Source: https://supreme.justia.com/cases/federal/us/218/180/
Timestamp: 2019-04-19 10:47:58+00:00

Document:
Justia › US Law › US Case Law › US Supreme Court › Volume 218 › Omaha v. Omaha Water Co.
In the absence of any provision in the submission, the award of arbitrators or appraisers must be unanimous in matters of private concern, but a majority can act when the matter submitted is one which concerns the public.
The fact that public affairs are controlled by majorities is probably the basis of the above rule, although the reason for the distinction therein contained is not altogether clear.
The purchase by a municipality, under authority and direction of the legislature of the state, of a water supply system, and the determination of the price to be paid for an existing plant are matters of public concern.
There is a distinction between an arbitration and an appraisal of value, and although arbitrators may not independently take testimony as to disputed facts, appraisers may, as in this case, properly examine books and papers relating to the property, in the absence of counsel, without being guilty of misconduct; and, in the absence of bad faith, such examination will not vitiate the award.
The legislature of a state may authorize a municipality to purchase a water system which extends beyond the city limits and to supply water to adjacent sections, and so held that the City of Omaha has such right, and that an appraisal of a water system is not bad, and hence not binding on the city, because it includes the entire system, parts of which are beyond the city limits.
There is a presumption against an intent to dismember a complete waterworks system, and an ordinance to purchase such a system will not be construed as requiring such dismemberment, even if the city had no power to use certain portions of the system.
Cost of duplication, less depreciation, of a water system, is less than the commercial value of the system as a going concern, and, even though the value of the unexpired franchise be expressly excluded from the appraisal, where the parties contemplate the purchase of a complete water system in operation, a reasonable amount should be included in the appraisal for the "going value" over the value of the physical properties.
A transaction of great magnitude such as the purchase by a city of a water supply system will not be defeated because of minor obstacles, and if the deed tendered includes a few properties to which title is not perfect or if there are incumbrances on the properties, the court can bring the proper parties in and the deed can be modified and interests protected so as to carry out, and not defeat, the transaction.
"The City of Omaha shall have the right at any time after the expiration of twenty years to purchase the said waterworks at an appraised valuation, which shall be ascertained by the estimate of three engineers, one to be selected by the city council, one by the waterworks company, and these two to select the third: Provided, That nothing shall be paid for the unexpired franchise of said company."
In 1903, the city elected to exercise this option, and a board of appraisers was appointed, one by each of the parties and a third by the two so selected. This board of appraisers organized and proceeded to take evidence, and, after considering the matter for about three years, made an appraisement, fixing the value of the system at $6,263,295.49. The appraiser appointed by the city did not concur. The city rejected the award. Whereupon the company filed this bill, which, upon final hearing, was dismissed upon the sole ground of misconduct of the appraisers, other objections not being passed upon. Upon appeal, this decree was reversed and the cause remanded for a decree in pursuance of the opinion of the appellate court. 162 F. 232.
The case is here upon a writ of certiorari allowed at a former term.
Three major objections have been urged against the appraisement. First, that it was not concurred in by all, second, that the appraisers heard certain evidence without notice or giving the city an opportunity to hear or rebut, and, third, that the property valued includes a distributing system beyond the corporate limits of Omaha, by which certain suburban villages are supplied, and that to that extent the city made no contract to buy, and, if it did, had no power to do so.
submission. Why this distinction should exist is not altogether clear. In both instances, the persons to whom the submission is made are acting under a power, and must stay within it. The reason probably lies in the fact that public affairs are controlled by majorities, and, by analogy, a majority should control when the submission is a matter which concerns the public. But, whatever the reason, so are the authorities. Colombia v. Cauca Co., 190 U. S. 524; People ex Rel. Washington v. Nichols, 52 N.Y. 478; Wheeling Gas Co. v. Wheeling, 8 W.Va. 320; Griffindley v. Barker, 1 Bos. & Pul. 229.
The construction and acquisition of a system of water supply and distribution was a public municipal function. The Nebraska Legislature, in 1903, went so far as to require municipal ownership of a water supply system in the City of Omaha, and that this should be accomplished either by construction or by the purchase of the existing system. The city, in compliance with and in the exercise of the power conferred when the existing plant was constructed, elected to purchase the existing system under the ordinance of 1880 and the power therein reserved. That in such circumstances the determination of the price to be paid by a submission was a matter of public concern is too clear for argument. The cases cited above cover the point. The appraisal was not, therefore, defeated because not concurred in by all.
The distinction suggested by counsel, that the authority for the submission must come from the public, if there be anything of substance in it, does not prevent the operation of the rule here, for the purchase upon a valuation settled by appraisers was in the ordinance of the city, in pursuance of legislative authority, and, in a very true sense, was an authority to submit to appraisers which came from the public.
to reply, and that this was such misconduct as to vitiate the valuation. As already hinted, this was not a board of arbitrators. An arbitration implies a difference, a dispute, and involves ordinarily a hearing and all thereby implied. The right to notice of hearings, to produce evidence and cross-examine that produced, is implied when the matter to be decided is one of dispute and difference. But when, as here, the parties had agreed that one should sell and the other buy a specific thing, and the price should be a valuation fixed by persons agreed upon, it cannot be said that there was any dispute or difference. Such an arrangement precludes or prevents difference, and is not intended to settle any which has arisen. This seems to be the distinction between an arbitration and an appraisement, though the first term is often used when the other is more appropriate.
Counsel have cited and pressed upon us the case of Continental Ins. Co. v. Garrett, 125 F. 589, as a case where an appraisement of a fire loss was set aside because evidence was heard in the absence of the parties. But that was a case where the full amount of the insurance was claimed as the extent of the loss. This was denied. It was therefore a plain case of the submission of a dispute or difference which had to be adjusted. The rule applicable to a judicial proceeding therefore applied. It was in fact an arbitration, though the arbitrators were called appraisers. The dispute concerned the thing which had been destroyed, the value of something which was not to be inspected and valued from observation, because it was not in existence. Evidence was therefore essential to show what had been destroyed as well as its value. The case is wholly unlike the one here presented.
and thereupon they agree that the matter shall be referred to his arbitration, that would appear to be an 'arbitration,' in the proper sense of the term, and within the meaning of the act; but if they agree to a price to be fixed by another, that does not appear to me to be an arbitration."
of the property, and that said testimony should not be conclusive upon this board, but simply for its advice and information in the matter. It is not the opinion of the City of Omaha that it would be proper or necessary to call expert witnesses as to the value, since the members of the board have been selected as experts [to] whose judgment the question of value must be submitted upon the examination of the property."
Counsel for the water company appear to have fully concurred in this view of the function of the board.
counsel that much time would be necessary to reach a conclusion; that the real work of valuation had been but begun, and that "much more information must be sought by this board."
There is not the slightest evidence in the record of partiality, bad motive, or misconduct affecting the action of the board. Its members appear to have been gentlemen of high character, professionally and otherwise, and if their conclusion is to be set aside, it must be because they deemed it within their power to have a confidential examination made of the books of the company to assist them in arriving at a valuation.
If this was a technical arbitration of a matter of dispute or difference between the parties, to be heard and decided upon evidence submitted, the examination of the company's books without the consent of the city or the presence of its representatives would be such misconduct as would vitiate the award. In such a matter, the rules relating to judicial inquiry would apply. Continental Ins. Co. v. Garrett,125 F. 589, and cases cited. But in an appraisement, such as that here involved, the strict rules relating to arbitration and awards do not apply, and the appraisers were not rigidly required to confine themselves either to matters within their own knowledge, or those submitted to them formally in the presence of the parties, but might reject, if they saw fit, evidence so submitted, and inform themselves from any other source, as experts who were at last to act upon their own judgment. Kelly v. Crawford, 5 Wall. 785, 72 U. S. 790; Railway Co. v. Moore, 64 Pa. 79, 91; Palmer v. Clark, 106 Mass. 373, 389; M. E. Church v. Seitz, 74 Cal. 287; Curry v. Lackey, 35 Mo. 394.
In the absence of any evidence of actual bad faith, we do not hesitate about agreeing with the circuit court of appeals in the conclusion that there was no such misconduct as to vitiate the valuation.
3. The next contention is that the valuation includes property not within the submission, and which the city did not have power to buy. The point from which the water wax taken by the existing water plant was beyond the corporate limits of Omaha. In the immediate suburbs of the city, there are several villages outside the corporate limits. The distributing system of the Omaha Water Company has, from time to time, been extended to these outlying suburban towns. It is now said that the appraisers have valued these outlying distributing systems as a part of the plant to be acquired by the city under the ordinance electing to purchase.
As to the power of the city: the charter, § 61, Laws of Nebraska, 1887, c. 10, provided for the construction and maintenance of waterworks "either within or without the corporate limits of the city." This is said to only allow the location of pumping works or source of supply outside the city. The city does not, therefore, object to valuing the supply station and mains extending to the city as within the contemplated purchase. But it is said that the authority is limited to a distributing system wholly within the corporate limits. That the primary purpose was to supply the people of Omaha with water for public and private purposes is clear. But does that forbid that those who live outside may not be also supplied from the main plant, and, if necessary, by such extensions, not inconsistent with the primary object, as may prove desirable as suburbs grow up around the city?
machinery, pipes, mains, hydrants, basins, reservoirs, and all appurtenances reasonably necessary thereto, and a part of or connected with said system, plant, or property, and franchises to own and operate the same, if any."
This was again supplemented by the act of 1903, chapter 12, providing a method of procedure for acquiring municipal water plants and the creation of a water board for their control and management, being the act under which the city was required to take steps to acquire its own water plant system. Again, by the act of 1907, chapter 12a, it is among other things, provided by § 242, that the water board may contract with any municipality adjacent to said city to supply such municipality with water for domestic, mechanical, public, or fire purposes -- a provision plainly contemplating just such a condition as would ensue if the city should acquire the existing system of works with a distributing system extending to villages adjacent. The review of the legislation touching the power of the city, and the conclusion of the circuit court of appeals from that legislation, that the city had the power to acquire the system as it existed, and has the power to operate so much of it as is intended to supply the suburban towns adjacent which may be acquired, is full and satisfactory, and meets our approval.
of supply and common main connections therewith. Its dismemberment is not to be thought of unless it is clear that the ordinance exercising the option is so plainly limited to the purchase of only so much of the distributing system as lay wholly within the corporate limits as to admit of no other meaning. A presumption against dismemberment is not overthrown even if the city had no power to sell water to people or municipalities beyond its limits. If these outside distributing pipes could not be lawfully used by the city for the purpose for which the water company had used them, it does not follow that a contract to buy would be thereby any the less a contract to buy the plant as a unitary system. Aside from contract obligation which may pass with the plant, the city might cut off the supply of water to such outlying environs, if it saw fit, whether it could or could not legally supply water through the distributing pipes which had theretofore reached them. Certain it is that as the several towns adjacent had no source of supply, no pumping station of their own, disintegration would leave the water company with no means of supplying them with water. The distributing pipes under ground would, separated from the ownership of the pumping station, reservoir, filling or settling basins, necessarily lose much of the value which attached to them as a part of a going plant.
by continuous streets and car lines, they made one large community, and constituted greater Omaha. The water company, as was obviously expected from the beginning, expanded with Omaha, and met the public necessities by including these outside populations within its distributing system.
The appraisers, in making their estimate of valuation, included $562,712.45 for the "going value." This separation of an element contributing to the value of each tangible part was done because required to be done under an order made in the circuit court in a suit in which the water board of the City of Omaha was complainant and the members of the board of appraisers and the water company were defendants. The object of that suit was to instruct the appraisers in respect to the mode and manner in which they should proceed. An order resulted which required the board to report the separate elements making up the aggregate value of the plant.
commercial value of the business as a going concern, is evident. Such an allowance was upheld in National Waterworks Co. v. Kansas City, 62 F. 853, where the opinion was by Mr. Justice Brewer. We can add nothing to the reasoning of the learned Justice, and shall not try to. That case has been approved and followed in Gloucester Water Supply Co. v. Gloucester, 179 Mass. 365, and Norwich Gas & Electric Co. v. Norwich, 76 Conn. 565. No such question was considered in either Knoxville v. Knoxville Water Co., 212 U. S. 1, or in Willcox v. Consolidated Gas Co. supra. Both cases were rate cases, and did not concern the ascertainment of value under contracts of sale.
appraised separately, and it can be excluded from the sale, and the trial court can determine whether the title to other properties is defective. It is not necessary that the title of the company to all the lands upon which its works are built or through which its pipes are laid should be a fee simple, perfect in every particular and subject to no criticism. An irrevocable license, for instance, would be sufficient, or a title based upon prescription. If, however, there should be found substantial defects, opportunity should be given the company to remedy them, and if it is unable to do so, the parts of the property so circumstanced can be valued and the purchase price abated accordingly. It would be expressing too narrow a view to say that an appraisal of a great system of waterworks under a contract of purchase must fail because the title to a small part, not vital to the integrity of the system, was afterwards found to be defective. That the deed tendered by the company was not such as the city was required to take is immaterial. It is sufficient that the company was able, ready, and willing to do what might lawfully fully be required of it. At some time during the progress of the cause in the trial court, the trustees of the mortgages should be made parties, to the end that the precise amount of outstanding bonds may be ascertained and paid, and the liens discharged concurrently with payment by the city of the purchase price. Doubtless the company will have to use the proceeds of sale in paying its mortgage indebtedness. Or, if an arrangement is desired, such as was made in the Kansas City case, whereby the mortgages are assumed by the city, and the company released from liability, the presence in the case of the trustees would facilitate it."
"The decree is reversed and the cause is remanded with direction to proceed to decree in accordance with the views expressed in this opinion."
more than to hold that we find no error in the decree of the circuit court of appeals, and to remand the case to the circuit court, to be proceeded with accordingly.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 61
 § 242
 v. 
 v. 
 v. 
 v. 
 v.