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UNITED STATES v. SOUTH BUFFALO RY. CO.

November 7, 1946

UNITED STATES
v.
SOUTH BUFFALO RY. CO. et al.



The opinion of the court was delivered by: KNIGHT

This is a suit brought by the United States against the South Buffalo Railway Company (at times hereinafter called South Buffalo), Bethlehem Steel Company (at times hereinafter called Steel Company), and Bethlehem Steel Corporation (at times hereinafter called Holding Company) to enjoin them from violating the so-called Commodities Clause of the Interstate Commerce Act, 34 Stat. 584, 49 U.S.C.A. § 1(8).

This Court has jurisdiction over the subject matter of this suit and the parties.

 The Bethlehem Steel Corporation is a Holding Company organized under the laws of the State of Delaware, owning all or substantially all of the stock of 57 subsidiary corporations operating in various states and outside the United States. These latter are companies mining ore, producing materials used in the manufacture of steel, steamship companies, which transport iron ore from mines to subsidiary steel plants, engage in coast-wise shipping principally of products produced by one or more of such subsidiaries, corporations engaged in the manufacture of steel and steel products, and railroad companies.

 The South Buffalo Railway Company was incorporated in 1889 and, of its shares of capital stock of 5000, 4,991 were issued to Lackawanna Iron & Steel Company. In 1903 these shares were transferred to the Lackawanna Steel Company. The remaining nine shares were held as directors qualifying shares. On October 10, 1922, Lackawanna Steel Company conveyed its steel manufacturing plant and other properties at Lackawanna, New York, and contracted to sell its stock in South Buffalo to the Bethlehem Steel Company of New York, Inc. In 1922 the name of Bethlehem Steel Company of New York, Inc., was changed to Bethlehem Iron and Steel Corporation, and the 4,991 shares of stock aforesaid were transferred in 1923 to that company. In 1935 the steel manufacturing plant and other properties at Lackawanna, New York, which had been conveyed to Bethlehem Steel Cmpany of New York, Inc., were conveyed to Bethlehem Steel Company, defendant of that name herein, and in the following year the stock of South Buffalo which had been transferred from Lackawanna Steel Company to Bethlehem Steel Company of New York, Inc., was transferred on the books of South Buffalo to Bethlehem Steel Corporation, defendant herein, organized under the laws of the State of Delaware. The Bethlehem Steel Corporation since 1940 has owned all of the stock of South Buffalo. When Bethlehem Steel Company of New York, Inc., acquired the stock aforesaid of South Buffalo, in 1922, it sold to South Buffalo 75 miles of track located West of what is termed the Hamburg Turnpike and certain other property, and also leased to it the roadbed under such track and land and other property for 99 years, and the following year leased to it certain additional land and roadbed for 98 years.

 The Steel Company owns 1027 acres of land along the Hamburg Turnpike in Lackawanna, New York, and on this are located the manufacturing properties of the Company. An intricate system of tracks is supplied and necessitated to serve the needs of the Steel Company. South Buffalo owns and operates 6 miles of main line track and 81 miles of other track. Of this 81 miles, about 58 miles, with 71 miles of broad and narrow gauge track owned by the Steel Company, make up the total trackage serving the plant. The balance of the main track of the South Buffalo serves other properties of the Steel Company and some 27 other nearby industries. These various tracks within the plant are interconnected and South Buffalo and the Steel Company operates over them. The railroad has some 35 locomotives, steam and Diesels. It owns no freight cars except a few which are used for its own work. It has direct physical connection with five line haul carriers and direct and indirect connection with seven others. South Buffalo is one of seven railroads which is a subsidiary of the Bethlehem Steel Corporation. Each of these railroads serves a plant of the Steel Company. South Buffalo is the only railroad which has served the Steel Company's Lackawanna plant since its acquisition, and approximately 70 per cent of its revenues come from the Steel Company. It delivers to the aforesaid line haul companies materials and products both from the Steel Company and these various industries destined for delivery outside the State or New York and receives over these line haul carriers materials and products for the Steel Company and these various industries.

 The Commodities Clause of the Interstate Commerce Act, Section 1(8), so far as material here, reads:

 'From and after May first, nineteen hundred and eight, it shall be unlawful for any railroad company to transport from any State, * * * , to any other State, * * * , any article or commodity, * * * , manufactured, mined, or produced by it, or under its authority, * * * , or in which it may have any interest, direct or indirect, * * * .'

 The purpose of the Commodity Clause was 'to divorce the business of transporting commodities in interstate commerce from their manufacture, * * * , and thus to avoid the tendency to discrimination, forbidden by the act to regulate commerce.' United States v. Delaware & Hudson Co., 213 U.S. 366, 29 S. Ct. 527, 534, 53 L. Ed. 836: See also United States v. Delaware, Lackawanna & Western R. Co., 238 U.S. 516, 35 S. Ct. 873, 59 L. Ed. 1438; United States v. Elgin, Joliet & Eastern Ry. Co., 298 U.S. 492, 56 S. Ct. 841, 80 L. Ed. 1300. The abuses which the Clause sought to prevent grew out of the common ownership of railroads and coal mines in the Eastern states and the resulting power of discrimination in various ways and thereby suppress competition.

 The defendants assert that the Commodities Clause has no application to these defendants; that neither of the parties defendant is a 'railroad' within the contemplation of the Clause; that neither transports commodities from one state to another and that, if the three defendants are to be regarded as a single corporate entity, such entity would bring them within the exact language of the 'Shippers Allowance Clause,' Sec. 15(13) of the Act, 49 U.S.C.A. 15(13). The merits of these contentions may well be first considered, as a decision upholding any of them would require a dismissal and obviate the necessity of considering the mass of evidence relating to the violation of the Clause.

 The claim that the Commodities Clause was inapplicable was raised and presented at considerable length in the briefs in United States v. Elgin, supra. The Supreme Court made no reference to this contention, and it is a fair conclusion that the court saw no merit in it. However, all of the grounds now urged were not presented there.

 Defendants term the South Buffalo an 'industrially owned switching railroad' whether owned by the industry or a separate company and therefore say the Commodities Clause does not apply. Of course, there are many railroads which are so classified, but this railroad is more than such -- more than a terminal facility. Its line of road extends inside and outside the Steel Company plant to the length hereinbefore stated; it serves numerous other industries; transports materials in interstate commerce; files tariffs; has connections with various line haul carriers outside the steel plant; does certain work for the Steel Company outside of transportation; it owns railroad bed and track outside the plant and leases land within; has numerous locomotives; has its own office building, and other essential equipment.

 Defendants cite United States v. Terminal Railroad Ass'n, 224 U.S. 383, 32 S. Ct. 507, 56 L. Ed. 810, and State ex inf. Attorney General v. Terminal R. Ass'n of St. Louis, 182 Mo. 284, 81 S.W. 395. Neither involved consideration of the Commodities Clause and neither is determinative of what type of a railroad South Buffalo is. The former said there was an 'essential difference between terminal systems properly so described and railroad transportation companies.' (224 U.S. 383, 32 S. Ct. 512). There is a wide difference between the terminal system there considered from the system here. Omaha Street Ry. v. Interstate Commerce Commission, 230 U.S. 324, 33 S. Ct. 890, 57 L. Ed. 1501, 46 L.R.A.,N.S., 385, held that the Interstate Commerce Act, as then existing, did not apply to a streetcar company operating a railroad across state lines, and with the conclusion there well may be agreement. In United States v. Delaware & Hudson, supra, most of the business of the company's railroad was the transportation of coal from mines owned by the company. The company contended that its railroad was not a railroad within the purview of the Clause, but a coal company. The court there said: 'The contention * * * is without merit. The facts stated * * * leave no doubt that the corporation was engaged as a common carrier by rail in the transportation of coal in the channels of interstate commerce.' This was the first case in the Supreme Court construing the Commodities Clause, and no later one holds to the contrary. The size of the railroad and the extent of its business are not determinative that it is an 'industrial switching road.' Such construction would subvert the purpose of the Commodities Clause with respect to discrimination.

 The Commodities Clause applies irrespective of the fact that the South Buffalo does not cross the state line. Property is in interstate commerce from its delivery to the carrier for shipment into another state till delivered to the consignee. 'Transportation,' as the word is used in different provisions of the Interstate Commerce Act, refers to transportation in interstate commerce.

 Section 1(1) of the Interstate Commerce Act provides that, the Act 'shall apply to common carriers engaged in -- The transportation of passengers or property wholly by railroad, * * * from one State * * * to any other State * * * .' Regarding this section, in United States v. Union Stock Yard etc. Co., 226 U.S. 286, 33 S. Ct. 83, 88, 57 L. Ed. 226, the Court said: 'That the service is performed wholly in one state can make no difference if it is a part of interstate carriage.'

 The language in the Commodities Clause, in so far as it relates to transportation, is the same as that in Section 1 of the Elkins Act, Section 41(3) 49 U.S.C.A., formerly Section 2 of the Hepburn Act, and this, in part, fixes the liability of a carrier transporting property from one state to another where a rebate or off set against the regular charge is given. The courts apply this statute where property is transported to and consigned to another state, and even if the line of the guilty railroad does not extend beyond the state of origin. Powell v. United States, 4 Cir., 112 F.2d 764, The Carmack Amendment, Section 20(11), 49 U.S.C.A., as originally enacted, provided that a common carrier receiving property 'for transportation from a point in one State * * * to a point in another State * * * shall issue a receipt * * * and shall be liable * * * .' This section has been construed to render a carrier liable whose lines lay entirely within one state but which had accepted property for transportation to another state. Missouri, Kansas & Texas Ry. Co. of Texas v. Plano Milling Co., Tex.Com.App., 231 S.W. 100, certiorari denied 258 U.S. 624, 42 S. Ct. 317, 66 L. Ed. 797.

 The Shippers Allowance Clause, Section 15(13), of the Interstate Commerce Law has no application to a common carrier. Under its provisions allowances are made to the shipper for services furnished in connection with transportation by the shipper through its plant facilities. These services are typified by switching service, pick up delivery, elevator service and other sorts which are part of the transportation itself. The Interstate Commerce Commission and the courts have many times considered the type of ...


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