Akron Ry Co v. United States the New England Division Case

Decision Date19 February 1923
Docket NumberNo. 646,646
CourtU.S. Supreme Court

[Syllabus on pages 184-185 intentionally omitted] Messrs. Walter C. Noyes and H. T. Newcomb, both of New York City, for appellants.

Mr. H. A. Taylor, of New York City, for Erie R. Co. and others.

Mr. Alexander H. Elder, of New York City, for Central R. Co. of New Jersey.

Mr. Charles F. Choate, Jr., of Boston, Mass., for Boston & M. R. R.

Mr. Blackburn Esterline, of Washington, D. C., for the United States.

Mr. Walker D. Hines, of New York City, for Interstate Commerce Commission.

Mr. Justice BRANDEIS delivered the opinion of the Court.

Transportation Act 1920, c. 91, § 418, 41 Stat. 456, 486, amending Interstate Commerce Act, § 15(6), authorizes the Commission, upon complaint or upon its own initiative, to prescribe, after full hearing, the divisions of joint rates among carriers parties to the rate. In determining the divisions, the Commission is directed to give due consideration, among other things, to the importance to the public of the transportation service rendered by the several carriers; to their revenues, taxes, and operating expenses; to the efficiency with which the carriers concerned are operated; to the amount required to pay a fair return on their railway property; to the fact whether a particular carrier is an original, intermediate, or delivering line; and to any other fact which would, ordinarily, without regard to the mileage haul, entitle one carrier to a greater or less proportion than another of the joint rate.

Invoking this power of the Commission, the railroads of New England1 instituted, in August, 1920, proceedings to secure for themselves larger divisions from the freight moving between that section and the rest of the United States, the joint rates on which had just been increased pursuant to the order entered in Ex parte 74, Increased Rates, 1920, 58 I. C. C. 220. More than 600 carriers of the United States, mostly railroads, were made respondents. The case was submitted on voluminous evidence. On July 6, 1921, a report was filed. The relief sought was not then granted; but no order was entered. Instead, the parties were directed by the report to proceed individually to readjust their divisional arrangements, and the record was held open for submission of the readjustment. New England Divisions, 62 I. C. C. 513. This direction was not acted on. Five months later the case was reargued upon the same evidence. On January 30, 1922, the Commission modified its findings and made an order (amended March 28, 1922) which directed, in substance, that the divisions, or shares, of the several New Engl nd railroads2 in the joint through freight rates be increased 15 per cent. New England Divisions, 66 I. C. C. 196. Since it did not increase any rate, it necessarily reduced the aggregate amounts receivable from each rate by carriers operating west of Hudson river. The order was limited to joint class rates and those joint commodity rates which are divided on the same basis as the class rates.3 It related only to transportation wholly within the United States. It was to continue in force only until further order of the Commission, and it left the door open for correction upon application of any carrier in respect to any rate.

Prior to the effective date of that order, there was in force between each of the New England carriers and substantially each of the railroads operating west of the Hudson, a series of contracts providing for the division of all joint class rates upon the basis of stated percentages.4 These agreements were in the form of express contracts. Section 208(b) of Transportation act of 1920 provided that all divisions of joint rates in effect at the time of its passage should continue in force until thereafter changed either by mutual agreement between the interested carriers or by state or federal authorities. The second report enjoined upon all parties the necessity for proceeding, as expeditiously as possible, with a revision of divisions upon a more legical and systematic basis, made specific suggestions as to the character of the study to be pursued, and invited carriers to present to the Commission any cases of inability to agree upon such revision. No further application was, however, made to the Commission.

In March, 1922, this suit was commenced in the federal court for the Southern District of New York to enjoin enforcement of the order and to have it set aside as void. The Akron, Canton & Youngstown Railway and 43 other carriers5 joined as plaintiffs, suing on behalf of themselves and others similarly situated. The United States alone was named as defendant. But the Interstate Commerce Commission and 10 New England carriers intervened as such and filed answers. The case was then heard, on application for an interlocutory injunction, by three judges, under the provisions of Urgent Deficiencies Act Oct. 22, 1913, c. 32, 38 Stat. 208, 219 (Comp. St. § 998). The full record of the proceedings before the Commission, including all the evidence, was introduced. The injunction was denied ([D. C.] 282 Fed. 306), and the case is here by direct appeal. Plaintiffs urge six reasons why the order of the Commission should be held void.

First. It is contended that the order is void, because its purpose was not to establish divisions just, reasonable, and equitable, as between connecting carriers, but, in the public interest, to relieve the financial needs of the New England lines, so as to keep them in effective operation. The argument is that Congress did not authorize the Commission to exercise its power to accomplish that purpose. An order, regular on its face, may, of course, be set aside if made to accomplish a purpose not authorized. Compare Southern Pacific Co. v. Interstate Commerce Commission, 219 U. S. 433, 443, 31 Sup. Ct. 288, 55 L. Ed. 283. But the order here assailed is not subject to that infirmity.

Transportation Act 1920, introduced into the federal legislation a new railroad policy. Railroad Commission of Wisconsin v. Chicago, Burlington & Quincy R. R. Co., 257 U. S. 563, 585, 42 Sup. Ct. 232, 66 L. Ed. 371. Theretofore, the effort of Congress had been directed mainly to the prevention of abuses, particularly those arising from excessive or discriminatory rates. The 1920 act sought to insure, also, adequate transportation service. That such was its purpose Congress did not leave to inference. The new purpose was expressed in unequivocal language.6 And, to attain it, new rights, new obligations, new machinery, were created. The new provisions took a wide range.7 Pro inent among them are those specially designed to secure a fair return on capital devoted to the transportation service.8 Upon the Commission new powers were conferred, and new duties were imposed.

The credit of the carriers, as a whole, had been seriously impaired. To preserve for the nation substantially the whole transportation system was deemed important. By many railroads funds were needed, not only for improvement and expansion of facilities, but for adequate maintenance. On some, continued operation would be impossible, unless additional revenues were procured. A general rate increase alone would not meet the situation. There was a limit to what the traffid would bear. A 5 per cent. increase had been granted in 1914, The Five Per Cent. Case, 31 I. C. C. 351; Id., 32 I. C. C. 325; 15 per cent. in 1917, The Fifteen Per Cent. Case, 45 I. C. C. 303; 25 per cent. in 1918, General Order of Director General, No. 28. Moreover, it was not clear that the people would tolerate greatly increased rates (although no higher than necessary to produce the required revenues of weak lines), if thereby prosperous competitors earned an unreasonably large return upon the value of their properties. The existence of the varying needs of the several lines and of their widely varying earning power was fully realized. It was necessary to avoid unduly burdensome rate increases and yet secure revenues adequate to satisfy the needs of the weak carriers. To accomplish this two new devices were adopted: The group system of rate making and the division of joint rates in the public interest. Through the former, weak roads were to be helped by recapture from prosperous competitors of surplus revenues. Through the latter, the weak were to be helped by preventing needed revenue from passing to prosperous connections. Thus, by marshaling the revenues, partly through capital account, it was planned to distribute augmented earnings, largely in proportion to the carrier's needs. This, it was hoped, would enable the whole transportation system to be maintained, without raising unduly any rate on any line. The provision concerning divisions was, therefore, an integral part of the machinery for distributing the funds expected to be raised by the new ratefixing sections. It was, indeed, indispensable.

Raising joint rates for the benefit of the weak carriers might be the only feasible method of obtaining currently the needed revenues. Local rates might already be so high that a further increase would kill the local traffic. The through joint rates might be so low that they could be raised without proving burdensome. On the other hand the revenues of connecting carriers might be ample; so that any increase of their earnings from joint rates would be unjustifiable. Where the through traffic would, under those circumstances, bear an increase of the joint rates, it might be proper to raise them, and give to the weak line the whole of the resulting increase in revenue. That, to some extent, may have been the situation in New England, when, in 1920, the Commission was confronted with the duty, under the new section 15a, of raising rates so as to yield a return of substantially 6 per cent. on the value of the property used in the transportation service....

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