Southern Pacific Co. v. ARIZONA CORPORATION COM'N
1965 Ariz. LEXIS 283, 404 P.2d 692, 98 Ariz. 339 (1965)
Rule of Law:
A public utility commission cannot order a utility to restore discontinued service without affording the utility a hearing to prove the adequacy of its remaining service, nor can a commission enforce an administrative regulation that conflicts with a legislative statute.
Facts:
- Southern Pacific Company, a railroad corporation, operated interstate passenger trains running between Texas and California through the state of Arizona.
- On April 18, 1964, the railroad management implemented a revised schedule that eliminated one westbound and one eastbound passenger train from its service.
- The railroad implemented this reduction in service immediately without providing thirty days' advance notice to the Corporation Commission.
- The railroad contended that the remaining service was adequate to meet public demand.
Procedural Posture:
- The Commission issued an ex parte order requiring the railroad to maintain schedules, which it subsequently vacated.
- The Commission issued an order to show cause and scheduled a public hearing regarding the service reduction.
- At the scheduled hearing, the Commission refused to permit the railroad to introduce evidence regarding the necessity of the service.
- The Commission issued Decision No. 35247 ordering the railroad to immediately restore the discontinued service.
- The railroad filed a motion for rehearing, which the Commission denied.
- The Commission initiated contempt proceedings and the Attorney General applied for a writ of mandamus in the Superior Court of Maricopa County.
- The railroad petitioned the Supreme Court of Arizona for a writ of certiorari.
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Issue:
Does the Corporation Commission have the authority to order a railroad to restore discontinued train service without a hearing on the merits, and is a Commission General Order requiring prior permission for changes valid despite a statute requiring only thirty days' notice?
Opinions:
Majority - Justice Struckmeyer
No, the Commission cannot order the restoration of service without a proper hearing, and its General Order is invalid because it conflicts with state statutes. The Court reasoned that regulatory bodies do not have the power to manage the affairs of a corporation; management retains the initial right to determine service levels. While the state can regulate based on public interest, this requires due process. Under the Fourteenth Amendment and state law, the Commission acts judicially and must provide notice, a hearing, and the right to introduce evidence before ordering a utility to change its operations. Furthermore, the Commission's General Order U-8, which required 'permission' before discontinuing service, conflicted with A.R.S. § 40-367, which only required 'notice' of changes. An agency cannot repeal or override a legislative statute with its own internal rules. Since the Commission refused to hear the railroad's evidence regarding the adequacy of the remaining service, its order to restore the trains was a violation of due process and a nullity.
Dissent - Justice Udall
Yes, the Commission acted properly because public utilities have an affirmative duty to serve the public and cannot abandon service without state consent. The dissent argued that railroads are public instrumentalities invested with sovereign powers (like eminent domain) and thus have higher duties than private businesses. By discontinuing trains without notice, the railroad violated the law. The Commission's order was merely maintaining the status quo until a proper determination could be made. The dissent contended that the burden of proof should be on the railroad to show the trains are unnecessary, not on the Commission to prove they are necessary. Additionally, the dissent argued that General Order U-8 was a valid exercise of the Commission's broad constitutional power to 'make reasonable rules.'
Concurrence - Justice McFarland
No, the Commission erred by refusing to hear evidence, though it had the right to enforce the statutory notice period. The concurring justice agreed that General Order U-8 was invalid because it conflicted with the statute allowing changes after notice. While the Commission could have penalized the railroad for failing to give the required 30-day notice, or perhaps ordered service restored for that specific 30-day window, it could not summarily order indefinite restoration without a hearing. Once the Commission set a hearing date and the railroad appeared with witnesses, the Commission had a duty to hear the evidence regarding the adequacy of the service.
Analysis:
This case creates a significant boundary between the managerial prerogatives of a regulated utility and the oversight powers of a state commission. It reinforces the principle of 'administrative supremacy' of the legislature—meaning an agency cannot create rules (like requiring permission) that are stricter than the statutes (which only require notice) created by the legislature. Furthermore, it firmly establishes that administrative agencies acting in a quasi-judicial capacity must adhere to strict due process standards. They cannot issue orders based on 'crystal ball' assumptions; they must hear evidence. For law students, this is a key case for understanding the limits of delegated authority and the interaction between administrative rules and enabling statutes.
