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Texas State Capitol, 1936

Defaults, Bankruptcies and Depression

From approximately October 1929 until 1939, our country experienced the worst economic downturn in its history.  It is rumored that during the Great Depression, our lawyers were busier than they ever had been. As thousands of political subdivisions throughout Texas and the United States began to default on their bonds and file for bankruptcy under newly enacted federal legislation, the role of the municipal bond lawyer rose in prominence.

The Public Works Administration (PWA) was created in June 1933 in response to the Great Depression. That year, the PWA hired McCall to draft enabling legislation that would allow Texas political subdivisions to borrow from the PWA, including a provision that Pa Ferguson described as “the broadest validating language I ever saw.”  Last minute revisions by legislators, however, threatened to shut down the municipal bond market in Texas entirely. In October 1933, John D. attended a hearing on the bill at the request of Governor Miriam A. Ferguson (“Ma Ferguson”), at which “Pa Ferguson” was also present.  McCall urged the Governor to veto the bill altogether, on behalf of the PWA, which the Governor did. In the subsequent years, McCall approved dozens of large bond projects financed by the PWA, including Red Bluff Dam along the Pecos River, Possum Kingdom Dam along the Brazos, and the Dryden Bridge connecting Port Arthur and Orange County (later renamed the “Rainbow Bridge”).

Ma Ferguson
Source: DeGolyer Library, Southern Methodist University

Following a constitutional amendment, in December of 1933 McCall approved the issuance of $5,500,000 in state relief bonds by the State of Texas to feed the hungry. It took five state officials several days, through New Year’s Eve, to execute all of the bonds.  However, the state was only able to find buyers for half of these bonds, and ultimately cancelled the remaining $2,750,000. Ma Ferguson attempted to get legislation that would authorize additional state relief bonds, and an additional $1,500,000 were issued in December 1934.

Bankruptcy Protection for Municipalities

In 1934, John D. McCall was remarried to Hazel Bradfield Horton, who had two children of her own: Paul B. Horton and Mary Horton. Later the couple had two sons: John D. McCall, Jr. (born 1934) and Thomas Screven McCall (born 1936). That same year, Congress amended the U.S. Bankruptcy Code to extend to municipalities who were seeking protection from debtors on their defaulted bonds. It came to light that thousands of municipal bonds had been issued without proper legal authorization, which meant, in some cases, that the political subdivisions which had sold invalid bonds had no obligation to repay their bondholders. The response from Wall Street was a stricter requirement that all municipal bonds be accompanied by a legal opinion from a “nationally recognized bond counsel” that the bond was valid, binding, and enforceable in accordance with its terms. Such opinions were often attached to and accompanied the bond, but most often were printed on the back of the bond itself. John D. was flooded with new bankruptcy cases ranging from West Texas all the way to Florida.

Millard G. Parkhurst
Millard G. Parkhurst

During bankruptcy proceedings in 1935, John D. became acquainted with an attorney from McCamey, Texas named Millard G. Parkhurst. John D. was so impressed with Millard’s legal abilities, he made him an offer to move to Dallas to round out the firm’s growing litigation practice. In the subsequent decade, the duo litigated hundreds of bankruptcy and bond validation proceedings at both the state and federal level, in Texas and in surrounding states, establishing many of the legal principles and precedents that still govern the body of law known today as public finance. In 1936, the United States Supreme Court declared municipal bankruptcy to be unconstitutional in Ashton et al. v. Cameron County Water Improvement District (56 S.Ct. 892), for which McCall briefed as amicus curiae. The following year, McCall represented Cameron County Water Improvement District in borrowing $235,000 from the Reconstruction Finance Corporation to obtain flood control rights-of-way.  In 1939, Congress re-enacted legislation that ultimately became Chapter 9 of the Bankruptcy Code, allowing municipalities to restructure their debts. John D. served as bond counsel to hundreds of Texas independent school districts, counties, water districts and others seeking protection under Chapter 9.

Clarence E. Crowe, Jr.
Clarence E. Crowe, Jr.

In 1937, the Texas Legislature adopted the Texas Securities Act, which repealed the former Blue Sky Law of Texas. When Gerald Mann became Texas Attorney General in 1939, his office began placing increased scrutiny on municipal bond transactions submitted to his office for approval, refusing to approve many bond issues. In the years that followed, dozens of bond validation suits were filed against Mann, who was defended by two Assistant Attorneys General: Clarence E. Crowe, Jr. and Claud O. Boothman. John D. then hired a young associate, Edward Lee Markham, Jr., whose father constructed some of the largest highways across Texas.

In 1940, the Mission Independent School District, preceding under Chapter 9 of the U.S. Bankruptcy Code, filed one of the earliest bond validation suits in the Fifth Circuit against Mann, whose office was represented by Clarence Crowe and Claud Boothman, with A. Bryce Huguenin briefing as amicus curiae. In 1942, John D. and Millard successfully represented a Florida state drainage district (Everglades Drainage District) in a Chapter 9 bankruptcy proceeding before the Fifth Circuit Court of Appeals (132 F.2d 808) and, ultimately, the United States Supreme Court (63 S.Ct. 1444). That same year, John D.’s oldest son, Randolph, graduated from Southern Methodist University School of Law and was admitted to the bar. Randolph had played on SMU’s 1935 Rose Bowl Team as a freshman, starred as a sprinter on the track team, and was an AAU gymnastics champion. During WWII, Randolph supervised the production of the P-51 Mustang fighter planes for North American Aviation. After the war, Randolph joined the firm and practiced with his father until 1949, when he left the firm to become a citrus farmer in the Rio Grande Valley.

Becoming McCall, Parkhurst & Crowe

On February 28, 1942, Attorney General Gerald Mann announced that Clarence Crowe, the assistant attorney general in charge of his municipal bond division, had resigned to return to Dallas and practice law with John D. McCall, Millard Parkhurst, and Edward Markham. These four men (along with Dallas attorneys William Milton Harris and William Pinkney Dumas) frequently assisted Mann in his defense of bond validation suits filed throughout the state, as well as suits before the United States Supreme Court. During the years 1944 and 1945, McCall, Parkhurst, Crowe, and Dumas also jointly represented private parties in declaratory judgment actions filed against numerous counties throughout the state.

Effective May 1, 1945, the firm officially changed its name from “Law Offices of John D. McCall” to “McCall, Parkhurst & Crowe.”  However, per a letter agreement among the three dated April 20, 1945, John D. would remain the sole owner of the firm, while Millard and Clarence would be paid annual salaries of $5,000 each for the years 1945 and 1946.