Smyth v. Ames
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| Smyth v. Ames | |
| Reference: 169 U.S. 466 (1898) | |
| Term: 1897-1898 | |
| Important Dates | |
| Argued: April 5 - April 7, 1897 Decided: March 7, 1898 | |
| Outcome | |
| United States Circuit Court for the District of Nebraska affirmed | |
| Majority | |
| Melville Fuller • John M. Harlan • Horace Gray • David J. Brewer • Henry B. Brown • George Shiras • Edward D. White • Rufus Wheeler Peckham | |
Smyth v. Ames is a case decided on March 7, 1898, by the United States Supreme Court in which the court struck down a delegation of authority from a state legislature to a state administrative agency to establish railroad rates. Instead, the court developed its own rate-setting formula. The court held that regulated industries were constitutionally entitled to earn a fair return on the fair value of their property.[1]
In his opinion, Justice John M. Harlan put forth a formula for rate determinations that did not rely on input from agency administrators. Supporters claimed that Harlan's decision protected due process rights under the Fourteenth Amendment, but critics argued that the ruling demonstrated judicial overreach into an area of expertise that was better administered by agency specialists. The United States Supreme Court adhered to the Smyth v. Ames precedent until the ruling was overturned in the 1944 case Federal Power Commission v. Hope Natural Gas Company.[1]
Why it matters: In Smyth v. Ames, the United States Supreme Court struck down a delegation of authority to an administrative agency and ruled that states did not have authority to cap rates on intrastate railroad transportation. Justice Harlan put forth his own formula for determining whether rates allowed a public utility to earn a fair return on the fair value of their property—a move that supporters believed protected due process rights but that critics argued overstepped judicial authority. The rate regulation precedent set by Smyth v. Ames endured until it was overruled in the 1944 case Federal Power Commission v. Hope Natural Gas Company, in which the court held that it would not substitute its judgment in rate determinations for that of agency administrators.[2][3]
Background
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The Nebraska State Legislature passed legislation in 1893 that authorized the State Board of Transportation to establish reasonable maximum rates for intrastate transportation. Supporters of the statute, including then-Congressman William Jennings Bryan, argued that the state legislature had acted lawfully to fix transportation rates within its borders. Opponents of the law argued that the rates set by the board were unreasonable and worked to divest railroads from their property.[4]
Three lawsuits were filed against officers of the State Board of Transportation on July 28, 1893, that challenged the constitutionality of the rate-setting legislation. The lawsuits jointly questioned whether the statute effectively worked to take property from the railroads without compensation and thus violated due process under the Fourteenth Amendment.[1]
The United States Circuit Court for the District of Nebraska consolidated the lawsuits and struck down the rates—holding that the board must yield to the reasonable rates determined by the railroads themselves. Justice David J. Brewer, a then-circuit court judge, invented a "fair return on fair value" test, arguing that the rates failed to provide a fair return on a fair property valuation and, therefore, worked to destroy property. The fair value rule required a governmental authority to determine a “rate base"—the current value of the regulated entity's assets—and allow the entity to charge rates sufficient to earn a normal return on that value.[1][4][2]
Oral argument
Oral arguments were held from April 5 to April 7, 1897. The case was decided on March 7, 1898.[1]
Decision
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The United States Supreme Court held 9-0 to affirm the lower court's decision. The majority opinion was written by Justice John M. Harlan and joined by Chief Justice Melville Fuller and Justices Horace Gray, David J. Brewer, Henry B. Brown, George Shiras, Edward D. White, and Rufus Wheeler Peckham.[5]
Opinions
Opinion of the court
In an opinion by Justice John M. Harlan, the court held that regulated industries were constitutionally entitled to earn a fair return on the fair value of their property. He asserted that the judiciary had the authority to intervene in the issue because Nebraska had set unreasonable rates that deprived companies of a fair return on the fair value of their property in violation of due process under the Fourteenth Amendment. Harlan further outlined a set of factors that he claimed should be considered in the determination of fair rates:[1][2]
| “ | We hold, however, that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public. And in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses are all matters for consideration, and are to be given such weight as may be just and right in each case. We do not say that there may not be other matters to be regarded in estimating the value of the property. What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the other hand, what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth.[1][6] | ” |
See also
- Due process
- Nondelegation doctrine
- Executive agency
- Supreme Court of the United States
- Ballotpedia's administrative state coverage
External links
- Full text of case syllabus and opinions (Justia)
- Supreme Court of the United States
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Footnotes
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 Justia, "Smyth v. Ames," November 1, 2018
- ↑ 2.0 2.1 2.2 The Oxford Guide to United States Supreme Court Decisions, "Smyth v. Ames," accessed November 1, 2018
- ↑ Maryland Law Review, "The Hope Natural Gas Case and Its Impact on State Utility Regulation," 1944
- ↑ 4.0 4.1 Encyclopedia of the American Constitution, "Smyth v. Ames 169 U.S. 466 (1898)," accessed November 1, 2018
- ↑ Oyez, "Justices of the court," accessed November 1, 2018
- ↑ Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
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