Hackworth v. Missouri Southern Railroad

B.F. Hackworth, to the May Term, 1915, of the Reynolds County Circuit Court, instituted his action in 748 counts, against the defendant, for alleged overcharges in the shipment of railroad ties. The several counts are in the nature of actions for money had and received, and so the judgment runs. Upon trial the plaintiff dismissed as to 15 counts, and had judgment on the remaining counts, in the aggregate sum of $10,572.36, with interest thereon at six per cent per annum from February 23, 1915. The amount sued for in each count was the difference between the freight rate fixed by Section 3241, Revised Statutes 1909, and the rate actually charged.

The answer was (1) a general denial, (2) a plea that the rates fixed by said Section 3241 were confiscatory and violative of stated provisions of the Federal Constitution, as well as stated provisions of the State Constitution, (3) the five-year Statute of Limitations was invoked as to certain counts, and (4) the three-year Statute of Limitations, Section 1890, was likewise invoked as to all of the counts. This paragraph was stricken out upon motion of plaintiff. The shipment of ties ran through the years (or parts of years) 1909, 1910 and 1911.

By reply plaintiff sought to evade concededly outlawed counts, by pleading the pendency of the Missouri Rate Cases, in the courts of the United States, and averred that the statute would not run against him until the U.S. Supreme Court decided the validity of Section 3241, supra, on June 16, 1913, the enforcement of the statute having been stayed by injunction in such rate cases. Defendant was not a party to such cases, nor was the plaintiff herein.

From the judgment indicated the defendant has appealed. The present plaintiff is the executrix of the will of B.F. Hackworth, now deceased. This outlines the case.

I. The railroad in question is in a rough mountainous section of the State, and has sharp curves and excessive grades. A large portion of its business is the transportation of railroad ties. In fact this court would have to judically know the character of the country and its products. Of matters of state history, the courts are not more ignorant than the general public. Judicial knowledge of facts is measured by general knowledge of the same facts. We judicially know the different sections of our State, its products and industries, because such are taught in the schools, and are matters of general knowledge. But the evidence in this case shows that a very large per cent of this railroad's business was car-load shipments of railroad ties.

Defendant has challenged the validity of the Act of 1907, now Section 3241, Revised Statutes 1909, as applied to it, in the matter of the rates on railroad ties, as fixed by such act. This upon the ground that they are confiscatory, in that they are and during the years herein involved, brought to the railroad less money than it expended in the hauling of the ties. In 1907, this road did not have mileage enough to place it within Class C as railroads were then and are now classified. [Revised Statutes 1909, sec. 3231.] The Act of 1907, now Section 3241, Revised Statutes 1909, did not then apply to it, so that it had no part or parcel in the Missouri Rates Cases. In 1909, and before the shipment of the ties herein involved, its mileage exceeded 45 miles, and it thereupon fell within the terms of said Section 3241. Its present mileage but little more than brings it within the statute, supra, i.e. 54 miles of main line, 10 miles of branch lines and 5 miles of sidings and spur tracks. Its line is in a tie, lumber and wood district of the State.

Up to 1913, schedules of rates, within the statutory maximums, were fixed by the Railroad and Warehouse Commissioners. Since 1913, they have been fixed by the Public Service Commission, under the Act of 1913, Laws of 1913, page 557 et seq.

Counsel have by the following table shown the rates on railroad ties, both before and after the Act of 1907, now Revised Statutes 1909, Section 3241. This table shows:

"Rates on Ties and Lumber, 1905 to 1919, in Cents Per Cwt.
---------------------------------------------------------------------------------------------
Distance not
exceeding miles .......... 5   10   15   20   25    30    35    40    45    50    55   200
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1905
Lumber ................... 5    5     5    5    5     5.5   5.5   5.5   5.5   5.5   6    9
Ties ..................... 2    2     3    3    3.25  3.25  3.50  3.50  3.75  3.75  4    7.75
1907
Lumber ................... 5    5     5    5    5     5.5   5.5   5.5   5.5   5.5   6    9
Ties ..................... 2    2     2    2    2     2     2     2     2     2     2.25 6
1915
Lumber ................... 4    4.2   4.4  4.6  4.8   5     5.1   5.3   5.4   5.6   5.8  9.4
Ties ..................... 2.5  2.7   2.9  3.1  3.3   3.5   3.6   3.8   3.9   4.1   4.3  7.9
1917
Lumber ................... 4.6  5     5.4  5.8  6.1   6.4   6.6   6.9   7.1   7.4   7.7
Ties ..................... 3.1  3.5   3.9  4.3  4.6   4.9   5.1   5.4   5.5   5.9   6.2

From this table it appears that both before and after the Act of 1907, the rate on ties for this short road was much more favorable than those fixed by the Act of 1907. The rate fixed in 1907, quoting from Section 3241, is:

"For a carload of 40,000 pounds of minimum weight undressed stone, crushed rock, sand, railroad ties, cord wood, building or paving brick, not exceeding 40 cents per ton of 2,000 pounds to the ton for the first fifty miles or fractional part thereof, and not exceeding five cents per ton per carload for the next ten miles or fractional part thereof, and not exceeding five cents per ton per carload for each additional ten miles or fractional part thereof. In computing the rate of freight according to the provisions of this article, the distance shall be computed from the point where it is received to the point of destination in the State, notwithstanding it may pass from one road to another."

The rates prior to 1907 were rates fixed by the Missouri Railroad and Warehouse Commissioners. From 1915 on, the rates are those fixed by the Public Service Commission, under the Act of 1913, supra. Those for 1915 were fixed in the case of In re Southern Railroad Company, 3 Public Service Commission Reports, l.c. 66. This proceeding was begun in 1914.

By an expert in this case it is shown that the hauling of ties at the statutory rate would have entailed a loss upon this carrier, as follows:

Years Cost of Revenue from Loss from Service Statutory Rates Operation 1910 $11,400.25 $7,918.97 $3,481.27 1911 13,596.26 9,028.25 4,568.01 1912 10,677.31 6,647.43 4,029.88 1914 29,454.31 18,346.10 11,108.21

In fact it is not seriously questioned that the statutory rate, fixed by Section 4231, supra, would have entailed a loss upon the defendant during the years covered by this suit. It is urged by counsel for plaintiff that this record does not show that the road was not getting fair returns upon its investment, notwithstanding this loss upon railroad ties. If the matter reaches this point, those facts can be dealt with later. This matter is practically disposed of by the briefs filed In Banc. To this point we have this simple question: can this statute, as applied to this defendant, stand, when the rates fixed therein compel the defendant to carry a very large per cent of its carload traffic at an absolute loss? Of this next.

II. As stated above, it is not seriously contended that the hauling of railroad ties, at the rate fixed by Section 4231, supra, would have been a losing game for this short railroad.

It is presumed to be non-confiscatory, until its confiscatory character is made to appear. Its confiscatory character is made to appear (1) by the fact that the previous rate (likewise presumed to be reasonable) was much higher, (2) by the direct evidence of a railroad expert, who according to well established railroad rules, made the specific calculations set out in the statement, and (3) by the later rulings of the Public Service commission. Upon the question now for determination, suggested at the close of the previous paragraph, learned counsel for plaintiff in his Divisional brief says:

"Appellant also invokes the rule laid down in the North Dakota rate cases (Northern Pacific Railway Co. v. North Dakota,236 U.S. 585, 59 L. Ed. 735, 35 Sup. Ct. Rep. 429, Ann. Cas. 1916A, 1), that the State cannot require it to transport any class of traffic where it is shown that it would be required to transport the same at a loss, or without sufficient return upon that class alone to give it a fair return upon that property devoted to the transportation of the class of traffic in question. It is the theory of respondent, sustained by the trial court, that this rule can only be invoked where the State segregates from the entire mass of traffic, a single commodity or class of traffic and prescribes rates which, considering that traffic alone, do not yield a reasonable return, and that where the State has prescribed and established a complete schedule of rates affecting all traffic, the rule stated in the North Dakota rate cases cannot apply; that where the State has prescribed a complete schedule of rates affecting all traffic, as was done in Section 3241, supra, it must be shown that the rates, considered in their entirety, are not sufficient to yield a reasonable return upon the property used in the public service at the time it is being so used. That confiscation of property is not shown where the corporation may be required to perform certain service at an insufficient profit, or even at a loss, when the entire schedule of rates may yield a sufficient return upon all the property used in the public service."

Contra, the appellant counsel plants his case (on this point) upon his conception of the rules announced by Mr. Justice HUGHES in North Pacific Ry. Co. v. North Dakota, 236 U.S. 585, and another case by the same learned justice, about the same date. For this court the case is one of first impression.

Can a valid rate law be passed, which, when applied to a common carrier, will compel such carrier to haul a large per cent of its freight at a clear loss, simply because the other rates named in the state law, will make up that loss, and in addition allow a reasonable return upon the investment? This is the broad question at the threshold of this case. In the language of appellant's counsel it is thus stated:

"The theory on which this case was tried, as well as the theory on which it was presented to Division Two of this court, by both parties, was that appellant contended that if the revenue which would have been derived from the application of the rates prescribed by Section 3241 to the shipments in question would not have yielded any substantial return upon the property properly assignable to that traffic after paying proper costs of operation, then the statute was as to appellant confiscatory and void, while counsel for respondent contended that in order for appellant to escape the mandate of the statute it must show that all the revenue which it would have derived from all intrastate traffic mentioned in said Section 3241 would not yield to it a reasonable return upon the property of appellant properly assignable to such intrastate traffic. A decision of this question of law determines the question now under consideration, for there was no attempt on the part of appellant to show what return was or would have been received from all the intrastate traffic mentioned if the rates prescribed in said Section 3241 had been applied thereto; neither was there any attempt on the part of counsel for respondent to show that the rates charged and collected by appellant were unreasonably high other than to show that they were higher than those prescribed by the statute aforesaid, nor were there any allegations that the rates charged were unreasonably high."

In his brief before Court in Banc counsel for respondent quotes the foregoing, and adds that the respective theories of counsel is correctly stated by counsel for appellant. Stating the proposition differently, can a state law be confiscatory as to a given class of freight, and yet stand as to such confiscatory portion, because by other provisions Jones is made to pay Smith's legitimate freight? The proposition does not savor of sound reason, if it is to be answered in the affirmative.

It is always true, that the question of whether or not a statute fixing rates is confiscatory, is a question of fact (Missouri Rate Cases, 230 U.S. l.c. 508), but in this case the confiscatory character of this portion of Section 4231 is not seriously questioned. We mean by this, that there is no doubt that the rate fixed by this statute, so far as the hauling of railroad ties is concerned, was confiscatory as to this defendant. Defendant would have been hauling them at a loss. For the single issue which counsel upon both sides admit to be the issue here, this will suffice. Appellant contends that we should declare this portion confiscatory and void, for the reasons stated, whilst respondent contends that there has been a failure to show that the whole scheme of rates was confiscatory, and therefore defendant's defense fails.

Counsel for respondent cite us to the cases of Minnesota Rate Cases, 230 U.S. l.c. 433; Knoxville v. Knoxville Water Co.,212 U.S. 1, and San Diego Land Town Co. v. Jasper, 189 U.S. 439, but these cases do not go to the single and simple issue here. Lest we forget, let us reiterate the issue here. Is that portion of a state rate law valid which compels a railroad to carry the freight, or the class of freight, therein mentioned, at a loss, although it be admitted that the rates under the law, taken as a whole, would give adequate returns? This is the question here. Public policy should not stand for law which compels Jones to make good the losses on Smith's freight.

The ruling in North Pacific Railway Co. v. North Dakota,236 U.S. 585 et seq., in our judgment settles this case. The court there had under consideration Chapter 51 of the Laws of 1907 of North Dakota. This law of 1907, Laws of North Dakota, 1907, page 73, is amended Section 4395 of the Revised Code of 1905. In the Code of 1905, this Section 4395 appears in Article 10 of such code, entitled: "To Regulate Common Carries and Define the Duties of The Commissioners of Railroads." In the said Article 10, Code of 1905, the Commissioners of Railroads, by Section 4343, are empowered to fix maximum schedules of rates for the railroads of the State, and to this end were empowered to classify freight. Section 4395 of Article 10, Code of 1905, fixed the maximum rates for coal, and these maximum rates so fixed were, by the Act of 1907, Chapter 51, further lowered. The Northern Pacific and two other roads named in the opinion, refused to put the rates in force, for that such rates compelled them to carry coal at a loss. The case was decided nisi on the theory that, if all the intrastate business of these roads gave them returns upon their property, then such roads could not complain of carrying coal at a loss. The roads tried the case upon the theory that they could not be compelled to carry any particular article, or class of freight, at a loss. The state court found, in its way of figuring, that the Northern Pacific made some $847 in twelve months on coal. The other roads carried at a loss. By the state court the roads, by mandatory injunction, were compelled to put in force the statute, and this ruling Mr. Justice HUGHES reversed as to all three of the roads. The returns of other articles or classes of articles were not gone into in these cases. At page 594 of 236 U.S. Report, Mr. Justice HUGHES outlines the holdings of the state court upon the law, as follows:

"As to the law, the state court 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 non-compensatory — that is, while producing more revenue than sufficient to pay actual expenses occasioned by the transportation of the commodity, but insufficient to 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 non-compensatory 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.'

"Accordingly, it was further held that, after establishing the value of the property employed in the production of the net intrastate freight earnings, it must appear, in order to show confiscation, either (1) that such earnings are insufficient to yield a fair return upon that value and that the commodity in question is carried for less than what is sufficient to meet all expenses, including ``out-of-pocket costs' and fixed charges, or (2) that the loss on the commodity under the rate attacked ``reduces the balance of the net intrastate freight earnings' to a point where, including the loss on the commodity rate, they fail to yield such return. [26 N. Dak. p. 440.]"

Speaking to the issue here involved, Mr. Justice HUGHES, at page 595 et seq., says:

"But, broad as is the power of regulation, the State does not enjoy the freedom of an owner. The fact that the property is devoted to a public use on certain terms does not justify the requirement that it shall be devoted to other public purposes, or to the same use on other terms, or the imposition of restrictions that are not reasonably concerned with the proper conduct of the business according to the undertaking which the carrier has expressly or impliedly assumed. If it has held itself out as a carrier of passengers only, it cannot be compelled to carry freight. As a carrier for hire, it cannot be required to carry persons or goods gratuitously. The case would not be altered by the assertion that the public interest demanded such carriage. The public interest cannot be invoked as a justification for demands which pass the limits of reasonable protection and seek to impose upon the carrier and its property burdens that are not incident to its engagment. In such a case, it would be no answer to say that thecarrier obtains from its entire intrastate business a return asto the sufficiency of which in the aggregate it is not entitledcomplain."

The italics are ours. Again at page 598 the learned justice further says:

"The State insists that the enactment of the statute may be justified as ``a declaration of public policy.' In substance, the argument is that the rate was imposed to aid in the development of a local industry and thus to confer a benefit upon the people of the State. The importance to the community of its deposits of lignite coal, the infancy of the industry, and the advantages to be gained by increasing the consumption of this coal and making the community less dependent upon fuel supplies imported into the State, are emphasized. But, while local interests serve as a motive for enforcing reasonable rates, it would be a very different matter to say that the State may compel the carrier to maintain a rate upon a particular commodity that is less than reasonable, or — as might equally well be asserted — to carry gratuitously, in order to build up a local enterprise. That would be to go outside the carrier's undertaking, and outline the field of reasonable supervision of the conduct of its business, and would be equivalent to an appropriation of the property to public uses upon terms to which the carrier had in no way agreed. It does not aid the argument to urge that the State may permit the carrier to make good its loss by charges for other transportation. If other rates are exorbitant, they may be reduced. Certainly, it could not be said that the carrier may berequired to charge excessive rates to some in order that othersmight be served at a rate unreasonably. low. That would be but arbitrary action. We cannot reach theconclusion that the rate in question is to be supported upon theground of public policy if, upon the facts found, it should bedeemed to be less than reasonable."

At page 601 appears this significant remark from the learned justice:

"It has repeatedly been assumed in the decisions of this court, that the State has no arbitrary power over the carrier's rates and may not select a particular commodity or class of traffic for carriage without reasonable reward."

As I read this opinion from our highest court, and the one which has the power of final action upon the Federal question herein involved, the theory of the trial court in the instant case was wrong. Both counsel agree as to the theory of the trial below, and that theory contravenes the rule in North Pacific Railway Co. v. North Dakota, supra. Under the conceded facts this rate upon railroad ties was so inadequately low as to be confiscatory. It is a wholesome rule for the State, in making rates, to obviate a rate which will compel the carrying of a commodity at a loss. If the State can do that, it can compel some commodities to be carried free, and give the railroad fair net earnings by having high rates on other commodities. In these days of enlightened rate experts, it is not hard to determine whether or not a given rate upon a particular commodity will bear its reasonable proportion toward a fair income from a whole schedule of rates, after paying its legitimate proportion of carriage cost. Nor is it hard to determine, in these days, whether a given rate upon a particular commodity entails loss upon the carrier. The rate in question here is confiscatory under the conceded facts and the Federal rulings, and when the Federal Constitution is applied that portion of the law must fall.

Since the hearing in Division both counsel in their briefs say this is the sole question for determination, and other matters need no further notice.

The judgment is reversed, and the cause remanded to be disposed of in accordance with this opinion. All concur, except Williams,J., who dissents and adopts the opinion of White, C., in Division No. 2 as his dissenting opinion.