Commercial Metals Co. v. Balfour, Guthrie, & Co.

11. ARBITRATION: Any controversy arising under or in connection with the contract shall be submitted to arbitration in Dallas, Texas, in accordance with the rules of the American Arbitration Association; judgment on any award may be entered in any court having jurisdiction; the parties hereto submit to the jurisdiction of the Federal and State courts in Dallas, Texas, and notice of process in connection with the arbitral or judicial proceedings may be served upon the parties by registered or certified mail, with the same effect as if personally served.

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.9 U.S.C. § 2.

Viewing the case at hand against this background of established principle, we do not find in it the elements of federal jurisdiction.

1.The suit is built upon a contract which inpoint of obligation has its genesis in the law ofMississippi. A covenant for a valuable considerationto pay another's debts is valid and enforceablewithout reference to a federal law.For all that the complaint informs us, the failure to make payment was owing to lack of funds or to a belief that a stranger to the contract had no standing as a suitor or to other objections non-federal in their nature.Thereis no necessary connection between the enforcement ofsuch a contract according to its terms and theexistence of a controversy arising under federallaw.

2.The obligation of the contract being a creationof the state, the question remains whether theplaintiff counts upon a federal right in support ofhis claim that the contract has been broken.The performance owing by the defendant was payment of the valid debts, and taxes are not valid debts unless lawfully imposed. From this defendant argues that a federal controversy exists, the tax being laid upon a national bank or upon the shareholder therein, and for that reason being void unless permitted by the federal law.

Not every question of federal law emerging in a suit is proof that a federal law is the basis of the suit. The tax here in controversy if valid as a tax at all, was imposed under the authority of a statute of Mississippi. The federal law did not attempt to impose it or to confer upon the tax collector authority to sue for it. True, the tax, though assessed through the action of the state, must be consistent with the federal statute consenting, subject to restrictions, that such assessments may be made. R.S. § 5219,12 U.S.C. § 548. It must also be consistent with the Constitution of the United States.McCulloch v. Maryland,7 U.S. 316, 4 Wheat. 316,4 L.Ed. 579;Owensboro National Bank v.Owensboro,173 U.S. 664, [19 S.Ct. 537,43 L.Ed. 850];Baltimore National Bank v. Tax Commissioner,297 U.S. 209, [56 S.Ct. 417,80 L.Ed. 586]. If there were no federal law permitting the taxation of shares in national banks, a suit to recover such a tax would not be one arising under the Constitution of the United States, though the bank would have the aid of the Constitution when itPage 268came to its defense.Tennessee v. Union PlantersBank, supra; Sawyer v. Kochersperger,170 U.S. 303, [18 S.Ct. 946,42 L.Ed. 1046];Arkansas v. Kansas Texas Coal Co.,183 U.S. 185, [22 S.Ct. 47,46 L.Ed. 144];Louisville Nashville R. Co. v. Mottley, supra.That there is a federal law permitting such taxation does not change the basis of the suit, which is still the statute of the state, though the federal law is evidence to prove the statute valid.

The argument for the respondent proceeds on the assumption that, because permission at times is preliminary to action, the two are to be classed as one. But the assumption will not stand.A suit doesnot arise under a law renouncing a defense, thoughthe result of the renunciation is an extension of thearea of legislative power which will cause the suitorto prevail. Let us suppose an amendment of theConstitution by which the states are left at libertyto levy taxes on the income derived from federalsecurities, or to lay imposts and duties at theirpleasure upon imports and exports. If such anamendment were adopted, a suit to recover taxes orduties imposed by the state law would not be onearising under the Constitution of the United States,though in the absence of the amendment the duty orthe tax would fail.We recur to the test announced inPuerto Rico v. Russell Co., supra: "The federal nature of the right to be established is decisive — not the source of the authority to establish it." Here the right to be established is one created by the state. If that is so, it is unimportant that federal consent is the source of state authority. To reach the underlying law we do not travel back so far. By unimpeachable authority, a suit brought upon a state statute does not arise under an act of Congress or the Constitution of the United States because prohibited thereby.LouisvilleNashville R. Co. v. Mottley, supra.With no greater reason can it be said to arise thereunder because permitted thereby.