Minnesota Rate Case
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230 U.S. 352 (1913)
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U.S. Supreme Court
Minnesota Rate Case, 230 U.S. 352 (1913)
Minnesota Rate Case
Nos. 291, 292, 293
Argued April 9, 10, 11, 12, 1912
Decided June 9, 1913
230 U.S. 352
These appeals involve the validity of the orders of the Railroad and Warehouse Commission, and the legislative acts, of the State of Minnesota prescribing maximum rates for freight, and a maximum fare of two cents a mile for passengers. The rates relate to traffic exclusively between points within the state. It was contended, however, that, as applied to cities on the state's boundary, or to places within competitive districts crossed by the state line, the rates disturbed the relation previously existing between interstate and intrastate rates, thus imposing a direct burden upon interstate commerce and creating discriminations as against localities in other states. The rates were also assailed as confiscatory. The rates are sustained as to the Northern Pacific and Great Northern companies. In the case of the Minneapolis and St. Louis Railroad Company, the rates are held to be confiscatory in view of the particular facts shown with respect to that road.
In reviewing the questions involved, the Court held that:
The Federal Constitution gives Congress an authority at all times adequate to secure the freedom of interstate commercial intercourse from state control and to provide effective regulation of that intercourse as the national interest may demand.
The commerce that is confined within one state, and does not affect other states, is reserved to the state. This reservation is only of that power which is consistent with the grant to Congress.
The authority of Congress extends to every part of interstate commerce and to every instrumentality or agency by which it is carried
on, and the full control by Congress over the subjects committed to its regulation is not to be denied or thwarted by the commingling of interstate and intrastate operations.
Even without action by Congress, the commerce clause of the Constitution necessarily excludes the states from direct control of subjects embraced within the clause which are of such a nature that, if regulated at all, their regulation should be prescribed by a single authority. There is thus secured the essential immunity of interstate intercourse from the imposition by the states of direct burdens and restraints.
There remains to the states the exercise of the power appropriate to their territorial jurisdiction in making suitable provision for local needs. The state may provide local improvements, create and regulate local facilities, and adopt protective measures of a reasonable character in the interest of the health, safety, morals and welfare of its people, although interstate commerce may incidentally or indirectly be involved.
Where matters falling within the state power, as above described, are also, by reason of their relation to interstate commerce, within the reach of the federal power, Congress must be the judge of the necessity of federal action; until Congress does act, the states may act.
The paramount authority of Congress enables it to intervene at its discretion for the complete and effective government of that which has been committed to its care, and, for this purpose and to this extent, in response to a conviction of national need, Congress may displace local laws by substituting laws of its own.
Regulation of railroad rates by the state began with railroad transportation.
The authority of the state to prescribe what shall be reasonable charges for intrastate transportation is statewide unless it be limited by the exertion of the constitutional power of Congress with respect to interstate commerce and its instruments. As a power appropriate to the territorial jurisdiction of the state it is not confined to a part of the state, but extends throughout the state -- to its cities adjacent to its boundaries as well as to those in the interior of the state. If this authority of the state be restricted, it must be by virtue of the actual exercise of federal control, and not by reason merely of a dormant federal power -- that is, one which has not been exerted.
Congress, in the Act to Regulate Commerce, expressly provided that the provisions of the act should not extend to transportation wholly within one state.
Having regard to the terms of the federal statute, the familiar range
of state action at the time it was enacted, the continued exercise of state authority in the same manner and to the same extent after its enactment, and the decisions of this Court recognizing and upholding such authority, this Court finds no foundation for the proposition that the Act to Regulate Commerce contemplated interference with the authority of the state to prescribe reasonable rates for the exclusively internal traffic throughout the extent of its territory.
Neither by the original act nor by its amendment has Congress sought to establish a unified control over interstate and intrastate rates; it has not set up a standard for intrastate rates or prescribed, or authorized the federal Commission to prescribe, either maximum or minimum rates for intrastate traffic.
The fixing of reasonable rates for intrastate transportation was left by the act where it had been found -- that is, with the states and the agencies created by the states to deal with that subject.
Under the established principles governing state action, Minnesota did not transcend the limits of its authority in prescribing the rates here involved, assuming them to be reasonable intrastate rates. It exercised an authority appropriate to its territorial jurisdiction and not opposed to any action thus far taken by Congress.
The interblending of operations in the conduct of interstate and local business by interstate carriers, and the exigencies that are said to arise with respect to the maintenance of interstate rates by reason of their relation to intrastate rates, are considerations for the practical judgment of Congress.
When the situation becomes such that adequate regulation of interstate rates cannot be maintained without imposing requirements with respect to such intrastate rates of interstate carriers as substantially affect interstate rates, it is for Congress to determine, within the limits of its constitutional authority over interstate commerce and its instruments, the measure of the regulation it should supply.
It is the function of the Court to interpret and apply the law already enacted, but not, under the guise of construction, to provide a more comprehensive scheme of regulation than Congress has decided upon.
In the absence of federal action, effect may not be denied to the laws of the state enacted within the field which it is entitled to occupy until its authority is limited through the exertion by Congress of its paramount constitutional power.
As to whether the rates are confiscatory, held that:
The ratemaking power is a legislative power, and necessarily implies a range of legislative discretion.
This Court does not sit as a board of review to substitute its judgment for that of the legislature or of the Commission lawfully constituted by it, as to matters within the province of either.
The question involved is whether, in prescribing a general schedule of rates involving the profitableness of the intrastate operations of the carrier, taken as a whole, the state has superseded the constitutional limit by making the rates confiscatory.
While the property of railroad corporations has been devoted to a public use, the state has not seen fit to undertake the service itself, and the private property embarked in it is not placed at the mercy of legislative caprice, but rests secure under the constitutional protection which extends not merely to the title, but to the right to receive just compensation for the services given to the public.
For fixing rates, the basis of calculation of value is the fair value of the property of the carrier used for the convenience of the public. Smyth v. Ames, 169 U. S. 466.
There is no formula for the ascertainment of the fair value of property used for convenience of the public, but there must be a reasonable judgment having its basis in a proper consideration of all relevant facts.
Where a carrier does both interstate and intrastate business, to determine whether a scheme of maximum intrastate rates affords a fair return the value of the property employed in intrastate business, and the rates prescribed must be considered separately, and profits and losses on interstate business cannot be offset.
Assets and property of a carrier not used in the transportation business cannot be included in the valuation as a basis for ratemaking.
Property of a railroad company cannot be valued for a basis of ratemaking at a price above other similar property solely by reason of the fact that it is used as a railroad, and increases in value over cost cannot be allowed beyond the normal increase of other similar property.
In valuing the plant of a carrier for purpose of fixing rates, there should he proper deductions for depreciation.
Where the constitutional validity of state action is involved, general estimates of division between interstate a intrastate business cannot be accepted as adequate proof to sustain a charge of confiscation.
In the cases of the Northern Pacific and Great Northern companies on the examination of estimates of value, and methods of apportionment, held that t he proof is insufficient a finding that the rates were confiscatory, and in each of those cases, the decrees are reversed with instructions to dismiss the bill without prejudice.
In the case of the Minneapolis and St. Louis Railroad Company, held, in view of the special facts appearing, that the margin of error in the estimates and calculations was not sufficient to affect the result. The decree in that case, adjudging the rates to be confiscatory, is therefore affirmed with the modification that the state may apply to the court by bill or otherwise, as advised, for a further order or decree whenever it shall appear that, by reason of a change in circumstances, the rates fixed by the state's acts and orders are sufficient to yield to this company reasonable compensation for the service rendered.
184 F. 765 modified and in part affirmed and in part reversed.
These appeals involve the validity of the orders of the Railroad and Warehouse Commission, and the legislative acts, of the State of Minnesota prescribing maximum rates for freight, and a maximum fare of two cents a mile for passengers. The rates relate to traffic exclusively between points in the state. It was contended, however, that, as applied to cities on the state's boundary, or to places within competitive districts crossed by the state line, the rates disturbed the relation previously existing between interstate and intrastate rates, thus imposing a direct burden upon interstate commerce and creating discriminations as against localities in other states. The rates were also assailed as confiscatory.