Minneapolis Street Ry. Co. v. City of Minneapolis

Decision Date22 November 1957
Docket Number36949,Nos. 36948,s. 36948
Citation251 Minn. 43,86 N.W.2d 657
CourtMinnesota Supreme Court

Syllabus by the Court

The Minneapolis Street Railway Company, in converting from a streetcar to a motorbus operation, was required by the city of Minneapolis, in discharging its obligations under a franchise to operate streetcars, to pay to the city of Minneapolis $922,790 in installments over a period of eight years; to perform work on track removal at a cost not to exceed $300,000; and to furnish the city with a quitclaim deen to certain right-of-way property. By agreement the company was permitted to pay the $922,790 item by notes payable in installments over a period of years. When the conversion was completed, the railway company retired all railway equipment not used or useful in the motorbus operation. According to its books, the company claimed to have sustained an abandonment loss of $7,613.246.08. The commission, for the purpose of computing a fare, recognized only $1,251,521 of this amount. The company contended that in determining a rate of fare to be charged in the new operation it should be compensated for one-half of abandonment losses resulting from conversion; that both the $922,700 note obligation and the $300,000 track-removal expense should be similarly treated as operating expenses to be amortized over a period of 10 years; and that old buildings owned by the company should be included in the rate structure at a valuation based upon reproduction cost discounted to present condition. Held:

1. The principle of law which should guide the discretion of the commission in determining whether the customer or investor should be charged with the amount of alleged loss due to obsolescence is twofold: (1) the future customer may not be charged for obsolescence through any method of accounting unless the investor has suffered an actual loss by not having fully recovered prudently invested funds, and (2) even if such loss has occurred, it is unreasonable to charge the customer if the investor has been compensated for assuming the risk of obsolescence.

2. In proceedings before the Railroad and Warehouse Commission involving determination of loss due to obsolescence, the company has the burden of proof to establish that book losses represent an actual loss of prudently invested funds and that such losses have not been compensated for by depreciation or by past rates which have included the risk of obsolescence.

3. A review of the record establishes that the findings of the commission on the subject of obsolescence do not sufficiently reflect facts considered by the commission in reaching its determination so as to permit a review as to whether its action was lawful and reasonable and whether its findings are reasonably supported by the evidence.

4. In reviewing an order of the Railroad and Warehouse Commission the function of the district court is to determine whether, in the light of all the evidence presented before the commission and the district court, the commission's order was lawful and reasonable; and on appeal to the supreme court the question is not whether the evidence reasonably sustains the district court's findings, but whether all the evidence presented reasonably sustains the district court's finding on whether the commission's order was lawful and reasonable; the court may not substitute its judgment for the findings of the commission and it may not try the case de novo.

5. In sustaining the burden of proof with reference to the issue of obsolescence the company must produce evidence including records which it should be reasonably expected to have, and in the absence of complete evidence, the commission may apply its experience and background of knowledge to reach a just result.

6. Where an actual loss has occurred due to obsolescence, the commission may, in the exercise of its judgment, apportion one- half of all such actual loss to the investor and charge the remaining one-half to future customers by amortization as an operating expense over a period of years.

7. The commission did not act arbitrarily and unreasonably in permitting the $922,000 franchise settlement to be charged as an operating expense over a period of eight years and denying the request of the company to amortize tract-removal expense of $300,000 over a like period. The franchise settlement was represented by notes payable in installments over a period of eight years. The track-removal expense was a nonrecurring item of expense, and it was not an unreasonable exercise of judgment to determine that both obligations should be charged to operating expenses in the years in which they became payable.

8. The commission was not bound by the opinion of witnesses concerning values of real estate and its findings will be sustained if within the limits of the evidence as to value and reasonably supported by the evidence as a whole.

9. Where, in the exercise of its best judgment, based upon training, experience, and background of knowledge of the subject matter, the commission adopted the depreciated book value in determining valuation of certain structures, a reviewing court is not at liberty to set aside such determination in the absence of evidence which indicates that a rate results which is not just, reasonable, and nondiscriminatory.

10. In reviewing an order of the Railroad and Warehouse Commission so as to determine whether the rate fixed is just, reasonable, and nondiscriminatory, the commission is not bound by any formula or combination of formulas in determining rates; its order should be viewed in its entirety to determine whether it meets the requirements of the act and if it cannot be said to be unjust and unreasonable, it will be affirmed. The order of the commission should be recognized as a product of expert judgment which carries a presumption of validity. Such an order will not be disturbed where it appears that the commission has (a) fairly considered the investor interests with concern for the financial integrity of the company, the rates of which are being regulated, so as to provide a commensurate return on its investment comparable with other enterprises having corresponding risks; to assure financial integrity of the company and to maintain credit and attract capital, and (b) has fairly balanced those considerations against the just interests of the public who are required to pay the fares imposed.

11. The fact that the commission is not bound by any formula or combination of formulas in arriving at a proper rate under M.S.A. § 221.04 does not relieve the commission from the duty to make findings of fact essential to permit review of its conclusions.

Charles A. Sawyer, City Atty., Minneapolis, Montreville J. Brown, Benno F. Wolff, Oppenheimer, Hodgson, Brown, Baer & Wolff, St. Paul, for appellant.

James E. Dorsey, Dorsey, Owen, Barker, Scott & Barber, Clarence O. Holten, Minneapolis, for respondents.

MURPHY, Justice.

This is an appeal from an order of the District Court of Hennepin County vacating a rate order of the Minnesota Railroad and Warehouse Commission by which the commission established rates of fare to be charged by the complainant-appellant for the carrying of passengers within the city of Minneapolis and the city of Columbia Heights. The proceeding was begun in 1954 by the Minneapolis Street Railway Company by a petition to the commission to increase rates to be charged to persons using its transportation facilities. The company sought to eliminate a special fare, 5 tokens for 90 cents, authorized by the order of the commission dated April 24, 1953, and to obtain a regular straight 20-cent fare. It also requested permission to add a 2-cent charge for every transfer.

In an order dated July 6, 1955, the commission denied the requested increase and issued an order which reduced rates in two respects: (1) It reduced the fare from 5 tokens for 90 cents, or 18 cents per token, to 4 tokens for 70 cents, 17 1/2 cents per token, and (2) the order reduced charges for intercity rides between Minneapolis and St. Paul from 2 fares, or 2 tokens, to 1 1/2 fares, or 1 token plus 10 cents. The cash fare rate of 20 cents was not altered. It was determined the fares established would provide a return of 7.12 percent on a rate base of $9,138,000. 1

The street railway company appealed this order to the District Court of Hennepin County. The district court temporarily stayed the order pending final determination of the appeal, upon the condition that the company issue receipts to passengers who might request them for purchased tokens or fares paid on intercity trips. On February 29, 1956, the district court vacated the order of the commission. The city of Minneapolis seeks to reverse the order of the district court and affirm the action of the commission.

Also involved in this appeal is an order of the commission to similarly reduce the fare to be charged by the Twin City Motor Bus Company on the one route which it operates in Minneapolis. Its other routes are to suburban communities. The commission, after indicating that both transit companies are wholly owned subsidiaries of the Twin City Rapid Transit Company, found that it could not 'for practical as well as discriminatory reasons, permit two different rate structures to exist in the City of Minneapolis.' This order was likewise vacated by the district court. Since the fare to be charged by the Twin City Motor Bus Company on this one line will depend entirely upon the rate which the Minneapolis Street Railway Company is permitted to charge, out discussion will be limited to the Minneapolis Street Railway Company rates.

The statutory basis of the commission's power in this case derives from M.S.A. § 221.04 which empowers it 'to fix just, reasonable and...

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