City of Louisville v. Louisville Home Telephone Co.

• Decision Date: 15 April 1922
• Docket Number: 3624.
• Citation: 279 F. 949
• Parties: CITY OF LOUISVILLE et al. v. LOUISVILLE HOME TELEPHONE CO.
• Court: U.S. Court of Appeals — Sixth Circuit

279 F. 949

CITY OF LOUISVILLE et al. v. LOUISVILLE HOME TELEPHONE CO.

No. 3624.

United States Court of Appeals, Sixth Circuit.

April 15, 1922

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

Joseph S. Lawton and M. H. Thatcher, both of Louisville, Ky. (Wm. T Baskett and Davis W. Edwards, both of Louisville, Ky., on the brief), for appellants.

Helm Bruce, of Louisville, Ky. (Peter, Tabb & Levi, of Louisville, Ky., Galvin & Galvin, of Cincinnati, Ohio, and Bruce & Bullitt, of Louisville, Ky., on the brief), for appellee.

Before KNAPPEN, DENISON, and DONAHUE, Circuit Judges.

DENISON Circuit Judge.

The Telephone Company (called hereafter the company or the Home Company) filed a bill alleging in substance that the city had passed an ordinance fixing the telephone charges at a confiscatory rate, and moved for a preliminary injunction. This was granted, and the city brings this appeal.

The company has carried on its business in Louisville for 20 years under a franchise which fixed the rates, and the term of which expired March 7, 1921. The city council, on May 26, 1921, passed a rate ordinance which by its terms was to continue for one year only, within which period it was assumed that some permanent disposition might be made. It is the rates fixed by this temporary ordinance which were said to be confiscatory. It is now the settled rule, where a rate fixing public service franchise has expired, and where there is no inconsistent statute, that the city has an optional right to eject the corporation from the streets, but that, so long as the city requires the corporation to continue to give public service, it must allow compensatory rates. The Denver Case, 246 U.S. 178, 38 Sup.Ct. 278, 62 L.Ed. 649; the Detroit Case, 248 U.S. 429, 39 Sup.Ct. 151, 63 L.Ed. 341; the Toledo Case (C.C.A. 6) 259 F. 450, 453, 170 C.C.A. 426.

A city ordinance, which refers to further service and rates, may indicate an intention that the service must be given at the rates named, or an intention that the streets must be vacated and the service abandoned unless the company accepts the rates named. The city has the right to impose this choice upon the company, and if that intent is sufficiently apparent the company cannot continue both to use the streets and reject the rates. The ordinance involved in the Detroit Case was thought by the majority of the Supreme Court to be a requirement for service and a fixing of the price, while the minority thought it to be an eviction from the streets unless the company chose to remain by accepting the prescribed conditions. It is clear enough that, if the minority interpretation had been correct, the company would have been held to be bound by the specified rates.

Without going into details, we are satisfied that the ordinance of May 26th is an eviction nisi. It was seemingly carefully drawn to bring out that purpose and effect. It follows that the bill cannot be maintained merely on the theory of the Denver and the Detroit Cases.

Anticipating the possibility of this conclusion, the company plants its claim for relief also upon a statute. Section 3037d of the Kentucky Statutes was passed in 1904, and section 1 reads as follows:

'Sec. 3037d1. That eighteen months before the expiration of any franchise acquired under, or prior to the present Constitution, it shall be the duty of the proper legislative body or boards to provide for the sale of a similar franchise to the highest and best bidder, on terms and conditions, which shall be fair and reasonable to the public, to the corporation, and to the patrons of the corporations: Provided, that if there is no public necessity for the kind of public utility in question, and, if the municipality shall desire to discontinue entirely the kind of service in question, then this section shall not apply.'

This statute plainly made it the duty of the city, before the expiration of the company's franchise, to prepare and offer for sale a suitable new franchise, which the company could purchase if it wished, and whereby it could continue its business and the patrons continue to receive service, without the interruption caused by building a new plant. That one purpose of this statute was to protect from being arbitrarily ejected those public utilities whose franchise expired, and to do so by requiring procedure thereunder for the benefit of the company as well as for the benefit of the city, seems to us obvious upon its face; and such purpose and effect were declared by the Kentucky Court of Appeals when it said-- although obiter-- in Gathright v. Byllesby, 154 Ky. 106, 126, 157 S.W. 45, 54:

'The statute requiring a sale of a similar new franchise was evidently passed for the benefit of the owner of the expiring franchise, and he only can complain if the city offers a different franchise.'

The Kentucky Court of Appeals, also in the same case, quotes with seeming approval the decision of a lower court with reference to this statute, that-- 'The city of Louisville must offer for sale a franchise of a character similar to that heretofore held by the (owner of the expiring franchise) before the city would be permitted to exclude that company from the use of its streets.' 154 Ky. 111, 157 S.W. 47.

Adopting the same view which has been thus approved by the Kentucky courts, we conclude that the city had no lawful right to refuse to comply with section 3037d and at the same time arbitrarily to exclude the company. It follows that the situation considered by the minority in the Detroit Case is not created, and-- unless for other reasons to be discussed-- the company could not be compelled in May, 1921, to accept confiscatory rates as the price for being allowed to continue its business.

In attacking the position of advantage thus claimed by the company, the city first says that section 3037d is unconstitutional and invalid, because section 163 of the Constitution provides, in effect, that no public service company shall use the streets without the consent of the council, and it is therefore argued that no legislative act can compel the consent of the council to the extent inherent in the carrying out of section 3037d. Specifically it is said that if, when the Home Company franchise expired the council was satisfied with the service being given by a competing company, it had the constitutional right, under section 163, to refuse consent to the longer occupation of the streets by more than one company.

It may be conceded, for the argument, that the Legislature would have no power to compel the council to permit a new and additional use of the streets, and to do so by requiring a new and second franchise to be sold when there was one in existence and satisfactory operation. Such concession does not reach this case. To compel the city to permit burdening the streets with a new easement is one thing, but it is quite another thing merely to require that the council, when it has once consented to such burden, shall be reasonable, and not arbitrary, in its treatment of the property which has been dedicated to public use under that consent, and shall not insist that such property be practically destroyed while it still desires public service of that character, and while the company continues willing to render it upon reasonable conditions. We do not doubt that the protection of invested property, to that extent, continued to be within the reasonable discretion of the Legislature, without impairment by section 163.

This statute has been in force 17 years. So far as the reported Kentucky decisions show, its constitutionality has never been questioned; on the contrary, in the Gathright Case its validity was assumed. It is a familiar rule, particularly when federal courts are considering a state statute, in the absence of state decisions, that it should not be found unconstitutional, unless such a conclusion cannot be avoided. Particularly in view of this rule, we would not be justified in holding now that this section is in violation of the Kentucky Constitution.

It is next urged that it is too late for the company to insist upon the rights it once would have had under this statute. It is said that the duty of the city to proceed thereunder became absolute 18 months before March, 1921, and that if the city failed to observe the law the company's utmost right was to proceed promptly to compel compliance. What actually happened was that some time before the end of the term the city authorities had contended that telephone service by two companies was undesirable, and that there ought to be a merger between the Home Company and the (so-called) Bell Company. Three-party negotiations on that subject, more or less informal, continued from time to time. The company, before May, 1920, called the city's attention to the situation arising under section 3037d. The city did not decline to act, or say it was too late, but did nothing, and the council 'pigeonholed' an ordinance for a new franchise which the company had caused to be introduced. In substantial effect, the city has continued to insist upon a merger, and has declined to proceed under section 3037d; indeed, by the answer and affidavits in this case the duty to proceed under section 3037d is in effect denied, because a new franchise would interfere with the desired merger. The very ordinance of May 21 recites that two systems are a public burden and that a merger should be had. Under all these circumstances, the city cannot be heard to say that the company has lost all right to be protected in the substantial benefits given to it by this section.

So far as the letter of the statute goes, the obligation to move is upon the city, and the company might maintain the situation indefinitely by insisting that the city...