This suit was brought by St. Joseph Stock Yards Company to restrain the enforcement of an order of the Secretary of Agriculture fixing maximum rates for the Company's services. The District Court, composed of three judges, dismissed the bill of complaint, 11 F.Supp. 322, and appeal lies directly to this Court. 7 U.S.C. 217; 28 U.S.C. 47.
In October, 1929, the Secretary of Agriculture initiated a general inquiry into the reasonableness of appellant's rates. After hearing, the Secretary prescribed maximum rates which were enjoined by the District Court. St. Joseph Stock Yards Co. v. United States, 58 F.2d 290. The Secretary reopened the proceeding and hearing was had in 1933. While the matter was under consideration, appellant filed in February, 1934, a petition for a further hearing. On May 4, 1934, the Secretary denied the petition and made the order now in question.
The validity of the provisions of the Packers and Stockyards Act, 1921 (42 Stat. 159, 7 U.S.C. 181-229) authorizing the Secretary of Agriculture to prescribe maximum charges for the services of stock yards has been sustained. Stafford v. Wallace, 258 U.S. 495; Tagg Bros. & Moorhead
First — The Secretary's findings. — The findings are elaborate. They include detailed findings with respect to the services rendered by appellant and its rates, the used and useful character of appellant's property, the valuation of used and useful land, the value of appellant's structures on the basis of cost of reproduction new less depreciation, working capital, going concern value, fair value on the basis of the facts found, fair rate of return, reasonable operating expenses (including repairs, depreciation and taxes), necessary revenue and volume of business. The Secretary found that the existing rates produced revenues in excess of those necessary to pay reasonable expenses and afford a fair return; that "the schedule of rates and charges now in effect is unreasonable and unjustly discriminatory."
As a guide to his determination of reasonable rates, the Secretary caused an analysis to be made of the books and records of the appellant covering the six-year period from 1927 to 1932. He reached his conclusion in the light of that evidence. Appellant contends that, as a prerequisite to a reduction of rates, it was necessary for the Secretary to find that the rates were unreasonable "at the time of the hearing," and that there were no findings to support such a conclusion with respect to the year 1932, the year immediately preceding the hearing. But in determining whether the existing rates were unreasonable, the Secretary was not confined to evidence as to
Second. — The refusal of the Secretary to reopen the Proceeding. — The hearing was closed on February 16, 1933. In the following January, a copy of the proposed order was transmitted to counsel for appellant and opportunity was given to file exceptions. Numerous exceptions were filed and at the same time (February, 1934) appellant asked for a further hearing upon the ground that there had been such a serious change in conditions affecting the value of the Company's property, its income, and the probable receipts of live stock and expenses of its yards, that the record no longer fairly reflected these matters. The application pointed to the Agricultural Adjustment Act of May 12, 1933, the National Industrial Recovery Act of June 16, 1933, and the Gold Reserve Act of January 30, 1934, — all as producing changes of which account should be taken. Appellant also alleged that its books and records were available to give the complete results of its operations for the year 1933, which showed a lower net operating income than that stated in the Secretary's
The decree of the District Court was filed on May 1, 1935. Despite the opportunity which the suit afforded, the record shows no endeavor on the part of appellant to prove any additional facts as to the conditions which obtained in 1933, or as to its operations in that year or at any time down to the hearing in the District Court, or as to any matter outside the record which had been made before the Secretary. The court concluded that the effect of the legislation of 1933 was speculative; that the difference between the amount which appellant claimed would have been earned under the prescribed rates, if applied to the business of 1933, and the amount found by
Third. — The Scope of Judicial review upon the issue of confiscation. — The question is not one of fixing a reasonable charge for a mere personal service subject to regulation under the commerce power, as in the case of market agencies employing but little capital. See Tagg Bros. & Moorhead v. United States, supra, pp. 438, 439. Here, a large capital investment is involved and the main issue is as to the alleged confiscation of that investment.
A preliminary question is presented by the contention that the District Court, in the presence of this issue. failed to exercise its independent judgment upon the facts. 11 F. Supp. pp. 326-328. See Ohio Valley Water Co. v. Ben Avon Borough, 253 U.S. 287, 289; Prendergast v. New York Telephone Co., 262 U.S. 43, 50; Bluefield Water Works Co. v. Public Service Comm'n, 262 U.S. 679, 689; United Railways v. West, 280 U.S. 234, 251; Tagg Bros. & Moorhead v. United States, supra, pp. 443, 444; Phillips v. Commissioner, 283 U.S. 589, 600; Crowell v. Benson, 285 U.S. 22, 60; State Corporation Comm'n v. Wichita Gas
In view, however, of the discussion in the court's opinion,
But the Constitution fixes limits to the rate-making power by prohibiting the deprivation of property without due process of law or the taking of private property for public use without just compensation. When the legislature acts directly, its action is subject to judicial scrutiny and determination in order to prevent the transgression of these limits of power. The legislature cannot preclude that scrutiny and determination by any declaration or legislative finding. Legislative declaration or finding is necessarily subject to independent judicial review upon the facts and the law by courts of competent jurisdiction
A cognate question was considered in Manufacturers Ry. Co. v. United States, 246 U.S. 457, 470, 488-490. There, appellees insisted that the finding of the Interstate Commerce Commission upon the subject of confiscation was conclusive, or at least that it was not subject to be attacked upon evidence not presented to the Commission. We did not sustain that contention. Nevertheless, we
As the District Court, despite its observations as to the scope of review, apparently did pass upon the evidence, making findings of its own and adopting findings of the Secretary, we do not think it necessary to remand the cause for further consideration and we turn to the other questions presented by the appeal.
Fourth. — Valuation of property, income, expenses, and fair return. — The Secretary found the fair value of appellant's
Elaborate briefs have discussed a host of details in attacking and defending these estimates. While we have examined the evidence and appellant's contentions on each point, it is impracticable to attempt in this opinion to state more than our general conclusions.
1. — Property values. — For the purpose of demonstrating that its rates were not unreasonable prior to 1932, appellant states that it adopts the findings of the Secretary in his first decision as to the total value of its property. That value was then fixed at $3,382,148, to which appellant adds the value of certain additional land now found to be used and useful, $329,163, giving a total value, which appellant says is applicable to the years 1927-1931, of $3,711,311. But the first hearing was begun and concluded in December, 1929, and while the order was not promulgated until July 20, 1931, it was predicated, as the District Court said in reviewing that order, upon the value of the property as of the year 1928 and the volume of business during that year. St. Joseph Stockyards Co. v. United States, 58 F. (2d) p. 291. Appellant insisted in its bill of complaint in the first suit that the Secretary's denial of its request for reopening was arbitrary, as economic conditions had materially changed since 1928. The District Court, applying the principle of our decision in Atchison, T. & S.F. Ry. Co. v. United States, 284 U.S. 248,
Appellant provides the physical facilities for a market and renders various services in connection with livestock. It supplies office buildings, docks for loading and unloading, "chute pens," "sales pens" and alleys, and the various appurtenances for the proper care of livestock that are essential to its service in warehousing. The property thus consists of land and various structures.
Value of land. — The Secretary found that of the land owned by appellant there were 4,410,361 square feet used and useful in its stockyards services. The District Court added 122,041 square feet. 11 F.Supp. 336. Appellant complains, on this appeal, of the exclusion of the property known as the "Transit House" and of the value assigned to the property which was included in the rate base.
The "Transit House" is a commercial hotel (occupying 15,805 square feet of land) with a limited patronage supplied by shippers and drivers of trucks. Appellant claims that the land and building are worth $120,143. Appellant points to the ruling of the Secretary in the first proceeding that the hotel should be considered a part of the used and useful property in the stockyards service. In his second decision, now under review, the Secretary found that the hotel was constructed many years ago when transportation facilities between the stockyard area and the "main-uptown" area were limited; that at the time of the first hearing the hotel was leased for a rental
The District Court held that it would have to be shown very clearly that the business of the yards would be materially affected by the absence of a nearby hotel before it could be said that its maintenance was so related to the stockyards business as to be properly included in fixing the rate for yard services. The court said that there was no such showing. We take the same view.
The land found to be used and useful is divided into several zones. Appellant assigns error in valuation only in the case of Zone A, in which, however, 70 per cent. of the used and useful land, or 3,003,973 square feet, is included. The Secretary valued this land at 16 cents per square foot, or at $480,635. Appellant contends that it is worth at least $275,164 more, which would be at the rate of about 25 cents a square foot.
Expert witnesses for both parties testified at length. At the first hearing, in 1929, two witnesses for appellant valued the land in Zone A at 30 cents per square foot. The witness for the Government valued it at 35 cents, predicated upon its particular value for stockyard use; otherwise at 20 cents. Before the second hearing, in 1933,
All the witnesses were highly qualified experts. Their valuations were of the naked land, without improvements. The three witnesses at the second hearing had collaborated in examining about 147 different transactions relating to property in the general vicinity, but they reached independent conclusions. The Government's witness attached special weight to five sales, or groups of sales, made at different times from 1918 to 1930 at prices as low or lower than the valuation he fixed. Appellant points to other transfers at other locations at higher prices. Manifestly these transactions involved collateral inquiries and in the end simply afforded information of varying significance to aid the forming of an expert judgment. Appellant recognizes the impracticability of attempting to analyze "the rather involved transfers and locations in an attempt to determine the truth as between the land appraisers." Accordingly, appellant seeks to demonstrate that the Secretary's finding is vitiated by what is asserted to be his reliance upon an erroneous analysis of a sale by appellant, in 1929, of the entire capital stock of a terminal belt railway company which served the stockyards and the adjacent industrial area. It is said that none of the expert witnesses based their appraisals upon that transaction. We think that appellant overestimates the relative weight given to it by the Secretary and fails to take proper account of the effect of its use. The Secretary found that the valuation by the Government's witness at 11 1/2 cents per square foot was "well supported by analysis of transactions in adjacent
The weight to be accorded to the testimony of the experts cannot be determined without understanding their approach to the question and the criteria which governed their estimates. The testimony of appellant's witnesses shows quite clearly that they proceeded, in part at least, upon an erroneous basis. The Packers and Stockyards Act treats the various stockyards of the country "as great national public utilities to promote the flow of commerce from the ranges and farms of the West to the consumers in the East." It assumes that "they conduct a business affected by a public use of a national character and subject to national regulation." Stafford v. Wallace, supra, p. 516. Appellant, conducting such a business, was entitled to be allowed in the fixing of its rates the fair market value of its land for all available uses and purposes, which would include any element of value that it might have by reason of special adaptation to particular uses. But it was not entitled to an increase over that fair market value by virtue of the public use. Minnesota Rate Cases, 230 U.S. 352, 451, 455; Clark's Ferry Bridge Co. v. Public Service Comm'n, supra, p. 238. We think that appellant's witnesses failed to give proper heed to this principle. Their testimony indicates that they did not consider simply the availability of the land for all uses and purposes, including its availability for a stockyard, but attached special weight to the actual and profitable public
The point is illustrated by the difference in their estimate of the value of the land in Zone B. That is a tract of about seventeen acres adjoining Zone A. One of appellant's witnesses described the land in Zone B as "of the same character" as that occupied by appellant's hog sheds and that it had equal railroad service. It was said to adjoin that portion of appellant's land which "is actively used in the conduct of its business." The other witness for appellant said that "with respect to topography, rail service and accessibility this ground is much the same as Zone A, which lies immediately to the north." But the first witness placed a value of 13 cents per square foot on the land in Zone B as compared with 26 cents per square foot on that of Zone A, and the second witness valued the former at 15 cents per square foot and the latter at 35 cents. The first witness said that Zone B was not valued as high as Zone A because "it is not actually in use" by appellant "for the immediate conduct of its business but is in waiting"; that it "had not been brought into its highest and best use," but when it had been brought into that use, it would "be worth just as much as the land in tract A." When we consider that the question was of the fair market value of the bare land in the light of its availability, but without improvements (which were separately valued), the erroneous theory on which appellant's witnesses valued Zone A is apparent. The Secretary fixed the value of the land in Zone A and the similarly available land in Zone B at the same amount.
Our conclusion is that the evidence falls short of that convincing character which would justify us in disturbing; the Secretary's finding.
Appellant presents no contention as to this valuation but contests the amount deducted by the Secretary for existing deprecation. He took 76.04 per cent. of the cost of reproduction new as representing the depreciated value of the structures and thus his deduction amounted to $597,570. That was close to the estimate of the Government's engineer. Appellant's engineer testified that the present condition was 89 per cent.
Appellant's contention is that there was no evidence to support the Secretary's deduction for existing depreciation and that the only legal evidence on this point was that of appellant's witness. The precise criticism is that the percentage used by the Government's engineer in his testimony was based on an average of percentages given by five of his assistants, none of whom testified. It appears, however, that the Government's witness had personally inspected the property in preparation for the first hearing, at which he testified as to the result of the inspection and the methods he adopted. At the second hearing he testified that he followed the principles of his first
The remaining contention affecting the rate base is in relation to going concern value.
Going concern value. — Appellant's witness, who testified at length at both hearings, followed an elaborate method involving assumptions and speculations of the sort which fail to furnish a sound basis for computing a separate allowance for that element. Compare Galveston Electric Co. v. Galveston, 258 U.S. 388, 394; Los Angles
Appellant contends, however, that the Secretary and the District Court erred in saying that appellant's claim is based wholly upon the testimony of this witness. Appellant strongly relies upon the fact that on the first hearing the Secretary made an allowance of $300,000 for
The Secretary was not estopped or controlled by the ruling in the first proceeding. He was entitled, and it was his duty, to re-examine the case on the second hearing and to reach the conclusion which the evidence justified. In that process, he in effect overruled the earlier allowance and left it without force. The question remains one of evidence. The Secretary recognized the fact that there is an element of value in an "established plant doing business and earning money over one not thus advanced." But he thought that in the rate base he had fixed there was an adequate allowance for that element and that it was "inextricably interwoven with other values." The Government's argument in support of this view points to the overheads allowed and emphasizes the fact that the Secretary's method took as his basis reproduction cost "unmodified by considerations of actual or historical cost." It is urged that the Secretary in fact made a liberal valuation which gave a margin large enough to cover the value inherent in a going concern.
We think it unnecessary to review that argument in detail. The decisive point on this appeal is that in seeking a separate allowance for going concern value, in addition to the value of the physical plant as found, and in maintaining that the property was being confiscated because of the absence of that allowance, it was incumbent upon appellant to furnish convincing proof. That proof we do not find in the record.
On December 31, 1932, appellant had accumulated a depreciation reserve of $1,771,063. This reserve had been accumulated since 1914. In an appraisal made by the American Appraisal Company in 1922, on the basis of reproduction new, the then existing depreciation was estimated at $621,171 and a reserve of that amount was then provided by a surplus adjustment. From that time until 1932 appellant set aside from $120,000 to $130,000 annually making a total provided for depreciation since 1914 of about $1,887,000. In that entire period, by the computation of the Government which does not seem to be
Whatever may be said of this or that detail, it is quite clear that the amounts carried annually to the depreciation reserve were excessive. The Government's analysis tends to show that an average of approximately $47,000 annually would have been sufficient to take care of the repairs, maintenance and retirements during the period for which the financial history of appellant is available, and that the Secretary's allowance of $80,000 for both repairs and depreciation reserve is about $33,000 in excess of the amount shown to be actually required on the basis of that experience.
In the light of appellant's practice in accumulating an excessive reserve by its charges to operating expenses, a close examination was called for and a considerable deduction in the amount of such allowances in fixing reasonable rates was necessary. We have had occasion recently to discuss the general question of depreciation reserves at some length (Lindheimer v. Illinois Telephone
Income. — The Secretary allowed seven per cent. as the rate of return, and appellant presents no complaint as to that. Wabash Valley Electric Co. v. Young, 287 U.S. 488, 502; Los Angeles Gas Corp. v. Railroad Commission, supra, p. 319. Applying the rates he fixed, the Secretary estimated the annual gross income at $621,831, and operating expenses, including the contribution to depreciation reserve as above stated, at $426,267, leaving a net balance of $195,564, slightly over seven per cent. on the fair value of the property.
Appellant's revenue is derived from yardage charges, from the sale of feed and bedding, and from special services. The Secretary made no change in the charges for miscellaneous services, such as loading and unloading, dipping and spraying, cleaning and disinfecting, etc. The revenue from these services was estimated at $90,500. The profit on sales of feed and bedding was estimated at $82,800. The yardage revenues are derived from charges (1) for yarding livestock arriving fresh from the country, (2) for yarding livestock resold or reweighed for purpose
It appears that formerly the feed lots were leased and on the first hearing before the Secretary their value was excluded from the rate base. After 1930 they were operated under appellant's supervision and appellant filed its rates for their use. Accordingly, on the second hearing, the Secretary found that the feed lots were used and useful and included them in the rate base. The principal "feeding business" is the feeding of sheep. The increase in rates, for which the Secretary provided, was from 15 cents and 35 cents per head for cattle (depending upon the use of sheds and other enclosures) to 60 cents, and from 5 cents per head for hogs and sheep to 38 cents. Despite the increase, appellant contends that the order as to feed lot charges is void; that there were no findings to support it and no true hearing; that the evidence did not sustain the Secretary's conclusions, and that although the order was based upon a finding of unjust discrimination, there was no alternative permitted in removing it.
It is manifest, however, that when the feed lots were brought into the rate base, it was appropriate that the reasonableness of the charges for their use should be considered. This was part of the subject before the Secretary. In the order for reopening the proceeding, the Secretary had stated that a general inquiry would be made "into the reasonableness and lawfulness of each and every rate and charge . . . stated in any and all schedules of rates and charges filed by respondent" (appellant here). The Secretary found that "under the existing schedule shippers of livestock who consign their animals to commission men."
The reductions by the Secretary were in the Charges for yardage services. The Secretary made different reductions for rail and truck shipments, and this differentiation is challenged. For example, under the existing rates, appellant's charge was 35 cents per head of cattle received by rail and 40 cents per head received by truck. The Secretary reduced the charge to 27 cents as to the former and to 35 cents as to the latter. There are differences in the two sorts of receipts in that in the one case there is a loading and unloading charge and, as detailed testimony showed, cattle received by rail consumed, as a rule, more feed than those received by truck. The evidence disclosed the services rendered in the case of cattle and other livestock, and the question is simply as to a fair determination in the light of all the circumstances. If the rates as prescribed were not confiscatory, the classification of rates was clearly within the Secretary's statutory authority.
Appellant criticises the Secretary's estimates and insists that the prescribed rates would have been confiscatory during the entire period which the Secretary considered, making separate calculations for the period 1927 to 1931, and for 1932. The Government in turn points to necessary corrections in appellant's statements both of income and expenses and with those adjustments shows that under the prescribed rates appellant would have had an average yearly net return, for 1927 to 1931, of approximately
Appellant seeks to buttress its case by reference to results of operations in later years. Its brief attempts to present the transactions of 1935. But there is no evidence properly before us save that contained in the record before the Secretary. Upon that record appellant stood in the District Court, and upon that record appellant must stand here. The hearing before the Secretary, held in 1933, necessarily proceeded upon an examination of the operations of the preceding years. The Secretary examined the course of business for a period sufficiently long to afford a basis for a reasonable estimate with due regard to the years preceding, and those during, the depression. His selection, and the use he made of it, is not open to any sound criticism. If the operations of later years show that the rates have become unreasonably low, appellant has its remedy. It has had, and still has, opportunity to apply to the Secretary of Agriculture for a modification of the prescribed charges. The only request for reopening the proceeding or for an adjustment of the rates, so far as now appears, was made early in 1934 prior to the order in question and before any adequate test of the rates.
We conclude that the appellant has failed to prove confiscation, and the decree of the District Court is
MR. JUSTICE ROBERTS concurs in the result.
I agree that the judgment of the District Court should be affirmed; but I do so on a different ground.
The question on which I differ was put thus by the District Court: "If in a judicial review of an order of the Secretary his findings supported by substantial evidence are conclusive upon the reviewing court in every case where a constitutional issue is not involved, why are they not conclusive when a constitutional issue is involved? Is there anything in the Constitution which expressly makes findings of fact by a jury of inexperienced laymen, if supported by substantial evidence, conclusive, that prohibits Congress making findings of fact by a highly trained and especially qualified administrative agency likewise conclusive, provided they are supported by substantial evidence?" 11 F.Supp. 322, 327.
Like the lower court, I think no good reason exists for making special exception of issues of fact bearing upon a constitutional right. The inexorable safeguard which the due process clause assures is not that a court may examine whether the findings as to value or income are correct, but that the trier of the facts shall be an impartial tribunal; that no finding shall be made except upon due notice and opportunity to be heard; that the procedure at the hearing shall be consistent with the essentials of a fair trial; and that it shall be conducted in such a way that there will be opportunity for a court to determine whether the applicable rules of law and procedure were observed.
Suits to restrain or annul an order of the Secretary of Agriculture are governed by the provision which Congress has made for reviewing orders of the Interstate Commerce Commission. Tagg Bros. & Moorhead v. United States, 280 U.S. 420, 432-433, 442-444. That provision does not, in my opinion, permit a district court
First. An order of the Secretary may, of course, be set aside for violation of the due process clause by prescribing rates which, on the facts found, are confiscatory. For the order of an administrative tribunal may be set aside for any error of law, substantive or procedural. Interstate Commerce Comm'n v. Union Pacific R. Co., 222 U.S. 541, 547. Moreover, where what purports to be a finding upon a question of fact is so involved with and dependent upon questions of law as to be in substance and effect a decision of the latter, the Court will, in order to decide the legal question, examine the entire record, including the evidence if necessary, as it does in cases coming from the highest court of a State. Compare Kansas City Southern Ry. v. Albers Commission Co., 223 U.S. 573, 591; Cedar Rapids Gas Light Co. v. Cedar Rapids, 223 U.S. 655, 668-669. It may set aside an order for lack of findings necessary to support it, Florida v. United States, 282 U.S. 194, 212-215; or because findings were made without evidence to support them, New England Divisions Case, 261 U.S. 184, 203; Chicago Junction Case, 264 U.S. 258, 262-266; or because the evidence was such "that it was impossible for a fair-minded board to come to the result which was reached," San Diego Land & Town Co. v. Jasper, 189 U.S. 439, 442; or because the
Second. The contention of the appellant is that the Secretary of Agriculture erred in making findings on which rest his conclusion that the rates prescribed are compensatory. The matters here in controversy are questions of fact — subsidiary issues, about 63 in number, bearing upon two main issues of fact: What is the "value" of the property used and useful in the business What will be the income earned on that valuation if the prescribed rates are put into force?
By the Packers and Stockyards Act, the duty of investigating and determining the facts was committed by Congress to the Secretary. It was not disputed that ordinarily his findings made upon substantial evidence in properly conducted proceedings are conclusive. Tagg Brothers & Moorhead v. United States, 280 U.S. 420, 444. This Court has consistently declared in cases arising under the Interstate Commerce Act, that to "consider the weight of the evidence is beyond our province," Western Paper Makers' Chemical Co. v. United States, 271 U.S. 268, 271; Chicago, R.I. & P. Ry. v. United
The cases are numerous in which the attempt was made to induce this Court to annul an order of the Commission for error of fact; but in every case relief was denied. See St. Louis & O'Fallon Ry. v. United States, 279 U.S. 461, 493, n. 8. In this case also, the Court refuses to set aside the order. But it declares that an exception to the rule of finality must be made, because a constitutional issue is involved; and that the Court, weighing the evidence, must in its independent judgment determine the correctness of the findings of fact made by the Secretary. That view finds support in Ohio Valley Water Co. v. Ben Avon Borough, 253 U.S. 287, and in general statements made in Manufacturers Ry. Co. v. United States, 246 U.S. 457, 488-490, and other cases; but it is inconsistent with a multitude of decisions in analogous cases hereafter discussed.
Third. The Fifth Amendment, like the Fourteenth, declares that property may not be taken without due process of law. But their is nothing in the text of the Constitution (including the Amendments) which tells the reader whether to constitute due process it is necessary that there be opportunity for a judicial review of the correctness of the findings of fact made by the Secretary of Agriculture concerning the value of this property or its net income. To learn what the procedure must be in a particular situation, in order to constitute due process, we
The first distinction is between issues of law and issues of fact. When dealing with constitutional rights (as distinguished from privileges accorded by the Government, United States v. Babcock, 250 U.S. 328, 331) there must be the opportunity of presenting in an appropriate proceeding, at some time, to some court, every question of law raised, whatever the nature of the right invoked or the status of him who claims it. The second distinction is between the right to liberty of person and other constitutional rights. Compare Phillips v. Commissioner, 283 U.S. 589, 596-597. A citizen who claims that his liberty is being infringed is entitled, upon habeas corpus, to the opportunity of a judicial determination of the facts. And, so highly is this liberty prized, that the opportunity must be accorded to any resident of the United States who claims to be a citizen. Compare Ng Fung Ho v. White, 259 U.S. 276, 282-285, with United States v. Ju Toy, 198 U.S. 253, and Tang Tun v. Edsell, 223 U.S. 673, 675. But a multitude of decisions tells us that when dealing with property a much more liberal rule applies. They show that due process of law does not always entitle an owner to have the correctness of findings of fact reviewed by a court; and that in deciding whether such review is required, "respect must be had to
Our decisions tell us specifically that the final ascertainment of the facts regarding value or income may be submitted by Congress, or state legislatures, to an administrative tribunal even where the constitutionality of the taking depends upon the value of the property or the amount of the net income. Thus:
(a) No taking of property by eminent domain is constitutional unless just compensation is paid. But in condemnation proceedings the value of the property, and hence the amount payable therefor, need not be determined by a court. "By the Constitution of the United States, the estimate of the just compensation for property taken for the public use under the right of eminent domain, is not required to be made by a jury; but may be entrusted by Congress to commissioners appointed by a court or by the executive, or to an inquest consisting of more or fewer men than an ordinary jury." Bauman v. Ross, 167 U.S. 548, 593. In Long Island Water Supply Co. v. Brooklyn, 166 U.S. 685, 695, it was said that "there is no denial of due process in making findings of fact by the triers of fact, whether commissioners or a jury, final as to such facts, and leaving open to the courts simply the inquiry as to whether there was any erroneous basis adopted by the triers in their appraisal, or other errors in their proceedings." In Crane v. Hahlo, 258 U.S. 142, 148, the Court said in applying the same rule to a statute which allowed a judicial review of the facts only in case of "lack of jurisdiction, or fraud, or wilful misconduct on the part of the members of the Board": "This
(b) Not taking of property by taxation is constitutional unless the exaction is laid according to value, income or other measure prescribed by law. But Congress has, with the sanction of this Court, broadly given finality to the determination by the Board of Tax Appeals of the facts concerning income. By its legislation the jurisdiction of courts is limited to deciding "whether the correct rule of law was applied to the facts found; and whether there was substantial evidence before the Board to support the findings made." Helvering v. Rankin, 295 U.S. 123, 131; Old Mission Portland Cement Co. v. Helvering, 293 U.S. 289, 294. Compare Chetham v. United States, 92 U.S. 85, 88-89. No court may pass upon the correctness in fact of any finding of the Board.
(c) The due process clause is not violated by giving in tariff acts finality to the valuations made by appraisers of imported merchandise belonging to American citizens. Hilton v. Merritt, 110 U.S. 97, 107. "It was certainly competent for Congress," said the Court in Passavant v. United States, 148 U.S. 214, 219, "to create this board of general appraisers, called `legislative referees' in an early case in this court, (Rankin v. Hoyt, 4 How. 327, 335) and not only invest them with authority to examine and decide upon the valuation of imported goods, when that question was properly submitted to them, but to declare that their decision `shall be final and conclusive as to the dutiable value of such merchandise against all parties interested therein.'"
(e) The due process clause is not violated by giving finality to assessments of value made for the purpose of ad valorem taxation, although in those proceedings the opportunity for a hearing is far less ample than under the statute here in question. Compare State Railroad Tax Cases, 92 U.S. 575, 610; Kentucky Railroad Tax Cases, 115 U.S. 321; King v. Mullins, 171 U.S. 404, 429-431.
As we said in San Diego Land & Town Co. v. Jasper, 189 U.S. 439, 446; "We do not sit as a general appellate board of revision for all rates and taxes in the United States"; and in Coulter v. Louisville & Nashville R. Co., 196 U.S. 599, 607: "Of course, no court would venture to intervene merely on the ground of a mistake of judgment on the part of the officer to whom the duty of assessment was entrusted by the law."
Answering the suggestion of possible error in the final action of a board in valuing and assessing railroad property, the Court said in Kentucky Railroad Tax Cases, 115 U.S. 321, 335: "Such possibilities are but the necessary imperfections of all human institutions, and do not admit of remedy; at least no revisory power to prevent or redress them enters into the judicial system, for, by the supposition, its administration is itself subject to the same imperfections." In Crane v. Hahlo, 258 U.S. 142, 148, the Court intimating that even judges may err in their determinations of fact, held that legislators might,
These cases show that in deciding when, and to what extent, finality may be given to an administrative finding of fact involving the taking of property, the Court has refused to be governed by a rigid rule. It has weighed the relative values of constitutional rights, the essentials of powers conferred, and the need of protecting both. It has noted the distinction between informal, summary administrative action based on ex parte casual inspection or unverified information, where no record is preserved of the evidence on which the official acted, and formal, deliberate quasi-judicial decisions of administrative tribunals based on findings of fact expressed in writing, and made after hearing evidence and argument under the sanctions and the safeguards attending judicial proceedings. It has considered the nature of the facts in issue, the character of the relevant evidence, the need in the business of government for prompt final decision. It has recognized that there is a limit to the capacity of judges; and that the magnitude of the task imposed upon them, if there be granted judicial review of the correctness of findings of such facts as value and income, may prevent prompt and faithful performance. It has borne in mind that even in judicial proceedings the finding of facts is left, by the Constitution, in large parte to laymen. It has enquired into the character of the administrative tribunal provided and the incidents of its procedure. Compare Humphrey's Executor v. United States, 295 U.S. 602, 628. And where that prescribed for the particular class of takings appeared "appropriate to the case, and just to the parties to be
Fourth. Congress concluded that to give finality to the findings of the Secretary of Agriculture of the facts as to value and income is essential to the effective administration of the Packers and Stockyards Act. The Ben Avon case, and the statements in Manufacturers Ry. Co. v. United States, and casual references in other cases, should not lead us to graft upon the rule discussed, and so widely applied to other takings, a disabling exception applicable to rate cases. In none of the rate cases relied upon was there any reason given for denying to Congress that power; nor was there mention of the many decisions in which the power to prescribe finality was upheld. In none was there noted the distinction between challenging the correctness of findings of fact on which rest the conclusion as to confiscation, and challenging the conclusion of law as to confiscation on facts found. Here, some reasons have been offered in support of making the exception; but no reason given seems to me sound.
(a) It is urged that since Congress did not, and could not, delegate to the Secretary authority to prescribe a confiscatory rate, the facts in issue are jurisdictional and, hence, the Court must have power to review them. But, as was said in Oklahoma Operating Co. v. Love, 252 U.S. 331, 336: "The challenge of a prescribed rate as being confiscatory raises a question not as to the scope of the Commission's authority but of the correctness of the exercise of its judgment." Therefore, Crowell v. Benson, 285 U.S. 22, has no application here.
(b) It is said that, since regulating rates is legislation, courts must have the same power to review facts which they possess in passing on the constitutionality of
Moreover, argument based on the analogy of the review of statutes fails to note the distinction between determinations of fact made in a quasi-judicial proceeding surrounded by all the safeguards which attend trails by a court, and assumptions, or conclusions, as to facts made by a legislature on information which lacks those safeguards. It fails to note also the subsidiary character of the issue involved in a finding of value or income; and that it is only as to these subsidiary issues that finality of the finding is asserted here.
The supremacy of law demands that there shall be opportunity to have some court decide whether an erroneous rule of law was applied; and whether the proceeding in which facts were adjudicated was conducted regularly. To that extent, the person asserting a right, whatever its source, should be entitled to the independent judgment of a court on the ultimate question of constitutionality. But supremacy of law does not demand that the correctness of every finding of fact to which the rule of law is to be applied shall be subject to review by a court. If it did, the power of courts to set aside findings of fact by an administrative tribunal would be broader than their power to set aside a jury's verdict. The Constitution contains no such command.
Fifth. The history of this case illustrates that regulation cannot be effective unless the legality of the rates prescribed may, if contested, be determined with reasonable promptness. Six and one-half years have elapsed since the Secretary of Agriculture concluded that the rates of this utility were so high as to justify enquiry into their reasonableness, and nearly two years since entry of his order prescribing the reduced rates. In the judgment of the lower court and of this Court the attack upon the order
The investigation of the Company's rates was ordered October 9, 1929. The hearing began December 2, 1929. All the subsidiary enquiries of fact commonly incident to applying the rule of Smyth v. Ames, 169 U.S. 466, were entered upon. After the hearing had closed, the Company sought to have it reopened for the admission of evidence showing how the changed conditions of business since 1929 would affect plaintiff's income and the net return on the property used. This application was refused by the Secretary; and he entered an order fixing maximum rates, which, on his valuation of the property and estimate of earnings, would have yielded a return of 7 1/2 per cent. if in effect in 1928. Thereupon, the Company filed a bill in the District Court to set aside the order on the ground that it would deprive petitioner of its property in violation of the due process clause. That court heard additional evidence, as well as receiving the record of the proceedings before the Secretary. It considered, but did not pass on, the merits. For it set aside the order on the ground that the Secretary should have acceded to the request to reopen the hearings. St. Joseph Stock Yards Co. v. United States, 58 F.2d 290. The new hearing was begun January 10, 1933 and did not close until February 16, 1933. Thereafter, the Secretary entered the order here under review; and the second suit followed which is here on appeal.
The magnitude of the task involved in a judicial reviews which requires a determination by the Court, in its independent judgment, of the correctness of the findings of fact as to value and income which the Secretary made, cannot be measured by looking alone at the volume of the evidence. The multiplicity of the issues, and the character of the evidence bearing on them respectively, impose a peculiar burden. The findings as numbered and lettered by the Secretary total 215. The number of determinations of fact bearing upon confiscation involved in these findings is, roughly, 250, as gathered from the 108-page opinion of the Secretary. To decide whether any one of these 250 determinations of fact alleged to be erroneous
(a) There is controversy as to the extent to which property owned by the Company is used or useful. That inquiry relates to 52 different items. The testimony and exhibits bearing upon this issue occupy 194 pages. On it there are approximately 50 findings. The correctness of only one of these is controverted here.
(b) There is controversy as to the value of the land. It consists of 60 different tracts. The testimony and exhibits bearing upon their value occupy 596 pages (the exhibits number 20). On this issue there are about 10 findings. The correctness of 3 is controverted here, dealing with the land in a single "zone."
(c) There is controversy as to the value of the structures. It deals with reproduction costs; it requires separate consideration of materials and labor, of overheads and depreciation. The testimony and exhibits occupy 629 pages (the exhibits number 12). On these issues there are some 40 findings. Those dealing with depreciation are controverted here.
(d) There is controversy as to going concern value. The testimony and exhibits on this issue occupy 113 pages. There Secretary decided that no separate allowance should be made. That conclusion is controverted here.
(e) There are controversies as to the estimated income, as to the expenses, and as to charges. The testimony and exhibits bearing upon them occupy, in the aggregate, 663 pages (the exhibits number 42). On these issues there are approximately 140 determinations. Of these about 50 seem to be controverted here.
This case, like a laboratory experiment, presents the task of rate-regulation in its simplest form. The rates to be regulated are but few in number. The rate base is ordinary stockyard property small in extent as compared with some plants. The Secretary valued it at $2,743,000; and the Company claims it is worth $1,010,406 more. The Secretary found that, at the prescribed rates, the receipts would yield a net income of $195,564; the Company claims that it would not have been more than $81,026 in 1932 had these rates been in effect. But, under the prevailing view, an enquiry of the scope described was necessary, although involving hearings and lawsuits so protracted as to frustrate rate-regulation.
Seventh. The greater delay, and the cost, in rate investigations affecting the larger utilities, is illustrated by cases which have come before this Court in recent years.
(a) Chicago Telephone Rates. On September 13, 1921, the Illinois Commerce Commission, the regulating body, issued an order that the Company show cause why its rates should not be reduced. The hearing began November 17, 1921, and closed July 31, 1923. On August 16, 1923, the Commission entered an order reducing the rates, to become effective October 1, 1923. Before that date, enforcement was enjoined by the federal court, on a bill which charged that the rates prescribed were confiscatory. On April 30, 1934, this Court sustained the validity of the rate order entered August 16, 1923. Thus the rates became effective twelve and a half years after the commencement
On June 11, 1934, the District Court ordered the Company to reimburse consumers who had been charged excessive rates a sum estimated, in April, 1936, as almost $19,000,000; and, on July 23, 1934, directed that the lawyers who appeared for the consumers in and after 1929 should receive as fees an amount equal to 7 1/2 per cent of the refunds. By March 31, 1936, 1,153,515 payments had been made. The task of making the refunds, only three-quarters complete, has required a special force of 2,000 of the Company's employees, and is said to have cost it (to November 30, 1935) $2,575,412.89. Over $2,100,000 remains to be disposed of or paid.
The transcript of evidence and arguments at the hearing before the Illinois Commission fills about 4500 pages; and there were besides more than 200 elaborate exhibits. The presentation of the evidence before the District Court at the first hearing on the merits occupied more than two months, resulting in a printed record of over 3000 pages of testimony and 281 elaborate exhibits. The taking of depositions for presentation to that court on the second hearing on the merits, and other preparations for trial, took over a year. The hearing itself occupied five months, and resulted in a record of 16, 168 pages. The record on the first appeal to this Court consisted of seven large volumes. The record of the additional evidence on the second appeal to this Court filled nine volumes; and the appellant's brief here, with appendix, nearly 700 pages.
The investigation of rates for Chicago continues. On July 10, 1934, the Commission asked the Company to show cause why its rates should not be reduced. The latter spent over a year and a half preparing its case for presentation to the Commission, at a cost, including a new appraisal and inventory, of more than $1,200,000. Hearings are now in progress.
(b) New York telephone rates. In the winter of 1919 the Company increased its rates. Protests followed; and on October 18, 1920, hearings thereon began before the Public Service Commission. On March 3, 1922, a temporary order slightly reducing certain rates issued. Enforcement was enjoined by the federal court on a bill which charged that the rates prescribed were confiscatory. Since that time, the rates prescribed, and to be prescribed, have been continuously under investigation and litigation.
Before the Commission there were, between 1920 and 1926, 189 days of hearings, 450 witnesses being examined orally. The evidence introduced fills, in the aggregate, 26,417 pages; and there were, in addition, 1,043 elaborate exhibits, one alone being in 22 volumes. Hearings were also held from January 28, 1930, to April 18, 1930. The opinions of the Commission in these proceedings fill 396 pages. In the District Court the hearings before the master occupied 416 days and extended over a period of four years, 610 witnesses being examined orally. They were recalled a total of 688 times. The evidence of that hearing fills 36,893 pages; and there were in addition 3, 324 exhibits. The decree below was entered November
On May 2, 1934, the Commission instituted a new investigation into the rates of the Company. Hearings began May 10, 1934, and are still going on. The subjects covered are again those required by the rule of Smyth v. Ames — reproduction cost, going value, depreciation, and so forth. Up to April 14, 1936, 86 hearings had been had, stretching through every month but one since the beginning of the enquiry. One hundred and forty witnesses had been heard, and 10,840 pages of testimony taken. The exhibits already introduced total 397, one being in 34 volumes.
For the history of the investigation and litigation, see in this Court: 261 U.S. 312; 262 U.S. 43; 291 U.S. 645; in the lower court: S.D.N.Y. No. 23-252, in equity, May 25, 1922 (not reported); 300 Fed. 822; 11 F.2d 162; 36 F.2d 54; in the Commission: 14th Annual Report, Pub. Ser. Comm. (2d Dist.) 1920, 79; Report Pub. Ser. Comm. 1921, 13, 234-254, 369-389, 398-407, 447-458; 1922, 15; 1923, 13, 93-214; 1924, 13, 127-138; 1925, 13; 1926, 17, 170-273; 1927, 14; 1928, 18; 1929, 16; 1930, 42, 134-145, 213-294; 1933, 11. See also Report of Pub. Ser. Comm. to State Senate Relative to Rates of N.Y. Telephone Co., Legis. Doc. No. 73, 1926 (254 pages); Report of Commission on Revision of N.Y. Pub. Ser. Comm. Law, Legis.
Eighth. In deciding whether the Constitution prevents Congress from giving finality to findings as to value or income where confiscation is alleged the Court must consider the effect of our decisions not only upon the function of rate regulation, but also upon the administrative and judicial tribunals themselves. Responsibility is the great developer of men. May it not tend to emasculate or demoralize the rate-making body if ultimate responsibility is transferred to others? To the capacity of men there is a limit. May it not impair the quality of the work of the courts if this heavy task of reviewing questions of fact is assumed?
The obstacles encountered in the case at bar and in the regulation of the rates of the large utilities are attributable, in the main, to the Court's adherence to the rule declared in Smyth v. Ames for determining the value of the property. In Missouri ex rel. Southwestern Bell Telephone Co. v. Public Service Comm'n, 262 U.S. 276, 289, I stated my reasons for believing that the Constitution did not require the Court to adopt that rule which so seriously impairs the power of rate-regulation. But since the decision of Smyth v. Ames is adhered to, there is the greater need of applying to cases in which rate-regulation is alleged to be confiscatory the rule of reason
Surely, all must agree with the Secretary of Agriculture that: "If rate regulation is to be effective, there must come at some time an end of hearings and a decision of the questions involved." In Chicago, Burlington & Quincy Ry. v. Babcock, 204 U.S. 585, 598, we said of valuations made by the State Board of Equalization and Assessment: "Within its jurisdiction, except as we have said, in the case of fraud or a clearly shown adoption of wrong principles, it is the ultimate guardian of certain rights. The State has confided those rights to its protection and has trusted to its honor and capacity as it confides the protection of other social relations to the courts of law. Somewhere there must be an end." Congress concluded that a wealthy and litigious utility might practically nullify rate regulation if the correctness of findings by the regulating body of the facts as to value and income were made subject to judicial review. For that conclusion experience affords sample basis. I cannot believe that the Constitution, which confers upon Congress the power of rate-regulations, denies to it power to adopt measures indispensable to its effective exercise.
MR. JUSTICE STONE and MR. JUSTICE CARDOZO concurring in the result:
We think the opinion of Mr. Justice Brandeis states the law as it ought to be, though we appreciate the weight of precedent that has now accumulated against it. If the opinion of the Court did no more than accept those precedents and follow them, we might be moved to acquiescence. More, however, has been attempted. The opinion reexamines the foundations of the rule that it declares, and finds them to be firm and true. We will not go so far.
For the reasons stated by MR. JUSTICE BRANDEIS the decree should be affirmed.