1. Jurisdiction acquired by the district court on the ground of
diverse citizenship is not divested by the intervention, by leave
of the court, of a party, opposed to and of like citizenship with
the plaintiff, but whose presence is not essential to a decision of
the original controversy. P.
260 U. S.
53.
2. The jurisdiction of the district court arising from diverse
citizenship extends to the entire suit, and to every question,
state or federal, involved in its determination. P.
260 U. S.
54.
3. Where a plaintiff in equity successfully moves the district
court for judgment on the pleadings, reserving the right to adduce
evidence and be heard on issues of mixed law and fact presented, a
decree of the circuit court of appeals reversing the decree in his
favor should accord that opportunity, and not dismiss the bill. P.
260 U. S.
54.
4. Under the Public Utility Law of Kansas, Laws 1911, c. 238, in
order that an increase of rates proposed by a gas company may
supersede lower rates fixed by its contract with another, it is not
enough that the change be filed with and consented to by the
Commission under § 20; there must, under § 13, be an
express finding by the Commission, after full hearing and
investigation, that the existing rates are unjust, unreasonable,
unjustly discriminatory, or unduly preferential, and without such
finding, the Commission's order is void. P.
260 U. S.
56.
Page 260 U. S. 49
5. Such a finding may not be supplied by inference and reference
to the averments of the petition invoking the action of the
Commission. P.
260 U. S.
59.
6. Delegation of pure legislative power is against
constitutional principle; therefore, administrative agencies
granted authority over rates are enjoined to follow designated
procedure and rules of decision as a condition to the validity of
their action. P.
260 U. S.
58.
268 F. 37 reversed.
The Wichita Railroad & Light Company, a corporation of West
Virginia, is an electric street railroad and light furnishing
company doing business in Wichita, Kansas, and will be known as the
Wichita Company. The Kansas Gas & Electric Company, also a West
Virginia corporation, and to be known as the Kansas Company, is
engaged in the business of furnishing electrical light and power to
consumers in Kansas. In 1910, the two companies made a contract by
which the Kansas Company agreed to furnish, and the Wichita Company
agreed to accept and pay for, electrical energy at certain rates
until 1930, and the contract was fulfilled by both until 1918. Then
the Kansas Company filed a petition with the Public Utilities
Commission of Kansas, to be known as the Commission, in which it
alleged that, on account of the increase in the cost of production
and distribution,
"the net income of your petitioner for the year ending December
31, 1917, was approximately $190,000 less than it would and should
have been if your petitioner had been able to operate under the
normal conditions that existed in 1914, at which time its said
rates were first installed as aforesaid; that, if said rates are
continued in effect hereafter, the result hereof will be disastrous
to your petitioner, depriving it of a reasonable return upon the
value of its said property and making it impossible to find a
market for the securities it must issue and sell in order to
provide funds with which to make improvements,
Page 260 U. S. 50
additions and betterments which are necessary if it is to
furnish proper and adequate service to the communities in which it
operates."
The petition further recited that, in December, 1916, being of
opinion that it could reduce its rates for residential and
commercial lighting, it proposed a gradual reduction and filed a
schedule for the purpose, which the Commission had not acted on;
that, in January, 1917, it did reduce its rates, but that, if a
further reduction under the schedule for 1918 were made, the loss
of net earnings to the petitioner would be $220,000.
The petition continued:
"Your petitioner is of the opinion that, in order to meet this
situation, and in order to increase the net earnings of your
petitioner in an amount sufficient to offset the loss resulting to
it from the conditions above stated, an order should be entered by
the Commission authorizing petitioner to add to its existing rates
the surcharge hereinafter set out. There are approximately 19,900
consumers now served by your petitioner; the proposed surcharge
does not affect consumers using 100 kilowatt hours or less per
month, and therefore 17,000 of said total of 19,000 consumers are
not affected. In apportioning the surcharge equitably among the
remainder of said consumers, your petitioner has taken into
consideration the fact that, in the generation of electrical energy
for large power consumers, fuel is approximately 75 percent of the
cost of generation, and that therefore a surcharge which has for
its purpose the reimbursement of the utility company for increase
in the cost of fuel should be so adjusted that the surcharge should
increase in proportion to the amount of energy consumed. The
percentage of increase fixed by such surcharge over existing rates
is therefore increased in proportion to the amount of consumption.
The last
Page 260 U. S. 51
step in said surcharge schedule affects 6 consumers, and the
last two steps 38 consumers."
"Wherefore your petitioner asks that an order be made by your
honorable Commission authorizing your petitioner to add to its
existing rates for electricity in the State of Kansas, and until
the further order of the Commission, the following surcharges:"
"For the first 100 kwh per month, no surcharge."
"For the next 1,000 kwh per month, 12 mills net per kwh."
"For the next 10,000 kwh per month, 9.5 mills net per kwh."
"For the next 1,000 kwh per month, 8 mills net per kwh."
"For all excess kwh per month 3.5 mills net per kwh."
The order of the Commission upon this petition recited that
it
"came duly on for order by the Commission upon the pleadings of
the respective parties and the evidence introduced thereunder, and
the Commission, upon consideration of said pleadings and evidence
and being duly advised in the premises, finds that the Kansas Gas
& Electric Company should be authorized and permitted to add to
its existing rates for electricity supplied by it to consumers in
the State of Kansas until the further order of the Commission, the
following net surcharge:"
"For the first 100 kwh per month, no surcharge."
"For the next 14,900 kwh per month, 1 mill surcharge per
kwh."
"For the next 20,000 kwh per month, 2 mills surcharge per
kwh."
"For all excess over 35,000 kwh per month, 3 mills surcharge per
kwh."
The rates thus fixed were substantially higher than the contract
rates.
The Wichita Company thereupon filed a bill in equity in the
United States district court for Kansas seeking to
Page 260 U. S. 52
enjoin the Commission from putting the new rates in force as
against it. After averring the diverse citizenship of the parties
and a sufficient jurisdictional amount involved, the bill alleged
that the order impaired the contract which it had with the Kansas
Company, in violation of Article I, § 10, of the federal
Constitution, that the rates fixed were unjust and unjustly
discriminatory as against the complainant, that it was the largest
customer of the Kansas Company, and that the increase of its rate
as compared with that of others violated every equitable rule of
ratemaking, and deprived the plaintiff of its property without due
process, and denied it the equal protection of the laws, in
violation of the Fourteenth Amendment. A temporary injunction was
issued. The answer of the Commission averred that the proceedings
were regular and authorized by the statute of Kansas, that the
Wichita Company had participated in them, and denied that the
surcharges were discriminatory or unjust. The Kansas Company then
applied for leave to intervene, and leave was granted. It answered
the bill much as the Commission did, but with more elaboration,
denying that the order was discriminatory or unjust, and averring
that the contract of 1910 was necessarily subject to the legitimate
exercise of the police power of the state, and that an order of the
Commission regularly made in the exercise of that power could not
be regarded as working an impairment of the obligation of the
contract in the sense of the contract clause of the federal
Constitution.
The Wichita Company made a motion for judgment on the pleadings
on the ground that the order of the Commission was void on its
face.
"but saved and reserved itself all of its rights in the
presentation of evidence and proofs and hearing upon the merits of
the issues of fact and law, otherwise than as above stated,
involved in this
Page 260 U. S. 53
cause in the event it should be determined that final judgment
and decree should not be entered pursuant to this motion."
The district court gave judgment for the Wichita Company on the
pleadings and enjoined the Commission and the Kansas Company from
putting into force the increased rates. The circuit court of
appeals reversed the decree of the district court and directed a
dismissal of the bill, Judge Sanborn dissenting.
The Wichita Company has appealed to this Court.
MR. CHIEF JUSTICE TAFT, after stating the case as above,
delivered the opinion of the Court.
The appellees urged that the concession of the appellant that
contracts in respect to the rates to be charged by a public utility
are subject to suspension or abrogation by the police power of the
state validly exercised through an administrative agency takes out
of this case any federal question, because the issue then is only a
state question, to-wit, whether, under the statute statute, the
police power was validly exercised. Upon this ground, they insist
that the bill should have been, and must be now, dismissed for want
of jurisdiction and without any inquiry into the other issues of
law and fact. The original bill set out two grounds of
jurisdiction, first that of diverse citizenship, and, second, that
the case arose under the federal Constitution in that the order
violated the contract clause of the federal Constitution, and also
the Fourteenth Amendment. The intervention of the Kansas Company, a
citizen
Page 260 U. S. 54
of the same state as the Wichita Company, its opponent, did not
take away the ground of diverse citizenship. That ground existed
when the suit was begun, and the plaintiff set it forth in the bill
as a matter entitling it to go into the district court.
Jurisdiction once acquired on that ground is not divested by a
subsequent change in the citizenship of the parties.
Mollan v.
Torrance, 9 Wheat. 537,
22 U. S. 539;
Clarke v.
Mathewson, 12 Pet. 164,
37 U. S. 171;
Koenigsberger v. Richmond Mining Co., 158 U. S.
41,
158 U. S. 49;
Louisville, New Albany & Chicago Ry. Co. v. Louisville
Trust Co., 174 U. S. 552,
174 U. S. 566.
Much less is such jurisdiction defeated by the intervention, by
leave of the court, of a party whose presence is not essential to a
decision of the controversy between the original parties.
See Equity Rule 37.
Adler v. Seaman, 266 F. 828,
841;
King v. Barr, 262 F. 56, 59;
Jennings v.
Smith, 242 F. 561, 564. The Kansas Company, while it had an
interest and was a proper party, was not an indispensable party.
In re Engelhard, 231 U. S. 646.
The jurisdiction of the district court was not limited to
federal questions presented by the bill, but extended to the entire
suit and every question, whether federal or state, involved in its
determination.
The appellant assigns for error that the circuit court of
appeals, by directing a dismissal of the bill, refused it a hearing
on the truth of the averments of the answer as to the validity of
the order, and also on the issue made by the bill and answer as to
whether the rates as fixed by the Commission, deprived it of its
property without due process of law and denied it the equal
protection of the laws. In this ruling we think there was
error.
The stress in the hearing on the motion was put on the two
contentions -- one, that the order of the Commission was void on
its face for lack of a necessary finding that the existing contract
rates were unreasonably low, and the other that the facts averred
in the petition of the
Page 260 U. S. 55
Kansas Company to the Public Utilities Commission were not
sufficient to justify such a finding if it had been made. The
district court sustained the contention; the court of appeals
denied it. The motion for judgment being overruled, the complainant
should have been accorded an opportunity, the right to which it had
carefully reserved, to traverse the allegations of fact by the
Kansas Company as to the basis for the order of the Commission and
also to maintain by evidence and argument the issue as to due
process of law and the equal protection of the law. The charge that
the order made a classification denying due process and the equal
protection of the law was a mixed question of law and fact, upon
which the complainant had a right to be heard. Neither court passed
on it. For this reason, if there was nothing else, the decree of
the circuit court of appeals would have to be reversed.
Lane v.
Pueblo of Santa Rosa, 249 U. S. 110,
249 U. S.
114.
There still remain for out consideration the questions upon
which the courts below differed.
The Public Utility Law of Kansas, c. 238 of the Session Laws of
1911, creates a commission and makes full provision for its
procedure and powers. Section 13 provides that
"It shall be the duty of the Commission, either upon complaint
or upon its own initiative, to investigate all rates, . . . fares .
. . , and if, after full hearing and investigation, the Commission
shall find that such rates . . . are unjust, unreasonable, unjustly
discriminatory, or unduly preferential, the Commission shall have
power to fix and order substituted therefor such rate or rates . .
. as shall be just and reasonable."
Section 14 and § 15 require the complaint against rates,
etc., to be in writing, and a formal public hearing, of which due
notice is to be given to the parties interested.
Section 15 directs how the notice shall be given, and how long
before the hearing, and its contents.
Page 260 U. S. 56
Section 16 provides that, if upon such hearing, the rates, etc.,
of any public utility are found to be unjust, unreasonable, unfair,
unjustly discriminatory, or unduly preferential, the Commission
shall have power to fix and substitute therefor rates, etc., "as it
shall find, determine or decree to be just, reasonable and
necessary." It provides that all orders and decisions of the
Commission whereby any rates, etc., are altered, changed, modified,
fixed, or established shall be served on the public utility
affected thereby, and that such public utility, unless an action is
commenced in a court of proper jurisdiction to set aside "the
findings, orders and decisions" of the Commission, or to review and
correct the same, shall carry the provisions of the order into
effect.
Section 20 provides that whenever any public utility shall
desire to make a change in any rate or rates, it shall file with
the Commission a schedule showing the changes desired to be made
and put in force by such public utility, but that no change shall
be made in any rate without the consent of the Commission, and,
within 30 days after such changes have been authorized by the
Commission, copies of such schedule shall be filed in every
station, office, or depot of such public utility for public
inspection.
It is said that the order in this case was authorized by §
20, and therefore that all that was needed was the filing of a
schedule of changed rates and the consent of the Commission, and
that no finding was required, as in §§ 13 and 16. This
construction of § 20 is doubtless correct, but it shows that
the filing of a schedule of changed rates under that section cannot
accomplish the result of abrogating contract rates. It could not do
so any more than would the original filing of a schedule of rates
under § 11 requiring every public utility to publish and file
with the Commission all schedules of rates do this. The consent of
the Commission in § 20 is made necessary only to prevent
changing schedules without notice to the Commission,
Page 260 U. S. 57
and thus to secure a proper supervision of schedules. Such
consent does not involve a hearing or a finding and a decision. The
section does not, therefore, cover, or measure the essentials of,
the proceeding in this case before the Commission, which the order
shows was upon pleadings and
inter partes. We find nothing
in
State ex rel. Caster v. Kansas Postal Telegraph-Cable
Co., 96 Kan. 298, which gives a different construction to
§ 20.
The majority opinion in the circuit court of appeals, in
maintaining the validity of the order in this case, relies on
§ 18 of the act, which provides that all orders, rates, etc.,
fixed by the Commission shall be in force 30 days thereafter, and
shall be
prima facie reasonable until changed by the
Commission or by a court, and holds from this that it must presume
that there was substantial evidence to warrant the findings. But,
as we have seen, there is no finding of reasonableness or
unreasonableness. Nor can we suppose that the presumption was to
obtain until there was such a finding.
The Supreme Court of Kansas, in applying the statute, recognizes
that a contract for rates with a public utility cannot be abrogated
except after a finding by the Commission that they are
unreasonable. This is made clear by the decision in
Kaul v.
American Telephone Co., 95 Kan. 1. In that case, a number of
customers sought to enjoin a telephone company from disconnecting
their lines because they did not pay the schedule rates published
and filed with the Commission under the law of 1911 we are
considering. The complainants showed an agreement by the telephone
company made before the Act of 1911, by which the telephone company
had engaged to furnish them the service at lower than the published
schedule rates on file with the Commission. The injunction was
granted. The court said:
"While that Commission is vested with broad regulatory powers,
it is not shown nor claimed that it has found
Page 260 U. S. 58
the contract rates to be unreasonable. Granting, without
deciding, that the Commission has the power under the law to
determine whether or not the rates prescribed by the contract are
reasonable and valid, and to revise them if found to be
unreasonable, it does not appear that it has exercised the power,
nor that they have been presented to it for its consideration. The
passage of the act did not automatically overthrow contracts, nor
set aside schedules of rates which had been agreed upon. Neither
did the fact that the defendant published and filed a schedule of
rates with the public utilities commission abrogate the contract.
In any event, rates previously agreed upon between utilities and
patrons will continue in force until the Commission has found them
to be unreasonable, and has prescribed other rates."
The proceeding we are considering is governed by § 13. That
is the general section of the act comprehensively describing the
duty of the Commission, vesting it with power to fix and order
substituted new rates for existing rates. The power is expressly
made to depend on the condition that, after full hearing and
investigation, the Commission shall find existing rates to be
unjust, unreasonable, unjustly discriminatory, or unduly
preferential. We conclude that a valid order of the Commission
under the act must contain a finding of fact, after hearing and
investigation, upon which the order is founded, and that, for lack
of such a finding, the order in this case was void.
This conclusion accords with the construction put upon similar
statutes in other states.
Public Utilities Commission v.
Springfield Gas Company, 291 Ill. 209;
Public Utilities
Co. v. B. & O. S.W. R. Co., 281 Ill. 405. Moreover, it
accords with general principles of constitutional government. The
maxim that a legislature may not delegate legislative power has
some qualifications, as in the creation of municipalities, and also
in the creation of administrative
Page 260 U. S. 59
boards to apply to the myriad details of rate schedules the
regulatory police power of the state. The latter qualification is
made necessary in order that the legislative power may be
effectively exercised. In creating such an administrative agency,
the legislature, to prevent its being a pure delegation of
legislative power, must enjoin upon it a certain course of
procedure and certain rules of decision in the performance of its
function. It is a wholesome and necessary principle that such an
agency must pursue the procedure and rules enjoined, and show a
substantial compliance therewith to give validity to its action.
When, therefore, such an administrative agency is required, as a
condition precedent to an order, to make a finding of facts, the
validity of the order must rest upon the needed finding. If it is
lacking, the order is ineffective.
It is pressed on us that the lack of an express finding may be
supplied by implication and by reference to the averments of the
petition invoking the action of the Commission. We cannot agree to
this. It is doubtful whether the facts averred in the petition were
sufficient to justify a finding that the contract rates were
unreasonably low, but we do not find it necessary to answer this
question. We rest our decision on the principle that an express
finding of unreasonableness by the Commission was indispensable
under the statutes of the state.
We think the motion for judgment on the pleadings should have
been granted. The decree of the circuit court of appeals is
reversed, and that of the district court is affirmed.
