The enforcement of an order of the state Railroad Commission
prescribing rates of intrastate transportation will not be
restrained at the instance of a carrier on the ground that the
rates are confiscatory where the allegations of the bill are
insufficient to show that the carrier would be deprived of just
compensation in the business of intrastate transportation by virtue
of the operation of the order.
A general charter provision giving power to charge and collect
tolls necessarily implies that the charges shall be reasonable, and
does not detract from the power of the state to prescribe
reasonable rates.
The Court should only override the decision of the, body which
has been given legislative authority to establish rates of
transportation where the action of such body is of such an
arbitrary character as to constitute an abuse of powers.
This Court follows the decision of the state court as to the
constitutionality of a state statute conferring power on a railroad
Commission to establish intrastate rates.
Penal provisions of a state statute regulating railroad rates
which are separable furnish no ground for the courts denying effect
to the rates if the statute is otherwise valid.
18 F. 12 affirmed.
The facts, which involve the constitutionality of an order of
the Railroad Commission of Oregon of September 21, 1910,
prescribing railroad freight rates, are stated in the opinion.
Page 230 U. S. 547
MR. JUSTICE HUGHES delivered the opinion of the Court.
This is an appeal from a decree of the circuit court entered
July 18, 1911, dismissing the bill, on demurrer, for want of
equity. 189 F. 182.
The bill was filed by the complainants, the Southern Pacific
Company and the Oregon & California Railroad Company, to set
aside an order made by the Railroad Commission of Oregon under date
of September 21, 1910, and to enjoin the defendants, the members of
the commission and the attorney general of the state, from
enforcing it. By this order the commission found, after hearing,
that certain freight rates maintained by the Southern Pacific
Company between Portland and other places on its lines in Oregon
were unreasonable, excessive, and discriminatory, and the
commission required the company, in lieu of the rates thus
disapproved, to put into effect the "just and reasonable and
nondiscriminatory charges" set forth in the order.
The first and principal contention of the appellants is that
this requirement was invalid as constituting a regulation of
interstate commerce. The order, however, related solely to
intrastate traffic, and the question raised by the bill, so far as
its allegations bear upon the conditions of interstate
transportation, does not differ in its essential features from that
which was passed upon in the
Minnesota Rate Cases, ante,
p.
230 U. S. 352.
This objection to the order cannot be sustained.
It is further insisted that the order was confiscatory.
Page 230 U. S. 548
The railroad property in question was that of the Oregon &
California Railroad Company, which was operated by the Southern
Pacific Company under lease made in 1887. It was provided by the
lease that the Southern Pacific Company should keep the property in
good condition, "operate, maintain, add to, and better the same at
its own expense," and should pay over annually to the lessor
company the amount remaining of the net earnings, after all charges
and expenses incurred by the Southern Pacific Company under the
lease, and all taxes and interest, current fixed charges, and all
indebtedness of the lessor to the Southern Pacific Company, had
been paid, save that, if such amount should exceed specified
percentages of the preferred and common stock of the lessor, the
excess might be retained by the lessee.
It was alleged that, after payment of operating expenses, taxes,
interest, and other reasonable and legitimate expenses, a deficit
had accumulated, representing an indebtedness to the Southern
Pacific Company, and amounting on June 30, 1906, to the sum of
$6,222,037, but it also appeared that this deficit was reduced in
the following years, so that, on June 30, 1909, it amounted to
$3,207,008.37.
The capital stock consisted of preferred stock of the par value
of $12,000,000 and common stock of the par value of $7,000,000, and
the bonded indebtedness amounted to $17,745,000, making in the
aggregate $36,745,000. In one part of the bill it was alleged,
without particulars showing the constituent items, that the total
value of the property in Oregon held under the lease consisting of
approximately 670 miles of road, with rolling stock, stations,
terminals, and appurtenances, amounted to $43,594,886.73. But a
later averment, in connection with the allegations as to outlays
and return, was that
"the properties of the Oregon & California Railroad Company
are of the reasonable value of a sum representing the
outstanding
Page 230 U. S. 549
bonded indebtedness and the deficit, as aforesaid, and the
capital stock of the company,"
and, so valued, the total would be $39,952,008.37.
The receipts from the entire property and the disbursements for
several years were stated. It was averred that, for the fiscal year
ending June 30, 1909, the total receipts were $7,104.081 and the
disbursements $5,839,698. As the court below pointed out, the bill
was silent as to what was embraced in the aggregate expenditures,
and the court thought it fair to assume that the total
disbursements, as alleged, included not only the expenses of
operation, but also interest on bonds and on open accounts, and
thus that the averment showed, for the fiscal year ending June 30,
1909, a net balance of $1,264,383 as a return on the investment
represented by $19,000,000 in par value of capital stock. It was
alleged that the "annual loss of interstate and intrastate business
combined" which would result if the order in question were enforced
would amount to $156,072.48. The court below concluded that, on
this showing, it could not be said in advance of actual experience
that the rates fixed by the commission would not afford a fair
return upon the value of the property.
The order, as already noted, was made in September, 1910, and
the bill was brought in October, 1910, but the receipts and
disbursements for the fiscal year ending June 30, 1910, were not
given. In addition to this omission, the bill was destitute of any
allegation showing the expenses incurred in the conduct of the
intrastate business as distinguished from the interstate business,
or the share of the value of the property which was assignable to
the former. In short, the allegations of the bill were wholly
insufficient to show that the complainants would be deprived of
just compensation in their business of intrastate transportation by
virtue of the operation of the order.
In sustaining the demurrer, the court gave to the
complainants
Page 230 U. S. 550
thirty days in which to plead further, and they thus had
opportunity for amending their bill so as to present additional
averments which would correct deficiencies in the original
allegations, and remove any possible misapprehension as to the
facts intended to be set forth. But the complainants informed the
court that they did not desire to avail themselves of this
opportunity, and accordingly the bill was dismissed. We think that
it cannot be said that any error was committed in thus disposing of
the contention as to confiscation.
It is also urged that the Railroad Commission Act of Oregon
(February 8, 1907, Laws of 1907, chap. 53, p. 67) and the order in
question were void as against the Oregon & California Railroad
Company and the lessee of its property upon the ground that the act
and order impaired the obligation of the contract contained in the
charter of the first-mentioned company. That company was
incorporated in 1870 under the General Incorporation Act of Oregon,
approved October 14, 1862, which, in § 34 provided:
"Every corporation formed under this act for the construction of
a railroad, as to such road shall be deemed common carriers, and
shall have power to collect and receive such tolls or freight for
transportation of persons or property thereon as it may
prescribe."
Reference is also made to the following provision of the
Constitution of Oregon pursuant to which this incorporation act was
enacted:
"Corporations may be formed under general laws, but shall not be
created by special laws except for municipal purposes. All laws
passed pursuant to this section may be altered, amended, or
repealed, but not so as to impair or destroy any vested corporate
rights."
Art. XI, § 2. The sole question presented on this branch of the
case, it is said by counsel for the appellants,
"is whether the judgment of the carrier in fixing rates for
transportation of persons or property shall be supervised,
Page 230 U. S. 551
regulated, and supplanted by the judgment of the state exercised
through a railroad commission, or shall it remain as it was at
common law, within the exclusive power and jurisdiction of the
carrier to fix these rates, subject only to the power of the
courts, upon judicial inquiry, to denounce and decline to enforce
rates that are excessive and unreasonable."
As to this question, it is sufficient to say that it is well
established that a general charter provision such as the one
quoted, giving power to charge and collect tolls, necessarily
implies that the charges shall be reasonable, and does not detract
from the power of the state through its legislature, or the agency
lawfully constituted thereby, to prescribe reasonable rates to be
observed by the carrier.
State v. Southern Pacific Co., 23
Or. 424, 432, 433;
Stone v. Farmers' Loan & Trust Co.,
116 U. S. 307,
116 U. S. 330;
Dow v. Beidelman, 125 U. S. 680,
125 U. S. 688;
Georgia, R. & Banking Co. v. Smith, 128 U.
S. 174,
128 U. S. 181;
Chicago, M. & St.P. Railway Co. v. Minnesota,
134 U. S. 418,
134 U. S. 455;
Covington & C. Bridge Co. v. Kentucky, 154 U.
S. 204,
154 U. S. 215;
Louisville & Nashville Railroad Co. v. Kentucky,
161 U. S. 677,
161 U. S. 696;
Owensboro v. Owensboro Waterworks Co., 191 U.
S. 358,
191 U. S. 370.
In the case of
Stone v. Farmers' Loan & Trust Co.,
supra, where the charter empowered the railroad company "from
time to time to fix, regulate, and receive the toll and charges by
them to be received for transportation of persons or property on
their railroad," and it was insisted that a subsequent statute
creating a railroad commission with authority to fix maximum rates
was an impairment of contract obligation, the Court said:
"The claim now is that, by § 12 [the provision referred to], the
state has surrendered the power to fix a maximum for this company,
and has declared that the courts shall be left to determine what is
reasonable, free of all legislative control. We see no evidence of
such intention. Power is granted to fix reasonable charges,
Page 230 U. S. 552
but what shall be deemed reasonable in law is nowhere indicated.
. . . Consequently, all the power which the state had in the matter
before the charter it retained afterwards. The power to charge
being coupled with the condition that the charge shall be
reasonable, the state is left free to act on the subject of
reasonableness, within the limits of its general authority, as
circumstances may require. The right to fix reasonable charges has
been granted, but the power of declaring what shall be deemed
reasonable has not been surrendered."
The remaining questions may be briefly disposed of. The
complainants were not entitled to have the court below substitute
its judgment for that of the commission, or determine the matters
which properly fell within the province of that body. The
conditions of traffic, the adjustment of rates with respect to the
different commodities transported, and the appropriate basis for
classification were subjects for the consideration of the
commission, and there was nothing shown which would have warranted
the court in overriding the decision of the commission upon the
ground that its action was of such an arbitrary character as to
constitute an abuse of power.
The criticism made in the bill that the railroad commission act
violated the state constitution in conferring upon the commission
authority to exercise legislative, executive, and judicial powers
has been answered by the decision of the state court sustaining the
statute.
State v. Corvallis & Eastern R. Co., 59 Or.
450. The provision of the statute that suit might be brought in the
state court to set aside orders of the commission upon the ground
that the rates fixed were unlawful, or that the regulation or
practice prescribed was unreasonable, did not infringe the rights
of the complainants. The procedure permitted by the statute is
consistent with the Fourteenth Amendment.
Portland
Page 230 U. S. 553
Railway, Light & Power Co. v. Railroad Commission of
Oregon, 229 U. S. 397. And
finally, the penal provisions, of which complaint is made, are
separable.
Reagan v. Farmers' Loan & Trust Co.,
154 U. S. 362,
154 U. S. 395;
Willcox v. Consolidated Gas Co., 212 U. S.
19,
212 U. S. 53-54;
Western Union Telegraph Co. v. Richmond, 224 U.
S. 160,
224 U. S. 172;
they furnish no ground for denying effect to the rates, if
otherwise valid.
Out conclusion is that the demurrer was properly sustained.
Decree affirmed.