1. The commodities clause of the Interstate Commerce Act does
not prevent a railroad from transporting commodities of a
corporation substantially all of whose stock is owned by a holding
company which also owns substantially all of the stock of the
railroad, unless the control of the railroad is so exercised as to
make it the alter ego of the holding company.
United States v.
Elgin, J. & E. R. Co., 298 U. S. 492. Pp.
333 U. S.
772-785.
2. In the light of the equitable considerations involved in this
case and the fact that Congress rejected as too drastic an
amendment proposed for the specific purpose,
inter alia,
of setting aside the decision of this Court in
United States v.
Elgin, J. & E. R. Co., supra, this Court declines to
overrule that interpretation. Pp.
333 U. S.
773-784.
3. The evidence in this case does not prove that the holding
company, in either the legal or economic sense, disregarded the
separate entity of its subsidiary railroad or treated it as its
alter ego. Pp.
333 U. S.
784-785.
4. Voluntarily abandoned courses of conduct are not grounds for
injunction, though they may sometimes be relevant evidence of
intent or similar issues. P.
333 U. S.
774.
69 F. Supp. 456 affirmed.
A District Court denied an injunction against alleged violations
of the commodities clause of the Interstate Commerce Act, 49 U.S.C.
§ 1(8). 69 F. Supp. 456. On direct appeal to this Court,
affirmed, p.
333 U. S.
785.
Page 333 U. S. 772
MR. JUSTICE JACKSON delivered the opinion of the Court.
The Government, by direct appeal from the District Court,
[
Footnote 1] invites us to
reconsider and overrule the interpretation of the commodities
clause of the Interstate Commerce Act [
Footnote 2] promulgated in
United States v. Elgin, J.
& E. R. Co., 298 U. S. 492.
That holding, in substance, is that the prohibition [
Footnote 3] against a railroad company's
transporting any commodity which it owns or in which it has an
interest, except for its own use, does not prevent it from
transporting commodities of a corporation whose stock is wholly
owned by a holding company which also owns all of the stock of the
railway, unless the control of the railway is so exercised as to
make it the
alter ego of the holding company.
The present challenge to that doctrine is predicated on the
following facts: Bethlehem Steel Corporation (the
Page 333 U. S. 773
holding company) owns substantially all of the stocks of South
Buffalo Railway Company (South Buffalo) and of Bethlehem Steel
Corporation (the Steel Company). At its Lackawanna plant, near
Buffalo, N.Y., the Steel Company produces steel, and from it
fabricates various products. These commodities are transported by
the South Buffalo from the plant to the rails of trunkline
carriers. In fact, South Buffalo provides the sole terminal
connection between this industry and the trunkline railroads. It
operates about 6 miles of mainline track and 81 miles of spur
track, 58 miles of its trackage being on leased right-of-way within
the steel plant where it connects with other trackage owned by the
Steel Company itself.
While about 70% of South Buffalo revenues have been derived from
the Steel Company traffic, it also renders terminal switching for
27 unrelated industries, some of considerable size. It enables all
of them to ship, by direct connection, over five trunkline systems
and through interchange over seven more.
South Buffalo performs no transportation service, and owns no
facilities outside of the New York, where it operates only within
the Buffalo switching district. It is classified by the Interstate
Commerce Commission as an "S-1" carrier, which is defined as one
engaged in "performing switching services only." It files tariffs
covering switching service, both with the Interstate Commerce
Commission and with the New York Public Service Commission. It does
not appear to participate with any line-haul railroad in a through
interstate route, or to receive a division of any joint or through
rate.
In 1936, this Court decided
United States v. Elgin, J. &
E. R. Co., 298 U. S. 492, and
held that the production and transportation set-up of the United
States Steel Corporation, one of Bethlehem's competitors, did not
violate the commodities clause. Thereupon, Bethlehem
Page 333 U. S. 774
made a study of the relations between itself, South Buffalo, and
the Steel Company in the light of this decision. It revised its
intercorporate relationship in the next few years to comply, as it
was advised, with the conditions under which this Court had found
the statute inapplicable to United States Steel. It does not seem
necessary to recite the complex details of intercorporate dealings
before the reorganization about 1940, as this action for injunction
was not begun until 1943, and and crucial question is whether there
was a contemporaneous violation or a threat of violation against
which the writ of the Court should be directed. Voluntarily
abandoned courses of conduct are not grounds for injunction, though
they may sometimes be relevant evidence of intent or similar
issues.
At all times crucial to the Government's case, Bethlehem
controlled the stock of both the shipper and the carrier
corporations. It unquestionably had power to favor its shipping
subsidiary at the expense of its carrying subsidiary, or vice
versa. The first question is whether we will now hold that were
possession of the power, regardless of whether it is exercised or
remains dormant, makes out a violation of the statute. This Court
said in the
Elgin Case that it does not.
It is the Government's contention that the
Elgin
decision misconstrued the Act, misunderstood its legislative
history and misapplied the Court's own prior decisions. It is not
necessary, in the view we take of the case, to decide to what
extent, if any, these contentions are correct. It is enough to say
that, if the
Elgin case were before us as a case of first
impression, its doctrine might not now be approved. But we do not
write on a clean slate. What the Court has written before is but
one of a series of events, which convinces us that its overruling
or modification should be left to Congress. As the Court held on
our last decision day, when the questions are
Page 333 U. S. 775
of statutory construction, not of constitutional import,
Congress can rectify our mistake, if such it was, or change its
policy at any time, and, in these circumstances, reversal is not
readily to be made.
Massachusetts v. United States,
333 U. S. 611.
Moreover, in this case, unlike the cited one, Congress has
considered the alleged mistake and decided not to change it.
The Interstate Commerce Commission, after repeatedly calling the
attention of Congress to the
Elgin case during its
pendency, in 1936 reported its defeat in the litigation. Referring
to commodities clause cases, it said,
"We recommend that Congress, in the light of facts already made
available in our reports and in reports of investigations conducted
by congressional committees, shall determine the appropriate limit
of our jurisdiction in such cases and whether further legislation
to extend that jurisdiction is necessary. [
Footnote 4]"
Congress took no action.
But its inaction has not been from inadvertence or failure to
appreciate the effect of the Court's interpretation. A Bill was
introduced in the Senate containing language relating to affiliates
and subsidiaries calculated in effect to set aside the
Elgin decision. [
Footnote
5] Section 12 of the Act as introduced read as follows:
"It shall be unlawful for any carrier by railroad
and, on
and after January 1, 1941, it shall be unlawful for any carrier,
other than a carrier by air, to transport, in commerce subject
to this Act, any article or commodity, other than timber and the
manufactured products thereof, manufactured, mined, or produced by
or under the authority of such carrier
or any subsidiary,
affiliate, or controlling person of such carrier, or any such
article or commodity in
Page 333 U. S. 776
which such carrier,
subsidiary, affiliate, or controlling
person has any interest, direct or indirect,
legal or
equitable, except such articles or commodities as may be
necessary or intended for use in the conduct of the carrier
business of such carrier."
The italicized portions indicate the proposed additions which
would have extended the clause to cover (1) carriers other than
railroads, and (2) subsidiaries, affiliates, and controlling
persons.
At the beginning of hearings thereon by the Senate Committee on
Interstate Commerce, its chairman said that, with respect to the
commodities clause, the purpose of the Bill was
"To make effective the intent of Congress in prohibiting
railroads, or other carriers after January 1, 1941, from
transporting products not utilized in the conduct of their
transportation business but in which they have an interest, direct
or indirect. [
Footnote 6]"
A week later, in the course of the hearings when evidence began
to be offered showing the effect the proposed clause might have on
various industries, the chairman made this statement:
"Let me say this to you with reference to the commodities
clause, so that there will not be a lot of time wasted on it. I am
speaking for myself, and not for the committee. I think the
commodities clause will have to be changed, and if we are going to
make such drastic changes in the commodity clause as this bill
would suggest, I think it ought not to be incorporated in this
particular piece of legislation, but should come up as a separate
piece of legislation so that we can devote considerable time and
thought to that particular subject. This would so change the
economic structure of a lot of industries that I
Page 333 U. S. 777
think it is something that would have to have particular
consideration in a separate piece of legislation. [
Footnote 7]"
In a further discussion, the Chairman added:
"I might say also that, if the commodities clause should stay in
as it is at the present time, it would disrupt a great many
industries, and I would seriously question whether or not I wanted
to attempt anything of that kind at this time, particularly in this
specific piece of legislation. [
Footnote 8]"
When the bill was reported to the Senate, the proposed change
had been eliminated, and the original language of the Act retained.
The Committee, in reporting the bill, said, "The rewritten
commodities clause was considered far too drastic, and the
subcommittee early decided against any change therein." [
Footnote 9]
The Government argues that the characterization of the rejected
revised commodities clause as "too drastic" was based on the
proposed extension of its terms to all common carriers, and not on
the proposal to include a "subsidiary, affiliate, or controlling
person" of a carrier. We believe, however, that a fair reading of
the legislative history leads to the conclusion that the "drastic
readjustment" feared by the Committee was that expected from the
application sought here by the Government at least as much as that
feared from extension of the clause to cover carriers other than
railroads. If the Committee objected only to extending the clause
to other carriers, it would have been a simple matter to delete the
short series of words which would have accomplished that change,
and still leave undisturbed the more complicated provision
concerning subsidiaries and affiliates, since the text of each
provision is wholly disconnected from the other.
Page 333 U. S. 778
In view of the foregoing, it seems clear that when, in
discussing whether or not this revised clause would have "prevented
the steel company, or somebody in that position, from operating
their own railroad," the Committee Chairman said "I did not intend
such a result," he expressed the view which prevailed in the
Committee and in the Congress.
The Government now asks us to apply the unchanged language as if
Congress had adopted the proposal which it rejected as "far too
drastic." The considerations which led to the suggestion that the
problem presented by the Government's position would require
separate legislation and particular consideration seems to us to
require that the problem be left to legislation, rather than to the
judicial process. And the pertinent portions of the legislative
history which are set out at length in the margin [
Footnote 10] indicate
Page 333 U. S. 779
clearly, we think, that this Senate Committee responsible for S.
2009, which became the Transportation Act of 1940, deliberately
refused to recommend and the Congress
Page 333 U. S. 780
refused to legislate into the law the change we are now asked to
make by judicial decision.
We could, of course, refuse to follow the
Elgin
precedent, and apply a different and more drastic rule to Bethlehem
than applies to its competitor. Congress,
Page 333 U. S. 781
however, in making a rule for the future, can make one of
impartial application to all like situations. Limitations that are
traditional upon our powers do seem not to permit us to do so.
Page 333 U. S. 782
Whatever may be said of the
Elgin decision, when the
Committee of Congress faced the readjustments its overruling would
force, and with special reference to the steel
Page 333 U. S. 783
industry, [
Footnote 11]
it concluded the decision should be allowed, at least for the
present, to stand. We cannot ignore the considerations they found
to be so persuasive, and which are equally involved in the request
that we do what Congress considered and abandoned.
The relief asked of us as a court of equity is so drastic in
nature as to afford an example of an "upset" in an industry owning
a short line of railroad of the type referred to by the Chairman of
the Interstate Commerce Committee of the Senate, who said "it is
questionable whether we would want to make such a radical departure
from the present system." The demand is for an injunction
perpetually to enjoin and restrain South Buffalo from transporting
commodities in which the Steel Company or the holding company owns
an interest. There is no other rail route by which inbound raw
materials or outbound products of this huge industry can reach
trunkline railroads. And the traffic that we are asked thus to
prohibit yields 70% of the railroad's revenues, and, if taken away,
would doubtless substantially increase the cost of service to the
unaffiliated industries that would remain to be served. Of course,
what is literally asked is probably not what is ultimately desired.
To forbid the physical operation as now conducted would be
needlessly damaging to both shipper and carrier. What is aimed at,
we suppose, is to force such a change of financial structure as
will divorce shipper interest from all transportation interest. It
seems clear, however, in the light of the legislative history,
Page 333 U. S. 784
that this is the kind of operation that Congress did not want to
prohibit because the prohibition was thought too drastic. If an
independent ownership could be found for South Buffalo, it might be
desirable. But independent ownership of a dependent facility wedged
in between shippers, one of whom controls 70% of its revenues, and
the trunkline railroads, is not shown to be likely. Under the
Government's theory, no other shipper or group of shippers, any
more than Bethlehem, could own the road. Nor is it clear that any
evils exist or are threatened which would be eliminated if this
operation were transferred to control of one of the trunkline
railroads or to a pool of them. This road, despite its shipper
ownership, is bound by both federal and state law to serve all
shippers without discriminations or unreasonable charges. The
Commission has power to exact compliance with these duties. The
argument, however, is that a situation exists which presents
opportunity and temptation for abuse and for concealed evasions of
duty. But, to forestall possible abuses, we are asked to apply a
remedy which there is indication failed of congressional approval
because its application to many situations would be too drastic,
and would do greater injury to shipper and transportation interests
than could result from its withholding. In the light of the history
of this clause since the
Elgin decision and the equitable
considerations involved in this case, we decline to overrule the
interpretation Congress has not seen fit to set aside.
The argument is made that, even accepting the
Elgin
decision, the evidence here establishes that Bethlehem has so
exercised its power over South Buffalo as to reduce the railroad to
a mere department of Bethlehem. The trial court found against the
Government and considered that, on this subject, this case contains
much less proof to sustain an injunction than did the
Elgin case. Without reciting the voluminous evidence in
detail, we agree.
Page 333 U. S. 785
Bethlehem, as a stockholder, of course, controlled South
Buffalo. It did not, however, disregard in either the legal or
economic sense, the separate entity of its subsidiary, or treat it
as its own
alter ego. On the contrary, it rather
ostentatiously maintained the formalities of separate existence,
choosing as directors several Buffalo citizens who were not
interested in Bethlehem. We are not naive enough to believe that
Bethlehem chose men for the posts whose interests or records left
any fair probability that they would act adversely to Bethlehem in
representing its interest as chief stockholder of the railroad. Nor
has any instance been cited in which the best interests of the
railroad would require them to do so. So long as Congress considers
it inadvisable to extend the prohibition of the commodities clause
to subsidiaries and affiliates, we see nothing that Bethlehem has
done to incur liability for its violation. Of course, it could not
expect the Commission or the courts to respect a corporate entity
which Bethlehem itself disregarded; but that it has not done. The
subsidiary would not have to establish its separate identity by a
course of hostility to its sole stockholder or its chief customer.
Its identity has been preserved in form and in substance -- the
substance of separate corporate existence being itself largely a
matter of form. Under the
Elgin case, and until Congress
shall otherwise decide, this is sufficient.
Judgment affirmed.
[
Footnote 1]
49 U.S.C. § 45; 28 U.S.C. § 345.
[
Footnote 2]
49 U.S.C. § 1(8).
[
Footnote 3]
The complete text of the commodities clause provides:
"From and after May first, nineteen hundred and eight, it shall
be unlawful for any railroad company to transport from any State,
Territory, or the District of Columbia, to any other State,
Territory, or the District of Columbia, or to any foreign country,
any article or commodity, other than timber and the manufactured
products thereof, manufactured, mined, or produced by it, or under
its authority, or which it may own in whole or in part, or in which
it may have any interest, direct or indirect, except such articles
or commodities as may be necessary and intended for its use in the
conduct of its business as a common carrier."
[
Footnote 4]
50 Annual Report I.C.C. 30 (1936).
[
Footnote 5]
S. 2009, 76th Cong., 1st Sess., March 30 (legislative day March
28) 1939.
[
Footnote 6]
Hearings before Senate Committee on Interstate Commerce on S.
2009, 76th Cong., 1st Sess., 3 (April 3, 1939).
[
Footnote 7]
Id. at 427 (April 10, 1939).
[
Footnote 8]
Ibid.
[
Footnote 9]
Senate Report No. 433, 76th Cong., 1st Sess., 15 (May 16,
legislative day May 8, 1939).
[
Footnote 10]
The extent of the consideration which the Senate Interstate
Commerce Committee gave to the proposed revision of the commodities
clause is indicated by the following excerpts from Hearings on S.
2009, held from April 3 to April 14, 1939:
In opening the hearing, Senator Wheeler, Chairman, stated that,
with respect to the commodities clause, the purpose of the bill
was
"to make effective the intent of Congress in prohibiting
railroads, or other carriers after January 1, 1941, from
transporting products not utilized in the conduct of their
transportation business but in which they have an interest, direct
or indirect."
During the testimony of the General Counsel, Association of
American Railroads, the following colloquies took place:
"Senator Reed. Judge, in section 12, there is some new language.
I have marked it 'O.K.' here. That is to cover the decisions of the
Supreme Court in the
E.J. & E. case?"
"Mr. Fletcher. I will get to that in just a moment. There is new
language in there. . . ."
"
* * * *"
"Mr. Fletcher. I come now to section 12, the commodities clause,
about which I would like to say a word."
"It was the thought of those who drew the bill, H.R. 4862, to
undertake to put into statutory form the recommendation of the
Committee of Six that they ought to extend the commodities clause,
which now applies only to railroads, to water carriers, and motor
carriers as well."
"Now I think the water carrier people will object to that . . .
I think some of the steel companies have water operations of that
kind. I mention that as a change in the law suggested by the
draftsmen who prepared the bill, reflecting the views of the
Committee of Six."
"The Chairman. Judge, somebody called me on the phone the other
day . . . and asked me as to whether or not, in my opinion, this
prevented the steel company, or somebody in that position, from
operating their own railroad, where they have a small railroad they
are operating.
I did not intend such a result."
(Emphasis supplied.)
"Mr. Fletcher. This bill has no relation to that. One of my
associates suggests, Senator, that possibly this language which I
was just about to mention and which was called to my attention a
few minutes ago by Senator Reed, might possibly have that
effect."
"Senator Reed.
I would disagree with the chairman, if I
may be so bold.
I think the commodities clause would have that
effect in the bill that we are currently discussing."
(Emphasis supplied.)
"Mr. Fletcher. When I said so promptly and perhaps rashly that I
did not think it did, I did not have in mind this particular
amendment, which I will now mention."
"Senator Reed.
I am perfectly willing that it should have
that effect."
"The Chairman.
Well, I doubt that it should. For
instance, a lumber company may own some railroad."
"Senator Reed. You exempt that?"
"Mr. Fletcher. You exempt the lumber company?"
"The Chairman. Yes."
"Mr. Fletcher. It might not be altogether lumber."
"The Chairman.
I was speaking, for instance, of some steel
company or some other industrial company which might own a short
railroad. [Emphasis supplied.]"
"Senator Reed. The United States Steel Co. owns the Union
Railroad Co."
"The Chairman. I do not know what the Union Railroad Co.
is."
"Senator Reed. It is a short road."
"Mr. Fletcher. I think the E.J. & E. started all this
shouting."
"Senator Reed. In section 12, on page 44, beginning at line 22,
it reads: 'or produced by or under the authority of such carrier or
any subsidiary, affiliate' . . . and this is the language . . . 'or
controlling person of such carrier.'"
"Mr. Fletcher. That is new, you see."
"Senator Reed. That is new. I am in accord with the chairman on
that language."
"Mr. Fletcher. I do not know, Mr. Chairman, but I do think it is
a trifle unfortunate to try to accomplish so drastic a thing in a
bill of this kind, the thought of which was to reproduce existing
law."
"The Chairman.
I am very doubtful about it. I am afraid that
it will cause such a drastic readjustment. [Emphasis
supplied.]"
"Mr. Fletcher. The
E.J. & E. Co. [case] . . ."
"The Chairman (interposing). I am not familiar with the
E.J.
& E. case."
"Mr. Fletcher (continuing) . . . brought about this suggestion
here. There, the United States Steel Corporation does not own the
E.J. & E. directly, but through the medium of the Illinois
Steel Corporation, a subsidiary of the United States Steel Co. . .
. , and I may get that a little confused . . ."
"Senator Reed (interposing). You have."
"Mr. Fletcher. My recollection is that the United States Steel
Corporation owns a company -- you might call it a holding company
-- which holding company owns both the E.J. & E. and the steel
corporation."
"It was contended by the government that, when the E.J. & E.
transported freight for the Illinois Steel Corporation they were
violating the commodities clause because, either directly or
indirectly, the railroad owned this traffic that was being
transported, but the Supreme Court of the United States held not,
but where you had one company or person who owned both the railroad
and the commercial enterprises that produced the tonnage, the
transportation by the railroad of that tonnage was not equivalent
to the transportation by the railroad of tonnage which it
owned."
"Senator Reed. Judge, you remember that Justice Stone, Justice
Brandeis, and Justice Cardozo dissented from that majority opinion
of the Supreme Court in the
E.J. & E. case."
"Mr. Fletcher. That is right."
"Senator Reed. And Justice Stone wrote the dissenting
opinion."
"Mr. Fletcher. Yes."
"Senator Reed. I am inclined to think that the Supreme
[
sic], as presently constituted, would hold with what was
the minority view."
"Mr. Fletcher. I would not express any opinion on that."
"Senator Reed. I speak frankly, being no lawyer myself."
"Mr. Fletcher. Whether that is wise or unwise, I doubt if it
ought to be done in this legislation and in this bill."
"Senator Reed. I thought Justice Stone wrote a more logical
opinion than Justice Butler did. I think it was Justice Butler who
wrote the majority opinion in that
E.G. & E.
case."
"Mr. Fletcher. I think it was."
(Justice McReynolds wrote the opinion of the Court.)
Later, during the testimony of Counsel for Mississippi River
System Carriers' Association, the following statements concerning
the commodities clause were made:
"Senator Reed. . . . and I think we might give further
consideration to that commodities clause."
"Mr. Bayles. It is too drastic, also."
"Senator Reed. It was probably tightened up when, which I say as
a layman and therefore not in fear of being criticized, the Supreme
Court of the United States made a strange decision in the
E.J.
& E. case. This was tightened to meet that
E.J. &
E. decision, because I think that was a strange construction
of the law on the part of the Supreme Court of the United
States."
Testimony by counsel for coal operators led to the
following:
"Senator White. What changes have been made in the commodities
clause."
"Mr. Norman. Very substantial ones."
"The Chairman. Very substantial."
"Mr. Norman. That is on page 44."
"The Chairman. What we tried to do, to be frank with you, was to
try to adapt it to meet the decision of the Supreme Court in the
E.J. & E. case."
"Senator Reed. I think, of course, what Mr. Norman has in mind
is that it goes further than that in that, for the first time, we
are applying the commodities clause to water carriers."
"Senator White. I understood that, but in what other
respects?"
"Senator Reed. I think that is the only respect."
"Mr. Norman. Well, no; as the Senator says, it probably would
get around the Supreme Court decision in the
E.J. & E.
case, because it puts in there the words 'subsidiary, affiliate, or
controlling person of such carrier.'"
"The Chairman. That is right."
A discussion of the effect on coal industry contract carriers
followed. Then:
"Mr. Norman. So that commodities clause, again, is a big one,
and certainly ought to be studied before there are any changes made
in it. It is loaded with dynamite so far as business is
concerned."
"Senator Reed. You may have one kind in mind, but there are many
of them."
"The Chairman. There are difficulties on that question, in my
mind. Suppose we reenacted the law as it is. The question is
whether the courts might say, in view of the Supreme Court's
decision, 'In reenacting the law, you approved the decision of the
Supreme Court.'"
On April 10, 1939, the Chairman, in addition to the statements
quoted in the body of this opinion, also said:
". . . I want to say that I think it is foolish for a lot of
people to come in here and waste our time and their own time in
talking about that [the commodities clause], and for that reason, I
wanted to make it clear by that statement. . . ."
"As I said before, this is such a broad subject, and it would
undoubtedly cause a tremendous upset in many lines of business,
that it is questionable whether we would want to make such a
radical departure from the present system."
As pointed out in the text, when the Bill was reported to the
Senate, the proposed changes in the commodities clause had been
abandoned. The Committee report stated:
". . . The commodities clause, forbidding a carrier by railroad
to transport any article or commodity in which it has an interest
direct or indirect, with certain exceptions not very material
(timber and timber products) has been retained. . . ."
"Section 12. Commodities Clause. This provision retains the
'commodities clause' (sec. 1(8) of the Interstate Commerce Act),
now applicable only to railroads, in its present form. The
rewritten commodities clause was considered far too drastic and the
subcommittee early decided against any change therein."
[
Footnote 11]
See 333 U. S.
MR. JUSTICE RUTLEDGE, with whom MR. JUSTICE BLACK, MR. JUSTICE
DOUGLAS, and MR. JUSTICE MURPHY join, dissenting.
This is another case where the Court saddles Congress with the
load of correcting its own emasculation of a statute, by drawing
from Congress' failure explicitly to overrule it, the unjustified
inference that Congress approves
Page 333 U. S. 786
the mistake. I think that
United States v. Elgin, J. &
E. R. Co., 298 U. S. 492, was
decided in the teeth of the commodities clause, 49 U.S.C. § 1(8),
that it should now be overruled, and that this conclusion is
dictated by the legislative history which the Court misreads, in my
opinion, as giving basis for the opposite one.
The commodities clause forbids "any railroad company to
transport . . . any article or commodity . . . in which it may have
any interest, direct or indirect. . . ." The
Elgin
decision made the clause "in which it may have any interest, direct
or indirect" to read, in effect,
"in which it may have any interest, direct or indirect, unless
the interest is indirectly held through 100 percent stock ownership
of another corporation and hence 100 percent interest in that
company's profits, or through some other corporate arrangement
having like effects."
The simple question for decision under the statute is whether
the South Buffalo Railway has an interest, "direct or indirect," in
the commodities which it hauls for the affiliated Bethlehem Steel
Company. Any attempt to answer by a factual inquiry into the degree
of control which the Holding Company or the Steel Company has
actually exercised over the railroad can only complicate a simple
problem. [
Footnote 2/1] Only by the
most sophisticated, or unsophisticated, process of reasoning can it
be concluded that any one of the many subsidiary members of this
integrated steel producing empire [
Footnote 2/2] has no interest in the
Page 333 U. S. 787
operations of every other member. Particularly, the railroad has
an interest in the production of the Steel Company,
"for all of the profits realized from the operations of the two
must find their way ultimately into [the Holding Company] treasury
-- any discriminating practice which would harm the general shipper
[
Footnote 2/3] would profit the
Holding Company."
United States v. Reading Co., 253 U. S.
26,
253 U. S. 61.
Here, a railroad and one of its customers are both wholly owned
subsidiaries of the same holding company. It is clear to me, and
the Court does not deny, that the railroad in fact is occupying the
inconsistent positions of carrier and shipper which the commodities
clause was designed to prevent.
United States v. Reading Co.,
supra. [
Footnote 2/4]
The Court does not dispute that it would so hold if the clause
had not been construed differently in the
Elgin case. But
even on the assumption that the statute was then misconstrued, the
Court is unwilling to correct its own error, because it concludes
that Congress has subsequently indicated approval of the
Elgin decision. This
Page 333 U. S. 788
conclusion is based on a distorted view of the legislative
history of the Transportation Act of 1940, particularly of § 12 of
S. 2009, which would have amended the commodities clause if
adopted. Since the proposed § 12 would have overruled the Elgin
case, and since it was rejected in committee as "far too drastic,"
[
Footnote 2/5] it is inferred that
Congress has expressed approval of that case.
The conclusion does not follow, because the premise is wrong.
The argument overlooks the crucial inquiry -- namely, the reason
for which Congress considered the proposed § 12 "far too drastic."
If this reason had been an objection to applying the commodities
clause to the wholly owned subsidiary relationships present in this
and the
Elgin cases, the argument might have some
pertinence. But that was not the reason. On the contrary, the two
Senators who were most active in sponsoring the bill and in the
conduct of the hearings on it felt that no legislation would be
necessary if no more were intended than a reversal of the
Elgin case. [
Footnote 2/6]
That was only one of several
Page 333 U. S. 789
broad purposes of the bill, others being much more sweeping. The
new commodities clause, instead of applying only to railroads,
would have applied to all types of carriers except air carriers. It
is perfectly clear from a reading of the hearings that this
proposed application to carriers of all types was what was
considered "far too drastic" a change to be included in the
Transportation Act of 1940.
Page 333 U. S. 790
The crucial importance of this extension is abundantly shown
from the vigorous objections on behalf of parties that would have
been affected by extending the commodities clause to water
carriers, [
Footnote 2/7] to
pipelines, [
Footnote 2/8] and to
motor carriers. [
Footnote 2/9] It
was argued repeatedly that it was proper for shippers to control
interests in these carriers for reasons not applicable to carriers
by rail. These arguments cannot be read without concluding that the
change, whether desirable or not, would have been drastic indeed,
and would have gone far beyond the intended coverage of the
Transportation Act of 1940. [
Footnote
2/10] Rather than jeopardize the entire legislative program
comprehended by the Act, [
Footnote
2/11] the committee naturally decided that sound strategy
required separate consideration of this narrower, but still broad
and highly controversial, problem.
Page 333 U. S. 791
Statements of the committee chairman show that this was the real
basis for the conclusion that the amendment would have been "far
too drastic." [
Footnote 2/12]
Indeed, they show, together with other statements before the
committee, that the
Elgin decision was regarded as
unfortunate, and likely to be overruled when another case should
arise. [
Footnote 2/13] Even the
opposition by the short-line railroads was not based on the
argument that an overruling of the
Elgin case would have
been too drastic, but rather on the fact that the amended § 12, in
conjunction with other proposed legislation, would have prohibited
the transportation of commodities for anyone who owned, even as an
investment, as much as ten percent of the stock of the railroad.
[
Footnote 2/14] And other groups
argued that the amendment was too drastic because it was not
limited to common carriers. [
Footnote
2/15] In sum, the proposed amendment was indeed
Page 333 U. S. 792
drastic, but not because it would have accomplished what the
committee members assumed this Court would and should do without
legislative aid. [
Footnote 2/16]
It is therefore most unreasonable to conclude that the
considerations which prompted the Senate Committee to reject a
proposed extension of the commodities clause to all types of
carrier compel this Court to deny a request to overrule an
interpretation of the impact of the clause on railroads which the
most active sponsors regarded as erroneous.
The host of reasons which may have induced the various members
of the committee to forego the extremely controversial and drastic
extensions forbids any inference that the committee action was the
equivalent of approval of the
Elgin case by the entire
Congress. In fact, the difficulty of interpreting the views of even
one legislator without taking account of all he has had to say, as
exemplified by the discussion in
333
U.S. 771fn2/6|>note 6, should serve as a warning that the
will of Congress seldom is to be determined from its wholly
negative actions subsequent to the enactment of the statute
construed. In this case, the rejection of the proposed amendment is
not more -- indeed I think it is less -- indicative of
congressional acquiescence than complete inactivity would have
been. Even if there may be cases where the "silence of Congress"
may have some weight, that ambiguous doctrine does not require or
support the result which the Court reaches today.
Girouard v.
United States, 328 U. S. 61;
cf. Cleveland v. United States, 329 U. S.
14, concurring opinion at
329 U. S.
21.
Nor is that result justified by the "equitable" considerations
which the Court's opinion somewhat obliquely advances. It is
suggested that a refusal to follow the
Elgin precedent
would be to apply a different and more drastic rule to Bethlehem
than applies to its competitor,
Page 333 U. S. 793
the United States Steel Corporation. But, aside from the
specious character of an argument that permits X to violate the law
on the ground that Y also violates it, there is no explanation
offered for the assumption that the overruling of the
Elgin case would have no effect on United States Steel.
The policy of
res judicata would not apply,
cf.
Commissioner v. Sunnen, 333 U. S. 591, and
United States Steel, instead of being prejudiced by the course of
decision, actually has been benefited by more than a decade of
ownership of the Elgin road, contrary to the statute's plain terms
and policy.
The Court also feels that the relief requested is too drastic,
because Bethlehem would be compelled to sell its short-line
railroads, the Government has not shown that independent ownership
of these railroads is likely, nor has it shown that evils exist
which would be remedied by this relief. These are considerations
which undoubtedly influenced the majority in the
Elgin
case, somewhat differently it would seem from the majority in this
one, but which the dissenting justices felt had been foreclosed by
the legislative determination of policy. Reliance on such arguments
today seems inconsistent with the statement "that, if the
Elgin case were before us as a case of first impression,
its doctrine might not now be approved." Moreover, it does not
follow that this Court, in the exercise of its equity jurisdiction,
could not adapt the relief afforded so as to give time and
opportunity for making the adjustments necessary to secure
conformity with the statute in an orderly and inoppressive manner.
Indeed, it would be the Court's duty to do this.
The arguments on this level are most effectively answered by the
dissenting opinion of Mr. Justice Stone, who was joined by Mr.
Justice Brandeis and Mr. Justice Cardozo, in the
Elgin
case:
"The language of the commodities clause, read in the light of
its legislative history,
Page 333 U. S. 794
can leave no doubt that its purpose was to withhold from every
interstate rail carrier the inducement and facility for favoritism
and abuse of its powers as a common carrier, which experience had
shown are likely to occur when a single business interest occupies
the inconsistent position of carrier and shipper.
See United
States v. Reading Co., 253 U. S. 26,
253 U. S.
60-61. Before the enactment of the commodities clause,
Congress, by sweeping prohibitions, had made unlawful every form of
rebate to shippers and every form of discrimination in carrier
rates, service, and facilities injurious to shippers or the public.
By the Sherman Anti-Trust Act, it had forbidden combinations in
restraint of interstate commerce. But it did not stop there. The
commodities clause was aimed not at the practices of railroads
already penalized, but at the suppression of the power and the
favorable opportunity, inseparable from actual control of both
shipper and carrier by the same interest, to engage in practices
already forbidden and others inimical to the performance of carrier
duties to the public.
See Delaware, L. & W. R. Co. v.
United States, 231 U. S. 363,
231 U. S.
370;
United States v. Reading Co., supra."
298 U.S. at
298 U. S. 504.
[
Footnote 2/17]
In my opinion, this expresses the intent of the letter and the
policy of the commodities clause, and we should now return to it on
our own responsibility. Congress should not again be required to
reenact what it has once provided for, only to have its mandate
nullified in part by this Court's misconstruction.
[
Footnote 2/1]
See Comment, The Commodities Clause and the Regulation
of Industrial Railroads, 46 Yale L.J. 299; 36 Col.L.Rev. 1175.
[
Footnote 2/2]
The Holding Company owns substantially all the stock in
approximately 57 subsidiaries, including the Steel Company and the
South Buffalo Railway Company. Some of these produce ore in Chile,
Venezuela, Cuba, and in the Upper Great Lakes regions; others
control coal mines in West Virginia and Pennsylvania. Two
subsidiaries operate ocean-going steamship lines, hauling raw
materials to steel plants controlled by other subsidiaries. A Great
Lakes shipping company owned by the Holding Company carries ore
from a mining subsidiary to a producing subsidiary. Seven
short-line railroads including South Buffalo, each wholly owned by
the Holding Company and having common officers and directors,
transport products for the various Bethlehem steel plants.
[
Footnote 2/3]
The opinion of the Court seems to assume that the purpose of the
commodities clause was to prevent the holding company from favoring
"its shipping subsidiary at the expense of its carrying subsidiary,
or vice versa."
[
Footnote 2/4]
Moreover, the conclusion is factually justified by the history
of complete domination prior to 1940, plus the fact that former
employees of the Steel Company continue to be the principal
officers of South Buffalo, as well as the other Bethlehem
short-line railroads.
"Historical ties and associations, combined with strategic
holdings of stock, can on occasion serve as a potent substitute for
the more obvious modes of control."
North American Co. v. Securities & Exchange
Commission, 327 U. S. 686,
327 U. S.
693.
[
Footnote 2/5]
S.Rep. No.443, 76th Cong., 1st Sess. 15; Hearings before Senate
Committee on Interstate Commerce on S. 2009, 76th Cong., 1st Sess.
427, 590, 772.
[
Footnote 2/6]
Senator Reed expressly so stated:
"Judge, you remember that Justice Stone, Justice Brandeis, and
Justice Cardozo dissented from that majority opinion of the Supreme
Court in the
E.J. & E. case. . . . I am inclined to
think that the Supreme [
sic], as presently constituted,
would hold with what was the minority view."
Hearings before Senate Committee on S. 2009, 76th Cong., 1st
Sess. 68. He later said that he thought the
Elgin decision
"was a strange construction of the law on the part of the Supreme
Court of the United States."
Id. at 309.
The views of Senator Wheeler seem clearly to the same effect.
When it was first suggested that the proposed commodities clause
would overrule the
Elgin case, he stated (apparently
because he was interested primarily in extending the clause to
apply to other types of carriers): "I did not intend such a
result." When the effect of the clause was pointed out to him, he
expressed doubt whether that case should be overruled, not because
he approved it, but, as he explained, because "I am not familiar
with the
E.J. & E. case."
Id. 67, 68.
Three days later, when the point was again under discussion,
Senator Wheeler, at this time apparently refreshed in recollection
of the
Elgin case, frankly stated that one of the purposes
of the revised clause was to meet the Supreme Court decision in it.
The witness then expressed the view that the revised clause went
considerably beyond the decision, because it applied to other types
of carriers, and to situations where the shipper owned only ten
percent of the carrier's stock. The witness suggested that, if the
intent was merely to reverse the
Elgin case, it would be
better to leave the clause in its present form, because "I do not
believe the decision in the
E.J. & E. case is going to
be one of the laws of the Medes and the Persians."
Id.
385.
After more discussion of the effect of the amended version on
water carriers and pipelines, Senator Wheeler remarked:
"There are difficulties on that question, in my mind. Suppose we
reenacted the law as it is. The question is whether the courts
might say, in view of the Supreme Court's decision, 'In reenacting
the law, you approved the decision of the Supreme Court.'"
Id., 386.
The Senator thus was faced with a dilemma. At this point, he was
apparently persuaded that the extension of the commodities clause
to all carriers was a more drastic change than he had originally
realized, but hesitated to reenact the old version lest the
reenactment be construed as legislative approval of the
Elgin case. His fear has now been justified by today's
decision. It was not until the following week that he reached the
conclusion that the drastic nature of the proposed change
outweighed the risk that reenactment would be construed as approval
of that case.
Id., 427,
and see statements quoted
in
333
U.S. 771fn2/12|>note 12
infra. Such a choice hardly
can be construed into "approval" of the decision.
[
Footnote 2/7]
Id. 236, 284-286, 308-310, 385-387, 427-432, 492, 623,
632, 633, 692, 753, 754, 926-928.
[
Footnote 2/8]
Id. 386, 589-597, 606-610, 611, 612, 654-660,
736-742.
[
Footnote 2/9]
Id., 127, 432, 433.
[
Footnote 2/10]
For example, the petroleum industry strenuously opposed the
provision because it would have effected the divorcement of
pipeline companies from producers.
See 333
U.S. 771fn2/8|>note 8
supra; cf. id. at 935.
Opposition by farm lobbies was directed particularly at the new
commodities clause:
"Section 12 appears to endanger the activities of more than
100,000 farmers of our area who have cooperatively associated
themselves together and who, because of exorbitant rail rates, are
transporting increasing tonnage of grain, livestock, and petroleum
products both through cooperative trucking associations and by
trucks owned by local or regional cooperatives."
Id. 432-433.
See also id., 311. The most
vigorous opposition, however, came from parties who would be
adversely affected by the applicability of the clause to water
carriers.
See 333
U.S. 771fn2/7|>note 7,
supra. They pointed out, as
an instance of the far-reaching effect of the amendment, that 65
percent of the privately owned American merchant marine would be
affected by the change.
[
Footnote 2/11]
See Hearings 772;
cf. 333
U.S. 771fn2/10|>note 10,
supra.
[
Footnote 2/12]
Senator Wheeler explained the basis for the decision to abandon
the proposed amendment more than once. To shorten testimony by
witnesses interested in the effect of the clause on pipelines and
water carriers he stated:
"You might as well quit wasting your time, because I made an
announcement yesterday with reference to that, and I hope you
people will not come here with the idea of taking up a lot of time
on that. I have said that pipelines are a subject that ought to be
given independent consideration, and we cannot take it up and give
it the necessary time and study in this bill. That may be modified
or eliminated, so far as pipelines and water carriers are
concerned."
Id. 590. Later, he said:
"I have felt, frankly, that in this particular legislation,
which does divorce, ships from industry, that it was such a broad
subject, and one which requires so much independent study, that it
ought to be handled by separate legislation. No one in the
Government service seems to have made a study of the question. I
felt that it ought to be eliminated from the provisions of this
bill at this time, and be introduced as separate, independent
legislation, as has been done in the past."
Id. 772.
[
Footnote 2/13]
See 333
U.S. 771fn2/6|>note 6.
[
Footnote 2/14]
Hearings 541,
and see id., 285, 385, 386.
[
Footnote 2/15]
Id., 421, 435, 841.
[
Footnote 2/16]
See 333
U.S. 771fn2/6|>note 6.
[
Footnote 2/17]
See also 333
U.S. 771fn2/4|>note 4.