# Appendix — Ex parte Stewart

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1944
- **Citation:** 321 U.S. 755

## Text

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SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1943

No. 767

THE INTERSTATE COMMERCE COMMISSION AND
HUDSON & MANHATTAN RAILROAD COMPANY,
APPELLANTS,

vs.

THE CITY OF JERSEY CITY, FRED M. VINSON,
STABILIZATION DIRECTOR BY CHESTER
BOWLES, PRICE ADMINISTRATOR

APPEAL FROM THE DISTHICT COUNT OF THE UNITED STATES FoR
THE DISTHICT OF NEW JERSEY

INDEX,
Original = Print
Record from D, ©. VU, &,, ae ST TTT , i i
Complaint 6655555 ++) benenvevens i i
Affidavit of Arthur Potertoms ss. ...0 5500555, 7 10
Exhibilla 1" to "6" (omitted in printing) is
Onier convening clatatery eturt and setting ease for Rear
ing..... 7 0
Summons and return. peeeeee (omitted in printing) 7a
Answer of /nterstate Commerce Comminsion....., 75 wo
Exhibit "A" Order of Commission reopening pro-
ceed!Ha® in the matter of passenger fares of Hudson
& Manhattan Railroad Company, ................ al 2s
Stipulation @Xtending time of Hudao, & Manhattan Rail:
road Company to plead (omitted in printing)........... a2
Notice of r#©tion for leave to file amended complaint, .... . ag uM
Order gran#i®& leave to file amended complaint,.......... S4 PN)
Amended fed complaint SERERELELEEEEECELECECOCOCCCTL Tee &S 25
vit of Arthur Potterton.... 6... 55, Mt 40
Exhibi#® “1” to “7”... ........ (omitted in printing) 103
Notice of tion of Economic Stabilization Director for
leave to fle and serve petition (complaint). ............ 171 Bey

Jupp & DerwP™*® (inc), Paorrems, Wasmmvcron, D. C.. Aram 5, 1944.

—1320

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Record from D. ©. U. 8., District of New Jersey—Continued

Petition of Economie Stabilization Director for leave to

complaint
Exhibit “A” —Original complaint filed by City of Jersey
City (omitted in printing). ..000 06666 ccc ccc eees
Exhibit “B’—RKule 101 of the Interstate Commerce

Vahibit “C”—Letter dated October 25, 1044 from
Charles Hershenstein and 6, 8. Vieen to W. P. Bartel
(omitted in printing). .

Anewer of Interstate Commerce Commiasion to amended

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PORE AA Maa aaa

complaint

Anawer of the United Mates to amended complaint

Anewer of Hudeon & Manhattan Mailroad Co. to petition of
Veonomic Mabilisation Director

Anewer of Interstate Commerce Commission to petition of
Keonomic Mabilisation Direetor

Amended anawer of Interstate Commerce Commiasion to
eee cempuns tae ve pollen of Seenente Seneiee

tion Director. .
amaova of Walter . Brown in opponition to motion tor
interlocutory injunction

SRST SSE STEERER EERE HEH

Original §= Print
173 55
182
1970s:
198 67
202
203 71
205 71
215
221 #7
222
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74) wa
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240 101
242 102
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200 il4
MS 116
285 118
285 118
286 119
300 127
ct] 128

Record from D. C, U. 8., District of New Jersey—Continued
Transcript of hearing on application for permanent in-
Junction—Continued Original
Argument of Mr. Hershenstein for the City of Jersey
City 315

(omitted in printing). .
Notice of appeal to Attorney General of New Jormey......
Order ae to exhibits
Defondanta’-Appellanta’ praeeipe for consolidated record
Hervies of citation... ............ (omitted in printing),
Olork’s cortifiemta, 5.5.55 ....++, (omitted in printing), ,
Vinhibite:

Plaintiff's Wahibit 2" — Deport of the Interstate Com-

iv

INDEX

Record from D, C. U. 8., District of New Jersey—Continued

Exhibits—Continued

Plaintiff's Exhibit “7”—Reply of protestants to peti-
tion of Hudson & Manhattan Railroad Co., for

S 6.b OO SE OSS OP LOD ERE SVC CRE RHOeT ES OCFECRFECe

ceedings
Intervenor’s Exhibit “2”—Reply of Economic Stabiliza-
tion Director to petition of Hudson & Manhattan

proposed by Examiner.........---.-.-s+seeee5+:
Hudson & Manhattan Exhibit “1’”—Reply of Hudson
& Manhattan Railroad Co. to motion of Economic
Stabilization Director for modification of the Com-
mission’s order of September 18, 1943 and for re-
OPOMING. «6... eee eee cence teen en eeeeeeees
Hudeon & Manhattan Exhibit “2”—Letter dated
October 25, 1943 from Charles Hershenstein and 8. 8.

Interstate Commerce Commission by Hudson & Man-
hattan Hailroad Co. for reopening of proceedings, and
for leave to publish and charge a 10 cent fare.......
Hudson & Manhattan Exhibit “4’”—Reply of City of
Jersey City to petition of Hudson & Manhattan Rail-
roe’ Co. for reopening proceedings and for leave to
publish Aid charge a 10 cent fare...........-..-+-
Hudson & Manhattan Exhibit “6”—lLetter dated
Oowber 17, 1942 from Harry R. Booth to W. P.
RS Rhy Si itis Aa
Hudeon & Manhattan Exhibit “7”—Letter dated
Novembe, 9, 1942 from Hudson & Manhattan Rail-
road O8, 'o the Price Administrator...........----
Hudeon & Manhattan Exhibit “11”—Stipulation of
counsel ®% to certain traffic statistics...........--..
Interstate Gommerce Commission Exhibit “1”—Order
of November 13, 1942 granting OPA right to intervene
Interstate Gommerce Commission Exhibit “2”—Order

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Statement of pointe on which appellants intend to rely and
y an
designation of part, of record to be printed..........----.--

Order noting probabi, ;

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573

578

Original Print

345

351

352

[fol. 1]

IN THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF NEW JERSEY

Crry or Jersey Crry, Plaintiff,
vs.

Tue Untrep Srares or America, Interstate CoMMERCE
Commission, and Hupson & Mannatran Rarroap Com-
pany, Defendants

Comp.taint—Filed September 13, 1943

Plaintiff, The City of Jersey City, brings this action
against the United States of America, the Interstate Com-
merce Commisison (hereinafter sometimes called the Com-
mission), and Hudson & Manhattan Railroad Company
(hereinafter sometimes called the Railroad), for the pur-
pose of enjoining, setting aside and annulling an order
of the Commission decided August 3, 1943, in the pro-
ceedings entitled ‘‘Investigation and Suspension Docket
No. 4394, Passenger Fares of Hudson & Manhattan Rail-
road Company’’, and alleges:

1. The jurisdiction of this Court over this action is under
and pursuant to the provisions of Sections 41, subdivision
(28), and Sections 43 to 48, inclusive, of Title 28 of the
United States Code.

2. Plaintiff is a municipal corporation in the County of
Hudson and State of New Jersey, and is a body politic.
The matter covered by said order of the Commission arose
in the District of New Jersey.

3. The defendant, United States of America, is sed pur-
suant to express authority of the Congress of the United
States, as provided in Sections 43 to 48 of Title 28 of the
United States Code.

The defendant, Interstate Commerce Commission, is an
administrative commission existing under and by virtue
of the Interstate Commerce Act, United States Code;
Title 49, and is specifically charged with the administra-
tion and enforcement of the provisions of said act.

The defendant, Hudson & Manhattan Railroad Company
is a common carrier by railroad engaged in the transporta-

ot NER

tion of passengers in interstate commeree, subject to the
provisions of the Interstate Commerce Act, United States
Code, Title 49, Chapter I, part I, except those provisions
which by their terms are not applicable to the interurban
electric railway operated by the Hudson & Manhattan
Railroad Company, and the order, hereinafter complained
of, permits this railroad to increase its fares.

4. The defendant, Hudson & Manhattan Railroad Com-
pany, is a consolidated corporation organized and existing
under and pursuant to the laws of the States of New York
and New Jersey, having a residence and its statutory office
in the District of New Jersey. The railroad transports
passengers only, and does not transport baggage, freight
or express matter.

5. The railroad properties consist of an underground
rapid transit passenger railway, furnishing transportation
facilities between points in uptown and downtown New
York City and points in Jersey City and Hoboken, New
Jersey. The railroad operates its trains in two services,
commonly referred to as the downtown line and the up-
town line.

On the downtown line the trains operate (a) between
the downtown terminal at Hudson Terminal, New York
City, on the one hand, and on the other the New Jersey
(fol. 2] stations of Exchange Place, Grove and Henderson
Streets and Journal Square, and (b) between the down-
town terminal at Hudson Terminal on the one hand, and
on the other the New Jersey stations located at Exchange
Place, Erie Station and Hoboken.

On the uptown line the trains operate (a) between the
New Jersey stations of Hoboken on the one hand, and on
the other New York City stations of Christopher Street,
9th Street, 14th Street, 19th Street, 23rd Street and 33rd
Street and (b) between the New Jersey stations at Journal
Square, Grove and Henderson Streets and Erie Station,
one the one hand, and on the other the New York City sta-
tions located at Christopher Street, 9th Street, 14th Street,
19th Street, 23rd Street and 33rd Street.

The railroad also operates, in conjunction with the Penn-
sylvania Railroad, a joint rapid transit electric train serv-
ice between the downtown terminal at Hudson Terminal,
New York, and the station of the Pennsylvania Railroad
at Market Street, Newark, New Jersey. The trains in this

3

joint service operate over the lines of the railroad between
the downtown terminal, Hadson Terminal at New York
City, and the Journal Square station, Jersey City, and
from that point over a line owned *> the Pennsylvania
Railroad to the latter’s station at Market Street, Newark,
New Jersey.

6. On July 31, 1937, the railroad issued, published and
filed, with the Commission, its local passenger tariff desig-
nated as I. C. C. No. 42, to become effective September 1,
1937, providing for the establishiaent of a fare of ten cents
for the interstate transportation of passengers on the rail-
road’s downtown line as aforesaid, in lieu of a fare of six
cents previously published and maintained in force and
effect. Said tariff provided for no changes in the fare then
in effect for interstate transportation on the uptown line
previously and then established at ten cents.

As a result of protests filed by plaintiff and others in
New Jersey the effectiveness of the aforesaid tariff was
suspended and the lawfulness of the proposed increase in
the downtown fare was made the subject matter of a pro-
ceeding instituted by the Interstate Commerce Commission
in Investigation and Suspension Docket No. 4394.

7. After due hearing the Commission found, 227 I. C. C.
741, that the proposed increase from six cents to ten cents
in the passenger fare maintained by the railroad on its
downtown line had not been justified, but that an eight cent
fare had been justified. A fare of eight cents on the down-
town line became e‘fective July 25, 1938, and has since
been maintained. The Commission in its original report
and order, 227 I. C. C. 741 made three paramount findngs:

(1) ‘‘From the standpoint of the cost of the service
to respondent, therefore, as well as of the value of the
service to the passenger, it would seem that if ten cents
is a maximum reasonable fare for the uptown service,
the reasonable fare for the downtown service must be
something less than ten cents.’’ 227 I. C. C. 741, 754.

(2) ‘‘If respondent should feel impelled to seek a
further increase in revenue it should consider doing so
on interline traffic.’’ 227 I. C. C. 741, 762.

(3) ‘*The proposed fare of ten cents would be un-
reasonable under the Act and has not been justified.’’
227 I. C. C. 741, 762.

4

8. Following the promulgation of the report and order,
227 I. C. C. 741, as aforesaid, the railroad company ap-
pealed to the courts to enjoin the same. It filed its bill
in the Southern District of New York seeking to enjoin
the order of the Commission, but said action was dismissed
by the District Court of the Southern District of New York
because of improper venue, the court holding that proper
venue was in the District of New Jersey, Hudson & M. R.
Co. v. U. S., 28 Fed. Supp. 137. Thereupon the railroad
company filed its bill in the United States District Court
{fol. 3] for the District of New Jersey. The order of the
Commission accompanying the original report was upheld
by the United States District Court, for the District of New
Jersey, Hudson & M. R. Co. v. United States, 33 Fed. Supp.
495, which was affirmed by the Supreme Court, Hudson ¢
Manhattan R. Co. v. U. S., 313 U. 8. 98.

9. Upon petition of the railroad of July 27, 1942, for
further hearing and for leave to publish and charge a ten
cent fare on the downtown line by reason of alleged changed
conditions, the proceeding was reopened for further hear-
ing by the Interstate Commerce Commission. Such further
hearing was held and as a result thereof the Commission
issued its decision on June 8, 1943, 255 I. C. C. 649, affirm-
ing its original conclusion that the proposed fare of ten
cents would be unjust and unreasonable and has not been
justified. The Commission further concluded that an in-
creased local fare of nine cents on the railroad’s downtown
line had been justified for application during the remaining
period of the war and six months after its termination.

10. In promulgating its report and order of June 8, 1943,
as aforesaid, the Commission made the following specific
findings :

(1) ‘*That under normal circumstances the satura-
tion point in increased fares (referring to the eight
cent fare) on that traffic (downtown) has about been
reached.’’

(2) ‘‘If respondent (railroad) had availed itself of
the authority granted by our order of January 21, 1942,
in Increased Railway Rates, Fares, and Charges, 1942,
supra, the downtown fare would now be nine cents.
An increase to that amount would be consistent with
that decision.”’

(3) ‘‘While there can be little doubt that under pres-
ent conditions further increase in this (eight cent) fare,
even to ten cents, would result in additional net reve-
nue, we are convinced that it would be unreasonable to
expect the entire burden of the revenue increase to be
borne by the downtown local passengers, and that a
substantial portion thereof should be sought through
increased divisions on the interline traffic.’’

11. The railroad on July 8, 1943, filed a petition for re-
consideration and modification of the findings made by the
Commission in its report on further hearing, dated June
8, 1943. That petition sought, through the medium of an
affidavit attached thereto and made a part thereof, to secure
modification of the Commission’s order because of an al-
leged disability on the part of the railroad to collect the
nine cent fare on the downtown line with its available fare
collection system. By this petition the railroad sought,
pending the procurement of tokens which were to be sold
at eleven for one dollar with an alternative cash fare of
one dime, that it be authorized to charge, on the downtown
line, a cash fare of ten cents. Such cash fare of ten cents
was to continue in effect indefinitely until necessary tokens
were acquired and alterations were made in the fare
collection boxes. In connection therewith the railroad pro-
posed that if its request were granted it would reduce
the fare on the uptown line from ten cents per passenger
to eleven tokens for one dollar, with an alternative cash fare
payable only by a dime.

12. The plaintiff, on July 14, 1943, replied to the rail-
road’s petition and in requesting denial thereof prayed that
if any affirmative action be taken by the Commission, the
proceeding be set for further hearing to give all parties
their requisite day in Court on the new matters herein
alleged and thereby afford the plaintiff its right of cross-
examination.

13. Gn August 3, 1943, upon the facts as aforesaid, with-
out according the parties further hearing, the Commission
issued its report on reconsideration. Such report affirmed
the prior conclusion that the proposed fare of ten cents
had not been justified for general application on the down-
town line but permitted an increased local fare on the
[fol. 4] downtown line based on the alternative basis of

eleven tokens for one dollar or a cash fare of ten cents,
payable by a dime. Such permissive increase was coupled
with the proviso that contemporaneously with the establish-
ment and maintenance of the increased downtown fare the
same alternative basis, namely, eleven tokens for one
dollar or a cash fare of ten cents, payable by a dime, be
established and maintained on interstate traffic on the
uptown line.

14. In so providing for increased fares on the downtown
line whereby the regular patron or so called commutation
passenger would be required to pay nine and one-eleventh
cents per ride, and the occasional rider ten cents per ride
in lieu of the nine cent fare theretofore found to be the
reasonable maximum figure, the Commission in its report
and order of August 3, 1943, stated:

‘‘The proposed alternatve basis will not increase to
any material extent the relative transportation burden
of the local commuters on the downtown line beyond
that anticipated by our authority as granted in the
prior report. We there found that it would be un-
reasonable to expect the entire burden of the revenue
increase to which respondent is entitled to be borne by
the downtown local passengers, and that a substantial
portion thereof, for the reasons therein stated, should
be sought through increased divisions on the traffic
interchanged with the Pennsylvania Railroad Com-
pany. In its petition respondent states that it will
undertake to seek promptly such increased divisions on
that traffic as shall be adequate.’’

15. In the original report and order of the Commission,
277 I. C. C. 471, the Commission found that if the railroad
‘*should feel impelled to seek a further increase in revenne
(over and above an eight cent downtown fare therein pre-
scribed) it should consider doing so on interline traffic.’’
The Commission’s decision containing such admonition
was upheld by the District Court for the District of New
Jersey, Hudson & M. R. Co. v. U. S., supra, and affirmed
by the Supreme Court of the United States, Hudson & Man-
hattam R. Co. v. U. S., supra. A similar directive to the
railroad to increase its revenue through an adjustment of
its interline division with the Pennsylvania Railroad ap-
peared in the Commission’s report and order of June 8,

7

1943, 255 I. C. C. 649, and again in its report and order
of August 3, 1943.

16. To the exteat that the Commission permits the rail-
road to deliberately disregard the directive, contained in
all of the reports and orders, as aforesaid, requiring the
railroad to increase its revenues through proper adjust-
ments of interline accounting with the Pennsylvania Rail-
road, and in lieu thereof permits increases in the local
downtown fare notwithstanding the Commission’s own
statement, ‘‘that it would be unreasonable to expect the
entire burden of the revenue increase to which respondent
is entitled to be borne by the downtown local passengers,’’
the Commission acts arbitrarily, disregards the evidence,
and transcends the authority vested in it in the adminis-
tration of the Act.

17. It is apparent that the Commission, in authorizing
local downtown fares in excess of the nine cent fare stated
to be the reasonable maximum charge in the report and
order of June 8, 1943, 255 I. C. C. 649, does so wholly be-
cause of an alleged carrier disability. As to such alleged
carrier disability the plaintiff herein has been deprived of
its full day in Court by not having been given an oppor-
tunity to cross-examine witnesses, refute and otherwise
present counter evidence, and the order was entered with-
out due process of law. To the extent that the Commission
considered such matters in this regard, it acted arbitrarily
and beyond the realms of proper judicial procedure.

[fol.5] 18. To the extent that the Commission relegates
the right of the passenger to a reasonable fare to a posi-
tion subordinate to an alleged carrier disability, the Com-
mission disregards established law, that every passenger
is entitled to a reasonable fare. The carrier’s disability
does not justify the assessment of unreasonable fares or
charges.

19. It is evident that the Commission, in part, justifies
the increased downtown fare by the reduction in the uptown
fare from ten cents to eleven tokens for a dollar or in the
alternative a ten cent fare payable only by a dime. In so
doing the Commission commits grievous error of law. A
passenger is entitled to a reasonable fare over any branch
or line of the service, irrespective of the fares or level of
fares on other services thereof.

RENT

ee A a

20. In requiring the establishment of an uptown fare of
eleven tokens for one dollar or in the alternative a cash
fare of ten cents payable only by a dime and permitting
the establishment of the same fare on the downtown line
the Commission wholly and completely disregards the evi-
dence and facts of record by which it arrived at the con-
clusion that:

‘*From the standpoint of the cost of the service to
respondent, therefore, as well as of the value of the
service to the passenger, it would seem that if ten
cents is a maximum reasonable fare for the uptown
service, the reasonable fare for the downtown service
must be something less than ten cents’’

and in so doing the Commission disregards and overrules
the Supreme Court of the United States, Hudson & Man-
hattan R. Co. v. U. S., 313 U. 8. 98.

21. The basic findings of the Commission in its report
and order of August 3, 1943, are unsupported by any pro-
bative evidence of record. Such basic findings flow from
the acceptance of the carrier contention of alleged dis-
ability. However, even assuming that the facts were prop-
erly and judiciously in evidence, they are inadequate, as a
matter of law, to support the Commission’s ultimate find-
ings. A fare in excess of nine cents, theretofore found to
be unreasonable does not ipso facto become reasonable and
proper because of a carrier disability.

22. In view of all of the facts hereinbefore set forth the
order of the Commission of August 3, 1943, was arbitrary
and capricious without foundation in law, based upon
errors of law, and without adequate findings or any evi-
dence to support them and contrary to the evidence of
record, and in violation of the Interstate Commerce Act,
and in violation of the specific interpretations of the gov-
erning law, made by the Federal Courts, including the
United States Supreme Court, and accordingly the Com-
mission acted in so arbitrary and unreasonable a manner
as to render its order, although within the form of its dele-
gated power, void.

23. The effectiveness of transportation fares on the
downtown line in excess of the prescribed reasonable maxi-
mum fare of nine cents will create an undue and unjust

S

burden upon the local downtown passenger in violation of
the Interstate Commerce Act, and unless the enforcement,
operation and execution of the Commission’s order of Aug-
ust 3, 1943, is restrained will cause plaintiff and the mem-
bers of its body politic great damages as aforesaid for
which plaintiff has no adequate remedy at law.

24. Attached hereto and made a part hereof, as Exhibits,
are the following:

Exhibit No. 1. The report and order of the Interstate
Commerce Commission dated July 11, 1938, reported at 227
LC.C. 741.

Exhibit No. 2. The report and order of the Interstate
Commerce Commission dated June 8, 1943, reported at 255
LC.C. 649.

[fol.6] Exhibit No. 3. The report and order of the Inter-
state Commerce Commission dated August 3, 1943.

Exhibit No. 4. The petition of the Hudson & Manhattan
Railroad Company dated July 8, 1943, for Reconsideration
and Modification of the Findings Made by the Commission
in its Report on Further Hearing.

Exhibit No. 5. Reply of Protestants dated July 14, 1943,
to the petition of the Hudson & Manhattan Railroad Com-
pany dated July 8, 1943.

Wherefore, plaintiff prays:

First: That, upon the final hearing, the Judge shall call
to his assistance, in the hearing and determination of this
cause, two other Judges, of whom at least one shall be a
Circuit Judge.

Second: That process may issue against defendants,
United States of America, Interstate Commerce Commis-
sion and Hudson & Manhattan Railroad Company, and that
due and proper service of such process of this complaint be
forthwith made upon the United States of America by de-
livering a copy of the summons and of the complaint to the
United States Attorney for the District of New Jersey, and
by sending a copy of the summons and of the complaint by
registered mail to the Attorney General of the United
States of America at Washington, D. C., and upon the
Interstate Commerce Commission by sending a copy of the
summons and of the complaint by registered mail to the
Secretary of the Interstate Commerce Commission, Wash-

10

ington, D. C., and upon the Hudson & Manhattan Railroad
Company, by serving a copy of the summons and of the
complaint upon the registered agent of said company.

Third: That upon final hearing of this cause this Court
adjudge, order and decree that the said order of the Com-
mission dated August 3, 1943, in so far as such order per-
mits the establishment of any local interstate fare in excess
of nine cents for transportation on the downtown line, is,
and has at all times been, beyond the lawful authority of
said Commission and wholly null and void and that said
order be perpetually set aside and annulled and the en-
forcement thereof perpetually enjoined.

Fourth: That pending said final hearing, and in the mean-
time, a temporary injunction and restraint issue enjoining
the defendants from so much of said Order of August 3,
1943, which permits the establishment of any local inter-
state fare in excess of nine cents for transportation on the
downtown line.

Fifth: That this Court grant to plaintiff such order and
further relief as may be proper in the premises.

(Sgd.) Charles A. Rooney, Attorney for Plaintiff.
(Sgd.) Charles Hershenstein, Of Counsel.

(fol. 7] Arripavir or Artur Potrerton In Support oF
CoMPLAINT

Strate or New Jersey,
County of Hudson, ss. :

Artuur Porrertoy, of full age, being duly sworn accord-
ing to law on his oath deposes and says:

I am Acting Mayor of Jersey City. I have read the fore-
going complaint and the matters and things therein set
forth are true to the best of my knowledge, information
and belief. The plaintiff, City of Jersey City, brings this
action against the United States of America, the Interstate
Commerce Commission (hereinafter sometimes called the
Commission), and Hudson & Manhattan Railroad Com-
pany (hereinafter sometimes called the Railroad), for the
purpose of enjoining, setting aside and annulling an order

ll

of the Commission decided August 3, 1943, in the proceed-
ings entitled ‘‘Investigation and Suspension Docket No.
4394, Passenger Fares of Hudson & Manhattan Railroad
Company’’:

1. The jurisdiction of this Court over this action is under
and pursuant to the provisions of Sections 41 subdivision
(28), and Sections 43 to 48, inclusive, of Title 28 of the
United States Code.

2. Plaintiff is a municipal corporation in the County of
Hudson and State of New Jersey, and is a body politic.
The mater covered by said order of the Commission arose
in the District of New Jersey.

3. The defendant, United States of America, is sued
pursuant to express authority of the Congress of the United
States, as provided in Sections 43 to 48 of Title 28 of the
United States Code.

The defendant, Interstate Commerce Commission, is an
administrative commission existing under and by virtue
of the Interstate Commerce Act, United States Code, Title
49, and is specifically charged with the administration an
enforcement of the provisions of said act. .

The defendant, Hudson & Manhattan Railroad Company
is a common carrier by railroad engaged in the transporta-
tion of passengers in interstate commerce, subject to the
provisions of the Interstate Commerce Act, United States
Code, Title 49, Chapter I, part I, except those provisions
which by their terms are not applicable to the interurban
electric railway operated by the Hudson & Manhattan Rail-
road Company, and the order, hereinafter complained of,
permits this railroad to increase its fares.

4. The defendant, Hudson & Manhattan Railroad Com-
pany is a consolidated corporation organized and existing
under and pursuant to the laws of the States of New York
and New Jersey, having a residence and its statutory office
in the District of New Jersey. The railroad transports

passengers only, and does not transport baggage, freight
or express matter.

5. The railroad properties consist of an underground
rapid transit passenger railway, furnishing transportation
facilities between points in uptown and downtown New
York City and points in Jersey City and Hoboken, New

we a a:

Jersey. The railroad operates its trains in two services,
commonly referred to as the downtown line and the uptown
line.

On the downtown line the trains operate (a) between the
downtown terminal at Hudson Terminal, New York City,
on the one hand, and on the other the New Jersey stations
(fol. 8] of Exchange Place, Grove and Henderson Streets
and Journal Square, and (b) between the downtown termi-
nal at Hudson Terminal on the one hand, and on the other
the New Jersey stations located at Exchange Place, Erie
Station and Hoboken.

On the uptown line the trains operate (a) between the
New Jersey stations of Hoboken on the one hand, and on
the other New York City stations of Christopher Street,
9th Street, 14th Street, 19th Street, 23rd Street and 33rd
Street and (b) between the New Jersey stations at Journal
Square, Grove and Henderson Streets and Erie Station,
on the one hand, and on the other the New York City
stations located at Christopher Street, 9th Street, 14th
Street, 19th Street, 23rd Street and 33rd Street.

The railroad also operates, in conjunction with the Penn-
sylvania Railroad, a joint rapid transit electric train ser-
vice between the downtown terminal at Hudson Terminal,
New York, and the station of the Pennsylvania Railroad at
Market Street, Newark, New Jersey. The trains in this
joint service operate over the lines of the railroad between
the downtown terminal, Hudson Terminal at New York
City, and the Journal Square station, Jersey City, and from
that point over a line owned by the Pennsylvania Railroad
to the latter’s station at Market Street, Newark, New
Jersey.

6. On July 31, 1937, the railroad issued, published and
filed, with the Commission, its local passenger tariff desig-
nated as L.C.C. No. 42, to become effective September 1,
1937, providing for the establishment of a fare of ten cents
for the interstate transportation of passengers on the rail-
road’s downtown line as aforesaid, in lieu of a fare of six
cents previously published and maintained in force and
effect. Said tariff provided for no changes in the fare then
in effect for interstate transportation on the uptown line
previously and then established at ten cents.

As a result of protests filed by plaintiff and others in
New Jersey the effectiveness of the aforesaid tariff was

13

suspended and the lawfulness of the proposed increase in
the downtown fare was made the subject matter of a pro-
ceeding instituted by the Interstate Commerce Commis-
sion in Investigation and Suspension Docket No. 4394.

7. After due hearing the Commission found, 227 I.C.C.
741, that the proposed increase from six cents to ten cents
in the passenger fare maintained by the railroad on its
downtown line had not been justified, but that an eight cent
fare had been justified. A fare of eight cents on the down-
town line became effective July 25, 1938, and has since been
maintained. The Commission in its original report and
order, 227 LC.C. 741 made three paramount findings:

(1) ‘‘From the standpoint of the cost of the service
to respondent, therefore, as well as of the value of the
service to the passenger, it would seem that if ten cents
is a maximum reasonable fare for the uptown service,
the reasonable fare for the downtown service must be
something less than ten cents.’’ 227 I.C.C. 741, 754.

(2) ‘If respondent should feel impelled to seek a
further increase in revenue it should consider doing
so on interline traffic.’’ 227 I.C.C. 741, 762.

(3) ‘‘The proposed fare of ten cents would be unrea-
sonable under the Act and has not been justified.”
227 L.C.C. 741, 762.

8. Following the promulgation of the report and order,
227 I.C.C. 741, as aforesaid, the railroad company appealed
to the courts to enjoin the same. It filed its bill in the
Southern District of New York seeking to enjoin the order
of the Commission, but said action was dismissed by the
District Court of the Southern District of New York be-
cause of improper venue, the court holding that proper
venue was in the District of New Jersey, Hudson & M, R.
Co. v. U. S., 28 Fed. Supp. 137. Thereupon the railroad
company filed its bill in the United States’ District Court
[fol. 9] for the District of New Jersey. The order of the
Commission accompanying the original report was upheld
by the United States District Court, for the District of New
Jersey, Hudson & M. R. Co. . United States, 33 Fed. Supp.
495, which was affirmed by the Supreme Court, Hudson
¢ Manhattan R. Co. v. U. S., 313 U. 8. 98.

ee
——-

4

9. Upon petition of the railroad of July 27, 1942, for
further hearing and fer leave to publish and charge a ten
cent fare on the downtown line by reason of alleged changed
conditions, the proceeding was reopened for further hear-
ing by the Interstate Commerce Commission. Such further
hearing was held and as a result thereof the Commission
issued its decision on June 8, 1943, 255 I. C. C. 649, affirm-
ing its original conclusion that the proposed fare of ten

- cents would be unjust and unreasonable and has not been

justified. The Commission further concluded that an in-
creased local fare of nine cents on the railroad’s downtown
line had been justified for application during the remaining
period of the war and six months after its termination.

10. In promulgating its report and order of June 8, 1943,
as aforesaid, the Commission made the following specific
findings :

(1) ‘*That under normal circumstances the satura-
tion point in increased fares (referring to the eight
cent fare) on that traffic (downtown) has about been
reached.’’

(2) ‘‘If respondent (railroad) had availed itself of
the authority granted by our order of January 21, 1942,
in Increased Railway Rates, Fares, and Charges, 1942,
supra, the downtown fare would now be nine cents. An
increase to that amount would be consistent with that
decision.’’

(3) ‘* While there can be little doubt that under pres-
ent conditions further increase in this (eight cent) fare,
even to ten cents, would result in additional net reve-
nue, we are convinced that it would be unreasonable to
expect the entire burden of the revenue increase to be
borne by the downtown local passengers, and that a
substantial portion thereof should be sought through
increased divisions on the interline traffic.’’

11. The railroad on July 8, 1943, filed a petition for re-
consideration and modification of the findings made by the
Commission in its report on further hearing, dated June
8, 1943. That petition sought, through the medium of an
affidavit attached thereto and made a part thereof, to secure
modification of the Commission’s order because of an al-
leged disability on the part of the railroad to collect the nine

15

cent fare on the downtown line with its available fare col-
lection system. By this petition the railroad sought, pend-
ing the procurement of tokens which were to be sold at
eleven for one dollar with an alternative cash fare of one
dime, that it be authorized to charge, on the downtown line,
a cash fare of ten cents. Suchcash fare of tencents was tocon-
tinue in effect: indefinitely until necessary tokens were ac-
quired and alterations were made in the fare collection
boxes. In connection therewith the railroad proposed that
if its request were granted it would reduce the fare on the
uptown line from ten cents per passenger to eleven tokens
for one dollar, with an alternaitve cash fare payable only
by a dime.

12. The plaintiff, on July 14, 1943, replied to the rail-
road’s petition and in requesting denial thereof prayed that
if any affirmative action be taken by the Commission, the
proceeding be set for further hearing to give all parties
their requisite day in Court on the new matters herein al-
leged and thereby afford the plaintiff its right of cross
examination.

13. On August 3, 1943, upon the facts as aforesaid, witb-
out according the parties further hearing, the Commission
issued its report on reconsideration. Such report affirmed
the prior conclusion that the proposed fare of ten cents had
not been justified for general application on the downtown
[fol. 10] line but permitted an increased local fare on the
downtown line based on the alternative basis of eleven
tokens for one dollar or a cash fare of ten cents, payable by
a dime. Such permissive increase was coupled with the
proviso that contemporaneonsly with the establishment
and maintenance of the increased downtown fare the same
alternative basis, namely, eleven tokens for one dollar or
a cash fare of ten cents, payable by a dime, be established
and maintained on interstate traffic on the uptown line.

14. In so providing for increased fares on the downtown
line whereby the regular patron or so called commutation
passenger would be required to pay nine and one-eleventh
cents per ride, and the occasional rider ten cents per ride in
lieu of the nine cent fare theretofore found to be the rea-
sonable maximum figure, the Commission in its report
and order of August 3, 1943, stated:

‘‘The proposed alternative basis will not increase
to any material extent the relative transportation bur-

ee —™S

16 “

den of the local commuters on the downtown line be-
yond that anticipated by our authority as granted in
the prior report. We there found that it would be un-
reasonable to expect the entire burden of the revenue
increase to which respondent is entitled to be borne
by the downtown local passengers, and that a sub-
stantial portion thereof, for the reasons therein stated,
should be sought through increased divisions on the
traffic interchanged with the Pennsylvania Railroad
Company. In its petition respondent states that it
will undertake to seek promptly such increased di-
visions on that traffic as shall be adequate.’’

15. In the original report and order of the Commission,
277 I. C. C. 471, the Commission found that if the railroad
*‘should feel impelled to seek a further increase in reve-
nue (over and above an eight cent downtown fare therein
prescribed) it should consider doing so on interline traffic.’’
The Commission’s decision containing such admonition was
upheld by the District Court for the District of Now Jersey,
Hudson & M. R. Co. v. U. S., supra, and affirmed by the Su-
preme Court of the United States, Hudson & Manhattan R.
Co. v. U. S., supra. A similar directive to the railroad to
increase its revenue through an adjustment of its inter-
line division with the Pennsylvania Railroad appeared
in the Commission’s report and order of June 8, 1943, 255
I. C. C. 649, and again in its report and order of August 3,
1943.

16. To the extent that the Commission permits the rail-.
road to deliberately disregard the directive, contained in all
of the reports and orders, as aforesaid, requiring the rail-
road to increase its revenues threugh proper adjustments
of interline accounting with the Pennsylvania Railroad, and
in lieu thereof permits increases in the local downtown fare
notwithstanding the Commission’s own statement, ‘‘that
it would be unreasonable to expect the entire burden of the
revenue increase to which respondent is entitled to be
borne by the downtown local passengers,’’ the Commis-
sion acts arbitrarily, disregards the evidence, and tran-
seends the authority vested in it in the administration of
the Act.

17. It is apparent that the Commission, in authorizing
local downtown fares in excess of the nine cent fare stated

17

to be the reasonable maximum charge in the report and
order or June &, (945, 255 © C. OC. 0&Y, does so wholly be-
cause of an alleged carrier disability. As to such alleged
carrier disability the plaintiff herein has been deprived of
its full day in Court by not having been given an oppor-
tunity to cross examine witnesses, refute and otherwise pre-
sent counter evidence, and the order was entered without
due process of law. To the extent that the Commission
considered such matters in this regard, it acted arbitrarily
and beyond the realms of proper judicial procedure.

{fol.11] 18. To the extent that the Commission relegates
the right of the passenger to a reasonable fare to a posi-
tion subordinate to an alleged carrier disability, the Com-
mission disregards established law, that every passenger
is entitled to a reasonable fare. The carrier’s disability
does not justify the assessment of unreasonable fares or
charges.

19. It is evident that the Commission, in part, justifies the
increased downtown fare by the reduction in the uptown
fare from ten cents to eleven tokens for a dollar or in the
alternative a ten cent fare payable only by a dime. In so
doing the Commission commits grevious error of law. A
passenger is entitled to a reasonable fare over any branch
or line of the service, irrespective of the fares or level of
fares on other services thereof.

20. In requiring the establishment of an uptown fare
of eleven tokens for one dollar or in the alternative a cash
fare of ten cents payable only by a dime and permitting
the establishment of the same fare on the downtown line the
Commission wholly and completely disregards the evidence
and facts of record by which it arrived at the conclusion
that:

‘*From the standpoint of the cost of the service to
respondent, therefore, as well as of the value of the
service to the passenger, it would seem that if ten cents
is a maximum reasonable fare for the uptown service,
the reasonable fare for the downtown service must be
something less than ten cents’’

and in so doing the Commission disregards and overrules
the Supreme Court of the United States, Hudson & Man-
hattan R. Co. v. U. S., 313 U. 8. 98.

2—767

Sem Watney ee =.

18

21. The basic findings of the Commission in its report and
order of August 3, 1943, are unsupported by any probative
evidence of record. Such basic findings flow from the ac-
ceptance of the carrier contention of alleged disability.
However, even assuming that the facts were properly and
judiciously in evidence, they are inadequate, as a matter of
law, to support the Commission’s ultimate findings. A fare
in excess of nine cents, theretofore found to be unreasonable
does not ipso facto become reasonable and ott because
of a carrier disability.

22. In view of all of the facts hereinbefore set forth the
order of the Commission of August 3, 1943, was arbitrary
and capricious without foundation in law, based upon er-
rors of law, and without adequate findings or any evidence
to support them and contrary to the evidence of record, and
in violation of the Interstate Commerce Act, and in viola-
tion of the specific interpretations of the governing law,
made by the Federal Courts, including the United States
Supreme Court, and accordingly the Commission acted
in so arbitrary and unreasonable a manner as to render its
order, although within the form of its delegated power,
void.

23. The effectiveness of transportation fares on the
downtown line in excess of the prescribed reasonable maxi-
mum fare of nine cents will create an undue and unjust
burden upon the local downtown passenger in violation of
the Interstate Commerce Act, and unless the enforcement,
operation and execution of the Commission’s order of Au-
gust 3, 1943, is restrained will cause plaintiff and the mem-
bers of its body politic great damages as aforesaid for
which plaintiff has no adequate remedy at law.

24. Attached hereto and made a part hereof, as Exhibits,
are the following:

Exhibit No. 1. The report and order of the Interstate
Commerce Commission dated July 11, 1938, reported at 227
I. C. C. 741.

Exhibit No. 2. The report and order of the Interstate
Commerce Commission dated June 8, 1943, reported at 255
I. C. C. 649.

(fol. 12-70] Exhibit No. 3. The report and order of the
Interstate Commerce Commission dated August 3, 1943.

19

Exhibit No. 4. The petition of the Hudson & Manhattan
Railroad Company dated July 8, 1943, for Reconsideration
and Modification of the Findings Made by the Commission
in its Report on Further Hearing.

Exhibit No. 5. Reply of Protestants dated July 14, 1943,
to the petition of the Hudson & Manhattan Railroad Com-

pany dated July 8, 1943.
(Sgd.) Arthur Potterton.

Sworn and subscribed to before me at Jersey City
this September 7th, 1943. (Sgd.) Ann G. Hogan,
Notary Public of New Jersey.

{fol.71] In tue Unrrep Srares District Court
[Title omitted]

Orper Convenine Statutory Court anp Serrine Case FoR
Hearinc—September 14, 1943

It appearing that plaintiff in the above entitled cause on
September 13, 1943, filed a complaint seeking to have per-
petually set aside and annulled so much of the Order of the
Interstate Commerce Commission dated August 3, 1943 in
a proceeding entitled ‘‘Investigation and Suspension
Docket No. 4394, Passenger Fares of Hudson & Manhattan
Railroad Company”’’ which permits the establishment of a
local interstate fare in excess of nine cents for transporta-
tion on its downtown line, and to perpetually enjoin the
enforcement of said order in which said complaint the
plaintiff also seeks a temporary injunction and restraint
enjoining the enforcement of so much of said order of
August 3, 1943 which permits the establishment of any
local interstate fare in excess of nine cents for transporta-
tion on its downtown line, and that the said complaint
prays that the judge shall call to his assistance in the hear-
ing and determination of this cause two other judges of
whom at least one shall be a Circuit J udge; and

It further appearing that the matter of the issuance of a
temporary injunction and restraint should be forthwith
heard and determined,

Honorable Gerald McLaughlin, United States Circuit
Judge, Third Circuit, and Honorable Guy L. Fahe, United

[fols. 72-74] States District Judge for the District of New
Jersey, are hereby called to the assistance of the Judge
of this Court whose signature is affixed hereto for the hear-
ing and determination in the application for a temporary
injunction and restraint and for the hearing and determina-
tion of the said cause; and

It is Ordered by the Court that the application for the
temporary injunction and restraint in the herein above
entitled cause be and it is hereby set for hearing at the
United States Court in Newark, N. J. on Sept. 21st, 1943
at 10:30 o’clock in the forenoon.

Dated, Newark, N. J. September 14, 1943.
Thomas F. Meaney, U. 8. D. J.

[fol. 75] In tHe Disraicr Court or tHe Unirep States

[Title omitted]

Answer or Interstate Commerce Commission—Filed Sep-
tember 25, 1943

The Interstate Commerce Commission, one of the de-
fendants in the above-entitled suit, for answer to the com-
plaint heretofore filed in this case, answers and says:

I

_ Answering the allegations of paragraphs 1 to 6, inclusive,
‘of the complaint, the Commission admits the same.

I

Answering the allegations of paragraph 7 of the com-
plaint, the Commission respectfully refers the court to its
decision, reported in 227 I. C. C. 741, annexed to the com-
plaint as Exhibit No. 1, for more full and complete informa-
tion concerning the findings of the Commission than is con-
tained in said paragraph.

Ill

Answering the allegations of paragraph 8 of the com-
plaint, the Commission admits the same.

21

[fol. 76] IV

Answering the allegations of paragraphs 9 and 10 of the
complaint, the Commission respectfully refers the court to
its decision of June 8, 1943, 255 I. C. C. 649, for more com-
plete information concerning its findings than is contained
in said paragraphs. The Commission’s report of June
3, 1943, is attached to the complaint as Exhibit No. 2, to
which the Commission respectfully refers the court.

v

Answering the allegations of paragraph 11 of the com-
plaint, the Commission admits the filing by the railroad of
the petition for reconsideration therein referred to. Said
petition for reconsideration is attached to and made a part
of the complaint as Exhibit No. 4, to which the Commission
respectfully refers the court for more full and complete
information concerning its contents than is contained in
said paragraph.

VI

Answering the allegations of paragraph 12 of the com-
plaint, the Commission admits the same but refers the court
to the plaintiff’s reply to the railroad’s petition for recon-
sideration, which is attached to the complaint as Exhibit
No. 5.

vil

Answering the allegations of paragraphs 13 and 14 of the
complaint, the Commission respectfully refers the court to
its report of August 3, 1943, for more full and complete in-
formation concerning its findings than is contained in said
paragraphs. Said report of August 3, 1943, is attached
to the complaint as Exhibit No. 3, to which the Commission
respectfully refers the court.

[fol. 77] VIII

Answering the allegations of paragraph 15 of the com-
plaint, the Commission admits the same.

Ix

Answering the allegations of paragraphs 16 to 23, inclu-
sive, of the complaint, the Commission denies the same.

f those omissions be taken into account,
the result may not be accepted as indicative of what may
be expected in a typical war year. This becomes apparent
upon noting that in the respective months of 1942 the num-
ber of passengers carried by respondent increased over the
corresponding months of 1941 by 7.8 percent in January,

—

8.5 percent in February, 8.6 percent in March, 6.8 percent
in May, 12.6 percent in June, 16.3 percent in July, and
15.9 percent (estimated) in August. In the latter month
the railroad operating revenue increased 15.62 percent, and
net income available for interest on the railroad portion
of the bonds increased 23.55 percent.

As stated, in the year 1942 the number of passengers
carried increased 11.2 percent and the net income available
for bond interest 33.7; and in January and February, 1943,
the number of passengers increased over the corresponding
months of 1941 by 23.5 and 29.2 percent, respectively, or a
combined increase of 26.2 percent. Judging by what oc-
curred in 1942, the increase in the operating revenue in Jan-
uary and February, 1943, was probably slightly below the in-
crease in traffic. No reason appears, however, for assuming
that the increase over 1941 in revenue from passenger
fares in any future war year will be less than about 23
percent, and wc may regard such an assumption as reason-
able. Based upon a probable annual revenue from passen-
ger fares of $6,718,086, which is 123 percent of that in
1941, and upon total operating expenses on the 1941 basis
at such a traffic level of $3,476,047, as estimated by re-
spondent, plus the increased labor costs since 1941 of $226,-
300, the war contingency reserve of $240,000, and increased
taxes (based on the percentage increase in August, 1942
over August, 1941) of $60,130, together with a combined
net charge on the 1941 basis of $533,949 for all other opera-
ting items and taxes, as estimated by respondent, we arrive
at a probable annual net income available for interest on
the bonds allocable to the railroad properties of $2,181,460.
Deducting the annual interest of $1,363,906 on the first two
[fol. 521] bond issues would thus leave about $817,554 for
payment on the adjustment income bonds, equivalent to
interest thereon at the rate of 3.473 percent. In the prior
report, as stated, we estimated a net income in future years
of about $2,260,817.

Economie and competitive conditions affecting respond-
ent’s traffic have, of course, changed materially since the
prior decision, and a downtown fare of more than 8 cents
would not now have as serious an effect in traffic diversion
as would have been true in 1938. So long as the present ab-
normal conditions by reason of the war continue, it seems
clear that a downtown fare of 10 cents, as proposed, would
yield to respondent substantial additional net revenue. In

269

June, July, and August, 1942, the latest months for which
the details are of record, the percentage increase in the
number of local passengers on the downtown line as com-
pared with the corresponding months of 1941 was 55.1
percent of the contemporaneous increase in respondent’s
total traffic. We may assume that the same ratio will hold
true in future war periods. The increase over 1941 in the
downtown traffic and revenue will thus be about 12.67 per-
cent. Assuming such an increase in the number of down-
town local passengers by reason of the war and, as does re-
spondent, a 12 percent diversion in the 1941 downtown
traffic under a 10-cent fare, and allowing for reduced out-of-
pocket expense, on the basis employed by respondent, by
reason of the smaller traffic volume than under an 8-cent
fare, the resulting net income available for bond interest
under a fare of 10 cents would approximate $2,564,144.
After payment of the interest on the first two bond issues,
the remainder would be $1,200,238, or $23,090 more than
necessary to meet the full 5 percent interest on the income
bonds. Moreover, if respondent’s estimate of a 16.5 per-
cent diversion by reason of the 2-cent fare increase in 1938
be accepted as approximately the actual, it is at least doubt-
ful whether a diversion of as much as 12 percent should be
anticipated following a like fare increase made under pres-
ent conditions.

What has just been said makes it advisable to approxi-
mate the revenue results which may be expected if the down-
town fare were made 9 cents. Assuming an increase in the
1941 downtown local traffic due to the war of 12.67 percent,
a 5 percent diversion by reason of a 1-cent increase in the
fare, and making due allowance for the reduced out-of-
pocket expense because of such diversion, the resulting net
income available for bond interest would approximate
$2,404,502. After payment of the interest on the first two
bond issues, this would leave for application on the income
bonds $1,040,596, or at the rate of 4.420 percent.

The avowed purpose of respondent in seeking the pro-
posed fare increase is to meet increased operating expenses
and the interest on its bonds. This it should be permitted
to do if it can be done without casting an undue burden
upon any particular traffic. The ‘ncreased operating ex-
penses, being general in nature, should be borne, where
practicable, by the entire traffic of the railroad. Accepting
as a fact respondent’s statement that no additional revenue

—

of any consequence could be expected from an increase in
its fares other than that on the downtown line, it becomes
important to observe that, while respondent’s railway oper-
ating expenses and taxes in 1941 were greater by $276,761

270

than in 1937, the latest year of record at the time of the
prior decision, ‘ts revenue from the traffic interchanged
with the Pennsylvania was $68,527 less in 1941 than in 1937.
Revenue from the downtown local traffic, on the other hand,
increased in that period by $22,941. Bearing in mind that
this modest increase was achieved at an increased fare of 2
cents, and under general economic conditions in the two
years which may be said to have been fairly comparable, it
would seem that under normal circumstances the saturation
point in increased fares on that traffic has about been
reached. While there can be little doubt that under present
conditions a further increase in this fare, even to i0 cents,
would result in additional net revenue, we are convinced
[ fol. 522] that it would be unreasonable to expect the entire
burden of the revenue increase to be borne by the down-
town local passengers, and that a substantial portion thereof
should be sought through increased divisions in the inter-
line traffic. This view is strengthened by the fact that in
August, 1942, for example, the interline traffic increased
33.1 percent, as compared with an increase of only 9 per-
cent in the downtown local traffic and of 15.9 percent in re-
spondent’s total traffic.

Moreover, while the fares and charges for commutation
service of carriers serving the New York metropolitan area
are not uniform, those of carriers other than respondent
portrayed on this record afford stronger support, differ-
ences in transportation services considered, for either an
8-cent or a 9-cent fare than for a 10-cent fare on the down-
town line of respondent. As stated, if respondent had
availed itself of the authority granted by our order of Jan-
uary 21, 1942, in Increased Railway Rates, Fares, and
Charges, 1942, supra, the downtown fare would now be 9
cents. An increase to that amount would be consistent with
that decision, for respondent has been affected by the same
conditions making for higher operating expenses which
we took into account in authorizing a general increase in
railroad passenger fares.

It seems to us that an increase of 1 cent in respondent’s
downtown fare is unlikely to have any inflationary effect,
and that the effect thereof upon the cost of living, while a

a

factor to be given consideration, will be so slight, a maxi-
mum of about 12 cents a week and 52 cents a month per pas-
senger, as to be negligible. We believe, therefore, that the
increased fare herein approved will not be in conflict with the
Emergency Price Control Act of 1942, as amended.

271

Based upon the foregoing facts, we find that in order
to meet increased operating expenses and the interest
on its bonds, respondent is in need of additional reve-
nue beyond that which may be expected from its pres-
ent fares and divisions, and that a portion of such ad-
ditional revenue can reasonably, and should, be ob-
tained by increasing its downtown fare from 8 to 9
cents.

Increases in rates or fares based upon abnormal condi-
tions of a transitory nature should not be made permanent.
The greater portion of respondent’s increased operating
costs, namely, the war contingency reserve of $240,000 per
year, is wholly attributable to a condition which may be
expected to be eliminated after the war, and that amount
is greater than the additional revenue which may be antici-
pated from the increased fare herein approved. Accord-
ingly, the increased fare should remain in effect for no
longer than the duration of the war and six months there-
after. It should be understood that if at any time prior to
the expiration of that period, by reason of changed condi-
tions or otherwise, the revenue results to respondent should
prove to be materially different from those estimated in this
report, any party to this proceeding is of course at liberty
to seek to bring the facts with respect thereto to our atten-
tion at a further hearing.

We affirm our original conclusion herein, that the pro-
posed fare of 10 cents would be unjust and unreasoneble,
and has not been justified. We further conclude that an in-
creased local fare of 9 cents on respondent’s dewntown line
has been justified, for application during the- remaining
period of the war and six months after its termination. Our
prior conclusion and order, to the extent that they are in
conflict herewith, are hereby modified accordingly. No
order is necessary.

Mr.ier, Commissioner, concurring in part:

I concur in the finding of the majority insofar as it gives
approval to increasing the present fare to 9 cents. In my

ein

ss

272

dissent to the prior report, 227 I. C. C. 741, I expressed the
view that the record ihere amply justified a finding that the
proposed fare of 10 cents would be reasonable and lawful
(fol. 523] for the services performed by this respondent.
Nothing is presented as a result of the further hearing to
cause me to change that opinion.

Moreover, I see no sufficient reason for here limiting the
time during which the 9-cent fare shall remain in effect.

I am authorized to state that Commissioners Mahaffie and
Patterson join in this expression.

Commissioners Aitchison did not participate in the dis-
position of this proceeding.

By the Commission.

W. P. Bartel, Secretary. (Seal.)

[fol. 524] Piaistirr’s Exutsir ‘‘3’’
LIyrerstate Commerce CoMMISSION
Investigation and Suspension Docket No. 4394

Passenger Fares of Hudson & Manhattan Railroad
Company

Submitted October 14, 1943. Decided November 2, 1943

1. Passenger fare on an alternative basis of 11 tokens
for $1 or of one dime in cash, for local interstate application
on the downtown line of the Hudson & Manhattan Railroad
Company, found reasonable and otherwise lawful for the
remaining period of the war and 6 months thereafter, upon
condition that the same alternative basis be maintained on
the uptown line. Conclusions in report on reconsideration
affirmed. Prior reports, 227 L. C. C. 741, 255 LC. C. 649,
256 I. C. C.

2. Motion for further reopening of proceeding overruled.
Appearances shown in the first report on further hearing.

Second Report of the Commission on Further Hearing

Porter, Commissioner:

In the first report herein, 227 I. C. C. 741, we found on
July 11, 1938, that a proposed fare of 10 cents for local

273

application on the downtown line of the Hudson & Man-
hattan Railroad Company, hereinafter called respondent,
had not been justified, but that a fare of 8 cents had been
justified. The latter fare became effective July 25, 1938,
and is still maintained. Respondent was not satisfied with
that decision and appealed it to the courts, wherein our
action was sustained. Hudson & Manhattan R. Co. v.
United States, 33 Fed. Supp. 495; affirmed, 313 U. 8. 98.

Upon petition of respondent dated July 27, 1942, reciting
that conditions had materially changed since the prior deci-
sion, we reopened the proceeding, held a further hearing,
and on June 8, 1943, in a report on further hearing, herein-
after called the second report, 255 L. C. C. 649, we found
reasonable and otherwise lawful a fare of 9 cents, for appli-
cation during the remaining period of the war and 6 months
thereafter, and modified the prior findings accordingly.

On July 8, 1943, respondent represented by petition that
collection of a 9-cent fare as authorized was impracticable
and asked for modification of our findings in the second
report, first, by authorizing an alternative-fare basis of 11
tokens for $1 or a cash fare of one dime, conditioned upon
the establishment and maintenance of the same alternative
fare basis, in lieu of the present 10-cent cash fare, for local
application on respondent’s uptown line; second, by author-
izing a 10-cent cash fare for all local downtown traffic until
the necessary strategic materials could be secured, the
tokens manufactured, and the alternative-fare basis put
into use; and third, by eliminating the limitation attached
to our authority whereby the 9-cent fare was approved for
application only until 6 months after the termination of the
war. Embodied in this petition were certain sworn state-
ments of fact upon which the prayers made were grounded.
Protestants, namely, Jersey City and other municipalities
[fol. 525] of Hudson County, N. J., certain bus companies
reaching respondent’s New Jersey stations, and the Di-
rector of Price Administration for himself and the Director
of Economie Stabilization, replied to this petition, request-
ing denial, more particularly of the second and third
prayers embodied therein, as referred to above, or that the
proceedings be set for further hearing.

On August 3, 1943, we reopened the proceeding for recon-
sideration and on the same date adopted a report on re-
consideration, hereinafter called the third report, 256

18—767

274

L C. C. —, wherein we denied the requests for authority to
charge a 10-cent fare during the interim period prior to the
use of tokens and for elimination of the limitation of our
approval of the 9-cent fare to the period ending 6 months
after the termination of the war, and modified the prior
findings by authorizing, in lieu of a 9-cent cash fare on the
downtown line, an alternative fare basis of 11 tokens for $1
or a cash fare of one dime, upon the condition that the same
alternative-fare basis be estabiished and maintained for
local application on the uptown line. This modification of
the prior findings was based upon our conviction, as ex-
pressed in the third report, that we had failed in our second
report to give to certain evidence of record with respect to
the feasibility of collecting a cash fare of 9 cents the weight
to which it is entitled, and upon specific findings (1) that the
collection of a 9-cent fare, either in cash or by strip or com-
mutation tickets, was impracticable, and (2) that the alter-
native-fare basis as proposed was practicable, would result
in probable net railway operating revenue at least no
greater than under the basis contemplated by our findings
in the second report, and had been justified as reasonable
and otherwise lawful.

On September 13, 1943, the City of Jersey City filed a
complaint in the United States District Court for the Dis-
trict of New Jersey, seeking to enjoin our action of August
3, 1943, on the ground, among others, that it had been ‘‘de-
prived of its full day in court by not having been given the
opportunity to cross-examine the witnesses, refute and
otherwise present counter evidence * * °.”’ Accordingly,
out of an abundance of caution, by order of September 18,
1943, we reopened this proceeding for further hearing ‘‘to

permit any party hereto to present evidence directed solely
’ to the propriety and lawfulness of the modifications made
by the Commission in its report of August 3, 1943, on fur-
ther consideration of its prior findings and orders of July
11, 1938, and June 8, 1943,’’ and to afford ‘‘any party
hereto * * * the right to cross-examine adverse wit-
nesses.’’ Such further hearing has been held, and upon the
filing of briefs the matter has been submitted for our fur-
ther decision.

At this further hearing both the New Jersey protestants
and the Price Administrator noted their exceptions to the
restriction’of the scope of the further hearing as made in
our order of September 18, 1943, and the Price Adminis-

275

trator’s brief was accompanied by a motion, filed in behalf
of the Director of Economic Stabilization, for modification
of our order of September 18, 1943, so as to reopen this pro-
ceeding ‘‘for the purpose of receiving testimony and ex-
hibits with respect to the revenues, income, and expense of
the company, in order that said record be brought up to
date; including evidence and exhibits relating to the right
and need of the company for an increase in rates, charges,
and revenues over and above those in effect on September
15, 1942, under the Interstate Commerce Act, and the act of
October 2, 1942,’ called the Stabilization Act. To this mo-
tion respondent replied. Movant states that he wishes
opportunity to exhibit the income and expenses of respond-
ent for the first 7 months of 1943 and for the same period of
1942 for the purpose of showing that respondent’s earnings
under the present fares are adequate and that no increase
in the present 8-cent downtown fare should be permitted.
(fol. 526] In the complaint of the City of Jersey City be-
fore the District Court no question has been raised as to
our action authorizing an increase in the downtown fare
from 8 to 9 cents, but only as to an increase from 9 to
9-1/11 cents.

‘* At the time of the oral argument before us on April 20,
1943, on the facts of record upon which we issued our
second report of June 8, 1943, the traffic and revenue re-
sults on the lines of respondent for the year 1942 and the
traffic results for January and February 1943, the latest
periods for which any such results were then available,
were by agreement of the parties made a part of the record.
The data then adduced, along with the other determinative
facts of record, are set out in, and were considered by us
at the time of our second report. Considering the contents
of the motion now before us, and the offers of additional
evidence made at the recent further hearing, we have ‘no
reason to believe that, if the additional hearing sought were
held, we would feel warranted in modifying our findings as
made in the second report. As will later appear, the alter-
native-fare basis herein approved can not be expected to
yield materially better revenue results to respondent than
we anticipated at the time of the second report. Accord-
ingly, we see no sufficient reason for further reopening this
proceeding at this time, and the motion will therefore be
overruled.”’

276

Findings of Fact

Upon the amplified record now before us, we find that
the following basic facts, as underscored, have been estab-
lished :

1. It is impracticable for respondent to collect a cash
fare of 9 cents.

Under peak-traffic conditions passengers pass fare-col-
lection boxes on every business day at a rate as high as
3 per second and frequently average, over 3-minute periods,
from 55 to 60 per minute. An average of about 25,000 pas-
sengers pass these boxes at Hudson Terminal during the
rush hours both moruing and evening. The present fare-
collection boxes were designed to receive and count a maxi-
mum fare of 7 cents, at a time when the uptown fare was
7 cents and the downtown fare was 5 cents. Since the estab-
lishment of the present 8-cent fare, because of the increased
number of coins being used, respondent has experienced
frequent jamming of the fare boxes. A 9-cent cash fare
would require the use of one more coin per passenger than
does the 8-cent fare. The manner of construction and opera-
tion of respondent’s fare boxes is recited in detail in the
third report and will not here be repeated.

From an actual demonstration of the operation of the
fare boxes made at the further hearing, and from the testi-
mony of the president and the general superintendent of
respondent, and by a representative of the manufacturer
of these boxes, it is plain that any attempt to collect o
9-cent cash fare with respondent’s present fare boxes
would result in the counting mechanism of many, if not
most, of the boxes becoming jammed during the rush-hour
periods (approximately 2 hours in the morning and 2 hours
in the evening) within less than 2 minutes. When a fare
box becomes jammed it requires from 10 to 30 minutes to
clear and restore it to service, provided a mechanic is im-
mediately available. Respondent has only a small number
of extra fare boxes for use as substitutes when any of the
regular boxes Yecome clogged, and an additional supply
can not now be obtained because of priority restrictions.
It has only three mechanics capable of restoring jammed
boxes to use, and additional mechanics are difficult, if not
impossible, to obtain. There is no way in which the mecha-
nism in the present boxes can be altered so as to make

277

practicable the collection and counting of a 9-cent cash fare,
and there is no existing fare box which will collect and count
(fol. 527) such a fare under the mass transportation condi-
tions presented by respondent’s operations. The cumu-
lative stoppages of fare boxes with the use of such a fare
would result in serious inconvenience and delay to passen-
gers, for it would require waiting trains, which during peak
traffic periods must operate on a 3-minute schedule, with a
9)-second headway through the tunnels, to depart only
partially filled, while succeeding trains would be inade-
quate to accommodate the accumulated traffic.

The counting mechanism of these boxes is indispensable
to the efficient operation of respondent’s railroad, first, so
as to provide a check on the efficiency of the fare-box at-
tendant in observing the deposit of the fares; second, to
provide a check against the subsequent count of the fares
in respondent's coin-counting room; third, to prevent the
necessity of an impracticable guarding of the sealed coin-
collection cans between the time they are removed from the
fare boxes and the time they are received in the counting
room; and fourth, to provide the railroad with the traffic
check necessary to control its train schedules and service by
determining the volume of the incoming traffic during typi-
cal periods and thus make available the data essential to the
control of train operations.

2. There is available to respondent no practicable method
of collecting a fare of, or approximating, 9 cents except by
the use of tokens.

Other methods of collecting a fare of 9 cents considered
and rejected by respondent were the following: (a) By
requiring the passenger to deposit initially a dime and to
receive a contemporaneous refund of 1 cent from the fare-
box attendant. The attendant, at least during the peak-
traffic periods, could not watch the coins drop into the fare
box and at the same time make change. Such attendants,
the number of which would have to be at least doubled,
would have to be furnished with about 125,000 pennies each
business day. The attendants could not be certain that the
penny refund would not be made to the uptown as well as
the downtown passengers.

(b) By the use of weekly or monthiy passes or commu-
tation tickets. Such passes or tickets could not be policed

—_—

278

during the rush hours, and their attempted inspection by
station attendants would entail too much delay to passen-
gers.

(c) By the use of single-trip or multiple-trip tickets. The
fare boxes are not adapted to effect the necessary cancel-
lation of such tickets, and cancellation machinery cannot
be obtained under the present war conditions. Other rapid-
transit companies in the New York area have abandoned
the use of such tickets because there are means by which
cancellations can be eradicated and the tickets reused, such
strips as deposited by groups of passengers may be ab-
stracted from the box by the attendant, and when tickets are
sold in strips they may be torn short by the purchaser so
as to provide more tickets than were sold. Moreover, the
sale of single tickets, with the necessity for making change,
would result in serious congestion and delays to passengers
during the peak-traffic periods.

3. The use of tokens only for the local downtown traffic,
while contemporaneously using cash fares for the other
local traffic of respondent, is impracticable.

The reasons why this is so are fully and accurately set
forth in our third report, and repetition here would serve
no useful purpose.

4. The use of an alternative-fare basis of 11 tokens for $1
or a cash fare of a dime for local interstate passengers on
both the downtown and wptown lines is the only practicable
method now available by which respondent can reasonably
be expected to obtain the financial benefits contemplated by
our findings and conclusions im the second report as neces-
sary to insure adequate transportation service.

[fol. 528] The alternative-fare basis is practicable in that
it can be used conveniently both by the public and by re-
spondent if made applicable contemporaneously, as pro-
posed, on both the downtown and uptown lines. Such tokens
will be available for use either by the purchaser, by any
member of his family, or by others, and without limitation
as to the period in which they may be used.

The sale of tokens in lots of 11 for $1 will result in an
average fare of 9-1/11 cents, or approximately the same
as we approved in the second report. It will result in a fare
reduction to passengers purchasing tokens and using the

uptown line from 10 cents to 9-1/11 cents, or 10/11 of a cent.

Based upon the number of local interstate passengers
carried by respondent in the first 8 months of 1943, adjusted
to a 12-month basis, and assuming a 5 percent loss in the
downtown local passengers by reason of an increase in the
fare, the proposed alternative basis can be expected to bring
to respondent at least no greater gross or net revenue than
would result under cash fares of 10 cents uptown and 9
cents downtown, if both of such fares were collectible, as
contemplated by our findings in the second report. If such
estimate were based upon a use ratio of 90 percent tokens
and 10 percent dimes, as respondent claims it should be,
the result would approximate $85,000 less annual revenue
under the alternative basis than under the 10-cent and 9-cent
cash fares.

This use ratio of 90 percent tokens and 10 percent dimes is
challenged by protestants, especially by the Price Admin-
istrator. Its advoeacy by respondent is grounded chiefly
wpon the experience on its lines that about 90 percent of its
patrons are regular commuters. Protestants’ challenge is
grounded largely upon a report made in 1937 by a committee
on fare structures to the American Transit Association,
which was made a part of the record at the further hearing,
and which shows the relative use of tokens and cash fares
on the lines of 75 transit companies serving communities
ranging in population from 20,000 to about 3,000,000, lo-
cated in various sections of the United States and in 4
Canadian provinces. The illustrations given comprise 127
observations, made in the years 1921 to 1935, inclusive, em-
bracing combinations of cash and token rates ranging, in
differentials between such rates, from 2.83 to 37.5 percent,
in token-investment requirements from 15 cents to $1.20,
and in eash fares from 6 to 10 cents. The results thus re-
vealed, even under the same combinations of cash and token
rates, vary widely. For example, under a fare basis of 8
cents in cash and 4 tokens for 30 cents, a transit company in
Wilmington, Del., showed a token use in 1931 of 65 percent,
while the experience of a company in Wilmington, N. C., in
1929 was only 40 percent, that of one in Durham, N. C., in
each of the years 1923 and 1927 was 52 percent, and that of
another in Seranton, Pa., in 1928 and 1930 was 72 percent.
So, also, the proportion using tokens under a basis of 7 cents
in cash and 4 tokens for 25 cents on 10 different companies,
in various years from 1921 to 1933, , ranged from 62 percent

Pa I RH

to 92 percent. The ratio of tokens used to the total fares on
these companies was about the same for token payments
ranging from 20 to 45 cents, beyond which the token per-
centage dropped noticeably until a payment of 55 cents was
reached, after which up to about $1 the drop was relatively
slight.

About all of any consequence here that this exhibit shows
is (1) that two powerful forces which have bearing upon the
token-cash use ratio are the differential between the token
and cash-fares, and the amount of the token investment, and
(2) that the smaller the differential and the greater the in-
vestment, the smaller will be the proportion of those using
tokens. It is plain also that, generally speaking, the more
infrequent the use made by the passenger of the company’s
services, the less likely he is to purchase tokens, especi
if the token investment is relatively high. What the claimed
proportion of the regular commuters on any of these transit
companies may have been at the time the respective observa-
[fol. 529] tions were made does not appear. The committee
points out that the working class, which is generally the
largest user of the service, tends to regard expenses in
terms of weekly periods, because they are the most common
“‘payday’’ intervals ; nevertheless, it implies that where the
token rate is high, the purchase of a half week’s service at
one time might be all that should be required. It regards
the opportunities for experimentation as almost unlimited,
and lists 195 combinations of cash and token rates, compris-
ing token investments up to $1 and cash fares of from 6 to
10 cents. It sets forth what, in its opinion, would be the
most probable average fare and the percentage of token use
under such combinations. For example, under a cash fare
of 10 cents and a token fare of 18 for $1, it would expect a
token use of 86.77 percent, but if the number of tokens for
$1 were reduced to 14, it would expect the token percentage
to drop to 67.84, and if the number for that price were fur-
ther reduced to 11, as in the instant proposal of respondent,
the use ratio would be expected to recede to 33.76 percent.
The committee admits, however, that deviations of actual
results from those estimated might occur from various
causes, and it adds this statement: ‘‘If the transit industry
is to continue to build towards a rate structure which shall
be at the same time economically sound and socially accept-
able, it seems advisable for the industry to give more con-
sideration than is evident from the various combinations of

rs

281

cash and token rates now in effect, to the nature and strength
of the forces that are introduced in the structure and the
effects of these forces on patronage and revenue.”’

None of the 75 transit companies included in the foregoing
report to the Transit Association operates in the New York
area, nor did the observations made embrace any combina-
tion of 11 tokens for $1 and a cash fare of adime. Moreover,
there is no indication that the traffic characteristics of any
of those companies are similar to those on the lines of re-
spondent, particularly with respect to the volume of traffic
and the concentration thereof in peak periods at particular
stations, such as at Hudson Terminal. As indicated, the
token ratio on the respective companies under the same fare
combination varied as much as 32 percent. A ‘‘spot check’’
based on 1943 data, made on 9 of the 75 companies included
in the foregoing exhibit, showed an average deviation from
the results as reported in 1937 of 1.8 percent and a maximum
deviation of 13.7 percent. If this maximum deviation
(13.7 percent) as reported in 1942 be added to the foregoing
maximum deviation under a particular fare combination
(32 percent) as reported in 1937, the result is a permissible
variation from the average as envisioned by the 1937 report
of as much as 45.7 percent, which, added to the expectations
of the Transit Association’s committee under a fare basis
of 11 tokens for $1 and a cash fare of 10 cents, namely, a
token use ratio of 33.76 percent, brings the possible use
ratio for tokens on the lines of respondent under the alter-
native fare basis here proposed, based on the Price Admin-
istrator’s showing, to 79.46 percent. Even if the actual use
ratio under the proposed basis should prove to be 70 percent
tokens and 30 percent dimes, respondent’s revenue would,
within about $15,000, approximate that anticipated by our
findings in the second report, based upon the number of
local interstate passengers carried in the first 8 months of
1943, adjusted to a 12-month basis, and allowing for a 5
percent diversion by reason of the fare increase on the
downtown line, but making no allowance for the increased
number of passengers which could be expected to be drawn
to the uptown line by reason of the fare reduction thereon.
Moreover, as indicated, it is likely that the traffic character-
istics on the lines of respondent differ greatly from those on
the lines of the other companies referred to of record, and
therefore the 90-10 percent use ratio urged by respondent

Leas Se NOR A Ra Ect

appears to us to be within the range of probable achieve-
ment under the proposed fare basis.

Protestants imply, but do not claim, that an investment of
[fol. 530] $1 for the purchase of tokens is greater than war-
ranted by the economic status of respondent’s commuters.
The price of the average monthly commutation fares in the
New York metropolitan area is at least $5, and at the first
hearing herein the New Jersey protestants advocated the
sale by respondent of interstate 60-ride commutation fares
at a price of $3. Respondent takes the position that there
is no material difference between the financial status of its
passengers and that of commutation passengers generally
in the New York area. Protestants take a different view.
The record would not support a finding that there is any
such difference, but if such a difference should exist, plainly
it may not be assumed, without more, that it is greater than
that reflected between the $1 here proposed to be charged
and either the $3 advocated by the New Jersey protestants
or the more than $5 now charged on the average for com-
mutation tickets by railroads generally in the New York
area.

The only way, of course, in which the effect of the pro-
posed fare basis, either upon the public in convenience of
use or upon the respondent in revenue results, can be as-
certained without the uncertainties necessarily inherent in
predictions of traffic or revende results, is by giving the
basis a fair trial

5. The modification of our prior findings as made im the
third report of August 3, 1943, is not ww confict with the
Emergency Price Control Act of 1942, as amended by the
Stabilization Act.

In our second report, page 668, we found that a maximum
increase of about 12 cents a week and 52 cents a month per
passenger reflected by an increase from 8 to 9 cents in re-
spondent’s downtown fare, would not be in conflict with
the Emergency Price Control Act of 1942, as amended. The
difference between the 9-cent fare found to be lawful in that
report and the average token fare of 9-1/11 cents now pro-
posed is equivalent to a maximum increased transportation
cost to the average downtown passenger of about 57 cents
a year. On the other hand, the proposed reduction in the
uptown fare from 10 cents to an average token fare of 9-1/11

cents is equivalent to a maximum decrease in transportation
cost to the average uptown passenger of $5.67 a year. For
respondent’s local interstate passengers as a whole, the
proposed basis will not result in any greater increase in
average transportation cost per passenger than that con-
templated by our findings in the second report.

Our views with respect to the effect of the provisions of
the Emergency Price Control Act of 1942, as amended, upon
our administration of the Interstate Commerce Act are set
forth in Increases in Taaes, Rates, Fares, and Charges, 253
LC.C. 723. See, also, Increased Railway Rates, Fares, and
Charges, 1942, 255 I. C. C. 357, 392.

6. A cash fare of 10 cents for the occasional or irregular
passenger on the downtown line compares favorably with
the reasonable charge made for similar service on railroads
generally.

Under the proposed basis the occasional or irregular
passenger will pay 10 cents on both of respondent’s lines.
In the second report we found that the fares and charges
of record for commutation service of carriers other than
respondent serving the New York metropolitan area afford
stronger support, differences in transportation services con-
sidered, for an 8-cent or a 9-cent fare than for a 10-cent
fare on respondent’s downtown line. That finding, how-
ever, was based upon a comparison between fares and
services for commutation passengers, and not for passen-
gers who may ride only occasionally in commutation equip-
ment. On the railroads generally, the latter passengers
do not ride on commutation tickets, but on standard coach
tickets, the price of which is subject to the minimum charge
[fol. 531] of 10 cents for all passengers on rail passenger
equipment prescribed by us in Passenger Fares and Sur-
charges, 214 LC.C. 174, 257.

Conclusions

Upon consideration of the entire record, and more par-
ticularly of the foregoing findings of fact, we affirm our
conclusions in the report on reconsideration of August
3, 1943, namely, that a local interstate fare on respondent’s
downtown line on the alternative basis of 11 takens for $1
or a cash fare of 10 cents, payable by a dime, has been
justified as reasonable and otherwise lawful, for applica-

aN Rt CEL A

tion during the remaining period of the war and 6 months
after its termination; provided that contemporaneously
with the establishment and maintenance of such fares on
the downtown line, the same alternative basis be established
and maintained for local interstate traffic on respondent’s
uptown line.

Respondent asks for permission to establish the fares
herein approved upon 10 days’ notice to us and to the
public, instead of 30 days as required in section 6(3) of
the act. A downtown fare of 9 cents was approved by us
on June 8, 1943, and in the ordinary course, if collectible,
that fare would now have been in effect for about 4 months.
Accordingly, we feel warranted in exercising the powers
given to us in section 6(3) and permitting the establishment
of the approved fares upon less than the statutory notice.

An order overruling the aforesaid motion of the Director
of Economic Stabilization, and granting permission to re-
spondent to establish the fares herein approved upon not
less than 15 days’ notice, will issue.

Muier, Commissioner, concurring in part:

My views in this proceeding are set forth in the expres-
sions made by me in connection with the prior reports. I
here concur in the finding made respecting the alternative
basis of fares insofar as it will afford relief from the con-
clusion reached by the majority in the report on further
hearing, 255 1.C.C. 649.

I am authorized to state that Commissioners Mahaffie
and Patterson join in this expression.

Commissioner Atchison did not participate in the dis-
position of this proceeding.

[fol. 532] Order

At a General Session of the Interstat« —«:umerce Com-
mission, held at its office, in Washington, D. C., on the 2d
day of November, A. D. 1943.

Investigation and Suspension Docket No. 4394
Passenger Fares of Hudson and Manhattan Railroad
Company

This proceeding having been reopened for further hear-
ing, and full investigation of the matters and things in-
volved having been had, and the Commission having, on

the date hereof, made and filed @ second report on further
hearing containing its findings of fact and conclusions
thereon, together with a discussion of the motion of the
Price Administrator in behalf of the Economic Stabiliza-
tion Director for further reopening of this proceeding,
which said report is hereby referred to and made a part
hereof :

It is ordered, That the aforesaid motion of the Director
of Economic Stabilization, by the Price Administrator, be,
and it is hereby, overruled.

It is further ordered, That the respondent, Hudson & Man-
hattan Railroad Company, be, and it is hereby, authorized
to publish and apply the fares found in said report to be
reasonable and otherwise lawful upon not less than 15 days’
notice to the Commission and to the general public, in the
manner provided in section 6 of the Interstate Commerce
Act.

By the Commission.

W. P. Bartel, Secretary. (Seal.)

(fol. 533] Certificate of Service

I hereby certify that I have this day served the foregoing
document upon all parties to this proceeding by mailing
a copy thereof, with postage prepaid, to each party of
record, .

Dated at New York, New York, this 13th day of July,
1943.

S. S. Eisen, For Protestants.

286
[fol. 534] Piarstir®’s Exurerr ‘‘4’’
22348

IntTerstaTe ComMERCE ComMMISSION
INVESTIGATION aND Suspension Docker No. 4398

Passencer Fares or Hupson & Mannattran Rarmaroap
Company

Submitted June 22, 1938. Decided July 11, 1938

Proposed increased local passenger fare of the Hudson &
Manhattan Railroad Company between Jersey City and
Hoboken, N. J., and Hudson Terminal, New York, N. Y.,
found not justified. Suspended schedules required to be
canceled, without prejudice to the eeeeanats of a
fare of 8 cents.

John F. Finerty, John E. Buck, Donald C. Swatland, and
Thomas A. Halleran for respondent.

Milton P. Bawman, James A. Hamill, Charles Hershen-
stein, Michael J. Bruder, John N. Platoff, Nicholas S.
Schloeder, Alfred Brenner, James C. Agnew, Horace L.
Allen, James A. Coolahan, Theodore C. Baer, George F.
Cassidy, Merris E. Barison, William Schlosser, Maurice
Frager, Fred Eichman, L. Alfred Jenny, and William
Reger for protestants.

William L. Bevan for Public Utilities Commission of New
Jersey.

Charles J. Fagg, Thomas M. Kane, and W. H. Chandler
for local interests.

Report or tHe ComMIssIon

Porter, Commissioner:

Exceptions to the report proposed by the examiner were
filed by respondent and protestants, and the issues were
orally argued before us.

By schedules filed to become effective September 1, 1937,
respondent Hudson & Manhattan Railroad Company pro-
posed to increase from 6 cents to 10 cents its passenger
fare between Hudson Terminal, New York, N. Y., and
stations in Jersey City and Hoboken, N. J. Upon protest

287

of numerous commuters and of the municipalities of Jersey
City, Hoboken, Bayonne, Harrison, Secaucus, North Ber-
gen, and others in Hudson County, N. J., operation of the
proposed schedule was suspended to April 1, 1938. The
effective date has since been voluntarily postponed to Sep-
tember 1, 1938.

Respondent’s lines consisted of an underground rapid-
transit system, operated exclusively by electric power of
the three-rail type, for the transportation of passengers
between stations on Manhattan Island, N. Y., and stations
in Jersey City and Hoboken. No package, freight, or ex-
press matter is handled by respondent. It has two double-
track lines under the Hudson River, one known as the down-
town line and the other as the uptown line, connecting on
the New Jersey side and comprising in all about 8.5 miles
of line, of which all but 0.63 mile is underground. The
downtown line, on which the proposed increased fare is to
apply, crosses under the river by two parallel tunnels be-
tween Exchange Place, Jersey City, and Hudson Terminal
at Church Street between Cortlandt and Fulton Streets, in
[fol. 535] New York, and extends westward in Jersey City
from Exchange Place through a station at Grove and Hen-
derson Streets to a station at Journal Square, where con-
nection is made with the Pennsylvania Railroad. The up-
town line crosses under the Hudson River by two parallel
tunnels from Hoboken to Christopher Street, in New York,
from which point it runs uptown under Sixth Avenue to a
terminal at Thirty-third Street, with other stations at
Twenty-eighth, Twenty-third, Nineteenth, Fourteenth, and
Ninth Streets. The Thirty-third Street terminal is now
being constructed by the city of New York in connection with
construction of the city-owned subway under Sixth Avenue.
During this construction respondent’s uptown trains are
operating into a temporary terminal at Twenty-eighth
Street and Sixth Avenue.

The connection between the uptown and down town lines
on the New Jersey side is made by a north-and-south line ap-
proximately parallel with the Hudson River, extending from
a junction with the downtown line near Grove and Hender-
son Streets to a junction with the uptown line near Hoboken.
These lines have stations in the respective terminals of the
Delaware, Lackawanna & Western Railroad Company at
Hoboken, the Erie Railroad Company at Jersey City, and

the Pennsylvania at Exchange Place. Respondent in con-
junction with the Pennsylvania also operates a joint rapid-
transit electric-train service between Hudson Terminal, in
New York, and Newark, N. J., over respondent’s line to
Journal Square, thence over the Pennsylvania to Harrison
to Market Street, Newark. Passengers on these trains may
transfer to or from the uptown line where it connects with
the downtown line in Jersey City. About 40.4 percent of
respondent’s tracks are under public stree‘s, 36.7 percent
under private property, and 22.9 percent under the Hudson
River.

Hudson Terminal is located underneath the streets and
two large office buildings owned by respondent in the square
bounded by Church, Fulton, Greenwich and. Cortlandt
Streets in the financial district of lower Manhattan. At or
near this terminal, connections can be made with several
New York subway and elevated lines. Exchange Place in
Jersey City is 80 feet underneath the Pennsylvania pas-
senger terminal, near the water front. Elevators there con-
vey passengers to and from the Pennsylvania station as
well as the street, where there is a trolley and bus terminal.
From Exchange Place westward the line is mainly under
the Pennsylvania’s right-of-way to Journal Square,-in the
central business district of Jersey City. This station is
located in an open cut a short distance beyond the tunnel
portals. Escalators convey passengers to and from the
street, where there is a terminal for trolley lines and bus
routes, both local and long distance. This station is owned
by the Pennsylvania, operated by respondent, and used by
both. Passageways and stairways connect respondent’s
stations with those of the Lackawanna and Erie, and with
the Street, where there are trolleys and busses.

autos. tunneis are generally smaller in size than
yof the New York subways and are too small for stand-
ard steam-railroad passenger cars. They are equipped
with automatic block signals, averaging only 370 feet apart,
each with an automatic train stop, and terminals and june-
tions are protected with interlocking equipment. The
grades are numerous and severe, reaching a maximum of
5.46 percent, and the curves are numerous and long, with a
minimum radius of 90 feet. For this reason, and also be-
cause 85 percent of respondent’s road is below tide level,
maintenance and replacement expenses are exceptionally

heavy. Respondent owns 324 passenger cars, specially de-
signed for its small-size tunnels. They are of steel con-
struction, with longitudinal seats accommodating 44 pas-
sengers, and have self-contained motors and sliding doors.
They are not operated singly, but in trains ranging up to
eight cars. The trains are operated on an interval sched-
ule ranging from 90 seconds during rush hours to 30 min-
utes after midnight.

Respondent charges a local fare of 5 cents for intrastate
[fol. 536] transportation in New York or New Jersey, 6
cents for interstate transportation on the downtown line,
and 10 cents for interstate transportation on the uptown
line. These interstate fares were respectively increased in
1920 from 5 cents and 7 cents upon our approval in Local
Fares of Hudson & M. R. Co., 58 I. C. C. 270. The fares
charged in the joint rapid transit service between New York
and Newark vary with the type of ticket, ranging from 20
cents for a one-way ticket to 12.4 cents per permissive ride
on a 60-trip monthly ticket. Under joint arrangements
later referred to, respondent receives agreed Givisions from
the Pennsylvania on all passengers handled jointly or inter-
changed between the two carriers both to or from Newark
and to or from other points on or reached via the Pennsyl-
vania. These divisions are 5 cents where the passenger
is transported between Hudson Terminal and Exchange
Place, 7.64 cents on all other passengers transported to or
from Hudson Terminal, and 8.64 cents on passengers trans-
ported to or from New York stations on the uptown line.
Respondent has a similar arrangement with the Lehigh
Valley Railroad Company, the divisions from such pas-
sengers being received through the Pennsylvania. Re-
spondent receives no division of the fares paid by pas-
sengers traveling only on the Pennsylvania’s portion of
the joint rapid-transit route. No increase in any of these
fares or divisions except in the downtown fare of 6 cents is
contemplated at this time.

Before respondent’s lines were constructed the only way
in which trunk-line passengers could cross the Hudson
River to or from New York was on ferries operated by
the various railroads. Commencing in 1903 respondent
and its predecessors entered into a series of contracts with
the Pennsylvania regarding the carriage of the latter’s
passengers to and from New York. Respondent is now a
party to a number of tariffs published by the Pennsylvania

9—767

a

under which passengers of the latter holding tickets to
or from New York may transfer to or from respondent
without additional charge. Respondent is also a party to
one passenger tariff of the Lehigh Valley under which
there is a similar arrangement. It has no joint fares with
any other railroad. Main-line passengers of the Pennsy]l-
vania and the Lehigh Valley transfer at Exchange Place,
and passengers on Pennsylvania suburban trains which
operate into its Exchange Place station, Jersey City, change
there. The Pennsylvania’s time-tables show the train sched-
ules to and from Hudson Terminal as well as its own sta-
tion at Thirty-third Street, New York. The Pennsylvania
maintains a ticket office in Hudson Terminal where tickets
may be purchased to any point on or reached via its lines.

The chief support for the proposed increased fare offered
by respondent is the need for about $1,000,000 additional
gross revenue in order merely to pay increased operating
expenses, increased taxes, and interest on its funded debt,
including current interest on its adjustment income bonds,
but excluding cumulative interest which is now in arrears.
Respondent owns and operates two 22-story office buildings
erected over its Hudson Terminal and certain other miscel-
laneous real estate, hereinafter referred to as nonrailroad
properties or operations. Its capital securities outstand-
ing in the hands of the public total $112,710,950, of which
$67,470,000 is funded and $45,240,950 preferred and com-
mon stock. Respondent has paid no dividends on its stock
since 1933, and it is not here claiming that the proposed
fare should or will enable it to pay such dividends. Its
outstanding funded debt consists of $944,000 of first-mort-

‘gage 4.5-percent bonds, $35,242,600 of first-lien and refund-

ing 5-percent bonds, and $31,284,000 adjustment income-
mortgage 5-percent bonds.

On the basis of the present relation between the cost of
its common-carrier or railroad properties and the cost of
its nonrailroad properties, 83.16 percent of its bonded in-
debtedness has been allocated to its railroad operations and
16.84 percent to its nonrailroad operations. This basis of
allocation is not questioned upon this record and will be
accepted as proper for the purpose of this proceeding.
[fol. 537] On this basis there are allocated to railroad opera-
tions $785,030.40 of the first-mortgage, $29,307,746.16 of
the first-lien and refunding, and $26,015,774.40 of the, ad-
justment income bonds, the annual interest on which is

291

$1,500,713 on the first two issues and $1,300,789 on the in-
come bonds. Since 1933 the nonrailroad operations have
earned their full interest, including that on their allocable
share of the income bonds, plus net income ranging from
$222,586 in 1934 to $9,396 in 1937. On the then outstanding
bonded indebtedness of $56,108,551 thus allocated to ue
railroad operations, however, respondent has failed to earn
the interest, including that on the allocable share of the in-
come bonds by $302,406 in 1933, $279,078 in 1934, $487,289 in
1935, $394,810 in 1936, and $655,164 in 1937. Under the
terms of respondent’s adjustment income mortgage the
interest on those bonds is not payable unless eayned, but
since 1920 deficiencies in the payment of such interest have
become cumulative, so that at the end of 1937 the cumula-
tive interest thereon was in arrears in the amount of
$1,642,410.

The railroad operating expenses of respendent have been
increased in recent years by higher costs of materials and
supplies and of iabor. in 1937 such expenses, other than
taxes, were greater than in 1933 by 17.5 percent, and in
1936 by 6.01 percent, but less than in 1930 by 16.8 percent
and in 1929 by 19.7 percent. Taxes in 1937 increased hy
5.41 percent over 1936 and 5.62 percent over 1933, but were
less than in 1932 hy about 2 percent, in 1930 by 12.3 percent,
and in 1929 by .v.5 percent. In 1937 wages increased over
1936 by about $140,000, and a further increase of about
the same amount is anticipated in 1938. Certain groups of
employees have agreed to a 5-percent increase in hourly
wages for 1938 and to postponement of the effective date of
a further 5-perzent increase in such wages, and of a two
weeks’ vacation with pay, until respondent’s railroad opera-
tions provide adequate revenues. Including those increases
the wage scale of such employees is still substantially lower
than that of the other subways operating in the metropolitan
district, whose fixed charges are in part met by general
taxation.

Respondent’s railroad operating revenues increased
steadily from $6,838,269 in 1920 to $9,073,512 in 1927 and
then quite steadily declined by 34.4 percent to $5,956,426 in
1923. Slight increases occurred in the succeeding years
to and including 1936, but in 1937 the total was $6,041,835
or 1.11 percent below 1936. From 1921 to 1932 the rail-
road operations produced a net income after interest on
funded debt ranging from $1,487,139 in 1929 to $182,423 ©

in 1932. Since then, as above indicated, respondent has
been operating at a deficit in net income.

Expenditures approximating $1,500,000 upon respond.
ent’s railroad properties are said to be needed now and
more later. Under the terms of the adjustment income
mortgage all earnings available for bond interest must be
applied to the extent necessary to pay coupons on such
bonds. Accordingly, respondent cannot make capital im-
provements out of earnings or build up any reserve for
the future until it has discharged the present accumulation
of interest due on its income bonds and is earning some-
thing in addition to the full current interest thereon. It
estimates that operating expenses and taxes in 1938 will
exceed those in 1937 by about $249,111, or 6.4 percent, and
that accordingly, based on traffic for 1937, its 1938 deficit
in net income will be about $904,275. It estimates that
for 1938 the proposed fare would yield about $1,078,612 in
additional revenue, and that about $2,959,205 would remain
for bond interest. The total annual interest on the rail-
road proportion of the outstanding bonds is $2,801,502,
which would leave a net income of $157,703. It appears
that respondent is being operated economically and ef-
ficiently, and that little can be expected in the way of
reduced expenses.

The primary reason for respondent’s financial difficulties
lies in the substantial loss of passenger traffic since 1929.
The appendix hereto shows the total number of passengers
carried, segregated as between New Jersey intrastate, joint
(fol. 538] rapid transit, uptown (including New York intra-
state), and downtown. It will be noted that, using 1919
as 100, the total passenger traffic dropped to 97 percent in
1920, then increased to 120 percent in 1927 and 119 percent
in 1928 and 1929, after which it declined to 80 percent in
1933, 81 in 1934 and 1935, and 83 in 1936 and 1937, the total
in the latter year being 77,989,857. On the downtown line,
on which the local fare was increased from 5 to 6 cents
in 1920, the number of local passengers increased steadily
until 1929, when it was 143 percent of 1919, and then de-
clined to 104 percent in 1933, 106 percent in the next two
years, and 110 percent in 1936 and 1937. The uptown local
traffic, on which the fare was increased in 1920 from 7 to
10 cents, including New York intrastate traffic, declined to
89 percent in 1920, and then increased, but much more
slowly than the corresponding increase on the downtown

line, to 105 percent in 1927, after which it declined to 97
percent in 1929, 61 in 1933, 59 in 1934, and 60 in 1936 and
1937. The New York intrastate passengers thus combined
with the uptown traffic totaled only 353,868, or about 2 per-
cent of the uptown traffic, in 1937. The joint rapid-transit
traffic declined slightly in 1920 and then increased to 115
percent in 1927, after which it declined to 110 percent in
1929, 68 in 1933, and 69 in 1937. The New Jersey intra-
state traffic declined to 97 percent in 1920, and then in-
creased to 165 percent in 1923 and 149 percent in 1925,
after which it declined to 120 percent in 1929, 77 in 1933,
96 in 1936, and 90 in 1937.

The foregoing decline in the total passengers carried by
respondent is little different from the average decline
on the principal trunk-line railroads reaching New York
City by way of New Jersey. On the Erie and the Lacka-
wanna, for example, which afford free trans-Hudson ferry
service on their traffic to downtown stations, the number
of passengers in 1936 was respectively 70 and 83 percent
of that in 1919, as compared with 83 percent on respondent
as a whole, 62 percent on the uptown line, and 96 percent
on the downtown line, those percentages including the local
as well as the joint rapid-transit passengers. However,
in 1920, when the increased fares became effective on all
railroads, while as compared with 1919 respondent’s down-
town traffic gained 1 percent and its uptown traffic declined
about 11 percent, the Lackawanna gained 6 percent, the
Erie 24 percent, and the principal New Jersey railroads
combined 12 percent. In subsequent years while the show-
ing made on the uptown line continued to be less favorable
than on the trunk lines generally, that of the downtown
line gradually became more favorable until in 1929 the
total was 32 percent greater than in 1919, as compared
with 2 percent less on the uptown line, 19 percent greater
on both of respondent’s lines combined, and 10, 24, and 15
percent, respectively, greater than in 1919 on the Lacka-
wanna, the Erie, and the New Jersey railroads as a whole.

Respondent analyzed the foregoing traffic results for the
purpose of supporting its claim, which as will later appear
is disputed by protestants, that an increase from 6 to 10
cents in its downtown fare could be expected to result in
a substantial revenue increase, and also that such a result
could not be anticipated from an increase in its local fares
elsewhere. It is admitted that the decline of 11 percent in

eR DSN

1920 under the preceding year in the number of uptown
passengers was chiefly due to the increase at that time in
the uptown fare from 7 to 10 cents. The greater part of

_this loss was diverted to the ferries, although some of it

by reason of the narrow spread between the uptown and
downtown fares probably reached the downtown line. The
uniform fare on the New York City subways is 5 cents and
the combination of that fare and respondent’s 6-cent down-
town fare made a lower through charge by 4 cents to upper
New York than by the use of the uptown line and a subway
at a cost of 15 cents. Subsequently, however, the uptown
traffic increased, so that in 1927 it was 5 percent greater
than in 1919, as compared with a corresponding increase
of 35 percent on the downtown line. The opening of the
Holland Tunnel in the fall of 1927, while it apparently
had little effect on the downtown traffic, was largely re-
[fol. 539] sponsible for the uptown decline in 1928 and 1929.
The opening in 1931 of the George Washington Bridge had
a like, but less drastic, effect on the uptown traffic, and the
opening of the first tube of the Lincoln midtown tunnel
late in 1937 has had a similar effect on both lines. Thus,
the total number of busses crossing the Hudson River in-
creased from about 70,000 in 1925 to 790,000 in 1930, 828,000
in 1932, 1,018,000 in 1935, 1,071,000 in 1936, and 1,112,000
in 1937. The minimum bus fares are 10 cents over the
George Washington Bridge and 25 cents through the tun-
nels. The combinations made by adding to the uptown fare
the bus fares, generally 5 or 10 cents, to and from the Jersey
City stations of respondent are in some instances higher,
in others the same, and in others lower than the through
bus fares. On the other hand, with some exceptions, the
bus fares are higher than the commutation fares of the
trunk-line railroads plus respondent’s uptown fare. The
total number of private automobiles crossing the Hudson
River increased from about 7,000,000 in 1924 to 17,668,000
in 1932, 22,416,000 in 1935, and 25,811,000 in 1937. The
river fare for private automobiles ranges from 20 to 25
cents on ferries to 50 cents for the tunnels or the bridge.
More of the private automobiles move to and from the up-
town than the downtown area.

Of course, the chief cause of the general decline in re-:
spondent’s traffic since 1929 was the economic depression.
Other factors are the improvement in shopping and amuse-
ment centers in New Jersey, the coincidence of the 5-day

working week, the decline as a shopping center of Sixth
Avenue in Manhattan served directly by respondent be-
tween Kighth Street and Thirty-third Street, and the de-
velopment of a new business center on Fifth Avenue ex-
tending as far north as Fifty-seventh Street, which is
readily accessible to motor vehicles.

Basing upon the foregoing facts, respondent maintains
that the steady decline in traffic on the uptown line has been
due, aside from the depression, chiefly to the increased
motor competition since 1927 and to the change in the char-
acter of the midtown territory served by that line, and not
in any large degree to the 10-cent fare; that the trans-Hud-
son motor competition is primarily operative against the
uptown and not the downtown line; that the diversion from
the uptown line to competitive motor transportation has
been influenced largely by the greater convenience and
flexibility of the motor service and without reference to
relative cost; and that the differential between the uptown
10-cent fare and the downtown 6-cent fare has tended to
divert traffic from the uptown to the downtown line. Ac-
cordingly, respondent insists that any increase in the up-
town fare would tend to accelerate bus competition, and
that it can obtain the necessary additional revenue only by
increasing the downtown fare as proposed.

Respondent does not believe that it could secure increased
revenue by a reduction in its fares and consequent stimula-
tion of increased traffic. In most cases the bus fare to New
York plus the New York subway fare is the same as_or
higher than the steam-railroad commutation ticket plus
either of respondent’s fares. For this reason respondent
believes that reduced fares would not divert traffic from the
busses. As bus services become established and equipment
improved, it is expected that this type of competition will
increase, especially to and from the portion of Manhattan
which is now served by the uptown line. Most of the bus
lines serve the midtown business center and generally do
not reach lower Manhattan. Moreover, it seems to re-
spondent unlikely that a fare reduction would attract pas-
sengers from the ferries, since the greater portion of the
ferry traffic consists of steam-railroad passengers entitled
to free ferry service under their New York tickets.

Because the fundamental cause of respondent’s lack of
income is the decline in traffic, especially on the uptown line,

it has made a study to determine whether that line has now
reached the point where it has become a burden upon the
road as a whole. Income and expenses, including taxes al-
locable to railroad operations, were divided between the
(fol. 540] uptown and downtown lines in 1937 on the basis
of a formula, of which there has been practically no criti-
cism. The results indicate that in that year the downtown
line contributed $1,845,747 and the uptown line $300,592 to
net income available for bond interest; that if the uptown
line had been abandoned and 50 per cent of its traffic lost,
and the remainder diverted to the downtown line, the bal-
ance available for bond interest would have been approxi-
mately $336,388 less than it was, and if all of its traffic had
been lost the balance available for interest would have been
about $817,492 less than the actual. This story indicates,
therefore, that respondent would be worse off if the uptown
line were eliminated.

It is admitted by respondent that some diversion of traffic,
especially to the ferries, would result from the proposed
fare. The extent of such probable diversion is variously
estimated by its witnesses as from 11 to 15 percent. Taking
into consideration a probable diversion of about 11 per cent,
respondent estimates that the proposed fare would enable
it, on the basis of a 2-per cent reduction in the 1937 traffic
and after making provision for increased wages, taxes, and
other expenses, to pay full bond interest and accumulate
an annual surplus of about $157,000 with which to liquidate
the interest arrearages on the income bonds and later to
create a modest reserve against contingencies. Since the
beginning of 1938 and up to the time of the hearing in the
latter part of February, respondent’s traffic had shown a
reduction under the corresponding weeks in 1937 of between
5 and 6 per cent instead of the 2-per cent reduction included
in the foregoing estimate. Respondent also feels that a
uniform fare on the uptown and downtown lines would tend
to eliminate the distortion between the traffic on the two
lines and result in operating advantages.

The original cost of respondent’s railroad properties,
compiled from its accounts and those of the predecessor
companies, is indicated to be $66,543,281.07. The respective
amounts for the various projects from which this sum is
determined are all supported by vouchers, with the exception
of two items. One is an item of $4,192,670.71 representing
the expendtiures from 1902 to 1906, inclusive, of the Hudson

297
Improvement Company in connection with the construction
of the New York & New Jersey Railroad, and the other is
an item of $2,000,000 for property acquired prior to 1902
by the New York & New Jersey Railroad Company in con-
nection with the reorganization of the Hudson Tunnel Rail-
way Company. The first item was taken from the books of
the company and there seems to be no doubt of its accuracy.
With respect to the second item the following appears in
Local Fares of Hudson & M. R. Co., supra, page 273:

The property acquired by the New York & Jersey Rail-
road Company for $400,000 was appraised at $2,000,000,
and the appraised value has been used as the cos* thereof.
No liabilities were assumed in the acquisition of the prop-
erty; therefore the purchase price should be credited to
investment in accordance with our accounting rules.

It now appears that while the price bid for this property
at the foreclosure sale was $400,000, this bid was but a step
in the reorganization, the payments being largely in bonds
of the old company; that apparently something more than
$3,000,000 in securities of'the New York & Jersey Railroad
Company were issued for the acquisition of this property
and in exchange for the securities of and in settlement of
claims against the Hudson Tunnel Railway Company; and
that in the judgment of the respondent’s officials who have
examined the records of the predecessor companies at least
$2,000,000 must have been expended in the construction of
the property covered by this item. Upon this record this
item appears to be adequately supported.

In behalf of respondent a civil engineer with many years
of experience in tunnel, subway, and other heavy construc-
tion estimated the reproduction cost of respondent’s rail-
road properties new, on the basis of 1914 prices, less de-
preciation, at $68,272,998.96. Prices in 1914 were used as
representing a fairly stable level for an extended period
prior thereto. The details on which this estimate was made
are of record and have met with little criticism. The de-
[fol. 541] preciated cost of reproduction new at current
prices would be greater than the above estimate at 1914
prices. This estimate is offered in confirmation of the
original construction cost of $66,543,281.07 shown by re-
spondent, not only as a prudent investment, but a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385610_0090%3A01. Public record. Not legal advice.