Michigan Bell Telephone Co. v. Michigan Public Service Commission

• Decision Date: 07 January 1952
• Docket Number: No. 1,1
• Citation: 50 N.W.2d 826,332 Mich. 7
• Parties: MICHIGAN BELL TEL. CO. v. MICHIGAN PUBLIC SERVICE COMMISSION et al.
• Court: Michigan Supreme Court

Page 826

50 N.W.2d 826

332 Mich. 7

MICHIGAN BELL TEL. CO. v. MICHIGAN PUBLIC SERVICE COMMISSION et al.

No. 1.

Supreme Court of Michigan.

Jan. 7, 1952.

Butzel, Eaman, Long, Gust & Kennedy, Thomas G. Long, James Morgan Smith, Jack H. Shuler, Detroit, for appellant.

Frank G. Millard, Atty. Gen., Edmund E. Shepherd, Sol. Gen., Lansing, Daniel J. O'Hara, Charles M. A. Martin, Albert J. Thorburn, Assts. Atty. Gen., for appellees.

Before the Entire Bench.

CARR, Justice.

The plaintiff in this case is a Michigan corporation duly organized in accordance with the statutes of this State. It is now and for many years past has been engaged in carrying on a telephone business. In its operations, and particularly with reference to the matter of intrastate rates, it is subject to regulation ¹ by the Michigan Public Service Commission, defendant herein.

The instant case concerns the validity of a rate order made by defendant in the exercise of its statutory powers. Under date of May 18, 1944, defendant gave notice to plaintiff and to other utilities similarly situated that under certain contingencies service rates and charges would become subject to adjustment as of January 1, 1944. On October 3rd following, plaintiff was notified that an investigation would be held for the purpose of determining whether its profits were too high and also whether it was charging unnecessary and avoidable expenses against the public. Hearings were had and from the testimony before it defendant concluded that for the year 1944 plaintiff had made excessive depreciation charges, that payments made by it to the American Telephone and Telegraph Company for services rendered were too high, and that the amount set aside to be used in payment of the Federal excess profits tax was designed to cover an expense that was, in large part, avoidable. An order was made that plaintiff reduce its gross revenuse for said year in the total amount of $3,500,000, the fund so created to be distributed to plaintiff's subscribers. Plaintiff appealed to the circuit court of Ingham County, C.L.1948, § 484.114, Stat.Ann. § 22.1454, with the result that on June 12, 1945, the order was set aside on the ground that the commission was without power to make a retroactive order of the character in question. On appeal to this Court the decree was affirmed in Michigan Bell Telephone Co. v. Public Service Commission, 315 Mich. 533, 24 N.W.2d 200, decided September 11, 1946.

Defendant's order above referred to was designated as an 'interim order' and the commission stated therein that there should be further proceedings to determine the matter of possible adjustments for 1945 and subsequent years. Such hearings were held, and under date of December 13, 1945, the commission made the order that is in question in the instant case. In terms it required the plaintiff to reduce its intrastate gross revenues for each of the calendar years 1944 and 1945 in the sum of $3,500,000, and to refund such amounts to its subscribers. Schedules of intrastate rates and charges that should be effective from and after January 1, 1946, were also prescribed. On the 3rd of January following, a supplemental order was made setting forth the method for distribution of the alleged overcharge for the years 1944 and 1945.

In accordance with the provisions of the statute above cited plaintiff appealed to the circuit court of Ingham County, alleging that the order of December 13, 1945, was unlawful, unreasonable, and confiscatory in that it constituted a taking of the property of plaintiff without due process of law. A temporary injunction was issued by the trial court, restraining the enforcement of the order but conditioned on plaintiff's keeping in reserve the amounts collected by it in excess of the schedules prescribed by said order. The commission filed its answer to the bill of complaint and testimony was taken.

Pursuant to the order of the trial judge a transcript of the proceedings in circuit court was transmitted to the commission. On February 14, 1947, the latter made its order affirming the order of December 13, 1945, except in certain particulars. Modifications affecting rates for service in the Detroit zone were made and, in view of the decision of this Court in the case above cited, the provisions with reference to 1944 and 1945 were eliminated. Thus the order in question was in terms rendered prospective only.

In April, 1947, plaintiff sought to reopen the case for the purpose of taking further testimony. On July 7th following, a further or supplemental motion was made alleging increased expenditures in the operation of plaintiff's business and urging the necessity of considering such alleged developments. Because of the death of the circuit judge before whom the matter was pending, action on the motions was delayed. A formal order denying plaintiff's request was made November 3, 1948, the trial judge concluding that under the statute he was without jurisdiction to grant the relief sought. Thereupon plaintiff instituted a mandamus proceeding in this Court to compel the trial judge to set aside his order. The petition was denied. Michigan Bell Telephone Company v. Ingham Circuit Judge, 325 Mich. 228, 38 N.W.2d 382.

In the meantime, under date of August 27, 1947, plaintiff made application to the commission for permission to increase its rates. A hearing was had and on October 14, 1948, the commission entered an order approving rate schedules designed to increase the annual revenues of plaintiff in a substantial amount, as appears from the opinion of this Court in the mandamus proceeding above cited. In consequence the rate order involved in the suit at bar is limited to the period from January 1, 1946, to October 14, 1948. The decree of the circuit court sustained the action of the commission, and plaintiff has appealed.

The stock of the plaintiff corporation, other than qualifying shares owned by directors, is held by the American Telephone and Telegraph Company, herein referred to for the sake of convenience as the American. The latter company has a number of corporate affiliates, of which plaintiff is one, to which it renders services designed to promote and facilitate their operations. The aggregate cost of the assistance so furnished is allocated on bases that plaintiff claim to be fair, logical, and proportionate to the benefits received by each affiliate. At the time of the proceeding here in question there was in effect a socalled license contract by virtue of which plaintiff paid to the American for services performed 1 1/2 on its gross annual revenues. That plaintiff is greatly benefited by the supervisory counsel and assistance rendered to it by the American is not questioned. It appears that in connection with its operations the latter company maintains a sizeable fund for the purpose of enabling it to loan money to its affiliates, if such action is deemed proper.

Based on their business transactions and on the close relationship existing between the two corporations it is the claim of the plaintiff that it should not be treated as a separate corporate entity, but, rather, as a department of the American. The defendant commission declined to accept such theory. In determining a proper rate base in the proceeding before it, as well as in the consideration of what charges and expenses were properly allowable as costs of operation, it acted on the assumption that it was dealing with the plaintiff, that the American was not carrying on the business in question within the State, and that it was concerned with the dealings between the two corporations only to the extent that the operations of the Michigan Company and its revenues and expenses were affected thereby.

The bill of complaint filed by plaintiff in the circuit court averred that the commission was in error in thus dealing with the problem of rates. In support of its claim in this respect plaintiff relies on certain language found in the opinion of this Court in People ex rel. Attorney General v. Michigan Bell Telephone Company, 246 Mich. 198, 224 N.W. 438, 440. That was a proceeding in the nature of quo warranto instituted by the Attorney General for the purpose of determining the right of the Michigan Bell Telephone Company to have considered in the determination of rates the amount of payments made by it to the American under contract. The opinion referred to the fact that the status of the agreement between the corporations, designated as the 4% license contract, was the question at issue in the case. The relationship between the parties was discussed at some length and statements made that must be construed in the light of the issue before the Court. The conclusion was reached that in view of all the facts involved the Michigan Company was not entitled to credit, in computing rates, for the amounts paid by it, as fixed by the agreement, to the american. It is significant to note that the proceeding was against the Michigan Bell Telephone Company and that the final order was entered accordingly. The Court referred to the prior decisions of City of Detroit v. Michigan Railroad Commission, 209 Mich. 395, 177 N.W. 306, and Michigan Public Utilities Commission v. Michigan State Telephone Co., 288 Mich. 658, 200 N.W. 749. With reference thereto it was said: 'A basic and necessary concession involved in the very structure of that litigation was that the Michigan Company was conducting and carrying on a telephone business in the state. The purpose of the litigation was to fix its rates in its business in the state.'

Plaintiff's claim that the Court held the Michigan Company to be a mere instrumentality of the American for all purposes is not tenable. An analysis of the entire opinion, read in the light of the question before the Court, is conclusive in this regard. Unlike the case at bar, and also unlike the prior decisions referred to by the Court, the matter under consideration was not the determination of...