Connett v. City of Jerseyville, 6923.

• Decision Date: 07 March 1940
• Docket Number: No. 6923.,6923.
• Citation: 110 F.2d 1015
• Parties: CONNETT et al. v. CITY OF JERSEYVILLE.
• Court: U.S. Court of Appeals — Seventh Circuit

110 F.2d 1015 (1940)

CONNETT et al. v. CITY OF JERSEYVILLE.

No. 6923.

Circuit Court of Appeals, Seventh Circuit.

February 9, 1940.

Rehearing Denied March 7, 1940.

Emil J. Verlie, J. F. Schlafly, Jr., and C. Dana Eastman, all of Alton, Ill., for appellant.

W. J. Chapman, of Alton, Ill., R. Allan Stephens, of Springfield, Ill., and Isaac D. Snedeker, of Jerseyville, Ill., for appellees.

Before EVANS, SPARKS, and TREANOR, Circuit Judges.

TREANOR, Circuit Judge.

Defendant-appellant is a municipal corporation of the state of Illinois and several years ago became the owner of its water system by virtue of an Illinois statute enacted in 1899.¹ The legislative act authorized a city to acquire a water system and to pay for the same by issuance of certificates of indebtedness. The city was authorized to mortgage the water system to secure payment of the water certificates and to include in the mortgage "such provisions and conditions as are reasonably necessary to fully secure the payment of said water certificates." The defendant passed appropriate ordinances which included a schedule of rates to be charged and which approved the issuance of a form of a mortgage to secure certificates of indebtedness. The mortgage provided that the rates fixed by ordinance "will, if it becomes necessary to do so, be increased * * *." The certificates of indebtedness secured by the mortgage were issued by defendant.

Defendant defaulted in payment of principal and interest of the certificates of indebtedness and in 1924 foreclosure suit was instituted in the District Court by the mortgage trustee. During the pendency of the foreclosure suit a receiver was appointed to operate the water works and the receiver has continued to operate the same. In 1929 a decree of foreclosure was entered and in 1931 the property was offered for sale pursuant to the decree but no bids were received.

In 1931 the Illinois legislature amended the act of 1899. One of the amendatory provisions contained the requirement that "rates charged for water by such city * * shall be sufficient at all times to pay the cost of operation, maintenance, provide an adequate depreciation fund and pay the principal of and interest upon all revenue bonds issued under this act." The amendatory act also authorized any holder of a bond or bonds, "either to in law or in equity, by suit, action, mandamus or other proceeding, to enforce and compel performance of all duties required by this Act, including the making and collecting of sufficient water rates for that purpose and the application of income and revenue thereof."²

In 1936 the mortgage trustee filed a supplemental bill in the original foreclosure suit praying that the rates charged for water for private and public use be increased to produce income sufficient to pay the cost of operation and maintenance, provide an adequate depreciation fund and pay the amount found due in the foreclosure decree. This supplemental bill based the right of the trustee to such relief on Section 4 of the Act of 1899 and the provisions of the mortgage as affected by the amendatory act of 1931.

The District Court sustained a motion to dismiss the supplemental bill; and upon appeal to this Court the judgment of dismissal by the District Court was reversed.³ This Court held that Section 4 of the Act of 1899 authorized the city to obligate itself in the mortgage to increase rates, if it should become necessary to do so in order to pay the certificates. It was also held that the amendatory act of 1931 was applicable and gave the plaintiff a right to utilize the remedies provided therein.⁴

After our mandate issued the District Court required the defendant to answer and the defendant's answer set up that the District Court had no power or jurisdiction to increase rates for the reason that the fixing of public utility rates is a legislative and not a judicial act. The District Court sustained the motion of the plaintiffs to strike out the foregoing matter.

The District Court thereupon heard evidence and made findings of fact and conclusions of law. The court found that the plaintiffs were entitled to an increase in the water rates of the consumers, both public and private, in such amounts as would be "designed to produce operating revenues that will permit and enable the payment of necessary operation and maintenance expenses; and maintenance of adequate reserves for depreciation; the payment within a reasonable number of years, of the principal amount found due by said decree, to-wit: $233,971.92 together with interest thereon at the rate of 5% per annum from the date hereof; and the payment, within a reasonable number of years, of the interest now accrued and unpaid on said principal amount."

A supplemental decree was thereafter entered by the District Court fixing specific increased rates for all types of service and assessing the cost of proceeding against defendant. The decree did not order the municipality of Jerseyville to determine and put into effect rates which would be adequate to take care of the cost of operation, maintenance and depreciation and to pay the principal and interest obligations, but the decree required the receiver to charge the rates fixed by the court without any action by the city council.

The only point urged on appeal by defendant-appellant is that the District Court, by reason of limitations on its power as a federal court, did not possess the power to fix rates as it did and order the same to be put into effect by its receiver. But the plaintiffs raise the question of the propriety of any consideration of the issue of jurisdiction for the reason, as urged by plaintiffs, that "the holding of this court in 96 F.2d 392 that the District Court had jurisdiction to grant the relief prayed and the denial of the city's petition for rehearing, which urged the `legislative power argument' is now the law of the case."

In our former decision we held that the combined effect of the Illinois act of 1899, of the ordinances passed in conformity thereto, of the provision in the mortgage deed binding the city to increase rates as required, and of the amendatory act of 1931 was to authorize judicial action to compel the defendant municipality to increase rates to the extent necessary to provide for the cost of operation, maintenance and depreciation, and to pay the principal and interest obligation under the certificates of indebtedness. No point is made on this appeal as against the foregoing. The precise questions presented now are (1) whether the District Court, as a federal court, has jurisdiction under the federal law to prescribe the rates which it did and order the same to be put in effect by its receiver, and (2) whether defendant-appellant is prevented from raising that question by the rule of the law of the case.

The District Court construed the language of the closing paragraph of our previous opinion (supra, page 1017) to hold that it had jurisdiction to conduct a hearing and determine the amount of increase in water rates. The question of jurisdiction was not directly raised in the appeal proper, but was advanced in the petition for rehearing. It is squarely raised on this appeal, and regardless of the effect of our previous decision we are of the opinion that "when the jurisdiction of the court as a federal court is called in question, liberality of practice should be indulged, to the end that the question may be indubitably heard and determined."⁵

The doctrine of the "law of the case," when applicable, does not carry the same consequences as the rule of res judicata. The Supreme Court in Southern Railway Company v. Clift⁶ stated that one, the law of the case, directs discretion, the other supersedes it and compels judgment. And the Supreme Court further amplified its meaning by the statement that "in one it is a question of power in the other of submission." In Messinger v. Anderson,⁷ the Supreme Court stated that "in the absence of statute the phrase, `law of the case,' as applied to the effect of previous orders on the later action of the court rendering them in the same case, merely expresses the practice of courts generally to refuse to reopen what has been decided, not a limit to their power." The Supreme Court, however, has pointed out in Hartford Life Ins. Co. v. Blincoe⁸ that "omissions do not constitute a part of a decision and become the law of the case, nor does a contention of counsel not responded to."

The expressions of the Supreme Court and of inferior federal courts leave no question that federal courts do not apply the doctrine of "the law of the case" as a rule of law limiting the power of the court to reopen what has been decided but rather as an expression of "the practice of courts generally to refuse to reopen what has been decided * * *." Also, federal courts recognize that the law of the case does not include determination of all questions which were within the issues of the case and which, therefore, might have been decided.

In view of the foregoing we conclude that defendant-appellant is entitled to have us consider the question of the District Court's jurisdiction, under the United States Constitution and federal laws, of the subject matter presented by the supplemental bill of the trustee and intervening petition of the certificate holders' protective committee praying that the water rates for both public and private uses be increased.

The propositions relied upon by defendant are (1) that the fixing of public utility rates for public and private use of water constitutes an exercise of legislative power and that the exercise of such power is precluded by the first and third articles of the United States Constitution; and (2) that the Johnson Act⁹ prohibited the District Court from increasing the water rates in this case. It will be unnecessary to consider the latter.

Undoubtedly federal District Courts do not have jurisdiction to exercise the ordinary rate making power...