Southern Pacific Terminal Company v. Interstate Commerce Commission

This is a bill in equity to enjoin an order of the Interstate Commerce Commission requiring appellants to cease and desist, on or before the 1st day of September, 1908 (subsequently postponed to November 15, 1908), and for a period of not less than two years thereafter, from granting and giving undue preferences and advantages to one E. H. Young, a shipper of cotton seed products at the port of Galveston, Texas, through failure to exact from him payment of wharfage charges for handling cotton seed cake and meal over the wharves, docks, and piers of appellants, while at the same time exacting such charges from other shippers of cotton-seed cake and meal, and from giving and allowing him or any other person whomsoever, for his exclusive use, space on the wharves of appellants at Galveston for use in the storage and handling of cotton-seed cake and meal, while contemporaneously refusing and denying similar privileges to other shippers under substantially similar circumstances and conditions.

Young was not a formal party before the Interstate Commerce Commission. However, he was made a respondent in this suit, and filed an answer and cross bill. The Commission demurred to both bill and cross bill, and, the demurrer being overruled, answered.

On final hearing the case was submitted upon an agreed statement of facts, and both bills were dismissed.

The most important facts we set out below and in the opinion. We refer to the report of the Interstate Commerce Commission for further details.

The Republic of Texas conveyed to one Menard the property upon which the wharves of the terminal company are situated. Menard conveyed the property to the president and directors of the Galveston City Company, who conveyed it to Collis P. Huntington, for the sum of $200,000; and it is recited in the deed to him that it 'is made upon the further Express Covenant and condition as follows:. . . when through and by means of such acts of Congress, act of the legislature, and ordinance and conveyance from the city of Galveston, if any, as may be required for the purpose,. . . the right has been secured to the said Collis P. Huntington, or his heirs or assigns, to construct piers, as he or they may from time to time determine,. . . then and in that event the said Collis P. Huntington, his heirs or assigns, will within six months thereof commence the construction of terminal facilities upon the property,. . . for the use of what are commonly called the Southern Pacific Railroad & Steamship Systems.'

The city of Galveston, on the 4th of February, 1899, passed an ordinance which recited the conditions of Huntington's purchase to be as above stated, and that it was greatly to the interest of the city that the work contemplated by him should be performed, and that for the proper utility of the property no streets should be opened through or across it, and it was ordained that streets, avenues, or alleys, if any, theretofore opened, laid out, or in any manner designated upon the property be perpetually abandoned, discontinued, and closed. And Huntington, his heirs and assigns, were granted the right perpetually to construct and maintain piers as he or they might from time to time determine, 'and to maintain upon the property terminal facilities for the use of what are commonly called the Southern Pacific Railroad & Steamship Systems, their successors or assigns.' It was provided that if Huntingtion should 'charge wharfage for the use of such piers and other facilities upon said property, except so far as wharf service' might be covered by the freight rate, all such wharfage should be subject to the regulation of the railroad commission of Texas. And it was recited that it was greatly for the public interest that the property 'should be developed for shipping and transportation purposes, and that the shipping facilities of the port of Galveston should be thereby improved and enlarged in order to better accommodate the commerce of the port and State. . . .'

The ordinance was ratified by an act of the legislature approved May 1, 1899. The act set out the ordinance in full, and relinquished to Huntington the title and claim of the state to the property upon the conditions expressed in the ordinance, and, in addition to subjecting the wharfage charges to regulation by the railroad commission, required an annual report to that body. And it was provided 'that the system of railroad tracks' which might be constructed by Huntington on the property should connect with the track of any railroad company which might be built to the property, at a place designated; and, further, that there should be no consolidation of the property, or the stock or franchise of any corporation which might own or control the same, with the Galveston Wharf Company, or any other wharf company, by which the 'wharf or other terminal charges should be fixed,' and that 'no charter formed for the use, operation, and management of the property' should be granted without containing the section providing as above.

Huntington performed the conditions expressed in the conveyance and in the ordinance and the act of the legislature.

The Southern Pacific Terminal Company is a Texas corporation, organized in 1901, to construct and maintain wharves and docks for the accommodation of all kinds of vessels, 'and to avail of, use, and enjoy the properties, rights, privileges, and franchises granted and described and referred to in the act of the legislature of the state of Texas of May 1, 1899, ratifying the ordinance of the city of Galveston, and to construct and maintain upon the property terminal facilities for the use of what are commonly called the Southern Pacific Railroad & Steamship Systems.'

At the time of the incorporation of the terminal company the following were commonly referred to as the Southern Pacific Railroad & Steamship Systems: The line of steamships owned by the Southern Pacific Company, running from New York to Galveston and New Orleans, and also running from and between the latter city and Havana; Morgan's Louisiana & Texas Railroad and Steamship Company; the Louisiana Western Railroad, which leads from New Orleans to the Sabine river; the Texas & New Orleans Railroad, leading from that river to the city of Houston; the Galveston, Harrisburg & San Antonio Railway; and the railroads in which the Southern Pacific Company owns stock, extending from the connection of the latter in El Paso, at the Rio Grande River, to San Francisco. Each of the railways was incorporated as a separate and distinct railway, and has its own officers and board of directors, but the Southern Pacific Company owns 99 per cent of their stock, and the same per cent of the stock of the terminal company. The two latter companies have the same president, and the Galveston, Harrisburg, & San Antonio Railway Company and the terminal company have the same general manager.

Import and export traffic passing through Galveston passes over the wharves of the terminal company, and the only track facilities for such traffic are those owned by the terminal company on its own lands. And the Galveston, Harrisburg, & San Antonio railway is the only railway having physical connection with the tracks of the terminal company, and it does all of the switching to and from the tracks of the terminal company, charging $1.75 per car. The latter company receives a trackage charge of 50 cents per car.

The terminal company owns no cars or locomotives, and issues no bills of lading. It owns no stock in any of the railroads or corporations in which the Southern Pacific owns stock. It carries on a wharfage business and publishes a schedule of charges for such business, which, however, is not filed with the Interstate Commerce Commission, its charge being 20 cents per ton on cottonseed meal and cake passing over its docks, and is shown as wharfage charge in the tariffs of the Galveston, Harrisburg, & San Antonio Railway Company and all other railways entering Galveston. Such tariffs do not show that any exception is made as to the docks occupied by E. H. Young, as hereinafter shown, but as a fact the wharfage charge is not imposed by the terminal company on the cotton-seed meal and cake handled over the dock of E. H. Young, other than as the same may be included in the general lease or contract price fixed as hereinafter indicated.

The terminal company was a party to numerous circulars issued by the Southern Pacific Companies, known as the 'Sunset Route,' so termed, principally for advertising purposes. The circular of May 24, 1907, shows terminal charges (other than storage and switching). At the port of Galveston the circulars show a charge of one cent per 100 pounds on cotton-seed cake and meal.

The terminal company has on its property two piers, known as pier A and pier B, and has erected on them all facilities for handling imported and exported freight, and all freight which may come to or pass over its wharves, and it has abundant land under water upon which to erect other piers if they should become necessary.

It charges a fixed wharfage for all freight passing over its piers to or from vessels berthed thereat. The Galveston Wharf Company affords similar public wharfage facilities at the port of Galveston, having a number of piers. If the facilities of the Galveston Wharf Company should be destroyed, those of the terminal company would become inadequate for handling the import and export and coastwise business. Ships to and from foreign ports, and coastwise ships other than those of the Southern Pacific Company, berth at piers A and B, and there receive and deliver freight, and at these piers the terminal company carries on its general wharfage business.

In the building of pier B it was necessary to dredge a slip west of it, where ships could berth, and in order that the soil, through the action of storm and wave, should not drift into the slip, a bulkhead was built. To the westward of the slip the lands of the terminal company were lying idle and useless, they not being needed by it; and in pursuance of negotiations with Young the company proceeded to construct a pier, known as pier C, for the use of Young, and to erect thereon a warehouse, shed, and platform for his use, the original construction and subsequent enlargement of which cost the company about $65,000. At this time the pier is 300 feet wide at its widest part, and about 1,400 feet in length.

The negotiations terminated in a lease under which Young is to pay the terminal company a yearly rental of $15,000, payable monthly from the 1st day of November, 1906. And he agrees that he will route all shipments of cotton seed and cottonseed products purchased or shipped by him 'over the lines of said terminal company and its connections, according to the instructions of said terminal company from time to time,' and that he will insist upon and enforce such routing, except where the enforcement will prevent him from purchasing such products or from obtaining shipments which will be ready to move immediately and for which cars cannot be procured for the routing required. It is provided, however, that Young shall not be bound by these provisions if the rates be not equal to or lower than those of other competing lines, or the service be not as adequate, but notice is to be given of such lower rates and service, and an option to meet them.

The business of Young is that of a merchant and manufacturer, engaged in buying, selling, and converting cotton-seed cake and meal for his own account. He took possession of pier C and the improvements erected thereon by the terminal company under his contract with the latter company, paying the price stipulated in the contract, and has placed thereon cake, sacking and grinding machines, representing an investment of $50,000. Young's business consists in buying cotton-seed cake in the interior, shipping it to himself by carloads at pier C, there grinding it into meal, sacking it, and loading it into steamships berthed at pier C for export.

All cotton-seed-meal cake passing over piers A and B pays a wharfage of 20 cents per short ton. Young pays no wharfage or storage charge other than as the same may be included in the rental of $15,000 per year. If any exporter handles cotton-seed meal or cake over pier C, the wharfage of 20 cents per ton is paid by him to Young.

Young has certain advantages by reason of his contract with the terminal company, which are enumerated in the agreed statement of facts, and the result of which is stated as follows: 'He makes a sum equal to 30 or 40 cents per ton more than he would receive if he handled his export product under methods in existence before he established his plant on pier C and adopted the method of business he follows. This 30 to 40 cents per ton is in addition to the ordinary buying and selling profit.' He at times pays more for cotton-seed cake than his competitors can afford to pay, and at times he can undersell them in European markets; and since he commenced business some of the exporters who were engaged in business when he commenced have ceased exporting. A comparison of his business with that of all other exporters of cottonseed cake shows that from September 1, 1906, to September 1, 1907, he exported 105,000 tons of cotton-seed cake and about the same amount of cotton seed-meal; they, 50,000 tons of both products.

'Some of the cotton-seed-cake producers at interior mills in the state complain that Young is able to dominate the Texas market, and that his method of conducting business at Galveston enables him to command the foreign trade, and may become a detriment to the cotton-seed-cake-and-meal industry, in that Young might acquire a monopoly. Others entertain a contrary opinion. They all agree that if there was a general establishment of plants in Galveston, so that a monopoly could not be acquired, it would be of great benefit to the eotton-seed industry.



'On the present constructed docks of the Galveston Wharf Company and the terminal company, with the structures as now located thereon, there is not space enough to furnish all exporters doing business at Galveston with space for erecting machinery and handling export business in the same manner as is done by Young.'

This proceeding was instituted September 11, 1907, by Carl Eichenberg, an exporter of cotton seed and its products from the port of Galveston, by filing his complaint or petition before the Interstate Commerce Commission against the Southern Pacific Company and the terminal company, complaining that the companies, by the arrangement with Young, were violating § 3 of the act to regulate commerce, by giving him an undue and unreasonable preference and advantage over his competitors.

By order of the Commission the Galveston, Harrisburg & San Antonio Railway Company and other railroad companies entering Galveston were made parties defendant.

Answers were filed and full hearing was had by the Commission, which on June 24, 1908, made its report and order.

No rehearing was asked by defendant before the Interstate Commerce Commission. Young was not made a party to the proceedings before the Commission, but he appeared and testified as a witness for the terminal company, and his counsel was present at the hearing when the testimony was taken, and engaged in the examination of witnesses. Young was also present when the case was argued and submitted.

Messrs. Maxwell Evarts, F. C. Dillard, and H. M. Garwood for appellants.

[Argument of Counsel from pages 507-510 intentionally omitted]

Messrs. Wade H. Ellis and Luther M. Walter for appellees.

Statement by Mr. Justice McKenna:

[Argument of Counsel from pages 510-514 intentionally omitted]

Mr. Justice McKenna, after stating the facts as above, delivered the opinion of the court: