Pennsylvania Railroad v. Towers

Stockbridge, I., delivered the opinion of the Court. The Pennsylvania Railroad Company as lessee, operates as a part of its system,, the line known as the Northern Cen ⁶² tral Railway. The Baltimore division of this extends from Baltimore to Harrisburg, Pennsylvania, lying thus in two States. Through traffic over this is accordingly interstate traffic.

In addition to this through business', there is also local business, which between Baltimore and Parkton is wholly in the State of Maryland, and this business being intrastate is subject to State control, in so far as it is subject to any control at all in the interest of the public. Eor some time past there has been a demand on the part of the railroads of this country for an increase of their revenues, on the ground that as the result of a number of contributing causes they were either making no net revenue at all or at best one inadequate to meet the requirements for the upkeep of their roadbed and rolling stock, or extensions rendered desirable by the increase of population or development of new localities, and also yield any adequate return on the capital employed in the enterprise. Among) the causes contributing to this condition were the hostile legislation in many States, placing new and additional burdens on such companies, the great increase in wages paid to employees, and the enhanced cost of requisite supplies of all kinds. As a means to in part overcome the unfavorable condition, there has been throughout the eastern States at least, an increase in the rates for passenger transportation.

Such travel may be roughly divided into four general classes, though this will not include all varieties of the passenger transportation, each one of which has its own' distinctive •characteristics, which clearly differentiate it from the others. These classes are single rate fares, mileage rates, commutation rates and party rates. It is with the third of these, commutation rates, that this case has to deal. Eor a number of years there had been in force on the Northern Central Railway commutation rates from Baltimore to points on the line of the railway as far as Parkton.

On November 25th, 1914, the railway company filed with the Public Service Commission of this State a proposed tariff of new passenger rates for such commutation service involving ⁶³ an entire revision and increase of the rates over those theretofore charged for such sei-vice. This was followed by a “petition and complaint” by a number of those to be affected by the changes, and the question thus came before the Public Sea-vice Commission, which heard testimony on behalf both of the petitioners and the a-ailroad, and by its order of December 21st, 1914, granted certain increases, though in no instance to the full extent asked by the railroad company. Then the bill in this case was filed to enjoin the commission from enforcing or attempting to enforce the order of December 21st. It is from the decree dismissing the bill of the railroad company that this appeal is taken.

The question is not now presented whether it is within the power of the Public Service Commission to requia-e the establishment of a schedule of commutation rates by a railway company in a case where no such rates had theretofore existed. Upon that no opinion is now expa-essed. What the Coua-t is now called to pass upon is the reasonableness of commutation rates, wheore such a system of rates has long been in opea-ation by the action of the company, and where a modification of those rates was proposed by the railway company and by it submitted to the Commission. Whether commutation rates shall be established at all is a question of policy upon the part of the company, but if such a policy is adopted there will still remain the reasonableness of the manner in which that policy is carried out.

What was endeavored to be done by the railroad with regard to rates, and how far the same was gratified by the order of the Commission will be best understood from the following table: ⁶⁴ Bates Prior to Nov. 25, 1914. Bates as per Schedule filed Nov. 25, 1914. Bates under Order P. S. Qom.j Dec. 23, 1914. 1: Pound trip, 10 day, 2%c. per M. Bound trip, no limit, 2y%o. per M. Bound trip, 2^c per M. 2: Exc. 2—10 days, 2%c. per M. Discontinued. No ruling made. 3: 10-strip ticket, 1 yr., 1 8/10c. per M. 10 trip, 3 mos., 2%0. per M. 10 strip, 3 mos., 2c. per M. 4: 60-trip 1 mo., 2c. for first 3 • M., 14c. for ea. addl. y3 M. 60 trip 1 mo., former rate plus 25c. flat. 60 trip 1 mo., former rate plus 25e. 5: 100-trip 1 yr. at double 60 trip.

Discontinued. 100 trip 4 mos., former rate, plus $1. 180 trip 3 mos., former rate, plus 75c. 6: 180-trip 3 mos. , 180 trip 3 mos. at same as 4, less 3 times 60 trip. 10%. 46 trip School, 1 mo., 46/60 of 60 trip. 7: 46-trip School, 46 trip School 1 1 mo., 46/60 mo., 46/60 of 60 of 60-trip. trip. At or about the same time the railroad company made increases in the single rate fares, and also in the mileage ticket, but as both of these forms of transportation involved under the circumstances of this case, interstate rather than intrastate carriage, the jurisdiction over them belonged to a dif ⁶⁵ ferent tribunal, and did not and cannot properly enter into the consideration of this case at all. The first prayer of the bill is that the action of the Public S. rvice Commission may be declared void and set aside. When couched in so general terms the ground for such a prayer is not clearly evident.

A body like the Public Service Commission has of course no power or authority to make any order, except in so far as the authority is distinctly conferred upon it by the Legislature. But the Act creating the Public Service Commission, now codified as sec. -413, etc., of Article 23, when taken in connection with the Amendatory Act, Chapter 162 of the Acts of 1912, clearly confers upon the Commission full power, so far as it was within the province of the Legislature to grant it, to supervise and regulate all tariffs and transportation charges within the State, including by its very terms, commutation rates. Or the contention of the plaintiff may have been in this regard upon a somewhat different theory, namely, that while it might be within the power of the Legislature and therefore, by delegation, within the power of the Public Service Commission, to regulate and establish the single rate fare, yet when it had done so, it had exhausted its power and could not thereafter make any regulation whatever to affect either mileage or commutation rates, and for this claim there is warrant to be found in the language used in the decision of the Lake Shore & Mich. So.

Ry. v. Smith, 173 U. S. 684 , in which Me. Justice Peckham elaborately discusses the question of the validity of an Act of the Michigan Legislature, which was intended to regulate the price of 1,000-mile tickets, and holds that in attempting so to do the Michigan Legislature had exceeded its powers. Without citing his argument in full, the following language to be found in the opinion will indicate its trend: “'If unhampered by contract, there is no doubt of the power of the State to provide by legislation for maximum rates of charges for railroad companies, subject to the condition that they must be such ⁶⁶ as will admit of the carrier earning' a compensation that under all the circumstances, shall be just to it and to the public, and whether they are or not, is a judicial question. If the rates are fixed at an insufficient amount within the meaning of that term as given by the courts, the law would be invalid, as amounting to title taking of the property of the company without due process of law. * * * The question is presented in this case whether the Legislature of a State has also- the right after having fixed a maximum rate for the transportation of passengers to still further regulate their affairs and to discriminate and make an exception in favor of certain persons and give them a right of transportation for a less sum than the general rate provided by law. * * * The Act is not a general law upon the subject of rates establishing maximum rates which the company can in no case violate.

The Legislature having established such maximum as a general law, now assumes to interfere with the management of the company while conducting its affairs pursuant to and obeying the statute regulating rates and charges, and notwithstanding such rate, it assumes to provide for a discrimination, an exception in favor of those who may desire and are able to purchase tickets at what might be called wholesale rates—a discrimination which operates in favor of the wholesale buyer, leaving the others subject to the genera,! rule. It thus invades the general right of a company to conduct and manage its own affairs, and compels it to give the use of its property for less than the general rate to those who come within the provisions of the statute, and to that extent it would seem that the statute takes the property of the company without due process of law-. We speak of the general right of the company to conduct and manage its own affairs, but at the same time it is to be understood that the company is subject to the unquestioned jurisdiction of the Legislature in the exercise of its power to provide for the safety, the health and the convenience of the public, and to prevent improper exactions or extortionate ⁶⁷ charges from being made by the company. * * * The power of the Legislature to enact general laws regarding a company and its affairs does not include the power to compel it to make an exception in favor of some particular class in the community and to carry the members of that class at a less sum than it has the right to charge for those who are not fortunate enough to be members thereof. This is not' reasonable regulation.” The Act was further criticised for the reason that it compelled the company to carry not only those who might purchase the mileage tickets, but also the length of time during which the company should be obliged to honor them, the forfeiture of the ticket under certain conditions and the redemption of any unused portion of it at the expiration of two years.

This Act applied in a case with regard to a mileage ticket, and in regard to the same class of ticket the decision above quoted was followed and adopted in Beardsley v. N. Y., L. E. & W. R. R., 162 N. Y. 230 ; North Dakota v. The Great Northern Ry., 17 No. Da. 370; State v. Bonneval, 128 La. 902 ; Virginia v. Atl. Coast Line, 106 Va. 61 ; Chi., R. I. & P. v. Ketcham, 212 Fed. 986 . It was contended in argument on behalf of the Public Service Commission that, while not in terms overruled, the effect of the decision in the Lake Shore case, supra, had been very much weakened, if not entirely done away with, by other and later decisions. Since the argument of this case, however, the Supreme Court of the United States has rendered opinions in three cases, which clearly show that in the view of that Court the decision in the Lake Shore case is still in full force.

The first two of the cases referred to are the Northern Pac. Ry. Co. v. No. Dakota, and the Minneapolis, S. P. & S. Ry. Co. v. No. Dakota, 236 U. S. 585 ; the proceedings in each of these cases were instituted by the Atty.-Gen’l. of the State, for a mandatory injunction against the railroads to require them to put into effect an Act of the Legislature of North Dakota, establishing a maximum coal rate ⁶⁸ in that State.

In the case of the Northern Pac. Ry. Co. it was shown that out of a total revenue derived from the carriage of coal of $58,953.07, there was a surplus income over and above expenses of $827.61, and that in the case of the other road the carriage was conducted at an actual loss. In the course of that opinion, Mr. Justice Hughes uses the following language: “The general principles to be applied are not open to controversy.

The railroad property is private property devoted to a public use. As a corporation, the owner is subject to the obligations of its charter. As the holder of special franchises, it is subject to the conditions upon which they were granted. Aside from specific requirements of this sort, the common carrier must discharge the obligations which inhere in the nature of its business.

It must supply facilities that are reasonably adequate: it must carry upon reasonable terms, and it must serve without unjust discrimination. These duties are properly called public duties, and the State within the limits of its jurisdiction may enforce them. The State may prescribe rules to insure fair remuneration and to prevent extortion, to secure substantial equality of treatment in like cases, and to promote safety, good order and convenience. * * * “But, broad as is the power of regulation, the State does not enjoy the freedom of an owner. The fact that the property is devoted to a public use on certain terms does not justify the requirement that it shall be devoted to other public purposes, or to the same use on other terms, or the imposir tion of restrictions that are not reasonably concerned with the proper conduct of the business according to the undertaking which the carrier has expressly or impliedly assumed.

If it has held itself out as a carrier of passengers only, it can not be compelled to carry freight. As a carrier for hire, it can not be required to carry persons or goods gratuitously. The case would not be altered by the assertion that the public interest demanded such carriage. The public interest ⁶⁹ can not be invoked as a justification for demands which pass the limits of reasonable protection and seek to impose upon the carrier and its property burdens that are not incident to its engagement.

In such a ease, it would be no answer to sa.y that the carrier obtains from its entire intrastate business a return as to the sufficiency of which in the aggregate it is not entitled to complain. * * * “We have, then, to apply these familiar principles to a case where the State has attempted to fix a rate for the transportation of a commodity under which, taking the results of the business to which the rate is applied, the carrier is compelled to transport the commodity for less than cost or without substantial compensation in addition to cost. We say this, for we entertain no doubt that in determining the cost of the transportation of a particular commodity, all the outlays which pertain to it must be considered. We find no basis for distinguishing in this respect between so-called ‘out-of-pocket costs/ or ‘actual’ expenses, and other outlays which are none the less actually made because they are applicable to all traffic, instead of being exclusively incurred in the traffic in question. Illustrations are found in outlays for maintenance of way and structures, general expenses and taxes.

It is not a sufficient reason for excluding such, or other, expenses to say that they would still have been incurred had the particular commodity not been transported. That commodity has been transported; the common carrier is under a duty to carry, and the expenses of its business at a particular time are attributable to what it does carry. The State can not estimate the cost of carrying coal by throwing the expense incident to the maintenance of the roadbed, and the general expenses, upon the carriage of wheat; or the cost of carrying wheat by throwing the burden of the upkeep of the property upon coal and other commodities. This, of course, does not mean that all commodities are to be treated as carried at the same rate of expense.

The outlays that exclusively pertain to a given class of traffic ⁷⁰ must be assigned to that class, and tbe other expenses must be fairly apportioned. It may be difficult to make such an apportionment, but when conclusions are based on cost the entire cost must be taken into account. * * * But, while local interests serve as a motive for enforcing reasonable rates, it would be a very different matter to say that the State may compel the carrier to maintain a rate upon a particular commodity that is less than reasonable, or—as might equally well be asserted'—to carry gratuitously, in order to build up a local enterprise. That would be to go outside the carrier’s undertaking, and outside the field of reasonable supervision of the conduct of its business, and would be equivalent to an appropriation of the property to public uses upon terns to which the carrier had in no way agreed. It does not aid the argument to urge that the State may permit the carrier to make good its loss by charges for other transportation.

If other rates are exorbitant, they may be reduced. Certainly, it could not be said that the carrier may be required to charge excessive rates to some in order that others might be served at a rate unreasonably low. * * * “But a different question arises when the State has segregated a commodity, or a class of traffic, and has attempted to compel the carrier to transport it at a loss or without substantial compensation even though the entire traffic-to which the rate is applied is taken into account. On that fact being satisfactorily established, the presumption of reasonableness is rebutted. * * * “In Interstate Commerce Commission v. Union Pacific R. R. Co., 222 U. S. 541, 549 , in speaking of the carriers’ concession that they were unable 1» determine the cost of the particular traffic in question and that a former rate had not been ‘less than cost,’ the Court said: ‘Whether the carrier earned dividends or not sheds little light on the question as to whether the rate on a particular article is reasonable. Ear, if the carrier’s total income enables it to declare a dividend, ⁷¹ that would not justify an order requiring it to haul one class of goods for nothing, or for less than a reasonable rate.

On the other hand, if the carrier earned no dividend, it would not have warranted an order fixing an unreasonably high rate on such article.’ * * * “To repeat and conclude : It is presumed,—but the presumption is a rebuttable one—that the rates which the State fixes for intrastate traffic are reasonable and just. AVhen the question is as to the profitableness of the intrastate business as a whole under a general scheme of rates, the carrier must satisfactorily prove the fair value of the property employed in its intrastate business and show that it has been denied a fair return upon that value. With respect to particular rates, it is recognized that there is a wide field of legislative discretion, permitting variety and classification, and hence the mere details of what appears to be a reasonable scheme of rates, or a tariff or schedule affording substantial compensation, are not subject to judicial review. But this legislative power cannot be regarded as being without limit.

The constitutional guaranty protects the carrier from arbitrary action and from the appropriation of its property to public purposes, outside the undertaking assumed; and where it is established that a commodity, or a class of traffic, has been segregated and a rate imposed which would compel the carrier to transport it for less than the proper cost of transportation, or virtually at cost, and thus the carrier would be denied a reasonable reward for its service after taking into account the entire traffic, to which the rates applies, it must be concluded that the State has exceeded its authority.” The third ease of those recently decided by the Supreme Court was the case of the Norfolk & West Ry. Co. v. Conley, 236 U. S. 605 ; in which the Court had under consideration an Act of the Legislature, of West Virginia, establishing a maximum rate for passengers on railroads at two cents a mile and in that case after reference to the two cases last cited, the Court says: ⁷² “The fundamental question presented is, whether the validity of the passenger rate can he determined by its effect upon the passenger business of the company separately considered. It is not necessary that there should be uniform rates or the same percentage of profits on every sort of business; and that there is abundant room for reasonable classification and the adaptation of rates to various groups of services. It was further held that despite this range of permissible action, the State has no arbitrary power over rates; that the devotion of the property of the carrier to public use is qualified by the condition of the carrier’s undertaking that its services are to be performed for reasonable reward; and that the State may not select a commodity, or class of traffic, and instead of fixing what may be deemed to be reasonable compensation for its carriage, compel the carrier to transport it either at less than cost or for a compensation that is merely nominal. “These considerations are controlling here.

The passenger traffic is one of the main departments of the company’s business; it has its separate equipment, its separate organization and management, and of necessity its own rates. In making a reasonable adjustment of the carrier’s charges, the State is under no obligation to secure the same rate of return from each of the two principal departments of business,