McClelland v. Mayor and Council of Wilmington

• Decision Date: 10 March 1960
• Citation: 159 A.2d 596,39 Del.Ch. 114
• Parties: Alan L. McCLELLAND and Janet W. McClelland, Plaintiffs, Robert C. Denzler and Grace Denzler, Intervening Plaintiffs, v. MAYOR AND COUNCIL OF WILMINGTON, a municipal corporation of the State of Delaware, Joseph S. Wilson, Ralph B. Richardson, Benjamin F. Shaw, II, comprising the Board of Harbor Commissioners, an agency of The Mayor and Council of Wilmington, and Bestwall Gypsum Company, a corporation of the State of Maryland, Defendants.
• Court: Court of Chancery of Delaware

Page 596

159 A.2d 596

39 Del.Ch. 114

Alan L. McCLELLAND and Janet W. McClelland, Plaintiffs Robert C. Denzler and Grace Denzler, Intervening Plaintiffs, v. MAYOR AND COUNCIL OF WILMINGTON, a municipal corporation of the State of Delaware, Joseph S. Wilson, Ralph B Richardson, Benjamin F. Shaw, II, comprising the Board of Harbor Commissioners, an agency of The Mayor and Council of Wilmington, and Bestwall Gypsum Company, a corporation of the State of Maryland, Defendants.

Court of Chancery of Delaware, New Castle County.

March 10, 1960.

Alexander L. Nichols, Harvey S. Kronfeld, Richard H. Allen of Morris, Nichols, Arsht & Tunnell, Wilmington, for plaintiffs.

Carroll F. Poole, Wilmington, for intervening plaintiffs.

Stewart Lynch, City Solicitor, Wilmington, for defendant, Mayor and Council of Wilmington.

John J. Morris, Jr. and Edmund D. Lyons of Morris, James, Hitchens & Williams, Wilmington, for defendant, Bd. of Harbor Commissioners.

William Poole, Frank O'Donnell, and Thomas G. Hughes of Berl, Potter & Anderson, Wilmington, for defendant, Bestwall Gypsum Co.

SEITZ, Chancellor.

This is a taxpayers' suit to enjoin the performance of certain agreements between the City of Wilmington ('City'), The Board of Harbor Commissioners ('Board') and the Bestwall Gypsum Co. ('Bestwall'). These agreements are concerned with the proposed erection of a gypsum plant on land located at the Marine Terminal ('Terminal').

The Terminal has facilities to handle ocean going vessels. It consists of approximately 139 acres of land acquired by purchase and 30 acres reclaimed by dredging operations. There are also about 100 acres of partially improved land. It has warehouses and miscellaneous facilities. A large warehouse is in the course of construction.

The Terminal was created by an Act of the General Assembly of Delaware in 1917 (29 Del.Laws, Chap. 123). The purpose of the original Act was to authorize the improvement of the then existing water front and to authorize the board and their successors to increase the harbor and shipping facilities of the City of Wilmington, on or adjacent to the banks or shore, as then existing or thereafter extended; or such part of the water front as the Board in its judgment might deem advisable, whether such water frontage was then owned by the City or others. The original Act also authorized the Board to acquire land and all other rights and privileges deemed necessary thereto. It was further authorized to construct, in addition to the wharves, piers, docks, bulkheads, slips and terminals, such other structures, including cranes, as the Board might determine for the convenience of shipping and commerce.

In 1925 the Harbor Board Act was amended to give the Board the power, inter alia, to lease its land or facilities if the Board deemed it to be to the advantage of the City to do so. (34 Del.Laws, Chap. 122). Shortly after 1925, the Board began the leasing of lands at the Terminal to private industry, where such leases could be profitably made for the City and where in the Board's judgment such leasing would increase the use of the harbor facilities.

The Board's policy was influenced by the highly competitive nature of harbor operations. The income from the lessees has clearly been important to the self-sufficient operation of the Terminal. The Marine Terminal is a so-called 'out port' which does not have regular asilings and therefore at least 300 tons of cargo must be available for discharging or loading before a vessel will call at Wilmington.

At the present time ten so-called long term leases of land are in effect, covering various portions of the Terminal land. I exclude the Bestwall lease. Their terms run for various periods but one of them with an option may not expire until 1991. The lessees use the land to store their property for various periods and purposes. All lessees appear to make use of the harbor facilities.

The Board has had a policy of not selling its land. Since about 1952, the public demand for the use of the Terminal has shown a rapidly rising trend.

In 1955, the Legislature enacted the Wilmington Marine Terminal Bond Act, 50 Del.Laws, Chap. 457. That Act authorized the issuance of either general obligation or revenue bonds for the improvement of the Terminal. The Act was amended on March 16, 1959, to broaden the definition of 'undertakings' which could be financed by the issuance of bonds so as to authorize specifically the issuance of revenue bonds for the construction of manufacturing plants for sale or lease on Terminal land (52 Del.Laws, Chap. 4).

Before the Bestwall transaction was broached, the Board had embarked upon a campaign to have City Council authorize the erection of a new 1,000 foot dock extension to cost $3,500,000. The same was true of the installation of a heavy duty multiple purpose crane at an additional cost of $250,000.

On the basis of the existing revenue and the amount of money required for payment of the principal and interest on outstanding Terminal bonds plus those projected for the purpose of paying for the new warehouse and dock extension, the annual income will probably be about $100,000 short of the funds necessary to cover all changes. Plaintiffs insist, however, that the future revenue will be greater and that there is no showing that the Terminal needs the Bestwall project to remain self-supporting. Nevertheless, I shall assume the correctness of defendants' position, which points up the essentially monetary nature of the Bestwall transaction from the Board's viewpoint. As defendants say in their brief:

'The Board has recognized that business is done where there are facilities and if you do not have these facilities you do not attract business. Therefore, the Board believes that present and probable future public needs for increased port facilities at the Terminal require and will continue to require a great deal of construction and improvement. To help meet the needs for extension and expansion, the Board had to find a way to finance additional facilities.'

Commencing in September 1958, extensive negotiations took place between the Board and Bestwall looking toward some lease agreement. The parties finally agreed upon a lease agreement which provided that the City was to issue revenue bonds and to use the proceeds to build a gypsum plant and then lease it to Bestwall for twenty-five years with the option in Bestwall to renew for an additional 15 years. Before this lease was executed the plaintiffs commenced this action. Thereafter that lease was cancelled.

In place of the cancelled lease Bestwall and the Board negotiated a so-called Interim Agreement and Lease on October 1, 1959. The parties also on the same date executed so-called alternate Leases, Trust Agreement and Crane Agreement. When plaintiffs learned of these new matters they filed a supplemental complaint attacking them. This is the decision after final hearing on the validity of these instruments.

The basic purpose of the Interim Agreement was to give Bestwall the right to go ahead with construction of the plant at its own expense pending the final determination of this litigation. In substance, the Interim Agreement and Lease leases 21.47 acres of land located at the Terminal approximately 900 feet from dockside, and authorizes Bestwall to construct thereon a main gypsum products manufacturing building, and auxiliary buildings, including a dock-to-plant conveyor on a fixed easement across other Terminal land. It is then provided that if defendants prevail in this litigation, a certain trust agreement will be executed, revenue bonds will be marketed by the City and the proceeds will be used to pay Bestwall for the buildings. Title to the plant will then be conveyed to the City. Any excess cost is to be paid by Bestwall.

It is provided that if the Supreme Court determines that the basic undertaking is invalid, Bestwall will then have three options:

1. To complete construction and bear all costs and retain title to the buildings and execute the Exhibit B Lease on the terms specified for Option A. The right of renewal is also given.

2. To complete construction at its cost and transfer title to the buildings and execute the Exhibit B Lease on the terms specified for Option B; or

3. To abandon the project and remove everything above ground from the premises.

Under the Interim Agreement and Lease, an annual land rent of $20,000 is payable until construction of the plant is completed, at which time the rent is increased by an amount equal to and payable in lieu of what the annual City taxes would be on the improvements, determined on the basis of tax assessing practices and rates effective in each year throughout the term of the Agreement, plus taxes, if any, levied against the City because of its ownership of the land or the existence of the improvements. The rental will then amount to $72,080, or if County taxes are levied, an additional $8,820.

I turn now to plaintiffs' first contention which is as follows:

The Wilmington Marine Terminal Bond Act, 50 Del.Laws, Chap. 457, as amended by 52 Del.Laws, Chap. 4, is unconstitutional on its face in purporting to authorize the Board to construct with public funds on public land manufacturing and other industrial facilities to be sold or leased for exclusively private use.

I quote the so-called Wilmington Marine Terminal Bond Act of 1955 as amended in 1959 ('Bond Act') in pertinent part:

'Section 1. Short Title of Act

'This Act may be cited as 'Wilmington Marine Terminal Bond Act'.

'Section 2. Definitions

'Whenever used in this Act, unless a different meaning clearly appears from the context:

'(a) The term 'undertaking' shall mean wharves, piers, docks, ships, bulkheads, terminals, warehouses, structures, appliances, cranes, machinery, equipment, elevators, compresses, refrigeration storage plants, buildings, structures and facilities to be used in the manufacturing, processing, assembling, storing or...