Railroads: Rates and Regulations

by William Zebina Ripley

The last of this batch of Supreme Court decisions was mainly a question at law, namely the right of the Commerce Court to enjoin the enforcement of an order of the Commission concerning certain allowances for lighterage and terminal service on sugar in New York harbor.[721] The judicial poise of the Supreme Court was here evidenced in its affirmation of the right of the Commerce Court to issue the injunction. The plain purpose of the law in setting up this intermediate tribunal as a safeguard against abuse of administrative authority was given effect; but it was ordered, nevertheless, that the case be remanded, to be disposed of on its merits before the Interstate Commerce Commission, the forum selected by Congress for that purpose.

The grist of cases appealed to the Commerce Court may profitably be divided for discussion into two groups, namely, those which clearly concerned questions of law and those in which matters of fact, or economic conclusions based thereon, were primarily at stake. The first group of purely law cases need detain us but briefly. There could be little doubt about the necessity of judicial review of law findings of the Commission. The best illustration is afforded by the first decision of the Commerce Court to be reviewed by the Supreme Court of the United States.[722] Inland water carriers were not placed under the jurisdiction of the Act to Regulate Commerce by the Mann-Elkins amendments of 1910, except in so far as they were joined in control with railroads or might enter into arrangements for continuous shipments with carriers by land. But the Commission, having always required railroads to file accounts covering both their local and interstate business, called upon the carriers on the Great Lakes to render similar statements as to their entire traffic, whether subject to Federal control or not. This the water lines refused to do. The Commerce Court, in overruling the Commission, did not question the power of Congress to require such accounts, but held that it was its intention to confine publicity to that portion of the lake traffic over which the jurisdiction of the Commission actually extended. It thus appears that the law point was doubly important; inasmuch as its determination affected not alone the enforcement of publicity for water lines but also of all carriers by land, so far as their intrastate business was concerned. Fortunately the Supreme Court, in sustaining the Commission, held that the Commerce Court had erred in confusing "knowledge" of intrastate business with its "regulation." As to the former, the authority of the Commission was fully upheld. This and the important question upon which the entire Intermountain rate controversy rested, namely, as to the authority of the Commission to prescribe relativity of rates,[723] were the most important points of law at first raised before the new tribunal. Other legal questions decided by the Commerce Court—generally in favor of the railroads, be it observed—were: whether reparation might be claimed for an unreasonable rate when the burden had been already passed on to the consumer;[724] whether the Nashville Grain Exchange might lawfully intervene in proceedings before the Commission under the liberal terms of the law of 1910;[725] whether "separately established rates" applied by a carrier to through traffic when there is a through rate but no joint rate are matters of interstate commerce or not;[726] as to the limitations by law of the right of carriers to refund overcharges to shippers;[727] and whether the Union Stockyards Company was a common carrier engaged in interstate commerce, and thus subject to control as to preferential treatment of shippers.[728] However these cases might be finally decided by the court of last resort, there could be no conflict of powers between the Commerce Court and the Commission in regard to such matters of law. The real bone of contention between the two bodies—administrative and judicial, respectively—was the question of their respective powers outside the field of law.

Before leaving the disputes over law points, we may profitably consider one further case, important because of its bearing upon the determination of reasonable rates. This occurred in 1911 through a revival of the old Maximum (Cincinnati) Freight Rate case of 1896.[729] It will be recalled that this involved the relative rates to southern centres from eastern and middle western cities.[730] In the original case in 1894, the Commission held that the rates from Cincinnati were too high by comparison with the rates from New York; ordering those for first-class freight, for example, to be reduced from seventy-six cents to sixty cents per hundred pounds. The Supreme Court directed a dismissal of the bill of complaint, on the ground that the Commission had no authority to establish rates for the future. This defect in the law being remedied by the amendment of 1906, the Commission, upon a new complaint, made a second order in 1910. This differed from its earlier decision in prescribing a reduction of the rate from Cincinnati from seventy-six cents to only seventy cents, whereas the first decision had ordered it reduced to sixty cents per hundred pounds. The Cincinnati shippers, not content with this reduction, then promptly appealed to the Commerce Court for a review of the case. The proceeding was unique, therefore, in that the appeal to the Commerce Court was taken, not by the carriers but by shippers who complained that the rates established by the Commission were too high. The Commerce Court in sustaining the order of the Commission, therefore, in reality acted in favor of the railroads, being thereby consistent with its general attitude of conservatism. But its right to take cognizance of such questions was denied by the Supreme Court. Thus, in all probability, this famous and protracted litigation was brought to a close.

The specific law point in this Cincinnati case was as to whether the reasonableness of a rate should be determined in the light solely of its effect upon the particular carrier concerned; or whether the result for other competing lines and for the entire territory served, should also be taken into consideration. The Cincinnati Southern Railroad extended as a short and direct route 336 miles due south to Chattanooga. It was neither expensive to construct, to maintain or to operate. It was the first in the field; having been constructed by the city of Cincinnati to reach the southern markets. It was not burdened by unremunerative branch lines. Its net earnings amounted to over forty per cent. upon the capital stock. Other competing railroads between the same points were one-third longer and were otherwise burdened by the necessity of maintaining unprofitable branches. These other roads could not be so economically operated. But they had voluntarily entered the field in competition after this direct line was constructed, and they had elected to continue therein. The rates established, however, for the Cincinnati Southern,—the short line,—naturally fixed the rates at which these others had to participate in the traffic. At the rate of seventy cents, prescribed in this second order of the Commission, all the carriers concerned could make a living. The short line alone, presumably, could have endured the rate of sixty cents as prescribed at first. Was it lawful, however, to decide a complaint preferred against a particular most-favored railroad by a city which built it to attain a certain object, upon the basis of the effect of such rates, not upon this road but upon others subsequently built and less fortunately situated? To do so would, of course, enable the most-favored carrier to prosper exceedingly; even more so than it did then. But these higher rates would, most unfortunately, thwart the very purpose animating its construction. The Commission, sustained by the majority of the Commerce Court, adopted the latter view.[731] A dissenting minority, on the other hand, presented strongly the opinion that under such special circumstances, in the determination as to reasonableness, no right existed for considering the effect of a rate upon other roads than the particular one against which the complaint lay. The Supreme Court in affirming the sole authority of the Commission to pass upon such issues, nevertheless, left this detail concerning the determination of reasonableness of rates for possible reargument in future.

Attention may be now directed to the controversy as to the seat of authority, not over law points, but concerning distinctly economic issues. A typical case before the Commerce Court concerned rates from New Orleans to several competing cities on the line of the Louisville & Nashville Railroad.[732] An interesting phase of local discrimination appeared. The accompanying map discloses the situation. Normally the through rate from New Orleans to Montgomery (the long-distance point) would be less than the sum of the local rates from New Orleans to Mobile (the intermediate point) and then from Mobile on to Montgomery. This would conform to the general rule, which is based on the simple fact that through rates, being competitive, are usually forced below the level of local charges, commonly unaffected by such competition. In this case the situation was reversed. Water competition affected the local rates, both into Mobile from New Orleans by sea on the one side, and then up the Alabama to Montgomery by river steamer on the other. But such water competition did not apply to the through rate, probably because through shipment by water would necessitate a transfer en route from a gulf steamer to a river boat at Mobile. Thus in this case it came about that local competition was keener than the rivalry as to through traffic. The Louisville & Nashville, nevertheless, had secured the bulk of the business to Mobile by reason of the low local rates by rail which had been in effect for many years, even after practical elimination of the water lines. The situation was certainly anomalous, from the viewpoint of cost of service by rail alone; in that the freight rate was higher on goods sent to Montgomery direct than when shipped on a combination of local rates on Mobile. This situation, it is apparent, enabled Mobile jobbers to buy goods in New Orleans and actually lay them down in Montgomery for less than the freight charges to the Montgomery dealers who were on the spot. The same situation prevailed at Pensacola.

The immediate cause of dispute was the promulgation by the Commission in 1907, under the new powers conferred by the Hepburn Act, of a rule that through rates must not exceed the combination of locals between the same points. To comply with this rule, the Louisville & Nashville, in this instance, faced the alternative either of reducing the through rate from New Orleans to Montgomery to the sum of its local charges or else of raising one or both of the latter. The railroad naturally chose the latter course—now enabled to do so with safety as the boat lines had long since been put out of business. It advanced its local rates from New Orleans to Mobile sufficiently to make the new combination of local charges equal the through rate to Montgomery. The Commission, on complaint of Montgomery, suspended this advance,—seeking to compel the railroad to even things up, not by advance of the local charges but by a reduction of the through rate. This, it is obvious, would relieve Montgomery of the discrimination as against Mobile of which it complained. As to none of the facts above outlined, was there dispute between the court and the Commission. The controversy turned solely upon which of the two remedies should be chosen to meet the situation. Were the through rates unreasonably high? This was the Commission's contention. If so, equalization should be attained by their reduction. Or, on the other hand, were the local rates unreasonably low? If so, they might be evened upward with propriety. This was the contention of the Commerce Court, leading it to set aside the order of the Commission. Which was the body competent to pass upon such an issue? The Supreme Court had to be called upon to decide. And in the meantime there was the same old story of delay, while irreparable loss to shippers went on.

In another instance,—the California lemon case,—[733] the issue was even more sharply drawn between the Commission and the Commerce Court. The latter, it was averred, not even content to draw its own conclusions in matters of fact, had made an "attempt to look into the mind of the Commission for the purpose of ascertaining the reasons on which its order was based." The case dated from 1909, when the blanket rate from the entire territory east of the Rocky mountains was advanced by the railroads from $1.00 to $1.15. This action followed the imposition of a high protective duty on lemons in the Payne-Aldrich tariff. After careful investigation the Commission, reviewing the whole matter of rates upon citrus fruits, ordered the lemon rate to be reduced once more to $1.00. Appeal was promptly taken to the Commerce Court, which set aside the order as beyond the scope of authority delegated by Congress. The court held that the Commission had sought so to adjust rates as to afford protection to the California lemon industry against foreign competition, especially from the growers in Sicily; in place of confining its attention to the "intrinsic reasonableness" of the transportation charge. The gage thus thrown down was promptly taken up by the Commission in a second opinion, rendered within two months of the injunction granted by the Commerce Court. This time it exhaustively considered all phases of the cost and manner of transportation for oranges and lemons and re-affirmed its opinion that the rate of one dollar per hundred pounds was reasonable. At this writing the matter rests there. What the Commerce Court will do, remains to be seen. The case, as re-stated by the Commission, is masterly in its discussion of the responsibilities laid upon it by the law. "Is the country to be treated as a whole for commercial purposes, or shall it be infinitely divided?"

The Intermountain Rate cases, discussed in the next chapter as a phase of the long and short haul question, illustrate even more clearly these conflicts between the court and the Commission on matters of economics. But they introduced no new legal technicalities. They merely emphasized the critical nature of the controversy, so far as it concerned the larger constitutional question of separation of powers between the three main branches of our government.