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Central Law Journal.
ST. LOUIS, MO., MARCH 4, 1921.
ENJOINING RATES BASED ON VALUATION OF PUBLIC UTILITIES AT ORIGINAL COST.
The courts are doing their best to destroy the Public Service Commissions of the country. Two lines of decisions are responsible for this unfortunate result. One holds that a Public Service Commission cannot announce a rate which would be admittedly confiscatory under present methods of management but which would contribute a fair and even a liberal return on the investment if the company put into effect certain economies and improved devices suggested by the Commission. The other is that that rate shall be calculated on present value and not upon original cost. Both these rules were followed in the recent decision of Judge Valkenburgh (W. D. Mo.) in the recent case of St. Joseph Ry. Light, Heat & Power Co., v. Public Service Commission of Missouri, 268 Fed. Rep. 267.
We would not attach much importance to this decision of a single federal judge if it were not also the viewpoint of one of the members of a Circuit Court of Appeals which recently handed down a decision requiring Public Service Commissions in evaluating the property of a public service corporation to take into consideration the recent high post-war prices. Joplin & Pittsburg Ry. Co. v. Public Service Commission of Missouri, 267 Fed. 584. In that case the court said:
"It appears upon the face of the report (of the commission) that great, if not undue, emphasis was laid upon the original cost of the property *** at a period greatly antedating that with which this investigation must deal; nor can we say that the present period of high prices is so temporary or abnormal that it may practically be disregarded in arriving at the value of complainant's properties. No one can say
what degree of depression may ultimately come, but it is reasonably certain that the cost of the properties now under consideration will never again approximate figures prevailing in the years before the world war."
It is such rash judicial declarations as this, which the present depression has shown to be so absurd, which discourage the scientific regulation of public utilities by public service commissioners trained by experience and study to handle the complicated machinery of public utility companies. The courts by their inexperience and obstinacy not infrequently nullify the good work of many of these commissions who are quicker than the courts to discover the subterfuges adopted by such companies, who frequently by increasing operating costs seek to justify higher rates after securing which they reduce their costs in order to reap a greater profit.
In the present case the complainant asked permission to raise its rate for supplying heat. The Commission named a rate which the complainant believed to be unfair and in this proceeding sought to enjoin the enforcement of such rate. The Commission based its rate on the original cost of the investment and on a more economical management, making suggestions which it required the company to put into effect. Both rulings of the Commission, the court held to be erroneous. On the question of the right of the Commission to take into consideration a change in the methods of operation, the court said:
"It may be stated in passing that a return of 5.4 per cent, which must provide also for surplus and contingencies, has not been regarded by courts and commissions generally as a reasonable return for a public utility, and still less so now under existing conditions. The commission apparently looks for some indefinite increase of this percentage through changed methods of operation suggested by the commission. This is, of course, entirely speculative, and the principle falls nearly, if not quite within the disapproval of the Supreme Court and of this court as constituting an invasion of the right of the company to conduct and man
age its own affairs subject to a proper exercise of the power of regulation.”
On the question of valuation Judge Valkenburgh declared that in his judgment "the great weight of authority is against the adoption of a standard of original cost as a controlling basis for determining present value. The present fair value is the object to be attained. Nor do I think it permissible substantially to restrict the inquiry to a period antedating present cost prices." We do not believe there is any objection to the position of the courts requiring Public Service Commissions to take into account increased costs and diminution in the value of money from time to time and to fix its rate with some regard for these facts. But this has to do with income based on an investment taken at its fair value which must necessarily be its original cost plus an amount sufficient to create a reserve to meet the cost of replacement, taking into consideration the life of the article to be replaced. To require the Commission to take present values as a basis would be to allow certain companies an unfair advantage and deprive the communities which granted the franchise of benefits they are clearly entitled to enjoy.
If the Public Service Commissions, moreover, are not allowed a considerable discretion in fixing rates based on an investigation of business methods, the result will be an era of extravagance and recklessness in public utility operations which will shock the conscience of the people and cast an unnecessary reproach upon the courts because of their unscientific handling of questions which only experts trained in the subjects of engineering, efficiency and economics are competent to settle. The courts should cease their frequent interference with Public Service Commissions and indulge the presumption that such commissions are as anxious as the courts, and possibly more competent than the courts, to fix rates for public utility service which will be at once fair to the company and to the public.
The decision of Judge Valkenburgh in the instant case is an example of inexperienced judicial meddling with matters with which courts should not regard themselves as being competent to deal. According to this decision a utility corporation can never lose money no matter how extravagant or careless it may be in its methods of doing business. The court will always see to it that in spite of its lax business methods the rate fixed shall always be sufficient to yield a fair income on the capital invested. Why, we may ask, should such companies be exempt from business failures due to causes which would make any other business fail? We were recently informed by a correspondent in an Eastern city, which we will not mention at this time, that there were two street car lines in that city. One was able to make money by charging 5 cents and the other claimed to be losing money at 7 cents per passenger. This correspondent declared the difference was one of wise business methods; and yet the Public Service Commission compelled both lines to charge 8 cents. Under such circumstances it is no wonder that in many states an increasing public resentment against the Public Service Commissions exists, and this feeling will not be allayed by decisions of the courts which interfere with the conscientious efforts of those Commissions which are making every possible effort to protect the public from cunning and often conscienceless speculators in public utilities.
We recommend to our federal judges the wise position taken by Justice Holmes in City of Louisville v. Cumberland Telephone & Telegraph Company, 32 Sup. Ct. 741, wherein he declared that in cases of doubt no rate should be held confiscatory until it has been tried out in practice under conditions imposed by rightful authority. The learned justice declared that "statements of net income" are "delusive" and that federal courts ought not to "swallow" all this "entertaining fiction" until it is demonstrated by actual practice. In that case the Supreme Court set aside an injunction
of a District Judge on the ground that the lower court had solemnly declared that under the new rate "the earnings of the company would be 5 10-17 per cent." This, the learned justice declared, was impossible of ascertainment and expressed the opinion that rates fixed by municipalities or other public bodies authorized to make rates, should be given a fair trial and not enjoined until proven by experience that the rate was unfair.
It is not our purpose to be unfair to public service companies or to approve any rule which would deprive them of their property without due process of law, but we do wish to see the courts deal more fairly with our municipal and state rate regulating bodies and not continually "fall" for the "buncombe" handed out by "povertystricken" public service corporations.
NOTES OF IMPORTANT DECISIONS.
THE PREVENTION OF THE USE OF NATURAL GAS FOR CARBON IS WITHIN THE POLICE POWER OF THE STATE.--It used to be said in the books that the owner of the fee simple title could do what he wished with his land so long as he did not create a nuisance. In other words, it was said that a fee simple owner could not be guilty of waste. This is not true today, according to the Supreme Court, since the State today has such an interest in the land comprising the territory of that State as to give to it practically, a reversionary interest in every fee simple title which entitles the State to enjoin that which may be regarded as a "public waste." Walls v. Midland Carbon Co., 41 Sup. Ct. Rep. 118.
The decision is a distinct limitation on the right of property and justifies under the police power a clear taking of property without due process of law. For in this case it was held that the enactment of Laws Wyo. 1919, c. 125, prohibiting the use of natural gas for the manufacture of carbon or other products, without using the heat generated thereby for other industrial or domestic purposes, which use was shown to require large volumes of gas for a small quantity of carbon, is within the police power of the state, to prevent waste of natural resources.
In this case the Midland Carbon Company was the owner of 1,200 acres of proven gas land, situated about 10 miles from Cowley, Wyo. The gas being valuable as a producer of "carbon black," a valuable commercial pigment, the company erected a plant costing $375,000 to extract the gasoline from the gas and then convert the gas into carbon black by burning. Through which process, of course, the heat is lost, which was contrary to the statute prohibiting the burning of natural gas without the heat being utilized for manufacturing or domestic purposes, if such gas well is located within ten miles of any incorporated town. The Midland Carbon Company sued out an injunction in the lower District Court against Walls, the Attorney General of Wyoming, to prohibit the enforcement of this law. In reversing this judgment and sustaining the Wyoming law, the Supreme Court, speaking through Justice McKenna, said:
"We have seen that the method of production of carbon black by natural gas is like holding a cold plate over a candle, or, as it is expressed by a witness, can only be produced by combus tion and the impinging of the flame on the metallic surface;' and there is great disproportion between the gas and the product, and necessarily there was presented to the judgment and policy of the state a comparison of utilities, which involved as well the preservation of the natural resources of the state and the equal participation in them by the people of the state; and the duration of this utility was for the consideration of the state, and we do not think that the state was required by the Constitution of the United States to stand idly by while these resources were disproportionately used, or used in such way that tended to their depletion, having no power of interference.
"The cited cases determine otherwise, and that as the state of Indiana could prevent the exhaustive use of gas in the production of oil, and as the state of New York could prevent the owner of land from using artificial means to obtain the carbonated waters under his land, the State of Wyoming has the same power to prevent the use of natural gas in the production of carbon black, the tendency of which is (it may be the inevitable effect of which is) the exhaustion of the supply of natural gas and the consequent detriment of other uses."
The Indiana and New York cases referred to by the Court are Ohio Oil Co. v. Indiana, 177 U. S. 190, 20 Sup. Ct. 576, and Lindsley v. Natural Carbonic Gas Company, 220 U. S. 61, 31 Sup. Ct. 337. In the Ohio Oil Company case the Court held that a statute of Indiana which prohibited one who controlled a gas well to permit the gas to escape for a longer period than two days was constitutional. In that case the defendant claimed that it owned everything beneath the surface of the soil between parallel lines, that it desired to make use of
the oil only and that it could not get the oil without allowing the gas to escape. The Court, however, refused to allow this contention on the ground that under the law of Indiana the escape of natural gas constituted a species of public "waste." In this case the rule was confined to gas since gas, like carbonated waters in the New York case, was from its fugitive character a common heritage of society and that the waste of it by one injured the rights of others and of society.
Confining these decisions to natural gas, oil, and underground waters and other subjects of property which like ferae naturae are only the property of the owner after capture we are prepared to say that these decisions are justified, since these substances are not real property in the sense of soil and minerals in place. In fact, the only right of property in such things is the exclusive right of capture. Thus in the case of fish, a riparian owner has the right to capture fish, but he can be restrained from using dynamite even on his own premises which would result in killing more fish than he needed and in thus wasting a public heritage. In oil, gas and underground waters, as in the case of ferae naturae, the public has such an interest that their wanton destruction is an impairment of the rights of the general public in the nature of public waste.
THE STATE'S PREROGATIVE RIGHT OF PRIORITY IN PAYMENT OF TAXES OVER UNSECURED CREDITORS.-When a state by general statute enacts the common law of England it grants to its government all the prerogatives of the British crown so far as applicable. Among these prerogatives is that of priority over all subjects for payment out of the debtor's property of all debts due it. This priority could be defeated only through the passing of title to the debtor's property (by absolute conveyance or mortgage) before the sovereign sought to enforce his right.
The Supreme Court of the United States has just upheld this prerogative in the recent case of Marshall v. People of New York, 41 Sup. Ct. 143. In that case the State sought priority of payment out of the assets of a receivership for the payment of unpaid license fees. The District Court held that the State was not entitled to priority until a levy was made unless the statute imposing the tax provided for a lien prior thereto. The State insisted that under its prerogative right, derived from the Common law, it was entitled to priority over unsecured creditors for all taxes. In sustaining this contention the Court said:
"The state's right to be paid out of the assets prior to other creditors does not, as pointed out in re Tyler, supra (quoting Greeley v. Provi dent Savings Bank, 98 Mo. 458, 11 S. W. 980), arise from an express lien on the assets existing at the time they passed into the receiver's hands. State v. Rowse, 49 Mo. 586, 592; George v. St. Louis Cable & Western Railway Co. (C. C.) 44 Fed. 117, 118; Hamilton v. David C. Beggs Co. (C. C.) 171 Fed. 157; Coy v. Title Guarantee & Trust Co. (D. C.) 212 Fed. 520, 523; Id., 220 Fed. 90, 135 C. C. A. 58, L. R. A. 1915E, 211. The right of priority has been likened to an equitable lien. State v. Rowse. supra. The analogous preference in payment given to claims for labor by state statutes, and to which the Bankruptcy Act gives priority. have been described as being 'tantamount' to a lien. In re Laird, 109 Fed. 550, 555, 48 C. C. A. 538; In re Bennett, 153 Fed. 673, 677, 82 C. C. A. 531. The priority is a lien in the broad sense of that term which includes 'those preferred or privileged claims given by statute or by admiralty law.' 2 Bouvier, Law Dict. (15th Ed. 1883) 88. The prerogative right of the state resembles the privilege accorded by the civil law of Louisiana to certain classes of debts which it was assumed in Burden Central Sugar Refining Co. v. Payne, 167 U. S. 127, 17 Sup. Ct. 754, 42 L. Ed. 105, would be enforced against property in the custody of a receiver appointed by a federal court. The fact that the right rests on the common law independently of any stat ute, does not, of course, affect the right of enforcement in the federal courts."
INJURIES ARISING OUT OF AND IN THE COURSE OF THE EMPLOYMENTI-GENERAL CONSID
Introductory-It is attempted in the present article to state and illustrate the proper principles of law involved in determining whether or not a given injury was due to a danger having its rise in the employment in question. This article will be followed by three articles dealing with more specific questions which are constantly arising under this provision of the workmen's compensation statutes.
The courts endeavor to give to the Workmen's Compensation Acts a broad and enlightened construction, to the end that they may accomplish to the fullest extent their beneficent purpose. However, this purpose is to compensate for industrial injuries, injuries which grow out of or are incidental to the employment, and which occur to em
ployees while they are in the pursuit of their employment-"in the course of the employ
The most customary descriptive phrase of such injuries used in the Compensation Acts is, "arising out of and in the course of the employment."
The causative danger must, therefore, be peculiar to the work or employment, and not common to the neighborhood; that is, it must exist or arise from the industry carried on. It need not be peculiar to the particular industry, and it may exist in one place where the industry is carried on and not in any other place where it is conducted, but it must exist or arise by reason of the industry, however it is conducted. And the injury must occur while the employee is performing service growing out of and incidental to the employment.1
"Out of" and "in the course of" distinguished and explained In the phrase
"arising out of and in the course of the employment," the words "arising out of" and the words "in the course of" are used conjunctively, and in order that an injury. be compensable, both these conditions must exist. It is not sufficient that the accident occur in the course of the employment, but the causative danger must arise out of it.2 The words "arising out of" refer to the origin or cause of the accident, and are descriptive of its character; while the words "in the course of" refer to the time, place and circumstances of the accident.3
(1) McNichols Case, 215 Mass. 497, 102 N. E. 697, L. R. A. 1916A 306, 4 N. C. C. A. 522; Federal Rubber Mfg. Co. v. Havolic, 162 Wis. 341, 156 N. W. 143, L. R. A. 1916D 968; Hoenig v. Industrial Com'n, 159 Wis. 646, 150 N. W. 996, L. R. A. 1916A 339, 8 N. C. C. A. 192.
(2) Mueller Constr. Co. v. Industrial Board. 283 I 148, 118 N. E. 1028, 1 W. C. L. J. 943; Hopkins v. Michigan Sugar Co., 184 Mich. 87, 150 N. W. 325, 10 N. C. C. A. 345. L. R. A. 1916A 10. An injury may be received in the course of the employment, and still have no causal onnection with it, so that it can be said to arise out of it. State ex rel. v. District Court.
129 Minn. 176, 151 N. W. 912. (3) Mueller Constr. Co. v. Industrial Board, 283 II. 148, 118 N. E. 1028, 1 W. C. L. J. 943; Hopkins v. Michigan Sugar Co., 184 Mich. 87, 150 N. W. 325, 10 N. C. C. A. 345, L. R. A. 1916A 310: Hollenbach Co. V. Hollenbach, Ky., 204 W. 152, 16 N. C. C. A. 879.
"By the use of these words it was not the intention of the legislature to make the employer an insurer against all accidental injuries which might happen to an employee while in the course of the employment, but only such injuries arising from or growing out of the risks peculiar to the nature of the work in the scope of the workman's employment or incidental to such employment, and accidents in which it is possible to trace the injury to some risk or hazard to which the employee is exposed in a special degree by reason of such employment."4
If there is apparent to the rational mind, upon consideration of all the circumstances, a causal connection between the conditions under which the work is required to be performed and the resulting injury, then the injury may be said to arise out of the employment.
Under this test, if the injury can be seen to have followed as a natural incident of the work and to have been contemplated by a reasonable person familiar with the whole situation as a result of the exposure occasioned by the nature of the employment, then it arises out of the employment. This excludes an injury which cannot fairly be traced to the employment as a contributing proximate cause and which comes from a hazard to which the workmen would have been equally exposed apart from the employment.
An accident arises in the course of the employment if it takes place while the employee is doing what a man so employed may reasonably do within a time during which he is employed and at a place where he may reasonably be during that time to do such thing."
(4) Mueller Constr. Co. v. Industrial Board, 283 Ill. 148, 152, 118 N. E. 1028, 1 W. C. L. J. 943. (5) Mueller Constr. Co. v. Industrial Board, 283 III. 148, 118 N. E. 1028, 1 W. C. L. J. 943.
(6) Mueller Constr. Co. v. Industrial Board, 283 Ill. 148, 118 N. E. 1028, 1 W. C. L. J. 943; McNichol's Case, 215 Mass. 497, 102 N. E. 697, L. R. A. 1916A 306; Milliken's Case, 216 Mass. 293, 103 N. E. 898, L. R. A. 1916A 337.
(7) Mueller Constr. Co. v. Industrial Board, 283 Ill. 148, 118 N. E. 1028, 1 W. C. L. J. 943; Dietzen Co. v. Industrial Board. 279 Ill. 11, 116 N. E. 684; Griffith v. Cole Bros., Ia., 165 N. W. 577, 1 W. C. L. J. 368; Feda v. Cudahy Pkg. Co., Neb., 166 N. W. 190, 1 W. C. L. J. 649; Hollen