That branch of municipal bond litigation in which the character and validity of the obligations is involved has usually been conducted in the federal courts. Bondholders pressing for payment of their defaulted bonds usually are nonresidents of the state where the city, county or other defaulting municipality is located. Varying and contradictory state court decisions taught them that no settled rule of decision in the state courts could be expected. The arguments of their counsel, which many of the earlier volumes of the Supreme Court reports preserve, show that they distrusted a judiciary elected for short terms, as was the case in most of the states where repudiations occurred, and expected that judgments in state courts would be influenced by the prevailing popular clamor for public debt relief, resentment against the so-called moneyed interests, etc. As a result, the federal courts have taken the lead in formulating rules, which so far have furnished a comprehensive guide for the decision of almost every question that can be presented concerning a bond of this character. Incidental to such development, the federal judiciary on many occasions found itself unable to agree with state court decisions, which ordinarily it would have considered itself bound to follow. This class of cases has constituted perhaps the most numerous and important exception to the rule laid down in section 34 of the Federal Judiciary Act of 1789. The new vigor with which the Supreme Court has invested section 34 must now give investors in public bonds some concern as to whether in the future they can look to the national courts with as much confidence as they have in the past.
A WARNING SIGNAL FOR MUNICIPAL BONDHOLDERS: SOME IMPLICATIONS OF ERIE RAILROAD V. TOMPKINS,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol37/iss4/5