City of Dawson v. Columbia Ave. Saving-Fund, Safe-Deposit, Title & Trust Co.

appeal — Interlocutory Orders Granting or Refusing Injunctions. Under the amendatory act of February 18, 1895, which limits the Jurisdiction of circuit courts of appeals as to interlocutory orders granting or refusing preliminary injunctions to eases in which an appeal from a final decree may be taken to those courts, an appeal will not lie to such a court - from an order granting an injunction in a case involving the construction and application of the constitution of the United States, and in which ordinances of a municipality are claimed to be in contravention of the constitution, by impairing the obligation of a contract, although the case may also involve other questions. McCormick, Circuit Judge, dissenting.

Appeal from the Circuit Court of the United States for the Northern District of Georgia. The bill in this case was filed by the appellee, a corporation organized under the laws of Pennsylvania, as trustee for the holders of 80 first mortgage bonds, of $500 each, issued by the Dawson Waterworks Company, a Georgia corporation, against the city of Dawson, Ga., and the said Dawson Waterworks Company. The mayor, aldermen, and marshal, all citizens of Georgia, are formally made defendants. It is shown by the record that the city council of the city of Dawson on the 21st day of February, 1890, passed an ordinance by which it granted to R. D. Beimed, of Philadelphia, Pa., and his associates, their successors and assigns, who were required, to organize a company to be styled the Dawson Waterworks Company, the exclusive right and privilege, for the period of i)0 years, of constructing, maintaining, and operating a system of waterworks. In compliance with the requirement of the ordinance, Bennett organized, under the laws of Georgia, a corporation known and designated as the Dawson Waterworks Company. The ordinance of February 21, 189U, or so much thereof as it is deemed necessary here to insert, provided as follows: “Waterworks Contract. “See. 231. The city council of the city of Dawson, Georgia, do hereby grant to R. D. Bennett, of Philadelphia, Pennsylvania, and his associates, their successors and assigns, who are to organize a company to be styled ‘The Dawson Waterworks Company,’ the exclusive right and privilege for a period of ninety-nine years, of constructing, maintaining and operating a system of waterworks for the purpose of supplying said city and its inhabitants with water for protection against fire, and domestic, sanitary, and other purposes. “Sec. 232. The said company, for the purpose of constructing, maintaining, operating, extending, and repairing said system of waterworks, shall have the sole and exclusive privilege, and full power, right and authority to lay water pipes and mains along any or all streets and avenues of said city, as the same are now open, or may hereafter be extended, and to that end shall have full right to dig ditches or trenches in the streets of said city of such depth and of such width as may be necessary: provided, that the city shall not be responsible for any damage occasioned thereby, and that the streets shall not be unreasonably obstructed by such work. “See. 233. The said company shall have the right to erect buildings and tanks, lay pipes and erect any other structures, or make any other1 improvements which may be necessary for its purpose on any or all lands owned or controlled by said city except its public squares. “Sec. 234. The said company and their successors and assigns shall complete and have in operation within eighteen months from the date of the passage of this ordinance, a complete and thorough system of waterworks, laying four and eight-tenths (4 and s/10) miles of pipe, size eight, six and four inches in diameter, with a reservoir of not less than forty thousand gallons capacity, and of sufficient height to produce a pressure on the mains such that from, any hydrant located on principal streets a stream of water will be projected fifty feet vertically, in still air, through one hundred feet of fire hose with a one-inch nozzle attached. The said company, and their successors and assigns, shall he, and are required, from the completion of their system of waterworks till their charter shall cease, to furnish a sufficient supply of water for the purposes before and hereafter mentioned, unless prevented by unavoidable and providential causes. In such evenl they shall be allowed a reasonable time to make repairs, and if. after such reasonable time has been allowed, they should still fail to furnish said supply of water, their franchise from that fact be forfeited. “Sec. 235. The said company shall extend its mains and pipes, enlarge its plant, and generally enlarge its system from time to time to meet increasing demands consequent upon the growth of the city. "Sec. 286. The city of Dawson, in consideration of said company guarantying to it. for the period of twenty years, and as long thereafter as the said company, its successors and assigns, shall continue to operate waterworks, a free and unrestricted use of its water, in case of fire and for protection against conflagration, and agreeing to establish at convenient places along the line of its mains, fire plugs of approved pattern, not to exceed fifty in all, until the corporate limits of said city are extended and the population of said city increased so that there are five hundred persons living in said extension, after which they shall be increased proportionately if required, and, as an additional fire protection, also furnish water to fill the present public cisterns if needed, the said water to be used exclusively for fire purposes only, and the said water to remain the property of the said company except in case of fire, hereby obligates itself to pay to the said company or to such trust company as the Dawson Waterworks may elect or decide upon as their trustee for their blinds, the sum of two thousand dollars annually for twenty years, in sdntiannual payments of one thousand dollars each, on the first day of January and July of each year. The first payment to be made on such of said days as occur after the completion of said works as provided in section 234 of this ordinance; and, in case said city'shall not have sufficient funds at any of such times to make said payments, or for any cause does not pay said money at time fixed as aforesaid, then in that ease warrants shall he issued on the city treasurer, in favor of said company, for the amount due. “See. 237. The council shall, and they are hereby required to, make provision each year for the payment of two thousand dollars as provided in the foregoing section, by levying a tax, sufficient, for that purpose, 'on the taxable property of the city. “Sec. 238. Said company, its successors and assigns, shall have the right to make reasonable rates and regulations for the government of private consumers in the use of its water; and to charge such rates for its use, as it may from time to time establish: provided, the rate charged per annum shall not exceed those named in the following schedule. * % * “Sec. 239. That in consideration of the said company agreeing to furnish water to the public municipal buildings, and further agreeing to furnish water to two public fountains of ⅝-inch nozzle each, the city of Dawson hereby obligates itself to remit to said company, its successors and assigns, any and all license fees, taxes, dues and charges which may at any time hereafter be levied or assessed by said city against said company or upon the plant to be used in said waterworks system. “See. 240. That full assent is hereby given to a charter to be granted by the legislature of the state of Georgia, to said li. D. Bennett and associates, their successors and assigns, or to be obtained by them under the general incorporation laws of said state, incorporating them into a body corporate under the title of the Dawson Waterworks Co., and granting to said company the exclusive right to construct, maintain and operate a system of waterworks in said city of Dawson, for the purpose of supplying said city, its inhabitants, citizens, residents, with water for protection against fire and for domestic, sanitary and other useful purposes, and to make such reasonable rates and regulations for the government of private consumers in the price of water, and to charge such rates therefor as the said company may determine upon: provided, the rates do not exceed those established by this ordinance. “Sec. 241. The provisions of this ordinance shall be mutually binding upon the city of Dawson and K. L. Bennett and associates, and the company to be organized by them in pursuance of the provisions thereof, and it shall have the force and effect of a contract between the respective parties as fully and completely as if it were drawn in that form and signed by the contracting parties.” For the purpose of obtaining money to construct the waterworks, the waterworks company thereafter issued 80 first mortgage bonds, of $500 each, aggregating $40,000, and. to secure their payment, executed to the appellee, as trustee for the holders of the bonds, a mortgage on all its- property, franchises, and privileges, and authorized the trustee -to collect all amounts to become due by the city of Dawson' for water rentals. The city of Dawson, by a resolution of its council duly passed, recognized the right of the appellee, as trustee, “to demand, receive, and collect from the city of Dawson any and all sums of money that may be now due or that may hereafter become due under the aforesaid contract.” It also appears that, pursuant to its contract with the city, the waterworks company constructed a system of waterworks, and has up to the present time supplied the city and the inhabitants with water. For the water thus supplied the city has paid the waterworks company the amount due under the contract, to wit, $2,000 per annum, up to the 1st day of January, 1895, when it refused to make further payments upon the ground that the contract was void, and upon the further ground that the waterworks company had failed to supply the quantity of water required of.it by the terms of its contract. The. city based its claim of the invalidity of the contract upon the decision of the supreme court of Georgia rendered in the case of City of Dawson v. Dawson Waterworks Co., 106 Ga. 696, 32 S. E. 907. Although the city paid, as before stated, the water rentals due to tlie 1st flay of January, 1800, yet in June, 1894, an ordinance was passed repudiating and renouncing tlie contract, as illegal and exorbitant. It is further shown that in October, 189-1, the city council passed an ordinance ordering an election for the purpose of determining whether two-thirds of the qualified voters should by their assent authorize the city to issue $35,000 of 6 per cent, bonds for the purpose of baying or erecting a system of waterworks and an electric light plant. Tlie election was held, and resulted in a YQto favorable to the proposition; and in December following another ordinance was passed, declaring the result of the election. The appellants admit in their answer the passage of the various ordinances mentioned, and in reference to the one of June, 1894, it is averred that “the city formally, solemnly, and in good faith repudiated and renounced said contract because the same was illegal and exorbitant.” And in the amended answer it is further averred: “Respondents do not deny that, as adjudged by the supreme court, of Georgia they had a right to do, they have declined to carry out the alleged contract between a former city council of Dawson and the Dawson Waterworks Company.” As to the election ordered for the purpose of determining whether the city .should issue bonds to establish a waterworks system of its own, the answer avers as follows: “They also admit that they have held an election for Ihe purpose of authorizing an issuance of bonds, in order with the proceeds thereof, when sold, to buy or erect a new system of waterworks; but said bonds have never been issued, and no attempt has been made to sell tlie same, and nothing else has been done towards erecting said new system of waterworks.” The appellee claims in the amended bill that the ordinances passed by the city council subsequent to the date of the contract between tlie city and the waterworks company impaired the obligation of the contract, and attempted to deprive the bondholders and the waterworks company of their property without due process of law, and hence were repugnant to the constitution of the United States. Upon this point is is alleged in the amended bill: “(23) Your orator shows that notwithstanding the validity of the aforesaid contract contained in the aforesaid ordinance of February 21, 1890, and notwithstanding the fact that the bonds were marketed on the faith of said contract, and the waterworks were erected at great expense, and the waterworks company complied with the terms and conditions of the contract, the said city of Dawson has by its ordinancés and conduct attempted to impair the obligation of said contract, and has thereby greatly diminished and largely destroyed the value of tlie property of said waterworks company, which constitutes the security possessed by the bondholders, and has deprived bondholders of the rentals which -were to be paid by the said city under said contract; and said action and threatened action of said city are in fraod and des trad,ion of fhe rights of bondholders, and your orator as their trustee, under said contract with the city, and the protection guarantied under the constitution of the United States. The aforesaid ordinance passed by said city council of Dawson on June 27, 1894, whereby said city undertook to repudiate said contract, was an attempt on the part of the said city of Dawson to impair the obligation of said contract, in violation of the constitution of the United States, and tlie protection thereby guarantied to private rights. The said city has also passed other ordinances and done acts in attempted impairment of said contract, namely, the ordinance passed by said city of Dawson on October 4, 1894, ordering an election for the purpose of determining whether two-thirds of the qualified voters of said city should, by their assent, authorize said city to issue $35,000 of bonds for the purpose of buying or erecting a system of waterworks and electric light plant for said city, and the ordinance passed by said city of Dawson on November 5, 1894, on the same subject, and to the like effect, and the holding of tlie election on December 12, 1894, pursuant to tlie provisions of said two last-mentioned ordinances, and the carrying of said proposition by the requisite two-thirds of the qualified voters of said city, and the ordinance passed by said city of Dawson on the 13th day of December, 1894, whereby the result of said election was declared to be in favor of the issue and sale of bonds for said purposes, as well as the subsequent conduct of the said city in giving effect to said ordinances by refusing to pay the water rentals stipii-lated in said contract, or to levy a tax for the purpose as required by the contract, and by claiming that it was no longer bound by said contract. All of said ordinances and acts are an effort and attempt on the part of said city of Dawson to*impair the obligations of said contract, under color of a claim of authority from the constitution and laws of the state of Georgia, in violation and attempted impairment of the protection guarantied to said contract under the constitution of the Dnited States. The city of Dawson, in further attempted violation of. the obligation of said contract, contrary to the provision of the constitution of the United States that no state shall pass any law impairing the obligation of contracts, under color of the authority given it by its charter to make and adopt all ordinances, by-laws, and rules and regulations necessary or proper for the security, welfare, convenience, and interests of said city and its inhabitants, and for preserving the health, morals, pe'ace, order, and good government of the same, not only-adopted the aforesaid ordinances, but recently, and at the time when temporarily restrained by this honorable court, was proceeding to carry into effect said ordinances and the said election, as hereinbefore set forth.* All of which wrongs and threatened wrongs are contrary to equity and good conscience, and are irreparable, and can only be relieved against and prevented by the gracious interposition of a court of equity. Your orator shows that the present suit arises under the constitution and laws of the United States, and your orator invokes the jurisdiction of the circuit court of the United States, in order to set up and enforce the protection guarantied by the constitution of the United States to contract rights, and to defeat and prevent the effort of said city to impair the obligation of the aforesaid contract.” All the defendants except thfe waterworks company appeared and demurred to the bill for the want of jurisdiction and for other causes. They next filed an objection in the nature of a plea to the jurisdiction of the court, as follows: “That the alleged defendant, the Dawson Waterworks Company, which is a corporation created and organized under the'law of Georgia, and resident therein now and at the time of the filing of said bill, namely, in said city of Dawson and county of Terrell, was and is the real complainant, and that the action of the said defendant and of the alleged complainant, set forth and exhibited to said bill, was and is fraudulent and collusive, and was had during the month of April last, and since the judgment of the supreme court of Georgia in the case of the city of Dawson against the said the Dawson Waterworks Company was rendered on said alleged contract, declaring the same void, which judgment, together with the record in said case, is hereafter more fully and specifically pleaded in order to obtain jurisdiction in this honorable court in a new name, and under' an alleged new- created right of action, which does not exist, except to the extent created as above stated, and for the purpose of avoiding the said judgment of the supreme court, which is final and conclusive of all the questions decided in that case, and all questions now made by said bill in this ease.” And, for further cause why injunction should not issue, the defendants objected: “(1) That there is no equity in said bill. (2) That there is no right of action in complainant for the purposes of said bill, even if its allegations are all true, because, according to said allegations, the only right of action existing on behalf of complainant is a suit at law to recover the alleged rentals. (3) That the allegations contained in said bill do not show any valid contract between the said waterworks company and the city of Dawson, or the city council •of Dawson, under the constitution and laws of Georgia, but, on the contrary, that said alleged contract was and is void, and that there is no contract at all between complainant and the defendant. For further cause these defendants show that, under the constitution and laws of the .state of Georgia, the alleged contract between said waterworks company and the said city was absolutely void ab initio, because the said city had no power to make said contract, and -because the making of such a contract by such a corpora•tion as the city of Dawson, or city council of Dawson, was and is expressly prohibited by the constitution of the said state of Georgia, and because, under said constitution and the charter of the city of Dawson, neither the said city nor the city council had or has any legal power to pay the :entals claimed, or to levy any tax for suoli purpose. For further cause why said injunction should not issue, these defendants say that heretofore, to wit, on the 14th day of March, 1899, the supreme court of Georgia, in tilt-cause of the Dawson Waterworks Company against the city council of Dawson, in a suit brought by said plaintiff against said defendant in the superior court of Terrell county, Georgia, for alleged rentals under said alleged contract for tiie year 1895, and which cause was carried to said supreme court, by writ of error on the part of said city, decided and adjudged that under the constitution and laws of (lie stale of Georgia, and its settled policy, said alleged contract was, ab initio, void, and that complete performance of such a contract by said plaintiff did not prevent the municipal corporation from pleading want of power or the illegality of the contract, and also decided and adjudged in said case adversely to the plaintiff therein, namely, the said waterworks company, all the questions and contentions now made by complainant in said bill; and these defendants hereto attach a complete record of said cause in said supreme court, including the said judgment of the court, as Exhibit A, praying leave of reference thereto. Wherefore these defendants say that all the questions now made by complainant in said bill arc res ad judicata, — the said contract being adjudged void, — and that (hese defendants were not estopped from so pleading by the said former judgment, as will more fully appear from the said record and judgment.” Then followed an answer setting ’forth the various defenses upon which the defendants relied. Tiie motion for a preliminary injunction came on- to be heard before Judge PARDEE upon the pleadings ami proofs, and, as a result of the hearing, an injunction was issued, in the following form: “These, therefore, are to command and strictly enjoin you, under penalty of ten thousand dollars, that you do from henceforth altogether and absolutely desist from erecting, constructing, or installing .any system of waterworks in or for the city of Dawson, or other water supply, for lire protection, or furnishing the citizens or inhabitants of said city, for domestic, sanitary, or other purposes; or from entering into any contract' or arrangement with any person, firm, or corporation Cor the construction, lease, operation, or use of any system of waterworks, or for the supply for fire protection „or for other municipal purposes, or for laying mains or other waterworks, or permitting the laying of pipes or mains or the construction of waterworks in violation of the contract set; out in complainant’s bill, or tiie exclusive rights thereby given; or from selling or otherwise disposing of bonds, and, in particular, from soiling or offering' for sale, or disposing of, any of the bonds of the city of Dawson mentioned in complainant’s bill; or from paying out any moneys for waterworks; or from incurring any obligations for waterworks; or from entering upon or carrying out any contract for waterworks, save and except contract', referred to in complainant’s hill, or forbidding or preventing any person, organization, fire company, or agency from carrying out the aforesaid contract with the Dawson Waterworks Company; or from placing any obstacle in the way of the due carrying out and performance and fulfillment thereof according to its terms; or from ordering, directing, ordaining, or by corporate act or ordinance, or otherwise, causing, advising, counseling, or procuring the fire department fire companies, or other fire organization or individuals acting as the fire department or company, or using the city’s fire apparatus, to desist or refrain from the use of water furnished by the Dawson Waterworks Company; or from levying or enforcing the collection of any city tax or license foe against the waterworks of the Dawson Waterworks'Company, stipulated to be paid in water, or by furnishing the water as set forth in the contract, in violation of said contract, with said waterworks company; or witli doing any other act in violation of the covenant, stipulation, terms, and conditions of said contract, until the further order of said court.” From the interlocutory order awarding an injunction, the city of Dawson, the mayor and board of aldermen (composing the city council), and the marshal have appealed to this court.