Petition for Writ of Certiorari — City of Detroit v. Theatre Control Corp.

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-* A. E. Deloach vy. hain et a 268 F. 2d 928, 930. . dD

Gypsy Oil Co. v. Esgée, 275 US, 498...... erase ace 4

\Hagne v. Committge for Industrial-( Irganization, 307

“s/US 496, 507783 L. ed 1423, 1432......... eee

Interstate Coipitnerce Commission v. United States,

Ot OO: Fe As OE OE ws) esos sce’ 7

‘State v. + aan States Tel. & Tel. Co., 294 P 2d -

CO BOE evustSerccohsquesii hibce needy reenees 6

Theatre Control Corp. v. Detroit, 113 N.W. 2d, 783 K

ited Gas Corp. v. Herd Laundries Co., 189 S.W.

Bee ctasets shnmuehee od fipaecekvsatpeseneaye 7

Washington, ex rel., Stimson Lumber Co. v. Kay. ,

dendall, 275 US 207, 212772 Led 241, 245.0... “6,7

‘SUBJECT INDEX ~

) pen a Page

A. Statement of the Case............... eaae eee 2-3

B. Opinion and Decision Below. oe ss eneseseeees ds 3

C. Jurisdiction peel Oe eee san Scat ea a . 34

D. Question Presented for Review. .... pobanssonse Fé 5

| : A oats

KE. Laws‘ Involved............:.: eWevecccce spe 5

pO ee Re ear OR PR at afte se 5-7

Reasons for for. pe = "Pep Mere ee ee

_—-Effect on. on. Municipal and- other Publi Utilities 7

“Conclusion .....5..+5 keke ot a pelo fee taeees oo.

- Appendix A—Opinion of ‘the Mi

CONS vicsdssce Pes eee reece

; Fed. Statutes, June 25, 1948, 0° 64, 62 Stat. 929.. 5

U.S.C.A., Title 28, See. 1257 (3) cabs weddsanes i ae

(° . foro k, Title 28, See. .2101{e)--- oo ao pa ear » wif

me, ire | se

: Aris CONSTITUTIONS agi st

eg \stitution of Michigan, Art. Il, _ errr ; 5

fe U ted States Constitution Amendments, Article a :

: O14, See? 1 FEE RATE Sy Sry ndvueasedodd ass . 5, 6, t ae

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Supreme Court a the United States.

THEATRE CONTROL CORPORATION, a Michigan.

‘Corporation; SAUL:KORMAN, d/b/a Apollo Theatre;

WESTOWN THEATRE CORPORATION, a Michigan

Corporation; HILLIER KILBRIDE Company, a Michi-

gan Corporation, and all‘other members of the class,

. |. . Plaintiffs and Appellees,

‘ and

es ACE- WRIGLEY STORES, INC., a Delaware Corpora-

tion; DAVIDSON BROTHERS, INC., a Michigan Cor-

. , poration; LOCAL 575, INTERNATIONAL BROTHER-

- HOOD OF BRIDGE, STRUCTURAL AND STEEL

WORKERS OF AMERICA, AFL-CIO, ~ .

8 Tnterveniag Plaintiffs and Appellees,

Vv. °

CITY OF DETROIT, a s Municipal Corporation; BOARD

_' OF WATER COMMISSIONERS of the City of De-

troit; OSCAR A. WAGNER, Commissioner; GEORGE

- A. SHAFFER, Commissioner; ALFRED J. SIMPSON,

Commissioner; HARVEY A.°WAGNER, Commissioner;

' GERALD J. REMUS, General Manager of the Detroit

. Department of Water Supply, —

_, .° Defendants and Appellants.

PETITION FOR WRIT OF CERTIORARI

- TO THE SUPREME COURT OF THE |

STATE OF MICHIGAN’

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To the Honorable-the Chief Justice and the Associate Jus-" .

tices bs 4 the Supreme Court of the United States:

Petitioners pray that-a writ of certiorari issue to. review:

‘décision of the Supreme Court of the State of Michigan,

entered in the above-entitled cause on March 15, 1962, with |

Motion for Rehearing of same finally denied on’ May 17,.

1962. (365 Mich. 432, 113. N.W. 2d 783.) |

This i is A case arising out of action of Department of ©

W ater Supply of the City of Detroit (petitioner herein) in

adopting. a regulation imposing .a demand (éxtra). charge

. On non-water conserving air-conditioning equipment used

for human and animal-comfort. It: was contended by plain-

Pgs tiffs-appellees that the charge is illegal principally on ™

ground that it is discriminatory and theref. depri

plaintiffs-appellees of property without due process, a

of law, in violation of the Fifth and Fourteenth Amend-

ments to the United States Constitution and Art. ‘FI, See.

16 of’ the Constitution of Michigan (Vol. 1 Appendix of

. plaintiffs-appeHants in lower court, p. ‘222’. The class

‘represented by. plaintiff approximates 6000 water Tate.

’ payers.

This case does not involve the amount of the demand

_ charges so long at it is applied to all seasonal ‘users of

water. Plaintiffs-appellees stipulated. i in the Trial Court

that they were not rgising any question as to whether or |.

‘not the extra charge to users of non-water conserving,

_ equipment was éxcessiye based on actual cost of service,

(p. 1092{a] of supp. appendix, Vol. V, Plaintiffs-Appel-

lants below), and this was confirmed by the trial judge in

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“This. case, xo far as the j issues, actually con-

tested upon trial ix a dixerimination case ax eopopwonerd

‘to ap overcharge case, plaintiffs conceding that

they are not paying *too much’ but alleging that the

. whole basis of the classification is wrong * * *"

(Appendit. for Maintifis and Appellants. VoL

pp 6a, ss se :

The main issue in the court helow was whether defendant—

‘unlawfully diseriminated in singling out- the one sex-

ment of seasonal users while exempting all others ‘from

’ the added charges. :

-* e s

The case also involves the matter of possible refunds

to this class of customers of rates paid since “inception”

of the demand charge in 1956. ‘This is involved in re-

mand to the trial court for proceeding in accordance with |

the opinion of the Michigan’ Supreme” Court and could

conceivably: Fesult in the repaxinent to 'thix class of water

users ,of ‘seyeral million panne. (Motion for fe-hearing

oo.

*B. Opinion -—" Decision Biw ©.

A a of opinion and decision of Supremé Courts of -

Michigan, Theatre ‘Control Corp. v. Detroit, LBS, dl,

" 783, is attached hereto, App.. A. 2.

- A copy of opinion and decision of ‘the triat court (re-

ported in Utilities Law Reforts-state J9600 CLC 36,

811) is attached hereto, App, B. (Also in Vol. 1 of I’lain-

tiffs- Mebiaaceas sinks as below, yp. Mia: tor 68a):

* C. Jurisdiction . +

In the trial court, Judge (ieorge a * Bowles, w ayne

County Cirenit Coirt, State of Michigan, upheld legali-.

ty of the “demand charge.”

if

‘Om appeal, ‘Suprejne Court of Michigan iveteel: the

lower court and. heid. the cliarge unconstitutional as. a

violation af due process (113.N.W, 2d, 783 at, p. 739) :

“Having Danese" there was no reasonable ndésis

oe for the additional demand charge here sought to be

imposed, it necessarily follows that such charge

was unreasonable and arbitrary and, therefore, in-

valid -becaise it deéprived plaintiffs of property with-

+ out due process of MM os

| ‘Reversed and retiaended for further proceedings

. in uccordance With this’ opinion.”? (No proceedings

"have vet been had on the remand, the lower court

not yet having decided what if any proceedings to -,

take by virtue of the aca ), .

. Among allegations of the Senendie Bill of Complaint

filed in this ease (Vol. 1 pJaintiffs-appellants’ Appendix

(Below) p. 22a) is the allegation that the demand charge

is ultra vires, illegal and void because: ‘~ ‘ art os

e

“It deprives the plaintiffs and other members of

the class of their property without due process of

-- 4: law, contrary to. the fifth and fourteenth. amend-

ments to the. Constitution of.the United States, and

_to Article IT, see. 16 of the Constitution of the State

of M ichigan.”’

. Violation of ae Vnited States Constitution , was

pleaded and decision of the Supreme Court of Michfgan

as to-illegality was ‘premised upon a v iolation of. the Con-

stitution of the United States. A substantial federal con- -

stitutional question is therefore involved requiring final

determination by this Court.

- Jurisdiction of this court to i issue a writ of certiorari is .

conferred bf 28 USCA 1257(3) and Sec. _—— fispsy |

Ou Co. v. Escoe, 275 U.S . 498, °

D. Question Presented for Review

The following question is presented for review:

_ Does the detnand. charge of the Detroit Water Board up-

on users (plainiiffs- appellees and the class represented by

plaintiffs-appellees) of rion-re¢ ireulating air-conditioning

equipment used for human or animal comfort deprive such’

users of property without, due process of law in ‘violation

of Section 1 of the 14th Amendment to the Constitution: of

- the U nited States? (

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i. | '- E.+Laws Involved

The United States Constitution Amendinents, Article

14, See. 1.

The C onstitution of Michigan, Art. IT, See. 16.

, , ARGUMENT

Reasons for Granting the Writ

It affirmatively appears that in the State court there

was duly drawn in question the validity of a statute-of or

an authority exercised under the State because of repug-

-nance to the Constitutionof the United States and a title,

right, privilege or immunity is specially set up or claimed

under said constitition. | le

Fed. Statutes, ton 25, 1948, © 644,. 62 Stat. 924;

T itle 28, U.S.C.A. Sees 1257:43)3 |... -

A. E. Deloach v. Rogers, et al., 268 F 2d 928, 93

The question. of validity of the demand charge ‘here in-,

volved as being a taking of ‘plaintiffs-appellees’ property

Ww ithout-due- process of law in v violation of the United States’

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Constitution (Amend. Art. 14, See. 1) was raised by the

pleadings and duly drawn in question as we have shown

and the state court’s decision was based solely upon that

ground. of constitutional invalidity.

The Federal constitutional question was therefore prop-

erly raised in the state court to qualify for review in this

court.

Hague v. Committee for Industrial Organization,

807: US 496, 507; 83 L. ed 1423, 1432. ;

Review by this court is requested because of misconception

(which was the basis of its decision) by the state court of

_ the force and effect of the. 14th Amendment in relation to

its prohibition of teking of property without due’ process .

of law as applied to rates fixed by -publie utilities under the -

-cireumstances of this ease.

When users of utility services coineede that rates ‘aneia:

are. not excessive as plaintiffs-appellees have in this case,

there is no foundation, for a claim that the rates- deprive

them of property without due process of law.

- Washington, ex rel., Stimson Lumber Covv. Kuy-

kendall, 275 US 207, 212; 72 L ed 241, 245.

It is only when rates cals are so ie as to be sities

«tory that there .can be a taking of property without due

process of law and then only af the property of the publie —

utility. There is mo unconstitutional. taking of property

without due process of law of a utility’ customer even if

rates are too high, and in this case there wasn't even any

claim to that effect.

State. Mountain States Tel. & Tel. a: 204 P 2d

155; 163.

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Sue h discrimination found by the state court bec ause of

‘an inequality:in rates between other se: isonal users of water

and plaintiffs-appellees (such rates not. being excassive} of

-itself is not ground fora holding that. the charges gre un-

constitutional because they constitute a taking of property

without due’ process of" law. on lhe

It is not ‘claimed by plaintiffs-appelless that. they wif

fered any loss or damages by reason ofssuch discrimination.

Nor were any, proved: United Gas Corp. vi Herd Laun-

dries Co., 189 S.W)..2d 485; Interstate Commerce Commix-

sion v, United States, 289 U.S. 385, 77 L ed. 1273.

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Effect on Municipal and Other Public Utilities

The deéision of the Michigan Supreme Court in effect.

holds that-a consumer-has a constitutional right to a‘rea-

sonable utility rate under the United States Constitution,

Amendment 14, ‘Section 1.° If permitted to stand as pre-

‘ cedent, the deejsion of the Michigan Supreme Court would —

‘adv ersely affect the interest of many municipal ; and other

publi¢ utilities throughout the country. contrary. to the in-

terpre tation of the Constitution (Amend. Art. 14, See. 1) by

this court “now prevailing.

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VW "ashington, ex. rel, Stimson Lumber Co. v. Kuy-

. kendall, 275 US 207, 212.

CONCLUSION

‘For the foregoing 1 reasons, this petition for writ of cer-

-tiorari meme be granted.

Respectfully ahiiaa”

CITY. OF DETROIT, a ‘Municipal corpo- |

fia _ ration;

| BOARD OF WATER: COMMISSION-

ERS,, etal. . _ ,

By: ROBERT REESE,

. ° Corporation Counsel,

VANCE G. INGALLS, :

. ; Assistant Corporation cit .

Attorneys for si rancte heed.

lants, . 7

: 1010 City-County Building,

Detroit 26, Michigan.

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Dated: August 8, 1962.

APPENDIX A |

Opinion of the Michigan Supreme Court

Tueatre Coxtrot Corporation, ,

-Crry or Derrorr

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1. AprpEAL AND Error—Ixae Ni TIox—Dr. Novo—Revirw—

~ Water Rares. ‘

Review in Supreme Court of order dismissing bill

to declare void additional charges for use of nonrecir-

culating water-cooled air-conditioning equipment used

for human or ayjmal comfort and to enjoin collection

of such charges is de norg.

to

. Same—Qvestions * Reviewaste—Water R ates—Kat, ‘AL,

y ROTES ‘Tiox—Dv EP ROC ESS.

“Issue of denial of f equal protaction-it-thre tawe Tie

virtue of the assessment of charges against the uxers

of none ireulating water- cooled air- conditioning eqtlip-

ment for human or anual comfort and not against

users of ‘stich equipment. for commercial or industrial

. ‘processing or other seasonal users of water is not de-

termined, where such additional charge ix declared —

to be unreasonable and arbitrary, hence, a depriva-_

tion of property Without due ‘process of law’ (US

Const, Am 14; Mich Const. 1908, art 1, $51, 16).

d . Reference for Points it Headriotes’

(iy 3 Am Jur, Appeal and Error §815.

(2) 3 Am Jur, Appeal and Error §838.

(*) 43 Am dur, Public Utilities and Services 5185 et seq.

_ (4) 14 Am Jur, Costs $37. "| pecans

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3. Mesicipat Corrorstions—Am Cosprrionixe Equirmest

vais ATER Rates—Dve Process, ot 3

- Plaintiffs, owners of theatres and other enterprises

in defendant tity using nonrecirculating water-cooled:

air-conditioning equipment-for human or animaf com

fort held, to have sustained.their barden of proving

that: there was no reasonable basis. for a charge for

the use of such equipment in addition to the charge

for actual water consumed, in order to pay for extra

demand capacity of water system, hente, the addition-

al charge was invalid as a deprivation. of property

without due process of law. (US aris Am 14; Mich

‘Const 1908, art 2, 4.16). ‘

4. Costs—Pvsiic Qu EsTions—AIR. CoxpiTionINe . Equip-

MENT.

| No costs are allowed in ude suit: to didlave void

additionat char, larges by ejty upon users of nonrecirculat-

ing water-cooled air-conditioning equipment, 2 public

7 being i involved.

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Appeal f rom w ayne; Bowles (George F. « J. Submitted

June 9, 1961. (Docket No. 49, Calendar No. 48,840.) De-

cided March 15, 1962. Rehearing applied for.

Bill by Theatre C ontrol Corporation, a Michigan corpo: 5

ration, Saul Korman, doing biisiness ax Apollo Theatre,

Westown Theatre Corporation and Hillier Kilbride Com-

pany, Michigan corporations, in their own behalf and in

behalf of all other members of a class similarly situated,

sesinet he City of Detroit, a municipal corporation, the -

Board 6f Water Commissioners of the City of Detroit, its

* individual me anbers.and the General Manager of the De-

troit department of water supply, to declare void addi-

tional charges imposed for use of air-conditioning equip-

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ment units which do not recireulate water, to enjoin assess-

nient of such charges and to secure accounting, for and :

repayment of such charges already collected. ACK-Wrig--

ley Stores, Inc, a Delaware corporation, and Local 575, Garrats

International Brotherhood of Bridge, Structural and Steet ;

Workers of. America, AFL-C1O, intervened as parties

plaintiff. Bill dismissed. Plaintiffs and interve ning | plain-

tiffs appeal. Reversed and rpinandyd.

| William He ary Gallagher, David New man and Ie aan.

Paul, for plaintiffs. , ; ; . —

- Irwin 1. ‘ohn (John Sk lar, i counse 1), for, ee

. plaintiffs ACF-W rigley Stores,- — ad Davidsin Broth-

_ ers, Ine.

honald J. Prebe a for intervening plaintiff Loe: 5 DID,

International B rotherbood of Bridge, Structural and ‘Steel

Workers of Anierica, AF Lt ). oe

Nathaniel H. Goldstick A’orporation Counsel, and Robe rt

Reese, Assistant Corporation Counsel, for defendants.

Robert. Re ese, Corporation Counsel, and Vanee. Gy:

A Ingalls, Assistant Corporation Counsel, on application for

rehez uring for de fendants.

Amicus Curiae:

Fenton, Naderlandeér, Tracy & Dodge, for EMiott Amuse-

ment Company and the Riviera Theatrical Corposation,

Souris, J. This ease, like Palmer Park Theatre Co, 0,

y City of Highland Park, 362 Mich $26, decided by us after

entry of the decree liere appealed, presents for decision

the validity of-a muticipality’s imposition of an amuual

charge upon users of air-conditioning eyuipment whieh does

not recireulate water, in addition to the charge made for

water actually used. In the Palmer Park Theatre Case a

city ordinance required annual purchasé of a license at the

cost of $20 per ton of capacity for each unit exéeeding 5 mer oe

o

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tons. In the case at bar, the Detroit board of water com- | ~

missioners on May 7, 1956, imposed an annual ‘demand

charge” , beginning at.$1.50 per ton of capacity in the first |

year to $7.50 per ton for 1961, ‘upon all such equipment

used for hiunan or animal comfort. The license fee in the

‘. Palmer Park Theatre Case and the demand charge in the -

case at bar were in addition to the aac charges for

water actually consumed. ;

-. We held, in the Palmer Park Theatre Case, that the

license fee there inijposed was unreasonable and arbitrary,

-and therefore invalid, because no longer necessary to its

original purpose of conserving water, additions, improve-

_ ments, and repairs to the city’s water system having in-

creased its capacity meet all foreseeable demands. A

majority of this Court also held the license fee invalid be-

cause exemption of the users of such equipment with less

than 5 tons of capacity was arbitrary and dicriminatary as

against those users of such equipment with capacity in ex-

cess,of 5 tons-who were required to pay the license fee,

thereby denying the latter equalepretection of the laws.

Differences between the 2 eases appear from the fore-

going. In thé first we dealt with a city ordinance requiring

purchase annually of a license fora fee; in the ease at bar

the board of water conunissioners imposed anhually an ad-

ditional charge computed on the basis of the tonnage capa-

_city of the equipment used, Another difference is that in

the first case @) wafer-cooled air-conditioning equipment of

- the nonrecireulating type for whatever purposé used, ex-

cept equipment less than 5 tons in capacity, was Tequired to

he licensed; in the ease at bar. the additional charge was

imposed only upon such equipment if used for human or

animal comfort, but without regard ‘to its tonnage eapacity.

Another significant difference in the 2’eases is that défend-

- ants made no — to justify the — demand charge as

<

an emer rgeney water conservation neasure, as Was the situ-

ation in the 7” “lamer Park Theatre Case, Although, as we

shall see, the board of water commissioners ‘in announcing

the imposition of the additional, demand charge indicated: *

its concern over the ewrrent and future impact of air-con-

+ ditioning et A ae the water system's capacity, it

was as stipulated ‘Tow ,that the system’s capacity was suf-

be

___—ieient-to-t Got, all demands of its customers for *he- next

several years except for “spot inadequacies’* and assuming

lawn sprinkling could be banned if necessary,

Plaintiffs" bill of complaint was for a déc laratory decree

and for recovery of the additional charges already paid.

After a lengthy hearing, the chancellor rendered a careful-*

ly prepared opinion in defendants’ favor dismissing the bill.

Qur review. of course, is de novo,

In the city of Detroit the hoard of water commissivners

establishes water rates, pursuant to authority expressiy

granted by title 4, ch 12, § § 9, of the charter of the city to fix

such rates ** upon such hasis ax shall be equitable.’ sas 3

2 monthly charge is imposed for water actually consumed

by each customer of the system at a specified rate for the

first 10,000 cubie- feet, at a lower rate for the next 90,000

cubie feet and at a still lower rate for all watereorisumed

in ex cous ‘of 100,000 eubie fect. Seeond, a mormthly service

rus

charge i is imposed, which eharge is a demand charge based

Upon_the size - ‘of meter used, the charge increasing from”

)24¢ for-a 5,-inch meter to $53.28 for a 24-inch meter.

Finally,” sinee 1957 My the annuak demand charge has been

imposed only upon customers owning water-cooled air-con-

ditioning equipment for human ar animal comfort Which |

does not reeirculate water, This last — demand charie

”

* Municipal Code, City of Detroit (195: 4), oat section, P 12.—

ae -REPORTER. }

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- . was announced by the board of water commissioners in

May of 1956 by adoption of a new rule and issuance of an ~

accompanying statement of explanation. The sar accseaad

statement, substantially i in its entirety, follows:

“The impracticability of sxpplving water, for

| water-wasting air-conditioning equipment is becom-

ing generally recognized by the water-works indus-

try throughout the ntry—and steps are being ~

taken to control the situation. The 2 principal meth-

ods in use are: - -

“(L) Prohibit by ordinance ‘the use of water-

wasting air-conditioning equipment.

**(2) Give users of air-conditioning equipment

the choice of converting to the water-conserving

type of equipment, or of paying the full cost of de-

livering water for the water-wasting air-condition-

ing load. This is usually done by imposition of a de-

mand charge.

“The cost of meeting the iceeustinn ‘air-condi-.

tioning load in Detroit is oyer $7.50 per annum per

‘ton of refrigeration, in excess of the charge for

water consumption at current rates.

“The air-conditioning demand has sanatheitty no «

diversity fagtor. Under maximum eonditions 957%

or more of air-conditioning equipment will be in

simultaneous operation. By compagtson even the

lawn sprinkling load shows less than ah of poten-

tial in use at maximum.

**While the present air-conditioning load is some-

thing t be reckoned with, it is the future load that —

causes great concern. It is expected ‘that there will

be a tremendous increase in the use of air-condition-

ing equiyynent, both commercially and domestically,

- within the next few years. Air-conditioning tonnage

in Detroit increased 9.6% during 1955. Higher rates

+ of i increase are expected.

J During 1955, over 20% Af, maximum eee do. |

‘mand was chargeable. to the air-conditioning loud.

Tiis means that over, 20 of the plant facilities are

used to inect the air-conditioning load. Twenty per

“cent of present plant capacity is enough to meet the

maximum domestic demand of an-additional popula-

tion of approximately $00,000 people.

“Tt ix obvious that either water-wasting atr- cong.

tioning must be prohibited in Detroit, or the plant

"expanded to meet the present and potential air-

conditioning load. >a .

“The, Detroit board of “water commissioners fa-

vors the addition of a demand charge to the water

rate, in the belief, that it wilh in effect prohibit new

‘ installations of water-wasting equipment, and will .

result in qonversion of all or nearly all the water-

“) Wasting equipment now in use, and cause those, if —

° _ any, who continue to use water-wasting equipment, lo

to pay for the service rendered.”

Stated simply, Shisetiaaleal sdaautien is whether defond-

ants may impose an additional annual demand charge only

upon users of nohrecirculating air-conditioning squipnient

used for human or animal comfort without violating con-

stitutional rights of due process and equal protection of

the laws.* Plaintiffs argue forcefully that-exemption of

wate Li wasting refrigeration, equipment used for commer-—

cil or industrial processing, and failure to impose the ad- , .

“ditional annual. demand charge upon other seasonal users

of water, renders the attempted. classilie ation’ diserimina-

tory and, therefore, denies. them equal protection of the

laws.t In our Aisposition of this case, ROmeEe, we need

- * Mich Const 1908; art 2,.§81 and 16; US Const, am 14, §1. :

t See*the majority — in Palmer Park Theatre Co.-v./City of

Highland Park, 362 Mich : ,

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not consider this ixsue, fer it is our. conclusion that’ the

additional annual demand charge was unreasonable and

arbitrary’ an‘, therefore, “deprived spear of property

_Without due process of law.

The chancellor ruled that the demand charge was valid.

‘He. found that because such equipment wag,used only dur-

ing the, summer months and that then vi ly all. of such

eqquipynent operates simultaneously, particularly on the day

and at the hour of peak demand upon the system, great de-

mang is: thereby placed upon the water-producing capacity

of the city’s By stem, necessitating it to maintain substantial

capacity in excess of its customers’ normal needs. He con-

‘eluded that the cost of providing water’for such, use was

greater than for other uses, thereby j

ifying the addi-

tional demand charge. i

Plaintiffs contend that the chancelld rred in his find-

‘ings that’ virtually all of such equipti nt is in use simul- /

taneously and that’ such simultaneous use occurs at the’

peak hour of demand. From these factual errors, plaintiffs

claim the chancellor was fed to his erroneous copelusion

_. that the water system’s eXCERS capacity was required to

meet the peak demands of such equipment, the users of

‘which should, therefore, bear the cost of maintaining suc aS)

excess enpacity.

There were offered by defendants Statistical tables and

charts prepared by their expert witnesses and the wafer

systam’s staff which support the chancellor’s findings and

conclusions. One such greup of tables purports to allocate

-the system’s costs‘and revenues to various customer elas- . -

" - sifications : domestic, commercial, industrial, United States

government, semicharitable, construction, suburban, and

nonrecirculating ‘air-conditioning equipment used for hu-

tere

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of William Paterson, defendants’ expert witne<:@ who at.

WV

manor animal comfort, Acvery great use of test a and

estimates was required to accomplish the allocation. The

teclinique used for de termining Water consimmyption “ non-

recirculating air-conditioning equiptrent used te: human

or animal comfort, preluninary to the allocation of cists”

and revenues thereto, is found in the ditect examination

this point was testifying from a previously prepared re.

pitts

©

**4, In developing the cost of service to nonecon-

served fnonconserving !) air-conditioning equipment

it ix first necessary to develop the water-use ¢hagae-

teristics, of this type of equipment. From the dy-

‘ partment of water sspply files, test data are avail-

able on water-usage characteristics of oustomers —

using air-conditioning equipment of the noneonserv-

‘* , ing type.

“This data includes maximum hourly rates of wa

ter use and average daily use, for the days of test

readings. ‘Tonnage installed,, monthly water con

sumption, and revenues received were also available.

With’ this. data we were able to estimate the maxi-

mum and average annual rates of water used by,

‘and the annual revenue received from, the average

ton of nonconserving type.air conditioning. /

»

6 characteristics of water use by this equipment.

A. From the test readings collected on 34 ens

tomers, paprenhting 3 total of 7,767 tons. during the

days of July 6, 7, 8, 21, 22, 23, 26, and 27, 1055, we

have tabulated the maximum hourly. rate of usage

for each of these customers during: those specific

days.

“Q. Ix this the maxinum rate of water which

you estimated was used for the dir-comditioning

. eqipment?

used on the premises at the time of test readings,

and it is i Reneneey to reduce the actual observed”

%-

“Q. Will yow tell us your studies concerning the °

‘*A. No, this rate. of usage) actuded: all siete ;

@ ,

18.) . |

peak hourly rate in order to obtain the maximum

liourly rate of use by air -conditigning . equipment

proper. .. ; -

“Q. Then will you explain how you determined

the maxynum hourly, rate of use by the -air-cond-

_ itidning equipment?

¢ ‘*A, We estimated the water use for purposes

other than air conditioning by use, of comparative

consumption statisties on water use of similar cus- . .

tomers a equipment. Basi-

cally, variation hy winter to summer use of similar

*elasses of customers varies as a group on -a cam-

parable basis disregarding use for air conditioning.

“We found that non-air-conditioning commercial . ~ |

customers showed a maximum hourly use of approx-

’ unately 3 times the average winter use. The average.

' maximum usage of the air-conditioning cugtomers, —. :

for purposes other than air-conditioning, was ésti- ,

mated by applying this relationship of usage to the

; winter consumptton.

“Thé peak hourly rate of water eonsumption, ns

recorded by test readings for the group -of air-con-

ditidning customers, was reduced by the amount of

the estimate hourly rate for the customer group for’

uses other than air conditioning, to obtain a penk

. fiourly ri ate represe nting the water usage by the non-

conserving air -conditioning, equipment. BY relating

this total peak hourly raté to the tonnage. of eqnip-

ment in operation by’ these customers, we have de-

termined a maximum hourly ‘rate of w ater used jper

ton of nonconserved [nonconsery ing? air -condition-

ing equipment. ;

ie **(), - What was this rate? cae

**A.. The maximim hourly rate, average forthe.

group, was 1.546 gallons per minute. per ton, Paes

“Q. How does this rate of usage per.ton com.’

pare with general’ engineering theory concerning ‘

maximum rates, of usage for this type equipment? =":

5

7

19. . /

“A. Due to varied conditions that may govern

for specifie intallations, the maximum rate could

vary from 1 to 2 gallons per minute, but gene erally

it can be said that air conditioning of the noneon-: ji

serving type in this: area will use about 1.5 gallons) |

_ per minute w hen operating. under full design’ load.

* “Why did you not use the higher maximum rate _

_ of 1.5 gallons per minute?

“A. If this rate were considered to be the ‘maxi-

mum rate of usage an was applied to the total ton-

nage in tlie system, it would be necessary to apply

a diversity factor to allow for units not in operation

for.1 reason or ancther, or for units not operating

at full capacity. Any diversity in air-conditioning |

use would be small as the heat off the day lasts for

several hours and those with air conditioning would

tend to be using it at the same time, with the result

that on days of high temperatures practically all

units would be operating at full capacity.

“If we were to assume as much as a 900 factor -

for diversity, the maximuin rate of usage for the

groups would be 90° times 1.5’gallons per minute

or 1.35 gallons per minute, or nearly the same rate

which we found by.analysis of the data collected on

- the 39 test customers.

“The Court: May I interpolate a question.

When you use the 90% factor for diversity, do you

mean as.a method of computation you are assuming

that 10°7 of those who had sueh equipment were not

using it at that time; i. that what you mean by 90%

diversity?

a a that is whet T mean and that’ would: be

under maximum conditions of use.

“<Q. (By. Mr. Reese):, Did you complete your

last answer? ba aS

“The: Court: T stopped him.

si Will vou continue? «

a A. We believe that the deriv ation of the maxi-

mum hourly rate of use by this type of equipment

20

‘which is based on the test data collected for the

selected days of reading, prov ides a reasonable ae-

curate basis for preparing oir « cost-of-serviee study.

- QQ. What water-use characteristics, other than

the maximum hourly rate, must be determined?

“A, The total annual constinption by this type

of equipment must also. be determined. This ¢on-.

sumption was determined by use [of?] the 59 test,

customers’ total annual econsmuption, less 6.months

at the average winter-use rate and’6 months at the.

average summer-use rate, exclusive of air-condition- ‘

ing use computing the swnimer rate as. 1.20° time the*

-winter-rate average. . .

: ** Air-conditioning consumption for the 1958 fiscal

year, the most recent year of record, was estimated

to average 42,400 galons per ton for,the 7,852 tons

installed, and this average usage per ton was useds

: ei : : /

as representative for the total tonnage installed in |

- the system.”’

From the foregoing it is evident that defendants’ witness |

used 1955. test data taken from only 39 customers (all lo-.

cated in dowrtown Detroit) whose nonrecirulating air-

conditioning equipment totaled 7,767 tons as a basis for

~ estimating all other data relating to all such equipment

subjected to thé annual demand charge. At the time of -

hearing below, eag y 1959, there were approximately 6,000

such units having a total rated topnage’ of 75,000. Fur-

. thermore, as a basis for estimating theoretical maximum

potential demand for water by sue ‘h equipment (based

upon which estimate other computations were made) it wrs «

assumed that 905° of “all units would be operated simul-

/

* ° * There were 17,000 refrigeration units of all, types licensed by the

city at the end of 1958, the total tonnage, of which was 171,000. In

addition to the 6,900 units subject ‘to the annual demand charge, with

. a totgl rated tonnage of 75,000, there were 11,000 units totaling 96,000 -

tons,. equipment which recirculated. water or nonrecireplating equip-

ment used for commercial or industrial processing.

,

21

taneously at. the peak hour of de and by sue ach equipment.’

No basis other than the witness’ judgment and the esti-

mated use of such equipment. by the test « istomers Was

suggested for this assumption. Other ‘judgment figures

were relied upon, some of whieh were frankly stated fo -

have been generally based-qipon past eexperience in other ‘

‘cities under different cireumstances of climate, The fore-

going suffices. to demonstrate the tenuous nature of the sta-

‘tistical data’ supporting the expert witness’ opinion tes-

timony defendants rely upon to uphold the chancellor’ .

-finilings and conclusions. ix,

— in the 6,000 aed of —— — to the

hyildings, banks, restaurants, supermarkets, public and

eis ‘ate halls, churches and the like, loc: ited in all parts of

the city. .A sampling of 0.650, of the -nuniber ‘affected, but

involving over 10% of the tonnage affected, suggests to us

a high vrobability that conclusions therefrom will not be

representative of the entire group. Particularly is this so

“when all 39 samples are located in the lieart of the city

and most operate only during the daylight hours of a

commercial center's normal business day, as contrasted

with other users of such equipment,—for example, the

neighborhood theaters owned by some of the plaintiffs.

What we aré concerned with here is the demand for water

placed upon the system at its peak hour of dqmand during

any particular year, for the additional demand. charge is

sought to be justified on the basis that the dost of main-

taining the system's excess capacity, claimed) to be inade.

necessary by the nonrecireulating dlir-conditi« ning equip-

ment used for human or aniial comfort, should -be borne

by users of such equipment. The evidence shows that this”

peak hour for the entire system occurred between the

f

‘1! ° ters, Acsarenees poe oan storés, drug Atores, ae 0

.

22

hours of 6 and Sj in the evening, ut the peak hour for the.

39 downtdwn eustome?s occurs éarlier in the afternoon. -

The percentage of equipment in-use at any 1 time Tor

‘such select customers was not demonstrated to have any

relationship, to the percentage of all such equipment in use

at the system’s peak hour ef demand. The data-ftom the

sampling ‘was crucial to defendants’ contention, and the

chancellor’s conclusion, that the water system’s excess ea-

pacity was: required to meet the peak demands of such

~ equipment and that, therefore, the owners of such equip-

“ment should bear thé cost of maintaining such-‘excess ca-

-: pacity. It a our conclusion that, plaintiffs carried their

burden. of proving there was no reasonable basis for the -

addition of a demand charge upon nonrecireulating air-con-

ditioning equipment used fér human or animal comfort.

‘Furthermore, the record amply supports plaintiff's claim

that lawn sprinkling and other household uses o¢ ‘eurring

on’ the water system’s peak day and at its peak hour of de-

mand impose: a substantially greater strain upon the sys-

tem’s capacity than does the use of equipment singled out

by defendanis to bear’ the cost of naintaining the systein’s

excess capacity. :

‘Having coneluded there was ho reasonable basis for the

additional demand-charge here sought to be imposed, it

necessarily follows that such charge waetinreasonable and

arbitrary and, therefore,-invalid because it depriyed ‘plain-.

~ tiffs of property without due process of law.

Reversed and remanded for further’ proceedings in ae-

cordance with this opinion. No costs, a public question,

being involved. pei ;

Detumers, C, J. and ( arr, Keviy, Buack, and Kavanacn,

JJ.,. coneurred. :

Oris M. Smitu and Apams, J.J., took no part in the deci-

sion of this case.

— B

—_>——__ Ps

OPINION OF THE TRIAL COURT

‘Number, 432—53 New’ Decisions’ 36,811

THEATRE ConTRoL CORPORATION ET AL. Y. Crrv

OF DETROIT ET AL.

Michigan. Cireuit Court, County of Wayne, May 26, 1960.

Municipal w ater rates—Demand charge on air condition-

ing equipment users—Validity.. An. action against a mu-

nicipality by certain consumers of water supplied by the

municipality’s water department in connection with their

operation of non-cireulating air conditioning equipment and

“brought for the purpose of having a s6-called demand

charge declared void and the imposition and collection

of such charge enjoined was dismissed.

It was held that

the’ municipality has the power to fix rates based upon

considerations other than the amount of water used, and

that a sucharge imposed on the principle of a ready-to-

serve eharge was valid undey the municipality's charter.

Furthermore, ‘the non-cireulating air conditioning équip- -

ment use was distinguishable in its characteristies from

other uses so that the classification was a constitutional |

one. Thus, while there-was ‘an adequate supply of water

to meet current needs, a charge -based upon readiness-to-

serve was nevertheless valid.

This action is brought by plaintiffs * °

* suing on their

own behalf and on behalf of all other ratepayers in Detroit

siimlarly situated who likewise consume water supplied by

the defendant Detroit De spartinent of Water Supply in con-

‘nection with their-operation of non- reciréulating air con-—

ditioning equipment.

,

* * * *

24 a

Stated- gencrally. plaintiffs bring a class action against

defendant for its itnposition of a so-called demand charge

computed upon the fonnage capacity of the coolage system,

the demand charge heing $1.50 per ton of refrigeration for

the calendar year 1957, progtessively to_be. increased to... _

: ~ $7-50 per ton for ‘the calendar year 1961 and the reaftér,

A

_ * * * .- | 2 a

The demand charge is in addition to rates charged vib

tiffs and other similarly situated, for water actually con-

sumed at the rates regularly charged to all other consum-

ers of water. Plainfiffs seek a decree that-the demand. -

charge is void, request that defendants be permanently en-

joined from imposing and collecting the demand charge,

_ pray for an accounting as to the amounts of demand

. charges heretofore collected by defendants from all mem-

_ bers of the plaintiffs’ class and request that said suns be

paid into court and redistributed to niembers of the class

after deduction of costs of’ litigation and payment. of rea-

sonable attorney fees. /

In their opening statement plaintiffs set forth the follow-

ing propositions :

(1) That since the Department of. Ww ater Supply is a

«creature of the Charter of the City of Detroit, and since

under Chapter Xu, Section 9, of the Charter the Board is

given the authority to fix and assess water rates upon such

_ basis as shall be, equitable, the Charter limits the authority

of the Board to fix water rates in relation to the use of

. water, atid does not authorize the Board to impose any

charges other tlian those based upon the amount of water

consumed. It is therefore urged that no charge is valid,

and any charge is beyond the powers of the Department.

25

(2) ‘That the.assessment ef the demand charge upon

air conditioning equipment users of the non-recirculating

‘type for human comfort, and the exehision of all users of

air conditioning equipment for other purposes suchas for

iikaksatie preserving food or for industrial and commerc ‘ial processes

rt cering 2.

is discriminatory. Seieeecaaay ee

(3) That even conceding, nt Ee that: the so-called

NCAC use is distinguishable frou other sutmmer uses, the

charge itself is unlawful and discriminatory as between

members of a class because.of the great variations within

and among menibers of the class.

(4) That since the system is new operating profitably,

no additional charge or revenue 4s required, ,

+ (5). That since the demand charge was adopted oi May

7, 1956, and since some of the party plaintiffs installed

their NCAC equipment prior to that date, the demand

charge is confiseatory and unreasonable and constitution-

ally offensive. | |

; * o * * .

[.01 Judicial Rev - Disc — ( a ¥ ee

The rule most ge nerally prevailing as to judicial review

of utility rates is that a court is émpowered toy pass upon

the reasonableness of a rate but may not set a new rate

since it is.not a regulatory body.

“The familiar presumptions are indulged in, favor’ of

ratesmaking bodies; rates are presumed, to be a wasonable

and the one charging unreasonableness has the burden of

proof thereon, * * *

This case * * * isa diserimination case as opposed to an

overcharge ease, plaintiffs conceding that they ary not pay-

ing “too much” but alleging that the whole basis. of. the

classification is wrong, since it Is Claimed that the NCAC

elassifieation is cither not broad enough, because it does

not céntdin other seasonal users such as breweries, dairies, |

ice plants and the like, and, further, because it does not con- . -

tain year-round commercial and industrial refrigeration;

or that it is not refined enough as a classification, constitn-

’ tionally, because there is a marked variation between and

among NCAC customers.

. Plaintiffs have also raised the question of a claimed— -

vested right in a rate, since some of the equipment was \

purchased and was operating prior to 1956. 1 believe that

_. preferential treatment can not be given to customers be-

cause they are claimed to be old, as opposed to new custom-

ers, and that such distin¢tion would constitute unlawful dis-

. crimination. * * * As‘to the rate of earnings of the subject

defendant utility, the 1958: return was 3.2 per cent, whieh

included, of course, the disputed. NCAC charge; this re-

turn, in my judgment, falls easily within permissible limits

since a municipal corporation operating a utility) is not ie.

cluded fiom earning a fair return. * * *

“It is conceded that the. operation of a publiely owned

utility by defendant City is governed by the same general

duties and obligations applicable to_a privately owned

utility. and it is prev ented, constitationally, from unreason-

able discrimination * * * This is not to say that the profit

to be enjoyed is the controlling consideration; rather there -

is an obligation 6f ‘providing public atility service at a rea-

sonable cost, but the public authority can make a fair re-

turn in so doing. * * * It is held * * * that the use to which

water is put can not, by itself, be made the reason or basis

for a’ separate ‘rate classification * * * Thix would seem

patently clear, since a municipal utility could not diserimi-

nate between and among users on the basis of their use,"

assuming that all of the uses were lawful and were not con-

trary to the genéral public. interest or inconsistent with the

health, welfare and safety of the community. It has heen

frequently held * * * that a difference in rates for a utility

product based upon use is a wholly inadinissible basis of,

discrimination. *° * * i 4 =. :

I also held that readiness to serve is one of the.considera- _

. tions that a utility authority may use in determining proper

charges for water. Fundamentally, the operating authority

must make @ reasoned determination as to what demands

will be ii upon. its system at a given day or hour, and

certainly it is on the better side of prudence and good man:

agement to make a conservative calculation baxed upon the

high hour of the high day and to ascertain what demands

will be made upon the system by any and all needs for

water at that time. Ifa group of ¢ustomers place an un-

usual and distinctive burden upon the system at peak de-

mand, it is not unreasonable, or constitutionally offensive,

to determine a rate or charge for that group of customers®

based in part upon the readiness of the system to serve

at the peak hour, keeping in mind, too, any additional capi-

tal investment that is requisite to meet the peak hour.

[.02 Inequities |- ss

| Plaintiff urges with considerable persuasion that the

subject charge is offensive because of the inequities be-

tween members of the assumed class in violation of Section

9 of Chapter XII of the Detroit City Charter. “It is said

that thix must be so because there is a great variance in

the extent of use of the équipment because there is a great

fluctuation in the amount-of water used by one ton of air:

conditioning * *% * and. because, finally the naming of an

Adjustment Committee by the Board of Water. Commis-

‘*sioners itself recognizes inequity.

As toa ‘vested interest in the former charge, plaintiffs . Ss

urge that it is evononiically impossible for them to install

expensive conservation deviees to be used for relatively

short periods of their unexpired leases, note also that the |”

physical characteristics of buildings preclude installations,

de,

and allege that all members, of the class installed their air.

expectation that water samer be used ‘and — for at the

old or regular rates. —

[.03 Reasonable Classifieation—Justifialle Distinctions}

While in this type of ease one is frequently. tempted to

oversimplify, it is believed that the central factual con-

sideration upon which the rather familiar principles

of law must dperate is the question whether or ‘not the

“NCAC customers possess unique characteristics \and dis-

tinguishing factors that justify singling out NCAC ensto-

_ mers from other summer uses, as it were, and the .second-

ary question flowing therefrom is: Assuming that th

are such distinguishing characteristics justifying

_ arate class, are there sufficient variations as between and

among members of the class as to render the. classification *

too broad? _

—-«* . x ” . -

The Supreme Court of the State of Oregon held that a

eharge against apartment house’ owners as distinguished

from hotels, motels and single residences was discrimina-_

tory, and, in reviewing. the law in such cases, observed,

inter. alia:

“In the first place, it is eminently clear th it a

charge for water need not be based entirely upon the

anount of water actually used. It is the Common —

and legally accepted practice to fix minimum rates

whieh a customer must pay even though he uses less

*

29.

a ’

than ‘the minimum. amount df water for which the

charge is paid, This minimum rate ix ip effect a

S service charge for those customers ho use less than ~

\ the minimwi amount, differing only from, a fixed

servie> charge unrelated to a minimum quantity of

water in that under a minimun rate the charge is —

. absorbed when a minimum quantity of water is

- used: °* * #99 Z

Asmunicipal utility. is ‘entitled to/make differen-

tiations in the rate charged for water if those dif-

ferentiations are based upon a proper classification.

eee

‘*Whether differences in rates ames classes of

customers are to be made, and if. the amount of

r the differences, are legislative rather than judicial

questions, and are for the determination of the gov-

erning bodies of-the municipalities. The presump-

tion is in favor of the legality of the rates estab-

lished by the rate-making authority, and courts may

interfere only in clear casesof ‘illegality. * * * The

hurden of proof i is upon the party alleging that the

* * * differences in rates is disproportionate to the

difference in- conditions.”’ .

The opiniyn goes on fo reason that if differences in con-

ditions can. not be shown, then all” custome rs are entitled

' fo receive the same service on an © ual basis and at a uni-

1

form rate; the differences upon which the classifie ation, is

predicated must have a reasonable relationship to the pur-

pose for which the classification i ix made, of, stated another

way, the classification must rest upon a difference which

bears a reasonable ‘and just relation to the’ act in respect

to which the classification, is proposed, |

¢

. . . . 7

= f

The court noted analogous situations wherein it was held

that in‘the absence of difference es Telating to supply! ing the

aod fe i may

a

services, it is unjust discrimination to charge one rate to :

stoekvards and railroads and another fate to laundries or

one rate to general manufacturers and another to laundries,

ot one to laundries and restaurants and another to domes-

tie and other consumers, ,

@ The court Gecnseet distinctions between apartinent

houses and hotels and reasoned that in hposing charges

for water the distinctions were not iinportant uriless they

could be pointed to-as the reaspn for imposing a different

cost on persons in the two classes established. }

As related. to the instant case, then, the ultimate ques-

tion is whether those distinctions which have been shown _

by defendant are more than word choiees and whether, in

fact, they are distinctions that can be justified in the light

of-the purpose for which the classification was ereated.

The distinefions are not persuasive, are not reasonable aid

are, therefore, not constitutiénally sound, unless the dis- ‘

‘ tinctions can be pointed to as a reason for imposing a dif-

ferent cost on NCAC customers than the cost imposed on

‘other summer uses, particularly sprinkling. If the dif-..

ference in use and the other differences, that is the charac-

teristics of the use.do not distinguish NCAC eustomers

from other customers the classification must fail. >

In the Kiiks case the Supreme Court of Oregon found

‘that the-elaimed differences in use, that i is, the manner of

occupancy and the other differences relied*upon, were not

~ established and that the classification was, therefpre, un-

reasonable. , Se ee

i . oe, |

It ix ony hobkling jhat the classification by defendant city

_ here is a | Feasonable classifieation om, juelitid hy differ

‘and ‘other summer uses. The load factor between meubhers

__ of the vlassification and. non- members i ix differnt. The\re-.

- liability factor.is distinguishable, the sprinkling uxes,

example, being, subject to limitation in an. emergency

through ordinance provisions or through voluntary con

trolx, The diversification factor is léxs favorable since -

there is a concentrated use by virtually all users sof NCA .

equipment during: the hottest day, and, indeed, at the hot--

test hour of the hottest day. Tine differences in the char-

acteristics of use, in result, require the planning of @ipital ~

improvements. and the re-enforcement of the sy o meet

the peak day and the peak hour. While thy fity, in Jaw, -

- could have. prohibited the use of this typt of equipment,

it chose rather to permit the continuance of its use under

regulation. It is my judgment * * * that the defendant ex-

tablished that the cost of service to this class of users was

greater and different from the cost of ‘service for other

simmer users, and that a reddy -o-serve cRarge wis justi-

fies.

‘ [04 Conclusion] ©

4 ‘ ‘6

It ix therefore held: : ; ;

1. That the City of Detroit etait | its Departanent of

Water Supply is empowered to fix a rate or rates based

upon considerations other than the amount of water used.

9) ‘That a surctiarze imposed upon NEAC customers on

the basis or principle of a ready -to-se rv Ys valid

f-*

under the Charter, specitically Chapte r X11,

- 3 That the NCAC use ix distinguishable in. its char-

* aeteristies from other summer tines “o that the classiiiea-

tion ix a constitutional one. “ie . fe

\

_

32

4. That it would Lave been i improper to distinguish he-

tween prior users of NCAC ee as opposed to more

recent or new users. — ,

~

5. That while it was stipulated that there is an ade-

quate supply of water to meet current needs, a charge based

‘upon readiness-to-serve is nevertheless a-valid charge for

the reverse would mean that because there was an adequate

supply of water, no users coftld be required to pay the ac-

tual cost of servi¢e to them, it having been established by

competent proofs that the cost of service to NCAC ecus-

_ tomers is greater than the cost of service to other summer

users, ; - pO ae

6. That while -the use-to which water is put is not a

proper basis for constitutional classification, differences in

the characteristics of use do justify a separste classifica- -

tion for NCAC users.

For the foregoing 1 reasons the bill may be dismissed. :

-.