Puget Sound Power & Light Co. v. City of Puyallup

• Decision Date: 04 August 1931
• Docket Number: No. 6369.,6369.
• Parties: PUGET SOUND POWER & LIGHT CO. et al. v. CITY OF PUYALLUP.
• Court: U.S. Court of Appeals — Ninth Circuit

51 F.2d 688 (1931)

PUGET SOUND POWER & LIGHT CO. et al. v. CITY OF PUYALLUP.

No. 6369.

Circuit Court of Appeals, Ninth Circuit.

August 4, 1931.

F. D. Oakley, of Tacoma, Wash., and Elmer E. Todd, Frank E. Holman, Todd, Holman & Sprague, and Clarence R. Innis, all of Seattle, Wash., for appellants.

E. K. Murray and Leo Teats, both of Tacoma, Wash., and M. F. Porter, City Atty., of Puyallup, Wash., for appellee.

Before WILBUR and SAWTELLE, Circuit Judges, and NETERER, District Judge.

WILBUR, Circuit Judge.

This is an appeal from a judgment rendered from a condemnation proceeding brought by the city of Puyallup, a municipal corporation, to condemn a distributing system installed and owned by the Puget Sound Power & Light Company within the city limits of the city of Puyallup. The other appellants are joined because of their interest in an incumbrance upon the property. The verdict and judgment was for $216,825.67.

It is conceded that the appellants were entitled to the market value of the property taken, and, in view of the fact that appellants were the owners of a large generating and distributing system, of which the system in the city of Puyallup was a small but integral part, the appellants were also entitled to the damage to its remaining property, due to the severance of property taken.

As both parties introduced evidence as to these items, and the verdict of the jury is based upon comprehensive but conflicting testimony, that verdict is conclusive upon appeal, unless error was committed in the reception of evidence or in the court's charge to the jury. The only questions presented by the appellants relate to the proper method of ascertainment of market value and to rulings made by the trial court during the taking of the evidence. Preliminarily, it may be stated that the evidence was full and comprehensive, that the witnesses who testified were fully advised as to the various elements of value which have been considered by the courts in condemnation proceedings, and by rate-making bodies in proceedings for the fixing of rates for public utilities, and by the courts in considering the constitutionality of the rates thus fixed. The direct and cross examination of the witnesses fully developed the opinion of such witnesses with relation to such elements of value and the reasons upon which their conclusions as to market value were based.

In addition to the witnesses who testified with reference to the market value of the entire plant to be condemned, witnesses were introduced by both parties who testified on their direct examination with reference to some of the elements of value which it had been consistently and repeatedly held are appropriate evidence to be received in ascertaining the fair value of property for rate-making purposes. As the principal questions presented by appellants relate to the sufficiency of evidence upon these elements and to the rulings of the court with relation to the introduction or rejection of such evidence, it should be stated at the outset that the problem presented in a condemnation proceeding is essentially different from that presented to a rate-making body or to the courts in the consideration of whether or not rates thus established are confiscatory. In condemnation proceedings, "just compensation" is the market value of the property taken. In rate-making cases, the standard of market value of the investment cannot be applied in determining just compensation, for the simple reason that market value is dependent upon earning capacity and fluctuates with that capacity; consequently, in determining what earning capacity is just, the market value of the investment which is a result of earning capacity cannot be utilized as a basis for the determination of what constitutes the reasonable or just earning capacity of the plant. In view of this situation, it has been determined that the Constitution of the United States prohibiting the taking of property without compensation requires that the owners of a public utility shall not be deprived of a fair return upon the fair value of the property devoted to the public use. In arriving at the fair value of a public utility investment, the courts have gradually evolved rules with relation to the evidence pertinent to that issue. These rules which indicate the nature and character of the evidence to be considered by the rate-making body and by the courts in determining the fair value of a public utility property are largely prohibitive in character; that is to say, the courts have determined that rates cannot be fixed upon a basis which ignores certain elements of value which go to make up a fair value of the property. This process of evolving an appropriate method of valuation for rate-making purposes is still in a state of development, and involves very great practical difficulties, some of which are not completely solved, partly for the reason that under the Constitution final authoritative decision rests in the courts which have no power to make rates and no machinery for the ascertainment of all of the complex elements entering into the determination of what constitutes a fair valuation of the property. The province of the court in such a matter is confined to the duty of preserving to the owner of property the fundamental right guaranteed to him by the Constitution that his property shall not be taken from him without just compensation, and for that purpose to prohibit the nibbling away of his property by the fixing of rates which gradually but effectively destroy the value thereof.

In the case at bar, however, we have the familiar problem of ascertaining market value where expert witnesses found by the court to be competent to express an opinion on that subject have expressed that opinion in appropriate fashion, and opposing counsel have had an opportunity for full and complete cross-examination. In such a case the function of the judge has been largely performed when he has passed upon the competence of witnesses, and then the jury must determine under appropriate instructions the weight and credibility of such evidence and render a verdict in accordance with their judgment as to the various items or claims advanced by the witnesses in support of their conclusion. This verdict upon the facts under our system is a final and conclusive determination of market value, for the same Constitution which prohibits the taking of property without just compensation guarantees the right to a trial by jury, and this right applies to the ascertainment of market value and pertains as much to the plaintiff as to the defendant in a condemnation case. The obligation of the plaintiff in a condemnation proceeding is to pay to the owner the market value of the property to be taken as fixed by a jury in a condemnation proceeding, and the right of the defendant to just compensation in such a proceeding is to the amount so fixed by the jury. This verdict, if supported by the evidence, is binding upon the courts, both in direct and collateral attack, subject to the power of the trial judge to grant a timely and appropriate motion for a new trial. No court can know, nor is there any method of ascertaining, the basis upon which a jury arrives at its verdict fixing a lump sum for property condemned, if it is within the limits of value fixed by the evidence.

With these preliminary observations we turn to the assignments and specifications of error relied upon by the appellants in the case at bar, and we will further develop the facts as we proceed with a discussion of the legal questions involved.

We will state the propositions involved on the appeal in the language of the appellants. The first point thus presented is as follows: "Appellants' Puyallup properties are in active and successful operation under franchises which have approximately twenty-five years to run. They have a value as an established and profitable enterprise over and above their reproduction and development cost. Appellants were denied the right to prove this value and were thereby denied that `due process' of law guaranteed by the fourteenth amendment to the constitution of the United States, and the `just compensation' guaranteed by Article I of section 16 of the constitution of the state of Washington."

In support of this proposition, the appellants discuss at some length the alleged difference between "franchise value" and "going concern value," but we will not follow this general discussion, for the reason that, as we have pointed out, such a discussion must be related to a definite assignment of error, and will therefore approach the matter from that standpoint.

Mr. C. Ray Moore, an expert witness introduced by the appellants, having testified upon direct examination as to the value of various items of personal property to be condemned and the cost of reproduction of the property and the value thereof less depreciation, having testified that he allowed $250 in his estimate for securing franchises in the city of Puyallup, and having indicated his method of arriving at the going concern value, and having fixed the severance damage of $24,115 by reason of the cost of construction thereby rendered necessary, testified as follows:

"In addition to these costs, which are a part of the severance damage, I have an item that represents a loss to the company in revenue should the Puyallup be severed from the Puget Sound system.

"Q. Have you taken into consideration the earnings of the company? A. Yes, sir. * * *

"Q. You have another item of severance damage here? A. Yes, sir. I have an item that represents a loss to the company in revenue should the Puyallup system be severed from the Puget Sound system.

"Q. Has that any relation to the value of this franchise? A. Yes, sir.

"Q. Does the loss of the franchise — A. It is based upon the value of the franchise.

"Q. Now, what did you determine with reference to that?

"Mr. Murray. Appellee's counsel — Just a minute. Is he...