Morawetz says that the rate agreement in respect “to shipments to the El Paso and Southwestern was a three-cornered arrangement made in New York in 1901 between the Colorado Fuel Company, the Santa Fe, and Phelps, Dodge & Co., who operated large copper mines and controlled the El Paso and Southwestern Railway.”[[190]]
Paul Morton, who was then the head of the Santa Fe traffic department, says that in 1901 the people interested in smelting and mining in Southern Arizona and Northern Mexico threatened to use Eastern coke or build a coal railroad of their own unless lower prices were made on the coal and coke they were receiving at El Paso and Deming. They were large consumers, and their threat menaced a traffic worth nearly a million dollars a year to the Atchison system. To protect its interests the Santa Fe entered into an agreement with the Fuel Company and the El Paso and Southwestern people the terms of which were that the Fuel Company was to supply coal at $1.15 a ton, and the Santa Fe was to haul the coal to El Paso and Deming “at the very low rate of $2.90 per ton, which was in reality a division of rate, not usually published.” And “the Southwestern people were to pay $4.05 for the coal which was to be used by the railroad itself and the industries along its line.”[[191]]
This arrangement was, in view of the rates charged shippers from other points and other consignees at El Paso and Deming, a clear violation of the common law and the Interstate Commerce Act. A Federal injunction was served on the Santa Fe in March, 1902, forbidding departure from the published rates, and the Elkins Bill was passed in February, 1903. The El Paso arrangement was not at the start a defiance of injunction or the law of 1903, but became such by its continuance after their issue. General Traffic Manager Biddle and General Freight Agent Gorman sent out general orders in March, 1902, and February, 1903, that the law was to be obeyed, and that “no departure therefrom will be permitted so far as this company is concerned,” but the law was not obeyed nevertheless. A general order of a railroad manager counter to the financial interests involved does not seem to count any more than a Federal injunction.
The El Paso agreement was by no means the only breach of law in the case. Even the discriminations in respect to shipments between New Mexico points were in direct violation of settled principles of the common law.
The Commission found that the Santa Fe acted as agent for the Colorado Fuel Company in collecting from its customers the price of the coal itself along with the freight rate;[[192]] that for over five years (July, 1899, to Nov. 27, 1904) the railroad had paid the Colorado Fuel Company a rebate of $1.10 to $1.25 per ton on shipments to Deming; that the railroad and the Coal Company have “systematically and continuously” violated the Interstate Commerce Act of 1887 and also the Elkins Act of 1903; and that from March 25, 1902, till Nov. 27, 1904 the railway had been in “continuous disregard” of the order of the United States Circuit Court (in a suit begun at the instance of the Interstate Commission) enjoining the railway to observe its published schedules of rates.[[193]]
Commissioner Prouty says: “In all my experiences with railway operations I never saw such barefaced disregard of the law as the Santa Fe railroad and the Colorado Fuel and Iron Company have manifested in this coal case. For years the railroad company has received less than its published rates from the Colorado Fuel and Iron Company while its competitors have paid higher rates.”
The counsel, Judson and Harmon, employed by the Government to examine into the “alleged unlawful practices of the Santa Fe in the transportation of coal and mine supplies” reported to the Attorney General, February 28, 1905, as follows: “From August, 1902, until December, 1904, the railway company continuously transported coal for the Colorado Fuel and Iron Company at less than the published rates then in force, from various points in Colorado and elsewhere to El Paso, Tex., Deming, N. M., and other places, to which such transportation was interstate commerce.
“This was done by secret arrangement between the two companies, under which the coal was apparently billed at the published rate of freight, although in fact the price of the coal was included. The railroad company collected the amount shown by the billing, and paid over part of it to the fuel company as the price of the coal, making the real charge for transportation less than the published rate by just that amount. At the same time the rates given and charged other shippers were the published tariff rates without any deduction.
“This plan, and the way it was carried out, plainly indicate an intention to deceive the Government and the public, and to enable the fuel company to gain a monopoly of the coal supply at the points involved by giving them a strong advantage over competitors in the actual cost of transportation. The motive for thus favoring the fuel company does not appear in the evidence thus far taken, but the fact is clear.
“This secret arrangement with the fuel company involved the carriage of hundreds of cars per month. The concessions from the established rates must have amounted to about a million dollars for the two and one-half years during which they were granted; and it is incredible that this scheme was devised and carried out by any authority but that of the chief officers of the railway company, who were in control of its traffic department. And it was the duty of each and all of these officers to see that the injunction (of March, 1902) was obeyed.”