Railroad Commission v. Los Angeles Railway Corp.

Background

A private street railway company ran transit lines and buses in Los Angeles under 102 long‑term franchises that in many places limited fares to five cents. The company applied to the California Railroad Commission for permission to raise fares, the commission denied the request, and the company sued in federal court claiming the five‑cent fare was confiscatory. A three‑judge court found the five‑cent fare inadequate and enjoined the commission from enforcing it.

Reasoning

The Supreme Court focused on whether the city could legally bind the company by franchise language fixing fares. The majority concluded California law did not clearly empower Los Angeles to make binding rate contracts; and even if such contracts existed, the state railroad commission—acting under the state constitution and Public Utilities Act—had taken jurisdiction and effectively abrogated them. Because the company was not held to be contractually stuck at five cents, the Court affirmed the lower court’s decree.

Real world impact

The decision means the company is not forced by those franchise clauses to keep charging five cents. It confirms that state utility regulators can determine or override local franchise fare terms when the state law gives them exclusive rate‑setting power. Riders, city officials, and utility companies in California are directly affected.

Dissents or concurrances

Justices Brandeis and Stone dissented, arguing the federal court should have remanded to decide in the first instance whether particular franchises in fact created contractual fare obligations, and that the commission’s refusal to raise fares did not automatically abrogate any contracts.