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

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## Record

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

## Text

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).

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0295%3A07. Public record. Not legal advice.