Philadelphia Electric Co. v. Philadelphia

This appeal is from a proceeding brought in the nature of a test case. The amount stated does not reflect the actual damage, nor is the appellee the sole party aggrieved. All utilities occupying many miles along Broad and other streets are affected by the municipal action here complained of. The electric company alone has over one hundred miles of conduits which have been or will be affected by subway construction in the City of Philadelphia, completed, in process, or in immediate contemplation. The damage to these conduits coupled with the expense necessary to their repair, reconstruction, relocation and maintenance will run into millions of dollars.

The city, pursuant to the Act of June 11, 1913, P. L. 520, empowering it to build transit facilities, adopted the ordinance of April 8, 1924, authorizing building a subway in Broad Street, on which were to be operated electric trains for the accommodation of the public. Though not material, the local traction company has been operating the subway since its completion. When the city began the work of building the subway, various public service companies were already in Broad Street, engaged in the business of selling their product or the use of their facilities to the public. Among these were the electric company (the appellees), which supplies light to the city and its people, telephone companies, and others. One of appellee's main trunk lines was located in Broad Street and from it other lines extended into other intersecting highways. Acting under the above mentioned Act of 1913 and ordinance of 1924, the city directed these operations to be removed from their existing locations to make way for the subway. The company protested the removal order, which involved the destruction of extensive sections of its conduit system without being compensated for the expense connected with it; later, by arrangement and to avoid delaying the work, the conduits were demolished by the city's contractor and subsequently removed and rebuilt by the electric company at its own expense. This action followed to determine liability for this removal. The court below held that the electric company should be compensated, but this court on appeal reversed that judgment. I disagree with the latter's conclusion.

The majority hold that the city may lawfully proceed as it has done under its police power, though, in the course of the opinion, the question of police power is interwoven with that of contract.

Police power, as a function of government, operates as a restriction on the use of property or the conduct of persons where such use or conduct is detrimental to public health,morals or safety (White's App., 287 Pa. 259, 263), and it must clearly appear that there is resultant benefit to health, morals or safety of the public before use of the police power will be sustained.

The city, if claiming the right to remove conduits under the police power, cannot find the authority in any of the ordinances cited in the majority opinion, and referred to hereafter, nor in any other ordinance prior to that of 1924. The ordinance of 1924 directed the construction of an underground railway and expressly provided for the revocation of all permits for structures interfering with the railway. If an underground railway is a governmental activity, then uncompensated obedience to such exertion of the police power cannot result in the taking of property without due process of law: New Orleans Pub. Ser., Inc., v. City of New Orleans,281 U.S. 682, 687. Such was the exercise in New Orleans Gas Light Co. v. Drainage Commission of New Orleans, 197 U.S. 453, for the city's drainage system. But the instant case is not of this quality.

Building and operating a subway is purely a business enterprise engaged in by the city in its proprietary capacity (In re Board of Rapid Transit Railway Commissions of City of New York, 197 N.Y. 81); and this court so stated when considering the Subway Act in Com. v. P. R. T., 287 Pa. 70, 72. A sharp line has been drawn between business enterprises and purely governmental activities in relation to the police power. The two are fundamentally different. What could justify the use of the police power in compelling the removal of the conduits? The conduits were ordered moved to make way for the subway; they were moved so that another business of no higher public aspect could function. There is nothing to show that their original position in any way imperiled or their new position would benefit the life, health, property or safety of the public. This is made clear in City of Los Angeles v. Los Angeles Gas Elec. Corp., 251 U.S. 32, 38, 39, in which the court said: "In what way the public peace or health or safety was imperiled by the lighting system of the corporation or relieved by its removal or change . . . . . . is certainly not apparent . . . . . . The court reasoned and concluded that what the city did was done not in its governmental capacity, — an exertion of the police power, — but in its 'proprietary or quasi-private capacity' and that therefore the city was subordinated in right to the corporation, the latter being an earlier and lawful occupant of the field."

Business enterprises stand on equal ground before the law, and, in business relations as distinguished from governmental, a municipality is held to the same standard that the law prescribes for private corporations. When the municipality acts for its private advantage to obtain a profit, the object of private corporations, it is not acting in its governmental capacity as a sovereign, but in its proprietary capacity as a private corporation: In re Board of Rapid Transit Railway Commissioners of City of New York, supra. See also Western Saving Fund Society v. City of Phila., 31 Pa. 175, and cases hereinafter cited. To favor one business as against another would be to invade a substantive property right. Such discrimination is guarded against by the Fourteenth Amendment: City of Los Angeles v. Los Angeles Gas Elec. Corp., supra. See also Com. v. P. R. T., supra; Bailey v. Phila., 184 Pa. 594; Edison E. I. Co. v. Citizens E. Co., 235 Pa. 492; Edison Elec., etc., Co. v. Merchants', etc., Co., 200 Pa. 209, 219; In re Board of Rapid Transit Railway Commissioners of City of New York, supra; Scibilia v. Phila., 279 Pa. 549. The city has conceded this position.

The city may, however, exercise its police power over a utility occupying a street, whereby another company may acquire a place in the highway; but this can be done only by the company, in whose favor the right is declared, paying to the company on the ground any damage the latter may sustain by such exercise; otherwise the act is confiscatory. The fact that the city did not drive the company out of business but provided another place for its conduits is immaterial; the specific wrong here complained of was the monetary damage entailed in the destruction or moving of the conduits. That is the light company's position in this case. It is quite clear to my mind that any acts performed under authority of the ordinance of 1924 or the Act of 1913 cannot be justified as an exercise of the police power in the light of the subject-matter here involved. If any other right exists to move the conduits, we must find it through an examination of the contract as embodied in the consent and other ordinances, or under the eminent domain power provided in the Subway Act. The majority opinion states that the conduits were not removed from Broad Street nor destroyed or demolished. The record clearly shows (Record, page 92a) that the conduits involved in this action were destroyed by the city's contractor and subsequently rebuilt and relocated by the appellee.

The city takes the position that the light company was under contract to remove its facilities, at the latter's own expense, to make way for the subway when the city required it to do so. The authority of the utility comes from the Act of May 8, 1889, P. L. 136. In 1902, the electric company requested the city to grant its consent to their occupation of the streets of Philadelphia; this franchise was granted in the ordinance of 1902 with the stipulation that a bond should be furnished conditioned for the compliance with that ordinance and all "other ordinances regulating the construction, maintenance and extension of electrical conduits." The provisions of the ordinance of 1886, consistent with that of 1902, formed a part of appellee's rights and obligations. That latter ordinance regulated the manner and method under which companies, securing the city's consent, could enter its highways by placing in them their conduits, pipe lines, and like equipment. Section 4 of the 1886 ordinance reads: "The laying, construction and maintenance of all . . . . . . . conduits . . . . . . shall be under the supervision of . . . . . . the electrical department . . . . . . and shall be laid under the rules and regulations of the Board of Highway Supervisors." That board was created and their duties defined by the ordinance of 1884 for the purpose of preventing frequent and unnecessary opening of street pavements. In this ordinance the board was authorized and empowered "to prescribe . . . . . . such . . . . . . rules . . . . . . governing the time and manner in which all street excavations shall be made and the time and method of repairing the same."

The record shows that under these ordinances appellee filed its bond on January 17, 1903 (Record, page 69a), and immediately commenced the furnishing of electrical service to the City of Philadelphia by taking over the operation of the existing electrical system, formerly carried on through the medium of a number of small independent companies which were consolidated into the Philadelphia Electric Company. These facts are not only established in the record (Record, pages 73a, 74a, 69a), they are matters of common knowledge. There seems to be no justification for the statement of the majority that entry by the appellee was not made until 1910; the permit taken out in that year was merely an administrative permit granting the electric company the right to open a particular section of the surface of Broad Street, as an incident to the extension of a small section of the entire electric system. The permit so indicates. Once the primary franchise contract has been fixed by acceptance and the institution of service thereunder, extensions or replacements may not be made the basis for imposing additional restrictions affecting the entire system or any section thereof. This principle was clearly stated in Russell v. Sebastian, 233 U.S. 195, 206, 207, where the court, in speaking of a similar situation with regard to a water company franchise, said: "There is no ambiguity as to the scope of the offer. It was not simply of a privilege to maintain pipes actually laid, but to lay pipes so far as they might be required in order to effect an adequate distribution. The privilege was defined as that 'of using the public streets and thoroughfares thereof, and of laying down pipes and conduits therein, and connections therewith, so far as may be necessary for introducing into and supplying such city and its inhabitants either with gas light, or other illuminating light, or with fresh water for domestic and all other purposes, upon the condition that the municipal government shall have the right to regulate the charges thereof.' "

"The breadth of the offer was commensurate with the requirements of the undertaking which was invited. . . . . . Such a grant would not be one of several distinct and separate franchises. When accepted and acted upon it would become binding, not foot by foot, as pipes were laid, but as an entirety, in accordance with its purpose and express language": Grand Trunk Ry. Co. v. South Bend, 227 U.S. 544, 555, 556.

The import of all these municipal conditions affecting the primary franchise contract concerned administrative rules as to "the time, manner" and possibly the methods under which the "construction, maintenance and extension . . . . . . of conduits" was to be carried on. In what sense could an ordinance authorizing the building of a subway be considered as a rule regulating the construction, maintenance or extension of an electrical conduit?

These ordinances did not confer legislative powers on the board of highway supervisors, which would permit it to prohibit companies (having authority from city council to do so) from entering the highways or to establish rules in derogation of grants given by council so as to convert absolute rights into revocable licenses, or to oust such companies from the highways after they had lawfully entered thereon.

Furthermore, the board was powerless to make administrative laws beyond the scope of the ordinances creating it and defining its powers. The legislative power of a city is lodged in council by act of assembly; it cannot be delegated by the municipality to another body. Certainly the above mentioned ordinances did not contemplate a general ouster for business or proprietary purposes, affecting many miles of conduit system.

Acting under supposed authority, the board adopted rules of the board of highway supervisors, section 12, of which reads: "If in the laying of water or gas pipes, sewers or other municipal work, it shall be necessary to change the location of any conduits . . . . . . they shall be shifted . . . . . . at the cost of the owner." This section, as construed by the majority, would, if here effective, repeal the franchise right granted by the city to this appellee. It would have the effect of converting a property right (subject to a condition fulfilled) into a mere license. Its passage was not only a purely legislative act but the board was without authority, in any of the ordinances mentioned, to make it. When appellee secured its charter from the State, the consent of the city to occupy its streets, and the actual occupation thereof, it acquired a substantive property right therein (Russell v. Sebastian, supra; Boise Water Co. v. Boise City, 230 U.S. 84, 90, 91; Louisville v. Cumberland Telephone Co., 224 U.S. 649, 663,664); which could not be withdrawn, altered or modified: Russell v. Sebastian, supra; Hestonville, Mantua Fairmount Passenger R. R. Co. v. City of Phila., 89 Pa. 210; Grand Trunk Ry. Co. v. South Bend, supra.

The limit of authority in the board was confined to jurisdiction over ordinary cases of street openings or occasional shifting of conduits or pipes. The city at the time of the adoption of section 12 in 1906, or prior thereto, did not have the power to engage in building subways, nor could it move the conduits for that purpose. The effect of the term used in section 12 must be related to, and limited by, the character of work contemplated by these enabling ordinances of 1884, 1886 and 1902. Section 12 states that in the "laying of . . . . . . other municipal work" the utility must shift to some other place as directed by the board. This must be read in connection with section 5, which requires that a utility already occupying a city street shall be compensated when the shift is made for the benefit of another utility. It is the clear intent of the regulations taken as a whole that as between utility enterprises, priority of position in the streets should carry with it priority of right, and that any expenses incidental to the entrance into the streets of a later utility project, should be borne by that project rather than imposed upon prior occupants. This principle should be borne in mind in interpreting the phrase "municipal work" as used in section 12, and since under that section the cost of making way for municipal projects is imposed upon the occupants of the street for the benefit of the municipality without regard to priority, in order to make this section consistent with the earlier section and with the general scheme of responsibility contemplated by the regulations, it must be interpreted to apply to strictly governmental activities of the municipality, as distinguished from its private or proprietary enterprises. Then section 12 must be interpreted as being authorized and limited by the ordinance relating to the "time" and "manner" of "opening" streets. An ordinance authorizing an underground railway to be built can scarcely be considered as one referring to the time, manner and method of placing a conduit or as "laying a municipal work," even if it be considered as municipal work. The city did not so regard it since it proceeded under the ordinance of 1924 to attempt revocation of appellee's permits. That ordinance is provided for the building of an underground electric railway, a business venture, and, as incidental to the building, took hold of plaintiff's conduits and, in effect, destroyed them. It compelled the electric company to build new conduits and relay them in a new location, — clearly a matter not authorized either by the ordinances of 1886 and 1902 or section 12. No one of them contemplated a situation like the present, permitting one business corporation to force, without compensation, another business corporation to remove and rebuild its equipment for the benefit of a newcomer in the field.

It is argued that the signing, by the company's officer, of an application for a permit to open streets constituted a binding acceptance of the rules of the board, and a modification of the basic franchise contract. But such paper could not and did not affect the substantive right granted by the city, — in fact, no authority from the company, authorizing such release is pleaded, and, further, such acceptance should be limited, as stated above, by the powers of the board and the ordinary work to which the rule, section 12, related and to reasonable regulations as authorized by the ordinances of 1884, 1886 and 1902. It may be seriously doubted whether, even with the corporate sanction, a charter right could be contracted away, without consideration, in this manner.

The electric company having secured its franchise, a permit to open a street for the purpose of exercising the rights granted by the franchise was an administrative duty of the board, and if it refused consent, except upon reasonable conditions, the electric company would have been entitled to demand such permit as a matter of right: Dillon on Municipal Corporations, 6th ed., section 1273. The foregoing principle has also been approved by this court: Com. v. Warwick, 185 Pa. 623.

The company by the permit received nothing thereby to which it was not already entitled, and, furthermore, it cannot be made the basis of an estoppel since there is no loss or detriment to the city.

"Municipal" as used in section 12, related to governmental work, and any other construction on which to ground the city's act in behalf of a business company would illustrate the total lack of adequate authority in appellee to occupy streets, and expend its many millions. It would be a mere licensee subject to be defeated by any business enterprise authorized by the city.

The company was bound by such administrative rules as the board had power to make and no further: Valley Rys. v. Harrisburg, 280 Pa. 385, 396; City of Minneapolis v. Minneapolis Street Ry. Co., 215 U.S. 417. Section 12, is, in my judgment, unreasonable and works a deprivation of property rights contrary to the Fourteenth Amendment: Russell v. Sebastian, supra; Atlantic Coast Line v. Goldsboro,232 U.S. 548. It subordinates one business enterprise to another. The board had no power to make such a rule.

It was necessary for the city to go to the legislature for the power to build this subway; this was done in 1913. The power was given under certain limitations. These are found in the Act of 1913 which provides, as I view it, for compensation in cases like the present. But the city now ignores this act in endeavoring to establish its right to remove appellee's conduits, claiming the right under the ordinances and rule mentioned. But it cannot separate its powers from the purpose for which they are invoked. At no time did it possess an unlimited right to remove. The city is a creature of the State and even if it had the power it claims, the legislature may modify that power and its uses. The power to remove as claimed by the city and the Act of 1913 authorizing the specific purpose of "building subways" must be considered together; when this is done, it becomes evident that appellee should be compensated for its damages. Section 6 of the Act of 1913 gives the city power to purchase property, such lands, franchises, and so forth, as shall be necessary for the construction of transit facilities, including as well lands, rights, "pipes . . . . . . underground conduits" and so forth. Section 7 provides that if they cannot agree on damages to be paid, the city may tender its bond, covering the damages that may be assessed later.

Under the circumstances, and for the further reasons here expressed, I think that the judgment of the court below was clearly right and I would affirm.