5

5

Mr. Justice McKenna delivered the opinion of the court:

and leave the company a fair return upon the property used in the service. Defendants in error, alleging them- (2) Nor aver that, when taken in conselves to be engaged either as wholesale nection with the other rates lawfully or retail grocers in Indianapolis, Indi- prescribed by the commission and its ana, brought this suit against plaintiff successor, the public service commisin error, herein [115] called the Rail- sion, the rates did not afford an aderoad Company, to restrain it from charg-quate and remunerative compensation ing or receiving any other compensation for the handling and transportation of than that mentioned and described in all classes of freight or passengers covan order entered by the railroad com- ered by such orders. (3) The averment mission of the state on December 14, that the rates were not compensatory 1906, and which, it is alleged, became "states no issue of fact, but the mere effective February 14, 1907, and to re- conclusion of the pleader as to a maquire the Railroad Company to receive terial fact." (4) The answer did not and transport freight at the rates pre- profess to set out the schedules of rates scribed in the order of the commission. filed with the commission or posted The first pleading of the Railroad in the offices of the Railroad Company. Company was a demurrer to the com- And further, that if the schedules of plaint. We omit it as it was overruled, rates varied from those of the commisand as the case depends upon the answer sion, they were thus far unlawful and of the Railroad Company and a demur- invalid under the laws of the state, and rer to it. It was in three paragraphs. constituted no defense to the action; In the first it denied "each and every "the mere continuance in such wrongful material allegation" of the complaint. conduct" did "not constitute a defense." In the second it alleged that the order And further, if the rates charged were of the commission would not yield "revenue sufficient to reimburse the Rail- commission, the fact could be proved as those prescribed by the road Company for handling and carry under the general denial. ing the classes of property specified in the order, and provide a fair return on the property used in the service." And that, therefore, if the order of the commission should be enforced, the Railroad Company would be deprived of its property without due process of law, in violation of the 14th Amendment In the third paragraph it alleged that within sixty days after the act of the state took effect, it filed with the commission a schedule of its rates and charges between all of the points in the state, that it had kept on file a like schedule in every station and depot and in its offices, that its charges had been in accordance with such schedules, and were legal rates for the services, and that complainants (defendants in error) had not been and were not damaged thereby. Dismissal of the suit was prayed.

There was a demurrer to the second paragraph for insufficiency to constitute a defense, and, following the local practice, there was a memorandum specifying the grounds, as follows: (1) There was no statement that the [116] order of the commission was unremunerative or confiscatory at the time it was made, or at the time suit was brought, but only at the time the answer was filed. Nor did it aver that at either of those times the rates would not pay the cost of the service to which they were applicable,

the same

The demurrer was sustained by the court and the Railroad Company ruled to answer by September 5, 1916. The company elected to stand by its answer and declined to plead further. The case, therefore, rested on the complaint and the denial of its allegations by the Railroad Company, and, upon the issue thus made, there was a trial upon which

the

there were admitted in evidence over the objection of the Railroad Company, a transcript of the record of the suit brought by Railroad Company against Union B. Hunt et al., constituting the railroad commission of the state, in the district court of the [117] United States for the district of Indiana, and a transcript of the record in the same case in this court, entitled Wood v. Vandalia R. Co. 231 U. S. 1, 58 L. ed. 97, 34 Sup. Ct. Rep. 7, and, over objection, the proceedings before the railroad commission under which the order was made, establishing the rates that are the subject of controversy.

The court enjoined the Railroad Company from charging, collecting, or receiving from plaintiffs and others in like situation other rates than those mentioned in the order of the commission, and enjoined the rates in excess thereof. The decree specifically mentioned the rates to be charged. It was

affirmed by the supreme court of the nonremunerative rates. state.

It will be observed, therefore, that one of the grounds of the demurrer to the second paragraph of the answer of the Railroad Company was not that the rates were noncompensatory, but that they were not alleged to be so at the time of the order of the commission or at the commencement of the suit, but were only alleged to be so at the time of filing the answer. The supreme court seems to intimate concurrence in this view of the answer, but said, whether its ruling be based on that construction of the answer "or upon the evidence heard," it, the court, was satisfied that the railroad had "not tendered or made a defense, and that the decision" of the trial court was correct.

In such cases

the shippers affected by the higher
rates may have a basis for complaint.
Smyth v. Ames, 169 U. S. 466, op. 540
et seq., 42 L. ed. 819, 847, 18 Sup. Ct.
Rep. 418." The court considered that
the principle of the proposition an-
nounced was, in its opinion, "strongly
upheld" in Wood v. Vandalia R. Co.,
which the court regarded, "to say the
least," as holding that the hearing upon
the character of rates "is not properly
confined to the particular rates and the
'actual cost and outlay' in carrying the
classes specified on a specified division
in ascertaining whether a fair return
is provided."

The court, therefore, makes clear the Federal question, and its decision makes the question precise by a contrast of the contentions of the parties. Let us re"Ap-peat them: that of the Railroad Company is that the revenue from traffic to which the rates apply is the test of their legality, [119] and any deficiency in them cannot be made up by rates on some other traffic; that of the defendants in error is that the revenue from all of the intrastate business of the Railroad Company is to be taken into account, and if it be sufficient to remunerate the Railroad Company, the particular rates, though unremunerative, are nevertheless legal.

The court put in contrast the contentions of the parties as follows: pellees [plaintiffs] assert that, for all that thus appears, appellant may receive sufficient net income on all its other business on this division, and on all of its business, including the specified classes, on other divisions, to furnish it a fair return on all its investments and operations, including the transportation of these classes, and therefore appellant will receive all to which it is entitled, though this order be enforced." "Appellant [Railroad Company] asserts that the state has no power [118] to thus segregate a certain class of traffic and require the Railroad Company to carry that traffic at unremunerative rates." [188 Ind. 87, P.U.R. 1919C, 637, 122 N. E. 227.]

The question presented by the contentions is not easy of offhand solution, though its elements are easy of declaration. A railroad is private prop erty, and as such, a rate may be fixed for its use; but it is private property The cases that were adduced to sus- devoted to the public service, and as tain the respective contentions the court such it is subject to the power of the enumerated, but considered that there state to see and require that the rate was "little or no conflict" in them, and fixed be just and reasonable,-one that, that any confusion in them "almost alto- while it will yield a revenue to the gether disappears" when they "are read railroad, will be proportioned to that in view of the fundamental principles which should be charged to the public. involved." The court's conclusion from And this relation of right and power is the cases was, that "a carrier is entitled illustrated in many cases. It is deto fair remuneration on all its invest-clared in Northern P. R. Co. v. North ments and property. It is entitled to no Dakota, 236 U. S. 585, 59 L. ed. 735, more. For this it undertakes to rea- L.R.A.1917F, 1148, P.U.R.1915C, 277, sonably serve in the capacity chosen by 35 Sup. Ct. Rep. 429, Ann. Cas. 1916A, it. It undertakes to serve for no less. 1, and a test of it given; that is, when If the carrier receives, in the aggregate, the right must yield to the power, and such fair remuneration, notwithstand- when the power is limited by the right. ing the rates on a part of its business And there was a consideration and reare not remunerative, the carrier has no basis for complaint." And further: "When a rate on a part of the business is too low, some other part of the carrier's business may be paying too much, thus preventing a deficiency of income which would otherwise result from the

view of all of the elements involved. It was declared that the legislature "has a wide range of discretion in the exercise of the power to prescribe reasonable charges, and it is not bound to fix uniform rates for all commodities, or to secure the same percentage of

profit on every sort of business

It is not bound to prescribe separate
rates for every individual service per-
formed, but it may group services by
fixing rates for classes of traffic." And
this court will not sit in judgment upon
such action and substitute its judgment
for that of the legislature when review-
ing "a particular tariff or schedule
which yields substantial compensation
for the services it embraces when the
profitableness of the intrastate business
as a whole is not involved." "But," the
court said, "a different question arises
when the state has segregated [120] a
commodity or a class of traffic, and has
attempted to compel the carrier to
transport it at a loss or without sub-
stantial compensation even though the
entire traffic to which the rate is applied
is taken into account. On that fact be-
ing satisfactorily established, the pre-
sumption of reasonableness is rebutted."
And further, "it has repeatedly been
assumed in the decisions of this court
that the state has no arbitrary power
over the carrier's rates, and may not
select a particular commodity or class
of traffic for carriage without reason-
able reward." It was hence concluded
that where there is such segregation,
and a rate imposed which would com-
pel the carrier to transport a commod-
ity "for less than the proper cost of
transportation, or virtually at cost," the
carrier would be "denied a reasonable
reward for its service," and "the state
has exceeded its authority."

practice under which a rate which re-
turned any revenue over and above 'out
of pocket' costs was considered to be
constitutionally remunerative
Counsel are mistaken [121] in their
judgment of those cases. They did not
discredit what had been announced of
either theory or practice; they only re-
moved them from misunderstanding and
controversy, and declared a principle
that assigned to the state a useful power
of regulation, while it accorded to rail-
roads a reasonable return upon the cap-
ital' invested and a reward for its enter-
prise, a principle, therefore, which
keeps power and right in proper rela-
tion; if we may repeat ourselves, power
not exercised in excess, right not used
in abuse.

It is, however, contended by the de-
fendants in error that the averments of
the answer (second paragraph) are not
sufficient to present the issue of law
based upon it because it does not allege
that the rates are not compensatory of
the cost of the service "between the
stations to which the rates apply," and
that, therefore, it may well be that they
are remunerative of that service, and
"only be nonremunerative when applied
to some other carriage." And it is fur-
ther urged that the answer fails to
specify upon what part of the carrier's
property the rates will not yield a fair
return, and it is consistent with the
answer that there may be a fair return
on the value of the property "used in
carriage between the stations named in
the order, although not sufficient to
'provide a fair return in handling and
carrying the classes of property in said
order specified' over some other part of
its line."

The case and its principle were followed and illustrated in Norfolk & W. R. Co. v. Conley, 236 U. S. 605, 59 L. ed. 745, P.U.R.1915C, 293, 35 Sup. Ct. Rep. 437, and the principle applied to a passenger rate. It was there said, explain- The distinctions are artificial and ing the "range of permissible action" by strained. They are an attempt to make a state, that it, the state, "has no arbi- the necessary implications of the answer trary power over rates; and no part of it. The averment of a pleadthat the state may not select a commod-ing need not be so certain that an ity, or class of traffic, and instead of affirmative allegation of the existence fixing what may be deemed to be rea- of a fact or condition must be accomsonable compensation for its carriage, panied by the negation of that which is compel the carrier to transport it either contradictory to it or inconsistent with at less than cost, or for a compensation it. The answer, besides, is addressed to that is merely nominal." See also the complaint and to the rates and order Brooks-Scanlon Co. v. Railroad Com- of the commission [122] that constitute mission, 251 U. S. 396, 64 L. ed. 323, the bases of the complaint, and puts P.U.R.1920C, 579, 40 Sup. Ct. Rep. 183. them and the effect of them in issue. In These cases leave nothing to be said, other words, the complaint deals with nor need we review the prior cases from the rates and service between designatwhich they are deductions. The conces-ed stations, and the answer deals with sion of counsel is "that it may be admitted that the North Dakota and West Virginia (Conley) cases have greatly discredited the previous theory and

those rates and that service. And the supreme court so regarded it, and explicitly said that the evidence made the issue. Counsel attack the conclusion as

255

more than five thousand and less than
twenty-five thousand inhabitants cannot be
said to be in effect a burden upon the
telegraph company's interstate business
merely because its intrastate business in
that city, which the company asserts it is
compelled by statute to continue to carry
on at the rates therein prescribed, may be
insufficient to pay the tax, where any deficit
may be obviated by application for an in-
crease of intrastate rates, and where, in
addition, the telegraph company, when it
entered the city, the ordinance levying the
tax being then in existence, did not declare
against its legality or complain of its detri-
mental operation, but subjected itself to
further regulation, licensing, and taxing,
and paid the tax (by mistake and inad-
vertence, it asserts) for several years.
[For other cases, see Commerce, 273-287;
Telegraphs, I. in Digest Sup. Ct. 1908.]

[No. 156.]

Submitted January 18, 1921. Decided

February 28, 1921.

IN ERROR to the Supreme Court of

the State of Nebraska to review a

judgment which affirmed a judgment of the District Court of Dodge County, in that state, in favor of a municipal corporation in a suit to collect a license tax from a telegraph company. Affirmed.

See same case below, 103 Neb. 476, 172 N. W. 525.

The facts are stated in the opinion. Mr. John N. Sebrell, Jr., submitted the cause for plaintiff in error:

Co. v. Texas, 210 U. S. 217, 52 L. ed. 1031, 28 Sup. Ct. Rep. 638; Crutcher v. Kentucky, 141 U. S. 47, 35 L. ed. 649, 11 Sup. Ct. Rep. 851.

2. Because the company is required by the ordinance of Fremont, taken in conjunction with the statute of Nebraska, to pay this tax as a condition upon its interstate business.

Postal Teleg. Cable Co. v. Charleston, 153 U. S. 692, 38 L. ed. 871, 4 Inters. Com. Rep. 637, 14 Sup. Ct. Rep. 1094; Western U. Teleg. Co. v. Kansas, 216 U. S. 1, 54 L. ed. 355, 30 Sup. Ct. Rep. 190; Leloup v. Mobile, 127 U. S. 649, 32 L. ed. 314, 2 Inters. Com. Rep. 134, 8 Sup. Ct. Rep. 1380; Crutcher v. Kentucky, 141 U. S. 47, 35 L. ed. 649, 11 Sup. Ct. Rep. 851; Pullman Co. V. Adams, 189 U. S. 420, 47 L. ed. 877, 23 Sup. Ct. Rep. 494.

This court has never failed to hold that it is beyond the power of the state, by any device or in any way, to burden the interstate commerce of a corporation, whether by taxes or otherwise.

Crutcher v. Kentucky, 141 U. S. 62, Western U. Teleg. Co. v. Kansas, 216 35 L. ed. 654, 11 Sup. Ct. Rep. 851; U. S. 1, 54 L. ed. 355, 30 Sup. Ct. Rep.

190.

The state courts are already beginning to recognize the invalidity of such taxation.

Postal Teleg.-Cable Co. v. Cordele, 141 Ga. 658, 82 S. E. 26; Western U. Teleg. Co. v. Fitzgerald, 149 Ga. 330, 100 S. E.

The tax is invalid as applied to the 104. Postal Telegraph-Cable Company:

1. Because the receipts from the compelled intrastate business are not sufficient to pay the tax, and it therefore 'falls upon interstate commerce.

Postal Teleg.-Cable Co. v. Richmond, 249 U. S. 252, 63 L. ed. 590, 39 Sup. Ct. Rep. 265; Pullman Co. v. Adams, 189 U. S. 420, 47 L. ed. 877, 23 Sup. Ct. Rep. 494; Kansas City, Ft. S. & M. R. Co. v. Botkin, 240 U. S. 227, 60 L. ed. 617, 36 Sup. Ct. Rep. 261; St. Louis Southwestern R. Co. v. Arkansas, 235 U. S.

350, 59 L. ed. 265, 35 Sup. Ct. Rep. 99; United States Exp. Co. v. Minnesota, 223 U. S. 335, 56 L. ed. 459, 32 Sup. Ct. Rep. 211; Western U. Teleg. Co. v. Kansas, 216 U. S. 1, 54 L. ed. 355, 39 Sup. Ct. Rep. 190; Galveston, H. & S. A. R.

On corporate taxation and the commerce clause-see note to Sanford v. Poe, 60 L.R.A. 641.

On validity of license tax on foreign corporations as condition of doing business-see note to Reymann Brewing Co. v. Brister, 45 L. ed. U. S. 269.

Mr. Robert E. Evans submitted the cause for defendant in error. Messrs. Charles E. Abbott and John F. Rohn were on the brief:

The city of Fremont had authority by its charter to impose by ordinance an occupation or license tax on the indone within the city. trastate business of telegraph companies

Co. 92 Neb. 253, 138 N. W. 169; WestGrand Island v. Postal Teleg. Cable ern U. Teleg. Co. v. Fremont, 43 Neb. 499, 26 L.R.A. 698, 61 N. W. 724; Postal Teleg. Cable Co. v. Charleston, 153 U. S. 692, 38 L. ed. 871, 4 Inters. Com. Rep. 637, 14 Sup. Ct. Rep. 1094.

Under the tax ordinance intrastate

and government service are expressly excluded from liability for the charge, and the tax is valid.

Postal Teleg. Cable Co. v. Richmond, 249 U. S. 252, 63 L. ed. 590, 39 Sup. Ct. Rep. 265.

The sum of $60 per year on this business, operated in a city of 8,000, is not, on its face, unreasonable. The court.