Southern Pacific Co. v. ARIZONA CORPORATION COM'N , 98 Ariz. 339 ( 1965 )

STRUCKMEYER, Vice Chief Justice.

Petitioner is a railroad corporation engaged as a common carrier in interstate and intrastate commerce in the States of Oregon, California, Nevada, Utah, Arizona, New Mexico, Texas and Louisiana. Included in its operations are interstate passenger .trains running..between El Paso, Texas, and Los Angeles, California, through Arizona. Effective April 18, 1964, petitioner revised its interstate train service so as to eliminate one. westbound passenger train and one eastbound passenger train. On the .same day, the Corporation Commission- of Arizona, without notice, entered, an order . requiring • petitioner “to maintain present traffic train schedules through Arizona pending public hearing.”

On April 29th, the Commission vacated the order of April 18th, apparently-being of the view that there was serious question as to the legality of such an ex parte order, and entered an order to show cause directing that a public hearing be held before the Commission on May 19th as to why the passenger service previously provided should not be restored. This hearing was subsequently continued to June 1, 1964. At that time petitioner announced ready to proceed with evidence as to the need for such service but the Commission refused to hear petitioner’s evidence for the reason that petitioner’s action in withdrawing the trains from service was without authority of law. On motion unanimously carried it directed that petitioner “be forthwith ordered to immediately restore the service that has been discontinued.” On June 3rd, the Commission entered its Decision No. 35247, of which petitioner complains, ordering service restored consistent with the schedules on file with the Commission prior to April 20, 1964. Subsequently petitioner’s motion for rehearing was denied. We granted certiorari pursuant to A.R.S. § 12-2001, it appearing the Commission had started proceedings for contempt under A.R.S. § 40-424 and that the Attorney General of Arizona, on the authority of A.R.S. § 40-422, had applied for a writ of mandamus in the Superior .Court of Maricopa County to compel the operation of the trains. An appeal as provided by law in these circumstances is not adequate. Cf. Whitfield Transportation, Inc. v. Brooks, 81 Ariz. 136, 302 P.2d 526.

Petitioner urges that the Commission does.not have the power to arbitrarily order petitioner to operate a passenger train, or trains, through or within Arizona without a hearing and a determination that the public convenience and necessity requires it and that, therefore, the Commission’s decision and order are void.

The foregoing statement of the case is illustrative of a frequent area of collision between the management of a corporation charged with the responsibility of economic operation of corporation assets for the benefit of its stockholders and regulatory bodies charged with the responsibility of requiring that public utilities be operated in the public interest.

“One of the most persistent criticisms of the regulatory process is its ultimate tendency to divide or separate managerial responsibility. The continuing success as well as the efficient operation of any commercial enterprise depends primarily upon its ability to centralize responsibility and establish a unified management. The regulatory process is at odds with this principle by seeking to divide the responsibilities of management between the administrative agency and the pub-lie utility official. It is a mistake to assume that the' effectiveness of the regulatory device can be measured solely by the extent of the interference with the legitimate functions of management. Such administrative intervention, although necessary to effectuate many legislative policies, may act as a barrier to the normal accomplishments of progressive management.” Robert M. Cooper, Techniques of Public Control- — An Appraisal of Methods, 201 Annals 6. . (Emphasis in original.)

While the duty of a railroad corporation to provide reasonable facilities for the transportation of passenger and freight is one which always existed and is not granted by statute, the statute only providing a method by which these pre-existing duties may be enforced, Southern Pac. Co. v. Railroad Commission of Oregon, 60 Or. 400, 119 P. 727, plainly it is not the purpose of regulatory bodies to manage the affairs of the corporation.

“It must never be forgotten that, while the state may regulate with a view to enforcing reasonable rates and charges, it is not the owner of the property of public utility companies, and is not clothed with the general power of management incident to ownership.” State of Missouri ex rel. Southwestern Bell Telephone Co. v. Public Service Commission of Missouri, 262 U.S. 276, 289, 43 S.Ct. 544, 547, 67 L.Ed. 981, 31 A.L.R. 807.

Moreover, it cannot be doubted but that a public utility may, in the first instance, in the exercise of its managerial functions, determine the type and extent of service to the public within the limits of adequacy and reasonableness. Duquesne Light Co. v. Pennsylvania Public Utility Commission, 164 Pa.Super. 166, 63 A.2d 466. In the exercise of the regulatory power, the legislature may interfere with the management of public utilities whenever public interest demands, but there is no presumption of an attempt on the part of the legislature to interfere with a corporation any further than the public interest requires and no interference will be adjudged by implication beyond the clear letter of a statute. Chesapeake & Potomac Telephone Co. v. Manning, 186 U.S. 238, 22 S.Ct. 881, 46 L.Ed. 1144.

Respondents assert that authority for its interference with the company’s decision to eliminate an .interstate train is to be found in A.R.S. § 40-367. Subsections A, B and C provide:

“A. No change shall be made by any public service corporation in any rate, fare, toll, rental, charge or classification, or in any rule, regulation or contract relating to or affecting any rate, toll, fare, rental, charge, classification or service, or in any privilege or facility, except after thirty days notice to the commission and to the public as provided in this chapter.

“B. Notice shall be given by filing with the commission and keeping open for public inspection new schedules stating plainly the change to be made in the schedules then in force, and the time when, the change will go into effect.

“C. The commission, for good cause shown, may allow changes without requiring the thirty days notice provided for in this section by an order speci-. fying the changes so to be made and the time, when they shall take effect, and the manner in which they shall be filed and published.”

Admittedly petitioner did not give notice to the Commission thirty days in advance of a change in train service. Petitioner, however, asserts that § 40-367 has no application to the facts of this case; but we think -otherwise. , - -

A.R.S. § 40-367, subsec. A prohibits changes in both "fares and in rules, regulations or contracts affecting any service.' This section'.must be read in pari materia' with .the .-antecedent section, § 40-365.¹ By -subsection A thereof, every common carrier shall file with the Commission schedules showing rates, fares, charges and classifications for transportation between termini within this state of persons and property. By subsection B,

“The schedules shall plainly state * * * all rules or regulations which may in any way change, affect or determine any part or the aggregate of the rates, fares, charges and classifications or the value of the service rendered to the passenger, shipper or consignee.” A.R.S. § 40-365, subsec.

B. (Emphasis supplied.)

We think that the frequency of the service rendered affects the value of the service and goes to determine the aggregate of the rates, fares and charges made. The legislature, by § 40-365, has required common carriers to file schedules in the first instance, which schedules must include rules and regulations affecting the value of service rendered. It has prohibited, by § 40-367, changes in these rules and regulations except upon thirty days notice to the Commission and the public.

The question then becomes as to the power of the Commission to prevent violations of § 40-367. Under Article 9, Violations and Penalties, A.R.S. § 40^-21 et seq., the Commission is required to enforce all laws' affecting public service corporations and shall - require that all violations be “promptly prosecuted and penalties due the state therefor recovered and collected * * Upon request of the Commission, the attorney general shall institute and prosecute actions or proceedings for violations. By A.R.S. § 40-425, any public service corporation which fails to comply with any provisions of law is subject to a penalty of not less than $100 nor more than $5,000 for each offense. The corporation commission can, therefore, instigate an action through the attorney general for punishment for the failure to comply with the provisions of § 40-367. Moreover, for violation of its orders, the commission is empowered to fine a public service corporation up to $5,000. A.R.S. § 40-424.

In addition, the Commission urges that it has the right to order petitioner to immediately restore the discontinued service, as it did in its Decision No. 35247 of .June 3, 1964. It points first to the failure of the petitioner to comply with its General Order No. U-8 promulgated by the Commission many years ago. General Order No. U-8 reads:

“IT IS ORDERED, that no changes shall be made by railroad companies operating within this state in passenger train schedules or station facilities dr accommodations, which will result in curtailment of service to the general public, until authority so to do has been- obtained from the Commission.”

If General Order No. U-8 and the Commission’s decision in this cause are to be considered as valid- and enforceable, authority must be- found either in the Constitution or in statutes enacted by the legislature for it is conceded that the Commission has no implied powers. Such powers as it may exercise do not exceed those to be derived from a strict construction of the Constitution and implementing statutes. Commercial Life Insurance Co. v. Wright, 64 Ariz. 129, 166 P.2d 943.

The Constitution of Arizona, Article .XV, § 3, A.R.S., entitled “Power of commission as to classifications, rates and charges, rules, contracts, and accounts; local regulation,” provides that the Commission shall have full power to and shall prescribe just and reasonable classifications and just and reasonable rates and charges to be made by public service corporations and to make reasonable rules, regulations and orders by which ’corporations shall be governed in the transaction of business. The construction of § 3, Art. 15, has been long settled. In Corporation Commission of the State of Arizona v. Pacific Greyhound Lines, 54 Ariz. 159, 94 P.2d 443, § 3 was examined in detail. It was held that the power to make reasonable rules, regulations and orders by which corporations shall be governed in. the transaction of business refers only to the power given the Commission by the Constitution to prescribe just and reasonable classifications and just and reasonable rates and charges to be made by a public service corporation. The orders of the Commission questioned in this casé cannot be sustained on the grounds of constitutional authority.

The Commission points to A.R.S. § 40-324.² That section provides:

“When the commission finds that any railroad or street railroad does not run a sufficient number of trains or cars, or possess or operate sufficient motive power reasonably necessary to accommodate the traffic transported by or offered for transportation to it, or does not run its trains or cars with sufficient frequency or at reasonable or proper times having regard to safety, or does not stop the equipment at proper places, or does not run any train or cars upon a reasonable time schedule for the run, the commission may make any order reasonably necessary to accommodate and transport the traffic, passengers or freight, transported or offered for transportation.” (Emphases supplied.)

The Commission urges that this statute is sufficient authority to enact General Order No. U-8 and permits it to order that the discontinued service be reinstated. Obviously it is sufficient authority for the Commission to promulgate an order requiring the Southern Pacific Company to improve its service within the State of Arizona if by the elimination of the train in question service has been rendered inadequate or insufficient. Equally obvious, it does not contemplate that the Commission shall promulgate orders upon a finding of facts by means of a crystal ball.³

The corporation commission in rendering its decision acts judicially. Arizona Public Service Co. v. Southern Union Gas Co., 76 Ariz. 373, 377, 265 P.2d 435. The legislature must have contemplated a determination in accordance with due process of law, otherwise the statute would be unconstitutional. We have repeatedly held in a variety of circumstances that due process of law under the Fourteenth Amendment of the Constitution of the United States requires that there be notice of hearing, a hearing, the right to produce witnesses, examine adverse witnesses and to have a full consideration and determination according to evidence before the body with whom the hearing is held. See Application of Levine, 97 Ariz. 88, 397 P.2d 205, and cases cited.

Petitioner, before having its property subjected to a public use, was entitled to introduce evidence at a hearing to establish that its service was reasonable and adequate and to have an impartial determination on the evidence.

“Regulatory commissions have been invested with broad powers within the sphere of duty assigned to them by law. Even in quasi-judicial proceedings their informed and expert judgment exacts and receives a proper deference from courts when it has been reached with due submission to constitutional restraints. Indeed, much that they do within the realm of administrative discretion is exempt from supervision if those restraints have been obeyed. All the more. insistent is the need, when power has been bestowed so freely, that the ‘inexorable safeguard’ of a fair and open hearing be maintained in its integrity. The right to such a hearing is one of ‘the rudiments of fair play’ assured to every litigant by ' the Fourteenth Amendment as a minimal requirement. There can be no compromise on the footing of convenience or expediency, or because of a natural desire to be rid of harassing delay, when that minimal requirement has been neglected or ignored.” Ohio Bell Telephone Co. v. Public Utilities Commission of Ohio, 301 U.S. 292, 304-305, 57 S.Ct. 724, 730-731, 81 L.Ed. 1093.

(Citations omitted.)

Other courts have held that if a commission is exercising a judicial or quasi-judicial function due process of law requires that there be a hearing before a decision. Application of Citizens Utilities Co, 82 Idaho 208, 351 P.2d 487; Mayfield Gas Co. v. Public Service Commission, Ky, 259 S.W.2d 8; State ex rel. North Carolina Utilities Commission v. Western Carolina Telephone Co., 260 N.C. 369, 132 S.E. 2d 873; New York Edison Co. v. Maltbie, 271 N.Y. 103, 2 N.E.2d 277; Erie Lighting Co. v. Pennsylvania Public Utility Commission, 131 Pa.Super. 190, 198 A. 901; Colonial Light and Power Co. v. Creaser, 87 Vt. 451, 89 A. 472. We do not construe A.R.S. § 40-324 as authorizing the Commission to enter an order without a hearing at which 'a 'party may introduce evidence and have a decision according to law.

The Commission urges that A. R.S. § 40-202 supplies the necessary authority to support its General Order No. U-8. A.R.S. § 40-202 provides:

“A. The commission may supervise and regulate every public service corporation in the state and do all things, whether specifically designated in this title or in addition thereto, necessary and convenient in the exercise of such power and jurisdiction.”

Clearly this statute does' no more than confirm that which the Commission already possessed under the Constitution; namely, the general right to supervise and regulate public service corporations. The right to supervise and regulate and do those things necessary and convenient in the exercise of its power of supervision and regulation does not in and of itself grant additional powers to the Commission beyond that which the legislature specifically has set forth. Section 40-202 means that the Commission may supervise and regulate under the authority granted by the Constitution and statutes and, in addition, has the power to do those things necessary and convenient in the exercise of the granted powers. The legislature has not given the Commission the right to rearrange petitioner’s train service without a judicial determination that the service so provided is inadequate.

“ * * * the right of the management of a railroad corporation merely to rearrange its train service between points, and enlarge or decrease . the number of its trains, has never been questioned, either with respect to intrastate or interstate railroads. * * We think it was not the intention of the Legislature to encroach upon the authority to fix the schedules for its train service universally recognized as vested in the railroad management, within limits hereinbefore suggested, or to provide relief and a remedy where none was apparently needed.” Nashville, C. & St. L. R. Co. v. Hannah, 160 Tenn. 586, 27 S.W.2d 1089, 70 A.L.R. 837.

The Commission’s decision of June 3, 1964, attempts to apply petitioner’s property to public use without a showing that it was necessary because the service had become inadequate. It suffers from the defect that it unconstitutionally deprives petitioner of its property without due process of law. It is a nullity. The Commission’s General Order No. U-8, prohibiting a change in scheduled facilities or accommodations resulting in curtailment of service until authority has been obtained from the Commission, is inconsistent with the legislative enactment, A.R.S. § 40-367, supra, providing that no change shall be made except after thirty days notice to the Commission. The legislature has so provided and the Commission is not empowered to repeal the statute hy prohibiting changes without prior consent. It must be held to be a nullity.

Section 40-367 requiring that no change shall he made except after thirty days notice is obviously designed to, among other things, give the Commission time in which to hold the necessary hearing under A.R.S. § 40-324 to determine whether the changed service is reasonable and adequate. If the Commission finds, after a hearing, that the changed service by the reason.of the deletion of an interstate train provides inadequate service within Arizona, it plainly has the authority to order an intrastate train operated as the public convenience and necessity requires.

• The order of June 1st, that petitioner immediately restore .the discontinued service, and the Decision No. 35247 in this cause are vacated and set aside.

; LOCKWOOD, C. J., and BERNSTEIN, J., concur.

1 . Originally, by Laws of 1912, § 40-365 immediately preceded § 40-367, the' two sections being respectively §§ 14 and 15 of Chapter 90.

2 . It also points to A.R.S. § 40-321, sub-see. A, reading:

“A. When the commission finds that the equipment, appliances, facilities or service of any public service corporation * * * are * * * inadequate or insufficient, the commission shall determine what is * * * adequate or sufficient, and shall enforce its determination by order'or regulation.” (Emphasis supplied.)

Both the language of §§ 40-321 and 40-324 are broad enough to cover inadequacy of service but the applicable statute is § 40-324 as' it has specific reference to the running of trains and not' simply to services generally.

3 . By A.R.S. § 40-246, the Commission of its own motion or any person may file a petition or complaint in writing setting forth any act or thing done or omitted to be done by any public service corporation in violation of any provision of law, and a hearing shall be had upon the petition, or complaint and notice shall be served on the party complained of not less than’ ten days before the time set for the hearing unless public necessity requires that the hearing be held at an earlier date. Section 40-247 provides that the com-, plainant and the party complained of shall bé heard in person or "by attorney and may introduce evidence . at the: hearing. Thereafter the Commission shall make and file an order containing its decision.