US SUPREME COURT DECISIONS

The State of South Dakota, having passed an act providing for the appointment of a board of railroad commissioners and authorizing that board to make a schedule of reasonable maximum fares and charges for the transportation of passengers, freight, and cars on the railroads within the state, provided that the maximum charge for the carriage of passengers on roads of the standard gauge should not be greater than three cents per mile, and that board having acted in accordance with the statute, and having published its schedule of maximum charges, the Chicago, Milwaukee and St. Paul Railway Company filed the bill in this case in the Circuit Court of the United States for the District of South Dakota seeking to restrain the enforcement of the schedule. The railroad commissioners answered fully, and testimony was taken before an examiner upon the issues made by the pleadings. This testimony was reported without findings of fact or conclusion of law. The case went chanrobles.com-red

Page 176 U. S. 168

to hearing. The Judge, without the aid of a master, examined the pleadings and the mass of proof. He made findings of fact and conclusions of law, delivered an opinion, and rendered a decree dismissing the bill. This Court is of opinion:

(1) That neither the findings made by the court nor such facts as are stated in its opinion are sufficient to warrant a conclusion upon the question whether the rates prescribed by the defendants were unreasonable or not, and that the process by which the court came to its conclusion is not one which can be relied upon.

(2) That there was error in the failure to find the cost of doing the local business, and that only by a comparison between the gross receipts and the cost of doing the business, ascertaining thus the net earnings, can the true effect of the reduction of rates be determined.

(3) That the better practice would be to refer the testimony, when taken, to the most competent and reliable master, general or special, that can be found, to make all needed computations and find fully the facts, so that this Court, if it should be called upon to examine the testimony, may have the benefit of the services of such master.

On February 3, 1897, the Legislature of South Dakota passed an act relating to common carriers. Laws of 1897, c. 100. The act provided for the appointment of a board of railroad commissioners, and by section 20, this board was authorized to make a schedule of reasonable maximum fares and charges for the transportation of passengers, freight, and cars on the railroads within the state. There was a proviso in the section that the maximum charge for the carriage of passengers on roads of standard gauge should not be greater than three cents per mile. On August 26, 1897, the board of railroad commissioners, having taken the preliminary steps required by the statute in respect to notice, etc., made and published its schedule of maximum charges for the control of all local railroads. On the next day, the Chicago, Milwaukee & St. Paul Railway Company, plaintiff and appellant, filed its bill in the Circuit Court of the United States for the District of South Dakota, seeking to restrain the enforcement of such schedule. The bill alleged generally that the existing rates were fair and reasonable, that those established by the railroad commissioners were unjust and unreasonable, would not only fail to afford the plaintiff adequate compensation for chanrobles.com-red

Page 176 U. S. 169

the services to be performed, but also would operate to deprive it of its property without just compensation. The railroad commissioners filed their answer on October 4, 1897, in which they alleged that the existing rates were extortionate and unreasonably high -- in many instances, so high as to prohibit the shipment of ordinary products; that the freight rates were much higher than those charged by the complainant company for similar services upon its lines of railway in other and adjoining states, being about 90 percent higher than the rates charged in the State of Iowa; that the passenger rates were at least twenty-five percent higher than those charged by the plaintiff over its lines of railway in other states, and much higher than those charged by other railway companies for like transportation in other states. In addition to these matters, the answer averred that the plaintiff and the Chicago & Northwestern Railway Company were owners of competing lines of railway, running westerly from Chicago and traversing the States of Illinois, Wisconsin, Minnesota, and Iowa; that during the years from 1880 to 1883, as competing companies they constructed their lines of railway into and through that part of the then Territory of Dakota, now the State of South Dakota; that at that time there were no people, business, or industry to be accommodated or served by the construction of said lines of railway, and that the construction was not in response to any existing demand for the same, but was for the purpose of preempting and occupying the territory in anticipation of its settlement and development; that a rapid occupation followed such extension of railroad lines, and a large immigration flowed into the territory; that this rapid immigration ceased in 1884, and that many of the settlers disappeared in the years following, so that in certain portions of the territory there was almost a depopulation; that going in thus early, the plaintiff acquired its right of way, depots, and terminal grounds at a substantially nominal cost; that the capitalization of the railroad, in stocks and bonds, was fixed during this period of excitement and rapid immigration, had never been changed, and was extravagantly high. The answer also contrasted the value of chanrobles.com-red

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the property as shown by such capitalization in stocks and bonds and that returned by the railroad company to the state for the purposes of taxation. It also averred that the Dakota lines were of much greater earning value to complainant than the mere pro rata mileage of the lines in that state would indicate, and that no account had been taken or allowance made for the value to the plaintiff of the long haul business done on other parts of its lines afforded by the interstate business running into Dakota. Upon the issue thus presented by these pleadings, testimony was taken before an examiner. This testimony is preserved in the record, and amounts to several hundred printed pages. The examiner simply reported the testimony, without any findings of fact or conclusions of law. The case went to hearing before the district judge, who, without the aid of a master, examined the pleadings and this volume of testimony, and, on July 20, 1898, rendered a decree dismissing plaintiff's bill. 90 F.3d 3. Besides delivering an opinion, the court made the following findings of facts and conclusion of law:

"This cause came on to be heard upon the pleadings and proofs at this term and was argued by counsel, and thereupon, upon consideration thereof, the court finds the following facts:"

"I. That the value of complainant's property in the State of South Dakota is ten million dollars."

"II. That the fair value of the proportion of complainant's said property assignable to local traffic was, for the year ending June 30, 1894, $2,200,000, and for the year ending June 30, 1895, $2,600,000, and for the year ending June 30, 1896, $2,100,000, and for the year ending June 30, 1897, $1,900,000."

"III. That the gross local earnings of complainant in the State of South Dakota for the fiscal year ending June 30, 1894, was $407,606.35, and for the year ending June 30, 1895, was $330,642.85, and for the year ending June 30, 1896, was $328,105.95, and for the year ending June 30, 1897, was $311,085.42."

"IV. That the local earnings on the complainant's lines under existing tariffs, on the same proportion of the total

Page 176 U. S. 171

value of the roads in South Dakota as the local earnings bear to the gross earnings from all sources in South Dakota, were: for the year 1894, 18.5 percent; for the year 1895, 12.7 percent; for the year 1896, 15.6 percent; for the year 1897, 16.3 percent"

"V. That, applying the schedule of rates sought to be enjoined in this action to the local traffic during the years above mentioned, on the same method of calculation, the value of complainant's property assignable to local traffic would be for the years ending June 30, 1894, $1,900,000; June 30, 1895, $2,300,000; June 30, 1896, $1,800,000; June 30, 1897, $1,600,000."

"VI. Under the commissioners' schedule, the gross earnings from local traffic would have amounted to the sum of $342,381.98 for the year ending June 30, 1894, and $277,518.40 for the year ending June 30, 1895, and $275,607.79 for the year ending June 30, 1896, and $261,295.21 for the year ending June 30, 1897."

"VII. That these earnings for the fiscal year 1894 would equal 18% of the value thus ascertained, and for the year 1895 would equal 12.1% and for the year 1896 would equal 15.3% and for the year 1897 would equal 16.2%."

"VIII. That, owing to the small difference between the percentage earned under the complainant's schedule of rates and fares and the commissioners' schedule of rates and fares for the four years prior to the commencement of this suit, and owing further to the amount of the percentages which would have been earned during said four years under the commissioners' schedule, the court is unable to find beyond a reasonable doubt that the local earnings under said commissioners' schedule would not during the years aforesaid have earned the reasonable cost of earning said local earnings and some reward to the owner of the property over and above said cost of operation."

"IX. That the court is unable to find from the testimony what the actual cost of earning the local earnings for the fiscal years ending June 30, 1894, 1895, 1896, and 1897 was."

"X. As a conclusion of law, the court finds that the enforcement of the proposed schedule of reasonable maximum rates

Page 176 U. S. 172

and fares will not deprive the complainant of its property without due process of law, or deprive it of the equal protection of the laws, or operate to take the property of complainant for public use without just compensation."

From the decree thus entered, the plaintiff took its appeal to this Court.