?TYr\<^'t%o^ ,^ ■— b*Tr\Tne-TC€.^ ij^e C^o')'nTn^^*i>'(^"^, auri4 "th-^ ^bu^'i ^. r- Return this book on or before the Latest Date stamped below. A charge is made on all overdue books. u. of I. Library 'r *^i m 17625-S R»N( Commerce, the Commission and the Courts A Lecture delivered under the auspices of the College of Arts and Sciences At Cornell University May 13, 1912 By ' Logan G, McPherson Lecturer on Transportation at the Johns Hopkins University Director of the Bureau of Railway Economics' ' WASHINGTON, D. C, 1912 2^o c< . 1 I Commerce, the Commission and the Courts. With the utilization of steam came that development under which a stationary steam engine transmits power through belts and wheels enabling the simultaneous working of varied machinery in ever more specialized manufacture. With the utilization of steam came the loco- motive which has given a new significance to the transportation of persons and of the things which people use. The stationary engine and the locomotive brought the great modern mill and factory, the trend of the population to the cities, the large scale operations that have enhanced the differentiation between employer and employee and have accelerated the segregation of capital. The tremendous eco- ^ nomic changes have brought about changes and are bringing about ^' still other changes in the law of the land. Y But these economic changes in the ramification of their effect are X^ not yet understood, and therefore it is not yet known just what should wClie the adjustment of the law necessary to promote wholesome eco- j.'-> nomic progress. For instance, when the Sherman Anti-Trust Law --^ was under discussion in the Senate a Senator remarked that it was a (4 measure which nobody wanted, nobody understood, but everybody was i^;!^^oing to vote for. That law remained on the statute books for twenty- "j one years before anybody had a definite idea of just what it meant. It » needed a decision of the Supreme Court to give it vitality and even '^s now vitalized a large measure of uncertainty attends its application. In no respect is there greater uncertainty than in the attempt to vj^djust the law to the function of transportation. This question has many aspects, but that of most importance both to the railways, which 'are the principal agencies of transportation in this country, and to the public concerns the rates which shall be charged for transportation, and especially for the carriage of freight. The revenue upon which the railroads depend for existence is determined in large measure by "^ the rates which they charge, the volume of traffic being the other R factor. As the rates applying to a shipment are higher or lower the «: profits of a producer or a dealer are as a rule, other conditions equal, ^ lower or higher. '>i When the railroads came into existence they were as a matter of ^ 35837 course subject to the existing law. A most important part of the common law is that which relates to property, the rights to property, the conditions under which property may be held and trans- ferred. The right to the use and enjoyment of property lawfully held is one of the fundamental rights guaranteed to the American citizen by the Constitution of the United States and the law of the land. The railways in the United States are private property and as such those who hold title to them are entitled to their use as property and are entitled to be protected in that use by the law and the Govern- ment. It is also true that the railways are "affected with a public use." It is, because of the public nature of their services that the railroads were accorded the power of eminent domain which almost continuously has been referred to as the reason that they should be subject to public regulation. It ought to be recognized, however, that the real basis for this regulation is the economic power of the railways which was not foreseen when the original charters were granted. The distinction between the private rights and the public obligations of a railway have not even as yet been definitely and finally determined. So recently as October, 1876, the Supreme Court of the United States in Lake Superior & Mississippi Railroad Company vs. United States; and Atchison, Topeka & Santa Fe Railroad Company vs. United States (United States Reports, Supreme Court, Volume 93, p. 442), held that the act of Congress providing that a railroad shall be "a public highway for the use of the nation of the United States, free from all toll or other charges, for the transportation of any property or troops of the United States," decrees to the Government the free use of the road only and not of the rolling stock or other personal property of the company. Still later — October 2d, 1883 — it is declared in a Pennsylvania case (Pierce vs. Commonwealth, 104 Pa., 150, 155, 13 Am. & Eng. Cas., 74, 79, per Gordon, J., citing Pres- byterian Society vs. Auburn & Rochester Railroad Company, 3 Hill (N. Y.) that "A railroad company is not public, nor does it stand in the place of the public ; it is but a private corporation over whose rails the public may travel if it chooses to ride in its cars. Indeed, we re- gard it as a misnomer to attach even the name 'quasi-public corpora- tion' to a railroad company, for it has none of the features of such cor- porations, if we except its qualified right of eminent domain, and this is because of the right reserved in the public to use its way for travel and transportation. Its officers are not public officers, and its business transactions are as private as those of a banking house. Its road may be called a quasi-public highway, but the company itself is a private corporation and nothing more." It was the intent of the founders of this Government that the indi- vidual citizen have the utmost possible liberty, that his activities be limited only by trespass upon the equal rights of others. To the prop- erty holder was guaranteed his right to the use of his property subject to this limitation. The railroads of the United States were regarded as private prop- erty subject to the law of the common carrier, and they were so ad- ministered as private property. In the sale of transportation they re- sorted to practices that are still common among those engaged in other branches of commerce. They adjusted rates to markets, to competition, to the pressure of shrewd and effective buyers just as the manufacturer or the wholesale merchant still adjusts his prices to markets, to com- petition, to the pressure of shrewd and effective buyers. The railroads gave rebates and cut rates as manufacturers and merchants still give rebates and cut prices. They charged less to and from places where there was effective competition just as manufacturers and merchants still charge less for their goods where there is effective competition than where such competition does not exist. As producers and distributors strove to extend the area of their markets and competition reduced their margins of profit the railroad rate, especially that applied to the coarser and heavier staples of com- merce, became more and more a factor in determining what markets the various producers and distributors could enter. As industry and com- merce developed, complaints increased of discrimination made by the railroads between persons, between localities, and between commodi- ties. These complaints in various cases were more or less well founded, but the truth is that they arose in the main from that process of adjustment entailed by the extension and ramifications of the channels of trade, an adjustment which is still in process. There was discom- fiture because of the loss of large amounts that had been invested in railroad construction, and there was bitterness of feeling, frequently justified, against promoters, speculators, and manipulators. The agi- tation led to the enactment of the Interstate Commerce Act in 1887, the first measure of Federal regulation and which was based on that clause of the Constitution authorizing Congress to regulate commerce between the States. The intent of that act was simply to apply by Federal statute to interstate commerce the principles of the common law which applied in the separate States, and which there applied to both interstate and intrastate commerce; to abolish rebates, secretly cut rates, and other stealthy devices for securing traffic; to prohibit unjust discrimination between persons, places and commodities. It is to be noted that the agitation against the railways came in greatest measure from shippers and communities of lower economic strength who were being worsted in the competitive struggle. They sought the aid of legislatures to obtain that which they could not obtain for themselves with their measure of ability and under the con- ditions which beset them. The essence of the complaint was not that the railways contravened their public duties by stifling traffic, but that in the struggle for existence which is what free competition means they favored, as they were forced to favor, those having economic strength against those who were economically weak. The outcry in its earlier stages was against secret and underhand discrimination. In this it was quite justified and it would seem that but little of such dis- crimination remains. The Interstate Commerce Commission has stated that it could not undertake to equalize the natural disadvantages of shippers and of com- munities. However, a member of the Commission once said that it had been established to protect the people against the railways. Al- though it is coming more and more to recognize that its duty is that of an arbiter between the shippers and the railways, there is hardly any doubt that the vast majority of the people regard it as an insti- tution created primarily to curb the railways. It is sometimes claimed that the railways are monopolies and as such that their rates should be controlled by a body acting on behalf of the public. That the rail- roads should be prevented by public authority from charging excessive and extortionate rates is not to be denied. To but a partial extent, however, are they a monopoly and the phase of monopoly seldom enters into the complaints that are brought before the Commission. Nearly all of these complaints, especially those of importance, are of rates originally made by the railways and usually under stress of com- petition, but which do not satisfy all of the shippers. Under the Constitution and the law of this land, the ultimate de- termination of a question involving a property right rests with the courts. To change this would be to change not only the law but the Constitution. The law may be changed by enactment but only within the limits prescribed by the Constitution. The Constitution itself may be changed, but only through procedure that especially has been de- creed in order that such a change may not be made without the most thorough discussion and registration of the matured consent of the people. When the Interstate Commerce Commission was established there began the so-called conflict between the Commission and the courts. Many of the early decisions of the Interstate Commerce Commission were resisted by the railroads and many of these decisions were over- ruled by the United States Supreme Court. As an advocate of the people it was not unnatural for the Commission to fall into errors in the capacity of an arbiter between the people and the railroads, even to make mistakes in the law not because of any lack of ability or honesty on the part of the Commission, but because the inability on the part of an advocate to see both sides of the question is a trait of human nature. The railroad managers, not without sanction from the courts, as evidenced by the decisions which have been quoted, had a con- ception of their rights upon which the Interstate Commerce Commission seemed to encroach. Although the railroads obeyed 90 per cent of the formal orders made by the Commission, they steadily resisted its en- croachments, while the members of the Commission, not satisfied with the measure of their authority, as steadily pressed for an increase of power. The Commission's zeal in advocacy and the natural human resentment of interference led it to be exceedingly unfriendly to ju- dicial control. The early annual reports of the Commission contained numerous criticisms of the courts, even of the Supreme Court and many of them most severe. This use by the Commission of its annual report as an organ of public criticism of the courts has continued to the present although the courts by the nature of their functions are prohibited from making reply to such criticism or engaging in public discussion of the cases that come before them. Public sentiment, almost invariably against the railroads, led to the enactment of the further Federal legislation which has given the Interstate Commerce Commission enlarged power over the interstate 8 railroads of the country. It has prescribed the system of accounts to be used by the railroads, the standard of safety appliances, rules for demurrage, for this, that and the other thing. The railroads unques- tionably have been forced to do things that they ought to have done of their own volition, but which were not done sometimes for lack of funds, sometimes for lack of foresight, and sometimes because of lack of accord between the administrators of various roads. The drastic features of some enactments would have been avoided had railroad managers always exercised the spirit of forbearance and com- promise. In accordance with their importance cases in the ordinary course of litigation may be appealed from a lower to a higher court, and most cases of Federal concern may be appealed ultimately to the Supreme Court of the United States. The expression "appeal" is used when a case is taken from a lower court to a higher court. The Interstate Commerce Commission is not a court, but none the less its decisions affect the rights of property and therefore a party thereto cannot be debarred from having such a de- cision passed upon ultimately by the courts. The Constitution pro- vides, however, that except in a few classes of cases of peculiar nature a cause cannot be heard first in the Supreme Court. It must come to it on appeal from a lower court. As the Interstate Commerce Commission is not a court, the taking of one of its decisions into a court is not designated as an appeal; the case is taken from the Commission to the Court for "review" by the Court. It was originally provided in the Interstate Commerce Law that the decisions of the Commission should be subject to review by the United States Circuit Courts. Appeal would lie from the United States Circuit Court to the United States Supreme Court. There have been those who would deny to the courts the right to review the decisions of the Commission. Although this right of re- view was discussed in Congress during the debate on the Hepburn Bill, it is obvious that it cannot be denied. It has been enacted that the courts have no jurisdiction to review the wisdom or expediency of the views or action of the Commission within the limits of its administrative function. However, the Su- preme Court has said, "Beyond controversy, in determining whether an order of the Commission shall be sustained or set aside, we must consider (a) All relevant questions of constitutional power or right; (b) All pertinent questions as to whether the administrative order is within the scope of the delegated authority, under which it purports to have been made; and (c) A proposition which we state inde- pendently, although in its essence it may be contained in the previous ones, viz., whether even although the order be in form within the delegated power, nevertheless it must be treated as not embraced there- in, because the exertion of authority which is questioned has been manifested in such an unreasonable manner as to cause it in truth to be within the elementary rule that the substance, and not the shadow determines the validity of the exercise of the power." To expedite the trial of cases brought into the United States Circuit Court after decision by the Interstate Commerce Commission ; in order that such cases might have the consideration of a court that should gain increasing experience with the problems of trafific and in the application of the law as related to them, the Congress established the Commerce Court to review cases brought from the Interstate Com- merce Commission. As the Commerce Court which has no powers other than those formerly possessed by the United States Circuit Court, and whose judges rank as did the judges of the United States Circuit Court, has been made the court in which reviews of the decisions of the Interstate Commerce Commission are concentrated, it follows that the long continued conflict between the Interstate Commerce Com- mission and the Courts has now become primarily a conflict between the Interstate Commerce Commission and the Commerce Court. The Commerce Court has probably rendered no greater proportion of decisions adverse to the Commission than have the Circuit Courts or the Supreme Court if there be taken the entire record from the organization of the Commission. It must be borne in mind that ordi- narily the orders of the Commission are complied with. It is only when the counsel for the railroad companies feel satisfied that they can clearly demonstrate error on the part of the Commission that they take a case to court. Therefore it may not be a cause of surprise that in a considerable number of these cases, which involve but a very small proportion of the orders of the Commission, the Court should find that the Commission had committed errors that invalidated its orders. This is only to be expected because of that human fallibility 10 from which members of the Interstate Commission are not exempt. The crucial point is whether the Court can determine no more than that the decisions of the Commission have been or have not been within the statutes which specify its authority and therefore is pro- hibited from examining the questions of fact on which the Commis- sion has based its decisions ; or whether the Court to ascertain whether the authority of the Commission has been manifested in a reasonable manner is entitled to make its own examination of the facts. The decision of the United States Supreme Court upon this point is now being awaited. Certain differences in the point of view of the Interstate Commerce Commission and that of the Commerce Court may be brought out by a brief survey of a few of the decisions of the Commission whi.:h have not been sustained by the Court. It is the practice of the railways to build or to permit to be built from their tracks to a large commercial or industrial plant what is known as an industrial track, or sometimes colloquially as a private siding. Over such a track freight cars are moved by the railway to the industrial or commercial plant into whose receptacles their con- tents are directly unloaded, the time and expense of conveyance from the railway station by dray or truck thereby being saved. In the more densely settled East it has become customary by reason of compet'.tion and other causes that in most of the larger cities the railways haul the cars over the private siding to the plant of the consignee, and take cars from the plant of the consignee to its own track without charging for this service other than the rate that applies to and from the railway terminal on a shipment over a considerable distance. In the State of California whose population all told is about the same as that of the City of Chicago the railways serving San Francisco and Los Angeles have made a charge of $3.50 per car for haulage o\pr the private siding between the railway track and the industrial plant. This charge for many years has been a cause of contention. The Inter- state Commerce Commission held that such service was part of the terminal service which should be performed by the railways without extra charge and it ruled that they should desist from exacting the charge of $2.50 per car when such carload freight is moving in inter- tate commerce incidentally to a system line haul. The railways took the case to the Commerce Court, which held that the railways are 11 bound only to carry freight to the station to which freight may be consigned or from which it may be shipped, that upon the facts pre- sented it comes to a conclusion different from that reached by the Commission ; that the real question is whether the railway is lawfully entitled to make the charge for the service in question. The Court held that "if the carrier is not bound by law to deliver freight at the industrial plant, and it cannot be successfully contended that it is, then it follows as a necessary consequence that this industrial track service is a special service and is not a service which the carrier is bound to perform for the general tariff charge for the transportation of freight destined to Los Angeles." In another case the Interstate Commerce Commission set aside the rate of $1.05 per 100 pounds for the transportation of less than car- load shipments of boots and shoes from Boston and New York to Atlanta, Ga., ruling that a rate exceeding 95 cents per 100 pounds was unreasonable, unjust, and unduly discriminatory. The Com- merce Court said, "By the plain language of the law the power of the Commission to prescribe a rate for the future cannot be exercised unless after full hearing on complaint made it shall be of the opinion that any of the rates or charges whatsoever demanded, charged, or collected by any common carrier or carriers subject to the provisions of the act * * * are unjust or unreasonable, or unjustly discrimina- tory, or unduly preferential or prejudicial, or otherwise in violation of the provisions of the act." The Court goes on to say, "The word 'opinion' must be interpreted with reference to the connection in which it is used in the law. It is only after full hearing upon complaint made that the law gives any weight or significance to the opinion of the Commission; that is, it is only when the opinion results from a full hearing that it can be used as the basis of further action by the Commission. It is true that in making up the opinion of the Com- mission its members may and it is their duty to call to their aid their knowledge and experience, but if Congress had intended that the Commission could make up its opinion from the knowledge and ex- perience of its members independent of the evidence in the particular case, then it was idle to provide for a full hearing, as an opinion of the Commission could be formed as well without as with the full hearing. A full hearing not only means an opportunity to be heard by the carrier, but an investigation by the Commission itself of the 12 lawfulness of the rate in question." The Court holds the allegation that there was no such evidence offered, heard or introduced, to be an allegation of fact ; that is that no evidence was offered to the Com- mission to sustain the finding of the Commission. In another case, the Commission had ordered a reduction in rates from New Orleans to Mobile, Pensacola and Montgomery. The Commerce Court, referring to a recent decision of the United States Supreme Court in a case of the same general class, said, "Tested by the prin- ciples laid down in that decision, we are of opinion that the order here drawn in question must be held invalid, as exceeding the delegated powers of the Commission, because there was no substantial evidence to sustain it, * * * having regard to the undisputed evidence ad- duced at the hearing, the existing rates were not shown to be unjust or unreasonable and there was therefore no valid basis for the Com- mission's conclusion." In another case, in which the Commission ordered a reduction in the rates on lemons from California to the East, the Court said that the Commission dealt "entirely with matters tending to show the need in this industry of a high-protective tariff against Sicily and, not on traffic considerations, but to compensate for the tariff insufificiencies, ordered a low transportation rate especially to eastern territory"; and that as in the judgment of the Court "the order is based primarily on the assumed authority to protect the industry against foreign competition, it must be held void as beyond the powers delegated to the Commission." What perhaps is the most important decision of the Interstate Com- merce Commission that has been taken up to the Commerce Court is that affecting the rates on transcontinental traffic. The Commission divided the country into zones, and specified in percentages the rela- tion that the rates from each zone should bear to the through rate from the Atlantic to the Pacific. That is, it did not prescribe exactly what should be the rates from the respective zones but ordered that they should bear a certain relation to a through rate no matter what that rate might be. The Court said, "In so far as the Commission attempts thus to determine the relation of the long and short haul rates, irrespective of absolute rates, it goes beyond any authority that has been vested in it, for it is not in the power of the Commission to say that 100 per cent, 107 per cent, or any given percentage of an ]3 unknown less than reasonable rate to the coast is necessarily a maxi- mum reasonable and a non-discriminatory rate." These decisions are examples of the jurisdiction exercised by the Commerce Court to control the action of the Interstate Commerce Commission when the Commission has erroneously taken action ad- verse to the railroads. The Commerce Court has also indicated that it has jurisdiction to control the action of the Commission should it erroneously be adverse to the public interest. Whatever be the outcome of the controversy over the relation that the Interstate Commerce Commission bears to the courts, it must be recognized that from whatever viewpoint it be considered the Com- mission is, under our scheme of government, an anomalous institution. Under that clause of the Constitution which gives the Congress the power to regulate commerce between the States, and which was in- tended to keep one State from taking advantage of another, the Con- gress has been considered to have the power to fix the rates of the railways applying to interstate traffic. The delegation of this power to the Commission, while not considered by the courts as a delegation of legislative power, unquestionably is closely related to the legis- lative power. The power accorded the Commission to determine whether an existing rate is reasonable makes it a judicial body. Its mandate to see that the Interstate Commerce Act is enforced makes it an executive body. Therefore the Commission does not fit into our scheme of government under which it is ordained that the legislative, executive and judicial functions shall be separate. This is not to say that the Commission may not be a useful institution. It has done many useful things and has the oppor- tunity to do more. This is not to say that although an anomaly at present it may not become adjusted to our scheme of government, or that our scheme of government may not become adjusted to include the Commission. Indeed, as repeated decisions of the Supreme Court of the United States have recognized the validity of orders issued by th'--- Commission, it must be admitted that the constitutionality of the Commission has been virtually even if not expressly estab- lished. As it stands, it is engrafted upon the government and receives nourishment from the same source that vitalizes the three original coordinate departments, to no one of which can it in truth be said to belong. Thus engrafted upon the government, the 14 Interstate Commerce Commission exercises a greater measure of power than any other agency of the government, not only over the railways of the United States, but through its power over railway rates over the entire industry and commerce of the United States. As we have seen, the popular and legal conception of the relations of the railroads to the government has undergone marked changes and, as we all know, there is a possibility of still more radical change. The era of corporate amalgamation marks a transition in the industrial and commercial status which has found effect in modifications of the laws. As the problems developed by this period of transition are not as yet thoroughly understood, the laws to which they have given rise are as yet incoherent. Inasmuch as the railroads of this country have been constructed and maintained by private capital that capital must be protected in the rights inherent in property. To do otherwise would impede their operation, impair their maintenance, and obstruct their development. There is but one way in which the obligation of the government to the railroads as private property can be removed, and that is through their purchase by the government. The experience of other countries in the ownership and administration of the railroads is sufficient to give the people of the United States a long pause before taking this step. That private property must be used for the public good applies with redoubled force to the railways. This does not mean, however, that their public relations may be considered a basis for their oppression by the public any more than their status as private property can be made the basis for oppression of the public by them. r^ UNIVERSITY OF ILLINOIS-URSANA I III II 3 0112 084206678 if-