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(40 Sup.Ct.)

4. CARRIERS 12(6) TRAFFIC OVER CONNECTING ROAD CONSIDERED IN DETERMINING

CONFISCATORY CHARACTER OF RATES.

In determining at a railroad's suit whether a state statute fixing rates for intrastate passenger traffic is confiscatory, the results of operating through passenger trains over another railroad to an important point lying only 14 miles from the lines of the first will not be excluded from the calculation

railroad's main line and purchased by the rail-, made applicable to all the railroads of the road's predecessor to avoid competition, now state whose gross earnings on passenger used mainly for heavy freight, the intrastate trains equal or exceed $1,200 per mile of line passenger travel over it being slight, is not to operated. Before the statute took effect, the be excluded from the calculation of whether the rate fixed by the statute is confiscatory on any Duluth, South Shore & Atlantic Railway ground that its construction was not required Company, an interstate carrier operating in by transportation needs. the Upper Peninsula, brought this suit in the District Court of the T'nited States for the *609 Eastern District of Michigan to enjoin the enforcement of the act. The bill alleged that the reduced rate would deprive plaintiff of its property without due process of law in violation of the Fourteenth Amendment. The Attorney General and the railroad commissioners of the state, being charged by the law with its enforcement, were made defendants. They denied that the rate was confiscatory; and on this issue the District Court In determining at a railroad's suit wheth- found for the railway. A final decree granter a state statute fixing rates for intrastate pas-ing the relief sought was filed February 14, senger traffic is confiscatory, the passenger serv- 1918, and an appeal to this court was promptice, including sleeping car, parlor car, and dining ly applied for by the defendants and allowed. car facilities, must be treated as a whole, and Meanwhile, on January 1, 1918, the federal not as separate operations, to be charged with government had taken over the operation of their proportion of specific and general expens- this and other railroads, and is still operates, but credited only with amounts received from ing the same. The two-cent rate was never charges for their specific service. put into effect on this railroad. as a restraining order issued upon the filing of the bill was continued until entry of the final decree. In 1919 the statute attacked here was

5. CARRIERS~12(5)—TREATMENT OF SPECIAL

RAILROAD SERVICES AS WHOLE CONSIDERED.

6. APPEAL AND ERROR 842(1) PROPER
METHOD ΤΟ DIVIDE CHARGES BETWEEN
FREIGHT AND PASSENGER SERVICES A QUES-
TION OF FACT.

In a railroad's suit to enjoin enforcement of a state statute fixing rates for intrastate passenger traffic, what formula the trial court should adopt for dividing charges and expenses common to freight and passenger services, and not capable of direct allocation, is a question of fact, not of law, decision of which will be disturbed on appeal only for clearly apparent error.

repealed (Michigan Public Laws No. 382). But the case has not become moot for the following reason: 'On continuing the re straining order the railway was required to issue to all intrastate passengers receipts by which it agreed to refund, if the act should be held valid, the amount paid in excess of a two-cent fare. Later the railway was required to deposit, subject to the order of the court, such amounts thereafter collected. The fund now on deposit exceeds $800,000, and the refund coupons are still outstanding. Suit by the Duluth, South Shore & Atlantic In order to determine the rights of coupon Railway Company against Alex. J. Groesbeck holders and to dispose of this fund it is necand others. From decree for plaintiff, de-essary to decide whether the act of 1911 was, fendants appeal. Affirmed. as respects this railroad, confiscatory.

Appeal from the District Court of the United States for the Eastern District of Michigan.

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*Messrs. Leland W. Carr, of Lansing, Mich., Roger I. Wytes, of Grand Rapids, Mich., and Alexander J. Groesbeck, of Detroit, Mich., for appellants.

Messrs. John E. Tracy, of Milwaukee, Wis., and W. D. McHugh, of Omaha, Neb., for appellee.

Mr. Justice BRANDEIS delivered the opinion of the Court.

The issues of fact were tried below with great thoroughness. The case was referred to a special master to hear the proofs and to report the evidence together with his findings to the court. The report fills 503 pages of the printed record. The transcript of the testimony introduced before him covered more than 12,000 typewritten pages; and there were besides many exhibits. The evi

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dence before the *master related largely to [1] The Constitution of Michigan (article the results of the operation of the railroad 12, § 7) authorizes the Legislature to pass for the four years ending June 30, 1913. laws establishing "reasonable maximum When the case came on for hearing befor rates of charges for the transportation of the District Judge in 1917, supplemental evipassengers and freight." In 1907 it fixed two dence was taken in open court covering the cents a mile as the maximum intrastate pas-operations of the four additional years endsenger fare on railroads operating in the ing June 30, 1917. The evidence disclosed Lower Peninsula and three cents for those in the usual diversity of opinion as to the valthe upper. By act approved May 2, 1911 ue of the property and as to the proper meth(Public Laws No. 276), the two-cent rate was od of dividing between the passenger and For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

freight services the common expenses and the | This division is said to have been built not in charges for property used in common. Upon a desire to serve local needs, but for the purthe whole evidence the court found that the pose of establishing a through line from two-cent fare would have resulted in a re- Duluth to Sault Ste. Marie. The statement, turn on intrastate passenger business of less if true, furnishes no reason for excluding it than 2 per cent. during the six years ending from the calculation. The cost per mile of June 30, 1917. transporting passengers varies greatly on difBetween the commencement of this suit ferent parts of the same railroad system acand the entry of the final decree many of the cording to circumstances, being dependent, questions in controversy below have been set- among other things, upon the cost of the tled by the decisions of this Court in other roadbed and terminals, the grade, the numcases.1 The state officials do not deny that ber and character of the trains, the density there was legal evidence to justify the find- of traffic and the length of the haul. The ings of fact made by the lower court; nor justification for a uniform fare per mile is do they request that this court should under- furnished by the doctrine of averages; and take a general review of the evidence. But the Legislature of Michigan made clear its they insist that the finding of the district purpose to apply the doctrine of averages in judge of the low return is erroneous, and that order to give to travelers the benefit of the the error is due partly to his having includ- two-cent fare on those portions of a railroad ed in his calculations property and opera- on which travel was light and the cost of carrying each passenger necessarily far in tions which should have been excluded, and excess of two cents a mile. For this act departly to his having adopted improper formulas for the division of common charges and expenses as between the freight and the passenger services; and that if these specific errors are corrected it will appear that the two-cent fare would have been highly remunerative. These alleged errors must be considered separately.

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In other words, the Legislature has declared that for the purpose of determining the right of an intrastate passenger to travel on any part of the company's lines at the rate of two cents a mile, all of the lines withthose on which travel is light must be averaged with those on which it is dense; and ob

in the state must be treated as one; that

"That in computing the passenger earnings per mile of any company the earnings and mileage of all branch roads owned, leased, controlled or occupied or that may here*after be owned, leased, controlled or occupied by such company shall be included in the computation [2] First. It is contended that the West- [i. e., determining whether the year's gross pasern Division should be excluded from the senger earnings equal $1,200 per mile], and the calculation. The Duluth, South Shore & At-rate of fare shall be the same on all lines owned, lantic Railway extends from Sault Ste. Marie leased, controlled or occupied by such company." to Duluth and has, including branches, 584 miles of line, 475 of which are in Michigan. The Eastern Division serves mainly the iron region; the Central, the copper country; the Western, extending through sparsely settled country from Nestoria, Mich., 101 miles to the Wisconsin state line, and thence to Duluth, serves mainly interstate business. 1 Interstate Commerce Commission v. Union Pa-viously also that those parts of the system cific Railway Co., 222 U. S. 541, 32 Sup. Ct. 108, 56 L. Ed. 308; The Minnesota Rate Cases, 230 U. S. 352, 33 Sup. Ct. 729, 57 L. Ed. 1511, 48 L. R. A. (N. S.) 1151, Ann. Cas. 1916A, 18; The Missouri Rate Cases, 230 U. S. 474, 33 Sup. Ct. 975, 57 L. Ed. 1571; Chesapeake & Ohio Ry. Co. v. Conley, 230 U. S. 513, 33 Sup. Ct. 985, 57 L. Ed. 1597; Oregon R. R. & N. Co. v. Campbell, 230 U. S. 525, 33 Sup. Ct. 1026, 57 L. Ed. 1604; Southern Pacific Co. v. Campbell, 230 U. S. 537, 33 Sup. Ct. 1027, 57 L. Ed. 1610; Allen v. St. Louis, M. & S. Ry. Co., 230 U. S. 553, 33 Sup. Ct. 1030, 57 L. Ed. 1625; Missouri Pacific Ry. Co. v. Tucker, 230 U. S. 340, 33 Sup. Ct. 231 U. S. 1, 34 Sup. Ct. 7, 58 L. Ed. 97; Louisville & Nashville R. R. Co. v. Garrett, 231 U. S. 298, 34 Sup. Ct. 48, 58 L. Ed. 229; In re Engelhard, 231 U. S. 646, 34 Sup. Ct. 258, 58 L. Ed. 416; San Joaquin, etc., Irrigation Co. v. Stanislaus County, 233 U. S. 454, 34 Sup. Ct. 652, 58 L. Ed. 1041; Northern Pacific Ry. Co. v. North Dakota, 236 U. S. 585, 35 Sup. Ct. 429, 59 L. Ed. 735, L. R. A. 1917F, 1148, Ann. Cas. 1916A, 1; Norfolk & Western Ry. Co. v. West Virginia, 236 U. S. 605, 35 Sup. Ct. 437, 59 L. Ed. 745;

961, 57 L. Ed. 1507; Wood v. Vandalia R. R. Co.,

Missouri v. Chicago, B. & Q. R. R. Co., 241 U. S. 533, 36 Sup. Ct. 715, 60 L. Ed. 1148; Rowland v. St. Louis & San Francisco R. R. Co., 244 U. S. 106, 37 Sup. Ct. 577, 61 L. Ed. 1022; Darnell v. Ed

wards, 244 U. S. 564, 37 Sup. Ct. 701, 61 L. Ed. 1317; Denver v. Denver Union Water Co., 246 U. B. 178, 38 Sup. Ct. 278, 62 L. Ed. 649.

which are unprofitable must be taken with those which are profitable. Every part of the railroad system over which the passenger is entitled by the act to ride for a two-cent fare must be included in the computation undertaken to determine whether the prescribed rate is confiscatory. This is true, at least, in the absence of illegality or mismanagement in the acquisition or operation of the division in question; and of such there is not even a suggestion in the record. There is nothing in San Diego Land & Town Co. v. National City, 174 U. S. 739, 758, 19 Sup. Ct. 804, 43 L. Ed. 1154, or in San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 446, 23 Sup. Ct. 571, 47 L. Ed. 892, upon which the state officials rely, which is inconsistent with this conclusion.

[3] Second. It is likewise contended that the so-called South Line between Marquette and Ishpeming should be excluded from the calculation. This line which for miles substantially parallels the main line, was origi nally built as an independent road and was purchased by plaintiff's predecessor in 1884

(40 Sup.Ct.)

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probably to avoid ruinous competition. It is used mainly for heavy freight, and the intrastate passenger travel over it is light. It is asserted that the construction of this road was not required to supply the transportation needs, and that it would still be possible to carry all existing traffic between Marquette and Ishpeming over the main line. What has been said above in regard to the Western Division applies equally to the South Line. [4] Third. It is contended also that a loss was incurred in operating through passenger trains from Houghton over the Mineral Range Railroad to Calumet and that such loss should be excluded from this calculation. This extension of plaintiff's service was clearly reasonable in view of the importance of Calumet, which lies only fourteen miles from its own lines. It was admitted by the state officials that passengers on the route were, under the act, entitled to travel at the two-cent rate. The fact that the service was furnished by acquiring traffic rights instead of by building an independent line, clearly affords no reason for excluding the results of the operation from the calculation.

[5] Fourth. The further contention is made that the sleeping car, parlor car and dining car services should be treated as separate operations; that they should be charged with their proportion of specific and general expenses but credited only with the amounts received from charges for the specific service; and that no part of the apparent loss on these services should be taken into consideration in determining whether the two-cent fare is confiscatory. In support of this contention it is urged that these services were voluntary; that the law (Michigan Public Acts of 1875, No. 38) permits railroads to make special charges for these services "in addition to the regular passenger fares allowed by law," and that travelers in day coaches must not be allowed to suffer because a railroad fails to make these services compensatory. On American railroads of importance these services have been well-nigh universal for more than a genèration; and the charges for them are substantially uniform throughout the country. It would be practically impossible, as it would be obviously unwise, for a railroad like the plain

*614 tiff's either to discontinue the services or to increase the charges to cover the cost of the particular service on its line. It is inconceivable that the Legislature of Michigan should have intended in enacting the twocent fare law to deny to its citizens these customary facilities; and for the purpose of determining whether the act is confiscatory the passenger service including these facilities must be treated as a whole. The fact alleged that these facilities are used mainly by interstate travelers is immaterial.

[6] Fifth. The remaining objection relates to the formula adopted by the lower court for

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The Interstate Commerce Commission upon its organization July 1, 1887, required the railroads to report operating expenses separately as between the freight and passenger services. The difficulties were so great and the results so widely discredited that the requirement was withdrawn as of June 30, 1894. The requirement was restored as of July 1, 1915. In the matter of separating of opinterval railroad accounting had in this respect erating expenses, 30 Interst. Com'n R. 676. In the made gradual advances. J. M. Talbott, Transportation by Rail (1904); Buell v. Chicago, Milwaukee & St. Paul Railway Co., 1 Wis. R. R. Com. 324 (1907); The Minnesota Rate Cases, 230 U. S. 352, 458-461, 33 Sup. Ct. 729, 57 L. Ed. 1511, 48 L. R. A.

(N. S.) 1151, Ann. Cas. 1916A, 18 (1912); 14 American

Railway Engineering Association Proceedings, pp. 587, 1128-1135 (1913); Western Passenger Fares, 37 Interst. Com'n R. 1, 12-30 (1915). See M. O. Lorenz Railroad Rate Making, 30 Quarterly Journal of Economics, pp. 221-232 (1916); W. J. Cunningham, The Separation of Railroad Operating Expenses between Freight and Passenger Services, 31 Quarterly Journal of Economics, pp. 200-249 (1917). 1917 according to the formula adopted by the trial judge was 1.20 per cent. By the use of a formula more favorable to the defendant he found it to be 2.52 per cent. The modified revenue train mile $100,000 a year; while the gross ton mile ratio proratio used by the plaintiff showed a loss of over posed by the defendant indicated an average return of at most 5.82 per cent. Of these methods employed by the parties it may be noted that the Interstate Commerce Commission has said:

The average rate of return for the years 1914

"The representatives of the state commissions advocated the use of 'gross ton miles' as a basis, while the representatives of the railways favored 'engine ton miles.' The discussion seemed to be somewhat influenced by the possible effect of these respective bases on statistical evidence which might be introduced in passenger rate cases. It may fairly be said that the facts and arguments presented do not warrant the final approval by the Commission of either the gross ton mile or the locomotive ton mile at this time." Rules Governing the Separation of Operating Expenses Between

Freight Service and Passenger Service on Large Steam Railways, Effective July 1, 1915, p. 3. These rules are now in process of revision.

(250 U. S. 545)

CARTAS v. UNITED STATES. (Submitted [on Motion to Dismiss or Affirm] Oct. 13, 1919. Decided Nov. 10, 1919.)

No. 122.

It was alleged that the deposit was evidenced by a receipt given by the American consul at Havana and that the petitioner was the grandson of Costillo and was vested by inheritance with all his rights growing out of the deposit. It was further alleged that the

ARMY AND NAVY 15-AUTHORITY OF COM- deposit was a contract between the depositor

MANDING OFFICER OF UNITED STATES WARSHIP.

Under Rev. St. § 1624 (Comp. St. § 2961), Articles for the Government of the Navy, art. 8, par. 13 (Ceny. St. § 2969), as elucidated by Navy Regulations, § 1020, where the commanding officer of an American Warship in Havana Harbor received on board the equivalent of $51, 000 in American gold coin, no contract arose between the United States and the depositor for the return of the gold to the depositor or his proper agent, so as to render the United States liable for its return to one not the agent of the depositor.

Appeal from the Court of Claims.

Suit by Ricardo Cartas against the United States. From a judgment dismissing the petition (48 Ct. Cl. 161), plaintiff appeals. Affirmed.

Messrs. William R. Andrews, and George H. Lamar, both of Washington, D. C., for appellant.

Messrs. Solicitor General Alex C. King, of Atlanta, Ga., Asst. Attorney General Davis, and George M. Anderson, of Washington, D. C., for the United States.

Mr. Chief Justice WHITE delivered the opinion of the Court.

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This suit was brought to recover from the United States $51,000 in American gold coin with interest from 1869, *based upon a contract alleged to have been made in that year by the United States as the result of a deposit of the principal sum claimed on a war vessel of the United States. The court, concluding that the facts alleged had no substantial tendency to establish a contract liability on the part of the United States either express or implied, dismissed the suit for want of jurisdiction as its power to adjudge against the United States extended only to obligations of that character. A written opinion was filed, but no finding of facts was made. The United States suggests that the cause be remanded for such finding, but if that course were pursued only the relevant facts could be embraced in the finding and as all such facts were admitted by the court below, the case is open to our consideration and we think there is no necessity for remanding it.

In the petition which was filed in 1902 by Ricardo Cartas, now the appellant, it was alleged that about 33 years before, in January, 1869, Carlos del Costillo deposited on board the American flagship Contoocook, then in Havana Harbor, Spanish gold the equivalent of $51,000 in American gold coin.

and the United States binding the United States to preserve and return the deposit when demanded, and that it had never been returned; indeed, that no demand for its return had been made during the time which elapsed either by Costillo or by any one authorized to represent him or his interest. Further, it was averred that, although it appeared from the files of the Navy Department that a few months after the deposit was made, that is in April, 1869, it had been returned by the officer commanding the Contoo

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*cook to one Arridondo, acting as the agent of Costillo and who was believed by such commanding officer to be fully authorized to receive it, nevertheless the contract obligation on the part of the United States yet existed because said Arridondo was not the agent of bound to return the said deposit and was not Costillo and the United States remained relieved therefrom by the payment made by such officer, although in good faith to a person not entitled to receive it.

Admitting the facts thus alleged, it is indisputable that the only question for decision is the making of the alleged contract with the United States. Indeed, it is to that question and to that question alone that the errors assigned and the contentions advanced to sustain them relate. They all are based upon a power in the commanding officer to contract on behalf of the United States asserted to be conferred by paragraph 13 of article 8 of the "Articles for the Government of the Navy" (Rev. Stat. § 1624 [Comp. St. § 2969]), as elucidated by section 1020 of the Navy regulations. A brief reference to the matters thus relied upon will bring us to the end of the controversy.

The first, the statutory provision, imposes a penalty upon any person in the navy who"takes, receives, or permits to be received, on board the vessel to which he is attached, any goods or merchandise, for freight, sale, or traffic, except gold, silver, or jewels, for freight or safe-keeping, or demands or receives any com pensation for the receipt or transportation of any other article than gold, silver, or jewels, without authority from the President or the Secretary of the Navy."

The wide discretion possessed by the commanding officer of a naval vessel concerning the receipt on board, for the protection of private rights, of gold, silver or jewels, which it was the obvious purpose of this statute not to modify, since the power as to such articles was excepted from the additional limitation which the statute imposed

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

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(40 Sup.Ct.)

*as to other articles, affords no ground for the implication that contract obligations would automatically arise as against the United States from the mere exercise by the officer of his discretion. A consideration of the nature of the objects which the provision excepted and the complex and varied character of the conditions which might call for the exercise of the discretion add cogency to this view and at once suggest the incongruity and conflict which must result from the contrary contention.

And this view serves also to dispose of the contention based upon section 1020 of the Navy Regulations which but comprehensively recognizes that compensation due for services rendered as the result of the exercise

of the discretion of the officer, to permit the articles in question to be taken on board, should be applied, not for the benefit of the United States in virtue of any contract relation with the subject, but for the benefit of the officers and men designated in the proportions stated in the regulation. Indeed,

the co-ordination which the regulation thus manifests between the burden resulting from

the exercise of the discretion to receive on

board and the distribution of the emoluments arising from its exertion serves to point out the entire unison between the expression of legislative power and the administrative regulation and to make clear the disregard of both which would inevitably result from sustaining the contention as to contract obligation on the part of the United States now relied upon. Affirmed.

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DECREE IN BANKRUPTCY

AS BASIS FOR ANCILLARY JURISDICTION.

1.Decree of District Court dismissing bill (254 Fed. 356) was modified and affirmed by the Circuit Court of Appeals (256 Fed. 512), and complainants bring certiorari to and appeal from the Circuit Court of Appeals. Appeal dismissed, and decree affirmed.

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*Messrs. Lindley M. Garrison, Emanuel J. Myers, and Gordon S. P. Kleeberg, all of New York City, for petitioners.

Messrs. William St. John Tozer, of New York City, and Henry Buist, of Charleston, S. C., for respondents.

Mr. Justice HOLMES delivered the opinion of the Court.

This is a bill in equity brought in the Dis-. trict Court of the United States for the Southern District of New York, by persons formerly doing business as partners under the name S. H. P. Pell & Co., to restrain the defendants from proceeding with a suit them with fraud in partnership transactions against them in South Carolina charging in cotton and seeking to recover a million and

a half of doilars. The bill was dismissed on

demurrer for want of equity by the District Court, 254 Fed. 356, and for want of jurisdiction by the Circuit Court of Appeals, 256 Fed. 512. It is brought here by certiorari (No. 311) and by appeal (No. 335).

the bill is ancillary to proceedings in bankThe ground of jurisdiction set up is that ruptcy against S. H. P. Pell & Co. in the same district. The present plaintiff Thompson was the only party served in the South Carolina suit and he alleges that he was a special partner under the laws of New York, that he was adjudicated not to be liable as a general partner in the bankruptcy proceedings and that the Court had ancillary jurisdiction to make its decree respected. The other partners set up a discharge under

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a composition but as they were not served with process in South Carolina the only question raised before us is whether Thompson can maintain the bill.

The bill discloses the following facts: Aft

Decree in the matter of the bankruptcy of a partnership, in which petitions were pending to have T. declared a general partner, and liable as such, that on T. complying with a composi-er the appointment of receivers in the banktion agreement he should be relieved of further ruptcy proceedings petitions were filed to liability to the receiver or the estate, and the have Thompson declared a general partner petitions declaring him liable as a general partner should be dismissed, merely determines that his property shall not be administered in the bankruptcy proceeding, and so does not give ancillary jurisdiction to the District Court to enjoin action against him for fraud of the firm thereafter discovered.

On Writ of Certiorari to the United States Circuit Court of Appeals for the Second Cir

cuit.

Appeal from the United States Circuit Court of Appeals for the Second Circuit.

Suit by Stephen H. P. Pell and others against W. Gordon McCabe, Jr., and another.

and adjudicated a bankrupt with the other members of the firm. Later an offer of composition was made by the firm in consideration of the discharge of the bankrupts from their debts and the release of Thompson from liability to S. H. P. Pell & Co. and to any

creditor of the firm who should assent to the composition. By the terms of the composition Thompson gave up a scheduled claim of over three million dollars and assumed obligations of over two million dollars for which property of his was pledged. Pursuant to this offer an agreement was made between Thompson and the receivers by which Thompson accepted the composition and agreed to

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

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