Frost v. Corporation Commission State Oklahoma

• Decision Date: 18 February 1929
• Docket Number: No. 60,60
• Citation: 278 U.S. 515,73 L.Ed. 483,49 S.Ct. 235
• Parties: FROST v. CORPORATION COMMISSION of STATE of OKLAHOMA et al
• Court: U.S. Supreme Court

278 U.S. 515

49 S.Ct. 235

73 L.Ed. 483

FROST

v CORPORATION COMMISSION of STATE of OKLAHOMA et al.

No. 60.

Argued Nov. 26, 1928.

Decided Feb. 18, 1929.

[Syllabus from pages 515-517 intentionally omitted] Messrs. Robert M. Rainey and Streeter B. Flynn, both of Oklahoma City, Okl., for appellant.

Messrs. E. S. Ratliff, of Oklahoma City, Okl., and Edwin Dabney, Atty. Gen. of Oklahoma, for appellees.

Mr. Justice SUTHERLAND delivered the opinion of the Court.

Appellant owns a cotton ginning business in the city of Durant, Okl., which he operates under a permit from the State Corporation Commission. By a statute of Oklahoma, originally passed in 1915 and amended from time to time thereafter, cotton gins are declared to be public utilities, and their operation for the purpose of ginning seed cotton to be a public business. Comp. Stats. 1921, § 3712. The commission is empowered to fix their charges and to regulate and control them in other respects. Section 3715. No gin can be operated without a license from the commission, and in order to secure such license there must be a satisfactory showing of public necessity. Section 3714, as amended by chapter 109, Session Laws 1925. The only substantial amendment to this section made by the act of 1925 is to add the proviso: 'Provided, that on the presentation of a petition for the establishment of a gin to be run co-operatively, signed by one hundred (100) citizens and tax payers of the community where the gin is to be located, the Corporation Commission shall issue a license for said gin.'

By an act of the state Legislature, passed in 1917 (Comp. Stats. 1921, § 5599), co-operative agricultural or horticultural associations not having capital stock or being conducted for profit, may be formed for the purpose of mutual help by persons engaged in agriculture or horticulture. Under a statute passed in 1919 (Comp. Stats. 1921, § 5637 et seq.) 10 or more persons may form a corporation for the purpose of conducting, among others, an agricultural or horticultural business upon a co-operative plan. A corporation thus formed is authorized to issue capital stock to be sold at not less than its par value. The number of shares which may be held by one person, firm or corporation is limited. Dividends may be declared by the directors at a rate not to exceed 8 per cent. per annum. Provision is made for setting aside a surplus or reserve fund, and 5 per cent. may be set aside for educational purposes. The remainder of the profits of the corporation must be apportioned and paid to its members ratably upon the amounts of the products sold to the corporation by its members and the amounts of the purchases of members from the corporation; but the corporation may adopt by-laws providing for the apportionment of such profits in part to nonmembers upon the amounts of their purchases and sales from or to the corporation.

The Durant Co-operative Gin Company, one of the appellees, was organized in 1926 under the act of 1919. After its incorporation, the company made an application to the commission for a permit to establish a cotton gin at Durant, accompanying its application with a petition signed by 100 citizens and taxpayers, as required by the statutory proviso above quoted. Appellant protested in writing against the granting of such permit and there was a hearing. The commission, at the hearing, rejected an offer to show that there was no public necessity for the establishment of an additional gin at Durant, and held that the proviso made it mandatory to grant the permit applied for without regard to necessity. Thereupon ap- pellant brought this suit to enjoin the commission from issuing the permit prayed for and to enjoin the Durant company from the establishment of a cotton gin at Durant, upon the ground that the proviso, as construed and applied by the commission (see Mont. Bank v. Yellowstone County, 276 U. S. 499, 504, 48 S. Ct. 331, 72 L. Ed. 673), was invalid as contravening the due process and equal protection of the law clauses of the Fourteenth Amendment. The court below, consisting of three judges under section 266, Judicial Code (28 USCA § 380), denied the prayer for an injunction and entered a final decree dismissing the bill. 26 F.(2d) 508.

1. We first consider the preliminary contention made on behalf of appellees that appellant has no property right to be affected by operations of the Durant Company, and therefore no standing to invoke the provisions of the Fourteenth Amendment or to appeal to a court of equity.

It already appears that cotton gins are declared by the Oklahoma statute to be public utilities, and their operation for the purpose of ginning seed cotton to be public business. No one can operate a cotton gin for such purpose without securing a permit from the commission. In their regulation and control, the commission is given the same authority which it has in respect of transportation and transmission companies, and the same power to fix rates, charges and regulations. Comp. Stats. 1921, §§ 3712, 3713, 3715. Under section 3714 as amended, supra (laying the proviso out of consideration for the moment), the commission may deny a permit for the operation of a gin where there is no public necessity for it, and may authorize a new ginning plant only after a showing is made that such plant is a needed utility. Both parties definitely concede the validity of these provisions, and, for present purposes at least, we accept that view.

It follows that the right to operate a gin and to collect tolls therefor, as provided by the Oklahoma statute, is not a mere license, but a franchise, granted by the state in consideration of the performance of a public service, and as such it constitutes a property right within the protection of the Fourteenth Amendment. See Walla Walla v. Walla Walla Water Co., 172 U. S. 1, 9, 19 S. Ct. 77, 43 L. Ed. 341; California v. Pacific Railroad Co., 127 U. S. 1, 40, 41, 8 S. Ct. 1073, 32 L. Ed. 150; Monongahela Navigation Co. v. United States, 148 U. S. 312, 328, 329, 13 S. Ct. 622, 37 L. Ed. 463; Owensboro v. Cumberland Telephone Co., 230 U. S. 58, 64-66, 33 S. Ct. 988, 57 L. Ed. 1389; Boise Water Co. v. Boise City, 230 U. S. 84, 90, 91, 33 S. Ct. 997, 57 L. Ed. 1400; McPhee & McGinnity Co. v. Union Pac. R. Co. (C. C. A.) 158 F. 5, 10, 11.

In California v. Pacific Railroad Co., supra, 127 U. S. pages 40, 41 (8 S. Ct. 1080), a franchise is defined as 'a right, privilege or power of public concern, which ought not to be exercised by private individuals at their mere will and pleasure, but should be reserved for public control and administration, either by the government directly, or by public agents, acting under such conditions and regulations as the government may impose in the public interest, and for the public security. * * * No private person can establish a public highway, or a public ferry, or railroad, or charge tolls for the use of the same, without authority from the Legislature, direct or derived. These are franchises. * * * The list might be continued indefinitely.'

Specifically, the foregoing authorities establish that the right to supply gas or water to a municipality and its inhabitants, the right to carry on the business of a telephone system, to operate a railroad, a street railway, city waterworks or gasworks, to build a bridge, operate a ferry, and to collect tolls therefor, are franchises. And these are but illustrations of a more comprehensive list, from which it is difficult, upon any conceivable ground, to exclude a cotton gin, declared by statute to be a public utility engaged in a public business, the operation of which is precluded without a permit from a state governmental agency, and which is subject to the same authority as that exercised over transportation and transmission companies in respect of rates, charges and regulations. Under these conditions, to engage in the business is not a matter of common right, but a privilege, the exercise of which, except in virtue of a public grant, would be in derogation of the state's power. Such a privilege, by every legitimate test, is a franchise.

Appellant, having complied with all the provisions of the statute, acquired a right to operate a gin in the city of Durant by valid grant from the state acting through the corporation commission. While the right thus acquired does not preclude the state from making similar valid grants to others, it is, nevertheless, exclusive against any person attempting to operate a gin without obtaining a permit or, what amounts to the same thing, against one who attempts to do so under a void permit, in either of which events the owner may resort to a court of equity to restrain the illegal operation upon the ground that such operation is an injurious invasion of his property rights. 6 Pomeroy's Equity Jurisprudence, 3d Ed. (2 Equitable Remedies) §§ 583, 584; People's Transit Co. v. Henshaw (C. C. A.) 20 F.(2d) 87, 90; Bartlesville El. L. & P. Co. v. Bartlesville I. R. Co., 26 Okl. 453, 109 P. 228, 29 L. R. A. (N. S.) 77; Patterson v. Wollmann, 5 N. D. 608, 611, 67 N. W. 1040, 33 L. R. A. 536; Millville Gas L. Co. v. Vineland L. & P. Co., 72 N. J. Eq. 305, 307, 65 A. 504. The injury threatened by such an invasion is the impairment of the owner's business, for which there is no adequate remedy at law.

If the proviso dispensing with a showing of public necessity on the part of the Durant and similar companies is invalid as claimed, the foregoing principles afford a sufficient basis for the maintenance of the present suit, against not only the Durant Company, but the members of the commission who threaten to issue a permit for the establishment of a new gin by that company without a showing of public necessity.

2. Is, then, the effect of the proviso to deny appellant the equal protection of the laws within the meaning of the Fourteenth Amendment? As the proviso was construed and applied by the commission and by the court below, its...