Railroad Comm'n v. Cumberland Tel. & Tel. Co.
212 U.S. 414 (1909)

Annotate this Case

U.S. Supreme Court

Railroad Comm'n v. Cumberland Tel. & Tel. Co., 212 U.S. 414 (1909)

Railroad Commission of Louisiana v.

Cumberland Telephone and Telegraph Company

No. 182

Argued October 20, 21, 1908

Decided February 23, 1909

212 U.S. 414

Syllabus

Where diverse citizenship exists, complainant may assert in a suit in the circuit court of the United States that rates fixed by ordinance are so low as to be confiscatory under the Fourteenth Amendment or unreasonable or unjust under the provisions of state law. Rates fixed by the body having jurisdiction, after investigation based on reports of the corporation rendering the service, are prima facie fair and valid and the burden of proof is on the complainant attacking them to how that they are confiscatory or unreasonable.

Where a public service corporation raises more money in a particular year than required for actual depreciation, it cannot carry the excess to capital for the purpose of estimating the amount on which it is entitled to pay dividends in determining whether a rate is unconstitutional as confiscatory, and the onus of showing that this has not been done is on complainant where the books show that such an excess has been collected.

Quaere, and not decided, whether it would be entitled to dividends on such excess if invested in extensions and additions.

While in some businesses where increased demand does not involve a corresponding increase in expense, increased profits may result from decreased rate, this rule does not apply to a business, such as that of a telephone company, where expenses are proportionately increased with increased demand and service.

Although complainant failed to prove its case, the bill will not be dismissed, but a new trial ordered, as the rates have been in force and the inquiry can be founded upon their actual effect.

156 F. 823 reversed.

This case comes here upon appeal by the Railroad Commission, which was defendant below, from a decree of the Circuit Court of the United States for the Eastern District of Louisiana enjoining the enforcement of certain rates prescribed by the

Page 212 U. S. 415

Railroad Commission of that state, for use by the appellee, telephone company therein. The appellant was created under Article 283 of the Constitution of the State of Louisiana, and Article 284 of that Constitution authorizes it to adopt just and reasonable rates, charges, and regulations governing and regulating, among other corporations, those operating the telephone within the state. The commission has the power to examine and compel the attendance of and to swear witnesses, and compel the production of books and papers, to take testimony under commission, and to punish for contempt, as fully as provided by law for the district courts.

Article 285 of the Constitution provides that, if any corporation subject to the commission is dissatisfied with its decision fixing or adopting any rate, the corporation thus dissatisfied may file a petition, setting forth the cause of its objection, in a court of competent jurisdiction at the domicil of the commission, against said commission as defendant, and either party to such action may appeal the case to the supreme court of the state without regard to the amount involved.

By Art. 286, it is provided, among other things, that

"whenever any rate, order, charge, rule, or regulation of the commission is contested in court, as provided for in Art. 285 of this constitution, no fine or penalty for disobedience thereto, or disregard thereof shall be incurred until after said contestation shall have been finally decided by the courts, and then only for acts subsequently committed."

Under these provisions of the constitution, the Railroad Commission had been created and was in operation, and on or about August 6, 1906, it established and promulgated certain rates for the complainant to charge for its services within the State of Louisiana, to take effect September 1, 1906. The complainant, immediately after the promulgation of the order, and before the time when it was to take effect, applied to the commission for a rehearing before it, which was granted, but no evidence was taken on such rehearing, and the commission subsequently

Page 212 U. S. 416

reaffirmed the order and directed that it should take effect on the twentieth of October, 1906. Thereupon the complainant commenced this suit for the purpose of enjoining the enforcement of the rates established by the order, which is designated as Order No. 552.

In the bill filed by the complainant, it was alleged that the complainant was a corporation organized and existing under the laws of the State of Kentucky and a citizen and resident of that state, and that the Railroad Commission of Louisiana was a corporation organized and existing under the laws of the State of Louisiana, and was a resident of that state and of the district in which suit was brought; viz., in the Eastern District of Louisiana, Baton Rouge Division.

It was also alleged that, prior to August 6, 1906, the complainant had in force and effect a tariff of rates between points in the State of Louisiana, which had been promulgated and put into effect by the Railroad Commission of that state; that such rates were entirely fair and reasonable insofar as the public is or was concerned, as under them subscribers were and are able to use said service at a price which did not and does not afford complainant a fair, just, and reasonable compensation for its services.

It was also averred that, while such rates were in force, the commission, without making any investigation, and without any evidence in regard to any of the facts necessary to reach a determination, and without any effort to obtain evidence in that direction, made and promulgated, on the sixth of August, 1906, the order known as Order No. 552, by which order it greatly reduced the rates in existence up to that time, and the former rates were thereby changed to the rates specified in the order, which order was to become effective after the first of September, 1906.

The complainant further averred that it had asked for a rehearing, which the commission granted, and thereafter, being still without evidence or investigation justifying the same, the commission reaffirmed the Order No. 552, and declared that

Page 212 U. S. 417

the same should become effective within ten days from the date of the second order, which was dated October 10, 1906.

It was also further averred that the rates which preceded the rates provided for in Order No. 552 were reasonable, just, and fair to the public, and not in any wise excessive, and under them complainant received for its services only a fair and reasonable return for the services rendered; that, under the tariff of rates promulgated and sought to be enforced by the commission under Order No. 552, complainant would be required to render the services therein described at an unreasonable, unjust, and unremunerative rate, which would not afford to it a reasonable return for the services rendered, and that it would thereby be deprived of its property without due process of law; that said proposed tariff was unjust, unreasonable in itself, and was not justified by any conditions, either concerning the services in question or by the financial or physical condition of complainant's property or affairs; that the orders of the commission complained of were unjust, unfair, and unreasonable and unwarranted, not only with regard to the tariff as a whole, but with regard to each particular rate charged by said tariff, and that the tariff of rates, as a whole and in detail, constituted, for the reasons already set forth, a taking of complainant's property without due process of law and without compensation being previously made, contrary to and in violation of § 1, Article XIV, of the Amendments of the Constitution of the United States and in violation of certain (named) articles of the Constitution of the State of Louisiana of the year 1898.

For answer, the defendant denied that there was no inquiry or proper investigation of the subject matter prior to the promulgation of Order No. 552 of the date of October 10, 1906; it also denied that the rates established were unjust, unreasonable, or improper, or that they would result in the taking of complainant's property without due process of law. Testimony was taken by depositions, and upon the trial, the court directed a final decree, enjoining the commission from putting the rates in force as provided for in Order No. 552, and restraining the commission

Page 212 U. S. 418

from instituting any suit against the complainant for the recovery of any penalty by reason of complainant's failure to put into effect the rates in the order of the commission, and it was further adjudged that the tariff of rates specified in the order should be cancelled and declared to be null and void and of no effect. An injunction was issued pursuant to the decree. See opinion of circuit court, 156 F. 823.

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