United States v. Northern Pac. Ry. Co.
| Decision Date | 21 February 1927 |
| Docket Number | No. 4286.,4286. |
| Parties | UNITED STATES v. NORTHERN PAC. RY. CO. et al. |
| Court | U.S. District Court — District of Washington |
William J. Donovan, Asst. Atty. Gen., Elmer B. Collins, Sp. Asst. Atty. Gen., Claude De S. Thomas, Sp. Asst. U. S. Atty., and Roy C. Fox, U. S. Atty., of Spokane, Wash.
Edward J. Cannon and Francis J. McKevitt, both of Spokane, Wash., for Northern Pacific Railway Co.
Graves, Kizer & Graves, of Spokane, Wash., for March-Strickle Motor Co., Bessinger & Co., Pacific Hide & Fur Depot, Inc., D. H. Anderson & Co., Charles Uhden, Inc., Nott-Atwater Co., Washington Electric Supply Co., Powell-Sanders Co., Mitchell-Lewis & Staver Co., Kelley-Clarke Co., Hughes & Co., Crane Co., A. L. Rogers Seed Co., Spokane Dry Goods Co., Nash-Spokane Co., Pacific Transfer Co., and McClintock-Trunkey Co.
Williams & Cornelius, of Spokane, Wash., for Advance Rumely Thresher Co. E. H. Belden, of Spokane, Wash., and C. H. Browder, of Chicago, Ill., for International Harvester Co.
J. D. Campbell, of Spokane, Wash., for Fairbanks-Morse Co.
The Northern Pacific Railway Company, by succession in interest, owns and operates a government land grant railroad, which was constructed through the then village of Spokane Falls in 1882 and 1883. The growth and development of the city of Spokane have been largely around and along its right of way, until at this time the geographical center of the city is but one block, and the retail business center but two blocks, removed from the tracks of the company. Its lines extend through the very heart of the city. The company holds under legal restrictions a large amount of nonoperating property situated along and adjacent to its tracks in the city of Spokane; the particular parcels involved in this case being located between Washington street on the east and Cedar street on the west. For many years it has been the policy and practice of the railway company to lease these lands for industrial, wholesale, warehouse, jobbing and other similar purposes to individuals or concerns handling large freight shipments.
This suit was brought by the United States under the Act of Congress of February 19, 1903, as amended, commonly known as the Elkins Act (Comp. St. §§ 8597-8599), against the railway company and 21 of these lessees, for the purpose of enjoining the railway company from granting and the respondent lessees from receiving concessions, advantages, and discriminations in respect to the transportation of property in interstate commerce, and also to enjoin the company from granting discriminations in favor of the respondent lessees, to the prejudice and disadvantage of other shippers in interstate commerce over its lines. Some of the shippers who are alleged to be thus discriminated against are likewise lessees of right of way lands of the railway company, and for convenience these will be referred to as "other lessees." The concessions, advantages and discriminations complained of are alleged to arise out of the device of leasing to the respondent shippers their respective lots or parcels of land at rentals substantially less than their fair and reasonable rental values. In addition to the injunctive relief sought, it is prayed that these leases be cancelled and held for naught.
As originally constructed through the now city of Spokane, the tracks of the railway company crossed the intersecting streets and thoroughfares at grade, and this condition of things continued till 1912, when the city of Spokane passed an ordinance requiring the railway company to elevate its main and connecting side tracks from Division street on the east to Sixth avenue on the west, including the district in question, so as to separate the grade of the railroad from the grade of the intersecting streets. In compliance with this ordinance the tracks within the designated territory were raised approximately 15 to 18 feet above the level of the streets, which now pass under the elevated tracks. This work was completed early in 1916. The leases granted by the railway company covered only the naked ground, and many of its lessees, prior to grade separation, had constructed valuable and extensive improvements on the leased premises, the improvements being made with reference to the original track level. The elevating of the tracks pursuant to the city ordinance made it necessary for these lessees to rearrange or reconstruct their buildings, so as to accommodate them to the radically changed physical situation. For example, it was no longer possible to receive and discharge freight on the first floors of the buildings, but the structures had to be altered so as to handle freight on the second floors, to the level of which, and beyond, in some instances, the tracks had been elevated.
These changes were fraught with untold problems and perplexities, and in addition to the original cost entailed the permanent inconvenience and expense of handling shipments, especially heavy articles, in this unnatural way. In effecting grade separation, the tracks were not only elevated vertically, but for practical reasons of economy to the railway company were moved horizontally or laterally from their original location at grade, thus removing them a greater distance from the buildings erected on the leased premises and which they were intended to serve. In some instances lessees were compelled to build ramps or chutes to span the increased space between their buildings and the tracks in order to load and unload freight. That the elevation of the tracks militated greatly against the desirability of the leased lands for the purposes for which they were being used cannot be seriously doubted. To meet this new order of things the leases in effect before grade separation were surrendered for cancellation, and in their stead new leases were negotiated and executed. These are the leases now under attack.
Under the terms of the leases the respondents have constructed or purchased from prior lessees their own buildings on the lots. The lessees undertake to pay as annual rental in advance a sum equal to 6 per centum of the value of the demised land, but this value is agreed upon in each case and stipulated in the lease. In addition, the lessees pay all taxes and assessments, both general and special, levied against the premises. The leases are terminable by the railway company upon six months' notice, but in the event of such termination it must purchase from the lessees all their improvements and pay therefor their actual value, not to exceed the cost of reproduction new less depreciation. In some instances, as in the case of the International Harvester Company, a maximum value is fixed beyond which the company shall not be required to pay in any event. The leases are for long periods, varying from 15 to 50 years, and it is stipulated that the premises shall be used for a specified purpose only, and lessees shall not permit the premises to be used or occupied for any other purpose without the lessor's written permission. The lessees further agree not to sublet the property or assign the leases without the written approval of the lessor. The leases contain what is commonly called a routing clause, providing in effect that, rates being as favorable as those accorded by other carriers, the lessees will do all transportation business to and from the leased premises over the lines of the Northern Pacific Company. The rentals stipulated in the leases are for the first 10 years, and it is provided that, for the purpose of determining the rental after the first 10-year period and at the end of each 5-year period thereafter, there shall be a revaluation of the premises. If the parties are unable to agree upon such revaluation, the same shall be fixed by appraisers chosen in the manner stated in the leases.
The government contends that the railway company, in leasing its lands to the respondents at a rental substantially less than their fair and reasonable rental value thereby grants unlawful concessions and advantages to the lessees because they are shippers of property in interstate commerce over its lines of railroad, the amount of the concession or advantage being the difference between the rentals actually received by the railway company and the fair rental value which it should exact and receive. With respect to the "other lessees" it contends that they are discriminated against by the railway company because the values placed by it on their holdings are upon a much higher level than the values fixed in the leases of the respondents. In addition, complaint is made of certain cash payments or settlements made by the railway company to some of the latter class of lessees.
Before taking up the question of inadequate rentals, it seems convenient first to consider these cash payments. The government insists that the payments were in fact voluntary concessions granted by the railway company to the lessees receiving them, and were inspired solely by traffic considerations, whilst the railway company contends that the payments were made in compromise and settlement of damage claims arising out of grade separation which were asserted by the claimants in good faith, and recognized in part by the railway company on the advice of competent counsel. In support of its contention the government relies principally upon a letter written by the railway company's land commissioner and upon certain other letters written by some of its local agents which, if they stood alone and unexplained, would warrant the conclusion that the payments complained of were made with the view and for the purpose of retaining and controlling the traffic of those to whom the payments were made.
This correspondence shows that the land commissioner at all times denied liability to any lessee on account of grade separation, and that the traffic agents enthusiastically urged payment because of fear of losing the business of these...
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