San Diego Land Town Company v. -National City

This appeal brings up for review a decree of the circuit court of the United States for the Southern district of California, dismissing a bill filed in that court by the San Diego Land & Town Company, a Kansas corporation, ag inst the city of National City, a municipal corporation of California, and John G. Routsan and others, trustees of that city and citizens of California. 74 Fed. 79.

The nature of the cause of action set out in the bill is indicated by the following statement:

The constitution of California declares:

That 'no corporation organized outside the limits of the state shall be allowed to transact business within this state on more favorable conditions than are prescribed by law to similar corporations organized under the laws of this state.' Article 12, § 15.

That 'the use of all water now appropriated, or that may hereafter be appropriated, for sale, rental or distribution, is hereby declared to be a public use, and subject to the regulation and control of the state, in the manner to be prescribed by law; provided, that the rates or compensation to be collected by any person, company or corporation in this state for the use of water supplied to any city and county, or city or town, or the inhabitants thereof, shall be fixed, annually, by the board of supervisors, or city and county, or city or town council, or other governing body of such city and county, or city or town, by ordinance or otherwise, in the manner that other ordinances or legislative acts or resolutions are passed by such body, and shall continue in force for one year, and no longer. Such ordinances or resolutions shall be passed in the month of February of each year, and take effect on the first day of July thereafter. Any board or body failing to pass the necessary ordinances or resolutions fixing water rates, where necessary, within such time, shall be subject to peremptory process to compel such action at the suit of any party interested, and shall be liable to such further processes and penalties as the legislature may prescribe. Any person, company or corporation collecting water rates in any city and county, or city or town in this state, otherwise than as so established, shall forfeit the franchises and water works of such person, company or corporation to the city and county, or city or town where the same are collected, for the public use.' Article 14, § 1. And

That 'the right to collect rates or compensation for the use of water supplied to any county, city and county, or town, or the inhabitants thereof, is a franchise, and cannot be exercised except by authority and in the manner prescribed by law.' Article 14, § 2.

By an act of the legislature of California passed March 7, 1881, it was provided:

'Section 1. The board of supervisors, town council, board of aldermen, or other legislative body of any city and county, city or town, are hereby authorized and empowered, and it is made their official duty, to annually fix the rates that shall be charged and collected by any person, company, association or corporation, for water furnished to any such city and county, or city or town, or the inhabitants thereof. Such rates shall be fixed at a regular or special session of such board or other legislative body, held during the month of February of each year, and shall take effect on the first day of July thereafter, and shall continue in force and effect for the term of one year and no longer.

'Sec. 2. The board of supervisors, town council, board of trustees or other legislative body of any county, city or town, are hereby authorized, and it is made their duty, at least thirty days prior to the 15th day of January of each year, to require, by ordinance or otherwise, any corporation, company or persons supplying water to such county, city or town, or to the inhabitants thereof, to furnish to such board or other governing body in the month of January of each year, a detailed statement, verified by the oath of the president and secretary of such corporation or company or of such person, as the case may be, showing the name of each water rate payer, his or her place of residence, and the amount paid for water by each of such water payers during the year preceding the date of such statement, nd also showing all revenue derived from all sources, and an itemized statement of expenditures made for supplying water during said time.' St. Cal. 1881, p. 54.

By an ordinance of the board of trustees of the defendant city approved February 21, 1895, certain rates of compensation to be collected by persons, companies, or corporations for the use of water supplied to that city or its inhabitants, or to corporations, companies, or persons doing business or using water therein, were fixed for the year beginning July 1, 1895.

For the purposes of that ordinance, the uses of water were divided into four classes, namely, domestic purposes, public purposes, mechanical and manufacturing purposes, and purposes of irrigation; the rates for each class were prescribed; and it was provided that no person, company, or corporation should charge, collect, or receive water rates in the city, except as thus established.

The bill in this case questioned the validity of the above ordinance upon the following grounds:

That no notice of the fixing of the water rates was given, nor opportunity presented for a hearing upon the matter of rates; that no provision in the constitution or laws of California, under and by virtue of which the board of trustees assumed to act, required or authorized such notice; that water rates were fixed by the board arbitrarily, without notice or evidence, and were unreasonable and unjust, in that under them the plaintiff could not realize therefrom, and from all other sources within and outside of the limits of the defendant city, a sufficient sum to pay its ordinary and necessary operating expenses, or any dividends whatever to stockholders, or any interest or profit on its investment; that so long as the ordinance remained in force the plaintiff would be required by the laws of California to supply water to all consumers within the city at the rates so fixed, which could only be done at a loss to the plaintiff; and that to compel the plaintiff to furnish water at those rates would be a practical confiscation and a taking of its property without due process of law.

The bill also alleged that the defendant city was composed in large part of a territory of farming lands devoted to the raising of fruits and other products, only a small part thereof being occupied by residences or business houses;

That, prior to the adoption of the ordinance above set forth, the plaintiff, in order to meet in part the large outlay it had been compelled to make in and about its water system, had established a rate of $100 per acre for a perpetual water right for the purposes of irrigation, and required the purchase and payment for such water right before extending its distributing system to lands not yet supplied with water or furnishing such lands with water, which rate was made uniform and applicable alike to all lands to be furnished with water within and outside of the city, and such payment for a water right had ever since been charged as a condition upon which alone water would be supplied to consumers for the purposes of irrigation, and many consumers prior to the adoption of the ordinance had purchased such water right and paid therefor;

That the rate charged for such water right was reasonable and just, and was necessary to enable the plaintiff to keep up and extend its water system, so as to supply water to consumers requiring and needing the same, and without which it could not operate and extend its plant, so as to render it available and beneficial to all water consumers that could with the necessary expenditure be supplied from the system;

That the lands covered by plaintiff's system were arid and of but little value without water, and a water right, such as it granted to consumers, increased the land in value more than three times the amount charge for such right, and was of great value to the land-owner;

That the above ordinance fixed the total charge that might be made by the plaintiff for water furnished for purposes of rrigation at four dollars per acre per annum, and as construed by the city and consumers deprived the plaintiff of all right to make any charge for water rights, and the rate was fixed without taking into account or allowing in any way for such water right;

That the amount of four dollars per acre per annum was unreasonably low, and required the plaintiff to furnish water to consumers within the limits of the city for purposes of irrigation for less than it furnished the same to consumers outside of the city for the same purpose, and so low that it could not furnish the same without positive loss to itself;

That large numbers of persons residing within the city owning land therein, and desiring to irrigate the same, were demanding that their lands be connected with the plaintiff's system, and supplied with water at the rate of four dollars per acre per annum, and without any payment for a water right, and, under the laws of the state of California, if water was once furnished to such parties, they thereby obtained a perpetual right to the use of water on their lands without payment for such water rights; and

That, until the questions as to the validity of the ordinance and of the right of the plaintiff to charge for a water right as a condition upon which it would furnish water for purposes of irrigation were determined, the plaintiff could not safely charge for such water rights, or collect fair and reasonable rates for water furnished, by reason of which it would be damaged in the sum of $20,000

The relief asked was a decree adjudging that the rates fixed by the defendant city were void; that the constitution and laws of California, and the proceedings of the defendant's board of trustees under them, were in violation of the constitution of the United States, and particucularly of the first section of the fourteenth amendment; and that the taking of the plaintiff's water, without payment for the water right or the right to the use thereof, was in violation of the bill of rights of the constitution of California.

The plaintiff also prayed that, if the court determined that the state constitution and laws relating to compensation for the use of water for public purposes were valid, then that it be declared by decree that the rates fixed in the ordinance were arbitrary, unreasonable, unjust, and void; that the board o trustees be ordered and required to adopt a new and reasonable rate of charges; and that the enforcement of the present ordinance be enjoined.

The plaintiff asked that it be further decreed that it was entitled to charge and collect for water rights at reasonable rates, as a condition upon which it would furnish water for the purposes of irrigation, notwithstanding the rates fixed by the trustees for water sold and furnished.

It was denied that the rates fixed by the ordinance in question were unreasonable or unjust, or that the plaintiff could not realize within the city sufficient to pay the just proportion that the city and its inhabitants ought to contribute to the expenses of the plaintiff's system, and as much more as the city and its inhabitants should justly and reasonably pay towards interest and profit on plaintiff's investment, as the same existed when the ordinance was enacted. It was alleged that under the annual rates fixed by the ordinance the income of the plaintiff in the city would be about the same as that derived and being derived by it under the ordinance previously in force; that it was not true that plaintiff could only supply consumers within the city at the rates so fixed at a loss; and that to compel the plaintiff to furnish water at said rates was not a practical confiscation of its property or a taking of it without due process of law.

The defendants admitted that the city was composed in considerable part of a territory of farming lands devoted to the raising of fruits and other products, and that a part thereof was occupied by residences and business houses. But it was averred that the population of the city when the ordinance was adopted was about 1,300 persons; that the area within its boundaries laid out in town lots was about 800 acres, divided into 6,644 lots, of which the plaintiff in January, 1887, owned 4,200; that the land within the boundaries of the city not laid off into town lots comprised about 3,500 acres, of which the plaintiff in January, 1888, owned 1,289 3/4 acres; that when the ordinance was passed plaintiff continued to own about 3,688 of said lots, and about 1,184 acres of land; and that the number of acres of farming land not under irrigation in the city at the time when the ordinance was passed was about 610.

It was further stated that since the plaintiff established the rate of $100 per acre for such 'perpetual right for the purpose of irrigation' it had in no instance supplied water to any land not already under irrigation, excecept on purchase of said water right and payment therefor; and that the rate charged for said water right was not reasonable or just, nor necessary to enable plaintiff to keep up and extend its water system, so as to supply water to consumers who required and needed the same.

The defendants insisted that the laws of California did not confer upon the city or its board of trustees the power to prescribe by ordinance or otherwise that the purchase and payment of such water rights should be a condition to the exercise of the right of consumers to use any water appropriated for irrigation as already stated, or any water supply affected with the public use; that fou dollars per acre per annum was not unreasonably low; and that such rate did not require the plaintiff to furnish water to consumers within the city for purposes of irrigation for less than it furnished the same to consumers outside of the city for the same purposes, or that it could not furnish the same without positive loss to itself.

It was further averred that up to December, 1892, plaintiff by its public representations and continuous practice voluntarily conferred and annexed such perpetual rights to the use of the water on the lands of all persons who requested the same without the payment of any consideration therefor, except the annual rate of $3.50 per acre adopted by it under its entire system within and without the city, in addition to charges made for tap connections with its pipe, ranging from $12 to $50 for each such connection; that in December, 1892, it changed it rule and practice, and from that time on until February, 1895, charged and exacted the payment as and for a so-called 'water right' of $50 per acre, and from the latter date $100 per acre, for the privilege of connecting with its system any lands not then already under irrigation from it; and that since December, 1892, it had at all times declined and refused to connect, and had not in fact connected, any lands with its irrigating system, except upon payment made to it of such rates of $50 and $100 per acre, respectively, for the 'water right'; and that whether plaintiff could or could not safely charge for such water rights had been in no way by law committed to said board of trustees to determine.

The cause having been heard upon the pleadings and proofs, the bill was dismissed. 74 Fed. 79.

G. Wiley Wells, John D. Works, B. W. Lee, and L. R. Works, for appellant.

Irvine Dungan and Daniel M. Hammack, for appellees.

Mr. Justice HARLAN, after stating the case as above, delivered the opinion of the court.