Opinion
No. 58.
Argued November 4, 5, 1903. Decided November 30, 1903.
The power to regulate water rates is a governmental power continuing in its nature which, if it can be bargained away at all, can only be by words of positive grant and if any reasonable doubt exists in regard thereto it must be resolved in favor of the existence of the power. An ordinance of a city of Kentucky before it became a city of the third class giving a water company a right to make and enforce, as part of the conditions upon which it would supply consumers, all needful rules and regulations not inconsistent with the law must be construed as to the law, as it might be altered, and when the city becomes a city of the third class and thus has power under the general law to provide the city with water by contract or by works of its own and to make regulations for the management thereof and to fix prices to consumers, an ordinance subsequently enacted during the life of the franchise fixing the price of water is not void as against the water company under the impairment of contract clause of the constitution of the United States, and in the absence of other grounds the Circuit Court of the United States has no jurisdiction of a suit in equity to restrain the enforcement of such last enacted ordinance, no question of unreasonableness of the rates being involved.
The ordinance in full is inserted in the margin. It is alleged that the enforcement of the ordinance will cause appellee irreparable injury and in what manner that will be done is detailed, and that, appellee "could not under the most prudent management, earn any per cent upon its investment, but would be compelled to operate its plant at an actual loss."
For the reasons alleged the ordinance of March 19 violates the constitution of the State of Kentucky and the Fifth and Fourteenth Amendments of the Constitution of the United States. It is also alleged, with much amplification, that the passage of the ordinance was " ex parte and partisan," without deliberation or investigation or knowledge, and, besides, the city had no power to pass the ordinance, and that the latter violates the contract existing between appellee and the city. It is also alleged that financial injury will result to appellee from the enforcement of the ordinance in regard to meters (sec. 2), and from the prohibition to collect rates in advance, "except by voluntary consent of the consumer." (Sec. 3.) Prosecutions are threatened under the ordinance which will result, it is alleged, in irreparable injury to appellee, and an injunction is hence prayed against the city.A demurrer to the bill was overruled. An answer was then filed, which denied the allegations of the bill and justified the action of the city.
Mr. George W. Jolly for appellant.
Mr. William T. Ellis and Mr. Robert W. Bingham for appellee. Mr. W.W. Davis was on the brief.
By the act of the general assembly of Kentucky, approved June 14, 1893, the appellant was made a city of the third class, and was given, as a city of that class, the following powers expressed in section 3290: "The common council of said city shall, within the limitations of the constitution of the State and this act, have power by ordinance; . . . 5th, to provide the city and the inhabitants thereof with water, light, power, heat and telephone service, by contract, or by works of its own, located either within or beyond the boundaries of the city. To make regulations for the management thereof, and to fix and regulate the prices to consumers and customers."
Under this section the city passed the ordinance which prescribes the rates and regulations complained of. The Circuit Court decided that the city was not given the power to pass the ordinance, and considered it unnecessary to pass on the other issues. The court said:
"If the city of Owensboro had no lawful power or authority to pass the ordinance at all, then the enforcement of it would clearly be a taking from the complainant of its right to certain property. First, without compensation; second, without due process of law; third, without giving to it the equal protection of the law.
"This makes it necessary to inquire whether the city had the statutory power and authority to pass the ordinance complained of. It does not seem to be needful to inquire whether the state constitution gives the general assembly power to delegate authority in the premises to the city. The initial proposition is, has the legislature done so in fact, whether it had the power or not? This must depend upon the proper interpretation and construction of section 3290 of the Kentucky Statutes, . . ."
Interpreting the section the court held that the word "thereof" in the last sentence of the section had for its antecedent the words "works of its own." Substituting these words for the words "thereof," the sentence would read, and the city's power would be, "to make regulations for the management of its own works, and to fix and regulate the prices to consumers and customers." But another ambiguity appears, viz., of what is the city to fix and regulate the prices? Certainly of something, and it would seem from the context, the same thing, of which it was to regulate the management. But this leads to an absurdity, and we must find a purpose (antecedent) to which both powers can refer. The city might, indeed, make regulations for the management of its works, but it could not fix and regulate the price of them to consumers and customers. Besides, we cannot conceive that an explicit grant of power was necessary to enable the city to manage its own works. The power to construct would have implied the power to manage and operate. It must not be overlooked that the section was intended to apply not only to the appellant city but to all cities of the third class, and confer power not only to provide water, but other services, and it might have seemed necessary, or at any rate prudent, to the legislature to reserve to the cities the power over the management of works constructed by private persons, and as prudent to reserve a power to fix and regulate the prices to consumers of the services afforded. It is certainly not difficult to conceive the necessity of the exercise of those powers, and if attempted to be exercised without a reservation, the cities might be met (and there are examples of this) with the contention that the power had been bartered away and was precluded by the obligation of a contract. The construction urged by appellee must, therefore, be rejected. There is a more natural one. The purpose of section 3290 was to provide the inhabitants of cities of the third class with the services mentioned — water, light, power, heat and telephone. They could be provided by the cities directly or they could be provided by private persons; but whatever way provided, the power was given to regulate the management and fix the rates of the services, and this was but the endowment of a common governmental power.
It is, however, contended that the ordinance is in violation of the contracts between the city and appellee, constituted by the resolutions and ordinance of the 3d of June, 1889. The argument is that the city had entered into contracts with the Owensboro Water Company, the predecessor of appellee, to which contracts and their obligations and rights, it is contended, the appellee succeeded by assignment from the water company, with the consent and approval of the city as expressed in the resolutions and ordinance of June 3, 1889. To determine their legal effect, however, it will be necessary to consider the law which authorized them.
At the time of the passage of the ordinance granting the Owensboro Water Company the right to construct waterworks the city existed and was exercising its powers under the charter of 1878, and the provision in that for supplying water to the inhabitants of the city was as follows: "To make, establish and regulate wells, cisterns, reservoirs and pumps, and to provide for the furnishing of the city and the inhabitants thereof with water and gas."
The same provision was carried into the charter of 1882, and constituted the authority of the city when the ordinance and resolutions of June, 1889, were passed. It is contended that this provision gave the city no power to fix the rates. And counsel say: "In such case and in the absence of an express contract the individual or corporation furnishing water for domestic purposes may charge whatever seems right and reasonable."
But counsel go further. They deny the right of the city to fix rates, and yet assert its power to enter into an irrevocable contract with the water company giving it such power, that is, giving it power to fix rates free from any regulation by the city, not only under any authority the city then possessed, but under any authority the city might be given by the legislature.
In this contention there are several elements, but we pass their consideration, and determine what contracts, if any, the city entered into with the water company. Of course, it is implied in the grant to the company that it might charge some rates to consumers, but the question is, were those rates exempt from regulation by the city under any power it then had or might be given? An affirmative answer is contended for by the appellee under sections 9, 10 and 14 of the granting ordinance. Section 9 is the pivotal section. The others are complementary. By it the company was given "power and authority to make and enforce as a part of the condition [italicsours] upon which it will supply water to its consumers, all needful rules and regulations [italics ours], not inconsistent with the law or provisions of this ordinance." The section is concerned with the rules between the company and consumers alone. The company may enforce all needful rules and regulations as part of the condition upon which it will supply water. What is the other part of the condition? It must be the payment of rates, but to that part of the condition the power to make regulations does not apply. It would ignore the distinctions made by the section and give besides the words "rules and regulations" too large a meaning to make them include the power of fixing rates to consumers. They have adequate and useful signification without that. There were many things in the supply of water to consumers and in the orderly and prudent conduct of the business of the company which might need rules and regulations.
And even so construed, the power conferred is not without limitation. The rules and regulations must not be inconsistent "with the law," and this means not only as the law was when the ordinance was passed, but as the law might become. Ruggles v. Illinois, 108 U.S. 526; Railroad Commission Cases, 116 U.S. 307. In the latter cases a grant of power to the railroad company was "to make and prescribe such by-laws, rules, and regulations as they shall deem needful and proper touching . . . all matters whatsoever which may appertain to the concerns of said company." The company was also given the power "from time to time to fix, regulate, and receive the toll and charges by them to be received for transportation of persons and property on their railroad." From this grant of power it was claimed that the company had "the right of managing its own affairs and regulating its charges for the transportation of persons and property, free of all legislative control." Mr. Chief Justice Waite, speaking for the court, replied: "This power of regulation is a power of government, continuing in its nature, and if it can be bargained away at all it can only be by words of positive grant, or something which is in law equivalent. If there is reasonable doubt, it must be resolved in favor of the existence of the power."
This doctrine has been affirmed numbers of times since. Freeport Water Co. v. Freeport City, 180 U.S. 587; Rogers Park Water Co. v. Fergus, 180 U.S. 624; City of Joplin v. Southwest Missouri Light Co., ante, p. 150. And the same doctrine prevails in Kentucky. Winchester c. Turnpike Road Co. v. Croxton, 98 Ky. 739.
From these views it follows that if the city had no power under the charters of 1866 and 1882 to fix rates, and we only assume this, not decide it, such power was conferred by section 3290 of the act of June 14, 1893, and the city is not precluded from the exercise of that power by sections 9, 10 and 14 of the original ordinance granting the Owensboro Water Company the right to construct waterworks, nor by the ordinance of June 3, 1889, approving the transfer of the rights and contracts of that company to the Owensboro Waterworks Company, the appellee herein. Nor is the city, by said ordinance, precluded from regulating the business of the appellee in the manner provided in the ordinance of March 9, 1900, which is the subject of the present controversy. It is true that it is contended that section 3 of the ordinance forbids the appellee from collecting rates in advance from all consumers. But the city does not contend for that construction. It claims only that the provisions in regard to the collection of rates in advance apply only to consumers using meters, and even as to those consumers appellee can make reasonable regulations to secure the payment of rates. The ordinance is not absolutely clear; and we may resolve its ambiguities in accordance with the concession of the city. It may be presumed that there was no intention to enact unreasonable and oppressive regulations.
Two other contentions remain to be considered — one made by appellant, and the other made by the appellee. It is difficult to assign a place or purpose in the discussion of the issues to that made by the appellant. The contention is that the Owensboro Water Company had no power to transfer its property and rights and franchises to the appellee. To what consequence is the contention directed? Surely the city wants an object for its regulation. The appellee is in possession of the waterworks, and is supplying the inhabitants of the city with water. It is that service which the city desires to regulate, and it is to "every person, firm, company and corporation" engaged in that service the ordinance of March 21, 1900, is addressed. No other person, firm or corporation than the appellee is so engaged in Owensboro, or has been so engaged for some years. We do not think that the legality of the ordinance can be questioned or measured by either the company or the city by the defects or perfections of the title of the company to its franchises or property. It may be, however, that it is not intended to press the contention so far, but to confine it to the denial of the exemption claimed by appellee as successor of the Owensboro Water Company. But, as we hold that the Owensboro Water Company had no such exemption, the contention becomes unimportant.
The other contention made by appellee is that the rates fixed by the city are unreasonable. Upon this contention we shall not pass. It depends upon many questions of fact and of values to which the Circuit Court gave no attention and on which it expressed no judgment. It is better for a trial court to determine such questions in the first instance. Chicago, Milwaukee c. Ry. v. Tompkins, 176 U.S. 167, 179.
Decree of the Circuit Court is reversed, and the case remanded for further proceedings in accordance with this opinion.