Columbus Ry., Power & Light Co. v. City of Columbus, Ohio

• Decision Date: 20 September 1918
• Docket Number: 104.
• Citation: 253 F. 499
• Parties: COLUMBUS RY., POWER & LIGHT CO. v. CITY OF COLUMBUS, OHIO, et al.
• Court: U.S. District Court — Southern District of Ohio

253 F. 499

COLUMBUS RY., POWER & LIGHT CO. v. CITY OF COLUMBUS, OHIO, et al.

No. 104.

United States District Court, S.D. Ohio, Eastern Division.

September 20, 1918

Henderson & Burr, of Columbus, Ohio, for plaintiff.

Henry L. Scarlett, City Atty., of Columbus, Ohio, for defendants.

WESTENHAVER District Judge.

This cause has been heard and submitted on complainant's application for a preliminary injunction, based on its verified bill and affidavits, and on defendants' motion to dismiss for want of jurisdiction, and because a valid cause of action in equity is not stated. These respective motions have been elaborately argued, both orally and by briefs. Due consideration has been given to the many authorities cited and the several contentions made, but this opinion will deal only with such as seem to me vital and controlling.

The complainant is a corporation organized under the laws of the state of Ohio. The defendant, the city of Columbus, is a municipal corporation of the state of Ohio, and the other defendants are its mayor, members of its council, and other city officials. Complainant owns and operates a system of street railways within the city of Columbus, and is engaged in manufacturing and selling heat, light, and power to the inhabitants of the city and to industrial plants therein and adjacent thereto.

Complainant's street railway lines have been constructed, maintained, and operated by virtue of certain grants or franchises. These are embodied in two ordinances duly enacted by the proper authority of the city of Columbus. The principal franchise called the 'blanket franchise,' is Ordinance No 17801, passed February 4, 1901; and the other, called the 'Central Market franchise,' is Ordinance No. 17802 passed January 21, 1901. In addition, complainant claims to own a perpetual franchise on certain streets; but the provisions thereof are not material to any question now to be decided. Both franchises are for terms of 25 years and will not expire, by their terms, earlier than the year 1926. They require the grantee to carry passengers for a single cash fare of 5 cents and to sell tickets in packages of 8 for 25 cents, and to give universal free transfers upon the payment of a 5-cent fare or the presentation of one of these tickets.

Complainant's bill alleges, and the supporting affidavits clearly show that the cost of operating these street railway lines has greatly increased during the present war, owing to the rise in price of coal, materials, supplies, and labor. As a result of this increased cost, the net earnings from the operation of the street railway line for the year ending June 30, 1918, after deducting taxes, operating expenses, and a proper charge for depreciation, were only $301,987. These earnings are insufficient by the sum of $31,000 to pay interest on outstanding bonds, and are sufficient to allow a net return of only 4 1/2 per cent. on the actual value of the capital invested in the street railway system. The value of this property, it is alleged, is $12,000,000, and the par value of the bonds issued and outstanding is $7,225,000.

In June, 1918, complainant's street railway employes demanded an increase in wages, and, in order to avoid a strike, the controversy between the complainant and its employes was submitted to the National War Labor Board for decision. This board, on July 31, 1918, made an award granting to the employes an average increase of 50 per cent. in the rate of wages hitherto being paid. Complainant abided by this decision and granted the increase thus awarded. The amount of this increase, it is estimated, will be for the ensuing year $560,000, and as a result thereof it is estimated that the gross earnings will fall short of paying operating expenses, taxes, and a proper allowance for depreciation by approximately $250,000. This leaves no net income, either to pay interest on outstanding bonds or dividends on capital actually invested.

Complainant alleges that these facts were twice brought to the attention of the city council of defendant, and request made for permission to increase the rate of fare above that fixed by these franchise grants, so as to permit the earning of a reasonable return on the invested capital. This request being either denied or ignored, complainant on August 20, 1918, filed with defendants a communication in writing, stating that it would henceforth discontinue the selling of 8 tickets for 25 cents and the giving of universal transfers, and that it surrendered, relinquished, and canceled its two franchises; that it would no longer operate cars thereunder; that it would thereafter consider itself a tenant by sufferance only on the streets, and would withdraw therefrom whenever notified so to do by the city, but that until so notified, and in order not to deprive the traveling public of service, it would continue to operate its lines, not under these franchises, or either of them, but at a rate of fare to be fixed by itself. It thereupon fixed the rate at 5 cents for cash fare and made a charge of 1 cent for each transfer to be issued, discontinuing the sale of 8 tickets for a quarter and free transfers. This rate thus established has been in force since August 20, 1918.

On the same day as this communication in writing was filed, the bill herein was also filed. This bill, as well as the amended bill filed September 3, 1918, states that the defendants threaten, and will, unless restrained, attempt to force complainant, to continue to operate these street railway lines in accordance with the terms of these two franchise grants. The nature of the threats made and the means to which it is expected the city will resort to enforce its threats are not stated or shown.

Complainant's bill also alleges and shows that, in addition to its street railway business, it is engaged in manufacturing and selling electricity for heat, light, and power. The capital invested therein, the earnings thereof, and the franchise rights are not disclosed. The city of Columbus and its suburbs, it is alleged, contain a population of more than 250,000; that it is a large industrial manufacturing center, in which are situated shops, factories, and plants; that many of these persons and plants are employed in the making of various kinds of munitions and war materials necessary to the prosecution of the war; that within the territory served by complainant's street railway lines, and by its heat, light, and power, is located a military barracks, in which are quartered more than 100,000 recruits per annum. All these, it is said, are dependent upon the street railway service, and on the heat, light, and power furnished by complainant. The discontinuance or impairment of this service would cause great harm to the government of the United States, to the people of the city of Columbus, and to all persons dependent thereon.

Complainant's amended bill alleges, and the supporting affidavits show, that it has in progress a plan to enlarge its heat, light, and power business, and that it is necessary to buy and install new equipment for this purpose, and that, in order so to do, it is necessary to raise new capital, which it is unable to do because of the low rates of fare fixed for street railway service.

Such in substance and in brief is the case made upon which the jurisdiction of this court is invoked and a preliminary injunction is asked. Complainant urges that any action of the city or its officials compelling the continuance of street railway service on the terms of these franchises at less than cost, or at a loss, is depriving it of its property without due process of law, in violation of the due process clause of the Fourteenth Amendment. This position is supported by two lines of argument. One is that the fare provisions of these franchises amount only to a legislative fixing of a rate of fare for transportation service, and cannot be enforced when conditions have so changed that this rate of fare does not yield a fair return on the capital actually invested. Another is that, even if these franchises were mutually binding contracts when entered into, they are no longer enforceable because of the conditions produced by a state of war. From these positions it is argued that complainant has the right to treat these franchise contracts as terminated, and having, by its communication in writing to the city, so declared, it becomes and is thereafter a tenant by sufferance only in the streets, subject to ejection at will by the city, but that, while the city refrains from so ejecting it and permits street railway service to be given, complainant has the right to insist upon a rate of fare which will yield a fair return on the capital actually invested, and that any effort of the city to compel service on terms which will deprive it of this fair return is depriving complainant of its property without due process of law. It is, of course, insisted that the 5-cent straight fare, with a charge of 1 cent for transfer, is the rate necessary to yield that fair return on the capital actually invested, and is therefore a reasonable rate.

Defendants urge that the averments of the bill do not present a real and colorable, but only a fictitious and fraudulent, federal question, under the due process of law clause of the Fourteenth Amendment, and that, therefore, inasmuch as there is no diversity of citizenship, this bill should be dismissed for want of jurisdiction, and, further, that the bill does not state a valid cause of action in equity, such as entitles complainant to any relief.

The primary and controlling question, in my opinion, depends on the nature of the relation created between the complainant and the city by these franchise grants. This relation is settled beyond controversy ...