Farmers' Loan & Trust Co. v. City of Sioux Falls

• Decision Date: 11 July 1904
• Citation: 131 F. 890
• Parties: FARMERS' LOAN & TRUST CO. v. CITY OF SIOUX FALLS et al.
• Court: U.S. District Court — District of South Dakota

131 F. 890

FARMERS' LOAN & TRUST CO. v. CITY OF SIOUX FALLS et al.

United States Circuit Court, D. South Dakota, Southern Division.

July 11, 1904

The original bill in this case was filed on November 30, 1901, by the Farmers' Loan & Trust Company, a corporation of the state of New York, against the city of Sioux Falls, S.D., George W. Burnside, mayor, E. G Ledyard, auditor, John Olson, treasurer, and H. N. Gates John Mallanney, Thomas S. Roberts, Jonah Jones, J. M. Neil F. A. Marvin, Iver L. Bratager, J. M. O'Neil, Alexander Reid, W. H. Ramsey, Thomas J. Bushell, and David Park, aldermen, of said city, all being citizens and residents of the state of South Dakota, and W. S. Kuhn, a citizen of the state of Pennsylvania, and Sioux Falls Water Company and South Dakota Water Company, corporations of the state of South Dakota. The bill was filed by the Farmers' Loan & Trust Company for the purpose of restraining the city of Sioux Falls from proceeding to construct and establish a system of waterworks in said city, to be operated and maintained by said city for the purpose of supplying water to itself and its inhabitants, for the reason that the construction and operation of such a system of waterworks would impair, if not wholly destroy, the revenues which were being earned by the South Dakota Water Company in furnishing the city of Sioux Falls and its inhabitants with water under and in pursuance of the contract between the city of Sioux Falls and W. S. Kuhn, hereinafter referred to. The South Dakota Water Company, Sioux Falls Water Company, and W. S. Kuhn answered the original bill, and also filed a cross-bill against their codefendants and the complainant, the Farmers' Loan & Trust Company. The city of Sioux Falls and the remaining defendants demurred to the original bill and to the cross-bill. The demurrers were subsequently argued, and, by the court, overruled, for the reason that the city of Sioux Falls had no right or authority, during the existence of the contract hereinafter mentioned, to establish a system of waterworks to furnish water to itself and its inhabitants, in competition with the South Dakota Water Company. The city and the other demurring defendants then answered the original bill and cross-bill. No further proceeding was had in the case until October 16, 1903, when an amended and supplemental cross-bill was, by leave of court, filed by the South Dakota Water Company, W. S. Kuhn, and the Sioux Falls Water Company, making defendants the same parties who were the defendants in the original cross-bill. The Farmers' Loan & Trust Company answered the original cross-bill and also the amended and supplemental cross-bill. The city of Sioux Falls, and the same defendants who demurred to the original bill and to the original cross-bill, again demurred to the amended and supplemental cross-bill. This demurrer came on for argument, and, by the court, was overruled. At the same time that the demurrer to the amended and supplemental cross-bill was argued a motion for a temporary injunction, based upon all the pleadings in the case, was made and heard, and at the time of overruling the demurrer to the amended and supplemental cross-bill this court granted a temporary writ of injunction restraining the defendant the city of Sioux Falls from proceeding any further in the construction of a system of waterworks for the purpose of supplying itself and its inhabitants with water, and to be constructed and maintained by the taxation of the citizens thereof. As a condition of granting said temporary writ of injunction the court required the South Dakota Water Company to execute a bond in the sum of $200,000, conditioned to pay all damages which might arise by reason of the granting of said temporary writ. At the time of making the motion for the temporary writ, the South Dakota Water Company made an offer to the effect that, in case either the city or itself was successful in this litigation, it would take the plant or system of waterworks so far as it had been constructed by the city, from the city at its actual cost, and the bond given upon the granting of said temporary writ also is conditioned for the faithful performance of this offer, and the granting of the writ was conditional both as to the execution of the bond and the performance of this offer. Upon the overruling of the demurrer the city and the demurring defendants answered the amended and supplemental cross-bill, and the case, after testimony had been taken, came on for hearing upon the merits.

The facts established by the pleadings and proof, so far as they are material to the decision arrived at in this case, are as follows: On April 9, 1884, the city of Sioux Falls, then being a municipal corporation acting under a special charter granted by the Legislature of the territory of Dakota, entered into a contract with one W. S. Kuhn, of the city of Pittsburg, Pa., and his associates, successors, and assigns, for the purpose of obtaining a supply of water for the city of Sioux Falls and its inhabitants. In the first part of said contract is found the following language:

'That said party of the first part has granted to the said party of the second part the exclusive privilege of laying water pipes for public use beneath the surface of the highways of said city, with all necessary facilities and privileges for laying water pipes for public use beneath the surface of the highways of said city, with all necessary facilities and privileges for laying and repairing said water pipes from time to time as same may become necessary.'

In consideration of this privilege, W. S. Kuhn, his associates, successors, and assigns, agreed to construct within the city of Sioux Falls a system of waterworks sufficient to supply a constant and sufficient supply of pure water to every citizen in said city requiring it for ordinary house use, upon condition of such citizen or citizens paying to said W. S. Kuhn, his associates, successors, and assigns, quarterly, in advance, of the usual charges for water privileges at rates not exceeding those at present charged in Kansas City, Mo., Council Bluffs, Iowa, Quincy, Ill., and Lincoln, Neb. Said Kuhn further agreed to erect at once on the line of the water pipes to be placed in the streets of said city, and maintain in good repair, 40 fire hydrants of the kind known as 'double delivery,' to have a certain capacity specified in the contract; the city by said contract agreeing to pay to said Kuhn, his associates, successors, and assigns, the annual sum of $3,000, in quarterly installments, for the water to be supplied from said hydrants for fire protection and other public purposes. And said contract further provided that said W. S. Kuhn, his associates, successors, and assigns, should, whenever required by the city, furnish additional hydrants, and this has been done up to the number of 117. And said W. S. Kuhn further agreed to extend at any time the original pipe line of said system of waterworks, when so required by the party of the first part. Paragraph 9 of said contract is in the following language:

'It is further understood and agreed by the parties to this contract that the same shall continue in full force and effect for and during the period of twenty years from April 9, 1884, with the privilege for the party of the first part to purchase this waterworks from party of the second part, his successors or assigns, on the expiration of ten years, by appraisement by disinterested parties of three persons, one elected by the party of the first part, another by the party of the second part, and a third chosen by the two thus named, and if not purchased then, the same privilege is granted at each successive five years.'

W. S Kuhn, his associates, successors, and assigns, so far as this record is concerned, have complied with all the obligations of said contract on their part, and the city has received its supply of water for public purposes and for the use of the inhabitants of said city from said company; said system of waterworks having been enlarged from time to time during the 20 years since April 9, 1884, until it now represents an expenditure of some $481,000; said enlargements of the water system being required by the growth of the city of Sioux Falls and by the request of the city council of said city from time to time. Said system of waterworks has been largely extended. The Farmers' Loan & Trust Company is a corporation of the state of New York, authorized to become trustee in mortgages or deeds of trust. The Sioux Falls Water Company is a corporation organized in the year 1884 under and by virtue of the laws of the territory of Dakota for the purpose, among other things, of constructing and operating waterworks in and adjacent to the city of Sioux Falls, for the purpose of supplying water for municipal, fire, domestic, and other purposes within the limits of said city and other territory adjacent thereto. The South Dakota Water Company was originally incorporated and organized under the laws of the state of South Dakota on the 28th day of June, 1890, for the purpose of acquiring, purchasing, constructing, and operating waterworks in and adjacent to the city of Sioux Falls, and other cities, towns, and villages in the state of South Dakota, for the purpose of supplying water for fire, domestic, and other purposes, and to acquire, purchase, hold, and pledge any franchises, rights, and properties of any waterworks or water companies in said state; also to acquire, purchase, and hold such real estate as its legitimate purposes might require, and to transfer, sell, and convey any and all property owned by it, and to borrow money, issue bonds, notes, and other obligations, and to secure the same by mortgage upon any and all rights then...