Source: https://supreme.justia.com/cases/federal/us/176/167/
Timestamp: 2019-04-23 04:10:10+00:00

Document:
(1) That neither the findings made by the court nor such facts as are stated in its opinion are sufficient to warrant a conclusion upon the question whether the rates prescribed by the defendants were unreasonable or not, and that the process by which the court came to its conclusion is not one which can be relied upon.
(2) That there was error in the failure to find the cost of doing the local business, and that only by a comparison between the gross receipts and the cost of doing the business, ascertaining thus the net earnings, can the true effect of the reduction of rates be determined.
(3) That the better practice would be to refer the testimony, when taken, to the most competent and reliable master, general or special, that can be found, to make all needed computations and find fully the facts, so that this Court, if it should be called upon to examine the testimony, may have the benefit of the services of such master.
"This cause came on to be heard upon the pleadings and proofs at this term and was argued by counsel, and thereupon, upon consideration thereof, the court finds the following facts:"
"I. That the value of complainant's property in the State of South Dakota is ten million dollars."
"II. That the fair value of the proportion of complainant's said property assignable to local traffic was, for the year ending June 30, 1894, $2,200,000, and for the year ending June 30, 1895, $2,600,000, and for the year ending June 30, 1896, $2,100,000, and for the year ending June 30, 1897, $1,900,000."
"III. That the gross local earnings of complainant in the State of South Dakota for the fiscal year ending June 30, 1894, was $407,606.35, and for the year ending June 30, 1895, was $330,642.85, and for the year ending June 30, 1896, was $328,105.95, and for the year ending June 30, 1897, was $311,085.42."
value of the roads in South Dakota as the local earnings bear to the gross earnings from all sources in South Dakota, were: for the year 1894, 18.5 percent; for the year 1895, 12.7 percent; for the year 1896, 15.6 percent; for the year 1897, 16.3 percent"
"V. That, applying the schedule of rates sought to be enjoined in this action to the local traffic during the years above mentioned, on the same method of calculation, the value of complainant's property assignable to local traffic would be for the years ending June 30, 1894, $1,900,000; June 30, 1895, $2,300,000; June 30, 1896, $1,800,000; June 30, 1897, $1,600,000."
"VI. Under the commissioners' schedule, the gross earnings from local traffic would have amounted to the sum of $342,381.98 for the year ending June 30, 1894, and $277,518.40 for the year ending June 30, 1895, and $275,607.79 for the year ending June 30, 1896, and $261,295.21 for the year ending June 30, 1897."
"VII. That these earnings for the fiscal year 1894 would equal 18% of the value thus ascertained, and for the year 1895 would equal 12.1% and for the year 1896 would equal 15.3% and for the year 1897 would equal 16.2%."
"VIII. That, owing to the small difference between the percentage earned under the complainant's schedule of rates and fares and the commissioners' schedule of rates and fares for the four years prior to the commencement of this suit, and owing further to the amount of the percentages which would have been earned during said four years under the commissioners' schedule, the court is unable to find beyond a reasonable doubt that the local earnings under said commissioners' schedule would not during the years aforesaid have earned the reasonable cost of earning said local earnings and some reward to the owner of the property over and above said cost of operation."
"IX. That the court is unable to find from the testimony what the actual cost of earning the local earnings for the fiscal years ending June 30, 1894, 1895, 1896, and 1897 was."
and fares will not deprive the complainant of its property without due process of law, or deprive it of the equal protection of the laws, or operate to take the property of complainant for public use without just compensation."
From the decree thus entered, the plaintiff took its appeal to this Court.
Dow v. Beidelman, 125 U. S. 680; Georgia Railroad & Banking Co. v. Smith, 128 U. S. 174; Chicago, Milwaukee & St. Paul Railway v. Minnesota, 134 U. S. 418; Chicago & Grand Trunk Railway v. Wellman, 143 U. S. 339; Reagan v. Farmers' Loan & Trust Co., 154 U. S. 362; St. Louis & San Francisco Railway v. Gill, 156 U. S. 649; Convington &c. Turnpike Co. v. Sandford, 164 U. S. 578; Smyth v. Ames, 169 U. S. 466.
It is often said that the legislature is presumed to act with full knowledge of the facts upon which its legislation is based. This is undoubtedly true, but when it is assumed from that that its judgment upon those facts is not subject to investigation, the inference is carried too far. Doubtless, upon mere questions of policy, its conclusions are beyond judicial consideration. Courts may not inquire whether any given act is wise or unwise, and only when such act trespasses upon vested rights may the courts intervene. A single illustration will make this clear: it is within the competency of the legislature to determine when and what property shall be taken for public uses. That question is one of policy over which the courts have no supervision; but if, after determining that certain property shall be taken for public uses, the legislature proceeds further and declares that only a certain price shall be paid for it, then the owner may challenge the validity of that part of the act, may contend that his property is taken without due compensation, and the legislative determination of value does not preclude an investigation in the proper judicial tribunals. The same principle applies when vested rights of property are disturbed by a legislative enactment in respect to rates.
In approaching the consideration of a case of this kind, we start with the presumption that the act of the legislature is valid, and upon any company seeking to challenge its validity rests the burden of proving that it infringes the constitutional guaranty of protection to property. The case must be a clear one in behalf of the railroad company, or the legislation of the state must be upheld.
utmost importance that the facts shall be clearly and accurately found and distinctly stated by the trial court, and that those facts shall sustain the conclusion reached.
We are of opinion that neither the findings made by the court nor such facts as are stated in its opinion are sufficient to warrant a conclusion upon the question whether the rates prescribed by the defendants were unreasonable or not, and we are also of opinion that the process by which the court came to its conclusion is not one which can be relied upon. The court proceeded upon the theory that a comparison of the actual gross receipts of the company from its South Dakota local business with those which it would have received if the rates prescribed by the defendants had been in force was sufficient to determine the question of the reasonableness of these latter rates, and instituted such comparison with respect to the four years preceding the commencement of this suit. Now it is obvious that the amount of gross receipts from any business does not, of itself, determine whether such business is profitable or not. The question of expenses incurred in producing those receipts must be always taken into account, and only by striking the balance between the two can it be determined that the business is profitable. The gross receipts may be large, but if the expenses are larger, surely the business is not profitable. It cannot be said that the rates which a legislature prescribes are reasonable if the railroad company charging only those rates finds the necessary expenses of carrying on its business greater than its receipts.
business would have been, for the first year, $1,900,000; for the second year, $2,300,000; for the third year, $1,800,000, and the last year, $1,600,000, and upon such basis that the gross receipts from local business would have amounted to 18 percent of the value of the property for the first year, 12.1 for the second, 15.3 for the third, and 16.2 for the last. Upon this, it held that the difference between the percent of receipts in the two cases was slight, and that there was no change in what may rightfully be called the earning capacity of the property sufficient to justify a declaration that the reduced rates prescribed were unreasonable. In other words, it was of the opinion that the earning capacity was so slightly reduced that it could not be affirmed that the new rates were unreasonable.
of property earns $100,000 it earns six percent. In other words, although the actual receipts from local business are only one-fifth of what they were, the earning capacity is three-fifths of what it was. And, turning to the other side of the problem, it appears that if the value of the property engaged in interstate business is to be taken as $8,333,000, and it earned $500,000, its earning capacity was the same as that employed in local business -- six percent. So that, although the rates for interstate business be undisturbed, the process by which the trial court reached its conclusion discloses the same reduction in the earning capacity of the property employed in interstate business as in that employed in local business, in which the rates are reduced.
Again, in another way, the error of the court's computation is manifested. The testimony discloses that the operating expenses of the entire system during each of the four years were over 60 percent of the gross receipts. If the cost of doing local business in South Dakota was the same as that of doing the total business of the company, then the net earnings of that local business would not exceed 40 percent of the gross receipts. Reduce the gross receipts 15 percent -- and the reduction by the defendants' rates was 15 percent on passengers and 17 percent on freight business -- it would leave only 25 percent of the gross receipts as what might be called net earnings, to be applied to the payment of interest on bonds and dividends on stock. But the testimony shows that the cost of doing local business is much greater than that of doing through business. If it should be 85 percent of the gross receipts (and there was testimony tending to show that it was as much if not more) then a reduction of 15 percent in the gross receipts would leave the property earning nothing more than expenses of operation. These computations show that the method which the court pursued was erroneous, and that, without a finding as to the cost of doing the local business, it is impossible to determine whether the reduced rates prescribed by the defendants were unreasonable or not.
the testimony what the actual cost of earning the local earnings for the fiscal years ending June 30, 1894, 1895, 1896, and 1897 was."
is greater; there are the wages of the employees at the intermediate stations, the cost of insurance, and these elements are so varying and uncertain that it would seem quite out of reach to make any accurate comparison of the relative cost. And if this is true when there are two separate trains, it is more so when the same train carries both local and through freight. It is impossible to distribute between the two the relative cost of carriage. Yet that there is a difference is manifest, and upon such difference the opinions of experts familiar with railroad business is competent testimony, and cannot be disregarded.
The question then arises what disposition of the case shall this Court make? Ought we to examine the testimony, find the facts, and from those facts deduce the proper conclusion?
making computations, and finding the facts. It was very laborious, and took several weeks. It was a work which really ought to have been done by a master. Very likely the practice pursued by him induced the trial judge in this case to personally examine the testimony and make the findings. We are all of opinion that a better practice is to refer the testimony to some competent master, to make all needed computations, and find fully the facts. It is hardly necessary to observe that, in view of the difficulties and importance of such a case, it is imperative that the most competent and reliable master, general or special, should be selected, for it is not a light matter to interfere with the legislation of a state in respect to the prescribing of rates, nor a light matter to permit such legislation to wreck large property interests.
We are aware that the findings made by the master may be challenged when presented to the trial court for consideration, and it may become its duty to examine the testimony to see whether those findings are sustained, as likewise if sustained by the trial court it may become our duty to examine the testimony for the same purpose. But, before we are called upon to make such examination, we think we are entitled to have the benefit of the services of a competent master and an approval of his findings by the trial court. As we have said, those findings may not be challenged by either party, and if so, a large burden will be taken from the appellate court.
For these reasons, we not merely reverse the decree of the trial court, but also remand the case to that court with instructions to refer the case to some competent master to report fully the facts, and to proceed upon such report as equity shall require.

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