Von Herberg v. City of Seattle

MITCHELL, C.J., TOLMAN, and PARKER, JJ., dissent. J.G. Von Herberg instituted this action in the superior court for King county against the city of Seattle and certain administrative officers thereof, alleging that he was a resident, citizen and taxpayer of the city of Seattle, owning real and personal property located therein; that he was the owner of city railway fund warrants issued by the city of Seattle aggregating approximately $100,000, which warrants were issued December 24, 1926, were payable from the city railway fund and had been stamped by the city treasurer "not paid for lack of funds;" that the warrants had been issued to employees of the municipal street railway in payment of wages due them and had been cashed by plaintiff and assigned to him.

Plaintiff also alleged the facts concerning the purchase by the city of Seattle, January 10, 1919, from Puget Sound Traction, Light Power Company, of its street railway system, as theretofore operated by that company in the city of Seattle, and the facts concerning such purchase and the issuance of bonds therefor, as stated by this court in the cases of Twichell v.Seattle, 106 Wash. 32, 179 P. 127, and Asia v. Seattle,119 Wash. 674, 206 P. 366, which cases should be read as furnishing the background of the case at bar.

Plaintiff also alleged that the warrants above referred to were issued because the city was setting aside all of the revenues arising from the operation of the railway system and placing the same in the municipal street railway bond fund for the purpose of meeting the semi-annual interest on the purchase bonds and the payment on account of the principal, due March 1, 1927, under the agreement for the purchase of the railway; that the city had set up on the books of the street railway certain depreciation charges amounting for the years 1919 to 1926, both inclusive, to a little over $5,300,000, but that in fact the actual depreciation suffered by the physical property pertaining to the railway system was greatly in excess of the amount so set up by the city on its books, and that no provision had been made for establishing an adequate fund or reserve for accrued depreciation, and that it would be impossible for the city to take care of the depreciation of the railway system or make necessary replacements, if the gross earnings of the railway were first applied to the payment of principal and interest on the purchase price bonds as the same matured.

The complaint further alleged that the municipal railway was and always had been, since its purchase by the city, insolvent; that its assets were always less than its liabilities, and that, December 31, 1926, there was a deficit in the street railway fund amounting to over $300,000; that the statement contained in the ordinance pursuant to which the purchase bonds were issued, to the effect that, in the judgment of the city council and the authorities of the city, the earnings of the railway would be sufficient, in addition to paying the principal and interest of the bonds as they should mature, to pay all expenses of operation and maintenance, was an arbitrary statement made without investigation or knowledge, and was entirely erroneous and without basis in fact, and that such statement was made without due regard to the necessary costs of operation and maintenance.

Plaintiff further set forth a schedule of alleged unpaid liabilities due from the railway and its approximate daily receipts, and alleged that the rolling stock and equipment was old and antiquated and that need existed for immediate replacements, which would require the expenditure of over a million dollars; that the gross revenues of the railway were decreasing, and that the operating expenses were increasing; and that it was the duty of the city and its officers to pay the cost of operation and maintenance of the railway out of the gross revenues thereof, before making payments on account of the purchase price bonds; and that, if the city and its officers were allowed to do in the future as they had in the past, to wit, set aside the gross revenues of the system for the purpose of paying interest on the bonds and a portion of the principal thereof, plaintiff and all the taxpayers of the city and all holders of warrants drawn on the city railway fund would suffer great loss.

For a second cause of action, plaintiff alleged that the city had diverted moneys from others of its special funds, to wit, from the water fund and one of the light funds, to the city railway fund, which moneys had not been returned to the creditor funds, and that defendants, unless restrained, would proceed to use the money of other utility funds for the purpose of diverting the same to the municipal railway fund; that plaintiff was the owner of a bond issued by the city and payable out of the city municipal light and power plant fund, and was the owner of another bond issued by the city payable out of the water fund, and, as such bond owner, was injured by the diversion of money from such funds to the municipal railway fund. Plaintiff's amended complaint is voluminous, and contains further allegations of similar purport.

Plaintiff prayed that the defendants be enjoined from using any of the gross revenues of the railway system for the payments of interest on the purchase bonds or any portion of the principal thereof, until the cost of operation and maintenance of the railway had first been paid, and that defendants be enjoined from diverting moneys from any utility fund, including the two funds above referred to, to the city railway fund.

The city answered, admitting the transfer of certain money from the railway fund into the railway bond fund, admitting that there were outstanding warrants against the railway fund and that certain moneys had been loaned from the light and power funds, as alleged by plaintiff. The judgment in the Twichell case was also pleaded as res adjudicata.

The city also, by way of a cross-complaint and bill of interpleader, pleaded the purchase contract between the city and Puget Sound Power Light Company, a corporation, and brought that company into this action, alleging its interest in the subject-matter thereof. The power company then removed the cause from the state court to the United States district court, which court maintained its jurisdiction, overruling plaintiff's motion to remand. After a trial in that court and dismissal of the action, on the merits, upon appeal to the circuit court of appeals, that court held that jurisdiction to try the cause pertained to the state court, and reversed the decree appealed from, with instructions to remand. Von Herberg v. Seattle,27 F.2d 457.

In due time, the cause came on for trial before the superior court, where much testimony was taken on behalf of the respective parties, the trial court ruling that the questions presented by plaintiff's first cause of action had become moot by reason of the fact that plaintiff's warrants had been called and paid, and that the second cause of action should be dismissed, because, as the court found, the street railway fund was solvent, and for the further reason that the evidence failed to show that plaintiff, as the owner of bonds issued by the special funds which had advanced money to the railway fund, had been injured, as the funds whose bonds plaintiff owned were solvent.

From a decree dismissing the action, plaintiff appeals, assigning error upon the dismissal by the court of his two causes of action, as set forth in his complaint.

That the municipal railway fund warrants purchased by appellant from the respective payees named therein had been by the city called and paid prior to the trial, is not disputed. Appellant argues that the cause of action has not become moot by reason of such payment, because they were paid out of funds the right to use which he is contesting, as the money with which the warrants were paid was received by the street railway fund by way of a loan or advancement from the city light fund.

In view of this contention, we shall first consider the legality of the loans, or transfer of funds, to the street railway fund, of which appellant complains in his second cause of action.

[1, 2] In the first place, appellant contends that the loans, or transfers, were without warrant of law and illegal, for the reason that the street railway fund, "the debtor fund to which the loans were made," is insolvent or in imminent danger of insolvency, appellant arguing that he is in a position to complain of the alleged illegal loans or advancements because he is the owner of two bonds issued respectively by the funds from which the money was transferred.

In support of this contention, appellant relies upon the case of Asia v. Seattle, supra, in which case this court directed the issuance of an injunction restraining the city from in any manner encroaching upon the general fund for the purpose of assisting the railway fund, the court holding that "all obligations arising from the acquisition, operation and maintenance of the utility must be met from its revenue," the voters having had no opportunity to express by their franchises whether or not they would accept the hazard of the operation of the railway as any possible charge against the general fund.

In the case at bar, the trial court, after an exhaustive hearing, found that the street railway fund was solvent. A careful examination of the record convinces us that this finding was correct, and that the record before us does not justify the reversal of this finding made by the lower court. The evidence upon this phase of the case was conflicting, voluminous and complicated, experts testifying on each side, and much argument being addressed to questions such as the proper method of computing depreciation, the condition of the physical property of the railway system, the proper standpoint from which to view the balance due on the purchase price in considering the questions of depreciation and present solvency, and similar questions.

Without entering into an extended discussion of these matters, which would extend this opinion to an unreasonable length, we approve the finding of the lower court to the effect that, at the time of the trial, the municipal street railway was solvent.

This court, in the case of Griffin v. Tacoma, 49 Wash. 524,95 P. 1107, upheld a transfer by way of a temporary loan from the general fund of the city to a special fund established for the payment of the cost of a portion of its water system. It was held that the proceedings of the city were regular, and that the plaintiff was not entitled to restrain the same by injunction. The court notes that the transfer was made in the nature of a temporary loan and the transaction was held to be entirely regular and in accordance with law. It appears that, in the case at bar, the ordinances of the city providing for the loans to the railway fund provide for temporary loans only, and for the repayment by the railway fund to the creditor funds, respectively, as soon as money shall be available in the railway fund. The case last cited was discussed and approved in the later cases of Scott v. Tacoma, 81 Wash. 178, 142 P. 467, and Seymour v. Ellensburg, 81 Wash. 365, 142 P. 875.

Appellant cites the case of State ex rel. Case v. Howell,85 Wash. 281, 147 P. 1162, in which this court referred to the first two of the cases last cited, and noted that neither of the cases related to transfers from special funds, and that, consequently, whether or not transfers as loans from special funds would be valid, remained an open question. The case ofGriffin v. Tacoma is also referred to by this court in the case of Savage v. Tacoma, 61 Wash. 1, 112 P. 78, in which this court, referring to the Griffin case, said:

"It is almost apparent from the record of that case that there was no real controversy between the parties, but that the case was instituted as a moot case in order to determine a favorable construction of the contract, and thus forestall any controversy thereafter."

Appellant also relies upon the case of Uhler v. Olympia,87 Wash. 1, 151 P. 117, 152 P. 998, in which this court said:

"The legislature has not provided, neither has it given authority to the council, to treat the general fund as a banking fund to be loaned, as it were, to an independent enterprise, to be repaid upon the happening of a contingency."

Conceding that the case of Griffin v. Tacoma, supra, is not determinative of the question presented here, we are, nevertheless, of the opinion that the rule laid down in that case should be followed where applicable, the court having in the case of Scott v. Tacoma refused to depart from the doctrine of theGriffin case in spite of a vigorous dissent on the part of one of its members. Believing, as we do, that the Griffin case is not controlling as to the issues now presented, we are, nevertheless, of the opinion that it is extremely persuasive.

The problems confronting the municipal authorities of the city of Seattle in connection with that city's municipal street railway system are many and of extreme difficulty. In considering questions such as are here presented, concerning the exercise by the officers of a city of authority and control over municipal affairs, courts are slow to interfere with such officers in the exercise of their judgment in dealing with the numerous difficult municipal problems which present themselves for solution. Unless in such cases it clearly appears that the city officials are transcending their authority and violating the law, courts will be slow to restrain or limit their action by injunction or otherwise. Of course, if it appears definitely that municipal officers are proceeding in violation of law, the courts will unhesitatingly interfere, but such violation must clearly and affirmatively appear, and will not be presumed, nor will it be inferred from facts of doubtful import.

There are also other important considerations, which influenced the trial court, and which we deem relevant and important.

In his opinion dismissing this case upon the merits after its trial before the United States district court, Dietrich, Circuit Judge, before whom the case was tried, after discussing the issues raised by appellant's second cause of action, said:

"In addition to these considerations it is difficult to see how plaintiff, as a holder of the obligations of the light and water funds, could be injured without showing that after the borrowings in question from these funds, they would, upon the assumption that such borrowings are a total loss, be inadequate to discharge all obligations against them including plaintiff's holdings; and there was no attempt to make such showing. And as a taxpayer, it seems to have been held plaintiff is without such interest in the special funds as would qualify him to seek the relief for which he prays. Puget Sound P. L. Co. v.Seattle, 5 F.2d 393; Von Herberg v. Seattle,18 F.2d 57, 60.

"At best, the officers have a most difficult and perplexing task in providing for the onerous financial obligations imposed by this railway enterprise to which the city is irretrievably committed, and in the absence of a showing of imminent peril to substantial legal rights, a court of equity ought not to add to their difficulties by undertaking to prescribe in advance of urgent need the limits of their discretion in meeting temporary emergencies. And no such showing is here made.

"Accordingly the bill will be dismissed."

The circuit court of appeals for the ninth circuit, on appeal from a decree of the district court dismissing a suit brought by Puget Sound Power Light Company against the city of Seattle and this appellant, which suit was also heard by Judge Dietrich, says:

"Nor do the allegations stated impress us as a justification for the opinion of the plaintiff that the city construes the contract in a way other than as its terms require. The presumption that the city will be governed by the true chart of its duty far outweighs the conjecture that it will do otherwise; hence we see no present necessity for judicial interference."29 F.2d 254.

It is, of course, true that this language was used in connection with a different phase of the Seattle municipal street railway problem, but we deem the language equally pertinent to the situation here presented.

It nowhere appears that the special funds from which moneys were transferred to the railway fund were, because of such transfers or for any other reason, insolvent or in the slightest danger of insolvency. While this fact does not, in our opinion, preclude appellant from maintaining his action and contesting the legality of the acts of the mayor and city council in transferring moneys from one special fund to another, under the circumstances shown here, the situation in which the creditor funds are left is to be considered in determining the proper action to be taken by a court of equity upon such a state of facts as is disclosed by the record now before us. Loans, whether denominated temporary or not, or other transfers of money, which would leave a special fund substantially depleted or impaired or in danger of such impairment or depletion as would even threaten insolvency, might well invite remedial action by a court of equity, whereas similar transfers of money, which afford no basis for the contention that the creditor funds are substantially injured thereby or that there is any likelihood that creditors of such funds will suffer loss by the transaction, would afford no ground for the exercise by such a court of its equitable jurisdiction.

We deem the present action one in which appellant, as the holder of bonds issued respectively by the water fund and one of the light funds, seeks to enjoin the removal of moneys from such funds as a matter of absolute right, without showing any reasonable probability that by such action he will suffer direct damage or loss. Such a state of facts was presented by the record in the case of Asia v. Seattle, supra, as there a principle was involved, to wit, the possible subjection of the general fund of the city to loss or depletion on account of the purchase or operation of the municipal street railway system, without a vote of the people which would authorize the use of money pertaining to the general fund for such a purpose. This presented an abstract question of right or wrong, which did not depend upon the amount of money sought to be transferred or any question of special or particular private loss or damage. The questions here presented are in their nature essentially different, and must, to some extent at least, be considered by the courts from a different standpoint. We do not hold that the matters suggested above are the only matters to be considered, but that they are to be given weight, in connection with strictly legal questions, which have naught to do with questions concerning possible loss by appellant.

Believing, as we do, that appellant failed to establish by his evidence that the municipal street railway is insolvent, and granting appellant's right, as the holder of bonds issued, respectively, against each of the two funds from which loans were made to the railway fund, to litigate the legality of such loans, we hold that the doctrine laid down in the case of Griffin v.Tacoma, supra, should be applied to the case at bar, and that plaintiff has failed to make a case calling for the exercise on his behalf of the powers of a court of equity in, at this time, interfering with the city officials and holding that any of their actions, as shown by the record in this case, are in violation of law.

[3] We now return to the first cause of action set forth in appellant's amended complaint, and to his contention that the city must pay out of the revenues of the street railway the operating expense in connection therewith, and the cost of labor, before it can pay any portion of the bonded indebtedness represented by the purchase price.

As we hold that appellant has failed to show that the loans made from the special funds above referred to to the street railway fund were made in violation of law, it follows that the warrants drawn against the street railway fund, which were acquired by appellant, were paid with money lawfully pertaining to the street railway fund, and by such payment the questions presented by appellant in his first cause of action became moot, and should not be decided in this action. We accordingly express no opinion upon the question of whether or not wages and operating expenses of the street railway must be paid before the application of any money in the street railway fund to the payment of the bonds evidencing the purchase price of the system.

We also hold that, upon the record before us, appellant's status as a citizen and taxpayer of the city of Seattle does not require that the question last discussed be in this proceeding determined.

The judgment appealed from is affirmed.

HOLCOMB, FULLERTON, MAIN, FRENCH, and MILLARD, JJ., concur.