RAILROAD COMMISSION OF CALIFORNIA ET AL. v. LOS ANGELES RAILWAY CORPORATION.
No. 60
Supreme Court of the United States
December 2, 1929
280 U.S. 145
Argued October 22, 1929.
It follows that the rule against the respondents must be made absolute with directions to them to vacate the decree of dismissal entered by Judge Bourquin and to take immediate steps for assembling a court of three judges to hear and determine the application for an interlocutory injunction conformably to
Rule made absolute.
Appellee operates a street railway system and motor buses for the transportation of passengers in the city of Los Angeles and in other parts of the county of Los Angeles. Its cars are operated on tracks laid in the streets under authority of 102 franchises granted from time to time since 1886. A few were obtained from the county; the others were granted by the city.
Seventy-three granted between November 28, 1890, and October 21, 1918, covering 113.41 miles, provide that “the rate of fare . . . shall not exceed five cents.”
Eighteen granted between March 2, 1920, and January 21, 1928, covering 12.33 miles, provide that “the rate of fare . . . shall not be more than five cents . . . except upon a showing before a competent authority having jurisdiction over rates of fare that such greater charge is justified.”
The remaining eleven, covering 10.5 miles, were granted at various times from 1886 to 1923; none of them provides that the fare shall not exceed five cents; but it may be assumed that under the provisions of the other ordinances a fare of five cents was made applicable over all lines. Prior to the decree in this case the basic fare charged was five cents.
Maintaining that its existing rates were not sufficient to yield a reasonable return, the company, November 16, 1926, applied to the commission for authority to increase
June 22, 1928, the company brought this suit to have the rates and order adjudged confiscatory and for temporary and permanent injunctions restraining the commission from enforcing them. The city intervened as party defendant. The case came on for hearing before three judges on an application for temporary injunction.
The sole controversy is whether the company is bound by contract with the city to continue to serve for the fares specified in the franchises—it being conceded that the finding below respecting the inadequacy of the five cent fare is sustained by the evidence. Appellants contend that at all times the city had power to establish rates by agreement and that the franchise provisions constitute binding contracts that are still in force. On the other hand the company maintains that the State never so empowered the city; and it insists that, if the power was given and any such contracts were made, they have been abrogated.
1. It is possible for a State to authorize a municipal corporation by agreement to establish public service rates and thereby to suspend for a term of years not grossly excessive the exertion of governmental power by legislative action to fix just compensation to be paid for service
This court is bound by the decisions of the highest courts of the States as to the powers of their municipalities. Georgia Ry. Co. v. Decatur, 262 U.S. 432, 438. Our attention has not been called to any California decision, and we think there is none, which decides that the state legislature has empowered Los Angeles to establish rates by сontract. This Court is therefore required to construe the state laws on which appellants rely. As it is in the public interest that all doubts be resolved in favor of the right of the State from time to time to prescribe rates, a grant of authority to surrender the power is not to be inferred in the absence of a plain expression of purpose to that end. The delegation of authority to give up or suspend the power of rate regulation will not be found more readily than would an intention on the part of the State to authorize the bargaining away of its power to tax. Providence Bank v. Billings, 4 Pet. 514, 561. Railroad Commission Cases, 116 U.S. 307, 325. Freeport Water Co. v. Freeport, 180 U.S. 587, 599. Stanislaus County v. San Joaquin C. & I. Co., 192 U.S. 201, 210. Puget Sound Traction Co. v. Reynolds, 244 U.S. 574, 579.
This court applied the established rule in Home Telephone Co. v. Los Angeles, 211 U.S. 265. That com-
The appellants invoke provisions of the city charter which are printed in the margin.2 But it requires no discussion to show that they are not sufficient to empower the city by contract to establish rates. In support of their claim, they cite Columbus R. & P. Co. v. Columbus, 249 U.S. 399; Opelika v. Opelika Sewer Co., 265 U.S. 215; Public Service Co. v. St. Cloud, supra, and Southern Utilities Co. v. Palatka, 268 U.S. 232. But the Columbus case did not involve, and this Court did not there decide, the question of power. See p. 407 and 194 U.S. at pp. 532, 534. And in the other cases, we followed the decisions of the courts of the respective States.
2. But assuming that the fares were established by the franchise contracts we are of opinion that such contracts have been abrogated. The State had power upon the company‘s application, through its commission or otherwise, to terminate them. Pawhuska v. Pawhuska Oil & Gas Co., 250 U.S. 394. Trenton v. New Jersey, 262 U.S. 182, 186. Henderson Water Co. v. Corporation Commission, 269 U.S. 278. Denney v. Pacific Tel. Co., 276 U.S. 97.
November 30, 1918, the company applied to have the commission investigate its service and finanсial condition and for an order authorizing it to “so operate its system and change its rates that the income will be sufficient to pay the costs of the service.” May 31, 1921, the commission found that the existing fares would not permit the company to collect enough to enable it to provide adequate service. See P.U.R. 1922A, 66, 90. And it made an order permitting a small increase. The company did not accept it, but applied for a rehearing. After several postponements the case was stricken from the calendar, and some years later the company asked that its application be dismissed. The commission, October 18, 1926, granted the company‘s request and also revoked the order.
Shortly thereafter the company applied for a basic fare of seven cents in cash or six and one-quarter cents in tokens. The fares so proposed were substantially higher than those which were not accepted by the company. Again the commission made extensive investigations. And March 26, 1928, it filed a report which contained findings as to the value of the property, operating revenues, operating expenses including cost of depreciation and taxes, amount available for return, average net income for five years ending with 1926, stated that the cost of operation might be reduced, and сoncluded that by reason of such facts the rates of fare charged by the com-
There is no decision in the courts of the State as to the effect of the proceedings before and action taken by the commission, and therefore we are required to construe the applicable provisions of the local constitution and statutes. Denney v. Pacific Tel. Co., supra, 101. Under the state constitution,
The proceedings before the commission and its orders clearly show that it twice took jurisdiction to determine just and reasonable rates. Its order of May 31, 1921, by reason of the company‘s failure to put in the increased rates never became operative and finally was vacated. The report and order of March 26, 1928, found that existing rates were just and reasonable and in legal effect required the company to continue to observe them. Thе court below found the rates confiscatory, and appellants do not here question that finding.
Decree affirmed.
MR. JUSTICE MCREYNOLDS is of opinion that, as our finding that the city had no power to make rate contracts is sufficient to dispose of the case, it would be better not to take up the second point.
MR. JUSTICE BRANDEIS, dissenting.
The Railway claims that the Commission‘s refusal to authorize a fare higher than five cents confiscates its property. The City and the Commission do not insist here that the five-cent fare is compensatory; and they concede that, since 1915, the latter has had jurisdiction to authorize a higher fare. They defend solely on the ground that the Railway bound itself by contracts not to charge more; that thеse contract provisions are still in force, except as modified by the
The District Court recognized that such contracts, if existing, would be a complete defense to this suit, Columbus Ry. & Power Co. v. Columbus, 249 U.S. 399; Georgia Ry. & Power Co. v. Decatur, 262 U.S. 432; Opelika v. Opelika Sewer Co., 265 U.S. 215; St. Cloud Public Service Co. v. St. Cloud, 265 U.S. 352; Southern Utilities Co. v. Palatka, 268 U.S. 232; expressed a strong doubt whether the City ever had the power to contract concerning the rate of fare; and, declining to pass uрon that question, granted the relief prayed for solely on the ground that any such contract right which existed had been abrogated.
The franchises under which the Railway is operating are confessedly contracts. The words used concerning the rate of fare are apt ones to express contractual obligations. The Railway contends, however, that the fare provisions were not intended to be contracts, and that, if they were so intended, they were not binding, because neither the City nor the County had the power to contract as to the rate of fare. It insists further that if the fare provisions were originally binding as contracts, they were abrogated in 1921 or 1928 by action of the Commission.
First. Most of the franchises were granted before the State had vested in the Commission power to regulate street railway rates or had expressly reserved to itself, otherwise, the power to change rates theretofore fixed by ordinance. This power of regulation was first expressly conferred upon the Commission in 1915, by amendments to
Second. The Railway contends, however, that the Commission abrogated the fare contracts by its action taken in 1921 pursuant to this legislation. The facts are these. In 1918, the Railway asked the Commission to make an investigation of its service and its financial condition and for an order enabling it to so operate its system that the income would be suffiсient to pay the cost of the service. In that application the Railway expressly disclaimed any desire to increase its rate of fare, but about two years later, it made a supplemental application for leave to do so. On May 31, 1921, the Commission made a report in which it declared that “an increase in the fare in some form” should be granted; and that the Railway be authorized “to file with the Commission and put into effect within thirty (30) days from the date of this order a schedule of rates increasing the present basic 5-cent fare to 6 cents,” ten tickets for 50 cents. 19 Cal. R. R. Comm. Op. 980, 1002. The Railway did not file a schedule of fares. Instead, it moved for a rehearing. That motion was promptly set down for hearing by the Commission, but was never heard. For the Railway asked first for an adjournment; then that its motion be stricken
Third. Nor did the action taken by the Commission in 1928, in the proceedings now under review, abrogate any existing fare provision. There also the Commission took jurisdiction, as it was by the statute required to do. It refused to authorize a higher fare, because it concluded that for the past five years the Railway had been earning an average annual return of 7.1 per cent; that it was not being efficiently operated; that the management had failed to introduce certain economies previously recоmmended which would have increased its net earnings; and that for these reasons the existing five-cent fare was just and reasonable. The Commission may have erred in its judgment, but it is clear that it did not change the rate of fare. In Georgia Ry. & Power Co. v. Decatur, 262 U.S. 432, 439, it was held that the assumption of jurisdiction by the Commission to the extent of affirmatively ordering the continuance of existing transfer privileges did not effect an abrogation of an existing contract provision relating thereto, since such action did not conflict with the terms of the contract. Compare Los Angeles v. Los Angeles City Water Co., 177 U.S. 558, 578-84; Minneapolis v. Street Ry. Co., 215 U.S. 417, 435. In Denney v. Pacific Telephone Co., 276 U.S. 97, the Commission had previ-
Assuming that the Railway was bound by contract to maintain a five-cent fare, it could be relieved from its obligation only by the Commission. Had the Commission authorized an increase in fare, it would still be questionable whether the contract would have been thereby abrogated or only modified by making the Railway‘s obligation less onerous. Surely, the Commission‘s refusal to grant any help, because in its opinion none is needed, cannot have the anomalous effect of entirely relieving the Railway of its obligation.
Fourth. If the District Court erred in holding that the action taken in 1921 or 1928 had the effect of abrogating any existing contract, there must be a determination whether such contracts did exist, in fact and law. It was assumed by the District Court and by counsel in this Cоurt that if the City lacked the power to bind itself contractually by the fare provisions, the Railway could not be bound thereby. This conclusion is not commanded by logic or by the law of contracts. Lack of power in the municipality to bind itself is a factor to be considered in determining whether the parties intended to enter into a contract. But, if they did, the Railway‘s promise need not fail for lack of mutuality. The law does not require that a particular contractual obligation must be supported by a corresponding counter-obligation. It is conceded that the City possessed the power to enter into the franchise contract. The contention is merely that it could not surrender its power to regulate rates. But there is nothing in the fare provisions to indicate that the City attempted to do that. These provisions in terms bind only the Railway. The Railway unquestionably had power to agree to charge a fixed fare. The grant of the franchise is sufficient consideration, if so intended, for any number of contractual obligations which the Railway may
Fifth. If it be true that the Railway is not bound by the fare provisions, unless the City had power to bind itself in that respect, it is necessary to determine whether the City had that power and whether the parties did in fact contract as to the rate of fare. Whether the City had the power is, of course, a question of state law. In California, the constitution and the statutes leave the question in doubt. Counsel agree that there is no decision in any court of the State directly in point. They reason from policy and analogy. In support of their several contentions they cite, in the aggregate, 30 decisions of the California courts, 15 statutes of the State, besides 3 provisions of its code and 7 provisions of its constitution. The decisions referred to occupy 308 pages of the official reports; the sections of the constitution, code and statutes, 173 pages. Moreover, the 102 franchises here involved were granted at many different times between 1886 and 1927. And during that long period, there have been amendments both of relevant statutes and of the constitution. The City or the County may have had the power to contract as to the rate of fare at one time and not at another. If it is held that the City or the County ever had the power to contract as to rate of fare, it will be necessary to exаmine the 102 franchises to see whether the power was exercised. It may then be that some of the franchises contain valid fare contracts, while others
In my opinion, these questions of statutory construction, and all matters of detail, should, in the first instance, be decided by the trial court. To that end, the judgment of the District Court should be vacated and the case remanded for further proceedings, without costs to either party in this Court. Pending the decision of the trial court an interlocutory injunction should issue. Compare City of Hammond v. Schappi Bus Line, 275 U.S. 164; City of Hammond v. Farina Bus Line & Transportation Co., 275 U.S. 173; Ohio Oil Co. v. Conway, 279 U.S. 813. It is a serious task for us to construe and apply the written law of California. Compare Gilchrist v. Interborough Rapid Transit Co., 279 U.S. 159, 207-209. To “one brought up within it, varying emphasis, tacit assumptions, unwritten practices, a thousand influences gained only from life, may give to the different parts wholly new values that logic and grammar never could have got from the books.” Diaz v. Gonzalez, 261 U.S. 102, 106. This Court is not peculiarly fitted for that work. We may properly postpone the irksome burden of examining the many relevant state statutes and decisions until we shall have had the aid which would be afforded by a thorough consideration of them by the judges of the District Court, who are presumably more familiar with the law of California than we are. The practice is one frequently followed by this Court.1
States v. Magnolia Co., 276 U.S. 160, 164-5, United States v. Brims, 272 U.S. 549, 553, Gerdes v. Lustgarten, 266 U.S. 321, 327, Chastleton Corp. v. Sinclair, 264 U.S. 543, 548-9, Vitelli & Son v. United States, 250 U.S. 355, 359, Southern Pacific Co. v. Bogert, 250 U.S. 483, 494, 497, Union Pac. R. R. Co. v. Weld County, 247 U.S. 282, 287, Marconi Wireless Co. v. Simon, 246 U.S. 46, 57, Owensboro v. Owensboro Waterworks, 191 U.S. 358, 372, Chicago, Milwaukee &c. Ry. v. Tompkins, 176 U.S. 167, 180; in the following cases in which the Circuit Court of Appeals did not review the merits because of an erroneous view of the jurisdiction of the Distriсt Court, Guardian Savings Co. v. Road Dist., 267 U.S. 1, 7, Brown v. Fletcher, 237 U.S. 583, 586-8, cf. Louie v. United States, 254 U.S. 548, 551; in the following cases in which the Circuit Court of Appeals restricted its review because it erroneously regarded the action as one at law instead of a suit in equity, Twist v. Prairie Oil Co., 274 U.S. 684, 692, Liberty Oil Co. v. Condon Bank, 260 U.S. 235, 245; in the following cases in which the Circuit Court of Appeals erroneously narrowed the scope of its review for other reasons, Krauss Bros. Co. v. Mellon, 276 U.S. 386, 394, National Brake Co. v. Christensen, 254 U.S. 425, 432; in the following cases in which the State court placed its decision on an erroneous view of federal law, and, therefore, did not consider the questions of local law involved, Chicago & N. W. Ry. v. Durham Co., 271 U.S. 251, 257-8, Sioux City Bridge Co. v. Dakota County, 260 U.S. 441, 445-7, Ward v. Love County, 253 U.S. 17, 25. In all of these cases, this Court recognized its undoubted power to decide the matters erroneously left undetermined by the courts below; but it preferred to remand the cases for furthеr proceedings, either on the ground that the determination of the undecided issues was too burdensome a task, or on the ground that those issues should more appropriately be decided, in the first instance, by the lower courts.
The constitutional claim of confiscation gave jurisdiction to the District Court. We may be required, therefore, to pass, at some time, upon these questions of state law. And we may do so now. But the special province of this Court is the Federal law. The construction and application of the Constitution of the United States and of the legislation of Congress is its most important function. In order to give adequate consideration to the adjudication of great issues of government, it must, so far as possible, lessen the burden incident to the disposition of cases, which come here for review.2
MR. JUSTICE HOLMES joins in this opinion.
MR. JUSTICE STONE, dissenting.
I agree with Mr. Justice Brandeis that this case should have been disposed of by remanding it to the district court of three judges for determination whether the railway cоmpany, under its 102 franchises, or any of them, is bound by contract to maintain a five-cent fare. That question is I think different from the one presented in Home Telephone Co. v. Los Angeles, 211 U.S. 265, and
The provision of the statute of April 7, 1913, enacted after the decision in Home Telephone Co. v. Los Angeles, supra, authorizing the city to grant franchises and “to prescribe the terms and conditions” of the grant, and that of the act of June 8, 1915, authorizing the grantor of the franchise to impose terms and conditions “whether governmental or contractual in character,” to quote no others, would seem to permit the city to acquire by the mere grant of the franchise, without other obligation on its part, such contractual undertakings on the part of the railroad company as did not contravene the public interest.
If there be any public policy forbidding the company so to bind itself or forbidding the city to take advantage of the undertaking so given and acquired, it is one peculiar to local law, having its origin in local history and conditions, and so is peculiarly an appropriate subject for consideration, in the first instance, by the court of the district.
Notes
Art. I, § 2(30) (March 25, 1911) Stats. 1911, p. 2063: “The city . . . shall have the right and power: . . . To fix and determine the rates . . . for . . . the conveyance of passengers . . . by means of street railway cars. . . . To regulate, subject to the provisions of the constitution of the State of California, the construction and operation of . . . street railways. . . .”
Art. I, § 2(40), being § 2(25), supra, (as amended April 7, 1913) Stats. 1913, p. 1633: “The city . . . shall have the right and power: To grant franchises, . . . for furnishing . . . transportation . . . or any other public service; to prescribe the terms and conditions of any such grant, and to prescribe by ordinance . . . the method of procedure for making such grants; . . .”
Compare “Distribution of Judicial Power between the United States and State Courts,” by Felix Frankfurter, XIII Cornell Law Quarterly, 499, 503; “The Business of the Supreme Court at October Term 1928,” by Frankfurter and Landis, XLIII Harvard Law Review; 33, 53, 56, 59-62.