Court Opinion

ID: 8784817
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:30:46.570336+00
Date Added: 2024-06-11T17:03:00.957428
License: Public Domain

SANBORN, District Judge
(after stating the facts as above). [1] A technical question of jurisdiction was raised in the former Circuit Court by demurrer, and later by answer to the effect that the receivers’ injunction petition was not ancillary to the foreclosure suit, because the subject-matter of the petition is wholly unrelated to the subject-matter of the bill. The demurrer was overruled by the Circuit Court, upon the authority of Ex parte Young, 209 U. S. 123, 144, 28 Sup. Ct. 441, 52 L. Ed. 714, 13 L. R. A. (N. S.) 932, 14 Ann. Cas. 764, holding that a federal question is raised in suits like this, and Compton v. Jessup, 68 Fed. 263,15 C. C. A. 397, Blake v. Pine Mountain Coal Co., 76 Fed. 624, 22, C. C. A. 430, and like cases, holding that petitions similar to this are ancillary to the main suit, and hence within the jurisdiction. We are entirely satisfied that the jurisdiction was properly sustained.
The Chicago, Peoria & St. Eouis Railroad was operated at a loss during the fiscal years of 1908 and 1909, and on June 30, 1909, the total deficit was $202,071.60. A foreclosure suit was at once begun, and this intervening petition was filed in that suit. Compliance with the two-cent maximum passenger rate act of Illinois by the road was in part responsible for the deficit. Receivers were appointed, who operated the road under the same conditions up to October 13, 1909, when they filed this petition, alleging that the maximum passenger rate act, as applied to this railroad, was confiscatory, and constituted a taking of its property without due process of law. A temporary injunction was issued, prohibiting the enforcement of the statute as to this road, and the receivers thereupon put in force a three-cent rate, with one-cent coupons, as provided in the in junctional order.
The question now before us is whether the evidence shows the Illinois rate to be confiscatory, as applied to this particular railroad, in respect to passenger returns.
[2] Earnings from the state passenger business, including mail, express, and similar returns from the running of passenger trains, are readily found. Expenses directly chargeable to such business may also be figured with reasonable certainty. But the “common expenses,” so called, like maintenance of the line, the equipment. *604traffic, and general expenses, and their proper distribution, between freight and passenger business, present' much difficulty. The master, following the great weight of the expert testimony, as_ well as the decisions of the courts, has adopted and applied what is known as the “revenue train mile” basis in the distribution of these common expenses between the freight business, state and interstate, and the passenger. On such basis the road was not earning a fair return from its state passenger business up to the time of the receivership, and the master concludes that the injunction should be made permanent, and the receivers allowed to charge three cents a mile for passenger service.
The revenue train mile basis of apportionment, as between freight business and passenger business, is applied to expenses hot directly apportionable (called “common expenses”) by the following method: The ninth annual report of the company shows the train mileage for 1909 of passenger trains, 446,540; freight trains, 532,962; mixed trains, 790; and special trains, 338. All but the last were revenue producing trains. Excluding the special trains, whose character is not shown, the total train mileage was 980,292. Of the mixed trains, one-fourth of the mileage was allowed to' passenger service; the balance, to freight. The total passenger miles would therefore be 446,-737.5; and the freight, 533,554.5 — total, 980,292; and the passenger percentage 45.57. The year 1909 is taken, instead of the year 1908 (June 30 to June 30), because showing a nearer recovery from the panic of 1907, and thus being closer to normal conditions. Thus, taking the common expense of superintendence for the year, which was $7,891.59, the passenger proportion would be $3,596.19. The master’s figures for this item are $3,610.50, a difference of $4.31. This .method of apportionment was applied to all the common expenses, in order to ascertain what part were passenger expenses, with the modifications referred to in Exhibit 2, shown on another page.
Next it was necessary to find the proportion of state and interstate passenger expense. This was done by finding the state and interstate revenues. It was found that the state passenger returns for 1909 were $261,339.26; interstate, $48,217.58; mail, express, and miscellaneous income earned by passenger trains, undivided as between state and interstate, $54,974.46 — -being a total of $364,531.40. By applying the revenue train mile basis to all common expenses for 1909, and allocating all direct passenger expenses, it was found that both these kinds of expense, including the proper share of taxes and hire of e'quipment, amounted to $350,914.45, which was the expense of producing the $364,531.40; also that the state passenger expense was $326,326.75. It was then found that the state passenger revenue represented 71.69 per cent, of the total passenger revenue; the interstate, 13.23 per cent.; and express, mail, and miscellaneous, 15.08 per cent. It was also shown by testimony for the receivers that it costs about 15 per cent, more to handle the state passenger business than it does the interstate, because of the shorter haul of state passengers and other reasons. By applying the additional 15 per centum to the operating expense, it was found that 2.75 per cent, of such *605expense, or $8,973.99, should be added to the state passenger expense; the final result being that the state passenger business for 1909 earned a net return of $794.80, or less than 1 per centum. This method is approved in Chicago, etc., Co. v. Tompkins, 176 U. S. 179, 20 Sup. Ct. 336, 44 L. Ed. 417, Smyth v. Ames, 169 U. S. 466, 18 Sup. Ct. 418, 42 L. Ed. 819, and Louisville & N. R. Co. v. Railroad Commission (D C.) 196 Fed. 800, 824.
[3] In order to find what the road was fairly entitled to earn on its passenger business in 1909, the total value of the railroad in that year was found to be $5,510,961. These figures were agreed to by both sides, and are supported by the testimony. To obtain the proportion of the passenger value, state, interstate, and mail and express, the total revenue of $1,554,600.37 was taken, and the total passenger revenue found to be 23.45 per cent, of this, making the valuation of the passenger proportion $1,292,329.35. 71.69 per cent, of this, or $926,464.46, represents the state passenger valuation. This should fairly earn 6 per cent., or $55,587.87. On this basis, the earnings for 1909 were about $55,000 too small. That this is the proper rule, see Smyth v. Ames, supra, and Missouri, K. & T. R. Co. v. Love (C. C.) 177 Fed. 493 (the Oklahoma case).
The plan or formula of division or allocation of expense for each fiscal year adopted by the master, and recommended by the testimony of substantially all the witnesses except Mr. Hillman, is as follows:
A. To the revenue freight train mileage 75 per cent, of the mixed train mileage is added, and to the revenue passenger train mileage 25 per cent, of the mixed train mileage is added, and the common expenses are apportioned on the percentage thus obtained. The mixed train mileage is treated in this manner, wherever revenue train mileage is used in apportioning common expenses.
B. Expenses incurred solely in the passenger business were charged to passenger, and expenses which could not be separated between freight and passenger, but were common to both, were divided in the ratio which the passenger revenue train mileage bore to the total revenue train mileage.
C. When the expense was upon a locomotive engaged in straight passenger service, the-expense was charged to passenger. When the expense was upon a locomotive which had made both freight and passenger miles during the month, there was charged for each passenger mile made by that locomotive the average cost per mile of like expense on locomotives in straight passenger service.
D. These are expenses which were incurred solely in the passenger service.
E. Expenses incurred solely in the passenger business were charged to passenger, and expenses which could not be separated between freight^ and passenger, but were common to both, were divided in the ratio which the total passenger revenues bore to the total freight and passenger revenues.
E. Expenses incurred for a particular yard were charged to passenger in the ratio which the number of passenger cars bore to the total freight and passenger cars there handled. Expenses of a gen*606eral character incurred in all yards were charged to passenger in the ratio which the total number of passenger cars bore to the total number of freight and passenger cars handled in all yards.
G. Where the information obtainable showed wrecks to be passenger, the expense was charged to passenger; in months in which passenger wrecks occurred, all expense which could not be located directly was charged to passenger in the ratio which the passenger revenue train mileage bore to the total revenue train mileage.
Applying this formula to the classification of expense accounts in use on most railroads, recommended by the Interstate Commerce Commission, we obtain the following for the fiscal year 1909 (where-ever the passenger percentage is 45 and a fraction, the figures in the passenger column represent' the revenue train mile basis; when less than 45, a direct allocation to the freight business is indicated, and when greater than 45, a like allocation to the passenger):
Direct and Common Expense Table.

I. Maintenance of Way and Structures.

PassenTotal Expense. Freight. Passenger, ger Per Cent.
1. Superintendence .........A $ 3,610.50 45.76 $ 7,891.59 $ 7,891.59
2. Ballast ..................A 852.09 45.79 1,860.76 1,008.67
3. Ties .....................A 37,242.08 21,582.61 15,659.47 42.05
4. Kails ...................A 2,843.83 1,952.03
5. Other track material.....A 11,702.55 7,594.04 4,108.51 35.11
6. Koadway and track.......A 74,891.98 44,528.12 30,363.86 40.54
7. Kemoval of snow, sand, and ice ...................A) 1,191.26 713.10 478.16 40.14
8. Tunnels. (None.)
9. Bridges, trestles and culverts ..................A 23,714.98 12,801.68 10,913.30 46.02
10. Crossings (over and under) A 24.97 11.88 13.09 52.42
11. Grade crossings, cattle guards, and signs.......A 6,033.20 3,205.56 2,827.64 46.87
12. Snow and sand, fences and snow sheds. (None.)
13. Signal and interlocking plants .................A 586.39 320.71 265.68 45.32
14. Telegraph and telephone lines ..................A 5,106.25 2,805.76 2,300.49 45.85
15. Electric power transmission. (None.)
16. Buildings, fixtures, and grounds ...............A 8,465.75 4,596.50 3,869.25 45.71
17. Docks and wharves. (None.) 18. Koadway, tools, and supplies...................A 2,521.26 1,394.55 1,126.71 44.69
19. Injuries to persons........A 1,080.66 575.23 505.43 46.77
20. Stationery and printing.. .A 100.67 54.91 45.76 45.46
21. Other expenses...........A 1,011.90 541.72 470.18 46.77
22. Maintaining joint tracks and other facilities, Dr......B 28,964.66 16,233.31 12,731.35 43.95
23. Do. Cr..............B 9,392.17 7,553.35 1,838.82* 19.58
Totals ................. $205,752.57 $116,558.12 $89,194.45 43.35

*607
II. Maintenance of Equipment.

PassenTotal Expense. Freight. Passenger, ger Per Cent.
24. Superintendence..........A 15,990.90 $ 8,754.64 $ 7,236.26 45.26
25. Steam locomotives, repairs C 98.164.44 79,961.26 18,203.18 18.54
26. Steam locomotives, renewals.
(None.)
27. Steam locomotives, depreciation ...................C 13.207.44 11,218.80 1,988.64 15.06
Electric Locomotives.
28. Repairs. (None.)
29. Renewals. (None.)
.‘50. Depreciation. (None.)
Passenger Train Cars.
31. Repairs ..................B 18,771.81 100.00 18,671.81 99.50
32. Renewals. (None:)
33. Depreciation ............B 3,067.96 3,067.96 100.00
34. Freight cars, repairs.....B 179,254.68 179,254.68
35. Freight cars, renewals... .B 2,573.08 2,573.08
36. Freight cars, depreciation B 31,081.03 31,081.03
Electric equipment of cars.
37. Repairs. (None.)
38. Renewals. (None.)
39. Depreciation. (None.)
Floating equipment.
40. Repairs. (None.)
41. Renewals. (None.)
42. Depreciation. (None.)
Work Equipment. (43-45.)
43. Repairs .................A 2,473.99 1,343.41 1,130.58 45.70
44. Renewals ................A 130.11 70.71 59.90 46.04
45. Depreciation ............A 1,602.42 870.91 731.51 45.65
40. Shop, machinery, and tools A 6,097.37 3,271.15 2,826.22 46.35
47. Power plant equipment. (None.)
48. Injuries to persons.......A 941.76 593.59 348.17 36.97
49. Stationery and printing.. .A 327.63 183.00 144.63 44.15
50. Other expenses...........A 1,016.04 51. Maintaining' joint equipment at terminals, Dr.......D 231.54 555.82 210.54 460.22 45.30 21.00 .09
52. Do. Or...............D 17.91
Totals $374,914.28 $316,039.19 $54,875.09 14.63

III. Traffic Expenses.

53. Superintendence .........D $ 27,184.78 $ 20,637.03 $ 6,547.75 24.09
54. Outside agencies .........1) 36,817.38 33,437.79 3,379.59 9.18
55. Advertising ..............D 1,587.88 1,587.88 100.00
56. Traffic associations.......D 1,228.54 1,179.48 49.00 3.99
57. Fast freight lines ......... 1,087.72 1,087.72
58. Industrial and immigration bureaus. (None.)
59. Stationery and printing.. .B 5.S02.07 5,078.14 723.93 12.48
60. Other expenses. (None.)
Totals ................ $ 73,699.37 $ 61,411.16 $12,288.21 16.67

*608
IV. Transportation Other Than Train Expenses.

Passed* Total Expense. Freight. Passenger, ger Per Cent.
61. Superintendence .........A $ 13,851.07 $ 7,573.83 $ 6,277.24 45.32 62. Dispatching trains........A 15,438.54 8,S40.81 • 6,597.73 45.06 63. Station employes ........A 81,444.29 72,703.22 8,741.07 10.73
64. Weighing and car service association ................ 3,022.22 3,022.22
65. Coal and ore docks. (None.)
2,797.79 45.20 159.41 1.31 66. Station supplies and expenses ................A 6,190.25 3,392.46 67. Yardmasters and clerks... F 12,149.72 11,992.28
639.65 2.37 68. Yard conductors and brakemen ...................F 27,036.86 26,397.21
11.33 1.86 69. Yard switch and signal tenders ...................F 608.40 597.07
9.39 1.6S 70. Yard supplies and expenses ................F 560.22 550.83
71-76. (See next head.)
77. Operating joint yards and terminals, Dr...........B 97,996.33 84,477.42 78. Do. Or...................B 1.786.S2 1,735.16 13,518.91 13.80 51.66 2.89
79-89. (See next head.)
90. Interlockers, block and other signals ................B 3,017.32 1,804.87 1,212.45 40.19
91. Crossing flagmen and gate-men ..................B ' 3,980.62 2,293.38 1,687.24 42,39
92. Drawbridge operation. (None.) 93. Clearing wrecks..........G 3,154.43 2,169.30 985.13 31.22
94. Telegraph and telephone operation ................B 1,784.13 1,470.90 313.23 17.56
95. Operating • floating equipment. (None.)
96. Express service. (None.)
97. Stationery and printing. ..B 7,360.76 4,476.91 2,883.85 39.18
98. Other expenses ..........B 1,515.94 1,164.42 351.52 23.19
99. Loss and damage, freight... 16,789.59 16,789.59
100. Loss and damage, baggage D 1.24 1.24 100.00
101. Damage to property......B 5,522.39 2,400.31 3,122.08 56.54
102. Damage to stock on right of way ................B 2,159.84 1,426.36 733.48 33.96
103. Injuries to persons........B , 32,541.63 26,728.94 5,812.69 17.86
104. Operating joint tracks and other facilities, Dr.....B 11,527.19 6,611.17 4,916.02 42.65
105. Do. Or..............B 3,003.92 1,997.43 1,006.49 33.50
Totals .................$342,862.64 $282,789.31 $60,073.33 17.52

*609
V. Train Transportation.

Total Expense. Freight. PassenPassenger. ger Per Cent.
71. Yard enginemen .........F $ 15,836.12 $ 15,472.65 $ 363.47 2.29
72. 73. 74. Engine house expenses, yard engines ................F Fuel, yard engines........F Water, yard engines......B1 4,652.47 12,523.97 1,550.26 4,564.80 12,230.21 1,506.38 87.67 1.88 293.66 2.34 43.88 2.83
75. Lubricants, yard engines..!' 850.58 831.55 43.88 2.83
76. Other supplies, yard engines ..................F 495.20 485.10 10.10 2.24
79. Motormen. (None.)
SO. Road enginemen .........D 77,972.24 51,110.98 26,861.26 34.45
81. Engine house exjiense, road engines ................B 21,144.60 11,661.81 9,482.79 44.86
82. B'uel, road engines .......O 103,804.15 82,654.74 21,149.41 20.38
83. Water, road engines......B 8,199.25 4,765.63 3,433.62 41.88
84. Lubricants, road engines. .-O 4,506.75 3,290.09 1,216.66 27.00
85. Other supplies, road engines ..................O 3,060.61 2,653.84 406.77 13.29
86. Operating power plants. (None.)
87. Purchased. power. (None.)
88. Road trainmen ..........D 71,322.92 56,366.48 14,956.44 20.97
89. Train .supplies and expenses ................B 20,969.65 13,614.41 7,355.24 35.08
Totals $346.880.47 $261,209.17 $85,680.30 24.70
VI. General Expenses.
106. Salaries and expenses of general officers ........A $ 14,178.44 7,760.28 $ 6,418.16 45.27
107. Salaries, clerks and attendants ..................A 21,788.98 11,928.63 9,860.35 45.25
308. General office supplies and expense ...............A 4,150.28 2,337.27 1,813.01 43.68
109. Law expense ............A 8,075.22 4,442.81 3,632.41 44.98
110. Insurance ...............B 4,703.63 4,035.76 667.87 14.20
113. Stationery and printing.. .A 2,073.74 1,154.23 919.51. 44.35
114. Other expense ...........A 1,675.03 944.82 730.21 43.60
115. General administration of joint tracks, yards, and other facilities, Dr.....D 477.88 303.73 174.15 36.44
116. Do. Cr..............A 310.44
Totals................. $ 56,812.76 $ 32,597.09 $24,215.67 42.62

VTT. Other Expenses Directly Allocated.

$ 39,294.33 $ Taxes .................... $ 51,401.14 12,106.81 23.55
9,762.11 Hire of equipment, Dr...... 9,762.11
Hire of equipment, Or...... 517.44
Rentals, St. Louis Union Depot ......¡.............. 5,252.24
Other rentals, St. Louis.... 9,097.20
Rentals, Illinois ........... 21,594.27
Total rentals .............. 35,943.71 22.945.38 12,998.33 36.16
Total expenses ............ 1,498,038.05 1,147,123.30 350,914.75 23.42
Total revenue ............. 1,564,833.10 1,200,301.70 364,531.40 23.23
Net revenue for 1909...... 66,795.05 53,178.40 13,616.65 20.39
Value of road............. 5,500,000.00 4,207,679.65 1,292,320.35 23.45
Net revenue percentage..... 1.21% 3.26% 1.05
*610It appears from the foregoing that the whole earnings of the toad for 1909 were only 1.21 per centum upon the fair and conceded valuation. This small return resulted in part from the fact that the road is a comparatively small one, and partly because it meets with sharp competition by stronger lines and a well-developed trolley system. It appears inferentially from the testimony that its freight rates cannot be increased. The only practicable escape open to the road, therefore, is to enlarge its passenger returns bv obtaining authority to put in a three-cent fare for state passengers. This is not to help out its loss on freight business, but to earn a fair return on the state passenger traffic. Hence the filing of this petition, and the well-prepared case of the receivers, presenting a. strong inference that the line was in 1909 obtaining a very inadequate return upon its passenger business. Much expert testimony was taken to the effect that by applying common railroad bookkeeping the freight business in 1909 paid 1% per centum, and the passenger 1 per centum.
The important question before the master, and.now before us, is whether^the best possible rules for dividing the expense between freight and passenger, and between state and interstate passenger business, have been applied. A more difficult question is_rarely presented. For want of a better rule, railway experts have adopted the revenue train mile as a fair (or as the least unfair) basis; that is, as the total passenger miles for a year are to the whole number of train miles (freight, passenger, and mixed, excluding switching, repair, and special trains not bringing in revenue), so is the common passenger expense, which cannot be directly applied (unknown), to the whole common expense (a known quantity). Other bases for the division of common expenses, especially between intrastate and interstate freight and passenger business, are the straight revenue basis (or gross earnings basis), train weights, ton miles, passenger miles, engine miles, etc. To apportion common expenses between intrastate freight and passenger business, on the one hand, and interstate business, on the other, the straight revenue basis is sometimes used for certain expenses, as in the Arkansas Rate Cases (C. C.) 187 Fed. 290, 335, 339, 341. To find the value assignable to the freight and passenger business, respectively, freight gross earnings (state and interstate) are taken to represent the freight value, and passenger gross earnings the passenger value, as in Shepard v. Northern P. R. Co. (C. C.) 184 Fed. 765, 811, 812. But for the apportionment of common expenses between freight business, state and interstate, and passenger business, state and interstate, no rule so satisfactory as the revenue train mile basis has been discovered. This method of division at one time received the approval of the Interstate Commerce Commission, has been used by many railway companies for their own information in advance of any controversy on the subject, was adopted by the Wisconsin Railroad Commission in the Buell Case, 1 Wis. R. R. Com’n Rep. 324, and is approved in several decided *611cases, particularly the Minnesota case, 184 Fed. 765, supra. Judge Sanborn’s discussion of this basis is on 184 Fed. 813, as the one used by the railway companies and adopted by The master. The, revenue train mile basis was also used in the Missouri Rate Cases, St. Fouis, etc., Co. v. Hadley (C. C.) 168 Fed. 317, 348, as appears from the language of Judge McPherson on page 348 and by the testimony of Mr. Johnson in this case. He says this basis was applied by the expert state accountants, and approved by the court, as, indeed, appears in the report. Care must be taken, in reading these cited opinions, as well as others, to distinguish between the division of common expenses between freight business (state and interstate) and passenger business, on one hand, and the division of earnings for valuation purposes, or the separation of common expenses between intrastate freight and passenger business, and interstate, on the other. None of the opinions are as clearly or carefully stated as they might have been in these respects, but a careful reading leaves no doubt whatever.
To illustrate the difficulty of treating accounts on bases other than the revenue train mile, take account No. 2, Ballast, the total cost of which for 1909 was $1,860.76. Of this 90 per cent, is supposed to be due to weather and 10 per cent, to wear. The 10 per cent, or $186, may therefore be distributed between freight and passenger on the revenue train mile basis, 45.79 per cent., or $85.16, for passenger, and $100.84, freight. How shall the weather proportion be divided? Weather bears no closer relation to gross earnings, or train weights, than it does to revenue train miles. Any application of a wreather expense between passenger and freight is unsatisfactory, and for want of a better plan it is divided on the revenue train mile basis. Ties, bridges, and culverts, grade crossings, and fences, cattle guards, and signs (all under the general head “Maintenance of Way and Structures”), rest substantially on the same ground as ballast, while the others of the 19 primary accounts in this head are naturally divisible on the revenue train mile basis.
Under the second general head, “Maintenance of Equipment,” many of the primary accounts are directly allocated. The rest are fairly divisible between freight and passenger business upon the revenue train mile basis.
The third general account, “Traffic Expenses,” does not bear as close a relation to the revenue train mile as the equipment group; but the amount of common expense distributed to passenger is relatively small. Most of the items have' been directly allocated between freight and passenger.
The other two general accounts, 5 and 6, “Transportation Expenses” and “General Expenses,” bear a closer relation to revenue train miles than to any other principle of division. Many of the items in these heads are divided by Mr. Hillman on the revenue basis.
On the whole, therefore, we are satisfied that the master has adopted the best method obtainable, one less unsatisfactory than *612any other which can be fairly applied. Whether we follow the great weight of evidence, or the decisions cited, we may feel that justice has been done, and that the master’s findings and conclusions should be sustained, except one provision. He recommends that the decree provide that a maximum rate of three cents per mile be made chargeable for state passengers. This would probably be the exercise of the legislative power of making rates, and not a judicial power. See cases cited in Peoria Waterworks. Co. v. Peoria Ry. Co. (C. C.) 181 Red. 990, 1004. In this respect the decree should provide that the District Court may, in exercising its function of managing the road in its possession, institute any rate, not exceeding three cents, as in its judgment may be fair and pi'oper.
A decree should be entered in accordance with this opinion.

This is a deduction, not an addition.