Search Supreme Court Cases
REAGAN V. FARMERS' LOAN AND TRUST CO., 154 U. S. 362 (1894)
U.S. Supreme Court
Reagan v. Farmers' Loan and Trust Co., 154 U.S. 362 (1894)
Reagan v. Farmers' Loan and Trust Company
Argued April 4-5, 1894
Decided May 28, 1894
154 U.S. 362
APPEAL FROM THE CIRCUIT COURT OF THE UNITED
STATES FOR THE WESTERN DISTRICT OF TEXAS
Without passing upon the validity of the 5th and 14th sections of the Act of the Legislature of Texas of April 3, 1891, establishing a railroad commission with power to classify and regulate rates, the remainder of the act is a valid and constitutional exercise of the state sovereignty, and the commission created thereby is an administrative board, created for carrying into effect the will of the state as expressed by its legislation.
A citizen of another state who feels himself aggrieved and injured by the rates prescribed by that commission may seek his remedy in equity against the commissioners in the circuit court of the United states in Texas, and the circuit court has jurisdiction over such a suit under the statutes regulating its general jurisdiction, with the assent of Texas, expressed in the act creating the commission.
Such a suit is not a suit against the State of Texas.
It is within the power of a court of equity in such case to decree that the rates so established by the commission are unreasonable and unjust and to restrain their enforcement, but it is not within its power to establish rates itself or to restrain the commission from again establishing rates.
On April 3, 1891, the Legislature of the State of Texas passed an act to establish a railroad commission. The first section provides for the appointment and qualification of three persons to constitute the commission; the second for the organization of the commission, while the third defines the powers and duties of the commission, and is as follows:
"SEC. 3. The power and authority is hereby vested in the Railroad Commission of Texas and it is hereby made its duty, to adopt all necessary rates, charges, and regulations to govern and regulate railroad freight and passenger tariffs, the power to correct abuses and prevent unjust discrimination and extortion in the rates of freight and passenger tariffs on the different railroads in this state and to enforce the same by having the penalties inflicted as by this act prescribed through proper courts having jurisdiction. "
"(a) The said commission shall have power, and it shall be its duty, to fairly and justly classify and subdivide all freight and property of whatsoever character that may be transported over the railroads of this state into such general and special classes or subdivisions as may be found necessary and expedient."
"(b) The commission shall have power, and it shall be its duty, to fix to each class or subdivision of freight a reasonable rate for each railroad subject to this act for the transportation of each of said classes and subdivisions."
"(c) The classifications herein provided for shall apply to and be the same for all railroads subject to the provisions of this act."
"(d) The said commission may fix different rates for different railroads and for different lines under the same management, or for different parts of the same lines if found necessary to do justice, and may make rates for express companies different from the rates fixed for railroads."
"(e) The said commission shall have power, and it shall be its duty, to fix and establish for all or any connecting lines of railroad in this state reasonable joint rates of freight charges for the various classes of freight and cars that may pass over two or more lines of such railroads."
"(f) If any two or more connecting railroads shall fail to agree upon a fair and just division of the charges arising from the transportation of freights, passengers or cars over their lines, the commission shall fix the pro rata part of such charges to be received by each of said connecting lines."
"(g) Until the commission shall make the classifications and schedules of rates as herein provided for, and afterwards if they deem it advisable, they may make partial or special classifications for all or any of the railroads subject hereto, and fix the rates to be charged by such roads therefor, and such classifications and rates shall be put into effect in the manner provided for general classifications and schedules of rates."
"(h) The commission shall have power, and it shall be its duty from time to time, to alter, change, amend, or abolish
any classification or rate established by it when deemed necessary, and such amended, altered, or new classifications or rates shall be put into effect in the same manner as the originals."
"(i) The commission may adopt and enforce such rules, regulations, and modes of procedure as it may deem proper to hear and determine complaints that may be made against the classifications or the rates, the rules, regulations, and determinations of the commission."
"(j) The commission shall make reasonable and just rates of charges for each railroad subject hereto for the use or transportation of loaded or empty cars on its road, and may establish for each railroad or for all railroads alike reasonable rates for the storing and handling of freight and for the use of cars not unloaded after forty-eight hours' notice to the consignee, not to include Sundays."
"(k) The commission shall make and establish reasonable rates for the transportation of passengers over each or all of the railroads subject hereto, which rates shall not exceed the rates fixed by law. The commission shall have power to prescribe reasonable rates, tolls, or charges for all other services performed by any railroad subject hereto."
The first paragraph of the fourth section is in these words:
"SEC. 4. Before any rates shall be established under this act, the commission shall give the railroad company to be affected thereby ten days' notice of the time and place when and where the rates shall be fixed, and said railroad company shall be entitled to be heard at such time and place, to the end that justice may be done, and it shall have process to enforce the attendance of its witnesses. All process herein provided for shall be served as in civil cases."
The remaining paragraphs give power to adopt rules of procedure. The fifth, sixth, and seventh sections are as follows:
"SEC. 5. In all actions between private parties and railway companies brought under this law, the rates, charges, orders, rules, regulations, and classifications prescribed by said commission before the institution of such action shall be held conclusive, and deemed and accepted to be reasonable, fair,
and just, and in such respects shall not be controverted therein until finally found otherwise in a direct action brought for that purpose in the manner prescribed by sections 6 and 7 hereof."
"SEC. 6. If any railroad company or other party at interest be dissatisfied with the decision of any rate, classification, rule, charge, order, act, or regulation adopted by the commission, such dissatisfied company or party may file a petition setting forth the particular cause or causes of objection to such decision, act, rate, rule, charge, classification, or order, or to either or all of them, in a court of competent jurisdiction in Travis County, Texas, against said commission as defendant. Said action shall have precedence over all other causes on the docket of a different nature, and shall be tried and determined as other civil causes in said court. Either party to said action may appeal to the appellate court having jurisdiction of said cause, and said appeal shall be at once returnable to said appellate court at either of its terms, and said action so appealed shall have precedence in said appellate court of all causes of a different character therein pending, provided that if the court be in session at the time such right of action accrues, the suit may be filed during such term and stand ready for trial after ten days' notice."
"SEC. 7. In all trials under the foregoing section, the burden of proof shall rest upon the plaintiff, who must show by clear and satisfactory evidence that the rates, regulations, orders, classifications, acts, or charges complained of are unreasonable and unjust to it or them."
Sections 8, 9, 10, 11, 12, and 13 contain special provisions which are not material to the consideration of any question presented in this case.
Section 14 reads:
"SEC. 14. If any railroad company subject to this act or its agent or officer shall hereafter charge, collect, demand or receive from any person, company, firm or corporation a greater rate, charge, or compensation than that fixed and established by the railroad commission for the transportation of freight, passengers, or cars, or for the use of any car on
the line of its railroad or any line operated by it, or for receiving, forwarding, handling, or storing any such freight or cars, or for any other service performed or to be performed by it, such railroad company and its said agent and officer shall be deemed guilty of extortion, and shall forfeit and pay to the State of Texas a sum not less than $100 nor more than $5,000."
Section 15 defines "unjust discrimination," and imposes a penalty of not less than $500 nor more than $5,000 upon any railroad company violating any provision of the section.
Section 16 is leveled against officers and agents of railroads, and imposes a penalty of not less than $100 nor more than $1,000 for certain offenses denounced therein.
Section 17 declares that any railroad company violating the provisions of the act shall be liable to the persons injured thereby for the damages sustained in consequence of such violation, and in case it is guilty of extortion or discrimination, as defined in the act, shall pay, in addition to such damages, to the person injured, a penalty of not less than $125 nor more than $500.
In sections 18 and 19 are further provisions as to penalties. The remaining sections, 20 to 24, inclusive, contain matter of detail which is unimportant in this case.
Three of the plaintiffs in error, Reagan, McLean, and Foster, were duly appointed and qualified as members of said railroad commission, and organized it on the 10th day of June, 1891. The other plaintiff in error, Culberson, is the Attorney General of the state, who, by section 19 of the act, was charged with the duty of instituting suits in the name of the state for the recovery of all the penalties prescribed by the act excepting those recoverable by individuals under the authority of section 17.
After the commission had organized, on June 10 it proceeded to establish certain rates for the transportation of goods over the railroads in the state and also certain regulations for the management of such transportation. Thereafter, on April 30, 1892, the Farmers' Loan and Trust Company filed its bill in the Circuit Court of the United States for the Western District
of Texas, making as defendants the railroad commissioners, the Attorney General, the International and Great Northern Railroad Company, and Thomas M. Campbell, the receiver thereof, duly appointed by the District Court of Smith County, Texas. That bill, which is too long to be copied in full, alleged that the plaintiff was the trustee in a trust deed executed by the railroad company on the 15th day of June, 1881, to secure a second series of bonds, aggregating $7,054.000, bearing interest at the rate of 6 percent per annum, and that there was a prior issue of bonds, to the amount of $7,954,000, secured by a conveyance to John S. Kennedy and Samuel Sloan, as trustees. It then set forth the railroad commission act, heretofore referred to, or so much thereof as was deemed material, the proceedings of the commission, and the notices that were given to the railroad company, and attached as exhibits the several orders prescribing rates and regulations. It also averred generally that such rates were unreasonable and unjust, set forth certain specific facts which it claimed established the injustice and unreasonableness of those rates, and prayed a decree restraining the commission from enforcing those rates or any other rates, and also restraining the Attorney General from instituting any suits to recover penalties for failing to conform to such rates and obey such regulations. The International and Great Northern Railroad Company appeared, filed an answer and also a cross-bill similar in its scope and effect to the bill filed by the plaintiff and praying substantially the same relief. The railroad commission and the Attorney General at first filed answers, but, after a certain amount of testimony had been taken, of the nature and extent of which we are not advised inasmuch as it is not preserved in the record, they withdrew their answers and filed demurrers, leave being given at the same time to the complainant and cross-complainant to amend the bill and cross-bill before the filing of the demurrer. The amendments to the bill and cross-bill were similar, and contained allegations more in detail of the losses in revenue sustained by the company through the enforcement of the tariffs and the average reduction caused by such tariffs in the rate theretofore existing,
and also setting forth certain contract rights under an act of the Legislature of the State of Texas passed on February 7, 1853. Thereafter the cause was submitted to the court on the bills and cross-bills and demurrers, and on March 23, 1893, a decree was entered in favor of the plaintiff, as follows:
"This cause having been set down for final hearing on the pleadings and evidence, and being called for hearing thereon, the defendants John H. Reagan, William P. McLean, L. L. Foster, and Charles A. Culberson presented their motion, on file herein, for leave to withdraw their answers and file demurrers, which motion was granted, conditioned upon the said defendants' paying all costs of taking depositions and evidence herein against them to be taxed and for which execution may issue, and on condition that the complainant and cross-complainant have leave to amend before the filing of the demurrers of the said defendants, which leave was granted, and whereupon said amendments were filed, and the demurrers of the said defendants were filed to the original bill of complaint and cross-bill in this cause, as also to all amendments thereto, and were by complainant and cross-complainant set down for argument, by consent, and were by all parties forthwith submitted. And thereupon, in consideration thereof, it was ordered, adjudged, and decreed that said demurrers be, and the same are hereby, overruled. And the defendants John H. Reagan, William P. McLean, L. L. Foster, and Charles A. Culberson having entered of record their refusal to make further answer, and the fact that they stood upon their demurrers, and all parties submitting the cause for final decree, it is now, upon consideration thereof, ordered, adjudged, and decreed that the bill of complaint, as amended, and the cross-bill of complaint, as amended, in the above-entitled cause, be, and the same are hereby, sustained and taken for confessed. And the said cause coming on further to be heard upon the bill of complaint herein, as amended, and upon the answer of the defendant railroad company thereto confessing the same, it is further ordered, adjudged, and decreed as follows, to-wit:"
"First. That the injunctions heretofore issued in this
cause be, and the same are hereby, made perpetual, and accordingly."
"Second. That defendant, the International and Great Northern Railroad Company be, and it is hereby, perpetually enjoined, restrained, and prohibited from putting or continuing in effect the rates, tariffs, circulars, or orders of the Railroad Commission of Texas, or either or any of them, as described in the bill of complaint herein, and in Exhibit C, thereto and therewith filed, and from charging, or continuing to charge, the rates specified in said tariffs, circulars, or orders, or either or any of them."
"Third. It is further ordered, adjudged, and decreed that the defendants the Railroad Commission of Texas and the defendants John H. Reagan, William P. McLean, and L. L. Foster, acting as the Railroad Commission of Texas, and their successors in office, and the defendant Charles A. Culberson, acting as Attorney General of the State of Texas, and his successors in office, be, and they are hereby, perpetually enjoined, restrained, and prohibited from instituting or authorizing or directing any suit or suits, action or actions, against the defendant railroad company for the recovery of any penalties under and by virtue of the provisions of the act of the Legislature of the State of Texas approved April 3, 1891, and fully described in the bill of complaint, or under or by virtue of any of the said tariffs, orders, or circulars of the said Railroad Commission of Texas, or any or either of them, or under or by virtue of the said act and the said tariffs, orders, or circulars of said railroad commission, or any or either of them combined, and said defendants Reagan, McLean, and Foster, and the Railroad Commission of Texas are further perpetually restrained from certifying any copy or copies of any of said orders, tariffs, or circulars, or from delivering, or causing or permitting to be delivered, certified copies of any of said orders, tariffs, or circulars to the said Culberson or any other party and from furnishing the said Culberson or any other party any information of any character for the purpose of inducing, enabling, or aiding him or any other party to institute or prosecute any suit or suits against the said defendant
railroad company for the recovery of any penalty or penalties under the said act."
"Fourth. It is further ordered, adjudged, and decreed that the said Railroad Commission of Texas and the said Reagan, McLean, and Foster be perpetually enjoined, restrained, and prohibited from making, issuing, or delivering to the said railroad company, or causing to be made, issued, or delivered to it, any further tariff or tariffs, circular or circulars, order or orders."
"Fifth. It is further ordered, adjudged, and decreed that all other individuals, persons, or corporations be, and they are hereby, perpetually enjoined, restrained, and prohibited from instituting or prosecuting any suit or suits against the said railroad company for the recovery of any damages, overcharges, penalty, or penalties, under or by virtue of the said act or any of its provisions or under and by virtue of the said tariffs, orders, or circulars of the said Railroad Commission of Texas, or any or either of them, or under and by virtue of the said act and the said tariffs, orders, and circulars, or any or either of them combined."
"Sixth. If is further ordered, adjudged, and decreed that all rates, tariffs, circulars, and orders heretofore made and issued by said commission, and fully described in Exhibit C to the bill of complaint herein, be, and they are hereby, declared to be unreasonable, unfair, and unjust as to complainant and cross-complainant, and they are hereby cancelled, and declared to be null, void, and of no effect."
"Seventh. It is further ordered, adjudged, and decreed that all costs herein be taxed against said defendants Reagan, McLean, Culberson, and Foster, and the Railroad Commission of Texas, and that execution may issue therefor."
From that decree the railroad commission and the Attorney General have appealed to this Court.
MR. JUSTICE BREWER, after stating the facts in the foregoing language, delivered the opinion of the Court.
The questions in this case are of great importance, and have been most ably and satisfactorily discussed by counsel for the respective parties.
We are met at the threshold with an objection that this is in effect a suit against the State of Texas, brought by a citizen of another state, and therefore, under the Eleventh Amendment to the Constitution, beyond the jurisdiction of the federal court. The question as to when an action against officers of a state is to be treated as an action against the state has been, of late, several times carefully considered by this Court, especially in the cases of In re Ayers, 123 U. S. 443, by Mr. Justice Matthews, and Pennoyer v. McConnaughy, 140 U. S. 1, by Mr. Justice Lamar. In the former of these cases, it was said (p. 123 U. S. 505):
"To secure the manifest purposes of the constitutional exemption guarantied by the Eleventh Amendment requires that it should be interpreted not literally and too narrowly, but fairly and with such breadth and largeness as effectually to accomplish the substance of its purpose. In this spirit, it must be held to cover not only suits brought against a state by name, but those also against its officers, agents, and representatives where the state, though not named as such, is nevertheless the only real party against which alone, in fact, the relief is asked and against which the judgment or decree effectively operates."
And in the latter (p. 140 U. S. 9):
"It is well settled that no action can be maintained in any federal court by the citizens of one of the states against a state without its consent, even though the sole object of such suit be to bring the state within the operation of the constitutional provision which provides that 'no state shall pass any law impairing the obligation of contracts.' This immunity
of a state from suit is absolute and unqualified, and the constitutional provision securing it is not to be so construed as to place the state within the reach of the process of the court. Accordingly, it is equally well settled that a suit against the officers of a state to compel them to do the acts which constitute a performance by it of its contracts is in effect a suit against the state itself."
"In the application of this latter principle, two classes of cases have appeared in the decisions of this Court, and it is in determining to which class a particular case belongs that differing views have been presented."
"The first class is where the suit is brought against the officers of the state, as representing the state's action and liability, and thus making it, though not a party to the record, the real party against which the judgment will so operate as to compel it to specifically perform its contracts. In re Ayers, 123 U. S. 443; Louisiana v. Junel, 107 U. S. 711; Antoni v. Greenhow, 107 U. S. 769; Cunningham v. Macon & Brunswick Railroad, 109 U. S. 446; Hagood v. Southern, 117 U. S. 52."
"The other class is where a suit is brought against defendants who, claiming to act as officers of the state and under the color of an unconstitutional statute, commit acts of wrong and injury to the rights and property of the plaintiff acquired under a contract with the state. Such suit, whether brought to recover money or property in the hands of such defendants, unlawfully taken by them in behalf of the state, or for compensation in damages, or, in a proper case where the remedy at law is inadequate, for an injunction to prevent such wrong and injury, or for a mandamus, in a like case, to enforce upon the defendant the performance of a plain, legal duty, purely ministerial, is not, within the meaning of the Eleventh Amendment, an action against the state. Osborn v. Bank of the United States, 9 Wheat. 738; Davis v. Gray, 16 Wall. 203; Tomlinson v. Branch, 15 Wall. 460; Litchfield v. Webster County, 101 U. S. 773; Allen v. Baltimore & Ohio Railroad, 114 U. S. 311; Board of Liquidation v. McComb, 92 U. S. 531; Poindexter v. Greenhow, 114 U. S. 270. "
Appellants invoke the doctrines laid down in these two quotations, and insist that this action cannot be maintained because the real party against which alone in fact the relief is asked, and against which the judgment or decree effectively operates, is the state, and also because the statute under which the defendants acted and proposed to act is constitutional, and that the action of the state officers under a constitutional statute is not subject to challenge in the federal court. We are unable to yield our assent to this argument. So far from the state's being the only real party in interest, and upon whom alone the judgment effectively operates, it has, in a pecuniary sense, no interest at all. Going back of all matters of form, the only parties pecuniarily affected are the shippers and the carriers, and the only direct pecuniary interest which the state can have arises when it abandons its governmental character, and, as an individual, employs the railroad company to carry its property. There is a sense, doubtless, in which it may be said that the state is interested in the question, but only a governmental sense. It is interested in the wellbeing of its citizens, in the just and equal enforcement of all its laws, but such governmental interest is not the pecuniary interest which causes it to bear the burden of an adverse judgment. Not a dollar will be taken from the treasury of the state, no pecuniary obligation of it will be enforced, none of its property affected by any decree which may be rendered. It is not nearly so much affected by the decree in this case as it would be by an injunction against officers staying the collection of taxes, and yet a frequent and unquestioned exercise of jurisdiction of courts, state and federal, is in restraining the collection of taxes, illegal in whole or in part.
Neither will the constitutionality of the statute, if that be conceded, avail to oust the federal court of jurisdiction. A valid law may be wrongfully administered by officers of the state, and so as to make such administration an illegal burden and exaction upon the individual. A tax law, as it leaves the legislative hands, may not be obnoxious to any challenge and yet the officers charged with the administration of that valid tax law may so act under it, in the matter of assessment or
collection, as to work an illegal trespass upon the property rights of the individual. They may go beyond the powers thereby conferred, and when they do so, the fact that they are assuming to act under a valid law will not oust the courts of jurisdiction to restrain their excessive and illegal acts. In Cunningham v. Macon & Brunswick Railroad, 109 U. S. 446, 109 U. S. 452, it was said:
"Another class of cases is where an individual is sued in tort for some act injurious to another in regard to person or property, to which his defense is that he has acted under the orders of the government."
"In these cases, he is not sued as, or because he is, the officer of the government, but as an individual, and the court is not ousted of jurisdiction because he asserts authority as such officer. To make out his defense, he must show that his authority was sufficient in law to protect him. See Mitchell v. Harmony, 13 How. 115; Bates v. Clark, 95 U. S. 204; Meigs v. McClung, 9 Cranch 11; Wilcox v. Jackson, 13 Pet. 498; Brown v. Huger, 21 How. 305; Grisar v. McDowell, 6 Wall. 364."
Nor can it be said in such a case that relief is obtainable only in the courts of the state, for it may be laid down as a general proposition that whenever a citizen of a state can go into the courts of the state to defend his property against the illegal acts of its officers, a citizen of another state may invoke the jurisdiction of the federal courts to maintain a like defense. A state cannot tie up a citizen of another state, having property rights within its territory invaded by unauthorized acts of its own officers, to suits for redress in its own courts. Given a case where a suit can be maintained in the courts of the state to protect property rights, a citizen of another state may invoke the jurisdiction of the federal courts. Cowles v. Mercer County, 7 Wall. 118; Lincoln County v. Luning, 133 U. S. 529; Chicot County v. Sherwood, 148 U. S. 529.
We need not, however, rest on the general powers of a federal court in this respect, for, in the act before us, express authority is given for a suit against the commission to accomplish
that which was the specific object of the present suit. Section 6 provides that any dissatisfied
"railroad company, or other party at interest, may file a petition . . . in a court of competent jurisdiction in Travis County, Texas, against said commission as defendant."
The language of this provision is significant. It does not name the court in which the suit may be brought. It is not a court of Travis County, but in Travis County. The language, differing from that which ordinarily would be used to describe a court of the state, was selected, apparently, in order to avoid the objection of an attempt to prevent the jurisdiction of the federal courts. The Circuit Court for the Western District of Texas is "a court of competent jurisdiction in Travis County." Not only is Travis County within the territorial limits of its jurisdiction, but also Austin, in that county, is one of the places at which the court is held. Act of June 3, 1884, c. 64, 23 Stat. 35. It comes, therefore, within the very terms of the act. It cannot be doubted that a state, like any other government, can waive exemption from suit. Were this in terms a suit against the state, if by express statute the state had waived its exemption, and consented that suit might be brought against it, by name, in any court of competent jurisdiction in Travis County, it might well be argued that thereby it consented to a suit brought by a citizen of another state in the Circuit Court of the United States for the Western District of Texas, sitting in Travis County, on the ground that the limitations of the Eleventh Amendment to the federal Constitution simply create a personal privilege, which can at any time be waived by the state. However, it is unnecessary to go so far as that, for this cannot, for the reasons heretofore indicated, in any fair sense be considered a suit against the state.
Still another matter is worthy of note in this direction. In the famous Dartmouth College Case, 4 Wheat. 518, it was held that the charter of a corporation is a contract protected by that clause of the national Constitution which prohibits a state from passing any law impairing the obligation of contracts. The International and Great Northern Railroad Company is a corporation created by the State of Texas. The
charter which created it is a contract whose obligations neither party can repudiate without the consent of the other. All that is within the scope of this contract need not be determined. Obviously, one obligation assumed by the corporation was to construct and operate a railroad between the termini named, and, on the other hand, one obligation assumed by the state was that it would not prevent the company from so constructing and operating the road. If the charter had, in terms, granted to the corporation power to charge and collect a definite sum per mile for the transportation of persons or of property, it would not be doubted that that express stipulation formed a part of the obligation of the state which it could not repudiate. Whether, in the absence of an express stipulation of that character, there is not implied, in the grant of the right to construct and operate, the grant of a right to charge and collect such tolls as will enable the company to successfully operate the road and return some profit to those who have invested their money in the construction is a question not as yet determined. It is at least a question which arises as to the extent to which that contract goes, and one in which the corporation has a right to invoke the judgment of the courts, and if the corporation, a citizen of the state, has the right to maintain a suit for the determination of that question, clearly a citizen of another state, who has, under authority of the laws of the State of Texas, become pecuniarily interested in -- equitably, indeed, the beneficial owner of the property of -- the corporation may invoke the judgment of the federal courts as to whether the contract rights created by the charter, and of which it is thus the beneficial owner, are violated by subsequent acts of the state in limitation of the right to collect tolls. Our conclusion from these considerations is that the objection to the jurisdiction of the circuit court is not tenable, and this whether we rest upon the provisions of the statute or upon the general jurisdiction of the court existing by virtue of the statutes of Congress under the sanction of the Constitution of the United States.
Passing from the question of jurisdiction to the act itself, there can be no doubt of the general power of a state to regulate
the fares and freights which may be charged and received by railroad or other carriers, and that this regulation can be carried on by means of a commission. Such a commission is merely an administrative board created by the state for carrying into effect the will of the state, as expressed by its legislation. Railroad Commission Cases, 116 U. S. 307. No valid objection therefore can be made on account of the general features of this act, those by which the state has created the railroad commission and entrusted it with the duty of prescribing rates of fares and freights as well as other regulations for the management of the railroads of the state.
Specific objections are made to the act on the ground that, by section 5, the rates and regulations made by the commission are declared conclusive in all actions between private individuals and the companies, and that, by section 14, excessive penalties are imposed upon railroad corporations for any violation of the provisions of the act, and thus, as claimed, there is not only a limitation, but a practical denial, to railroad companies of the right of a judicial inquiry into the reasonableness of the rates prescribed by the commission. The argument is, in substance, that railroad companies are bound to submit to the rates prescribed until, in a direct proceeding, there has been a final adjudication that the rates are unreasonable, which final adjudication, in the nature of things, cannot be reached for a length of time; that meanwhile a failure to obey those regulations exposes the company, for each separate fare or freight exacted in excess of the prescribed rates, to a penalty so enormous as in a few days to roll up a sum far above the entire value of the property; that even if, in a direct proceeding, the rates should be adjudged unreasonable, there is nothing to prevent the commission from reestablishing rates but slightly changed, and still unreasonable, to set aside which requires a new suit, with its length of delay, and thus, as is claimed, the railroad companies are tied hand and foot, and bound to submit to whatever illegal, unreasonable, and oppressive regulations may be prescribed by the commission.
It is enough to say in respect to these matters -- at least so
far as this case is concerned -- that it is not to be supposed that the legislature of any state or a commission appointed under the authority of any state will ever engage in a deliberate attempt to cripple or destroy institutions of such great value to the community as the railroads, but will always act with the sincere purpose of doing justice to the owners of railroad property as well as to other individuals, and also that no legislation of a state as to the mode of proceeding in its own courts can abridge or modify the powers existing in the federal courts, sitting as courts of equity, so that if in any case there should be any mistaken action on the part of a state or its commission injurious to the rights of a railroad corporation, any citizen of another state interested directly therein can find in the federal court all the relief which a court of equity is justified in giving. We do not deem it necessary to pass upon these specific objections because the fourteenth section, or any other section prescribing penalties, may be dropped from the statute without affecting the validity of the remaining portions, and if the rates established by the commission are not conclusive, they are at least prima facie evidence of what is reasonable and just. For the purpose of this case, it may be conceded that both the clauses are unconstitutional, and still the great body of the act remains unchallenged -- that which establishes the commission and empowers it to make reasonable rates and regulations for the control of railroads. It is familiar law that one section or part of an act may be invalid without affecting the validity of the remaining portion of the statute. Any independent provision may be thus dropped out if that which is left is fully operative as a law, unless it is evident from a consideration of all the sections that the legislature would not have enacted that which is within, independently of that beyond, its power.
Applying this rule, the invalidity of these two provisions may be conceded without impairing the force of the rest of the act. The creation of a commission with power to establish rules for the operation of railroads and to regulate rates was the prime object of the legislation. This is fully accomplished whether any penalties are imposed for a violation
of the rules prescribed, or whether the rates shall be conclusive or simply prima facie evidence of what is just and reasonable. The matters of penalty, and the effect, as evidence, of the rates, are wholly independent of the rest of the statute. Neither can it be supposed that the legislature would not have established the commission and given it power over railroads without these independent matters. In other words, it is not to be presumed that the legislature was legislating for the mere sake of imposing penalties, but the penalties, and the provision as to evidence, were simply in aid of the main purpose of the statute. They may fail and still the great body of the statute have operative force, and the force contemplated by the legislature in its enactment. Take a similar body of legislation -- a tax law. There may be incorporated into such a law a provision giving conclusive effect to tax deeds, and also a provision as to the penalties incurred by nonpayment of taxes. These two provisions may for one reason or another be obnoxious to constitutional objections. If so, they may be dropped out and the balance of the statute exist. It would not for a moment be presumed that the whole tax system of the state depended for its validity upon the penalties for nonpayment of taxes or the effect to be given to the tax deed. We therefore, for the purposes of this case, assume that these two provisions of the statute are open to the constitutional objections made against them. We do not mean by this to imply that they are so in fact, but simply that it is unnecessary to consider and determine the matter, and we leave it open for future consideration.
It appears from the bill that in pursuance of the powers given to it by this act, the state commission has made a body of rates for fares and freights. This body of rates, as a whole, is challenged by the plaintiff as unreasonable, unjust, and working a destruction of its rights of property. The defendant denies the power of the court to entertain an inquiry into that matter, insisting that the fixing of rates for carriage by a public carrier is a matter wholly within the power of the legislative department of the government, and beyond examination by the courts.
It is doubtless true as a general proposition that the formation of a tariff of charges for the transportation by a common carrier of persons or property is a legislative or administrative, rather than a judicial, function. Yet it has always been recognized that if a carrier attempted to charge a shipper an unreasonable sum, the courts had jurisdiction to inquire into that matter and to award to the shipper any amount exacted from him in excess of a reasonable rate, and also, in a reverse case, to render judgment in favor of the carrier for the amount found to be a reasonable charge. The province of the courts is not changed, nor the limit of judicial inquiry altered, because the legislature, instead of the carrier, prescribes the rates. The courts are not authorized to revise or change the body of rates imposed by a legislature or a commission. They do not determine whether one rate is preferable to another, or what, under all circumstances, would be fair and reasonable, as between the carriers and the shippers. They do not engage in any mere administrative work. But still there can be no doubt of their power and duty to inquire whether a body of rates prescribed by a legislature or a commission is unjust and unreasonable and such as to work a practical destruction to rights of property, and, if found so to be, to restrain its operation. In Chicago, Burlington & Quincy Railroad v. Iowa, 94 U. S. 155, and Peik v. Chicago & Northwestern Railway, 94 U. S. 164, the question of legislative control over railroads was presented, and it was held that the fixing of rates was not a matter within the absolute discretion of the carriers, but was subject to legislative control. As stated by Mr. Justice Miller in Wabash &c. Railway v. Illinois, 118 U. S. 557, 118 U. S. 569, in respect to those cases:
"The great question to be decided and which was decided and which was argued in all those cases was the right of the state within which a railroad company did business to regulate or limit the amount of any of these traffic charges."
There was in those cases no decision as to the extent of control, but only as to the right of control. This question came again before this Court in Railroad Commission Cases, 116 U. S. 307, 116 U. S. 331, and, while the right of control was reaffirmed,
a limitation on that right was plainly intimated in the following words of the Chief Justice:
"From what has thus been said, it is not to be inferred that this power of limitation or regulation is itself without limit. This power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation. Under pretense of regulating fares and freights, the state cannot require a railroad corporation to carry persons or property without reward. Neither can it do that which in law amounts to a taking of private property for public use without just compensation or without due process of law."
This language was quoted in the subsequent case of Dow v. Beidelman, 125 U. S. 680, 125 U. S. 689. Again, in Chicago & St. Paul Railway v. Minnesota, 134 U. S. 418, 134 U. S. 458, it was said by Mr. Justice Blatchford, speaking for the majority of the Court:
"The question of the reasonableness of a rate of charge for transportation by a railroad company, involving as it does the element of reasonableness both as regards the company and as regards the public, is eminently a question for judicial investigation, requiring the process of law for its determination."
"The legislature has power to fix rates, and the extent of judicial interference is protection against unreasonable rates."
Budd v. New York, 143 U. S. 517, announces nothing to the contrary. The question there was not whether the rates were reasonable, but whether the business, that of elevating grain, was within legislative control as to the matter of rates. It was said in the opinion: "In the cases before us, the records do not show that the charges fixed by the statute are unreasonable." Hence there was no occasion for saying anything as to the power or duty of the courts in case the rates, as established, had been found to be unreasonable. It was enough that upon examination it appeared that there was no evidence upon which it could be adjudged that the rates were in fact open to objection on that ground.
These cases all support the proposition that while it is not the province of the courts to enter upon the merely administrative duty of framing a tariff of rates for carriage, it is within the scope of judicial power, and a part of judicial duty, to restrain anything which, in the form of a regulation of rates, operates to deny to the owners of property invested in the business of transportation that equal protection which is the constitutional right of all owners of other property. There is nothing new or strange in this. It has always been a part of the judicial function to determine whether the act of one party (whether that party be a single individual, an organized body, or the public as a whole) operates to divest the other party of any rights of person or property. In every Constitution is the guaranty against the taking of private property for public purposes without just compensation. The equal protection of the laws, which, by the Fourteenth Amendment, no state can deny to the individual, forbids legislation, in whatever form it may be enacted, by which the property of one individual is, without compensation, wrested from him for the benefit of another or of the public. This, as has been often observed, is a government of law, and not a government of men, and it must never be forgotten that under such a government, with its constitutional limitations and guaranties, the forms of law and the machinery of government, with all their reach and power, must, in their actual workings, stop on the hither side of the unnecessary and uncompensated taking or destruction of any private property, legally acquired and legally held. It was therefore within the competency of the Circuit Court of the United States for the Western District of Texas, at the instance of the plaintiff, a citizen of another state, to enter upon an inquiry as to the reasonableness and justice of the rates prescribed by the railroad commission. Indeed, it was, in so doing, only exercising a power expressly named in the act creating the commission.
A classification was made by the commission, and different rates established for different kinds of goods. These rates were prescribed by successive circulars. Classification of rates is based on several considerations, such as bulk, value, facility
of handling, etc. It is recognized in the management of all railroads, and no complaint is here made of the fact of classification, or the way in which it was made by the commission. By these circulars, rates all along the line of classification were reduced from those theretofore charged on the road. The challenge in this case is of the tariff as a whole, and not of any particular rate upon any single class of goods. As we have seen, it is not the function of the courts to establish a schedule of rates. It is not, therefore, within out power to prepare a new schedule or rearrange this. Our inquiry is limited to the effect of the tariff as a whole, including therein the rates prescribed for all the several classes of goods, and the decree must either condemn or sustain this act of quasi-legislation. If a law be adjudged invalid, the court may not, in the decree, attempt to enact a law upon the same subject which shall be obnoxious to no legal objections. It stops with simply passing its judgment on the validity of the act before it. The same rule obtains in a case like this.
We pass then to the remaining question, were the rates, as prescribed by the commission, unjust and unreasonable? The bill, it will be remembered, was filed by a second mortgagee. The railroad company was made a defendant, and filed a cross-bill. Each of these bills contains a general averment that the rates are unjust and unreasonable. That the original bill, which was filed April 30, 1892, or some six or seven months after the action of the commission, is in these words:
"Eighth. That the classifications and schedules of rates and charges so announced and promulgated in and by said commodity tariffs and circulars of said commission, or sought so to be, as hereinbefore shown, are unfair, unjust, and unreasonable, and that the same cannot be adopted or put or continued in effect by the defendant company or defendant receiver without serious and irreparable loss to it and serious and irreparable injury to and destruction of the property, rights, and interests of your orator and the beneficiaries of its trust, as hereinafter more fully set forth; that the rates so charged and announced by said commission are not compensatory, and
are unreasonably low, and that the adoption and enforcement thereof would result, as nearly as can be estimated, in a diminution of revenues derived from the operation of said International and Great Northern Railroad, aggregating more than $200,000 per annum, and that the revenues from said railroad, so reduced and diminished, would be inadequate and insufficient to provide for the payment of the interest upon the prior obligations of the defendant railroad company, recited in paragraph 4 hereof, and the interest upon the second mortgage bonds secured by said mortgage to your orator as trustee, after providing for the expenses of operating said lines of railroad and property and maintaining the same in proper order and good working condition, so that the traffic and business of said road, and of every part thereof, shall at all times be conducted with safety to person and property, and with due expedition."
It may not be just to take this as an allegation of a mere matter of fact, the truthfulness of which is admitted by the demurrer, and which, as thus admitted, eliminates from consideration all questions as to the true character and effect of the rates. Yet it is not to be ignored. There are often, in pleadings, general allegations of mixed law and fact, such as of the ownership of property and the like, which, standing alone, are held to be sufficient to sustain judgments and decrees, and yet are always regarded as qualified, limited, or even controlled by particular facts stated therein. It would not, of course, be tolerable for a court administering equity to seize upon a technicality for the purpose, or with the result, of entrapping either of the parties before it. Hence we should hesitate to take the filing of the demurrers to these bills as a direct and explicit admission on the part of the defendants that the rates established by the commission are unjust and unreasonable. Yet it must be noticed that at first answers were filed tendering issue upon the matters of fact, and testimony was taken, the extent of which, however, is not disclosed by the record. After that, the defendants applied for leave to withdraw their answers and file demurrers. It is not to be supposed that this was done thoughtlessly. But one conclusion
can be drawn from that action, and that is that upon the taking of their testimony, defendants became satisfied that the particular facts were as stated in the bills and that the conclusions to be drawn from such facts could not be overthrown by any other matters. Hence, if it appears that the facts stated in detail tend to prove that the rates are unreasonable and unjust, we must assume, as against the demurrers, that the general allegation heretofore quoted is true and that there are no other and different facts which, if proved, might induce a different conclusion and compel a different result.
What, then, are the special facts disclosed in the several bills? It appears that there is a bonded indebtedness of over $15,000,000 and, in addition, capital stock to the amount of $9,755,000; that the bonds and stock were issued for and represent value, and that the rates theretofore existing on the road were not sufficient to enable the company to pay all the interest on the bonds. At the time suit was commenced, the first mortgage bonds outstanding amounted to $7,054,000, drawing 6 percent interest; the second mortgage bonds, to $7,954,000, drawing also 6 percent interest. The stockholders had never received any dividends whatever upon their investment, but, on the contrary, as appears from the cross-bill filed subsequently to the commencement of the suit, they had been forced to pay a cash assessment of over a million of dollars, or about 12 percent of the face value of the stock, for the purpose of providing in part for the interest upon the first mortgage bonds. The holders of those bonds had been compelled to accept, and had accepted, in payment of one-half of the accrued and defaulted interest -- a sum exceeding $750,000 -- deferred certificates of indebtedness bearing interest at the rate of 5 percent. The holders of the second mortgage bonds had been called upon to fund, and substantially all had consented to fund, past-due interest amounting to upwards of $1,250,000 in third mortgage bonds, bearing 4 percent interest, and they had also been required to reduce, and substantially all had agreed to reduce, the interest on their bonds to 4 1/2 percent per annum for the period of six
years, and thereafter to 5 percent per annum. For about three years, the road had been in the hands of a receiver appointed on account of the default of the company in the payment of its obligations. A statement in detail was incorporated in the bill of the earnings and operating expenses of the road during the years 1889 and 1890 and the first nine months of 1891, which was supplemented by a like statement in the cross-bill subsequently filed of the earnings and expenses for the entire year 1891 and the first three months of 1892. These statements show the following figures:
1889: Earnings . . . . . . . . . . . . . . . . . $3,488,185.14
Operating expenses, exclusive of taxes . . 2,629,452.90
Surplus. . . . . . . . . . . . . . . . . . 858,732.24
1890: Earnings . . . . . . . . . . . . . . . . . 3,646,422 33
Operating expenses, exclusive of taxes . . 3,148,245.09
Surplus. . . . . . . . . . . . . . . . . . 498,177.24
1891: Earnings . . . . . . . . . . . . . . . . . 3,648,641.79
Operating expenses, exclusive of taxes. . 3,093,550.20
Surplus 555,091 59
Three months of 1892:
Earnings . . . . . . . . . . . . . . . . . 759,176.18
Operating expenses, exclusive of taxes . . 829,074.87
Deficit. . . . . . . . . . . . . . . . . . 69,898 69
The bill also contains a tabular statement of the revenue per ton per mile derived from the operation of the road during the years 1883 to 1893, inclusive, as follows:
Revenue per ton per mile for 1883 . . . (in cents) . . . . . 2.03
" " " 1884 . . . . . . . . . . . . . . 1.90
" " " 1885 . . . . . . . . . . . . . . 1.71
" " " 1886 . . . . . . . . . . . . . . 1.65
" " " 1887 . . . . . . . . . . . . . . 1.38
" " " 1888 . . . . . . . . . . . . . . 1.33
" " " 1889 . . . . . . . . . . . . . . 1.44
" " " 1890 . . . . . . . . . . . . . . 1.38
" " " 1891 (first nine months) . . . . 1.30
The mileage owned and operated by the company within the State of Texas amounts to 825 miles. There had been necessarily expended, in cash, in the construction and equipment of its road, more than $50,000 per mile, and it could not be replaced for less than $30,000 per mile. There is also this allegation in the cross-bill:
"That the lines of railway of your orator's company have at all times been operated as economically as practicable, and that its operating expenses have at all times been as reasonable and low in amount as they could be made by economical and judicious management, and that it has not been possible for your orator to operate said road for less than it has been operated; that for the year ending June 30, 1892, there were employed by your orator's company seventeen general officers, who received during said year an average daily compensation of $12.64, and, exclusive of its general officers, all of its employees, during and for the year ending June 30, 1892, received an average daily compensation of $2.01, and that at all times your orator has secured the service of its officers and employees as cheaply as practicable, and has employed no more than necessary, and that the above were fair and reasonable rates of pay; that at all times the International and Great Northern Railroad Company has secured all supplies, material, and property, of whatever character, for the operation of its road at the cheapest market price, and at as low rates as the same could be secured, and has secured and used no more than actually necessary in the operation of the road."
In the amendment to the cross-bill, filed in March, 1893, is given a table showing the actual reductions in amounts received by the railroad company for the transportation of the different classes of goods under the operation of the new tariffs up to August 31, 1892, and amounting to $159,694.51, and also a table showing the percent of reductions as to different articles -- varying from 5 percent on cement, to 54.90 percent on grain in car loads. The bill also, in general terms, negatives the probability of any increase in amount of business to compensate for the reduction in rates, a negation sustained by the figures given in the amended bill as to the
actual effect upon the receipts. It also contains a general averment that the rates on interstate business would be injuriously affected to an equal amount by reason of the reduction of rates on business within the state.
As against these facts the Attorney General presses these matters: in the table in the bill heretofore referred to, showing earnings and expenses during the years 1889 and 1890 and the first nine months of 1891, there is this item, several times repeated, "Balance of income account," and this on September 30, 1891, is stated at $3,795,785.68. Of what this account is composed we are not informed. Possibly there was included within it the proceeds of the land grant, which, as we are told, was made by the state to the corporation. But whatever it includes, it was on January 1, 1889, as stated, $2,612,118.68, which would make the increase of that account during the two years and nine months to be $1,183.667. Confessedly no interest was paid during those years, and that amounted each year to something like $900,000, or nearly two millions and a half for the two years and nine months. It is obvious that no matter what may have been in the bookkeeping of the company included in this account, or how much, or from what sources, in prior years, the road had accumulated this balance, the increase during the time stated did not equal the accruing interest. The Attorney General also notices the report for the year ending June 30, 1892, made by the company to the railroad commission, a copy of which is attached as an exhibit to the amendment to the cross-bill, and from that he tabulates a statement which, as he contends, shows that the earnings during that year were sufficient to pay the operating expenses and fixed charges. We give the table as he has prepared it:
Gross earnings from operation . . . . . . . . . . . . . . . $3,568,690.26
Less operating expenses . . . . . . . . . . . . . . . . . . 2,986,204.12
Income from operation . . . . . . . . . . . . . . $ 582,486.14
To which should be added amounts expended for "cost of
road, equipment, and permanent improvements," admitted
to have been included in operating expenses . . . . . . . 302,085.77
Dividends on (compress) stocks owned. . . . . . . . . . . . 8,020.00
Total income. . . . . . . . . . . . . . . . . . . $ 892,591.91
Deductions from Income
Interest on funded debt accrued during the year, viz.:
On $7,954,000 first mortgage bonds at 6%. . . $477,240.00
On $7,054,000 second mortgage bonds, one
month at 6% . . . . . . . . . . . . . . . . 35,270.00
On $7,054.00 second mortgage bonds, eleven
months at 4 1/2%. . . . . . . . . . . . . . 290,977.50
Total interest accrued. . . . . . . . . . $803,487.50
Rental paid Colorado River Bridge Company . . 14,583.32
Taxes . . . . . . . . . . . . . . . . . . . . 28,951.35
Total deductions . . . . . . . . . . $ 847,022.17
Surplus after paying operating expenses proper,
interest accrued on bonds, taxes, etc. . . $ 45,569.74
But this table ignores that which is disclosed in the cross-bill, to-wit, $750,000 in certificates of indebtedness, bearing interest at 5 percent, and $1,250,000 third mortgage bonds, bearing 4 percent interest, the interest on which sums would exceed all the apparent surplus. These items
also appear in the report under the head of "Current Liabilities," the total balance of which on July 1, 1892, is given as $3,772,062.94, which sum may not unreasonably be taken as showing by how much the company has fallen short of paying its operating expenses and fixed charges. Again, the sum of $302,085.77 appears in that table, under the description "Cost of road, equipment, and permanent improvements, admitted to have been included in operating expenses," and is added to the income, as though it had been improperly included in operating expenses. But before this change can be held to be proper, it is well to see what further light is thrown on the matter by other portions of the report. That states that there were no extensions of the road during that year, so that all of this sum was expended upon the road as it was. Among the items going to make up this sum of $302,085.77 is one of $113,212.09 for rails, and it appears from the same report that there was not a dollar expended for rails, except as included within this amount. Now it goes without saying that in the operation of every road there is a constant wearing out of the rails and a constant necessity for replacing old with new. The purchase of these rails may be called "permanent improvements" or by any other name, but they are what is necessary for keeping the road in serviceable condition. Indeed, in another part of the report, under the head of "Renewals of Rails and Ties," is stated the number of tons of "new rails laid" on the main line. Other items therein are for fencing, grading, bridging, and culvert masonry, bridges and trestles, buildings, furniture, fixtures, etc. It being shown affirmatively that there were no extensions, it is obvious that these expenditures were those necessary for a proper carrying on of the business required of the company. Certainly the mere title under which these expenditures are once stated is not sufficient to overthrow the facts -- so fully and clearly shown -- that the stockholders have never received any dividends; that in order to meet the accumulating interest on the bonds, they have had to put their hands in their pockets and advance a million and over of dollars. Those are facts whose significance cannot be
destroyed by any mere manner of bookkeeping or classification of expenditures.
Further, the Attorney General asserts that there are five trunk lines, of which the International and Great Northern road is one, paralleling each other, and thus dividing the business of the territory through which they pass; that the State of Texas had made large donations of land to railroad companies, and that, as appears from its executive documents, this railroad company had received a donation of 3,352,320 acres to aid in its construction, as well as exemption of all its property from taxation for twenty-five years. He also calls attention to the financial depression which has of late years pervaded every avenue of trade, and adds a table from the report of the Commissioner of Agriculture of Texas showing, as to different articles produced in that state, an increase in the amount of product and a decrease in the prices received therefor, all of which considerations, he earnestly insists, affect the question of the reasonableness of the rates prescribed.
None of the matters mentioned in the foregoing paragraph appears in the pleadings or elsewhere in the record, and it is therefore doubtful to what extent they may be taken into consideration. If we may take judicial notice of the five parallel roads, must we also assume that the existence of the other four diminishes the business of the International and Great Northern, and that, if they had never been built, all the business which now passes over the five would have been carried by the one? May not the topography of the country be such as to prevent any of the business of the other roads from ever coming to the International and Great Northern even if, without them, it was obliged to seek water or wagon transportation? May not the building of those other roads have increased the population and business to such an extent that the overflow has, so far from diminishing, really resulted in an increase of, the business of the International and Great Northern? If there has been a division of business, has there not also been a competition by which the rates have been reduced, and reduced to such an extent as to forbid the propriety of any further reduction? If we may take judicial
notice that the state made a grant of three million and odd acres to the company, must we also take notice of the value of that land, of its sale, and the amount realized therefrom? While undoubtedly there has been lately a period of financial depression, can we take judicial notice of the extent to which that depression has reduced the prices of the products of the state? And is the report of the commissioner of agriculture of the state to be considered as evidence before us and accepted as substantially correct both as to product and prices? And if the depreciation of prices, as stated in said report, be accepted as correct, will such depreciation uphold a compulsory reduction of the rates of transportation to such an extent that some of those who have invested their money in railroad transportation receive no compensation therefrom? Is it just to deprive one party of all compensation in order that another may make some profit? They who invest their money in railroads take the same chances that men engaged in other business do of making profit from the carrying on of their business, and, as appears from other cases submitted to us with this, some of the railroads in the State of Texas have been operated at a constant loss. But such possibilities of loss are simply the natural results of all business freely carried on, against which the law is powerless to afford protection. Very different are the considerations which arise when the strong arm of the law is invoked to compel parties engaged in legitimate business, and business which cannot be abandoned at will, to so reduce their charges for service as to make the carrying on of that business result in a continued loss. In the one case, the law is powerless to prevent injury. In the other, it is used to work injury. Counsel suggest that the state itself may construct and operate railroads, and then may properly make rates so low that the business is done at a loss. They refer to the postal system of the United States, which, carried on for the common welfare, not infrequently results in a loss which is made good out of the public treasury. But the parallel is not good. In the case suggested the loss is cast, through taxation, upon the general public, and all bear their proportionate share of that loss which is incurred in
securing a common benefit, while the scope of this legislation is to secure such common benefit at the expense of a single class. The equal protection of the laws -- the spirit of common justice -- forbids that one class should by law be compelled to suffer loss that others may make gain. If the state were to seek to acquire the title to these roads under its power of eminent domain, is there any doubt that constitutional provisions would require the payment to the corporation of just compensation, that compensation being the value of the property as it stood in the markets of the world, and not as prescribed by an act of the legislature? Is it any less a departure from the obligations of justice to seek to take not the title, but the use, for the public benefit at less than its market value?
The act of 1853, to which reference has already been made, contained a section looking to the acquisition by the State of the title to railroad property. Section 17 of the Act of February 7, 1853, c. 46, General Laws of Texas, 1853, page 58, is as follows:
"If the legislature of this state shall at any time make a provision by law for the repayment to any such company of the amount expended by them in the construction of said road, together with all moneys for permanent fixtures, cars, engines, machinery, chattels, and real property then in use for the said road, with all moneys expended for repairs or otherwise, and interest on such sums at the rate of twelve percentum per annum, after deducting the amount of tolls, freights, passage money, and all moneys received from the sale of lands donated by the state to said company, with twelve percentum per annum interest on all such sums, then the road, with all its fixtures and appurtenances aforesaid, and all the lands donated to the same by the state and remaining unsold, shall vest in and revert to the state, provided that the state shall not be required to pay or allow a greater rate of interest on any amount of the money so expended by any company which shall have been borrowed from this state than the state shall have received for the same from such company."
This section, as will be perceived, provides for the payment
of interest at the high rate of 12 percent on the difference between what the company has paid out and what it has taken in, and to that extent evidences the thought of the state that justice required the return to the builders of railroads of something more than the actual cost as the condition of depriving them of the title. It is only significant, however, as an expression of the thought of the state at the time; for, were the provision ever so unjust, every corporation which, after the passage of the act, invested its money in building a road, would do so with the knowledge that that was the condition upon which the investment was made, and could not therefore challenge its validity.
And now what deductions are fairly to be drawn from all the facts before us? Is there anything which detracts from the force of the general allegation that these rates are unjust and unreasonable? This clearly appears. The cost of this railroad property was $40,000,000. It cannot be replaced today for less than $25,000,000. There are $15,000,000 of mortgage bonds outstanding against it, and nearly $10,000,000 of stock. These bonds and stock represent money invested in the construction of this road. The owners of the stock have never received a dollar's worth of dividends in return for their investment. The road was thrown into the hands of a receiver for default in payment of the interest on the bonds. The earnings for the last three years prior to the establishment of these rates was insufficient to pay the operating expenses and the interest on the bonds. In order to make good the deficiency in interest, the stockholders have put their hands in their pockets and advanced over a million of dollars. The supplies for the road have been purchased at as cheap a rate as possible. The officers and employees have been paid no more than is necessary to secure men of the skill and knowledge requisite to suitable operation of the road. By the voluntary action of the company, the rate, in cents, per ton per mile, has decreased in ten years from 2.03 to 1.30. The actual reduction by virtue of this tariff in the receipts during the six or eight months that it has been enforced amounts to over $150,000. Can it be that a tariff which, under these circumstances,
has worked such results to the parties whose money built this road, is other than unjust and unreasonable? Would any investment ever be made of private capital in railroad enterprises with such as the proffered results?
It is unnecessary to decide, and we do not wish to be understood as laying down as an absolute rule, that in every case a failure to produce some profit to those who have invested their money in the building of a road is conclusive that the tariff is unjust and unreasonable. And yet justice demands that everyone should receive some compensation for the use of his money or property if it be possible without prejudice to the rights of others. There may be circumstances which would justify such a tariff. There may have been extravagance and a needless expenditure of money. There may be waste in the management of the road -- enormous salaries, unjust discrimination as between individual shippers, resulting in general loss. The construction may have been at a time when material and labor were at the highest price, so that the actual cost far exceeds the present value. The road may have been unwisely built, in localities where there is no sufficient business to sustain a road. Doubtless too, there are many other matters affecting the rights of the community in which the road is built, as well as the rights of those who have built the road. But we do hold that a general averment in a bill that a tariff, as established, is unjust and unreasonable is supported by the admitted facts that the road cost far more than the amount of the stock and bonds outstanding; that such stock and bonds represent money invested in its construction; that there has been no waste or mismanagement in the construction or operation; that supplies and labor have been purchased at the lowest possible price consistent with the successful operation of the road; that the rates voluntarily fixed by the company have been for ten years steadily decreasing, until the aggregate decrease has been more than fifty percent; that under the rates thus voluntarily established, the stock, which represents two-fifths of the value, has never received anything in the way of dividends, and that for the last three years, the earnings above operating expenses have been insufficient to
pay the interest on the bonded debt, and that the proposed tariff, as enforced, will so diminish the earnings that they will not be able to pay one-half the interest on the bonded debt above the operating expenses, and that such an averment, so supported, will, in the absence of any satisfactory showing to the contrary, sustain a finding that the proposed tariff is unjust and unreasonable, and a decree restraining it being put in force.
It follows from these considerations that the decree as entered must be reversed insofar as it restrains the railroad commission from discharging the duties imposed by this act and from proceeding to establish reasonable rates and regulations, but must be affirmed so far only as it restrains the defendants from enforcing the rates already established. The costs in this Court will be divided.
Official Supreme Court caselaw is only found in the print version of the United States Reports. Justia caselaw is provided for general informational purposes only, and may not reflect current legal developments, verdicts or settlements. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or information linked to from this site. Please check official sources.