## Facts

- Chicot County Drainage District, an Arkansas drainage district, issued bonds in 1924; certain bondholders later held 14 defaulted $1,000 bonds.
- The District filed a federal debt-readjustment proceeding under the Municipal Debt Readjustment Act of May 24, 1934.
- In March 1936, the federal district court approved a readjustment plan as fair and equitable, authorized new obligations, and imposed a one-year deadline for old bondholders to present bonds for retirement under the plan.
- The 1936 decree canceled old bonds (subject to timely presentation) and enjoined bondholders from asserting claims on the old bonds thereafter.
- The bondholders were parties to the readjustment proceeding and had notice, but did not present their bonds within the one-year period and did not challenge the statute’s constitutionality in that proceeding.
- After the decree became final, the Supreme Court held the 1934 municipal readjustment statute unconstitutional in a different case.
- The bondholders then sued on their original bonds in federal court, arguing the prior decree was void because it rested on an unconstitutional statute; the district court and court of appeals ruled for the bondholders.

## Issues

1. Whether parties to a final federal decree entered under a statute later held unconstitutional may collaterally attack that decree in a subsequent suit by raising the statute’s unconstitutionality.
2. Whether res judicata bars litigation of a constitutional objection that could have been raised in the earlier proceeding.
3. Whether a federal court’s jurisdictional determination in the earlier case, though potentially erroneous, is immune from collateral attack when due process was satisfied and direct review was available.

## Decision

- The Supreme Court reversed the judgment for the bondholders and remanded with instructions to dismiss the complaint.
- The Court held that the bondholders, having been parties to the earlier proceeding with notice and an opportunity to be heard, were bound by the final decree.
- The Court ruled that the earlier decree could not be collaterally attacked on the ground that the underlying statute was later declared unconstitutional.
- The Court applied res judicata to bar not only issues actually raised, but also issues that were available and could have been raised, including constitutional objections.

## Legal Principles

- A federal court has authority to determine its own jurisdiction and to construe the statute under which it is asked to act; such determinations are subject to direct review but generally may not be assailed collaterally by parties bound by the judgment.
- Res judicata bars relitigation of matters actually decided and of available matters that could have been presented in the earlier action to support or defeat the claim, including constitutional challenges.
- A final, unappealed decree entered with due process remains binding on parties even if the governing statute is later held unconstitutional in another case.
- The existence of a statute prior to a judicial declaration of unconstitutionality can produce legal consequences that courts will not automatically undo as to completed, final judgments relied upon by parties.

## Conclusion

Because the bondholders were parties to the earlier federal readjustment case, had notice and an opportunity to raise a constitutional objection, and allowed the decree to become final without direct review, res judicata barred their later attempt to invalidate that decree and recover on the original bonds based on the statute’s subsequent invalidation.


Chicot Cnty. Drainage Dist. v. Baxter State Bank, 308 U.S. 371 (1940)