Source: https://supreme.justia.com/cases/federal/us/236/585/
Timestamp: 2019-04-25 17:49:11+00:00

Document:
(2) A conclusion of law as to a federal right and a finding of fact are so commingled as to make it necessary to analyze the latter.
Neither of those conditions exists in this case.
Railroad property is private property devoted to public use, and the state has a broad field for the exercise of its discretion in prescribing reasonable rates for common carriers within its jurisdiction.
It is not necessary there should be uniform rates or the same percentage of profits on every sort of business; there is room for reasonable classification.
Public interest cannot be invoked as a justification for demands passing the limits of constitutional protection.
This Court does not sit as a revisory board to substitute its judgment for that of the legislature or its administrative agent.
This Court is not required to concern itself with mere details of a schedule; or to review a particular tariff which yields substantial compensation, when the profitableness of the intrastate business as a whole is not involved. But a different question arises when the state has segregated a commodity, or a class of traffic, and has attempted to compel the carrier to transport it at a loss or without substantial compensation.
There is a presumption that rates fixed by the state for intrastate traffic are reasonable and just, but it is one that may be rebutted by the carrier's showing, as in this case, that it is noncompensatory.
As the maximum intrastate rates on coal in carload lots fixed by ch. 51 of the laws of North Dakota are unreasonable, either requiring the carrier to transport the commodity at a loss or for a merely nominal compensation after taking into account the entire traffic to which the rates apply, the state exceeded its authority in enacting the statute which amounts to an attempt to take the property of the carrier without due process of law in violation of the Fourteenth Amendment.
The facts, which involve the validity under the due process provision of the Fourteenth Amendment of a statute of North Dakota fixing maximum intrastate rates for transportation of coal by railroad companies, are stated in the opinion.
commissioners should decide, subject to appeal to the courts. While the statutory rates governed all coal shipments, their practical application was almost solely to lignite coal.
The carriers refused to put the rates into effect, and in August, 1907, the attorney general of the state began proceedings in its supreme court to obtain a mandatory injunction against the Northern Pacific Railway Company, the Minneapolis, St. Paul, & Sault Ste. Marie Railway Company, and the Great Northern Railway Company. The companies answered that the statute violated the commerce clause of the federal Constitution, and also that it infringed the Fourteenth Amendment by fixing rates that were "unremunerative," "unreasonable," and "confiscatory." The supreme court of the state, overruling these contentions, granted the injunction. 19 N.D. 45. It was held that the evidence was not sufficient to overcome the presumption in favor of the rates. On writ of error from this Court, the decree was affirmed without prejudice to the right of the railroad companies to reopen the case after an adequate trial of the rates. 216 U. S. 579.
This decision was rendered in the early part of the year 1910, and thereupon the rates were put into effect. After a trial for over a year, the case was reopened, voluminous testimony was taken, and the supreme court of the state, making its separate findings of fact as to the effect of the rates in the intrastate business of each carrier, and stating its conclusions of law, entered judgment commanding the carriers to keep the rates in force. 26 N.D. 438. The Northern Pacific Railway Company and the Minneapolis, St. Paul, & Sault Ste. Marie Railway Company have sued out these writs of error.
"As a result of the painstaking work of the accounting department of this railway company, and its endeavors to render all the assistance possible in determining the matter of the apportionment of expense to this commodity, as is evidenced by the care and detail in the accounting, the information furnished by the exhibits, and that the books of the company have been thrown open to the experts of the state, we are enabled to arrive with a reasonable degree of certainty at the proper proportion of expense that should be chargeable against the revenue received from the carriage of this commodity."
$58,953, the total cost of transportation, or out-of-pocket costs, together with all fixed or overhead expenses apportionable to said lignite traffic, consumed all of said receipts excepting $847, its net profit in the handling of the lignite business for the twelve months in question. That such rate is slightly remunerative, but in fact noncompensatory, considering the volume of freight carried and the property of the railroad devoted thereto."
would have been incurred had no lignite coal been transported.
"Its total receipts amount to more than its actual out-of-pocket costs, or actual costs of transportation, but are from $9,000 to $12,000 less than the total costs, including fixed and overhead expenses, properly chargeable to the carriage of this commodity and against the earnings therefrom. That the carriage of lignite coal by the Soo line within this state during said fiscal year was not only nonprofitable, but occasioned a loss to it when its fixed expenses apportionable to all traffic are in proper proportion and amount assigned to and charged against the earnings from this commodity."
"all the difference in fact would have been that both Soo and Northern Pacific would be then hauling this freight at less than the gross cost, including, of course, out-of-pocket and all fixed charges."
in the property, whether by way of interest or otherwise.
of the property devoted to the traffic in question is concerned, that also is unimportant, as whatever that value might be, it is found that no net return upon it was secured.
"(a) The statutory freight rate is presumed to be reasonable which presumption continues until the contrary appears and the rate is shown beyond a reasonable doubt to be confiscatory."
"(b) Proof that a rate is noncompensatory -- that is, while producing more revenue than sufficient to pay the actual expenses occasioned by the transportation of the commodity, but insufficient to also reimburse for that proportion of the railroad's fixed or overhead costs properly apportionable to such commodity carried -- is not sufficient to establish that the rate is confiscatory in law."
"(c) In order to establish such a noncompensatory rate to be confiscatory, it must further appear that any deficit under the rate affects the net intrastate freight earnings materially, and reduces them to a point where they are insufficient to amount to a reasonable rate of profit on the amount of the value of the railroad property within the state contributing to produce such net earnings."
Accordingly, it was further held that, after establishing the value of the property employed in the production of the net intrastate freight earnings, it must appear, in order to show confiscation, either (1) that such earnings are insufficient to yield a fair return upon that value, and that the commodity in question is carried for less than what is sufficient to meet all expenses, including "out-of-pocket costs" and fixed charges, or (2) that the loss on the commodity under the rate attacked "reduces the balance of the net intrastate freight earnings" to a point where, including the loss on the commodity rate, they fail to yield such return. 26 N.D., p. 440.
that the plaintiffs in error were commended to observe the rate.
The general principles to be applied are not open to controversy. The railroad property is private property devoted to a public use. As a corporation, the owner is subject to the obligations of its charter. As the holder of special franchises, it is subject to the conditions upon which they were granted. Aside from specific requirements of this sort, the common carrier must discharge the obligations which inhere in the nature of its business. It must supply facilities that are reasonably adequate; it must carry upon reasonable terms, and it must serve without unjust discrimination. These duties are properly called public duties, and the state, within the limits of its jurisdiction, may enforce them. The state may prescribe rules to insure fair remuneration and to prevent extortion, to secure substantial equality of treatment in like cases, and to promote safety, good order, and convenience.
obtains from its entire intrastate business a return as to the sufficiency of which in the aggregate it is not entitled to complain. Thus, in Lake Shore & Michigan Southern Ry. v. Smith, 173 U. S. 684, the regulation as to the sale of mileage books was condemned as arbitrary without regard to the total income of the carrier. Similarly, in Missouri Pacific Ry. v. Nebraska, 217 U. S. 196, it was held that the carrier could not be required to build mere private connections, and the adequacy of the receipts from its entire business did not enter into the question. And this was so because the obligation was not involved in the carrier's public duty, and the requirement went beyond the reasonable exercise of the state's protective power.
coal by throwing the expense incident to the maintenance of the roadbed, and the general expenses, upon the carriage of wheat; or the cost of carrying wheat by throwing the burden of the upkeep of the property upon coal and other commodities. This, of course, does not mean that all commodities are to be treated as carried at the same rate of expense. The outlays that exclusively pertain to a given class of traffic must be assigned to that class, and the other expenses must be fairly apportioned. It may be difficult to make such an apportionment, but when conclusions are based on cost, the entire cost must be taken into account.
ground for compelling the carrier to transport it for less than cost, or without substantial reward.
The state insists that the enactment of the statute may be justified as "a declaration of public policy." In substance, the argument is that the rate was imposed to aid in the development of a local industry, and thus to confer a benefit upon the people of the state. The importance to the community of its deposits of lignite coal, the infancy of the industry, and the advantages to be gained by increasing the consumption of this coal and making the community less dependent upon fuel supplies imported into the state are emphasized. But, while local interests serve as a motive for enforcing reasonable rates, it would be a very different matter to say that the state may compel the carrier to maintain a rate upon a particular commodity that it less than reasonable, or, as might equally well be asserted, to carry gratuitously, in order to build up a local enterprise. That would be to go outside the carrier's undertaking and outside the field of reasonable supervision of the conduct of its business, and would be equivalent to an appropriation of the property to public uses upon terms to which the carrier had in no way agreed. It does not aid the argument to urge that the state may permit the carrier to make good its loss by charges for other transportation. If other rates are exorbitant, they may be reduced. Certainly it could not be said that the carrier may be required to charge excessive rates to some in order that others might be served at a rate unreasonably low. That would be but arbitrary action. We cannot reach the conclusion that the rate in question is to be supported upon the ground of public policy if, upon the facts found, it should be deemed to be less than reasonable.
commodities, or to secure the same percentage of profit on every sort of business. There are many factors to be considered -- differences in the articles transported, the care required, the risk assumed, the value of the service -- and it is obviously important that there should be reasonable adjustments and classifications. Nor is its authority hampered by the necessity of establishing such minute distinctions that the effective exercise of the ratemaking power becomes impossible. It is not bound to prescribe separate rates for every individual service performed, but it may group services by fixing rates for classes of traffic. As repeatedly observed, we do not sit as a revisory board to substitute our judgment for that of the legislature, or its administrative agent, as to matters within its province. San Diego Land & Town Co. v. Jasper, 189 U. S. 439; Louisville & Nashville R. Co. v. Garrett, 231 U. S. 298, 231 U. S. 313. The court therefore is not called upon to concern itself with mere details of a schedule, or to review a particular tariff or schedule which yields substantial compensation for the services it embraces, when the profitableness of the intrastate business as a whole is not involved.
"if the rate fixed by the commission for coal in carload lots were applied to all freight, the road would not pay its operating expenses, although, in making this showing, the interest upon the bonded debt and the dividends were included as part of the operating expenses."
"but a slight, if any, tendency to show that, even at the rates fixed by the commission, there would not still be a reasonable profit upon coal so carried"
id., p. 186 U. S. 266, and this conclusion effectually distinguishes the case from the one at bar. In Interstate Street Ry. v. Massachusetts, 207 U. S. 79, 207 U. S. 84, the decision rested upon the ground that the charter of the company was accepted subject to the obligations imposed by the statute there in question. In Willcox v. Consolidated Gas Co., 212 U. S. 19, in addition to the rate for gas supplied for general consumption in the City of New York, there was a lower rate fixed for that furnished to the city itself. It was said by the court that the criticism of the "wholesale" rate to the city was met by the fact that the total returns from the sale of gas were adequate. It was not established in that case that this "wholesale" rate required a service without substantial compensation in addition to cost.
It has repeatedly been assumed in the decision of this Court that the state has no arbitrary power over the carrier's rates, and may not select a particular commodity or class of traffic for carriage without reasonable reward.
classes selected for legislative favor even if, considering rates as a whole, a reasonable return from the operation of its road might be received by the carrier. Neither of these concessions, however, can control the case in hand, since it does not directly involve any question whatever of the power to fix rates and the constitutional limitations controlling the exercise of that power, but is concerned solely with an order directing a carrier to furnish a facility which it is a part of its general duty to furnish for the public convenience."
"This concession . . . establishes an important fact in dealing with the difficult question of determining what is a reasonable rate on a particular article. Where the rates as a whole are under consideration, there is a possibility of deciding, with more or less certainty, whether the total earnings afford a reasonable return. But whether the carrier earned dividends or not sheds little light on the question as to whether the rate on a particular article is reasonable. For if the carrier's total income enables it to declare a dividend, that would not justify an order requiring it to haul one class of goods for nothing, or for less than a reasonable rate. On the other hand, if the carrier earned no dividend, it would not have warranted an order fixing an unreasonably high rate on such article."
and the order of the state commission was sustained not because the state was at liberty to fix such rates as it might see fit upon the ground of local policy, regardless of reasonable compensation, and thus to require the carrier to transport the commodities in question for less than cost, but because the evidence not only failed to show that the rates were not reasonably adequate, but rather tended to establish that they were (id., p. 231 U. S. 314). The same conclusion, with respect to the same rates, was reached on further hearing in Louisville & Nashville R. Co. v. Finn, 235 U. S. 601, 235 U. S. 607.
To repeat and conclude: it is presumed -- but the presumption is a rebuttable one -- that the rates which the state fixes for intrastate traffic are reasonable and just. When the question is as to the profitableness of the intrastate business as a whole under a general scheme of rates, the carrier must satisfactorily prove the fair value of the property employed in its intrastate business, and show that it has been denied a fair return upon that value. With respect to particular rates, it is recognized that there is a wide field of legislative discretion, permitting variety and classification, and hence the mere details of what appears to be a reasonable scheme of rates, or a tariff or schedule affording substantial compensation, are not subject to judicial review. But this legislative power cannot be regarded as being without limit. The constitutional guaranty protects the carrier from arbitrary action and from the appropriation of its property to public purposes outside the undertaking assumed, and where it is established that a commodity, or a class of traffic, has been segregated and a rate imposed which would compel the carrier to transport it for less than the proper cost of transportation, or virtually at cost, and thus the carrier would be denied a reasonable reward for its service after taking into account the entire traffic to which the rate applies, it must be concluded that the state has exceeded its authority.
The judgments, respectively, are reversed, and the cases are remanded for further proceedings not inconsistent with this opinion.
* Stone v. Farmers' Loan & Trust Co., 116 U. S. 307; Dow v. Beidelman, 125 U. S. 680, 125 U. S. 690; Chicago & Grand Trunk Ry. v. Wellman, 143 U. S. 339, 143 U. S. 341; Reagan v. Farmers' Loan & Trust Co., 154 U. S. 362; Covington & Lexington Turnpike Co. v. Sandford, 164 U. S. 578; Smyth v. Ames, 169 U. S. 466, s.c. 171 U. S. 171 U.S. 361; San Diego Land & Town Co. v. National City, 174 U. S. 739; Chicago, Milwaukee & St. Paul Ry. v. Tompkins, 176 U. S. 167; San Diego Land & Town Co. v. Jasper, supra; Stanislaus County v. San Joaquin Canal Co., 192 U. S. 201; Knoxville v. Knoxville Water Co., 212 U. S. 1; Willcox v. Consolidated Gas Co., 212 U. S. 19; Cedar Rapids Gaslight Co. v. Cedar Rapids, 223 U. S. 655; Louisville v. Cumberland Telephone & Telegraph Co., 225 U. S. 430; Minnesota Rate Cases, 230 U. S. 352, 230 U. S. 433; Missouri Rate Cases, 230 U. S. 474, 230 U. S. 497; Southern Pacific Co. v. Campbell, 230 U. S. 537; Allen v. St. Louis, Iron Mountain & Southern Ry., 230 U. S. 553, 230 U. S. 556.

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