Allen v. Railroad Commission , 179 Cal. 68 ( 1918 )

I dissent. The main opinion holds that our state constitution, and laws passed in pursuance thereof, authorizing the Railroad Commission to fix rates for the use of water, are in conflict with the federal constitution prohibiting the impairment of contracts, and are to that extent void and of no effect. It concedes that the state has exerted to the full all its sovereign powers to regulate and control the rates for the use of water, but holds the state to be impotent in the presence of the private rights to water and its distribution in this case. I concur in the main opinion in so far as it holds that the right to water (one-eighth inch per acre) is a private right. It was so held in Thayer v. California Development Co.,164 Cal. 117, [128 P. 21], and the subsequent constitutional amendment and statute must be held to have been adopted in view of that decision. But the decision of the Railroad Commission does not interfere with that right. To an understanding of the case it is essential that some facts disclosed by the record be stated in addition to those set forth in the main opinion. The contracts under which the petitioners claim, in addition to securing to them a certain amount of water, require the Water Company to deliver such water "at such points on the pipes or conduits of the party of the first part (Water Company) as may be nearest the land" of the grantee. The contract thus recognizes that the distributing system belongs to the Water Company. For this system the Water Company has expended four hundred and forty-seven thousand dollars, paid in by its stockholders. It has also received $438,938.60 from the sale of its water, a part, or all of which, was expended in payment of current expenses. It would cost $657,385 to reproduce the distributing system. That the Water Company has done all in its power to dedicate its water and its distributing system to a public use is held in the main opinion, and that having conceded and invoked the jurisdiction of the Railroad Commission the Water Company should be bound by its dedication is held in Palermo Land Water Co. v. Railroad Commission,173 Cal. 380, 384, [160 P. 228], where it is said by the court in Bank: ". . . it appears that in December, 1912, the Palermo Company applied to the Railroad Commission to have its rates for water established and that the commission made its order allowing an increase in the rates theretofore in effect. (Opinions and Orders of the Railroad Commission, vol. 3, p. 1247.) The case, therefore, falls directly within the doctrine ofFranscioni v. Soledad Land Water Co., 170 Cal. 221, [149 P. 161], where we held that as against the Water Company such submission to the authority of the regulating body was effective to 'change the use from a private and particular use to a public use so as to make the service and terms of delivery subject to regulation and control by public authority.' No valid distinction can be drawn between the Franscioni case and the one before us." (Palermo Land Water Co. v. RailroadCommission, supra.) In the instant case the owners of property, costing $657,385 to reproduce dedicates the same to a public use, and the state, through its constitution, its laws and its duly accredited representatives, accepts and acts upon such dedication. It is held in the main opinion that such dedication of such property is ineffectual. If it is once conceded that the distributing system is, or has been, dedicated to a public use, it follows that the rates to be charged for the use thereof, are to be fixed by public authority, and that the inhibition of the federal constitution against the impairment of contracts does not apply, even though rates in excess of the contract rates are fixed. (Limoneira Co. v. RailroadCommission, 174 Cal. 232, [162 P. 1033].) The main opinion holds that the purchasers of the water contracts not only secured a right to the water, but also secured an easement in the distributing system attaching to the land, and thus have a property right in the pipe-lines, citing Stanislaus W. Co. v.Bachman, 152 Cal. 726, [15 L.R.A. (N.S.) 359, 93 P. 858];Copeland v. Fairview Co., 165 Cal. 154, [131 P. 119]; PalermoLand Water Co. v. Railroad Commission, 173 Cal. 386, [160 P. 228]. If we hold that the owners of water certificates have a property right so definite in the pipe-lines and distributing system as to prevent the dedication thereof to a public use by the Water Company, it would seem that such owners should at least bear the corresponding burden of the maintenance thereof, including their proportion of the expense of distribution of the water contained therein, particularly as against the public also served thereby. The Railroad Commission finds that the system has at all times been run at a loss. Neither the public nor the private users of water have paid their proportion of the expense of maintenance. The annual loss, including depreciation, now approximates thirty thousand dollars. The proportion thereof properly apportioned to the owners of water certificates (94 per cent according to the main opinion), would be twenty-eight thousand two hundred dollars. If the system is to remain a going concern this amount, at least, must be assessed upon the public users (the three to six per cent), if the private users cannot be required to pay more than the contract rate. The holders of water certificates bought with knowledge that the system was used and to be used to distribute water devoted to a public use. By thus consenting that public waters, mingled with their private waters, could be conveyed through the distributing system in which they have an interest, they assented to the use of their property (the pipe-line) for a public use. If they owned the whole pipe-line and thus used it, it must be conceded that they thereby dedicated the same to a public use. Why does not their assent to such use of their undivided right therein necessarily constitute such a dedication thereof to a public use? Their rights in the water and in the system can be recognized by the Railroad Commission in fixing rates. A rate proportionately lower than that imposed on those having no property right in the water or distributing system can be fixed. Although it is conceded that the statute authorizes the fixing of rates by the Railroad Commission in this case, if constitutional, it is well to observe that the commingling of public and private waters in a privately owned distributing system is expressly made a basis of the jurisdiction of the Railroad Commission. (Stats. 1913, p. 85, secs. 2, 3, 4.)

"Sec. 2. Whenever any private corporation or association is organized for the purpose solely of delivering water to its stockholders or members at cost, and delivers water to no one except its stockholders or members at cost, such private corporation or association is not a public utility, and is not subject to the jurisdiction, control or regulation of the railroad commission of the state of California.

"Sec. 3. Whenever any private corporation or association organized for the purpose of delivering water solely to its stockholders or members at cost does deliver water to others than its stockholders or members for compensation, such private corporation or association becomes a public utility and subject to the terms of the public utilities act and the jurisdiction, control and regulation of the railroad commission of the state of California.

"Sec. 4. Whenever any private corporation or association is organized both for the purpose of delivering water to its stockholders or members at cost and to persons, firms, corporations, municipalities or other political subdivisions of the state in addition thereto, such private corporation or association is a public utility and subject to the provisions of the public utilities act and to the jurisdiction, control and regulation of the railroad commission of the state of California." (Stats. 1913, p. 85.)

It is, of course, the duty of the Railroad Commission to recognize private and constitutional rights and fix the rates with reference thereto. In this case, while finding, erroneously, as we hold, that all the water distributed by the Water Company was dedicated to a public use, it nevertheless refused to consider the value of the water as a basis for fixing the rates, and, although the Water Company at first sought a reasonable interest upon the alleged value thereof (four hundred and ninety-four thousand dollars) the company abandoned its claim, and the Railroad Commission refused to recognize it. In short, in effect, the water-users who had paid four hundred and thirty-eight thousand dollars therefor, were recognized as entitled to water claimed to be worth four hundred and ninety-four thousand dollars. The Railroad Commission fixed rates for water that would pay the operating and maintenance expenses and give a revenue to the company on a capitalization of less than one-half of the value of their distributing plant. It seems clear that the Water Company and the certificate-holders, by express dedication and by necessary implication, have consented to the jurisdiction of the Railroad Commission in so far as the distributing system is concerned, and that, therefore, it has jurisdiction, and that in the exercise of that jurisdiction it has not violated any rights of petitioners in the water or distributing system, such as would justify our interference. I, therefore, conclude that the jurisdiction of the Railroad Commission may be well predicated upon the consent of the Water Company and the implied consent of the certificate-holders whose property rights are given due consideration by the Railroad Commission. It is also true, I think, that the business of storing, conserving, and distributing water, whether privately owned or dedicated to public use, to large tracts of land for the use of large numbers of persons for domestic and irrigation purposes in an arid state, particularly where such distributer enjoys a monopoly, is so clearly a matter of great public concern as to justify the people in declaring that such business is a, public utility. It is unnecessary to give reasons in detail for such an obvious conclusion, but it may be noted that changed labor conditions, increased cost of supplies and materials necessary to maintain such distributing system, bankruptcy, termination of corporate existence, or death of individuals furnishing water, all have a marked effect upon the ability of the distributer to distribute water, and upon the public so furnished with water, and that the ordinary remedies for breach of contract to distribute or deliver water, or equitable actions to protect and enforce such contract rights would be wholly inadequate to protect the public directly and indirectly affected by such failure and the consequent damage. Many of these considerations, however, do not apply to the corporations excepted from control of the Railroad Commission, for the reason that in such mutual companies the actual cost of maintenance, whether great or small, is distributed among the water owners. As we are dealing with legislation that definitely and clearly authorizes the fixing of the rates for the Water Company under constitutional provisions, authorizing such legislation and providing for such fixing of rates (art. XII, sec. 23, art. XIV), we need only consider whether the federal constitution prohibits such action, and for that purpose we must look to the supreme court of the United States as final and conclusive authority. The question of the limitations upon the state legislative power by the federal constitution has been frequently under consideration by that court. Only a few cases need be noted.

In Spring Valley Water Works v. Schottler, 110 U.S. 347, [28 L.Ed. 173, 4 Sup. Ct. Rep. 48], the supreme court of the United States said: "That it is within the power of the government to regulate the prices at which water shall be sold by one who enjoys a virtual monopoly of the sale, we do not doubt. That question is settled by what was decided on full consideration in Munn v. Illinois, 94 U.S. 113, [24 L.Ed. 77]. As was said in that case, such regulations do not deprive a person of his property without due process of law."

In the case of Munn v. Illinois, supra, in passing upon the power of the legislature of the state of Illinois to declare grain elevators public utilities and regulating rates for the storage and handling of grain, the supreme court said: "This brings us to inquire as to the principles upon which this power of regulation rests, in order that we may determine what is within and what without its operative effect. Looking, then, to the common law, from whence came the right which the constitution protects, we find that when private property is 'affected with a public interest, it ceases to be juris privati only.' This was said by Lord Chief Justice Hale more than two hundred years ago, in his treatise, De Portibus Maris, 1 Harg. Law Tracts, 78, and has been accepted without objection as an essential element in the law of property ever since. Property does become clothed with a public interest when used in a manner to make it of public consequence, and affect the community at large. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by discontinuing the use, but so long as he maintains the use, he must submit to the control."

In Atlantic Coast Line R. R. Co. v. City of Goldsboro,232 U.S. 548, [58 L.Ed. 721, 34 Sup. Ct. Rep. 364], the rule is thus stated: "It is settled that neither the 'contract' clause nor the 'due process' clause has the effect of overriding the power of the state to establish regulations that are reasonably necessary to secure the health, safety, good order, comfort or general welfare of the community; that this power can neither be abdicated nor bargained away and is inalienable even by express grant; and that all contract and property rights are held subject to its fair exercise. (Slaughter-house Cases, 6 Wall. 36, 62, [21 L.Ed. 394]; Munn v. Illinois, 94 U.S. 113,125, [24 L.Ed. 77]; Beer Co. v. Massachusetts,97 U.S. 25, 33, [24 L.Ed. 989]; Mugler v. Kansas, 123 U.S. 665, [31 L.Ed. 205, 8 Sup. Ct. Rep. 273]; Crowley v. Christensen,137 U.S. 86, 89, [34 L.Ed. 620, 11 Sup. Ct. Rep. 13]; New Yorketc. Co. v. Bristol, 151 U.S. 556, 567, [38 L.Ed. 269, 14 Sup. Ct. Rep. 437]; Texas etc. Co. v. Miller,221 U.S. 408, 414, 415, [55 L.Ed. 789, 31 Sup. Ct. Rep. 534].)"

In determining the question whether or not a business is of such public interest and concern as to subject it to regulation as a public utility, the supreme court of the United States holds that that question is primarily one for the legislature. In Munn v. Illinois, supra, it is said: "For our purpose we must assume that, if a state of facts could exist that would justify such legislation, it actually did exist when the statute now under consideration was passed. For us the question is one of power, not of expediency. If no state of circumstances could exist to justify such a statute, then we may declare this one void, because in excess of the legislative power of the state. But if it could, we must presume it did. Of the propriety of legislative interference within the scope of legislative power, the legislature is the exclusive judge."

It seems clear from these authorities, upon the facts found by the Railroad Commission, that the state had power to declare the water system a public utility. It finds that "The consumers concede that in so far as the supply of domestic water to persons other than the holders of water certificates is concerned, petitioner is a public utility." That the "petitioner adopted rules and regulations for the sale of water for irrigation and domestic use, which rules were printed and distributed to its consumers and referred to in petitioner's advertisements. Petitioner's business has grown from its initial supply of domestic water to the first inhabitants of what is now the town of Hemet, until in 1915, as shown by petitioner's annual report for the year ending December 31, 1915, on file with the Railroad Commission, petitioner sold water through 85 meters for irrigation, 481 meters for domestic use, 5 meters for manufacturing and power, and 6 meters for public use. During the same year petitioner sold water measured through other devices for the irrigation of 5,554 acres of land. Approximately two thousand five hundred people, including approximately one thousand five hundred in the town of Hemet, rely upon petitioner's system as their sole source of water." That the "petitioner is a water company, incorporated under the laws of this state. It is the only water system in control of water which it sells for compensation. For more than twenty-five years petitioner has been engaged in the sale of water to the entire public on the land to the service of which petitioner has dedicated its water. Petitioner has fixed and enforced rates, rules and regulations for the service of water for irrigation and domestic purposes and to the town of Hemet for public purposes. Petitioner's water system consists of watershed lands, the Lake Hemet Reservoir on the south fork of the San Jacinto River, diversion works at four points of diversion, transmission mains of riveted steel and wood pipe, wooden flume and lined ditch and a distributing system of wooden and concrete flume, concrete and riveted steel pipe, all used in the delivery of water to wholesale and irrigation consumers. In addition, petitioner owns and operates a separate system with a separate diversion for the distribution of water through riveted steel and standard screw pipe to domestic consumers. In the operation of its system petitioner for more than fifteen years has had the control and use of seventeen-twentieths of the water of the north fork of the San Jacinto River and Strawberry Creek under agreements with Fairview Land and Water Company, the owner of such waters. The safe yield of petitioner's water system is one hundred and sixty-one thousand miner's inch days annually, or 6,376 acres feet delivering 725 miner's inches during the irrigating season."

It is also found that the Water Company had issued:

(a) Contracts covering 69.36 acres at the rate of five dollars per acre, per year.

(b) Contracts covering 5,874.77 acres at the rate of two dollars per acre per year, and that the amount of acres irrigated was 5,554. That "Petitioner's total operating expenses to December 31, 1914, was $512,353.87; $93,607.43 was depreciation. Total cost of operation was $418,746.44. Total revenue, after deducting receipts from the sale of water rights, $239,824.47. It thus appears that the result of petitioner's operations under its rates now in effect has been a gross revenue of $178,921.97, less than bare operating and maintenance expenses."

We are not called to pass upon the reasonableness of the rates fixed by the Railroad Commission, if no constitutional right is invaded.

I therefore conclude that the Railroad Commission had authority to fix rates under the constitution and law:

First, for the reason that the Water Company had consented thereto by the express dedication of all its interest in the system, and that the Railroad Commission was empowered and required in fixing rates to fix them with due regard to the private ownership of the water certificate holders in the water and the distributing system.

Second, for the reason that the owners of water certificates had consented to the use of the distributing system, and their interest therein by the public, and had thus jointly with the Water Company dedicated the distributing system to a public use.

Third, for the reason that the character of the business conducted by the Water Company and water users authorized the state to declare the same a public utility, and to provide for the fixing of rates by the Railroad Commission, whose duty it was to fix rates in due recognition of the private rights of water certificate holders in such property, and that the intervention of this court is only proper where a clear violation of such rights appears.

Rehearing denied.