American Tel. & Tel. Co. v. United States, 299 U.S. 232 (1936)
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American Telephone & Telegraph Co. v. United States
No. 74
Argued November 16, 17, 1936
Decided December 7, 1936
299 U.S. 232
APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF NEW YORK
Syllabus
1. A court cannot substitute its own discretion for that of administrative officers acting within their powers. Mere error or unwisdom is not equivalent to abuse of discretion. P. 236.
2. Statements made in argument by counsel for the Government in behalf of the Federal Communications Commission, which were reduced to writing and filed in the case at the suggestion of the Court, and which declared the meaning of certain of the regulations prescribed by the Commission as part of a uniform system of accounts for telephone companies under the Communications Act of 1934 held an administrative construction binding upon the Commission in its future dealings with the companies. P. 241.
3. Rules in a uniform system of accounts for telephone companies subject to the Communications Act of 1934 require that the property investments of an accounting company shall be entered in balance sheet accounts under the general title of "Investments" at "original cost," a term which, as applied to plant, franchise, patent rights, etc., is defined to mean the cost, actual or estimated, of the property at the time when it was first dedicated to the public use, whether by the accounting company or a predecessor public utility; the differences between the amounts actually paid by the accounting company in acquiring property from predecessor utilities and this "original cost" (actual or estimated) of the property shall be recorded in another account entitled "Telephone Plant Acquisition Adjustment," and shall be disposed of, written off, or amortized in such manner as the Commission may direct.
Held:
(1) That, in the light of administrative construction, the regulation does not mean that the differences entered in the Adjustment Account must be written off completely; on the contrary, amounts in the Adjustment Account which represent investment by the accounting company in assets of continuing value are to be retained in the account until such assets cease to exist or are retired, and provision is to be made for their amortization. Pp. 237, 240.
(2) Reservation of ultimate disposition of items in this Adjustment Account to await further inquiry and direction by the Commission does not render the classification arbitrary, or amount to a departure from the statutory power to prescribe the "forms" of accounts for classes of carriers, rather than for individuals. P. 242.
(3) As to property acquired from other utilities, the companies are not prevented from recovering depreciation expense which they actually incur, on their actual investment, nor required to base depreciation charges on cost to prior owners. The provisions of the regulations as to depreciation or amortization comply with § 220(b) of the Act. P. 242.
(4) The requirement that an estimate of the original cost to a predecessor utility shall be recorded when the actual cost is unknown is not arbitrary; nor does it expose the accounting company to the hazard of criminal prosecution. P. 244.
(5) To subject an accounting company or its officers to criminal prosecution for violation of the Act, the violation must have been knowing and willful. Communications Act, §§ 501, 502. P. 245.
(6) Should duties imposed by the rules on an accounting company be uncertain, it may obtain clarifying instructions from the Commission. P. 245.
4. Another of the instructions in the system of accounts above mentioned declares:
All charges to the accounts prescribed in this classification for telephone plant, income, operating revenues, and operating expenses shall be just and reasonable, and any payments by the company in excess of such just and reasonable charges shall be included in account 323, "Miscellaneous income charges."
Held:
(1) The purpose of this requirement is to prevent the padding of the accounts by charges knowingly and willfully entered in excess of what is just and reasonable. Only if knowingly and willfully so entered is any penalty prescribed by the Act. P. 246.
(2) The requirement is not arbitrary. P. 246.
(3) The standard "just and reasonable" is not unduly vague. Id.
5. The rules require that property "used in telephone service at the date of the balance sheet" go into one account, property "held for imminent use in telephone service" under a definite plan for such use into another, and other property held for future use not imminent or definite into a third account which covers "miscellaneous physical property." Held not open to objection on the ground of vagueness. Property held for imminent use in telephone service and under a definite plan will include spare plants kept in reserve as a measure of prudent administration. Property held in present telephone use comes very near to defining itself. If particular situations shall develop ambiguity or doubt, the Commission will be available for clarifying instructions. P. 247.
6. The evidence does not show that the order of the Commission, by requiring revision of accounts, lays an unreasonable burden of expense upon the telephone companies. Id.
14 F.Supp. 121 affirmed.
Appeal from a decree which dismissed in part a bill brought against the United States and the Federal Communications Commission by numerous telephone companies to set aside an order of the Commission prescribing a uniform system of accounts. Other telephone companies intervened as plaintiffs, and the National Association of Railroad and Utilities Commissioners intervened as defendant. There was no cross-appeal from that part of the decree which was favorable to the plaintiffs.