1. A public utility claiming that an order of a state commission
fixing its rates deprives it of a fair return is not bound to
exhaust a statutory remedy by appeal to the state court before
going into the federal court, when it is possible that such remedy
might be held judicial, rather than legislative in character, and
the decision therefore res judicata
complainant. P. 273 U. S.
2. The requirement that state remedies in such cases be
exhausted before coming into the federal court is not a fundamental
principle of substantive law, but merely a requirement of
convenience or comity. P. 273 U. S.
3. A street railway, in electing to come under a state statute
providing that its rates may be fixed by a commission with review
by appeal to the state courts, does not thereby contract that it
will exhaust the statutory remedy before suing in the federal court
when the rate fixed by the commission is confiscatory. P.
273 U. S.
4. Where, under the state law, a street railway and a city both
had the right to appeal to the state court from an order of a
commission fixing the railway fare, a suit by the railway in the
federal court to enjoin enforcement of the order as confiscatory,
to which the city is a party, gives the city its day, and is not
objectionable as cutting off its right of appeal to the state
court. P. 273 U. S. 629
4 F.2d 543
Page 273 U. S. 626
Appeal from a judgment of the district court enjoining the
enforcement of an order of the above-named Commission fixing the
rates of the Railway Company. The defendants were the Commission,
its members, and the City of Duluth.
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is an appeal from a decree of the district court in favor
of the plaintiff, the appellee, that prohibits the enforcing of a
rate for the carriage of passengers established by the appealing
Commission and authorizes the plaintiff to charge not exceeding six
cents for carrying passengers within the City of Duluth, subject to
conditions not needing mention. 4 F.2d 543
The Commission's order allowed a charge of six cents for a single
fare but required the plaintiff to issue tickets or tokens at not
to exceed twenty-five cents for five rides. The difference, it will
be seen, is somewhat narrow, and the only question that we have any
need to consider is whether the plaintiff had a right to come into
the Court of the United States when it did, and whether its suit
was not at least premature.
The plaintiff, an existing street railway company, elected to
comply with and come under to terms of Chapter 278, General Laws of
Minnesota 1921, by filing the declaration and consent required.
Thereby it gained a right to apply to the above-mentioned
Commission to fix the rates of fare to be charged in place of the
Page 273 U. S. 627
to which it had been limited before it came in under the Act. It
applied to the Commission, the City of Duluth was made a party,
and, after a hearing, the Commission determined the value of the
plaintiff's property used and useful in the streetcar service in
Duluth, found that a return of seven and one-half percent was a
reasonable rate of return, and fixed the fares that we have stated
as sufficient to yield that rate. This was on July 13, 1922. Five
days later, the plaintiff filed this bill, setting up that the
Commission's order was confiscatory and in violation of the
Fourteenth Amendment of the Constitution of the United States.
The objections to the bill are based on the provisions of the
Minnesota statute for an appeal. Both the city and the street
railway are given the right to appeal to the district court of the
county, and there the whole matter, fact and law, is to be tried
before three judges, without a jury. They are to find all material
facts, including the fair value of the property and the reasonable
rate of return, and to affirm, modify, or reverse the order of the
Commission, as may be required by law, the Commission being
directed to conform to their judgment in its final order. There is
a further resort to the Supreme Court. It is said that plaintiff
was bound to exhaust the appeal thus granted before going
elsewhere, and that it could not cut off the similar right of the
City of Duluth. It is said that this is so not only on general
principles, but is binding on the plaintiff by its assent to the
statute, which, it is said, constituted a contract and amounted to
an acceptance of the statutory proceedings as the only mode of
The supreme court of the state has declared the proceedings in
court to be judicial, not legislative, in their nature, and
therefore consistent with the constitution of the state, Duluth
v. Railroad & Warehouse Commission,
167 Minn. 311. See
174 Mass. 514. If
Page 273 U. S. 628
then the state Court should affirm the rate fixed by the
Commission and the matter should become res judicata,
resort to the federal court would be too late. But the plaintiff,
if it prefers to entrust the final decision to the courts of the
United States, rather than to those of the state, has a right to do
so. Reagan v. Farmers' Loan & Trust Co., 154 U.
, 154 U. S. 391
Prentis v. Atlantic Coast Line Co., 211 U.
, 211 U. S. 228
and cases cited. It might be said that this Court would have to
exercise its own judgment as to how the proceedings in the state
court should be characterized, and not impossibly might regard them
as legislative. Keller v. Potomac Electric Co.,
261 U. S. 428
again it might be said that, however characterized, the judgment
does not operate as such, but is taken up into the subsequent order
of the Commission, and therefore is subject to review after has
been given that form. But, as against these considerations, it must
be remembered that the requirement that state remedies be exhausted
is not a fundamental principle of substantive law, but merely a
requirement of convenience or comity. Where, as here, a
constitutional right is insisted on, we think it would be unjust to
put the plaintiff to the chances of possibly reaching the desired
result by an appeal to the state court when at least it is possible
that. as we have said. it would find itself too late if it
afterwards went to the district court of the United States.
Pacific Telephone & Telegraph Co. v. Kuykendall,
265 U. S. 196
Oklahoma Natural Gas Co. v. Russell, 261 U.
The argument that the plaintiff is barred by contract needs but
a word. We will assume for the purposes of decision that the
plaintiff, by coming in under the state law, made a contract, and
as part of it adopted the statutory method of getting its rates
changed. But it would be extravagant to say that it did more than
adopt that method in its general character and with its ordinary
incidents. If, apart from the supposed contract, a party
Page 273 U. S. 629
would have been entitled to go to the court of the United States
at the stage when the plaintiff went there, no reasonable
interpretation of the contract forbade the plaintiff to go, and
there is no need to consider whether the contract could have
forbidden it if it had tried.
Finally, as to the rights of the appellants. It is said that the
appeal of the city is cut off by the course the plaintiff has
taken. But, of course, the city would not appeal except on the
ground that the plaintiff already was given too favorable terms.
The city is in the present case, and when, as here, the plaintiff
succeeds in showing that these terms are inadequate on
constitutional grounds, the city has had its day and has failed,
and the loss of its appeal is merely a consequence of a trial in
which it has been heard and has lost.
MR. JUSTICE BUTLER took no part in this case.