Montana, W. & S.R. Co. v. Morley

• Decision Date: 30 March 1912
• Docket Number: 1,009.
• Citation: 198 F. 991
• Parties: MONTANA, W. & S.R. CO. v. MORLEY et al., Board of Railroad Com'rs of Montana.
• Court: U.S. Court of Appeals — Ninth Circuit

198 F. 991

MONTANA, W. & S.R. CO. v. MORLEY et al., Board of Railroad Com'rs of Montana.

No. 1,009.

United States District Court, D. Montana.

March 30, 1912

Royal E. T. Riggs, of New York City, and John G. Skinner, of Red Lodge, Mont., for complainant.

Albert J. Galen, Atty. Gen. of Montana, William L. Murphy, Special Asst. Atty. Gen. of Missoula, Mont., and J. A. Poore, Asst Atty. Gen. of Montana, for defendants.

HUNT Circuit Judge.

This is a suit in equity brought on October 3, 1910, by the Montana Wyoming & Southern Railroad Company against the Board of Railroad Commissioners and the Attorney General of the state of Montana. The object is to enjoin the enforcement of a coal rate fixed by the Board of Railroad Commissioners of the state at 35 cents per ton for coal to be transported beyond the lines of the complainant's railroad. A temporary restraining order was granted, issues were framed, and by order of the Honorable Carl Rasch, then judge presiding in the Circuit Court of the United States in and for the District of Montana, reference was made to the master to take the testimony and find the facts. The theory of the bill is that the rate is so low as to be unreasonable and confiscatory and violative of the fourteenth amendment to the Constitution of the United States.

The Montana, Wyoming & Southern Railroad owns and operates a steam railroad beginning at Bridger, Carbon county, Mont and extending in a southerly direction, following Clark's fork of the Yellowstone to Belfry, thence in a westerly direction, terminating in the coal fields at Bear Creek, Carbon county, Mont. The main line is a fraction over 25 miles in length, but the spurs and sidings aggregate 5 miles more. The road was constructed by the Yellowstone Park Railroad Company and operated from about May, 1905. Its capital stock was $3,000,000 par value, of which $2,478,000 was issued and outstanding, the bonded indebtedness of said company having been $912,000, first mortgage, 5 per cent. 30-year gold bonds. The Yellowstone Park Railroad Company never paid interest on its bonds, and was in default. The Montana, Wyoming & Southern Railroad Company is incorporated with a capital stock of $5,500,000 par value, of which $1,000,000 par value is issued and outstanding. On September 1, 1909, the company made a first mortgage of all of its property to the Empire Trust Company of New York, to secure an issue of bonds aggregating $5,000,000, bearing interest at 5 per cent. per annum, of which $900,000 of bonds were issued and are now outstanding. On November 1, 1909, the company also made a car trust agreement, and delivered $50,000 of its bonds, receiving therefor 57 box cars of the capacity of 80,000 pounds each. The first mortgage bonds of the par value of $900,000, the equipment bonds of the par value of $50,000, and 9,990 shares of the capital stock of the complainant company amounting to $999,000, all were delivered to a bond and stock holders committee of the Yellowstone Park Railroad Company, in consideration for the sale and transfer to this complainant of the entire property of the Yellowstone Park Railroad Company, as of September 1, 1909, and also for the sale and transfer of the 57 box cars, referred to.

On July 25, 1907, the Railroad Commission of the State made an order effective August 15, 1907, establishing a rate of 50 cents per ton of 2,000 pounds as the proportional rate on through shipments of coal in car loads from points on the then line of the Yellowstone Park Railroad, and now of complainant, to points beyond its line, and thereafter, prior to January 1, 1909, the Commission reduced the rate from 50 cents per ton to 45 cents per ton, as the proportional rate. In April, 1909, hearings were had before the Commission, on complaints against the prevailing freight rates, and an order was made on July 9, 1909, providing that on and after August 1, 1909, the local rate from points on the Yellowstone Park Railroad to Belfry and Bridger, Mont., should be 50 cents per ton, and requiring the Yellowstone Park Railroad Company to accept as a proportional rate 35 cents per ton on coal in car loads destined to points beyond its own line. After complainant acquired the property as of September 1, 1909, it asked for a rehearing, which was granted; but on February 10, 1910, the Commission denied complainant's application for an increase of rate. It appears that the Montana, Wyoming & Southern Railroad relies upon transportation of coal for its principal tonnage, that commodity furnishing 89 per cent. of the total revenue tonnage of the company. This tonnage originates on the complainant's road in the Bear Creek coal fields and is hauled to Bridger. The operation consists of hauling empty cars from Bridger to Bear Creek up grades from Belfry to Bear Creek, placing empty cars at some five coal mines, assembling cars when loaded, and hauling the loaded trains to Bridger. Owing to the grades between Belfry and Bear Creek, the haul is limited to 18 empties up the grade, and 40 loaded cars downgrade, and the conditions at the mines are such that an engine traveling in assembling cars considerably increases the mileage in addition to the haul from Bear Creek Junction to Bridger. The road owned 3 locomotives, 1 passenger coach, 5 flat cars, 5 bunk cars, 25 gondolas, 1 derrick car, 1 motor car, 2 cabooses, and 57 box cars. The master made full findings, summarizing the results of the operation of the complainant road, wherein he showed that the 'corporate income' as appearing on the books from September 1, 1909, to September 1, 1910, was $32,474.05, during which period the interest on the bonded indebtedness on the first mortgage bonds and equipment bonds accrued to the amount of $47,083.34. A detail of the finding is as follows:

Revenue from transportation ................	$107,260 68
Miscellaneous revenue from transportation .......	192 00
	-----------
	$107,452 68
Revenue from other than transportation ........	2,932 38
	-----------
Total operating revenue ...............	$110,385 06
Operating expenses ...........................	68,659 18
	-----------
Net operating revenue .................	$ 41,725 88
Taxes accrued .................................	3,310 52
	-----------
Operating income ......................	$ 38,415 36
Miscellaneous income .............................	87 89
Hire of equipment, Dr .........................	6,029 20
	-----------
Corporate income ......................	$ 32,474 05

He found that the percentage of total operating expenses to total operating revenues in that year was 62.19 per cent.; that the business of the corporation was skillfully and economically managed; that during the year complainant provided for depreciation on its equipment, ties, rails, and bridges, by properly maintaining a charge to operating expenses depreciation accounts to the amount of $10,394.15; that the annual depreciation on the complainant's property, in addition to said sum of $10,394.15, and for which provision should be made out of operating expenses, is $12,694.55; and that, if the additional sum of $12,694.55 had been properly charged in the said year (1909-10) to earnings, the corporate income for the year would have been the sum of $19,779.50. It was also found that the average cost of service per ton of commodities of all classes transported, after proper allowance has been made for depreciation, is 32.1 cents per ton; that a reasonable and just return on the value of the complainant's property was not less than the sum of 10 per cent. per annum; that the value of the complainant's real estate, based upon the average value per acre of the surrounding country used for agricultural purposes, was $44,362; that the cost of reacquiring such real estate and right of way at the time set forth in the complaint would have been twice the value of the property which it had acquired for right of way, and 1 1/2 times the value of property sought to be acquired for terminals by reason of consequential damages necessarily paid to landowners, cost of condemnation proceedings, commissioner fees, etc.; and that the real estate should therefore be valued at $78,207. He found that the cost of reproduction of grading for roadbed and spurs was $110,028.50; that the cost of reproduction of bridges and trestles was $11,256; of culverts and waterways, $4,500; of cattle guards, road crossings, signs, and riprap, $3,290; of fences, $4,125; of telephone lines, $3,525; of switches, $11,025; of reproduction of track per mile and the mileage, $214,222.96; that the value of buildings was $21,875; and of water stations, $3,000. It was found that the cost of reproduction of real estate, grading, trestles, culverts, waterways, cattle guards, road crossings, signs, riprap, fencing, telephone, switches, track, and buildings was as follows:

Real estate .....	$ 78,207 00
Grading ..........	110,028 50
Trestles ..........	11,256 00
Culverts ...........	4,500 00
Cattle guards ......	3,290 00
Fencing ............	4,125 00
Telephone ..........	3,525 00
Switches ..........	11,025 00
Track ............	214,222 96
Buildings .........	21,875 00
Water stations .....	3,000 00
	-----------
Total ......	$465,054 46

The master also found that complainant should be allowed, as a proper, necessary, and usual cost of reproduction, 10 per cent. on $465,054.46 for contingencies; that it should also be allowed 10 per cent. on $511,559 for engineering superintendence, organization, fees, and legal expenses; that it should be...