Smyth v. Ames; Smyth v. Smith; Smyth v. Higginson

after stating the case as above reported, delivered the opinion of the court.

The first question to be .considered is one common to all the cases. While it was not objected at the argument that there had been any departure • from the 94th Equity Rule, it was contended that the plaintiffs had an adequate remedy at law, and that the Circuit Court of the United States, sitting in equity, was therefore without jurisdiction. This objection is *516 based upon the fifth section of the Nebraska statute authorizing any railroad company to show, in a proper action brought in the Supreme Court of the State, that the rates therein prescribed are unreasonable and unjust and, if that court found such to be the fact, to obtain an order upon the Board of Transportation permitting the rates to be raised to any sum in the discretion of that Board, provided that in no case should they be fixed at a higher sum than was charged by the company on the first day of January, 1893. This section, it is contended, took from the Circuit Court of the United States its equity jurisdiction in respect of the rates prescribed and required the dismissal of the bills.

We cannot accept this view of the equity jurisdiction of the Circuit Courts of the United States. The adequacy or inadequacy of a remedy at law for the protection of the rights of one entitled upon any ground to invoke the powers of a Federal court, is not to be conclusively determined by the statutes of the particular State in which suit may be brought. One who is entitled to sue in the Federal Circuit Court may invoke its jurisdiction in equity whenever the established principles and rules of equity permit such a suit in that court; and he cannot be. deprived of that right by reason of his being allowed to sue at-law in a state court on the same cause' of action. It is true that an' enlargement of equitable rights arising from the statutes of a State may be administered by the Circuit Courts of the United States. Case of Broderick's Will, 21 Wall. 503, 520; Holland v. Challen, 110 U. S. 15, 24; Dick v. Foraker, 155 U. S. 404, 415; Bardon v. Land & River Imp. Co., 157 U. S. 327, 330; Rich v. Braxton, 158 U. S. 375, 405. But if the case in its essence be one cognizable in equity, the plaintiff — the required value being in dispute — may invoke the equity powers of the proper Circuit Court of the United States whenever jiu’isdiction attaches by reason of diverse citizenship or upon any other ground of Federal jurisdiction. Payne v. Hook, 7 Wall. 425, 430; McConihay v. Wright, 121 U. S. 201, 205. A party by going into a national court- does not, this court has said, lose any right or appropriate remedy of which he *517 might have availed himself in the state courts of the same locality; that the wise policy of the Constitution gives him a choice of tribunals. Davis v. Gray, 16 Wall. 203, 221; Cowley v. Northern Pacific Railroad, 159 U. S. 569, 583. So,. “whenever a citizen of a State can go into the courts of a State to defend his property against the illegal acts of its officers, a citizen of another State may invoke the jurisdiction of the Federal courts to maintain a like defence. A State cannot tie up a citizen of another State, having property rights within,its territory invaded by unauthorized acts of its own officers, Nto suits for redress in its own courts.” Reagan v. Farmers' Loan & Trust Co., 154 U. S. 362, 391; Mississippi Mills v. Cohn, 150 U. S. 202, 204; Cowles v. Mercer Co., 7 Wall, 118; Lincoln County v. Luning, 133 U. S. 529; Scott v. Neely, 140 U. S. 106; Chicot County v. Sherwood, 148 U. S. 529; Cates v. Allen, 149 U. S. 451.

Ip these cases the plaintiffs, stockholders in the corporations named, ask a decree enjoining the enforcement of certain rates for transportation upon the ground that the statute prescribing them is repugnant to the Constitution of the United States. Under the principles which in the Federal system’ distinguish cases in law from those in equity, the Circuit Court of -the United States, sitting in equity, can make a comprehensive decree covering the whole ground- of controversy and thus avoid the multiplicity of suits that would inevitably arise under the statute. The carrier is made liable not only to individual persons for every act, matter or thing prohibited by the statute, and for every .omission to do any act, matter or thing required to be done,- but to a fine of from one thousand to five thousand, dollars for the first offence, from five thousand to ten thousand dollars for the second offence, from ten thousand to twenty thousand dollars f.or the third offence, and twenty-five-thousand dollars for every subsequent offence. The transactions along the line of any one of these railroads, out of which causes of action might arise under the statute, are so numerous and varied that the interference of equity could well be justified upon the ground that a general decree, according to the prayer of the bills, would avoid a tnultiplicity *518 of suits, and give a remedy more certain and efficacious than could be-given in any proceeding instituted against the company in a court of law; for a court of law could only deal with each separate transaction involving the rates to be charged for transportation. The transactions of a single week would expose any company questioning the validity of the statute to a vast number of suits by shippers, to say nothing of the heavy penalties named in the statute. Only a court of equity is competent to meet such an emergency and determine, once for all and without a multiplicity of suits, matters that affect not simply individuals, but the interests of the entire community as involved in the use of a public highway and in the administration of the affairs of the quasi-public corporation by which such highway is maintained.

Another question of a preliminary character must be here noticed. The answer of the officers of the State in each case insists that the real party in interest is the State, and that these suits are, in effect, suits against the State, of which the Circuit Court of the United States cannot take jurisdiction consistently with the Eleventh Amendment of the Constitution of the United States. This point is, perhaps, covered by the general assignments of error, but it was not discussed at the bar by the representatives of the State Board. It would therefore be sufficient to say that these are cases of which, so far as the plaintiffs aré concerned, the Circuit Court has jurisdiction not only upon the ground of the diverse citizenship or alienage of the parties, but upon the further ground that, as the statute of.Nebraska under which the State Board of Transportation proceeds is assailed as being repugnant to rights secured to the plaintiffs by the Constitution of the United States, the cases may be regarded as arising under that instrument. But to prevent misapprehension, we add that, within the meaning of the Eleventh Aihendment of the Constitution, the suits are not agáinst the State but against certain individuals charged with the administration of a state enactment, which, it is alleged, cannot be enforced without violating the constitutional rights of the plaintiffs. It is the settled doctrine of this court that a suit against individuals for *519 the purpose of preventing them as officers of a State from enforcing an unconstitutional enactment to the injury of the .^rights of the plaintiff, is not a suit against the State within the meaning of that Amendment. Pennoyer v. McConnaughy, 140 U. S. 1, 10; In re Tyler, 149 U. S. 164, 190; Scott v. Donald, 165 U. S. 58, 68; Tindal v. Wesley, 167 U. S. 204, 220.

An important question is presented that relates only to the Union Pacific Company. That company is a corporation formed by the consolidation of several companies under the authority of acts of Congress, one of the constituent companies being the Union Pacific Railroad Company incorporated by the act of July 1, 1862, c. 120, 12 Stat. 4S9. United States v. Union Pacific Railway, 160 U. S. 1, 6. Neither that company nor the Union Pacific Railroad Company is named in the Nebraska statute, but the statute is interpreted by the State Board of Transportation as embracing the present defendant corporation. It is contended that the State is without power to fix or limit the rates that the Union Pacific Company may charge for the transportation of freight on its lines between points within Nebraska. This contention rests: 1. Upon the provisions of the acts of Congress showing that the Union Pacific Railroad Company was created for the ■ accomplishment of national objects, namely, to secure the safe and speedy transportation of the mails, troops, munitions of war and public stores of the United States; 2. Upon the eighteenth section of the above act of July 1, 1862, 12 Stat. 489, 497, c. 120, providing that “ whenever it appears that the net earnings of the entire road and telegraph, including the amount allowed for services rendered for the United States, after deducting all expenditures, including repairs and the furnishing, running and managing of said road, shall exceed ten per centum upon its cost, exclusive of the five per centum to be paid to the United States, Congress may reduce’ the rates of fare thereon, if unreasonable in amount, and may fix and establish the same by law.” The argument is that Congress by this enactment has reserved to itself exclusive control of rates, interstate and local, to be charged on the Union Pacific Railroad. As this view, if maintained, would require *520 an affirmance of the decree so far as the Union Pacific Company is concerned,' whether the Nebraska statute of 1893 be constitutional or not as to the other railroad corporations, it cannot properly be passed without examination.

In Reagan v. Mercantile Trust Co., 154 U. S. 413, 416, the question arose whether the Texas and Pacific Railway Company, a corporation organized under the laws of the United-States, was subject to the laws of Texas with respect to rates for transportation wholly within that State. The ground upon which exemption from state control was there asserted by the company was that it received all its franchises from Congress, including the franchise to charge and collect tolls. This court, conceding, for the purposes of that case, that Congress had power to remove the corporation in all its operations ■ from state control, held that the act creating it did not show, an intention upon the part of Congress to exempt it from the duty to conform to such reasonable rates for local transportation as the State might prescribe, and that the enforcement by the State of reasonable rates for such transportation 'would not disable the corporation from performing the duties and exercising the powers imposed upon it by Congress. The court said: “ By the act of incorporation Congress authorized the company to build its road through the State of Texas. It knew that, when constructed, a part of its business would be the carrying of persons and property from points "within the State to other points also within the State, and that in so doing it would be engaged in a business, control of which is nowhere by the Federal Constitution given to Congress. It must have been known that, in the nature of things, the control of that business would be exercised by the State, and if it deemed that the interests of the nation and the discharge of the'duties required on behalf of the nation from this corporation demanded exemption in all things'from state control, it would unquestionably have expressed such intention in language whose meaning would be clear. Its silence in' this respect is satisfactory assurance that, in so far as this corporation should engage in business wholly within the State, it intended that it should be subjected to the ordinary control *521 exercised by the State over such business. Without, therefore, relying at all upon any acceptance by the railroad corporation of the act of the legislature of the State, passed in 1873 in respect to it, we are of opinion that the Texas and' Pacific Kailway Company is, as to business done wholly within the State,' subject to the control of the State in all matters of taxation, rates and other police regulations.”

This conclusion, as may be observed from the opinion, was based in part upon the reasoning in Thomson v. Pacific Railroad, 9 Wall. 579, and in Railroad Company v. Peniston, 18 Wall. 5, in which cases it was held that the property of certain railroad companies was not exempt from state taxation by reason alone of the fact that they were organized under acts of Congress for the accomplishment of national objects, and that the imposition of such taxes was not, in a constitutional sense, an obstruction to the exercise of the powers of the General Government, nor an interference with the discharge of the duties required of the companies by their charters. ■

In the present case the question is more difficult of solution by reason of the declaration in the above act of July 1, 1802 (no similar declaration being made in the act incorporating the Texas and Pacific Kail way Company), that Congress may reduce the rates of fare on the Union Pacific Kailroad if unreasonable in amount, and may fix and establish the same by law whenever the net earnings of the entire road and telegraph, ascertained upon a named' basis, should exceed ten per centum upon its cost, exclusive of the live per centum to be paid to the United States.

Undoubtedly Congress intended by that act to reserve such power as was necessary to prevent the corporation from exacting rates that were unreasonable. But this is not equivalent to a declaration that the States through which the railroad might be constructed should not regulate rates for transportation begun and completed within their respective limits.

It cannot be doubted that the making of rates for transportation by railroad corporations along public highways, *522 between points wholly within the limits of a State, is a subject primarily within the control of that State. And it ought not to be supposed that Congress intended that, so long as it forbore to establish rates on the Union Pacific Railroad, the corporation itself could fix such rates for transportation as it saw proper independently of the right of the States through which the road was constructed to prescribe regulations for transportation beginning and ending within their respective limits. On the contrary, the better interpretation of the act of July 1, 1862, is that the question of rates for wholly local business was left under the control of the respective States through which the Union Pacific Railroad might pass, with power reserved to Congress to intervene under certain circumstances and fix the rates that the corporation could reasonably charge and collect. Congress not having exerted this power, we do not think that the national character of the corporation constructing the Union Pacific Railroad stands in the way of a State prescribing rates for transporting property on that road wholly between points within its territory. Until Congress, in the exercise either of the power specifically reserved by the eighteenth section of the act of 1862 or its power under the general reservation made of authority to add to, alter, amend or repeal that act, prescribes rates to be charged by the railroad company, it remains with the States through which the road passes to fix rates for transportation beginning and ending within their respective limits.

We are now to inquire whether the Nebraska statute is repugnant to the Constitution of the United States.

. By the Fourteenth Amendment it is pi’ovided that no State shall deprive any person of property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws. That corporations are persons withinthe meaning of this Amendment is now settled. Santa Clara County v. Southern Pacific Railroad, 118 U. S. 394, 396; Charlotte, Columbia & Augusta Railroad v. Gibbes, 142 U. S. 386, 391; Gulf, Colorado & Santa Fe Railway v. Ellis, 165 U. S. 150, 154. What amounts to deprivation of property without due process of law or what is a denial of the equal *523 protection of the laws is often difficult to determine, especially where the .question relates to the property of a quasi public corporation and the extent to which it may be subjected to public control. But this court, speaking by . Chief Justice Waite, has said that, while a State has power to fix 'the charges by railroad companies for the transportation of persons and property within its own jurisdiction, unless restrained by valid contract, or unless what is done -amounts to a regulation of foreign or interstate commerce, such power is not without limit; and that, “ under pretence of regulating fares and freights, the State cannot require a railroad corporation to carry persons or property without reward, neither can it do that which in law amounts to the taking of private property for public use without just compensation, or without due process of law.” Railroad Commission Cases, 116 U. S. 307, 325, 331. This principle was recognized in Dow v. Beidelman, 125 U. S. 680, 689, and has been reaffirmed in other cases. In Georgia Railroad & Banking Co. v. Smith, 128 U. S. 174, 179, it was said that the power of the State to prescribe the charges of a railroad company for the carriage of persons and merchandise within its limits — in the absence of any provision in the charter of the company constituting a contract vesting it with authority-over those matters — was “subject to the limitation that the carriage is not required without reward, or upon conditions amounting to the taking of property for public use without just compensation; and-that what is done does not amount to a regulation of foreign or interstate commerce.” In Chicago, Milwaukee & St. Paul Railway v. Minnesota, 134 U. S. 418, 458, it was said: “If the company is deprived of the power of charging reasonable rates-for the use of its property,-and such deprivation takes place in the absence of an investigation by judicial machinery, .it is deprived of the lawful use of its property, and thus, in substance and effect, of the property itself, without due process of law and in'violation of the Constitution of the United States; and in so far as it is thus deprived, while other persons are permitted to receive reasonable profits upon their invested capital, the company is deprived of the equal protec *524 tion of the laws.” In Chicago & Grand Trunk Railway v. Wellman, 143 U. S. 339, 344, the court,.in answer to the suggestion that the legislature had no authority to prescribe .maximum rates for railroad transportation, said that’“the legislature has power to fix rates,' and the extent of judicial interference is' protection against unreasonable rates.” In Budd v. New York, 143 U. S. 517, 547, the court, while sustaining the power of New York by statute to regulate charges to be exacted at grain elevators and warehouses in that State, took care to state, as a result of former decisions, that such power was not one “to destroy or a power to compel the doing of the services without reward, or to take private property for public use without just compensation or without due process of law.”

In Reagan v. Farmers' Loan & Trust Co., 154 U. S. 362, 399, which involved the validity of certain rates for freights and passengers prescribed by a railroad commission established by an act of the legislature of Texas, this court, after referring to the above cases, said': “These cases all support the proposition that while it is not the province of the courts to enter upon the' merely administrative duty of framing a .tariff of rates for carriage,, it is within the scope of judicial, power and a part of judicial duty to restrain, anything which, in the form of a regulation of rates, operates to deny to the owners of property invested in the business of transportation that equal protection which is the- constitutional right of all owners of other property. There is nothing new or strange in this. It has always been a part of the judicial function to'determine whether the act of one party (whether that party be a single individual, an • organized body or the public as a whole) operates to divest the other party of any rights of person or property. • In every constitution is the guarantee against the taking of private property for public purposes without just compensation. The equal protection of the laws which, by the Fourteenth Amendment, no State can deny to the individual, forbids legislation, in whatever form it may be enacted, by which the property of one individual is, without compensation. wrested from him for the benefit of another, or of the *525 public. This, as has been often observed, is a government of law, and not a government of men, and it must never be forgotten that under such a government, with its constitutional limitations and guarantees, the forms of law and the machinery of government, with all their reach and power, must in their actual workings stop on the hither side of the unnecessary and uncompensated taking or destruction of any private property, legally acquired and legally held. It was, therefore, within the competency of the Circuit Court of- the United States for the Western District of Texas, at the instance of the plaintiff, a citizen of another State, to enter upon an inquiry as 'to the reasonableness and justice of the rates prescribed by the railroad commission. Indeed, it was in so doing only exercising a power expressly named in the act creating the commission.”

So, in St. Louis & San Francisco Railway v. Gill, 156 U. S. 649, 657, it was said that “ there is a remedy in the courts for relief against legislation establishing a tariff of rates which is so unreasonable as to practically destroy the value of property of companies engaged in the carrying business, and that especially may the courts of the United States treat such a question as a judicial one, and hold such acts of legislation to be in conflict with the Constitution of the United States, as depriving the companies of their property without due process of law, and as depriving them of the equal protection of the laws.” In Covington & Lexington Turnpike Road Co. v. Sandford, 164 U. S. 578, 584, 594-5, 597, which involved the validity of a state enactment prescribing rates of toll on a turnpike road, the court said : “A statute which,Joy its necessary operation, compels a turnpike company, when charging only such tolls as are just to the public, to submit to such further reduction of- rates as will prevent it from keeping its road in proper repair, and from earning any dividends whatever for stockholders, is as obnoxious to the Constitution of the United States as would be a similar statute relating to the business of a railroad corporation having authority, under its charter, to collect andl receive tolls for passengers and freight.” And in Chicago, Burlington & Quincy Railroad v. Chicago, *526 166 U. S. 226, 241, it was held that “a judgment of a state court, even if it be authorized by statute, whereby' private property is taken for the State or under its direction for public use, without compensation made or. secured to the owner, is, upon principle and authority' wanting in the due process of law required by the Fourteenth Amendment of the Constitution of the United States, and the affirmance of such judgment by the highest court of the State is a denial by that State of a right secured to the owner by that instrument.”

In view of the adjudications these principles must be regarded as settled:

1. A railroad corporation is a person within the meaning of the Fourteenth Amendment declaring that no State shall deprive any person of property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws.

2. A state enactment, or regulations made under the authority of a state enactment, establishing rates for the transportation of persons or property by railroad that will not admit of the carrier earning such compensation as under all the' circumstances is just to it and to the public, would deprive such carrier of its .property without due process of law and deny to it the equal protection of the laws, and would therefore be repugnant to the Fourteenth Amendment of the Constitution of the United States.

3. "While rates for the transportation of persons and property within the limits of a State are primarily for its determination, the question whether they are so unreasonably low as to deprive the carriér of its property without such compensation as the Constitution secures, and therefore without due process of law, cannot be so conclusively determined by the legislature of the State or by regulations adopted under its authority, that the matter may . not become the subject of judicial inquiry.

Tlie cases before us directly present the important question last stated.

Before entering upon ;its examination, it may be observed that the grant to the legislature in the constitution of Ne *527 braska of the power to establish maximum rates for the transportation of- passengers and freight on railroads in that State has reference to “reasonable” maximum rates. These words strongly imply that it was not intended to give a power to fix maximum rates without, regard to their reasonableness; Be this as it may, it cannot be admitted that the power granted may be exerted in derogation of rights secured by the Constitution of the United States, or that the judiciary may not, when its jurisdiction is properly invoked, protect those rights.

■ What are the considerations to which weight must be given when we seek to ascertain the compensation that a railroad company is entitled to receive, and a prohibition upon the receiving of which may be fairly deemed a deprivation by legislative decree of property without due process of law ? Undoubtedly that question could be more easily determined by a commission composed of persons whose special skill, observation and experience qualifies them to so handle great problems of transportation as to do justice both to the public and to those whose money has been used to construct and maintain highways for the convenience and benefit of the people. But despite the difficulties that confessedly attend the proper solution of such questions, the court cannot shrink from the duty to determine whether it be true, as alleged, that the Nebraska statute invades or destroys rights secured by the supreme law of the land. No one, we take it, will contend that a state enactment is in harmony with that law simply because the legislature of the State has declared such to be the case; for that would make the state legislature the final judge of the validity of.its enactment, although the Constitution of the United States and the laws made in-pursuance thereof are the supreme law of the land, anything in the constitution or laws of any State to the contrary notwithstanding. Art. YI. The idea that any legislature, state or Federal, can conclusively determine for the people and for the courts that what it enacts in the form of law, or what it authorizes its agents to do, is consistent with the fundamental law, is in opposition to the theory of our institutions. The duty rests upon all courts, Federal and state, when their *528 jurisdiction is properly invoked, to see to it that no right secured by the supreme jaw of the land is impaired or destroyed by legislation. This function and duty of the judiciary distinguishes the American system from all other systems of government. The perpetuity of otir institutions and the liberty which is enjoyed under them depend, in no small degree, upon the power given the judiciary to declare null and void all legislation that is clearly repugnant to the supreme law of the land.

■ We turn now to the evidence in the voluminous record before us for the purpose of ascertaining whether — looking at the cases in the light of the facts as they existed when the decrees were rendered — the Nebraska statute, if enforced, would, by its necessary operation, have deprived the companies, whose stockholders and bondholders here complain,' of the right to obtain just compensation for the- services rendered by them.

The first and most important contention of the plaintiffs .is that, if the statute had been in force during any pne of the. three years preceding its passage, the defendant companies would have been compelled to use their property for the public substantially without reward or without the just compensation to which it was entitled. We think this mode of calculation for ascertaining the probable effect of the Nebraska statute upon the railroad companies in question is one that may be properly used.

The conclusion reached by the Circuit Court was that the reduction made by the Nebraska statute in the rates for local freight was so unjust and unreasonable as to require a decree, staying the enforcement of such rates against 'the companies named in the bill. Ames v. Union Pacific Railway, 64 Fed. Rep. 165, 189. That, conclusion wTas based largely upon the figures presented by Mr. Dilworth, while he was a secretary of. the State Board of Transportation, as well as a defendant and one of the solicitors of the defendants in these causes. He was a principal witness for that Board. His general fairness and his competency to speak of the facts upon which the question before us depends are apparent on the record. He stated that the average reduction made by the statute on all the “commodities of local rates” was 29.50 per cent; and this *529 estimate seems to have been accepted by the parties as correct. He estimated that the percentage of operating expenses on local business would exceed the percentage of operating expenses on all business by at least ten per cent, and that it might go as high as twenty per cent or higher. And this view is more than sustained by the evidence of witnesses possessing special knowledge of railroad transportation and of the cost of doing local business as compared with what is' called through business. ■ Indeed, one of those witnesses states that the cost of carrying local freight is four times as much as the cost of through freight per ton per mile; another, that the cost of the short haul is “ reasonably double the long haul.” If due regard be had to the testimony — and we have no other basis for our judgment — we are not permitted to place the extra cost of local business at less than ten per cent greater than the percentage of the cost of all business.

In answer to questions propounded to him by the defendants constituting the State Board of Transportation, Mr. Dilworth stated that he had prepared himself with an estimate showing the number of tons of freight, commonly spoken of as local freight, hauled on the respective railways in Nebraska, and the amount received by the railway companies by -way of tariff on tons of freight hauled, including .through as well as local freight, and was qualified to speak as to the amount received by the companies for both passengers and freight within the State, and the reduction that would take place in rates under the statute in question. He presented various tables showing the results of his investigations. One is known as Exhibit é, and is an “Estimate of local business, and the effect of House Eoll 33 ” on the Burlington, St. Paul, Fremont, Union Pacific, Omaha, St. Joseph and Kansas City Companies for the year 1892. Another is called Exhibit 19, and is a like estimate in respect of the same companies for the years 1891 and 1S93. Another is known as Exhibit 20, and shows “ Tons carried, tonnage per mile and percentage of expenses for the years ending June 30, 1891, 1892 and 1893 (Nebraska).” These exhibits are as follows :

*530