Rose City Transit Co. v. City of Portland

• Decision Date: 19 August 1974
• Docket Number: No. 757,757
• Citation: 18 Or.App. 369,525 P.2d 1325
• Parties: , 88 L.R.R.M. (BNA) 3138 ROSE CITY TRANSIT CO., an Oregon corporation, and Landport Co., Inc., an Oregon corporation Appellants-Cross-Respondents, v. CITY OF PORTLAND, an Oregon municipal corporation, and Tri-County Metropolitan Transportation District of Oregon, a municipal corporation, Respondents-Cross-Appellants. CITY OF PORTLAND, Oregon, an Oregon municipal corporation, Mass Transit District for Washington, Clackamas and Multnomah Counties, Oregon, an Oregon municipal corporation, Respondents-Cross-Appellants, v. ROSE CITY TRANSIT CO., an Oregon corporation, et al., Appellants-Cross-Respondents, Charles C. Bowen, Defendant, DivisionAmalgamated Transit Union et al., Defendants-Respondents.
• Court: Oregon Court of Appeals

Page 1325

525 P.2d 1325

18 Or.App. 369, 88 L.R.R.M. (BNA) 3138

ROSE CITY TRANSIT CO., an Oregon corporation, and Landport

Co., Inc., an Oregon corporation Appellants-Cross-Respondents, v. CITY OF PORTLAND, an Oregon municipal corporation, and Tri-County Metropolitan Transportation District of

Oregon, a municipal corporation,

Respondents-Cross-Appellants.

CITY OF PORTLAND, Oregon, an Oregon municipal corporation, Mass Transit District for Washington, Clackamas and Multnomah Counties, Oregon, an Oregon municipal corporation, Respondents-Cross-Appellants, v. ROSE CITY TRANSIT CO., an Oregon corporation, et al.,

Appellants-Cross-Respondents,

Charles C. Bowen, Defendant,

Division No. 757 Amalgamated Transit Union et al.,

Defendants-Respondents.

Court of Appeals of Oregon.

Argued and Submitted March 25, 1974.

Decided Aug. 19, 1974.

R. R. Bullivant and Allan Hart, Portland, argued the cause for appellants-cross-respondents. With them on the briefs were Douglass M. Hamilton, Robert M. Kerr, Edwin J. Peterson, Bullivant, Wright, Leedy, Johnson, Pendergrass & Hoffman, Lindsay, Nahstoll, Hart, Duncan, Dafoe & Krause, and Tooze, Kerr, Peterson, Marshall & Shenker, Portland.

James H. Clarke and Gerard K. Drummond, Portland, argued the cause for respondents-cross-appellants. With them on the briefs were Marian C. Rushing, former Portland City Atty., John W. Osburn, Portland City Atty., Kell, Alterman, Runstein & Thomas, Dezendorf, Spears, Lubersky & Campbell, and Rives, Bonyhadi & Drummond, Portland.

Don G. Swink, Portland, argued the cause and filed the brief for defendants-respondents.

Robert E. Kopp and David M. Cohen, Dept, of Justice, Washington, D.C., filed a brief amicus curiae on behalf of Claude S. Brinegar, Secretary of Trans. of the U.S. of America. With them on the brief were Irving Jaffe, Acting Asst. Atty. Gen., Sallyanne Payton, Joseph A. Blundon and Arthur R. Silen, Washington, D.C.

Before FOLEY, P.J., and FORT and LUSK, JJ.

FOLEY, Judge.

This is a consolidated appeal of two cases arising out of the termination by the city of Portland of a mass transit franchise awarded to Rose City Transit Co. (Rose City). The first case (the franchise case) was brought by Rose City Transit Co. and Landport Co. (the Companies) as a declaratory judgment proceeding against the city of Portland (the City) seeking a decree declaring that the City had breached the terms of the mass transit franchise by unilaterally and improperly terminating the franchise; the Tri-County Metropolitan Transportation District of Oregon (Tri-Met), ¹ a municipal corporation, subsequently became a party defendant. The second case (the pension case) was brought by the City and Tri-Met as a declaratory judgment proceeding seeking a decree setting the parties' various pension rights and liabilities in regard to various classes of employes, both active and retired. The union and a number of employes and former employes of Rose City, some members of the union, some not, were named as a defendants in the pension case. The cases were consolidated and tried in stages, as agreed by stipulation of the parties, before the trial court sitting without a jury.

I. THE FRANCHISE CASE

Factual background

In 1936 the City first granted an exclusion franchise to the Portland Traction Company for the operation of mass transit vehicles on the streets of the city of Portland; this franchise was for a 20-year period. The Portland Traction franchise expired in 1956 and the system was transferred by Portland Traction to the Rose City Transit Co.; the City then granted Rose City the first of a series of temporary, short-term, revocable permits.

During 1958 Landport Co. was incorporated as a wholly owned subsidiary of Rose City. All of Rose City's assets, both real and personal, were eventually transferred to Landport and leased back by Rose City. At all times Landport, Rose City and Portland Traction were wholly owned subsidiaries of Portland Transit Co.

In 1962 agreement between the City and Rose City was reached on a new, 10-year franchise, effective January 1, 1963. The Portland City Council adopted the franchise an Ordinance No. 115674 on August 22, 1962. Throughout the period of the franchise, and, in fact, since after the Second World War, the Portland mass transit system was faced with continually decreasing ridership on one hand and continually increasing fares on the other.

On November 15, 1968, pursuant to a provision of the franchise, Rose City filed application for its third fare increase. On December 12, 1968, the Portland City Council deferred action on the requested fare increase and adopted a resolution terminating the franchise 'for cause,' purportedly in accordance with Section 23 of said franchise. The City thereafter began proceedings to take over the system. On August 13, 1969 the City tendered the company revenue certificates, purportedly as provided in the franchise, as payment for the transit system; Rose City rejected the tender. On August 14, 1969, Rose City and Landport filed the complaint for declaratory judgment in the franchise case, seeking, Inter alia, a judicial declaration that the 1962 franchise was not validly terminated or revoked by the City on December 12, 1968. On August 22, 1969, the City and Tri-Met filed their answer and a counterclaim in the franchise case in which they prayed for a declaration by the court that the franchise had been validly terminated, that the Companies should accept revenue certificates, that the Companies were required to convey the system, and asking, among other requests, that the court set a fair and reasonable value for the Rose City properties.

On November 30, 1969, Rose City, Landport and the City executed a Memorandum of Understanding (hereinafter called takeover agreement,) which recited that the Companies would turn over to the City the possession of (but not the title to) the Companies' real property, plant and equipment, and that on December 1, 1969, the City would commence operation of the Portland mass transit system. The takeover agreement further recited that the parties would proceed to trial in both the franchise and the retirement cases, seeking therein a judicial determination of the parties' various rights and liabilities under the franchise agreement and the various labor contracts. A document was then executed by all the parties wherein Tri-Met assumed the City's obligations under the take-over agreement.

On August 3, 1972, after trial on the issues raised, the circuit court entered a decree in which it adjudged that the franchise was validly terminated, that the fair value under the franchise was $2,975,782.65, that the City and Tri-Met were presently obligated to pay that sum, without interest up to the date of the decree, and that Tri-Met was obligated to pay the same in cash. Upon proper cash tender to Rose City or Landport, the Companies were obligated to convey title to the properties to the City or its designate.

The Companies appeal from all portions of the decree while the City and Tri-Met cross-appeal from that portion of the decree which they contend provides for post-decree interest.

Scope of review

Both the City and Tri-Met contend that this court's power to review the Portland City Council's action in the termination of the franchise is limited to a determination that the council acted reasonably and in good faith to protect the public interest; they contend that this court cannot retry the facts or determine substantively if this was, in its view, the correct decision for the council to make. Both the City and Tri-Met contend that these matters are within the sole discretion of the city council. We do not agree. A franchise is a contract between a city and a franchisee.

'When the right to use the streets is granted and accepted and all conditions imposed incident to the right performed, it ceases to be a mere license and becomes a valid contract, and constitutes a vested right. The consideration for the grant is said to be the benefit which the public derives from the use and exercise of the franchise. The conditions therein are binding, the same as the terms of any other contract, both on the municipality and the company, and their successors. The laws existing at the time and place of the contract form a part of it.

* * *' (Footnotes omitted.) 12 McQuillin Municipal Corporations § 34.06 (3d ed 1970).

Accord, City of Owensboro v. Top Vision Cable Co. of Ky., 487 S.W.2d 283 (Ct.App.Ky.1972), cert. denied, 411 U.S. 948, 93 S.Ct. 1926, 36 L.Ed.2d 410 (1973). See Public Market Co. v. Portland, 171 Or. 522, 130 P.2d 624, 138 P.2d 916 (1943). See generally, 36 AmJur2d 728--30, Franhises § 6; I Pond, Public Utilities 283--84, § 120 (4th ed 1932).

Since the franchise has all the incidents of a contract, the rights and liabilities of the parties to that contract are evaluated in standard contract terms, with one notable exception. City of Joseph v. Joseph Water Works Co., 57 Or. 586, 591, 111 P. 864, 112 P. 1083 (1910), states:

'It is a rule of construction that, if the terms of the franchise are doubtful, they are to be construed strictly against the grantee and liberally in favor of the public. What is not unequivocally granted is withheld, and nothing passes by implication, except what is necessary to carry into effect the obvious intent of the grant. (Citations omitted.)'

See also, Copeland v. City of Waldport, 147 Or. 60, 70, 31 P.2d 670 (1934); 36 AmJur2d 747--49, Franchises § 26; I Pond, Public Utilities 393--96, § 152 (4th ed 1932). Our review of the parties' actions under this franchise is in light of these general principles.

The other area in which the power of this court to review the judgment below is in question arises in our consideration of the value placed on the properties. The City and Tro-Met urge that the action below was an action at law and that our review must be limited to whether there was evidence to support the finding....