County of Stanislaus v. San Joaquin King's River Canal Irrigation Company

The county above named has appealed directly to this court from a decree of the circuit court of the United States for the northern district of California, setting aside an ordinance adopted by the board of supervisors of Stanislaus county on June 24, 1896, designating the water rates which were to be charged by the company (appellee) to its water consumers for the ensuing year. The appeal here is on the ground that the case involved the construction or application of the Constitution of the United States, under § 5 of the act of 1891. (26 Stat. at L. 826, chap. 517, U.S.C.omp. Stat. 1901, p. 549.)

The company was incorporated in 1871, under an act of the California legislature approved in 1853 (Stat. of 1853, p. 87), as amended in 1862 (Stat. of 1862, p. 540). After its incorporation and the obtaining of the necessary land, the company built a canal or reservoir at a cost, as alleged, of about a million dollars, and it is averred that the property was and is of that value. Subsequently to the completion of its works the company furnished water for irrigating purposes to its customers at rates fixed by it, which were not interfered with by the board of supervisors up to the time of the adoption of the above-mentioned ordinance of June 24, 1896. Soon afterwards the company commenced this suit for the purpose of obtaining a decree setting the ordinance aside and declaring it to be null and void, and decreeing that the company was entitled to have the rates for supplying its water to its customers and the users thereof generally so fixed that they would in the aggregate furnish a reasonable and just compensation for the services rendered, and a fair, just, and equitable return therefor.

The act of 1862 provided in § 3 as follows:

'Every company organized as aforesaid shall have power, and the same is hereby granted,. . . to establish, collect, and receive rates, water rents, or tolls, which shall be subject to regulation by the board of supervisors of the county or counties in which the work is situated, but which shall not be reduced by the supervisors so low as to yield to the stockholders less than 1 1/2 per cent per month upon the capital actually invested.' [Cal. Gen. Laws, 1850-1864, par. 978.]

On March 12, 1885, the legislature passed an act (Cal. Stat. 1885, page 95) providing for the fixing, by the board of supervisors of a county, of the rates to be collected by water companies. Section 5 of that act authorized the various boards of supervisors in the state to regulate and control the water rates that might be charged in their respective counties by any person, company, association, or corporation, and provided:

'Said boards of supervisors, in fixing such rates, shall, as near as may be, so adjust them that the net annual receipts and profits thereof to the said persons, companies, associations, and corporations so furnishing such water to such inhabitants shall be not less than 6 not more than 18 per cent upon the said value of the canals, ditches, flumes, chutes, and all other property actually used and useful to the appropriation and furnishing of such water of each of such persons, companies, associations, and corporations; but in estimating such net receipts and profits the cost of any extensions, enlargements, or other permanent improvements of such water rights or waterworks shall not be included as part of the said expenses of management, repairs, and operating of such works, but when accomplished may and shall be included in the present cost and cash value of such work. In fixing said rates, within the limits aforesaid, at which water shall be so furnished as to each of such persons, companies, associations, and corporations, each of said boards of supervisors may likewise take into estimation any and all other facts, circumstances, and conditions pertinent thereto, to the end and purpose that said rates shall be equal, reasonable, and just, both to such persons, companies, associations, and corporations and to said inhabitants.' [Deering's Anno. Codes & Stat. p. 140.]

The complainant alleges in its bill that prior to March 12, 1885, at the time of the passage of the act of that date, the company and its incorporators had actually invested under the authority of the act of 1862 a capital amounting to $971,113.13 in money, all of which was actually, reasonably, and necessarily expended by the complainant in the purchase and construction of its canals and other property actually used in and useful to the appropriation and furnishing of the water, and that the property was, on the last named date, and still is, of the reasonable worth of $971,113.13. The complainant averred that if the act of 1885 was construed as repealing, altering, or amending the provisions of the act of 1862, as to rates to be charged by the company, then that the act of 1885 was in violation of, and repugnant to, the provisions of article I., § 10 of the Constitution of the United States, and, as thus construed, the act of 1885 impaired the obligation of the contract between the state of California and the complainant entered into under the authority of § 3 of the act of 1862.

It was also averred that the rates, as fixed by the board under the act of 1885, would result in taking the property of the complainant without due process of law, and in depriving it of the equal protection of the laws.

An answer was put in, taking issue with the complainant on the averments in its bill, and a trial was had in the circuit court. That court held (113 Fed. 930) that there was a contract under the act of 1862, as contended for by the complainant; that the act of 1885 could not be so construed as to permit the board of supervisors, in fixing water rates by its authority, to entirely disregard the capital actually invested in the property of the corporation under the act of 1862, and that if otherwise construed the act of 1885 would run counter to the constitutional provision that no law impairing the obligation of a contract should be passed, and the statute would be subjected to the further objection that, as so construed, the state would deprive complainant of its property without due process of law, and would also deny to it the equal protection of the laws, as provided for in the Federal Constitution, and that such provision could not be held subordinate to the constitutional power conferred upon the state legislature to alter, amend, or repeal the general laws concerning corporations. It was also said by the court that it was the duty of the board of supervisors to ascertain the amount of the capital actually invested in the corporation, that is to say, the amount of capital actually paid in and invested in constructing the canals and acquiring the other property used and made useful in supplying water to the customers of the corporation in Stanislaus county, and this fact should have been considered by the board in fixing the water rates which the complainant was entitled to charge under the statute; that when the board of supervisors fixed the rates no consideration was given by it to the evidence showing the amount of the capital actually put into the corporation, or the actual, reasonable, and proper cost of the works; that the evidence establishes the fact that the board failed to perform its duty in this respect, and that by reason thereof it deprived the complainant of its property without due process of law, and denied to it the equal protection of the laws.

The court found that the evidence showed that the rate fixed by the board of supervisors reduced the income of the company considerably below 6 per cent upon the capital actually invested in the property of the corporation, and if a corresponding reduction were made in Fresno and Merced counties its income would, under the most favorable conditions, be reduced to less than 5 per cent per annum on the value of the property as estimated by the board of supervisors.

The court also held that the company had waived the right to fix rates as high as permitted under the act of 1862, by failing to make them as high as therein permitted, prior to the passage of the act of 1885, and the act of 1885, 'providing that the net annual receipts as adjusted by the board of supervisors should not be less than 6 nor more than 18 per cent per annum, is therefore properly applicable to the regulation of complainant's rates.'

Messrs. James P. Langhorne, Duncan Hayne, and F. D. McKenney for appellants.

Mr. W. B. Treadwell for appellee.

Statement by Mr. Justice Peckham:

Mr. Justice Peckham, after making the foregoing statement, delivered the opinion of the court: