168 F. 317 | U.S. Circuit Court for the District of Western Missouri | 1909
(after stating the facts as above). 1. Each of the 18 railroad companies is doing a general railroad business within the state of Missouri, all but one doing both a state and an interstate business. Under the general railroad statutes of the state, the railroads were classified under three classes, the one class being allowed to charge for passenger rates three cents per mile, and the other two classes, four cents per mile. Freights likewise were classified with certain maximum rates. The Railroad Commissioners of the state were authorized to fix and establish rates, not in excess, however, of these maximum rates fixed by statute.
In the year 1905 the Legislature of the state, by statute which took effect June 16, 1905, provided for certain maximum charges. On the day the statute took effect each of the railroad companies filed their bills of complaint herein against the Attorney General and Railroad Commissioners, asking that they be enjoined from enforcing the statute upon the ground that the rates thus fixed were not remunerative, resulting, as'is alleged, in the taking of their property without compensation. A restraining order in each case- was issued, and within a few days thereafter, upon notice and full hearing, a temporary writ of injunction as prayed was issued. Several months thereafter the cases were referred to a special master to take the evidence and make his findings of fact and report the same to the court.
In 1907 the Legislature of the state repealed the statute of 1905 and enacted a substitute therefor, which act was to take effect in June, 1907. . On or about the day the statute was to take effect, each of the complainants filed its amended and supplemental bill, setting forth the pendency of the actions and the action theretofore taken by the court therein, and asking that the enforcement of the statutes, one of which fixes certain maximum freight rates, and the other passenger rates of two cents a mile, be enjoined on the ground that such rates were not remunerative, but confiscatory, and, if enforced,
The Attorney General and his associates insisted that an entirely new situation was presented, and insisted that the proceedings were instituted in the state courts in advance of filing the supplemental bills herein, and insisted that the state courts had first acquired jurisdiction of the subject-matter, which would be to the exclusion of any action by this court. The railroad companies insisted that the general subject-matter was covered by the original bills of complaint and defendants’ answers thereto, and that the statutes of 1907 should be carried forward by supplemental bill. It was likewise most earnestly contended that the actions in this court were in effect against the state of Missouri, in contravention of the eleventh amendment to the Constitution of the United States. But this court, after the fullest argument and consideration, adjudged that this court was not seeking to take jurisdiction against the state of Missouri as a state, and that the very office and nature of the supplemental bill, as recognized from time immemorial by the equity practice, required this court to take cognizance of the supplemental bills and proceed with the litigation. 161 Fed. 419.
In June last, by agreement of parties, the court revoked the previous order of reference to the special master, and directed him to return to this court the evidence he had already taken, and ordered that the case be tried upon oral testimony and such documentary evidence as the respective parties might offer. The evidence has been concluded, and the cases have been fully argued, and are now for final decree.
2. Many believe that the better and safer practice would be to confine all litigation to the state courts wherein is involved the validity of rates to be observed by railroads and other public utilities, when such rates are fixed by ordinances of a city or statutes of a state. It is insisted that this would be more deferential and more in a spirit of comity to first allow the state courts to pass upon such questions. It is urged that the decree of a state court could be carried to the Supreme Court of the United States for final decision.
This is plausible and convincing to men who have not thoroughly considered the question. It is plausible, because such a course can be followed. But every thoughtful and patriotic man well knows and believes in the proposition that the Supreme Court of the United States should ultimately pass upon all questions arising under the Constitution of the United States. And the question whether rates thus fixed by ordinance or statute are confiscatory or remunerative is one arising under the Constitution of the United States, and that question is wholly a question of fact, and is no longer an open question as to the law. This being so, the question cannot be passed upon by the Supreme Court of the United States on these questions of fact when there is a conflict in the testimony. Section 709 of the Revised Statutes of the United States (U. S. Comp. St. 1901, p. 575) is the only authority for taking a case from the highest court of a
It follows that all efforts to enforce the trial of such questions in state courts would result, if successful, in having the state court finally determine when the national Constitution, as the supreme law of the land, shall be applied. The Supreme Court of the United States is the tribunal to finally determine all questions, including those of fact, wherein the national Constitution is involved.
3. Upon their face, the statutes in question are with reference only to state commerce. But it is urged that they are void because in effect they directly have to do with interstate commerce. The facts are as follows:
Between Kansas City and the Joplin mining district there are three lines of railway. The Missouri Pacific between these points is wholly within the state, and the other two partly within and partly without the state, and therefore, between the two Missouri cities of Kansas City and Joplin, are doing an interstate business under the decision of Hanley v. R. R., 187 U. S. 617, 23 Sup. Ct. 214, 47 L. Ed. 333. The same situation exists between the cities of St. Joseph and Kansas City, two of the roads being wholly within the state between the two points, and two partly within and partly without. And between the cities of St. Joseph and St. Eouis such situation is emphasized, the Burlington Road being wholly'within the state between the two cities, and the Missouri Pacific a part of the distance being within the state of Kansas. The facts are that, when the Missouri statutes lowered the passenger rates on the roads wholly within the state between said points, the interstate roads between said points were compelled by competition to lower their rates to correspond with the state rates thus fixed by statute. By reason thereof the argument is that the Missouri statutory rates control the interstate rates
This presents a great question, and one which is far-reaching, and in importance cannot be overstated. In the great case of Ex parte Young, 209 U. S. 123, 28 Sup. Ct. 441, 52 L. Ed. 714, 13 L. R. A. (N. S.) 932, decided but last year, the Supreme Court in its majority opinion, in speaking of this, said: “The question is not, at any rate, frivolous.” But the point was not decided. But here the question is fairly and sharply presented for decision, with no precedents directly in point.
From the days of the Confederacy to the present time, there have been clashings between the national government and the states, owing, in part to the ever-changing trade and commerce, and in part to the different schools of belief as to our system of government. And the pendulum will ever move back and forth. Even those who most strongly denounce the Kentucky Resolutions and the doctrine of nullification are often the first to forget that they believe in not only the express but the implied powers of our government as taught by Marshall in McCulloch v. Maryland, 4 Wheat. 316, 4 L. Ed. 579, and that this government is one of the whole people. Such as thus believe are often the first to advocate and rush through, in the form of state regulation, measures for their own state, regardless of the rights of the people of other states. Neither the Ohio river nor any other boundary has been the dividing line. Many of the cases in which state statutes have been declared void by the Supreme Court are statutes requiring a license to sell imported goods, imposing a tax on bills of lading for gold carried out of the state, imposing taxes on alien passengers, imposing taxes on passengers and merchandise carried into or out of the state, taxing drummers, regulating telegrams sent to other states, taxing those who use wharves, requiring inspection of animals for slaughter, and other like statutes in principle. All such statutes have gone down by reason of the commerce clause and the uniform holdings of the Supreme Court.
The commerce clause gives Congress the power to regulate commerce: (1) With foreign nations; (2) among the several states; (3) with the Indian tribes.
As to the first and last, no doubt Congress cannot only regulate, but can prohibit. It- is another proposition whether commerce can be prohibited among the states.
One of the methods resorted to for the construction of constitutional provisions, as well as of statutes, is to- ascertain the then exist
The case of Louisville & Nashville R. R. v. Eubank, 184 U. S. 27, 22 Sup. Ct. 277, 46 L. Ed. 416, comes more nearly sustaining the proposition that the statutes of Missouri impinge upon the commerce clause than any other case that I recall. There the state of Kentucky by its Constitution provided that more should not be charged for a short than a long haul. The company had rates in force from Nashville, Tenn., to Louisville, Ky., which were less than was being charged from points in Southern Kentucky to Louisville. This was held by the Court of Appeals of Kentucky to be in violation of the state Constitution. So that we have a case of a state law, with the decision of the state courts read into it, providing that more shall not be charged for a short haul wholly within the state than for a long haul partly without the state. This must be' so, because the same provision of the Kentucky Constitution when applied to places all within the state was-upheld by the Supreme Court, as will appear from the case of Louisville & Nashville R. R. v. Kentucky, 183 U. S. 503, 22 Sup. Ct. 95, 46 L. Ed. 298.
And the case of Wabash, etc., R. R. v. Illinois, 118 U. S. 557, 7 Sup. Ct. 4, 30 L. Ed. 244, was decided in like manner, because and for the only reason that the Supreme Court of Illinois had so ruled as to read into the statute the objectionable feature.
But the Missouri courts have not so construed these statutes of the state. When they do so decide, then the Eubank and Illinois cases will be the precedents to thwart such legislation as thus construed. In the meantime there is no belief that the Missouri courts will so decide.
The case of Hall v. De Cuir, 95 U. S. 485, 24 L. Ed. 547, is cited by counsel for the railways. Louisiana had a statute requiring carriers to receive and carry passengers without distinction on account of race or color. The steamboat in question plied between New Orleans and Vicksburg, doing both a state and an interstate business. The vessel was duly enrolled and licensed for the coasting trade. The boat had an upper and a lower cabin, the upper for white people, and the lower for colored persons. The plaintiff, De Cuir, was a colored woman, and took passage at a landing in Louisiana for another landing in that state. Being refused admission to the upper cabin solely because she was colored, she was awarded damages in a state trial court, which judgment was affirmed by the state Supreme Court. The Supreme Court of the United States reversed the judgment. Two
“But we think it may safely be said that state legislation which seeks to impose a direct burden upon interstate commerce, or to interfere directly with its freedom, does encroach upon the exclusive power of Congress.”
The state statute, in order to be declared void, must by its terms and recitals interfere directly with commerce to or from another state, or the statute by construction given it by the highest court of the state must so operate in its results. But here we have no such recitals in the statute, and it has not been so declared to mean by the Missouri courts And, while counsel for the railways do not in terms so insist, they in effect urge that the laws of political economy, custom, and convenience shall act as a substitute for Missouri statutes and the decrees of the Missouri Supreme Court. In other words, they in effect, and I believe in language, insist that the rules formulated a third of a century ago for making rates first to the one river, and then between the two rivers, and the laws of competition, shall be regarded as the equivalent of statutory law. I am mindful that it is believed by many that to not recognize these laws of trade will impair, if not destroy, the great cities like St. Joseph, Kansas City, and St. Louis. I am mindful of the fact that between the two rivers the distance by the Burlington is but 198 miles, with other roads 300 miles or more, and that the shorter road necessarily fixes the rates between all points on the rivers. But competition does that, and the statutes are silent. The statute may or may not be unfair. I am considering the commerce clause as to its bearing on statutory enactments, and am not forgetting that many valid statutes a.re unfair, and some even unrighteous.
I have believed heretofore that the rights and duties, powers and prerogatives of any one state are the same, neither more nor less, than those of any other state, and this is so whether wc compare two or more of the original thirteen, or one of the older with one of the newer states. But in effect the argument of counsel for the railways is that this is not so. Missouri and Maine were admitted into the Lnion the same day by the same enactment. Maine has but its percentage of commerce into and out of the state, with no trans-state business by reason of its geographical position, and has no large city. Missouri is a central state, with large cities, one of which is third in importance as a wholesale center, and second to but few as a manufacturing place. St. Louis and Kansas City are the gateways for bmh commerce and passengers, surpassed only by one or
It may or may not be true that it would be for the better to have all the interstate railways of the country, doing both a state and an interstate business, under one supervising authority,' such as a commission, regulating both classes of business. But under the commerce clause can this be done? Employer’s Liability Cases, 207 U. S. 463, 28 Sup. Ct. 141, 52 L. Ed. 297; Wabash R. R. v. U. S. (C. C. A., 7th Circuit) 168 Fed. 1; 9 Columbia Law Review, 38; U. S. v. Colorado, etc., R. R. Co. (8th Circuit), 157 Fed. 321, 85 C. C. A. 27, 15 L. R. A. (N. S.) 167.
Difficult as these problems are, they can and will be solved, and for the right. Pessimists discourage. However, their statements that everything is wrong, and will grow worse, must be heavily discounted. Because railway systems reach into many states, and are units, crossing state lines arbitrarily fixed, a hopeless condition is not thereby brought about. It is'not true, as some say, that each state can lower the rates to confiscation, as all know who have read the decisions to any purpose. I believe as firmly as does anyone in the power and the rights of our general government, and, when the clashings come as to the power of the state and the general government, let the doubts be solved in favor of the government. But as to some matters there are no doubts, and two of these are that the Constitution is the supreme.law of the land, and that as to all local matters the states are in control. All should insist upon both.
4. It is contended that the statutes are void because of the excessive penalties; reliance being based on the case of Ex parte Young, 209 U. S. 123, 28 Sup. Ct. 441, 52 L. Ed. 714, 13 L. R. A. (N. S.) 932. Until the decisions in the Minnesota cases (Chicago, M. & St. P. R. Co. v. State of Minnesota, 134 U. S. 418, and 467, 10 Sup. Ct. 462, 33 L. Ed. 970) it was an open question whether a review of rates fixed by a Legislature, or a commission acting under a legislative authority, could be had by. the courts. The Minnesota statute authorized a commission to fix certain rates, which rates thus fixed should be final and conclusive. The Supreme Court of the state adjudged that such rates were not merely advisory, nor prima facie reasonable, but conclusive, and not subject to review by the courts. State v.
In time the Legislature of Minnesota believed it could in another way make its determination as to rates conclusive and beyond the powers of the courts to interfere. This was attempted by providing penalties for violations, to that which was equal for one week’s business to life imprisonment for all officers and agents, and confiscation of all the railway property, if resistance by litigation was made, and such litigation failed. The decision in Ex parte Young followed, the Supreme Court failing to see the distinction between a statute providing that agents should become felons with life imprisonment pronounced, and all corporate property seized and confiscated, if an unsuccessful contest should be made in the courts.
The statute of Missouri of April 15, 1905 (Laws 1905, p. 102 [Ann. St. 1906, § 119-1-]), covered by the original bills herein, fixes the only penalty for violations by allowing treble damages arid a reasonable attorney’s fee. Citation of authorities need not be made to sustain such penalties. And in any event that statute has been repealed. The two-cent passenger rate statute of February 27. 1907 (Laws 1907, p. 170). provided for a penalty of not less than $100 nor more than £500. What shall be deemed a complete or - separate offense is not defined. The freight rate statute of March 19, 1907 (Laws 1907, p. 171), provides for no minimum penalty, but the same shall be a fine unf exceeding $5,000. Imprisonment is not designated under either statute, unless by some general statute for the nonpayment of the fine; while under the Minnesota statute the penalty for each offense was fixed at a fine of not more than $5,000, or imprisonment in the state prison for not more than five years, or both.
This objection to the Missouri statutes is without merit.
5. Evidence is before the court tending to show that a large number of men have been discharged from the service of the railroad companies by reason of the reduction of rates. And this fact is urged as one element that should be considered. It is true, before interest can be paid on the bonded debts, that operating expenses, including labor, and materials largely made up from labor, must be paid. And, as of course, all of these, including interest, must be paid before dividend checks arc issued. The states should and usually do attempt to legislate in the interest of laboring men. And if the legisla - tion under consideration is hostile to their interests, the Legislature, and not the courts, have the responsibility. I agree to all that was said in argument in their beha.lf. I agree that in sobriety, and intelligence, and faithfulness to duty they are surpassed by no other class of men. Their dangers are great, and the people owe them much. But if employes are reduced in number, or now or later on their compensation will be reduced, and if such results are by reason of legislation, then their remedy, if they have one, must be sought elsewhere than in the courts.
Thus it is that the Supreme Court has held that in some instances state legislation is valid which requires through and interstate trains to stop at important towns to let off and take on passengers, state and interstate. Mississippi v. R. R., 203 U. S. 335, 27 Sup. Ct. 90, 51 L. Ed. 209; L. S. & M. S. Ry. v. Ohio, 173 U. S. 285, 19 Sup. Ct. 465, 43 L. Ed. 702; Gladson v. Minnesota, 166 U. S. 427, 17 Sup. Ct. 627, 41 L. Ed. 1064. And in other cases such state legislation has beén declared invalid. R. R. v. Illinois, 163 U. S. 142, 16 Sup. Ct. 1096, 41 L. Ed. 107; R. R. v. Illinois, 177 U. S. 514, 20 Sup. Ct. 722, 44 L. Ed. 868; R. R. v. Whartori, etc., 207 U. S. 328, 28 Sup. Ct. 121, 52 L. Ed. 230. All those cases turned on the facts, and the question of fact was as to the service the public should have.
Of course, the service rendered and the compensation received should have a proper relation. The expenses incident to, and that can be specifically located in connection with, a particular train, are not all the expenses to be accounted for, as will hereafter be discussed. But it is true that without reasonable compensation there cannot be reasonable service. It is common information that the public in many localities is demanding increased service. But this phase of the question is so indefinitely covered by the evidence, and is so general in the very.nature of the question, that no decree can be rendered herein that will cover the proposition.
7. It is urged that these statutes are void because they are not enforceable as to some of the railway companies within the state, and the claim is that,'being void as to some, they are void as to all. It is conceded in argument that as to two roads, the St. Rouis & Hannibal, and the Kansas City, Clinton & Springfield, the rates fixed are not compensatory. .The state’s experts agree to' this. Usually, statutes fixing rates for railroads to observe, classify the roads according to their earning power, and fix the highest rates for those earning the least. But this was not done, except that railroads of a length not greater than 45 miles, not owned nor leased nor controlled by a trunk line, may charge four cents per mile per passenger. The sole theory upon which rates are adjudged void can only be that the rates are not compensatory, and, to so decree, the court must have the complaint of each and every road making the claim. Complainants have recognized this by their counsel in bringing as many independent actions as there are railroads complaining. Whether there are any other railroads within the state than these 18 complainants, neither the allegations of the pleadings nor the evidence show. Perhaps the court should take judicial notice of whether there are other roads or not.
The record shows that two of the cases, those brought by the Rock Island and the St. Louis, Kansas City & Colorado, have been consolidated for trial purposes, the one road having become the owner of the other since the litigation commenced. The record further shows that nine cases were tried, and that the other eight cases were to be covered by decrees the same as decrees in some of the cases tried, the particular cases being designated by the record. All this shows to my mind that complainants’ counsel rightly conceived the theory upon which these bills of complaint were presented. The record shows further that before the master there were many attempts for position on both sides as to what cases should be tried, the Attorney General and his associates desiring that the Burlington and two other strong roads having the short lines should be heard, and the others either continued, or that decrees in the other cases should follow the decrees in the cases of the strong roads. Counsel for the railroad companies were desirous of trying the cases brought by some of the other companies, or, at least, that the roads should be classified into three or four classes, but that the court should hear only one case of each class. This emphasizes the theory that was in counsel’s minds all the way through this litigation.
In one respect, at least, it seems to me that these statutes should be declared valid or void as the facts may warrant, as has been frequently done with reference to ordinances of cities. The ordinances of cities regulating speed both for trains and teams are declared unreasonable, and therefore not enforceable as to some parts of the city, and valid and enforceable as to other parts of the city not so densely populated. These statutes are not void upon their face. The company which alleges that they are void must make a showing that the rates, considering all the facts and circumstances, are not compensatory as to that particular road, failing in which, the statute will be enforced, and successful in which, as to that particular roaO the statute will not be enforced.
The case of R. R. v. McKendree, 203 U. S. 514, 27 Sup. Ct. 153, 51 L. Ed. 298, is not in point, because there the question was with reference to an order of the Secretary of Agriculture which was void iu part and was not separable, it not being possible to eliminate the valid from the void features.
The Cotting Case, 183 U. S. 79, 22 Sup. Ct. 30, 46 L. Ed. 92, was decided by reason of an entirely different principle. The statute in that case on its face shows that a company doing little business was not to be regulated, while the company doing much' business was made subject to the statute. And by reason of that vice the statute was held void. That the Cotting Case is not in point, see Consolidated Coal Co. v. Illinois, 185 U. S. 207, 22 Sup. Ct. 616, 46 L. Ed. 872; McLean v. Arkansas (January 4, 1909) 211 U. S. 539, 29 Sup. Ct. 206, 53 L. Ed. -.
The Connolly Case, 184 U. S. 510, 22 Sup. Ct. 431, 46 L. Ed. 679, was likewise decided, in part at least, because the statute did not ap
The case of Ju Toy, 189 U. S. 253, 25 Sup. Ct. 644, 49 L. Ed. 1040, the Trade Mark Cases, 100 U. S. 82, 25 L. Ed. 550, and the recent case of Howard v. R. R., 28 Sup. Ct. 141, 207 U. S. 463, 52 L. Ed. 297, were decided by reason of this same principle, namely, as to whether the statute is separable or not.
Therefore the holding is that these statutes are not void upon their face, and cannot be declared void for the one reason that the evidence shows they are not enforceable as to two or more roads.
8. The state earnings are made known to a certainty, concerning which the experts on both sides agree. And whether in earning them the company gains a profit, or sustains a loss, is dependent upon the expense in making such earnings. Some of these expenses can be definitely specified, but others, like maintenance of way, salaries of all officers, including ticket agents, handlers of freight, terminal expenses, compensation of many laborers, and other .things, are all occasioned for carrying both freights and passengers, state and interstate, and miscellaneous of each. And herein is the problem how to make the apportionment.
The track mile, or train or car mile, does not furnish the solution, because every one agrees that neither of those methods will do, and no one of the experts or counsel on either side asks for such a solution. Therefore there is and can be but one of two methods adopted. Neither can be relied upon if mathematical precision is demanded. But the one more nearly correct and satisfactory is the one to be adopted. And that is what is done in litigation concerning injuries and death; the age, earning power, loss of time, can be fixed, some with certainty. How many years the party had before him is fixed by mortality tables, wholly unreliable as to the individual, but fairly certain as to the average.
In taking property under the power of eminent domain, we know the assessed value, the amount of taxes, the rents, and maintenance. Some or all these elements are put in evidence, while all other is matter of opinion, concerning which witnesses and jurors differ. And so it is in most litigation.
9. The theory to now recognize must be either the proportion of earnings, state and interstate, or ton and passenger mile. That it costs more to carry either freight or passengers proportionately for a short than a long haul is undoubtedly true, although all the elements are not more expensive. Rocal trains generally have poorer and older and cheaper cars and locomotives. But their speed is greater between stations. There are many stops. They carry proportionately much greater dead weight. ■ They do much switching, and there are many delays. Their crews are paid more proportionately to distance and what is carried. The trains are daylight trains only. With freight the car load and number of cars are much the less, and from station to station grows less, and is largely made up of single parcels, boxes, and individual shipments from as many consignors to as many consignees, first put in one station, and at the end of the trip into an
In nearly every instance enumerated, as to the interstate, which includes transstate, the reverse is true, although much magnified in my opinion as to terminals, and particularly as to transstate, because in my judgment some of the interstate business has two terminal expenses within the state. The two gateways in Missouri through the one or the other of which a large percentage of business, both interstate and transstate, passes, are Kansas City and St. Louis. And at both of those places the investments are very large, and of course, whether owned or rented, the expense is practically the same. But these terminals are for both. And while I believe the terminal expenses at St. Joseph, Kansas City, and St. Louis as to transstate business are minimized, I do not agree with the experts who claimed that there are none of those expenses. Their cross-examination shows this to be a mistake.
But from the great weight of the testimony, it can well be said that the ton mile is not reliable, and the revenue is more nearly correct, as showing that it costs more by 25 per cent, to carry passengers, and 50 per cent, to carry freight locally, than it does when interstate. Generally speaking, this is undoubtedly true. There are exceptions, one of which is shown by the Burlington with its three roads from St. Joseph, the one to Villisca, Iowa, another to Crestón, Iowa, and a third to Chariton, Iowa. They are all interstate roads, each with two terminals, but each operating only local and daylight trains. The Wabash illustrates this with roads across the arbitrary state line between Missouri and Iowa. And there are other illustrations, but less noticeable, in the testimony. But all these are exceptions, and the testimony establishes the rule as stated.
The Missouri Legislature has recognized the proposition in all of its rate statutes, and particularly in the statutes now assailed, that it costs more per mile for a short than a long haul. See act approved April 14, 1905 (Laws 1905, p. 104 [Ann. St. 1906, '§ 1.194b]), and the act of April 15, 1905 (Laws 1905, p. 102 [Ann. St. 1906, § 1194]), covered by the original bills herein. The passenger rate statute under consideration fixes a two-ceut fare for all trunk lines, and four cents per mile for a road less than 45 miles in length.
The freight rate statute under consideration, in every schedule recognizes the principle that proportionately there should be more charged for a short than a long haul. For instance, class D allows a charge of five cents per hundred for car load lots for the first 25 miles, and one-half cent for the second and additional 25 miles. And commencing with the statute of Pennsylvania of 1846, chartering the Pennsylvania Road, to the present time, every statute upon the subject fixing
This was so recognized by the Supreme Court of Pennsylvania in the case of Railroad v. Pennsylvania County, 220 Pa. 100, 68 Atl. 677, 15 L. R. A. (N. S.) 108, but not discussed.
In R. R. Co. v. Tomkins (C. C.) 90 Fed. 363, Judge Carland, of the South Dakota district, in passing on the statutes of that state, said:
“This court believes that it is fair and just to first ascertain what per cent, of the total gross earnings in any one year the total local earnings are for that year, and, having ascertained that per cent., to take the same per cent, of the total value of the property as a fair value upon which to fix local earnings.”
The decree was reversed, and, although an equity case, remanded because of a failure to make a material finding. Chicago, M. & St. P. Ry. Co. v. Tompkins, 176 U. S. 167, 20 Sup. Ct. 336, 44 L. Ed. 417. The same case, under the title of R. R. Co. v. Smith (C. C.) 110 Fed. 473, on final hearing resulted in a decree enjoining the rates, and the question of expenses was arrived at by the extra cost and on the revenue theory.
The case of R. R. Co. v. Keyes (C. C.) 91 Fed. 47, is an opinion by District Judge Amidon, concurred in by Circuit Judge Thayer, enjoining North Dakota statutory rates. The argument of the opinion condemns the ton mile theory, and adopts the revenue theory. The criticism of the case is that conditions in sparsely settled North Dakota are not like those in this state. But the question of which theory was the more accurate for computation was fully covered, and the ton mile was condemned.
In Re Arkansas R. R. Cases (C. C.) 163 Fed. 141, decided but a few months since by Judge Van Devanter of this circuit, a temporary injunction was issued against the enforcement of the Arkansas statutory freight and two-cent passenger rates. And in most respects the state of Arkansas, with reference to rates, is like that of Missouri, especially the south half of Missouri. Judge Van D.evanter, in discussing this question said:
“Other standards are suggested, but the proofs indicate that none of them is as satisfactory or accurate as is the difference in cost in its relation to the revenue.”
And the proofs, including statistics and tables and some of the same expert witnesses on each side, were the same as in the cases at bar.
The great case from Nebraska of Smyth v. Ames was heard on the circuit by Justice Brewer on oral testimony, as the cases at bar have been heard. The entire discussion of the question by Justice
Recurring to the Tomkins Case, 90 Fed. 363, above alluded to, that case was reversed by the Supreme Court (176 U. S. 167, 20 Sup. Ct. 336, 44 L. Ed. 417), and the question of fact was only discussed from the revenue theory. The reversal was only because the lower court recited that it was unable to ascertain what was the actual cost of earning the local earnings for certain years. But as the lower cotirt on the first hearing proceeded on the extra cost and revenue theory, and as that was what was discussed by the Supreme Court, and under the mandate the case went to decree (110 Fed. 473) on the revenue theory, I am convinced that the Supreme Court for the guidance of trial courts has adopted the revenue theory as the one more just and equitable both to the patrons of the road and to the companies.
So that we have the Supreme Court in the two cases recognizing the revenue theory. Two Circuit Judges of this circuit have so held. And the same holdings have been made by at least three District Judges, and the Supreme Court of Pennsylvania impliedly, although the argument in that opinion is not strengthened by reason of a statement as to the measure of proof, concerning which the minority opinions without doubt are correct.
As an argument against the revenue theory, and for the ton mile theory', no court has spoken in so far as counsel on both sides and I are advised. In some phases this is a question of fact, or logic, or argument, or opinion, partaking of all. But so many eminent courts have thus spoken, even though not a question of law, and even though the traffic in the states differ, yet such opinions tend most strongly to create an undoubted belief that the cost for carrying both passengers and freight locally is greater proportionately than for doing a long or interstate business, and that the revenue theory' is the only one to apportion the cost of each business.
The Wisconsin Railroad Commission made an exhaustive and thorough investigation of these questions two years since. Evidence of both sides was heard. Experts interested, and those not interested, testified. Many months of time were given to the hearing and in reaching conclusions. A valued report was the result. The findings and conclusions were: ' (1) The cost of carrying local and state freight is greater than for carrying interstate freight and passengers, (f?) That this extra cost must be considered, and then take the gross earnings as the basis upon which to allot expenses between the state and interstate business. (3) That less than
10. When the statutes in question were enacted, it was believed by many that by reducing the fare there would be much more travel. For a month or so this proved to be true. But with the novelty gone, the testimony shows that the increase has been less than 3 per cent., and more nearly 1 per cent. It was likewise believed by many that, with the abolition of passes and other forms of free transportation, expenses would be lessened and receipts increased. Ministers sometimes received free transportation, but generally at half rates. Many lawyers and doctors received passes under guise of retainers for services never performed. Bankers received them under the claim that it was compensation for signing bonds and cashing Chicago and St. Louis exchange. Politicians demanded, extorted, and received them for supposed influence. Officials received them as a courtesy. Many newspaper concerns received them, from the proprietor and editor in chief down to the typesetter (relatives included), under the pretense that it was an exercise of liberty of contract, for which the newspaper published the arrival and departure of trains, with an occasional local and sometimes abbreviated plate matter. To receive them was often followed by charges of corruption; and to refuse them, by charges of demagogy. Every person conceded it to be a wrong system, and most people were advocates 'for its abolition, except as to the class to which he belonged. But it was abolished, and does not longer exist, and the evidence shows that as to state earnings the passenger revenue is increased by reason thereof less than 1 per cent.
11; This leaves but one question for decision, and that question largely one of fact. The question is whether the traffic wholly with-in the state of Missouri, generally referred to in the evidence as local traffic, can be carried under the freight rate statute of 1907 and the passenger fare statute of 1907 at such profit as will give a reasonable return after paying expenses upon the investment, or whether such traffic is carried at a loss, or less than such reasonable profit.
Thousands of pages of testimony, taking weeks of time, have been filed. This testimony was orally presented, part to the master, and part to the court, accompanied with volumes of statements, reports, schedules, and tables. Every phase of every question of both debit and credit has been worked out, tabulated, and filed. These exhibits are the result of something like one year of work by the expert accountants representing both sides, as a result of their examinations of train reports, waybills, auditors’ books, and of the accounts of the passenger and traffic departments of the several roads. This work required not only much time, but energy, and patience, and learning, and great skill. But each side had accountants of the highest character, and possessing all of those qualifications. The four accountants, Mr. Peabody and Mr. Johnson representing the railway companies, and Mr. Taliaferro and Mr. Hamilton representing the state, impressed me, after hearing
The court is likewise much indebted to counsel on both sides, who for four days argued these cases with a fairness, and wealth of learning, and eloquence seldom displayed at the bar. And now, after the fullest investigation of the record, the court has reached the conclusion that upon this question of fact the statutory rates fixed by either and both statutes are not remunerative. And it only remains for the court to give the reasons for such conclusion. And, in giving these reasons, clearness is added by eliminating those things so clearly established by the evidence, or so nearly conceded in matters of law as not to be debatable.
First. The unquestioned and undoubted rule is that there is a presumption both of fact and of law in favor of the validity of every legislative enactment. The railway companies have the burden of removing this presumption, and showing that the statute clearly, or as some courts say, palpably, and others say, beyond a reasonable doubt, that the statute is invalid. In these cases the court has recognized this rule. The authorities upon this question form a long and unbroken line, with the single exception of the majority opinion in the Pennsylvania case decided a year ago. 220 Pa. 100, 68 Atl. 676, 15 L. R. A. [N. S.] 108. And that one authority is not persuasive.
Second. All testimony and argument bearing upon the question as to what consideration the Legislature of Missouri gave to these enactments is utterly immaterial. Much was said in argument as to the message of Governor Hughes of New York two years ago in declining to approve the two-cent fare statute of that state. Governor Hughes had the moral courage to veto a measure of popular favor because, as he believed, the question had not been fully considered. But the relations of a governor to proposed legislation,
Third. Most of laymen and many lawyers believe that the question is whether the railway company as a system is earning sufficient revenue upon the value of the property of the system. They believe that if the Burlington, Santa Fé, Wabash, or any other railroad system is earning such money as will pay all charges and expenses, including taxes and interest, with reasonable dividends to the stockholders, that state rates for state business must stand. Of course, no one believes this who has given the slightest attention to the question. That precise question was before, and was decided by, Justice Brewer (Ames v. Union P. Ry. Co. [C. C.] 64 Fed. 165), and affirmed by the Supreme Court in the Nebraska case of Smyth v. Ames, 169 U. S. 466, 18 Sup. Ct. 418, 42 L. Ed. 819. The only question is as to Missouri rates, less expenses properly charged against the same. And, if this balance does not leave sufficient to pay a reasonable return, the law is invalid. And if the railroad system of any company is earning more than a reasonable return by reason of interstate rates, which affect the people many times more than local rates, and if such interstate rates are too high, Congress, either acting alone or through a commission, must make the correction's.
The Supreme Court during the present year, in the case of City of New York v. Consolidated Gas Company of New York, 212 U. S. 19, 29 Sup. Ct. 192, 53 L. Ed. -, decided that 6 per cent, was fair and right to be given to the owners upon the true valuation. My opinion is that, while a gas plant is in some respects different from a railroad, a railroad property, properly built, and properly managed, should, over and above expenses, make a return of 6 per cent, per annum. And, considering all the evidence, the evidence fairly shows that all of these roads were properly and economically built and are being properly and economically managed, and that, after paying the expenses for maintenance and operation, there is less than 6 per cent, of returns, and not more than 3 per cent, upon any of them, and as to some of them a deficit, taking the property as above stated within the state of Missouri at its fair valuation. And this is so without reference to bonds, because in no case do the bonds bear 6 per cent, interest. But taking the bonds into consideration, there is still not to- exceed 3 per cent, returns, and in many cases a deficit, qfter considering all debits and credits, upon the true valuation for the state business. There is no evidence that any of the existing bonds .were improperly issued either as to amounts or rates of interest. In fixing the value the court has considered the evidence of witnesses as to the stocks and bonds outstanding, and the court has considered the- evidence of the. fact that the Missouri state board for' taxing purposes has valued these properties. Of course those findings are not binding nor conclusive, but they are persuasive. But independently of stocks and bonds, and independently of what the state board has valued these properties for taxing purposes, the
It is absolutely necessary that many trains, both passenger and freight, do both a local and interstate business. Even the fast trains stopping at but few stations in the state carry state passengers between such stations. And the same is true as to freight trains carrying freight both in car load and less than car load lots.
The valuation of the roads has been fixed by the court as shown by the findings of fact. The entire state and interstate earnings of each of the roads within the state is known and fixed to a certainty. The expenses are known and fixed. To apportion these expenses, it must be done according to one of the two theories, and the correct theory is that according to revenue. One theory or the other must be applied to both freight and passenger expenses, and the court should not adopt the one theory as to part, and the other theory, as to another. The one theory is helpful to the one side, and the other theory helpful to the other side; the one theory to the one side in freight, and the other theory to the other side in passenger. But an arbitrary splitting of theories is illogical and unfair, and cannot be recognized. The court has adopted the revenue theory because a great number of the best railroad experts of the country, against a very limited number to the contrary, have so testified. Every court that has ever had this question before it, in so far as I am advised by the briefs of counsel and my own independent investigation, has so held in the cases hereinbefore cited of the Supreme Court of the United States; in the two cases, by two Circuit Judges of this circuit; by three District Judges of this circuit; and by the Supreme Court of Florida, State v. Atlantic Coast Line, 48 Fla. 146, 37 South. 657. And Beale & Wyman on Railroad Rales Regulation, § 466, announces such as being the correct rule. The values of the property within the state have been fixed by the court. The entire earnings within the state, interstate and state, freight, passenger, and miscellaneous of each, have been fixed. The entire expense is known, including the extra cost of each. To ascertain whether the result is a profit, and if so what per cent., or a loss, is but a problem of primary arithmetic, as is shown by Judge Van Devanter in Arkansas Rate Cases (C. C.) 163 Fed. 141. There are other methods equally simple, the resultant figures of course being the same. These computations show, as to the commodities covered by the freight rate statute of 1907, that two roads, the Hannibal & St. Rouis and the Burlington, allowing nothing for extra cost, there is a deficit, and with all other companies less than 2 per cent. But with the extra cost added, the deficit for the two companies is much greater, and the other companies show a deficit.
The passenger earnings under the two-cent fare law of 1907, allowing nothing for extra cost over interstate business, give no return whatever to the Rock Island, 'St. Fouis & Hannibal, Kansas City, Clinton & Springfield, and the Great Western. The other companies will have the following: The St. Fouis & San Francisco, between 3 and 4 per cent.; the Santa Fé, between 4 and 5 per cent.;
It being a legislative act, and not a judicial one, this court cannot fix rates. If it could, 2j54-cent passenger rates would be fixed for the stronger roads, and 3 for the others. But that is for the Legislature acting itself with experts, such as the state employed in these cases, or through a commission with like assistance.
In view of general equity rules prohibiting findings of fact and other matters from being inserted in decrees, this opinion has been extended. And to further show how the court has considered the cases, and the various questions of fact covered by the voluminous evidence, findings of fact have been made and signed, which will accompany this opinion.
Long and laborious as the work for the court has been, I am of the opinion that the cases have been expedited by hearing the oral testimony as provided by general equity rule 67. It gave the court a much better insight into the intricacies of the cases, and with a much better knowledge of the cases than could be gained by hearing exceptions to a master’s report. And I am fully compensated by the belief that I have worked out the correct conclusions, and with the knowledge that if I am in error, either as to fact or law, the cases can be speedily heard de novo by the Supreme Court of the United States. Because I feel in all cases, and in these cases more than ever before, as Judge Sanborn said in Boatmen’s Bank v. Fritzlen, 135 Fed. 650, 655, 68 C. C. A. 288, 293:
“Every conscientious judge, every thoughtful man, upon whom is laid the grave responsibility and the heavy burden of determining the rights of his fellows, rejoices in the thought, wherever such is the case, that his decision may be reviewed, and that, if erroneous, it will not work irreparable injustice to him whom he deems it his duty to defeat.”
The decrees will be for the complainants. Each party will pay the costs by such party made, except the compensation of the master and stenographer. The half of those will be paid by complainants, and the other half by respondents. The reservation clause usual in such cases will be in the decrees.
Supplemental Opinion.
These cases are pending on a motion to modify the decrees and opinion filed March 8, 1909.
1. The costs were taxed, the one-half to the railway companies, and the one-half to the state officers. The company being successful, it is contended that the taxable costs, aggregating about $18,000, should all be adjudged against the state.officers. In actions at law, in the absence of a tender or statutory offer to confess judgment, the costs follow the judgment. In equity cases, such is the general rule, but not
First. Defendants are officials, and as officials are representatives. They have, no personal interest in the litigation. This, of itself, is not enough to avoid the costs; but it is to be considered. It will be presumed that the Legislature will appropriate a sufficient amount to protect these officers. Rut this is not always done. The last Legislature appropriated $40,000 for these cases, which was but two-thirds enough for the two years. The master in chancery and the lady stenographer gave a great deal of time, followed by very large, but justly owing, bills, the one half of which has been paid by the railways and by the state nothing, with the appropriation exhausted. Whether the other half is paid all depends upon what the Legislature does.
Second. The more sufficient reason for dividing the costs is because of the extravagantly enormous record made in the cases. The master gave many weeks to taking evidence, and many more weeks were given by the court in taking evidence. Both the master and the court were powerless to abbreviate the record, because the Supreme Court, in the Case of Blease v. Garlington, 92 U. S. 1, 23 L. Ed. 521, and the Circuit Court of Appeals for this circuit, in case of Shubert v. Woodward, 167 Fed. 47, 52, have held that trial courts must receive in equity cases all evidence offered that is germane to the issues. I complained, and in effect gave warning, many times to the parties, but without avail, because of the prolixity of the record. Something like 15,000 pages of evidence were taken, when one-third would have been as strong a presentation of either side. Courts should impose penalties for this, and the only penalty is by way of costs. Both sides were at fault, and both sides should bear the burden. It does not follow that such a precedent will be one to plague. It is not a precedent to be followed, except in cases where it ought to be followed.
2. Complaint is made because of the recital in my opinion that:
“It being a legislative act, and not a judicial one, this court cannot fix rates. If it could, 2%-cent passenger rates would be fixed for the stronger roads, and 3 for the others. But that is for the Legislature, acting itself with experts, such as the state employed in these cases, or through a commission with like assistance.”
My statement that “it being a legislative act, and not a judicial one, this court cannot fix rates,” is not controverted by any one. This being so, as of course, what I said as above is obiter dictum; but because it is dictum is no reason whatever for not saying it, and still less a reason for now eliminating it from my opinion. The greater part of one of the greatest opinions ever written by the great Chief Justice (Marbury v. Madison, 1 Cranch, 137, 2 L. Ed. 60) was dictum. But, even if it were possible, who would dare to mutilate that opinion? But two years since there were published two very large volumes wholly covering dicta only of the United States Supreme Court. Those dicta were and are binding on no one, but they contain much of the cream of our jurisprudence. This dictum of mine is binding on no one. It is my opinion, and will stand as of value, or of no value, as the profession and informed laymen fix the value thereon. I believed it proper to say that the strong roads should have 2y2 cents per passenger per mile
I still adhere to those views, and, entertaining them, I know of no reason for not stating them, with reasons for believing it was my duty to state them. Passengers, like consumers, have rights. One of those rights is to have fares fixed reasonably low. But the term “reasonable” is a comparative one. It must be in proportion to what it is worth, and the better the service the more it is worth; and the public is entitled to have, with the right to demand, efficient service, provided, always, such is paid for. Much in argument was said by counsel on both sides as if an arbitrary flat rate is all that is involved, regardless of service, and regardless of all other things. Whether the trains are expensive or inexpensive, daylight or night trains, through or local trains, main line or branch trains, roads through the hills of central Missouri, or the Ozarks, or over the prairies, and whether the trains carry few or many passengers, are matters largely passed over as if of no importance. To me they'seem of great importance. So it is as to the greatly increased cost of materials compared with 10 years .ago. The aver age'fare paid per year, aside from the low excursion rates, is less than $6 per year, commercial travelers excepted. To reduce that to $4, thereby saving $2, is, of course, of importance. So are other matters of importance. Aside from having efficient service, to be paid for at .remunerative rates, the laboring men, the em-ployés, have rights. They have the right to be well paid for their work, in daytime and nighttime, sunshine and storm, during the excessive heat of the summer and the rigors of winter. Their hazardous and most dangerous service entitled them to remunerative compensation, which they cannot have with meager earnings of the roads. Evidences of humanity and kindly feeling for their fellow men need not be wholly displayed toward the men who pay $6 per year for passenger fares. A kindlier disposition would suggest an equitable division of sympathy. Thousands and thousands of them have already been “let out” because of decreased earnings, and more are to follow, with diminished compensation for those from necessity retained. What is the truthful answer to make these men, and who is to make this answer? It is doubtful if the Legislature thought this out. I decline to modify my opinion as respects this.
3. It is contended that the court was in error in its original opinion, in that the penalties of the statutes render them void. Whether rates prescribed by statute are valid or invalid is a judicial question, and the Legislature cannot prohibit the courts from passing thereon. This was so stated in the Minnesota Milk Case, 134 U. S. 418, 10 Sup. Ct. 462, 702, 33 L. Ed. 970; and this cannot be done indirectly, by imposing such penalties as to terrorize the company, its officers and agents, so that they do not dare to litigate the question. This was so held in Ex parte Young, 209 U. S. 123, 28 Sup. Ct. 441, 52 L. Ed. 714, 13 L. R. A. (N. S.) 932, but a year ago. This question received but little attention from any of the counsel or the court, and was but briefly discussed by the court in the opinion. In the Consolidated Gas Case (C. C.) 146 Fed. 150, Circuit Judge Lacombe held that a penalty of
4. These cases as to freight were brought four years ago. • Two years ago supplemental bills were filed, bringing forward the new freight rate statute and the passenger rate statute. Upon a hearing, by agreement of counsel on both sides, a temporary injunction was issued against the enforcement of the freight rate statute. The railways asked for a temporary injunction against the enforcement of the passenger rate statute. The Attorney General and his associates contested this, and were successful to the extent that the court ordered an observance of the statute for some months, until information from actual tests could be made; so that, from the very inception of the case, it has been contended on the one side that the statute is invalid and on the other side that the statute is valid. It therefore follows that this court has had jurisdiction for four years over all the parties and over the entire subject-matter of state earnings.
It is clear that this court, having such jurisdiction, should retain it over all the parties, and the subject-matter, to the end that the decrees hereafter may be enlarged, or modified, as varying circumstances and the acts of the parties may require. Therefore the decrees should be so changed as to recite such reservations.