As Amended March 27, 1939.[ City of Texarkana, Tex. v. Arkansas, Louisiana Gas Co. 306 U.S. 188 (1939) ]
[306 U.S. 188, 190] Mr. Benjamin E. Carter, of Texarkana, Ark., for petitioner.
Messrs. Wm. C. Fitzhugh and Henry C. Walker, Jr., both of Shreveport, La., for respondent.
Mr. Justice REED delivered the opinion of the Court.
A writ of certiorari brings to this Court for review a judgment1 of the Circuit Court of Appeals for the Fifth Circuit denying the validity or applicability of the following section in a franchise granted to respondent by petitioner in 1930. Section IX of that franchise reads as follows:
Texarkana, Texas, and Texarkana, Arkansas, are adjacent cities divided by the Arkansas-Texas state line. Respondent serves as a public utility for the distribution of gas in [306 U.S. 188, 191] both cities. Because of the section just quoted, the Texas city undertook judicial action to secure gas for itself and its citizens at rates lower than those stated in other sections of the franchise. We granted certiorari2 on account of asserted conflict with the decisions of the state courts on an important question of local law.
The charter of the Texas city gives authority to grant franchises for the use of its public ways upon terms to be embodied in ordinances, which must expressly provide that the city shall retain the regulation of the business of the utility, the fixing of its rates and the right to inspect its operations. Should these reservations be omitted, they are nevertheless to be considered part and parcel of the franchise. 3 The charter also provides that the city should have the power to regulate rates charged by gas com- [306 U.S. 188, 192] panies. 4 The gas company and its predecessors had long held a franchise for furnishing gas to the Texas city. The earliest ordinances of the city were amended in 1923, by which amendment certain rates for gas were fixed. Article E in that ordinance provided that the gas company should 'not at any time charge for furnishing gas' to the Texas city 'a greater sum ... than it at the same time charges and collects' from the Arkansas city. On June 17, 1930, the gas company accepted a compromise agreement, in ordinance form, which increased the rates to gas consumers from those set out in the 1923 franchise. This is the ordinance containing the Section IX heretofore quoted and it is the ordinance regulating rates now in effect in the Texas city.
On May 30, 1930, the gas company secured a similar arrangement adjusting rates from the Arkansas city. There had previously been in effect a franchise of 1923 with rates substantially identical with the Texas 1923 rates. The Arkansas franchise of 1930 was subjected to a referendum and to prolonged litigation. Eventually, on December 1, 1933, a final order set aside the 1930 ordinance of the Arkansas city and established the rates of the 1923 ordinance as effective for the consumers of the Arkansas city from 1930 to the date of the decree. This [306 U.S. 188, 193] decree also required refunds to the Arkansas consumers for overpayment during that period. 5 By further litigation, a resolution of the council of the Arkansas city of December 22, 1933, promulgating rates for the future was upheld. 6 These last rates were the 1923 rates, modified in minor particulars. In the order of December 4, 1936, confirming the rates established by its resolution, the gas company was directed to refund to the consumers any overpayment by reason of the collection of higher rates during this last judicial proceeding. It thus appears that the legal rates to the consumers of the Arkansas city at all times have been substantially those of the 1923 ordinance.
In Texarkana, Texas, the consumers have paid since 1930 the rates fixed in that ordinance, which are substantially higher than those finally determined as applicable to the Arkansas consumers. The gas company in October, 1933, sought from the Texas city council rates still higher than those granted by the 1930 ordinance. The company gave notice that on November 23, 1933, a new and higher schedule of rates than those provided in the 1930 agreement would be established in the Texas city. The Texas city sought and obtained in the state court an injunction against this increase. This is still effective. This suit was removed to the Federal district court for Texas. The bill was amended on January 15, 1934, to set up an additional cause of action against the gas company by reason of the entry of the decree on December 1, 1933, in the Arkansas litigation. As this decree was a final order determining that the Arkansas consum- [306 U.S. 188, 194] ers should pay only the 1923 rates, the Texas city conceived its citizens should have the benefit of the same lower rates by virtue of Section IX. It was further sought by this amendment to recover for the affected time a refund for the Texas consumers equal to the difference between the Arkansas rates, as determined by the decree of December 1, 1933, and the Texas 1930 rates. Later, on December 30, 1936, a supplemental bill was filed to set out the further claim of the Texas city consumers, for the period between that covered by the first amendment and the filing of the supplemental bill, together with a prayer that the gas company be compelled to pay into the registry of the court the excess amount which it was alleged it had and was continuously collecting from the Texas consumers. Immediate distribution was asked for the funds applicable to those periods concerning which no further Arkansas litigation was pending.
The situation from the standpoint of the Texas city might be summarized by saying that it seeks for its consumers the lower 1923 Arkansas rates instead of the Texas 1930 rates, from the effective date of the Arkansas resolution of May 30, 1930, to February 16, 1934. This refund is claimed because the Arkansas consumers obtained these lower rates by the Arkansas decree of December 1, 1933, and the voluntary act of the gas company in collecting the lower rates from the date of the decree to February 16, 1934. On final affirmance of the Arkansas litigation, it seeks refunds for its consumers from February 16, 1934, to December 4, 1936, of the difference between the Texas 1930 rates and the Arkansas December 22, 1933, rates. This refund is claimed because of the decree of December 4, 1936,7 validating for the Arkansas consumers the rates of the 1933 resolution. These rates were sub- [306 U.S. 188, 195] stantially the same as those fixed in the 1923 ordinance. As an injunction, pending appeal, was refused, these lower rates have been in effect in Arkansas since the date of the decree. As pointed out above, the decree was affirmed by the Circuit Court of Appeals and certiorari refused here. It is further sought to have put into effect in Texas the rates collected in Arkansas after December 4, 1936. The right to the lower rates and to the refund depends upon the interpretation of Section IX.
Another bill was filed by the Texas city in May, 1934, seeking substantially the same relief as that sought in the proceeding heretofore detailed. The reasons for the filing of this second suit and its purpose are not material to the present proceeding. The two actions were consolidated. Later motions, pleadings and the decree in the two cases are the same.
The gas company filed answers to the bills set out above and a counterclaim seeking higher rates. Section IX was challenged as invalid because of conflict with the provisions of the city charter, the laws and constitution of Texas. It was asserted that the section was not a binding contract on either party to the franchise and further asserted that if Section IX was valid, it was inapplicable to any of the three periods for which the Texas city sought relief and refund. The district court granted the city's motion to strike the answers and counterclaim and, the gas company declining to amend, decreed that Section IX was a binding contract between the parties; that it was inapplicable to the period prior to December 1, 1933; that refund should be made from December 1, 1933, to February 16, 1934; and that the suit was premature as to the period after February 16, 1934, because an appeal was pending in the Circuit Court of Appeals for the Eighth Circuit at the time the second amendment was filed by the Texas city on December 30, 1936. The Circuit Court of Appeals reversed and remanded with directions to dismiss [306 U.S. 188, 196] the bill. 8 It thought that Section IX was an invalid abdication or delegation of the Texas city's rate-making power since the section purported to bind both parties to lower rates which might be fixed by the gas company and the Arkansas city. The lower court stated also, without discussion, that the clause was inapplicable even if valid. The petition for certiorari relies upon the alleged error of the lower court in deciding that the section was invalid and inapplicable.
Abdication or delegation of regulatory power. By the act to incorporate the city of Texarkana, Texas, the legislature granted a special charter which contained delegations of power to the municipality to contract for utilities and to regulate gas rates, and prohibitions against the granting of a franchise without specific reservation of this power of future regulation. 9 The respondent takes the position that since Section IX not only requires the application of lower Arkansas rates to Texas consumers but provides that the gas company 'shall not be authorized or permitted to charge and collect any higher rate,' the Texas city has abdicated power to raise the Texas rates above the Arkansas rates. As the Texas city is forbidden to give up the power to regulate rates, the section, says the company, is invalid.
The city agrees that any delegation or abdication of complete power to regulate rates would be unlawful and any provision of a franchise leading to that result invalid under the decisions of Texas. 10 It is the petitioner's po- [306 U.S. 188, 197] sition, however, that a proper interpretation of the section leaves with the city the unimpaired power to regulate the gas rates, within the limits of the applicable constitutional provisions. We agree with this analysis of the section. The words just quoted prohibiting the charge or collection of higher rates more reasonably imply a limitation on the right of the gas company to look to other provisions of the franchise for authority to exact other rates. But if this view is not accepted, it is quite clear that the charter provision 163a retaining the right to regulate must be read into the franchise. This would result in leaving in the council of the Texas city the power to raise or lower the gas rates.
Nor, in this view, can it be said there is delegation as distinct from abdication of the power to regulate. It is true, extra-state action determines that the rate shall lessen but the council has power over the rates at all times. The Arkansas rate is a mere measuring rod, as though the rate fluctuated with temperature or consumption. Even if Section VIII- A11 is valid, in the face of sections 163, 163a and 196 of the charter, it is inapplicable, by its terms, to the power of the city to increase rates.
The obligation of the utility under Section IX. As the lower court determined Section IX is wholly invalid as a delegation and abdication by the city of its rate making powers, there was no occasion for it to consider whether the [306 U.S. 188, 198] section was binding upon the utility alone. With the conclusion that the city is free to raise or lower the rate, in the public interest, we must inquire whether the gas company is bound to furnish Texas consumers their gas at the lessened Arkansas rates. The determination follows the state law. 12 This court looks to the trial court for the original examination of local questions13 and relies for aid upon the explanation of its conclusion. While no opinion was written in the trial court, its decree found Section IX a 'binding contract' and awarded recovery for a portion of the time involved. Assuming the district court agreed with this Court that the city could not and did not delegate or abdicate its rate making function, this necessarily required a holding that the company alone was bound by this section of the contract. An appeal, with specific assignment of this ruling as error, brought the case to the Circuit Court of Appeals and the point is argued here by respondent as justification for the judgment reversing the District Court. 14 Under these circumstances, we feel constrained to pass upon the question.