Railroads: Rates and Regulations

by William Zebina Ripley

Immediately following the Illinois Central decision another was rendered concerning somewhat the same economic issue, namely methods of supplying coal cars on the Baltimore and Ohio.[669] The following quotation is significant of what promises to be the line of reasoning in future.

"In ... the ... case just decided, it was pointed out that the effect of the section was to cause it to come to pass that courts, in determining whether an order of the Commission should be suspended or enjoined, were without power to invade the administrative functions vested in the Commission, and, therefore, could not set aside an order duly made on a mere exercise of judgment as to its wisdom or expediency. Under these circumstances it is apparent, as we have said, that these amendments of 1906 add to the cogency of the reasoning which led to the conclusion in the Abilene Case, that the primary interference of the courts with the administrative functions of the Commission was wholly incompatible with the act to regulate commerce. This result is easily illustrated. A particular regulation of a carrier engaged in interstate commerce is assailed in the courts as unjustly preferential and discriminatory. Upon the facts found, the complaint is declared to be well founded. The administrative powers of the Commission are invoked concerning a regulation of like character upon a similar complaint. The Commission finds, from the evidence before it, that the regulation is not unjustly discriminatory. Which would prevail? If both, then discrimination and preference would result from the very prevalence of the two methods of procedure. If, on the contrary, the Commission was bound to follow the previous action of the courts, then it is apparent that its power to perform its administrative functions would be curtailed, if not destroyed. On the other hand, if the action of the Commission were to prevail, then the function exercised by the court would not have been judicial in character, since its final conclusion would be susceptible of being set aside by the action of a mere administrative body. That these illustrations are not imaginary is established not only by this record, but by the record in the case of the Illinois C. R. Co. v. Interstate Commerce Commission."

These opinions, expressly recognizing the constitutionality of the free and full exercise of legislative power delegated by Congress beyond the power of the courts to review, are of fundamental importance. Had they been rendered a few days earlier, as we shall see, they might have prevented the supposed necessity of setting up a new commerce court by law in 1910. They would certainly have abridged the Congressional debates over points of law. Under these decisions, only authority and constitutional rights may be reviewed. The same issues were raised in the Portland Gateway opinion in 1910, soon to engage our attention, concerning the Commission's right to designate through routes for passenger travel. Over-ruling the Commission in this instance, however, the narrow right of review by the courts, as laid down in the Illinois Central case, is somewhat widened by an apparent refusal to treat the Commission's findings as to fact as conclusive in determining its jurisdiction; however conclusive it may regard them in other respects. A shady byway of judicial encroachment is thus rather surreptitiously indicated.

A more satisfactory re-affirmation of the disposition of the Supreme Court to allow a wide field and a free hand to the Commission in the exercise of its offices, is to be found in a third opinion, the so-called Burnham, Hanna, Munger case, also rendered in 1910.[670] Certain Missouri river cities complained that rates from the Atlantic seaboard were unduly high by comparison with those to cities in Central Traffic territory, namely between the Mississippi river and Buffalo. The Commission held the complaint well founded; and ordered a readjustment, by reduction of that portion of the rate west of the Mississippi. Thus, by leaving the rates to the Central Traffic Association cities unchanged, it materially benefited those along the Missouri river by comparison. Omaha and Kansas City were brought substantially closer to the seaboard as compared with Chicago and similar trade centres. The western roads, alone affected by this order, attacked it in the courts as an assertion by the Commission of power "artificially to apportion out the country into zones tributary to given trade centres to be pre-determined by the Commission, and non-tributary to others." The Supreme Court, in upholding the order, held that it would indeed be an abuse of power to raise or lower rates for the sole purpose above-outlined. Nevertheless, if the Commission were seeking primarily to correct rates inherently unreasonable, such action would not be invalidated by incidental effects upon trade conditions. The Supreme Court found, therefore, that the order in question was within its power, as thus defined, and, governed by the reasoning in the Illinois Central case, held that the Commission's decision could not be judicially reviewed upon the merits.

The line of judicial interpretation preceding the Mann-Elkins law of 1910 has been even more rigidly followed by the Supreme Court since that time. The most important decision, perhaps, was rendered in 1912. This concerned the absolute reasonableness of rates on fir lumber from the northern Pacific forests to the Middle West.[671] But it involved the additional consideration that the transcontinental roads had in a measure guaranteed an economic status to lumbermen under which they had made large investments, which, as they claimed, were jeopardized by an increase of freight rates in 1907. Two points were raised. One concerned the reasonableness of the new rates per se; the other their reasonableness in the light of their effects upon an established yet dependent industry. It was the old issue, in brief, between cost of service and value of service. A decision upon the latter basis alone might have resulted, as in a similar action, in the Burnham, Hanna, Munger case, just outlined, in decreeing an extension of authority over commerce by the Commission. Fortunately the court found otherwise in these lumber cases. It was able to uphold the order of the Commission, without deviation from the path of reasoning laid down in the Illinois Central opinion. The decision concludes as follows:

"Considering the case as a whole, we cannot say that the order was made because of the effect of the advance on the lumber industry, nor because of a mistake of law as to presumptions arising from the long continuance of the low rate when the carrier was earning dividends, nor that there was no evidence to support the finding. If so, the Commission acted within its power, and, in view of the statute, its lawful orders cannot be enjoined."

The unsatisfactory element in this decision is its implication that the Commission must be governed by cost of service principles in fixing reasonable rates. For to admit the plea of the lumbermen, that their industry could not stand the increase, would obviously lend an ear to the principle of value of service. May the railroads properly adopt either of the two principles in fixing their tariffs, while the Commission is confined to cost of service alone? Any such conclusion would tend to paralyze regulation. And Congress would certainly in a moment fly to the rescue with amplification of the statute.

This Pacific coast lumber opinion also contains the following succinct statement of the grounds upon which alone the Federal courts may review the orders of the Commission:

"There has been no attempt to make an exhaustive statement of the principle involved, but in cases thus far decided, it has been settled that the orders of the Commission are final unless (1) beyond the power which it could constitutionally exercise; or (2) beyond its statutory power; or (3) based upon a mistake of law. But questions of fact may be involved in the determination of questions of law, so that an order, regular on its face, may be set aside if it appears that (4) the rate is so low as to be confiscatory and in violation of the constitutional prohibition against taking property without due process of law; or (5) if the Commission acted so arbitrarily and unjustly as to fix rates contrary to evidence, or without evidence to support it; or (6) if the authority therein involved has been exercised in such an unreasonable manner as to cause it to be within the elementary rule that the substance, and not the shadow, determines the validity of the exercise of the power."