Anchor Hocking Corp. v. Jacksonville Elec. Authority

• Decision Date: 10 August 1976
• Docket Number: No. 75-319-Civ-J-S.,75-319-Civ-J-S.
• Citation: 419 F. Supp. 992
• Parties: ANCHOR HOCKING CORPORATION, Plaintiff, v. The JACKSONVILLE ELECTRIC AUTHORITY, Defendant.
• Court: U.S. District Court — Middle District of Florida

419 F. Supp. 992

ANCHOR HOCKING CORPORATION, Plaintiff, v. The JACKSONVILLE ELECTRIC AUTHORITY, Defendant.

No. 75-319-Civ-J-S.

United States District Court, M. D. Florida, Jacksonville Division.

August 10, 1976.

COPYRIGHT MATERIAL OMITTED

Davisson F. Dunlap, Orlando, Fla., for plaintiff.

William Lee Allen, Jacksonville, Fla., for defendant.

ORDER

CHARLES R. SCOTT, District Judge.

In this diversity action for breach of contract, plaintiff has moved to strike defendant's first and second affirmative defenses as insufficient as a matter of law. In July, 1968, Anchor Hocking Corporation (`Anchor Hocking'). the plaintiff, entered into a requirements contract for electricity with the City of Jacksonville, Florida. On October 1, 1968, pursuant to Florida Laws 1967, Chapter 67-1569, the Jacksonville Electric Authority (`JEA') was established, to which the City of Jacksonville transferred its contract with Anchor Hocking; and JEA assumed the correlative contractual obligations. Florida Laws 1967, Chapter 67-1569, § 6. Thereafter, Anchor Hocking and JEA, the defendant, continued performing their respective duties under the contract.

Section 2 of the contract required a mandatory one-year effective life, after which there was reserved to either party a right to terminate the contract unilaterally upon ninety days' notice. Section 3 of the contract established a scale of monthly rates for electricity which JEA would charge Anchor Hocking, depending on the amount of kilowatts used. In addition, a formula was provided by which JEA could adjust upward or downward monthly its energy charges to Anchor Hocking, on a one-to-one ratio, for all costs that exceeded or fell below the agreed upon limits of a sliding twelve-month average of fuel costs to JEA. Finally, Section 3 allowed for a direct, one-to-one adjustment upward of energy charges by JEA for all increased taxes on JEA, ad valorem or non-ad valorem, that are allocable either to JEA's property that is used for electrical utility service, or to its production of electrical utility service.

The question presented by Anchor Hocking's motion to strike JEA's first affirmative defense is whether the contract between them, which is the subject matter of this action, is unenforceable because it is void. The question is purely one of law. There are three different legal principles, exemplified by three groups of cases under Florida law, that are involved in answering this question.

First, if the Florida Legislature has delegated, by general statute, its inherent, plenary authority over utilities' services to a city, any subsequent contract between that city and a utility that would bind the city inflexibly and unreasonably, preventing the exercise of its delegated power, is ultra vires and therefore void ab initio. The progenitor of later Florida decisions is City of Tampa v. Tampa Waterworks Company, 45 Fla. 600, 34 So. 631 (1903). The Florida Constitution of 1885 contained a provision which the Supreme Court of Florida construed as recognizing an inherent, plenary power of the Legislature over utilities, and imposing a continuing, unrelinquishable duty to exercise that power. Id. at 639. In 1887, the city and the water company entered into a thirty year contract for water at fixed rates to be charged by the water company; and the water company, in reliance on the terms of the contract, built its waterworks system. In 1901, however, pursuant to the State constitutional provision, and another provision concerning municipalities, the Florida Legislature enacted a general statute authorizing cities to prescribe by ordinance the maximum water rates. Later in 1901, the city passed an ordinance setting maximum water rates and making it unlawful for any company to charge rates in excess of those set by the city. The water company sued to enforce the contract, claiming that the city's ordinance impaired the contract between them, in violation of the Federal Constitution, Article I, Section 10, cl. 1.

On the city's appeal from a judgment for the water company, the Supreme Court of Florida held that the pre-existing provision of the State Constitution subjected every subsequent contract involving the State or a municipality to it. The provision became an implicit provision in any subsequent contract, denying the right of any contract to bind the State or a municipality from the obligatory exercise of the power recognized under that provision. Id. Consequently, insofar as the particular contract between the city and the water company purported to bind unalterably the city for thirty years, the contract was ultra vires and void from the outset. There was, therefore, no valid contract to be impaired. The United States Supreme Court, Tampa Water Works Company v. City of Tampa, 199 U.S. 241, 26 S.Ct. 23, 50 L.Ed. 170 (1905), reviewing that decision, held that the view of the Supreme Court of Florida was a possible and therefore permissible one. Hence, the thirty year contract did not bind the city.

City of Clearwater v. Bonsey, 180 So.2d 200 (2d D.C.A.Fla.1965), was a case where the Pinellas County Commissioners sought a declaratory decree concerning the legal effect of a contract which had been entered into by the county and the City of Clearwater more than ten years earlier. In 1953, the Florida Legislature had passed a special act authorizing Pinellas County to enlarge its water supply and distribution systems, to establish rates for it, and to enter into contracts with respect to it. Subsequently, Pinellas County and the City of Clearwater executed a thirty year contract, at specific, fixed rates. In 1963, the county sought to raise rates more than 300% to reflect current costs, if it were not precluded contractually from doing so. The Second District Court of Appeal, citing City of Tampa v. Waterworks Company, supra, held that the prior special act imposed a specific mandatory

. . . continuing duty to revise rates to enable the water system to be financially selfsufficient while maintaining a rate structure which operates in an equitable manner. The rate contract in this case operates as a bar to this requisite flexibility . . . Id. at 204.

As a result, the county lacked the power to bind itself to a thirty year contractual rate, since such a contract would preclude the necessary exercise of discretion required by the Special Act in order to maintain the economic self-sufficiency of the water system. Id. at 203. Being ultra vires, the contract was void from its inception.

Recently, in Southern Bell Utilities, Inc. v. City of North Miami Beach, 323 So.2d 669 (3rd D.C.A.Fla.1975), the Third District Court of Appeal held that a contract of indefinite length between the city and a private utility company was void. In 1949, the Florida Legislature by special act empowered the city to set water rates periodically. In 1964, the city contracted to supply water indefinitely to the utility company at a fixed rate. By ordinance, the city in 1974 established new rates for such water supply, and the utility company sued to enforce the earlier contract. Citing City of Tampa v. Tampa Waterworks Company, supra, the Third District Court of Appeal held that at the time of execution the contract was subject to the antecedent special act. Id. at 671. Because the contract appeared to bind the city ad infinitum, thus purporting to preclude the city for exercising its obligatory statutory duty to revise rates, it was void from its execution. Id. at 670.

Second, any contract by a city and a utility company that imposes unalterable and interminable rates over a long term or an indefinite period of time will be superseded by the pre-emptive, inherent police power of the Florida Legislature if it later exercises that authority. City of Plantation v. Utilities Operating Co., 156 So.2d 842 (Fla.1963) is the seminal case for this line of law. The city and a utility company entered into a thirty year contract for utility services to the city at "reasonable rates" with the city retaining final authority to determine what that term meant in varying situations. Five years later, however, the Legislature enacted a statute that vested regulatory authority over the utility services in a governmental agency. The city sought declaratory relief concerning the validity of its contract. On appeal from a decree adverse to the city, the Supreme Court of Florida held that the subsequent enactment by the Legislature was an exercise of the State's continuing police power that pre-empted the pre-existing contractual authority of the city. Id. at 843. The city could not "foreclose the exercise of the State's police power" over the life of such a contract. Id. Furthermore, every contract such as that

. . . is presumed to have been made with full knowledge of the inherent reserved power of the State to alter the contract regarding rates at such time as the Legislature deems it appropriate to assert the power under the Constitution. It also follows that when the parties enter into such a contract they do so with the full realization that the contractual provisions are ineffective to preclude subsequent legislative action in the exercise of the State's police power. Id. at 843-44.

To the extent that the city's contract conflicted with it, the contract was abrogated and voided by the Legislature's legitimate exercise of the State's police power.

In Merritt Island Sanitation, Inc. v. E. L. Green, 251 So.2d 132 (4th D.C.A.Fla.1971), the question was whether a private utility company retained its authority to set utility rates under a contract of indefinite duration, in the face of subsequent legislation that appeared to vest exclusive regulatory authority in the Board of County Commissioners. The Fourth District Court of Appeal, citing City of Plantation v. Utilities Operating Co., supra, held that a private contract that purported to retain regulatory control over the utilities services "must necessarily yield to ...