State ex rel. McCue v. N. Pac. Ry. Co.

• Decision Date: 02 January 1914
• Parties: STATE ex rel. McCUE, Atty. Gen., v. NORTHERN PAC. RY. CO. et al.
• Court: North Dakota Supreme Court

26 N.D. 438

145 N.W. 135

STATE ex rel.

McCUE, Atty. Gen.,

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

Supreme Court of North Dakota.

Jan. 2, 1914.

Syllabus by the Court.

Three separate actions, against the above-named defendants severally were consolidated as to proof and are decided by this opinion. These actions were begun by the state to compel observance by defendants of chapter 51 of the Session Laws of 1907, prescribing a maximum intrastate freight rate for transportation of lignite coal, and requiring that when a shipment is over more than one railroad the entire distance shall be considered as one haul and the freight rate prorated between said carriers.

The granting of the writs compelling observance of the statutory rate was opposed under the defense that the statute was void because so low as to be confiscatory of the property of the carriers, and hence violative of the fourteenth amendment to the federal Constitution. This contention was overruled by this court in the opinion at 19 N. D. 45, 120 N. W. 869, 25 L. R. A. (N. S.) 1001, filed in 1909, and writs as asked by the state were ordered to issue. The defendants appealed to the United States Supreme Court, which affirmed said decision without prejudice, but granted defendants permission to “reopen the case by appropriate proceedings, if after adequate trial,” with the rates in force, they should see fit to again present the results under the rates as proof of the confiscatory character of the statutory coal rate. The statutory rate was put in effect and the railroads are still operating under it. In 1912 they again submitted proof to this court of the receipts for the fiscal year next preceding June 30, 1911, together with proof of expenses chargeable against the lignite coal traffic. Each road has submitted its separate proof and contention that the statutory rate does not yield sufficient revenue to defray the expenses of carriage of this coal, to the effect that the state is compelling its common carriers to transport this commodity for less than cost, and therefore confiscating their property. The proof was taken, as in the original proceedings before this court, by a referee, who has reported all the testimony offered, but who was not authorized to make, and who has not made, findings of fact or conclusions of law. This court has made separate and full findings of fact, under the proof submitted, as to the effect of the rate upon each road. It finds:

(1) That, as to the Great Northern Railway Company, owing to conditions peculiar to the country traversed by it, the statutory rate yields it a reasonably fair compensation over and above all charges and expenses against the lignite traffic, and that as to it the statutory rate is reasonably compensatory.

That, as to the Northern Pacific Railway Company, out of total freight receipts for lignite coal amounting to $58,953, the total cost of transportation, or out-of-pocket costs, together with all fixed or overhead expenses apportionable to said lignite traffic, consumed all of said receipts excepting $847, its net profit in the handling of the lignite business for the 12 months in question. That such rate is slightly remunerative but in fact noncompensatory, considering the volume of freight carried and the property of the railroad devoted thereto.

That the total Soo Line freight receipts from lignite coal hauled during said fiscal year amounted to $83,670. That nearly one-half of its entire lignite coal tonnage originated at Wilton, 2,532 car loads of which was hauled only 28 miles to Bismarck and delivered to the Northern Pacific carrier for an average haul by it of 105 miles, upon which the freight rate, when prorated as to distance, as required by the statute, has reduced what the Soo carrier would otherwise receive under the statute from 40 cents per ton to 24.5 cents per ton for the 2,532 car loads thus delivered to the Northern Pacific during the year. Under similar connections with the Great Northern at Minot, it has there hauled approximately 500 car loads of lignite coal for an average of 12 miles, realizing therefrom 8.5 cents per ton only, or $1.83 per car load for such haul, delivered to the Great Northern road for an average haul and charge based thereon of 65 miles, from which the Great Northern received $7.53 per car load. These and many other conditions have placed the Soo Line at a disadvantage in this traffic. The prorating feature of the statute alone has reduced its freight receipts on lignite approximately $13,000 below what it otherwise would have received, and nearly that amount under what the same freight carriage would have yielded the Northern Pacific or the Great Northern under usual conditions on their lines. Its total receipts amount to more than its actual out-of-pocket costs, or actual costs of transportation, but are from $9,000 to $12,000 less than the total costs, including fixed and overhead expenses properly chargeable to the carriage of this commodity and against the earnings therefrom. That the carriage of lignite coal by the Soo Line within this state during said fiscal year was not only nonprofitable, but occasioned a loss to it when its fixed expenses apportionable to all traffic are in proper proportion and amount assigned to and charged against the earnings from this commodity. From the foregoing epitomized findings of act it is held:

(a) The statutory freight rate is presumed to be reasonable, which presumption continues until the contrary appears and the rate is shown beyond a reasonable doubt to be confiscatory.

(b) Proof that a rate is noncompensatory, that is, while producing more revenue than sufficient to pay the actual expenses occasioned by the transportation of the commodity, but insufficientto also reimburse for that proportion of the railroad's fixed or overhead costs properly apportionable to such commodity carried, is not sufficient to establish that the rate is confiscatory in law.

(c) In order to establish such a noncompensatory rate to be confiscatory, it must further appear that any deficit under the rate affects the net intrastate freight earnings materially, and reduces them to a point where they are insufficient to amount to a reasonable rate of profit on the amount of the value of the railroad property within the state contributing to produce such net earnings.

(d) To ascertain whether such net intrastate freight earnings are thus confiscatory because unreasonably low, the railroad attacking the legislative rate on such grounds must by proof establish the total value of its property devoted to railroad use and within the state, and then by proof establish the proportion thereof equitably apportionable as producing such net intrastate or domestic freight earnings, after which the reasonableness of the gross net return from intrastate business upon the railroad investment producing it can be determined.

(e) For the next and final step in the proof of confiscation under the rate, it must further appear either (1) that the net total intrastate freight earnings are insufficient to yield a fair and reasonable return on the fair valuation of the railroad property used to produce such net earnings, and that the commodity in question is carried for less than sufficient to meet all expenses, including out-of-pocket costs and fixed charges, or (2) it must be reasonably certain that the loss on the commodity under the commodity rate attacked reduces the balance of the net intrastate freight earnings to a point where such total net intrastate earnings, including the loss on the commodity rate, fail to yield a fair and reasonable return on the investment, measured under the above rules, upon making of which proof the confiscatory nature of the rate is established.

(f) In determining the value of railroad properties, proof of the so-called railroad value is insufficient to establish the fair actual value upon which as a basis apportionment of values and reasonableness of rates may be computed.

(g) Measured by the foregoing rules, which seem to be the law as applicable to the facts in this case, there is a failure of proof on the part of all the carrier defendants in that the Northern Pacific and Great Northern Railroads have offered no proof of the value of their property or the approximate proportion thereof utilized to produce its domestic earnings; and the Soo, while attempting such proof, has failed to make the proof required by the Minnesota, Missouri, Arkansas & Oregon Rate Cases, 230 U. S. 352-508, 33 Sup. Ct. 729, 57 L. Ed. 1511, and other federal decisions.

(h) Under such failure of proof, the presumption of reasonableness of the rate attacked continues, and the statute must be held to prescribe a reasonable charge for the intrastate transportation of coal.

Proceedings on application on behalf of the State, on the relation of T. F. McCue, Attorney General, against the Northern Pacific Railway Company and others for an original writ directing the observance of Laws 1907, c. 51, prescribing a maximum intrastate freight rate, and requiring that the freight rate on shipments made over more than one railroad shall be prorated, and for an order enjoining the collection of higher than the maximum statutory rate. Writs granted. Costs and disbursements of state ordered taxed by the clerk.

Andrew Miller, Atty. Gen., and C. L. Young and Alfred Zuger, Asst. Atty. Gen., for the State. Watson & Young, of Fargo, and Charles W. Bunn and Charles Donnelly, both of St. Paul, Minn., for Northern Pac. Ry. Co. A. H. Bright, John L. Erdall, and Cobb, Wheelwright & Dille, all of Minneapolis, Minn., for Minneapolis, St. P. & S. S. M. Ry. Co. E. C. Lindley and Sanford H. E. Freund, both of St. Paul, Minn., and C. J. Murphy, of Grand Forks, for Great Northern Ry. Co.

GOSS, J.

[1][2] Three separate actions are decided by this one opinion. Each was begun by the state of North Dakota ex rel. Attorney General, against the common carriers involved, the...