O'Keefe v. City of New Orleans, 16579.

• Decision Date: 21 April 1921
• Docket Number: 16579.
• Citation: 273 F. 560
• Parties: O'KEEFE et al. v. CITY OF NEW ORLEANS et al.
• Court: U.S. District Court — Eastern District of Louisiana

273 F. 560

O'KEEFE et al. v. CITY OF NEW ORLEANS et al.

No. 16579.

United States District Court, E.D. Louisiana, New Orleans Division.

April 21, 1921

Farrar Goldberg & Dufour, of New Orleans, La., for plaintiffs.

Ivy G Kittredge, Michel Provosty, and W. Catesby Jones, all of New Orleans, La., for defendants.

HENRY D. CLAYTON, District Judge.

The court has taken jurisdiction of the subject-matter here involved in the case of the Empire Trust Company as trustee complainant, against the New Orleans Railway & Light Company et al., defendants, No. 15960, in equity, pending in this court. This suit, styled in the caption hereof, was brought by direction of the court under order made April 15, 1921 and it is therefore ancillary to the main cause.

This cause came on for hearing on the application of the plaintiffs, the receiver and the others, for an interlocutory injunction as prayed for in the bill, and at the same time on the motion of the city of New Orleans and the other defendants to dismiss the bill. By consent of the parties in open court the application and motion were submitted, heard and argued at the same time.

The defendants made no formal answer to the bill, but for the purposes of this hearing, on the motion to dismiss, the defendants rest their case upon the proposition, in effect, that the bill does not present a case for equitable cognizance, and therefore should for that reason be dismissed, and that as a necessary corollary the application of the receiver for injunction should be denied.

The bill is supported by affidavit and other documentary evidence.

The verified motion to dismiss does not challenge the material facts alleged in the bill.

In the application of equity rule 29 (198 F. xxvi, 115 C.C.A. xxvi), abolishing pleas and demurrers, and providing that other defenses in point of law arising on the face of the bill, which previously should have been made by plea or demurrer, shall now be made by motion to dismiss or in answer, the law is settled in numerous adjudged cases that upon the consideration of the motion the court may in its discretion, when promotive of justice, refuse to decide a case on such motion, and that defense by answer may be required. Indeed, the rule goes to the extent that, unless the motion clearly discloses that on the allegations of the bill, which are taken as true, it must be dismissed upon final hearing, the preliminary motion to dismiss must be denied.

Under the facts and circumstances disclosed in the bill, justice can be better secured by leaving the merits of the case to be disposed of after the coming in of the answer, rather than by now dealing with the controversy in ultimate way. At the present stage of the case the developments are not sufficient to afford a satisfactory and final determination of the questions of fact and law involved. Accordingly an order will be entered, denying the motion of the city to dismiss the bill.

Coming, now, to the consideration of the application for injunction pendente lite, it may be said that the immediate cause for such application is the ordinance adopted by the city commission council of New Orleans. It is in these words:

'Section 1. Be it ordained by the commission council of the city of New Orleans that, subject to the provisions hereinafter set forth, Ordinance No. 5892, C.C.S., is hereby continued in full force and effect for the period of thirty days from and after April 20, 1921: Provided that the receiver of the property of the New Orleans Railway & Light Company shall sell to the public on demand at the offices of the company and at such other places as are convenient to their patrons of the various street car lines, car fare tickets or metal checks in lots of ten or more at the rate of seven and one-half cents per ticket, check or fare: And provided further that during said period no charge for transfers shall be made and a single fare shall be charged on belt lines as at present: And provided further that all money or revenue derived from that part of every car fare in excess of six cents shall be used and employed for wages and taxes and shall not be used to pay interest or dividend upon securities: And provided further that during said period there shall be no increase in the present rates for electric light and power service.

'Sec. 2. Be it further ordained, etc., that this ordinance shall become effective upon the receiver with the authority of the United States District Court for the Eastern District of Louisiana, filing his written acceptation hereof with the clerk of the commission council.'

With the approval of the District Court the receiver declined to accept said ordinance and has refused to operate the street railway system under his control on the conditions named therein, and afterwards the receiver, joined therein by his codefendants, and by direction of this court (Judge Foster) filed the bill in this case, and alleges among other things that the authorities of the city of New Orleans had passed the ordinance to reduce the fare to 7 1/2 cents on the street railways now in the hands of the receiver of this court with certain conditions, among these that the revenue derived from that part of every car fare in excess of 6 cents shall be used and employed for wages and taxes, and shall not be used to pay interest or dividends upon securities. The ordinance further authorized the 7 1/2 cents for only 30 days from April 20, 1921, and that after such time the rate would revert to five cents, and the allegations of the bill are to the effect that this would not permit the earning of the operating expenses and would therefore be confiscatory. The further contention of the plaintiffs is that the ordinance is a regulatory declaration, in effect that the owners of the street railways and the creditors who hold the bonds of the corporation are not entitled to a fair return, and therefore that this ordinance is an effort on the part of the city to take private property for public use without just compensation, and that the owners of the street railways are sought to be deprived of property without due process of law.

The city has asserted that it has, in the franchises granted to the defendant railways companies, irrevocable contracts made some years ago whereby the rate of passenger fare was fixed at five cents, and that it is not now within the power of this court to subtract therefrom, and that such rate of fare cannot be changed, except by consent of the city as one of the contractual parties. This brings us at once to the consideration of the franchise contracts between the city of New Orleans and the New Orleans Railway & Light Company and its subsidiaries, and just how far the court is bound to respect such contracts. It is not less than trite to say that the contracts are in a sense legal and also that they will be upheld in the main, and altogether if they are not in their practical working at this time rendered confiscatory. And this involves a mixed question of fact and law.

The prayer for injunctive relief is predicated upon the assertion that the fare of five cents, and indeed any fare less than eight cents, would not furnish a fair return on the fair value of the property employed in the street car public service, and therefore that to require such public service at a rate less than eight cents per fare would be to deprive the plaintiffs of their property without due process of law, and in violation of the Constitution of the United States, and particularly the Fourteenth Amendment, which provides that 'no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws'; and also in violation of that provision of the Constitution that 'no person shall be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.' Const. Amend. 5.

The power to grant the franchise and to make rates for public service corporations involves the inherent or police power of the state. Under the Constitutions of Louisiana adopted in 1879 and at different subsequent times, during which period all the franchises in question were granted, the police power was by express constitutional prohibition made inalienable and rendered not subject to abridgment. It is hardly necessary to cite authorities in support of the proposition that ratemaking is a sovereign power of the state, for it was declared so to be as far back as Munn v. Illinois, 94 U.S. 124, 24 L.Ed. 77, and the doctrine has been reaffirmed in a multitude of cases since adjudged. C. & A. v. Tranbarger, 238 U.S. 67, 35 Sup.Ct. 678, 59 L.Ed. 1204, and cases therein collated. Almost contemporaneous with the Munn Case the Supreme Court of Louisiana in C.C. Gaslight Co. v. N.O. Gaslight Co., 27 La.Ann. 138-147, declared that--

'No one has the right to dig up the streets and lay down gas pipes, erect lamp posts, and carry on the business of lighting the streets and houses of the city of New Orleans, without special authority from the sovereign. It is a franchise belonging to the state, and in the exercise of the police power the state could carry on the business itself, or select one or several agents to do so.'

And in Portland v. Public Service Commission, 89 Or. 325, 173 P. 1178, the Supreme Court of Oregon said:

'The argument of the plaintiff is that the public peace, health, and safety comprise the sole objects of the police power of the state; that these are not affected by the rate of fare to be charged by a street car

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