City of Covington v. Reynolds

• Decision Date: 05 June 1931
• Parties: City of Covington et al. v. Reynolds et al.
• Court: United States State Supreme Court — District of Kentucky

240 Ky. 86

City of Covington et al. v. Reynolds et al.

Court of Appeals of Kentucky. Criminal, Common Law and Equity Division.

Decided June 5, 1931.

Bridges — Under contract whereby city transferred option to bridge to bridge company which was to acquire bridge and operate it until cost was amortized, when bridge was to be surrendered to city as free bridge, company held not agent of city; hence provision for exemption from taxation invalidated contract (Laws 1930, chap. 95, secs. 1-3, 5; Constitution secs. 163, 164, 170).

Under the contract, the company was to manage, control, and operate the bridge as a tollbridge during the time the cost was being amortized, according to its notion, with no power on the part of the city to direct anything, and the compensation which the bridge company was to collect for period of ten years went to its own private stockholders. All the city could do during the time the bridge company was amortizing the cost was to look at the books and see that the company was not converting any of the tolls to purposes

otherwise than expressed in the contract; the city having no control over the internal affairs of the bridge company.

Appeal from Kenton Circuit Court.

ROBT. C. SIMMONS and CHESTER B. MASSLICH for appellants Covington-Cincinnati Cities Bridge Corporation and L.B. WILSON.

SAMUEL W. ADAMS for appellant City.

JOHN C. DOOLAN, CHARLTON B. THOMPSON, and A.E. STRICKLETT for appellees.

OPINION OF THE COURT BY JUDGE DIETZMAN.

Affirming.

About the year 1887, the Covington & Cincinnati Elevated Railroad & Transfer Bridge Company, hereinafter referred to as the bridge company, was formed by the consolidation of two companies, one of which had been incorporated in Kentucky and the other in Ohio. It constructed a bridge across the Ohio river between Covington and Cincinnati, and thereafter the bridge was used by the Louisville & Nashville Railroad Company and the Chesapeake & Ohio Railroad Company under contracts with the bridge company. The bridge company has also since the erection of the bridge maintained a vehicular highway and a sidewalk for foot passengers across it on which tolls have been charged. In 1927, the bridge company began the reconstruction of its bridge by extending one of the piers down stream, installing additional piers and by erecting upon the extended pier and additional piers a superstructure on the downstream side of the original structure. Since then the railroad tracks have been removed from the original structure and placed upon the new structure. A new and broad vehicular roadway or highway and an ample walkway for pedestrians have been constructed upon the original structure. In the reconstruction of the bridge, it became necessary to make a change of routing of the approaches to the bridge in the city of Covington, and to that end the railroad companies and the bridge company entered into negotiations with the city which culminated in an ordinance passed June 9, 1927, whereby the city of Covington granted certain rights to the three companies involving underpasses and overpasses and changes of routing in the streets and other public places of the city. The rights granted to these three companies were conditioned upon the bridge company giving to the city the right or option to purchase the highway and pedestrian portion of the bridge for the sum of $2,000,000. The companies accepted the ordinance with the condition attached. However, the city was without funds to take advantage of the option it had thus obtained. A submission to the vote of the people of a bond issue to raise the necessary funds resulted adversely to the proposition. The matter being in this status, the city entered into a contract in the fall of 1929 with L.B. Wilson, a banker of Covington, looking to the purchase of the bridge. The details of this agreement are not of particular importance, but we may say that, in substance, it provided that the city should transfer to Wilson its option to buy the bridge, he should form a corporation to which he would transfer the option, the corporation should raise the necessary funds to buy the bridge, and, after reimbursing those to whom it had become indebted in the raising of the necessary funds for the purchase of the bridge and paying itself an agreed commission for its work out of tolls collected, the company should transfer the bridge to the city to be maintained thereafter as a free bridge. The Legislature of 1930 coming on, it passed chapter 95 of the acts of that year. So far as pertinent, that act provides:

"Be it enacted by the General Assembly of the Commonwealth of Kentucky:

"Sec. 1. That any city of the second class in this Commonwealth, for the purpose of ultimately acquiring and freeing from tolls any bridge or bridges wholly or partly within the city limits extending over any streams or other water course, including any river forming a state boundary line, on the highway and/or pedestrian portion of any such bridge or bridges, is hereby authorized to enter into a contract or contracts with any person, firm or corporation, domestic or foreign (hereinafter for convenience termed Corporation) qualified to enter into such contract which shall embrace the covenants provided for in Sections 2 and 3 of this act.

"Sec. 2. In such contract or contracts the Corporation shall agree: (a) to acquire the ownership of such bridge or portion thereof (unless it shall theretofore have acquired such ownership) and (b) to operate and maintain the same and (c) to charge and collect tolls for traffic over all such bridge or portion thereof, and (d) to apply the revenues therefrom, after deduction of the reasonable expense of operation, maintenance and repair and a reasonable return to the Corporation not exceeding fifteen per cent (15%) of revenues after the deduction of such expense, to the amortization of the cost to the Corporation of such bridge or portion, with the proviso that if alterations or improvements shall be necessitated by law or by the order of any governmental or state department having jurisdiction so to order, or be necessitated by casualty or other necessity, such alterations or improvements not being in the nature of ordinary repairs or maintenance, all of the revenues, after deduction of the reasonable expense of operation, maintenance and repair, shall be applied to the amortization of the cost to the Corporation of such bridge or portion and to the cost of such alterations or improvements, all such costs to be deemed to include reasonable interest and financing costs, and (e) upon the completion of such amortization to surrender and turn over such bridge or portion to the City.

"Sec. 3. In such contract or contracts the City may agree to transfer and assign to the Corporation any interest or right the City may have in such bridge or portion, or any interest or right of the City to acquire the same, and shall agree to take over such bridge when turned over to it as hereinbefore provided, and thereafter to maintain and operate the same as a free bridge unless and until the same may be taken over and so maintained and operated by the Commonwealth or by the State Highway Commission, or by any other department of the Commonwealth. . . ."

"Sec. 5. Any such bridge or portion, so long as operated under any such contract, and thereafter so long as operated free of tolls as hereinabove provided, shall be deemed public property used for public purposes."

After the passage of this act, L.B. Wilson caused to be incorporated under the laws of Delaware the Covington-Cincinnati Cities Bridge Corporation, one of the appellants herein, and which will hereafter be referred to as the Cities Bridge Company. All of its capital stock is privately owned. He then assigned to this company any rights he had under his contract of 1929 with the city of Covington. On June 5, 1930, the city of Covington, also an appellant herein, passed an ordinance recognizing the assignment and directing the execution by its officials of a contract between the city of Covington and the Cities Bridge Company. This ordinance was attacked in the courts. Its proponents being of the opinion that it should not have been passed until after the effective date of the act of 1930, which was some time in June after the passage of the ordinance of June 5th, the city of Covington passed, on August 7, 1930, another ordinance again recognizing the assignment and directing the execution by its officials of a contract between the city and the Cities Bridge Company set out in the ordinance. This is the contract which is attacked in this action. The appellees, who were the plaintiffs below, brought this suit as citizens and taxpayers to enjoin the execution of this contract on the grounds that its effect will be to create an indebtedness of the city in violation of the Constitution; that it is not in accordance with the act of 1930; that it is in effect a granting of a public franchise without advertisement and sale, as required in sections 163 and 164 of the Constitution; that the city has no right to cede to private interests its own corporate franchise to operate the bridge; that the city has no power to employ a private corporation as an agency or instrumentality of the city; that the exemption from taxation of the bridge and of the interest of the Delaware corporation in the bridge is unconstitutional; that section 5 of the Act of 1930 is unconstitutional; and that the ordinance of August 7th was not passed in accordance with the charter provisions of the city.

The contract, which is quite detailed, may, for the purpose of this opinion, be thus summarized: The city constitutes and appoints the Cities Bridge Company its agent and declares it to be an instrumentality of the city for the purposes of the contract. The city agrees to assign to the Cities Bridge Company the city's option to purchase for $2,000,000 the highway and pedestrian portion of the bridge heretofore...