American Telephone & Telegraph Co. v. United States

• Decision Date: 18 February 1936
• Parties: AMERICAN TELEPHONE & TELEGRAPH CO. et al. v. UNITED STATES et al.
• Court: U.S. District Court — Southern District of New York

14 F. Supp. 121

AMERICAN TELEPHONE & TELEGRAPH CO. et al. v. UNITED STATES et al.

District Court, S. D. New York.

February 18, 1936.

COPYRIGHT MATERIAL OMITTED

C. M. Bracelen, Chas. T. Russell, Edward L. Blackman, and Alan J. McBean, all of New York City, for plaintiffs Eastern Telephone & Telegraph Co. and others.

Allen T. Klots and Hayden N. Smith, both of New York City (Winthrop, Stinson, Putnam & Roberts and G. Schuyler Tarbell, Jr., all of New York City, of counsel), for plaintiffs Ohio Associated Telephone Co. and others.

Harold F. Collins, Sp. Asst. to the Atty. Gen., and Albert E. Stephan and W. D. Humphrey, both of Washington, D. C. (Hampson Gary and Frank Roberson, both of Washington, D. C., of counsel), for Federal Communications Commission.

Clyde S. Bailey and John E. Benton, both of Washington, D. C., for National Ass'n of Railroad & Utilities Commissioners.

Charles G. Blakeslee, of Binghamton, N. Y., for Public Service Commission of New York.

Before MANTON and HAND, Circuit Judges, and KNOX, District Judge.

MANTON, Circuit Judge.

Plaintiffs, common carriers of communication by wire, file this bill under the Urgent Deficiencies Act, October 22, 1913, c. 32, 38 Stat. 208, 219, made applicable by section 402 (a) of the Communications Act (June 19, 1934, c. 652, § 402 (a), 48 Stat. 1093, 47 U.S.C. § 402 (a), 47 U.S.C.A. § 402 (a). They seek to restrain the Federal Communications Commission from enforcing its Order No. 7-C issued June 19, 1935, and effective January 1, 1936, to govern the system of accounts for telephone companies engaged in interstate commerce and having average annual operating revenues exceeding $50,000. A temporary stay was granted pending decision on the permanent injunction. The issues are submitted for final determination on affidavits and the arguments thereon.

The accounting system now in operation was promulgated by the Interstate Commerce Commission as the "Uniform System of Accounts for Telephone Companies, First Revised Issue," effective from January 1, 1933. Upon objections by 22 state commissions, the Interstate Commerce Commission had taken under advisement suggested changes in this 1933 system. Its inquiry ended very shortly before jurisdiction over telephone companies was transferred to the Federal Communications Commission created by the Communications Act of June 19, 1934 (section 1 47 U.S.C.A. § 151). In view of this fact, the Interstate Commerce Commission, although it issued no order, rendered a report of the proceedings before it for the convenience of the incoming Commission (Accounting Rules for Telephone Companies, 203 I.C.C. 13). In this report, some of the matters now objected to were discussed and disapproved. The Communications Commission, after supplemental investigation, hearings, and conferences, did not follow the Interstate Commerce Commission in its disapproval of these provisions and incorporated them in the system now under review. The National Association of Railroad and Public Utility Commissioners, which claims to represent the commissions having jurisdiction over telephone companies in 46 states, has indorsed the proposed system and has appeared in this case by intervening as a party defendant. In addition, the New York State Public Service Commission pleads for the order as amicus curiæ.

The attack on the order requiring the uniform system of accounts is based upon the claim that it is invalid because it violates the Fifth Amendment to the Constitution and section 404 of the Communications Act, 47 U.S.C.A. § 404, (a) since it is unsupported by a report stating conclusions and basic findings; (b) the requirements exceed the statutory power of the Commission and are so contrary to the fundamental principles of correct accounting as to constitute an abuse of that power in so far as they treat of original cost, contributions, certain classifications of telephone plant and depreciation thereon, and just and reasonable charges; (c) amendments in requiring obedience to standards so vague and indefinite as to be unintelligible, or violate the Fifth and Sixth Amendments.

Before other discussion, it should be settled that the order is not void for lack of a report stating the conclusions and findings of fact by the Commission. Section 220 (a) of the Communications Act (47 U.S.C.A. § 220 (a) provides: "The Commission may, in its discretion, prescribe the forms of any and all accounts, records, and memoranda to be kept by carriers subject to this chapter."

There is an identical provision in the Interstate Commerce Act, § 20 (5), 49 U.S.C.A. § 20 (5). When a system of accounts is laid down under these sections, the action is a legislative, rather than a judicial, function. It is making a new rule to be applied in the future, not applying an already existent rule to past facts. This is the characteristic of legislation. See Keller v. Potomac Electric Power Co., 261 U.S. 428, 440, 43 S.Ct. 445, 67 L.Ed. 731; Prentis v. Atlantic Coast Line Co., 211 U.S. 210, 226, 29 S.Ct. 67, 53 L.Ed. 150. And to claim that findings are essential to support this order is to ignore this difference. Assigned Car Cases, 274 U.S. 564, 583, 47 S.Ct. 727, 71 L.Ed. 1204. An administrative body can exercise a delegated legislative function without first reporting the data upon which it decided that the proposed rule should be established. Pacific States Box & Basket Co. v. White, 56 S.Ct. 159, 80 L.Ed. ___. Since the Commission is authorized to act "in its discretion," there is no requirement that it find the facts upon which its authority to act is conditioned as in Atchison, Topeka & Santa Fe Ry. Co. v. United States, 295 U.S. 193, 55 S.Ct. 748, 79 L.Ed. 1382; United States v. Chicago, Milwaukee, St. Paul & Pac. R. Co., 294 U.S. 499, 55 S.Ct. 462, 79 L.Ed. 1023; United States v. Baltimore & Ohio R. R. Co., 293 U.S. 454, 55 S.Ct. 268, 79 L.Ed. 587. The case last cited points out the difference, 293 U.S. 454, at page 462, 55 S.Ct. 268, 272, 79 L.Ed. 587. In holding an order void for lack of a finding on a jurisdictional fact, the court said: "The act Boiler Inspection Act does not confer upon the Commission legislative authority to require the adoption on locomotives of such devices as, in its discretion, it may from time to time deem desirable."

Section 220 (a) conferring power to prescribe the accounting system does confer upon the Commission power to act in its discretion.

Nor does section 404 of the act (47 U.S.C.A. § 404) render an order under section 220 (a) void if a report is lacking. Section 404 provides: "Whenever an investigation shall be made by the Commission it shall be its duty to make a report in writing in respect thereto, which shall state the conclusions of the Commission, together with its decision, order, or requirement in the premises; and in case damages are awarded, such report shall include the findings of fact on which the award is made."

This section requires findings of fact only in the event damages are awarded. The order No. 7-C does not award damages. Although the Commission, as outlined above, did extensive preliminary work before entering the order, a report of its conclusions is not a condition to the order's validity. The conclusions of the Commission are very evident from the order itself.

In support of this position, there is the fact that section 404 and section 220 (a) of the Communications Act are identical with section 14 (1) and section 20 (5) of the Interstate Commerce Act, 49 U.S.C.A. §§ 14 (1), 20 (5). It has not been the practice of the Interstate Commerce Commission to preface its general accounting orders with reports, and the incorporation of these sections in the Communications Act is an indication that Congress approved this administrative interpretation. See McCaughn v. Hershey Chocolate Co., 283 U.S. 488, 492, 493, 51 S.Ct. 510, 75 L.Ed. 1183; National Lead Co. v. United States, 252 U.S. 140, 146, 40 S.Ct. 237, 64 L.Ed. 496.

The Communications Act made the judicial procedure applicable in proceedings to enforce or test the validity of the Communications Commission orders similar to like proceedings affecting the orders of the Interstate Commerce Commission (section 402 (a). We must, therefore, in reviewing this order, be guided by the rule that in respect to orders of the Commission, the court may not "under the guise of exerting judicial power, usurp merely administrative functions by setting aside a lawful administrative order upon our conception as to whether the administrative power has been wisely exercised." Interstate Commerce Comm. v. Illinois Central R. R. Co., 215 U.S. 452, 470, 30 S.Ct. 155, 160, 54 L.Ed. 280. See Interstate Commerce Comm. v. Union Pacific R. R. Co., 222 U.S. 541, 547, 32 S.Ct. 108, 56 L.Ed. 308. It is not enough to reason that the order is unwise, inexpedient, or at variance with the court's own views as to what is practicable. This rule guides judicial review of any legislative act. Chicago, Burlington & Quincy R. R. Co. v. McGuire, 219 U.S. 549, 569, 31 S.Ct. 259, 55 L.Ed. 328.

We have already pointed out that the order prescribing a uniform system of accounts is of a legislative character. When section 20 (5) of the Interstate Commerce Act was before the Supreme Court in Interstate Commerce Commission v. Goodrich Transit Co., 224 U.S. 194, at page 214, 32 S.Ct. 436, 441, 56 L.Ed. 729, and Kansas City Southern Railway Co. v. United States, 231 U.S. 423, 34 S.Ct. 125, 58 L.Ed. 296, 52 L.R.A.(N.S.) 1, the court, while characterizing the Commission's power as legislative, also held it not unlawfully delegated, saying: "The Congress may not delegate its purely legislative power to a commission, but, having laid down the general rules of action under which a commission shall proceed, it may require of that commission the application of such rules to particular situations and the investigation of facts, with a view to making orders in a particular matter within the rules laid down...