Court Opinion

ID: 3877248
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:09:51.840385+00
Date Added: 2024-06-11T14:15:14.412831
License: Public Domain

Petition for mandamus, in the original jurisdiction of this Court, by the Railroad Commission of South Carolina, to compel compliance by Southern Railway Company with an order of the Commission, dated March 14, 1923, requiring said company to construct certain station sheds at Blackville, S.C. a station on its line.
After due notice to the railway company, the matter was heard by the Railroad Commission on January 17, 1923, and on March 14, 1923, the Commission passed an order reciting that — *Page 45 
"As Blackville is a junctional point and a station where passengers must transfer from one train to another, the Commission is convinced that it is necessary to have additional facilities at this point," and requiring the Company "to construct the usual station sheds, commencing at the eastern end of the present depot and extending east, or in the direction of Branchville, for a distance of fifty (50) feet; and the same kind of shed, commencing at the southern end of the present depot and extending south towards Savannah for a distance of fifty (50) feet," within 20 days from the date of the order.
The railway company having failed to comply with said order, the Commission, on April 30, 1923, filed its petition in this Court asking for a mandamus to compel compliance, and obtained from the Chief Justice an order, dated May 5, 1923, requiring the Southern Railway to show cause before the Court on June 11, 1923, why the mandamus prayed for should not be issued.
The Railway Company made return to said order of the Chief Justice, admitting, substantially, the facts alleged in the petition, and specifically urging the following objections to the order of the Railroad Commission:
"That the lines of the railway company here in question compose a part of the Southern Railway System, which is an interstate railroad, and that the lines here in question are used for interstate travel and freight from the City of Charleston to the City of Augusta and other points beyond the said Cities of Charleston and Augusta, and a line extending from the State of Georgia to Columbia, Charlotte, Spartanburg, Asheville, Greenville, Atlanta, and other points, from which interstate traffic and transportation revenues are largely composed, and that by reason of the laws of the Federal Government with regard thereto, the Railroad Commission of South Carolina is without jurisdiction to order improvements of the nature and kind provided *Page 46 
in the order here in question, and the same is therefore null and void."
And that —
"This Court is without jurisdiction to render an order herein requiring compliance with the order of the Railroad Commission, and the same constitutes taking of property without due process of law, in violation of Article 5 of the Constitution of the United States."
The matter was then heard by this Court, practically submitted, upon the petition, order, return and printed arguments.
The Railroad Commission founds its claim for authority to pass the order in question upon Section 4821, Vol. 3, Code of Laws A.D. 1922 (Section 3147, Vol. 1, Code of Laws A.D. 1912, amended by 31 Stat., 1086), which is as follows:
"Whenever, in the judgment of the Railroad Commissioners, it shall appear that repairs are necessary upon any such railroad, or that any addition to the rolling stock, or any enlargement of, or improvement in, the stations or station houses, or any modification in the rates of fare, for transporting freight or passengers, or any change in the mode of operating the road and conducting its business, is reasonable and expedient in order to promote the security, convenience and accommodation of the public, they shall give information in writing, to the corporation of the improvements and changes which they adjudge to be proper; and if the said company shall fail, within sixty days, to adopt the suggestions of said Commissioners, they shall take legal proceedings as they may deem expedient, and shall have authority to call upon the Attorney General to institute and conduct such proceedings: Provided, that the powers herein conferred upon the Railroad Commission of South Carolina shall be sufficient to require of common carriers the establishment and maintenance of such terminal facilities, extension of pass tracks, sidetracks, other than industrial *Page 47 
tracks, and all other improvements and changes which seem reasonable and expedient to the said Railroad Commission."
If it were not for the Act of Congress, referred to as the "Transportation Act of 1920," there would be ample authority in the decisions of this Court to sustain the Commission's order. Bonham v. R. Co., 26 S.C. 353;2 S.E., 127. R.R. Commission v. R. Co., 82 S.C. 418;64 S.E., 240. R.R. Commission v. R. Co., 74 S.C. 80;54 S.E., 224.
All of these cases, however, were decided prior to the Transportation Act of 1920, and throw no light at all upon the question now presented — the effect of that Act upon state regulation of such matters as are here involved.
The Transportation Act of 1920 effected a radical departure, and introduced into Federal Legislation a new railroad policy. It has placed the entire control over rates, properties, tracks, terminals, and facilities of railroads engaged in interstate commerce, in and under the jurisdiction of the Interstate Commerce Commission.
In Akron, etc., R. Co. v. U.S., 43 Sup. Ct., 270; 67 L.Ed. — , opinion filed February 9, 1923, the Court says:
"Transportation Act 1920 introduced into the Federal Legislation a new railroad policy" — citing R.R. Comm. v.C.B.  Q.R. Co., 257 U.S. 563; 22 A.L.R., 1086.
The "new policy," as contrasted with the old, was thus expressed:
"Therefore, the effort of Congress had been directed mainly to the prevention of abuses, particularly those arising from excessive or discriminatory rates. The 1920 Act sought to insure, also, adequate transportation service."
And the sustaining quotations from the Act were quoted:
"To enable the carriers `properly to meet the transportation needs of the public,' * * * to give due consideration to `the transportation needs of the country, and the necessity * * * of enlarging facilities,' to `best meet *Page 48 
the emergency and serve the public interest,' * * * to `best promote the service in the interest of the public and the commerce of the people'; * * * `that the public interest will be promoted.'"
Illustrative of the universality of supervision and control of carriers by the Interstate Commerce Commission, the Court cites: The establishment of railroad labor and adjustment boards; the raising of capital by new government loans; loans from the general railroad contingent fund; placing of the issuing of new securities under control of the Commission; the consolidation of railroads into a limited number of system; provisions for securing adequate car service; joint use of terminals; interchange of traffic.
In the Wisconsin Rate Cases, 257 U.S. 563;42 Sup. Ct., 232; 66 L.Ed., 371, 22 A.L.R. 1086, the Court, through the Chief Justice, says:
"It is manifest from this very condensed recital that the Act made a new departure. Theretofore the control which Congress, through the Interstate Commerce Commission exercised was primarily for the purpose of preventing injustice by unreasonable or discriminatory rates against persons and localities, and the only provisions of the law that inured to the benefit of the carriers were the requirement that the rates should be reasonable in the sense of furnishing an adequate compensation for the particular service rendered and the abolition of rebates. The new measure imposed an affirmative duty on the Interstate Commerce Commission to fix rates and to take other important steps to maintain an adequate railway service for the people of the United States. This is expressly declared in Section 15a to be one of the purposes of the bill."
Touching the purpose and effect of the Transportation Act of 1920, the report of the Senate Committee on Interstate Commerce contains this statement:
"Heretofore the regulation of transportation has been regarded merely as a restriction imposed upon particular *Page 49 
carriers. For the first time it is proposed to look upon transportation as a subject of national concern and from a national standpoint. It is the duty of the government so to exercise its power of regulating commerce * * * that all parts of a common country shall enjoy adequate transportation facilities at the lowest cost consistent with fairness to the capital invested and to the men who manage and operate these facilities. The commerce of one community, in these days, is deeply involved in the commerce of every community in the land."
Subdivision 18 of Section 1 of the Interstate Commerce Act, as amended by the Transportation Act of 1920 (U.S. Comp. St. Ann. Supp., 1923, § 8563 [18]), provides:
"After ninety days after this paragraph takes effect no carrier by railroad subject to this Act shall undertake the extension of its line of railroad * * * until there shall have first been obtained from the Commission a certificate that the present or future public convenience and necessity require * * * the construction, * * * of such additional * * * line of railroad."
The term "railroad," as used in the Act of 1920, is defined as including —
"All the road in use by any common carrier operating a railroad, whether owned or operated under a contract, agreement, or lease, and also switches, spurs, tracks, terminals, and terminal facilities of every kind used or necessary in the transportation of the persons or property designated herein including all freight depots, yards, and grounds used, or necessary in the transportation or delivery of any such property."
In Atchison, etc., R. Co. v. R.R. Commission (Cal. Sup.)211 Pac., 460, it is said:
"In the matter of the extension of railroad facilities and in the abandonment of other railroad facilities, including terminals, not only is the Commission empowered to act upon the subject, but Congress has expressly prohibited the *Page 50 
railroad companies from acting without the consent of the Interstate Commerce Commission" — citing subdivision 18 above quoted.
Not perhaps directly applicable to the matter in hand but as indicating a definite purpose that the Interstate Commerce Commission should have supervision of all facilities of carriers, subdivision 3, of section 3 of the Interstate Commerce Act, as amended by the Transportation Act of 1920 (U.S. Comp. St. Ann. Supp., 1923, § 8565 [31]), provides:
"All carriers, engaged in the transportation of passengers or property, subject to the provisions of this Act, shall, according to their respective powers, afford all reasonable, proper, and equal facilities for the interchange of traffic between their respective lines, and for the receiving, forwarding, and delivering of passengers and property to and from their several lines and those connecting therewith, and shall not discriminate in their rates, fares, and charges between such connecting lines, or unduly prejudice any such connecting line in the distribution of traffic that is not specifically routed by the shipper."
"The foregoing excerpts from among the many provisions of said amendatory Act would seem to fully justify the statement of Chief Justice Taft, above quoted from the decision of the Supreme Court of the United States, as to the radical departure effected by the said amendment to the Interstate Commerce Act in the direction of placing the entire control over the rates, properties, track, terminals, and facilities of the railroads engaged in interstate commerce in and under the jurisdiction of the Interstate Commerce Commission." Atchison, etc., R. Co. v. R.R. Commission
(Cal. Sup.), 211 Pac., 460.
If, therefore, Congress has committed to the Interstate Commerce Commission the supervision, control, and direction of railroad facilities of every nature, the field has been occupied, to the exclusion of state regulation. *Page 51 
In the early leading case of Gibbons v. Ogden, 9 Wheat., 1; 6 L.Ed., 23, Chief Justice Marshall carved out the pathway for all later decisions, by the declaration that the power of Congress to regulate commerce between the several states is supreme and plenary, "is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations, other than are prescribed in the Constitution." See, also, Minnesota Rate Case, 230 U.S. 399;33 Sup. Ct., 729; 57 L.Ed., 1511; 48 L.R.A. (N.S.), 1151; Ann. Cas., 1916A, 18.
In the Minnesota Rate Case, 230 U.S. 352;32 Sup. Ct., 739; 57 L.Ed., 1511; 48 L.R.A. (N.S.), 1151, Ann. Cas., 1916A, 18, the Court said:
"The authority of Congress extends to every part of interstate commerce, and to every instrumentality or agency by which it is carried on; and the full control by Congress of the subjects committed to its regulation is not to be denied or thwarted by the commingling of interstate and intrastate operations. This is not to say that the nation may deal with the internal concerns of the State, as such, but that the execution by Congress of its constitutional power to regulate interstate commerce is not limited by the fact that intrastate transactions may have become so interwoven therewith that the effective government of the former incidentally controls the latter. This conclusion necessarily results from the supremacy of the national power within its appointed sphere."
Whenever the interstate and intrastate transactions of carriers are so related that the government of the one involves the control of the other, it is Congress and not the State that is entitled to prescribe the first and dominant rule; for otherwise Congress would be denied the exercise of its constitutional authority, and the State, and not the nation, would be supreme in the national field. Houston,etc., R. Co. v. U.S., 234 U.S. 342; 34 Sup. Ct., 833;58 L.Ed., 1341. *Page 52 
The question which arose in the case of People ex rel.New York, etc., R. Co. v. Public Service Commission,233 N Y, 113; 135 N.E., 195; 22 A.L.R., 1073, was whether or not the Public Service Commission of New York had the power to make an order directing two railroad companies engaged in interstate and intrastate commerce within the State, to construct a switch or track connecting their lines and install other tracks and facilities so as to furnish adequate and convenient interchange of freight between said railroads. The Court held that the State Commission had no jurisdiction to make such order in view of the Transportation Act of 1920, amending the Interstate Commerce Act, which pre-empted the legislative field in favor of the Interstate Commerce Commission.
"To sustain the order of the Public Service Commission in the instant case would necessarily establish that the two several Commissions mentioned were clothed with jurisdiction to grant the relief sought and require us to ignore the well-established principle of law that the Congress having delegated to the Interstate Commerce Commission power to deal with the subject matter of this proceeding, an exercise of like power by the State is thereby superseded" — citingErie R.R. v. People, 233 U.S. 671; 34 Sup. Ct., 756;58 L.Ed., 1149; 52 L.R.A. (N.S.), 266; Ann. Cas., 1915D, 138. Chicago, etc., R. Co. v. Hardwick, 226 U.S. 426;33 Sup. Ct., 174; 57 L.Ed., 284; 46 L.R.A. (N.S.), 203.
In Atchison, etc., R. Co. v. R.R. Commission (Cal. Sup.),211 Pac., 460, the main question involved and discussed was whether or not the Railroad Commission of California had the power to order three separate railroad companies, whose lines entered Los Angeles, each of which was engaged in both classes of commerce, to establish a union terminal depot within a certain defined area. The Court, in an exceedingly elaborate and able opinion, unanimously held that, in view of the Transportation Act of 1920, the power did not exist. It was held that in the matter of the extension of *Page 53 
railroad facilities, not only is the Interstate Commerce Commission empowered to act on the subject, but that Congress has expressly prohibited the railroad companies from acting without the consent of the Interstate Commerce Commission under penalty. It is impossible to present extracts from the opinion of the Court which would do justice to its clarity and unanswerable logic.
Another consideration is conclusive of the purpose of the Act to control the matter of nonproductive, additional facilities and terminals, and, having pre-empted this field, all regulation by the states is interdicted. This matter is not only subjected to the control of the Interstate Commerce Commission, but it is so interrelated with the purpose of the Act in supervising transportation facilities and in fixing rates, that interference by the states therewith necessarily affects interstate commerce.
Section 15a of the Act makes it the duty of the Interstate Commerce Commission, in the exercise of its rate-making authority, to prescribe such rates as will give the carrier a fair return upon the aggregate value of the railroad properties used in the service of transportation. The pertinent provisions of the section are as follows:
"In the exercise of its power to prescribe just and reasonable rates the Commission shall initiate, modify, establish or adjust such rates so that carriers as a whole (or as a whole in each of such rate groups or territories as the Commission may from time to time designate) will, under honest, efficient and economical management and reasonable expenditures for maintenance of way, structures and equipment, earn an aggregate annual net railway operating income equal, as nearly as may be, to a fair return upon the aggregate value of the railway property of such carriers held for and used in the service of transportation."
The section also provides (subdivision 3):
"The Commission shall from time to time determine and make public what percentage of such aggregate property *Page 54 
value constitutes a fair return thereon, and such percentage shall be uniform for all rate groups or territories which may be designated by the Commission. In making such determination it shall give due consideration, among other things, to the transportation needs of the country and the necessity (under honest, efficient and economical management of existing transportation facilities) of enlarging such facilities in order to provide the people of the United States with adequate transportation: Provided, that during the two years beginning March 1, 1920, the Commission shall take as such fair return a sum equal to 5 1/2 per centum of such aggregate value, but may, in its discretion, add thereto a sum not exceeding one-half of one per centum of such aggregate value to make provision in whole or in part for improvements, betterments or equipment, which, according to the accounting system prescribed by the Commission, are chargeable to capital account."
"After the expiration of March 1, 1922," the two-year period above mentioned, the Interstate Commerce Commission, "after considering all the facts of the record, including the necessity of reasonable expenditure for additions and betterments," found and determined:
"That on and after March 1, 1922, a fair return of the aggregate value * * * will be 5.75 per centum of such aggregate property value as a unifrom percentage of all rate groups or territories designated by this Commission."
The Act specifically provides that in "making such determination," that is, what shall constitute a "fair return" of the aggregate property value of the carrier, the Interstate Commerce Commission shall give due consideration to the transportation needs of the country and the necessity of enlarging such facilities in order to provide adequate transportation; they shall determine whether or not the management of the carrier has been "honest, efficient, and economical," and whether or not the expenditures for maintenance of way, structures, and equipment have been reasonable. *Page 55 
We may conceive an instance of a carrier operating upon a negligible net operating income and making application to the Interstate Commerce Commission for an increase of rates; its statement shows the value of its property to be so much, and its net operating income to be below 6 per cent. of the aggregate value of its property. If such statement be accepted as true, and it appears that the management has been honest, efficient, and economical, and the expenditures for maintenance of way, structures, and equipment reasonable, the Interstate Commerce Commission will be justified in allowing the increase of rates sufficient to insure the "fair return." But of all of these matters the Interstate Commerce Commission must be satisfied, and it is their duty to determine them. They are no more obligated to accept the dictum of a state Legislature that certain additions, betterments, or equipment are reasonable, than that the management has been honest, efficient, and economical, or that the property is of a certain value.
Under the accounting system prescribed by the Interstate Commerce Commission, as is specifically stated in Subdivision 3 of Section 15a, improvements, betterments, and equipment are chargeable to capital account. Many matters coming within this classification, apparently present a debatable question whether they should be charged to capital account or to operating expenses. It is, manifestly, to the interest of the carriers that they be charged to operating expenses, and thus reduce to a minimum the "net operating income," which is sought to be swelled by the requested increase of rates. The Interstate Commerce Commission may rule that they are not reasonable, although ordered by a state Legislature, and therefore not entitled to enter into the property value, the basis of the proposed increase, and that they are not operating expenses; so that the carrier gets no credit whatever, either in the capital account or operating expenses, for the large outlay. The reasonableness of the proposed improvements being a matter for the *Page 56 
determination of the Interstate Commerce Commission, the state's action is necessarily interdicted. Under the section of the South Carolina Code, claimed by the petitioners as their authority for ordering the improvements, the matter of repairs, enlargement, or improvements in stations or station houses, modifications of rates, passenger and freight, or changes in the mode of operating the railroad and conducting its business, are committed absolutely to the judgment of the Railroad Commission as to what they conceive to be reasonable and expedient in order to promote the security, convenience, and accommodation of the public. Under it they could order new and elaborate station houses at every point in the State, the abolition of every grade crossing, and any other improvement, betterment, or additional equipment that might be suggested, without regard to the condition of the carrier, or of the effect upon its ability to provide adequate transportation after such expenditures may have been made. "No man can serve two masters."
Another consideration: Subdivisions 5 and 6 of section 15a, provide for what is called the "recapture" feature of the Act. If any carrier shall receive for any year a net railway operating income in excess of 6 per cent. of the value of the property held and used by it in the service of transportation, one-half of such excess shall be placed by the carrier in a reserve fund established and maintained by the carrier, and the other half shall be paid to the Interstate Commerce Commission for the purpose of establishing a general railway contingent fund. The reserve fund maintained by the carrier may be drawn upon for the purpose of paying dividends, interest on stock, bonds or other securities, and rent on leased lines, to a certain extent specified. The general railroad contingent fund, in the hands of the Interstate Commerce Commission, is constituted a revolving fund, to be used in the furtherance of the public interest in railway transportation, by making loans to carriers to meet expenditures for capital account, by refunding securities *Page 57 
issued for capital account, or by purchasing equipment and facilities and leasing same to carriers, under regulations detailed in the Act. If the railway company should be compelled to obey the order of the Railroad Commission, in the installation of such improvements as they might direct, it is manifest that its access to the general railroad contingent fund for a loan to meet expenditures for capital account, or to refund securities issued on that account, would be limited to the approval of the Interstate Commerce Commission of the expenditure, specifically provided for in Subdivision 12.
It will be borne in mind that under the accounting regulations of the Interstate Commerce Commission, there is a definite limit in charging expenditures to operating expenses. Expenditures for additions and betterments must be charged to capital account — they cannot be charged to operating expenses, and they cannot be charged to capital account without the sanction of their reasonableness and public necessity by the Interstate Commerce Commission. It follows that if the expenditure should not be approved by the Interstate Commerce Commission as an item in the capital account, but should be allowed as an item in operating expenses, the requirement by the State of such nonproductive additions and betterments will, in effect, reduce the carrier's approach under existing rates to a net railway operating income equivalent to a fair return on the value of the property, reducing also the possibility of excess earnings divisible with the government. It is clear also that, if the carrier should make the expenditure ordered by the state Commission and charge it to capital account without the approval of the Interstate Commerce Commission, they would have something to say about it, for the addition would constitute a new and increased value on which the "fair return" would be calculated, and must be included also in the aggregate value on which the percentage of return is *Page 58 
considered at the subsequent readjustment of rates and aggregate values for the particular rate group.
The Interstate Commerce Commission establishes rate groups, embracing in each group several States and several carriers. With respect to all of the railroads operating within that particular group, there is determined an aggregate fair value of carrier property engaged in that group in the service of transportation. The percentage of return constituting a fair return on the value of the property is already stated. The Commission accordingly authorizes a schedule of rates sufficient, at least in theory, to provide the proper percentage of return on such aggregate value. From gross revenues operating expenses, taxes, and joint facility rentals are deducted. The resulting figure, designated "net railway operating income," is the item considered in determining what percentage of return has, in fact, been realized, and whether there are any excess earnings — and, if so, how much — to be recaptured. Expenditures for additions and betterments are charged to capital account, increasing for the particular carrier the value of the property, with relation to which the percentage of return is measured. But not only that — the added value attending the improvement thus charged to capital account increases the aggregate value of all carrier property engaged in the service of transportation in that entire rate group, necessitating, ultimately, a readjustment that the prescribed percentage of return may be realized on the new and increased aggregate value of property. The direct and unescapable result of that is that all other states and Communities of that rate group bear an uncompensated portion of the burden created by the unrestricted demands of a particular locality that its own desire for public improvements be met; and the burden is imposed on interstate commerce in the same sense that a discriminatory intrastate rate unlawfully burdens interstate traffic. *Page 59 
We quote from the respondent's argument the following very clear statement:
"The X.Y.Z. Railroad operates almost wholly within the State of Virginia. If that carrier were, through State authorities, required to, and did abolish, every grade crossing and improve every depot on its line of road between Alexandria and Richmond, the total expenditures would amount to many millions of dollars. By just the total amount of those expenditures, would there be increased the property value on which it is entitled to a fair return under existing rates, reducing thereby the actual percentage of return realized. There would also be an increase in the aggregate value of the carrier property in that rate group and a necessary readjustment of rates for the group that the carrier might realize the return recognized as a fair return. Thus the burden of these improvements is imposed upon all other communities and States of that rate group, many of them unserved and untouched by the particular carrier — imposed, too, upon the government itself, for, if by the state's authorities the entire income is expended, the government is deprived of any participation in the earnings exceeding 6 per centum, there would be none.
"Let us suppose the case of a carrier which runs through fourteen states, who has pending at this time insistent demands from state commissions, municipalities, and state Legislatures of $19,033,000 for the building and erection of nonrevenue producing additions and betterments; the making of every one of those would add nothing to the revenue-producing power of the plant, but would increase the capital value of the system by that amount, reduce proportionately the percentage of return, increase the aggregate value of carrier property within the particular rate group and necessitate, ultimately, a readjustment of rates that the prescribed return may be realized on the new and increased value of property. The burden will be distributed to other communities in the same rate group, but unserved *Page 60 
by such carrier and unbenefited by the improvements. Further than that, enforcement of the demands arising in and from the one state will tend to precipitate a like situation in the several other states served by such carrier. That will produce two other results: First, serious impairment, if not absolute breaking down, of an important interstate carrier, a unit of the national transportation system with which Congress was dealing when it passed the Transportation Act of 1920. Second, a sharp conflict with the Congressional policy and utter demoralization and destabilization of the whole scheme of rate making, resulting in the complete breaking down and ultimate failure of the Congressional purpose; a purpose founded on a power confided in Congress by the Constitution and by virtue thereof, lawfully exercised. May the state thus set that at naught? May they disregard the policy, the purpose, the necessity of the enactment?"
The effect of the Transportation Act of 1920 is to limit the power of the States over interstate commerce to an exceedingly circumscribed sphere. They have control of purely internal affairs, but that control, in so far as it affects interstate carriers, must be exercised in a manner that does not project the will of the particular state into other states of the Union. Stone v. F.L.  T. Co., 116 U.S. 334;6 Sup. Ct., 334, 388, 1191; 29 L.Ed., 636.
The judgment of this Court should be that the petition be dismissed.
MESSRS. JUSTICES WATTS and MARION and MR. HENRY, Circuit Judge, concur.