Supreme Court decision
By: Charles Evans Hughes
Date: June 8, 1914
Source: Hughes, Charles Evans. Houston, East & West Texas Railway Co. v. United States, 234 U.S. 342 (1914). Available online at http://caselaw.lp.findlaw.com/us/234/342.html; website home page: http://caselaw.lp.findlaw.com (accessed January 22, 2003).
About the Author: Charles Evans Hughes (1862–1948), born in New York, is one of the few U.S. Supreme Court justices to join the Court twice. After serving as governor of New York starting in 1906, President William Howard Taft (served 1909–1913) appointed Hughes to the Supreme Court in 1910. He left the Court to run unsuccessfully for president against Woodrow Wilson (served 1913–1921) in 1916. He served as secretary of state under Warren Harding (served 1921–1923) and returned to the Court in 1930 as its chief justice.
In the 1860s and 1870s, railroads enabled farmers in the West to get their goods to market and to remain in contact with the outside world. The railroads, though, tended to charge the farmers high rates, which caused considerable protest and led, in the late 1880s and early 1890s, to the emergence and growth of the Populist Party, which demanded railroad pricing equity. Pressure from the Populist Party led to the Interstate Commerce Act of 1887, which established the Interstate Commerce Commission (ICC) to create "fair and reasonable" railroad rates.
In certain circumstances, the ICC set railroad rates. In Interstate Commerce Commission v. Cincinnati, New Orleans and Texas Pacific Railway Co. (1897), however, the Supreme Court held that the ICC could not legally set railroad rates because it was part of the executive branch and only the legislative branch had power to set rates. In another decision that year, the Supreme Court weakened the ICC's fact-finding authority. Progressives in the early 1900s resurrected the railroad issue and succeeded in passing the Hepburn Act of 1906 and the Mann-Elkins Act of 1910, which granted rate-setting authority to the ICC. In 1910, in ICC v. Illinois Central Railroad Company, the Supreme Court upheld the ICC's rate-setting powers and granted greater discretion to the commission. It also took a broader view of the Constitution than the 1897 decisions had by holding that Congress could legally delegate rate-setting power to the commission. The net effect of this decision was that in future cases, the Supreme Court would review only whether or not the ICC had the power to issue a given order rather than whether or not the issuance of that order was a wise exercise of the ICC's power.
In Houston, East & West Texas Railway Co., commonly called the Shreveport case, the Court allowed the ICC to raise intrastate rates, or rates within a state's borders. This decision expanded the scope of the ICC's power and established the ICC's superiority over state and local regulatory commissions. After Shreveport, the ICC continued to monitor rates and generally worked to keep rates low. However, it did not generally consider the relationship of the railroads to the economy as a whole. Some ICC members pushed for higher rates, which would lead to stronger railroads and improved services. The railroads, of course, wanted high rates, but the ICC as a whole did not.
The ICC suspended its antimonopoly rules during World War I, and after the Transportation Act of 1920, it worked to create a number of railroad cartels across the nation. These powers were upheld in several 1920 court cases. The ICC did not exercise all of its powers in the 1920s, though, following the belief of the period's Republican presidents that less government was better government. After the 1920s, the ICC's powers expanded beyond railroads to include all commercial carriers except airplanes. The ICC also had the responsibility for managing labor disputes on railroads. In the 1950s and 1960s, it enforced desegregation orders in interstate transportation. In the 1960s, its oversight of safety issues was transferred to the Department of Transportation. Slowly the ICC's other powers were also curtailed, in accordance with Ronald Reagan's (served 1981–1989) administration's belief in deregulation. In the early 1990s, the Republicans disbanded the ICC, transferring its few remaining powers to the National Surface Transportation Board.
Primary Source: Houston, East & West Texas Railway Co. v. U.S. [excerpt]
SYNOPSIS: Hughes first notes the railroad's complaint that intrastate, not interstate, rates were being affected. The opinion answers that complaint by noting Congress's complete power over interstate commerce and stating that that power extends to all activities having a "close and substantial" relationship to interstate commerce. Since inter-and intrastate commerce both have that relationship, intrastate rates can be raised. Any discrimination that burdens interstate commerce can be regulated by Congress, and thus by the ICC.
Justice Hughes delivered the opinion of the Court.
The point of the objection to the order is that, as the discrimination found by the Commission to be unjust arises out of the relation of intrastate rates, maintained under state authority, to interstate rates that have been upheld as reasonable, its correction was beyond the Commission's power. Manifestly the order might be complied with, and the discrimination avoided, either by reducing the interstate rates from Shreveport to the level of the competing intrastate rates, or by raising these intrastate rates to the level of the interstate rates, or by such reduction in the one case and increase in the other as would result in equality. But it is urged that, so far as the interstate rates were sustained by the Commission as reasonable, the Commission was without authority to compel their reduction in order to equalize them with the lower intrastate rates. The holding of the commerce court was that the order relieved the appellants from further obligation to observe the intrastaterates, and that they were at liberty to comply with the Commission's requirements by increasing these rates sufficiently to remove the forbidden discrimination. The invalidity of the order in this aspect is challenged upon two grounds:
- That Congress is impotent to control the intrastate charges of an interstate carrier even to the extent necessary to prevent injurious discrimination against interstate traffic; and
- That, if it be assumed that Congress has this power, still it has not been exercised, and hence the action of the Commission exceeded the limits of the authority which has been conferred upon it.
First. It is unnecessary to repeat what has frequently been said by this court with respect to the complete and paramount character of the power confided to Congress to regulate commerce among the several states. It is of the essence of this power that, where it exists, it dominates. Interstate trade was not left to be destroyed or impeded by the rivalries of local government. The purpose was to make impossible the recurrence of the evils which had overwhelmed the Confederation, and to provide the necessary basis of national unity by insuring "uniformity of regulation against conflicting and discriminating state legislation." By virtue of the comprehensive terms of the grant, the authority of Congress is at all times adequate to meet the varying exigencies that arise, and to protect the national interest by securing the freedom of interstate commercial intercourse from local control.…
Congress is empowered to regulate,—that is, to provide the law for the government of interstate commerce.… Its authority, extending to these interstate carriers as instruments of interstate commerce, necessarily embraces the right to control their operations in all matters having such a close and substantial relation to interstate traffic that the control is essential or appropriate to the security of that traffic, to the efficiency of the interstate service, and to the maintenance of conditions under which interstate commerce may be conducted upon fair terms and without molestation or hindrance. As it is competent for Congress to legislate to these ends, unquestionably it may seek their attainment by requiring that the agencies of interstate commerce shall not be used in such manner as to cripple, retard, or destroy it. The fact that carriers are instruments of intrastate commerce, as well as of interstate commerce, does not derogate from the complete and paramount authority of Congress over the latter, or preclude the Federal power from being exerted to prevent the intrastate operations of such carriers from being made a means of injury to that which has been confided to Federal care. Wherever the interstate and intrastate transactions of carriers are so related that the government of the one involves the control of the other, it is Congress, and not the state, that is entitled to prescribe the final and dominant rule, for otherwise Congress would be denied the exercise of its constitutional authority, and the state, and not the nation, would be supreme within the national field.…
While these decisions sustaining the Federal power relate to measures adopted in the interest of the safety of persons and property, they illustrate the principle that Congress, in the exercise of its paramount power, may prevent the common instrumentalities of interstate and intrastate commercial intercourse from being used in their intrastate operations to the injury of interstate commerce. This is not to say that Congress possesses the authority to regulate the internal commerce of a state, as such, but that it does possess the power to foster and protect interstate commerce, and to take all measures necessary or appropriate to that end, although intrastate transactions of interstate carriers may thereby be controlled.
This principle is applicable here. We find no reason to doubt that Congress is entitled to keep the highways of interstate communication open to interstate traffic upon fair and equal terms. That an unjust discrimination in the rates of a common carrier, by which one person or locality is unduly favored as against another under substantially similar conditions of traffic, constitutes an evil, is undeniable; and where this evil consists in the action of an interstate carrier in unreasonably discriminating against interstate traffic over its line, the authority of Congress to prevent it is equally clear. It is immaterial, so far as the protecting power of Congress is concerned, that the discrimination arises from intrastate rates as compared with interstate rates. The use of the instrument of interstate commerce in a discriminatory manner so as to inflict injury upon that commerce, or some part thereof, furnishes abundant ground for Federal intervention. Nor can the attempted exercise of state authority alter the matter, where Congress has acted, for a state may not authorize the carrier to do that which Congress is entitled to forbid and has forbidden.
It is to be noted—as the government has well said in its argument in support of the Commission's order—that the power to deal with the relation between the two kinds of rates, as a relation, lies exclusively with Congress. It is manifest that the state cannot fix the relation of the carrier's interstate and intrastate charges without directly interfering with the former, unless it simply follows the standard set by Federal authority.… It is for Congress to supply the needed correction where the relation between intrastate and interstate rates presents the evil to be corrected, and this it may do completely, by reason of its control over the interstate carrier in all matters having such a close and substantial relation to interstate commerce that it is necessary or appropriate to exercise the control for the effective government of that commerce.…
In conclusion: Reading the order in the light of the report of the Commission, it does not appear that the Commission attempted to require the carriers to reduce their interstate rates out of Shreveport below what was found to be a reasonable charge for that service. So far as these interstate rates conformed to what was found to be reasonable by the Commission, the carriers are entitled to maintain them, and they are free to comply with the order by so adjusting the other rates, to which the order relates, as to remove the forbidden discrimination. But this result they are required to accomplish.
The decree of the Commerce Court is affirmed in each case.
Mr. Justice Lurton and Mr. Justice Pitney dissent.
Hendel, Samuel. Charles Evans Hughes and the Supreme Court. New York: Russell & Russell, 1968.
Hoogenboom, Ari Arthur. A Short History of the ICC: From Panacea to Palliative. New York: Norton, 1976.
Pusey, Merlo John. Charles Evans Hughes. New York: Macmillan, 1951.
Stone, Richard D. The Interstate Commerce Commission and the Railroad Industry: A History of Regulatory Policy. New York: Praeger, 1991.
Thomas, William G. Lawyering for the Railroad: Business, Law, and Power in the New South. Baton Rouge, La.: Louisiana State University Press, 1999.
United States Interstate Commerce Commission, Bureau of Transport Economics and Statistics. Interstate Commerce Commission Activities, 1887–1937. Washington, D.C.: Government Printing Office, 1937.