Source: https://supreme.justia.com/cases/federal/us/259/318/
Timestamp: 2019-04-22 10:25:08+00:00

Document:
Justia › US Law › US Case Law › US Supreme Court › Volume 259 › Houston v. Southwestern Bell Tel. Co.
1. The evidence establishes that the local telephone rate fixed by the appellant city was confiscatory. Pp. 259 U. S. 321-322.
2. In a suit by a local telephone company to restrain enforcement of an ordinance rate as confiscatory, there was evidence that the instruments used by the plaintiff were leased by it from another corporation which owned substantially all of its stock and also owned a large majority of the stock of a third corporation from which the plaintiff obtained much of its equipment and supplies, and that the charges paid by the plaintiff in return were reasonable, and less than such services and supplies could be obtained for from other sources. Held that the plaintiff was not obliged to prove the profits made by the two other companies, generally or in the business thus done with the plaintiff. P. 259 U. S. 323.
3. A telephone company, by acceptance of a city ordinance approving its purchase of and merger with another company and containing an agreement on its part to measure its rates by a fair return upon its capital actually invested in the plant purchased, is not estopped from insisting that they shall be based upon the fair value of the property useful and used at the time of inquiry when the ordinance is void as to the city, under the state constitution, and therefore lacks mutuality as between the parties. P. 259 U. S. 324.
4. Whether going concern value should be considered in determining the base for fixing the rates of a public service corporation depends on the financial history of the corporation. P. 259 U. S. 325. Galveston Electric Co. v. Galveston, 258 U. S. 388.
5. An assignment of error which involves careful study of a voluminous record will not be considered if the provisions of Equity Rule 75, that evidence be stated in simple, condensed form, and of Rule 21 of this Court, that briefs refer to the pages of the record relied on, have not been properly complied with. P. 259 U. S. 325.
Appeal and cross-appeal from a decree of the district court enjoining a city from enforcing a rate fixed by ordinance for a telephone company.
These are cross-appeals in a suit to restrain the enforcement of an ordinance enacted by the City of Houston, Texas (hereinafter referred to as the City), prescribing rates for telephone service, based upon the claim that the rates are confiscatory.
The master, to whom the case was referred, found that the rates were clearly confiscatory, and the district court, while modifying his findings in some respects, confirmed his report and in its decree enjoined the enforcement of the ordinance. A federal constitutional question being involved, a direct appeal brings the case to this Court for review.
"No irrevocable or uncontrollable grant of special privileges or immunities shall be made; but all privileges and franchises granted by the legislature, or created under its authority, shall be subject to the control thereof."
It has been definitely decided that, while municipal corporations in Texas, as agencies of the state, may have the power to prescribe rates for public service corporations, this provision of the constitution prohibits their making contracts for the future which may not be modified at any time by appropriate action of the municipality.
San Antonio Traction Co. v. Altgelt, 200 U. S. 304; San Antonio v. San Antonio Public Service Co., 255 U. S. 547; Southern Iowa Electric Co. v. Chariton, 255 U. S. 539.
"agrees that it will not increase rates as at present charged by it for service in the Houston unless it appears upon a satisfactory showing . . . that there exists a necessity for an increase of charges in order that the said company may earn a fair return upon its capital actually invested in the Houston plant."
It is now contended by the City that the acceptance of this ordinance estops the Company from asserting that the value of its plant, as of the date of the inquiry, and not the cost of it -- the "capital actually invested" -- shall be the basis for ratemaking, but the Company contends that the quoted provision of the state constitution rendered the City incapable of contracting by such an ordinance, and that therefore it is void, and not binding on either party.
a net loss to the Company for the year of $306,204 without making any allowance for interest upon the investment.
Upon exceptions to the report of the master, the district court decided that the Company was bound by the merger ordinance of 1915 to accept the cost of its plant, as distinguished from its value at the time of the inquiry, as the basis for ratemaking, and thereupon reduced the valuation of the Company's property to $4,571,567. The court also reduced the allowance of "reserve for annual depreciation," as found by the master from $348,150 to $289,380. After making these and some other deductions, the court nevertheless found that the operating expenses of the Company, not making any allowance for return on the investment, exceeded the income during 1919 by the sum of $247,434. We fully agree with the district court that there is a clear preponderance of the evidence in favor of the conclusion that the ordinance rate was confiscatory, and the decree of the court will therefore be affirmed.
by the appeal and cross-appeal, although our conclusions with respect to them will not modify the result we have stated of this review.
First: that the division of receipts derived by the Company from long distance tolls, approved by the court, was not a fair or adequate one.
with the district court that, upon the record before us, the allowance was reasonably sufficient.
Second and Third: the American Telegraph & Telephone Company owns substantially all of the stock of the Company and a large majority of the stock of the Western Electric Company. From the American Telegraph & Telephone Company the Company leases its instruments and secures their maintenance and renewal, and from the Western Electric Company it obtains the greater part of its equipment and supplies used in operating its local exchange. It is contended by the City that no fair disclosure was made of the profits made by the furnishing companies on the instruments and on the material and supplies so furnished, and that, for this unique reason, the Company should not be heard in a court of equity, and the case should be dismissed. It is true that the Company did not introduce proof to show what the profits of the two companies were, either upon the business done with it or on their entire business, but it did introduce much evidence tending to show that the charge made and allowed for the services rendered and supplies furnished by them was reasonable, and less than the same could be obtained for from other sources. Under the circumstances disclosed in the evidence, the fact that the American Telegraph & Telephone Company controlled the Company and the Western Electric Company by stock ownership is not important beyond requiring close scrutiny of their dealings to prevent imposition upon the community served by the Company, but the court recognized and applied this rule. Here again, the evidence introduced by the City was meager and indefinite, while that of the Company was exceptionally full and complete, and both contentions must be denied.
1915 obliges the Company to accept the cost of its physical plant as the basis for ratemaking, instead of the usual basis, the value at the time of the inquiry, of the property used and useful in operating the plant. Willcox v. Consolidated Gas Co., 212 U. S. 19; Minnesota Rate Cases, 230 U. S. 352; City & County of Denver v. Denver Union Water Co., 246 U. S. 178. The asserted reason for this contention is that the merger ordinance of 1915 and the acceptance of it by the Company did not constitute a contract binding upon either the City or the Company, but that, though contractual in form, it was void under the provisions of the state constitution and the decisions cited supra. In its answer, the City avers that it did not and could not, by that ordinance or otherwise, limit its ratemaking power for the future. But, notwithstanding this agreement of the parties that the merger ordinance was void, the court held that the Company, having accepted and acted upon it, was estopped to claim that it was not bound by its terms. Misrepresentation not being involved, mutuality was necessary to any estoppel growing out of this transaction, and, while thus asserting that the ordinance is void as to itself, the City may not successfully assert that its adversary is bound by the acceptance of it. We think that neither party was bound by the ordinance and the acceptance of it, that the district court fell into error, and that the proper base for ratemaking in the case is the fair value of the property, useful and used by the Company at the time of the inquiry.
its opinion that, if it had made such an allowance, it would not have been in excess of one-half the amount allowed by the master. To thus reject going concern value is assigned as error by the Company.
Whether going concern value should be considered and allowed at all in determining the base for ratemaking, and, if allowed, what the amount of it should be, depends upon the financial history of the Company (Galveston Electric Co. v. Galveston, 258 U. S. 388), and it is impossible for us to determine whether the requisite history for deciding this question is to be found in the three large volumes of the transcript of the record of the case, containing 1,664 pages, without reading the whole of it.
Equity Rule No. 75 provides that evidence to be included in the record shall not be set forth in full, but shall be stated in a simple and condensed form, and Rule 21 of this Court provides that briefs of the argument shall be filed in each case, with references to the pages of the record and the authorities relied upon in support of each point. The first of these rules has been wholly ignored in the printing of this record, and the second has been so neglected in the preparation of the briefs that it is impossible for the Court to consider this question except by itself reading and briefing the voluminous record. This we cannot consent to do, and, for the reason that the record and briefs are not prepared in conformity with the rules prescribed by this Court, we decline to consider this assignment of error.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.