Illinois Central R. Co. v. Icc, 206 U.S. 441 (1907)

Illinois Central Railroad Company v.

Interstate Commerce Commission
No. 88

Argued April 22, 23, 1907
Decided May 27, 1907
206 U.S. 441

APPEAL FROM THE CIRCUIT COURT OF THE UNITED

STATES FOR THE EASTERN DISTRICT OF LOUISIANA

Syllabus

The findings of the Interstate Commerce Commission are made by the law prima facie true, and this Court has ascribed to them the strength due to the judgments of a tribunal appointed by law and informed by experience.

The reasonableness of a rate is a question of fact, and while the conclusions of the commission are subject to review if that body excludes facts and circumstances that ought to have been considered, they will not, after having been affirmed by the circuit court and circuit court of appeals, be reversed because the commission did not adopt the presumptions of mixed law and fact put forward by appellants as elements for determining the reasonableness of a rate.

A presumption is the expression of a process of reasoning, and of inferring one fact from another, and most if not all the rules of indirect evidence may be expressed as such, but the fact on which the inference is based must first be established before the law can draw its inference.

Where the inquiry before the Interstate Commerce Commission is essentially one of fact, the existence of competition cannot in this Court be made an inference of law dominating against the actual findings of the commission and their affirmance by the circuit court.

In determining the reasonableness of a railroad rate, expenditures for additions to construction and equipment to handle the traffic should be distributed over the period of the duration of those additions, and not charged entirely against the revenue of the year in which they are made. Union Pacific Railway Co. v. United States, 99 U.S. 402, distinguished.

This case involves the validity of an order of the Interstate Commerce Commission requiring the appellants

to cease and desist on or before the first day of April, 1905, from further maintaining or enforcing the unlawful advance of two cents per one hundred pounds, or the said unlawful rates resulting therefrom, for the transportation of lumber from shipping points on defendants’ respective lines in the State of Louisiana east of the Mississippi River, and in the States of Mississippi and Alabama to Cincinnati, Louisville, Evansville, Cairo, and other points on the Ohio River commonly called and known as Ohio River points.

The order was made in the matter of the complaint filed with the Commission by the Central Yellow Pine Association, an incorporated association composed of persons, firms. and corporations engaged in the business of manufacturing yellow pine lumber in the States of Mississippi, Alabama, and that part of Louisiana east of the Mississippi River.

The complaint charged that the appellants were common carriers by rail, engaged in interstate commerce, and as such were engaged in the transportation of yellow pine lumber from the mills and lumber plants of the members of the Yellow Pine Lumber Association to the territory known as the "Central Freight Association territory," which lies on the north of the Ohio River and on and between the Mississippi River on the west and a line running through Buffalo and Pittsburgh on the east, and that the members of the association are dependent upon appellants for the transportation of their lumber to the markets of the country; that the appellants and the railways carrying yellow pine lumber to the same markets from the territory west of the Mississippi River, embracing the states of Texas, Arkansas, and that part of Louisiana west of the river, by agreement or concert of action advanced the rate on yellow pine lumber from the territories both east and west of the Mississippi River on and beyond the Ohio River in Central Freight Association territory two cents per one hundred pounds. The advance was made applicable south of the Ohio River and effective on and from April 15, 1903, except as to the Louisville & Nashville road, as to which it became effective June 22, 1903. And it was alleged that such advance was "unjust, unreasonable, as well as discriminative, in violation of the Act to Regulate Commerce." The answer of the railways admitted the advance, but denied that it had the character and effect charged, but alleged that, on the contrary, it was reasonable and just, and not in violation of law. The answers also specifically justified the advance by the conditions of the market and the traffic, including competition, and the costs of operating the roads. Testimony was taken on the issues thus formed.

The Commission sustained the complaint and made the order recited above. 10 I.C.C. 505. The railways refused to obey. The Commission then instituted this proceeding in the Circuit Court of the United States for the Eastern District of Louisiana, where further proof was taken and a decree rendered which affirmed the order of the Commission and made it the order of the court. The roads were also enjoined from further disobedience to the order. No opinion was filed. The testimony was voluminous, and the report and findings of the Commission are very long. They are reported in 10 I.C.C. 505, supra. The conclusions of the Commission are mingled somewhat with legal arguments, but the following may be selected as important and pertinent to the questions which the controversy presents:

The lumber-producing districts are divided in territory (1) west of the Mississippi River; (2) territory east of the river, and (3) southeastern territory, composed of the states of Georgia, Florida, and part of Alabama. The lumber of each of these districts competes in the sale of their products in "Central Freight Association territory."

The roads of the appellants are located in and serve the second of these territories.

The advance in rates was made as well in territory west of the Mississippi River, "and was made, in fact though not expressly, by agreement between the defendants (appellants) and the roads west of the river," after several meetings at a consultation between the representatives of the roads. The roads east of the river took the initiative.

At Cairo, traffic from a large portion of the lumber-producing districts meets or converges en route to destination. The rates on other Ohio River crossings are based on Cairo -- that is, they bear a fixed relation to the Cairo rate, being advanced or reduced as that rate is advanced or reduced. The through rates to points beyond the Ohio River in Central Freight Association territory are made up of the full local rates of the roads north of the Ohio as the proportions of those roads. Whatever is left of the through rates are the proportions of the roads south of the Ohio. The rates to interior points north of the Ohio are made on the lowest combination rates to the Ohio plus the rates beyond, and are blanket rates, being the same from all shipping points or points of production to the same destination. The rates to the Ohio are to the north bank, and include the bridge tolls.

There are divisions of rates south of the Ohio between what are termed the "originating" roads, on which the lumber is principally manufactured, and the roads intermediate between them and the river.

There had been, from time to time, changes or fluctuations in the rate. Prior to 1894, the roads west of the Mississippi claimed and were allowed a differential of two cents. This placed at a disadvantage the shippers east of the Mississippi, and a readjustment of rates was made, and on May 1, 1894, the rate to Cairo from east of the Mississippi was reduced to thirteen cents per one hundred pounds, the rate in force from west of the Mississippi. This rate remained until September 9, 1899, about five years, when it was advanced to fourteen cents, and so remained until April 15, 1903, nearly four years, when the advance of two cents complained of was made.

The railroads west of the Mississippi make a certain allowance to the mills which have "logging roads," that is, roads by which logs are hauled from the timber to the mills. This is called "tap line allowance or division." It ranges one to two cents per one hundred pounds, up to as high as six cents, and varies, to some extent, according to the destination of the traffic. The mills east of the river have logging roads also, but appellants make no allowance to them. The only exception is the Mobile & Ohio road, which grants allowances to about four mills on its line. The New Orleans & Northeastern road put in a tap line allowance of two cents, but other roads east of the river objected, and it was withdrawn. There does not appear to be any reason for such allowance west of the Mississippi which does not apply east of that river, and it amounts to a rebate or reduction from the regularly published rate, and gives an advantage to the mills west of the Mississippi over those east, although the published rates from both are the same.

The lumber business had grown from its inception, and was largely and possibly more prosperous than it had been before, but the proof does not show that, for two of three years preceding the advance, the prices of mill products had materially increased, or that the profits realized were unusual or excessively large.

As to the operating expense of the roads, the Commission said:

The proof shows increases in wages and in prices of material and equipment, but not in a marked degree for the two years, 1901 and 1902, immediately preceding the advance rate. These increases have doubtless added materially to operating expenses, but the total annual increases in those expenses are, of course, due only in part to the advances in wages and prices of supplies and equipment. They are attributable in a great measure to the constant growth or enlargement of the business of the roads. Not only has the lumber business of the roads greatly increased, but their business in general. The greater the volume of business, the greater is the aggregate cost of conducting it -- or, in other words, of operating the roads. The total operating expenses of the roads, as reported by them, have also been much enlarged by the inclusion therein of large expenditures for permanent improvements.

* * * *

While the operating expenses of the defendants have constantly grown, the gross earnings from operation have also increased from year to year to such an extent as to have resulted in a constant increase in net earnings. This is shown in the tables set forth in our findings of fact (Finding 14).

Sufficient cause was not shown, either in the alleged profit in the lumber business or in the increased cost of operating the roads, for the advance in the rates on lumber. And, answering the contention that the former rate was not adequately remunerative, the Commission expressed the view that "reasonableness in this sense of a rate on a single article of traffic is one of almost insuperable difficulty." And further, that the value of the entire property of a road "can shed but little, if any, light upon the question." The rate on one article might reasonably or unreasonably be high and the total of rates be remunerative or otherwise. But, it was concluded, even if that be a mistaken view, it was impossible with any degree of accuracy to determine from the voluminous and conflicting testimony on the subject introduced in behalf of both parties what was the value of the property employed by the roads. The Commission thought that the elements to be considered in determining the reasonableness of an entire system of rates were "widely variant" from those to be considered in determining the reasonableness of a single rate, and expressed the elements upon which the latter depends to be "the value, volume, and other characteristics affecting the transportation of the particular commodity to which it is applied." The Commission referred to its findings of facts as having "many things disclosed by the evidence" which bore directly upon the reasonableness of the particular rate in question, and which aided it in arriving at a correct judgment in respect thereto, saying that:

In the first place, the present advanced rate is the last (up to date) of a series of advances, and was made by joint or concerted action of the carriers. It is claimed by them that, in advancing the rate, they acted independently, each for itself, but the proof shows conclusively that the advance was the outcome of a concert of action and a previous understanding between the companies. Through their authorized official representatives, they conferred with each other repeatedly as to the making of an advance; recognized the fact that, because of competition in common markets between the lumber-producing districts served by them, the advance should be from all those districts or none, and finally they all promulgated the advance, to take effect at exactly the same time for exactly the same amount. This concurrence of action was not only between the railway companies, parties defendant in this case, and in relation to the rates charged by them, but was participated in by the lumber-hauling roads serving the territories west as well as east of the Mississippi River.

The fourteen-cent rate in force at the date of the advance had been maintained nearly four years, and a still lower rate, thirteen cents, had been maintained for the preceding five years and four months. And the testimony of the officers of the roads was that there was a profit in both rates. The answer also admitted profit, but averred that lumber "was not an exceedingly profitable commodity." The Commission said:

No reason is given or shown why lumber should be singled out as a commodity upon which an "exceedingly" large profit should be earned. A reasonable profit is all the defendants are entitled to, and the testimony is far from convincing us that the profit under the fourteen-cent rate was not reasonable or would not now be reasonable. As stated in our "Findings of Facts," the fourteen-cent rate appears to be reasonably high when compared with the rates on other commodities which are at all analogous to lumber in respect to value, volume, and the various conditions affecting the service of transportation. During the period from 1894 to 1899, while the thirteen-cent rate was operative, there were large annual increases in the net earnings of the defendants, and the same was the case from 1899 to 1903, while the fourteen-cent rate was operative (Finding 15). During those periods there was also a large growth in the tonnage of lumber hauled by the defendants, and therefore their increases in net earnings were, in part at least, derived from the lumber traffic under those rates. Dividends have been declared during those periods, and in addition considerable surpluses have been reported (Finding 16), and large sums have been invested in permanent improvements or betterments (Finding 14).

The seventh and eighth conclusions of the Commission we give entire, as follows:

The defendants, other than the originating roads, complain of the small amount of revenue or low rate per ton per mile realized by them out of their proportions of the through rates. This is due to the large allowances out of the rates made to the originating roads. (See Findings 3 and 4.) Those allowances commenced under the lower rates in force prior to the advance, and raise the presumption that those lower rates, minus the allowances, were then considered reasonably remunerative for the remainder of the hauls to the Ohio River crossings. As the two cents advance goes entirely to the roads continuing the transportation on to the Ohio, and none of it to the originating roads, the inference is that advance was made solely with a view of increasing the proportions of the former roads. If the allowances to the originating roads are unreasonably large, as they appear to be from a distant standpoint, and result in unreasonably low proportions to the other roads, this cannot be remedied by an advance in the total through rates charged the public. It is the total rate, and not its proportions, which is in issue.

Although both the net and gross earnings of the defendants have grown from year to year, the percentages of what are reported by the defendants as "operating expenses" to earnings have also somewhat increased (table, Finding 14), and this is urged as showing the necessity for an advance in the lumber and some other rates. It is to be noted that these operating expenses embrace large annual expenditures for real estate, right of way, tunnels, bridges, and other strictly permanent improvements, and also for equipment, such as locomotives and cars.

And the Commission said repairs, whether to improvement or equipment, were properly chargeable to operating expenses, but that expenditures for improvements and equipments should not

be taxed as part of the current or operating expenses of a single year, but should be, so far as practicable, and so far as rates exacted from the public are concerned, "projected proportionately over the future."

It was said further, if such expenditures should be deducted from the annual operating expenses, it would be found that the percentage of operating expenses to earnings had, in some instances, diminished, and in others increased, to no material extent.

The tenth and eleventh conclusions are as follows:

10. The general rule is, the greater the tonnage of an article of traffic, the lower is the rate. No rule is more firmly grounded in reason or more universally recognized by carriers. It is because of the greater density of traffic north of the Ohio River in Central. Freight Association territory and in eastern territory that rates in general are materially lower in those territories than in southern territory. The defendants have made yellow pine lumber an exception to this rule; while the tonnage in general of the defendants and lumber tonnage in particular have grown greatly, the lumber rate has not been lowered, but has been materially advanced. Moreover, the testimony is that "a decrease in the rates on traffic in general has been going on throughout the United States since the improvements in transportation have been put in operation;" here again, lumber has been taken from under, and deprived of the benefits of, the general rule.

11. As said in Marten v. L. & N. R. Co., 9 I.C.C. 589, and shown by the proof in this case, "lumber is an inexpensive freight, and only a few other commodities furnish to carriers so large a tonnage." The lumber business is constant, yielding the carriers revenue all the year; no special equipment is constructed or furnished for its carriage; it is loaded by the shipper and unloaded by the consignee, and where open cars are furnished, the shipper is required at considerable expense to equip them so as to protect the load and the train; there is small risk incident to its transportation, and, in case of accident, the damage is insignificant. For these reasons, lumber should be given rates which are relatively low.

Our conclusion on the whole is that the advance, April 15, 1903, of two cents in the Cairo rate (with a corresponding increase in the rates to the other Ohio River crossings) was not warranted under all the facts in evidence, and that the resultant increased rate is unreasonable and unjust. An order will be issued in accordance with these views.