Missouri. K. & T. Ry. Co. v. Love

• Decision Date: 14 February 1910
• Docket Number: 473.,472,,471
• Citation: 177 F. 493
• Court: U.S. District Court — Western District of Oklahoma
• Parties: MISSOURI, K. & T. RY. CO. v. LOVE et al. ATCHISON, T. & S.F. RY. CO. v. SAME. GULF, C. & S.F. RY. CO. v. SAME.

177 F. 493

MISSOURI, K. & T. RY. CO. v. LOVE et al. ATCHISON, T. & S.F. RY. CO. v. SAME. GULF, C. & S.F. RY. CO. v. SAME.

Nos. 471, 472,, 473.

United States Circuit Court, W.D. Oklahoma.

February 14, 1910

Clifford L. Jackson, C. G. Hornor, Joseph M. Bryson and James Hagerman, for complainant Missouri, K. & T. Ry. Co.

Cottingham & Bledsoe, Gardiner Lathrop, Robert Dunlap, and T. J. Norton for complainants Atchison, T. & S.F. Ry. Co. and Gulf, C. &amp S.F. Ry. Co.

Frank Hagerman, for all complainants.

Charles West, Atty. Gen., Geo. A. Henshaw, Asst. Atty. Gen Frederick N. Judson and Robert L. Owen, for defendants.

HOOK Circuit Judge.

These are suits by railroad companies to enjoin the enforcement of the passenger rate of two cents per mile prescribed by the Constitution of Oklahoma and certain freight rates prescribed by the Corporation Commission of that state. The suits were brought in September, 1909, after an experience of about 2 years with the passenger rate and from 9 to 18 months with the freight rates save some unimportant modifications; and it is claimed by the railroad companies the rates have proved so unreasonably low their continued enforcement will confiscate their property and deprive them of the equal protection of the law. In November, 1909, defendants' pleas in abatement were overruled (174 F. 59), and the applications of the railroad companies for temporary injunctions were postponed to afford defendants time for preparation. More than two months have been given for that purpose. At the recent hearing of the applications defendants presented exceptions and demurrers to the bills of complaint. They will be referred to presently. Whether rates prescribed by a state are reasonable involves a determination of the value of the property devoted to the public use to which the rates apply the measure of a reasonable return on that value, and whether the rates allowed to be charged are sufficient to that end. The regulation of commerce among the states having been intrusted to Congress, and being therefore beyond the control of the state, difficult problems arise when the rates involved are those of a railroad company, for it generally happens, as here, that its property, whether entirely within the state or not, is employed commonly and inseparably in both interstate and local transportation; both kinds of traffic are moved in the same trains, over the same road and with the aid of the same employes. Again, it is generally the case, as here, that railroad is but part of a larger system extending into or through other states, and there are factors of value, revenue, and expense which, though without the state, have such relation to and effect upon those within that they must be regarded in reaching a just conclusion. The extent and varied character of the property comprised in a railroad system make it difficult to ascertain its value, and objections may be made to all rules for apportioning the value and the revenues and expenses of operation to meet the issues in particular cases. Mathematical precision in matters so complex and of so many elements is not to be expected, but a court whose jurisdiction is invoked is not for that reason relieved of its duty to get as near an accurate result as the proofs permit. C., M. & St. P. Ry. v. Tompkins, 176 U.S. 167, 178, 20 Sup.Ct. 336, 44 L.Ed. 417. Uniform rules in such cases may not be exact, but when they answer to the great majority of right calls and distances they may be followed with reasonable assurance of a just conclusion. When the railroad is part of a greater system operated in other states as well, the ascertainment of its value within the state, and of such of its revenues and expenses therein as are incident to interstate commerce for purpose of ultimate separation from those pertaining to its commerce purely local to the state, should proceed with due regard not merely to the rights of the parties present, but also to those of the other states and to the province of Congress under the national Constitution. Every state in which a railroad system is operated is interested that justice be done, and it is not infrequently the case that commerce among several states, not subject to local regulation, is in volume at least the dominant feature of the railroad operations. It must always be remembered that under the Constitution a several sovereignties are interested, the special insistence of the officers of one should not be allowed to cast an undue burden on the others. The factors common to all of them affecting the reasonableness of rates should be equitably dealt with and adjusted, though the local rates of a single state are alone in question.

In logical order there should first be found the value of the company's entire railroad property devoted to public use within the state, upon which, from all its operations therein, it is entitled to reasonable returns. Mr. Justice Harlan, in Smyth v. Ames, 169 U.S. 466, 546-547, 18 Sup.Ct. 418, 434, 42 L.Ed. 819, said:

'We hold, however, that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public. And in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses, are all matters for consideration, and are to be given such weight as may be just and right in each case.

We do not say that there may not be other matters to be regarded in estimating the value of the property.'

There is a tendency to deny the amount and value of outstanding stocks and bonds as evidences of value. Wholly aside from any consideration of the rights of investors in good faith or of the general consensus of public opinion as exhibited in a normal market for the securities, such evidences imply a recognition of the effect upon local value of influences without the state. A company may have, elsewhere, property of great value employed in aid of all its transportation business. Distant connections with important commercial centers, an outlet to tidewater and the like may affect favorably the worth of every mile of road in the system. It is general knowledge that there is an important element of value in a railroad as a whole which the part within the state, solely and separately regarded, does not possess. While the question ultimately is the value of the road within the state, the influence upon that value of things external is to be considered; and in the common judgment of men it is to some extent reflected in the amount and value of the stocks and bonds resting upon the system. Nor can it properly be said that such influence affects only the value for the interstate business of the company with which the state is not concerned in making local rates. There is too intimate a relation between commerce within the state and that among the states, and too much interdependence in their mutual growth and prosperity. A railroad system is essentially a unit and is generally so regarded. For instance, the part within the state may be assessed for local taxation at its value as an organic portion of a larger whole. C.B. & Q.R. Co. v. Babcock, 204 U.S. 585, 598, 27 Sup.Ct. 326, 51 L.Ed. 636; Western Union Tel. Co. v. Gottlieb, 190 U.S. 412, 23 Sup.Ct. 730, 47 L.Ed. 1116; A., T. & S.F.R. Co. v. Sullivan (C.C.A.) 173 F. 456. A value of a railroad in a state for local taxation would seem also to be there when rates of transportation are fixed. The assessed value and the acknowledged basis upon which the assessment is made express the judgment of public officers charged with the duty of investigation under the forms of the law and should receive due consideration. There is another matter to be regarded, not specifically mentioned in the above excerpt from the opinion of Mr. Justice Harlan. An established railroad system may be worth more than its original cost and more than the mere cost of its physical reproduction. It has passed the initial period of little or no return to its owners which, of greater or less duration, almost always follows construction and is not infrequently marked by default and bankruptcy. The inevitable errors in its building which finite mind and hands cannot avoid have been measurably corrected, time and effort have produced a commercial adjustment between it and the country it was intended to serve, relations have been established with patrons, and sources of traffic have been opened up and made tributary. In other words, the railroad, unlike one newly constructed, is fully equipped and is doing business as a going concern. It has attained a position after many experiences common to railroad enterprises which entail loss and cost not paid from current earnings, and which correspondingly make for value.

When the railroad within the state is used in both interstate and local commerce it is necessary next to determine what part of its value should fairly be considered as devoted to each use separately, because obviously the company should not exact such excessive rates for local traffic as will also produce a return upon a value employed in a business over which the state has no control. Neither class of traffic, interstate or local, should be made to bear a burden caused by paring the rates on the other to the quick. It is generally agreed that given the entire value of the railroad property in the state, it is fair to apportion it...