Mr. Urban C. Stover, Dep. Atty. Gen., for petitioners.
This suit was originally brought by the Indianapolis Water Company to restrain the enforcement of an order of the Public Service Commission of Indiana fixing a temporary schedule of rates pending the Commission's investigation. The District Court of three judges, 28 U.S.C. 380, 28 U.S. C.A. 380, denied an interlocutory injunction, and the temporary rates became effective. The Commission on [302 U.S. 419, 420] December 30, 1932, adopted a different and permanent schedule of rates to be effective January 1, 1933. The Company then filed an amended and supplemental bill assailing those rates as confiscatory and invoking the Fourteenth Amendment of the Constitution of the United States. An interlocutory injunction was not sought and the case was properly heard in the District Court by a single judge. Indianapolis Water Company v. McCart, 13 F.Supp. 107; Smith v. Wilson, 273 U.S. 388 , 47 S.Ct. 385; Stratton v. St. Louis Southwestern Ry. Co., 282 U.S. 10 , 51 S.Ct. 8; Healy v. Ratta, 289 U.S. 701 , 53 S.Ct. 522. Pursuant to the Commission's final order, the Company filed the schedule of rates as prescribed, and these rates went into effect on January 1, 1933, and under that order have since been in effect without limitation of time.
The Commission found that the fair value of the Company's property as of November 1, 1932, was not less than $22,500,000 and that the income under the new rates would be 'approximately $1,400,000, or a return slightly in excess of six per cent' on that amount. The District Court appointed a special master, who received evidence between May 1, 1933, and August 10, 1933, and held a further and reopened session on October 18, 1933, when the hearing of evidence was closed. On April 18, 1934, the master offered to receive evidence as to the actual operations of the Company for 1933, but the respective parties informed the master that they did not desire to offer any such testimony. The master filed his report on May 18, 1934. The appraisals before the master were made as of April 1, 1933. He found the fair value of the Company's property to be $20,282,143 as of that date and also as of the time of filing his report. He estimated and found that the income applicable to return for the year 1933 and for a reasonable time thereafter would be $1,294,566.51. He concluded that the rates were not confiscatory. [302 U.S. 419, 421] After a hearing upon exceptions to the master's report, the District Court entered a final decree on November 29, 1935, dismissing the amended and supplemental bill of complaint. 13 F.Supp. 110. The court found that the value of the Company's property was $21,392,821 as of April 1, 1933, and, although the evidence of value had been addressed to that date, the court went further and found in its decree that this amount 'was the fair and reasonable value thereof as of the time of filing the report of the Special Master herein and as of the date of these findings and that such value will continue to be a fair and reasonable value of the plaintiff's used and useful property for a reasonable time in the future.' The court adopted the finding of the master that the income would be not less than $ 1,294,566.51 for the year 1933 and for a reasonable time thereafter.
Upon appeal, the Circuit Court of Appeals, reviewing the evidence upon disputed points, found that there should be certain increases, amounting to $975,437, in the rate base, making it $22,368,258. The court observed that from April 1, 1933, the valuation date, to the date of the decree of the District Court, November, 29, 1935, thirty-two months had intervened; that this period was no longer one for prophecy but had passed 'from the field of speculation to one of experience'; and that experience had shown that in that period there had been 'a constant and definite trend upward in commodity values.' 7 Cir., 89 F.2d 522, 525, 526. With respect to income, the court said that the amount found by the master for 1933 ($1,294,566.51) was about $57,000 higher than that indicated by the testimony of any witness, but the finding was not overruled in view of the failure of the Company to take advantage of its opportunity to show the actual receipts and disbursements for that calendar year. 7 Cir., 89 F.2d 522, at pages 527, 528. Holding that the District Court [302 U.S. 419, 422] had erred in determining in its decree that the valuations as of April 1, 1933, were applicable to the date of the decree in November, 1935, without taking appropriate account of changed conditions in the interval, the court reversed the decree and remanded the cause for further proceedings in accordance with the views expressed in its opinion. 7 Cir., 89 F.2d 522, at page 528.
Petitioners urge that the Circuit Court of Appeals has virtually required the District Court to find confiscation. We do not think that this is the necessary import of the opinion. The appellate court took judicial notice of an upward trend in prices but did not attempt to make a specific application of that trend. The reversal of the decree requires a hearing anew in the District Court, and upon that hearing all questions pertinent to the issue of confiscation should be open. The economic changes to which the Circuit Court of Appeals has referred may affect income as well as values.
In the instant case, we do not have a situation in which rates as fixed by a Commission have been enjoined. Here the rates prescribed by the Commission's order have been in effect all through this litigation, and are now in effect. A decree for injunction could operate only as to the future. Another special circumstance is that the decree of the District Court expressly provided that the value it found was the value as of the date of the decree, November 29, 1935, although the evidence before the court related to April 1, 1933. A decree speaking as of the later date and operating thereafter should have a basis in evidence. On the hearing required by the Circuit Court of Appeals, the District Court will be able to ascertain what have been the actual results of the Company's business during the intervening years and thus to base its decree upon known conditions as to those years which may show clearly, in the light of the economic changes which have occurred, whether the prescribed rates are or [302 U.S. 419, 423] are not of a confiscatory character and whether an injunction restraining the enforcement of the rates should be granted or denied.
To leave no question as to the authority of the District Court thus fully to rehear and determine the cause, the decree of the Circuit Court of Appeals is modified so as to provide that the cause is remanded to the District Court for further proceedings in conformity with the views expressed in this opinion. As thus modified, the decree of the Circuit Court of Appeals is affirmed. It is so ordered.
Modified and affirmed.
Mr. Justice CARDOZO took no part in the consideration and decision of this case.
Mr. Justice BLACK, dissenting.
I cannot agree that this cause brought here by the Public Service Commission and the Attorney General of the State of Indiana should be sent back to the District Court for a new trial. After an examination of the record, I am persuaded that the action of the Circuit Court of Appeals was wrong and that its judgment should not be affirmed either as rendered or in any modified form. The importance of the questions here involved leads me to set out some of my reasons for this belief.
Six years ago (1931) the City of Indianapolis filed a petition with the Public Service Commission of Indiana against the Indianapolis Water Company, seeking a reduction of water rates for small consumers. The Commission fixed the rates in December, 1932. A master appointed by the District Court reported that there was no confiscation May 18, 1934. The District Court held there was no confiscation November, 1935. The Circuit Court of Appeals found there was confiscation March, 1937. Now, January, 1938, this Court sends the case back to the District Court for trial 'anew.' The cause goes back to the District Court with the admonition from the Circuit Court of Appeals [302 U.S. 419, 424] that a 'general and persistent rise in prices should have been given effect in fixing a fair valuation.' Affirmance of the Circuit Court of Appeals' decree necessarily approves this statement and this statement requires an increased valuation of the Company's property. Experience demonstrates that rate cases continue to come to this Court until final decisions are reached. If the second trial follows the course of the first, the case should return to this Court by 1943. However, it will now be the duty of the District Court, in trying the case anew, to make a forecast as to probable commodity values covering this future period up to 1943.1 If its forecast should be wrong, the present case will be a precedent for reversing the cause in 1943 for still another trial. Sending the case back indicates that the Circuit Court of Appeals was right in reversing the District Court.
I believe the Circuit Court of Appeals was in error, that the evidence did not show confiscation, and I cannot agree to the action of the majority. This Court has announced the doctrine that the States have full and complete rights to regulate the rates of local intrastate utilities and that the federal courts cannot and will not interfere with this regulation unless the rates are confiscatory. Furthermore, 'upon that question (of confiscation) the complainant has the burden of proof, and the court may not interfere with the exercise of the state's authority unless confiscation is clearly established.' 2 The judicial function does not extend beyond the decision of the constitutional question. Unless, therefore, the Water Company satisfactorily overcame the presumption that the rate set by the Commission is not confiscatory, this Court should not invade the constitutional sphere of state rate regulation. 3 [302 U.S. 419, 425] I cannot say that the evidence in the District Court 'compelled a conviction that the rate would prove inadequate';4 or that the rates were 'palpably and grossly unreasonable';5 nor was the evidence sufficient to overcome the presumption that the rates, as fixed by the Commission and reinforced by the judgment of the master and the District Court, were not confiscatory. 6
The master reported the value of the Company's property to be $20,282, 143 as of April 1, 1933. December, 1935, the District Court, after a review of the evidence and the report of the master, refused to enjoin the enforcement of the rates fixed by the Commission. That court excluded from consideration for rate-making purposes a group of farms owned by the Company and estimated by the master to have a value of $264,050, but increased the master's estimate of the value of 'water rights' to $500,000. Evidence having been given of the 'reproduction value' of the Company's property, the District Court increased by $1,333,333 the master's 'estimate' of the 'estimated cost' of labor necessary to 'reproduce' the Company's property; it raised the master's total 'estimate' of this wholly imaginary reproduction from $20,282,143 to $21,392,821.
March 23, 1937, six years after the City of Indianapolis had originally initiated its efforts to obtain a reduction in water rates, the Circuit Court of Appeals reversed and remanded this cause. In doing so, it ordered that the Company's Indiana farms be included in the total valuation upon which the people of Indianapolis must pay the Company an income; added $361,308 to the 'estimate' of the master and District Court for 'undistributed construction costs'; and raised 'going value' $250,079. [302 U.S. 419, 426] The principal reason given for the reversal, however, was that general price levels had arisen, during the thirty-two months intervening between the date at which valuations were fixed (April 1, 1933) to the date of the District Court's decree (November 29, 1935). Looking at price index figures, the Circuit Court of Appeals decided that prices had ascended about 25 per cent. during that period, and that, if the District Court had given proper consideration to this increase in determining the value of the Company's property, that court would have found that the rate fixed by the commission was 'clearly confiscatory.'
One month and three days, however, after the price index method had been used by the Circuit Court of Appeals in finding the Indianapolis water rates confiscatory, this Court, in the case of Ohio Bell Telephone Co. v. Public Utilities Commission of Ohio, 301 U.S. 292 , 57 S.Ct. 724, struck down a reduced telephone rate fixed by the Ohio Public Service Commission. The people of Ohio were deprived of the benefit of a reduced telephone rate because the decision of the Public Service Commission rested upon price indices. Yet, if the District Court follows the opinion of the Circuit Court of Appeals which is here affirmed, the people of Indianapolis will be deprived of a reduced water rate because a price index, not introduced in evidence, indicated to the Circuit Court of Appeals that the valuation fixed by the District Court was wrong. This opinion of the Circuit Court of Appeals as to value is not repudiated by the affirmance. The majority does not reverse the Circuit Court of Appeals' finding of confiscation.
I cannot agree that the District Court should be reversed for failure to prophesy the exact future course of commodity prices. The legal knowledge of few judges is such that they can accurately foresee and forecast all price fluctuations. In the delays incident to rate litigation it is probably true that prices will fluctuate many [302 U.S. 419, 427] times between the beginning of a litigation and the time when the cause is won, lost, or abandoned.
It has now been more than five years since the Commission fixed a valuation for this waterworks property and it has been more than four years since the master reached his conclusion. If it requires four more years for this case to return to the Circuit Court of Appeals, there can be no doubt but that some price index can be found to show other changes in prices. Such a result will add still further to the confusion and chaos of judicial rate making. I believe it forecasts a day when the present long delays in rate regulation will be endless.
The City of Indianapolis should not be subjected to another trial unless this Court believes the rates to be confiscatory. When the District Court tries the case anew it will be constrained to follow the decision of the Circuit Court of Appeals that a 'general and persistent rise in prices should have been given effect in fixing a fair valuation.' In the meantime, can a judge be found who can accurately divine all future prices of commodities to be used for imaginary reproductions of this Company's property?
I believe this cause should be brought to a conclusion at this time. 7 My belief that the Circuit Court of Appeals should be reversed is strengthened by a study of the record in the case of McCardle v. Indianapolis Water Co., 272 U.S. 400 , 47 S.Ct. 144, of which record we take judicial notice.