113 F. 930 | U.S. Circuit Court for the District of Northern California | 1902
This is a suit in equity, brought on September 29, 1896, to enjoin the defendants from enforcing an order of the board of supervisors of Stanislaus county fixing the rates to be charged by the complainant for water distributed by it, and to declare said order null and void. It is alleged in the bill that the complainant is a corporation organized under the laws of California in September, 1871, in accordance with the provisions of an act of the legislature of the state of California entitled “An act to provide for the formation of corporations for certain purposes,” approved April 14, 1853 (St. 1853, p. 87), as amended by the act approved May 14, 1862, entitled “A11 act to authorize the incorporation of canal companies, and the ■construction of canals” (St. 1862, p. -540); that the defendant the county of Stanislaus is one of the political subdivisions of the state of California and within the Northern district of California; that the board of supervisors of said county of Stanislaus is the governing or legislative body of said county, and that the defendants George W. Toombs, Charles H. Osier, James Alfred Davis, Thomas J. Carmichael, and Joseph P. Barnes were at all the times stated in the bill the duly elected, qualified, and acting members of the said board, and citizens and residents of the Northern district of California. It is alleged that for more than 10 years past the complainant has been engaged in the business of appropriating water for irrigation, sale, rental, and distribution, for hire, and has for the last 10 years maintained, and now maintains, a canal through the counties of Fresno, Merced, and Stanislaus, in the state of California, in which it carries its water to the takers and consumers thereof; that complainant is now, and for 10 years last past has been, the owner of the right to take the whole flow of water of the San Joaquin river through the left bank of said stream at its junction with Fresno Slough, and has for the last 10 years appropriated said water, for sale, rental, and distribution to its customers, by means of a canal running from the point of appropriation through the counties of Fresno and Merced and a large part of the county of Stanislaus, which canal was, on January 1, 1896, and now is, including its lateral and parallel branches, 120% miles in length; that of this length of canal ii7/io miles are within the boundaries of the defendant county of Stanislaus. It is alleged that the reasonable value of these canals, ditches, flumes, water chutes, and other property actually used in the appropriation and furnishing of said water is of the amount of $1,000,000; and that the right of appropriation of said water acquired by the complainant more than 20 years ago, ever since held by it, and necessary to enable it to sup
This bill was demurred to on January 2, 1897, for want of jurisdiction and of equity. It was urged that the absence of diversity of citizenship of the parties was fatal to federal jurisdiction. The demurrer was overruled by this court (90 Fed. 516) on the ground that the averments of the bill presented a federal question, which is of itself a sufficient source of jurisdiction without the coexistence of diversity of citizenship. The federal question was determined to be contained in the allegations that the acts of the defendants, if unrestrained,
On June 8, 1899, an amendment to the bill of complaint was filed by the complainant, adding thereto the allegation that by section 3 of the aforesaid act. of May 14, 1862, it was provided that “every company organized as aforesaid shall have power, and the same is hereby granted, * * * to establish, collect, and receive rates, water rents, or tolls, which shall be subject to regulation by the board of supervisors of the county or counties in which the work is situated, but which shall not be reduced by the supervisors so low as to yield to the stockholders less than one and one-half per cent, per month upon the capital actually invested.” St. 1862, p. 541. It is alleged that prior to March 1, 1885, this complainant and its stockholders actually invested, under the authority of the said act, a capital amounting to $971,113.13 in money, all of which was actually and necessarily expended by the complainant in the purchase and construction of canals and other property used in and useful to the appropriation and furnishing of the water aforesaid, which property was on March 1, 1885, and still is, of the reasonable value of $971,113.13; that, though the defendants aver and claim that the said provisions were repealed by the act of March 12, 1885, hereinbefore referred to, complainant avers that such a construction is in violation of and repugnant to the provisions of section 10 of article 1 of the constitution of the United States, in this: that it would impair the obligation of the contract between the state of California and this complainant made and entered into under the authority of said section 3 of said act of May 14, 1862. For the purpose of limiting the question in this case, complainant’s counsel at the hearing withdrew the claim for the value of the right of appropriation of the water of the San Joaquin river in estimating the value of the property used and useful in the appropriation and furnishing of said water.
The first question to be determined is the effect of the incorporation of the complainant under the act of the legislature of April 14, 1853, providing “fot the formation of corporations for certain purposes,” as amended by the act. of May 14, 1862, providing for the “incorporation of canal companies and the construction of canals.” Tt is contended on behalf of the complainant that, as it. was organized as a corporation in 1871 under the act of 1853, as amended by the act of 1862, section 3 of the flatter act, limiting the right of the board of supervisors to reduce rates so as to yield to stockholders not less than i]/2 per cent, per month on the capital stock actually invested, was a contract with the state for the time for which the corporation was
“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.”
Have the provisions of the act of the legislature of March 12, 1885, impaired the obligations of any contract entered into by the complainant with the state under its incorporation under the act. of May 14, 1862? And does the enforcement of the act of March 12, 1885, by the board of supervisors of Stanislaus county in the manner and under the circumstances disclosed by the evidence in this case, deprive the complainant of property without due process of law, or deny to it the equal protection of the laws ? The act of May 14, 1862, provided that a canal company organized under its provisions should have the power; (1) To make rules and regulations for the management and preservation of its works not inconsistent with the laws of the state,
“The power of alteration and amendment is not without limit. The alterations must be reasonable. They must be made In good faith, and be consistent with the scope and object of the act of incorporation. Sheer oppression and wrong cannot be inflicted under the guise of amendment, or alteration. Beyond the sphere of the reserved powers the vested rights of property of corporations in such cases are surrounded by the same sanctions, and are as inviolable as in other cases.” •
It will not be necessary to refer to the long line of cases in the highest courts of the nation where these constitutional questions have been elaborately discussed, and the rights of property carefully defined, in controversies arising out of legislation affecting corporate rights. It will be sufficient for the present purpose to refer to the case of Hill v. Railroad Co. (C. C.) 41 Fed. 610, 616, where Judge Jackson, of the United States circuit court of Kentucky (afterwards a judge of the supreme court of the United States), stated the law of these cases in very clear terms. He said:
“The principle of these and other decisions upon the subject of amending or repealing charters under a reservation of power so to do is that the legislature may change or modify the privileges and franchises which the state*939 lias granted to the corporation, and which concern the interests of the public: but dealing with what it has bestowed, either by way of withdrawal or of alteration, the state may not go further, and so legislate as to disturb, affect, or impair rights either of the corporation or of its shareholders, previously acquired, while the corporate functions were being lawfully exercised. All rights thus acquired, of whatever character, are surrounded and -protected by constitutional sanctions and guaranties higher and superior to the legislative power of amendment or repeal.”
Applying this constitutional principle to the provisions of the act of 1885, it must be held that it was not intended by the legislature to repeal the act of 1862, certainly not with respect to corporations organized under the prior act; and that with respect to such corporations the two acts were to be construed together. What, then, was the duty of the board of supervisors in this case? Money paid by stockholders to the capital of a corporation is unquestionably property of the corporation. Whether this capital or the property acquired by it has been actually invested and used or made useful in the operation of the franchise of the corporation, is a question of fact to be determined upon proper investigation. It follows that it was the duty of the hoard of supervisors to ascertain the amount of capital actually invested in the corporation — that is to say, the amount of capital actually paid in and invested in constructing the canals and acquiring-other property used and made useful in supplying water to the customers of the corporation in Stanislaus county, and this fact should have been considered by the board in fixing wafer rates which the complainant was entitled to charge — under the statute. It appears from the evidence that on March 10, 1896, 25 persons, claiming to be inhabitants and taxpayers of the county of Stanislaus, filed a petition with the board of supervisors of that county, praying the board to regulate and control the rates and compensation to be collected by the. complainant for the sale, rental, or distribution of the appropriated water of said company to the inhabitants of said county. After notice and a hearing upon said petition, the board, on June 26, 1896, made the following order:
‘‘Pursuant to an act of the legislature of the state of California entitled ‘An act to regulate and control the sale, rental, and distribution of appropriated water in this state, other than in any city, city and county, or town therein, and to secure the rights of way for the conveyance of such water to the places of use,’ approved March 12, 1885 (St. 1885, p. 05), the board regularly proceeds to the hearing of the petition of C. C. Eastin et ala., presented herein, praying for the regulation of the ratos and compensation to be collected by the San Joaquin and Kings River Canal & Irrigation Company for the sale, rental, or distribution of its appropriated water to any of the inhabitants of Stanislaus county, under and pursuant to said act, and evidence having been introduced by and on behalf of the petitioners herein arid by and on behalf of the said San Joaquin and Kings River Canal & Irrigation Company; and, the same being closed, and the matter submitted to the board for its consideration and decision, and the board being fully advised in the promises, the board does hereby estimate, as near as may be, the value of the canal, ditches, flumes, water chutes, and all other property actually used and useful to the appropriation of the appropriated waters of said company, belonging to and possessed by it, at the sum of $337,000.”
The remainder of the order is immaterial to the present controversy.. This estimate of the value of complainant’s property appears to have been based mainly upon a report by R. H. Goodwin, consulting
“The following is an estimated cost of construction of the above-mentioned canal, taking in consideration the different widths, cross-sections, grades, materials, and appurtenances based on the prices of materials, supplies, and labor of the present date:
Earth excavation, 2,966,125 yards, at 6% c..................$192,798 10
Lumber in head, regulating, distributing, waste, and inlet gates, boxes, bridges, etc., 1,089,410 feet B. M„ in place____ 55,536 50
Six station buildings...................................... 4,000 00
Telephone line 70 miles.................................... 4,900 00
Engineering, superintendence, offices of company, stationery and printing, law expenses, and other incidentals......... 25,723 40
Bight of way, first 30 miles, 900 acres, at $3................. 2,700 00
Bight of way, balance distance, 1,068 acres, at $25........... 26,700 00
Total cost..............................................$312,358 00
“We place the present' cash value of the above-mentioned canal and works at $251,000.00.”
To this estimated cost of construction at that date, to wit, $312,-358, the board added the sum of $24,642, making the total of $337,ooo.' It nowhere appears that this addition of $24,642 to the estimated cost of construction at that date as made by the experts employed by the board had any relation to the amount of capital actually invested in the corporation by the shareholders. On the contrary, the testimony indicates that this element in the valuation of the property was entirely ignored. Upon this valuation of $337,000 the board fixed the following rates: For irrigating alfalfa, all perennial grasses, and-all cereals, $1.50 per acre per annum; for irrigating trees and vines, $2 per acre per annum; for irrigating gardens, $3.50 per acre per annum; for water for sheep, hogs, or goats, $6 per 1,000 per month, and at the same rate for a less number; for water for horses, cattle, mules, and other live stock, $25 per 1,000 per month, and at the same rate for a less number. Prior to this order of the board of supervisors the rates which had been fixed by the complainant and charged to consumers of water in the counties of Fresno, Merced, and Stanislaus, were as follows: For irrigating alfalfa, $2.50 per acre per annum; for irrigating cereals, $2 per acre per annum; for irrigating trees and vines, $2.50 per acre per annum; for irrigating gardens, $5 per acre per annum; for water for sheep, hogs, or goats, $10 per 1,000 per month, and at the same rate for a less number; for water for horses, cattle, mules, and other live stock, $40 per 1,000 per month, and at the same rate for a less number. For the purposes of this case it is conceded by the complainant that the rates per acre per annum for irrigating alfalfa, $2.50 per acre per annum, and cereals, $2 per acre per annum, are the only rates that are material to be considered in this case, for the reason that the water supplied to consumers at the other rates constitutes but a very insignificant portion of the business of the complainant. The damage to the complainant arises out of the fact that, but for this order of the board of supervis®rs of June 26. 1896, fixing the rate that complainant might charge
It appears from the evidence that the canal owned and maintained by the complainant is on the west side of the San J oaquin river; that this canal has its head at the junction of the San Joaquin river with Fresno Slough, in Fresno county, and runs down the west side of the San Joaquin valley through the counties of Fresno and Merced into the county of Stanislaus. The total length of the canal is I20jd miles, of which 42.9 miles are in the county of Fresno, 66.15 in the county of Merced, and 11.7 miles in the county of Stanislaus. A branch of the main canal in Fresno and Merced counties, called the “Dos Palos Branch,” is 23 miles in length, but, as this branch is not used to supply water in the county of Stanislaus, it may be disregarded in this controversy. The complainant is a corporation organized in September, 187T, under the laws of the state of California. The capital stock of the corporation is divided into 100,000 shares of the par value of $100. Upon 83,000 shares of this stock calls amounting to $10.15 per share were made, and $862,750 paid in. The remaining 15,000 shares were involved in the transaction of purchase under which they were issued nonassessable until calls to the amount of $7-50 per share had been paid upon the other stock. The calls upon this stock amounted to $2.65 per share, and $39,750 paid in. There was also an additional amount of $1.45 per share, on 8,500 shares of this stock paid in, amounting to $12,325; making a total of $914,825 paid by the shareholders upon the stock of the company. The complainant commenced operations in 1871 by purchasing from another corporation known as the Ban Joaquin & Kings River Canal Company all the property, vested rights, surveys, and works acquired by that company since the date of its incorporation in 1866. The complainant proceeded with the work of constructing this canal. The date of its completion is a subject of controversy, but need not be determined. The claim of the defendants in this respect may be accepted for the purposes of this case. It appears that in the course of construction the complainant distributed' water for irrigating purposes to consumers along the line of the canal, and derived an income from that source, up to the year 1886 amounting to $60,349.20. This money was not, however, distributed in dividends, but was used by the company in construction. From 1886 to 1898 the net profits of the corporation were $158,112.58, and of this amount $134,893.38 was used by the company in the work of construction, mailing the total amount contributed to the capital of the corporation from 1871 to 1898 the sum
Paid San Joaquin & Kings River Canal Company, cost of works to date of purchase................................. $ 119,335 29
Paid John Bensley et al. in stock (15,000 shares at $7.50) for remainder of property of old company........................ 112,500 00
Paid by this company for construction performed by itself from date of purchase from old company to February 28, 1885 ..... 739,277 84
Paid by this company for construction from March 1, 1S85, to November 25, 1895......................................... 84,685 51
Total ..................................................... $1,055,798 64
This exhibit was subject to the objection that complainant’s books prior to 1886 did not distinguish between the cost of maintenance and the cost of construction. The complainant accordingly made a second statement, in which the cost of maintenance was excluded. This revised statement was introduced as “Exhibit 12,” and was headed:
“Statement of cost of construction of San Joaquin Canal to December 31, 1873, and betterments since constructed therein, with cost of construction, of parallels and extensions. This includes only items actually charged to construction, and which can be identified from the accounts as properly belonging thereto, and does not include any charges for construction which cannot be positively so identified from the accounts alone.”
The items of cost were given in greater detail in this statement than in Exhibit 2, and amount to $798,429.61. It is evident that this last statement shows (the actual cost of complainant’s canal and works - more accurately than the preceding one, but it is not necessary for the court to determine that it is in fact correct, or that it shows the actuaf value of the property used and useful in supplying water to the inhabitants of Stanislaus county. It is not the duty of the court to-estimate the value of complainant’s property or fix the water rates-it may charge; but this statement, as well as the one relating to the amount of capital paid into the corporation by the stockholders, can only be considered, with the other testimony in the case on behalf of-complainant, as evidence tending to establish the fact that when the board of supervisors estimated the value of the canal, ditches, flumes,, water chutes, and all other property belonging to the complainant, and-actually used and useful to the appropriation of water by the company, no consideration .was given by the board to the evidence showing the-amount of capital actually paid into the corporation or the actual,, reasonable, and proper cost of the works. The court finds that the-evidence in the case does establish the fact that the board failed to-
The question as to the amount of income which the complainant is entitled to receive on account of the capital actually invested remains to be considered. The act of 1862 provides that the board of supervisors should not reduce the water rates, rents, or tolls “so low as to yield to the stockholders less than one and one-half per cent, per month upon the capital actually invested.” Prior to June 26, 1896, and for a period of more than 25 years, the complainant fixed its own rates for water supplied to consumers, but at no time did it fix rates so high as to yield ijts per cent, per month upon any estimate of the value of the property or capital actually invested. This, then, was a right under the statute which the complainant never claimed and never reduced to possession, either before or after the act of 1885. In the Sinking Fund Cases, 99 U. S. 700, 720, 25 L. Ed. 496, Mr Chief Justice Waite, speaking of the power of congress to make such alteration and amendments of the charter as come within the just scope of legislative power, used language appropriate to this question. He said:
“That this-power has a limit, no one can doubt. All agree that It cannot he used co take away property already acquired under the operation of the charter, or to deprive corporations of the fruits actually reduced to possession of contracts lawfully made.”
This statement was not necessary to the determination of the question before the court, but it appears to be sound in principle. The qualification that a statutory right embraced in the charter of a corporation must be reduced to possession to secure the constitutional protection against alteration and repeal is unquestionably a law of the grant. It is perhaps true that there might be cases where a corporation of the character of the complainant, having invested capital in good faith, would not be held to have waived its ultimate right to the limit of income provided in its charter by the acceptance of a smaller income during the progress of construction, or perhaps even longer, until its system of irrigation had brought prospective tracts of land under successful cultivation. But the evidence in this case does not justify the complainant in making that claim. It had waived its right to an income of Ij4 per cent, per month by not making rates to secure that income during any part of its term of existence prior to the passage of the act of 1885, and this act providing that the net annual receipts as adjusted by the board of supervisors should not be less than 6 nor more than 18 per cent, per annum, is therefore properly applicable to the regulation of complainant’s rates.
Eet a decree be entered in favor of the complainant in accordance with this opinion.
