Interstate Commerce Commission v. Union Pacific Railroad Company

These three appeals are brought by the Interstate Commerce Commission from a decree enjoining a reduction of lumber rates named in tariffs filed by the Great Northern, the Northern Pacific, and the Union Pacific Railroads.

The tariffs under consideration involve rates on lumber from the coast, Spokane district, and Montana-Oregon points to St. Paul, Omaha, and Chicago. It is admitted that the rates on shingles, hemlock, cedar, and other forest products have a fixed relation to those on fir lumber, and that the differentials from Spokane and the Montana-Oregon territory have a like fixed relation to those from the coast.

The summary of these very lengthy records will therefore be limited to a statement of those facts bearing directly on the pivotal question as to the validity of the order fixing a rate of 45 cents per hundred pounds on fir lumber from the coast to St. Paul.

In 1893 the rate, from the coast, on fir lumber, over the two northern lines to St. Paul, was fixed at 40 cents, and since 1901 the rate to Omaha at 50 cents.

In 1907 the three carriers concurrently filed new tariffs, making the rate from the coast to St. Paul 60 cents, to Omaha 55 cents, and to Chicago 60 cents. Thereupon various corporations filed complaints before the Commission, alleging that the proposed rates were unreasonable and would seriously affect the lumber industry. The carriers emphatically denied both of these allegations, and, in explanation of the causes leading up to the advance, showed that when the Great Northern was completed to the coast, about 1893, almost all of the freight shipped over its line went from the East to the West,-cars being hauled back empty to St. Paul, its eastern terminus. In order to correct this expensive and unremunerative situation, the Great Northern decided to put in a rate on lumber so low that mill men on the Pacific coast might compete with dealers in white and yellow pine, in the Chicago market, 2,500 miles distant. It thereupon reduced the existing rate to 40 cents. That cut was met by the Northern Pacific, which also reached St. Paul, but the Union Pacific at that time made no change in its rate. The reduction opened up new markets, and was soon followed by heavy shipments of lumber to the East. The business grew steadily, and prior to the filing of the tariffs in 1907, the empty-car movement had been completely reversed,-many cars being hauled empty from St. Paul to the coast, and returning to the East loaded with lumber.

Traffic increased to such an extent that it became necessary to open up new tunnels, construct additional passing tracks, and reduce grades and curves. There was a constant increase in gross earnings, but the carriers contended that there had been such an enormous and disproportionate increase in the cost of operation, that it was absolutely necessary to discontinue the unremunerative 40-cent rate and advance it to 50 cents, which they insisted was just and reasonable.

There was no finding as to the effect on gross earnings which would result from the proposed advance of 10 cents. But, as the Great Northern, in one year, hauled 1,765,095,997 tons one mile, equivalent to about 30,000 cars, of the average load of 58,000 pounds, transported 2,000 miles from the coast to St. Paul, the advance of 10 cents per hundred, or $58 per car, would represent a gross annual increase, for that company alone, of $1,740,000.

An immense amount of evidence was offered by both parties in support of their respective contentions. The Commission rendered an elaborate opinion (14 I. Com. Rep. 1), and concluded by finding that the old rates were just and reasonable and should be restored to all points on and west of the Pembina line, which ran from the Canadian line almost due south through Fargo, Omaha, to Port Arthur, Texas. As Omaha was on this line, the effect of that part of the order was to prohibit the 55-cent advance, and to restore the old rate of 50 cents to Omaha, which had been in force since 1901. As to rates east of the Pembina line, the Commission held that 'they might reasonably be somewhat increased, but not more than 5 cents per hundred, to be graded up so as to reach the maximum increase at. . . St. Paul;. . . the rate from the Missouri river crossing should be graded up, the maximum increase of 5 cents reached at the Mississippi river. Chicago rates should apply to all points between the Mississippi. . . and Chicago.'

The carriers thereupon filed separate bills to enjoin this order, and repeated therein the contentions made before the Commission; averred that the old 40-cent rate to St. Paul and the 50-cent rate to Omaha were not only unremunerative, but proportionately so much lower than rates on other merchandise as to amount to an unjust discrimination; alleged that the prosperous condition of the lumber business did not require or justify a further maintenance of this low rate; and, among other things, insisted (1) that the order was beyond the power of the Commission, because entered without any evidence, or finding, that the rates fixed by the carriers were unjust or unreasonable; and (2) was void because the Commission erroneously held, as a matter of law, that the long continuance of the old rate, during a period when the carriers' total income was sufficient to pay dividends, raised the presumption that the old rates were reasonable.

The Commission demurred, and, in its answer, averred that evidence was introduced showing, and tending to show, that the advanced rates were unreasonable; and that, after a full hearing, it was of opinion that the rates complained of were unreasonable, and entered its order accordingly; that the determination of that question involved the exercise of a discretion committed solely to the Commission, and that the 'courts ought not and could not review its judgment and finding, unless it be made clearly to appear that the orders complained of transcend the pale of legitimate regulation.'

The cases were referred to a master, who reported that the allegations of discrimination were not only too general, but that there was no evidence upon which any ruling could be predicated on that subject; that the substance of the bill was that the rates put in by the Commission were confiscatory, and, as to that, held that the evidence was not sufficient to warrant the court in setting aside so much of the order as restored the rates to, and west of, the Pembina line. There was some evidence that the cost of hauling freight over the Union Pacific was greater than over the Northern lines, because it crossed the mountains at a point 2,000 feet higher than they did. But the master found, as a fact, that the traffic conditions were substantially the same over the three roads, and that the distance from the coast to Omaha was 1,800 miles and to St. Paul 2,052 miles. He thereupon held, as a matter of law, that when the Commission fixed 50 cents as a reasonable rate to Omaha over the shorter route, it necessarily followed that the lower rate of 45 cents, over the longer route to St. Paul, was not only unreasonable, but unjust.

And even 'though the rate might not be confiscatory, yet an order which, on its face, is inherently inconsistent with the fundamental principles of rational justice, and perverts the spirit and intent of the interstate commerce act, though in form within the limits of delegated power, is, in fact, beyond those limits and is an unlawful order, and one which results in the taking of property without due process of law.' He recommended that the court should enjoin so much of the order as permitted an advance of only 5 cents to points east of that line.

The Commission, and each of the carriers, filed many exceptions to the report, as to which the circuit court passed the following order: 'All the exceptions to the report of the master must be overruled. Those which challenge his finding that the reduction, by the Interstate Commerce Commission, of the 50-cent rate on lumber to St. Paul and other points east of the Pembina line, was arbitrary, and so palpably unjust and unreasonable, and so discriminatory, that it was beyond the power of the Commission, are overruled; on the ground that this action of the Commission was beyond its power, or so palpably and gravely unjust and unreasonable as to be beyond the substance, if not beyond the form, of its power.'

Mr. Luther M. Walter, Special Assistant to the Attorney General and Mr. Jesse C. Adkins for appellant.

Messrs. Hale Holden, Charles Donnelly, and F. C. Dillard for appellees.

Mr. Justice Lamar, after making the foregoing statement, delivered the opinion of the court: