1. An independent electric railroad, built and equipped
primarily for interurban and suburban passenger service, and whose
traffic is mainly of that character, but which interchanges
passengers and freight with steam railroads and competes with them,
the freight business being, however, subsidiary in amount and
function and not fairly comparable to the ordinary freight business
of a standard steam railroad,
held an "interurban electric
railway" within the meaning of § 20a of the Interstate Commerce
Act, and therefore excepted, by par. 1 of that section, from the
necessity of obtaining authority from the Commission before issuing
bonds. P.
288 U. S. 10.
2. In so holding, the Court assumes the question to be doubtful,
but decides that the status of the carrier as an "interurban
electric railway" is settled by the uniform construction of § 20a
applied to it by the Interstate Commerce Commission, the Commission
having for many years resolved doubt in favor of the carrier and
the carrier having issued large amounts of bonds in reliance upon
this administrative construction, and without any objection from
the Commission. P.
288 U. S. 13.
Affirmed.
Appeal from a decree dismissing a bill filed by the United
States praying that the railroad company be enjoined from issuing
securities or assuming obligations without authority from the
Interstate Commerce Commission.
Page 288 U. S. 6
MR. JUSTICE ROBERTS delivered the opinion of the Court.
This is a suit brought pursuant to § 12(1) of the Interstate
Commerce Act, as amended, [
Footnote
1] to enjoin the appellee from issuing any securities or
assuming any obligation or liability in respect of the securities
of others without first having obtained an order from the
Interstate Commerce Commission authorizing such action, as required
by § 20a of the Act. [
Footnote
2] The petition avers appellee's intention to issue or become
guarantor of securities in violation of the last-mentioned
section.
The District Court, after making detailed and elaborate
factfindings, concluded as matter of law that the railroad
Page 288 U. S. 7
was an independently operated electric interurban railway
expressly excepted from the requirements of the section. The
question is whether the facts found warrant the decision.
Section 20a forbids a carrier to issue shares, bonds, or
obligations, evidence of interest or indebtedness, or to assume any
obligation or liability of any other person or corporation, unless
the Commission, upon application, after investigation, shall by
order authorize such issue or assumption as within the applicant's
corporate purpose and compatible with the public interest. After
prescribing the procedure before the Commission, and declaring its
jurisdiction plenary and exclusive, the section enacts that
securities or obligations not issued pursuant to its terms shall be
void, and imposes civil and criminal liability upon officers and
directors participating in their creation.
Paragraph 1 provides:
"As used in this section, the term 'carrier' means a common
carrier by railroad (except a street, suburban, or interurban
electric railway which is not operated as a part of a general steam
railroad system of transportation). . . ."
The properties of the appellee have developed, through various
transfers and reorganizations, out of a street railway company
organized more than twenty-five years ago. The company has for some
years owned and operated in interstate commerce an electrified
railroad, the main line of which extends from Chicago, Illinois, to
Milwaukee, Wisconsin. There are 138 route miles of line, 132 miles
of second track, and 42 miles of yard and other track. About 40
miles of main and second track are in city streets, on some of
which the appellee operates in common with streetcars and vehicular
traffic. In addition to the main line between Chicago and
Milwaukee, there is an alternate line for part of the distance, a
branch some 36 miles in length, and two other branches, one of
which is 3 and
Page 288 U. S. 8
the other 8 miles long. Operation in Chicago is over the
elevated tracks of the Chicago Rapid Transit Company from the south
side northerly through the loop district to a point on the north
side (approximately 16 miles). Thence the line runs northerly
through Chicago and Evanston to Wilmette, approximately 8 miles,
over elevated dirt fill tracks owned by the Chicago, Milwaukee, St.
Paul & Pacific Railroad Company, leased by the appellee jointly
with the Chicago Rapid Transit Company. The remainder of the
appellee's lines are upon its own right of way, or in streets the
use of which is granted by local franchise. The total laid under
local franchises, outside of Milwaukee, is approximately 3 miles;
in the latter city, the operation for 2.67 miles is over the tracks
of a street surface railway owned by the appellee.
Twenty fast through passenger trains are operated daily in each
direction between downtown Chicago and downtown Milwaukee, with a
running time equalling that of the fastest trains of the Chicago
& Northwestern Railway, which operates fifteen through trains
daily between the same cities. Dining cars and parlor cars are
included in some of the appellee's fast trains. Modern, well
equipped passenger stations are maintained at a number of points;
51 have agents selling passenger tickets; at some 96 places,
shelters and platforms are maintained at 35 platforms only, and at
42 locations at which certain trains stop at streets or highways,
no facilities are provided. Through railroad and Pullman tickets
are sold to any part of the United States, Canada, or Mexico. Local
passenger fares are computed on the mileage basis used by steam
railroads.
Appellee's tracks are of standard gauge, and are physically
connected with those of four steam railroads at some thirteen
points, and with those of three electric lines. Eight connections
are used for handling interchange carload freight. The railroad has
substantial facilities for
Page 288 U. S. 9
serving various industries located on its lines, such as side,
industrial, team, and switch tracks and freight classification
tracks. It owns seven electric locomotives which are of a small
type and unable to haul freight trains of the size usually employed
by steam railroads, and 114 freight cars which have no electrical
equipment and are interchangeable with steam railroads. Sixteen
local freight tariffs are published; in 206 tariffs, the railroad
participates as initial carrier, and in more than 800 as a
delivering or intermediate carrier in conjunction with steam
railroads.
The total transportation revenue in 1930 was over $6,000,000,
about 76% from passenger traffic and about 22% from freight. This
ratio has been substantially maintained for some years. In 1930,
87% of carload freight traffic was interchange, and 78% of all
freight traffic was interline, but only 42% of freight revenue was
derived from interline business.
Locomotives are not employed in the passenger service, the cars
having installed electrical equipment and being somewhat shorter
and narrower than standard passenger railroad coaches. Freight is
hauled by electric locomotives. A merchandise package delivery
freight service is supplied by cars similar to baggage cars used on
steam railroads, having self-contained electric equipment, operated
from the loop in Chicago to Milwaukee in trains of from one to five
cars. At certain points, gauntlet tracks are required for handling
freight cars, as the clearances on the main line are insufficient
to permit their passage. Grades are much heavier than those
customary on steam railroads, and some of the curves are of so
short a radius as not to permit the passage of a steam locomotive.
The company maintains no facilities for receipt or delivery of
carload freight at its terminii in Chicago and Milwaukee, and
cannot accomplish interchange of such freight at either,
connections for this purpose being outside those cities.
Page 288 U. S. 10
The railroad was constructed to afford a fast electric passenger
service between Chicago and Milwaukee and suburban passenger
service into and out of Chicago. The freight business is subsidiary
to this primary function, and is not fairly comparable to that
ordinarily transacted by a standard steam railroad. Passenger
traffic, whether measured by car service or by gross earnings,
heavily preponderates over interline freight business. The main
terminals serve only the passenger and merchandise freight
traffic.
We thus have a typical example of an interurban electric line
for passenger service, which has developed, in addition, such
freight traffic as could advantageously be undertaken without
interfering with performance of the main purpose of the carrier.
The facts differentiate the present case from
Piedmont &
Northern Ry. Co. v. Interstate Commerce Comm'n, 286 U.
S. 299. There, the railway was predominantly a carrier
of interchange carload freight, and the proposed extension of line,
which was the subject of that litigation, had as its object the
creation of a link in a trunkline route composed of the electric
line and a number of steam railroads, which would divert from other
steam railroad trunkline routes some $4,000,000 of revenue
annually. The purely local traffic in freight, passengers, baggage,
and express was there relatively inconsequential, but here greatly
preponderates. It was there said:
"In cases where an appreciation of the facts is requisite to
proper classification, it is not always easy to draw the line.
Instances may be supposed where great difficulty might be
experienced in determining whether an electric railway line falls
within or without the exception of paragraph (22) [which is couched
in the same words as the exception in § 20a(1)]. But this is not
such a case. The facts clearly require a holding that petitioner's
railway is not within the true intent and purpose of the exclusion
intended by the paragraph."
If the
Page 288 U. S. 11
status of the appellee were a matter of first impression, we
should, though the decision is not free from difficulty, be
inclined to hold § 20a inapplicable. But, for the reasons about to
be stated, we consider the question settled.
The definitions embodied in § 1, paragraphs (2)(a) and (3),
embrace the appellee and render it subject to the jurisdiction
conferred upon the Commission by the remaining sections, unless
excepted by their terms. Interurban electric railways are expressly
saved from the requirement of §§ 1 (18) to (21), inclusive, 15a and
20a. The language of the excepting clauses in the first and third
instances is identical except for the use in one case of the
singular and in the other of the plural number. That applicable to
15a, which is the section providing for fixing rates to yield a
fair return and for recapture, differs in substance from the two
others, and is:
"excluding . . . (c) interurban electric railways unless
operated as a part of a general steam railroad system of
transportation
or engaged in the general transportation of
freight."
As indicated in the
Piedmont case,
supra, the
phrase "interurban electric railway" may not in all circumstances
be susceptible of exact definition. The Commission has realized the
difficulty. In its thirty-fifth annual report, for 1921, this was
said (p. 21):
"Under the law as it now stands, we have no jurisdiction over
the issuance of securities of a 'street, suburban, or interurban
electric railway which is not operated as a part of a general steam
railroad system of transportation.' Certain electric railways
independently operated are engaged in the general transportation of
freight in interstate commerce in addition to the transportation of
passengers. The use of electricity as motive power for railways is
rapidly increasing. Some electric lines correspond substantially to
steam roads in all important particulars except that of motive
power. Under Section 15a
Page 288 U. S. 12
of the Act, we are given authority to include in groups of
carriers for ratemaking purposes such interurban electric lines as
are engaged in the general transportation of freight. It seems
desirable that Section 20a of the Interstate Commerce Act be so
amended as to indicate definitely the classes of electric railway
companies subject to that section."
The recommendation was repeated in the annual reports for 1923,
1924, and 1925. [
Footnote 3] In
the report for 1928 (p. 83), the following appears:
"That the present exemption provisions of paragraph (22) of § 1,
paragraph (1) of § 15a, and paragraph (1) of § 20a, applicable to
electric railways, be amended by substituting provisions exempting
all electric railways except such as interchange standard freight
equipment with steam railways and participate in through interstate
freight rates with such carriers, provision to be made for
exemption of particular electric railways falling within the
excepted class, if upon application they are able to show to the
satisfaction of the Commission, after notice and opportunity to be
heard, that they are not affected with an important national
interest so far as the provisions in question are concerned."
See also the 1929 report, p. 89.
The position heretofore taken by the Commission with respect to
the appellee is of great significance. In 1923, a brief was filed
with the Commission supporting the view that § 15(a) had no
application to the company because it was an interurban electric
railway not operated as part of a general steam railroad system of
transportation and not engaged in the general transportation of
freight. The Director of the Bureau of Finance replied that, unless
later advised to the contrary, the carrier would
Page 288 U. S. 13
not be required to file returns under the section. No such
advice has ever been communicated to the appellee.
The District Court finds that, since July, 1916, when the
Chicago, North Shore & Milwaukee Railroad, the immediate
predecessor of appellee, acquired the properties, the appellee and
its predecessors have issued securities aggregating $71,327,200 par
value. Of this total $61,662,600 have been issued since March 1,
1920, the date of the incorporation of § 20a into the Interstate
Commerce Act. All of these securities were issued upon the
authority and with the approval of the regulating Commissions of
Wisconsin and Illinois, and, of those issued since March 1, 1920,
$38,935,608 were outstanding in the hands of the public on April
30, 1931. The required annual reports filed by the appellee with
the Commission have shown all securities issued since March 1,
1920, and in compliance with the rules have stated that these
issues were each approved by the state commissions.
With this knowledge of the situation, the Commission never,
until it requested the Attorney General to institute the present
suit, by word or act intimated that the procedure followed by the
railroad was illegal, or the state regulatory bodies without
jurisdiction. It would be difficult indeed to conceive a clearer
case of uniform administrative construction of § 20a as applied to
this company. Conceding that the proper classification of the
railway is not free from difficulty, all doubt is removed by the
application of the rule that settled administrative construction is
entitled to great weight, and should not be overturned except for
cogent reasons.
New York, N.H. & H. R. Co. v. Interstate
Commerce Comm'n, 200 U. S. 361,
200 U. S. 401;
Logan v. Davis, 233 U. S. 613,
233 U. S. 627;
Brewster v. Gage, 280 U. S. 327,
280 U. S. 336;
Fawcus Machine Co. v. United States, 282 U.
S. 375,
282 U. S. 378;
Interstate Commerce Comm'n v. New York, N.H. & H. R.
Co., 287 U. S. 178.
Page 288 U. S. 14
The primary responsibility rested upon the Commission to
determine whether, under the circumstances, the railroad was
required to procure leave under § 20a for the issuance of
securities. Evidently entertaining serious doubts on this question,
it has for more than a decade resolved them in favor of the
carrier, and the company and its officers have acted in reliance on
the administrative tribunal's construction of the statute. At this
late day, the courts ought not to uphold an application of the law
contradictory of this settled administrative interpretation.
Affirmed.
[
Footnote 1]
U.S.Code, Tit. 49, § 12(1).
[
Footnote 2]
U.S.Code, Tit. 49, § 20a.
[
Footnote 3]
Annual Report of Interstate Commerce Commission for 1923, p. 70;
Report for 1924, p. 78; Report for 1925, p. 72.