Westinghouse Electric & Mfg. Co. v. Denver Tramway Co.

• Decision Date: 13 December 1924
• Docket Number: No. 7114.,7114.
• Citation: 3 F.2d 285
• Parties: WESTINGHOUSE ELECTRIC & MFG. CO. v. DENVER TRAMWAY CO. STENGER v. CITY AND COUNTY OF DENVER.
• Court: U.S. District Court — District of Colorado

3 F.2d 285 (1924)

WESTINGHOUSE ELECTRIC & MFG. CO. v. DENVER TRAMWAY CO.

STENGER v. CITY AND COUNTY OF DENVER.

No. 7114.

District Court, D. Colorado.

December 13, 1924.

Gerald Hughes and H. S. Robertson, both of Denver, Colo., for receiver.

Rice W. Means and Harvey Riddell, both of Denver, Colo., for City and County of Denver.

LEWIS, Circuit Judge.

This proceeding is on exceptions to the master's report. The reference came about in this way: The Denver Tramway Company was organized in March, 1914, became the owner of and has since operated a street-car system, largely within but in small part without the City of Denver. In acquiring the property it succeeded to the rights of predecessor companies. In December, 1920, this court on a creditor's bill appointed a receiver of all of its properties with power to continue operation. It had defaulted in payment of interest on a part of its mortgaged debt and in payment of taxes. It was indebted to unsecured creditors who were pressing for payment. This condition was brought about in large part by an increased wage scale which it had been compelled to pay for several years theretofore, increase in the cost of supplies necessary to operation, and because of a strike of its employes for higher wages during the summer of 1920. The strike was accompanied by mob violence, property of the company of large value was burned up and otherwise destroyed, and some of the new employes engaged to operate the cars, as well as some of those who participated in attacks upon them, were killed. Order was not restored and the street-car system again put in full operation until Government soldiers had been stationed in the City for several weeks as a means of protection. The company's credit was exhausted. The rate of fare which it was permitted to charge under a regulatory ordinance of 1919 was 6 cents for adults and half that amount for children. The City refused to increase the fares and the receivership followed.

In February, 1921, the receiver filed his petition in the creditor's suit alleging the facts that have been stated, that the wage scale of its employes had been increased approximately 100 per cent. over what it was prior to 1916, that conditions were such that they could not be decreased, that the Tramway Company had appealed to the City, its mayor and council to permit it to charge a 7-cent fare, which was refused, that the 6-cent fare which the City by ordinance permitted the company to charge, but not exceed, was confiscatory, and the receiver prayed that the City be enjoined from enforcing the 6-cent fare ordinance, that he be permitted to increase the fares to be charged to 10 cents for adults and 5 cents for children, as just and reasonable charges.

The City intervened and filed its answer to the receiver's petition. As a first defense it moved that the receiver's petition be dismissed, because the petition did not contain facts sufficient to constitute a cause of action in equity or at law, and because the court was without jurisdiction to grant the relief prayed. In its answer it also denied that the 6-cent fare was confiscatory, admitted that the City had refused to permit the company to charge more than six cents and alleged that Ordinances No. 3, Series of 1885, and No. 36 of 1888, granted to the predecessors and assignors of the Tramway Company, contractually fixed the fare at five cents, that the 6-cent ordinances later passed by the City Council were for temporary purposes and did not change the contractual obligations under the prior ordinances to charge not more than a 5-cent fare, and to which obligations the Tramway Company as assignee was contractually bound. The answer also set up the Ordinance of May 15, 1906, as restricting the company to charge not more than 5 cents for single passage to adults and half that amount for children. The contentions of the City concerning the Ordinances of 1885, 1888, and May, 1906, were resisted by the receiver. After hearing on the issue joined between the receiver and the City the court entered an interlocutory decree enjoining the City from enforcing or attempting to enforce a maximum fare of 6 cents for adults and 3 cents for children, and authorized the receiver to charge and collect fares not in excess of 8 cents for adults and 4 cents for children between the ages of 6 and 12 years, and to issue two tickets or tokens for adults for not more than 15 cents and four tickets or tokens for children for not more than 15 cents, after giving not less than 48 hours' notice of such change, and to cause to be issued to all passengers a receipt showing payments for fares in amounts in excess of 6 cents for adults and 3 for children, upon request of the passenger, and to keep record thereof. From this order the City appealed to the Circuit Court of Appeals, and that court affirmed the interlocutory decree of this court, as will be seen by its opinion in 277 F. 865.

Thereupon, for the purpose of final hearing and decree, the court appointed a special master to take and report the testimony, his findings of fact and such conclusions of law as he might deem essential to the proper advisement of the court. The master heard the testimony, which consists of 6,500 typewritten pages; and also considered and returned with the testimony a large number of exhibits offered by each side, containing many hundred pages. After hearing arguments of counsel on each side he filed his report. He stated therein the values as he found them on the different classes of property composing the entire electric street railway system within the City belonging to the Tramway Company and reached the conclusion, which he announced in his report, that the 6-cent fare ordinance for adults and 3 cents for children was confiscatory and recommended to the court that the preliminary injunction against the enforcement of that ordinance be made permanent; subject, of course, to the City's police power of future regulation.

The system has about 200 miles of track within the City, street railway cars, an electrical power plant, electrical distribution system, shops and shop equipment, substations and substation equipment, lands and right of way, buildings and other needed property and structures in the operation of such plant. It has about 1,500 employes and owns and operates the only street-car lines within the city. It owns and operates two suburban lines of about 25 miles each, but they are not considered here and were not valued. The master filed his report June 25, 1924, and on July 14 following the receiver filed exceptions and objections thereto, 37 in all, challenging principally the findings of fact as to valuations made by the master, because, as claimed, those valuations are too low, are not sustained by the proof and are contrary thereto; and especially do the exceptions challenge the ruling of the master in permitting Delos F. Wilcox to testify as an expert witness.

There was no detailed inventory of the property composing the system until 1918. In that year the Tramway Company employed Mr. Frank P. Woy, a thoroughly competent and experienced engineer, to make up for it a complete inventory of all its property. This he did with the assistance of a large force, devoting several months to the work, the result of his labors being 30-odd volumes made up in permanent form; so that when the hearing came on before the master the Woy inventory was generally accepted as the true and correct inventory of the property making up the system, barring a few errors made by oversight, and subject to the exclusion of items that had passed out since the inventory was made, and the addition of new items that had been brought into the system since that time. The property that was taken over by the Denver Tramway Company from its immediate predecessor on its organization in 1914 had been projected and built up by many competing companies covering many years, as shown by the master's report. There had been horse-car lines, dummy-engine lines, cable lines, experimental electric lines that had come and failed and were taken over by some other company; and thus through a period of more than 30 years as the City grew in population the interests of the different companies did not become consolidated and unified in one until the present company's immediate predecessor brought that about some time around 1900. The record leaves the clear inference that the predecessor companies did not keep books in such way that from them investment costs of property in existence that had been acquired and installed prior to 1914 could be ascertained; and that continued under the present company until about 1916, when what is called the Work Order System was inaugurated. The Work Order System as made up in the permanent files consists of loose leaves, one for each job, which shows cost of material and labor, and all incidentals of installation except overheads. The books of account did show property purchased and its cost but not the expense of installing it. That appears to have been covered by general account and not separable to different installations. On this subject the master says: "It is impossible to determine the actual investment cost of the property with any semblance of accuracy; and the witnesses found this situation to exist."

In 1918 the State Utilities Commission undertook to make a valuation of the property for rate purposes, and the Woy inventory was made for the hearing before that Commission. The Commission made a valuation and ordered an increase of the fares to seven cents, but the Supreme Court of the State held that the Commission had no jurisdiction over the subject. Woy's inventory classified the property in accordance with the Interstate Commerce Commission's system of accounting, and he placed valuations on the different classes of property, which, including overheads, in the aggregate amounted, according to Woy, to more than $30,000,000 valuation as of ...