City and County of Denver v. Denver Tramway Corporation

• Decision Date: 08 December 1927
• Docket Number: No. 7760.,7760.
• Citation: 23 F.2d 287
• Parties: CITY AND COUNTY OF DENVER v. DENVER TRAMWAY CORPORATION (Appellee by Substitution).
• Court: U.S. Court of Appeals — Eighth Circuit

23 F.2d 287 (1927)

CITY AND COUNTY OF DENVER v. DENVER TRAMWAY CORPORATION (Appellee by Substitution).^*

No. 7760.

Circuit Court of Appeals, Eighth Circuit.

December 8, 1927.

Thomas H. Gibson and Henry E. May, both of Denver, Colo., for appellant.

Gerald Hughes, of Denver, Colo. (Clayton C. Dorsey, of Denver, Colo., on the brief), for appellee.

Before WALTER H. SANBORN and BOOTH, Circuit Judges, and MILLER, District Judge.

BOOTH, Circuit Judge.

This is an appeal from a final decree enjoining the City and County of Denver, Colo., hereinafter called the City, from enforcing against the Denver Tramway Company the provisions as to street car fares contained in certain ordinances, and granting other relief. The appeal was taken direct to the Supreme Court of the United States, but was transferred by order of that court to this court, under the authority of the Act of September 14, 1922 (42 Stat. 837, c. 305 Comp. St. § 1215a). See 273 U. S. 657, 47 S. Ct. 343, 71 L. Ed. ___.

A short review of the history of the litigation is necessary to a proper understanding of the present appeal:

December 24, 1920, the Westinghouse Electric & Manufacturing Company, a citizen and resident of the state of Pennsylvania, filed a creditor's bill against the Denver Tramway Company, a citizen and resident of the state of Colorado, hereinafter called the company, in the United States District Court for the District of Colorado. Federal jurisdiction was based upon diversity of citizenship and the requisite amount involved. The bill alleged the ownership and operation by the Company of the street railway lines in the City of Denver and certain interurban lines; that the property of the Company was subject to certain mortgage liens; that default had been made in payment of interest on certain of the bonds and notes of the company; that the Company was indebted to plaintiff in the sum of more than $13,000 for street railway material and supplies furnished by plaintiff to the Company at the latter's request; that said sum was past due; that demand for payment had been made and refused, though the debt was admitted by the Company; that certain taxes, which constituted a first lien upon all the property of the Company, were unpaid, together with many other obligations; that plaintiff had no adequate remedy at law; that the bill was filed by plaintiff on its own behalf and on behalf of all other creditors similarly situated. The appointment of a receiver was asked. On the same day Mr. E. Stenger was duly appointed receiver, with the usual powers.

February 10, 1921, the receiver filed in the creditor's suit his petition concerning fares and operating conditions. The petition set forth the history of the Company; the ownership of the lines of street railway in and adjoining the city; mortgage indebtedness of the Company, amounting to $19,383,000; secured notes of the Company, amounting to $200,000, and other obligations for operating expenses and unpaid taxes; the capital stock of the Company, amounting to $10,000,000; that the properties and assets of the Company included certain franchises, grants, and licenses, among them Ordinance No. 3 of 1885 and amendments, Ordinance No. 36 of 1888 and amendments, and Ordinance No. 74 of 1906; that there was no contract between the Company and the City fixing the rate of fare, and no power in the City to make such a contract for any specified time; that the provisions in the ordinances relative to the rates of fare were regulatory only; that the Company and its predecessor had never been able to earn a fair return upon the reasonable value of the property used and useful in the service; that the value of such property as of January 1, 1918, was $35,959,884, and the present value was not less; that since January 1, 1918, the price of materials and wages had both greatly increased; that on May 3, 1918, the Company filed a petition with the Public Utilities Commission of Colorado setting forth the increase in operating expenses and its inability to meet the same with the then existing 5-cent fare; and it requested a valuation of its property and an increase in fare; that in September, 1918, the Public Utilities Commission, as a measure of emergency relief, made an order allowing an increase in fare to 6 cents; and the City also in September, 1918, as an emergency measure, passed an ordinance allowing a 6-cent fare; that in December, 1918, the Public Utilities Commission made its findings, including value of the property, $23,674,100; reasonable annual depreciation charge, $500,000; reasonable rate of return, 8 per cent. It ordered that the fare should be at once raised to 7 cents, with 1 cent for transfer. The petition of the receiver further alleged that this valuation of the Public Utilities Commission was based upon pre-war values prevailing from 1908 to 1918; that the 7-cent fare was put into effect, but lasted a few weeks only; that on January 14, 1919, the Supreme Court of Colorado decided that the Public Utilities Commission had no jurisdiction over rates in the City, but that the authority in that respect rested in the City; that thereupon the Company resumed the 6-cent fare; that the wages of the employés had been several times increased since 1915; that in 1918 the War Labor Board increased the wages approximately $506,000 per year; that in 1919 a board of arbitration further increased the wages; that the total increases had been as follows:

                  1916 ................. $   21,000.00  per year
                  1917 .................    161,000.00   "   "
                  1918 agreement .......    225,000.00   "   "
                  1918 War Labor Board..    506,000.00   "   "
                  1919 arbitration award    400,000.00   "   "
                                         _____________
                  Total ................ $1,313,000.00
                

That the above wage increases amounted to approximately 100 per cent. of the wages paid prior to 1916; that on June 30, 1919, an ordinance was passed repealing the 6-cent fare ordinance of 1918; that on July 28, 1919, an ordinance was passed providing for a 6-cent fare for a period of 90 days; that on November 10, 1919, another ordinance was passed permitting a 6-cent fare, and that such fare was in effect at the time of filing the petition; that repeated requests had been made that the City pass an ordinance providing for an increase of fare over the 6-cent rate, but that the City had refused so to do and had threatened the use of the police to prevent the Company from attempting to collect more than a 6-cent fare; that the Company, failing to get an increased fare, sought in 1920 to reduce the wages of its employés, but the City brought suit and obtained an injunction against the Company, preventing such reduction; that during this same year the employés of the company demanded further increase of wages, and, it being refused, a strike occurred; that this lasted for several months, during which time the Company suffered loss through destruction of property and loss of revenue of more than $500,000; that the street railway system had at all times been efficiently and economically managed; that its present fair value, as above stated, was $35,959,884; that a fair rate of return was at least 8 per cent.; that $500,000 was a fair amount for annual depreciation.

The petition also set forth tables showing the gross and net income from 1914 to 1920, and the interest and fixed charges for those years. The petition further alleged that upon the value above given the return for the years 1918, 1919, 1920, was 1.77, 2.79, 0.53 per cent., respectively; that, computed on the valuation found by the Public Utilities Commission ($23,674,100), the return for the years mentioned would have been 2.70, 4.25, and 0.80 per cent., respectively. The petition further showed that on December 24, 1920, there were outstanding unpaid overdue obligations of the Company amounting to more than $900,000. The petition further alleged that none of the ordinances mentioned as fixing fares were contractual in that respect, but all were regulatory only; that the provisions in said ordinances and in each of them, fixing the rates of fare, were confiscatory of the Company's property and violative of the Federal Constitution, and would continue so to be; that in view of the attitude and threats of the City, it would be impossible for the Company to put into effect a fare in excess of 6 cents without resort to force.

The petition prayed for the advice, aid, and instructions of the court.

Thereafter the City presented to the court an application for leave to intervene, to be made defendant, and to interpose an answer to the petition. The application was granted. The City was made defendant to the receiver's petition, but not to the main suit. Thereupon the receiver amended the title to his petition by naming the City as defendant thereto, and also amended the prayer of his petition by asking relief against the City. The City then answered the amended petition.

The amended prayer of the petition asked for a temporary injunction restraining the City and its agents from enforcing the ordinances relating to fares mentioned in the petition, also from interfering with the Company in the collection of a fare of 10 cents; that the ordinances mentioned be adjudicated noncontractual, so far as relating to fares; that any regulations of the City fixing the fare at 6 cents be adjudged confiscatory and violative of the constitutional rights of the Company; that the fair present value of the property of the Company devoted to the public use be ascertained and fixed, together with such percentage of return thereon as would avoid confiscation of the property; that other proper relief be granted.

The City, in its answer to the amended petition, as its second defense, denied that the ordinances of 1885 and 1888 were noncontractual, so far as relating to fares, but alleged that they and the ordinance of 1906 were contractual, and that the City had full power to make the same; denied that...