Louisville v. Cumberland Tel. & Tel. Co., 225 U.S. 430 (1912)

U.S. Supreme Court

Louisville v. Cumberland Tel. & Tel. Co., 225 U.S. 430 (1912) Louisville v. Cumberland Telephone & Telegraph Company

No. 761

Argued March 7, 8, 1912

Decided June 7, 1912

225 U.S. 430

APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES

FOR THE WESTERN DISTRICT OF KENTUCKY

Syllabus

Quaere, and not determined, whether an ordinance cutting the earning of a telephone company down to six percent per annum would, under the circumstance of this case be confiscatory and unconstitutional under the Fourteenth Amendment.

This Court requires clear evidence before it will declare legislation, otherwise valid, to be void as an unconstitutional taking of property by reason of establishing rates that are confiscatory.

Page 225 U. S. 431

In this case, the evidence is not sufficient to justify enjoining enforcement of an ordinance fixing rates of a telephone company, and the decree granting an injunction is reversed, but without prejudice.

The facts, which involve the question of whether an ordinance of the City of Louisville fixing rates for telephone service in that city was unconstitutional as confiscatory of the property of the companies, are stated in the opinion.

Page 225 U. S. 432

MR. JUSTICE HOLMES delivered the opinion of the Court.

This is a bill to prevent the enforcement of an ordinance of the City of Louisville fixing telephone rates, passed in 1909, after the attempt of the city to deprive the appellee of its franchise, when that seemed likely to fail. See Louisville v. Cumberland Telephone & Telegraph Co., 224 U. S. 649. The question raised is the usual one of confiscation.

Page 225 U. S. 433

In consequence of the conclusion to which we have come, we shall make a much more summary statement of the facts than in other circumstances might be necessary. The case was referred to a master, and he reported in favor of the city. He was of opinion that, in the first year after the ordinance should go into effect, there would be a less of $30,000, but that in another year or so, in view of the probable increase of subscribers, the company would get back to its former net revenue with a probable continuous increase thereafter, and would earn a sufficient return. The judge was of a different opinion, and, for the purposes of the present decision only, we shall adopt his figures, subject to the changes that we shall state, which leave us unprepared to sustain the decree without giving the ordinance a trial to show its actual effect.

The judge's values were:

Plant, including toll lines . . . . . . . . . $1,575,000.00

Real estate . . . . . . . . . . . . . . . . . 162,000.00

Supplies on hand. . . . . . . . . . . . . . . 18,000.00

Working capital . . . . . . . . . . . . . . . 33,000.00

-------------

$1,788,000.00

Gross earnings for 1908, including 15%

of receipts from toll lines. This was

undisputed . . . . . . . . . . . . . . . . $325,838.30

The court added 10% more of the toll

line receipts, making. . . . . . . . . . . 330,926.38

The master was of opinion that the re-

maining 85 percent should be added, mak-

ing the total gross earnings . . . . . . . $369,087.00

For the purpose of such an estimate as

this, we think that the toll lines should

be either in or out, and if they are to

be counted in the property upon which

the appellee is not to be prevented by

Page 225 U. S. 434

law from earning a fair return, as they

are above, and the expenses charged to

the appellee, the whole return from

them should be added to the gross

earnings of the appellee. So we take

the total gross earnings as. . . . . . . . $369,087.00

Expenses as found by the

master and accepted accepted

by the judge . . . . . . . . $216,363.07

But this includes amount

charged to the Exchange

for the use of real estate

(less expenses for repairs),

which, in view of the in-

clusion of real estate above,

it should not. . . . . . . . 11,707.52

-----------

$204,655.55

Deduct corrected expenses from gross earnings 204,655.55

-----------

Net earnings . . . . . . . . . . . . . $164,431.45

Even if we deduct from the net earnings

a sum estimated by the judge as neces-

sary above actual expenditures of 1908

to make good average depreciation 24,095.02

-----------

we have. . . . . . . . . . . . . . . . . . $140,336,43

which is nearly eight percent on the

estimated value. The master prophe-

cies a falling off for the first

year of. . . . . . . . . . . . . . . . . . 30,000.00

-----------

which would leave . . . . . . . . . . . . . . $110,336.43

or over six percent on the valuation

assumed.

Page 225 U. S. 435

Suppose now that we leave out the toll lines.

Plant, with real estate, etc., as above . . . $1,788,000.00

Deduct toll lines estimated at. . . . . . . . 125,000.00

-----------

$1,663,000.00

Gross earnings. . . . . . . . . . . . . . . . 325,838.30

Less 15% from toll lines. . . . . . . . . . . 7,632.11

-----------

$318,206.19

Expenses. . . . . . . . . . . . $216,303.07

Less amount charged for use

of real estate as above. . . 11,707.52

-----------

$204,655.55

Less toll line expenses which,

if estimated (in the absence

of satisfactory proof as to

their amount) by dividing

expenses in proportion to

receipts would be approx-

imately. . . . . . . . . . . 30,000.00

-----------

$174,655.55

Deduct corrected expenses from

gross earnings . . . . . . . . . . . . . . 174,655.55

-----------

$143,550.64

Additional deduction for depreciation as

before . . . . . . . . . . . . . . . . . . 24,095.02

-----------

$119,455.62

Which is nearly 7 percent, or, deducting

for loss of custom the first year. . . . . 30,000.00

-----------

$89,455.62

which is just above five percent on the judge's valuation.

Page 225 U. S. 436

We express no opinion whether to cut this telephone company down to six percent by legislation would or would not be confiscatory. But when it is remembered what clear evidence the court requires before it declares legislation otherwise valid void on this ground, and when it is considered how speculative every figure is that we have set down with delusive exactness, we are of opinion that the result is too near the dividing line not to make actual experiment necessary. The master thought that the probable net income for the year that would suffer the greatest decrease would be 8.60 percent on the values estimated by him. The judge, on assumptions to which we have stated our disagreement, makes the present earnings 5 10/17 percent, with a reduction by the ordinance to 36/17 percent. The whole question is too much in the air for us to feel authorized to let the injunction stand.

Decree reversed without prejudice.