Opinion — Railroad Comm. v. Eastern Tex. RR

se RR Ue Reale Se AI ERCP 6 SNaRNE Ronse

80 OCTOBER TERM, 1923.

Statement of the Case. 264 U.S.

4. The principle allowing a railroad company to withdraw its prop-

erty from public use that can be kept up only at a loss, is consist-

ent with the State’s power to regulate while the company con-

tinues to exercise the privileges of its charter. P. 85.

. The mere presence of a particular provision in the statutes of a

State relating to railroads, or even in a special act incorporating

a railroad company, does not suffice to show that the provision is

a part of the charter contract. P. 86.

6. When it becomes necessary to consider whether a State is attempt-

ing to deprive a litigant of property without due process, and the

question turns on the existence and terms of an asserted contract,

this Court determines for itself whether there is a contract and

what are its terms. /d.

7. Article 6676, Rev. Civ. Stats. 1911, of Texas, requiring all rail-

roads “ carrying passengers for hire,” to run certain passenger trains

and make certain stops, etc., is a mere regulation of passenger

service on roads in operation, and does not subject a railroad com-

pany, through charter contract or otherwise, to an absolute duty

to operate for its full charter period in face of a reasonable cer-

tainty of pronounced loss. P. 87.

8. Article 6625, Rev. Civ. Stats. 1911, of Texas, (Act of March 29

1889, c. 24) relates to the organization, rights and duties of corpo-

rations formed to take over, maintain and operate railroads sold

under judicial decree, ete., and the clause, in its proviso, “ nor shall

the main track of any railroad once constructed and operated be

abandoned or removed.” applies only to railroads so sold. P. &8.

283 Fed. 584, affirmed.

uw

APPEALS from two decrees of the District Court, the

first awarding a permanent injunction in the Railroad

Company’s suit, brought in that court, to restrain the

Railroad Commission of Texas, and others, from interfer-

ing with its right to abandon operation and dismantle

and salvage its property; the second, dismissing a bill to

restrain such abandonment, ete., brought by the State in

a court of the State and removed to the District Court.

See also 258 U. S. 204, where the same cases were passed

upon by this Court in another aspect.

Mr. W. A. Keeling, Attorney General of the State of

Texas, with whom Mr. Walace Hawkins an} Mr. Frank

— NEP ORERE TIO REET ee eT a

LRP EOI Te OR fom

UO P ALAN RPI: RESON NRT RNIN HAIR OT AS LEABR a an ee

RAILROAD COMM. v. EASTERN TEX. R.R. 81

79 Argument for Appellants.

Kemp, Assistant Attorneys General, were on the brief,

for appellants.

The Eastern Texas Railroad Company is under con-

tract to maintain and operate its railroad continuously

for the term of its charter. Dartmouth College v.

Woodward, 4 Wheat. 518; Northern Securities Co. v.

United States, 193 U. S. 347; Bullock v. Railroad Comm.,

254 U. S. 513; International, etc. Ry. Co. v. Anderson

County, 246 U. S. 424; Same v. Same, 106 Tex. 60;

Ricaud v. American Metal Co., 246 U. S. 304; Horn

Silver Mining Co. v. New York, 143 U. 8. 313; Robbins

v. Shelby Tazing District, 120 U.S. 489.

The Company is under statutory duty to maintain and

operate its railroad during the term of its charter. State

v. Enid, etc., Ry. Co., 108 Tex. 239; Enid, etc., Ry. Co. v.

State, 181 S. W. 498; State v. Sugarland Ry. Co., 163

8S. W. 1047.

The St. Louis Southwestern bought the stock of the

Eastern Texas, except qualifying shares, and has since

operated the road.

Regardless of the specific statute, and even if it be

correctly limited to “sold out” railroads, we submit that

the manner by which the St. Louis Southwestern came

- to own the stock of the Eastern Texas makes the statute

under such construction applicable. Chicago, etc., Ry.

Co. v. Minneapolis Civic Assn., 247 U.S. 490.

Because it is technically a separate legal entity, it does

not follow that the Eastern Texas is an independent

public carrier, free in the conduct of its business from the

control of the company which owns its capital stock,

furnishing its officers and electing directors. Article

6676, Tex. Rev. Civ. Stats. 1911, requiring operation of

trains from day to day, is applicable.

The federal courts usually follow the state courts in

arriving at the contract and statutory obligations exist-

97851°—24-—6

[iioiogree eae chee

82 OCTOBER TERM, 1923.

Opinion of the Court. 264 U.S.

ing between a State and its corporations. Ricaud v.

American Metal Co., 246 U. S. 304; International, etc.,

Ry. Co. v. Anderson County, 246 U. S. 431; Missouri

Pacific Ry. Co. v. Kansas, 216 U. S. 262; Burgess v.

Seligman, 107 U. 8. 20; Kuhn v. Fairmont Coal Co.,

215 U.S. 349.

The constitutionality of the statute is immaterial when

the company accepts the charter. Interstate Consoli-

dated Street Ry. Co. v. Massachusetts, 207 U. S. 79.

The Fourteenth Amendment, preventing an uncon-

stitutional taking of property, is not available to a rail-

road company seeking to escape a contract and statutory

duty to continue operation and maintenance of its lines

of railroad even at a loss. Brooks-Scanlon Co. v. Rail-

road Comm., 251 U. S. 396; Missouri Pacific Ry. Co. v.

Kansas, 216 U. S. 262; Bullock v. Railroad Comm.,

254 U. S. 519; International, etc., Ry. Co. v. Anderson

County, 246 U. 8. 424; State v. Enid, etc., Ry. Co., 108

Tex. 239; Ashley v. Ryan, 153 U.S. 436; Newburyport |

Water Co. v. Newburyport, 193 U. S. 561.

Mr. Jno. R. Turney, with whom Mr. Daniel Upthe-

grove, Mr. E. B. Perkins, Mr. E. J. Mantooth and Mr.

W. PR. Hamilton were on the briefs, for appellees.

Mr. Justice VAN Devanrer delivered the opinion of

the Court.

These two suits involve the right of the Eastern Texas

Railroad Company, a Texas corporation having a railroad

in that State, to dismantle and abandon its road. One

was brought by the company to prevent threatened inter-

ference by the State’s officers; the other by the State to

prevent intended dismantling and abandonment by the

company. The former was begun in the District Court;

the latter was removed into that court from a state court.

The company prevailed, 283 Fed. 584, and the State and

its officers prosecute these direct appeals,

Ast RRS TONNES NOELLE TL _-

PEEP URL ARES

RAILROAD COMM. v. EASTERN TEX. R. RR. 83

79 Opinion of the Court.

The road is 30.3 miles long and all in Texas. The

company constructed it in 1902, operated it continuously

until April 30, 1921, and then discontinued its operation

because it had proved a losing venture. The traffic over

it during the period of operation was in greater part

interstate and foreign commerce and in lesser part intra-

state commerce. The withdrawal from interstate and for-

eign commerce had the sanction of the Interstate Com-

merce Commission, given under a law of Congress, and

was sustained by this Court in Teras v. Eastern Texas

R. R. Co., 258 U.S. 204. The present controversy relates

to the withdrawal from intrastate commerce and the in-

tended dismantling and abandonment of the road.

The road was constructed primarily to carry traffic to

and from large lumbering industries in that territory; but

in the course of time those industries exhausted the adja-

cent supply of timber, and in 1917 they were permanently

closed and the people who had been employed in them

moved away. The traffic over the road then fell off so

much that the revenue became pronouncedly less than

the cost of operation. But the operation was continued

until the company had exhausted its surplus accumulated

in prior years, had come to be without cash or credit, and

was unable to go on. Its only remaining property con-

sisted of the road and some meager equipment; and these

had shrunken in value from $450,000 to $50,000,—the

latter being the estimated salvage value less the cost of

dismantling. The property was offered for sale at $50,000

to any one who would operate the road, and the offer was

widely advertised, but without eliciting any acceptance or

bid. Essential repairs would cost $185,000. The operat-

ing cost would be as much as $84,000 per year; the pos-

sible revenue from all traffic would not exceed $50,000,

and that from intrastate traffic would not be more than

$20,000. The adjacent country was sparsely populated ;

the soil had proved to be usually unproductive; there were

Ramana ayes: curr ener

— Si a At NYA ag a ch CY TA ASE

Anta RENAE Deak Me ee ARCTIC Bee pani wine

.

84 OCTOBER TERM, 1923

Opinion of the Court 264 U.S.

no local industries, and the general situation precluded

any reasonable expectation that the road would become

self-sustaining in the future. In these circumstances the

company concluded to cease all operation and to dismantle

and abandon the road.

The company was incorporated under a general law of

the State in 1900 for a term of 25 years, and when it

ceased operating the road four and one-half years of that

term remained. It had not received any state land grant

or other public aid; nor had it acquired any property

through an exercise of the power of eminent domain,

although that power was available under the law of the

State.

In the District Court, the State and its officers took

the position that under the state statutes the company

was prohibited from dismantling or abandoning its road

and was in duty bound, and could be compelled, to operate

the same in intrastate commerce for the remainder of the

25-year term. In this Court they have adhered to that

position, with the qualification that, in the circumstances

shown, the company may not be compelled to operate the

road but may be made to respond in damages to the State

for a failure to operate it. The company, on the other

hand, has contended throughout that the state statutes

neither prohibit the dismantling and abandonment of the

road nor lay on the company a duty to operate it when

that can be done only at a loss, and that, if the statutes

be as insisted on the other side, they deprive the company

of property without due process of law and in that respect

are in conflict with the Fourteenth Amendment to the

Constitution of the United States.

The appellants rely on two statutory provisions,

which they insist were in force when the company was in-

corporated and became a part of the charter contract. Be-

fore examining these provisions it is well to advert to prin-

ciples which would govern in their absence, and also to

considerations bearing on their office and effect.

epeesy A NE MALLE SALE ELL BPG TE BRE AE EINE :

SSAA ALOT LT EN eae as .

PA BH c,

GAO TE SR INNI | NEOPRENE LR TERESA I MU CALE TEER sa06k ee

RAILROAD COMM. v. EASTERN TEX. R.R. 85

79 Opinion of the Court.

The usual permissive charter of a railroad company does

not give rise to any obligation on the part of the company

to operate its road at a loss. No contract that it will do

so can be elicited from the acceptance of the charter or

from putting the road in operation. The company, al-

though devoting its property to the use of the public, does

not do so irrevocably or absolutely, but on condition that

the public shall supply sufficient traffic on a reasonable

rate basis to yield a fair return. And if at any time it

develops with reasonable certainty that future operation

must be at a loss, the company may discontinue operation

and get what it can out of the property by dismantling

the road. To compel it to go on at a loss or to give up

the salvage value would be to take its property without

the just compensation which is a part of due process of

law. The controlling principle is the same that is applied

in the many cases in which the constitutionality of a rate

is held to depend upon whether it yields a fair return.

Brooks-Scanlon Co. v. Railroad Commission of Louisiana,

251 U. S. 396, 399; Bullock v. Railroad Commission of

Florida, 254 U. S. 513, 520; State ex rel. Cunningham v.

Jack, 113 Fed. 823; s. c. 145 Fed. 281; Iowa v. Old Colony

Trust Co., 215 Fed. 307, 312; Northern Pacific R. R. Co. v.

Dustin, 142 U. S. 492, 499; Commonwealth v. Fitchburg

R. R. Co., 12 Gray, 180, 190; State v. Dodge City, etc. Ry.

Co., 53 Kan. 329, 336.

So long as the railroad company “continues to exer-

cise” the privileges conferred by its charter, the State

has power to regulate its operations in the interest of the

public, and to that end may require it to provide reason-

ably safe and adequate facilities for serving the public,

even though compliance be attended by some pecuniary

disadvantage. Atlantic Coast Line R. R. Co. v. North

Carolina Corporation Commission, 206 U. S. 1, 26; Mis-

souri Pacific Ry. Co. v. Kansas, 216 U. 8. 262, 279; Chesa-

peake & Ohio Ry. Co. v. Public Service Commission, 242

Si ERE ENED, MPT N ERIE REALE LD PAES IE

86 OCTOBER TERM, 1923.

Opinion of the Court. 264 U.S.

U. S. 603, 607. But this rule in no wise militates against

the principle that the company may withdraw its property

from use by the public “when that use can be kept up

only at a loss.” Brooks-Scanlon Co. v. Railroad Commis-

sion of Louisiana, supra.

A State often has many laws relating to railroads on its

statute books which do not become a part of the charter

contract,—which are of such a nature that it is apparent

the State could not have intended to make or exact a con-

tinuing and binding stipulation embodying their terms.

Among such laws are those containing specific regulations

respecting the safety of employees and travellers, liability

for injuries, facilities for handling and moving traffic and

redress for failure to provide the facilities prescribed. The

occasion for keeping such matte”: where the legislature

may deal with them as changing conditions may require

forbids that they be regarded as part of the charter con-

tract unless a purpose to make them such be plainly dis-

closed. In short, the fact that a particular provision is

found in the statutes of the State relating to railroads, or

even in a special act incorporating a railroad company,

does not in itself suffice to show that the provision is a part

of the charter contract. Texas & New Orleans R. R. Co.

v. Miller, 221 U. S. 408, 415; Chicago, Burlington &

Quincy R. R. Co. v. Railroad Commission of Wisconsin,

237 U.S, 220, 234. And see Wisconsin & Michigan Ry.

Co. v. Powers, 191 U. S. 379, 387.

Where it becomes necessary to consider whether a State

is depriving, or attempting to deprive, a litigant of prop-

erty without due process of law in violation of the Four-

teenth Amendment, and the question turns on the exis-

tence and terms of an asserted contract, this Court deter-

mines for itself whether there is a contract and what are

its terms. Louisville & Nashville R. R. Co. v. Palmes,

109 U. S. 244, 255; Stearns v. Minnesota, 179 U. S. 223,

232. “The principle is general and necessary. Ward v.

RRP LPO O RR Sm FRE OGENTTES

err a til

RAILROAD COMM. v. EASTERN TEX. R.R. 87

79 Opinion of the Court.

Love County, 253 U. S. 17, 22. If the Constitution and

laws of the United States are to be enforced, this Court

cannot accept as final the decision of the state tribunal as

to what are the facts alleged to give rise to the right or

to bar the assertion of it even upon local grounds.”

Davis, Director General of Railroads, v. Wechsler, 263

U. S. 22, 24.

By way of distinguishing the cases in hand from some

which are cited by the appellants it is enough to observe

that here the company has ceased to exercise the privilege

conferred by its charter, of maintaining and operating the

road as a common carrier —and this because the available

traffic has diminished to a point where further operation

is economically impossible.

One of the statutory provisions relied on is found in

Article 6676 of the Revised Civil Statutes of 1911, and

requires that on all railroads “carrying passengers for

hire” there shall be at least one passenger train a day,

Sundays excepted; that these trains shall stop at stations

a sufficient time to discharge and receive passengers, and

that, “if so many are run”, four of these trains going

each way shall stop daily, Sundays excepted, at county

seats. This is nothing more than a regulation of pas-

senger service on roads which are in operation and en-

gaged in that service. It does not purport to impose an’

unconditional duty to operate, or to carry passengers, but

requires that where and while a passenger service is main-

tained it shall conform to the standards stated. Such a

provision falls far short of subjecting a railroad company,

through charter contract or otherwise, to an absolute duty

to operate its road for the full charter period, even after

it becomes reasonably certain that the operation will be

at a pronounced loss.

The other provision on which the appellants rely was

enacted as part of an Act of March 29, 1889, c. 24, and

was reénacted as Article 4550 of the Revised Civil

Pitre scone onrree CaO LN

- a Ne a ei ae fe eal AON ALD EN LIME SPILL ID ia I NEMS A RY DES ALLA LL ATEI

a At: Wa PR ent tie OP ~ ad 4 . .

88 OCTOBER TERM, 1923.

Opinion of the Court. 264 U.S.

Statutes of 1895, and as Article 6625 of the like statutes

of 1911. The original enactment is described in its cap-

tion as relating “ to rights of purchasers of roadbeds, etc.,

sold for debt,” and in the captions of both reénactments

as relating to “ new corporations in case of sale.” It pro-

vides that the purchasers of any railroad sold under

judicial decree, ete., and their associates shall be entitled

to form a corporation to take over, maintain and operate

the road with power to “construct and extend.” This

is followed by provisos of a restrictive nature, the last

of which reads: “ Provided, that by such purchase and

organization no rights shall be acquired under any former

charter or law in conflict with the provisions of the pres-

ent constitution in any respect, nor shall the main track

of any railroad once constructed and operated be

abandoned or removed.” A second section provides that

any corporation so formed which.ghall “claim to be un-

der the jurisdiction of the federal courts” shall there-

by forfeit its reorganization, etc., and a third section de-

clares the existence of an emergency requiring that the

act take effect immediately on its passage, because of

the absence of any sufficient law providing for the for-

mation of a corporation “ for the purpose of acquiring,

owning, and extending such sold out property.” A read-

‘ing of the enactment, including its caption and emer-

gency section, shows that every part of it relates to the

organization, rights and duties of corporations formed to

take over, maintain and operate railroads sold under ju-

dicial decree, ete., unless the concluding part of the pro-

viso just quoted is to be taken as having a broader scope.

The appellants contend that it should be so taken. Read

by itself it gives strong support to the contention. But

can it be rightly separated from the context and read

alone? Does it when so read reflect the legislative in-

tent? In our opinion the answers must be in the nega-

tive. The provision evidently is intended to have the

-

RAILROAD COMM. v. EASTERN TEX.R.R. 89

79 Opinion of the Court.

same scope as the other parts of the act, and to be limited

to the same railroads that they are. The captions used

to describe the subject of the enactment give some sup-

port for this view, and the terms of the emergency sec-

tion give it further support, for they make it fairly cer-

tain that only railroads sold for debt were in mind. The

fact that the provision is included in a proviso strongly

suggests that it is intended to qualify or restrict what

precedes it rather than to reach into a larger field, and

the suggestion is emphasized by the first part of the pro-

viso, “ that by such purchase and organization no rights

shall be.” etc. A single word, supplied by fair implica-

tion, will bring the provision into full accord with all

that is in the proviso, and with all other parts of the

act. With that word included, the provision will read

“nor shall the main track of any [such] railroad once

constructed and operated be abandoned or removed.” To

us it appears very plain that this is what is intended.

There was no decision on the question in the courts of

the State when the company was incorporated or when

it made its investment in the road. ‘1'wo decisions made

several years later have a bearing but seem to leave

the matter more or less open even in those tribunals.

One by the Supreme Court, given in 1917, treats the pro-

vision as applicable to all railroads. But the question

was not discussed, possibly because the road there in-

volved had been sold under a judicial decree. State v.

Enid, Ochiltree & Western Ry. Co., 108 Texas, 239. The

other by the Court of Civil Appeals at Galveston, given

in 1922, appears to treat the provision as applicable only

to railroads sold for debt. Wealer v. State, 241 S. W. 231.

As already indicated, we are of opinion that the pro-

vision, like other portions of the enactment of which it is

a part, applies only to railroads sold under judicial decree,

ete. This road never was so sold. The company did not

acquire it through such a sale, but constructed it as an

original undertaking.

RAILROAD COMMISSION OF TEXAS ET AL.

v. EASTERN TEXAS RAILROAD COMPANY

ET AL.

STATE OF TEXAS v. EASTERN TEXAS RAILROAD

COMPANY ET AL.

APPEALS FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE WESTERN DISTRICT OF TEXAS.

Nos. 145 and 146. Argued March 8, 1923—Decided February

18, 1924.

1, The usual permissive charter of a railroad company does not

oblige the company -to operate its railroad at a loss; nor is such ob-

ligation to be implied from acceptance of the charter and opera-

tion under it. P. 85.

2. In the presence of a reasonable certainty that future operation

will be at a loss, a railroad company, in the absence of a contract,

may cease operation, dismantle its road and realize its salvage

value. 7d.

3. Were the railroad to be compelled by the State in such circum-

stances to continue operation at a loss, it would be deprived of its

property without due process of law. Jd,

neganerennrete - eer PEALE PERALTA TR

Divert epeeten nies or cme retin prraes FLEE OT TRS Te eee ne

90 OCTOBER TERM, 1923.

Opinion of the Court. 264 U.S.

Our conclusion is that the appellants’ reliance on the

two statutes is not well grounded. They are all that are

claimed to make the company’s charter other than one of

the usual permissive type. It follows that the District

Court rightly held the company was entitled to withdraw

the road from intrastate commerce and to dismantle and

abandon it.

Decrees affirmed.

APN LSE « ae er x x, PI

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