City of Toledo v. Toledo Rys. & Light Co.

259 F. 450, 170 C.C.A. 426, 1919 U.S. App. LEXIS 1654

• Court: Court of Appeals for the Sixth Circuit
• Decided: June 4, 1919
• Docket: No. 3262
• Status: Published

Opinion

DENISON, Circuit Judge

(after stating the facts as above). [1] 1. Upon this record, and in this court, the city does not undertake to dispute the claim of the company that any rates of fare, less than the proposed new schedule, would have been confiscatory, and, if enforced against the company, would have been a taking of its property without justification and would violate its constitutional rights. One of the assignments of error challenges this claim, but it is not argued. Moreover, the city took no proof on this issue and contented itself in the court below with criticisms upon the sufficiency of the company’s proofs — criticisms which we think not sound (and see note 6, infra). By the line of decisions of the Supreme Court, culminating in the Denver Water Co. Case, 246 U. S. 178, 38 Sup. Ct. 278, 62 L. Ed. 649, and the Detroit Railway Co. Case, 248 U. S. 429, 39 Sup. Ct. 151, 63 L. Ed. 341, it is now clearly settled that, when the franchise rights of a public service corporation to use the streets of a city expire, the city has the absolute right to order the discontinuance of the service and the removal of the property from the streets; that the company has a corresponding right to make such discontinuance and removal;1 but that if neither party exercises this right, and if the company, at the city’s request, continues to occupy the streets and to give service, the public regulatory power can be exercised only subject to the condition that it must not bring about confiscation. Every controversy of this kind must now be viewed in the light of these settled principles; and, if the city’s insistence that the property shall remain devoted to public use were not sufficiently to be inferred from the general situation, it would be expressly found in the city’s 1916 application in this cause. In the general principles involved, this case is not distinguishable from the Denver and Detroit Cases'.

[2] 2. Of course, an injunction should not be issued except where there is reasonable ground to apprehend that the defendant will act unlawfully unless enjoined. Whether there is such reasonable apprehension presents, in every case, a question of fact. Where the trial court has seen and heard the witnesses, we are always reluctant to set aside its finding of fact; and especially must that be true where the rightfulness of the conclusion depends largely upon that general knowledge possessed by all citizens of the community, including the judge, and which cannot be reproduced in the printed record. What action the city, through its official representatives, was likely to take, could be determined by the trial judge much better than by us, and, upon a review of the proofs and the arguments here, we see no occasion to disturb his conclusion. We reach this result with the more confidence because the case is one of those where, if the defendant did not intend any unlawful act an injunction would do it no harm, save as a matter of costs and save as to its abstract right to immunity from unnecessary writs. Neither of these exceptions is vital — although each is important, and the second may be sometimes controlling. , ■

We cannot yield to the suggestion that if the mayor had any intent to interfere with, or obstruct the adoption of, the new schedule, he was going to do so as an individual, and not as mayor. The charter' of Toledo is such that the mayor dominates the entire executive machinery. He directs the conduct of the police force as fully as he cares to do so, and whatever appprehension rightly existed had reference to the active or passive conduct of the police force or to some actual taking over or control of the entire system by, or at tire instance of, the city or the mayor, as mayor.

3. The court below did nothing which interferes in the slightest with the legislative power of the city.² It has the right at any moment to require the company to vacate the streets, remove its rails, and to prescribe reasonable regulations and conditions for such removal. It has the right to give this direction either simply or compounded with an alternative. It may say: “Here are our terms; accept and comply with them or get off.” It cannot say: “Because you remain and furnish service by our wish and to meet our needs, you are subject to any arbitrary conditions which we may impose.” The order contains nothing inconsistent with this right of the city. The city does not claim that it wishes the streets vacated, nor that any action by it was intended to present to the company the alternative of accepting or getting off. In the Denver and Detroit Cases, the substantial difference between the majority and the minority of the court seems to have been as to whether the city had in fact offered such a choice to the company; here, there can be no difference of opinion on that point.³

Nor does the order impair in the least the city’s right to pass an ordinance fixing rates. Repeated statements by the court, if not the express proviso to this effect in the order, should make this clear; indeed, nothing is pointed out to support the stated apprehension that the city council might be in contempt if it attempted to fix rates, save the fact that the proviso permits only “appropriate” action by the council. This word does not nullify that proviso. The council never had any right to pass a confiscatory ordinance, and we see in the word “appropriate” no implication of any limitation except that which exists by law. It is clear to us that, without embarrassment from this order, the city council may proceed at any time, and from time to time, to fix what it regards as reasonable rates of fare, and that these must be observed by the company unless it shall be decided by competent judicial authority, provisionally or finally and according to established practice, that they will operate with confiscatory effect.⁴

[3] 4. The record suggests two bases for the jurisdiction of the court below. They are: First, that the proceedings are ancillary to, and dependent upon, the original Doherty judgment creditors’ bill, and therefore supported by the diverse citizenship which there appeared; and, second, that the pleading filed by the company, and which was the immediate basis of the present proceeding, independently gives jurisdiction because it presents a question arising under the Constitution of the United States.

The judgment creditors’ bill filed against the company, and, by amendment, against the city and the company, clearly presented a sufficent case of diverse citizenship. All the plaintiffs were citizens of New York and both defendants were citizens of Ohio. The only impeaching suggestion is that the bill was collusively filed. It appeared that Doherty & Co. owned the controlling interest in, and actually dominated, a corporation known as the Cities’ Service Company, and that the Cities’ Service Company owned and controlled the defendant company; but the utmost that can be inferred from this relationship is that the defendant company would do whatever Doherty & Co. desired, and would do nothing else; and, to state this result in the strongest terms and -apply it to this situation, is to say that the bill was filed in the court below with the consent of the defendant company, or even to say that Doherty & Co. and the defendant company agreed that it should be so filed, as the best move for the interests of both. If this constituted that collusion which is fatal to jurisdiction on the ground of citizenship, the court should not have entertained this bill nor any ancillary proceeding solely dependent thereon; but while it does indicate “collusion,” in the vague sense in which that word is, sometimes used, we think the law is clear that, unless there is something more, a District Court of the United States should entertain a case so presented.

It is settled for this court (and w'e do not mean to intimate any doubt elsewhere), by our decision in City of Holland v. Holland Gas Co., Feb. 13, 1919, 257 Fed. 679, - C. C. A. -, that there is, in such a case, no such merger of identity between the controlling stockholder and tire controlled corporation as prevents the former from pursuing, in good faith as a stranger could, any ordinary legal remedy against the latter; and so the question of collusion here becomes ■ — save as to degree of proof and as to mere color — the same as if between strangers carrying out their common understanding. It is necessarily to be deduced from, if not expressly ruled in, Blair v. Chicago, 201 U. S. 400, 448, 26 Sup. Ct. 427, 50 L. Ed. 801; Chicago v. Mills, 204 U. S. 321, 330, 27 Sup. Ct. 286, 51 L. Ed. 504; Re Metropolitan Receivership, 208 U. S. 90, 110, 28 Sup. Ct. 219, 52 L. Ed. 403, and see opinion of Judge Lacombe (Pennsylvania Steel Co. et al. v. New York City Ry. Co. [C. C.] 157 Fed. 440, 444); and Wheeler v. Denver, 229 U. S. 342, 350, 33 Sup. Ct. 842, 57 L. Ed. 1219 — that a nonresident plaintiff has an absolute right to pursue, in a federal court, all his remedies against a resident defendant, and it makes no difference what his motive may be in electing the federel remedy. He may do so expressly because he wishes to keep the litigation out of the state, courts; that is his constitutional right. See, also, Cowles v. Mercer Co., 74 U. S. (7 Wall.) 118, 122, 19 L. Ed. 86. So, it is wholly immaterial whether the defendant, in acquiescing' in the plans for a federal forum, is inspired'by the same motives. If the consent of the defendant were important to the jurisdiction, that would be another question; but, where the plaintiff’s right to choose that forum is absolute and defendant’s opposition cannot impair it, no more can defendant’s consent do any harm.

Cases where plaintiff’s right to sue depends on the Ninety-Fourth Equity Rule (New Rules, 27) are of the consent class just mentioned. Certain good-faith action by the corporation is an essential preliminary, and it might be impossible to say that a company controlled by plaintiff had, in good faith, refused plaintiff’s request; but that is not this case. See Iron Moulders v. Niles Co. (C. C. A. 6, opinion filed Nov. 6, 1918) 258 Fed. 408, - C. C. A. -. The suit is not upon a claim assigned by a resident assignor, who continues the real party in interest, as in Miller & Lux v. East Side Canal & Irrigation Co., 211 U. S. 293, 29 Sup. Ct. 111, 53 L. Ed. 189; nor is it a colorable rearrangement of parties, as in Dawson v. Columbus Co., 197 U. S. 178, 25 Sup. Ct. 420, 49 L. Ed. 713.

[4] We conclude, therefore, that the jurisdiction to entertain the bill as first amended and to appoint a receiver for all the property of the defendant company, and, if necessary, to operate the property temporarily through a receivership, was clear and certain; but, as we follow its history, we see that the conduct of the parties tended towards an abandonment of the case. No actual effort was made by plaintiff to get a receiver, and no step was taken towards a final decree. The court would not permit a case of this kind to lie dormant with the consent of everybody, indefinitely, and then allow it to be used by one party, against the objection of tire other, as a basis for exercising power that would not otherwise exist. No precise limits of time can be fixed by general statement, but it is clear that, the party making such objection would, in any case where there had been long delay, have strong reason for asking the court to say that the appeal to its limited jurisdiction had served its purpose and was abandoned; but certainly mere unexplained inaction for a year and a half does not, ipso facto, destroy the power of the court to proceed when both parties consent. That is what happened here, for in April, 1916, the city proceeded, in this case, upon the theory that the court had taken jurisdiction between the parties and constructive possession of the res — the property of the street railway company.⁵ The city asked the exercise of that jurisdiction by the appointment of a receiver to protect its interests. Of course, jurisdiction cannot be conferred upon a District Court by consent, but that principle is not involved. The city was waiving, instead of insisting upon, its possible right to claim that the once vested jurisdiction should be no longer exercised.

[5] If a receiver had been appointed by the court below, in 1916, and had still been in control and management of the property, it would be clear that the present proceeding was ancillary and dependent; and we do not see that the situation is materially different. Any delay by the city in prosecuting its motion for,- a receiver to final decision, which delay is short of abandonment, only affects discretionary powers. It does not take away all power. The record shows that the court concluded to appoint a receiver, and was about to make the order when the parties agreed upon an 'arrangement which was to be, in an essential part, carried out, and ever since has been carried out under the orders of the court from time to time, which arrangement was a substitute for a receiver, and made the actual appointment of a receiver unnecessary for the time being. In a fair and substantial sense, there was a pro tanto receivership, and the application for a general receivership had been argued and submitted to the court and remained undecided; and that such a situation gives to the court constructive possession of the pronerty is established. Farmers’ Co. v. Lake Co., 177 U. S. 51, 61, 20 Sup. Ct. 564, 44 L. Ed. 667; and see Prout v. Starr, 188 U. S. 537, 544, 23 Sup. Ct. 398, 47 L. Ed. 584; Ex parte Young, 209 U. S. 123, 161, 28 Sup. Ct. 441, 52 L. Ed. 714, 13 L. R. A. (N. S.) 932, 14 Ann. Cas. 764; Rickey Co. v. Miller, 218 U. S. 258, 262, 31 Sup. Ct. 11, 54 L. Ed. 1032. It follows that since this immediate proceeding was brought for the protection of that property from injury and for instructions to the parties as to what they should do, just as it would have been for instructions to the receiver, if the substituted arrangement had not been in force, the jurisdiction of the court below to take the action which it did take must be sustained upon the first ground suggested.

Another view confirms this result. The city asks a receiver. While its petition is pending, and the company has so far escaped the full and general appointment, the city proposes to do acts which will compel the receivership, and then says the court has no power to enjoin such acts. Only in the clearest case could such an objection prevail.

[6] The second ground of jurisdiction is at least equally clear. Whatever force there may be in the facts stated in this new and supplemental pleading as supporting the jurisdiction of the court below cannot be lost merely because the pleading does not purport to be the commencement of a suit. This new pleading expressly made the city a defendant thereto, and stated facts said to entitle the company to relief, and prayed relief. If the issue so made was justiciable in the court below, it cannot be important whether the pleader considered his petition to be original or dependent.

It seems clear that the facts alleged in this pleading disclosed a proposed taking of the company’s property without due process of law. That an attempt to compel a public service company in this situation to give or continue service at a rate which does not permit a reasonable return, is in violation of the company’s constitutional right, is not open to question, since the decision in the Denver and Detroit Cases. Even when it turns out that the city is acting lawfully, jurisdiction is given over the whole case, if there is a substantial and good-faith claim of deprivation of constitutional rights. Columbus Co. v. Columbus (S. C. U. S., April 14, 1919) 249 U. S. 399, 39 Sup. Ct. 349, 63 L. Ed. 669. It is true that in the Denver, as also in the Detroit, Case, the city was (proceeding to enforce an ordinance; but the ordinance had not been accepted, and was important only as evidencing the city’s requirement that the service should be continued. Here, we have the same requirement evidenced both by the city’s petition in the cause, and by the mayor’s constant insistence that, “whatever happens, the cars will run.” In both cases, it was the executive action, not the legislative, that was enjoined. The constitutional prohibitions are not alone against any “law” of the forbidden scope; the Fourteenth Amendment reaches any_ action, by the representatives of a branch of the state, which unlawfully “deprives” the plaintiff of property rights.

[7] It is also urged that the making of rates for public service is not a judicial function, and that the court has no power to make rates. It is true enough that the direct power of the courts on this subject is negative and not affirmative. Reagan v. Farmers’ Co., 154 U. S. 362, 400, 14 Sup. Ct. 1047, 38 L. Ed. 1014. To say that a specified rate is invalid because confiscatory is always to say that any lower rate will also be invalid, and sometimes the facts will be such that, in order to decide whether the rate in question is unlawful, the court must first determine with some accuracy what would be the minimum reasonable return. It is likewise plain that, when an injunction is asked to restrain the enforcement of an unreasonable rate, the court may make its granting conditional upon the doing of equity by plaintiff, and thus may require the plaintiff to consent to charge no more than what seems to the court to be reasonable — just as, in tax injunction cases, the plaintiff is often required to pay what the court thinks a fair tax before it will give relief against the excessive part. In any of these instances, there is an indirect fixing or determination by the court, but each of these indirect results is fully within the judicial power. In the present case, the findings and the injunction do not affirmatively fix a rate. They are directed only against any rate smaller than the sum named, and stand upon the underlying fact that even this sum will not bring a minimum reasonable return. .

[8] It is further urged — though perhaps rather as an objection against right than as against power — that the court should have made no order until after there had been a trial period at the rate which the city was willing to approve, according to the precedent set by Willcox v. Consolidated Co., 212 U. S. 19, 29 Sup. Ct. 192, 53 L. Ed. 382, 48 L. R. A. (N. S.) 1134, 15 Ann. Cas. 1034, and Knoxville v. Water Co., 212 U. S. 1, 29 Sup. Ct. 148, 53 L. Ed. 371. Those precedents are not applicable. Where a proposed reduction in the current rate is involved, there is an increase of custom to be anticipated, which, with some other elements of uncertainty, tends to neutralize the diminution of income otherwise resulting from the reduction. In this case, the trial period had occurred. The existing rate had been in force two years and had proved to be insufficient. It was proposed to increase the rate to meet, new and increased expenses, and it was certain that the increased rate would tend to diminish the custom; but the computations were made on the basis of the number riding during the four months’ period then ending, and without scaling down (except on transfers) on account of the inevitable loss of travel which would ensue when the price was put up. Hence, we see no reason why it was incumbent on the court below to require a trial period of operation under the partial advance which the city was willing to concede, before permitting the full advance which appeared to be necessary.⁶ It may he added that a year of operation under the high rate has now passed, and there has been no claim made that it was turning out to be more than necessary.

From these views, it follows that the order appealed from should be affirmed.

1 Doubtless reasonable regulations as to manner of removal may be imposed or demanded, and, though it is not clear how the company’s right can be any less absolute than the city’s (Cleveland Case, 204 U. S. 116, 27 Sup. Ct. 202, 51 L. Ed. 399), it is not here necessary to consider whether there may be cases where an arbitrary and unreasonable discontinuance of service would not be permitted.

2 All seem to assume that ample legislative power has been delegated by the state to the city, and we accept that assumption.

3 The court below said: “The right of the city to eject the company cannot be questioned in any court. * * * If the city attempts to fix the rate of fare, it can only enforce such rates upon it by coupling therewith the alternative order that otherwise the company cease to do business. * * * It is the business of the city to pursue one of two alternatives: To say to this company, ‘Quit running your cars and get oif,’ or say to this company, ‘You will not be interfered with if you charge a rate of fare sufficient to pay * * * [net] six per cent.’ * * * This court decided * * * that the company could rej'ect unreasonable terms and at the same time continué its service with the' expectation of getting proper compensation * * * until the city affirmatively directed the company to leave the streets as an alternative to the acceptance of the unreasonable terms. * * * [The order will] leave the company free to apply to the court for relief against unreasonable legislation, unless the city authorities are brave enough to couple with unreasonable provisions of its legislation a specific alternative that the company must accept them or quit the streets.”

4 In this opinion we use “confiscatory” and “giving less than a reasonable return” as entirely equivalent terms.

5 The city, by its supplemental answer and cross-bill, reserved its protest against the jurisdiction; but this protest referred to its formerly overruled claim of collusion, and not at all to the intervening delay.

6 After finding that the value of the property upon which a return should be computed was probably much more than §8,000,000, and that financial conditions in Toledo were the same as those found in the Denver Case, and hence that the net return should be at least §480,000, the court below continued:

“It seems certain that the very best that can be said for the city, under any circumstances, is to say this, and it is the clear indication of the evidence before us that a fare of five cents, with a one cent charge for transfer, will, under present circumstances, not pay the company’s operating expenses enhanced hy an increase of wages, and even this surplus. Indeed, the city, If we may judge from the character of its argument to the court, is not seriously combating this proposition. It does not argue anywhere in its brief that this rate is exorbitant. All the city now contends for is to try some lower rate of fare ny way of experiment and see what the result will be, although all the evidence before this court indicates most cleiarly that the mayor’s proposition of' eleven tickets for fifty cents, with free transfers, will not meet what is due the company.

“We are unable to see any right in the mayor to ask the company to submit to an experiment which present conditions show will be a losing one. From his testimony and the arguments submitted in behalf of the city, it does not appear that he had any confidence that this rate was adequate, for he says that, in fixing upon it, he was moved by the theory that the car rider, the carmen, and the car company each must sacrifice something in the present emergency. But the mayor of Toledo has no right to demand of this franchiseless company that it render service to the city at a sacrifice, nor has he the right to say to the employes of the company that they must work for less wages than their services are fairly worth. He ignores the fact that it is no sacrifice for the car riders of the city to pay any rate of fare which is what the service to them actually costs, and the economic truths that they should pay what the service to them costs, that the car men are entitled to a reasonable wage, and that the car company is entitled to a compensation which will allow it to live. No one has the right, whether an official or not, to ask either the carmen or the car company to make ‘sacrifices’ that the car riders may get service for less than cost, and, of course, the court can listen to no such proposition as that to support an insistence that an inadequate rate should be imposed.”