319 Mass. 642 | Mass. | 1946
This is an information in equity, alleged to have been brought in accordance with Res. 1941, c. 89, by the Attorney General in his uvyn name as such officer against the trustees of the Boston Elevated Railway Company appointed under Spec. St. 1918, c. 159, as amended, and against the Boston Elevated Railway Company, seeking a declaratory decree as to the manner in which the trustees should keep the books, accounts and balance sheets of the company and defining the authority of the said trustees to include certain charges as a part of the cost of service rendered by the company under their management and operation, and praying for an injunction to restrain the trustees from charging in the future against the cost of service such items as may be determined in this suit to be beyond their authority to charge. The demurrer of the Boston Elevated Railway Company was overruled in the Superior Court, and the judge reported to this court the questions raised by the demurrer.
We summarize the material allegations of the information. The Boston Elevated Railway Company, hereinafter called
The trustees have continued the books and accounts of the company, and have failed to write off from the road and equipment accounts amounts carried therein on account of property retired from service prior to July 1, 1918. The trustees have failed to revise the balance sheet of the company to show the accrued depreciation which had not been provided for by the company, and to keep the books of the company in such manner as to show the true financial condition of the company.
The trustees between July 1, 1918, and December 31, 1923, charged to the cost of service as maintenance expense $154,460.75 for tracks, some of which had been discontinued by the company and the rest by the trustees, and none of which had been replaced. Such charge was not necessary in order to put and maintain the property of the company in good operating condition and to return it to the company in that condition, and was contrary to the
The trustees have from time to time during the period of public control charged to the cost of service as current maintenance expense large amounts representing expenditures made by them on account of deferred maintenance which arose from the failure of the company to repair and renew tracks and roadbed when necessary. They have charged to the cost of service as current maintenance large amounts representing capital expenditures incurred for the cost of replacement of major units and for betterments of property, consisting principally of cars, on account of which depreciation allowances were being made.
Large allowances for depreciation of structures, cars, plant and equipment, not computed on actual depreciation but calculated to produce amounts necessary to purchase new property or deemed necessary to build up a reserve for depreciation sufficient to absorb the depreciation accrued and unprovided for by the company upon property retired before July 1, 1918, were charged to the cost of service between this latter date and December 31, 1921. During the period of public control, the money received on account of charges to the cost of service for the depreciation of structures, cars, power plant and equipment was credited in the balance sheet in the account “for” accrued depreciation or reserve for depreciation together with money received from the salvage of retired property. These moneys were not held as a fund but were spent for general company purposes, including additions and improvements to property, as well as for replacing property retired from service. The trustees have charged to the account “Accrued Depreciation” over $17,500,000, which represents depreciation accrued and unprovided for by the company prior to July 1, 1918. Losses from the sales of land and costs of experimental work done prior to 1894, amounting to $916,756.44, have also been charged to this account. After deducting $616,323.98, the balance in this account on July 1, 1918, as shown by the
The trustees up to January 1,1922, included in the cost of service allowances purporting to be for depreciation, but which bore no reasonable relation to the extent of depreciation and were allowances made to secure funds to purchase property considered by the trustees to be desirable for the operation of the railway system; and since the last date they have charged against the cost of service allowances based upon the straight line method of computing the depreciation without considering the necessity for such allowances for operating and maintaining the property in good, operating condition and returning it to the company in that condition at the expiration of public control. The trustees have also charged to the cost of service allowances for depreciation on elevated structures and viaducts, property alleged to be nondepreciable.
The Commonwealth at the time it made deficiency payments did not know that the amounts of these deficits included charges for depreciation of the character above recited. Unless these practices of the trustees are corrected, the property of the company will be returned in good operating condition together with additions and betterments from money derived from the cost of service, contrary to the provisions of § 13 of the public control act; and unless the trustees are enjoined from continuing to make similar charges for depreciation, the Commonwealth will have no adequate remedy for the recovery of such excessive charges to the cost of service. The practices of charging these various items to the cost of service were not known at the time
AH these allegations must be considered with reference to the public control act, as amended, for the action of the trustees which is challenged cannot be set aside unless it is shown to have transcended the limits of the statutory authority conferred upon them. We must therefore briefly examine the statutory background of the present controversy. Special Statute 1918, c. 159, the original public control act, was accepted by the stockholders of the company and the West End Street Railway Company.
The period of public control was extended and further provisions were made by the amendment of the public control act, Spec. St. 1918, c. 159, by St. 1931, c. 333. The changes made by this last statute, in so far as they affect the questions now in issue, will be presently pointed out.
The constitutionality of the public control act, the nature of the relationship thereby created between the Commonwealth and the company, the relationship of the trustees to both, and the duties of the trustees with reference to certain particular matters, have frequently been before the Federal courts and this court, and the provisions of the act have been the subject of many advisory opinions of this court. Opinion of the Justices, 231 Mass. 603. Boston v.
The gist of the allegations contained in the information apart from the method of keeping the books and accounts of the company is that the trustees were not authorized in some instances to include certain charges in the cost of service, as defined by § 6 of the public control act, and that in other instances charges to the cost of service were excessive, unreasonable and arbitrary. We take the allegations at their face value in determining their sufficiency when challenged by a demurrer. The question is not as to the adequacy of evidence to prove the alleged conduct of the trustees but is whether, assuming the allegations to be true, the information sets forth a cause of action. O’Brien v. O’Brien, 238 Mass. 403, 410. Friedman v. Connors, 292 Mass. 371, 376. Daddario v. Pittsfield, 301 Mass. 552, 556. Moriarty v. King, 317 Mass. 210.
The principal specific complaints of the Attorney General and of the city of Boston, which was allowed to intervene, are that the trustees have without right charged to and included in the cost of service large amounts for depreciation which had accrued on property retired before they took over the management and operation of the company on July 1,1918; that charges to the cost of service for depreciation have been made which were not made upon any estimates of actual depreciation of the property but were made for the purpose of securing funds to purchase new capital assets or for the purpose of building up a reserve for depreciation; that the charges for depreciation were in excess by several million dollars of the amounts necessary to restore and maintain the property in good operating condition and
The company does not now contend that the court has no jurisdiction to grant a declaratory judgment or decree if sufficient grounds for relief in equity are alleged; but it contends that the information sets forth no case for relief in equity, that nothing is shown calling for relief with respect to any matters alleged to have occurred prior to 1941, that the court has no power to enjoin the trustees with respect to any future acts, that the Attorney General has no right to bring these proceedings in his own name, and that certain allegations are too indefinite and vague to require an answer.
The question of the right of the Attorney General to maintain this information in equity in his own name and without any averment that it is brought on behalf of the Commonwealth or any department thereof is raised by the . company. The information alleges that it is brought “pursuant to Resolves of 1941, c. 89.” No one contends that this allegation is sufficient to make parties to the proceeding those who have not been named as parties, but the Attorney General contends that he is authorized in his own name to bring and maintain the information. The Attorney General represents the public interest, and as an incident to his office he has the power to proceed against public officers to require them to perform the duties that they owe to the public in general, to have set aside such action as shall be determined to be in excess of their authority, and to have them compelled to execute their authority in accordance with law. A petition for mandamus is the remedy usually resorted to in such instances. Attorney General v. Boston, 123 Mass. 460. Attorney General v. Suffolk County
The Attorney General may also bring an information in equity in order to protect the public interest, but it has been generally held in this Commonwealth that, in the absence of a statute, his authority in this respect is restricted to the abatement of public nuisances such as obstructions or encroachments in the public ways or lands or navigable waters, and to the protection of the public interest under charitable trusts. Attorney General v. Tudor Ice Co. 104 Mass. 239, 244. Attorney General v. Parker, 126 Mass. 216, 219. Attorney General v. Tarr, 148 Mass. 309, 314. Attorney General v. Pitcher, 183 Mass. 513, 520. Attorney General v. Boston & Albany Railroad, 246 Mass. 292, 296.
The management and operation of the railway system by the trustees on behalf of the Commonwealth in order to furnish transportation for hundreds of thousands of people living in Boston and various cities and towns in the vicinity were undértaken by the Commonwealth through a contractual arrangement with the company. “The Legislature, however, did not purport by the Public Control Act to take or to authorize the taking of possession of the properties of the company or the subsequent management and operation thereof by virtue of any sovereign power other than the power to enter into a contract with the company for the carrying out of a public purpose.” Boston Elevated Railway v. Commonwealth, 310 Mass. 528, 577. The Commonwealth could sue for a breach of this contract, Attorney General v. Gardiner, 117 Mass. 492, Attorney General v. Williams, 140 Mass. 329; and it might maintain an action brought in its own name by the Attorney General to recover money due it. G. L. (Ter. Ed.) c. 12, § 5. Commonwealth v. Haupt, 10 Allen, 38. Commonwealth v. Davis, 284 Mass. 41. The immediate purpose of the present proceeding is not to recover any money due the Commonwealth but to obtain a declaratory decree and injunctive relief
The department of public utilities was authorized by Res. 1941, c. 89, to expend under the direction of the Attorney General an amount not exceeding a certain sum, which was appropriated by the said resolve, “for the purpose of bringing a proceeding at law or in equity seeking a declaratory judgment, order or decree interpreting the provisions of” the public control act, as amended, relative to the authority of the trustees “to make certain charges to the cost of service and their accounting duties incidental to such charges, or such other proceeding at law or in equity as said department and the attorney general deem advisable for the purpose of having a judicial determination of the £said] powers and duties of said trustees.... The supreme judicial court and the superior court shall have concurrent jurisdiction of any proceeding brought under authority of this resolve.” The names in which the proceedings are to be brought are not expréssly designated, but are necessarily implied by the terms of the resolve. The funds appropriated are to be expended by the department of public utilities in bringing the proceedings to settle certain powers and duties of the trustees. The expense to be incurred is that of the department. The money was appropriated for the benefit of the department and to enable it to perform the duty imposed upon it. It was not
The power of the trustees to make certain charges to the cost of service must be determined by the statute which confers upon them authority to make such charges. A statutory board has only such authority as is expressly given by the statute or is impliedly granted as reasonably
The elements that are to be included in the cost of service rendered to the public while the railway is operated under the management of the trustees are enumerated in § 6 of the public control act, which provides that the cost of service “shall include operating expenses, taxes, rentals, interest on all indebtedness, such allowance as they may deem necessary or advisable, for depreciation of property and for obsolescence and losses in respect to property sold, destroyed, or abandoned, all other expenditures and charges which under the laws of the commonwealth now or hereafter in effect may be properly chargeable against income or surplus, fixed dividends on all preferred stock of the company . . . and dividends on the common stock” at certain rates. The property of the company is to be maintained in good operating condition by the trustees in accordance with § 13, and they are to “make such provision for depreciation, obsolescence and rehabilitation, that, upon the expiration of the period of public management and operation, the property shall be in good operating condition.”
The trustees doubtless possess broad discretionary powers in determining the allowances for depreciation and obsolescence that should be included in the cost of service and the amount that should be expended for the rehabilitation of the property. They were in charge of the management of the company and the conduct of its business of furnishing transportation to the public. Boston v. Treasurer & Receiver General, 237 Mass. 403. Adams v. Eastern Massachusetts Street Railway, 257 Mass. 115. It is urged by the company that the instant case comes within the general rule that a court of equity will not supervise the exercise of discretionary powers conferred by law upon public officers in the performance of their official duties. This court has always refused to substitute its judgment for that of public
Although the trustees may for some purposes be considered to be public officers, Opinion of the Justices, 261
The trustees are expressly authorized by § 6 of the public
Depreciation represents the consumption of physical assets, resulting from the manufacture of goods or the furnishing of services, which is not restored by current maintenance in making repairs or by the substitution of new minor or small parts which have become worn. Depreciation is the deterioration of physical assets due to wear and tear, decay and age. Another form of depreciation is obsolescence. This we understand to mean a loss in the service value of a fixed or capital asset which has become useless or inefficient on account of advances in the art, new inventions, inadequacy, the shifting of business centers, the loss of trade or some governmental ruling. Kansas City Southern Railway v. United States, 231 U. S. 423, 451, 452. V. Loewers Gambrinus Brewery Co. v. Anderson, 282 U. S. 638. Burnet v. Niagara Falls Brewing Co. 282 U. S. 648. United States Cartridge Co. v. United States, 284 U. S. 511. Real Estate-Land Title & Trust Co. v. United States, 309 U. S. 13. Nothing in this opinion depends on any distinction between these forms of depreciation. We refer to both as depreciation. The service life of a machine or plant is shortened by use, and the depreciation if correctly estimated and properly entered upon the books will reflect the lessened value of this capital asset. This lessened value which has occurred in a year is the basis for making a charge against income for annual depreciation as a part of the operating expenses. The purpose and methods for keeping accounts of depreciation and also reserves for depreciation have been frequently stated in decisions dealing with reviews of rate making controversies. See Smith v. Illinois Bell Telephone Co. 282 U. S.
As far as possible, a customer ought no.t to be charged with depreciation as a part of the service to him where the depreciation did not arise from the production of that service but had occurred years previous thereto. The charge for depreciation as a part of the cost of service is at best only an estimate. If enough is not charged the company furnishing the service must bear the loss, but if too much is charged the customers have been compelled to contribute to the capital investment of the company. The purpose of a charge for depreciation is to protect the integrity of the investment, and the cost of service ought not to be burdened with any item that yields the company more than is required to offset the loss due to depreciation.
The power granted to the trustees is not as broad as that possessed by the managers of a privately owned and operated corporation furnishing public transportation where the power of control is limited only by the restrictions imposed on property affected by a public use. The revenues received are the sole property of such a privately owned and managed corporation. It was said in Public Utility Commissioners v. New York Telephone Co. 271 U. S. 23, 31-32, in which it appeared that the company had in prior years charged excessive amounts to depreciation expense and so created in the reserve account a balance greater than required to maintain the property, and where an attempt was made to compel the company to apply a part of the money represented by this balance to overcome deficits in future earnings, that the relation between the company and its customers was not that of partners, agent and principal, or trustee and beneficiary (citing Fall River Gas Works Co. v. Gas & Electric Light Commissioners, 214 Mass. 529, 538), that the revenue received by the company belonged to it, that the law did “not require the company to give up for the benefit of future subscribers any.
It is, however, pointed out that under § 6 of the public control act the trustees may charge against the cost of service losses on account of property lost, destroyed or abandoned. This we think refers to property that has been lost, destroyed or abandoned during the period of public control. Finally, the provision in § 6 authorizing the trustees to include in the cost of service “all other expenditures and charges which under the laws of the commonwealth now or hereafter in effect may be properly chargeable against income or surplus” does not warrant the trustees in reimbursing the company for capital losses which occurred before public management and operation began. See G. L. (Ter. Ed.) c. 161, §§ 115, 116. The operating revenues, after bearing the burden necessitated by putting the property in good operating condition, ought not to be subjected to further charges on account of capital losses which had long ago been sustained by the company. As already pointed out, these losses could not properly be included in fixing the rate to be charged to customers for the services furnished by the company if it remained under private management. Such losses ought not to be included in the notices for payment of deficits presented to the Commonwealth. There does not seem to be any logical relation between them and present income, and it does not seem that on account of such losses the services rendered are made more valuable
We have already pointed out that the trustees could charge the cost of service for expenditures incurred in rehabilitating the property of the company, assuming that the $2,000,000 furnished by the company for additions and improvements was insufficient for the purpose, and in the face of the allegations of the information we cannot say as matter of law that the amounts alleged to have been charged to the cost of service for this purpose were not unreasonable, excessive or arbitrary, as the information alleges they were. Those amounts were in the first instance to be determined by the trustees, and their judgment cannot be set aside unless it is shown that they could not have acted reasonably and have arrived at the conclusion they did. See Swan v. Justices of the Superior Court, 222 Mass. 542, 548; Ott v. Board of Registration in Medicine, 276 Mass. 566, 571; Rinaldo v. School Committee of Revere, 294 Mass. 167, 169.
The company, having accepted St. 1931, c. 333, contends that the reimbursement by it to the Commonwealth in 1931 in accordance with this statute for all deficiency payments previously made by the Commonwealth constituted a final settlement of all financial matters then pending
It is true that the contract between the Commonwealth and the company created by the public control act was modified by said c. 333, but many of the changes consisted of maldng provisions for new matters not included in the earlier act. Other than providing for the inclusion of additional expense in the cost of service as provided for in § 6 of the public control act, this section was not materially affected by c. 333. We do not agree that the amendment to the public control act by this chapter resulted in the consequences urged by the company. In the first place, this chapter expressly provided by § 19 that none of
The maintenance of the information is not barred by the statute of limitations. A State is not subject to the statute of limitations unless it consents to be so bound. The Commonwealth has consented to have the six year statute of limitations applicable to actions of contract brought by it. G. L. (Ter. Ed.) c. 260, §§ 2, 18. See Boston v. Nielsen, 305 Mass. 429, 431. We must ascertain the nature of the claim on behalf of the Commonwealth and the relation
The company, by its contract with the Commonwealth, agreed and undertook to permit the management and operation of its railway system by its agents, the trustees, for the sole benefit of the Commonwealth in so far as the profits were concerned. The company became accountable to the Commonwealth for any deficiency payment received by the company in excess of that which it could demand in accordance with the public control act. The Commonwealth has a beneficial interest in that portion of the income of the company not needed for the payment of the expenditures permitted to be incurred under the public control act, and this excess of income is to be held and applied by the company in accordance with § 13 of this act. Expenditures by the company for unauthorized purposes would constitute a breach of trust, and proceedings brought to make good the loss caused by the breach are not barred by the statute of limitations if brought within the period prescribed by the statute after the Commonwealth knew or ought to have known of the breach. The allegations of the information do not show that the present proceedings were brought after that period. Gould v. Emerson, 160 Mass. 438. Old Dominion Copper Mining & Smelting Co v. Bigelow, 203 Mass. 159, 201. Bowker v. Torrey, 211 Mass. 282. Moore v. O’Hare, 224 Mass. 283. Jekshewitz v. Groswald, 265 Mass. 413. Stuck v. Schumm, 290
The books kept by the trustees are the books of the company and not of the Commonwealth, Auditor of the Commonwealth v. Trustees of Boston Elevated Railway, 312 Mass. 74; and while the books should reflect truthfully the transactions of the company, the latter was not required during the period of public control to keep its books in conformity to those regulations of any governmental agency that are directed to privately owned and operated railway systems. The purpose of such regulations is to enable the appropriate public board to learn the nature and value of the assets of the carrier and to discover corporate conduct which might result in the imposition of charges upon the public which would be unreasonable and excessive. Such means of supervision were not deemed necessary in the present case. The Legislature has since 1919 required the trustees to file annual reports of their administration and since 1931 has required them, when requesting the payment of a deficiency, to notify the trustees of the metropolitan transit district and the department of public utilities, which is authorized to make such investigation as it deems proper and to file a report with the Governor which shall be made public. Spec. St. 1919, c. 185. St. 1931, c. 333, § 3. We are not primarily concerned with methods adopted by the trustees in keeping the books of the company. Our inquiry is not so much concerned with what the books show or how certain transactions have been recorded, but rather with what items were included by the trustees in ascertaining the cost of service. The allegations based upon the claim that the trustees had no power to use the straight line method of depreciation state no cause for relief. We have no power to decide what is the best method of accounting with reference to depreciation. The choice lies with the trustees. We cannot say they were wrong in employing the method which they did and which appears from decisions of the Supreme Court of the United States and of this court to be one of the recognized methods of good accounting. Lindheimer v. Illinois Bell Telephone Co. 292 U. S. 151, 167,
Although some of the paragraphs of the information deal with matters concerning which no relief can be granted, yet a demurrer cannot be overruled on one ground and sustained on another because a demurrer must be treated as a unit; and where, as here, sufficient grounds for relief are alleged, the demurrer must be overruled, Whitmore v. International Fruit & Sugar Co. 214 Mass. 525, 528; Ratté v. Forand, 299 Mass. 185, 187.
The interlocutory decree overruling the demurrer is to be affirmed if the amendment suggested is allowed in the Superior Court, otherwise the interlocutory decree overruling the demurrer is to be reversed and a decree entered sustaining the demurrer. .
So ordered.
On June 10, 1922, the Boston Elevated Bailway Company and the West End Street Bailway Company were consolidated in accordance with St. 1911, c. 740.
The dates, as of which amounts to be paid or repaid on account of deficits shall be determined, have been changed to be as of the last day of March in any year subsequent to 1934 including 1941 and thereafter as of the last day of December, 1941, and as of the last mentioned date in any year after 1941. St. 1941, c. 139.