Des Moines Water Co. v. City of Des Moines

• Decision Date: 16 September 1911
• Docket Number: 2,468.
• Parties: DES MOINES WATER CO. v. CITY OF DES MOINES
• Court: U.S. District Court — Southern District of Iowa

192 F. 193

DES MOINES WATER CO. v. CITY OF DES MOINES

No. 2,468.

United States Circuit Court, S.D. Iowa, Central Division.

September 16, 1911

N. T Guernsey, A. C. Parker, and Wm. E. Miller, for complainant.

Robert O. Brennan and J. M. Parsons, for defendant.

SMITH McPHERSON, District Judge.

This is a case involving the validity of an ordinance of the city of Des Moines, fixing water rates. The Water Company filed a bill in equity to enjoin the enforcement of that ordinance alleging that the same is invalid, because unremunerative as to the rates thus fixed, as well as for other reasons, to be noticed in this opinion. It is now more than three years since the passage of this ordinance. This case illustrates the evils in connection with the fixing of rates by municipalities to govern public utility corporations. Neither party is properly chargeable with any dereliction, and yet the fact remains that by the time this case is decided by an Appellate Court at least four years will have elapsed from the passage of the ordinance until the matter is put at rest by the courts. It is utterly impossible for a court to hear all cases similar to this, which requires from one to three months to hear the evidence, after the issues are formed. If this court were to do nothing else, it could not personally hear all such cases. The Supreme Court of the United States has said that the seemly and orderly way to determine these matters is to refer them to a master in chancery, to take the evidence and make reports on which the courts can act.

In the face of these long delays and the tremendous expense attending the hearings, it is apparent some other method must be devised to determine the matters as to some of these public utilities. One of these schemes has been validated by the decision of the Supreme Court of Iowa in the case of Halsey v. City of Belle Plaine, 128 Iowa, 467, 104 N.W. 494, in which the law is now said to be that cities can constitutionally go in debt at least three times the amount that they could incur until that case was decided, in the year 1905. The state Constitution provides that no municipality shall create an indebtedness of more than 5 per centum of the valuation of the property within the city limits. Until the case just noted was decided, this 5 per centum of valid indebtedness was limited to 5 per centum of the values on which taxes were paid. But under the decision just noted this 5 per centum is figured on the actual value of the property, which is four times that on which the taxes are paid. I am neither indorsing nor denying the correctness of that decision. But when the Supreme Court of the state has construed the statutes or Constitution of the state, and such construction is given before the existence of any of the facts in litigation may arise, then United States courts will adopt such construction, regardless of what may be thought as to the soundness thereof.

The Iowa Legislature has enacted a statute, chapter 45, Laws of the Thirty-Third General Assembly (1909), which provides for the condemnation and taking over of waterworks, and the city as a city, becomes the owner of such plants. The value thereof is ascertained by three district judges, designated by the Supreme Court of the state, and the owners of the plant are compelled to part with the ownership upon receiving the value thereof from the city. Under the construction of the Iowa Constitution above referred to, the city can go into debt to raise the money and become the owner. The city can borrow the money at a less rate of interest than can a private corporation. When the city becomes the owner of the plant, all these litigations will be at an end. It may be that the people will not be better served, but the wranglings and disputes will be between the city officers and the people. If proper service is not given, the people can only complain of their own officers. It may be that property owners will pay more for their water, including their share of interest, than they would pay to a private corporation. But this will be largely compensated, when counting the expenses of litigation, and the unending quarrels that follow the present method of having private corporations to operate waterworks plants. It may be that the waterworks company will not be able to receive all of their investments back. But considering the limitation on their franchises, and the difficulties now encountered to get money with which to build waterworks plants, it is better that they charge off their losses and bring present methods to a conclusion.

The present expensive chaos should be brought to an end. It is known by all informed men that city councils necessarily adopt rates with but little or no investigation as to what rates ought to be fixed. The result is that we have ordinances fixing rates based upon but little intelligent effort for the ascertainment of the facts. Some of the states, like New York, Massachusetts, and Wisconsin, have state commissions of competent men, who give public hearings, and who do nothing behind doors, nor in secrecy-- a commission with no member interested as a taxpayer of the city, and with no member subject to influences other than the ascertainment of the truth and the facts. Rates are thus fixed with which most fair-minded people are ready to acquiesce. It is strange that we have no such legislation and no such commissions in Iowa.

Either of the foregoing suggestions would largely cure present evils. But the existing situation is such that city councils have the lawful right to fix rates, provided, always, that such rates are reasonable. And when the rate is thus fixed by a city council, the waterworks corporation has the right to challenge such rate by a suit in equity in the courts. Such is this case. This case referred to a competent, efficient, and learned master in chancery. He has found that the rates fixed by the city council of Des Moines are not reasonable rates. Exceptions to this report have been filed, and are now to be decided by this court.

There are some matters of law now no longer the subject of serious debate. One of these propositions is that the rates thus fixed by a city council are presumptively correct, and the waterworks corporation, challenging the same, must overcome such presumption, and must affirmatively show by a fair preponderance of the testimony that the rates thus fixed are not sufficiently remunerative.

Another proposition is that in this court, in arriving at a conclusion as to what rates are lawful, we are to have ascertained the value of the plant. The question is not what it cost, although such evidence is admissible as having a bearing. The question is not what the plant some day may be worth, although evidence with reference thereto may be considered as having a bearing. The question is: What is the value of the plant to-day? There must be a reasonable rate of interest or dividends allowed on the value of the plant. If a concern is not profitable, the investors must lose their money. If the plant is a profitable one, then such profits cannot exceed a reasonable rate of interest or dividend. As, of course, from this time henceforth, capital cannot be acquired, except with difficulty, and oftentimes not at all. In most enterprises persons are willing to invest their capital, if by so doing they can have a chance to acquire large profits. But if such investors must sustain all the loss, if there is a loss, and only a reasonable rate of interest or dividend, if successful, it is nearly impossible to find capitalists ready to furnish the money. But with that this court has nothing to do, other than to follow the rules now adopted by the Supreme Court.

Another thing to be kept in mind is that, when a case is referred to a master in chancery, he is not simply to act as a commissioner, to take the evidence and report the same. He is a judicial officer, and...