Southwestern Bell Telephone Co. v. City of San Antonio

• Decision Date: 30 March 1935
• Docket Number: No. 7528.,7528.
• Citation: 75 F.2d 880
• Parties: SOUTHWESTERN BELL TELEPHONE CO. v. CITY OF SAN ANTONIO, TEX., et al.
• Court: U.S. Court of Appeals — Fifth Circuit

75 F.2d 880 (1935)

SOUTHWESTERN BELL TELEPHONE CO. v. CITY OF SAN ANTONIO, TEX., et al.

No. 7528.

Circuit Court of Appeals, Fifth Circuit.

February 25, 1935.

Rehearing Denied March 30, 1935.

James C. Henriques, of New Orleans, La., E. W. Clausen, of St. Louis, Mo., Wm. H. Duls and Nelson Phillips, both of Dallas, Tex., and E. D. Henry and L. M. Bickett, both of San Antonio, Tex., for appellant.

Bruce W. Teagarden, Carl Wright Johnson, and T. D. Cobbs, Jr., all of San Antonio, Tex., contra.

Before BRYAN, SIBLEY, and WALKER, Circuit Judges.

SIBLEY, Circuit Judge.

The Southwestern Bell Telephone Company filed a bill against the city of San Antonio and its officials to restrain the enforcement of a scale of rates for telephone service within the city which had been established on June 20, 1918, for the company's predecessor by authority of the city, asserting that the scale had become confiscatory; and to enjoin interference with a higher scale which the company had proposed to the city, and which, after a hearing, had been rejected. The answer denied confiscation, and asserted that the old rates were fair and reasonable and that the company's intimate connection with the American Telephone & Telegraph Company and with the Western Electric Company was causing losses which the San Antonio exchange ought not to bear; that the Southwestern Bell and all its properties, including that in other cities and other states, was prosperous and paying fair dividends; and that its business and property in San Antonio ought not to be segregated, but if it ought there was no confiscation. On April 23, 1928, after a hearing, the court held that confiscation was shown, and enjoined temporarily the enforcement of the old scale, requiring a bond to be given by the Southwestern Bell conditioned to repay all sums collected from its patrons in excess of the old scale if it should be held that the temporary injunction was improperly granted. Under this injunction and bond, the new scale has been charged to this date. The case was referred to a special master, and on March 1, 1930, he filed a comprehensive and detailed report upholding the company in its contentions that the old rates were confiscatory and the new rates necessary to avoid confiscation. Numerous exceptions were made by the city. The decision in the case of Smith v. Illinois Bell Telephone Co., 282 U. S. 133, 51 S. Ct. 65, 75 L. Ed. 255, having appeared, the cause was re-referred to the master to take further evidence and make further report. The additional report was filed May 25, 1932, again upholding the contentions of the company. New exceptions covering 75 printed pages were filed by the city. The condensed record of the evidence covers about 3,300 pages. The court in an opinion which showed careful consideration of the case discussed many important questions of law and fact, but it was in no sense a finding of facts. (D. C.) 2 F. Supp. 611. A decree was signed March 20, 1933, from which this appeal is taken. The decree, after reciting some of the proceedings and referring to the opinion, proceeds to formulate in five numbered paragraphs the findings of the court. The first is that the suit was not prematurely brought. The second briefly finds that the master has committed error, and that his report should be set aside and held for naught. The third with equal brevity states that the court finds that the plaintiff "has failed to prove the material allegations of its bill of complaint, and that it has not been shown by satisfactory proof that the rates complained of and the ordinances upon which they are based are invalid or confiscatory." The fourth in fourteen subparagraphs points out several issues on which the plaintiff had the burden, which in the court's opinion it had not sufficiently carried, but there are no findings as to what the truth is about any issue, save that there is a qualified and tentative statement of a lump sum as the upper limit of value of property on which a return was to be earned for each year in question, and a finding that 6 per cent. was a nonconfiscatory rate of return. The fifth paragraph dissolves the temporary injunction and orders repayment of excess charges under the bond, and dismisses the bill, reserving administrative jurisdiction.

The effect of the decree is wholly to wipe out the detailed and specific report of the master, and to substitute what amounts to a general finding that the plaintiff has not proven its case. To review it, we should have to study in detail the whole of a record that it took months to make, just as though it had never been considered by a master or judge. We have nothing specific found but a rate of return. It cannot be that in more than 3,000 pages of evidence which enabled the master to make a finding on every point that nothing whatever was proven. The decree is on its face not in conformity with the Equity Rules. Rule 71 (28 USCA § 723) prescribes the general form of a decree, and prohibits putting in it anything but the effective decree or order. The findings of fact and conclusions of law required by the new rule 70½ (28 USCA § 723) are not to go into the decree, but are to "be entered of record." The very numbering of rule 70½ places it ahead of rule 71 which relates to the contents of the decree, and shows that it deals with something precedent. Whether the findings of fact are put in the decree or elsewhere is a mere matter of form, but that they shall be "special" and made "separately" from the conclusions of law is required by rule 70½, and these requirements are substantial. Neither has been met here. Cases may occur in which the evidence is insufficient as a matter of law to authorize a finding on some issue, but under the new rule there may not be a general negative finding, but there must be a special dealing with all questions and a separate stating of the facts which are found, and of the issues not found. The degree of detail is a matter of judgment. Uncontested facts may be found with more generality. The contested ones should be put in such detail as will decide each contest made concerning them, the purpose of the rule being to aid review by enabling it to be restricted to the exact points on which error is claimed. In ascertaining whether there is confiscation under an imposed scale of rates we believe it to be always necessary to fix the value of the property used and useful in the service of the public; the amount of gross income received for its use; the items of expense of operation and of maintenance, and other deductions to be allowed; and the rate of return that will afford a fair compensation. These general items may involve many subcontests either of law or fact. They manifestly do in this case. The master's report upon them has been wholly discarded. A rate of return of 6 per cent. has been found, but all else has in effect been reduced to a general finding that the court is not convinced that there is confiscation. The case of Los Angeles Gas Corporation v. Railroad Commission, 289 U. S. 287, 53 S. Ct. 637, 77 L. Ed. 1180, holds that where, as here, the court is not reviewing the legislative process of rate making, but is exercising the judicial function of ascertaining whether the legislative rate conflicts with the Constitution, it is concerned not so much with the way the rate was arrived at as with its actual operation and result. But this does not mean that the court can escape separate inquiry into the necessary elements of property used, income, expense, and fair return, or fail to make the special findings required by rule 70½. When the master's results are disapproved and discarded, there ought to be another reference or else a substitution of detailed findings by the court. If evidence is lacking to meet some view of the law entertained by the court, opportunity to produce it ought to be given. If after fair opportunity sufficient proof is not had, the precise issues not proven ought to be pointed out, with the reasons why the evidence produced is insufficient. The things that are established ought to be found, so that they may definitely appear on a review without a study of the whole record. The case must be returned to the trial court for more specific rulings on the exceptions to the master's report, or if the report shall continue to be entirely rejected, for another reference or for special substituted findings by the court.

However, from the court's opinion and decree and from the argument here, it is apparent that there are some questions of importance which we can now consider and thereby aid the further trial of the cause. It appears that in tracing the historical cost of the San Antonio exchange the books available begin in 1915 with entries which are not known to be actual costs but may have arisen from appraisals or other form of estimate. These are followed by the usual entries of additions and betterments and retirements from time to time, and the account has stood as the company's investment account. We do not think these old entries ought to be regarded as mere self-serving statements which have no evidential value, or that their presence invalidates the whole evidence as to historical cost. Public utility companies are required to keep such accounts, which are the basis of periodical sworn reports. They are open to inspection by rate-fixing bodies and they always figure in rate investigations. The rates here in question were established in 1918, three years after the questioned entries were made. The rate ordinance itself recites that the applicant had made a showing, that the city officials had employed experts to analyze the showing and conduct an independent investigation into the assets, liabilities, revenues, and expenses, and the capital entitled to a return in the city of San Antonio, and...