1. In a suit by a public service corporation to enjoin
enforcement of rates fixed by a state commission, the federal
courts will ascertain the powers and duties of the commission and
the effect of its orders upon a consideration of the local
constitution and statutes and the construction placed upon them by
the state courts. P.
276 U. S.
101.
Page 276 U. S. 98
2. Under the Public Service Commission Law of Washington, an
order of the state Department of Public Works approving, and
ordering future observance of, telephone rate that are higher than
the maxima fixed in franchises granted the company by local
municipalities has the effect of terminating those franchise
provisions, and not that of introducing such approved rate as new
maxima into the franchise contracts. P.
276 U. S.
101.
3. Therefore, the rates so approved, when found to be
confiscatory, cannot be enforced as contractual. P.
276 U. S.
102.
12 F.2d 279
affirmed.
Appeals from decrees of the district court permanently
enjoining, as confiscatory, the enforcement of telephone rates
which had been adjudged sufficient and ordered enforced by the
Department of Public Works of the State of Washington.
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
It will be convenient to dispose of these causes by one opinion,
as was done in the court below.
Pacific Tel. & Tel. Co. v.
Whitcomb et al., 12 F.2d
279.
Appellees operate telephone plants in Seattle, Tacoma, and
Spokane, Washington, under local franchises which designated
maximum permissible rates. These were granted prior to 1911, but
after adoption of the present constitution of the state.
The "Public Service Commission Law" of Washington, Ch. 117, Laws
1911; Remington's Comp.Stat. 1922, Secs.
Page 276 U. S. 99
10339-10441, authorized a public service commission and directed
that telephone rates, tolls, contracts, and charges "shall be fair,
just, reasonable and sufficient." etc. It further provided:
"Sec. 43. (Remington's Comp.Stat. 1922, § 10379) -- Nothing in
this act shall be construed to prevent any telegraph company or
telephone company from continuing to furnish the use of its line,
equipment, or service under any contract or contracts in force at
the date this act takes effect or upon the taking effect of any
schedule or schedules of rates subsequently filed with the
commission, as herein provided at the rates fixed in such contract
or contracts:
Provided, however, that the commission shall
have power, in its discretion, to direct by order that such
contract or contracts shall be terminated by the telephone company
or telegraph company party thereto, and thereupon such contract or
contracts shall be terminated by such telephone company or
telegraph company as and when directed by such order."
"Sec. 55. (Remington's Comp.Stat. 1922, § 10391) -- Whenever the
commission shall find, after a hearing had upon its own motion or
upon complaint, that the rates, charges, tolls, or rentals
demanded, exacted, charged, or collected by any telegraph company
or telephone company . . . are unjust, unreasonable, unjustly
discriminatory, or unduly preferential, or in any wise in violation
of law, or that such rates, charges, tolls, or rentals are
insufficient to yield reasonable compensation for the service
rendered, the commission shall determine the just and reasonable
rates, charges, tolls, or rentals to be thereafter observed and in
force and fix the same by order as hereinafter provided. . . ."
Chapter 7, Laws of 1921, vested in the Department of Public
Works powers theretofore intrusted to the commission.
Page 276 U. S. 100
Control of the telephone systems owned by appellees was assumed
by the Postmaster General August 1, 1918, and retained for one
year. He fixed rates for Seattle, Tacoma, and Spokane higher than
the maximum rates permitted by the original franchises.
The Act of July 11, 1919 (41 Stat. c. 10, p. 157) repealed the
Act of July 16, 1918 -- which authorized federal control of
telephone systems-and directed that rates established by the
Postmaster General should continue for four months after the
termination of federal control (July 31, 1919), unless sooner
modified or changed by public authorities.
August 8, 1919, the Public Service Commission directed appellees
to observe the rates established by the Postmaster General, and
they continued so to do. January, 1922, the Department of Public
Works by formal complaint challenged the reasonableness of these
rates. In the autumn of 1922, appellees files schedules of proposed
increased rates which were suspended. Extended hearings were had
concerning the value of properties devoted to the service and the
reasonableness of the rates proposed. The department found and
declared the value of the properties; also
"that the existing rates are just, fair, reasonable, and
sufficient; that the proposed increased rates, both toll and
exchange, are unjust, unfair, unreasonable, and more than
sufficient."
And, on March 31, 1923, it ordered
"that the applications of respondents for increased rates be and
the same are hereby denied; that the proposed increased rates in
their entirety be and they are hereby permanently suspended; that
the same shall not become effective, and existing rates shall
remain in effect until the further order of the department."
Shortly thereafter, appellees began these proceedings in the
United States district court. They attacked the valuations by the
department and alleged that the rates designated by the order of
March 31, 1923, were confiscatory.
Page 276 U. S. 101
The matter went to a master and was heard upon his report, etc.
The court approved the master's conclusions that the department's
valuations were too low and the prescribed rates were confiscatory.
It accordingly adjudged the challenged order void and without
effect.
The causes are here by direct appeal. The valuations approved by
the court are not questioned; nor is it now claimed that the rates
prescribed by the departmental order would yield adequate returns.
But it is said that these rates must be regarded as contractual
franchise rates, and therefore they cannot be confiscatory in a
constitutional sense.
Appellants maintain that, under the statutes of Washington, when
the department terminates a franchise rate and prescribes another,
the result is
"simply to terminate one rate and substitute therefor a new
rate, and that, after such substitution has been made, there still
continues a franchise contract between the company and the city,
which cannot be again changed except by the discretion of the
department, and that the refusal of the department to exercise that
discretion raises no question of confiscation."
Here, it is asserted, the department merely refused to change
existing approved rates which were higher than the maxima
originally specified in the granted franchises.
The powers and duties of the Department of Public Works and the
effect of its orders must be ascertained upon a consideration of
the local Constitution and statutes, and the construction placed
upon them by the state courts.
Georgia Ry. Co. v. Decatur,
262 U. S. 432,
262 U. S. 437;
Southern Iowa Electric Co. v. Chariton, 255 U.
S. 539.
The Public Service Law authorizes investigation of existing
rates and expressly directs that, whenever, after a hearing, they
are found to be unjust or insufficient to yield reasonable
compensation, the department shall determine what will be just and
reasonable ones thereafter to be
Page 276 U. S. 102
observed and fix the same by order. The order of March 31, 1923,
in effect declared the rates then being observed just and
sufficient to yield reasonable compensation. It expressly commanded
their future observance, and was sufficient to terminate the
provisions of the franchises as to maximum rates within the purview
of § 55,
supra.
The department made its investigation and order without regard
to the franchise rates, and treated the questions presented as
unaffected thereby. It exercised the power and duty to fix
reasonable and compensatory rates irrespective of any previous
municipal action. We must treat the result as a
bona fide
effort to comply with the local statute. There is no adequate basis
for the claim upon which appellants rely.
See Puget Sound
Traction Co. v. Reynolds, 244 U. S. 574,
244 U. S.
578.
Much consideration was given to the Public Service Law by the
Supreme Court in
State ex rel. Spokane v. Kuykendall
(1922), 119 Wash. 107, 111. There, a gas company operating in
Spokane under a franchise which prescribed maximum rates asked for
increased rates. The commission disapproved the proposed schedule,
but permitted the company to charge rates declared to be just,
reasonable and sufficient. These exceeded the ones theretofore
charged, and were above the maximum permitted by franchise. The
Court said:
". . . By the act of 1911 (Laws 1911, p. 561, § 34) the terms of
a franchise contract like the one in question here are binding upon
the parties until the department of public works (heretofore the
public service commission) has made an order directing a departure
therefrom; and, without question, the department has the right and
power to order a departure.
State ex rel. Ellertsen v. Home
Tel. & Tel. Co., 102 Wash. 196. In the case of
State
ex rel. Webster v. Superior Court, 67 Wash. 37, it was decided
that the public service commission
Page 276 U. S. 103
law placed the entire subject of rate regulation under the
control of the commission, that no contract between a city
representing the public and a public service company would be
allowed to interfere with that control, and, by way of application
of the rule, it was decided in that case to be the duty of the
commission to the company to fix a rate which was sufficient (a
rate that would afford a fair interest return on the investment),
in spite of the franchise contract fixing rates which were too low.
That, in legal effect, is what has been done in the present
case."
Responding to an argument in behalf of the city, based upon the
proviso of § 43,
supra, the Court further said:
"Therefrom it appears to be argued that the rates provided in
the contract should continue until the commission makes an order
specifically declaring and directing in so many words that the
contract shall be terminated. We may overlook the fact, if need be,
that, upon the petition of the city, the rates were reduced in
1913, and that, in 1918, they were increased upon the application
of the gas company, and consider the franchise contract as having
been wholly undisturbed until the present time, and still we would
be compelled to determine, as we do determine, that the present
order of the department of public works is just as effective as if,
after fixing the rates, there had been added therein the words 'and
it is hereby directed that the rates provided in the franchise
shall be and they are hereby terminated,' or words of similar
import. That is the legal effect of what was done, and the form or
language by which it was accomplished is not very material."
In the same cause, the gas company maintained that the rates
prescribed by the commission's order were inadequate for its needs
and unjust. This matter was carefully considered upon the merits,
but the opinion nowhere suggests that the rates prescribed should
be treated as if
Page 276 U. S. 104
specified in the franchise and obligatory upon the company
whether compensatory or no.
Affirmed.
MR. JUSTICE STONE took no part in the consideration of this
case.