Chickasha Cotton Oil Co. v. Cotton County Gin Co.

40 F.2d 846, 74 A.L.R. 1070, 1930 U.S. App. LEXIS 3268

• Court: Court of Appeals for the Tenth Circuit
• Decided: April 28, 1930
• Docket: 177
• Status: Published

Opinions

COTTERAL, Circuit Judge.

The Chickasha Cotton Oil Company, a Delaware corporation, owning and operating a cotton gin at Walters, OH., appeals from the dismissal of a suit to enjoin the Cotton County Gin Company, chartered under the OHahoma law, from constructing and operating a gin at the same city.

The grounds of suit as alleged in plaintiff’s bill are in substance, and so far as they are material, that it is operating the gin as a needed utility under a license granted by the State Corporation- Commission, pursuant to article 4, chapter 20, Comp. Okl. Stat. 1921, as amended by Chapter 191, Session Laws of 1923; that by section 3712 of that chapter cotton gins are declared to be public utilities and their operation a public business, the' commission is thereby authorized to regulate them and fix the rates therefor and enforce its orders, and plaintiff’s gin is such utility; that the commission has promulgated its regulations and rates; and that the defendant proposes to establish its gin at Walters, not as a public utility or by virtue of a license’, but pursuant to state law, known as Senate Bill No. 16, adopted June 18, 1929 (Laws Okl. Sp. Sess., 1929, e. 240), which impairs the obligation of plaintiif’s contract with the state, under section 10, article 1, of the Federal Constitution, and as to plaintiff is violative of the due process and the equal protection clauses of the Fourteenth Amendment. Averments are added that defendant’s gin will draw patrons from plaintiff to its irreparable loss and damage, for which it has no adequate remedy at law.

The defendant answered, alleging cotton gins are not public utilities and plaintiff’s gin is not such utility, but that cotton ginning is a private business and that the Corporation Commission has no power to regulate gins or fix or enforce charges for their operation, and alleging the state laws in so providing and in requiring a license therefor are invalid, and the defendant invokes the same provisions of the Federal Constitution in its favor, but asserts' that if plaintiff has a franchise for cotton ginning, yet defendant proposes to gin cotton solely for its stockholders under and by virtue of Senate Bill No. 16, and it is alleged that statute is valid and does not violate the constitutional rights of the plaintiff.

At the trial of the cause evidence was introduced by the parties. The District Judge expressed his views in an opinion, holding in substance that the operation of cotton gins is a private business, and the statute in declaring them publie utilities is unconstitutional, but if it is not, Senate Bill No. 16 is a valid enactment, because of the provision for ginning the cotton of the defendant’s stockholders, requiring a dismissal of the bill.

Article 4, chapter 20, enacted in 1915 (Laws Okl. 1915, c. 176), comprises sections 3712 to 3715, inclusive, of the Compiled Oklahoma Statutes of 1921. Section 3712 declares cotton gins to be public utilities and their operation a publie business. Section 3713 forbids the operation of a gin without a license from 'the State Corporation Commission. By section 3714 the commission is authorized to consider the necessity and demands for a gin at its location, and refuse a license when the ginning facilities of licensed gins at a location are adequate, provided, a license must issue on a petition of not less than fifty farmers, etc. Section 3715 vests in the commission the power to regulate gins with regard to publie duties and charges, cor-rest abuses, discrimination and extortion, and prescribe rates and regulations, as in case of transportation and transmission companies. By the Session Laws of 1923, e. 191, sections 3713-3715 were re-enacted and their scope enlarged, but the proviso to section 3714 was omitted. Section 3714 was amended in 1925 (Laws 1925, c. 109), by a proviso, that a license was required on a petition for a gin to be run co-operatively, signed by one hundred citizens and taxpayers of the community. Senate Bill No. 16, adopted in 1929 (Laws Okl., Sp. Sess., 1929, c. 240), amends sections 3712 and 3713, and reads as follows:

“Section 3712. That cotton gins maintained and operated for the purpose of ginning seed cotton of the general publie, or of persons other than the person or persons, or the stockholders of the corporation maintaining and operating said gin, or maintained and operated for the purpose of ginning seed cotton not produced and owned by the person or persons, or the stockholders of the corporation, maintaining and operating said gin,» are hereby declared to be public utilities, and the operation of same for the purpose of ginning seed cotton is declared to be a publie business.

“Section 3713. That no person or persons, or corporation, in this State shall be permitted to maintain and operate a gin for the purpose of ginning seed cotton of the general public, or of ginning seed cotton not produced and owned by the person or persons, or the stockholders of the corporation maintaining and operating said gin, without first having secured a license for such purpose from the State Corporation Commission, said license to be issued upon proper showing to be made as prescribed by the rules and regulations promulgated by the Commission. * * . * ”

The object of this enactment was to except from classification as publie utilities and from the requirement of a license persons and corporations engaged in ginning cotton produced and owned by individuals or stockholders of the corporations. Accordingly, the appellee incorporated under the exceptions. The questions presented are whether cotton gins are publie utilities and the foregoing enactment with respect to corporations formed under it violates the constitutional rights of the appellant. It is sufficient to determine whether it denies appellant the equal protection of the laws, under the Fourteenth Amendment.

The character of cotton gins as public utilities has had in its favor the acquiescence of ginners and patrons in the regulations of the State Corporation Commission since 1915. It was assumed to be valid in Sims v. State, 80 Okl. 254, 196 P. 132, 23 A. L. R. 1475, where the rates fixed by the commission on bagging and ties were sustained. In the syllabus, prepared by the court, pursuant to Section 803, C. O. S. 1921, gins are expressly declared to be publie utilities. In Planters’ Cotton & Ginning Co. v. West Bros., 82 Okl. 145, 198 P. 855, the power of the commission to restrain a discrimination by a gin against cotton buyers was upheld on the same theory. And in Frost v. Corporation Commission, 278 U. S. 515, 49 S. Ct. 235, 73 L. Ed. 483, the parties conceded and the court assumed as a basis of decision the validity of the state laws requiring a license for a gin, and classifying it as a publie utility; and it is persuasive the court entertained that view.

It was said in Munn v. Illinois, 94 U. S. 113, at pages 132 and 133, 24 L. Ed. 77: “For our purposes we must assume that, if a state of facts could exist that would justify such legislation, it actually did exist when the statute now under consideration was passed. For us the question is one of power, not of expediency. If no state of circumstances could exist to justify such a statute, then we may declare this one void, because in excess of the legislative power of the State. But if it could, we must presume it did. Of the propriety of legislative interference within the scope of legislative power, the legislature is the exclusive judge.”

Looking to the facts on which the power of the state is rested we think it is well sustained. A cotton gin is a necessity to the cotton grower. It is an essential factor in rendering both cotton and seed fit for any practicable use. Coneededly, gins are rather numerous in the state, some 1,310 being installed, and two or more are sometimes found, at the same place. But the necessity of resorting to a gin renders its operation a matter of publie interest. The patronage of a gin is strikingly unlike that of stores for the purchase of food or apparel.

In Wolff Packing Co. v. Court of Industrial Relations, 262 U. S. 522, 43 S. Ct. 630, 633, 67 L. Ed. 1103, 27 A. L. R. 1280, three classes of public utilities are enumerated. Cotton gins are naturally assigned to the second class, which includes inns, cabs, and grist mills. The fact that grist mills may be operated by water power is a nonessential of its publie character. Township of Burlington v. Beasley, 94 U. S. 310, 24 L. Ed. 161. A gin is similar to a grist mill where farmers must have their grain ground to render it suitable for use. The mill prepares the grain for that purpose. The gin separates the cotton from the seed and prepares both for market. But the process whether applied to grain or cotton goes to the availability of the product. And the distinguishing element of both is the necessary service not present in ordinary trade. The public need is apparent of a limitation in the number of local gins, apportioned to the patronage and made effectual by license, and of their regulation as to equipment and operation, and as to rates to prevent exorbitant charges for the service.

Gins also partake largely of the third class, to which warehouses belong, in the respect that the gin owner devotes his business to public use and in effect grants the publie an interest in it. While the situation is not the same as in case of a central warehouse at a gate-way of commerce, the need of a gin is no less important to a community. Two extracts from the Wolff Case are apposite:

“The circumstances which clothe a particular kind of business with a public interest, in the sense of Munn v. Illinois and the other eases, must be such as to create a peculiarly close relation between the public and those engaged in it, and raise implications of an affirmative obligation on their part to be reasonable in dealing with the publie. * * *

“In nearly all the businesses included under the third head above, the thing which gave the publie interest was the indispensable nature of the service and the exorbitant charges and arbitrary control to which the publie might be subjected without regulation.”

In Tyson & Brother v. Banton, 273 U. S. 418, 438, 47 S. Ct. 426, 431, 71 L. Ed. 718, 58 A. L. R. 1236, the eases were reviewed and held to have turned “upon the existence of conditions, peculiar to the business under consideration, which bore such a substantial and definite relation to the publie interest as to justify an indulgence of the legal fiction of a grant by the owner to the publie of an interest in the use.”

In Williams v. Standard Oil Co., 278 U. S. 235, 49 S. Ct. 115, 73 L. Ed. 287, 60 A. L. R. 596, the test of a publie utility as defined in the Tyson Case was restated and applied.

Our conclusion from the controlling authorities is the business of cotton ginning.is a publie utility in the state of Oklahoma, and that the state may impose regulations and charges thereon as it has done by its laws.

Appellee’s charter recites a purpose to construct, own, and operate gins at Walters and gin cotton produced and owned only by its stockholders, not as a publie utility, but pursuant to Senate Bill No. 16. But that act does not require the organization of a mutual or co-operative company, in the true sense, and appellee has not availed itself of the act for that purpose, as is demonstrated by undisputed facts in proof, to whieh we advert briefly.

The president of the company owns and operates gins at eight or ten points. The capacity of the gin at Walters is 3,000 bales, with stipulated cost of $25,000. The capital' stock is the like amount, divided into as many shares. About 60 cotton raisers have subscribed for shares of $1 each, and 150 are-needed. By ginning 3,000 bales, expenses could be paid and a profit realized. Cotton is produced in a locality, generally not by farmers, but by lawyers, merchants, and bankers who own the land and rent it to cotton growers. The president of the company has tenants raising 250 acres of cotton. He frankly stated he owned a majority of the stock and “we hope to make a profit.” Prior to the regulations adopted under the statute of 1915, there was a condition of poor ginning, inadequate equipment, irregular weights, and other irregularities. These defects have been corrected by a system of inspection and control, through the commission. Gins in Oklahoma are rated as the best in the South. Freed of upkeep cost and control, ginning companies incorporated under Senate Bill No. 16 would soon be enabled to drive public utilities out of business and destroy the value of their plants.

Actual farmers are the least interested in an enterprise, chartered under the act. Others not producers and owners of cotton may own most of the stock. The president of the appellee proposes to invest his capital in the gin, issue nominal shares to cotton producers and owners and gin their cotton at a price that will yield a profit chiefly to himself. The scheme illustrates the deficiencies of the act. It contains no restriction as to prices and no provision for operation at the net or approximate cost of ginning. It does not provide for an association to gin cotton of the producers and owners for their mutual benefit, and appellee is not of that character. It is designed to allow as a dominant feature a profit to the investor who acquires controlling stock, whether he produces and owns any cotton.

The act in question is therefore accurately classified with the Act of 1919 (sections 5637 et seq., C. 0. S. 1921) described in Frost v. Corporation Commission, supra. The immunity from the requirement of a license from a corporation chartered under it for the same reason effects an arbitrary discrimination against appellant. The immunity from regulation as a public utility rests on •no different footing and effects a like discrimination. In both respects, the act denies appellant the equal protection of the laws, for which there is no adequate remedy at law.

The decree of the District Court is accordingly reversed, with direction to grant appellant a perpetual injunction against the operation of appellee’s gin.

Reversed.