The act of the Legislature of Minnesota creating a railroad
Commission is not unconstitutional in assuming to establish joint
through rates or tariffs over the lines of independent connecting
railroads and apportioning and dividing the joint earnings.
Such a Commission has a clear right to pass upon the
reasonableness of contracts in which the public is interested,
whether such contracts be made directly with the patrons of the
road or for a joint action between railroads in the transportation
of persons and property in which the public is indirectly
concerned.
Without deciding whether or not connecting roads may be
compelled to enter into contracts as between themselves and
establish joint rates, it is nonetheless true that, where a joint
tariff between two or more roads has been agreed upon, such tariff
is as much within the control of the legislature as if it related
to transportation over a single line.
The presumption is that the rates fixed by the Commission are
reasonable, and the burden of proof is upon the railroad company to
show the contrary.
A tariff fixed by the Commission for coal in carload lots is not
proved to be unreasonable by showing that, if such tariff were
applied to all freight, the road would not pay its operating
expenses, since it might well be that the existing rates upon other
merchandise, which were not disturbed by the Commission, might be
sufficient to earn a large profit to the company, though it might
earn little or nothing upon coal in carload lots.
This was a petition for a mandamus filed in the District Court
of Ramsey County by the state, upon the relation of the Railroad
and Warehouse Commission, against the Minneapolis & St. Louis
Railroad Company and several other railroad companies (the first of
which alone answered and sued out this writ of error), to compel
such companies to adopt and publish a joint through rate fixed by
the Commission upon shipments of hard coal in carload lots from the
City of Duluth to certain points in the southern and western parts
of the State of Minnesota, and to enjoin them from demanding or
receiving any
Page 186 U. S. 258
greater sum for such through shipments than that fixed by the
Commission.
The facts are substantially as follows: the St. Paul and Duluth
Railroad Company, a corporation of the State of Minnesota, operates
a line of railroad from Duluth upon Lake Superior to the Cities of
St. Paul and Minneapolis. Its local rate upon hard coal in carload
lots from Duluth to these twin cities was $1.25 per ton, the
reasonableness of which local rate is conceded. The Minneapolis and
St. Louis Railroad Company, also a corporation of the same state,
operates a line of road from St. Paul and Minneapolis southerly
through Hopkins, a station nine miles from Minneapolis, to Albert
Lea in said state, thence still southerly to Angus in Boone County,
Iowa. At Albert Lea and Angus, it connects with other railroads,
and by virtue of traffic arrangements has access to all the
principal markets. It also owns and operates a branch line
extending from a connection with its main line at Hopkins, westerly
ninety-two miles to Morton, Minnesota at which point it connects
with a railroad owned and operated by the Wisconsin, Minnesota and
Pacific Railroad Company, which extends westerly from Morton to
Watertown in South Dakota. Winthrop is a station upon the line of
the Minneapolis and St. Louis road between Hopkins and Morton,
sixty miles west of Hopkins, and at the time the order of the
Commission was made the Minneapolis, New Ulm and Southwestern
Railroad had constructed and owned a short line of railroad
extending south from Winthrop to New Ulm in Brown County. The
capital stock of the last-named company was owned by the
Minneapolis and St. Louis Railroad Company, but it was nevertheless
a separate and independent corporation.
Both the St. Paul and Duluth Railroad Company and the
Minneapolis and St. Louis company are fully equipped to conduct the
business of common carriers, have complete track connections and
transfer facilities at St. Paul and Minneapolis, and for a long
time have been engaged in transporting hard coal in carload lots
without change of cars from Duluth to the points upon the line of
the Minneapolis and St. Louis road for a joint through rate, which
had been established by the mutual agreement
Page 186 U. S. 259
of the companies, and which had been divided between them
according to that agreement. In dividing earnings under this joint
tariff, to which not only the two principal defendants were
parties, but the Minneapolis, New Ulm and Southwestern company, and
the Wisconsin, Minnesota and Pacific company were also parties,
there was first set apart to the St. Paul and Duluth company $1 per
ton for transporting the hard coal from Duluth to Minneapolis, the
remainder being turned over to one or more of the other three
companies participating in the carriage of the coal to its
destination.
On September 22, 1898, the Railroad and Warehouse Commission,
having resolved to investigate the reasonableness of this joint
rate, made an order upon all these railroad companies to answer as
to the reasonableness of such rate. The companies duly appeared and
took part in the investigation, and on January 19, 1899, the
Commission made an order whereby it determined that the joint rate
then in force for transporting hard coal from Duluth to the several
stations west of the Twin Cities was unreasonable and unjust, and
ordered a reduction to another rate found by the Commission, which
was published and served upon the companies, as required by the
state laws, but was disregarded by the railroads interested. Under
the rate so fixed, the St. Paul and Duluth company was allowed $1
per ton from Duluth to Minneapolis, which was the same price
previously agreed upon between the parties, the remainder to be
paid to the Minneapolis and St. Louis company, which was left to
settle with the Minneapolis, New Ulm, and the Southwestern and the
Wisconsin, Minnesota & Pacific companies for services rendered
by those companies in the transportation of coal to points upon
their respective roads. Neither of the companies filed or posted
schedules of the new tariffs as required by law, and the plaintiff
in error, the Minneapolis and St. Louis Railroad Company, on March
3, 1899, and six weeks after the Commission made its order,
withdrew all tariffs on hard coal in carload lots which had been
established under agreement with the Duluth road.
Whereupon this proceeding was taken in the District Court of
Ramsey County to compel the railroad companies to comply
Page 186 U. S. 260
with the order of the Commission. After trial, judgment was
rendered by that court confirming the order of the Commission
directing the issue of a writ of mandamus as prayed, and the
judgment so rendered was affirmed upon appeal by the Supreme Court
of Minnesota in
State v. Minneapolis & St. Louis R.
Co., 80 Minn.191.
Whereupon the Minneapolis and St. Louis Railroad Company,
against which the full amount of the reduction by the Commission
was assessed, sued out this writ of error.
MR. JUSTICE BROWN delivered the opinion of the Court.
This case raises two question: (1) the constitutionality of an
act of the legislature of Minnesota passed in 1895, creating a
Railroad and Warehouse Commission and defining its duties (the
material portions of which are printed in the case of
Wisconsin
&c. R. Co. v. Jacobson, 179 U. S. 287),
insofar as it assumes to establish joint through rates or tariffs
over the lines of independent connecting railroads, and by virtue
of which it assumes to arbitrarily apportion and divide joint
earnings; (2) whether the tariff fixed by the Commission is wholly
inadequate and not compensatory.
1. The constitutionality of the act of 1895 is attacked upon the
ground that it authorizes the railway commission of the state to
compel two or more railroad companies to enter into a joint tariff,
and to make and adopt a joint rate for the transportation of
property over the lines of such companies, as well as to make a
division and to apportion the joint earnings among the several
companies interested. It is insisted that it is beyond the
constitutional power of the legislature to compel companies to
enter into involuntary, unreasonable, and unprofitable contracts
with other companies at the instance of third parties, or to fix
terms and conditions upon which such contracts shall be
Page 186 U. S. 261
performed. This argument in its various applications is one
which has been addressed to and considered by this Court in nearly
every case in which the power of the state to regulate railway
charges has been called in question, and the answer made to it in
those cases is equally pertinent here. Indeed, it is impossible for
the state to exercise this power of regulation without interfering
to some extent with the power of a railway to contract either with
its customers or connecting lines. The power is one which was said
in
Munn v. Illinois, 94 U. S. 113, to
have been customarily exercised in England from time immemorial,
and in this country from its first colonization, for the regulation
of ferries, common carriers, hackmen, bakers, millers, wharfingers,
and innkeepers, and the whole object of this class of legislation
is to curtail the power to contract by limiting the exactions of
those engaged in these occupations, and providing that the
rendition of such services shall not raise an implied promise to
pay more than a certain fixed sum. This legislation may be
justified by the fact that these various occupations are
necessarily to a certain extent monopolistic in their nature, and
that, in dealing with customers, the parties do not stand upon an
equality, the latter being practically compelled to submit to such
terms as the former may choose to exact, unless the state shall,
acting in the interest of the public, elect to interfere and
prescribe a maximum of charges.
The argument for the railroad companies in this case assumes
that, while the state may interfere as between the railways and
their customers, the shippers of freight, it cannot do so as
between the railways themselves, by fixing joint tariffs and
apportioning such tariffs among the several railways interested in
the transportation. The practical result of that argument is this,
that, if there were within a certain state five connecting roads of
100 miles each in length, which among themselves had established a
joint tariff for the whole 500 miles, the state would be powerless
to interfere with such tariff, though its right to do so would be
unquestioned if the whole 500 miles were owned and operated by a
single company. To state such a proposition is practically to
answer it. Granting that a state has no right to interfere with the
internal economy of a railroad
Page 186 U. S. 262
farther than to secure the safety and comfort of passengers, as,
for example, to fix the wages of employees or control its contracts
for construction, or the purchase of supplies, it has a clear right
to pass upon the reasonableness of contracts in which the public is
interested, whether such contracts be made directly with the
patrons of the road, or for a joint action in the transportation of
persons or property in which the public is indirectly
concerned.
There is an underlying fallacy in the argument of the railroad
company in this connection that the sum of two reasonable local
rates cannot be unreasonable; and, as it is admitted that $1.25 per
ton is a reasonable local rate for transporting coal from Duluth to
Minneapolis over the St. Paul and Duluth road, and that the local
rates for coal from Minneapolis to the designated stations westward
and southward are also reasonable, it is impossible that a through
rate from Duluth to the same stations which does not exceed the
aggregate of these two rates can be unreasonable. We cannot assent
to this proposition. The practice of railways in this country is
almost universally to the contrary, and a through tariff is almost
always fixed at a less sum than the aggregate of local tariffs
between nearby stations upon the same road. Doubtless the fixing of
a lower through tariff is dictated largely by a desire of each road
to get as much mileage as possible from its patrons, as well as by
an effort to meet competition over other lines doing business
between the same termini, but, in addition to this, there is an
increased cost of local business over through business in the
additional fuel consumed and the increased wear upon the machinery
of each train involved in stopping at every station. These facts
were noticed by MR. JUSTICE BREWER in the opinion of the Court in
Chicago &c. Railway Company v. Tompkins, 176 U.
S. 167, in which he makes the following
observations:
"Take a single line of 100 miles, with ten stations. One train
starts from one terminus with through freight and goes to the other
without stop. A second train starts with freight for each
intermediate station. The mileage is the same. The amount of
freight hauled per mile may be the same, but the time taken by the
one is greater than that taken by the other.
Page 186 U. S. 263
Additional fuel is consumed at each station where there is a
stop. The wear and tear of the locomotive and cars from the
increased stops and in shifting cars from main to side tracks is
greater; there are the wages of the employees at the intermediate
stations, the cost of insurance, and these elements are so varying
and uncertain that it would seem quite out of reach to make any
accurate comparison of the relative cost. And if this is true when
there are two separate trains, it is more so when the same train
carries both local and through freight."
We are bound to recognize the fact that modern commerce is
largely carried on over railways owned and operated by different
companies; that Congress in passing the Interstate Commerce Act
assumed the power to determine the reasonableness of joint tariffs
as applied to connecting lines between the several states,
Cincinnati &c. R. Co. v. Interstate Commerce
Commission, 162 U. S. 184, and
that, if the power of the state commission were limited to the
tariffs of a single road, it would be wholly inefficacious in a
large number, if not in a majority, of cases -- in fact, that the
whole purpose of the act might be defeated. The necessities of this
case do not require us to determine whether connecting roads may be
compelled to enter into contracts as between themselves and
establish joint rates, but, so far as applied to contracts already
in existence, we have no doubt of the power of the state to
supervise and regulate them. Such a contract for a joint rate
having been in existence when the order of the Commission was made,
we do not think it was affected by the subsequent withdrawal of the
Minneapolis and St. Louis Company. It may also be said in this
connection that, in
Wisconsin &c. R. Co. v. Jacobson,
179 U. S. 287, we
held that, under this very act, railways in Minnesota might be
compelled to make track connections at the intersections of other
roads for transferring cars from the lines or tracks of one company
to those of another, as well as for facilities for the interchange
of cars and traffic between their respective lines. The case did
not involve the right of the Commission to prescribe joint through
rates for the transportation of freight between points on their
respective lines, but if any inferences are to be derived from the
opinion, they are in favor of such
Page 186 U. S. 264
right.
See also Burlington, Cedar Rapids &c. Railway v.
Dey, 82 Ia. 312, 338. All that we are required to hold in this
case is that, where a joint tariff between two or more roads has
been agreed upon, such tariff is as much within the control of the
legislature as if it related only to transportation over a single
line.
2. The more difficult question is that connected with the
reasonableness of the rates. The presumption is that the rates
fixed by the Commission are reasonable, and the burden of proof is
upon the railroad companies to show the contrary.
Dow v.
Beidelman, 125 U. S. 680;
Chicago &c. Ry. Co. v. Tompkins, 176 U.
S. 167,
176 U. S. 173.
Indeed, the act itself provides, section 3, subdivision C,
"the rates established by said Commission shall go into effect
within ten days, . . . and from and after that time, the schedule
of rates so established shall be
prima facie evidence in
all the courts of this state that such rates are reasonable through
rates for transportation of freight and cars upon the railroads for
which such schedule shall have been fixed."
In fixing the through rates for hard coal in carload lots from
Duluth to interior points in Minnesota, the Commission set apart to
the St. Paul and Duluth Company $1 per ton of the joint tariff, and
as this was the same amount which that road had received under the
prior arrangement, no question is made as to its reasonableness,
and no appeal was taken by that road. The remainder of the joint
tariff is paid to the Minneapolis and St. Louis Company, plaintiff
in error, which was left to settle with the other roads interested
in the tariff.
According to the tariff fixed by agreement between the companies
prior to the action of the Commission a charge was made from Duluth
to Hopkins, nine miles from Minneapolis, of $1.75, of which $1 was
paid to the St. Paul and Duluth road (160 miles) and the remainder,
75 cents, to the Minneapolis and St. Louis road for a
transportation of nine miles. This rate was gradually increased to
Stations beyond Hopkins until Norwood, forty miles from
Minneapolis, was reached, where it was fixed at $2.50. The same
rate was retained to Boyd, 153 miles from Minneapolis. This rate of
$2.50 appears to have been a purely
Page 186 U. S. 265
arbitrary one, and indicates pretty clearly, as observed by the
supreme court, that the defendant was either carrying coal to Boyd
at a loss or was collecting too much tariff per ton on the same
article transported to Norwood, although there may have been, as
observed by the court, commercial conditions which made them
necessary. The Commission reduced the rate to Hopkins from $1.75 to
$1.32, and to Norwood from $2.50 to $1.57, gradually increasing
that rate to Boyd, where it was fixed at $2.48, but two cents less
than that fixed by the joint tariff theretofore agreed upon. T he
average rate allowed per ton per mile to the Minneapolis and St.
Louis road under the tariff so fixed by the Commission was 1.115,
while the old rate charged for this service was 1.784.
This rate, fixed by the Commission only upon hard coal in
carload lots, was not met by any showing that, at the rates fixed
by the Commission, there would be no profit or an insufficient
profit upon the coal so transported, but by evidence that, upon the
hard coal received from Duluth for the year ending June 30, 1899,
2,483 tons, the proportion allotted to the Minneapolis and St.
Louis Company would be $3,874.50, while if the Commission's rates
had been in effect for the same rate this proportion would have
been $2,464.78, a loss of revenue for the year of $1,409.72, as
shown more clearly by the following table:
Total tons of hard coal received from Duluth
for year ending June 30, 1899 . . . . . . . . . 2,583 tons
M. & St.L. R. Co. proportion on old rate,
2,583 tons at $1.50 . . . . . . . . . . . . . . 3,874.50
Had Commissioners' rates been in effect for
same period, M. & St. L.R. Co. proportion
would be. . . . . . . . . . . . . . . . . . . . 2,464.78
---------
Loss of revenue to M. & St.L. R. Co. for year $1,409.74
As suggested by the supreme court of the state, this loss seems
to be a trifling one when we consider that the total freight
earnings on the divisions affected by this order were over $700,000
for that fiscal year.
Page 186 U. S. 266
The principal testimony, however, was intended to show that, if
the rate fixed by the Commission for coal in carload lots were
applied to all freight, the road would not pay its operating
expenses, although in making this showing the interest upon the
bonded debt and the dividends were included as part of the
operating expenses. But it also appears that, if the old rate upon
hard coal in carload lots agreed upon by the roads were adopted as
an average rate for all freights, the freight earnings of the road
would have been largely increased. This would indicate that the
rate fixed for coal must have been above the average rate, although
coal is classified as far below the average.
It is quite evident that this testimony has but a slight, if
any, tendency to show that even at the rates fixed by the
Commission there would not still be a reasonable profit upon coal
so carried. It was not even shown that the joint tariff fixed by
the roads themselves upon coal was not disproportionately high as
compared with rates upon other articles or as gauged by a proper
classification. The difficulty with defendant's case is that it
made no attempt to show the cost of carrying coal in carload lots,
and that, even in proving that the cost of transporting all
merchandise exceeded the rate fixed by the Commission on this coal,
the interest upon bonds and dividends upon stock were included in
operating expenses. The propriety of the first is at least
doubtful, the impropriety of the second is plain. We do not intend,
however, to intimate that the road is not entitled to something
more than operating expenses. It was shown that coal belongs to one
of the lowest classes of freight, and this is particularly true of
the coal received from Duluth at Minneapolis, which was delivered
at the Minneapolis and St. Louis company upon their tracks at
Minneapolis. Besides this, coal in carload lots was a comparatively
insignificant item of the total freight carried, being but 2,583
tons for an entire year. True, it may be difficult to segregate
hard coal in carload lots from all other species of freight, and
determine the exact cost to the company, but upon the other hand,
the Commission, in considering a proper reduction upon a certain
class of freight, ought not to be embarrassed by any difficulties
the
Page 186 U. S. 267
companies may experience in proving that the rates are
unreasonably low. The charges for the carriage of freight of
different kind are fixed at different rates according to their
classification, and this difference, presumably at least, is gauged
to some extent by a difference in the cost of transportation, as
well as the form, size, and value of the packages and the cost of
handling them.
Notwithstanding the evidence of the defendant that, if the rates
upon all merchandise were fixed at the amount imposed by the
Commission upon coal in carload lots, the road would not pay its
operating expenses, it may well be that the existing rates upon
other merchandise, which are not disturbed by the Commission, may
be sufficient to earn a large profit to the company, though it may
earn little or nothing upon coal in carload lots. In
Smyth v.
Ames, 169 U. S. 466, we
expressed the opinion (p.
169 U. S.
541), that the reasonableness or unreasonableness of
rates prescribed by a state for the transportation of persons or
property wholly within its limits must be determined without
reference to the interstate business done by the carrier, or the
profits derived from it, but it by no means follows that the
companies are entitled to earn the same percentage of profits upon
all classes of freight carried. It often happens that, to meet
competition from other roads at particular points, the companies
themselves fix a disproportionately low rate upon certain classes
of freight consigned to these points. The right to permit this to
be done is expressly reserved to the Interstate Commerce Commission
by section 4 of that act, notwithstanding the general provisions of
the long and short haul clause, and has repeatedly been sanctioned
by decisions of this Court. While we never have decided that the
Commission may compel such reductions, we do not think it beyond
the power of the state Commission to reduce the freight upon a
particular article, provided the companies are able to earn a fair
profit upon their entire business, and that the burden is upon them
to impeach the action of the Commission in this particular. As we
said in
Smyth v. Ames (p.
169 U. S.
547):
"What the company is entitled to ask is a fair return upon the
value of that which it employs for the public convenience. On the
other hand, what the public is
Page 186 U. S. 268
entitled to demand is that no more be exacted from it for the
use of a public highway than the services rendered by it are
reasonably worth."
The very fact that the Commission, while fixing the rate to Boyd
at $2.48, within two cents of the amount theretofore charged by the
companies themselves, gradually reduced that rate in proportion to
the mileage, to Norwood, where it was fixed at $1.57, while the
company charged an arbitrary rate of $2.50 to Norwood and to all
the stations between Norwood and Boyd, tends at least, to show that
the rates were fixed upon a more reasonable principle than that
applied by the companies.
In exercising its power of supervising such rates, the
Commission is not bound to reduce the rates upon all classes of
freight, which may perhaps be reasonable, except as applied to a
particular article, and if, upon examining the tariffs of a certain
road, the Commission is of opinion that the rate upon a particular
article or class of freight is disproportionately or unreasonably
high, it may reduce such rate notwithstanding that it may be
impossible for the company to determine with mathematical accuracy
the cost of transportation of that particular article as
distinguished from all others. Obviously such a reduction could not
be shown to be unreasonable simply by proving that, if applied to
all classes of freight, it would result in an unreasonably low
rate. It sometimes happens that, for purposes of ultimate profit
and of building up a future trade, railways carry both freight and
passengers at a positive loss, and while it may not be within the
power of the Commission to compel such a tariff, it would not, upon
the other hand, be claimed that the railroads could in all cases be
allowed to charge grossly exorbitant rates as compared with rates
paid upon other roads, in order to pay dividends to stockholders.
Each case must be determined by its own considerations, and while
the rule stated in
Smyth v. Ames is undoubtedly sound as a
general proposition that the railways are entitled to a fair return
upon the capital invested, it might not justify them in charging an
exorbitant mileage in order to pay operating expenses if the
conditions of the country did not permit it.
It is sufficient, however, for the purpose of this case, to
say
Page 186 U. S. 269
that the action of the Commission in fixing the rate complained
of as to this particular class of freight has not been shown to be
so unjust or unreasonable as to amount to a taking of property
without due process of law, and we therefore conclude that the
judgment of the Supreme Court must be
Affirmed.
