Part 29
"Proceedings legislative in nature are not proceedings in a court within the meaning of the Revised Statutes, section 720, no matter what may be the general or dominant character of the body in which they may take place. * * * That question depends not upon the character of the body, but upon the character of the proceedings. (Ex parte Va., 100; U. S., 339-348.) They are not a suit in which a writ of error would lie under Revised Statutes, section 709, and act of February 18, 1875. (C. 80 Stat., 318.) * * * Litigation can not arise until the moment of legislation is passed. * * * We may add that when the rate is fixed a bill against the commission to restrain the members from enforcing it will not be bad as an attempt to enjoin legislation or as a suit against a State, and will be the proper form of remedy."
The recent decision of the Supreme Court in the case of Public Service Commission _v._ Consolidated Gas Co. of New York, in which the opinion was delivered by Mr. Justice Peckham, in deciding what is known as the Eighty-Cent Gas Case from the southern district of New York, is instructive upon the question discussed in this objection.
In that case, the parties had gone to issue upon the question as to whether the rate of 80 cents enjoined by the court from taking effect was confiscatory. After deciding the case upon the merits in favor of the commission, the court was unwilling, upon the supposed effect of a rate which had never been in operation, to bar the parties of their right when the same became effective from asking the protection of the court against its practical results. The memorandum announcing the position of the court upon that question is as follows:
"As it may possibly be that a practical experience of the effect of the acts by actual operation under them might prevent the complainant from obtaining a fair and just return upon its property used in its business of supplying gas, the complainant, in that event, ought to have the opportunity of again presenting its case to the court. Therefore, the decree is reversed, with direction to dismiss the bill without prejudice."
This case simply illustrates the fact that the court was unwilling to decide the question finally until the rate contested had become effective. This was a suit involving a schedule of rates, and the question made by the record was that these rates would result in the confiscation of the property of the complainant in violation of the Federal Constitution. Where that question can be properly made, the courts have intervened upon clear proof and sustained their jurisdiction to prevent such a violation of the constitutional protection. In this case, although the court held that the evidence developed the fact that this allegation of the bill was not sustained, it was so reluctant to give effect to testimony as to what might be the effect of the rates before they were made operative that it preserved the rights of the parties by authorizing a new suit after the rate should become effective. Under the act to regulate commerce, such a constitutional question could hardly be practically raised, and the rights of the court to intervene must depend upon the limit placed upon the power of the commission by Congress in the enactment of the law, in fixing the standard which should guide the commission in its action.
BURDEN IMPOSED ON THE COMMISSION.--CONFLICT OF JURISDICTION.--HOW RATES ARE MADE.
5. Your committee has deemed it proper that it should report to the Senate the legal objections to the incorporation of this amendment in the sixth section of the act of the 29th of June, 1906, but although giving due weight to these objections, the committee has been more strongly influenced in its adverse report upon this bill because of the strong and forcible practical objections which have been urged to the adoption of this amendment as a part of the interstate commerce law.
Should this amendment become a part of the law, it would be in the power of any shipper, whether interested or not in the result, to file a protest against the advance of the rate which under the proposed amendment would at once suspend its going into effect, and under the amendment offered in committee would place it in the power of the commission to order its suspension, if a prima facie case was presented in the protest. The shipper in filing a protest assumes no responsibility, either as to the effect of his action upon the carrier or liability in any way for cost accruing during the proceeding. Considering the thousands of articles transported by the carriers of the country, the hundreds of thousands of rates published for the transportation of these articles, and the thousands of shippers interested in their movement, some idea of the number of protests that probably would be filed on the advance of rates can be imagined. The burden that would be thrown upon the commission in its effort to meet this responsibility would, as Judge Cooley well remarked, require "superhuman" efforts on its part. He said:
"Moreover, an adjudication upon a petition for relief would in many cases be far from concluding the labors of the commission in respect to the equities involved, for questions of rates assume new forms, and may require to be met differently from day to day; and in those sections of the country in which the reasons or supposed reasons for exceptional rates are most prevalent the commission would, in effect, be required to act as rate makers for all the roads and compelled to adjust the tariffs so as to meet the exigencies of business while at the same time endeavoring to protect relative rights and equities of rival carriers and rival localities. This in any considerable State would be an enormous task. In a country so large as ours, and with so vast a mileage of roads, it would be superhuman. A construction of the statute which should require its performance would render the due administration of the law altogether impracticable, and that fact tends strongly to show that such a construction could not have been intended."
If the advance of rates was ultimately decided to be reasonable, the carrier would have been deprived during the period of suspension of the additional earnings to which it was entitled, and under such a provision of law would be required to maintain, at enormous expense, a large force of attorneys to answer and defend these protests. It would confer upon the commission the powers now exercised by the courts, and the jurisdictions over the same subject by both the courts and the commission would necessarily produce conflict and confusion.
The Supreme Court in the case of Texas Pacific R. R. Co. _v._ Abilene Cotton Oil Co. (204 U. S., 426), construing the ninth and twenty-second sections on the right of a shipper to apply to the courts for pecuniary redress for an alleged unreasonable rate held that, until the protested rate was condemned by the commission, there was no relief in the courts. This decision avoided a conflict of jurisdiction between the courts and the commission. It would lessen very greatly the value of the amendment of the act of June 29, 1906, which requires thirty days' notice in a change of rate, which was adopted, with a view of investing rate conditions with a greater degree of stability than formerly. Under existing law, the shipper is assured of that degree of stability, and can predicate his sales and purchases accordingly. Under the amendment, shippers would never know whether or not a rate is to become effective on schedule time, or at any future time. The effect of the amendment would, therefore, be to a considerable degree to nullify the permanency which this amendment to the act to regulate commerce sought to impress upon the law.
We must remember in considering this question that the majority of advances have resulted from the practice of the roads in the reduction of rates to meet certain commercial and economic conditions at the time, which have usually been the result of appeals from shippers and suggestions from commercial organizations.
We desire to direct attention to the statement filed before the Committee on Interstate and Foreign Commerce upon a similar bill to this by the chairman of the committee of the Southwestern Traffic Association, which is as follows:
"A very small percentage of the changes in freight rates, either reductions or advances, is evolved by railroad officials. Practically every change in rates is the result of suggestion from one or more shippers, who find that by some modification in the existing schedules their business in a certain territory can be increased by enabling them to meet competition which they encounter from other sources of supply, which are in most cases served by rival railroads. Their representation is that by the proposed change their profit or business will be increased, and consequently the railroad serving them will share in an augmented traffic which, at the time of the suggestion, is being handled by the rival shipper and carrier.
"Ninety or more per cent. of these suggestions are for reductions in rates or for changes in rules and regulations beneficial to shippers and classed as reductions. The railroad company is anxious at all times to increase its traffic and gives a keen ear to such pleas of the shipper. The railroad official to whom such requests are made carefully investigates the conditions recited by the shipper and, by correspondence with such railroad's representatives at the points of origin and destination, confirms, if possible, the views of the shipper and the effect of the proposed change on the tonnage and revenue of the company. The traffic official of the railroad thus being daily engaged in investigations of this kind becomes very proficient in his knowledge of the factors surrounding the movement of the principal articles of commerce and becomes, after experience, a ready judge of the merit of such propositions. When thus convinced, he becomes the agent of the shipper in securing the proposed adjustment. This may take the form of suggesting to a rival railroad that the advantage which its shippers have enjoyed is unjust and that he should be permitted, without any corresponding reduction on the part of such rival railroad, to reduce his rate that the complaining shipper may profitably secure an increased share of the competitive traffic in question. Being unable to thus persuade the competing railroad of the merits of such a contention he is forced to proceed by reducing his own rate without regard to the possible change which may follow on the part of other railroads as a consequence of his reduction.
"It will, therefore, naturally be seen that the railroad official and the shipper are constantly planning to increase the business in which they are jointly interested, to the disadvantage of the rival railroad and shipper. Sometimes these efforts result in serious rate wars until the point in controversy has been adjusted and the competitive rates placed on a basis which is more nearly equitable to all concerned. In many instances these disputes result in arbitration either by the Interstate Commerce Commission or by individuals who may be agreed upon by the contending interests.
"Bearing in mind, therefore, that practically all rate reductions are the result of the effort of the railroad company to serve the shipper, it can easily be seen what the result will be if no advances in rates can be made without practically the approval of the Interstate Commerce Commission. Where it is difficult to restore rates to normal figures, the carrier will be loath to reduce them in order that the shipper dependent upon such carrier may increase, for the time being, his share in the competitive traffic in which he is interested."
ADJUSTMENT OF RATES.--INTERRELATION OF RATES.--PRACTICAL OPERATION OF AMENDMENT.
6. The subject of rate adjustment, even upon a single system of transportation, is one involving great difficulty and perplexity. When this adjustment is considered in its relation to the entire country, to the diversified commercial conditions, as affected by commercial competition, and as controlled by the interrelation of rates, it stands forth as one of the most difficult of all the problems which must be mastered that the transportation agencies may not be injuriously crippled in the performance of their quasi public functions, or the prosperity and development of the commercial interests be retarded by the failure to enact proper, reasonable, and just governmental regulations.
Rates which can be considered alone are comparatively few in number. In the large majority of cases they are interrelated with other rates, and frequently this interrelation exists as between areas widely separated. The rates upon iron and steel from mills within 50 to 100 miles of New York, Philadelphia and Baltimore, whose relations to each other are established by long custom and usage, are based primarily upon the necessity of preserving a fair comparative charge between the different shipping points and destinations. Rates upon coal from central Pennsylvania to tide water have close relations with the rates upon coal from West Virginia to tide water, competing as such coal does, in the same markets. The rates upon lumber from the Michigan markets must bear some relation to the rates on lumber from Louisiana and Georgia to the same market of distribution, although separated by hundreds of miles.
The rates upon grain from western farms to eastern points bear a relation to the other, and upon export grain the rates to the Atlantic seaboard bear a close relation to the rates to the Gulf. The rates upon fruit and vegetable traffic from the various shipping districts, as California on the West and Florida on the South, must be considered in the making of rates. The structure of rates between the territory east of the Mississippi and north of the Ohio River, and the territory east of Pittsburg and Buffalo, including New England, is closely interrelated; as an example, the rates between Chicago and New York take a percentage of the Chicago rate from all points west of Pittsburg and Buffalo. The principle of the interrelation of rates has frequently been recognized in the decisions of the Interstate Commerce Commission.
In the interest of the manufacturer there is a very important relationship between rates upon different products entering into the manufacture of a given article. In the great steel-producing districts of the Shenango and Mahoning valleys and Pittsburg for many years the rates upon raw material to the furnaces for the production of pig iron have been adjusted upon a basis, so far as possible, of making the freight cost of assembling the raw materials that enter into this product the same to each furnace. In the one case the rate upon coke may be higher and the rate upon ore or limestone lower; in other cases the reverse. The adjustment of rates upon these different raw materials is so made that when assembled at the different furnaces the aggregate cost is relatively the same. This illustrates the contention that such rates cannot be considered separately, but must be taken as a whole.
Bearing these facts in mind it is manifest that if an advance in rates is made and the protest of one shipper shall operate as a stay to the advance of a particular rate in which he may be interested the result would be to burden thousands of other shippers who have made no objection. The protesting shipper would thus secure an advantage, enjoying for a time, at least, a rate relatively lower than that to which he was entitled. It might be urged that it would be open to all other shippers to file similar protests, but under the provisions of the bill, or of the amendments suggested in committee, the protesting shipper might wait until the last day of the thirty-day period, thus giving no opportunity to other shippers, who would be ignorant of his purpose, to file their protest. It would be possible if this amendment became a law that many individual shippers would take advantage of their competitors by making contracts upon the basis of a lower rate and at the last moment file the protest, suspend the advance rate, and deliver their product under such contracts within the period of the suspension of the advanced rates and thus profit at the expense of their competitors.
The effect of this amendment becomes more serious where the relation of rates is between wide areas, and these relative rate adjustments cannot be made simultaneously. The rates upon grain for export, from the West to the Gulf, as compared with the Atlantic seaboard, will illustrate this statement. The protest of one shipper between two specific points would not only result in throwing out of relation the rates from all points in that section, but would also affect the competitive rates from other sections. Such a result would necessarily render the rate situation in reference to the grain rates "confusion worse confounded."
Rates in a country like the United States, which is comparatively young, and the development of which attracts the attention of the world, must, necessarily, be elastic, not only in the interest of the carrier, but of the shipping public. The principle is sound and has received the approval of the Interstate Commerce Commission, that rates must be fixed with regard to their relations one with the other, and not entirely upon the cost of service. This relation is because of the competition between shippers, between sections of shippers, and between localities, and as (because of the rapid development of our country in the production of new sources of supply, in the opening up of new grain fields, flour mills, mines, and factories, etc.) this competition is constantly changing. It is manifest that rates must constantly fluctuate, so as to be adjusted to the new condition; it is essential in the development of the country, even in the older sections, that rates must be elastic, which means constant reductions and advances.
This is in the interest of communities and the individual shipper. There must be elasticity for other reasons, in the interest of communities as of the railroads; in meeting changes in commercial conditions that necessitates reductions in rates for shorter or longer periods, as an illustration, to enable our grain and other products of the farm to reach foreign markets, which would be impossible in one period unless rates were lowered, whereas in other periods higher rates could be charged without injurious results. Understanding the conditions that surround this complex subject, it is manifest that if a single shipper, or even the Interstate Commerce Commission, is to have the power to prevent at any time that elasticity which involves an advance in rates, the natural result will be that reductions will not be made by the carrier, and the elasticity will be lost. The fear would be ever presented to the mind of the traffic official that the rate once reduced could not--at least, until after exhaustive and long-drawn-out hearings before the commission--be advanced.
The necessary fluctuation in rates to meet the changing conditions of commerce, when examined in the light of the reports of the Interstate Commerce Commission, is startling to one not familiar with the rapid change of commercial conditions in this country. There were 225,982 tariff publications filed with the commission in one year, all containing changes of rates, either reductions or increases, and rules governing transportation. These publications--many of them--contained a great number of different tariffs. The Pennsylvania lines, east of Pittsburg, issued 2,200 tariffs and 3,600 supplements. About 33-1/3 per cent of these covered advances, and 66-2/3 per cent were reductions. As the law exists today, there was no special inducement to the shipper to file protests against the advances. Suppose, however, that this amendment had been a part of the act to regulate commerce, how many protests would have been filed, and what length of time would it have taken the commission to have disposed of them? What uncertainty would have resulted to the commercial interests while waiting for the adjudication of these questions?
OPPORTUNITY FOR FRAUD AND DISCRIMINATION UNDER THE AMENDMENT.
7. One of the most serious objections urged to the passage of this amendment is the opportunity which such a law would present for the perpetration of frauds under it, and in the case of even honest protest to the advance of rates, where rates rest on a differential basis, in producing thousands of instances of unfair discrimination.
An example under the first proposition may be stated briefly, as follows: There are two men engaged in the same line of trade; they are both called upon to bid on a contract involving a large amount of a given commodity in which both deal. The carrier has given notice of an advance in rate, effective thirty days from the filing and publication of the schedule; the commodity is not to move for some days; one of the bidders files his bid, based upon the advanced rate, assuming that the notice of the carrier will be made effective; the other shipper and bidder waits until two or three days before the date the rate is to be made effective, files a protest, confident that it will take three or four months to have the matter adjudicated, files his bid against his competitor, based on the current rate, and being the lowest, secures the contract. An example under the second proposition would be in case of a rate published from St. Louis to be followed differentially from Chicago by a number of competing roads. A shipper on one of the lines, just prior to the taking effect of the rate, would file his protest as to the rate east of Chicago. The differential adjustment that has been made by all these roads will at once be destroyed, and the shipper on the road against which the protest was filed would have the advantage over all of his competitors on the other lines in shipping east.
These discriminations between shippers would be the direct result of the power placed by Congress in the hands of shippers and would have received the sanction of legislative approval, and, therefore, be lawful. The statute has taken it out of the power of the carrier to meet such a condition and to prevent the discrimination. It cannot change its rate under thirty days without a special order of the commission, and that order, it must be assumed, cannot be granted without a reasonable hearing. Congress since 1887 has sought by the most stringent measures of legislation to prevent discrimination and preserve equality among shippers. The original act was demanded more to accomplish that purpose than for any other. The Elkins Act was confined almost entirely to the subject, and the act of June 29, 1906, increased the penalties for the violation of these provisions. Should this policy, which has been followed for more than twenty years, be modified and an act passed, the tendency of which is to tempt the cupidity of the shipper to accomplish results which it has earnestly and vigorously fought to stamp out?
WOULD PREVENT REDUCTIONS, AS WELL AS ADVANCES, IN RATES, AND DESTROY THEIR FLEXIBILITY.