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    WARREN TELEPHONE COMPANY, In re.
    Public Utilities Commission.
    No. 27147.
    Decided December 19, 1958.

      Power, Griffith & Jones, By John Robert Jones, for Applicant, The Warren Telephone Company.
    Bruce Birrell, City Solicitor, for the City of Warren, Protestant.
    Murray F. Hallett, Solicitor, for the City of Newton Falls, Protestant.
    William B. Saxbe, Atty. Geni., By James F. DeLeone, Asst. Atty Geni., and Counsel for the Public Utilities Commission, for The Public Utilities Commission of Ohio.
   FINDINGS AND ORDER

The Commission coming now to consider the above-entitled Application and the exhibits attached thereto, the matters contained in the Report of the Secretary, issued pursuant to the provisions of §4909.18 R. C., the testimony and exhibits adduced at public hearings held in this proceeding, and, being otherwise fully advised in the premises and in compliance with §4903.09 R. C., hereby renders its Findings and Order. NATURE OF PROCEEDING:

The Applicant. The Warren Telephone Company, seeks to increase its rates and charges for telephone service furnished to its subscribers through its Warren, Lordstown and Newton Falls exchanges.

HISTORY OF PROCEEDING:

On August 6, 1957, The Warren Telephone Company, Applicant herein, filed with this Commission its Application seeking authorization of the Commission to increase its rates and charges for telephone service rendered by it within its operating area, and in accordance with alphabetically enumerated paragraphs A, B, and C of §4909.18 R. C., filed with and attached to its Application certain exhibits purporting to represent:

(1) Exhibit A, a detailed inventory and appraisal as of December 31. 1956, of its property used and useful in the rendition of telephone service;

(2) Exhibit B, being a complete operating statement for the twelvemonth period ending December 31, 1956;

(3) Exhibit B-l, a detailed Income Statement for the year 1956 as per books, and Income Statement adjusted for increased payroll and depreciation charges and toll settlement, Income Statement annualized as of December 31, 1956, and a Pro Forma Income Statement;

(4) Exhibit C, being a comparative statement of the revenue under the existing rates and the anticipated revenue under the proposed rates by exchanges and classes of service;

(5) Exhibit C-l, being P. U. C. O. No. 6, the present tariff now on file with this Commission;

(6) The proposed tariffs to be filed with this Commission for the purpose of establishing new rates to be charged to Applicant’s subscribers, being P. U. C. O. No. 7, superseding P. U. C. O. No. 6; and,

(7) Exhibit D, being a study of the depreciation requirement of all the depreciable property of the Applicant used and useful in the rendition of telephone service as of December 31, 1956.

On August 7, 1957, this Commission issued its Entry approving the form of legal notice submitted with the Company’s Application.

In accordance with §4999.19 R. C., this Commission caused its Secretary to make an investigation of the matter set forth in said application. The Report of the Commission’s Secretary was filed with the Commission on June 18, 1958, copies thereof being served on all interested parties as required by law.

' Applicant filed its objections to the Secretary’s Report on July 10, 1958. This was followed by the objections of the Village of Newton Falls, Ohio, filed July 17, 1958, and by the objections of the City of Warren, Ohio, filed July 21, 1958.

The Applicant’s objections to the Report of the Secretary of the Commission may be summarized as follows:

(1) The offsetting of Federal Income and other tax accruals from the computation of working capital and maintenance material and supplies as includable in the recommended statutory rate base valuation;

(2) Inventory corrections, unit cost corrections, and corrections of general overhead allowances and other direct and indirect loading-charges as made by the Engineering Staff in their valuation investigation;

(3) The amount of statutory depreciation determined by the Engineering Staff for deduction from the reproduction cost new of Applicant’s plant and property;

(4) The recommended annual allowance for depreciation accruals as determined by the Engineering Staff; and,

(5) The adjustments to Applicant’s revenue and expenses for the test year made by the Accounting Staff.

The objections of the City of Newton Falls, Ohio, and of the City of Warren, Ohio, Protestants herein, may be treated collectively. The objections of the Protestant cities primarily allege that operating revenues as disclosed by the Report of the Secretary and the exhibits of the Applicant are understated, and that, correspondingly, operating expenses as disclosed by the Report of the Secretary and exhibits of the Applicant are overstated, that the rates submitted are excessive and unreasonable, that the income available for fixed charges as reflected in said Report and exhibits is understated, and that the computed rate of return as reflected in the Secretary’s Report is excessive.

Within the statutory period as prescribed by aforecited §4909.19 R. C., the Commission caused this proceeding to be set for public hearings, and hearings were had from time to time thereon.

DISCUSSION:

RATE BASE

Applicant, The Warren Telephone Company, submitted with its Application a detailed inventory and appraisal of its plant and property used and useful in the rendition of telephone service as of December 31, 1956. The detailed reproduction cost new valuation less statutory depreciation thereof estimated by the Application and as ascertained by the Company’s Consulting Engineers may be summarized as follows:

Reproduction Cost New at December 31, 1956 $17,704,449.00
Less Depreciation (5.74%) 1,015,576.00
Reproduction Cost New Less Depreciation $16,688,873.00
Plus Working Capital 88,185.00
Plus Material and Supplies 584,279.00
Total Proposed Statutory Rate Base $17,361,337.00

As a result of its investigation the Commission’s Engineering Staff recommended that the Applicant’s Reproduction Cost New Valuation as submitted should be adjusted in the following respects:

(1) Inventory Corrections $439,441.00; (2) Unit Cost Corrections $871,411.00; and, (3) General Overhead Allowance Corrections $1,167,007.00, aggregating reductions in the appraisal valuation of $2,477,859.00. These adjustments resulted in a recommended Reproduction Cost New of Applicant’s property at the date certain in the sum of $15,226,590.00, being a 14% reduction from the corresponding RCN submitted by the Applicant. A detailed analysis of these adjustments may be found in exhibits attached to the engineering section of the Report of the Secretary and for purposes of discussion they are set forth below:

A. Inventory Corrections:

Acct. No. Description Amount
234 Add for Highway Patrol PABX $ 2,151.19
235 Deduct for booth not found at H. H. Andrews 354.69*
243 Add account finding No. 10 copper not No. 12 23,729.14
Deduct account finding shorter average span
lengths 76,817.72
244 Deduct Construction Work in Progress 77,282.35*
Deduct account finding lesser amount of paving
cut and restored in construction 310,866.66*
Sub-Total Account Inventory Corrections $439,441.09*

Applicant, while filing general objections to all items listed in the tabulation of Inventory Corrections, has challenged only those deductions from Accounts 243 and 244 that are listed above. In its Brief, Applicant complains that the Commission’s Engineers, in investigating the property included under Account 243 in the Appraisal submitted by Applicant, and in making such deduction as listed above, failed to consider and allow for tie-wires and sag; and, further, that the methods used by Commission Engineers in measuring aerial wire actually in place would produce faulty or inaccurate results.

It is to be noted that in a proceeding of this nature, the burden of proof as to all matters, including the valuation of its property, is that of the Applicant. On the other hand, there is no. affirmative duty upon the Commission or its Staff to go forward with any evidentiary phase of the proceeding. It is the sole duty of the Staff to investigate an Application for increased utility rates and make recommendations to this Commission on the matters in the proceeding that are encompassed within their respective technical jurisdictions. The formal report, known as the “Secretary’s Report,” submitted to and filed with the Commission is like any other evidence and subject to appropriate tests of cross-examination.

Examination of the testimony of Applicant’s valuation witness, Mr. Jere S. Cave, with respect to the manner followed in the development of Account No. 243 discloses that aerial wire was measured by the foot from tracings made from maps of the City of Warren showing the location of the property (R. 248, 249), while Applicant’s Counsel asserts in brief that the Applicant’s determination was based on average span lengths ordinarily found in the type of construction which exists in The Warren Telephone Company properties. As to allowances for tie-wires and sag, not only did Applicant’s valuation witness fail to testify on these subjects, but the Commission notes that the common practice is to use pre-formed tie-wires averaging approximately six inches in length, while any acount of sag that might increase the footage of wire actually in place in a telephone plant of this size would be insignificant.

In the cross-examination of Paul E. Hampton, the Commission’s Chief Engineer, Applicant’s Counsel sought to elicit the methods the Engineering Staff used in determining average span lengths of wire, and total amounts of existing aerial wire in Applicant’s property, utilizing such average span lengths as a basis. This Staff witness testified that in making such determination, speedometers were used in rural areas, while tape lines and measuring wheel devices were used in congested urban-areas to measure actual span lengths at various locations sufficient in number to reflect average conditions in the properties. Thus, unlike Applicant’s assumed lengths, the Commission’s engineers made observed tests and samplings as to the span lengths in issue.

Applicant contends that the Engineering Staff’s recommended deductions for construction work in progress from Account 244, “Underground Conduit,” is arbitrary and should not be adopted. This Commission’s rate-making power is fixed by statute and is limited to the consideration of “the value of all property of the public utility actually used and useful.” Secs. 4909.04, 4909.05, and 4909.15 E. C. See also City of Cleveland v. Public Utilities Commission of Ohio, 164 Oh St 442, at 443. It is the opinion of the Commission, from the record herein, that the amount in question represents the value of certain property of the Applicant not actually used and useful in the rendition of its public utility telephone service as of the date certain of this proceeding, and, therefore, is not includable in its rate base valuation in the absence of proof to the contrary. Mt. Vernon Telephone Corp. v. Public Utilities Commission of Ohio, 163 Oh St 381.

In its determination of the value to be placed on the inventory in Account 244, the Applicant’s consulting engineer included in the account balance the cost of cutting and restoring pavements over all underground conduit presently existing and in place which is now covered by pavement. (R. 263, 266.) In the investigation of this Account, the Engineering Staff requested data from Applicant showing what pavement, if any, which had been actually cut and restored in the process of constructing underground conduit. After a check of maps from the office of the Engineer of the City of Warren, deductions were made from the account balance where conduit had been constructed prior to pavement being laid by the municipal authority in question. (R. 665, 666, 667.) The cross-examination of the Commission’s Chief Engineer, Paul E. Hampton, by Applicant’s Counsel best illustrates the Staff’s action, where, beginning at page 665 of the Record, he is questioned, in part, as follows:

“Q. Now, in that same table, I want to refer you to the same Account to a deduction of $310,866.66, and ask you if you will explain that deduction?
“A. Well, that is a net deduction of the cost of cutting and restoring paving over underground construction, such as conduits and manholes. The deduction is made on the basis that before the allowance can be included in this valuation, it must be substantiated that the Company absolutely did cut and replace the paving over the ducts, whereas in Exhibit A, that simply assumed that the paving had been cut and replaced over all ducts. After requesting substantiation on it from the Company, it was received in the form of certain data offered together by the Company and, I believe, the City Engineer of Warren, as to the date on which the underground installation was made and the date on which the streets were paved. We find from that data that the street was paved before the conduit was laid, and to allow for the cutting into the pavement to the extent that we did not find it had been paved before the ducts were made, we eliminated the cost of paving. * * *
“Q. What you did was to determine or require evidence as to paving that had been cut at the time these particular ducts were put in, is that correct?
“A. That is correct
“Q. In other words, you have deducted all except where it was proven that the paving had been cut at the time the ducts were installed, is that right?
“A. That is correct.
“Q. And for fairness and for the sake of the record, you do that on the authority of the Des Moines Gas Case? * * *
“A. I believe that is the case. It is an old case.”

The case referred to by Applicant’s Counsel is Des Moines Gas Company v. City of Des Moines, 238 U. S., 152, 59 L. Ed., 1244, the leading case in the United States on the question presented. This case has been approved and followed in Ohio and in the United States Supreme Court in Newark Natural Gas & Fuel Co. v. City of Newark, 92 Oh St 393, at 401; same case affirmed in 242 U. S., 405; Columbus Gas and Fuel Co. v. City of Columbus, 17 Fed. 2d, 630, Fed. Dist. Court, Southern District of Ohio, Eastern Division (1927); Dayton Power & Light Company v. Public Utilities Commission of Ohio, 127 Oh St 137, same case affirmed in 292 U. S., 290, Mr. Justice Cardozo, speaking for the Court.

Headnote No. 23 reads as follows;

“The cost in imaginary conditions of cutting and restoring pavements is not an increment of value to be taken into consideration in determining the rate base for a gas company.”

Applicant contends that to make deductions such as the Staff has made with respect to this account both distorts and violates the reproduction cost concept of valuation and that to be submitted to the requirement of proving that pavement over conduits was actually cut and restored in the process of construction of such underground conduits is extremely difficult and works a hardship on it as the Applicant. The premise that a single impulse reproduction of plant at the date certain would necessitate the cutting and restoration of all pavement in place over conduits, and, accordingly, such costs be fully capitalized in Account 244 for rate base valuation purposes are not only negated by the above-cited authorities, but by the dictates of practicalities and the application of common sense. To permit the inclusion of such costs in the capital values of a utility’s property would represent items of value for which the Company and its stockholders have never made expenditures.

The reproduction cost new of a utility’s property should reflect and purport to be the current day cost of expenditures actually made to construct the presently existing plant and property rendering the present utility service, and should not reflect value for costs never expended unless such costs are shown to be requisite to the reproduction of the extant plant.

The argument that a given standard of proof should not be required because of the difficulty in meeting such standard does not bear analysis particularly under this circumstance, since the public has been required to pay in the first instance for the cost of paving, as part of the overall cost of service, and, thus, should not be required to do so a second time without some affirmative and positive showing by the Applicant Utility of actual expenditure. Mt. Vernon Telephone Corp. v. Public Utilities Commission of Ohio, supra.

Accordingly, therefore, the Commission finds that Applicant’s objections to these deductions for Inventory Corrections from its submitted reproduction cost new valuation are not well taken in light of the record herein and adopts the Staff’s recommendation in this regard.

B. Unit Cost Corrections:

Acct. No. Description
207 Deduct Direct Cost Loading (9.14%) $ 4,200.48*
211 Deduct Direct Cost Loading (9.14%) 26,166.46*
212 Deduct Direct Cost Loading (9.14%) 121,022.93*
221 Deduct Direct Cost Loading (9.14%) 224,798.13*
231 Deduct Direct Cost Loading (9.14%) 97,750.53*
231 Add to correct Under-Pricing 51,061.28
232 Deduct Direct Cost Loading (9.14%) 41,432.67*
232 Deduct to correct Over-Pricing 52,568.71*
233 Deduct Direct Cost Loading (9.14%) 30,333.86*
233 Add to correct Under-Pricing 61,629.16
234 Deduct Direct Cost Loading 47,699.39*
234 Deduct to correct Over-Pricing 66,721.55*
235 Deduct Direct Cost Loading 1,625.35*
235 Deduct to correct Over-Pricing 670.12*
241 Deduct Direct Cost Loading 74,061.38*
241 Deduct to correct Over-Pricing 37,102.79*
242-A Deduct Cost Loading 98,197.15*
242-A Deduct to correct Over-Pricing 32,778.27*
242-U Deduct Direct Cost Loading 130,124.09*
242-U Add to correct Under-Pricing 21,202.63
243 Deduct Direct Cost Loading 36,274.85*
243 Add to correct Under-Pricing 48,926.38
244 Deduct Direct Cost Loading 220,986.33*
244 Add to correct Under-Pricing 306,545.91
261 Deduct Direct Cost Loading 9,822.61*
261 Add to correct Under-Pricing 2,149.87
264.4 Deduct Direct Cost Loading 2,583.12*
264.4 Add to correct Under-Pricing 2,583.12
264.5 Deduct Direct Cost Loading 9,643.35*
264.5 Add to correct Under-Pricing 1,055.07
Net Total $871,411.20*
Note: * Denotes Red Figure

To properly analyze and discuss the question of the Engineering Staff’s “Unit Cost Corrections,” and Applicant’s objections to such deductions, examination should first be made of the method used by Applicant’s Consulting Engineer in arriving at the reproduction cost new valuation appraisal of the Company’s plant and property.

Applicant’s valuation witness testified that an actual physical inventory and appraisal was in fact made. Allegedly, unit costs were developed by obtaining material prices from standard manufacturers and suppliers, by using labor rates prevalent in the area operated by the Company, by using representative and standard labor hours and by pricing out the items of inventory on this basis. Having established a priced out valuation for each item in each primary account, there was then added to the balance in each primary account an amount equalling 7% of such balance, which is said to represent “Plant Supervision, Tool and Supply Expense.” To these account balances there was then added another allowance in the amount of 2% which is claimed to constitute “Omissions and Contingencies.” Such allowances might well be termed direct overhead costs or “direct cost loadings.”

It is to be noted in this connection that these percentages actually, by reason of the “pyramiding” of the second on the first become 9.14%, rather than the arithmetical sum of 7% plus 2% of the same account balance, and have been applied against every primary plant account regardless of the character of the property contained in the account.

It appears to the Commission that the arbitrary application of such an appraisal procedure could prove patently unsound and fail to accord with appraisal realities.

In the absence of affirmative evidence the question might well be raised how the items of Plant Supervision, Tool and Supply Expense would be incurred in the reconstruction of property contained in such accounts as Right of Way, Land, Buildings, Central Office Equipment, Furniture and Office Equipment, Tools and Vehicles. It is to be noted that the record evidences Buildings and Central Office Equipment would be constructed by way of construction or installation contracts. As to omissions, the same reasoning is somewhat comparable as that applicable to the foregoing rationale relative to the inclusion of cost of paving cut and restored in Account 244 by reason that the property represented by the inventory is already known and specified, both quantitatively and qualitatively as of the date certain. In determining the value of Applicant’s property, a reasonable hypothesis must be made to estimate the cost to reproduce as of a date certain, a physical plant which is actually proven to be in existence as of that date certain. Value cannot be added to such utility plant and property on the theory that the Valuation Engineer is estimating the cost of constructing as of a date certain, a hypothetical telephone plant on a single impulse basis which must be planned from the ground up. If that were being done, provisions for omissions would be valid; however, the character, quantity, condition and location of the utility plant is fixed and specified by the inventory and appraisal. Items of engineering, planning, and like preliminary expenses attendant to the production of a utility plant should prove to be minimal except for those requisite to the actual processes of reconstruction.

Detailed analysis and review of the record does give rise to some question as to the efficacy of the labor rates, as well as the labor crew components, employed by the Commission’s Engineers in certain of their estimates of the unit costs. Some doubt is also raised in comparable instances as to the like estimates employed by the Company’s Consulting Engineers. Both of the respective component estimates may well merit some degree of reappraisal.

The Commission notes that the Applicant’s valuation witness repeatedly alluded in his testimony to methods that would be used by a general construction contractor in estimating and preparing bids for a construction contract, which methods were not, in the opinion of the Commission, those that were shown necessarily should be utilized in estimating a valuation for rate-making purposes in this case where many of the factors of reproduction are established. By virtue of the state of the record and the statutory burden of proof upon the Applicant, the Commission is of the view that it is compelled, therefore, to reject Applicant’s valuation method in these respects, and to adopt its Engineers’ recommended adjustments.

In this connection it should be noted that, as was disclosed by the testimony of the Commission’s Chief Engineer, allowances for Plant Supervision, Tool and Supply Expense, and Contingencies are not rejected in their entirety, but, rather, are reflected directly in the Engineers’ computations of unit costs, where direct cost loadings would appear to be more appropriate, inasmuch as this is substantially the manner such costs are treated in the ordinary development and construction of a utility plant. Thus, as stated above, the Commission adopts the Engineers’ recommended deduction of $871,410.70 as specified in Engineers’ Exhibit 1, Sheet 1 of 1, of the Report of the Secretary, styled “Unit Cost Corrections.”

C. Corrections of General Overhead Allowances:

The Applicant’s Consulting Engineer, by pricing out the inventory and adding provisions for Plant Supervision, Tool and Supply Expense and for Omissions and Contingencies, arrived at an estimated direct cost valuation. Added thereto, then, was a percentage (26%) of such direct cost as provisions for “General Overheads.” These may be encompassed within two principal categories: First, Preliminary Organization, Legal and Engineering Expense, and, secondly, Organization, Legal, General Engineering, Accounting, Casualities, Insurance, Taxes, and Interest During Construction. The first category amounted to an addition of $843,069.00, while the second represented an aggregate increment for both exchanges of $2,810,220.00. The method of computation utilized was to apply 6%, representing preliminary organization, legal and engineering expense, to the previously ascertained primary account balances. Then, there was added thereto a sum equivalent to 20% of the same base amount representing Organization, Legal Expense, etc. As in the case of direct cost loadings, the same percentage rates were applied against every primary account, regardless of its character.

To purportedly validate the 2% plus 7% direct loading charges, and 26% general overhead allowances, Applicant submitted its Exhibit 6 which was represented to be a separate item-by-item overhead study applicable to the property valuation of The Warren Telephone Company. The exhibit evidences that the period of reproduction of the telephone plant and property would be not less than three years, and that all overheads are established and weighted on this estimate.

Analysis of the exhibit, and Commission examination of the Company’s valuation witness, would appear to disclose that Applicant’s Exhibit 6 reflects certain items of expense not properly capitalizable, some degree of duplication, and costs and expenses which, in the absence of an affirmative showing, could well be considered to be in excess of those overhead costs which would be incurred in the reproduction of a hypothetical telephone plant similarly situated to that of the Applicant. For example, at page 3-A of the Exhibit, styled “Detail of Preliminary Organization, Organization and Legal,” there is set forth a breakdown of estimated organizational expense and costs incident to the sale and issuance of Applicant’s capital. A factor purporting to represent the incurrence by Applicant of these same expenses is seemingly contained likewise in the testimony of Applicant’s rate-of-return witness, Dr. J. Rhoads Foster, and is included in that opinion witness’ estimate of cost of money to the Applicant and the fair rate of return which the witness opines should be afforded to it.

Also included therein as “preliminary organizational” expenses are commercial and general expenses, characterized as “cost of attaching business” (commercial agent on survey and preliminary canvass, canvassers, etc.). Even if it were to be postulated that such costs are a part of the reproduction cost new valuation concept, their inclusion in the statutory rate base would seem to be, in the absence of direct evidence, precluded by the decision in City of Cincinnati v. Public Utilities Commission of Ohio, 96 Oh St 554. Nevertheless, present day utilization of the telephone evinces that the telephone, both practicably and sociologically, is no longer an instrument of convenience or luxury but, rather, one of general and, many times, of immediate necessity. The demand and other attendant requisites of telephone service to the subscribers of this Company are established and extant, moreover, as of the date certain of this proceeding.

The Commission is of the opinion, accordingly, that Applicant’s Exhibit 6 is not of sufficient probative value to validate, in and of itself, Applicant’s general overhead allowances in every instance without affirmative showings in those instances that such allowances are proper in the character and degree claimed.

By the application of the above-discussed percentages, the total oí all of Applicant’s general overheads capitalized in its primary accounts amount to $3,653,289.00. This sum, added to $901,210.00 and $275,513.00 representing respectively, allowances capitalized for Plant Supervision, Tool and Supply Expense, and Omissions and Contingencies, totals $4,830,012.00. The record shows that such dollar amount is 37.5% of Applicant’s “priced out plant inventory costs” or “costs before overhead allowances,” which constitutes, of course, a substantial percentage of the aggregate appraisal proposed by this Applicant.

The Engineering Staff, in computing its estimate of the reproduction cost new valuation which was recommended in this proceeding, ascertained “direct costs” for each primary account by pricing out the corrected inventory of the property in that account, and then added to such direct costs varying percentages for general overheads in accordance with a schedule developed by them and based upon their judgment and experience. This schedule was offered and admitted into evidence as Applicant’s Exhibit 9. For ready reference this schedule is attached hereto as Appendix A. In substantiation of the use of this schedule the Commission’s Chief Engineer testified on cross-examination, that in his opinion the only proper method of determining provisions for general overheads in preparing a rate base valuation is to treat the primary accounts individually because of the varying nature of the property both incident to and within each primary account, the different duration of time required for the reconstruction of each of such properties, and the varying methods of acquisition and erection involved. (R. 634-638.)

It may be noted, parenthetically, while there may be nothing inherently unsound in the application of a flat or single percentage for general overheads to the sum of the direct costs for all acounts, that it would appear for such procedure to be acceptable, the derivation of such percentage must be shown in order to evaluate both its general and specific applicability. The Commission finds, therefore, that the recommendations of the Staff with respect to the allowances for general overheads, should be adopted in this proceeding in light of the record herein.

D. Statutory Depreciation:

As a result of its field analyses and other studies, the Commission’s Engineering Staff determined the statutory depreciation extant in Applicant’s plant and property used and useful in the rendition of telephone service to its subscribers as of the date certain in this case to be an amount not less than $1,523,449.00, which amount is 10.01% of the reproduction cost new appraisal as recommended by said Staff Engineers. The Engineering Staff recommended the following valuation appraisal:

Reproduction Cost New at December 31, 1957 $15,226,590.00
Less Depreciation (10.01%) $ 1,523,449.00
Reproduction Cost New Less Depreciation $13,703,141.00
In computing the rate base, the Staff determined that allowances for Working Capital should be made in the following amounts:
Working Capital $ 88,185.00
Maintenance, Material and Supplies 192,000.00
Total $280,185.00

Such an allowance, however, was not included in the recommended rate base valuation by reason of the fact that an examination of the Company’s books and records disclosed that its continuing federal and other tax accruals would more than offset such an allowance. Accordingly, such an allowance was not included in the rate base recommended by the Staff in the Report of the Secretary.

In pursuance with the pronouncements and rationale of the Supreme Court’s opinion in the case of City of Cincinnati v. Public Utilities Commission of Ohio, 161 Oh St 395, the Commission is compelled, perforce, to eliminate from said rate base valuation such allowances for working capital and maintenance, material and supplies, by reason that the Applicant’s continuing federal and other tax accruals offset such allowances.

The Commission is of the opinion, and so finds herein, that the statutory rate base for purposes of this utility rate proceeding is ascertained to be in the amount of $13,703,141.00 as of December 31, 1956, the date certain utilized in this matter.

RATE OF RETURN

The next determination to be considered by the Commission is what percentage will represent a fair annual “rate of return” to this Applicant on the above-ascertained valuation of its property used and useful in rendering telephone utility service, and will thereby represent a yearly “reasonable compensation for the service rendered.” See §4909.15 R. C.; City of Cleveland v. Public Utilities Commission of Ohio, 164 Oh St 442, 443-446; City of Marietta v. Public Utilities Commission of Ohio, 148 Oh St 173.

Applicant’s capital ratios, after including as a portion of debt a Note in the face amount of $300,000.00, are as follows:

Equity (Common Stock, Earned Surplus, and Installments on Capital Stock) 18.95%
Preferred Stock 21.41%
Debt 59.64%

The Applicant’s exceedingly low equity position is said to be the result of financial failure of Applicant’s predecessor company during the adverse economic conditions prevailing in the early 193Q’s. These

financial reverses résulted in reorganization, certain dividend restrictions which are still in effect, and provisions from surplus to make up the value of outstanding preferred stock of Applicant’s predecessor company.

Testimony presented by Applicant’s rate of return opinion witness suggested 6.92% to be the composite cost of capital to this Applicant as of the date certain. This opined rate includes such items as cost of financing, market pressure, etc. In the development of this cost, however, the witness did not use the actual capital components of Applicant’s capital structure, but, rather, assumed a hypothetical capital structure composed of 60% Equity and 40% Debt.

After analyses of the full record herein, the Commission is of the opinion, and it so finds, that a rate of 6.5%, after the payment of all operating expenses, taxes and depreciation charges, would appear to constitute a fair annual rate of return on this Applicant’s statutory rate base valuation of its property used and useful in the rendition of telephone service and will thereby yield a yearly reasonable compensation for the service proposed to be rendered.

In determining this rate of return, the Commission has given due regard to the value of all the property actually used and useful in rendering the service, to the necessity of making reservations for surplus, depreciation and contingencies, and especially to this Applicant’s seemingly low equity position.

In light of Applicant’s financial history, including the aforementioned dividend restriction, additional capital raised by means of equity financing would be highly expensive, if available at all. Recent debt financing, in addition to its high cost, has left this Company with little, if any, leverage in its capital structure. The 6.5% rate of return, as found by this Commission, should afford Applicant such needed additional leverage by the improvement of the proportion of the Equity component of its capital structure as well as much improved earnings position by which additional equity capital may well be attracted to this enterprise.

DOLLAR ANNUAL RETURN

Application of the foregoing 6.5% rate of return against the above-ascertained statutory rate base appraised valuation of $13,703,140.58 will yield an annual dollar amount of return of approximately $890,700.00 after the payment of all operating expenses, including taxes and depreciation charges. Such dollar annual return would—

(1; Provide this Company with funds sufficient to meet the respective earnings requirements of the hypothetical capital components substantially equivalent to the above-ascertained statutory rate base together with an adequate balance to meet contingencies and surplus;

(2) Enable Applicant to pay 7% dividends on the proportionate hypothetical equity capital equivalent of the statutory rate base, on the basis of an approximate 50% pay-out ratio, after meeting a $76,000.00 annual sinking fund requirement out of equity earnings;

(3) Afford sufficient earnings to enable a hypothetical company having a hypothetical capital structure similar to the Applicant’s to service its equity in the manner outlined above;

and

(4) Avail earnings for a more adequate reservation for surplus to the end that Applicant’s extant equity capitalization ratio be enhanced.

Accordingly, the Commission is of the opinion, and so finds, that this Applicant utility is entitled to an annual return of approximately $890,700.00.

COST OF SERVICE

A. Operating Expenses Other Than Depreciation:

In order to make a determination as to whether or not the revenues presently being collected by Applicant are sufficient to yield an annual reasonable compensation for the service rendered, the Commission is of the opinion that revenues received and expenses incurred during the test period should be adjusted or “annualized” to reflect such fundamental considerations as station growth and known increases in cost levels. In preparing the Report of the Secretary, the Accounting Staff made adjustments accordingly on such bases, which are set forth in the accounting section of such Report and the exhibits attached thereto.

Revenue adjustments included the annualizing of revenues derived from both local and toll service. Further, an addition of $73,859.87 to record the additional toll settlement from The Ohio Bell Telephone Company, together with an adjustment of the total revenues emanating therefrom for uncollectibles, were effected in the Accountancy’s Staff recommendations.

Various operating expense accounts were adjusted upward to reflect wage increases occurring during the test year and an allowance of $31,257.39 was made to reflect additional expenses occurring by reason of the gain in station level. The expense of the rate proceeding was estimated at $135,000 and the amortization period recommended by the Staff for purposes of computing said rate case expense was three years. This recommendation was not shown to be unreasonable. Thus, the Commission finds herein, and will include an allowance of $45,000, reflecting one-third of this expense, in the computation of the aggregate cost of service.

In conclusion, the Commission finds, for the purpose of this proceeding, Applicant’s operating expenses during the test year to be an amount in the sum of $1,141,878.12.

B. Depreciation Accruals and Taxes:

Applicant’s Exhibit “D,” submitted with and attached to its Application, is a table listing by primary accounts its so-called depreciable property, setting forth by such primary accounts the average recorded book values of its telephone plant as of December 31, 1956, present annual depreciation rate in percent, present annual dollar depreciation accruals, purported required annual depreciation rates in percent, and required annual dollar depreciation. This exhibit is discussed in the testimony of Mr. Ralph P. Mateer, Applicant’s Executive Vice President and General Manager, and Mr. T. O. Jaques, a telephone accountant employed by Applicant’s consulting engineer firm, the latter also having prepared and sponsored Applicant’s Exhibit 7, an accounting exhibit purporting to validate the depreciation rates proposed by Applicant in its Exhibit “D.”

The Commission finds that these depreciation requirements, as proposed by the Applicant, are primarily based upon data as filed in Applicant’s Exhibit 7. It is proposed by Applicant that the composite accrual rate for all depreciable accounts as of the date certain be increased from the present 3.25% to 3.89%.

Applicant’s Exhibit 7 would appear to contain the following:

(1) The December 31,1956, ledger balances of each of the depreciable plant accounts (except 207 and 244) were arranged in order of the age of their balances for the last 23 years on the assumption that the pattern of retirements is generally made on a “first-in, first-out” basis (FIFO), that is, all retirements of plant are assumed to be of the longer-lived assets, and the balances in the plant accounts are assumed to be composed of the assets most recently purchased;

(2) The annual accrual rate actually used each year was applied to the annual FIFO balances, which resulted in FIFO basis annual accruals;

(3) The FIFO basis annual accruals for the 23-year period were totalled and compared with the actual balances in the depreciation reserve sub-accounts, and this resulted in alleged deficiencies in the depreciation reserve sub-accounts, or, as in the case of the Station Apparatus Account (231), an excess developed since the accrual computed on the FIFO basis was less than the actual amount in the reserve at December 31, 1956;

(4) Next, the respective deficiencies were added to (or excess subtracted from) the respective total annual credits, and these sums were divided by the respective totals of the 23-year average book values, this procedure producing the so-called “adjusted accrual” rates; and,

(5) Lastly, these “adjusted accrual” rates were applied to all of the depreciable plant account balances as of January 1, 1957, to develop the amount of the adjusted annual accruals, the total of such accruals being $446,617.08, which- was divided by the total book value of depreciable plant at January 1, 1957 ($11,700,492.22), thereby producing a composite rate of 3.8171%.

The end result sought to be produced by this Exhibit is the 3.8171% composite rate, which is to “* * * be applied to provide an adequate depreciation reserve for The Warren Telephone Company and to provide the proper expense charge to Account 608, Depreciation, * *

It would appear to be manifested, therefore, that the Applicant’s proposed accrual rates are primarily predicated upon the assumption that the balance in the depreciation reserve account is an appropriate gauge of the adequacy of depreciation accruals. However, this is not necessarily a valid premise when consideration is given to the.fact that periodic depreciation expense, as computed on a group basis, merely reflects an estimate of the average service life of all units of plant comprising a class, an account, or the composite total, without regard for the acknowledged fact that some units have shorter and some have longer lives than the average for all units in the class. The entire cost of a retired plant unit, after adjustment for net salvage, is charged to the depreciation reserve, without regard to whether or not the particular unit has attained its estimated average service life. Inadequate accumulations in a depreciation reserve sub-account for short-lived units is expected to be offset by over-accumulations for longer-lived units. Thus, in the absence of an affirmative showing to the contrary, the balance in a depreciation reserve sub-account would not appear to be a proper criterion for determining the adequacy or insufficiency of prior year or future depreciation charges; rather, it is more indicative of the mortality dispersion of the various types of units of property involved.

The development of accrual rates should be constructed in the first instance by engineering, not accounting, estimates predicated upon engineering experience, and adequately weighted for whatever is expected to be the character of the Company retirement distribution, and any possible changes in the art of the telephone industry.

In Exhibit 7, the first-in, first-out assumption as to retirements illustrates that in six out of the nine accounts studied, practically all of the plant assets have been acquired since 1947.

Therefore, unless it can be shown that the average lives and mortality characteristics of the assets retired between 1934 and 1947 were the same as the replacements since 1947, little weight can reasonably be given to such retirement experience in the establishment of proper accrual rates for the future. The Commission is of the opinion that the accounting testimony and related exhibits on this subject fail to demonstrate that such is the case.

If Applicant’s procedure is valid it is to be expected that the use of some year prior to 1956 as the base would produce a result reasonably similar to that reached by Applicant’s accounting witness. Analysis of Exhibit 7, using the same assumptions, procedures and methods as those utilized by Applicant’s accounting witness, but using different base years, produces neither similar nor patterned results, but substantial and erratic fluctuations from year to year. This further illustrates the lack of probative value in the procedures proposed by Applicant in support of its request for increased annual accrual rates.

The Commission notes that the significant factor causing the disparity between Applicant’s estimated depreciation requirements and those calculated by the Engineering Staff, is the high balance in Account 244, “Underground Conduit,” amounting to 26% of the total book value of Applicant’s depreciable property. Applicant’s Exhibit “D” shows that it is presently depreciating this account at an annual rate of 2.00%, and proposes an annual rate of 2.50%, whereas the Engineering Staff has recommended an annual rate of 1.50%.

After thorough analysis, the Commission is of the opinion that it should adopt the annual depreciation requirements recommended by its Engineering Staff, and, accordingly, therefore, finds that Applicant’s annual depreciation accruals during the test year should be “pro-formed” to an amount in the sum of $355,682.17, and further finds that the annual percent depreciation rates to be applied to Applicant’s depreciable property by primary accounts to be those recommended by the Engineering Staff. For purposes of reference, a table of such annual percent rates is attached hereto as Appendix “B.”

Pursuant to the revenue and expense adjustments, hereinabove discussed, the Commission finds that Applicant’s tax liabilities, on a pro forma basis, are as follows: Ohio Excise Tax, $63,909.39; PUCO Maintenance Assessment, $1,171.10; Other State and Local Taxes, $218,-379.12; and Federal Income Taxes, $371,191.20; totalling $654,650.81. Gross Annual Revenues:

Application of annualization methods to Applicant’s revenue accounts, and inclusion of the Ohio Bell toll settlement, produces during the test year adjusted gross revenues of $2,762,913.35. The Commission is of the opinion, and so finds, that this annual gross revenue as produced under existing rates and charges is insufficient to yield a yearly reasonable compensation to this Applicant for the telephone utility service rendered by it during the test year ending December 31, 1956.

Therefore, in accordance with the percentage rate of return and dollar annual return as hereinbefore determined, gross annual revenues allowable to this Applicant are herein found by the Commission to be the sum in the amount of $3,366,030.00, which is the arithmetical sum ■of the dollar annual return, cost of service, depreciation accruals and taxes. To produce this increase in gross revenues will require an increase of 21.83% in Applicant’s presently authorized rates and charges. ULTIMATE FINDINGS:

The Commission renders the following ultimate findings:

(1) That this Application is filed pursuant to, and this Commission has jurisdiction thereof under, the provisions of §§4909.17, 4909.18, and 490949 R, Ct;

(2) That the investigation required of the Commission by the provisions of §4909.19 R. C., has been filed and served as required by said statute;

(3) That the Applicant’s statutory rate base for purposes of this proceeding is an amount in the sum of $13,703,140.58;

(4) That the existing rates now being charged and collected by the Applicant for the furnishing of telephone service to its subscribers in its service areas are insufficient to provide Applicant with an adequate return on the value of its plant and property used and useful in the furnishing of such telephone utility service;

(51 That the fair annual rate of return on the previously ascertained statutory rate base is 6.5%;

(6) That the dollar annual return to which this Applicant is entitled for purposes of this proceeding is $890,704.00;

(7) That the annual allowable expenses of this Applicant for purposes of this proceeding, with the inclusion of operating expenses, taxes, depreciation and other expenses, aggregate $2,475,325.00;

(8) That the allowable gross annual revenues to which Applicant is entitled for the purposes of this proceeding is $3,366,030.00.

ORDER:

It is, therefore,

ORDERED, That in accordance with the findings and opinion herein set forth, the Applicant, The Warren Telephone Company, be, and the same hereby is, authorized to file with this Commission for its approval, adjusted tariff schedules increasing the rates and charges to subscribers in its service areas in the amount of 8603,000.00, which will provide Applicant with a total gross annual revenue of approximately $3,366,030.00. It is further

ORDERED, That such tariff schedules may become effective subsequent to their approval by this Commission or upon such subsequent date as the Commission may designate. It is further

ORDERED, That the Applicant, as of the date of this order, for the purpose of determining annual depreciation accrual allowances, apply to its depreciable property by primary accounts the annual percent accrual rates herein determined by this Commission to be proper and attached to this order and incorporated herein by reference as Appendix “B.”

THE PUBLIC UTILITIES COMMISSION OF OHIO

Entered in Journal Everett H. Krueger, Jr., Chairman

December 19, 1958 Ralph A. Winter

A true copy: Edward J. Kenealy

W. E. Herron, Secretary Commissioners

      Denotes Red Figure


source: Caselaw Access Project

author: Per CURIAM. By NICHOLS, PJ.

license: Public Domain

text:
    LOCAL UNION NO. 118 OF THE UTILITY WORKERS UNION OF AMERICA, AFL-CIO et, Plaintiffs-Appellees, v. UTILITY WORKERS UNION OF AMERICA, AFL-CIO et, Defendanfs-Appellants.
    Ohio Appeals, Seventh District, Mahoning County.
    No. 3975.
    Decided October 16, 1958.
    Albert Galusha, Youngstown, for plaintiffs-appellees.
    Herschel Kriger, Canton, for defendants-appellants.
   OPINION

Per CURIAM.

Defendants, The Utility Workers Union of America, AFL-CIO, and William R. Munger, Vice President and Regional Director of Region 3 of the Utility Workers Union of America, AFL-CIO, appealed to this court on questions of law and fact from a judgment of the court of common pleas entered in case number 150384 for plaintiffs in their action to permanently enjoin defendants from enforcing the decision and order of its National Executive Board ordering the suspension from office and membership in the union of Roy J. Baughman, William H. Rosser and Elmer F. Salzman, plaintiff officers, and restraining the Utility Workers Union of America, AFL-CIO and William R. Munger, National Vice President, who was appointed administrator and trustee over the affairs of Local 118 by the National Executive Board, from taking over the Local Union and all its books, records, property, and assets, with full authority to appoint such temporary officers for Local 118 as he may deem necessary.

By interpleader in case number 150741 the Ohio Edison Company, called the company, prayed that the parties in case number 150384 “be required to interplead together concerning their claims in” all dues deducted under agreement and that the Ohio Edison Company “be permitted to deliver said money to some person designated by the court to receive the same.” This petition of interpleader was consolidated with case number 150384 by the court of common pleas with the provision that the petition in case number 150741 be considered and treated as an answer and cross-petition in case number 150384.

Ruling on such interpleader the trial judge ordered the company to pay over to Local 118 all dues deducted under its agreement pending final determination of case number 150384.

The matter is before this court on plaintiff’s petition, defendants’ answer and plaintiff’s reply thereto; the cross-petition of defendants; plaintiffs’ answer and defendants’ reply thereto; the petition of inter-pleader filed by the company treated and considered in the trial court and here as an answer and cross-petition, and plaintiffs’ and defendants’ answer thereto; the evidence, and briefs of plaintiffs and defendants.

The charter of The Utility Workers Union of America, AFL-CIO, herein designated as the National Union granted Local Union No. 118 of the Utility Workers Union of America, AFL-CIO, called Local 118, “all rights and privileges and responsibilities of the Constitution, By Laws, Conventions, and actions of all duly constituted authority to which you agree to abide.”

Local Union 118, together with the Ohio Edison Joint Council of Utility Workers, called the Joint Council, negotiated collective bargaining agreements with Ohio Edison Company providing for .termination on July 1, 1956, by written notification, otherwise to remain in effect.

Under Article I of the agreement all parties agreed “that there shall be no strike, concerted slowdown, lockout, concerted failure to report for work, cessation of work, picketing, or other interference with the operations of ttue company during the period of this agreement, or during any period of negotiation for the renewal or extension thereof.” Article I further provided that any employee violating such agreement would be deemed to have resigned, and that the National Union or the Local Unions would not be held civilly liable for damages provided they had not “authorized, condoned, or advised the action, and that the National Union and the Local Unions immediately used their best efforts to induce the resumption or work and orders the employees to return to work.”

There is evidence that Local 118 was dissatisfied with the Joint Council, principally because it had proposed amendments to the Council’s Constitution to insure the honesty of balloting on strike action, involving the affiliated locals, which proposals the Joint Council rejected. This rejection resulted in the passage of a recommendation by the Executive Board of Local 118 to terminate its affiliation with the National Union, which was duly adopted resulting in the deletion from its constitution and by-laws of all reference to the Joint Council stated in Article VIII thereof.

As the result of a second such motion the Joint Council and the Vice President and Director of Region 3 of the National Union were notified by letter dated April 10, 1956, that henceforth it would bargain separately with the Company and submit its own proposals for changes in the present agreement. No objection nor protest concerning Local 118 withdrawal from the Joint Council was received from the National Union.

Defendant Munger admitted he helped compose a letter dated April 18, 1856, from the President of the Joint Council in reply to Local 118’s letter dated April 10, 1956, which provided inter alia that:—

“The Council wishes to inform you and your members that while they regret very much the action you have taken, they will in no way interfere with your Local Union, and that if it becomes necessary to take any action against the Company, we will in no way involve your Local Union, and by the same token, if your Local Union becomes involved in any action against the Company the Local Unions comprising the Council do not intend that you involve them. * * *
“We are also convinced that with his guidance you did carry through with the proper notices, meetings, etc., as provided for in your Local Constitution and By-Laws to change your Constitution so as to remove the Ohio Edison Joint Council as the bargaining agent.”

While copies of the changes in Local 118’s constitution and by-laws apparently were not sent to the National President, it is obvious that the National Vice President, William R. Munger, had knowledge thereof.

Thereafter Local 118 advised the Company in writing on April 24, 1956, that it desired “to reopen the present collective bargaining agreement which is subject to reopening on July 1, 1956, we are attaching hereto the demands of our local union for changes in the agreement.” A copy of this letter was mailed to defendant Munger.

Local 118 made no demand upon the Company to terminate the 1954-1956 agreement on July 1, 1956, nor to waive the provision of Article 1 of that agreement.

Upon failure of agreement on proposed changes the Company requested Local 118 to defer negotiations for thirty days, and in consideration thereof offered to adjust basic hourly wage rates effective as of July 1, 1956.

At the same time representatives of Local 118 meeting with a member of Akron Local 126 who was a member of the Joint Council negotiating committee and another member of Akron Local 126 advised representatives of Local 118 that if Local 118 voted to grant any extension it could not honor picketing, if the Joint Council decided to send pickets to Youngstown, in the event of a strike by the Joint Council.

On the same evening Local 118 voted to extend negotiations to ■ July 20, 1956, and its members were advised of the attitude of Akron Local 126 with respect to honoring picketing.

On July 20, 1956, Local Union 118 extended negotiations to July 30, 1956. These negotiations by request of the Company were subsequently extended to August 9, 1956.

Prior to August 9, 1956, Local 118 was advised that if an extension was voted by Local 118 picketing by the Joint Council would not be honored in view of the provisions of Article I of the 1954-1956 agreement.

Defendants were familiar with all of the extensions.

On August 5, 1956, storm damage caused to company property required all employees in the bargaining unit to work practically around the clock for several days to repair the damage.

On the day after the storm struck and while employees of the Youngstown Division of the Company were engaged as aforesaid the Joint Council without notice to Local 118 struck the Company and picketed certain of its premises, and about five o’clock P. M. on August 6, 1956, placed pickets only at the Company’s South Avenue Line Shop in Youngstown.

On the morning of August 7, 1956, some of the employees of the Company did not cross the picket line and sent for President Baughman of the Local Union who advised them that under the provisions of Article I of the 1954-56 Agreement Local 118 could not honor the picket line, and if any individuals were discharged for so doing the Local Union couldn’t do anything for them.

There is evidence that members of Local 118 were readvised by others to respect the picket line, for the purpose of supporting the strike.'

The Joint Council strike was terminated about August 8, 1956, and a contract entered into by the Company notwithstanding Local 118 continued to negotiate an agreement with the Company embodying its proposed changes, which contract was signed on September 10, 1956, and was approved and signed by the National Union.

In that agreement the company agreed to pay over to the Local Union all dues under the provisions of Article III (see Section 3a, p. 5); seniority provisions separate and apart from other divisions or locations of the company were provided for; and separate seniority for the Youngstown Location was also provided for in the 1954-56 Agreement.

On October 2, 1956, charges were instituted by President Fisher of the National Union against the individual plaintiffs. The charges alleged that each of the individual officers had violated Article II, Section 2, and Article VII, Section 1, of the National Union’s Constitution in that they had each refused to honor picket lines, established by the Joint Council with the approval of the National Union, at the Youngstown Division of the Company; and that each of them had instructed the members of Local 118 to cross such picket lines.

Both defendant Munger and Executive Board Member Watson, a member of the trial board, admitted that no charges had been instituted against the Local Union; nor was any charge filed as to amending the constitution of Local 118.

The National Union’s Constitution does not contain any specific provisions as to picketing nor penalties for crossing picket lines, nor provisions applicable thereto.

Plaintiffs Baughman, Rosser and Salzman appeared at the hearing before the National Executive Board of the Union in Akron, on October 17, 1956, represented by counsel. Neither of them testified orally nor did any witness testify orally in their behalf. A mimeographed statement of facts and argument with exhibits was presented to each member of the Board, through their counsel. The jurisdiction of such board, to find them guilty of any charge under the provisions of the National Constitution, was questioned.

The individual plaintiffs herein were ordered suspended from office and membership for. five years and the defendant, William Munger, was appointed trustee over the affairs of Local 118 with authority to appoint such temporary officers as he deemed necessary.

The plaintiff union officers and the Local Union refused to abide by the findings, decision and order of the National Union’s Executive Board and instituted the action in the court of common pleas.

Defendants contend the rule is:—

“1. That a court will not take jurisdiction at any time in the affairs of an association unless property rights are involved. Social or mere membership relationships will not be inquired into.
“2. Where property rights are involved, a court can protect property rights by equitable action, but, before the court will act, all of the internal remedies of appeal within the association must be exhausted.”

No written charges were filed against Local 118 in accordance with the provisions of the Constitution, and no hearing was given Local 118.

On hearing the trial judge directed the Company to disburse funds in its hands derived from deduction of local union dues, and all future funds of a similar nature coming into its custody, to Local 118, or its designated officers, and ordered Local 118 upon receipt thereof to forthwith remit to the National Union any sum, or sums, due it from Local Union 118 in accordance with the agreement existing between them.

Plaintiffs contend the following questions are presented for the consideration and determination of this court:—

“1. Does National Labor Relations Board have exclusive jurisdiction over questions presented in the instant case?
“2. Were plaintiffs required to exhaust their remedies provided for under the National Union’s Constitution before the court could assume jurisdiction under the circumstances of the within case?
“(A) Would an appeal have been futile?
“3. Did the Executive Board of the National Union have jurisdiction to try plaintiff officers and render its finding and decision against them in the absence of any applicable constitutional provisions with respect to such charges?
“(A) Could violations of National Union’s Constitution be implied?
“(B) Were valid charges filed against Loc.al 118?
“4. Under the ‘termination clause’ at Article XX Page 58 of the 1954-56 Agreement between Local 118 and the Company (P. E. No. 14), was Article I of said agreement in full force and effect at the time of the picketing herein, and was both Local 118 and the National Union bound thereby without regard to the extension agreements between Local 118 and the Company?
“5. If Article I of the 1954-56 agreement between Local 118 and the Company was in effect, did the Local Union affiliated with the Joint Council have the right to picket members of Local 118?
“(A) Was the attempt of such Local Unions to induce members of the Local 118 to respect the picketing and withhold their work from management in violation of the Laws of Ohio, the labor management relations act and the public policy?
“(b) Were members of Local 118 legally bound to maintain their agreement and not respect the picketing?
“6. Was the National Union estopped from asserting the provisions of the National Constitution with respect to approval of the agreements extending negotiations made by Local 118 with the Company because of its conduct in connection therewith?
“(A) Did the conduct of the National Union in connection therewith amount to waiver?
“7. Was the trial, decision and order of the National Union’s Executive Board unreasonable, arbitrary and oppressive?
“8. Under the provisions of the Agreement between Local 118 and the Company under Article III Section 2a (N. E, 17) is the Local Union entitled to payment of monthly dues deducted by the Company as against claims of the National Union?

Reviewing the evidence and considering the arguments of counsel we concur in the reasoning, finding and decree of the trial judge lifted from his opinion that:—

“* * * The punishment inflicted upon the plaintiff officers is of such 'a nature and so drastic that it must have been meted out based upon the picket line episode. The same thing can be said as to the refusal or failure to submit purported amendments to the By-Laws to the National President for approval.
“It is conceded that Local 118 had a legal right in every way to withdraw from the Joint Council, and it appears without question that the National Vice President knew of the action that had been taken and adopted it. The failure to complete the paper work by sending copies to the National President is not the basis of the penalty imposed by the National Executive Board. These two charges were of the nature that would apparently be put in as an anchor to windward, so to speak.
“Coming to the other charges, it is to be noted that they are based upon general language in the Constitution. There is no specific provision in the Constitution dealing with the specific acts of the plaintiff officers. Article IV, Section 2-B, provides among other things that the National President ‘shall interpret the meaning of this Constitution and his interpretation shall be subject to review by the National Executive Board.’ The effect of the ruling by the National Executive Board is to interpret the Constitution in the various provisions above discussed as legalizing picketing by members of a national union of an employer’s plant to compel a work stoppage when the employees of that plant, members of the same union, are under a valid contract executed and approved by the National Union preventing a strike, concerted slowdown, concerted failure to report to work, a cessation of work, picketing, or other interference with the operations of the Company. Was it the law of Ohio that the Joint Council and the National Union had a legal right to compel the membership of Local 118 to breach its contract, which was also the National’s?
“As between the Ohio Edison Company and members of Local 118, the contract is clear that so long as negotiations continue there shall be no work stoppage or cessation of work. Likewise as between those two, labor difficulties of such a nature are solely within the jurisdiction of the N. L. R. B. Guss v. Utah Labor Board, supra. The within controversy, however, not being within the Federal Power act of Congress, the State law is applicable. There being no statute of Ohio involved, the long established principles of equity take hold. It has long been held in the law of contracts that the chancelor will by injunction restrain acts intentionally done to force or compel a breach of contract where there is no adequate remedy at law, and that principle has been carried . into labor law and established as the public policy of the law of the State of Ohio. Chucales et al. v. Royalty et al., 164 Oh St 214; Standard Oil Co. v. Oil Workers Union, decided July 1, 1957, 40 LRRM 2445; General Electric Co. v. International Union, United Automobile Workers, etc., 93 Oh Ap 139; Anderson Sons Co. v. Local Union No. 311, 156 Oh St 541; Gulf Refining Co. v. Oil Workers International Union, 68 Abs 225.
“It therefore follows that the Constitution of the National Union, as interpreted by the National President and the National Executive Board in the respects indicated, does contravene the laws of the State of Ohio, and, therefore, the plaintiffs may bring their action in a court of equity without appealing to the Convention.
“There is another reason, however, which supports this position, and that is in the provisions of the Constitution providing for appeal to the Convention. Article XIV, Section 9, provides that the accused may appeal a decision of the National Executive Board to the National Convention. Article XV provides that the regular National Convention shall be held every eighteen (18) months, and it is stated in the record that the next convention is due to be held in October of this year at Miami, Florida. Section 1 of that article makes provision that the convention may be advanced one month or postponed one month upon a resolution adopted by the National Executicve Board. Section 16 provides as follows:
“ ‘The National President shall appoint, prior to the opening date of the Convention and subject to the approval of the Convention, such committees as are necessary to conduct the affairs of the Convention. Such committees shall meet before the opening date of the Convention and shall proceed to consider all resolutions, appeals, reports and constitutional amendments submitted to the Convention.’
“Section 12 provides that all resolutions to be considered by the Convention shall be sent to the National Secretary-Treasurer and be in his hands not later than ten days prior. to the convening of the Convention. Section 17 makes provision for the order of business at the Convention and unless suspended by a two-thirds vote it shall be as follows: (1) Call to order by National President, (2) Report of Credential Committee, (3) Roll Call, (4) Report of Committee on Rules and Order, (5) Ratification of Committee Appointments, (6) Report of Officers, (7) Submission of Minutes of Last Convention, (8) Report of Committees, (9) Unfinished Business, (10) New Business, (11) Nomination and Election of Officers, (12) Recommendations on Place for Next Convention, (13) Good and Welfare, and (14) Adjournment. No other provision is noted in the Constitution governing appeals before the Convention.
“It is to be noted that the National President, who preferred the charges before the National Executive Board and who presided at the National Executive Board at the hearing, is given full and sole power to appoint the committee on appeals, which ‘shall meet before the opening date of the Convention and shall proceed to consider . . . appeals . . .’; the National President now in office will preside at .the Convention until the election of officers later on in the order of business.
“It must not be thought by this line of reasoning that the court is impugning the honesty, motives, integrity, or standing in any way of the present National President, as he is apparently a very estimable gentleman, but the Court is required to look at the matter objectively as an appellate system without regard to the individual holding the office. Such a system as here exists is not in accord with the fundamental principles of our system of justice under law. It has been held by the courts that where the method of appeal is arbitrary, frivolous, futile or vain and not in accord with the sound principles of justice, the member need not resort to that appeal. Washington Local Lodge v. International Brotherhood, 203 Pac. (2nd) 1019; Crossen v. Duffy, supra, 168 A. L. R., Page 1472, et seq.; Armstrong v. Duffy, supra.
“It follows that the plaintiffs are not barred from seeking redress in this Court of Equity, and it likewise follows that the judgment of the National Executive Board is unreasonable, arbitrary, and oppressive.
“A decree will, therefore, be drawn vacating the suspension from office and membership in said Local 118 of the plaintiff officers, and that they be forthwith reinstated as officers for the term to which they had been elected, and as to any reelection subject to the decision of the members of the said Local; that the said William R. Munger, designated administrator and trustee, and the Utility Workers of America, AFL-CIO, be and hereby are restrained from seizing or taking over the books, records, property, or assets of plaintiff Local Union and from interferring in any manner with the internal affairs of said Local Union based upon any matters involved in the within case; that the journal entry of February 20, 1957, in the interpleader case by the Ohio Edison Company, being No. 150741, is confirmed, and judgment is entered against the National Union for costs; exceptions to all parties, and decree in conformity herewith is to be prepared by counsel.”

Counsel for defendants cite International Union Of Steam & Operating Engineers et al. v. Owens, 119 Oh St 94, where at page 98 the court said:—

“It is a well-settled principle of law, recognized by the courts of this state and by the courts of other states, that the members of a fraternal association by adopting a constitution and by-laws and providing reasonable rules and regulations for settling their own disputes, and by establishing their own tribunals of original, intermediate, and appellate jurisdiction, become bound thereby, provided such constitution, by-laws, rules, and regulations do not contravene the laws of the state. It is also well settled that the members of such an association must conform to the reasonable rules and regulations thereof and must exhaust all remedies within the association and before such regularly constituted tribunals.
“It is conceded in the instant case that the International Union of Steam and Operating Engineers is such a fraternal organization, and it must therefore be conceded that, if the defendant in error has pursued all his remedies before the tribunals within the association, and if the duly constituted tribunals have failed to observe the constitution, by-laws, rules, and regulations of the association, the defendant in error is entitled to invoke the aid of the court to compel such tribunals to accord to him those rights, if any, which are shown to have been denied.”

In 5 O. Jur, (2nd), page 440, Section 7, it is said:—

“It is a well established and uniform rule that courts of equity have no authority to interfere with the action of voluntary and unincorporated associations where no property right is involved.”

Perhaps we have not answered specially each of the questions which the parties contend by brief are presented and which are quoted infra, but we have answered a sufficient number of them to decide correctly, we believe, the matter presented to us.

Finding and decree as in the court of common pleas.

GRIFFITH and PHILLIPS, JJ, concur.

DISSENTING OPINION

By NICHOLS, PJ.

The plaintiff is a voluntary association, one of a number of local unions engaged in the performance of service to employers, and the Local came into existence solely as an integral part of the National Organization named as defendant herein,

The plaintiff Local when it affiliated with the National Union had no separate existence. It had voluntarily subscribed to the Constitution of the National Union, which provided that all controversies between the several locals and the members thereof would first be submitted for determination to the executive committee from which an appeal could be taken to the general convention of the national organization, and until such steps were taken resort could not be had to the courts.

I quote two provisions of the National Constitution, which in my judgment are determinative of this controversy at this stage of litigation, to-wit:—

“Article III. Membership.
“Section 1. This Organization shall be composed of Local Unions having for their membership men and women employed in the public utilities, embracing the Gas, Electric, Water, Steam and related industries or in any other place now under the jurisdiction of the National Union as well as officers, staff representatives, or employees of the National Union or Local Unions. * * *.”
“Article XIV. Charges and Trials.
“Section 11. In no case shall a member of subordinate body appeal to a Civil Court for redress until he or it has exhausted his or its rights of appeal under the laws of the National Union.”

The real question in this case is whether the Local Union, plaintiff herein, was required to follow the procedure set up in the National Constitution before resorting to the courts for settlement of their differences.

I have no complaint as to the fact that in a chancery case equitable principles are to be applied, but I hold that before the equity jurisdiction of the courts may be invoked the plaintiff was bound first to submit its grievances to the Executive Committee. This it did and thereby recognized the binding effect of the constitutional provision prohibiting resort to the courts in the first instance. It was only after the Executive Committee decided adversely to the Local Union that it sought to invoke the jurisdiction of a court of equity.

I hold that its sole right was to appeal to the General Convention from the adverse decision against it rendered by the Executive Committee.

Unquestionably the penalties inflicted by the Executive Committee are severe wherein that Committee suspended the officers of the Local for a period of five years and ordered the assets of the Local to be taken over pending a final decision by the General Convention, but at the time this case was brought into the equity court the court was without jurisdiction to intervene since all the proceedings had before the Executive Committee were in strict compliance with the Constitution of the parent organization. When the convention considers this matter it may be presumed it will relieve against the hardships, if any, involved in the decision of the Executive Committee, but if not, then, and only then, resort may be had to a court of equity for relief.

The action in the court of common pleas of this county should be dismissed for want of jurisdiction.


author: By RUZZO, J.

text:
    CHENEY, Extr., Plaintiff, v. STATE COUNCIL OF OHIO JUNIOR ORDER UNITED AMERICAN MECHANICS, Defendant.
    Probate Court, Marion County.
    No. 22528.
    Decided June 19, 1959.
   OPINION

By RUZZO, J.

This matter is before the Court on petition for the construction of the Will of Alice I. Gurley, deceased, filed by the executor and requests the judgment and direction of the Court in regard to the true construction of the following clause in the Will of the testatrix:

“ITEM XI — I give and bequeath the sum of Three Hundred Dollars ($300.00) to the Epworth Methodist Church of Marion, Ohio; the sum of Three Hundred Dollars ($300.00) to the Marion Masonic Temple Company of Marion, Ohio, and Five Hundred Dollars ($500.00) to the Junior Order of American Mechanics of Marion, Ohio.”

It is conceded by all parties in interest that the Junior Order of American Mechanics of Marion, Ohio, is no longer in existence. However, the State Council of Ohio Junior Order United American Mechanics represents that it is one and the same as the beneficiary named in the item above set forth and, therefore, claims the bequest made therein.

The executor maintains that it was the intention of the testatrix to limit the objects of her bounty to organizations of which her deceased husband was a member in the city of Marion, Ohio, and in furtherance of his position contends that the Court should take into consideration the intention of the testatrix as gathered from all of the provisions of her Will, which was to make such gifts to organizations in which her deceased husband had held membership and which were located in the city of Marion, Ohio.

The State Council of the Ohio Junior Order of United American Mechanics has entered an appearance and filed an answer in which it attempts to invoke the doctrine of “Cy Pres” and by virtue of the application of such doctrine prays the Court to find that said bequest of five hundred dollars ($500.00) shall not lapse because of the nonexistence of the Marion City Council, but shall become the property of the State Council of Ohio to carry on the principles for which the Marion Council was chartered.

The rule of construction by which charitable gifts are preserved for the public benefit is known as the Cy Pres doctrine. In the law of trusts it refers to a rule of construction used by courts of equity to effectuate the intention of a charitable donor “as near as may be” when it has become impossible or impractical by reason of changing conditions or circumstances to give literal effect to the donor’s intention. The doctrine exists in Ohio by judicial interpretation and application. See Article “Cy Pres Doctrine in Ohio,” 18 O. S. Law Journal, Vol. 18, No. 2; Spring 1957, page 196.

In general terms it is said that the Cy Pres doctrine means that where the literal execution of the trust of a charitable gift is inexpedient or impracticable, equity will execute them as nearly as it can according to the original plan. In 7 O. Jur., Sec. 38, p. 175, it is stated:

“The general principle upon which the court acts is that if the testator has manifested a general intention to give to charity, the failure of the particular mode in which the charity is to be executed shall not destroy the charity; but if the substantial intention is charity, the law will substitute another mode of devoting the property to charitable purposes, though the formal intention as to the mode cannot be accomplished.”

Ohio courts seem to follow the traditional view that before the Cy Pres doctrine will be applied by a court the following three essentials must be present: (1) there must be a valid charitable trust and one that is invalid will not be cured by an application of the doctrine; (2) it must be established that it is impossible or impractical to carry out the specific purposes of the trust; (3) it must be established that the donor evinced a general charitable intent. See article above-mentioned, Cy Pres Doctrine in Ohio at p. 202 and cases cited in footnotes 32, 33 and 34.

In the case of Allen, Administrator v. The City of Bellefontaine, 47 Oh Ap 359, where the Cy Pres doctrine was sought to be applied in a case in which the testatrix had left her home for the use of physicians in a certain community and the petitioners sought to have the fund diverted for the use of a comparable hospital in the same community, the court stated that in determining the intention of the testatrix conditions surrounding her at the time of the execution of the Will as well as the phrasing of the Will itself may be considered (Paragraph 3 of Syllabus). Paragraph 4 of the Syllabus reads as follows:

“Existence of local public hospital at time of execution of Will leaving testatrix’ home in trust for exclusive use of reputable physicians as place for meetings, for research and for use as private lying-in hospital indicated that testatrix intended not to adopt hospital as beneficiary of her bounty, but to create a separate institution furnishing different services.”

In this situation the court held the Cy Pres doctrine was not applicable and that the charitable intention of the testatrix was limited to constituting the testatrix’ identical home as a memorial to her husband.

The court quoted with approval at page 369 from the opinion in the case of Telle v. Bishop of Derry, 168 Mass. 341:

“If the charitable purpose is limited to a particular object or to a particular institution and there is no charitable intent, then if it becomes impossible to carry out the object or the institution ceases to exist before the gift has taken effect and possibly in some cases after it has taken effect, the doctrine of Cy Pres does not apply, and in the absence of any limitation over or other provision the legacy lapses.” (Emphasis added.)
“It is important to note from the Ohio cases that the doctrine is applied only in cases where the testator has manifested a general intention to give to charity and that where the donor has not expressed his charitable intention generally, but has provided for only one specific, particular object and this object cannot be carried out or the charity provided for ceases to exist before the gift takes effect, then the court will not execute the trust, it wholly fails.” Allen, Admr. v. City of Bellefontaine, supra, quoting Pomeroy’s Equity. Juris. 4th Edition, Vol. 3, p. 2308 at p. 367 of the Opinion.

In the Allen case the court pointed out that the intended beneficiaries of the trust created by the Will of the testatrix were a different class than the portion of the public who would be the beneficiaries of the proposed endowment sought by the petitioners, who were attempting to invoke the Cy Pres doctrine. The court went on to say at page 373:

“As the testatrix had no general charitable intent and the mode of carrying out the trust is of the essence of the trust, the doctrine of Cy Pres cannot be applied.”

The same general rules were applied in the case of Craft. Extrx., v. Shroyer, 81 Oh Ap 253. Paragraph 7 of the Syllabus reads as follows:

“When the settlor has not expressed a charitable intention generally, but expressed an intention which is restrictive, exclusive and limited to a specific purpose- and this purpose cannot be carried out, the doctrine of Cy Pres will not be invoked.”

Paragraph 9 of the Syllabus sets forth the following legal principle:

“The absence of a general charitable intent precludes the application of the doctrine of Cy Pres.”

Applying these principles to the case at bar, it is important to note that in the item referred to the testatrix limited the objects of her charitable bounty to certain religious and fraternal orders in Marion, Ohio. It is conceded that her husband was a member of each of these organizations set forth in Item XI. It should also be noted that at the time her Will was executed the Ohio Council, defendant herein, was in existence and she manifested no intent to adopt the state organization as the object of her bounty.

To sum up, the testatrix had no general charitable intent, but rather iimited her bounty to the Junior Order of American Mechanics of Marion, Ohio. A survey of Ohio decisions of recent years reveals that in certain iimited cases Ohio courts are attempting to circumvent the requirement of a general charitable intent by applying to private trusts what has come to be known as the Doctrine of Deviation. The doctrine is often justifiably confused with the doctrine of Cy Pres, the chief difference being that the former applies in the field of private as well as charitable trusts and under the doctrine of deviation the court is not required to find a general charitable intent. However, this doctrine has been iimited to those cases in which its application will carry out the general purpose of the gift. Moreover, it cannot be invoked when its application would enlarge or change the class of beneficiaries who are the object of the donor’s bounty. In Heinlein v. Elyria Savings and Trust Co., 75 Oh Ap 353, the court quotes with approval from 10 American Juris., Charities, Sec. 124, as follows:

“A court of equity is not entitled to substitute a different scheme for the scheme which the donor has prescribed in the instrument which creates the charity merely because a coldly-wise intelligence impervious to the special predilections which inspired his liberality and untrammeled by his directions would have dictated a different use of his money.”

The Craft v. Shroyer case, supra, although applying the doctrine of deviation, recites that the doctrine is applicable only when the general purpose named by the creator of the trust is still attained and when a simpie change incident to the method of administration doés not alter the purpose or object of the trust nor vary the class of beneficiaries nor divert the fund from the charitable purposes named by the donor. See Para. 13 of the Syllabus.

To apply the doctrine of deviation to the case at bar would alter the testatrix’ intention to benefit an organization in Marion, Ohio, to one of a general charitable intent to benefit the entire Ohio order of such association and would, moreover, vary the class of beneficiaries to an extent not contemplated by her, thus resulting in a diversion of the fund from the limited charitable purpose named by her.

We conclude, therefore, that neither the doctrine of Cy Pres nor the doctrine of deviation is applicable to the case at bar and the five hundred dollars ($500.00) in question is held to lapse and pass under the residuary clause of the testatrix’ Will.

An entry may be drawn accordingly by counsel for the executor, saving exceptions to the defendant, State Council of Ohio Junior Order of United American Mechanics.


author: By MILLER, J.

text:
    WHITT, Plaintiff-Appellee, v. INDUSTRIAL COMMISSION OF OHIO, Defendant-Appellant.
    Ohio Appeals, Tenth District, Franklin County.
    No. 5945.
    Decided October 28, 1958.
    Schwenker, Teaford, Brothers & Solsberry, L. Bernell Solsberry, of Counsel, Columbus, for plaintiff-appellee.
    William B. Saxbe, Atty. Geni., Leo Stark, Asst. Atty. Geni., Columbus, for defendant-appellant.
   OPINION

By MILLER, J.

The record in this case reveals that on July 7, 1953, the plaintiff made application to the Industrial Commission for compensation, alleging an injury on June 22, 1953. Administrative proceedings were had, including a rehearing, at which time a rehearing record was made and compensation was denied to the plaintiff for the reason that claimant’s employment had terminated at the time of the accident in question, and the injuries were not sustained in the course of employment.

Under the provisions of the “old” Workmen’s Compensation Act, this rehearing record was the basis of the appeal to the Common Pleas Court and, on September 27, 1956, the case was tried to a jury. The jury returned a verdict for the defendant, denying the plaintiff any right to participate in the fund and, on October 9, 1956, the judgment entry was journalized. Also on that same date, the plaintiff filed two motions simultaneously; one was a motion for judgment non obstante veredicto, and the other a motion for a new trial. The court ruled on the motion for a new trial on January 30, 1958, and allowed the motion on the ground that the verdict is not sustained by sufficient evidence. It is. from the order sustaining the motion for a new trial that the appeal on questions of law is filed in this court.

The first question presented is, whether or not the order appealed from is a final order reviewable by this court.

The record reveals that at the close of the plaintiff’s case, and again at the close of all of the evidence, the defendant moved for a directed verdict, both of which were overruled, after which a verdict was returned in favor of the defendant and a judgment rendered on the verdict. Thereafter, a motion for a new trial was sustained. Now was the sustaining of a motion for a new trial a final order?

We find several cases wherein the identical question presented has been decided by our Supreme Court. In the case of Murphy v. Pittsburgh Glass Company, 132 Oh St 68, the court says at page 69:

“Where a trial court overrules a motion for a directed verdict, a verdict is returned for the party making such motion, and a motion for new trial is sustained by the trial court, the overruling of the motion for a directed verdict is a final order from which a review may be had. Michigan-Ohio-Indiana Coal Assn. v. Nigh, Admx., 131 Oh St 405, 3 N. E. (2d), 355; Hubbuch v. City of Springfield, 131 Oh St 413, 3 N. E, (2d), 359; Hocking Valley Mining Co. v. Hunter, 130 Oh St 333, 199 N. E. 184, and Cincinnati Goodwill Industries v. Neuerman, 130 Oh St 334, 199 N. E. 178.”

Also, in Richards v. Industrial Commission, 163 Oh St 439, we find a similar rule of law in Paragraph 1 of the syllabus:

“Where in the course of a trial the defendant appropriately moves for a directed verdict, which motion or motions are overruled, a verdict is returned for the defendant, and plaintiff’s motion for a new trial is sustained, there emerges from such sequence of events a final appealable order, i. e., the overruling of the defendant’s motion or motions for a directed verdict.”

We, therefore, conclude that the order sustaining the motion for a new trial is final and appealable.

In considering the errors assigned, it is first urged that the court erred in passing upon the motion for a new trial without first passing upon the plaintiff’s motion for a judgment non obstante veredicto.

We are of the opinion that the latter should have been passed upon by the trial court prior to ruling upon the motion for a new trial. Donlin v. Industrial Commission, 166 Oh St 27. However, in passing upon the motion for a new trial, it appears that the rights of all the parties were fully protected and no prejudicial error may be urged by this defendant.

Since the basis for the new trial was that the verdict “is not sustained by the evidence,” the court would have been without jurisdiction to have granted a motion for a judgment non obstante veredicto.

As stated in 30 O. Jur., page 108, Section 69,

“After a verdict which is not sustained by sufficient evidence has been rendered the only remedy in the trial court is a new trial; that court has no power to give judgment non obstante veredicto on the ground that the verdict is against the evidence.”

We find this assignment of error is not well taken.

It is next contended that the trial court erred in granting the motion for a new trial on the grounds of insufficient evidence when the new trial must be had upon the same evidence, citing §4123.51 R. C. (formerly §1465-90 GO. We concede that the new trial will be upon the same record that was used in the first trial, but the jury may not arrive at the same factual conclusion.

The finding of the court may not be said to be tantamount to a sustaining of the motion for a directed verdict for the reason that different tests apply to the directing of a verdict than apply to the granting of a motion for a new trial. A new trial may be granted when the verdict is against the weight of the evidence or not sustained by sufficient evidence, but the test for directing a verdict is whether reasonable minds could come to but one conclusion.

The syllabus in Hamden Lodge v. Ohio Fuel Gas Company, 127 Oh St 469, clearly expresses the law which is applicable:

“3. Upon motion to direct a verdict the party against whom the motion is made is entitled to have the evidence construed most strongly in his favor. But if upon any essential issue, after giving the evidence such favorable construction, reasonable minds can come to but one conclusion and that conclusion is adverse to such party, the judge should direct a verdict against him.
“4. Where from the evidence reasonable minds may reach different conclusions upon any question of fact, such question of fact is for the jury. The test is not whether the trial judge would set aside a verdict on the weight of the evidence.”

On the other hand, the court has a broad discretion in the granting of a motion for 9, new trial. It is said in 30 O. Jur, 35, Section 6;

“Many Ohio authorities are to be found which state that an application or a motion for a new trial is addressed to the sound discretion of the trial court, and, unless founded upon some supposed error of the court, will be granted or refused as the justice of the case may seem to require; the granting or denial of such a motion will not be disturbed on review, unless there has been a plain and clear abuse of judicial discretion. Nevertheless, the court must proceed upon legal principles in its action.”

For the purpose of passing upon the weight of the evidence, we have carefully examined the entire record and are of the opinion that reasonable minds might come to different conclusions in determining whether or not the plaintiff was engaged in his regular course of employment at the time of the injury. The question therefore became one for the mry.

We find no prejudicial error in the record, and the judgment will be affirmed.

PETREE, PJ, BRYANT, J, concur.