Southern Bell Tel. & Tel. Co. v. Railroad Com'n of SC, 253.

• Citation: 5 F.2d 77
• Decision Date: 30 April 1925
• Docket Number: No. 253.,253.
• Court: U.S. District Court — District of South Carolina
• Parties: SOUTHERN BELL TELEPHONE & TELEGRAPH CO. v. RAILROAD COMMISSION OF SOUTH CAROLINA et al.

5 F.2d 77 (1925)

SOUTHERN BELL TELEPHONE & TELEGRAPH CO. v. RAILROAD COMMISSION OF SOUTH CAROLINA et al.

No. 253.

District Court, E. D. South Carolina.

April 30, 1925.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Grier & Park, of Greenwood, S. C., W. S. Nelson, of Columbia, S. C., Hagood, Rivers & Young, of Charleston, S. C., Henry E. Davis, of Florence, S. C., and Hunt Chipley, of Atlanta, Ga., for plaintiff.

Saml. M. Wolfe, Atty. Gen., John M. Daniel, Asst. Atty. Gen., Frank A. Miller, of Hartsville, S. C., and D. W. Robinson, of Columbia, S. C., for defendant.

ERNEST F. COCHRAN, District Judge.

An order of the Railroad Commission of South Carolina dated March 24, 1921, prescribed certain telephone rates, effective from and after April 1, 1921. This order materially increased the existing rates. The General Assembly of South Carolina, by an act approved April 3, 1922, provided that no greater rates should be charged than were of legal force and effect and on file with the Railroad Commission on January 1, 1921. The effect of the act was to abrogate the order of the Commission of March 24, 1922, and restore the previous rates and deprive the plaintiff of the increase provided by that order. The plaintiff brought its action to enjoin the enforcement of the act of the General Assembly approved April 3, 1922, on the ground that it was unconstitutional in that the rates restored by that act were unreasonably low and confiscatory and deprived the plaintiff of its property without due process of law. The defendants denied that the rates were unreasonably low and confiscatory. The case was referred to a special master to take the testimony and report the same. The order of reference also provided as follows:

"That the special master shall report to the court his conclusions and recommendations as to (A) what is the value of the complainant's property in this state, and (B) what is the gross income of the complainant, and (C) what should under all circumstances be its net income, and for that purpose, in making up the statement to show the same, said special master is authorized, in order to ascertain the same, to pass upon the proper application and entries under the law and the testimony of all receipts and disbursements; subject to the supervision and conclusions of the court."

The special master has filed his report. The defendants have filed their exceptions to this report, 16 in number. The plaintiff has filed no exceptions. The case was heard by the court on December 17, 1924. At the hearing the case was argued orally, and both sides have filed printed briefs, and the case is now before this court for final decision on the merits.

At the threshold we are met with opposing views as to the manner in which this court should consider and determine the case. The plaintiff contends that the findings of the master are prima facie correct, the presumptions in their favor, and they should not be overruled unless manifestly wrong, and, while conceding that before the master the plaintiff carried the burden of proof, contends that now upon the exceptions to the report the burden is upon the defendants to show from the evidence that the findings of fact are erroneous in the respects charged in the exceptions. The defendants contend that the exceptions practically cover the whole case, that a review of the evidence shows that the plaintiff has not met the burden upon it of showing that the rates are unreasonable and confiscatory, and that the parties are entitled (quoting from defendants' brief) "to the benefit of the independent judgment of the court as to both law and facts."

There is much to be said in favor of the plaintiff's contention, and indeed the cases sustain that point of view as a general rule. Crawford v. Neal, 144 U. S. 585, 596, 12 S. Ct. 759, 36 L. Ed. 552; Camden v. Stuart, 144 U. S. 104, 12 S. Ct. 585, 36 L. Ed. 363; Davis v. Schwartz, 155 U. S. 631, 636, 15 S. Ct. 237, 39 L. Ed. 289; Girard, etc., v. Cooper, 162 U. S. 529, 538, 16 S. Ct. 879, 40 L. Ed. 1062.

But in this case the exceptions cover practically the whole case on the merits, so far as the facts are concerned. The case is an extremely important one, both to the plaintiff and the people of the state. It involves the question of whether or not an act of the lawmaking body of the state is to be declared in contravention of the Constitution, always a matter of great delicacy. Courts are especially reluctant to declare acts of the Legislature unconstitutional when the alleged unconstitutionality rests upon facts. Such acts will not be declared unconstitutional unless the question is free from doubt, and where dependent upon a certain state of facts the proof of the facts should be clear and convincing. The use of the telephone as a means of communication has become an important part of the life of the people, probably equaling, if not surpassing, in importance the telegraph and the postal service. In every aspect the matter is one of grave concern. Therefore, without committing the court to a similar course in such cases arising hereafter upon exceptions to the master's report, in this case I have adopted the view of the defendants on this point and have studied and considered the case independently and apart from any presumptions in favor of the master's report. In order therefore to properly exercise my independent judgment and arrive at my own conclusions upon the facts of the case, I have read the pleadings and the testimony, and I have examined and considered the various exhibits in evidence, for a proper understanding and consideration of the testimony. I have also read (more than once) and studied carefully the able briefs filed by the attorneys on both sides. I have read all of the pertinent decisions cited in the briefs. I have given special consideration to those parts of the testimony indicated in the briefs. Upon a full consideration of the whole matter, and laying aside for the present any presumption in favor of the correctness of the master's report upon the facts, I have reached the same conclusions that he reached. The facts as found by the master are amply sustained by the evidence. The rates of January 1, 1921, prescribed by the act of the Legislature are unreasonable and confiscatory and amount to a taking of plaintiff's property without due process of law, and the act is therefore unconstitutional, null, and void, in so far as the plaintiff is concerned. The evidence is clear and convincing, and I have no reasonable doubt about it. Having reached this conclusion, I might well stop here, and refrain from any discussion of the facts or the law, inasmuch as the able report of the skilled and experienced master discusses the questions involved clearly, comprehensively, and succinctly. But in view of the nature of the case and the very earnest and full presentation of the matter by defendants' attorney, I will as briefly as possible discuss the more important features of the case.

The general principles covering such cases are fairly well settled — the main difficulty lies in their application. The courts have no power to make rates. The Legislature, in order to guard the public from exorbitant rates on the part of public utilities, has the power either by legislative act, or acting through other agencies, such as the Railroad Commission of this state, to fix reasonable rates; but the Legislature cannot fix rates so unreasonably low as to amount to confiscation. If the rates are confiscatory, there is a taking of property without due process of law within the meaning of the Constitution, and an act of the Legislature fixing rates of such a character is therefore in violation of the Constitution and null and void. However, the rates fixed by the Legislature are presumptively reasonable, and the burden is upon the plaintiff in this case to show that they are so unreasonably low as to be confiscatory, and the evidence relied on should be clear and convincing. In Smyth v. Ames, the Supreme Court said:

"We hold, however, that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public. And in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses, are all matters for consideration, and are to be given such weight as may be just and right in each case. We do not say that there may not be other matters to be regarded in estimating the value of the property. What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the other hand, what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth." Smyth v. Ames, 169 U. S. 546, 547, 18 S. Ct. 434, 42 L. Ed. 819. See also Minnesota Rate Cases, 230 U. S. 434, 435, 33 S. Ct. 729, 57 L. Ed. 1511, 48 L. R. A. (N. S.)1151, Ann. Cas. 1916C, 18; Bluefield, etc., v. Public Service Commission, 262 U. S. 679, 690, 691, 43 S. Ct. 675, 67 L. Ed. 1176.

The value of the property employed in intrastate business must be ascertained and considered entirely apart from the property employed in interstate business. Such property, however, as is used jointly, must be apportioned between intrastate and interstate...