City of Groton v. Yankee Gas Services Co.

• Citation: 224 Conn. 675,620 A.2d 771
• Decision Date: 23 February 1993
• Docket Number: No. 14458,14458
• Court: Connecticut Supreme Court
• Parties: CITY OF GROTON v. YANKEE GAS SERVICES COMPANY.

Page 771

620 A.2d 771

224 Conn. 675

CITY OF GROTON v. YANKEE GAS SERVICES COMPANY.

No. 14458.

Supreme Court of Connecticut.

Argued Sept. 25, 1992.

Decided Feb. 23, 1993.

Steven R. Humphrey, with whom were David W. Bogan, Stamford, Timothy D. Bates, Groton, and, on the brief, Lucia B. Brooks and Pamela R. Zeller, Stamford, for appellant (plaintiff).

Robert J. Cathcart, with whom were Gregory T. D'Auria and Timothy Patrick Brady, Hartford, for appellee (defendant).

Before PETERS, C.J., and CALLAHAN, BORDEN, BERDON and NORCOTT, JJ.

NORCOTT, Associate Justice.

The principal issues in this appeal are whether: (1) the plaintiff, the city of Groton, possesses an exclusive gas franchise pursuant to a 1913 legislative act; and (2) the plaintiff is entitled to an injunction to prevent the defendant, Yankee Gas Services Company, from providing gas service within the plaintiff's franchise area. The plaintiff brought suit against the defendant seeking an injunction to prohibit the defendant from laying pipe, entering into contracts for or providing natural gas service to any customer located within the plaintiff's franchise area. The trial court denied the plaintiff's request for permanent injunctive relief. The plaintiff appealed from the judgment of the trial court to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 4023 and General Statutes § 51-199(c).

The following facts are relevant to this appeal. In 1913, by special act of the Connecticut legislature, the charter of the borough of Groton ¹ was amended to grant the plaintiff a gas franchise, which allowed it to manufacture and sell gas within its borders. 16 Spec.Acts 814, No. 155 (1913). The plaintiff had previously been granted electric and water franchises, pursuant to 1901 and 1903 legislative acts respectively.

In 1927, the state granted the Connecticut Light & Power Company (CL & P) a gas franchise authorizing it to manufacture and distribute gas anywhere in the state provided that the territory was not already occupied and served by another entity. 20 Spec.Acts 223, No. 195, § 1 (1927). The state granted another gas franchise in 1955 to The Mohawk Gas Company (Mohawk) authorizing it to manufacture, distribute, and deliver gas subject to the limitations set forth in § 2 of its charter. ² 27 Spec.Acts 166, No. 218, §§ 1, 2 (1955). In 1989, Mohawk amended its charter to change its name to Yankee Gas Services Company.

Except for a period of time when it operated a propane gas plant and distribution system in the Fort Hill area of the city, the plaintiff has never provided gas service within its franchise area because it was not economically feasible to do so. ³ In 1985, the economic prospects for gas service changed ⁴ and the plaintiff began taking steps to develop a gas distribution system, including hiring a consulting engineering firm, obtaining cost estimates for construction and operation, and obtaining approval of a bond issue. The plaintiff also negotiated with the defendant, at the defendant's initiative, to have the defendant supply the plaintiff with its natural gas requirements. An agreement, however, was never reached. To date, the plaintiff has still not begun to service customers with natural gas within its franchise area.

In June, 1989, the defendant acquired by assignment the gas franchise rights of CL & P after a United States Securities and Exchange Commission directive ordered CL & P to divest itself of its gas business. This assignment included the rights granted originally to CL & P in the 1927 act. In 1991, the defendant constructed a gas pipeline extending just inside the Groton town boundary with Ledyard that is capable of serving the Groton franchise area with gas. The defendant subsequently entered into a contract with the United States Department of the Navy to supply it with gas at its submarine base in Groton. The defendant also intends to supply other customers within the town and city of Groton with gas.

The plaintiff brought this action against the defendant seeking an injunction prohibiting the defendant from, among other things, constructing a gas distribution system and selling gas in the plaintiff's franchise area. The plaintiff claimed that it had an exclusive franchise to sell gas in the town and city of Groton and that, even if its franchise were not exclusive, the defendant was not authorized under its charter to enter the plaintiff's franchise area without the plaintiff's consent. The trial court denied the plaintiff's request for injunctive relief, concluding that the plaintiff's franchise was not exclusive and that the defendant did not need to obtain the plaintiff's consent before entering the plaintiff's franchise area.

On appeal, the plaintiff claims that the trial court improperly denied its request for injunctive relief ⁵ because the court improperly concluded that: (1) the plaintiff's gas franchise was not exclusive; and (2) the defendant's charter did not require it to obtain the plaintiff's consent before entering the franchise area because (a) the limitation in the defendant's charter requiring consent did not apply to the rights assigned to it under the CL & P charter, and (b) the plaintiff's efforts to develop a distribution system did not constitute occupying and serving its franchise area within the meaning of the CL & P charter. The plaintiff also claims that the trial court improperly excluded evidence that the plaintiff's electric utility franchise would be adversely affected if the defendant supplied gas to customers in the plaintiff's franchise area. We affirm the judgment of the trial court.

I

The plaintiff first claims that the trial court improperly denied an injunction because it incorrectly found that the 1913 Special Act that amended the plaintiff's charter did not grant the plaintiff an exclusive franchise to provide gas within the town borders. If a statute confers an exclusive franchise, an injunction is appropriate to prevent infringement of the franchise rights. See New England Railroad Co. v. Central Railway & Electric Co., 69 Conn. 47, 55, 36 A. 1061 (1897). Number 155 of the 1913 Special Acts, which amended the charter of the borough of Groton to grant it a gas franchise, authorized the plaintiff to "produce, generate, and manufacture gas and electricity and to sell and use the same for the purpose of furnishing light, heat, and power to any or all persons who may desire the same, and for that purpose [Groton] shall have the right to build, maintain, and operate wires or other electrical conductors and gas pipes necessary for said business over, through, or under any or all of the streets, avenues, lanes and highways in the [franchise territory]; to take and hold any lands, property, or privileges, and to exercise any powers that may be necessary or convenient for carrying into effect any purpose of this act."

The trial court ruled that, in the absence of any language in the statute indicative of an exclusive right to supply gas, the plaintiff did not have a right by virtue of its franchise to exclude another corporation from providing gas service to the area under a similar franchise. ⁶ The plaintiff maintains on appeal that both the common law and public policy support implying exclusivity into the terms of its gas franchise. The plaintiff argues that the legislature intended to convey exclusive, monopolistic franchises because it is the public policy of this state that utility service be rendered by monopolies. Only by keeping each franchise area free from competition, the plaintiff claims, may that public policy be realized. The plaintiff argues, therefore, that regardless of whether it ever exercises its franchise right, it may exclude other franchise holders from entering its franchise area because otherwise competition will not be controlled. We disagree.

A franchise is a particular privilege conferred by grant from the government on an individual or group of individuals that does not belong to the citizens generally of common right. Crum v. Bliss, 47 Conn. 592, 602 (1880); Norwich Gas Light Co. v. Norwich City Gas Co., 25 Conn. 19, 35 (1856). The general rule with respect to public grants or charters is that they are construed in favor of the state and against the grantees. See Hartford Bridge Co. v. Union Ferry Co., 29 Conn. 210, 223 (1860); Norwich Gas Light Co. v. Norwich City Gas Co., supra, 25 Conn. at 33; 3 J. Sutherland, Statutory Construction (5th Ed.1992) § 64.05; 36 Am.Jur.2d, Franchises § 26 (1968). "Grants of rights and privileges by a State or municipality are strictly construed and whatever is not unequivocally granted is withheld--nothing passes by implication." Piedmont Power Co. v. Graham, 253 U.S. 193, 194-95, 40 S.Ct. 453, 453-54, 64 L.Ed. 855 (1920).

It follows, therefore, that unless franchise rights are expressly made exclusive by the plain language of the act in which they are granted, courts will not find exclusivity by implication. See Knoxville Water Co. v. Knoxville, 00 U.S. 22, 33, 26 S.Ct. 224, 227, 50 L.Ed. 353 (1906); 1 O. Pond, Public Utilities (4th Ed.1913) p. 415; 36 Am.Jur.2d, supra, § 36. This principle was recognized early on by the United States Supreme Court in Proprietors of Charles River Bridge v. Proprietors of Warren Bridge, 36 U.S. (11 Pet.) 420, 9 L.Ed. 773 (1837), in which the court held that a grant by a state legislature of the right to maintain and operate a bridge was not exclusive because the grant did not expressly say that it was. The court noted: "The continued existence of a government would be of no great value, if by implications and presumptions, it was disarmed of the powers necessary to accomplish the ends of its creation; and the functions it was designed to perform, transferred to the hands of privileged corporations." Id., at 547, 9 L.Ed. 773. ⁷ The principle that the exclusivity of franchise rights will not be implied if not expressly stated...