Source: https://supreme.justia.com/cases/federal/us/236/605/
Timestamp: 2019-04-26 16:33:25+00:00

Document:
Northern Pacific Ry. v. North Dakota, ante, p. 236 U. S. 585, followed to effect that, while the state has a broad field for the exercise of its power in fixing intrastate rates for common carriers, it may not require them to transport a segregated commodity or class of traffic either at less than cost or for a mere nominal consideration.
This Court must, on writ of error under § 237, Jud.Code, analyze the facts as found by the state court if it is necessary to do so in order to determine whether that which purports to be a finding of fact is so interwoven with the question of law involving the federal right asserted as to be in substance a decision of the latter.
An analysis of the evidence in this case shows that the two-cent a mile passenger rate established by c. 41 of the Acts of 1907 of West Virginia affords such a narrow, if any, margin over the cost of the traffic that the plaintiff in error is forced to carry passengers, if not at or below cost, with merely a nominal reward, and it follows that the state exceeded its power in enacting the same, and that it is void as an attempt to deprive the carriers of their property without due process of law in violation of the Fourteenth Amendment.
passengers on railways at two cents a mile, are stated in the opinion.
constitution of the state, and also upon the ground that it was repugnant to the Fourteenth Amendment by reason of (1) its provision for penalties, (2) its classification of railroads, and (3) its alleged confiscatory requirements, through the reduction of the revenue from the traffic to less than a reasonable compensation. The validity of the statute, as construed by the state court, with respect to penalties and classification was upheld in Chesapeake & Ohio Ry. v. Conley, 230 U. S. 513. In the case of Coal & Coke Ry. v. Conley, 67 W.Va. 129, while the statute was sustained against the other objections above mentioned, it was adjudged to be confiscatory in its operation with respect to the plaintiff in that case. In the present suit, the Circuit Court of Kanawha County, by its decree entered in March, 1913, held that the rate was not confiscatory in fact as to the plaintiff in error. No opinion appears in the record, and there were no special findings. An application was made to the Supreme Court of Appeals of West Virginia for the allowance of an appeal to that court, and it was refused. This writ of error was then sued out.
the carrier to public use is qualified by the condition of the carrier's undertaking that its services are to be performed for reasonable reward, and that the state may not select a commodity or class of traffic, and instead of fixing what may be deemed to be reasonable compensation for its carriage, compel the carrier to transport it either at less than cost or for a compensation that is merely nominal.
These considerations are controlling here. The passenger traffic is one of the main departments of the company's business; it has its separate equipment, its separate organization and management, and, of necessity, its own rates. In making a reasonable adjustment of the carrier's charges, the state is under no obligation to secure the same rate of return from each of the two principal departments of business, passenger and freight; but the state may not select either of these departments for arbitrary control. Thus, it would not be contended that the state might require passengers to be carried for nothing, or that it could justify such action by placing upon the shippers of goods the burden of excessive charges in order to supply an adequate return for the carrier's entire service. And, on the same principle, it would also appear to be outside the field of reasonable adjustment that the state should demand the carriage of passengers at a rate so low that it would defray the cost of their transportation, when the entire traffic under the rate was considered, or would provide only a nominal reward in addition to cost. That fact, satisfactorily proved, would be sufficient to rebut the presumption of reasonableness, and if in any case it could be said that there existed other criteria by reference to which the rate could still be supported as a reasonable one for the transportation in question, it would be necessary to cause this to appear. Northern Pacific Railway v. North Dakota, supra, and cases there cited.
fact, which is set forth in the decree of the state court, and it is necessary for us, in passing upon the federal right which the plaintiff in error asserted, to analyze the facts in order to determine whether that which purports to be a finding of fact is so interwoven with the question of law as to be in substance a decision of the latter. Kansas City Southern Ry. v. Albers Commission Co., 223 U. S. 573, 223 U. S. 591; Cedar Rapids Gas Co. v. Cedar Rapids, 223 U. S. 655, 223 U. S. 668-669; Oregon R. & N. Co. v. Fairchild, 224 U. S. 510, 224 U. S. 528; Creswill v. Knights of Pythias, 225 U. S. 246, 225 U. S. 261; Southern Pacific Co. v. Schuyler, 227 U. S. 601, 227 U. S. 611; Wood v. Chesborough, 228 U. S. 672, 228 U. S. 678.
traffic; this, it was insisted, was a close approximation. Where a division of the road was partly in one state and partly in another, the passenger expenses were apportioned according to track mileage. These expenses within the state having thus been ascertained, they were divided between the interstate and intrastate traffic upon the basis of the gross passenger earnings -- that is, it was assumed that the cost of the interstate and intrastate passenger traffic was the same in relation to revenue. It was also testified that betterments were not included in expenses, and that the above-mentioned apportionment covered all the operating expenses except taxes, the latter being apportioned to each class of business according to its share of the gross receipts.
It was stated that the intrastate passenger receipts which had been $362,997.74 in the fiscal year 1906-1907 * had fallen, notwithstanding a considerable increase in the number of passengers and passenger mileage, to $289,943.22 in the fiscal year 1907-08. The passenger expenses for the latter year, estimated according to the method above set forth, together with taxes, amounted to $275,519.79, leaving a net surplus of $14,423.43. In the following fiscal year, 1908-09, the intrastate passenger receipts were $281,864.50. This showed a reduction of $81,133.24, as compared with the fiscal year 1906-07, although there was a gain over that year of 1,567,374 in the passenger mileage. The expenses attributed by the company to the intrastate passenger traffic, including taxes, for the year 1908-09 amounted to $283,416.62, thus leaving a deficit in the passenger operations of $1,552.12.
statement that the net return of the intrastate passenger business for the year 1907-08 was $18,354.62; in the year 1908-09, the inclusion of these items still left a deficit amounting to $616.11.
made these expenses $37,100.72. On the same division in May, 1910, the company's figures for passenger expenses were $51,885.72; the state's, $40,643.36. There were also similar reductions of considerable amounts on the Kenova division. It is not necessary to review in detail the methods thus used on the part of the state to apportion the various common items of expense -- that is, after all items capable of direct assignment had been charged to the business to which they related. It is sufficient to say that, instead of employing a general factor for the distribution of the outlays common to both kinds of traffic, freight and passenger, the state's witness divided each particular common item according to its character so as to make what was deemed to be a fair apportionment of that item. In this way, a variety of methods were employed which the witness described at length. After ascertaining the amount of the total expense considered to be attributable to the passenger traffic within the state, it was divided between the intrastate and interstate business, and for the most part, aside from the expenses of passenger stations, the division was made on the basis of passenger miles, and without charging extra cost to the intrastate traffic.
By combining the results of the selected periods, it was shown that in the intrastate passenger business, according to the classification and apportionment adopted, the operating expenses and taxes consumed 97.4203 percent of the total income.
separate the cost of the express business, was asked on cross-examination whether, with these items omitted, the actual cost of carrying intrastate passengers was not in excess of two cents a mile, he said that it would be difficult to answer without a separate analysis of the mail item, but added that, "in rough computation," that cost was very close to two cents.
It is apparent from every point of view that this record permits that the statutory rate, at most, affords a very narrow margin over the cost of the traffic. It is manifestly not a case where substantial compensation is permitted and where we are asked to enter the domain of the legislative discretion; nor is it one in which it is necessary to determine the value of the property employed in the intrastate business. It is clear that, by the reduction in rates, the company is forced to carry passengers, if not at or below cost, with merely a nominal reward considering the volume of the traffic affected. We find no basis whatever upon which the rate can be supported, and it must be concluded, in the light of the principles governing the regulation of rates, that the state exceeded its power in imposing it.
* Approximately eleven months of the fiscal year 1906-07 were under the former maximum fare of three cents a mile.

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