New Orleans Waterworks Company v. Louisiana

This is a proceeding in the nature of a quo warranto, brought by the attorney general of the state of Louisiana, in the name of the state, to obtain a forfeiture of the charter of the defendant, the waterworks company. Upon the trial there was judgment in favor of the company, but upon appeal to the supreme court of the state that judgment was reversed, and judgment in favor of the state and against the company was entered, decreeing the forfeiture of the charter and of all the franchises heretofore conferred upon the defendant. The company has brought the case here by writ of error for review.

It appears from the petition filed in behalf of the state, through its attorney general, that in June, 1898, the general assembly of the state adopted a concurrent resolution providing for the appointment of a committee, with instructions to investigate the complaints against the methods of operation of the New Orleans Waterworks Company, and to report back to the general assembly such action as it might deem necessary to the public interests in the premises. The committee was duly appointed, made the investigation, and having submitted two reports thereon, the legislature on July 14, 1898, adopted the following:

'Whereas, the majority and minority reports of the joint committee of the house and senate, appointed to investigate the affairs, administration, and condition of the New Orleans Waterworks Company, have been submitted to the general assembly, together with the testimony and evidence adduced at the various sessions of the said committee; and

'Whereas, the subject-matter of the said reports involves the consideration and the determination of intricate questions of law and fact; and

'Whereas, it is impossible in view of the limited time at its disposal, for the general assembly to give the matter the examination and consideration necessary for a proper

'Be it therefore resolved by the senate, the house of representatives concurring, that the whole subject-matter of the said report, together with the testimony and evidence upon which they are based, be respectfully referred to the attorney general of the state for such action in the premises as he may deem proper.' The attorney general after such reference commenced this proceeding, and in the petition it was averred that the water company had been duly incorporated by the state legislature, and that after its incorporation it had been guilty of repeated and continuous violations of the charter, and had thereby forfeited the same and its franchises, and the petition then set forth twelve different causes of forfeiture which were alleged to have been violations of its charter. It was alleged that the company had failed to supply the inhabitants of the city with pure water; that the supply was not only muddy and impure, but also wholly inadequate, either to extinguish fires, to wash yards, alleys, and streets, or to furnish the inhabitants with water for bathing and domestic purposes; that the water furnished was at no time fit for drinking or cooking.

It was also averred that the company had habitually, since 1878 to the time of filing the petition, illegally exacted and collected greater rates than those exacted and collected by the city of New Orleans for the same quantity of water when it was the owner of the plant, and that the company had no right to charge any greater rate than had then been charged by the city. Various other grounds were stated in the petition not necessary to be particularly noticed. The prayer of the petition was for the forfeiture of the charter of the company and all its franchises, and, in the alternative, should that relief not be granted, that then it might be decreed that the company had forfeited all exclusive privileges, and that the city of New Orleans should be adjudged to have the right to contract with anyone else for a supply of water and to expropriate the tangible property of the company if the city should see fit, etc.

Exceptions were filed to this complaint, which were overruled by the court, and the waterworks company then answered, denying the allegations of the petition. The city of New Orleans then filed a petition for leave to intervene and to become a party plaintiff in the proceeding. The board of liquidation of the city also filed a petition to intervene and be made a party defendant, on the ground that it had an interest in common with the waterworks company to have the complaint against it dismissed. The court allowed both petitions in intervention to be filed, and the state then answered the petition in intervention of the board of liquidation, and the water company filed its answer to the petition of the city of New Orleans.

The answer of the water company to the complaint on the part of the state, after denying various allegations, averred that the primary reason for the incorporation of the defendant was neither to provide the city with a proper water supply nor to obtain an enlargement of the existing waterworks, because for more than forty years prior thereto the city had works adequate to furnish such a supply, with full power to enlarge the works as occasion required. The answer also averred that in 1833 the Commercial Bank of New Orleans was incorporated for the purpose of providing a waterworks plant and system for the city of New Orleans, and that it immediately complied with the duty of providing the same, and had operated it for many years; that the city, about the time of the incorporation of the bank, had become an owner of 5,000 shares of the stock of the company, and had issued its bonds in payment therefore at the time of the purchase. There was a provision in the charter of the bank that the city might purchase the plant in thirty-five years upon the conditions mentioned in the act. It was further averred that the city had become the owner of the waterworks plant under this provision in 1869, and that it had operated the same up to and including the year 1878. At that time the city was under great financial pressure and almost bankrupt, and had failed to pay most of the bonds it had issued for the 5,000 shares of stock it had owned in the bank corporation, although such bonds were due, and also there were the current obligations of the city to an amount of several million of dollars overdue and unpaid. For the purpose of relieving the city it was averred that the legislature in 1877 passed an act providing for a sale of the plant by the city under the circumstances mentioned in the act, but for some reason subscribers enough were not found who would form a corporation and take the plant upon the terms therein mentioned. Accordingly, in 1878 the act was amended, making the terms more liberal, and thereupon subscribers who were owners of the city bonds and other obligations came together and formed a corporation with a capital stock of $2,000,000 divided into 20,000 shares of $100 each. In accordance with the terms of the act these shares were assigned to the city, and the city, in consideration thereof, sold and assigned to the company the entire waterworks plant of the city, including the franchises and rights granted by the state and sold with the balance of the property, rights, and franchises so offered for sale by the act of the legislature, amongst which property thus sold was the valuable and indispensable franchise to be a corporation, which, as averred, was a right not severable in law from the balance of the property. The city has since sold all of the 20,000 shares of the stock of the company, excepting 3,927 shares held by the board of liquidation in trust and as security for the extinguishment of the debts of the city. The balance of the 20,000 shares is in other hands, whose title is traceable to the city. In order to raise money to carry out its obligations, having received none for the stock issued to the city for the property purchased, the company has, pursuant to the permission granted it by the act of 1877, twice mortgaged the property, including the franchise to be a corporation, and the bonds secured by those mortgages are in the hands of bona fide purchasers for value, and it is claimed on the part of the defendant that they are indispensable parties to this or any action to destroy the franchise of the defendant to be a corporation. The defendant also avers that the state as plaintiff acts in bad faith in assailing the franchises of the defendant in such an action, and also in violation of the 14th Amendment of the Constitution of the United States, which forbids a state to deprive any person of life, liberty, or property without due process of law, or to deny any person within its jurisdiction the equal protection of the laws. It was also alleged that the grant of the corporate life to the defendant was not, as is usually the case, a grant of corporate life for the purpose and consideration only of the establishment of public works or improvements of a public character, where the only consideration passing to the state for the grant of corporate life is some supposed increased general public benefit resulting from the construction and installation of public works; but that, on the contrary, in the case of the defendant corporation, the contract and agreement between the state and the defendant was, and is, an unquestionable contract of bargain and sale of all the property, rights, and franchishes described in the acts of 1877 and 1878, for an exact price fixed by the state in its offer of the property for sale, which offer was accepted and price paid by the defendant as the result of a bargaining in which the state was acting, not alone in its character as a sovereign, but as a merchant and trader in commerce; and that in the bargaining and sale of the said property and franchises the state must, in law and by the courts, be considered a trader engaged in driving a hard commercial bargain in its own interest and on its own terms, and for its own benefit and profit. The contract thus set forth, it was averred, was protected from all impairment at the hands of the state by the Constitution of the United States, particularly by § 10 of article 1, acting on the state of Louisiana as a prohibition, while acting or moving, as plaintiff in this action, in impairment of the faith of its own contract, to the same extent as if such impairment had been attempted through and by means of legislation compassing the same effect and result, that if the joint resolution of the state legislature, referred to in the petition, could be construed as directing the institution and prosecution of this suit, or as directing the attorney general of the state, in the name of the state, to institute and prosecute this action, for the purpose and with the intent to segregate from the mass of the property sold by the state to the defendant its franchise to be a corporation, or if there exist any other statutes of the state authorizing or directing the attorney general to that end and purpose, such joint resolution and statutes are repugnant to the Constitution of the United States, particularly to § 10 of article 1 thereof, which is specially pleaded in defense of this action. The defendant also averred that by virtue of the provisions of § 15 of the charter of defendant (act No. 33 of the Laws of 1877) the remedy for illegal charges for water was confined to an application by the city for a mandamus to compel the company to desist from such charges. The section is reproduced in the margin.

The answer further specifically denied all grounds of forfeiture and prayed that the plaintiff's suit might be dismissed. The case came to trial in the city of New Orleans, and after an investigation of the isses raised by the pleadings, including the examination of a large number of witnesses and the hearing of arguments of counsel, the court determined (1) that the two intervening parties, the city of New Orleans and the board of liquidation, should not have been allowed to intervene, and accordingly it was decreed that the intervention of those parties should be dismissed at the cost of the respective interveners. (2) The court then ordered judgment in favor of the water company and against the plaintiff, the state of Louisiana, rejecting its demand for the forfeiture of the defendant's charter. The state appealed from that judgment to the supreme court, and the city of New Orleans also took a separate appeal from the judgment dismissing its intervention. Upon hearing in the supreme court the judgment in favor of the water company was reversed, and, as already stated, a judgment was entered forfeiting the charter of the water company.

Messrs. Ernest B. Kruttschnitt, Edgar H. Farrar, Benjamin F. Jonas, and James R. Beckwith for plaintiff in error.

Sec. 12. Be it further enacted, etc., That said waterworks company shall have the right to fix the rates of charges for water; provided that the net profits of the company shall not exceed ten per cent per annum, and shall publish sworn annual statements of its business and condition; and that the city council shall have the power to appoint a committee of not less than five, who shall have access to the books of the said company and make such extracts from the same as they may deem necessary, and in case the said profit shall exceed ten per cent, the city council shall have the right to require said company to reduce the price of water in such manner and in such a proportion that the profits shall never exceed the above-named rates; and provided, further, that the rates charged shall never exceed those now paid by the city, and in case said company shall refuse compliance, the demand of said city may be enforced by a writ of mandamus.

Messrs. Benjamin R. Forman, Walter Guion, and Samuel L. Gilmore for defendant in error.

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