New Orleans Waterworks Company v. Louisiana/Opinion of the Court

The defendant in error has made a motion to dismiss this writ of error on the ground of a lack of jurisdiction, because no Federal question is disclosed in the record.

The plaintiff in error, on the contrary, claims the existence in the record of several questions of a Federal character, and in the brief prepared to oppose this motion they are set forth as follows:

'(1) The charter of the waterworks company prescribing mandamus as a remedy to maintain a lawful tariff of water rates, is not the substitution by the writs of forfeiture of charter, as a remedy for the maintenance of unlawful rates, a breach of the contract, and a deprivation of the property without due process of law, and a denial of the equal protection of the laws?

'(2) If such remedy be sanctioned by and sought pursuant to a state statute, subsequent in date to the charter of the waterworks company, does not such a statute impair the obligation of the charter contract, devest vested rights, and deny to said company the equal protection of the laws?

'(3) Can the state forfeit such a charter and take back the franchises at the same time that she leaves the corporation in possession of the physical property depleted in value by the loss of the franchise, and at the same time that she keeps the money paid for the property plus the franchise?

'(4) The general law of the state providing a restitutio in integrum in all cases where a synallagmatic, commutative contract is dissolved, and the charter containing no special provision taking the state's contract from under general provisions of law, is not a state authorizing the attorney general to institute proceedings to forfeit the contract and take back the franchise, at the same time that the state keeps the consideration paid for the same, a statute impairing the obligations of a contract? '(5) Is not a judicial decision refusing to apply to this contract the general provisions of the law of contracts prevailing in the state a taking by the state through her judiciarly of the property of the defendant corporation without due process of law?

'(6) Is not the legislative resolution, the action of the attorney general, and the action of the supreme court of the state the taking by the state of property without due process of law through the instrumentality of her legislative, her executive, and her judicial departments, both jointly and severally?

'(7) Is not the refusal to apply to this case the general provisions of the law of contract prevailing in the state of Louisiana a denial to the plaintiff in error of the equal protection of the laws of the state of Louisiana?'

These questions are, as is said, simply amplifications of the grounds actually taken by plaintiff in error upon the trial and on the argument of the case in the supreme court of the state, and which are plainly set out in the record. This may be assumed, and the point which arises is whether the matters thus set forth do in truth create even a color of a Federal question.

It has long been the holding of this court that in order to warrant the exercise of jurisdiction over the judgments of state courts there must be something more than a mere claim that a Federal question exists. There must, in addition to the simple setting up of the claim, be some color therefor, or, in other words, the claim must be of such a character that its mere mention does not show it destitute of merit; there must be some fair ground for asserting its existence, and, in the absence thereof, a writ of error will be dismissed, although the claim of a Federal question was plainly set up. Thus, in Millinger v. Hartupee, 6 Wall. 258, 18 L. ed. 829, the Chief Justice (at page 261, L. ed. p. 830) said: 'Something more than a bare assertion of such an authority seems essential to the jurisdiction of this court. The authority intended by the act is one having a real existence, derived from competent governmental power.' This case arose under the 25th section of the judiciary act, and jurisdiction was sought to be maintained upon the assertion that the validity of an authority exercised under the United States was drawn in question, and the decision was against its validity. It was held not sufficient to make the claim, but there must be some color of foundation for its assertion.

In New Orleans v. New Orleans Waterworks Co. 142 U.S. 79, 35 L. ed. 942, 12 Sup. Ct. Rep. 142, upon a motion to dismiss the writ of error on the ground that no Federal question was involved, it was said by the court (p. 87, L. ed. p. 946, Sup. Ct. Rep. p. 145):

'While there is in the amended and supplemental answer of the city a formal averment that the ordinance No. 909 impaired the obligation of a contract arising out of the act of 1877, which entitled the city to a supply of water free of charge, the bare averment of a Federal question is not in all cases sufficient. It must not be wholly without foundation. There must be at least color of ground for such averment, otherwise a Federal question might be set up in almost any case, and the jurisdiction of this court invoked simply for the purpose of delay.'

Again, in Hamblin v. Western Land Co. 147 U.S. 531, 37 L. ed. 267, 13 Sup. Ct. Rep. 353, upon a like motion to dismiss the writ of error, the court said: 'It is doubtful whether there is a Federal question in this case. A real, and not a fictitious, Federal question is essential to the jurisdiction of this court over the judgment of state courts,'-citing the two cases just above referred to.

In St. Joseph & G. I. R. Co. v. Steele, 167 U.S. 659, 42 L. ed. 315, 17 Sup. Ct. Rep. 925, it was said by the court (p. 662, L. ed. p. 316, Sup. Ct. Rep. p. 354):

'We cannot accede to the proposition that, because the acts of Congress which authorized the construction of the bridge in question gave the right to build a railroad and toll bridge, the conceded power of the state to tax did not extend to the bridge in both aspects. Nor can we agree that the making of such a contention raised a Federal question of a character to confer original jurisdiction in the circuit court of the United States. Not every mere allegation of the existence of a Federal question in a controversy will suffice for that purpose. There must be a real, substantive question, on which the case may be made to turn.'

Although the above case relates to the jurisdiction of the circuit court, yet, so far as this question is concerned, the principle is the same as to both courts.

And in Wilson v. North Carolina, 169 U.S. 586, 42 L. ed. 865, 18 Sup. Ct. Rep. 435, it was held that there must be a real and substantial Federal question existing in order to give this court jurisdiction to review a judgment of a state court, and if the question raised were so unfounded in substance that the court would be justified in saying there was no fair color for the claim that it was of a Federal nature, the writ would be dismissed.

These cases show the rule and its limitations, and where by the record it appears that although a claim of a Federal question had been plainly made, if it also clearly appear that it lacked all color of merit, and had no substance or foundation, the mere fact that it was not sufficient to give this court jurisdiction.

We must look at the question submitted by the plaintiff in error in the light of these decisions for the purpose of determining whether there is any fair foundation for the several claims. It must also be remembered that for years prior to and at the time of the formation of this corporation it was the unquestioned law that all corporations were created by the state subject to its implied power, if not stated in the charter, to dissolve the corporation for a misuse or for a nonuse of its corporate powers or obligations. The contract contained in a charter is always subject to this power residing in the state.

Thus in Terrett v. Taylor, 9 Cranch, 43, 3 L. ed. 650, it was stated by the court (p. 51, L. ed. p. 653):

'A private corporation created by the legislature may lose its franchises by a misuser or a nonuser of them; and they may be resumed by the government under a judicial judgment upon a quo warranto to ascertain and enforce a forfeiture. This is the common law of the land, and is a tacit condition annexed to the creation of every such corporation.'

It is stated by Chancellor Kent, in his Commentaries (vol. 2, p. 378, Comstock's ed.), that there were two modes of proceeding judicially to ascertain and enforce the forfeiture of a charter for default or abuse of power; the one by scire facias, the other by information in the nature of a quo warranto; both these modes of proceeding against corporations being at the instance and on behalf of the government. The state must be a party to the prosecution, for the judgment is that the parties be ousted, and the franchises seized into the hands of the government.

In ''Chicago L. Ins. Co. v. Needles'', 113 U.S. 574, 28 L. ed. 1084, 5 Sup. Ct. Rep. 681, the court (at page 579, L. ed. p. 1086, Sup. Ct. Rep. p. 683) said:

'The case upon the merits, so far as they involve any question of which this court may take cognizance, is within a very narrow compass. The main proposition of the counsel is that the obligation of the contract which the company had with the state in its original and amended charter will be impaired, if that company be held subject to the operation of subsequent statutes regulating the business of life insurance and authorizing the courts, in certain contingencies, to suspend, restrain, or prohibit insurance companies incorporated in Illinois from further continuance in business. This position cannot be sustained consistently with the power which the state has, and, upon every ground of public policy, must always have, over corporations of her own creation. Nor is it justified by any reasonable interpretation of the language of the company's charter. The right of the plaintiff in error to exist as a corporation, and its authority, in that capacity, to conduct the particular business for which it was created, were granted subject to the condition that the privileges and franchises confered upon it should not be abused, or so employed as to defeat the ends for which it was established, and that, when so abused or misemployed, they might be withdrawn or reclaimed by the state in such a way and by such modes of procedure as were consistent with law. Although no such condition is expressed in the company's charter, it is necessarily implied in every grant of corporate existence. Terrett v. Taylor, 9 Cranch, 43, 51, 3 L. ed. 650, 653; Ang. & A. Priv. Corp. 9th ed. § 774, note.'

In that case the question was whether the company could be dissolved on account of its insolvency. Here one of the questions is whether this company can be dissolved and its charter forfeited on account of the illegal rates charged for supplying water. Upon the question of insolvency in the Needles Case, the court (at page 581, L. ed. p. 1087, Sup. Ct. Rep. p. 684) said:

'It is not competent, under existing laws, for this court to inquire a whether the state court correctly interpreted the evidence as to the company's insolvency; nor whether the facts make a case which, under the statute of 1874, required or permitted a judgment perpetually enjoining it from doing any further business. We are restricted by the settled limits of our jurisdiction to the specific inquiry whether the statute themselves, upon which the judgment below rests, impair the obligation of any contract which the company or its policyholders had with the state, or infringe any right secured by the national Constitution. . . . Did the company, by its charter, have a contract that it should, without reference to the will of the state or the public interests, exercise the franchise granted by the state after it became insolvent and consequently unable to meet the obligations which, as a corporation, under the sanction of the state, it had assumed to its policyholders? Our answer to these questions is sufficiently indicated by what has been said.'

The statute in question in the above case, it will be observed, was passed subsequently to the grant of the charter to the corporation. Even there it was held that such a statute did not impair the obligation of the contract contained in such charter. In the case before us there is no subsequent statute.

And again, at page 584, L. ed. p. 1088, Sup. Ct. Rep. p. 686, of the same case:

'It is further contended that the state enactments in question impair the obligation of the contracts which the company has made with its creditors and policyholders. To this it is sufficient to reply in the language of the court in Mumma v. Potomao Co. 8 Pet. 281, 287, 8 L. ed. 945, 948, where it was said: 'A corporation, by the very terms and nature of its political existence, is subject to a dissolution, by a surrender of its corporate franchises, and by a forfeiture of them for wilful misuse and nonuse. Every creditor must be presumed to understand the nature and incidents of such a body politic, and to contract with reference to them. And it would be a doctrine new in the law that the existence of a private contract of the corporation should force upon it a perpetuity of existence contrary to public policy and the nature and objects of its charter.' The contracts of policyholders and creditors are not annihilated by such a judgment as was rendered below; for, to the extent that the company has any property or assets, their interests can be protected, and are protected, by that judgment. The action of the state may or may not have affected the intrinsic value of the company's policies; that would depend somewhat on the manner in which its affairs have been conducted, upon the amount of profits it has realized from business, and upon its actual condition when this suit was instituted; but the state did not, by granting the original and amended charter, preclude herself from seeking, by proper judicial proceedings, to reclaim the franchises and privileges she has given, when they should be so misused as to defeat the objects of her grant, or when the company had become insolvent so as not to be able to meet the obligations which, under the authority of the state, it had assumed to policyholders and creditors.'

That the state has power to forfeit the charter of a corporation for an abuse of its privileges is recognized as the law of Louisiana. The Civil Code of that state, article 447, has for many years authorized a proceeding in the nature of a quo warranto to forfeit the charter for misuse, and it has been held that such article applies to every charter granted since its adoption. Atchafalaya Bank v. Dawson, 13 La. 497; State v. ''New Orleans Gaslight & Bkg. Co.'' 2 Rob. (La.) 529, 532.

Again, the claim that the judgment deprives the plaintiff in error of property without due process of law must be looked at with reference to the cases upon the subject as to what constitutes due process of law. Thus, in Davidson v. New Orleans, 96 U.S. 97, 24 L. ed. 616, it was held that a statute which required that before an assessment upon land should become effectual it must be submitted to a court of justice, with notice to the owner of the property and an opportunity given him to appear and contest the assessment, constituted due process of law.

In ''Den ex dem. Murray v. Hoboken Land & Improv. Co.'' 18 How. 272, 15 L. ed. 372, the question of what amounted to due process of law was examined, and the proceeding in that case held valid. Mr. Justice Curtis said, in delivering the opinion of the court:

'To what principles, then, are we to resort to ascertain whether this process, enacted by Congress, is due process? To this the answer must be twofold. We must examine the Constitution itself, to see whether this process be in conflict with any of its provisions. If not found to be so, we must look to those settled usages and modes of proceeding existing in the common and statute law of England before the emigration of our ancestors, and which are shown not to have been unsuited to their civil and political condition by having been acted on by them after the settlement of this country.'

In Kennard v. ''Louisiana ex rel. Morgan'', 92 U.S. 480, 23 L. ed. 478, cited in Foster v. ''Kansas ex rel. Johnston'', 112 U.S. 201, 206, 28 L. ed. 629, 697, 5 Sup. Ct. Rep. 8, 97, it was held that a state statute regulating proceedings for the removal of a person from a state office was valid with regard to the Federal Constitution, if it provided for bringing the party proceeded against into court, notifying him of the case he had to meet, giving him an opportunity to be heard in his defense, and for the deliberation and judgment of the court.

And in Simon v. Craft, 182 U.S. 427, 45 L. ed. 1165, 21 Sup. Ct. Rep. 836, it was held that the essential elements of due process of law were notice and an opportunity to defend, and in determining whether those rights were denied the court will be governed by the substance of things, and not by mere form; that the due process clause in the 14th Amendment of the Constitution did not necessitate that the proceedings in a state court should be by a particular mode, but only that there should be a regular course of proceeding, in which notice was given of the claim asserted and opportunity offered to defend against it.

Regarding the impairment of any alleged contract, it must be borne in mind that the constitutional provision refers to state legislation, or to an enactment of a legislative character, though by a municipal corporation, made subsequent to the contract, and which impairs its obligation. New Orleans Waterworks Co. v. ''Louisiana Sugar Ref. Co.'' 125 U.S. 18, 30, 31 L. ed. 607, 612, 8 Sup. Ct. Rep. 741; St. Paul Gaslight Co. v. St. Paul, 181 U.S. 142, 148, 45 L. ed. 788, 21 Sup. Ct. Rep. 575.

This court does not obtain jurisdiction to review a judgment of a state court because that judgment impairs or fails to give effect to a contract. The state court must give effect to some subsequent statute or state Constitution which impairs the obligation of the contract, and the judgment of that court must rest on the statute either expressly or by necessary implication. Mississippi & M. R. Co. v. Rock, 4 Wall. 177, 180, 18 L. ed. 381, 382; Mississippi & M. R. Co. v. McClure, 10 Wall. 511, 19 L. ed. 997; Knox v. Exchange Bank, 12 Wall. 379, 20 L. ed. 414.

These cases are referred to and applied in Lehigh Water Co. v. Easton, 121 U.S. 338, 392, 30 L. ed. 1059, 1060, 7 Sup. Ct. Rep. 916.

With these principles in mind, we come to an examination of the questions raised by the plaintiff in error.

The answer to the first question, as to mandamus being the exclusive remedy for illegal rates, is that the state court has otherwise construed the charter, and has held that mandamus is not the only remedy, but that the company was liable to be proceeded against by quo warranto at the suit of the state through its attorney general. The claim that by so proceeding there is any impairment of the obligation of a contract by any subsequent legislation, or that there has thus been a deprivation of property without due process of law, or a denial of the equal protection of the laws, has no colorable foundation.

An examination of this question, among others, was made by the state court after full hearing by all parties, and all that can possibly be claimed on the part of the plaintiff in error is that such court erroneously decided the law. That constitutes no Federal question.

As to the second question, there is no state statute subsequent in date to the charter of the water company under or by virtue of which this proceeding was commenced, or which in any way affects the contract of plaintiff in error. The joint resolution of the legislature of Louisiana referred the whole matter to the attorney general for him to bring suit to forfeit the charter or to take such action as he might think proper. It was a simple authority, if any were needed, to present the question to the court, and neither the contract nor any other rights of the parties were in anywise altered by such resolution. The proceeding herein is based solely upon an alleged violation of the terms of the charter by the corporation; that question has been judicially determined after a full investigation by the state courts, and in a proceeding to which the company was a party, and after a full hearing has been accorded it in such proceeding. This was due process of law, and no Federal question arises from the decision of the court.

The same answer would seem to fit the other questions submitted by the plaintiff in error. They are all based upon the proposition that the judicial determination of these particular questions by the state tribunal was erroneous, and on account of such error the rights of the plaintiff in error, under the Federal Constitution, have been violated. But mere error in deciding questions of this nature furnishes no ground of jurisdiction for this court to review the judgments of a state court.

Assuming that there was a contract, as is claimed by the plaintiff in error, arising by virtue of the passage of the acts of 1877 and 1878, and their acceptance by the corporation, yet still the erroneous decision by the state court, admitting, arguendo, that it was erroneous, raises no Federal question. This court does not and cannot entertain jurisdiction to review the judgment of a state court, solely because that judgment impairs or fails to give effect to a contract. Curtis v. Whitney, 13 Wall. 68, 20 L. ed. 513, holds that a statute may even affect a prior contract without always impairing its obligation. The judgment must give effect to some subsequent state statute or state Constitution, or, it may be added, some ordinance of a municipal corporation passed by the authority of the state legislature, which impairs the obligation of a contract, before the constitutional provision regarding the impairment of such contract comes into play. See authorities above cited.

The state in this case has secured the foreiture of the charter of the defendant by means of a judicial decree obtained in a state court which had jurisdiction to give the relief prayed for, and after a hearing of the defendant in the usual manner pertaining to courts of justice. The facts upon which such forfeiture was based have been judicially declared and found, and the defendant has had full opportunity for its defense upon such hearing. The cause of forfeiture was the fact, which was found by the court, that the corporation had charged illegal rates for the water it furnished, and the right to declare such forfeiture, because of a violation by defendant of the conditions of its charter, was implied in the very grant of the charter itself. The claim therefore that the forfeiture was a violation of the charter, and of the contract therein contained, and was on that account a taking of defendant's property without due process of law, or that the state by such judgment had denied to defendant the equal protection of the laws,-cannot obtain. Whether defendant had so violated its charter was a fact to be decided by the state court. That court had full jurisdiction over the parties and the subject-matter, and its decision of the question was conclusive in this case so far as this court is concerned.

Neither the legislative resolution, nor the action of the attorney general, nor that of the supreme court of the state, nor all combined can as contended for by plaintiff in error, be in anywise regarded as the taking by the state of property without due process of law through the instrumentality of its legislative, its executive, and its judicial departments, either jointly or severally. When analyzed, the whole claim is reduced to the assertion that in enforcing a condition which is impliedly a part of the charter, the state, through the regular administration of the law by its courts of justice, has by such courts erroneously construed its own laws. This court in such a case has no jurisdiction to review that determination.

The assumption that the state court has refused to apply to the contract herein set up the general provisions of the law of contracts prevailing in the state, and that therefore the state has taken through her judiciary the property of the plaintiff in error without due process of law,-is wholly without foundation. If it were otherwise, then any alleged error in the decision by a state court, in applying state law to the case in hand, resulting in a judgment against a party, could be reviewed in this court on a claim that on account of such error due process of law had not been given him. This cannot be maintained.

That the bondholders were not made parties is also a question which this court cannot review. As is said in the Needles Case, 113 U.S. 574, 28 L. ed. 1084, 5 Sup. Ct. Rep. 681, the corporation, by the very terms of its existence, is subject to a dissolution at the suit of the state on account of any wilful violation of its charter, and the creditors of the corporation deal with it subject to this power. They must accept the result of the decision of the state court.

Upon a careful review of all the questions, we are of opinion that, within the authorities cited, the claim that any Federal question exists in this record is so clearly without color of foundation that this court is without jurisdiction in this case, and the writ of error is therefore dismissed.