19 Wn.2d 200, THE STATE OF WASHINGTON on the Relation of The Pacific Telephone & Telegraph Company, Respondent, v. THE DEPARTMENT OF PUBLIC SERVICE OF WASHINGTON et al., Appellants
[No. 28594. En Banc.      Supreme Court      October 22, 1943.]
THE STATE OF WASHINGTON on the Relation of The Pacific
               Telephone & Telegraph Company, Respondent, v. THE
                DEPARTMENT OF PUBLIC SERVICE OF WASHINGTON
                          et al., Appellants.«1»

It would seem that matters might have transpired before the superior court which would be relevant on an appeal from the judgment which that court entered. The parties might have agreed upon a finding or a ruling to be made

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by the court, or one party might have proposed a finding which the court adopted. Certainly these matters could not be completely reviewed by this court without knowledge of what had happened before the court below.

Rem. Rev. Stat. (Sup.), § 10428, supra, provides that the superior court shall review an order of the department of public service "on the evidence and exhibits introduced before the department." Rem. Rev. Stat., § 10430, supra, relative to an appeal to this court from the superior court, refers to "the original transcript of the record and testimony filed in the superior court . . . together with a transcript of the proceedings in the superior court", as constituting the record on appeal. The sections apply specifically to reviews and appeals from orders of the department of public service. In § 10430, the legislature used the word transcript, referring to the record and testimony taken before the department, and then provided for "a transcript of the proceedings in the superior court." This section does not refer to the transcript of the files, but uses the word proceedings, which includes all matters which occurred before the superior court, both by way of papers which became properly a portion of the clerk's files, as well as matters which transpired in open court.

This section should be construed liberally in aid of our appellate jurisdiction, and we hold that, in using the word transcript the second time, the legislature intended to include not only a transcript of pertinent portions of the clerk's file but a written record of such proceedings before the court by way of a statement of facts or bill of exceptions as are deemed pertinent to a consideration of the questions to be presented on appeal to this court. A statement of facts is often referred to as a transcript of the testimony, which in fact it is, and while in the trial before the superior court no testimony was admissible, other things may have occurred which should be considered by this court on appeal.

Of course, this court, on appeal from a decree of the superior court reviewing a departmental order, in so far as

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the evidence upon which that order was based is concerned, may consider only the record made before the department, but nevertheless on such an appeal we are required to review the judgment of the superior court.

We hold, then, that, if a party to such an appeal as this deems matters which occurred before the superior court to be relevant and of importance to a proper determination of the questions to be decided, such matters may be made a part of the record on appeal by statement of facts or bill of exceptions. Whether or not matters contained in such a document are pertinent and may properly be considered by this court in deciding the questions presented is, of course, a matter to be determined as to each particular item contained in such a statement of facts.

The motion to strike the statement of facts is denied.

The hearings conducted by the department in the matter now before us consumed months, and involved a vast amount of research and study. Prior to the entry of the order of July 6, 1940, the department had devoted ninety days to hearing the matters at issue, five hundred exhibits had been filed, and ten thousand typewritten pages of testimony had been adduced. After calling attention to these matters, the department said: "This is by far the most complex case and the most voluminous record which this department has ever had before it." The record, of course, was considerably enlarged as the result of subsequent hearings.

By its first assignment of error, appellant department states its contention that the trial court erred in reversing the three departmental orders above referred to. By its decree, the court vacated five specific portions of the July and October orders. The decree then reversed all the orders (except two provisions of the October order), and remanded the proceeding to the department.

The decree was prepared, as it recites, in compliance with Rem. Rev. Stat. (Sup.), § 10428, which, referring to a review of the departmental order before the superior court, provides:

212 STATE EX REL. PAC. T. & T. CO. v. D. P. S. [19 Wn. (2d)

"Such cause shall be heard by the court without the intervention of a jury on the evidence and exhibits introduced before the department and certified to by it. Upon such hearing the superior court shall enter judgment either affirming or setting aside or remanding for further action the findings or order of the department under review. . . . In case such findings or order be set aside, or reversed and remanded, the court shall make specific findings based upon evidence in the record indicating clearly all respects in which the department's findings or order are erroneous.

Appellant contends that by the decree no fact found by the department was set aside or reversed, and that on appeal it must be held that all of the findings of fact made by the department were, in effect, affirmed by the trial court, and that for this reason the court did not, and indeed could not, make any of the specific findings referred to in the quoted portion of § 10428. Appellant then argues that the trial court disagreed with the department only as to certain conclusions of law, and that therefore the sole question before this court is, "Do the department's findings support the department's orders? If they do, the department's orders must be affirmed." Appellant argues that, pursuant to the writs of review, the superior court was required to determine only one ultimate question, namely: Were the rates promulgated by the department in its December order just and reasonable, or were they obnoxious to the argument that they were arbitrary and confiscatory, in that they deprived respondent of its property without due process of law?

Appellant also contends that any errors contained in the departmental record were and are immaterial if the ultimate finding of the department, fixing rates, does not result in confiscation, and that, as the trial court did not specifically find that the carrying out of the departmental orders would result in confiscation of respondent's property, the reversal of the departmental orders was erroneous.

By the decree appealed from, supra, the court, after stating in four numbered paragraphs that certain "findings" of

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the department were errOneous, continued by stating that the other "findings" made by the department "are neither approved nor disapproved."

Appellant contends that, as the department found that the rates which it established by its order were adequate, fair, and sufficient, it should now be held that this finding was approved by the superior court, and that, the trial court having made no specific findings that this and other findings were erroneous, the departmental order of December 17, 1940, fixing rates, should be affirmed.

The sum of appellant's argument is that, under § 10428, supra, the trial court not having specifically set aside any of the findings of the department, the findings stand affirmed, and the only question before this court is whether or not the findings support the orders of the department.

The trial court had before it the complete departmental record, including all the evidence, the findings, and the orders which the department entered. By its decree, the superior court held that the department had acted illegally (1) in the method followed in determining the fair value of respondent's property for rate-making purposes; (2)in excluding, from the amount of respondent's disbursements to be allowed as operating expenses, moneys paid under the so-called license contract and in maintaining respondent's system of pensions; and (3) in fixing five per cent as the rate of return to be realized by respondent upon the fair value of its property used and useful in the public service.

[2] The questions before us are limited to those presented by appellant's appeal from the decree of the superior court. Clearly, if the proceeding was to be remanded to the department for further action, the department should be left free to consider any and all questions pertaining to the matter, and should not be hampered, or the scope of its future inquiry limited, by any contention that certain of its findings had been affirmed by the superior court, and that those matters were therefore closed to further investigation or consideration.

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Upon this appeal, no question is before us concerning any portion of the department's orders, save those referred to in the decree of the superior court, and such portions of the orders as are dependent thereon.

[3] In proceedings such as this, it is often very difficult to determine the dividing line between questions of fact and questions of law. In rate cases, these questions are not divided by any sharp line of demarcation. The questions here presented are, of law, rather than of fact.

In the case of Mallinger v. Webster City Oil Co., 211 Iowa 847, 849, 234 N. W. 254, the supreme court of Iowa said:

"Where the ultimate conclusion can be arrived at only by applying a rule of law, the result so reached embodies a conclusion of law, and is not a finding of fact."

The case cited arose under the workmen's compensation statute of the state of Iowa, but the clear and comprehensive statement above quoted applies with equal force to such a proceeding as that now before us.

In the case of Ohio Bell Tel. Co. v. Public Utilities Commission, 301 U. S. 292, 304, 81 L. Ed. 1093, 57 S. Ct. 724, the supreme court, speaking through Mr. Justice Cardozo, said:

"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. [Citing cases.] 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' (St. Joseph Stock Yards Co. v. United States, 298 U. S. 38, 73)of a fair and open hearing be maintained in its integrity." (Italics ours.)

[4] The department of public service of Washington is a legislative agency possessed only of the powers conferred upon it by the constitution of this state and legislative enactments. In its proceedings, it is at all times subject to limitations imposed by the Federal constitution and by the

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constitution of our state. As such a legislative agency, the department has power, and it is its duty, to gather facts and consider evidence, and, based upon the record which has been made before it, to fix or approve fair and reasonable rates which a public utility may charge for its service. In the course of its operations, the department necessarily covers much ground, and is required to consider many extremely complicated questions of fact in the light of established law, which is also complicated, and which is still, in some of its phases, new. Courts have naturally experienced much difficulty in determining the principles which govern proceedings before rate-making authorities, and questions which have not yet been definitely settled sometimes arise.

[5] In all jurisdictions, the rate-making authority is required to gather facts upon which to base an order affecting rates, and from those facts make findings which support the order entered. Upon review, the courts may always scrutinize those facts, for the purpose of determining whether or not the findings have been arbitrarily or capriciously made. Interstate Commerce Commission v. Louisville & N. R. Co., 227 U. S. 88, 57 L. Ed. 431, 33 S. Ct. 185; Florida v. United States, 282 U. S. 194, 212, 75 L. Ed. 291, 51 S. Ct. 119; United States v. Carolina Freight Carriers Corp., 315 U. S. 475, 86 L. Ed. 971, 62 S. Ct 722.

[6] In all its proceedings, the regulatory body must act strictly within its statutory authority, within constitutional limitations, and in a lawful manner. United States v. Carolina Freight Carriers Corp., supra; State ex. rel. Puget Sound Power & Light Co. v. Department of Public Works, 179 Wash. 461, 38 P. (2d) 350.

Orders of the department may be reviewed as to constitutional questions inhering therein, and such orders should also be scrutinized for the purpose of arriving at a judicial decision as to whether or not the department has acted arbitrarily. Florida v. United States, supra; Mitchell v. United States, 313 U. S. 80, 85 L. Ed. 1201, 61 S. Ct. 873, Gray v.

216 STATE EX REL. PAC. T. & T. CO. v. D. P. S. [19 Wn. (2d)

Powell, 314 U. S. 402, 86 L. Ed. 401, 62 S. Ct. 326; Hoboken Manufacturers' R. Co. v. United States, 47 F. Supp. 779.

In the case of Interstate Commerce Commission v. Louisville & N. R. Co., 227 U. S. 88, 91, 57 L. Ed. 431, 33 S. Ct. 185, the court considered certain railroad rates fixed by the commerce commission, and, speaking through Mr. Justice Lamar, referring to the order of the commission under attack, said:

"A finding without evidence is arbitrary and baseless. And if the Government's contention is correct, it would mean that the Commission had a power possessed by no other officer, administrative body, or tribunal under our Government. It would mean that where rights depended upon facts, the Commission could disregard all rules of evidence, and capriciously make findings by administrative fiat. Such authority, however beneficently exercised in one case, could be injuriously exerted in another; is inconsistent with rational justice, and comes under the Constitution's condemnation of all arbitrary exercise of power."

In the case of State ex rel. Model Water & Light Co. v. Department of Public Service, 199 Wash. 24, 90 P. (2d) 243, we said:

"The findings of the department are to be given the same weight accorded to any impartial tribunal, and may not be overturned unless the clear weight of the evidence is against its conclusions, or unless it has mistaken the law applicable to the matter adjudicated, or, as sometimes expressed, unless the findings show evidence of arbitrariness and disregard of the material rights of the parties to the controversy."

This portion of the opinion in the case cited was quoted with approval in the cases of State ex rel. O. W. R. & N. Co. v. Walla Walla County, 5 Wn. (2d) 95, 104 P. (2d) 764, and Manlowe Transfer etc. Co. v. Department of Public Service, 18 Wn. (2d) 754, 140P. (2d) 287.

In this state, the statute provides for judicial consideration of departmental orders by way of a writ of review to the superior court, which court must hear and determine questions presented upon the evidence taken before the department. Questions which have been determined by this court upon appeals from reviews of orders entered by

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other statutory fact-finding bodies are not necessarily in point upon questions presented in connection with consideration of orders entered by appellant department, as the statutes constituting the respective authorities may differ.

[7] In the case at bar, it was the province of the trial court to review the departmental orders before it and determine whether or not the department (1) had correctly followed the statutes as to matters of procedure, (2) had failed to grant respondent a fair hearing, (3) in making its findings and orders, had acted arbitrarily or capriciously, or (4) had violated rights secured to respondent by the constitution of the United States or the constitution of the state of Washington, or, as so often stated in our decisions, had, in reaching its results, proceeded upon a fundamentally wrong basis.

The trial court was bound by no conclusion of the department as to any question of law, always observing the rule that the burden of proof rested upon the party attacking the order. State ex rel. Kitsap County Transportation Co. v. King County, 3 Wn. (2d) 392, 101 P. (2d) 327; State ex rel. Case v. Public Service Commission, 298 Mo. 303, 2495. W. 955; Clear Creek Oil & Gas Co. v. Ft. Smith Spelter Co., 161 Ark. 12, 255 S. W. 903.

This rule applies whether questions presented concern constitutional or statutory limitations. Los Angeles Gas etc. Corp. v. Railroad Commission, 289 U. S. 287, 304, 77 L. Ed. 1180, 53 S. Ct. 637.

In the case of Smyth v. Ames, 169 U. S. 466, 42 L. Ed. 819, 18 S. Ct. 418, the supreme court laid down the rule that, if a rate prescribed by a rate-making authority does not yield a fair return upon the value of the utility's property, the rate is confiscatory, and the order establishing the same is void upon constitutional grounds. The doctrine of the Smyth case has been consistently followed by the supreme court and by state courts, including the courts of the state of Washington. State ex rel. Puget Sound Power & Light Co. v. Department of Public Works, 179 Wash. 461, 38 P. (2d) 350.

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[8] The power of the courts to determine constitutional questions cannot be limited by statutes constituting ratemaking authorities, or by statutes purporting to regulate judicial consideration of the orders of such statutory authorities.

[9] In the case at bar, the basic question presented is whether or not the rate of return fixed by the departmental orders will accord respondent a fair return upon the fair value of its property; in other words, whether enforcement of the orders of the department will result in taking the property of respondent without due process of law, in violation of the provisions of the Federal and state constitutions. In determining whether a rate fixed by a regulatory body is fair or confiscatory, neither the findings nor conclusions of the department are binding upon the courts. Individual judges have dissented from this proposition, but the rule has been clearly stated by the supreme court of the United States. In the case of Ohio Valley Water Co. v. Ben Avon Borough, 253 U. S. 287, 289, 64 L. Ed. 909, 40 S. Ct. 527, the court said:

"The order here involved prescribed a complete schedule of maximum future rates and was legislative in character. In all such cases, if the owner claims confiscation of his property will result, the State must provide a fair opportunity for submitting that issue to a judicial tribunal for determination upon its own independent judgment as to both law and facts; otherwise the order is void because in conflict with the due process clause, Fourteenth Amendment."

The rule was approved in the case of St. Joseph Stock Yards Co. v. United States, 298 U. S. 38, 80 L. Ed. 1033, 56 S. Ct. 720, infra.

The reasoning of the cases decided by the supreme court of the United States has been adopted and approved by the state courts. Southern California Edison Co. v. Railroad Commission, 6 Cal. (2d) 737, 59 P. (2d) 808; Otis Elevator Co. v. Industrial Commission, 302 Ill. 90, 134 N. E. 19; East Ohio Gas Co. v. Public Utilities Commission, 133 Ohio 212, 12 N. E. (2d) 765; Pacific Tel. & Tel. Co. v. Wallace, 158

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Ore. 210, 75 P. (2d) 942; Wisconsin Tel. Co. v. Public Service Commission, 232 Wis. 274, 287 N. W. 122, 593; Application of N. W. Bell Tel. Co., 6 N. W. (2d) (S. D.) 165, 171.

[10] Appellant argues that "unless the orders of the department in totality of their effect confiscate the property [of respondent], the order of the department establishing the rate schedules must be affirmed." Appellant then says: "The findings of the department establish that the ordered rates are not confiscatory, but are fair and reasonable." If we understand appellant correctly, appellant argues that a finding having been made that the rates were reasonable, the court is bound thereby, unless it be held that the evidence does not support the order. In advancing this proposition, appellant apparently would limit judicial review to the question of whether or not on the facts the department acted arbitrarily and capriciously, losing sight of the rule that the courts may always decide whether or not the department has acted within its prescribed legal limitations, and has observed the rules of law governing such investigations and the resulting departmental orders. It is not the law that a rate-making authority may, by making a finding that certain rates are reasonable, preclude judicial review of its methods and processes in reaching such a finding, which, after all, in effect is a conclusion.

In the case of St. Joseph Stock Yards Co. v. United States, 298 U. S. 38, 50, 80 L. Ed. 1033, 56 S. Ct. 720, the court, speaking through Mr. Chief Justice Hughes, said:

"The fixing of rates is a legislative act. In determining the scope of judicial review of that act, there is a distinction between action within the sphere of legislative authority and action which transcends the limits of legislative power. Exercising its rate-making authority, the legislature has a broad discretion. It may exercise that authority directly, or through the agency it creates or appoints to act for that purpose in accordance with appropriate standards. The court does not sit as a board of revision to substitute its judgment for that of the legislature or its agents as to matters within the province of either. . . . When the legislature itself acts within the broad field of legislative discretion, its

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