ICC v. Chicago Great Western Ry. Co., 209 U.S. 108 (1908)

U.S. Supreme Court

ICC v. Chicago Great Western Ry. Co., 209 U.S. 108 (1908) Interstate Commerce Commission v.

Chicago Great Western Railway Company

No. 73

Argued April 16, 17,1907

Decided March 23, 1908

209 U.S. 108

APPEAL FROM THE CIRCUIT COURT OF THE UNITED

STATES FOR THE NORTHERN DISTRICT OF ILLINOIS

Syllabus

Railroads are the private property of their owners, and while the public has the power to prescribe rules for securing faithful and efficient service and equality between shippers and communities, the public is in no proper sense a general manager. The companies may, subject to change of rates provided for in the Interstate Commerce Act, contract with shippers for single and successive transportation, and, in fixing their own rates, may take into account competition, provided it is genuine and not a mere pretense.

There is no presumption of wrong arising from a change of rate made by a carrier. The presumption of good faith and integrity attends the action of carrier as it does the action of other corporations and individuals, and those presumptions have not been overthrown by any legislation in respect to carriers.

A rate on the manufactured article resulting from genuine competition and natural conditions is not necessarily an undue and unreasonable discrimination against a manufacturing community because it is lower than the rate on the raw material, and, under the circumstances of this case, there was no undue and unreasonable discrimination against the Chicago packinghouse industries on the part of the railroads in making, as the result of actual competition and conditions, a lower rate for manufactured packinghouse products than for livestock from Missouri River points to Chicago.

141 F. 1003 affirmed.

Certain proceedings were had before the Interstate Commerce Commission. They were commenced by the filing of a petition by the Chicago Live Stock Exchange in April, 1902, charging the defendants, who are now the appellees, with the violation of §§ 1 and 3 of the Interstate Commerce Act of February 4, 1887. The specific offense stated was that the defendants were charging higher rates of freight upon livestock shipped from Missouri River points, and other points

Page 209 U. S. 109

similarly situated, to Chicago than upon dressed meats and the prepared products known as packinghouse products. It was contended that this higher rate of freight was an unlawful discrimination against shippers of livestock to Chicago, and gave to shippers of packinghouse products an undue and unreasonable preference and advantage over the former; that it subjected the Chicago Live Stock Exchange and its members, who were engaged in the business of selling livestock on commission, as well as the owners of livestock and the shippers thereof, to an unreasonable prejudice and disadvantage. The several defendants, with one or two exceptions, answered, denying the allegations of the complaint. After a hearing, the Interstate Commerce Commission, on January 7, 1905, filed its report and opinion, including findings of fact, and made an order, which is the foundation of this suit. The order is in these words:

"Order of Commission"

"This case being at issue upon complaint and answers on file, and having been duly heard and submitted by the parties, and full investigation of the matters and things involved having been had, and the Commission having, on the date hereof, made and filed a report and opinion containing its findings of fact and conclusions thereon, which said report and opinion is hereby referred to and made a part of this order:"

"It is ordered that, in accordance with said report and opinion, the present relation of rates maintained and enforced by defendants [naming them all, eighteen in number], whereby their rates for transportation are higher upon live cattle and live hogs than upon the dressed or prepared products of cattle and hogs on shipments thereof to Chicago, in the State of Illinois, from points on the Missouri River, Sioux City, in the State of Iowa, to Kansas City, in the State of Missouri, inclusive, and from South St. Paul, in the State of Minnesota, or from points in the territory between the Missouri River or South St. Paul and Chicago, constitutes wrongful prejudice

Page 209 U. S. 110

and discrimination, in violation of the provisions of the Act to Regulate Commerce, and that said defendants be, and each of them is hereby, notified and required to cease and desist, on or before the fifteenth day of February, 1905, from maintaining or enforcing the said unlawful relation of rates, and from further continuing said unlawful prejudice and discrimination."

"And it is further ordered that a notice embodying this order be forthwith sent to each of the defendant corporations, together with a copy of the report and opinion of the Commission herein, in conformity with the provisions of section 15 of the Act to Regulate Commerce."

The defendants not complying with this order, the Interstate Commerce Commission caused this suit to be commenced in the Circuit Court of the United States for the Northern District of Illinois, seeking to compel compliance. The defendants answered, admitting service of the order and refusal to comply therewith, denying that it was legal or binding, but, on the contrary, claiming that it was in violation of their rights. After the filing of the petition to enforce the order of the Commission, and the answers thereto, and in August, 1905, the Commission also commenced an original proceeding under and by virtue of the Act of February 19, 1903 (32 Stat. 847), known as the Elkins Act, charging substantially the same discrimination. These case were consolidated and heard before the circuit court, an enormous volume of additional testimony being taken, and on November 20, 1905, that court announced its opinion, stated its findings of fact and conclusions of law, and ordered that the bill should be dismissed. A decree accordingly was so entered. 141 F. 1003. The findings of fact were as follows:

"First. That the livestock rates are reasonable in themselves. All livestock from points west, southwest, and northwest of the Missouri River and St. Paul are shipped on a proportional rate from the Missouri River or St. Paul to Chicago. These rates are equal to or less than the rates on dressed meats

Page 209 U. S. 111

and packinghouse products between the same points. There can be, and is, no complaint as to such traffic. The local rates from the Missouri River and St. Paul, and from 150 miles east, to Chicago, are as shown in above schedule. These rates gradually decrease until the Mississippi River is reached, and the average Iowa rate is 21 cents. The great weight of evidence indicates that these rates are at least reasonably low."

"Second. That the cost of carrying livestock is greater than that of carrying dressed meats and packinghouse products."

"Third. That the value of the service of carriage is greater to the packers, because of the higher price of a car of dressed meats or packinghouse products. Dressed meats and packinghouse products are in value worth nearly twice as much as livestock. This factor is important, in ordinary cases, however, in part, because of the greater risk of carriage of high-priced commodities. In these cases, as to the particular commodities in question, the evidence shows that the defendant railroad companies pay out a much larger amount of damages for losses arising from the carriage of livestock than they do for losses arising from the carriage of dressed meats and packinghouse products, in proportion to the value of the products carried, and more in damages per car regardless of the value. This makes the risk of carriage greater for livestock. The result is that the value of the service is not such an important factor in this kind of a case as it is considered to be in ordinary cases."

"Fourth. That the rates in question given to the packers at Missouri River and St. Paul were the result of competition. The product of the packers at these points was large in quantity, was certain and continuous in amount, was in the hands of a few people, and for years before the federal injunction of March, 1902, had been competed for so strenuously by the railroads reaching and passing through these points as to cause the cutting of rates and the giving of secret rebates in large amounts. Four of the defendant companies, the Chicago,

Page 209 U. S. 112

Milwaukee & St. Paul Railroad Company, the Chicago & Northwestern Railway Company, the Chicago, Rock Island & Pacific Railway Company, and the Chicago, Burlington & Quincy Railroad Company, passed through these points into the territory west of the Missouri River and St. Paul. Four other of the defendant companies, the Chicago Great Western Railway Company, the Chicago & Alton Railway Company, the Illinois Central Railroad Company, and the Wabash Railroad Company, reached the Missouri River points and St. Paul, competing for this business. Other railroads, running south to the Gulf of Mexico, also competed more or less for said business, including the Atchison, Topeka & Santa Fe Railway. After said injunction was granted, the defendant railroads (according to evidence herein) obeyed it, and until August of that year, the said traffic was carried under competition between the defendants at the rate of 23 1/2 cents from Missouri River points to Chicago, and 25 cents from St. Paul to Chicago, etc., as set our above. As a result of such competition, the Chicago Great Western Railway Company became dissatisfied with the proportion of the business it received, and, in order to get what it claimed as its share, cut the rate to 20 cents to Chicago and 18 1/2 cents to the Indiana line for eastern business, and published the same. This it did under a contract with the packers running for seven years. The Chicago Great Western Railway Company was the longest route from Chicago to the Missouri River points. The other railroad defendants, to meet the rate made by the Chicago Great Western Railway Company, as a result of competition, met and published the same rate. These rates were not made voluntarily, but from necessity arising from competition; the necessity being that of carrying the goods at the lower rate or losing the business to which the officers of said companies thought they were entitled. This cutting of the rate by the Chicago Great Western Railway Company was not the origin of competition. That had existed legally since March, 1902, between defendant railroads and also between them and the Atchison, Topeka & Santa Fe

Page 209 U. S. 113

Railway Company. There was not competition enough at said points to lower the rate as to livestock. There was little and different competition on rates as to livestock at points between the Missouri River and St. Paul and Chicago. The only places where the opportunities for competition existed as to livestock the same as to packinghouse products were immediately at Missouri River points and St. Paul, and there only as to livestock driven in on foot from the surrounding country. There is comparatively a small amount of this stock. If it was exactly the same kind of a commodity as that furnished by the packers, there would be an opportunity for competition in this at these points alone."

"Fifth. That the competition in question did not result from agreement of the defendants, but was actual, genuine competition."

"Sixth. That the present rates on livestock have not materially affected any of the markets, prices, or shipments; that they are reasonably fair to Chicago and to the shippers; that the shipments of livestock from points between Chicago and the Missouri River and St. Paul are as great in proportion to the volume of business as before the present rates were made; that the majority of the livestock comes to Chicago from points as near as 150 miles this side of the Missouri River and St. Paul, and that the lower rate given to the packers does not seem to directly influence or injure the shippers of livestock."

"Seventh. That the rates for carrying packers' products and dressed meats were remunerative. They did not pay any portion of the fixed charges and interest of the railroad companies, nor its full share of the operating expenses, but they did pay more than its cost of movement, and leave something to apply upon operating expenses."

"Eighth. That the welfare of the public, including the shippers, consumers, and all localities and markets, does not seem to be materially affected by the present rates."

"Ninth. That the usual custom is for railroads to charge a higher rate for the finished product than for the raw material,

Page 209 U. S. 114

and this, as a rule, has been applied to livestock and its finished products. This is not universal, however. There are many commodities where the raw material is charged more for carriage than its finished product, as in the case of the raw material of cotton and the compressed cotton, straw, unbaled and baled, pig iron and its products, and many other commodities. It also appears that for sixteen years out of twenty-three, between Missouri River points and St. Paul and Chicago, the published rates on livestock were higher than on dressed meats and packinghouse products. Many witnesses testified that the ideal rate for the finished product would be higher than the raw material. This, however, was based on the presumption that competition or commercial necessity did not interfere, and that the cost of service and value of the products would be greater in case of the finished products than in that of the raw material."

Section 3 of the Interstate Commerce Act, so far as it is material for this case, is as follows:

"It shall be unlawful for any common carrier subject to the provisions of this act to make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or locality, or any particular description of traffic in any respect whatsoever, or to subject any particular person, company, firm, corporation, or locality, or any particular description of traffic, to any undue or unreasonable prejudice or disadvantage in any respect whatsoever."

And § 3 of the Elkins Act provides:

"That whenever the Interstate Commerce Commission shall have reasonable ground for belief that any common carrier . . . is committing any discriminations forbidden by law, a petition may be presented alleging such facts' (such discrimination), 'to the circuit court of the United States sitting in equity having jurisdiction . . . and, upon being satisfied of the truth of the allegations of said petition, said court shall . . . require a discontinuance of such discrimination by proper orders, writs,"

etc.

Page 209 U. S. 117

MR. JUSTICE BREWER delivered the opinion of the Court.

It is unnecessary to define the full scope and meaning of the prohibition found in § 3 of the Interstate Commerce Act, or even to determine whether the language is sufficiently definite to make the duties cast on the Interstate Commerce Commission ministerial, and therefore such as may legally be imposed

Page 209 U. S. 118

upon a ministerial body, or legislative, and therefore, under the federal Constitution, a matter for congressional action, for, within any fair construction of the terms "undue or unreasonable," the findings of the circuit court place the action of the railroads outside the reach of condemnation.

The complainant before the Interstate Commerce Commission was an incorporated association. The purposes for which it was organized were, as stated in its charter,

"to establish and maintain a commercial exchange; to promote uniformity in the customs and usages of merchants; to provide for the speedy adjustment of all business disputes between its members; to facilitate the receiving and distributing of livestock, as well as to provide for and maintain a rigid inspection thereof, thereby guarding against the sale or use of unsound or unhealthy meats, and generally to secure to its members the benefits of cooperation in the furtherance of their legitimate pursuits."

Its members were, as found by the Commerce Commission, "engaged in the purchase, shipment, and sale of livestock for themselves and upon commission." It was such an association, with members engaged in the business named, that initiated these proceedings and in whose behalf they were primarily prosecuted. While it may be that the proceedings are not to be narrowly limited to an inquiry whether this particular complainant has been in any way injured by the action of the railroad companies, yet that question must be regarded as the one which was the special object of inquiry and consideration. It is true that the Commission subsequently commenced, under the Elkins Act, an independent suit in its own name, but it was practically to enforce the award made by the Commission after its inquiry into the controversy between the livestock exchange and the railroad companies.

It must be remembered that railroads are the private property of their owners; that while, from the public character of the work in which they are engaged, the public has the power to prescribe rules for securing faithful and efficient service and equality between shippers and communities, yet in no

Page 209 U. S. 119

proper sense is the public a general manager. As said in Int. Com. Comm. v. Ala. Mid. R. Co., 168 U. S. 144, 168 U. S. 172, quoting from the opinion of Circuit Judge Jackson, afterwards Mr. Justice Jackson of this Court, in Int. Com. Comm. v. B. & O. R. Co., 43 F. 37, 50:

"Subject to the two leading prohibitions that their charges shall not be unjust or unreasonable and that they shall not unjustly discriminate so as to give undue preference or disadvantage to persons or traffic similarly circumstanced, the Act to Regulate Commerce leaves common carriers as they were at the common law -- free to make special rates looking to the increase of their business, to classify their traffic, to adjust and apportion their rates so as to meet the necessities of commerce and of their own situation and relation to it, and generally to manage their important interests upon the same principles which are regarded as sound and adopted in other trades and pursuits."

It follows that railroad companies may contract with shippers for a single transportation or for successive transportations, subject though it may be to a change of rates in the manner provided in the Interstate Commerce Act -- Armour Packing Co. v. United States, ante, p. 209 U. S. 56, and also that, in fixing their own rates, they may take into account competition with other carriers, provided only that the competition is genuine, and not a pretense. Int. Com. Comm. v. B. & O. R. Co., 145 U. S. 263; Texas & Pacific R. Co. v. Int. Com. Comm., 162 U. S. 197; Int. Com. Comm. v. Ala. Mid. Ry. Co., supra; L. & N. R. Co. v. Behlmer, 175 U. S. 648; East Tenn. &c. Ry. Co. v. Int. Com. Comm., 181 U. S. 1; Int. Com. Comm. v. L. & N. R. Co.190 U.S. 273.

It must also be remembered that there is no presumption of wrong arising from a change of rate by a carrier. The presumption of honest intent and right conduct attends the action of carriers as well as it does the action of other corporations or individuals in their transactions in life. Undoubtedly, when rates are changed, the carrier making the change must,

Page 209 U. S. 120

when properly called upon, be able to give a good reason therefor, but the mere fact that a rate has been raised carries with it no presumption that it was not rightfully done. Those presumptions of good faith and integrity which have been recognized for ages as attending human action have not been overthrown by any legislation in respect to common carriers.

The Commerce Commission did not find whether the rates were reasonable or unreasonable per se. Its omission may have been owing, partly at least, to the decision in Interstate Commerce Commission v. C., N.O. & T. P. Ry. Company, 167 U. S. 506, for this controversy arose before the amendment of June 29, 1906. 34 Stat. 584. On the other hand, the circuit court found specifically that the livestock rates were reasonable, and also that the rates for carrying packers' products and dressed meats were remunerative. See Findings 1 and 7. Obviously shippers had, in the rates considered separately, no ground of challenge. But the burden of complaint is not that any rates, taken by themselves, were too high, but that the difference between those on livestock and those on dressed meats and packers' products worked an unjust discrimination.

It is insisted that

"the making of the livestock rate higher than the product rate is violative of the almost universal rule that the rates on raw material shall not be higher than on the manufactured product."

This may be conceded, but that the rule is not universal the proposition itself recognizes, and the findings of the court give satisfactory reasons for the exception here shown. See Findings 2, 3, and 9. The cost of carriage, the risk of injury, the larger amount which the companies are called upon to pay out in damages make sufficient explanation. They do away with the idea that, in the relation established between the two kinds of charges, any undue or unreasonable preference was intended or secured.

Finding No. 6 is very persuasive. It reads:

"Sixth. That the present rates on livestock have not materially affected any of the markets, prices, or shipments;

Page 209 U. S. 121

that they are reasonably fair to Chicago and to the shippers; that the shipments of livestock from points between Chicago and the Missouri River and St. Paul are as great in proportion to the volume of business as before the present rates were made; that the majority of the livestock comes to Chicago from points as near as 150 miles this side of the Missouri River and St. Paul, and that the lower rate given to the packers does not seem to directly influence or injure the shippers of livestock."

If the rates complained of have not materially affected any of the markets, prices, or shipments; if they are reasonably fair to Chicago and the shippers; if the shipments of livestock from the West to Chicago are as great in proportion to the bulk of the business as before the present rates were made, and that lower rate given to the packers does not directly influence or injure the shippers of livestock -- it is difficult to see what foundation there can be for the claim of an undue and unreasonable preference. It would seem a fair inference from the findings that the real complaint was that the railroad companies did not so fix their rates as to help the Chicago packing industry; that they recognized the fact that along the Missouri River had been put up large packing houses, and, without any intent to injure Chicago, had fixed reasonable rates for the carrying of livestock to such packing houses and also to Chicago; that those packing houses, being nearer to the cattle fields, were able to engage in the packing industry as conveniently and successfully as the packing houses in Chicago. If we were at liberty to consider the mere question of sentiment, certainly to place packing houses close to the cattle fields, thus avoiding the necessity of long transportation of the living animals -- a transportation which cannot be accomplished without more or less suffering to them -- and to induce transportation to those nearer packing houses would deserve to be commended, rather than condemned.

With reference to competition, we have referred to the cases in this Court in which that matter has been considered. According

Page 209 U. S. 122

to the fourth finding, the rates in question given to the packers at the Missouri River and St. Paul were the result of competition. Without recapitulating all the facts disclosed in that finding, it is enough to say that the Chicago Great Western Railway Company, which had the longest line from Chicago to Missouri River points, made a reduction in the rates, and did this, as its president testified, "for the purpose of securing a greater proportion of the traffic in the products of livestock than it had been previously able to obtain." That is one of the facts inducing competition, and one of the results expected to flow from a reduction of rates. It certainly, of itself, deserves no condemnation. In order to secure to themselves what was likely to be transferred to the Great Western by virtue of its reduction of rates, the other companies also made a reduction, and, as shown by the fifth finding, the competition was not the result of agreement, but was an "actual, genuine competition." It may be true, as contended by counsel for the appellant, that even a genuine competition which results in a change of rates does not necessarily determine the question whether the rates as fixed work an undue preference or create an unlawful discrimination. Those rates fixed may make a preference or discrimination irrespective of the motives which caused the railway companies to adopt them, and yet the fact of a genuine competition does not make against the contention that the rates were intended to work injustice. An honest and fair motive was the cause of the change in rates -- honest and fair on the part of the Great Western in its effort to secure more business, and equally honest and fair on the part of the other railway companies in the effort to retain as much of the business as was possible. In other words, this competition eliminates from the case an intent to do an unlawful act, and leaves for consideration only the question whether the rates as established do work an undue preference or discrimination; and, as the findings of the court show that the result of the new rates has not been to change the volume of traffic going to Chicago, or materially affect the business

Page 209 U. S. 123

of the original complainant, it would seem necessarily to result that the charge of an unlawful discrimination is not proved. In short, there was no intent on the part of the railway companies to do a wrongful act, and the act itself did not work any substantial injury to the rights of the complainant.

We have not attempted to review in detail the great mass of testimony, amounting to two enormous printed volumes. It is enough to say that an examination of it clearly shows sufficient reasons for the findings of fact made by the circuit court.

In short, the findings of the circuit court were warranted by the testimony, and those findings make it clear that there was no unlawful discrimination.

The decree of the Circuit Court is

Affirmed.

MR. JUSTICE MOODY did not hear the argument nor take part in the decision in this case.