# Amicus Curiae Brief — United States v. NY Central RR

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1924
- **Citation:** 263 U.S. 603

## Text

JAN

THE INTERCHANGEABLE MILEAGE TI€KET CASE. 1924

WM. R. STANSBURY

CLERX i

———— |

No. 469.

IN THE

Supreme Court of the United States

Octoser Term, A. D. 1923.

UNITED STATES OF AMERICA, et al.,
Appellants,
v.
NEW YORK CENTRAL RAILROAD COMPANY, et al.,
Appellees.

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES
FOR THE DISTRICT OF MASSACHUSETTS.

BRIEF ON BEHALF OF THE INTERNATIONAL FEDERATION
OF COMMERCIAL TRAVELERS ORGANIZATIONS,
AS AMICUS CURIAE.

CLIFFORD THORNE,
JAMES W. GOOD,
Of Counsel.

BARNARD & MILLER PRINT, CHICAGO,

TOPICAL INDEX.

oe

STATEMENT OF THE CASE...................
gh ce gang MEETS TE OET TOE TELE ON
Decisions by Commission and Court.......
Postage Stamp Theory...................
Amendment to Section 22, Interstate Commerce
a RL ee 7
| Procedure before Commission................ 7
| Interrogatories by Commission....... 8
Injunction Proceedings ...................... 9
Record before Lower Court.............. 9
Table of Passenger Miles, total, per train,
NN Sdn cdncheekscaccies Jc... 10
Average Pre-war Reductions in Mileage
Books and amount of use of same........ 11
Carriers’ Petitich before Lower Court........ 13
Summary of Carriers’ Claim............. 19
ASSIGNMENT OF ERRORS.................... 20
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did not raise the issue in its pleadings that the reduction
would seriously impair its revenues.

A city ordinance in Richmond, Virginia, requiring the
school children to be carried at a reduced rate, was con-
tested rather as to the interpretation of the ordinance
than as to its legality. The ordinance was sustained in
Northrup v. Richmond, 105 Va. 335, 53 S. E. 962.

In the Commutation Rate Case, 21 I. C. C. 428, decided
in 1911, these issues and most of the cases in point were
extensively considered by the Interstate Commerce Com.
mission. A commutation ticket has certain basic similari-
ties to a scrip coupon ticket. The distinguishing char-
acteristic is that the commutation ticket is usually ap-
plicable between two points only, in conjunction with
many other short hauls of like character close to some
large city, while the scrip coupon ticket is applicable
generally throughout the United States, or some large
portion of the same. The elements of similarity are that
both tickets provide rates lower than the ordinary sin-
gle trip charge; that the users of both of these tickets
travel in the same cars, and in the same trains as those
paying the full fare on each trip, and that both are jus-
tified on the grounds of public policy and because of
the larger volume of travel than that of the average
person paying the full fare, thereby reducing the cost per
unit.

Commutation fares were in force by the carrier prict
to the order by the Commission. The matter in contro-
versy in the Commutation Rate Case, supra, was de
scribed as follows:

‘‘Where, as in this case, the sole substantial ques
tion is as to the reasonableness of the commutation
fares offered by a carrier to the suburban communi-

81

ties which it serves, it is contended that the carrier
is not accountable to the Commission under the act
to regulate commerce so long as such fares are not in
excess of its maximum full fares between the same
points for its general passenger service, provided
the latter are in themselves reasonable. It is in-
sisted that a carrier fully meets its obligations to
the public by establishing a reasonable fare for a
single one-way passage, and that it cannot be com-
pelled to carry the public or any part of the public
at a wholesale or lower fare than is reasonable for
a single one-way journey; but that it may, at its
pleasure, and without interference by the Commis-
sion, sell transportation at certain times, or to cer-
tain points, or in a certain quantity, at less than
the normal fare, provided only that such special fares
are open to all persons who may wish to take advan-
tage of them.’’ (Jd., 432.)

Among the many cases cited and discussed in the Com-
mutation Rate Case, we find both the Party Rate Case
and the Lake Shore Case, involving the Michigan Statute
as to mileage books.

The real matter at stake in the Commutation Rate Case
is very similar to the principle we have under consid-
eration at the present moment. The Commission de-
scribed the issue very definitely:

“If the normal one-way fare between two points
is itself reasonable for the service performed on a
one-way journey, is the Commission excluded by the
terms of Section 22, as is contended, from the con-
sideration of the question whether under Section 1
the lower commutation fare is a reasonable charge
to make for the daily service back and forth between
the same points?’’ (Jd., 437.)

Concluding its discussion of the subject the Commis-
sion held :

“Tn Interstate Commerce Commission v. B. & O.
R. R. Co., 145 U. S. 263, it is intimated that in fram-

82

ing the act to regulate commerce the Congress did
not intend to ignore the principle that one can sell
at wholesale cheaper than at retail. * * This
being so, we see no reason why the reasonableness
of the fares demanded for the service may not be
looked into by the Commission under Section 1,”
(Id., 443.)

The Commission held it had jurisdiction over the sub.
ject. This decision has never been successfully attacked
and it has been constantly used as a precedent establish.
ing a basic principle in commerce practice. If the estab.
lishment of lower than maximum ordinary passenger
fares in and of itself creates an unlawful discrimination
this conclusion could not have stood the test. At the pres-
ent time the carriers have in effect interchangeable mile.
age scrip books, and the Commission, in the absence of
any additional legislation, might have prescribed reason-
able fares. But in addition to that we have the additional
statutory requirement that the Commission shall pre.
scribe such fares.

The Commission makes the following statement rela-
tive to mileage books:

“It seems to be settled under that section (22)
that a carrier may enter upon the policy and practice
of issuing mileage books and excursion tickets at less
than its regular normal fare for the one-way jour-
ney, and, having adopted such a policy, may subse-
quently withdraw from it and refuse longer to issue
such tickets.’’ (Jd., 437.)

This comment of the Commission in the Commutation
Rate Case was made, of course, prior to the amendment
involved in this proceeding.

If it be claimed that the comment of the Commission
went to the constitutionality of such a law, it may be

+

83

added that the Commission made a similar comment pre-
yiously as to both party rate tickets and as to commuta-
tion tickets. We shall discuss the party rate matter
later. In Sprigg v. B. d O.,8 I. C. C. 443, the claim of
the complainant was that if a carrier has sold commu-
tation tickets for a considerable period, it may be com-
pelled to continue to sell them at less than the gen-
eral public fares. Concerning this claim, the Commis-
sion stated :

‘‘There is no legal basis for such a contention.
If we had full rate-making power as ample and
complete as that possessed by the Congress, we
could not make such an order. We could in that
case prescribe a rate which would be reasonable for
everybody to pay * * * but we could not under
any circumstances compel the granting of a special
and lower rate for the benefit of a particular class.’’
Sprigg v. B. € O. R. R. Co., 8 1. C. C. 443, 452, 453.

And yet in the Commutation Rate Case, the Commis-
sion, citing this very paragraph ruled directly to the
contrary. The attitude of the carriers and their closely
knit compact organization, with the natural conse-
quences thereof, have compelled this gradual expansion
of the jurisdiction of the Commission.

Referring to the Sprigg case, the Commission said:

‘‘The report in the case seems to have been un-
derstood as a denial by the Commission of its au-
thority to control Commutation Fares.’’ (Jd., 435.)

At that time (in 1900) ‘‘the commission was without
authority to enter an order fixing a reasonable rate for
the future.’’ (Jd., 436.)

Summing up the decision in the Sprigg Case, the Com-
mission said :

“On the whole, we are unable to regard the case as
decisive of the question now before us, and, so far

Sk OSS eee ee ae SRE NTR I ON + PARE RST LAS ae
EEN J Rs et ee Oe 5 he > . -

84

as it conflicts with the conclusions here reached, must
be understood as now being overruled.’’ (Jd., 436.)

Prior to the enactment of the law here under consid.
eration it is possible that the Commission did not have
the affirmative authority to require scrip book coupon
tickets to be issued at reasonable rates. A develop.
ment of the law on this and kindred subjects has been
along the lines of granting adequate power to the Com.
mission to care for the interests of the public in a rea.
sonable manner.

The decision of the Court in the Towers case, supra,
and the decision of the Commission in the Commutation
Rate Case, supra, have been based upon the facts there
involved, which included the existence of commutation
fares at the periods when the decisions were rendered.
In other words the Court and the Commission did not go
to the extent of saying that in the absence of any com-
mutation fares being charged by the carriers the Com.
mission or the state would have the power in the first in-
stance of requiring the establishment of such fares. Hov-
ever, they have not held the Commission lacked the power
to make such orders. That issue was simply undecided
and was unnecessary to be decided upon the records pre-
sented.

In the Commutation Rate Case the Commission ex
pressed it as follows:

‘A carrier that has not undertaken a commuta-
tion service may possibly not be compelled to do so
under the present law; that question is not before
us and is not therefore considered.”’

That case, however, was decided on the basis of the law
as it was then worded and did not involve the constitu
tional issue. Since then we have this amendment to Seo

85

tion 22 of the Act under which the present order was
entered.

In freight traffic at no time, to our knowledge, has the
Court or the Commission ever held that the Commission
lacked the power to require a commodity rate to be estab-
lished. Class rates prevailing as the standard ordinary
charge for the movement of the many different articles
shipped may be modified at any time by the Commission
ordering the establishment of a commodity rate, provided
the facts and circumstances warrant the same. The power
exists, the sole question being the reasonableness of the
exercise of that authority. Likewise as to passenger
traffic, once the statute is enacted, certainly the power
exists.

The Party Rate case, 145 U. S. 263, 36 L. ed. 699 has
been pivotal in the handling of this subject, involving
the justice and reasonableness of the establishment of
lower than standard fares. The Interstate Commerce
Commission held ‘that so-called party rate tickets, sold
at reduced rates, and entitling a number of persons to
travel together on a single ticket or otherwise, are not
commutation tickets within the meaning of Section 22
of the Act te ReguJate Commerce, and that when the
rate at which such tickets for parties are sold is lower
for each member of the party than rates contemporane-
ously charged for the transportation of single passen-
gers between the same points, they constitute unjust dis-
imination, and are therefore illegal.’’ .

The Commission ordered the Baltimore & Ohio Rail-
toad Company to cease and desist from charging lower
tales for persons traveling together in one party than
those contemporaneously charged by the same carrier
for the transportation of single passengers between the

86

same points. But their conclusion was not sustained by
the Supreme Court. In freight traffic, for many years, all
have recognized the propriety of adjusting rates on dif.
ferent commodities or on the same commodity in accord-
ance with the circumstances and conditions surrounding
the traffic.

The propriety of applying the same basic principle to
passenger traffic was fully recognized by the Court re.
viewing the action of the Commission in the Party Rate
Case.

‘Tt is not all discriminations or preferences that
fall within the inhibition of the statute; only such
as are unjust or unreasonable. For instance, it would
be obviously unjust to ¢gharge A a greater sum
than B for a single trip from Washington to Pitts.
burgh; but if A agrees not only to go but to retum
by the same route, it is no injustice to B to permit
him to do so for a reduced fare, since the services
are not alike, nor the circumstances and conditions
substantially similar, as required by Section 2 to
make an unjust discrimination.’’ Interstate C. C.v.
B. & 0., 145 U. S. 268, 36 Law ed. 703.)

Specifically as to mileage tickets the Court said:

‘‘In other words, whether the allowance of a re-
duced rate to persons agreeing to travel one thov-
sand miles or to go and return by the same road isa
‘like and contemporaneous service under substan-
tially similar conditions and circumstances’ as is
rendered to a person who travels upon an ordinary
single trip ticket. If it be so, then, under state laws
forbidding unjust discriminations, every such ticket
issuéd between points within the same State must
be illegal. In view of the fact, however, that every
railway company issues such tickets; that there is
no reported case, state or Federal, wherein their
illegality has been questioned; that there is no such
case in England; and that the practice is universally
acquiesced in by the public, it would seem that the

87

issuing of such tickets should not be held an unjust
discrimination or an unreasonable preference to the
persons traveling upon them.’’ (Jd., 279.)

The Court even went further than is usual in freight
rate cases in declaring that no such injury would result
from the establishment of the lower basis of rates as to

passenger traffic which might result in a similar action as
to freight traffic:

The Court, in this case, quoted from several English
decisions in support of the doctrine adopted. The un-
derlying principle of the cases, is that in order to con-
stitute unjust discrimination, it must be ‘for a like and
contemporaneous service in the transportation of a like
kind of traffic, under substantially similar circumstances
and conditions.’’ (Jd., 281.)

In closing the Court says:

“In short, the substance of all-these decisions is
that railway companies are only bound to give the
same terms to all persons alike under the same con-
ditions and circumstances, and that any fact which
produces an inequality of condition and a change
of circumstances justifies an inequality of charge.
These traffic acts do not appear to be as comprehen-
sive as our own, and may justify contracts which,
with us, would be obnoxious to the long and short
haul clause of the Act, or would be open to the charge
of unjust discrimination. But so far as relates to the
question of ‘undue preference,” it may be presumed
that Congress, in adopting the language of the Eng-
lish Act, had in mind the construction given to these
words by the English courts, and intended to in-
corporate them into the statute. McDonald v. Hovey,
110 U.S. 619. * * *

“Upon the whole, we are of the opinion that party
rate tickets, as used by the defendant, are not open
to the objections found by the Interstate Commerce

ommission, and are not in violation of the Act to

ae RE NEPA PDI AR y Bony

88

Regulate Commerce, and the decree of the court be.
low is, therefore, affirmed.’’ (Jd., 284.)

If certain of the doctrines of the Lake Shore decision,
not necessary to the determination of the issues then
presented, had prevailed, the hands of the government
would have been tied, and the United States, short of a
constitutional amendment, would have been helpless in
regard to a large volume of public service that vitally
concerns the welfare of the community.

In an old Pennsylvania case the distinction between
a lawful and an unjust discrimination was very accurately
expressed in the language of a referee, Mr. Paul Peter.
The law was ably stated in accordance with the best
thought that has gradually permeated the decisions of
the Supreme Court and of the state courts.

The following contains an extract from the report of
the said referee quoted in a subsequent decision of
the Supreme Court of Pennsylvania:

‘<7 regard it, then, as settled law in this state that
a railroad company, a common carrier, owes a duty
of equality to every citizen; and I adopt the posi.
tion taken by Mr. Bullitt in argument that railroad
companies have no right to make any undue dis-
crimination or preference in their charges, and a
charge made to one shipper higher than another, for
the same service, under like circumstances, consti-
tutes undue preference and discrimination, and, by
consequence, renders the charge unreasonable.

‘«<Such is the general rule, and it is vastly im
portant to the general public that there be no undue
relaxation of this rule; for, exercising, as they prac-
iteally do, a monopoly of transportation on their
roads, railway managers have in their hands a tre-
mendous power, by discrimination, to enrich one
man and ruin another. The equality, however, which
is thus prescribed is not a strict and literal equality

89

under all circumstances, however varying and differ-
ent. It is rather an equality in the sense of freedom
from unreasonable discrimination. It is only unjust,
undue, or unreasonable discrimination against which
the law has set its canon. Arbitrary discrimination
is illegal; is discrimination made with a view of giv-
ing advantage to one person. But the truism that
circumstances alter cases applies here, and under a
different state of circumstances a discrimination
may be reasonable and lawful, which, were the cir-
cumstances the same, would be undue and unreason-
able. In order to render lawful an inequality of
charge, the goods must be carried under different
circumstances, and the question whether the differ-
ence is material or essential arises in each partic-
ular case.’ The writer regards the foregoing as the
most precise and the most felicitous expression of
the law upon the general subject under considera-
tion that he has met with, and therefore quotes it
entire.’’ Hoover v. Pennsylvania R. Co., 156 Pa. 220,
22 L. R. A. 263, 270, 271.

The Lake Shore case is a precedent for the doctrine
that a state cannot establish unduly discriminatory rates
for any class of citizens. But it is not a precedent for
the doctrine that either the State or Federal Govern-
ment cannot establish reasonable maximum rates of
charge for services of a railroad company varying with
the circumstances and conditions surrounding those serv-
ies, Such a principle would invalidate nine-tenths of the
teisions of the Interstate Commerce Commission which
have stood the test of experience and the review of the
wurts for many years.

90

INTERCHANGEABLE SCRIP BOOK TICKETS ARE JUSTIFIED,

In the light of these decisions let us consider the lay.
fulness of the Commission’s order, which is at issue,

As to passenger traffic a theory was advanced in the
Lake Shore Case, which we have discussed at length,
that only one rate can be established by government an.
thority; then the government must keep hands off; and
if there are any variations from that one rate the rail.
roads, and the railroads alone, can make such variations.
This is in striking contrast to the principles governing
the regulation of freight traffic.

In the discussion ¢ -sriminations counsel for the
carriers seem to imagine that any variation from a cer.
tain fixed rate per individual, per passenger mile, or per
ton mile is an unjust and unlawful discrimination. There
is no fixed ton mile revenue in existence, and there never
has been such. Further we have seen there is no fixed
passenger mile revenue in the United States. Such terms
are misleading and confusing. Maximum rates are estab-
lished on the various classes of both passenger and
freight traffic in accordance with surrounding circum.
stances and conditions.

In the Party Rate Case, supra, which also applied to
passenger traffic, the Court defined what constituted un-
ast discriminations in the following language:

‘‘In order to constitute an unjust discrimination
under Section 2, the carrier must charge or receive
directly from one person a greater or less compenss-
tion than from another, or must accomplish the same
thing indirectly by means of a special rate, rebate,
or other device; but, in either case, it must be fora
‘like and contemporaneous service in the transports-
tion of a like kind of traffic, under substantially

91

similar circumsiances and conditions.’’’ Interstate
Commerce Commission v. Baltimore & Ohio R. R.
Co., supra, 281.

We have found the weight of authority sustains a fair,
just application of this doctrine to both freight and pas-
senger traffic.

It is said that making a fare for persons able to pay
$72 for a scrip coupon ticket lower than that accorded
other single trip passengers, creates an unjust diserim-
ination against those other travelers. We shall attempt
to analyze the soundness of this, and to consider the facts
which warrant the so-called classification attempted in
this legislation, if it be such.

The carriers have claimed that the conditions surround-
ing the person compelled to pay 3.6 cents are analogous
to, and the service is substantially the same as, the
circumstances and conditions surrounding the haul of the
party obtaining the lower rate under this order of the
Commission. A somewhat elaborate discussion is pre-
sented on this issue by the carriers and some of the argu-
ment is referred to in the decision of the Commission
under consideration.

There are certain basie differences amply sufficient to
warrant the difference in charge.

The distribution of costs over a larger number of units
isa factor of fundamental importance.

In order for a person to avail himself of the rate pre-

wribed in the scrip book order he must travel 2,500
miles in a year.

The average individual in the United States, aside

ftom those using this method of transportation, travels
from 250 to 350 miles a year.

92

In other words, the minimum a party must travel in
order to secure the scrip book rate is seven or eight
times the average distance traveled by the rest of the
people in the United States.

The basis for the foregoing proposition is as follows:
The carriers estimate the total revenue from those who
use the scrip books is $300,000,000 at the present time,
(Carriers’ Brief, p. 85.) Dividing that $300,000,000 by
3.6 cents, we have 8,333,000,000 passenger miles; and if
each individual uses only the minimum mileage of 2,500,
there would be 3,333,000,000 persons using these serip
books. Subtracting the 8,333,000,000 passenger miles
from the total passenger miles estimated for the year
1922 (32,974,000,000—twice the travel for the first six
months of 1922 ante, p. 10)—we have as a total
miles traveled by the balance of the population, 24,641,
000,000. Dividing this total by the balance of the popv- -
lation, the average travel per person is 230 miles. Allov-
ing fairly for children or minors under various ages
and eliminating such classes, this average journey of
those who do travel, would be increased to about 300 to
350 miles per year.

ee eee ee ee ee
OE ee MENS BO me eer et

Therefore the parties using scrip books furnish to the
railroads on an average seven or eight times as much
travel as the balance of the population averages.

If our entire population traveled on an average the
amount those using the scrip books must travel as a miti-
mum, the passenger revenues of our railroads would be
multiplied many times. Here is a basic difference.

It has been urged that the excursionist and the traveller
who attend fairs, conventions, ete., differ from the trav-
ellers who use these scrip books, that the former con-
stitute a more particular class, and obtain a different

<a RIVES? “43%

93

service from that of the ordinary traveler. We are told
that the railroads can estimate with some degree of ac-
curacy the volume of travel which they will obtain for
a convention, or a fair, or for a given summer resort.
There is some error, and some element of truth, in such
daim. The element of truth therein is an argument
against the position of the railroads in this case.

It is true that the railroads attempt to estimate the
volume of traffic that they will have on a given excursion
rate, which they quote at one-third or one-half of the
prevailing rate. That very computation is for the pur-
pose of finding out how many additional special facilities,
special cars, special engines, and extra labor, will have
to be furnished in order to take care of the traffic, all of
which adds to their expenses. On the other hand, the par-
ties who use these scrip books will gradually invade the
ears and trains already scheduled to run. They do not
require any more engines, or cars, or conductors, or train-
men; but those same cars being operated today grad-
ually fill up with more passengers, and there is plenty
of room, as evidenced by the fact that with practically
the same equipment in 1919 and 1920 they handled 40
per cent more passenger miles. (Ante, p. 10.)

It is immeasurably better for the carrier to have this
increased traffic developed in this manner that the scrip
book will develop.

On the other hand the carriers are not able accurately
to gauge the increased demands growing out of the quo-
tation of special rates for tourists, excursionists, etc. It
isa well known fact that the tourists may go in large
or small volume. Many factors are involved. Over a
period of six months that a summer excursion may last
to the coast or to points west of the Missouri River,

cS SR

94

passengers may or may not avail themselves of those
special fares. When a special rate is charged to some
political convention, or to some church convention, there
may be a tremendous volume, requiring special effort to
get the necessary equipment, and there may be conges.
tion, such as in the Masonic gathering at Washington,
D. C., recently. On the other hand the proposition may
fall flat, and barely the minimum necessary to secure
the rate will be supplied to the carrier; and the carrier
will thereby be forced to have equipment which had to be
provided to meet the expected crowd, remain idle. All
this adds to the cost. Such instances are occurring con-
stantly. They are matters of common knowledge.

There is another very important fact in connection
with excursions, political conventions, church gatherings,
ete., which serves to distinguish them from the traffic
that is served by interchangeable mileage tickets.

There may be some reasons for reserving special fares
to excursions, conventions, etc., more completely under
the jurisdiction and control of the company. There are
multitudes of details to consider in connection with them.
They vary from time to time, and the competition of
rival lines and rival cities is an important element in ar-
riving at wise conclusions and policies. Such affairs
are both local and temporary in character, while the use
of these scrip books is state wide or national in char-
acter, and lasts the year round. These features may
make possible a more efficient state or federal control
over the scrip books than could be exercised readily over
excursion fares, ete. At the same time the prevention of
unjust discriminations in making special fares to excur-
sions and conventions may require the occasional inter-
vention by the government.

95

The carriers argue that mileage book fares were orig-
inally established as a competitive measure to induce mer-
chants and manufacturers to patronize a road. The fact
that competition was the original force causing the re-
duction in the charge does not constitute an argument
against the reasonableness of the charge. With the car-
riers a solid unit under the sanction of the federal gov-
ernment making a universal passenger fare or freight
rate, it would be natural for them to insist upon the high-
est possible charge that would still permit the traffic
tomove. It has been the force of competition that has
created commodity rates. One road would establish a
lower than the ordinary class rate, which would later
be met or cut by another carrier. As a result a vast body
of commodity schedules has been developed. That con-
stitutes no argument against the reasonableness of the
commodity rates so established. The fact is that those
companies have by this process evolved a schedule of
rates that meets in a way with the just needs of the manu-
facturing and shipping public, and moves the traffic.
likewise competition has served to develop just rates
between rival cities. The fact that competition has been
the driving force to develop the rate structure donstitutes
no argument against the reasonableness of that rate
structure. The same factor has been present in the de-
velopment of prices on everything we buy and sell, until
the cost of the product reaches the level where the pur-
chaser can and does buy.

The fact that a charge is the product of competitive
forees does not prove or disprove its reasonableness.
Ithas been suggested that persons who would normally

pay the standard fare will make use of this scrip book.
The argument is so futile that it is hardly worth mention-

96

ing in passing. There is not a convention, or a fair
or a tourist excursion in the United States where there
are not parties uninterested in the particular propogi-
tion who avail themselves of the reduced fare; these
parties would otherwise pay the ordinary maximum fare,

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Another argument as to the character of the service
is that the person holding the scrip book rides in the
same car and in the same train as the person not holding
such book travels in; and yet one pays the 20 per cent
reduced rate while the other pays the full 3.6 cent rate.
That fact, stated by itself without the answer, may seem
effective, but in the same breath the party making the
statement should add—practically the same thing is true
of every excursion, of every convention, of every tourist
journey and of every commutation haul in the Uni
States. The man going to the Presbyterian Convention
at Philadelphia on his excursion fare is in the same car
on the same train with the party paying his 3.6 cents,
The man going to the Rockies for his summer holiday
travels in the same train with the man paying his 36
cent fare. The person shipping a carload of coal has
the commodity handled in the same train with
a carload of livestock paying several times the same
rate per ton mile. While that particular con-
dition of the same car or the same train is analogous,
other conditions are dissimilar; and those other factors
are what justify the difference in the charge. It is true
that we cannot separate the passengers going on the ex-
cursion rate fsom those paying the standard fare in the
same train, and from a practical standpoint, how foolish
it would be to make such a separation. Nevertheless, the
creation of the convention fare and the excursion rate
stimulates travel. That travel is substantially different

97

in character and in volume; and this is sufficient to war-
rant the difference in the charge, the one paying the
standard and the other paying the reduced fare, although
the two parties have the same conductor, the same brake-
man, may sit in the same seat, and look out of the same
window, and are served by the same roadbed. The sug-
gestion that they are receiving the same service substan-
tially, and therefore should pay the same rate is super-
ficial, and does not get below the surface of things. If
the fact that the passengers may look out of the same
pane of glass, and sit on the same seat, ete., as other
persons not interested in the excursion, is used as a jus-
tiication for compelling the same rate, we could not
have commutation fares, or tourist rates or conven-
tions, or excursions in the United States. To eliminate
these would be costly to the public; it would be costly
to American industry, because they not only stimulate
an increased movement, but they develop intercourse and
commerce among the people.

Likewise, the commercial travelers of the country, and
the people that are able to use the 2,500 mile ticket who
are not commercial travelers getting the same fare, are
similar to the man going to the convention, and the man
going to the same city on business, who both use the
same rate. That is an attendant incident, inevitable in
character, that it is almost physically impossible to alter
in the practical exigencies of the case.

The charging of a lower fare to those purchasing the
mileage book, if it is not confiscatory in nature, does not
work an injury to the parties who pay the higher fare.
The contrast between=this phase of the situation in the
passenger travel, and the similar phase of the situation
in freight traffic, is very marked. If one person in a

98

local community is charged a lower rate than his com.
petitor in the same community for the shipment of the
same commodity, that individual obtaining the lower
freight rate can possibly drive his competitor out of bugi.
ness. The constant margin or handicap the party with the
lower freight rate has in the handling of his goods ip.
creases as the volume of the goods which he handles jn.
creases. Therefore, the discrimination or difference jp
the freight charge has a powerful effect on business. 0p
the other hand, a passenger who travels an average about
300 miles a year and is charged 3.6 cents per mile has
a total cost per year of $11 or $12. A 20 per cent reduction
would not stimulate or depress his business activities. Op
the other hand, to the large manufacturer or wholesaler
having several score or several hundred traveling men
throughout the nation, this would be of vital importance—
both to the employer and the employe. It might mean
thousands of dollars to a single enterprise. It might con-
stitute the margin or difference between success and
failure, between activity and idleness.

The fact that his neighbor, who travels 2,500 miles a
year gets a lower fare than the party who travels 300
miles a year at a cost of $10.80 can have no possible
effect on the development of the business of the latter
individual.

If the party receiving the scrip book and travelling his
2,500 miles is compelled to pay the higher fare, the other
individual travelling the 300 miles has gained nothing.

One furnishes eight times the travel furnished by the
other. All the overhead costs, all the general expenses,
all the interest and return on investment in terminals
and roadbed and equipment are less per unit for the
larger amount of travel.

99

This differeace in the effect on freight traffic and on
passenger trafic of different rates and charges, and the
resulting creation of unjust discrimination was expressed
by the Court in the Party Rate Case many years ago,
when it said:

_ “Tf for example a railroad makes to the public
generally,a certain rate of freight and to a particular
individual residing in the same town a reduced rate
for the same class of goods, this may operate as an
undue preference, since it enables the favored party
to sell his goods at a lower price than his competi-
tors, and may even enable him to obtain a complete
monopoly of that business. Even if the same re-
duced rate be allowed to everyone doing the same
amount of business, such discrimination may, if car-
ried too far, operate unjustly upon the smaller deal-
ers engaged in the same business and enable the
larger ones to drive them out of the market.

‘“‘The same result, however, does not follow from
the sale of a ticket for a number of passenger at a
less rate than for a single passenger; it does nui op-
erate to the prejudice of a single passenger, who ean-
not be said to be injured by the fact that another is
able in a particular instance to travel at a less rate
than he. If it operates injuriously toward any one it
is the rival road, which has not adopted corresponding
rates; but, as before observed, it was not the design
of the Act to stifle competition, nor is there any legal
injustice in one person procuring a particular serv-
ice cheaper than another.’’ (Party Rate Case—IJnt.
Com. Com. v. B. & O., supra, 280.)

Referring to the lack of injury or damage to other

individuals, the Court said as to party rate tickets:
“Tf these tickets were withdrawn, the defendant

road would lose a large amount of travel, and the

single trip passenger would gain absolutely noth-
~ ing.’’? (Zd., 281.)

100

History oF PasseNGER FaREs.

A concise history of passenger traffic and the charges
which have been collecte? by the carriers in the past, was
contained in the decisioa of the Court in the Party Rate
Case, supra.

The application of the postage stamp theory to the
passenger traffic by the railroads did not come until
we entered the World War in 1918. Many fares designed
to meet the condition of different kinds of traffic were
cancelled by the Director General when he took office,
Some were restored almost immediately, while others
have been gradually re-established. At the time of the
enactment of the Interstate Commerce Law originally
and ever since, up to 1918, it was customary for the
carriers, in order to encourage increased travel, and with
proper recognition of the relative volume of travel, to
give rates lower than those to which the regular one
trip tickets applied. The Court in the Party Rate Case,
listed these various forms of traffic. It will be noted
that the rates reduced have been restored on all of these
different classes of traffic, with the single exception of
that provided especially to meet the needs of the com-
mercial traveler. The language of the Supreme Court
is significant with respect to this situation:

‘But, whether these party rate tickets are com-
mutation tickets proper, as known to railway officials,
or not, they are obviously within the commuting
principle. As stated in the opinion of Judge Sage
in the court below: ‘The difference between com-
mutation and party rate tickets is, that commutation
tickets are issued to induce people to travel more
frequently, and party rate tickets are issued to in-
duce more people to travel. There is, however, no
difference in principle between them, the object in

101

both cases being to increase travel without unjust dis-
crimination, and to secure patronage that would not
otherwise be secured.’

‘“‘The testimony indicates that for many years be-
fore the passage of the Act it was customary for
railroads to issue tickets at reduced rates to passen-
gers making frequent trips, trips for long distances,
and trips in parties of ten or more, lower than the
regular single fare charged between the same points;
and such lower rates were universally made at the
date of the passage of the Act. As stated in the
answer, to meet the needs of the commercial traveler
the thousand mile ticket was issued; to meet the
needs of the suburban resident or frequent traveler,
several forms of tickets were issued. For example,
monthly or quarterly tickets, good for any number
of trips within the specified time; and ten, twenty-
five or fifty-trip tickets, good for a specified number
of trips by one person, or for one trip by a specified
number of persons; to accommodate parties of ten
or more, a single ticket, one way or round trip, for
the whole party, was made up by the agent on a
skeleton form furnished for that purpose; to accom-
modate excursionists traveling in parties too large
to use a single ticket, special individual tickets were
issued to each person. Tickets good for a specified
number of trips were also issued between cities where
travel was frequent. In short, it was an established
principle of the business, that whenever the amount
of travel more than made up to the carrier for the
reduction of the charge per capita, then such re-
duction was reasonable and just in the interest both
of the carrier and of the publie.’’ (Jd., 279.)

With the party rate ticket at issue the Court has made
the foregoing statement. With the scrip books at issue
we should like to add, with due respect:

The differences between commutation, party rate and

interchangeable mileage tickets are, that commutation
tickets are issued to induce people to travel more fre-

102

quently; party rate tickets are issued to induce more
people to travel; and interchangeable mileage tickets are
issued to induce more people to travel more- frequently,
There is, however, no difference in principle between
them, the object in all cases being to increase trayel
without unjust discrimination, and to secure patronage
that would not otherwise be secured.

This great body of commercial and professional men
of the country who will use this scrip book will stimulate
travel. These commercial men are the emissaries of busi-
ness. They are the men who furnish the bulk of the
freight that the railroads haul. The drastic increase in
passenger fares which forced thousands of traveling men
to be retired to the idle class was one of the unfortunate
events of recent history; this helped to bring on the
commercial depression that we have passed through. No-
body is suggesting here that this was the controlling
factor; but it was unquestionably a contributing factor
of large importance, and it should be removed.

103

y. THE CARRIERS HAVE FAILED TO PROVE THAT
THE REDUCED FARES ORDERED BY THE COMMIS.
SION ARE NON-COMPENSATORY.

In order to overthrow this order of the Interstate
Commerce Commission on the ground that the fares are
enfiscatory, the carriers have not gone to the trouble
of ascertaining the expenses of the traffic under consid-
eration; and they have not ascertained any actual or
estimated value of the property devoted to this service.

On this record there is not even an approach to a
showing that the fares ordered would be confiscatory, in
accordance with the customary methods adopted in the
many railroad and public utility cases that have come
before this tribunal.

Before any order of a state or national legislative
body or commission is overthrown on the ground that
the rates are non-compensatory or confiscatory the usual
curse is to show the value of the property devoted to
the service and the expenses of the traffic at issue, with
the resulting net revenues applicable to that property.
Inthe leading case of Smyth v. Ames (169 U. S. 466, 42
L. Ed. 819), a failure to make the proper segregation
for state traffic was fatal to the complainant. This
ius been followed by many other decisions of like tenor.

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104

THE RATES AT ISSUE PRODUCE A SUBSTANTIAL PROFIT
ABOVE EXPENSES.

While many references are made by counsel for the
carriers to the confiscatory character of the rates, yet
the only attempt on this record to substantiate the claim
is a computation, based upon an erroneous premise,
And the said'‘computation involves no allocation of prop.
erty to the traffic under consideration.

On pages 7 and 8 of their brief counsel for the carriers
say:
‘‘The Commission found that the operating ratio
for passenger service at the standard rate of 36
cents per mile for the year 1921 was 85.24 per cent.
That is, of every 3.6 cents, 85.24 per cent was re-
quired to pay operating expenses; in other words,
that, for every mile for which the carriers received
of a passenger 3.6 cents, it cost the carriers over
3.06 cents to transport him. The requirement that
interchangeable tickets should be sold at a reduced
rate equivalent to 2.88 cents per mile results in re-
quiring the transportation of passengers riding on
such tickets at a loss of more than .18 cents per
mile.’’

In this computation carriers have referred to the
‘*present standard rate of 3.6 cents,’’ whereas we have
seen that 75 per cent of the travel is carried today on
rates which average 2.84 cents per mile.

In the foregoing computation the carriers assume that
85.24 per cent of every 3.6 cents was necessary in order
to pay operating expenses. That assumption is based
on an interesting misinterpretation of what the Commis-
sion held. Counsel say that the Commission found that
the operating ratio for passenger service ‘‘at the present

105

standard rate of 3.6 cents per mile for the year 1921 was
8.24 per cent.’’ That operating ratio was the average
of all passenger traffic. If it were true that every pas-
senger paid 3.6 cents per mile that application of the
operating ratio would be correct. As a matter of fact,
however, every passenger does not pay 3.6 cents per
mile, as can very readily be demonstrated. Commis-
sioner Daniels, in his dissenting report (77 I. C. C. 219),
says that the gross passenger revenue for the first six
months of 1922 was approximately $500,000,000. In the
opinion of the majority, at page 203, revenue passenger
miles are shown to be 16,487,000,000 for the same pe-
riod. Dividing one figure into the other produces an
average per passenger mile of 3.03 cents instead of 3.6
ents. Applying the operating ratio of 85.24, which the
record shows was for all passenger traffic, to 3.03 cents,
produces an average expense per passenger mile of 2.58
instead of 3.06 cents as stated by counsel for the car-
riers. This computation based on the carriers’ own fig-
ures discredits their argument of confiscation.

The absurdity of counsel’s claim of operating expenses
averaging 3.06 cents per passenger mile, is demonstrated
by simply applying that cost to the total passenger miles
during the first six months of 1922, as shown in the Com-
mission’s report at page 203—16,487,000,000. Multiply-
ing these two factors we find a total operating expense
for the passenger traffic of $504,502,200; this is larger
than the total passenger revenue for the six months in
question, which, as previously stated, was approximately
$00,000,000.

In other words that claim of counsel that 3.06 cents is
the average cost per passenger mile would produce an
operating ratio of more than 100 per cent for the pas-

106

senger traffic as a whole, whereas the Commission found
the operating ratio to be 85.24.

If the cost were 3.06 cents on all branches of the pas.
senger traffic, then every excursion hauled, and every
commutation service rendered result in loss to the ear.
rier.

This error on the part of railroad counsel is simply
a mathematical mistake. There can be no issue between
us as to basic figures, or what those figures purported
to show.

Counsel for the carriers on page 84 of their brief before
the lower court make a similar comment to that quoted
above, in the following words:

‘‘The order is void because it prescribes non-com-
pensatory rates. The Commission, as stated above,
found that for the year 1921 the passenger operating
ratio of Class 1 roads was 85.24. This means that
out of every dollar of passenger operating revenue
85.24 cents were spent to meet the cost of service.”
(Carriers’ Brief, 84.)

The Commission never made a finding to that effect.
There is a wide range in the handling of passenger traffic.
Contrast the commutation service, which has received
such extended consideration in the decisions, with the
crowded passenger coaches going from the large cities
to the suburbs, and the attendant special equipment, ex-
pedited movement, extra labor, expensive congested ter-
minals at the great cities, expensive right of way in
cities and suburbs, costly maintenance, overhead cross-
ings, elevated tracks, ete., ete., which do not exist on 4
local movement of a passenger car out on a branch line,
or on a main line of the same railroad far from any
congested center, moving at ordinary speed, in a regular
train.

107

But the large volume of traffic in the commutation
service means that the company can handle that traffic
on a smaller margin. The operating ratio might be 95
or more and there still be a substantial profit in the en-
terprise.

The comments just made as to commutation service
apply equally to an excursion where the railroad has to
put on extra equipment, moving empty passenger cars
perhaps several hundred miles to a point where they are
needed to accommodate crowds that are going on the
excursion. Special trains have to be fitted up for that
service, hours have to be changed and revised, new men
employed, ete.

Contrast the cost of a crew handling an excursion train
with the cost of a cheap coach on the end of a mixed
freight and passenger train on a branch line. The varia-
tion in cost is very large.

The Commission’s finding was that the operating ratio
of 85.24 applied to the passenger revenues, as a whole.
There is no foundation on this record for assuming that
percentage also applies separately to each branch of the
passenger service. To claim that this applies to every
dollar, as phrased by counsel for the railroads, is an
absurdity. It would be like finding the operating ratio
in the freight traffic, and then deducing from that fact,
that the operating ratio corresponds to that precise figure
in the handling of ccal, as well as in the handling of
oil, or dry goods, or any other kind of specific traffic.
Such an assumption is untenable. If a party were at-
tempting to prove that the rates on coal are confiscatory,
no court would listen to the claim that the operating ratio
on all traffic showed the costs of handling coal.

We know from the record that the revenue from pas-

-————

108

senger traffic in the Eastern district averages 3.03 cents
per passenger mile. The record shows that the operating
ratio in 1921 was 85.24, therefore we know that the costs
averaged 2.58 cents per passenger mile.

The burden of proof rests on the carriers. They have
established these figures, and they have not shown the
cost averages any more on the passenger travel at issue,
than on all passenger travel in the district. A cost of
2.54 cents per passenger mile compared to a revenue of
2.88 cents leaves a substantial profit of slightly more than
10 per cent. We cannot tell from the record what that
would produce on the value of the property devoted to
this traffic.

From the record we cannot determine with certainty
that even these figures are accurate. We are dealing
with averages on all passenger traffic, and not with actual
cost of the traffic at issue.

The analysis of operating ratios instead of returns a
value, will be a novel departure in the discussions on con-
fiscatory rates.

RATES MUST YIELD SOME SUBSTANTIAL PROFIT, AND THE
LAW DOES NOT REQUIRE THE SAME PROFIT ON ALL
TRAFFIC.

The operating ratio on the passenger traffic is larger
than the operating ratio on the freight traffic, but that
proves nothing as to the relative desirability of, or prof-
its from, the passenger traffic compared to the freight
traffic.

The packers, with an operating ratio of over 95 per
cent, have the reputation of béing quite successful. The
real issue is not what portion of the gross revenues can

109

be considered net profits; the question is, what is the ratio
between those net profits and the value of the property
devoted to that service? Ten per cent of the gross pas.
senger revenue applied to the property devoted to the
passenger service may produce twice as large a per cent
of return on property, or one-half as large a per cent of
return on property, as the 20 per cent of gross earnings
in the freight business averages on the property devoted
to the freight traffic.

The use of the roadbed has been frequently referred
to as fairly apportioned between different classes of
trafic in accordance with the ton miles and passenger
niles using the same. Likewise, the use of terminals, it
has been said, may fairly be reflected by the number of
passengers and tons using the same. Unfortunately a
ton of passengers compared to a ton of freight is not a
very intelligible comparison. Frequently in railroad ac-
counting it has been assumed that three passengers are
quivalent to one ton of freight, not that the weight of the
passengers is the test, but that the weight of the passen-
rrs plus the dead weight of the car necessary per pas-
snger, and other extra expenses per passenger added,
produce a total which justifies the ratio of 3 to 1 in the
illocation of certain common expenses. The revenue
from three passenger miles at 3.6 cents is 10.8 cents,
‘mpared to the revenue from a ton mile of freight traffic
if from 1 to 1.4 cents. Here we see a revenue from the
passenger traffic many times as large as that from the
freight traffic.

It would be erroneous to assume that the operating
tatio which was found to apply to passenger traffic as a
thole also applied to the particular rates collected in
ach branch of the passenger traffic. It applies only

110

to the revenues collected from all the traffic in the
aggregate. The operating ratio on commutation traffic,
of course, would be much larger than the operating ratio
derived from the 3.6 cents revenue. This is not im.
proper. The carrier can well afford to handle a large
volume of business on a small margin. The operating
ratio on an excursion, where the ears are packed to the
platform might be greater per individual, but here again
the carrier can afford to handle the large volume at a
small margin. The very large extra expense of furnish.
ing the extra cars and engines and the labor of side.
tracking other trains to make way for the excursion train,
the extra clerical help, ete., all add to the expense, but
those additional expenses are absorbed if the volume of
traffic is large enough.

We repeat that it is erroneous to say that the Com.
mission found the operating ratio applicable to the 36
cent fare was 85.24. No such finding can be secured from
the statistical records of the Interstate Commerce Com-
mission, and no citation of such authority is given by the
carrier.

That is the operating ratio of all passenger traffic as
a whole. It would be just as absurd for a railroad to try
to impeach proposed freight rates on corn as being con-
fiscatory, by claiming before the court that the operating
ratio on all freight traffic was 80 per cent, and therefore
a 25 per cent reduction in corn rates would be confisca-
tory.

It would be just as absurd to try to prove that John
Smith is 5 ft. 10 inches tall by proving that that is the
average height of all men; or, that Tom Jones is going
to die at the age of 33 years, because that is the average
life of all men.

111

An analysis of this passenger travel, independent of
commutation, excursion and other special forms of travel,
could have been made in the accounts of the carriers for
a given period of 30 or 60 days on certain representative
lines, and the probative force of such an analysis would
have been quite persuasive. But the carriers did not see
fit to undertake that task.

It would be wholly unfair to conclude that any particu-
lar revenue, Whether from a specific class of freight, or
from all freight, or from passenger traffic, or from the
total business within a state, or from any other class of
traffic, is confiscatory simply because of a certain operat-
ing ratio on all traffic. The controlling test is not the ratio
of expenses to earnings, but the zatio of net earnings to
property. That is the basis, the test used by this Court in
the scores of cases that have come up to it involving the
reasonableness of rates for public utilities and railroads
in cities, towns and states from all over the nation.

Mr. Commissioner Prouty writing the opinion for the
Commission in the Eastern Advance Rate Case of 1911,
dealing With the application of the railroads for an in-
crease in rates, discussed this factor of operating ratio
in the following manner:

‘‘The defendants have attempted to show that the
cost of operation has increased and will increase in
proportion to gross operating revenue. This is not
the question. Even though the percentage of net to
gross is less, still the total net may be more and the
percentage of net to value may also be more. We
are to determine whether the net return of these
carriers upon the value of their property devoted
to the public service will be sufficient without an ad-
vance in their rates.’? (Advances in Rates, Eastern
Case, 20 I. C. C. 243, 275.)

It may be claimed that in a recent case the court did

112

base conclusions on an operating ratio. In Norfolk ¢
Western v. Conley, 236 U. S. 605, the court held as fol.
lows:

‘*In making a reasonable adjustment of the car.
rier’s charges, the state is under no obligation to ge.
cure the same rate of return from each of the two
principal departments of business, passenger and
freight; but the state may not select either of these
departments for arbitrary control. Thus it would
not be contended that the state might require pas.
sengers to be carried for nothing, or that it could
justify such action by placing upon the shippers of
goods the burden of excessive charges in order to
supply an adequate return for the carrier’s entire
service. And, on the same principle, it would also
appear to be outside the field of reasonable adjust-
ment that the state should demand the carriage of
passengers at a rate so low that it would not defray
the cost of their transportation, when the entire
traffic under the rate was considered, or would pro-
vide only a nominal reward in addition to cost.”
(Norfolk & West Ry. Co. v. Conley, 236 U. S. 605,
609, 610; 59 L. Ed. 745.)

In this case the operating ratio on passenger, mail and
express traffic was found to be 97.42; and the leading
witness for the state conceded that if the express traffic
were eliminated the cost of the passenger traffic would be
very close to 2 cents a mile, which was the total fare pre-

seribed.

As previously shown, the fare of 2.88 cents compared
to the cost of 2.58 yields a profit of over 10 per cent.
There is quite a difference between a net of (100 less
97.42, or) 2.58 per cent, and a net of more than 10 per
cent shown in this record. But the net of 2.58 per cent
was not the final figure, because if express traffic were
eliminated practically all of that profit would be ab-

113

sorbed, according to the admission of the leading witness
for the state in that case. (Jd. 614.)

The use of the operating ratio as a test of confiscatory
rates has been in order to find whether or not there was
ay substantial profit and not if there was a_ profit,
whether that was adequate.

The decision in the Conley ease, supra, was rendered
at about the same time, and was based largely upon
VYorthern P. R. Co. v. North Dakota, 236 U. S. 585. In
this case the distinction drawn between the facts there
presented and those of Minneapolis & St. L. R. Co. v.
Minnesota, 186 U. 8. 257, also serves to distinguish the
Conley case from the present proceeding :

‘‘The case of Minneapolis & St. L. R. Co. v. Min-
nesota, 186 U. 8. 257, involved a rate fixed by the
Railroad and Warehouse Commission of the State
of Minnesota for the intrastate transportation of
hard coal in carload lots. There was no proof that
the carrier was compelled to transport the coal at a
loss or without substantial compensation. The prin-
cipal testimony, as the court observed, was intended
to show that ‘if the rate fixed by the commission for
coal in carload lots were applied to all freight, the
road would not pay its operating expenses, although
in making this showing the interest upon the bonded
debt and the dividends were included as part of the
operating expenses.’ It was said that it was ‘quite
evident’ that this testimony had ‘but a slight, if any,
tendency to show that even at the rates fixed by the
commission there would not still be a reasonable
profit upon coal so carried’ (id. p. 266) ; and this con-
clusion effectually distinguishes the case from the
one at bar.’? (Northern P. R. Co. v. North Dakota
ex rel., 236 U. S. 586, 601.)

The court in the North Dakota case, cites numerous
cases calling for the segregation of expenses and value,
where an attack is made on the rates applicable to a

114

portion of the traffic, rather than on the whole schedule,
In the present case the only competent evidence of record
demonstrates that the rates will produce substantia]
profits; but we are unable to determine the ratio of those
profits to the value of the property devoted to the service.
Under a subsequent heading we shall see that a substan.
tial increase in revenues can reasonably be expected from
these reduced fares, and that will farther augment the
profits we have described.

VOLUME OF TRAFFIC AFFECTED.

There is some doubt as to the accuracy of the carriers’
estimate that 30 per cent of the traffic will make use of
the scrip book.

It is true that Mr. Clink and other representatives of
the traveling men estimated 25 per cent of the traffic
would be on scrip books, but that was based, first, on a
reduced rate of 334 per cent, and second, on an increase
in the volume of travel by that amount.

The Commission’s finding as to the amount of traffe
which was affected by the mileage tickets prior to Fed-
eral control, as stated in their report at p. 206, omits
certain rather important clauses from the digest of this
evidence made by the carriers. For example, where the
Commission says ‘‘and at certain periods not less than
20 per cent of the total passenger revenue,”’ ete., the
words ‘‘on an average’’ are omitted as to the 20 per cent
estimate. Further, the Commission omits the statement
that in the Southeastern territory, where there was the
largest reduction in the fare (amounting to 20 per cent),

115

the volume of traflie affected was about 20 per cent, 1 of
ghich is Shown at pp. 29, 31, 32, 91, 107, 220, 221, 385 ond
386, on the record, as digested on pp. 14 to 16 of the ear-
riers’ brief before the Commission.

Twenty per cent would be a fairer reflection of the ree-
ord based on the experience of the past, than 30 per cent.
This would involve an error of one-third in amount in
all the carriers’ subsequent computations. However, for
the purposes of this argument, we shall use the 30 per
cent allowance.

The Commission adapts neither percentage specifically
in its discussion of the record,

INCREASES IN PASSENGER TRAFFIC.

The general tendencies in passenger traffic were shown
in evidence. The record justifies the claim that the pro-
posed reduction in fares will be accompanied by a sub-
stantial increase in traffic.

The Commission expressed a fundamental truth when
it said that other things being equal as prices are lowered
sales increase. (Com. Dee. 209.)

Notwithstanding the enormous growth and develop-
ment during the past few years, the constantly increasing
passenger fare has retarded passenger traffic.

A reduction or an increase in the passenger fare has
2 powerful influence on the traffic. There is a delicate
intimate relationship between the two. A striking illus-
tration of that fact is the table presented in the decision
of the Commission previously cited, on page 203. From

116

1916 to 1920 passenger miles increased more than 30 per
cent,—from 34,500,000 to 46,800,000. The year 1920 was
after the close of the war and was the year that wit-
nessed the most phenomenal decline in prices in Amer.
ican history. It was the period of transfer of the rail-
roads from government operation and control to private
operation, a period of uncertainty in business generally,
And yet, in 1920 we find a greater number of passenger
miles than in any other year in American history.

The advance of 1918 in passenger fares was at or about
the time of our entrance into the war, accompanied by
a tremendous business activity. When the advance came
again, in 1920, the burden was too heavy to carry. That
portion of the passenger travel which had to pay 3.4
cents suffered an increase of 80 per cent over rates paid
previously throughout large sections of the country. Pas.
senger traffic then dropped severely, and there has been
no subsequent reduction in passenger fares, although
there has been in freight rates.

Two years later, in 1922, there were less than
33,000,000,000 passenger miles, according to the figures
so far as this record shows; this was a less amount of
passenger travel than existed in 1916; and a less amount,
by 13,000,000,000 than existed in 1920.

From 1916 to 1920 the number of passengers per car
increased 25 per cent—from 16 to 20 persons. In 1922
the number of passengers per car dropped down to 15-~
a lower average per car than existed six years previously,
in 1916, and 20 per cent below the amount in 1919 and
1920.

The passenger traffic, due to the very nature of the
loading and unloading by the individual himself, to the
space in the car, and the physical situation, permits tre-

nag
set
msi

117

mendous expansion or retraction; and regardless of the
physical facilities the volume of the traffic is exceedingly
sensitive to commercial and other causes.

The carriers’ reference to Section 15-A evidences a mis-
conception of the purpose of the law, and of the purpose
of the order at issue in the case. An advance in rates May
decrease revenues. The rate reduction here at issue will
imerease revenues. After an extraordinary advance of
the character made in 1920, if the Commission’s hands
were tied as to any further readjustments which the Com-
mission would find warranted, Section 15-A would defeat
itself.

AN INCREASE OF ONE PASSENGER PER CAR WOULD MORE
THAN OFFSET THE ALLEGED REDUCTION OF $60,000,000 IN
GROSS PASSENGER REVENUES DUE TO THE ORDER OF THE
COMMISSION.

Carriers claim the 20 per cent reduction ordered would
affect present passenger revenues collected by 3.6 cent
fares, aggregating $300,000,000, thereby causing a reduc-
tion in revenues of $60,000,000 annually. In this com-
putation there is no allowance for increased traffic.. The
Commission finds ‘‘that some additional traffic would be
ereated by a scrip ticket at reduced fares may fairly be
assumed, although it is impossible to determine how
much.’’ (Commission’s decision, 209.)

During the first six months of 1922 the average pas-
sengers per car was 15. (Ante, p. 10.) One more pas-
senger per car paying 2.88 cents per mile would produce
in gross revenues an increase of $63,302,400. (16,487,-
000,000 passenger miles multiplied by 2 produces 32,974,-
000,000 passenger miles estimated for the year. Dividing

118

that by 15, we have 2,198,000,000 car miles. Assuming
one additional passenger per car at 2.88 cents per mile
produce the total stated == $63,302,400. For figures used
here, see ante, p. 10.) An increase of 7 per cent in gross
passenger revenues. ($1,000,000,000—used to determine
the 30 per cent of traffic affected—in carrier’s brief before
lower court ; see page 85) would produce $70,000,000 gToss,

With these basic figures in mind let us review the
claims of the carriers.

Counsel for the railroads stated before the lower court
that the estimated loss of $60,000,000 per annum was not
questioned by the Commission in its findings. (Carriers?
Brief, p. 94.) That same expression has been repeated
at several other places in their brief and petition. Asa
matter of fact, the Commission did not mention that
claim of the carriers in the text of the majority opin-
ion, except as it is contained in a table prepared by the
railroads and reproduced in the appendix attached to the
decision without comment, as the claim of the railroads.
Further, such a claim is based on the assumption that
there is no increase in the traffic whatsoever, which igs in
conflict with the following findings of the Commission
stated in its conclusion at page 209:

“It is a well-recognized rule in trade and con-
merce that, other things being equal, as the price of
an article is lowered the sales increase, And the
fact that for many years prior to Federal control
carriers voluntarily sold mileage books at discounts
ranging from 10 to 334 per cent is not without sig-
nificance. That commutation and excursion fares
create traffic is conceded by carriers. That some
additional traffic would be created by a scrip ticket
at reduced fares may fairly be assumed, although it
is impossible to determine how much.”’ (Commis-
sion’s decision, 209.)

119

The fact that the Court or Commission does not men-
tion the claim of a party to the case, is very, very far
from establishing the accuracy of that claim; in fact, it

is usual to deduce a contrary conclusion from such an
incident.

The carriers say in their Statement of Facts, ‘‘ Wheth-
er the sale of such tickets will produce a larger volume
of traffic the Commission finds to be wholly a matter
of speculation.’’. This comment does not fairly reflect
the conclusions of the Commission as a whole. On the
same page cited by counsel in the Commission’s decision,
page 209, we find the statement which we h
above.

The carriers have made an interesting serie
proximations in order to determine the
penses.

ave quoted

s of ap-
ir passenger ex-

On page 23 of their brief before the lower court counsel
make the claim that in order to offset their alleged loss
of $28,800,000 for the carriers parties to the case, occa-
sioned by this reduction, it will be necessary for four
nillion additional persons to travel; or, stated another
way, one hundred thousand additional] persons must each
make forty journeys 250 miles each inside of a year.
The figure 28,800,000 is simply an estimate based on the
assumption that the loss of the railroads complainant
will be on the same ratio as the alleged loss of sixty
million is to the total revenue of one billion in the United
States as a whole, or six per cent of the total revenues.
The details of this computation are stated elsewhere by
the carriers themselves in their brief. Consequently our
computations will be made upon the figures for the coun-
tty as a whole. Allowing these arbitrary percentages of
apportionment in each instance would get the figures for

120

the railroads complainant just as accurately as they
themselves have secured this figure, which is an estimate
pure and simple and takes no cognizance of increased
traffic, the relative density of traffic, the relative amount
of traffic in this territory which would be affected by
the order of the Commission, the actual passenger ey.
penses of this class of traffic, etc., ete. This method of
computation would be like a railroad within a state gi.
tempting to discredit an order of the state railroad com.
mission by using the revenues of the railroads as a whole
in the United States and finding some multiple to apply
to the various national figures in order to get the state
figures and then using this multiple on all factors. We
do not believe that the Supreme Court would ever give
serious consideration to such an attempt to nullify the
orders of a state legislature or of a state commission.
And yet that is precisely what the carriers in this brief
have attempted to do as to one portion of the passenger
traffic of the United States.

However, for the purpose of our computation, let us
use the method adopted by the railroads in this ease.

In order to discredit the possibility of the increased
traffic offsetting this alleged loss the carriers then at-
tempt to show the large volume of increased traffic which
would be necessary to create the offset. Their methods
of making this computation are quite ingenious. They
assume that every additional passenger mile must have
the same operating ratio as exists today. In other words,
in their assumption, their premise, they have assumed
the conclusion they are trying to demonstrate. By that
process we are simply reasoning in a circle. If the
character of the traffic we have under consideration were
that of excursion, or tourist, or convention, or commt-

121

tation, or other traffic of that character where additional
trains would be necessary to accommodate it, the rea-
soning might be justified. The kind of travel here under
consideration has no such characteristic. This traffic will
gradually invade the existing cars and trains. There will
be no appreciable increase in expense. That fact is the
very reason why the greater density or the greater vol-
ame added to an existing volume is of so much value to
the railroads; and, on the other hand, the loss of that
narrow margin has such a disastrous effect on the net of
the railroads. The investment in roadbed and equip-
ment and terminals have been made and the bulk of the
expense has to go on whether the passengers travel or
not.

An increase of 7 per cent in the passenger miles or an
increase of one passenger per car in the United States
would completely offset this sixty million dollars alleged
loss. In other words, instead of having fifteen passen-
gers per car as they did during the first six months
of 1922, if they had sixteen passengers per car as in
1916, the sixty million dollars would be completely ab-
sorbed, even after allowing for some increased expenses
that might be entailed.

On a subsequent page (24 of their brief) the carriers
attempt to make the computation as to the amount of
traffic necessary to offset the sixty million dollar alleged
loss. They conclude with this sentence: ‘This means
ten and a half billion passenger miles. Yet the Commis-
sion finds that the entire travel of all the people of the
United States in the year 1921 was only 37,000,000,000
passenger miles.’’ This computation is again based upon
the fallacy that the operating ratio would continue to
apply on the increased traffic the same as on the traffic

122

already existing. It is demonstrable by any table shov.
ing the situation for a normal period of years that the
increased traffic is accompanied by a decline in the oper.
ating ratio, and that decline in the operating ratio not
only applies to the increase in the traffic, but also is cor.
respondingly reflected back in the entire volume of trafic
handled. Considering this last computation, instead of
10,500,000,000 passenger miles being necessary to pro.
duce a revenue of $60,000,000, a simple mathematical
computation will demonstrate that 2,090,000,000 passen.
ger miles at 2.88 cents per passenger mile will produce
the $60,000,000. And, as previously outlined, an increase
of only 7 per cent in the passenger traffic of the country
could readily be absorbed in the existing cars and trains,
because of the character of the traffic with which we are
dealing.

In their argument carriers say: ‘‘There can therefore
be no reduction in cost per passenger because of handling
a greater volume of traffic. More traffic means more
equipment, more power, more cars, more cost.’’ (P. 27.)
It would be difficult to construct a more unreasonable
comment on transportation matters than the one we have
just quoted. A glance at the table contained in the Com.
mission’s decision will show that there were over nine
billion more passenger miles handled in 1919 and 1920
than in 1921, and yet it is a well known fact that the rail-
roads have increased their equipment during that same
period of time. There were more passenger miles handled
way back in 1917 and 1918 by several billion than were
handled last year. It is an elementary principle that an
increase in the volume or density of the traffic, up to the
time you reach the saturation point, results in reduced
costs per unit. The present situation on American rail.

123

roads is very far from the saturation point. The esti-
mate of passenger miles for 1922 shows approximately
33,000,000,000 based upon the experience of the first six
months. We could increase that by 13,000,000,000 or ap-
proximately 40 per cent without any increase in equip-
ment being necessary, because that amount was handled
in 1919 and 1920; this is on the condition that the said
increase in the passenger traffic would be well distribut-
ed throughout the country and not in the shape of excur-
sions and conventions.

COMMISSIONER DANIELS ON THE $60,000,000 FACTOR.

Commissioner Daniels says: ‘‘There would have to
be an increase in passenger revenue of $300,000,000 in
order to offset the alleged loss of $60,000,000.’’ This
computation is based upon the erroneous assumption
that the operating ratio on the increased traffic would
be 80 per cent. As we have elsewhere stated at length,
this increased travel brought about by the order at issue
would involve filling up the ordinary coaches of the ear-
ners, and would not require additional expenses of any
substantial character whatever. As evidencing this fact,
we call attention to the table contained in the opinion,
showing that the average number of passengers per car
during the last six months of 1922 (the latest period
available at the time the order was issued) was 15 pas-
sengers per car, which was the smallest average in the
entire nine years stated in the table. This travel is not
like that of commutation traffic where the cars are al-
ready full, and where additional passengers would neces-
sitate additional trains or additional ears. It is not
like the excursions where additional trains and cars are

124

necessary. It is incorrect to say that the operating ratio
on this additional travel would be a cipher, even though
it is true that the added expense would be nominal. The
operating ratio would be very substantial on any system
of accounting, even though there was no expense added
to their present expenses. What would happen would
be that there would be a shrinkage in the operating ratio
of the balance of the traffic, and in that way this operat-
ing ratio would be spread out over the whole. In the
production of this traffic there need be practically no
actual increase in expense whatsoever, aside from the
acounting and policing of the use of scrip tickets, which
has been estimated by the carriers for the nation at $1,
680,000, and that would not offset the interest on the
300,000,000 previously discussed.

The fallacy in the Commissioner’s reasoning is fur-
ther illustrated by the following. Let us compare the
years 1919 and 1922. Multiply by two the figures for the
first six months of 1922 in order to secure an estimate
for the year—this is the method used by the carriers in
this proceeding (in their brief before the lower court,
page 85, showing estimated revenue for the year, com-
pared to the figure for the first six months as stated by
Commissioner Daniels at page 219). We then have the
following factors:

Passengers per Passengers Revenue
train mile per car Passenger miles
ae 82 21 46,358,000,000
Wee isaks ss 60 15 32,974,000,000

(See Commission’s Opinion, page 203.)

125

Dividing the factors one into the other, we have:

Passenger Passenger Revenue pas-
« train miles car miles senger miles
1919 ..... .565,341,463 2,207 523,809 46,358,000,000
1922 .... . .549,566,666 2,198,266 ,666 32,974,000,000
1919 exceeds
ae 15,774,797 9,257,143 13,384,000,000

orlessthan3% or less than or 40.6 %
one-half of 1%

With practically the same number of car miles the ear-
riers handled over 40 per cent more passenger miles ; and
this enormous increase of 40 per cent in revenue passen-
ger miles was handled with an increase of less than 3
per cent in the train miles. If the Commissioner’s theory
were correct that an increase in traffic would be accom-
panied by an added expense of 80 per cent of the revenue
—if that theory be sound, then either the railroads were
much more efficient under Government Operation, which
the carriers very vehemently deny; or an increase of 40
per cent in traffic should have necessitated an increase
in passenger train miles of 200,000,000 instead of 15.,-
700,000; and there should have been a greater number of
car miles by 800,000,000 instead of 9,000,000.

If 40 per cent more passenger miles could be handled
with an increase of only 3 per cent in train miles and one-
half of 1 per cent in car miles, we contend that with the
superior efficiency of private operation an increase of 7
per cent in passenger miles could be handled with only
afractional portion of 1 per cent increase in train miles
and car miles, especially when that increase would be of
the character which the order in this proceeding would
stimulate, and especially when it would be realized by
an average increase of only one passenger per car, in
cars that today are almost one-half empty.

126

For these reasons we believe the reasoning of Com.
missioner Daniels as to the effect of the order, is up.
sound.

Commissioner Daniels mentions two roads having 50
per cent and 70 per cent, respectively, of their gross
revenue in passenger travel, and he calls special atten.
tion to the peculiar circumstances affecting this revenue
that would occasion a serious hardship if there should
not be the room for increased passenger travel in that
section to make the proper offset. Our reply to this
argument is simply that those two roads should file an
application and demand a hearing as to their peculiar
conditions, as contemplated in the Act, and it might very
properly necessitate a modified order just as the Com-
mission has made different orders as to freight reductions
and freight advances in cases applicable to the different
regions of the country. Even this step might prove to
be wholly unnecessary. Railroads in New England are
in keen competition with the interurban traffic; and as the
result of the test of the law, the scrip book might bring
back to the railroads a substantial amount of the passen-
ger travel that they are losing to the interurbans. This
question can be ascertained only by the experiment or
test of the law for a reasonable period.

THE ADDITIONAL COST OF $1,680,000.

Counsel for carriers claim an operating expense of
$1,680,000 applicable to the handling of scrip books be-
cause of the selling, accounting and safe-guarding there-
of ; saying that this is additional to the cost of other pas-
senger traffic.

In this statement they fail to make any allowance for

127

the use of some $300,000,000 in money which they will
have use Of from a month to twelve months longer than
they will of the revenue from other forms of traffic. They
also fail to make any allowance for a decrease in the cost
of service per unit due to the increased volume of traffic.

The Commission mentions this item as an offset to
the interest on the $300,000,000 which the passengers
purchasing scrip books will have to advance, and con-
eludes that the evidence tends to show that the benefit
derived from the advance use of the $300,000,000 will
not equal this cost of $1,680,000. In this we believe the
Commission has made an error for the following rea-
sons. These coupons are good for one year. It is ad-
mitted that the average life of the scrip books will ap-
proximate 60 days. In other words, the carrier will have
the use of $300,000,000, on an average, two months longer
than money ordinarily received from other passenger
traffic. This will mean, at 6 per cent, approximately
$3,000,000 saved in interest annually. However, the car-
riers claimed that they are permitted today to hold funds
on interline traffic, because their accounts with other ear-
riers are balanced monthly. Consequently, they claim
wder the scrip coupon system they would have the
funds on an average only one month longer than at the
present time. At 6 per cent this would approximate
$1,500,000 annually.

This argument is of no consequence whatsoever, for
the following reasons:

What one company gains by the monthly balancing of
interline accounts it loses with another company. One
hand washes the other. What we are here speaking of
are the railroads as a whole and their use of the passen-
gers’ money for periods ranging from a month to a year.

128

The carriers collectively do not have possession of
these funds from ordinary traffic a day before the travel
oceurs; while in the case of the interchangeable serip
book, they will have possession of the funds ranging from
thirty days to a year in advance of the time the travel
oceurs. The $3,000,000 interest is a net saving, without
any offset because of current interline accounting meth-
ods; and this more than equals the $1,680,000 represent-
ing additional clerical hire, ete.

The carriers in this proceeding made no effort to find
what was the value of the property devoted to the
passenger traffic. They have made not the slightest
attempt to show the ratio of earnings to property. They
have made no attempt to segregate the expense of the
traffic under consideration from other passenger traffic,
The case must fall of its own weight because of their
utter failure to even attempt to offer the evidence that
might be used to sustain their position. The burden be-
fore this Court is on the carriers, not on the Commission,
You cannot guess important factors of this character
when it is proposed to defeat an Act of Congress, or of
the Interstate Commerce Commission on the ground that
the fares ordered are confiseatory,

129

VI. THE EXEMPTIONS FROM THE ORDER MADE BY
THE COMMISSION ARE REASONABLE AND JUST.

Carriers claim that the exemptions from the order di-
rected by the Commission are arbitrary and unreason-
able, that they create discriminations between the car-
riers, and that they constitute an unlawful attempt to
exercise legislative powers delegated by Congress.

Counsel for the carriers, in their petition, speak of
several hundred railroads being exempted; and in their
brief they say:

‘‘There was clearly no contemplation of a blanket
exemption leaving out of the scope of the order more
than twice as many railroads as were included with-
in it. The power to exempt does not include the
power to discriminate against a minority by the
device of a general law with exceptions covering the
majority. The order, therefore, goes beyond the
power of the Commission under the Act.’’ (Brief
before lower court, pp. 87, 38.)

The impression there given is that over twice as much
of the transportation system of the United States is
exempt from the order as that which is subject to the
order. Let us consider precisely what was done as to
these exemptions.

130

The Act provides that:

‘‘the Commission may in its discretion exempt from
the provisions of this amendatory act either in whole
or in part any carrier where the particular circum.
stances shown to the Commission shall justify such
exemption to be made.’’ (Ante, p. 7.)

The Commission exempted practically all carriers ex.
cept those belonging to Class I, which includes all rail.
roads reporting to the Commission having operating rey.
enues in excess of $1,000,000 annually.

The Commission in the original decision listed Class ]
railroads to which the order applied. In its final order
contained in the Supplemental Report, 10 of these were
excluded (most of these were outside of the Eastem
Group, and those in said group have very small opers-
tions), leaving 176 carriers subjected to the order.

This qualification was added:

‘Tf any of the carriers exempted should hereafter
desire to establish, issue and maintain nontransfer.
able interchangeable scrip coupon tickets under the
conditions hereinbefore prescribed, our finding of
exemption will not preclude them from doing so.”
(Commission’s decision, 211.)

Counsel for the carriers are quite modest in their state.
ment that the Commission exempted ‘‘more than twice
as many railroads as were included within it.’’ (Car.
riers’ Brief, 87.) They should have said that the Com-
mission left out more than five times as many railroads
as were included in the order; 176 railroads were sub-
jected to the order, and 997 excluded.

The operating companies filing reports with the Com-
mission for the year ended December 31, 1920, were as
follows :

eT 383

1,173

(Parmelee affidavit before the lower court, dated April
7,1923.)

And yet the whole paragraph of the carriers’ brief
dealing with this is a sweeping overstatement and ex-
aggeration.

The impression as to the large volume of the American
railroad system exempted from the order, which the car-
riers’ brief seeks to give, is entirely erroneous. In the
afidavit of Julius H. Parmelee, dated March 20, 1923,
before the lower court (sheet 2) it is stated that 98.39
per cent of the net railway operating income of all the
carriers of the Eastern group is represented by Class 1
roads. In other words, the railroads exempted by the
Commission have approximately 1.61 per cent of the net
income of all the carriers involved. And many of those
handle no passenger traffic. The probabilities are that
the exempted carriers in the Eastern Group handle less
than one-half of one per cent of the interstate passenger
traffic. In dealing with the situation in the country as
awhole, or in the Eastern group as a whole, such an order
by the Commission would seem to be well founded and
just.

At various places the carriers make criticism of these
exemptions directed by the Commission. The reasons
cited by the Commission for the exemptions made are a
sufficient answer to these contentions. The principal
reasons, says the Commission, ‘‘assigned for exemp-

ERR
*

132

tion by the short lines, the electric, and the SWitching
and terminal carriers, are that they are engaged chiefly
in intrastate commerce, that their passenger traffic is
negligible, that they do not honor or sell passenger tick.
ets to and from points on other lines, that they have
no passenger train service, and that there will be little
or no demand of them for interchangeable scrip or mile.
age tickets. We are of the opinion that the particular
circumstances shown to us warrant the exemption of all
carriers by rail which are not included in Appendix (.”
(Commission’s decision, 211.)

Counsel say Congress has attempted to delegate leg.
islative functions, because no sufficient standard has been
set up for the exemptions.

When the Commission was authorized under Section 1
of the Act to establish just and reasonable maximum
rates, the standard set up by the statute was very meagre
—this was necessarily so. The exigencies of the case
made this inevitable. Likewise under this amendment to
Section 22, the Congress could not specify the details
warranting exceptions; that was wisely and lawfully left
to the Commission. The method adopted is the prac-
tical and only one workable under the circumstances.

Another objection to the exercise of this authority
goes to the claim that the carrier itself is permitted to
decide whether it shall be subject to the act or not, coun-
sel saying:

‘*The Commission delegated to each and several
hundred carriers to determine the question whether

they should or should not become subject to the law.”
(Petition, p. 23.)

That is not a correct or fair statement of the order
of the Commission. The Commission provided that the

133

listing of the carriers as exempt would not preclude such
carriers from issuing the tickets under the conditions pre-
scribed. In other words, the Commission rules that they
are not compelled to charge the higher rate. Certainly
that does not preclude them from so reducing their rates
if they wish. Precisely the same thing is true of every
maximum rate established by the Commission. The car-
riers may charge a lower rate if they so desire.

By this order the Commission has exempted the car-
riers from the rule prescribed. No action of the carrier
can change that exemption from the order. No discretion
in that respect is granted. But each and every carrier is
permitted to charge any rate which is below the maxi-
mum if it so desires. In this case we have no attempt on
the part of the Commission to prescribe a minimum rate.

Counsel say that the order discriminates between car-
riers because of two carriers handling freight, one can
charge only 80 per cent of what the other is permitted
to charge for similar service. It is common knowledge
that the railroads are distributed into different classes
in practically every state in the Union, and a certain per-
centage of increase is allowed for the smaller weaker
roads. The justification for the difference is the differ-
ence in conditions.

Carriers except to a classification of the railroads on
the earnings basis and place relia~ce upon the decision
of the Court in Cotting v. Kansas City Stock Yards, 183
U.S. 79, as supporting the doctrine that a classification
of stock yards on the basis of business done was errone-
ous and void:

“In Cotting v. Kansas City Stock Yards Co., 183

U.S. 79, the state argued (p. 103) that it was proper
to classify stockyards on the basis of business done

134

because rates may be made lower in a plant where
the volume of business is large, while in a smaller
plant higher rates may be necessary in order to af.
ford adequate returns; but the court held unanimous.
ly that this classification was void.’’ (Carriers’
Brief, 33.)

Many doctrines and principles were discussed by Mr. °
Justice Brewer in this decision. But the limitations upon
this decision so far as it can be taken as a precedent,
have been expressed in a subsequent decision of the
Court as follows:

‘*While the opinion of Mr. Justice Brewer covers
a wide range of discussion, a majority of the court
(p. 114) placed the decision upon the ground that
the statute of Kansas applied only to a single com-
pany, and not to others engaged in like business in
the state, and thereby denied to that company the
equal protection of the laws.’’ Arkadelphia Milling
Co, v. St. Lows S. W. R. Co., 150 U. 8. 134, 150, 63
L. Ed. 517, 526.

Exemption of the short line and electric railroads in
the Adamson Eight Hour law was held not to consti-
tute a violation of the principle of the equal protection
of the laws. This objection of the railroads was sum-
marily dismissed in a sentence to the effect that it had
been ‘‘disposed of by many previous decisions.’’ Wil-
son v. New, 243 U. S. 332, 354, citing Dow v. Beidelman,
125 U. S. 680; Chicago R. I. & P. v. Ark., 219 U.S. 453;
Omaha, etc., R. v. I. C. C., 230 U. S. 324; Ches. & Ohio v.
Conley, 230 U. S. 513; St. Louis, I. M. & So. v. Ark., 240
U. S. 518.

In the Minnesota Rate Case, 230 U. S. 352, the Su-
preme Court sustained the schedule of rates established
by the Minnesota Railroad & Warehouse Commission to
two of the carriers and did not sustain said schedule as

135

applicable to a third carrier, the distinction being based
on revenues.

In Chicago, Burlington & Quincy v. Cutts, 94 U. S. 155,
the carrier attacked the constitutionality of a statute in
Jowa regulating the railroads. One feature of the law
yas the classification of the railroads in accordance with
their earnings, and this was sustained. Covering the ob-
jection the Court, through Chief Justice Waite, said in

part:

‘*The statute divides the railroads of the State into
classes, according to business, and establishes a maxi-
mum of rates for each of the classes. It operates
uniformly on each class, and this is all the Consti-
tution requires. The Supreme Court of the State,
in the case of McAunich v. R. R. Co., 20 Iowa 343, in
speaking of legislation as to classes, said: ‘These
laws are general and uniform, not because they op-
erate upon every person in the State, for they do not,
but because every person who is brought within the
relation and circumstances provided for is affected
by the law. They are general and uniform in their
operation upon all persons in the like situation, and
the fact of their being general and uniform is not
affected by the number of persons within the scope
of their operation.’ This Act does not grant to any
railroad company privileges or immunities which,
upon the same terms, do not equally belong to every
other railroad company. Whenever a company
comes into any class, it has all the ‘privileges and
immunities’ that have been granted by the statute
to any other company in that class.

‘*It is very clear that a uniform rate of charges for
all railroad companies in the State might operate un-
justly upon some. It was proper, therefore, to pro-
vide in some way for an adaptation of the rates to
the circumstances of the different roads; and the
General Assembly, in the exercise of its legislative
discretion, has seen fit to do this by a system of
classification. Whether this was the best that could
have been done is not for us to decide. Our prov-

bt A ip nly

Bre a

136

ince is only to determine whether it could be done
at all, and under any circumstances. If it coul
the legislature must decide for itself, subject to no
control from us, whether the common good requires
that it should be done.’’ (Jd., 163, 164.)

137

Vil. A TEST OF THE RATES IS JUSTIFIED.

No person can foretell with certainty the effect that
amy rate reduction or rate advance will have. The res-
tration of interchangeable mileage tickets at a reduced
fare from the present basis will have a wholesome effect
ad will stimulate traffic; but as to how much that will be
amot be determined without an actual test. There is
nothing illegal or unusual about a specified period in
vhich to try out a schedule of rates, especially where the
widence before the court as to the alleged confiscatory
tharacter of the rates is so profoundly lacking as in the
present proceeding, and also where the rates ordered are
higher than the average derived from the balance of the

traffic.

Counsel urge that the experiment will gather informa-
tion of little avail in the determination of these issues.
fren though we find out how many more people use the
stip coupon books, they ask how would that indicate
that they would have traveled had not such tickets been
purchased? Most of our statistical researches deal with
probabilities and not with certainties so far as the future
seoncerned. Of course, it cannot be told with certainty
tow much these parties would have traveled without the
aistence of the order. Nevertheless, if it be ascertained

138

that 25 per cent of the passenger travel uses the scrip
coupon tickets as estimated by the carrier in this pro-
ceeding and this is accompanied by no corresponding
decline in the actual number of passenger miles of the
balance of the travel, it will be indicative of the fact that
additional travel has been created and not that a given
amount of travel has been transformed from that using
the ordinary ticket to that using the scrip book.

This same issue was presented in the Towers case
(Pennsylvania R. Co. v. Towers, Maryland, April 16,
1915, 94 Atl. Rep. 331). In discussing the proposition
the court said:

‘*It may turn out as the result of the revision of
these tariffs that there will be more monthly tickets
sold and fewer of the 100-trip tickets, but all of this
is to a very considerable degree a matter of conject-
ure merely. The true test of the effect upon the
revenue of the changes made must, and can only, be
the test of time and practical experience.’’ Penn.
sylvania R. Co. v. Towers, supra, 337.

In support of the conclusion adopting a practical test of
the rates several decisions were cited in the Towers case
which are very much in point in our discussion. Mr. Jus-
tice Woods, in Tilley v. Railroad Company, 5 Fed. 641,
after discussing the somewhat uncertain testimony as
to the remunerative character of the tariff at issue, said:

‘‘Which view is the correct one it is impossible to
decide upon the evidence submitted. There is, how-
ever, a conclusive way, and it seems to me that it is
the only one, by which this controversy can be set-
tled, and that is by experiment. A reduction in rail-
road charges is not always followed by a reduction
of either gross or net income. It can soon be settled
which is right—the railroad company’s officers or
the Railroad Commission—in their view of the ef-
fect of the commission’s tariff of rates, by allowing

139

the tariff to go into operation. If it turns out that
the views of the railroad company are correct, and
that the schedule fixed by the commission is too low
to afford a fair return upon the value of the road, the
remedy is plain, for the law makes it the duty of the
commissioners ‘from time to time, and as often as cir-
cumstances may require, to change and revise said
schedules.’ ’’ (Jd., 663.)

In the celebrated Knoxville Water case, 212 U.S. 1,
the Court said:

‘The courts, in clear cases, ought not to hesitate
to arrest the operation of a confiscatory law, but they
ought to refrain from interfering in cases of any
other kind. * * *

If hereafter it shall appear under the actual opera-
tion of the ordinance, that the returns allowed by
it operate as a confiscation of property, nothing in
this judgment will prevent another application to
the courts of the United States or to the courts of
the State of Tennessee. But, as the case now stands,
there is no such certainty that the rates prescribed
will necessarily have the effect of denying to the
company such a return as would avoid confiscation. ”’
(Id. 18, 19.)

In Willcox v. Consolidated Gas Company, 212 U.S.19;
33 L. Ed. 382, a similar issue was presented. The Court

said:

‘<Of course, there is always a point below which a
rate could not be reduced, and, at the same time,
permit the proper return on the value of the prop-
erty; but it is equally true that a reduction in rates
will not always reduce the net earnings, but, on
the contrary, may increase them. The question of
how much an increased consumption under a less
rate will increase the earnings of complainant, if at
all, at a cost not proportioned to the former cost,
can be answered only by a practical test. In such a
case as this, where the other data upon which the
computation of the rate of return must be based, are,
from the evidence, so uncertain, and where the mar-

aie CIEE

140

gin between possible confiscation and valid regulation
is SO narrow, we cannot say there is no fair or just
doubt about the truth of the allegation that the rates
are insufficient.’’ (Jd. 51, 52.)

In the syllabus of the decision appears the following:

‘‘A court of equity ought not to interfere by in-
junction with state legislation fixing gas rates be.
fore a fair trial has been made of continuing the
business under such rates.’’

This expresses in substance the conclusions of the
court. After citing these various decisions the lower
court in the Towers case concludes:

“In the case in which this opinion (referring to
the Willeox decision) was rendered, just as in the
case now under consideration, the court was asked
to intervene before there had been any actual experi-
ence of the practical result of the rates established.
So in the present case the test of experience will
soon make it clear whether the rate imposed by the
order of the Public Service Commission ean, in any
proper sense, be termed ‘confiscatory’ or compensa-
tory; if the latter, no injunction ought to issue,
while if not compensatory, beyond any doubt, an in-
junction should be granted.’’ Penn. R. Co. vy. Towers,
supra, 338.

In the New England Divisions case decided recently
(February 19, 1923), ‘‘the evidence left in the minds of
the Commission many doubts,’’ and the order was issued
subject to future modification. The provisional char-
acter of the order was attacked. Mr. Justice Brandeis,
speaking for the court, stated in the opinion:

‘“‘A hearing may be a full one, although the evi-
dence introduced does not enable the tribunal to dis-
pose of the issues completely or permanently; and
although the tribunal is convinced, when entering
the order thereon, that, upon further investigation,
some changes in it will have to be made. * * *
That the order is not obnoxious to the due process

141

clause, because provisional, is clear. If this were
not so, most temporary injunctions would violate
the Constitution.’’ New England Divisions Case,
Akron, Canton & Youngstown Ry. Co. v. United
States. ... U.S. .... ; 67 L. Ed. 308, 315.

In the present case, it must be remembered that the
Commission found a probability of increased traffic; and
furthermore that the rates prescribed were found to be
just and reasonable for this class of traffic. Commis-
sion decision, 210.

142

Vill. THE ORDER OF THE COMMISSION SHOULD No?
BE INTERPRETED AS APPLYING TO INTRASTATE
PASSENGER TRAVEL.

The order of the commission is attacked because of an
alleged attempt to regulate intrastate commerce. Neither
the statute, nor the order can fairly be interpreted as
applying to intrastate traffic. The Act under which the
order was made is a part of the Interstate Commerce
Act, which in turn excludes intrastate traffic, except under
conditions which have been the subject of much litigation
of late, and which are not involved in this proceeding.
The decision of the commission in the case at issue makes
no reference to intrastate travel, except in connection with
the short lines; then it is stated that the bulk of their
travel is intrastate in character, and they are excluded
from the order. The Commission does not specfically
exclude or include intrastate travel in its order; but
proper construction would interpret the order in harmony
with the powers of the Commission just as statutes of a
similar character are construed. Texas v. Eastern Texas
R. Co., 258 U.S. 204, 217; United States v. Del. etc., 213
U. S. 366.

A similar issue has arisen frequently in New York
State as to the constitutionality of state laws. Dillon v.

143

frie is a leading case in which this subject was consid-
ered. The court said in part:

‘‘We shall therefore confine ourselves at present
to the discussion of the defendant’s contention that
the Act is unconstitutional because it comprehends
railroads employed in interstate as well as intrastate
commerce. Nothing in the act itself makes its pro-
visions, in terms, applicable to interstate carriage
of persons or property. It should not be assumed,
- therefore,.if unconstitutionality would result, that
such was the intention of the legislature. A conflict
between the constitution and a statute will never be
implied. Cochran v. Van Surlay, 20 Wend. 365
Newell v. People, 7 N. Y. 9, 109; People v. Fisher,
24 Wend. 215. So also, a statute cannot be said to
be unconstitutional if it is not in direct and necessary
conflict with the constitution (Morris v. People, 3
Denio, 381) nor unless it cannot be supported by any
reasonable intendment or allowable presumption
(People v. Supervisors of Orange Co., 17 N. Y. 235).
‘A statute can be declared unconstitutional only
when it can be shown beyond reasonable doubt that
it conflicts with the fundamental law,’ and ‘until
every reasonable mode of reconciliation of the stat-
ute with the constitution has been resorted to, and
reconciliation has been found impossible, the statute
will be upheld.’ People v. Board of Sup’rs of West-
chester Co., 147 N. Y. 1, 16, 41 N. E. 563, 566.’’ (Dillon
v. Erie R. Co., 43 N. Y., Supp. 320, 325. See also
Purdy v. Erie R. Co., 162 N. Y. 43. 56 N. E. 508, 511.)

144

IX. THE REQUIREMENT OF INTERLINE CREDITs
DOES NOT CONSTITUTE A TAKING OF PROPERTY
WITHOUT DUE PROCESS OF LAW.

Paragraph XIX of Carriers’ petition claims the com-
mission’s order is void because it requires one carrier
without its consent, to furnish transportation upon the
credit of another carrier, which may entail losses, thereby
taking property without due process of law.

Such losses must mecessarily be a part of the costs of
the public service which the carriers are rendering. They
are an essential element of any national transportation
system operated by different private corporations. They
are an incident to the service that has been recognized
from time immemorial as a part of the burden they must
earry. The railway companies are constantly assuming
such credit in all interline shipments where accounts are
settled monthly; they are assuming such credit whenever
a car leaves a home line for another railroad. In the
lower court’s and in the commission’s decisions these
same principles have been approved.

A claim similar to the one presented by the carriers
on this subject has been repeatedly advanced in cases
dealing with the railroads collectively. The issue was
handled in a masterly manner in Atlantic Coast Line v.

ae als mit aes ee

145

Riverside Mills, 219 U. 8. 186, involving the liability
of the initial carrier under the Carmack Amendment.

The interline credits are a part of the responsibility
that carriers must assume when they undertake to en-
gage in interstate commerce.

‘‘The rule is adapted to secure the rights of the
shipper by securing unity of transportation with
unity of responsibility.’’ (Jd. 203.)

One of the early mileage book cases was decided by
the Supreme Court of Massachusetts, entitled, Attorney-
General v. Old Colony Railroad, 160 Mass. 62; 22 L. R. A.
122. This decision was rendered in 1893. The majority
held that the law was a valid exercise of legislative au-
thority, except in that it required one railroad to accept
the credit of another railroad on the interchangeable
mileage ticket. The court declined to hold the law un-
constitutional on the ground that it contained a delega-
tion of legislative power to the Board of Railroad Com-
missioners so far as determining companies that would
be exempt from the provisions of the Act was concerned.

In regard to the subject of interline credit the majority
opinion stated:

‘*The most formidable objections are that the stat-
ute authorizes one railroad to determine the condi-
tions on which another railroad must carry passen-
gers, and compels one railroad to carry passengers
on the credit of another.’’ (Jd. 119.)

In the majority opinion the court said, ‘‘We have been
referred to no judicial decision where any such legisla-
tion has been considered.’’ Mr. Justice Knowlton filed a
dissenting opinion, which was concurred in by Mr. Jus-
tice Holmes, now of the Supreme Court. The Justice
held that this ruling as to accepting the credit of other
tailroads, was a proper exercise of legislative power in

146

the premises, and he explains the doctrine ably in the
following language :

‘“It is a matter of common knowledge that every
railroad does business on the credit of other rail-
roads to a much larger amount than would ever be
done under a statute of this kind. But, suppose there
is a possibility of trifling loss in a case which might
arise under the statute, that does not render the
Statute unconstitutional. The question is rather
whether there is a probability of losses so large as
to make such a requirement plainly unjust and un.
reasonable as an interference with the ‘right of ao.
quiring, possessing and protecting property.’ I think
nobody can contend that there is such a probability,
Moreover, the very idea of the exercise of the police
power necessarily implies a greater or less interfer.
ence with the acquisition, use and enjoyment of pro
erty. Sawyer v. Davis, 136 Mass. 239, 49 Am. Rep.
27; Miller v. Horton, 152 Mass. 540, 10 L. R. A. 116.”
(Id. 123.)

Relative to the scope of this police power, the Justice
said:

‘*The property of railroad corporations is devoted
to the public use. The truth of this proposition is
nowhere questioned. Such corporations may exer-
cise the right of eminent domain by taking lands for
their roads against the will of the owners. The busi-
ness of providing highways and arranging conveni-
ences to enable people easily to pass from place to
place is a part of the public business which may
be done by the State. If the State grants franchises
and delegates the transaction of this business to cor-
porations, it retains the right to regulate the busi-
ness for the publie good in any reasonable way.”
([d.122.)

The dissenting opinion in that Massachusetts case of
thirty years ago expresses the law of today.

The lower court has correctly summarized the law in
this respect as reflected in Atlantic Coast Line R. Co. x

147

Riverside Mills, supra, 219 U. S. 186; Michigan R. Co. v.
Michigan Railroad Com., 236 U.S. 615 (concerning the
control over the interchange of cars), and St Louis S. W.
Ry. Co. v. U. S., 245 U.S. 136 (relating to the power to re-
quire joint rates); V. ¥. C. v. U. S. supra, 951, 954.

148

SUMMARY.

After the war there has been a struggle in all lines of
business to get matters back to. the pre-war basis, to re.
instate the customs and standards that had been grad-
ually evolved by generations of experience. This has ap-
plied to the railroad industry. The railroads have vol-
untarily reinstated many of the rules and regulations
and practices which were suddenly wiped away at their
instance, when the Director General took charge of the
railroads in 1918, But one of the hardest tasks the people
have had to perform is to have restored some form of
interchangeable tickets on conditions similar to those ex
isting prior to the war.

- The carriers today have in effect interchangeable scrip
coupon tickets of denominations of $15, $30 and $90, sold
at the standard one-trip fares, and interchangeable
among practically all railroads, except electric and short
line carriers. (Com. Dee., p. 205.) The Commission’s
order in this case undertakes to prescribe rates, rules
and regulations applicable to what the carriers them-
selves maintain at the present time. The Commission’s
order exempts the electric and short lines, as do the
carriers at the present time.

The rules and regulations proposed by the Commission
have been agreed to with but few exceptions, by the car-

EL NE LPR RRL T IN PE NTI

149

riers; and the issues are confined almost entirely to the
fare prescribed.

In the effort on the part of the railroads to defeat
the Act of Congress and the decision of the Interstate
Commerce Commission’s at issue in this proceeding, the
arriers rely chiefly on the following propositions: that
the order will create discriminations among passengers;
that the order will reduce passenger revenues to a con-
fscatory basis: and that the Commission misconstrued
the law.

In developing these various issues counsel for the rail-
roads have fallen into numerous errors, both of law and
of fact.

The carriers have failed to present to this court any
widence of the value of the property devoted to the ser-
vice under consideration.

The carriers have failed to present any evidence of
the expenses chargeable to this traffic, which is at issue.

In order to come within their interpretation of the
lake Shore decision, the carriers have claimed that the
Interstate Commerce Commission has established a
standard just and reasonable fare of 3.6 cents per pas-
enger mile for the United States as a whole, and that any
rate established by the Commission below that fare will
treate unlawful discriminations.

At the present time there is no fixed charge for pas-
wenger traffic throughout the United States, which has
ven established by Congress, the Commission or any
ither governmental body. (Ante, pp. 32-34, 45-48.)
Counsel for the railroads have made a basic error in this
respect. In addition to that, the railroads cannot be
heard to set up this complaint of discrimination between
passengers. (Ante, 41, et seq.)

150

The record shows that the prevailing fare for one trip
tickets is 3.6 cents per passenger mile, the average fare
for all passenger travel is 3.03 cents, the average fare
on 75 per cent of the travel in the United States (the por-
tion unaffected by the Commission’s order) is 2.84 cents,
and the average cost for all passenger traffic is 2.58 cents
per mile. (Ante, 33-39, 105.)

If the conditions have warranted such a large volume
of fares to be established for excursions, conventions,
commutation service, tourist service, etc., that the aver.
age fare paid on 75 per cent of the passenger travel of
the nation has been brought down to 2.84 cents per mile,
and if the average cost on all passenger travel is 2.58
cents per mile, we fail to see the force to the argument
that the Commission has created a special favored class
at unremunerative, confiscatory rates, when it requires
the carriers to haul the balance of the population at 2.88
cents per mile whenever an individual purchases a 2,500
mile ticket to be used within one year, which is an amount
seven or eight times greater than the travel of the aver-
age individual in the United States.

The carriers have made a number of mistakes of fact
other than those suggested above, including the follow-
ing:

First, they have exaggerated the amount of the rail-
road industry which has been exempted by the Commis-
sion from its order. (Ante, 129-131.)

Second, they have erroneously applied the operating
ratio of the passenger business, assuming that it was not
only true in regard to the passenger traffic as a whole,
but also as to each department of the passenger service,
and as to every dollar of passenger revenue. (Ante,

104.)

151

Third, the carriers claim that the order will cause
a loss of $60,000,000 in passenger revenue. This is
a computation based on two alternative assumptions:
(a) that 30 per cent of the passenger revenue (or 25 per
cent of the passenger miles) will be affected by the 20
per cent reduction, and there will be no increase what-
ever in the volume of travel in the United States by vir-
tue of the order; or (b) that the increased travel will
be handled at an average cost per mile approximating
that of the present travel. Both assumptions are unten-
able, and contrary to the weight of evidence before the
Commission and before the court. (Ante, 117 et seq.)

Fourth. Counsel for the railroads say that it will take
an increase of more than 25 per cent in passenger travel
before there will be any reduction whatever in the alleged
loss of $60,000,000 dearease in passenger revenues;
whereas, any increase at all in travel will in fact tend
to offset that loss, whether the increase is } of 1 per
cent or 40 per cent. An increase of only 7 per cent of
the travel, or an increase of only one passenger per
ear (and today these cars are almost one-half empty
on an average) will more than offset this entire $60,-
000,000. (Ante, 120.)

Counsel for the carriers place great reliance upon the
doctrine of the Lake Shore Case, holding that ‘‘The Leg-
islature having fixed a maximum rate at what must be
presumed, prima facie, to be also a reasonable rate, we
think the company then has the right to insist that all
persons shall be compelled to pay alike. * * *’’ Re-
gardless of the basic error of fact on the part of the car-
riers which makes that doctrine inapplicable to the pres-
ent proceeding, the doctrine itself is unsound, for the
legislature has the power to vary rates in accordance

152

with varying circumstances and conditions. The use
of the Lake Shore decision as a precedent should be
limited very definitely to the facts and circumstances
there presented; and to the extent that it is in error
on those facts, the Lake Shore decision should be over.
ruled. There is abundant precedent for such action ip
the treatment accorded to Cotting v. K. C. Stock Yards,
supra, in Arkadelphia Milling Co. v. St. L. S. W. R. Co,’
supra, and also the treatment accorded the decision in
the Lake Shore case, in the decision of this Court in the
Tower case, supra.

Counsel for the carriers have relied on doctrines stated
in the Lake Shore case which have not been accepted
as the law, but have been condemned in other decisions;
they have misinterpreted the decisions of the Interstate
Commerce Commission in the cases entitled: Increase
in Rates, 1920, and Reduced Rates, 1922, supra; they
have distorted the decision of the Supreme Court of New
Hampshire in State v. Railroad, supra; and they have
misapplied the doctrines of Cotting v. Kansas City Stock
Yards, supra.

Concerning the claims that the Commission based its

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386005_0387%3A5. Public record. Not legal advice.