Railroads: Rates and Regulations

by William Zebina Ripley

"Taken in connection with other decisions defining the powers of the Interstate Commerce Commission, the present decision, it seems to me, goes far to make that commission a useless body for all practical purposes, and to defeat many of the important objects designed to be accomplished by the various enactments of Congress relating to interstate commerce. The Commission was established to protect the public against the improper practices of transportation companies engaged in commerce among the several States. It has been left, it is true, with power to make reports, and to issue protests. But it has been shorn, by judicial interpretation, of authority to do anything of an effective character."

The interpretation of the long and short haul clause[568] as applied to concrete cases by the Interstate Commerce Commission, was first enunciated in the decision known as the Louisville & Nashville case.[569] Immediately after the enactment of the law, a multitude of petitions were received from carriers all over the country praying that they be exempted from the operation of this clause, which prohibited a greater charge for a lesser haul than for one over the same line between points more distant. The policy outlined in the Louisville & Nashville case, delivered by Judge Cooley, has practically remained unchanged to the present time. This railroad company operating a line parallel to the Mississippi, as well as intersected at various points by its tributary rivers, claimed that the existence of water competition compelled a rate to all competitive points, lower than rates which could be made to local and intermediate stations. It alleged that an adjustment of its local rates to the low level necessitated at competitive points, would prove disastrous from the point of view of revenue. The point at issue was as to the interpretation of the phrase "under substantially similar circumstances and conditions"; which, in the words of the Act, was necessary in order that the prohibition of the lesser charge for the longer haul should become operative. Without entering into the details of this decision, in the course of which the nature of railroad competition and of rate making were fully discussed, as well as the legislative history of this clause of the Act, it will suffice to note the conclusions. These were; firstly, that the prohibition against a greater charge for a shorter than for a longer distance over the same line in the same direction, the shorter being included within the longer distance, was limited to cases in which the circumstances and conditions were substantially similar; secondly, that carriers might judge in the first instance as to the similarity or dissimilarity of circumstances; but, thirdly, that this judgment was not final but was subject to review by the Commission and the courts. Perhaps the most important point, however, was the determination of the conditions which constituted such dissimilar circumstances and conditions as entitled the carrier to charge less for the longer than for the shorter haul. These conditions were the existence of water competition; the existence of other railroads not subject to the statute; and "rare and peculiar" cases of competition between railroads which were subject to the law. The Commission also held as a guiding principle in the interpretation of this clause that no distinction would be recognized between local traffic and so-called through business; and also that the expense to the carrier involved would not be recognized as a factor unless it happened to come under the case already cited as "rare and peculiar." Furthermore, the desire to encourage manufactures or to build up business or trade centres, was not recognized as a competent reason for claiming exemption from the prohibition in the Act.

The leading decision of the Interstate Commerce Commission, above mentioned, was rendered in 1887. It was not until October of 1892 that the first serious interference arose through judicial interpretation in the United States Courts. The first was the so-called "separate and independent line" decision.[570] This case arose respecting a suit for the repayment of $225 as overcharges on corn shipped by one Osborne from Scranton, Iowa, to Chicago. It was claimed that the charges were unjust and unreasonable, inasmuch as they were in excess of rates charged from Blair, Nebraska, a point more remote from Chicago. The United States Circuit Court of Appeals at St. Paul reversed the decision of the lower court, holding that the lesser rate from Blair with which the Scranton rate had been compared, was not a rate to Chicago, but part of an agreed through rate to New York and other eastern points. Under this interpretation, the aggregate charge for the longer distance from Blair to New York was not less than the charge for the shorter distance from Scranton to Chicago. To this point the decision was in conformity with the previous interpretation by the courts and the Commission; which had uniformly held that a portion of a joint through rate cannot be compared with local or individual rates in the determination of what constitutes the rate for the shorter or the longer haul. This decision went further, however, and therein profoundly affected the subsequent interpretation of the law. It proceeded to define the word "line" as used in the Act, by holding that the joint line formed by two roads is wholly independent of the two lines represented by the several roads taken separately and apart. Interpreted in this way, the decision held furthermore that the total joint rate over two roads, not being over the "same line," might for anything in the fourth section of the Act, not only be as low but even lower than the local rate of either. The effect of this decision was obviously to permit a railroad to engage in traffic agreements for through carriage of freight; and by so doing, legally to become a line separate and independent from the same physical property when engaged in the transportation of freight over its own line. Moreover, by every contract for through carriage of freight with different carriers, the road became a separate and independent line in the eyes of the law. As many lines could exist over one set of rails as there were traffic agreements for through haulage of freight between its terminal points.[571]

The apprehension of the Interstate Commerce Commission that this interpretation of the word line might render the Fourth section of the Act inoperative, was realized in the following year. Several decisions not only adopted the obiter dictum of the Osborne case, above described, but proceeded to expand upon it. Thus, for example, in the Georgia Federal Court, a case arose involving rates from the North to Atlanta as compared with the higher rates to intermediate points. The court held that traffic from Cincinnati to Augusta or Atlanta was carried over a different line than that which was used for transportation to points intermediate between Atlanta and Augusta; inasmuch as the several carriers agreeing upon the joint rate as far as Atlanta from the North, were different.

Moreover it held that the road from Atlanta to Augusta being wholly within the state of Georgia, might by making a local rate from Atlanta which was added to the through rate into Atlanta, constitute itself merely a state road, and therefore be exempted from the prohibition of the Act. Thus it appeared, to quote from the report of the Commission for 1893, "that in addition to the embarrassments proposed by the original 'line' decision, the very jurisdiction of the law itself is invaded by the extension of the line theory indulged in by the Georgia Federal court."

The interpretation put upon the Fourth section of the Act by the decision above cited, remained in force and largely nullified application of the Act itself until 1896. The next important interpretation came, in the decision by the Supreme Court of the United States in the so-called "Social Circle" case.[572] This decision fully discussed the interpretation placed upon the word "line" in the Act. The rates involved were those on buggies from Cincinnati, Ohio, to Social Circle, a local station between Augusta and Atlanta, Georgia. Following the practice of the carriers for some years, the Georgia Railroad Company, which alone served the town of Social Circle, had requested its connections at Atlanta not to name through rates to that place or any other local station on its road. The Circuit Court following the line of argument already described, had held that under such circumstances the Georgia railroad was only a local carrier and not a party to a joint or common arrangement, which would make it subject to the control of the Federal Commission. The Supreme Court reversed this opinion, however; and held that when goods are shipped on a through bill of lading, they constitute an interstate carriage subject to Federal supervision and control. The court held further that this state road became part of a continuous line, not by consolidation with other companies, but by a traffic arrangement for continuous carriage or shipment. The Supreme Court interpreted the original Osborne decision as merely affirming that a railroad company doing business in one state could not be compelled to enter into any agreement with connecting carriers. For by so doing, it continued, the carrier might be deprived of its rights and powers to make rates on its own road. Viewed in this way a carrier might agree to form a continuous line for carrying foreign freight at a through rate without being prevented from charging ordinary local rates for state traffic. Stripped of legal verbiage, this interpretation by the Supreme Court, virtually overruled the previous decisions by lower courts, and rehabilitated the original interpretation of the word "line" by the Commission; namely, that when a continuous line for through traffic is formed by several railroads, the roads constituting that line and making use of it are merely parts of one through route and are not separate lines. In short, not being able to constitute themselves as separate lines by reason of traffic contracts, they must continue to conform their through charges to the rates which they have made upon local business. So far as the enforcement of the Fourth section was concerned, therefore, developments to this point had upheld the law as originally passed.[573] It remained, however, for a separate and distinct course of judicial interpretation to once more jeopardize both the practical operation of the law and the power of the Commission.

Reverting to the original Louisville & Nashville decision in 1887, it will appear that the Commission held at that time that competition between carriers subject to the Act, did not constitute such dissimilarity of circumstances and conditions as would justify the carriers in making their long distance rates lower than the rates between intermediate points. The only exception recognized at that time was to be found in certain "rare and peculiar" cases.[574] One of these will suffice as an illustration. There are two routes by which traffic from Youngstown, Ohio, may reach the East. One is by way of Pittsburg and the Pennsylvania Railroad; the other by an outlet to the north, at Ashtabula upon the Lake Shore and New York Central trunk lines. Between Youngstown, Ohio, and Pittsburg, two parallel lines exist, each having an interest in forwarding freight to the East by the two routes above mentioned. The peculiarity of the situation is that competitive traffic for the East may leave Pittsburg in either direction. If it goes around by Youngstown, that place becomes an intermediate point between Pittsburg and New York. If, on the other hand, it goes from Pittsburg directly east, Youngstown becomes not an intermediate point, but one more remote than Pittsburg from New York. Inasmuch as the Pennsylvania route from Pittsburg is the shorter, it makes the rate.[575] The other roundabout route is obliged to accede to this compelled rate or lose the business. The result is that the smaller indirect road is obliged to give a lower rate from Pittsburg round by way of Youngstown to New York than it gives to Youngstown itself. Any other course of action would deprive it of any participation in Pittsburg business. Such, then, is one of those "rare and peculiar" cases under which the Commission from the first recognized the necessity of exempting carriers, even where all are subject to the Act, from the prohibition of charging less for a shorter than for a longer haul over the same line.

The carriers from the outset had made a determined effort to show that the competition of carriers among themselves was sufficient to produce that dissimilarity of circumstances and conditions which would justify exemption from the Act. This contention the Commission refused to recognize, and did so particularly in the important decisions of 1892 known as the Georgia Railroad Commission cases.[576] These again, like the Maximum Freight Rate case, involved rates from Cincinnati to various points throughout the South; and had reference particularly to the prevalent practice of granting low rates to certain important centres known as basing points. In this decision the Commission re-affirmed the principles set forth in the Louisville & Nashville case, except in one detail; namely, as to whether the carriers were justified in deciding for themselves in first instance whether a case of railroad competition was of that type already defined as "rare and peculiar" which would permit exemption from the long and short haul prohibition. Experience of five years had shown that the right of decision in this respect had led to manifold abuses; inasmuch as a strong disposition on the part of the carriers all over the country was shown to interpret all cases of railroad competition, however simple, as "rare and peculiar." The Commission, therefore, proceeded to overrule its earlier decision; and denied the right on the part of carriers to determine for themselves as to what constituted dissimilarity of circumstances and conditions, affirming that that right was its own.

All of the foregoing judicial interpretation is secondary in importance to the final decision of the United States Supreme Court in 1897 in what is known as the Alabama Midland case.[577] This once and for all overruled the interpretation placed upon the law by the Commission, that railroad competition did not constitute that dissimilarity of circumstances and conditions which would entitle a carrier to exemption from the prohibitions of the statute. This case, like almost all the others involving the interpretation of the Fourth section, arose upon complaint of a small town in the southern states that more important trade centres were securing advantages in the matter of rates which were denied to it. The Board of Trade of Troy, Alabama, complained that it was compelled to pay $3.22 a ton on phosphate rock from Florida and South Carolina points, whereas the rate to Montgomery, a longer distance, was only $3.00 per ton. The rock was carried through Troy. It was also complained that rates on cotton discriminated against Troy as compared with Montgomery and other points; and that, thirdly, rates from Baltimore and New York were higher to Troy than to Montgomery, which was fifty-two miles further away. The case was carried on appeal to the Supreme Court of the United States, where an opinion was handed down in 1896. The gist of this decision was that competition, whether of trade centres or of railroads, must be recognized as a factor in the determination of the similarity of circumstances and conditions under which the Fourth section of the clause should be applied. In other words, it recited that Montgomery being a larger place than Troy; and having been an important trade centre on a navigable river for many years, it was competent to the railroads centering at Montgomery to determine in part for themselves whether the existence of effective competition would warrant them in granting lower rates to Montgomery than to local stations like Troy. The court held, however, that such competition was only one of the elements which must be considered. It did not define it as the dominating one. The railroads, nevertheless, seized upon this interpretation of the law at once, making use of it to justify whatever departure they pleased to make from the practice originally contemplated in adjusting long and short haul charges.