THE DECISIONS OF THE Supreme Court of the United States OCTOBER TERM, 1913. PPEAL from the Circuit Court of the [1] WILLIAM J. WOOD, John F. McClure, A United States for the District of In Frank E. Payne, et al., Appts., V. VANDALIA RAILROAD COMPANY. (See S. C. Reporter's ed. 1-8.) reason Carriers - rate regulation ableness cost of operation. The ratio of the total operating expenses of a railroad or of a railroad division to the entire receipts of such railroad or division affords in itself no sufficient basis, when testing the reasonableness of rates prescribed under state authority, for determining the cost of transportation of intrastate freight traffic moving on class rates between two points of such division. Before such ratio can properly be used for this purpose there must be evidence justifying the conclusion that the cost of transportation in proportion to revenue is substantially the same for the particular traffic in question as for the total business of the road or division, or, if there is a material difference, satisfactorily showing its nature and extent. [For other cases, see Carriers, III. d. in Di. gest Sup. Ct. 1908.] [No. 11.] diana to review a decree enjoining the enforcement of an order of the Indiana Railroad Commission, prescribing maximum freight rates. Reversed and remanded, with directions to dismiss the bill without prejudice. The facts are stated in the opinion. Mr. James E. McCullough argued the cause, and, with Mr. Thomas M. Honan, Attorney General of Indiana, and Messrs. Bernard Korbly and Willard New, filed a brief for appellants: The special master's report shows upon its face that the finding therein, touching material and controlling facts in the cause, is based upon an erroneous view of the law, and that in reality there is no evidence in the cause to support the finding as to such facts. Chicago, M. & St. P. R. Co. v. Tompkins. 176 U. S. 167, 44 L. ed. 417, 20 Sup. Ct. Rep. 336; Knoxville v. Knoxville Water Co. 212 U. S. 1, 53 L. ed. 371, 29 Sup. Ct. Rep. 148; Minneapolis & St. L. R. Co. v. Minnesota, 186 U. S. 257, 46 L. ed. 1151, 22 Sup. Ct. Rep. 900; Smyth v. Ames, 169 U. S. Argued December 17, 1912. Decided Octo- 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418; 19, 53 L. ed. 382, 29 Sup. Ct. Rep. 192,, the state, cannot as a total, including the 15 Ann. Cas. 1034. In cases of the character of the one in hand, the ordinary rule, that the findings of the master and court below are conclusive upon appeal, unless unsupported by the evidence, or made under an erroneous view of the law, does not obtain. classified freight covered by the order of the commission, be transacted at a fair profit. Minneapolis & St. L. R. Co. v. Minnesota. 186 U. S. 257, 267, 46 L. ed. 1151, 1157, 22 Sup. Ct. Rep. 900; Atlantic Coast Line R. Co. v. North Carolina Corp. Commission, Knoxville v. Knoxville Water Co. 212 | 206 U. S. 1, 51 L. ed. 933, 27 Sup. Ct. Rep. U. S. 1, 53 L. ed. 371, 29 Sup. Ct. Rep. | 585, 11 Ann. Cas. 398. 148; Willcox v. Consolidated Gas Co. 212 U. S. 19, 53 L. ed. 382, 29 Sup. Ct. Rep. 192, 15 Ann. Cas. 1034. Mr. Charles W. Smith also argued the cause, and, with Messrs. Henry H. Hornbrook and Albert P. Smith, filed a brief for appellants: Every presumption of fact stands for the validity of the order of the railroad commission. One who asserts the invalidity of the order must establish the alleged invalidity with certainty and precision by competent testimony. Chicago, M. & St. P. R. Co. v. Tompkins, 176 U. S. 173, 44 L. ed. 420, 20 Sup. Ct. Rep. 336; Dow v. Beidelman, 125 U. S. 680, 31 L. ed. 841, 2 Inters. Com. Rep. 56, 8 Sup. Ct. Rep. 1028; Minneapolis & St. L. R. Co. v. Minnesota, 186 U. S. 264, 46 L. ed. 1156, 22 Sup. Ct. Rep. 900. The general equity rule that the finding of the master, approved by the trial court, will not be reversed on appeal, does not apply to rate cases. Minneapolis & St. L. R. Co. v. Minnesota, supra; Knoxville v. Knoxville Water Co. 212 U. S. 1, 53 L. ed. 371, 29 Sup. Ct. Rep. 148; Willcox v. Consolidated Gas Co. 212 U. S. 19, 53 L. ed. 382, 29 Sup. Ct. Rep. 192, 15 Ann. Cas. 1034; Chicago, M. & St. P. R. Co. v. Tompkins, 176 U. S. 173, 44 L. ed. 420, 20 Sup. Ct. Rep. 336. No decision in a rate case determines the reasonableness or unreasonableness of the rate except for the particular case. Covington & L. Turnp. Road Co. v. Sandford, 164 U. S. 578, 41 L. ed. 560, 17 Sup. Ct. Rep. 198; Wisconsin, M. & P. R. Co. v. Jacobson, 179 U. S. 287, 45 L. ed. 194, 21 Sup. Ct. Rep. 115; Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418, 171 U. S. 361, 43 L. ed. 197, 18 Sup. Ct. Rep. 888. The case for appellee is not made out, even if it has established-which these appellants deny that the classified freight carried under the order could only be carried at a loss. It must go further and show the burden of proof is upon it to show that the entire business of its transportation of all persons, freight, and commodities, where such business is domestic or intrastate, under the rates prescribed by 98 Mr. John G. Williams argued the cause, and, with Messrs. Frederic D. McKenney, D. P. Williams, and S. O. Pickens, filed a brief for appellee: The decree as rendered is right in every respect, and should be in all things affirmed. Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418. Mr. Justice Hughes delivered the opinion of the court: The bill in this suit was filed by the Vandalia Railroad Company, appellee, to restrain the enforcement of an order made by the Railroad Commission of Indiana, on December 14, 1906, prescribing maximum freight rates for certain intrastate traffic. The ground of attack was that the rates so fixed would not yield sufficient revenue to pay the actual cost of the transportation covered by the order, and, hence, that the order violated the 14th Amendment of the Constitution of the United States. The case was referred to a special master, who made a report, sustaining the contention of the railroad company, which was confirmed by the circuit court. Decree was entered accordingly, setting aside the order, and permanently enjoining proceedings to enforce it.. Members of the commission, and the shippers on whose petition this action was taken (who were made defendants below), prosecute this appeal. The assignments of error are addressed to the single point that the evidence failed to warrant the conclusion that the prescribed rates were so unreasonably low that, if they were maintained, the company would be deprived of its property without due process of law. The Vandalia Railroad Company is a consolidated corporation, organized on January 1, 1905, under the [3] laws of Indiana and Illinois, pursuant to an agreement made by five railroad companies. Of these the Terre Haute & Indianapolis Company owned a railroad extending from Indianapolis westward to the boundary between the states of Indiana and Illinois, and the St. Louis, Vandalia, & Terre Haute Company owned a railroad extending from that point to East St. Louis, Illinois. These two lines, forming a continuous route between In231 U. S. dianapolis and East St. Louis, constituted of this reduction upon the company's net what was called the St. Louis division of return was to be satisfactorily proved, and the new company. The other lines entering could not be assumed. into the consolidation were the Terre Haute & Logansport, from Terre Haute to Logansport and South Bend, Indiana; the Logansport and Toledo, from Logansport to Butler, Indiana; and the Indianapolis & Vincennes, | from Indianapolis to Vincennes, Indiana. The conclusion in the court below was reached in the following manner: The complainant showed, and the master found, that for the year 1904 the operating expenses upon the line between Indianapolis and the Illinois boundary were 74.50 per cent of the whole earnings upon that line from every source, and that after con The order applied to that portion of the Vandalia Company's road which lay between Indianapolis and the western bound-solidation, in the years 1905 and 1906, ary of Indiana, a distance of about 80 miles, which originally belonged to the Terre Haute & Indianapolis Company. The order was further limited to the freight traffic moving on "class rates;" that is, to the traffic, having its origin and destination on this part of the company's line, which was embraced in the six classes of the "official classification" as theretofore established by the company. The existing class rates were found by the commission to be unreasonably high, and the maximum rates in question were ordered to be substituted as just and reasonable. No the operating expenses of the entire St. Louis division were respectively 73.03 and 73.64 per cent of the entire earnings of that division. These ratios were then applied for the purpose of determining the expense of transporting that part of the freight which moved under class rates between stations on the road from [5] Indianapolis to the Illinois boundary. Thus, it was assumed that, as the gross revenue from this classified freight was $79,803.80 in 1904, the expense of transporting it was 74.50 per cent of that amount, or $59,453.83; that, in 1905, with a gross revenue of $91,067.56, the expense was 73.03 per cent thereof, or $66,506.64; and that in 1906, with a gross revenue of $102,241.15, the expense was 72.64 per cent, or $74,267.97. According to this method of calculation, the revenue which would have been received under the order of the commission would have been less than the expense of transportation. It is plain, however, that it does not follow from the mere fact that the total There was no proof of the value of the complainant's property within the state of Indiana, or of the return it received from its entire intrastate business. Nor was there proof of the value of that portion of its road which was affected by the order, or of the return from all of its intrastate business upon that part of its lines. attempt was made to supply proof of that sort. For all that appears, [4] the Vandalia Company might enjoy, notwithstanding the enforcement of the rates in ques-operating expenses of a railroad, or of a tion, ample revenue from its intrastate operations to give it a fair return both as to all its lines within the state and also as to that portion to which the order referred. The total tonnage of all kinds of freight on the 80 miles of railroad from Indianapolis to the Illinois boundary cannot be ascertained from the evidence. The amount of traffic moving on commodity rates is not shown. It was found by the master, and it is undisputed, that the gross revenue from the transportation of that portion of the traffic which constituted the classified intrastate freight, on the described 80 miles of road, during the three years prior to the making of the order, was as follows: 1904, $79,803.80; 1905, $91,067.56; 1906, $102,241.15; and that the gross revenue from the same traffic, under the rates prescribed by the commission, would have been in 1904, $52,222.12; in 1905, $60,079.13; in 1906, $66,936.99. This would have been a large reduction in the gross revenue from that particular traffic, but it must not be overlooked that the commission found that the former rates were excessive; and the effect division of a railroad, bear a given relation to the entire receipts of that road or division, that the cost of transportation in the case of a particular class of traffic bears the same relation to the revenue derived from that class. The ratio, in the first case, is found by bringing together a great variety of operations involving various rates and different outlays for different sorts of traffic. It is predicated of the whole volume of business considered as such, and may be far from true of some part of it considered separately. It does not purport to be an expression of the relative cost of any specified part, but simply of that of the entire traffic to which it applies. How hazardous may be the use of such a ratio to determine the relative cost of a fragment of the business is apparent in this case. Thus it appeared that the total gross earnings of the complainant's St. Louis division in the year 1905 was $4,750,811.13. Of this, the entire gross receipts from the classified freight here in question were only $91,067.56, or less than two per There, the of Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418. legislature of Nebraska had established a classification for all intrastate freight With carried by railroad, and had fixed the maximum rates to be charged therefor. other evidence, the court had before it the testimony and exhibits furnished by one of the defendants in that case,. a secretary of the state board of transportation, and a principal witness for that board, who gave the results of his investigations with re cent. The expenses of the division for that year were $3,469,544.81, or 73.03 per cent of the total earnings as stated. In 1906, the earnings of the St. Louis division were $5,480,094.77, and the expenses were $3,These [6] 980,906.90, or 72.64 per cent. amounts embrace interstate and intrastate traffic, freight and passenger, and all freight, whether moving on class or commodity rates. A large increase or reduction in the class rates on the particular intrastate freight in question, the volume of business being the same (as is the assump-spect to the traffic of each company within tion), would have had a very slight effect upon the ratio of cost to earnings based on Had the entire operations. To illustrate: the rates on the small portion of freight here under consideration been 50 per cent higher than they actually were in 1905 and 1906, and had the gross revenue on this traffic been increased accordingly, the total receipts of the division would have been so little enlarged that the ratio of expenses to earnings for the entire division would still have been about 72.33 per cent and 71.97 per cent in those years, respectively. If, on the same amount of traffic, from this classified the gross revenue freight in 1905 had thus been $136,601.34 instead of $91,067.56, and the above ratio were applied to determine the cost of its transportation, that cost would be made to appear to be $98,803.74. On such a calculation, it would follow, of course, that a reduction of 30 per cent even in such rates would bring the revenue on the same amount of business below its cost. Again, it is to be observed that had the rates prescribed by the commission been in force in 1905 and 1906, and had other conditions been the same, the expense ratios for the whole volume of business of the St. Louis division would have been only 73.51 and 73.11 per cent, respectively. In these circumstances, the ratio of total expense to total earnings affords, in itself, no sufficient basis for determining the cost of the transportation of the particular traffic covered by the order under review. It alone furnishes no ground for invalidating the finding of the commission that the existing rates were exorbitant and that the Before substituted rates would be fair. such a ratio could properly be used in setting forth the cost of a specified [7] portion of the traffic, it would be necessary to have evidence either justifying the conclusion that the cost in proportion to the revenue was substantially the same for that part of the traffic as for the whole, or, if there were a material difference, satisfactorily showing its nature and extent. In defending the use of the method adopted below, appellee relies upon the case the state. The ratio of expense to earnings Each case, as was pointed out in Smyth But this was based on the total v. Shepard) 230 U. S. 352, 462-465, 57 L. the platform at the Indianapolis terminal, | effect of taking up a permanent residence but this fell far short of the showing rein a foreign country within five years after quired, and it appeared that of the six securing the certificate, although this parclasses of freight, to which the order ap- while the section was under consideration in agraph was inserted by way of amendment plied, the fifth and sixth classes, constitut- the House of Representatives. ing much more than one half in tonnage [For other cases. see Aliens, VII., in Digest of the classified freight, always moved in Sup. Ct. 1908.] carload lots loaded by the shipper. The evidence showed that the class rates on local traffic on the line between Indianapolis and the Illinois boundary, which were maintained by the Vandalia Company, and condemned by the commission as unreasonable, were higher than the class rates for corresponding distances to local stations in Indiana on other lines (including one of the Vandalia Company's divisions) running out of Indianapolis to the east and south. It wholly failed to sustain the contention that the action of the commission in ordering the reduction complained of transcended the limits imposed by the 14th Amendment. The decree is reversed and the case remanded, with direction to dismiss the bill without prejudice. [9] GEORGE A. LURIA, Appt., V. UNITED STATES. (See S. C. Reporter's ed. 9-28.) Appeal question not raised below. tender the issue of fraud on which the case certificate. impeaching Aliens idence. naturalization future res S. Rev. Stat. §§ 2165-2170, U. S. Comp. 3. The right to naturalization under U. Stat. 1901, pp. 1329-1333, was by necessary implication conferred upon such aliens only as contemplated the continuance of a residence already established in the United States. [For other cases, see Aliens, VII., in Digest [For other cases, see Aliens, VII., in Digest - legislative preimpeaching naturalizasubsequent resi 5. Constitutional rights are not invaded by the declaration in § 15 of the naturalization act of June 29, 1906, that taking up a permanent residence in a foreign country within five years after the issuance of a certificate of citizenship shall be considered prima facie evidence of the lack of intention to become a permanent citizen of the United States at the time of the application for citizenship, which, in the absence of countervailing evidence, shall be sufficient to warrant the cancelation of the certificate as fraudulent, since this provision prescribes a rule of evidence, not of substantive right. certificates issued [For other cases, see Constitutional Law, 774778, 799-803, in Digest Sup. Ct. 1908.] Constitutional law retrospective laws impeaching naturalization certificate legislative presumption. 2. The express declaration in the act 6. The retrospective feature of § 15 of the of June 29, 1906, § 15, making naturaliza-naturalization act of June 29, 1906, for the tion certificates impeachable when fraudu- impeachment of certificates of citizenship lently or illegally procured, that the pro- fraudulently or illegally procured, which visions of that section shall apply to cer- makes applicable to tificates issued under prior laws as well under prior laws the declaration of that as those issued under that act, makes ap- section that taking up permanent residence plicable to certificates theretofore issued in a foreign country within five years after the provisions of the second paragraph of the issuance of the certificate shall be that section, dealing with the evidential prima facie evidence of a lack of intention to become a permanent citizen of the tion for citizenship, which, in the absence United States at the time of the applica. of countervailing evidence, shall be suflicient to warrant the cancelation of the certificate as fraudulent, does not render [For other cases, see Constitutional Law, 948– such legislation invalid. 1006, in Digest Sup. Ct. 1908.] NOTE. On the right to trial by jury, generally-see notes to Justices of Supreme Ct. v. United States, 19 L. ed. U. S. 658; Eilenbecker v. District Ct. 33 L. ed. U. S. 801; Gulf, C. & S. F. R. Co. v. Shane, 39 L. ed. U. S. 727; and Perego v. Dodge, 41 L. ed. U. S. 113. |