(273 F.)

[8] The concluding finding of the master is that 7 per cent. is a reasonable return on the capital invested, and that any less rate of return would be confiscatory. To this finding both parties have excepted. I can add but little to what was said upon this subject in the Spring Valley Case, supra, nor do I feel called upon to modify my views or answer the criticisms of the master. But a word on this subject may not be out of place. It is said in the report that when the court conceded that 7 per cent. was a fair rate of return the case was ended, and that the court was controlled too largely by precedent. In other words, his view is that, when the court found the value of the property and the fair rate of return, it thereby established a procrustean standard to which all else must yield. Applying that rule to these cases, had the returns fallen short each year by the sum of $25,000, the ordinance for the first year would be void, and the remaining two ordinances valid, notwithstanding the fact that all three ordinances were enacted under identical circumstances and prescribed the same maximum rate.

Such a conclusion is, to my mind, absurd and ridiculous. The reason for this is obvious. The subject-matter with which the board of supervisors had to deal was full of doubt and intricacy at best. The valuation of the property was a mere matter of approximation and the operating expenses and income were unknown. The last two elements might be made certain by future developments but the uncertainty as to value would still remain. The valuation of a plant of this kind is largely a matter of guess work. Unlike cotton, wheat, and other commodities, that are bought and sold daily on the market and have an established value, gas plants are seldom sold, and if one should be sold the selling price offers a poor criterion by which to fix the value of another where the surrounding circumstances may be entirely different. Noted engineers will differ, and differ widely, as to the value of such plants. The difference between the engineers who come before this court so highly commended by the master and by counsel is measured by millions and not by thousands. No two courts and no two juries would reach the same conclusion upon the same testimony. A difference of 10 per cent. in the appraisement or valuation would be accepted as a matter of course rather than as a matter of surprise. The courts have no monopoly on the privilege of appraising or guessing. They must accord the same rights and the same privileges to the board of supervisors, and the mere fact that they may differ from the board in their conclusions does not necessarily establish the charge of confiscating private property or denying to the citizen the equal protection of the laws. In other words, the court must not only differ with the board, but it must differ so widely that it is able to say in the language of the Supreme Court:

"In a case like this we do not feel bound to reexamine and weigh all the evidence, although we have done so, or to proceed according to our independent opinion as to what were proper rates. It is enough if we cannot say that it was impossible for a fair-minded board to come to the result which was reached." (Italics supplied). San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 441, 23 Sup. Ct. 571, 47 L. Ed. 892, Approved in Knoxville v. Water Co., 212 U. S. 1, 17, 29 Sup. Ct. 148, 53 L. Ed. 371.

Does, therefore, the mere finding of the court establish the fact that no fair-minded board in the exercise of an honest judgment could reach a different conclusion? To some it may, but, speaking for myself alone, I can only say that I assume no such arrogance and make no such claim to superiority, omniscience, or infallibility.

These views find ample support in the authorities. Thus, in Spring Valley Waterworks v. San Francisco (C. C.) 124 Fed. 574, 598, Judge Morrow found from the weight of the expert evidence before him that 6 per cent. per annum was the smallest income that could be considered reasonable on the investment under consideration, and that 5 per cent. was the smallest income which the court could, under all the circumstances of the inquiry, consider reasonable and just. This case was followed by Judge Gilbert in Contra Costa Water Co. v. City of Oakland (C. C.) 165 Fed. 518, 532, and Spring Valley Water Co. v. San Francisco (C. C.) 165 Fed. 657, 665, and by Judge Farrington in Spring Valley Waterworks v. San Francisco (C. C.) 192 Fed. 137, 192. In the Knoxville Case the Supreme Court said:

"It cannot be doubted that in a clear case of confiscation it is the right and duty of the court to annul the law. Thus in Reagan v. Farmers' Loan & Trust Company, 154 U. S. 362, where the property was worth more than its capitalization, and upon the admitted facts the rates prescribed would not pay onehalf the interest on the bonded debt; in Covington, etc., Turnpike Co. v. Sandford, 164 U. S. 578, where the rates prescribed would not even pay operating expenses; in Smyth v. Ames, 169 U. S. 466, where the rates prescribed left substantially nothing over operating expenses and cost of service; and in Ex parte Young, supra, where, on the aspect of the case which was before the court, it was not disputed that the rates prescribed were in fact confiscatory-injunctions were severally sustained. But the case before us is not a case of this kind. Upon any aspect of the evidence the company is certain to obtain a substantial net revenue under the operation of the ordinance. The net income, in any event, would be substantially 6 per cent., or 4 per cent. after an allowance of 2 per cent. for depreciation. See Stanislaus County v. San Joaquin Company, 192 U. S. 201. We cannot know clearly that the revenue would not much exceed that return. We do not feel called upon to determine whether a demonstrated reduction of income to that point would or would not amount to confiscation."

In the Des Moines Case, supra, the court held that there was no error in refusing an injunction upon the conclusion reached that a return of 6 per cent. per annum on the valuation would not be confiscatory in the face of the report of the master that the company ought to earn 8 per cent. In the Willcox Case, and in the case of Cedar Rapids Gaslight Co. v. Cedar Rapids, 223 U. S. 655, 32 Sup. Ct. 389, 56 L. Ed. 594, a finding of 6 per cent. was approved. In the Denver Case the court held that a return of 4.2812 per cent. of the value of the plant was confiscatory, but found it unnecessary to determine whether a considerable sum claimed for water rights should be added to the value. Should the value of the water rights be included, the return would be further reduced. So far as I am advised this is the highest rate of return that the Supreme Court has ever declared to be confiscatory. True, in the more recent case of Lincoln Gas Co. v. Lincoln, supra, the court disapproved a finding that 6 per cent. upon the invested capital could not be regarded as confiscatory, in view of the

(273 F.)

undisputed evidence accepted by the master that 8 per cent. was the lowest rate sought and generally obtained as a return upon capital invested in banking, merchandising, and other business in the vicinity; 7 per cent. being the legal rate of interest in Nebraska. The bill of complaint, however, in that case, was dismissed, so that the question as to what constitutes a confiscatory rate was not determined by the court. If it be claimed that the court there held that any discrepancy between the finding of the court and the established rate which is prejudicial to the public utility is confiscatory, it will be difficult indeed to reconcile the decision with many prior decisions of the same court. Under such a view the courts will in effect review the decisions of rate-making bodies, notwithstanding their repeated disclaimer of their right and authority so to do. Furthermore, if any such hard and fast. rule is adopted, Public Service Commissions cannot safely establish what they themselves deem fair and reasonable rates. They must, in addition, allow a considerable margin of safety to cover possible deficiencies in revenue, increases in operating expenses, and differences of opinion as to values. If they do not, the courts will be constantly appealed to, and the benefits of regulation will be more than offset by the burdens of litigation. The very fact that in the years in question here the rate of return differed more than 1 per cent. on the total value of the property under substantially identical conditions all but demonstrates the utter fallacy and futility of such a course. I have not overlooked the fact that in many, if not all, the foregoing cases the returns in controversy had not been tested by time, so that the exact rate of return was ascertainable, and this fact was in a measure controlling; but, for reasons already stated, this is not the only element of uncertainty with which courts and rate-making bodies are confronted in this class of suits.

It may be true that the court did not consider the customary rate of interest on local investments as absolutely controlling, for, as said in the opinion:

"But it is a matter of common knowledge that interest rates vary almost as much in the same locality at different times as they do in different localities at the same time, and in an enterprise of this magnitude the question of locality, while entitled to consideration, is not controlling."

In the Willcox Case the court said:

"Such compensation must depend greatly upon circumstances and locality; among other things, the amount of risk in the business is a most important factor, as well as the locality where the business is conducted and the rate expected and usually realized there upon investments of a somewhat similar nature with regard to the risk attending them."

As there stated, the risk of the business is the most important factor. Capital has no home, and always seeks employment where it can gain the best returns with the least risk. In Stanislaus County v. San Joaquin K. & I. Co., 192 U. S. 201, 24 Sup. Ct. 241, 48 L. Ed. 406, the court declared that a statute reducing the compensation for supplying water to 6 per cent, upon the present value of the property used for the purpose was not unconstitutional, and that there was nothing in

273 F.-60

the nature of confiscation about it. The court made no reference to local conditions. Its language was as broad as the domain over which its jurisdiction extends, was as applicable to Maine as to California, and was evidently so intended. In the recent case of Simpson v. United States, 252 U. S. 547, 40 Sup. Ct. 367, 64 L. Ed. 709, the court said that it would take judicial notice of the fact that 4 per cent. was very generally assumed to be the fair value or earning power of money safely invested, and it is but a very short step to take judicial notice of the earning power of money invested in a public utility of this magnitude, when subject to public regulation. In many of the cases to which I have referred, little or no reference was made to local interest rates or to local conditions, and for these reasons I feel that my conclusions were fully justified, on both principle and authority.

Without further comment, I will only add that in no aspect of the record can the court say that the plaintiff has been deprived of or denied the full protection of the Constitution. The exceptions to the report of the master are therefore overruled, and a decree will be entered in accordance therewith.

Supplemental Memorandum.

Counsel seem unable to agree upon the disposition to be made of the exceptions reserved by the defendants, in view of the statement in the opinion that the exceptions to the report are overruled. As soon as the court reached the conclusion that the exceptions on the part of the plaintiff were not well taken, it became unnecessary to discuss or consider the exceptions reserved by the prevailing party, and for that reason no reference to such exceptions was made, unless an exception to the same ruling was reserved by both parties. In the latter event the court considered the question from the standpoint of the plaintiff only, and deemed it unnecessary to consider or view the report in any other aspect.

As was originally intended, the exceptions on the part of the plaintiff are therefore overruled, the report of the master is confirmed, and the final decree will so declare.

GULF, C. & S. F. RY. CO. et al. v. CITIES SERVICE CO. et al.

(District Court, D. Delaware. May 31, 1921.)

No. 1.

1. Parties 76 (7)-Demurrer for incapacity to sue raises question of personal capacity of plaintiff only.

A demurrer to a declaration on the ground that it fails to show that plaintiff has any legal capacity to sue goes only to his personal capacity, and does not present the question whether the declaration shows a right of action in him.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

(273 F.)

2. Railroads 5%, New, vol. 6A Key-No. Series-Director General held entitled to sue for interference with contract to furnish fuel oil to railroad company.

The Director General of Railroads, during his administration, held to have a legal interest in an existing contract for the supplying of fuel oil to a railroad company, which entitled him to maintain an action to recover damages from one alleged to have maliciously interfered with such contract by causing the seller to refuse performance.

3. Torts 25-Only joint tort-feasors may be joined as defendants.

Two defendants cannot be joined in an action of tort on allegations in the declaration that "they and each of them" caused a complete breach of a contract to supply fuel oil to a railroad company, where it is not alleged that they acted in concert and it is inferable that the failure to deliver a part of the oil due under the contract was caused by acts of one defendant, and the remainder to acts of the other.

4. Pleading 8 (3)—Declaration held insufficient, as too general in its allegations.

The declaration in an action of tort, alleging that defendants maliciously "caused, required, procured, influenced, persuaded, induced, and compelled" the breach of a contract by a party thereto, held insufficient in failing to set out more particularly the acts of defendants.

At Law. Action by the Gulf, Colorado & Santa Fé Railway Company and Walker D. Hines, Director General of Railroads, against the Cities Service Company and the Empire Refining Company. On demurrer to declaration. Demurrer sustained.

See, also, 270 Fed. 994.

John Biggs and Percy Warren Green, both of Wilmington, Del., for plaintiffs.

George N. Davis and Robert Penington, both of Wilmington, Del., for defendants.

MORRIS, District Judge. This is a demurrer to each of the two counts of a declaration filed in a suit instituted by Gulf, Colorado & Santa Fé Railway Company, a Texas corporation, and Walker D. Hines, Director General of Railroads of the United States, against Cities Service Company and Empire Refining Company, Delaware corporations, to recover damages from the defendants for inducing, as is alleged, a breach by Producers Refining Company, a Missouri corporation, of a contract made by and between the latter company and the plaintiff Railway Company, on the 1st day of June, 1915, for the sale and delivery by the Producers Company to the Railway Company of fuel oil in specified quantities and at specified prices during a period of five years beginning October 1, 1915.

The first count alleges, in substance, the making of the contract; the assignment thereof on November 15, 1915, by the Railway Company to Coline Oil Company, an Oklahoma corporation, and "a subsidiary company of" the Railway Company; the issuance of the proclamation of the President of the United States on December 26, 1917, appointing a Director General of Railroads, and through him taking possession and control as of December 28, 1917, of the railroads of the United States, including the railroads owned and leased by the plaintiff Rail

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes