Knoxville Gas Co. v. City of Knoxville

• Decision Date: 23 September 1918
• Docket Number: 27.
• Citation: 253 F. 217
• Parties: KNOXVILLE GAS CO. v. CITY OF KNOXVILLE et al.
• Court: U.S. District Court — Eastern District of Tennessee

253 F. 217

KNOXVILLE GAS CO. v. CITY OF KNOXVILLE et al.

No. 27.

United States District Court, E.D. Tennessee, Northern Division.

September 23, 1918

Lindsay Young & Young, of Knoxville, Tenn., for plaintiff.

J. Pike Powers, Jr., City Atty., and Cates & Price, all of Knoxville Tenn., for defendant city of Knoxville.

McCALL District Judge.

Several weeks ago this case was before me on application for temporary injunction upon the bill and affidavits thereto and affidavit of the defendants. After consideration, the application for temporary injunction was denied. Since that time there have been filed a sworn answer and an additional affidavit in support of the bill. The case is before me again, first, for an order setting a date for the hearing of the case; second, for a restraining order; and, third, for a reference to a special master.

There is nothing new presented on this hearing by the plaintiff affecting the merits of the application for an injunction other than the additional affidavit of Mr. Young, which brings the financial showing of the company down to July 1918, and tends to intensify the present financial stress of the plaintiff. The application at this time for a temporary restraining order, in view of the fact that the court had recently denied a temporary injunction, is rather an unusual proceeding. The court sees no sufficient reason to change its views in regard to the injunctive features of the case, and the application for temporary restraining order is denied.

It appearing that the bill and answer present questions of law about which no evidence need be taken, it was suggested that the court at this time pass upon the questions of law and its action upon them to determine the order to be made on the application for reference. It was agreed at the hearing that it was a useless and expensive proceeding to send the case to reference, unless the court should be of opinion that the plaintiff upon the record as now presented, assuming that the issues of fact raised by the bill and answer were decided in its favor, is as a matter of law entitled to the redress it seeks.

The undisputed facts on which the questions of law arise are as follows: In about 1854 the Knoxville Gaslight Company (hereafter called the Light Company) was organized and chartered under the laws of Tennessee. It was granted a franchise to furnish the city of Knoxville with gas for a period of 50 years, and for that purpose it was permitted by the city to occupy its streets and alleys with pipes, conduits, and other equipment necessary for the production and distribution of gas to consumers. In 1903 certain parties acquired the stock of the Light Company and obtained a charter from the state under the name of the Knoxville Gas Company. It was the intention and purpose of the Gas Company to acquire the property, rights, and franchises of the Light Company. This it did after having obtained the consent of the city by ordinance so to do. See section 2, Exhibit A to the bill, and chapter 70, Acts of Tennessee 1889; Shannon's Code of Tennessee 1896, Sec. 2047.

The Gas Company thereafter made application for and was granted a franchise to run for 50 years to operate its plant over and along the streets of said city by ordinance passed September 8, 1903, as amended by ordinance approved September 28, 1903. Section 11 of this ordinance provides that, unless the Gas Company shall, within 20 days from and after the passage and approval of the ordinance, accept the same and the terms thereof, and notify the city of Knoxville of such acceptance in writing, all rights, privileges, and franchises granted to said city should be absolutely forfeited. Within the 20 days so allowed the Gas Company in writing accepted the franchise, together with its terms and conditions, in language as follows:

'To the Mayor and Aldermen of the City of Knoxville: You are hereby notified that the undersigned, Knoxville Gas Company, has accepted and does hereby accept the ordinance passed and approved by you on September 8, 1903, granting it certain rights, privileges, and franchises, as amended by the ordinance passed and approved September 28, 1903, and the terms and provisions of said original ordinance as amended aforesaid.'

The Gas Company thereupon entered upon the manufacture and supplying of gas to the city of Knoxville under the terms and conditions of said ordinance as previously accepted by it, and has so continued from that time without complaint, so far as this record shows, until after the entrance of the United States into the war with Germany. On the 5th day of March, 1918, the city of Knoxville passed an ordinance making it unlawful for any person, firm, or corporation supplying any article of public utility within the corporate limits of the city of Knoxville to any consumer or patron intentionally to demand, accept, or charge any unlawful rate or charge for the public utility article or service rendered or required to be rendered under its contract or franchise with the city of Knoxville to a consumer or patron.

Upon this state of fact, the bill is filed to have its contract with the city, made under the ordinance of September 8, 1903, declared ultra vires and void, and to enjoin the city from enforcing as against it the ordinance of March 5, 1918, on the grounds that said two ordinances are in violation of the Fifth and Fourteenth Amendments of the Constitution of the United States, in that they deprive the plaintiff of its property without due process of law and without just compensation. A paragraph of section 7 of the ordinance of September 8, 1903, provides as follows:

'And said Gas Company shall at all times furnish to the consumers of gas within the limits of the city of Knoxville gas of not less than fifteen candle power and shall never charge for the same more than $1.10 per thousand cubic feet, less 10 cents per thousand cubic feet if paid on or before the 10th day of the succeeding month.'

It is alleged in the bill, notwithstanding the Gas Company accepted the franchise as provided in the ordinance, on the terms and conditions that it would never charge more for gas than the maximum rate named in the ordinance, that its acceptance of the franchise in writing is not binding upon it, by virtue of the Fifth and Fourteenth Amendments of Constitution of the United States, and that upon a sufficient showing that it is not earning a reasonable return upon its investment, a court of equity has the power to relieve it from its contract so made, and permit it to charge such a price per thousand cubic feet of gas as will afford it a reasonable net return on the investment.

The city by ordinance said to the company:

'You may occupy my streets and alleys for 50 years with your pipes and conduits and other things necessary to the manufacture and distribution of gas, upon condition that you will never charge more than $1.10 per thousand cubic feet therefor.'

The company replied in writing that it accepted the franchise with that condition. I think that constitutes a contract between the city and the Gas Company. Vicksburg v. Vicksburg Water Co., 202 U.S. 453, 26 Sup.Ct. 660, 50 L.Ed. 1102, 6 Ann.Cas. 253; Vicksburg v. Vicksburg Waterworks Co., 206 U.S. 496, 27 Sup.Ct. 762, 51 L.Ed. 1155; Walla Walla v. Walla Walla Water Co., 172 U.S. 1, 19 Sup.Ct. 77, 43 L.Ed. 341; Cunningham v. City of Cleveland, 98 F. 657, 39 C.C.A. 211; Illinois Trust & Savings Bank v. Arkansas City, 76 F. 271, 22 C.C.A. 171, 34 L.R.A. 518; Omaha Water Co. v. Omaha, 147 F. 1, 77 C.C.A. 267, 12 L.R.A. (N.S.) 736, 8 Ann.Cas. 614.

The contract, having been made by the Gas Company before it acquired the gas plant in Knoxville, and, indeed, prior to having any investment there, was made, as I think, at arm's length with the city. The city did not have to grant to the Gas Company this or any other franchise. The Gas Company did not have to accept this or any other franchise not to its liking. It is not alleged in the bill that the city was guilty of deceit, fraud, or duress, or that the plaintiff was in any way overreached in the premises. Hence it must be that the Gas Company entered into the contract freely, voluntarily, and understandingly. That conditions have radically changed within the last year must be admitted. The war with Germany has brought about a great scarcity of labor on the one hand, and largely increased its cost on the other. The cost of all material entering into the making and distributing of gas has also greatly advanced.

Under such circumstances, has a court of equity power to relieve the Gas Company from a contract it voluntarily and understandingly made, and permit it to make another more to its liking, upon the ground that subsequent events have so changed conditions that the contract made by the plaintiff is no longer remunerative? In Blake v. Pine Mountain Iron & Coal Co., 76 F. 624, 22 C.C.A. 430, the Circuit Court of Appeals of the Sixth Circuit said:

'It is just these hardships which a court of equity cannot relieve by rescinding contracts, or making new ones by construction, through the process of balancing blame for nonperformance, and going into parol proof of other or different conditions than those expressed in the contracts themselves, intentions relative to failures not anticipated at the time the contracts were made, or not provided for by the terms of the agreements, as they would have been if the parties had not been improvident in neglecting such protection as was open to

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