Pacific Gas & Electric Co. v. Sacramento M. Utility Dist.

• Decision Date: 10 September 1937
• Docket Number: No. 8500.,8500.
• Parties: PACIFIC GAS & ELECTRIC CO. v. SACRAMENTO MUNICIPAL UTILITY DIST. et al.
• Court: U.S. Court of Appeals — Ninth Circuit

92 F.2d 365 (1937)

PACIFIC GAS & ELECTRIC CO. v. SACRAMENTO MUNICIPAL UTILITY DIST. et al.

No. 8500.

Circuit Court of Appeals, Ninth Circuit.

September 10, 1937.

Thomas J. Straub, Warren Olney, Jr., J. M. Mannon, Jr., John T. Pigott, and James D. Adams, all of San Francisco, Cal. (McCutchen, Olney, Mannon & Greene, of San Francisco, Cal., of counsel), for appellant.

Robert L. Shinn, Stephen W. Downey, Downey, Brand & Seymour, and Marshall K. Taylor, all of Sacramento, Cal., for appellees.

Before DENMAN, STEPHENS, and HEALY, Circuit Judges.

DENMAN, Circuit Judge.

This is an action in equity brought by the plaintiff utility company to enjoin the defendant municipal utility district from issuing proposed bonds to finance the construction and operation of a light, power, and heat system to serve the district.

The gravamen of the complaint is that the bonds will be a charge and lien upon property in the district, including that belonging to plaintiff; that, unless restrained, the defendant will levy taxes upon plaintiff's property to meet the district's obligations under the bonds; that plaintiff's property will receive no benefit by reason of the proposed construction of the district system, and is afforded no opportunity to present the question of benefit to the district or its officers, and hence to tax it without a hearing on the question of benefit is a taking of property without due process of law.

The district is not coterminous with any county or municipality. Its 650 square miles include the city of Sacramento, a large part of the county of Sacramento, and a small portion of Placer county. It was organized under the act of May 23, 1921, Cal.Stats.1921, p. 245, with amendments thereto. Gen.Laws 1931 and Supps. 1933, 1935, Act 6393.

This act provides that a municipal utility district may be organized out of two or more municipalities or out of a municipality and unincorporated territory, by means of resolution and election procedure, which is not necessary to detail here because it is not questioned that the defendant was duly organized and operating. A board of directors, duly elected, is the governing body.

The district is given power to sue and be sued, adopt a seal, take for its purposes property by all lawful means, including eminent domain, and "to acquire, construct, own, operate, control or use, * * * works or parts of works for supplying the inhabitants of said district and municipalities therein, with light, water, power, heat, transportation, telephone service, or other means of communication, or means for the disposition of garbage, sewage, or refuse matter." Section 12, subdivision 5 of the act, supra.

For the execution of its purposes, and upon a vote of two-thirds of its members, a district is authorized to issue bonds to raise funds for carrying out its objects. Section 15.

The district is given authority "to levy and collect, or cause to be levied and collected, taxes for the purpose of carrying on the operations and paying the obligations of the district." Section 12, subd. 9 Gen.Laws Supp.1935, p. 1626.

The complaint recites that the board of directors of the defendant district, pursuant to a general election held November, 1934, duly passed a resolution authorizing the issuance of bonds in the amount of $12,000,000 for the purpose of acquiring and constructing a district light, heat, and power system; also authorizing the levy of taxes which at any time should be required to meet the obligations of the bonds; that, unless restrained, the board will levy on all property within the district on the basis of the county assessments of the counties included.

The formal validity of the bond issue was sustained in an action brought by the district for that purpose. Sacramento M. U. Dist. v. All Parties, 6 Cal.(2d) 197, 203, 57 P.(2d) 506. In that action the Pacific Gas & Electric Company appeared and alleged the invalidity of the bonds on the ground that the taxes to be levied to meet the obligations would deprive it of property unlawfully. The Supreme Court held that the issue was premature, and did not decide it. Id., 6 Cal.(2d) 197, at page 203, 57 P.(2d) 506.

After the bonds in suit here were authorized, the California Legislature passed an act validating the organization, boundaries, board members, and proceedings for the issuance of bonds theretofore completed of all existing districts, and specifically repeated the authorization to levy and collect taxes to meet the obligations of the bonds. Cal.Stats.1937, c. 20.

The defendant district moved to dismiss the bill upon several grounds. The District Court held that a controversy was properly presented, and ruled in favor of appellant on all grounds of dismissal save the question of the merits. On this it concluded that the proposed bond issue and the taxes proposed to be levied pursuant to it were valid and did not operate to deprive plaintiff of its property without due process of law.

The parties are agreed that this is the only question presented before this court. Hence it is unnecessary to consider such issues as prematurity, res judicata, adequate remedy at law, etc.

The regularity of all proceedings leading up to and including the bond authorization is admitted not to be in dispute; nor is there presented as an issue the fact that appellant has no opportunity under the proceedings or the Utility District Act to present its contention that its property will not be benefited by the proposed construction and operation of a district utility system.

The Legislature conceives such districts as empowered to perform one or more of several functions, whose benefits are to be available to all human beings in the area who may desire or need their services. This particular district was formed to perform all of them, the language being:

"Resolved, further, that said municipal utility District be organized for the purpose of acquiring, constructing, owning, operating, controlling or using within or without or partly within or without the district, works for supplying the inhabitants of said district and the said City of Sacramento, without preference to said City of Sacramento, with each and all of the utilities permitted by law; that the kind of utilities proposed to be first acquired shall be utilities for furnishing light, heat and power for said district." (Italics supplied.)

It is obvious that the general tax is none the less valid because the three functions of providing the public with heat, light, and power are "first" in the committed purpose of furnishing all the utilities. The district is not required to spring, like Minerva, full panoplied from its Jovian head, the state of California. It cannot be an unconstitutional tax prior to the time the district has acquired all the proposed utilities and then, when functioning in all, become constitutional because of the more comprehensive service of public human needs which the tax supports.

Nor can it be denied that one of the services, i. e., the disposal of sewage, is a usual governmental function for the preservation of the health of the district's citizens, and one for which no charge is made to the served by the sewers' pumping plant, water flushing, and similar incidents. Historically, the disposition of sewage and its incidents are supported by general taxation.

The appellant admits, that, if any such governmental subdivision as a city or a county, or the state as a whole, imposed an ad valorem tax upon all property, real or personal, to maintain such a power utility, it would be a valid tax upon appellant's property within the city, county, or state.¹ This admission includes the fact that such a tax would support a rival industry whose competition might destroy appellant's business and from which appellant could receive as much benefit as does an aged and dying bachelor from the tax he pays for the education of school children.²

Nor does appellant contend that such general taxation is not permitted the state, counties, or cities for the power plant and water supply or for the maintenance of sewage systems for the protection of the health of all the inhabitants of the city, county, or state; or electric lamps for streets to light the farmer as he passes through; or the providing of the water he drinks from a public tap, or in a hotel or home; or power for the use of the saw of the transient carpenter or a portable mill in the forest, as well as for cooling fans in hotels and public meeting places, in the homes and industrial plants; or telephone service for the use of all persons at public booths; or street or suburban public passenger transportation.

The question then is, Can California create a municipality having the power of general taxation of all the property in its area to support the serving of the public at large with light, water, power, heat, transportation, telephone service, and other means of communication, and means for the disposition of sewage, garbage, and refuse matter?

To this the appellant urges that such a subdivision of the state is not a "government" or an "agency of government" and that only a government or an agency of government can levy a general tax. Appellant's contention is necessarily summarized to be that, only if to these historically more recently utility services rendered to the public, there are added to the district's powers the older functions of legislative and judicial tribunals and general executive administration, can they be supported by general taxation. Viewing the contention a priori, it would be a shocking surprise to the student of governmental theory and history if the Fifth or Fourteenth Amendment so has limited the powers which the Tenth Amendment has reserved to the states.

It is our opinion that the Sacramento Municipal Utility District is an agency of government to the extent that it may exercise such power of general taxation. That the service of furnishing light, heat, and power through electrical...