Source: https://www.legalcrystal.com/case/95192/smith-vs-illinois-bell-telephone-co
Timestamp: 2018-04-27 08:48:07
Document Index: 408471107

Matched Legal Cases: ['§ 20', '§ 1', '§ 15', '§ 20', '§ 20', '§ 20', '§ 435', '§ 20']

Smith Vs Illinois Bell Telephone Co - Citation 95192 - Court Judgment | LegalCrystal
Smith Vs. Illinois Bell Telephone Co. - Court Judgment
LegalCrystal Citation legalcrystal.com/95192
Case Number 282 U.S. 133
smith v. illinois bell telephone co. - 282 u.s. 133 (1930) u.s. supreme court smith v. illinois bell telephone co., 282 u.s. 133 (1930) smith v. illinois bell telephone company no. 90 argued october 20, 21, 1930 decided december 1, 1930 282 u.s. 133 appeal from the district court of the united states for the northern district of illinois syllabus 1. in a suit by a public utility to enjoin, as confiscatory, an order of a state commission lowering its rates, an interlocutory injunction was granted upon the condition that, if the injunction were dissolved, the plaintiff should refund to its subscribers the amounts paid by them in excess of those chargeable under the commission's order. a large excess had accumulated.....
Smith v. Illinois Bell Telephone Co. - 282 U.S. 133 (1930)
U.S. Supreme Court Smith v. Illinois Bell Telephone Co., 282 U.S. 133 (1930)
1. In a suit by a public utility to enjoin, as confiscatory, an order of a state commission lowering its rates, an interlocutory injunction was granted upon the condition that, if the injunction were dissolved, the plaintiff should refund to its subscribers the amounts paid by them in excess of those chargeable under the commission's order. A large excess had accumulated when, a number of years later, a final injunction was granted. On appeal, held that, as the decree speaks from its date, the question is necessarily presented not only whether the rate order was confiscatory when made, but also as to its validity during the period that has intervened and as to the respective rights of the company and its subscribers in the funds accumulated. P. 282 U. S. 142 .
(1) That the Illinois corporation, notwithstanding the control of its stock by, and its intimate relations with, the American Company, was the proper plaintiff. P. 282 U. S. 143 .
(2) The method adopted by the district court of testing the adequacy of the reduced rates on the basis of the total Chicago property of the plaintiff, without specifically separating intrastate from interstate property, revenues, and expenses, was erroneous, although that court deemed the division of the interstate tolls to be fair, and found, with the aid of computations showing percentages of interstate calls originated by Chicago subscribers and percentages of property used in intrastate and interstate toll service, respectively, that the percentage of return for the total Chicago business was greater than that for the total intrastate business or than that for the intrastate exchange business. P. 282 U. S. 146 .
(3) The separation of intrastate and interstate property, revenues, and expenses of the company is important not simply as a theoretical allocation to two branches of the business; it is essential to the appropriate recognition of the competent governmental authority in each field of regulation. P. 282 U. S. 148 .
(5) The validity of the commission's order in this case can be suitably tested only by an appropriate determination of the value of the property employed in the intrastate business and of the compensation receivable for the intrastate service under the rates prescribed, and there should be specific findings as to the value of that property and as to the revenue and expenses of that business, separately considered. P. 282 U. S. 149 .
(6) This involves a reasonable apportionment of the telephone exchange property used in both classes of service. P. 282 U. S. 150 .
of the American Company, the Illinois Company is to be treated as a segregated enterprise. P. 282 U. S. 151 .
(8) The plaintiff company having purchased most of its equipment from the Western Electric Company, manufacturing subsidiary of the American Company, and its being contended by the commission that the prices paid were excessive and should not be credited in full to the plaintiff in testing the adequacy of the rates in question, it was erroneous to determine the fairness of the prices by reference to the percentages of net profits realized by the Western Electric Company from all its business, including transactions with outsiders as well as with the plaintiff and other members of the system, or by reference to higher prices charged for like articles by other manufacturers or by the Western Electric Company to independent telephone companies; but there should be findings as to the net earnings made by that company in furnishing equipment to the plaintiff and the other companies in the system, and as to the extent to which, if at all, such profit figured in the estimates upon which the charge of confiscation was predicated. P. 282 U. S. 152 .
(9) With regard to the services rendered to the plaintiff by the American Company, for which the former paid percentages of its gross income, the court below should make specific findings as to their cost to the American Company and the reasonable amount that should be allocated in this respect to the operating expenses of the intrastate business of the plaintiff in the years covered by the decree. Pp. 282 U. S. 153 -157.
(10) The property of a public utility represented by the credit balance in a reserve for depreciation cannot be used to support the imposition of a confiscatory rate; but due recognition of this property does not require that an amount of annual addition to the reserve, which is shown by experience to have been excessive, shall be allowed for the future. P. 282 U. S. 158 .
(11) The power of the state to prescribe intrastate rates, and the jurisdiction and duty of the district court, in considering their validity, to determine the amount properly allowable for depreciation in connection with the intrastate business, are not taken away by the action of Congress in granting jurisdiction to the Interstate Commerce Commission over the depreciation rates of telephone companies doing interstate business, (Interstate Commerce Act, § 20(5)) where that Commission has taken no action which could be deemed validly to affect depreciation charges in connection with intrastate business so as to affect intrastate rates. P. 282 U. S. 159 .
(13) In determining whether a regulation of rate is confiscatory, it is necessary to consider the actual effect of the rate in the light of the utility's situation, its requirements, and opportunities. P. 282 U. S. 160 .
(14) The court below should find in this case the rate of return which was realized from the intrastate business and the rate of return which it is fair to conclude would have been realized from that business under the prescribed rates. P. 282 U. S. 161 .
(15) A rate order which was confiscatory when made may cease to be confiscatory, and one which was valid when made may become confiscatory at a later period. P. 282 U. S. 162 .
v. Duluth, South Shore & Atlantic Railway Company, 250 U. S. 607 , 250 U. S. 609 .
The court held that the exclusion from the rate base of extensions and additions to the amount of $26,000,000, for which payment had been made from the company's depreciation reserve, was erroneous; that the customers had paid for service, not for the property used to render it; that, in paying for service, they had not acquired any interest in the property of the company, and that profits of the past could not be used to sustain confiscatory rates for the future, citing Board of Public Utility Commissioners v. New York Telephone Company, 271 U. S. 23 , 271 U. S. 31 -32.
The appellants challenge this conclusion. [ Footnote 1 ] They insist that the American Company used in its long distance service, without properly reimbursing the Illinois Company, the Chicago local exchange plant, and other facilities
make good the loss. The interstate service of the Illinois Company, as well as that of the American Company, is subject to the jurisdiction of the Interstate Commerce Commission, which has been empowered to pass upon the rates, charges, and practices relating to that service. Interstate Commerce Act, § 1(1)(c), (3), (5); § 15(1); § 20(5). In the exercise of this jurisdiction, the Interstate Commerce Commission has authority to estimate the value of the property used in the interstate service and to determine the amount of the revenues and the expenses properly attributable thereto. By § 20(5) of the Interstate Commerce Act, that Commission is also charged with the duty of prescribing, as soon as practicable, the classes of property for which depreciation charges may properly be included in operating expenses, and the percentages of depreciation which shall be charged with respect to each of such classes of property. The proper regulation of rates can be had only by maintaining the limits of state and federal jurisdiction, and this cannot be accomplished unless there are findings of fact underlying the conclusion as reached with respect to the exercise of each authority. In view of the questions presented in this case, the validity of the order of the state commission can be suitably tested only by an appropriate determination of the value of the property employed in the intrastate business and of the compensation receivable for the intrastate service under the rates prescribed. Minnesota Rate Cases, 230 U. S. 352 , 230 U. S. 435 . As to the value of that property, and as to the revenue and expenses incident to that business, separately considered, there should be specific findings. Railroad Commission v. Maxcy, 281 U. S. 82 , 281 U. S. 83 .
the American Company at the city limits. In the method used by the Illinois Company in separating its interstate and intrastate business, for the purpose of the computations which were submitted to the court, what is called exchange property -- that is, the property used at the subscriber's station and from that station to the toll switchboard, or to the toll trunk lines was attributed entirely to the intrastate service. This method was adopted as a matter of convenience, in view of the practical difficulty of dividing the property between the interstate and intrastate services. [ Footnote 2 ] The appellants insist that this method is erroneous, and they point to the indisputable fact that the subscriber's station, and the other facilities of the Illinois Company which are used in connecting with the long distance toll board, are employed in the interstate transmission and reception of messages. [ Footnote 3 ] While the difficulty in making an exact apportionment of the property is apparent, and extreme nicety is not required, only reasonable measures being essential ( Rowland v. Boyle, 244 U. S. 106 , 244 U. S. 108 ; Groesbeck v. Duluth, South Shore & Atlantic Railway, 250 U. S. 607 , 250 U. S. 614 ), it is quite another
matter to ignore altogether the actual uses to which the property is put. It is obvious that, unless an apportionment is made, the intrastate service to which the exchange property is allocated will bear an undue burden -- to what extent is a matter of controversy. [ Footnote 4 ] We think that this subject requires further consideration to the end that, by some practical method, the different uses of the property may be recognized, and the return properly attributable to the intrastate service may be ascertained accordingly.
this suit), had provided that an allowance of.$1.13 was reasonable solely for the use of each telephone instrument, that the services of the American Company were of great value to the Illinois Company, that the annual payment under the license contract then averaged $2.10 per station for the City of Chicago, and that this payment was not excessive. [ Footnote 5 ] The Illinois Commerce Commission, in the order now under attack, continued this allowance of
$2.10 per station as sufficient to cover the rental and the services in question. [ Footnote 6 ]
It further appears that, in the early part of the year 1926, the payment under the license contract was reduced from 4 1/2 percent of the gross earnings to 4 percent. This reduction was made effective as of January 1, 1926, and the reduced rate was applied in the years 1926 and 1927. [ Footnote 7 ] At the end of the year 1927, the conditions of the license contract were again changed by providing for the sale by the American Company to the Illinois Company of the telephone instruments (receivers, transmitters, and induction coils), and the American Company was relieved from its obligation with respect to their replacement and repair. It is said that the price paid was substantially the current price less 20 percent. At the same time, the payment under the license contract by the Illinois Company to the American Company was reduced from 4 percent to 2 percent of the gross earnings. [ Footnote 8 ] On January 1, 1929, the
While it has been held by this Court that property paid for out of moneys received for past services belongs to the company, and that the property represented by the credit balance in the reserve for depreciation cannot be used to support the imposition of a confiscatory rate ( Board of Commissioners v. New York Telephone Co., supra ), it is evident that past experience is an indication of the company's requirements for the future. The recognition of the ownership of the property represented by the reserve does not make it necessary to allow similar accumulations to go on if experience shows that these are excessive. The experience of the Illinois Company, together with a careful analysis of the results shown, under comparable conditions, by other companies which are part of the Bell system, and thus enjoy the advantage of the continuous and expert supervision of a central technical organization, [ Footnote 9 ] should afford a sound basis for judgment as to the amount which, in fairness
The company urges that, as Congress has granted jurisdiction to the Interstate Commerce Commission over the depreciation rates of telephone companies doing an interstate business (Interstate Commerce Act, § 20(5), as amended by Transportation Act 1920, § 435), this subject is now completely withdrawn from the power of the state. It is said that two rates of depreciation cannot be charged on the same property. The interstate Commerce Commission has had the matter under consideration (Telephone and Railroad Depreciation Charges, 118 I.C.C. 328-333), but, so far as we are advised, a final determination has not yet been made. The Interstate Commerce Commission has its accounting rules with reference to depreciation charges and, pending its order under § 20(5) of the Interstate Commerce Act, telephone companies, as well as others subject to the Act, have been directed to continue to observe these requirements. The company argues that, although the Interstate Commerce Commission has not finally ruled, the action taken by Congress excludes the jurisdiction of state tribunals under familiar principles. Northern Pacific Railway Company v. Washington, 222 U. S. 370 , 222 U. S. 378 ; Pennsylvania Railroad Co. v. Public Service Commission, 250 U. S. 566 , 250 U. S. 569 ; Oregon-Washington Railroad & Navigation Company v. Washington, 270 U. S. 87 , 270 U. S. 102 . We are unable to assent to this view. As the Interstate Commerce Commission has not acted finally in the matter, we are not now called upon to consider the scope of its authority in relation to depreciation charges, but we are of the opinion that, in any event, until action has been
taken which could be deemed validly to affect the amount to be charged to depreciation in connection with intrastate business so as to affect intrastate rates, the prerogative of the state to prescribe such rates, and the jurisdiction and duty of the statutory court in considering their validity to determine the amount properly allowable for depreciation in connection with the intrastate business, are not to be gainsaid. Compare Board of Commissioners v. Great Northern Railway Company, 281 U. S. 412 . Accordingly, the court should make appropriate findings with respect to the amount to be allowed in this case as an annual charge for depreciation in connection with the intrastate business.
Upon the hypotheses adopted by the statutory court, the return to the Illinois Company was found to be inadequate, but what would be a proper rate of return was not determined. In determining what is a confiscatory regulation of rates, it is necessary to consider the actual effect of the rates imposed in the light of the utility's situation, its requirements, and opportunities. As was said in United Railways v. West, 280 U. S. 234 , 280 U. S. 249 -250, a rule as to rate of return cannot be laid down which would apply uniformly to all sorts of utilities; "what may be a fair return for one may be inadequate for another, depending upon circumstances, locality, and risk." In that case, the Court restated the general rule in the language of the opinion in Bluefield Co. v. Public Service Commission, 262 U. S. 679 , 262 U. S. 692 -693, as follows:
years." But no findings were made as to the value of the property and the revenues and expenses in these years. A rate order which is confiscatory when made may cease to be confiscatory, or one which is valid when made may become confiscatory at a later period. Des Moines Gas Co. v. Des Moines, 238 U. S. 153 , 238 U. S. 172 -173; Lincoln Gas Co. v. Lincoln, 250 U. S. 256 , 250 U. S. 268 -269; Brush Electric Co. v. Galveston, 262 U. S. 443 , 262 U. S. 4466 ; Bluefield Co. v. Public Service Commission, supra. In view of this fact, and as the disposition of the amount withheld by the company under the conditions of the interlocutory injunction will depend on the final decree, there should be appropriate findings as to the results of the intrastate business in Chicago and the effect of the rates in question for each of the years since the date of the Commission's order.
In Board of Commissioners v. New York Telephone Company, 271 U. S. 23 , the appellants did not raise this question ( id., p. 271 U. S. 30 ).
In Houston v. Southwestern Bell Telephone Co., 259 U. S. 318 , 259 U. S. 322 , relating to the ordinance of the City of Houston prescribing telephone rates for the company which operated not only the Houston local exchange, but also long distance toll lines connecting the local exchange with various towns and cities in Texas and several other states, the company, in practice and for the purpose of the suit,