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Matched Legal Cases: ['art. 3', '§ 8', '§ 18', '§ 8', 'art 00', '§ 4']

64 F1d 165 | OpenJurist
64 F. 165 -
64 F1d 165
AMESV. UNION PAC. RY. CO.
AMES v. UNION PAC. RY. CO. et a1. SMITH et aI. v. CHICAGO & N. W. R. CO. et aI. HIGGONSON et al. v. CHICAGO, B. & Q. R. CO. et aI. (Circuit Court, D. Nebraska. November 12,1894.)
Nos. 59 Q. 60 Q, 62 Q. 1.
STATE STATUTES-ENACTMENT-PRESUMPTION.
Where an act of a state legislature is by the speaker and chief clerk of the house and president and secretary of the senate, is indorsed "Approved" by the governor, bears a cert'ficate of the chief clerk of the house "that the within act originated in the house of representatives, and passed the legislature" on a specified day, and is duly filed in the office of the s.ecretary of state, the federal courts will regard the act as duly enacted, in the absence of some special provision of the or decision of the supreme court of such state requiring the courts to look beyond such evidences, and determine the question of due enactment by reference to other evidence. Field v. Clark. 12 Sup. Ct. 495, 143 U. S. 649, applied. Const. Neb. art. 3, §§ 8, 10, 11, provide that each house shall keep and publish a journal of its proceedings, and the yeas and nays shall be entered on it at the desire of two members; that the enacting clause shall be of a specified form; that no law shall be enacted except by bill, which shall be passed only by a majority of all the members of each house; that the question of final passage shall be taken immediately on its last reading, and the yeas and nays entered on the journal; that it shall be read on three different days in each house, and printed before the final vote is taken; and that the presiding officer of each house shall sign all bills in the presence of such house, and while it is in session. Held, that the most such constitution authorizes is that, in respect to certain matters, evidence may be sought in the journals of the two houses, which will prevail over that which appears on the enrolled bill as found in the secretary of state's office. 'Where the journals of the two houses of the legislature of Nebraska affirmatively show that with respect to Act Neb. April 12, 1893 tLaws 1893, c. 24, p. 164; Oonsol. St. Neb. p.211), prescribing the maximum rates for transportation of freight by railroads within the state, everything was done on its passage which the constitution requires, and the act is attested by the proper officers, approved by the governor, and was duly filed in the office of the secretary of state, such act is a valid law so far as concerns the various steps essential to its enactment. Parol testimony is not admissible to impeach the validity of an act which is shown by the record to have been duly and legally passed.
SAME-EvIDENCE.
SAME-IMPEACHMENT BY PAROL EVIDENCE.
SAME-TRIVIAL ALTERATIONS.
Even if such act can be impeached by parol, its validity is not affected by parol evidence tending to show verbal alterations which are trivial, and do not affect in any substantial manner the scope and reach of the bill.
REGUI,ATION
RAILROAD OOMPANIES-OORPORATION OREATED BY CQNGRESS BY STATE.
A state may prescribe the rates for transportation within the state by a rallroad corporation created by act of congress, in the absence of anything in the statute indicating an intent by congress to remove such corporation from state control. Reagan v. Trust Co., 14 Sup. Ot. 1060, 154 U. S. 413, followed.
SAME--UNION PACIFIC RAILROAD
Union Pacific Railroad Act (12 Stat. 497), § 18, provides that when the net earnings of the entire road and telegraph, after deducting expenditures,
shall exceed 10 per cent. on its cost, exclusive of the 5 per cent. to be paid reduce the rates of ,faze, un.. congl,'ess resep,:e t9Jtsel+ the ,sole and absQlutecoJ+trol of all rates to be charged by such cOmpany.' .
CONSTITUTIONAL -UNJUST DISCRIMINATION. LOCAL FREIGHT RATES '
'tt:tt
Act Neb. Ap11112, 1893 CLa'Vs 1893, e. 24,p. 164; Oonsol. St. Neb. p,211), the fortransportatlon of freight by railroads and providingt,hat fill railroads, or parts thereof, built January ,1,.1;389" or which may bebullt before December 31, 1899, exemptrr:om the ,provisions Of the act until the latter date, is D.Ii.Amend. 14, as a denial to railroads of the proti:lcti<w-.of the law, on, the, ground of, unjust, discrimination be.all thei!)oadll in thes,tate are not subject to its provisions.
OF FREIGHT-REDUCTION OF '
SUch act is ,not, an. interference with interstate commerce because it establishes a classification of freights different from that which prevails west of Chicago, and which was established by the voluntary act of the raill,iQad comp,lW'ies; nor on the ground that, by reducing local rates, it re4uces ratel!lon interstate business. , aet.Neb. Apr1l12, 1893 (Laws 1893, p. 164, c. 24; Conso!. St. Neb.p. 211), local freigbLrates on railroads, which reduces such rates 291A.!percent., is invalid;lwhere the rates prescribed are SUCh, as to companies operating roads within the state, aIlG. doing an interstate business, that ·there would be no net earnings from transportation of freight if such rateawere applied to all their business.
RAILROAD COMPANIES-REGULATION OF RATES.
The fact that; if ·such'statute is enforced, the earnings of such roads on all their business be SUfficient to pay reasonable compensation to the owners· of· the roads, does not render the act valid as to them; since other states and congress may fix like rates, and thus destroY their earning capacity. 12. SUIE. Nor does the fact that such rates ate not as low as, or no lower than. those of other statell,tOO-der such act valid as to such roads, where it appeat's that they would have no earnings on local freight if such rates are enforced.
STATUTE. COVItT!! INJUNCTION AGAINST ENFORCEMENT OF
The circuit court of the United States has jurisdiction of actions by nonresident stockholders of railroad companies, doing business in Nebraska, against such companies and the board of transportation of such state and its officers to enjoin frOID putting in force, as to such companies, a state statute fiXing the maximum rates for transportation of freight within the state, where the only remedy prOvided by the act is that. by petiti(j)u" a .railroad; company may obtain from the supreme court of such state an opinion that the rates ar,e unreasonable, and an order directing such board, in Its discretion, to permit the company to raise its rates.
Three bills-one'by Ames against the Union Pacific Railroad Com. panyaliQ others; one by8mith and others against the Chicago & and others; and the other by Bigothers agalnst the Chicllg!?, Burlington & Quincy Railroad Company and others-for injunctions. Decrees for complainants, Before BltEWER, Cir¢uit Justice,.a,nd DUNDY, District Judge.
AMES V. UNION PAC. RY. CO.
BREWER., Circuit Justice. In each of these three cases, respectiwly, the plaintiffs are stockholders in the corporation first named therein as party defendant. In the first the defendants are the Union Pacific Railway Company, a corporation created under the laws of congress, and owning and operating a railroad partly within the limits of the state of Nebraska; the St. Joseph & Grand Island Railroad CompanJ', the Omaha & Republican Valley Railroad Company, and the Kansas City & Omaha Railroad Company, corporations organized under the laws of the states of Kansas and Nebraska, whose stock is. substantially owned and whose lines are controlled and operated by the Union Pacific Railway Company; and certain officers of the state of Nebraska, constituting its board oftransportation, together with the secretaries thereof. In the second the defendants are the Chicago & Northwestern Railroad Company, a corporation organized and existing under the laws of the states of Illinois, Wisconsin, and Iowa; the Fremont, Elkhorn & Missouri Valley Railroad Company, a corporation organi:zed under the laws of the state of Nebraska; and the Chicago, S1. Paul, Minneapolis & Omaha Railroad Company, a corporation organized under the laws of the states of MInnesota and Nebraska,-both of which companies are owned and their roads operated by the Chicago & Northwestern Railroad Company; and, in addition, the board of transportation of the state of Nebraska, and its secretaries. In the third case the defendants are the Chicago, Burlington & Quincy Railroad Company, a corporation organized and existing under the laws of the states of lllinois and Iowa, which owns, controls, and operates, in the name of the Burlington & Missouri River Railroad Company in Nebraska, certain lines within that state; and in addition the state board of transportation, and its secretaries. passed On April 12, 1893, the legislature of the state of an (Laws 1893, c. 24, p. 164; Consol. S1. Neb. p. 211) spoken of in the records in these cases sometimes as the "Newberry Bill," and sometimes as "House Roll 33," which act prescribed the rates for the transportation of freight by railroads within the state. 'fhe act, in terms, applies only to freight whose transit begins and ends within the state, and in no manner' attempts to affect interstate freight. The bills in these cases were filed to restrain the state officials from putting that act in force, as against the railroads named. Pleadings were perfected, a large volume of testimony has been taken, and the cases are now before us, upon pleadings and proof, for determination. At the threshold the question arises whether this, which purports to be an act of the legislature, is a law; in other words, whether the various steps prescribed by the constitution as essential to the due passage of a bill through the two houses of the legislature were all regnlarly taken. The act is found duly filed in the office of the secretary of state; is attested by the signatures of the speaker of the house, and its chief clerk, also by the signatures of the president of the senate, and its secretary; is indorsed, "Approved, April 12, A. D. 1893. Lorenzo Crounse, Governor," and bears the following additional certificate, signed by the chief clerk of the house of representa-
certify that the within act originated in the house passed the legislature, April 5th, ,A.}). 1893." An thus authenticated would be conclusively presumed to puly enacted. This precise question was be· court,otthe United States, and fully considered, In Fleld!;:t!iOlark, 1,4:q p. S.649, 12 Sup.Ot. 495. Following that decision, of.the United States will regard an act of any state legislature, thusauthenticaied, as having been enacted in full compliance With all the form!!, unless there be some special provision ipthe constitution of that state, or some decision of its supremec,ourt,;"\Vhichx:equires a looking beyond thel:fe evidences of authenticity, apd deter;mination of the question of due enactment by refereJ).<le ,.to other kinds or matters of evidence, or, to state the proposition in another form, the rule prescribed in that case will control unless the state has prescribed some other or further rule. In the constitution of Nebraska (article 3, §§ 8, 10, 11) are these provisions,which are all that are referred to by counsel, or that seem ' to have any pellring on this question:
Sec. 8. Each house shall keep a journlll of its proceedings, and publish them (except su?h parts as may require secrecy) and the yeas and of the members on any question shall, at the desire of any two of them, be entered on the journal. ·.A.n votes in either house shall be viva voce. Sec. 10. The enacting clause of a law shall be, "Be it enacted by the legislature of state of Nebraska," and no law shall be enacted except by bill. No bill shi!-ll be. passed by assent of a majority of all the members elected to each house of the legislature. And the question upon the final passage shaU be tilken immediately upon its last reading, and the yeas and nays shall be entered upon the'jQurnal. Sec. 11. Every bill and concunent resolution shall be read at large on three house, and the bill and all amendments thereto shall be printed befm'e the vote is taken upon its final passage. No bill shall contain more than one subject, and the same shall be clearly expressed in its title. And no law shall be amended unless the new act contains the section qr sections· 80 amended, and the section .or sections so amended shall be repealed. The presiding ofticer of each house shall sign, in the presence of the house over which he presides, while the same is in session and capable of transacting business all bills and concurreut resolutions passed by the legislature.
tives: . of
The utmost that can be inferred from these constitutional provi· sions is that, in respect to certain matters, eddence may be sought in the journals of the two houses, and evidence which will prevail over that which appears on the enrolled bill as found in the office of 'the secretary of state; and this is as far as any decision of the supreme court of Nebraska has gone. In Hullv. Miller, 4 Neb. 503, that court held that the office of the journal is to record the proceedings of .the house, all,d that it mnst appear on. tlie face of the journal that a bill was passed by a con· stitutionalniajotity, but also held that an omission therefrom of other matters which the constitution does not, in terms, require to be entered upon the journal, would not. invalidate the law, and that it would be wel:1llllUed, in favor of its validity, that the legislature had done that which it ought to have done. In State v. Liedtke, 9 Neb. 462l 4 N.W. it was claimed that an appropriation bill, as it passed both llouses, named a larger 13um than was found in the en·
i'oiled bill signed by the governor, and a mandamus was asked to compel the state auditor to draw his warrant on the treasurer for such excess; but the court denied the writ, and declined to look into the journals of the two houses to see whether the fact was as elaimed, on the ground that, even if such sum was in the bill when before the houses, it had never received the approval of the governor, and had therefore never been legally appropriated. In State v. McLelland, 18 Neb. 236, 25 N. W. 77, the matter was considered at some length, and it was held that the certificate of the presiding officers as to the passage of a bill through their respective houses is only prima facie evidence of that fact; that the journals may be examined, and, if they show that the bill did not pass, that evidence will be held conclusive, and the supposed law set aside. Similar is the case of State v. Robinson, 20 Neb. 96, 29 N. W. 246. The same propo· sition was again affirmed in State v. Moore, 37 Neb. 13, 55 N. W. 2!)9, on the strength of the prior decisions; the court, however, saying that, were the question a new one, it would be inclined to follow the rule laid down by the supreme court of the United States in Field v. Clark, supra. In the case at bar the journals of the two houses, fairly construed, affirmatively show that everything was done which the constitution requires shall be done and recorded in the due passage of a bill. It will be sufficient to quote the recitals of the house journal, those of the senate journal being equally explicit.
"January 14, 1893. "Introduction of Bills. "The following bills were read the first time. and ordered to a second reading: House Roll No. 33. A bill for an act to regulate railroads, to classify freights, to fix reasonable maximum rates to be charged for the transportation of freights upon each of the railroads in the state of Nebraska." "January 113, 1893. "Bills on Second Reading. "House Roll No. 33. A bill for an act to regu'late railroads, to classify freights, to fix reasonable maximum rates to be charged for the transportation of freights upon each of the railroads in the state of Nebraska." "March 10, 1893. "House Roll 33. A bill for an act to regulate railroads, to classify rates-, to fix reasonable maximum rates to be charged for the transportations of freights upon each of the railroads in the state of Nebraska. "'Vas read third time. "This bill having' been read at lat'ge on three different days, and the same with all its amendments having been printed. "The question being, "Shall the bill pass1" "Affirmative votes, 63. "Negative votes, 30. "A constitutional majority having voted in favor of the passage of the bill, the bill passed and the title as amended was agreed to." "Mr. Speaker: I move to amend the title by adding the following and to provide penalties for violations of this act. Rhodes. "The motion prevailed." "April 6, 1893, "Mr. Speaker: Announced that he was about to sign house roll No. 33 while the house was in session lmd capable of doing business." .
some ,Y8'li'hal
'REPORTER,
parol testlllJpny which was offered, tending to show bill afteldt the 'house of is,'euQugh to say: First, that paroLtestimony is not .adrni'iil8ible' to impeach the validity of an act which, by the record; i'S shown to have been duly and legally passed, and,. second, even if, such testimony were competent, the supposed alterations were trifling, and not of a character to affect in any substantial mannerlthe scope and reach of the, bill. I am therefore clearly of the opinion that this act pa,lilsed the legislature of the state, and received the approval of the governor, in' due conformity to all substantial:cons,titutional requirements in respect thereto. From"tthis preliminary 'matter I turn now to the consideration of variousLquestions elaborately discussed by eounsel, in respect both to the!scope and validity of this law, and the jurisq.iction of this court. Many of them. I ,shall notice but briefly, for, while I have given a careful examination to all, to attempt anything like an elaborate discussion of. each would unnecessarily prc;long this opinion. ',u., It is insisted that the Union Pacific Railway Company cannot be subjected to the of this statute, because it is a corporationcteated,by congress, and as such, in the discharge of any of its functions, iS$ubjectonly to the control.oo£ that body; The general ques.tioD,of the powevofa state in respect to rates for.,Jocal freight over a corporation organized under the laws of congress was considered.in..Reagan v. Trust Co., 154 U. S. 413, 14 Sup. Ct. 1060, and it was' there held that thlt mere fact. that the corporation was so ex:emptit from state control injb.at respect. It was conceded in the opinion in that case that congress could wholly remove 'sticha corporation from state control; but it was held that, in the absence of S()mething in the statutes indicating an intention :on the part 00£ congress to so remove it, the state had the Ii"wer to prescribe tl,l.e rates for all local business carried by it. Of controlling. It is true, there is one provision in tnet;Tni9n Paciftc' act which tends to show an intent on the part ofpongress to retain to itself full control oYer all rates, and that is foull<l i:n the eighteenth section of the act (12 Stat. 497), as follows:
"And be It further ena.cted, that whenever It appears that the net earnings o'f the entire road and telegraph, Inclndlng the for services rendered for the United States, after deducting all expenditures, including repai11l,'andrthe furnishing, .runnlng, and managing of said road, shall exceed ten per centum upon lts cost, exclusive of the five per centum to be paid to the United States, congress may reduce the rates of fare thereon, if unreaoonable in amount, and may fix and establish the same by la.W,",
':,h'.'.
There,is·1ndhese words, it will be seen, a special reservation of the 'tD: rates;. land when this is taken in connection with the general pi:"ovision in· the same section, reserving the right to "add to, alter, amend, or repeal this act," there is much force in the contention that congress intended to reserve to itself,as it had the power. the sole and absolute control of all the rates to be charged company. But r am not fully satisfied that this language' warrants such a 'Of course, if the Union
AMES'll. UNION PAC. RY. CO.
Pacific Railway Company is not exempt from the operation of this act, no other company is. Again, it is insIsted, that the act is obnoxious to the charge of denying fo the railroads the equal protection of the laws, secured to them by the fourteenth amendment to the constitution of the United States, and this because all the roads in the state are not subject to its provisions. Section 4: is relied on to sustain this charge:
"All railroads, or parts thereof, which have been built In this state since the first day Of January, 1889, or may be built before the thirty-first day of December, 1899, shall be exempt from ilie provisions of this act until the thirtyfirst day of December. 1899."
The right to classify is conceded, but it is said that this classification is arbitrary, and depends upon no fair and reasonable difference. Attention is called to the fact that since January 1,1889, the Rock Island Company has built a road from Omaha to Lincoln, which is a part of its main line from Chicago to Denver; that in all of its business the Rock Island is in active competition with the several companies whose roads are subject to the provisions of this act; and that it is an unreasonable, unjust dis'Crimination to exempt the Rock Island Company from like subjection. I canno,t concur in these views. The principle of classification adopted by the legislature, whether wise or unwise, is within its power. To divide'railroads into two classes, placing in the one all that have been constructed and in operation for a length of time, and whOSe business must therefore be presumed to havebeeIl thoroughly established, and in the other all only recently constructed, is clearly' not a mere 'arbitrary distinction; and this notwithstanding it ma.y be that one of the l;ecently constructed roads is so' fortunate as to ' have immediately secured a large business. The "protection of infant industries" is a term of frequent use in the political discussions and history of this country; and to rule that a classification based upon such principle is purely arbitrary, and therefore unconstitutional, would certainly be a judicial novelty. Again, it is insisted that this act interferes with interstate com· merce,in two ways: First, it establishes a classification of freigbts different from that which prevails west of Chicago; and, in the ond place, by reducing local rates, it necessarily reduces the ,rates on interstate business. Neither of these objections seems to me well taken. In the first place, the classification of freights by the railroads is a purely voluntary act, not compelled by any statute, and not uniform throughout the country. There is one system which prevails east of Chicago, and one west., It might be more convenient if the classification established by this act harmonized with that' adopted by the railroad companies doing business west of Chicago i but surelytbe voluntary actof the railroad companies, in establishing a. uniform classification for certain territory, can work no limitation on the power of the state to establish a different classification. ' To saY,for instance, that because the railroad companies have volun· tarily placed flour in a certain class, on which a specified rate is to be charged, such voluIltary act of mere classification destroys the '
vol. 64. to establish a <;l!¥,sification which puts flQur in another ClaSs, and subject to another rate, is, to my mind, a most extntvagall-t Neither can I understand how the red'llction a matter of law, with intersta.te rates. It the,cpmpanies for their own convenience, ,to secure busic>ther reason, rearra;nge their interstate rates, and ma-Jfe them to the local rates prescribed by the statute, but surely there IS no legal compulsion. The statute 01' the state does not illterstate rates, any more than an act of congress rates would. legally work a change in local rates. Railroad companies cannot plead their own convenience, or the effects of co:mpetition between themselves and other companies, in the otherwise undeniable power of the state. It isf9f1;herinsisted by defendants, that this court hasn<>' jurisdic. tionQver actions:-First, because, in the act itself, an adequate legal is provided, by petition to the supreme court of the state, and cou$of equity may not interfere when adequate legal remedies because the rates are prescdbed by a direct ftct of the legislature, and not fixed by ,any commission. I am unable to assent to either of these contentions. The remedy referred to is found in 5, which authorizes any railroad company, believing the rates .prescribed to be, unreasolJi8.ble and unjust, to bring an action in the supreme court of the and if that court is satisfied that, the rates are, as clabned, unjust and unreasonable to such companY, it maY ,make an order directing the board of transportation to permit t)),erailroad to raise its rates to any sum, in the discretion of thebQard, provided that the rates so raised shall not be higher than charged by s'llch railroad on, the 1st day of January, 1893. But tbis comes very far ,sbort of being an adequate legal remedy. such an action, the opinion of the supreme court is that the rates are unjust and unreasonable. There is no judgment of that court raising the rates, but only giving to the board of transportation a There is no final judgment relieving the company from the burden of the rates fixed by the act. It only opens the door t() action by the board of transportation. Surely, a judgment or decree giviIlg ,permission to do justice is not securing justice. It might as 'Yell be argued that giving to the executive power to paris an adequate legal remedy for the, cordon onecollvicted of rection of committed on the trial. An adequate legal remedy is one and of right, to the injured party, relief from. wrong'done. Bllt, even if it were a full and complete it is one which cin be secu,red only in a single cOllJ.1;, and that acourfofthe state, . And, as was held in the case D.,S. E;uP. Ct. 1047, it is not within the power the ti,e up of other states to the courts of that state of and for protection against WfQn.g., coqgress, passed, uflder the conatiett,.,l\,'ited S.t.ates, open. the l 4001'.s of the fed.eralcourts to to suits aIlrd actions for thepreveJ;ltion or state cannot those doors.. Whatever maY' bave. upon the courts of ;tb,e state, the
courts of the United States are as open now as they were before to actions for the protection of citizens of other states in their property rights within the state of Nebraska; and the fact that the rates are prescribed by direct act of the legislature, instead of being created by a commission appointed by the state, is immaterial. The commission is but one agency of the state. The substantial question is whether the rates, as work a wrong or injury to the property rights of the citizens of other states. I quote, in support of these propositions, these words from the case last cited:
"A state cannot tie up a citizen of another state, having property rights within its territory invaded by unauthorized acts of jts own officers, to suits for redress in its own courts. Given a case where a suit can be maintained in the courts of the state to protect property rights, a citizen of another state may invoke the jurisdiction of the federal courts. Cowles v. Mercer Co., 7 Wall. 118; Lincoln Co. v. Luning, 133 U. S. 529, 10 Sup. Ct. 363; Chicot Co. v. Sherwood, 148 U. S. 529, 13 Sup. Ct. 695. · · · The equal protection of the laws, which, by the fourteenth amendment, no state can deny to the individual, forbids legislation, in whatever form it may be enacted, by which the property of one individual is, without compensation, wrested from him for the benefit of another, or of the public. This, as has been often observed, is a government of law, and not a government of men; and it must never be forgotten that under such a government, with its constitutional limitations and guaranties, the forms of law and the machinery of government, with all their reach and power, must, in their actual workings, stop on the hither side of the unnecessary and uncompensated taking or destruction of any private property, legally acquired and legally held."
There can be no doubt of the jurisdiction of this court in actions like these, and its duty to protect the property rights of the plaintiffs against any wrongful invasion thereof by the state through legislation in any form. But the grave question still remains, are the rates prescribed in this act, as the maximum over which the railroad companies may not go, unreasonable, and so unreasonable as to justify the courts in stay· ing its operation? No more difficult problem can be presented than this. There are so many matters which enter into it, and which must be taken into consideration, before a satisfactory answer can be reached. I think it may assist to a true understanding of the scope of this question, and the various considerations which mnst enter unto it, if we notice how, as a matter of history, the situation and the question have arisen. So far as the mere question of power is concerned, the transportation of persons and property is, equally with the carrying of letters and papers, a legitimate function of government. By reason of this, private corporations, acting as common carriers, are given the right to exercise the governmental power of eminent domain, and thus, against the will of the owner, to take his property for their public or quasi public uses. But in the history of this country the carrying of papers and letters was assumed by the government, and the transportation of persons and property left to private persons. In other words, the people chose to manage the carrying of the correspondence of the country, and to leave the matter of transportation to individuals. With the wisdom of this the cou$ have no concern. I simply notice the fact. But in :of this the carrying of letters and papers by strictly gov-
FEDERAL ltP:PORTEn,
Yol. 64,
booame 'what m8iy be fairly .called a system, while thetrnUS:PQriationOf'pemo'lis :andproperty by private 'individuals and col16rltions became a' business. ,in the one there was a simple classi:ftcMtoo and a uniform· rate, ar:nd the system was extended wherwent, possible to supply all the needs ever of all pEtmiof thecouDtl'J":J:n the way of transmission of news and Whether, in the carrying out ,of this system, at the end of each ,yea;r, there was a profit or not,was immaterial. It was somethingwbich the p('!ople'ofthewholecountrywere doing for the equal benefit. it tl;le expenses exceeded the revenuesuthe, common tre,lUlury paid the 'deficiency, Gain, profit, revenue, are in no sense the'ol)ject of the ,post office. .There is no effort to. the ;by WItl:\ A ,etfbuildIpg up an lDc::reased .bUf;llDCSS In one place or another,arinone direction or another.. With uniform rates and equal facilities,'811 persons> and places areserved,and'thesystem is imthe facilities>f()rcaJ;l'yirlg distribjI.tibn are multiplied as as,i:lilpJdly as ,cong'ress, ,in its judgment, for thebest,interestso.f the whole people. No citizen in any: town or city can get special rates for the carrying of his cor. No the promptness with which of which is dered. The thought alilq purpose"oJrthe post Qffice IS equal serVIce to all, anq uniform rates. '.. Qn,the other hand, as, the government did notun(ieftake the rtiatterof transportation, it beCame a business carried liy individualS'and 'corporations, and carried on,· as other busi·' ness;"W!tlNi:View to private gain, and: 'according to the judgment of th.oE;le epgaged therein., No effort was ,made by the government, reppliblic\ to [stay private 1nvestment iri :this business. On the c.tll!frl'O!y, the wMle'tenor oflegJ'sIation'was to encourage such investment,'llndthus toiIitrltiply the'facilities and agencies of transnow 'it is'estimated that ten billiOns of dollars are invested:ih railroad transportation alo11e. " It is to stop hereto whether this investment was not: largely in excess of the ueei:1s ,of thecouritry, and made,' ,. It is enough to know that 'it has beenttiade, with the acquiescence,' if not with the activeetleobragement, of 'the public. Now, in the" carrying on of any private enterprise, increase of bUElitiess with increase of profits is a stitnuillting thought, 'a,nd for this every variety of action is taken. Advefotisement, solicitation; inducement, favors, are lill freely resorted to,'brit, with the singIepurpose .of larger business and greatel' gain. It is Dot the carrying on of transportation all the 'of otner. kin'ds of business are found. Indeed, that is often'ghren as one of the reasons for 'continuing ,the present methods iIi trttnlspOl'tation, and It matter in etllogy thereof. As evidence''>f this, Theed do' 'no more than' quote this !tom the brief of counsel fijr the plaintiffs:
,. :"
,".'jrllil,t,e
Grltnd Island.. Nebl'8.$ka Bugar market, fo).' iJ1staJ;1ce, in ·competition with Cuba, Li)tiIsI$.nll.; and Sandwich Jslantl suga,r. If a, 'hIgher Price be asked' for NobliillJtl1; sugar tban for sugar'f'r(.m other not fiJid a buyer. But
case ol:,1)le
JrdGU'j
AMES V. UNION PAC.RY. CO.
the production costs about the same in Nebraska as in Cuba, Louisiana, and the Sandwich High railroad rates will shut it out of Chicago. Low l'ates must be given. Accordingly, the road is compelled, by the necessities of the situation, whether it will or not, to give them. Its own interests force it to do so. But that is not all. When tbe enterprise is in its infancy, cost of production is greater than elsewhere. Accordingly, the road must make rates so low as to cover this excess of the manufacture's cost; sometimes so low as to wipeout all the road's profit; sometimes below what the transp<>rtation costs the road. Of course, the road cannot always do this, nor can it do it on all its business. It justifies the irregularity in the exceptional case by the promise of paying business in the future. It helped at first, the new industry, by and by, will give the road a large business, and make up all concessions. The present loss is borne in hope of future gains. This is the way all commercial enterprises are carried on. He is most successful who acts on this principle with the best judgmoot. It is a general law of business."
The beet-sugar factory referred to in the above quotation furnishes a clear illustration of the difference between the post-office system and the transportation business. When the proprietor thought of locating that factory, the cost of correspondence was not considered, in determining the question 'Of location, while that of transportation was the principal factor. Not only that; it was an uncertain factot'. There was no schedule-no tariff-by which he could, at a glance, determine what the rates of transportation would be from one place or another to the market which he must reach. It became, therefore, a matter of negotiation-of contract-with the transportation· companies; and, as stated by .counsel, the negotia,tions resulted in rates at first cheaper than the cost of transportation, witb the expectation of rates enlarged in the future, or that the loss on that transportation would be made up by extra charges on other transportation. Now, it may be for the interest of Nebraska that the beet-sugar industry be developed in that state, and that transportation elsewhere shall be temporarily burdened in order to accomplish this development; or, it may be better for the country at large, and thus for Nebraska, as a part of that country, that the cost of transportation everywhere be as fixed and certain as the cost of correspondence. But whether the one system Or the other be the better is not for judicial consideration, for it is a mere matter of policy, involving, necessarily, no question of the rights of person nor property. It is obvious that, in the matter of transportation, we are in liP experimental or transitional stage. At first, transportation was a mere private business, and managed as such. Now, there is a growing conviction that the best interests of the people will be subserved by changing it from a business to a system. I say "experimental or transitional," for experience may satisfy that the change is not wise, and that it is better to continue transportation as a business; leaving to the interest of those engaged therein to determine how it shall be managed, and giving to them the power to build up, as counsel has suggested, industries and towns here and there. In such the present would be only an experimental stage. Or it may be that experience will only make more imperative the present demand that shall be a system, with absolute certainty and uniformity of rates, in which case the change will be
REPO:RTER, vol. 64.
the transitional era.: , '.rhe transi-
oftraBspottation, and itself discharging that public duty. Oerthat would be the the at leastsolution of the problem, which now impend,s; "for by purchaee or condemnation, and in a transaction, the state, paying simply the actual value of the property invested: in transportation, WQuld have, the samecontl:"Ql over that the national gov, ernin'e{J-t' Ms over the post-office, and could prescribe such rates aait saw fit, making good by general taxation any loss. But, : as ten billions, of dollars are inveSted in the business of railroad transportation, the public may be reluctant to incur such indebtedness,alld seek to accomplish thesaxneresult of unifprmity of rates byme-ans of legislation similar to,that before us. In ,other words, uniformity leaving the property in the hands of the present of rates Jssought to be secured by compulsory legislation. Here comes in t1J,eembarrassment of l?resent conditiollS. Property invested in 'railroads is as much prqte,cted from public appropriation its value must be paid for. as any otl:J.er. If taken for OOllstitu't;iQ:Q"al guaranties, to this, extent, are explicit; and in such condemnad(,>ll proceedings no inquiry is permitted ,as to how the acquired th,lj: property, provided only it be legally held owners by them. ,If a .farm belpI).gs to an individual, and the public seeks to take it must pay itS/Value, 'anP-, is not permitted to diminish the price by proving the owner acquired the means of purchase by immoral or ' He may have made his fortune deanng in, slaves" as a Jq'bbyist, or in any other way.obnoxious to public condemnation; put, if he. has acquired the legal title to the property, he is protected in, its possession, and cannot be disturbed unW the receipt of its actlli'l1 cashvalue. ,The same rule controls ifj'ailroad property is sought to be appropriated. No inquiryis op® as to whether the,owl}er has received gifts from state or indivi<,luals, or whether ,he haS, as owner, managed the property well or ill, or so as to acquire a)arge fortune therefrom. It is the legll1 title; and, so enough, that he owns the owning, he must be paid the actual value of that property. If he has done any wrong in or" using the property, that wrong must be redressed in a direct actioll therefor, and cannot be made These pr?positions in a factor ill 'respect to are ,S9 well settled that no one ever questions them.. The Same general ideas mus,t enter into the kindpefore us. The value of the property destr<!yed by legislatiQn depriving; the owner of ThepQwer which the has is .only, to reasqllllble not any rates. -:rhe language C)f the, to the matter is (Oonst. '1875, art. :t.+,'§ 4), "Ai).d,'illelegislature may, from time to ,time, pass laws, estltbIlshiI).g rates of charges for the transportation,of pas,sengers and freigJ,lt on railroadS in, this state.'l' -,But, the foundation of is justice. 'That wblch is unjust cannot be reasoD:able, and, when
tiQU <may ,be,a<;compIished by, the government taking possession
this wiil 'be
AMES 11. UNION PAC. RY. CO.
1"''''' II
the strong arm of the ,legislature is laid upon property invested in railroad transportation, it must be so laid as to do justice to such investors. There can be no justice in that which works to such investors a practical destruction of their property thus invested. It must always be borne in mind that property put into railroad transportation is put there permanently. It cannot be withdrawn at the pleasure' of the investors. Railroads are not like stages or steamboats, which, if furnishing no profit at one place, and under one prescribed rate of transportation, can be taken elsewhere, and put to use at other places, and under other circumstances. The railroad must stay, and, as a permanent investment, its value to its owners may not be destroyed. The protection of property implies the protection of its value. The authorities on these general propositions are collected in the opinion in the recent case of Reagan v. Trust Co., supra, and I need not do more than refer to that case. What is the test by which the reasonableness of rates is determined? This is not yet fully settled. Indeed, it is doubtful whether any single rule can be laid down, applicable to all cases. If it be said that the rates must be such as to secure to the owners a reasonit will be remembered that able per cent. on the money many things have happened to make the investment far in excess of the actual value of the property,-injudicious contracts, poor engineering, unusually high cost of material, rascality on the part of those engaged in the construction or management of the property. These and many other things, as is well known, are factors which have largely entered into the investments with which many railroad properties stand charged. Now, if the public was seeking to take title to the railroad by condemnation, the present value of the property, and not the cost, is that which would have to pay. In like manner, it may be argued that, when the legislature assumes the right to reduce, the rates so reduced cannot be adjudged unreasonable if, under them, there is earned by the railroad company a fair interest on the actnal value of the property. It is not easy to always determine the value of railroad property, and if there is no other testimony in respect thereto than the amount of stock and bonds. ontstanding, or' the construction account, it may be fairly assumed that one or other of these represents it, and computation as to the compensatory quality of rates may be based upon such amounts. In the cases before us, however, there is abundant testimony that the cost of reproducing these roads is less than the amount of the stock and bond account, or the cost of construction, and that the present value of the property is not accurately represented by either the stocks and bonds, or the original constr'uetion account. Nevertheless, the amount of money that has gone into the railroad propertythe actual investment, as expressed, theoretically, at least, by the amount of stock and bonds-is not to be ignored, even though such sum is far in excess of the present value. It was said in the case of Reagan v. Trust Co., 154 U. S. 412, 14 Sup. Ct. 1059:
"It is unnecessary to decide, and we do not wish to be understood as laying down an absolute rule, that in every case a failure to produce some profit to those who have invested their money in the building of a road is conciu-
v.64F.no.2-12
vol. ,64.
and unreasonable. And yet justice demands tJ:i.iLt shoW(1 receive some compensation for the use of his money orprdpe!."tY,lflt be possible, without prejudice to the rights of others."
It ia l;lptalways reasonable to cast the entire of the depre· who have invested their money· in railroads. Take theUn,lon :Pacific Railway, for illustration. At the time the govern· mentcrellted the corporation,' to induce the i building of this trans· through a largely unoccupied territory, it loaned to $l6,OQO 'a mile;. taking as security. therefor a second lien (). th,e property, and granting to the corporation the right to create 1l,priQr lien to an equal amount, which was done. There is testimony,t-eJl<;ling to show that the road in Nebrfl,ska could be built to,<Jay fQl:,'2Q,000 a mile.. Would it be full justice to the government, the common sense of right and wrong, would it be reasogaQledor the state of Nebraska to so reduce.the rates that the elitrninglil·,of.:theroadwould only pay ordinary interest on $20,000 a holdel'$ of the first lien being paid their interest, be f()],"¢ed to be content witll only interest on ,one,fourth,ofits investmellt? Or, topu! the c!Yle.in aHUle stronger promoter of thisenterprlse had been some private . w.Mllad his $16,000. a mile asa second lien, and for only $16,000 It mile. just to so reduce rates as to simply pay to reasoI,lable interest, and leave him without· any ..for·his investment? Is there not an element of equity wbJ..lil4 puts the r,eduction of. rates in a, differEmt attitudeJrom 'the propeJ;ty by virtueo.f eminent domain? In oIlly the va,lue is paid, yet that. value is actually the.oWllersmay reinvest, and'take the chances of whereas,: if the property is not taken, the owners have np recourse than to receive the sum which the property tp,ey to own will eltrD under rates. Conside.rations·such as these compel me to say I think there is no hard anct whicp,. can be laid down to determine in all cases whether the ,rates presc:tibed by the legislature are just and reasonaple, and tll,at.;often many factors enter into the,determination of the problem. QbWously, however, the effect of the . upon the earnings lsthefirst and principal matter to be cO'll&idered. This is a. matter of computation. The power of regulating railroads is .often said, tQ. be.a legislative power vested in the lawmaking body, to be exercised for the general welfare. Within the term "regulation" are embraced ;two ideas: One is the mere control of the operation of the roads,preacribing the rules for. the management thereof,-matters the convenience of the .publicin their use. Regulation, in, .this mayoe considered as purely public in its character, and m J10, wanner trespassing upon the rights of the owners of railroads.. t13utwithin the scope of the word "regula.tion," as commonly used, is embraced the idea of fixing the compensation which railroad property shall receive for the use thereof; and when regulation, in this sense, is attempted, it necessarily affects the property :interests of the railroad owners; and it is "regulation,"
tn this sense of the term, that we are to consider in the present cases. There are certain matters which embarrass these cases, and render all computations more than ordinarily difficult. One is this: 1'he various companies are doing an interstate as well as a local business. If these roads were wholly within the state, and only local business done by them, the computation would be much simplified, and the effect of the reduction in rates upon the property more easily disclosed. But all of these roads are interstate roads, and a large portion of their business is interstate business. Some of it is local business in other states than Nebraska. Now, it will not do to look simply at the gross earnings, and, because the reduction therein made by the enforcement of this statute still leaves enough to pay reasonable compensation to the owners of the property, uphold the act, because, if the legislature of Nebraska can put in force this tariff for local business, the legislatures of other states through which these roads run, and the congress of the United States, may make corresponding reductions in the rates on all other business, local and interstate,and the aggregate of such reductions might entirely destroy all earning capacity from the property. Auothermatter to be noticed is this: There is in this act no interference with the passenger tariff, but only a maximum for freight rates. So we cannot place all the local expenses over against all the local receipts, and draw our conclusions therefrom. We have an attempt by the legislature to prescribe a maximum tariff for only the transportation of freight within the limits of Nebraska, and are called upon to determine whether the rates so fixed are unreasonable, and afford no fair compensation to those who have invested their means in these railroad properties. In order to determine this, we must ascertain what it costs to carry this local freight, what the receipts have been therefrom, and what reduction will be made in such receipts by the application of this act, and then we must take such proportion of the gross investment in the roads as the present earnings from local freights bear to the total earnings of the road. From these computations, we may see whether the reduction made by this act in the local freights, if applied to all the company's business, would leave any compensation to the owners, and, if so, how much. ObviousIJ', the problem thus presented is one of exceeding difficulty. Fortunately, we have in Mr. Dilworth, the secretary of the state boord of transportation, one of the defendants' witnesses, a gentleman whose competency and credibility are unchallenged. In the computations which I have made, I have relied mainly on his figures. From the labyrinth of tables, figures, and estimates presented in the testimony, and discussed by counsel in their briefs and arguments, let me take these two tables, presented by Mr. T)ilworth, which seem to lay the basis for some fair calculations as to the effect of this act upon the business of the various companies:
EXHmIT 20. Tons Cal'ried, Tonnage per :Mile, and Percentage,Gf Expenses for Years ending June 80,1891, 1892, and 1898. (Nebraska.)
l8fU.
',' .' ' . '1'" NQ.'I'Qua· ofNQ.T.ODliOUo- No. .otTona ·To.... Loealgerll, Local 'Percentagej)f , N6.'of!No.Qt. cal Frelg.htQrIntersta.teand Interan.d. Inter-' EXp8!,"eato carrledLoFrel",htCarCarr1ced' 1 Freight Car-. "tate Carstate, carE'lrmuge.
·'1'"
I,m ',- . 'I·-Tot;.!'
lisseD:-I'··
Burlingt()n & Missouri R. R. R. in Neb. Chicago, St. Paul, Minn. & Omaha..... Fremont, Elkhorn & Missom'i Valley .·· Union Pacific RaUway ··.····.···....· Omaha & Republican Valley ..········ St. Joseph & Grand Island .. Kansas City & Omalla················ Bm'lington& Mi.ssouri R. R. R. in Neb. Chicago, St. Paul, Minn. & Omaha ...·· Fremont, Elkhorn & Missouri Valley ... Union Pacific Railway ....············ Omaha & ReDublican Valley ·····.··.· St. Joseph -& Grand Island .·.········· Kansas City & Omaha.·······..······ Burlington & Missouri R. R. R. in Neb. Chicago, St. Paul, Minn. & Omaha ..... Fremont, Elkhorn & Missouri Valley., · Union Pacific Railway .....··..·. " ··· Omaha & ReDublican Valley ..········ St. Josepb & Grand Island ...· , ···· , ·. Kansas City & Omaha, ...............
538,824 64,496 141,056 152,028 61,448 25,078 8,743 574,653 65,762 158,350 192,865 63,999 39,657 10,823 583,294 78,753 -187,804 220,061 68,237 60,452 15.484
1,448,229 228,671 654,400 1,908.845 409,270 178,169 78,694 1892. - - . 1,996,437 264,403 846,312 1,882,112 628,351 303,550 194,089 1893. 2,221,005 279,218 800,158 2,068,568 683,868 337,647 205.725
73,075,310 196,415,962 269,491,272 69,594,747 7,403,263 10,267,118 36,397,629 46,664,747 21,863,680 101,644;999 123,508,679 24,898,729 28,908,124 362,966,694 391,874,818 66,072,59.7 4,579,104 30,499,041 35'078'145110'295,137 ' 2,308;918 1,497,658 10,640,979 12,138,637 4,037,833 912,210 3,634,082 403,751 91,139,965 316,552,193 407,692,158 11,028,287 44,321,384 55,349,671 24,069,200 128,425,903 152,495,103 42,970,322 419,300,773 462,271,095 4,659,127 45,745,647 50,404,774 2,005,851 15,355,015 17,360,866 8,635,016 9,116,531 481,515 93,793,675 357,131,753 450,925,428 12,848,551 45,554,417 58,402,968 26,855,972 114,511,328 141,367,300 45,948,736 431,949,561 477,898,297 4,257,988 42,706,297 46,964,285 2,774,860 18,576;845 21,351,705 8,750,126 658.534 9,408,660 70,038,243 8,833,405 21,874,987 56,926,269 10,058,442 2,472,538 864,030 83,091,418 9,074,093 23,209,212 63,422,117 11,028,131 2,834,169 875.415
66.24 70.78 49.87 68.94 120.26 96.44 99.54 64.23 65.93 70.71 56.44 93.12 74.23 75.19 65.51 64.58 55.66 58.51 94.14 62.05 76.50
DEFENDANTS' EXHIBIT 4. Estimate of Local Business and the Effect of House Boll as on the Following Named Railroads.
Number ot Tons Hanled Locally. Average Amonnt Reeel ve d for Each Ton Hanled. TotalAmonnt Total Amount Received of ReductorTons tion Caused Hauled Loby H. R. 88. cally. Amonnt Recalved trom Passenger BusineBS. Amount Recelved tor TotalAmouut Per Cent. of Freight Reduction Rea,lized on H anled In on All BnslAll Bnsiness Nebraska. ness Done Done In the Inclndlng In the State lltate. Throngh byH.R.83. and Local.
I:!:
Burllngton & Missouri R. R. R. in Neb ..... Chicago, St. Paul, Minn. & Omaha ...... ",_'" Fremont, Elkhorn & Missouri Valley.....· Union Pacific Railway. Omaha & Republican Valley .............. St. Joseph & Grand Island , .........
574,653' 65,762 158,350 192,865 63,999 39,657 10,823
$2.15416 1.87089 2.12633 2.06498 1.38026 .63051 .61261
$1,237,884 123,033 336,714 398,262 88,335 31,004 6,630
$3GO,175 36,294 99,310 117,487 26,043 8,836 1,889
$2,369,714 263,458 598,219 977,264 305,668 71,083 41,123
$5,538,766 472,051 1,495,468 4,284,793 955,626 216,395 125,530
$7,908,242 763,509 2,093,687 5,262,057 1,261,294 287,478 1OO,G03
.044 .047 .047 .022
.030 .011
KanslIB City & Omaha.
... ex:
Exhibit! 4 shows the amount actually received .tor business within 30, 1892, by the vllrious roads the state whose are in controv&rsy in these cases; atso;:.the amount of in those receipts which would ha,veresulted';if the rates prescribed, by house roll 33 had been in force during year. In Exhibit 20 Q'f expenses to ear:niqgs upon the business of;!hose companies. Obviously, the cost of transpo'rtation saine whether the companies received the prices which would be they did fact receive, or the recip.ced rates prescribed by house roll 3,3. J;f the cost of hauling local"freight was the same as that of the other i done by the roads, in order to ascertain what amount tlte,companies from local freight, it' would be necessary to miJUiply'the.gro$S receipts by the percentage of expenses to earnings. j This 'would show the aniount that WcOst to carry that freight, aJidthe difference between that cost and, the receipts would be the a.ni0'!1ntof the net. earnings.. From such net earnings subtract the amount of reduction causeiJ.: by house roll 33, and the result will show Whether, ' undl3reuch. rat' the companies would have S, earned anything from local if so, how much. Making this computation, and placing the results in a table, and we have the following :,
GrOSR TIe-
cciptA. or Net Earnings. Per cent age Cost of HaulTot" I If Rates PreNet Earnings TotalAmount a f1 clsncy Amvuut [(eof Expenses scribed by D from Same of Radueinp; Loca.l from Local cei ved for toE a r tlon CR,used H.R.33had Freight. Freight. Ca.ose. Ton s Ings. by H. R. 83. been in Hauled Loo It'''orce. cally.
Burlington & Missouri R. R. R. in Neb. $1,237,884 Chicago. St. Paul, Minn. & Omaha ..... Fremont, Elkhorn & Missouri Valley ..· Union Pacific Railway .·········.·.·..
64.23 65.96 70.71 56.44 93.12 74.23 75.19
$759,092 81,152 238,090 224,779 82,257 23,014 4,985
$442,792 41,881 98,624 173,483 6,078 7,990 1,645
$365,175 36,294 99,310 . 117,487 26,043 8,836 1,889
$77,617 5,587
123,033 336,714 398,2G2 88,3.3;) 31,004 6,630
55,596 $19,965
Omaha & Republican Valley ...······· St. JosePh & Grand Island .··········· Kansas City & Omaha ...····.········
·16,4
From this table it will be seen that if, durlngcthat year, these companies had been limited in their charges to the rates prescribed by this house roll, four· of them, to wit, the Fremont, Elkhorn & Missouri Valley, the Omaha & Republican Valley, the St. Joseph & Grand Island, and the Kansas City & Omaha, wquld.:not only have received nothing by way of earnings, but would actually have bcpn carrying the freight at a loss. 'l'he three other roads would have made, respectively, net earnings of $77,617, $5,587, and $55,996. This is upon the assumption that the cost of carrying local freight is the same as that of carrying through freight, and hence that, applying the general per cent. of expenses, enables us to determine accurately the earnings from local freight. But the testimony shows that the cost of carrying the local freight is largely. in excess of the cost of other business. The exact per cent. of such excess is not disclosed. It may, perhaps, be difficult to determine it accurately. Mr. Fink, a witness for the plaintiffs,-a gentleman of large experience in railroad transportation, and of national reputation as an authority in such matters,-says that the cost of carrying local freight is four times that of carrying through freight; Mr. Utt, another witness for the plaintiffs, who is the commissioner employed by the Commercial Club, of Omaha, to look after railroad transportation matters affecting the business of the city, testifies that the one costs six times as much as the other; while Mr. Dilworth, the secretary of the defendant board, and their principal witness on matters of this kind, also says that it costs mOre to do local than through business; that the percentage of operating expenses on the local business would . exceed the percentage on all business probably 10 per cent., and might run up to 20 per cent.,-possibly, might be higher than that. Of course, this testimony is not like that which we have heretofore been examining, where the figures and per cents. are accurate and certain, but is largely in the way of estimate. And yet it is clear from the testimony that the per cent. of expenses for carrying local fl'cight is considerably above the total per cent. of operating expenses. Now, turning to the last table, it will be seen that, if the cost of carrying local freight was 7 per cent. more than the general per cent. of expenses, the Burlington & Missouri River Company would, under the reduction. caused by house roll 33, have earned nothing from the transportation· of local freight; if only 5 per cent., the Chicago, St. Paul, Minneapolis & Omaha road would likewise have earned nothing from that source; and,similarly, the Union Pacific Railway, if the per cent. was 14.1 per cent. It is difficult to resist the conviction that if the rates prescribed by house roll 33 had been in force during the year June 30, 1892, not a single one of these roads would have earned a. dollar from the transportation of local It is true' that Exhibit 4 shows the effect of the reduction caused by house roll 33 only for the business of a single year, -that ending June 30, 1892; but a comparison of the business in 1891 and 1893 with that for 1892, as found in Exhibit 20, shows an average per cent. of less in 1892 than.in either of the other years. So that eVidently the year 1892· was selected by the board of transportation for the making of its table, Exhibit 4, as the most favorable. But light upon this legislation is further thrown by another table prepared by defendant. as follows:
DEFENDANTS' EXHIBIT 23. Statement Showing Mileage, Capital Stock, and Funded Debt of the Following Named Railroads for the Year Ending June 30, 1892.
Entire Mileage. Capital Stock.
Capital Stock Fuuded Debt Total for Mile. per Mlle. per Mlle.
&i <
C. B. & Q.··················
0., St. P., M. & 0 ............ F. E. & M. V ················ U. P. Ry.··················· 0& R. V ................... St. J. & G.J ................
5,290 1,356 1,300 1,826 482 251 193
$76,397,400 $116,580,980 $192,978,380 34,050,126 30,370,000 60,868,500 2,420,550 4,600,000 4,410,000 23,742,800 21,119,000 128,734,397 5,941,000 8,721,405 2,713,000 57,792,926 51,489,000 189,602,897 8,361,550 13,321,405 1,123,000
$14,439 25,103 23,352 33,318 5,021 18,322 22,769
$22,034 17,504 16,238 70,468 12,324 34,768 14,007
39,590 103,786 17,345 53,060 36,007
:zI
Jr., C. & 0 ..·················
FE1'>ERJAt. "REPORTER, vol. 64.
, Take the Union Pacillc Railway, whose net earnifigs for local freight seem greater than those of any other company,and by this last table it appears to be bOnded.for $70,468 per mile. The total mileage of that ,road within .th.e state is 467 miles; so that, if the bonded were distributed accordtng ·.,to mileage, the burden resting upon the part of the road within the state of Nebraska would be Six per cent. interest on this (the amount allowed by act congress incorporating the company, and which is the rate on the'"original mortgages, at least) is $1,974,513, or the amount to be pa,td out of the earnings of the road before the stockholders are entitled to any dividends. From Exhibit 4 it appears that the for aU business done in the state was $5,262,057 ; for hauling local freight, $398,262, or "about 7! per cent. of the gross receipts. Local freight, therefore, should earn 7! per cent. of the amount necessary to pay. the ihterest>On the bonded indebtedness resting on the in the state. Seven and one-half per cent. on $1,974,513 is $14$,088. But the net earnings for local freight that year showing that there was only about $25,000 earned froniJocal freight, to be distributed among the stockholders; and this upon the assumption, in the face of the testimony to the contrary, thM the. cost of cartying localfreight is exactly determined by the general of expenses to earnings. By the llame table it appears that if the :rates i>rescribedby house roll 33 had been in force the from local freight, upon assumption, would have been $55,996, or but little more than one-third of the amount necessary to;pay' the P1lrtion of the interest on the bonds properly chargeable to 10caHreight. If it be said that it is not a fair apportionment oithe bonded indebtedness, to distribute it by the mileage, because the cost(>f construction in the mountainous part of the road, west of Nebraska, was much greater than such cost-with,inthe limits of the state, andjf it be said that the cost of material: and labor at the time of . construction was far in excess of the present cost, and that there was extravagance, if not corruption, in carrying on the work of construction (all of which is undoubtedly true), it is also true that the act of congresa under which the company was chartered and the road constructed provided for,the issue by government to the company of bonds to the amount of $16,000 a mile within the limits of the state of Nebraska, to be a second lien, arid with power in the company to :exeeutea prior mortgage for a like amount. [email protected], therefore, in the inception of the work, made specific provision for an indebtedness of $32;000 per mile on the road within the limits of the state. In..order:to meet its of the interest on such indebtedness, freight should have earned $67,248, or about $12,000 more tb:an would have been earned under house roll 33. Again, there is·a volume of testimony as to what it would cost to reproduce these.variousroads; suehamount being, as claimed, a fair test of the present value. I shall not-now, at least-attempt to make any coiri,parison of this testimony, but, for present purposes, content myself .with 1;aking this concession from the brief of the defendants' counsel:
AMESV. UNlON PAC. ,RY. CO.
"There, is sutliclent testimony in this record to, justify the conclusion tlmt "the lI-verlJ,ge reproduction or value of the roads In the state of Nebraska, dO,es, not exceed $20,000 per mile, including right of way, rallway 'tracks, equipment, station houses, telegl'aphlines, and terminal properties."
The present value of the Union Pacific Railway property in the :state, at the sum named in this concession, would be $9,340,000. To pay 6 per cent. on this conceded value would require, as its con· tribution to the earnings from the local freight, $42,030. Or, in other wordsl , upon the conceded value, the local-freight earnings, as reo by house 1'01133, would have paid but their proportionate share -of 8 per cent. interest. If a proportionate reduction in rates was lUadeby other states and by congress (and, of course, such a reduction,would be equally within their power), 80 that the total net ' arnings of the road would be but 8 per cent. on this conceded value, -obviously only the holders of the first lien would receive full interest on their indebtedness, while the holders of subordinate liens would receive but a fraction thereof. All the stockholders would go with-out c01;npensatlon, and soon their investment be swept away by foreclosure proceedings. Take the same process of computation, and apply it to the only other company which would have any amount of earnings under the reduction caused by house roll 33, to wit, the Burlington & Missouri River Railroad in Nebraska. Beyond the statement in Exhibit 23 of the capital stock and funded debt per mile of the Chicago Burlington & Quincy Company, which owns and operates the Burlington & Missouri River Railroad, we have, from the testimony of its auditor, the exact amount of mortgage indebtedness resting upon the road within the limits of the state, and the amount {)f interest charges due therefrom, to wit, an indebtedness of $45,268,992.80, and interest charges for the year 1892, $2,224,171.17. The amount received for local freight was about 16 per cent. of the total amount realized on all business done in the state, as appears from Exhibit 4. Sixteen per cent., therefore, of this interest, should have been earned by the local freight. Sixteen per cent. is $355,867. But the table shows that the net earnings therefrom, under the rates prescribed by house roll 33, for that year, would have been only $77" 617,-not a fourth of the amount which it should contribute to the payment of such interest. But again, as Mr. Dilworth testified, the average reduction on local rates caused by house roll 33 is 29! per cent. The tariff which was in force at the time of the passage of this act had been for sOlJlle three or more years fixed by the voluntary action of the railroad companies, and the reduction of 29! per cent. was from its rates. It must be remembered that these roads are competing roads; that competition tends to a reduction of rates, sometimes, as the history of the country has shown, below that which affords any remuneration to those who own the property. Can it be possible that any business so carried on can suffer a reduction of 29f per cent. in its receipts without ruin? What would any business man, engaged, in any business of a private character, think of a compulsory reduction of his receipts to the amount of 29i per cent.? The effect of this testimony is not destroyed by the table offered of ,the percentage of reduction on the total amount of business done by these companies in the state, as follows:
J'EDil:RAL REPORTER,
1'1 ········· ill · · · · · · ··········
....'········
..;... ·· ····.··· .- ······'····· I' ··.
I · · · · · · , , ' , . ' . . . . ,'
U. 0,,&
········ it · · · · · · · · · · · · · · · · · · · · · · ',.
: ···············
0 ·········· -·· ......
. . . . .-.
· ·' . "
II · · · · · ·
; ··· , ··,
· · · · · · · · · · ·· ···, ··· - ···, ··: · · · · ·· · · · · · · · · · · ·
4.5% 4.1'% 2.0% 1.9% 2.7% 1.5%
For such a table indioates,8.s is further'shown'by defendants' Exhibit 4, how small a proportidnof the total amount of business done . in the state l(lomesfrotn purely local freight. Nor is it weakened by .anycomparison between the amount -of reduction and the total receipts froxn all business. It may be, as stated by counsel, that the annual earnings of the Ohicago, Burlington &. Quincy Company are ancl that the total amount ·of reduction caused by this house roll 33 is only $365,'175; It may bethat the capital stock of the company :Is '76,407,500, and that $365,175 distributed among the stOCkholders may not be,for any of them, a great sum; but the entire earnings of the Chicago, Burlington & Quincy are: more than 20 thnes the receipts from local freight in Nebraska, and to reduce such earnings' by 20 times $365,175 would make a startling difference iBi their amount The fact that the st-ate of Nebraska can reach only one-twentieth of the total earnings gives it no greater right to make a reduction in respect to that one-twentieth than it would have, had it the powe,r over the total earnings, and attempted in them alIke per cent. of reduction. If it would be unreasonable to reduce the total earnings of these roads 291 per cent, it is prima facie, at least, equally unreasonable to so reduce any single fractional part of such earnings. It is, however, urged by the defendants that, in the general tariffs of these companies, there is an inequality; that the rates in Nebraska are higher than those in adjoining states; and that the reduction by house roll 33 simply establishes an equality between Ne'braska and the ·other states through which the roads run. The question is asked, are not the people of Nebraska entitled to as cheap rates as the people of Iowa? Of eourse, relatively, they are. That is, the roads may not discriminate against the people of any one state. But not necessarily absolutely as cheap, for the kind and ainount of business, and the'cost thereof, are factors whioh determine largely the question of rates, and these vary in the several states. The volume of business in one state may be greater per mile, while the cost of construction and of maintenance is less. Hence, to enforce the same rates in both stateS might result in one in great injustice, while in the other it would only be reasonable and fair. Comparisons, therefore, between the rates of two states, are of little value, unless all of the eletnents that enter into the problem are presented. It may be true, as testified by some of the witnesses, that the existing local rates in Nebraska are 40 per cent. higher than similar rates in the state of Iowa. But it is· also true that the mileage earnings in Iowa are greater than in Nebraska. In Iowa there are 230 peo, pIe to each tnile of railroad, while in Nebraska there are but 190; and, as a general rule, the more people there are the more business there is. Hence, a tnere difference between the rates in two states is ocf comparatively little significance.
Another matter must be noticed. As heretofore stated, the year 1892, upon which the estimates given by Mr. Dilworth are made, seems to have been the most favorable of the three years in respect to which figures are given. In addition to the inference drawn from these tables, the testimony of witnesses shows that that year was one of the most prosperous years for railroad business in quite a length of time. Now, it is one of the difficulties of this case that no provision is made for the varying conditions of business in different years and parts of years. Maximum rates are prescribed, above which the roads may not go, no matter what unforeseen events may aftect the· amount of business which they are doing. Indeed, since the argument of these cases, the railroad business in the West suffered a most serious prostration, growing out of the fearful strikes in the month of July. A statutory and fixed tariff, like the one before us, has no provisions for such contingencies as that. The loss is cast absolutely and wholly upon those who have invested their money in railroad business. In short, it deprives these property owners of all chances to make profit which result from private control of business, and compels them to payout of their pockets all the losses which result from the enforcement of an absolute system. I might prolong this opinion, and notice many other matters which have been referred to by counsel. I have done a great deal of work in computations,-work which is properly the duty of a special master, but which I have done in order to satisfy myself as to the effect of this reduction of rates on the business of these railroads. I have not attempted to introduce all of these computations into this opinion. It is long enough as it is. The computations and tables which I have placed indicate the lines of inquiry which have seemed to me most satisfactory. The conclusion to which I have come is that, having regard to the present condition of affairs in the state, the present volume of business done over these roads, and any probabili. ties of an early change in that volume, a reduction of 29! per cent. in the rates for local freight is unjust and unreasonable to those who have invested their money in these railroad properties. I appreciate fully the embarrassments and difficulties attending an investigation of this kind. I am reluctant, as every judge should be, to interfere with the deliberate judgment of the legislature. I have taken much time to study this case in all its relations, and have come, though reluctantly, to the conclusion I have stated, and am therefore constrained to order decrees in behalf of the plaintiffs, staying the enforcement of this tariff upon the companies named in the bills. It may be said that, even if furnishing no reasonable remuneration today, the result might be different under an increase of business. That, of course, is possible; and it may be that, as the volume of business increases, the time will come when the rates fixed by this house roll 33 will be reasonable and just. So there should be entered, as a proviso to the decrees, that leave is reserved to the defendants, at any time that they are so advised, to, move the court for a reinvestigation of the question of the reasonableness of these rates.
" . ::r?
RJ);Jl;SAt., REPORTER,
.YORK, L. E. & W. R,.,CO. ,et 11,1. (Oiticuit' 'OOUl'tJ, S.D. New York. OctobQ' 31, 1894.)
j"l 'I:
'4ol'Vent'r8ililJrQa;d corporation; as to payment of. interest on bonds, it appeared(;14thM (lne !leliesof bonds was issued bY defendant, and secured by a bonds which had JDarket value largely in exceSS .ot 'ttfeamount ot bonds Issued, and produced an income in excess of the ltlteti:lston suchl!iOntls, and Which secured'to defendant control of properties, forming integral" and 'essential pavtS'.: of its system, which wouldbe(los,t if s-nch stocks, etl'..' .were sold undIW 1ioreclosure; (2) that consiste<i firf/lt mortgage bonds, of arolj,d constituting a link. of in' loss of which by foreclosure woulu greatly'depreciate the value of the rest; (3) that an(ltJher seriesconsistetl of llkebond,sof another road, ofgrreat value to de· (4) .that Il,nothel' series consisted of bonds secured by a deposit of f,oW; se.ts coupons of p.efendant's second con· mprtgage bonds, coupons, undel'the terms of that mort· gage,weresuperlor in lien, to coupons of the same bonds subsequently maturing. ' 'lIeld."that the coupons of' each of thesesetles of bonds should be paid by tJ:l.e receiver,olltof any. available funds, before payment of coupons of the sai(j. second consoUdated mortgage ,bonds maturing during the receivership, although such: second consolidated mortgage was prior in date to the aforesaid' mortgages, and notWithstanding there was a question' as to whether the' lien of ',such second consolidated mortgage upon the &tocks fl,nd bonds covel,"edl)y the first-mentioned mortgage was not, &uperlor to the lIell of that mortgage, which question could not be determineq. in thls suit.
This was a pi'oceeding by Trenor Luther against the New York, Lake Erie'& Western Railroad Company for the appointment 'Of receivers and for other relief. John King and John C. McCullough were duly appointed receivers,and in August, 1893, the Farmers'Loan & Trust Company petitioned the court for leave to intervene as a party defendant, and an order was made to that effect. The eause is now before the court on petition by the Farmers' Loan & ,'Trust C()mpany praying for an investigation by the court, and an Qrder respecting the payment of certain demands against the rail· road company by the receivers. Frederic B. Jennings, for receivers. B. Turner and Frederick Geller, for Fal'Iil.ers' L. & T. Co., for motion. James C.Cllrter, for .second consolidated bondholders. Francis L. Stetson, for certain second consolidated bondholders. LACOMBE, Circuit Judge. Receivers of the defendant rail· ;!road company, heretofor(i! in this action appointed, and are now ;';JI,dministering tbeir trust. The defendant trust company is the roortgageeintrui!!t under various mortgages.. covering property of ".:t;l).e defendaJ;lt'railroad company. Among these mortgages iii one ·known as. the: "New Second Coqsolidated Mortgage," dated .5,1878, under,which b()nds to tbElamount of $36,097,400 are outstanding. The coupons falling due on this mortgage since receivers have been appointed have not been paid, the receivers not being in