Source: https://supreme.justia.com/cases/federal/us/300/154/
Timestamp: 2019-04-21 06:10:34+00:00

Document:
1. A State may require a railroad company engaged in interstate commerce to pay a fee, in addition to general taxation of its property in the State, to cover the expense of local inspection and supervision within the State's police power, but the exaction violates both the commerce clause and the Fourteenth Amendment if, beyond those legitimate purposes, it is made and used to defray the cost of other activities of the State, such as local reparation proceedings and litigation before the Interstate Commerce Commission in behalf of shippers. P. 300 U. S. 159.
a fee of 1/10th of one percent of gross operating revenue of the year preceding, for use in administering the state public service commission law.
(1) That the statute is not void on its face, as applied to an interstate railroad, merely because it exacts fees at the same rate from the railroad and other public utilities as well, or because the proceeds compose a common fund which may be used not only for expense of inspection and supervision, but for other purposes. P. 300 U. S. 161.
(2) But, to sustain the exaction in the case of an interstate railroad, the burden rests upon the State to show that the sums collected from the railroad do not exceed what is reasonably needed in its case for inspection and supervision service. Foote & Co. v. Stanley, 232 U. S. 494. P. 300 U. S. 162.
(3) This burden was not sustained by the evidence in this case. P. 300 U. S. 165.
3. When a claim of federal right has been denied by a state court upon the basis of a finding of fact or of mixed fact and law, this Court must examine the evidence and determine whether it supports the decision against the federal claim. Norris v. Alabama, 294 U. S. 587. P. 300 U. S. 165.
184 Wash. 648, 52 P. 2d 1274, reversed.
Appeal from a judgment which reversed a judgment for the Railway Company in its action to recover fees claimed to have been unconstitutionally exacted by the State.
"Section 1. That hereafter every person, firm or corporation engaged in business as a public utility and subject to regulation as to rates and charges by the department of public works, except auto transportation companies and steamboat companies holding certificates under chapter 248 of the Laws of 1927, shall, on or before the first day of April of each year, file with the department of public works a statement on oath showing its gross operating revenue for the preceding calendar year or portion thereof and pay to the department of public works a fee of 1/10 of one percent of such gross operating revenue: Provided, That the fee so paid shall in no case be less than ten dollars."
"Sec. 2. All sums collected by the director of public works under the provisions of this act shall, within thirty days after their receipt, be paid to the state treasurer, and by him deposited in a fund to be known as the public service revolving fund."
public utilities, including common carriers by rail, electric, and street railways, gas, electrical, and water companies, telegraph and telephone companies, wharfingers, warehousemen, and carriers by water, engages in many activities disconnected from and unrelated to the inspection and supervision of rail carriers, and has a variety of duties in the enforcement of the State's police power. The complaint affirms that the fee is not based upon or restricted to the cost of legitimate regulation or supervision, but is used to defray the costs of other activities in connection with railroads, and also of supervising and inspecting unrelated public utilities and of performing other duties the expense of which cannot legitimately be imposed upon carriers by rail; that the fee is grossly in excess of the reasonable cost of inspection and regulation of railroads; that, to January 1, 1933, there had accumulated from the fees collected more than $250,000 in excess of the amount expended by the department in the discharge of all its duties; that the statute is in truth a revenue measure; that the State taxes plaintiff's property and other like property on an ad valorem basis. The complaint charges that the fee is a burden on, and a regulation of, interstate commerce in violation of Article I, § 8 of the Constitution; is so arbitrary, excessive, discriminatory, and unequal as to deny the plaintiff equal protection of the laws and to deprive it of property without due process of law, in violation of the Fourteenth Amendment.
The answer admits plaintiff's payment under protest; admits that the Department of Public Works exercises jurisdiction and supervision over many classes of public utilities, including common carriers, and that the plaintiff's property within the State is assessed on an ad valorem basis for taxes like other property; admits plaintiff's capacity to sue; but denies substantially all other allegations of the complaint.
The case was tried without a jury. The evidence largely consisted of the annual reports of the department. By the uncontradicted evidence and by the relevant statutes, the following facts were established. The department has jurisdiction of various classes of public utilities, including railroads, electric and street railways, gas, electric and water companies, telegraph and telephone companies, wharfingers, warehousemen, and carriers by water, in respect of which it exercises many regulatory and supervisory duties. As respects railroads, the department constantly exercises functions unrelated to inspection and supervision, including the statutory duties of taking part in litigation before the Interstate Commerce Commission affecting the citizens of the State, and of acting judicially in decreeing refunds of overcharges. These functions, unrelated to the inspection and regulation of railroads, entail large expense. Between 1929 and 1933, the legislature made no appropriation from the State's general fund for the expenses of the department's activities, all being paid indiscriminately out of the department's fund derived from the fees collected from businesses subject to its jurisdiction. During this period, the surplus accumulated from such receipts was $224,193.95, which was expended in 1934 in carrying on investigations of, and litigation with, public utility corporations other than railroads. No separate accounts are kept, or required by law to be kept, with respect to the expense of these various activities, and it is impossible to determine from the records and accounts of the department the expense of inspecting and regulating railroads separate and apart from the expense of regulating other utilities or other functions of the department.
from which all the department's expenses are paid; that he had figures classifying the expenditures according to the various kinds of utilities with which the department is concerned. These calculations he had made for himself, there being no duty under the law to keep accounts on this basis. He testified that, in computing the expenditures in connection with railroads, he lumped them as railroad charges and made no separation of the costs of inspection and regulation, the costs of rate hearings, and the costs of reparation proceedings, although the evidence establishes that many of the railroad charges had to do with reparation cases and litigation before the Interstate Commerce Commission. At the close of plaintiff's case, the defendant recalled the auditor as its own witness. He testified that the disbursements chargeable to the railroads for the period 1929 to 1933, inclusive, exceeded the receipts from railroads in the same period by $37,833. He did not, however, qualify what he had previously stated -- that, in making up these figures, he had lumped all railroad charges, whether for inspection and regulation or interstate commerce cases or reparation cases. Upon cross-examination, it developed that the figures he submitted were not official, and, so far as they covered salary items, had been made up from slips which the various employees, at his request, had turned in monthly allocating the time each employee spent in the various branches of the work, and the witness had no personal knowledge of the accuracy of these slips. Plaintiff objected to the testimony and moved to strike it on the ground that it was hearsay, but the court let it stand, subject to the objection. A judgment awarded the plaintiff by the trial court was reversed by the Supreme Court.
The contention is that the challenged statute is void on its face, since it discloses that the fee charged the appellant is not imposed for, or limited by, the reasonable cost of supervision or regulation of its business, and, if this is not so, the case made in respect of the act's operation cast on the appellee the burden of proof, which it failed to carry.
The Supreme Court of the state based its decision in favor of the validity of the statute on two grounds: first, that the act is not unconstitutional on its face; secondly, that, as the answer denied the material allegations of the complaint concerning the operative effect of the act, the plaintiff had the burden of proof, which it failed to sustain, and, if the burden was shifted by the case made by the plaintiff, the evidence preponderated in favor of the defendant.
insists that such is the necessary inference from the circumstance that the same fee is exacted from public utilities generally, and the collections go into a single fund and are indiscriminately disbursed for the many branches of the department's work. But these facts, without more, do not prove that the amounts derived from the railroads are in excess of the legitimate expenses of inspection and regulation. It may be that, in spite of this lumping of receipts and expenditures, the fees paid by the railroads are no more than enough to defray such expenses. The court below was therefore justified in refusing to hold the statute void on its face.
Second. The court thought the plaintiff had the burden of showing that the sums exacted from rail carriers substantially exceeded the amounts expended for regulation and supervision, and the proofs offered were insufficient to shift the burden to the defendant. This view was erroneous. Foote & Co., Inc. v. Stanley, 232 U. S. 494.
"to help defray the expenses of such inspection and the other expenses of the State Fishery Force, upon all oysters unloaded from vessels at the place where said oysters are to be no further shipped in bulk in vessels."
"No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws."
"But, while the two duties may sometimes overlap, there is a difference between policing and inspection, and if the state imposes upon one set of officers the performance of the two duties, and pays the whole or a part of the joint expenses out of inspection fees, it must be made to appear that such tax does not materially exceed the cost of inspection, the burden in such cases being on those seeking to collect the combined charge."
"But the commingling of these various duties, paid for out of a fund raised for inspection, does not necessarily show that the fee is excessive. For the presumption of invalidity arising from such intermingling might be met by carrying the burden of showing that, while the statute required payment out of which joint fund, the collections were not sufficient, but only helped, to pay the definitely ascertained expenses of inspection. The question of reasonableness therefore may be considered in the light of the practical operation of the law with a view of determining, with reasonable certainty, the permanent relation between the amount collected and the cost of inspecting."
annual reports of the comptroller, and found therefrom that one-third of the amount collected was sufficient to pay the cost of inspection, and the other two-thirds had been appropriated to "other expenses of the Fishery Force." In the light of the operation of the previous act and the failure of the state to show that the amount collected under the new law would not be more than was necessary for the expenses of inspection proper, the challenged statute was held void.
There are factual distinctions between the cited case and the instant one, but they do not affect the binding authority of the former. The law under consideration in the Foote case was purely an inspection measure. That here under review is characterized by the state court as one for regulation and inspection. The specific mandate of the Federal Constitution limiting state inspection fees to an amount absolutely necessary for executing a state's inspection laws was treated in the Foote case as raising the same issue as was presented in earlier decisions with respect to the bearing of the commerce clause upon the imposition of regulatory and inspection fees imposed upon local property of interstate enterprises. And the cases decided under the commerce clause dealing with the reasonableness of regulation and inspection fees have been treated by this Court as apposite to the guarantees of the Fourteenth Amendment. In the Foote case, reference to the accounts and records kept by state authority disclosed the extent of the excess of receipts over expenditures, whereas here it is demonstrated that, while expenses other than those of inspection and regulation of railroads are paid out of the fees, the amount of the excess over what is necessary for regulation and inspection cannot be ascertained from the department's accounts. The Foote case is authority that, in such circumstances, the burden is on those seeking to collect the charge.
The State Supreme Court, after holding that the plaintiff failed to carry its burden and that no duty of showing the amount necessary for inspection and regulation of railroads lay upon the defendant, proceeded to discuss the evidence and reached the conclusion that the proof preponderated in favor of the defendant. This conclusion was based upon the testimony of the department auditor that he had found from memoranda furnished him, and data collected by him, what had been expended in connection with railroads exceeded what they had paid. As already noted, the appellant insists that this evidence was inadmissible and lacked value because hearsay.
"While the account kept by the auditor was not official, in the sense that of itself it was admissible in evidence, yet what the auditor did in that respect qualified him to testify as to the ultimate fact. Without further detailing the evidence, we will say that, in our opinion and insofar as there was any evidence on the subject, it preponderated against the findings made by the court as to the cost of supervising and regulating railroads."
184 Wash. 648, 52 P.2d 1274, 1277.
"The question is of the application of this established principle to the facts disclosed by the record. That the question is one of fact does not relieve us of the duty to determine whether, in truth, a federal right has been denied. When a federal right has been specially set up and claimed in a state court, it is our province to inquire not merely whether it was denied in express terms, but also whether it was denied in substance and effect. If this requires an examination of evidence, that examination must be made. Otherwise, review by this Court would fail of its purpose in safeguarding constitutional rights. Thus, whenever a conclusion of law of a state court as to a federal right and findings of fact are so intermingled that the latter control the former, it is incumbent upon us to analyze the facts in order that the appropriate enforcement of the federal right may be assured."
"But a conclusion that debts have thus acquired a business situs must have evidence to support it, and it is our province to inquire whether there is such evidence when the inquiry is essential to the enforcement of a right suitably asserted under the federal Constitution."
"As the asserted federal right turns upon the determination of the question of situs, it is our province to analyze the facts in order to apply the law, and thus to ascertain whether the conclusion of the state court has adequate support in the evidence."
While holding the testimony of the department auditor competent, the state court omits to refer to the fact that the figures he presented were not allocated so as to show the amounts spent for inspection and regulation and those expended for other so-called railroad charges which could not be imposed upon the railroads.
As has been pointed out, the evidence is uncontradicted and conclusive that the sums he mentioned as having been expended for railroad account did include substantial, and apparently large, amounts for activities in the interest of interstate shippers and for the trial of reparation cases. It is impossible to sustain the state court's conclusion that such testimony had any probative value upon the sole issue in the cause, which was whether the statute subjects the railroads to an unreasonably excessive charge for inspection and regulation. As was said in the Foote case, the state is at liberty to intermingle duties involving costs properly chargeable to the railroads with others involving costs not so chargeable, but if it does so, and the exaction is challenged, it must assume the burden of showing that the sums exacted from the appellant do not exceed what is reasonably needed for the service rendered. The State failed to carry this burden.
It results that the judgment must be reversed, and the cause remanded for further proceedings not inconsistent with thus opinion.
184 Wash. 648, 52 P.2d 1274.
Chapter 107, p. 209, Washington Session Laws of 1929. (Remington's Revised Statutes §§ 10417, 10418.) This act amended § 1 of c. 113, p. 354, of the Laws of 1921, as amended by § 1, c. 107, p. 290 of the Laws of 1923. It left § 2 of c. 113, p. 354 Laws of 1921, in effect.
Pacific T. & T. Co. v. Seattle, 172 Wash. 649, 21 P.2d 721, aff'd on other questions, 291 U. S. 291 U.S. 300. See also the opinion below, 184 Wash. 648 at 650, 651, 52 P.2d 1274 at 1275.
The complaint as filed sought recovery also of sums paid pursuant to other statutory provisions. The appellant, however, abandoned these items of claim.
Charlotte, C. & A. R. Co. v. Gibbes, 142 U. S. 386; New York v. Squire, 145 U. S. 175, 145 U. S. 191.
Atlantic & Pacific Tel. Co. v. Philadelphia, 190 U. S. 160; Mackay Tel. Co. v. Little Rock, 250 U. S. 94, 250 U. S. 99.
Western Union Tel. Co. v. New Hope, 187 U. S. 419, 187 U. S. 425; Pure Oil Co. v. Minnesota, 248 U. S. 158, 248 U. S. 162.
McLean & Co. v. Denver & R.G. R. Co., 203 U. S. 38, 203 U. S. 55; compare Red "C" Oil Co. v. North Carolina, 222 U. S. 380, 222 U. S. 393; Western Union Tel. Co. v. New Hope, supra.
Brimmer v. Rebman, 138 U. S. 78, 138 U. S. 83; Postal Telegraph-Cable Co. v. Taylor, 192 U. S. 64; Pure Oil Co. v. Minnesota, supra, p. 248 U. S. 162.
Atlantic & Pacific Tel. Co. v. Philadelphia, supra, p. 190 U. S. 164; Postal Telegraph-Cable Co. v. Taylor, supra, p. 192 U. S. 69; Foote & Co., Inc. v. Stanley, 232 U. S. 494, 232 U. S. 503-504.
Foote & Co., Inc. v. Stanley, supra, p. 232 U. S. 505; Lugo v. Suazo, 59 F.2d 386.
Western Union Tel. Co. v. New Hope, supra, p. 187 U. S. 425; Foote & Co., Inc. v. Stanley, supra, p., 232 U. S. 507.
Postal Telegraph-Cable Co. v. New Hope, 192 U. S. 55; Foote & Co., Inc. v. Stanley, supra, p. 232 U. S. 508.
Compare 45 U. S. Dillon, 4 How. 421, 45 U. S. 447; Dower v. Richards, 151 U. S. 658, 151 U. S. 667; Cleveland, C., C. & St.L. Ry. Co. v. Backus, 154 U. S. 439, 154 U. S. 443; Cedar Rapids Gas Co. v. Cedar Rapids, 223 U. S. 655, 223 U. S. 668; Bailey v. Alabama, 219 U. S. 219, 219 U. S. 239; Central Vermont R. Co. v. White, 238 U. S. 507, 238 U. S. 512; Hill v. Smith, 260 U. S. 592, 260 U. S. 594.
Kansas City Southern Ry. Co. v. Albers Commission Co., 223 U. S. 573, 223 U. S. 591; Creswill v. Grand Lodge, 225 U. S. 246, 225 U. S. 261; Northern Pacific Ry. v. North Dakota, 236 U. S. 585, 236 U. S. 593; Interstate Amusement Co. v. Albert, 239 U. S. 560, 239 U. S. 566; Truax v. Corrigan, 257 U. S. 312, 257 U. S. 324; Ward & Gow v. Krinsky, 259 U. S. 503, 259 U. S. 511; Aetna Life Insurance Co. v. Dunken, 266 U. S. 389, 266 U. S. 394; Fiske v. Kansas, 274 U. S. 380, 274 U. S. 385; Ancient Order v. Michaux, 279 U. S. 737, 279 U. S. 745; Consolidated Textile Corp. v. Gregory, 289 U. S. 85, 289 U. S. 86.
To show that the revolving fund was used as a common pot for the regulation of public utilities generally, irrespective of their special function, does not make out a case of wrong to railroads, considered as a separate class, or to appellant in particular. For the purposes of this case, there is no need to inquire whether anything in the Fourteenth Amendment forbids the recognition of a single and all-inclusive class of public service corporations without further subdivision. If the prohibition be assumed, still the burden is on the railroads to satisfy the court that what was contributed by them was more than what was expended for their account, since otherwise the common pot may have been a help, and not a hurt.
That burden was not discharged. Far from being discharged, there was a disclaimer of any attempt or purpose to discharge it. And so the case must fail. Norfolk & Western Ry. Co. v. North Carolina, 297 U. S. 682, 297 U. S. 688-690.
Maryland passed an act for the payment of charges, characterized as inspection fees, upon imports of oysters from neighboring states. The "inspectors" did more than inspect that oysters; they policed the waters of Chesapeake Bay, being thus policemen as well as inspectors. On its face, the act provided that a fee of one cent per bushel should be "levied to help pay the salary of the inspectors and the other expenses of the State Fishery Force." 232 U.S. 232 U. S. 505. In these circumstances, the ruling was that, in a suit for an injunction brought by the importers, the state had the burden of showing that the fee was not an unreasonable one for the service of inspection, as distinguished from the other services covered thereby. Imposts upon interstate commerce being generally prohibited, and being lawful only when "absolutely necessary" for the purpose of inspection, a charge covering the service of inspection and also something else must collapse in its entirety unless the state is in a position to break it up into its elements. A power has been granted to be used in exceptional conditions. The state must bring itself within the exception if it seeks to act within the grant.
"one who would strike down a state statute as obnoxious to the Federal Constitution must show that the alleged unconstitutional feature injures him."
Premier-Pabst Sales Co. v. Grosscup, 298 U. S. 226, 298 U. S. 227. Analogies drawn from the law of trusts are inapposite and misleading.
The state does not collect the taxes or place them in the fund as trustee for the contributor or for any one else. It receives the moneys and expends them as an owner, charged with no other duty to a particular group of taxpayers than to members of the public generally.
The burden resting on the railroads to show that the use of the common pot has resulted to their damage, the record must be scrutinized to see whether the burden has been borne. In that scrutiny, there is no denial of a duty to inquire whether the decision of the state court, irrespective of its surface protestations, amounts in substance and reality to the denial of a federal right. Norris v. Alabama, 294 U. S. 587, 294 U. S. 589; Beidler v. South Carolina Tax Comm'n, 282 U. S. 1, 282 U. S. 8. There is a recognition of the duty, and an endeavor to fulfill it.
1. The trial court suggested to counsel for appellant that it would be interesting to know whether the amount that had been collected through the tax upon the railroads was in excess of the amount expended for their benefit. Counsel responded that he would not embark on that inquiry. His position was stated to be that the act was invalid on its face, in which event it would be vain to pursue the subject further. This Court, by its opinion, has rejected that contention. The act is not invalid on its face, whether valid or invalid otherwise.
were in excess by $37,833.14 of the railroads' contributions. Counsel for appellant expresses his belief that inspection and discovery of the contents of the vouchers would have yielded inadequate information. His business was to look and see.
"While the account kept by the auditor was not official in the sense that, of itself, it was admissible in evidence, yet what the auditor did in that respect qualified him to testify as to the ultimate fact. Without further detailing the evidence, we will say that, in our opinion, and insofar as there was any evidence on the subject, it preponderated against the findings made by the [trial] court as to the cost of supervising and regulating railroads."
for a crime. Snyder v. Massachusetts, 291 U. S. 97, 291 U. S. 106. It does not substitute hearsay for direct testimony generally or as to every possible issue arising in a case. At most, it is an enlargement of the common law rule as to entries in books of account or in public or official documents. Cf. Wigmore, Evidence vol. 3, § 1517 et seq; § 1630 et seq.
to doubt that such a statute would be valid. It would not even involve an extreme departure from common law analogies rooted in the presumption of official regularity. What a state may do in changing the rules of evidence through the action of its legislature it may do with equal competence through the action of its judges, for anything to the contrary in the Constitution of the United States.
4. Appellant did not discharge its burden by proving in a vague way that some of the disbursements classified by the auditor as a charge against the railroads were incidental to proceedings conducted before the Interstate Commerce Commission or elsewhere for the benefit of private shippers, and were not properly a part of the expense of local regulation.
The Attorney General takes the ground that disbursements from the revolving fund, if made for that purpose, were without authority of law. If that be so, they cannot avail to invalidate the statute, though they may lay the basis for a remedy in behalf of the state or others against the officers or agents guilty of unintentional misfeasance. Aside, however, from that objection, there was no attempt by appellant to prove the amount of these or like withdrawals in even the roughest fashion. There was no suggestion, much less evidence, that they would wipe out the excess of $37,833.14 stated by the auditor. An inquiry directed to the point would have yielded, in all likelihood, an estimate at least approximately correct. If such inquiry was inadequate, the slips and vouchers were available for scrutiny and dissection. Examination of the auditor in connection with the documents would have shown forth the truth.

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