Prendergast v. New York Telephone Company/Opinion of the Court

This is an appeal, under Section 266 of the Judicial Code (Comp. St. § 1243) from an order of the District Court enjoining pendente lite the enforcement of orders of the Public Service Commission of New York prescribing maximum rates for the exchange service of the Telephone Company.

The Commission, having entered upon an investigation as to the rates charged by the Company for telephone service within the State, on March 3, 1922, after a large amount of evidence had been taken, but before the hearings had been completed, made the two orders in question. One of these reduced temporarily, pending final determination, the maximum rates to be charged by the Company after April 1, for exchange telephone service in the City of New York. The other made a like reduction in the maximum rates for such service in other municipalities within the State, which were divided into groups, with basic area rates in each; with a further provision that either the Company or any municipality affected might apply for modification of the classifications on or before April 15. The Company on March 29 filed its bill in the District Court against the Commission, its counsel and the Attorney General of the State, for the purpose of enjoining the enforcement of these orders, upon the ground that they were confiscatory and in violation of the Fourteenth Amendment. An application for an interlocutory injunction was heard by three judges; and the court as thus constituted on June 12 granted an interlocutory order enjoining the defendants from enforcing the orders of the Commission pending the final hearing and until the further order of the court; the Company being required to give bond for $6,000,000 to secure the repayment to its subscribers of all excess charges paid pending the suit in the event the injunction should thereafter be dissolved. From this interlocutory order the defendants have appealed directly to this court.

Since the argument on the appeal the Company has submitted a motion to dismiss the appeal or affirm the order of the court, upon the ground that on January 25, 1923, the Commission made final orders in the pending investigation establishing a schedule of telephone rates for the State which will yield the Company a much higher annual return than the temporary rates whose enforcement was enjoined. This, it is insisted, shows that the injunction was properly granted. The fact that the Commission has, more than seven months after the injunction was granted, made orders allowing higher rates-whose correctness may yet be questioned in appropriate procee ings for review-upon evidence not before us, does not establish that the injunction was rightly granted under the conditions which then existed. See Cumberland Telephone Co. v. Louisiana Commission (D. C.) 283 Fed. 215, 218. Hence the motion is denied.

The appellants urge, in substance, as grounds of error: That the special court of three judges had no jurisdiction to grant the injunction; that the bill contained insufficient averments of fact, as distinguished from mere conclusions; that it was prematurely filed; and that the injunction was granted upon insufficient evidence.

1. The specially constituted court of three judges had jurisdiction under Section 266 of the Judicial Code to hear and determine the application for the injunction upon the ground of the unconstitutionality of the orders of the Commission. Oklahoma Natural Gas Co. v. Russell (March 5, 1923) 261 U.S. 290, 43 Sup. Ct. 353, 67 L. Ed. --.

2. The defendants answered the bill on the merits without questioning in any way the sufficiency or form of its averments. See Campbell v. United States, 244 U.S. 99, 106, 32 Sup. Ct. 398, 56 L. Ed. 684. The bill specifically alleged that the cost of the Company's property in the State devoted to the rendition of intrastate telephone service, the cost of its reproduction, and its fair and reasonable value exceeded the sums of $247,000,000, $373,000,000 and $323,000,000, respectively; and that the rates prescribed by the Commission would prevent it from earning more than 2.56% per annum upon the cost of such property and 1.96% upon its fair and reasonable value and would not afford it a fair return upon such value. In short, it aptly stated the ultimate facts upon which the Company asked relief, omitting any mere statements of evidence. Equity Rule 25, par. 3 (198 Fed. xxv, 115 C. C. A. xxv).

3. Upon the making by the Commission of the orders in question the proceedings had reached the judicial state entitling the Company to resort to the court for relief. Bacon v. Rutland Railroad, 232 U.S. 134, 137, 34 Sup. Ct. 283, 58 L. Ed. 538, distinguishing Prentis v. Atlantic Coast Line, 211 U.S. 210, 229, 29 Sup. Ct. 67, 53 L. Ed. 150, in which an appeal had not been taken to the highest tribunal vested with the final legislative authority of the State. Here the Commission is vested with the final legislative authority of the State in the ratemaking process; the authority exercised by the state courts upon a review by certiorari (People v. Wilecox, 194 N. Y. 383, 87 N. E. 517), being purely judicial and having no legislative character. Civil Practice Act (Laws New York 1920, c. 925) §§ 1304, 1305.

It was not necessary that the Company should apply to the Commission for a rehearing before resorting to the court. While under the Public Service Commissions Law any person interested in an order of the Commission has the right to apply for a rehearing, the Commission is not required to grant such rehearing unless in its judgment sufficient reason therefor appear; the application for the rehearing does not excuse compliance with the order or its enforcement except as the Commission may direct; and any change made in the original order upon the rehearing does not affect the enforcement of any right arising from the original order (Sec. 22). As the law does not require an application for a rehearing to be made and its granting is entirely within the discretion of the Commission, we see no reason for requiring it to be made as a condition precedent to the bringing of a suit to enjoin the enforcement of the order. See, by analogy, Hollis v. Kutz, 255 U.S. 452, 454, 41 Sup. Ct. 371, 65 L. Ed. 727; In re Arkansas Rate Cases (C. C.) 187 Fed. 290, 306; Atlantic Coast Line v. Interstate Commission (Com. Ct.) 194 Fed. 449, 452; Baltimore Railroad v. Railroad Commission (C. C.) 196 Fed. 690, 693, 699; and Chicago Railways v. Illinois Commission (D. C.) 277 Fed. 970, 974. In Palermo Land & Water Co. v. Railroad Commission (D. C.) 227 Fed. 708, the statute spec fically provided that no cause of action should accrue in any court out of any order of the Commission unless an application for a rehearing had been made. Here the Commission did not suggest in its answer that it perceived any ground upon which it would have granted a rehearing, if an application had been made, but, on the contrary, maintained the correctness of its orders in all respects. Manifestly under such circumstances the injunction should not have been denied merely because application had not been made to the Commission for a rehearing.

And for like reasons, it was not necessary that the Company should have exercised the privilege granted by one of the orders of applying to the Commission for modification of the classification.

Nor did the fact that the orders of the Commission merely prescribed temporary rates to be effective until its final determination, deprive the Company of its right to relief at the hands of the court. The orders required the new reduced rates to be put into effect on a given date. They were final legislative acts as to the period during which they should remain in effect pending the final determination; and if the rates prescribed were confiscatory the Company would be deprived of a reasonable return upon its property during such period, without remedy, unless their enforcement should be enjoined. Upon a showing that such reduced rates were confiscatory the Company was entitled to have their enforcement enjoined pending the continuance and completion of the rate-making process. Cumberland Telephone Co. v. Louisiana Commission, supra. And see, by analogy, Oklahoma Natural Gas. Co. v. Russell, supra; and Love v. Atchison Railway (C. C. A.) 185 Fed. 321, 326, 107 C. C. A. 403 (affirming [C. C.] 174 Fed. 59 and 177 Fed. 493). If the Commission, however, had fixed an early date for the final hearing this might have been taken into consideration by the court as an element affecting the exercise of its discretion in the matter of granting an interlocutory injunction. Cumberland Telephone Co. v. Louisiana Commission, supra, 283 Fed. 217. But in the present case the Commission was still continuing indefinitely its general investigation and had not fixed any date for the final hearing.

4. The application for the injunction was heard by the District Court upon the pleadings and affidavits relating to the cost and value of the Company's property, its revenue and expenses. It was not necessary that the Company offer in evidence the voluminous testimony that had been taken by the Commission on the legislative question prior to making the orders in question. The bill did not challenge the orders of the Commission on the ground that it had acted arbitrarily, without any evidence. See Louisville Railroad v. Garrett, 231 U.S. 299, 308, 34 Sup. Ct. 48, 58 L. Ed. 229. The sole issue presented was whether or not the orders were confiscatory; which was to be determined by the court upon the evidence submitted to it. Either party might, of course, show, by competent testimony, any fact brought out before the Commission which might throw light upon this issue; and the defendants cannot now rightly complain that the Company did not introduce evidence which they themselves do not appear to have regarded as material.

The District Court, after consideration and analysis of the evidence, concluded that the value of the Company's property upon which it was entitled a return could not be reduced much below $300,000,000, and that the rates prescribed could not possibly yield a fair return upon such valuation. It is well settled that the granting of a temporary injunction, pending final hearing, is within the sound discretion of the trial court; and that, upon appeal, an order granting such an injunction will not be disturbed unless contrary to some rule of equity, or the result of improvident exercise of judicial discretion. Meccano, Ltd., v. Wanamaker, 253 U.S. 136, 141, 40 Sup. Ct. 463, 64 L. Ed. 822; Love v. Atchison Railway, supr, 185 Fed. 331, and cases there cited. Especially will the granting of the temporary writ be upheld, when the balance of injury as between the parties favors its issue. City of Amarillo v. Southwestern Telephone Co. (C. C. A.) 253 Fed. 638, 640, 165 C. C. A. 264. Here the Commission had prescribed temporary rates which were found to be confiscatory, which were to continue in effect pending the final determination of the Commission after its investigation had been completed; and no date had been fixed for the completion of this investigation or the final hearing. The Company meanwhile could only be protected from loss by injunction; while, on the other hand, its subscribers were protected by the bond which was required for the return of the excess charges collected if the injunction should be thereafter dissolved. There was no necessity in the particular situation presented for any test period of the new rates.

And finding nothing in the record which justifies us in concluding that the District Court improvidently exercised its judicial discretion in granting the interlocutory injunction, its order is.

Affirmed.