Washington-Oregon Corp. v. City of Chehalis

• Decision Date: 27 January 1913
• Docket Number: 1,215.
• Citation: 202 F. 591
• Parties: WASHINGTON-OREGON CORP. et al. v. CITY OF CHEHALIS et al.
• Court: U.S. District Court — Western District of Washington

202 F. 591

WASHINGTON-OREGON CORP. et al. v. CITY OF CHEHALIS et al.

No. 1,215.

United States District Court, W.D. Washington, Southern Division.

January 27, 1913

C. A Johns, of Portland, Or., and Sullivan & Christian, of Tacoma Wash., for complainants.

W. A Reynolds, of Chehalis, Wash., for defendants.

CUSHMAN District Judge.

This matter is now before the court upon respondents' motion to modify an order, heretofore granted upon a stipulation the modification to allow the respondents to award a certain contract for the construction of certain waterworks and to sell bonds of the city of Chehalis therefor. At the time of making the order upon stipulation, the demurrer to the complaint was overruled, and respondents have answered. The hearing upon the motion to modify the order, whether it be considered as a rehearing of the demurrer or a motion for decree on bill and answer, goes to the merits of the whole controversy. The order referred to in the motion was one denying an interlocutory injunction; respondents having stipulated with complainants that they would not award the contracts sought to be awarded, or market their bonds therefor, until the further order of the court, both complainants and respondents reserving the right to ask for a modification of the order.

The bill and answer show that the Washington-Oregon Corporation is a corporation of the state of Washington, and that, in 1891, that corporation's grantors secured, from the respondent the city of Chehalis, a 30 years' franchise, granting the right to use the streets, alleys, and other public grounds in said city for water mains and pipes, for the purpose of furnishing the said city and its inhabitants with pure, fresh water. It was provided that the water was to be taken from the Newaukum river, or one of its branches. Provision was made for a certain number of fire hydrants, and that the city should pay an annual rental of $100 for each hydrant, for 30 years, for the first 20 hydrants furnished, and not more than $50 per annum for each additional hydrant. Water was to be furnished free for certain city purposes. Sections 9 and 10 of the franchise are as follows:

'Sec. 9. It shall be and is within the option and right of the city of Chehalis, anything in this ordinance to the contrary notwithstanding, at any time after ten years, to terminate all the rights and privileges granted and conferred herein to the said Francis Donahoe, La Fayette Lawrence and C. W. Maynard, their and each of their heirs and assigns and successors, by purchasing from them the entire plant and property by them owned and used for supplying, storing, and distributing water to the city of Chehalis and its inhabitants. This right of purchase includes all dams and rights thereto, flumes, ditches, and rights of way therefor, reservoirs and rights thereto, property pipes and mains and fixtures for supplying and distributing water. wit: That in order to determine the value of the plant a commission be selected for that purpose, two of said commissioners to be appointed by the said city and two to be appointed by Francis Donahoe, La Fayette Lawrence and C. W. Maynard, their heirs, assigns and successors, and the four commissioners thus selected shall elect a man and the five thus chosen shall constitute a full board of appraisers to determine the value of said water plant, and in case said city shall determine to make such purchase it shall serve notice of such determination on the proper party or parties at least six months prior to the time the purchase is to be made and take effect.

'Sec. 10. The city of Chehalis, for the consideration hereinbefore stated, hereby agrees that this ordinance and franchises and rights contained and granted thereby to the said Francis Donahoe, La Fayette Lawrence and C. W. Maynard, their heirs, assigns and successors, shall continue in full force for a period of thirty years, unless sooner terminated as in this ordinance provided, during which time the city of Chehalis agrees not to contract with any other person or persons, corporation or corporations for a supply of water. Said period of thirty years is to date from the passage and taking effect of this ordinance. Provided, that the said Francis Donahoe, La Fayette Lawrence and C. W. Maynard shall for themselves, their heirs, assigns and successors, within twenty days from the date of the passage and approval of this ordinance, accept the same and signify such acceptance with its terms and provisions in writing signed by them and filed with the city clerk of said city. Such acceptance may be substantially in the following form: (Setting out form.)'

Acceptance of the franchise is shown, and full performance by complainant Washington-Oregon Corporation is alleged in the bill. During the year 1912 the voters of said city, at an election held for the purpose, voted the issuance of bonds for the construction of a water system and authorized the construction of such works by the city. The bonds have been advertised for sale, and bids for the construction called for and received by the city officers.

The bill avers that the complainant Fidelity Trust Company is the holder of the mortgage bonds of the Washington-Oregon Corporation to a large amount, that the latter's franchise is an exclusive one, and that the city, by its ordinance calling the election to vote upon the question of a city water system and the proceedings taken thereunder, impaired the obligation of its contract with the complainant Washington-Oregon Corporation, in violation of section 10, art. 1, of the Constitution of the United States. The bill of complaint reads, in part, as follows:

'That under the terms and provisions of said ordinance, and to carry such terms and provisions into effect, the defendant city, on or about the 1st day of August, 1912, did select two commissioners on its part, and your orator selected two commissioners on its part. That pursuant to agreement, such commissioners met for the purpose of selecting the fifth, and that the commissioners representing your orator, acting in good faith, did undertake to select and agree upon the fifth commissioner for such purpose, but that in truth and in fact the two commissioners so selected by the defendant city, and at the instance and request of the city, did not act in good faith for such purpose and would not agree to the selection of a fifth commissioner who was fair and reasonable and had a knowledge of the duties which he was to perform and the value of the properties, and for such reason the fifth commissioner was not selected.

'That to carry out the terms and provisions of section 9 of said ordinance, your orator, Washington-Oregon Corporation, is ready and willing and hereby undertakes and agrees that your honor, the judge of this court may select such fifth commissioner, and that it will abide by such selection, and that the two commissioners selected by the said city and the two commissioners selected by your orator, together with the commissioner to be appointed and selected by your honor, may and shall meet, and that such board of five commissioners so selected shall then ascertain and determine the amount which your orator shall have and receive for its property, plant, and water system invested in and for said city pursuant to said ordinances, and that it will abide by the decision of such commissioners, and will execute good and sufficient conveyances to said city pursuant to the award made by said commissioners upon the receipt of the price ascertained and agreed upon by the said commissioners.

'Your orator further shows that the contracts between it and the city, granted under the provisions of Ordinances No. 135 and 137, which is for a period of thirty (30) years from and after the date of acceptances, and of which it is now the owner and holder, would be impaired and practically destroyed if subjected to the competition of a system of waterworks owned and operated by the city, which the city proposes to operate and construct under the pending proceedings, and which the defendant city will construct, maintain, and operate if it is permitted to sell and does sell its bonds, and if it is permitted to contract and does contract for the construction and operation of such plant or water system under the pending proceedings.'

The answer, in part, reads as follows:

'It is admitted that on or about the 1st day of August, 1912, the defendant city selected two commissioners on its part, and that the plaintiff Washington-Oregon Corporation selected two commissioners on its part, in pursuance of the provisions of said section 9 of said Ordinance No. 135, and that said commissioners met for the purpose of determining the value of the plant of said plaintiff; but it is denied that the commissioners representing the plaintiff company acted in good faith, or undertook to select and agree upon a fifth commissioner in good faith, for the purpose of ascertaining the value of said plant, and defendants allege that in truth and fact the commissioners so selected by the plaintiff company would not agree to the selection of a fifth commissioner who was fair and reasonable and had knowledge of the duties which he was to perform and the value of the water plant of said company, and defendants aver the fact to be that said commissioners so selected by the plaintiff company would agree to no other value of the plant of said company other than upon its then net income and revenue, return to said company, or upon any fifth...