Court Opinion

ID: 9307273
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:18:05.371821+00
Date Added: 2024-06-11T17:13:58.105554
License: Public Domain

WOOLSOli, District Judge.
The piaintiff above named, a citizen of the state of Iowa, is a corporation organized September 10, 1875, under the general statutes of that state, with a corporate terra of 50 years, providing for the incorporation of “corporations for pecuniary benefit.” The defendant, a citizen of the said state of Iowa, is a municipal corporation incorporated under the general statutes of that state providing for the incorporation of cities. Under the classification established hy said statutes, the defendant is a city of the first class. On March 20, 1876, the defendant city, by its municipal council, duly passed an ordinance whose details need not he set out in full. The second section of such ordinance declared the above-named plaintiff to he “hereby vested with the right of building and operating gasworks in the city of Des Moines, and of using the streets and alleys of said city as now or hereafter to he laid out, for the purpose of laying gas mains and service pipes to provide said city and its inhabitants with illuminating gas,” etc. In section 4 of said ordinance it is provided that, “in consideration of the privileges herein granted to said company, said company agrees to bind *830itself to and with, the said city to furnish said city with all the gas the city may use in its public lamps, buildings, and offices,” etc., for the term of 10 years. The price is fixed to be charged to the city for said gas for the said term of 10 years. Section '6 provides that the “privilege and license hereby granted is upon the condition that said company shall,” on or before December 1, 1876, have their works “in 'condition to supply gas,” etc. This ordinance also fixes the price of gas to the individual consumers. It further provides for the lessening of price of gas, if, by subsequent discoveries in the process, etc., of manufacturing gas, the cost of such manufacture shall be materially reduced, etc. The gas company duly accepted the provisions of said ordinance, and 'proceeded to perfect its. gas* plant, •extend its mains, etc. On January 9, 1885, said city, by its said council, duly passed an ordinance repealing the ordinance above •described, and substituting another in its stead. The latter ordinance, in its general terms, except as to price to be charged for gas, is similar to that which is repealed. Some of its details slightly differ, but, so far as pertains to the matter now on hearing, the ordinances, except as to price of gas, are substantially the same. Price of gas to the city and to the consumer is fixed for 10 years thereafter. Section 7 provides that the privilege and license thereby granted are upon the condition that the company shall at all times, unless temporarily prevented by unavoidable accident, have its works in condition to supply all the gas which may be required by the city, or citizens thereof, etc. The gas company duly accepted the provisions of this ordinance, according to the manner prescribed therein. On February 22, 1892, said city, by the said council, passed another ordinance, by whose terms it was provided that “every person, firm, or corporation furnishing to the inhabitants of Des Moines illuminating gas * * • shall be entitled to charge and receive therefor” prices therein named, which prices were much lower than those named in the ordinance of January, 1885. Litigation followed the attempted enforcement of the ordinance of February, 1892; resulting in a decree of the district court in and for Polk county, Iowa, which declared said 1892 ordinance invalid, and enjoined the said city from enforcing the same. On May 16, 1895, the said city, by its council, passed another ordinance (being the ordinance in controversy herein), which was approved by the mayor, and has been duly published. The scope of such ordinance is well stated in its title:
“To fix the price of illuminating gas, and to prescribe the conditions under which persons and corporations dealing in illuminating- gas can occupy and use the streets and alleys of the city of Des Moines.”
Section 1 provides—
“That every person, firm, or corporation furnishing to the inhabitants of the city of Des Moines illuminating gas shall be entitled to charge and receive therefor the following prices, and no more, viz.: Dor illuminating purposes, $1.40; for fuel purposes, $1.10, — -per thousand cubic feet, with a discount of ten cents per thousand cubic feet, if paid on or before the 15th day of the month following that in which the gas is furnished. The above prices are for illuminating gas being an illuminating power of not less than twenty-four candle power; gas having less candle power shall be furnished at a proportionate less rate per candle power.”
*831Other sections fix the price of gas furnished to the city; provide for tiling reports of all gas furnished, the furnishing and placing of meters, of service pipes, etc. Section 4 provides:
“Any person, firm, or corporation which shall accept the rights and privileges provided for in this ordinance, and which now has its service pipes in the streets and alleys of the city of Des Moines, may, when necessary, continue to lay its gas pipes and service pipes in the streets and alleys of The city: provided, (hat they are so laid that they do not obstruct the water and other pipes and sewers laid on the streets and alleys, and other necessary pipes which may be laid: provided, that nothing contained in this ordinance shall be construed to grant any rights or franchises other than the right to continue to furnish the city and its inhabitants with illuminating gas so long as the city may consent. thereto: and provided, nothing herein shall abridge the right of the ei(y of Des Moines to make such fur! her additional regulations as it may deem to be necessary to fully protect its citizens.”
¡Section 5 provides:
"in the event that any person, firm, or corporation shall refuse to furnish gas at the rate herein prescribed, the city reserves the" right to declare a forfeiture ol' all rights granted and exercised by such person, firm, or corporation, and to compel said person, firm, or corporation to vacate the streets and alloys of said city within a reasonable time after the passage of a resolution directing the same.”
The bill herein filed by plaintiff is to restrain the defendant city from enforcing said ordinance of May, 1895, and the present hearing thereon is on plaintiff’s application for a temporary injunction. A demurrer to the jurisdiction of this court was presented by the city, and, after extended hearing, was overruled. Thereupon a large mass of testimony was introduced in support of and in opposition to the application for preliminary injunction; such testimony including a large part of the evidence introduced on the trial above referred vo, before the district court of Polk county, Iowa, as well as affidavits and testimony here originally presented. Plaintiffs claim is that the ordinance of May, 1895, is invalid because it is in violation of the constitution of the United States, in the following respects: (1) Impairs the obligation of the contract held by said company; (2) takes the private property of said company for public use without just compensation; (3) deprives said company of its property without due process of law; and (4) denies to said company the equal protection of the laws. Counsel upon either side have favored the court with elaborate briefs, and have pressed for decision the questions involved herein with the ability and energy their importance merits. These questions have largely come into public importance in the later years, “The lamps of precedent,” as has been aptly stated,- “afford us but a dim and glimmering light” in our endeavors to ascertain much of the true way in this investigation. But the general legal questions involved present far less of difficulty in their solution than in their application. Counsel do not so much disagree on what the law is, as to what part of it is applicable herein, and the manner of its application.
That the charter of an incorporation is a contract, was placed beyond controversy in the celebrated Dartmouth College Case, 4 Wheat. 518. Whether a charter is given directly, by act of the legislative body, or whether articles of incorporation or association are *832adopted under general statutes theretofore enacted by such legislative body, is not material on this point. In Miller v. State, 15 Wall. 478, when speaking of a railway company which was organized under the general statutes of the state of New York providing for incorporation of railroad companies, the supreme court say:
“Undoubtedly, the powers and privileges of the railroad company in this case are the same as they would have been if the company had been incorporated by a special act; and it may be conceded that the charter, when the articles of association were filed in the office of the secretary of the state, became an executed contract,” etc.
So, in Chicago, B. & Q. R. Co. v. Iowa, 94 U. S. 155, Waite, C. J., says:
“The Burlington & Missouri River Railroad Company, the benefit of whose charter the Chicago, Burlington & Quincy Railroad Company now elaims, was organized under the general corporation law of Iowa, with power to contract, in reference to its business, the same as private individuals, etc. This is, in substance, its charter, "and to that extent it is protected as a contract; for it is now too late to contend that the charter of a corporation is not a contract, within the meaning of the clause of the constitution of the United States which prohibits a state from passing any law impairing the obligation of a contract.”
Included in the present problem are two factors, — one, the charter and articles of incorporation of plaintiff; the other, the ordinances of the city. By the statutes of the state, the control over the streets and alleys of the city is vested in the city council. Without the city’s assent, plaintiff might not lay its mains, etc., in such streets and alleys. The ordinance above described assented to such use. Plaintiff claims, as to these two factors, that by the charter plaintiff became and was authorized, during its corporate life, and as a part of its contract with the state, to manufacture and sell gas products, and to charge and collect reasonable rates for the gas it manufactured and sold, and that by its acceptance of, and expenditure of funds, etc., in carrying out, the provisions of said ordinances of 1876 and 1885, such contract became effective, and included the right to plaintiff to manufacture and sell gas products, during its corporate life, in the city of Des Moines, and to charge and collect reasonable rates therefor. Counsel have not referred the court to any authoritative case which has squarely decided the points just named. But the reasoning of the courts in a number of cases is strongly persuasive of the view just stated. In Reagan v. Trust Co., 154 U. S. 393, 14 Sup. Ct. 1047, Justice Brewer, in delivering the unanimous opinion of the court, with reference to the railroad company, against whom the state attempted to enforce the schedule of rates for carriage of freight, says:
“The railroad company is a corporation created in the state of Texas. The charter which created it is a contract whose obligations neither party can repudiate without the consent of the other. All that is within the scope of the contract need not be determined. Obviously, one obligation assumed by the corporation was to construct and operate a railroad between the termini named; and, on the other hand, one obligation assumed by the state was that it would not prevent the company from constructing and operating the road. If the charter had in terms granted to the corporation power to charge and collect a definite sum per mile for the transportation of property, it would not be doubted that the express stipulation formed a part of the obligation of the state, which it could not repudiate. Whether, in the absence of an express stipula-*833tlon of tliat character, there is not implied, in the grant of the right to construct and operate, the grant of a right to charge and collect such tolls as will enable the company to successfully operate the road and return some profit to those who have invested their money in the construction, is a question not as yet determined.”
In Peik v. Railroad Co., 94 U. S. 164, Chief Justice Waite apparently states the point in stronger language than that of inquiry, as raised in the Reagan Case. Having quoted a statement of counsel as to the intention of the legislature in reserving the right to amend laws pertaining to corporations, he further quotes counsel:
“The privilege, then, of charging whatever rates it may deem proper, as a franchise, may he taken away under the reserved power; but the- right to charge a reasonable compensation would remain as a right under the general law governing natural persons, and not as a special franchise or privilege.”
The learned chief justice then proceeds to state:
“Without stopping to inquire whether this is the extent of the operation of this important constitutional reservation, it is sufficient to say that it does, without any doubt, have that effect.”
In Stone v. Trust Co., 116 U. S. 307, 6 Sup. Ct. 334, 388, 1191, after stating the principle relating to exemption in the charter from subsequent regulating or altering legislation, the court say:
“Such being the .rule, such its practical operation, we return to the special provisions of the charter on which this case depends, and find, first, the authority given the corporation to carry persons and property. This, ol' itself, implies authority to charge a reasonable sum for the carriage.”
When plaintiff incorporated, the state had neither fixed the prices for the sale, nor attempted to regulate the sale, of gas products. The state has since then enacted no such statute. But in 1888 a statute was passed conferring on defendant and other cities of the first class the “right to regulate the price of gas.” Laws 22d Gen-Assem. lewa, c. 16. Section 1090 of the Code of Iowa (section 1640, McClain’s Code) was in force at date of incorporation of plaintiff. By that section the state reserved to itself to amend, alter, abridge, etc., all articles of incorporation, and to regulate or subject to conditions every franchise thereafter obtained. Without such reservation, the general assembly might itself have imposed a reasonable rate as a maximum charge for gas. This principle has been frequently declared by the supreme court. Under this right reserved to the state to alter, regulate, etc., this statute of 1888 is conceded to be valid, in the power conferred on the city “to regulate the price of gas.” And this statute, enacted under the right which the state thus reseTved to itself, does not impair its contract with the plaintiff, but is in accordance therewith.
Previous to the enactment of the last-named statute, the defendant city had, by its ordinance, agreed with plaintiff as to prices which plaintiff might charge for 10 years thereafter, to wit, until 1895. Counsel are agreed that the prices named in such ordinance were the contract prices, as between the city and gas company, until the expiration of said ordinance period. Now, let us suppose the city, at the end of such term, had passed no other ordinance as to rates to be charged for gas. Under the theory advanced by *834counsel for tbe city, no ordinance provision as .to rates would then be in force, and the company would have the right to charge reasonable rates, and no more. This, I understand, is álso conceded by counsel for the gas company. In the absence of agreement on rates, between the city and the company, what authority had the city under the statute of 1888? It was authorized “to regulate the price of gas.” Counsel upon both sides concede that under this authofity the city could legally fix, as a price for gas, only such price as was a reasonable rate or price therefor. Counsel may and do differ as to what elements properly enter into the reasonableness of such price or rate. But the city had the power “to regulate” by fixing by ordinance, in the manner attempted, a reasonable price or rate. If the rate or price is so low that it is not reasonable, then counsel for city concede the city has not acted under and in accordance with the authority granted. (It is due to counsel that I add, as touching such concession, that they claim, however, this court has not jurisdiction herein to determine the question of such unreasonableness of price, unless the same shall be, in effect, confiscatory.)
Counsel for the city contend that the company has no contract rights which have been, or are susceptible of being, impaired by the city, even should the rates fixed by the ordinance of May, 1895, be declared unreasonable; in other words, that no contract rights, as to price of gas, are possessed by the company, and that, so far as impairing the contract is concerned, the city is not limited as to the price it may establish. The reasoning underlying this case seems to me to establish the contrary. Under its articles of incorporation, the company was authorized and empowered — such was the 'contract of the state — to construct and operate, within the state, and during its corporate life, said gas works, conformably to its articles and to the laws' of the state. The state reserved the right to alter and amend those articles, and to modify or change the franchise or contract the company held thereunder. But the state has not attempted such modification. The state exercised the power it possessed as to fixing the price of gas, not by a statute directly fixing therein such price, but by delegating that power or right to the city. But this in no manner changed the franchise or contract held by the company. It had theretofore the right to charge reasonable rates. It yet had that power, and to the city was delegated the authority to fix or establish what such reasonable rates were. The state might have created a state gas commission, after the general nature of the railroad commission heretofore created in this state. ’ To this gas commission might have been entrusted the fixing or regulating prices for gas, and the general supervisory control of gas companies, within the state. But, instead, the state delegated to the several cities of the first class this right or authority to regulate the price for gas. The validity of such act of the state is conceded in this action. But the city does not claim that by this statutory delegation of authority the city was authorized to do what the state could not legally do directly, viz. fix a rate which is not reasonable, nor that the right *835of the gas company to charge and collect reasonable rates is altered or abridged by such statutory delegation. Whatever contract theretofore existed, if any, in favor of the company, in that direction, and arising out of its incorporation, still existed, with unimpaired force. The city ordinance established rates which were thereafter, prima facie, reasonable rates. But, from the very nature of the business for whose transaction the company was incorporated, the locality of such business must be in a city. Only in localities where citizens are closely and numerously located can such business profitably be carried on. The statutes of the state, at the time of the company’s incorporation, gave to the cities such control of their streets and alleys, — such general authority within their boundaries, — as that, without the consent of the city, the company could not carry on its business within such city. Hence the necessity for such consent as was given in the ordinances of 1876 and 1885. By those ordinances the city expressly contracted with this company for the erection and operation, within such city, of its gas plant, and the putting down in the streets and alleys of the city, of its main and other gas pipes. The ga.s company perfected its plant, and so laid its pipes, under such consent. Thus, there came to the gas company — subject, of course, to any lawful act of the general assembly of the state as to amendment of the statutes relating to incorporation thereunder and franchises obtained therefrom, and thus affecting the statutory rights of plaintiff — the contract rights: (1) As a corporation, under its articles of incorporation, to exist and carry on its business within the state during its corporate life; and (2) as a corporation, under said ordinances, to exist and carry on its business within said city. I do not mean that the city had no control whatever with reference to the manner in which plaintiff should carry on its said business within the city. But such control must be so exercised that plaintiff will not be thereby deprived of the exercise of its right to properly and lawfully carry on such business. But, say counsel for the city, the statute, in authorizing the city to fix or regulate the price of gas within its municipal boundaries, conferred only the right or authority to fix reasonable rates; hence, if the city shall fix rates which are not reasonable, such municipal action is not in accordance with the statutory delegation of authority, but in excess of and outside of such delegation, and hence is not authorized by the statute, and is not the act of the state, and therefore there is no action of the state impairing any obligation of contract. This point received consideration in New Orleans Waterworks Co. v. Louisiana Sugar-Refining Co., 125 U. S. 18, 8 Sup. Ct. 741. Mr. Justice Gray, speaking for a unanimous court, says:
“In order to come within the provision of the constitution of the United States which declares that no state shall pass any law impairing the obligation of contracts, not only must the obligation of a contract have been impaired, but it must have been impaired by a law of the state. * * * As later decisions have shown, it is not strictly and literally true that a law of a state, in order to come within the constitutional prohibition, must be either in the form of a statute enacted by the legislature in the ordinary course of legislation, or in the form of a constitution established by the people of the state *836as their fundamental law. In Williams v. Bruffy, 96 U. S. 176, 183, it was said by Mr. Justice Field, delivering judgment, ‘Any enactment, from whatever source originating, to which a state gives the force of law, is a statute of the state, within the meaning of the clause cited, relating to the jurisdiction of this court.’ * * * So a by-law or ordinance of a municipal corporation may be such an exercise of legislative power delegated by the legislature to the corporation, as a political subdivision of the state, having all the force of law within the limits of the municipality, that it may properly be considered as a law, within the meaning of this article of the constitution of the United States.”
To the same general effect is the opinion of the supreme court rendered in Hamilton Gaslight & Coke Co. v. Hamilton City, 146 U. S. 258, 18 Sup. Ct. 90.
In Wright v. Nagle, 101 U. S. 791, the supreme court, speaking of a legislative grant of franchise, say:
“The legislature may exercise this authority by direct legislation, or through agencies duly established, having power for that purpose. The grant, when made, binds the public, and is, directly or indirectly, the act of the state. The easement is a legislative grant, whether made by the legislature itself, or by any of its properly constituted instrumentalities.”
And it does not appear why the same reasoning shall not apply equally in the matter of fixing rates of gas.
The conclusion necessarily follows, under the pleadings in this case, that the ordinance in controversy is, within the meaning of the constitutional provision, the law of the state, for the purposes of the action. If it impairs the obligation of the contract held by the city, it must be declared invalid. And if the rates therein fixed-are unreasonable, to such extent as to justify such action, the restraining writ of this court must be issued, because of said ordinance impairing contract obligations to whose enjoyment the plaintiff is entitled.
Passing now to the consideration of the remaining points of attack made herein by plaintiff, and for the present deferring the consideration of the evidence introduced, we may, without detriment to plaintiff in this action, eliminate from our inquiry the second point, — whether the private property of plaintiff is, by the ordinance in question, taken for public use without just compensation. Indeed, we may pass over so much of argument of counsel on either side as relates to this point. For, if the ordinance is violative of the United States constitution as to'either of the other two points (depriving plaintiff of its property without due process of law, or denying to plaintiff the equal protection of the laws), the ordinance must be decreed to be invalid in so far as it thus operates. And, without attempting to particularize, it is apparent from argument of counsel that counsel upon either side agree in the position that, unless the evidence shall sustain one or both of the two points named, it would, in this action, fail to sustain that as to the taking of plaintiff’s property for public use without just compensation. It is therefore unnecessary to decide, as between conflicting claims herein, whether the constitutional prohibition just stated could be properly applied in the action. Defendant contends that “taking of property without due process of law” is but an equivalent phrase for its “practical confiscation.” In their printed ar-*837gmnent, counsel for defendant say, after quoting the provision of the United States constitution, “Nor shall any state deprive any person of life, liberty or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws” (Amendment 14, § 1):
“We understand the foregoing provisions of the constitution to be violated only when, as applied to the facts in the case, the rate fixed by the’ council would afford no compensation whatever, or only a nominal compensation upon the actual investment.”
Under the view hereinafter , presented of the matters now in hearing, it becomes unnecessary for us to follow the line of argument presented by counsel as establishing the foregoing proposition. The opinions filed by the supreme court have not presented —at least, in express language — the views held by that court on the proposition of counsel just quoted. But, if I correctly apprehend the argument of counsel, an error is committed when counsel seek to measure the juiisdiction of this court in this case by the remarks of the supreme court in regard to the jurisdiction possessed by them in cases brought into that court by writ of error from the highest court of a state. Whatever doubt may have obtained, none now exists, under repeated decisions of the supreme court, that the jurisdiction of that court in the last-described class of cases is solely where the decision of the state court has been based on the constitution, statute, or treaty of the United States, and such decision has sustained the claim that the act or law complained of in the court below was not in violation of the federal constitution, statute, etc. In other words, the supreme court does not sit as a court of errors to review the action of the state court on matters of general judicial action, nor as applied to whether the decision of such state court is correct according to the state constitution or the state statutory enactment. But the sole, exclusive jurisdiction of the federal supreme court, in the class of cases named, is where there is actually involved in the controversy, and the state court has based its decision on, some portion of the United States constitution, statute, or treaty, and that decision has sustained and upheld, as valid and constitutional, the act or statute which had been attacked as unconstitutional. In New Orleans Waterworks Co. v. Louisiana Sugar-Kefining Co., 125 U. S. 18, 8 Sup. Ct. 741, the supreme court distinguish and declare how different is their jurisdiction when a case is taken from this court on writ of error. Their appellate jurisdiction on writ of error from this court, if the case is reviewable by law, properly taken to that court, is practically limited only by the assignments of error.
Counsel for defendant: insist that this court may not pass, in this cause, on the question of the reasonableness of the rates fixed in the ordinance in controversy; that, since the citizenship of the parties is not diverse, this court has not herein the general power, as a court of equity, with which it would be clothed if the parties hereto were of diverse citizenship. I do not regard it necessary to follow this argument to its full length. For manifestly, if a controversy herein is pending as to which one construction of this constitution will *838sustain, while a different construction will defeat, the action, then a constitutional question is presented, which confers on this court jurisdiction herein, without regard to citizenship of the parties. This point was considered at some length on the decision herein rendered, sustaining the jurisdiction of the court as against the demurrer of defendant attacking the same. Now, when jurisdiction has thus attached in this court, then any matters which affect the constitutional questions presented are properly before the court for consideration. Charges are tiere directly presented by the plaintiff, that, by the ordinance in controversy, plaintiff is deprived of its property without due process of law, and is denied the equal protection of the laws. The words of Chief Justice Marshall are here pertinent:
“The judiciary cannot, as the legislature may, avoid a measure because it approaches the confines of the constitution. We cannot pass it by because it is doubtful. With whatever doubts, with whatever difficulties, a case may be attended, we must decide it, if it be brought before us. We have no more right to decline the exercise of the jurisdiction which is given than to usurp that which is not given. The one or the other would be treason to the constitution.” Cohens v. Virginia, 6 Wheat. 264.
Let us gather a few of the expressions of the courts as to what is included in the terms “depriving without due process of law,” and “denying equal protection of the laws.”
In Chicago, M. & St. P. Ry. Co. v. Minnesota, 134 U. S. 458, 10 Sup. Ct. 462, 702, Justice Blatchford, delivering the opinion, says:
“The question of the reasonableness of a rate of charge for transportation by a railroad company, involving as it does the element of reasonableness, both as regards the company and as regards the public, is eminently a question for judicial investigation, requiring due process of law for its determination. If the company is deprived of the power of charging reasonable rates for the use of its property, and such deprivation taires place in the absence of an investigation by judicial machinery, it is deprived of the lawful use of its iwoperty, 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.”