New York Telephone Co. v. Prendergast

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Writing for the Court: MANTON, Circuit (after stating the facts as above)
• Citation: 36 F.2d 54
• Decision Date: 07 November 1929
• Parties: NEW YORK TELEPHONE CO. v. PRENDERGAST et al. (CITY OF NEW YORK, Intervener).

36 F.2d 54 (1929)

NEW YORK TELEPHONE CO.
v.
PRENDERGAST et al. (CITY OF NEW YORK, Intervener).

District Court, S. D. New York.

November 7, 1929.

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Charles T. Russell, of New York City (Edward L. Blackman, Charles T. Russell, Edward W. Beattie, Paul H. Burns, and Walton Clark, Jr., all of New York City, of counsel), for plaintiff

Arthur J. W. Hilly, Corp. Counsel, of New York City (M. Maldwin Fertig, Harry Hertzoff, and Paul Kolisch, all of New York City, of counsel), for intervener.

Hamilton Ward, Atty. Gen. (Thomas F. Fennell, of Elmira, N. Y., Irwin Kurtz, of New York City, and Frederick D. Colson, of Albany, N. Y., of counsel), for the Attorney General.

Charles G. Blakeslee, of Binghamton, N. Y. (Melvin L. Krulewitch, of New York City, George E. McVay, of Huguenot Park, N. Y., and Charles E. Murphy, of New York City, of counsel), for defendants Prendergast et al.

Before MANTON and SWAN, Circuit Judges, and CHASE, Circuit Judge (assigned to sit in the District Court), convened pursuant to section 266 of the Judicial Code, U. S. Code of Laws, tit. 28, § 380 (28 USCA § 380).

MANTON, Circuit Judge (after stating the facts as above).

The plaintiff is a New York corporation. It owns and operates a telephone property and system throughout the state of New York; also in the town of Greenwich, Conn., and until October 11, 1927, it operated property in the state of New Jersey. Its entire capital stock is held by the American Telephone & Telegraph Company, and it has a practical monopoly of the telephone business in New York state. It thus furnishes both intrastate and interstate toll service. Telephone exchange service is service between telephone stations within the same local service area, and the plaintiff's exchange service in the state is an intrastate service. Telephone toll service is between telephone stations located in different local service areas. The state is divided into a number of local service areas. The telephone exchange service and the intrastate toll service together constituting the whole of the plaintiff's telephone service between points within the state of New York.

The members of the commission are charged with the duty of carrying out and enforcing the provisions of the Public Service Commission Law of the state of New York (Consol. Laws, c. 48) and the orders of the Public Service Commission. The Attorney General is charged with the general powers and duties of enforcing the laws of the state. The orders complained of were made by the commission under the authority of the Public Service Commission Law. Prior to these orders complained of, various regulatory orders were made. The order of January 25, 1923, established new maximum rates for telephone exchange service and made certain changes in rates for so-called "buffer zone" and "interborough toll service" to be charged by the plaintiff from March 1, 1923, for one year and thereafter until further order of the commission. The plaintiff put these rates into effect in the city of New York on March 1,

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1923, and, except as modified by orders made in this suit by the District Court dated the 1st of May, 1924, and the 15th of August, 1924, they remained in full force and effect until June 1, 1926, when they were superseded by the rates prescribed by the orders of the commission of June 23, 1926. In the cities, towns, and villages in the state of New York outside of the city of New York the rates for telephone, charged by the plaintiff until March 1, 1923, were, with certain minor exceptions, rates which were filed by the plaintiff in the office of the Public Service Commission, as required by law, and they have been continuously, with minor exceptions, in effect since September 1, 1920, until March 1, 1923. In the city of Buffalo, the rates filed and put into effect September 1, 1920, continued in effect until November 1, 1921, when slightly lower rates were prescribed by the order of the Public Service Commission from October 27, 1921, and these lower rates remained in effect in Buffalo since the order became effective up to March 1, 1923. By an order of March 3, 1922, effective April 1, 1922, the Public Service Commission prescribed increased rates for telephone service throughout the state. This order never went into effect, and its enforcement was enjoined by this court, together with the order of the commission of the same date relating specifically to the city of New York, by a temporary restraining order granted March 30, 1922, and by an interlocutory injunction order granted June 12, 1922. This interlocutory injunction was affirmed by the Supreme Court of the United States on April 16, 1923 (Prendergast v. N. Y. Tel. Co., 262 U. S. 43, 43 S. Ct. 466, 67 L. Ed. 853). Thereafter the enforcement of the order of the Public Service Commission of March 3, 1922, was enjoined permanently by the decree of this court on May 8, 1923. By an order of January 25, 1923, effective March 1, 1923, which is one of the two orders complained of in the original bill, the Public Service Commission established new maximum rates for telephone exchange service in the so-called "buffer zone," and special toll rates could be charged by the plaintiff throughout the state of New York from March 1, 1923, for one year and thereafter until the further order of the commission. Plaintiff put these rates, thus fixed, into effect, and they have continued in effect by the order of the commission dated May 26, 1926, and such rates are now effective. The orders thus made were designed and intended to restrict the earnings of the plaintiff on its intrastate telephone business so that the annual net returns therefor would not yield a return of more than 7 per cent. upon the rate base which is now claimed to be lower than the fair and reasonable value of the property at the time when the service was rendered. In putting these maximum rates fixed by the orders into effect throughout the state of New York, the plaintiff in no way accepted the terms of the orders. A fair trial was had for more than a year prior to the commencement of this suit, during which time it was demonstrated that the orders did not permit the plaintiff to earn a fair return upon the value of its property, used and useful, in the rendition of its intrastate telephone service in this state

The plaintiff filed with the Public Service Commission its complaint against these rates, alleging that they were insufficient to yield reasonable compensation for the services rendered by it and they were so inadequate and insufficient as to work a confiscation of its property and to cause the plaintiff continued and irreparable injury. The master has found that the plaintiff diligently prosecuted its complaint before the commission and used all reasonable means to secure relief from the rates fixed by the orders before bringing the present suit, and only after a delay of months it brought the present suit. The preliminary restraining order of this court contained a condition limiting the plaintiff to a surcharge of 10 per cent. upon the rates fixed by the order of the commission for local telephone service in the city of New York and prohibited any surcharge upon the rates fixed by the order of the commission for telephone service in other parts of the state. This temporary restraining order of May 1, 1924, was continued by a preliminary injunction order of August 15, 1924, granting it partial relief, and the plaintiff collected 10 per cent. pursuant thereto from May 1, 1924, to July 1, 1926, when the commission granted the higher rates fixed by the order, which is the subject of attack in the supplemental bill filed. The decision of the commission, which was not unanimous, directed the plaintiff to file with it on June 19, 1926, schedules of proposed rates, charges, and rentals for telephone service in the city of New York in accordance with the majority opinion for the approval of the commission, and further directed that the rates, charges, tolls, and rentals for service in the exchange area of the state of New York outside of the city, fixed and prescribed by the order of the commission on January 25, 1923, complained of in the original bill, should remain in effect and unchanged. Plaintiff protested against these new rates as noncompensatory

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and confiscatory, but, pursuant to the direction of the commission, it filed a proposed schedule of such rates, charges, and rentals for service in the city of New York in accordance with the order. The commission subsequently approved the rates, charges, and rentals set forth in the schedule. The order of the commission required that the rates, charges, and rentals for telephone service fixed and prescribed by the commission's order of January 25, 1923, be continued in effect by the plaintiff without change for the telephone service furnished by it in the cities, towns, and villages of the state of New York, outside of the city of New York, and the order of the commission fixes and prescribes the rates, charges, and rentals to be charged by the plaintiff on and after July 1, 1926, for telephone service in the city of New York, superseding the rates, charges, and rentals fixed and prescribed by the order of the commission of January 25, 1923. Except as thus specifically modified and changed by the orders of the Public Service Commission and the temporary restraining and preliminary injunction orders of this court, the plaintiff's existing rates for intrastate telephone toll service and all other intrastate telephone service within the state of New York have been in effect continuously since July 1, 1921, but in the city of Buffalo, as heretofore stated, decreases in exchange rates were made November 1, 1921, pursuant to the order of the commission of October 27, 1921, and except for a few minor changes, negligible in amount, affecting the charges for...