Railroad Commission of California v. Los Angeles Ry Corporation, 60

• Decision Date: 02 December 1929
• Docket Number: No. 60,60
• Citation: 74 L.Ed. 234,280 U.S. 145,50 S.Ct. 71
• Parties: RAILROAD COMMISSION OF CALIFORNIA et al. v. LOS ANGELES RY. CORPORATION
• Court: U.S. Supreme Court

280 U.S. 145

50 S.Ct. 71

74 L.Ed. 234

RAILROAD COMMISSION OF CALIFORNIA et al.

v LOS ANGELES RY. CORPORATION.

No. 60.

Argued Oct. 22, 1929.

Decided Dec. 2, 1929.

[Syllabus from pages 145-147 intentionally omitted] Mr. Arthur T. George, of Los Angeles, Cal., for appellant commission.

Mr. Frederick Von Schrader, of Los Angeles, Cal., for appellant City.

[Argument of Counsel from page 148 intentionally omitted] Mr. Woodward M. Taylor, of Los Angeles, Cal., for appellee.

[Argument of Counsel from page 149 intentionally omitted] Mr. Justice BUTLER delivered the opinion of the Court.

Appellee operates a street railway system and motorbusses for the transportation of passengers in the city of Los Angeles and in other parts of the county of Los Angeles. Its cars are operated on tracks laid in the streets under authority of 102 franchises granted from time to time since 1886. A few were obtained from the county; the others were granted by the city.

Seventy-three granted between November 28, 1890, and October 21, 1918, covering 113.41 miles, provide that 'the rate of fare * * * shall not exceed five cents.'

Eighteen granted between March 2, 1920, and January 21, 1928, covering 12.33 miles, provide that 'the rate of fare * * * shall not be more than five cents * * * except upon a showing before a competent authority having jurisdiction over rates of fare that such greater charge is justified.'

The remaining eleven, covering 10.5 miles, were granted at various times from 1886 to 1923; none of them provides that the fare shall not exceed 5 cents; but it may be assumed that under the provisions of the other ordinances a fare of 5 cents was made applicable over all lines. Prior to the decree in this case, the basic fare charged was 5 cents.

Maintaining that its existing rates were not sufficient to yield a reasonable return, the company, November 16, 1926, applied to the commission, for authority to increase the basic fare to 7 cents in cash or 6 1/4 cents in tokens to be furnished by the company, four for 25 cents. The commission, March 26, 1928, made a report and by an order denied the application. A petition for rehearing was denied.

June 22, 1928, the company brought this suit to have the rates and order adjudged confiscatory and for temporary and permanent injunctions restraining the commission from enforcing them. The city intervened as party defendant. The case came on for hearing before three judges on an application for temporary injunction. U. S. C. tit. 28, § 380 (28 USCA § 380). Affidavits were submitted, a transcript of all the evidence before the commission was received, and the parties stipulated that thereon the case should be finally determined on the merits. The court found that the rates will not permit the company to earn a reasonable return and are confiscatory; and by its decree permanently enjoined the commission from enforcing them.

The sole controversy is whether the company is bound by contract with the city to continue to serve for the fares specified in the franchises-it being conceded that the finding below respecting the inadequacy of the 5-cent fare is sustained by the evidence. Appellants contend that at all times the city had power to establish rates by agreement and that the franchise provisions constitute binding contracts that are still in force. On the other hand, the company maintains that the state never so empowered the city; and it insists that, if the power was given and any such contracts were made, they have been abrogated.

1. It is possible for a state to authorize a municipal corporation by agreement to establish public service rates and thereby to suspend for a term of years not grossly excessive the exertion of governmental power by legislative action to fix just compensation to be paid for service furnished by public utilities. Detroit v. Detroit Citizens' Ry. Co., 184 U. S. 368, 382, 22 S.Ct. 410, 46 L. Ed. 592; Vicksburg v. Vicksburg Water Works Co., 206 U. S. 496, 508, 515, 27 S. Ct. 762, 51 L. Ed. 1155; Public Service Co. v. St. Cloud, 265 U. S. 352, 355, 44 S. Ct. 492, 68 L. Ed. 1050. And where a city, empowered by the state so to do, makes a contract with a public utility fixing the amounts to be paid for its service, the latter may not be required to serve for less even if the specified rates are unreasonably high. Detroit v. Detroit Citizens' Ry. Co., supra, 184 U. S. 389, 22 S. Ct. 410, 46 L. Ed. 592. And, in such case, the courts may not relieve the utility from its obligation to serve at the agreed rates, however inadequate they may prove to be. Public Service Co. v. St. Cloud, supra.

This court is bound by the decisions of the highest courts of the states as to the powers of their municipalities. Georgia Ry. Co. v. Decatur, 262 U. S. 432, 438, 43 S. Ct. 613, 67 L. Ed. 1065. Our attention has not been called to any California decision, and we think there is none, which decides that the state Legislature has empowered Los Angeles to establish rates by contract. This court is therefore required to construe the state laws on which appellants rely. As it is in the public interest that all doubts be resolved in favor of the right of the state from time to time to prescribe rates, a grant of authority to surrender the power is not to be inferred in the absence of a plain expression of purpose to that end. The delegation of authority to give up or suspend the power of rate regulation will not be found more readily than would an intention on the part of the state to authorize the bargaining away of its power to tax. Providence Bank v. Billings, 4 Pet. 514, 561, 7 L. Ed. 939; Railroad Commission Cases, 116 U. S. 307, 325, 6 S. Ct. 334, 388, 1191, 29 L. Ed. 636; Freeport Water Co. v. Freeport, 180 U. S. 587, 599, 21 S. Ct. 493, 45 L. Ed. 679; Stanislaus County v. San Joaquin C. & I. Co., 192 U. S. 201, 210, 24 S. Ct. 241, 48 L. Ed. 406; Puget Sound Traction Co. v. Reynolds, 244 U. S. 574, 579, 37 S. Ct. 705, 61 L. Ed. 1325.

This court applied the established rule in Home Telephone Co. v. Los Angeles, 211 U. S. 265, 29 S. Ct. 50, 53 L. Ed. 176. That com- pany's franchise was granted under the Broughton Franchise Act which provided that every such franchise 'shall be granted upon the conditions in this act provided and not otherwise.' St. Cal 1901, p. 265. The city charter gave power to its council to fix charges for telephone service. The franchise stated that the rates should not exceed specified amounts. An ordinance prescribing lower rates was passed. The company brought suit for injunction against its enforcement on the ground that the ordinance violated the contract clause of the Constitution of the United States. The city insisted that it had not been empowered by the state to make such a contract, and this court upheld its contention. It said (211 U. S. 273, 29 S. Ct. 52): 'The surrender, by contract, of a power of government, though in certain well-defined cases it may be made by legislative authority, is a very grave act, and the surrender itself, as well as the authority to make it, must be closely scrutinized. * * * The general powers of a municipality or of any other political subdivision of the state are not suficient. Specific authority for that purpose is required.' And dealing with the charter provision there relied on by the company, the court said (211 U. S. 274, 29 S. Ct. 52): 'The charter gave to the council the power 'by ordinance * * * to regulate telephone service and the use of telephones within the city, * * * and to fix and determine the charges for telephones and telephone service and connections.' This is an ample authority to exercise the governmental power * * * but entirely unfitted to describe the authority to contract. It authorizes command, but not agreement.'

Section 470 of the Civil Code (March 21, 1872), cited by appellants, merely regulates procedure. Section 497 authorizes political subdivisions to grant authority for the laying of railroads in streets 'under such restrictions and limitations' as they may provide. Stats. 1891, p. 12. This is too general. The clause in section 501 (Stats. 1903, p. 172), providing that the rate of fare in municipalities of the first class 'must not exceed five cents,' does not relate to the power to contract, and plainly has no application here because Los Angeles never belonged to that class.

Section 1 of the Broughton Franchise Act¹ provides that franchises 'shall be granted upon the conditions in this act provided and not otherwise.' The Act requires the sale of such franchises upon advertisement stating the character of the franchise or privilege proposed to be granted, but it nowhere expressly empowers the city to establish rates by contract. This court, in the Home Telephone Company Case, dealt with the quoted provision. It said (211 U. S. 275, 29 S. Ct. 53): 'Here is an emphatic caution against reading into the act act any conditions which are not clearly expressed in the act itself. * * * It cannot be supposed that the legislature intended that so significant and important an authority as that of contracting away a power of regulation conferred by the charter should be inferred from the act, in the absence of a grant in express words. But there is no such grant.' And, so far as concerns the matter under consideration, the act was not expanded by the amendment of June 8, 1915 (St. Cal. 1915, p. 1300). It authorizes grantors of such franchises to impose such additional terms and con- ditions 'whether governmental or contractual in character' as in their judgment are in the public interest. This general language does not measure up to the rule earlier invoked here by Los Angeles and applied by this court in the Home Telephone Company Case.

The appellants invoke provisions of the city charter which are printed in the margin.² But it requires no discussion to show that they are not sufficient to empower the city by contract to establish rates. In support of their claim, they c...