Northwestern Bell Telephone Co. v. Spillman

• Decision Date: 11 June 1925
• Docket Number: No. 182.,182.
• Citation: 6 F.2d 663
• Parties: NORTHWESTERN BELL TELEPHONE CO. v. SPILLMAN, Atty. Gen. of Nebraska, et al.
• Court: U.S. District Court — Panama Canal Zone

6 F.2d 663 (1925)

NORTHWESTERN BELL TELEPHONE CO. v. SPILLMAN, Atty. Gen. of Nebraska, et al.

No. 182.

District Court, D. Nebraska, Lincoln Division.

June 11, 1925.

Edgar M. Morsman, Jr., F. E. Randall, and Alan J. McBean, all of Omaha, Neb., for plaintiff.

O. S. Spillman, Atty. Gen., for the State of Nebraska.

Hugh La Master, Asst. Atty. Gen., for defendant Nebraska State Railway Commission.

MUNGER, District Judge.

The Northwestern Bell Telephone Company, the plaintiff herein, made an application to the Nebraska State Railway Commission for leave to increase rates charged for intrastate service to its patrons. After extended hearings, an order was made allowing a portion of the increases and denying others and reducing some rates which were being charged. The plaintiff began this suit, seeking to enjoin the enforcement of the order of the Railway Commission, and seeking to enjoin the defendants from interfering with its charging rates sufficient to yield it a return of 8 per cent. on its property used in such service. The case was referred to a special master, and to the extended report which he has made exceptions have been filed. The case has been submitted for final hearing upon this report and the exceptions thereto.

The defendants claim that the case should not be decided upon the facts as to the rates, because the plaintiff is given the right by section 5491 of the Compiled Statutes of Nebraska 1922, to appeal from the findings and order of the Railway Commission to the Supreme Court of Nebraska. The nature of the appeal granted by this section of the statutes was considered by the Supreme Court of Nebraska in Hooper Telephone Co. v. Nebraska Telephone Co., 96 Neb. 245, 147 N. W. 674, and it was held that that court, in the hearing of an application under this section, could exercise only judicial powers. The right to resort to that court does not exclude the right to review the decision of the Railway Commission by a suit of the nature of this one in this court. Monroe Gaslight & Fuel Co. v. Michigan Public Utilities Commission (D. C.) 292 F. 139; Pacific Tel. & Tel. Co. v. Cushman (C. C. A.) 292 F. 930. It is also claimed that the case as now presented was not so presented to the Railway Commission, and therefore that this court may not enter a decree for the plaintiff. Section 5520 of the Compiled Statutes of Nebraska 1922, hereinafter quoted, requires an application for a change of rates by a common carrier to be first presented to the Railway Commission and permission to be obtained therefor before any change is made. It is not claimed that an application was not made, but that some features of the evidence now presented were not presented at the hearing before the Railway Commission. The variance between the cases presented in the two hearings is not deemed to be material.

At the hearing there was a stipulation as to values of the plaintiff's property, which has been accepted by the parties as eliminating the question of the proper valuation, as a base on which rates are to be computed, except as to the value of machinery used for switching in the Omaha office of the plaintiff. The application of the plaintiff was for an increase in both toll and exchange rates. The Railway Commission granted substantially what was asked in the increase of toll rates, and this controversy is now chiefly concerned with the question of the exchange rates of the plaintiff. As to these rates, the extended and instructive briefs and arguments have covered many topics, but the defendants' principal exceptions are conceded to relate to the master's findings on five different subjects.

The first is the finding that the amount of 4½ per cent. of the gross revenue of the plaintiff, paid annually by the plaintiff to the American Telegraph & Telephone Company, in pursuance of a written contract, is a proper item of the plaintiff's expenses. The defendants have criticized this payment because the close relationship between the American Telegraph & Telephone Company and the plaintiff may overburden the plaintiff with an undue expense account for the benefit of the American Telegraph & Telephone Company. This subject and this danger have been considered in many other cases, and it has been held that such a relationship between the two companies may require a close scrutiny of the intercorporate dealings. But the final question in a case of this nature is not the possibility of overreaching, nor the amount of scrutiny required, but whether in view of the facts, the expense item is or is not a proper one. That the American Telegraph & Telephone Company furnishes services and property to the plaintiff under this contract is not disputed, nor is there any real dispute that they are of substantial value. The presumption is that this contract was entered into in good faith and in the exercise of a proper discretion by the officers of both corporations. To overcome this presumption, it was incumbent on the defendants to show that the contract was not made in the exercise of a proper discretion by the plaintiff's officers. If it imposed an unreasonable charge upon the plaintiff for the services and property to be furnished, that would be a strong circumstance to show that the amount paid was not paid as the result of the honest judgment of the plaintiff's officers, but, if the amount was fair and reasonable, it could not be omitted as a proper item of expense, simply because it was made to a corporation which might have dominated the action of the plaintiff's officers. Houston v. Southwestern Tel. Co., 259 U. S. 318, 42 S. Ct. 486, 66 L. Ed. 961; S. W. Tel. Co. v. Pub. Serv. Comm., 262 U. S. 276, 43 S. Ct. 544, 67 L. Ed. 981, 31 A. L. R. 807; Indiana Bell Telephone Co. v. Public Service Comm. (D. C.) 300 F. 190; State v. Southwestern Bell Telephone Co., 115 Kan. 236, 223 P. 771; Southern Bell T. & T. Co. v. Railroad Commissioners (D. C.) 299 F. 615; Chesapeake & Potomac Telephone Co. v. Whitman (D. C.) 3 F. (2d) 938. There was no substantial evidence of fered on behalf of the defendants upon the question of the unreasonableness of this charge of 4½ per cent. of the gross annual earnings of the plaintiff. On behalf of the plaintiff, there was much testimony to support the rate of charge as less than the reasonable value for the services and property furnished under the contract. In this condition of the record, the defendants' exceptions to the master's allowance of this item cannot be sustained.

The second question presented by the defendants is an allowance, as a part of the valuation of the plaintiff's plant, of the value of the machine switching equipment used in the plaintiff's office at Omaha. The defendants' claim is that this machine switching is a new process, not fully proved, and their exception urges that a part of the cost of it should be deducted, and that the expense of adapting it to the Omaha Exchange property should be borne by the American Telegraph & Telephone Company No basis is given for any division of this item. It appears that this method of switching has passed the purely experimental period, has commended itself to telephone engineers, and, while the Omaha office is one of the first to attempt a trial of it on a large scale, it operates satisfactorily. The plaintiff is entitled to some latitude in adopting new methods, and, if the use of this equipment is a reasonable exercise of judgment by the plaintiff's officers, and not obviously wasteful, the item cannot be disallowed. S. W. Tel. Co. v. Pub Serv. Comm., 262 U. S. 276, 43 S. Ct. 544, 67 L. Ed. 981, 31 A....