Denver Union Stock Yard Co v. United States

• Decision Date: 31 May 1938
• Docket Number: No. 798,798
• Citation: 304 U.S. 470,58 S.Ct. 990,82 L.Ed. 1469
• Parties: DENVER UNION STOCK YARD CO. v. UNITED STATES et al
• Court: U.S. Supreme Court

304 U.S. 470

58 S.Ct. 990

82 L.Ed. 1469

DENVER UNION STOCK YARD CO.

v UNITED STATES et al.

No. 798.

Argued April 27, 1938.

Decided May 31, 1938.

Appeal from the District Court of the United States for the District of Colorado.

Messrs. Robert G. Bosworth and Winston S. Howard, both of Denver, Colo., for appellants.

Mr. Wendell Berge, of Washington, D.C., for appellees.

Mr. Justice BUTLER delivered the opinion of the Court.

November 8, 1934, the Secretary of Agriculture initiated proceedings in which, February 17, 1937, after extended investigation, taking of much evidence and full hearing, he made findings of fact and an order, prescribing maximum rates to be charged by appellant for services rendered by it.¹ March 9, 1937, it commenced this suit² to set aside the order on the ground that the prescribed rates are confiscatory and that enforcement of the order would deprive the company of its property without due process of law in violation of the Fifth Amendment, U.S.C.A.Const. Amend. 5. The case was submitted on stipulations and the evidence before the Secretary. The court made findings of fact, stated conclusions of law, announced opinion,D. C., 21 F.Supp, 83, and entered decree dismissing the bill.

The challenged rates include marketing charges per head; they are applicable only when sales are made, and are the same without regard to the time the stock remains in the pens. These are called 'yardage charges.' Appellant makes no charge for use, as such, of pens or other facilities; its charges for feed, bedding and other services are regulated by the order. About three-fourths of the total number of animals received at the yard are sold there. Some are sold to traders, also called dealers and speculators, and held in the yard until sold again. Appellant has never made any charge against traders for resales or reweighing for sale except when the resale was through commission men. For that service, the order prescribes rates which for convenience may be referred to as 'yardage charges to traders.' Appellant's activities are not confined to services covered by the order. It unloads and loads livestock from and into cars of railroads serving the yard, and receives from the carriers compensation not regulated by the Secretary. If enforced, the order will reduce revenue from charges for yardage services by about eight and one-half per cent., and from charges for other services by about nineteen per cent.; miscellaneous revenues in a substantial amount are not affected; total revenue will be reduced by about eight and one-half per cent.³

To ascertain the amount on which appellant is entitled to earn a return, the Secretary determined what land and structures were used and useful for performance of the services, and to present value of land added cost of reproduction new less depreciation of structures, and allowances on account of a bridge and sewage disposal plant being built, and working capital. The total is slightly less than $2,792,700, which the Secretary adopted as rate base. He found six and one-half per cent. to be a reasonable rate of return, $530,117 the revenue procurable if prescribed charges be put in effect, and $346,545 the operating expenses, leaving a net return of $183,572, slightly more than six and one-half per cent. on the value of the property.

Appellant accepts as correct the Secretary's estimate of cost of reproduction less depreciation of property found to be used and useful, and also the allowances above men- tioned. But it objects to his exclusion of land and improvements used for a stock show and for trackage and facilities for unloading and loading livestock, to his valuation of the land, to his treatment of going concern value, to his refusal to allow certain items that it claims to be operating expenses, and to the rate of return found by him to be reasonable.

The Rate Base. As of right safeguarded by the due process clause of the Fifth Amendment, U.S.C.A.Const. Amend. 5, appellant is entitled to rates, not per se excessive and extortionate, sufficient to yield a reasonable rate of return upon the value of property used, at the time it is being used, to render the services. Willcox v. Consolidated Gas Co., 212 U.S. 19, 41, 29 S.Ct. 192, 53 L.Ed. 382, 48 L.R.A.,N.S., 1134, 15 Ann.Cas. 1034; Minnesota Rate Cases, Simpson v. Shepard, 230 U.S. 352, 434, 33 S.Ct. 729, 57 L.Ed. 1511, 48 L.R.A., N.S., 1151, Ann.Cas. 1916A, 18; Bluefield Co. v. Pub. Serv. Comm., 262 U.S. 679, 690, 43 S.Ct. 675, 678, 67 L.Ed. 1176; Board of Public Utility Com'rs v. New York Tel. Co., 271 U.S. 23, 31, 46 S.Ct. 363, 366, 70 L.Ed. 808; McCardle v. Indianapolis Co., 272 U.S. 400, 414, 47 S.Ct. 144, 149, 71 L.Ed. 316; Los Angeles Gas Corporation v. Railroad Comm., 289 U.S. 287, 305, 53 S.Ct. 637, 643, 77 L.Ed. 1180. But it is not entitled to have included any property not used and useful for that purpose. Cf. St. Joseph Stock Yards Co. v. U.S., 298 U.S. 38, 56, 56 S.Ct. 720, 727, 80 L.Ed. 1033.

The Stock Show Property Excluded. The stock show is held on property owned by appellant and is conducted by an incorporated association not organized for pecuniary profit. It continues for about one week in January of each year. The Secretary found a part of that property, which is operated by the Colorado Horse and Mule Company, to be used and useful for performance of services covered by the rates regulated by him, and included it in the rate base. He appraised the rest of the show property, which consists of 2.633 acres and improvements theren, at $ 219,033, but excluded it as not used for the performance of services covered by the rates he regulates.

For payment of expenses of the show there is used the money received for admission to it and to other events on the property, and also some that is donated for that purpose. Appellant assumes the carrying charges, including interest and taxes; when the show is unable to pay rental sufficient to cover all charges, appellant ab- sorbs the deficit. It requested findings in substance as follows: Large quantities of livestock are entered in the show and much is sold on the show property. Some is sold in the yards operated by appellant. The show attracts buyers and throughout the year widens the outlet for producers' stock, operates to increase receipts, makes for improvement of stock raised and for higher prices, has educational value, and advertises the market. It is supported by appellant in good faith and in the belief that it stimulates its business and that of livestock producers. These facts are not in substantial conflict with the Secretary's findings, and may be taken as established by the evidence. But they are not sufficient to prove that the property excluded is used and useful for the performance of services covered by rates being regulated by the Secretary. None of those services is performed on or by the use of any of that property. The Secretary rightly says 'If it is appellant's contention that the stock show increases the stockyard business, then it should request that a reasonable allowance be made for advertising expense as a charge against its income.' In support of that view he adds 'Advertising or developmental expenses to foster normal growth are legitimate charges upon income for rate purposes if confined within the limits of reason. West Ohio Gas Co. v. Utilities Comm., 294 U.S. 63, 72 (55 S.Ct. 316, 321, 79 L.Ed. 761).' Appellant's contention that the court erred in upholding the Secretary's exclusion of that item is not sustained.

Trackage and Unloading and Loading Facilities. The Secretary appraised that property at $177,108. He excluded it as not used for performance of any stockyard service. Appellant leases the trackage to railroad carriers for substantial rentals. It does not claim that exclusion of that part of the item is confiscatory and fails to show it prejudicial. It follows that the court did not err in upholding the Secretary's determination. The unloading and loading facilities include ways between docks and the pens where the stockyard services are rendered. Appellant uses these facilities to unload and load livestock. That is a service for which the carriers pay appellant. Stockyard services do not commence until unloading ends; they end when loading begins. See Atchison Ry. Co. v. United States, 295 U.S. 193, 198, 55 S.Ct. 748, 751, 79 L.Ed. 1382. The court rightly refused to disturb the Secretary's ruling as to these facilities.

Land Value. The Secretary's finding depends on the appraisal and testimony of his valuation engineer. Appellant maintains that it is not supported by evidence because the engineer was not a qualified expert witness. It concedes that, if he was competent, the valuation must be sustained. To support its point, appellant relies on the fact that the appraiser had never lived in Denver or previously appraised any land there or in that vicinity or assembled or appraised any large industrial tracts. The significance adverse to competency that might be attributed to these facts if they stood alone is negatived by others disclosed by the record. The appraiser is an experienced civil engineer; he was long engaged in land appraisal work under the Interstate Commerce Commission. He later had private practice as consulting engineer and in 1934 became principal valuation engineer of the Packers and Stockyards Division, Bureau of Animal Industry, Department of Agriculture; in that capacity he has given testimony in a number of rate proceedings. His report submitted to the Secretary isclose § elaborate investigation and consideration of prices paid for land, of the Interstate Commerce Commission's appraisals of lands in the vicinity and of other facts material to the ascertainment of value of the land in question. It cannot reasonably be said that, because of his lack of earlier knowledge of local conditions, the finding was made without evidence.

Going Concern Value. Appellant maintains that, while...