Northern Pacific Ry. v. North Dakota, ante, p.
236 U. S. 585,
followed to effect that, while the state has a broad field for the
exercise of its power in fixing intrastate rates for common
carriers, it may not require them to transport a segregated
commodity or class of traffic either at less than cost or for a
mere nominal consideration.
This Court must, on writ of error under § 237, Jud.Code, analyze
the facts as found by the state court if it is necessary to do so
in order to determine whether that which purports to be a finding
of fact is so interwoven with the question of law involving the
federal right asserted as to be in substance a decision of the
latter.
An analysis of the evidence in this case shows that the two-cent
a mile passenger rate established by c. 41 of the Acts of 1907 of
West Virginia affords such a narrow, if any, margin over the cost
of the traffic that the plaintiff in error is forced to carry
passengers, if not at or below cost, with merely a nominal reward,
and it follows that the state exceeded its power in enacting the
same, and that it is void as an attempt to deprive the carriers of
their property without due process of law in violation of the
Fourteenth Amendment.
The facts, which involve the constitutionality under the due
process provision of the Fourteenth Amendment of a statute of West
Virginia fixing the maximum fare for
Page 236 U. S. 606
passengers on railways at two cents a mile, are stated in the
opinion.
Page 236 U. S. 607
MR. JUSTICE HUGHES delivered the opinion of the Court.
In 1907, the Legislature of West Virginia passed an act fixing
the maximum fare for passengers on railroads, as described in the
statute at two cents a mile. Acts 1907, c. 41, p. 226. After the
rate had been tested by operating under it for two years, the
plaintiff in error brought this suit to restrain its enforcement as
being in violation of the
Page 236 U. S. 608
constitution of the state, and also upon the ground that it was
repugnant to the Fourteenth Amendment by reason of (1) its
provision for penalties, (2) its classification of railroads, and
(3) its alleged confiscatory requirements, through the reduction of
the revenue from the traffic to less than a reasonable
compensation. The validity of the statute, as construed by the
state court, with respect to penalties and classification was
upheld in
Chesapeake & Ohio Ry. v. Conley,
230 U. S. 513. In
the case of
Coal & Coke Ry. v. Conley, 67 W.Va. 129,
while the statute was sustained against the other objections above
mentioned, it was adjudged to be confiscatory in its operation with
respect to the plaintiff in that case. In the present suit, the
Circuit Court of Kanawha County, by its decree entered in March,
1913, held that the rate was not confiscatory in fact as to the
plaintiff in error. No opinion appears in the record, and there
were no special findings. An application was made to the Supreme
Court of Appeals of West Virginia for the allowance of an appeal to
that court, and it was refused. This writ of error was then sued
out.
1. The fundamental question presented is whether the validity of
the passenger rate can be determined by its effect upon the
passenger business of the company, separately considered. What has
been said in the opinion in
Northern Pacific Railway v. North
Dakota, decided this day (
ante, p.
236 U. S. 585),
makes an extended discussion of this question unnecessary. It was
recognized that the state has a broad field for the exercise of its
discretion in prescribing reasonable rates for common carriers
within its jurisdiction; that it is not necessary that there should
be uniform rates or the same percentage of profit on every sort of
business, and that there is abundant room for reasonable
classification and the adaptation of rates to various groups of
services. It was further held that, despite this range of
permissible action, the state has no arbitrary power over rates;
that the devotion of the property of
Page 236 U. S. 609
the carrier to public use is qualified by the condition of the
carrier's undertaking that its services are to be performed for
reasonable reward, and that the state may not select a commodity or
class of traffic, and instead of fixing what may be deemed to be
reasonable compensation for its carriage, compel the carrier to
transport it either at less than cost or for a compensation that is
merely nominal.
These considerations are controlling here. The passenger traffic
is one of the main departments of the company's business; it has
its separate equipment, its separate organization and management,
and, of necessity, its own rates. In making a reasonable adjustment
of the carrier's charges, the state is under no obligation to
secure the same rate of return from each of the two principal
departments of business, passenger and freight; but the state may
not select either of these departments for arbitrary control. Thus,
it would not be contended that the state might require passengers
to be carried for nothing, or that it could justify such action by
placing upon the shippers of goods the burden of excessive charges
in order to supply an adequate return for the carrier's entire
service. And, on the same principle, it would also appear to be
outside the field of reasonable adjustment that the state should
demand the carriage of passengers at a rate so low that it would
defray the cost of their transportation, when the entire traffic
under the rate was considered, or would provide only a nominal
reward in addition to cost. That fact, satisfactorily proved, would
be sufficient to rebut the presumption of reasonableness, and if in
any case it could be said that there existed other criteria by
reference to which the rate could still be supported as a
reasonable one for the transportation in question, it would be
necessary to cause this to appear.
Northern Pacific Railway v.
North Dakota, supra, and cases there cited.
2. So far as findings are concerned, we have in the present case
simply a general, or ultimate, conclusion of
Page 236 U. S. 610
fact, which is set forth in the decree of the state court, and
it is necessary for us, in passing upon the federal right which the
plaintiff in error asserted, to analyze the facts in order to
determine whether that which purports to be a finding of fact is so
interwoven with the question of law as to be in substance a
decision of the latter.
Kansas City Southern Ry. v. Albers
Commission Co., 223 U. S. 573,
223 U. S. 591;
Cedar Rapids Gas Co. v. Cedar Rapids, 223 U.
S. 655,
223 U. S.
668-669;
Oregon R. & N. Co. v. Fairchild,
224 U. S. 510,
224 U. S. 528;
Creswill v. Knights of Pythias, 225 U.
S. 246,
225 U. S. 261;
Southern Pacific Co. v. Schuyler, 227 U.
S. 601,
227 U. S. 611;
Wood v. Chesborough, 228 U. S. 672,
228 U. S.
678.
3. The passenger rate in question went into effect in May, 1907,
and was observed by the company until about September, 1909, when,
under the terms of the interlocutory injunction in this suit, the
charge was increased to two and one-half cents a mile. There were
therefore two fiscal years, June 30, 1907, to June 30, 1909, during
which the company operated its road in West Virginia under the
statutory rate. Evidence was introduced on behalf of the company
showing the results according to its calculations. It was testified
that the intrastate passenger receipts had been carefully
ascertained. With respect to the operating expenses, it was said
that for many years accounts had been kept for the purpose of
separating the expenses incident to the freight and passenger
traffic, respectively; that about 65 percent of these expenses
could be directly assigned, and that the remaining 35 percent,
consisting of items common to both sorts of transportation, were
divided between the passenger and freight traffic on the basis of
engine miles, this being deemed to be more equitable than the
train-mile basis originally used, inasmuch as most of the freight
was hauled by two engines. In practice, this method was assumed, in
accordance with an early computation, to mean that 20 percent of
such items should be assigned to the passenger
Page 236 U. S. 611
traffic; this, it was insisted, was a close approximation. Where
a division of the road was partly in one state and partly in
another, the passenger expenses were apportioned according to track
mileage. These expenses within the state having thus been
ascertained, they were divided between the interstate and
intrastate traffic upon the basis of the gross passenger earnings
-- that is, it was assumed that the cost of the interstate and
intrastate passenger traffic was the same in relation to revenue.
It was also testified that betterments were not included in
expenses, and that the above-mentioned apportionment covered all
the operating expenses except taxes, the latter being apportioned
to each class of business according to its share of the gross
receipts.
It was stated that the intrastate passenger receipts which had
been $362,997.74 in the fiscal year 1906-1907
* had fallen,
notwithstanding a considerable increase in the number of passengers
and passenger mileage, to $289,943.22 in the fiscal year 1907-08.
The passenger expenses for the latter year, estimated according to
the method above set forth, together with taxes, amounted to
$275,519.79, leaving a net surplus of $14,423.43. In the following
fiscal year, 1908-09, the intrastate passenger receipts were
$281,864.50. This showed a reduction of $81,133.24, as compared
with the fiscal year 1906-07, although there was a gain over that
year of 1,567,374 in the passenger mileage. The expenses attributed
by the company to the intrastate passenger traffic, including
taxes, for the year 1908-09 amounted to $283,416.62, thus leaving a
deficit in the passenger operations of $1,552.12.
In the receipts, as thus stated, there was omitted the revenue
derived from the mail, express, news privileges, and other items of
passenger train earnings. Including this miscellaneous income, it
appeared from the company's
Page 236 U. S. 612
statement that the net return of the intrastate passenger
business for the year 1907-08 was $18,354.62; in the year 1908-09,
the inclusion of these items still left a deficit amounting to
$616.11.
Criticizing the methods of apportionment adopted by the company,
the state presented on its part elaborate calculations for the
purpose of showing the effect of the rate. These calculations were
based upon a painstaking analysis made by the state's expert
accountant of the receipts and expenses disclosed by the company's
records and accounts. For this critical study there were selected
the months of November, 1909, and May, 1910, which the state's
witness testified were typical with respect to the passenger
business of the fiscal year ending June 30, 1910. The examination
was made of the traffic on the Pocahontas and Kenova Divisions of
the road, which contained over 90 percent of the total track
mileage of the company in West Virginia, and the passenger traffic
on which, according to passenger mileage, was stated to be over 97
percent of the whole. The testimony was that the results of the
analysis of the traffic on these divisions could be deemed to be
fairly representative of the entire passenger business. The
receipts of the intrastate traffic were adjusted to the two-cent
fare basis -- that is, according to the statutory rate as applied
to the actual travel over the road. The state suggests that neither
in its own calculations nor in those of the company was any account
taken of the receipts from interstate passengers in West Virginia,
but these were properly excluded.
Smythe v. Ames,
169 U. S. 466,
169 U. S. 541.
The company had kept on its books separate accounts of the expenses
of the freight and passenger business on the divisions
above-mentioned, but the state's expert did not accept the
company's distribution. For example, on the Pocahontas division,
the books showed passenger expenses in November, 1909, amounting to
$48,895.22; the witness for the state, by his computations,
Page 236 U. S. 613
made these expenses $37,100.72. On the same division in May,
1910, the company's figures for passenger expenses were $51,885.72;
the state's, $40,643.36. There were also similar reductions of
considerable amounts on the Kenova division. It is not necessary to
review in detail the methods thus used on the part of the state to
apportion the various common items of expense -- that is, after all
items capable of direct assignment had been charged to the business
to which they related. It is sufficient to say that, instead of
employing a general factor for the distribution of the outlays
common to both kinds of traffic, freight and passenger, the state's
witness divided each particular common item according to its
character so as to make what was deemed to be a fair apportionment
of that item. In this way, a variety of methods were employed which
the witness described at length. After ascertaining the amount of
the total expense considered to be attributable to the passenger
traffic within the state, it was divided between the intrastate and
interstate business, and for the most part, aside from the expenses
of passenger stations, the division was made on the basis of
passenger miles, and without charging extra cost to the intrastate
traffic.
By combining the results of the selected periods, it was shown
that in the intrastate passenger business, according to the
classification and apportionment adopted, the operating expenses
and taxes consumed 97.4203 percent of the total income.
This, in brief, was the result of the elaborate analysis
presented by the state. There is no reason to suppose that either
the periods chosen or the methods used were unfavorable to the
rate. Included in the passenger business were the items of mail,
express, excess baggage, etc.; the state did not present
calculations as to the net return upon these items separately
considered. When the state's expert, who testified that he had
undertaken to
Page 236 U. S. 614
separate the cost of the express business, was asked on
cross-examination whether, with these items omitted, the actual
cost of carrying intrastate passengers was not in excess of two
cents a mile, he said that it would be difficult to answer without
a separate analysis of the mail item, but added that, "in rough
computation," that cost was very close to two cents.
It is apparent from every point of view that this record permits
that the statutory rate, at most, affords a very narrow margin over
the cost of the traffic. It is manifestly not a case where
substantial compensation is permitted and where we are asked to
enter the domain of the legislative discretion; nor is it one in
which it is necessary to determine the value of the property
employed in the intrastate business. It is clear that, by the
reduction in rates, the company is forced to carry passengers, if
not at or below cost, with merely a nominal reward considering the
volume of the traffic affected. We find no basis whatever upon
which the rate can be supported, and it must be concluded, in the
light of the principles governing the regulation of rates, that the
state exceeded its power in imposing it.
The judgment is reversed, and the case is remanded for further
proceedings not inconsistent with this opinion.
It is so ordered.
MR. JUSTICE PITNEY dissents.
* Approximately eleven months of the fiscal year 1906-07 were
under the former maximum fare of three cents a mile.