ASHTON v. CAMERON COUNTY WATER IMPROVEMENT DISTRICT 298 U.S. 513 (1936)

This is one of the several cases of the period whose decision gave the impression that the United States was constitutionally incapable of combating the Great Depression. Over 2,000 governmental units ranging from big cities to small school districts had defaulted, and the contract clause prevented the states from relieving their subdivisions. Congress, responding to pressure from states and creditors, passed the Municipal Bankruptcy Act of 1934, authorizing state subdivisions to apply to federal bankruptcy courts to get their debts scaled down. In accordance with the statute, a Texas water district, supported by state law, applied for a bankruptcy plan that would make possible a final settlement of fifty cents on the dollar, the payment financed by a federal loan. The federal bankruptcy court controlled the bankruptcy plan, which could not be enforced unless approved by creditors holding at least two-thirds of the debt, as required by the statute.

The Supreme Court held the Municipal Bankruptcy Act to be an unconstitutional exercise of Congress's delegated bankruptcy power. For a five-member majority, Justice james c. mcreynolds declared that that power was subject to state sovereignty, which cannot be surrendered or impaired by legislation. Congress had violated the tenth amendment by infringing on state control over the fiscal affairs of state subdivisions. That the act required state consent, here eagerly given, was irrelevant to the Court. Thus the Court protected the states and even creditors against their will. Justice benjamin n. cardozo, for the dissenters, characterizing the majority opinion as "divorced from the realities of life," argued that Congress had framed the statute with sedulous regard for state sovereignty and the structure of the federal system. The Court retreated in United States v. Bekins (1938).

Leonard W. Levy
(1986)