Louisville & Nashville R. Co. v. Kentucky
161 U.S. 677 (1896)

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U.S. Supreme Court

Louisville & Nashville R. Co. v. Kentucky, 161 U.S. 677 (1898)

Louisville & Nashville Railroad Company v. Kentucky

No. 722

Argued January 14-15, 1895

Decided March 30, 1896

161 U.S. 677

Syllabus

A power given in a charter of a railroad to connect or unite with other roads refers merely to a physical connection of the tracks, and does not authorize the purchase, or even the lease of such roads or road, or any union of franchises.

Page 161 U. S. 678

The several statutes of Kentucky and of Tennessee relating to the Louisville and Nashville Railroad Company, which are quoted from or referred to in the opinion of the court, confer upon that company no general right to purchase other roads, or to consolidate with them.

The union referred to in those statutes is limited to a union with a road already connected with the Louisville and Nashville by running into the same town, and has and could have no possible relation to the acquirement of a parallel or competing line.

The third section of the Kentucky act of 1856 reenacting the Tennessee act of 1855, and providing that the Louisville and Nashville Company may "from time to time extend any branch road and may purchase and hold any road constructed by another company" did not confer a general power to purchase roads constructed by other companies regardless of their relations or connections with the Louisville and Nashville road.

A contemporaneous construction of its charter which ratified the purchase of a few short local lines does not justify the company in consolidating with a parallel and competing line between its two termini with a view of destroying the competition which had previously existed between the two lines.

The Chesapeake, Ohio, and Southwestern Railroad Company was never vested with the power to consolidate its capital stock, franchises, or property with that of any other company owning a parallel or competing line. If, from reasons of public policy, a legislature declares that a railway company shall not become the purchaser of a parallel or competing line, the purchase is not the less unlawful because the parties choose to let it take the form of a judicial sale.

Whatever is contrary to public policy or inimical to the public interests is subject to the police power of the state, and is within legislative control, and, in the exertion of such power, the legislature is vested with a large discretion which, if exercised bona fide for the protection of the public, is beyond the reach of judicial inquiry.

Section 201 of the Constitution of the State of Kentucky of 1891, providing that

"no railroad, telegraph, telephone, bridge or common carrier company shall consolidate its capital stock, franchises or property, or pool its earnings, in whole or in part, with any other railroad, telegraph, telephone, bridge or common carrier company owning a parallel or competing line or structure, or acquire by purchase, lease or otherwise, any parallel or competing line or structure, or operate the same, nor shall any railroad company or other common carrier combine or make any contract with the owners of any vessel that leaves or makes port in this state, or with any common carrier, by which combination or contract the earnings of the one doing the carrying are to be shared by the other not doing the carrying,"

is a legitimate exercise of the police power of the state, and forbids the consolidation between the Louisville and Nashville Company and the Chesapeake, Ohio and Southwestern Company, which is the subject of controversy in this suit, at least so far as the power to make it remains unexecuted.

Page 161 U. S. 679

This was a bill in equity, styled a "petition," originally filed by the Commonwealth of Kentucky against the Louisville & Nashville Railroad Company (hereinafter called the L. & N. Co.), the Chesapeake, Ohio & Southwestern Railroad Company (hereinafter called the Chesapeake Co.), and several subordinate corporations tributary to the latter, to enjoin the L. & N. Co. (1) from acquiring the control of, or operating, the parallel and competing lines of railroad known as the Chesapeake, Ohio & Southwestern System, (2) from acquiring or operating the Short Route Railway Transfer Company, a belt line in Louisville, and the Union Depot in Louisville, connected therewith, and also (3) to enjoin the Chesapeake, Ohio & Southwestern System from selling out to, or permitting its roads to be operated by, its competitor, the L. & N. Co.

It was stated substantially in the commonwealth's petition, as its cause of action, that the L. & N. Co. owned and controlled many railroads in Kentucky, as respects which, railroads owned or controlled by the other companies named are parallel and competing; that defendants have made a contract and arrangement whereby the L. & N. Co. is to become the owner, and acquire a control of, the capital stock, franchises, and property of the other defendant companies, to the great injury of the commonwealth, and in violation of section 201 of the state constitution of 1891, which reads as follows:

"SEC. 201. No railroad, telegraph, telephone, bridge or common carrier company shall consolidate its capital stock, franchises or property, or pool its earnings, in whole or in part, with any other railroad, telegraph, telephone, bridge or common carrier company owning a parallel or competing line or structure; or acquire, by purchase, lease or otherwise, any parallel or competing line or structure, or operate the same, nor shall any railroad company or other common carrier combine or make any contract with the owners of any vessel that leaves or makes port in this state, or with any common carrier, by which combination or contract the earnings of the one doing the carrying are to be shared by the other not doing the carrying."

In an amended petition, it was stated in substance that the

Page 161 U. S. 680

L. & N. Co. was endeavoring to acquire the capital stock, interest in real property and mortgage securities of the other defendant companies, in order to obtain control, and ultimately purchase at judicial sale, and become the owner of, their franchises and property.

The answer denied the allegation in the form as made, but contained an affirmative statement that the purchase of the stock and securities referred to had already been consummated, and in effect admitted that the L. & N. Co. intended to purchase the franchises and properties at judicial sale.

The L. & N. Co. was incorporated by an Act of the Kentucky legislature approved March 5, 1850, the fourteenth section of which act provided

"that the president and board of directors of said company are hereby vested with all powers and rights necessary to the construction of a railroad from the City of Louisville to the Tennessee line in the direction of Nashville, the route to be by them selected and determined, not exceeding sixty-six feet wide, with as many sets of tracks as they may deem necessary, and that they may cause to be made contracts with others for making said railroad or any part of it."

This act was frequently amended in details unnecessary to be noticed here, one of which, adopted March 7, 1854, declared (section 4)

"that it shall be lawful for said Louisville and Nashville Railroad Company to unite their road with any other road connecting therewith upon such terms and conditions as may be agreed upon between the said Louisville and Nashville Railroad Company and such other company as they may desire to unite their said road with."

On December 15, 1855, the Legislature of Tennessee passed an act to amend an act entitled

"An act to charter the Louisville and Nashville Railroad Company, and the several acts amending said act passed by the Legislatures of Kentucky and Tennessee,"

under which it had been authorized to construct its road in Tennessee from the Kentucky line to Nashville, the thirteenth section of which act provided as follows:

"SEC. 13. Be it further enacted that this act shall take effect from and after its passage, provided nothing herein

Page 161 U. S. 681

contained shall be construed to prevent the Louisville and Nashville Railroad Company from admitting branch roads to connect with it at any point or points to be agreed upon between said company and those who have or may subscribe stock for the construction of any branch road. The stock subscribed and the means created to construct such separate branch shall be faithfully applied to that purpose, and said company is hereby vested with the power and the right to issue its bonds under the provisions of this act to obtain means to construct and equip any branch road, the bonds to express on their face the purpose for which they were executed, and to secure their payment may execute a deed of trust, or mortgage, for payment of which the rights, credits, profits, property and franchise, procured for said branch by the use of its means, shall alone be made liable. The credit, rights, or profits of the main stem shall not be used to create means to construct, or be made liable for any debt or liability created to construct, branch roads, nor shall the rights, credit, property, and profits of any branch road be used to create means to construct, or made liable for any debt or liability created to build the main stem, and with a view to such liabilities and profits, said company shall keep separate accounts, exhibiting the stock, property and debts of the main road, and each separate branch."

On January 17, 1856, the Legislature of Kentucky passed an act the first section of which reenacted the act passed by the Legislature of Tennessee in 1855 "in the following sections and words: [here follows a literal copy of the Tennessee act.]" The second section of this act vested the Louisville & Nashville Company with power to make agreements a railroad in part or in whole of the distance a railroad in part or in whole of the district between Louisville and Memphis, and running in the direction of Louisville, whereby to secure mutual and reciprocal rights to the contracting parties, etc. The third section was as follows:

"That the said company may, under the provisions of the thirteenth section of this act [referring evidently to the thirteenth section of the Tennessee act], from time to time extend any branch road,

Page 161 U. S. 682

and may purchase and hold any road constructed by another company, or may agree on terms to receive the cars of other roads on their said road, but shall charge for the same the usual freight."

At the same session, and on February 14, 1856, the Legislature of Kentucky passed what is known as the "General Reservation Act," the language of which, so far as it is material here, is as follows:

"SEC 1. That all charters and grants of or to corporations, or amendments thereof, and all other statutes shall be subject to amendment or repeal at the will of the legislature unless a contrary intent be therein plainly expressed, provided that whilst privileges and franchises so granted may be changed or repealed, no amendment or appeal shall impair other rights previously vested. . . ."

"SEC. 3. That the provisions of this act shall only apply to charters and acts of incorporation to be granted hereafter, and that this act shall take effect from its passage."

At this time and up to September, 1856, the L. & N. Co. owned only a short piece of road, thirty-one miles in length, extending from Louisville southwardly to Lebanon Junction. Up to September, 1857, it owned only forty-five miles; to September, 1858, seventy-two miles; in 1859, only one hundred and ten miles, and not till 1860 did it carry its road to Nashville, one hundred and eighty miles. About the same time was constructed a branch road from a point about seven miles south of Bowling Green to the state line, which has since been extended, and is now owned and operated by it, to Memphis, Tennessee. Subsequently it purchased, and now owns, a road known as the Evansville, Henderson & Nashville Railroad, which extends from Edgefield, Tennessee, on its main line, ten miles north of Nashville, by way of Hopkinsville, Kentucky, to Henderson, and thence across the Ohio River to Evansville, Indiana. It also owns and operates various branches in the State of Kentucky that diverge from the main line eastwardly, as well as the Kentucky Central Railroad, extending from Cincinnati southward, and certain branches thereof.

Page 161 U. S. 683

Of the roads constituting the Chesapeake, Ohio & Southwestern System, the first one extended from Paducah to Elizabethtown, and was subsequently extended from Cecilia Junction, six miles from Elizabethtown, to Louisville, whereby a continuous line was formed from Louisville to Paducah, independent of the L. & N. road. But by a subsequent lease, amounting practically to a purchase of a road from Paducah to Memphis, the Chesapeake Company became, about 1881, the owner of a connected, continuous, and independent railroad from Louisville, by way of Cecilia Junction and Paducah, to Memphis. It also has an interest in and control of several other railroads, bearing the name of, and nominally held by, the companies that built them, one of which is termed the "Short Route Railway," extending from Preston Street in Louisville through the depot at Seventh and Water Streets to Twelfth Street, where it connects with the main line.

Upon a hearing of the case upon pleadings and proofs, a decree was entered by the Jefferson Circuit Court in favor of the commonwealth, enjoining the proposed agreement for consolidation, which decree was subsequently affirmed by the Court of Appeals of Kentucky. 31 S.W. 476.

Whereupon the L. & N. Co. sued out a writ of error from this Court.

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