City and County of Denver v. New York Trust Co.

• Decision Date: 19 May 1911
• Docket Number: 3,479,3,480.
• Citation: 187 F. 890
• Parties: CITY AND COUNTY OF DENVER et al. v. NEW YORK TRUST CO. et al. SAME v. DENVER UNION WATER CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

187 F. 890

CITY AND COUNTY OF DENVER et al. v. NEW YORK TRUST CO. et al.

SAME v. DENVER UNION WATER CO. et al.

Nos. 3,479, 3,480.

United States Court of Appeals, Eighth Circuit.

May 19, 1911

[Copyrighted Material Omitted]

Charles S. Thomas and Charles W. Waterman (Henry A. Lindsley, City Atty., George Q. Richmond, W. H. Bryant, George L. Nye William P. Malburn and William A. Jackson, on the brief), for appellant.

Henry McAllister, Jr. (Joel F. Vaile, William N. Vaile, Underwood Van Vorst & Hoyt, and J. Markham Marshall, on the brief), for New York Trust Co.

Gerald Hughes and Clayton C. Dorsey (William V. Hodges and A. M. Stevenson, on the brief), for Denver Union Water Co.

Before HOOK, Circuit Judge, and RINER and REED, District Judges.

HOOK Circuit Judge.

The New York Trust Company brought suit in the Circuit Court to enjoin the 'city and county of Denver' in the state of Colorado and certain of its officers including the members of the Public Utilities Commission from issuing bonds and constructing a system of waterworks, for a decree that certain provisions of the municipal charter are in violation of the Constitution of the United States, for the specific performance of an alleged contract to purchase the existing waterworks system, and for general relief. The Denver Union Water Company, which is the owner of the existing system of waterworks, and the South Platte Canal & Reservoir Company, a subsidiary corporation whose stock is owned by the Water Company, were made parties defendant. The Circuit Court granted orders of temporary injunction on complainant's bill and a cross-bill of the Water Company. The case is here on appeal from those orders.

The complainant Trust Company and defendants the city and county of Denver and the Water Company are the successors respectively of other similar corporations from whose acts the present situation arises, but for the purposes of this case they may be regarded as original contracting parties in all respects. The Trust Company is a corporation of New York, and is the trustee in a mortgage given by the Water Company to secure $8,000,000 of its bonds. The mortgage embraces all the property, real and personal, of the Water Company, including franchises, contracts, rentals, choses in action, and the right to receive the purchase price in case of sale to the municipality. The city and county of Denver which for convenience will be called the city, is a municipal corporation of Colorado, and its officers and the members of the Public Utilities Commission are citizens of that state. The Water Company and the South Platte Company are Colorado corporations. The property of the latter, which consists principally of a valuable improved source of water supply, is an integral part of the waterworks system, is in the possession of and being operated by the Water Company, and is incumbered by a mortgage securing $4,000,000 of bonds subject to call. The cross-bill of the Water Company sets forth substantially the same facts as contained in the original bill of the Trust Company, but construes them to mean that the city elected, not to purchase its property as the Trust Company claims, but to renew its contract and franchise for an additional period of 20 years. It also contains a prayer for relief similar to that of the original bill, save that it asks that its right to a renewed contract and franchise be established. Applications for temporary injunction were submitted upon bill, cross-bill, and affidavits and the trial court entered orders on both pleadings temporarily enjoining the municipal defendants from issuing bonds and from taking any steps towards the construction of a waterworks plant, and, in case of the cross-bill, from interfering with the Water Company in the continued exercise and enjoyment of its rights under its original franchise.

The appellants contend that the trial court was without jurisdiction of the suit, and that the bill and cross-bill are so manifestly without equity that temporary injunctions should not have been granted. Jurisdiction was invoked in the bill upon the ground of diversity of citizenship and also because the suit arose under the Constitution of the United States. As to the former, it is urged by the appellants that though the complainant, the Trust Company, is a citizen of New York and all the defendants are citizens of Colorado, yet the defendant Water Company, which is an indispensable party, should for jurisdictional purposes be aligned with its mortgagee, the complainant, and when that is done the requisite diversity of citizenship does not exist. It is also claimed that the Trust Company in seeking the specific performance of an alleged contract of sale between the Water Company and the city, both citizens of Colorado, is suing for the contents of a chose in action and by the judiciary act it is therefore under the same disability in respect of jurisdiction as its assignor or mortgagor the Water Company. It may be assumed that these contentions as to diversity of citizenship and the lack of jurisdiction on that ground are well founded, yet if it appears from the face of the bill that a federal question is fairly presented there would still be jurisdiction in the Circuit Court. The Trust Company as the representative of the bond holders has certain rights independently of its mortgagor, the Water Company, and is not concluded by the action or nonaction of the latter. Though possession, management and operation of the mortgaged property, with their usual incidents, remain with the Water Company, the derivative interest of the Trust Company is such as to entitle it to protection and to preserve the property pledged to it from unlawful injury or destruction; and if the wrong consists in legislation impairing the obligation of the mortgaged contracts and franchises it may invoke the jurisdiction of a circuit court of the United States regardless of the citizenship of its mortgagor. Mercantile Trust Co. v. Columbus, 203 U.S. 311, 27 Sup.Ct. 83, 51 L.Ed. 198.

When a case claimed to arise under the contract clause of the Constitution is presented it is necessary to determine whether there is a contract, what its true construction is, and whether as so construed the obligation is impaired by subsequent legislation of the state or under its authority. Of these matters in their order. There is no question but that a contract was entered into between the city and the Water Company. It is embodied in the ordinance of the city, No. 44, of the year 1890, which was duly accepted by the Water Company, and by which it was granted the right to construct, maintain, and operate a system of waterworks to such extent as the city might lawfully grant the same, subject to termination as therein provided. According to the terms of the ordinance have the contract relations between the parties expired by lapse of time? When the ordinance was adopted, April 10, 1890, the city was without power to grant the Water Company an exclusive franchise or one for a longer period than 20 years. It did, however, have power under the existing law to construct and operate waterworks of its own, and also then to bind itself by contract to purchase the plant belonging to the Water Company when the franchise of the latter expired. The contract to purchase, which it was within the power of the city to make, might have been an absolute one or upon such conditions or alternatives as were mutually satisfactory. So far there is little, if any, controversy, and it may be conceded that the franchise of the Water Company as originally granted expired April 10, 1910, 20 years after the adoption of the ordinance. Briefly stated the contentions of the parties at this point of the case are as follows: The complainant Trust Company claims, and for that matter the Water Company also, that by the terms of the ordinance the city was bound at the end of the 20-year period either to purchase the waterworks system or to renew the contract with the Water Company for a like period but at a reduced hydrant rental. As already observed, the complainant and the Water Company differ as to the legal effect of what the city did under the alternatives stated. The former maintains the city elected to buy; the latter that it elected to renew the contract. On the other hand the city claims it was not obligated by the ordinance to do either and that it did neither.

When a water company assumes the duty of supplying a rapidly growing city and its inhabitants with water for a period of 20 years necessarily involving the expenditure of large sums of money, it is but natural that some consideration would be given by the parties to the status of the company and its property at the end of the period. A business of that character cannot be from hand to mouth like that of a greengrocer, but provision for the public needs must be made many years in advance of actual demand, at least for an adequate water supply. There must be a large investment against future requirements. Especially is this so in a country like that in which Denver is situated where the problem is generally a difficult and expensive one. Nor is the investment ordinarily made at once for the entire time; on the contrary if the city grows as Denver did from 106,000 inhabitants in 1890, to double that number in 1910, the renewal of plant and extension of facilities for service and the like is measurably constant and continuous. Moreover, it is the common course as was the case here that the city retain the right upon its location of five hydrants to demand of the Water Company the extension of mains and pipes into unserved districts or those newly populated, so that all within reason may receive the benefits. Much of the investment made under such...