Mutual Oil Co. v. Zehrung

Decision Date07 April 1925
Docket NumberNo. 217.,217.
Citation11 F.2d 887
PartiesMUTUAL OIL CO. v. ZEHRUNG et al.
CourtU.S. District Court — Panama Canal Zone

Burkett, Wilson, Brown & Wilson, of Lincoln, Neb., for plaintiff.

C. Petrus Peterson and Charles R. Wilke, both of Lincoln, Neb., for defendants.

MUNGER, District Judge.

This suit has been submitted upon a motion to dismiss the plaintiff's bill. The plaintiff, a corporation organized under the laws of Maine, brought suit against the city of Lincoln, Neb., and against the controlling officers of the city, who are charged with the administration of its ordinances. The prayer of the bill is for the issuance of an injunction permanently restraining the defendants from engaging in the business of selling gasoline and oil to the inhabitants of Lincoln. It appears from the allegations in the bill that the city is organized under the laws of Nebraska as a city of the first class having a population of over 40,000 and of less than 100,000, and is operating under the provisions of sections 2, 3, and 4 of article 11 of the state Constitution of Nebraska. By these sections the city is entitled to frame its own charter — that is, to define its own powers and mode of operations — provided such charter does not violate any provision of the state Constitution or any general law of the state. It also appears that an amendment to the city charter, which has become a portion thereof, reads as follows:

"The city council shall have power to engage in the business of selling gasoline and oil to the inhabitants of the city, both at retail and wholesale, and for that purpose shall have power to acquire and own such real and personal property as may be necessary and incident thereto. The city shall not charge for gasoline and oil, sold by it, more than the cost thereof to the city, plus the cost of handling the same, including contingencies."

An ordinance was adopted by the city, creating a department to sell gasoline and oil to the inhabitants of the city, and a fund with which to pay for operations, and directing the purchase and sale of gasoline and oil to the city's inhabitants "at the cost thereof to the city plus the cost of handling the same, including contingencies," and the city has engaged in the business of selling oil and gasoline according to the terms of the ordinance. The plaintiff is engaged in the business of selling gasoline and oil in the city of Lincoln, and for that purpose has acquired, by ownership or lease, a number of oil stations, and owns equipment and property designed for use in conducting this business, and has an established business. The bill negatives the existence of any necessity or emergency requiring the city to engage in this line of business, and alleges that there are very many companies and individuals selling gasoline and oil in the city of Lincoln, in free competition with each other, and at reasonable prices. It is alleged that the city is conducting this business with money derived from taxation of the property of its inhabitants, and that the city is free from taxation on the plant and property used in the business.

The plaintiff complains that it erected its stations for the sale of gasoline and oil under restrictions imposed by the city ordinances and in pursuance of a resolution adopted by the city council, granting its request to install an underground storage tank at a designated place. The resolution recites that the permit is to be temporary and revocable at the direction of the city council, but the plaintiff asserts that it is a grant of a vested right and franchise to the plaintiff to continue its business so long as it complies with the laws. In some detail the plaintiff alleges that the city will be able to sell and is selling gasoline and oil at a price which results in such competition with plaintiff's business and prices that it will be forced to discontinue business or to conduct it at a loss, and that because of this competition the value of its property invested in the conduct of its business has been lessened. Complaint is also made that the plaintiff contributes, by taxation of its property, to the operation of the city's plant in competition with its own, and that the city is engaged in an enterprise which is not for a public purpose — is not for its own government, as provided by section 2 of article 11 of the Constitution of Nebraska. In addition to these claims of violation of the Constitution of the United States and of the state of Nebraska, the bill alleges that the city council is conducting this business of the sale of oil and gas in violation of provisions of the city charter.

It is alleged that the fund which the city is using and has appropriated for the management of this business is being expended and used without an appropriation having been made in pursuance of a prepared and published estimate, without the receipt of bids for the supplies furnished, and that the money used has been transferred from money appropriated for the use of other departments of the city government, and it is alleged that these acts are contrary to provisions in the city's charter, and cause an illegal expenditure of the public moneys, and impose a burden of illegal taxation on the plaintiff's property.

The questions which are presented by the motion to dismiss are (1) the jurisdiction of this court; (2) whether the provisions of the amendment to the city charter and of the city ordinance are in violation of the Constitution of the United States; (3) or are in violation of the Constitution of Nebraska; (4) whether the acts of the city council are in violation of the provisions of the city's charter. It is suggested that this court has no jurisdiction of the suit, because the amount in controversy does not exceed the sum of $3,000, exclusive of interest and costs. The bill alleged that more than this sum is in controversy, and in a suit of this nature, that allegation ordinarily is sufficient. For jurisdictional purposes the test is the value of the plaintiff's right to conduct its business free from the alleged unlawful interference (Bitterman v. Louisville & Nashville R. R., 28 S. Ct. 91, 207 U. S. 205, 225, 52 L. Ed. 171, 12 Ann. Cas. 693; Hunt v. N. Y. Cotton Exchange, 27 S. Ct. 529, 205 U. S. 322, 336, 51 L. Ed. 821; Glenwood Light Co. v. Mutual Light Co., 36 S. Ct. 30, 239 U. S. 121, 126, 60 L. Ed. 174; Packard v. Banton, 44 S. Ct. 257, 264 U. S. 140, 142, 68 L. Ed. 596; City of Hutchinson v. Beckham, 118 F. 399, 402, 55 C. C. A. 333; Board of Trade v. Cella Commission Co., 145 F. 28, 29, 76 C. C. A. 28), and, in case of the alleged illegal taxation of plaintiff, the amount it will be required to pay as a consequence, but there is nothing in the bill which negatives the general allegation that the sum involved exceeds the jurisdictional amount.

In support of the motion to dismiss, it is claimed that the bill discloses no violation of the Constitution of the United States. The plaintiff claims that the bill shows both a violation of the contract clause and of the Fourteenth Amendment. The claim that the plaintiff holds an implied contract to be free from competition in the conduct of its business cannot be sustained. It engaged in business under the usual conditions which surround private commercial enterprises. Restrictions by ordinance usually attend all such lines of business conducted in cities, and the grant of a mere right to install a storage tank or to conduct its business at a designated place cannot be said to be a grant of a right to be free from competition, especially as the grant provides that it is temporary and revocable at the discretion of the city council. A grant by a municipal corporation of a formal franchise to a person or corporation to conduct its business within the municipality does not grant a right to be free from competition, even from the conduct of a similar business subsequently entered into by the municipality, in the absence of a contract for such an exclusive privilege, although such competition impairs the value of the grantee's property. Hamilton Gaslight Co. v. Hamilton City, 13 S. Ct. 90, 146 U. S. 258, 268, 36 L. Ed. 963; City of Joplin v. Southwest Missouri Light Co., 24 S. Ct. 43, 191 U. S. 150. 157, 48 L. Ed. 127; Water Co. v. Knoxville, 26 S. Ct. 224, 200 U. S. 22, 36, 50 L. Ed. 353; Madera Waterworks v. Madera, 33 S. Ct. 571, 228 U. S. 454, 456, 57 L. Ed. 915.

Some claim is also made that the establishment of this municipal plant for the sale of oil and gas in competition with the plaintiff deprives the plaintiff of its property without due process of law, in violation of the Fourteenth Amendment to the Constitution of the United States, but, while the effect of this competition may impair the value of the plaintiff's property, it may not complain of such a hazard, which existed when it engaged in its business in the city, and it is not in the legal sense a deprivation of its property without due process of law, even if its property becomes less valuable, or its business is rendered unprofitable by reason of such competition. Helena Water Works Co. v. Helena, 25 S. Ct. 40, 195 U. S. 383, 388, 392, 49 L. Ed. 245.

A further claim is made that the operation of this rival line of business by the city deprives the plaintiff of its property by using public money, which is raised by means of taxation of the plaintiff and others, for a private purpose. What is a public purpose, for which moneys raised by taxation may be used, has been the subject of consideration by many courts. Decisions by state courts of last resort have differed somewhat as to the scope of business in which municipal corporations may engage. Some have condemned the operation of enterprises, such as moving picture exhibitions, the manufacture and sale of ice, the sales of coal and wood, and the sale of goods in ordinary mercantile establishments. State v. Lynch, 102 N. E. 670, 88 Ohio St. 71, 48 L. R. A. (N. S.) 720, Ann. Cas....

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    ...and ordinance thereunder, authorizing city to sell oil and gasoline, was proper function of local government. Mutual Oil Co. v. Zehrung, 11 F.2d 887 (D. Neb. 3. Miscellaneous Constitution recognizes that villages and cities are separate and distinct. Hueftle v. Eustis Cemetery Assn., 171 Ne......
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