Milwaukee Electric Railway & Light Co. v. City of Milwaukee

• Decision Date: 31 May 1898
• Court: U.S. District Court — Eastern District of Wisconsin
• Parties: MILWAUKEE ELECTRIC RAILWAY & LIGHT CO. v. CITY OF MILWAUKEE. CENTRAL TRUST CO. OF NEW YORK v. SAME.

87 F. 577

MILWAUKEE ELECTRIC RAILWAY & LIGHT CO. v. CITY OF MILWAUKEE.

CENTRAL TRUST CO. OF NEW YORK v. SAME.

United States Circuit Court, E.D. Wisconsin.

May 31, 1898

Miller Noyes, Miller & Wahl, Winkler, Flanders, Smith, Bottum &amp Vilas, and W. J. Curtis- for complainant.

Howard Van Wyck, for defendant.

SEAMAN District Judge.

The main controversy in each of these actions is whether the ordinance of June 11, 1896, unreasonably fixes rates of fare which would deprive the complainant of its property without due process of law, and thus violates the fourteenth amendment to the constitution of the United States. A further question is raised by the bill filed on behalf of the bondholders, and is pressed by argument in support of both bills, whether the municipality had power to regulate rates beyond the provisions contained in the several franchises which are vested in the complainant street car company limiting only to a five cent fare. Both contentions are of serious import, involving, on the one hand, consideration of the rights of the community in respect of a great public utility, and interference with acts of municipal control which are presumptively inviolable; and, on the other hand, affecting the preservation of private rights of property, where investment has been made in a great undertaking of public nature, on the faith of existing and probable conditions, and where, by reason of its nature, there can be no withholding of operation by the company, even if unremunerative. Ames v. Railway Co., 64 F. 165, 177; Wright v. Railway Co., 95 Wis. 29, 36, 69 N.W. 791. Further investigation has confirmed the impressions stated at the hearing, that the constitutional question was so clearly presented by the pleadings and testimony, and was so distinctly of federal cognizance, that it should be first considered. Certain rules to interpret and apply the limitations of the constitution in this class of cases are well settled by decisions of the supreme court. If the state of facts shown by the evidence clearly establishes a case of impairment within these rules it will be unnecessary to pass upon the complicated question of general power, as one of first instance, calling for the interpretation of various statutes and ordinances.

The ordinance under consideration provides that tickets shall be sold, good for one fare, including one transfer, 'in packages of six for twenty five cents, and twenty-five for the sum of one dollar,' thus making a reduction of the regular five cent rate to all who so purchase tickets. Assuming, therefore, without so deciding, that the general power to fix and regulate the terms and rates to be charged subsists in the municipality,-- namely, that by delegation it became vested with and still retains the full extent of legislative power undoubtedly possessed by the state,-- there can be no inquiry here as to the wisdom or good policy of exercising the power so delegated, that being a matter of municipal discretion, over which the courts have no right of supervision or review. Nor is it open to inquiry in this case whether there is a public demand or need for the enactment, or whether it is just and reasonable in all its provisions, except for the single purpose of ascertaining its infringement of rights which are guarantied to the complainant by the constitution.

Upon this record it must be taken as true that enforcement of the ordinance would operate to reduce materially the net revenues of the street car company. There is effort on the part of the defendant to show that the probable increase of passengers through the method of commutation tickets would make up for the reduction in rate, but no reliable basis is furnished, and the argument is too speculative for acceptance; while on the part of the complainant the testimony is founded upon practical and varied experience, and clearly shows it to be improbable that any increase in travel would yield receipts, over and above the additional expense necessarily entailed to offset the decrease in gross receipts appearing prima facie from the reduction in fares. The claims are that a loss of income would result of 'somewhere between 10 and 15 per cent of the gross earnings,' and estimates are presented by several witnesses of a net loss ranging from $87,000 to $140,000 per annum. It is sufficient, for the present consideration, that the ordinance must be regarded as a measure which reduces the rates of fare materially, and consequently would impair materially the net revenue produced by the property and no analysis of the testimony upon that point is necessary, nor is any attempt required to state, even approximately, the amount of loss.

The law which must govern, when the facts are determined, is concisely and pertinently stated in the opinion by Mr. Justice Harlan, speaking for the supreme court, in Smyth v. Ames, 18 Sup.Ct. 418, 426, as follows:

'In view of the adjudications, these principles must be regarded as settled; (a) A railroad corporation is a person, within the meaning of the fourteenth amendment, declaring that no state shall deprive any person of property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws. (2) A state enactment, or regulations made under the authority of a state enactment, establishing rates for the transportation of persons or property by railroad, that will not admit of the carrier earning such compensation as, under all the circumstances, is just to it and to the public would deprive such carrier of its property without due process of law and deny to it the equal protection of the laws, and would therefore be repugnant to the fourteenth amendment of the constitution of the United States. (3) While rates for the transportation of persons and property within the limits of a state are primarily for its determination, the question whether such compensation as the constitution secures, and therefore without due process of law, cannot be so conclusively determined by the legislature of the state, or by regulations adopted under its authority, that the matter may not become the subject of judicial inquiry.

And this opinion reviews the line of decisions upon the subject, and clearly approves the application of the same doctrine to legislative regulation of charges over toll roads, in Road Co. v. Sanford, 164 U.S. 578, 594, 17 Sup.Ct. 198. Therefore it must be regarded as established beyond question that the power to regulate the rates of fare, which is here assumed to rest in the municipality, is subject to these limitations: (1) That there is reasonable need on the part of the public, considering the nature and extent of the service, of lower rates and better terms than those existing; (2) That the rates and terms fixed by the ordinance are not clearly unreasonable, in view of all the conditions. Neither of these considerations is independent of the other, and, although the public interest is of the first importance, the test is not what is desirable upon the part of either, but what is reasonable in respect of the rights of both. As stated in Smyth v. Ames, supra: 'What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the other hand, what the public is entitled to demand is that no more be exacted from it for the use of the public highways than the service rendered by it is reasonably worth. ' So, in Road Co. v. Sanford, supra, it is clearly held, in the same view of mutual consideration, that it is neither the right of the corporation to subject the public 'to unreasonable rates in order simply that stockholders may earn dividends,' nor of the public to have the use of the conveniences thus furnished except 'upon payment of such tolls as, in view of the nature and value of the service rendered by the company, are reasonable,' but that 'each case must depend upon its special facts'; and the reasonableness of rates must be measured by all the conditions, including, of course, the reasonable cost of operation and of maintenance 'in good condition for public use, and the amount which may have been really and necessarily invested in the enterprise.'

The difficulties presented in this case do not, therefore, rest in any doubt as to the general principles which must be observed, nor in ascertaining the actual facts disclosed by the testimony as a whole, so far as material to this controversy. Although the testimony on the part of complainant makes a volume of 1,445 printed pages, and that of the defendant 163 pages, the only substantial contentions of fact relate to items of expenditure and claims of credit by way of depreciation, presented on behalf of the complainant as entering into the showing of net revenue, and to the present ore reproduction value of the plant. And it may be remarked, in passing, that this testimony is so well classified and indexed, with such fair summaries in the briefs, that the task of examination has been materially lightened. But the sole embarrassment in the inquiry arises from the wide divergence which appears between the actual and undisputed amount of the cash investment in the undertaking, and the estimates, on either hand, of the amounts for which the entire plant could now be reproduced, in the view that the line of authorities referred to does not attempt to define or specify an exact measure or state of valuation, and leaves it, within the principles stated, that 'each case must depend upon its special facts. ' Therefore the twofold inquiries of reasonableness above indicated are of mixed law and facts, and start with the presumption, in favor of the ordinance, (1) that the prevailing rates exacted too much from the public, and (2) that those prescribed are...