Source: https://supreme.justia.com/cases/federal/us/301/292/
Timestamp: 2019-04-19 01:04:05+00:00

Document:
1. As bases for an order requiring a telephone company to refund to its patrons "excess" earnings collected during a series of years, a state commission valued the company's property for each of those years by applying to the value in an earlier year, which it had determined on hearings, price trend percentages said to have been derived from evidence of which the commission took judicial notice but which it withheld from its records and refused to reveal. Held a denial of due process of law. P. 301 U. S. 300.
2. A fair hearing is essential to due process; without it, there is condemnation without trial. P. 301 U. S. 300.
3. Judicial notice may be taken of the fact that there has been an economic depression, with decline of market values, but judicial notice cannot be taken of the values of land, labor, buildings, and equipment, with their yearly fluctuations. P. 301 U. S. 300.
4. This distinction is the more important in cases where the extent of the fluctuations is not collaterally involved, but is the very point in issue. P. 301 U. S. 301.
5. Taking of judicial notice has no other effect than to relieve one of the parties to a controversy of the burden of resorting to the usual forms of evidence; his opponent is at liberty to dispute the matter by evidence. P. 301 U. S. 301.
6. To press the doctrine of judicial notice to the extent attempted in this case, and to do that retroactively, after the case had been submitted, would be to turn the doctrine into a pretext for dispensing with a trial. P. 301 U. S. 302.
7. From the standpoint of due process -- the protection of the individual against arbitrary action -- a deeper vice than the unreasonable extension of judicial notice is in this case the concealment from the party affected of the particular or evidential facts of which judicial notice was taken by the commission, and on which it rested its conclusion. P. 301 U. S. 302.
law and the facts upon the record made below, and not upon new evidence. If, as in this case, that court merely accepts findings of the commission attributed to judicial notice and unsupported by any known or knowable evidence, judicial review is denied. P. 301 U. S. 303.
9. In view of the power and discretion reposed in regulatory commissions, the inexorable safeguard of a fair and open hearing must be maintained in its integrity in their proceedings. P. 301 U. S. 304.
10. The right to such a hearing is one of the rudiments of fair play assured to every litigant by the Fourteenth Amendment as a minimal requirement. There can be no compromise on the footing of convenience or expediency, or because of a natural desire to be rid of harassing delay, when that minimal requirement has been neglected or ignored. P. 301 U. S. 304.
11. The appellant in this case has not estopped itself from objecting to the use of price trends gathered in its absence. P. 301 U. S. 306.
131 Oh.St. 539, 3 N.E.2d 475, reversed.
Appeal from a judgment sustaining on appeal an order of the Public Utilities Commission of Ohio requiring the Telephone Company to refund "excess earnings" to its patrons.
The rates chargeable by the appellant, the Ohio Bell Telephone Company, for intrastate telephone service to subscribers and patrons in Ohio are the subject matter of this controversy.
Appellant was reorganized in September, 1921, by consolidation with the Ohio State Telephone Company, till then a competitor. Soon afterwards, it filed with the Public Utilities Commission of the state schedules of new rates to be charged in those communities where an increase was desired for the unified service. Except in the case of toll charges, the rates were not statewide, but were separately stated for each of the company's exchanges, of which there were many. By the statutes then in force (the Robinson law, passed December 19, 1919, 108 Ohio Laws, p. 1094, as amended by the Pence law, passed April 4, 1923, 110 Ohio Laws, p. 366), the operation of an increase might be suspended for 120 days, at the end of which time the rate was to go into effect upon the filing of a bond for the repayment to consumers of such portion of the increased rate as the Commission, upon final hearing, should determine to have been excessive, with interest thereon. Construing these statutes, the Ohio courts have held that a refund must be limited to rates collected under a bond, jurisdiction being disclaimed when that condition was not satisfied. Lima v. Public Utilities Comm'n, 106 Ohio St. 379, 386, 140 N.E. 147; Great Miami Valley Taxpayers Assn. v. Public Utilities Comm'n, 131 Ohio St. 285, 286, 2 N.E.2d 777. Some of the new exchange schedules were the subject of protests, and, in proceedings to revise them (known as Pence Law proceedings), were made effective by bonds, a separate one for each exchange. Protest was also aimed at the new schedule for toll service, which was to apply throughout the state. On the other hand, schedules for other exchanges became effective without protest, and therefore without bond, and are not now at issue.
"proceed to a hearing for the determination of the fair value of said property and of the just and reasonable rates for the service thereby to be furnished by said company to its patrons throughout the State of Ohio."
The statewide investigation thus initiated, as distinguished from the Pence Law proceedings consolidated therewith, had its legal basis in provisions of the General Code of Ohio (§ 499-8, 499-9), and its scope was confined to the rates chargeable in the future (§ 614-23), the Pence Law being the basis for any refund of rates collected in the past. The statute (§ 499-9) makes it mandatory that, in fixing rates for the future, the Commission shall ascertain the value of the property as "of a date certain" to be named. The date adopted for that purpose was June 30, 1925.
in the main to the value of the property on the basis of historical cost and cost of reproduction, and to the deductions chargeable to gross revenues for depreciation reserve and operating expenses generally. As early as February, 1927, the case was submitted to the Commission for the fixing of a tentative value as of the date certain, a tentative value being subject under the Ohio Code to protest and readjustment. At the request of the Attorney General, however, the proceeding was reopened and new evidence introduced. At last, on January 10, 1931, the Commission announced its tentative conclusion. The valuation then arrived at was $104,282,735, for all the property within the state, whether used in interstate or in intrastate business. Protests were filed both by the company and by the state and municipalities. They were followed by new hearings. On January 16, 1934, the Commission made its findings and order setting forth what purports to be a final valuation. The intrastate property, as of June 30, 1925, was valued at $93,707,488; the total property, interstate and intrastate at $96,422,276.
The Commission did not confine itself, however, to a valuation of the property as of the date certain. It undertook also to fix a valuation for each of the years 1926 to 1933, inclusive. For this purpose, it took judicial notice of price trends during those years, modifying the value which it had found as of the date certain by the percentage of decline or rise applicable to the years thereafter. The first warning that it would do this came in 1934, with the filing of its report. "The trend of land valuation was ascertained," according to the findings, "from examination of the tax value in communities where the company had its largest real estate holdings."
$1,463,347; for 1930, $1,481,689; for 1931, $1,659,760; for 1932, $908,335; for 1933, nothing. The excess was arrived at by figuring a return of 7% upon the value as a reasonable rate for the years 1925 to 1929, inclusive; 6.5% for the years 1930 and 1931, and 5.5% for the years 1932 and 1933. There being no excess revenue for the year 1933, the last year covered by the report, the Commission did not fix any percentage of reduction for the rates in future years. It did, however, prescribe a refund of the full amount of the excess for the years in which excess earnings were found to have been realized. The statewide proceeding to fix rates for the future on the basis of a date certain was thus transformed finally into a refund proceeding, similar in function to proceedings under the Pence law for the refund of charges collected under bonds. The report of the Commission determining the excess was signed by a majority of the members, the Chairman dissenting. It was accompanied by an order similar in tenor.
course of the inquiry, as the Commission in its report concedes. By order dated March 1, 1934, the protests were overruled and the demands rejected. By order dated July 5 of the same year, the Commission modified to some extent its findings as to the excess income referable to bonded rates, and directed the company to show cause why refunds of the excess should not be made upon that basis. Again there was protest, with a renewal of the request that evidence be received along the lines already indicated. Again the Commission reaffirmed its previous position.
of the petitioner's rights under the Fourteenth Amendment. The Supreme Court of Ohio affirmed with an opinion per curiam. 131 Ohio St. 539, 3 N.E.2d 475. The case is here upon appeal. Judicial Code, § 237, 28 U.S.C. § 344.
First. The fundamentals of a trial were denied to the appellant when rates previously collected were ordered to be refunded upon the strength of evidential facts not spread upon the record.
The Commission had given notice that the value of the property would be fixed as of a date certain. Evidence directed to the value at that time had been laid before the triers of the facts in thousands of printed pages. To make the picture more complete, evidence had been given as to the value at cost of additions and retirements. Without warning or even the hint of warning that the case would be considered or determined upon any other basis than the evidence submitted, the Commission cut down the values for the years after the date certain upon the strength of information secretly collected and never yet disclosed. The company protested. It asked disclosure of the documents indicative of price trends, and an opportunity to examine them, to analyze them, to explain and to rebut them. The response was a curt refusal. Upon the strength of these unknown documents, refunds have been ordered for sums mounting into millions, the Commission reporting its conclusion, but not the underlying proofs. The putative debtor does not know the proofs today. This is not the fair hearing essential to due process. It is condemnation without trial.
An attempt was made by the Commission and again by the state court to uphold this decision without evidence as an instance of judicial notice. Indeed, decisions of this Court were cited (Atchison, T. & S.F. Ry.
mean that the opponent is prevented from disputing the matter by evidence if he believes it disputable." Ibid. Cf. Shapleigh v. Mier, 299 U. S. 468. Such, at least, is the general rule, to be adhered to in the absence of exceptional conditions. Here, the contention would be futile that the precise amount of the decline in values was so determinate or notorious in each and every year between 1925 and 1933 as to be beyond the range of question. So much is indeed conceded on the face of the report itself. No rational concept of notoriety will include these variable elements. True, the category is not a closed one.
"The precedents of former judges, in declining to notice or assenting to notice specific facts, do not restrict the present judge from noticing a new fact, provided only that the new fact is notorious to the community."
5 Wigmore, Evidence, § 2583. Even so, to press the doctrine of judicial notice to the extent attempted in this case, and to do that retroactively after the case had been submitted, would be to turn the doctrine into a pretext for dispensing with a trial.
preliminary proof, there is at least an opportunity in connection with a judicial review of the decision to challenge the deductions made from them. The opportunity is excluded here. The Commission, withholding from the record the evidential facts that it has gathered here and there, contents itself with saying that, in gathering them, it went to journals and tax lists, as if a judge were to tell us, "I looked at the statistics in the Library of Congress, and they teach me thus and so." This will never do if hearings and appeals are to be more than empty forms.
own conclusion as to the percentage of decline in value from 1925 onwards. It did not even mean that it had looked at the particular lists made use of by the Commission, for no one knows what they were in any precise or certain way. Nowhere in the opinion is there even the hint of such a search. What the Supreme Court of Ohio did was to take the word of the Commission as to the outcome of a secret investigation, and let it go at that. "A hearing is not judicial, at least in any adequate sense, unless the evidence can be known." West Ohio Gas Co. v. Public Utilities Commission (No. 1) supra, p. 294 U. S. 69. Cf. Interstate Commerce Comm'n v. Louisville & N. Ry. Co., 227 U. S. 88, 227 U. S. 91; United States v. Abilene & Southern Ry. Co., 265 U. S. 274, 265 U. S. 288; Chicago Junction Case, 264 U. S. 258, 264 U. S. 263-265.
Regulatory commissions have been invested with broad powers within the sphere of duty assigned to them by law. Even in quasi-judicial proceedings, their informed and expert judgment exacts and receives a proper deference from courts when it has been reached with due submission to constitutional restraints. West Ohio Gas Co. v. Public Utilities Comm'n (No. 1), supra, p. 294 U. S. 70; West Ohio Gas Co. v. Public Utilities Comm'n (No. 2), 294 U. S. 79; Los Angeles Gas & Electric Corp. v. Railroad Commission, 289 U. S. 287, 289 U. S. 304. Indeed, much that they do within the realm of administrative discretion is exempt from supervision if those restraints have been obeyed. All the more insistent is the need, when power has been bestowed so freely, that the "inexorable safeguard" (St. Joseph Stock Yards Co. v. United States, 298 U. S. 38, 298 U. S. 73) of a fair and open hearing be maintained in its integrity. Morgan v. United States, 298 U. S. 468, 298 U. S. 480-481; Interstate Commerce Comm'n v. Louisville & N. Ry. Co., supra. The right to such a hearing is one of "the rudiments of fair play" (Chicago, M. & St. P. Ry. Co. v. Polt, 232 U.S.
165, 232 U. S. 168) assured to every litigant by the Fourteenth Amendment as a minimal requirement. West Ohio Gas Co. v. Public Utilities Commission (No. 1), (No. 2), supra; Brinkerhoff-Faris Co. v. Hill, 281 U. S. 673, 281 U. S. 682. Cf. Norwegian Nitrogen Co. v. United States, supra. There can be no compromise on the footing of convenience or expediency, or because of a natural desire to be rid of harassing delay, when that minimal requirement has been neglected or ignored.
make up less than 30% of the value of appellant's plant. Even for that portion of the plant, the Western Electric prices were not accepted as decisive, but were supplemented and corrected from sources dehors the record. For the other 70%, they were without probative significance, at all events, until supplemented by evidence that the decline in the value of apparatus and equipment was less than that in the value of land or buildings or other components of the plant. To fix the value of these components, the Commission had recourse to statistics which it collected for itself. There was no "suitable opportunity through evidence and argument . . . to challenge the result." West Ohio Gas Co. v. Public Utilities Commission (No. 1), supra, p. 294 U. S. 70.
Second: The appellant has not estopped itself from objecting to the use of price trends gathered in its absence.
of the purpose of the Commission, while rejecting evidence of value in respect of exchanges under bond, to wander afield and fix the composite value of the system without reference to any evidence, upon proofs drawn from the clouds. As there was no warning of such a course, so also there was no consent to it. We do not presume acquiescence in the loss of fundamental rights.
Third: The allocation of excess income among the subscribers to exchanges and also among toll patrons is challenged by the appellant, the state retorting with the contention that there has been no denial of due process in the manner of partition, whatever may be said as to the possibility of inaccuracy or error.
We find it unnecessary at this time to choose between these two contentions. A court is not required to define the proper method of allocation until there has been a proper ascertainment of the thing to be allocated. When that has been done, there may be agreement or acquiescence in respect of the manner of division. Moreover, upon another hearing, the problem may be eliminated if value, revenues, and expenses are proved for each exchange.
Fourth: The same reasons that make it unnecessary to fix the method of allocation relieve us of the duty of passing upon other problems, such as those of going concern value and depreciation reserve, which cannot be disposed of adequately until the value of the physical plant has first been ascertained.
"shall, however, be considered upon four issues involved in this cause and four only, viz.:"
"1. The earnings of the Western Electric and the reasonableness of such earnings."
"2. The cost to the American Telephone and Telegraph Company of rendering services under the license contract and the reasonable amount which should be allocated in that respect to The Ohio Bell Telephone Company."
"3. The separation and apportionment of the property, revenues, and expenses of The Ohio Bell Telephone Company as between its intrastate and interstate property, revenues, and expenses."

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