Bebchick v. Washington Metropolitan Area Transit Com'n

• Decision Date: 28 June 1973
• Docket Number: 23747.,No. 23720,23720
• Citation: 485 F.2d 858,158 US App. DC 79
• Parties: Leonard N. BEBCHICK et al., Petitioners, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, D. C. Transit System, Inc. Intervenor. D. C. TRANSIT SYSTEM, INC., Petitioner, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, Leonard N. Bebchick et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

158 US App. DC 79, 485 F.2d 858 (1973)

Leonard N. BEBCHICK et al., Petitioners, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, D. C. Transit System, Inc. Intervenor.

D. C. TRANSIT SYSTEM, INC., Petitioner, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, Leonard N. Bebchick et al., Intervenors.

Nos. 23720, 23747.

United States Court of Appeals, District of Columbia Circuit.

Argued September 17, 1970.

Decided June 28, 1973.

Rehearing Denied September 25, 1973.

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Leonard N. Bebchick, Washington, D. C., with whom Stanley O. Sher, Washington, D. C., was on the brief, for petitioners in No. 23720 and intervenors in No. 23747.

Harvey M. Spear, New York City, for petitioner in No. 23747 and intervenor in No. 23720.

Douglas N. Schneider, Jr., Washington, D. C., Gen. Counsel, Washington Metropolitan Area Transit Commission, Washington, D. C., for respondent.

Before ROBINSON and MacKINNON, Circuit Judges, and DAVIS,^* Judge, United States Court of Claims.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

These two cases are here on petitions for review of an order promulgated by the Washington Metropolitan Area Transit Commission following our remand to it of issues remaining for resolution after our decision in Williams v. Washington Metropolitan Area Transit Commission.¹ We find that in several respects the Commission misinterpreted that decision. Consequently, we are compelled to remand again for activities which will enable us to bring this litigation to a conclusion.

I. BACKGROUND

The history of these proceedings goes back to April 12, 1963, when the Commission, by its Order No. 245,² authorized D. C. Transit System, Inc. (Transit), to increase its token fare for passenger transportation within the District of Columbia and its suburbs in Maryland.³ That order was first brought here for review in D. C. Transit System, Inc. v. Washington Metropolitan Area Transit Commission,⁴ but we could find "no intelligible basis" in the record "for disposing of the competing claims" respecting the margin of return allowed.⁵ We therefore remanded the case to the Commission for further proceedings.⁶

On January 26, 1966, the Commission, in response to our remand, issued its Order No. 563⁷ by which it reaffirmed the result earlier reached in Order No. 245.⁸ On the same day, the Commission published its Order No. 564,⁹ which dealt with another tariff filed by Transit on the previous September 17. In the latter order, the Commission found that existing rates — those authorized by Order No. 245¹⁰ — would yield an unreasonably low return for the future.¹¹ Instead of generally increasing fares,¹² however, the Commission permitted Transit to accommodate an expected deficit of about $1,350,000 in revenues by drawing on the riders' fund — a reserve on Transit's books for the benefit of its customers¹³ — established pursuant to one of our earlier decisions, Bebchick v. Public Utilities Commission.¹⁴

Petitions for our review of Orders Nos. 563 and 564 followed, and were disposed of together on October 8, 1968, in Williams. We set aside Order No. 563, and consequently Order No. 245 upon which it was based, because the Commission did "not advance a rational basis for its determination of rate of return."¹⁵ We did not remand for the entry of a new fare order, however, because on March 13, 1967, the Commission had issued Order No. 684,¹⁶ which superseded prior fare orders and which we upheld in Payne v. Washington Metropolitan Area Transit Commission,¹⁷ decided on the same day as Williams. The Commission, we held in Williams, had no "power to devise a new order, nunc pro tunc, governing the years intervening between Order No. 245 and the entry of a subsequent order prescribing the `lawful fare . . . to be in effect.'"¹⁸ From this holding we were led to the conclusion that Transit must be compelled to make restitution for the increased fares it had collected under the unlawful Order No.245.¹⁹ Because we were "confronted by circumstances indicating a substantial probability that it would be inequitable to compel Transit to restore the entire amount it realized from the fare increase,"²⁰ we further held that Transit would "be permitted to retain any portion of the higher fares necessary to preserve its actual earnings during the years in question at the level conceded by the protestants to represent a fair return."²¹ The parties were directed to attempt to reach an agreement, to be approved by the Commission, on the amount to be restored; failing that, the Commission was to "supervise the execution of our mandate."²²

Like the margin-of-return determination in Order No. 563, Order No. 564 was overturned because "the Commission's findings did not justify the return . . . allowed."²³ Since Order No. 564 had also been superseded by Order No. 684 and there were "substantial indications" that it would be inequitable to compel Transit to make full restitution,²⁴ we fashioned a disposition parallel to that made with respect to Order No. 563.²⁵ We held that "Transit will be permitted to retain any portion" of the increased fares it collected "which is necessary to preserve its actual earnings during the period covered by Order No. 564 at the level conceded by the protestants to represent a fair return."²⁶ We also held that the Commission had erred in Order No. 564 in its treatment of Transit's acquisition adjustment account,²⁷ a deficiency in its depreciation reserve,²⁸ its investment tax credits²⁹ and the amount of its bus maintenance expense.³⁰ Those issues were remanded for further proceedings consistent with our opinion.³¹

The parties were unable to agree on the amount of restitution, and so the matter came on to be heard by the Commission. On October 17, 1969, the Commission issued Order No. 981³² dealing with the issues raised by the Williams decision. It is from that order, and the Commission's subsequent denials of reconsideration,³³ that the petitions for review originate.

In No. 23,720 petitioners claim that the Commission erred in holding (a) that Transit had no excess earnings during the periods involved; (b) that Transit's investors had not been reimbursed for the deficiency in the depreciation reserve by unrealized gains in the market value of depreciable properties transferred out of public service; and (c) that it had no authority to award attorneys' fees and litigation expenses to the protestants. We deal with each of these contentions, in the order listed, in Parts II to IV of this opinion. In No. 23,747, Transit argues that the Commission erred (a) in its treatment of the acquisition adjustment account, (b) in failing to award restitution to Transit, and (c) in ordering that its farepayers should reap the benefits of future investment tax credits. These contentions are discussed in Part V. Lastly, our disposition is set forth in Part VI.

II. EXCESS EARNINGS

A. Combination of Periods

In Williams, we set aside two separate fare orders. One was Order No. 245,³⁴ as supplemented by Order No. 563,³⁵ which had fixed the fares in effect from April 14, 1963, through January 26, 1966.³⁶ The other was Order No. 564,³⁷ which had promulgated the fares in effect from January 27, 1966, through March 14, 1967.³⁸ At the hearings which followed our remand, it developed that during the period Orders Nos. 245 and 563 were in force, Transit earned more than the amount which the protestants had conceded to be a fair and reasonable return, but that during the period covered by Order No. 564, Transit fell short of earning the concededly fair return. The protestants — petitioners here — argued that Transit should restore all of the excess it earned under Order No. 245 notwithstanding that there were no excess earnings, but actually a deficit in anticipated earnings, for the period covered by Order No. 564. The Commission held, however, that for purposes of determining whether Transit had excess earnings within the intendment of our Williams ruling, the two periods should be combined.³⁹ As a result, Transit did not have to make any restitution to the riders' fund, for using the Commission's method of computation, which is also in dispute, the shortfall in earnings during the period covered by Order No. 564 was greater than the excess earned during the period covered by Order No. 245.⁴⁰ We hold that in combining the periods, the Commission misinterpreted our Williams decision.

As careful reading of the Williams opinion reveals, we treated the orders involved separately. The structure and content of the opinion, from beginning to end, recognized the independence of the two orders.⁴¹ Furthermore, the language we employed in holding that Transit should restore only so much of the increased fares as exceeded the amount conceded by the protestants to be fair shows that we contemplated separate determinations of earnings liable for restitution.⁴² But despite its apparent appreciation of these factors, the Commission combined the periods because, in its own words, "there is nothing more clearly spelled out, repeated, and emphasized in Williams than the court's intention that the question of restitution be settled in accordance with equitable considerations."⁴³ This characterization of our opinion is accurate, but it does not support the Commission's holding.

When we spoke of equitable principles of restitution, it was primarily with respect to our power to mold the proper relief, not with respect to the Commission's power on remand. We pointed out that

ordinarily, of course, the proper disposition on setting aside a rate increase unlawfully ordered by the Commission would be to compel the regulated company to restore the entire difference between the higher fares collected under the invalid order and the amount that it would have received from the fare schedule previously in effect.⁴⁴

In the particular circumstances Williams presented, we thought, however, that the usual course was too harsh, and...