Michigan Bell Telephone Co. v. Michigan Public Utilities Commission

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] This is an appeal from a final decree dismissing a bill of complaint filed by plaintiff to review, vacate, and set aside an order made by the Michigan public utilities commission[*] in respect to intrastate toll rates charged by the Michigan Bell Telephone Company within this State.

On March 24, 1938, the Michigan public utilities commission, upon its own motion, undertook consideration of the message toll charges of the telephone company rendered within the State; and instituted an investigation concerning reported unreasonable, excessive and unjust rates imposed upon the public for toll service between various Michigan points, which charges were reported to be discriminatory when compared with interstate message toll rates maintained between Michigan and out-of-State points by the Michigan Bell Telephone Company and the American Telephone Telegraph Company.

The commission issued an order directed to the Michigan Bell Telephone Company to show cause why the commission should not enter an order requiring the company to cease from the collection of unjust charges for intrastate toll message service and reduce its intrastate message toll rate schedule to the same basis and measure as provided in the interstate toll-rate schedule. The order recited that the telephone company was required by the provisions of Act No. 206, Pub. Acts 1913, as amended,^* to collect and enforce for services rendered only such charges as would be reasonable and just; and that the telephone company was prohibited from charging, collecting, or receiving from any person or persons greater or less compensation for any service rendered than it charges, demands, collects or receives from any other person for rendering, furnishing or performing for him or them a like or contemporaneous service.

Upon the issuance of the above order, the telephone company filed an answer denying that such discrimination existed and averred that the commission was without jurisdiction in the premises; that the rates for intrastate toll telephone service were just and reasonable; that the commission in 1926 and 1936 had established reasonable rates for exchange and toll services; and that in the proceedings of June 1, 1926, and July 1, 1936, all the property of the company devoted to the rendition of intrastate telephone service within the State of Michigan and all its services therein were considered as a unit for the purpose of rate making and any action on the part of the commission in reducing rates and charges for intrastate telephone service without a consideration of the necessity of affording the telephone company an opportunity to earn a compensatory return on its entire property is a denial of due process of law.

The commission hold a hearing commencing April 26, 1938, at which time the telephone company offered no testimony in respect to its revenue nor did it offer evidence to sustain the theory that a substantial reduction of its intrastate toll rates would lead to confiscation of its property without due process of law.

On June 27, 1938, the commission entered the following order:

Therefore, it is ordered that —

"1. Effective 12:01 a.m. August 1, 1938, the intrastate toll message rates of the Michigan Bell Telephone Company, including station-to-station and person-to-person, both day, night and Sunday rates and report charges be reduced to the same rate level charged and established by the said American Telephone Telegraph Company and Michigan Bell Telephone Company under their established rate and mileage schedule for message toll telephone service interstate from and to points within Michigan limits for similar classes of service.

"2. Within a reasonable period following receipt of the certified copy of this order, but not later than July 20, 1938, the Michigan Bell Telephone Company shall make and file with this commission its telephone tariff modifications to comply with this order.

"3. This commission hereby specifically reserves unto itself jurisdiction of this matter and the right to make such other or further order or orders herein as shall be deemed necessary and advisable."

The reasons and grounds for entering of the above order as stated in the opinion of the commission are as follows:

"The Michigan Bell Telephone Company, hereinafter called the 'Bell,' is engaged in the conduct of telephone business in the State of Michigan, as a corporation organized under the laws of this State, with a capital stock of 1,250,000 shares of which 1,249,900 shares at least, are owned by the American Telephone Telegraph Company, a corporation organized under the laws of the State of New York, having its principal headquarters at 195 Broadway, New York City, New York, which company is hereinafter designated 'Long Lines Company.' The latter actually has the direct control of the Bell through the foregoing stock ownership, and, as heretofore determined by the Michigan Supreme Court in People, ex rel. Attorney General, v. MichiganBell Telephone Company, 246 Mich. 198 (P. U. R. 1929B, 455; P. U. R. 1929E, 27), the Bell is so organized and controlled by the Long Lines Company as to constitute the Bell the mere instrumentality or agent or adjunct of the Long Lines Company so that the separate existence of the two corporate entities must be ignored and the two corporations considered, for regulatory purposes, as but a single company."

Additional finding of facts as stated in the opinion are as follows:

"(a) The Michigan Bell Telephone Company is the mere adjunct, instrumentality and device of the American Telephone Telegraph Company, a New York corporation, by which latter substantially all of the Bell Company's capital stock is entirely owned, and its business and affairs wholly dominated and controlled, and that said companies together constitute but a single telephone utility, which is subject in its intrastate business and functions within Michigan to the regulatory control of this commission.

"(b) That said utility in rendering and furnishing an intrastate toll message telephone service within the State of Michigan furnishes a service which is like and contemporaneous to that furnished by said utility in the interstate transmission of telephone long distance messages to and from points within Michigan limits, for which intrastate service said utility charges, demands, collects and receives from its patrons a greater rate of compensation than charged, demanded, collected or received from patrons for such interstate toll message service.

"(c) Said utility in its continued practice of charging different and higher rates for toll message service over distances of more than 42 miles within the State of Michigan than charged for comparable distances between points in Michigan and points in other States is an unreasonable and unjust discrimination under the provisions of Act No. 206, Pub. Acts 1913, as amended; that said practice is unduly prejudicial to patrons utilizing intrastate message service and unduly preferential to patrons utilizing interstate message service to the extent that said intrastate message tolls exceed or may exceed message toll rates constructed on the same basis as the interstate message tolls for the same or comparable distances."

On July 7, 1938, the Michigan Bell Telephone Company filed its bill of complaint in the circuit court of Ingham county, in chancery, to review, vacate and set aside the commission's order as not being in accordance with the law or just rights of plaintiff. It is the claim of the telephone company that the order of June 27, 1938, is without competent evidence to support it, is contrary to the evidence produced, arbitrary, and denies to plaintiff due process of law in violation of the 14th amendment to the Constitution of the United States.

Upon the filing of plaintiff's bill of complaint, the trial court ordered defendant commission to show cause why an interlocutory injunction should not issue, and on July 15, 1938, a writ was issued, restraining and enjoining the commission from taking any proceeding to enforce the order of the commission entered June 27, 1938.

The trial court rendered an opinion in which he stated:

"Essentially, the proceeding was an inquiry into the intrastate toll charges of the plaintiff company; and the conclusions of the commission were predicated on the record as made, rather than on any alleged failure of the plaintiff to make the showing, in terms, indicated by the initial order. * * * The order actually goes far beyond the matter of alleged discrimination and in substance and effect it should be regarded as one for the fixing of intrastate toll rates. It will be noted that plaintiff was not merely required to obviate the alleged discrimination but rather was directed to place its intrastate schedules on the same basis as that pertaining to its interstate business, for similar classes of service. * * *

"In the proceeding here involved the commission determined that the two services rendered by plaintiff, that is, the interstate and the intrastate, were and are subject to similar considerations as to details and costs of operation. It was assumed that the interstate charges were reasonable, such assumption or conclusion being predicated on the fact that they had been duly established by the Federal communications commission and acquiesced, or concurred, in by plaintiff. As a practical proposition I do not understand that any claim is made on behalf of plaintiff that the interstate rates as so fixed are not reasonable. It is insisted that the commission was in error in deciding, on the basis of the showing made before it, that the two branches of the service may properly be said to be furnished under substantially identical conditions. I am brought to the conclusion, however, that the proofs reasonably support this determination. There may be some significance in the fact that in 1926, and prior thereto, the rate schedules in the intrastate and interstate rested on the same basis.

"I do not think it can be said that the commission, in proceeding on the theory suggested, acted wholly without authority. The decision of the Supreme Court in IllinoisCommerce Commission v. United States, 292 U.S. 474 (54 Sup. Ct. 783, 78 L.Ed. 1371), must be regarded as establishing that such method is, under some circumstances, permissible. Defendant, and its predecessor, obviously concluded that the record in this case presented a situation justifying its acceptance. Whether the basis for the conclusion reached was less satisfactory than would have been presented by following the customary method observed in rate-making proceedings need not be specifically determined. The plaintiff herein had the right, before the commission and on the trial in this court, to offer such proofs as it desired. It has not elected, however, to supply any basis for an affirmative conclusion but relies on the claim that the commission was without jurisdiction to take action on the proofs submitted in connection with the commission's theory. It occurs to me that plaintiff is in somewhat the same position as was the railroad company inDetroit Mackinac R. Co. v. Michigan Railroad Commission,171 Mich. 335.

"Under the provisions of the statute pertaining to the matter of appeal, the burden rests on the plaintiff of establishing by clear and satisfactory evidence that the order by which it claims to have been aggrieved is unlawful or unreasonable. As before suggested, I am brought to the conclusion that it cannot be said, as counsel for plaintiff insist, that the commission acted wholly without jurisdiction to make the order and that it is for that reason unlawful. No attempt has been made to establish that it actually is confiscatory in the sense that it would deprive the plaintiff of a proper return on the value of its property devoted to the service. On the record as made it must be said that plaintiff has not established, with the requisite degree of certainty, its right to the relief sought."

A decree was entered in conformity with the trial court's opinion.

Plaintiff appeals and contends that the order of June 27, 1938, should be set aside because:

(1) If the order be regarded as made solely in the exercise of the power to remove discrimination it is (a) beyond the power conferred on the commission by the Michigan statute which power is limited to elimination of discrimination pertaining to intrastate operations solely; (b) inclusive of rates which are not competitive and hence discrimination cannot exist in respect thereof.

(2) Whether the order is regarded as made in the exercise of the power to remove discrimination or to make rates by comparison or both it is (a) arbitrary and unreasonable in excluding in substance from any real consideration the many facts and circumstances as to the dissimilarities in the rendering of interstate service and intrastate service and hence in violation of section I of the 14th amendment to the Constitution of the United States; (b) without substantial testimony to support it inasmuch as the evidence showing many and weighty dissimilarities of conditions is not conflicting and there is no countervailing evidence and hence the order exceeds the authority of the commission under the Michigan statutes which is to hear evidence and act thereon and is violative of the due process of the 14th amendment to the Constitution of the United States; (c) not made "with reference exclusively to what is just and reasonable as between the carrier and the public in respect of domestic business" but takes the interstate business into consideration as well and hence is violative of the 14th amendment to the Constitution of the United States; (d) a sudden shift or departure from the basis heretofore consistently and continuously adopted and pursued by defendant commission in the regulation of the business and rates of plaintiff treating all business in Michigan as a whole and fixing intrastate toll rates to produce more than the intended return from the intrastate business as a whole and the exchange rates correspondingly less and hence is violative of the due process clause of the 14th amendment to the Constitution of the United States.

It is contended on the part of the commission that the legislature possesses sovereign power to fix rates for public utilities and to prevent unjust discrimination in rates charged; that such legislative power has been expressly delegated to the commission, a fact-finding body; that under the proceedings taken by the commission the telephone company was afforded a full opportunity to a hearing and later a judicial review of those proceedings; that the rate established is not so low as to amount to confiscation of the telephone company's property; and that the findings of the commission are supported by competent evidence.

In our opinion the principal question involved in this case is to determine whether the findings of the commission are supported by competent evidence.

The sections of the so-called telephone act (Act No. 206, Pub. Acts 1913, being 2 Comp. Laws 1929, § 11700 et seq. [Stat. Ann. § 22.1441 et seq.]) applicable to the present problem are as follows:

"SEC. 3. All persons, copartnerships or corporations doing a telephone business within this State are required to furnish reasonably adequate service and facilities for the use of their lines by the public. All charges made for any service rendered, furnished, or performed, or to be rendered, furnished or performed within the State by any telephone company shall be reasonable and just, and every unjust and unreasonable charge for such service is prohibited and declared to be unlawful; and the commission shall have power to make, alter, amend or abolish any rate or charge for any service, and may regulate by rules or orders any service or facility; and it shall likewise prescribe the standard of construction and equipment that shall be maintained by any person, copartnership or corporation maintaining a physical connection between the lines and facilities of any such person, copartnership or corporation, and the lines and facilities of any other person, copartnership or corporation.

"SEC. 4. If any telephone company doing business within this State shall directly or indirectly by any special rate, rebate, drawback or other device, charge, demand, collect or receive from any person, copartnership or corporation a greater or less compensation for any service rendered, furnished or performed than it charges, demands, collects or receives from any other person or persons, copartnership or corporation for rendering, furnishing or performing for him or them a like contemporaneous service, such telephone company shall be guilty of unjust discrimination which is hereby prohibited and declared to be unlawful. * * *

"SEC. 5. It shall be unlawful for any telephone corporation doing business within this State to make or give any preference or advantage to any person, copartnership, corporation or locality or subject any person, copartnership, corporation or locality to any prejudice or disadvantage in any respect whatever. * * *

"SEC. 11. The commission shall, acting upon its own motion * * * have authority to hear and determine all complaints against the practices, rates, tolls, rentals or charges * * * by persons, copartnerships or corporations within the terms of this act. * * *

"SEC. 14. Any telephone company or other party in interest, being dissatisfied with any final order of the commission made in any proceeding under this act, may within thirty days from the issuance of such order and notice thereof, commence an action in the circuit court in chancery against the commission as defendant to vacate and set aside any such order on the ground that * * * the rate or rates, charges, joint rate or rates fixed are unlawful or unreasonable. * * *

"SEC. 18. In all actions under this section the burden of proof shall be upon the complainant to show by clear and satisfactory evidence that the order of the commission complained of is unlawful or unreasonable as the case may be."

Under section 18, supra, the burden of proof is upon the telephone company to show that the order of the commission is unlawful and unreasonable. In our opinion the commission was only required to determine upon competent evidence that the rates charged for intrastate toll service were excessive or discriminatory and it could limit its inquiry to that particular branch of the service, providing evidence was adduced to sustain its findings.

At the hearing before the commission, nearly all the evidence introduced by the telephone company related to differences in the rendition of interstate and intrastate service. It introduced evidence tending to show that in 1937 the average revenue per message from interstate business was $1.555 and from intrastate business $.318; that approximately 80 per cent. of the Michigan Bell Telephone Company's intrastate business is between termini less than 42 miles apart; that but one and one-half per cent. of the Long Lines interstate business is under 42 miles; that during this same period the average rate miles per message were 228 miles for interstate messages and 30.9 miles for intrastate messages; that the charges for station-to-station day messages of three minutes duration transmitted these distances are $.90 in the case of the interstate and $.30 in the case of the intrastate; that the duration of the call on interstate messages is greater than that of intrastate messages; and that these are factors which enter into the revenue derived from a given schedule of rates.

It was also shown by the telephone company that the use made of the circuit is an important factor in determining a rate schedule; that during the year 1937 the Long Lines handled 54,000,000 messages entailing 223,368,000 minutes of conversation time, while during the same period the Michigan Bell Telephone Company transmitted 27,000,000 messages, both intrastate and interstate, involving 81,540,000 minutes of conversation; that the circuit cost per mile is not the same for the interstate circuits as for the intrastate circuits because as the size of circuit groups increase, the cost per circuit tends to decrease; and that the revenue of the Long Lines from "other than telephone uses" is $14,851,013 as against $74,334,314 from telephone uses, while that of the Michigan Bell Telephone Company for the same period is $170,037 as against $7,754,827.

Evidence was introduced upon the part of the commission by a telephone engineer employed by the commission; a toll traffic supervisor, a telephone transmission engineer, a telephone revenue engineer and an auditor employed by the telephone company; and several telephone patrons as well as an exhibit of the comparable rates which shows that the interstate and intrastate rates are the same up to and including 42 miles of service and that from then on the intrastate rates are consistently higher.

A recent case of much importance is that of Bell TelephoneCo. v. Pennsylvania Public Utility Commission, 135 Pa. Super. 218 (5 Atl. [2d] 410), dismissed on appeal 309 U.S. 30 (60 Sup. Ct. 411, 84 L.Ed. 563). That case involved an appeal by the telephone company from an order of the Pennsylvania public utility commission directing it to revise its intrastate toll rates for distances exceeding 36 miles so as to conform to the rates charged by the American Telephone Telegraph Company which was a user of the Pennsylvania Bell Telephone Company's facilities for service over comparable distances in interstate service. The facts in the above case are almost identical to the facts involved in the case at bar. There was almost identical evidence to support the finding of similarity between the interstate and intrastate service in the two cases. It consisted in a showing that for the use of the same facilities, the customer who uses them in intrastate toll service must pay more than the customer who uses them in interstate toll service. The court said (135 Pa. Sup. 235, 236):

"If the interstate rates are themselves just and reasonable and are not below the fair and reasonable rate demandable for the service, by reason of some special circumstance such as was present in the Eubank Case,^* it is hard to see how there can be any discrimination against interstate traffic and in favor of intrastate traffic by an order of a State commission directing intrastate rates to conform to interstate rates. * * *

"We must assume, in the absence of all proof to the contrary, that the rates so established by the American Company and approved by the Federal communications commission are just, fair and reasonable to the utilities as well as to the public. * * *

"Nor is the order invalid because it is not alternative in form, directing appellant either to raise its interstate rates or lower its intrastate rates, to conform. * * *

"If an unjust and unreasonable discrimination against intrastate service exists, which can be corrected only by a reduction of the intrastate rates to conform with the just and reasonable rates established for interstate service, the public utility commission has the power to order it."

As we examine the facts in the case at bar, it is apparent that plaintiff, in making a comparison of the various items that go towards the making of rates, compares the whole nation-wide business of the Long Lines to the intrastate business of the Michigan Bell Telephone Company, while the comparison the commission made was between the interstate business (jointly conducted by the Michigan Bell Telephone Company and the Long Lines to and from points within Michigan limits) and the intrastate business conducted by the Michigan Bell Telephone Company. The fact that the volume, use of economical appliances, density of traffic, et cetera, of the Long Lines are different from the same factors in the Michigan Bell Telephone Company business does not meet a claim that the interstate business of the Michigan Bell Telephone Company is rendered under the same conditions as the intrastate business of the Michigan Bell Telephone Company. In its showing, the plaintiff does not show that the advantages possessed by the Long Lines are beneficial to the Michigan Bell Telephone Company. In our opinion plaintiff has failed to show any substantial difference between the interstate business of the Michigan Bell Telephone Company (conducted jointly with the Long Lines) and its intrastate business.

Plaintiff cites the case of Smith v. Illinois Bell TelephoneCompany, 282 U.S. 133 (51 Sup. Ct. 65, 75 L.Ed. 255), to show that the only proper basis of any rate order is a determination of the value of the property used in the intrastate business, segregated from the property used in the interstate business. Such a basis is proper when confiscation is charged, as was held in that case, but in the case at bar there is no charge of confiscation, hence the case is not controlling on the issues involved here.

In our opinion, the findings of the commission are supported by competent evidence. Upon review of such an order, the order will stand if there is substantial evidence supporting the conclusions of the commission. See City of Detroit v. MichiganRailroad Commission, 209 Mich. 395 (P. U. R. 1920 D, 867). We must assume that the rates established by the Federal communications commission for interstate tolls are fair and reasonable. In the case at bar evidence was produced which had a tendency to show that the telephone company charges higher tolls within the State than it requires for the same service interstate, with the use of the same facilities and for comparable distance. For example, the air distance from Detroit to Niles, Michigan, is 171 Miles and the toll for a long distance call from Detroit to Niles is $1 (initial period charge), while the air distance from Detroit to South Bend, Indiana, is 173 miles and the rate is 75 cents.

Mr. Joseph Bell, toll traffic supervisor of the telephone company, testified as follows:

"Mr. Pugh: The fact is that in the schedule of rates adopted by the A. T. T., and the schedule adopted by the Michigan Bell Telephone Company, there is a differential in the charge made for the same mileage between interstate and intrastate calls?

"Mr. Bell: Yes, sir.

"Mr. Pugh: Although the same facilities may be used?

"Mr. Bell: Yes, sir.

"Mr. Pugh: In placing the messages over exactly the same facilities?

"Mr. Bell: Yes.

"Mr. Pugh: On intrastate calls and interstate calls?

"Mr. Bell: Yes. * * *

"Q. But essentially, the service of hauling a message from Clare to Detroit, whether that message be continued onward over the Long Lines to Toledo, is essentially the same sort of service as would have been the operation of hauling a message from Clare to Detroit for termination in Detroit, is it not, as far as the characteristics of the service performed, and the facilities used, and the results obtained are concerned?

"A. Yes.

"Q. For which the Michigan Bell Telephone Company in one instance charges a higher rate if the entire call is completed within the State than it would if the call were to extend beyond the State?

"A. So it would appear, yes, sir."

It is next urged that the change of method in rate fixing, adopted by the commission, was so radical as to deny to plaintiff "procedural due process of law." Act No. 206, Pub. Acts 1913, empowers and expressly authorizes the commission to inquire into the reasonableness of rates charged by the telephone company for any class of its service. In the case at bar, the telephone company was served with an order which informed it of the nature of the complaint made concerning its tolls for intrastate long distance service. It was accorded a hearing before the commission, and when the commission entered an order establishing a new rate schedule plaintiff appealed in the manner provided by statute. Under such circumstances there was no denial of due process of law.

Upon review in the circuit court, the burden rests upon the telephone company to show by clear and satisfactory evidence that the order of the commission complained of is unlawful or unreasonable. The trial court found that the commission's order should be regarded as one for the fixing of intrastate toll rates. The trial court also determined that the telephone company had not established its right to any relief in a chancery court. The record sustains and we are in accord with such a finding.

The decree of the trial court is affirmed, with costs to defendant.

BUSHNELL, CHANDLER, NORTH, McALLISTER, and WIEST, JJ., concurred with SHARPE, C.J.

^* The powers and duties of the Michigan public utilities commission were transferred to the Michigan public service commission by Act No. 8, Pub. Acts 1939 (Comp. Laws Supp. 1940, § 11017-1 et seq., Stat. Ann. 1940 Cum. Supp. § 22.13 [1] etseq.), and the utilities commission abolished, effective February 15, 1939. — REPORTER.