United States v. Delaware, L. & W. R. Co.

• Decision Date: 07 April 1914
• Docket Number: 297.
• Citation: 213 F. 240
• Parties: UNITED STATES v. DELAWARE, L. & W.R. CO. et al.
• Court: U.S. District Court — District of New Jersey

213 F. 240

UNITED STATES v. DELAWARE, L. & W.R. CO. et al.

No. 297.

United States District Court, D. New Jersey.

April 7, 1914

F. R Coudert and H. T. Kingsbury, both of New York City, for plaintiff.

W. S Jenney, of New York City, and J. G. Johnson, of Oneonta N.Y., for defendants.

Before GRAY, BUFFINGTON, and McPHERSON, Circuit Judges.

J. B McPHERSON, Circuit Judge.

This proceeding is based chiefly upon the commodities clause (Act June 29, 1906, c. 3591, Sec. 1, 34 Stat. 584 (U.S. Comp. St. Supp. 1911, p. 1287)), which forbids any railroad company to carry in interstate commerce after May 1, 1908--

' * * * any article or commodity, other than timber and the manufactured products thereof, manufactured, mined, or produced by it or under its authority, or which it may own in whole or in part, or in which it may have any interest, direct or indirect, except such articles or commodities as may be necessary and intended for its use in the conduct of its business as a common carrier.'

The government's contention is that the Delaware, Lackawanna & Western Railroad Company is violating this statute because it is carrying in such commerce anthracite coal originally produced by its own mines in Pennsylvania or bought from other mineowners in that state, the government alleging that during such carriage the railroad continuously retains some kind or degree of interest or ownership in the coal. The railroad denies that any such interest or ownership exists, averring that the coal is sold in good faith before the carriage begins; the other defendant, the Delaware, Lackawanna & Western Coal Company, being the buyer under a contract that will be referred to hereafter. The government attacks this contract, declaring it to be merely a subterfuge, and to have no effect in divesting or modifying the railroad's title. The questions raised by the record are of very great importance, and it is therefore a matter for much satisfaction that the Supreme Court has already considered the general subject, and has laid down the rules by which the controversy must be decided. We think it desirable to preface the discussion by stating in sufficient outline (even at the risk of seeming diffuse) what has been said and done in two previous suits where the meaning and effect of the clause under consideration were directly involved.

In June, 1908, the defendant railroad and five other coal-carrying roads were brought into the Circuit Court for the Eastern District of Pennsylvania, charged with violating the statute. The companies appeared and defended, and the cases were argued upon the several bills or petitions and the answers thereto, no testimony having been taken. In September of that year the Circuit Court dismissed the proceedings, one of the judges dissenting. The majority opinion (164 F. 215 et seq.) was put upon the ground-- we state it briefly and in general terms-- that under the proper construction of the statute a railroad was forbidden to carry its own coal to market, and was thus deprived of its property in violation of the fifth amendment to the federal Constitution. The dissenting opinion rests upon the propositions that the power to regulate commerce includes the power to regulate the carrier, and that commerce might be lawfully regulated by ordaining that a public carrier should not also be a private shipper. The cases were then appealed to the Supreme Court, and were decided by that tribunal early in May, 1909. United States v. Delaware & Hudson Co., 213 U.S. 367, 29 Sup.Ct. 527, 53 L.Ed. 836 et seq. The opinion shows that the court did not pass upon the differing views of the Circuit Judges, and did not find it necessary to discuss the fifth amendment. But the government's contention concerning the scope and meaning of the clause was stated, and the far-reaching consequences of such contention were recognized. The present Chief Justice (who wrote the opinion of the court) declared (213 U.S. 406, 29 Sup.Ct. 535 (53 L.Ed. 836)) that:

' * * * If the contention of the government as to the meaning of the commodities clause be well founded, at least a majority of the court are of the opinion that we may not avoid determining the following grave constitutional questions: (1) Whether the power of Congress to regulate commerce embraces the authority to control or prohibit the mining, manufacturing, production, or ownership of an article or commodity, not because of some inherent quality of the commodity, but simply because it may become the subject of interstate commerce. (2) If the right to regulate commerce does not thus extend, can it be impliedly made to embrace subjects which it does not control, by forbidding a railroad company engaged in interstate commerce from carrying lawful articles or commodities, because, at some time prior to the transportation, it had manufactured, mined, produced, or owned them, etc.? And involved in the determination of the foregoing questions we shall necessarily be called upon to decide: (a) Did the adoption of the Constitution and the grant of power to Congress to regulate commerce have the effect of depriving the states of the authority to endow a carrier with the attribute of producing as well as transporting particular commodities, a power which the states from the beginning have freely exercised, and by the exertion of which governmental power the resources of the several states have been developed, their enterprises fostered, and vast investments of capital have been made possible? (b) Although the government of the United States, both within its spheres of national and local legislative power, has in the past for public purposes, either expressly or impliedly, authorized the manufacture, mining, production, and carriage of commodities by one and the same railway corporation, was the exertion of such power beyond the scope of the authority of Congress, or, what is equivalent thereto, was its exercise but a mere license, subject at any time to be revoked and completely destroyed by means of a regulation of commerce?'

Upon these serious questions, however, the court intimated no opinion, because an analysis of the clause and the ascertainment of its true meaning thereby rendered such an opinion unnecessary. Without following the analysis, it is enough to say that the court did not approve either of the constructions maintained in the opinions of the Circuit Court, but reached its own conclusions on this subject, stating the true meaning of the statute to be as follows (213 U.S. 415, 29 Sup.Ct. 538 (53 L.Ed. 836)):

'We then construe the statute as prohibiting a railroad company engaged in interstate commerce from transporting in such commerce articles or commodities under the following circumstances and conditions:

'(a) When the article or commodity has been manufactured, mined, or produced by a carrier or under its authority, and at the time of transportation the carrier has not in good faith before the act of transportation dissociated itself from such article or commodity; (b) when the carrier owns the article or commodity to be transported in whole or in part; (c) when the carrier at the time of transportation has an interest, direct or indirect, in a legal or

equitable sense, in the article or commodity, not including, therefore, articles or commodities manufactured, mined, produced, or owned, etc., by a bona fide corporation in which the railroad company is a stockholder.'

In the Circuit Court no testimony had been taken, but the controversy had been heard upon the pleadings, and mainly for this reason the Supreme Court did not give particular directions concerning each defendant, but remanded with general instructions that such further proceedings be taken as should be necessary to apply and enforce the statute interpreted as just set forth.

After the cases had been sent back for further proceedings, the government in March, 1910, asked leave to amend its charge against the Lehigh Valley Railroad Company, one of the six roads originally attacked. This amendment was afterwards summarized by the Supreme Court in 220 U.S.at page 268, 31 Sup.Ct.at page 389 (55 L.Ed. 458), as follows:

'In substance it was averred that as to this particular coal company the railroad company was not only the owner of all the stock issued by the coal company, but that the railroad company so used the power thus resulting from its stock ownership as to deprive the coal company of all real independent existence, and to make it virtually but an agency or dependency or department of the railroad company. In other words, in great detail facts were averred which tended to establish that there was no distinction in practice between the coal company and the railroad company, the latter using the coal company as a mere device to enable the railroad company to violate the provisions of the commodities clause. It was expressly charged that in consequence of these facts:

''The coal company is not a bona fide mining company, but is merely an adjunct or instrumentality of the defendant. The defendant is in legal effect the owner of and has a pecuniary interest in the coal mined by the coal company, and which is transported by the defendant.'

'Not only was it thus charged that the railroad company used its stock ownership to so commingle the operations of the affairs of the mining company with its own as to render it impossible to distinguish as a matter of fact between them, but it was moreover expressly in substance charged that, exerting its influence as the owner of all the stock of the coal company, the railroad company caused the coal company to buy up all the coal produced by other mining companies in the area tributary to the railroad, and fixed the price at which such coal was bought, so as to

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