Under the provisions of the Act of the Legislature of California
of March 7, 1881, c. 52, making it the official duty of the board
of supervisors, town council, board of aldermen or other
legislative body of any city
Page 174 U. S. 740
and county, city or town in the state to annually fix the rates
that shall be charged and collected for water furnished, one who
furnishes water is not entitled to formal notice as to the precise
day upon which the water rates will be fixed, as provision for
hearing is made by statute in an appropriate way.
There is no ground in the facts in this case for saying that the
appellant did not have or was denied an opportunity to be heard
upon the question of rates.
It was competent for the State of California to declare that the
use of all water appropriated for sale, rental, or distribution
should be a public use, subject to public regulation and control;
but this power could not be exercised arbitrarily and without
reference to what was just and reasonable between the public and
those who appropriated water and supplied it for general use.
The judiciary ought not to interfere with the collection of such
rates, established under legislative sanction, unless they are so
plainly and palpably unreasonable as to make their enforcement
equivalent to the taking of property for public use without such
compensation as, under the circumstances, is just both to the owner
and the public.
In this case, it is not necessary to decide whether the city
ordinance should have expressly allowed the appellant to charge for
what is called a water right.
On careful scrutiny of the testimony, this Court is of opinion
that no case is made which will authorize a decree declaring that
the rates fixed by the defendant's ordinance are such as amount to
a taking of property without just compensation, and that the case
is not one for judicial interference with the action of the local
authorities.
This appeal brings up for review a decree of the Circuit Court
of the United States for the Southern district of California
dismissing a bill filed in that court by the San Diego Land &
Town Company, a Kansas corporation, against the City of National
City, a municipal corporation of California, and John G. Routsan
and others, trustees of that city and citizens of California. 74 F.
79.
The nature of the cause of action set out in the bill is
indicated by the following statement:
The Constitution of California declares:
That
"no corporation organized outside the limits of the state shall
be allowed to transact business within this state on more favorable
conditions than are prescribed by law to similar corporations
organized under the laws of this state."
Art. 12, § 15.
Page 174 U. S. 741
That
"the use of all water now appropriated, or that may hereafter be
appropriated, for sale, rental or distribution is hereby declared
to be a public use, and subject to the regulation and control of
the state in the manner to be prescribed by law; provided that the
rates or compensation to be collected by any person, company or
corporation in this state for the use of water supplied to any city
and county, or city or town, or the inhabitants thereof, shall be
fixed annually, by the board of supervisors, or city and county, or
city or town council, or other governing body of such city and
county, or city or town, by ordinance or otherwise, in the manner
that other ordinances or legislative acts or resolutions are passed
by such body, and shall continue in force for one year, and no
longer. Such ordinances or resolutions shall be passed in the month
of February of each year, and take effect on the first day of July
thereafter. Any board or body failing to pass the necessary
ordinances or resolutions fixing water rates, where necessary,
within such time, shall be subject to peremptory process to compel
such action at the suit of any party interested, and shall be
liable to such further processes and penalties as the legislature
may prescribe. Any person, company, or corporation collecting water
rates in any city and county, or city or town in this state
otherwise than as so established shall forfeit the franchises and
waterworks of such person, company, or corporation to the city and
county or city or town where the same are collected, for the public
use."
Art. 14, § 1. And that
"the right to collect rates or compensation for the use of water
supplied to any county, city and county, or town, or the
inhabitants thereof, is a franchise, and cannot be exercised except
by authority and in the manner prescribed by law."
Art. 14, § 2.
By an act of the Legislature of California passed March 7, 1881,
it was provided:
"§ 1. The board of supervisors, town council, board of
aldermen, or other legislative body of any city and county, city or
town, are hereby authorized and empowered, and it is made their
official duty, to annually fix the rates that shall be charged and
collected by any person, company, association or
Page 174 U. S. 742
corporation, for water furnished to any such city and county, or
city or town, or the inhabitants thereof. Such rates shall be fixed
at a regular or special session of such board or other legislative
body held during the month of February of each year, and shall take
effect on the first day of July thereafter, and shall continue in
force and effect for the term of one year and no longer."
"§ 2. The board of supervisors, town council, board of
trustees or other legislative body of any county, city or town, are
hereby authorized, and it is made their duty at least thirty days
prior to the 15th day of January of each year, to require, by
ordinance or otherwise, any corporation, company or persons
supplying water to such county, city or town, or to the inhabitants
thereof, to furnish to such board or other governing body in the
month of January of each year, a detailed statement, verified by
the oath of the president and secretary of such corporation or
company or of such person, as the case may be, showing the name of
each water rate payer, his or her place of residence, and the
amount paid for water by each of such water payers during the year
preceding the date of such statement, and also showing all revenue
derived from all sources, and an itemized statement of expenditures
made for supplying water during said time."
Stats. of Cal. 1881, p. 54.
By an ordinance of the board of trustees of the defendant city
approved February 21, 1895, certain rates of compensation to be
collected by persons, companies, or corporations for the use of
water supplied to that city or its inhabitants, or to corporations,
companies, or persons doing business or using water therein, were
fixed for the year beginning July 1, 1895.
For the purposes of that ordinance, the uses of water were
divided into four classes -- namely, domestic purposes, public
purposes, mechanical and manufacturing purposes, and purposes of
irrigation, the rates for each class were prescribed, and it was
provided that no person, company, or corporation should charge,
collect, or receive water rates in the city, except as thus
established.
Page 174 U. S. 743
The bill in this case questioned the validity of the above
ordinance upon the following grounds:
That no notice of the fixing of the water rates was given, nor
opportunity presented for a hearing upon the matter of rates; that
no provision in the constitution or laws of California, under and
by virtue of which the board of trustees assumed to act, required
or authorized such notice; that water rates were fixed by the board
arbitrarily, without notice or evidence, and were unreasonable and
unjust, in that, under them the plaintiff could not realize
therefrom, and from all other sources within and outside of the
limits of the defendant city, a sufficient sum to pay its ordinary
and necessary operating expenses, or any dividends whatever to
stockholders, or any interest or profit on its investment; that, so
long as the ordinance remained in force the plaintiff would be
required by the laws of California to supply water to all consumers
within the city at the rates so fixed, which could only be done at
a loss to the plaintiff, and that to compel the plaintiff to
furnish water at those rates would be a practical confiscation and
a taking of its property without due process of law;
The bill also alleged that the defendant city was composed in
large part of a territory of farming lands devoted to the raising
of fruits and other products, only a small part thereof being
occupied by residences or business houses;
That, prior to the adoption of the ordinance above set forth,
the plaintiff, in order to meet in part the large outlay it had
been compelled to make in and about its water system, had
established a rate of one hundred dollars per acre for a perpetual
water right for the purposes of irrigation, and required the
purchase and payment for such water right before extending its
distributing system to lands not yet supplied with water or
furnishing such lands with water, which rate was made uniform and
applicable alike to all lands to be furnished with water within and
outside of the city, and such payment for a water right had ever
since been charged as a condition upon which alone water would be
supplied to consumers for the purposes of irrigation, and many
consumers prior to the
Page 174 U. S. 744
adoption of the ordinance had purchased such water right and
paid therefor;
That the rate charged for such water right was reasonable and
just, and was necessary to enable the plaintiff to keep up and
extend its water system, so as to supply water to consumers
requiring and needing the same, and without which it could not
operate and extend its plant, so as to render it available and
beneficial to all water consumers that could with the necessary
expenditure be supplied from the system;
That the lands covered by plaintiff's system were arid and of
but little value without water, and a water right, such as it
granted to consumers, increased the land in value more than three
times the amount charge for such right, and was of great value to
the land owner;
That the above ordinance fixed the total charge that might be
made by the plaintiff for water furnished for purposes of
irrigation at four dollars per acre per annum, and as construed by
the city and consumers deprived the plaintiff of all right to make
any charge for water rights, and the rate was fixed without taking
into account or allowing in any way for such water right;
That the amount of four dollars per acre per annum was
unreasonably low, and required the plaintiff to furnish water to
consumers within the limits of the city for purposes of irrigation
for less than it furnished the same to consumers outside of the
city for the same purpose, and so low that it could not furnish the
same without positive loss to itself;
That large numbers of persons residing within the city owning
land therein, and desiring to irrigate the same, were demanding
that their lands be connected with the plaintiff's system, and
supplied with water at the rate of four dollars per acre per annum,
and without any payment for a water right, and, under the laws of
the State of California, if water was once furnished to such
parties, they thereby obtained a perpetual right to the use of
water on their lands without payment for such water rights; and
That, until the questions as to the validity of the ordinance
and of the right of the plaintiff to charge for a water right
Page 174 U. S. 745
as a condition upon which it would furnish water for purposes of
irrigation were determined, the plaintiff could not safely charge
for such water rights, or collect fair and reasonable rates for
water furnished, by reason of which it would be damaged in the sum
of twenty thousand dollars.
The relief asked was a decree adjudging that the rates fixed by
the defendant city were void; that the constitution and laws of
California, and the proceedings of the defendant's board of
trustees under them, were in violation of the Constitution of the
United States, and particularly of the first section of the
fourteenth amendment, and that the taking of the plaintiff's water,
without payment for the water right or the right to the use
thereof, was in violation of the bill of rights of the constitution
of California.
The plaintiff also prayed that if the court determined that the
state constitution and laws relating to compensation for the use of
water for public purposes were valid, then that it be declared by
decree that the rates fixed in the ordinance were arbitrary,
unreasonable, unjust, and void; that the board of trustees be
ordered and required to adopt a new and reasonable rate of charges,
and that the enforcement of the present ordinance be enjoined.
The plaintiff asked that it be further decreed that it was
entitled to charge and collect for water rights at reasonable
rates, as a condition upon which it would furnish water for the
purposes of irrigation, notwithstanding the rates fixed by the
trustees for water sold and furnished.
It was denied that the rates fixed by the ordinance in question
were unreasonable or unjust, or that the plaintiff could not
realize within the city sufficient to pay the just proportion that
the city and its inhabitants ought to contribute to the expenses of
the plaintiff's system, and as much more as the city and its
inhabitants should justly and reasonably pay towards interest and
profit on plaintiff's investment, as the same existed when the
ordinance was enacted. It was alleged that, under the annual rates
fixed by the ordinance the income of the plaintiff in the city
would be about the same as that derived and being derived by it
under the ordinance previously in force;
Page 174 U. S. 746
that it was not true that plaintiff could only supply consumers
within the city at the rates so fixed at a loss, and that to compel
the plaintiff to furnish water at said rates was not a practical
confiscation of its property or a taking of it without due process
of law.
The defendants admitted that the city was composed in
considerable part of a territory of farming lands devoted to the
raising of fruits and other products, and that a part thereof was
occupied by residences and business houses. But it was averred that
the population of the city when the ordinance was adopted was about
1,300 persons; that the area within its boundaries laid out in town
lots was about 800 acres, divided into 6,644 lots, of which the
plaintiff in January, 1887, owned 4,200; that the land within the
boundaries of the city not laid off into town lots comprised about
3,500 acres, of which the plaintiff in January, 1888, owned 1,289
3/4 acres; that, when the ordinance was passed plaintiff continued
to own about 3,688 of said lots, and about 1,184 acres of land, and
that the number of acres of farming land not under irrigation in
the city at the time when the ordinance was passed was about
610.
It was further stated that, since the plaintiff established the
rate of $100 per acre for such "perpetual right for the purpose of
irrigation," it had in no instance supplied water to any land not
already under irrigation, except on purchase of said water right
and payment therefor, and that the rate charged for said water
right was not reasonable or just, nor necessary to enable plaintiff
to keep up and extend its water system, so as to supply water to
consumers who required and needed the same.
The defendants insisted that the laws of California did not
confer upon the city or its board of trustees the power to
prescribe by ordinance or otherwise that the purchase and payment
of such water rights should be a condition to the exercise of the
right of consumers to use any water appropriated for irrigation as
already stated, or any water supply affected with the public use;
that $4 dollars per acre per annum was not unreasonably low, and
that such rate did not require the plaintiff to furnish water to
consumers within the city for purposes
Page 174 U. S. 747
of irrigation for less than it furnished the same to consumers
outside of the city for the same purposes, or that it could not
furnish the same without positive loss to itself.
It was further averred that, up to December, 1892, plaintiff by
its public representations and continuous practice voluntarily
conferred and annexed such perpetual rights to the use of the water
on the lands of all persons who requested the same without the
payment of any consideration therefor, except the annual rate of
$3.50 per acre adopted by it under its entire system within and
without the city, in addition to charges made for tap connections
with its pipe, ranging from $12 to $50 for each such connection;
that in December, 1892, it changed it rule and practice, and from
that time on until February, 1895, charged and exacted the payment
as and for a so-called "water right" of $50 per acre, and from the
latter date $100 per acre, for the privilege of connecting with its
system any lands not then already under irrigation from it, and
that, since December, 1892, it had at all times declined and
refused to connect, and had not in fact connected, any lands with
its irrigating system, except upon payment made to it of such rates
of $50 and $100 per acre, respectively, for the "water right," and
that whether plaintiff could or could not safely charge for such
water rights had been in no way by law committed to said board of
trustees to determine.
The cause having been heard upon the pleadings and proofs, the
bill was dismissed. 74 F. 79.
MR. JUSTICE HARLAN, after stating the case as above, delivered
the opinion of the Court.
While admitting that the power to limit charges for water sold
by a corporation like itself has been too often upheld to
Page 174 U. S. 748
be now questioned, the appellant contends that the Constitution
and statutes of California relating to rates or compensation to be
collected for the use of water supplied to a municipality or its
inhabitants are inconsistent with the constitution of the United
States. It is said that the state constitution and laws authorized
rates to be established without previous notice to the corporation
or person immediately interested in the matter, and without hearing
in any form, and therefore were repugnant to the clause of the
federal constitution declaring that no state shall deprive any
person of property without due process of law.
Upon the point just stated, we are referred to the decision of
this Court in
Chicago, Milwaukee &c. Railway v.
Minnesota, 134 U. S. 418,
134 U. S. 452,
134 U. S.
456-457. That case involved the constitutionality of a
statute of Minnesota empowering a commission to fix the rates of
charges by railroad companies for the transportation of property.
The supreme court of the state held that it was intended by the
statute to make the action of the commission final and conclusive
as to rates, and that the railroad companies were not at liberty,
in any form or at any time, to question them as being illegal or
unreasonable. This Court said:
"This being the construction of the statute, by which we are
bound in considering the present case, we are of opinion that, so
construed, it conflicts with the constitution of the United States
in the particulars complained of by the railroad company. It
deprives the company of its right to a judicial investigation, by
due process of law, under the forms and with the machinery provided
by the wisdom of successive ages for the investigation, judicially,
of the truth of a matter in controversy, and substitutes therefor,
as an absolute finality, the action of a railroad commission,
which, in view of the powers conceded to it by the state court,
cannot be regarded as clothed with judicial functions or possessing
the machinery of a court of justice. . . . By the second section of
the statute in question it is provided that all charges made by a
common carrier for the transportation of passengers or property
shall be equal and reasonable. Under this provision, the carrier
has a right to make equal and reasonable charges for such
transportation.
Page 174 U. S. 749
In the present case, the return alleged that the rate of charge
fixed by the commission was not equal or reasonable, and the
supreme court held that the statute deprived the company of the
right to show that judicially. 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 takes place in the absence of an investigation by
judicial machinery, it is deprived of the lawful use of its
property, and thus, in substance and effect, of the property
itself, without due process of law, and in violation of the
constitution of the United States, and insofar 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 laws."
Observe that this Court based its interpretation of the statute
of Minnesota upon the construction given to it by the Supreme Court
of that state.
What this Court said about the Minnesota statute can have no
application to the present case unless it be made to appear that
the Constitution and laws of California invest the municipal
authorities of that state with power to fix water rates
arbitrarily, without investigation, and without permitting the
corporations or persons affected thereby to make any showing as to
rates to be exacted, or to be heard at any time or in any way upon
the subject. The contention of appellant is that such is the
purpose and necessary effect of the constitution of the state. We
are not at liberty so to interpret that instrument. What the
Supreme Court of California said in
Spring Valley Water Works
v. San Francisco, 82 Cal. 286, 306, 307, 309, 315, upon this
subject, would seem to be a sufficient answer to the views
expressed by the appellant. In that case, it was contended that a
board of supervisors had fixed rates arbitrarily, without
investigating, without any exercise of judgment or discretion,
without any reference to what they should
Page 174 U. S. 750
be, and without reference either to the expense incurred in
furnishing water, or to what was fair compensation therefor. The
court said:
"The constitution does not contemplate any such mode of fixing
rates. It is not a matter of guesswork or an arbitrary fixing of
rates without reference to the rights of the water company or the
public. When the constitution provides for the fixing of rates or
compensation, it means
reasonable rates and
just
compensation. To fix
such rates and compensation is the
duty and within the jurisdiction of the board. To fix rates not
reasonable, or compensation not just, is a plain violation of its
duty. But the courts cannot, after the board has fully and fairly
investigated and acted, by fixing what it believes to be reasonable
rates, step in and say its action shall be set aside and nullified,
because the courts, upon a similar investigation, have come to a
different conclusion as to the reasonableness of the rates fixed.
There must be actual fraud in fixing the rates, or they must be so
palpably and grossly unreasonable and unjust as to amount to the
same thing. . . . The fact that the right to store and dispose of
water is a public use, subject to the control of the state, and
that its regulation is provided for by the state constitution, does
not affect the question. Regulation of this state, as provided for
in the constitution, does not mean 'confiscation' or 'taking
without just compensation.' If it does, then our constitution is
clearly in violation of the Constitution of the United States,
which provides that this shall not be done. The ground taken by the
appellant is that the fixing of rates is a
legislative
act; that, by the terms of the constitution the board of
supervisors are made a part of the legislative department of the
state government, and exclusive power given them which cannot be
encroached upon by the courts. . . . This court has held that the
fixing of water rates is a
legislative act, at least to
the extent that the action of the proper bodies clothed with such
power cannot be controlled by writs, which can issue only for the
purpose of controlling
judicial action.
Spring Valley
Water Works v. Bryant, 52 Cal. 132;
Spring Valley Water
Works v. City and County of San Francisco, 52 Cal. 111;
Spring Valley Water Works v. Bartlett, 63 Cal.
Page 174 U. S. 751
245. There are other cases holding the act to be legislative,
but whether it is judicial, legislative, or administrative is
immaterial. Let it be which it may, it is not above the control of
the courts in proper cases. . . . We are not inclined to the
doctrine, asserted by the appellant in this case, that every
subordinate body of officers to whom the legislature delegates what
may be regarded as legislative power thereby becomes a part of the
legislative branch of the state government and beyond judicial
control. In the case of
Davis v. Mayor, etc., of New York,
4 Duer 451, 497, it is further said:"
" . . . The doctrine, exactly as stated, may be true when
applied to the legislature of the state, which, as a coordinate
branch of the government, representing and exercising in its sphere
the sovereignty of the people, is, for political reasons of
manifest force, wholly exempt in all its proceedings from any legal
process or judicial control; but the doctrine is not, nor is any
portion of it, true, when applied to a subordinate municipal body,
which, although clothed to some extent with legislative and even
political powers, is yet, in the exercise of all its powers, just
as subject to the authority and control of courts of justice, to
legal process, legal restraint, and legal correction as any other
body or person, natural or artificial."
Again:
"On the part of the respondent, it is contended, in support of
the decision of the court below, that notice to the plaintiff of an
intention to fix the rates was necessary, and that, without such
notice being given, the action of the board was a taking of its
property without due process of law. But the constitution is
self-executing, and as it does not require notice, we think no
notice was necessary. It does not follow, however, that, because no
notice is necessary, the board are for that reason excused from
applying to corporations or individuals interested to obtain all
information necessary to enable it to act intelligibly and fairly
in fixing the rates. This is its plain duty, and a failure to make
the proper effort to procure all necessary information from
whatever source may defeat its action."
In the more recent case of
San Diego Water Co. v. San
Diego, 118 Cal. 556, 566, the state court, referring to
Page 174 U. S. 752
section 1 of the Constitution of California, said that the
meaning of that section was that
"the governing body of the municipality, upon a fair
investigation, and with the exercise of judgment and discretion,
shall fix reasonable rates, and allow just compensation. If they
attempt to act arbitrarily, without investigation, or without the
exercise of judgment and discretion, or if they fix rates so
palpably unreasonable and unjust as to amount to arbitrary action,
they violate their duty and go beyond the powers conferred upon
them. Such was the conclusion reached by this Court in
Spring
Valley Water Works v. San Francisco, 82 Cal. 286, to which
conclusion we adhere. Although that case was decided without the
light cast on the subject by later decisions of the Supreme Court
of the United States, and contains some observations that perhaps
require modification, we are satisfied with the correctness of the
conclusion [construction] there given to this section of the
constitution."
Was the appellant entitled to formal notice as to the precise
day upon which the water rates would be fixed by ordinance? We
think not. The constitution itself was notice of the fact the
ordinances or resolutions fixing rates would be passed annually in
the month of February in each year, and would take effect on the
first day of July thereafter. It was made by statute the duty of
the appellee at least thirty days prior to the 15th day of January
in each year to obtain from the appellant a detailed statement,
showing the names of water rate payors, the amount paid by each
during the preceding year, and "all revenue derived from all
sources," and the "expenditures made for supplying water during
said time." It was the right and duty of appellant in January of
each year to make a detailed statement, under oath, showing every
fact necessary to a proper conclusion as to the rates that should
be allowed by ordinance. Act March 7, 1881, § 2, above cited.
Provision was thus made for a hearing in an appropriate way. The
defendant's board could not have refused to receive the statement
referred to in the statute, or to have duly considered it, and
given it proper weight in determining rates. If the state, by its
constitution
Page 174 U. S. 753
or laws, had forbidden the city or its board to receive and
consider any statement or showing made by the appellant touching
the subject of rates, a different question would have arisen. But
no such case is now presented. In
Kentucky Railroad Tax
Cases, 115 U. S. 321,
115 U. S. 333,
it was said:
"This return made by the corporation through its officers is the
statement of its own case, in all the particulars that enter into
the question of the value of its taxable property, and may be
verified and fortified by such explanations and proofs as it may
see fit to insert. It is laid by the auditor of public accounts
before the board of railroad commissioners, and constitutes the
matter on which they are to act. They are required to meet for that
purpose on the first day of September of each year at the office of
the auditor at the seat of government. . . . These meetings are
public, and not secret. The time and place for holding them are
fixed by law."
There is no ground to say that the appellant did not in fact
have, or was denied, an opportunity to be heard upon the question
of rates. On the contrary, it appears in evidence that the subject
of rates was considered in conferences between the local
authorities and the officers of the appellant. Those officers may
not have been present at the final meeting of the city board when
the ordinance complained of was passed. They were not entitled of
right to be present at that particular meeting. They were heard,
and there is nothing to justify the conclusion that the case of the
appellant was not fully considered before the ordinance was
passed.
That it was competent for the State of California to declare
that the use of all water appropriated for sale, rental, or
distribution should be a public use, and subject to public
regulation and control, and that it could confer upon the proper
municipal corporation power to fix the rates of compensation to be
collected for the use of water supplied to any city, county, or
town, or to the inhabitants thereof, is not disputed, and is not,
as we think, to be doubted. It is equally clear that this power
could not be exercised arbitrarily and without reference to what
was just and reasonable as between the public and those who
appropriated water and supplied it for
Page 174 U. S. 754
general use, for the state cannot by any of its agencies,
legislative, executive, or judicial, withhold from the owners of
private property just compensation for its use. That would be a
deprivation of property without due process of law.
Chicago,
Burlington &c. Railroad v. Chicago, 166 U.
S. 226;
Smyth v. Ames, 169 U.
S. 466,
169 U. S. 524.
But it should also be remembered that the judiciary ought not to
interfere with the collection of rates established under
legislative sanction unless they are so plainly and palpably
unreasonable as to make their enforcement equivalent to the taking
of property for public use without such compensation, as, under all
the circumstances, is just both to the owner and to the public --
that is, judicial interference should never occur unless the case
presents clearly and beyond all doubt such a flagrant attack upon
the rights of property, under the guise of regulations, as to
compel the court to say that the rates prescribed will necessarily
have the effect to deny just compensation for private property
taken for the public use.
Chicago & Grand Trunk Railway v.
Wellman, 143 U. S. 339,
143 U. S. 344;
Reagan v. Farmers' Loan & Trust Co., 154 U.
S. 362,
154 U. S. 399;
Smyth v. Ames, above cited.
See also Henderson Bridge
Co. v. Henderson City, 173 U. S. 592,
173 U. S.
614-615.
In view of these principles, can it be said that the rates in
question are so unreasonable as to call for judicial interference
in behalf of the appellant? Such a question is always an
embarrassing one to a judicial tribunal, because it is primarily
for the determination of the legislature or of some public agency
designated by it. But when it is alleged that a state enactment
invades or destroys rights secured by the Constitution of the
United States, a judicial question arises, and the courts, federal
and state, must meet the issue, taking care always not to entrench
upon the authority belonging to a different department nor to
disregard a statute unless it be unmistakably repugnant to the
fundamental law.
What elements are involved in the general inquiry as to the
reasonableness of rates established by law for the use of property
by the public? This question received much consideration in
Smyth v. Ames, above cited. That case, it is
Page 174 U. S. 755
true, related to rates established by a statute of Nebraska for
railroad companies doing business in that state. But the principles
involved in such a case are applicable to the present case. It was
there contended that a railroad company was entitled to exact such
charges for transportation as would enable it at all times not only
to pay operating expenses, but to meet the interest regularly
accruing upon all its outstanding obligations and justify a
dividend upon all its stock, and that to prohibit it from
maintaining rates or charges for transportation adequate to all
those ends would be a deprivation of property without due process
of law and a denial of the equal protection of the laws. After
observing that this broad proposition involved a misconception of
the relations between the public and a railroad corporation, that
such a corporation was created for public purposes, and performed a
function of the state, and that its right to exercise the power of
eminent domain and to charge tolls was given primarily for the
benefit of the public, this Court said:
"It cannot, therefore, be admitted that a railroad corporation
maintaining a highway under the authority of the state may fix its
rates with a view solely to its own interest, and ignore the rights
of the public. But the rights of the public would be ignored if
rates for the transportation of persons or property on a railroad
are exacted without reference to the fair value of the property
used for the public, or the fair value of the services rendered,
but in order simply that the corporation may meet operating
expenses, pay the interest on its obligations, and declare a
dividend to stockholders. If a railroad corporation has bonded its
property for an amount that exceeds its fair value, or if its
capitalization is largely fictitious, it may not impose upon the
public the burden of such increased rates as may be required for
the purpose of realizing profits upon such excessive valuation or
fictitious capitalization, and the apparent value of the property
and franchises used by the corporation, as represented by its
stocks, bonds, and obligations, is not alone to be considered when
determining the rates that may be reasonably charged."
169 U.S.
169 U. S. 544.
In the same case, it was also said that
"the
Page 174 U. S. 756
basis of all calculation as to the reasonableness of rates to be
charged by a corporation maintaining a highway under legislative
sanction must be the fair value of the property used by it for the
convenience of the public. And in order to ascertain that value,
the original cost of construction, the amount expended in permanent
improvements, the amount and market value of its bonds and stock,
the present as compared with the original cost of construction, the
probable earning capacity of the property under particular rates
prescribed by statute, and the sum required to meet operating
expenses, are all matters for consideration, and are to be given
such weight as may be just and right in each case. We do not say
that there may not be other matters to be regarded in estimating
the value of the property. What the company is entitled to ask is a
fair return upon the value of that which it employs for the public
convenience. On the other hand, what the public is entitled to
demand is that no more be exacted from it for the use of a public
highway than the services rendered by it are reasonably worth."
169 U.S.
169 U. S.
546.
This Court had previously held in
Covington & Lexington
Turnpike Road Company v. Sandford, 164 U.
S. 578,
164 U. S.
596-598, which case involved the reasonableness of rates
established by legislative enactment for a turnpike company, that a
corporation performing public services was not entitled, as of
right and without reference to the interests of the public, to
realize a given percent upon its capital stock; that stockholders
were not the only persons whose rights or interests were to be
considered, and that the rights of the public were not be ignored.
The Court in that case further said:
"Each case must depend upon its special facts, and when a court,
without assuming itself to prescribe rates, is required to
determine whether the rates prescribed by the legislature for a
corporation controlling a public highway are, as an entirety, so
unjust as to destroy the value of its property for all the purposes
for which it was acquired, its duty is to take into consideration
the interests both of the public and of the owner of the property,
together with all other
Page 174 U. S. 757
circumstances that are fairly to be considered in determining
whether the legislature has, under the guise of regulating rates,
exceeded its constitutional authority and practically deprived the
owner of property without due process of law. . . . The utmost that
any corporation operating a public highway can rightfully demand at
the hands of the legislature when exerting its general powers is
that it receives what, under all the circumstances, is such
compensation for the use of its property as will be just, both to
it and to the public."
These principles are recognized in recent decisions of the
Supreme Court of California.
San Diego Water Co. v. San
Diego (1897), 118 Cal. 556;
Redlands Domestic Water Co. v.
Redlands (1898), 53 P. 843, 844.
The contention of the appellant in the present case is that, in
ascertaining what are just rates, the court should take into
consideration the cost of its plant, the cost per annum of
operating the plant, including interest paid on money borrowed and
reasonably necessary to be used in constructing the same, the
annual depreciation of the plant from natural causes resulting from
its use, and a fair profit to the company over and above such
charges for its services in supplying the water to consumers either
by way of interest on the money it has expended for the public use
or upon some other fair and equitable basis. 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 will be just to the company and to the public. The
basis of calculation suggested by the appellant is, however,
defective in not requiring the real value of the property and the
fair value in themselves of the services rendered to be taken into
consideration. 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.
The property may have cost more than it ought to have cost, and its
outstanding bonds for money borrowed and which went into the plant
may be in excess of the real value of the property. So that
Page 174 U. S. 758
it cannot be said that the amount of such bonds should in every
case control the question of rates, although it may be an element
in the inquiry as to what is, all the circumstances considered,
just, both to the company and to the public.
One of the points in dispute involves the question whether the
losses to the appellant arising from the distribution of water to
consumers outside of the city are to be considered in fixing the
rates for consumers within the city. In our judgment, the circuit
court properly held that the defendant city was not required to
adjust rates for water furnished to it and to its inhabitants, so
as to compensate the plaintiff for any such losses. This is so
clear that we deem it unnecessary to do more than to state the
conclusion reached by us on this point.
One of the questions pressed upon our consideration is whether
the ordinance of the city should have expressly allowed the
appellant to charge for what is called a "water right." That right,
as defined by appellant's counsel, is one
"to the continued and perpetual use of the water upon the land
to which it has been once supplied, upon payment of rates therefor
established by the company."
In the opinion of the circuit court, it is said that "no
authority can anywhere be found for any charge for the so-called
water right.'" This view is controverted by appellant, and
cases are cited which, it is contended, show that the broad
declaration of the circuit court cannot be sustained. Fresno
Canal & Irrigation Co. v. Rowell, 80 Cal. 114; Same v.
Dunbar, 80 Cal. 530; San Diego Flume Co. v. Chase, 87
Cal. 561; Clyne v. Banicia Water Co., 100 Cal. 310;
San Diego Flume Co. v. Souther, 90 F. 164.
We are of opinion that it is not necessary to the determination
of the present case that this question should be decided. We are
dealing here with an ordinance fixing rates or compensation to be
collected within a given year for the use of water supplied to a
city and its inhabitants, or to any corporation, company, or person
doing business or using water within the limits of that city. In
our judgment, the defendant correctly says in its answer that the
laws of the state
Page 174 U. S. 759
have not conferred upon it or its board of trustees the power to
prescribe by ordinance or otherwise that the purchase and payment
for so-called "water rights" should be a condition to the exercise
of the right of consumers to use any water appropriated for
irrigation or affected with a public use.
The only issue properly to be determined by a final decree in
this cause is whether the ordinance in question fixing rates for
water supplied for use within the city is to be stricken down as
confiscatory by its necessary operation, and therefore in violation
of the Constitution of the United States. If the ordinance,
considered in itself and as applicable to water used within the
city, is not open to any such objection, that disposes of the case
so far as any rights of the appellant may be affected by the action
of the defendant. The appellant asks, among other things, that it
be decreed to be entitled to charge and collect for water rights at
reasonable rates as a condition upon which it will furnish water
for the purposes of irrigation, notwithstanding the rates fixed by
the defendant's board of trustees for water sold and furnished
within the city. That is a question wholly apart from the inquiry
as to the validity under the constitution of the United States of
the ordinance of the defendant fixing annual rates in performance
of the duty enjoined upon it by the constitution and laws of the
state. Counsel for appellant, while insisting that the circuit
court erred in saying that there was no such thing as a water
right, says:
"The constitution of the state has nothing whatever to do with a
water right or the price that shall be paid for it. It simply
provides for fixing the annual rental to be paid for the water
furnished and used. When one obtains his water right by purchase or
otherwise, he has a right to demand that the water shall be
furnished to his lands at the price fixed, as provided by law, and
that the company shall exact no more. But he must first acquire the
right to have the water on such terms. Whether, in fixing the
annual rates to be charged, the body authorized to fix them can
take into account the amount that has been received by the company
for water rights is another question, and one that is not presented
in this case. Nor is any question raised
Page 174 U. S. 760
as to what would be a reasonable amount to exact for a water
right, or whether the courts can interfere to determine what is a
reasonable amount to charge therefor."
These reasons are sufficient to sustain the conclusion already
announced -- namely that the present case does not require or admit
of a decree declaring that the appellant may, in addition to the
rates established by the ordinance, charge for what is called a
"water right," as defined by it. It will be time enough to decide
such a point when a case actually arises between the appellant and
some person or corporation involving the question whether the
former may require, as a condition of its furnishing water within
the limits of the city on the terms prescribed by the defendant's
ordinance, that it be also paid for what is called a "water
right."
We will not extend this opinion by an analysis of all the
evidence. It is sufficient to say that upon a careful scrutiny of
the testimony, our conclusion is that no case is made that will
authorize a decree declaring that the rates fixed by the
defendant's ordinance, looking at them in their entirety -- and we
cannot properly look at them in any other light -- are such as
amount to a taking of property without just compensation, and
therefore to a deprivation of property without due process of law.
There is evidence both ways. But we do not think that we are
warranted in holding that the rules upon which the defendant's
board proceeded were in disregard of the principles heretofore
announced by this Court in the cases cited. The case it not one for
judicial interference with the action of the local authorities, to
whom the question of rates was committed by the state.
The decree dismissing the bill is
Affirmed.
