CONSOLIDATED WATER CO. V. CITY OF SAN DIEGO.
OONSOLIDATED WATER CO. v. CITY OF SAN DIEGO et aL
(Circuit Court, S. D. California.
Deeember 6, 1897.)
A bill to restrain the enforcement of a city ordinance fixing the of charge by a water company, on the ground that such rates are so unreasonably low as to amount to a ·taking of the property of the water company without just compensation, presents a federal question.
RIGHTS OF MORTGAGEE-INJUNCTION TO PROTECT MORTGAGED
A mortgagee has such an Interest In the mortgaged property as entitles him to bring suit to restrain injury thereto. In a suit by the mortgagee of a water company to enjoin the enforcement
.. SAME-SUIT FOR INJUNCTION-PARTIES.
of an ordinance fixing water rates, the mortgagor Is a necessary party.
This is a suit in equity by the Consolidated Water Company against the city of San Diego and its municipal authorities. Heard on demurrer to the bill. Works & Works, Trippet & Neale, and Works & Lee, for complain· H. E. Doolittle and T. L. Lewis, for defendants.
ROSS, Circuit Judge. The complainant, a corporation of the state of WestVirginia, brings this suit against the city of San Diego and its municipal authorities. The complainant sues as the holder aJId owner of a mortgage upon the water and water plant with and by which the San Diego Water Company supplies the city of San Diego and its inhabitants with water for domestic and other purposes. The city, through. its municipal authorities, having established an ordinance fixing the rate at which such water should be so furnished, the object <Yf the bill is to obtain the judgment of this court declaring such ordinance null and void upon the ground that the rates thereby established are so unreasonably low as to amount to a practical taking of the property mortgaged to the complainant without just compensation, contrary to the provisions of the constitution of the United States. The ordinance thus attacked was enacted, according to the bill, in February, 1896, and, under the provisions of the constitution of the state of California and a state statute passed pursuant thereto, it took effect July 1, 1896, and expired by limitation July 1, 1897, yet the demurrer to the bill now under consideration was not submitted to this court until within the last few days, to wit, N0vember 24, 1897. The court is not advised in respect to the cause for such delay, and, as at present advised, I do not see, after disposing of the present demurrer, what need there will be for the determination of the question raised by the bill, since, under the provisions of the state constitution and state statute, pursuant to which the ordiceased. nance was enacted, its functions have long It is urged in support of the demurrer to the bill, that this court is without jurisdiction, for the reason that it appears from the bill that the title to the property involved is in the San Diego Water Company, a corporation of tlle state of California, whose rights therein are n.ee84 F.-24
84 FEDERAL REPORTER.
essarily affected by the ordinance sought to be annulled by the billJ and that that company is an indispensable party to the suit, and, if made a party, whether as complainant or defendant, must, for jurisdictional purposes, be aligned with the complainant, which align· ment woul!I, by reason of the citizenship of that company, show a: want of jurisdiction in this eourt. Tb,at would undoubtedly be so if the jurisdiction of this court depended upon the diverse citizenship of the parties. It was so held by Judge Wellborn in the case of Water 00. v. Babcock, 76 Fed. 243, and subsequently by me in the same .CRse in an opinion filed August 16, 1897. In his argument upon the present demurrer the counsel for the complainant insists that those rulings are contrary to the decision in the case of Mercantile Trust,Co. v. Texas & P. Ry. Co., 51 Fed. 529, and in the case of Reagan v. Trust Co., 154 U.S. 362, 14Stip. Ct. 1047. What this court held in the;Babcock Oase, when under cOll'sidevation by the district jl;1dge as well as by myself, W$ that, where the jurisdiction depends upon the diverse citizenship of the parties, and the bilI shows, as it did in that case, that the complainant's eauseof action depends 'wholly upon the fact that· the property rights of the mortgagor are invaded, with whose rights the complainant's interests (as mortgagee) are so inseparobly connected that there can be no adjudicati9n thereon without passing upon the rights of the mortgagor, the mortgagor is an indispensable party, and, when made a party, aligned with the complainant; and that when, as in that case, the diverse citizenship of the parties is thus destroyed, the court is without judsdiction. . In neither of the cases cited by counsel for the complainant in the present as well a,s in the Babcock Case was there anything decided to the contrary Of this. In Reagan v. Trust Co., 154 U. S. 362, 14 Sup.Ct. 1.047, the question whether or not a proper alignment ()f the parties,. according to their real interests, would fail to present a controversy wholly between citizens of different States W3JS not suggested t<> the court. The only jurisdicti()nal question there presented appears from this quotation from the opinion in that case:
"We ate met at the threshold with an objection that this is, in effect, a sult against the state of Texas, brought by a citizen of another state, and therefore, under the eleventh amendment to the constitution, beyond the of the federal court."
In Mercantile Trust QQ. v.Tex'3.S & P. Ry. Co., 51 Fed. 529, the objection made to the jurisdiction of the court, as appears from the answer' of the defendants Reagan, McLean, Foster, and Culberson, was that the Texas & Pacific Railway Company was a corporation created under the laws of the United States, and that its principal office and domicile was in the state of New York, thereby constituting that company a citizen of that commonwealth, of which state the complainant also was a citizen; wherefore it was claimed by the defendalltsother than the Texas & Pacific Company "that said complainil:tlt is not entitled to maintain its suit against the defendant railway company, because complainant and said company are citizens of the same state, and there is no real controversy between complainant and said defendant railway company, and none between them
POST V. BEACON VACUUM: PUMP 4: ELECTRICAL CO.
arIsmg under the constitution and laws of the United States; and the said suit between the said parties is believed to be collusive or feigned." In respect to this point the CiQurt said (51 Fed. 536):
"It Is apparent from the whole record and the conduct of this hearing,that the controversy Is not between complainants and the railways, but between the railways and the other defendants."
The court, therefore, conceding the citizenship of the. Texas & Pacific Railway Company to be in New York, as claimed by the other defendants, evidently concluded that, although the company was a nominal defendant, yet a proper alignment O'f the parties, according to their real interests, would place that company with the complainant; thus making the controversy between citizens of different states, and therefore within the jurisdiction of the court. In the present case, however, it is a nllstake to' suppose that the jurisdiction depends upon diverse citizenship of the parties. The bill presents a federal question, namely, the question whether the ordinance set out in the bill violates those provisions of the constitution of the United States declaring that no person shall be deprived of his property without due process of law, and securing to every person the equal protection of the la.ws. Reagan v. Trust Co., supra; Central Tru.st Co. of New York v. Citizens' St. Ry. Co. of Indianapolis, 82 Fed. 1. That a mortgagee has such an interest in the mortgaged property as entitles him to bring suit to restrain injury thereto is, in my opinion, beyond doubt. Such right was distinctly recognized in the cases of Mercantile Trust Co. v. Texas & P. Ry. Co. 'and Reagan v. Trust Co., supra. The demurrer would, therefore, be overruled, but for the failure of the complainant to make the San Diego Water Company'a party to the suit. Because of the absence of that indispensable party the demurrer is sustained, with leave to the complainant to amend the bill within 10 days, if it shall be so advi'sed.
POST et al. v. BEACON VACUUM PUMP & Ef"ECTRICAL CO. et aI. (Circuit Court of Appeals, First Circuit. No. 216.
EQUITY-RESCISSION-SUFFICIENCY OF ALLEGATIONS.
January 19, 1898.)
A bill for a rescissIon, which will seriously affect the InteTest of others, must contain clear and positive allegations showing the equitable right of the complainants to the relief asked. The action of a corporation in transferring its property and business to another corporation is not ultra vires except: as to creditors prejudiced thereby. or nonassentlng stockholders, and their right to a rescission may be waived. A majority of the stockholders of a corporation, by vote, agreed to a reorganization, and the transfer of its property and business to a new corporation, in consideratdon of the issuance to the st<x:kholders of a certain amount of the stock of the new company, and the privilege to such stockholders subscribing for the remainder at a fixed price. The pIau was executed, and the transfer made. Held, that minority stockholders who opposed the transfer, but who subscribed for their proportion of the
CORPORATIONS-TRANSFER OF PROPERTy-ULTRA VIRES.
3. SAME-RIGHTS OF STOCKHOLDERS-EsTOPPEL.