Case Name: LOUISVILLE & N. R. CO. v. RAILROAD COMMISSION OF ALABAMA et al.
Court: United States District Court for the Middle District of Alabama
Jurisdiction: United States
Decision Date: 1913-07-24
Citations: 208 F. 35
Docket Number: 
Parties: LOUISVILLE & N. R. CO. v. RAILROAD COMMISSION OF ALABAMA et al.
Judges: Before PARDEE and SHELBY, Circuit Judges, and GRUBB, District Judge.
Reporter: Federal Reporter
Volume: 208
Pages: 35–62

Head Matter:
LOUISVILLE & N. R. CO. v. RAILROAD COMMISSION OF ALABAMA et al.
(District Court, M. D. Alabama.
July 24, 1913.
On Application for Appeal, September 15, 1913.)
1. COURTS (§ 101 ) — Federal Courts — Injunctions to Restrain Enforcement of State Statutes or Orders — By Whom may be Granted.
Judicial Code, § 260 (Act March 3, 1911, c. 231, 36 Stat. 1162 [U. S. Comp. St. Supp. 1911, p. 237]), as amended by Act March 4, 1913, c. 160, 37 Stat. 1013, requires the presence of three judges at the hearing of an application for an interlocutory injunction to restrain the enforcement, operation, or execution of any statute of a state by restraining the action of any officer of such state in the enforcement or execution of such statute “or in the enforcement or execution of an order made by an administrative board or commission acting under and pursuant to the statutes of such state” (the words quoted being added by the amendment) “upon the ground of the uueonstitutionality of such statute.” Held, that the amendment extends the procedure requiring three judges to applications to enjoin any order made by a state board or'commission which is alleged in the application to be in violation of the federal Constitution, although the constitutionality of the statute under which the board or commission acts may not be questioned.
[Ed. Note. — For other cases, see Courts, Cent. Dig. §§ 344-350, 629; Dee. Dig. § 101. ]
2. Carriers (§ IS ) — State Regulation of Rates — Injunction—Construction of Decree.
A decree of a federal court enjoining the enforcement of state statutes establishing a system of rates for freight and passengers on the ground that such system, taken as a whole, was confiscatory as applied to the complainant railroad company does not render the question of the validity of the passenger rates alone, or taken in connection with higher freight rates, res judicata, nor estop the State Railroad Commission, acting under another statute, from subsequently establishing the same passenger rates.
[Ed. Note. — For other cases, see Carriers, Cent. Dig. §§ 13, 16-18, 20, 24; Dec. Dig. § 18. ]
3. Con merge (§ 10 ) — Regulation of Bates — Powers of State--Nonhxeb-cise of Power of Congress.
In the absence of any legislation on the subject by Congress, it is within the constitutional power of a state to regulate rates to be charged by railroads within the slate, and such regulation is not an interference with interstate commerce.
[Ed. Note. — For other cases, see Commerce, Gent. Dig. § 8; Dee. Dig. § 10. ]
4. Carriers (§ 12 ) — State Regulation of Rates — Reasonableness of Rates.
Where 80 per cent, of the mileage of a railroad company in a state consist of branch lines constructed with knowledge that they would not pay a fair return on intrastate business and over which it voluntarily transports coal and ore to iron and steel mills at cost, for the purpose of developing its interstate business, it cannot attack intrastate passenger rates fixed by the state as confiscatory because Its entire intrastate business does not yield a fair return on the property invested therein.
[Ed. Note. — For other cases, see Carriers. Cent. Dig. §§ 7-11, 15-20; Doc. Dig. § 12. ]
5. Carriers (§ 18 ) — State Regulation of Rates — Presumption of Validity.
Railroad rates established by a state legislature or duly authorized commission are presumptively reasonable and not violative of constitu tional rights, and henee to authorize the courts to interfere with their enforcement their invalidity must be established clearly and beyond reasonable doubt.
[Ed. Note. — For other cases, see Carriers, Cent. Dig. §§ 13, 16-18, 20r 24; Dec. Dig. § IS. ]
6.CaRbiers (§ 12 )- — State Degulation or Dates — Deasonableness or Dates —Valuation or Property.
In estimating the cost of reproduction of railroad property, for the purpose of determining the reasonableness of rates fixed by the state, it is not permissible to be governed by the value of adjoining lands enhanced by the existence and operation of the railroad and to add to such value an extra amount which it would probably cost to acquire the lands for railroad purposes.
[Ed. Note. — For other cases, see Carriers, Cent. Dig. §§ 7-11, 15-20; Dee. Dig. § 12. ]
7. Carriers (§ 12 ) — State Degulation or Dates — Deasonableness or1 Dates.
Evidence considered, and held insufficient to establish the unconstitutionality of an order of the Dailroad Commission of Alabama fixing intrastate passenger rates at 2% cents per mile on the ground that it was-confiscatory as applied to complainant railroad company.
[Ed. Note. — For other cases, see Carriers, Cent. Dig. §§ 7-11, 15-20; Dec. Dig. § 12. ]
Pardee, Circuit Judge, dissenting.
On Application for Appeal.
8. Federal Courts — Suits to Enjoin Enforcement or State Statutes or Orders — Pro oed ure — Appeal.
Where a majority of the three federal judges sitting together, as required by section 266 of the Judicial Code (Act March 3, 1911, e. 231, § 206, 36 Stat. 1162 [U. S. Comp. St. Supp. 1911, p. 236]), on the hearing of a motion for a preliminary injunction to restrain the enforcement of a state statute or administrative order establishing intrastate railroad rates, have concurred in an order denying such injunction after a hearing on the merits, they should not, pending an appeal from such order, continue in force a temporary restraining order, granted on motion of plaintiff before the hearing, not only because said section 266 expressly provides that such temporary order “shall remain in force only until the hearing and determination of the application for an interlocutory injunction,” but also because to continue it in force would be inconsistent with, and practically nullify, the order appealed from. (Per Shelby, Circuit Judge.)
In Equity. Suit by the Louisville & Nashville Railroad Company against the Railroad Commission of Alabama and others. On motion for preliminary injunction.
Motion denied.
See, also, 196 Eed. 800.
Sydney J. Bowie, of Birmingham, Ala., and Henry L. Stone and W. A. Colston, both of Louisville, Ky., for plaintiff.
i Robt. C. Brickell, Atty. Gen. of Alabama, and Samuel D. Weakley and Henry C. Selheimer, both of Birmingham, Ala., for defendants.
Before PARDEE and SHELBY, Circuit Judges, and GRUBB, District Judge.
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Itep’r
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
SHELBY, Circuit Judge.
This is a supplemental bill seeking to enjoin an order of the Railroad Commission of Alabama fixing intrastate. passenger rates.
The application for an interlocutory injunction was made to the District Court on the ground that the order of the Alabama Railroad Commission is violative of the federal Constitution. The District Court (Hon. W. I. Grubb presiding), pursuant to the Act of March 4, 1913, c. 160, 37 Stat. 1013, amending section 266 of the Judicial Code (Act March 3, 1911, c. 231, 36 Stat. 1162 [U. S. Comp. St. Supp. 1911, p. 237]), called to liis assistance, to hear and determine the application, Circuit Judges Pardee and Shelby. On the argument at the hearing of the application, no formal objection was made to such action of the district judge, but it was suggested by one of the solicitors for the plaintiff that the statute requiring the judge to whom the application was made to call other judges was not applicable because the prayer for injunction was not based on the ground of the unconstitutionality of a statute.
The suggestion raises a question as to the legality of the organization of the court with three judges and is the first thing to be considered.
The following are the parts of the statute most relevant; the addition made by amendment being placed in italics:
"No interlocutory injunction suspending or restraining the enforcement, operation, or execution of any statute of a state by restraining the action of any ofiicer of such state in the enforcement or execution of such statute, or in the enforcement or execution of (in order made by an administrative board or commission acting under and pursuant to the statutes of such state, shall be issued or granted by any justice of the Supreme Court, or by any District Court of- the United States, or by any judge thereof, or by any circuit judge acting as district judge, upon the ground of the unconstitutionality of such statute, unless the application for the same shall be presented to a justice of the Supremo Court of the United States, or to a circuit or district judge, and shall be heard and determined by three judges, of whom at least one shall be a justice of the Supreme Court or a circuit judge, and the oilier two may bo either circuit or district judges, and unless a majority of said three judges shall concur in granting such application." Judicial Code, § 206; 36 Stat. 1102; 37 Stat. 1013.
The suggestion of counsel is that the amendment left the statute still requiring that the application should be made upon the ground of the "unconstitutionality of such statute," and does not in words make it apply to the unconstitutionally of an order made by a board or commission. The intention of Congress in enacting the statute must control in its interpretation if that intention can be ascertained by an examination of the amendment in connection with the section as it stood before the amendment. The section, before amendment, required a judge, when an application was made to him for an interlocutory injunction upon the ground of the "unconstitutionality" of a statute, to call to his assistance two other judges to sit with him on the hearing of the application. The intention of the amendment was to extend the original statute so as to have it include "an order made by an administrative board or commission" acting under and pursuant to the statutes of a state. The title of the act strongly indicates that such was the intention:
"An act restricting the issuance of interlocutory injunctions to suspend the enforcement of the statute of a state or of an order made by an administrative board or commission created by and acting under the statute of a state." 87 Stat. 1013.
When the application for the interlocutory injunction is to restrain the execution of a statute of a state, to make the statute requiring the three judges applicable, the application must be "upon the ground of the unconstitutionality of such statute." To make'the words-"upon the ground of the unconstitutionality of such statute" applicable literally to suits to enjoin the enforcement of an order of a board or commission would permit the amended statute to have application only when the statutes creating a commission were alleged to be unconstitutional. At the time of the passage of the amendment, the constitutionality of statutes creating such commissions was so well settled that it is clear that Congress did not have in view suits attacking such statutes. It had in mind, as the title and the act both show, the orders made by a board or commission. The amended statute, by its words, extends to an application to enjoin the enforcement of any order made by an administrative board or commission acting under and pursuant to the statutes of a state. If the words limiting the application of the amendment, when it is sought to enjoin the enforcement of a statute, to cases where it is alleged that the statute violates the Constitution, are to be applied also to cases where it is sought to enjoin an order of a commission, the word "unconstitutionality" must be made to apply to the order of the Commission and not to a statute. When the power to regulate rates is exercised by the Legislature directly, the statute, as originally enacted and as amended, is applicable when such legislation is attacked as violative of the Constitution; and when the Legislature delegates its power to regulate rates to a commission, and the order of the Commission is attacked because it is violative of the Constitution, the amendment was intended to make the procedure requiring three judges applicable. The Commission's order is the exercise of a legislative function and was thought by some to be within the meaning of section 266 as originally enacted. The amendment, at least, was clearly intended to include orders by a commission that are alleged to be violative of the Constitution. While not controlling, it may be mentioned that it appears from the discussion of the amendment in the House of Representatives, when it was on its passage, that such was there understood to be its purpose. Congressional Record (3d Session, 62d Congress, March 3, 1913) vol. 49, p. 4781. Whether the amendment extends the procedure requiring three judges to applications to -enjoin every order that the Commission may make is not a question before us. It is sufficient for this case to hold that it extends to any order made which is alleged in the application for an interlocutory injunction to be violative of the federal Constitution. To hold otherwise would make the amendment practically ineffective and defeat the legislative intention.
The plaintiff, in argument, contends that it is entitled to an interlocutory injunction on four separate grounds, cadi of which will be briefly considered.
1. It is contended that the decree of this court (Hon. Thomas (i. Jones, District Judge, presiding), rendered April 2, 1912, is res judicata and estops the Commission from making the order which is here sought to be enjoined.
The decree in question here is confined to fixing intrastate passenger rates. The decree which is pleaded as res judicata was one relating generally' to the plaintiff's intrastate freight and passenger rates. It declared unconstitutional and confiscatory (so far as concerns the plaintiff's traffic) an act of the Legislature of Alabama of March 2, 1907, and eight acts of November 23, 1907, and parts of the Alabama Code of 1907, which re-enacts those acts. It was decreed that each of these acts was confiscatory when taken "in connection with the other rate acts" affected by the decree. The decree also specifically condemns as confiscatory the act of the Alabama Legislature fixing a maximum intrastate passenger rate of 2*4 cents per mile. The statute fixing this rate is so condemned "when taken in connection with the other rates covered by the decree." This decree is still in force; no appeal having been taken from it. The plaintiff, after the decree, reestablished and now has in effect its higher freight rates, which it enforced before the enactment of the legislation which the decree declared confiscatory. The decree set up as res judicata only condemned the intrastate passenger rates when taken in connection with the other rates also condemned in the same decree. It was not adjudged that the intrastate passenger rates, taken in connection with the higher freight rátes re-established by the decree, were confiscatory. To hold that the decree was res judicata of this controversy would be, in effect, to declare that it debarred the Commission from ever afterward fixing rates; that it permanently deprived the Commission of authority to regulate rates. That the District Court had no authority to do this was decided without dissent (on this question) in Railroad Commission v. Central of Georgia Railway Co., 170 Fed. 22S, 240, 95 C. C. A. 117. The decree of the District Court invalidating the Alabama statutes fixing freight rates entirely changed the situation. Even if the 2-*/2-ccnt passenger rate were confiscatory, taken in connection with those statutes, it might not he now, taken in connection with the higher freight rates and the changed conditions. The Commission, in fixing the rate in question here, was not acting under the statutes declared by the decree void as against the plaintiff, but it was acting under the Alabama statutes creating the Commission and conferring on it generally the authority to regulate intrastate rates. Louisville & Nashville Railroad Co. v. Railroad Commission of Alabama (by Hon. W. I. Grubb, District Judge, May 5, 1913) 205 Fed. 800. The former decree does not estop the Commission from making the order in suit here.
2. It is contended that the order of the Commission should be enjoined because it is a burden on or an interference with interstate commerce.
The Commission's order relates only to intrastate passenger rates, fixing the rates to be charged between points within the state. It seems well settled that the state, acting by its Legislature or by Commissions created by it, may, within constitutional limits, regulate rates to be charged within the state. Congress has not yet authorized the Interstate Commerce Commission to regulate intrastate rates on interstate roads. Unless the state has such authority, it does not exist at all under legislation now in force. The states have exercised such authority ever since the building of railroads was begun in the United States. The fact that the Commission's order may incidentally, but not materially, affect interstate commerce does not make it invalid or subject to be enjoined. Simpson et al. v. Shepard, 230 U. S. 352, 33 Sup. Ct. 729, 57 L. Ed. 1511.
. 3. It is contended that the order should be enjoined because it was made without proper notice to the plaintiff; that it was not granted an opportunity to defend. The record refutes this contention because it shows that the procedure conformed to the Alabama statutes, which the Circuit Court of Appeals for this circuit, without dissent (on this point), has held to be valid and constitutional. Railroad Commission v. Central of Georgia Railway Co., 170 Fed. 225, 240, 95 C. C. A. 117. Notice was given the plaintiff in conformity to the Alabama statutes, and a formal hearing was had, at which the plaintiff offered evidence bearing on the issues involved. There was no want of legal formalities in the procedure before the Commission.
4. The fourth and chief contention of the plaintiff is that the intrastate passenger rate fixed by the Commission is confiscatory, not allowing an adequate feturn on the plaintiff's • property devoted to the public use, and that the Commission's order is therefore violative of the federal Constitution.
If the order made by the Commission had fixed a general schedule of rates covering the intrastate operations of the carrier taken as a whole, this contention would certainly present the controlling question. Such question was presented in Smyth v. Ames, 169 U. S. 466, 18 Sup. Ct. 418, 42 L. Ed. 819, and in Simpson et al. v. Shepard, 230 U. S. 352, 33 Sup. Ct. 729, 57 L. Ed. 1511. The controlling question in such cases is whether or not the state has overstepped the constitutional limit and made the rate so low as to deprive the carrier of its property without due process of law. This case (the case made by the supplemental bill) is to be distinguished from cases which involve all or practically all of .the intrastate passenger and freight rates charged by a railroad. The order sought to be enjoined, and which is the only subject of controversy before us, requires the plaintiff to put into effect in Alabama an intrastate passenger rate of 2y3 cents a mile for adults and 1% cents a mile for children. The great volume of evidence submitted relates to the issue, necessarily involved in the main case, as to whether or not the railroad was earning under the general schedule of rates then in question a fair return on the value of its property devoted to intrastate public service. The solution of that question in favor of the plaintiff would <.not be conclusive against the defendants in the instant case, be cause it is limited to intrastate passenger rates. It might be true that the plaintiff would fail to secure an adequate return on all of its property devoted to the public intrastate service, and yet the failure might not be due to the passenger rate. If the return were insufficient on the whole property, the passenger rate would not be made invalid unless it materially contributed to cause the insufficiency. It follows that, to attack the order successfully, the insufficiency of the return must be shown and also that the order as to passenger rates is at fault in causing the insufficiency. If the insufficiency of the return were proved according to rules hereinafter stated, if it appears that such insufficiency is caused by the policy of the plaintiff in operation and investment and not by the rates attacked, the rule of adequate return would be inapplicable. The plaintiff cannot be permitted to cause the failure of return by its own acts and then complain of it. I'or the encouragement of the manufacture of iron and its products in the Birmingham district, the plaintiff carries coal, ore, and limestone at cost, or at a loss, so far as intrastate traffic is concerned. This traffic carried without profit constitutes more than 75 per cent, of all the plaintiff's intrastate tons in Alabama. Eighty per cent, of the plaintiff's mileage in Alabama consists of branch lines, constructed, il is shown, with knowledge that they would not pay from intrastate business a fair return upon their value. The policy of building them was commendable and liberal, and also wise, because they greatly contribute to the interstate traffic. The policy shown by this management and investment has been of vast value in the development of the state and probably to-the great advantage of the plaintiff's stockholders, but the public cannot be burdened by an unreasonable intrastate passenger rate to make up for losses on intrastate traffic voluntarily incurred with a view to the future or to the development of interstate traffic. Under the circumstances, we would be reluctant to hold that the order fixing a passenger rate only is confiscatory because the plaintiff fails, if it does fail, to receive an adequate return on all of its property devoted to intrastate public service. Minnesota & St. Louis R. R. Co. v. Minnesota, 186 U. S. 257, 22 Sup. Ct. 900, 46 L. Ed. 1151; Reagan v. Farmers' Loan & Trust Co., 154 U. S. 362, 412, 14 Sup. Ct. 1047, 38 L. Ed. 1014; Covington, etc., Turnpike Co. v. Sandford, 164 U. S. 578, 596, 17 Sup. Ct. 198, 41 L. Ed. 560; San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 447, 23 Sup. Ct. 571, 47 L. Ed. 892. See 20 Interst. Com. Com'n R. 342.
In deciding the question whether or not an order made by authority of the state, fixing rates, is confiscatory, the inferior courts, as to the measure of proof, are guided by well-settled rules, binding on them because announced by the Supreme Court. One of those rules is that the rate fixed by legislative authority is prima facie fair and just. The rate having been fixed by a commission vested with legal authority, the presumption must be indulged at the outset that it is reasonable and not violative of constitutional rights. The burden of proof is placed on the plaintiff to show that the case is one calling for judicial interference with the authorized action of the local authorities. Louisiana R. R. Commission v. Cumberland Tel. Co., 212 U. S. 414, 29 Sup. Ct. 357, 53 L. Ed. 577; Minneapolis & St. Louis R. R. Co. v. Minnesota, 186 U. S. 257, 264, 22 Sup. Ct. 900, 46 L. Ed. 1151. Another rule for our guidance is that the. burden of proof is not only placed on the plaintiff but that the plaintiff is required to do more than offer a mere preponderance of evidence. The judiciary is not permitted to interfere with the rates established by legislative authority unless it is made to appear clearly and beyond reasonable doubt that they are unreasonable and that their enforcement would be equivalent to the taking of property for public use without just compensation. If the evidence offered leaves the court in doubt, if it is not clear, satisfactory, and convincing, the rate fixed by state authority should not be enjoined. San Diego Land Co. v. National City, 174 U. S. 739, 754, 19 Sup. Ct. 804, 43 L. Ed. 1154; St. L. & San Francisco Ry. Co. v. Gill, 156 U. S. 649, 666, 667, 15 Sup. Ct. 484, 39 L. Ed. 567. So stringent are these rules against the interference with the action of the local authorities in fixing rates that it has been said that the court should not enjoin a rate unless it can hold "that it was impossible for a fair-minded board to come to the result which was reached." Knoxville v. Water Co., 212 U. S. 1, 17, 29 Sup. Ct. 148, 153 (53 L. Ed. 371).
These rules are not mere cautionary phrases. They are intended to mark the limits of judicial interference. If the inferior courts will' regard these principles, not as platitudes, but as rules prescribed for their guidance, it will greatly lessen legislation and litigation in relation to the regulation of the tariffs of public service corporations.
Conceding that this case should be considered as one controlled by the rule of adequate return on investment, the question arises as to the sufficiency of the evidence offered to show that the order is confiscatory.
The first step in the proof required of the plaintiff is to show the value of the property upon which a return is claimed. If such value is unduly inflated, all calculations based on it are misleading. The plaintiff estimates the total value of its property devoted to public use in Alabama at $42,750,933.08. This value is stated in affidavits and is referred to as being the same found by the special master in the main case. It is not practicable to refer to all the items about which there is controversy included in this valuation, but the principle upon which the evidence as to value was received and upon which it is now offered is best shown by an excerpt from the special master's report:
"The first objection is that the estimate of the Chief Engineer was made in 1907, when the prices were higher than for previous years, and it is insisted that the prices should have been on the average prices for a series of years. But it appears that the law contemplates values at the time of the controversy, and the proof shows that prices have a general tendency to higher levels, and distinctly shows that the reconstruction would now cost as much as the estimates amount to.
"The next point is that in reproduction the enhanced value of property for 50 or a 100 years, caused, amongst other things, by the facilities furnished by the road, is not to be considered. But there is no known method of determining the share of development of a .country assignable to the existence of a particular market facility. And, besides, the road is entitled to all enhancement of values. If values decline, the road is the loser; if they advance, the road is entitled to the benefit. So it is declared, and, seemingly, with justice.
"The road as it exists has value from every incident of situation which affords opportunity to earn an income. And the right of way on reproduction for rate determination obviously must include every such surrounding. The new road is to be the 'forced .heir' of the old road, vanishing in imagination as the new is constructed. And the enhancement of values includes and represents such advantages as time has given to the location.
"The present right of way is an artery and vein of commerce, receiving and imparting its current from and to the adjacent and connecting country, by and through infinite smaller connections. And the new road succeeds to the situs without losing a drop of blood (commerce). And all enhancement of prices is an inherent constituent of the situs."
The following is an excerpt from the opinion in the Minnesota Rate Cases, which deals with the same subject:
"And where the inquiry is as to the fair value of the property, in order to determine the reasonableness of the return allowed by the rate-making power, it is not admissible to attribute to tho property owned by the carriers a speculative increment of value, over the amount invested in it and beyond the value of similar property owned by others, solely by reason of the fact that it is used in the public service. That -would be to disregard the essential conditions of the public use and to make the public use destructive of the public right.
"The increase sought for 'railway value' in these cases is a.n increment over all outlays of the carrier and over the values of similar land in the vicinity. It is an increment which cannot be referred to any known criterion but must rest on a mere expression of judgment which finds no proper test or standard in tho transactions of the business world. It is an increment which, in the last analysis, must rest on an estimate of the value of the railroad use as compared with other business uses; it involves an appreciation of the returns from rates (when rates themselves are in dispute) and a sweeping generalization embracing substantially all the activities of the community. Tor an allowance of this character there is no warrant.
"Assuming that the company is entitled to a reasonable share in the general prosperity of tho communities which it serves, and thus to attribute to its property an increase in value, still the increase so allowed, apart from any improvements it may make, cannot properly extend beyond tho fair average of the normal market value of land in the vicinity having a similar character. Otherwise we enter the realm of mere conjecture. Wo therefore hold that it was error to base tho estimates of value of the right of way, yards, and terminals upon the so-called 'railway value' of the property. The company would certainly have no ground of complaint if it were allowed a value for these lands equal to the fair average market value of similar land in the vicinity, without additions by the use of multipliers, or otherwise, to cover hypothetical outlays. The allowances made below for a conjectural cost of acquisition and consequential damages must be disapproved; and, in this, view, we also think it was error to add to the amount taken as the present value of the lands the further sums, calculated on that value, which were-embraced in the items of 'engineering, superintendence, legal expenses,' 'contingencies,' and 'interest during construction.'
"By reason of the nature of the estimates and the points to which the testimony was addressed the amount of the fair value of the company's land cannot be satisfactorily determined from the evidence, but it sufficiently appears, for the reasons we have stated, that tho amounts found were largely excessive." Simpson et al. v. Shepard, 230 U. S. 252, 33 Sup. Ct. 729, 57 L. Ed. 1511.
The underlying principles upon which the plaintiff has proceeded to establish the values upon which it claims adequate return cannot be reconciled with the quoted declarations of the Supreme Court. The aggregate value, as prove,d by the plaintiff, includes $1,416,182.12 for interest during construction, about $600,000 for engineering, superintendence, and general expenses, more than a million dollars for "seasoning" of roadbed, and other sums amounting in the aggregate to about $6,000,000, which, it seems, would be of doubtful admissibility under the principles announced in the Minnesota Rate Cases.
But it is a matter of more importance that the total valuation is greatly augmented by the course pursued in placing estimates on the real estate, including the right of way. While no direct reference is made to valuation for "railroad purposes," it appears that the lands were valued without regard to the "normal market value of the land in the vicinity having a similar character." In estimating the cost of reproduction, it does not seem to be permissible to be governed by the value of adjoining lands enhanced by the existence and operation of the railroad, and to add to such value an extra amount that it would probably cost to acquire the lands for railroad purposes. It cannot be ascertained from the record what the value is on the basis of the fair market value of similar lands in the vicinity.
In some way the value of the property must be proved. It would not be now claimed that the carrier had the unqualified right to make charges to produce a return on the face value of its stocks and bonds. It would seem equally unjust to permit the carrier to- make charges to produce a return on the investment of a surplus acquired by unreasonable tariffs, for that would be to base the right to commit a second wrong upon the successful imposition of the first.
Proof of the value of the property devoted to public intrastate use is only one step, and not the most difficult one, in the case. To sustain its contention, the plaintiff must offer evidence to show the cost of the intrastate and interstate traffic. The cost of freight and passenger traffic must then be separated. Any desired result may be proved by figures if the one making them is permitted to arbitrarily select the predicate upon which to base his calculations. When the division of the expenses is based chiefly on opinion or on limited investigation made with the view of obtaining desired results to be used in pending litigation, we should hesitate to hold it convincing within the rules requiring strict proof of confiscation.
The extreme difficulty and intricacy of making the calculations and proof would indicate the necessity of a system of account keeping on which to base them (Allen et al. v. St. Louis, Iron Mountain & Southern Ry. Co., 230 U. S. 553, 33 Sup. Ct. 1030, 57 L. Ed. 1625, June 16, 1913); but the difficulties do not relieve the plaintiff of the burden. The method used by the plaintiff to ascertain the per cent, to be applied to freight haulage and passenger haulage expenses is the result of a test made during one week in September, 1907, to ascertain the relative train cost of an interstate ton mile and an intrastate ton mile, and the relative train cost of an interstate passenger mile and an intrastate passenger mile. Men rode on the plaintiff's trains in Alabama for that week and gathered data. From information so obtained and from conductor's reports, it was ascertained what busi ness was done, interstate and intrastate, during that week. With respect to passenger traffic during that week, the number of intrastate and interstate passengers wrere counted and the number of intrastate and interstate passenger miles ascertained, and the train cost of each calculated. The train cost during this week of an intrastate passenger mile was 5.68 mills, and the train cost of, an interstate passenger mile was 3.15 mills; and the ratio was thus fixed that the train cost of an intrastate passenger mile was, for that week, 180.317 per cent, of the train cost of an interstate passenger mile. The plaintiff's subsequent calculations and estimates proceed upon the hypothesis that the same ratio exists with respect to the train cost in the total intrastate and interstate passenger miles for each of the entire fiscal years involved in the investigation. The effect of this method was to burden intrastate traffic with approximately 70 per cent, of the entire cost of operation.
The plaintiff attempted to do in one week what could only be done by "prolonged and minute investigation of particular facts with respect to the actual traffic as it was being carried over the line." The result of the calculations relating to adequate return depend on this ratio. Can a ratio thus obtained be accepted as sufficient to sustain a finding of confiscation ? An answer to this question is at least indicated by the Supreme Court (italics ours):
"The statements of the complainants' witnesses os to the extra cost of in tra-slato business, while entitled to respect as expressions of opinion, manifestly involve wide and difficult generalisations. They embrace, without the aid of statistical information derived from appropriate tests and submitted 1o careful analysis, a general estimate of all the conditions of transportation, and an effort to express in the terms of a definite relation, or ratio, what clearly could be accurately arrived at only by prolonged and minute investigation of particular fads with respect to the actual traffic as it was being carried over the line. The extra cost, as estimated by those witnesses, is predicated not simply of haulage charges but of all the outlays of the freight service, including the share of the expenses for maintenance of way and equipment assigned to the freight department. And the ratio, to be accurately stated, must also express the results of a suitable discrimination between the interstate and intrastate traffic on through and local trains respectively, and of an attribution of the proper share of the extra cost of local train service to the interstate traffic that uses it. The wide range of the estimates oí extra cost, from three to six or seven times that of the interstate business per ton mile, shows both the difficulty and the lack of certainty in passing judgment.
"We are of opinion that on an issue of this character, involving the constitutional validity of state action, general estimates of the sort here submitted, with respect to -a subject so intricate and important, should not be accepted as adequate proof to sustain a finding of confiscation. While accounts have not been kept so as to show the relative cost of interstate and intrastate business, giving particulars of the traffic handled on through and local trains, and presenting data from which such extra cost as there may be of intrastate business may be suitably determined, it would appea/r to have been not impracticable to have had such accounts kepi or statistics prepared, at least during test periods, properly selected. It may be said that this would have been a very difficult matter, hut the company, having assailed the unconstitutionality of the state acts and orders, was bound to establish its case, and it was not entitled to rest on expressions of judgment when it had it in Us power to present accurate data whidh would permit the court to draw the right conclusion." Simpson et al. v. Shepard, 230 U. S. 352, 33 Sup. Ct. 729, 57 L. Ed. 1511.
In the Missouri Rate Cases brief tests were given no weight but were discarded with the single remark:
"There was also testimony on each side as to certain tests, but these covered only a few days." Knott et al. v. Chicago, Burlington & Quincy R. R. Co., 230 U. S. 474, 33 Sup. Ct. 975, 983, 57 L. Ed. 1571, June 16, 1913.
The contention is that the plaintiff, at the rate in question, carried passengers at a great loss. If that be true, under the rule which shows such loss, what rate per mile for carrying a passenger would the carrier have to charge in order to earn 8 per cent, on that part of its investment devoted to intrastate service?
The decision of this case should not be controlled by artificial rules and formulas, but there should be "a reasonable judgment having its basis in a proper consideration of all relevant facts." There are several facts shown by the record which, while not controlling, are worthy of mention. There are a number of railroads besides the plaintiff's in operation in Alabama, and it appears that 55 per cent, of the mileage in Alabama, including all of the railroads in the state, have had for the last five years, and now have, a regular passenger rate of 2% cents a mile, and that they issue a penny scrip book, and that passengers who use it pay only 2 cents a mile. And the plaintiff sells a penny scrip book for $20 to be used in on'e year, by using which passengers pay only 2.40 cents a mile. It is true that to obtain the lower rate the purchaser must pay $20 in advance. The fact that such low rates are given by the plaintiff on the conditions prescribed would not make valid the rates fixed by the commission if they were, in fact, confiscatory. Rake Shore, etc., Railway Co. v. Smith, 173 U. S. 684, 697, 19 Sup. Ct. 565, 43 R. Ed. 858. But it is difficult to believe that the plaintiff would make these contracts of carriage at less than 2y2 cent? a mile, if, in fact, a rate of 2% cents a mile were confiscatory.
The record shows that the country is richer and more prosperous along the lines of the plaintiff's road than in other parts of the state. And yet the other roads have maintained the rates that are here contested for the last five years. It is true that'some of these roads at first resisted the enforcement of these rates. The present conditions being the same, or at least not unfavorable to the plaintiff, it would seem not unfair, so far as the plaintiff is concerned, to make the rates uniform. Seaboard Air Line v. Florida, 203 U. S. 261, 269, 27 Sup. Ct. 109, 51 L. Ed. 175.
The record shows that passenger rates like those fixed by the order were in force on the plaintiff's road under a decision of the United States Circuit Court of Appeals in Railroad Commission of Alabama v. Central of Georgia Railway Co., 170 Fed. 225, 95 C. C. A. 117, from June 1, 1909, to April 17, 1912, and that, during the period of the enforcement of the lower rate, there was a great increase in the number of intrastate passengers and in the number of intrastate passenger miles. Tables of figures are presented showing a great yearly increase apparently under the stimulus of the lower rate. The in crease, it is contended by the plaintiff, was caused by interstate passengers buying tickets at the lower rate when they would reach the state line; but the evidence to that effect is not convincing. The record shows that intrastate travel was greatly stimulated by the lower rates, and that the carrier, by the reduction, cannot be said to have lost the entire di(Terence between the higher and lower price of the increased number of tickets sold. The increase of intrastate passengers and intrastate passenger miles increased the receipts of the carrier without materially increasing its expenses, for the trains are required to make the regular trips whether they carry few or many passengers. But, if it be conceded that there was some loss of income by the change of rate, that fact of itself does not make the regulation invalid.
The ultimate question here is whether or not the rate prescribed for intrastate passengers under all the circumstances is reasonable — reasonable for the carrier and the public. The question as to whether or not, on its entire intrastate business, the plaintiff is receiving an adequate return, say 6 per cent, or 8 per cent., on its entire investment for public use is not absolutely controlling. The case is taken out of that rule, because it does not involve a general schedule of rates, and by the other particular facts of the case which have been mentioned. The question of adequate return on the entire investment involves merely one element in the solution of the ultimate question of whether or not the rate prescribed for the subdivision of the traffic is reasonable. The solution of the ultimate question depends on the particular facts of each case. The public has a right to demand that no more be exacted from it than, in view of all the facts, the services are reasonably worth. And the carrier should he protected in the right to demand what they are reasonably worth. Rates that are too low are not only unfair to the carrier but worse for the public than those that are too high, for they would ultimately prevent the operation of existing railroads and forbid the building of new ones. The fact that only passenger rates are involved, and the circumstances, to which reference has been made, that the plaintiff, for reasons which are, perhaps, commendable, carries a large part of its freight at cost or at a loss, and lias constructed many branch lines with the knowledge that they would not immediately he profitable, shows conclusively that the test of adequate return upon its whole intrastate business is not controlling in this case. Tosses voluntarily incurred in one branch of its traffic cannot justly be recouped by unreasonable charges in another branch. Unreasonable intrastate passenger rates cannot be justly maintained to cover losses voluntarily incurred as a matter of policy, although the policy in itself may be wise and beneficial to the public.
The facts claimed by the plaintiff to he proved as to values and income, when taken in connection with other facts shown by the record, are not such as to call for the application of the rule that would invalidate an order fixing rates for failure to produce adequate return; and, if the case is considered as controlled by the rule relating to adequate return, the evidence is not sufficient to show the value of the plaintiff's property upon which it would be entitled to a return; nor is it sufficient to show the separate cost of the intrastate passenger service.
The injunction should therefore be:
Denied.