Northwestern Telephone Exchange Co. v. City of St. Charles
154 F. 386, 1907 U.S. App. LEXIS 5177 (1907)
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Rule of Law:
A state legislature's grant to a utility company to use public highways is a license that can be prospectively modified or revoked. This license only becomes a vested contractual right for specific locations where the company has actually constructed infrastructure and expended money in reliance on the grant.
Facts:
- In December 1878, the complainant telephone company was organized under Minnesota state law.
- A Minnesota law passed on March 7, 1881, granted telegraph and telephone companies the right to use public roads and highways for their poles and wires, provided they did not interfere with travel.
- In 1893 and 1901, the Minnesota legislature amended the law to require companies to obtain a franchise from a city or village before using its streets for any improvements.
- In 1896, the complainant company received permission from the city of St. Charles to erect poles on specific, named streets to establish a long-distance telephone line.
- Following the 1896 permission, the company constructed the long-distance line through St. Charles and operated a pay station.
- From 1899 to 1905, the company's line was connected through a local exchange operated by the People’s Telephone Company under a contract.
- In July 1905, after its contract with the People's Telephone Company ended, the complainant disconnected its wires.
- In August 1905, the complainant applied to the St. Charles city council for permission to erect poles on numerous other city streets to build its own local telephone exchange, but the city council refused permission.
Procedural Posture:
- The complainant telephone company filed a suit in federal district court against the city of St. Charles.
- The suit sought to restrain the city from enforcing an ordinance that prevented the company from erecting new poles and wires without city council permission.
- The defendant city filed a motion to dismiss for want of jurisdiction, which the court denied.
- The case was then presented to the district court for a decision on the merits.
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Issue:
Does a state law granting telephone companies the right to use public highways create a vested contractual right to expand services and establish a local exchange in any city, even after the state legislature amends the law to require a franchise from the city for such use?
Opinions:
Majority - Lochren, District Judge
No. A state law granting utilities the right to use public highways is a license, not an irrevocable contract, and the state retains its governmental power to control its highways and change the terms of that license. The original 1881 law was a mere license that the state could modify. Where the complainant company acted upon this license and expended money, as it did when building its long-distance line on specific streets in 1896, its right to maintain that specific line became a vested, contract-like right. However, this right did not extend to all streets in the city for all future purposes. For any streets not yet occupied, the company had no vested rights, and it was subject to the subsequent legislative amendments of 1893 and 1901 which required a franchise from the city. Therefore, the company has no right to build a new local exchange on other city streets without first obtaining a franchise from the city of St. Charles.
Analysis:
This decision establishes that a general statutory grant for utilities to use public ways is a revocable license, not a perpetual franchise. It solidifies the principle that reliance and expenditure are necessary to vest such a license into a contractual right, and even then, the right is limited to the extent of the actual use. This reinforces the state's sovereign police power over its highways and subjects utility expansion to evolving public policy and local control, preventing companies from claiming indefinite expansion rights based on historical, more permissive statutes.
