# Petitioners Brief — Broad River Power Co. v. South Carolina Ex Rel. Daniel > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0398%3A05 ## Record - **Collection:** Supreme Court brief - **Document type:** Petitioners Brief - **Published:** January 1, 1930 - **Citation:** 281 U.S. 537 ## Text FILE COPY ei CHARLES ELMORE Supreme Court of the United States OCTOBER TERM, 1929; No. 528. BROAD RIVER POWER CO., ETAL, ~- Petitioners, STATE OF SOUTH CAROLINA, ET AL. On Writ of Certiorari to the Szpreme Court of South Carolina. BRIEF FOR PETITIONERS. A street railway company having operated for years at a ‘devastating loss’’ can abandon its entire business and franchise; and the State cau not compel it to operate and pay its losses out of its electric light franchise business. | ©. EDWARD PAXSON, \\ GEORGE M. Le PINE, | W. 0. McLAIN, WM. MARSHALL BULLITT, Of Counsel. j Counze! for Petitioners. WESTERFIELD-BONTE COMPANY, INCORPORATED, LOUISVILLE, KY. e eee eeeeonweeeeoereeesesieoesecee 1. In 1882, the Columbia Street Railway Co. was iii bs eins bivvens demas cdo’ 3 2. 1886 Ordinance of the City of Columbia SUH Ss CEN 3 3. In 1887, — Gas & Electric Co. was incor- porated . LESESWA Ob Ah aWns o8s dwede ete Fb00 uk 3 4. In 1890, Original Electric Railway Co. was in- SINE 574 sive Nok ob Bcd cho o.08s b4a vocoee ce 4 5. Consolidation Act of 1891 .................... 4 6. 1892 Ordinance consenting to use of streets.... 6 7. Consolidated Co.’s operation (1892-1925), of Railway and Electric Systems ............... 6 8. Consolidated Co.’s heavy street railway losses PARE & oaks asa h yen bedwcetas s cage ives s 7 9. Broad River Power Co.’s organization |....... 8-11 (a) Broad River’s acquisition of Electric light EEE. SCs cc inns bbcan¥eesesen habaanes 8-10 (6) Consolidated Co.’s retention of street rail- SOONG bolas on b epine enn dawns 10-11 (c) Enabling Act of March 19, 1925........... 9 10. Consolidated Co.’s continued street railway CRUE CANT) yon Ak oN COR SC RNs 11-12 11. Consolidated Co.’s ces of street rail- way operation March 11, 1927 ................ 13 . History of the Litigation .................... ii PAGES First Point: The Street Railway System in Colum- bia has for years been operated at a ‘‘devastating loss,’’ and it can never be operated otherwise than at a heavy loss. South Carolina cannot compel the Consolidated Oo. to operate this Street Railway System at such a loss—for to do so would take the Company's property without ‘‘due process’’ of law. ...............5005: 17-23 1. Undisputed and ‘‘devastating’’ losses ........ 17-20 2. Consolidated Co. can abandon entire Street Rail- way Bystem . .......ccccccccccceesccccseees 21-22 Brooks-Scanion Co. v. R. R. Comm., 251 U. 8. 396. H. R. Comm. v. Eastern Tez. R. R., 264 U. 8. 79. Bullock v. R. R. Comm., 254 U. 8. 513. Fort Smith Traction Co. v. Bourland, 267 U. 8. 330. 3. Analysis of the opinion of the Supreme Court of Reet CUGTEED . occcccccccccccccvccccccecece 23 eo eeeeeeeeeeeeeeeeeereereeeereeeeeeeee Brooks-Scanion Co. v. R. R. Comm., 251 U. 8. 369. oe ee o v. Ben Avon Borough, 253 U. 8. Operation Co. v. Love, 252 U. 8. 331. Bluefield Weter Whe Co. v. Pub. Serv. Comm., 262 Third Point: None of the charters, city ordinances granting permission to use the streets, private con- tracts for line extensions, or right-of-way grants, con- stituted any contract which obligated the Consoli- dated Co. to operate the street railway regardless of MOSS cate cccouvénddouchst cvahkbiiceI LL. 26-48 L, Fie Sabebory Chaveere . . éb i ccddccicdccsecsce 26-30 (a) The 1890 Charter of Original Electric Rail- Ee TI « & onnaweudeis hibbbitineelnnctiad 26 Bullock vy. R. R. Comm., 254 U. 8. 513. R. R. Comm, v. Eastern Tez. R. R. Co., 264 U. 8. 79. (b) 1891 Consolidation Act .................. 27-29 (c) The 1925 Enabling Act.................. 29 (d) No contract to operate at loss............ 29 R. R. Comm. v. Texas R. R. Co., 264 U. 8. 79. Be Se I @ 6 nc eocvoesbescorsvemiveas 30-40 Potter Matlock Trust Co. v. Warren County, 182 Ky. 840. . Mt. Carmel Pub. Ut. Co. v. Pub. Utilities Comm., 297 Til. 303. Northern Ill. L. & T. Co. v. Ill. Commerce Comm., 302 1. 8. 11. Charleston-Isle of Palms Traction Co. v. Shealy, 266 Fed. 406. Columbus Ry. & Power Co. v. Columbus, 249 U. 8. 399; Cleveland v. Cleveland City Ry. Co., 194 U. 8. 517 Distinguished. hv. Ames, 169 U. 8. 466. R. R. Comm. v. Eastern Tex. R. R. Co., 264 U. 8. 79 3. Private Contracts for line extensions, etc...... 40-48 (a) Columbia Land & Investment Co......... 40-42 (b) North Columbia Land Co................ 42-47 Tez. Ry. Co. v. Marshall, 136 U. 8. 393. Jones v. N. N. & M. V. Co., 65 Fed. 736. Bryan v. Lowisville R. Co., 244 Fed. 650. Lucas v. N. Y. R. Co., 140 Fed. 438. iv Scheller v. Tacoma R. Co., 108 Wash. 348. L. & N. BR. Co. v. Johnson, 207 Ky. 813. Little Rock R. Co. v. Birnie, 59 Ark. 66. Jefferson R. Co. v. Barbour, 89 Ind. 375. Md. R. Co. v. Silder, 110 Md. 510. Oldham v. Southern R. Co., 210 Tenn. C. C. A. 644. Childs v.-City of Columbia, 87 8. C. 566. Franklin Telegraph Co. v. Harrison, 145 U. S. 459, Distinguished. German Alliance Ins. Co. v. Home Water Co., 226 U. 8. 220. Ancrum v. Camden Water Co., 82 8. C. 284. (c) Shandon Annex Co...........-.eeee-eees 47-48 (2) Bighte-of-Way .... ..cccccccccccccccccces 48 Bryan v. L. & N. R. Co., 244 Fed. 650. Fourth Point: The Consolidated Co. possessed two separate and independent franchises—one for electric light and power derived from the Congaree Co. and the other for an electric street railway derived from the Original Electric Ry. Co. If either franchise could not be operated, except at a loss, the company could abandon such franchise, while retaining and operating its other independent oe eee eee eee ee eee eee ee ee ee ee ee ee ee L The franchises of the constituent companies re- mained separate and independent ............ 49 Louisville vy. Cumberland Telephone Co., 224 U. 8. 649. New — Gas Co. v. Louisiana Gas Co., 115 U. 8. 650. Green County v. Conness, 109 U. 8. 104. BD TN BE. nn secede eve cccenrecperes 50 Original Electric Ry. Co.’s Charter ........... 51 Railroad Co. v. Georgia, 98 U. 8. 359; and Roches- ter Railway Co. v. Rochester, 205 U. S. 236, Dis- tinguished Vv PAGE Il. Street railway franchise could be abandoned, and electric light franchise retained Brooks-Scanion Co. v. R. R. Comm., 251 U. 8. 396. Norf. &@ Wes. Ry. Co. v. West Virginia, 236 U. 8. 605 Northern Ill. L. & T. Co. v. Ill. Com. Comm., 302 Il. 11. Mt. Carmel Public Utility Co. v. Public Utility Comm., 297 Ill. 303. Illinois Trust & Sv. Bk. v. Doud, 105 Fed. 123. Fifth Point: The Broad River Power Co. purchased the electric light and power franchise from the Con- solidated Co. pursuant to express statutory authority; and it cannot now be compelled to operate a street railway system which it never purchased........... 62 1925 Enabling Act. LIST OF AUTHORITIES. Ancrum v. Camden Water Co., 82 S. C. 284.......... 47 Atlantic @ Gulf R. R. Co. v. Ga., 98 U. 8. 359........ 52 Bluefield Water Wks. Co. v. Pub. Ser. Comm., 262 U. Ns PSEC See ihe Sevens chi reden es bocodeios 25 Broad River Power Co. v. South Carolina, 280 U. S ROP ae CURGEC Lic dk KRARWAA REL o Osho donee’ 2-15 Brooks-Scanlon Co. v. R. R. Comm., 251 U. 8. 396 21-24-53-67 Bryan v. Louisville R. R. Co., 244 Fed. 650......... 45-48 Bullock v. R. R. Comm., 254 U.S. 513.............. 22-27 Charleston-Isle Co. v. Shealy, 266 Fed. 406.......... 32 Chicago R. R. Co. v. Minn. Civic Ass’n, 247 U. 8.490. 66 Childs v. Columbia, 87 S. C. 566................000. 46 Cleveland v. Cleveland Ry. Co., 194 U. S. 517........ 33 Columbus R. R. Co. v. Columbus, 249 U. 8. 399...... 33-35 Fort Smith Traction Co. v. Bourland, 267 U. 8. 330.. 22 Franklin Telegraph Co. v. Harrison, 145 U.S. 459.... 46 Ga. Ry. é Power Co. v. Decatur, 262 U. S. 432....... 26 German Alliance Co. v. Home Water Co., 226 U. S. SL ees NURS a dd CORES eka ks eA SEN Geb beste 47 Greene Couty v. Conness, 109 U. S. 104............ 50 Ill. Trust & Savings Bk. v. Doud, 105 Fed. 123...... 58-60 Jefferson R. R. Co. v. Barbour, 89 Ind. 375 .......... 46 Jones v. Newport News, 65 Fed. 736................ 45 Little Rock R. R. Co. v. Birnie, 59 Ark. 66........... 46 Louisville v. Cumberland Tel. Co., 224 U.S. 649...... 50 Louisville R. R. Co. v. Johnson’s Admrz., 270 8. W. 58 Vii Maryland v. Silder, 110 Md. 510 .................. 46 Mt. Carmel Service Co. v. Utilities Comm., 297 Tl. 303 . e Mes ebURb ean rave swh esa sre habvdss spans 32-57-58 New Orleans Gas Co. v. La. Light Co., 115 U.S. 650.. 50 Norfolk & W. R. R. Co. v. Conley, 236 U.S. 605...... 57 Northern Ill. L. & T. Co. v. Ill. Comm., 302 Ml. 11. .32-57-59 Northern Pac. R. R. Co. v. North Ralieia 236 U. S. WO sis Unbunes cuvanesus ive ele oe 55-56 Ohio Paley Co. v. Ben Avon Borough, 253 U. 8. 287.. 25 Okla. Operating Co. v. Love, 262 U. S. 331.......... 25 Oldham v. Southern R. R. Co., 210 Tenn. C. C. A. 644. 46 Paducah v. Paducah R. Co., 261 U. 8. 267............ 38 Potter-Matlock Co. v. Warren County, 182 Ky. 840. . 42 Railroad Comm. v. Eastern Tex. R. R., 264 U. 8. MPR wheels win pede Weed inde DL ox oe ek 21-26-27-29-39 | Railroad Co. v. teeorgen, 26 UB B00. So os 53 Rochester R. Co. v. Rochester, 205 U. 8. 236 ........ 52-53 Scheller v. Tacoma R. R. Co., 108 Wash. 348 ........ 45 Smyth v. Ames, 169 U.S. 466 ..................... 39 South Carolina v. Broad River, —~— 8. C, ——...... 1 Texas R. Co. v. Marshall, 136 U.S. 393 ............ 44 STaTuTes. Act Feb. 13, 1925, c. 229, §1; 43 Stat. 987 ............ pnts TM BROT) 6 os ik iri eS South Carolina Acts 1882, p. 876 ........... ‘Sea ed South Carolina Acts 1887, p. 1103 .................. South Carolina Acts 1890, p. 959 .................. South Carolina Acts 1891, p. 1453.................. eR Rs NS ech onda ba cic knoe ve ecbe sectres to Pk Rh & DO DOD Supreme Court of the United States OCTOBER TERM, 1929; No. 528. Broad River Power Co. Er Au, - - Petitioners, v8. [ORALLY ARGUED MAY 2, 1930.] Strate or SourH Caroina Er At., On Writ of Certiorari to the Supreme Court of South Carolina. BRIEF FOR PETITIONERS. (REFERENCES REQUIRED BY RULE 25.] (1) The opinion below [South Carolina v. Broad River Power Co., S. C. (unreported as yet) R. 203-251; dissenting opinion R. 251-265] and the judgment thereon (R. 251) were both rendered J uly 9, 1929, directing the Broad River Power Co. (hereafter called Broad River) and the Columbia Railway Gas & Electric Co. (hereafter called Consolidated Co.) to re- sume permanent operation of an electric street railway system in Columbia, S. C.; permanently enjoining them from abandoning it; and holding both companies jointly responsible for its future operation (R. 8). (2) The jurisdiction of this Court was invoked by a writ of certiorari, granted January 27, 1930, to re- view the above cause (280 U. S. 96A; Act Feb. 13, 1925, ce. 229, §1, 43 Stat. 937; Jud. Code 237(b); 28 U. S. C. A. §344). THE QUESTION INVOLVED. The question involved here is whether, under the ‘*due process’’ clause, South Carolina can compel one or both of those two public utility corporations to re- sume permanent operation of a street railway system in Columbia, S. C., operation of which had been aban- doned in 1927, because during the last seven years of its operation, it had been run at an actual loss of over $675,000, before making provision for either deprecia- tion or for return on the investment. The State contends that by the Consolidated Co.’s Charter, by City ordinances permitting the use of the streets, and by certain private contracts with land de- velopment companies, the company contracted to oper- ate the street railway, regardless of whether its opera- tion could only be had at an enormous financial loss. The company contends that, despite economical and efficient management, the street railway has not been, and cannot be, operated, except at a tremendous finan- cial loss, averaging nearly $100,000 cash loss per year, without any provision for depreciation or return on the investment; that for the State to compel it to continue operation under such circumstances constitutes a tak- ing of its property without due process of law; and ua that it had the right to abandon operations and with- draw its property from the public service, and realize what it could from its salvage value. STATEMENT OF THE CASE. 1. In 1882 the Columbia Street Railway Co. was incorporated. In 1882, South Carolina chartered the Columbia Street Railway Co. (hereafter called the Horse Car Co.),* with power to construct street car tracks through the City of Columbia and five miles beyond the city limits, and to operate a street railway for thirty years (Acts 1882, p. 876; R. 817). Neither the State Constitution nor Statute required any consent from the city of Columbia. Nothing was done until 1886. 2. The 1886 Ordinance of City of Columbia. In 1886, Columbia passed an Ordinance authorizing the Horse Car Co. to lay its tracks on the city streets (which had already been fully authorized by the State Legislature, regardless of the City’s consent) ; and pre- scribed how the tracks should be laid and the cars oper- ated, with various penalties by fine or imprisonment for vioiations thereof (R. 833-837). 3. In 1887 Congaree Gas & Electric Co. was incor- porated. In 1887, South Carolina chartered the Con- *On account of the confusing similarity in the names of nu- merous companies each beginning with the word ‘‘Columbia,”’ they will be designated herein by short titles expressive of their nature. AER emcees: 4 garee Gas & Electric Co. (hereafter called Congaree Co.) with ‘full power and authority to manufacture, make and sell gas, . . . and... tocarryon and conduct the business of using electricity for any purpose, and of manufacturing light, heat and power, . . . byelectricity . . . for light- ing and heating the streets, roads, [ete.] . . .” (Acts 1887, p. 1103; R. 813). The Congaree Co. conducted its electric lighting business until 1891. 4. In 1890 the original Electric Street Railway Company was incorporated. In 1890, the Columbia Electric Street & Suburban Railway and Electric Power Co. (hereafter called Original Electric Ry. Co.) was incorporated, but never engaged in any operations (Acts 1890, p. 959; R. 811). 5. The Consolidation Act of 1891. In 1891, South Carolina passed a Consolidation Act, which authorized the consolidation of the Original Electric Ry. Co. with the Congaree Co., into a consolidated corporation, to be called Columbia Electric Street Railway, Light & Power Co.* (hereafter called the Consolidated Co.), and authorized such Consolidated Co. to purchase the original Horse Car Co. (Acts 1891, p. 1453; R. 809). This Consolidation Act provided that the Original Electric Ry. Co. and the Congaree Co. *The Consolidated Co. later changed its name to Col umbia Railway, Gao-& Miestric Go., which ls one of the petitioners on thie Writ of Core tiorari; and it will continue to be ref to as the Congolidated Co. “‘be, and they hereby are, authorized to con- sclidate their property, franchises and privileges into one company, under the name of ‘The Co- lumbia Electric Street Railway Light and Power: Company,’ such consolidation to be effected by a deed of indenture, to be executed by the two con- solidating companies, declaring their intention so to consolidate, and transferring to said consoli- dated company all of the property, franchises, rights and privileges owned or held by each of them respectively. ‘Section 2. That upon such consolidation ‘The Columbia Electric Street Railway Light and Power Company’ shall be vested with all the rights, franchises, powers and privileges conferred upon the consolidating companies [by the charters]. . . and that said consolidated company be subject to all of the debts and liabilities of the two consoli- dating companies; and that said consolidated com- pany be authorized and empowered to purchaze and acquire the property, franchise, and privileges of ‘The Columbia Street Railway Company’ [orig- inal Horse Car Co.], and upon such purchase said consolidated company be vested with all the rights, powers, franchises, and privileges conferred by [the 1882 Act incorporating the original Horse Car Co.].”’ Pursuant to the Consolidation Act, (1) the Orig- inal Electric Ry. Co, and the Congaree Co., by proper indenture, were consolidated into the Consolidated Co. ; and (2) the Consolidated Co. thereupon purchased the property, franchise and privileges of the original Horse Gein, ana renee raven coe Car Co. and became vested with all of the iatter’s “rights, powers, franchises and privileges conferred by’’ the 1882 Act incorporating such Horse Car Co. 6. The 1892 Ordinance of Columbia, giving its con- sent to the construction of the Electric Street Railway in its streets. By an 1892 Ordinance, Columbia gave its consent to the Consolidated Co. to use electricity as a motive power for its cars on the City streets (§562; R. 838; Cf. R. 812, §5). 7. Consolidated Co.’s operation (1892-1925) of the respective Railway and Electric Systems. The Con- solidated Co. having, as above explained, acquired the three separate franchises, to-wit: (1) electric railway from one constituent, (2) electric light and power from the other constituent, and (3) the original Horse Car franchise by purchase, it abandoned the horse car oper- ations, continued for 33 years (1892-1925) to operate (a) an electric railway in Columbia, and for several miles beyond the city limits, and (b) an electric light and power system in that City and vicinity. Private extension contracts. In 1900-1910, the Con- solidated Co. made contracts with three suburban land development companies, under which it built certain extensions of its lines, the cost of two of which the Con- solidated Co. bore. South Carolina claims that by those contracts the Consolidated Co. became obligated to the public to maintain its street railway system in perpetuity in connection with those extensions and re- gardless of losses. (See pages 40-48, infra.) selene) peumpecsmnsaassnanpesenenmaamnessieeesiiillh 7 8. Consolidated Co.’s heavy losses in the operation of the electric railway system during 1920-1925. Be- ginning about 1912, the increasing use of private auto- mobiles caused a country-wide decline in the profitable- ness of electric railways; and during the years 1920- 1924, the Consolidated Co.’s electric street railway sys- tem showed an enormous out-of-pocket cash loss. Its actual operating expenses exceeded its receipts by $528,803.91 (R. 1119; 1125; 426): Actual cash losses in Year operation PRS pane $ 94,533.64 MES % eecncaee vices Rue. 49,232.73 as er Ee baer. 144,513.21 ENE nates ene ag apt ie 102,477.28 SPA ES apa 138,047.05 $528,803.91 The above losses included no charge for deprecia- tion. If $25,000 a year be allowed for depreciation (which is only half of that proved (R. 59, 539, 606), the deficit for those five years would be $653,803.91—with- out any provision for a return on the $1,750,000 invest- ment, estimated on reproduction cost (R. 154, 539). These inevitable losses in street railway operation, were, in the case of the City of Columbia, further ag- gravated by a strike in 1922; followed by continuous and practically unrestrained “«jitney’’ competition largely conducted by discharged strikers, which com- petition was countenanced by the City authorities who licensed approximately 200 jitneys a year (R, 522), in addition to a number of taxicabs (R. 521-2). Rae ee ek ie rs ce tat] 9. Organization of the Broad River Power Com- pany, and its subsequent expansion and development, including its acquisition of the Consolidated Co.’s elec- tric and gas properties—the Consolidated Co. retaim- ing its electric street railway. In July, 1924, the Broad River Power Company was incorporated as a South Carolina corporation, with a nominal capitalization, for the purpose of conducting a gas and electric business. In the latter part of 1924, its nominal capitalization was increased to 22,000 shares of Common Stock and 12,500 shares of Preferred Stock, of which $1,250,000 of Preferred Stock and $2,199,300 of Common Stock, with $449,000 cash, were used by Broad River to ac- quire common and preferred stock of the Consolidated Co. and the preferred stock of one of the latter’s sub- sidiaries (R. 672). The details of Broad River’s ac- quisition in June, 1925, of the Consolidated Co.’s elec- tric and gas properties and subsidiaries, will be noticed presently (pages 9-11, infra). From time to time, Broad River issued (and sold through investment bankers) its preferred stock and bonds, with the proceeds of which, it erected a $4,- 000,000 power plant at Parr Shoals, and made many additions, extensions, improvements and betterments, at an aggregated cost of around $10,000,000 (R. 666), until at the time of the trial below, its outstanding cap- italization [exclusive of the funded debt of the Con- solidated Co. the payment of which Broad River as- sumed], was as follows (R. 673; 611): pemtewet Wee. 2.5 ks $3,810,500 NN SONI ioe i sieve a3 4,329,400 First mortgage bonds. ........... 5,764,070 Sinking fund bonds............... 1,385,625 $15,289,595 All of the bonds and preferred stock are held by the general public (R. 611). The total value of its proper- ties is about $20,000,000. The Enabling Act of March 19, 1925. On March 19, 1925, South Carolina passed an Act (for brevity called the Enabling Act) by which the Consolidated Co. and six of its subsidiaries were sev- erally (R. 806): “‘authorized to merge or consolidate with or to sell, transfer and convey to any one or more of them or to the Broad River Power Company all or any part of their respective properties, assets, franchises and charter or other rights, and each and every of said companies and the Broad River Power Company are hereby authorized to merge or consolidate with or to purchase and to receive and hold all or any part of the properties, assets, franchises and charter or other rights of any other of said companies so sold, transferred and con- veyed toit . . . and each and every company so merging or consolidating with or becoming the purchaser of any of such property, assets, fran- chises, charter or other rights is hereby declared to be vested with the same and all such merger:, consolidations, sales, transfers and conveyances 10 are hereby validated and confirmed: PrRovipED That all such mergers, consolidations, sales, trans- fers and conveyancvs shall be made without preju- dice to any claim for taxes or any rights of any creditors of the companies so selling. ‘‘Section 2. That in furtherance of the pur- poses of Section 1 of this act, it is hereby declared that all franchises heretofore granted by the State to any of the said companies ma~ be transferred and assigned in pursuance of the provisions of Section 1 of this Act, and that said franchises are hereby ratified, confirmed and continued in full force and effect in the company, to which the same shull be so transferred and assigned and tnat such company shall hold the same with all the rights, powers and privileges granted to the original holder thereof, subject only to the restrictions, re- quirements and conditions in said franchises con- tained.”’ On June 15, 1925, the Consolidated Co.’s several gas and electric subsidiary corporations first conveyed their properties to the Consolidated Co., and simul- - taneously therewith, the Consolidated Co. conveyed, in turn, all of its properties (including those just ac- quired from its subsidiaries) to Broad River; except, that the Consolidated Co. expressly retained its street railway franchises, easements, rights of way, rolling stock and railway equipment, by the following express reservation (R. 1116): “Columbia Railway, Gas and Electric Com- pany expressly retains the following: ll (a) Its franchises to operate and maintain its street railway in the County of Richland State of South Carolina, within and without the City of Columbia and other municipal corpora- tions in said County. (b) All easements, rights of way, rights and privileges necessary fc» operation of said street railway. (c) All street cars, tracks, ties, overhead conductors, bracket, spans, tools, repair equip- ment, material and supplies used or useful ex- clusively for street railway purposes. (d) All that lot or parcel of land situate in the County of Richland, State of South Caro- lina, and more particularly described and bounded as follows: [A strip 30 feet wide 1115 feet long, running from the Harper lands to the State A. & M. Society].”’ The effect of the Enabling Act, and the action tak- en thereunder, was that Broad River acquired by deed all of the Consolidated Co.’s gas and electric properties ; while the Consolidated Co. retained its electric street railway franchises, tracks, rights of way, rolling stock and equipment. 10. The Consolidated Co.’s continued losses in the operation of its street railway system (1925-1927). The Consolidated Co. and the State Railroad Commission, by a series of measures [such as raising fares, adopting a zoning system, eliminating unprofitable lines, giving free transfers, selling tickets at reduced rates, and de- creasing expenses in various ways], endeavored to put the railway on a paying basis, so that the street car 12 system might continue in operation (R. 541-544); but heavy losses continue“ until March 11, 1927, when the street railway operation was abandoned (R. 541). The actual cash losses in the operation for 1925- 1927 were as follows (R. 1119): SE FSR IS i ends rv ewakodeds $87,812.13 ME 6s hea Vewavhcecaveveseuienes 47,630.35 1927 (2 months) . ........s0c00005 10,953.08 $147,395.56 This was an actual $147,395.56 operating cash loss in a little over two years, without any provision for depreciation or return on the investment. The $675,199.47 losses for the 7 years and 2 months (January 1, 1920-March 1, 1927) may be thus sum- marized (R. 1119): ME FA Views shad tucpnuudoniacen $ 94,533.64 ss Seber e iv ccine tenes bene 49,232.73 MRS es Ata ve ethics property burdens that are not incident to its en- gagement.”’ »» he Congaree franchise for electric light and pow- er gave to the Consolidated Co. the right to carry on a lighi: and power business. That franchise was lim- ited to that business only. The public interest cannot impose upon the business operated under that fran- chise, the additional burden of paying losses incurred in carrying on an entirely different business, the fran- chise for which the Consolidated Co. derived from the Original Electric Ry. Co. This idea is well illustrated by Mr. Justice HuGHEs’ language in Northern Pacific Ry. Co. v. North Dakota, at page 596: “The State cannot estimate the cost of carry- ing coal by throwing the expense incident to the maintenance of the roadbed, and the general ex- _ penses, upon the carriage of wheat; or the cost of _ earrying wheat by throwing the burden of the up- keep of the property upon coal and other commod- ities. . . . But, while local interests serve as a motive for enforcing reasonable rates, it would be a very different matter to say that the State may compel the carrier to maintain a rate upon a particular commodity that is less than reason- able, or—as might equally well be asserted—to earry gratuitously, in order to build up a local en- terprise. That would be to go outside the carrier’s undertaking, and outside the field of reasonable supervision of the conduct of its business, and would be equivalent to an appropriation of the 57 property to public uses upon terms to which the carrier had in no way agreed.”’ . The Consolidated Co. agreed, by its acceptance of the Congaree franchise, that it would carry on a light and power business at reasonable rates that would pro- vide a fair compensation to it, based upon the reason- able value of the property devoted to that public use. It did not agree that it would devote that property not only to the furnishing of light and power to patrons, but also to the furnishing of street railway service, telephone service, or any other service. & In Norf. & West. Ry. v. West Virginia, 236 U. 8. 605, it was held that a 2c rate for passenger traffic af- forded such a small margin of profit that the railroad could not be compelled, by the State, to carry passen- gers at that low rate. In the course of the opinion, Mr. Justice Hucues said (p. 609) : “Thus, it would not be contended that the State might require passengers to be carried for noth- ing, or that it could justify such action by placing upon the shippers of goods the burden of excessive charges in order to supply an adequate return for the carrier’s entire service.”’ The rule that a company owning two or more utili- ties cannot be compelled to operate one at a loss, be- cause its total business shows no loss, is sustained by well reasoned decisions ‘of various courts (Northern Ill. L. & T. Co. v. Tl. Commerce Comm., 302 Ill. 11; Mt. Carmel Public U tility & Service Co. v. Public Util- ities Comm., 297 Ill. 303; Ill. Trust & Sav. Bank v. Doud, 105 Fed. 123). In Mt. Carmel Public Utility &c. Co. v. Public U. Comm., 297 Ill. 303, the Mt. Carmel Co. was engaged in the business of furnishing gas, electricity, water and heat—the heat being furnished under a 1906 Ordi- nance. The heating business proving unprofitable, the Company petitioned the Public Utilities Commission for permission to abandon its heating service and to surrender its franchise. The Public Utilities Commis- sion directed the Mt. Carmel Co. to resume the render- ing of heat service immediately. The Court held that it could not be required to do so, saying: ‘‘The state has no power to compel a corpora- tion engaged in operating a public utility to serve the public without a reasonable compensation. If the corporation is required by any act or proceeding to devote to the public the use of its property without compensation or without any reasonable. compensation, it has been deprived of its property and of the equal protection of the law. Where a public utility corporation is engaged in furnishing to the public through various depart- ments of its business, different kinds of service, it cannot be compelled to carry on a branch of its business which furnishes one kind of such service at a loss, even though at the same time its whole business may be conducted at a profit. .Brooks- Scanlon Co. v. Railroad Com., 251 U. 8S. 396; Northern Pacific Railroad Co. v. North Dakota, 236 U. 8S. 585; Norfolk & Western Ratlroad Co. v. West Virginia, 236 U.S. 605. . . . The evidence taken indicated that the heating plant was prac- | tically worthless; that to enable it to render satis- factory service during the season would require substantially its entire reconstruction, and would require an expenditure of $100,000—an amount equal to the value of the plant—and that the plant would not then pay for its operation and any re- turn on the investment. This was the condition as shown prima facie by the evidence, and such a condition would justify the petition of the com- pany to abandon the service. . . . An order without investigation—with any finding of facts on which it was based—requiring practically the construction, at great expense, of a new plant which could not be expected to earn a reasonable return on the investment, was not reasonable but amounted to requiring the appellant to devote its property to the public use without regard to com- pensation.”’ In Northern Ill. Light & T. Co. v: Tl. Com. Com’n, 302 Ill. 11, a traction company petitioned for leave to discontinue its street railway service on certain streets in the Town of Ottumwa. In reversing the order of the Commerce Commission, which had permitted discon- tinuance of service on only one of the streets, the Court said: “*It was also held in that case [Mt. Carmel Utii- ity Co. v. Public U. Comm.] that, where a public utility is engaged in furnishing to the public, through various departments of its business, dif- ferent kinds of Service, it cannot be compelled to ERT ae «.--earry on a branch of its business which furnishes .. one kind of such service at a loss, although at the .» ‘same time its whole business may be conducted at a + »profit, The question whether or not appellant in “pi this case is making a profit in its other utility is not proper for consideration in this case. : _ The question in this case is not one of rate making, :.. but of the right to abandon a part of the utility on _. the ground that the operation of such part will _. amount toa confiscatory rate on the whole, or a rate upon the whole that yields such a small return that _.. the owner of the utility would substantially suffer --, @ loss it it were required to continue, or a rate that .. returns so small a profit that no reasonable busi- -- mess man would accept and continue such opera- > tion,”? citing and quoting Brooks-Scanlon Co. v. . Ratlroad Comm., 251 U. S. 396, and Bullock v. - Florida, 254 U. 8. 514. _ In Minois Trust & Savings Bank v. Doud, 105 Fed. 123,. the Circuit Court of Appeals for the Eighth Cir- cenit (Sanborn, J.) said: “The proof is conclusive that the railway was conducting three classes of business,—operating a street railway by electricity, furnishing steam heat ‘and power, and furnishing electric light; that it could conduct either one or two of these occupa- _ tions without the others or the other, and that it s had ample power, without the new building and -. machinery, to operate its street railway, to furnish "its customers with steam heat and power, and to furnish some of its customers with electric light. . . .« It eould have abandoned the business of furnishing electric light entirely, and have con- 61 tinued to operate its street railway, and to furnish steam heat and power to its customers, or it could have abandoned all its business but the operation of its street railway, and it would still have been a going concern. . . . Under its articles of in- corporation the railway derived from the state power (1) to buy, construct, sell, lease, and operate street railways in Ottumwa; (2) to buy, construct, sell, lease, and operate a plant for furnishing steam heat and power; and (3) to buy, construct, sell, lease, and operate a plant to supply and furnish electric light to the city of Ottumwa and its in- habitants. This corporation derived the privilege of erecting its poles and stringing its wires along the streets of Ottumwa to furnish electric light from a set of ordinances entirely distinct from those which permitted the use of the streets of the city for its street railway and for its pipes to fur- nish steam heat and power. The ordinances rela- tive to its electric lighting imposed no conditions upon its business of furnishing steam heat and- power, or upon its business of operating the street. railway. Now, conceding that the franchises of a public or guasi public corporation may be forfeited for misuse or renunciation, still the entire failure of this corporation to exercise its power to furnish electric light would have furnished no ground for the forfeiture of its franchises to furnish steam heat and power and to operate its street railway. Another of the franchises granted to this corpora- tion under its articles was the power to buy, hold, use, and sell the corporate stock of any competing corporations in the city of Ottumwa. None of the franchises to operate a street railway, to furnish electricity, or to furnish steam heat and power could have been forfeited because the corporation had not exercised its power to purchase the stock of rival corporations. No corporation is required to exercise all the powers granted to it by its or- ganic law as a condition of the exercise of some of them unless that requirement is expressly made by some statute or ordinance under which it derives some of its powers or privileges, or the powers are inseparably connected with each other.”’ FIFTH POINT. The Broad River Power Co. purchased the electric light and power franchiss from the Consolidated Co. pursuant to express statutory authority; and it cannot be compelled to operate a street railway system which it never pur- chased. Before the passage of the 1925 Enabling Act, the Consolidated Co. owned and was operating under (1) the street railway franchise which it had derived on consolidation from the Original Electric Ry. Co., and (2) the electric light and power franchise which it had derived on consolidation from the Congaree Co. The Broad River Power Co. was an independent corporation, having ample corporate powers to operate an electric light and power business in Columbia; but there was no existing statutory authority which would authorize the Consolidated Co. to sell any of its fran- chises to Broad River. At that time (1924), the stock of the Consolidated Co. had been purchased by the so- called Barstow interests, which also controlled Broad River. The Consolidated Co.’s electric properties were in bad condition, and there was an acute shortage of power in the City of Columbia and its vicinity. In or- der to finance the necessary improvements and exten- sions of the electric light and power plant, it was essen- tial that the electric and gas properties be conveyed to a new company totally disassociated from the street rail- way operations, which for years had been operated at a tremendous loss. No investors or financial houses would furnish money to a company operating an elec- tric light and power business in this condition, which was at the same time operating a street railway bv *- ness whose huge losses in operation would be sad¢:al on the electric light and power business (R. 526, 547, 663, 669, 670, 696). Thereupon, the South Carolina Legislature adopted the 1925 Enabling Act, which expressly authorized the Consolidated Co. and its subsidiaries (R. 806). “‘to merge or consolidate with or to sell, trans- ferand convey . . . to the Broad River Power Company all or any part of their respective prop- erties, assets, franchises and charter or other rights,and . . . the Broad River Power Com- pany are hereby authorized to merge or consoli- date with or to purchase and to receive and hold all or any part of the properties, assets, franchises and charter or other rights of any other of said companies so sold, transferred and conveyed to eS ap and each and every company so merging or consolidating with or becoming the purchaser of any of such property, assets, franchises and charter or other rights is hereby declared to be vested with the same and all such . . . sales, transfers and conveyances are hereby validated and confirmed. Section 2. Franchises.—That in furtherance of the purposes of Section 1 of this act, it is hereby declared that all franchises heretofore granted by the State to any of the said companies may be transferred and assigned in pursuance of the pro- visions of Section 1 of this Act, and that said fran- chises are hereby ratified, confirmed and continued in full force and effect in the company, to which the same shall be so transferred and assigned and that such company shall hold, the same with all the rights, powers and privileges granted to the origi- nal holder thereof, subject only to the restrictions, requirements and conditions in said franchises contained.”’ Pursuant to that express statutory authority, the Consolidated Co. sold; transferred and conveyed to Broad River its light /and power properties and fran- chises (Deed, R. 1070; 1118). The Broad River as- sumed the mortgage indebtedness of the Consolidated Co., as well as the obligations of certain subsidiaries aggregating over $7,000,000 (R. 687), and surrendered for cancellation a large amount of stock of the Con- solidated Co. and ts subsidiaries (R. 687). The Consolidated Co. expressly reserved to itself its street railway franchises, easements, rights of way and property (R. 1116). After the conveyance the Consolidated Oo. had about $75,000 current assets, $99,000 of current lia- bilities, and also possessed its entire physical street railway property (R. 608), which had a reproduction value of $1,750,000 (R. 134), and was assessed for tax- ation at $250,000 for 1926 (R. 1120) and at $357,142 for 1927 (R. 1121). The effect of the Enabling Act and the deed made puruant thereto, was to vest in Broad River the elec- trie light and power franchise originally granted to the Congaree Co. : As Broad River never purchased the street railway system (which was expressly excepted from the con- veyance), it is impossible to see how Broad River can be compelled to operate, or to be jointly responsible for the operation of, a property which it never acquired. Nevertheless, the South Carolina Court held that the conveyaince by the Consolidated Co. to Broad River constituted a practical merger of the two companies, and made Broad River liable, to the same extent as the Consolidated Co., for the future operation of the street railway system. It is difficult to see how a corporation which buys one property from the seller, who expressly reserves to himself another property, can be held to have been merged with the seller, so as to make such corporation liable for a property which he has expréssly declined to buy. The fact that one corporation owns stock in an- other does not create an identity between the two com- panies, nor render the stockholding company the own- er of the property of the other, or liable for its obli- gations, or create the relation of principal and agent or representative between the two (Chicago M. & St. P. R. R. v. Minn. Civic Assn., 247 U. 8. 490, 500), ex- cept in those exceptional cases, where in order to pre- vent fraud or other flagrant wrong, one company is held to be not an independent corporation but a mere agent of the other. No such situation exists here. The Consolidated Co. and Broad River, pursuant to express legislative authority, separated the ownership of the street rail- way system from that of the light and power business. This was done for a purpose. It was done because the light and power business needed financial assist- ance in order to supply light and power to Columbia and vicinity at reasonable rates. This could not be done unless money could be raised. Money could not be raised so long as the losses of the street railway system were saddled upon the company seeking to bor- row money for its light and power business. This was the occasion of the separation of interests. Millions of dollars belonging to investors, and which never belonged to the Consolidated Co., were invested in Broad River, upon the faith of its sepa- rate identity, and upon its ownership pursuant to statutory authority, of the light and power business (R. 806; p. 9, supra). The Supreme Court of South Carolina, by its deci- sion in this case, seriously jeopardizes the rights of 67 the bondholders and preferred stockholders of Broad River, whose money has been used to build an enor- mous $4,000,000 power plant and to provide for neces- sary extensions, additions and betterments in order to furnish power at reasonable rates to the people of South Carolina. The decision of the South Carolina . Court goes far beyond the rule which is sometimes ap- plied to acts which are actually or constructively fraud- ulent, as between two corporations, one of which owns the other. By the decision below, the investments of many per- sons in Broad River are now subordinated to a prior lien for the operation of a street railway with a deficit of about $150,000 per year in perpetuity. The decision below impresses this burdehsome lien for the operation of a street railway company, not only upon the property which Broad River acquired from the Consolidated Co., but upon millions of dollars of additional property, which it has acquired since, by the use of the funds of investors who would never have thought of putting any money into a street railway enterprise. If, as held in Brooks-Scanlon Co. v. Railroad Comm., 251 U. 8. 396, a lumber company could not be compelled to use the assets employed in the lumbering business to operate a railroad owned by it at a loss, a fortiori, a gas and electric company cannot be compelled to exhaust its assets in operating a street railway sys- tem owned by another company. A decision imposing such an obligation of itself is so contrary to funda- 68 mental principles of justice as to constitute a violation : * the Fourteenth Amendment. 4 CONCLUSION. ~The judgment of the ro Court of South Car. EE C. EDWARD PAXSON, GEORGE M. Le PINE, W. C. McLAIN, 2 | Counsel for Petitioners, _ MarsHALL BULLITT, ? Of Counsel. Louisville, Ky., 28 April, 1980. mental principles of justice as to constitute a violation 7” the Fourteenth Amendment. Se Ss CONCLUSION. = “Phe judgment of the Supreme Court of South Ce olina should be reversed. C. EDWARD PAXSON, GEORGE M. Le PINE, _W. O. McLAIN, Woe. MarsHALL BULLITT, ; Of Counsel. Louisville, Ky., 28 April, 1980. 4 Counsel for Petitione ‘i See. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0398%3A05. Public record. Not legal advice.