Opposition Brief — Southwestern Bell Telephone Co. v. Lee

IN THE

SUPREME COURT OF THE UNITED STATES.

CUARLES ELWOat CROPLEY

CLERK

SOUTHWESTERN BELL TELEPHONE )

COMPANY, a Corporation,

Appellant,

v.

CARRIE C, LEE,

Appellee.

> No. 29 9.

APPELLANT’S BRIEF

IN OPPOSITION TO MOTION TO DISMISS AND

IN SUPPORT OF THE JURISDICTION

OF THIS COURT.

E, W, CLAUSEN,

BLAKE DOWNIE,

JOHN MOHLER,

\ EDW. B. DOWNIE,

Attorneys for Appellant.

Sareea RRneneae

Sr. Louis Law Putntine Co., 415 North Eighth Street. CE ntral 4477.

INDEX.

Page

I. The historical origin of this case..........+++++: 1

L The nature of this case.........eeeeeeeeeeeeeees 5

J. The constitutional questions in this case under an

adjudication of unreasonableness of the rule..... 8

1. The denial of due process in a legislative pro-

COCMING 6... cece cee ee eee eee eee eeeeeeeeeeees 8

9. The denial of due process in a judicial proceed-

IM ccc ccc ccc vecccecesceeeeeseeeeeseseseess 13

3. The denial of due process in penalizing under

one statute for conduct required by another.. 14

V. The basis of decision in this case is unreasonable-

ness of the’ rule........ceeeeeee eee ewer eeeereees 19

V. The constitutional questions in this case aside from

the adjudication of unreasonableness of the rule.. 21

1. The Court’s various interpretations of the pen-

alty statute render it unconstitutional in appli-

COUIOR cccccccccccevccccecevevecscccsorceres 21

(a) By withdrawing the need for compliance

with the rule........eeeeeeeeeeeeerrreee 21

(b) By penalizing appellant for acts of its cus-

UOUMOTD ccccccvccccccccceocsccvoerceress 23

(c) By requiring criminal conduct of appel-

amd .ccccoccccccvesesececsssccceesseees 25

VI. The federal questions were presented in due time. 25

Cases Cited.

Abbott v. Tacoma Bank of Commerce, 175 U. 8. 409.. 13

American Land Co. v. Zeiss, 219 os & Seer 13

14

Carlson v. Washington, 234 U. S. 103, 223 U. 8. 573...

ee ii

Cedar Rapids Gas Light Co. v. Cedar Rapids, 223 U. 8,

Pein pebeyesvccercnssuséesséencunsévebevainl l4

Chicago ete. R. Co. v. Minnesota, 134 U. 8. 418....... 13

City of Fort Smith v. Department of Public Utilities,

oF S 8: | kf. 5 eee 5, 19

eee G, Ge, TP Whe Wb Bi occ cececccccccectecas 14

Great Northern R. Co. v. Sunburst Oil & Refining Co.,

Se Wie GE SN ee Ver eevesUdduee seuseivavicevn 26

Herndon v. Georgia, 295 U. S. 441.................. 2%

Ohio Bell Teleph. Co. v. Comm., 301 U. S. 292....... 13

Prentis v. Atl. Coast Line Ry. Co., 211 U. S. 210...... 9

San Diego Land Co. v. National City, 174 U. S. 739.. 13

Saunders v. Shaw, 244 U.S. 317..................... 26

Southern Pac. R. Co. v. Schuyler, 227 U. S. 601....... 14

Southwestern Bell Telephone Company v. Oklahoma,

Fo cdckwsnd cede vis¥eece cvdedeneaad, 9

Southwestern Tel. & Tel. Co. v. Danaher, 102 Ark. 547,

I i kc i ee 16, 17, 18, 22, 23

Southwestern Tel. and Tel. Co. v. Danaher, 238 U. §.

Gl. ti cckebe bisnencodtadeuccks éenvadassbundoinne 16

Southwestern Tel. & Tel. Co. v. Sharp & White, 118

eS HO ON UG Wins kdcededeees cétvuccnicns 20, 21

Texas ete. R. Co. v. Abilene Cotton Oil Co., 240 U. §.

Se Me oendesubates ebudaonbkoodscceds 100 coder tian. 11

Twining v. New Jersey, 211 U. S. 78................ 13

Ward v. Krinsky, 260 U. &. S08. ..........cccccceces 23

West Ohio Gas Co. v. Comm., 294 U.S. 63........... 13

Statutes Cited.

Pope’s Digest of the Laws of Arkansas:

—

IN THE

SUPREME COURT OF THE UNITED STATES.

SOUTHWESTERN BELL TELEPHONE )

COMPANY, a Corporation,

Appellant,

v. i TR esc cewers

CARRIE C. LEE,

Appellee. |

APPELLANT’S BRIEF

IN OPPOSITION TO MOTION TO DISMISS AND

IN SUPPORT OF THE JURISDICTION

OF THIS COURT.

I. THE HISTORICAL ORIGIN OF THIS CASE.

In running its telephone business in Arkansas, the

appellant (which will hereafter often be called the com-

pany) makes its services available at all its exchanges for

the payment of a flat monthly charge. As in all other

pricing systems the appellant found need for defining the

quantity of service that would be provided for the flat

rate.

a

The amount of service that the appellant offers to give

for the flat price is defined (as the Arkansas Utilities Act

requires) by a rule and regulation filed with the Depart.

ment of Public Utilities, as the regulatory commission jg

there called. The particular rule that accomplishes this

essential purpose in this instance is known as paragraph

V-C of the section on ‘Rules and Regulations Applying

to All Subscribers’ Contracts”’ in the appellant's **General

Exchange Tariff’’ filed with the Department in obedience

to the statutory injunction. This paragraph reads;

“USE OF CUSTOMER SERVICE—Customer tele.

phone service, as distinguished from public and semi-

public telephone service, is furnished only for use by

the customer, his family, employees or business asso-

ciates, or persons residing in the customer’s house.

hold, except as the use of the service may be extended

to joint users. The Telephone Company has the right

to refuse to install customer service or to permit such

service to remain on premises of a public or semi-

public character when the instrument is so located

that the public in general or patrons of the customer

may make use of the service. At such locations, how-

ever, customer service may be installed, provided the

instrument is so located that it is not accessible for

public use.’’

This rule, it may be noted, in reality is comprised of two

rules. The first confines the use of the service to be fur-

nished for the flat rate to the customer, his family, his

employees and business associates; the second provides a

practical means by which the company may reasonably

assure itself that the use of the service is so confined. In

a sense the second part of the rule, permitting the com-

pany to locate the flat rate telephones in places inaccessi-

ble to the public generally, is superfluous, although it has

been found helpful by the company in dealings with its

customers. The restriction of the service to the specified

re EN

users is the true rule, and if the company is persuaded

that the customer will in fact observe the restriction, and

is constantly in position to prevent the unauthorized use

of the service, then no occasion would exist for requiring

an inaccessible location of the instrument. On the other

hand, a compliance with the company’s request for an in-

accessible location would in no sense constitute a compli-

ance with the essential rule of confinement of use. A cus-

tomer might well make an inaccessible installation of a

telephone in a back room and then flagrantly violate the

company’s tariff rule by a general invitation of the public

to feel free to make unlimited use of the concealed tele-

phone.

The need for this rule defining the amount of service

that will be given for the flat rate is adequately, though

perhaps not fully, explained in the report and order of the

Department of Public Utilities incorporated in this record

(Tr. Il, 19-32).

While the company recognizes, of course, that variations

of use will oceur between different customers, by the in-

evitable functioning of averages, the company rather cer-

tainly knows what it is selling for the flat rate when the

rule of paragraph V-C is applied. The variations are in-

herent in the flat rate system which up to now has been

found to be the most desirable for the appellant’s tele-

phone system throughout five states. The rule, however,

establishes a limit to the variations which in its absence

would be greater.

The flat rates in the telephone business are in the same

category as the pricing systems exemplified by ‘‘all you

ean eat for 50 cents,”’ or ‘‘all the lemonade you can drink

for a nickel.’’ In each case the ‘‘you’’ means one per-

son—not the whole world or any collective part of it. The

same would be true as to flat rates for water. Mr. Jones

contracts with ‘the water company for water supply at his

home at the fixed rate of $2.00 per month. With Mr. Jones’

Se eee Oe

Ane REN PUM ~

poe Oe

permission, his next-door neighbor, Mr. Brown, connects

his hose to Mr. Jones’ hydrant, and makes use of all the

water he wants. Of course, the water company would not

be expected to continue to supply at the flat rate of $2.00

per month all the water used by both. And so it is in the

telephone business—hence the rule.

Now the company has long known that some of its cus-

tomers in trade, such as the plaintiff, wanted to have a

telephone that their own customers or passersby might

use, and the company has also wanted to make some pro-

vision for the telephone needs of those who have no regu-

lar service and those who are on the streets. In order to

meet this demand, the company provides what it calls

semi-public service, the use of which is not affected by the

rule of confinement, V-C. The traditional semi-publie

service is the familiar coin-box service—measured service

—which is paid for as it is used—by the public or by the

customer, as the case may be, at a nickel a call. In

Fayetteville, however, where this case originated, an addi-

tional, and somewhat unusual, form of semi-public service

is offered. It is furnished at the filed tariff flat rate of

$7.00 a month ($10.50, at the time of the origin of this

case) as compared with the flat rate for customer service,

to which the rule applies, of $3.50 a month. This semi-

public flat rate has the effect of withdrawing the rule of

con.unement in return for the larger stipend. In that kind

of service the subscriber is at liberty to have his instru-

ment located anywhere, and to permit unlimited use of the

service by anyone who happens in. The desire for this

type of service seems to be based on some notion that it

possesses advertising value—that it fetches in trade or

potential trade.

The difficulties of enforcing this rule, with the infrac-

tions occurring on the customer’s premises, are obvious,

of course, and for some time the company was somewhat

seems

oo ‘aan

neglectful of its enforcement. Several years ago, however,

enforcement activities were renewed, and resistance was

encountered in some quarters owing, as the company be-

lieves, to a lack of understanding of the need for the rule.

This unpopularity eventually resulted in the passege of an

ordinance (under the dual form of regulation obtaining in

Arkansas) having the effect of doing away with the rule

at Fort Smith. This ordinance was taken by the company

before the Department of Public Utilities for review under

the statutory procedure, and after hearing the Department

ordered the company to reinstate the rule and to enforce

it vigorously throughout the state (Tr. II, 19-32). Upon

appeal ultimately to the Supreme Court of Arkansas, the

Department’s order was declared to have been validly

made within the Department’s statutory authority (City

of Fort Smith v. Department of Public Utilities, 195 Ark.

513, 113 S. W. [2d] 100).

The company’s efforts to enforce the rule at Fayette-

ville in obedience to the Department’s order resulted in

another ordinance—this time to the effect that service of

the semi-public character must be given at a flat rate,

rather than a measured rate, if the customer insisted upon

it. The company thereupon established a charge for this

type of service—flat rate semi-public service—and filed

its schedules containing the new rate with the Department,

as the statute requires.

So much for the history leading up to this case which

the appellant believes should contribute to a full under-

standing.

Il. THE NATURE OF THIS CASE.

The plaintiff asked the appellant to furnish her with

telephone service at her eating house on the campus of

Arkansas University at Fayetteville. She wanted to pay

the usual flat rate for customer service, but she advised

— §—

the company, upon its inquiry, that she would permit, and

would not refuse, the use of her service by her patrons and

other visitors at her place of business (Tr. Il, 4a, 5, 7),

She refused, in other words, to comply with the appel-

lant’s rule applying to customer service, and in doing so

the effect of her request was for semi-public service, to

which the rule does not apply, at the lower rate for cus-

tomer service. The company refused this request, and the

plaintiff went without telephone service when she rejected

the offers of other types of service at the established

tariff rates.

The plaintiff then brought this lawsuit to recover the

penalties provided by section 14261 of Pope’s Digest of the

laws of Arkansas, reading:

‘*DISCRIMINATION—PENALTY. Every telephone

company doing business in this State and engaged in

a general telephone business shall supply all appli-

cants for telephone connection and facilities, without

discrimination or partiality, within ten days after

written demand therefor; provided, such applicants

comply or offer to comply with the reasonable regu-

lations of the company, and no such company shall

impose any condition or restriction upon any such

applicant that are (is) not imposed impartially upon

all persons or companies in like situations; nor shall

such company discriminate against any individual or

company engaged in lawful business by requiring as

condition for furnishing such facilities that they shall

not be used in the business of the applicant, or other-

wise, under penalty of one hundred dollars and five

dollars per day for each day from the expiration of

such notice until said demand is complied with or suit

is instituted for failure to comply with such demand,

for such discrimination, after compliance or offer to

comply with the reasonable regulations and time to

furnish the same has elapsed, to be recovered by the

applicant whose application is so neglected or re-

fused ° ° 9,

ce Bee

The plaintiff contended that a discrimination was prac-

ticed against her by the company’s refusal to give her the

service she wanted, at the rate she wanted to pay, because

other customers of the company were receiving such a

service at such a rate. Her contention, of course, was the

equivalent of a contention that she should not be held to

a compliance with the rule because she could produce some

other customers of the appellant who were violating the

rule, and who were, ipso facto, violating their contracts

with the company.

The penalties of the statute were assessed against the

appellant for its refusal to meet the plaintiff’s demand,

although the appellant was actually obliged by law to do

as it did. In common with all other regulatory acts that

the appellant knows anything about, the Arkansas Utili-

ties Act requires all rates, and all rules and regulations

affecting the rates, to be filed with the Department of

Public Utilities, and under the pains of the penalities else-

where provided in the act, requires that the rates so filed

shall not be departed from. The appellant, accordingly,

had no alternative but to charge the $10.50 flat rate which

it had on file with the Department in its tariff for the

semi-public service which the plaintiff was demanding.

Furthermore, under the provisions of the Utilities Act the

appellant was not at liberty to disregard the order of the

Department requiring it to enforce its rule confining the

use of customer service.

All through the case, at every stage, the plaintiff readily

acknowledged that the reasonableness of the rule was not

under attack, and with a welcomed frankness her counsel

repeat this acknowledgment in their statement opposing

the jurisdiction of this court (p. 4). It is not surprising,

therefore, that no evidence concerning the reasonableness

of the rule was presented at the trial. The plaintiff ap-

parently agreed, in the appellant’s opinion, that under the

statutes, of Arkenaes, the rearnahlanasn Yi. the rile -was

not subject to collateral attack.

But in spite of the absence of any issue respecting the

subject between the parties, and in spite of the absence

of any evidence, the supreme court gave its attention to

the rule and declared it unreasonable and unenforceable,

and by a divided court affirmed a judgment for penalties

for that very reason. Such an unprecedented action is so

much at odds with the accepted notions of fair play that

it is hound to be offensive to the Fourteenth Amendment

to the federal Constitution—and this result comes about

in the ways we shall now undertake to demonstrate.

Ill. THE CONSTITUTIONAL QUESTIONS IN THIs

CASE UNDER AN ADJUDICATION OF UNREA.

SONABLENESS OF THE RULE.

1. The Denial of Due Process in a Legislative

Proceeding.

From beginning to end the opinion and decision of the

Arkansas court operate to take the appellant's property

and to deny due process of law to the appellant. Indeed,

even the court’s approach to the problem so operates con-

trary to the Constitution; and this subject is as good a

one as any to begin with, even though it may not furnish

the most shocking example of the unconstitutional hard-

ships imposed upon the appellant. Briefly, the court ap-

proached a solution of the case by way of performing a

legislative act, not a judicial act—by declaring the appel-

lant’s rule unreasonable—and by thus issuing an order

establishing a future rate for a public utility service,

Under the circumstances of this case, and upon a consid-

eration of the statutes of Arkansas, this action of the

court denies the appellant due process of law.

The regulation of the rates of public utilities is a legis-

‘atirve frnction.,even. when. nerformed by the courts (South-

western Bell Telephone Company v. Oklahoma, 303 U. S.

206; Prentis v. Atl. Coast Line Ry. Co., 211 U. S. 210).

The court’s decision that the appellant’s rule, V-C, defin-

ing the amount of service to be provided for the estab-

lished rate, was unreasonable (and therefore unenforce-

able) necessarily constituted a rate order. Every rule

affecting a rate would appear inevitably to be a part of

the rate, and surely the rule here concerned was a part

of the rate. The rule designated the class of persons—the

customer, his family, and business associates—who were

entitled to receive the customer service for the applicable

customer rate. In declaring the rule unreasonable, the

court enlarged to infinity the class of persons who might

employ the service, and thus increased the amount of

service which must be given for the same rate. The en-

largement of the service that must be provided for any

given rate is the precise equivalent of the reduction of the

rate for any given service. Furthermore, by rubbing out

the application of the rule to customer service, the court

automatically reduces the appellant’s flat rate for semi-

publie service down to the lower customer rate. The ap-

plicability of the rule to the customer service and not to

the semi-public service is the only distinction between the

two classes of service.

The Arkansas statute, in its definition of a ‘‘rate’’ also

recognizes that a rule affecting a rate is a part of the rate.

‘“The term ‘rate’ when used in this Act, means and

ineludes every compensation, charge, fare, toll, rental

and classification or any of them, demanded, observed,

charged or collected by any public utility for any

service, products, or commodity offered by it as such

publie utility to the public, and any rules, regulations,

practices or contracts affecting any such compensa-

tion, charge, fare, toll, rental, or classification’’

[Pope’s Digest, section 2064 (e)).

=

The legislative regulatory power nowadays is custom-

arily delegated to administrative commissions with pro-

vision for judicial review of the lawfulness of their orders

by direct proceedings in the courts. This is the procedure

established by the Arkansas Utilities Act (Pope’s Digest,

section 2064 et seq.). The legislative power is delegated

to the Department of Public Utilities, and the courts are

invested with jurisdiction in a direct proceeding to deter-

mine whether the Department ‘‘has regularly pursued its

authority’’ [section 2097 (d)]. The statute (clearly

enough, it would seem) does not delegate any legislative

authority to the courts, but confines their jurisdiction to a

simple yea or nay answer to the question of the Depart-

ment’s order having been reached in accordance with its

statutory authority.

As we have said earlier, the jurisdiction of the Depart-

ment legislatively to determine the reasonableness of the

appellant’s rule was invoked some two years before the

ease at bar was brought, and, after hearing, the Depart-

ment confirmed its reasonableness and ordered the rule

enforced. Upon appeal, eventually reaching the Supreme

Court of Arkansas, that court sustained the order of the

Department as validly made in its legislative capacity.

City of Fort Smith case, supra. The court in that case,

however, was not concerned with the reasonableness of

the rule. The appellant there contended only that the

Department had no authority whatever in the premises to

issue any order, and did not contend that the order which

was issued was unreasonable and therefore beyond the

Department’s statutory authority, which is limited to the

prescription of such rules only as are reasonable.

Under the circumstances, in the case at bar, the action

of the Supreme Court of Arkansas in adjudging the ap-

pellant’s rule to be unreasonable effects a deprivation of

appellant’s property without due process of law contrary

to the Fourteenth Amendment in each of two ways:

—E_

—

(1) There is no statute in Arkansas empowering the

court to act legislatively, as we have demonstrated the

court did act. The Assembly has never aelegated any

such authority to the court; and indeed it would appear

to have been prevented from doing so by Article IV, sec-

tion 1 of the Constitution of Arkansas, pertaining to the

separation of powers. Despite, then, the want of any dele-

gation of legislative authority, the court vssays a legisla-

tive act, dubs it a judgment, and employs its judicial

power of execution of its judgments to enforce its spurious

legislative order. This procedure 80 offends the tradi-

tional concepts of the orderly processes of law as to con-

stitute a taking without due process. Due process of law,

in its simplest meaning, cannot embrace the unexpected

promulgation of a legislative order by a judicial tribunal

without delegated authority, followed by the judicial exe-

cution of the legislative order against the property of the

appellant.

(2) If it be assumed that the Supreme Court of Arkan-

sas, by some undiscoverable statute, does possess legisla-

tive power to regulate ultility rates, then the manner of

the exercise of that power by the court in this case also

denies the appellant due process of law. The appellant

was afforded no notice of attack, even the forbidden col-

lateral attack (Texas etc. R. Co. v. Abilene Cotton Oil Co.,

240 U. S. 426), on the reasonableness of its rule, and was

afforded no hearing thereon. The Arkansas court in its

own opinion (140 S. W. [2d] 134 1. ¢.) conceded that the

issue of reasonableness had not been tendered at the trial.

The court said:

‘*We are by no means forgetful that appellant has

argued the issues upon this appeal solely upon mat-

ters or questions of fact, asserting and assuming as

they apparently have a right so to do, under the

record in this case, that because the reasonableness

—x,

of the foregoing rule was not questioned by appellee,

it may not properly be so considered in this litigation,

This is so contended on account of the fact that both

in the Lee case and in the Hanna case, counsel for the

appellees have argued that the cases may be settled

upon questions of fact duly presented without a con-

sideration or determination on the part of this court

of the reasonableness of the rule offered as a part of

appellant’s defense.

‘*Ordinarily we would feel ourselves bound by such

limitations as the plaintiffs themselves may have felt

impelled to recognize in the decision of any rights

they may have asserted in any matter wherein those

rights were purely personal or individual.

‘*In this matter, however, there are more than

individual rights involved. The telephone company is

a public service utility, having a monopoly of the

service it renders in Fayetteville, where these suits

originated, and whatever rules it may announce must

be considered not as an all-controlling force, or to

possess the nature of a statutory enactment, but as

regulatory, merely, of the business of the corporation,

and that such regulation must be considered as cou-

pled inseparably, always, with the public interest.

Therefore, if rules are not reasonable they may not

be regarded as enforcible or as affecting the rights

of those who deal with the telephone company.”’

=

The plaintiff also, with consistent frankness, even

through her motion to dismiss here, has concurred in the

appellant’s charge that the issue of reasonableness was

never raised.

Consequently, of course, no evidence of the reasonable-

ness of the rule was ever offered, and none was before the

court when it surprisingly concluded that the rule was

unreasonable and that more service ought to be given for

the rate that was established to apply to a restricted

service.

The Supreme Court of Arkansas, accordingly, without

—

notice, without hearing, and without evidence, annulled

the appellant’s rule, which had been held reasonable and

ordered enforced by the valid order of the regulatory

Department. If any statute had ever authorized such an

action, that statute would be void as in contravention of

the Fourteenth Amendment, and a fortiori such an action

without the support of delegated authority possesses the

same vice in an aggravated degree.

Due process requires notice, and hearing, and evidence

in the legislative, regulatory process.

Chicago etc. R. Co. v. Minnesota, 134 U. S. 418;

San Diego Land Co. v. National City, 174 U. S. 739;

West Ohio Gas Co. v. Comm., 294 U. S. 63;

Ohio Bell Teleph. Co. v. Comm., 301 U. 8S. 292.

=—

2. The Denial of Due Process in a Judicial

Proceeding.

Even if the action of the Arkansas court in declaring

the rule unreasonable could in some way be regarded as a

judicial, rather than a legislative act, the denial of due

process is simply converted from a legislative denial to

the equally forbidden judicial denial. The rights guar-

anteed by the Constitution are as much protected against

a taking by an erratic judicial process as by a legislative

process. (See Abbott v. Tacoma Bank of Commerce, 175

U. 8. 409, in which it is said, “Tt is true * * * thata

state may not by any of its agencies, legislative, judicial,

or executive, disregard the prohibitions of that amend-

ment’’—and the cases hereafter cited.)

Notice and hearing, which were here lacking on the

issue of reasonableness of the rule, are as essential in the

judicial process as in the delegated legislative process

which we have discussed above. (See American Land Co.

y. Zeiss, 219 U.S. 47; Twining v. New Jersey, 211 U.S. 78).

Evidence, also, to support the conclusion reached is

——y

both wholly essential and wholly lacking (Carlson y.

Washington, 234 U. S. 103, 223 U. S. 573; Cedar Rapids

Gas Light Co. v. Cedar Rapids, 223 U. S. 655; Southern

Pac. R. Co. v. Schuyler, 227 U. S. 601; Fiske v. Kansas,

274 U. S. 380).

3. The Denial of Due Process in Penalizing Under One

Statute for Conduct Required by Another.

Perhaps the most shockingly unconstitutional result of

the declaration of unreasonableness of the rule is the im-

position of penalties against the appellant under one stat-

ute because of the compliance with another.

The very conduct of the appellant which the court,

through declaring the rule unreasonable, has used as the

excuse for inflicting penalties upon the appellant was actu-

ally twice enjoined upon the appellant by the Utilities

Act—and in no uncertain terms.

As we have said in our preliminary explanation of this

case, the appellant had incorporated its rate of $10.50 for

flat rate semi-public service in its tariffs for Fayetteville

which were filed with the Department of Public Utilities,

as the statute requires, and which were received in evi-

dence in this case. When the plaintiff declined to confine

the use of the service she was requesting in accordance

with the rule applying to customer service, her demand

was necessarily converted into one for the semi-public

class of service to which the rule does not apply. Under

the Utilities Act the appellant, in these circumstances, was

not at liberty to do anything other than it did; namely, to

refuse the demand for semi-publie service at the $3.50 rate

for, customer service, and to offer the service at the ap-

plicable semi-public rate of $10.50 contained in the filed

tariff, which was in turn refused by the plaintiff.

The section of the Utilities Act requiring this behavior

of the appellant reads:

— 14

‘‘No public utility shall directly or indirectly, by

any device whatsoever, charge, demand, collect or

receive, from any person, a greater or less compensa-

tion for any service rendered, or to be rendered by

such public utility, than that prescribed in the sched-

ules of such public utility, applicable thereto then

filed in the manner provided in this Act, nor shall any

person receive or accept any service from a public

utlity for a compensation greater or less than that

prescribed in such schedules’’ (Pope’s Digest, section

2075).

~—

Furthermore, as we have also said before, the appellant

was obliged to apply its rule by an existing formal order

of the Department which the Arkansas Court in the Fort

Smith case had already held to have been validly promul-

gated within the Department’s proper authority. This

order has never been set aside to this day, and it probably

never will be if the court ever gives its attention to the

evidence justifying the rule which may some day be be-

fore it, but which was not in this case.

The consequences, then, of a compliance by the appel-

lant with the plaintiff’s demand for service would have

been a two-fold violation of Utilities Act—a violation of

the statute forbidding any departure from the filed tariff

rates, and a violation of the Department’s order which the

appellant was bound to obey. Both of these violations

would have subjected the appellant to the criminal penal-

ties of the Utilities Act which are imposed by Pope’s Di-

gest, section 2121, as follows:

‘‘(b) Any person or corporation which violates any

provision of this Act or fails to comply with every

lawful order, decision, direction, rule or regulation

made or prescribed by the Department, or any part

or provision thereof, shall be deemed guilty of a mis-

demeanor and upon conviction, subject to a penalty

a= 16

of not less than $100 nor more than $1,000 for

such offense.’’

The due process clause, of course, with its more ex:

meaning of fundamental justice and its simpler mea

of fair play, can never tolerate a situation where pena

are imposed under one statute because of conduct requ

by another. That is the appellant’s anomalous and i

tricable situation in this case. It elected to comply

the Utilities Act, and for doing so, it was thereupon

ished under the penalty statute. If it had elected to a

the latter result, it would have become immediately

ject to the punishments of the Utilities Act.

This case is more incongruous, more aggravated,

far harsher in result (largely owing to the presence

of the Utilities Act) than the earlier case under the Ar

sas penalty statute which this court reversed for unco

tutionality by a unanimous decision. Otherwise the

cases are virtually dead parallels. In Southwe

Tel. and Tel. Co. v. Danaher, 238 U. S. 482, appellant

enforcing a rule that applicants for new service sh

pay for service rendered in the past before the new se

was connected. In a suit for penalties under the p:

cessor of Pope’s Digest, Sec. 14261, arising out of

enforcement of this rule by the telephone company,

rule was held unreasonable by the Arkansas Court (8

western Tel. & Tel. Co. v. Danaher, 102 Ark. 547, 144 §

925), and penalties were allowed against the telep

company. The telephone company thereupon appeale

the United States Supreme Court on the ground th

Federal question was involved, since the constru

placed upon the penalty statute by the Arkansas «¢

was in conflict with the due process clause of the I

teenth Amendment to the Constitution of the U1

States, because the company was penalized for enfo1

a rule which it had every reason to think was reason

for each

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ox 17

In a unanimous opinion reversing the judgment of the

Arkansas Court, this Court said:

‘‘Of course, it is not open to us to revise the con-

struction placed upon the statute by the state court,

but it is open to us to determine whether the applica-

tion made of the statute in that instance was so arbi-

trary as to contravene the fundamental principles of

justice which the constitutional guaranty of due

process of law is intended to preserve. What, then,

are the circumstances in the light of which this ques-

tion must be determined?

‘*Regulations like that which the telephone com-

pany applied to the plaintiff were not declared unrea-

sonable by the statute. It left that matter entirely

open and to be determined according to general prin-

ciples of law. The state court did not hold otherwise.

The regulation, according to the rejected proof, was

adopted in good faith, had been uniformly and im-

partially enforced for many years, and was imparti-

ally applied in this instance. There had been no de-

cision in the state holding or indicating that it was

unreasonable. Like regulations often had been pro-

nounced reasonable and valid in other jurisdictions

and while some differences of opinion upon the subject

were disclosed in reported decisions, the weight of

authority was on that side. * * *

‘*If it be assumed that the state legislature could

have declared such a regulation unreasonable, the fact

remains that it did not do so, but left the matter

where the company was well justified in regarding

the regulation as reasonable and in acting on that

belief. And if it be assumed that the company should

have known that the Supreme Court of the state, in

the exercise of its judicial power, might hold the regu-

Jation unreasonable, even though the prevailing view

elsewhere was otherwise, the question remains

whether, in the circumstances, penalties aggregating

$6,300, could be imposed without departing from the

fundamental principles of justice embraced in the

recognized conception of due process of law. In our

x —

opinion the question must be answered in the >

tive. There was no intentional wrongdoing, no de-

parture from any prescribed or known standard of

action, and no reckless conduct. Some regulation

established a mode of inducing prompt payment of

the monthly rentals was necessary. It is not as if the

company had been free to act or not, as it chose. It

was engaged in a public service which could not be

neglected. The protection of its own revenues and

justice to its paying patrons required that something

be done. It acted by adopting the regulation and then

impartially enforcing it. There was no mode of

judicially testing the regulation’s reasonableness in

advance of acting under it, and, as we have seen, it

had the support of repeated adjudications in other

jurisdictions. In these circumstances to inflict upon

the company penalties aggregating $6,300 was so

plainly arbitrary and oppressive as to be nothing

short of a taking of its property without due process

of law’’ (citing cases).

Thus, according to the unequivocal language of this

court, it is obvious that in the instant case the Arkansas

Court, in penalizing appellant for acting pursuant to a

rule thought to be reasonable, has deprived appellant of

its property without due process of law, and that, in order

to do so, the Court employed that same line of faulty and

injudicious reasoning which was so severely criticized in

the Danaher case.

Realizing, no doubt, that the Danaher case is almost a

dead parallel for the instant case, and that its doctrine

disposes of the question of jurisdiction herein, appellee

attempts to distinguish the two on the ground that when

the Danaher case arose the predecessor of Section 14261,

supra, provided for penalties of $100.00 per day instead

of $5.00 per day as now provided. Appellant is unaware

of any distinction, so far as this Court’s jurisdiction is

concerned, between taking its property without due proc-

——

a= 19

ess of law at the rate of $100.00 per day and at the rate

of $5.00 per day. Certainly, the Constitution itself does

not say that while $100.00 worth of property may not be

taken, $5.00 worth may be.

IV. THE BASIS OF DECISION IN THIS CASE IS

UNREASONABLENESS OF THE RULE.

While, as will appear hereafter, federal questions under

the Fourteenth Amendment, reviewable by this court, will

remain in this case even if the ground of the decision by

the Arkansas Court was not the unreasonableness of the

rule, the appellee’s assertion, in an effort to avoid the

plain implications of the Danaher case, that such was not

the rationale of the decision, but was mere, dictum, is

hardly allowable, as the following quotations from the

Court’s opinion will demonstrate:

‘This is not the first time that we have seen this

rule, but it is the first occasion on which the require-

ments of the rule and the reasonableness thereof have

been presented for our consideration. City of Fort

Smith v. Department of Public Utilities, 195 Ark. 513,

518, 113 S. W. (2d) 100”’ (Tr. I, 17).

“The agents for the telephone company by their

evidence argued that the standard type service, when

installed is for the sole use of the subscriber, whom

they call a customer, and the members of his family

and his employees, or members of the business organ-

ization. They argue also that if such customer per-

mits someone else to use the telephone he violates a

contract made for the installation of the instrument.

Such is the contention of the appellant company and

because that condition was not upheld by the trial

court, the appeal in these two cases is for the purpose

of setting aside and overturning the judgments of the

a

trial court. If under all the circumstances the con-

tention is reasonable, based on a fair and natural

classification of those who subscribed for and used

telephones, we think it becomes our duty to uphold

such contention as an established rule of the company,

but, if, on the other hand, the distinction or so-called

classification is artificial, arbitrary and without any

sound basis in fact, the law will not support it’’ (Tr,

I, 24, 25).

‘*e * © Therefore we think that the contention of

the telephone company and its local agents that each

telephone is located for the sole and exclusive use of

the subscriber, the members of his family, and his

employees, unreasonable, inasmuch as it fails to give

consideration to the physical properties or mechanics

of the telephone as well as the usual and ordinary

controlling purposes of those who install such instru-

ments in their places of business’’ (Tr. I, 25).

This quoted statement is followed by the Court’s reasons

therefor, which purport to show that such a rule is un-

fair, impractical and unreasonable, due to the nature of

the telephone business. The Court sums up as follows:

‘‘So it must appear, we think, that the classification

intended to be made by the telephone company, or its

agents, is without a sound basis in fact or reason”

(Tr. I, 27).

If there could be any doubt left that the decision herein

rests solely on the ground that the rule sought to be en-

forced was unreasonable, that doubt is removed and the

Court, in its discussion, at pages 921-2, supra, of South-

western Tel. & Tel. So. v. Sharp & White, 118 Ark. 541,

177 8. W. 25, makes itself absolutely clear that such hold-

ing is the basis of its decision, where it stated that the

Sharp & White case holds:

‘** * * the telephone company has the right to

make all reasonable rules and regulations for the oper-

enema

= =

ation and control of its business, and those who deal

with it must comply with such reasonable rules and

regulations, but this announcement may not be taken

as an unlimited authority on the part of the telephone

company to announce a rule, the effect of which would

result in reducing, impairing, or rendering an inferior

service with the same appliances and facilities used

in rendering the standard or regular service, and

thereby defeat the effect of regulatory statutes’’ (Tr.

I, 27-28). (Emphasis ours.)

Thus it is clear that the only manner in which the Court

even attempts to distinguish the Sharp & White case from

the instant case is that the rule in the Sharp & White case

was reasonable, whereas the rule sought to be enforced in

the instant case was held by the court to be unreasonable.

V. THE CONSTITUTIONAL QUESTIONS IN THIS

CASE ASIDE FROM THE ADJUDICATION OF

UNREASONABLENESS OF THE RULE.

1. The Court’s Various Interpretations of the Penalty

Statute Render It Unconstitutional in Application.

(a) By withdrawing the need for compliance with the

rule.

If the basis of the decision of the Arkansas Court had

not been that the rule was unreasonable, whatever other

basis which might have been adopted would have led

similarly to unconstitutional results, and the federal ques-

tions would have remained present in the case.

For example, if it could be said (as the appellee does)

that the court did not declare the rule unreasonable and

decide the case from that point of view, then it must be

said that the court so construed and applied the penalty

statute as to place the appellant in the same offensive

predicament, as earlier described, of suffering under one

————_y

statute for complying with another. If the court leaves

the rule (as it could scarely be said to do) with the find.

ing of reasonableness by the Department of Public Utili-

ties, the court in affirming the plaintiff’s judgment neces.

sarily so interprets the penalty statute as to read out of it

the plain requirement that the plaintiff, in order to main.

tain her case, must have offered to compiy with the rule;

because it has never been contended that she offered to

comply with the basic rule limiting the use of her de-

manded flat rate customer service to herself, her family,

and her business associates. While it was found, under

disputed facts here precluded, that the plaintiff offered to

comply with the subordinate rule respecting location of

the instrument, it was never suggested that she offered to

comply with the primary rule of restriction of her service,

In her own testimony she said both that she wanted the

service for use by “‘everybody’’ (Tr. II, 5) and that she

would deny the use to nobody who might ask for it

(Tr. II, 5).

With the statute se interpreted as to wipe ont the re-

quirement of compliance with the rule which we are now

assuming was not declared unreasonable, we are retarned

to the doctrine of the Danaher case. The oppressive, un-

just hardship imposed against the appellant by the appli-

cation of the statute as then interpreted—an interpreta-

tion that allows of the infliction of penalties for conduct

required by another statute—brings this case as surely

within the principles of the Danaher case as the unex-

pected declaration of the unreasonableness of the rule.

The appellant, of course, does not contend that the

penalty statute is unconstitutional per se, or in every ap-

plication; but the appellant would so contend if the statute

did not contain the requirement for compliance with the

rules which the court is now interpreting out of it. As

the section is now written, it would be easily reconcilable

with the Utilities Act so that the unconstitutional effect

here complained of would be avoided simply by interpret-

ing the ‘‘reasonable rules’? with which compliance is re-

quired as the rules on file with the Department as required

by the regulatory law. But the court’s interpretation is

quite otherwise, if it interpreted the section at all, and it

is this interpretation, and the application as interpreted,

that is repugnant to the restrictions of the federal con-

stitution.

This court, of course, takes jurisdiction to determine

the constitutional questions as readily when the complaint

relates to construction and application of a statute as

when it relates to an unalterable invalidity of a statute

under all circumstances. For authority on this proposi-

tion, Ward v. Krinsky, 259 U. S. 503, may be added to the

Danaher case.

(b) By penalizing appellant for acts of its customers.

Following on, if we continue to assume that the rule

was not declared unreasonable (as we can’t), and if we

further assume (as again we can’t) that the court would

not have needed to interpret the penalty statute in the

way of reading out the necessity for compliance with the

rule, the decision would even so continue to work a denial

of due process.

At the trial the plaintiff produced several witnesses who

testified that they permitted anybody to use their tele-

phone service which was furnished at the customer flat

rate. No evidence was ever produced that the appellant

ever knew of this practice of the witnesses who were put

on in an attempt to prove that the appellant had dis-

criminated in their favor against the plaintiff. All that

their evidence proved, of course, was that without the

knowledge of the company they were violating the rule in

repudiation of their contracts with the company which

— 244—

bound them to the observance of all the rules. All of the

presumptions of law are in favor of compliance with the

law and of performance rather than violation of compacts,

The appellant was entitled to rely upon its customers to

perform their contracts, and to observe the rules; and to

interpret the penalty statute as warranting the infliction

of penalties for the unanown violations of the rule by the

appellant’s customers, which necessarily occurred on the

customers’ own premises, is simply to add to the other

denials of due process. Under this interpretation it would

be impossible for appellant to avoid penalties by reason of

the derelictions of its customers except by forsaking its

constitutional right in the management of its business to

establish reasonable classifications, reasonable rules and

regulations, and reasonable rates.

There are hints, both in the court’s opinion and in the

appellee's statement, that the appellant might have known

of these violations of its rule because the telephones had

been in service in some instances for several years; but

the patent fact is that because the appellant installed and

maintained a telephone at any particular location is no

reason to believe that the company knew what use was

being made of it, or what use of it was being permitted

by the customer. In this connection it ought to be ob-

served that the company has many rules which it depends

upon its customers to comply with, but whose violations

occur on the customers’ premises and are seldom appre-

hended. A single example of this (out of many possible

illustrations) is the rule against the use of profanity and

kindred language on the telephone. Under the interpreta-

tion of the penalty statute in the decision in this case, the

appellant would suffer penalties for refusing telephone

service to an applicant who advised that he wanted it

almost exclusiveiy for the purpose of expressing himself

in obscenities, blasphemies, and profanities, if he could

cs epamamen

_—

produce someone else who would testify that unknown to

the company he had sometimes engaged in little cussing

on the telephone. It would appear to be perfectly plain

that that analogous case could not stand the test of the

Fourteenth Amendment. And neither can this one.

(c) By requiring criminal conduct of appellant.

Finally, even if (contrary to the record), the appellant

had deliberately violated the Utilities Act in consciously

permitting some customers to receive service at less than

tariff rates, and in consciously permitting them, in dis-

obedience to the Department’s order, to employ their

service in disregard of the rule, the appellant would be

prevented by the decision herein from reforming its

criminal behavior and complying with the Act thenceforth.

It would be forced to continue to violate the Act in order

to avoid the consequences of the penalty statute. It would

be forced to engage in a crime for the plaintiff’s gain be-

cause it had engaged in a crime for the benefit of someone

else. It would be compelled to multiply its criminal

offenses under the Utilities Act. It has probably never

hitherto been suspected that a statute could stand the test

of the Fourteenth Amendment when its application would

require the commission of criminal offenses because similar

criminal offenses had been committed earlier.

VI. THE FEDERAL QUESTIONS WERE PRESENTED

IN DUE TIME.

Since there was no decision in this case, the effect of

which would be to deny to appellant the equal protection

of the law and to take its property without due process

of law until the Supreme Court of Arkansas rendered its

opinion holding Rule V-C unreasonable, and since there

was no way in which appellant could anticipate such a

a oe

holding by said court, the federal questions were first pre-

sented in appellant’s petition for rehearing. A brief in

support thereof was also filed, calling the Court’s atten.

tion to the violation of the Fourteenth Amendment to the

Constitution of the United States. It is well settled that

a federal question raised at the first opportunity presented

in trial of the case through the various stages comes in

due time.

The raising of a federal question in a petition for re.

hearing does not come too late where the state court’s

ruling could not have been anticipated, and petition for

rehearing presented the first opportunity for raising the

federal question.

Herndon v. Georgia, 295 U. S. 441.

The federal question raised in a petition for rehearing

does not come too late where the grounds of the original

decision below supply a new and unexpected basis for the

claim, by the defeated party, of the denial of a federal

right.

Great Northern R. Co. v. Sunburst Oil & Refining

Co., 287 U. S. 358.

The raising of the federal question by assignment of

error, even after the denial of a petition for rehearing in

the highest court of the State, was permitted in Saunders

v. Shaw, 244 U. S. 317, under a situation somewhat analo-

gous to that in which appellant found itself in the in-

stant case. This Court stated as follows:

“The question remains whether the writ of error

can be maintained. The record discloses the facts but

does not disclose the claim of right under the 14th

Amendment until the assignment of errors filed the

day before the chief justice of the state granted

this writ. Of course, ordinarily that would not be

a

enough. But when the act complained of is the act of

the Supreme Court, done unexpectedly at the end of

the proceeding, when the plaintiff in error no longer

had any right to add to the record, it would leave a

serious gap in the remedy for infraction of constitu-

tional rights if the party aggrieved in such a way

could not come here. The defendant was not bound

to contemplate a decision of the case before his evi-

dence was heard, and therefore was not bound to ask

a ruling or to take other precautions in advance. The

denial of rights given by the 14th Amendment need

not be by legislation. Home Teleph. & Teleg. Co. v.

Los Angeles, 227 U. S. 278, 57 L. ed. 510, 33 Sup. Ct.

Rep. 312. It appears that shortly after the supreme

court had declined to entertain the petition for re-

hearing the plaintiff in error brought the claim of

constitutional right to the attention of the chief jus-

tice of the state by his assignment of errors. We do

not see what more he could have done.’’

Inasmuch as the appellant perceives the sole basis of

the decision in this case to be the unreasonableness of the

rule, this discussion has probably been unnecessarily pro-

longed; but this is owing to the appellant’s anxiety to

point to the federal questions present under every con-

ceivable basis for decision. If this court should entertain

any doubt respecting the basis of the decision, it is ex-

pected that there will then be present a situation analo-

gous to that encountered in Minnesota v. National Tea

Co., decided by this court March 25, 1940 (84 L. ed. [Adv.

Ops.] 571), and that the case will be remanded to the

state court for clarification of its basis of decision.

We conclude that federal questions conferring jurisdic-

tion in this court are present under any theory of this

NT I CeO

a

case, and we urge that jurisdiction be noted and that the

cause be heard for the purpose of resolving the aforesaid

federal questions.

onlin

Respectfully submitted,

E. W. CLAUSEN,

BLAKE DOWNIE,

JOHN MOHLER,

EDW. B. DOWNIE,

Attorneys for Appellant.