City of Louisville v. Cumberland Telephone & Telegraph Company/Opinion of the Court
This is a bill to prevent the enforcement of an ordinance of the city of Louisville fixing telephone rates, passed in 1909, after the attempt of the city to deprive the appellee of its franchise, when that seemed likely to fail. See Louisville v. Cumberland Teleph. & Teleg. Co. [May 13, 1912, 224 U.S. 649, 56 L. ed. --, 32 Sup. Ct. Rep. 572]. The question raised is the usual one of confiscation. In consequence of the conclusion to which we have come we shall make a much more summary statement of the facts than in other circumstances might be necessary. The case was referred to a master and he reported in favor of the city. He was of opinion that in the first year after the ordinance should go into effect there would be a less of $30,000, but that in another year or so, in view of the probable increase of subscribers, the company would get back to its former net revenue with a probable continuous increase thereafter and would earn a sufficient return. The judge was of a different opinion, and for the purposes of the present decision only we shall adopt his figures, subject to the changes that we shall state, which leave us unprepared to sustain the decree without giving the ordinance a trial to show its actual effect.

Plant, including tool lines......... $1,575,000.  Real estate............................ 162,000.  Supplies on hand........................ 18,000.  Working capital......................... 33,000. -----------
$1,788,000. 
Gross earnings for 1908,
including 15 per cent of
receipts from toll lines.

This was undisputed.................. $325,838. 
The court added 10 per cent
more of the toll line receipts,
making................................ 330,926. 
The master was of opinion that
the remaining 85 per cent
should be added, making the
total gross earnings................. $369,087. 
For the purpose of such an
estimate as this we think
that the toll lines should
be either in or out, and if
they are to be counted in
the property upon which the
appellee is not to be prevented

by law from earning
a fair return, as they are
above, and the expenses charged
to the appellee, the whole
return from them should be
added to the gross earnings
of the appellee. So we take
the total gross earnings as.......... $369,087. 
Expenses as found
by the master and
accepted by the
judge............................... $216,363. 
But this includes
amount charged
to the Exchange
for the use of
real estate (less
expenses for
repairs), which,
in view of the
inclusion of real
estate above, it
should not............................ 11,707.-----------
$204,655. 
Deduct corrected expenses from
gross earnings....................... 204,655.-----------
Net earnings........................ $164,431. 
Even is we deduct from the net
earnings a sum estimated by
the judge as necessary above
actual expenditures of    to make good average
depreciation......................... 24,095. ---------
we have............................ $140,336,   which is nearly 8 per cent on
the estimated value. The
master prophecies a falling
off for the first year of........... 30,000.---------
which would leave................. $110,336.   or over 6 per cent on the
valuation assumed.

Suppose now that we leave out the toll
lines.
Plant, with real estate, etc., as
above........................... $1,788,000.  Deduct toll lines estimated at...... 125,000.---------
$1,663,000.  Gross earnings...................... 325,838.  Less 15 per cent form toll lines...... 7,632.  ......................................---------
..................................  $318,206. Expenses............................ $216,303. 
Less amount
charged for use
of real estate as
above............................... 11,707.---------
$204,655. 
Less toll line
expenses which
if estimated (in
the absence of
satisfactory proof
as to their
amount) by
dividing expenses
in proportion
to receipts would
be approximately.................... 30,000.---------
$174,655.  Deduct corrected expenses from
gross earnings..................... 174,655.---------
$143,550.  Additional deduction for
depreciation as before............... 24,095.---------
$119,455.  Which is nearly 7 per cent, or,
deducting for loss of custom
the first year.....................  30,000.---------
$89,455.

which is just above 5 per cent on the judge's valuation.

We express no opinion whether to cut this telephone company down to 6 per cent by legislation would or would not be confiscatory. But when it is remembered what clear evidence the court requires before it declares legislation otherwise valid void on this ground, and when it is considered how speculative every figure is that we have set down with delusive exactness, we are of opinion that the result is too near the dividing line not to make actual experiment necessary. The master thought that the probable net income for the year that would suffer the greatest decrease would be 8.60 per cent on the values estimated by him. The judge, on assumptions to which we have stated our disagreement, makes the present earnings 5 10/17 per cent, with a reduction by the ordinance to 36/17 per cent. The whole question is too much in the air for us to feel authorized to let the injunction stand.

Decree reversed without prejudice. 

Notes