Opposition Brief — County of Los Angeles v. Southern California Telephone Co.
Supreme Court brief1949
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TOPICAL INDEX
Page
Preliminary Statement .. 1
Point 1.—lIt Is Not the Theory of Our Case That ‘the County Is
Within the Protection of the 14th Amendment... 6
Point LI. —Recognizing the General and Long Established Rule
That a Person in the Favored Class May Not Assert Dis-
crimination Against Others to Defeat a Statute, Our Position
Is That the County Is Not Within the Scope of That Rule
Under the Circumstances of This Case and That in Any
Event It Is Within a nized Exception Thereto........... 7
Point I11.—The Discrimination Is Not ‘econemcel and Hypo-
thetical and the Injury Is Substantial... 14
Point IV.—The Federal Question Is Substantial. ” Appellant
County’s Position Is in Aecord With the Decisions of This
Court Whereas the Appellee’s Position and the Holding of
the State Court Is in Accord Only With the Dissenting Opin-
ion in Frost v. Corporation Commission, 278 U. 8S. 515, 73
L. Ed. 483. The Judgment Appealed From Fails to Give
Due Consideration to the Requirement That There Be a
Relationship Between the Classification and the Subject
Matter of the Legislation... ; 17
Point V.—The Decision May Not Be Rested on . Non- Federal
aR i EE me el Se DO AMOI 24
ETE ee ares Swe na a NaN enn 27
TABLE OF CASES AND AUTHORITIES CITED
Cases
Air-way Electric Appliance Corp v. Day, 266 U. S. 71, 85, 69
Le, Bid, 160, 177, 45 Sep. Ce. Rep, 18... nce ccccccececcecececeecccererees a
Buchanan v. Warley, 245 U. S. 60, 62 L. Ed. 149.0000. 12
Chambers v. Baltimore & O. R. Co., 207 U. 8. 142, 52 L. Ed.
143 . — 5
Colgate v. Harvey, 296 U.S. 404, at 425, 80 L. Ed. 299... - 16
Frost v. Corporation Commission, 278 U. S. 515, at 524,
lL. Ed. 483 3, ia. 20
FP. S. Royster Guano Co. vy. _ Virginia, 253 U. 8. 412, 415, 64
L. ‘Ed. 989. 990, 40 kg, SN 21
Home Bldg. & Loan Assn. v. Blaisdell, 290) Us Ss. 398, 78 L. Ed.
ii Index
—— Kgey Anderson vy. Brand, 303 U. S. 95 at 98, ao
Lawrence v. State Tax Commission, 286 U. 8. 276, 76 L. Ed.
Mallinckrodt Chemical Works v. Missouri ex rel. Jones, 238
U. S. 41, 59 L. Ed. 1192.
Meidreich v. Lauenstein, 232 U. S. 236, 58 L. Ed. 584.
Pac. Indemnity Co. v. Myers, 211 Cal. 635. ll
— Petroleum Co. v. Jenkins, 297 U. 8. 629, 80 L. Ed.
-
4, 22
Calif. Civil Code, Sec. 536
County Government Act of 1897, Stats. 1897, p.
Emergency Mortgage Moratorium Law of 1933....................... ~. 1§
Franchise Sales Law of the State of California, Stats. 1906,
p. 777
ON EEE
Political Code, State of Calif., See. 4041.9 ........-.-.c-cceccnenseenenens 2
11 Am. Jur. p. 760 —
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. a kk le Ee a el. ee eee ee
Index iii
APPENDIX INDEX
Cases
Page
Arkansas Nat. Gas Co. v. Railroad Com., 261 U. S. 379 (43
8, Ct. 387, 67 L. Ed. 705)....... 14
Arkansas State H. Com’n. v. Southwestern Bell Co., 206
Ark. 1099 (178 S. W. 2d 1002)... 9
Arkansas State H. Com’n v. Southwestern Bell T. Co., 206
rm“ *% |: 3 & 4S ) |) cnn 12
Brady v. Mattern, 125 Iowa 158 (100 N. W. 358, 106 Am. St.
DS eM’ 18, 22, 24
Bueneman v. City of Santa Barbara, 8 Cal. 2d 405 (65 P. 2d
884, 109 A. L. R. 895).................. 14, 15
Chicago Gen. Ry. Co. v. City of Chicago, 176 Ill. 253, 259 (52
N. E. 880, 68 Am. St. Rep. 188, 66 L. R. A. 959)...
City of Beverly Hills v. Los Angeles, 175 Cal. 311 (165 P. .
ll tt SA He ART
City Railway Co. v. Citizens’ Street Railroad Co., 166 U. 8.
557, 567 (17 S. Ct. 653, 41 L. Ed. 1114) 9
City of Salinas v. Pacifie Tel. & Tel. Co., 72 Cal. App. 2d 494,
497, 164 P. 2d 905... 3
City of San Diego v. Kerckhoff, 49 Cal. App. 473, 482 (193 .
4 Ree ee
Colgate v. Harvey, 296 U. S. 404, 425 (56 8S. Ct. 252, 80 L. Ed.
SY By 0 Ree 29
Colorado Central R. R. Co. v. Lea, 5 Colo. 192... eceeceeeees ll
Commonwealth v. Vrooman, 164 Pa. 306 (30 A. 217, 44 Am.
St. Rep. 603, 25 L. R. A. 250)... 18, 21, 2%, 24
County of Inyo v. Hess, 53 Cal. App. 415, “(200 P. 373)... A, 7, 20, 21
Dillingham v. Melaughlin, 264 U. 8. 370, 373 (44 S. Ct. 362,
1 8 Ee oa 18, 21, 23
Engel v. O'Malley, 219 U. S. 128 (31 S. Ct. 190, 55 L. Ed.
STE ainweniiciadbiiciaicieicitlicandiag itereheninaniadtiatianaaemiaiaainenatintininaiensil 18, 21, 23
Frost v. Corporation Com., 278 U. 8S. 515 (40 8S. Ct. 235, 73
L. Ed, 483)... 18, 26
German Alliance Ins. Co. v. », Lewis, 233 U. S. 389, 416 (34 S. Ct.
ee ees. 18, 21, 24
Goddard v. Chicago & N. W. Ry. Co., 202 Il. 362 (66 N. E.
Ee a ie ET atin Si RCTS eaten. tee, 17, 21, 25
Higgins v. San Diego Water Co., 118 Cal. 524 adh P. 824, 50
ee 10
iv Index
Lord v. Denver, 58 Colo. 1 (143 P. 284, Ann. Cas. —
L. R. A. 1915B 306)
Los Angeles v. South Gate, 108 Cal. an am ou P. 654)
MeCreery v. MeColgan, 17 Cal. 2d (110 P. 2d 105], |
A. L. BR. 800) 3, 15
McGinnis v. Mayor and Common Council, 153 Cal. 711, ais
714, 96 P. 367 5
New York Electric Lines Co. v. Empire Subway Co., 235 U. S.
179, 193 (35 S. Ct. 72, 59 L. Ed. 184) 9
Noble State Bank v. Haskell, 219 U. S. 104 (31 S. Ct. 186, 55
L. Ed. 112) 18, 21, 22
Oro Electrie Corp. v. Railroad Com., 169 Cal. 466.
—— Turlock Home Tel. & Tel. Co., 200 Cal. 546 (253 P.
7
— Western Fruit Growers, 22 Cal. 2d 494 (140 P. 2d
13, 15
Pe Emenee Cable Co. v. County of Los Angeles, 160 Cal,
129 (166 P. 566) 7
Postal Tel. Cable Co. v. gy hag ow hgh 129, 116 P. 566 3
Postal Tel. Cable Co. v. Los Angeles, 160 Cal. 129 (116 P.
566) .. 14, 16
Postal Telegraph Cable Co. v. Los Angeles, 164 Cal. 156 (128
19) 7,9
Postal Tel. Cable Co. v. Railroad Com., 200 Cal. 463 (254 P.
258) 3,7
Puget Sound Co. v. Seattle, 291 U. S. 619 (54 S Ct. 542, 78
L. Ed. .
690)
San Jose Gas Co. v. January, 57 Cal. 614.
Shallenberger v. First State Bank, 219 U. S. 114 (31 S. Ct.
189, 55 L. Ed. 117)
State of California v. Marin Mun. W. Dist., 17 Cal. 2d. 699
(111 P. 2d 651) 7, 8
State v. Southwestern Bell Telephone Co., 338 Mo. 617 (92
“ne W. 2d 612)
State v. Union Electric Co. of Missouri (Mo. App.), 142 8
2d 1099
Stone v. State, 223 Ala. 426 (136 So. 727).
Sunset Tel. & Tel. Co. v. Pasadena, 161 Cal. 265, 272 (116 P.
mA
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nas er ., Se eee ee 2 eee eo
Index v
Sunset Tel. & Tel. Co. v. Pomona, 172 F. 829, 837.00000002.202.20c000--
Tigner v. Texas, 310 U. S. 141 (60 8. Ct. 879, 84 L. Ed. 1124)... 14
Western Union Tel. Co. v. City of Visalia, 149 Cal. 744 (87
DR, TE ace ER: SRST Tt en
Western Union Tel. Co. v. County of Los Angeles, 160 Cal. 124
3 ye
Western Union Tel. Co. v. Hopkins, 160 Cal. 106 (116 P. 557)
Western Union Tel. Co. v. Hopkins, 160 Cal. 744, 87 P. 1023 3
Willard v. Glenn-Colusa Irr. Dist., 201 Cal. 726 (258 P. 959)... 19
Winkie v. Turlock Irr. Dist., 24 Cal. App. 2d 1 (74 P. 2d 302) 9
Codes
yyyEEE——————ee 4
OO 6
Civil Code,
EE a ee ee 1, 7, 12, 25
Sec. 536, Stats. 1850, p. 369... soidiendaikatntiepansinianeaitcindbiads 3
OO
Federal Const. 14th Amendment,
Art. I, Sees. 11, 21 ................ tae adie eaciiaee tials 13
OL 13
2 Deering’s Gen. Laws, Act 6386, See. 61 ff... cerns 31
herr
IN THE
Supreme Court
OF THE
United States
OCTOBER TERM, 1948
BS ‘shenmiamninds
COUNTY OF LOS ANGELES, a body
politic and corporate,
Appellant,
vs.
SOUTHERN CALIFORNIA TELE-
PHONE COMPANY, a corporation,
Appellee.
APPELLANT’S BRIEF IN OPPOSITION TO
APPELLEE’S MOTION TO DISMISS
OR AFFIRM
Preliminary Statement
The appellant County of Los Angeles brought an
action against the appellee telephone corporation to
compel it to aecount for the value of the use of the
County streets under general laws which authorize the
~
County to grant franchises for all lawful purposes!
and providing that in the granting of such franchises
the holders thereof must pay (in addition to the amount
bid for the franchise) two per cent (2%) of the gross
receipts resulting from the use of the franchise.’
As a defense the telephone corporation invoked see-
tion 536 of the Civil Code,* providing, as construed by
California courts, that telephone and telegraph cor-
1Said statute as presently codified is section 26001 Government Code of the
State of California, reading as follows: “The board may grant franchises
and over the public roads and highways for all lawful purposes, upon such terms,
conditions, and restrictions as in its judgment are necessary and proper, and in
sach manner as to present the least possible obstruction and inconvenience to
the traveling public.
“Any general law applicable to the granting of franchises by municipal cor.
porations and counties throughout the state shall be complied with in the granting
of any franchise by the board of supervisors.’
The predecessors of section 26001 Government Code are subdivision 35 of
section 25 of the County Government Act of 1897, Stats. of 1897, page 452, and
section 4041.9 of the Political Code of the State of California.
2The Franchise Sales Law of the State of California, Stats. 1905, 771,
as amended, (commonly known as the —y Act. Deering Act 2730 read-
ing in part as follows: “Section 1. Every franchise or privilege to erect or
telegraph or telephone wires, to construct or operate street or interurban . >
upon any public street or highway, to lay gas-pipes for the purpose of carrying
gas for light, heat or power, to erect poles or wires for transmitting electricity for
light, heat or power, along or upon any public street or highway, or to exercise
any other privilege whatever hereafter proposed to be granted by boards of
supervisors, boards of trustees or common councils, or other governing or legisle-
tive bodies of any county, city and county, city or town within this state, except
steam railroads and except telegraph or telephone lines doing an interstate busi-
ness and renewals of franchises for piers, chutes or wharves, shall be granted upon
the conditions in this act provided, and not otherwise. The grantor may, how-
ever, in such franchise im such other and additional terms and conditions not
in conflict herewith, whether governmental or contractual in character, as in the
judgment of the legislative body thereof are to the public interest.
“Section 2... .
“Section 3. . . . that the successful bidder and his assigns must, during
the life of said franchise, pay to the county or municipality two per cent (2%)
of the gross annual receipts of the person, partnership or corporation to whom
the franchise is awarded, arising from its use, operation or possession, “
3Section 536 of California Civil Code: “Telegraph or telephone corporations
may construct lines of telegraph, or telephone lines along and upon any public
road or highway, along or across any of the waters or lands within this state, and
may erect poles, posts, piers, or abutments for supporting the insulators, wires, and
other necessary fixtures of their lines, in such manner and at such points as not
to incommode the public use of the road or highway or interrupt the navigation
of the waters.”
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_
porations (and no other persons or corporations) are
offered a free franchise which when accepted by the
user constitutes a contract and a property right.
It should be noted that section 536 was no part of
County’s case and that it was invoked by a party in the
“favored’’ class.
The County objected to such defense on several
State grounds of constitutionality and statutory con-
struction and finally upon the ground that said section
536 Civil Code violated the first section of the 14th
Amendment of the Federal Constitution in denying
equal protection of the laws to all persons, associations
and corporations other than telephone or telegraph
corporations. Not only is the free franchise withheld
from natural persons engaging in the telephone busi-
ness but it is withheld from corporations engaging in
other public utility businesses such as electric light and
power companies, gas companies and water companies.
It boldly creates one rule for telephone and telegraph
corporations and a different and contrary rule for all
others. It is comparable to the situation described by
this Honorable Court in Frost v. Corporation Commis-
sion, 278 U. S. 515, at 524, 73 L. Ed. 483, as follows:
“Stripped of immaterial distinctions and re-
duced to its ultimate effect, the proviso, as here
construed and applied, boldly creates one rule for
a natural person and a different and contrary rule
for an artificial person, notwithstanding the fact
that both are doing the same business with the
general public and to the same end, namely, that of
reaping profits.’’
or a
The County relied upon the latter case and also upon
Quaker City Cab Co. v. Pennsylvania, 277 U. 8. 389,
72 L. Ed. 927.
We recognized that under many circumstances the
classification of corporations is proper but only where
there is some relationship between the corporation
form of doing business and the subject matter of the
legislation. Under the authority of the cases just cited
it was and is our position that it is unconstitutional to
give a business advantage to telephone and telegraph
corporations, and such corporations alone, merely be-
cause they are telephone and telegraph corporations
and where it is not an integral part of a general stat-
ute for the regulation of an industry for the public
good.
In the opening statement contained in ‘‘ Statement
Opposing Jurisdiction and Motion to Dismiss or Af.-
firm’’ appellee apparently suggests that this Federal
constitutional objection was raised too late. However,
it was raised before the case was first decided by the
State Supreme Court and the opinion of that Court
diseusses the question at length both in the majority
and dissenting opinion and decides such question
(See opinion in Appendix to this Brief.) Consequent-
ly under the decisions of this Honorable Court the
question was properly raised.
Mallinckrodt Chemical Works v. Missouri ez
rel. Jones, 238 U.S. 41, 59 L. Ed. 1192;
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witli
Chambers v. Baltimore & VU. R. Co., 207 U. S.
142, 52 L. Ed. 143;
Sully v. American Nat. Bank, 178 U. 8. 289,
44 L. Ed. 1072;
Meidreich v. Lauenstein, 232 U. 8. 236, 58
L. Ed. 584.
We are now confronted with a motion to dismiss
on the following grounds:
1. The County of Los Angeles being a political
subdivision of the State has no standing to challenge
the validity of section 536 of the Civil Code, which was
raised as a defense by the telephone corporation.
2. The County is not a member of the elass dis-
criminated against and thus cannot assail the validity
of the statute raised by the telephone corporation as a
defense.
3. The County has not proved an actual injury and
therefore the constitutionality of section 536 must be
presumed.
4. The Federal question raised by the County,
to wit, that Civil Code section 536 is a nullity, is unsub-
stantial.
5. The decision of the Supreme Court of the State
of California rests upon adeyuate non-federal grounds.
We shall consider these grounds in the same order.
gine
Point I.
It Is Not the Theory of Our Case That the County |,
Within the Protection of the 14th Amendment
We are seeking neither to have overruled nor to
have distinguished the decisions holding that a politica]
subdivision is not protected as against the State by the
provisions of the 14th Amendment. We are not con-
tending that there has been any discrimination against
the County of Los Angeles. We are contending that
section 536 of the Civil Code of California does dis-
criminate against all persons, partnerships and assgo-
ciations doing a telephone business other than telephone
and telegraph corporations and also that said section
discriminates against all corporations, which are re-
quired to obtain franchises, other than telephone and
telegraph corporations. Such persons, partnerships,
associations and corporations are protected by the
first section of the 14th Amendment and such discrim-
ination has rendered the section unconstitutional and a
nullity.
We fully recognize that our lawsuit must stand or
fall depending upon whether or not under the facts
of this case the County is in a position to assert the
invalidity of the statute because it violates the consti-
tutional rights of others. That, rather than appellee’s
first ground, is the crucial issue which we are prepared
to meet and will meet in our next point.
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-
Point II.
Recognizing the General and Long Established Rule That
a Person in the Favored Class May Not Assert Dis-
crimination Against Others to Defeat a Statute, Our
Position Is That the County Is Not Within the Scope
of That Rule Under the Circumstances of This Case
and That in Any Event It Is Within a Recognized
Exception Thereto.
The general rule is usually phrased broadly as
stated by appellee, to wit, that
‘*No one can assail the validity of a statute on
the ground that it impairs the constitutional rights
of others.”’
However, it is significant that in the cases cited by
appellee and in most cases involving the general rule
it has been a person in the ‘‘favored’’ class who has
attempted to invoke the protection of the Constitution.
The typical situation is one in which a statute imposes
a burden upon many but an even greater burden upon
a few and hence one of the many, even though favored,
seeks to upset the statute to avoid such burden.
Many sound reasons suggest themselves why such
a favored person should not be heard to champion the
cause of the remaining few. For example, the many
may constitute by themselves a complete and valid class
and hence striking the portion of the statute relating
to the few still leaves a valid statute embracing a com-
plete class of persons properly subject to its burdens.
ates
For example also, if, as and when the discriminated
few appear before the Court to state their grievance
the Court may by judicial construction limit the burden
on the few to that placed upon the many.
However, the present situation is unusual in several
respects:
First. The favored group in the present instance
are truly favored through an outright gift of public
property, which gift our State Court has held is not
prohibited by our State Constitution, and it is not the
usual case where the favored group is favored merely
because a lesser burden is imposed thereon.
Second. In the usual case the favored group are
attempting to attack the statute despite the favoritism,
whereas, here it is the favored group who are attempt-
ing to assert the statute as an affirmative defense to a
lawsuit. If the rule applies here it applies not as a
limitation on the favored group (the usual situation)
but results in giving such favored group the affirma-
tive right to obtain benefits from an unconstitutional
law.
Third. The favored group do not constitute a com-
plete and valid classification (see our Point IV) and
hence it is impossible to segregate the favored group
from the discriminated group and hold that the statute
is valid as to the former whatever may be the ultimate
decision with respect to the latter.
Fourth. As previously indicated, one of the justi-
fications for the general rule is that if the discriminated
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ws
elass were actually before the Court the Court might
by judicial construction so limit the statute that there
would be no excess burden. Because of the peculiar
nature of the present statute that is not possible here.
The statute does not affirmatively place a burden upon
the discriminated class but simply refrains from men-
tioning any persons other than telephone and telegraph
corporations in giving the benefit of a free franchise.
Since it is impossible by judicial construction to add
something to a statute (as distinguished from striking
out or limiting an invalid portion of a statute) it is
impossible in this situation to equalize the rights of all
parties by judicial construction even if the diserim-
inated class could state a cause of action and get before
a court.
Fifth. The discriminated group in the present in-
stance would not obtain the benefits of the favored
class even if the statute were struck down. Whether
the statute be valid or invalid such group obtains no
vift of a free franchise and consequently there is no
way that the discriminated group may state a cause of
action, obtain a judicial decision and correct the evil.
Sizth. Because the discriminated group are not in
a position to state a cause of action against the statute
it follows that unless other parties affected by the
legislation (as distinguished from those affected by the
discrimination) are permitted to raise the Federal
question no one can raise the point and the favored
vroup not only may enjoy the fruits of an unconstitu-
tional statute but may affirmatively assert the uncon-
Ss
stitutional statute and may use the courts (as they have
in this case) to protect them in such unconstitutional
privileges. Such an application of the rule under the
situation of this case is to place the favored group not
only above the Constitution but also above the courts,
the courts being powerless to prevent even an affirma-
tive reliance upon the unconstitutional law.
Seventh. The County is not in the favored class
(the usual situation where the rule is involved) but js_.
in a class vitally affected by the legislation to its finan-
cial detriment, it not being able to receive substantial
franchise payments from this favored group.
All of the foregoing suggests that, since the rule is
obviously not intended to absolutely prevent judicial
review of a constitutional question but merely to as-
sure that it be presented in a proper manner by proper
parties, the rule itself should cease when the reason
for the rule ceases. We believe that our more limited
statement of the rule, to wit, that those in the favored
class may not assert the rights of the discriminated
class, more nearly conforms to its true intent. The
County, not being in the favored class but being in a
class adversely affected by the legislation, should there-
fore not be barred from raising the constitutional ques-
tion.
Whether we say that the rule itself is limited or
whether we accept the broad statement of the rule and
recognize necessary exceptions thereto, the result is the
same. ‘he California courts in approaching the prob-
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ao we
lem have stated the rule broadly but have recognized
an exception which covers the present case. The United
States Supreme Court has held that under certain cir-
cumstances the rule itself does not bar a person who is
adversely affected by the legislation although not in
the discriminated class. We shall now consider such
rules and decisions.
Under the decisions of the State of California the
County was a proper party to present this issue in the
State Court. California recognizes an exception to the
yeneral rule and permits one adversely affected by the
legislation to raise the point when it is impossible for
one in the discriminated class to raise it.
Quong Ham Wah Co. v. Industrial Acc. Com.,
184 Cal. 26;
Pac. Indemnity Co. v. Myers, 211 Cal. 635;
Van Camp Seafood Co., Inc., v. Newbert, 76
Cal. App. 445.
This exception is described in 17 Am. Jur., page 760,
under the subject of Constitutional Law, section 114,
as follows:
‘The general rule that a statute purporting to
make unconstitutional discrimination between per-
sons or classes of persons cannot be assailed on
the ground of unconstitutionality by a person not
belonging to the class discriminated against, is sub-
ject to well-defined exceptions where contingencies
culminate in a grievance against persons not orig-
inally within the contemplation of the statute. Un-
_—
der this view it has been held in one jurisdiction
that where no member of a class alleged to be un-
lawfully discriminated against by a statute is in a
position to raise a constitutional question, then any
person affected by the application of the statute
can urge its unconstitutionality, for the right to
attack a statute void for discrimination is not con-
sidered to be confined to persons injured by the
discrimination, but under some circumstances may
be available to those injured by the legislation, even
though they are not members of the unfavored
class under the statute.’’
This Honorable Court has likewise permitted a per-
son not in the discriminated class to raise the point
where circumstances made it necessary for him to do
so to protect his property rights.
Buchanan v. Warley, 245 U.S. 60, 62 L. Ed. 149,
In that case it was stated at page 72 as follows:
‘The property here involved was sold by the
plaintiff in error, a white man, on the terms stated,
to a colored man; the action for specific perform-
ance was entertained in the court below, and in
both courts the plaintiff’s right to have the con-
tract enforced was denied solely because of the
effect of the ordinance making it illegal for a
colored person to occupy the lot sold. But for the
ordinance the state courts would have enforced the
contract, and the defendant would have been com-
pelled to pay the purchase price and take a convey-
ance of the premises. The right of the plaintiff
in error to sell his property was directly involved
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— =
and necessarily impaired because it was held in
effect that he could not sell the lot to a person of
color who was willing and ready to acquire the
property, and had obligated himself to take it.
This case does not come within the class wherein
this court has held that where one seeks to avoid
the enforcement of the law or ordinance, he must
present a grievance of his own, and not rest the
attack upon the alleged violation of another’s
rights. In this case the property rights of the
plaintiff in error are directly and necessarily in-
volved.”’
We submit that the unusual facts presented by the
case at bar likewise justify either invoking such an ex-
ception or justify limiting the general rule itself so
that it does not embrace those situations where the
reason for the rule has ceased. Otherwise we submit
that the rule as sought to be applied by appellee would
forever prevent any decision upon this constitutional
question (since the persons in the discriminated class
can state no cause of action) and would forever result
in the courts’ protecting them in the enjoyment of an
unconstitutional privilege.
stipe
Point Ill.
The Discrimination Is Not Conjectural and Hypothetical
and the Injury Is Substantial
The appellee telephone corporation asserts that
there is nothing in the record to show any injury what-
soever and hence that any injury upon which we might
seek to rely is conjectural and hypothetical.
That there is injury to appellant is evident from
the fact that appellee is using all of the roads of the
County without charge, whereas but for section 536
Civil Code of California the appellant County would
collect 2% of the gross receipts under the Franchise
Sales Law (Stats. 1905, page 777, as amended, com-
monly known as the Broughton Act.) Because of see-
tion 536 Civil Code of the State of California telephone
and telegraph corporations are permitted to use with-
out charge not only the highways of this County but
the highways in every county in the State of California.
Such highways although provided at the expense of the
taxpayers are being diverted to the use of telephone
corporations, their stockholders and subscribers. But
for this statute the taxpayers of the various counties
would be enabled to obtain a substantial reimburse-
ment of their investment. Because of this statute and
because of this lost franchise revenue the taxpayers
must be subjected to a correspondingly increased tax
burden. The damage, therefore, is substantial and con-
tinuing and, unless the statute is declared a nullity, is
perpetual.
DHOMYP CHoOov
=— =
That there is injury to the discriminated class is
shown by the fact that they must pay such 2% of the
gross receipts (an obviously substantial amount),
whereas telephone and telegraph corporations do not.
What appellee apparently has reference to is that
the record does not show how many persons there are
so discriminated against. Appellee therefore assumes
that for the purpose of this case there are no persons
in the discriminated class.
However, it is well established that in passing upon
problems of discrimination the Court may consider
those things which may be judicially noticed. In
Weaver v. Palmer Bros., 270 U. 8. 402, 70 L. Ed. 654,
this Court said, at page 410:
** Invalidity may be shown by things which will
be judicially noticed (Quong Wing v. Kirkendall,
223 U. S. 59, 65; 56 L. Ed. 350, 352; 32 Supreme
Court Rep. 192), or by facts established by evi-
dence.”’
In the case of Home Bidy. & Loan Assn. v. Blais-
dell, 290 U. S. 398, 78 L. Ed. 413, (involving the emer-
gency Mortgage Moratorium Law of 1933) the Court
took judicial notice of the general facts concerning the
economic status of the nation in answer to an attack
under the due process and equal protection clauses.
in applying these principles to the case at bar it is
matter of common knowledge and hence may be ju-
dicially noticed that public utility corporations such as
electric lighting and power companies, water compa-
oe
nies, gas companies and other companies rendering
service to the public all use the public streets for the
purpose of laying and maintaining their lines and dis-
tributing their products and services. Such public
utilities whether incorporated or not are required to
pay 2% of the gross annual receipts arising from the
use, occupation or possession of such franchises pur-
suant to the Franchise Sales Law (Stats. 1905, page
777, as amended, commonly known as the Broughton
Act). Likewise, all natural persons and partnerships
who are operating telephone and telegraph lines (such
as unincorporated mutual telephone companies and
business concerns running telegraph and telephone
lines between their inain offices and branch offices)
must obtain franchises and pay for such privilege.
There is therefore a substantial injury to a substantial
class.
Appellee under this point asserts not only that we
must prove actual and not hypothetical injury but also
asserts that we must negative every conceivable basis
which might support the legislative classification.
Whether or not the classification is proper is the sub-
ject matter of our next point and will be discussed
there. For the present we merely wish to point out
that the rule is not as harsh as stated by appellee and
it is not always assumed in the absence of proof that
reasons exist for a classification made by the legisla-
ture. As was stated by this Court in Colgate v. Harvey,
296 U. S. 404, at 425, 80 L. Ed. 299:
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—]7—
‘**To assume that some winamed public interest
exists, which will sustain the discrimination, does
not help the matter here; because the assumption
can rest only on surmise, with nothing concrete or
explicit appearing to support it or to indicate a leg-
islative intent to relate the exemption to any pub-
lie purpose, ”’
In our next point we shall consider the problem
whether or not the classification contained in section
536 of the Civil Code of the State of California is re-
lated to the purpose or object of the legislation or
whether it is simply an arbitrary selection of a particu-
lar type of corporation for the sole purpose of grant-
ing such favored corporation a special benefit.
Point IV.
The Federal Question Is Substantial. Appellant County’s
Position Is in Accord With the Decisions of This
Court Whereas the Appellee’s Position and the Hold-
ing of the State Court Is in Accord Only With the
Dissenting Opinion in Frost v. Corporation Commis-
sion, 278 U. S. 515, 73 L. Ed. 483. The Judgment
Appealed From Fails to Give Due Consideration to
the Requirement That There Be a Relationship Be-
tween the Classification and the Subject Matter of
the Legislation.
At no time in this lawsuit have we ever questioned
the basic premise of appellee that it is entirely proper
to classify corporations for many purposes and in
many types of statutes.
= =
What we have asserted is that such classification
like any classification ‘‘must rest upon some ground
of difference having a fair and substantial relation
to the object of the legislation.”’ Frost v. Corporation
Commission, 278 U. S. 515, at 524, 73 L. Ed. 483.
That essential ‘‘relation to the object of the legis-
lation’ has been substantially ignored by appellee, by
the majority opinion of our State Court in the present
case, and in the dissenting opinion in Frost v. Corpora-
tion Commission, 278 U. S. 515, 73 L. Ed. 483. And
now appellee (although stating that the State Court
distinguished the Frost case) boldly asserts on page 10
of its present motion:
“The dissenting opinion of Justice Brandeis
in that case, concurred in by Justice Holmes and
Stone, is undoubtedly, as the cases above show, the
established rule of this Court.’’
By that statement appellee has now very frankly
defined the issue presently before this Court both with
respect to this motion to dismiss and with respect to
the merits. Appellee concedes and indeed asserts that
it stands on the dissenting opinion in the Frost case
and that such dissenting opinion is the established
rule. We assert that the majority opinion in that case
is the law.
With respect to the motion to dismiss, the mere fact
that appellee finds it necessary to rely upon a dissent-
ing opinion of this Court and in effect to ask this Court
tu overrule the case demonstrates that the Federal
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~~
question is substantial, and that is true whether the
decision sought to be overruled be right or wrong.
With respect to the merits, the fact that the major-
ity opinion in the Frost case does give effect to the
esselitial requirement that the classification must bear
a‘relation to the object of the legislation’’ whereas the
dissenting opinion does not give proper consideration
to that factor we believe supports our position com-
pletely.
‘The other cases cited by appellee are not inconsist-
cnt with the majority decision in the Frost case and
are not in accord with the dissent. They upheld the
classification of corporations and the Frost case did
not but the essential difference between the two lines
of cases is that in the cases upholding the classifica-
tion there was the necessary relationship between clas-
sification and subject matter of the legislation whereas
in cases like the Frost case there was not. Only two
of the cases cited by appellee are subsequent to the
decision in the Frost case. The other prior cases obvi-
ously did not overrule or modify the established rule of
that case. Neither of the two subsequent cases (Law-
rence v. State Tax Commission, 286 U. 8. 276, 76 L. Ed.
1102; Phillips Petroleum Co. v. Jenkins, 297 U. S. 629,
80 L. Ed. 943) purport to modify or overrule the Frost
case. In fact, the first of those cases, Lawrence v. State
Tac Commission, 286 U. S. 276, at pages 283 to 284,
spent considerable time recognizing the rule and demon-
strating that a relationship did exist in that case be-
tween the classification and the subject matter of the
— |=
legislation. It is an income tax case. The supposed
discrimination was in failing to tax corporate income
on out of State business but the Court pointed out the
State policy embodied in the general statute to avoid
duplication of tax on corporate income and stock.
holders’ dividends, and since the latter was taxed it
was logical and consistent and produced substantial
equality to exempt the former. There was a relation-
ship between the corporate form of doing business and
the object of the legislation which not only substantially
eliminated discrimination but which made necessary
and hence justified the classification. Because of this
relationship this Honorable Court expressly distin.
guished (and did not overrule) Quaker City Cab Co. v,
Pennsylvania, 277 U. 8. 389, 72 L. Ed. 927, the other
case upon which we rely, and which arrived at the same
conclusion as the Frost case. We thus see no justifi-
cation in the suggestion made by appellee that the cases
upon which it relies show that the dissenting opinion
in the Frost case ‘‘is undoubtedly, as the cases above
cited show, the established rule of this Court.’’
We submit that the holdings of this Honorable
Court are consistent. None of them holds that classi-
fication is always proper. ‘They require the establish-
ment of relationship between class and subject matter.
The end results differ depending upon whether that
relationship exists. Where such a relationship exists
the classification is upheld. In Frost v. Corporation
Commission, 278 U. S. 515, 73 L. Ed. 483, it did not
exist and the statute was struck down. Likewise, in
Quaker City Cab Co. v. Pennsylvania, 277 U. 8. 389,
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72 L. Ed. 927, the relationship did not exist and the
statute was struck down.
An examination of the reasons given by this Honor-
able Court for its conclusions in the latter two cases will
demonstrate that it was not applying different rules
but the same rules to different facts. In Frost v. Cor-
poration Commission, 278 U. 8. 515, 73 L. Ed. 483, the
Court said, at page 524:
“The converse, of course, is equally true. A
classification which is bad because it arbitrarily
favors the individual as against the corporation
certainly cannot be good when it favors the cor-
poration as against the individual. In either case,
the classification, in order to be valid, ‘must rest
upon some ground of difference having a fair and
substantial relation to the object of the legislation,
so that all persons similarly circumstanced shall
be treated alike. F. 8S. Royster Guano Co. v. Vir-
ginia, 253 U. S. 412, 415, 64 L. Ed. 989, 990, 40
Sup. Ct. Rep. 560; Air-way Electrie Appliance
Corp. v. Day, 266 U. 8. 71, 85, 69 L. Ed. 169, 177,
45 Sup. Ct. Rep. 12; Schlesinger v. Wisconsin, 270
U.S. 230, 240, 70 L. Ed. 557, 564, 43 A. L. R. 1224,
46 Sup. Ct. Rep. 260. That is to say, mere differ-
ence is not enough; the attempted classification
‘must always rest upon some difference which
bears a reasonable and just relation to the act in
respect to which the classification is proposed, and
can never be made arbitrarily and without any
such basis.
“Stripped of unmaterial distinctions and re-
duced to its ultimate effect, the proviso, as here
—22—
construed and applied, boldly creates one rule for
a natural person and a different and contrary rule
for an artificial person, notwithstanding the fact
that both are doing the same business with the gen-
eral public and to the same end, namely, that of
reaping profits. That is to say, it produces a
classification which subjects one to the burden of
showing a public necessity for his business, from
which it relieves the other, and is essentially arbi-
trary, because based upon no real or substantial
differences having reasonable relation to the sub-
ject dealt with by the legislation.”
In Quaker City Cab Co. v. Pennsylvania, 277 U. S. 389,
72 L. Ed. 927, this Court said, at page 402:
“. . . The character of the owner is the sole
fact on which the distinction and discrimination
are made to depend. The tax is imposed merely
because the owner is a corporation. The discrim-
ination is not justified by any difference in the
source of the receipts or in the situation or char-
acter of the property employed. It follows that the
section fails to meet the requirement that a classi-
fication to be consistent with the equal protection
clause must be based on a real and substantial dif-
ference having reasonable relation te the subject
of the legislation. Power Mfg. Co. v. Saunders,
supra. No decision of this court gives support to
such a classification. In no view can it be held
to have more than an arbitrary basis. As con-
strued and applied by the state court in this case,
the section violates the equal protection clause of
the 14th Amendment.”’
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=~ Ss
In one case the statute attempted to give a business
advantage and in the other case to impose a burden
upon certain types of corporations merely because they
were such corporations. ‘They were not statutes which
required different treatment of corporations because
of inherent differences in that form of doing business
or which were enacted to promote some public purpose
related to the police power wherein and as an incident
thereto it beeame desirable to limit the conduct of cer-
tain functions to certain State-regulated corporations.
Precisely the same thing is true here. Section 536
Code of Civil Procedure of the State of California does
not purport to regulate the telephone business by limit-
ing the engagement therein to corporations. All per-
sons are permitted to engage in the telephone business
and all are subject to precisely the same regulations.
So far as section 536 Civil Code is concerned there is
no regulation of the telephone industry whatsoever.
All that the section does is to grant a subsidy to all
those who happen to be telephone or telegraph corpora-
tions. Other persons engaged in the telephone or tele-
graph business must obtain the usual franchise and
pay the usual substantial fees. Other corporations
engaged in other utility businesses must obtain the
usual franchises and pay the usual fees. There is no
rational relationship between the privilege granted to
telephone and telegraph corporations and the subject
matter of the legislation. It is the situation which was
hefore this Honorable Court in the Frost case. In the
Frost case the discriminated class had to obtain a cer-
tificate of public convenience and necessity. Here
nln
the discriminated class must obtain franchises under
competitive bidding and in addition must pay 2% of
their gross receipts.
We rely upon the Frost case.
Appellee relies upon the dissenting opinion in the
Frost case and says that it is the established rule of
this Court.
We submit that that presents a substantial Federal
question sufficient at least to withstand the motion to
dismiss and in our opinion sufficient to require the
reversal of this case when it is considered on the merits,
Point V.
The Decision May Not Be Rested on Non-Federal
Grounds
It is quite true that the State Court considered sev-
eral State grounds of constitutionality and statutory
construction and decided them against the appellant.
However, it is the adverse decision upon such grounds
which makes the Federal ground material. That is to
say, if the State Court had decided that section 536
Civil Code of the State of California violated the
State Constitution or had been repealed or had not
granted a franchise to telephone corporations it would
have been unnecessary to pass upon the Federal ques-
tion. Having decided that the section was otherwise
valid it was necessary to and the State Supreme Court
did pass upon whether the section violated the Ith
Amendment.
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Picrn ase ew ie
a.
There was no independent State ground of decision
passed upon by the State Supreme Court which made
the decision on the Federal ground unnecessary. Ap-
pellee asserts that there were two, (1) rule of property,
and (2) estoppel.
With respect to the rule of property there is a two-
fold answer:
First, the State Supreme Court did not rule that
appellant was barred by a rule of property, but re-
ferred to one of the arguments ‘‘as something akin to a
rule of property.”
Second, such argument had reference to unconstitu-
tionality under the State Constitution. It is now imma-
terial whether the statute does not violate our State
Constitution because of prior decisions (‘‘something
akin to a rule of property’’) or because of the present
decision of the State Supreme Court. It is because the
section does not violate the State Constitution (either
because of prior decisions or otherwise) that it becomes
necessary to consider the l’ederal constitutional ques-
tion. ‘The State Court decision cannot be construed as
holding that appellee was protected by a prior inter-
pretation of the Federal Constitution, which prior
interpretation constituted a rule of property. Section
536 Civil Code of the State of California had never
before been challenged under the 14th Amendment in
the Supreme Court of the United States or in the Su-
preme Court of the State of California,
ia...
With respect to estoppel appellee does not even
contend in its motion to dismiss or affirm that the
State Supreme Court rested its decision upon any such
ground but merely asserts that the State Supreme
Court in its opinion “‘recited the facts’’ considered by
the trial court with reference to this defense.
It is well established that this Honorable Court will
not ‘‘refuse jurisdiction because the State Court might
have based its decision, consistently with the record
upon the independent and adequate non-federal
ground.’’ Indiana ex rel. Anderson v. Brand, 303 U. 8.
95, at 98, 82 L. Ed. 685.
With reference to both asserted independent State
grounds of decision not only did the State Supreme
Court not rest its decision upon any such grounds in
the body of its opinion but we have that Court's own
statement of what was before it and what it decided.
The third paragraph of the Court’s opinion reads as
follows:
‘The questions to be decided are: First, what
is the effect of section 536% Second, was section
536 repealed by the Broughton Act? Third, if
section 536 is construed as granting a franchise
to defendant, it is unconstitutional (a) as being a
gift in violation of sections 22 and 31 of article IV
of the California Constitution or (b) as denying
equal protection of the laws and constituting an
invalid grant of special privileges in violation of
the 14th Amendment to the Federal Constitution
and sections 11 and 21 of article | and section 25 of
article LV of the California Constitution.”
—
We submit that the State grounds actually passed
upon are not indeperdent grounds of decision making
it unnecessary to pass upon the Federal question, but
upon the contrary, it is because those grounds were
decided adversely to appellant and the statute was thus
subsisting and valid under our State Constitution that
it became necessary to decide whether or not the stat-
ute was nevertheless invalid because it violated the 14th
Amendment of the Federal Constitution.
Conclusion
We respectfully submit that the motion to dismiss
or affirm should be denied. If this case is not deter-
mined on the merits, a statute which gives telephone
and telegraph corporations a special privelege will be
perpetuated at the taxpayers’ expense. It is a most
important public question affecting the revenue of all
the counties of this State.
Respectfully submitted,
HAROLD W, KENNEDY,
County Counsel,
and
A. CURTIS SMITH,
Assistant County Counsel,
and
GERALD G. KELLY,
Deputy County Counsel,
Attorneys for Appellant.
APPENDIX
FINAL OPINION, AS MODIFIED ON REHEAR-
ING, IN THE SUPREME COURT OF
THE STATE OF CALIFORNIA
EN BANC
THE COUNTY OF LOS AN-) FILED:
GELES, a body politic and cor- )
porate, )
Appellant, )
vs. ) L. A. No. 19311
SOUTHERN CALIFORNIA TEL- )
EPHONE COMPANY, a corpora- )
tion, )
Respondent. )
GIBSON, C. J.—By this action for an injunction,
plaintiff county is seeking to compel defendant tele-
phone company to obtain a county franchise and to pay
for the privilege of maintaining its lines and poles
on streets and highways outside of incorporated areas.
Defendant claims it was granted this privilege by
section 536 of the Civil Code as amended in 1905, and
that it is not required to obtain a franchise from the
county. The trial court determined that defendant had
a valid franchise, from the state, and denied the
injunction. The county has appealed from the
judgment.
In the years 1903-1905, the county issued five
franchises for telephone lines, and these were there-
a we
after conveyed to the defendant telephone company,
Three of the franchises terminated before this action
was commenced, and a fourth expired before the trial,
The fifth franchise by its terms is still in effect, but
the area which it covers was expressly excluded from
this controversy by the complaint. Only one of the
franchises required the payment of a percentage of the
gross receipts derived from the use of the privilege,
and the company made the payments, as provided,
until expiration of the period specified therein. The
company and its predecessors, at least since 1909, have
specifically relied on section 536 for their authority
when applying for permits to locate or change poles or
lines on the highway. Further, from 1905 until about
the time of the filing of the complaint, except for six
years, the county assessed and levied property taxes
on the franchise claimed by defendant and its pre-
decessors under the section.
The questions to be decided are: First, what is the
effect of section 536? Second, was section 536 re-
pealed by the Broughton Act? Third, if section 536
is construed as granting a franchise to defendant, it
is unconstitutional (a) as being a gift in violation of
sections 22 and 31 of article IV of the California
Constitution or (b) as denying equal protection of the
laws and constituting an invalid grant of special priv-
ileges in violation of the 14th Amendment to the
federal Constitution and sections 11 and 21 of article
I and section 25 of article IV of the California
(‘onstitution.
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vilien
(1) Section 536 was originally enacted at the time
of the adoption of the codes in 1872, but similar pro-
visions had existed for many years prior thereto. (See
Stats. 1850, p. 369; Stats. 1857, p. 171). When first
enacted the section applied only to telegraph corpora-
tions. It made no mention of telephone companies, and
it did not grant any rights to such companies
prior to 1905, when the section was repealed and
reenacted to apply to both telegraph and telephone
corporations. (See Sunset Tel. & Tel. Co. v. Pasadena,
161 Cal. 265, 118 P. 796.) As applied to telegraph
companies, it has been held that section 536, as it
existed prior to 1905, was effectual to grant a state
franchise, and that the use of the highways, and the
maintenance and operation of the telegraph system,
constituted an acceptance of the provisions of the
statute and resulted in a contract between the company
and the state which was secured by the federal Con-
stitution against impairment by subsequent state legis-
lation. (See Western Union Tel. Co. v. Hopkins, 160
Cal. 744, 87 P. 1023; Postal Tel. Cable Co. v. Los
Angeles, 160 Cal. 129, 116 P. 566; Sunset Tel. & Tel.
Co. v. Pomona, 172 F. 829, 837; Postal Tel. Cable Co.
v. Railroad Com., 200 Cal. 463, 254 P. 258).
The purpose of the change in 1905 was to add
telephone corporations to the section, and, except for
this extension, there is nothing in the amendment to
indicate any intention to alter the effect and opera-
tion of the statute. (See City of Salinas v. Pacific Tel,
& Tel. Co., 72 Cal. App. 2d 494, 497, 164 P. 2d 905).
— we
In view of the construction given to this section as it
existed prior to 1905, and the absence of other changes,
it must be held that the intention was to offer the
grant of a franchise to telephone as well as telegraph
companies upon acceptance by the construction and op-
eration of communication facilities.
(2) A question has arisen, however, as to whether
section 536 was repealed by the Broughton Act, which
was adopted at the same session at which section 536
was amended. The act does not contain any provision
expressly repealing that section, and it was not re-
pealed by implication unless the statutes are so repug-
nant they cannot stand together. The Legislature was
considering the statutes at the same time and must
have invended to give effect to both. In County of
Inyo v. Hess, 53 Cal. App. 415, 200 P. 373, it was held
that section 536 was not repealed by the Broughton
Act but that the statutes could operate in separate
fields. The court said at page 425 ‘“‘that under and
by virtue of the provisions of section 536 of the Civil
Code, telephone corporations are granted the right and
privilege to use the public highways over which to
construct and operate lines of telephone wires, free
from any grant made by subordinate legislative bodies,
and unrestricted by the provisions of the Broughton
Act ...’’ The court also declared that section 536 was
intended as a legislative grant limited in operation to
telegraph and telephone corporations, as distinguished
from individuals. This construction is supported by
the specific terms of the section which refers only to
‘telegraph or telephone corporations.”’
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cailiibsan
The Broughton Act, unlike section 536, does not
grant any right or privilege, nor does it purport to
empower or authorize boards of supervisors to grant
franchises or other privileges, but instead indicates
an intent to limit and restrict the powers which may
have been granted under other laws by specifying the
procedure which must be followed and the conditions
which must be imposed in the granting of any fran-
chise by subordinate legislative bodies. The court
stated in Oro Electric Corp. v. Railroad Com., 169 Cal.
466, at pages 482-483, (147 P. 118), that “‘this act
merely places restrictions upon the granting of fran-
chises, where the power to grant such franchises exists
otherwise. As was said in Sunset Tel. & Tel. Co. v.
Pasadena, 161 Cal, 265, 272, (116 P. 796), the ‘whole
purpose’ of the act ‘was to prescribe the method and
conditions upon which the franchises included within
its terms might be granted by the legislative body
authorized by law to make the grant.’ The act does
not authorize any board or council to grant a fran-
chise.”’” (See also McGinnis v. Mayor and Common
Council, 153 Cal. 711, 713-714, 96 P. 367; City of San
Diego v. Kerckhoff, 49 Cal. App. 473, 482 (193 P.
801). Since the Broughton Act is thus limited in op-
eration to those franchises which subordinate legis-
lative bodies are authorized to grant under other laws,
it cannot be construed as applicable to statutory fran-
chises which are not granted by such bodies but which,
as in the case of the franchise involved here, are
granted directly by the legislature. The two statutes
antiie
were enacted for separate purposes and occupy sep-
arate fields, and both can be given effect. There is,
therefore, no such repugnance between the acts as
would require a determination that there was any
implied repeal. Accordingly, defendant is entitled to
use the streets and highways in unincorporated areas
of the county, by reason of its franchise under section
536, unless that section, as claimed, is unconstitutional.
The county contends that the Legislature is pro-
hibited by sections 22 and 31 of article IV of the
California Constitution from granting a free franchise
and that since no compensation is required to be paid
for the rights acquired under section 536, the statute
is unconstitutional. It does not follow, however, that_-
because telephone and telegraph companies are per-
mitted without charge to construct lines along the
highways the privilege granted is a gift. The fran-
chise is conditioned not only on the establishment of
lines by a telegraph or telephone corporation, but also,
by necessary implication, on the continued operation
of the system. (4) The grant under section 536 must
be construed in favor of the state. (Civ. Code, See.
1069). As so construed it must be held to be a grant
to use public roads and highways so long as telegraph
or telephone communication service is continued and
that the acceptance of the franchise involves an as-
sumption of the duty to furnish proper and adequate
communication service to the public. Obviously, the
state receives a substantial benefit from the continued
eperation of such a system, and the question is whether,
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, a ak ala Bite a @l« ia ote lt ©)
ailien
notwithstanding that benefit, the grant comes within
the constitutional prohibition.
(5) Section 536 has been judicially construed by
many decisions of this court, and it has been uniformly
held that the statute is a continuing offer extended to
telephone and telegraph companies to use the high-
ways, Which offer when accepted by the construction
and maintenance of lines constitutes a binding contract
based on adequate consideration, and that the vested
right established thereby cannot be impaired by sub-
sequent acts of the Legislature. (Western Union Tel.
Co. v. City of Visalia, 149 Cal. 744 (87 P. 1023);
Western Union Tel. Co. v. Hopkins, 160 Cal. 106 (116
P. 557); Western Union Tel. Co. v. County of Los
Angeles, 160 Cal. 124 (116 P. 564); Postal-Telegraph
Cable Co. v. County of Los Angeles, 160 Cal. 129 (166
P. 566); Postal Telegraph Cable Co. v. Los Angeles,
164 Cal. 156 (128 P. 19) ; Sunset Tel. & Tel. Co. v. Pasa-
dena, 161 Cal. 265 (118 P. 796); Postal-T elegraph
Cable Co. v. Railroad Com., 200 Cal. 463 (254 P. 258) ;
see People v. Turlock Home Tel. & Tel. Co., 200 Cal.
546 (253 P. 1108) ; County of Inyo v. Hess, 53 Cal. App.
415 (200 P. 373); State of California v. Marin Mun.
W. Dist., 17 Cal. 2d 699 (111 P. 2d 651).
The nature of the rights and privileges arising from
section 536, as interpreted by the cases just cited, is
stated in Postal-Telegraph Cable Co. v. Railroad ( ‘om.,
200 Cal. 463, at pages 472-473 (254 P. 258) as follows:
“This section (536) constitutes a grant of a franchise
~
which the state offered, and petitioner accepted by the
construction of its lines. The rights acquired by the
Telegraph Company, by accepting and availing itself of
the provisions of the section, are vested rights which
the constitutions, both state and federal, protect. They
cannot be taken away by the state, even though the
legislature should repeal the section, or by the people
through a constitutional provision. ... The finding of
the respondent Commission of the physical fact that
petitioner was maintaining and operating its lines of
telegraph over the roads and highways of the state
establishes, as a matter of law and fact, the propo-
sition that it has accepted and owns a state franchise
for that purpose, which was offered to it by section
536, supra. . .. The grant, resulting from the ac-
ceptance of the state offer, constituted a contract be-
tween the Telegraph Company and the state, secured
by the constitution of the United States against im-
pairment by any state legislation.” (See also City of
Beverly Hills v. Los Angeles, 175 Cal. 311 (165 P. 924),
The prevalence of legislative grants to public utili-
ties of the privileges of using streets and highways is
shown by the following statement in State of California
v. Marin Mun. W. District, 17 Cal. 2d 699, 703 (111
P, 2d 651): ‘‘The right obtained by defendant from
these sources is a right conferred by the legislature
to construct and operate pipe lines along the public
highways of the state. Such a grant by the state to
a public utility . . . has always been considered a
franchise by the courts of this state. The right cranted
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=f
to municipal corporations by the statute of 1923 to use
the public highways was held a franchise in Los
Angeles v. South Gate, 108 Cal. App. 398 (291 P. 654).
The right granted to public utilities by article XI,
section 19 of the . . . Constitution . . . was held a
franchise in San Jose Gas Co. v. January, 57 Cal. 614.
... The right granted to telephone and telegraph com-
panies by .. . section 5386 (Civ. Code) .. . was held
a franchise in Western Union Tel. Co. v. Hopkins,
160 Cal. 106 (116 P. 557); Sunset Tel. & Tel Co. v.
Pasadena, 161 Cal. 265 (118 P. 796), and Postal-Tele-
graph Cable Co. v. Los Angeles, 164 Cal. 156 (128 P.
19). The right granted to irrigation districts by a 1923
statute . . . for power lines was held a franchise in
Winkie v. Turlock Irr. Dist., 24 Cal. App. 2d 1 (74
P. 2d 302).”’
The courts of other jurisdictions have held that the
statutory offer of a franchise when accepted by the
construction and operation of a public utility results in
a valid contract secured by the federal Constitution
against impairment. (New York Electric Lines Co. v.
Empire Subway Co., 235 U. 8. 179, 193 (35 S. Ct. 72,
59 L. Ed. 184); City Railway Co. v. Citizens’ Street
Railroad Co., 166 U. 8S. 557, 567 (17 S. Ct. 653, 41
L. Ed. 1114) ; Chicago Gen. Ry. Co. v. City of Chicago,
176 Ll. 253, 259 (52 N. E. 880, 68 Am. St. Rep. 188, 66
L. R. A. 959); see State v. Southwestern Bell Tele-
phone Co., 338 Mo. 617 (92 S. W. 2d 612); Arkansas
State H. Com’n, v. Southwestern Bell T. Co., 206 Ark.
1099 (178 S. W. 2d 1002).).
atti
The county seeks to avoid the effect of the long line
of cases holding that the acceptance of the offer con-
tained in section 536 and similar statutes resulted in
a valid contract by asserting that those cases did not
take into consideration the constitutional prohibition
against gifts of public property and its historical
background. It is argued that sections 22 and 31 of
article IV of the state Constitution were enacted to
prevent the waste of public funds and property by the
appropriation of subsidies to railroads and other cor-
porations, and that the privilege of using the highways
for telephone lines is, in effect, a subsidy to a cor-
poration operated for private profit. Although none of
the opinions of this court construing section 536 dis-
cussed the possible effect of sections 22 and 31 of
article IV, it would seem unlikely that the many judges
and counsel participating in those cases entirely over-
looked the legality of the consideration involved, since
that was an essential requisite in each case to the
holding that the acceptance of the offer of a franchise
resulted in a valid contract.
In support of its contention that a public benefit
cannot be a valid consideration for the grant of a lim-
ited privilege to use the highways for the construction
and maintenance of telephone lines, the ccunty relies
upon the case of Higgins v. San Diego Water Co., 118
Cal. 524 (45 P. 824, 50 P. 670), asserting that the
consideration involved there is identical with that
which must be urged to support the contract in the
present case. The City of San Diego subleased from
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defendant water company its distributing system for
the term of 20 years at a fixed monthly rental, and the
company agreed as part of the consideration that it
would construct a railroad line. The agreement was
held to be invalid on the ground that the charter of
San Diego conferred no authority upon the council to
expend any portion of the municipal funds in aiding
the building of railroads. The court expressly declined
to determine whether the contract violated the con-
stitutional prohibition against gifts, and the decisions
therefore is not authority here. There is language in
the opinion, however, which intimates that some of
the evils which the constitutional restriction was de-
signed to prevent were present in the transaction in-
volved in that case.
Courts in other jurisdictions with similar consti-
tutional prohibitions have held in factual situations
comparable to that involved in the Higgins case that the
yeneral public benefit derived from the construction
of a public utility system is insufficient consideration
to support direct appropriations of public money, ex-
tensions of publie credit, or outright grants of prop-
erty. Lord v. Denver, 58 Colo. 1 (143 P. 284, Ann. Cas.
1916C 893, L. R. A. 1915B 306) ; Colorado Central R. R.
Vo v. Lea, 5 Colo. 192; Southern Railway Co. v. Hart-
shorne, 162 Ala. 491 (30 So. 139); Stone v. State, 223
Ala, 426 (136 So. 727).). On the ocher hand, the
only cases which have considered franchises of the
character involved here hold that the grants are valid
and do not contravene constitutional prohibitions
12
against gifts. (State v. Southwestern Bell Telephone
Co., 338 Mo. 617 (92 S. W. 2d 612); State v. Union
Electric Co. of Missouri (Mo. App.), 142 S. W. 2q
1099; Arkansas State H. Com’n. v. Southwestern Bell
T. Co., 206 Ark. 1099 (176 S. W. 2d 1002).).
There appears to be some basis for the distinction
although it has not been pointed out in the cases. (6)
A franchise such as is authorized by section 536 is
not an absolute grant in fee or an appropriation of
money, but is merely a limited right to use the highways
and only to the extent necessary for the furnishing of
services to the public. Also, the privilege must be
exercised ‘‘in such manner and at such points as not
to incommode the public use of the road or highway.”
(Civ. Code, Section 536). It is obvious that the right
acquired by the company is of less substance than the
transfers involved in the cited cases which condemn
appropriations of money and grants in fee.
Moreover, the state is assured of a continuing bene-
fit in return for the privileges granted under section
536, whereas this may not be true in transactions in-
volving an outright appropriation or transfer in fee.
The company must not only construct a telephone sys-
tem but it must render service, and if it fails to do
so the franchise terminates. Thus the state receives
benefits during the life of the franchise, since in order
to retain it the company must continue to serve the
public. If and when the public benefit ceases and the
franchise expires, the state is in as good a position
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as it was before the limited privilege was granted.
The building of a public utility and the consequent
penefit to the people may not be a sufficient con-
sideration to support a grant in fee, but it does not
follow that the benefit received from the construction
and contiaued operation of a telephone system is not
an adequate return for the use of the highways so
long as the public service continues.
(7) Since the offer of a franchise in section 536,
when accepted, results in a binding agreement sup-
ported by a valid consideration, there is no gift within
the meaning of the constitutional prohibition.
(8) It is further urged that section 536, insofar as
it applies only to corporations and not to individuals,
improperly grants special privileges and invalidly dis-
criminates in favor of corporations. It is asserted that
the section violates the equal protection clause of the
14th Amendment to the federal Constitution, and also
that it is invalid under article I, sections 11 and 21,
and article LV, section 25, subdivisions 19 and 33 of the
state Constitution. as
These provisions of the state and federal Consti-
tutions do not prevent classification by the Legisla-
ture, nor do they require that statutes operate uni-
formly with respect to persons or things which are in
fact different. (People v. Western Fruit Growers, 22
Cal. 2d 494 (140 P. 2d 13); McCreery v. MeColgan,
17 Cal. 2d 555 (110 P. 2d 1051, 133 A. L. R. 800); Tn
re Fuller, 15 Cal. 2d 425 102 P. 2d 321); Bueneman
aifitue
v. City of Santa Barbara, 8 Cal. 2d 405 (65 P. 2d 894,
109 A. L. R. 895) ; Tigner v. Texas, 310 U. S. 141 (60
S. Ct. 879, 84 L. Ed. 1124) ; Puget Sound Co. v. Seattle,
291 U.S. 619 (54 S. Ct. 542, 78 L. Ed. 1025) ; Radice y,
New York, 264 U. S. 292 (44 S. Ct. 325, 68 L. Ed. 690);
Arkansas Nat. Gas Co. v. Railroad Com., 261 U. S. 379
(43 St. Ct. 387, 67 L. Ed. 705).).
The problem presented by the difference in treat-
ment accorded corporations and individuals under gee-
tion 536 was directly passed upon in Western Union
Tel. Co. v. Hopkins, 160 Cal. 106 (116 P. 557), and
Postal Tel. Cable Co. v. Los Angeles, 160 Cal. 129 (116
P. 566), where the claim was made that section 536 was
invalid because the offer of a franchise contained
therein was limited to corporations. In the Hopkins
case the court, in holding that there was no violation of
the constitutional provisions relating to special legis-
lation, said (p. 122): ‘‘We may reasonably assume that
good and sufficient reasons may be apparent to the
legislature why the right to exclusively occupy portions
of the public highways for the purposes specified
should be confined to corporations organized and exist-
ing for the purpose of doing a telegraph business,
and why such corporations constitute a class to which
such a grant may properly be restricted without vio-
lating our constitutional provisions against special
legislation. If it may reasonably be so assumed the
legislation must be upheld, for it is well settled that
to warrant a court in adjudging legislation void on this
ground it must clearly appear that there was no suf-
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hinn
ficient reason to warrant the legislative department in
finding a difference and making the discrimination.
Every presumption is in favor of the validity of an act
of the legislature, until its invalidity is made to
appear.’”’
Although the Hopkins case makes no specific ref-
erence to the equal protection clause of the 14th
Amendment, it is clear that the test for determining
the validity of a statute where a claim is made that it
wilawfully discriminates against any class is sub+
stantially the same under the state prohibitions against
special legislation and the equal protection clause of
the federal Constitution. (People v. Western Fruit
Growers, 22 Cal. 2d 494, 506 (140 P. 2d 13); see Mc-
Creery v. McColgan, 17 Cal. 2d 555 (110 P. 2d 1051,
133 A, L. R. 800); In re Fuller, 15 Cal. 2d 425 102 P.
2d. 321); Bueneman v. City of Santa Barbara, 8 Cal.
2d 405 (65 P. 2d 884, 109 A. L. R. 895).) In the
Western Fruit Growers case the court, after noting the
general rules on this subject, stated : ‘Problems of elas-
sification under the California Constitution are thus
similar to those presented by the federal equal pro-
tection of the laws clause of the 14th Amendment,
Under either provision, the mere production of in-
equality which necessarily results to some degree in
every selection of persons for regulation does not place
the classification within the constitutional prohibition.
The discrimination or inequality produced, in order
to conflict with the constitutional provisions, must be
‘actually and palpably unreasonable and arbitrary,’
inn
or the legislative determination as to what is a suf-
ficient distinction to warrant the classification will not
be overthrown. (Citations.) When a legislative clas-
sification is questioned, if any state of facts reasonably
can be conceived that would sustain it, there is a
presumption of existence of that state of facts, and
the burden of showing arbitrary action rests upon the
one who assails the classification.’’ (22 Cal. 2d 494
506).
It is argued, however, that the portion of the
opinion in the Hopkins case dealing with the asserted-
ly invalid distinction between individuals and cor-
porations was dictum for the reason that the tele-
graph company had commenced business and acquired
rights under the Constitution of 1849, which contained
no inhibition against special legislation. However, in
the companion case of Postal Tel. Cable Co. v. Los
Angeles, 160 Cal. 129 (116 P. 566), decided at the same
time and controlled by the Hopkins decision, the
plaintiff company did not commence business or ac-
quire any rights until after the adoption of the Con-
stitution of 1879, and therefore the issue was neces-
sarily before court.
The reasons which may have motivated the enact-
ment of section 536 were not discussed in the Hopkins
case, but it must be presumed that the Legislature
acted in response to a reasonable basis for classification
and that the differentiation was based on adequate
grounds if any such basis can reasonably be said to
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wiles
exist. There is ample justification for treating cor-
porations differently from individuals in granting
franchises for the operation of telephone and telegraph
systems, and there is a reasonable basis for the clas-
sification of corporations as the sole recipients of the
grant offered in section 536. Corporations are in a
better position than individuals to finance and carry
on statewide projects of this nature, they are more
easily regulated and supervised, and they have much
greater permanency of existence and can give better
assurance of uninterrupted service. It may be that
one of the purposes of section 536 was to promote the
establishment of statewide communication systems, and
the use of corporate ownership and management may
have been considered the best method of achieving that
purpose.
Statutes similar to section 536, and applying to tele-
phones and telegraphs or to railroads, exist in most of
the other states of the Union, but no case has been
found in which such a statute was held unconstitutional
on the ground of improper discrimination. On the
contrary, where the objection has been raised, the power
to limit the granting of franchises has been upheld.
In Goddard v. Chicago & N. W. Ry. Co., 202 Tl. 362
(66 N. E. 1066), an act provided that a street railroad
corporation might use the streets and highways out-
side of cities and towns with the consent of the county
board, but did not authorize such use by individuals.
It was held that the Legislature by limiting grants to
incorporated companies did not violate the state or
. —1& -
Federal Constitutions. Other courts have held that
banking, insurance and similar businesses may be re-
stricted to corporations. (See Noble State Bank v. Has-
kell, 219 U. S. 104 (31 S. Ct. 186, 55 L. Ed. 112; Shal-
lenberger v. First State Bank, 219 U. S 114 (31 8. Ot.
189, 55 L. Ed. 117); Engel v. O’Malley, 219 U. S. 128
(31 S. Ct. 190, 55 L. Ed. 128) ; Dillingham v. McLaugh-
lin, 264 U. S. 370, 373 (44 8. Ct. 362, 68 L. Ed. 742);
German Alliance Ins. Co. v. Lewis, 233 U. 8. 389, 416
(34 8. Ct. 612, 58 L. Ed. 1011) ; Commonwealth v. Vroo-
man, 164 Pa. 306 (30 A. 217, 44 Am. St. Rep. 603,
25 L. R. A. 250) ; Brady v. Mattern, 125 Iowa 158 (100
N. W. 358, 106 Am. St. Rep. 291).)
There are general statements in Frost v. Corpora
tion Com., 278 U. S. 515 (40 S. Ct. 235, 73 L. Ed. 483),
which, detached from their context, may appear to be
out of harmony with the authorities cited above. The
case, however, is clearly distinguishable. The legis-
lation condemned in that decision exempted agricul-
tural corporations issuing stock and organized for
private gain, as well as true cooperatives, from the
requirement of making a showing of public necessity
in order to obtain a permit to operate a cotton gin.
Individuals and other corporations desiring to engage
in the same business for profit were required to make
the showing. The corporation involved in the Frost
case was an agricultural company issuing stock and
organized for private gain. The court intimated that
true cooperatives might be properly exempted but held
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that, in view of the subject dealt with by the legislation,
there was no substantial or relevant basis for the dif-
ferentiation between an agricultural corporation of
the type there involved and individuals or other cor-
porations organized for profit. ‘'he subject involved
in the Frost case is entirely different from that dealt
with in section 536. As we have seen, there are sound
purposes to be served in encouraging the corporate
operation of telephone systems, and the classification
complained of cannot, therefore, be said to be un-
reasonable or arbitrary.
(9) The rule that all presumptions are in favor of
the validity of statutes and that a classification made
by the Legislature will not be overthrown by the courts
unless it is palpably unreasonable has added force
when, as here, the statute has been accepted as valid
for many years, and vast sums have been invested in
reliance upon the rights granted. In Willard v. Glenn-
Colusa Irr. Dist., 201 Cal. 726 (258) P. 959), where
attack was made on the constitutionality of section 55
of the California Irrigation District Act, the court said
(pp. 743-744): ‘‘It has been upon the statute books
of this state for over forty years. While its constitu-
tionality has never been passed upon by this court,
this question, so far as our knowledge goes, has never
been raised. It is hardly possible that in all the liti-
gation that has been before the courts of this state
regarding irrigation districts in their various ramifi-
cations, the validity of this provision of the statute
would not have been attached had there been any ques-
ailen
tion of its consiitutionality. The fact that no pro-
ceeding prior to the present one has ever been brought
before this or any of the appellate courts of this state
in which the constitutionality of this provision of the
statute has been questioned is most convincing proof
that the profession as a whole has regarded its validity
unassailable.”
Stronger and even more convincing proof may be
found in the legal history of section 536. Its provisions
relating to telegraph companies have been in existence
since 1872, and those applying to telephone companies
have been in effect since 1905. The constitutionality
of the section has been impliedly upheld by many de-
cisions of this court, and in the few instances where
a direct challenge has been made it has withstood the
attack. These decisions have been acquiesced in and
acted upon for more than 40 years and have become
something akin to a rule of property which should not
be disturbed in the absence of the most compelling and
cogent reasons. We find no such reasons here.
The judgment is affirmed.
Shenk, J., Traynor, J., Schauer, J., and Spence, J.,
concurred.
Edmonds, J., concurred in the judgment.
CARTER, J.—I dissent.
By permitting section 536 of the Civil Code and
the Broughton Act to stand side by side, the majority
opinion in effect affirms the holding in Inyo v. Hess,
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a
53 Cal. App. 415 (200 P. 373), that the two statutes
have the effect of giving to telephone and telegraph
corporations the right to erect and maintain lines along
public highways and streets free of any burden what-
soever while every other person or association must
comply with a number of regulations and pay money
for the same right. Thus the majority perpetuates the
type of special privilege conferred upon corporations
which is reminiscent of the decade when this legisla-
tion was adopted.
In my opinion, this results in a violation of the equal
protection clause of the Fourteenth Amendment to the
federal Constitution. While it is clear that the equal
protection clause does not prevent a state Legislature
from enacting statutes which contain a ‘reasonable
classification,’’ it is equally clear that it does prevent
the states from enacting laws which create unreason-
able discrimination. The majority opinion asserts that
the differentiation here involved is a ‘‘reasonable clas-
sification.’’ To support this argument, eight cases are
cited. (Goddard v. Chicago & N. W. Ry. Co., 202 Til.
362 (66 N. E. 1066); Noble State Bank v. Haskell, 219
U. 8. 104 (31 S. Ct. 186, 55 L. Ed. 112); Shallenberger
v. First State Bank, 219 U. 8. 114 (31 S. Ct. 189, 55
L. Ed. 117); Engel v. O’Malley, 219 U. S. 128 (31 S.
Ct. 190, 55 L. Ed. 128) ; Dillingham v. McLaughlin, 264
U.S. 370 (44 8. Ct. 362, 68 L. Ed. 742); German AI-
liance Ins. Co. v. Lewis, 233 U. 8S. 389 (34 S. Ct. 612,
58 L. Ed. 1011); Commonwealth v. Vrooman, 164 Pa.
—22—
306 (30 A. 217, 44 Am. St. Rep. 603, 25 L. R. A. 250);
Brady v. Mattern, 125 Iowa 158 (100 N. W. 358, 106
Am. St. Rep. 291).)
All eight of these cases involved statutes making
distinctions between classes of the public. In all eight
of the cases, the statutes were upheld as not violative
of the Constitution. But the basis of the holdings in
seven of the eight cases was that the statutes con-
stituted an exercise of the police power, so-called. This
power of the states to make regulations which, while
they abridge the rights of some of the citizens, are
nevertheless necessary and justified in the interest of
the general public, can be invoked only in cases where
there is a danger to the general public. A classifica-
tion may be validly made when it has a reasonable
tendency to combat a specific evil. ‘‘. . . (t)o justify
the imposition of a burden, there must be some con-
nection of causation or responsibility between the per-
son selected or the right impaired and the danger to
the public welfare or the public burden which is sought
to be avoided or relieved.’’ (Freund, Police Power,
635.) This element of public danger was present in
seven of the cases mentioned. In Nobel State Bank v.
Haskell, 219 U. 8, 104 (31 S. Ct. 186, 55 L. Ed 112),
the issue was whether anyone desiring to engage in
the business of banking could be required to form a
corporation, submit to certain inspections and con-
tribute to an insurance or guaranty fund. The evil
which this regulation was designed to check was the
frequent failure of individuals engaged in the bank-
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ing business to meet their obligations, and the resulting
insecurity of commercial paper, especially checks. The
Supreme Court of the United States said: “If the
_.. legislature declares . . . that incorporation, in-
spection and the above-described cooperation are nec-
essary safeguards, this court certainly cannot say that
it is wrong.’’ (Nobel State Bank v. Haskell, supra.)
(Emphasis added.) Shallenberger v. First State Bank,
919 U. S. 114 (31 S. Ct. 189, 55 L. Ed. 117), involved
practically the same situation and is based on the
same reasons as the Nobel State Bank Case. Engel v.
O’Malley, 219 U. S. 128 (31 S. Ct. 190, 55 L. Ed. 128),
and Dillingham v. McLaughlin, 264 U. S. 370 (44 S.
Ct. 362, 68 L. Ed. 742), both involved control of a type
of business apparently common to New York during
the years of heavy immigration. There, individuals
would act as depositaries of small savings deposits
made by recent immigrants. A substantial number of
these depositaries seems to have absconded with the
money so deposited and, of course, the low-income, un-
sophisticated depositors were nearly helpless. To elim-
inate this danger and still enable this particular group
of depositors to make their small deposits, various
statutory enactinents were passed which subjected these
individual depositaries to rather strict regulations but
exempted from the operation of the regulations banks
duly incorporated. Failure on the part of the deposi-
‘aries to comply with the regulations, such as putting
up a bond and submitting to inspections, was made a
misdemeanor. Statutes of this type were therefore
a
obviously designed to check an evil and if any further
test be needed, the criminal character of the statute
is the best indication that the protection of the public
was at its basis. In German Alliance Ins. Co. v. Lewis,
233 U. S. 389 (34 S. Ct. 612, 58 L. Ed. 1011), a statute
imposing a number of regulations on insurance com.
panies was attached on the ground that it expressly
exempted farmers’ cooperative insurance associations
from its regulations. The provisions of the statute were
regulatory only and it was held that the classification
was entirely reasonable because the members of a ¢o-
operative farmers’ insurance association are in a far
better position to police their own organization than
members of the public who deal with unincorporated
and unregulated insurers.
The next two cases cited are not binding on this
court because they were decided by state courts. But
they are equally based on the principle of protection
of the public so that they are not only not binding but -
also inapplicable. Commonwealth v. Vrooman, 164 Pa,
306 (30 A. 217, 44 Am. St. Rep. 603, 25 L. R. A. 250),
was a criminal prosecution under a statute making
it a misdemeanor for any person other than a cor-
poration to engage in the insurance business. The de
cision upholding the distinction is based on the police
power and the need of the public for protection. Brady
v. Mattern, 125 Iowa 158 (100 N. W. 358, 106 Am. St.
Rep. 291), was a petition for a writ of habeas corpus
by a contractor who had been arrested after violating
a statute which placed rather stringent controls on in-
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~~
dividual contractors and required them to put up bonds
but exempted corporate contractors and building and
loan associations from such controls. The petitioner at-
tached the constitutionality of the discrimination and
the court based its refusal to grant the writ on the fact
that the protection necessary to safeguard the public
made the classification reasonable.
In the case at bar, there is no pretence that the
discrimination is in any way designed to protect the
general public from the risks involved if it is permitted
to deal with unincorporated telephone and telegraph
operators. The absence of this element renders section
536 of the Civil Code unconstitutional. It makes a
distinction between private persons and partnerships
on one side and telephone and telegraph corporations
un the other. This distinction would result in a reason-
able classification if public welfare were at all in-
volved. Since public welfare is not involved, the dis-
tinction results in a discrimination prohibited by the
equal protection clause of the Fourteenth Amendment.
The one case cited in the majority opinion which
has not been dealt with does seem to state the rule that
the policies behind legislation are not open to inquiry
by the courts. Goddard v. Chicago & N. W. Ry. Co.,
202 Ill. 362 (66 N. E. 1066). In that case the argu-
ment was made that legislation which permitted a
county board to issue permits for the construction
of railroads to corporations only was in violation of
the state and federal Constitutions. The court brushed
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this argument aside, saying: ‘The legislature had
power to limit the authority of the county board to
grant a license to incorporated companies created . , ,
for the purpose of constructing and operating street
railways, and it is not material what reasons existed
for prescribing the limit. It was a case for the exercise
of legislative judgment with which we are not con-
cerned. (Goddard v. Chicago & N. W. Ry. Co., supra.)
It is submitted that the court was clearly wrong in
stating this flat rule. The moment a classification or
discrimination is created, the question of whether it
shall stand or fall is very much the concern of the
courts. It is simply not true that the Legislature can
exercise unlimited discretion when it creates such
classifications. The majority opinion recognizes this
and correctly states the rule that discriminatory legis.
lation must fall unless reasonable and non-arbitrary,
The Goddard case, in failing to recognize this rule,
would therefore fall even under the view taken by the
majority. Besides, being a state case it is not binding
here and its persuasive force is dissipated by the case
of Frost v. Corporation Com., 278 U.S. 515 (49 S. Ct.
235, 73 L. Ed. 483), which controls the Goddard case
as well as the case at bar.
The Frost case, supra, shows that the result reached
by the majority is wrong. The distinction created by
section 536, the Broughton Act and the decision in this
case is not a reasonable classification: It is an u-
reasonable discrimination. The present case falls clear-
ly within the rule of the Frost case as it is much
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stronger on the facts. In the Frost case, a statute
required persons and nonagricultural corporations who
wished to engage in the ginning of cotton to make a
showing of public necessity as a condition precedent
to their being able to obtain a license. Cooperative as-
sociations were exempt from this requirement. Under
the general laws of the state involved, a cooperative as-
sociation was free to sell its services to the public and
make a profit out of such dealings. The court held that
the distinction created an unreasonable classification.
“ _. the proviso, as here construed and applied, baldly
creates one rule for a natural person and a different
and contrary rule for an artificial person, notwith-
standing the fact that both are doing the same business
with the general public and to the same end, .. . it
produces a classification which subjects one to the
burden of showing a public necessity for his business,
from which it relieves the other, and is essentially
arbitrary, because based upon no real or substantial
differences having reasonable relation to the subject
dealt with by the legislation.’’ (Frost v. Corporation
Com., supra, 522.)
In the case at bar, mere enumeration of some of
the requirements set forth in the Broughton Act will
show that a greater burden results in this case than
that of showing a public necessity in the Frost case.
Under the Broughton Act, a bidder for a franchise
must—unless he is a telephone or telegraph corpora-
tion—submit sealed bids, must make immediate pay-
ment of a substantial sum if the franchise is struck off
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oi,
to him at the auction, must make an additional large
payment within 24 hours, and must pay a tax of 2 per
cent on the gross receipts every year. There are other
provisions, but those set forth show sufficiently the
great disparity created between the privileges enjoyed
by corporations under section 536 and those enjoyed by
individuals and associations under the Broughton Act,
The classification is unreasonable and discrimina-
tory because nothing is gained through it by anyone
including the state, except the corporations which are
exempt from the burdens of the Broughton Act. Op-
erators other than those favored few are evidently just
as acceptable to the Legislature, provided they pay for
the privilege given free to those favored few. Just as
in Frost v. Corporation Com., supra, both are engaged
in exactly the same type of business, for the same pur-
pose. Both would be public utilities. It is obvious,
therefore, that no consideration of public welfare
could have been in the back of the legislators’ minds,
No real reason for the classification is shown. The
majority opinion indulges in conjecture as to what
some of these reasons might have been. That, however,
is not a proper solution. The Supreme Court of the
United States has laid down the rule that the reasons
for the classification must be apparent in order for it
to have any chance of being’ sustained : ‘‘To assume that
some unnamed public interest exists, which will sus-
tain the discrimination, does not help the matter here;
because the assumption can rest only on surmise, with
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nothing concrete or explicit appearing to support it
or to indicate a legislative intent to relate the exemp-
tion to any public purpose.’’ (Colgate v. Harvey, 296
U.S. 404, 425 (56 S. Ct. 252, 80 L. Ed. 299, 102 A. L. R.
54).) The last-cited case involved income tax legisla-
tion under which income from investments within the
state was favored over that derived from out-of-state
investments. The state courts held that such a statute
“might”’ have the purpose of encouraging investments
within the state. The Supreme Court answered that
contention in the words quoted supra, The supposi-
tions made by the majority opinion in the case at bar
are open to the same criticism.
Two more points are raised which purportedly
Jend support to the holding of the majority: One, that
the question of constitutionality of these statutes has
been before this court and has been decided and that
therefore the classification and the subsequent re-
liance thereon became tantamount to a rule of property
which this court should not disturb except for com-
pelling reasons. Literally speaking, the statement that
the constitutionality of the combined effect of these
statutes has been before this court is true. The state-
ment, however, contains an ambiguous term: ‘‘Consti-
tutionality.’’ If this word can be construed to include
the state Constitution alone, the statement would be
correct. Western Union Tel. Co. v. Hopkins and its
companion cases, 160 Cal. 106 ff. (116 P. 557), did
pass on the question whether the California Consti-
tution was violated. But the court expressly recognized
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that nothing more than one single section of the Cali.
fornia Constitution had been raised by counsel. The
court found that that section had not been violated
(art. I, sec. 11), and discussed one other aspect of the
case under the California Constitution. The federaj
Constitution was not mentioned. How a holding of this
kind can result in a ‘‘rule of property”’ is very diffi.
cult to conceive. The federal question is before this
court for the first time in this case. There is no reagon
why it should not be squarely met.
The other contention is that no ‘‘compelling and
cogent reasons’’ exist in this case for a change of the
status of telephone and telegraph corporations under
what they conceived the law to be. I believe that such
reasons do exist. Under the majority holding the coun-
ties will receive no revenue out of franchises operated
by telephone or telegraph corporations. In order to
meet the requirements of the various budgets involved,
the tax rate in those counties is therefore correspond-
ingly higher than it would be if these corporations
were subjected to the same duty to pay now resting on
the balance of the operators. By subjecting telephone
and telegraph corporations to the terms of the Brough-
ton Act and by requiring them to make the payments
called for by the act, the revenue of the counties will
increase and the tax rate will decrease correspondingly,
The result will be a higher operating cost for telephone
and telegraph corporations. But, contrary to the con-
tention made by these corporations, this will not have
any ‘‘disastrous effects’’ on them. They are given the
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means of obtaining permission to charge higher rates
(Stats. 1915, p. 115 as amended, 2 Deering’s Gen. Laws,
Act 6386, Sec. 61 ff.) and will not, as they seem to con-
tend, be driven into bankruptcy. The higher rates
which telephone and telegraph corporations may then
charge for their services will place the burden of pay-
ing for the use of public streets and highways where it
belongs: On the subscribers to telephone and telegraph
services rather than the taxpayers at large. That, in
my opinion, is a reason sufficiently cogent and com-
pelling to make a change, even if a settled situation
had existed up to now. Mere lapse of time will never
breathe the breath of life into a statute void for un-
constitutionality, and the attempt to uphold the statute
on this ground evinces a fatal weakness in the basic
concept upon which the majority opinion is predicated.
The equal protection clause of the Fourteenth
Amendment to the Constitution of the United States
has been given renewed vigor by several recent de-
cisions of the Supreme Court of the United States, and
in view of this trend I do not anticipate that that court
will depart from its pronouncement in the Frost case
which is in clear conflict with the holding of the
majority in the case at bar.
It is, therefore, my opinion that the judgment
should be reversed.
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.