# Amicus Curiae Brief — United States Ex Rel. Kansascity Southern Ry. Co. v. Interstate Commerce Commission

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1920
- **Citation:** 252 U.S. 178

## Text

DEC 8 1919
JAMES D, MAHER,

ML EIPK,

In the Supreme Court of the United Staies

OcToBER TERM—1919.
No. 413.

THE UNITED STATES OF AMERICA on
the relation of Kansas City Southern Rail-
way Company,

Plaintiff-in-Error,
Vs.
INTERSTATE COMMERCE COMMISSION

In ERROR TO THE CouURT OF APPEALS OF THE
DistTRicT OF COLUMBIA.

BRIEF AS AMI/C/ CURIAE ON BEHALF OF
NUMEROUS RAILROAD COMPANIES

W. G. BRANTLEY,
SANFORD ROBINSON,
LESLIE CRAVEN,
of Counsel,
Presidents’ Conference Committee.

Fy

PRINTED BY THE
SECRETARY, PRESIDENTS’ CONFERENCE COMMITTEE
PHILADELPHIA, PA.

Point 1. The Valuation Act plainly

requires the investigation, as-
certainment and report of the
Present Costs of Acquisition of
Railroad Lands...........................

Point 2. Since the language of the

Act clearly requires that the
Commission ascertain the cost of
acquisition, the Commission can-
not question the wisdom of Con-
gress, nor can it refuse to per-
form the duty imposed unless
such performance is absolutely

Point 3. The Ruling in the Min-

nesota Rate Cases, considered
as a Ruling upon a Principle
of Constitutional Law, does not
affect the duty of the Commis-
sion to perform the Act specified
in the Valuation Act................

Point 4. The nature of the prob-

lem of ascertaining the present
cost of acquisition of railroad

13

15

il

PAGE
Point 5. The present cost of con-
demnation and damages or of
purchase of railroad lands can
be readily and accurately as-
certained in accordance with
established legal precedents...... 40

ill

CASES AND AUTHORITIES CITED.

Beebe v. Johnson, 19 Wend., 500

Cohens v. Virginia, 6 Wheaton, 264

County of Blue Earth v. St. P.& S.C. R. R.
Co., 28 Minn., 503

15 Cye. 722-3

Faulk v. Missouri River & N. W. Ry. Co.,
132 N. W., 233 (8S. D.)........................

Hare on Contracts, 639

Harriman, The, 9 Wall., 172

Kansas City Southern Railway Co. (1 Val.

U. S., 423
Lewis, Eminent Domain (Third Edition)..42, 48
Lincoln v. Commonwealth, 164 Mass., 368,

41 N. E., Rep. 489
Minnesota Rate Cases, 230 U. S., 352, 451.. 10
Northern Pacific Railway Co. v. North

American Telegraph Co., 230 Fed.,

347 ’ a
R. I. & E. I. Ry. v. Gordon, 184 IIl., 456,

56 N. E., 810
Smythe v. Ames, 169 U. S., 466
Sutherland on Damages, Paragraph 1083.... 48
Texas Midland Case, 1 Val. Rep. 53, 54,

1:170
U.S. v. Grizzard, 219 U. S., 180, 183, 184.8, 42
Winston-Salem Southbound Ry. Co., 1 Val.

Rep. 176 17

Inthe Supreme Court of the United States

OcTroBER TeERM—1919.
No. 413.

THE UNITED STATES OF
AMERICA, on the relation of
The Kansas City Southern
Railway Company,

Plaintiff-in-Error,
vs.

THE INTERSTATE COM-
MERCE COMMISSLON

BRIEF AMIC/ CURIAE.

Statement

An order having been entered, granting per-
mission to file a brief as amici curiae, this brief
is filed by counsel on behalf of the Presidents’
Conference Committee, an organization of the
executives of the railroad companies, repre-
senting the ownership of approximately 224,000
miles or 85 per cent. of the railroad mileage
of the country.

The Interstate Commerce Commission, in the
enforcement of the Act approved March 1, 1913,

2

amendatory to the Act to Regulate Commerce,
and providing for the valuation of the properties
of carriers subject to said Act, has declined, in
the case of the Kansas City Southern Railway,
to ascertain and report the present cost of con-
demnation and damages or of purchase of the
carrier lands of said company, basing its dec-
lination upon the ground that it is impossible
as matter of law to ascertain and report the
present cost of condemnation and damages or
of purchase of the carrier lands of any railroad
company. The interest of the Presidents’ Con-
ference Committee in the pending case arises
by virtue of its representation in matters in-
volving the valuation of the properties of the
various railroad companies embraced within
its organization, and the said committee
believing that the conclusions reached by the
Interstate Commerce Commission as stated are
erroneous, it has sought, through its counsel,
permission to file a brief on the question
involved, and such permission being granted,
this brief is now submitted.

Argument.

Point 1. The Valuation Act plainly
requires the investigation, ascertain-
ment and report of the present costs of
acquisition of railroad lands.

The duty of the Commission with relation to
the execution of the Valuation Act is prescribed
by its terms. There is no dispute as to what

3

the Act prescribes. It requires, in plain and
implicit language, the investigation, ascertain-
ment and report of the present cost of acquisition
and also the present value of railroad lands.
These requirements are found in paragraph
“First,” in the language: ‘Said Commission
shall ascertain and report in detail as to each
piece of property owned or used by the said
common carrier for its purposes as a common
carrier, * * * the cost of reproduction
new, * * *,” and paragraph “Second,”
which applies solely to land, providing that:
“Such investigation and report shall state in
detail, and separately from improvements,
* * * the present value * * * and sepa-
rately the * * * present cost of condemna-
tion and damages, or of purchase * * *.”

The Commission makes no denial of these
requirements. It has admitted in its decision
in the Texas Midland case, 1 Val. Rep. 54,
that the Act requires the investigation, ascer-
tainment and report of the present cost of
acquisition of railroad lands. The Commis-
sion says (page 54): “* * * the direction
in paragraph entitled ‘Second’ for the ascer-
tainment of the present cost of condemnation
and damages, or of purchase, in effect calls for a
finding as to the cost of reproduction of these
lands.”

On page 163, the Commission says: “This,
however, is not of much practical importance,
for paragraph ‘Second’ requires the Commis-
sion to report, if not the cost of reproduction,
at least what amounts to the same thing.”

4

On page 164, the Commission says:

“The right of way of a carrier is fre-
quently donated, but in so far as the carrier
must acquire this by purchase or condem-
nation the cost generally exceeds the acreage
value of the lands taken. This is partly
due to the peculiar shape of the piece
acquired and partly to other causes. This
excess cost to the carrier is a thing of
importance in the actual production of
its railroad, and the carrier claims that
it ought to be given weight in the estimate
of reproduction. Evidently this was the
fact for which Congress intended to inquire.
What did it cost and what would it now
cost the carrier to procure its right of way
and other operative lands in excess of the
market value of such lands by the acre?

If this construction is correct, the Com-
mission is required to report as to the
operative lands of a carrier the following
facts:

1. Original cost.

2. Present value.

3. Cost of procuring right of way in
excess of acreage value at the time of
dedication to public use.

4. Cost of procuring right of way at
the present time in excess of present
acreage value.”

The Commission thus recognizes that the
Act requires the ascertainment of the present

PETA ANSTEY Hi MOTO NTE RIS OE, PA IAL

5

cost of acquiring the carrier’s lands, and that
this cost of acquisition ‘‘generally exceeds the
acreage value of the lands taken.” By “acreage
value of the lands taken” it mean’ their value,
for example, upon the basis of the value per
acre of the 160 acre farm through which the
right of way passes, and from which its area
is carved. The Commission, refusing to esti-
mate these costs of acquisition in excess of
this “acreage value,” finds a “present value’”’
which is limited solely to the so-called “acreage
value.” The refusal of the Commission to
find the higher cost of acquisition and its
reasons for restricting its investigation to the
so-called ‘acreage value’”’ are explained in
detail in the Texas Midland decision (1 Val.
Rep. 53). In defining the “present value”
which it reports for carrier lands, it says:

“Present value is arrived at by ascer-
taining the number of acres of land owned
or used by the carrier for its purposes as a
common carrier, and multiplying this acre-
age by a market value determined from
the present market value of similar and
adjoining lands.”

On page 167, it says:

“Present value as reported by the Com-
mission is nearly synonymous with market
value. What is done is to ascertain the
number of acres of carrier land, to deter-

Italics ours.

REO ITE NER FRE oS LBP ESRI RT ILE ELLIE SMG IL OE

6

mine the market value of similar land
adjoining or in the immediate vicinity
per acre and to apply that price to the
number of acres.”

The Commission thereby reports a ‘“ value”
derived by applying to the acres of land owned
by the carrier, a market value determined from
the present acreage market value of adjacent
and adjoining lands in the sizes and shapes in
which those adjoining lands exist and which,
by reason of the fact that they are devoted to
other than railroad uses, are not similar in size
and shape to the lands owned by the railroad.
The railroad lands, and particularly rights of
way, are peculiar in that there must be a con-
tinuity of title in strips of narrow area located
with particular reference to conditions of topog-
raphy and community development. Being
devoted to a peculiar use requiring such areas
in shapes and sizes dissimilar to those of the
lands devoted to ordinary agricultural or indus-
trial purposes, railroad lands cannot be acquired
upon the basis of the market value of land in
the shapes and sizes usable for such agricul-
tural or industrial purposes. The universal
experience of the carriers in the acquisition of
their lands demonstrates this fact, and its
recognition is found throughout the authorities
in which the legal principles underlying the
acquisition of such lands are outlined. Not
only must the carrier pay for the area which
it secures, but additional amounts must be
paid for the damages to the adjacent property

Italics ours.

RE ERE PRS POT

7

from which the railroad areas of peculiar shapes
are taken, due to the injury done to such prop-
erty both by the severance of the land taken
and by the inconvenience and annoyance caused
by the operation of trains once the railroad
is constructed. The carrier thus acquires not
only the title to the area actually taken, but
certain rights in the adjoining lands which are
analagous to easements, by virtue of which the
carrier has the right in the construction and
operation of its railroad to damage continuously
the adjoining property. The Commission in the
excerpt above quoted from the Texas Midland
case admits these things. The Commission in
its decision also says (1 Val. Rep. 1, 170):

“Tt cannot be denied that frequently
the cost to a railroad of acquiring its right
of way with respect to parcels which must
be purchased materially exceeds the acreage
value of the land taken. Previously to
the decision of the Supreme Court in the
Minnesota Rate Cases it seems to have
been understood by many commissions
and valuators that the proper method of
determining the present value of the oper-
ative lands of a carrier was to inquire what
it would cost to acquire those lands upon
the basis of present prices. For the pur-
pose of determining the excess of such
cost over acreage value many studies were
made of pieces of construction where the
known cost could be compared with the
acreage value, and from these investiga-
tions were deduced percentages which

8

varied for rural right of way from 150 to
300 per cent., being less in case of city
lands.”

These excess costs arise from the fact that the
carrier acquires not only the acreage actually
occupied by his right of way, but in addition
must pay amounts for the damages done to the
residue of the tract of which the land taken
formed a part, thereby securing rights, analo-
gous to easements, over the adjoining property.
In U. S. vs. Grizzard, 219 U. S., 180, 183, 184, the

Court said:

“Whenever there has been an actual
physical taking of a part of a distinct tract
of land, the compensation to be awarded in-
cludes not only the market value of that
part of the tract appropriated, but the
damage to the remainder resulting from the
taking, embracing of course, injury due to
the use to which the part appropriated is
to be devoted. Thus in Sharp vs. United
States, 191 U. S. 341, 353, damage result-
ing to adjacent but distant parcels was
denied because there had been no actual
appropriation of any part of such separate
parcel, but the principle was conceded as to
injury, from the character of the use of that
taken, to that untaken of the same tract.
Upon this distinction the court said: ‘Upon
the facts which we have detailed we think
the plaintiff in error was not entitled to re-

LER IINI NORIRY BE SLEDS ENE NO EEE IER 9 SE ORL TM

9

cover damages to the land not taken because
of the probable use to which the Govern-
ment would put the land it proposed to take.
If the remaining land had been part of the
same tract which the Government seeks to
condemn, then the damage to the remaining
portion of the tract taken, arising from the
probable use thereof by the Government,
would be a proper subject of award in these
condemnation proceedings. But the Gov-
ernment takes the whole of one tract.’ To
the same effect see Cooley’s Constitutional
Limitations, pp. 565-566.”

From these facts it clearly appears that rail-
road lands normally are secured at a cost of
acquisition which is in excess of the market
value of the land taken; that these costs arise
by virtue of established legal precedents pursuant
to which the carrier is required to incur them;
that the Commission has recognized the fact of
the existence of such costs, and that the Act
intends to require and does require their re-
porting, but that the Commission refuses to
report them.

The reason for the incorporation of these
requirements in the Valuation Act lies in a
number of considerations. The Act requires
the investigation, ascertainment and report
of the value, not only of the land, but of all
the property of the railroads, and requires
in addition a study and report of certain im-
portant facts which are relevant to the ques-

10

tion of value. The value of railroad property
is a question of fact. As was stated in the
Minnesota Rate Cases (230 U. S. 352): “It
is not a matter of formulas, and there must be
a reasonable judgment having its basis in a
proper consideration of all relevant facts.”
The Court, in defining the scope of this in-
quiry as to the facts, quoted the language of
Smythe vs. Ames (169 U. S. 466), which has
become a cornerstone of valuation precedent:

“In order to ascertain that value, the
original cost of construction, the amount
expended in permanent improvements, the
amount and market value of its bonds
and stock, the present as compared with
the original cost of construction, the prob-
able earning capacity under particular rates
prescribed by statute, and the sum required
to meet operating expenses, are all matters
for consideration, and are to be given
such weight as may be just and right in
each case. We do not say that there may
not be other matters to be regarded in
estimating the value of the property. What
the company is entitled to ask is a fair
return upon the value of that which it
employs for the public convenience.”

An examination of the legislative history of
the Valuation Act shows the intent of the framers
of the bill to require the ascertainment and
reporting of all these facts pertaining to value

il

which were mentioned by the Court, each one
of which, among numerous others, is specified
in its provisions, and each of which constitutes
a prescribed field of inquiry.

One of the facts pertaining to value which is
mentioned by the Court in the language above
quoted, is the “present as compared with the
original cost of construction.” The “present
cost of construction’? must be complete, other-
wise it is misleading. Its completeness neces-
sarily requires the inclusion of the present cost
of acquiring the carrier lands as well as its
other property. Clearly the cost of acquiring
those lands is as important as the cost of
constructing the roadway and buildings upon
them. It cannot be doubted that what would
have to be paid today to acquire those lands,
in accordance with the present day practises
and the experience of the carriers in so doing,
and pursuant to the principles of law governing
such acquisitions and the amounts payable
in such cases, is not only relevant to the present
value of such lands, but would in the normal
case be a predominating and controlling con-
sideration. Clearly such costs would be more
controlling than the alleged “acreage value’”’
now determined by the Commission, and which
it admits is incomplete in that there are ex-
cluded certain items of cost covering elements
of value which normally and almost inevitably
attend such purchases. The reason is there-
fore clear why Congress included this impor-
tant requirement in the Valuation Act. With-

12

out such evidence, the basis for determining
valuation would be essentially defective.

Aside from the necessity of the ascertainment
of the cost of acquiring railroad lands with
relation to the determination of value, the
intent of Congress was obvious also to insure
the marshalling of all of the information,
statistics and data, in which it was thought
there could be found a foundation upon which
to rest a scientific regulation of various railroad
problems. Information was desired as to what
it would cost to produce this property today
under modern conditions, thus affording infor-
mation relative not only to the question of
value, but thought to be possibly desirable for
such purposes as affording a check of the
reasonableness of the carrier’s plant accounts,
the fairness of capitalization, the adequacy of
depreciation annuities, and other kindred mat-
ters. The complete present costs of construct-
ing the railroads, as distinguished from a partial
estimate of such costs, is essential for such
purposes.

PRESSE RIES LIES I LLANE DEOL TE DY BM EEN

13

Point 2. Since the language of the
Act requires that the Commission ascer-
tain the cost of acquisition, the Com-
mission cannot question the wisdom of
Congress, nor can it refuse to perform
the duty imposed unless such perform-
ance is absolutely impossible.

The Valuation Act orders an investigation,
ascertainment and report of definitely specified
matters. A large part of the Act is a bill of
specifications detailing with exactness the facts
which are ordered to be investigated, ascertained
and reported. Under these circumstances,
several propositions would seem to be manifest,
and not subject to reasonable question. In
the first place, the Commission has no discretion
as to whether it shall perform the duties imposed.
While judgment may be exercised by it, as the
expert agency to whom these duties are
delegated, in making its determination within
the specified issues, it is not for the Commission
to substitute its judgment for that of Congress,
and to question the wisdom of Congress in
legislating as it did, and as a result of a difference
of opinion to refuse to enter the fields of investi-
gation which Congress prescribed. The
language of the Act is mandatory. It is the
mandate of sovereignty. It is the law of the
land and made so by the legislative branch of
the government, within the proper exercise of
the functions of that branch. It is a direction
to an inferior and subordinate agency of the

cad

LIISA EN AGRE ER, SPE RETIREE EO BOLE PRR Ca RO, DEBE:

14

state, which is itself the mere creature of the
state, which exercises its authority only as a
result of the certain prescribed and delegated
powers and duties which give it life. One of
the duties imposed by the sovereign state upon
its servant is prescribed by the Act as the
determination of a certain specified fact. It
is not within the scope of the powers of the
Commission to test the wisdom or expediency
of that delegation of duty and authority.

In the second place, if from the very nature of
things, the duty imposed is impossible, in that
it cannot be accomplished by anyone possessing
the utmost skill and knowledge, the Commission
is excused from the performance of its duty.
But in this relation, impossibility is to be dis-
tinguished from impracticability or from in-
advisability. Questions of expediency, incon-
venience or hardships are not relevant to the
issue. It matters not how much effort the
ascertainment will require, what expenditures
are necessary, or what may be done with the
results or conclusions once they are derived.
If the estimate of the cost of acquisition can in
any possibility be made, any considerations
going to the hardship or difficulty of making the
ascertainment or of the worth of the results
when ascertained, are not material to the issue.
The Commission’s refusal to follow the mandate
of the law can only be justified if it is established
that in the very nature of things the Commission
cannot make the estimate of probable costs of
acquisition which the Act requires, which

15

incapability arises because such costs of acqui-
sition under any method or theory do not lie
within the limits of rational determination.
This means impossibility of rational determin-
ation under every hypothesis consistent with
reasonable valuation theory and legal precedent.
The following cases are pertinent:

The Harriman, 9 Wall., 172.
Beebe vs. Johnson, 19 Wend., 500.
Hare on Contracts, 639.

We contend that it is practicable to ascertain
such costs, that they can be reasonably ascer-
tained, and that their ascertainment is necessary
to the ascertainment of the value of the railroads
and the execution of the Valuation Act.

Point 3. The ruling in the Minnesota
Rate Cases considered as a ruling upon
a principle of constitutional law does
not affect the duty of the Commission
to perform the acts specified in the
Valuation Act.

Prima facie the conditions which we have
heretofore outlined point so clearly to the pro-
priety of compliance by the Commission with
the law, that we may with profit next examine
the grounds of the Commission’s refusal. Its
refusal is based primarily upon its interpreta-
tation of the decision of the Court in the
Minnesota Rate Cases, 230 U. 8S. 452. This
ground is stated by the Commission in its

16

answer in this proceeding and is the foundation
of the decision of the Commission in the Texas
Midland case. It is the Commission’s position
that the position of the Court in the Minnesota
Rate Cases establishes that the ascertainment of
the present cost of condemnation and damages
or of purchase of railroad lands has no lawful
nor rational basis.

In this connection, the fact must not be over-
looked that the refusal of the Commission to
comply with the Act is entire. It declines to
report the present cost of acquisition of the rail-
road lands, even where that ascertainment can
be made with complete accuracy. For example,
it would seem clear that where the actual
acquisition of such property had been so recent
that the conditions obtaining at the time of
purchase were substantially those of the date of
valuation assumed by the Commission in making
its report, the “ present cost of condemnation and
damages or of purchase” would be substantially
the same as that original cost. Therefore, the
findings required by the Valuation Act could be
made accurately and without the exercise of any
assumptions. The Commission, however, refuses
to make any findings of the cost of acquisition of
railroad lands under such circumstances. It is
alleged in the amended petition, and the allega-
tion is not denied, that certain lands were ac-
quired by the plaintiff for right of way purposes
shortly before the date of valuation through
condemnation proceedings, at an actual cost of
$180,000, but that the Commission has reported

Se ee Tee

17

the so-called “present value” of these lands at
$60,000 (Record pages 34, 35).

The Commission thus declines to report the
present costs of acquisition. The decision of the
Commission in the Teras Midland Case and in
the cases decided subsequent thereto is absolute
and unqualified (Winston-Salem Southbound Rail-
way Company, 1 Val. Rep. 187, Kansas City South-
ern Railway Company, 1 Val. Rep. 223). It there-
fore appears that the position of the Commission,
founded upon the decision of the Minnesota Rate
Cases, assumes that that decision established as
a matter of law the impossibility of the ascer-
tainment. In view of the reliance of the Com-
mission upon the doctrine of the Minnesota Rate
Cases, we may therefore properly direct our-
selves to the consideration of the relationship of
that decision to the duties of the Commission
prescribed by law.

The Minnesota Rate Cases did not involve the
Valuation Act. They were submitted for de-
cision before the Act was passed. The crux of
the issue presented in these cases was the con-
stitutionality of state-made rates, which the
carriers asserted were confiscatory in that they
did not permit a fair return upon the value of
the property devoted to public service. The
Court at the beginning of its discussion reiter-
ated the established principle of law that the
rates must pay a reasonable compensation upon
the fair value of the property devoted to public
service. Whether confiscation had been effected
by the regulation under attack, depended upon

18

the relationship of the returns under the pre-
scribed rates to the value of the property used.
This was the announcement of a substantive
rule of constitutional law. The Court then
said that this value was to be determined as a
question of fact:

“In determining whether that right
(i. e., the right of receiving ‘just compensa-
tion’) had been denied, each case must
rest upon its special facts. * * * The
ascertainment of that value is not con-
trolled by artificial rules. It is not a
matter of formulas, but there must be a
reasonable judgment, having its basis in a
proper consideration of all relevant facts.”
(Page 434.)

The Court, having laid down as a proposition
of constitutional law that value was the test,
thus defined the issue of fact and considered in
detail the testimony regarding the cost of
acquisition and “railway value” of the lands
in question. The Court said:

“The constitutional invalidity must be
manifest, and if it rests upon disputed
questions of fact, the invalidated facts
must be proved.” (Page 452.)

It decided that the necessary facts were not
proved. It pointed to certain defects in the
proof, and repudiated the value founded upon

19

this evidentiary basis. At the conclusion of the
Court’s discussion it uses language which clearly
indicates that its consideration is confined
solely to the issue of fact. It said:

“Finding this defect in the proof, it is
not necessary to consider the objections
which relate to the sources from which the
property was derived or its mode of ac-
quisition. * * *” (Page 456.)

Value as a question of fact, was thus passed
upon in the light of the evidence submitted,
but there is nothing in the opinion indicative
of a holding that the present cost of acquisition
of the railroad lands in question, properly ascer-
tained, was not relevant to the issue of value.

From these considerations it is entirely clear
that the Court did not decide that the test of
confiscation, as a question of substantive law,
is not the value of the carrier lands, based upon
a consideration of their estimated cost of ac-
quisition among other relevant facts, provided
that this cost was ascertained on other bases
than those hypotheses which the Court con-
demned. It would have been inconsistent with
the entire trend of judicial precedents upon this
question, and with the opinion of the Court
itself, as expressed in the language which we
have quoted, for the Court to have prescribed
as a rule of law that the utility was not entitled
to a return upon a value ascertained by a
consideration of such relevant facts as an

CORT ae SR Tee?

20

estimate of the present cost of acquisition,
since the principle has been long and firmly
established, as the opinion itself states, that
the test of confiscation in a case involving rates
is value, the determination of which is a question
of fact. The error of the Commission lies in the
fact that it takes dicta from the discussion of
issues of fact and elevates it to the position of
a pronouncement of a substantive rule of con-
stitutional law. This alleged substantive rule,
that the carrier is entitled to a return only upon
the value of its lands determined upon the
basis of the acreage value of the adjoining tracts
of dissimilar size and shape and without any
consideration of the cost of acquisition of the
carrier’s lands, is inconsistent with the funda-
mental proposition of constitutional law first
announced, to wit: that the carrier is entitled
to a return upon the fair value of its property,
which, as a question of fact, is to be determined
by a consideration, not of any one class of in-
formation, but of all of the relevant facts.

In the case of Cohens vs. Virginia, 6 Wheaton,
264, Chief Justice Marshall said:

“The counsel for the defendant in error
urge, in opposition to this rule of con-
struction, some dicta of the court, in the
case of Marbury vs. Madison.

It is a maxim not to be disregarded,
that general expressions, in every opinion,
are to be taken in connection with the
case in which those expressions are used.

21

If they go beyond the case, they may
be respected, but ought not to control
the judgment in a subsequent suit when
the very point is presented for decision.

The reason of this maxim is obvious.
The question actually before the Court
is investigated with care, and considered
in its full extent. Other principles which
may serve to illustrate it, are considered
in their relation to the case decided,
but their possible bearing on all other
cases is seldom completely investigated.
(Pages 399-400.)

The maxim of the law is so familiar to the
courts and lawyers that a statement of it
is seldom necessary. Occasionally when law-
yers in the zeal of advocacy seek to press
too far mere language or dicta the courts
allude to this well known rule. For example,
see the Kansas City Southern case, 231 U. S.,
423, where it is said:

“The expressions quoted were properly
employed with respect to the questions
then presented for decision.” (Page 447.)

Recently the Circuit Court of Appeals of
the Eighth Circuit found it necessary to fully
restate the rule and apply it. See Northern
Pacific Railway Company vs. North American

2. Ree eh NT fe an a BE ak a. Ba al

22

Telegraph Company, 230 Fed., 347, where it
is said:

“As the facts upon which the opinions
in the cases cited rest are materially
different from those in the case at bar,
it is indispensable to a just appreciation
of these decisions and of the opinions
in these cases, and of their bearing upon
the crucial question in the case at bar,
that in their examination and discussion
these familiar rules announced by Chief
Justice Marshall be borne constantly in
mind.” (Page 355.)

The Circuit Court then repeats the language
of Chief Justice Marshall in the case of Cohens
vs. Virginia, above quoted.

Even had the Court held in a rate case, as
a matter of law, that the cost of acquisition
of the carrier lands could not be used to de-
termine their value, is such a holding upon
such an issue and in such a case relevant to
the duties prescribed by the Act of Congress?
The impossibility, because of a declared rule
of law in a case involving the issue of con-
fiscation by rate regulation, of using such
information in such a case, cannot relieve the
Commission from its duties under the mandate
of Congress. As heretofore suggested, Con-
gress has ordered the marshalling of a variety
of information thought to be desirable as
the groundwork for possible methods of solu-

23

tion of various phases of the railroad prob-
lems. Assuming that this erroneous construc-
tion of the decision of the Court in the rate
case in question is proper (which we emphati-
cally deny), it has been urged that there are
other and diverse uses of such facts and infor-
mation in critical lines of inquiry and investi-
gation, aside from that of testing whether
rate regulation is confiscatory. The impossibility
of the lawful use of such facts in one of various
fields of investigation is no justification for
refusing to do what Congress ordered done,
and which may be useful for other important
purposes. The desire of Congress, and its judg-
ment as to the matters regarding which it desires
information, is supreme. It is not within the
power of the Commission as a servant of the
government to substitute its desire or judg-
ment for that of the government. Irrespective
of the relevancy of such information in a case
involving the issue of confiscation by rate
regulation, Congress had the power to require
the ascertaining and reporting of such infor-
mation, or of any other information, which it
desired.

An examination of the Minnesota Rate Cases
discloses that there was properly repudiated a
value based upon assumptions which were so
inconsistent with law and fact, that the results
derived were entirely excessive and unreason-
able. But this criticism of the conclusions of
fact based upon such assumptions cannot justify
the refusal of the Commission to make such
estimates based upon assumptions which are
consistent with law and fact.

24

In the first place, it is clear from the language
of the opinion as a whole, as we have already
suggested, that the consideration of the cost
of acquisition of railroad lands in that case
was a consideration of the facts upon which the
finding of value of the court below was based.
Having opened its discussion with a statement
of the fundamentals upon which it proceeded,
by defining the issue of the ascertainment of
value as a judgment based upon a proper con-
sideration of all relevant facts, the proof was
considered, the opinion stating that “‘the con-
stitutional invalidity must be manifest, and if
it rests upon disputed questions of fact, the
invalidating facts must be proved.” After a
critical analysis of the testimony, and because
of specified defects in the proof, the Court con-
cluded:

“By reason of the nature of the esti-
mates, and the points to which testimony
was addressed, the amount of the fair value
of the company’s land cannot be separately
determined from the evidence, but it suffi-
ciently appears for the reasons we have
stated that the amounts found were largely
excessive.”

Clearly the estimated cost of acquisition of
railroad land is a fact relevant to the deter-
mination of its value. The decisions of the
courts indicate that in a preponderance of cases,
the cost of reproduction of the physical prop-

25

erty other than land has been recognized as
a controlling factor in the determination of
value, and the relevancy of such cost is univer-
sally recognized. It cannot be seriously con-
tended that this court could have attempted
to prescribe any rule for the ascertainment of
value, as a question of fact. Its intent to do
so was specifically denied when it said:

“The ascertainment of that value is not
controlled by artificial rules. It is not a
matter of formulas, but there must be a
reasonable judgment, having its basis in a
proper consideration of all relevant facts.”
(434.)

Clearly, therefore, the Court did not hold
that the ascertainment of value could be lim-
ited to any certain designated facts. The
language above quoted negatives any possible
attempt to restrict the scope of consideration
to any certain class of information, or to exclude
from consideration any facts which are relevant,
provided that they are properly established on
dependable and logical grounds.

The Court was therefore merely passing upon
the questions of fact as those questions were
presented by the testimony which had been
offered. The general language used in this
consideration must be interpreted, having in
mind the point to which the Court addressed
itself. The methods which were condemned
were the methods in issue, and used in that

snp Reet © ES Te aad sity
a ener es POP PRET STE RL GEE LILY OME RELD i a

26

case. An examination of the decision shows
that there is continual reference to the specific
testimony which the Court was considering,
and that any general observations which the
Court made can refer only to the specific problem
then under consideration. The present cost of
acquisition of lands now owned is an estimate
resting on certain assumptions. In the range
of the possible assumptions which in the exer-
cise of judgment, might be adopted, the Court
of necessity could consider only those which
were in issue in the testimony then under
consideration.

For example, examination of the opinion dis-
closes (Page 450), that the Court condemned the
offered estimate of acquisition costs, in that it
rested upon a “supposed compulsory feature of
acquisition,” and contemplated ‘‘that the com-
pany would be compelled to pay more than fair
market value” and thus would be deprived of its
lawful right of the exercise of the powers of emi-
nent domain under the established principles
of law controlling that exercise. The Court
likewise condemned the assumption used, that
the company would be bound to pay an exces-
sive ‘‘railway value of its property,’’ and pointed
to the fact that this assumption was directly in
conflict with the established principles of law,
enunciated in condemnation cases and restrict-
ing the allowance to the market value. The
Court specifically stated (Page 452) that there
is no evidence before us from which the amount
which would “ properly be allowable in such con-
demnation proceedings can be ascertained,”

27

thereby manifestly implying that had the esti-
mate been based upon correct assumption, and
had there appeared what “would properly be
allowable in such condemnation proceedings, ”’
such market value determined in accordance
with legal precedents would have been properly
the basis of the fixing of value. Similarly, the
Court said (Page 452) that the contemplation
of the complete removal of the road and a read-
justment of its values because of such oblitera-
tion, was “to indulge in mere speculation.”
So again the Court condemned the assumption
that “all the difficulties which might be imagined
as incident to such a ‘reproduction’ were con-
sidered,” and that the “increase sought for
‘railway value’ in these cases * * * ig an in-
crement which cannot be referred to any known
criterion, but must rest on a mere expression of
judgment which finds no proper test or standard
in the transactions of the business world.”
(Pages 453-455.)

Applied to the testimony there under con-
sideration, and the important parts of which
were quoted in the Court’s opinion, such criti-
cism of the evidence then before the Court was
unquestionably fair. But as the basis for the
refusal to consider facts based on reasonable
and lawful assumptions and resting upon known
criterions, not founded in imaginative conjec-
ture, but finding a test and standard in the cur-
rent and common business transactions of the
railroad companies generally in the purchase of
lands, it wholly fails.

ELE ee Oe ea eee ee

28

Specific criticism by the Court of specific
testimony cannot foreclose the investigation
or ascertainment of facts in that same field of
thought, if that investigation or ascertainment is
prescribed on the basis other than the one con-
demned, and avoiding the vice specified. To
so hold is to destroy the fundamental proposi-
tion announced in the opinion that value is to be
derived by a consideration of all relevant facts,
and makes impossible the formation of a sound
judgment since the basis of judgment is not as
broad as the subject considered.

In the Commission’s decision of this question
in the Texas Midland decision (page 54) it states
the necessity of assumptions and states what
these assumptions shall be. In that decision, it
erroneously assumes the necessity of the maxi-
mum assumptions, and states that the Act in
requiring the cost of reproduction of the carrier
lands requires the assumption that the property
in question “is to be taken as non-existent.”” It
states that it is sophistry to contend that the
lands of the railroad can be reproduced “without
first making the assumption that they are no
longer lands of the railroad; and this necessary
assumption carries with it the mental obliteration
of the railroad itself.’”” The Commission then
discusses, as decisive of the issue, the language of
the Minnesota Rate Cases, in which was con-
demned the use of assumptions based upon inad-
missible and speculative hypotheses, as though
such hypotheses were the only possible hypoth-
eses, and the Commission repudiates evidence

29

introduced by the carrier upon the ground that
its method was not distinguishable from that
condemned in the Minnesota Rate Cases. That
the Commission kept continually in mind as-
sumptions of the most extreme sort, such as
those condemned in the Minnesota Rate Cases,
is clear from the following language (page 61):
“Not alone do the uncertainties that we have
referred to surround what would be the condi-
tions of ownership, of improvement and of value
of nearby property and of general industrial
development, but there can be no certainty as to
what land would have to be acquried at a cost to
the carriers upon reproduction or a present
acquisition,’” and the Commission then pro-
ceeds to discuss the difficulty of ascertaining what
percentage of the carrier’s land would be donated
to it by communities or individual owners. Then
the Commission states its inability to determine
with accuracy what conditions would exist if
these maximum assumptions were made, which
contemplate the entire ‘‘mental obliteration” of
the railroad itself, and the changed conditions
of the ownership of adjoining property, the
changed status of the improvement of the prop-
erty adjoining the railroad and of the community
generally, the different value of the nearby prop-
erty and a new status of the general industrial
development of the community, resultant from
the complete elimination of the railroad from the
community and the removal of its influence
upon such general conditions as the conditions
of ownership, value, improvement and general

30

community industrial development. (Texas
Midland decision, page 61.) We feel that Con-
gress could not have intended to require the de-
termination of an estimated cost of acquisition
based upon any such processes. But can the
statement by the Commission of the possible
exercise of unreasonable judgment in the making
of an estimate effect a nullification of the law
requiring it to make such an estimate in the
exercise of reasonable judgment?

The Commission in its erroneous interpre-
tation of the opinion of this court in the Min-
nesota Rate Cases has gone-so far as to assume
that the opinion in that case condemned the
cost of reproduction method as applied to
lands as being an “impossible hypothesis.”’
In the Brief of the Commission now before the
Court it is said, page 10:

“This Court clearly states, in substance,
that the estimate of present cost of con-
demnation or damages, or of purchase,
which appellant is asking the Court to
compel the Commission to make, is an
estimate which is wholly beyond reach of
any process of rational determination. In
this connection it points out that the
appraisers of the lands involved in the
Minnesota Rate Cases, in an attempt to es-
timate the cost of acquiring the lands, were
presented with an impossible hypothesis.”

31

This Court in the Minnesota Rate Cases,
page 453, said:

“Presented with an impossible hypo-
thesis, and endeavoring to conform to it,
the appraisers—men of ability and ex-
perience—were manifestly seeking to give
their best judgment as to what the rail-
road right of way was worth.”

The hypothesis here referred to was that
presented by the specific assumptions upon
which the witness proceeded in the specific
testimony which the Court then had under
consideration. It cannot be assumed that
reference could be made to the hypothesis
presented by other assumptions, or by assump-
tions based upon such reasonable and legal
grounds, as would avoid the vices which were
the basis of the Court’s criticism of the specific
testimony which it considered.

Careful consideration of the opinion points
clearly to the fact, furthermore, that the
“impossible hypothesis” to which the Court
refers was, in fact, not the determination of
the cost of acquisition, but the determination
of a ‘railway value.” The Court said on
page 452:

“The cost of reproduction method is of
service in ascertaining the present value
of the plant, when it is reasonably applied,
and when the cost of reproducing the
property may be ascertained with a proper

32

degree of certainty. But it does not justify
the acceptance of results which depend
upon mere conjecture.”’

What the opinion condemned as an “impos-
sible hypothesis,” was the assumption of the
existence of a peculiar railway value which the
appraisers sought to determine. The court said
of this character of value, that it “must rest on
& mere expression of judgment which finds no
proper test or standard in the transactions of
the business world.”

The opinion, page 445, contains this state-
ment:

“In the latter part of 1906 the State
notified the company to report the value
of its properties, requiring a statement in
one column of the ‘market value’ and in
another column of the ‘value for railway
purposes.’ Mr. Cooper was instructed to
prepare the valuation for this report.’’

The entire opinion in so far as it relates to
land values is devoted to a criticism of the re-
quirement thus made by the State that “value
for railway purposes,” or “railway value” be
reported. This character of value, the court
condemned as an “impossible hypothesis.”’

The reasoning of the Commission that it
cannot determine the cost of reproduction of
lands because it has no way of ascertaining or
fixing the proportion of the railroad lands

33

which would be donated in a reproduction,
finds no support in the opinion of this Court
in the Minnesota Rate Cases. This Court
there declared, page 454:

“The property is held in private owner-
ship and it is that property, and not the
original cost of it, of which the owner may

not be deprived without due process of
law.”

The fundamental inquiry which the Com-
mission is to make under the Valuation Act is
as to the value of the property of the railroad,
including the value of its lands. In the determi-
nation of the “present value” of carrier lands
the fact that the carrier originally paid little
or nothing for them is of no consequence. It
is not the original cost of the lands of which
the carrier may not be deprived without due
process of law; but it is their value at the time
of the deprivation. The estimated present cost
of acquiring the lands is one of the elements
named for consideration in the determination
of their present value, and in the ascertainment
of such present cost of acquisition the fact that
certain of the lands may have been donated is
entirely irrelevant. In paragraph “Second,”
the Act requires the investigation and report
of the “present cost of condemnation and dam-
ages or of purchase.”’ This provision contem-
plates the ascertainment of the cost of acquir-
ing by condemnation or purchase the land in

34

question. It contemplates this acquisition at a
cost. It does not contemplate acquisition by
donation free of cost.

Point 4. The nature of the problem
of ascertaining the present cost of ac-
quisition of railroad lands.

The “present cost of condemnation and
damages or oi purchase” of the lands of the
calrier is necessarily an estimate. It is the
present cost of acquiring something which is
already owned, and which cannot, therefore,
be actually again acquired. The requirement
of ascertaining this cost therefore contemplates
a cost under conditions which are contrary to
the existing fact, and requires a theoretical
ascertainment of the cost of property, the title
of which is assumed for purposes of the calcula-
tion to be not in the carrier, but in someone
else from whom acquisition is to be made.
Congress therefore necessarily contemplated the
making of assumptions, when it delegated this
theoretical task to the Commission. Congress
did not designate what the assumptions should
be. That determination is delegated to the
Commission under the natural expectation that
the assumptions will be fixed on a basis so con-
sonant with practical experience that the results
derived will afford information of the present
cost of establishing these properties and of what
the investment under present day conditions
would be as compared with the actual or original

35

investment, thus’ afferding information per-
taining not only io the question of value, but
desirable for various other purposes contem-
plated by Congress, and in the determination
of which information regarding what investment
would be required to establish these properties
today, and under present conditions, is desirable.

Necessarily, there is latitude in establishing
these assumptions. The subject does not per-
mit of the didactic pronouncement of fixed
rules. Valuation is not an exact science. Value
and estimated costs lie in zones of reasonable-
ness, and are matters of sound judgment based
upon a consideration of the controlling circum-
stances. The determination, however, is not
one of mere conjecture. It is a matter con-
trolled by sound judgment. Congress con-
templated that the entire ascertainment should
be made in the exercise of such judgment, and
with conscientious skill. Estimated costs are
of frequent service in the ascertainment of
value. Congress could require the making of
skilled estimates.

The position of the Commission is not con-
sistent with this broader view of the problem,
but is affected by a literal interpretation of
certain dicta in the opinion of the Minnesota
Rate Cases, of which a fetish is made, and which
are even quoted almost in verbatim form in its
amended answer. The position is based pri-
marily upon the proposition that the assump-
tions condemned in that opinion are those which
it should apply in the exercise of its skilled

36

judgment, and that the determination of these
estimated costs is no* possible without the
indulgence of that cor.jectural reasoning which
was there properly condemned and upon which
condemnation the refusal of the Commission
to obey the law is based.

As just stated, within the latitude of the
possible assumptions resting in judgment, Con-
gress contemplated that the Commission would
exercise sound judgment. The problem being
the estimate of the present cost of acquiring
what the carrier owns, and therefore, in fact,
need not acquire, there is necessitated, at least,
the assumption of a changed condition to the
extent of the status of title. This would seem
to be a minimum of assumption. In the widest
range of assumption, as distinguished from this
minimum, it would be possible to assume the
non-existence of the road, that it has never
been built, that the community development
which has resulted from its existence has not
occurred, that the resultant value now existing
in the community could not therefore exist,
and that under this mental obliteration of the
road, there would be necessary a hypothetical
readjustment of the community values, which
are now the result of its existence. The Com-
mission assumes the necessity of such specula-
tion, and predicates its refusal upon the impossi-
bility of doing the obviously unreasonable.
Need skilled judgment, however, go to this
degree?

The error of the position of the Commission
is that it recognizes no degrees of reasonableness,

37

and places all estimates of the cost of acquisition
of railroad land on the plane of the estimates
which the Court criticised. Where Congress
has ordered the reporting of facts in the exercise
of reasonable judgment, the Commission now
refuses to act because of the fact that the Court,
in the criticism of certain testimony, has con-
demned estimates which were not based upon
reasonable judgment. Where the Court criti-
cised certain assumptions in a certain case as
unwarranted, the Commission now refuses to
enter the field of the investigation involving
any assumptions, not on the ground that a
reasonable judgment cannot be formed on a
minimum assumption, but that to enter such
field it must adopt assumptions justified neither
by fact nor law, and which for those reasons
the Court condemned. This position is plainly
fallacious. It is founded upon a misconception
of the duties imposed by the Act, the applica-
bility of certain obiter dicta to the problem in
question, and the scope of judicial precedent.

Among the decisions of courts and com-
missions may be found language critical of
estimates of the cost of reproduction of public
utility property other than land. This criticism
is directed merely to the facts of the par-
ticular case. Fantastic overheads have been
included, based on highly theoretical and im-
aginative conceptions of how the property
would be reproduced, and every contingency
and difficulty of construction which could pos-
sibly be met in the building of the property,

38

has been included and reflected in excessive
costs. The Commission, relying upon the de-
cisions of such courts and commissions in
passing upon those issues of fact, might as
well refuse to report the cost of reproducing
the buildings and other structures of the rail-
roads, as to refuse here to report the cost
of acquisition of the railroad lands. Judicial
criticism of the proof of the facts relied upon
by the parties in litigation involving the issue
of the confiscation of property by rate regu-
lation, cannot establish a lawful basis for the
refusal of the Commission to ascertain rightly
certain facts, when that action is ordered
by Congress. If the Commission is justified
in refusing to estimate the cost of acqui-
sition of these lands, because it is possible
to indulge in unreasonable conjecture and
to form erroneous judgments, it may with
equal justification refuse to make any esti-
mates, since all estimates involve the use
of judgment in the making of the necessary
basic assumptions.

The Commission is now engaged in making
an estimate of the present cost of reproduction
of all of the railroads in the United States,
it being assumed that all of these roads would
be reproduced between the years 1914 and 1920.
When the work is completed, it will purport
to show for all of the railroads in the country
the cost of reproduction during that period
of their property. This estimate is neces-
sarily based upon a foundation of assump-

39

tions. The assumptions employed by the Com-
mission and the methods of cost ascertain-
ment are explained in the opinion in the
Texas Midland case (pages 11, et seqg., 108,
et seq.). But it is not possible for the human
mind to grasp the status of the conditions
affecting the costs of construction, the price
of msterials, land values, and the wages of
labor, which would exist in this country during
those years were all of the railroads of the
country to be obliterated during that period
and then reconstructed. The business life of
the nation would be disorganized. The in-
crease in the demand for materials and labor
would place their cost on so high a plane as
to make the reconstruction of these properties
a financial impossibility, even were their re-
construction a physical possibility (and it is
not a physical possibility). The reproduction
hypothesis therefore, if applied to a theoretical
and logical finality, brings the estimator to
problems which are beyond rational deter-
mination. This difficulty is avoided by the
use of common sense, by approaching the
problem in a spirit of scientific inquiry, and
by the use of that judgment necessary to
make the results of the work of practical weight.
The determination of the cost of acquisition
of railroad lands is susceptible of a like so-
lution.

ES, SPST UARRLAE NA YE RNS RANTE ET BIVENS ET CET ‘a. ah

40

Point 5. The present cost of con-
demnation and damages or of purchase
of railroad lands can be readily and
accurately ascertained in accordance with
established legal precedents.

The problem of the ascertainment of the
present cost of acquisition of railroad lands is
merely the application of the principles which
have become well established by legal prece-
dents governing the rights of the parties in
cases involving the acquisition of such property.
As stated in an earlier portion of the brief ,
what Congress has required is an estimate of
the cost of obtaining property, the title of
which is already held. Assumptions must there-
fore be made, and the judgment of the Commis-
sion must be formed based upon these assump-
tions, and with a careful statement of them in
order that the report will disclose the exact na-
ture of the fact reported. A brief considera-
tion of the nature of the problem and the legal
precedents which are applicable to it leads to a
conclusion that an estimate of the cost of ac-
quisition of railroad lands can be made with
accuracy, with the use of reasonable assump-
tions which in no way impair the accuracy of
the results, and that the law can thus be com-
plied with.

We have heretofore suggested that the cost
of securing railroad lands can be resolved into
two general elements. The first of these is the
acreage value of the area which is actually taken

41

for railroad purposes. The second is the element
of damage to the adjoining lands which the
railroad does not take. The former is merely
ascertainment of the value of the area of which
the owner is doprived. The latter is an ascer-
tainment of the diminishment in value of the
lands of which the owner retains title and
possession. The issue in each instance is an
issue of value, the former being the value of
the land taken, the latter being the decrease in
value of the land not taken. Both of these
determinations are of matters which lie in
sound judgment based upon a consideration
of the facts. Both of these problems are com-
monly presented to juries in cases which are
common in every court of the land. These
determinations are made pursuant to the es-
tablished precedents which protect the owner of
property against the taking or the damaging of
any part of it. The damages, as the cases
heretofore cited disclose, consist usually of
those injuries due to the division or separation
of the owner’s land, and the severance of its
parts by virtue of the alienation of title to
particular strips desired for the right of way,
and in addition, of those injuries arising from
the use of the lands taken for railroad operation,
and of such character as the annoyance and
inconvenience caused by noise and smoke and
the hazards which arise from the possibility of
injury to property by fire and to person by
accident. This law is clearly defined and well

42

established. The following authorities are in
point:

Lewis, Eminent Domain (Third Edition)
Chapter XX.
U. S. vs. Grizzard, 219 U. §., 180, 183-4.
Lincoln vs. Commonwealth, 164 Mass., 368,
41, N. E., Rep. 489.
R. I. & E. 1. Ry., vs. Gordon, 184 lll., 456,
56 N. E., 810.

Clearly it cannot be said that any insuperable
difficulty is presented by the ascertainment of
these items of value and damages as to property
which is not yet acquired or which is in the
course of acquisition, since that problem is one
which is commonly solved by juries in con-
demnation cases. If there is any proper basis
for the refusal of the Commission to make the
ascertainment which is thus commonly made
by courts and juries, the refusal must proceed
from the fact that there is a difference between
the problem presented by the ordinary con-
demnation case and that which arises in the
determination of the cost of property which is
already acquired. The reason must be that the
difference in the conditions existing in the prob-
lem which confronts the jury, and the prob-
lem which confronts the Commission, as to
property now owned by the railroad, presents
an insuperable obstruction.

The refusal of the Commission to comply
with the Act, is, as has been said, entire. It

43

declines to report the cost of acquisition of
railroad lands in any case. It is clear that in
cases where the property has in fact been ac-
quired recently and the lapse of time has pro-
duced no conditions making the problem pre-
sented by the Act different from that which
is presented to the juries, nothing prevents the
Commission from forming the same judgment
which a jury would form. Thus where the
actual acquisition of the property has been so
recent that the conditions obtaining at the
time of purchase were substantially those at
the valuation date assumed by the Commission
in making its report, the “present cost of
condemnation and damages or of purchase’’
would be substantially the same as that original
cost. Therefore the findings required by the
Valuation Act can be made without any as-
sumptions other than that the carrier has not
title. The judgment in such an instance does
not differ from the judgment which a jury
would make without hesitation.

The Commission, however, declines under
such circumstances to ascertain the present
cost of acquisition. It is alleged in the amend-
ed petition, and it is not denied in the Com-
mission’s answer, that certain lands were
acquired by the plaintiff for right of way
purposes shortly before the valuation date,
by the means of eminent domain and at an
actual cost of $180,000, and that the Commis-
sion has reported the so-called ‘‘present value”
of these lands at $60,000 (Record, pages 34,

rr i eS al il Tait 7 ”

44

35). This “present value,” as above explained,
is merely the acreage value of the area taken,
upon the basis of the acreage value of the
adjoining property, and with no consideration
of the damages to the adjoining property
represented by a difference between this
partial cost and the total price required by
the law to be paid. It cannot be seriously
urged that the Commission in such a case
cannot comply with the Act, or that the
present value of such lands can justifiably be
reported by the Commission as less than
would be determined by a jury in such con-
demnation proceedings, in accordance with the
principles of eminent domain which are firmly
established as a part of the law of the land.
The Commission, by reporting as the “present
value” of such property a mere fraction of.
the cost of securing it, covering only part of
the elements of value which attach to the
property and for which the carrier under
established law was required to pay, by refus-
ing to comply with the terms of the Act which
require the reporting of these complete costs
and of all elements of value of the lands, has
proceeded in clear disregard of the terms of
the Act and of the basic law governing the
cost and value of such property. The injustice
of this position, and the injustice of reporting
such misleading information, is manifest when
it is recognized that the attitude of the Com-
mission results in its reporting as the “present
value” of lands which the carrier has just

45

acquired, a sum which is one-third of the
amount which the carrier was required to pay
under the laws of eminent domain as the cost
of acquisition of the property, which cost
Congress has ordered to be reported, and which
cost the Commission can report, since it is
certainly capable of forming the same judg-
ment which in fact the juries in the recent
condemnation proceedings have just formed.
The foregoing considerations point conclu-
sively to the fact that the ascertainment legally
can be made, where the property has been recent-
ly acquired. Does a lapse of time between the
date of its original acquisition and valuation
date make impossible the legal ascertainment
of its present cost of acquisition and damages or
of purchase? Here again it is clear that the
problem which the Commission declines to in-
vestigate is commonly investigated and solved
by the courts and juries. The Commission re-
fuses to comply with the Act because of the sup-
posed chaotic condition of facts attendant upon
the assumption of the obliteration of the rail-
road and the annihilation of the community
development which has arisen because of the
existence in the community of the railroad
facility. But the making of this estimate of the
cost of acquisition of lands which are now held
and are now used for railroad purposes does not
necessitate any such impractical process. If the
problem were presented to a jury, the court
would be impressed by no such difficulty in
instructing the jury as to how it should proceed.

46

The Court would not in reliance upon the Minne-
sota Rate Cases come to the Commission’s con-
clusion that because of the impossibility of in-
dulging in these speculative hypotheses said to
be referable to no criterion or standard of reason,
the farmer would be restricted to the mere
market value of the area taken, determined upon
the basis of the acreage value of the adjoining
farm, and with no consideration nor regard for
the elements of value and the items of damage in
excess of this meager amount. This exact prob-
lem is commonly presented to juries under in-
structions embodying the established principles
of law, and decided by such juries, and no such
theoretical or hypercritical objections are, or can
be, directed to the procedure. In such cases,
the amount which the land owner recovers is
not, and lawfully cannot be, limited to the mere
acreage value of the area taken, and the cost of
acquisition which the railroads are paying is not
lawfully confined to the partial cost which the
Commission now reports and beyond which it
finds it lawfully impossible to go. Such cases
are of numerous varieties and are common in
every court in the land. They are presented in
the instance of railroads which have completed
their construction upon the railroad lands in
question, and which are now under operation, in
such circumstances as these: It frequently
occurs that the title to the land employed for
right of way purposes is not secured in advance
of the actual occupation of the property and the
construction of the line thereon. The lands are

47

occupied by mere license or under adverse pos-
session, and thereafter it is necessary to obtain
the legal title in condemnation proceedings
brought for that purpose. In other cases, a
right is secured by leasehold or by license and the
necessity subsequently arises after occupation
and operation for the varrier to convert its lease-
hold or license into a fee. In other cases, a title
is secured merely from a life tenant and it is
necessary to condemn the rights of the remain-
derman. In other cases, where a title has been
secured by the carrier from an owner, the holder
of an outstanding mortgage forecloses the
owner’s title, and the carrier therefore must
bring condemnation proceedings to perfect its
title. Cases of the failure of title for any one of
a great variety of possible defects and in which
the carrier must again secure title by condem-
nation proceedings, are common in every state.
In these cases the courts have not found them-
selves confronted with an insuperable problem,
which prevents the owner of the land which is
sought to be condemned, from securing the full
protection of his legal rights and just compen-
sation for the deprivation of his property and of
every element of its value. The present cost of
acquisition which Congress has ordered to be
reported, is accurately and justly determined in
accordance with the law. The law in such cases
is merely an application of the general principles
of the law of eminent domain to the problem at

48

hand. In this regard, attention is directed to
the following authorities:

15 Cyc. 722-3.
Lewis, Eminent Domain (Third Edition)
705, and the cases cited.
Sutherland on Damages, Paragraph 1083.
Faulk vs. Missouri River & N. W. Ry.
Co., 132 N. W. 233 (S. D.)
County of Blue Earth vs. St. P. & S. C.
R. R. Co., 28 Minn., 503.

The cases heretofore cited indicate that the
elements of the cost of acquisition are of two
general classes, the acreage value of the land
taken, and the damages due to severance and
operation to the remainder of the owner's
property. The Commission has reported the
first element in its report of the so-called
“value.” The carrier does not dispute the
accuracy or reasonableness of the sums reported.
This partial determination is one of the elements
upon which a jury under such circumstances
would be required to make a determination.
The carrier now insists that the process shall
be completed. The Act so requires. As we
have heretofore indicated, the position of the
Commission, in that it bases its refusal upon an
interpretation of the Minnesota Rate Cases, is
clearly erroneous in that it involves a miscon-
ception of the doctrine of those cases and the
proper scope of judicial precedent. In fact,
the Court in the Minnesota Rate Cases mani-
festly implied after its criticism of the erroneous

49

legal assumptions upon which the testimony
was based, that had there appeared the costs
of condemnation determined in accordance with
established legal principles those facts would
have been worthy of consideration. It is not
to be assumed, as the Commission does assume,
that the determination of value or cost of the
property, is to be conducted on a basis apart
from the established principles governing the
determination of the value of the identical
property where the right of eminent domain is
exercised. The following language from the
Minnesota Rate Cases is significant: (230 U. S.,
451):

“Tt is urged that, in this view, the com-
pany would be bound to pay the ‘railway
value’ of the property. But, supposing the
railroad to be obliterated and the lands to
be held by others, the owner of each parcel
would be entitled to receive on its condem-
nation its fair market value for all its avail-
able uses and purposes. (United States vs.
Chandler-Dunbar Water Power Co., decided
May 26, 1913.) If, in the case of any such
owner, his property had a peculiar value or
special adaptation for railroad purposes,
that would be an element to be considered.
(Boon Company vs. Patterson, 98 U. S., 403;
Shoemaker vs. United States, 147 U. S., 282;
United States vs. Chandler-Dunbar Co.,
supra.) But still the inquiry would be as to

50

the fair market value of the property, as to
what the owner had lost, and not what the
taker had gained. (Boston Chamber of Com-
merce vs. Boston, 217 U.S8., 189, 195.) The
owner would not be entitled to demand
payment of the amount which the property
might be deemed worth to the company; or
of an enhanced value by virtue of the pur-
pose for which it was taken; or of an
increase over its fair market value, by
reason of any added value supposed to
result from its combination with tracts
acquired from others so as to make it a
part of a continuous railroad right of way
held in one ownership. (United States vs.
Chandler-Dunbar Co., supra; Boston Cham-
ber of Commerce vs. Boston, supra.) There
is no evidence before us from which the amount
which would properly be allowable in such
condemnation proceedings can be ascer-
tained.” (Italics ours).

In the pending case, however, the Com-
mission plants itself squarely upon the propo-
sition that the testimony which would be
properly received by a court in a case involving
the identical problem which is before the Com-
mission, would not be competent evidence of
value. The amended petition of the carrier
alleges (Record, page 35):

“Whatever may have been the difficulties
inhering in or incident to the manner of

51

proof offered in said Texas Midland case,
the relator says that no such difficulty
exists with respect to the ascertainment
of said present cost of condemnation and
damages or of purchase in the relator’s
case, and that relator is prepared and has
offered to establish definite competent proof
respecting each parcel of land owned or
used by it, in the following manner, to wit:

Relator accepts, as a basis for such
ascertainment, the present market value
of its lands as found and determined by
the respondent, and assumes that each
parcel of land, having reverted to adjoin-
ing owners as it would at common law
upon its abandonment, would be re-acquired
by the relator by purchase or condemna-
tion during the theoretical reconstruction
period. Relator will prove such cost of
purchase or condemnation by the testimony
of competent expert witnesses familiar with
each parcel of property, having knowledge
of its value, and thoroughly experienced
in the acquisition of private property for
public use by purchase or condemnation.
Where an entire parcel is thus acquired
the cost of its acquisition will be its market
value as determined by the respondent as
aforesaid, plus certain incidental costs,
such as court costs, and the like; where a
part only of an entire parcel is taken the
cost of acquisition will be the market
value of the part taken as determined by

52

the respondent as aforesaid, plus the dam-
age to the residue of the tract, the market
value of which would also be as determined
by the respondent, plus the incidental
costs as aforesaid.”

The Commission in its answer (Record,
page 26) denies that the evidence thus tendered
is competent proof of the present cost of con-
demnation and damages or of purchase. We
submit that this position is conclusively wrong.

Respectfully submitted,

W. G. BRANTLEY,
SANFORD ROBINSON,
LESLIE CRAVEN.

December 8, 1919.

SUBJECT INDEX.

STATEMENT... 1
ARGUMENT:
To estimate the present cost of condemnation and dam-
ages or of purchase of lands included in appellant’s railroad
is impossible, because it necessarily involves unwarrantable
and unlawful assumptions... === a 4

OP Oe rte e iter cererewsrcennnmunneess...... 12
The court will not, by issuing a writ of mandamus, re

quire something to be done which it is impossible to do___ 12
The meaning of paragraph entitled “Second” of the val-

uation act is not entirely clear ............ ilevainnisieaedin 13

The decision of this court in The Minnesota Rate cases
is directly in point and should be given controlling in-

ED eeeeniermasinnmeaeesitermpemeeenvénieiese+-.......... lt
This court has approved the Commission's interpretation
of the court’s decision in The Minnesota Rate cases_______ 18

Appellant's contention that the Commission may properly

base estimates of present cost of condemnation and dam-

ages or of pyrchase upon the present market value of the

lands involved, as estimated by the Commission, is un-

scandens eae ea 21
Appellant’s contention that it will lose something to

which it is entitled, unless the remedy it asks for is ap-

plied, is based upon speculation, and is not justified by

I err rtrennenememenmreteeneenee......... 22
Appellant is asking the court to assist it in obtaining for

its common-carrier lands a special railway value, in ex-

cess of the amount invested in them and beyond the value

of similar property owned _f a ae 26

8B

TABLE OF CASES CITED.

Page

Ann Arbor R. Co. v. Fellows et al., 236 Fed. 387... 17-18
Chicago & North Western Railicay Company v. Smith, 210 Fed.

SR teint eeemeatniiwenneninpmenenqimseienmesnecie... 15, 16-17
City and County of Denver y. Denver Union Water Co.,

Se Wie TE Mi eniieninmsienitettitisisannemeeenbeinaibainiieie seas... 18-19, 2u
In the Matter of the Valuation of the Property of the Kansas

City Southern Railway Co. et al., 11. C. C. Val. se 1,3
Louisville € Nashville R. Co. v. Railroad Commission of Ala-

Sp NN SN rsrcnsttdaaicsntinsspninareninciaisiesiie, wun aici.) vane 17

NSilsby Manufacturing Co. vy. City of Allentown, 26 Atl.
EERSTE Se TA Ptlaiperes ete tath itinidnindis lees a 13
Smyth v. Ames, 169 U.S. 466

18, 19, 20
The Minnesota Rate cases, 230 U. 8. 3562_....... ----. 2,49,

10, 12, 14, 15, 16, 17, 18, 20, 22, 27-29, 30-31, 34
(11)

Inthe Supreme Court of the United States,

Ocroser Terr, 1919.

UNITED States or AMERICA, AT THE RE- )
lation of Kansas City Southern Rail-
way Company, appellant No. 413.

v.
INTERSTATE COMMERCE COMMISSION OF

the United States, eppeHee- J

BRIEF FOR INTERSTATE COMMERCE COMMISSION.

STATEMENT.

Plaintiff in Error, hereinafter called appellant,
4 common carrier subject to the act to regulate
commerce, requests the court to issue a writ of
mandamus commanding defendant in error, herein-
after called the Commission, to receive certain evi-
dence which it has retused to receive in a proceed-
ing now pending before it, entitled In the Matter of
the Valuation of the Property of the Kansas City
Southern Railway Company et al.

By section 19a of said act, commonly called the
valuation act of March 1, 1913, the Commission ig

150522 (1)

2

required, among other things, to “ investigate, as-
certain, and report the value of all the property
owned or used by every common carrier subject to”
the act to regulate commerce, and paragraph en-
titled “Second” of the valuation act reads:

Second. Such investigation and report
shall state in detail and separately from im-
provements the original cost of all lands,
rights of way, and terminals owned or used
for the purposes of a common carrier, and
ascertained as of the time of dedication to
public use, and the present value of the
same, and separately the original and pres-
ent cost of condemnation and damages or of
purchase in excess of such original cost or
present value.

To the extent the commission is required by said
paragraph to ascertain and report separately the

“present cost of condemnation and damages or of
purchase in excess of original cost or present
value” of the lands included in the rights of way,
yards, and terminals of common carriers, it has
never been able to comply therewith. It has, how-
ever, permitted appellant and other carriers, in-
cluding the Texas Midland Railroad, to introduce
in proceedings before it a large volume of evi-
dence, the effect of which was to prove what had
previously been demonstrated by this court in its
decision in the Minnesota rate cases (230 U. 8.
352) namely, that it is impossible to comply with
this requirement of the valuation act, because no

3

lawful or reasonable basis upon which to rest an
estimate of such cost can be discovered.

After the commission had rendered its decision
in the Texas Midland case (1 I. C. C. Val. Rep. 1),
in which evidence of the character mentioned had
been submitted to it for consideration, appellant
asked for and was given permission to introduce
in the Kansas City Southern case before an ex-
aminer of the commission at Kansas City evidence
which appellant claimed would tend to establish
the present cost of condemnation and damages or
of purchase of the lands included in the rights of
way, yards, and terminals of the railroad used by
appellant as a common carrier in serving the gen-
eral public. At the hearing before said examiner,
appellant introduced such evidence to the extent
that it was then prepared to do so, all of which was
received by the examiner. Thereafter, however,
appellant asked the commission to permit it to in-
troduce additional evidence of the same character
and this request was denied for the reason stated
by the con.mission in its decision in said Texas
Midland case, whereupon appellant brought this
action and asked for a writ of mandamus as above

stated.
In the Supreme Court of the District of Columbia

appellant filed a demurrer to the answer of the
Commission, which was overruled, and upon ap-
peal the ruling of the Supreme Court was affirmed
by the Court of Appeals. From these rulings ap-
pellant appeals to this court.

Re EET ATEN Oe

4
ARGUMENT.
I.

To estimate the present cost of condemnation and dam-
ages or of purchase of lands included in appellant’s
railroad is impossible, because it necessarily involves
unwarrantable and unlawful assumptions.

The valuation act was approved by the President
and became effective on March 1, 1913. At that
time there were pending in this court, on appeal
from the Circuit Court for the District of Minne-
sota, The Minnesota Rate cases above mentioned,
wherein an attempt had been made to estimate the
present cost of acquiring the lands included in the
rights of way, yards, and terminals of certain com-
mon-carrier railroads. To this method of proce-
dure, which this court characterized as an attempt
to apply the cost-of-reproduction method in deter-
mining the value of said lands (id. 450), and to the
result thereof the appellants excepted, and in stat-
ing and sustaining the exception this court, speak-
ing through Mr. Justice Hughes, said:

It is contended that the valuation was
made upon a wrong theory ; that it is a specu-
lative estimate of ‘‘cost of reproduction”’;
that it is largely in excess of the market value
of adjacent or similarly situated property;
that it does not represent the present value;
in any true sense, but constitutes a conjecture
as to the amount which the railway company .
would have to pay to acquire its right of way,
yards, and terminals, on an assumption, it-

5

self inadmissible, that, while the railroad did
not exist, all other conditions, with respect
to the agricultural and industrial develop-
ment of the State, and the location, popula-
tion, and activities of towns, villages, and
cities, were as they are now. (Id. p. 444.)

* * * * *

* * * It is at onee apparent that, so
far as the estimate rests upon a supposed
compulsory feature of the acquisition, it ean
not be sustained. It is said that the com-
pany would be compelled to pay more than
what is the normal market val¥@of property
in transactions between private parties; that
it would lack the freedom they enjoy, and, in
view of its needs, it would have to give a
higher price. It is also said that this price
would be in excess of the present market val-
ues of contiguous or similarly situated prop-
erty. It might well be asked, who shall de-
scribe the conditions that would exist, or the
exigencies of the hypothetical owners of the
property, on the assumption that the rail-
road were removed? But, aside from this, it
is impossible to assume, in making a judicial
finding of what it would cost to aequire the
property, that the company would be com-
pelled to pay more than its fair market value.
It is equipped with the governmental power
of eminent domain. In view of its public
purpose, it has been granted this privilege in
order to prevent advantage being taken of
its necessities. It would be free to stand
upon its legal rights and it can not be sup-

6 _

posed that they would be disregarded. (Id.
450-451.)
+ * * * *

Moreover, it is manifest that an attempt to
estimate what would be the actual cost of ac-
quiring the right of way, if the railroad were
not there, is to indulge in mere speculation.
The railroad has long been established ; to it
have been linked the activities of agricul-
ture, industry, and trade. Communities
have long been dependent upon its service,
and their growth and development have been
conditioned upon the facilities it has pro-
vided. The uses of property in the com-
munities which it serves are to a large degree
determined by it. The values of property
along its line largely depend upon its ex-
istence. It is an integral part of the com-
munal life. The assumption of its nonex-
istence, and at the same time that the values
that rest upon it remain unchanged, is im-
possible and can not be entertained. The
conditions of ownership of the property and
the amounts which would have to be paid
in acquiring the right of way, supposing the
railroad to be removed, are wholly beyond
reach of any process of rational determina-
tion. The cost-of-reproduction method is of
service in ascertaining the present value of
the plant, when it is reasonably applied and
when the cost of reproducing the property
may be ascertained with a proper degree of .
certainty. But it does not justify the accept-
ance of results which depend upon mere con-

jecture. * * * (1d.
x * x vA * *

7

The evidence in these cases demonstrates
that the appraisements of the St. Paul and
Minneapolis properties which were accepted
by the master were in substance appraisals
of what was considered to be the peculiar
value of the railroad right of way. Efforts
to express the results in the terms of a theory
of cost of reproduction fail, as naturally they
must, to alter or obscure the essential charac-
ter of the work undertaken and performed.
Presented with an impossible hypothesis,
and endeavoring to conform to it, the ap-
praisers—men of ability and experience—
were manifestly seeking to give their best
judgment as to what the railroad right of
way was worth. And doubtless it was be-
lieved that it might cost even more to acquire
the property, if one attempted to buy into the
cities as they now exist and all the difficulties
that might be imagined as incident to such a
‘‘ reproduction ’’ were considered, The rail-
road right of way was conceived to be a prop-
erty sui generis, ‘‘a large body of land in a
continuous ownership,” representing one of
the ‘‘ highest uses ’’ of property and possess-
ing an exceptional value. The estimates be-
fore us, as approved by the master, with his
increase of 25 per cent in the case of the Du-
luth property, must be taken to be estimates
of the ‘‘railway value’’ of the land; and
whether or not this is conceived of as paid to
other owners upon a hypothetical reacquisi-
tion of the property is not controlling when
we come to the substantial question to be
decided.

141224—19-—__2

8

That question is whether, in determining
the fair present value of the property of the
railroad company as a basis of its charges to
the public, it is entitled to a valuation of its
right of way not only in excess of the amount
invested in it, but also in excess of the market
value of contiguous and similarly situated
property. * * * (Id. 453.)

* * *

* *

Assuming that the company is entitled to
a reasonable share in the general prosperity
of the communities which it serves, and thus
to attribute to its property an increase in
value, still the increase so allowed, apart
from any improvements it may make, can
not proper!y extend beyond the fair aver-
age of the normal market value of land in
the vicinity having a similar character.
Otherwise we enter the realm of mere con-
jecture. We therefore hold that it was error
to base the estimates of value of the right
of way, yards, and terminals upon the so-
called ‘‘ railway value ’’ of the property.
The company would certainly have no
ground of complaint if it were allowed a
value for these lands equal to the fair aver-
age market value of similar lands in the
vicinity, without additions by the use of
multipliers, or otherwise, to cover hypotheti-
cal outlays . The allowances made below for
a conjectural cost of acquisition and conse-
quential damages must be disapproved; and,
in this view, we also think it was error to
add to the amount taken as the present
value of the lands the further sums, caleu-

9

lated on that value, which were embraced
in the items of ‘‘ engineering, superintend-
ence, legal expenses,’’ ‘‘ contingencies ’’ and
‘‘ interest during construction.’’ (Id. 455.)

It will be observed that this court entertained the
opinion that an estimate of the present cost of ac-
quisition of the lands included in the right of way,
yards, and terminals of a carrier could be made only
upon the theory that the railroad of the carrier
would be removed before the estimate would be
made, and it is apparent that no other theory would
be tenable. The court points out that upon the
assumption of the nonexistence of the railroad it is
impossible for anyone to describe either the con-
ditions that would exist or the exigencies of the
hypothetical owners of the property, and says in
emphatic language that an attempt to estimate what
would be the actual cost of acquiring the right of
way under such circumstances would be to indulge
inmere speculation. In other words, this court says
that what appellant is asking the court to require
the Commission to do can not, as a matter of law,
be done. The court, however, does not stop here.
It proceeds to demonstrate why such an estimate
can not be made. It shows that the uses and values
of lands in the vicinity of the railroad are largely
the result of the construction and operation of the
railroad; that it would be impossible to determine
the extent to which such uses and values have been
so influenced, and that to assume that they would
not be affected if the railroad were removed, and

10

base upon that theory an estimate of reacquiring
the lands, or its equivalent, an estimate of the pres-
ent cost of condemnation and damages, or of pur-
chase, would be improper and unjustifiable and
produce a result which could not be accepted as
evidence by a court. This court clearly states, in
substance, that the estimate of present cost of con-
demnation and damages, or of purchase which ap-
pellant is asking the court to compel the Commis-
sion to make is an estimate which is wholly beyond
reach of any process of rational determination. In
this connection it points out that the appraisers of
the lands involved in The Minnesota Rate cases,
in an attempt to estimate the cost of acquiring
the lands, were presented with an impossible
hypothesis.

As shown in the answer herein, the evidence in-
troduced before the Commission in connection with
the valuation of the lands included in appellant’s
railroad establishes that at the time the railroad
was constructed a portion of said lands was donated
to, and another portion purchased by, appellant,
and that appellant obtained title to still another
portion through condemnation proceedings. It is
evident that, upon the assumption of the removal
of the railroad and its reproduction, it is impossible
to ascertain the portion of said lands which would
be so donated, or the portion thereof which would
have to be purchased by appellant, or the portion -
thereof appellant would have to acquire title to
through condemnation proceedings.

11

It is further apparent that the removal of the
railroad and its immediate reproduction would not
damage in any manner or to any extent any of the ©
lands adjoining or adjacent to the railroad or the
owners of such adjoining or adjacent lands.

It is also clear that to determine, upon the as-
sumption of the removal of the railroad, that the
title to the lands included therein would revert to
or be vested in the owners of said adjoining lands,
would be unjustifiable and improper. In this con-
nection the Commission states, by way of illustra-
tion, that chapter 8 of article 6532 of the Statute
Laws of the State of Texas, which is the law in force
at the present time in that State, provides as fol-
lows:

The right of way secured or to be secured
to any railway company in this State, in the
manner provided by law, shall not be so con-
strued as to include the fee simple estate in
lands either public or private, nor shall the
same be lost by the forfeiture or expiration
of the charter, but shall remain subject to an
extension of the charter or the grant of a new
charter over the same way without a new
condemnation.

IL.

The word estimate is erroneously applied to an opinion
expressed which has no reasonable foundation upon
which to rest.

It is said the contention that it is impossible
to estimate the present cost of condemnation and

12

damages or of purchase is unsound; that such esti-
mates have been made in the past, and that what
has been done once may be done again. This court,
however, has demonstrated in The M innesota Rate
cases, supra, that the so-called estimates were not
estimates in fact within a proper definition of that
term, because they had no reasonable foundation
upon which to rest. It expressed the view that be-
fore such an estimate could be made the railroad,
in imagination at least, must be removed, and
pointed out the unreasonableness of assuming that
if such removal should take place no changes in the
values now existing would result. In this connection
it said: ‘‘It might well be asked, who shall describe
the conditions that would exist, or the exigencies
of the hypothetical owners of the property, on the

assumption that the railroad were removed?”’ (Id.
451.)

IIT.

The court will not, by issuing a writ of mandamus,
require something to be done which it is impossible
to do.

It is further contended that the language in said
paragraph entitled ‘‘Second”’ of the valuation act
shows that Congress intended to require the Com-
mission to ascertain and report separately the pres-
ent cost of condemnation and damages or of pur-
chase, and that for this reason it must attempt to
do so. In this connection, however, we do not deem
it necessary to make a lengthy argument because a

13

well-known maxim is that the law never requires
the impossible.

In Silshy Manufacturing Company vy. City of
Allentown (26 At). 646) it was held that *‘ The re-
quirement that proposals to furnish a city with
materials needed shall be advertised for need not
be complied with where the thing needed is part of
a patented article which can be bought at only one
place.’’ In support of this holding the court said:
“The law does not insist on what is impossible or
absolutely useless. ”’

If the court reaches the conclusion that on ae-
count of matters herein set forth it would be im-
possible to discover any lawful or reasonable basis
upon which to rest an estimate of the present cost
of condemnation and damages or of purchase of
the lands included in appellant’s railroad it will
not issue a writ of mandamus in accordance with
appellant’s request.

IV.

The meaning of paragraph entitled “Second” of the
valuation act is not entirely clear.

Thus far we have been discussing matters here-
in upon the assumption that the meaning of para-
graph entitled ‘‘ Second ”’ of the valuation act is
clear, but we are obliged to admit that this might
reasonably be regarded as a violent assumption.

It has been said that the latter portion of this
paragraph calls for the original and present costs
of acquisition, exclusive of the value of the land

14

taken at the time of its acquisition by the carrier;
but, on the other hand, it has been argued that the
acquisition costs called for include the value of the
land taken.

It is also contended that in its language in The
Minnesota Rate cases above quoted this court was
speaking of the present cost of acquisition, includ-
ing the value of the land taken, and not of the pres-
ent cost of acquisition exclusive of such value.

According to our view, however, these differences
as to interpretation are of no importance whatever.
The matter of consequence in this connection is that
this court expressed the view that an estimate of the
present cost of acquisition could be made only by
indulging in mere speculation, and, with this as a
premise, held that an estimate so made could not
properly be used in determining the fair present
value of the carrier’s lands.

V.

The decision of this Court in The Minnesota Rate cases
is directly in point and should be given controlling
influence.

Notwithstanding the plain language used by this
court in its decision in The Minnesota Rate cases,
it has been contended that the decision has no appli-
cation in a case of this kind, because it was rendered
in a case where the fair average of the normal mar-
ket value of lands similar to the lands included in the

15

rights of way, yards, and terminals of the carriers
had not been shown.

In some instances this argument would perhaps
have force, but in this instance there is no necessity
for resorting to inference in order to determine
what the court intended to, and did, decide. As
above shown, in advance of announcing its decision,
“the court stated the question it intended to decide,
and then decided that question in plain and unam-
biguous language. Also it will be seen that the
court represented that question to be the substantial
question presented for determination, which, of
course, it was.

A contention exactly like the contention of coun-
sel for the carriers, above mentioned, was made in
the ease of Chicago d& North Western Railway
Company v. Smith (210 Fed. 632), decided on Jan-
uary 20, 1914. Up to the time of final hearing
in the Chicago &: North Western case, both par-
ties—that is, the State of South Dakota and repre-
sentatives of the carrier—had proceeded upon the
theory that it was proper to attempt to estimate the
present cost of acquisition of the carrier’s lands
and use that estimate in determining the fair pres-
ent value of the lands, but on final hearing the State
objected to the estimate and such use thereof upon
the ground that the decision of this court in the
Minnesota Rate cases had shown the making and
use of the estimate to be improper. In sustaining

the contention of the State in this regard, the court,
141224—19-—3

16

speaking through District Judge Willard, and after
reviewing the pertinent evidence, said:

From this evidence the company argues
that it is unfair to say that for a strip of land
100 feet wide through the middle of a 160-
acre farm it should be allowed no more as
the cost of reproducing it than the price per
acre if the whole farm were to be bought;
that it is a matter of common knowledge
that, if a private individual wanted to buy
such a strip, it would cost him much more per
acre than the value per acre of the whole
farm.

It is true that the evidence in this case
does differ from that in the Minnesota Rate
cases, and there is much force in the com-
pany’s argument. But the defendant’s claim
in this respect is disposed of by what the
Supreme Court, in the Minnesota Rate cases
(230 U. S. on page 455, 33 Sup. Ct. on page
763, 57 L. Ed. 1511), said:

‘The company would certainly have no
ground of complaint if it were allowed a
value for these lands equal to the fair aver-
age market value of similar land in the vicin-
ity, without additions by the use of multi-
pliers, or otherwise, to cover hypothetical
outlays. The allowances made below for a
conjectural cost of acquisition and conse-
quential damages must be disapproved ; and,
in this view, we also think it was error to add
to the amount taken as the present value of
the lands the further sums, calculated on
that value, which were embraced in the items

17

of ‘engineering, superintendence, legal ex-
penses,’ ‘ contingencies,’ and ‘ interest dur-
ing construction.’ ”’

I, accordingly, adopt the valuation placed
upon these lands by the State before any
multiplier is used, * * *. (Id. 639.)

In pointing out the difference concerning evi-
dence of market value in the Minnesota Rate cases
on the one hand as compared with the Chicago &
North Western case on the other, statements of
District Judge Willard were as follows:

* * * Nowhere in that case did the
market value of contiguous lands appear.
That does appear in this case, both in the evi-
dence of the State and in that of the com-
pany. (Id. 638.)

To the same effect see L. & N. R. Co. v. Railroad
Commission of Alabama (208 Fed. 35, 42-44) and
Ann Arbor R. Co. v. Fellows et al. (236 Fed. 387,
392). In the latter case, the court, speaking
through Sessions, district judge, said:

* * * The valuation placed upon the
right of way and station grounds, exclusive
of all improvements thereon, is $397,104, to
which sum has been added more tnan 14 per
cent thereof for so-called “ overheads.”’
This basic valuation has been reached by ap-
plying to the right of way without improve-
ments the estimated values of adjacent lands,
including all buildings and other improve-
ments. It is sufficient to say that this method
of computing values and the practice of add-

18

ing *‘ overheads ’’ to actual values are con-

trary to the letter and the spirit of the rule

laid down by the Supreme Court in the Min-

nesota Rate cases (230 U.S., 352) * * *,

In its decision in the Texas Midland case, supra,

the Commission shows several instances where

State authorities have placed a like interpretation

upon the decision of this Court in The Minnesota

Rate cases and have refused to apply the cost-of-re-

production method in determining the value of

lands used by common-earrier corporations in serv-
ing the general public. (Id. 61.)

Vi.

This Court has approved the Commission’s interpreta-
tion of the Court’s decision in the Minnesota Rate
cases.

In the case of City and County of Denver v. The
Denver Union Water Company (246 U. S. 178),
this court had occasion to, and did, pass upon and
approve an interpretation of its decision in The
Minnesota Rate cases which had been made by a
special master and approved by the District Court
for the District of Colorado. In this connection
the master said:

The measure of value of lands adopted in
considering the evidence is the present nor-
mal market value of similar lands in the
same locality. (Minnesota Rate cases, 230
U. S. 352, at 449-456.) It follows from this
rule that the original cost of the lands is not

19

necessarily the controlling factor, though
such original cost has been considered along
with all the other evidence in determining
the value. It likewise follows from this
measure of value that when the present nor-
mal market value of similar lands in the
same locality has been determined, nothing
ean be added to such value on account of the
actual or estimated consequential or sever-
ance damages—if any—paid by the water
company when it originally acquired its
lands or on account of the company’s actual
or estimated overhead expenses in connec-
tion with the purchase of these lands. These
expenses represent original costs of the
lands and not their present market value.
In considering the evidence concerning the
value of these lands I have assumed that
we may take into consideration their adapt-
ability or availability for any useful pur-
pose, provided the evidence shows that
lands possessing such adaptability or avail-
ability have any special market value on
account thereof; but the final question, in
my judgment, always is, What is the pres-
ent market value of similar lands in the
same locality, and not what are these lands
worth now to the water company for the
purposes for which they are now used ?
(Texas Midland case, supra, p. 69.)

After reviewing several matters involved in the
ease, this court, speaking through Mr. Justice Pit-
ney, annoanced its conclusion concerning the spe-
cial master’s aforesaid interpretation of its de-

cision in The Minnesota Rate cases. In this con-
nection the court said:

What we have said establishes the pro-
priety of estimating complainant’s property
on the basis of present market values as to
land, and reproduction cost, less deprecia-
tion, as to structures. (Id. 191.)

The method of procedure adopted and followed
by the Commission in determining the present value
of lands included in the rights of way, yards, and
terminals of common carriers is described by it in
its decision in said Texas Midland case as follows:

Present value * * * is arrived at by
ascertaining the number of acres of land
owned or used by the carrier for its purposes
as a common carrier and multiplying this
acreage by a market value determined from
the present market value of similar adjacent
and adjoining lands. Due allowance is made
for any peculiar value which may attach by
reason of the peculiar adaptability of the
land to railroad use.

Nothing is included for the expense of ac-
quisition, nor for severance dame yes, nor for
interest during construction. (Id. 53.)

It will be observed that the Commission is acting
in accordance with the decision of this court in The
Minnesota Rate cases as interpreted by the court
itself in the Denver Union Water Company case,
and if the Commission should act instead in accord-
ance with the method of procedure appellant is ask-
ing this court to compel it to pursue it would com-

21

mit thereby an error of law. If the Commission
should make estimates of the present cost of con-
demnation and damages or of purchase of appel-
lant’s common-earrier lands, notwithstanding that
no reasonable or lawful basis upon which to rest
such estimates can be discovered, and then consider
and give weight to the estimates in determining the
value of appellant’s property for rate-making pur-
poses it would necessarily result that the value thus
fixed could not be sustained in court.

t

VIL.

Appellant’s contention that the Commission may prop-

erly base estimates of present cost of condemnation
and damages or of purchase upon the present market
value of the lands involved, as estimated by the Com-
mission, is unsound.

Appellant says it has accepted the estimate of
the present market value of its lands made by the
Commission, and that therefore the Commission,
using this estimate as a basis, can easily find the
present cost of condemnation and damages or of
purchase. The unsoundness of this proposition,
however, is readily observable. In finding the pres-
ent market value of appellant’s common-carrier
lands, as measured by the ‘‘fair average of the nor-
mal market value of lands in the vicinity having a
similar character’’, the Commission must of course
consider conditions as they now are, including the
existence of the railroad, but in estimating what it
would cost to reaequire such lands, that is, the re-

22

production cost, or the present cost of condemna-
tion and damages or of purchase, of the lands, the
Commission would have to treat the railroad as
nonexistent and speculate, enter into the realm of
mere conjecture, as to what the market value of the
lands would be under such circumstances. This is
necessarily true, first, because it is impossible to
reproduce a thing which is in existence, and second,
because it would be improper for the Commission
to assume the nonexistence of the railroad and ‘‘at
the same time that the values that rest upon it re-
main unchanged”’, as stated by this court, as above
shown, in the Minnesota Rate cases. It is also true,
as stated by this court in said cases, that an attempt
to estimate what would be the conditions of owner-
ship of said lands or the exigencies of the hypotheti-
cal owners thereof, upon the assumption that the
railroad were removed, would be an attempt to ac-
complish the impossible.

VIII.

Appellant’s contention that it will lose something to
which it is entitied, unless the remedy it asks for is
applied, is based upon speculation, and is not justified
by the facts.

For the purpose, evidently, of indicating that its
rights have not been properly protected appellant
avers that it paid $180,000 for lands the present
market value of which as estimated by the Commis-
sion is only $60,000, and that the cost of reproduc-
ing its lands and those of its associated companies

23

would be more than twice as much as the sum the
Commission has included as their present value in
its tentative valuation. When we compare these
averments with appellant’s assertion that it has °
accepted the present market value of its lands as es-
timated by the Commission, it is apparent that the
injury appellant is talking about is based upon its
belief that when the commission fixes une ultimate
value of its properties for rate-making purposes, or
for some other purpose, it will include therein as the
value of appellant’s lands only their present value,
as measured by the fair average of the normal mar-
ket value of similar lands in the same vicinity.
This belief, however, is necessarity based upon
speculation, and is not justified by the facts, because
it is simply appellant’s conjecture concerning ac-
tion to be taken by the Commission, if taken at all,in
the future. Up tothe present time the Commission
has not fixed for any purpose the ultimate value of
appellant’s eommon-carrier property, or the ulti-
mate value of any othe1 eommon-carrier property,
and when it does so it will of course have to consider
and give proper weight to, not only the present
value of the lands as measured by the fair aver-
age of the normal market value of lands in the
vicinity having a similar character, but also the
amount of money paid by the carrier for the lands
and all other pertinent facts and circumstances.
In Smyth v. Ames, 169 U. 8. 466, in announcing its
conclusion concerning the matters to be considered

24

4
in fixing an ultimate value for rate-making pur-

poses this court, speaking through Mr. Justice
Harlan, said:

We hold, however, that the basis of all
calculations as to the reasonableness of rates
to be charged by a corporation maintaining a
highway under legislative sanction must be
the fair value of the property being used by
it for the convenience of the public. And in
order to ascertain that value, th: orginal cost
of construction, the amount expended in
permanent improvements, the amount and
market value of its bonds and stock, the pres-
ent as compared with the original cost of
construction, the probable earning capacity
of the property under particular rates pre-
scribed by statute, and the sum required to
meet operating expenses, are all matters for
consideration, and are to be given such
weight as may be just and right in each
ease. * * * (Td. 546-547.)

Appellant does not aver, and it could not truth-
fully aver, that the Commission has refused to per-
mit it to show the amount of the investment made in
its common-carrier lands when they were acquired
and dedicated to the service of the public, and while
it avers that it paid $180,000 for lands the present
market value of which was estimated by the Com-
mission as only $60,000, it carefully refrains from
comparing the total investment made in all its com-
mon carrier lands with their present value, as meas-
ured by the fair average of the normal market value

25

of lands in the vicinity having a similar character. If
in the future the Commission fixes, for a particular
purpose, the ultimate value of appellant’s common-
carrier properties and includes therein as the value
of its lands less than the amount invested in the
lands at the time they were acquired and dedicated
to the service of the public, appellant will be free to
challenge the validity of the Commission’s action,
but we respectfuly submit that until that time ar-
rives it will have no standing in court in a ease like
the one now under consideration.

In its brief in this case in the Court of Appeals
appellant said: ‘‘ Neither the effect of the land re-
production schedule when once ascertained nor the
use to be made of it, can be considerd by the court
in this proceeding.”’

If these assertions of appellant are correct it
necessarily follows, we submit, that the court can
not comply with appellant’s request for a writ of
mandamus; because, if appellant is unable to show
that it will sustain a legal injury if the writ is not
issued, it can not establish its right thereto, and it
goes without saying that unless the court may corn-
sider the effect of the land reproduction schedule
and the use to be made thereof, it can not determine
whether such an injury will result from the Com-
mission’s refusal to receive and consider the evi-
dence, so-called, which is in question here.

26
IX.

Appellant is asking the Court to assist it in obtaining
for its common-carrier lands a special railway value,
in excess of the amount invested in them and beyond
the value of similar property owned by others.

Notwithstanding its admission that the Commis-
sion has correctly estimated the present value of its
common-carrier lands, as measured by the fair av-
erage of the normal market value of similar lands
in the same vicinity, and without attempting to
show that this value is less than the amount of
money invested in the lands when they were ac-
quired and dedicated to the service of the public,
appellant is trying to induce the court to assist it in
securing a greater value by compelling the Com-
mission to use, in valuing the lands, what is known
as the cost-of-reproduction method. The mental
route traveled by the Commission in reaching con-
clusions concerning values of lands is the same re-
gardless of the purpose for which the lands are
used, but while appellant is contending that the
Commission should use the cost-of-reproduction
method in valuing its common-earrier lands it does
not advance a like claim concerning lands owned
by it and used for purposes other than those of a
common carrier. This means, if it means any-
thing, that appellant is contending it is entitled te
a special railway value, that is, a value of its com-
mon-earrier lands in exeess of the amount invested
in them and beyond the value of similar property

27

owned by others, solely by reason of the fact that
they are used in the public service.

In this regard the method of procedure appellant
is endeavoring to compel the Commission to adopt
and follow is exactly like the procedure of the Cir-
cuit Court, which was condemned by this court, in
the Minnesota Rate cases, supra, where pertinent
language of the court was as follows:

The evidence in these cases demonstrates
that the appraisements of the St. Paul and
Minneapolis properties which were accepted
by the Master were in substance appraisals
of what was considered to be the peculiar
value of the railroad right-of-way. Efforts
to express the results in the terms of a theory
of cost of reproduction fail, as naturally they
must, to alter or obscure the essential char-
acter of the work undertaken and _ per-
formed. Presented with an impossible hy-
pothesis, and endeavoring to conform to it,
the appraisers—men of ability and experi-
ence—were manifestly seeking to give their
best judgment as to what the railroad right-
of-way was worth. And doubtless it was he-
lieved that it might cost even more to acquire
the property, if one attempted to buy into
the cities as they now exist and all the diffi-
culties that might be imagined as incident
to such a ‘“‘reproduction’’ were considered.
The railroad right-of-way was conceived to
be a property sui generis, ‘a large body of
land in a continuous ownership,”’ represent-
ing one of the “ highest uses ”’ of property

and possessing an exceptional value. The
estimates before us, as approved by the
Master, with his increase of 25 per cent in
the case of the Duluth property, must be
taken to be estimates of the ‘‘railway value”’
of the land; * * *,

* 7 * * -

* * *. And where the inquiry is as to
the fair value of the property, in order to
determine the reasonableness of the return
allowed by the rate-making power, it is not
admissible to attribute to the property owned
by the carriers a speculative increment of
value, over the amount invested in it and
beyond the value of similar property owned
by others, solely by reason of the fact that it
is used in the public service. That would
be to disregard the essential conditions of the
publie use, and to make the public use de-
structive of the publie right.

The increase sought for ‘‘railway value’’
in these cases is an increment over all out-
lays of the carrier and over the values of
similar land in the vicinity. It is an inere-
ment which can not be referred to any known
criterion, but must rest on a mere expression
of judgment which finds no proper test or
standard in the transactions of the business
world. It is an increment which in the last
analysis must rest on an estimate of the value
of the railroad use as compared with other
business uses; it involves an appreciation of
the returns from rates (when rates them-
selves are in dispute) and a sweeping gen-
eralization embracing substantially all the

29

activities of the community. For an allow-
ance of this character there is no warrant.
(Id. 453, 454-455.)

X.

Appellant misconstrues the paragraph of the Valuation
Act with which it is asking the Court to compel the
Commission to comply.

Appellant’s brief in this case in the Court of Ap-
peals contains a paragraph which reads: ‘* That
certain of relator’s lands were acquired by dona-
tion presents no difficulty in the way of ascertain-
ing their present cost of condemnation and dam-
In support of this conelu-

s9

ages or of purchase.
sion appellant pointed out that, as to structures,
the Commission estimates the cost of reproduction
regardless of the fact that some of them were do-
nated to the carriers originally, and then said:
‘But two questions are presented; first, what
lands, rights of way and terminals did the relator
own or use for the purpose of common carrier, and
secondly, what is the present cost of condemnation
and damages or of purchase of those lands? The
provision is not ambiguous. There is no room for
speculation or conjecture as to what lands are in-
volved, because the requirement of the statute op-
erates upon all lands, whether originally acquired
by purchase or condemnation, or gift or by op-
eration of the statute of limitations or in any other

$9
7
.

conceivable manner

t
r
;
i
$
ia
y

| 30

It is true that the Commission estimates the cost
of reproducing common-carrier structures, but this
can be done, because the market prices to be paid
for the materials which enter into the structures do
not depend upon the places in which the structures
are to be located or upon the circumstances and con-
ditions surrounding such places. In attempting to
estimate the cost of reproducing common-carrier
lands, however, the estimator is immediately con-
fronted with difficulties which are insurmouut-
able. Of course the lands could not be reproduced,
and in order to estimate what it would cost to reac-
guire them it would be necessary to know what the
conditions of their ownership and the exigencies of
their owners would be if the vailroad were not
there, and, as stated by this court in the Minnesota
Rate cases, supra, neither of said elements is capa-
ble of rational ascertainment. The pertinent lan-
guage of the court was:

* * *, It might well be asked, who shall
describe the conditions that would exist, o-
the exigencies of the hypothetical owners of
the property, on the assumption that the rail-
road were removed? * * *, (Id. 451.)

* * *, The assumption of its non-exist-
ence, and at the same time that the values
that rest upon it remain unchanged, is impos-
sible and can not be entertained. The condi-
tions of ownership of the property and the
amounts which would have to be paid in
acquiring the right-of-way, supposing the

31
railroad to be removed, are wholly beyond
reach of any process of rational determina-
tion. * * *. (Ud. 452.)

But even if it could overcome these difficulties,
the Commission would still find it impossible to
make the estimates in question. It will be observed
that in and by the first part of said paragraph en-
titled ‘‘ Second ’’ the Commission is required to
find the original cost and present value of common-
carrier lands, and thet having done this it is re-
quired by’ the latter portion of the paragraph to
state in detail the present cost ‘‘ of condemnation
and damages or of purchase in excess of such origi-
nal cost or present value.’’ This is not a call for the
present costs of acquisition in the aggregate; it is
instead a call for the present costs of condemna-
tion and damages in one sum and the present costs
of purchase in.another sum, and in order to deter- .
mine either of said sums it would be necessary to
know how much of the land would be donated to the
carrier, how much it would have to purchase, and
the portion thereof it would have to acquire through
condemnation proceedings. To the extent that
donations were made it would be

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386004_0251%3A3. Public record. Not legal advice.