Des Moines Gas Co. v. City of Des Moines

• Decision Date: 21 August 1912
• Docket Number: 71-- M.
• Citation: 199 F. 204
• Parties: DES MOINES GAS CO. v. CITY OF DES MOINES et al.
• Court: U.S. District Court — Southern District of Iowa

199 F. 204

DES MOINES GAS CO. v. CITY OF DES MOINES et al.

No. 71-- M.

United States District Court, S.D. Iowa, Central Division.

August 21, 1912

Geo. H Carr, W. L. Read, and N. T. Guernsey, for complainant.

Robert Brennan, H. W. Byers, and E. C. Carlson, for defendants.

SMITH McPHERSON, District Judge.

A gas plant for lighting purposes was established in Des Moines a number of years ago, and now and for several years has been owned by complainant. At one time the rates were $1.30 per thousand, then $1.25, then $1.20, $1.15 $1.10, and finally $1. The city council, by ordinance of December 27, 1910, fixed the rate at 90 cents. Then this action was brought to enjoin the enforcement of the ordinance, for the reason, as is alleged, that a 90-cent rate will not be remunerative.

The case was referred to Robert E. Sloan as special master, to take the evidence, reduce it to writing, and report the same to the court, together with his findings of fact and conclusions of law. It is most gratifying to the court to learn that counsel on both sides agree that learning patience, fairness, and all those qualifications a master in chancery should possess are evidenced by nearly one year of work by Judge Sloan in this case. And the report of the master now pending on exceptions fully warrants the correctness of the compliments of counsel as respects the work and report of the master. The court deems it appropriate to make of record the statement that the administration of justice has been furthered by the untiring industry of the master, whose record in this case is in keeping with his longtime service as an Iowa judge.

While counsel on both sides and the court unite on the foregoing no one means to say that the report of the master is not subject to criticism and exceptions. Neither party is satisfied with all of his findings. But the real test of judicial action is not in the fact that a litigant is not satisfied, nor in the fact that a tribunal in proceedings to review may otherwise conclude.

I deem it appropriate to call attention to another phase of this litigation. The ordinance was adopted within a few minutes from its introduction. Quite likely it had been considered by the members in their individual capacities. But in open session it received but little consideration, and without the presence of any one for the gas company. And every member voting to reduce the earnings had a direct personal and moneyed interest in thus reducing the rates. If a judge were to so act, his acts would be absolutely void, because of the longtime maxim, 'No man can be judge in his own cause ' And this ought to apply to those who act in an administrative or legislative capacity. This litigation has cost both the gas company and city extravagantly large sums, most of which cannot be taxed as costs, nor recovered back by the party successful in the end. Much of this kind of litigation, and practically all of the expense, would be avoided if Iowa, like so many of the other, including some neighboring, states, had an impartial and city nonresident commission or tribunal, with power to fix these rates at a public hearing, all interested parties present, with the tribunal selecting its own engineers, auditors, and accountants. Too often we have selfish, partisan, prejudiced, and unreliable experts engaged for weeks at a time, at $100 or more and expenses per day, exaggerating their importance, and making the successful party in fact a loser. With all of our boasted advancement, Iowa is a laggard in this matter, and will continue as such until these rate makings are taken from the power of city councils. Appeals to the courts will seldom be taken from the findings of such a tribunal.

But at present the city councils have the duty and power to fix rates; and when rates are thus fixed by them, there is a presumption, greater or less, according to the character and methods of their work, that such rates are remunerative. And in any event the corporation whose rates are reduced has the burden to show that the rates thus fixed are not remunerative, failing in which the rates must be observed and enforced. And this was the matter referred to the master. He reports that a 90-cent rate is sufficiently high for a sufficient return to the gas company. The order appointing Judge Sloan required him to take all the testimony, including exhibits, return the same to the court, and make findings of fact with his conclusions of law. All these he has done. Both the city and the gas company have filed exceptions to the report.

In many cases courts themselves have heard the rate cases under rule 67 of the General Equity Rules as amended (29 S.Ct. xxxiii). But in districts like this, with but a single judge, the time would all be devoted to such cases, with other litigation at a standstill. And the Supreme Court has said that it is a seemly and orderly and commendable course to refer such cases to a master. Railroad v. Tompkins, 176 U.S. 167, 20 Sup.Ct. 336, 44 L.Ed. 417; Lincoln Gas Co. v. Lincoln, 223 U.S. 349, 32 Sup.Ct. 271, 56 L.Ed. 466.

And in case of such a reference the report of the master stands for something substantial, and something besides recommendations. His conclusions have every reasonable presumption in their favor, and are not to be set aside or modified, unless there clearly appears to have been error or mistake on his part. Camden v. Stuart, 144 U.S. 104, 119, 12 Sup.Ct. 585, 36 L.Ed. 363, and cases therein cited. So that it is incumbent on such party to make it clearly appear that the report of the master is erroneous as respects the matters covered by exceptions. The city has filed several exceptions to the report, largely on questions of fact. But they were not argued orally, nor by brief, and the alleged errors are not made clearly to appear. Every of said exceptions of the city is denied.

There are some propositions now so firmly established by the courts as not to be longer within the limits of debate. The net earnings, according to the duration of the franchise, the earning power of money in that vicinity, and the hazards, moral and physical and otherwise, should vary from 4 to 8 per cent., besides that set aside for depreciation and maintenance. But there is and can be no rigid or inflexible rule as to the per cent. to be thus earned. Stanislaus County v. San Joaquin Company, 192 U.S. 201, 216, 24 Sup.Ct. 241, 48 L.Ed. 406; Knoxville v. Knoxville Water Company, 212 U.S. 1, 29 Sup.Ct. 148, 53 L.Ed. 371; Willcox v. Consolidated Gas Co., 212 U.S. 19, 29 Sup.Ct. 192, 53 L.Ed. 382, 15 Ann.Cas. 1034; Railway Commission v. Cumberland Telephone Company, 212 U.S. 414, 29 Sup.Ct. 357, 53 L.Ed. 577; San Diego Sand Company v. National City, 174 U.S. 739, 19 Sup.Ct. 804, 43 L.Ed. 1154; Lincoln Gas Co. v. City of Lincoln, 223 U.S. 349, 32 Sup.Ct. 271, 56 L.Ed. 466; Cedar Rapids Gas Co. v. Cedar Rapids, 223 U.S. 655, 32 Sup.Ct. 389, 56 L.Ed. 594.

The 'good will' and that which the corporation enjoys as being the only source from which gas can be obtained is not an element of value on which profits should be earned in estimating whether the rates are remunerative or confiscatory. Willcox v. Consolidated Gas Co., 212 U.S. 19, 52, 29 Sup.Ct. 192, 53 L.Ed. 382, 15 Ann.Cas. 1034. All concede that the present value is the basis on which returns are to be estimated. And with the findings of the master on that matter there are but two matters which merit consideration. And on these two questions the great weight of the argument by counsel has been made.

One of these is what is called the 'reproduction theory' as determining the present value. When the gas mains were laid, many of the streets were unpaved, but which are now paved streets (21 per cent.). To reproduce the system at this time it would be necessary to take up something like a yard in width and for the length of 21 per cent. of the streets, place the mains the proper depth, fill in with earth, and replace the paving. The extra cost on account of the paving would amount to $140,000. The master declined to allow this sum as forming part of the value of the plant.

It is claimed the true value of any building, structure, or plant is that sum which it takes to reproduce it, less the depreciation of the one to be replaced. But little assistance is obtained from the authorities, although it is claimed the case of Willcox v. Consolidated Gas Company, supra, is in point. The opinion does not show this to be so. Something of a showing is made in favor of that contention, by going to the original record and the assignments of error. But it is not easily understood how the Supreme Court in that great case, so ably argued, with so much involved, meant to be so understood without expressly so declaring in the opinion. No one doubts but that the cost of...