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Timestamp: 2019-04-19 18:28:57+00:00

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Argued: Dec. 14, 15, 1937.
As Amended on Denial of Rehearing March 14, 1938.
Messrs. John P. Bullington and F. G. Coates, both of Houston, Tex., for appellant.
Prior to the hearing before the commission, the South Texas Gas Company, which owned and operated the transmission properties and transported the gas sold to the Texas Border Gas Company at the Laredo city gate, was made a party to the proceeding. The Texas Border Gas Company applied to the city for an increase of rates and, because of the city's failure to act, took an appeal to the commission as the statute provided. The two appeals were consolidated. The United Gas Public Service Company, a Delaware corporation, entered its appearance on both appeals alleging that it had acquired the properties of both companies. The commission, by order of June 13, 1933, fixed a rate of 55 cents per m.c.f. with a penalty of 10 per cent. for nonpayment within ten days, and the order was made retroactive to January 1, 1932. Texas Border Gas Co. v. City of Laredo, 2 P.U.R.,N.S., 503.
The United Gas Public Service Company then brought suit in the District Court of the United States for the Southern District of Texas to restrain the enforcement of the commission's order. On July 26, 1933, the State of Texas, the members of the commission, and the city instituted the present suit in the District Court of Travis county in the nature of an appeal under article 6059 2 for the purpose of protecting the jurisdiction of the state court and of enforcing the commission's order if determined to be valid. The state court thereupon stayed all proceedings by the commission, or by the officials of the state and city, to enforce the commission's order until the determination of the suit. On August 1, 1933, the District Court of the United States composed of three judges, 28 U.S.C. 380, 28 U.S.C.A. § 380, stayed all proceedings in that court pending the final determination of the suit in the state court. Subject to the order of the state court, the company has continued to charge its 75-cent rate.
A motion to dismiss the appeal taken to this Court from the judgment of the Court of Civil Appeals was denied. 301 U.S. 667, 57 S.Ct. 921, 81 L.Ed. 1332. Upon hearing, the Court ordered reargument, noting that it especially desired to hear the parties on the state of the evidence as to the effect of the application of the commission's rate to the years 1932 and 1933, that is, as to the revenues and expenses for those years on that basis, and as to the effect upon the rights of the appellant, with respect to those years, of the bond given on its appeal to the commission. November 8, 1937. 302 U.S. 647, 58 S.Ct. 527, 82 L.Ed. -. Reargument has been had accordingly.
Appellant, invoking the due process and equal protection clauses of the Fourteenth Amendment of the Federal Constitution, contends that in the state proceedings it has been denied procedural due process and also that the prescribed rate is confiscatory.
The proceedings before the commission and its rulings. The commission gave a full hearing. It received voluminous evidence offered by appellant and the city as to every phase of the controversy and their counsel were fully heard in argument. The opinion of the commission reviews the history of the utility from the time that the Texas Border Gas Company received its franchise from the city in 1909. The commission found the interrelation of the companies concerned and that the present appellant, which had become the owner of the properties of the former operating companies, was itself a unit of the United Gas System. It was in view of the 'interrelated company operation and ownership,' that the gathering, transmission, and distribution properties used and useful in serving the city of Laredo were valued as a combined property. As consumers in a number of other communities within the Laredo area were also served, it became necessary to allocate to Laredo its appropriate proportion. Methods of allocation were submitted by the respective parties and the commission adopted a weighted average per cent., which had been taken by the city's engineer as an approximate mean between two percentages used by the company's engineer, as coming the closest to a fair and correct allocation. Evidence of historical cost and of reproduction cost new less depreciation was submitted. The company's appraisal on the basis of reproduction cost new, less depreciation, was $1,231,601. The appraisal of the city's engineer on the same basis was $810,698. The city adduced evidence showing the depreciated historical cost as of July 31, 1932, to be $709,991.23.
The commission for the purpose of its valuation divided the properties into three groups, (a) gathering system, (b) transmission system, and (c) distribution system. The commission stated and considered the respective appraisals of each group. While the city included an allowance of $124,668 as the depreciated cost of that portion of the transmission lines extending from Pescadito Junction to the Jennings Field, a distance of about 26 miles, the commission found 'that this line was used only one day during the twelve months' period ending July 31, 1932, in transporting gas to Laredo,' and, further, that 'the condition of this line is such that it could neither safely nor profitably transport the necessary volume of gas to the City.' The commission concluded that, if the company's properties were reproduced, that section of the line would not be necessary.
The commission then considered the questions of working capital, of going concern value, and of accrued depreciation. After referring to the respective estimates, the commission decided that 'the over-all per cent. condition' of the properties was 78 per cent.
The commission fixed the annul depreciation rate which should be allowed at 3 per cent. The commission also found that an annual rate of return of 7 per cent. on the present value of the properties was adequate.
With respect to 'available revenue,' the commission said that the company had presented a 'setup' of operating revenues and expenses for the twelve-month period ending July 31, 1932, only. On the other hand, the city had presented a similar 'setup' covering the years ending June 30, 1929, 1930, and 1931, and for the year ending July 31, 1932a period of four years. The commission was of the opinion that the one year ending July 31, 1932, should not be taken as a test period. It was believed to be a matter of common knowledge that 'from a general business standpoint the year 1932 was the worst year since 1929.' The city's exhibit was deemed to show that the fiscal year 1931 was also subnormal, and the commission concluded that neither that year, nor an average of those two years, should be taken as an adequate test. The commission also thought that it would be unfair to the company to take the year 1930 or an average of the three years, 1930, 1931, and 1932, as it appeared that the year 1930 was the best year in point of gross revenues that the company had experienced since 1928. On the whole, the commission thought that justice would be done if an average of revenues and expenses for the four fiscal years, 1929, 1930, 1931, and 1932, should be taken as the test period for the computation upon which a fair return should be predicated.
It had been stipulated by the parties at the outset that a rate of 5 cents per m.c.f. was a fair and reasonable price of gas at the well. While the commission did not make specific findings with respect to revenues and expenses for the years which it took as a basis, it did reject certain allowances for which the company contended. As to an allowance of a gathering charge in relation to gas purchased from the Carolina-Texas field, the gathering lines in which were the property of an affiliate, the commission allowed a charge of one-half of 1 per cent. instead of the 1 per cent. which the company sought. With respect to items not particularized by the commission, we think that it substantially appears from its opinion that the commission, save as to the items disallowed, accepted the city's exhibit which covered the revenues and expenses for the four-year period and stated separately the items contained therein which were deemed to be questionable.
The commission found the rate, for all domestic uses, of 55 cents per m.c.f., the minimum bill per user per month to be $1 and the penalty for nonpayment within 10 days to be 10 per cent., to be 'just and reasonable.' The commission found that its application would produce 'a net return in excess of seven per cent (7%) per annum on the present fair value of the properties, after provision for operations and reserve for depreciation.' The commission ordered that the rate should be effective from and after January 1, 1932, and that there should be refunded to the city of Laredo for the benefit of domestic gas consumers the difference between the amount collected under the existing rate and the amount that would have been due by consumers under the commission's order.
The proceedings in the District Court of Travis county.The trial was essentially de novo. It was begun in March, 1934, and was had before a jury, a motion by the appellants to have the jury discharged and the cause determined by the court being overruled. The entire record before the commission was placed in evidence and additional testimony was introduced as to property values, depreciation reserve accrual, revenues, expenses, rates of return, etc. It appears that the evidence was brought as near as possible to the time of trial. The evidence as to revenues and expenses which appellant adduced again related to the year ending July 31, 1932, and the years 1932 and 1933, and the appellees introduced evidence for the four-year period, to which they had addressed their computations before the commission, and also for the year 1933.
At the close of the evidence, appellant moved for a peremptory instruction in its favor and also for the suspension of the commission's order for the years 1932 and 1933. These motions were overruled. Appellant then moved to have the case submitted to the jury on 'special issues' and not upon a 'special charge.' The court stated that in its view its charge was on 'special issue' and hence complied with the request. The appellant then moved to submit to the jury certain special issues which were separately stated; that is, that the jury should make separate findings as to the values of component parts of appellant's property during the years 1932 and 1933, respectively, also as to the amount of the necessary materials and supplies and cash working capital, and the amount which should be allowed for 'going value,' and as to the average cost of gas at the well month and the proper annual allowance for the depreciation reserve. These requests were refused.
'Do you find that the order of the Railroad Commission of Texas bearing date June 13, 1933, providing for a fifty-five cent gas rate to residential consumers within the city of Laredo, Texas, under the facts introduced in evidence before you, is unreasonable and unjust as to defendant, United Gas Public Service Company. Answer this question 'yes' or 'no."
That by 'operation expenses' was meant such expenses as were incurred in the operation of appellant's property in furnishing gas to the people of Laredo.
That by 'annual depreciation' was meant the amount per annum that was reasonably necessary to compensate for the wearing out and any necessary replacements and retirements of appellant's property.
'You are instructed that the burden of proof is upon the defendant, United Gas Public Service Company, to show by clear and satisfactory evidence that the rate promulgated by the Railroad Commission in its said order of June 13, 1933, is unreasonable and unjust as to it.
'You are further instructed that in determining your answer to said issue in the light of all the evidence introduced in this case the defendant, United Gas Public Service Company, is entitled to receive a fair return at this time on the present fair value of its property that is used and useful in the public service after first deducting all necessary operating expenses and a fair and reasonable amount for the annual depreciation of said property, and that in considering what is a fair value of said property you will take into consideration all elements of value that have been introduced in evidence before you, including reproduction cost new of said property and the amount of going value (if any) that inheres in said property.
The jury answered the special issue in the negative. Appellant's motion for judgment non obstante veredicto was denied and judgment was entered.
The court in its judgment ruled that the provision in the commission's order requiring the refund of the excess collections over the commission's rate was a separable part, and as the court was of the opinion that the commission's retroactive application of its rate to January 1, 1932, and the provision for a refund, were invalid, that part of the commission's order was set aside without prejudice to the right of the city to recover the excess collections, should that provision be sustained on appeal. The judgment then enjoined appellant from making any charge in excess of the commission's rate, with direction for supersedeas pending appeal upon the filing of a described bond. A motion for a new trial, in which appellant again stated its objections to the court's rulings, was denied.
First.The question of procedural due process.There is no ground for holding that appellant did not have a fair hearing before the commission. Appellant's evidence was received and weighed; its arguments were heard and considered. The commission made findings as to the value of appellant's property, the permissible allowance for depreciation, and the rate of return. The amounts of revenues and expenses for the four years which the commission took as a basis sufficiently appear, as already stated, from the city's exhibit to which the commission referred in its opinion. The estimated amount of revenue at the commission's rate appears from a simple calculation, applying the rate of return to the rate base after the annual allowance for depreciation. In the commission's procedure there was no lack of the due process required by the Federal Constitution. Railroad Commission of California v. Pacific Gas & Electric Company, 302 U.S. 388, 58 S.Ct. 334, 82 L.Ed. 319, decided January 3, 1938; Los Angeles Gas & Electric Corporation v. Railroad Commission, 289 U.S. 287, 304, 305, 53 S.Ct. 637, 643, 77 L.Ed. 1180; West Ohio Gas Company v. Public Utilities Commission, No. 1, 294 U.S. 63, 70, 55 S.Ct. 316, 320, 79 L.Ed. 761.
With respect to the proceedings in the state courts, appellant urges that the case was not tried and determined as required by state law, and we are referred to the state statutes and the decisions of the Texas courts as to the proper procedure in the trial court and on appeal. It is not our function, in reviewing a judgment of the state court, to decide local questions. We are concerned solely with asserted federal rights. The final judgment of the state court in the instant case must be taken as determining that the procedure actually adopted satisfied all state requirements. John v. Paullin, 231 U.S. 583, 585, 34 S.Ct. 178, 58 L.Ed. 381; Lee v. Central of Georgia R. Co., 252 U.S. 109, 110, 40 S.Ct. 254, 64 L.Ed. 482; Central Union Co. v. Edwardsville, 269 U.S. 190, 194, 195, 46 S.Ct. 90, 91, 70 L.Ed. 229.
As to the requirement of due process under the Federal Constitution, appellant contends that it was denied the independent judicial judgment upon the facts and law to which it was entitled. See Ohio Valley Water Co. v. Ben Avon Borough, 253 U.S. 287, 40 S.Ct. 527, 64 L.Ed. 908; Bluefield Water Works Co. v. Public Service Commission, 262 U.S. 679, 43 S.Ct. 675, 67 L.Ed. 1176; State Corporation Commission v. Wichita Gas Co., 290 U.S. 561, 569, 54 S.Ct. 321, 324, 78 L.Ed. 500; St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 49, 56 S.Ct. 720, 724, 80 L.Ed. 1033. The proceeding in the state court undoubtedly purported to afford an independent judicial review. As the Court of Civil Appeals of Texas said in the instant case, the trial of the issues whether the rate was unreasonable or confiscatory was 'de novo.' Appellant itself recognizes that the trial 'was essentially de novo, new and full testimony being introduced as to property value, depreciation reserve accrual, revenues, expenses, rates of return,' etc. Appellant's evidence was received by the trial court and appellant's contentions were heard. The question whether due process in the court's procedure was accorded thus comes to the mode of trial; that is, (1) the propriety of a trial by jury, and (2) the manner in which the issues were submitted to the jury.
We do not fail to appreciate the difficulty in presenting to a jury the complicated issues in a rate case, especially where, as here, the evidence is voluminous, embracing the conflicting valuations of experts and a host of details in appraisals and in accounts of operations, with elaborate tabulations. Even in trials of such cases without a jury, the service of a special master for the analysis of the details in evidence with respect to values and return has been found advisable. We have had abundant occasion to become familiar with the difficulty of such determinations. But we are not dealing with questions of policy as to procedure. The state is entitled to determine the procedure of its courts, so long as it provides the requisite due process. And on that question we have never held that it is beyond the power of the state to provide for the trial by a jury of questions of fact because they are complicated. Cases at law triable by a jury in the federal courts often involve most difficult and complex questions, as, for example, in patent cases at law presenting issues of validity and infringement. See Tucker v. Spalding, 13 Wall. 453, 455, 20 L.Ed. 515; Keyes v. Grant, 118 U.S. 25, 36, 37, 6 S.Ct. 950, 30 L.Ed. 54; Royer v. Schultz Belting Co., 135 U.S. 319, 325, 10 S.Ct. 833, 34 L.Ed. 214; Coupe v. Royer, 155 U.S. 565, 578, 579, 15 S.Ct. 199, 39 L.Ed. 263. Most difficult questions of fact in protracted trials, with much conflicting expert testimony, are not infrequently presented in criminal cases triable by jury. The issue of life or death may be decided in such a case. We have held that a state may modify trial by jury or abolish it altogether (Walker v. Sauvinet, 92 U.S. 90, 23 L.Ed. 678; Maxwell v. Dow, 176 U.S. 581, 20 S.Ct. 448, 494, 44 L.Ed. 597; Frank v. Mangum, 237 U.S. 309, 35 S.Ct. 582, 59 L.Ed. 969), but never that the time-honored method of resolving questions of fact by a jury must be abandoned by a state under compulsion of the Federal Constitution. And we find no warrant for such a ruling now.
The question remains as to the manner in which the instant case was submitted to the jury. The special issue was submitted whether the commission's rate was 'unreasonable and unjust as to defendant.' This submission, under the court's instruction in relation to the import of the phrase 'unreasonable and unjust,' covered, as appellant conceded at this bar, the issue whether the rate was confiscatory. Appellant did not ask to have the issue of confiscation submitted by the use of that precise term. The question then is as to the denial of the submission of the particular issues which appellant requested and as to the character of the instructions given by the trial court.
The special issues which appellant requested were for findings as to the value of component parts of appellant's property during the years 1932 and 1933 and as to the amounts necessary to cover material and supplies, working capital, going value, and certain other items. It will be observed that these special issues did not embrace all the questions which the jury should consider, as for example, the questions of operating revenues, operating expenses and return for the period to which the evidence before the court appropriately related and not simply for the years 1932 and 1933. If trial by jury was permissible, as we hold it was, we cannot sayputting aside questions of correct practice under the state law not reviewable herethat appellant was entitled under the Federal Constitution to have special issues framed and submitted to the jury, much less that appellant could demand that the particular items it mentioned should be singled out and specially passed upon. We consider that question in the light of the total power which the state possesses to provide for jury trials, and for the manner of conducting them, and not with respect to any alleged limitations imposed by state statutes. See Castillo v. McConnico, 168 U.S. 674, 683, 18 S.Ct. 229, 42 L.Ed. 622.
We have stated at some length, and need not repeat, the general instructions given by the trial court. The jury were instructed as to the right of appellant to receive a fair return on the fair value of its property that is used and useful in the public service and that the jury should take into consideration all elements of value that had been introduced in evidence, including the reproduction cost new of the property and the amount of going value, if any, that inhered in it. The court defined the terms that it used, such as 'fair return,' 'fair value,' 'used and useful,' 'operation expenses,' 'annual depreciation,' 'reproduction cost new,' and 'going value,' and the court explained what would constitute an adequate rate of return. No instructions were given which could be taken in any sense to conflict with appellant's federal right; on the contrary, the jury, if it duly followed the instructions, could not but enforce that right.
Upon such a record we are unable to hold that there was a denial of federal right so far as procedural due process is concerned.
Second.The question of confiscation.We have said that our inquiry in rate cases coming here from a state court 'is whether the action of the state officials in the totality of its consequences is consistent with the enjoyment by the regulated utility of a revenue something higher than the line of confiscation.' West Ohio Gas Company v. Public Utilities Commission, No. 1, supra. This Court will review the findings of fact by a state court (1) where a federal right has been denied as the result of a finding shown by the record to be without evidence to support it, and (2) where a conclusion of law as to a federal right and findings of fact are so intermingled as to make it necessary, in order to pass upon the federal question, to analyze the facts. Kansas City Southern R. Co. v. Albers Commission Co., 223 U.S. 573, 591, 32 S.Ct. 316, 56 L.Ed. 556; Northern Pacific R. Co. v. North Dakota, 236 U.S. 585, 593, 35 S.Ct. 429, 59 L.Ed. 735, L.R.A.1917F, 1148, Ann.Cas.1916A, 1; Norfolk & Western Railway Co. v. Conley, Atty. Gen. of West Virginia, 236 U.S. 605, 609, 610, 35 S.Ct. 437, 59 L.Ed. 745; AEtna Life Insurance Co. v. Dunken, 266 U.S. 389, 394, 45 S.Ct. 129, 130, 69 L.Ed. 342. We make that analysis, not to determine issues of fact arising on conflicting testimony or inferences, and thus to usurp the function of the state court as a trier of the facts, but to perform our own proper function in deciding the question of law arising upon the findings which the evidence permits. Kansas City Southern R. Co. v. Albers Commission Co., supra.
Here, the issues of fact were determined in the trial court. Counsel agree that under the state practice the Court of Civil Appeals had no authority to make findings of fact. 'Where the evidence is without conflict, it may render judgment. But where there is any conflict in the evidence upon a material issue, it has no authority to substitute its findings of fact for those of the trial court.' Post v. State, 106 Tex. 500, 501, 171 S.W. 707, 708. The Court of Civil Appeals held not only that appellant had failed to make good its claim that it was entitled to judgment in its favor, but that, having regard to the presumption in favor of the commission's rate order and the clear and satisfactory proof required to overcome such presumption, appellant's evidence was insufficient as matter of law to show that the commission's rate was confiscatory. The reasoning of the Court of Civil Appeals was directed to the decision of those legal questions. Upon the issue of confiscation, the judgment of the trial court was affirmed and thus its finding of fact was not disturbed.
Separate questions are presented 1 as to the value of appellant's property and (2) as to its return from operations. As to the first, the commission found the value to be $885,000. But the commission stated that this valuation included property which was neither used nor useful. If it be assumed that the commission in the exercise of its legislative discretion might include that property in fixing a 'reasonable rate,' still appellant would not be entitled to its inclusion on the issue of confiscation. While the evidence as to value was conflicting, we are unable to conclude that there was not adequate evidence to sustain a finding that the total property used and useful, after making deductions for the portions not of that sort, was worth not more than $750,000.
Appellant complains that the Court of Civil Appeals based its conclusion upon a valuation of '$700,000' which appellant contends is inadmissible, and that the appellate court misapplied the rule as to the burden of proof in holding that the value must be 'pared down unsparingly' to that amount. But we must distinguish 'between what was said and what was done,' between 'dictum and decision,' between reasoning and conclusion. Dayton Power & Light Co. v. Public Utilities Commission, 292 U.S. 290, 298, 302, 54 S.Ct. 647, 651, 653, 78 L.Ed. 1267. What the appellate court did was to affirm the judgment of the trial court and if, as we think, a valuation of appellant's property at $750,000 would have adequate support in the evidence, we need go no further in relation to that part of the case.
With respect to return from operations, the crucial question is whether appellant was entitled to have the rate for the future fixed with sole regard to the result of operations in the years 1932 and 1933, as appellant contends, or it was permissible to fix the rate upon a consideration of the returns for a number of years, that is, for the four years prior to July 31, 1932, as taken by the commission, or for that period and the years 1932 and 1933, as shown by the evidence before the trial court. The commission held its hearing in the latter part of 1932 and made its order in June, 1933. Apart from the question raised by the retrospective feature of its order, we think it manifest that in fixing its rate for the future the commission was not limited to the results of operations for the year ending July 1932. Not only was that but a single year, but the commission regarded it as an abnormal year and the propriety of its ruling in that respect is supported by common knowledge of economic conditions at that time. Similarly, the trial court, sitting in the spring of 1934, was not bound to limit its vision to the results of 1932 and 1933. What would happen in the future was necessarily a matter of prophecy. The commission's rate had not been put into effect and in estimating what would be the consequence of the requirement the court was entitled to a reasonable basis for prediction, especially in view of a contemplated emergence from a period of extreme depression. As the Court of Civil Appeals observed, the way was open to the appellant to seek a change in the rate on proof of actual experience. Of course, appellant was entitled to take its chances on appellate review of the trial court's judgment, but it cannot complain of the delay incident to that review and its case must be judged as it stood before the trial court. We hold that there was no error in taking into consideration the results of appellant's operations for the years 1929 to 1933, inclusive, according to the evidence produced in the trial court, and in determining the issue of confiscation in the light of the average return thus shown.
Appellees introduced evidence tending to show that appellant's operating revenues, calculated on the basis of the 55-cent rate and after deducting the operating expenses deemed to be allowable and the annual allowance for depreciation, for the years ending June 30, 1929, 1930, and 1931, and July 31, 1932, yielded net amounts of $106,815.36, $123,293.02, $91,554.04, and $48,556.88, respectively, and for the year 1933, $46,371.85. Appellant contends that on the basis of the 55-cent rate its net operating revenue for 1932 would have been but $10,086.25, and for 1933, $18,408.39. We do not think it necessary, so far as concerns the validity of the commission's rate in its prospective application, to extend this opinion by stating in detail the contentions pro and con as to these estimates, questions which largely relate to the permissible allowances for operating expenses. We are satisfied that if we consider the results of appellant's operations for the entire period, 1929 to 1933, the evidence was adequate to support the judgment of the trial court.
Third.With respect to the question of the validity of that part of the commission's order which made its rate retroactive to January 1, 1932, considered in the light of the evidence relating to the intervening period and of the bond given on the appeal to the commission from the city's ordinance, this Court is equally divided and the judgment of the Court of Civil Appeals in that relation is accordingly affirmed.
Although I concur in sustaining the judgment of the court below, I do not agree that the rights of this Delaware corporation doing business in Texas are derived from the Fourteenth Amendment 1 or that the Fourteenth Amendment deprives Texas of its constitutional power to determine the reasonableness of intra-state utility rates in that state.
The record discloses a striking absence of satisfactory evidence of the actual cost of the company's properties; its funded indebtedness; the actual investments of stockholders in the company; profits in past years; and the percentage of past profits to actual investment. These matters have important bearing upon the issue of confiscation. There is evidence that only a part of the company's depreciation reserve, accumulated over and above expenditures for repairs and property maintenance, reaches approximately $500,000or over 40 per cent. to 70 per cent. of the various estimated values of all the company's assets. In addition appellant has not shown beyond a reasonable doubt that there is an actual investment of stockholdersover and above the amount of borrowed capitalwhich could be confiscated. 3 Appellant has obviously failed to establish all the elements necessary to prove beyond a reasonable doubt 4 that the rate fixed by the State will result in confiscation of its property.
Not only did appellant fail to prove the reasonableness of its intercompany dealings, but it did notas requested in open courtproduce a full list of salaries paid by its associates, affiliates, etc. It is true that evidence did show that some of the officers of associates, affiliates, etc., received from $65,000 to $100,000 a year but there was no proof of the reasonableness of such salaries or of their effect upon appellant's local gas distribution expenses.
'Of what do these operating expenses consist? Are they made up partially of extravagant salaries,fifty to one hundred thousand dollars to the president, and in like proportion to subordinate officers? Surely, before the courts are called upon to adjudge an act of the legislature fixing * * * maximum * * * rates for railroad companies to be unconstitutional, * * * they should be fully advised as to what is done with the receipts and earnings of the company. * * * While the protection of vested rights of property is a supreme duty of the courts, it has not come to this: that the legislative power rests subservient to the discretion of any railroad corporation which may, by exorbitant and unreasonable salaries, or in some other improper way, transfer its earnings into what it is pleased to call 'operating expenses."
When a public utility chooses to pay out a large part of its 'operating expenses' to corporate associates, affiliates, etc., these payments might conceivably be used to drain the operating company's income and to inflate the 'operating expenses.' Inflated operating expenses inevitably lead to inflated rates. Since affiliates, associates, etc., do not ordinarily deal at 'arm's length,' appellant had the burden of proving the fairness and reasonableness of all expenditures made or charged as inter-company transactions.
There is nothing in the letter or spirit of our Constitution or any constitutional amendment, which deprives a state of the right to submit issues of fact to a trial by jury. That Constitution indicates no preference for determination of facts by judges or masters appointed by judges. On the contrary, our Federal Constitution, the State Constitutions, and our national tradition demonstrate a well-established preference for trial by jury.
Mr. Justice BUTLER and I are of opinion that the judgment under review should be reversed. We adhere to the doctrine announced in Ohio Valley Co. v. Ben Avon Borough, 253 U.S. 287, 289, 40 S.Ct. 527, 528, 64 L.Ed. 908, and often reaffirmed. When rates fixed for a public service corporation by an administrative body are alleged to be confiscatory, the Federal Constitution requires that fair opportunity be afforded for submitting the controversy to a judicial tribunal for determination upon its own independent judgment both as to law and facts. Here such opportunity has been denied.
The petition asked: That the defendant appear and answer; that upon final trial the plaintiffs have an appropriate judgment; that defendant be enjoined from charging any rates other than those fixed by the commission; also that an order issue staying further proceedings by the commission pending the termination of this suit, etc.
July, 26, 1933, the state court entered a stay order as prayed. August 17, 1933, upon the commission's application, the United States District Court ordered that all proceedings in that court be stayed, pending final action by the state court.
Notwithstanding appellant's definite objections and its duly presented requests for adequate instructions, a single issue was submitted to the jury. 'Do you find that the order of the Railroad Commission of Texas bearing date June 13, 1933, providing for a fifty-five cent gas rate to residential consumers within the city of Laredo, Texas, under the facts introduced in evidence before you, is unreasonable and unjust as to defendant, United Gas Public Service Company? Answer this question 'Yes,' or 'No." The jury answered 'No,' and judgment affirming the commission's order in part was entered.
A tribunal required to accept weighty presumptions against a defendant, resolve all doubts against it, pare down valuations to the utmost, and refuse a judgment in its favor when the evidence is conflicting as to valuations or other important elements, could not reach an independent judgment in respect of the law and facts could not arrive at a fair, judicial determination. To us the proceedings in the state courts seem an empty show.
See dissent filed in Connecticut Life Ins. Co. v. Johnson, 303 U.S. 77, 58 S.Ct. 436, 82 L.Ed. 673, decided January 31, 1938.
See McCardle v. Indianapolis Water Co., 272 U.S. 400, 47 S.Ct. 144, 71 L.Ed. 316; McCart v. Indianapolis Water Works, 302 U.S. 419, 58 S.Ct. 324, 82 L.Ed. 336; Indianapolis Water Co. v. McCart, D.C., 13 F.Supp. 110; Id., 7 Cir., 89 F.2d 522, 525, 526.
Cf. Chicago & G.T. Railway Co. v. Wellman, 143 U.S. 339, 12 S.Ct. 400, 36 L.Ed. 176; see dissent in McCart Case, supra.
Cf. San Diego Land Company v. National City, 174 U.S. 739, 754, 19 S.Ct. 804, 43 L.Ed. 1154; Ogden v. Saunders, 12 Wheat. 213, 270, 6 L.Ed. 606.
Western Distributing Co. v. Public Service Commission of Kansas et al., 285 U.S. 119, 126, 127, 52 S.Ct. 283, 285, 76 L.Ed. 655.
'Purchases are frequently made by a member or members of a system from affiliates or subsidiaries, and with comparative infrequency from strangers. At times obscurity or confusion has been born of such relations. There is widespread belief that transfers between affiliates or subsidiaries complicate the task of rate-making for regulatory commissions and impede the search for truth. Buyer and seller in such circumstances may not be dealing at arm's length, and the price agreed upon between them may be a poor criterion of value. Dayton Power & Light Co. v. Public Utilities Commission of Ohio, 292 U.S. 290, 295, 54 S.Ct. 647, 78 L.Ed. 1267; Western Distributing Co. v. Public Service Commission of Kansas, 285 U.S. 119, 52 S.Ct. 283, 76 L.Ed. 655; Smith v. Illinois Bell Telephone Co., 282 U.S. 133, 51 S.Ct. 65, 75 L.Ed. 255.' American Telephone & Telegraph Co. et al. v. United States et al., 299 U.S. 232, 239, 57 S.Ct. 170, 173, 81 L.Ed. 142.
Barron v. Mayor, etc., of Baltimore, 7 Pet. 243, at page 247, 8 L.Ed. 672; Edwards v. Elliott, 21 Wall. 532, at page 557, 22 L.Ed. 487.
Den ex dem. Murray's Lessee et al. v. Hoboken Land & Improvement Co., 18 How. 272, 276, 15 L.Ed. 372.
Thompson v. Utah, 170 U.S. 343, 349, 350, 18 S.Ct. 620, 622, 42 L.Ed. 1061.
Chicago, Burlington Railroad Co. v. Chicago, 166 U.S. 226, 243, 17 S.Ct. 581, 587, 41 L.Ed. 979.
Id., 166 U.S. 226, 244, 245, 17 S.Ct. 581, 588, 41 L.Ed. 979.
HANSBERRY et al. v. LEE et al.
Leon WOLFE, George Simkins, Jr., et al., Appellants, v. STATE OF NORTH CAROLINA.

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