Detroit United Railway Company v. City of Detroit/Opinion of the Court

The Detroit United Railway Company brought this action in the United States District Court for the Eastern District of Michigan to enjoin the city of Detroit from enforcing the provisions of an ordinance regulating street railway fares in that city. The ordinance was passed August 9, 1918. It is printed in the margin.

The bill attacks the ordinance upon two constitutional grounds: First, that it impairs the obligation of the company's existing contracts; second, that it is confiscatory and hence deprives the company of its property without due process of law. The suit came on for hearing before the district judge upon an application for a temporary injunction, the judge denied the application and upon his own motion dismissed the bill.

The question upon this appeal is: Did the bill, taking its allegations to be true, state grounds for relief to which the company was entitled upon the facts set forth? The action of the District Court was equivalent to sustaining a demurrer to the bill.

The bill alleges that the complainant company is the owner of all the street railways in the city of Detroit, constituting a system of tracks of upwards of 270 miles. The sources of title of the company are set forth in the bill, and shown by many exhibits. It is sufficient for the present purpose to say: That the system consists of a considerable mileage of tracks upon which the franchises have expired; upon other portions of the system there are unexpired franchises, some of them derived from villages in which the roads were constructed, which villages were subsequently incorporated into the city. That from December 1, 1917, its system was operated, except the so-called three-cent lines, upon terms as follows: Five-cent cash fares for each passenger carried on or over its lines, including so-called universal transfers, with workingmen's tickets, eight for twenty-five workingmen's tickets, eight for and on the so-called three-cent lines a cash fare of five cents, with eight tickets for twenty-five cents between certain hours; good only on such three-cent lines with the privilege of a transfer on payment of a five-cent cash fare, and also with the privilege of purchase of six tickets for twenty-five cents, also good between certain hours. It is averred that afterwards it became necessary to increase rates of fare. The bill recites the demand of the employes of the company for increased wages, which was refused; that a submission of the controversy was made to the War Labor Board; that the board after a hearing awarded a substantial increase of wages, and recommended an increase in passenger fares to enable the company to meet this cost. The bill alleges that the increase made by the War Labor Board amounted to about $2,000,000 per annum. The company petitioned the city for an increase of rates of fare, and this petition was denied.

On August 7, 1918, the company put in force a schedule of its own, making single fares six cents, with ten tickets for fifty-five cents, cash fare or tickets good on connecting or inter secting lines within the city. It is contended that this action of the company was without legal authority. Whether this was authorized or not, is not an issue involved in this case, and we express no opinion concerning it. The matters involved in this bill concern the validity of the ordinance passed August 9, 1918.

It is further alleged that Detroit is a city of a population exceeding 750,000; that it is an industrial city with much the larger part of its male population employed in industrial plants within and adjacent to the city; that the operation of the company's railway system was the only means of transportation of such employes from their homes to their places of employment; and that the interruption of the operation of the company's system, or the separation in operation of the franchise from the non-franchise lines, would paralyze the industrial and business life of the city, throw thousands of its residents out of employment, and result in shutting down its industrial plants and factories. Allegations follow, setting forth the value of the company's property, and stating that the effect of the ordinance, if enforced, will be to require the operation of the company's system at a deficit, and, consequently, with no return on the investment.

The learned District Judge answered the contention of the company by holding, in substance, that as to the non-franchise lines the remedy of the company was to abandon the service and take its property from the city streets, and that as to the franchise lines the exception of the fifth section of the ordinance saved the company's contract rights from impairment. There can be no question that it was within the city's power to compel the company as to its non-franchise lines to remove its tracks from the streets of the city. This was settled in Detroit United Railway Co. v. Detroit, 229 U.S. 39, 33 Sup. Ct. 697, 57 L. Ed. 1056. The city did not do so. Instead of taking such action it passed the ordinance in controversy, providing for the continued operation of the company's system. This ordinance has application to the entire street railway system. In section 1 it provides that no more than five cents shall be charged for a single ride, or six tickets for twenty-five cents, for one continuous trip through the city over any line operated without a franchise. Section 2 purports to preserve the right to charge franchise rates when fixed by contract. Section 3 provides for fares, eight tickets for twenty-five cents, except when such fares are contrary to contract rights. Section 4 provides that where a trip is over two or more lines, whether franchise or not, the maximum fare shall be five cents, or six tickets for twenty-five cents, and no transfers shall be exacted which raise these rates of fare. Section 5 defines a continuous trip to mean a journey from one point in the city to another, whether on one car line or by means of transfers, and the company is required to furnish transfers to carry the provisions of the ordinance into effect. It is further provided that the ordinance is not to be construed as an attempt to impair the obligation of any valid contract, but shall apply to all street railway passenger traffic in the city except when the same is governmed by the provisions of a contract. Section 6 provides for fines or imprisonment for violations of the provisions of the ordinance. Section 7 provides that the ordinance shall be in effect for the term of one year from August 9, 1918, unless sooner amended or repealed.

The allegations of the bill, which for the present purposes must be taken as true, are ample to the effect that the enforcement of this ordinance will result in a deficit to the company. We cannot construe the exception of section 5, having reference to existing franchise contracts, in such way as to modify the requirements of section 4 which in explicit terms fixes the fares for trips over two or more lines whether franchise lines or not, and limits the maximum fare without charge for transfers. This must be read in view of the definition of a continuous trip in section 5 as meaning a journey from one point to another point in the city whether the same is made on one car line or by means of transfers from car to car or from line to line. The exception in section 5 can have no further effect consistently with the other provisions of the ordinance, particularly those of section 4, than to regulate fares where trips are wholly upon franchise lines. A principal ground upon which the bill was dismissed by the District Court was the view of the learned judge that the power to compel the company to remove its tracks from the streets involving the non-franchise roads included the right to fix terms of continued operation upon such lines, whether remunerative or not. We cannot agree with this view. In our opinion the case in this respect is ruled in principle by Denver v. Denver Union Water Co., 246 U.S. 178, 38 Sup. Ct. 278, 62 L. Ed. 649. In that case the franchise of a water company had expired, and the city might have refused the further use of the streets to the company. Instead of doing this it passed an ordinance fixing rates and requiring certain duties of the company. We held that in that situation the company was entitled to make a reasonable return upon its investment. So here, the city might have required the company to cease its service and remove its tracks from the non-franchise lines within the city. Instead of taking this course the city enacted an ordinance for the continued operation of the company's system, with fares and transfers for continuous trips over lines composing the system whether the same had a franchise or not. This action contemplated the further operation of the system, and fixed penalties for violations of the ordinance. By its terms the ordinance is to continue in force for the period of one year, unless sooner amended or repealed. This was a clear recognition that until the city repealed the ordinance the public service should continue, with the use of the streets essential to carry on further service. Within the principles of the Denver Case this service could not be required without giving to the company, thus affording it, a reasonable return upon its investment. In the Denver Case we said:

'The very act of regulating the company's rates was a     recognition that its plant must continue, as before, to serve      the public needs. The fact that no term was specified is,     under the existing circumstances, as significant of an intent      that the service should continue while the need existed as of      an intent that it should not be perpetual.'

In the present case the service upon the terms fixed in the ordinance is continued for a year, the city reserying the right to repeal the ordinance at any time.

It is clear that the city might have taken a different course by requiring the company to remove its tracks from the non-franchise lines; it elected to require continued maintenance of the public service; doubtless because it was believed that it was necessary in the existing conditions in the city to continue for a time at least the right of the railway company to operate its lines. This amounted to a grant to the company for further operation of the system, during the life of the ordinance. For this public service it was entitled to a fair return upon its investment. Elements to be taken into consideration in valuing the property of the company in estimating a fair return are not involved in this case. If the allegations of the bill are true, and for present purposes they must be so regarded, the continued operation of the railroad system of the company upon the fares fixed in the ordinance will result in a deficit, and deny to the company due process of law within the meaning of the federal Constitution.

As rates of fare are fixed on some of the existing franchise lines at five cents without transfers, it would follow as to continuous trips over such franchise and non-franchise lines, such trips comprehending much of the trans portation required, the latter lines would be without compensation for the service rendered. Furthermore, when a continuous trip begins on a non-franchise line and is over a franchise line and a non-franchise line, the former having the right to charge five cents for a trip over it, the effect would be to impair the obligation of the franchise contract. Detroit United Railway v. Michigan, 242 U.S. 252, 37 Sup. Ct. 87, 61 L. Ed. 268.

In our view the allegations of this bill for the purposes of the demurrer sufficiently alleged violations of the Constitution of the United States in the action of the city in passing and enforcing the ordinance in controversy. The District Court should have entertained the bill, heard the application for a temporary injunction, and proceeded to a hearing and determination of the case in due course.

Reversed.

Mr. Justice CLARKE dissenting.