Petition for Rehearing — Railroad Comm'n of Cal. v. Los Angeles R. Corp.

FILE COPY

In the Supreme Cr

OF THE _ a

United States :

te DEC 2

CHARLES

OcroBER TERM, 1929

No. 60

THE RAILROAD COMMISSION OF THE Srare |

or CALIFORNIA, and THE City or Los AN-

GELES,

Appellants,

vs. >

Los ANGELES RatLway CORPORATION (a

corporation),

Appellee.

PETITION FOR REHEARING

JOINTLY PRESENTED BY APPELLANTS RAILROAD

COMMISSION OF THE STATE OF CALIFORNIA

AND CITY OF LOS ANGELES.

ARTHUR T. GEORGE,

Ira H. Rowe 1,

Roperick B. Cassipy,

State Building, San Francisco,

Attorneys for Appellant,

Railroad Commission of

the State of California.

ERwin P. WERNER,

City Attorney,

FREDERICK VON SCHRADER,

Deputy City Attorney,

City Hall, Los Angeles,

Attorneys for Appellant,

City of Los Angeles.

Subject Index

Page

. The court erred in holding that the City of Los Angeles

possessed no power or authority to prescribe in fran-

chise contracts the rates to be charged on street rail-

way lines. The ruling in Home Telephone Company

v. Los Angeles (1908), 211 U. S. 265, is not applicable

A Ne TE Was iv oin's ckkd nasi cbsaewineaddawneas 3

II. The rates prescribed in the various franchises would be

binding upon the company even if the California law

were silent on the question of power in the city to

Se OR WE SI coke sed vabawntrsacwvenedseugs 7

III. The court erred in holding that the action of the Rail-

road Commission in 1921 and 1928 abrogated the fran-

chise contract rates. The ruling in Denney v. Pacific

Tel. & Tel. Co. (1928), 276 U. S. 97, is not applicable

ER Ee ee Serene ety reed oP ere er eae ree 9

RAMEE oP ST Gy Hy araiates gheS ORG LA OU oa Cobet se eBION Sam 15

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1929

No. 60

5

THE RAILROAD COMMISSION OF THE STATE

oF CALIFORNIA, and THE City or Los AN-

GELES,

Appellants,

vs. k

Los ANGELES RAILWAY CORPORATION (a |

corporation),

|

Appellee.

PETITION FOR REHEARING

JOINTLY PRESENTED BY APPELLANTS RAILROAD

COMMISSION OF THE STATE OF CALIFORNIA

AND CITY OF LOS ANGELES.

To the Honorable William Howard Taft, Chief Jus-

tice of the United States, and to the Associate

Justices of the Supreme Court of the United

States:

Come now the appellants and respectfully submit

their joint petition for rehearing on decision in the

above matter rendered December 2, 1929.

2

This Honorable Court by its decision (Justices

Brandeis, Holmes and Stone dissenting) affirmed a

decree of the District Court of the United States

for the Southern District of California enjoining the

City of Los Angeles and the Railroad Commission of

California from enforcing an order of the said Com-

mission denying to appellee an increase in rates of

fare over certain franchise contract rates or inter-

fering with the collection by appellee of certain rates

in excess of those fixed in said franchises.

The majority opinion is based on two principal

holdings: (1) that the City of Los Angeles never

possessed power or authority to contract as to rates

of fare, and that, therefore, the rates prescribed in

franchise contracts granted to the Los Angeles Rail-

way Corporation and its predecessor companies are

not binding on said company, and (2) that the exer-

cise of jurisdiction by the Railroad Commission of

California in 1921 and 1928 abrogated the franchise

contract rates, assuming such to have been binding

upon the company.

We most respectfully submit that this Honorable

Court has erred in its decision, and that rehearing

should be granted. We will briefly urge the following

points:

I. The Court erred in holding that the City

of Los Angeles possessed no power or authority

to prescribe in franchise contracts the rates to be

charged on street railway lines. The ruling in

Home Telephone Company v. Los Angeles (1908),

211 U. S. 265, is not applicable to the case at bar.

II. The rates prescribed in the various fran-

chises would be binding upon the company even

if the California law were silent on the question

of power in the city to contract as to rates.

IIIf. The Court erred in holding that the ac-

tion of the Railroad Commission in 1921 and 1928

abrogated the franchise contract rates. The rul-

ing in Denney v. Pacific Tel. & Tel. Co. (1928),

276 U.S. 97, is not applicable to the case at bar.

I. THE COURT ERRED IN HOLDING THAT THE CITY OF LOS

ANGELES POSSESSED NO POWER OR AUTHORITY TO

PRESCRIBE IN FRANCHISE CONTRACTS THE RATES TO BE

CHARGED ON STREET BAILWAY LINES. THE RULING IN

HOME TELEPHONE COMPANY v. LOS ANGELES (1908), 211

U. 8. 265, IS NOT APPLICABLE TO THE CASE AT BAR.

In the briefs heretofore filed by appellants author-

ities were cited and developed at length which were

believed to give tu the City of Los Angeles power and

authority to insert in various franchise contracts pro-

visions as to rates of fare to be charged on street rail-

way lines operating in the city.’

It has been held in the majority opinion that the

rule enunciated in the Home Telephone case, supra,

is controlling in the case at bar. In that case the city

charter of the City of Los Angeles gave to the city a

continuing power to regulate telephone rates. No ex-

press power was given to the city to contract as to

such rates. It was quite properly held in that case

that the city was not bound to adhere to the rates

which had been prescribed for a term of years in a

franchise granted by the city, it having had no power

1, Authorities on this point were cited in the brief of the

Railroad Commission at pp. 20 to 33, inclusive, and in the brief of

the City of Los Angeles at pp. 24 to 37, inclusive.

4

or authority to contract away or divest itself of its

continuing power to regulate telephone rates.

It is respectfully submitted that the principle laid

down in the Home Telephone case is not applicable

to the case at bar. As was pointed out in the briefs

of appellants * and in argument at the bar, the City

of Los Angeles prior to 1911 possessed no power to

regulate rates to be charged by street railway com-

panies operating in that city, nor did any state agency

possess any such power.’ It was only from 1911 to

2. Railroad Commission brief, p. 26; City brief, p. 33.

3. Appellee in its brief (pp. 27 to 29, inclusive), urged that the

City of Los Angeles from 1879 down to the time of delegation of

power to the Railroad Commission in 1914 possessed power to

regulate rates of ali public utilities operating in the city by virtue

of the provisions of Section 11, Article XI, of the California

Constitution. Thet section, adopted, in 1879, provides ‘‘ Any county,

city, town, or township, may make and enforce within its limits

all such local, police, sanitary and other regulations as are not in

conflict with general laws.’’ In support of this contention appel-

lee cited nine cases and stated the facts in none of them. A

eursory reading of these decisions shows that not one of them held

or purported to hold that Section 11, Article XI, gave to cities the

power to regulate rates of public utilities.

We find that no California decision has ever construed Section

11, of Article XI, as a delegation of power to cities to regulate the

rates of public utilities. That the said provision of the Constitu-

tion could. not have been so intended is evident from a considera-

tion of other California constitutional provisions; Section 1,

Article XIV (1879) gave to cities power to regulate rates charged

by public utility water companies; Section 19, Article XI (1885),

gave to cities power to regulate rates to be charged for the sale of

water or artificial light; Section 19, Article XI (as amended in

1911), gave to cities power to regulate rates charged for light,

water, power, heat, transportation and telephone service. These

constitutional provisions in part expressly delegating to cities

power to regulate rates of certain public utility service, would to

that extent have been wholly unnecessary if Section 11, Article XI,

had given to cities the powers ascribed to it by appellee.

The fact that Section 11, Article XI, of the California Constitu-

tion did not delegate to cities power to regulate the rates charged

1914 that the City of Los Angeles enjoyed any power

to regulate rates charged by street railway com-

panies.‘ In 1914 the power to regulate was reserved

to the Railroad Commission, although the right was

reserved to cities to grant franchises to public util-

ities upon the terms and conditions theretofore per-

mitted.°

In examining the law of California to determine

whether the City of Los Angeles had power to pre-

scribe in street railway franchises the rates of fare

by public utilities is further borne out by noting that the city

charter of Los Angeles by amendment in 1889 (Stats. 1889, p.

464) expressly gave to the city power to regulate certain public

utility services other than street railway service, to-wit, the sale

and use of gas, electric light and telephone service, and delegated

to the city power. to regulate the rates to be charged for the same.

(It was this charter provision (Sec. 31) that was before this Court

in the Home Telephone ease). It was not until 1911, by the

amendment of the city charter (Stats. 1911 p. 2063, set forth in

Railroad Commission brief, p. 25) and by the amendment of Sec-

tion 19, Article XI, California Constitution, in 1911 (set forth in

Railroad Commission brief, p. 26) that the City of Los Angeles

acquired power to regulate rates to be charged by street railway

companies.

The fact that Section 11, Article XI, of the Cailfornia Constitu-

tion did not delegate to cities power to regulate rates of public

utilities was clearly pointed out in Pratt v. Spring Valley Water

Co. (1914), a Railroad Commission decision written by Honorable

Max Thelen, president of the Commission and, reported in 4 Opin-

ions and Orders of Railroad Commission of California, 1077.

The California decisions holding that cities possess the power to

regulate public utility rates have invariably found the authority

for such regulation under charter or statutory authority or under

constitutional sections expressly delegating the power. The follow-

ing decisions are significant on this point: Pinney and Boyle v.

Los Angeles Gas & Electric Co., 168 Cal. 12, 15; Title Guarantee

and Trust ‘Co. v. Railroad Commission, 168 Cal. 295, 301; Home

Tel. & Tel. Co. v. City of Los Angeles, 155 Fed. 554, 562; 211 U.S.

265, 271; Denninger v. Recorder’s Court, 145 Cal. 629, 632.

4. Railroad Commission brief, p. 26.

5. Railroad Commission brief, pp. 27 to 30.

a

to be charged, we are thus not seeking to find power or

authority to defeat any power to regulate which the

city enjoyed (as in the Home Telephone case), the

city having been possessed of no such power to regu-

late, except from 1911 to 1914. In view of this ab-

sence of power in the city to regulate rates of street

railway companies, except for the period noted, we

respectfully submit that this Honorable Court errone-

ously applied the ruling in the Home Telephone case

to the case at bar.

6

Prior to 1911 neither the City of Los Angeles nor

any state agency possessed any power to regulate

street railway rates. We respectfully submit that the

numerous authorities cited by appellants constitute

ample authority for the City of Los Angeles to insert

in street railway franchises granted provisions defin-

itely prescribing the rates of fare to be charged.°

The one and only method of providing for reason-

able rates to the public prior to 1911, and the method

which we submit was definitely contemplated and in-

tended under the California law, was by giving the

6. Railroad Commission brief, pp. 20 to 33; City brief, pp. 24

to 38. We particularly again call the attention of the Court to the

provision of Civil Code Sec. 497 (Stats. 1891, p. 12), providing

that authority to lay railway tracks through the streets of any

incorporated city may be obtained from cities ‘‘under such re-

strictions and limitations, and upon such terms and payment of

license tax, as the city, city and county, or town authority may

provide * * *,’’ and to the amendment to the city charter of

the City of Los Angeles (Stats. 1905, p. 994), set forth at page 24

of Railroad Commission brief, controlling the granting of street

railway franchises by the city, and, providing in part that ‘‘every

grant * * * shall make adequate provision by way of forfeiture

of the grant or otherwise to secure efficiency of publie service at

reasonable rates and the maintenance of the property in good order

throughout the term of the grant.”’

a

7

city express power to stipulate in the franchises sold

the rates of fare to be charged, and such stipulation

was a binding contract upon the parties thereto.

IL THE RATES PRESCRIBED IN THE VARIOUS FRANOHISES

WOULD BE BINDING UPON THE COMPANY EVEN IF THE

CALIFORNIA LAW WERE SILENT ON THE QUESTION OF

POWER IN THE CITY TO CONTRACT AS TO RATES.

The franchises under which the railway is operat-

ing are confessedly contracts. It is conceded that the

city possessed the general power to enter into the

franchise contracts. They are solemn obligations. The

company elected to bind itself to charge certain rates

in consideration of the grant of the several franchises

by the city. The company apparently got what it

bargained for when it bought and accepted the fran-

chises. When the various franchises were granted

(except as to seven of them granted between 1911 and

1914, (R. 396) ), the city possessed no continuing

power to regulate rates of street railway companies

and could conceivably prescribe rates only by stipulat-

ing the same in the franchises when and as granted.

The city, therefore, was certainly in no legal position

to recede from the franchise fixed rates, and has not

attempted to do so. There was mutuality of contract

and no failure of consideration has been shown or

alleged by the company. The point was thus cogently

presented by the dissenting justices:

‘‘Fourth. If the District Court erred in hold-

ing that the action taken in 1921 or 1928 had the

effect of abrogating any existing contract, there

must be a determination whether such contracts

ii

did exist, in fact and law. It was assumed by the

District Court and by counsel in this Court that

if the City lacked the power to bind itself con-

tractually by the fare provisions, the Railway

could not be bound thereby. This conclusion is

not commanded by logie or by the law of con-

tracts. Lack of power in the municipality to bind

itself is a factor te be considered in determining

whether the parties intended to enter into a con-

tract. But, if they did, the Railway’s promise

need not fail for lack of mutuality. The law does

not require that a particular contractual obliga-

tion must be supported by a corresponding coun-

ter-obligation. It is conceded that the City

possessed the power to enter into the franchise

contract. The contention is merely that it could

not surrender its power to regulate rates. But

there is nothing in the fare provisions to indicate

that the City attempted to do that. These pro-

visions in terms bind only the Railway. The Rail-

way unquestionably had power to agree to charge

a fixed fare. The grant of the franchise is suffi-

cient consideration, if so intended, for any num-

ber of contractual obligations which the Railway

may have chosen to assume. In Southern Iowa

Electric Co. v. Chariton, 255 U. 8S. 539, a ease

coming from Iowa, it was held, following Iowa

decisions, that since the city lacked power to bind

itself, there was no contract. And there is a state-

ment to that effect in San Antonio v. San An-

tonio Public Service Co., 255 U. S. 547, 556. But

in Southern Utilities Co. v. Palatka, 268 U. S.

232, 233, the question was expressly left open.

Obviously, that is a matter of state law on which

the decisions of this Court are not controlling.”’

(From dissenting opinion of Mr. Justice Bran-

deis, concurred in by Mr. Justice Holmes.)

“‘T agree with Mr. Justice Brandeis that this

case should have been disposed of by remanding

it to the district court of three judges for deter-

mination whether the railway company, under its

a

9

102 franchises, or any of them, is bound by con-

tract to maintain a five-cent fare. That question

is I think different from the one presented in

Home Telephone Co. v. Los Angeles, 211 U. S.

265, and involved in Detroit v. Detroit Citizens

Railway Co., 184 U. S. 368; Vicksburg v. Vicks-

burg Water Works Co., 206 U. S. 496, whether

the city had the requisite legislative authority to

bind itself not to reduce the rate of fare fixed

by the franchise. Here concededly the power to

regulate rates is reserved to the state commission

and the question preliminary to the whole case is

whether the railroad company has bound itself

to serve for a five-cent fare. I know of no prin-

ciple of the law of contracts, qua contracts, which

would preclude its doing so, even though the city

had no power to obligate itself to maintain any

particular rate. It has not purported to exercise

such power by so contracting. It had power to

grant franchises and the grant of the franchise

without more would be good consideration for the

company’s undertaking to maintain a five-cent

fare. Williston on Contracts, Sees. 13, 140.’’

(From dissenting opinion of Mr. Justice Stone.)

We respectfully submit that the rates prescribed in

the various franchises would be binding upon the

company even if the California law were silent on

the question of power in the city to contract as to

rates.

Ill. THE COURT ERRED IN HOLDING THAT THE ACTION OF

THE RAILROAD COMMISSION IN 1921 AND 1928 ABRO-

GATED THE FRANCHISE CONTRACT RATES. THE RULING

IN DENNEY v. PACIFICO TEL. & TEL. CO. (1928), 276 U. 8.

97, IS NOT APPLICABLE TO THE CASE AT BAR.

The facts of record show that the 1921 order of

the Railroad Commission was permissive; that peti-

ee

10

tion for rehearing filed by the company suspended

the effectiveness of the order; that the order was re-

voked and the proceedings dismissed at the request

of the company. Certainly this limited exercise of

jurisdiction by the Commission did not change the

existing franchise rates.

The 1928 order denied a rate increase. This is the

antithesis of a change in the franchise rates. The

rates in effect at all times prior to the decree of the

District Court were the franchise rates and these had

not been changed by the Railroad Commission or any

other state agency.

Appellants in their briefs have cited numerous

authorities holding that a franchise contract rate is

abrogated when the rate is changed and any action

short of an actual change in the rate is not an abro-

gation."

This Honorable Court in the majority opinion has

held that a mere exercise of jurisdiction of the Rail-

road Commission admittedly not resulting in a change

of rate abrogated the franchise contract rates. We

respectfully submit that this holding is patently un-

sound and at direct variance with many decisions of

this Honorable Court and other Courts referred to in

the briefs of appellants.

In holding that the 1921 and 1928 orders of the

Railroad Commission abrogated the franehise rates

the Court apparently relied upon the holding in Den-

ney v. Pacific T. & T. Co. (1928) 276 U. S. 97. An

7. See Railroad Commission brief, pp. 56 to 72, and City brief,

pp. 43 to 54.

a

examination of that decision shows that the facts are

clearly distinguishable from those involved in the case

at bar. The franchise contract rates involved in that

ease were abrogated (changed) in 1918: ‘‘control of

the telephone systems ewned by appellee were as-

sumed by the Postmaster General, August 1, 1918,

and retained for one year. He fixed rates for Seattle,

Tacoma and Spokane higher than the maximum rates

permitted by the original franchises’? (p. 100). In

1919, after the termination of federal control, the

said legislative rates were approved by the state regu-

latory body: ‘“‘August 8, 1918, the Public Service

Commission directed appellee to observe the rates

established by the Postmaster General; and they con-

tinued to do so”’ (p. 100). Appellants in the Denney

ease conceded that the franchise rates had thereto-

fore been changed but advanced this novel argument:

‘‘Appellants maintain that under the statutes

of Washington when the department terminates

a franchise rate and prescribes another the result

is ‘simply to terminate one rate and substitute

therefor a new rate, and that, after such substi-

tion has been made, there still continues a fran-

chise contract between the company and the city,

which cannot be again changed except by the

discretion of the department, and that the refusal

of the department to exercise that discretion

raises no question of confiscation.’ Here, it is as-

serted, the department merely refused to change

existing approved rates which were higher than

the maximum originally specified in the granted

franchise’’ (p. 101).

ll

The United States District Court (W. D. Wash.)

and this Honorable Court quite properly held that

the franchise rates had been abrogated and that the

ee

12

rates involved were legislative and not contractual.

We respectfully submit that the Denney case and the

ruling therein was improperly applied to the case

now before the Court.

In support of our contention that the Court erred

in holding that the action of the Railroad Commission

of 1921 and 1928 abrogated the franchise rates, we

respectfully take the liberty of quoting from the dis-

senting opinions in this matter.

‘First. Most of the franchises were granted

before the State had vested in the Commission

power to regulate street railway rates or had

expressly reserved to itself, otherwise, the power

to change rates theretofore fixed by ordinance.

This power of regulation was first expressly con-

ferred upon the Commission in 1915, by amend-

ments to Sees. 13, 27 and 63 of the Publie Utili-

ties Act, Stats. 1915, p. 115, made pursuant to an

amendment of Sec. 23 of Article XIT of the Cali-

fornia Constitution adopted November 3, 1914.

These enactments did not purport to abrogate any

existing contract. Nor did they purport to take

from the City or from the County any power

theretofore possessed to make a contract concern-

ing the rate of fare. Their effect was merely to

make any such contract, whether theretofore or

thereafter entered into, subject to change by the

Commission. Unless and until so changed a con-

tractual fare fixed by franchise remains in full

force. Henderson Water Co. v. Corp. Comm. 269

U. S. 278, 281-2. Consequently, it is not here

claimed that these enactments alone abrogated

the alleged contracts as to rate of fare.

“Second. The Railway contends, however, that

the Commission abrogated the fare contracts by

its action taken ir 1921 pursuant to this legisla-

tion. The facts are these. In 1918, the Railway

asked the Commission to make an investigation

of its service and its financial condition and for

13

an order enabling it to so operate its system that

the income would be sufficient to pay the cost of

the service. In that application the Railway ex-

pressly disclaimed any desire to increase its rate

of fare, but about two years later, it made a sup-

plemental application for leave to do so. On Ma

31, 1921, the Commission made a report in which

it declared that ‘an increase in the fare in some

form’ should be granted; and that the Railway

be authorized ‘to file with the Commission and

put into effect within thirty (30) days from the

date of this order a schedule of rates increasing

the present basic five-cent fare to six cents,’ ten

tickets for 50 cents. 19 Cal. R. R. Comm. Op.

980, 1002. The Railway did not file a schedule of

fares. Instead, it moved for a rehearing. That

motion was promptly set dewn for hearing by

the Commission, but was never heard. For the

Railway asked first for an adjournment; then

that its motion be stricken from the ealendar;

and finally, that an order be entered setting aside

the decision made and dismissing the entire pro-

ceeding, including the application for increase

of fare. This request of the Railway was granted,

the order of dismissal reciting that the author-

ization to increase the fare had ‘been suspended

bv virtue of the pendency of a petition for re- ©

hearing,’ as the statutes provided. Public Utility

Act, Sec. 66. Obviously this action taken in 1921

cannot be deemed an abrogation or modification

of any existing fare provision of the franchises,

unless it be held that mere entry .by the Commis-

sion upon an enquiry as to the rate of fare, as

commanded by the statute, has that effect. Rea-

son and authority are to the contrary.

“Third. Nor did the action taken by the Com-

mission in 1928, in the proceedings now under

review, abrogate any existing fare provision.

There also the Commission took jurisdiction, as

it was by the statute required to do. It refused

to authorize a higher fare, because it concluded

that for the past five vears the Railway had been

14

earning an average annual return of 7.1 per cent;

that it was not being efficiently operated; that

the management had failed to introduce certain

economies previously recommended which would

have increased its net earnings; and that for

these reasons the existing five-cent fare was just

and reasonable. The Commission may have erred

in its judgment, but it is clear that it did not

change the rate of fare. In Georgia Ry. & Power

Co. v. Decatur, 262 U. S. 432, 439, it was held

that the assumption of jurisdiction by the Com-

mission to the extent of affirmatively ordering

the continuance of existing transfer privileges

did not effect an abrogation of an existing con-

tract provision relating thereto, since such action

did not conflict with the terms of the contract.

Compare Los Angeles v. Los Angeles City Water

Co., 177 U. S. 558, 578-84; Minneapolis v. Street

Ry. Co. 215 U.S. 417, 435. In Denney v. Pacific

Telephone Co., 276 U. S. 97, the Commission had

previously granted an increase in fare of which

the Company had availed itself.

“Assuming that the Railway was bound by

contract to maintain a five-cent fare, it could be

relieved from its obligation only by the Commis-

sion. Had the Commission authorized an increase

in fare, it would still be questionable whether the

contract would have been thereby abrogated or

only modified by making the Railway’ s obliga-

tion less onerous. Surely, the Commission’s re-

fusal to grant any help, ‘because in its opinion

none is needed cannot have the anomalous effect

of entirely relieving the Railway of its obliga-

tion.”’ (Dissenting Opinion of Mr. Justice Bran-

deis, coneurred in by Mr. Justice Holmes.)

**Even if necessary to decide the question, I would

not be prepared to say that the refusal of the

commission to fix a fare different from the con-

tract rate would destroy the contract. By con-

tracting for a five-cent fare, the railway company

waived the protection of the due process clause

of the Fourteenth Amendment. Columbus Ry.

15

Co. v. Columbus, 249 U. S. 399; Southern Towa

Eiectric Co. v. Chariton, 255 U.S. 539, 542; Padu-

cah v. Paducah Ry. Co., 261 U.S. 267, 272; Geor-

gia Ry. Co. v. Decatur, 262 U. S. 432, 488; Hen-

derson Water Co. v. Corporation Commission of

N. C., 269 U. S. 278, 281. Granting that the con-

tract was subject to the power and duty of the

commission to modify it by changing the rate,

that power has not been exercised and the duty

is one arising, not under the Constitution and

laws of the United States, but is imposed by state

statute, for breach of which a state remedy alone

should be given. See Henderson Water Co. v.

Corporation Commission, supra, 282 (compare

Corporation Commission v. Henderson Water

Co., 190 N. C. 70).”’ (From the dissenting opin-

ion of Mr. Justice Stone.)

CONCLUSION.

For the convenience of the Court we have printed

as an Appendix to our petition for rehearing the opin-

ion of the Court in this matter, together with the sepa-

rate opinion of Mr. Justice McReynolds, the dissent-

ing opinion of Mr. Justice Brandeis, concurred in by

Mr. Justice Holmes, and the dissenting opinion of

Mr. Justice Stone.

We most respectfully submit that this Honorable

Court has erred in its decision in the particulars above

noted. We pray that rehearing be granted and that

the case either be set down before the Court for fur-

ther argument and .eave granted to file new briefs

in the matter, or that the case be referred back to

the District Court for determination of the questions

—

o California law presented in accordance with the

suggestion contained in the two dissenting opinions.

Dated, San Francisco,

December 19, 1929.

Respectfully submitted,

ARTHUR T’.. GEORGE,

° Ira H. Rowe 1,

Roperick B. Cassipy,

Attorneys for Appellant,

Railroad Commission of

the State of California.

Erwin P. WERNER,

City Attorney,

FREDERICK VON SCHRADER,

Deputy City Attorney,

Attorneys for Appellant,

City of Los Angeles.

16

17

CERTIFICATE OF COUNSEL.

I, Arthur T. George, counsel for the above named

appellant Railroad Commission of the State of Cali-

fornia, do hereby certify that the foregoing petition

for a rehearing of this cause is presented in good

faith and not for delay.

Dated, San Francisco,

December 19, 1929.

ARTHUR T. GEORGE,

Counsel for Appellant,

Railroad Commission

of the State of Cali-

fornia.

(Appendix Follows.)

Appendix.

Appendix

SUPREME COURT OF THE UNITED STATES

No. 60.—Ocrosrer Term, 1929.

The Railroad Commission of the State

of California and the City cf Los} APP! from the Distriet

: Court of the United

States for the Southern

District of California.

Angeles, Appellants,

vs.

Los Angeles Railway Corporation.

y,

[December 2, 1929.]

Mr. Justice Butter delivered the opinion of the Court.

Appellee operates a street railway system and motor busses for

the transportation of passengers in the city of Los Angeles and in

other parts of the county of Los Angeles. Its cars are operated on

tracks laid in the streets under authority of 102 franchises granted

from time to time since 1886. A few were obtained from the

county; the others were granted by the city.

Seventy-three granted between November 28, 1890, and October

21, 1918, covering 113.41 miles, provide that ‘‘the rate of fare...

shall not exceed, five cents.”’

Eighteen granted between March 2, 1920, and January 21, 1928,

covering 12.33 miles, provide that ‘‘the rate of fare .. . shall not

be more than five cents .. . except upon a showing before a com-

petent authority having jurisdiction over rates of fare that such

greater charge is justified.’’

The remaining eleven, covering 10.5 miles, were granted at vari-

ous times from 1886 to 1923; none of them provides that the fare

shall not exceed five cents; but it may be assumed that under the

provisions of the other ordinances a fare of five cents was made

applicable over all lines. Prior to the decree in this case the basie

fare charged was five cents.

—y

Maintaining that its existing rates were not sufficient to yield a

reasonable return, the company, November 16, 1926, applied to

the commission for authority to increase the basic fare to seven

cents in cash or six and, one-fourth cents in tokens to be furnished

by the company, four for twenty-five cents. The commission,

March 26, 1928, made a report and by an order denied the appli-

cation. A petition for rehearing was denied.

June 22, 1928, the company brought this suit to have the rates

and order adjudged confiscatory and for temporary and perma-

nent injunctions restraining the commission from enforcing them.

The city intervened as party defendant. The case came on for

hearing before three judges on an application for temporary in-

junction. U.S. C., Tit. 28, § 380. Affidavits were subm‘tted, a

transcript of all the evidence before the commission was received

and the parties stipulated that thereon the case should be finally

determined on the merits. The court found that the rates will not

permit the company to earn a reasonable return and are confisca-

tory; and by its decree permanently enjoined, the commission from

enforcing them.

The sole controversy is whether the company is bound by con-

tract with the city to continue to serve for the fares specified in

the franchises—it being conceded that the finding below respecting

the inadequacy of the five cent fare is sustained by the evidence.

Appellants contend that at all times the city had power to estab-

lish rates by agreement and that the franchise provisions consti-

tute binding contracts that are still in force. On the other hand

the company maintains that the State never so empowered the

city; and, it insists that, if the power was given and any such

contracts were made, they have been abrogated.

1. It is possible for a State to authorize a municipal corpora-

tion by agreement to establish public service rates and thereby to

suspend for a term of years not grossly excessive the exertion of

governmental power by legislative action to fix just compensation

to be paid for service furnished by publie utilities. Detroit v.

Detroit Citizens’ Ry. Co., 184 U. S. 368, 382. Vicksburg v. Vicks-

burg Water Works Co., 206 U. S. 496, 508, 515. Public Service

Co. v. St. Cloud, 265 U. S. 352, 355. And where a city, empow-

ered by the State so to do, makes a contract with a public utility

fixing the amounts to be paid for its service, the latter may not

be required to serve for less even if the specified rates are unrea-

sonably high. Detroit v. Detroit Citizens’ Ry. Co., supra, 389.

And, in such ease, the courts may not relieve the utility from its

— we

obligation to serve at the agreed rates however inadequate they

may prove to be. Public Service Co. v. St. Cloud, supra.

This court is bound by the decisions of the highest courts of

the States as to the powers of their municipalities. Georgia Ry.

Co. v. Decatur, 262 U. S. 432, 438. Our attention has not been

called to any California decision, and we think there is none,

which deciies that the state legislature has empowered Los Angeles

to establish rates by contract. This Court is therefore required to

eonstrue the state laws on which appellants rely. As it is in the

public interest that all doubts be resolved in favor of the right of

the State from time to time to prescribe rates, a grant of authority

to surrender the power is not to be inferred in the absence of a

plain expression of purpose to that end. The delegation of au-

thority to give up or suspend the power of rate regulation will

not be found more readily than would an intention on the part of

the State to authorize the bargaining away of its power to tax.

Providence Bank v. Billings, 4 Peters 514, 561; Railroad Commis-

sion Cases, 116 U. S. 307, 325. Freeport Water Co. v. Freeport,

180 U. S. 587, 599. Stanislaus County v. San Joaquin C. & I.

Co., 192 U. 8. 201, 210. Puget Sound Traction Co. v. Reynolds,

244 U. S. 574, 579.

This court applied the established rule in Home Telephone Co. v

Los Angeles, 211 U. S. 265. That company’s franchise was granted

under the Broughton Franchise Act which provided that every

such franchise ‘‘shall be granted upon the conditions in this act

provided and not otherwise.’’ The city charter gave power to its

council to fix charges for telephone service. The franchise stated

that the rates should not exceed specified amounts. An ordinance

prescribing lower, rates was passed. The company brought suit

for injunction against its enforcement on the ground that the ordi-

nance violated the contract clause of the Constitution of the

United. States. The city insisted that it had not been empowered

by the State to make such a contract, and this court upheld its

contention. It said (p. 273): ‘‘The surrender, by contract, of a

power of government, though in certain well-defined cases it may

be made by legislative authority, is a very grave act, and the sur-

render itself, as well as the authority to make it, must be closely

serutinized. . .. The general powers of a municipality or of any

other political subdivision of the State are not sufficient. Specifie

authority for that purpose is required.’’ And dealing with

the charter provision there relied, on by the company the court

said (p. 274): ‘‘The charter gave to the council the power ‘by

Iv

ordinance . . . to regulate telephone service and the use of tele-

phones within the city, . . . and to fix and determine the charges

for telephones and telephone service and connections.’ This is an

ample authority to exercise the governmental: power . . . but

entirely unfitted to describe the authority to contract. It author-

izes command, but not agreement.’’

Section 470 of the Civil Code (March 21, 1872) cited by ap-

pellants merely regulates procedure. Section 497 authorizes po-

litical subdivisions to grant authority for the laying of railroads

in streets ‘‘under such restrictions and limitations’’ as they may

provide. Stats. 1891, p. 12. This is too general. The clause in

§ 501 (Stats. 1903, p. 172) providing that the rate of fare in

municipalities of the first class ‘‘must not exeeed five cents’’ does

not relate to the power to contract, and plainly has no application

here because Los Angeles never belonged to that class.

Section 1 of the Broughton Franchise Act! provides that fran-

chises ‘‘shall be granted upon the conditions in the Act provided

and not otherwise.’’ The Act requires the salé of such franchises

upon advertisement stating the character of the franchise or privi-

lege proposed to be granted, but it nowhere expressly empowers

the city to establish rates by contract. This court in the Home

Telephone Company case dealt with the quoted, provision. It

said (p. 275): ‘‘Here is an emphatic caution against reading into

the act any conditions which are not clearly expressed in the act

itself. . . . It cannot be supposed that the legislature intended

that so significant and important an authority as that of contract-

ing away a power of regulation conferred by the charter should

be inferred from the act in the absence of a grant in express

words. But there is no such grant.’’ And, so far as concerns the

matter under consideration, the Act was not expanded by the

amendment of June 8, 1915. It authorizes grantors of such fran-

chises to impose such additional terms and conditions ‘‘whether

1Its first sentence, as originally enacted, read: “Every franchise or privilege

to . .. construct or operate railroads along or upon any public street or

highway, or to exercise any other privilege whatever hereafter proposed to be

granted by the . . . governing or legislative body of any . . . city

- . . Shall be granted upon the conditions in this Act provided, and not

otherwise.” Stats. 1893, p. 288. The Act was amended in 1897 (Stats. 1897,

pp. 135, 172); re-enacted in 1901 (Stats. 1901, p. 265) and 1905 (Stats. 1905,

p. 777) and amended in 1909. Stats. 1909, p. 105. The first sentence has re-

mained substantially the same. The amendment of June 8, 1915 (Stats. 1915,

p. 1300) inserted immediately after this sentence: “The grantor may, how-

ever, in such franchise impose 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.”

re —

governmental or contractual in character’’ as in their judgment

are in the public interest. This general language does not measure:

up to the rule earlier invoked here by Los Angeles and applied by

this court in the Home Telephone Company ease.

The appellants invoke provisions of the city charter which are

printed in the margin.? But it requires no discussion to show that

they are not sufficient to empower the city by contract to establish

rates. In support of their claim, they cite Columbus Ry. &

Power Co. v. Columbus, 249 U. 8. 399; Opelika v. Opelika Sewer

Co., 265 U. S. 215; Public Service Co. v. St. Cloud, supra, and

Southern Utilities Co. v. Palatka, 268 U. S. 232. But the Colum-

bus case did not involve, and this Court did not there decide, the

question of power. See p. 407 and 194 U. S. at pp. 532, 534. And

in the other cases, we followed the decisions of the courts of the

respective States.

Appellants have failed to sustain their contention that the city

was empowered to make such rate contracts.

2. But assuming that the fares were established by the fran-

chise contracts we are of opinion that such contracts have been

abrogated. The State had power upon the company’s application,

through its commission or otherwise, to terminate them. Pawhuska

v. Pawhuska Oil & Gas Co., 250 U. S. 394. Trenton v. New Jer-

sey, 262 U. S. 182, 186. Henderson Water Co. v. Corporation Com-

mission, 269 U. S. 279. Denney v. Pacific Tel. Co., 276 U. S. 97.

November 30, 1918, the company applied to have the commis-

sion investigate its service and financial condition and for an order

authorizing it to “‘so operate its system and change its rates that

the income will be sufficient to pay the costs of the service.’’ May

2Art. 1, §2(25) (February 16, 1905) Stats. 1905, p. 994, providing that no

franchise for use of public streets should be granted by the city except by a

specified vote nor for a term of more than 21 years and that “Every grant

. shall make adequate provision by way of forfeiture . . . or other-

wise to secure efficiency of public service at reasonable rates and the main-

tenance of the property in good order throughout the term of the grant.”

Art. I, § 2(30) (March 25, 1911) Stats. 1911, p. 2063: “The City ...

shall have the right and power: . . . to fix and determine the rates .. .

for . . . the conveyance of passengers . . . by means of street rail-

way .. . cars. . . . To regulate, subject to the provisions of the.

constitutions of the State of California, the construction and operation of

- » « Btreet railways. ... .”

Art. I, §2(40), being § 2(25), supra, (as amended March 11, 1913) Stats.

1913, p. 1633: “The city . . . shall have the right and power: To

grant franchises,,. . . for furnishing . . . transportation . . . or

any other public service; to prescribe the terms and conditions of any such

grant, and to prescribe by ordinance . . . the method of procedure for

making such grants; . . .”

| va

vil

$1, 1921, the commission found that the existing fares would not

permit the company to collect enough to enable it to provide ade-

quate service. See P. U. R. 1922A 66, 90. And it made an order

permitting a small increase. The company did not accept it, but

applied for a rehearing. After several postponements the case was

stricken from the calendar, and some years later the company

asked, that its application be dismissed. The commission, October

18, 1926, granted the company’s request and also revoked the

order.

Shortly thereafter the company applied for a basie fare of seven

cents in cash or six and one-quarter cents in tokens. The fares

so proposed were substantially higher than those which were not

accepted by the company. Again the commission made extensive

investigations. And March 26, 1928, it filed a report which con-

tained findings as to the value of the property, operating revenues,

operating expenses including cost of depreciation and _ taxes,

amount available for return, average net income for five years

ending with 1926, stated that the cost of opefation might be re-

duced, and concluded that by reason of such facts the rates of

fare charged by the company were not unreasonable and that the

rates proposed would be unjust and unreasonable. And the com-

mission made an order denying the company’s application.

There is no decision in the courts of the State as to the effect

of the proceedings before and, action taken by the commission, and

therefore we are required to construe the applicable provisions of

the local constitution and statutes. Denney v. Pacific Tel. Co.,

supra, 101. Under the state constitution, Art. XII, §23, as

amended November 3, 1914, and the Publie Utilities Act of April

23, 1915, the commission has exclusive power to regulate rates.

And § 27 of the Act® gave to street railway companies the right to

charge more than five cents upon showing before the commission

that the higher charge is justified. No distinction is made between

rates established by franchise contracts and those otherwise fixed.

Fares may not be changed without approval of the commission.

The policy of the State is that all rates shall be just and reasona-

ble (§ 15) and. the commission is directed, whenever after hearing

had upon its own motion or upon complaint it shall find that rates

8Section 27 declares that fares of more than five cents shall not be charged

on street railroads “except upon a showing before the commission that such

greater charge is justified; provided, that until the decision of the commis-

sion upon such showing, a street . . . railroad . - may continue to

receive the fare lawfully in effect on November ‘3, 1914. Stats. 1915,

p. 131,

—

are unjust or insufficient, to determine the just and reasonable

rates thereafter to be observed. § 32 (a).4 The language used

in Denney v. Pacific Tel, Co., supra, p. 102, is pertinent here.

‘“‘The Department made its investigation and order without re-

gard to the franchise rates and treated the questions presented as

unaffected thereby. It exercised the power and duty to fix rea-

sonable and compensatory rates irrespective of any previous mu-

nicipal action. We must treat the result as a bona fide effort to

comply with the local statute.’’

The proceedings before the commission and its orders clearly

show that it twice took jurisdiction to determine just and reason-

able rates. Its order of May 31, 1921, by reason of the company’s

failure to put in the increased rates never became operative and

finally was vacated. The report and order of March 26, 1928,

found that existing rates were just and reasonable and in legal

effect required the company to continue to observe them. The

court below found the rates confiscatory, and appellants do not

here question that finding.

Decree affirmed.

Mr. Justice McReyno.ps is of opinion that, as our finding that

the city had no power to make rate contracts is sufficient to dis-

pose of the case, it would be better not to take up the second

point.

4Section 32(a): “Whenever the commission, after a hearing had upon its

Own motion or upon complaint, shall find that the rates . . . collected by

any R peng utility . . . are unjust, unreasonable, discriminatory or prefer-

ential, or in anywise in violation of any provision of law or that such rates

+ + + are insufficient, the commission shall determine the just, reasonable

or sufficient rates . . . to be thereafter observed and in force, and shall

fix the same by order as hereinafter provided.” Stats. 1915, p. 132.

SUPREME COURT OF THE UNITED STATES

No. 60—Octosrer Term, 1929.

The Railroad Commission of Cali-}] On Appeal from the Dis-

trict Court of the United

P States for the South-

ern District of Califor-

Los Angeles Railway Corporation.| nia.

fornia et al.,

vs.

[December 2, 1929]

Mr. Justice BRANDEIS, dissenting.

The Railway claims that the Commission’s refusal to authorize a

fare higher than five cents confiscates its property. The City and

the Commission do not insist here that the five-cent fare is com-

pensatory ; and they concede that, since 1915, the latter has had

jurisdiction to authorize a higher fare. They defend solely on the

ground that the Railway bound itself by contracts not to charge

mare; that these contract provisions are still in force, except as

modified by the Act of 1915 empowering the Commission to au-

thorize changes in the rate; that an alleged error of the Com-

mission in refusing authority to charge more can be corrected

only by proceedings brought in the Supreme Court of the State

to compel the Commission to do its duty; and that the lower

court’s finding that the rate is non-compensatory is, therefore,

immaterial.

The District Court recognized that such contracts, if existing,

would be a complete defense to this suit, Columbus Ry. & Power

Co. v. Columbus, 249 U. S. 399; Georgia Ry. & Power Co. v.

Decatur, 262 U. S. 432; Opelika v. Opelika Sewer Co., 265 U. S.

215; St. Cloud Public Service Co. v. St. Cloud, 265 U. S. 352;

Southern Utilities Co. v. Palatka, 268 U. S. 232; expressed a

strong doubt whether the Citv ever had the power to contract

concerning the rate of fare; and, declining to pass upon that

question, granted the relief prayed for solely on the ground that

any such contract right which existed had been abrogated.

— ae

1x

The franchises under which the Railway is operating are con-

fessedly contracts. The words used concerning the rate of fare

are apt ones to express contractual obligations. The Railway

contends, however, that the fare provisions were not intended

to be contracts, and that, if they were so intended, they were not

binding, because neither the City nor the County had the power

to contract as to the rate of fare. It insists further that if the

fare provisions were originally binding as contracts, they were

abrogated in 1921 or 1928 by action of the Commission.

First. Most of the frauchises were granted before the State

had vested in the Commission power to regulate street railway

rates or had expressly reserved to itself, otherwise, the power to

change rates theretofore fixed by ordinance. This power of regu-

lation was first expressly conferred upon the Commission in 1915,

by amendments to §§ 13, 27 and 63 of the Publie Utilities Act,

Stats. 1915, p. 115, made pursuant to an amndment of § 23 of

Article XII of the California Constitution adopted November 3,

1914. These enactments did not purport to abrogate any exist-

ing contract. Nor did they purport to take from the City or

from the County any power theretofore possessed to make a con-

tract concerning the rate of fare. Their effect was merely to make

any such contract, whether therefore or thereafter entered into,

subject to change by the Commission. Unless and until so changed

a contractual fare fixed by franchise remains in full force. Hen-

derson Water Co. v. Corp. Comm., 269 U. S. 278, 281-2. Con-

sequently, it is not here claimed that these enactments alone abro-

gated the alleged contracts as to rate of fare.

Second. The Railway contends, however, that the Commission

abrogated the fare contracts by its action taken in 1921 pursuant

to this legislation. The facts are these. In 1918, the Railway

asked the Commission to make an investigation of its service and

its financial condition and for an order enabling it to so operate

its system that the income would be sufficient to pay the cost of

the service. In that application the Railway expressly disclaimed

any desire to increase its rate of fare, but about two years later,

it made a supplemental application for leave to do so. On May

31, 1921, the Commission made a report in which it declared that

“‘an inerease in the fare in some form’’ should. be granted: and

that the Railway be authorized ‘‘to file with the Commission and

put into effect within thirty (30) days from the date of this

order a schedule of rates increasing the present basic 5-cent fare

to 6 cents,’ ten tickets for 50 cents. 19 Cal. R. R. Comm. Op.

a

x

980, 1002. The Railway did not file a schedule of fares. Instead,

it moved for a rehearing. That motion was promptly set down

for hearing by the Commission, but was never heard. For the

Railway asked first for an adjournment; then that its motion be

strick»n from the calendar; and finally, that an order be entered

setting aside the decision made and dismissing the entire proceed-

ing, including the application for increase of fare. This request

of the Railway was granted, the order of dismissal reciting that

the authorization to increase the fare had ‘‘been suspended by

virtue of the pendency of a petition for rehearing,’’ as the stat-

utes provided. Publie Utility Act, § 66. Obviously this action

taken in 1921 cannot be deemed an abrogation or modification of

any existing fare provision of the franchises, unless it be held that

mere entry by the Commission upon an enquiry as to the rate

of fare, as commanded by the statute, has that effect. Reason

and authority are to the contrary.

Third. Nor did the action taken by the Commission in 1928,

in the proceedings now under review, abrogdte any existing fare

provision. There also the Commission took jurisdiction, as it was

by the statute required to do. It refused. to authorize a higher

fare because it concluded that for the past five years the Rail-

way had been earning an average annual return of 7.1 per cent;

that it was not being efficiently operated; that the management

had failed to introduce certain economies previously recommended

which would have increased its net earnings; and that for these

reasons the existing five-cent fare was just and reasonable. The

Sommission may have erred in its judgment, but it is clear that

it did not change the rate of fare. In Georgia Ry. & Power Co. v.

Decatur, 262 U. S. 432, 439, it was held that the assumption of

jurisdiction by the Commission to the extent of affirmatively or-

dering the continuance of existing transfer privileges did not

effect an abrogation of an existing contract provision relating

thereto, since such action did not conflict with the terms of the

contract. Compare Los Angeles v. Los Angeles City Water Co.,

177 U. S. 558, 578-84; Minneapolis v. Street Ry. Co., 215 U. S.

417, 435. In Denney v. Pacific Telephone Co., 276 U. S. 97, the

Commission had previously granted an inerease in fare of which

the Company had availed itself.

Assuming that the Railway was bound by contract to maintain

a five-cent fare, it could be relieved from its obligation only by

the Commission. Had the Commission authorized an increase in

fare, it would still be questionable, whe.her the contract would

omnieencdanetiilll

—

xl

have been thereby abrogated or only modified by making the

Railway’s obligation less onerous. Surely, the Commission’s re-

fusal to grant any help, because in its opinion none is needed,

eannot have the anomalous effect of entirely relieving the Rail-

way of its obligation.

Fourth. If the District Court erred in holding that the action

taken in 1921 or 1928 had the effect of abrogating any existing

contract, there must be a determination whether such contracts

did exist, in fact and, law. It was assumed by the District Court

and by counsel in this Court that if the City lacked the power to

bind itself contractually by the fare provisions, the Railway could

not be bound thereby. This conclusion is not commanded by

logic or by the law of contracts. Lack of power in the munici-

pality to bind itself is a factor to be considered, in determining

whether the parties intended to enter into a contract. But, if they

did, the Railway’s promise need not fail for lack of mutuality.

The law does not require that a particular contractual obligation

must be supported by a corresponding counter-obligation. It is

conceded that the City possessed the power to enter into the fran-

chise contract. The contention is merely that it could not sur-

render its power to regulate rates. But there is nothing in the

fare provisions to indicate that the City attempted to do that.

These provisions in terms bind only the Railway. The Railway

unquestionably had power to agree to charge a fixed fare. The

grant of the franchise is sufficient consideration, if so intended,

for any number of contractual obligations which the Railway

may have chosen to assume. In Southern Iowa Electric Co. v.

Chariton, 255 U. 8S. 539, a case coming from Iowa, it was held,

following Iowa decisions, that since the city lacked power to bind

itself there was no contract. And there is a statement to that

effect in San Antonio v. San Antonio Public Service Co., 255 U.

8. 547, 556. But in Southern Utilities Co. v. Palatka, 268 U. 8.

232, 233, the question was expressly left open. Obviously, that is

a matter of state law on which the decisions of this Court are not

controlling.

Fifth. If it be true that the Railway is not bound by the fare

provisions, unless the City had power to bind itself in that re-

spect, it is necessary to determine whether the City had that

power and whether the parties did in fact contract as to the rate

of fare. Whether the City had the power is, of course, a ques-

tion of state law. In California, the constitution and the statutes

a

leave the question in doubt. Counsel agree that there is no de-

cision in any court of the State directly in point. They reason

from policy and analogy. In support of their several contentions

they cite, in the aggregate, 30 decisions of the California courts,

15 statutes of the State, besides 3 provisions of its code and 7

provisions of its constitution. The decisions referred to occupy

308 pages of the official reports; the sections of the constitution,

. eode and, statutes, 173 pages. Moreover, the 102 franchises here

involved were granted at many different times between 1886 and

1927. And during that long priod, there have been amendments

both of relevant statutes and of the constitution. The City or the

County may have had the power to contract as to the rate of fare

at one time and not at another. If it is held that the City or the

County ever had the power to contract as to rate of fare, it will

be necessary to examine the 102 franchises to see whether the

power was exercised. It may then be that some of the franchises

contain valid, fare contracts, while others do not. In that event,

the relief to be granted will involve passing also on matters of

detail.

In my opinion, these questions of statutory construction, and all

matters of detail, should, in the first instance, be decided by the

trial court. To that end, the judgment of the District Court

should be vacated and the case remanded for further proceed-

ings, without costs to either party in this Court. Pending the

decision of the trial court an interlocutory injunction should

issue. Compare City of Hammond v. Schappi Bus Line, 275 U.

S. 164; City of Hammond v. Farina Bus Line & Transportation

Co., 275 U. S. 173; Ohio Oil Co. v. Conway, 279 U. S. 813. It

is a serious task for us to construe and apply the written law of

California. Compare Gilchrist v. Interborough Rapid Transit Co.,

279 U. S. 159, 207-209. To ‘‘one brought up within it, varying

emphasis, tacit assumptions, unwritten practices, a thousand in-

fluences gained only from life, may give to the different parts

wholly new values that logic and, grammar never could have got

from the books.’’ Diaz v. Gonzalez, 261 U. S. 102, 106. This

Court is not peculiarly fitted for that work. We may properly

postpone the irksome burden of examining the many relevant

state statutes and decisions until we shall have had the aid which

would be afforded by a thorough consideration of them by the

judges of the District Court, who are presumably more familiar

with the law of California than we are. The practice is one fre-

quently followed by this Court.!

In the case at bar, there are persuasive reasons for adopting the

course suggested. The subject matter of this litigation is local to

California. The parties are all citizens of that State and creatures

of its legislature. Since the Railway denies that there ever was a

valid contract governing the rate and asserts that if any such

existed they have been abrogated, the contract clause of the Fed-

eral Constitution is not involved. The alleged existence of con-

tracts concerning the rate of fare presents the fundamental issue

of the case. Whether such contracts exist, or ever existed, de-

pends wholly upon the construction to be given to laws of the

State. Upon these questions, the decision of the Supreme Court

of California would presumably have been accepted by this Court,

if the case had come here on appeal from it. Compare Georgia

Ry. & Power Co. v. Decatur, 262 U.S. 432,438; Appleby v. City

of New York, 271 U. S. 364, 380.

1This course was pursued in the following, among other cases, in which a

lower Federal court erroneously left undecided a question of local law or of

its application, Gainesville v. Brown-Crummer Co., 277 U. S. 54, 61, Hammond

v. Schappi Bus Line, 275 U. S. 164, 169-72, Hammond rv. Farina Bus Line,

275 U. S. 173, 174-5, Wilson Cypress Co. v. Del Pozo, 236 U. 8S. 635, 656-7;

in the following cases in which the lower court erroneously left undetermined

a question of fact, Security Mortgage Co. v. Powers, 278 U.S. 149, 159, United

States v. Magnolia Co., 276 U. S. 160, 164-5, United States v. Brims, 272 U. 8.

549, 553, Gerdes v, Lustgarten, 266 U. S. 321, 327, Chastleton Corp. v. Sinclair,

264 U. S. 543, 548-9, Vitelli & Son v. United States, 250 U. S. 355, 359, South-

ern Pacific Co. v. Bogert, 250 U. S. 483, 494, 497, Union Pac. R. R. Co. v. Weld

County, 247 U. S. 282, 287, Marconi Wireless Co. v. Simon, 246 U. S. 46, 57,

Owensboro v. Owensboro Waterworks, 191 U. S. 358, 372, Chicago, Milwaukee

&e, Ry. v. Tompkins, 176 U. 8. 167, 180; in the following cases in which the

Cireuit Court of Appeals did not review the merits because of an erroneous

view of the jurisdiction of the District Court, Guardian Savings Co. v. Road

Dist., 267 U. S. 1, 7, Brown v. Fletcher, 237 U. S. 583, 586-8, ef. Louie v.

United States, 254 U. S. 548, 551; in the following cases in which the Circuit

Court of Appeals restricted its review because it erroneously regarded the

action as one at law instead of a suit in equity, Twist v. Prairie Oil Co., 274

U. S. 684, 692, Liberty Oil Co. v. Condon Bank, 260 U. S. 235, 245; in the fol-

lowing cases in which the Circuit Court of Appeals erroneously narrowed the

scope of its review for other reasons, Krauss Bros Co. v. Mellon, 276 U. 8.

386, 394, National Brake Co. v. Christensen, 254 U. S. 425, 432; in the follow-

ing cases in which the State court placed its decision on an erroneous view of

federal law, and, therefore, did not consider the questions of local law in-

volved, Chicago & N. W. Ry. v. Durham Co., 271 U. S. 251, 257-8, Sioux City

Bridge Co. v. Dakota County, 260 U. S. 441, 445-7, Ward v. Love County, 253

U. S. 17, 25. In all of these cases, this Court recognized its undoubted power

to decide the matters erroneously left undetermined by the courts below; but

it preferred to remand the cases for further proceedings, either on the ground

that the determination of the undecided issues was too burdensome a task,

or on the ground that those issues should more appropriately be decided,

in the first instance, by the lower courts.

The constitutional claim of confiscation gave jurisdiction to the

District Court. We may be required, therefore, to pass, at some

time, upon these questions of state law. And we may do so

now. But the special province of this Court is the Federal law.

The construction and application of the Constitution of the United

States and of the legislation of Congress is its most important

function. In order to give adequate consideration to the adjudi-

cation of great issues of government, it must, so far as possible

lessen the burden incident to the disposition of cases, which come

here for review.?

xiv

Mr. Justice Hotmes joins in this opinion.

2Compare “Distribution of Judicial Power between the United States

and State Courts,” by Felix Frankfurter, XIII Cornell Law Quarterly, 499,

503; “The Business of the Supreme Court at October Term 1928,” by Frank-

furter and Landis, XLIII Harvard Law Review, 33, 53, 56, 59-62.

SUPREME COURT OF THE UNITED STATES

No. 60.—Ocroser Term, 1929.

The Railroad Commission of the State

of California and the City of Los

Angeles, Appellants,

Appeal from the District

Court of the United

States for the Southern

District of California.

Vs.

Los Angeles Railway Corporation.

4

[December 2, 1929.]

Dissenting opinion of Mr. Justice STONE.

I agree with Mr. Justice BRANDEIS that this case should have

been disposed of by remanding it to the district court of three

judges for determination whether the railway company, under its

102 franchises, or any of them, is bound by contract to maintain

a five-cent fare. That question is I think different from the one

presented in Home Telephone Co. v. Los Angeles, 211 U. S. 265,

and involved in Detroit v. Detroit Citizens Railway Co., 184 U.S.

368; Vicksburg v. Vicksburg Water Works Co., 206 U. S. 496,

whether the city had the requisite legislative authority to bind

itself not to reduce the rate of fare fixed by the franchise. Here

coneededly the power to regulate rates is reserved to the state

commission and the question preliminary to the whole case is

whether the railroad company has bound itself to serve for a five-

cent fare. I know of no principle of the law of eontracts, qua

contracts, which would preclude its doing so, even though the

city had no power to obligate itself to maintain any particular

rate. It has not purported to exercise such power by so contract-

ing. It had power to grant franchises and the grant of the fran-

chise without more would be good consideration for the company’s

undertaking to maintain a five-cent fare. Williston on Contracts,

§§ 13, 140.

The provision of the statute of March 1, 1913, enacted after the

decision in Home Telephone Co. v. Los Angeles, supra, authoriz-

Xvi

ing the city to grant franchises and ‘‘to prescribe the terms and

conditions’’ of the grant, and that of the act of June 8, 1915,

authorizing the grantor of the franchise to impose terms and con-

ditions ‘‘whether governmental or contractual in character,’’ to

quote no others, would seem to permit the city to acquire by the

mere grant of the franchise, without other obligation on its part,

such eontractual undertakings on the part of the railroad com-

pany as did not contravene the public interest.

If there be any public policy forbidding the company so to

bind itself or forbidding the city to take advantage of the under-

taking so given and acquired, it is one peculiar to local law, hav-

ing its origin in local history and conditions, and so is peculiarly

an appropriate subject for consideration, in the first instanee, by

the court of the district.

But as the Court, without dealing with this aspect of the mat-

ter, has held that the railway company is not so bound, it is un-

necessary to decided that the state railroad commission’s refusal

to raise the rate would have been enough to abrogate the contract,

if there had been one, and the practice of the Court not to pass

on questions of constitutional or state law not necessary to a de-

cision should, I think, be scrupulously observed. Even if neces-

sary to decided the question, I would not be prepared to say that

the refusal of the commission to fix a fare different from the

contract rate would destroy the contract. By contracting for a

five-cent fare, the railway company waived the protection of the

due process clause of the Fourteenth Amendment. Columbus Ry.

Co. v. Columbus, 249 U. S. 399; Southern Iowa Electric Co. v.

Chariton, 255 U. S. 539, 542; Paducah v. Paducah Ry. Co., 261

U.S. 267, 272; Georgia Ry. Co. v. Decatur, 262 U. S. 432, 438; Hen-

derson Water Co. v. Corporation Commission of N. C., 269 U. S.

278, 281. Granting that the contract was subject to the power

and duty of the commission to modify it by changing the rate,

that power has not been exercised and the duty is one arising,

not under the Constitution and laws of the United States, but is

imposed by state statute, for breach of which a state remedy

alone should be given. See Henderson Water Co. v. Corporation

Commission, supra, 282 (compare Corporation Commission v. Hen-

derson Water Co., 190 N. C. 70).