Frost v. Corporation Comm'n of Okla.

278 U.S. 515, 49 S. Ct. 235, 73 L. Ed. 483, 1929 U.S. LEXIS 338

• Court: Supreme Court of the United States
• Decided: February 18, 1929
• Docket: 60
• Status: Published

Opinions

Mr. Justice Sutherland

delivered the opinion of the Court.

Appellant owns a cotton ginning business in the city of Durant, Oklahoma, which he operates under a permit from the State Corporation Commission. By a statute' of Oklahoma, originally passed in 1915 and amended from time to time thereafter, cotton gins are declared to be public utilities and their operation for the purpose of ginning seed cotton to be a public business. Comp. Stats. 1921, § 3712. The commission is empowered to fix their charges and to regulate and control them in other respects. § 3715. No gin can be operated without a license from the commission, and in order to secure such license there must be a satisfactory showing of public necessity. § 3714 as amended by c. 109, Session Laws, 1925. The only substantial amendment to this section made by the act of 1925 is to add the proviso: “ provided, that on the presentation of a petition for the -establishment of a gin to be run co-operatively, signed by one hundred (100) citizens, and tax payers of the community where the gin is to be located, the Corporation Commission shall issue a license for said gin.”

By an act of the State Legislature passed in 1917 (Comp. Stats. 1921, § 5599) co-operative agricultural or horticultural associations not having capital stock or being conducted for profit, may be formed for the purpose of mutual help by persons engaged in agriculture or horticulture. Under a statute passed in 1919 (Comp. Stats. 1921, § 5637, et seq.) ten or more persons may form a corporation for the purpose of conducting, among others, an agricultural or horticultural business upon a coroperative plan. A corporation thus formed is authorized to issue capital stock to be sold at not less than its par value. The number of shares which may be held by one person, firm or corporation is limited. Dividends may be declared by the directors at a rate not to exceed eight per cent, per annum. Provision is made for setting aside a surplus or reserve fund; and five per cent, may be set aside for educational purposes. The remainder of th„e profits of the corporation must be apportioned and paid to its members ratably upon the amounts of the products sold to the corporation by its members and the amounts of the purchases of members from the corporation; but the corporation may adopt by-laws providing for the apportionment of such profits in part to non-members upon the amounts of their purchases and sales from or to the corporation.

The Durant Co-operative Gin Company, one of the appellees, was organized in 1926 under the act of 1919. After its incorporation, the company made an application to the commission for a permit to establish a cotton gin at Durant, accompanying its application with a petition signed by 100 citizens and taxpayers, as required by the statutory proviso above quoted. . Appellant protested in writing against the granting of such permit and there was a hearing. The commission, at the hearing, rejected an offer to show that there was no public necessity for the establishment of an additional gin at Durant, and held that the proviso made it mandatory to grant the permit applied for without regard to necessity. Thereupon appellant brought this suit to enjoin the commission from issuing the permit prayed Tor and to enjoin the Durant company from the establishment of a cotton gin at Durant, upon the ground that the proviso, as construed and applied by the commission (see Mont. Bank v. Yellowstone County, 276 U. S. 499, 504), was invalid as contravening the due process and equal protection, of the law clauses of the Fourteenth Amendment. The court below, consisting of three judges under § 266 Judicial Code, denied the prayer for ah injunction and entered a final decree dismissing the bill. 26 F. (2d) 508.

1. We first ■ consider the preliminary contention made on behalf of appellees that appellant has no property right to be affected by operations of the Durant company and, therefore, no standing to invoke the provisions of the Fourteenth Amendment or to appeal to a court of equity.

It already appears that cotton gins are declared by the Oklahoma statute to be public utilities and their operation for the purpose of ginning seed cotton to be public business. No one can operate a cotton gin for such purpose without securing a permit from the commission. In their regulation and control, the commission is given the same authority which it has in respect of transportation and transmission companies, and the same power to fix rates, charges and regulations. Comp. Stats. 1921, §>§ 3712, 3713, 3715. Under § 3714 as amended, supra (laying the proviso out of consideration for the moment) the commission may deny a permit for the operation of a gin where there is no public necessity for it, and may authorize a new ginning plant- only after a showing is made that such plant is a needed utility. Both parties definitely concede the validity of these provisions, and, for present purposes at least, we. accept that view.

It follows that the- right to operate a gin and to collect tolls therefor, as provided by the Oklahoma statute, is not a mere license, but a franchise, granted by the state in consideration of the performance of a public service; and as such it constitutes a property right within the protection of the Fourteenth Amendment. See Walla Walla v. Walla Walla Water Co. 172 U. S. 1, 9; California v. Pacific Railroad Co., 127 U. S. 1, 40-41; Monongahela Navigation Co. v. United States, 148 U. S. 312, 328, 329; Owensboro v. Cumberland Telephone Co., 230 U. S. 58, 64-66; Boise Water Co. v. Boise City, 230 U. S. 84, 90-91; McPhee & McGinnity Co. v. Union Pac. R. Co., 158 Fed. 5, 10-11.

In California v. Pacific Railroad Co., supra, pp. 40-41, a franchise is defined as “ a right, privilege or power of public concern, which ought not to be exercised by private individuals at their mere will and pleasure, but should be reserved for public control and administration, either by the government directly, or by public agents, acting under such conditions and regulations as the government may impose in the public interest, and for the public security. ... No private person can establish a public highway, or a public ferry, or railroad, or charge tolls for the use of the same, without authority from the legislature, direct or derived. These are franchises. . . . The list might be continued indefinitely.”

Specifically, the foregoing authorities establish that the right to supply gas or water to a municipality and its inhabitants, the right to carry on the business of a telephone system, to operate a railroad, a street railway, city water works or gas works, to build a bridge, operate a ferry, and to collect tolls therefor; are franchises. And these are but illustrations of a more comprehensive list, from which it is difficult, upon any conceivable ground, to exclude a cotton gin, declared by statute to be a public utility engaged in a 'public business, the operation of which is precluded without a permit from a state governmental agency, and which is subject to the same authority as that exercised over transportation and transmission companies in respect of rates, charges and regulations.. Under these conditions, to engage in the business is not a matter of common right, but a privilege, the exercise of which, except in virtue of a public grant, would be in derogation of the state’s power. Such a privilege, by every legitimate test, is a franchise.

Appellant, having complied with all the provisions of the statute, acquired a right to operate a gin in the city of Durant by valid grant from the state acting through the corporation commission. While the right thus acquired does not' preclude the state from making similar valid grants to others, it is, nevertheless, exclusive against any person attempting to operate a gin without obtaining a permit or, what amounts to the same thing, against one who attempts, to do so under'a void permit; in either of which events the owner may resort to a court of equity to restrain the illegal operation upon the ground that such operation is an injurious invasion of his property rights. 6 Pomeroy’s Equity Jurisprudence, 3d ed., (2 Equitable Remedies) §'§ 583, 584; People’s Transit Co. v. Henshaw, 20 F. (2d) 87, 90; Bartlesville El. L. & P. Co. v. Bartlesville I. R. Co., 26 Okla. 453; Patterson v. Wollmann, 5 N. D. 608, 611; Millville Gas Co. v. Vineland L. & P. Co., 72 N. J. Eq. 305, 307. The injury threatened by such an invasion is the impairment of the owner’s business, for which' there is no .adequate remedy at law.

If the proviso dispensing with a showing of public necessity on the part of the Durant and similar companies is invalid as claimed, the foregoing principles afford a sufficient basis for the maintenance of the present suit, .against not only the Durant company, but the members of the commission who threaten to issue a permit for the establishment of a new gin by that company without a showing of public necessity.

2. Is, then, the effect of the proviso to deny appellant the equal protection of the laws within the meaning of the Fourteenth Amendment? As the .proviso was construed and applied by the commission and by the court below, its effect is to relieve all corporations organized under the act of 1919 from an onerous restriction upon the right to engage in a public business which is imposed by the statute upon 'appellant and other individuals, as well as corporations organized under- general law, engaging in such business. That a greater burden thereby is laid upon the latter than upon the former is clear. Immunity to one from a burden imposed upon another is a form of classification and necessarily results in- inequality; but not 'necessarily that inequality forbidden by the Constitution. The inequality thus prohibited is only such as is actually and palpably unreasonable and arbitrary. Arkansas Gas Co. v. Railroad Comm., 261 U. S. 379, 384, and cases cited.

The purpose of the clause in respect of equal protection of the laws is to rest the rights of all persons upon the same rule under similar circumstances. Louisville Gas Co. v. Coleman, 277 U. S. 32, 37. This Court has several times decided that a corporation is as much entitled to the equal protection of the laws as an individual. Quaker City Cab Co. v. Penna., 277 U. S. 389, 400; Kentucky Corp’n v. Paramount Exchange, 262 U. S. 544, 550; Gulf, Colorado & Santa Fe Ry. v. Ellis, 165 U. S. 150, 154. The converse, of course, is equally true. A classification which is bad because it arbitrarily favors the individual as against the corporation certainly cannot be good when-it favors.the corporation as against the individual. In either case, the classification, in order to be valid, “ ‘ must rest upon some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstanced shall be treated alike.’ Royster Guano Co. v. Virginia, 253 U. S. 412, 415; Air-way Corp. v. Day, 266 U. S. 71, 85; Schlesinger v. Wisconsin, 270 U. S. 230, 240. That is to say, mere difference is not enough: the attempted classification -‘ must always rest upon some difference which'bears a reasonable and just .relation to the act in respect to which the classification is proposed, and can never be made arbitrarily and without any such basis. Gulf, Colorado & Santa Fe Ry. v. Ellis, 165 U. S. 150, 155.” Louisville Gas Co. v. Coleman, supra, p. 37.

By the terms of the statute here under consideration, appellant, an individual, is forbidden to engage in business unless he can first show a public necessity in the locality for it; while-corporations organized under the act of 1919, however numerous, may engage in the same business in the. same locality no matter how extensively the public necessity may be exceeded. That the immunity thus granted to the corporation is one which bears in-, juriously against the individual does not admit of doubt, since by multiplying plants without regard to necessity the effect well may be to deprive him of business which he would otherwise obtain if the substantive provision of the statute were enforced.

It- is important to bear in mind that the Durant company was not organized under the act of 1917, but under that of 1919.- The former authorizes the formation of an association for mutual help, without capital stock,, not conducted for profit, and restricted to th'e business of its own members, except that it may act as agent to sell farm products and buy farm supplies for a non-member, but as a condition may impose upon him a liability, not exceeding that of a member, for the contracts, debts and engagements of the association, such services to be performed at the actual cost thereof including a pro rata part of the overhead expenses. Comp. Stats. 1921, § 5608. Under this exception, the difference betwfeen a non-member and a'member is-not of such significance or the authority conferred of such scope as to have any material effect upon the general purposes or’character of the .corporation as a mutual association. As applied to corporations organized under the 1917 act, we have no reason to doubt that the classification created by the proviso might properly be upheld. American Sugar Refining Co. v. Louisiana, 179 U. S. 89; Warehouse Co. v. Tobacco Growers, 276 U. S. 71. A corporation organized under the act of 1919, however, has capital stock, which, up to a certain amount, may be subscribed for by any person, firm or corporation; is allowed to do business for others; to make profits and declare dividends, not exceeding eight per cent, per annum; and to apportion the remainder of its earnings among its members ratably upon the amount of products sold by them to the corporation. Such a corporation is in no sense a mutual association. Like its individual competitor, it does business with the general public for the sole purpose of making money. Its members need not even be cotton growers. They may be — all or any of them — bankers or merchants or capitalists having no interest in the business differing in any respect from that of the members of an ordinary corporation. The differences relied upon to justify the classification are, for, that purpose, without substance. The .provision for paying a portion of the profits to members or, if so determined, to non-members, based upon the amounts of their sales to or-purchases from the corporation, is a device which, without special statutory authority, may be and often is resorted to by ordinary corporations for the purpose' of securing business. As a basis for the classification attempted, it lacks both relevancy and substance. Stripped .of immaterial distinctions and reduced to its ultimate effect, the proviso, as here -construed and applied, baldly creates one rule for a natural person and a different and contrary rule for an artificial person, notwithstanding the fact that both are doing the same business with the general public and to the same end, namely, that of reaping profits. That is to say, it produces a classification which subjects one to the burden of showing a public necessity for his business, from which it relieves the other, and is essentially arbitrary, because based upon, no real or substantial differences having reasonable relation to the subject dealt with by the legislation. Power Co. v. Saunders, 274 U. S. 490, 493; Louisville Gas Co. v. Coleman, supra, p. 39; Quaker City Cab Co. v. Penna., supra, p. 402.

3. The further question must be answered: Are the proviso and the substantive provisions which it qualifies separable, so- that the latter may stand although the former has fallen? If the answer be in the negative, that is to say, if the parts of the statute be held to be inseparable, the decree below should be affirmed, since, in that event, although the proviso be bad, the inequality created by it would disappear with the fall of the entire statute and no basis for equitable relief would remain. But for reasons now to be stated.we are of opinion that the substantive provisions of the statute are severable and may stand independently of the proviso.

If § 3714 as originally passed had contained the proviso, the effect would be to render the entire section invalid, because then the result of upholding the substantive part of the section notwithstanding, the invalidity of the proviso would have been to make applicable to. the Durant company and others similarly organized, the requirement in respect of a showing of public necessity, although the legislative will contemporaneously expressed as part of the same act was to the contrary. In this state of the matter, to hold otherwise would be to extend the scope of the law in that regard so as to embrace corporations which the legislature passing the statute had, by its very terms, expressly excluded, and thus to go in the face of the rule that where the excepting proviso is found unconstitutional the substantive provisions which it qualifies cannot stand. Davis v. Wallace, 257 U. S. 478, 484. “For all the purposes of construction it [the proviso] is to be regarded as part of the act. The meaning of the legislature must be gathered from all they have said, as well from that which is ineffective for want of power, as from that which is authorized by law.” State ex rel. McNeal v. Dombaugh, 20 Ohio St. 167, 174-175.

' But the proviso here in question was not in the original section. It was added by way of amendment many years after the original section was enacted. If valid, its practical effect would be to repeal by implication the requirement of the existing statute in respect of public necessity insofar as the Durant and similar corporations are concerned. But since the amendment is void for unconstitufionality, it cannot be given that effect, “ because an existing statute cannot be recalled or restricted by anything short of a constitutional enactment.” Davis v. Wallace, supra, p. 485.

To this effect also is Truax v. Corrigan, 257 U. S. 312, 341-342. In that case there had been in force in Arizona, both as a state and a territory, for many years, -a general, statute granting authority to judges of the courts of first instance to issue writs of injunction. The statute was amended so as to except from its operation certain cases between employers and employees. The amendment was declared invalid as denying the equal protection of the laws; but the general provision of the statute as it originally stood was upheld upon the ground that it had been in force for many years and that an exception in the form of an unconstitutional amendment could not be given the effect of repealing it. And see Waters-Pierce Oil Company v. Texas, 177 U. S. 28, 47.

Here it is concedéd that the statute, before the amendment, was entirely valid: When passed, it expressed the will of the legislature which enacted it. ■ Without an express repeal, a different legislature undertook to create an exception, but, since that body sought to express its will by an amendment.which, being unconstitutional, is a nullity and, therefore, powerless to work any change in the existing statute, that statute must stand as the only valid expression of the legislative intent. v

In passing upon a similar situation, the Supreme Court of Michigan, speaking through Judge Cooley, in Campau v. Detroit, 14 Mich. 276, 286, said: “ But nothing can come in conflict with a nullity, and nothing is therefore repealed by this act on the ground solely of its being inconsistent with a section of this law which is entirely unconstitutional and void.” In Carr, Auditor, v. State ex rel. Coetlosquet, 127 Ind. 204, 215, the state supreme court disposed of the same point in these words: “ We suppose it clear that no law can be changed or repealed by a subsequent act which is void because unconstitutional. . . . An act which violates the Constitution has no power and can, of course, neither build up nor tear down. It.can neither create new rights nor destroy existing ones. It is an empty legislative declaration without force or vitality.” See also People v. Butler Street Foundry, 201 Ill. 236, 257-259; People v. Fox, 294 Ill. 263, 269; McAllister v. Hamlin, 83 Cal. 361, 365; State ex rel. Crouse v. Mills, 231 Mo. 493, 498-499; Ex parte Davis, 21 Fed. 396, 397. The question is not affected by the fact that the. amendment was accomplished by inserting the proviso in the body of the original section and reenacting the whole at length. Truax v. Corrigan, supra; People v. Butler Street Foundry, supra, pp. 258-259; State ex rel. Crouse v. Mills, supra, p. 499.

4. It is true that appellant applied for and obtained a permit to do business under the'statute to which it was sought to attach the proviso in question. Is he, thereby, precluded from assailing the proviso upon the ground that one who claims the benefit of a statute may not assert its invalidity? It is not open to question that one who has acquired rights of property necessarily based upon a statute may not attack that statute as unconstitutional, for he cannot both assail it and rely upon it in the same proceeding. Hurley v. Commission of Fisheries, 257 U. S. 223, 225. But here the proviso under attack, having been adopted by a subsequent act and being invalid, had no effect, as we have already said, upon the provisions of the statute. As applied to this case, it began and ended as a futile attempt by the legislature to bring about a change in the law which a previous legislature had enacted. For this purpose, and as construed and applied below, it was a nullity, wholly “ without force or vitality,” leaving the proyisions of the existing statute unchanged. It necessarily results .that appellant’s rights came into being and owed their continued existence, wholly to that statute, disconnected from the ineffective proviso, and it is that statute, so disconnected, which measures the extent to which he may enjoy and defend such rights. In seeking and obtaining the benefits of the statute, appellant proceeded without regard to the proviso, neither affirming nor denying nor in contemplation of law acquiescing in its validity; and his action cannot be made a basis upon which to rest a successful claim of an estoppel in pais or of a waiver of the right to maintain the constitutional challenge here made.

We conclude: That the proviso es unconstitutional as. contravening the equal protection clause of the Fourteenth Amendment; that the remainder of the statute is separable and affords the sole rule in respect of the questions here to be determined; that the corporation commission is without power to issue permits to corporations organized under the act of 1919 without a showing of public necessity; that the Durant company is without authority to do business in the absence of a permit thus issued; and that appellant is entitled to the relief for which he prays.

Decree reversed.