1. An order of the Interstate Commerce Commission requiring a
railroad to carry its coal mining properties in its accounts as
property not used in the service of transportation, although the
mines were acquired, and are used, solely for the purpose of
supplying fuel for locomotives, was within the authority of the
Commission, and not subject to review by the courts. P.
287 U. S.
141.
[
Footnote 2]
2. The order does not operate as a denial of due process by
filing an unfair and improper rate base or basis of recapture,
since it affects merely the accounting practice of the carrier. P.
287 U. S.
141.
3. There is no right to a particular form of accounting as such,
and the action of the Commission was not an abuse of power. P.
287 U. S.
143.
4. The order was not an arbitrary and unwarranted interference
with the managerial discretion of executives of the company.
Id.
5. A carrier is not entitled to relief here from part of an
order requiring that charges in its accounts for coal produced in
its mines for transportation operations shall be upon the basis of
the average monthly cost of production when the Commission has
indicated its willingness to reopen the case and give further
consideration to this question. P.
287 U. S.
143.
52 F.2d 967 affirmed.
Appeal from a decree of a District Court of three judges
dismissing a petition to enjoin the enforcement of an order of the
Interstate Commerce Commission.
Page 287 U. S. 137
MR. JUSTICE ROBERTS delivered the opinion of the Court.
The Interstate Commerce Commission issued an order pursuant to §
20 [
Footnote 1] of the
Interstate Commerce Act, as amended, requiring the Norfolk &
Western Railway Company to carry certain coal mining properties in
its accounts as not used in the service of transportation. The
railway filed a petition in the District Court to enjoin the
enforcement of the order, and, from a decree of dismissal by a
District Court of three judges, this appeal was taken.
During the period between 1917 and 1920, the railway experienced
difficulty in obtaining an adequate supply of coal of satisfactory
quality for use in its locomotives. In an effort to meet this
situation and to reduce costs of operation, three coal mines,
adjacent to the right of way, were acquired, the terms of purchase
being that they should be used solely for the supply of locomotive
fuel. The investment was, as of September 30, 1928, after
debits
Page 287 U. S. 138
for depreciation and depletion, $2,650,467.28. The estimate is
that the coal in the three mines will be exhausted in seventeen
years, thirty-three years, and thirty-five years, respectively. The
entire output, except for a trifling amount furnished to mine
employees, is consumed in carrier activities. The collieries
furnish approximately 48 percent of the railway's requirements.
A general order of the Commission, in force long prior to the
company's purchase of the mines, required such assets to be shown
under Account 705, "Miscellaneous Physical Property," which
included investments in physical property not used in
transportation. Since acquisition of the first of the mines, the
railway has carried the investment in this account. In 1927, the
company addressed a letter to the Commission requesting permission
to transfer the investment from Account 705 to Account 701, which
comprises investment in road and equipment. Thereupon an
ex
parte order was made directing that, as theretofore, the cost
of the collieries should appear in Account 705. On petition, a
hearing was afforded, after which the Commission entered the order
now under attack, prescribing that the investment be carried under
Account 705, and providing further that the charges to Account 716,
"Material and Supplies," for coal produced for consumption in
appellant's transportation operations, be upon the basis of the
average monthly cost per ton of producing coal, adding that, if
necessity should appear, the proceeding would be reopened for the
purpose of considering and further regulating the accounting under
which the costs per ton are ascertained.
First. The Commission's order is challenged as in
excess of the statutory grant of power. The concession is made that
§ 20 of the Act grants a discretion to prescribe a uniform system
of accounts, the manner in which they shall be kept, and the forms
thereof. The appellant,
Page 287 U. S. 139
however, asserts that this discretion is limited by the purposes
and ends for which such Accounts are to be kept, as exhibited in
other sections of the Act. Reference is made to the valuation §
(19a), [
Footnote 2] which calls
upon the Commission to report "the value of all the property owned
or used by every common carrier," and specifies in subparagraph (b)
that, as part of the investigation, the Commission shall
"ascertain and report in detail as to each piece of property,
other than land, owned or used by said common carrier for its
purposes as a common carrier. . . ."
Stress in laid upon the fact that final valuations made by the
Commission are to be
prima facie evidence of the value of
the property in all administrative and judicial proceedings under
the Act. So also, the appellant seeks support for this contention
in the fair return and recapture section (15a), [
Footnote 3] which assures to the carrier "a
fair return upon the aggregate value of the railway property of
such carriers held for and used in the service of transportation,"
and for recapture of income in excess of a return of six percentum
upon the value of such railway property. The phrases employed in
these sections, "in the service of transportation," and "for its
purposes as a common carrier," are said to mark the limits of the
statutory power of the Commission in classifying capital assets for
accounting purposes.
In view of the uncontradicted fact that the mines in question
were purchased for and dedicated to the use of fuel supply, and may
not be used for any other purpose, the appellant deems it
necessarily to follow that these assets were acquired for carrier
purposes, and are used in the service of transportation, and serve
no other purpose or use whatsoever. The conclusion sought to be
drawn is that, although the Commission may exercise a reasonable
discretion in prescribing the nature and form
Page 287 U. S. 140
of accounts, it has in the present instance plainly exceeded
that discretion, and, by classifying as nontransportation property
that which was acquired to serve transportation activities and
promote the purposes of carriage of persons and goods, has
transgressed statutory boundaries.
We must examine the origin, the purpose, the reenactment of the
statutory provision, and the practice of the Commission thereunder,
to resolve the question thus presented. The authority to require
annual reports from carriers and to prescribe a uniform system of
accounts was conferred on the Commission by the Interstate Commerce
Act of 1887, [
Footnote 4] and
was but slightly elaborated in statement by the Hepburn Act and the
Transportation Act, 1920. [
Footnote
5] One of the prime purposes of § 20 is, and has been since the
adoption of the Act of 1887, that the carriers' accounts should be
uniform, so as to afford the Commission and the public a basis for
comparison of their respective operations. In orders issued
pursuant to this legislation, the Commission, as early as 1914,
drew a distinction, for purposes of accounting, between
transportation and nontransportation property. The rule as to
classification which appellant attacks had been in force long prior
to the passage of the Transportation Act, which added to the law
theretofore in effect § 15a, respecting recapture, and prior to the
enactment of the Act of March 1, 1913, [
Footnote 6] which added § 19a, concerning valuation, to
which appellant turns for the limitations it would have us read
into § 20. Moreover, those sections draw the very distinction which
the Commission order has long enforced. Section 15a, in referring
to the fair return guaranteed the carrier, speaks not of the
property as a whole, but of "the
Page 287 U. S. 141
railway property held for and used in the service of
transportation." And § 19a commands the Commission to show
separately in any report "the property held for purposes other than
those of a common carrier."
Plainly, the Commission, under the authority conferred upon it
by Congress, must draw a line between the two sorts of property
owned by the railroads. Within broad limits, that body's
determination is necessarily beyond revision and correction by the
courts. The record shows that it is unusual for a railroad to own
mines for the production of locomotive fuel; in fact, we are
referred to no other similar instance. Whether the Commission
should make special classifications to fit exceptional cases lies
within the discretion conferred, and courts ought not to be called
upon to interfere with or correct alleged errors with respect to
accounting practice. If we were in disagreement with the Commission
as to the wisdom and propriety of the order, we are without power
to usurp its discretion and substitute our own.
Kansas City So.
Ry. Co. v. United States, 231 U. S. 423,
231 U. S.
444-456.
Second. With great earnestness, the appellant
characterizes the order as in several aspects a denial of due
process. It declares that, by virtue of the Commission's mandate,
an unfair and improper rate base is fixed, and a capital asset
properly to be taken into account for purposes of recapture is
eliminated. But this is to ignore the fact that the order is one
touching accounting merely; that, before any rate base can be
ascertained or any basis of recapture determined, the carrier will
be entitled to a full hearing as to what property shall be
included, and not until the Commission excludes the assets in
question from the calculation may the carrier assert the infliction
of injury to its rights of property. A recapture proceeding is now
pending against the appellant wherein full opportunity will be
afforded to present any claims with
Page 287 U. S. 142
regard to the inclusion in whole or in part of the mining
properties in question.
We are not convinced by the assertion that the necessary effect
of classifying the mines as noncarrier properties is to exclude
them from consideration as capital in the issuance of securities.
We are not, however, required now to decide this question, for the
mere accounting classification can conclude neither the Commission
nor the appellant upon the hearing of an application under §
20a(2). [
Footnote 7]
Denial of due process is also predicated upon the assertion that
the Commission's order is wholly unsupported by the evidence.
Appellant invokes the principle that due process requires not only
a hearing, but a fair consideration of the evidence, and says that
no effect was given to the uncontradicted testimony. The report
demonstrates that the Commission did give painstaking attention to
the question of the proper classification of the asset in question
by comparison of mines for fuel supply with water rights, gas and
power plants, locomotive and car manufacturing plants, timber lands
purchased for future supply of ties, and other kinds of property
which have been heretofore classified as falling partly or wholly
within or without the category of transportation property. The
record demonstrates that an adequate hearing was afforded, and due
weight given to the evidence.
Appellant also characterizes the Commission's action as a denial
of the legal right of the railway to adopt fair and reasonable
methods of accounting. We have shown that the order made does not
affect the right to a fair return, or to determination of the full
and fair value of the carrier's entire property and assets, and
does not amount to a taking thereof. The objection now under
Page 287 U. S. 143
consideration asserts merely that the company is lawfully
entitled to maintain a reasonable system of accounting. But there
is no right to a particular form of accounting as such. Doubtless a
Commission order under § 20 might be so arbitrary and outrageous as
to call for correction. The present is not such a case. What has
been done clearly does not amount to an abuse of power.
See
Kansas City So. Ry. Co. v. United States, supra.
The order is assailed further as an undue and unwarranted
interference with managerial discretion. Much is said of the wisdom
and far-sightedness of obtaining an adequate supply of a commodity
necessary to the continuance of the railway's transportation
system. The danger of limiting or hampering railway executives in
the exercise of sound discretion and good policy is stressed. But
nothing in the order prevents the exercise of such policy. The
basis of the Commission's order is merely that, if a carrier
determines to go into the business of manufacturing articles for
use in connection with its activities as a carrier, such as are
ordinarily purchased by railroads from independent manufacturers or
producers, these shall not appear in the accounts as investments in
railway property used in the service of transportation. No benefit
derived from such activities is denied the carrier, nor does the
required classification in any way take the property of the company
or impair its value.
Third. Finally, complaint is made of that portion of
the Commission's order which requires the charges to Account 716,
"Material and Supplies," for coal produced from the collieries for
consumption in the appellant's transportation operations, to be
upon the basis of the average monthly cost for producing the coal.
The objection seems to be grounded on the premise that actual cost
of production is not the proper item to go into that account. The
Commission, however, expressed a willingness to reopen the case and
to give further consideration,
Page 287 U. S. 144
if necessary, to the method of charging coal from these mines as
a cost of transportation. The record therefore fails to show that
in this aspect the appellant has suffered harm from the order.
The judgment of the District Court is
Affirmed.
MR. JUSTICE BUTLER took no part in the consideration or decision
of this case.
[
Footnote 1]
U.S.C. Tit. 49, § 20.
[
Footnote 2]
U.S.C. Tit. 49, § 19a.
[
Footnote 3]
U.S.C. Tit. 49, § 15a.
[
Footnote 4]
Act of February 4, 1887, c. 104, § 20, 24 Stat. 386.
[
Footnote 5]
Act June 29, 1906, c. 3591, § 7, 34 Stat. 593, and Act Feb. 28,
1920, c. 91, §§ 434-438, 41 Stat. 493, 494.
[
Footnote 6]
C. 92, 37 Stat. 701.
[
Footnote 7]
U.S.C. Tit. 49, § 20a(2).