of Health, Education, and Welfare, Bond
Sales for Public School Purposes 1970-71 (DHEW Publication No.
(OE) 72-63), at 11 (1972).

** UJ. S. Bureau of the Census, Governmental Finances in 1969-70
(Series GF-70, No. 5), at 28 (1971).

* According to estimates based on SIA data for state and local gen-
eral obligation bonds as a whole (which include virtually all public
school bonds), the distribution of the time remaining at December 31,
1971 until maturity of such bonds was as follows:

1-4 Years .....-0000e0- $39.4 Billion (37.2%)
5-9 Vers $31.3 Billion (29.6%)
10-14 Years ........... $17.3 Billion (16.4%)
15-19 Years ..........- $11.9 Billion (11.2%)

20 Years or More $ 5.9 Billion (5.6%)

5

Statement

1. The Nature of Texas School District Bonds

Article 7, §3 of the Texas Constitution authorizes the
Texas Legislature to establish school districts and to permit
them to levy and collect ad valorem property taxes. Pur-
suant to this authorization, the Legislature has authorized
Texas school districts to issue negotiable coupon bonds “for
the construction and equipment of school buildings in the
district and the purchase of the necessary sites therefor,”
provided that both the issuance of the bonds and the levying
of the property taxes necessary to pay them are authorized
by the voters of the district in a special bond and tax
election. Texas Educ. Code §§ 20.01, 20.04. Before such
bonds may be issued, they must be approved as properly
authorized by the Attorney General of Texas and registered
by the Comptroller of Public Accounts,

“and after such approval and registration such
bonds shall be incontestable in any court, or other
forum, for any reason, and shall be valid and bind-
ing obligations in accordance with their terms for all
purposes.” Texas Educ. Code § 20.06.

General bond market practice also conditions the sale
of school district bonds to investors upon the unqualified
approving opinion of recognized bond counsel (R. 199, 7-8).
Both the Attorney General of Texas and bond counsel
require as a condition of their approval a “no-litigation
certificate” by the issuing school district that it knows of
no pending or threatened litigation in any manner ques-
tioning the validity of the bonds or the levying of property
taxes to pay them (R. 199, 6-7, Ex. B). The certificate of
the Comptroller of Public Accounts attesting the approval

6

of the Attorney General and, in most cases, the approving
opinion of bond counsel are set forth in full on the bonds
themselves (R. 199, Ex. A).

Texas school district bonds are payable solely from ad
valorem taxes levied on property within the district. See
Texas Educ. Code § 20.01. A specific rate of property tax
is levied each year to pay each specific issue of bonds, and
the funds collected therefrom become trust funds for the
benefit of the bondholders and may not lawfully be expended
for any other purpose. Love v. City of Dallas, 120 Tex.
351, 367-68, 40 S.W.2d 20, 27 (1931); McPhail v. Tax
Collector, 280 S.W. 260, 265 (Tex. Civ. App. 1926). If the
bonds are not paid, the bondholders’ only remedy is by
mandamus to compel the school district to levy the specific
property tax to pay the principal and interest on the
defaulted bonds. City of Waco v. Mann, 133 Tex. 163, 174,
127 S.W.2d 879, 885 (1939). The property of a Texas
school district has been held not to be subject to execution
or garnishment. National Surety Corp. v. Friendswood Ind.
School Dist., 433 S.W.2d 690, 694 (Tex. Sup. Ct. 1968) .*

* The principle that an obligation of a Texas school district may
not be enforced by execution or garnishment applies to all school dis-
trict obligations, not merely to school district bonds. For this reason,
the District Court’s Clarification ion of Original Opinion in the present
case protects any outstanding or interim “contractual obligation in-
curred by a school district in Texas for public school purposes”.
Rodriguez v. San Antonio Ind. School Dist., 337 F. Supp. 280, 286
(W.D. Tex. 1971). The need to protect outstanding and interim-
issued school district bonds is especially acute, however, for two rea-
sons: (1) such bonds, unlike other obligations, are negotiable instru-
ments backed by an express pledge of tax revenues whose
validity is certified by the Attorney General of Texas and upon which
bond purchasers rely; and (2) such bonds are of much longer dura-
tion than other contractual obligations of school districts. Texas school
district bonds may have maturities of up to forty years, Texas Educ.
Code § 20.01, while other contractual o igations are limited to shorter
periods. See, e. g., Texas Educ. Code §§ 12.29(a) (textbook adoption

—

7

Most public school bonds elsewhere in the nation are
likewise supported by local property taxes and other local
taxes. Thus an affirmance of the District Court without
making clear that outstanding and interim-issued bonds
will be protected would have severe repercussions not only
in Texas but throughout the country.

2. The District Court’s Clarification

of Original Opinion

On December 23, 1971 the three-judge District Court
issued its decision in the present case holding that the
present Texas system of financing public education denies
equal protection and enjoining (after a two-year stay) the
enforcement of Article 7, § 3 of the Texas Constitution,
the State constitutional basis for all Texas school district
property taxes. Rodriguez v. San Antonio Ind. School Dist.,
337 F. Supp. 280, 285-86 (W.D. Tex. 1971). The question
of the continuing enforceability of outstanding and interim-
issued Texas school district bonds had not been raised by
any party, and the District Court’s decision was silent on
this question. For this reason it had a devastating impact
upon Texas school district bonds.

contracts; six years), 13.102 (teachers’ probationary contracts; three
years), 13.107 (teachers’ continuing contracts may be terminated at
end of any year “because of necessary reduction of personnel”),
23.28(b), (c) (employment contracts; three or five years), 23.76
(depository banks; two years).

* Putting aside revenue bonds, over 90% of the public school bonds
sold in 1970-1971 were sold by school districts and other local bodies.
See U. S. Department of Health, Education, and Welfare, Bond Sales
for Public School Purposes 1970-71 (DHEW Publication No. (OE)
72-63), at 6, 14 (1972). Property taxes are estimated to comprise
97 to 98% of all local school tax revenues. Moore, Local N onproperty
Taxes for Schools, in Johns, Alexander & Stollar, eds., Status and
Impact of Educational Finance Sp ge (National Educational Fi-
nance Project, Volume 4), at 209-10 (1971).

8

Neither the Attorney General of Texas nor bond counsel
for issuers were able to approve Texas school district bonds
issued after the decision (R. 199, 7-10). The sale of such
bonds halted abruptly (R. 199, 10), and only resumed
after the District Court’s Clarification of Original Opinion
was issued on January 26, 1972. The value of outstanding
Texas school district bonds fell immediately after the deci-
sion (R. 199, 10).

Defendants, joined by the SIA as amicus curiae and by
other amici, urged the District Court to clarify its decision
to specify that it was not intended to affect the continued
collectibility of property taxes levied to pay outstanding
and interim-issued bonds (R. 184, 192, 199). The SIA took
no position on the merits of the District Court’s decision.
The SIA explained that in order to safeguard the value
and marketability of outstanding and interim-issued bonds
it was necessary to insure the collectibility of property
taxes to be levied to pay such bonds after the ultimate
disposition of the action (R. 199, 10-11). The District
Court’s Clarification of Original Opinion dated January 26,
1972 expressly insured such continuing collectibility.
Rodriguez v. San Antonio Ind. School Dist., 337 F. Supp.
280, 286 (W.D. Tex. 1971).

The purpose of the present brief is to urge this Court,
if it should affirm the District Court, to make clear that
the District Court acted rightly in issuing its Clarification
of Original Opinion to protect outstanding and interim-
issued Texas school district bonds.

3. Judicial Protection of Outstanding and Interim-
Issued Bonds in Other Jurisdictions

All of the courts which have held that the present system
of financing public education denies equal protection have
assured bond investors that this holding does not under-

ww
9

mine the enforceability of outstanding and interim-issued
school district bonds. This assurance has taken diverse
forms, but in all three cases which have gone to final
judgment—the present case and the cases in Arizona and
New Jersey—it has taken the form of an express provision
in the final judgment safeguarding the continuing collecti-
bility of property taxes levied to pay outstanding and
interim-issued bonds.

California. On August 30, 1971 the California Supreme
Court held that the present California system of financing
public education denies equal protection under the Federal
and State Constitutions. Serrano v. Priest, 5 Cal. 3d 584,
487 P.2d 1241, 96 Cal. Rptr. 601 (1971). There was
widespread concern that the Serrano decision might be
construed as affecting outstanding and interim-issued
bonds, and many school bond issues across the country
were withdrawn or postponed indefinitely.*

On October 21, 1971, in response to this concern, the
California court issued a Modification of Opinion adding
the following paragraph to its original opinion:

“In sum, we find the allegations of plaintiffs’
complaint legally sufficient and we return the cause
to the trial court for further proceedings. We
emphasize, that our decision is not a final judgment
on the merits. We deem it appropriate to point out
for the benefit of the trial court on remand (see
Code Civ. Proc. § 43) that if, after further pro-
ceedings, that Court should enter final judgment
determining that the existing system of public
school financing is unconstitutional and invalidat-
ing said system in whole or in part, it may properly

* E.g., American Banker, Nov. 11, 1971, p. 1; Daily Bond Buyer,
Nov. 15, 1971, p. 1.

10

provide for the enforcement of the judgment in
such a way as to permit an orderly transition from
an unconstitutional to a constitutional system of
school financing. As in the cases of school desegre-
gation (see Brown v. Board of Education (1955)
349 U.S. 294) and legislative reapportionment (see
Silver v. Brown (1965) 63 Cal.2d 270, 281), 4

determination that an existing plan of govern-
mental operation denies equal proteetion does not
necessarily require invalidation of past acts under-
taken pursuant to that plan or an immediate imple-
mentation of a constitutionally valid substitute.
Obviously, any judgment invalidating the existing
system of public school financing should make clear
that the existing system is to remain operable until
an appropriate new system, which is not violative
of equal protection of the laws, can be put into
effect.” 5 Cal. 3d at 618, 487 P.2d at 1266, 96
Cal. Rptr. at 626.

Minnesota. In a Memorandum and Order filed on Octo-
ber 12, 1971 the United States District Court for the Dis-
trict of Minnesota denied defendants’ motion for summary
judgment and held that the present system of financing
public education in Minnesota violates the Equal Protection
Clause. Van Dusartz v. Hatfield, 334 F. Supp. 870 (D.
Minn. 1971). The court made clear that it did not intend
its holding to have any immediate effect upon school financ-
ing; it did not direct any affirmative relief, but deferred to
the action of the Minnesota Legislature. 334 F. Supp.
at 877.

Wyoming. On December 14, 1971 the Supreme Court of
Wyoming adopted the Serrano principle. Sweetwater
County Planning Committee v. Hinkle, 491 P.2d 1234
(Wyo. 1971), 498 P.2d 1050 (Wyo. 1972). The Wyoming
court stated, however, that In] o invidious discrimination

11

will be involved if bonds are voted by any school distriet for
eapital improvements, and if special levies are made within
the district to retire such bonds.” 491 P. 2d at 1238. Since
school bonds may be issued in Wyoming only for capital
improvements, see Wyo. Const., Art. 16, 8 5; Wyo. Stat.
§ 21.1-253, this statement obviated any question as to the
continuing validity of Wyoming school bonds.

New Hampshire. The New Hampshire Supreme Court
held on December 23, 1971 that a city council was required
to furnish the board of education with funds required to
meet state minimum standards. Laconia Bd. of Educ. v.
City of Laconia, 285 A.2d 793 (N. H. 1971). It refused
to consider a belated argument that such a holding would
violate the Serrano principle, in part on the ground that
Serrano was not made retroactive:

“Thirdly, it is doubtful that any consideration of
this contention would have any retroactive effect
‘whatever result was reached. See October 21, 1971
modification of opinion in Serrano v. Priest supra
reported in 40 U.S.L.W. 2339 where it was stated
that the ‘existing system of school financing is to
remain in effect until it has been found unconstitu-
tional and replaced by an appropriate new system’.”
285 A.2d at 796-97.

New Jersey. On January 19, 1972 the New Jersey Su-
perior Court held that the present system of financing
public education in New Jersey violates the Equal Protec-
tion Clauses of the Federal and State Constitutions and
the Education Clause of the State Constitution. Robinson
v. Cahill, 118 N.J. Super. 223, 287 A.2d 187 (1972). It
made clear, however, that

“this declaration shall operate prospectively only
and shall not prevent the continued operation of the
‘selGol system and existing tax laws and all actions

12

taken thereunder. This declaration shall not invali-
date past or future obligations (such as school
bonds, anticipation notes, ete.) incurred under the
provisions of existing school laws and tax laws.
Said laws shall continue in effect unless and until
specific operations under them are enjoined by the
court.” 118 N. J. Super. at 280, 287 A.2d at 217.“

Arizona. On June 1, 1972 the Arizona Superior Court
entered a declaratory judgment that the present Arizona
system of financing public education violates the Federal
and State Equal Protection Clauses. Hollins v. Shofstall,
Ariz. Super. Ct., Maricopa County, No. C-253652, June 1,
1972. On June 6, 1972 the court issued a Supplemental
Memorandum making clear that it intended to protect the
continued enforceability of outstanding and interim-issued
bonds throughout their entire life:

“Notwithstanding anything to the contrary stated
in the memorandum and order of June 1, 1972, it is
the intention of the court that general obligation
bonds heretofore or hereafter issued by school dis-
tricts shall enjoy full and complete security afforded
by the applicable bond-enabling statute, and the
bondholder shall have recourse to the levy of an ad
valorem tax upon all taxable property within the
district to compel the payment of the principal of
and interest on such bonds, throughout their entire
life and as the same shall bécome due, in the event
that funds for the payment of such bonds are not
lawfully available from other sources.”

* Paragraph 7 of the Judgment entered on February 4, 1972 in
Robinson v. Cahill provided even more explicitly that “nothing herein
shall be deemed to limit, impair or affect any bonds heretofore or here-
after issued or authorized for public school purposes, or any notes or
other obligations at any time authorized or issued in anticipation of
such bonds, or any taxes levied or required to be levied with respect
to any such bonds, notes or other obligations wy

13

Summary of Argument

1. As no appeal has been taken from the portion of the
District Court’s judgment which protects outstanding and
interim-issued bonds, it is therefore not actually before this
Court for review. Nevertheless, if the Court affirms the
decision of the District Court, we respectfully submit that
the Court should make clear that the decision will not
affect outstanding and interim-issued bonds, in order to
prevent the disruption of school bond markets throughout
the nation which might otherwise result.

2. This Court’s decisions, especially Cipriano v. City of
Houma, 395 U.S. 701, 706 (1969) (per curiam), and City
of Phoenix v. Kolodziejski, 399 U.S. 204, 213-15 ( 1970),
which are almost exactly in point, establish that the District
Court’s decision should not be retrospectively applied. Ret-
rospective application is wholly unnecessary to achieve the
purpose of the District Court’s holding, and would be strik-
ingly unjust in light of bondholders’ reliance upon express
legal opinions and representations by the issuers that the
bonds are supported by valid and enforceable property
taxes.

3. Retrospective application of the District Court’s hold-
ing would also offend the constitutional valties embodied in
the Contract Clause and the Due Process Clause. The Equal
Protection Clause should not be unnecessarily applied in a
manner which brings it into conflict with these coordinate
constitutional values.

A

14

ARGUMENT

This Court Should Reaffirm the District Court’s
Protection of n and Interim-Issued
nds

The District Court’s Clarification of Original Opinion
issued on January 26, 1972 stated that its decision and
order of December 23, 1971 in no way affected the continu-
ing collectibility of property taxes levied to pay outstanding
bonds and interim-issued bonds issued and delivered before
December 23, 1973, by which time the District Court anti-
cipated that the present system of financing public educa-
tion in Texas would be replaced by a constitutional system.*
Rodriguez v. San Antonio Ind. School Dist., 337 F. Supp.
280, 285-86 (W.D. Tex. 1971).

Defendants have not appealed from this portion of the
District Court’s order, and plaintiffs have taken no ap-
peal.** It follows that the portion of the District Court’s
order which protects outstanding and interim-issued bonds
may not be disturbed in this Court. See, e. g., Swarb v.
Lennox, 405 U.S. 191, 201-08 (1972) ; Morley Construction
Co. v. Maryland Cas. Co., 300 U.S. 185, 191-92 (1937).

* We have spoken in this brief of the need to protect interim-issued
bonds issued and delivered prior to the ultimate disposition of this
action, rather than interim-issued bonds issued and delivered before
December 23, 1973, for two reasons: (1) the transitional
period, if the District Court’s holding is affirmed, will differ from state
to state and may be longer or shorter than two years; and (2) while
the District Court’s judgment requires the State of Texas to act before
December 23, 1973, final judicial approval of a new system of public
school financing might not take place until a later date.

** Indeed, plaintiffs represented to the District Court, in order to
induce it to deny the motion made by the SIA and the four amici
banks for permission to intervene, that they would not seek to over-
turn the District Court’s clarification insuring the continuing enforce-
ability of outstanding and interim-issued bonds (R. 207, 28-29).

15

We nonetheless respectfully urge the Court, if it should
affirm the decision of the District Court, to make clear that
its decision should only be applied prospectively from the
ultimate determination of the action, and should not affect
the continued collectibility of property taxes to be levied to
pay outstanding and interim-issued school district bonds.
Otherwise, especially in view of the numerous similar cases
now pending in many jurisdictions,* this Court’s decision
might have the same sharply disruptive effect upon school
bond markets throughout the nation as the initial decision
of the District Court had in Texas, and would draw into
question the rights of holders of more than $31.5 billion in
outstanding public school bonds. Such a disruptive shock,
even if later corrected, might permanently lessen public
confidence in the security of public school bonds.**

This Court’s Decisions Establish That the
District Court’s Holding Should Not Be
Applied Retrospectively

The District Court’s holding that its decision should be
applied only prospectively is squarely Supported by two
decisions of this Court, also involving local government

* A partial summary of these cases, listing 24 cases in 15 states,
is given in Comment, The Evolution of Equal Protection: Education,
Municipal Services, and Wealth, 7 Harv. Civ. Rights—Civ. Lib. L.
Rev. 103, 200-13 (1972).

It is to avoid such adverse consequences that the courts which
have held that existing school financing systems deny equal protection
have assured bond investors that this holding does not affect outstand-
ing and interim-issued bonds (see pp. 8-12 supra). Similarly, a New
York trial court declined to anticipate the decision of this Court on the
basic equal protection issue in order to avoid “placing the sword of

mocles over school bond financing in this State for the next several
years.” Spano v. Board of Educ., 68 Misc. 2d 804, 808, 328 N.Y.S.2d

229, 234 (Sup. Ct. Westchester County 1972).

16

bonds and the Equal Protection Clause, which are almost
exactly in point. In Cipriano v. City of Houma, 395 U.S.
701, 706 (1969) (per curiam), this Court ruled that the
franchise in a municipal revenue bond election cannot con-
stitutionally be limited to property taxpayers, but held that
this decision should be given prospective effect only:

“Significant hardships would be imposed on cities,
bondholders, and others connected with municipal
utilities if our decision today were given full retro-
active effect. Where a decision of this Court could
produce substantial inequitable results if applied
retroactively, there is ample basis for avoiding the
‘injustice or hardship’ by a holding of non-retro-
activity. Great Northern R. Co. V. Sunburst Oil &
Refining Co., 287 U.S. 358, 364 (1982). See Chicot
County Drainage Dist. v. Baxter State Bank, 308
U.S. 371 (1940). Cf. Linkletter v. Walker, 381 U.S.
618 (1965). Therefore, we will apply our decision
in this case prospectively.”

Just as in Cipriano, a decision retrospectively wiping out
the sole security for Texas school district bonds would im-
pose “significant hardships” and “produce substantial in-
equitable results”. As in Cipriano, such an injustice should
be avoided by a holding of nonretroactivity.

In City of Phoeniæ v. Kolodziejski, 399 U.S. 204, 213-15
(1970), this Court extended Cipriano to voting on muni-
cipal general obligation bonds, and likewise held that its
decision should be given prospective effect only. The Dis-
trict Court’s holding of nonretroactivity in the present case
is identical to Cipriano and Kolodziejski, except that the
District Court made its decision prospective from Decem-
ber 23, 1973, by which time the District Court anticipated
that a new system of financing public education would be

i

17

instituted. This difference is a practical necessity because
the pressing capital needs of school districts must continue
to be met by the issuance of bonds under the present system
until another system has been finally approved by the Leg-
islature and the Courts.

This Court recently summarized the three key factors
bearing on the question whether a new decision should be
applied retroactively in Chevron Oil Co. v. Huson, 404 U.S.
97, 106-07 (1971): (1) whether the effect of the decision
is to “establish a new principle of law, either by overruling
clear past precedent on which litigants may have relied,

. . or by deciding an issue of first impression whose reso-
lution was not clearly foreshadowed”; (2) whether retro-
active application of the decision would further or retard
its purpose; and (3) whether retroactive application would
produce substantial inequitable results. All three of these
factors argue strongly against retrospective application of
the District Court’s decision in the present case.

Although, as already stated, the SIA and the amici banks
do not wish to and do not take any position with respect to
the merits of the present appeal, there can be no question
that a decision by this Court affirming the judgment of the
District Court would “establish a new principle of law”.
So far as we are aware, no action challenging the validity
of existing systems of financing public education under the
Equal Protection Clause was ever brought until 1968.
When such cases were brought, this Court twice sustained
existing systems against equal protection attacks. See Mc-
Innis v. Shapiro, 293 F. Supp. 327 (N.D. Ill. 1968), aff'd
mem. sub nom. McInnis v. Ogilvie, 394 U.S. 322 (1969);
Burruss v. Wilkerson, 310 F. Supp. 572 (W. D. Va. 1969),
affd mem., 397 U.S. 44 (1970). We recognize that the

18

District Court-held McInnis and Burruss to be distinguish-
able from its decision, Rodriguez v. San Antonio Ind.
School Dist., 337 F. Supp. 280, 283-84 (W.D. Tex. 1971),
and take no position with respect to the validity of the dis-
tinction on the merits; but we respectfully submit that,
even accepting the distinction, the District Court’s deci-
sion was not “clearly foreshadowed” by any decision of
this Court.

The second factor recognized in Chevron Oil Co. v.
Huson is the purpose of the new decision. See also Desist
v. United States, 394 U.S. 244, 249-50 (1969) ; Linkletter v.
Walker, 381 U.S. 618, 636-37 (1965). The purpose of the
District Court’s holding—removing disparities in educa-
tional expenditures arising from disparities in taxable
wealth—does not require the elimination of the property
taxes needed to pay outstanding and interim-issued bonds.
It merely requires that, without altering school districts’
duty to levy property taxes to pay outstanding and interim-
issued bonds as they have solemnly contracted to do, the
State adjust the allocation of remaining State and school
district educational funds to insure that any constitution-
ally mandated balance of educational expenditures is
achieved.* The thrust of Serrano and the decisions that
have followed it, including the decision of the District
Court, is to condemn the end result of the school financing
system, not any specific component of the collective source
of funds.

* Some courts have held that the Serrano principle serves the addi-
tional purpose of equalizing the property tax burden on taxpayers in
different school districts. See, e. g., Robinson v. Cahill, 118 N.J.
Super. 223, 276-80, 287 A.2d 187, 215-16 (1972). This purpose can
likewise be met by statewide redistribution of educational funds with-
out disturbing the property tax security for outstanding and interim-
issued bonds.

19

Finally, it is plain that retrospective application of the
District Court’s decision would produce substantial inequit-
able results, the third factor identified in Chevron Oil Co.
v. Huson. Investors acquired outstanding Texas school
district bonds in reliance upon express representations by
the issuers and legal opinions of bond counsel and the
Attorney General of Texas that the bonds were valid obli-
gations supported by an enforceable duty to levy ad
valorem taxes on property within the issuing school dis-
trict. These opinions, indeed, were commonly printed on
the face of the bonds themselves, which are fully negotiable.
Without these opinions, the bonds could not have been
sold. In reliance upon these opinions, the bonds have been
accepted as investments not only by numerous individuals
but also by the amici banks and many other institutions for
their own account and as trustees for charitable, testa-
mentary, and other trusts. Under these circumstances, to
apply the District Court’s decision retroactively so as to
wipe out the property tax security for the bonds would
be strikingly unjust. The District Court correctly made
clear that it intended no such result.*

This Court recognized the injustice of retroactively invalidatin
bonds as early as Gelpcke v. City of Dubuque, 68 U.S. (1 Wall.) 175,
205-07 (1863), which held that bonds whose validity had been upheld
by the highest State court would be recognized in a federal court de-
spite an overruling decision by the State court. Although the precise
holding of Gelpcke v. City 3 has probably been overruled
by Erie R. R. v. Tompkins, U.S. 64, 69 n.1 (1938), its underlying

principle was discussed with approval in Linkletter v. Walker, 381
U.S. 618, 624-25 (1965).

20

Retrospective Application of the District Court’s
Holding Would Offend the Principles Embodied
in the Contract Clause and the Due Process Clause

Retrospective application of the District Court’s holding
to outstanding and interim-issued bonds would contravene
the principle of governmental good faith embodied in the
Contract Clause. This Court has long held that a State
may not, under the Contract Clause, withdraw a power to
tax which has been made the basis for bonds which are still
outstanding. E. g., Von Hoffman v. City of Quincy, 71 U.S.
(4 Wall.) 535, 554-55 (1866). Under this principle the
District Court’s holding could not be utilized as a ground
for legislative repeal of the property taxes supporting
school district bonds, because such invalidation is not neces-
sary to achieve the purpose of the District Court’s holding,
and the decisions of this Court establish that governmental
obligations may not be repudiated unless “the extent of the
repudiation is only that which is reasonably necessary to
effectuate a valid objective”. Slawson, Constitutional and
Legislative Considerations in Retroactive Lawmaking, 48
Calif. L. Rev. 216, 244 (1960).

Retrospective application of the District Court’s holding
would also run counter to the values embodied in the Due
Process Clause. It would drastically change the nature of
the bondholders’ contracts because of a constitutional prob-
lem which they did not cause and from which they derived
no benefit. If it were sought to be legislatively imposed, such
an imposition of a burden upon a group which did not cause
or benefit from the underlying problem would deny due
process of law. Cf., e. g., Atchison, T. & S. F. Ry. v. Public

—

21

Util. Comm’n, 346 U.S. 346, 352-53 1953) ; Nashville, C.
4 S. L. Ry. v. Walters, 294 U.S. 405, 428-32 (1935).

The principles embodied in the Contract Clause and the
Due Process Clause are of coordinate dignity with the prin-
ciple of equality embodied in the Equal Protection Clause.
Wherever possible, such coordinate constitutional principles
should be accommodated, as this Court has observed, for
example, with respect to the Establishment and Free Exer-
cise Clauses of the First Amendment. E. g., Walz v. Tax
Comm’n, 397 U.S. 664, 668-72 (1970). This consideration
strongly supports the conclusion of the District Court that
its decision should not be retrospectively applied.

O

CONCLUSION

For the reasons given above, Republic National Bank of
Dallas, First City National Bank of Houston, Mercantile
National Bank at Dallas, Bank of Texas, and Securities
Industry Association, Inc., respectfully urge the Court, if
it should affirm the decision of the District Court, to make
clear that the District Court correctly held that its decision
should in no way affect the continuing collectibility of prop-
erty taxes to be levied to pay the principal and interest on
Texas school district bonds outstanding at the time of the
District Court’s decision or authorized and issued prior to
the ultimate disposition of this action.

Dated: July 21, 1972
Respectfully submitted,

LAWRENCE E. WALSH
1 Chase Manhattan Plaza
New York, New York 10005
212 422-3400
RICHARD B. SMITH
Guy M. STRUVE
Of Counsel

Victor W. BouLDIN

2100 First City National
Bank Building

Houston, Texas 77002
713 225-2411

CLIFFORD W. YOUNGBLOOD

Of Counsel
Attorneys for Amici Curiae

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0120%3A10. Public record. Not legal advice.