8. CARRIERS (§ 12*) - STATE REGULATION OF RATES VALIDITY OF STATUTE REASONABLENESS OF RATES.

Railroad property, properly built and properly managed, is entitled to earn an annual income of 6 per cent. on its fair valuation, and a statute fixing rates under which it cannot make such income is confiscatory and unconstitutional.

[Ed. Note. For other cases, see Carriers, Dec. Dig. § 12.*]

9. CARRIERS (§ 12*) - STATE REGULATION OF RATES - VALIDITY OF MISSOURI STATUTES.

Act Mo. Feb. 27, 1907 (Laws 1907, p. 170), establishing two cent passenger fares on railroads within the state, and Act March 19, 1907 (Laws 1907, p. 171), establishing maximum freight rates, held confiscatory and unconstitutional on evidence showing that none of the railroads doing business thereunder can earn to exceed 3 per cent. net income on its state business under such rates, while as to some the business must be done at a loss.

[Ed. Note. For other cases, see Carriers, Dec. Dig. § 12.*]

10. COSTS (§ 60*)-DISCRETION OF COURT IN EQUITY-DIVISION OF COSTS.

In an equity suit the award of costs is discretionary, and where, through the faults of both parties, an unnecessarily large and expensive record has been made, the costs will be divided as seems equitable.

[Ed. Note. For other cases, see Costs, Cent. Dig. § 264; Dec. Dig. § 60.*} 11. CONSTITUTIONAL LAW (§ 55*) - STATUTES (§ 64*)-STATE REGULATION OF RATES-VALIDITY OF STATUTE-EXCESSIVE PENALTIES.

The penalty provision of the Missouri two-cent passenger fare statute of February 27, 1907 (Laws 1907, p. 170), which imposes a fine for each violation of not less than $100 nor more than $500, and that of the freight rate statute of March 19, 1907 (Laws 1907, p. 171), which imposes a fine for its violation of not more than $5,000, are both void because of the excessive penalties provided, as an indirect attempt to preclude the railroad companies from litigating in the courts the question of the reasonableness of the rates, which is a judicial question; but, such provision in each case being separable from the remainder of the statute, its invalidity does not render the other provisions invalid.

[Ed. Note.-For other cases, see Constitutional Law, Dec. Dig. § 55;* Statutes, Cent. Dig. § 58; Dec. Dig. § 64.*]

See, also, 155 Fed. 220; 161 Fed. 419.

Prior to the argument, the court requested counsel on both sides to submit requests for findings of fact. Complainants' counsel did this. Defendants' counsel have not done so. Complainants' requests have been considered, some of which are embodied within the following findings, and some are not.

The following are the findings of fact that the court makes as based upon the evidence herein:

(1) The complainants are the 18 railroad companies owning and operating lines of railroad in Missouri, they doing all of the state and interstate railroad business therein, and all of them except the St. Louis & Hannibal Company having lines of railroad both within and without the state. That company is wholly within the state, extending from Hannibal, Mo., to the south 120.61 miles. The Kansas City, Clinton & Springfield Company is a road of about 160 miles in length, with 151.01 miles in the state. All the other companies have lines extending into a number of other states, one of them extending into 13 other states and territories. These roads, with their own lines and with their connecting carriers, carry all the traffic and do all the business, freight and passenger, within the state, whether of state or interstate character. The intrastate business is at all times herein referred to as "state business." That part of the interstate business which neither originates within, nor has its destination within, but passes across the state of Missouri, is called "transstate business."

*For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

(2) The same roadbed, locomotives, cars, and trains, including all facilities, are used for both classes of business, state and interstate. It is not practicable to conduct the business in any other way. This is so both from the standpoint of the public and that of the companies. If state business were to be carried alone upon some cars and trains, and interstate alone upon others, the expenses would be enormously increased, and almost if not quite prohibitive, while the public would be subjected to delays, inconveniences, and great expense. By reason of all this the business cannot practicably be separated.

(3) Both from a geographical and railway standpoint, Missouri is situated differently from the other states of the Union, there only being two or three other states that have a resemblance to it in these particulars, and each of them in a lesser degree. This is so because the Mississippi is its boundary on the east all the distance. From a railroad standpoint, the Missouri river is its boundary line on the west, although physically the Missouri river is only the western boundary line from the northwest corner of the state about halfway to the southwest corner. But at the halfway point, namely, Kansas City, the river turns directly to the east, and continues its way to the Mississippi river. In its production, business, and commerce all that part of Missouri to the north of the Missouri river is practically like the south half of Iowa, the ' country districts producing large quantities of live stock and grain for the market, as well as much bituminous coal. The south half of Missouri is entirely different. The amount of grain and live stock is much less than in the north half of the state. But the south half has a large amount of timber, stone, lime, lead, zinc, iron, and fruits. St. Louis on the east is a city of nearly 1,000,000 people, Kansas City on the west nearly half as many, while St. Joseph has more than 125,000 people. These three cities carry on large manufacturing interests. The grain, live stock, and packing-house interests at Kansas City and St. Joseph are enormous. For a third of a century or more, for reasons which need not be repeated, rates from the East were fixed to the Mississippi river, and, later on, from thence to the Missouri river. The interstate rates either in or out were the one plus the other. It was the same from the West. It was likewise the same for the transstate business going in either direction. Such is the method existing to-day. This brought about the fact, which for years has existed and exists to-day, that the short line of road between the two rivers fixes the freight rates. To illustrate, the Burlington Road is the short line between the rivers, being 198 miles from Hannibal to St. Joseph, and the same distance, within a few miles, to Kansas City. The roads between Kansas City and St. Louis-and there are four, at least, of them-including the Burlington, is an average distance of nearly 300 miles, but some of the roads being 50 miles or more farther between the points than the others. This brings about the fact that all freight rates between any one point on the one river and any point on the other river are the same as the rate from Hannibal to St. Joseph over the Burlington Line. That is to say, the freight rates on any road, regardless of distance, are the same between St. Louis and either Kansas City or St. Joseph that they are between Hannibal and St. Joseph over the Burlington Line. This has given the three cities of St. Louis, Kansas City, and St. Joseph great advantages over other points. Competent persons say that to change this system will work irreparable harm to the three cities named, as well as to all other places within the state, by driving both the jobbing and manufacturing business to seaboard points. As to this, no finding is made nor opinion expressed, because it is believed to be a matter of policy upon which this court in these cases should express no opinion. As to the passenger rates, by reason of competition the fare is the same between Kansas City and St. Louis, the shorter line fixing the rates, thereby compelling the longer road to be at much expense without remuneration. This is likewise true as to all competitive points.

As to the foregoing question of rates and fares, there is no United States statute governing the same, and there is no Missouri statute upon the subject except the two statutes questioned by the bills, one dealing with certain commodities per car per distance, and the other fixing the passenger fares at two cents. Aside from these two statutes, and as to any bearing they have as to charges between the two rivers, the conditions named have been brought

about and exist to-day by reason of a long-time custom, and by reason of transportation, actual and probable, upon the two rivers.

Still further bearing on the question are the following facts: Joplin is & city in the southwestern part of the state, of more than 25,000 people. There are a number of towns adjacent thereto, giving that county (Jasper) a population of 200,000 people. It is a very large mining district of lead and zinc. Between Kansas City and Joplin three of complainants herein have railroads. The Missouri Pacific at all points between the said places is within the state. Each of the other two between said points is partly without the state, starting within and going out and coming back, thereby making it interstate business as to two of the roads between Kansas City and the Joplin district. Between Kansas City and St. Joseph, four roads do the business. The Missouri Pacific and Chicago Great Western is each part of the distance within the state of Kansas, while the Burlington and St. Joseph & Grand Island Company is each wholly within the state of Missouri between the two cities. Between St. Joseph and St. Louis two of complainants do practically all the business, which is very large in both passenger and freight. These are the Burlington and Missouri Pacific. Between said cities the Burlington Line is wholly within the state. But the Missouri Pacific line is partly within the state of Kansas, crossing the Missouri river at Atchison, and coming back into the state at Kansas City. On the foregoing facts the finding is that the short line between two competitive points necessarily fixes the rate, and the Missouri statutory rates under the statutes in question fix the rates between the cities named. But this is so solely because of the geographical location of cities and railroads, and competition, and long-time custom. It is not so either because of a statute or any judicial determination by any of the courts of Missouri.

(4) Pending this litigation, each of the complainant companies made and delivered to defendants statements showing the earnings and expenses for certain periods, which statements have been taken by both sides as sufficiently illustrative of the situation for the determination of these cases. The companies extended to the state officers, defendants herein, acting by experts by them selected, the opportunity to examine the statements and the books, papers, vouchers, and records of the companies. The freight rate statute of 1907 (Laws 1907, p. 170) as to commodities mentioned allowed greater rates than did the statute of 1905 (Laws 1905, p. 102 [Ann. St. 1906, § 1194]), assailed by the original bills of complaint herein, and it was conceded at the trial that, if the rates fixed by the act of 1907 were confiscatory, those fixed by the act of 1905 were likewise.

(5) The parties were producing evidence and preparing their evidence for about one year with the aid of experts on each side. These experts were all men of high character and great proficiency as railroad accountants. The experts on each side were given the fullest opportunity and all the time desired to obtain the information and put the same in form in exhibits, schedules, and reports, all of which are in evidence in the cases, supplemented by the oral testimony of each of the experts with reference to all of these things.

(6) It was conceded by the experts that the companies fairly, accurately, and honestly kept their books showing the facts in these findings set forth. The experts of the state and of the companies have thereby been enabled to present with certainty and precision all the earnings within the state, both state and interstate business. But obtaining and compiling this information by the experts has been at great expense of time and money. One exception to the foregoing is to be noted as to passenger fares for a short period of time after the two-cent fare law became operative. By agreement of both sides in open court in June, 1907, this court issued a temporary writ of injunction against the enforcement of the freight rate statute. The complainants asked for a temporary injunction against the enforcement of the two-cent passenger fare statute. This court held that the statute should be given a trial for five months and ascertain the result by actual operation. In preparing the order, counsel, no doubt by inadvertence, fixed three months as the period for trial as to results. But by acquiescence of both sides, or, if not, by delays with which the court was not chargeable, such status remained for more than one year, and the cases were not actually brought on for trial until in November, 168 F.-21

1908. But after the statute became operative in June, 1907, and this court denied the temporary writ of injunction, the interstate passenger rates remained as they were for a period of about two months. During the time that condition prevailed, parties both coming into and going out of Missouri on interstate journeys would buy tickets to the state line, thereby obtaining the benefit of the two-cent fare for all distance within the state. It was not possible for the companies to show the truth as to the number of such trips, and therefore it is not possible for the court to find just how much of the earnings were on account of such interstate trips. But the extent, whatever it was, would make an erroneous showing as to state earnings, though favorable to defendants, because such earnings were of an interstate character. But even though for the short time a part of the business was thus carried on so that additional earnings were erroneously placed to the credit of the state, still the results are not changed, for the error was against, and not in favor of, complainants.

Freight earnings, both state and interstate, are made up from earnings of transportation and another item called "miscellaneous freight." composed of switching, demurrage, and storage charges, and track and equipment rentals. Passenger earnings are made up of passenger fares and miscellaneous, the latter covering mail, express, excess baggage, storage, rentals, and possibly some other terminal earnings.

No difference of consequence has arisen between the parties as to the expense of doing the entire business in the state. With reasonable certainty the expenses for doing the freight and passenger, including miscellaneous of each, can be and have been separated.

The earnings are known and fixed, and in these findings stated to a certainty. But as to the expenses as between state and interstate business, there has been a controversy, and such is the principal controversy in the cases. There is no known fixed or certain rule for determining how this separation of expenses shall be made. The same cannot be made with mathematical certainty. Complainants claim that the division should be made upon the reve nue basis; defendants claim that it should be made upon the ton mile basis for freight, and passenger mile basis for passengers, classifying the miscellaneous earnings as and with freight and passenger earnings respectively. By the revenue basis is meant to assign such proportion of the total expense in the state on that class of business as the earnings of that class of state business bear to all the earnings, state and interstate, from the same class, or, which is the same thing, ascertain what the percentage of all expenses is of all earnings, then multiply that by the state earnings of any class, and thus obtain the sum to be assigned as state expense. The ton mile basis as to freight means the assignment as state freight expenses of any class of business such proportion of all state expense as the number of ton miles of state freight bears to the total ton miles of all freight hauled within the state. By the passenger mile basis is meant the assignment as state passenger expenses such proportion of all passenger expenses as the number of passengers in state business carried one mile bears to the whole number of passengers, state and interstate, carried one mile.

For reasons stated in an opinion herein filed, the revenue basis has been and is adopted as the only logical basis to use in arriving at a correct conclusion. The one basis or the other as a whole must be adopted. Either side can make a better showing by adopting the one basis in part of the accounting, and the other basis for the other. Neither should be and is allowed to do this. As will presently appear, the state has attempted to do this in making its passenger earnings accountings.

(7) Each basis for accounting has some defects, but they are minor and not controlling, and do not change the result if the revenue basis is taken. The expense of doing the state business over interstate is greater for carrying freight by at least 50 per cent., and at least 25 per cent. for carrying passengers. Therefore this extra cost must be added to the expenses after they have been ascertained so as to obtain the total expense. If the ton mile basis of division were adopted, the extra cost should also be added. This would require the use of another multiplier sufficient to bring the sum total of the state freight expense equal to that found herein, to actually represent

the cost as shown by the evidence. Any apportionment of passenger expense upon the passenger mile basis would be unfair and unjust, although much more favorable to the companies than if made upon the revenue basis.

(8) All things considered, the evidence shows the cost of doing the different classes of state business as between state and interstate apportioned upon the revenue basis with added extra cost brings a result in these findings stated which is fair and representative and just. The court finds, aside from the revenue basis, that the evidence shows the amount ascertained in each case as the expense and extra cost is fair, and justly represents the expense of doing each class of state business. The extra cost as to each complainant for doing the state business over interstate is more than 50 per cent. in case of freight, and more than 25 per cent. in case of passenger. This extra expense as thus found is considerably in excess of these figures, and the figures used are adopted as the minimum. The sum total of this extra cost, if ascertained according to the ton mile theory, would not be changed, because it is a question of multiplication, and one multiplier or another must be used accordingly ` as the theory is adopted. The findings herein made on all the evidence represent in dollars the fair cost and expense fixed at a minimum. There has also been considered and found in each case such sum as would equal the diminution of earnings upon the commodities covered by the freight rate statutes of 1905 and 1907, if the rates thus fixed had been charged, as there would have been but for the temporary injunctions herein issued.

(9) The evidence shows that each of complainants has regularly paid for many years' interest on its bonds. There is no evidence to show that any of the railroad property within the state of Missouri has an undue amount of bonds or is unfairly bonded, and the evidence does not show that any of the bonds provide for interest in any sum greater than such bonds should carry. It does show that most of the bonds are at the lowest rates of interest, and much less than the legal rate allowable in Missouri. In thus referring to interest, the St. Louis & Hannibal and Kansas City, Clinton & Springfield companies are excepted.

(10) After the adoption of the two-cent fare statute, there was no substantial increase in travel. For a few weeks there was a small increase largely brought about by interstate passengers buying tickets to state lines, and in part by the novelty. What, if any, increase of travel occurred by reason of said two-cent fare, would be a mere approximation. It has not been substantial, and there is no reason to believe that any such increase will be brought about in the future by a two-cent fare.

(11) The values of the railroad properties in the state of Missouri are found, in the cases tried, to be as follows:

With the exceptions hereinafter stated, the above valuations of the properties of said nine companies as fixed are in fact practically the same as those fixed by the state assessing board for the purpose of taxation. But aside and apart from the valuations thus fixed by the state board, these findings are that upon the whole evidence said properties are at least of the values above fixed. The evidence shows that included in such sums the state board, after making certain valuations under the heading of "All Other Property" fixed certain valuations, which when added give the totals as above. In argument