Court Opinion

ID: 9418956
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:43:46.996962+00
Date Added: 2024-06-11T08:04:41.626824
License: Public Domain

Mr. Justice Black,
concurring.
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 *147Fourteenth Amendment1 or that the Fourteenth Amendment deprives Texas of its constitutional power to determine the reasonableness of intra-state utility rates in that State.
Even applying the Fourteenth Amendment under the prevailing doctrine, I do not believe that this Court (apart from procedural questions) is called upon to do more than determine the sole question of confiscation. Any indication by this Court of the value of the company’s property will unjustifiably affect and control subsequent valuations for rate making purposes.2
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% to 70% 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 doubt4 that the rate fixed by the State will result in confiscation of its property;
*148Operating Expenses.—The record shows that appellant is one of many corporate associates and affiliates connected with the Electric Bond and Share Company and the United Gas System. Practically all operating expenses appeared as inter-company charges among these associates, affiliates, etc. Under these circumstances confiscation cannot be established merely by proof that the books of appellant show alleged expenditures purporting to have been made, by or through its affiliates, associates, etc. The strong presumption of the validity of these rates—fixed by a State—can be overcome only by proof that each expenditure, alleged to have been made or incurred by or through an associate or affiliate, was in fact so made or incurred and was fair and reasonable. Such proof was not made in this case. As an illustration, a witness testifying for the City said that it was impossible for him to ascertain proper operating expenses for the year 1933, because his examination was confined to the South Texas Border Gas Company and the South Texas Gas Company “and all I saw in support of these items was inter-company invoices, and I was not able or had no way of determining whether items were proper or not.”
Since the major part of appellant’s income is absorbed by associated companies in the name of “operating expenses” and by intercorporate transactions, the operations and expenses of these associates, affiliates, etc., are brought within the field of inquiry. Referring to intercorporate transactions of holding companies, subsidiaries, associates, affiliates, etc., this Court has said:
“It is urged that as these averments were uncontra-dicted they constitute, when taken with the facts previously stated, a prima jade case for the reasonableness of the rate charged. This might well be true were it not for the fact of unity of ownership and control of the pipe line and the distribution system. An averment of negotiation and effort to procure a reduction in the wholesale rate *149means little m the light of the fact that the negotiators are both acting in the same interest,—that of the holding company which controls both. All of these facts so averred in the pleadings would be far more persuasive with respect to the propriety of the rate if the parties were independent of each other and dealing at arm’s length. Where, however, they cónstitute but a single interest and involve the embarkation of the total capital in what is in effect one enterprise, the elements of double profit and of thei reasonableness of inter-company charges must necessarily be the subject of inquiry and scrutiny before the question as to the lawfulness of the retail rate based thereon can be satisfactorily answered.
“. . . The argument is made that the proofs demanded by the Commission will involve an extensive and unnecessary valuation of the pipe-line company’s property and an analysis of its business, and that this burden should not be thrown upon appellant. Whether this is so we need not now decide. It is enough to say that in view of the relations of the parties, and the power implicit therein arbitrarily to fix and maintain costs as respects the distributing company which do not represent the true value of the service rendered, the state authority is entitled to a fair showing of the reasonableness of such costs, although this may involve a presentation of evidence which would not be required in the case of parties dealing at arm’s length and in the general and open market, subject to the usual safeguards of bargaining and competition.” 5
*150Not 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.
This Court has previously declared the importance of salaries in determining the question of confiscation in Chicago & G. T. Ry. Co. v. Wellman, 143 U. S. 339, 345. There it was said:
“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 *151drain 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.
Due Process and Trial by Jury.—Appellant contended in the court below that “the submission of this case ... to a jury will deprive this defendant of that character of hearing and trial contemplated under the Constitution and laws of the United States and of the Constitution and laws of the State of Texas.” Appellant here further insists that over appellant’s protest, the court below did submit the cause to a jury “Despite the recognized inability of such a body to deal adequately with proof of that nature . . . , despite appellant’s vigorous protest and efforts to extricate itself from this situation ...”
The Constitution of the United States does not prohibit trial by jury, but the Seventh Amendment, judicially construed as a limitation on the federal government,6 provides:
“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.”
This Court said in 18557 that “The words, ‘due process of law,’ were undoubtedly intended to convey the same meaning as the words, ‘by the law of the land’ in Magna Charta.” Again this Court said: 8
*152“When Magna Charta declared that no freeman should be deprived of life, etc., ‘but by the judgment of his peers or by the law of the land/ it referred to a trial by twelve jurors. Those who emigrated to this country from England brought with them this great privilege ‘as their birthright and inheritance, ‘The trial ... by a jury of one’s country, is justly esteemed one of the principal excellencies of our Constitution; for what greater security can any person have in his life, liberty or estate, than to be sure of not being divested of, or injured in any of these, without the sense and verdict of twelve honest and impartial men of his neighborhood? . . .’”
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.
“One of the objections made to the acceptance of the Constitution as it came from the hands of the Convention of 1787 was that it did not, in express words, preserve the right of trial by jury, and that under it, facts tried by a jury could be reexamined by the courts of the United States otherwise than according to the rules of the common law. The Seventh Amendment was intended to meet these objections, and to deprive the courts of the United States of any such authority.”9
Further, “Upon the reasoning in the case just referred to [The Justices v. Murray, 9 Wall. 274, 278] it would seem to be clear that the last clause of the Seventh Amendment forbids the retrial by this court of the facts tried by the jury in the present case. . . .
*153“. . . Even if we were of opinion in view of the evidence that the jury erred in finding that no property right, of substantial value in money, had been taken from the railroad company, by reason of the opening of a street across its right of way, we cannot, on that ground, reexamine the final judgment of the state court. We are permitted only to inquire whether the trial court prescribed any rule of law for the guidance of the jury that was in absolute disregard of the company’s right to just compensation.”10
This cause was tried in the courts of Texas in accordance with regular court procedure applicable to such cases. The facts were submitted to a jury as provided by the constitution and laws of that State, and in harmony with the traditions of the people of this nation. Under these circumstances, no proper interpretation of the words “due process of law” contained in the Fourteenth Amendment, can justify the conclusion that appellant has been deprived of its property contrary to that “due process.” In October, 1877, this Court in Davidson v. New Orleans, 96 U. S. 97, 105—in discussing the Fourteenth Amendment—said:
“But however this may be, or under whatever other clause of the Federal Constitution we may review the case, it is not possible to hold that a party has, without due process of law, been deprived of his property, when, as regards the issues affecting it, he has, by the laws of the State, a fair trial in a court of justice, according to the modes of proceeding applicable to such a case.”
I concur in the affirmance.
Separate opinion of Mr. Justice McReynolds and Mr. Justice Butler.
Mr. Justice Butler
and I are of opinion that the judgment under review should be reversed. We adhere to the *154doctrine announced in Ohio Valley Co. v. Ben Avon Borough, 253 U. S. 287, 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.
June 13, 1933, the Texas Railroad Commission directed appellant to observe a new schedule of rates. By bill presented to the United States District Court June 29, 1933, appellant challenged .this action as confiscatory. July 26, 1933, the Commission began this proceeding in the state court by filing an original petition which, among other things, alleged—
“Notwithstanding defendant’s remedies are adequate and complete in the courts of this State, and notwithstanding every constitutional and legal right to which it may be entitled is and will be fully safeguarded and protected in said court, the defendant, nevertheless, elected to and did, on or about the 29th day of June, 1933, file its bill of complaint in the District Court of the United States for the Southern District of Texas, Laredo Division, in a cause entitled, United Cas Public Service Company, plaintiff v. Lon A. Smith, et al., defendants, No. 32 in Equity, and being a cause wherein your defendant is plaintiff and wherein each and all of your plaintiffs are defendants, except the State of Texas. . . .”
“In said action in said United States District Court, United Gas Public Service Company alleges in substance and effect that the order entered by the Railroad Commission of Texas fixed and prescribed a rate confiscatory of its property used and useful in the public service, and alleged that said order is unconstitutional and upon said allegation [obtained] a temporary restraining order out of said court enjoining and restraining your plaintiffs and *155each of them (except the State of Texas) from compelling or attempting to compel your defendant to observe said order of said Commission.”
“Plaintiffs allege that the defendant' is attempting to evade the laws of this State and the lawful order of the Railroad Commission of Texas fixing and prescribing rates and charges for the distribution and sale of natural gas within the limits of the City of Laredo, and that in charg-. ing a rate in excess of that prescribed by the Railroad Commission, plaintiffs herein, and each of them, are suffering irreparable injury, and that there is no adequate remedy prescribed by the laws of this State which will protect the public interest involved and the rights of plaintiffs herein.”
“Plaintiffs are desirous of having the constitutional questions involved in the attack being made by United Gas Public Service Company upon the Commission’s order heard and determined in the courts of this State, and to that end desire this court to enter a stay of proceedings in accordance with the provisions of Section 38 [380*], Title 28, U. S. C. to the end that all proceedings in the district courts of the United States will be stayed pending a final determination of this cause in the courts of this State.”
*156“This action is filed in this court in the nature of an appeal under the terms of Article 6059, Revised Civil Statutes, but such appeal is not taken because the plaintiffs herein are dissatisfied with the rates and charges prescribed in the Commission’s said order, but primarily for the purpose of protecting the jurisdiction of this Court and its venue to hear and finally determine the .matters in controversy and to enforce the said order, if it should be determined to be valid upon final hearing.”
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, &c.
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.
Under the compulsion indicated, appellant unwillingly appeared in the state court and filed an answer setting up its rights under the Federal Constitution. The matter was supposed to stand in that court for hearing de novo. Voluminous evidence was presented by both sides.
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.
*157The Court of Civil Appeals took the cause for review upon the record made in the District Court. The following excerpts from its opinion sufficiently indicate the reasons which moved it partly to sustain and partly to overrule the judgment of the trial court and finally to approve the Commission’s action in toto.
“We have reached the conclusion that appellant not only failed to establish its claim for reversal and rendition of judgment in its favor, but that when viewed in the light of the presumption in favor of the validity of the Commission’s rate order, and of the quantum and character of proof required to overcome such presumption, the evidence adduced was insufficient, as a matter of law, to show that the 55‡ rate order was either unjust and unreasonable or confiscatory. In view of this conclusion, all questions of practice presented in Tart II.’ of the brief go out of the case.”
“In absence of an actual test of the rate, the court on appeal must resolve all doubts against the complaining party; pare down valuations unsparingly; and the rate must appear to be clearly confiscatory, or unjust and unreasonable before the court should by injunction restrain its enforcement in advance of actual experience of the practical results of the rate.”
“That in advance of any actual test of the practical result of the new rate, the court on appeal will not disturb the rate where it is based upon conflicting evidence as to valuations of property, or as to any other item used as a basis for the calculation of the rate; because to do so would merely substitute the findings of the court or jury upon conflicting evidence for that of the Commission, and would therefore permit the court to exercise the legislative function of rate-making. R. R. Commission v. Shupee, 57 S. W. (2d), 295; affirmed 73 S. W. (2d), 505. And that by 'resolving all doubts against’ the appellant, ‘and using valuations pared down unsparingly,’ there could *158have been no reasonable doubt in the judicial mind that the 55‡ rate was neither confiscatory nor unjust and unreasonable. Newton v. Consolidated Gas Co., 258 U. S., 165.”
Considering the rules which the Court of Civil Appeals declared applicable to the trial, quite evidently appellant had no adequate opportunity to submit the law and facts relevant to the controversy to a fair judicial tribunal for determination according to its own independent judgment.
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 General Life Ins. Co. v. Johnson, ante, p. 83.

 See McCardle v. Indianapolis Water Co., 272 U. S. 400; McCart v. Indianapolis Water Co., 302 U. S. 419; 13 F. Supp. 110; 89 F. (2d) 522, 525, 526.

 Cf. Chicago & G. T. Ry. Co. v. Wellman, 143 U. S. 339; see dissent in McCart case, supra.

 Cf. San Diego Land Co. v. National City, 174 U. S. 739, 754; Ogden v. Saunders, 12 Wheat. 213, 270.

 Western Distributing Co. v. Public Service Comm’n, 285 U. S. 119, 126, 127.
“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 bom 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 *150and 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 Comm’n of Ohio, 292 U. S. 290, 295; Western Distributing Co. v. Public Service Comm’n of Kansas, 285 U. S. 119; Smith v. Illinois Bell Telephone Co., 282 U. S. 133.” American Telephone & Telegraph Co. v. United States, 299 U. S. 232, 239.

 Barron v. Baltimore, 7 Pet. 243, 247; Edwards v. Elliott, 21 Wall. 532, 557.

 Murray’s Lessee v. Hoboken Land & Imp. Co., 18 How. 272, 276.

 Thompson v. Utah, 170 U. S. 343, 349, 350.

 Chicago, B. & Q. R. Co. v. Chicago, 166 U. S. 226, 243.

 Id., 244, 246.

 Sec. 380, Title 28 U. S. C. “. . . It is further provided that if before the final hearing of such application [to a federal court for injunction] a suit shall have been brought in a court of the State having jurisdiction thereof under the laws of such State, to enforce such statute or order, accompanied by a stay in such State court of proceedings under such statute or order pending the determination of such suit by such State court, all proceedings in any court of the United States to restrain the execution of such statute or order shall be stayed pending the final determination of such suit in the courts of the State. Such stay may be vacated upon proof made after hearing, and notice of ten days served upon the attorney general of the State, that the suit in the State courts is not being prosecuted with diligence and good faith. . . .”