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AMERICAN TELEPHONE & TELEGRAPH CO. ET AL. v. UNITED STATES ET AL.

decided: December 7, 1936.

AMERICAN TELEPHONE & TELEGRAPH CO. ET AL
v.
UNITED STATES ET AL.



APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK.

Hughes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Roberts, Cardozo; Stone took no part in the consideration or decision of this case.

Author: Cardozo

[ 299 U.S. Page 235]

 MR. JUSTICE CARDOZO delivered the opinion of the Court.

This suit was brought in the United States District Court for the Southern District of New York to set aside an order of the Federal Communications Commission prescribing a uniform system of accounts for telephone companies subject to the Communications Act of 1934. Act of June 19, 1934, c. 652, 48 Stat. 1064; 47 U. S. C. § 151. The plaintiffs are forty-four telephone companies, thirty-seven of them members of the Bell System, and seven of them members of another group. The defendants are the United States and the Federal Communications Commission, with whom the National Association of Railroad and Utilities Commissioners was afterwards joined, intervening as the representative of the regulatory commissions of forty-six states in support of the contested order.

The Communications Act of 1934 provides (§ 220) that "the Commission may, in its discretion, prescribe the forms of any and all accounts, records, and memoranda" to be kept by carriers subject to the Act, "including the accounts, records, and memoranda of the movement of traffic, as well as of the receipts and expenditures of moneys." This is a power that had previously been lodged with the Interstate Commerce Commission -- Interstate Commerce Act, § 20 (5) -- which framed a set of rules for telephone companies to take effect January 1, 1913, and a revised set of rules effective January 1, 1933.

[ 299 U.S. Page 236]

     After the transfer of jurisdiction over telephone companies from the Interstate Commerce Commission to the Federal Communications Commission in 1934, the new Commission prepared a "draft of a Uniform System of Accounts," which was considered at a conference with representatives of the companies and of the state commissions. The outcome of the conference was the order of June 19, 1935, to take effect January 1, 1936, which is the subject of this suit.

The plaintiffs having moved for an interlocutory injunction, the cause was heard, in accordance with the requirement of the statute -- 47 U. S. C. § 402 (a); 28 U. S. C. § 47 -- by a District Court of three judges, the affidavits in support of the motion and against it being also submitted for and against the final decree. Five provisions of the order were attacked as arbitrary. The District Court sustained two objections of minor importance, which are not in controversy now, and overruled the others. One of these was directed to the "original cost" rule; the second to a provision as to "just and reasonable" charges; the third to a classification dividing plants in present use from those held for use thereafter. The court dismissed the bill as to the objections overruled, stating in an opinion the reasons for its action. 14 F.Supp. 121. The case is here upon appeal. 48 Stat. 1064, 1093, § 402 (a); 47 U. S. C. § 402 (a); 38 Stat. 219, 220; 28 U. S. C. §§ 47, 47 (a).

This court is not at liberty to substitute its own discretion for that of administrative officers who have kept within the bounds of their administrative powers. To show that these have been exceeded in the field of action here involved, it is not enough that the prescribed system of accounts shall appear to be unwise or burdensome or inferior to another. Error or unwisdom is not equivalent to abuse. What has been ordered must appear to be "so entirely at odds with fundamental principles of correct

[ 299 U.S. Page 237]

     accounting" (Kansas City Southern Ry. Co. v. United States, 231 U.S. 423, 444) as to be the expression of a whim rather than an exercise of judgment. Norfolk & Western Ry. Co. v. United States, 287 U.S. 134, 141; Kansas City Southern Ry. Co. v. United States, supra, p. 456. Then too, in gauging rationality, regard must steadily be had to the ends that a uniform system of accounts is intended to promote. "The object of requiring such accounts to be kept in a uniform way and to be open to the inspection of the Commission is not to enable it to regulate the affairs of the corporations not within its jurisdiction, but to be informed concerning the business methods of the corporations subject to the act that it may properly regulate such matters as are really within its jurisdiction." Interstate Commerce Comm'n v. Goodrich Transit Co., 224 U.S. 194, 211; cf. Kansas City Southern Ry. Co. v. United States, supra, p. 445. With these principles in mind, we proceed to consider separately the regulations and instructions now challenged as unlawful.

First: The Original Cost Provisions.

Four new balance sheet accounts, each of them a subtitle of the general title of "Investments," must be kept under the new system. The first (100.1) is described as Telephone Plant in Service; the second (100.2), Telephone Plant under Construction; the third (100.3), Property held for Future Telephone Use; and the fourth (100.4), Telephone Plant Acquisition Adjustment. Account 100.1 "shall include the original cost [defined by Instruction 3 (S. 1)] of the company's property used in telephone service at the date of the balance sheet." Account 100.2 "shall include the original cost [as so defined] of construction of telephone plant not completed ready for service" at such date. Account 100.3 "shall include the original cost [so defined] of property owned and held for imminent use in telephone service under a definite plan for such use." The term "original cost" as

[ 299 U.S. Page 238]

     appearing in these rules receives, under Instruction 3 (S. 1), a special definition. "'Original cost' or 'cost,' as applied to telephone plant, franchises, patent rights, and right-of-way, means the actual money cost of (or the current money value of any consideration other than money exchanged for) property at the time when it was first dedicated to the public use, whether by the accounting company or by a predecessor public utility." If actual costs are unknown, estimates are to take their place. Instruction 21 (B). From all this it follows that the sum of the three accounts which represent the original cost of property acquired by the accounting company from other telephone utilities, may be less or greater than the investment in such property by the accounting company itself. The difference is taken care of by account 100.4, Telephone Plant Acquisition Adjustment.*fn* The same rule provides in a subdivision designated (C) that "the amounts recorded in this account [i. e. 100.4] with respect to each property acquisition shall be disposed of, written off, or provision shall be made for the amortization thereof in such manner as this Commission may direct."

Before explaining the appellants' objections to these provisions as to cost, we may pause to indicate the reasons that led to their adoption. To a great extent, the telephone ...


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