OpenJurist

225 US 430 City of Louisville v. Cumberland Telephone & Telegraph Company

225 U.S. 430

32 S.Ct. 741

56 L.Ed. 1151

CITY OF LOUISVILLE, Appt.,
v.
CUMBERLAND TELEPHONE & TELEGRAPH COMPANY.

No. 761.

Argued March 7 and 8, 1912.

Decided June 7, 1912.

Messrs. Clayton B. Blakey, Huston Quin, and Joseph S. Lawton for appellant.

[Argument of Counsel from page 431 intentionally omitted]

Messrs. William L. Granbery, Alexander Pope Humphrey, and Alexander Pope Humphrey, Jr., for appellee.

Mr. Justice Holmes delivered the opinion of the court:

1

This is a bill to prevent the enforcement of an ordinance of the city of Louisville fixing telephone rates, passed in 1909, after the attempt of the city to deprive the appellee of its franchise, when that seemed likely to fail. See Louisville v. Cumberland Teleph. & Teleg. Co. [May 13, 1912, 224 U. S. 649, 56 L. ed. ——, 32 Sup. Ct. Rep. 572]. The question raised is the usual one of confiscation. In consequence of the conclusion to which we have come we shall make a much more summary statement of the facts than in other circumstances might be necessary. The case was referred to a master and he reported in favor of the city. He was of opinion that in the first year after the ordinance should go into effect there would be a less of $30,000, but that in another year or so, in view of the probable increase of subscribers, the company would get back to its former net revenue with a probable continuous increase thereafter and would earn a sufficient return. The judge was of a different opinion, and for the purposes of the present decision only we shall adopt his figures, subject to the changes that we shall state, which leave us unprepared to sustain the decree without giving the ordinance a trial to show its actual effect.

The judge's values were:

2

  Plant, including tool lines......... $1,575,000.00
  Real estate............................ 162,000.00
  Supplies on hand........................ 18,000.00
  Working capital......................... 33,000.00
                                         -----------
                                       $1,788,000.00
 
  Gross earnings for 1908,
   including 15 per cent of
   receipts from toll lines.
 
   This was undisputed.................. $325,838.30
 
  The court added 10 per cent
  more of the toll line receipts,
   making................................ 330,926.38
 
  The master was of opinion that
   the remaining 85 per cent
   should be added, making the
   total gross earnings................. $369,087.00
 
  For the purpose of such an
   estimate as this we think
   that the toll lines should
   be either in or out, and if
   they are to be counted in
   the property upon which the
   appellee is not to be prevented

Page 434

3

   by law from earning
   a fair return, as they are
   above, and the expenses charged
   to the appellee, the whole
   return from them should be
   added to the gross earnings
   of the appellee. So we take
   the total gross earnings as.......... $369,087.00
 
  Expenses as found
   by the master and
   accepted by the
   judge............................... $216,363.07
 
  But this includes
   amount charged
   to the Exchange
   for the use of
   real estate (less
   expenses for
   repairs), which,
   in view of the
   inclusion of real
   estate above, it
   should not............................ 11,707.52
                                        -----------
                                        $204,655.55
 
  Deduct corrected expenses from
   gross earnings....................... 204,655.55
                                        -----------
   Net earnings........................ $164,431.45
 
  Even is we deduct from the net
   earnings a sum estimated by
   the judge as necessary above
   actual expenditures of 1908
   to make good average
   depreciation......................... 24,095.02
                                         ---------
   we have............................ $140,336,43
   which is nearly 8 per cent on
   the estimated value. The
   master prophecies a falling
   off for the first year of........... 30,000.00
                                        ---------
   which would leave................. $110,336.43
   or over 6 per cent on the
   valuation assumed.

Page 435

4

  Suppose now that we leave out the toll
  lines.
  Plant, with real estate, etc., as
   above........................... $1,788,000.00
  Deduct toll lines estimated at...... 125,000.00
                                        ---------
                                    $1,663,000.00
  Gross earnings...................... 325,838.30
  Less 15 per cent form toll lines...... 7,632.11
  ......................................---------
  ..................................  $318,206.19
 Expenses............................ $216,303.07
 
 Less amount
   charged for use
   of real estate as
   above............................... 11,707.52
                                        ---------
                                      $204,655.55
 
  Less toll line
   expenses which
   if estimated (in
   the absence of
   satisfactory proof
   as to their
   amount) by
   dividing expenses
   in proportion
   to receipts would
   be approximately.................... 30,000.00
                                        ---------
                                      $174,655.55
  Deduct corrected expenses from
   gross earnings..................... 174,655.55
                                        ---------
                                      $143,550.64
  Additional deduction for
  depreciation as before............... 24,095.02
                                        ---------
                                      $119,455.62
  Which is nearly 7 per cent, or,
   deducting for loss of custom
   the first year.....................  30,000.00
                                        ---------
                                       $89,455.62
5

which is just above 5 per cent on the judge's valuation.

6

We express no opinion whether to cut this telephone company down to 6 per cent by legislation would or would not be confiscatory. But when it is remembered what clear evidence the court requires before it declares legislation otherwise valid void on this ground, and when it is considered how speculative every figure is that we have set down with delusive exactness, we are of opinion that the result is too near the dividing line not to make actual experiment necessary. The master thought that the probable net income for the year that would suffer the greatest decrease would be 8.60 per cent on the values estimated by him. The judge, on assumptions to which we have stated our disagreement, makes the present earnings 5 10/17 per cent, with a reduction by the ordinance to 36/17 per cent. The whole question is too much in the air for us to feel authorized to let the injunction stand.

7

Decree reversed without prejudice.