City of Minneapolis v. Rand

• Decision Date: 08 January 1923
• Docket Number: 5882-5884.
• Parties: CITY OF MINNEAPOLIS v. RAND et al. RAND et al. v. CITY OF MINNEAPOLIS. MINNEAPOLIS GASLIGHT CO. v. SAME.
• Court: U.S. Court of Appeals — Eighth Circuit

285 F. 818

CITY OF MINNEAPOLIS v. RAND et al. RAND et al. v. CITY OF MINNEAPOLIS. MINNEAPOLIS GASLIGHT CO. v. SAME.

Nos. 5882-5884.

United States Court of Appeals, Eighth Circuit.

January 8, 1923

J. O P. Wheelwright, of Minneapolis, Minn., and Pierce Butler, of St. Paul, Minn. (D. F. Simpson, of Minneapolis, Minn., on the brief), for Minneapolis Gaslight Co. and its receivers.

R. S Wiggin, of Minneapolis, Minn. (Neil M. Cronin and William H Morse, both of Minneapolis, Minn., on the brief), for city of Minneapolis.

Before SANBORN and STONE, Circuit Judges, and MUNGER, District Judge.

MUNGER District Judge.

From a decree fixing rates to be charged for gas in the city of Minneapolis, separate appeals are prosecuted by the Minneapolis Gaslight Company (hereafter called company or gas company), the receivers of that company, and the city of Minneapolis. Franchises had been granted to predecessors of the gas company, permitting the manufacture and distribution of gas to the city and to its citizens for a limited period and allowing the city to purchase the plant at certain times. The gas company acquired these franchises and the gas plants, and shortly before the date when the city might have elected to have purchased the plant a new contract was made between the gas company and the city and embodied in a city ordinance approved February 24, 1910. This ordinance fixed a rate to be charged for gas by the gas company, and provided that the city council might thereafter fix the rates to be charged by the company for gas, but not oftener than once in five years, and that the rates which should be fixed by the city council should always be just and reasonable, and should afford a fair and reasonable return upon the company's capital investment, and that the term 'capital investment' should mean the fair and reasonable value of the gas plant as a going concern, having regard to its condition of repair and its adaptability and capacity for generating gas, and, in determining the plant's value, no value should be placed upon good will, upon the unexpired term of any franchise, or future profits based upon any unexpired term of the franchise, and no regard should be given to the company's capitalization, as represented by its outstanding stocks and bonds. The ordinance contained a provision that the reasonableness of the rates should always be subject to review and correction in any action or proceeding which should be instituted therefor by the gas company in any court having jurisdiction of the subject-matter.

The city council passed an ordinance in 1913 fixing gas rates for the five-year period ending December 31, 1918. Another ordinance was passed by the city council on January 10, 1919, fixing rates for the five-year period beginning January 1, 1919, and making a different rate for each of the years, and this latter ordinance is the one now challenged in this suit. The gas company complied with the rates fixed for 1919. On January 26, 1920, in a creditors' suit against the gas company in the United States District Court for the District of Minnesota, a receiver was appointed for the property of the gas company, and by a later order the receiver was given leave to file an ancillary and dependent bill against the city of Minneapolis for the purpose of having the rates for gas prescribed by the ordinance of 1919 reviewed and corrected, and for the purpose of having fixed by the court a temporary rate for gas to be charged to consumers, pending the final determination of the case upon its merits.

The receiver adopted the ordinance of 1910 and began this suit, challenging the rates fixed for gas for the years subsequent to 1919, alleging in his bill that they did not afford a fair and reasonable return on the gas company's capital investment, as that term was defined in the ordinance of 1910. The prayer of the bill was for the court to fix the value of the company's capital investment, to review and correct the rates fixed by the ordinance of 1919, to fix a rate that should comply with the ordinance of 1910, and to fix a temporary rate that the receiver should be authorized to apply and collect. The gas company was allowed to intervene. The city put in issue the allegations of the bill of the receiver and of the gas company, and a master was appointed, who heard the testimony in an extended hearing, and he made an elaborate report, stating his conclusion as to the facts and as to the law applicable thereto. The master afterwards made one important amendment to his report. The court affirmed the master's report and entered a decree in conformity to it, fixing the value of the capital investment of the gas company, and fixing the rates to be charged for gas during the receivership and until the end of 1923, and thereafter until a new ordinance was passed fixing rates to be charged for gas. The master's findings as to operating costs are not in question, and the only issue now in controversy is the amount of return that should be allowed to the owners of the company.

The first question presented is the claim of the city that the court had no jurisdiction to entertain the bill filed by the receiver asking the court to fix a rate to be charged for gas, because the receiver elected to stand upon the ordinance of 1910, and asked the court to exercise a mere legislative function in establishing the rates to be charged. In support of the jurisdiction it is claimed that the bill of the receiver is an ancillary and dependent suit authorized to be carried on in support of the main suit. In a proper case the receiver may maintain in the original suit a dependent suit in aid of the objects of the original suit (White v. Ewing, 159 U.S. 36, 39, 15 Sup.Ct. 1018, 40 L.Ed. 67; In re Tyler, 149 U.S. 164, 181, 13 Sup.Ct. 785, 37 L.Ed. 689; Rouse v. Letcher, 156 U.S. 47, 50, 15 Sup.Ct. 266, 39 L.Ed. 341; Blair v. Chicago, 201 U.S. 400, 450, 26 Sup.Ct. 427, 50 L.Ed. 801); but the bill of the receiver in this case did not disclose a separate suit in equity between himself, as receiver, and the city. In substance it asserted that under the city ordinance the city had agreed that rates for gas should be so fixed as to yield a reasonable return upon the company's capital investment, and that the questioned rates would not yield that return, nor enable the receiver to continue in the operation of the gas plant, and that they were unfair and unreasonable and a breach of the contract evidenced by the ordinance of 1910. It also alleged that, because the court had ordered the receiver to adopt the contract evidenced by the ordinance of 1910, the court should review and correct the rates established by the ordinance of 1919 and should fix a temporary rate, and the prayer of the bill was that the court review and correct the rates fixed by the ordinance of 1919, and fix and determine a rate that should comply with the ordinance of 1910, and fix a provisional rate for the receiver to apply until final decree in the case. The making of rates to be charged consumers by public utility companies is a legislative and not a judicial function, and therefore the court had no jurisdiction to grant that relief in an independent or a dependent suit. St. L. & San Francisco Railway Co. v. Gill, 156 U.S. 649, 663, 15 Sup.Ct. 484, 39 L.Ed. 567; Interstate Com. Commission v. Railway Co., 167 U.S. 479, 499, 17 Sup.Ct. 896, 42 L.Ed. 243; Int. Com. Com. v. Alabama Midland Ry., 168 U.S. 144, 162, 18 Sup.Ct. 45, 42 L.Ed. 414; Minnesota Rate Cases, 230 U.S. 352, 433, 33 Sup.Ct. 729, 57 L.Ed. 1511, 48 L.R.A. (N.S.) 1151, Ann. Cas. 1916A, 18. In Newton v. Consolidated Gas Co., 258 U.S. 165, 42 Sup.Ct. 264, 66 L.Ed. . . ., the court says:

'Rate making is no function of the courts and should not be attempted either directly or indirectly.'

Jurisdiction to establish rates could not be, and was not, conferred upon the United States court by the terms of the city ordinance of 1910 providing that the reasonableness of the rates for gas should be subject to review and correction in any action or proceeding instituted therefor by the company in any court having jurisdiction of the subject matter. The bill does not present a suit for an injunction and contained no prayer for any injunction, temporary or permanent, against the enforcement of the rates which were assailed. The bill is not a suit in the common method of reviewing and correcting a rate, by means of a bill asking an injunction against its enforcement, as was attempted in Minneapolis Gaslight Co v. City of Minneapolis, 123 Minn. 231, 143 N.W. 728, by the same gas company. The receiver, acting under the direction of the court, adopted the contract between the city and the gas company. The bill did present to the court, in the suit wherein he had been appointed, a petition by the receiver asking for advice and instructions as to the rates to be charged by him. A receiver has the right to apply, and in matters of importance it may be his duty to apply, to the court for instructions as to his duties. Grant v. Phoenix Life Ins. Co., 121 U.S. 118, 120, 7 Sup.Ct. 849, 30 L.Ed. 909; Stuart v. Boulware, 133 U.S. 78, 81, 10 Sup.Ct. 242, 33 L.Ed. 568; Scott v. Western Pac. R. Co., 246 F. 545, 546, 158 C.C.A. 515; Guaranty Trust Co. v. International Steam Pump Co., 231 F. 594, 145 C.C.A. 480; Beach on Receivers (2d Ed.) Sec. 272. And the court had jurisdiction to entertain the bill of the receiver for this purpose. The effect of the master's report and of the court's decree was that the ordinance was invalid and that the receiver was not bound to comply with its terms. Each of the parties has appealed, and each questions the master's valuation of $8,000,000 placed upon the property of the gas company as of the date of January 1, 1920. ...