CITY OF OWENSBORO v. CUMBERLAND TELEPHONE & TELEGRAPH CO., 174 F. 739

LURTON, Circuit Judge. This is an appeal from an interlocutory order enjoining the city of Owensboro from putting in force, pending a final hearing, an ordinance of the common council of that city passed in August, 1908, regulating the charges for telephone service in that city.

The bill is filed hy the Cumberland Telephone & Telegraph Company, a corporation created by the state of Kentucky for the purpose of engaging in the construction, maintenance, and operation of telephone and telegraph lines, which company has engaged in that btisiness for more than 25 years, and is now maintaining and operating an extensive telephone system covering the state of Kentucky arid many other states.

It is averred that at this time it owns and operates more than 500 telephone exchanges, one of which is in the city of Owensboro, and that by the aid of long distance toll lines these exchanges are connected one with another, scattered over seven states. Its capital invested in the business is said to exceed $20,000,000, and that its Owensboro exchange absorbs a capital of more than $100,000. The Owensboro wires are carried upon poles placed in the streets and alleys of the city which center in the Owensboro exchange in the well-known way in which such business is carried on.

The long distance wires connecting its more than 500 exchanges are carried upon the poles which support and carry the lines running from the local Owens-boro exchange to its Owensboro subscribers. Its Owensboro plant was constructed under an ordinance passed by the common council of that city on December 4, 1889, and! has ever since that time been maintained and operated under the terms of that ■legislation. ■ It is unnecessary to set out its provisions.

It is enough to say that the privilege of erecting its poles upon the streets and alleys ■and maintaining thereon its wires is specifically granted, subject to particular regulations therein set out in respect to location, number, and character of the poles, and repair of the streets injured or made unsafe b)^ construction work.

The rights thus granted were upon the ■following conditions and terms, namely: “That said company shall furnish free of charge one telephone for each engine or hose house, now erected or which may hereafter be erected by said city, one for police headquarters and one for the mayor’s office, making at .this time only two such telephones to be furnished by said company for the use of the city, shall be kept in good order for constant use by said com- . pany. “Said company shall also allow the city exclusive use of two feet of one arm on each pole for its fire alarm telegraph.

The fire alarm telegraph poles of the city may be used by said company for its wires, provided such wires be kept two feet from the said fire alarm telegraph wires, and such poles used by said telephone company shall be replaced by it when needed.” It was further provided that the rights thus granted should not be exclusive, but enjoyed in common with others to whom the city might grant like rights.

The bill averred that the city has continuously enjoyed the rights ' and privileges for which it contracted, and has erected and maintained its fire alarm wires upon the poles of the company, and has received the benefit of free telephone service in its various city offices as provided by the ordinance. The question in the case turns, not upon the power of the city, through ordinance duly enacted, to regulate the

schedule of rates for service within the city, but upon the reasonableness of the rates prescribed. The bill avers that the rates in force when this regulating ordinance was enacted ranged from $2.50 per month to' $3.75 for a business telephone, depending upon the character of equipment and service which 'the customer required, and that its residence rates ranged from $1.50 ■ to $2 per month. The regulating ordinance limits the rate for a business telephone to a maximum of $.2.50 per month, and for a residence telephone to $1.50 per month.

It is then provided that a rate in excess shall constitute a misdemeanor, punishable by fine of not less than $10 nor more than $100, and that “each charge in excess of the amount so fixed shall constitute a separate offense.” The bill avers that the Owensboro Telephone Exchange has involved an expenditure of more than $100,000, and that it was economically constructed and has been likewise economically operated; but that it has not, taking the entire life of the business, earned more than 1 per cent, per annum, net, upon the capital invested, and that even in the later and larger period of its bttsiness it has never in any one year earned as much as 5 per cent.

To support this the bill sets out the income and expenditures for 1908, showing a net revenue over expenses of $3,137.07. It is then charged that the rates fixed by the rate ordinance are “unreasonable, unjust, unfair, and confiscatory”; that if enforced they will deprive orator of its property without due process of law and will take its property for public use without just compensation in violation of the Constitution of the United States.

It is further charged that the ordinance of 1889, under which it entered upon and constructed its poles and wires upon and along the streets of the city, upon the terms, conditions, and considerations named therein, constitutes a contract; and that the ordinance of 1908, in so far as it prescribes unreasonable and confiscatory rates for service, impairs the. obligation of the contract. The only questions which arise under the special or limited appeal from an interlocutory decree granting a preliminary injunction are those which are necessarily involved by the allowance of the injunction pendente lite.

If the court below had jurisdiction and did not unreasonably exercise its discretion in the granting of an injunction to preserve the status until a final hearing, this court will not ordinarily go into the merits of the case any farther than necessary to determine this question. Duplex Printing Press Co. v. Campbell Printing Press Co., 69 Fed. 250, 16 C. C. A. 220; Loew Filter Company v. German American Filter Co., 107 Fed. 949, 47 C. C. A. 94.

Nevertheless, if the transcript plainly exhibits the whole case, and the court is able, without injustice, to finally determine the entire merits of the case, it may do so. Goshen Sweeper Co. v. Bissell Carpet-Sweeper Co., 72 Fed. 67, 19 C. C. A. 13; Smith v. Vulcan Iron Works, 165 U. S. 518, 523, 17 Sup. Ct. 407, 41 L. Ed. 810. In the present case the propriety of any injunction depends necessarily upon the jurisdiction of the court in the first instance, and, in the second, upon the merits of the case as the merits appear upon the face of the hill.

The jurisdiction of the Circuit Court depended upon the presence of a federal question. That is clear enough. Assuming the power of the municipality to regulate the

schedule of rates to he charged for the service of public service corporations, it is plain that the rates of such a company may not be reduced to a point below a rate which will pay operating expenses, maintain the plant, and return a fair profit upon the capital actually invested. See: San Diego Land Company v. National City, 174 U. S. 739, 757, 19 Sup. Ct. 804, 43 L. Ed. 1154; Willcox v. Consolidated Gas Company, 212 U. S. 19, 41, 29 Sup. Ct. 192, 53 L. Ed. 382.

Coming, then, to the question as to whether the learned circuit judge exceeded a reasonable discretion in awarding an injunction pendente lite: It is first said that the court should not interfere with rate legislation before it goes into effect, except in clear cases, and that the court should in this instance have let the rate go into effect and be tried, or required the charges above the ordinance rates to be paid into court to abide the filial result. City of Knoxville v. Knoxville Water Co., 212 U. S. 1, 29 Sup. Ct. 148, 53 L. Ed. 371; Willcox v. Consolidated Gas Co., 212 U. S. 19, 29 Sup. Ct. 192, 53 L.

Ed. 382. The averments of this bill are quite specific as to the revenue, cost of maintenance and operation, and as to the capital invested in the particular exchange involved. We are not, upon such an appeal as this, satisfied that the court below exceeded its fair deity and power or violated the spirit of the cases cited in allowing an injunction upon the strong averments of this bill,-although we should have been better content if it had required the excess collected over the rates prescribed to be paid into court to await a final decree.

But counsel say that the charter of the city of Owensboro, under which its government was conducted when the street rights of the Cumberland Telephone Company were granted, is a public law of which this court must take notice} and that neither under the power granted therein, nor under the general law of the state, did the city of Owensboro have power to permit telephone poles to be placed in or along its streets, nor to allow the stringing of wires upon poles so placed, and that the ordinance of December 4, 1889, is therefore void as in excess of power.

From this premise it is urged that, if the telephone company has no valid street easement, it is a trespasser, and cannot therefore object to the rate ordinance, even if, the rates are so confiscatory as to prohibit the carrying on of its business. This claim comes with bad grace, in view of the conceded fact that this company has for 20 years conducted its business, supplied the city with free telephone service, and carried the city’s fire alarm wires upon its poles with at least the acquiescence of the appellant.

The harshness of the claim is all the more evident, and the inconsistency only the more apparent, when such a position is taken in defense of an ordinance which is professedly one to regulate the charges of a company now said to have no right to complain of the unreasonableness of the rates fixed, because it has no rights which need be regarded in making rates. For this position, counsel cite Rural Home Telephone Co. v. Kentucky & Indiana Tel. Co., 128 Ky. 209, 107 S. W. 787, 32 Ky. Law Rep. 1068, and Frankfort Telephone Company v. City of Frankfort, 125 Ky. 59, 65, 100 S. W. 310.

But both of these cases are based upon sections 163 and 164 of the Kentucky Constitution of 1891. That Constitution provides that no street easement may be granted to public service companies by any municipal corporation save for a limited time and after advertisement to the highest bidder.

Those cases were in .relation to street rights acquired after that Constitution went into ef-feet, and in plain violation of the organic law of the state, l'he rights of the appellee were acquired before that Constitution by an ordinance, contractual in character, passed by the city of Owensboro when governed by a special charter granted in 1882. Aside from any question as to the violation of the obligation of a contract, if an ex post facto effect should be claimed for sections 1(39 and 1(34 of the Constitution of 1891, it is specifically provided by

section 163 that its provisions shall have no effect upon franchises theretofore granted when work had been in good faith begun thereunder. See L. & N. R. Co. v. Bowling Green, 110 Ky. 788, 63 S. W. 4, 23 Ky. Law Rep. 273, and City v. Louisville Water Company, 105 Ky. 754, 49 S. W. 766. But it is said that neither the general law of the state nor the special charter under which the city was then operating delegated to the city .the power to permit the streets of the city to be occupied by the poles and wires of a telephone company.

It may be conceded that neither a telegraph nor a telephone com-pány can lawfully occupy the streets or alleys of a town without direct legislative authority, or by municipal consent in pursuance of powers delegated by the state. Morristown v. East Tennessee Telephone Company, 115 Fed. 304, 305, 53 C. C. A. 132.

That both the municipality and the telephone company supposed that the city had the authority under its charter powers to permit the establishment of poles and the stringing of wires along its streets and alleys is clear from the exercise of the power by the mayor and common council and the action which the telephone company took under this ordinance in entering upon and constructing a telephone system at a cost of more than $100,000. That power to permit the use of highways and streets for such purposes must reside somewhere is obvious.

Primarily, it resides in the Legislature of each state, but, as is well known, is almost universally delegated to the municipality concerned. Reasons of convenience, as well as theories of local rule in strictly local matters, lead us to expect that the local government has the power 1o regulate the use of' its own streets. Did the local government of Owensboro usurp the legislative funcr tions of the state when it granted a street easement to the Cumberland Telephone & Telegraph Company? We think it did not.

The charter under which Owensboro was governed in 1889 was a special act of the Kentucky Legislature enacted in 1882. See Acts 1881-82, pp. 817-856, c. 461. It provides for a complete system of municipal government and includes no less than 120 sections, many of which are divided into subsections. Among the powers conferred by

section 10 is that of “control of the finances and all property, real and personal, belonging to the city,” and to enact ordinances for a large number of purposes later enumerated. Among the purposes for which it is given legislative power is “to regulate the streets, alleys and sidewalks, and all improvements and repairs thereof,” etc.

Unless this provision gave to the city the power to control its own streets by regulating the uses to which they might be put in the public interest, it was without any such power, aside from that which might be regarded as inherent in a corporation created for the purposes of a municipal government. That such a corporation can exercise only those powers which are either expressly granted or plainly implied from those so granted, or essential to the declared purposes and objects of the corporation, is well settled law. Detroit, etc., Ry. v. Detroit, 64 Fed. 628, 639, 12 C. C. A. 365, 26 L. R. A. 667.

But the use of a public street for the construction of poles to carry the wires of such a company is a use within the range of the purposes for which a street may be legitimately used, whether the fee be in the city or its interest be confined to an easement .in the land for street purposes. This seems to be the settled rule in Kentucky. Cumberland Telephone & Telegraph Company v. Avritt et al., 120 Ky. 34, 38, 85 S. W. 204.

In the case just cited, the Kentucky court -"¡Id that such a use was for a public and not a private purpose, and that the easement of the public included such a method of use, and imposed therefore no new burden upon the owner of the fee in the street. If, then, such a use is within the general objects and purposes to be served by the power of openingi and maintaining public streets, why is the grant of a right to so use the public streets

an act beyond the powers of the municipal legislature ? What power is delegated by the express power to “regulate” the streets and alleys of tire city? Manifestly, something was meant by the power to “regulate.” The word “regulate” imports the power to control the úse of the streets, and is indeed a word of wider import than “control” or the power to “consent” to an easement of way. In Detroit, etc., Ry. v. City of Detroit, 64 Fed. 628, 636, 12 C. C. A. 365, 26 L. R.

A. 667, this court held that if under the law of the state of Michigan a street railway was but an improved mode of street use, and therefore not an additional servitude which might be restrained by abutters, the general powers vested in the city of Detroit to “prescribe, control and regulate” the manner in which the city streets might be used was broad enough to permit the use of its streets for such a purpose by a companj'- having the requisite franchise of a street railwajr from the state. In

section 575 of Dillon on Municipal Corporations, the author, after stating that the usual powers of a general nature delegated to municipal corporations are not sufficient to confer upon them the right to authorize the presence of commercial steam railways upon the streets, says: “But it is otherwise as respects street railways; and tlie ordinary powers of municipal corporations are usually ample enough, in the absence of express legislation on the subject, to authorize them to permit or refuse to permit the use of streets within their limits'for such purposes.” In St. Louis v. Western Union Tel. Co., 149 U.

S. 465, 469, 13 Sup. Ct. 990, 992 (37 L. Ed. 810), the court, in discussing the power conferred upon St. Louis over its streets, said: “The word ‘regulate’ is one of broad import. It is the word used in the . federal Constitution to define 'the power of Congress over foreign and interstate commerce, and lie who reads the many opinions of this court will perceive how broad and comprehensive it has been held to be.

If the city gives a right to the use of the streets or public grounds, as it did by ordinance No. 11,G04, it simply regulates the use when it prescribes the terms and conditions upon which they shall be used. If it should see fit to construct an expensive boulevard in the city, and then limit (he use to vehicles of a certain land or exact a toll from all who use it, would that be other Than a regulation of the use?

And so it is only a matter of regulation of use when the city grants to the telegraph company the right to use exclusively a portion of the street, on condition of contributing something towards the expense it has been to in opening and improving the street.'’ So in 28 Cyc. p. 867, note 55, it is said: “Under the i>owcr to ‘regulate’ the use of streets, municipal authorities may permit their use for railroad tracks, poles, wires, pipes, etc., of a public nature not inconsistent with the public uses to which the streets were dedicated. State v. St. Louis, 161 Mo. 371, 61 S. W. 658; State v.

Murphy, 134 Mo. 548, 31 S. W. 784, 34 S. W. 51, 35 S. W. 1132, 34 L. R. A. 369, 56 Am. St. Rep. 515; Schopp v. St Louis, 117 Mo. 131, 22 S. W. 898, 20 L. R. A. 783; Pikes Peak-Power Co. v. Colorado Springs, 105 Fed. 1, 44 C. C. A. 33." See, also, Stale v. Jacksonville R. Co., 29 Fla. 590, 10 South. 590. Counsel for the appellants have cited East Tennessee Telephone Company v. City of Russellville, 106 Ky. 667, 51 S. W. 308, as supporting their claim that the general powers found in the charter oí Owensboro are not sufficient to sustain the ordinance in question.

The ordinance, there referred to as antedating the present Constitution of the state, granted an “exclusive” franchise. The court said of that exclusive franchise that: “At. that time the councilmen of the city had no legislative authority, ex-presa or implied, which authorized them to grant such a privilege to him.” The ordinance under which the Cumberland Telephone Company exercises its street easement expressly provides that the privilege shall not be exclusive.

Furthermore, in the Russellville Case, had the ordinance been valid, Clark, to whom the privilege was granted, had not started work, in good faith, before the adoption of the new Constitution. Hence his easement was not saved by the proviso found in

section 168. But aside from all this, it does not follow that because Russellville did not have power to grant a right or easement to a telephone company under its charter that Owensboro had not the power. The opinion does not show whether Russellville had the power to “regulate” its streets as Owensboro had. The case of Louisville Railway v. City of Louisville, 8 Bush (Ky.) 415. is not in point. The only question in the case was whether the city might require a street railway company to remove its rails in order to allow the city to repave the street.

The city railway was in the streets under an ordinance authorized by express legislative power. All that was said in reference to the insufficiency of a power to control and regulate, to support consent to occupation of streets by a street railway, was foreign to the case and not authoritative. Other decisions of the Kentucky court cited have been examined. None of them made prior to the inception of the rights here involved concerned the

interpretation of any such municipal power as is implied from the general power to “regulate” the use of streets, and none made since the rights of appellee arose are controlling upon this court in the exercise of its independent judgment in respect to rights which arose before such decisions. Neither do we find it necessary to determine the duration of the franchise. All of the allegations of the original bill which related to an ordinance subsequent to the rate ordinance which directed the removal of poles and wires from the streets were stricken out.

Whether the duration be presumed as for the life of the Cumberland Telephone Company, as seems to be the better rule (see Turnpike v. Illinois, 96 U. S. 63, 68, 24 L. Ed. 651, and Electric Light Company v. Wyandotte, 124 Mich. 43, 82 N. W. 821), or as in perpetuity, or ás a mere revocable license, is for the purpose of the present appeal immaterial. It was not a trespasser when this rate ordinance was passed and may challenge its validity. There was no error in the granting of the preliminary injunction, and the decree in that respect, is, accordingly, affirmed.