Railroads: Rates and Regulations

by William Zebina Ripley

Judicial regulation of common carriers, as proposed by the railroad advocates, was open to many objections; so controlling that they fortunately turned the scales in favor of the administration plan. The first of these was in itself so fatal that it is almost a work of supererogation to state the others. Judicial control, as we have seen, had been the outcome under the old law. It was the desperate plight from which escape was sought. No decisions could be rendered until the rate or practice had been put into effect. The denial of power to make rates for the future had broken down the old law. The stable door might indeed be closed, but only some years after the horse had been stolen. Therein lay the primary defect of all judicial processes. When the bituminous coal-carrying roads and water lines were collecting fifty cents a ton additional on 10,000,000 tons of coal annually, destined for New England alone, as a result of the practical elimination of monopoly since 1904, the only effective way to prevent irreparable loss to consumers, would be to veto the increase before it went into effect. For a Federal judge to hold it an unreasonable exaction, four years or even six months after it had been paid, would be of no benefit to the coal-consuming public, upon which the incidence of the tax really fell.

The entire futility of judicial control was well exemplified in the Colorado Fuel and Iron Company case of 1895. This corporation complained of excessive rates from Pueblo, Colorado, to San Francisco on iron and steel. The Interstate Commerce Commission ordered the rates on steel rails not to exceed forty-five cents per one hundred pounds, or seventy-five per cent. of the Chicago-San Francisco rate on the same commodity, whatever that might be. The Southern Pacific, under pressure, complied with this order for about two years; and then in 1898 advanced the rate one-third, to sixty cents per one hundred pounds. Thereupon the Iron Company obtained an injunction from the United States Circuit Court prohibiting the violation of the Commission's order. The case went to the Circuit Court of Appeals, which reversed this decree. Meantime, proceedings before a master had fixed the amount of damages under the rate increase at $35,300. The court held that these damages, if due, could be recovered before a jury which should establish the unreasonableness of the rates in force. But while this was being done, what became of the California business of the Colorado Fuel and Iron Company? The Pacific coast was one of its most important markets. The price of steel rails for competitors from Pittsburg or Europe, who ship by water, would remain quite undisturbed. It would be difficult to recover trade when once lost. No damages, based upon mere increased freight rates, actually paid, would begin to measure the possible loss. And, moreover, even if this sum were recovered after prolonged litigation, the situation would not be remedied. Precisely the same rates which gave rise to the damages would still be in effect. An indefinite series of litigations might result, which would harass the company and perhaps drive it from the field altogether. The outcome of this Southern Pacific case sufficiently proves, even where the shipper is a powerful corporation, the futility of seeking redress through judicial proceedings. Again and again one is forced back to the same conclusion: that the only remedy for an unjust rate is not to continue an unfair one and pay damages, but as speedily as possible to substitute a reasonable charge. How much greater force has this conclusion for the small shipper, if the remedy fails even for an industrial combination, powerful enough to extort secret rebates of $1,000 a day from the Atchison railroad, as proved in the now celebrated Morton case of 1906!

Other serious objections to judicial control may be briefly stated. The functions of a court, acting judicially, permit of reliance as to reasonableness upon only one standard, viz., that the rate or practice under consideration will lead to confiscation of property. The courts can set this maximum limit to charges; but above that point they are powerless to intervene. Rates for the future must be judged with the same freedom exercised by the traffic officials who promulgated them in first instance. Correction can be applied only by an expert tribunal, possessed of the same sort of knowledge had by those who issued the tariff or ordered the practice at the outset. Of course, the objection of lack of technical knowledge on the part of judges, might be readily enough overcome by means of a specialized professional personnel. But the objection that judicial control, in contradistinction to administrative regulation, is necessarily intermittent rather than steady and constant is one not so easily met. As has been recently well said of our Federal policy toward the trusts, "Government by a series of explosions is rarely effective." There are too many and too long intervals between decisions. And then again, there is the slowness of formal court proceedings and the necessarily conservative attitude of judges, in matters concerning vested property rights. These arguments were all unanswerable in the end. It was inevitable that control should be exercised by a distinct enlargement of the powers of the Interstate Commerce Commission, as an adjunct of the executive arm of the government.

The law of 1906[606] authorized the Commission upon complaint to "determine and prescribe" just and reasonable maximum rates, regulations or practices to be thereafter observed; and to order conformity thereto. Such orders, except for money payments, were to become effective after thirty days; and were to remain in force for two years, unless suspended, modified, or set aside by a court of competent jurisdiction. In addition the Commission might order an apportionment of joint rates, when the carriers are unable to agree upon a division; establish through routes; and fix reasonable charges for services or instrumentalities rendered or provided by shippers. This covers the case of charges for icing refrigerator cars or for the use of special equipment.

Fairly general rate-making power was thus conferred upon the Commission; limited, however, to the adjudication of specific complaints. But the carriers being routed at this point, promptly fell back upon a second line of defences. Their representatives took a stand upon the directly consequent point of broad review by the Federal courts of the Commission's orders. It was yet possible to practically nullify administrative control by according indefinite limits to the appellate jurisdiction of these courts. Might they pass upon law points alone; or were they to be empowered to review the entire order of the Commission? A most brilliant constitutional debate again took place in the Senate.[607] The first detail concerned the power of Congress to restrict the right of the lower Federal Courts to suspend the Commission's orders by writ of injunction. Any limitation upon this power would, of course, lessen interference with the Commission's mandates, and greatly promote a speedy settlement of transportation disputes. Were these injunctions to be freely issued, holding up the Commission's orders and thereby leaving the old rate or practice in effect pending final adjudication, the carriers would, of course, then have everything to gain and nothing to lose by their issuance. Every order might be attacked, not with any serious expectation of final success, but merely to secure the benefit of the delay. And if, after this delay, the widest possible scope of review were allowed in the formal trial of the case, judicial instead of administrative regulation might still be brought about.

The first essential in the conservative programme, then, was to ensure the most comprehensive right of review for all cases appealed. But could Congress by statute limit or define the exercise of this judicial power on the equity side? There was no doubt as to its right under the Constitution to create or abolish Federal courts, other than the Supreme Court. But could it restrict their judicial functions, legal or equitable, including primarily the power to issue injunctions? Practically, the alternative lay either in omitting all reference to the subject in the amended act, leaving the scope of the courts' powers to be determined by judicial construction of the statute; or in attempting to define it specifically, item by item. The carriers' representatives would not agree to the former course, lest silence upon this matter, as they averred, might imperil the constitutionality of the law. Nor could the progressive reformers refuse a definition of the matter, under suspicion of bad faith. For if, as they had so stoutly maintained, the constitution amply safeguarded the rights of appellants without further prescription, a mere re-affirmation of these rights could do no harm. The result was a clause so worded as virtually to satisfy the conservatives; while ostensibly being a compromise. Power is expressly conferred upon the Circuit Courts,[608] by suit to "enjoin, set aside, annul or suspend" orders or requirements of the Commission. But this power is limited by the condition that five days' notice must be given to enable the Commission to prepare its case for protest. And the hearing must be had before three Federal judges instead of one. These details were intended to prevent the issuance of restraining orders for frivolous or merely obstructive reasons.

The unfortunate feature of this compromise, arrived at only after weeks of bitter controversy, was its entire indefiniteness as to the grounds upon which the courts might base their review of the Commission's orders. It thus stopped short of conferring more liberal powers of review for railroads than those enjoyed under the constitution by all other classes of persons and property.[609] In so far the railroads lost their case. It is evident that Congress intended to create a really competent administrative board, with whose orders the courts might interfere only when those orders were ultra vires, or unconstitutional. The courts under the law must accord the same consideration to such decisions, "if regularly made and duly served," as to an act of Congress, with the presumption always in favor of validity. Judicial interference might be expected only when the railroads had a good case. This, at least, was a clear gain. There was yet another even more important one. Under the old law the burden of initiative or proof on all cases appealed, rested upon the Commission. This might now be reversed. Penalties formerly did not begin to run until the final decision of the highest court to which appeal was taken, had affirmed the validity of the Commission's order. Carriers might continue to disobey with impunity throughout the period of protracted litigation. But now a penalty of $5,000 a day for each day's violation of the order, began at the expiration of thirty days. The initiative to secure relief from this order must now come from the carrier. It, and not the Commission, became the petitioner before the courts. A speedier adjudication of contested cases might far more confidently be expected under such conditions. But the grounds, legal or economic, upon which such determination of the reasonableness of the Commission's orders must rest, were, unfortunately, as we have seen, left open for judicial interpretation in the course of time.

The railroads won a decided victory in one other bitterly contested detail of the relation of the Commission to the courts. The new law still left the old rate or practice of which complaint had been made, in effect without penalty pending the review of the case. The administration bill would not have permitted restraining orders to issue until the Commission's decision had been held unreasonable in formal review. The point appears to have been decided by Congress upon economically unjustifiable grounds. The interval of time between the Commission's decision and the final settlement of the case might be considerable. Under the old conditions, the carriers had imposed the burden of disputed rates upon the public. The importance of this point may be illustrated by the fact that during the protracted litigation in the Chicago Terminal Charge case, finally settled in 1909, the sum involved for this period alone amounted to $3,000,000. Was this fair? The real disputants after all were not the government and the railway company. The Commission was supposedly acting impartially as an umpire. Such being the case, unless it were shown that greater injustice would result from the change, the natural condition would seem to be this; that in cases of dispute the decision of the umpire, and not of the bigger contestant, should prevail until final settlement of the cause. This would seem to be the obvious, the natural and the just conclusion from the premises.

But, the railroads contended, suppose the Commission should order a rate reduced, as in the Maximum Freight Rate case; put a lower tariff into effect; and then the courts should ultimately decide that the original rate ought not to have been disturbed at all. The railroad meantime would have suffered a corresponding loss of revenue on all traffic carried at the low rate. This would certainly be a hardship, and incontrovertibly unjust. But would it be more so than that the shipper should unjustly have borne the burden in the contrary case? As matters then stood, the public was compelled to pay the high rate, even if the courts afterward decided it to have been unreasonable. The railway as an interested party enjoyed the benefit of the doubt, and imposed the burden of proof upon the public at all times. Would it not have been more in consonance with justice, that the government, an impartial umpire, should temporarily lay the burden upon that party against whose contention the greatest reasonable doubt existed?

The only just remedy would seem to be one which would insure final recovery for unreasonable rates, by whichever party paid, during the uncertain period of adjudication. One of the principal objections of the railways to the proposed change arose at this point. Large corporations are more responsible parties at law than most individual shippers. Suppose, through an unjustly low rate, a railway had suffered loss of revenue; could it as readily recoup itself by suits for damages against scores of shippers, large and small, as could the latter, in the contrary case, recover back from the railway company? This cogent argument suggested a compromise measure. Why not permit the original railroad rate to continue in force, as before, pending final adjudication; but require the carriers to give bond for prompt repayment of any surplus charges over those finally sanctioned by the courts?[610] This would have left the business of rate making in railway hands; and yet have afforded a substantial remedy for the disputatious shipper.