United States v. South Buffalo Railway Company/Dissent Rutledge

by Robert H. Jackson

United States Supreme Court

333 U.S. 771

United States  v.  South Buffalo Railway Company

 Argued: Feb. 2, 1948. --- Decided: April 26, 1948

Mr. Justice RUTLEDGE, with whom Mr. Justice BLACK, Mr. Justice DOUGLAS, and Mr. Justice MURPHY join, dissenting.

This is another case where the Court saddles Congress with the load of correcting its own emasculation of a statute, by drawing from Congress' failure explicitly to overrule it, the unjustified inference that Congress approves the mistake. I think that United States v. Elgin, J. & E.R. Co., 298 U.S. 492, 56 S.Ct. 841, 80 L.Ed. 1300, was decided in the teeth of the commodities clause, 49 U.S.C. § 1(8), 49 U.S.C.A. § 1(8), that it should now be overruled, and that this conclusion is dictated by the legislative history which the Court misreads, in my opinion, as giving basis for the opposite one.

The commodities clause forbids 'any railroad company to transport * * * any article or commodity * * * in which it may have any interest, direct or indirect * * *.' The Elgin decision made the clause 'in which it may have any interest, direct or indirect' to read, in effect, 'in which it may have any interest, direct or indirect, unless the interest is indirectly held through 100 per cent stock ownership of another corporation and hence 100 per cent interest in that company's profits, or through some other corporate arrangement having like effects.'

The simple question for decision under the statute is whether the South Buffalo Railway has an interest, 'direct or indirect,' in the commodities which it hauls fr the affiliated Bethlehem Steel Company. Any attempt to answer by a factual inquiry into the degree of control which the Holding Company or the Steel Company has actually exercised over the railroad can only complicate a simple problem. ^[1] Only by the most sophisticated, or unsophisticated, process of reasoning can it be concluded that any one of the many subsidiary members of this integrated steel producing empire ^[2] has no interest in the operations of every other member. Particularly, the railroad has an interest in the production of the Steel Company, 'for all of the profits realized from the operations of the two must find their way ultimately into (the Holding Company) treasury-any discriminating practice which would harm the general shipper ^[3] would profit the Holding Company.' United States v. Reading Co., 253 U.S. 26, 61, 40 S.Ct. 425, 433, 64 L.Ed. 760. Here a railroad and one of its customers are both wholly owned subsidiaries of the same holding company. It is clear to me, and the Court does not deny, that the railroad in fact is occupying the inconsistent positions of carrier and shipper which the commodities clause was designed to prevent. United States v. Reading Co., supra. ^[4]

The Court does not dispute that it would so hold if the clause had not been construed differently in the Elgin case. But even on the assumption that the statute was then misconstrued, the Court is unwilling to correct its own error because it concludes that Congress has subsequently indicated approval of the Elgin decision. This conclusion is based on a distorted view of the legislative history of the Transportation Act of 1940, particularly of § 12 of S. 2009, which would have amended the commodities clause if adopted. Since the proposed § 12 would have overruled the Elgin case, and since it was rejected in committee as 'far too drastic,' ^[5] it is inferred that Congress has expressed approval of that case.

The conclusion does not follow because the premise is wrong. The argument overlooks the crucial inquiry, namely, the reason for which Congress considered the proposed § 12 'far too drastic.' If this reason had been an objection to applying the commodities clause to the wholly owned subsidiary relationships presn t in this and the Elgin cases, the argument might have some pertinence. But that was not the reason. On the contrary, the two Senators who were most active in sponsoring the bill and in the conduct of the hearings on it felt that no legislation would be necessary if no more were intended than a reversal of the Elgin case. ^[6] That was only one of several broad purposes of the bill, others being much more sweeping. The new commodities clause, instead of applying only to railroads, would have applied to all types of carriers except air carriers. It is perfectly clear from a reading of the hearings that this proposed application to carriers of all types was what was considered 'far too drastic' a change to be included in the Transportation Act of 1940.

The crucial importance of this extension is abundantly shown from the vigorous objections on behalf of parties that would have been affected by extending the commodities clause to water carriers, ^[7] to pipe lines, ^[8] and to motor carriers. ^[9] It was argued repeatedly that it was proper for shippers to control interestsi n these carriers for reasons not applicable to carriers by rail. These arguments cannot be read without concluding that the change, whether desirable or not, would have been drastic indeed and would have gone far beyond the intended coverage of the Transportation Act of 1940. ^[10] Rather than jeopardize the entire legislative program comprehended by the Act, ^[11] the committee naturally decided that sound strategy required separate consideration of this narrower, but still broad and highly controversial problem.

Statements of the committee chairman show that this was the real basis for the conclusion that the amendment would have been 'far too drastic.' ^[12] Indeed they show, together with other statements before the committee that the Elgin decision was regarded as unfortunate and likely to be overruled when another case should arise. ^[13] Even the opposition by the short-line railroads was not based on the argument that an overruling of the Elgin case would have been too drastic, but rather on the fact that the amended § 12, in conjunction with other proposed legislation, would have prohibited the transportation of commodities for anyone who owned, even as an investment, as much as ten per cent of the stock of the railroad. ^[14] And other groups argued that the amendment was too drastic because it was not limited to common carriers. ^[15] In sum, the proposed amendment was indeed drastic, but not because it would have accomplished what the committee members assumed this Court would and should do without legislative aid. ^[16] It is therefore most unreasonable to conclude that the considerations which prompted the Senate Committee to reject a proposed extension of the commodities clause to all types of carrier compel this Court to deny a request to overrule an interpretation of the impact of the clause on railroads which the most active sponsors regarded as erroneous.

The host of reasons which may have induced the various members of the committee to forego the extremely controversial and drastic extensions forbids any inference that the committee action was the equivalent of approval of the Elgin case by the entire Congress. In fact, the difficulty of interpreting the views of even one legislator without taking account of all he has had to say, as exemplified by the discussion in note 6, should serve as a warning that the will of Congress seldom is to be determined from its wholly negative actions subsequent to the enactment of the statute construed. In this case the rejection of the proposed amendment is not more, indeed I think it is less, indicative of congressional acquiescence than complete inactivity would have been. Even if there may be cases where the 'silence of Congress' may have some weight, that ambiguous doctrine does not require or support the result which the Court reaches today. Girouard v. United States 328 U.S. 61, 66 S.Ct. 826, 60 L.Ed. 1084; cf. Cleveland v. United States, 329 U.S. 14, concurring opinion at page 21, 67 S.Ct. 13, concurring opinion at page 16.

Nor is that result justified by the 'equitable' considerations which the Court's opinion somewhat obliquely advances. It is suggested that a refusal to follow the Elgin precedent would be to apply a different and more drastic rule to Bethlehem than applies to its competitor, the United States Steel Corporation. But, aside from the specious character of an argument that permits X to violate the law on the ground that Y also violates it, there is no explanation offered for the assumption that the overruling of the Elgin case would have no effect on United States Steel. The policy of res judicata would not apply, cf. Commissioner v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, and United States Steel, instead of being prejudiced by the course of decision, actually has been benefited by more than a decade of ownership of the Elgin road, contrary to the statute's plain terms and policy.

The Court also feels that the relief requested is too drastic because Bethlehem would be compelled to sell its short-line railroads, the Government has not shown that independent ownership of these railroads is likely, nor has it shown that evils exist which would be remedied by this relief. These are considerations which undoubtedly influenced the majority in the Elgin case, somewhat differently it would seem from the majority in this one, but which the dissenting justices felt had been foreclosed by the legislative determination of policy. Reliance on such arguments today seems inconsistent with the statement 'that if the Elgin case were before us as a case of first impression, its doctrine might not now be approved.' Moreover, it does not follow that this Court in the exercise of its equity jurisdiction could not adapt the relief afforded so as to give time and opportunity for making the adjustments necessary to secure conformity with the statute in an orderly and inoppressive manner. Indeed it would be the Court's duty to do this.

The arguments on this level are most effectively answered by the dissenting opinion of Mr. Justice Stone, who was joined by Mr. Justice Brandeis and Mr. Justice Cardozo, in the Elgin case: 'The language of the commodities clause, read in the light of its legislative history, can leave no doubt that its purpose was to withhold from every interstate rail carrier the inducement and facility for favoritism and abuse of its powers as a common carrier, which experience had shown are likely to occur when as ingle business interest occupies the inconsistent position of carrier and shipper. See United States v. Reading Co., 253 U.S. 26, 60, 61, 40 S.Ct. 425, (433), 64 L.Ed. 760. Before the enactment of the commodities clause, Congress, by sweeping prohibitions, had made unlawful every form of rebate to shippers and every form of discrimination in carrier rates, service, and facilities, injurious to shippers or the public. By the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note, it had forbidden combinations in restraint of interstate commerce. But it did not stop there. The commodities clause was aimed, not at the practices of railroads already penalized, but at the suppression of the power and the favorable opportunity, inseparable from actual control of both shipper and carrier by the same interest, to engage in practices already forbidden and others inimical to the performance of carrier duties to the public. See Delaware, L. & W.R. Co. v. United States, 231 U.S. 363, 370, 34 S.Ct. 65, 66, 58 L.Ed. 269; United States v. Reading Co., supra.' 298 U.S. at page 504, 56 S.Ct. at page 844, 80 L.Ed. 1300. ^[17]

In my opinion this expresses the intent of the letter and the policy of the commodities clause, and we should now return to it on our own responsibility. Congress should not again be required to reenact what it has once provided for, only to have its mandate nullified in part by this Court's misconstruction.

Notes

1. See Comment, The Commodities Clause and the Regulation of Industrial Railroads, 46 Yale L.J. 299; 36 Col.L.Rev. 1175.
2. The Holding Company owns substantially all the stock in approximately 57 subsidiaries, including the Steel Company and the South Buffalo Railway Company. Some of these produce ore in Chile, Venezuela, Cuba and in the Upper Great Lakes regions; others control coal mines in West Virginia and Pennsylvania. Two subsidiaries operate ocean-going steamship lines, hauling raw materials to steel plants controlled by other subsidiaries. A Great Lakes shipping company owned by the Holding Company carries ore from a mining subsidiary to a producing subsidiary. Seven short-line railroads including South Buffalo, each wholly owned by the Holding Company and having common officers and directors, transport products for the various Bethlehem steel plants.
3. The opinion of the Court seems to assume that the purpose of the commodities clause was to prevent the holding company from favoring 'its shipping subsidiary at the expense of its carrying subsidiary, or vice versa.'
4. Moreover, the conclusion is factually justified by the history of complete domination prior to 1940 plus the fact that former employees of the Steel Company continue to be the principal officers of South Buffalo as well as the other Bethlehem short-line railroads. 'Historical ties and associations, combined with strategic holdings of stock, can on occasion serve as a potent substitute for the more obvious modes of control.' North American Co. v. Securities & Exchange Commission, 327 U.S. 686, 693, 66 S.Ct. 785, 790, 90 L.Ed. 945.
5. S.Rep.No.443, 76th Cong., 1st Sess. 15; Hearings before Senate Committee on Interstate Commerce on S. 2009, 76th Cong., 1st Sess. 427, 590, 772.
6. Senator Reed expressly so stated: 'Judge, you remember that Justice Stone, Justice Brandeis, and Justice Cardozo dissented from that majority opinion of the Supreme Court in the E.J. & E. case * * *. I am inclined to think that the Supreme (sic), as presently constituted, would hold with what was the minority view.' Hearings before Senate Committee on S. 2009, 76th Cong., 1st Sess. 68. He later said that he thought the Elgin decision 'was a strange construction of the law on the part of the Supreme Court of the United States.' Id. at 309.
7. Id. 236, 284-286, 308-310, 385-387, 427-432, 492, 623, 632, 633, 692, 753, 754, 926-928.
8. Id. 386, 589-597, 606-610, 611, 612, 654-660, 736-742.
9. Id. 127, 432, 433.
10. For example, the petroleum industry strenuously opposed the provision because it would have effected the divorcement of pipe line companies from producers. See note 8 supra; cf. id. at 935. Opposition by farm lobbies was directed particularly at the new commodities clause: 'Section 12 appears to endanger the activities of more than 100,000 farmers of our area who have cooperatively associated themselves together and who, because of exorbitant rail rates, are transporting increasing tonnage of grain, livestock, and petroleum products both through cooperative trucking associations and by trucks owned by local or regional cooperatives.' Id. 432-433. See also id. 311. The most vigorous opposition, however, came from parties who would be adversly affected by the applicability of the clause to water carriers. See note 7 supra. They pointed out, as an instance of the far-reaching effect of the amendment, that 65 per cent of the privately owned American merchant marine would be affected by the change.
11. See Hearings 772; cf. note 10 supra.
12. Senator Wheeler explained the basis for the decision to abandon the proposed amendment more than once. To shorten testimony by witnesses interested in the effect of the clause on pipe lines and water carriers he stated: 'You might as well quit wasting your time, because I made an announcement yesterday with reference to that, and I hope you people will not come here with the idea of taking up a lot of time on that. I have said that pipe lines are a subject that ought to be given independent consideration, and we cannot take it up and give it the necessary time and study in this bill. That may be modified or eliminated, so far as pipe lines and water carriers are concerned.' Id. 590. Later he said: 'I have felt, frankly, that in this particular legislation, which does divorce, ships from industry, that it was such a broad subject, and one which requires so muc independent study, that it ought to be handled by separate legislation. No one in the Government service seems to have made a study of the question. I felt that it ought to be eliminated from the provisions of this bill at this time, and be introduced as separate, independent legislation, as has been done in the past.' Id. 772.
13. See note 6.
14. Hearings 541; and see id. 285, 385, 386.
15. Id. 421, 435, 841.
16. See note 6.
17. See also note 4.