Moffat Tunnel Improvement Dist. v. Denver & SL Ry. Co.

• Decision Date: 29 November 1930
• Docket Number: 261.,No. 260,260
• Citation: 45 F.2d 715
• Court: U.S. Court of Appeals — Tenth Circuit
• Parties: MOFFAT TUNNEL IMPROVEMENT DIST. et al. v. DENVER & S. L. RY. CO. DENVER & S. L. RY. CO. v. MOFFAT TUNNEL IMPROVEMENT DIST. et al.

45 F.2d 715 (1930)

MOFFAT TUNNEL IMPROVEMENT DIST. et al. v. DENVER & S. L. RY. CO.

DENVER & S. L. RY. CO. v. MOFFAT TUNNEL IMPROVEMENT DIST. et al.

Nos. 260, 261.

Circuit Court of Appeals, Tenth Circuit.

November 29, 1930.

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Norton Montgomery and Horace N. Hawkins, both of Denver, Colo. (Erskine R. Myer, of Denver, Colo., on the brief), for Moffat Tunnel Improvement Dist. and Moffat Tunnel Commission.

Clayton C. Dorsey and Gerald Hughes, both of Denver, Colo. (Elmer L. Brock, of Denver, Colo., on the brief), for Denver & S. L. Ry. Co.

Thomas H. Gibson, of Denver, Colo., amicus curiæ for City and County of Denver.

James Grafton Rogers, of Denver, Colo. (Harold H. Healy, of Denver, Colo., on the brief), amicus curiæ for Denver Chamber of Commerce, Retail Merchants' Bureau, Moffat Tunnel League, Presidents' Round Table, and Lions Club of Steamboat Springs, Colo.

F. R. Carpenter, of Hayden, Colo., amicus curiæ for Routt County Taxpayers' Ass'n, and Joseph J. Jones, a taxpayer of Moffat County, Colo.

Before LEWIS, PHILLIPS, and McDERMOTT, Circuit Judges.

McDERMOTT, Circuit Judge.

This litigation deals with a lease of the Moffat Railroad Tunnel executed on January 6, 1926, by the Moffat Tunnel Improvement District to the Denver and Salt Lake Railway Company, commonly called the Moffat Railway. The appellants in No. 260 and appellees in No. 261 are the District and its governing body, the Moffat Tunnel Commission, and for brevity will be hereafter referred to as the "District." The Railway Company is the appellee in No. 260, and the appellant in No. 261, and will be referred to as the "Railway." The District was created by an Act of the Colorado Legislature passed at a special session in 1922, and a résumé of that Act is on the margin.¹

In very broad outline, the litigation was precipitated by a notice from the District to the Railway, served on January 30, 1929, that the Railway was in default for nonpayment of rent, and electing to forfeit the lease if the rental was not paid in twenty-four hours. The notice was predicated on the theory that the Railway was obligated to pay a rental based on two-thirds of the ultimate cost of the tunnel, $15,470,000, rather than the rental set out in the contract, which was based on two-thirds of the bonds then outstanding, $9,220,000. The Railway promptly brought this action to enjoin such forfeiture and to quiet its title to the leasehold estate. The District answered that the lease was illegal and void for several reasons, some of which will be noticed later; and in the alternative, that certain provisions, particularly the amount of rental to be paid, were illegal; that the rental provision was unfair and inequitable, and that instead of paying two-thirds of the principal and interest of $9,220,000, as set out in the contract, or two-thirds of $15,470,000, as set out in the notice, the Railway should pay a reasonable rental, alleged to be the principal and interest on 87 per cent. of $15,470,000. The answer further alleged that in executing the lease the parties had been mutually mistaken in their estimate as to the ultimate cost of the tunnel and as to the probable time of its completion, and the relative value of the railroad use to other uses. By way of counterclaim the District prayed that the court decree the lease to be void, or, in the alternative, that the Railway pay rental at the rate of $850,000 per annum, instead of in accordance with the schedule attached to the lease — a sliding scale, which for the first fifteen years is approximately $355,000 a year. The Railway replied, joining issue and setting up facts relied on as an estoppel. After a trial of considerable length, the court below found there had been no mutual mistake, and that the rental was reasonable and fair; sustained the lease in its main provisions, but struck out certain subordinate provisions which it found to be illegal but severable. On a collateral issue as to whether any rent was due from February 14, to February 26, 1928, the trial court found against the Railway. Both parties appeal.

Several taxpayers of the District petitioned the court below for permission to intervene, on behalf of themselves and other taxpayers of the District, in order that all objections to such lease, or theories concerning it, might be presented. Permission being granted, the interveners filed an answer, raising in part the same objections to the lease as the District, and also other objections thereto, one of which was that such political and business relations existed between certain members of the Commission and certain representatives of the Railway, as to prevent the Commission from properly representing the District in negotiating the lease, although no collusion or fraud is charged in terms. We are advised by the briefs that some evidence was introduced by the interveners in support of their answer. The trial court found that

"In the negotiations for the execution of the lease of January 6, 1926, both parties thereto acted in all good faith without undue influence of any kind on the part of the plaintiff or its attorneys, and said lease was not procured as a result of any personal, business or other relations existing between plaintiff or any of its representatives, and defendants or any of its members."

The interveners did not appeal; their evidence is not in the record, and the finding of the trial court as to the good faith of all the parties, is therefore final.

After the appeal was exhaustively briefed and argued at length in this court, other taxpayers and municipalities within the District petitioned for leave to reopen the case, to present additional briefs, and to reargue the case orally. Because the case is of direct interest to all the taxpayers of the District, and is of large public importance, this unusual request was granted. Briefs from such amici curiæ have been received and considered. Some of the arguments in such briefs are directed at issues which have become final; others find no support in the record. Briefs are received from amici curiæ to aid the court in disposing of issues before the court; friends of the court cannot introduce new issues, nor can they supplant the body to which the legislature has delegated the control of the affairs of the District.

Appeal in No. 260.

The parties have widely divergent conceptions as to the purpose and intent of the Moffat Tunnel Law. The District, and part of the amici curiae, construe the law as imposing a condition that the tunnels must be leased for an amount sufficient to pay for the entire cost thereof; that the taxpayers of the District must not be required to pay any part of such cost; that the real purpose of the law is to put the credit of the taxing District back of the enterprise of constructing a tunnel for the use of the Railway; that the Commission was without power to enter into leases unless the aggregate rentals were sufficient to retire the bonds and maintain the tunnels; and that if the Commission did so, the court should increase the rentals to comply with the law. The Railway and the amici curiae appearing by Mr. Rogers, on the other hand, entertain a much broader conception of the purpose of the law; they construe the law as requiring the construction of a highway for public use, and authorizing the Commission to make such leases as will enable the tunnels to be put to their fullest possible uses; they conceive that the amount of rentals received is subordinate to the larger purpose of an extensive use of the facilities of the tunnel for the public good; the Railway contends that, subject to specific limitations contained in the Act, the rentals are proper subjects of negotiation between the District and applicants for leases; Mr. Rogers claims that the statute prescribes a formula which fixes the only rental which is legal. In ascertaining the underlying purpose of the law, a glance at the history of the efforts to construct such a tunnel may be helpful.

For many years efforts had been made to provide a more direct avenue between Denver and the empire beyond the Continental Divide, and particularly northwestern Colorado. The first railroad to challenge the Rocky Mountains sought the lower passes of Wyoming, and later ones the passes of New Mexico and Southern Colorado. A transportation line across the Continental Divide at or near Denver would afford northwestern Colorado access to Denver; and, in addition, would measurably shorten the distance between Denver and the Pacific Coast. The predecessor of the present Railway had scaled the crest just north of Denver. But the curvatures were sharp and the grades steep; transportation costs were excessive, and great difficulties were encountered in keeping the line open during the winter months. The result was expensive, interrupted and unsatisfactory service. Many years ago it was conceived that most of these difficulties could be obviated by the construction of a tunnel under the Divide, where it would be available to the Moffat Railroad. Such a tunnel would result in an outlet to the Coast if arrangements could be made for the construction of a cutoff between the Moffat line and the Denver & Rio Grande Western Railroad. But the railroad company was not able to finance the construction of such a tunnel. In 1911 an Act to issue bonds for the construction of a tunnel through James Peak was defeated on a referendum. In 1913 the electors of the City of Denver adopted an amendment to the city charter, which provided for the issuance of bonds of the city to aid in the construction of the tunnel. The Supreme Court of Colorado held that such amendment was in violation of sections 1 and 2 of article 11 of the Colorado Constitution, which provide in substance that neither the state nor any subdivision thereof may lend or pledge its credit, directly or indirectly,...