# Appellants Brief — Railroad Comm'n of Cal. v. Los Angeles R. Corp.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appellants Brief
- **Published:** January 1, 1929
- **Citation:** 280 U.S. 145

## Text

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SUPREME COURT

UNITED STATES.

Ocroper TERM, 1929.

No. 60.

T he Railroad Commission of the State
of California, and the City of Los
Angeles, a municipal corporation,

Appellants,
US.
Los Angeles Railway Corporation, a
corporation,
Appellee.

BRIEF ON BEHALF OF APPELLANT, CITY OF
LOS ANGELES.

Erwin P. WERNER,
City Attorney;
FREDERICK VON SCHRADER,
Deputy City Attorney;
j Josepn T. Watson,
Deputy City Attorney,
Los Angeles, California.
Attorneys for Appellant, City of Los Angeles.

Parker, Stone & Baird Co., Printers, Los Angeles,

TOPICAL INDEX.

PAGE

I AN os cscisctanbeenasavonenensns 4

Specification of Assigned Errors to Be Urged.. 8

SIIIIIIUE ° iasionyingcebarenneneiannvenns sonenbasensvonasivnepnbeianoubeupeninabeaterecesevasndarvisech 12
I.

The Franchises in Question Are Contracts....... 12
II.

The City Had Power to Enter Into Such Contracts, Includ-

ing the Fixing of Maximum Charges.................22.221e0:0-00-+ 24

IIT.

It Is Immaterial That a Rate for Public Service Fixed by
Valid Contract Between a Municipal Corporation and a
Public Service Corporation May Be Confiscatory.................. 38

IV.
The Public Utility Can Seek No Relief From the Courts
Unless It Secures a Change of the Franchise Rates by
Order of the State Railroad Commnission...................2...-..-. 39

V.
There Was No Change From the Contract or Franchise Rate
to a Statutory or Legislative Rate Due to the Orders of
the Railroad Commission, Either

ee: (a) Under the May, 1921, Application and Order (De-

S cision No. 9029); or,

s (b) Under the March 26, 1928, Decision and Order (No.

% NIE

A careful study of this case indicates the only limita-
tion upon the doctrines enunciated is that the authority
of the municipality to make a valid contract must clearly
and unmistakably appear. However, the charter powers
of the City of St. Cloud appear to have been no greater
than the charter grant of 1905 to the City of Los Angeles.
The material sections of the charter referred to in the
decision provided that the City

“shall be capable of contracting and being contracted

with, and shall have all the powers possessed by
municipal corporations at common law;”

that

“the common council, in addition to all powers here-
in specifically mentioned, shall have full power and
authority to make * * * all such ordinances for
the general welfare ‘of the city and the inhabitants

thereof, as they shall deem expedient;”

—29_—

that

“the common council shall have full power, by or-
dinance, * * * to provide for and control the
erection and operation of * * * .works * * *
and to grant the right to erect, maintain and operate
such works * * * provided * * * that the
common council shall have authority to regulate and
prescribe the fees and rates and charges of any and
all companies hereinbefore mentioned.”

Contract this phrase “grant the right” with the Los
Angeles Charter provision, “such grant and any contract
in pursuance thereof.” (1905 Amend. to City Charter,
supra, p. 17.)

The court stated, in connection with these charter re-
quirements :

“In construing and giving effect to these provisions
of the charter, we look to the decisions of the Su-
preme Court of the state. * * * In the light of
these decisions of the Supreme Court of the state of
Minnesota, we think it is clear that the city had au-
thority, in 1905, under its charter and the laws of
the state, to enter by ordinance into a contract
* * * and we do not think that this contractual
power was limited by the proviso that the council
should have the right to ‘regulate and prescribe’ the
rates and charges of the companies to which it
might grant the right of constructing such works.
It ts true that, standing alone, this proviso, in the
absence of any state decision to the contrary, would,
under the construction given similar language in
Home Tel. Co. v. Los Angeles, 211 U. S. 274, 53
L. Ed. 183, be regarded as conferring authority

merely to exercise the governmental power of regu-
lating rates and not authority to enter into a cona
tract. In that case, however, it was pointed out

that there was no other provision of the charter au-
thorizing the city to contract as to rates. And in
the present case, as the other provisions of the
charter give the city authority so to contract, we
must regard the proviso as merely an alternative
provision; that is to say, we think that the city
might either contract as to the rates as an incident
to its power of granting the right to construct and
operate the public utility, or, if it did not exercise
this power to contract, might thereafter ‘regulate and
prescribe’ the rates in the exercise of the govern-
mental authority conferred by the proviso. One
power, however, is not destructive of the other. And
where a municipality has both the power to contract
as to rates and also the power to prescribe rates from
time to time, if it exercises the poWer to contract,
its power to regulate the rates during the period of
the contract is thereby suspended and the contract
is binding. Paducah v. Paducah R. Co., 261 VU. S.
272, 67 L. Ed. 650, 43 Sup. Ct. Rep. 335.” (Italics
ours. )

In the California charter amendment of 1905 it will
be noted that the City of Los Angeles was given power
to grant franchises, provided that

“every grant shall * * * make adequate pro-
vision by way of forfeiture * * * to secure ef-
ficiency of public service at reasonable rates * * *
throughout the term of the grant.”

We do not see how such grants, under the 1905 amend-
ment, could be made effective, or construed, other than as
a grant of the power to contract, and any other construc-
tion would render the charter provision abortive. Under
no construction could this provision of the 1905 amend-
ment be called merely regulatory of rates.

in

In 1891 the Legislature enacted a statute, which, in
our opinion, gave the power to contract with reference
to rates for street railways, such statute reading as fol-
lows (Stats. 1891, p. 12—amending Sec. 497 of the Civil
Code) :

“Authority to lay railroad tracks through the
streets and public highways of any incorporated city,
city and county, or town, may be obtained for a
term of years not exceeding fifty, from the Trus-
tees, Council, or other body to whom is intrusted the
government of the city, city and county, or town,
under such restrictions and limitations, and upon
such terms and payment of license tax, as the city,
city and county, or town authority may provide. In
no case must permission be granted to propel cars
upon such tracks otherwise than by electricity, horses,
mules, or by wire ropes running under the streets
and moved by stationary engines, unless for special
reasons in this title hereinafter mentioned; provided,
however, that such board or body in granting the
right, or at any time after the same is granted, to
use electricity or any other of said modes, shall have
power to impose such terms, restrictions, and limita-
tions as to the use of streets and the construction
and mode of operating such electric and other roads
as may, by such board or body, be deemed for the
public safety or welfare.”

The Statute of 1891 above quoted did expressly give
to cities power to grant franchises

“under such restrictions and limitations and upon
such terms * * * ag the city * * * may pro-
wee? 2a

and in the granting of such franchises to

“impose such terms, restrictions and limitations as
to the use of streets * * *, and * * * mode pf

~~

—82—

operating such * * * roads as may * * * be
deemed for the public safety or welfare.”

As confirming this position, that the Statute of 1891
did constitute a grant of power to contract with refer-
ence to rates, the Legislature March 21, 1872, had en-
acted a statute in the nature of a limitation of the
power of municipalities to contract with reference to
rates, in the following language, to-wit (Civil Code, Sec.
501):

“The rates of fare on the cars must not exceed ten
cents for one fare, for any distance under three
miles. The cars must be of the most approved con-
struction for comfort and convenience of passengers,
and provided with brakes to stop thetsame, when re-
quired. The rate of speed must not be greater than
eight miles per hour. A violation of the provisions
of this section subjects the corporation to a fine or
one hundred dollars for each offense.”

However, section 501 of the Civil Code has been
amended from time to time (from 1872 to 1903), and
is still in force as amended in 1903, reading as follows:

“Rates of fare on street-cars. Construction of
cars. Penalty. The rates of fare on the cars must
not exceed ten cents for one fare for any distance
under three miles, and in municipal corporations of
the first class must not exceed five cents for each
passenger per trip of any distance in one direction
either going or coming, along any part of the whole
length of the road or its connections. The cars must
be of the most approved construction for the com-
fort and convenience of passengers, and provided
with brakes to stop the same, when required: A
violation of the provisions of this section subjects the

aii.

corporation to a fine of one hundred dollars for
each offense.”

Furthermore, it will be noted that until the creation of
the Railroad Commission there was an entire absence
from the laws of the state and the charter provisions
of the City of Los Angeles of any power to regulate
or change rates. In other words, this entire absence of
power is confirmatory of the express power given to the
City to contract. This absence of power to regulate was
commented upon in the case of Water Light & Power Co.
v. City of Hot Springs, 274 Fed. 827. construing the
law of South Dakota relative to franchises granted by
the City fixing maximum rates for water and electricity.
It was therein said:

“In the case at bar these franchises do fix a
maximum rate, and are contracts, because the fran-
chises themselves do not reserve to the city future
control of rates to be charged for Service, nor do the
statutes or constitution of the state of South Dakota
under which the defendant acted in granting the
franchises reserve to the city future control over
such rates, nor is there any power in the statutes
as they then existed given to the city to change these
rates. The relation between the plainti* and de-
fendant was and is therefore contractual and such a
contract cannot be impaired by an amendment of the
laws or the constitution.” (Italics ours. )

The same case points out the distinction between the
two classes of power residing in a municipality—one
purely governmental in its nature and the other partaking
of administrative or business nature. Commenting on
this distinction the court said:

7
—84—

“To the first of those belongs the police power
and in the exercise of such police power a city coun-
cil can in no manner bind its successors; but a city
has full power when authorized either by the con-
stitution of the state or by legislative enactment to
contract for the rendering of public service by indi-
viduals or private corporations, and in such contract
fix the rates to be charged for such service. The
granting of a franchise fixing a maximum rate is
a contract and when the franchise itself does not
reserve to the city future control of the rates to be
charged for service or the constitution or statute
under which the city acted in granting the franchise
does not reserve to such city future control over
such rates, including the power to change same,
such franchise becomes a binding contract, no more
subject to impairment than would be the contract
of individuals.”

We think this decision of the District Court is fully
in accord with the doctrine laid down by this court in
cases construing franchises granted by a city fixing maxi-
mum rates for service.

There is a line of cases, to be sure, exemplified by:

Denney v. Pac. Telephone & Tel. Co. (1928),

276 U. S. 97, 72 L. Ed. 483;

San Antonio Traction Co. v. San Antonio Pub.
Serv. Co., 255 U. S. 547, 65 L. Ed. 777;

Miss. R. R. Comm. v. Mobile & Ohio R. R. Co.,
244 U. S. 388, 61 L. Ed. 1216;

Augusta-Aiken Ry. & Elec. Corp. v. R. R. Comm.,

281 Fed. 977;
Smith v. Ill. Bell’ Tel. Co., 270 U. S. 587, 70 L.
Ed. 747;

Muscatine Lighting Co. v. City of Muscatine, 255
U. S. 539, 65 L. Ed. 764;
(and cases therein cited)

ti

which hold, in effect, that municipalities have no power
to enter into contracts fixing maximum charges for pub-
lie service, but an analysis of these cases will show one
of three things: either (1) that under the local law of
the state the particular city had no power to enter into
such contracts; or (2) that the court was not construing
the franchise rate but was construing what had always
been a statutory rate; or (3) what had originally been
a contract rate had been changed to a statutory rate.
This is clearly indicated in the Denney case, where the
rate involved had been fixed by the Postmaster General
in 1919 when the utility was under federal control, and
the franchise rate had been abrogated. Later, in 1923,
the Department of Public Works of the state of Washing-
ton, pursuant to statutory authority, approved as just
and reasonable the rates fixed by the Postmaster General
in federal control in 1919, which rates were of a higher
level than those provided in the contracts.

So, also, in the San Antonio case this court stated that
the powers of the city to contract cannot be implied.
Therefore, in effect, there was no contract rate.

In the Mississippi R. R. Comm. case the court dealt
with six direct orders of the Commission directing pas-
senger trains to be restored to service. Their orders were,
of course, not contractual, but statutory.

In the Augusta-Aiken case the record “disclosed no
contractual relations between the company and the state.”

In the Smith case the court again was dealing with
rates fixed by the State Commerce Commission.

In the Muscatine case this court particularly empha-
sized the distinction in saying:

—~36—

“It follows that as the rates here involved are
conceded to be confiscatory, they cannot be enforced,
unless they are secured by a contract obligation,”
(Italics ours. )

These cases are all illustrative of the distinction which
we think is most plain.

It was also argued in the court below that Article I,
Section 21 of the State Constitution, providing that
“No special privileges or immunities shall ever be

granted which may not be altered, revoked or repealed
by the legislature * * *”

prohibits the city from granting franchise contracts with
limitations upon maximum rates. In ghort, that such
franchises cannot be valid contracts because the city had
no power under the constitutional prohibition to bind
itself. The authorities relied upon were

City of San Antonio, supra; and

City of Denver v. Stenger, 277 Fed. 865.

We think, however, that the distinction is plain that
the power of regulation could always be exercised by
the state, but until exercised, as we shall hereinafter show
in our argument under the next heading, the franchise
maximum charge was binding upon the utility. In the
cases relied upon contra the court was not discussing a
contract or franchise rate, as it had held that the munici-
pality had no power under the laws of the state to con-
tract. In fact, this point was directly passed upon by
this court in Opelika v. Opelika Sewer Co., 265 U. S.
215, where the contract was sustained as binding between
the parties, even though subject to revocation or altera-
tion by the state. This court said (at p. 218):

—37—

“But we see no reason to doubt that the legisla-
ture, without impairing its power to revoke, may
give a city power to make a contract, from which
the city, of its own motion, may not recede. The
city has not attempted to recede from it.”

In concluding our argument on this point, we maintain
that the City had express power, and now possesses such
power, to enter into franchise contracts, subject to the
paramount power of the state to regulate rates therein,
pursuant to the following laws of the state:

1.

2.

3.

By Section 497 of the Civil Code, enacted in
1891 (Stats. 1891, p. 12);

By the Franchise Act of 1893 (Stats. 1893, p.
288) ;

By the Broughton Franchise Act of 1901
(Stats. 1901, p. 265);

By the Franchise Act of 1905 (Stats. 1905,
p. 777), as amended in 1909 and 1915 (Stats.
1909, p. 125; Stats. 1915, p. 1300);

By the Charter of 1889, as amended in 1905
(Stats. 1905, p. 980) ;

By the further amendment of the same section
in 1911 (Stats. 1911, pp. 2051-2063) ;

By the Constitutional Amendment of 1914
(Art. XII, Sec. 23), which merely prohibits
the “fixing of rates” by a city, but still permits
the city “to grant franchises for public utilities
upon the terms and conditions and in the
manner prescribed by law.”

-—38—

ITI.

It Is Immaterial That a Rate for Public Service Fixed
by Valid Contract Between a Municipal Corpora-
tion and a Public Service Corporation May Be
Confiscatory.

This proposition is so well established by the decisions
of this court that only the briefest citation of authority
is necessary.

It was said in St. Cloud Pub. Serv. Co. v. St. Cloud,
265 U. S. 352, 68 L. Ed. 1050, that

“Where a public service corporation and a munici-
pality have power to contract as to rates and exert
that power by fixing the rates to govern during a
particular time, the enforcement of such rates is
controlled by the obligation resulting from the con-
tract, and the question whether they are confiscatory
is immaterial. So. Iowa Elec. Co. v. Chariton, 255
U. S. 539, 65 L. Ed. 764, and cases there cited;
Paducah v. Paducah R. Co., 261 U. S. 267, 67 L. Ed.
647; Ga. R. & Power Co. v. Decatur, 262 U. S. 432,
67 L. Ed. 1065.”

To the same effect is Columbus Ry. P. & L. Co. v.
City of Columbus, 249 U. S. 399, wherein it was said
that ordinances passed by the city of Columbus under
authority of certain laws of Ohio and accepted by street
railway companies constituted binding contracts to fur-
nish street railway service for twenty-five years, at speci-
fied rates, in return for the use of the streets, and were
not permissive franchises which the grantees might sur-
render when they ceased to be unremunerative.

In Cleveland v. Cleveland City Ry. Co., 194 U. S. 517,
it was said:

“In reason, the conclusion that contracts were
engendered would seem to result from the fact that
the provisions as to rates of fare were fixed in ordi-
nances for a stated time and no reservation was made
of a right to alter; that by those ordinances existing
rights of the corporations were surrendered, benefits
were conferred upon the public and obligations were
imposed upon the corporations to continue those
benefits during the stipulated time. When, in addi-
tion, we consider the specific reference to limitations
of time which the ordinances contained, and the
fact that a written acceptance by the corporations
of the ordinances was required, we can see no escape
from the conclusion that the ordinances were intended

| to be agreements binding upon both parties definitely
fixing the rates of fare which might be thereafter

charged.”

To the same effect are Detroit v. Detroit etc. Ry. Co.,
184 U. S. 368, and Henderson Water Co. v. Corp. Comm.,
269 U. S. 278, 70 L. Ed. 273.

oe

IV.

The Public Utility Can Seek No Relief From the
Courts Unless It Secures a Change of the Fran-
chise Rates by Order of the State Railroad Com-
mission.

As we have pointed out, the State Railroad Commission
refused to grant any change of rates to the Company
in its instant application (Order No. 19;521). It is true
that the Railroad Commission, on May 31, 1921, issued
an intermediate, permissive order authorizing a basic six-
cent rate, but that order never became effective and was
never acted upon by the parties. The final order in said
matter was one of dismissal, granted at the request of

‘the Company, dismissing the entire proceeding and revok-
ing the intermediate, ineffective order. [R. 349-350.]

Conceding that after the constitutional amendment of
1914 the State Railroad Commission would have the
power to change the franchise contract rates, nevertheless,
it has been held by this court that where no action is
taken by the State the contract rates remain in full force
and effect.

Thus, it was said in Henderson Water Co. v. Corpora-
tion Commission, supra (269 U. S. 278):

“The present case differs from the cases cited,
in that when the water company applied to the cor-
poration commission for an order increasing rates,
it was bound by the terms of a céntract with the
city contained in its franchise to furnish water at
a low schedule of rates fixed therein. It was not
entitled to any judicial relief from this situation,
however inadequate the rates. Columbus R. L. &
P. Co. v. Columbus, 249 U. S. 399, 63 L. Ed. 699;
St. Cloud Pub. Serv. Co. v. St. Cloud, 265 U. S.
352, 68 L. Ed. 1050: Only by securing the waiver
of the franchise rates by order of the corporation
commission, speaking for the state, did the water
company have any standing to ask for a fixing of
rates in excess of the franchise rates. Trenton v.
N. J., 262 U. S. 182, 67 L. Ed. 939.” (Italics ours.)

So, also, in Milwaukee Elec. Ry. v. Wisconsin R. R.
Comm., 238 U.S. 174, this court quoted with approval
from Manitowoc v. Manitowoc & N. T. Co., 145 Wis. 13,
to the following effect :

““*No specific authority having been conferred on
the city to enter into the contract in question, the
right of the state to interfere whenever the public

re

weal demanded was not abrogated. The contract
remained valid between the parties to it until such
time as the state saw fit to exercise its paramount
authority, and no longer. To this extent, and to
this extent only, is the contract before us a valid
subsisting obligation. It would be unreasonable to
hold that by enacting section 1862, Stats. (1898),
or section 1863, Stats. (Supp. 1906, Laws of 1901,
Ch. 425), the state intended to surrender its govern-
mental power of fixing rates. That power was only
suspended until such time as the state saw fit to
act.’”” (Italics ours. )

In Lenawee County Gas & E. Co. v. City of Adrian,
209 Mich. 52, 176 N. W. 590, it was said that in the
absence of the exercise by the state of its legislative
power to fix rates, an ordinance of a city in whose streets
a gas company lays its pipes, fixing rates and accepted
by the company, constitutes a binding contract, and that
such a contract is not subject to control of the State
Utilities Commission.

So, also, in Southern Utilities Co. v. City of Palatka,
268 U. S. 232, 69 L. Ed. 930, this court said:

“The supreme court (state of Florida) held that
the city had power to grant the franchise and to
make the contract, and that it had no power, of its

- OWN motion, to withdraw, but it concedes the unfet-
tered power of the legislature to regulate the rates.
On that ground the defendant contends that there
is a lack of mutuality and therefore that it is free
and cannot be held to rates that, in the absence of
contract, it would be unconstitutional to impose.
The argument cannot prevail. Without considering
whether an agreement by the company in considera-
tion of the grant of the franchise might not bind
the company in some cases, even if it left the city

free, it is perfectly plain that the fact that the con-
tract might be overruled by a higher power does not
destroy its binding effect between the parties when
it is left undisturbed. Ga. R. & Power Co. v. Deca-
tur, 262 U. S. 432, 67 L. Ed. 1065; Opelika v.
” Opelika Sewer Co., 265 U. S. 215, 68 L. Ed. 985.”

In Pacific Telephone & Tel. Co. v. Whitcomb, 12 Fed.
(2d) 279, it was said:

“Tt cannot be doubted that where a franchise con-
tract is entered into between a municipality and a
public utility corporation, fixing rates to be charged
by the latter for a not grossly unreasonable period
of time, such rates are binding and enforceable,
even though confiscatory of the property involved.
St. Cloud Pub. Serv. Co. v. City of St. Cloud, 265
U. S. 352, 68 L. Ed. 1050. Nor can it be doubted
that under the statutes of the state of Washington
the department has the power to abrogate and cancel
such franchise rates, if in a proper case it sees fit
to do so. * * * Jt may be conceded that the
department was not obliged to grant any relief
against the rates stipulated in the franchises, and
that it could not by judicial action be compelled to
do so. Yet if it undertakes to terminate such rates,
pursuant to its plain statutory powers, the rates
substituted instead must be fair, just and reason-
able, if the plain mandate of the statute defining
its duties is to be obeyed. And when the substituted
rates are challenged, they must be considered as stat-
utory, not franchise, rates, and their character as
being confiscatory, or not, must be measured by the
principles of law applicable to such rates.” (Italics
ours. ) ,

The case is particularly in point in the matter now
before us, for the reason that the plaintiff here is attempt-

—43—

ing to attack the order of the Railroad Commission, as
was done by the city there. However, the important
distinction, in our opinion, is this, that in the Whitcomb -
case the state authorities had changed the contract rate
to that of a statutory rate. In the instant case there is
no such substitution.

In Monroe v. Detroit M. & T. Shortline R. Co., 187
Mich. 364, 153 N. W. 669, the contention was made in
behalf of the company that the State Utility Act operated
as a revocation of any power the city might have had
to regulate the service of the railroad by contract, or
otherwise. Of this contention the court said>

~ “It does not follow that because the contract may
yield to the exigency of public necessity, when such
exigency has been determined in a proper case and
manner by competent authority that the respondent,
a party to the contract, may ignore the contract
obligation, plead the public or its own convenience
as an excuse, and remit the relator to a commission
for relief. On the contrary, it seems wholly reason-
able that it should perform its contract obligations
until relieved therefrom by competent authority.”

V.

There Was No Change From the Contract or Fran-
chise Rate to a Statutory or Legislative Rate Due
to the Orders of the Railroad Commission, Either

(a) Under the May, 1921, Application and Order
(Decision No. 9029) ; or,

(b) Under the March 26, 1928, Decision and
Order (No. 19,521).

Under the first application of the plaintiff to the Rail-
road Commission, to which we will refer as the 1921

——
—44—

Application and Order, plaintiff pleads [R. 12; Allegation
IV of the Amended Complaint] that:

“In May, 1921, upon the application of plaintiff
to the Commission for an investigation of its service
and financial condition, and for an order authorizing
it to so operate its system and change its rates that
the income would be sufficient to pay the cost of
the service, the Commission made a permissive order
(Decision No. 9029) authorizing plaintiff, within
thirty days, to increase its basic five-cent fare to
six cents, and authorizing plaintiff to sell ten tickets
or tokens, in blocks, at a total cost of fifty cents.
* * * Said increase in fares was never charged
and collected by plaintiff, for the following rea-
sons * * .

Plaintiff then pleads that this increase in fare was
never put into effect, for the reasons that it desired to
operate its system, if possible, so that it would be unneces-
sary to increase the five-cent fare, and because the late
Henry E. Huntington, as principal owner and stockholder
of the properties, desired to attempt to increase the earn-
ings of the company by other means than the collection
of a basic fare greater than five cents. [R. 12.]

Attached to plaintiff’s amended complaint, Exhibit “D”,
in the concurring opinion of Commissioner Carr is the
statement [R. 169]:

“This is the second time this company has sought
from the Commission authority to depart from the
basic five-cent fare, which, with inconsequential ex-
ceptions, has prevailed on its Los Angeles system
for many years, and to enter upon the unchartered
sea of multi-coin fares,

“In November, 1918, the company came before —
the Commission with a request that its service and —

ie

financial condition be investigated. This finally re-
sulted, on May 31, 1921, in an order permitting the
company to charge a six-cent fare, with ten tokens _
or tickets for fifty cents, (Re Los Angeles Ry.
Corp., 19 C. R. C. 980) * * ache

“The company did not accept the increased fares
authorized by this decision, and after a period of
over five years, and on October 25, 1926, at the
instance of the company, the Commission set aside
and revoked its decision,” (Italics ours. )

Notwithstanding the fact that the 1921 Application
and Order is in effect not relied upon in any way by
appellee, as shown by its pleading, the court below, never-
theless, preferred

“to rest our decision upon the ground that even upon
the assumption that the city had power to fix the
utility rate by contract, and that the rate provisions
contained in the franchises granted to plaintiff did
constitute contracts, nevertheless, the rates specified
in the provisions of the franchises have been changed
by the exercise of the police power of the state. It
appears that in 1921 the Commission granted plain-
tiff company authority to increase its rates over the
basic five-cent fare, which was then in force. There
were in force and effect at that time 102 out of 116
franchises granted to plaintiff or its predecessors,
Since May, 1921, fourteen other franchises have been
granted. When the Commission, in 1921, made its
order changing the basic five-cent fare, it authorized
plaintiff to file with the Commission and put into
effect, thirty days from the date of the order, a
schedule of rates increasing the then present basic
fare of five cents to six cents, and directed that tick-
ets or tokens be put on sale. That plaintiff company
did not avail itself of the right to the increase does

—

—46—

not affect the fact that the Commission exercised
its exclusive jurisdiction to regulate rates by making
and finding that the rates provided for in the fran-
chises granted to plaintiff were inadequate and that
the six-cent fare authorized was a just rate.” (Italics
ours.) [R. 542-543.]

The errer in the conclusion of the court is manifest.
To base its decision upon this 1921 “Order” the court
below was forced to go beyond the pleadings and hold a
“permissive order” as pleaded is obligatory upon the city
in invalidating its franchises, notwithstanding the fact
that this permissive order had never been put into effect
or even been accepted by the utility. Even further facts
are revealed by the record that manifestly indicate the

~ erroneous conclusion of the court below, In the affidavit
of H. C. Mathewson, Secretary of the Railroad Commis-
sion [R. 347-350], is shown that on June 20, 1921, within
the period allowed by law, a petition for rehearing on
said decision was filed by the utility, in which the lawful-
ness of the order was challenged. The petition for rehear-
ing was set down for argument before the Commission
and removed from the calendar at the specific request of
respondent company. On October 13, 1926, respondent
company addressed the following letter to the Commis-
sion [R. 349]:

“In re Application No. 4238.

Gentlemen :

The above application was dropped from the Com-
mission’s calendar upon our request on March 14th,
1922, and no further action has been taken in the
matter since that date. In view of the entire change
of conditions since 1918, when Application No. 4238

=

was filed by this company, we at this time request
that your Honorable Commission dismiss Application
No. 4238 and the matters supplemental thereto.
Very respectfully, |
Los ANGELES RAILWAY CorPoRATION,
By (signed) G. J. Kuhrts,
Vice-President and General Manager.
Grisson, DuNN & CRUTCHER,
By
S. M. Haskins,
Its Attorneys.”

Thereafter, on October 25th, 1926, the Railroad Com-
mission issued its Decision No. 17,526, providing as fol-
lows [R. 349]:

“OrpeR SETTING AsipE DECISION AND DISMISSING
APPLICATION BY THE COMMISSION.

“Request having been made by applicant in the
above-entitled matter for dismissal of this applica-
tion, and good cause appearing for the granting of
said request,

It is hereby ordered that the above-entitled appli-
cation (being Application No. 4238) be, and the
same is hereby, dismissed; and

It is hereby further ordered that Commission
Decision No. 9029, heretofore rendered in the above-
entitled matter, which decision has been suspended
by virtue of the pendency of the petition for rehear-
ing, be, and the same is hereby, set aside and revoked.

Dated at San Francisco, California, this 25th day
of October, 1926.

H. W. Brunpice,
C. L. Seavey,
Ezra W. Decorto,
Leon O. WuIrzELL,
“ Commissioners.”

-- eT
—48—

Furthermore, under the Public Utilities Act (Stats.
1915, p. 115, as amended (Deering’s Genl. Laws of Cali-
fornia, 1923, Vol. II, p. 2683)), no change in public
utility rates is effective “except after thirty days’ notice
to the Commission and to the public, as herein provided
(Sec. 15)”; nor “until * * * schedules of rates, fares,
charges and classifications shall have been filed and pub-
lished in accordance with the provisions of this act (Sec.
17)”; nor until schedules showing all rates and fares to
be charged shall have been printed and filed with the
Commission (Sec. 18). In fact, Section 17 of the Act
prohibits any common carrier from engaging or partici-
pating “in the transportation of persons until its sched-

ules of rates, fares, charges and classifications shall have
been filed and published in accordance with the provisions
of this act.”

Furthermore, Section 27 of the Act provides:

“No street or interurban railroad corporation shall
charge, demand, collect or receive more than five
cents for one continuous ride in the same general
direction within the corporate limits of any city and
county, or city or town, except upon a showing before
the commission that such greater charge is justified;
provided, that until the decision of the commission
upon such showing, a street or interurban railroad
corporation may continue to demand, collect and
receive the fare lawfully in effect on November 3,
1914..°* 7. ™

And Section 63 of the Act provides as follows:

“(a) No public utility shall raise any rate, fare,
toll, rental or charge or so alter any classification,
contract, practice, rule or regulation as to result in
an increase in any rate, fare, toll, rental or charge,

—49—

under any circumstances whatsoever, except upon a
showing before the commission and a finding by the
commission that such increase is justified. * * *”

A perusal of the act as a whole indicates clearly that
no change in rates is effective until the provisions of the
act have been complied with. We submit that a permissive
order of such a nature is totally insufficient to constitute
a change of rate, within the purview of the act.

Recapitulating, we submit and maintain that the 1921
Order was totally ineffective to change the franchise
maximum rate, for the following reasons:

1. It was never acted upon by the public utility or
any of the parties;

2. It was never put into effect upon plaintiff's system
in any way;

3. It was abrogated and annulled by the Commission
at plaintiff's own request before it could become effective;

4, It has never been treated by plaintiff as anything
but a nullity, as its amended bill of complaint shows ( plain-
tiff's first cause of action is predicated entirely upon the
existence of franchise rates; and its second cause of action
is predicated entirely upon the refusal of the Railroad
Commission to change the franchise rates) ;

5. To rest the decision upon the 1921 order is going
entirely outside the scope of the pleadings ;

6. The change of rates was never effective under t
Public Utilities Act. |

Likewise, as the Commission refused to change the
franchise rates in 1928, we have further proof that the
public utility company admits that no change was contem-

—h0—

plated or effective under the 1921 order. We have many
decisions of this court, as well as of the courts of the
individual states, that refusal of the Commission to act is
not sufficient to change contract rates to statutory rates.

As this court said in the Henderson Water Co. case,
supra (269 U. S. 278):

“Only by securing the waiver of the franchise rates
by order of the Corporation Commission speaking for
the state did the water company have any standing to
ask for a fixing of rates in excess of the franchise
rates.”

In the City of Adrian case, supra (209 Mich. 52, 176
N. W. 590), it was said:

“That the contract ‘though binding between the
parties to it, in the absence of governmental interposi-
tion, is to be construed as having been entered into
with reference to the right and power of the govern-
ment to assert and exercise its inherent paramount
authority.’” (Italics ours.)

So, also, in the Whitcomb case, supra (12 Fed. (2d)
279), it was held that if the state

“undertakes to terminate such rates, pursuant to its
plain statutory powers, the rates substituted instead
must be fair, just and reasonable. * * * And
when the substituted rates are challenged, they must
be considered as statutory, not franchise, rates.
* * *” (Italics ours.)

As we stated, appellee here is not making any attack
upon the statutory rate but is solely concerned with enjoin-
ing the State Railroad: Commission and the City from
further continuance of the contract rates, and the entire
theory of its case is not based on the 1921 order in any

i

way, but is based entirely on the fact that a continuance
of the franchise rates is confiscatory of its property.

In the City of Adrian case, supra, Moorehead v. Union
Light, Heat & Power Co. (District Court), 255 Fed. 920,
was quoted with approval, to the following effect:

“ “These cases all decide that in determining whether
equitable relief should be granted with respect to a
contract, the court must place itself in the position
occupied by the parties at the time the contract was
made and not at the time at which it was to be per-
formed. If at the time it was made the contract was
fair and free from fraud, mistake or imposition, par-
ties must be left free to make their contracts, and it
is the duty of the courts to enforce them as made.
The same doctrine has been applied to contracts be-
tween municipalities and public utility companies.’ ”
(Italics ours. )

In the Southern Utilities Co. case, supra (268 U. S.
232), it was said:

“It is perfectly plain that the fact that the contract

might be overruled by a higher power does not destroy

its binding effect between the parties when it is left
undisturbed.”

In this regard, we maintain that the franchises continu-
ously have been and now are “undisturbed.”

We rely also on the Whitcomb case, supra (12 Fed.
(2d) 279), where it was said:

“It may be conceded that the department was not
obliged to grant any relief against the rates stipulated
in the franchise and that it could not by judicial action
be compelled to do so.”

—52—

And, also, the ruling in Monroe v. Detroit etc. Shortline

R. Co., supra (187 Mich. 364, 153 N. W. 669), holding:

“It does not follow that because the contract may

yield to the exigency of public necessity * * * a

party to the contract may ignore the contract obliga-

tion * -* * and remit the relator to a commission

for relief. On the contrary, it seems wholly reason-

able that it should perform its contract obligations

until relieved therefrom by competent authority.”
(Italics ours. )

We submit that there has been no relief by competent
authority from the contract rates, and the action filed by
the plaintiff herein is based entirely upon an effort on its
part to impair and abrogate the contracts in question
through injunctive method.

In addition, we direct the court’s attention to the fact
that after exhaustive investigations made by the Railroad
Commission the contract rates were held fair and reason-
able, and its ruling in that regard in 1928 is to continue
in effect such franchise or contract rates.

In conclusion, we might say that there are many cases,
both in the state of California and the federal courts, hold-
ing that until paramount authority has intervened and
modified franchises fixing rates, they must be recognized
as valid and enforceable in the courts.

Thus, in Henrici v. South Feather Land etc. Co., 177
Cal. 442, it was said:

“The obligation to furnish water at the agreed rate
was unlimited in time and continued until the rate
was superseded by order of a public body vested with
the power of regulating the service.”

—§3—

So, also, in Southern Pac. Co. v. Spring Valley Water
Co., 173 Cal. 291, it was said:

“Where the rates for water devoted to public use
have not been fixed by public authority, the person in
charge of the use and the consumer may freely con-
tract regarding the price of service and the manner
of payment, and such contracts will be deemed valid
by the courts and may be enforced by any appropriate
mode. (Fresno Canal etc. Co. y. Park, 129 Cal. 437
(62 Pac. 87); Stanislaus W. Co. v. Bachman, 152
Cal. 725, 730 (15 L. R. A. (N. S.) 359, 93 Pac. 858) ;
Leavitt v. Lassen Irr. Co., 157 Cal. 82, 90 (29 L. R.
A. (N. S.) 213, 106 Pac. 404).) * * * The
power to fix rates and regulate public service of water
devoted to public use ‘carries with it jurisdiction to
determine the reasonableness of charges, irrespective
of prior contracts, and to that extent such contracts
may be reformed.’ But until such public authority
has intervened and modified such prior contract it will
be recognized as valid and enforced in the courts.
7 + * = (Italics ours. )

So, also, in Salt Lake City v. Utah L. & T. Co., 173
Pac. 556, it was said:

“So long as the state does not interfere, the rates
agreed upon between the parties and the street rail-
way companies in the franchise ordinances are bind-
ing and enforceable.”

In Travers City v. Mich. R. R. Comm., 168 N. W. 481,
it was said:

“* * * The franchise contract * * * though
binding between the parties to it, in the absence of
governmental interposition, is to be construed as hav-
ing been entered into with reference to the right and
power of the government to assert and exercise its
inherent paramount authority.”

ile

In City of Manitowoc v. Manitowoc etc. Traction Co..
145 Wis. 13, 129 N. W. 925, it was said:

“The contract remained valid between the parties
to it until such time as the state saw fit to exercise its
paramount authority. * * * It is contended that
this law has superseded the contract involved in this
suit, and that therefore the contract no longer has any
binding force or effect. We do not think so. The
statute worked no change in existing rates. It simply
provided that all rates should be reasonable and left
to the Railroad Commission the power to determine
the fact as to whether or not a given rate was reason-
able. * * * Until that determination is made the
contract is in force. When it is made the contract is
superseded, if the rate is changed..* * * The
court cannot relieve the defendant from an improvi-
dent contract but the contract is of such a character
in the present instance that the legislative branch of
the government may in the interest of the public abro-
gate it. If, as is contended by counsel for the re-
spondent, no contract was entered into and we were
dealing with the ordinance as a legislative enactment
pure and simple, and not as part and parcel of a con-
tract, there might be good reason for the claim that
it is superseded by chapter 362, Laws of 1905, with-
out any affirmative action on the part of the Railroad
Commission. But such is not the case before us.”
(Italics ours. )

That case was cited with approval by this court in
Milwaukee Elec. Ry. v. Wis. R. R. Comm., 238 U. S. 174.

ae

VI.

The Absence of California Decisions Upholding the
Power of the City to Contract With Reference to
Rates Is Immaterial.

Counsel in the court below made frequent reference to
the fact that no specific California decision could be pointed
out wherein it was directly held that this city had the
power to contract with street railway companies for rates.

We merely wish to call the court’s attention to the fact
that it is not an ‘indispensable requirement or condition
precedent that California decisions be pointed out uphold-
ing the power to contract, before this court may find that
such power did, in fact, exist.

As illustrative of this doctrine, in the case of Milwaukee
Elec. Ry. & Light Co. v. R. R. Comm., 238 U. S. p. 174,
this court used the following language:

“* * * This court has repeatedly held that the
discharge of the duty imposed upon it by the Consti-
tution to make effectual the provision that no state
shall pass any law impairing the obligation of a con-
tract, requires this court to determine for itself
whether there is a contract and the extent of its bind-
ing obligation, and parties are not concluded in these
respects by the determination and decisions of the
courts of the states.”

It is clear, therefore, that even if there were decisions
of the California Supreme Court (which there are not )
to the effect that this City had not been given power by
the state to contract to fix rates, this court could find other-
wise. How much clearer it is, then; that where there has
been no expression from the Supreme Court of the state
with reference to the power to contract for rates, this

—56—
court has a duty to protect the obligation of a contract if i:
finds, under the record, that one existed.

Conclusion,

In concluding, we submit that the franchises in question
are contracts; that the City had, and now has, express
power, under the Constitution and laws of the state-of
California and the charter provisions granted to it, to
enter into such contracts, and that the provisions therein
limiting charges are valid and should be protected by the
state and federal constitutional guarantees prohibiting the
impairment of contracts; that it is immaterial that the
limitation upon maximum rates in the franchises prohibit-
ing the public utility from charging over five cents per
passenger has become confiscatory (even if, in fact, the
rates are confiscatory) ; that the plaintiff, appellee here, is
in no position to seek relief from the federal courts, where
the State Railroad Commission has refused to change the
franchise rates and has left the public utility and the City
as contracting parties in the same position in which they
were at the time the contracts were entered into; that there
has been no change of the franchise or contract rates to
statutory or legislative rates by orders of the Railroad
Commission ; that the State Constitution does not prohibit
the City from granting franchise contracts of the kind here
in question, on the ground that they are special privileges
or immunities, as they are subject to future regulation by
the state; that the franchises themselves exhibit an inten-
tion to make binding and valid contracts between the City
and the public utility; that if the appellee is entitled to any
change in the franchise rates, it is only by virtue of an
order to be made by the Railroad Commission, pursuant

a, aa

to article XII, section 23, of the State Constitution, and
the Public Utilities Act (Stats. 1915, p. 115, as amended) ;
that these rights are statutory and not judicial; that as —
appellee has failed to pursue its statutory rights, or even
to show that it is entitled to them, it has no standing in the
federal courts to seek injunctive relief to abrogate its con-
tracts with the City, on the “ground that such contracts
(willingly entered into by it) are confiscatory.

For these reasons, and upon the argument stated, we
feel that the action of the court below in abrogating the
rate fixed in the franchise contracts was in error, and the
decree should be reversed.

Respectfully submitted,

Erwin P. Werner,
City Attorney;
FREDERICK VON SCHRADER,
Deputy City Attorney;
JoszrH T. Watson,
Deputy City Attorney,
Attorneys for Appellant, C. ity of Los Angeles.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0295%3A04. Public record. Not legal advice.