Water Works Bd. of City of Leeds v. Huffstutler

• Decision Date: 22 August 1974
• Citation: 292 Ala. 669,299 So.2d 268
• Parties: The WATER WORKS BOARD OF the CITY OF LEEDS, a public corporation, et al. v. Charles O. HUFFSTUTLER et al. SC 545.
• Court: Alabama Supreme Court

Page 268

299 So.2d 268

292 Ala. 669

The WATER WORKS BOARD OF the CITY OF LEEDS, a public corporation, et al. v. Charles O. HUFFSTUTLER et al.

SC 545.

Supreme Court of Alabama.

Aug. 22, 1974.

Charles L. Kerr, Leeds, Bibb Allen, Birmingham, for appellants.

Johnson North Haskell & Slaughter, Birmingham, for appellees.

JONES, Justice.

This appeal is from a decree of the Circuit Court of Jefferson County declaring invalid two ordinances adopted by the governing body of the City of Leeds (the 'City') and permanently enjoining the defendants below from acting pursuant to or in reliance upon these ordinances. The first of the ordinances in question purported to effect an amendment to the charter of The Water Works Board of the City of Leeds (the 'Board'), and the second purported to mandate the transfer of the water system owned by the Board to a newly creted Board of Water and Sewer Commissioners under conditions which would have resulted in the diversion of a fixed percentage of the gross revenues from such water system to the City. We affirm the judgment of the Circuit Court in the belief that the first ordinance represents an unlawful assertion of power over the Board by the City and that the second attempts to fix conditions for the transfer of the water system which unconstitutionally disregard the contractual rights of the Board's bondholders.

Suit was brought in this case by Charles O. Huffstutler, Kenneth Huddleston, Charles Abel and Albert O. Turner against the Board, the City and Paul S. Blair and James McCraney. Huffstutler, Huddleston and Abel sued in their capacities as the incumbent directors of the Board at the time suit was brought and as citizens and taxpayers of the City. Turner sued in his capacity as a citizen and taxpayer of the City. Appellant City was made a party to this suit because the plaintiffs below sought to have the ordinances of the City here in question declared illegal, void and of no effect. Appellant Board was made a party in order that the transfer of its water system pursuant to one of these ordinances could be enjoined pending a determination of the validity of such ordinance. Appellants Blair and McCraney were made parties in order that they might be enjoined from serving as directors of the Board pending a determination of the right of the City to increase the number of positions on the board of directors of the Board.

The Board is a public corporation organized under the provisions of Tit. 37, §§ 394--402, inclusive, Code of Alabama 1940 (Recomp.1958), (said sections being herein together referred to as the 'Water Board Statute'). The Board was incorporated by a charter filed for record in the office of the Judge of Probate of Jefferson County on May 14, 1943, and that charter has not been since amended except to the extent that amendments thereto may have by operation of law resulted from acts of the Legislature of Alabama mandating changes in the powers or organizational structure of corporations organized under the Water Board Statute. The charter now lawfully provides that the corporate powers of the Board shall be exercised by a board of directors consisting of three directors.

At a meeting held on January 29, 1973, the governing body of the City adopted the two ordinances which were challenged in this litigation. The first ordinance, Ordinance No. 378, proclaimed that the governing body of the City desired to increase from three to five the number of directors of the Board and then ordained that the Board's charter was ipso facto amended to provide for such increase. No action prior to the adoption of Ordinance No. 378 had been taken by the board of directors of the Board proposing such an amendment to its charter, and no action has since been taken by said board of directors ratifying or approving the amendment purportedly effected by such ordinance. At the same meeting as that at which Ordinance No. 378 was adopted, the governing body of the City elected Appellants Blair and McCraney to fill the two positions on the board of directors of the Board purportedly created by such amendment.

The second ordinance challenged in this litigation, Ordinance No. 379, authorized the incorporation of a Board of Water and Sewer Commissioners of the City of Leeds for the purpose of taking over the ownership and operation of both the Board's water system and the City's sanitary sewer system. The governing body of the City also sought by Ordinance No. 379 to prescribe the conditions upon which the transfer of the Board's water system was to be made to the Board of Water and Sewer Commissioners. As recognized in Ordinance No. 379, the transfer of the Board's water system could not take place unless agreed to by the Board (Tit. 37, § 402(33), Code of Alabama 1940 (Recomp.1958)), and from the record of this case, it is abundantly clear that the governing body of the City believed that the enlargement of the membership of the board of directors of the Board would make it possible to obtain the Board's agreement to the proposed transfer without having to wait two years, the period that would otherwise have to elapse in order for the governing body of the City to elect a majority of the three directors favorable to such transfer.

As a condition of the transfer of the Board's water system to the Board of Water and Sewer Commissioners, Ordinance No. 379 provided that the Board of Water and Sewer Commissioners should assume and perform all contractual obligations theretofore incurred by the Board in connection with its water system. Ordinance No. 379 further provided that the City was to be paid a fixed percentage of the gross revenues of the water system. The Board has outstanding two separate series of bonds which are secured by mortgages covering the water system and the revenues derived from it. To the extent that the payment to the City of a fixed percentage of the gross revenues of the water system would constitute a charge on such revenues prior to the uses for which the whole of them had been pledged under the mortgages, Ordinance No. 379 threatened an infringement of the rights of the bondholders secured by the mortgages, notwithstanding the provisions in this ordinance for the assumption and performance by the Board of Water and Sewer Commissioners of all obligations incurred by the Board in connection with its water system.

After the adoption of these ordinances and the taking of steps by the City for their implementation, the appellees (plaintiffs below) brought suit against the appellants in order to determine the validity of Ordinance No. 378 and Ordinance No. 379, and pending that determination, to have Blair and McCraney enjoined from serving as directors of the Board and further to have the Board enjoined from transferring its water system to the newly created Board of Water and Sewer Commissioners pursuant to Ordinance No. 379. The preliminary injunctions requested by the appellees were granted and made permanent by the final decree of the Circuit Court. Without affecting the issues presented in this case, the governing body of the City subsequently amended and readopted both ordinances here in question, and it is with reference to the final versions of such ordinances adopted on March 20, 1973, that this case was decided by the Circuit Court.

Although making eighteen assignments of error, the appellants, both in their brief and in oral argument, argued only two assignments, which were that the Circuit Court erred in holding Ordinance No. 378 and Ordinance No. 379 to be illegal, void and of no effect. The only questions to be decided on this appeal are, therefore, whether the holdings of the Circuit Court with respect to these ordinances are correct.

The challenge to Ordinance No. 378 presents the question of whether the governing body of the City can, in violation of the Board's Charter, unilaterally increase the number of directors of the Board for the purpose of immediately gaining a majority of directors who will be responsive to the will of said governing body. The appellants contend that § 397 of the Water Board Statute gives the governing body of the City the right so to increase the number of directors of the Board. The appellees contend that the Water Board Statute, considered as a whole, does not empower the governing body of the City to increase the number of directors in disregard of the Board's charter or to amend the charter to provide for such an increase without following the statutory procedure under which amendments to the charter are first proposed by the board of directors of the Board and then approved by the governing body of the City.

We believe that Judge William C. Barber, the trial Court Judge, has rendered an opinion in this case which comprehensively and correctly analyzes the authorities and principles of law that require us to affirm his decree holding Ordinance No. 378 invalid. The following portions of that opinion are adopted as our opinion in this case:

'The central issue in this case concerns the independence of public corporations such as the water works board here involved and their right to manage their affairs free of control by the governing bodies of the cites they serve, except for such control as may be lawfully exercised through the regular and periodic election of directors by such governing bodies. An understanding of the origins of such public corporations and the cases which have delimited and protected their separate status is necessary to a determination and resolution of this central issue.

'. . ..

'In order to make it possible for municipalities to finance utility systems without being blocked by the limitations contained in the Constitution of 1901 (particularly Sections 222 and 225 relating to the creation of debt by municipalities), a number of statutes permitting municipalities to issue revenue bonds were enacted in the early 1930's, varying in detail, but in general making such bonds payable...