1. Where an order of the New York Public Service Commission
establishing joint street railway routes with a maximum joint fare,
long in force, became confiscatory as to one of the companies
concerned, and remained obligatory under the state law
notwithstanding an application for relief pending before the
commission on rehearing,
held that the company was not
bound to await final action by the Commission and to serve in the
meantime without just compensation before suing in the federal
court for an injunction. P.
268 U. S.
415.
2. The right of a street railway company to enjoin enforcement
of such an order, made by a state Commission having power to
establish equal and nonconfiscatory rates, is not affected by the
facts that another company, whose railway may benefit from the
injunction through diversions of traffic from competitors, owns all
the stock of the plaintiff and does not itself seek to have the
order enjoined. P.
268 U. S.
417.
3. Mere acceptance and putting into effect by a street railway
company of an order of the New York Public Service Commission
fixing a rate obligatory by the state law and which presumably was
valid at the time was not an agreement by that company to abide by
the rate should it subsequently become confiscatory, nor is such
consent to be imputed to a successor corporation because it was
incorporated and acquired the first company's property while the
order was in effect, where the acquisition was through foreclosure
of a mortgage antedating the order, and under which the franchises
of the first company passed unimpaired to the second, and where
there is nothing in its certificate of incorporation or in the laws
under which it was incorporated imposing on the second company an
obligation to continue to serve for the fare fixed by the order. P.
268 U. S.
417.
4. The power of a state to require street railways to provide
reasonably adequate facilities and services even though compliance
may be attended by some pecuniary disadvantage cannot justify an
order enabling passengers, by transferring from one line to
Page 268 U. S. 414
another, to ride on both for a fare so low as to deprive a
company of any return on the value of the property used by it to
perform the service; the state may not, under guise of regulation,
compel the use and operation of a company's property for the public
convenience without just compensation. P.
268 U. S.
419.
5. The evidence in this case justifies the conclusion that
resumption by the plaintiff street railway company of transfer
business under an order establishing joint routes and a joint 5�
fare, would require additional operating expenses in excess of the
resulting increase of revenue, and that the company's fair share of
the joint rate would be substantially less than the operating
expenses and taxes justly chargeable to that business -- hence, the
rate is confiscatory. P.
268 U. S.
420.
6. In determining whether a rate fixed for transfer passengers
constituting only part of the traffic of a street railway line is
confiscatory, the cost of the transfer business is not the amount
by which total operating expenses would be diminished by
eliminating, or increased by adding, the transfer passengers, for
those operating expenses which are incurred on account of all
passengers carried, and incapable of allocation to any class,
should be attributed to the transfer passengers in fair proportion
with others receiving like service. P.
268 U. S.
421.
7. While a carrier has no constitutional right to the same rate
of return on all its business, the state may not select any class
of traffic for arbitrary control and regulation. P.
268 U. S.
421.
8. In a suit to enjoin enforcement of a rate fixed by a
competent state Commission, the presumption is that the order was
based on sufficient evidence and the burden is on the plaintiff to
establish its invalidity. P.
268 U. S.
422.
9. A commission or other legislative body, in its discretion,
may determine to be reasonable and just a rate that is
substantially higher than one merely sufficient to justify a
judicial finding in a confiscation case that it is high enough to
yield a just and reasonable return on the value of the property
used to perform the service covered by the rate; rates
substantially higher than the line between validity and
unconstitutionality properly may be deemed to be just and
reasonable, and not excessive or extortionate. P.
268 U. S.
422.
10. A finding by a state commission that a street car rate is,
by reason of changed operating conditions, "unjust, unreasonable,
and insufficient to render a fair and reasonable return for the
service furnished," plainly imports that the rate is confiscatory.
P.
268 U. S.
422.
Affirmed.
Page 268 U. S. 415
Appeal from a decree of the district court enjoining,
enforcement of an order establishing joint street car routes and a
maximum joint fare.
See 273 F. 272.
MR. JUSTICE BUTLER delivered the opinion of the Court.
This suit was commenced December 16, 1920, by appellee to enjoin
the enforcement of an order of the New York Public Service
Commission, First District (succeeded by the Transit Commission)
made October 29, 1912. The order established joint routes on street
railways in New York City, and prescribed five cents as the maximum
joint fare. Appellee's street railway formed a part of some of such
routes. The complaint alleged that the order deprived appellee of
any return on the value of its property used to perform the service
covered by the joint fare complained of, and violated the due
process and equal protection clauses of the Fourteenth Amendment,
and prayed injunction against the enforcement of the order in
respect of certain lines with which its railroad connected. A
temporary injunction was granted by a court of three judges.
Section 266, Judicial Code; 273 F. 272. A master took the evidence
and reported that the order was confiscatory. The district court
confirmed his findings and entered decree as prayed. Appeal was
taken under § 238, Judicial Code.
1. Appellants contend that when this suit was commenced, the
ratemaking process was not completed, and that the appellee had not
exhausted its legal remedies in the state tribunals. The point is
without merit. The order complained of had been in force for more
than eight
Page 268 U. S. 416
years. The laws of the state required it to be obeyed, and
prescribed penalties for failure to comply with it.
See §
56, Public Service Commission Law; c. 48, Consolidated Laws New
York. May 11, 1920, the receiver of the New York Street Railways
Company applied to the Commission to be relieved from the
requirements of the order, and, May 18, appellee joined in that
application and prayed for the elimination of the joint fare
between its lines and the lines of other companies, except those of
the Third Avenue Railway Company and the Forty-Second Street,
Manhattanville & St. Nicholas Avenue Railway Company. May 22,
appellee filed with the Commission a revised joint tariff, to take
effect June 22, eliminating the joint fare of five cents. But, on
June 18, the Commission suspended this tariff, and so compelled
appellee to continue to comply with the order of October 29, 1912.
July 9, the Commission found the fare of five cents too low, and
prescribed in its stead a joint fare of seven cents, to take effect
September 13. Appellee, on July 23, applied for a rehearing under §
22 of the Public Service Commission Law. It alleged that the joint
fare of seven cents would be confiscatory, and that the evidence
submitted had no reference to a joint or through rate of seven
cents. August 28, the receiver also applied for a rehearing. August
31, the Commission granted a rehearing to commence November 5, and
postponed the taking effect of the joint fare of seven cents until
such time as the Commission might fix at or after the termination
of the rehearing. On November 5, the rehearing was commenced, and
the testimony was closed November 10. There has been no
determination of the matter by the Commission, and so the order
fixing joint fares at seven cents never took effect. Neither the
original application nor the petition for rehearing relieved
appellee of the burden of compliance with the order of October 29,
1912. No application to the Commission for relief was required by
the state law. None was necessary
Page 268 U. S. 417
as a condition precedent to the suit.
See Prendergast v.
N.Y. Tel. Co., 262 U. S. 43,
262 U. S. 48;
United States v. Abilene & So. Ry. Co., 265 U.
S. 274,
265 U. S. 282.
On the point under consideration, it must be assumed that the joint
fare of five cents was confiscatory, as alleged. The continued
enforcement of that rate would operate to take appellee's property
without just compensation and to compel it to suffer daily
confiscation. Notwithstanding the matter was pending on rehearing,
the appellee had the right to sue in the federal court to enjoin
the enforcement of the rate. It was not bound to await final action
by the Commission, and, if the rate was in fact confiscatory, to
serve in the meantime without just compensation.
See Pacific
Telephone Co. v. Kuykendall, 265 U. S. 196,
265 U. S. 204;
Oklahoma Gas Co. v. Russell, 261 U.
S. 290,
261 U. S. 293;
Love v. Atchison, T. & S.F. Ry. Co., 185 F. 321,
326.
2. Appellants complaint that appellee has not sought injunction
against the operation of the order as to the lines of the Third
Avenue Company -- which owns the stock of the appellee -- and
asserts that a diversion of traffic from other lines to that
company has resulted from the injunction. The lines as to which the
order was enjoined are relieved by the decree from the obligation
of dividing the joint fare of five cents. If the rates enjoined are
confiscatory, appellee is entitled to relief notwithstanding its
obedience to the order in respect of other lines and fares. It was
not bound to attack the prescribed rates as to all the routes. It
is not suggested that the Commission is without power to prescribe
equal and nonconfiscatory rates. The effect of the injunction on
the business of the Third Avenue Company and its competitors is not
involved in this suit, nor are they complaining.
3. Appellants insist that the appellee voluntarily assumed the
obligation to carry transfer passengers pursuant
Page 268 U. S. 418
to the order of October 29, 1912, for two cents each, and,
having been incorporated and having acquired its property
subsequent and subject to such order, it is not entitled to
complain of the order as an infringement of any constitutional
right.
The Commission had power to establish through rates and fix
joint fares. The law required street railroad corporations to
comply with every order made by the Commission, and prescribed
penalties to enforce such orders.
See subd. 3, § 49; § 56,
Public Service Commission Law,
supra. The Central Park,
North & East River Railroad Company, appellee's predecessor,
accepted the order, and put in effect the prescribed joint fare of
five cents. There is no suggestion that it was not bound to do so,
or that the order was not then valid and binding on the company. A
rate that is just and reasonable when prescribed subsequently may
become too low, unreasonable, and confiscatory.
See Bluefield
Co. v. Public Service Commission, 262 U.
S. 679,
262 U. S. 693;
Galveston Electric Co. v. Galveston, 258 U.
S. 388,
258 U. S. 400.
That company did not agree to serve for the prescribed joint fare
of five cents, and was not bound to do so if the rate was found to
be, or if thereafter it should become, confiscatory. It did not
surrender the protection of the Fourteenth Amendment.
The Central Park Company, many years before the order of October
29, 1912, was made, gave a mortgage on all its property, rights,
and franchises. November 14, 1912, one Cornell purchased at
foreclosure sale. December 24, 1912, under § 9 (now § 96) of the
Stock Corporation Law, c. 59, Consolidated Laws New York, Cornell
and others became incorporated as the Belt Line Railway
Corporation, the appellee. That corporation, through such sale and
by virtue of the provisions of § 9, succeeded to
"all the rights, privileges and franchises which at the time of
such sale belonged to, or were vested in the corporation
Page 268 U. S. 419
last owning the property sold,"
and became "subject to all the provisions, duties and
liabilities imposed by law on that [the predecessor] corporation."
The franchise of the mortgagor was not destroyed.
People v.
O'Brien, 111 N.Y. 1, 41
et seq. The rights of the
mortgagee and of the purchasers were inviolable.
People ex rel.
Third Avenue Ry. Co. v. Public Service Commission, 203 N.Y.
299, 308. There is nothing in appellee's certificate of
incorporation or the laws under which it was organized that imposes
upon it any obligation to continue to serve for a portion of the
joint fare of five cents. The Commission's order constitutes no
part of the charter of appellee, and we find no agreement by
appellee, expressed or implied, to comply with the order. The
district court rightly held that
Interstate Railway Co. v.
Massachusetts, 207 U. S. 79, does
not apply.
4. It is asserted that the transfer order was not confiscatory,
because it was a reasonable service requirement and also because
the additional expense which would be involved by a resumption of
transfers would not exceed the additional revenue which would be
derived from transfer passengers.
The order was made under subd. 3, § 49, Public Commission Law,
supra. Its purpose was to enable a passenger, by making a
change from the car of one company to the car of another, to ride
on the lines of both for a single fare of five cents. The service
was not affected by the order. Change of cars remained necessary.
The designation of transfer points and the requirement that
transfer tickets be given and received by carriers were for the
purpose of giving to the passenger the additional transportation
without additional payment. The amount of the fare prescribed was
not essential, and had no relation to the use of connecting lines
for a continuous journey. The state has power to require street
railways and like utilities to provide reasonably adequate
Page 268 U. S. 420
facilities and services, even though compliance may be attended
by some pecuniary disadvantage.
Railroad Commission v. Eastern
Texas R. Co., 264 U. S. 79,
264 U. S. 85,
and cases cited. But that rule is not applicable here, and the
cases referred to do not support appellant's contention. The
Commission, under the guise of regulation, may not compel the use
and operation of the company's property for public convenience
without just compensation.
The evidence sustains the finding of the master and the district
court that the joint fare of five cents is confiscatory.
At the time of the foreclosure, appellee's predecessor, the
Central Park Company, operated a street railway across town on
Fifty-Ninth street and up and down town on the east side and on the
west side of Manhattan Island from Fifty-Ninth street to the
Battery. The order required the company to exchange transfers with
the lines on First, Second, Third, Lexington, Madison, Sixth, and
Seventh Avenues, Broadway, and Eighth, Ninth and Tenth Avenues. In
October, 1919, and February, 1920, the receiver of the New York
Railways Company returned the leased lines on Eighth, Ninth, and
Madison Avenues to their owners, who were not named in or bound by
the order. This eliminated some of the through routes. June 3,
1919, with the approval of the Commission, appellee abandoned the
line on the east side, and March 24, 1921, abandoned the line on
the west side. This left operated by appellee only the Fifty-Ninth
street line from First Avenue to Tenth Avenue, and south on Tenth
Avenue to Fifty-Fourth street. It then exchanged transfers at
intersections of Fifty-Ninth street and First, Second, Third,
Lexington, Sixth, and Seventh Avenues, Broadway, and Tenth Avenue.
The decree, following the prayer of the complaint, enjoins the
enforcement of the order except as to transfers at First and Third
Avenues, Broadway and Tenth Avenue.
Page 268 U. S. 421
There is involved only the rates applicable to a part of the
company's business. In this respect, the case is similar to
Northern Pacific Railway v. North Dakota, 236 U.
S. 585;
Norfolk & Western Ry. v. West
Virginia, 236 U. S. 605, and
Northern Pacific Railway v. Department of Public Works of
Washington, 268 U. S. 39. The
applicable law is plain. The state is without power to require the
traffic covered by the fare enjoined to be carried at a loss or
without substantial compensation over its proper cost. And such
cost includes not only the expenditures, if any, incurred
exclusively for that traffic, but also a just proportion of the
expenses incurred for all traffic of which that in question forms a
part. The cost of doing such business is not, and properly cannot
be, limited to the amount by which total operating expenses would
be diminished by the elimination of, or increased by adding, the
transfer passengers in question. It would be arbitrary and unjust
to charge to that class of business only the amount by which the
operating expenses were, or would be, increased by adding that to
the other traffic carried. Outlays are nonetheless attributable to
transfer passengers because also applicable to other traffic.
Operating expenses which are incurred on account of all passengers
carried, and which are not capable of direct allocation to any
class, should be attributed to the transfer passengers in question
in like proportion as such expenses are fairly chargeable to other
passengers receiving like service. While the carrier has no
constitutional right to the same rate or percentage of return on
all its business, the state may not select any class of traffic for
arbitrary control and regulation. Broad as is its power to
regulate, the state does not enjoy the freedom of an owner.
Appellee's property is held in private ownership, and, subject to
reasonable regulation in the public interest, the management and
right to control the business policy of the company belong to its
owners.
Northern Pacific Railway v.
Page 268 U. S. 422
North Dakota, supra, 236 U. S.
595-596;
Norfolk & Western Ry. v. West Virginia,
supra, 236 U. S. 609;
Interstate Commerce Commission v. Chicago G. W. Ry.,
209 U. S. 108,
209 U. S.
118.
It does not appear whether the Commission, when making the
order, acted without or upon sufficient evidence.
Northern
Pacific Railway v. Department of Public Works of Washington,
supra. But the presumption is that the order was reasonable
and valid, and the burden was on appellee to establish its
invalidity. It is well known, and the court will take judicial
notice of the fact, that the purchasing power of money has been
much less since 1917 than it was in 1912, when the order was made,
and that the cost of labor, materials and supplies necessary for
the proper operation and maintenance of street railways has greatly
increased. In the preamble to its order of July 20, 1920,
prescribing a joint fare of seven cents instead of five cents, the
Commission stated:
"The Commission, after a careful consideration of the testimony
and briefs submitted by counsel, being of the opinion that the
convenience of the traveling public necessitates the continuance of
the said transfers, but that the maximum joint rate of five cents
fixed in the said order of October 29, 1920, [1912] is, by reason
of the changed conditions under which the said railroad companies
are operating, unjust, unreasonable, and insufficient to render a
fair and reasonable return for the service furnished, it is
ordered, . . ."
etc. Appellants argue that this does not amount to a finding
that the joint fare of five cents is confiscatory. But clearly the
language properly may be taken to mean that the rate is too low,
and violates the Constitution. That is the plain import of the
words used. A commission or other legislative body, in its
discretion, may determine to be reasonable and just a rate that is
substantially higher than one merely sufficient to justify a
judicial finding in a confiscation case that it is high enough to
yield a just and reasonable return on the value of the property
Page 268 U. S. 423
used to perform the service covered by the rate. The mere fact
that a rate is nonconfiscatory does not indicate that it must be
deemed to be just and reasonable. It is well known that rates
substantially higher than the line between validity and
unconstitutionality properly may be deemed to be just and
reasonable, and not excessive or extortionate. Trier v. C., St. P.,
M. & O. Ry. Co., 30 I.C.C. 352, 355; Holmes & Hallowell Co.
v. G. N. Ry. Co., 37 I.C.C. 625, 635; Dimmitt-Caudle-Smith Live
Stock Co. v. R. Co., 47 I.C.C. 287, 298;
Detroit & M. R.
Co. v. Michigan Railroad Commission, 203 F. 864, 870. But the
language above quoted does not show, and there is nothing to
suggest, that the Commission had in mind or intended any such
distinction.
About the time the order of October 29, 1912, became effective,
the carriers agreed upon a division of the joint fare. There was
assigned to the appellee two cents and to the other carriers three
cents out of each fare. This apportionment was accepted by the
master and district court. It is not challenged by any assignment
of error, and it does not appear that appellee was entitled to
more.
The evidence shows that, upon the authorization of the
Commission, appellee issued capital stock to the amount of
$734,000, bonds for $1,750,000, and a note for $73,091.53. The
total is $2,557,091.53. But, because of abandonments, changes, and
lack of supplementing evidence, this figure is not a good
indication of the cost or of the value of the property in use at
the time of the trial. At the trial, appellee called a valuation
engineer who, in May, 1921, had been employed by the Commission to
make a valuation of all the street railroads in New York City. His
estimate of the cost of reproduction of appellee's property in 1921
was $2,859,754. He deducted from this $77,000 on account of errors
in the inventory and $128,246, his estimate of the cost of putting
the property in first class condition, leaving $2,654,508.
There
Page 268 U. S. 424
was other evidence of value. The master and district court found
the value to be $2,600,000. Appellants contend that this finding is
not sustained by the evidence. In the view we take of this case, it
is not necessary to determine the value of the property, or whether
total revenue exceeds total operating expenses and taxes by a sum
sufficient to pay a reasonable return on the value of all the
property. However, we are satisfied by the evidence that a fair and
reasonable return on the value would be in excess of $91,154.58,
the annual interest at 5 percent on the indebtedness of
$1,823,901.53, evidenced by the bonds and note.
There follows a statement showing by fiscal years, ended June
30, and for three months ending September 30, 1922: (1) the number
of passengers carried at five cents each; (2) the number of joint
rate passengers carried at two cents each; (3) the average revenue
per passenger, exclusive of free transfer passengers; (4) the
average cost per passenger, including operating expenses and taxes,
but excluding any amount for depreciation or interest; (5) the
average cost per passenger, exclusive of depreciation, but
including interest at 5 percent on the company's bonds and
note.
(1) (2) (3) (4) (5)
1918 6,450,687 13,512,033 2.9� 2.75� 3.20�
1919 5,440,766 12,817,674 2.89� 2.49� 3.00�
1920 7,186,735 10,171,479 3.2� 2.93� 3.46�
1921 8,119,325 7,948,148 3.5� 3.52� 4.10�
1922 8,100,009 5,720,102 3.68� 2.92� 3.58�
* 1,690,229 1,426,923 3.6� 3.03� 3.77�
* Three months ended September 30, 1922.
These figures show that the operating expenses and taxes, both
before and after the injunction, substantially exceeded two cents,
the amount received by appellee per transfer passenger. Exclusive
of any allowance for a depreciation reserve or for interest, the
average cost per
Page 268 U. S. 425
passenger has been from about 24 percent to about 51 percent in
excess of two cents, and, if interest on the debt at five percent
be included, it appears that the excess has been from about 50
percent to 105 percent. And the record shows that, for some time
prior to the injunction, the total revenue from all sources,
including revenue for transportation, advertising, rentals and
interest on deposits, was less than a sum sufficient to cover
operating expenses, taxes, and interest on the debt, and also shows
that, both before and after the injunction, such total revenue was
not sufficient to yield a reasonable return on the value of the
property after paying operating expenses and taxes.
The master found that a resumption of the transfer traffic
enjoined would result in an increase of revenue of $46,326.72 per
year, and of operating expenses of $105,900 per year. These
findings were not confirmed. The district court found that the
revenue would be increased by about $42,000 per year and operating
expenses about $46,000 per year.
The evidence undoubtedly justifies the conclusion that a
resumption of such transfer business would require additional
operating expenses in an amount in excess of the resulting increase
of revenue, and that appellee's fair share of the joint rate would
be substantially less than the operating expenses and taxes justly
chargeable to that business. It follows that the rate is
confiscatory. We need not determine the value of the property
attributable to the traffic in question, or what would constitute a
reasonable rate of return.
Decree affirmed.