Spring Val. Water Co. v. City and County of San Francisco

• Decision Date: 13 July 1918
• Citation: 252 F. 979
• Parties: SPRING VALLEY WATER CO. v. CITY AND COUNTY OF SAN FRANCISCO et al. Nos. 14,275, 14,735, 14,892, 15,131, 15,344, 15,569, Circuit Court; Nos. 26 and 96, District Court.
• Court: U.S. District Court — Northern District of California

252 F. 979

SPRING VALLEY WATER CO. v. CITY AND COUNTY OF SAN FRANCISCO et al.

Nos. 14,275, 14,735, 14,892, 15,131, 15,344, 15,569, Circuit Court; Nos. 26 and 96, District Court.

United States District Court, N.D. California.

July 13, 1918

E. J McCutchen, Warren Olney, Jr., and A. Crawford Greene, all of San Francisco, Cal., for plaintiff.

George Lull, Robert M. Searles, and Jesse H. Steinhart, all of San Francisco, Cal., for defendants.

RUDKIN District Judge.

For more than 60 years last past the Spring Valley Water Company a California corporation, and its predecessors in interest have been engaged in the public service of supplying the city of San Francisco and its inhabitants with water for domestic and other purposes. To enable it to discharge the duties thus assumed, the company has acquired lands and water rights, and has constructed dams, reservoirs, pipe lines, and the usual facilities for conserving, impounding, conducting, and delivering the water thus supplied. Section 1 of article 14 of the state Constitution provides as follows:

'The use of all water now appropriated, or that may hereafter be appropriated, for sale, rental, or distribution, is hereby declared to be a public use, and subject to the regulation and control of the state, in the manner to be prescribed by law: Provided, that the rates or compensation to be collected by any person, company, or corporation in this state for the use of water supplied to any city and county, or city, or town, or the inhabitants thereof, shall be fixed, annually, by the board of supervisors, or city and county, or city, or town council, or other governing body of such city and county, or city, or town, by ordinance or otherwise, in the manner that other ordinances or legislative acts or resolutions are passed by such body, and shall continue in force for one year and no longer. Such ordinances or resolutions shall be passed in the month of February of each year, and take effect on the first day of July thereafter.'

Pursuant to this constitutional requirement the board of supervisors of the city and county of San Francisco, in the month of February, 1907, passed an ordinance fixing the rates or compensation to be charged by the plaintiff for the use of water for the year commencing on the 1st day of July, 1907, and ending on the 30th day of June, 1908, and in the month of February of each succeeding year thereafter, until and including the year 1914, a similar ordinance was passed fixing the rates or compensation to be charged for the use of water for the ensuing year. Soon after the passage of the ordinance of February, 1907, the plaintiff instituted suit No. 14,275 in the Circuit Court of the United States for the Northern District of California to restrain the city and county of San Francisco and the board of supervisors from enforcing the rates or compensation fixed by the ordinance, invoking the jurisdiction of that court on the ground that the rates or compensation thus fixed were noncompensatory, and that the ordinance took the property of the plaintiff for a public use without making just compensation therefor, and deprived the plaintiff of its property without due process of law, in violation of the Fifth and Fourteenth Articles of Amendment to the Constitution of the United States. Similar suits were instituted in the same court, and in the Untied States District Court, which succeeded to its jurisdiction in 1912, to enjoin the enforcement of the rates or compensation fixed by the ordinances passed in the ensuing years for the like reason. After the issues were made up the several cases were referred to the standing master by consent of parties, with directions to take the testimony and report his findings and conclusions to the court. The testimony has been taken, the master's report has been filed, exceptions to the report have been saved, and the case is now before the court for final disposition.

At the threshold of the case the court is met with the objection that, inasmuch as the reference was by consent, the findings of the master are conclusive upon the court, unless there has been manifest error in the consideration given the testimony or in the application of governing principles of law. Kimberly v. Arms, 129 U.S. 512, 9 Sup.Ct. 355, 32 L.Ed. 764, Davis v. Schwartz, 155 U.S. 636, 15 Sup.Ct. 237, 39 L.Ed. 289, and kindred cases are cited in support of this proposition. That rule, however, has but a limited application to a case of this kind.

In Knoxville v. Knoxville Water Co., 212 U.S. 1, 7, 29 Sup.Ct. 148, 150 (53 L.Ed. 371), the court said:

'At the threshold of the consideration of the case the attitude of this court to the facts found below should be defined. Here are findings of fact by a master, confirmed by the court. The company contends that under these circumstances the findings are conclusive in this court, unless they are without support in the evidence or were made under the influence of erroneous views of the law. We need not stop to consider what the effect of such findings would be in an ordinary suit in equity. The purpose of this suit is to arrest the operation of a law on the ground that it is void and of no effect. It happens that in this particular case it is not an act of the Legislature that is attacked, but an ordinance of a municipality. Nevertheless the function of rate making is purely legislative in its character, and this is true whether it is exercised directly by the Legislature itself or by some subordinate or administrative body, to whom the power of fixing rates in detail has been delegated. The completed act derives its authority from the Legislature and must be regarded as an exercise of the legislative power. * * * There can be at this day no doubt, on the one hand, that the courts on constitutional grounds may exercise the power of refusing to enforce legislation, nor, on the other hand, that that power ought to be exercised only in the clearest cases. The constitutional invalidity should be manifest, and, where that invalidity rests upon disputed questions of fact, the invalidating facts must be proved to the satisfaction of the court. In view of the character of the judicial power invoked in such cases, it is not tolerable that its exercise should rest securely upon the findings of a master, even though they be confirmed by the trial court. The power is best safeguarded against abuse by preserving to this court complete freedom in dealing with the facts of each case. Nothing less than this is demanded by the respect due from the judicial to the legislative authority. It must not be understood that the findings of a master, confirmed by the trial court, are without weight, or that they will not, as a practical question, sometimes be regarded as conclusive. All that is intended to be said is that in cases of this character this court will not fetter its discretion or judgment by any artificial rules as to the weight of the master's findings, however useful and well settled these rules may be in ordinary litigation. We approach the discussion of the facts in this spirit.'

But in Chicago, Milwaukee, etc., Ry. Co. v. Tompkins, 176 U.S. 167, 180, 20 Sup.Ct. 336, 341 (44 L.Ed. 417), the court said:

'We are all of opinion that a better practice is to refer the testimony to some competent master, to make all needed computations, and find fully the facts. It is hardly necessary to observe that, in view of the difficulties and importance of such a case, it is imperative that the most competent and reliable master, general or special, should be selected; for it is not a light matter to interfere with the legislation of a state in respect to the prescribing of rates, nor a light matter to permit such legislation to wreck large property interests.'

This ruling was reaffirmed in Lincoln Gas Co. v. Lincoln, 223 U.S. 349, 362, 32 Sup.Ct. 271, 56 L.Ed. 466, and it must be presumed that the court had this rule in mind in ordering the reference, and the parties in consenting thereto.

In this case the master examined the lands, reservoirs, and properties of the company, viewed other lands used as a basis of comparison for the purpose of fixing land values, heard the witnesses testify, observed their demeanor, and otherwise enjoyed opportunities for weighing and applying testimony which are denied to the court; and for that reason I must accept his finding as to the properties used and useful, and in general his findings on questions of land values, construction cost, depreciation, and expense of maintenance and operation, because such findings are amply supported by the testimony. But where the findings are in the nature of conclusions from undisputed facts I will be guided by my own conceptions of right and justice. In the light of these considerations I will refer, briefly as may be, to the findings relied on to support the conclusion of the master that the rates established by the board of supervisors for each of the several years in question are confiscatory and therefore void.

At the commencement of the trial the parties agreed that the case involving the 1913 rates should be deemed the principal one that the value of the property and property rights of the plaintiff should be ascertained and fixed as of December 31st of that year; and that the value for the other years should be ascertained by deductions and additions to the inventory, aided by certain stipulated percentages. No objection has been urged by either party to the deductions or additions made to the 1913 valuation for the purpose of ascertaining and fixing the value for the remaining years, so that for the present we need only concern ourselves with the 1913 valuation. This statement, of course, has no application to the so-called...