Dayton-Goose Creek Ry. Co. v. United States

• Decision Date: 16 March 1923
• Docket Number: 262.
• Parties: DAYTON-GOOSE CREEK RY. CO. v. UNITED STATES et al.
• Court: U.S. District Court — Eastern District of Texas

287 F. 728

DAYTON-GOOSE CREEK RY. CO. v. UNITED STATES et al.

No. 262.

United States District Court, E.D. Texas, Beaumont Division.

March 16, 1923

John C Townes, Jr., Frank Andrews, Robert H. Kelley, and Andrews Streetman, Logue & Mobley, all of Houston, Tex., for complainant.

Blackburn Esterline, Asst. Sol. Gen., of Washington, D.C., Randolph Bryant, U.S. Atty., of Sherman, Tex., and S.D. Bennett, Asst U.S. Atty., of Beaumont, Tex., for defendants.

Before WALKER, and KING, Circuit Judges, and FOSTER, District Judge.

PER CURIAM.

Dayton-Goose Creek Railway Company, a corporation organized and existing under the laws of Texas, filed its bill in equity against the United States of America, the Interstate Commerce Commission (herein called the Commission), and the United States District Attorney for the Eastern District of Texas, the district in which complainant has its principal office and principal operating office. The bill contained allegations to the following effect:

Complainant is now, and has been since a date long prior to the 29th day of February, 1920, a common carrier by railroad, engaged in the transportation of freight and passengers, for hire, in intrastate, interstate, and foreign commerce, and as such is now, and was at all times mentioned in the bill, subject to the act of Congress entitled 'An act to regulate commerce, and for other purposes,' approved February 4 1887, and acts amendatory thereof and supplementary thereto and also subject to the lawful provisions of the Transportation Act of 1920, and to all other lawful acts of Congress regulating railroads engaged in interstate and foreign commerce. Pursuant to orders of the Commission, complainant, under protest, has filed a report containing a statement of investment in road and equipment, of net railway operating income, by months, for the year ended December 31, 1920, and of excess railway operating income for the 10 months of that year from March 1, 1920, to December 31, 1920. It filed a similar report covering the entire year 1921. Each of those reports showed that, for the period it covered, complainant had a net railway operating income in excess of 6 per cent. of the value of the railway property held for and used by it in the service of transportation, and stated the amount of such excess. The Commission has, by orders set out, required one-half of such excess to be placed by complainant in a reserve fund, and demanded of the complainant payment by it of one-half of such excess, and has fixed a stated date by which such demand is to be complied with. If such demands are not complied with within the time fixed, the Commission will undertake to prosecute complainant, its officers and directors, and to subject them to fines and penalties for failing to comply therewith. The bill contains a prayer for a temporary injunction staying and suspending said orders of the Commission, so far as they relate to the payment of money by complainant to the Commission and into a reserve fund of complainant.

The case was submitted on complainant's application for a temporary injunction and on motion of the United States to dismiss the bill. The Transportation Act of 1920 was passed by the Congress to accomplish a number of purposes. The railroads of the country for more than two years had been taken out of the hands of their owners and operated by the federal government, as a single system. This operation had ignored the competitive system formerly existing between lines of railway, and had routed the business solely with a view to its expeditious handling to meet the emergencies arising from a state of war. Business which, under the former system, would have been solicited and moved over certain lines, was under government control frequently routed over a formerly competitive line.

The government was, on March 1, 1920, restoring the operation of the railroads to their owners, to re-establish their several businesses and resume their relations as carriers, by land, of the commerce of the country. In so doing, it recognized that the years of government operation had altered the practical relation of the railroads to the public and to governmental regulations. The Congress determined that its powers to regulate interstate commerce must now be exercised to a wider extent than before, in order that an adequate system of interstate transportation should be preserved for the commerce of the country. To that end it greatly enlarged the powers of the Interstate Commerce Commission. It empowered it to group the railroads of the country, to prescribe rates adequate to a fair remuneration of each of the members of such groups, and to order proper divisions of such joint rates. It could also prescribe minimum as well as maximum rates. It could exercise such control over intrastate rates as would prevent discriminations against interstate or foreign commerce. It could control the issuance of railroad securities, the building of additional roads, and the abandonment of existing lines, so far as they were interstate carriers. It could plan and recommend the consolidation of all the railroads of the country into a number of interstate systems, not being necessarily restrained by existing competition.

The scope of this act and the departure therein from the former limitations on the regulation of interstate commerce have been the subject of recent consideration by the Supreme Court of the United States in the case of Akron, Canton & Youngstown Railway Co. et al. v. United States et al. (the New England Divisions Case) 43 Sup.Ct. 270, 67 L.Ed. . . ., opinion rendered February 19, 1923. In this opinion it is said:

'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. 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, and, to attain it, new rights, new obligations, new machinery, were created. The new provisions took a wide range. Prominent among them are those specially designed to secure a fair return on capital devoted to the transportation service. 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 traffic would bear. A 5 per cent. increase had been granted in 1914 (the Five Per Cent. Case, 31 I.C.C. 351; 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.'

Among other provisions the act provided substantially that all railroads should hold one-half of the excess of net earnings over 6 per cent. net on the valuation of its property as fixed by the Commission after paying expenses, as trustee for, and pay the same to, the United States. These sums were to be collected by the Interstate Commerce Commission and used by it 'in furtherance of the public interest in railway transportation, either by making loans to carriers to meet expenditures for capital account or to refund maturing securities originally used for capital account, or by...