514, Ann. Cas. 1917C, 643, and Caldwell v. Sioux Falls Stock Yards Co., 242 U. S. 559, 37 S. Ct. 224, 61 L. Ed. 493. [6] The Pennsylvania Securities Act is a police measure, intended to prevent fraud in the sale of securities in Pennsylvania, and is a reasonable exercise of the police power of the state, and is not an unlawful interference with interstate commerce, and its control or effect on interstate commerce is merely incidental. This position is clearly supported in Hall v. Geiger-Jones Co., 242 U. S. 539, on page 549, 37 S. Ct. 217, 220 (61 L. Ed. 480, L. R. A. 1917F, 514, Ann. Cas. 1917C, 643). Mr. Justice McKenna, delivering the opinion of the court, explained the provisions of the so-called Blue Sky Law of Ohio (Gen. Code, § 6373-2 et seq.) as follows: "The question then is: Is the statute of Ohio within the principles declared? The statute is a restraint upon the disposition of certain property, and requires dealers in securities evidencing title to or interest in such property to obtain a license-a requirement simple enough in itself, and yet of itself asserted to be an illegal control of a private business, made especially so by the conditions which are imposed. These conditions, summarized, are as follows: "To obtain the license there must be filed with superintendent of banks and banking (termed in the act 'commissioner') application for such license, together with information in such form as the commissioner shall determine, setting forth: "(a) The names and addresses of the directors and officers if such applicant be a corporation or association, and of all partners if it be a partnership, and of the person if the appellant be an individual, together with names and addresses of all agents of such applicant assisting in the disposal of such securities; 66 6 (b) Location of the applicant's principal office, and of his principal office in the state, if any; "(c) The general plan and character of the business of said applicant, together with references which the 'commissioner' shall confirm by such investigation as he may deem necessary, establishing the good repute in business of such applicant, directors, officers, partners, and agents. "If the applicant be a corporation organized under the laws of any other state, territory, or government, or have its principal place of business therein, it shall also file a copy of its articles of incorporation, certified by the proper officer of such state, territory, or government, and of its regulations and by-laws, and if it be an unincorporated association, a certified copy of its articles of association, or deed of settlement.' "The applicant is also required to file a written instrument irrevocably consenting to be sued in a particular county, and, if personal service there cannot be had, consenting to service upon the sheriff of the county. It is also provided that all of the applications shall be published in a daily newspaper, and, if the commissioner be satisfied that the applicant is of good business repute, he shall, upon payment of certain fees, register the applicant as a licensed dealer in securities. Pending disposition of the application, temporary permission to transact business may be given. Yearly renewals of the licenses are provided for. "The commissioner may revoke a license upon ascertaining that the licensee: (a) Is of bad business repute; (b) has violated any provision of the act; or (c) has engaged, or is about to engage, under favor of such license, in illegitimate business or fraudulent transactions." On page 557 [37 S. Ct. 223], Judge McKenna continued: "The next contention of the appellees is that the law under review is a burden on interstate commerce, and therefore contravenes the commerce clause of the Constitution of the United States. There is no doubt of the supremacy of the national power over interstate commerce. Its inaction, it is true, may imply prohibition of state legislation; but it may imply permission of such legislation. In other words, the burden of the legislation, if it be a burden, may be indirect and valid, in the absence of the assertion of the national power. So much is a truism; there can only be controversy about its application. The language of the statute is: 'Except as otherwise provided in this act, no dealer shall, within this state, dispose' of certain securities 'issued or executed by any private or quasi public corporation, copartnership or association (except corporations not for profit) without first being licensed so to do as hereinafter provided.' "The provisions of the law, it will be observed, apply to dispositions of securities within the state, and while information of those issued in other states and foreign countries is required to be filed (sections 6373-9) they are only affected by the requirement of a license of one who deals in them within the state. Upon their transpor 16 F. (2d) 290 than that they be kept free when in actual transportation, subjected to the jurisdiction of the state only when they are attempted to be sold to the individual purchaser? The questions are pertinent, the answer to them one way or the other, of consequence; but we may pass them, for regarding the securities as still in interstate commerce after their transportation to the state is ended and they have reached the hands of dealers in them, their interstate character is only incidentally affected by the statute." [7, 8] In Savage v. Jones, 225 U. S. 501, on page 524, 32 S. Ct. 715, 722 (56 L. Ed. 1182), Mr. Justice Hughes clearly stated the law which we may apply to this case: tation into the state there is no impediment Do they never pass out of interstate com-no regulation of them or interference with merce? Have they always the freedom of them after they get there. There is the ex- the state? Is there no point of time at action only that he who disposes of them which the state can expose the evil that they there shall be licensed to do so, and this only may mask? Is anything more necessary that they may not appear in false character and impose an appearance of a value which they may not possess; and this certainly is only an indirect burden upon them as objects of interstate commerce, if they may be regarded as such. It is a police regulation strictly, not affecting them until there is an attempt to make disposition of them within the state. To give them more immunity than this is to give them more immunity than more tangible articles are given; they having no exemption from regulations the purpose of which is to prevent fraud or deception. Such regulations affect interstate commerce in them only incidentally. Hatch v. Reardon, 204 U. S. 152 [27 S. Ct. 188, 51 L. Ed. 415, 9 Ann. Cas. 736]; Ware & Leland v. Mobile County, 209 U. S. 405 [28 S. Ct. 526, 52 L. Ed. 855, 14 Ann. Cas. 1031]; Engel v. O'Malley, 219 U. S. 128 [31 S. Ct. 190, 55 L. Ed. 128]; Brodnax v. Missouri, 219 U. S. 285 [31 S. Ct. 238, 55 L. Ed. 219]; Banker Brothers Co. v. Pennsylvania, 222 U. S. 210 [32 S. Ct. 38, 56 L. Ed. 168]; Savage v. Jones, 225 U. S. 501 [32 S. Ct. 715, 56 L. Ed. 1182]; Standard Stock Food Co. v. Wright, 225 U. S. 540 [32 S. Ct. 784, 56 L. Ed. 1197]; Trading Stamp Cases, supra [Rast v. Van Deman & L. Co., 240 U. S. 342, 36 S. Ct. 370, 60 L. Ed. 679, L. R. A. 1917A, 421, Ann. Cas. 1917B, 455; Tanner v. Little, 240 U. S. 369, 36 S. Ct. 379, 60 L. Ed. 691; Pitney v. Washington, 240 U. S. 387, 391, 36 S. Ct. 385, 60 L. Ed. 703, 706]. With these cases International Text-Book Co. v. Pigg, 217 U. S. 91 [30 S. Ct. 481, 54 L. Ed. 678, 27 L. R. A. (N. S.) 493, 18 Ann. Cas. 1103]; Buck Stove & Range Co. v. Vickers, 226 U. S. 205 [33 S. Ct. 41, 57 L. Ed. 189], and the Lottery Case, 188 U. S. 321 [23 S. Ct. 321, 47 L. Ed. 492], are not in discordance. "We might, indeed, ask: When do the designated securities cease migration in interstate commerce and settle to the jurisdiction of the state? Material things, choses in possession, pass out of interstate commerce when they emerge from the original package. Do choses in action have a longer immunity? It is to be remembered that, though they may differ in manner of transfer, they are in the same form in the hands of the purchaser as they are in the hands of the seller, and in the hands of both as they are brought into the state. We ask again: "The state cannot, under cover of exerting its police powers, undertake what amounts essentially to a regulation of interstate commerce, or impose a direct burden upon that commerce. Railroad Co. v. Husen, 95 U. S. 465, 475 [24 L. Ed. 527]; Walling v. Michigan, 116 U. S. 446 [6 S. Ct. 454, 29 L. Ed. 691]; Bowman v. Chicago, etc., Ry. Co., 125 U. S. 465 [8 S. Ct. 689, 1062, 31 L. Ed. 700]; Leisy v. Hardin, 135 U. S. 100 [10 S. Ct. 681, 34 L. Ed. 128]; Minnesota v. Barber, 136 U. S. 313 [10 S. Ct. 862, 34 L. Ed. 455]; Brimmer v. Rebman, 138 U. S. 78 [11 S. Ct. 213, 35 L. Ed. 862]; Scott v. Donald, 165 U. S. 58 [17 S. Ct. 265, 41 L. Ed. 632]; Schollenberger v. Pennsylvania, 171 U. S. 1, 13 [18 S. Ct. 757, 43 L. Ed. 49]; Houston & Texas Central R. R. Co. v. Mayes, 201 U. S. 321 [26 S. Ct. 491, 50 L. Ed. 772]; Atlantic Coast Line v. Wharton, 207 U. S. 328 [28 S. Ct. 121, 52 L. Ed. 230]; Adams Express Co. v. Kentucky, 214 U. S. 218 [29 S. Ct. 633, 53 L. Ed. 972]. But when the local police regulation has real relation to the suitable protection of the people of the state, and is reasonable in its requirements, it is not invalid because it may incidentally affect interstate commerce, provided it does not conflict with legislation enacted by Congress pursuant to its constitutional authority. Plumley v. Massachusetts, 155 U. S. 461 [15 S. Ct. 154, 39 L. Ed. 223]; Hennington v. Georgia, 163 U. S. 299, 317 [16 S. Ct. 1086, 41 L. Ed. 166]; N. Y., N. H. & H. Ry. Co. v. New York, 165 U. S. 628 [17 S. Ct. 418, 41 L. Ed. 853]; Chicago, M. & St. P. Ry. Co. v. Solan, 169 U. S. 133 [18 S. Ct. 289, 42 L. Ed. 688]; Missouri, Kansas & Texas Ry. Co. v. Haber, 169 U. S. 613 [18 S. Ct. 488, 42 L. Ed. 878]; Patapsco Guano Co. v. North Carolina, 171 U. S. 345 [18 S. Ct. 862, 43 L. Ed. 191]; Reid v. Colorado, 187 U. S. 137 [23 S. Ct. 92, 47 L. Ed. 108]; Pennsylvania R. R. Co. v. Hughes, 191 U. S. 477 [24 S. Ct. 132, 48 L. Ed. 268]; Crossman v. Lurman, 192 U. S. 189 [24 S. Ct. 234, 48 L. Ed. 401]; Mclean v. Denver & Rio Grande R. R. Co., 203 U. S. 38, 50 [27 S. Ct. 1, 51 L. Ed. 78]; Asbell v. Kansas, 209 U. S. 251, 254-256 [28 S. Ct. 485, 52 L. Ed. 778, 14 Ann. Cas. 1101]; Chicago, R. I. & P. Ry. Co. v. Arkansas, 219 U. S. 453 [31 S. Ct. 275, 55 L. Ed. 290]. "In Plumley v. Massachusetts, a law of that commonwealth was sustained which had been passed 'to prevent deception in the manufacture and sale of imitation butter.' The article, for the sale of which the plaintiff in error was convicted in the state court, had been received by him from the manufacturers in Illinois, as their agent, and had been sold in Massachusetts in the original package. The court said (supra, pages 468, 472 [15 S. Ct. 156]), referring to the purpose and effect of the statute: 'He is only forbidden to practice, in such matters, a fraud upon the general public. The statute seeks to suppress false pretenses and to promote fair dealing in the sale of an article of food. It compels the sale of oleomargarine for what it really is, by preventing its sale for what it is not. Can it be that the Constitution of the United States secures to any one the privilege of manufacturing and selling an article of food in such manner as to induce the mass of people to believe that they are buying something which, in fact, is wholly different from that which is offered for sale? Does the freedom of commerce among the states demand a recognition of the right to practice a deception upon the public in the sale of any articles, even those that may have become the subject of trade in different parts of the country? Such legislation may, indeed, indirectly or incidentally affect trade in such products transported from one state to another state. But that circumstance does not show that laws of the character alluded to are inconsistent with the power of Congress to regulate commerce among the states." " In Shafer v. Farmers' Grain Co., 268 U. S. 189, 45 S. Ct. 481, 69 L. Ed. 909, Mr. Justice Van Devanter, delivering the opinion of the court, said on page 199 (45 S. Ct. 485): "The decisions of this court respecting the validity of state laws challenged under the commerce clause have established many rules covering various situations. Two of these rules are specially invoked here one that a state statute enacted for admissible state purposes, and which affects interstate commerce only incidentally and remotely, is not a prohibited state regulation in the sense of that clause; and the other that a state statute, which by its necessary operation directly interferes with or burdens such commerce, is a prohibited regulation and invalid, regardless of the purpose with which it was enacted. These rules, although readily understood and entirely consistent, are occasionally difficult of application, as where a state statute closely approaches the line which separates one rule from the other. As might be expected, the decisions dealing with such exceptional situations have not been in full accord. Otherwise, the course of adjudication has been consistent and uniform." From the above authorities it is clear that the Pennsylvania Securities Act cannot be attacked on the ground that it is an unlawful interference with interstate merce. com [9] We might well further add that the plaintiffs' action here is premature, for the reason that it is impossible for this court to determine that it was the intention of the authorities of the state of Pennsylvania to undertake any direct interference with interstate commerce. For the reason indicated under the third question involved, the motions to dismiss the plaintiffs' bill and to dissolve the preliminary injunction are sustained, and the interlocutory restraining order is discharged. 16 F. (2d) 297 BROWNWOOD NORTH & SOUTH RY. CO. V. RAILROAD COMMISSION OF TEXAS et al. In Equity. The Brownwood North & South Railway Company sues the Railroad Commission of Texas, the Attorney General (District Court, W. D. Texas, Austin Division. of Texas, and other defendants, shippers of December 24, 1926.) sence of contract. If it appears reasonably certain that future operation will be at a loss, a railroad, in the absence of a contract, may cease operations, dismantle its road, and realize its salvage value. 4. Constitutional law 298 (2)-To compel railroad to operate at a loss is to take propperty without due process (Const. Amend. 14). For a state to compel a railroad to continue operation at a loss is to deprive it of its property without due process of law, in violation of Const. Amend. 14. 5. Railroads -214-Railroad's acceptance of charter is not waiver of constitutional guar anties. Charter of railroad and its acceptance is not a waiver of constitutional guaranties. 6. Railroads 214-That others have made improvements in expectation of continued operation does not result in implied obligation of railroad to operate. That others have made substantial improvements along railway, and in tributary territory in expectation of continued operation does not burden railroad with implied obligation to operate. 7. Railroads 214-Individuals adversely affected by railroad's abandonment of operation have no cause of action for damages. Railroad's abandonment of operation, with resulting damage to communities served, in itself gives no cause of action to individuals af fected. 8. Railroads -214-Evidence of railroad's operating expenses and future prospects held to entitle it to abandon operation. Evidence showing operating losses of railroad and establishing with reasonable certainty that future revenues will not meet operating expenses, costs of replacements, and main tenance, and in addition yield a fair return on the investment, held to entitle railroad to abandon operation. freight over plaintiff's railroad, to enjoin them from preventing plaintiff abandoning the operation of its railroad from Brownwood, Tex., to May, Tex., and from enforcing the penalties prescribed by the laws of Texas against railroads failing to continuously operate trains. A temporary restraining order was issued, and, since the constitutionality of the statutes and the orders and acts of the Railroad Commission of Texas were questioned, a final hearing before three judges was had, as provided by section 266, Judicial Code (Comp. St. § 1243). Decree for plaintiff. Goree, Odell & Allen, of Fort Worth, Tex., for plaintiff. Dan Moody, Atty. Gen., and Charles W. Trueheart and Paul D. Page, Jr., Asst. Attys. Gen., of Texas, for defendants. Before FOSTER, Circuit Judge, and WEST and HUTCHESON, District Judges, sitting under section 266, Judicial Code. WEST, District Judge. The plaintiff seeks equitable relief, suit filed May 10, 1926, on grounds that the entire period of operation from 1912 to July, 1926, resulted in continuing losses, with no reasonable prospect that revenues will in future meet the costs of maintenance, replacements, and operation and give a fair return on the investment; that the laws of Texas require daily train service under prohibitive penalties; that the Railroad Commission of Texas is without power to authorize abandonment; that, plaintiff having given notice of its intention to abandon operation on July 1, 1926, defendants threatened to enforce the drastic penalties of the laws, and thus compel operation, which would constitute a taking of its property without due process of law; that the salvage value of its property, $34,738, would be lost unless plaintiff is permitted to dismantle its road; that a denial of such rights would deprive plaintiff of its property, its value and use, without due process of law, and without compensation, contrary to the Fourteenth Amendment to the Constitution of the United States. The defendants plead the general issue to the essential bases of the cause of action, and further that the laws, the enforcement of which is sought to be enjoined, were in effect at the time of plaintiff's incorporation, and thus forming a part of the charter contract; that substantial improvements have been erected by the citizens of May; that abandonment would result in heavy losses to them; that conditions have improved and will continue to improve in the future; that plaintiff is obligated by contract to continue operations, in that the original incorporators of the railway company delivered their stocks, rights of way, and graded roadbeds to "representatives of the Frisco" on that express condition. The major fact to be determined is whether the continued operation of the road will entail such loss as would result in depriving the company of its property without due process of law and without adequate compensation, and whether there is a reasonable prospect for the future that the road can earn enough to pay operating and maintenance expenses and an excess over that to allow a fair return on the investment. [1-4] The law of the case is settled in State of Texas v. Eastern Texas Railroad Company, 258 U. S. 204, 42 S. Ct. 281, 66 L. Ed. 566, State of Texas v. Eastern Texas Railroad Company (D. C.) 283 F. 584, and State of Texas v. Eastern Texas Railroad Company, et al., 264 U. S. 79, 44 S. Ct. 247, 68 L. Ed. 569, also Colorado v. U. S., 271 U. S. 153, 46 S. Ct. 452, 70 L. Ed. 878. They are authority for the propositions that the Interstate Commerce Commission has no power or authority to issue an order for the abandonment of a railroad that is engaged wholly in intrastate commerce. It was declared in Texas v. Eastern Texas Railroad, 264 U. S. 85, 44 S. Ct. 247, 68 L. Ed. 569, supra, that the charter of a railroad company does not oblige the company to operate its railroad at a loss; nor is such obligation to be implied from the accept ance of such charter and operating under it; also that, if it appears reasonably certain that future operation will be at a loss, a railroad company, in the absence of a contract, may cease operations, dismantle its road, and realize its salvage value; also, if the railroad be compelled by the state in such circumstances to continue operation at a loss, it would be depriving it of its property without due process of law. The accuracy of the documentary data embraced in the many exhibits recording the results of operation, and in the accounting, is without contest. The same might be said as to the law of the case. [5-7] In considering the defenses and contentions of the defendants, it is held: That the charter and its acceptance is not such a contract as would compel the railroad to continue to operate its property indefinitely at a loss, nor constitute a waiver by plaintiff of the guaranties secured to it by the federal Constitution. That persons have erected substantial improvements along the railway, and in territory tributary, in the expectation of continued operation, does not burden plaintiff with an implied obligation to do so. That abandonment of itself, with resulting damages to the communities served, gives no cause of action to the individuals affected. Texas v. Eastern Texas Railroad Company [D. C.] 283 F. 599. Defendants' claim that the original incorporators of the railroad delivered their stock, · rights of way, and graded roadbed to "representatives of the Frisco System," upon the express condition of extensions and continued maintenance and operation of the road, was supported by testimony wholly lacking in certainty as to the parties, the terms, and as to the particular words and phrases which fastened on plaintiff the burden of continuing operation of its road without limitation. The court finds that there was a contract or agreement of the kind stated, but that the evidence does not show that plaintiff was obligated to run the road continuously without limitation, nor that plaintiff has by that contract waived rights accorded under the federal Constitution invoked by it here. Following the procedure adopted in the Eastern Texas Railroad Case, the plaintiff filed, on August 30, 1924, with the Interstate Commerce Commission, an application for a certificate of public convenience and necessity, authorizing the abandonment of operation of its railroad in interstate commerce. This was referred to the Texas State Railroad Commission, with request to take testimony on the issues raised by the application. These are the same as are presented here, except that abandonment referred to interstate commerce there and intrastate commerce here. The federal Commission made all findings upon the application for abandonment, "having regard for the needs of both intrastate and interstate commerce (Colorado v. United States, 271 U. S. 168, 46 S. Ct. 452, 70 L. Ed., May 3rd, 1926), but, interstate traffic having been abandoned, this court answers that question solely from the viewpoint of intrastate commerce. Nevertheless, the facts as to property values, the statistical records of economic data, accounts of returns from revenues, expenses, costs of operation, maintenance, and forecasts of future prospects, must be independently found by the court. The Commission's certificate of abandonment issued March 25, 1926. Its findings, though not binding here, the parties, the issues, and the evidence upon which the Commission acted being practically the same, gives the Commission's findings especial |