Honorable C.R. McNamee,Director

Rate Division Railroad Commlsslon of Texas Austin, Texas

Dear Sir: OpinionNo. O-3118 Re: (a)Transportationof cotton owned by Commodity Credit Corporation, Unlted StatesDepartment ofAgriculture,by a common or contract carrier, intrastate, for special rates arrived at by contract and indisregard of the published tariff prescribedby the Railroad Commission of Texas. (b)Transportation of cotton held and possessedby Commodity Credits Corporation,United StatesDepartment of Agriculture, under loan agreement not yet indefault and to which title remains in the producer, on the basis of rates flxed by contract between the parties rather than at the published rates prescribedby theRailroad Commission for intrastatetraffic.

Your letter of February 3, 1941, submits for OUP opinion the followingquestion,which has been presented to you by Mr. C. G. Rausch, Traffic Manager, CottonDivision, Commcditg Corporation,Unlted StatesDepartment of Agriculture:

"'In transportingU. S. Government Cotton must the motor truck adhere to Its published rates or can a common or contract carriermake specialrates on this traffic for us?'"

In connectionwith the foregoingquestion, copy of attached letter to you from Mr. 0. G. Rausch, gives the followlng informatlon:

"Inresponse to the questions propounded in Mr. McNamee's letterprovlouslgreferred to, will say that all of the cotton shipped fromHonorable C. R. McNamee,Director, page 2 o-3118

one location to another in the State of Texas isnow owned outrightby this Corporation,but in some instances is cotton placed In the loan by the owner of such cotton as security for the funds advanced by the Corporation to the owner of such cotton. Of course~thls Corporation holds temporary title to such cotton until the loan agreements have been compliedwith or are in d,efault;

therefore, the cottonmay or may not at some future date become the outrightproperty of the Corporation.
"hnswerlngyour further inquiry,usually the cotton shippedby us moves under documents showing the Commodity Credit Corporatlonas both the shipperand the receiver of the cotton, and
as receiver in care of the facility inwhich the cotton will be stored on delivery."

The business of transportingpersons and property from
one point in Texas to another by common or contract carrier, Is a business impressed or affectedwi.tha public use of interest, so as to become subject,under the reserved police power of the State, to legislative control in all respects necessary to protect the public against danger, injustice,and opression, including the fixing and regulation of rates. In general, the Legislaturemay make all suchreasonable regulations as itmay deem necessary for the protection of the public In itsrelations with those who carry on a business affectedwith the public Interest. 45, 631-632. 6 Ruling Case Law 228; 13 C. J. S. pages 44-

To the Railroad Commission,as the duly constituted agency of the State for this purpose, the Legislature has delegated the duty of fixingmaximum rates for intre~state transportation services of common or contract carriers, to protect the public from excessive charges and from unjust dlscrimination.

But the first phase of your questlon does not present
a controversybetween a common or contract carrier and a shipper of cotton in the ordlnarg channels of commerce, i.e. the public, so as to require the protection of the police power in the above respect. The Commodity Credit Corporation, the admitted owner and shipper of the cottonunder the first phase of your question, is undoubtedly an agency or instrumentality of the United States, being so declared by Congress In 15 U. S. C. A., Section 713, providing:

"Notwithstandingany other provision of law, Commodity Credit Corporation,a corporation organized under the laws of the State ofDelawareHonorable C.R. McNamee, Director, page 3 O-3118

as an agency of the United States pursuant to,the executive order of the President of October 16, 1933, shall continue,until the close of business of June 30, 1941, or such earlierdate as may be fixedby the Presidentby executive order, to be
an agency of the United States."

Under Title 5, U. S. C. **A.** Section 1333, Reorganization Plan No. 1, Part IV, Section 401, the Commodity Credit Corporation, its functionsana activities,property and personnel,was transferredto theDepartment of dgrlculture; a duly constituted,executivedepartment of the Government, to be administered under the general direction and supervision of the Secretary ofAgriculture.

The status of the Commodlty Credit Corporationbeing thus establishedas an outright and direct agency or lnstrumentality of the Federal Government, created for the purpose of discharging the constitutional functions of said Government under itsFarm Relief Program, it Is for us to determlne whether or not the admitted authority of the Railroad Com7nlssion of Texas to fix and promulgate rates for the transportation of persons or property, intrastate,under the police power residing In the Legislature,would, in the instant case, impose such a-burden or restriction upon such agency or instrumentality,as to contravenethe Federal Constitutionand the powerswhich stem therefrom.

The Constitution of the United States does not contain any express limitation on the police power of the states as such, and does not limit a state'spower to make all regulations reasonably necessary to advance or secure the general welfare of the people residingwithin such state. However, Article VI, Section 2, of the Constitution of the United States, expresslydeclares that the Constitution itself and the Federal laws and treatiesmade in pursuance thereof, are the supreme law of the land. The Federal Government, therefore, is paramountwithin the scope of the powers conferred upon it by the Constitution,and a statemust exercise Its police power subject to the constitutionalllmitatlons. 16 c. J. s. 565.

The rule is stated inWestern Union Telegraph Co. V. Mayor of the City of New York, et al, 38 Fed. 552, as follows:

"The statuteswhich the defendants are proceeding to enforce unquestionablybelong in the category of police regulations, the power to establishwhich has been left to the indlvldual states. But statutes of this class may sometimes trench upon the federal jurisdiction;and whenHonorable C. R. McNamee,Director, page 4 O-3118

their provisions extend beyond a justregulation of right for the public good, and unreasonably abridge or burden the prlvllegeswhich the national authorl.ty conserves.,

they cease to be operative. The state,when providingby leg-, islation for the protection of the public health, the publicmorals, or the public safety, Is subject to the paramount authority of the constitution of the United States, and may not violate rights secured or guaranteedby that Instrument,
or Interferewith the execiation of the powers confided to the general,government. Mugler v. Kansas, 123 U. S. 623,~663, 8 Sup. Ct. Rep. 273. In M0rgan.v. Louisiana, 118U. S. 462, 6 Sup. Ct. Rep. 1114, the supreme court say:

"'Inall cases of this kind it has been repeatedly held that when a question israised whether the state statute is a just exercise of state power, or Is intendedby roundaboutmeans to invade the domain of federal authority this courtwill look into the operationand effect of the statute to discern Its purpose.'

"Andagain the court say, (page 464:)

"For, while itmay be a police power In. the sense that all provisions for the health, comfort, and security of the citizens are police regulations and an exercise of the policepower, ithas been saidmore than once in this court that, evenwhere such powers are so exercised
as to come within the domain of federal authority,as defined by the constitution,the latter must prevail.'"

Under the program enactedby Congress for maintaining
a fixed percentage of parity price for certain farm products, cottonwhich the producer or grower fails,within the terms and manner required, to redeem from the loan made to him by the Commodi~ty

Credit Corporation,becomes the absolute property of the Federal Government,by and through itsduly established agency, subject to such sale or other disposition as would follow full and complete title. The transportation of such cotton from point to point within this State is certainly reasonably necessary to the proper sale or handling of such cotton, and the costs of this transportation is a substantial item Indetermining the net price which will be realized by the Government in the sale of such cotton. For the State of Texas, through itsRailroad Commisslon,to require the FederalHonorable C.R. McNamee,DFrector, page 5 O-3118

Government to pay the publishedmaximum rates on Intrastate shipments,when presumptively, common and contract carriers stoodwilling and able to give more advantageousrates, would constitute, in the amount of such differential,a direct burden upon an agency orDepartment of the Federal Gov-~ ernment. There being no reason to support such added burden, in the protectionof the public from extortionate charges and unjust dlscrlmlnation,we thlnk~suchburden cannotbe constitutionallg'exacted. The sale, transportationand dlsposition of cotton ownedby the Government through the Commodity Credit Corporation; iswithin the exclusive scope of Federal power and Lt Is accordingly our answer to the first phase of your question that the police power of the State, in the field of rate-making and flxlng, has no application here but must be subordtnateto the impliedpowers of the Federal Government, arlsing under the Constitutionof the United States.

This conclusionmay be easily distinguished from that reached by thisDepartment in ConferenceOpinion 3106 to Honorable Homer Garrison, Jr., Director,Department of Public Safety, Austin, Texas, of date November 25, 1940, upholding,
as to vehicles operatedby employees of the Soil Conservation Service of the United States Department of Agriculture, the provisions of state.lawprohibfting the operation of overlength, over-height, over-widthand,over-weightvehicles
on the public highways of this State. The exercise of tAeuPpolice power in the opinionreferred to was reasonably designed to safeguard the lives, safety and well-being of the inhabitants of the State and to protect the highways of the State from damages and Injury,while in the instantdiscussion the police power sought to be exercisedbears no reasonable relation to the health, safetyand well-being of the people or preservation of the property of the State of Texas. In the first instancethe burden visited upon a Federal agency by the police power is reasonable and constitutionalwhile in the latter it is not.

But the sameprlnclples of constitutionallawwill not be applicable to the secondphase of your lnqulry involving the authority of common or contract carriers to transport, lntrastate, at rates other than those fixed by the Raflroad Commission, cotton in the custodg and possession of the Commodity Credit Corporation,as security for loans thereon to the producer, under the cotton parity price program,but to which absolute title has not ripened in such Corporationby default of such producer. In this situation, the title to the cotton remains in the producer, subject to redemption or release of the lien thereonby timely payment of the loan or advance made by the Government, plus accrued handling costs and charges. Title to the cotton cannotbe said to rest In the Government. .

Honorable C. R. McNamee,Director, page 6 0-3118

until the expiration of the date flxed,by law for such payment and redemption by the producer. Hence, the producer and not the Government is the actual shipper.

The resultswhich follow from this distinction are stated In the.case of Sands v. Calmar S. S. Corporation,296 N. Y. sup. 590, involvingthe validity of the contract of a common carrierby water to transport goods sold to the United States, under acts of Congress permitting rate reductions for the Government:

"In construing the provision in connection with the InterstateCommerceAct, it has been held Improperto permit the beneflt of special rates on governmentmaterial to accrue to angone other than the government itself. Havens & co. v. Chicago & N. W. Rg. Co. 20, I.C.C. 156; Nashville, C. & St. L. Rg. v. State of Tennessee, 262 U. S. 318, 43 S. Ct. 583, 67 L. Ed. 999; 25 Op.Attys. Gen. 408.

"In the opinion of the Attorney General (supra), Itwas stated in substance~thatthe Interstate CommerceAct is not violated by reductlon of freight rates, authorized by Section 22 on materials and machinery used by the United States, or by parties contractingwith them, for work upon irrigation systems,provided the governmentreceives the whole benefit of the reduced rate or concession;but it is violated if the contractorreceives any portion of suchbenefit.

"Iam forced to conclude that it is the plalntlff shipperwho would benefit by any reduction In rates, and not the government. By obtaining such a concession the plaintiffwould, be benefitted, in that itwould find itself able to bid more advantageously than other prospectlvebidders not receiving such specialrates. Therein lies the vice of plaintiff's contention. All of these various acts aim to curtail the vicious practice resulting from discrimination. Discrimination would certainlyresult if a particular shipper,whether by iradvertanceor design, is accorded an advantagewhich is not available to others."

It is therefore, our answer to the second phase of your Fnquiry, that the carriage or transportationof such cot-F

. .

Honorable 6. R. McNamee,Director, page 7 O-3118

ton by a common or contract carrier at rates less than those fixed and publishedby the Railroad Commission of Texas, would constitutean undue and reasonable dFscrImlnatlon in favor of the Individual shipper, to the injuryand detriment of competing shippers. The police power of the State, reasonably eferclsed in the fixing of rates for the protection of the public,will not operate to unconstitutionallyburden
an agency orDepartment of the Federdl Government, and the rates fixed thereunderby theRailroad Commission of Texas must be fully observed.

Trusting the foregoing fully answers your inquLry,we are

Yours very truly

ATTORNEY GENERAL OF TEXAS

By s/PatM. Neff, Jr. Pat M. Neff, Jr. Assistant

PMN:LMzwc

APPROVED MAY 9, 1941 s/GroverSellers FIRST ASSISTANT ATTORNEY GENWAL
Approved Opinion CommitteeBy s/BWB Chalrman