Cumberland Tel. & Tel. Co. v. Railroad and Public Utilities Com'n of Tennessee

• Decision Date: 23 September 1921
• Docket Number: 87.
• Citation: 287 F. 406
• Court: U.S. District Court — Middle District of Tennessee
• Parties: CUMBERLAND TELEPHONE & TELEGRAPH CO. v. RAILROAD AND PUBLIC UTILITIES COMMISSION OF TENNESSEE et al.

287 F. 406

CUMBERLAND TELEPHONE & TELEGRAPH CO. v. RAILROAD AND PUBLIC UTILITIES COMMISSION OF TENNESSEE et al.

No. 87.

United States District Court, M.D. Tennessee, Nashville Division.

September 23, 1921

Keeble & Seay, of Nashville, Tenn., and E. D. Smith, of Atlanta Ga., Thos. N. Greer, of Shelbyville, Tenn., and Hunt Chipley of Atlanta, Ga., for plaintiff.

Frank M. Thompson, Atty. Gen., and A. H. Roberts and J. W. Cooper both of Nashville, Tenn., for defendants Commission et al.

Hughes Hatcher & Hughes, of Columbia, Tenn., and J. D. Morton, of Gallatin, Tenn., for intervening municipalities.

SANFORD District Judge.

The Cumberland Telephone & Telegraph Company has applied for an interlocutory injunction temporarily restraining the enforcement of certain orders of the Railroad and Public Utilities Commission of Tennessee, requiring the Company to maintain for the present its existing rates for local exchange service in Tennessee and suspending the increased rates for such service which it has sought to put into effect. There is the requisite diversity of citizenship and amount in controversy to give Federal jurisdiction, independently of the Constitutional questions involved.

The gist of the situation presented is this: The Company's present general rates were promulgated by the Postmaster General on May 1, 1919, while its properties were being operated by the Federal Government. They are about 20 per cent. higher than the rates which had previously been in force. Upon the subsequent return of the properties by the Government, the Company filed its petition with the Commission, setting forth that while these Governmental rates had been shown generally to be inadequate, it was necessary, to determine the effect of the various rates with any degree of certainty, that they be given a further practical trial; and praying that the Commission approve them and authorize the Company to continue them for not less than twelve months after December 1, 1919. This petition was, after a hearing, granted by the Commission, with certain minor exceptions; the company being thereby authorized by the Commission to continue to charge the Governmental rates, with such exceptions, for such one year period.

On May 18, 1921, the Company filed with the Commission a schedule of increased rates, which was subsequently withdrawn, before final hearing thereon; apparently because of non-compliance by the Company with the rules and regulations of the Commission providing that no increased rates should go into effect or be allowed, except in cases of discretionary emergency relief, until after thirty days' notice had been given to the Commission and the public.

On May 31st, the Company again filed with the Commission a schedule of increased rates, substantially the same as that withdrawn, to become effective on July 1st; of which the required public notice was given. This new schedule involved a general increase in rates of about 24 per cent. over the Governmental rates then in force. On this same day the Commission ordered that the operation of these increased rates be suspended until after a hearing set for July 18th, and that no changes be made in the rates during such suspension, unless by its special permission.

At the hearing before the Commission on July 18th, various municipalities, which have, by leave of the court, since intervened as defendants in this cause, appeared as protestants in opposition to the increase in rates. The Company introduced various witnesses as to the unremunerative character of the existing rates and the reasonableness of the increased rates; the right of cross-examination being reserved by the protestants. Certain of the Company's witnesses were requested by the Commissioners to file further exhibits; some of which have been filed with the Commission since the filing of the bill herein and some of which have not yet been filed. At the conclusion of the Company's evidence the protestants, without offering any evidence, moved that an appraisal be made of the Company's property by an appraiser to be appointed by the Commission, and at the expense of the Company; while the Company moved that its increased rates be made effective August 1st, upon its executing bond to refund any excess collected thereunder if it should fail to justify them on final hearing; also offering to consent to the appraisal and contribute $50,000.00 to the expense thereof if its motion should be allowed.

On consideration of these motions the Commission handed down its opinion to the effect that, as had been held by it in earlier cases, the property of a public utility making application for an increase of rates should first be valued by experts selected by the Commission and a proper rate base established as a prerequisite to the granting of an increase; that the expense of such appraisal should be paid by such utility; and that the Company was not entitled, on a prima facie and ex parte showing, to an order permitting it to inaugurate the increased rates upon a refunding bond, without waiting for such appraisal and a complete investigation of its records and methods of operation. Thereupon the Commission, on July 22d, entered an order sustaining the motion of the protestants and denying the motion of the Company, and ordering: That an investigation into the amounts invested in the property of the Company in Tennessee for which it is entitled to a reasonable return, including an audit of its books and analysis of its revenues, expenses and statistics, be made by one expert to be appointed by the Commission and one by the Company, if it should so elect, said two appraisers to be paid by the Company, with the right to the protestants of appointing a third expert, at their expense, to act with them; that the reasonable cost of such examination and report, except the services of the expert employed by the protestants, be paid by the Company; that the report of the experts be filed within six months after August 1st; that upon such filing the parties might apply for such further relief as might appear reasonable and equitable; and that the previous order suspending the increased rates be continued in force until the further order of the Commission and control of the case retained by it for the purpose of making such further and final orders as the facts might warrant. The Company did not except to this order or move the Commission for further hearing or final determination upon the evidence that it had introduced.

On July 27th the chairman of the Commission appointed an expert, with instructions to appraise the Company's properties in Tennessee as of January 1, 1922; to ascertain the historical cost of its properties, their reproduction cost for five years, and accrued depreciation; to audit its books for the year 1921; and otherwise to carry out general instructions given.

Thereupon the Company notified the Commission that it declined to pay the cost of such appraisal or audit; but that its books and records were available to the Commission for any appraisal, audit or investigation it might make or cause to be made.

It does not appear that the expert appointed by the Commission has as yet undertaken to commence any appraisal or audit, or that any further steps have subsequently been taken before the Commission other than the filing of certain of the exhibits called for, as above recited.

On August 10th the Company filed its bill in this case. In its original bill and amended bills, both of which are verified on oath, it is alleged that the existing rates, promulgated by the Postmaster General and continued under the order of the Commission, are inadequate and do not yield it a reasonable return; that since January 1, 1920, its business has been conducted at an actual loss; that said existing rates are confiscatory and in violation of the Fourteenth Amendment to the Constitution of the United States; that the effect of the Commission's orders of May 31st and July 22d is to continue said confiscatory rates in effect for an indefinite period; and that the order of July 22d is without authority of law and in violation of said Fourteenth Amendment; and it is prayed that the Commission and the Attorney General of Tennessee be enjoined from attempting to compel it to keep the existing rates in force or prevent it from putting its increased rates into effect until other lawful schedules are established by law, or from taking any steps against it to enforce any penalty for putting the increased rates into effect. The defendants, including the intervening municipalities, have filed answers, likewise verified on oath, denying the confiscatory nature or inadequacy of the existing rates and the reasonableness of the increased rates, asserting the validity of the orders of the Commission, and denying that the Company is entitled to any relief.

The motion for an interlocutory injunction was heard upon the sworn pleadings, offered as affidavits; various other affidavits and counter affidavits; and other documentary evidence, including a transcript of the proceedings before the Commission.

The following provisions of the Tennessee statutes are material in the consideration of the questions presented by the motion. By section 3 of chapter 49 of the Tennessee Acts of 1919 (p. 144) the Commission is given general supervision regulation of, jurisdiction and control over telephone companies and other public utilities. By section 4 (p. 145), it is given power (a) to investigate, upon its own initiative or written complaint, any matter concerning any public utility; (b) to appraise and value the property of any public utility whenever in its judgment necessary so to do for carrying out any provision of the Act; and (c) after hearing upon notice,...