|Ashwander v. Tennessee Valley Authority
100 U.S. 1
78 F.2d 578, affirmed.
[ Hughes ]
[ Brandeis ]
[ Mcreynolds ]
Ashwander v. Tennessee Valley Authority
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
On January 4, 1934, the Tennessee Valley Authority, an agency of the Federal Government, [n1] entered into a contract with the Alabama Power Company providing (1) for the purchase by the Authority from the Power Company of certain transmission lines, substations, and auxiliary properties for $1,000,000, (2) for the purchase by the Authority from the Power Company of certain real property for $150,000, (3) for an interchange of hydroelectric energy, and in addition for the sale by the Authority to the Power Company of its "surplus power," on stated terms, and (4) for mutual restrictions as to the areas to be served in the sale of power. The contract was amended and supplemented in minor particulars on February 13 and May 24, 1934. [n2]
The Alabama Power Company is a corporation organized under the laws of Alabama, and is engaged in the generation of electric energy and its distribution generally throughout that State, its lines reaching 66 counties. The transmission lines to be purchased by the Authority extend from Wilson Dam, at the Muscle Shoals plant owned by the United States on the Tennessee River in [p316] northern Alabama, into seven counties in that State within a radius of about 50 miles. These lines serve a population of approximately 190,000, including about 10,000 individual customers, or about one-tenth of the total number served directly by the Power Company. The real property to be acquired by the Authority (apart from the transmission lines above mentioned and related properties) is adjacent to the area known as the "Joe Wheeler dam site," upon which the Authority is constructing the Wheeler Dam.
The contract of January 4, 1934, also provided for cooperation between the Alabama Power Company and the Electric Home and Farm Authority, Inc., a subsidiary of the Tennessee Valley Authority, to promote the sale of electrical appliances, and, to that end, the Power Company, on May 21, 1934, entered into an agency contract with the Electric Home and Farm Authority, Inc. It is not necessary to detail or discuss the proceedings in relation to that transaction, as it is understood that the latter corporation has been dissolved.
There was a further agreement on August 9, 1934, by which the Alabama Power Company gave an option to the Tennessee Valley Authority to acquire urban distribution systems which had been retained by the Power Company in municipalities within the area served by the transmission lines above mentioned. It appears that this option has not been exercised, and that the agreement has been terminated.
Plaintiffs are holders of preferred stock of the Alabama Power Company. Conceiving the contract with the Tennessee Valley Authority to be injurious to the corporate interests and also invalid, because beyond the constitutional power of the Federal Government, they submitted their protest to the board of directors of the Power Company and demanded that steps should be taken to have the contract annulled. The board refused, and the [p317] Commonwealth & Southern Corporation, the holder of all the common stock of the Power Company, declined to call a meeting of the stockholders to take action. As the protest was unavailing, plaintiffs brought this suit to have the invalidity of the contract determined and its performance enjoined. Going beyond that particular challenge, and setting forth the pronouncements, policies and programs of the Authority, plaintiffs sought a decree restraining these activities as repugnant to the Constitution, and also asked a general declaratory decree with respect to the rights of the Authority in various relations.
The defendants, including the Authority and its directors, the Power Company and its mortgage trustee, and the municipalities within the described area, filed answers, and the case was heard upon evidence. The District Court made elaborate findings and entered a final decree annulling the contract of January 4, 1934, and enjoining the transfer of the transmission lines and auxiliary properties. The court also enjoined the defendant municipalities from making or performing any contracts with the Authority for the purchase of power and from accepting or expending any funds received from the Authority or the Public Works Administration for the purpose of constructing a public distribution system to distribute power which the Authority supplied. The court gave no consideration to plaintiffs' request for a general declaratory decree.
The Authority, its directors, and the city of Florence appealed from the decree, and the case was severed as to the other defendants. Plaintiffs took a cross-appeal.
The Circuit Court of Appeals limited its discussion to the precise issue with respect to the effect and validity of the contract of January 4, 1934. The District Court had found that the electric energy required for the territory served by the transmission lines to be purchased [p318] under that contract is available at Wilson Dam without the necessity for any interconnection with any other dam or power plant. The Circuit Court of Appeals accordingly considered the constitutional authority for the construction of Wilson Dam and for the disposition of the electric energy there created. In the view that the Wilson Dam had been constructed in the exercise of the war and commerce powers of the Congress and that the electric energy there available was the property of the United States and subject to its disposition, the Circuit Court of Appeals decided that the decree of the District Court was erroneous, and should be reversed. The court also held that plaintiffs should take nothing by their cross-appeal. 78 F.2d 578. On plaintiffs' application, we granted writs of certiorari.
First. The right of plaintiffs to bring this suit. Plaintiffs sue in the right of the Alabama Power Company. They sought unsuccessfully to have that right asserted by the Power Company itself, and, upon showing their demand and its refusal, they complied with the applicable rule. [n3] While their stock holdings are small, they have a real interest, and there is no question that the suit was brought in good faith. [n4] If otherwise entitled, they should not be denied the relief which would be accorded to one who owned more shares.
Plaintiffs did not simply challenge the contract of January 4, 1934, as improvidently made -- as an unwise exercise of the discretion vested in the board of directors. They challenged the contract both as injurious to the [p319] interests of the corporation and as an illegal transaction -- violating the fundamental law. In seeking to prevent the carrying out of the contract, the suit was directed not only against the Power Company, but against the Authority and its directors upon the ground that the latter, under color of the statute, were acting beyond the powers which the Congress could validly confer. In such a case, it is not necessary for stockholders -- when their corporation refuses to take suitable measures for its protection -- to show that the managing board or trustees have acted with fraudulent intent or under legal duress. To entitle the complainants to equitable relief in the absence of an adequate legal remedy, it is enough for them to show the breach of trust or duty involved in the injurious and illegal action. Nor is it necessary to show that the transaction was ultra vires of the corporation. The illegality may be found in the lack of lawful authority on the part of those with whom the corporation is attempting to deal. Thus, the breach of duty may consist in yielding, without appropriate resistance, to governmental demands which are without warrant of law or are in violation of constitutional restrictions. The right of stockholders to seek equitable relief has been recognized when the managing board or trustees of the corporation have refused to take legal measures to resist the collection of taxes or other exactions alleged to be unconstitutional (Dodge v. Woolsey, 18 How. 331, 339, 340, 345; Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 433, 553, 554; Brushaber v. Union Pacific R. Co., 240 U.S. 1, 10); or because of the failure to assert the rights and franchises of the corporation against an unwarranted interference through legislative or administrative action (Greenwood v. Freight Co., 105 U.S. 13, 15, 16; Cotting v. Kansas City Stockyards Co., 183 U.S. 79, 114). The remedy has been accorded to stockholders of public service corporations with respect to rates alleged to be confiscatory [p320] (Smyth v. Ames, 169 U.S. 466, 469, 517; Ex parte Young, 209 U.S. 123, 129, 130, 143). The fact that the directors, in the exercise of their judgment, either because they were disinclined to undertake a burdensome litigation or for other reasons which they regarded as substantial, resolved to comply with the legislative or administrative demands has not been deemed an adequate ground for denying to the stockholders an opportunity to contest the validity of the governmental requirements to which the directors were submitting. See Dodge v. Woolsey, supra, at pp. 340, 345; Greenwood v. Freight Co., supra, at p. 15; Pollock v. Farmers' Loan & Trust Co., supra, at pp. 433, 553, 554; Brushaber v. Union Pacific R. Co., supra, at p. 10.
In Smith v. Kansas City Title Co., 255 U.S. 180, a shareholder of the Title Company sought to enjoin the directors from investing its funds in the bonds of Federal Land Banks and Joint Stock Land Banks upon the ground that the Act of Congress authorizing the creation of these banks and the issue of bonds was unconstitutional, and hence that the bonds were not legal securities in which the corporate funds could lawfully be invested. The proposed investment was not large -- only $10,000 in each of the classes of bonds described. Id. pp. 195, 196. And it appeared that the directors of the Title Company maintained that the Federal Farm Loan Act was constitutional, and that the bonds were "valid and desirable investments." Id., p. 201. But neither the conceded fact as to the judgment of the directors nor the small amount to be invested -- shown by the averments of the complaint -- availed to defeat the jurisdiction of the court to decide the question as to the validity of the Act and of the bonds which it authorized. The Court held that the validity of the Act was directly drawn in question, and that the shareholder was entitled to maintain the suit. The Court said:
The general allegations as to the interest of the [p321] shareholder, and his right to have an injunction to prevent the purchase of the alleged unconstitutional securities by misapplication of the funds of the corporation, give jurisdiction under the principles settled in Pollock v. Farmers' Loan & Trust Co. and Brushaber v. Union Pacific R. Co., supra.
Id., pp. 201, 202. The Court then proceeded to examine the constitutional question, and sustained the legislation under attack. A similar result was reached in Brushaber v. Union Pacific R. Co., supra. A close examination of these decisions leads inevitably to the conclusion that they should either be followed or be frankly overruled. We think that they should be followed, and that the opportunity to resort to equity, in the absence of an adequate legal remedy, in order to prevent illegal transactions by those in control of corporate properties should not be curtailed because of reluctance to decide constitutional questions.
We find no distinctions which would justify us in refusing to entertain the present controversy. It is urged that plaintiffs hold preferred shares, and that, for the present purpose, they are virtually in the position of bondholders. The rights of bondholders, in case of injury to their interests through unconstitutional demands upon, or transactions with, their corporate debtor are not before us. Compare Reagan v. Farmers' Loan & Trust Co., 154 U.S. 362, 367, 368. Plaintiffs are not creditors, but shareholders (with equal voting power share for share with the common stockholders, according to the findings), and thus they have a proprietary interest in the corporate enterprise which is subject to injury through breaches of trust or duty on the part of the directors who are not less the representatives of the plaintiffs because their shares have certain preferences. See Ball v. Rutland R. Co., 93 Fed. 513, 514, 515. It may be, as in this case, that the owner of all the common stock has participated in the transaction in question, and the owners of preferred [p322] stock may be the only persons having a proprietary interest in the corporation who are in a position to protect its interests against what is asserted to be an illegal disposition of its property. [n5] A court of equity should not shut its door against them.
It is said that here, instead of parting with money, as in the case of illegal or unconstitutional taxes or exactions, the Power Company is to receive a substantial consideration under the contract in suit. But the Power Company is to part with transmission lines which supply a large area, and plaintiffs allege that the consideration is inadequate, and that the transaction entails a disruption of services and a loss of business and franchises. If, as plaintiffs contend, those purporting to act as a governmental agency had no constitutional authority to make the agreement, its execution would leave the Power Company with doubtful remedy, either against the governmental agency, which might not be able, or against the Government, which might not be willing, to respond to a demand for the restoration of conditions as they now exist. In what circumstances and with what result such an effort at restoration might be made is unpredictable. If, as was decided in Smith v. Kansas City Title Co., supra, stockholders had the right to sue to test the validity of a proposed investment in the bonds of land banks, we can see no reason for denying to these plaintiffs a similar resort to equity in order to challenge, on the ground of unconstitutionality, a contract involving such a dislocation and misapplication of corporate property as are charged in the instant case.
The Government urges that the Power Company is estopped to question the validity of the Act creating the Tennessee Valley Authority, and hence that the stockholders, suing in the right of the corporation, cannot [p323] maintain this suit. It is said that the Power Company, in 1925, installed its own transformers and connections at Wilson Dam, and has ever since purchased large quantities of electric energy there generated, and that the Power Company continued its purchases after the passage of the Act of 1933 constituting the Authority. The principle is invoked that one who accepts the benefit of a statute cannot be heard to question its constitutionality. Great Falls Manufacturing Co. v. Attorney General, 124 U.S. 581; Wall v. Parrot Silver & Copper Co., 244 U.S. 407; St. Louis Casting Co. v. Prendergast Construction Co., 260 U.S. 469. We think that the principle is not applicable here. The prior purchase of power in the circumstances disclosed may have a bearing upon the question before us, but it is by no means controlling. The contract in suit manifestly has a broader range, and we find nothing in the earlier transactions which preclude the contention that this contract goes beyond the constitutional power of the Authority. Reference is also made to a proceeding instituted by the Power Company to obtain the approval of the contract by the Alabama Public Service Commission and to the delay in the bringing of this suit. It was brought on October 8, 1934, following plaintiffs' demand upon the board of directors in the preceding August. Estoppel in equity must rest on substantial grounds of prejudice or change of position, not on technicalities. We see no reason for concluding that the delay or the proceeding before the Commission caused any prejudice to either the Power Company or the Authority, so far as the subject matter of the contract between them is concerned, or that there is any basis for the claim of estoppel.
We think that plaintiffs have made a sufficient showing to entitle them to bring suit, and that a constitutional question is properly presented and should be decided. [p324]
Second. The scope of the issue. We agree with the Circuit Court of Appeals that the question to be determined is limited to the validity of the contract of January 4, 1934. The pronouncements, policies and program of the Tennessee Valley Authority and its directors, their motives and desires, did not give rise to a justiciable controversy save as they had fruition in action of a definite and concrete character constituting an actual or threatened interference with the rights of the persons complaining. The judicial power does not extend to the determination of abstract questions. Muskrat v. United States, 219 U.S. 346, 361; Liberty Warehouse Co. v. Grannis, 273 U.S. 70, 74; Willing v. Chicago Auditorium Assn., 277 U.S. 274, 289; Nashville, C. & St.L. Ry. Co. v. Wallace, 288 U.S. 249, 262, 264. It was for this reason that the Court dismissed the bill of the State of New Jersey which sought to obtain a judicial declaration that, in certain features, the Federal Water Power Act [n6] exceeded the authority of the Congress and encroached upon that of the State. New Jersey v. Sargent, 269 U.S. 328. For the same reason, the State of New York, in her suit against the State of Illinois, failed in her effort to obtain a decision of abstract questions as to the possible effect of the diversion of water from Lake Michigan upon hypothetical water power developments in the indefinite future. New York v. Illinois, 274 U.S. 488. At the last term, the Court held, in dismissing the bill of the United States against the State of West Virginia, that general allegations that the State challenged the claim of the United States that the rivers in question were navigable, and asserted a right superior to that of the United States to license their use for power production, raised an issue "too vague and ill-defined to admit of judicial determination." United States v. West Virginia, 295 U.S. 463, 474. Claims based merely upon "assumed potential invasions" [p325] of rights are not enough to warrant judicial intervention. Arizona v. California, 283 U.S. 423, 462.
The Act of June 14, 1934, [n7] providing for declaratory judgments, does not attempt to change the essential requisites for the exercise of judicial power. By its terms, it applies to "cases of actual controversy," a phrase which must be taken to connote a controversy of a justiciable nature, thus excluding an advisory decree upon a hypothetical state of facts. See Nashville, C. & St.L. Ry. Co. v. Wallace, supra. While plaintiffs, as stockholders, might insist that the board of directors should take appropriate legal measures to extricate the corporation from particular transactions and agreements alleged to be invalid, plaintiffs had no right to demand that the directors should start a litigation to obtain a general declaration of the unconstitutionality of the Tennessee Valley Authority Act in all its bearings, or a decision of abstract questions as to the right of the Authority and of the Alabama Power Company in possible contingencies.
Examining the present record, we find no ground for a demand by plaintiffs except as it related to the contracts between the Authority and the Alabama Power Company. And as the contract of May 21, 1934, with the Electric Home and Farm Authority, Inc., and that of August 9, 1934, for an option to the Authority to acquire urban distribution systems, are understood to be inoperative (ante, p. 316), the only remaining questions that plaintiffs are entitled to raise concern the contract of January 4, 1934, providing for the purchase of transmission lines and the disposition of power.
There is a further limitation upon our inquiry. As it appears that the transmission lines in question run from the Wilson Dam, and that the electric energy generated at that dam is more than sufficient to supply all the requirements [p326] of the contract, the questions that are properly before us relate to the constitutional authority for the construction of the Wilson Dam and for the disposition, as provided in the contract, of the electric energy there generated.
Third. The constitutional authority for the construction of the Wilson Dam. The Congress may not, "under the pretext of executing its powers, pass laws for the accomplishment of objects not entrusted to the government." Chief Justice Marshall, in McCulloch v. Maryland, 4 Wheat. 316, 423; Linder v. United States, 268 U.S. 5, 17. The Government's argument recognizes this essential limitation. The Government's contention is that the Wilson Dam was constructed, and the power plant connected with it was installed, in the exercise by the Congress of its war and commerce powers, that is, for the purposes of national defense and the improvement of navigation.
Wilson Dam is described as a concrete monolith one hundred feet high and almost a mile long, containing two locks for navigation and eight installed generators. Construction was begun in 1917, and completed in 1926. Authority for its construction is found in § 124 of the National Defense Act of June 3, 1916. [n8] It authorized the President to cause an investigation to be made in order to determine "the best, cheapest, and most available means for the production of nitrates and other products for munitions of war"; to designate for the exclusive use of the United States
such site or sites upon any navigable or nonnavigable river or rivers or upon the public lands as in his opinion will be necessary for carrying out the purposes of this Act
and "to construct, maintain and operate" on any such site
dams, locks, improvements to navigation, power houses, and other plants and equipment or other [p327] means than water power as in his judgment is the best and cheapest, necessary or convenient for the generation of electrical or other power and for the production of nitrates or other products needed for munitions of war and useful in the manufacture of fertilizers and other useful products.
The President was authorized to lease, or acquire by condemnation or otherwise, such lands as might be necessary, and there was further provision that
The products of such plants shall be used by the President for military and naval purposes to the extent that he may deem necessary, and any surplus which he shall determine is not required shall be sold and disposed of by him under such regulations as he may prescribe.
We may take judicial notice of the international situation at the time the Act of 1916 was passed, and it cannot be successfully disputed that the Wilson Dam and its auxiliary plants, including the hydroelectric power plant, are and were intended to be adapted to the purposes of national defense. [n9] While the District Court found that there is no intention to use the nitrate plants or the hydroelectric units installed at Wilson Dam for the production [p328] of war materials in time of peace,
the maintenance of said properties in operating condition and the assurance of an abundant supply of electric energy in the event of war, constitute national defense assets.
This finding has ample support.
The Act of 1916 also had in view "improvements to navigation." Commerce includes navigation. "All America understands, and has uniformly understood," said Chief Justice Marshall in Gibbons v. Ogden, 9 Wheat. 1, 190, "the word ‘commerce,' to comprehend navigation." The power to regulate interstate commerce embraces the power to keep the navigable rivers of the United States free from obstructions to navigation, and to remove such obstructions when they exist. "For these purposes," said the Court in Gilman v. Philadelphia, 3 Wall. 713, 725,
Congress possesses all the powers which existed in the States before the adoption of the national Constitution, and which have always existed in the Parliament in England.
See also Philadelphia Company v. Stimson, 223 U.S. 605, 634.
The Tennessee River is a navigable stream, although there are obstructions at various points because of shoals, reefs and rapids. The improvement of navigation on this river has been a matter of national concern for over a century. Recommendation that provision be made for [p329] navigation around Muscle Shoals was made by the Secretary of War, John C. Calhoun, in his report transmitted to the Congress by President Monroe in 1824, [n10] and, from 1852, the Congress has repeatedly authorized protects to develop navigation on that and other portions of the river, both by open channel improvements and by canalization. [n11] The Wilson Dam project, adopted in 1918, gave a nine-foot slack water development, for fifteen miles above Florence, over the Muscle Shoals rapids and, as the District Court found, "flooded out the then existing canal and locks, which were inadequate." The District Court also found that a "high dam of this type was the only feasible means of eliminating this most serious obstruction to navigation." By the Act of 1930, after a protracted study by the Corps of Engineers of the United States Army, the Congress adopted a project for a permanent improvement of the main stream "for a navigable depth of nine feet." [n12]
While, in its present condition, the Tennessee River is not adequately improved for commercial navigation, and traffic is small, we are not at liberty to conclude either that the river is not susceptible of development as an important waterway or that Congress has not undertaken [p330] that development, or that the construction of the Wilson Dam was not an appropriate mean to accomplish a legitimate end.
The Wilson Dam and its power plant must be taken to have been constructed in the exercise of the constitutional functions of the Federal Government.
Fourth. The constitutional authority to dispose of electric energy generated at the Wilson Dam. The Government acquired full title to the dam site, with all riparian rights. The power of falling water was an inevitable incident of the construction of the dam. That water power came into the exclusive control of the Federal Government. The mechanical energy was convertible into electric energy, and the water power, the right to convert it into electric energy, and the electric energy thus produced, constitute property belonging to the United States. See Green Bay Canal Co. v. Patten Paper Co., 172 U.S. 58, 80; United States v. Chandler-Dunbar Co., 229 U.S. 53, 72, 73; Utah, Power & Light Co. v. Pfost, 286 U.S. 165, 170.
Authority to dispose of property constitutionally acquired by the United States is expressly granted to the Congress by § 3 of Article IV of the Constitution. This section provides:
The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States, and nothing in this Constitution shall be so construed as to Prejudice any Claims of the United States, or of any particular State.
To the extent that the power of disposition is thus expressly conferred, it is manifest that the Tenth Amendment is not applicable. And the Ninth Amendment (which petitioners also invoke) in insuring the maintenance of the rights retained by the people does not withdraw the rights which are expressly granted to the [p331] Federal Government. The question is as to the scope of the grant, and whether there are inherent limitations which render invalid the disposition of property with which we are now concerned.
The occasion for the grant was the obvious necessity of making provision for the government of the vast territory acquired by the United States. The power to govern and to dispose of that territory was deemed to be indispensable to the purposes of the cessions made by the States. And yet it was a matter of grave concern because of the fear that "the sale and disposal" might become "a source of such immense revenue to the national government as to make it independent of and formidable to the people." Story on the Constitution, §§ 1325, 1326. The grant was made in broad terms, and the power of regulation and disposition was not confined to territory, but extended to "other property belonging to the United States," so that the power may be applied, as Story says, "to the due regulation of all other personal and real property rightfully belonging to the United States." And so, he adds, "it has been constantly understood and acted upon." Id.
This power of disposal was early construed to embrace leases, thus enabling the Government to derive profit through royalties. The question arose with respect to a government lease of lead mines on public lands, under the Act of March 3, 1807. The contention was advanced that "disposal is not letting or leasing"; that Congress had no power "to give or authorize leases" and "to obtain profits from the working of the mines." The Court overruled the contention, saying:
The disposal must be left to the discretion of Congress. And there can be no apprehensions of any encroachments upon state rights, by the creation of a numerous tenantry within their borders, as has been so strenuously urged in the argument.
United States v. Gratiot, 14 Pet. 526, 533, 538. The policy, early [p332] adopted and steadily pursued, of segregating mineral lands from other public lands and providing for leases pointed to the recognition both of the full power of disposal and of the necessity of suitably adapting the methods of disposal to different sorts of property. The policy received particular emphasis following the discovery of gold in California in 1848. [n13] For example, an Act of 1866, dealing with grants to Nevada, declared that, "in all cases, lands valuable for mines of gold, silver, quicksilver, or copper shall be reserved from sale." [n14] And Congress, from the outset, adopted a similar practice in reserving salt springs. Morton v. Nebraska, 21 Wall. 660, 667; Montello Salt Co. v. Utah, 221 U.S. 452. It was in the light of this historic policy that the Court held that the school grant to Utah by the Enabling Act of 1894 [n15] was not intended to embrace land known to be valuable for coal. United States v. Sweet, 245 U.S. 563, 57. See also, as to the reservation and leases of oil lands, Pan American Petroleum Co. v. United States, 273 U.S. 456, 487.
But when Congress thus reserved mineral lands for special disposal, can it be doubted that Congress could have provided for mining directly by its own agents, instead of giving that right to lessees on the payment of royalties? [n16] Upon what ground could it be said that the Government could not mine its own gold, silver, coal, lead, or phosphates in the public domain, and dispose of them as property belonging to the United States? That it could dispose [p333] of its land, but not of what the land contained? It would seem to be clear that, under the same power of disposition which enabled the Government to lease and obtain profit from sales by its lessees, it could mine and obtain profit from its own sales.
The question is whether a more limited power of disposal should be applied to the water power, convertible into electric energy, and to the electric energy thus produced at the Wilson Dam constructed by the Government in the exercise of its constitutional functions. If so, it must be by reason either of (1) the nature of the particular property, or (2) the character of the "surplus" disposed of, or (3) the manner of disposition.
(1) That the water power and the electric energy generated at the dam are susceptible of disposition as property belonging to the United States is well established. In the case of Green Bay Canal Co. v. Patten Paper Co., supra, the question was
whether the water power, incidentally created by the erection and maintenance of the dam and canal for the purpose of navigation in Fox River
subject to control and appropriation by the United States, owning and operating those public works, or by the State of Wisconsin, within whose limits Fox River lies.
Id. pp. 68, 69. It appeared that, under the authority of the Congress, the United States had acquired, by purchase from a Canal Company, title to its improvement works, lands and water powers, on the Fox River, and that the United States had consented to the retention by the Canal Company of the water powers with appurtenances. We held that the
substantial meaning of the transaction was that the United States granted to the Canal Company the right to continue in the possession and enjoyment of the water powers and the lots appurtenant thereto, subject to the rights and control of the United States as owning and operating the public works,
and that the method by which the arrangement was [p334] effected was
as efficacious as if the entire property had been conveyed to the United States by one deed, and the reserved properties had been reconveyed to the Canal Company by another.
Id., p. 80. We thought it clear that the Canal Company was "possessed of whatever rights to the use of this incidental water power that could be validly granted by the United States." Id., p. 69. And, in this view, it was decided that, so far as the "water powers and appurtenant lots are regarded as property," the title of the Canal Company could not be controverted, and that it was "equally plain that the mode and extent of the use and enjoyment of such property by the Canal Company" fell within the sole control of the United States. See Kaukauna Walter Power Co. v. Green Bay Canal Co., 142 U.S. 254; Green Bay Canal Co. v. Patten Paper Co., 173 U.S. 179.
In United States v. Chandler-Dunbar Co., 229 U.S. 53, the United States had condemned land in Michigan, lying between the St. Marys River and the ship canal strip of the Government, in order to improve navigation. The riparian owner, under revocable permits from the Secretary of War, had placed in the rapids "the necessary dams, dykes and forebays for the purpose of controlling the current and using its power for commercial purposes." Id., p. 68. The Act of March 3, 1909, [n17] authorizing the improvement, had revoked the permit. We said that the Government "had dominion over the water power of the rapids and falls," and could not be required to pay "any hypothetical additional value to a riparian owner who had no right to appropriate the current to his own commercial use." Id., p. 76. The Act of 1909 also authorized the Secretary of War to lease
any excess of water power which results from the conservation of the flow of the river, and the works which the Government may construct. [p335]
"If the primary purpose is legitimate," said the Court,
we can see no sound objection to leasing any excess of power over the needs of the Government. The practice is not unusual in respect to similar public works constructed by state governments.
Id., p. 73. Reference was made to the case of Kaukauna Water Power Co. v. Green Bay Canal Co., supra, where the Court had observed in relation to a Wisconsin statute of 1848, which had reserved to the State the water power created by the dam over the Fox River:
As there is no need of the surplus running to waste, there was nothing objectionable in permitting the State to let out the use of it to private parties, and thus reimburse itself for the expenses of the improvement.
In International Paper Co. v. United States, 282 U.S. 399, the Government made a wartime requisition of electrical power, and was held bound to make compensation to a lessee who thereby had lost the use of the water to which he was entitled. The Court brushed aside attempted "distinctions between the taking of power and the taking of water rights," saying that the Government intended "to take and did take the use of all the water power," and had exercised its power of eminent domain to that end. Id. pp. 407, 408.
(2) The argument is stressed that, assuming that electric energy generated at the dam belongs to the United States, the Congress has authority to dispose of this energy only to the extent that it is a surplus necessarily created in the course of making munitions of war or operating the works for navigation purposes; that is, that the remainder of the available energy must be lost or go to waste. We find nothing in the Constitution which imposes such a limitation. It is not to be deduced from the mere fact that the electric energy is only potentially available until the generators are operated. The Government has no less right to the energy thus available by letting the water course over its turbines than it has [p336] to use the appropriate processes to reduce to possession other property within its control, as, for example, oil which it may recover from a pool beneath its lands, and which is reduced to possession by boring oil wells and otherwise might escape its grasp. See Ohio Oil Co. v. Indiana, 177 U.S. 190, 208. And it would hardly be contended that, when the Government reserves coal on its lands, it can mine the coal and dispose of it only for the purpose of heating public buildings or for other governmental operations. Or, if the Government owns a silver mine, that it can obtain the silver only for the purpose of storage or coinage. Or that, when the Government extracts the oil it has reserved, it has no constitutional power to sell it. Our decisions recognize no such restriction. United States v. Gratiot, 14 Pet. 526; Kansas v. Colorado, 206 U.S. 46, 88, 89; Light v. United States, 220 U.S. 523, 536, 537; Ruddy v. Rossi, 248 U.S. 104, 106. The United States owns the coal, or the silver, or the lead, or the oil it obtains from its lands, and it lies in the discretion of the Congress, acting in the public interest, to determine of how much of the property it shall dispose. We think that the same principle is applicable to electric energy. The argument pressed upon us leads to absurd consequences in the denial, despite the broad terms of the constitutional provision, of a power of disposal which the public interest may imperatively require. Suppose, for example, that, in the erection of a dam for the improvement of navigation, it became necessary to destroy a dam and power plant which had previously been erected by a private corporation engaged in the generation and distribution of energy which supplied the needs of neighboring communities and business enterprises. Would anyone say that, because the United States had built its own dam and plant in the exercise of its constitutional functions, and had complete ownership and dominion over both, no power could be supplied to the communities and enterprises dependent on it, not because of [p337] any unwillingness of the Congress to supply it, or of any overriding governmental need, but because there was no constitutional authority to furnish the supply? Or that, with abundant power available which must otherwise be wasted, the supply to the communities and enterprises whose very life may be at stake must be limited to the slender amount of surplus unavoidably involved in the operation of the navigation works because the Constitution does not permit any more energy to be generated and distributed? In the case of the Green Bay Canal Co., above cited, where the government works supplanted those of the Canal Company, the Court found no difficulty in sustaining the Government's authority to grant to the Canal Company the water powers which it had previously enjoyed, subject, of course, to the dominant control of the Government. And in the case of United States v. Chandler-Dunbar Co., supra, the statutory provision, to which the Court referred, was
that any excess of water in the St. Marys River at Sault Sainte Marie over and above the amount now or hereafter required for the uses of navigation shall be leased for power purposes by the Secretary of War upon such terms and conditions as shall be best calculated in his judgment to insure the development thereof.
It was to the leasing, under this provision, "of any excess of power over the needs of the Government" that the Court saw no valid objection. Id., p. 73.
The decisions which petitioners cite give no support to their contention. Pollard v. Hagan, 3 How. 212, Shively v. Bowlby, 152 U.S. 1, and Port of Seattle v. Oregon-Washington R. Co., 255 U.S. 56, dealt with the title of the States to tidelands and the soil under navigable waters within their borders. See Borax Consolidated v. Los Angeles, 296 U.S. 10, 15. Those cases did not concern the dominant authority of the Federal Government in the interest of navigation to erect dams and avail itself of the incidental water power. We emphasized the dominant character of that authority in the case of [p338] the Green Bay Canal Co., supra, by this statement, at p. 80:
At what points in the dam and canal the water for power may be withdrawn, and the quantity which can be treated as surplus with due regard to navigation, must be determined by the authority which owns and controls that navigation. In such matters, there can be no divided empire.
The case of Wisconsin v. Illinois, 278 U.S. 367, related to the diversion by the State of Illinois of water from Lake Michigan through the drainage canal at Chicago, and the questions now before us with respect to the disposition of surplus energy created at a dam erected by the Federal Government in the performance of its constitutional functions were in no way involved.
(3) We come then to the question as to the validity of the method which has been adopted in disposing of the surplus energy generated at the Wilson Dam. The constitutional provision is silent as to the method of disposing of property belonging to the United States. That method, of course, must be an appropriate means of disposition according to the nature of the property, it must be one adopted in the public interest, as distinguished from private or personal ends, and we may assume that it must be consistent with the foundation principles of our dual system of government, and must not be contrived to govern the concerns reserved to the States. See Kansas v. Colorado, supra. In this instance, the method of disposal embraces the sale of surplus energy by the Tennessee Valley Authority to the Alabama Power Company, the interchange of energy between the Authority and the Power Company, and the purchase by the Authority from the Power Company of certain transmission lines.
As to the mere sale of surplus energy, nothing need be added to what we have said as to the constitutional authority to dispose. The Government could lease or sell and fix the terms. Sales of surplus energy to the Power Company by the Authority continued a practice begun by the Government several years before. The contemplated [p339] interchange of energy is a form of disposition, and presents no questions which are essentially different from those that are pertinent to sales.
The transmission lines which the Authority undertakes to purchase from the Power Company lead from the Wilson Dam to a large area within about fifty miles of the dam. These lines provide the means of distributing the electric energy generated at the dam to a large population. They furnish a method of reaching a market. The alternative method is to sell the surplus energy at the dam, and the market there appears to be limited to one purchaser, the Alabama Power Company, and its affiliated interests. We know of no constitutional ground upon which the Federal Government can be denied the right to seek a wider market. We suppose that, in the early days of mining in the West, if the Government had undertaken to operate a silver mine on its domain, it could have acquired the mules or horses and equipment to carry its silver to market. And the transmission lines for electric energy are but a facility for conveying to market that particular sort of property, and the acquisition of these lines raises no different constitutional question, unless in some way there is an invasion of the rights reserved to the State or to the people. We find no basis for concluding that the limited undertaking with the Alabama Power Company amounts to such an invasion. Certainly, the Alabama Power Company has no constitutional right to insist that it shall be the sole purchaser of the energy generated at the Wilson Dam -- that the energy shall be sold to it or go to waste.
We limit our decision to the case before us as we have defined it. The argument is earnestly presented that the Government, by virtue of its ownership of the dam and power plant, could not establish a steel mill and make and sell steel products, or a factory to manufacture clothing or shoes for the public, and thus attempt to make its [p340] ownership of energy, generated at its dam, a means of carrying on competitive commercial enterprises, and thus drawing to the Federal Government the conduct and management of business having no relation to the purposes for which the Federal Government was established. The picture is eloquently drawn, but we deem it to be irrelevant to the issue here. The Government is not using the water power at the Wilson Dam to establish any industry or business. It is not using the energy generated at the dam to manufacture commodities of any sort for the public. The Government is disposing of the energy itself, which simply is the mechanical energy, incidental to falling water at the dam, converted into the electric energy which is susceptible of transmission. The question here is simply as to the acquisition of the transmission lines as a facility for the disposal of that energy. And the Government rightly conceded at the bar, in substance, that it was without constitutional authority to acquire or dispose of such energy except as it comes into being in the operation of works constructed in the exercise of some power delegated to the United States. As we have said, these transmission lines lead directly from the dam, which has been lawfully constructed, and the question of the constitutional right of the Government to acquire or operate local or urban distribution systems is not involved. We express no opinion as to the validity of such an effort, as to the status of any other dam or power development in the Tennessee Valley, whether connected with or apart from the Wilson Dam, or as to the validity of the Tennessee Valley Authority Act or of the claims made in the pronouncements and program of the Authority apart from the questions we have discussed in relation to the particular provisions of the contract of January 4, 1934, affecting the Alabama Power Company.
The decree of the Circuit Court of Appeals is
1. The Tennessee Valley Authority is a body corporate created by the Act of Congress of May 18, 1933, amended by the Act of Congress of August 31, 1935. 48 Stat. 58; 49 Stat. 1075.
2. The Commonwealth & Southern Corporation, organized under the laws of Delaware, and the owner of the common stock of the Alabama Power Company, was a party to the contract, which also contained agreements with other subsidiaries of the Commonwealth & Southern Corporation, viz: Tennessee Electric Power Company, Georgia Power Company, and Mississippi Power Company. The agreements with these companies are not involved in this suit.
3. Equity Rule 27.
4. The District Court found that
Approximately 1900 preferred stockholders of the Alabama Company, holding over 40,000 shares of the preferred stock thereof, have associated themselves with a preferred stockholders' protective committee and authorized their names to be joined with the plaintiffs of record in this case as parties plaintiff.
5. See note 2.
6. 41 Stat. 1063.
7. 48 Stat. 955.
8. 39 Stat. 166, 215.
9. Among the findings of the District Court on this point are the following:
38. The Muscle Shoals plants, including the Sheffield steam plant and the 8 hydroelectric units installed at Wilson Dam, were authorized for war purposes by Section 124 of the National Defense Act of 1916 in anticipation of participation in the great war. The original conception was for the use of Nitrate Plant No. 1, employing the Haber process, and Plant No. 2, employing the cyanamide process, for the fixation or manufacture of nitrogen and its subsequent conversion into ammonium nitrate for explosives. Plant No. 1 was completed, but was never practicable, due to the lack of knowledge of the Haber process. Plant No. 2 successfully developed calcium cyanamide from a manufacturing standpoint, but, due to the availability of ammonium nitrate as a result of commercial development of byproduct or synthetic processes, the commercial or peacetime manufacture of calcium cyanamide at Nitrate Plant No. 2 is considered uneconomical and undesirable, and is not proposed or suggested by either the War Department or the TVA. The Court further finds, however, that the plant, with the aid of electric power furnished by Wilson Dam and the Sheffield steam plant, can be operated to produce annually 110,000 tons of ammonium nitrate by the cyanamide process, and that the present plans of the War Department count upon that plant to supply that amount annually in the event of a major war. . . .
40. The existence of these facilities, which make available large quantities of nitrogenous war materials by use of either the nitrogen fixing process or the oxidation of synthetic ammonia, is a valuable national defense asset.
10. Sen.Doc. No. 1, 18th Cong., 2d sess.; H.R.Doc. No. 119, 69th Cong., 1st sess., 11, 12.
11. See Rivers and Harbors Acts of August 30, 1852, c. 104, 10 Stat. 56, 60; July 25, 1868, c. 233, 15 Stat. 171, 174; March 3, 1871, c. 118, 16 Stat. 538, 542; June 10, 1872, c. 416, 17 Stat. 370, 372; September 19, 1890, c. 907, 26 Stat. 426, 445, 446; August 18, 1894, c. 299, 28 Stat. 338, 354; April 26, 1904, c. 1605, 33 Stat. 309; March 2, 1907, c. 2509, 34 Stat. 1073, 1093; June 25, 1910, c. 382, 36 Stat. 630, 652; July 25, 1912, c. 253, 37 Stat. 201, 215; July 27, 1916, c. 260, 39 Stat. 391, 399; March 3, 1925, c. 467, 43 Stat. 1186, 1188; July 3, 1930, c. 847, 46 Stat. 918, 927, 928. See also H.R.Docs. No. 319, 67th Cong., 2d sess.; No. 43, 69th Cong., 1st sess.; No. 185, 70th Cong., 1st sess.; No. 328, 71st Cong., 2d sess.
12. Act of July 3, 1930, c. 847, 46 Stat. 918, 927, 928.
13. See citations of numerous statutes in United States v. Sweet, 245 U.S. 563, 568, 569.
14. Act of July 4, 1866, c. 16, § 5, 14 Stat. 85, 86.
15. Act of July 16, 1894, c. 138, 28 Stat. 107.
16. See, as to royalties under leases "to promote the mining of coal, phosphate, oil, oil shale, gas, and sodium on the public domain," the Act of February 25, 1920, c. 85, 41 Stat. 437. Also, as to leases of public lands containing potassium deposits, the Act of October 2, 1917, c. 62, 40 Stat. 297.
17. 35 Stat. c. 264, 815, 820, 821.