Northern Pac. Ry. Co. v. Keyes

• Decision Date: 23 December 1898
• Citation: 91 F. 47
• Court: U.S. District Court — District of North Dakota
• Parties: NORTHERN PAC. RY. CO. v. KEYES et al. GREAT NORTHERN RY. CO. v. SAME. CHICAGO, M. & ST. P. RY. CO. v. SAME.

91 F. 47

NORTHERN PAC. RY. CO. v. KEYES et al.

GREAT NORTHERN RY. CO. v. SAME.

CHICAGO, M. & ST. P. RY. CO. v. SAME.

United States Circuit Court, D. North Dakota.

December 23, 1898

C. W Bunn, for plaintiff Northern Pac. Ry. Co.

M. D Grover, for plaintiff Great Northern Ry. Co.

George R. Peck and Ball, Watson & Maclay, for plaintiff Chicago, M & St. P. Ry. Co.

John W Cowan, Atty. Gen., for defendants.

Before THAYER, Circuit Judge, and AMIDON, District Judge.

AMIDON District Judge.

Chapter 115 of the Laws of North Dakota for the year 1897 empowers the board of railroad commissioners of that state to fix a schedule of maximum rates for the transportation of persons and property within its limits by common carriers, and makes it a crime punishable by fine of not less than $1,000, nor more than $10,000, for any carrier to charge more than the rates thus prescribed. The statute requires the board to serve the schedule of rates prepared by them upon the common carriers to be affected thereby, and to publish notice in a newspaper in each of the judicial districts of the state, fixing the time when such rates will take effect. Acting under this statute, the commissioners prepared and served upon the railroad companies doing business in the state a schedule of rates, and commenced the publication of a notice fixing July 1, 1897, as the date upon which the same should take effect. Thereupon the plaintiffs, the Northern Pacific Railway Company, Great Northern Railway Company, and Chicago, Milwaukee & St. Paul Railway Company, filed their several bills in this court against the board of railroad commissioners, its secretary, and the publishers of the newspapers in which the notice was printed, alleging that the rates prescribed were unreasonable, and such as to afford no return for the use of the property employed by the plaintiffs in carrying on their business in the state, and praying that the further publication of the notice be restrained, and that the board be enjoined from putting the rates in force. After a hearing, a temporary injunction was issued, restraining the defendants from putting the rates into effect during the pendency of the suits. Voluminous testimony has been taken, and the cases are now submitted upon their merits.

At the threshold of this inquiry, it is important to define its limits. Much of the argument of counsel on behalf of defendants is devoted to an attempt to show that, under existing rates, the plaintiffs are earning from their entire business, both interstate and local, a high rate of income upon a grossly excessive capitalization of their property. Conceding this to be true, it would be wholly immaterial, unless it further appears that the income derived from business done wholly within this state-- that is, commencing and ending in the state-- is such as to produce an unreasonable return upon the fair value of the property employed in doing that business. Excessive income derived from interstate traffic can be reduced by congress alone, which has exclusive jurisdiction of commerce among the states. Excessive income derived from business done in other states can only be reduced by those states. In prescribing rates, the state of North Dakota is limited to that business which is done wholly within its boundaries, and, in determining the reasonableness of such rates, the court cannot take into consideration the carrier's whole business, both interstate and domestic. That question was put to rest by the supreme court in its decision in the case of Smyth v. Ames, 169 U.S. 466, 18 Sup.Ct. 418, commonly known as the 'Nebraska Rate Case.' The court says at page 540, 169 U.S., and page 431, 18 Sup.Ct.:

'It is further said, in behalf of the appellants, that the reasonableness of the rates established by the Nebraska statute is not to be determined by the inquiry whether such rates would leave a reasonable net profit from the local business affected thereby, but that the court should take into consideration, among other things, the whole business of the company; that is, all its business, passenger and freight, interstate and domestic. If it be found upon investigation that the profits derived by a railroad company from its interstate business alone are sufficient to cover operating expenses on its entire line, and also to meet interest, and justify a liberal dividend upon its stock, may the legislature prescribe rates for domestic business that would bring no reward and be less than the services rendered are reasonably worth? Or must the rates for such transportation as begins and ends in the state be established with reference solely to the amount of business done by the carrier wholly within such state, to the cost of doing such local business, and to the fair value of the property used in conducting it, without taking into consideration the amount and cost of its interstate business, and the value of the property employed in it? In our judgment, it must be held that the reasonableness or unreasonableness of rates prescribed by a state for the transportation of persons and property wholly within its limits must be determined without reference to the interstate business done by the carrier or the profits derived from it. The state cannot justify unreasonably low rates for domestic transportation, considered alone, upon the ground that the carrier is earning large profits on its interstate business, over which, so far as rates are concerned, the state has no control. Nor can the carrier justify unreasonably high rates upon domestic business upon the ground that it will be able only in that way to meet losses on its interstate business. It is only rates for the transportation of persons and property between points within the state that the state can prescribe; and, when it undertakes to prescribe rates not to be exceeded by the carrier, it must do so with reference exclusively to what is just and reasonable, as between the carrier and the public, in respect of domestic business.'

This is the most important feature of the decision in that important case. The other questions discussed in the opinion had all been passed upon by former decisions of the court; but this clear and complete separation between the local and interstate traffic of a carrier conducting both kinds of commerce, though following as a necessary conclusion from the commerce clause of the federal constitution, had not before been expressly declared. It is manifestly a doctrine which is destined to have, in the sparsely-settled sections of the West, where local traffic is trifling in comparison with interstate, a far-reaching effect upon the power of states to regulate the business of common carriers.

No state better illustrates the truth of this assertion than North Dakota. The terminals of much the greater portion of its commerce are the cities of St. Paul, Minneapolis, and Duluth, in the state of Minnesota. To those points nearly all the grain, live stock, and other products of the state are shipped, and from them most of its merchandise, coal, lumber, and other supplies are received. For this reason the main volume of transportation for which the people of North Dakota pay is interstate in character and beyond the state's control. The effect of this condition is strikingly exhibited by the following table of traffic on the Great Northern road for the four years commencing with 1894. Column 1 shows the number of ton miles of strictly local traffic; column 2 the number of ton miles having only one terminal in the state; column 3 the number of ton miles of traffic in the state which passed entirely across the state; column 4 combines the last two items, and shows the total ton miles of interestate commerce:

---------------------------------------------------------------------

Ton Miles Ton Miles Ton Miles

Local to the Originating or Entirely Across Total

State. Terminating in the State. Interstate.

the State.

---------------------------------------------------------------------

1894 ...... 3,170,863 106,976,389 93,989,336 200,965,725

1895 ...... 2,778,999 113,232,867 137,902,298 251,135,165

1896 ...... 3,456,421 147,538,631 136,077,421 283,616,052

1897 ...... 3,988,027 122,157,468 144,416,544 266,574,012

---------------------------------------------------------------------

Average ... 3,348,578 122,476,339 128,096,400 250,572,739

---------------------------------------------------------------------

Changing these figures to percentages, it will be seen that the local traffic averages less than 2 3/4 per cent. of that which either begins in the state and passes to points outside of it, or begins outside of the state and passes to points within it, and is less than 1 1/3 per cent. of the total interstate traffic moved in the state. The same condition is shown as to the Northern Pacific road. Its average of local ton miles for the four years mentioned was 5,115,826, or only 2 3/5 per cent. of the interstate traffic in the state, which was 198,449,763. From these statistics it appears, therefore that, of all the traffic carried in North Dakota during the four years mentioned, less than 3 per cent. began and ended in the state so as to subject it to state regulation, while more than 97 per cent. was interstate, and thereby subject to the exclusive control of congress. In Minnesota, on the other hand, for the reason that it has its terminals within its own limits, the average of ton miles of local traffic for the same period was 179,295,609, or 46 2/3 per cent. of the total interstate traffic, which was 384,093,273.

The passenger business does not present so wide a contrast, but would seem to be sufficiently marked to justify a difference in rate in the two states, the rate at present being four cents a...