The rule that the allowance of amendments to pleadings is
discretionary with the trial court and not to be reviewed on appeal
except in case of gross abuse does not apply where such discretion
is controlled by this Court and the refusal to allow an amendment
defeats the evident purpose of this Court in remanding the
case.
Where the refusal of the circuit court to allow an amendment is
in conflict with the opinion and mandate of this Court, there is an
abuse of discretion which this Court can and will correct on
appeal, even if such abuse be the result of misconception of the
opinion and of the scope of the mandate.
While the decision of this Court in this and other commodities
clause cases,
213 U. S. 213 U.S.
366, expressly held that, under the commodities clause, stock
ownership by a railroad company in a
bona fide
corporation, irrespective of the extent of such ownership, does not
preclude the railroad company from transporting the commodities
manufactured, produced, or owned by such corporation, it is still
open to the government to question the right of the railroad
company to transport commodities of a corporation in which the
company owns stock and uses its power as a stockholder to
obliterate all distinctions between the two corporations, and an
amendment to the original bill in one of the commodities cases
alleging such facts as show the absolute control by the defendant
railroad company, through stock ownership, over the corporation
whose commodities are being transported is germane to the original
bill, and should have been allowed by the trial court.
By the operation and effect of the commodities clause, a duty
has been cast upon an interstate carrier not to abuse its power as
a stockholder of a corporation whose commodities it transports in
interstate commerce by so commingling the affairs of that
corporation with its own as to cause the two corporations to become
one and inseparable.
Page 220 U. S. 258
The facts are stated in the opinion.
Page 220 U. S. 263
MR. CHIEF JUSTICE WHITE delivered the opinion of the Court.
This case is one of what were known as the commodities cases,
previously decided and reported in
United States v. Delaware
& Hudson Co., 213 U. S. 366. The
controversy now is but a sequel to that disposed of in the previous
cases. To understand the question now for consideration, it is
essential to have in mind the contentions which arose for decision
upon the previous appeal and the disposition which was made of
them. We therefore refer to those subjects.
The United States proceeded, both by suits in equity and
mandamus, against certain railroad companies, including the Lehigh
Valley, to prohibit them from transporting coal in interstate
commerce in violation of what were deemed to be the prohibitions of
the fifth paragraph of the first section of the Act to Regulate
Commerce, as amended on June 29, 1906, usually referred to as the
commodities clause of the Hepburn Act. The clause is as
follows:
"From and after May first, nineteen hundred and eight, it shall
be unlawful for any railroad company to transport
Page 220 U. S. 264
from any state, territory, or the District of Columbia to any
other state, territory, or the District of Columbia or to any
foreign country any article or commodity, other than timber and the
manufactured products thereof, manufactured, mined, or produced by
it, or under its authority, or which it may own in whole of in
part, or in which it may have any interest, direct or indirect,
except such articles or commodities as may be necessary or intended
for its use in the conduct of its business as a common
carrier."
34 Stat. 584, c. 3591.
In effect, the contention of the government was that the clause
in question prohibited railroad companies from moving in the
channels of interstate commerce articles or commodities other than
the articles excepted by the provision, which had been
manufactured, mined, or produced by the companies or under their
authority, or which were at the time of the transportation owned by
them or which had been previously owned by them in whole or in
part, or in which the companies then or previously had any
interest, direct or indirect. The government, moreover, insisted
that these general propositions embraced the movement by the
companies in interstate commerce of a commodity which had been
manufactured, mined, or produced by a corporation in which the
transporting railroad company was a stockholder, irrespective of
the extent of such stock ownership. The railroad companies in
effect defended the suits upon the ground that the statute, as
construed by the government, was repugnant to the Constitution.
Each of the cases was submitted upon bill and answer and petition
and return to the circuit court of the United States for the
Eastern District of Pennsylvania, held by three circuit judges
under the Expediting Act of February 11, 1903, 32 Stat. 823, c.
544. The submission in each case was made as a result of a
stipulation between counsel
"that the submission on bill and answer and any averment or
admission in the pleadings of either party
Page 220 U. S. 265
shall in no wise prejudice the said parties in any other suit or
proceeding heretofore or hereafter instituted, and shall be
operative and take effect only with respect to the present suit and
for the purpose thereof."
Treating the commodities clause in question as having the
significance attributed to it by the United States, the court held
it to be repugnant to the Constitution. Judgments and decrees were
accordingly entered denying the applications for mandamus and
dismissing the bills of complaint. The reasons which led to this
action were expounded in one opinion, made applicable to all the
cases, the court briefly but comprehensively stating the facts in
each case which were relied upon by the government as bringing the
defendant corporation within the clause as the government construed
it. The cases were then brought here.
As was done in the lower court, the cases here were all disposed
of by one opinion, the facts in each case as summarized by the
court below being stated. In deciding the cases, it became
necessary first to ascertain the meaning of the commodities clause.
In performing this duty, the conclusion was reached that the clause
did not have the far-reaching significance attributed to it by the
government, and which had been substantially adopted by the court
below, but, on the contrary, had a much narrower meaning. Attention
was directed to the fact that the statute disjunctively applied
four generic prohibitions -- that is, it forbade a railway company
from transporting in interstate commerce articles or commodities,
1, which it had manufactured, mined, or produced; 2, which have
been so mined, manufactured, or produced under its authority; 3,
which it owns in whole or in part; and, 4, in which it has an
interest, direct or indirect. All these prohibitions, however, were
held to have but a common purpose,
"that is, the dissociation of railroad companies prior to
transportation from articles or commodities, whether the
association
Page 220 U. S. 266
resulted from manufacture, mining, production, or ownership, or
interest, direct or indirect."
In coming to determine whether the government was correct in its
contention that these prohibitions operated to prevent a railroad
company from transporting a product because it was owned by or had
been mined, manufactured, or produced by a corporation in which the
railroad company was the owner of stock, irrespective of the amount
of such stock ownership, it was expressly decided that the
prohibitions of the statute were addressed only to a legal or
equitable interest in the commodities to which the prohibitions
referred; that they therefore did not prohibit a railroad company
from transporting commodities mined, manufactured, produced, or
owned by a distinct corporation merely because the railroad company
was the owner of some or all of the stock in such corporation.
Summing up its review as to the true construction of the
commodities clause, the Court held (p.
213 U. S. 415)
that it prohibited
"a railroad company engaged in interstate commerce from
transporting in such commerce articles or commodities under the
following circumstances and conditions: (a) when the article or
commodity has been manufactured, mined, or produced by a carrier or
under its authority, and at the time of transportation the carrier
has not in good faith, before the act of transportation,
dissociated itself from such article or commodity; (b) when the
carrier owns the article or commodity to be transported, in whole
or in part; (c) when the carrier, at the time of transportation,
has an interest, direct or indirect, in a legal or equitable sense,
in the article or commodity, not including therefore articles or
commodities manufactured, mined, or produced or owned, etc., by a
bona fide corporation in which the railroad company is a
stockholder."
Thus construed, the clause was held to be within the
Page 220 U. S. 267
power of Congress to enact. As this conclusion rendered it
necessary to reverse the action of the court below, which had been
exclusively predicated upon the unconstitutionality of the statute,
the question arose as to what disposition should be made of the
cases. That is to say, the constitutionality of the statute being
settled and its true meaning being expounded, the question was
whether the cases should be finally disposed of or should be left
in such a position as to give the government the right to proceed
to apply and enforce the prohibitions of the statute against the
various corporations which were defendants, if it deemed a good
case existed for so doing. Disposing of this subject in the light
of the consent upon which the cases had been tried in the court
below, and of the error which had obtained as to the true meaning
of the statute, and of the consequent concentration of the
attention of the court and of the parties to the question of the
constitutionality of the statute, instead of its application to the
facts, when correctly construed, it was determined that the decree
should not conclude the right of the United States in the
respective causes to further proceed to enforce the statute as
construed, and hence that that subject should be left open for
future action. Referring to this matter, it was said (p.
213 U. S.
418):
"As the court below held the statute wholly void for repugnancy
to the Constitution, it follows from the views which we have
expressed that the judgments and the decrees entered below must be
reversed. As, however, it was conceded in the discussion at bar
that, in view of the public and private interests which were
concerned, the United States did not seek to enforce the penalties
of the statute, but commenced these proceedings with the object and
purpose of settling the differences between it and the defendants
concerning the meaning of the commodities clause and the power of
Congress to enact it, as correctly interpreted, and upon this view
the proceedings were
Page 220 U. S. 268
heard below by submission upon the pleadings, we are of opinion
that the ends of justice will be subserved not by reversing and
remanding with particular directions as to each of the defendants,
but by reversing and remanding with directions for such further
proceedings as may be necessary to apply and enforce the statute as
we interpreted it."
Accordingly, the mandate of this Court provided that the cause
"be, and the same is hereby, remanded to the said circuit court for
further proceedings in conformity with the opinion of this
Court."
Upon the filing of the mandate, the court below vacated its
decree dismissing the bill in this (the equity) cause, and
reinstated the case upon the docket. The United States then
presented an amended bill and asked leave to file it. The amendment
contained copious averments in regard to the actual relations
existing between the railroad company and one of the coal companies
mentioned in the original bill,
viz., the Lehigh Valley
Coal Company. In substance, it was averred that, as to this
particular coal company, the railroad company was not only the
owner of all the stock issued by the coal company, but that the
railroad company so used the power thus resulting from its stock
ownership as to deprive the coal company of all real independent
existence and to make it virtually but an agency or dependency or
department of the railroad company. In other words, in great detail
facts were averred which tended to establish that there was no
distinction in practice between the coal company and the railroad
company, the latter using the coal company as a mere device to
enable the railroad company to violate the provisions of the
commodities clause. It was expressly charged that in consequence of
these facts:
"The coal company is not a
bona fide mining company,
but is merely an adjunct or instrumentality of the defendant. The
defendant is in legal effect the owner of,
Page 220 U. S. 269
and has a pecuniary interest in, the coal mined by the coal
company, and which is transported by the defendant."
Not only was it thus charged that the railroad company used its
stock ownership to so commingle the operating of the affairs of the
mining company with its own as to render it impossible to
distinguish as a matter of fact between them, but it was moreover
expressly in substance charged that, exerting its influence as the
owner of all the stock of the coal company, the railroad company
caused the coal company to buy up all the coal produced by other
mining companies in the area tributary to the railroad, and fixed
the price at which such coal was bought, so as to control the same
and the transportation thereof, and establish the price at which
the coal thus ostensibly acquired by the coal company by purchase
should be sold when it reached the seaboard.
It was charged that, by these abuses the production, shipment,
and sale of all the coal within the territory served by the
railroad company was brought within the dominion of that company
practically to the same extent as if it was the absolute owner of
the same. Finally it was alleged as follows:
"That, by virtue of the facts hereinbefore set out and
otherwise, and more particularly by virtue of the control,
direction, domination, and supervision exercised by the persons who
are the officers of the defendant railroad and by the defendant
over all the operations of the said coal company, embracing the
mining and production of said coal, the shipment and transportation
of the same over the defendant railroad, and the sale thereof at
the seaboard, it follows:"
"First. That the coal company, not being in substance and in
good faith a
bona fide corporation separate from the
defendant, but a mere adjunct or instrumentality of the defendant,
the defendant, at the time of transportation,
Page 220 U. S. 270
has an interest, direct or indirect, in a legal or equitable
sense, in said coal."
"Second. That said coal of said coal company is mined and
produced under the authority of defendant, and the defendant at the
time of transportation and before the act of transportation, has
not in good faith dissociated itself from all exercise of authority
over said coal, but continues to exercise authority over said coal
at the time of transportation, and over the subsequent sale
thereof."
On the objection of the railway company, the court denied the
request of the United States for leave to file the amended bill.
The United States then moved for a decree dismissing its original
bill without prejudice, and, after argument, that motion also was
denied. Thereupon counsel for the railroad company moved to dismiss
the bill absolutely, and upon the statement of counsel for the
United States that it "would not proceed any further, in view of
the fact that the proposed amendment had been disallowed," the
court reached the conclusion "that the bill should be dismissed
absolutely upon the allegations of the bill and answer." A decree
to that effect was entered, and the government prosecutes this
appeal, relying for reversal upon the error which it is insisted
was committed in refusing to allow the proposed amended bill to be
filed, and in dismissing the suit.
At the threshold it is insisted by the railroad company that the
action of the court below in refusing to permit the proposed
amendment, however germane that amendment may have been to the
course of action stated in the original bill, and even although the
subject matter of the amendment was not foreclosed by our previous
decision, is not susceptible of being reviewed, because the
allowance of amendments to pleadings is discretionary with a trial
court, and the action of the court below in refusing to permit the
amendment, even though erroneous, may not be reversed for error
unless a gross abuse of discretion was
Page 220 U. S. 271
committed. The principle is elementary, but is inapplicable to
this case for a two-fold reason: first, because the analysis which
we have hitherto made of the opinion of this Court on the prior
hearing makes it certain that the undoubted object was not to
foreclose the right of the government to enforce in the pending
causes the commodities clause as correctly construed, and therefore
in this regard the discretion of the court below was controlled by
the action of this Court. Second, because, in view of the express
reservations in the opinion and the explicit language of the
mandate of this Court, the conclusion cannot be escaped that an
absolute abuse of discretion resulted from refusing to permit the
amendment, even although such abuse was obviously occasioned by a
misconception of the character of the action of this Court and the
scope of the mandate.
It remains only to consider, first, whether the proposed
amendment was germane to the original cause of action, and if it
was, whether it was foreclosed by our previous decision.
As to the first question. When it is borne in mind that the suit
was brought by the government to enforce as against the defendant
the commands of the commodities clause, the fact that the proposed
amendment was germane to such cause of action is too apparent to
need anything but statement. Indeed, in the argument at bar on
behalf of the railroad company, this is in effect conceded, since
it is insisted that the amendment should not have been allowed,
because in substance its averments virtually constituted part of
the original cause of action. And we think it is equally clear that
the grounds of the amendment were not foreclosed by our former
decision. While that decision expressly held that stock ownership
by a railroad company in a
bona fide corporation,
irrespective of the extent of such ownership, did not preclude a
railroad company from transporting the commodities
manufactured,
Page 220 U. S. 272
mined, produced, of owned by such corporation, nothing in that
conclusion foreclosed the right of the government to question the
power of a railroad company to transport in interstate commerce a
commodity manufactured, mined, owned, or produced by a corporation
in which the railroad held stock, and where the power of the
railroad company as a stockholder was used to obliterate all
distinctions between the two corporations. That is to say, where
the power was exerted in such a manner as to so commingle the
affairs of both as by necessary effect to make such affairs
practically indistinguishable, and therefore to cause both
corporations to be one for all purposes. To what extent the
amendment charged this to be the case will be come manifest by
again particularly considering its averments concerning the use by
the railroad company of the coal company as a purchaser of coal, as
also the direct charge made in the proposed amendment that, by such
acts, the railroad company was enabled to control all or a greater
portion of the coal produced in the region tributary to its road,
and thus to dominate the situation and fix the price not only at
which all the coal could be bought, but at which it could be sold
at the seaboard for consumption.
That the facts thus averred and the other allegations contained
in the proposed amended bill tended to show an actual control by
the railroad company over the property of the coal company and an
actual interest in such property beyond the mere interest which the
railroad company would have had as a holder of stock in the coal
company is, we think, clear. The alleged facts therefore brought
the railroad company, so far as its right to carry the product of
the coal company is concerned, within the general prohibitions of
the commodities clause, unless for some reason the right of the
railroad company to carry such product was not within the operation
of that clause. The argument is that the railroad company was so
expected because any control which it exerted or interest
Page 220 U. S. 273
which it had in the product of the coal company resulted from
its ownership of stock in that company, and would not have existed
without such ownership. The error, however, lies in disregarding
the fact that the allegations of the amended bill asserted the
existence of a control by the railroad company over the coal
corporation and its product, rendered possible, it is true, by the
ownership of stock, but which was not the necessary result of a
bona fide exercise of such ownership, and which could only
have arisen through the use by the railroad of its stock ownership
for the purpose of giving it, the railroad company, as a
corporation, for its own corporate purposes, complete power over
the affairs of the coal company, just as if the coal company were a
mere department of the railroad. Indeed such a situation could not
have existed had the fact that the two corporations were separate
and distinct legal entities been regarded in the administration of
the affairs of the coal company. Granting this to be the case,
however, it is in effect urged, as the railroad company held all
the stock in its coal company, and therefore any gain made or loss
suffered by that company would be sustained by the railroad
company, no harm resulted from commingling the affairs of the two
corporations and disregarding the fact that they were separate
juridical beings, because, ultimately considered, they were but one
and the same. This, however, in substance but amounts to asserting
that the direct prohibitions of the commodities clause ought to
have been applied to a case of stock ownership -- particularly to a
case where the ownership embraced all the stock of a producing
company -- and therefore that a mistake was committed by Congress
in not including such stock ownership within the prohibitions of
the commodities clause. We fail, however, to appreciate the
relevancy of the contention. Our duty is to enforce the statute,
and not to exclude from its prohibitions things which are properly
embraced within them. Coming to
Page 220 U. S. 274
discharge this duty, it follows, in view of the express
prohibitions of the commodities clause, it must be held that, while
the right of a railroad company as a stockholder to use its stock
ownership for the purpose of a
bona fide separate
administration of the affairs of a corporation in which it has a
stock interest may not be denied, the use of such stock ownership
in substance for the purpose of destroying the entity of a
producing, etc., corporation, and of commingling its affairs in
administration with the affairs of the railroad company, so as to
make the two corporations virtually one, brings the railroad
company so voluntarily acting as to such producing, etc.,
corporation within the prohibitions of the commodities clause. In
other words, that, by operation and effect of the commodities
clause, there is a duty cast upon a railroad company proposing to
carry in interstate commerce the product of a producing, etc.,
corporation in which it has a stock interest not to abuse such
power so as virtually to do by indirection that which the
commodities clause prohibits -- a duty which plainly would be
violated by the unnecessary commingling of the affairs of the
producing company with its own, so as to cause them to be one and
inseparable.
Deciding, as we do, that error was committed in denying leave to
file the proposed amended bill, the decree below is reversed, and
the cause remanded with directions for further proceedings in
conformity with this opinion.