City of Louisville v. Louisville Ry. Co.

• Decision Date: 25 March 1930
• Docket Number: No. 5570.,5570.
• Citation: 39 F.2d 822
• Parties: CITY OF LOUISVILLE et al. v. LOUISVILLE RY. CO.
• Court: U.S. Court of Appeals — Sixth Circuit

39 F.2d 822 (1930)

CITY OF LOUISVILLE et al. v. LOUISVILLE RY. CO.

No. 5570.

Circuit Court of Appeals, Sixth Circuit.

March 25, 1930.

Wm. Marshall Bullitt, of Louisville, Ky. (Wm. T. Baskett, of Louisville, Ky., on the brief), for appellants.

Charles W. Milner, of Louisville, Ky. (H. T. Newcomb, of New York City, and Alfred Selligman and Humphrey, Crawford & Middleton, all of Louisville, Ky., on the brief) for appellee.

Before DENISON and HICKENLOOPER, Circuit Judges, and TUTTLE, District Judge.

HICKENLOOPER, Circuit Judge.

The Louisville Railway Company filed its bill in the District Court seeking an injunction against the enforcement of what is claimed to be a confiscatory rate of fare fixed by the general council of the city of Louisville. The only question presented by the present appeal is that of the jurisdiction of the federal courts as such. Equity jurisdiction of the subject-matter of the litigation is conceded. As of August 25, 1922, after other grants and prolonged litigation, the Louisville Railway Company surrendered all its various franchise rights within the city of Louisville, and the general council passed an ordinance granting a new franchise fixing a maximum fare of 7 cents, and providing for periodic adjustment of fares, varying inversely with the return upon the common capital stock of the company. On September 2, 1926, the franchise was further modified by enactment of another ordinance, fixing the fare at seven cents for a period of two years, providing for general valuation of the properties of the company and for subsequent determinations by the general council of the city, from time to time, of rates of fare at such figures as would yield a just and reasonable return upon the value of the railway property used and useful in the service of transportation.

The company continued to operate under the 1926 ordinance for approximately three years, while the valuation of its property was carried to completion. By ordinance adopted June 14, 1929, such valuation was fixed at $18,000,000, 6 per cent. declared a fair return, and 7 cents fixed as the fare necessary to yield this return. Thereupon the present action was begun, and, upon hearing of motion for interlocutory injunction, the District Court overruled a motion to dismiss for lack of federal jurisdiction, fixed the valuation of the property at $20,000,000 and a fair return at 8 per cent., and determined that a 10-cent fare was necessary to yield such return. As already stated, the city appeals only upon the question of jurisdiction.

Briefly stated, the contention of the appellant is that the power of rate regulation has never been delegated by the commonwealth to the general council of the city; that the exercise by the city of the power of valuation and rate determination can therefore be justified only upon the ground that such power was created or conferred by the franchise ordinance contract; and that the alleged confiscatory rates were therefore not the result of state action, but solely of action by the municipality in a proprietary capacity, which would not create federal jurisdiction under the Fourteenth Amendment. City of Memphis v. Cumberland Tel. & Tel. Co., 218 U. S. 624, 31 S. Ct. 115, 54 L. Ed. 1185; Hamilton Gas Light Co. v. City of Hamilton, 146 U. S. 258, 13 S. Ct. 90, 36 L. Ed. 963; City of Louisville v. Cumberland Tel. & Tel. Co., 155 F. 725, 12 Ann. Cas. 500 (C. C. A. 6).

It must be conceded that the power to control rates of public utilities rests primarily and exclusively with the General Assembly, unless delegated in express terms to a specially constituted administrative tribunal, or to a political subdivision of the state. Winchester v. Winchester Waterworks, 251 U. S. 192, 40 S. Ct. 123, 64 L. Ed. 221; City of Louisville v. Louisville Ry. Co., 281 F. 353 (C. C. A. 6); 3 Dillon, Municipal Corporations (5th Ed.) § 1325.

The same is true as to the grant of franchise rights to use the public highways of the state for the conduct of such public utility business. This latter power, over the granting of franchises, has been delegated to the cities of Kentucky by section 163 of the Constitution of 1891, and it has been held by the Court of Appeals of Kentucky that, in granting a franchise, it is proper for the city "to provide the conditions under which, and the rates for which, the service should be rendered." Campbellsville v. Taylor County Tel. Co., 229 Ky. 843, 849, 18 S. W.(2d) 305, 308. This, however, is not an exercise of the rate-making powers of the state, nor does it necessarily create a contract bartering away the power of rate control residing in the commonwealth. It fixes a contract maximum; not a contract minimum below which service may not thereafter be required by properly constituted authority. City of Noblesville v. Noblesville Gas & Imp. Co., 157 Ind. 162, 169, 60 N. E. 1032; St. Cloud Pub. Serv. Co. v. City of St. Cloud, 265 U. S. 352, 363, 44 S. Ct. 492, 68 L. Ed. 1050.

This view suggests the rather obvious distinction between the power of rate regulation, as such; the power to contract for a fixed rate over a definite term, which is the equivalent of a surrender of the rate-making power for such term and will be supported only by definite and express enactment (Railroad Commission v. Los Angeles Ry. Corp., 280 U. S. 145, 50 S. Ct. 71, 74 L. Ed. ___, decided Dec. 2, 1929); and the power to fix a maximum rate as a condition to the enjoyment of a franchise. In each instance the municipality acts under delegated state power, although the several powers differ essentially in nature, scope, and effect of exercise thereof. It is the contention of appellant that the city could act only by virtue of its power to impose conditions upon the grant of a franchise, that this action was taken in its proprietary capacity and was solely municipal in character, and that specific delegation of the power of rate regulation must be found in order to give to the rate determination the color of state action.

The fallacy of appellant's position lies in the assumption that the action of the city was in a purely proprietary and municipal capacity, and not under delegation of authority primarily vested in the state. While we have searched the Constitution and laws of the commonwealth of Kentucky and find no express delegation to the city of the power of rate regulation, as such, yet it is conceded that the power to grant or withhold a franchise to use the public ways, and to impose conditions as to such use, has been delegated. This power, no less than the power of rate control, finds its origin in the supreme legislative power of the state. Wright v. Nagle, 101 U. S. 791, 794, 25 L. Ed. 921; California v. Central Pac. R. R. Co., 127 U. S. 1, 40, 8 S. Ct. 1073, 32 L. Ed. 150. The franchise comes from the state through power...