East Tennessee, V. & G. Ry. Co. v. Interstate Commerce Commission

TAFT, Circuit Judge (after stating the facts as above). The defendant carriers transport merchandise from New York to Nashville through Chattanooga at rates ranging from 25 to 60 per cent, less than those charged by the same carriers for transporting merchandise from New York to Chattanooga over the same tracks and in the same trains, although the distance to Chattanooga is 151 miles less than that to Nashville. If the carriage to the two places is under similar circumstances and conditions, then the defendants have violated the fourth section of the interstate commerce act, and the order of the commission and the judge at the circuit should be sustained. It is contended on behalf of the defendants that the circumstances and conditions of their Nashville business are not similar to those of their Chattanooga business, in that at Nashville they encounter competition which they must meet by lowering their rates in order to secure any business at all, ivhile at Chattanooga such competition does not exist. This competition is said to be of two kinds: First, the potential, but not actual, competition afforded by the situation of Nashville on the Cumberland river, by which it may be reached nine months in the year by steamboat from Evansville-and Cincinnati. This gives Nashville water communication with points on the east and west trunk lines whose rates are per cent, less — 60 — than the Southern rates, and thus, it is said, makes it practically a trunk-line point. The evidence does not sustain the claim that in respect to through rates from New York to Nashville via Ohio river points the river competition has any effect whatever. The witnesses for the defendants admit that no through freight from New York to Nashville is ever carried by the Ohio and Cumberland rivers; and this although the rates by river are from 20 to 25 per cent, less than the proportion of the through New York rate to Nashville, collected by the Louisville & Nashville Railroad Company for carriage from Cincinnati to Nashville. But it is said that, if the rate is increased to Nashville so as to make it the same as that to Chattanooga, then the river lines will become formidable competitors of the Louisville & Nashville Railroad Company in the through traffic; and freight experts have been produced by the deféndants who vaguely express the opinion that to increase the additions made to the trunk-line rates from New York to Cincinnati by the Louisville & Nashville Railroad Company, for its part of the through carriage to Nashville, would induce river competition on this traffic. There has been presented to us an able argument to show the powerful effect of potential water competition upon railway rates in cases where comparatively a small percentage of the freight is actually carried by water. The effect of the Erie Canal upon grain rates of freight is cited as a significant illustration. We fully concede much of what is contended on this head, but we find it to have little or no application to the case in hand. It appears by the undisputed evidence that the rates of the Louisville & Nashville Railroad from Cincinnati, Louisville, and Evansville have practically destroyed, not only the New York through business by river, but the local river business from those points to Nashville. The total amount of traffic on the Cumberland river to Nashville is so insignificant, as compared with the local traffic to the same place, that it is not worthy of notice. Now, the local railway rates to Nashville from Ohio river points are about 50 per cent, higher than the through rates on New York shipments between the same points. To make the through New York rate to Nashville the same as that to Chattanooga, the Louisville & Nashville Company will not have to charge as much for its part of the carriage as its local rates. If the local rates have reduced river transportation to a minimum, it is clear that any increase on through rates, under which they would still be less than local rates, cannot affect river competition at all. In other words, the margin of possible increase in the through rates, without affecting river competition, includes all the increase in rates required to comply with the order appealed from, even if the carriers elect to bring about the equality enjoined in the order by increasing the ’Nashville rate to the Chattanooga rate. We may therefore eliminate Cumberland river competition as a factor in reaching our conclusion. The next question, for our consideration is whether the competition of the trunk lines to Cincinnati, and of the Louisville & Nashvillé Railroad to Nashville, makes the conditions of defendants’ traffic at that place different from those at Chattanooga. It is settled — 61 — in the case of Interstate Commerce Commission v. Alabama M. R. Co., 168 U. S. 144, 164, 167, 18 Sup. Ct. 45, 42 L. Ed. 414, that competition is one of the most obvious and effective circumstances that make the, conditions under which a long and short haul is performed substantially dissimilar; that the mere fact of competition, however, no matter what its extent or character, does not necessarily relieve the carrier from the restraints of the third and fourth sections, but only that these sections are not so stringent and imperative as to exclude consideration of competition in determining dissimilarity of conditions, and that competition may in some cases be such as, having due regard to the interests of the public and the carrier, ought justly to have effect upon the rates. It is then the duty of the commission and the reviewing courts in such cases to consider, not -only the extent, but the character, of the competition relied on as a justification for discrimination against the nearer point. It must therefore he relevant to ask why such competition is not also present at the nearer point. If the answer to the question is found in the absence at the nearer point of competing railway lines, of water competition, and of other circumstances naturally creating competition, then the further point may be reasonably held to he merely enjoying in its lower rates its normal advantages, which may and do justly overcome the mere disadvantage of the greater distance of the haul. But when we find that the nearer point has not only the advantage of less haul, hut also more railway lines in actual competition, and that there are no other circumstances of substantial advantage in favor of the more distant point, we have a case which the fourth section of the interstate commerce law was passed to meet. It is argued that the fact of competitive lower rates at the more distant point speaks for itself, and that no amount of argument can demonstrate a similarity of condition in the face of such a rate. This is only one of many arguments advanced on behalf of appellants, which, reduced to their last analysis, involve, as a major premise, that the existence of a rate and movement of business under it are a complete justification of it, and foreclose judicial investigation. Such an assumption renders the interstate commerce law nugatory and useless. There are other causes than normal competition that produce discriminatory rates. The interstate commerce law, it is conceded, was intended to encourage normal competition. It forbids pooling for the very purpose of allowing competition to have effect. But it is not in accord with its spirit or letter to recognize, as a condition justifying discrimination against one locality, competition at a more distant locality, when competition at the nearer point is stifled or reduced, not by normal restrictions, but by agreement between those who otherwise would be competing carriers. The difference in conditions thus produced is effected by a restraint upon trade and commerce, which is not only violative of the common law, but of the so-called federal anti-trust act. U. S. v. Trans-Missouri Freight Ass’n, 166 U. S. 290, 17 Sup. Ct. 540, 41 L. Ed. 1007; U. S. v. Joint Traffic Ass’n, 171 U. S. 505, 19 Sup. Ct. 25, 48 L. Ed. 259; U. S. v. Addyston Pipe & Steel Co., 29 C. C. A. 141, 85 Fed. 271. Certainly such a difference in condi — 62 — tions ought not to justify a difference in rates before the commission or the court. Chattanooga is 151 miles nearer than Nashville to New York by the Southern and most direct routes. It has at least three through competing Southern lines from New York under different managements. These lines reach Nashville over one road from Chattanooga. Chattanooga is connected with Cincinnati, where the stream of traffic of the east and west trunk lines is reached, by a railroad 335 miles in length. Nashville reaches the same city by a railroad 295 miles in length. So far as the record shows, the conditions of railroad transportation between Cincinnati and Nashville are not substantially different from those between Cincinnati and Chattanooga. Both the Louisville & Nashville and the Cincinnati Southern are Southern roads. The Louisville & Nashville does not encounter as much unrestricted competition at Nashville as the Cincinnati Southern at Chattanooga, for the only other line entering Nashville is the Nashville & Chattanooga Company, of which the Louisville & Nashville Company owns more than one-half the stock. But it is said that the Louisville & Nashville Company is vitally interested in building up Nashville by enabling her merchants to compete with those of cities on the Ohio river. Why should the interest of this company be any greater in Nashville than that of the Cincinnati Southern Railroad in Chattanooga? The difference in the Chattanooga and Nashville rates is to be found in something other than the physical conditions existing at the two cities; for, regarding them alone, there is no reasonable ground for any substantial disparity. The evidence shows that the rates to Chattanooga from Cincinnati and from the Eastern Seaboard have always been fixed and agreed upon by an association of the Southern railway and steamship companies. The Louisville & Nashville Company has not been a member of it, but the Nashville, Chattanooga & St. Louis Company, of which the Louisville & Nashville Company owns a majority of the stock, has always been a member; and so has the Georgia Central Railroad- & Banking Company, whose road from Atlanta to Savannah the Louisville & Nashville Company jointly operates. The association has grouped Chattanooga with a large number of towns to the south of it for the same rates, and all the members of the association make their rates to Chattanooga accordingly. The Cincinnati, New Orleans & Texas Pacific Railway has been a member of this association, and it is the agreement between it and the other lines at Chattanooga which has prevented the lowering of its New York rate. Without such an agreement, it is not possible to see why normal competition would not give Chattanooga substantially the same rates as Nashville. The result of the agreement is to deny to Chattanooga the natural advantage which direct connection with Cincinnati secures to Nashville, and ought to secure to Chattanooga. The agreement is more than a mere tacit understanding resulting from a praiseworthy desire to avoid rate wars and the carriage of goods at less than cost; for the rates to Nashville are admitted to pay a profit over the cost of transportation, and they are from 25 per cent, to 50 per cent, less than the — 63 — Chattanooga rate for a considerably longer haul, with no apparent difference in conditions. We do not perceive that the fact that the competition at Nashville existed before the defendants began to carry merchandise by the Southern route has any material bearing on the issue. It only shows that the cost of transportation on the Southern lines was more slowly reduced than on the Northern lines, but it does not affect the existing situation. It is not important to inquire into the motive actuating the Cincinnati, New Orleans & Texas Pacific Railway Company in its acquiescence in the Chattanooga rate agreement, though its greater or less dependence on the great Southern railway systems for its north-bound business readily suggests itself as a reason for its willingness to hold up its rates, and to refuse to Chattanooga what normal competition would give her. Nor can it be said that the Louisville & Nashville Company, whose fostering care of Nashville is insisted upon in the evidence and briefs for defendants, and is offered as a motive for its low rates to Nashville, is not a party to the plan by which Chattanooga is prevented from enjoying the natural traffic advantages which her railroads and her situation ought to give her; for through its ownership of a majority of the stock of the Nashville, Chattanooga & St. Louis Railway Company, operating a road from Nashville through Chattanooga to Atlanta, its joint operation of the railroad of the Georgia Central Railroad & Banking Company from Atlanta to Savannah in connection with the Ocean Steamship Company, of which the Georgia Central Company owns all the stock, it is very largely interested in traffic from the Eastern Seaboard to Chattanooga, and through Chattanooga to Nashville, and necessarily exercises an influence in shaping the action of the Southern Traffic Association in fixing rates. By its consent to the discrimination against Chattanooga, it only furthers its purpose to favor Nashville; for it enables Nashville merchants to undersell those of Chattanooga to the north and west of that city. We know that it is stipulated in the record that the officers of the Nashville, Chattanooga & St. Louis Railway Company would testify that it competes with the Louisville; & Nashville Railroad Company, and that they are under different managements; but such evidence must be weighed in the light of the history of railroads in this country, and the motives that ordinarily govern in railroad management. One railroad company acquires the controlling interest in another company to control its general policy; and, while it may permit independence in the personnel and the details of management, it needs more than -a stipulated statement of this general nature to induce a belief that the company which elects the directors of the other will permit that other to take a course materially detrimental to the interests of the owning company. We are pressed with the argument that to reduce the rates to Chattanooga, will upset the whole Southern schedule of rates, and create the greatest confusion; that for a decade Chattanooga has been grouped with towns to the south and west of her, shown in the diagram; and that her rates have been the key to the Southern situation. The length of time which an abuse has continued does not — 64 — justify it. It was because time had not corrected abuses of discrimination that the interstate commerce act was passed. The group in which Chattanooga is placed, shown by the diagram above, puts her on an equality in respect to Eastern rates with towns and cities of much less size and business, and much further removed from the region of trunk-line rates, and with much fewer natural competitive advantages. If taking Chattanooga out of this group and putting it with Nashville requires a readjustment of rates in the South, this is no ground for refusing to do justice to Chattanooga. The truth is that Chattanooga is too advantageously situated with respect to her railway connections to the north and east to be made the first city of importance to bear the heavier burden of Southern rates, when Nashville, her natural competitor, is given Northern rates. The line of division between Northern and Southern rates ought not to be drawn so as to put her to the south of it, if Nashville is to be put to the north of it. And we feel convinced from a close examination of the evidence that, but for the restriction of normal competition by the Southern Traffic Association, her situation would win for her certainly the same rates as Nashville. It may be that the difficulty of readjusting rates on a new basis is what has delayed justice to' Chattanooga. It may well be so formidable as to furnish a motive for maintaining an old abuse. It has been suggested that traffic managers are much better able, by reason of their knowledge' and experience, to fix rates, and to decide what discriminations are justified by the circumstances, than courts. This cannot be conceded, so far as it relates to the interstate commerce commission, which, by reason of the experience of its members in this kind of controversy, and their great opportunity foi; full information, is, in a sense, an expert tribunal; but it is true of the federal court. Nevertheless, courts are continually called upon to review the work of experts in all branches of business and science, and the intention of congress that they should revise the work of railway traffic experts, -whether railway managers or commerce commissioners, is too clear to admit of dispute. We conclude that the defendants are violating the fourth section of the interstate commerce act, in charging a higher rate from New York and other Eastern cities to Ghattafiooga than to Nashville. The order that enjoined them from doing so is therefore right. The decree of the circuit court affirming the order of the commission is affirmed, with costs.