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City of Tucson v. Polar Water Co.

Supreme Court of Arizona

July 13, 1953


Page 562

Page 563

[76 Ariz. 128] Harry L. Buchanan, City Atty., J. Luther Davis, Asst. City Atty., Tucson, for appellant.

Knapp, Boyle, Bilby & Thompson, and Arthur Henderson, Tucson, for appellee.

Wm. C. Eliot, City Atty., Laurence H. Whitlow (former City Atty.), George T. Fike, Asst. City Atty., Arthur B. Parsons, Jr., Asst. City Atty., Phoenix, John W. Corbin, City Atty., Glendale, Jos. C. Furst and Lin H. Orme, Phoenix, of counsel, Clifford R. McFall, Tucson, A. B. Spector, Phoenix, amici curiae.

PHELPS, Justice.

This action was instituted by the Polar Water Company, a limited partnership, to enjoin the city of Tucson, a home rule city, from extending its water service into Blenman Addition, which a short time previously had been annexed to the city of Tucson, and to enjoin it from serving the customers of plaintiff-appellee. Plaintiff and its predecessors have been engaged as a public utility in serving water for domestic purposes to residents within the Blenman Addition since 1937. This subdivision was annexed to the city of Tucson in 1947. Plaintiff was operating under a certificate of convenience and necessity issued by the Corporation Commission and acquired a franchise or license from the board of supervisors of Pima county to use the roads and streets in such unincorporated subdivision for laying its water mains, pipes, etc. The action was instituted in 1951 and the complaint contains two counts. The first count is based upon the provisions of section 16-604, A.C.A.1939, infra. The second count is based upon the theory of an unlawful taking or damaging of the property of plaintiff by illegal competition with it, and that it amounted to a taking of its property without due process.

Counsel for plaintiff in his original brief stated that the weight of authority was against his position on the second count but [76 Ariz. 129] in a reply brief to amici curiae briefs, he reasserts his claim alleged under Count II upon the theory that it is the declared policy of the state of Arizona that public utilities shall enjoy a regulated monopoly in the conduct of their business and the legislature in enacting chapter 77, Session Laws of 1933, was reaffirming that policy. The city in its answer denied in part and admitted in part the allegations of the complaint and alleged that plaintiff was serving water to residents both inside and outside the corporate limits of Tucson. The cause was tried to the court and judgment was entered in favor of the plaintiff enjoining the city of Tucson from furnishing water to its customers in Blenman Addition. The city has appealed to this court from that judgment and from the order denying its motion for a new trial.

The material facts are not in dispute. There is no question but that the plaintiff was furnishing water to the residents of Blenman Addition under a certificate of convenience and necessity issued by the Corporation Commission and that it and its predecessors had a franchise or license from Pima county to lay its pipes and mains within the roads and highways in that subdivision prior to its annexation to the city of Tucson. It is also admitted that soon after the annexation of Blenman Addition to the city of Tucson, the city began to extend its water system into that area and at the time this action was instituted, had connected said water system with over 60 of the residents of that area who had made application for city water service and had therefore discontinued the use a service from plaintiff. The city admitted that it had connected its water service with plaintiff's customers and intended to continue to extend such service in that area and to make connections with other customers of plaintiff upon application being made by them for said service.

During the trial of the cause counsel for plaintiff conceded that the city of Tucson had the right to extend its water service into the area for purposes other than for domestic

Page 564

use and that it had the right to occupy the streets and roads located in that subdivision for that purpose and that the franchise or license granted by Pima county to plaintiff was not exclusive.

We will hereinafter state the questions involved in this litigation and in order that we may have a clear picture of such questions it is necessary to set forth herein the constitutional and statutory provisions bearing thereupon.

Article 13, § 5, of the Arizona Constitution provides:

'Every municipal corporation within this state shall have the right to engage in any business or enterprise which may be engaged in by a person, firm, or corporation by virtue of a franchise from said municipal corporation.'

[76 Ariz. 130] In the same year the constitution was adopted it was amended by referendum measure approved at the general election of November 5, 1912 which is now article 2, § 34 of the constitution. It provides:

'The state of Arizona and each municipal corporation within the state of Arizona shall have the right to engage in industrial pursuits.'

Both of these provisions of the constitution have been declared by this court to be not self-executing, i. e., before they could become operative they had to be implemented by legislative enactment.

So far as it is necessary to incorporate herein the legislature in 1921 enacted chapter 31 which was intended to implement article 13, § 5, supra. It provides among other things for municipalities to engage in the business of operating a public utility within or without the corporate limits including the furnishing of light, gas plants, water, transportation, etc., and gave to such municipalities the right of eminent domain either within or without the corporate limits but provided that before the city could enter into such business, if it encroached upon an area then being served by a public service corporation, it must obtain a certificate of convenience and necessity from the Corporation Commission.

This act was amended by chapter 77 of the Session Laws of 1933 which deleted therefrom the requirement that the city must acquire a certificate of convenience and necessity from the Corporation Commission but incorporated in lieu thereof section 3 of the act, now appearing as section 16-604, A.C.A.1939, which forms the basis of this litigation. It reads:

'Where a municipal corporation and the citizens thereof are being served under an existing franchise by any public utility, such municipal corporation, before constructing, purchasing, acquiring or leasing, in whole or in part, any plant or property devoted to the business of or services rendered by such public utility, shall first purchase and take over the property and plant of such public utility. The said property and plant shall become the property of the municipal corporation in the event of and upon the payment by the municipal corporation of the fair valuation thereof, within eighteen (18) months after the determination of such valuation in the manner hereinafter provided. The fair valuation of such public utility shall be the equivalent of the compensation to be paid for ...

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