165 F. 518 | U.S. Circuit Court for the District of Northern California | 1904
This is an application for an injunction pendente lite made by the Contra Costa Water Company, a corporation of the state of California formed for the purpose of furnishing water to the city of Oakland and adjacent cities.
The bill alleges in substance that the complainant for many years past has been and is now supplying nearly all the fresh water consumed by the city of Oakland and its inhabitants. That, in order to carry out the purposes of its incorporation, the complainant has acquired reservoir sites, buildings, and reservoirs, obtained riparian and other rights and properties necessary to secure the ownership of water caught and impounded in its reservoirs, and has purchased water rights and large tracts of laud for the purpose of obtaining an adequate supply of pure, fresh water and preserving the same, as well as other properties necessary and essential in the conduct of its business, the value of all of said properties being in excess of $8,500,000. That said properties consist of the following: (1) Lake Chabot, having a storage capacity of 5,070.000,000 gallons, a yielding capacity of 8,000,000 gallons per day, and a large drainage area, of which the complainant owns 5,550 acres, said lake being constructed by means of an earthen dam 127’ feet high above the bed of the original stream; (2) a system of artesian wells near Alvarado, located on a tract of 377.54 acres, having a yielding capacity under natural flow of 5,000,000 gallons per day; (3) Lake Temescal, having a storage capacity of 250,000,000 gallons and a yielding capacity of 840,000 gallons per day, said reservoir being created by the construction of an earthen dam over 100 feet in height; (-1) water rights on Sausal creek, enabling the complainant to utilize water to the extent of 400,000 gallons per day ; (5) a system of tunnels in the Piedmont Hills, yielding 117,000 gallons of water per day. That, in connection with said sources of supply, the company owns and operates a distributing plant, consisting of 430 miles of pipe line, 4,000 meters, all necessary stop gates, fixtures, devices, etc., and has within the city of Oakland 16,000 services and 515 hydrants, also il storage and distributing reservoirs in addition to the lakes, having a joint storage capacity of 18,000,000 gallons, two mechanical filtrating and straining plants, one each at Lake Chabot and Temescal, four complete pumping plants with an average capacity of 18,000,000 gallons per day, large quantities of material, and supplies of all descriptions, a complete equipment of tools and appliances. That, in addition to these, the complainant owns various described tracts of real estate within the city of Oakland and elsewhere, as well as an established business and all requisite franchise for the conduct of its business of collecting and dispensing water, its said franchise being assessed at the present time at the value of $1,000,000. That during the year ending June 80, 1905, the operating expenses of the complainant actually and necessarily incurred in operating its works for the purpose of carrying water to the city of Oakland and its inhabitants will amount to the sum
The bill further alleges that on May 28, 1901, a judgment was rendered in the superior court for the county of Alameda, state of California.'in a suit brought by the complainant against the city of Oakland, the council thereof and its members, to set aside an ordinance passed by said council on March 26, 1900, establishing water rates for the year beginning July 1, 1900, which judgment was rendered in favor of the plaintiff therein and against all the defendants. That, said court was occupied for a period of seven months in taking testimony upon the issues involved in said suit, and in the judgment it was found, adjudged, and decreed, among; other things, that at the date of the commencement of that suit in May, 1900, the value of the property of the complainant, used and necessary to supply the city of Oakland and its inhabitants with water, was then of the value of $1,000,000. That in said judgment it was further determined, and so stipulated and agreed by and between the parties thereto, that at least seven-eighths of the operating expenses of said complainant were incurred in operating its works and carrying on its business of furnishing water to the city of Oakland and its inhabitants, and that its total revenue during the year ending June 30, 1901, from its consumers of water, other than said city of ()aklaud and its inhabitants, would not exceed the sum of $51,750. That by its said judgment said superior
The bill further alleges that the capital stock of the complainant is 57,026 shares, of the par value of $100 each. That from July 1, 1899, to December 1, 1902, the market value of said shares ranged from $72.25 to $70, and that the highest price at which it sold during said period was $83 and the lowest was $63, and that the average price was about $75 per share.
The bill alleges that during the year 1903 certain politicians commenced an agitation among the inhabitants of the city of Oakland in favor of municipal ownership of waterworks, and misrepresented to the citizens thereof the true and actual value of the complainant’s property, and the present mayor and the members of the council of said city did pledge themselves before election to the voters of said city to reduce the rates chargeable by the complainant for its water for the fiscal year commencing July 1, 1904, all of which was done to the end that said city of Oakland might purchase and acquire the complainant’s property at a price far below its real and true value. That, by reason of said threats and said actions of the defendants, the market value of the complainant’s capital stock did, in the month of April, 1904, decrease ancl fall to the sum of $35 per share, and that the highest price at which such stock has been sold during the months of April and May, 1904, is $37.75 per share, and that the highest price at which it has sold in the market since the election of the presentí council of the city of Oakland is $40 per share. That the population'
The answer of the city of Oakland denies that the value of the complainant's properties is more than $1.000,000, and denies that its operating expenses in furnishing the city of Oakland and its inhabitants with water will be more than $110,000. It denies that the taxes will be more than $50,795.32. It alleges on information and belief that from all sources the complainant can derive an income of at least $790,897.93, as appears from its sworn statement filed with the city council of Oakland. It denies that the complainant is entitled to an income upon its property greater than 3 per cent, upon the present value thereof, and denies that it is entitled to a gross income for water supplied to Oákland and its inhabitants during the year beginning July 1, 1901, of more than $100,000. It alleges that said council. in fixing the rates to be paid complainant for the year beginning July 1, 1904, so fixed the same that the complainant would derive 6 per cent, net upon the sum of $1,700.000, which was far more than the actual value of the property used l>y the complainant in supplying the city of Oakland and its inhabitants. It denies that the rates fixed by the resolution of May 31. 1901, were fixed arbitrarily or without due regard to the right of the complainant to a reasonable compensation. It alleges that such rates were fixed with full consideration and regard for the value of the complainant’s works and properly, its operating expenses and its taxes, and the right of its stockholders to reasonable dividends upon their stock, and with full reference to and consideration of the actual costs of supplying said -water. It alleges that the judgment rendered in the superior court of Alameda county has no force or effect, for the reason that the defendants therein duly appealed therefrom to the Supreme Court of the state of California, and said appeal is now pending and undetermined. It denies that a reasonable rate of interest upon the value of the complainant’s property used in supplying water to the city of Oakland and its inhabitants during the year beginning July 1, 1904, is 7 per cent., 6r any more than 4 per cent., over and above operating expenses and taxes. It alleges that the rate fixed by the resolution of May 31, 1904, allows more than a reasonable rate of interest to the complainant on the value of its property used in supplying said city and its inhabitants with water, and that it allows the rate of 6 per cent, above all expenses, taxes, and repairs. It denies that the complainant is entitled to receive for water which will be supplied to the city of Oakland and its inhabitants during the year commencing July 1, 1901, $850,000, or any sum in excess of $118,229.42. It denies that since May, 1900, the depreciation from wear and use on property of the complainant does not exceed 1 per cent, of their aggregate value, and alleges that there has been a large depreciation in value, especially in the distributive system, on account of decay of pipes and other structures; that
The complainant introduced the affidavit of Arthur E. Adams, a civil engineer of experience, who stated that he had carefully examined the properties of the complainant; that Eake Chabot had a storage capacity of 5,500,000,000 gallons, yielding 8,000,000 gallons daily; that the total value of the complainant’s properties was $7,034,564, in which he included $500,000 for going business; that its franchise was worth $1,000,000, which was not included in his estimate, and that seven-eighths of the income of the property should be paid by the city of Oakland and its inhabitants; that the cost of substituted supply* to the city of Oakland with a capacity of 11,350,000 gallons would be $529,-000 per million gallons of daily supply; that, estimating the said supply of water to the Oakland división at $529,000 per million gallons of daily supply, the total annual supply would be of the value bf $7,-274,000. The affidavit of E. J- Le Conte, United States Assistant Engineer, contained an appraisement made by him in 1886 as an employé of the city, in which he estimated the total probable cost at •that time of the structural works of the complainant was $2,640,872, which estimate did not include real estate, water rights, rights of way, etc. Affiant stated that the estimated total cost of the complainant’s works is $6,456,336.62. This estimate did not include real estate, water rights, rights of way, going business, or franchises. The affidavit of Jas;. D. Schuyler, a civil engineer of experience, stated that
The complainant presented a statement of the assessment for state and county taxes made for the years 1903 — 04, the total of which is $4,227,425, and introduced affidavits of bankers and brokers to show the prevailing rate pf interest on money invested in large amounts in corporations and established quasi public, corporations. Some of these affiants deposed that money could not be had for such investment at less than from 7 to 10 per cent.; the majority were of the opinion that not less than 7 per cent, was reasonable, and that at a lower rate money could not be obtained. The affidavit of William J. Dingee, president of the complainant, stated that the existing bonded indebtedness of the complainant was $1.600,000, of which sum $3,50(1,000 is an indebtedness, the entire proceeds of which were expended upon the properties of the corporation which are used and are necessary in conducting the business of said company in supplying water to the Oakland division ; that all of said indebtedness bears interest at the rate of 5 per cent, per annum; that on May 33, 1904-, the complainant owed, in addition to said bonded indebtedness, unsecured debts for improvements on its works and system used in supplying the (laklaod division with water amounting to more than $300,000, which bears interest at 6 per cent, per annum, all of which is still owing; that an effort had been made to raise $1,000,000 on additional bonds prior to the election of the present mayor and council of said city, but by reason of the acts and declarations of said officers the. complainant has been unable to place said bonds.
The affidavit of Edward McGary, secretary of the complainant, stated that on May 31, 1904, the total number of active services to dwelling houses and places of business in Oakland was 15,226; that more than 50 per cent, the ratepayers of which are tenants, who frequently move, and who apparently .have no property over and above the exemptions to which they are entitled by law; that if the. resolution fixing the rates for the fiscal year commencing July 1, 1904, .shall in this suit ultimately be declared null and void, the complainant will lose the amount by which the rates are reduced as to that class of ratepayers, unless the enforcement of the resolution' is in the meantime restrained, and that as to the remainder of the ratepayers, in order to recover the difference between the amount payable under the new rates and the amount receivable under the old, it will be necessary for the complainant to bring more than 5,000 suits for 'small amounts and
The defendants offered the report of Desmond Fitzgerald, an engineer of experience, who, at the request of the city, had made examination of the actual plant of the complainant and all the property used by it in supplying the city of Oakland and its inhabitants with water, and had, on June 3, 1903, reported the result of his investigation to the mayor. The repoi-t so made shows that the estimates were xnade in accordance yvith certain instructions from the mayor, the details of which it is not necessary here to set forth. Temescal Lake was omitted from the estimate, Claremount reservoir in Berkeley was included, parts of the distributive system belonging to the complainant outside of Oakland were included. The Piedmont tunnels and Sausal creek supplies were not included. The estimate is “exclusive of stock oxi hand, real estate, rights of way, axid questions of equity.” The total estimate of the value of the distributing plant, the San Leandro reservoir and filters, Alvarado pumping plant and wells, Claremount reservoir, Broadway reservoir axid puxnping plant/Linda Vista reservoir, Highlaxid Park reservoir and pxxmping plant, and the Orange street reservoir, is $2,689,185. The defendaxits also offex-ed in evidence the estimates placed upon the value of the complainant’s property by the expert witnesses who testified on behalf of the city of
The issues of fact presented by the bill, answers, and affidavits are sharply defined. The complainant contends Lliat the total value of its properties is $8,500,000; that its operating expenses for the year beginning' July 1, 1904, will be $113,005; that its taxes will be $128,-887: that it should be allowed on account of depreciation of its properties $83,000; and that iti order to meet its expenses and to cover such depreciation, and to pay the interest on its bonds and a fair dividend to its stockholders, it is entitled to receive an annual income from its properties of $850,000. The defendants contend that the total value of the properties of the complainant does not exceed $4,000,000; that the city council allowed more than their value when it fixed the same at $4,700,000; that $126,206 is a just allowance for operating expenses, repairs, and renewals of the complainant’s works; and that the taxes which the complainant will be required to pay will not ex
The most important of these questions, and upon which the estimates most widely differ, is that of the valuation. Upon an application for an injunction pendente lite to be determined upon a consideration of the averments of the bill, the denials of the answers and the affidavits of the respective parties, and without the aid of the light which will be thrown upon the contested issues from the oral examination and cross-examination of witnesses, the court is able to consider only the salient features of the evidence; and therefrom to arrive at such conclusion as must guide judicial discretion in allowing or withholding the restraining order. Upon the one side are the affidavits of competent civil engineers, who estimate the total value of the complainant’s property at more than $7,000,000, in which total the structural works.appear to have been estimated at about $5,300,000. On the other side are the affidavits of competent engineers, the average estimates of which place the value of the structural works of the complainant at about $3,000,000, which, added to the estimate of the value of real estate, water, and water rights contended for by the defendants, would give the whole property of the complainant a total valuation of about $3,500,000. The mere perusal and examination of these affidavits in the narrow limit of time which is permitted for their consideration carries no conviction that the complainant will by the new rates be-denied the equal protection of the laws or be deprived of its property without due process of law. Nor is the court in the possession of any test by which, at the present time, to sift the truth out of the conflicting estimates. The affidavit of one of the civil engineers offered on behalf of the complainant may be said to be discredited to some extent by evidence that on another occasion and in respect to other waterworks he estimated the cost of certain elements entering into the construction of all such works at 50 per cent, lower than his itemized estimate given in his affidavit in this case. Nearly all of the expert witnesses whose affidavits are presented in this case were witnesses-in the suit in the superior court of Alameda county. The mind..naturally.turns to the judgment of that court rendered upon the consideration of testimony given orally with the- aid of cross-examination, with full opportunity to observe the demeanor of the witnesses, and to.the conclusion which .it reached after an investigation which
“The judgment roll was relevant to the issue presented by tlie answer, and of a character competent to establish that issue. The objection that it was not sufficient in itself for that purpose went to its weight, and not to its admissibility. It was a judgment that had been rendered between thei same parties upon the same cause of, action, and by a court of competent juris*530 diction, and, unless it is to be held that a judgment is not under any circumstances admissible in evidence until the time for an appeal therefrom has expired, the court properly received it.”
In Boston & M. Consol. C. S. & N. Co. v. Montana Ore-Purchasing Co., 26 Mont. 146, 66 Pac. 752, the Supreme Court of Montana, in which state the California rule concerning the effect of a pending appeal prevails, held that, in an application for an injunction pendente lite, the court in determining’the application may consider a judgment in a prior action-between the parties, although an appeal has been taken therefrom. The court said:
“Why could not the fact, when brought to the attention of the court below, that it had decreed the property as not in any wise belonging to the plaintiff, he considered by it in passing upon the order to show cause why plaintiff and appellant should not have an injunction pendente lite against the defendants in the action, and be regarded in its sound discretion as sufficient reason why the injunction should be denied?”
In Smith v. Smith, supra, the court said:
“It is contended that the rule in this state is that pending the appeal the judgment cannot he used as evidence for any purpose whatever. A rule so general and absolute would manifestly be unreasonable, and goes much beyond the decisions. The rule is simply that one cannot avail himself of an adjudication establishing a right while the judgment is suspended by an appeal.”
Turning to the opinion of the superior court of Alameda county in the case referred to, we find that the court said:
“Without entering into a minute discussion of the evidence, I find, after a most careful and painstaking consideration of (he record, that the value of the combined properties of xilaintiff, now and at the time of the commencement of this action, actually and necessarily used by it iu the conduct of the business of collecting and supplying water to the city of Oakland and its inhabitants, to be, in round numbers, $7,000,000. This includes the San Leandro lake as a source of water sux>ply, and the necessary structures appurtenant thereto, the construction work of the old Contra Costa system other than San Leandro lake, the Alvarado plant, and the element of going or established business.
“The complainant alleges that the property is of a value exceeding $8,500,-000. Mr. Adams places it near $7,500,000, while Mr. Schuyler estimates it at a higher figure. In this connection, it may be well to note the fact that the experts who testified for the defendants, with the possible exception of Mr. Henny, made no pretense of placing a value upon the plant as a whole; that is, as an. entire system installed for a business purpose, with each part having relation to all the other parts. Their valuation seemed to be entirely upon the structural elements of the plant, limited to its value as an engineering construction.
“They apxieared, in their estimates, not to have considered the important factor of going or established business. In fact, one of them, Prof. Marx, was made to say on one occasion that the properties under consideration, used for water-supplying prurposes, would be, according to his theory and principles of valuation, just as valuable constructed on the Sahara Desert, the absence from which of water and inhabitants is a matter of common notoriety, as the plant concerning which he was giving evidence, while Mr. Hall, another expert for the defense, gravely declared, in explaining his method of valuation, that a well sunk for oil to a depth of a thousand feet, in which no oil was found, and the district in which the well was located was abandoned, would be worth, as an engineering construction, what it cost.
“When asked whether or not they would give such a valuation if called upon to estimate value for rate-fixing purposes, each of the experts for defend*531 ¡mí. invariably resiled iluit lio was not competent to answer 1 lio question; that there were equities to he considered in fixing rates, with which he had no concern when called upon to give his judgment ns to the value from the standpoint of an engineer, but not' as a councilman or court of equity. 1’or the reasons here briefly stated, I regard the testimony of the city’s experts as a palpably unsafe guide by which to determine the value of this plant.
“Air. Allard!, one of the expert witnesses of the defense, after giving his testimony in Ibis cause, was called as a witness to testify before the city council, who were then engaged in investigating the rate question, for the purpose of establishing rates for (he year to begin with the 1st of July of the present year, and was thereafter recalled to the witness stand by plaintiff for the purpose of further cross-examination, based upon his testimony given before said council. A careful consideration of his testimony, found at pages {>,919 to 0,9(53, inclusive, of the transcript, wherein he was cross-examined concerning his testimony given before the city council, goes far towards sustaining the contention of the plaintiff upon the question of valuation. While I do not believe that Mr. Allardt attempted to mislead the court in his testimony given in the first instance, 1 must confess that I received a very different impression from his testimony given under his last cross-examination than that; which was produced upon my mind when he first testified. And this serves as an‘other illustration of the utter unreliability, due to the manner in which they testified, of the testimony generally of the experts for the defendants for the determination of the question of the valuation of this plant.
“The value above given is, I believe, an equitable adjustment of the question of valuation, and is wholly reasonable under the evidence. The testimony, so strongly relied upon by the defendants of the cost of reduplication, as by the Pinole system, is entitled to consideration in making the estimate, but it is far from being fhe determinative factor of the problem, first, because of the extremely unsatisfactory showing as to the quantity of water, as to its quality and potableness; and, second, because cost; of reduplication or cost of ¡mother adequate supply is by our Supreme Court distinctly declared to be nondeterminatlve of the question. ‘It would, therefore, be highly unjust to permit 1he consumers to avail themselves of the plea that at the present time similar works could be constructed ata less cost as a pretext for reducing the rates.’ San Diego Water Co. v. San Diego, 118 Cal. 568, 50 Pac. 636 (38 L. R. A. 460, 62 Am. St. Rep. 261).
“What has been said of the Pinole system applies with oven greater force to the Roberts artesian wells. The sufficiency of the supply in the latter case is left in even greater uncertain! y.
“I conclude, therefore, upon this question, that $7,000,000, in round numbers, fairly represents the value of the property of the plaintiff, whose use for water purposes has been taken by the state. In other words, this is the sum of plaintiff’s investment, estimated in money, for the use of which money plaintiff is entitled to remuneration. This is in accordance with the theory and view advanced in the main opinion of the court in the San Diego Case.”
There is no convincing evidence in the affidavits now presented that the property of the complainant, so estimated by the judgment of the court in that case, is now of less value than it was at the time of that decision. Taking that estimate to be approximately correct, as it seems to me in view of the circumstances it. should be taken for the purposes of this motion, but for no other purpose, the conclusion necessarily follows that under the rates fixed by the resolution oí May 31, 1904-, assuming that the complainant’s taxes will be but $50,794, as contended for by the defendants, the complainant will receive a revenue of less than 4 per cent., net, per annum upon said valuation. Assuming that: the taxes will, according to the complainant’s showing, be $128,887, the net revenue will be less than 3 per cent, per annum.
It becomes unnecessary upon this hearing, therefore, to further consider the question of the amount of the complainant’s liability fof tax
' The complainant undoubtedly has the right to receive from water rates an income which will enable it to pay its actual operating expenses, its taxes, its interest on its bonded or other indebtedness so far as that indebtedness represents money properly expended in or upon its property, and to pay a reasonable dividend on its stock so far as the stock represents money actually received and so invested, and in addition thereto to receive a sum sufficient to cover the annual depreciation of its plant. Said the court in San Diego Land & Town Company v. Jaspar, 189 U. S. 442, 23 Sup. Ct. 572, 47 L. Ed. 892:
“It no longer is open to dispute that, under the Constitution, what the company is entitled to demand, in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public.”
In Stanislaus County v. San Joaquin C. & I. Co., 192 U. S. 215, 24 Sup. Ct. 241, 48 L. Ed. 406, the court, in reaffirming its ruling in San Diego Land Co. v. National City, 174 U. S. 739, 19 Sup. Ct. 804, 43 L. Ed. 1154, said:
“The appellants in that case contended that in fixing what wore just rates the court should take into consideration the cost of the plant and of its annual operation, the depreciation of the plant, and a fair profit to the company above its charges for its services. It was observed by the court that undoubtedly all these matters ought to be taken into consideration and such weight be given them when rates are being fixed as under all the circumstances would be just to the company and to the public.”
In Spring Valley Water Company v. City, etc., of San Francisco (C. C.) 124 Fed. 574, in a case in this court similar to the present case, Judge Morrow, on an application for an injunction pendente lite, held that an ordinance adopted by the supervisors of the city of San Francisco establishing rates which would yield less than 5 per cent, upon the value of the property used and necessary to be used in the supply of water to that city operated to deny the water company the equal protection of the laws and to deprive it of its property without due process of law, and granted a temporary restraining order against the collection of rates so fixed. That precedent will be followed in this case, and the injunction pendente lite will be granted. In so holding, there is no intention to express an opinion that the conten-'
It is proper to add that I have not even approximately arrived at a conclusion upon the merits of the case. The general presumption which the law indulges, that the action of officers authorized by law to fix rates in such cases is correct, is not to be disturbed by the fact that the rates fixed by the city council in this instance create a very substantial reduction of the rates fixed by their predecessors in office. Each council must act upon its best judgment upon the evidence which is in its possession. There is in my opinion nothing in the facts shown in this case to justify the charge that in adopting the resolution which is complained of the council acted arbitrarily or were actuated by improper motives or by any purpose save to do what in their judgment was right between the complainant and the city and its inhabitants. A temporary restraining order will work no substantial injury to the defendants or to the consumers of the water. They will be amply protected by a bond to cover the amount by which the rates are reduced by the resolution. On the other hand, if the order were denied and the contention of the complainants should finally be sustained, it is evident that the complainant would be subjected to serious inconvenience and injury, notwithstanding the remedy afforded it by that section of the resolution which permits it to shut off water from premises on which the rentals are 30 days in arrears, and would be required to bring a multiplicity of suits, which it is one of the functions of a court of equity to prevent. It is a settled rule for the guidance of the discretion of courts in cases such as this to look to the balance of injury and inconvenience, and to consider whether a greater injury will he done by granting than by refusing an injunction. In United States v. Duluth, 1 Dill. 474, Fed. Cas. No. 15,001, Mr. Justice Miller said:
“When (he danger or injury threatened is of a character which cannot be easily remedied if the injunction is refused, and there is no denial that the act charged is contemplated, the temporary injunction should he granted unless the case made by the bill is satisfactorily refuted by the defendant.”
See, also, Palatka Water Works v. City of Palatka (C. C.) 127 Fed. 161, and City of Newton v. Levis, 79 Fed. 715, 25 C. C. A. 161, and cases there cited, and Indianapolis Gas Co. v. Indianapolis (C. C.) 82 Fed. 245.
An injunction will he allowed as prayed for, restraining the defendants pendente lite, or until the further order of the court, from enforcing the resolution of May 31, 1904, and the complainant will be required to give a bond in the sum of $130,000 to answer for all damages which the defendants or any person injured by reason of the injunction may sustain, if, upon the entry of the final decree herein upon the merits, said resolution shall be sustained.