State ex rel. Kansas City Transit, Inc. v. Public Service Commission

• Citation: 406 S.W.2d 5
• Decision Date: 12 September 1966
• Docket Number: No. 52022,52022
• Parties: STATE of Missouri ex rel. KANSAS CITY TRANSIT, INC., Daniel L. Brenner, M. J. Coen, Charles G. Hanson, A. D. Martin, Sr., William S. Morris, Albert W. Thomson, Edwin B. Wright and G. Kenneth Baum, Relators-Appellants, v. PUBLIC SERVICE COMMISSION of the State of Missouri, Tyre W. Burton, Chairman, E. L. McClintock, William Barton, Frank W. May and Donal D. Guffey, Commissioners, Respondents.
• Court: Missouri Supreme Court

Page 5

406 S.W.2d 5

66 P.U.R.3d 224

STATE of Missouri ex rel. KANSAS CITY TRANSIT, INC., Daniel

L. Brenner, M. J. Coen, Charles G. Hanson, A. D. Martin, Sr., William S. Morris, Albert W. Thomson, Edwin B. Wright and G. Kenneth Baum, Relators-Appellants, v. PUBLIC SERVICE COMMISSION of the State of Missouri, Tyre W.

Burton, Chairman, E. L. McClintock, William

Barton, Frank W. May and Donal D.

Guffey, Commissioners, Respondents.

No. 52022.

Supreme Court of Missouri, En Banc.

Sept. 12, 1966.

Albert Thomson, Robert W. Cook, Kansas City, John H. Hendren, Jefferson City, for relators-appellants, Linde, Thomson, Van Dyke, Fairchild & Langworthy, Kansas City, Hendren & Andrae, Jefferson City, of counsel.

Wayne W. Waldo, Gen. Counsel, Thomas J. Downey, Sp. Counsel, for respondents.

FINCH, Judge.

The Public Service Commission of Missouri, following a hearing relative to certain changes which had occurred in the capital structure of Kansas City Transit, Inc., entered this order:

'That Kansas City Transit, Inc., be and it is hereby prohibited from making further reductions in the account entitled 'Unearned Surplus' (also designated by the company as 'Capital Contributed') by any manner or means whatsoever without the prior authorization of the Commission.' ¹

The above order was affirmed on certiorari by the Circuit Court of Cole County. Relators, Kansas City Transit, Inc., and its officers and stockholders, referred to herein as 'Transit,' appealed to the Kansas City Court of Appeals, which reversed, but on its own motion transferred the case to this court pursuant to the Constitution, V.A.M.S., Art. V, § 10, and Civil Rule 84.05(g), V.A.M.R.

Transit's brief on appeal asserts that:

(1) There was no statutory authorization for the Commission to make the requirement contained in the questioned order; and

(2) The order was unreasonable and not supported by evidence.

An additional contention that the order violated constitutional rights under the Fourteenth Amendment of the Constitution of the United States and § 10 of Art. I of the Constitution of Missouri was raised for the first time on appeal. The issue was not raised in the application for rehearing before the Commission. Section 386.500(2) (all statutory references are to RSMo 1959 and V.A.M.S.) provides that grounds not specifically set forth in the application for rehearing may not be asserted in any court upon review. This court has applied that provision to constitutional questions. State ex rel. Buffum Tel. Co. v. Public Service Commission, 272 Mo. 627, 199 S.W. 962, L.R.A.1918C, 820; State ex rel., to Use of Alton R. Co. v. Public Service Commission, Mo., 100 S.W.2d 474. We will not consider the constitutional questions.

Transit is a street railway corporation engaged in the operation of a local transit system in the greater Kansas City area. It is subject to the jurisdiction of the Commission.

On May 11, 1961, the Commission, pursuant to § 387.340, authorized and approved a corporate reorganization of Transit. A newly formed corporation, The Sovereign-Western Corporation, herein called 'Sovereign,' acquired all of the common stock of Transit. Preferred stock of Transit in the amount of $4,445,000 was cancelled and the holders thereof received new preferred stock of Sovereign in exchange. This relieved Transit of the obligations imposed by the preferred stock. As a part of the reorganization, Transit was permitted to transfer approximately $1,250,000 in nonoperating assets to Sovereign. The latter was represented to be planning to engage in diversified activities, thereby increasing the soundness and stability of the operation.

The capital represented by the preferred stock of Transit became capital surplus, referred to in the Commission order as 'unearned surplus' and as 'capital contributed.' After the reorganization the capitalization of Transit consisted of longterm equipment notes in the amount of $1,000,592 and equity consisting of common stock of $30,000 and unearned or capital surplus of $4,475,743, or a total of $5,506,326. Current assets of the company were $1,119,660 and current liabilities $1,160,782. Net operating assets were $5,925,708. ²

The Commission, on February 8, 1962, authorized the Westage-California Corporation, herein called 'Westgate,' to acquire all of the common stock of Transit from Sovereign. This acquisition resulted from an agreement of merger between Sovereign and Western in December 1961. During 1962, Transit paid ordinary dividends of $118 per share or a total of $354,000, but no liquidating dividends were made. Net earnings for 1962 were $282,163.

In February of 1963, Westgate sold all of the common stock of Transit and all the stock of Greater Kansas City Bus Company ³ to seven individuals, for whom Mrs. Alice Wrigley acted as trustee. The sale price was $4,550,000. Notes were given for the entire purchase price. A few days later, on February 20, 1963, pursuant to resolution of its board of directors, Transit effected a reduction in its capital contributed account of $1,554,600 and distributed that amount to the stockholders. They immediately applied it on the notes given for the purchase price. An additional distribution of capital in the amount of $250,000 was authorized by the directors and made on June 20, 1963. It also was applied on the purchase notes given for the Transit and Greater Kansas City Bus stock purchases. At the time of the Commission hearing the only payments which had been made by the seven individuals on the purchase price of the Transit and Greater Kansas City Bus stock were these two liquidating dividends. No approval of these capital reductions and distributions was sought from the Commission, and the latter learned thereof in a rate hearing. As a result, the Commission held a hearing and entered the order from which Transit has appealed. ⁴

Was there statutory authority for the Commission to order Transit not to make further capital distributions from its unearned or capital surplus account to stockholders without prior authorization by the Commission?

We start with the premise that the Commission 'is an administrative body of limited jurisdiction, created by statute. It has only such powers as are expressly conferred upon it by the statutes and reasonably incidental thereto. State ex rel. and to Use of Kansas City Power & Light Co. v. Buzard, 350 Mo. 763, 168 S.W.2d 1044.' State ex rel. Harline v. Public Service Commission, Mo.App., 343 S.W.2d 177, 181. Accordingly, we must find the power conferred by statute if it exists at all. In such search, however, we must recognize that the Commission has not only the powers and duties expressly specified but 'also all powers necessary or proper to enable it to carry out fully and effectually all the purposes of this chapter.' Section 386.040.

We have concluded, and hold, that the Commission did have statutory authority to make the order in question. Various sections of the statutes indicate a clear intention of the Legislature that the Commission should exercise supervision and control over the capital structure of street railway corporations and other common carriers within its jurisdiction.

The power of a common carrier to issue stocks and bonds (as well as evidences of debt and instruments creating liens) is declared by § 387.240 to be a privilege which is subject to 'supervision, regulation, restriction, and control' by the Commission. Further provisions relative to Commission control of the issuance of stock, bonds and other evidences of debt are contained in § 387.270. Under the latter section, the order of the Commission is to specify the uses or purposes to which the issue or proceeds are to be applied, and proceeds are not to be used otherwise except with Commission approval. Under § 387.280, no stock, bond or scrip dividend is to be declared without Commission authorization, and approval is required before the proceeds of any stock, bond or scrip issue may be distributed to stockholders. A merger or consolidation of carriers is permissible only with Commission approval. Section 387.250. Reorganizations are subject to Commission supervision and control and may not occur without authorization. Section 387.340. Under § 386.320 the Commission is charged with keeping itself informed as to the capitalization of a common carrier, as well as with respect to its condition and the adequacy of its operations. These are in addition to the sections which require street railway companies to furnish service and facilities which are reasonable and adequate and authorize the Commission to require such service and facilities. Sections 387.030, 387.210 and 387.220.

These sections provide specifically for supervision and control by the Commission of (1) the amount of stock (and other capitalization) with which a company such as Transit commences operations as a common carrier, (2) subsequent issuance of stock or other items increasing the capitalization, and (3) changes in capitalization resulting from reorganizations or mergers. This supervision is not limited to controlling increases in the capital structure. For example, § 387.340, relating to reorganizations, provides that '(u)pon all such reorganizations the amount of capitalization, including therein all stocks and bonds and other evidence of indebtedness, shall be such as is authorized by the commission,' and that 'any reorganization agreement before it becomes effective shall be amended so that the amount of capitalization shall conform to the amount authorized by the commission.' This language indicates an intention that the capital structure after reorganization would continue to be that approved by the Commission in the reorganization until such time as the Commission might approve some change therein. If that is not what the quoted portion of the statute means, it simply is stating the obvious, namely, that at the conclusion of the reorganization the capitalization would be that which...