Court Opinion

ID: 5448840
Source: CourtListenerOpinion
Date Created: 2022-01-08 18:15:48.210646+00
Date Added: 2024-06-11T08:32:18.284053
License: Public Domain

GÁBOITTTE, J.,
concurring. The findings of fact made by the trial court which are deemed necessary to a consideration of tbe questions presented before us are as follows: 1. On tbe twenty-fourth day of February, 1890, and at tbe time the ordinance mentioned in plaintiff’s complaint was enacted by the common council of said city, tbe water plant and system of the plaintiff was of the value of $750,000; 8. The necessary operating expenses of plaintiff in conducting its property from July, 1890, to July, 1891, and the sum actually expended, was $40,-000; 3. Plaintiff was and is indebted upon its outstanding bonds regularly issued in .the sum of $1,000,000, bearing interest at five per cent per annum, of which sum $750,000 was necessarily expended iu the construction of the plant, and the interest upon which is $50,000 per annum; 4. The total receipts received under said ordinance from July 1, 1890, to July 1, 1891, amounted to $65,788,95, and no more; 5. The annual depreciation of plaintiff’s plant is three and one-third per cent per annum; 6. The rates as fixed by tbe ordinance for the year commencing July 1, 1890, were not just or reasonable, and were grossly oppressive, unjust, and unreasonable.
Owing to the fact that the case was not brought to trial in the lower court until the year had expired covered by the ordinance, *578it will be observed that tlie court was enabled to find tbe actual receipts to tbe plaintiff from rate payers during tbat period. In the discussion of the questions presented by this appeal, we shall assume tbat tbe findings of the court, to tbe effect tbat the water plant of tbe plaintiff corporation was of tbe value of $750,-000, and tbat its operating expenses for tbe year would be and were $40,000, have support in tbe evidence and stand as facts on tbe record.
In tbe fixing of water rates by a city, as contemplated by tbe constitution, it is evident tbat tbe valuation of tbe plant is tbe basic element upon which tbe whole investigation rests. Tbe original cost of construction is simply an item to be considered in fixing the present valuation. It is a circumstance, strong or weak, entering into the final conclusion of tbe municipality upon tbe question. But as to tbe amount of tbe bonded indebtedness, or the amount of interest annually accruing thereon, we fail to see their materiality in determining tbe value of the plant, or tbe sum total of revenue to be raised from tbe sales of water. It is not a question in which rate payers are concerned, whether tbe water company has no outstanding indebtedness, or is floundering under a bonded debt which threatens to sink it at any moment. If tbe municipality is required to establish a scale of rates which will produce a revenue sufficient to pay interest upon outstanding bonds, this provision of tbe constitution would not only be a perpetual guaranty to the bondholders for tbe payment of their annual interest, but a constant incentive to additional issues of bonds. Such conditions were never contemplated by anybody. It is tbe duty of tbe municipality, when it has arrived at a determination as to tbe valuation of tbe plant, to determine tbe necessary outlay for tbe ensuing year; then to determine what would be a reasonable, just, and fair compensation to the company, based upon tbe valuation of tbe plant, and thereupon to fix a schedule of rates which will produce that sum of money. If there be outstanding bonds, tbe company may apply its income to the payment of interest thereon. If there be no outstanding bonds, this income may pass to tbe pockets of the stockholders in tbe shape of dividends declared. A municipality must fix a fair and just rate for tbe water, based upon tbe valuation of the plant, and when it has done this, its duty has been performed, and the revenue collected *579under such rates is the property of the company, to do with as it seems best.
Under and pursuant to constitutional authority (Const., art. XIY, sees. 1, 2), the legislature (Stats. 1881, p. 54) passed an act, by the terms of which it was made the duty of the board of supervisors, town council, board of aldermen, or other legislative body, of any city and county, city, or town, in the month of February of each year, to fix the rates -which shall be charged and collected by any person, association, company, or corporation for water furnished to any such city .and county, or city or town, or the inhabitants thereof. It is now contended by appellant that the authority to fix water rates, coming directly from the constitution to the municipality, the rates fixed under such authority have the same binding force and effect, and occupy the. same position as to the law and the courts, and should receive the same consideration as though fixed directly by the legislature, in the absence of the aforesaid constitutional provisions. Let it be conceded, still the claim is unsound that this action of the municipality is conclusive; it is neither above nor beyond the law, and a court of equity will reach out and review it whenever the facts so demand. The legislature itself has no right or power to legislate a man’s property away from him, and, beyond doubt, courts are vested with jurisdiction to declare all such attempts void, and will exercise that jurisdiction whenever the occasion presents itself.
The legislature of the state of Minnesota enacted that the rates for freights and fares fixed by the railroad commission of that state should be conclusively presumed to be reasonable. In Chicago etc. Ry. Co. v. Minnesota, 134 U. S. 418, this enactment was declared void, as depriving a person of his property without due process of law, the court saying: “If the company is deprived of the power of charging reasonable rates for the use of its property, and such deprivation takes place in the absence of an investigation by judicial machinery, it is deprived of the lawful úse of its. property, and thus in substance and effect of the property itself, without due process of law, and in violation of the constitution of the United States; and, in so far as it is thus deprived, while other persons are permitted to receive reasonable profits upon their invested capital, the company is deprived of the equal protection of the law.” Again, it is *580said in Stone v. Farmers’ Loan etc. Co., 116 U. S. 307: “From wliat has thus bean said it is not to be inferred that this power or limitation ox regulation is itself without limit. This power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation. Under pretense of regulating freights and fares, the state cannot require a railroad corporation to carry persons or property without reward; neither can it do that which in law amounts to a taking of private property fox public use, without just compensation or without due process of law.” The same doctrine is also declared in Georgia etc. Banking Co. v. Smith, 128 U. S. 174; Budd v. New York, 143 U. S. 517; Reagan v. Farmers’ Loan etc. Co., 154 U. S. 362; St. Louis etc. Ry. Co. v. Gill, 156 U. S. 649. As far as we are given light to see, from the consideration of the doctrine enunciated by the many cases coming from the highest court of the land, it would appear to be immaterial whether this power to fix a schedule of rates is vested in the legislature, or delegated by the legislature to some inferior board or tribunal, or given to such board or tribunal by direct grant from the constitution. "Whether it be done by the express act of the legislature, or by council or commission, under authority from a higher power, or whether the act of such council or commission in fixing rates be judicial or legislative, are matters outside the question. If we understand the doctrine declared by the highest judicial tribunal, it is that the courts have no power to declare rates fixed by the body legally authorized so to do unreasonable, unless those rates are so unreasonable and oppressive as to deprive a party of the equal protection of the law, and result in a practical confiscation of his property. And when any attempt is made to despoil the owner of his property, it is the highest duty of a court of equity under the constitution to afford him shelter and protection.
In Spring Valley Water Works v. San Francisco, 82 Cal. 306, 16 Am. St. Rep. 116, an exact duplicate of the present question was before this court, and it is there said: “But the courts cannot, after the board has fully and fairly investigated and acted by fixing what it believes to be reasonable rates, step in and say its action shall be set aside and nullified because the courts, upon a similar investigation, have come to a different conclusion as to the reasonableness of the rates fixed. There must be ac*581tual iraud in fixing tbe rates, or they must be so palpably and grossly unreasonable and unjust as to amount to tbe same thing.” Aside from any question of actual fraud, rates that are so unreasonable and unjust as to deprive tbe owner of any revenue whatever from bis property would amount in law to fraud upon bis rights under tbe constitution. In disposing -of appellant’s contention that tbe schedule of rates fixed by tbe city council is conclusive upon tbe court, we have also disposed of respondent’s contention that tbe law giving to the city tbe right to fix water rates is violative of tbe constitution of tbe United States, as depriving a man of bis property without a bearing before a judicial tribunal. Both positions are equally erroneous.
This court is not here to declare what are reasonable rates. Tbe constitution has vested that power and duty in tbe council of tbe city of San Diego, and tbe exercise of that power by tbe council cannot be questioned by tbe courts unless constitutional rights are violated. Tbe question is not, What rate would this court fix if tbe duty were cast upon it of fixing rates? but rather, Will the owners of tbe plant be deprived of constitutional rights by an enforcement of tbe order of tbe council fixing rates? If the rate fixed by a municipal council was twice too large, I know ■ not what jurisdiction of this court could be invoked to right tbe wrong. Hence, it is apparent that it is only in exceptional eases that an order fixing rates may be set aside by judicial decree.
Talcing tbe findings of fact as tbey stand, tbe schedule of rates fixed by the city should not be disturbed. Tbe valuation of tbe plant is $750,000; tbe operating and current expenses are $40,-000. The revenue from tbe sale of water under tbe schedule of rates would be and actually was $65,000. This leaves a profit of $25,000 upon tbe investment. To be sure it is small, when we consider tbe amount of money invested. To be sure, it is not enough, and possibly not one-half tbe sum that could be earned if that amount of money was invested in other business undertakings, but with these things we have nothing to do. Those are matters passed upon by tbe city in tbe exercise of a discretion granted by tbe constitution, and its decision as to tbe reasonableness of tbe amount of revenue to be derived by the company from tbe rates is conclusive upon tbe courts. While this sum is not enough upon this character of investment, still it is three and one-lialf per cent, and such return is a substantial *582profit. We mean it is so substantial that a court of equity, in view of the law of the land, cannot say that the rates are so unreasonable as to be confiscatory in character, and thus viola-tive of any principle of constitutional law.
Mr. Justice Brewer of the supreme court of the United States has probably given this question more thought and investigation than any other jurist in this country, and he says in Chicago etc. Ry. Co. v. Dey, 35 Fed. Rep. 866: “Counsel for complainant urge that the lowest rates the legislature may establish must be such as wall secure to the owners of the railroad property a profit on their investment at leasRequal to the lowest current rate of interest, say three per cent. Decisions of the supreme court seem to forbid such a limit to the power of the legislature in respect to that which they apparently recognize as a right of the owners of the railroad property to- some reward; and the right of judicial interference exists only when the schedule of rates established will fail to secure to the owners of the property some compensation or income from their investment. As to the amount of such compensation, if some compensation or reward is in fact secured, the legislature is the sole judge." Subsequently, the same question was again presented to him in Reagan v. Farmers’ Loan etc. Co., supra, and also in Ames v. Union Pac. Ry. Co., 64 Fed. Rep. 165, and in those cases neither he nor any other of the justices of the supreme court retreated or advanced from that position.
This balance of $25,000 is profit, unless it is swallowed up by the finding of the court that plaintiff’s plant suffered an annual depreciation of three and one-half per cent, and the conclusion of law therefrom that a percentage upon the investment to that amount should be added to the operating expenses before the point is reached where profit begins. We are satisfied that this finding 'has no support in the evidence, even conceding the conclusion of law drawn therefrom sound. In the first place, the evidence develops that there can be no general depreciation of this plant as a whole. There are | tunnels, wells, reservoirs, water rights and real estate, amounting to more than one-half of the valuation of the plant. There is no depreciation of these things; there is no wear and tear, no permanent and gradual destruction by use and age. Most of them stand as everlasting as the hills.
*583The theory of plaintiff in this regard seems to be that the life of a plant of this character may be approximated at thirty years, and that a sinking fund of one-thirtieth of its rabie should be collected from the rate payers annually and laid aside to be handed to the stockholders upon the sad occasion of its demise, as an alleviating salve to their sorrow. But such a thing is all wrong, for it results in the consumers of water buying the plant and paying for it in annual installments. Consumers of watei; cannot be charged with cost of construction. They are only to pay a fair interest upon such cost; and as we look at this matter, if this three and one-half per cent is not stowed away in the vaults as a sinking fund to make glad the hearts of the stockholders upon the expiration of the thirty years, which theory cannot be tolerated for a moment, then it must go into the plant as cost of construction, and, therefore, not chargeable against the consumers. The result of such expenditure is only to increase the valuation of the plant, and to thereby draw from the consumers an income upon the amount of the investment. If improvements are made in the plant, the cost of these improvements should be charged against the construction account. If repairs are made upon the plant as it stands, as, for example, a new pipe substituted for an old piece of the same size and quality, such charge should be considered operating expenses.
Upon an examination of the record we find these views fully corroborated in the evidence of the water company, given by one of its most important witnesses. He testified: “Where we took up one pipe line or a portion of it on the street, and put down another, if it was the same size pipe, to renew it we would charge it to expenses. If it was a different size we would charge the difference between them, the increased size, to construction. Where we sell pipe that we take up, we credit that to construction. If we have to renew any portion of the same size pipe, we charge it to expenses.”
This question has arisen incidentally in Union Pac. R. R. Co. v. United States, 99 U. S. 402, and also in Reagan v. Farmers’ Loan etc. Co., supra, but neither case looks the other way from the views we have expressed. When the question arises between the corporation upon the one side and its bondholders or stock-, holders upon the other, or when it arises upon a construction of a contract with the government, as in one of the eases just cited, *584operating expenses, cost of construction, and net earnings may stand upon a different footing. Those cases are not this ease. This is neither a question of bookkeeping nor net earnings. The particular system pursued by corporations in segregating and applying their gross receipts is likewise immaterial. The whole matter is a pure question of what is just and right between all parties interested. The consumers of water have rights, and possess equities which must be considered equally with those of the company. They are to be taxed to pay the amount called for by the schedule of rates, and these rates, in justice to them, should be fixed at the smallest possible amount, taking into consideration what is just and equitable to the owners of the property. In cases of the present character under the head of operating expenses the company is entitled to charge for keeping the plant in its normal condition; and the sinking of new wells, the building of new reservoirs, the erection of additional buildings, and the substitution of larger and better pipe (to the extent of the difference), do not come under the head of operating expenses, but should be charged to construction account. If this were not so, a water plant inferior in all things in a few years could be transformed into a water plant superior in everything, at the expense of the consumer. This would be an advantage to the owner and a burden to the rate payer neither contemplated nor justified by the law.
For the foregoing reasons I think the judgment and order should be reversed and the cause remanded.