Arkansas-Missouri Power Co. v. City of Kennett, Mo.

• Decision Date: 09 October 1935
• Docket Number: 10296.,No. 10295,10295
• Citation: 78 F.2d 911
• Parties: ARKANSAS-MISSOURI POWER CO. v. CITY OF KENNETT, MO., et al. MISSOURI PUBLIC SERVICE CO. v. CITY OF TRENTON, MO., et al.
• Court: U.S. Court of Appeals — Eighth Circuit

78 F.2d 911 (1935)

ARKANSAS-MISSOURI POWER CO. v. CITY OF KENNETT, MO., et al.

MISSOURI PUBLIC SERVICE CO. v. CITY OF TRENTON, MO., et al.

Nos. 10295, 10296.

Circuit Court of Appeals, Eighth Circuit.

August 15, 1935.

Rehearing Denied October 9, 1935.

COPYRIGHT MATERIAL OMITTED

A. Z. Patterson, Cyrus Crane, and D. C. Chastain, all of Kansas City, Mo., for appellants.

Robert B. Fizzell, of Kansas City, Mo. (Orville Zimmerman and John T. McKay, Jr., all of Kennett, Mo., and Bowersock, Fizzell & Rhodes, of Kansas City, Mo., on the brief), for appellees city of Kennett, Mo., and others.

Henry T. Hunt, Sp. Asst. to the Atty. Gen., for Harold L. Ickes, as Federal Emergency Administrator of Public Works.

Russell N. Pickett, of Trenton, Mo. (Harry J. Fair, of Trenton, Mo., on the brief), for appellees city of Trenton, Mo., and others.

Henry T. Hunt, Sp. Asst. to the Atty. Gen. (Cyrus B. Austin, of Boston, Mass., Legal Division, Federal Emergency Administration of Public Works, on the brief), for Harold L. Ickes, as Federal Emergency Administrator of Public Works, amicus curiæ.

Before GARDNER, SANBORN, and WOODROUGH, Circuit Judges.

SANBORN, Circuit Judge.

These cases, which arise out of substantially similar circumstances, were argued together. Each was a suit in equity for an injunction. A decree dismissing the appellant's bill for want of equity was entered in each suit, and these appeals followed. The parties will be designated as in the courts below.

The Arkansas-Missouri Power Company is an Arkansas corporation. It owns and operates electric plants and distribution systems in southeastern Missouri and northeastern Arkansas. It has such a plant and system in the city of Kennett, Mo., a city of the third class under the Missouri classification; and is and has been engaged in furnishing electrical service to the inhabitants of that city, under a valid, but nonexclusive, franchise. (It is so alleged in the complaint, which must be taken as true.) The company is also a taxpayer of the city. In 1933 the city voted to issue $140,000 of bonds to provide funds for the purpose of erecting and purchasing a municipal electric plant. It then applied to the Federal Emergency Administration of Public Works (hereinafter called P. W. A.) for funds of the United States to build the plant. P. W. A. agreed to loan the city $120,000, by purchasing $120,000 of its bonds, and, in addition, to grant to the city an amount not to exceed 30 per cent. of the cost of the labor and materials used upon the project. The loan agreement between the city and the United States was reduced to writing. The power company then brought its suit against the city and its officers to enjoin them from erecting a municipal plant with the funds to be obtained from the government under the loan agreement, and also to enjoin the defendant Ickes, as Administrator of P. W. A., from making the loan to the city.

The plaintiff applied for a preliminary injunction, and the defendants moved to dismiss the complaint for want of equity. The motions to dismiss were sustained.

The Missouri Public Service Company is a Missouri corporation; the city of Trenton is a city of the third class, like the city of Kennett. The service company has an electric plant and distribution system in that city and is a taxpayer. It has no exclusive franchise. Like the city of Kennett, the city of Trenton voted to issue bonds for the purpose of erecting and operating a municipal electric plant. It made an application to P. W. A. for a loan and grant. Its application was approved. A loan agreement substantially similar to that of the city of Kennett was executed. The service company then sought to enjoin the city and its officers from building the plant with government funds, and to enjoin Ickes, Administrator, from furnishing funds as provided in the agreement. The defendants answered. The suit was tried. The court made findings of fact and conclusions of law, and entered a decree dismissing the complaint.

There is no substantial difference between the two cases upon the facts, and the same general rules of law are applicable to each. It will be noted, however, that in the suit involving the city of Kennett, diversity of citizenship was present, while in the city of Trenton suit both the plaintiff and the defendants, with the exception of Ickes, were citizens of Missouri.

No. 10295.

We shall first consider the case involving the city of Kennett. The right of Kennett to own and operate an electric plant in competition with the Arkansas-Missouri Power Company is conceded, as is its right to issue bonds for that purpose. The proceedings leading up to the authorization of the bond issue are not seriously questioned. Reduced to their simplest terms, the contentions of the power company are that the city, in proceeding to enter into competition with it, is doing a lawful thing in an unlawful way, and that the United States, in loaning the city money to be used in building a municipal plant, is doing that which it has no right to do.

The court below was of the opinion that the power company was in no position to question the power of the federal government to loan or give money to the city of Kennett. We are in accord. The United States is not proposing to become a competitor of the power company. It will have no right, title, or interest in the plant when completed and nothing to do with operating it. The destruction of the power company's property will come about by reason of the city's operation of the plant when erected. The position of the United States is that of a lender of money, a buyer of bonds, and a giver of gifts. True, the money procured from the government will enable the city to build the plant, and, if the city builds the plant, it will no doubt operate it, and when it does operate the plant the city will take the customers of the power company, and the company's property in Kennett will become worthless or greatly impaired in value. We know of no rule of law, however, which permits one indirectly hurt, no matter how seriously, by a government expenditure, to question the power of the government to make it. In fact, the rule is to the contrary. Commonwealth of Massachusetts v. Mellon, Secretary of the Treasury et al., 262 U. S. 447, 43 S. Ct. 597, 67 L. Ed. 1078; City of Allegan, Mich., v. Consumers' Power Co. (C. C. A. 6) 71 F.(2d) 477 (certiorari denied, 293 U. S. 586, 55 S. Ct. 100, 79 L. Ed. ___). It is true that in the cases cited the plaintiffs relied upon their status as taxpayers exclusively, while in this case the plaintiff relies, in addition, upon the injury which will be done to its property by municipal competition. That injury, however, is, so far as the government is concerned, clearly consequential and indirect, as we have pointed out. See, also, Missouri Utilities Co. v. City of California, Mo., et al. (D. C., W. D. Mo.) 8 F. Supp. 454, 465.

Since the power company may not question the right of the United States to loan or grant funds to the city as proposed, we need only determine whether the city is proceeding lawfully to secure funds to enable it to build and operate its municipal plant. If it is proceeding lawfully, the mere fact that the power company's property will be injured or destroyed, resulting in the impairment of the investments of those who furnished money to it in the belief that their investments would not be lost through the unnecessary duplication of the company's plants, is of no legal consequence. On the other hand, if the city is proceeding unlawfully, then the power company may invoke the rule of law which protects the owner of a franchise or permit, although it be nonexclusive, against the illegal acts of others who propose to exercise the privilege conferred by the franchise. City of Campbell, Mo., et al. v. Arkansas-Missouri Power Co. (C. C. A. 8) 55 F.(2d) 560; Iowa Southern Utilities Co. v. Cassill, Mayor et al. (C. C. A. 8) 69 F.(2d) 703; Frost v. Corporation Commission of Oklahoma et al., 278 U. S. 515, 49 S. Ct. 235, 73 L. Ed. 483.

Under this rule, the power company may, we think, question the right of the city to enter into this contract with the government. Conditions imposed upon the city by the government under parts three and four of the loan agreement, which are set out in full in the footnote,¹ it is insisted, make the agreement one which the city may not lawfully enter into in securing funds. This, because the city has attempted to delegate to the government legislative authority which may not be delegated.

This court, in construing the loan agreement and in determining the power of the city to make it, is, of course, bound by the law of Missouri as interpreted by the courts of that state. Georgia Railway & Power Co. et al. v. Town of Decatur, 262 U. S. 432, 438, 43 S. Ct. 613, 67 L. Ed. 1065; Old Colony Trust Company v. City of Omaha, 230 U. S. 100, 116, 33 S. Ct. 967, 57 L. Ed. 1410; Claiborne County v. Brooks, 111 U. S. 400, 410, 411, 4 S. Ct. 489, 28 L. Ed. 470. The agreement, by its terms, is to be construed in accordance with the laws of Missouri.

There is no Missouri statute authorizing municipalities to enter into contracts such as the one here involved. There is no decision of any of the state courts of Missouri holding that such a contract may or may not lawfully be entered into by a municipality. In order to determine whether the contract is valid, we must turn to those decisions of the courts of Missouri relating to the delegation of authority by municipalities. In this connection, it may not be inappropriate to point out that, while the Supreme Court of a state may overrule or modify its former decisions and thus change an existing rule of law, this court cannot do otherwise than apply the law of the state as at present established by the decisions of its courts.

Turning, then, to the Missouri cases:

In Matthews v. City of Alexandria, 68 Mo. 115, 30 Am. Rep. 776, the city of Alexandria...