Newton v. Kings County Lighting Co.

Background

A New York law from 1906 set the maximum price for gas sold in New York City at $1.00 per thousand cubic feet, and a 1916 law cut that cap to eighty cents. A gas company sued in May 1920, saying its actual costs in 1919 and early 1920 exceeded eighty cents and would not fall below one dollar, so the price limits were confiscatory (taking property without fair compensation). A special fact-finder took evidence and reported in the company’s favor. The federal trial court entered a final decree on October 19, 1920, blocking the state from enforcing both statutes.

Reasoning

The central question was whether the state price limits unlawfully forced the company to sell gas below its reasonable costs. The special fact-finder and the trial court found the company’s cost evidence credible and concluded the statutory rates were confiscatory. The Supreme Court’s opinion, written by Justice McReynolds, reviewed those findings, rejected the arguments for reversing the injunction, and affirmed the lower court’s decree. In short, the Court agreed the price caps deprived the gas company of a lawful return and could not be enforced as written.

Real world impact

The ruling lets the gas company charge more than the state caps when those caps would force sales below reasonable cost. It prevents states from enforcing fixed maximum prices that amount to taking property without just compensation. Because the Supreme Court affirmed the final decree, the blockage on enforcing the two New York statutes stands as to this company and facts.