Court Opinion

ID: 7276307
Source: CourtListenerOpinion
Date Created: 2022-07-25 19:59:52.505238+00
Date Added: 2024-06-11T14:31:17.367277
License: Public Domain

Mr. Justice Shepard
delivered the opinion of the Court:
1. No objection was taken to the bill in the court below for want of jurisdiction, and all the suits depending upon this, save one, were brought upon the assumption that the appropriate remedy was through appeal to the restraining power of a court of equity. It seems that one party, similarly situated, did file a petition for a writ of mandamus, which was denied.
It is true that the learned justice who presided at the hearing of this cause expressed the opinion that the proper remedy was by mandamus, but he did not dismiss the bill on that' ground. He proceeded to consider the ease on its merits, and dissolved the injunction and dismissed the bill because he found the rates imposed by the statute to be unreasonably and oppressively low.
Notwithstanding that expression of opinion, the appellee has declined to raise the question of jurisdiction on this appeal by suggestion even, and has confined itself to the main question. The case has been depending since July 14, 1898, and the parties have incurred great expense in taking a mass of testimony that covers about 1,100 pages of the printed record.
Taking all of this into consideration, as well as the technical character and limited scope of the action of mandamus, we are not inclined to raise the question of jurisdiction of our own motion, notwithstanding we might find, upon consideration, that there is an adequate and complete remedy at law for the right sought to be enforced.
2. In respect of the nature of its use there would seem to be no ground for distinction between the business of a telephone exchange and that of a telegraph or transportation company. It likewise serves and promotes the public interest, and, moreover, occupies and makes use of the public streets and highways by the express or implied permission of the State.
The regulation of callings affected with a public interest, including charges for services rendered, is an undoubted *214function, of the legislative department, and the courts have no right to inquire into the amount of information possessed by the legislative department or to pass judgment upon the motives that may have prompted the exercise of its powers. Consequently we must pass by as irrelevant the argument on behalf of the appellee, founded on the journals of Congress and proceedings of committees of investigation, to the effect that the regulation in question was hastily adopted as a “ rider ” upon a general appropriation bill, without notice .to or hearing of the defendant', without knowledge of the conditions of its service and in disregard of its interests and rights. ji -
The exercise of the power of regulation was not dependent upon notice and hearing, and we are bound to presume that Congress acted with due knowledge and fair consideration of all the facts and circumstances of the situation which it undertook to effect.
3. On the other hand, it is equally well settled that, whilst the legislative power is inherent and its exercise a matter of wide discretion in respect of the regulation of the conduct and charges of a business affected with a public interest, the one is not paramount and exclusive, and the other is not so conclusive as to preclude judicial inquiry into the effect of a given regulation upon the substantial rights of property of the persons affected.
The courts will make this inquiry and will forbid enforcement when it plainly appears that the regulation violates a binding contract, or is tantamount to the deprivation of property without due process of law, or to its taking for public use without’ just compensation. San Diego Land Company v. National City, 174 U. S. 739, 754, and cases cited.
4. It is unnecessary to consider whether Congress, in the exercise of its plenary power as the sole legislative authority in and for the District of Columbia, is under limitation in respect of power to impair the obligation of contracts in the sense that the same is denied to the States by express provision of the Constitution. No such question is presented *215by tbe record. Tbe defendant holds its franchise as a corporation by grant of tbe legislature of tbe State of New York.
Thus incorporated, it came to tbe District of Columbia and commenced a business of a public nature without invitation or express permission.
Congress entered into no contract with defendant after its entry and has conferred no franchise upon it; nor has it attempted to annul or curtail tbe corporate franchise held under tbe authority of tbe State of New York.
No implied contract, having legal obligation, can possibly arise out of defendant’s entry and commencement of business without obstruction or apparent objection. Tbe United States are under no estoppel. We have seen, in tbe provisions of statutes heretofore quoted, that each time tbe Commissioners of tbe District have been authorized to permit tbe laying of conduits in the streets and tbe erection of polls in public alleys it has been with tbe express reservation of the right of revocation “ at tbe will of Congress and without compensation.”
Even if tbe defendant bad been incorporated by act of Congress and specially granted tbe right to carry on business in tbe District of Columbia, it would, probably, without a reservation similar to tbe foregoing, and certainly with it, be subject to repeal or revocation at will. In such event all that would remain to tbe representatives of tbe corporation would be tbe right to take away its cables, poles and other movable property for utilization elsewhere or in some other way. And Congress might also grant a franchise to some other corporation with tbe right to take and use tbe cables and poles of tbe defendant, provided that provision be made at tbe same time for tbe regular ascertainment and prompt payment of just compensation for tbe property taken. Greenwood v. Freight Company, 105 U. S. 13; Thornton v. Marginal Freight Company, 123 Mass. 32.
5. Being a foreign corporation doing business in tbe District of Columbia .upon sufferance — a mere occupant at will, without tbe protection of contract or vested right — *216the defendant could be either expelled or permitted to remain upon any conditions whatever, at the will or pleasure of Congress. Power in this respect is, at the least, co-extensive with that established beyond all question as belonging to the legislatures of the States. Paul v. Virginia, 8 Wall. 168; Waters-Pierce Oil Company v. Texas, 177 U. S. 28.
Congress has not exercised this undoubted power of expulsion in the case of the defendant or commanded it, by name, to perform its accustomed services at the fixed rate as the condition of its- remaining and doing business in the District. The regulatory act is general in its terms and applies to “ any person or any telephone company doing business in the District,” but the defendant is the only person, or company so engaged, and, for the time being at least, the regulation can only have application to it. The substantial effect of the act is to impose the statutory rate as the condition of further toleration. The act is mandatory and the intent of Congress is practically the same as if it had said to the defendant: “ Accept this rate or withdraw from the District.” Congress could not, and did not, undertake to compel the defendant to remain in occupation of the field of operations and carry on business at the imposed rate against its will.
If the defendant, convinced that the rate fixed by law is . ruinously low, had suspended its business and abandoned all operations within the District, Congress would have no power over it other than to compel it to remove its obstructions from the streets and other public places. Nor would the courts, in such event, have any power to compel the defendant to give its services to any person. But the defendant cannot remain and carry on its former business in defiance of the law. Persisting in its business, it must be regarded by the courts as accepting the condition and coming under obligation to perform its services at the statutory rate. So persisting and at the same time refusing obedience, it is within the judicial power to compel defendant to observe the rate fixed by Congress until such time in the future as it may voluntarily withdraw from business or Congress may relieve.
*217According to this view of the defendant’s rights and obligations, the preliminary injunction was properly granted, and should have been perpetuated upon final hearing, with the limitation before suggested.
6. It has been further contended on behalf of the appellee that the act of Congress is unconstitutional, because it impairs the obligation of contracts entered into by the defendant with other persons. If the act of Congress undertook to annul or destroy contracts in the nature of grants of private property or vested interests, the power might well be denied, not by virtue of any express prohibition of power to impair the obligation of contracts, but because such an act might be regarded as the usurpation of judicial power, as well as the deprivation of property without due process of law, or taking the same without provision for just compensation. No such contracts are in question here. All other contracts of the defendant, relating to loans, supplies, royalties and services, are incidents of corporate existence and franchises. All persons contracting with a corporation in these particulars do so subject to the dissolution of corporate existence or the termination of special franchises by limitation, by judicial decree or by repeal where that power exists. Mumma v. Potomac Co., 8 Pet. 281, 287.
All that remains of such contract obligations is the right in equity to their enforcement, when practicable, against the available property of the corporation in the act of winding up its affairs.
7. What we have before said respecting the power of Congress to prescribe an arbitrary service rate as the condition of defendant’s right to do business in the District has been upon the assumption, as charged in the answer, that the rate is ruinously low, that is to say, wholly insufficient to meet the necessary and legitimate expenses of the services to be performed. ,
Due respect to the legislative department, whose action is assailed, and perfect harmony with the principles upon which the right of judicial inquiry and interference in such instances is founded, require that one invoking judicial relief *218shall show beyond reasonable doübt that the enforcement of the regulation will be destructive of property. San Diego Land Co. v. National City, 174 U. S, 739, 754, and cases cited.
Moreover, the facts from which the conclusion is to be deduced are complex and peculiarly within the knowledge of the party complaining. If statements and calculations of cost, expenditure and so forth are misleading or untrue, they often cannot be contradicted, and if uncertain and involved, rarely admit of elucidation by the opposing party.
In considering the evidence and determining whether the compensation prescribed by law is destructive of property, the basis of estimation in a case like this will ordinarily be the reasonable, actual value of the property used in the business, cost of maintenance and the expense of carrying on the business properly. San Diego Land Co. v. National City, 174 U. S. 739, 755, 757. In the language of Mr. Justice Harlan in that case: “ What the company is entitled to de>mand, in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used by the public. The property may have cost more than it ought to have cost, and its outstanding bonds for money borrowed, and which went into the plant, may he in excess of the real value of the property. So that it cannot be said that the amount of such bonds should in every case control the question of rates, although it may be an element in the inquiry as to what is, all the circumstances considered, just both to the company and to the public.”
The basis of actual value is peculiarly appropriate in this case.
As before statecl, the defendant corporation was organized for the express purpose of acquiring'and consolidating the business of separate organizations operating in Maryland and the District of Columbia. Its capital stock of $2,650,000 was not issued for money subscribed, but in payment for those properties; $1,900,000 was passed to and divided between the Maryland company and the American Bell Company, and $750,000 was delivered to the National Capital Company. ;
*219The actual value of the property received iu exchange, as shown by the statements of the experts and derived from the defendant’s boohs, was, in Maryland, $345,045.24, and in the District of Columbia, $168,465.14. Differences between these values and the face value of stock transferred are represented solely by arbitrary valuations of the franchises acquired. What these franchises may have consisted of in Maryland does not appear. There was no franchise acquired in the District of Columbia, and all that could be acquired in addition to the tangible property of the vendor company was what may be called the “ good will ” of an established business.
Since the aforesaid purchases, the defendant has issued and sold 6 per cent, bonds of the face value of $500,000. The general telephone business has been extended in Baltimore and to many towns in Maryland, as well as to some portions of West Virginia, and these have been connected with each other and the main offices. Considerable extensions and changes have been made in the plant in the District of Columbia. During the years intervening between the dates of purchase aforesaid and the beginning of the fiscal year in 1898, great expenses, including interest on bonds, have -been paid, and regular appropriations to sinking fund have been made. Something has been carried to surplus, and average dividends of a little more than 24 per cent, have been paid on the full amount of the capital stock.
A very great if not insuperable difficulty in arriving at an accurate calculation of the legitimate cost of the service in the District, which is represented by an exceedingly high figure as compared with other telephone exchanges throughout the country, lies in the fact that it is a branch only of the wide extended business of a single owner. On the books, 40 per cent, of the bonds issued is charged against the District plant, and the latter is likewise charged with 40 per cent, of the general expenses of the company, as well as with its proportion of annual interest and sinking fund appropriations.
The evidence does not show that 40 per cent, of the bond *220sales was actually expended in betterments in tbe District, nor does it show that 40 per cent, of general expenses is the real and just proportion to be borne by the Washington plant. Baltimore is a considerably larger city than Washington, and has in operation about 25 per cent, more telephones, with toll-line connections with nearby towns and villages.
Then there are local exchanges in Maryland at Cumberland, Hagerstown, Frederick, Westminster, Annapolis, Mt. Washington, Lutherville, and in West Virginia at Martins-burg. Besides, all of these points are connected with each ■other by toll lines, and each has additional lines to smaller •adjacent villages where no exchange is maintained.
Washington is connected with Baltimore and also, it seems, with Alexandria and Waterloo, Va. The general officers of defendant, including superintendents of construction and of inside and outside maintenance, live in Washington, and considerable items of general expenses consist in traveling expenses caused by the wide dispersion of the business under their charge.
Turning now to the annual expenses of the Washington plant, including the foregoing proportion of general expenses, we find that Haskins, the expert accountant who testified for the defendant, estimates them for the six years from 1892 to 1897, inclusive, as averaging $66.57 per telephone. In estimating annual expenses, as for maintenance and the like, he includes large annual rentals for receivers and transmitters paid to the American Bell Telephone Company, which appears to own a majority of defendant’s capital stock under the old contracts of 1883 and confirmations, 40 per cent, of annual interest upon bonds and some miscellaneous interest, and 40’ per cent, of annual appropriations to the sinking fund. In addition he charges a great proportion of the cost of additional underground construction and the substitution ■of improved appliances and so forth, together with all cost ■of subscribers’ connections.
The most of these inclusions as. charges to current expenses of maintenance we regard as inadmissible. Whether these may be admissible as between stockholders and corporation is not the question.
*221Tbe interests of tbe public are here involved and a very-different question is presented when they are relied upon as a ground for the resistance of the right of public regulation.
It is plain that interest and sinking fund items are not chargeable as expenses, and we understand this is virtually conceded. There is no proof that justifies the payment af the annual rentals to the parent Bell Company. Patents existing when the 1888 contracts were made have necessarily expired, and the evidence shows that instruments of equal efficiency can be purchased in open market for a sum slightly in excess of one year’s rental charge. The right to charge certain improvements to maintenance is more doubtful. Probably the cost of connecting new subscribers may be charged to expenses, because when discontinuances are made the connections become valueless. At the same time, as the majority are practically permanent and productive of revenue, some division of charge between construction and maintenance would seem equitable. "Whatever is necessary through ordinary wear or accident to keep the plant in good-, serviceable condition is properly chargeable to expenses. On the other hand substitutions of improved appliances for others in serviceable order in order to obtain increased efficiency, as well as increase of plant, would seem to be properly chargeable to construction. It appears that the defendant had, some years ago, laid certain cables in the underground conduit after a plan called the “ solid system,” at an expense of about $115,000. An objection to this system was that cables could not be drawn out and repaired or substituted, and another, that additional cables could not be added. Underground construction is expensive, and particularly so where asphalt pavement must be removed and relaid.
This old cable was not abandoned because worn out or incapable of working efficiently. It was not torn up, but a new excavation was made alongside, in which sections of terra cotta conduits were laid. These separate conduits would admit cables composed of 50/100 and 150 wires, as were then manufactured. Expensive manholes were constructed at intervals, so that the lead-covered cables could be drawn *222through the conduits as required for construction or repair. The new subways were provided with a considerable amount of extra conduit, so as to permit the growth of the exchange to about double its then number of subscribers.
Under the conditions stated this new subway, with its extra conduits, should have been charged to construction. This we think is in accordance with the doctrine enounced by the Supreme Court of the United States in the only case in which the question seems to have been considered — U. P. RR. Co. v. United States, 99 U. S. 402, 420.
The rule, in our opinion, as between corporation and the public, would be the same that seems to apply in the case of the conversion of a horse railway into one operated by cable or underground electric current, or the erection of extra tracks by steam railway companies.
The defendant also claims the right to charge against annual expenses from 10 to 15 per cent, of value of plant on account of depreciation, although this item does not appear in the figures of the expert Haskins.
We cannot agree to this proposition. It is covered by the regular annual charge of maintenance, which includes all repairs and substitutions of defective and worn-out materials in order to maintain efficiency of operation.,
It is impracticable from the evidence to say just what reductions may be made for any one of the years given, on account of the cost of the new underground construction.
Averaging it, with considerable uncertainty, and making the other deductions mentioned, the average annual expens'e per year, for the six years, would be less than $50 per telephone subscriber, leaving a possible margin for dividends of from 2 to 3 per cent, upon the actual cost of the plant, which is estimated at from $428,000 to $450,000.
The expenses varied considerably during the years embraced in the statement, showing a very great excess for 1897 over the average. This has been ascribed largely to extraordinary repairs made that year on account of delay ini permission of the public authorities to make improvements. It would seem that considerable part of this, but how much is *223■unascertainable from the evidence, is due to the improved conduit system before mentioned. Moreover, the president’s report to stockholders,- under date of January 31, 1898, shows an increase of 783 poles in the erections for the year.
Coming down to the evidence of expenditures for the first three quarters of the year 1898, Haskins shows total expenses for the whole year,— estimating the coming quarter at the same proportion,— to amount to $151,371.57, which is less than the expenditures of 1897.
Continuing his system of charging expenses, he estimates the cost for the year per telephone — taking 2,126 as the average number — at, say, $71.25.
Deducting interest, sinking fund and rentals as not properly chargeable to expenses, the cost per telephone would be about $53, making expenses exceed income, at the $50 rate, about $6,500 for the year.
Appellants contend that this difference would be more than set off by deducting from salary chai’ges the traveling expenses of officers and the unnecessary cost of services in general. ;.They would deduct for the former $4,106.74, and for the latter $19,248.31.
This last deduction would embrace the proportion of general salaries charged to the Washington plant, which amounts to $10,918.40, with a reduction of, say, $9,000 from local expenses as excessive and unreasonable to that extent.
That there should be some deduction on account of these expenses seems reasonable, but what that deduction should be does not satisfactorily appear from the evidence. Appellee’s statement of the expense per telephone of salaries and wages alone is at the rate of $37.70 per year in the District of Columbia. This is much greater than the total expense per telephone in many other places given in the testimony. Dor example, Toronto, Canada, with 5,932 stations, estimates expenses at $25.26 per station; Detroit, Mich., 4,636 stations at $20.95 per station. Some smaller cities, none of which, save Grand Rapids, Mich., have more telephones than Washings ton, range from $12.50 to $24 per station. Conditions are frequently so different that the expense of operation in one *224city does not furnish a safe rule of comparison for others. Conditions in Washington are peculiar in that its streets and avenues are much wider than those of others brought into comparison, and the average distance required to reach subscribers is much greater. Besides, conditions of construction are more onerous in several respects.
At the same time it does not seem reasonable that these conditions are sufficient to account for the great difference in expense shown in the several tables of charges, particularly those of salaries and wages per telephone.
Again, it does not appear what proportion of expense is due to the outside connections. There are also a considerable number of what are called private lines, that do not enter inte the general service. What figure these ought to cut in the calculation of expenses does not plainly appear to us.
As the judgment appealed from must be reversed upon the ground first stated, regardless of the fact that the statutory rate might be most unjust, we have not made up- a particular statement of all the many items entering into that consideration.
If the case turned upon this point we would have great difficulty in determining from the mass of figures and opinions in evidence what particular rate would cover legitimate expenses and afford any return for the money invested, and would feel a strong inclination to remand the cause for the introduction of additional evidence upon some of the pointfe of difficulty that have been suggested, and with direction for reference to the auditor to find and report all of the necessary facts with all necessary or important computations and estimates.
The most that we now feel called upon to say is that our examination of the evidence does not satisfy us that the necessary effect of the enforcement of the rate will be destructive of defendant’s rights of property.
Bor the reasons given the decree will be reversed, with costs, and the cause remanded for the entry of a decree granting the injunction in conformity with this opinion.

Reversed.

Mr. Chief Justice Alvey concurs in the judgment.