Bankers Trust Co. v. City of Raton

Background

A New Mexico water company built and ran a system to supply the town of Raton under a city ordinance that gave it exclusive rights for twenty-five years starting July 25, 1891. The company later mortgaged its system to secure bonds, and the Bankers Trust Company became the trustee claiming the bondholders’ interests. The City voted to build its own water works, passed a new ordinance in 1913, and in 1915 repealed the old ordinance and ordered the company’s system removed, while also taking possession of parts of the company’s reservoirs.

Reasoning

The central question was whether the trustee could use federal equity power and the Fourteenth Amendment to stop the City from enforcing its repeal and requiring removal. The Court agreed with the City that the company’s rights were fixed by the city ordinance at twenty-five years and that the term had expired when the trust’s amended bill was filed. State court decisions also showed the City could revoke or condemn property where authorized, and some reservoir disputes were already the subject of other suits. For these reasons the Court affirmed dismissal of the trustee’s bill and refused to enjoin the City.

Real world impact

Practically, the ruling lets the City enforce its ordinance and require removal of the private water system once the franchise term ended, while bondholders and the trustee cannot obtain a federal injunction based on the expired franchise. Disputes about reservoir land and compensation must be pursued in separate actions, including state condemnation proceedings.