Southern Pacific Co. v. ICC - 200 U.S. 536 (1906)
U.S. Supreme Court
Southern Pacific Co. v. ICC, 200 U.S. 536 (1906)
Southern Pacific Company v. Interstate Commerce Commission
Argued January 23-24, 1906
Decided February 26, 1906
200 U.S. 536
The Southern Pacific and other railroads published a guaranteed through rate on citrus fruits from California to the Atlantic seaboard. The shippers availing of this rate routed the goods themselves from the terminals of the initial carriers and illegally obtained rebates for the routing from the connecting carriers. To prevent this -- and the action was successful -- the initial carriers republished the rate reserving the right to route the goods beyond their own terminals. On complaint of shippers, the Interstate Commerce Commission ordered the initial carriers to desist from enforcing the new rule, holding it violated § 3 of the Interstate Commerce Act by subjecting the shippers to undue disadvantage. The Circuit Court sustained the Commission, but on the ground that the routing by the carrier amounted, although no other agreement was proved in regard
thereto, to a pooling of freights and violated § 5 of the act. Held error, and that: .
As the general purpose of the act was to facilitate commerce and prevent discrimination, it will not be construed so as to make illegal a salutary rule to prevent the violation of the act in regard to obtaining rebates.
The question of joint through rates is, under the act, one of agreement between the companies and under their control, and nothing in the act prevents an initial carrier guaranteeing a through rate to reserve in its published notice thereof the right to route the goods beyond its own terminal.
A carrier need not contract to carry goods beyond its own line, or make a through rate; if it does agree so to do, it may do so by such lines as it chooses, and upon such reasonable terms, not violative of the law, as it may agree upon, and this right does not depend upon whether it agrees to be liable for default of the connecting carrier.
The fact that the initial carrier, in order to break up the practice of rebating by the connecting carriers, promises them fair treatment and carries out the promise by giving them certain percentages of its guaranteed through rate business, does not amount to a pooling of freights within the meaning of § 5 of the Interstate Commerce Act.
A reservation applicable to a single business by the initial carrier, guaranteeing a through rate, of the right to route goods beyond its own terminal does not amount to an unlawful discrimination within the prohibition of the act if the business is of a special nature, like the fruit business, having nothing in common with other freight.
In a suit by the Interstate Commerce Commission to enforce an order made by it, the court is not confined in passing on the validity of the order to the reasons stated by the Commission.
These are appeals from orders or decrees of the Circuit Court of the United States for the Southern District of California in proceedings wherein that court affirmed, and ordered to be enforced, the determination of the Interstate Commerce Commission, relating to the above-named railroad companies, directing them to desist from maintaining or enforcing a rule adopted by them and pertaining to shippers of oranges and other citrus fruits in southern California, whereby those shippers were denied their alleged right of designating the routes for the transportation of their property from California to the Eastern markets, under a tariff of through rates, as mentioned in the orders or decrees.
The proceeding in each case was commenced before the Commission under sections 13, 14, and 15 of the Interstate
Commerce Act, 24 Stat. 379, by the filing of a petition with the Commission, on the part of certain corporations of the State of California, called the Consolidated Forwarding Company, and the Southern California Fruit Exchange, engaged in the business of shipping oranges and other citrus fruit from southern California to the Eastern markets. The proceeding was continued in the circuit court under section 16 of the act. The petition charged the railroads with various violations of the Interstate Commerce Act, including specially the agreement for "routing," hereinafter set forth, and asked the Commission to enjoin such companies from any further violation of the act. The companies put in answers to the petition, denying its material averments. Testimony was then taken before the Commission, and the following, among other facts, were shown:
The through tariff of rates from California to the East, with the right of routing, which had been agreed upon between the companies complained of (hereinafter called the initial carriers) and their Eastern connections regarding the orange and other citrus fruit transportation, was in force January 1, 1900, and these proceedings were commenced February 26, 1900. Before the adoption of the rule for routing, there had been among the Eastern connections of the initial carriers under the through joint tariff rates then existing the greatest rivalry to obtain the California fruit freight business, and this rivalry led on the part of the connecting carriers to a system of rebates from the through tariff rates which was a clear violation of the Commerce Act, and was demoralizing in every was to honest business. Indeed, the president of one of complainants before the Commission admitted that his company (the Southern California Fruit Exchange) had in four years received rebates to an amount of over $174,000. The practice had become so general that the shippers came to regard a rebate as part of the legitimate returns from the orange business. Among those who participated in this system of rebates were what is termed the car line companies, which were incorporated companies
owning cars in which the fruit was packed, described as ventilator or refrigerator cars, which were peculiarly adapted to the carriage of the fruit, and were hired by the initial carriers because they did not want to own equipment cars which they could keep in service only part of the year, while the car companies could use the cars for other purposes in other parts of the United States when the orange transportation was over. These car companies made arrangements with the connections of the initial carrier east of Chicago and New Orleans, by which a certain bonus, varying from $10 to $40 per car, was given the car line companies in consideration of the car's being routed over the line paying the bonus, a part of the bonus, varying from a quarter to a half, being usually turned over to the shipper by the car company for the privilege allowed the latter of routing the shipment.
The initial carriers form two systems -- one called the Southern Pacific System, and the other the Santa Fe System. There are numerous points of junction on these lines of the defendants, where connection is made with other carriers, and at their termini in Chicago, Ogden, and New Orleans such connection is made, and through lines are formed over which the citrus fruit is transported to practically all the markets of the United States. The two systems are the only ones which reach the section of country where the orange industry in Southern California exists, and they about equally divide the transportation of the oranges therefrom. The Commission said the evidence was unsatisfactory as a basis for a conclusion whether the initial carriers pooled their citrus fruit traffic or divided the earnings therefrom, and it therefore retained such question for further hearing and investigation.
Prior to January, 1900, the rebates by the Eastern companies, already referred to, had become so great and demoralizing that the initial carriers at length determined to try and crush the whole thing. The connecting carriers were themselves dissatisfied with this state of things, but each felt it necessary in order to compete with the others. It had been
assumed that the car line companies were not common carriers, and were not within the Commerce Act, and therefore they were more ready to indulge in the practice of getting rebates whenever they could, and paying part of the amount to the shippers for giving them the right to route the shipment. Prior to the adoption of the through rate tariff with this rule under discussion, the shippers had been permitted by the initial carriers to control the routing of the freight, and also to divert it, en route, from the destination point named in the bill. In order stop the rebating on these joint through rates, it was proposed to agree upon a through rate tariff, to be assented to and accepted by the railroads interested in the fruit transportation, or by as many of them as possible, with the rule in question to form part of the agreement. Such a tariff agreement was made between some of the roads (and subsequently assented to and joined in by most of the roads) and filed with the Commission, for the transportation of oranges and other citrus fruit from Southern California at $1.25 per hundred pounds, to practically all points east of the Missouri River. The tariff agreed upon by the companies contains the rule complained of, which is part of such agreement, and by it the initial carriers agreed to guarantee the through rates to the shipper, but only on the following conditions:
"In guaranteeing the through rate named herein, the absolute and unqualified right of routing beyond its own terminal is reserved to initial carrier giving the guaranty. In accordance with this rule, agents will not accept shipping orders or other documents, if routing instructions are shown thereon. Neither will agents accept verbal routing instructions."
Another rule reads:
"Initial carrier will route each car from point of origin to point of destination, and diversions in transit will not be permitted except by consent of initial carrier, who will thereupon designate new routing when diversion necessitates change therein."
Notwithstanding the rule thus published in regard to routing,
the initial carriers generally thereafter permitted the shippers to route the cars containing their fruit as they desired. The right to divert freight from the destination point or route named in the bill of lading, and before the freight reached the billed destination, had been exercised generally by shippers, and had been allowed by the carriers throughout the country, and the practice was regarded of value to the shippers, as it enabled them sometimes to realize higher prices than they otherwise might if the freight were continued to the original destination. This diversion by the shippers also continued to be generally allowed.
The reason for the rule, reserving to the initial carrier this right to route the traffic, is stated to have been because it enabled the initial carriers to secure the discontinuance of the practice of paying rebates. Since the adoption of that rule the rebates which had been paid to shippers and to owners of car lines were discontinued, and the Commission says there is no evidence that the practice has been resumed. They were discontinued for the obvious reason that the shippers could not control the route, and hence it would be useless for the Eastern railroad company to pay the shippers or the car line companies rebates on freight the Eastern company might not receive, and which the initial carrier alone had the routing of. As soon as the routing was agreed upon and the through tariff rates fixed, the Eastern connections had to do business with the initial carriers instead of the car company or the shipper. The shippers prepay or guarantee freight charges to destination. The initial carrier does not assume liability from damage resulting from negligence of any connecting line.
The Commission (the chairman, Mr. Commissioner Knapp, dissenting) ordered the defendants to cease from exacting from the shippers the right to themselves make the route which the freight should take. The ground taken by the Commission was that such routing by the initial carriers subjected the shippers to undue, unjust, and unreasonable prejudice and disadvantage, and gave to the carrier an undue and unreasonable
preference and advantage, and was a violation of the third section of the act.
The initial carriers, believing the Commission had erred in its decision, refused to obey the order which it made, and thereupon the Commission, pursuant to the sixteenth section of the act, filed its bill in the circuit court for the purpose of enforcing its order.
The bill thus filed by the Commission was demurred to by the defendants, and that demurrer was overruled. 123 F. 598. The railroad companies then answered, and the case, after the taking of further evidence, came up for final hearing, when the order of the Commission was affirmed and directed to be enforced (132 F. 829), although the circuit court put the affirmance on the ground that the agreement as to routing showed that there was a violation of § 5 of the Interstate Commerce Act, in that such agreement amounted to a contract or combination for the pooling of freights. The court passed upon no other question raised in the case. A very full statement of facts is contained in the report in 132 F. supra.
A motion was made for a supersedeas pending the hearing of this appeal, which, for the reasons stated in the opinion of the circuit court, was denied. 137 F. 606.