Shepard v. Northern Pac. Ry. Co.

• Citation: 184 F. 765
• Parties: SHEPARD v. NORTHERN PAC. RY. CO. et al. KENNEDY et al. v. GREAT NORTHERN RY. CO. et al. JAMES v. SAME. SHILLABER v. MINNEAPOLIS & ST. L.R. CO. et al.
• Decision Date: 08 April 1911
• Court: U.S. District Court — District of Minnesota

184 F. 765

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

KENNEDY et al. v. GREAT NORTHERN RY. CO. et al.

JAMES v. SAME.

SHILLABER v. MINNEAPOLIS & ST. L.R. CO. et al.

United States Circuit Court, D. Minnesota, Third Division.

April 8, 1911

Syllabus by the Court

The acts of the Legislature of Minnesota of April 4, 1907 (Gen Laws 1907, c. 97 (Rev. Laws Supp. 1909, Secs. 2007-- 1 to 2007-- 2)), reducing passenger fares within the state about 33 1/3 per cent., and of April 18, 1907 (Gen. Laws 1907, c 232 (Rev. Laws Supp. 1909, Secs. 2007-- 11 to 2007-- 17)) reducing commodity rates within the state about 7.37 per cent., and the orders of its Railroad and Warehouse Commission of September 6, 1906, reducing general merchandise rates within the state from 20 to 25 per cent., and of May 3 1907, reducing in-rates within the state to distributing points, by their natural and necessary effect substantially burden and directly regulate interstate commerce, create undue and unjust discriminations between localities in Minnesota and those in adjoining states, violate the commercial clause of the Constitution (article 1, Sec. 8), and are void.

(Ed. Note.-- For other cases, see Commerce, Cent. Dig. Secs. 81-84, 89; Dec. Dig. Secs. 61, 62.*

Interference with interstate or foreign commerce, see note to McCanna & Fraser Co. v. Citizens' Trust & Surety Co. of Philadelphia, 24 C.C.A. 13.)

These acts and orders which prescribe maximum fares and rates, that bring from their respective Minnesota intrastate businesses to the Northern Pacific Company an annual net income of only 2.909 per cent., to the Great Northern Company an annual net income of only 3.359 per cent., and to the Minneapolis & St. Louis Company an annual net income of only 2.47 per cent., of the respective values of their Minnesota properties devoted to those businesses, prohibit a fair return upon these values, take the properties of the companies without just compensation, violate the fourteenth amendment to the Constitution, and are void.

(Ed. Note.-- For other cases, see Constitutional Law, Cent. Dig. Sec. 847; Dec. Dig. Sec. 298.*)

The power to regulate commerce among the states was granted by the people to the nation in the Constitution, is exclusive, may be exercised to its utmost extent by the use of all means requisite to its complete exercise, and no state by virtue of its police power, or any other power it possesses, may restrict this grant or the plenary exercise of this power, for these inhere in the supreme law of the land and are paramount to the powers of the states.

(Ed. Note.-- For other cases, see Commerce, Cent. Dig. Secs. 3, 5; Dec. Dig. Secs. 5, 8.*)

The fares and rates of transportation in interstate commerce are national in character, susceptible of uniform regulation, and so far as the nation has not regulated them are free from regulation by virtue of the commercial clause of the Constitution.

(Ed. Note.-- For other cases, see Commerce, Cent. Dig. Sec. 8; Dec. Dig. Sec. 10.*)

The nation may regulate interstate fares and rates and all interstate commerce.

To the extent necessary completely and effectually to protect the freedom of, and to regulate, interstate commerce, but no farther, it may by its Congress and its courts affect and regulate intrastate commerce.

To the extent that it does not substantially burden or regulate interstate commerce, a state may regulate intrastate commerce and the fares and rates therein within its borders, but no farther. It may enforce regulations of intrastate commerce and its fares and rates which only incidentally or remotely affect interstate commerce. But state laws, orders, and regulations concerning intrastate commerce, or the fares or rates therein, which substantially burden or regulate interstate commerce, or the fares or rates therein, are beyond the powers of the state, unconstitutional, and void.

And where the attempted exercise of the power of a state to regulate intrastate commerce, or the attempted exercise of any of its other powers, impinges upon or conflicts with the constitutional power of the nation to protect the freedom of, and to regulate, interstate commerce and the fares and rates therein, the latter must prevail, because 'that which is not supreme must yield to that which is supreme.'

(Ed. Note.-- For other cases, see Commerce, Cent. Dig. Secs. 3, 5, 7, 9; Dec. Dig. Secs. 7, 8, 12.*)

The effect, and neither the terms nor the purpose, of state regulations, determines whether they substantially burden, or only incidentally or remotely affect interstate commerce.

And this is a judicial question, which each court must decide on its own responsibility on the special facts of the case before it, and in the decision of which it 'must obey the Constitution, rather than the lawmaking department of the government.'

(Ed. Note.-- For other cases, see Commerce, Cent. Dig. Secs. 7, 9; Dec. Dig. Sec. 12;* Constitutional Law, Cent. Dig. Secs. 129-132; Dec. Dig. Sec. 70.*)

The nation has the power to forbid, and by the act to regulate commerce (Act Feb. 4, 1887, c. 104, 24 Stat. 379 (U.S. Comp. St. 1901, p. 3154)), it has prohibited, undue discriminations between localities in different states wrought by unreasonable differences between intrastate and legal interstate rates caused by the reduction of the former by the acts and orders of the officers of a state.

(Ed. Note.-- For other cases, see Commerce, Cent. Dig. Secs. 3, 5; Dec. Dig. Sec. 7.*)

The facts considered, and held:

The unavoidable effect of the general and sweeping reductions of intrastate fares and rates in Minnesota, made by the acts and orders considered, was and is substantially to burden, directly to regulate, and to discriminate against the interstate commerce of the defendant companies, and to create undue and unjust discriminations between localities in Minnesota and those in other states, in violation of the commercial clause of the Constitution.

(Ed. Note.-- For other cases, see Commerce, Cent. Dig. Secs. 81-84, 89; Dec. Dig. Secs. 61, 62.*)

The just compensation secured by the fourteenth amendment entitles the defendant railroad companies to a fair return upon the reasonable value of their property in Minnesota devoted to the public use of transportation. Such a return is just to the public as well as to the carriers.

(Ed. Note.-- For other cases, see Constitutional Law, Cent. Dig. Sec. 847; Dec. Dig. Sec. 298.*)

Under the evidence in these cases the cost of reproduction new of the Minnesota properties of the defendant companies devoted to the public use of transportation is more persuasive evidence of their values than the market value of their stocks and bonds, or the original cost of their acquisition and construction.

(Ed. Note.-- For other cases, see Carriers, Dec. Dig. Sec. 18.*)

Rate making looks to the future, and is a legislative function. Rate judging, determining whether or not rates made are confiscatory, is a judicial function.

There is a presumption in the first instance that Legislatures and commissions make reasonable and just rates, and clear proof is requisite to overcome it.

But when, after fares and rates have been tried by actual use for months, after plenary proof of their effect and other facts determinative of the issue confiscation vel non, has been made before a master learned in the law, who finds the facts, the legal or judicial presumption that his findings are just and right, while not conclusive, is superior to the original presumption that the rates were just and reasonable.

(Ed. Note.-- For other cases, see Constitutional Law, Cent. Dig. Sec. 46; Dec. Dig. Sec. 48.*)

Interest on the cost of reproduction of railroad property at 4 per cent. per annum during one-half the time requisite to acquire and construct it is a necessary expense of reproduction and may be lawfully allowed as such.

(Ed. Note.-- For other cases, see Carriers, Dec. Dig. Sec. 18.*)

Apportionment on the basis of revenue is the most reasonable and equitable method of assigning the value of railroad property in a state used for transportation to the various classes of its business, in order to determine the reasonableness of fares and rates.

(Ed. Note.-- For other cases, see Carriers, Dec. Dig. Sec. 18.*)

A net income of 7 per cent. per annum upon the value of railroad property in Minnesota devoted to the public use of transportation is not more than the fair return to which a railroad company is entitled under the fourteenth amendment to the Constitution.

(Ed. Note.-- For other cases, see Carriers, Dec. Dig. Sec. 12.*)

Jared How, Charles W. Bunn, Hale Holden, and Pierce Butler (Robert Thorne and William D. Mitchell, on the briefs), for complainants.

Edward T. Young and Edmund S. Durment (George T. Simpson, on the briefs), for defendants.

SANBORN Circuit Judge.

In the year 1906 the Northern Pacific Railway Company, the Great Northern Railway Company, and the Minneapolis & St. Louis Railroad Company were carrying passengers and freight within, through, and without the state of Minnesota for legal fares, rates, and charges which had been established, filed and published in accordance with the provisions of the act of Congress entitled 'An act to regulate commerce,' approved February 4, 1887 (24 Stat. 381, c. 104 (U.S. Comp. St. 1901, p. 3157)), and its amendments (U.S. Comp. St. Supp. 1909, pp. 1135, 1138, 1139), and these fares, rates, and charges were equable, relatively fair, and not discriminatory between interstate transportation and transportation within the state of Minnesota.

On September 6, 1906, the Railway and Warehouse Commission of the state of Minnesota by order directed a reduction of the maximum rates for the transportation of general merchandise...