Paducah v. Paducah Railway Co.
261 U.S. 267 (1923)

Annotate this Case

U.S. Supreme Court

Paducah v. Paducah Railway Co., 261 U.S. 267 (1923)

Paducah v. Paducah Railway Company

No. 243

Argued January 18, 1923

Decided February 19, 1923

261 U.S. 267

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE WESTERN DISTRICT OF KENTUCKY

Syllabus

1. A city with power to fix the fares chargeable by street railway companies will not be adjudged to have surrendered any part of it unless plainly authorized and unmistakably intending to do so. P. 261 U. S. 272.

Page 261 U. S. 268

2. A street railway company has a constitutional right to a reasonable return on the value of its property used in the public service if it has not contracted the right away. P. 261 U. S. 272.

3. A contract between a city and a street railway company considered and construed as fixing fares for the first year of operation under it, but as leaving unfettered the rights of the company and of the city, respectively, thereafter to charge and prescribe other fares that are just and reasonable. P. 261 U. S. 273.

4. A decree enjoining a city from enforcing street railway fares found to be confiscatory should be so framed as to protect the city's right to prescribe the same fares if, through change of conditions, they become just and reasonable. P. 261 U. S. 275.

Modified and affirmed.

Appeal from a decree of the district court permanently enjoining the City from enforcing an ordinance prescribing fares for the Railway Company.

MR. JUSTICE BUTLER delivered the opinion of the Court.

The appellee, the Paducah Railway Company, is the owner of an electric street car system in Paducah, Kentucky, and is operating it under a franchise ordinance adopted April 29, 1919, Section XV thereof (printed in the margin) [Footnote 1] relates to fares to be charged. The company

Page 261 U. S. 269

commenced operation under this ordinance October 1, 1919, charging the fare therein specified, six cents for adults, half fare for children under twelve and over five years of age. On September 17, 1920, the company notified the city that it would fail to earn enough to meet operating expenses, taxes, depreciation, and a reasonable rate of return upon its investment by $72,350.10, and furnished the city a statement showing (for eleven months, actual and September estimated) that operating expenses, including depreciation and taxes, exceeded the total revenue by $4,055.86, and that the additional amount required to provide an eight percent return on

Page 261 U. S. 270

the investment of $854,303 was $72,350.10; that the number of passengers carried was 2,979,654, and the average fare 5.32 cents; that, to provide sufficient revenue on the basis of then existing price levels, it would require a cash fare of 13.5 cents, and stated that, in the hope that, during the ensuing year, prices would decline, it was willing to operate for the twelve months beginning October 1, 1920, at a lower fare. It notified the city that, effective on that day, the rates of fare would be: cash fare, 10 cents; tokens, 7.5 cents; half fare, 5 cents. On September 20, 1920, the company, supplementing its earlier communication, requested the city, if dissatisfied with the value of the property as shown in the statement theretofore furnished, to have an appraisal of the property as provided in section XV of the franchise ordinance. On September 21, 1920, claiming that the company was limited to the fares specified in section XV as maximum, the city, without any investigation of the facts reported by the company or any appraisal of the property, passed an ordinance prescribing the same fare and imposing penalties for the violation of the ordinance. [Footnote 2]

Page 261 U. S. 271

The company thereupon brought this suit to restrain and enjoin the enforcement of the ordinance on the ground that the rates specified are unremunerative and confiscatory, and that the enforcement of the ordinance would take the company's property without due process of law and deny it equal protection of the laws in violation of the Fourteenth Amendment.

After hearing the parties, the district court, on September 30, 1920, granted a temporary injunction.

On October 12, 1920, the company furnished a statement of receipts and expenditures for the first 12-months period in form similar to that submitted September 17, 1920, shortly before the expiration of the year, showing that operating expenses, including depreciation and taxes, exceeded the total revenue by $4,338.21, and that the additional amount of revenue required to provide an eight percent return on the investment as claimed was $72,862.45.

At the trial of the case on the merits, the company offered evidence sufficient to sustain the allegations of the complaint. The city offered no evidence, and made no serious contention that the rates fixed in the ordinance complained of were sufficient, but insisted that the franchise ordinance was a contract binding the company to the fares specified in section XV as the maximum never to be exceeded during the twenty-year term.

The district court held that the franchise fixed rates for the first year only, and final decree was entered enjoining the enforcement of the ordinance.

On this appeal, the city's only contention is that, under the franchise, the company has no right at any time to have fares in excess of those specified in that section, and, because of the contract, it may not invoke constitutional protection against the enforcement of the specified rates, even if shown to be too low to yield a reasonable return.

Page 261 U. S. 272

Before considering the language, it is appropriate to take note of the situation existing at the time the passage of the franchise was being considered. The plaintiff's predecessor, the Paducah Traction Company, had operated the system for many years. Until July 1, 1918, there was a five-cent fare. The city and company agreed upon a fare of seven cents to commence on that date. On September 1, 1918, a receiver was appointed and that fare continued in force until October 1, 1919, the date of the commencement of the term of the present franchise. The district judge, in his opinion on granting the motion for a temporary injunction, said:

"The predecessor of the plaintiff had failed to accomplish either an adequate transportation system for the city or the making of anything resembling profits for itself."

Operating expenses greatly increased between 1914 and the adoption of the franchise ordinance.

That the city had power under its charter to prescribe just and reasonable fares from time to time was stated by counsel on the argument, and is assumed. The surrender of this power or any part of it is a very grave act; authority to make it must be plain, and the intention so to do must clearly and unmistakably appear. Home Telephone Co. v. Los Angeles,211 U. S. 265, 211 U. S. 273, and cases there cited.

The company was entitled to just compensation -- i.e., a reasonable return on the value of its property used in the public service -- and, unless contracted away, that right is protected by constitutional safeguards which may not be overridden by legislative enactment or considerations of public policy. Southern Iowa Electric Co. v. City of Chariton,255 U. S. 539, 255 U. S. 542, and cases there cited; San Antonio v. San Antonio Public Service Co.,255 U. S. 547.

On the argument, it was stated by counsel that the city and company have power to contract as to rates, and we so assume. If the franchise here amounts to a contract

Page 261 U. S. 273

binding the company to the fare stated therein as a maximum, as claimed by the city, for the whole franchise term of twenty years, it cannot complain, and there is no ground for relief, and the question whether such rates are too low to give a reasonable return or sufficient is immaterial. Southern Iowa Electric Co. v. City of Chariton, supra,255 U. S. 543; San Antonio v. San Antonio Public Service Co., supra.

In the construction of section XV, regard properly may be had to the facts, the situation of the parties at the time of the adoption of the ordinance, and to their respective powers and rights liable to be effected by the franchise.

The first clause is as follows:

"The fare for one continuous trip for twelve (12) months from the commencement of operation under this franchise is hereby fixed as follows:"

Cash fare for adults. . . . . . . . . . . . . . . . . . . 6

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