Opinion
No. 30112
Decided May 16, 1945.
Municipal corporations — Water rates, charges or "rents" not classed as "taxes", when — Water-rent payers not taxpayers — Suits by solicitor or taxpayer — Sections 4311 and 4314, General Code — Statutory requirements not exclusive — Water-rent payers may bring action for accounting — And restoration of funds held by city solely for waterworks purposes — Section 3939, General Code.
1. Water rates or charges or "rents" collected by a municipality cannot be classed as taxes so long as their use is limited to the waterworks purposes enumerated in Section 3939, General Code; but if employed as a mere device to lessen the burden of taxation for general governmental purposes, such funds should be considered in the category of taxes.
2. Water-rent payers are not ipso facto taxpayers.
3. The requirements of Sections 4311 and 4314, General Code, as to suits by taxpayers are not exclusive.
4. Water-rent payers possess the legal capacity to bring an action against a municipality for an accounting and restoration of a trust fund held by the city as a trustee solely for waterworks purposes as defined in Section 3939, General Code.
APPEAL from the Court of Appeals of Stark county.
In their third amended and supplemental petition filed in the Court of Common Pleas the plaintiffs allege that they are "water-rent payers" in the city of Canton, Ohio; that they bring this action on behalf of themselves and more than 20,000 other similarly situated water-rent payers in that city; that the city owns and operates a water department which supplies water to the inhabitants; that the fund required to maintain and operate the water department is a trust fund produced by the rentals or service charges paid by the water users; that by law this trust fund may be used for no other purpose; that, nevertheless, during the years 1931 to 1943, inclusive, the city has unlawfully withdrawn the sum of $240,000 from the water fund and placed it in the general fund under the guise of rentals for office space occupied by the water department in the basement of the city hall; and that this sum is grossly in excess of the actual rental value of the small space so used. In their prayer the plaintiffs ask that the defendant city officials be required to render an accounting and restore the $240,000 to the fund of the water department.
To the plaintiffs' third amended and supplemental petition the defendants filed a demurrer on the two grounds that the plaintiffs have no legal capacity to bring this action and that the facts stated do not constitute a cause of action. The Court of Common Pleas sustained the demurrer on both grounds.
Upon an appeal to the Court of Appeals on questions of law the judgment of the Court of Common Pleas was affirmed upon consideration of only the first ground of the demurrer.
The case is in this court for review by reason of the allowance of the plaintiffs' motion to certify the record.
Mr. Oscar M. Abt and Mr. Warren G. Smith, for appellants.
Mr. Paul G. Weber, for appellees.
The sole and novel question considered and decided by the Court of Appeals was whether the plaintiffs possess the legal capacity to institute this action inasmuch as they do not allege that they first made a demand on the solicitor of the city of Canton to bring the suit, as provided by Section 4314, General Code.
The plaintiffs say they have sued under favor of Section 11257, General Code, which provides that when the question is one of a common or general interest of many persons, or the parties are very numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all. However, the defendants insist that the plaintiffs cannot escape the requirements of Section 4314, General Code, which provides in part:
"In case the solicitor fails upon the written request of any taxpayer of the corporation to make any application provided for in the preceding three sections, such taxpayer may institute suit in his own name, on behalf of the corporation; * * *."
One difficulty with this contention of the defendants is that in the present petition it is alleged merely that the plaintiffs are water-rent payers, and there is no mention of taxpayers. But it is insisted that the plaintiffs as water-rent payers are ipso facto taxpayers and therefore subject to the foregoing requirements of Section 4314, General Code. Reliance is placed upon the decisions of this court in the cases of City of Cincinnati v. Roettinger, a Taxpayer, 105 Ohio St. 145, 137 N.E. 6; Hartwig Realty Co. v. City of Cleveland, 128 Ohio St. 583, 192 N.E. 880, and City of Lakewood v. Rees, 132 Ohio St. 399, 8 N.E.2d 250.
The Cincinnati case was an action by a taxpayer to prevent the transfer of a surplus from the waterworks fund to the general fund of the city, and the consideration of the court was limited to this surplus, as is disclosed by the following observation in the opinion:
"It is important at this point to inquire into the nature of rates and charges which are in excess of an amount sufficient to pay the cost of the operation of the waterworks and to make provision for repairs, renewals, extensions, new construction, and interest and principal of debt arising out of construction. While it is universally conceded that rates and charges not in excess of the amount necessary to meet such purposes are not classed as taxes, it does not follow that such excessive amount would not be classed as taxes. While it is quite well settled that charges for service and conveniences rendered and furnished by a municipality to its inhabitants are not taxes, yet where the charge is in excess of the entire cost of the service and convenience, the reason for the rule no longer prevails. A water rate exacted for actual consumption is merely the price of the commodity, and when in an amount which fairly compensates the cost can have no proper relation to those revenues which are expended for the equal benefit of the public at large, and it should not be placed in the same classification with burdens and charges imposed by the legislative power upon persons or property for the purpose of raising money for general governmental purposes. Taxation refers to those general burdens imposed for the purpose of supporting the government, and more especially the method of providing the revenues which are expended for the equal benefit of all the people. It is apparent that any effort on the part of any municipality to deliberately impose rates and charges for a water supply, not for the purpose of covering the cost of furnishing and supplying the water, but for the purpose of making up a deficiency in the general expenses of the municipality, and which cannot be met within the limits of taxation otherwise provided, is to that extent an effort to levy taxes, and, to the same extent, an effort to evade the statutory and constitutional limitations upon that subject."
Thus, this court did not hold that a so-called water-rent payer is ipso facto a taxpayer. Water rates or charges or "rents" cannot be classed as taxes so long as their use is limited to the waterworks purposes enumerated in Section 3939, General Code; but if employed as a mere device to lessen the burden of taxation for general governmental purposes, such funds should, of course, be considered in the category of taxes. In the instant case the plaintiffs' present petition contains no mention of surplus funds or the payment of taxes. Hence, these plaintiffs are entitled to be regarded as "water-rent payers," as they have designated themselves, and not necessarily as taxpayers.
Both the Cleveland and the Lakewood cases, supra, likewise were taxpayers' actions involving surplus water funds. In the Cleveland case the decision in the Cincinnati case was expressly approved and followed; and in the Lakewood case the decisions in both the Cincinnati and the Cleveland cases were expressly approved and followed.
Then considering the plaintiffs in the instant case solely in their self-designated character as water-rent payers, do they, as such, possess the necessary legal capacity to institute this action for the restoration of this trust fund?
The defendants insist that the provisions of Section 4314, General Code, are exclusive and that actions such as this may be brought by no one except a taxpayer and that even he cannot do so until a written request has been made to the solicitor. However, in the case of Walker v. Village of Dillonvale, 82 Ohio St. 137, 92 N.E. 220, this court held that this statute is not exclusive even as to actions instituted by taxpayers. The following comment was made as to Sections 1777 and 1778, Revised Statutes, now Sections 4311 and 4314, General Code:
"Section 1777 does not confer a right, but imposes a duty upon the city solicitor, and while Section 1778 authorizes a taxpayer, in the cases specified, to bring suit if the solicitor upon request in writing fails to do so, and prohibits the court to entertain such a suit by a taxpayer excepting in the event of such failure, still it is not to be construed as a limitation on the remedy by a taxpayer in cases not within the statute. In The Cincinnati Street Railroad Company et al. v. Smith et al., 29 Ohio St. 291, 303, Gilmore, J., speaking of these sections says: 'The sections do not provide remedies that were previously unknown. Courts of equity had long taken jurisdiction and granted injunctions in such cases when properly presented by interested individuals, whose rights were put in jeopardy by the illegal or unauthorized acts, or threatened acts, of municipal corporations. The sections were therefore simply intended to regulate the practice in such cases to this extent, that applications for injunctions in such, cases should be made by the city solicitor, and should not be made without his knowledge.'
"The fact, therefore, that the relief sought by the taxpayer in the present case is not within the terms of those statutes does not show in him a want of capacity to sue."
Since these statutes are not exclusive even as to actions brought by taxpayers, there seems to be no compelling reason for holding that the plaintiffs in the instant case may not as water-rent payers institute this action on behalf of themselves and all other water-rent payers in the city of Canton to obtain an accounting and restoration of the trust fund of which the city is alleged to be the trustee. As observed by the plaintiffs, if the money diverted to the general fund is restored to the water fund the benefit will inure to the water-rent payers and not to the taxpayers who under such circumstances should not be expected to bring such an action. If public funds are not properly used there should be an effective remedy to correct the error. Under the admitted allegations of the present petition the plaintiffs possess the necessary legal capacity to institute this action, and the lower courts were in error in sustaining the demurrer.
As previously observed, the Court of Appeals did not consider the second ground of the demurrer as to whether the facts stated in the petition are sufficient to constitute a cause of action. Hence, the case is remanded to the Court of. Appeals for the purpose of consideration and decision of this further question.
Judgment reversed and cause remanded.
ZIMMERMAN, BELL, WILLIAMS, MATTHIAS and HART, JJ., concur.
TURNER, J., dissents.