Kansas Gas & Electric Co. v. City of Independence, Kan., 1202.

• Decision Date: 20 August 1935
• Docket Number: No. 1202.,1202.
• Citation: 79 F.2d 32
• Parties: KANSAS GAS & ELECTRIC CO. v. CITY OF INDEPENDENCE, KAN., et al.
• Court: U.S. Court of Appeals — Tenth Circuit

79 F.2d 32 (1935)

KANSAS GAS & ELECTRIC CO. v. CITY OF INDEPENDENCE, KAN., et al.^*

No. 1202.

Circuit Court of Appeals, Tenth Circuit.

August 20, 1935.

Blatchford Downing, of Kansas City, Mo. (McCune, Caldwell & Downing, of Kansas City, Mo., and Thos. E. Wagstaff and Wagstaff & Scovel, all of Independence, Kan., on the brief), for appellant.

Chester Stevens, of Independence, Kan. (Theo. F. Varner, of Topeka, Kan., on the brief), for appellees.

Henry T. Hunt, Sp. Asst. to Atty. Gen., as amicus curiæ.

Before LEWIS, PHILLIPS, and McDERMOTT, Circuit Judges.

PHILLIPS, Circuit Judge.

This is a suit brought by the Kansas Gas and Electric Company (hereinafter called the Electric Company), against Independence, Kansas, a city of the second class (hereinafter called the City), and Ralph C. Mitchell, W. C. Cavert and Frank E. Stoops as Board of Commissioners and Governing Body of the City, and G. H. Krienhagen as clerk of the City.

The facts alleged in the bill, pertinent to the questions here considered, are these: The Electric Company is a corporation organized under the laws of West Virginia, and is authorized by its charter to engage in the business of generating, transmitting, and furnishing electric energy for light, heat, and power as a public utility. It is authorized to transact such business in the State of Kansas, and its principal office in that State is at the City of Wichita.

It has a non-exclusive franchise from the City to engage in transmitting and furnishing electricity to the City and its inhabitants, and to occupy the streets of the City for that purpose.

The Electric Company has been furnishing electric energy to the City, at a profit, for lighting and power purposes. It receives a gross annual revenue therefrom of $12,000, and the value of such business is in excess of $3,000. The requisite diversity of citizenship exists.

The Electric Company is the only producer and distributor of electric energy in the vicinity of the City, and has expended large sums to provide facilities to generate electric energy, transmit it to the City and furnish it to the City and its inhabitants. Its service has been adequate and satisfactory.

The governing body of the City adopted resolutions by which it proposed "to construct, alter, repair, improve, extend and enlarge the municipal waterworks plant of said City" by contracting for and installing "two 280 H. P. Diesel Engines * * * two 233 K. V. A. generators" and a distributing system consisting of "transformers, power lines," and other equipment to generate and transmit electric energy for light and power purposes at the waterworks plant, sewage disposal plant, city park, Memorial Hall, white-way street lights, cemetery, and other City instrumentalities, and one 1000 G. P. M. and two 2000 G. P. M. motor driven centrifugal pumps at the waterworks plant, and to issue revenue bonds to provide funds to pay therefor in accordance with chapter 32, Kansas Special Session Laws 1933.

The governing body of the City published a notice to the qualified electors of the City of its intention to contract for and install such generating plant, distributing system and pumps, and to issue such revenue bonds to pay the cost thereof.

The notice stated that a written protest signed by ten per cent of such electors might be filed within fifteen days after publication of the notice, and if such a protest should be filed, the governing body of the City would submit such proposed project and bond issue to the electors of the City at the regular election to be held April 3, 1934. Such a protest was filed within the specified time. The project and bond issue was submitted at the election and carried by less than a two-thirds vote.

To obtain funds to construct such project the City made application to the Federal Emergency Administration of Public Works for $60,000, seventy per cent thereof to be a loan and thirty per cent a grant. The application was pending when the bill was filed.

The City will divert and use in paying the cost of such proposed project all revenue heretofore accumulated and hereafter to be received from the operation of the City waterworks.

The sewage disposal plant, city park, City Hall, Memorial Hall, and white-way lights are not revenue producing.

Approximately 3.83 miles of power transmission lines, necessary supports therefor, transformers, switches and other equipment would have to be acquired to carry the electric energy from the point of generation to the several City instrumentalities to be provided therewith. Such transmission lines, supports, transformers, switches and other equipment would cost not less than $17,000.

The bill prayed that the defendants be enjoined from proceeding further with the proposed project; from entering into any contracts or incurring any obligations for the purchase, construction or installation of any electric generating machinery, pumps, motors, or other appliances at the waterworks plant, and any electric power or transmission lines, supports, transformers or appliances outside the waterworks plant; and from issuing revenue bonds, and from diverting funds heretofore or hereafter to be received from the operation of the waterworks to pay the cost thereof.

On December 11, 1934, the Electric Company filed an application for leave to file a supplemental bill. In the supplemental bill the Electric Company alleged these facts: That the application of the City for a loan and grant had been approved; that thereafter the City decided not to sell its bonds to the United States, but to others, and amended its application so as to request a grant only; that on October 2, 1934, the Public Works Administrator approved the application for a grant of $18,500; and that the Electric Company is a federal taxpayer.

It further alleged that such grant would be for a local and a private purpose and not a general or public purpose, and would not be a part of a comprehensive program of public works; that if such proposed project was carried out it would destroy the Electric Company's business in the City and result in unemployment instead of an increase in employment; that the grant would be contrary to the Constitution of the United States; that Title 2 of the National Industrial Recovery Act unconstitutionally delegates legislative power to the President; that the Public Works Administrator had announced, adopted and put into force a policy of granting or withholding funds to cities to construct competing utilities, dependent upon whether the existing utility would reduce rates and adopt rules and regulations in accordance with the view of such Administrator; and that the grant would constitute an invasion of and interference with the sovereign power of the State of Kansas.

It prayed that the defendants be enjoined from prosecuting their application for, and from accepting and receiving any grant of federal funds, and from using any such funds, if received, in carrying out such project.

The trial court denied leave to file the supplemental bill and dismissed the original bill.

In considering the questions presented we assume, as we must, the truth of the matters well pleaded in the bill and supplemental bill.

Four primary questions are presented: (1) Is the proposed bond issue valid, (2) has the Congress power under the Constitution to authorize the grant, (3) does Title 2 of the National Industrial Recovery Act unconstitutionally delegate legislative power, and (4) may the Electric Company challenge the validity of the bond issue and the grant?

I. The franchise of the Electric Company is non-exclusive. The City is not obligated by any contract to continue to purchase electric energy from the Electric Company. The City is authorized to construct and operate its own electric light and power plant, and to supply electric energy to itself and its inhabitants, under the provisions of 12 — 842, R.S.K., 1923.

It follows that the City has the legal right to construct an electric generating plant and a distributing system, and to provide electric energy for its own purposes in competition with the Electric Company.¹

Is the proposed bond issue illegal?

Section 2, c. 32, supra, provides that "any municipality, authorized by the laws of the state of Kansas to issue general obligation bonds for the construction, reconstruction, alteration, repair, improvement, extension or enlargement of any utility, is hereby empowered to issue and sell revenue bonds in payment of the cost of such utility."

Section 8 thereof provides that "the governing body * * * of any municipality, by a two-thirds vote * * * may contract for or make repairs, extensions or improvements of any of its present existing utilities, and issue revenue bonds in payment of the cost thereof," but that in the event of a protest after notice as provided in such section, the governing body "shall thereupon submit such proposed project and the proposed bond issue to the electors of such municipality," and "in the event a majority of such electors voting on such proposition at such election shall vote in favor thereof, such repairs, extensions or improvements shall be made and such bonds may be issued in payment" thereof. (Italics ours.)

Section 10 thereof provides that "all bonds issued and sold pursuant to the provisions hereof shall first be authorized by a two-thirds vote at an election as now provided by law for issuance of general obligation bonds of the municipality."

Section 8 provides for the authorization and issuance of bonds to pay the cost of repairs, extensions, or improvements of an existing utility. In the event of a protest the proposed project and bond issue must be approved by a majority vote of the electors voting on the proposition.

Section 10 provides for the authorization and issuance of bonds to pay the cost of the construction of a new utility, or the reconstruction of an old utility. Such bonds must be authorized by a two-thirds vote of the electors...