Appendix — Illinois Commerce Commission v. Illinois Central Railroad

1s

APPENDIX ‘‘1’’

**See. 1300.901 Definition. For the purpose of this

Procedural Regulation No. 11, a general increase in the

rates or charges of a common carrier or other public

utility is defined as any change in its rates, fares,

classifications, rules, regulations or practices which

results in an increase in the charges for transporta-

tion or other public utility service applicable to a class

of passengers, shippers or customers, including in-

ereases in wholesale or industrial rates or charges

for public utility services, as distinguished from an in-

crease of rates or charges applicable to a particular

customer or transportation service under special ar-

rangement.

**See. 1800.902. General requirements with respect to

notices. Thirty (380) days before the effective date of

a general increase in the rates or charges of any com-

mon carrier or other publie utility, there shall be filed

with the Transportation and Public Utilities Division

of the Office of Price Administration, Washington,

D. C., two copies of notice of such proposed increase,

except as otherwise provided in paragraphs (d) and

(e) of See. 1800.904. Such notices shall be deemed to

have been filed when received in the Office of sueh

Division. If authority for the establishment of any such

inerease is required by any regulatory ageney, notice

shall be given on or before the time such authority is

sought in order that the Price Administrator may have

timely opportunity to intervene, but in no event shall

such notice be given less than 30 days before such pro-

posed increased rates or charges are to become etfee-

tive. All notices shall state the name and address of the

Federal, State or municipal authority having jurisdie-

tion over the rates or charges in question.

‘*Hach such notice shall contain a statement that the

common carrier or other publie utility consents to the

timely intervention by the Price Administrator, on be-

half of the Director of Keconomie Stabilization, before

19

the Federal, State or municipal authority having juris-

diction to consider such increase.

“One copy of each notice must be over the signature

of an executive officer, a responsible traffic officer, or a

duly authorized attorney or agent of the carrier or

other public utility. Duly authorized officers of cor-

porate agents shall sign on behalf of such agents. The

person signing the notice shall certify that the infor-

mation contained therein is true to the best of his

knowledge, information and belief.’’

APPENDIX ‘‘2”’

Docket Nos. 27894-8, Cons.—Agenda 23—May, 1944

Joseph B. Fleming cf al., Trustees of the Chicaga, Rock

Island and Pacific Railway Company, Appellants, v. Tli-

hois Commerce Commission, Appellee.—Chicago, Bur-

lington & Quincey Railroad Company, Appellant, v.

Same Appellee.—Ilenry A. Seandrett ef al., Trustees of

Chicago, Milwaukee, St. Paul and Pacifie Railroad Com-

pany, Appellants, v. Same Appellee.—Chicago and West-

ern Indiana Railroad Company, Appellant v. Same Ap-

pellee.—A. A. Sprague et al., Receivers of Chicago North

Shore and Milwaukee Railroad Company, Appellants, v.

Same Appellee.

Mr. Jusrice Smira delivered the opinion of the court:

In this cause five cases have been consolidated for de-

cision and opinion. The eases consolidated are No. 27894,

Fleming ef al., Trustees of The Chicago, Rock Island and

Pacific Railway Co. v. Hlinois Commerce Commission:

No, 27899, Chicago, Burlington & Quiney Railroad Co.

v. Same; No. 27896, Seandrett ef al., Trustees of Chicago,

Milwaukee, St. Paul and Pacifie Railroad Co. v. Same:

No, 27897, Chieago and Western Indiana Railroad Co. vy.

Same; No. 27898, Sprague cf al., Receivers of Chicago

North Shore and Milwaukee Railroad Co. v. Same. Kach

of the cases is an appeal under section 69 of the Publie

20

Utilities Act (IIL Rev. Stat. 1943, chap. 11193, par. 73,)

from an order of the cireuit court of Cook county, affirming

an order of the Commerce Commission.

Following the granting by the Interstate Commerce

Commission of an inerease of 10 per cent in’ through

passenger rates generally, and in one-way and round-trip

suburban rates in the Chicago suburban area, each of the

appellants filed with the Tlinois Commerce Commission

tariffs proposing a like increase in commutation or multiple-

ride ticket rates in its suburban service in the Chicago area.

The rates proposed by the tariffs were to become effective

on Mareh 8, 1942.) The commission, however, entered an

order in each ease suspending the proposed rates and set

the case for hearing. Hearings were had. The hearings

were concluded in May, 1942, and the cases were taken

by the commission for decision. The final order and de-

cision of the commission was filed in the first three cases

on November 24, 1942, and in the other two cases on

December 9 and December 22, 1942, respectively. By these

orders the commission denied the proposed increase in rates

and permanently suspended the tariffs filed. Separate ap-

peals from these orders were duly and timely perfected to

the cireuit court of Cook county. Upon a hearing the cir-

euit court affirmed the order of the commission in each case.

It is here contended by appellants that the orders of

the commission should be reversed and set aside for the

reason that such orders do not contain suflicient and essen-

tial findings of fact; that they are based upon speculation

and conjecture and contain erroneous conelusions and re-

eitals: that said orders are unreasonable and unlawful;

that the commission disregarded the evidence and consid-

ered matters wholly outside the record and which were not

in evidence.

Before considering the other questions involved it: will

be necessary to dispose of appellee’s contention that the

commission could not approve the proposed rates because

of the alleged failure of appellants to comply with the

pertinent provisions of the 1942 amendment to the Mmer-

veney Price Control Act. (50 U.S. C. A. appendix 961.)

That amendment provides: ‘Provided, That no common

21

varrier or other publie utility shall make any general in-

erease in its rates or charges which were in effect on Sep-

tember 15, 1942, unless it first gives thirty days’ notice to

the President, or such ageney as he may designate, and

consents to the timely intervention by such agency before

the Federal, State, or municipal authority having jurisdic-

tion to consider such inerease.”’

As already noted, the hearings in these cases were con-

cluded in’ May, 1942. The cases were then taken by the

commission for decision. The above amendment to the

Emergeney Price Control Act was not passed until Octo-

ber 2, following the submission of the cases. In some of

the cases the records show that after the orders of the com-

mission were entered, and while the cases were still pending

before the commission, notice was eiven in accordance with

that act. There was no appearance by the Director of Keo-

nomie Stabilization or the Price Administrator of the Office

of Price Administration, either before the commission or

in the cireuit court. The failure to give such notice did

not affeet the jurisdiction or powers of the commission, nor

in any way change or enlarge the issues. That act only

vives to the Director of Meonomic Stabilization the right

to intervene and be heard. It in nowise, affeeted the juris-

diction of the commission. Vinson v. Washington Gas

Light Co., 821 U.S. 489, 64S. Ct. 731, is decisive on this

question. It was there said: ‘*The Emergency Price Con-

trol Act of 1942, while it gives the Administrator power

over prices of ‘commodities,’ which ate not €enerally reg-

ulated by publie authority, specifically and expressly with-

holds from the Administrator jurisdiction over public

utility rates. And, as we have noted, the Stabilization Act

of October 2, 1942, did not alter this prohibition but re-

quired merely that no utility should generally increase rates

in effect September 15, 1942, unless it first gave thirty days’

notice to the President or his representative and consented

to the timely intervention of that representative before the

federal, state, or municipal authority having jurisdiction to

consider the increase. It is not clear that this language eon-

fers a right of intervention. The bill as passed by the

Senate contained a provision that there should be no in-

crease in utility rates unless they were approved by the

ee ee

22

President. The House refused to concur, with the result

that only the language now contained in the proviso ap-

peared in the bill. The assertion that, while the Price Ad-

ministrator or the Director may present his views to the

regulatory body ‘he had nothing to say about its decision,’

was made and not contradicted on the senate floor in dis-

cussion of the conference report. Evidently Congress in-

tended to grant the Administrator plenary control over

commodity prices, since they generally were not the subjcet

of loeal regulation, but in both the original Act and the

i as this c ourt has recently said in Davies Ware-

house Co. v. Bowles, 321 U. S. 144, 64 S. Ct. 474, 480,

was pln ‘to avoid paralyzing or extinguishing local in-

stitutions.” Thus it limited the right of the Executive to

notice by the utility and the utility’s consent that the Exeeu-

tive mieht be heard by the regulatory body having: final

authority inthe premises. * * * Weareasked then, not

re to revise the views expressed in Davies Warehouse Co.

. Bowles, supra, as to the scope of the Acts, but to infer

an a general expression of congressional poliey, the lim-

itation of existing powers conferred by daw on regulatory

commissions throughout the nation, both state and federal,

and the endowment of a different federal ageney with new

and superior rights and powers. This we are unable to do.”’

The failure to give such notice would not, in any event,

affect the jurisdiction or powers of the commission or alter

its duties in a matter of this kind. The contention of ap-

pellee on this branch of the case cannot be sustained.

Four of the ‘ases, viz.: Nos. 27894, 27895, 27896 and

27898, involved common questions and may be considered

together. A brief reference to the character of the sub-

urban service rendered by appellants in those cases will not

be inappropriate. The record in cause No. 27894, Fleming

et al., Trustees of The Chicago, Rock Island and Pacific

Railroad Co. v. Illinois Commeree Commission (hereinafter

referred to .as the Rock Island ease,) shows that the Rock

Island operates suburban service over its main line from

Chicago to Joliet, a distance of 40.2 miles. The Chicago

terminus is LaSalle Street Station, whieh is used jointly

with the New York Central. That station and also the

tracks and other facilities between that station and Joliet

23

are used by both through and suburban trains. Commuta-

tion and other suburban passengers are carried on both. It

also operates a suburban line which branches off from the

main line at Gresham, Kighty-ninth street, Chicago, and

extends westerly and southerly to Blue Island, where it

again connects with the main line. The length of the sub-

urban line is 6.7 miles. The tracks and other facilities of

this suburban line are used exclusively in the suburban

service.

In No. 27895, Chicago, Burlington & Quincy Railroad

Co. v. Hlinois Commerce Commission (hereinafter referred

to as the Burlington case,) the record shows that the rail-

road company operates suburban service between Chicago

and Aurora, and intermediate stations, a distance of 38

miles. The Chicago terminus is the Union Station. The

suburban service is operated over its main line. Commu-

tation and other suburban passengers are carried on both

suburban and through trains.

In No. 27896, Scandrett ef al., Trustees of Chicago, Mil-

waukee, St. Paul and Pacific Railroad Co. v. Illinois Com-

merce Commission, (hereinafter referred to as the Milwau-

kee case,) the record shows that the suburban service is

operated over two lines of railroad. One of these lines

extends from Union Station in Chicago to Elgin, a distance

of 36.6 miles, while the other extends from Union Station

to Walworth, Wisconsin, a distance of 73.2 miles. The

tracks and other facilities used by it in its suburban service

are also used in the transportation of through freight and

passengers,

In No. 27898, Sprague ef al., Receivers of Chicago North

Shore and Milwaukee Railroad Co. yv. Illinois Commerce

Conmnission, (hereimafter referred to as the North Shore

case.) the railroad operates suburban service between Chi-

cago and Waukegan and Chicago and Mundelein, and inter-

mediate stations. Most of its suburban service is conducted

over what is known as the Shore Line, extending from

the Chicago Loop District, north to Waukegan. It also

operates suburban trains over what is designated as the

Skokie Line. This line branches off the Shore Line at

foward street and runs north to Milwaukee, Wisconsin.

At Lake Bluff it connects with a line extending westerly

24

to Mundelein. Through passenger and freight business is

also conducted over the Skokie Line.

In each case testimony and exhibits were admitted in

evidence showing a substantial deficit in the income from

the operation of the suburban service for the vear 1941,

and prior to that time. In no case would the proposed

increase in rates be sufficient to overcome the deficit shown.

In other words, had the proposed increase in rates been

in force during the vear 1941, there would still be a sub-

stantial deficit from the operation of the suburban service.

In the Rock Island case and in the Burlington case, ex-

hibits and testimony were offered showing the value of the

property and facilities used and useful in the suburban

service. These values were based on the original cost of

the facilities, except land. The land values used were the

appraisals fixed by the Bureau of Valuation of the Inter-

state Commerce Commission. In the Milwaukee case and

the North Shore case no evidence of the value of prop-

erties and facilities used and useful in the suburban service

was offered. In those cases appellants take the position

that inasmuch as the proof before the commission showed

that the proposed increase in rates would not be sufficient

to wipe out the deficit arising from the operation of the

suburban service, the value of the property and the facili-

ties used and useful in that service is immaterial.

In all four of the cases there was testimony and exhibits

showing the allocation of direct expense to the suburban

service and the apportionment of expenses jointly incurred

in that service and the through passenger and freight and

express service. The bases of such allocation and appor-

tionment were given in detail. No evidence was offered ex-

cept that introduced by appellants. Throughout the briefs

of appellee, complaint is made that the apportionment of

joint operating expenses was made only as between the sub-

urban service and the through passenger and freight service,

and that no division or apportionment was made of the

expenses assigned or allocated to the suburban service, as

between the commutation and the one-way and round-trip

suburban service. It is argued that the portion of both

direct and joint operating expenses allocated to the

suburban service as a whole should have been further

25

hroken down and segregated to the commutation service as

distinct from the one-way and round-trip suburban service.

The testimony and the exhibits before the commission show

that the rates for one-way and round-trip fares were higher

than the commutation fares; that the one-way and round-

trip fares had been increased 10 per cent by the order

kv Parte 148 of the Interstate Commerce Commission,

eutered on January 21, 1942. It is, therefore, obvious

that inasmuch as the commutation rates were lower than

the one-way and round-trip fares a further refinement of

operating expenses and segregation of those expenses be-

fveen the commutation service and other suburban service

would only aggravate and increase the deficit in the com-

mutation service. The commutation passengers and the

one-way and round-trip passengers use the same facilities

and are viven identical service. The cost of carrying the

commutation passenger would, therefore, be the same as

the cost of carrying the passenger riding on a one-way or

round-trip ticket. The evidence shows that the commuta-

tion rates produce a lower passenger-mile revenue than the

one-way and round-trip fares.

Appellee also complains that in some of the cases there

was no proof of the value of the facilities used and useful

in the suburban service and in others that such values as

were shown were not segregated between the commutation

service and the one-way and round-trip suburban service.

Reference has already been made to the showing in each

case that the proposed increase in rates would be insufficient

to overcome the deficit from the operation of the suburban

service. The earriers were not seeking a return on any

investment. They were merely seeking an increase in rates

in order to reduce the operating deficits. In view of this

evidence before the commission, the question of the value

of the facilities used and useful in the suburban commuta-

tion service was academic. The commission also complains

in its orders and in its briefs that there was no proof

offered as to the original cost of the facilities used in the

suburban service, less depreciation; the cost of reproducing

the properties-and facilities, less depreciation, or, the pru-

dent investment in such facilities and land, fairly and justly.

used in rendering the suburban service.

dy

——-

26

As already related, the proof that was offered on the

question of the value of the facilities used and useful in

the suburban service was on the original cost basis. If

the commission was of the opinion that the value of

the property used and useful in the commutation service

was material and that some other formula should be used

in arriving at such values, it should have indicated the for-

mula it would approve and required evidence to be offered

on the basis of such formula. It could then have made a

finding on the question of such value which could be re-

viewed by the courts, as contemplated by the Publie Utili-

ties Net. A hearing before the commission is not a partisan

hearing with the commission on one side arrayed against

the etifitv on the other. It is an administrative investiga-

ticu instituted for the purpose of ascertaining and making

findimes of facet. It was manifestly arbitrary and unfair

to raise in its final order, for the first time, the question

of the correctness of the formula and the basis on which

the evidence concerning the value of the property for rate

tiaking purposes was offered.

The commission also, in discussing the evidence in its

orders relating to the allocation of joint expenses to sub-

urban service, repeatedly asserts that such evidence could

not be considered, beeause the commission was of. the

opinion the portion of such expenses charged to the sub-

urban service was too high. In other words, the commis:

sion repeatedly asserts in its orders that it disregards the

evidence and acts upon its own opinion and conclusions,

not based upon any evidence in the case. In this the com-

Inission Was in error.

At the request of the examiner during the hearings,

~tatements of the system income of each of the carriers

for a portion of the vear 1942, as compared with like

periods in 1941, were produced and admitted in evidence

over the objection of the carriers. These exhibits showed

only the total income from all classes of business, both

freight and passenger, including both through and_ sub-

urban, transported over the entire system, for the periods

indieated. There was no attempt to show that any part

of the inerease in revenue shown by these exhibits was

applicable to, or derived from, the suburban service or any

27

branch of such service. Based upon this increase in the

incomes from the entire systems, the commission, in its

orders, speculated that there had probably been a substan-

tial increase in revenue from the suburban service during

the vear 1942, as compared with the year 1941. This was

a pure speculation and an assumption by the commission,

without any evidence in the record to support it. These

exhibits did not show an increase in suburban revenues

and afforded no basis for such conclusions.

The commission, in its orders, also recites that an exam-

ination of ‘*Moody’s Railroads, Weekly Cumulative Index,

Volume 14, No. 23, issued Oct. 28, 1942 and No. 24, issued

Oct. 31, 1942,’" showed that the gross operating revenues

of the one hundred twenty-three Class I carriers of the

United States for the nine-month period ending September

9), 1942, increased approximately 36.9 per cent over the

corresponding period of 1941. From this and from the in-

crease in the system revenues of appellants during a por tion

of the year 1942, over a like period of 1941, the commission

reached the conclusion that during the vear 1942, appellants

had probably enjoyed a substantial increase in revenues

from suburban commutation service and were not entitled

to the proposed increase in rates. In this connection it

should be noted that the publications referred to were not

offered in evidence and were not published until October 28

and 31, 1942, after the hearings. were concluded in May, 1942.

In Atchison, Topeka and Santa Fe Railway Co. v. Com-

merce Com, 335 ML. 624, we said: ‘*The commissioners can-

not net on their own information. Their findings must be

based on evidence presented in the case, with an oppor-

tunity to all parties to know of the evidence to be submitted

or considered, to cross-examine witnesses, to inspect docu-

ments and to offer evidence in explanation or rebuttal, and

nothing can be treated as evidence which is not introduced

as such.”’

The dominant note of the approach of the commission

to the consideration of the questions involved is epitomized

in the following quotation from its order in the Milwaukee

case: “Tt must be remembered that Respondent’s opera-

tions embrace thousands of miles of railroad and runs

through practically all states in the Northwest; that it oper-

28

ates through passenger service from and to and through the

suburban zone to the principal cities in western territory;

that the railroad was built and operated primarily for the

conduct of through freight and passenger business; that

suburban service was developed as communities developed

in the Chicago area; that the equipment used in the sub-

urban service, for the most part, is equipment that has been

previously used in through service; and that suburban serv-

ice is more or less a byproduct of railroad operations as

a whole and any revenue over out-of-pocket expense re-

ceived contributes that much to the financial-prosperity of

the carrier.”’

This language reflects the attitude of the commission

in the consideration of the suburban service. The basis

for this theory of the commission is contrary to law. In

Northern Pacific Railway Co. v. North Dakota, 236 U.S.

585, 59 L. ed. 735, it was said: ‘*We have, then, to apply

these familiar principles to a case where the state has at-

tempted to fix a rate for the transportation of a commodity

under which, taking the results of the business to which

the rate is applied, the carrier is compelled to transport

the commodity for less than cost, or without substantial

compensation in addition to cost. We say this, for we

entertain no doubt that, in determining the cost of the

transportation of a particular commodity, all the outlays

which pertain to it must be considered... We find no basis

for: distinguishing in this respect between so-called ‘out-

of-pocket costs,’ or ‘actual’ expenses, and other outlays

which are none the less actually made because they are

applicable to all traffic, instead of being exclusively in-

curred in the traffie in question. Illustrations are found

in outlays for maintenance of way and structures, general

expenses and taxes. It is not a sufficient reason for ex-

eluding such, or other, expenses to say that they would

still have been incurred had the particular commodity not

been transported: That commodity has been transported;

the common carrier is under a duty to carry, and the ex-

penses of its business at a particular time are attributable

to what it does earry. The state cannot estimate the cost

of carrying coal by throwing the expense incident to the

maintenanee of the roadbed, and the general expenses,

29

upon the carriage of wheat; or the cost of carrying wheat

by throwing the burden of the upkeep of the property upon

coal and other commodities. This, of course, does not

mean that all commodities are to be treated as carried at

the same rate of expense. The outlays that exclusively

pertain to a given class of traffic must be assigned to that

class, and the other expenses must be fairly apportioned.

It mav be diffieult to make such an apportionment, but

when conclusions are based on cost, the entire cost must

be taken into account.”

In Norfolk and Western Railway Co. v. Conley, 236

U.S. 605, 59 TL. ed. 745, the rule was announced as fol-

lows: The fundamental question presented is whether the

validity of the passenger rate can be determined by its

effect upon the passenger business of the company, sepa-

rately considered. What has been said in the opinion in

Northern Pacific Railway Co. v. North Dakota, decided

this day (286 U.S. 585, ante 739, 35 Sup. Ct. Rep. 429.)

makes an extended discussion of this question unnecessary.

It was recognized that the state has a broad field for the

exercise of its discretion in prescribing reasonable rates for

common carriers within its jurisdiction; that it is not

necessary that there should be uniform rates or the same

percentage of profit on every sort of business; and that

there is abundant room for reasonable classification of the

adaptation of rates to various groups of services. It was

further held that despite this range of permissible action,

the state has no arbitrary power over rates; that the de-

votion of the property of the earrier to public use is quali-

fied by the condition of the carrier’s undertaking that its

services are to be performed for reasonable reward; and

that the state may not select a commodity or class of traflic.

and instead of fixing what may be deemed to be reasonable

compensation for its carriage, compel the ‘arrier to trans-

port it either at less than cost, or fora compensation that

is merely nominal. These considerations are controlling

here. The passenger traffie is one of the main depart-

ments of the company’s business; it has its separate equip-

ment, its separate organization and management, and, of

necessity, its own rates. In making a reasonable adjust-

ment of the carrier’s charges, the state is under no obli-

30

vation to secure the same rate of return from each of

the two principal departments of business, passenger and

freight; but the state may not select either of these de.

partments for arbitrary control. Thus, it would not be

contended that the state might require passengers to be

carried for nothing, or that it could justify such action by

placing upon the shippers of goods the burden of excessive

charges in order to supply an adequate return for the car-

rier’s entire service.”’

In Banton v. Belt Line Railway Corp., 268 UL S. 415¢

45 S. Ct. 534, it was said: ‘‘There is involved only the

rates applic ible to a part of the company’s business. In

this respect, the case is similar to Northern Pacific Railway

North Dakota, 236 U. S. 585, 355 S. Ct. 429, 59 L. ed.

L. R. A. 1917F, 1148, Ann. Cas. 1916A, 1; Norfolk

and Western Railway vy. West Virginia, 256 U.S. 605,

bo 8S. Ct. 487, 59 L. ed. 749; and Northern Pacific Rail-

way Vv. Department of Public Works of Washington, 268

U.S. 29, 45 St. Ct. 412, 69 L. ed. 836, decided April 18,

1925. The opts law is plain. The state is without

power to require the traffic covered by the fare enjoined

to be carried at a loss or without substantial compensation

over its proper cost. And such cost includes not only the

expenditures, if any, incurred exclusively for that. traffic,

but also a just proportion of the expenses incurred for all

traffic of which that in question forms a part. The cost

of doing such business is not, and properly cannot be,

limited to the amount by which total operating expenses

would be diminished by the elimination of, or increased by

adding, the transfer passengers in question. It would be

arbitrary and unjust to charge to that class of Dusiness

only the amount by which the operating expenses were,

or would be, increased by adding that to the other traffic

carried, Outlays are none the less attributable to transfer

passengers because also applicable to other traffic. Oper-

ating expenses which are incurred on account of all pas-

sengers carried, and which are not capable of direct allo-

cation to any class, should be attributed to the transfer

passengers in question in like proportion as such expenses

are fairly chargeable to other passengers receiving like

31

service. While the carrier has no constitutional right to

the same rate er percentage of return on all its business,

the state may not select any class of traffic for arbitrary

control and regulation.”’

In Mt. Carmel Public Utility and Service Co. v. Public

Utilities Com., 297 ll. 303, this court said: ‘* Where a

public utility corporation is engaged in furnishing to the

public, through various departinents of its business, differ-

ent kinds of service, it cannot be compelled to carry on a

branch of its business which furnishes one kind of such

service at a loss even though at the same time its whole

business may be conducted at a profit. (Brooks-Scaulon

Co. v. Railroad Com., 251 U.S. 3896; Northern Pacific

Railroad Co. v. North Dakota, 236 id. 585; Norfolk and

Western Railroad Co. v. West Virginia, 236 id. 605.)”’

To the same effect is Northern Illinois Light and Traction

Co. ¥. Commerce Com, 802 Th, 11.

In Smyth vo Ames, 169 U.S. 466, 42 L. ed. 819, it was

said: ‘‘In our judement, it must be held that the reason-

ableness or unreasonableness of rates prescribed by a state

for the transportation of persons and property wholly

within its limits must be determined without reference to

the interstate business done by the carrier, or to the profits

derived from it. The state cannot justify unreasonably

low rates for domestic transportation, considered alone,

upon the ground that the carrier is earning large profits

on its interstate business, over which, so far as rates are

concerned, the state has no control, Nor can the carrier

justify unreasonably high rates on domestic business upon

the ground that if will be able only in that way to meet

losses on its interstate business. So far as rates of trans-

portation are concerned, domestic business should not be

made to bear the losses on\ interstate business, nor the

latter the losses on domestic business. It is only rates for

the transportation of persons and property between points

within the state that the state can prescribe; and when it

undertakes to preseribe rates not to be exceeded by the

carrier, it must do so with reference exclusively to what

is just and reasonable, as between the carrier and the pub-

lic, in respect of domestic business. The arguinent that a

32

railroad line is an entirety; that its income goes into, and

its expenses are provided for out of, a common fund; and

that its capitalization is on its entire line, within and with-

out the state,—can have no application where the state is

without authority over rates on its entire line, and can

only deal with local rates and make such regulations as

are necessary to give just compensation on local business.”

In our opinion, the law as there stated, is still in full

force and effect. The commission proceeded under a mis-

apprehension of the settled rules of law applicable to the

questions under consideration. This misconception of the

applicable principles of law led the commission to the erro-

neous conclusions recited in its orders.

The orders cannot be sustained for the further reason

that they contain no proper and essential findings. See-

tion 65 of the Public Utilities Act (TIL Rev. Stat. 1945,

chap. 11125, par. 69,) provides that the commission shall

make and render findines concerning the subject matter

and facts inquired into, and enter its order based thereon.

In Chicago Railways Co. ve Commerce Com. ex rel. Clu-

cago Motor Coach Co., 336 Til. 51, we said: ‘*Seetion 65

of the Commerce Commission act requires the commission

to make and enter findings concerning the subject matter

of facts inquired into and enter its order based thereon.

Such findings must be specific enough to enable the court

to review intelligently the decision of the commission and

ascertain if the facts on which the commission has based

its order afford a reasonable basis for it.’

In Lowisrille and Nashville Railread Co. ve Commerce

Com. cx rel. Village of Belle Rive, 353° Wh 3875, it) was

said by this court: ‘‘Section 65 of the Public Utilities act

(Cahill’s Stat. 1981, par. 84,) requires that the commission

make and enter findings of fact concerning the subject mat-

ter inquired into and enter its order based thereon. This

is a mandate that the commission make findings of fact

upon the principal issues of the case, and that such findings

be sufficiently specific to enable the court to intelligently

review the decision of the Commerce Commission and

ascertain if the facts upon which the commission has based

its order afforded a reasonable basis for sueh order. If

33

they do, the facts found may be re-examined, in connection

with the evidence, to determine if they are substantially

supported by the evidence, but this court will not enter

upon an independent investigation of the evidence to de-

velop facts not found by the commission to sustain its

order. (Chicago, Rock Island and Pacific Railway Co, v.

Commerce Com, 346 Th 412: Kewanee and Galva Rail-

way Cor ve Commerce Com, 340 id. P66: Business Men's

Ass'n ve Commerce Com. 337 id. 149.)°* To the same

effect are Chicago, Rock Tslaud and Pacific Railway Co, v.

Commerce Com, 346 TL 412: Neaanee and Galva Railway

Co. vy. Commerce Com, cv rel. Dohrn Trausfer Co, 340 TH.

6: Brotherhood of Locomotive Firemen and Eugaemen

vo New York Central Railroad Co, 339 Wk 201, and Busi

ness Men’s Ass'n v. Commerce Com. 837 Tl. 149.

The orders in the four cases here under consideration

do not comply with the mandatory requirements of sec-

tion 65 of the Public Utilities Act. They do net contain

any findings as required by that section. Said orders are

void for the further reason that they are not based upon

the evidence and are predicated upon matters wholly out-

side the evidence offered before the commission. They

are in form merely arguinents and conclusions based upon

assumptions and speculations and are not supported by the

evidence in the records. The orders are arbitrary, unrea-

sonable and unlawful, and cannot be sustained.

This brines us to the consideration of cause No. 27807,

Chicago and Western Indiana Railroad Co. v. Tlinois Com:

meree Conunission. The record in this ease presents a

somewhat different: picture. The Chicago and Western

Indiana Railroad Co. (hereinafter referred to as Western

Indiana.) is primarily a terminal company. Tt furnishes

stations and other facilities for the use of six trunk line

‘ailroads. It owns and operates Dearborn Street Station

in Chieagwo. It also owns various tracks extending from

said station to Dolton, Hlinois, a distance of 16.6 miles,

together with stations, signals, shops, vards, roundhouses

and other facilities used in connection therewith. Its cap-

ital stock is owned in equal parts by five other railroads,

namely: Chieago & Eastern Hlinois, Grand Trunk, Wa-

34

bash, Monon, and Erie. These companies also lease from

the Western Indiana the right to use Dearborn Station and

other facilities, including tracks and right of way between

said station and Dolton, Illinois. These Jessee companies

will be hereinafter referred to as proprietary tenants. A

sixth company, the Atchison, Topeka & Santa Fe (herein-

after referred to as Santa EFe,) is also a tenant. The Santa

Fe uses the Western Indiana rails and terminal facilities,

but it owns no interest in that company. Each of the

proprietary tenants pays a rental equal to one fifth of the

interest requirements on the outstanding bonds of the

Western Indiana, in so far as those bond issues cover the

property which is used in common by said proprietary ten-

ants. Hach of said tenants likewise pays a rental equal to

100 per cent of the bond interest requirements applicable

fo the portion of the property which it uses exclusively,

The Santa Fe has a 999 vear lease, under which it uses

the Deaborn Station and the Western Indiana tracks and

terminal facilities between Twentieth street and Dearborn

Station, which is a part of the Dearborn Station-Dolton

line. It pays a stated rental in addition to one sixth of

the cost of additions and betterments to the property which

it uses in common with the other tenants.

The Western Indiana also owns other properties con-

sisting of extensive vards and other facilities which are

leased to the Belt Railway Company of Chicago. These

properties, however, are not a part of the Western Indiana

tracks and facilities, extending from Dearborn Station to

Dolton. The property leased by the Belt Railway Company

is used exclusively by that company. It maintains the

leased property and pays stated rentals which are in excess

of the interest requirements on bonds issued by the Western

Indiana, representing money expended on the property

leased to the Belt. The Elein, Joliet & Kastern also leases

from the Western Indiana other tracks and facilities whieh

are not a part of the line of railroad extending from Dear-

born Station to Dolton, and not a part of the properties

leased to the Belt. It pays a fixed rental which is not re-

quired for interest payments. The amount of these rentals

is not otherwise disclosed by the record,

35

Various portions of the line extending from Dearborn

Station to Dolton are used by the five proprietary tenant

lines and the Santa Fe, in common with the Western In-

diana. This line is divided into some 50 wheelage zones

or sections, The common or joint expenses of maintenance

and operation are apportioned to the various wheelage zones,

and then in turn such expenses apportioned to each zone

ure apportioned to the Western Indiana and the tenant

lines, using that zone, on a wheelage basis. General expenses

and taxes are apportioned on the same basis. The Western

Indiana does all the switching for the tenant lines at Dear-

horn Station. It operates the Dearborn Station and is

engaged ina small way in freight-switching service for

other railroads, switching cars to and from various indus-

tries located on its own lines. In addition to this service

the Western Indiana also operates a limited suburban pas-

senger service between Dearborn Station and Dolton. In

this service it uses the tracks and facilities extending from

Dearborn Station to Dolton, various sections of which are

used by the six tenant lines. It operates three suburban

passenger trains in each direction daily, except on Satur-

day when the service is reduced. There is no service on

Sunday. In the suburban service it uses train and engine

crews engaged solely and exclusively in that service, It

muploys separate passenger, combination and bageage cars,

devoted solely to that service. It uses two locomotives in

the suburban service. The record shows that during the

last five years preceding the hearings, its net income in

excess of interest requirements was as follows: 1937,

M4117; 1988, $402,120; 1939, $456,651; 1940, $359,-

S43; 1941, $863,667. During that period, each year it

paid from revenues received from rentals and operations,

a6 per cent dividend on its $5,000,000 of outstanding capi-

lal stock, In addition to the payment of this annual divi-

dend, it has aceumulated a surplus of some FSOO,000,

Which is held in its surplus account. Upon its own figures

submitted at the hearings, during the vear 1941, and the

four preceding years, the operation of its suburban service

tlone, disregarding all rentals received, resulted in a sub-

stantial deficit.

36

4

Following the increase in one-way and round-trip sub-

urban rates authorized by the Interstate Commerce Com-

mission, by its order Ex Parte 148, the Western Indiana

filed tariffs with the [linois Commerce Commission, by

which it proposed to increase its commutation or multiple-

ride ticket rates in the suburban service, approximately 10

per cent over existing rates. By the same tariffs it also

proposed a substantial reduction in the one-way or single-

trip ticket fares in that service. It does not carry through

passengers. Its passenge* business is limited to the sub-

urban service between Dearborn Station and Dolton. The

commission entered an order suspending the proposed rates

and set the matter for hearing. Hearings were concluded

in May, 1942. By a» order entered on December 9, 1942,

the commission refused to approve the increase in commnu-

tation rates and permanently suspended the proposed tariffs

as to the commutation rates. It did, however, approve the

proposed reduction in the one-way or single-trip fares. An

appeal from that order was perfected by the railroad com-

pany to the cireuit court of Cook county. Upon a hearing,

that court affirmed the order of the commission. To re-

verse the order of the cireuit court, the appeal was per-

fected to this court.

For the purposes of this case, the property and facilities

leased to the Belt and the Elgin, Joliet & Eastern must

be entirely disregarded. The line from Dearborn Station

to Dolton, which is the line used in the suburban service,

must be considered as the property used in that service.

When so considered, the record shows a line of railroad

extending from Dearborn Station to Dolton, a distance of

16.6 miles. The facilities inelude the Dearborn Station

and all other stations and facilities used in the suburban

service. Certain portions or zones of this line and these

facilities are used by appellant Western Indiana in com-

mon with its six tenants. Under the lease contracts, all

maintenance, operating and other joint expenses are divided

on a wheelage basis between appellant and the six tenants,

according to the zones in whieh the property is used in

common. In the operation of this line and facilities, ap-

pellant, under those leases, incurs its proportionate share

37

of such expenses. The portion of these expenses allocated

to appellant, plus the expenses which are directly incurred

by it in the suburban service, represent the cost to appellant

of furnishing the suburban service. As against this ex-

pense, it receives certain revenues from that service. It

also receives the rentals under the leases from the six ten-

ants for the use of the property used in the suburban

service. On this side of the ledger it has suflicient net

income from its suburban operations and from these rentals

and the rentals received from the Belt and the Elgin, Joliet

& Eastern, to pay all its operating expenses and all interest

requirements and to provide and pay a dividend of 6 per

cent, leaving a substantial balance in its surplus account,

as net profits. This is the showing in the record. The

rentals received from the property used in the suburban

service, for rate-making purposes, must be regarded as in-

come from that property.

If appellant desires and is willing to limit its own opera-

tions to a mere technical compliance with the statute (IIL.

Rev. Stat. 1943, chap. 114, par. 77,) in order to enable it to

lease its facilities to other railroads, it cannot set aside the

rentals received for the payment of its interest require-

ments and dividends and to accumulate a surplus, until the

expenses incurred in the limited operations which it main-

tains are paid. Such expenses are a first charge against

those rentals. Neither ean it pass on to the public any

deficit in its operations in the form of increased rates as

long as it derives a substantial net income from the rental

of its facilities used in the suburban service.

The burden was on appellant to show that the proposed

rates were not unreasonable. While the amount of the

rentals derived from the property used in the suburban

service was not separately shown, it is apparent that sueh

rentals are substantial when compared with the $2206.28

in estimated additional annual revenues which appellant

sought by the proposed inerease in rates. On the whole

record it is clear that when such rentals are properly con-

sidered, as they must be, as revenues arising from the prop-

erty used in the suburban service, no deficit from the opera-

tion of that service, under the existing rates, was shown,

38

When the evidence in the record is considered, it is obvious

that the finding of the commission that the proposed rates

were unreasonable is not without substantial support in the

evidence.

The fixing of rates is essentially a matter of legislative

control. It is not a judicial function. The right to review

the conclusion of the legislature, or of an administrative

body acting under authority delegated to it by the legisla-

ture, is limited to the determination of whether the legis-

lature or administrative body acted within the scope of its

authority, whether the order is without substantial founda-

tion in the evidence, or whether a constitutional right of

the utility has been infringed upon. If the order does not

contravene any constitutional limitation, is within the au-

thority delegated to the commission, and has substantial

basis in the evidence, it cannot be set aside by the courts.

The courts are without authority to set aside an order of

the commission on the facts unless it is against the mani-

fest weight of the evidence, Public Utilities Com. ex rel.

City of Springfield vy. Springfield Gas and Electric Co., 291

Ill. 209.

Upon the record in this case we cannot say that the order

involved is without substantial basis in the evidence or

that such order is either unreasonable or unlawful. The

cireuit court did not err in affirming the order of the

commission.

In cause No. 27897, the judgment of the circuit court is

affirmed. In causes Nos. 27894, 27895, 27896, and 27898, the

judgment in each case is reversed and the cause remanded

to the cireuit court of Cook county with directions to set

aside the order of the commission and to remand the cause

to the commission.

The original records made before the commission were

incorporated in the records filed in this court. The clerk

of this court is directed to return said records to the clerk

of the circuit court of Cook county.

No. 27897, Judgment affirmed;

Nos. 27894, 27895, 27896, and 27898,

Reversed and remanded, with directions.

39

APPENDIX ‘‘3”’

Docket No. 27768—Agenda 15—March, 1944

ILtinois Centra Raitroap Company, Appellee,

v.

Tu Inuiwois Commerce Commission et al., Appellants

Mr, Chief Justice Smirn delivered the opinion of the court:

This is an appeal from a judgment of the superior court

of Cook county under section 69 of the Publie Utilities Act.

(Il. Rev. Stat. 1945, chap. 11124, par. 73.) The eause was

there heard on appeal from the Illinois Commeree Commis-

sion under section 68 of said act. (IIL Rev. Stat. 1943, Chap.

H11%3, par. 72.) On a hearing the trial court set aside the

order of the commission. The appeal to this court was per-

fected by the commission. The proceedings involve only in-

trastate commutation suburban fares in the Chicago sub-

urban area,

A brief reference to the historical background of the pro-

ceedings will be helpful to an understanding of the ques-

tions involved. Prior to December 9, 1925, the Interstate

Commerce Commission granted to the railroads generally

a 20 per cent increase in freight and passenger rates

throughout the country. This increase did not apply to in-

trastate suburban rates. Following the granting of this

increase by the Interstate Commerce Commission, the Ili-

nois Central Railroad Company filed tariffs with the Ilinois

Commerce Commission for a corresponding increase in its

suburban rates in its Chicago suburban area. Qn December

9, 1925, after a hearing, the commission denied the 20 per

cent increase, but granted a 15 per cent increase, over exist-

ing rates.

Thereupon, appellee filed a suit in the Federal District

Court for the Northern District of Illinois for an injunction

to restrain the commission and certain other publie officials

from enforcing the order of the commission and from inter-

fering with appellee in putting into effect the proposed 20

per cent increase in such rates. Application for a tempo-

40

rary injunction was heard on December 26, 1925, by a statu-

tory three-judge court. A temporary injunction was issued.

Thereafter, on January 7, 1928, the cause was heard on the

inerits by a like statutory court. A final decree was entered

making the injunction permanent. No appeal was taken

from that decree. By the decree it was provided:

“That the defendants, and each of them, their attorneys,

agents and representatives, their successors in office, and

all other persons whatsoever, be perpetually restrained and

enjoined from taking any steps whatever to interfere with

the right of plaintiff to charge and collect for commutation

service rendered in Cook County, Illinois, the fares and

charges provided for in Tariffs No. 376 (Illinois Commerce

Commission No. 700,) and No. 377 (Illinois Commerce Com-

mission No. 701,) filed by the plaintiff with the Ilinois Com-

merce Commission; or from instituting any suits or actions

to enforce, so far as plaintiff is concerned, the order of said

Illinois Commerce Commission entered on December 9,

1925, in cause No. 14866 on the docket of said Commission,

or from taking any steps or instituting any proceedings to

impose fines upon, or recover penalties from, plaintiff be-

‘ause of plaintiff’s action in enforeing from and after Janu-

ary 1, 1926, the said tariffs named hereinabove and colleet-

ing the fares and charges provided therein.,’’

Under the protection of the temporary injunction issued

in that case on December 26, 1926, appellee, on January 1,

1926, put into effect the proposed 20 per cent increase in

existing suburban rates and fares in its Chicago suburban

area. At that time appellee’s suburban service and equip-

ment was operated exclusively by steam power. Some

vears later .it was changed to electrical equipment and

power, and has since been operated exclusively as an elee-

tric system. With the electrification of the system substan-

tial changes and improvements were made in the service.

The inereased rates, under the protection of the injunction,

were continued until sometime after this change was made.

Beginning in 1936, appellee, from time to time, filed vari-

ous tariffs with the commission by which certain changes

were made in its suburban rates. The rates fixed by these

tariffs are referred to in the tariffs themselves, and in the

. 41

record, as ‘‘experimental rates.’’ While these experi-

mental rates were changed from to time, they were al-

ways kept below the injunction level of 20 per cent in excess

of the rates in force immediately prior to January 1, 1926.

The commission did not interfere with appellee in charging

these rates or when the rates were cither increased or re-

duced by tariffs filed with the commission. The record shows

that these experimental rates were in force at the time this

proceeding was instituted.

On January 21, 1942, the Interstate Commerce Commis-

sion granted to the railroads throughout the country, an-

other general increase of 10 per cent in passenger rates

and fares within its jurisdiction. At that time a 10 per cent

increase in a substantial portion of appellee’s prevailing

intrastate commutation fares in its Chicago suburban area

would not raise those fares above the rates approved by the

decree, entered in 1928, in the injunction suit.. This order

of the Interstate Commerce Commission was a general

order applying to all railroads in the United States of the

class to which appellee belonged. That order is designated

in the record and will be hereafter referred to.as Ea Parte

No. 148,

On January 28, 1942, appellee filed its petition with the

lilinois Commerce Commission for authority to file tariffs,

on short notice, increasing by 10 per cent its intrastate

suburban commutation fares in its Chicago suburban area,

effective on the effective date of Ea Parte No. 148, which

was applicable to its interstate and through rates. The

commission refused to grant this authority. “{hereupon

tariffs were filed by appellee with the commission increas-

ing by 10 per cent its suburban commutation rates between

points within the State of Illinois. By the tariffs filed,

these rates were to become effeetive on March 8, 1942. At

the same time like applications and tariffs were filed, ef-

fecting the same character of rates, by a number of other

carriers operating in the Chicago area. The commission

entered separate orders suspending the proposed tariffs

and docketed each application separately. The tariffs filed

by appellee at that time are designated as Nos. 4258 and

4259. (All tariffs are referred to in this opinion by Illinois

Commerce Commission numbers, unless otherwise noted.)

42 ‘

At the same time appellee filed with the commission Sup-

plement No. 7 to Tariff No. 3755, which merely provided

for the cancellation of the then effective tariffs applicable

to such rates.

It is obvious that at the time Tariffs Nos. 4258 and 4259

were filed, appellee was of the opinion that the order of

the Interstate Commerce Commission, 2a Parte No. 148,

authorized it to increase all its rates, both intrastate and

interstate, to the extent of 10 per cent, including suburban

rates. The Illinois Commerce Commission, however, was

of the opinion that Ea Parte No. 148 did not apply to sub-.

urban rates. It based its orders denying authority to file

the tariffs on short notice, and its orders suspending the

proposed rates, on its construction that Ha Parte No. 148

did not apply to intrastate suburban rates.

Thereupon, Charles M. Thomson, as trustee of the prop-

erty of the Chicago and North Western Railway Company,

which was ong of the carriers against whom one of said

suspension orders was entered by the commission, filed a

suit in the Federal District Court for the Northern District

of Hlinois, to enjoin the commission, the Attorney General

and other public enforcement officers from taking any steps

to prevent said railway company from making effective the

proposed increase of 10 per cent, in its intrastate suburban

fares, in the Chicago area. By the complaint in that case

it was alleged, among other things, that La Parte No. 148

superseded the jurisdiction of the Illinois Commerce Com-

mission and that under said order the plaintiff was author-

ized to increase its intrastate suburban rates 10 per cent

ever existing rates, without the approval of the Tlinois

Commeree Commission. The purpose of the suit was to

«njoin the enforcement of the order of the commission dis-

approving such increase and suspending the proposed rates.

Upon a hearing by a statutory three-judge court, an in-

junction was granted as prayed for in the complaint. The

District Court held that the order of the Illinois Commerce

Commission, disapproving the proposed increase of 10 per

cent was invalid as to intrastate commutation fares, for the

reason that said order was in conflict with Ma Parte No. 148,

which it was held applied to such rates. By its deeree, it

perpetually restraihed and enjoined the commission and

43

the enforcement officers from enforcing the order and from

interfering with the collection of the fares prescribed by

the proposed tariffs, filed with the Illinois commission

based upon the 10 per cent increase.

’

An appeal from that decree was taken by the commission

to the Supreme Court of the United States. That court,

being in doubt as to the intended scope of the Interstate

Commerce Commission's order, Ba Parte No. 148, requested

that commission to file a brief in the cause, discussing its

construction of the meaning and application of said order.

In compliance with this request, such brief was filed. In

that brief the Interstate Commerce Commission took the

position that is order, Ea Parte No. 148, was not intended

and should not be construed to direct the 10 per cent in-

crease in existing Tlinois Intrastate commutation fares.

In discussing this brief, the court observed, ‘* Although the

brief is not wholly free from obscurity surrounding: the

order itself the Commission’s ultimate position that the

order is inapplicable to these particular commutation fares

is one which, under all the circumstances of the case, we

accept.” The Court held that Ba Parte No. 148 did not

apply to the intrastate commutation rates in the Chieago

urea, Involved in the ease. The decree of the District Court

sranting the injunction was reversed. Illinois Commerce

Com. v. Thomson, 318 U.S. 675, 63 S. Ct. 834.

The decision in the above ease obviously disposed of the

contention of appellee in this ease that Ea Parte No. 148

was applicable to the rates here involved and that under

that order it was entitled to make effective a 10 per cent

increase in its suburban commutation fares without author-

ity from the Illinois Commeree Commission. That ease

was decided April 12, 1943.

The order of the commission involved on this appeal

was entered on November 24, 1942. By the order the com-

nission found that the rates proposed in tariffs Nos. 4258

and 4259 were not just and reasonable and said tariffs

were permanently suspended and cancelled. It further

ordered that the schedule of rates of appellee on file with

the commission and in foree and effeet on Mareh 7, 1942,

he continued in effect until the further order of the eom-

44

mission. By the order, appellee was directed to publish,

post and file with the commission, effective on or hefore

December 30, 1942, appropriate supplements cancelling

Supplement No. 7 to Tariff No. 3755 and also cancelling

Tariffs Nos. 4258 and 4299.

Appellee next contends that the decree in the injunction

suit entered by the Federal Court in January, 1928, pro-

hibits the commission from interfering with it in raising

its intrastate suburban commutation rates to the level of

the rates approved by said decree. Tt further contends

that as to a large portion of such rates, which were in

effect on March 7, 1942, the increase of 10 per cent would

not raise the fares above the rates approved by the in-

junction decree. These are the rates covered by Tariff

No, $259.

As to approximately 20 per cent of its suburban commun.

tntion fares, prevailing on Mareh 7, 1942, which the in-

crease of 10 per cent would raise above the level of the

rates approved by that decree, being the rates covered by

Taritl No. 4258, appellee contends that, wholly apart from

ihe action of the Interstate Commerce Commission, by

Ky Parte No. 148, and entirely aside from the proceedings

in said injunetion suit, the evidence in this record justifies

the proposed increase of 10 per cent, which the commission

disapproved. In other words, appellee challenges the juris-

diction of the commission to make any order at all with

reference to the rates proposed in Tariff No, 4259, which

are within the injunction level. It asserts that the only

rates which it was required to justify are the rates pro-

posed by Tariff No, 4258, which it seeks to raise above

the level of the injunction. Tt further contends that even

though it be held that it also had the burden of justifying

the rates proposed in Tariff No. 4259, it has discharged

that burden by the evidence in this record.

Before entering upon a consideration of this and. other

Guestions in the case, it will be necessary to dispose of a

procedural contention raised by appellant. It is contended

that the commission was without jurisdiction to erant an

inerease in rates for the reason that appellee failed to

notify the Federal Emergency Price Administrator of the

: 45

pendency of the proceedings, as required by the amend-

ment to the Emergeney Price Control Act of 1942, passed

by the Second Session of the Seventy-seventh Congress,

and the regulations promulgated under said act. This

auendment to the Hmergency Price Control Act, which

became effective on October 2, 1942, contains the following

provision: **" Provided, that no common carrier or

other public utility shall make any general increase in its

rates or charges which were in effeet on September 15,

1942, unless it first gives thirty days notice to the President,

or such agency as he may designate, and consents to the

timely intervention by such agency before the Federal,

State, or municipal authority having jurisdiction to con-

sider such increase.”? Public Law 729—77th Congress—

Ynd Session; 50 UL S.C. A. 901; U.S. C. A. Congressional

Service, 1942, No. 9, p. 1202.

On October 14, 1942, the Director of Economie Stabiliza-

tion issued his Directive No. 1, in which he designated the

Price Administrator of the Office of Price Administration

asa representative of the Director of Meonomie Stabiliza-

tion, to receive notice of proposed increases in common ear-

riey or other public utility rates, to issue appropriate regu-

lations for the receipt of such notices and to intervene and

participate in proceedings before Federal, State and mu-

hicipal authorities, in connection with any proposed increase

insuch rates and charges.

In answer to this contention of appellant, appellee first

contends that it was not required to notify the Office of

Price Administration as provided in said act, for the reason

that the increase in rates which it sought was not a ‘‘gen-

eral inerease,’’ within the meaning of the Emergeney Price

Control Act, as amended on October 2, 1942. A reference

to the amendment discloses that by its broad language the

Congress conferred upon the President practically unlim-

ited administrative powers. In the exercise of those pow-

ers the Office of Price Administration on November 12,

i42, issued Procedural Regulation 11. Seetion 1300.902

of that regulation provides :

“General requremcnts with respect to notices. Thirty

(30) days before the effective date of a general increase

+

46

in the rates or charges of any common carrier or other

public utility, there shall be filed with the Transportation

and Public Utilities Division of the Office of Price Admin-

istration, Washington, D. C., two copies of notice of such

proposed increase, except as otherwise provided in’ para-

erapls (d) and (e) of section 1300.904. Such notices shall

he deemed to have been filed when received in the Office of

cneh Division. If authority for the establishment of any

euch increase is required by any regulatory ageney, notice

chall be given on or before the time such authority is sought

1) order that the Price Administrator may have timely

opportunity to intervene, but in no event shall such notice

he given less than 30 days before such proposed increased

rates or charges are to become effective. All notices shall

state the name and address of the Federal, State or mu-

nicipal authority having jurisdiction over the rates or

charges in question,

“Bach such notice shall contain a statement that the

common earrier or other public utility consents to the

timely intervention by the Price Administrator, on behalf

of the Director of Keonomie Stabilization, before the ed-

eral, State or municipal authority having jurisdiction to

consider such increase.

“One copy of each notice must be over the signature of

an exeeutive officer, a responsible traffic officer, or a duly

authorized attorney or agent of the ‘carrier or other public

utility. Duly authorized officers of corporate agents shall

sien on behalf of such agents. The person signing the

notice shall certify that the information contained therein

i< true to the best of his knowledge, information and belief.”

By section 1300.901 of the regulation the term “oeneral

inerease’’ in the rates or charges of 2 common carrier or

ether public utility is defined as ‘any change in its rates,

fares, classifications, rules, regulations or practices which

results in an increase in the charges for transportation or

other public utility service applicable to a class of passer

vers, shippers or eustomersy including increases in whole-

eale or industrial rates or charges for public utility services,

as distinguished from an increase of rates or charges ap-

47

plicable to a particular customer or transportation service

under special arrangement.’

In view of the broad general powers eranted to te Presi-

dent by the Hinergeney Price Control Act and by the

amendment of October 2, 1942, to said act. we are of the

opinion that this reenlation, defining what shall constitute

a ‘tgeneral increase’ in common carrier or utility rates,

within the meaning of the act, was not bevond the powers

conferred. We, therefore, conclude that the proposed in

crease In rates soneht by appellee was a‘ eeneral increase”

within the languaece and meaning of the amendment of Octo-

ber 2, P42, to the Mmergency Price Control Act. We are

further of the opinion that appellee was required to vive

the notice preseribed by said amendment, unless it was re

lieved from so doing by the fact that the proceedings in

this cause were instituted and the hearings had been cou

cluded prior to the effective date of the amendment,

This brings us to the contention of appellee that it was

not required to give notice to the Federal Minergeney Price

Administrator, as required by said amendment, for the

reason that the proceedings herein were instituted and had

proceeded to the point where the taking of evidence had been

concluded and the case taken by the commission for de

asion, before the provisions of the Emergeney Price Con.

trol Net, relied upon by appellant, became effective.

The record shows that the proceedings here involved

were instituted before the commission on February 6, 1942.

Following that date, various successive temporary SUSper

sion orders were entered. By these several suspension or

ders, the proposed rates were suspended for a total period

of ten months, from February 6, 1942. Hearings were had

before the commission during the months of March, April

and May, 1942. On May 16, 1942, the hearings were con-

concluded and the case was marked ‘* Heard and Taken.’* by

the commission, The amendment to the Emergency Price

Control Act of 1942 was passed by Congress on October

22. The provision with reference to carrier and other

utility rates was not in the Hmergeney Price Control Aet

of IN42, as originally enacted on January 30, 1942. (50 U,

S.C. A. 901.) That provision was first brought into the

act by the amendment passed on October 2, 1942.

45

No question is raised but what appellee gave to all par-

ties entitled thereto all notices required by statute at the

time the proceedings were instituted. The jurisdiction of

the commission was then lawfully invoked according to

the statute, upon proper notice. Having invoked the juris-

diction of the commission in a statutory proceeding, in the

manner provided by the statute, and having given notice,

in accordance with the statute, to all parties who were, at

the time the proceedings were instituted, entitled to such

notice, We are not impressed with the argument that either

the jurisdiction of the commission, or the proceedines, could

be affected by the failure to notify some other party who

Was not, at the time the proceedings were instituted, en-

titled to any notice at all. The amendment to the Hmer-

eveney Price Control Act was not passed until several months

later. It was not retroactive. It seems to us that it was

not contemplated that, in any event, the failure of a carrier

to comply with the provisions of the Hmergency Price Con.

trol Act should affect the jurisdiction of a State commis

sion or other regulatory body. The failure to give the re-

quired notice certainly could not affect such jurisdiction

lawfully acquired prior to the adoption of the amendment

to the Emergency Price Control Act. Its obvious purpose

was to give to the agency designated by the President an

opportunity to be heard before such commissions in cases

involving increases of carrier and utility rates and to en-

able such ageney to appear and oppose the granting of such

increases if it Was felt that such appearance was necessary.

Rather than restricting or limiting the jurisdiction of such

regulatory bodies, the act enlarges their jurisdiction so as

to permit a government agency to appear and be heard,

which was a right not theretofore given to such agencies.

The order in this case did not grant, but on the contrary,

denied, increases in rates. It may well be that if the com-

mission had entered an order allowing the inereases, then,

because of the posthumous passage of the amendment of

October 2, 1942, to the Mmergeney Price Control Act after

the hearings were coneluded and before the order was en-

tered, before the increased rates could be put into effect

appellee would be required to notify the Office of Price Ad-

rt

Yr =

49

ministration, in accordance with that amendment. In no

event was this a matter which would affect the jurisdiction

of the commission to proceed in a pending case. Had the

proposed increased rates been granted by the commission

after the effective date of the amendment, if might be ar-

gued that appellee could not make such increased rates ef-

fective without complying with the amendment. The nega-

tive order of the commission, here involved, denyving.the

proposed increase in rates, in nowise affected the right of

the Office of Price Administration to be heard in opposition

to the proposed increase in rates. The most that could be

said of appellee's failure to notify the Office of Price Ad-

ministration, after the 1942 amendment became affective,

is that it would not have been in a position to have made

effective an increase in’ rates, had such inerease been

vranted by the Hlinois commission, until it had also com-

plied with the Hmergeney Price Control Act. The neces-

sity of approval of rates by both a State and Federal an-

thority is not unusual. In our opinion, the contentions of

appellant, on this branch of the case, cannot be sustained.

In the logical sequence of the issues presented, this

brings us to the question of the effect of the injunetion is-

sued by the Federal District Court on December 26, 1925,

and made permanent by the final decree of that court, en-

tered on January 7, 1928. The record shows that on Janu-

ary 1, 1926, under the protection of the temporary injune-

tion, appellee, by Tariff No. 700, increased its commutation

suburban fares 20 per cent above the rates existing prior

to that date.

The record shows that the rates which were put inte

affect, as of January 1, 1926, under the protection of the

injunction, were continued in force until 1936, On Sep-

tember TS, 1986, appellee filed with the commission, Tariff

No. 3937. By this tariff, which became effective on that

date, the existing rates which became effective on January

1, 1926, under the protection of the injunction, were reduced

approximately 20 per cent. Certain other adjustments were

made. It was stated in the tariff that these rates were

established for experimental purposes. By other tariffs

filed subsequent to September 18, 1936, other changes and

adjustments were made in existing rates.

50

As already stated, on March 8, 1942, appellee filed Tar-

iffs Nos. 4258 and 4259, by which all suburban commuta-

tion fares were increased approximately 10 per cent for

the alleged purpose of meeting wartime increases in costs

of operation. The rates proposed by Tariff No. 4258 were

those which a 10 per cent increase in the existing suburban

rates would raise above the rates which became effective

on January 1, 1926, under the protection of the injunction.

The rates proposed by Tariff No. 4259, however, were

those which the proposed increase in the existing rates

would not raise above the rates which became effective

on January 1, 1926, under the protection of the injunction.

By Tariff No, 4259, where a 10 per cent increase in exist-

ing rates would result in higher fares than those which

became effective on January 1, 1926, such fares were, by

that tariff, increased up to, but not in excess of, the rates

effective on January 1, 1926. In other words, the rates

proposed in Tariff No, 4259 were all within the injunction

level.

It is the contention of appellee that the injunction de-

cree is still effective and prohibited the commission from

interfering with appellee in, or exercising its jurisdiction

to prevent appellee from, increasing its fares up to the level

of the rates approved by that deeree, and which became

effective as of January 1, 1926.

As to Tariff No. 4259, appellee contends that it is gov-

erned solely by the injunction deeree. It further contends

that as to those rates, it is not subject to the authority or

orders of the commission, as long as it does not raise the

rates above the level of the rates approved by that decree.

It is true that the final deeree entered in January, 1928,

made the injunction theretofore issued permanent. No

appeal was taken from that decision. It was, and is bind-

ing upon all of the parties to the record. Nevertheless,

the relation of the rates, approved by that decree, to the

service rendered at that time, cannot be disregarded. In

construing that decree and in determining its effect, we

must take into consideration the character of the service

which was within the contemplation of the decree. Un-

doubtedly the deeree is binding and has perpetual efficacy

as to the rates and service involved in that ease. The

51

record shows, however, that since that time both the serv-

ice and the rates have been materially changed. At that

time appellee’s suburban system was operated by steam,

and was, to all intents and purposes, a steam railroad.

Since then the system has been completely electrified. It

is now operated as an electric system. The service ren-

dered is vastly different from the service for which the

rates were authorized by the 1928 decree. The fact that

appellee, in 1936, by Tariff No. 3537, voluntarily reduced

the rates protected by the injunction decree to the extent

of 20 per cent, constitutes an admission by appellee that

its operating cost had been materially decreased. The ad-

justments thereafter made in the rates, prior to Mareh &,

1942, even though such adjustments were made for ex-

perimental purposes. indicate that the operating cost was

constantly changing. The voluntary 20 per cent reduction,

made in 1936, is conclusive that appellee had not only

materially changed the service, but had also experienced

a reduction in operating cost. There can be no contention

upon this record that the service rendered by appellee for

the past several years is net of a wholly different char-

acter from the service rendered at the time the injunction

decree was entered in 1928. The decree is effective only

as to the rates permitted for the same character of service

which was being rendered at the time the decree was en-

tered. The value of the property devoted to the rendition

of the services at the time the decree was entered must

also be considered with reference to the present value of the

property devoted to the present service.

In 1936, appellee realizing that it was not entitled to

charge, for the service rendered at that time, the same

rates which it was permitted to charge for the different

service whieh it was rendering at the time the decree was

entered, voluntarily reduced those rates 20 per cent. It

thus voluntarily abandoned the rates approved by the de-

cree and sought to adjust such rates independently of the

decree, upon the basis of the service rendered and the cost

of opera’. at that time. It is true the decree established

only a maximum rate within which the commission could

not interfere. There was nothing in the deeree to compel

appellee to charge the maximum rates approved by the de-

52

eree. Nevertheless, when it determined in 1936, that its

rates were too high, and to voluntarily submit to a redue-

tion, we think this constituted an abandonment of the max-

imum rates fixed by that decree. We know of no rule of

law which would permit one party to litigation to obtain

a decree for his protection and then, after he has volun-

tarily disregarded and relinquished his reliance upon the

decree over a period of years, again enforce the deeree

against the other party, when conditions have so changed

“1s to make the enforcement of the decree desirable and

favorable to him. The filing of the subsequent tariffs with

the commission, whenever any changes in rates were pro-

posed, was a recognition of the jurisdiction and authority

of the commission, notwithstanding the decree.

An injunction does not create a right. It merely pro- |

tects the rights of plaintiff from unlawful or injurious

interference. In thus preventing, it does not give a_per-

petual or vested right in the remedy, the law governing

the injunction, or the effect of it. The plaintiff is not

entitled to the same measure of protection at all times and

under all circumstances. An injunction decree which is

entered upon facts which are not of such a permanent

character as to be substantially impervious to change, is

both exeeutory and ambulatory. It marches along with

time. 28 Am. Jur., see. 314, p. 485.

In United States v. Swift & Co, 286 U.S. 106, 52.8. Ct.

460, it was said: ‘‘A continuing decree of injunction di-

rected to events to come is subject always to adaptation

as events may shape the need. (Ladner v. Siegel, 298

Pa. 487, 494, 495, 148 A. 699, 68 A. L. R. 1172; Emergency

Hospital v. Stevens, 146 Md. 159, 126 A. 101; Larson \.

Minn. N. Electric Ry. Co, 136 Minn, 423, 162 N. W. 528;

Lowe v. Prospect Hill Cemetery Ass’n, T5 Neb. 89, 106

N. W. 429, 108 N. W. 978.) The distinction is between re-

straints that give protection to rights fully acerued upon

facts so nearly permanent as to be substantially impervious

to change, and those that involve the supervision of chang:

ing conduct or conditions and are thus provisional and ten-

tative.’’

In the ease of Smith v. Ilinois Bell Telephone Co. 270

U. S. 587, 46 S. Ct. 408, the same rule was announced.

D3

In that case the telephone company brought the suit against

the members of the Illinois Commerce Commission and

the Attorney General to enjoin them from enforcing or

attempting to enforce a schedule of rates alleged to be

confiscatory, and from taking any sieps or proceedings

against the company to prevent it from collecting rates

and charges under another and higher schedule. A perma-

nent injunction was granted in accordance with the prayer

of the complaint by the District Court for the Southern

District of Illinois. The purpose of the suit and the pro-

visions of the decree were substantially identical with the

suit and the decree relied upon in this case. On appeal

to the Supreme Court the members of the Commerce Com-

mission argued that the effect of the decree was to prohibit

them from enforcing in the future, any legislative remedy

for excessive charges thereafter imposed, within the level

of the decree, however, unreasonable such charees might

be. In other words the contention was that the injunetion

decree ousted the commission of authovity and jurisdiction

to supervise and regulate the rates of the utility in the

future. In answering this argument the court said, ‘there

is nothing in the decree, rightly construed, which attempts

to curtail or could curtail the legislative or rate-making

powers of appellants to proceed hereafter under the State

law, subject to such limitations, if any, as may be required

by the doctrines of res judicata, ordinarily applicable in

such cases.”?

The same rule applies to the decree relied upon in this

case. It must be construed as applying to the conditions

existing at the time the decree was entered. Any attempt

to apply that decree to a subsequent change in conditions

or to a different service or rates, is governed solely by the

rules of law applicable to the doctrine of res judicata.

It is our conclusion that, in view of the fact that appel.

lee has entirely changed the character of its system and

equipment, as well as the service rendered, and the further

fact that it, in 1936 and subsequently, voluntarily aban-

doned the maximum rates approved by the decree, it is not

now in a position to enforce or invoke the decree as taking

from the commission its jurisdiction over the rates here

o4

involved. In our judgment this case must be determined

upon the showing as to facts now existing, just as though

the injunction decree had never been entered, subject

only to the rules of law applicable to the doctrine of res

judicata,

This brings us to the consideration of the question of

whether the order of the commission, here involved, was

unreasonable or unlawful. It was found by the trial court

to be both unreasonable and unlawful. The basis for

such finding was that insufficient findings were made; that

the order has no substantial foundation in the evidence;

that the commission exceeded its power and that the order

is contrary to law. The order was set aside.

The limitations imposed upon the courts in reviewing

orders of the commission are well defined. The law is

settled that the matter of rate regulation is essentially leg-

islative. The fixine of rates is not a judicial function.

The jurisdiction of the courts to review the orders of the

commission, acting under authority delegated to it by

the legislature, is limited to the determination of whether

or not it acted within the scope of its authority, or whether

the order is without substantial foundation in the evidence,

or whether a constitutional right of the utility has been

infringed upon by fixing rates which are confiscatory or

insufficient to pay operating expenses and leave for the

utility a reasonable return on the present value of its prop-

erty, used and useful, in the public service. (Chicago,

Milwaukee and St. Paul Railway Co, v. Public Utilities

Com. 268 Il. 49; Public Utilities Com. ex rel. Mitchell vy.

Chicago and West Towns Railway Co, 275 Il. 555.) If

the order of the commission does not contravene any con-

stitutional limitation or rule of law and is within the con-

stitutiona! and statutory authority of the commission, and

has a substantial basis in the evidence, it cannot be set

aside by the courts. Public Utilities Com. ex rel. City of

Springfield v. Springfield Gas and Electric Qo, 291 Il.

209; Public Utilities Com. ex rel. Allis Brick Co. v. Chi-

cago, Milwaukee and St. Paul Railway Co. 287 Til. 412;

Chicago Motor Bus Co. vy. Chicago Stage Co. 287 Til. 32

Public Utilities Com. ex rel. Chicago Board of Tradex.

’

a0)

Toledo, St. Louis and Western Railroad Co., 286 Ill. 582;

Public Utilities Com. ex rel. East S!. Louis Stone Co. vy.

Terminal Railroad Ass’n, 281 Tl. 181.

The courts will not set aside an order of the commission

unless it is arbitrary or unreasonable or clearly violates

some rule of law. The purpose of a review of orders of

the commission by the courts is to keep the commission

within its jurisdiction so as not to violate any rights euar-

anteed by the constitution. South Chicago Coal and Dock

Co. v. Commerce Com, 365 Til. 218; Commerce Com. cx

rel. Lumaghi Coal Co. vy. Chicago and Eastern Illinois Rail-

way Co, 382 Tl. 243.

The legislature has vested in the Commerce Commission

the exclusive function of fixine rates of public utilities

which will be just and reasonable and produce a fair re-

turn on the property used and employed in the public serv-

ice. Kven though a court holds that the rates authorized

by the commission are inadequate or egal and restrains

their enforcement, it cannot make new rates. Orders of

the commission are entitled to great weight and the courts

will not set aside such orders unless they are arbitrary

or unreasonable or clearly violate some rule of law. Peo-

ples Gas Light and Coke Co. v. Slatt ry, 373 Til. 31.

With these limitations in mind, we proceed to a consid-

eration of the order here involved. The only evidence

before the commission was that offered by appellee. As

already indicated, the rates involved are those only which

are applicable to appellee’s suburban service in the Chi-

‘ago suburban zone. Substantial evidence Was offered be-

before the commission showing that appellee’s suburban

service is operated as a separate service, distinct from its

system service. There was no evidence “offered to the

contrary. This evidence shows that the suburban service

originated in 1856. At that time the operations extended

from Randolph Street. to Hyde Park (53d Street.) In

1862 it was extended to Woodlawn (63d street); in 1871 to

Grand Crossing (75th street); in 1873 to Kensington

(115th street); in 1880 to Pullman; in 1890 to Harvey and

Homewood; in 1892 to Blue Island; in 1893 to South Chi-

‘ago: in 190Q/to Flossmoor, and in 1912 to Matteson, which

is its present southern terminus.

06

The track arrangements used in the suburban service

includes three tracks from Randolph street to Eleventh

street; six tracks from Eleventh street to Filty-first

street, which connect with the Fifty-third street station;

four tracks from Fifty-third street to Kensington; two

tracks from Kensington to Matteson; a single track between

Kensington and Blue Island, and two tracks from Sixty-

seventh street to South Chicago. These tracks are used

exclusively for suburban service. They are not used for

through freight or passenger service. The distance from

Randolph street to Matteson is 28 miles; from Randolph

street to South Chicago, 11.6 miles; from Randolph street

to Blue Island, 18.3 miles. All stations are used exclusively

in the suburban service, except five, namely; Fifty-third

street, Kensington, Harvey, Homewood and Matteson. A

portion of the facilities of these five stations is used jointly

for both suburban and through sérvice.

The equipment includes a total of 280 motor cars and

trailers. They are operated in multiples of two, except

during rush hours, during which time from two to eight

‘ars are used in each train. The entire suburban system

is electrified and all trains are operated by electricity.

Separate shop facilities are maintained for suburban

equipment. Separate vards are used exclusively for subur-

ban operations. All suburban stations are equipped with

a special type of platform so that passengers are enabled

to enter and leave the cars without using steps. The plat-

forms of cars and stations are of the same height. The

operations consist of 458 trains per day on week days, and

289 trains on Sundays. Twenty-four-hour service is pro-

vided. Seven hundred seventy-four employees are engaged

exclusively in the suburban service. These employees in-

clude station janitors, matrons, crossing flagmen, train-

men, engineers, gatemen, collectors, flagmen, vardmasters,

switchmen, levermen, clerks, mechanies, carmen, electri-

cians, oilers, car cleaners, hostlers and foremen. Since 1925,

appellee has completely reconstructed its suburban system

by a change-over from a steam-operated suburban service

to electrified service, devoted exclusively to the handling

of suburban traffic. No through trains make use of the sub-

urban facilities. Except as to the five stations above men-

oT

tioned, no suburban trains use facilities which are used by

through trains. There is no interchangeability of either

equipment or manpower.

Evidence was offered on the question of values of prop-

erty used and useful, in both the suburban and through

service, allocating to each its just proportion of property

used jointly in both branches of service. Joint expenses

were in like manner allocated. The evidence touchine the

question of the value of the property, used and useful and

devoted to the suburban service, tended to show that, under

any formula approved by the Supreme Court in Federal

Power Com. v. Natural Gas Pipeline Co. 315 U.S. O79, 62

S. Ct. 736, for arrivine at sueh values, the present rates

would not produce a fair return on the investment. The

commission disregarded this evidence in its entirety. It

refused to consider or to attempt to segregate or allocate

these values and expenses, as between the suburban and

and through service, Instead, it proceeded upon its con-

clusion that, notwithstanding this undisputed evidence in

the record, the suburban service did hot constitute a sepa-

rate and independent service and that the commission could

not consider the suburban service separately. It proceeded

upon the theory that the only question to be determined

was whether the revenues derived from the entire system,

both freight and passenger, through and suburban, and

including both interstate and intrastate business, were suf:

ficient to vield a fair return on the value of the properties

used in its entire system, wherever located. Its findings

and order are based on the premise that if the combined

revenues from all sources from the entire system were suf-

ficient to produce a reasonable return on the fair value of

its property, devoted to the public service by the entire SVs-

tem, the return from its property devoted to its suburban

service Was wholly immaterial, and that it would not attempt

to determine whether, under existing rates, appellee was

conducting its suburban service at a loss, or less than a

reasonable return upon the investment employed in that

Service,

The commission asserted that it took this position be-

cause there was evidence in the record that the income from

the suburban service goes into and is treated as a part of

4

58

the general corporate funds, and that all expenses for

materials and supplies and disbursements, in connection

with the operation of the suburban service, were paid out

of the general corporate funds, and upon the further fact

that some of the facilities were used jointly for both subur-

ban and through service.

Exhibits and testimony were offered by appellee, setting

forth in detail the allocation of joint operating expenses

and taxes. To these exhibits were attached the formulas

constituting the bases of the division and apportionment

of joint expenses to suburban and through serviee. These

exhibits set out in detail the allocation applicable to each

joint account and the basis for the allocation. The alloea-

tion of property values used jointly in both branches of

service was shown in the same way. Such values were

allocated on the same basis.

The commission apparently attached some importance

to the fact that the evidence showed that the income from

suburban service was treated as a part of the general

corporate funds of appellee. This fact, however, is wholly

without significance. It could net be treated otherwise.

The entire income from all branches of service, and any

other possible sources, constituted its general corporate

funds. The important fact is that, nevertheless, the ae-

counts, were kept separately, even though the income from

all classes of service ultimately became a part of the general

corporate funds. The commission failed to distinguish

between corporate funds and corporate accounts.

The dominant basis of the order of the commission is

its finding in paragraph IIL ‘that the suburban service is

in fact but a segment of the entire Hlinois Central System

and it therefore cannot consider the suburban service as

an institution in and by itself.’? Later, in discussing prop-

erty values, its views are expressed in the following: lan-

guage: ‘In view of the investment in the property of Peti-

tioner, as disclosed by the record, and hereinabove set forth

and referred to, there can be 10 doubt but that the Peti-

tioner is earning and will continue to earn during the war

emergency a just and reasonable return upon the property

investment account, because it must be assumed, in view of

59

the relation of the capital structure and funded debt account

to the property investment account, that operating revenue

to the extent of approximately $12 per share on the common

stock of the Petitioner would constitute a just and reason-

able return, at least during the period of the war emergency,

if not thereafter, during the period in which a somewhat

approximate return is realized by the Petitioner. The

fact that the net return realized by the Petitioner from

the suburban service may not equal the corresponding

return from the freight and other services rendered by

Petitioner on its system asa whole, is of minor importance,

having in mind that the system revenue derived by Peti-

tioner is sufficient to vield to the investors what would ap-

pear to be a just and reasonable return,”

In paragraph VI of the order, the commission found:

“The Commission has hereinabove set forth its opinions

and findings to the effect that. the services rendered by

Petitioner in its suburban service ‘annot be segreeated and

treated apart from its system service, but on the contrary

constitute an integral part of its system service and should

be so considered in determining whether a just return upon

investment of Petitioner's system as a+whole is presently

accruing. Accordingly, the Commission is of the opinion

and so finds that the proposed rates involved herein are and

must be held to be unjust and unreasonable.’

It will, therefore, be seen that the commission definitely

refused to give consideration to the suburban service as

separate from the system service of appellee. It found that,

taking into consideration the operation and revenues of

the entire system, appellee was receiving a reasonable re-

turn from its whole system upon its system investment.

Having reached this conclusion, it further found that the

question of whether or not the suburban Service, as a sepa-

rate service or system, was earning a return on the invest-

ment devoted to that system was Wholly immaterial. It

refused to consider the question of whether the revenues

from suburban service were remunerative or confiseatory,

or whether such revenues were sufficient to pay operating

expenses, It thus refused to consider the fair value of ap-

pellee’s property devoted to the suburban service, as well as

the income derived from that service,

60

In reaching this conclusion, the commission wholly dis-

regarded both the law and the evidence. It was funda-

mentally wrong, as a matter of law, in refusing to consider

the evidence in the record showing that the suburban service

was an independent service, separate from the system serv-

ice of the company. Its refusal to consider the evidence

tending to show that the revenue derived from the subur-

ban service was insufficient to pay operating expenses and

provide a reasonable return on the investment, constituted

a denial of due process.

One of the leading cases on this subject is Northern

Pacific Railway Co. v. North Dakota, 236 U.S. 580, 99 L. ed.

735. In that case the State of North Dakota had established

maximum intrastate rates for the transportation of car-lot

shipments of coal. It was there said: ‘*But a different

question arises when the State has segregated a commodity,

or aclass of traffic, and has attempted to compel the carrier

to transport it at a loss or without substantial compensa-

tion, even though the entire traffic to which the rate is ap-

plied is taken into account. On that fact being satisfactorily

established, the presumption of reasonableness is rebutted.

If in such a ease there exists any practice, or what may be

taken to be (broadly speaking) a standard of rates with

respect to that traffic, in the light of which it is insisted that

the rate should still be regarded as reasonable, that should

be made to appear. As has been said, it does not appear

here. Frequently, attacks upon State rates have raised the

question as to the profitableness of the entire intrastate

business under the State’s requirements. But the decisions

in this class of eases furnish no ground for saying that the

State may set apart a commodity ora special class of trafic

and impose upon it any rate it pleases, provided only that

the return from the entire intrastate business is adequate,

* * * The constitutional guaranty protects the carrier

from arbitrary action and from the appropriation of its

property to publie purposes outside the undertaking as-

sumed; and where it is established that a commodity, ora

class of traffic, has been segregated and a rate imposed

which would compel the carrier to transport it for less than

the proper cost of transportation, or virtually at cost, and

thus the carrier would be denied a reasonable reward for

61

its service after taking into account the entire traffic to

which the rate applies, it must be concluded that the State

has exceeded its authority.”’

In Norfolk and Western Railway Co. v. Conley, 236 U.S,

600, 09 L. ed. 745, it was said: “* * * the devotion of

the property of the carrier to public use is qualified by the

condition of the carrier’s undertaking that its services are

to be performed for reasonable reward; and that the state

may not select a commodity or class of traffic, and instead

of fixing what may be deemed to be reasonable compensa-

tion for its carriage, compel the carrier to transport it

either at less than cost, or fora compensation that is merely

nominal The considerations sare controlling here. The

passenger traflic is one of the main departments of the com.

pany’s business; it has its separate equipment, its separate

organization and. management, and, of necessity, its own

rates. In making a reasonable adjustment of the carrier's

charges, the state is under no obligation to secure the same

rate of return from each of the two principal departments

of business, passenger and freight: but the state may not

select either of these departments for arbitrary control.

Thus, it would not be contended that the state might require

paip<enezers to be carried for nothing, or that it could Justify

fich action by placing upon the shippers of goods the bur-

den of excessive charges in order to supply an adequate re-

turn for the carrier’s entire serviee.”’

In Bunton v. Belt Line Railway Corp., 268 U.S. 413. 45

S.Ct ocd, the question of separate classes of traflie of the

same general character was also involved. It was there

said: ** There is involved only the rates applicable to a part

of the company’s business. In this respeet, the case is simi-

lar to Northern Pacific Railway v. North Dakota, 236 U.S.

ASO, BO S.Ct 429, 59 L. ed. 755, L. Ro AL 1917F, 114s, Ann.

Cas. LOTGA, 1, Norfolk and Western Railway ve. West Vir-

quia, 236 US. G05, 35'S. Ct. 497,09 L. ed. 745, and Norther

Pacific Ratleay ee De partme ni of Public Works of Wash-

ington, 268 U.S. 59, 45 S. Ct. 412, 69 L. ed. S36, decided

April 13, 1925. The applicable law is plain. The state is

Without power to require the traflie covered by the fare en-

joined to be carried at a loss or without substantial com.

pensation over its proper cost. And such cost includes not

RED MAM EL EOE LAS

*

62

only the expenditures, if any, incurred exclusively for that

traflic, but also a just proportion of the expenses incurred

for all traflie of which that in question forms a part. The

cost of doing such business is not, and properly cannot be,

limited to the amount by which total operating expenses

would be diminished by the elimination of, or increased by

adding, the transfer passengers in question. It would be ar-

bitrary and unjust to charge to that class of business only

the amount by which the operating expenses were, or would

be, increased by adding that to the other traffic carried. Out-

lays are none the less a-tributable to transfer passengers

because also applicable to other traffic. Operating expenses

which are incurred on account of all passengers carried, and

which are not capable of direet allocation to any class,

should be attributed to the transfer passengers in ques-

tion in like proportion as such expenses are fairly charge-

able to other passengers receiving like service. While the

‘arricr has no constitutional right to the same rate or per-

centage of return on all its business, the state may not

select any class of traffic for arbitrary control and regu-

lation.”’

In Chicago, Milwaukee and St. Paul Railway Co. v. Public

Utilities Com., 274 U.S. 344, 47 S. Ct. 604, the court con-

sidered the validity of an order of the Idaho commission

affecting intrastate rates for the transportation of logs.

There the State commission took the position that even if

it be conceded that the particular rates involved were in-

suflicient to produce a return on the invested capital, it did

not necessarily follow that the rates would be confiscatory

for the reason that the hauling of logs from the forest to

the mill consituted only one step in the process of reducing

the logs to the finished product. It further found that the

revenues derived from the shipment of logs was only an

incident to the traffic and could not be considered as an in-

dependent service, but only in connection with the entire

revenues earned in the transportation of logs and lumber.

The court, however, in refusing to accept this theory said:

‘*The evidence introduced by the carriers was sufficient to

warrant, if not to require, a finding that, as to the lines of

all petitioners, the intrastate log rates in question are very

low in comparison with the rates on other commodities, and

63

that, as to the Chicago, Milwaukee & St. Paul and the Great

Northern, they are confis ‘atory. But, as appears from their

opinions, the respondent and the court refused to consider

and give weight to that evidence because, as they held, the

intrastate log rates were not to be dealt with separately but

were to be considered in connection with the interstate

lumber rates, and because the carriers made no showing as

to the gains or losses resulting from the interstate trans-

portation. That cannot be sustained. The carriers cannot

maintain interstate lumber rates higher than otherwise

justified by showing that they suffer loss or have inadequate

returns from the intrastate transportation of logs. The

state has no power to require petitioners to haul the logs

ata loss, or without compensation that is reasonable and

just, even if they receive adequate revenues from the in-

trastate log haul and the interstate lumber haul taken

together. Northern Pacific Railway Co. v. North Dakota,

236 U.S. 585, 595, 596, 35S. Ct. 429, 59 L. ed. 735, L. R.A.

I917I*, 1148, Ann. Cas. IDIGA, 1; Norfolk and Western Rail-

way V. Conley, 236 US. 605, GUI, 35S. Ct. 437, 59 L. ed. 745;

Brooks-Scanlon Co, y. Railroad Com., 251 U. S. 396, 399, 40

S. Ct. 188, 64 L. ed. 323; Northern Pacific v. Dept. Public

Works, 268 U.S. 39, 43, 49S. Ct. 412, 69 L. ed, 836; Banton

v. Belt Line Railroad Corp., 268 U.S, 413, 421, 45 S. Ct. O34,

69 L. ed. 1020,"

In the case of Smyth vy, Ames, 169 U.S. 466, 42 L. Kad.

S19, the court considered a statute of the State of Ne-

hraska, fixing rates for intrastate transportation within

the State. It was here said: In our judgment, it must

be held that the reasonableness or unreasonableness of

rates prescribed by a state for the transportation of per-

sons and property wholly within its limits must be deter-

mined without reference to the interstate business done by

the carrier, or to the profits derived from it. The state

cannot justify unreasonably low rates for domestic trans

portation, considered alone, upon the ground that the car.

rier is earning laree profits on its interstate business, over

Which, so far as rates are concerned, the state has no eon-

trol. Nor can the carrier justify unreasonably high rates

on domestic business upon the ground that it will be able

only in that way to meet losses on its interstate business.

64

So far as rates of transportation are concerned, domestic

business should not be made to bear the losses on inter-

state business, nor the latter the losses on domestic busi-

ness. It is only rates for the transportation of persons

and property between points within the state that the state

can prescribe; and when it undertakes to prescribe rates

not to be exceeded by the carrier, it must do so with refer-

ence exclusively to what is just and reasonable, as between

the carrier and the public, in respect to domestic business,

The argument that a railroad line is an entirety; that its

income goes into, and its expenses are provided for out

of, a common fund; and that its capitalization is on its

entire line, within and without the state,—can have no

application where the state is without authority over rates

on its entire line, and can only deal with local rates and

make such regulations as are necessary to give just com-

pensation on local business.’

It is true, as asserted by appellant, the court in the recent

‘ases of Federal Power C ommission v. Natural Gas Pipe-

line Co. of America, 315 U. S. 575, 62 8S. Ct. 756, and

Federal Power Com. v. Hope Natural Gas Co. (decided

January 3, 1944,) 64 S. Ct. 281, departed somewhat from

some of the principles announced in Smyth v. Ames, rela-

tive to the selection of formulas for valuation purposes.

it did not, however, depart from the decision with refer-

cence to the principle of the segregation of the particular

class of service involved from other services rendered by

a carrier for rate-making puposes.

From the foregoing cases, it is apparent that the com-

iission in this case disregarded a fundamental rule of

law, applicable to the questions before it. It further ap-

pears that the order of the commission was based upon

this misapprehension of that principle of law which was

binding upon the commission. As a result, the commission

wrongfully refused to consider the evidence showing that

the service rendered by appellee, in its suburban serv-

ice, Was segregated and separate from its system service.

Its finding on which its order was based, that the suburban

service constituted an integral and inseparable part of

the service rendered by the entire system, has no substan-

> Ort; err

65

tial basis in the evidence. Its finding that so long as ap-

pellee’s net revenues from the operation of its entire sys-

fem were sufficient to provide a reasonable return on its

system investment it was immaterial whether the revenue

derived from its suburban service was sufficient to pay

operating expenses incurred in that service or a fair re-

turn on the reasonable value of the property devoted to

that service, was against the manifest weight of the evi-

dence. Having proceeded upon this fundamentally erro-

neous basis, it logically reached the erroneous conclusion

that it could not consider an inerease in rates for appellee's

suburban service so long as the net revenue from the en-

tire system was sufficient to show that the whole system

was not operating at a loss. This conclusion makes it

unnecessary for us to consider any other questions pre-

sented which have not already been disposed of by this

opinion.

The commission having disregarded the evidence in the

record, as well as the basie and fundamental rules of law

applicable to the facts before it, its order cannot be sus-

tained. The order of the commission has no substantial

basis in the evidence. It is unreasonable and unlawful.

The judgment of the superior court of Cook county is

affirmed.

Judgment affirmed.

(6183)