City of Texarkana v. Wiggins

246 S.W.2d 622, 151 Tex. 100, 1952 Tex. LEXIS 379

• Court: Texas Supreme Court
• Decided: February 6, 1952
• Docket: A-3273
• Status: Published

Opinions

Mr. Justice Smith

delivered the opinion of the Court.

Respondents, all nonresidents of the City of Texarkana, Texas, filed this suit against Petitioner, the City, seeking to enjoin it in the operation of its municipally-owned water and sewer systems from charging nonresidents higher water and sewer rates than those paid by persons residing within the corporate limits of the city.

The trial court rendered judgment for Petitioner, the judgment reciting that the court heard sufficient evidence to determine the case on its merits. This judgment was reversed and the cause remanded by the Court of Civil Appeals. 239 S.W. 2d 212. The case is before us on writ of error.

Prior to August, 1948, the City of Texarkana, Texas, and surrounding territory, was served by the American Water Works, Inc., a privately-owned utility corporation. At that time the Petitioner purchased from this utility corporation all its property serving the city and surrounding territory, payment being made with proceeds derived from the sale of revenue bonds previously authorized by vote of the citizens of the city. An ordinance of the city, enacted on August 27, 1948, adopted for the municipally owned utility the schedule of rates theretofore charged by the American Water Works; this schedule of rates remained in effect until August 8, 1950. The system of rates charged by the American Water Works was, of course, nondiscriminatory in that both residents and nonresidents were charged the same rate for service.

On August 8, 1950, Petitioner passed an ordinance providing that water service to nonresident consumers would be furnished at one and one-half times the rate which applied within the corporate limits of the city. The ordinance further provided that sewer service to nonresident users would be furnished “at a rate double the rate applying within the city limits.” A water tapping charge for all connections to the water system for residential use outside the city was fixed at $50.00; the water tapping charge for users within the city was set at $10.00 on unpaved streets, and $15.00 on paved streets.

Respondents are all residents of the City of North Texarkana, Texas, which adjoins the Petitioner on the north. The east-west streets in the City of Texarkana, Texas, are numbered consecutively, beginning with 1st Street in the business district of the City of Texarkana, Texas, and continuing to 36th Street in the City of North Texarkana. The line marking the corporate limits of the City of Texarkana, Texas, lies in the center of 29th Street. The north-south streets, which continue through both cities, bear the same names throughout their entire lengths. In short, the geographical line upon which the rate differentiation is based is an arbitrary line marking the limits of a political subdivision.

Petitioner contends that it is under no legal duty to furnish water and sewage disposal service to the Respondents ; that if it does furnish such service to Respondents it is under no legal duty to charge the Respondents the same rate as is charged residents, but that it may make such charge as appears to be for the best interest of the City of Texarkana. This latter contention is based upon the provisions of Article 1108, section 3, R.C.S. of Texas, which provides:

“Any town or city in this State which has or may be chartered or organized under the general laws of Texas, or by special Act or charter, and which owns or operates waterworks, sewers, gas or electric lights, shall have the power and right:

* * * *

“3. To extend the lines of such systems outside of the limits of such towns or cities and to sell water, sewer, gas and electric light and power privileges or service to any person or corporation outside of the limits of such towns or cities, or permit them to connect therewith under contract with such town or city under such terms and conditions as may appear to be for the best interest of such town or city; provided that no electric lines shall, for the purposes stated in this section, be extended into the corporate limits of another incorporated town or city.”

Respondents contend that the city in operating its water and sewer systems is acting in its proprietary capacity, that it is subject to the same rules and regulations as privately-owned utility corporations engaged in the same or similar business, and that the rates established by the ordinance of August 8, 1950, being discriminatory, are void and their collection should be enjoined.

We cannot agree with Petitioner’s contention that this statute is sufficient to authorize it to charge a discriminatory rate for utilities furnished to nonresidents than to its residents. Under the facts in this case, the city has dealt with the residents and nonresidents as one class or unit. The ordinance under consideration recites that the city has purchased and is now maintaining and operating within and without the limits of said city a municipal water system. Since 1948 the same rates have been charged consumers living within and without the city. No other utility exists within the area to furnish water and sewer service.

1 The common-law rule that one engaged in rendering a service affected with a public interest or, more strictly, what has come to be known as a utility service, may not discriminate in charges or service as between persons similarly situated is of such long standing and is so well recognized that it needs no citation of authority to support it. The economic nature of the enterprise which renders this type service is such that the courts have imposed upon it the duty to treat all alike unless there is some reasonable basis for a differentiation. Statutes have' been enacted in almost every state making this common-law rule a statutory one. Pond, Public Utilities, (4th. ed. 1932) sections 270-275. Hence, the American Water Works was required to, and did, render service to Respondents at the same rate as was charged within the corporate limits of Petitioner.

It is settled in this state that the Petitioner, upon the purchase by it of the property of the privately-owned utility was subject to this same rule prohibiting unreasonable or unjustified discrimination in rates and service. Galveston v. Kenner, 111 Texas 484, 240 S.W. 894 (1922) ; Houston v. Lockwood Investment Co., Tex. Civ. App. 1912, 144 S.W. 685, writ dis’m; Highland Park v. Guthrie, Tex. Civ. App. 1925, 269 S.W. 193, writ refused. This same rule prevails in many other states. 43 Am. Jur. 684, section 172; 50 A.L.R. 126.

Admittedly these cases do not settle the particular question before us; they announce the broad common-law principle that a municipality may not unreasonably discriminate in rates and charges and they do not determine the further question whether or not different rates based on nothing more than the limits of a municipal corporation are unreasonably discriminatory. These cases are authority, however, for at least this much: in the absence of (1) a showing that the discrimination has a reasonable basis or (2) a statute to the contrary, a municipality may not discriminate in charges or service as between those similarly situated. Many decisions have transported the concept of proprietary capacity, as distinguished from a governmental capacity, from the cases involving the liability of a governmental unit for the torts of its agents to these decisions involving the duty of a municipality to offer its utility service at nondiscriminarates and have found in this concept a basis for the rule set out above. The concept of proprietary capacity is, however, hardly helpful in this situation. The real reason for the rule that, in so far as treatment of consumers is concerned, the municipally-owned utility is no different from the privately-owned utility is that the economic nature of the business has not changed; it remains a monopoly in spite of the change in ownership.

The change from private to public ownership may, in theory at least, eliminate or lessen the profit motive, but the consumer of utility services still cannot pick and choose his supplier of water as he does his grocer. The utility consumer is thus at the mercy of the monopoly and, for this reason, utilities, regardless of the character of their ownership, should be, and have been, subjected to control under the common-law rule forbidding unreasonable discrimination.

2 We do not pass upon the question whether the Petitioner is under a legal duty to serve Respondents with water and sewage disposal, nor do we pass on the question whether the rates charged by Petitioner, whether within or without its corporate limits, are required to be “reasonable” as that term is understood in public utility parlance (i.e., a “reasonable”rate yields “a fair return on fair value”). But assuming that Petitioner has no duty to serve, it does not follow, under the common-law rule at least, that having elected to serve it may do so on such terms as it chooses to impose. The contention that the Petitioner, being under no legal obligation to serve, may do so on such terms as it chooses to impose brings before us a familiar argument in a new guise. It is the old, and logically appealing, argument that the greater includes the lesser power, that a governmental unit: having the greater power of granting or withholding a privilege of service it perforce must have the lesser power of offering the privilege or service on whatever terms it may impose. That this is not necessarily true is demonstrated in the doctrine of unconstitutional conditions. Of the many cases applying this doctrine Terral v. Burke Construction Co., 257 U.S. 529, 42 Sup. Ct. 188, 66 L. Ed. 352, 21 A.L.R. 186, and Western Union Telegraph Co. v, Kansas, 216 U.S. 1, 30 Sup. Ct. 190, 54 L. Ed. 355, are illustrative. The former case was a suit to enjoin the Secretary of State of the State of Arkansas from revoking the license of a foreign corporation which had, contrary to statute law of the state, removed a suit from the state to the federal courts. The argument was made, against affirmance of the judgment of the trial court granting the injunction, that the State of Arkansas having authority to grant or withhold the privilege of doing business in the state, as it admittedly did, it could condition the grant of the privilege in this manner or in any other manner it saw fit. This argument was rejected by the court, which stated that, “* * * a State may not, in imposing conditions upon the privilege of a foreign corporation’s doing business in the State, exact from it a waiver of the exercise of its constitutional right to resort to the federal courts, or thereafter withdraw the privilege of doing business because of its exercise of such right, whether waived in advance or not.” The analogy between the argument in the instant case and that in the Terral case, supra, is clear. It is also clear that the answer in this case must be the same as it was there; we therefore reiterate: assuming that the Petitioner is under no legal duty to serve it by no means follows that, having elected to serve, it may do so on a discriminatory basis. We do not mean to imply by citation of this authority that the ordinance is unconstitutional. As to this we express no opinion. These cases do illustrate, however, that the greater does not always include the lesser power and we think it important that this be understood for it has been the source of what we conceive to be error in the decision, in other jurisdictions, of the question before us.

The Petitioner being subject to the rule prohibiting unjustified discrimination between consumers of utility service, the question presents itself whether there is in fact any justification for treating the Respondents differently than the residents of the Petitioner city. The ordinance complained of contains, on its face, no such justification. The difference in rates, so far as is shown by the ordinance, is based entirely upon the location of the corporate limits. The Petitioner does not contend that the costs of supplying the service to Respondents vary so as to justify the difference in charges and the record is devoid of any evidence upon which to base such a contention. As was pointed out by the Court of Civil Appeals in its opinion below, the discrimination cannot be justified on the ground that the residents of the City of Texarkana, Texas, are liable to taxation to pay for acquisition of the water system. We are brought again, then, to what is apparent from the record of this case: the only difference between consumers who pay more and those who pay less for Petitioner’s utility service lies in the fact that the former reside north of 29th Street while the latter reside South of 29th Street. The limits of a municipal corporation, of themselves, do not furnish a reasonable basis for rate differentiation. Dallas Power & Light Co. v. Carrington, Tex. Civ. App. 1922, 245 S.W. 1046, writ dis’m; City of Montgomery v. Greene, 1913, 180 Ala. 322, 60 So. 900; Louisville & Jefferson County Metropolitan Sewer Dist. v. J. E. Seagram & Sons, 1948, 307 Ky. 413, 211 S.W. 2d 122, annotated at 4 A.L.R. 2d 596.

The case of City of Montgomery v. Greene, supra, which was cited with approval in the case of Dallas Power & Light Co. v. Carrington, supra, was decided by the Supreme Court of Alabama on facts very similar to the present case. The Court there said:

“It may be stated, as a general proposition of law, that a corporation or municipality, authorized to supply water or lights to the inhabitants of a municipality, may not discriminate as to the rates charged, at least among those of the same class. Ferguson v. Birmingham Water Works, 164 Ala. 586, 51 South. 354, 27 L.R.A. (N.S.) 674, and note. ‘The acceptance by a water company of its franchises carried with it the duty of supplying all persons along its mains, without discrimination, with the commodity which it was organized to furnish. All persons are entitled to have the same service on equal terms and uniform rates.’ City of Mobile v. Bienville Co., 130 Ala. 384, 30 South. 447. The service cannot be arbitrarily limited to such consumers as are technically residents of the municipality, although the right of persons living within the city or beyond may depend upon the sufficiency of the supply and the contiguity or remoteness of such persons from the mains. 40 Cyc. 793, and cases cited; 30 Am. & Eng. Encyc. Law, 418, 419. It may be that the act of 1891 left it optional with the city as to whether or not it would attempt to supply water beyond its corporate limits to points within its police jurisdiction, but, when it attempts to do so, it must be with uniformity, and without discrimination; and, if the citizens- of Cloverdale are on its mains, they should be given the same uniform rate as is the general rate for others along or upon its mains, and a different rate, fixed wholly upon the corporate lines as the line of demarcation, in the absence of physical differences, is- an unreasonable classification. This rule applies to municipalities operating their oton water system, as well as to individuals or corporations, who undertake to supply water or lights.” (Emphasis added.)

3 Under the common-law rules, then, the ordinance is void. But the petitioner contends that all this has been changed by the statute referred to above. The Petitioner asserts that “the crux of this case in its final analysis rests upon a construction of section 3, Article 1108, R.C.S. of Texas.” This article has been set out above. We find nothing in this language which would authorize the city to discriminate, at its pleasure, between its patrons. The first part of the section merely gives the city the right to extend its service to persons residing beyond the corporate limits of the city. This the city has done. The language “or permit them to connect therewith under contract with such town or city under such terms and conditions as may appear to be for the best interest of such town or city,” if construed to accord with Petitioner’s view, would return us to the primitive state of development in utility control when rates were determined by friendship and political power or pressure. Troxel, Economics of Public Utilities (1947) pp. 63-65, 667. This we cannot believe to have been the intent and purpose of the statute nor is its language such as to compel such a conclusion. The language of the statute contains no reference to rates, but, assuming that this provision of Section 3 gives the power to fix rates, the granting of such power, without express authority to fix unreasonably discriminatory rates, implies that the rate fixed pursuant thereto shall be, if not reasonable, at least not discriminatory.

The Petitioner makes no contention that it could exact of one nonresident one and one-half times the rate charged another nonresident nor does it contend that it could thus discriminate between its residents. Indeed, it seems very clear that, even reading the statute as Petitioner would have us read it, this could not be done. The essence of the Petitioner’s contention, then, can be no more than this; that the statute establishes classes of consumers among which the Petitioner may discriminate without justification. We find no classification of consumers in the language of the statute nor do we find authority for unjustified discrimination there. True, the statute expressly authorizes a city to serve nonresidents of the city and by so designating them it has, perhaps, so classified them. But when the reasons for the enactment of the statute are considered we think it clear that the legislature did not intend to create a class of consumers against which the city could discriminate for any reason or without reason. The statute was enacted as the legislative answer to two prior decisions of our courts, namely City of Paris v. Sturgeon, 1908, 50 Tex. Civ. App. 519, 110 S.W. 459, no writ history, and City of Sweetwater v. Hamner, Tex. Civ. App. 1923, 259 S.W. 191 writ dis’m. The former decision held that a municipal corporation was without authority, in this state, to contract to supply water to a nonresident; the latter decision held that a municipal corporation was without authority to extend its lines outside the municipal limits to supply water to a non-resident. The statute was passed expressly conferring upon the cities this authority, and, being directed as it was to the benefit of nonresidents it is but natural that they should be so designated.

4 We think the effect of the statute is that when a city decides to exercise this power to provide its utility service to customers outside the city limits it may then fix such service charges as it decides the situation requires; if it requires a higher charge than is fixed against residents of the city for the same service, the city may exact the higher rate. But whatever it fixes, a rate status between the city and its outside customers is thereby established and the city cannot thereafter arbitrarily change the rate so as to discriminate, or further discriminate, between them and customers residing in the city. This conclusion is certainly in line with well-established principles of public utility law.

For these reasons we hold that the statute did not change the common-law rule prohibiting unreasonable discrimination. The ordinance is therefore void unless the Petitioner can show, on another trial of the cause, that there is some reasonable basis for the difference in rates which it establishes. In order that the Petitioner may have an opportunity to make such a showing the judgment of the Court of Civil Appeals reversing and remanding the cause is affirmed.

Opinion delivered February 6, 1952.