Owensboro v. Owensboro Waterworks Co., 191 U.S. 358 (1903)

Owensboro v. Owensboro Waterworks Company

No. 58

Argued November 4-5, 1903
Decided November 30, 1903
191 U.S. 358

APPEAL FROM THE CIRCUIT COURT OF THE UNITED

STATES FOR THE WESTERN DISTRICT OF KENTUCKY

Syllabus

The power to regulate water rates is a governmental power continuing in its nature which, if it can be bargained away at all, can only be by words of positive grant, and if any reasonable doubt exists in regard thereto, it must be resolved in favor of the existence of the power.

An ordinance of a city of Kentucky before it became a city of the third class giving a water company a right to make and enforce, as part of the conditions upon which it would supply consumers, all needful rules and regulations not inconsistent with the law must be construed as to the law as it might be altered, and when the city becomes a city of the third class, and thus has power under the general law to provide the city with water by contract or by works of its own, and to make regulations for the management thereof and to fix prices to consumers, an ordinance subsequently enacted during the life of the franchise fixing the price of water is not void as against the water company under the impairment of contract clause of the constitution of the United States, and, in the absence of other grounds, the circuit court of the United States has no jurisdiction of a suit in equity to restrain the enforcement of such last enacted ordinance, no question of unreasonableness of the rates being involved.

This is a bill in equity to enjoin the City of Owensboro, Kentucky, from regulating the rates of the appellee, the Owensboro Waterworks Company.

Lawson Reno, Police Judge of the city, was made a party. The circuit court granted a temporary injunction. Before final hearing, a motion was made before Circuit Judge Lurton to dissolve the injunction, the motion was denied on the ground of the seriousness of the questions involved, and the propriety of following the previous ruling. On final hearing, the injunction was made perpetual against the city, and the bill dismissed as to Lawson Reno. The city then took an appeal to circuit court of appeals. The appeal was dismissed on the ground that, the jurisdiction of the circuit court having been invoked on a constitutional question, the appeal should have been taken directly to this Court. 115 F. 318. The city then brought the case here from the circuit court.

The city asserts the right to regulate the rates of the appellee under a statute of the state. The construction of the statute is contested by the appellee. The appellee urges, besides, that the statute, so interpreted, violates its contract with the city, and that the rates as fixed deprive it (the appellee) of its property without due process of law. These contentions make the issues between the parties. The bill is voluminous. The allegations with which we are concerned are the following: the appellant was created a city by the General Assembly of Kentucky in 1866. Its charter was amended in 1882, and it continued under this charter until June, 1893, when it was made a city of the third class under the general laws of the state. These laws provided that

the repeal of any law by the provisions of this law [the charter] shall not in any wise be so construed as to affect any right or liability acquired or accrued thereunder by or on the part of the city, or any persons or body corporate. This law shall not in any manner affect any right, lien, or liability accrued, established, or subsisting under and by virtue of previous charters or amendments thereto, or ordinances passed thereunder; but such right, lien, or liability shall be enforced, and such action or proceeding shall be carried on in all respects as if this law [defendant city’s present charter] had not taken effect, nor shall this law be in anywise so construed as to affect the right or liability acquired or accrued under previous charters or amendments thereto, or ordinances passed thereunder on the part of the city or any persons or body corporate.

The Owensboro Water Company was incorporated in 1876, and its general business was to construct and operate a waterworks plant for the purpose of supplying the city and its inhabitants with water, and it constructed and operated such works under the privilege and authority of an ordinance of the city, passed September 10, 1889. The ordinance had the usual provision for the use of the streets, and made the duration of the grant identical with the duration of the company. It was provided that the ordinance should be binding upon the city "as a contract in the event" of its written acceptance within ten days after its passage, and "be the measure of the rights and liabilities of the said city and of the water company."

Section 9 of the ordinance was as follows:

SEC. 9. The said company shall have the power and authority to make and enforce, as part of the condition upon which it will supply water to its consumers, all needful rules and regulations, not inconsistent with the law or provisions of this ordinance.

In June, 1889, the appellee began negotiations with the Owensboro Water Company for the purchase of its franchise and plant, and of all of its contracts with the city, but did not and would not consummate said purchase until the city agreed to grant it (appellee) a franchise and license to maintain a system of waterworks in the city for a period of twenty-five years, and issue and grant to it in its own right all of the rights and privileges which had theretofore been granted to the water company by the ordinance and contracts of September 10, 1878. On the 3d of June, 1889, the city passed an ordinance approving such purchase, and granted a franchise and license to the appellee to maintain and operate a waterworks plant for supplying the city and its inhabitants with water, and accepted the appellee as the successor of the water company to the contracts between the latter and the city. The ordinance was expressed to be in consideration "of the purchase, by the Owensboro Waterworks Company of Owensboro, Kentucky, of the waterworks of the Owensboro Water Company."

On the 10th of June, 1889, relying upon the ordinance of the 3d, the appellee consummated the purchase from the water company of its works, franchises, and contracts, and received them from that company, and it "has ever since then under the orders and direction" of the city, maintained and extended its system, on account of which it has expended large sums of money, and its plant is now reasonably worth not less than $250,000, and could not be constructed for less than that sum.

On the 19th of March, 1900, the city passed an ordinance providing

that hereafter, every person, firm, company, and corporation, engaged in the business of furnishing water to consumers thereof in the City of Owensboro shall furnish the same to consumers thereof for domestic and manufacturing purposes and uses, and for all other purposes and uses at rates and prices not exceeding the rates and prices herein named fixed, which rates and prices are deemed reasonable and just -- that is to say, water shall be furnished to all mills, laundries, saloons, distilleries, breweries, livery stables, ice factories, and manufacturing establishments, hotels, street railway companies, and all factories of every kind at the following named rates.

Then followed a statement of the rates fixed, graduated according to the amount of water consumed or kind or purpose of use. And it was provided (sec. 8)

that, if any person, firm, company, or corporation engaged in the business of furnishing water to consumers thereof in said City of Owensboro shall demand, charge, exact, or receive, directly or indirectly, of or from any consumer or consumers of water in said city, as consideration or compensation for water furnished or supplied to such consumer, any money, property, or other thing of value over and above or in excess of the rates and prices for water herein named and prescribed, or shall fail or refuse for ten days, without reasonable excuse, to supply water as prescribed and required in and by section seven (7) of this ordinance, or shall fail or refuse to keep the accounts or the books required to be kept at Owensboro, or make the reports in writing to the common council, as required by section sixth (6th) of this ordinance, such person, firm, company, or corporation so offending shall be fined, upon conviction, in a sum not less than ten, and not exceeding fifty, dollars for each offense.

The ordinance in full is inserted in the margin.*

It is alleged that the enforcement of the ordinance will cause appellee irreparable injury, and in what manner that will be done is detailed, and that appellee "could not, under the most prudent management, earn any percent upon its investment, but would be compelled to operate its plant at an actual loss."

For the reasons alleged, the ordinance of March 19 violates the Constitution of the State of Kentucky, and the Fifth and Fourteenth Amendments of the Constitution of the United States. It is also alleged with much amplification that the passage of the ordinance was "ex parte and partisan," without deliberation or investigation or knowledge, and, besides, the city had no power to pass the ordinance, and that the latter violates the contract existing between appellee and the city. It is also alleged that financial injury will result to appellee from the enforcement of the ordinance in regard to meters (sec. 2), and from the prohibition to collect rates in advance, "except by voluntary consent of the consumer." (Sec. 3.) Prosecutions are threatened under the ordinance which will result, it is alleged, in irreparable injury to appellee, and an injunction is hence prayed against the city.

A demurrer to the bill was overruled. An answer was then filed which denied the allegations of the bill and justified the action of the city.