The Act to Regulate Commerce makes the findings of the
Interstate Commerce Commission as to reasonableness of a rate
prima facie correct. Cincinnati &c. Ry. v. Interstate
Commerce Commission,
206 U. S.
154.
Orders of the Interstate Commerce Commission are final unless
beyond the power that the Commission can constitutionally exercise,
beyond its statutory power, or based upon a mistake of law.
An order of the Commission, regular on its face, may be set
aside if it appears that the rate is so low as to be confiscatory
and in violation of the constitutional prohibition against taking
property without due process of law, or if the Commission acted so
arbitrarily and unjustly as to fix rates contrary to evidence or
without evidence to support its conclusions, or if the authority
was exercised in an absolutely unreasonable manner.
This Court, in determining the validity of an order of the
Interstate Commerce Commission, confines itself to the ultimate
question as to whether the Commission acted within its power. It
will not consider expediency, nor will it consider facts further
than to determine whether there was sufficient evidence to support
the order.
Where, as in this case, there is testimony as to value of the
roads, amounts expended, dividends, ratio of earnings and expenses,
and other matters, there is evidence to support the conclusions,
and the findings of the Commission on such facts are
conclusive.
Reasonableness of railroad rates cannot be proved by categorical
answers like those given in regard to value of articles of
merchandise; too many elements are involved which require
consideration.
Page 222 U. S. 542
Quaere whether the maintenance of an admittedly low
rate for a long time raises a presumption of reasonableness because
the carriers realized a profit thereon.
An order of the Interstate Commerce Commission is not to be
considered by itself alone, but must be considered in the light of
all the testimony, and when carriers themselves maintain a ratio of
difference, a rate fixed by the Commission maintaining the same
ratio of difference cannot be said to be beyond its power.
An order of the Interstate Commerce Commission within its power
cannot be held invalid because it appears that possibly the
Commission considered other subjects than the reasonableness of the
rate, and, in this case,
held that an order fixing a rate
on lumber was not invalid because the Commission examined into the
effect of the rate on the lumber business and on the industries of
the various points affected.
These three appeals are brought by the Interstate Commerce
Commission from a decree enjoining a reduction of lumber rates
named in tariffs filed by the Great Northern, the Northern Pacific,
and the Union Pacific Railroads.
The tariffs under consideration involve rates on lumber from the
coast, Spokane District, and Montana-Oregon points to St. Paul,
Omaha, and Chicago. It is admitted that the rates on shingles,
hemlock, cedar, and other forest products have a fixed relation to
those on fir lumber, and that the differentials from Spokane and
the Montana-Oregon Territory have a like fixed relation to those
from the coast.
The summary of these very lengthy records will therefore be
limited to a statement of those facts bearing directly on the
pivotal question as to the validity of the order fixing a rate of
forty-five cents per hundred pounds on fir lumber from the coast to
St. Paul.
In 1893, the rate, from the coast, on fir lumber, over the two
northern lines to St. Paul, was fixed at forty cents, and since
1901 the rate to Omaha at fifty cents.
In 1907, the three carriers concurrently filed new tariffs,
making the rate from the coast to St. Paul sixty cents, to Omaha
fifty-five cents, and to Chicago sixty cents. Thereupon
Page 222 U. S. 543
various corporations filed complaints before the Commission,
alleging that the proposed rates were unreasonable and would
seriously affect the lumber industry. The carriers emphatically
denied both of these allegations, and, in explanation of the causes
leading up to the advance, showed that when the Great Northern was
completed to the coast, about 1893, almost all of the freight
shipped over its line went from the East to the West -- cars being
hauled back empty to St. Paul, its eastern terminus. In order to
correct this expensive and unremunerative situation, the Great
Northern decided to put in a rate on lumber so low that mill men on
the Pacific coast might compete with dealers in white and yellow
pine in the Chicago market, 2,500 miles distant. It thereupon
reduced the existing rate to forty cents. That cut was met by the
Northern Pacific, which also reached St. Paul, but the Union
Pacific at that time made no change in its rate. The reduction
opened up new markets, and was soon followed by heavy shipments of
lumber to the East. The business grew steadily, and prior to the
filing of the tariffs in 1907, the empty-car movement had been
completely reversed, many cars being hauled empty from St. Paul to
the coast, and returning to the East loaded with lumber.
Traffic increased to such an extent that it became necessary to
open up new tunnels, construct additional passing tracks, and
reduce grades and curves. There was a constant increase in gross
earnings, but the carriers contended that there had been such an
enormous and disproportionate increase in the cost of operation
that it was absolutely necessary to discontinue the unremunerative
forty-cent rate and advance it to fifty cents, which they insisted
was just and reasonable.
There was no finding as to the effect on gross earnings which
would result from the proposed advance of ten cents. But, as the
Great Northern, in one year, hauled 1,765,095,997 tons one mile,
equivalent to about 30,000
Page 222 U. S. 544
cars, of the average load of 58,000 pounds, transported 2,000
miles from the coast to St. Paul, the advance of ten cents per
hundred, or $58 per car, would represent a gross annual increase,
for that company alone, of $1,740,000.
An immense amount of evidence was offered by both parties in
support of their respective contentions. The Commission rendered an
elaborate opinion (14 I.C.C. 1) and concluded by finding that the
old rates were just and reasonable, and should be restored to all
points on and west of the Pembina line, which ran from the Canadian
line almost due south through Fargo, Omaha, to Port Arthur, Texas.
As Omaha was on this line, the effect of that part of the order was
to prohibit the fifty-five-cent advance, and to restore the old
rate of fifty cents to Omaha, which had been in force since 1901.
As to rates east of the Pembina line, the Commission held that
"they might reasonably be somewhat increased, but not more than
five cents per hundred, to be graded up so as to reach the maximum
increase at . . . St. Paul; . . . the rate from the Missouri River
crossing should be graded up, the maximum increase of five cents
reached at the Mississippi River. Chicago rates should apply to all
points between the Mississippi . . . and Chicago."
The carriers thereupon filed separate bills to enjoin this
order, and repeated therein the contentions made before the
Commission, averred that the old forty-cent rate to St. Paul and
the fifty-cent rate to Omaha were not only unremunerative, but
proportionately so much lower than rates on other merchandise as to
amount to an unjust discrimination, alleged that the prosperous
condition of the lumber business did not require or justify a
further maintenance of this low rate, and, among other things,
insisted (1) that the order was beyond the power of the Commission
because entered without any evidence or finding, that the rates
fixed by the carriers were unjust or unreasonable, and (2) was void
because the Commission
Page 222 U. S. 545
erroneously held as a matter of law that the long continuance of
the old rate during a period when the carriers' total income was
sufficient to pay dividends raised the presumption that the old
rates were reasonable.
The Commission demurred, and in its answer averred that evidence
was introduced showing and tending to show that the advanced rates
were unreasonable and that, after a full hearing, it was of opinion
that the rates complained of were unreasonable, and entered its
order accordingly, that the determination of that question involved
the exercise of a discretion committed solely to the Commission,
and that the
"courts ought not and could not review its judgment and finding,
unless it be made clearly to appear that the orders complained of
transcend the pale of legitimate regulation."
The cases were referred to a master, who reported that the
allegations of discrimination were not only too general, but that
there was no evidence upon which any ruling could be predicated on
that subject; that the substance of the bill was that the rates put
in by the Commission were confiscatory, and, as to that, held that
the evidence was not sufficient to warrant the court in setting
aside so much of the order as restored the rates to and west of the
Pembina line. There was some evidence that the cost of hauling
freight over the Union Pacific was greater than over the Northern
lines because it crossed the mountains at a point 2,000 feet higher
than they did. But the master found as a fact that the traffic
conditions were substantially the same over the three roads, and
that the distance from the coast to Omaha was 1,800 miles and to
St. Paul 2,052 miles. He thereupon held as a matter of law that,
when the Commission fixed fifty cents as a reasonable rate to Omaha
over the shorter route, it necessarily followed that the lower rate
of forty-five cents over the longer route to St. Paul was not only
unreasonable, but unjust.
And even
"though the rate might not be confiscatory,
Page 222 U. S. 546
yet an order which on its face is inherently inconsistent with
the fundamental principles of rational justice and perverts the
spirit and intent of the Interstate Commerce Act, though in form
within the limits of delegated power, is, in fact beyond those
limits and is an unlawful order, and one which results in the
taking of property without due process of law."
He recommended that the court should enjoin so much of the order
as permitted an advance of only five cents to points east of that
line.
The Commission and each of the carriers filed many exceptions to
the report, as to which the circuit court passed the following
order:
"All the exceptions to the report of the master must be
overruled. Those which challenge his finding that the reduction by
the Interstate Commerce Commission of the fifty-cent rate on lumber
to St. Paul and other points east of the Pembina line was
arbitrary, and so palpably unjust and unreasonable and so
discriminatory that it was beyond the power of the Commission, are
overruled on the ground that this action of the Commission was
beyond its power, or so palpably and gravely unjust and
unreasonable as to be beyond the substance, if not beyond the form,
of its power."
MR. JUSTICE LAMAR, after making the foregoing statement,
delivered the opinion of the Court.
These appeals raise the single question as to whether, in making
the forty-five-cent, the Commission acted within or beyond its
power. As the statute makes its finding
prima facie
correct (
Cincinnati &c. Ry. v. Interstate Commerce
Commission, 206 U. S.
154), it will be more convenient
Page 222 U. S. 547
to consider the case from the standpoint of the carriers, who
first insist that the order was void because made without evidence
or finding that the fifty-cent rate was unreasonable.
There has been no attempt to make an exhaustive statement of the
principle involved, but in cases thus far decided, it has been
settled that the orders of the Commission are final unless (1)
beyond the power which it could constitutionally exercise; or (2)
beyond its statutory power; or (3) based upon a mistake of law. But
questions of fact may be involved in the determination of questions
of law, so that an order, regular on its face, may be set aside if
it appears that (4) the rate is so low as to be confiscatory and in
violation of the constitutional prohibition against taking property
without due process of law, or (5) if the Commission acted so
arbitrarily and unjustly as to fix rates contrary to evidence, or
without evidence to support it, or (6) if the authority therein
involved has been exercised in such an unreasonable manner as to
cause it to be within the elementary rule that the substance, and
not the shadow, determines the validity of the exercise of the
power.
Int. Com. Comm. v. Illinois Cent., 215
U. S. 470;
Southern Pacific v. Int. Com. Comm.,
219 U. S. 433;
Int. Com. Comm. v. Northern Pacific, 216
U. S. 544;
Int. Com. Comm. v. Alabama Midland Ry.
Co., 168 U. S. 146,
168 U. S.
174.
In determining these mixed questions of law and fact, the court
confines itself to the ultimate question as to whether the
Commission acted within its power. It will not consider the
expediency or wisdom of the order, or whether, on like testimony,
it would have made a similar ruling.
"The findings of the Commission are made by law
prima
facie true, and this Court has ascribed to them the strength
due to the judgments of a tribunal appointed by law and informed by
experience."
Illinois Cent. v. Int. Com. Comm., 206 U.
S. 441. Its conclusion, of course, is subject to review,
but, when supported by evidence, is accepted as final;
Page 222 U. S. 548
not that its decision, involving as it does so many and such
vast public interests, can be supported by a mere scintilla of
proof, but the courts will not examine the facts further than to
determine whether there was substantial evidence to sustain the
order.
2. We proceed, then, to a consideration of the carriers'
contention that the order was void because made without any
testimony that the fifty-cent rate of 1907, to St. Paul, was
unreasonable. We find that, as far back as 1893, the rate on fir
lumber was reduced to forty cents on the theory that, after a
carrier had been paid for transporting a carload of freight from
the East to the West, it was better to haul it back loaded with
lumber at forty cents, thereby earning something, than to take it
back empty and get nothing. But if, after the empty-car movement
had been reversed, the carrier had to be at the expense of hauling
cars empty to the West for the purpose of returning them loaded
with lumber at the unremunerative rate of forty cents, there would
be a double loss -- it got nothing for hauling the empty car from
St. Paul to the coast and it derived no profit for hauling it back
at the low rate. They contend that this situation, in connection
with the enormous increase in the cost of operation, not only
justified, but required, an advance over the forty-cent rate. And
this view of the testimony seems to have been taken by the two
commissioners who dissented. If there was no other evidence, the
Commission's order could not be sustained.
But these facts do not stand alone. In the first place, there
was no appeal from the master's finding that:
"The carriers concede that they are unable to determine the cost
of this traffic, in and of itself, and that they are unable to say
with any satisfactory accuracy whether or not they make a profit
upon it, but they have all conceded that, in their judgment,
speaking as experts, the lumber traffic has not been confiscatory,
and has not been performed for less than cost. "
Page 222 U. S. 549
This concession, of course, does not cover the question at
issue, but it does fix a starting point. It establishes an
important fact in dealing with the difficult question of
determining what is a reasonable rate on a particular article.
Where the rates as a whole are under consideration, there is a
possibility of deciding with more or less certainty whether the
total earnings afford a reasonable return. But whether the carrier
earned dividends or not sheds little light on the question as to
whether the rate on a particular article is reasonable. For if the
carrier's total income enables it to declare a dividend, that would
not justify an order requiring it to haul one class of goods for
nothing, or for less than a reasonable rate. On the other hand, if
the carrier earned no dividend, it would not have warranted an
order fixing an unreasonably high rate on such article. But the
absence of direct testimony that the fifty-cent rate was
unreasonably high is unimportant. Neither can any specific effect
be given to the statement of witnesses that the forty-cent rate was
low. The reasonableness of rates cannot be proved by categorical
answers like those given where a witness may, in terms, testify
that the goods were worth so much per pound, or the services worth
so much a day. Too many elements are involved in fixing a rate on a
particular article over a particular road to warrant reliance on
such method of proof. The matter has to be determined by a
consideration of many facts.
In this case, the Commission had before it many witnesses and
volumes of reports, statistics, and estimates, including the rates
on lumber charged by other roads and those charged by these
carriers on other classes of freight. There was evidence that,
during the fourteen years when the forty-cent rate was in force,
the carriers had, by proper management and without wasteful
economics, kept their properties in a high state of efficiency, and
after paying all the costs of operation, maintenance, depreciation,
fixed
Page 222 U. S. 550
charges, and sinking funds, had been able to pay reasonable
dividends.
There was evidence as to the value of the road, the amounts
expended in betterments and paid out in dividends, ratio between
the increased earnings and increased expenses, with many tables and
estimates tending to show the cost of hauling empty cars, fully
loaded cars, and those carrying an average load.
With that sort of evidence before them, rate experts of
acknowledged ability and fairness, and each acting independently of
the other, may not have reached identically the same conclusion. We
do not know whether the results would have been approximately the
same. For there is no possibility of solving the question as though
it were a mathematical problem to which there could only be one
correct answer. Still there was in this mass of facts that out of
which experts could have named a rate. The law makes the
Commission's finding on such facts conclusive. There was then,
under the statute, nothing for the companies to do except to comply
with the order, or act on the suggestion thrown out in the
Commission's answer, and apply for a rehearing in reliance upon its
power and duty to modify its order if the new evidence warranted
such change.
3. When the bills were filed, the carriers insisted that the
order was the result of a mistake of law, in that the Commission
held that the long maintenance of the forty-cent rate raised a
presumption that it was reasonable because the carriers had been
earning a reasonable profit. But we need not consider whether,
under such circumstances, the maintenance of the admittedly low
rate raised any presumption of reasonableness or, if so, whether it
is not neutralized by the presumption of right conduct by the
carrier as primary rate maker (
Int. Com. Comm. v. Chicago
&c., 209 U. S.
119). For whatever influenced the Commission in
restoring the rates to the Pembina line,
Page 222 U. S. 551
as to which there is now no appeal, it is evident that, as to
points east of that line, they did not act on any presumption that
the old forty-cent rate was reasonable. On the contrary, they acted
directly contrary to any such presumption, and instead of
maintaining the old rate, allowed a new and higher rate to St.
Paul, permitting an advance of five cents per hundred, or 12 1/2
percent, or between $500,000 and $1,000,000 per annum, to the Great
Northern road alone.
4. And this brings us to a consideration of the master's
finding, approved by the circuit court, that in fixing a rate of
forty-five cents to St. Paul, the order on its face was void
because, with traffic conditions over the three roads practically
the same, the Commission allowed the high rate of fifty cents to
the short road and the law rate of forty-five cents to the long
route. It was argued that, when the Commission had adjudged that a
rate of fifty cents for 1,800 miles was reasonable, it was
manifestly unreasonable to allow a rate of forty-five cents for
2,052 miles, and that such order was so palpably unjust and
unreasonable as to be beyond the substance, if not beyond the form,
of the Commission's power.
It does not follow as a matter of law that rates should be the
same for the same distance over two different roads, and this would
be especially true if the cost of transportation was greater over
the Union Pacific than over the Northern lines because it crossed
the mountains 2,000 feet higher than they.
But with the master's finding that traffic conditions were
practically the same, it might be that the order would appear
unreasonable on its face if it fixed the high rate over the short
route and the low rate, with less revenue per ton per mile over the
long route. But the order cannot be considered by itself alone. It
must be read in the light of the entire record, including the
important fact that the carriers themselves, in making their rates,
made a similar difference between the long and the short line.
Page 222 U. S. 552
By their own tariffs, they clearly show that they did not
consider mere distance a controlling factor in fixing the rates now
under attack. And this is not exceptional, for it appears that they
make rates from basing points to common points, with the result
that two cars of lumber of the same weight may be shipped from the
same place over the same line at the same rate to different points,
although the distance one car is hauled may be several hundred
miles greater than the other.
But the fact that the carriers themselves, in 1893, 1901, and
1907, charged more to Omaha than to St. Paul is a much weightier
fact in considering this attack on the order. In making the
difference between these two cities, the Commission only did what
the carriers themselves had done under their old and new rates.
After 1901, the rate to Omaha was fifty cents and the rate to St.
Paul, over the longer route, was forty cents. In the 1907 tariff
now under consideration, the rate to Omaha over the short route was
fixed by them at fifty-five cents, and that to St. Paul for the
longer route was fixed at fifty cents. This was a difference of
five cents in favor of the short route. The Commission made the
same difference in favor of the same road.
This difference is supported by what the record shows as to
rates to points on the Pembina line. Inasmuch as no appeal was
taken from the refusal to enjoin their restoration, we may assume
that all parties admit these rates to be reasonable. But there was
a difference as to rates to points on this line which shows that
the per-mile ratio cannot be regarded as a necessary standard. For
example, the rate to Omaha, on the lower part of this line, was
fifty cents, while the rate to points on the northern end was forty
cents. This was a difference of twenty percent in favor of Omaha,
although there was no such difference in the distance. Again,
timber shipped from the coast to St. Paul passed through this
forty-cent point on the northern end of
Page 222 U. S. 553
the Pembina line. The distance from the coast to St. Paul was
one-eighth greater, and the advance allowed was one eighth, or five
cents, over the forty-cent rate.
It is quite true that the carriers may do what they could not be
compelled to do. But it is not to be assumed that they made and
continued these different rates between these two cities
arbitrarily and without reason. It was proper for the Commission to
consider the weight and the character of these reasons and the
causes which prompted and justified the carriers in charging these
different rates. When the Commission maintained the same ratio of
difference as that made by the carriers themselves, it cannot be
fairly said that such an order was so arbitrary as to be palpably
and gravely unjust, and beyond the substance, if not the form, of
its power.
5. A final point remains to be considered, although it involves
an issue not presented by the pleadings, not included in the
master's report, and not passed on by the circuit court. It is,
however, argued that on this appeal the record may be searched and
the decree affirmed because, in making its order, the Commission
was influenced solely by a consideration of the effect of the
advance in rates on the lumber industry.
It does appear that the lumber men, in their complaints before
the Commission, alleged that the advanced rates were unreasonable,
and, approved on the theory that the injurious effect on their
business would sustain that contention, they alleged that the new
rate would destroy the lumber industry. Issue seems to have been
joined on both propositions, and there were mutual criminations and
recriminations of prosperity -- the lumber men insisting that the
railroads had made large profits under the old rate, and did not
need the advance, which would destroy the ability of the lumber men
to ship lumber to the east.
The carriers, on the other hand, contended that the forty-cent
rate had opened up new markets and developed the
Page 222 U. S. 554
lumber business to a point where it had become enormously
profitable, and would continue so under the advanced rates because
white pine had practically disappeared from the market, and that
the increased price of lumber more than made up for the increased
cost of timber and labor.
It is true also that the Commission examined into the effect of
the old and the new rate on carrier and lumbermen alike. But we do
not find that it made the order because of the effect on the lumber
industry. In the
Willamette case,
219
U. S. 445, counsel for the mill men admitted that the
rate there under attack was reasonable in and of itself, but
insisted that statements of officers and action of the carrier
operated to estop the road from raising a low rate up to a
reasonable rate.
Nothing of the sort is found here. The rates were attacked as
unreasonable, and, on evidence already referred to, the Commission
found that the old rates to the Pembina line were reasonable and
could not be changed, but that there might be a reasonable increase
to points east of that line not to exceed five cents.
While there is language in the opinion which, looked at alone,
might suggest that the Commission was attempting to decide more
than the single question as to what was a reasonable rate, yet,
taking the opinion as a whole, it affirmatively appears that the
Commission confined itself to the exercise of its statutory powers
to fix rates. In its opinion, it did discuss the issue of
prosperity presented by mill men and carriers alike, but held
that
". . . This controversy cannot be determined wholly upon the
ground that complainants have enjoyed the lower rate for many
years, and that interests have been built up thereunder, and that
loss of business investments, profits, and markets will result
under the increased rates. It must be determined on the justness or
reasonableness of the rates in controversy. . . . If the old
Page 222 U. S. 555
rates were too low to be just and reasonable, complainants [mill
men] cannot urge their loss as a ground for maintaining them; if
the old rates were just and reasonable, the defendants cannot
justify the advance on the ground of the prosperity of the lumber
business."
Considering the case as a whole, we cannot say that the order
was made because of the effect of the advance on the lumber
industry, nor because of a mistake of law as to presumption arising
from the long continuance of the low rate, when the carrier was
earning dividends, nor that there was no evidence to support the
finding. If so, the Commission acted within its power, and, in view
of the statute, its lawful orders cannot be enjoined. The decree
therefore must be
Reversed.
