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have all roads under one ownership, where they can all be dealt with as a single system, than where you have a half a dozen in a pool. I think the tendency of legislation has been in that direction.
Senator TILLMAN. Can you explain the difference between a pool of different owners and a combination with one owner?
Mr. KERNAN. Suppose here are two systems of six railroads, each competing. If those six roads are put into one ownership, that eliminates competition between those six roads. If the other six are put into one ownership, that eliminates competition among those six roads. Then
you still have left competition between the two systems. Bring them into one ownership and then competition is entirely eliminated. One ownership of the whole business will finally be brought about. It is steadily progressing.
Senator Tillman. But that creates monopoly and leaves us at the mercy of monopoly.
Mr. KERNAN. No, sir; I think Congress can deal more easily with single ownership of lines than it can with competing ownership, because, don't you see, in every pool the entire pressure is to give to the weak line something to which it is not entitled?
The CHAIRMAN. Is it your judgment that pooling has always protected the weaker and smaller line?
Mr. KERNAN. I think that every pool that was ever formed was forced into existence through some bankrupt corporation. A corporation in the hands of a receiver can ultimately force a pool.
The CHAIRMAN. That is my idea.
Mr. KERNAN. No pool was ever made except through the action of some bankrupt corporation.
The CHAIRMAN. As a general proposition, were not the larger roads opposed to pooling?
Mr. KERNAN. Yes. That is a matter of simple observation. Take the New York Central; it does a great business and gets great returns. Then there enters into the problem a competing line, which goes into the hands of a receiver. It does not have to earn fixed charges or pay interest on bonds. It pays nothing except operating expenses.
If that road has an entrance into Chicago, and has 5 per cent of the Chicago business, it can cut the rates on the entire 95 per cent that goes by the other lines. Railroads do not want pooling unless they are forced into it.
Senator TILLMAN. Are not such bankrupt railroads subject to the orders of the court? Is not the receiver the servant of the court ? What right has the receiver to cut under the rates fixed by business interests or by the Interstate Commerce Commission?
Mr. KERNAN. It is because his road must have traffic; otherwise he can not pay expenses, and it is his business to do that. Therefore he is justified in taking such measures as will at any rate prevent his discharge from his receivership. He must discharge his duties as receiver. He does not have to pay any interest on bonds; he does not have to pay dividends on stock. All he has to do is to operate his road, pay operating expenses, and show a good balance sheet at the end of the business.
The CHAIRMAN. When he is out of the pool that is what he says. When he is in the pool he says, “Go ahead, and we will treat you fairly."
Mr. KERXAN. That involves a commission or something he is not entitled to under the ordinary laws of trade.
F R P
I want to submit to the committee a suggestion, that there be added to the bill a provision which I think would substantially accomplish all that is aimed at in the direction of giving the railroads the right to pool. You want to draw the distinction between pooling and what I suggest.
Senator TILLMAN. May I ask what are your relations to the Produce Exchange?
Mr. KERNAN. I am its counsel.
Senator TILLMAN. Were you sent here specifically to appear before this committee?
Mr. KERNAN. I came over with a committee, but the other members of that committee had to go back. They did all the talking first. I appeared before the House committee this morning, and have just come from there.
The CHAIRMAN. You stated a moment ago that you have a remedy of some importance that you want to suggest.
Mr. KERNAN. Yes, sir. I think it is not wise to eliminate pooling, because it violates rights, as I have said. I think it is wise to provide that carriers subject to the provisions of this act shall have the right to form associations to secure the establishment and maintenance of just, reasonable, nonpreferential, uniform, and stable rates, to be promulgated and enforced under reasonable rules and regulations as to interstate traffic, those rates to be filed with the Commission, subject to their approval or disapproval.
The Interstate Commerce Commission is not to be authorized to take the initiative, however. The railroads are the ones to take the initiative, and they should be allowed to make agreements as they please. All that the Government should do in the matter through any of its agencies is to inspect the provisions of such agreements and see whether there be anything in them which violates public rights. This is not pooling. This is to authorize the association of railroads so that they may agree upon rates, fix tariffs, uniform tariffs throughout the United States as to rates, and to impose penalties to be recovered of each other in case they fail to maintain the tariff rates. see the beauty of it is that they fix their own penalties for their own violations of their contracts. Therefore there is no injustice done in leaving them to recover from each other whatever they can.
They should also agree upon a uniform classification throughout the United States, which is a very important subject. I think that is all right.
I think that is giving the railroads a great deal—all they need and all they ought to have. They ought to be authorized to form traffic associations by which they can keep, by agreement among themselves, jurisdiction over these subjects as to the establishment and maintenance of rates, as to penalties for rate cutting, and as to uniform classifications. They can not do that now, because there is no authority for it.
The CHAIRMAN. The decision of the Supreme Court of the transMissouri case says that they can not agree now.
Mr. KERNAN. Yes. That removes the difficulty really as to the prohibition against pooling. But it tends to prohibit the formation of such associations for the purpose of doing what is entirely right and just.
The CHAIRMAN. Will you leave that language in your testimony?
Mr. KERNAN. I think the Corliss bill should be amended in the particulars I suggest, and in one other particular. It provides that every violation of this act shall be prosecuted,” etc. I think that should read: "Every willful violation of this act.” An innocent violation ought not to be punished.
The CHAIRMAN. That word “willful” ought to go in there.
Mr. KERNAN. And I think the word “lawful ” should be inserted before the word “order” in line 10 on page 8, as I have already suggested. Then I think those words "also, if upon an inspection of the record it plainly appears that the order proceeds upon some error of law, or is unjust and unreasonable upon the facts, and not otherwise,” as they appear in lines 11 to 14 on page 6, should be stricken out. Whatever power is to be given to the United States courts, under their ordinary constitutional jurisdiction to suspend the operation of the Commission's orders issued in their discretion, I think no new rule of that kind would be justifiable, and I do not think it would be constitutional.
The CHAIRMAN. Will you give us that memorandum which you have on the subject of pooling?
Mr. KERNAN. With pleasure. Carriers subject to the provisions of this act, with respect to traffic subject to the act, may form associations to secure the establishment and maintenance of just, reasonable, nonpreferential, uniform, and stable rates, and for the promulgation and enforcement of reasonable and just rules and regulations as to the interchange of interstate traffic and the conduct of interstate business upon the following conditions:
(a) Articles of agreement shall be subscribed by the parties thereto, stating, among other things, that they are entered into subject to the provisions of this section; the terms upon which-new parties may come in; how the decisions of the association are to be made and enforced; and the length of time for which the association shall continue, which shall not be more than ten years. Such articles when subscribed and in effect agreeably to the provisions of this section shall be legally binding upon the parties thereto, and be legally enforceable between them.
(6) The articles of association shall be filed with the Commission at least twenty days before they take effect. If the Commission upon inspection of the same is of the opinion that their operation would result in unreasonable rates, unjust discriminations, insufficient service to the public, or would in any manner contravene the provisions of this act, it shall enter an order disapproving the same. In connection with such order the Commission shall file a statement of its reasons for its disapproval. Said order shall be final and conclusive.
(c) If the Commission, upon inquiry into the actual operation of the association after the same has gone into effect, is of the opinion that it results in unreasonable rates, unjust discriminations, inadequate service, or is in any respect in contravention of this act, it may enter an order requiring the same to be terminated on the date named, which shall not be less than ten days from the making of the order. Such order shall be final and the effect of it shall be to render such articles of agreement null and void from and after the date named, except as to claims between the parties arising prior to that date.
(d) The Commission shall have the right to examine by its duly authorized agents the files and proceedings of such association, including all contracts, records, documents, and other papers, and it may require said association to file with it from time to time copies of decisions promulgated by it and of its minutes of proceedings or of other papers received or issued.
All orders issued by associations thus formed that in any wise affect rates shall be filed with the Commission as provided in the original act in relation to the filing of tariffs.
Every agreement for the formation of such associations as are authorized by this section is prohibited except as hereby authorized, and every carrier or representative of a carrier, acting as a member of such an association, or acting for a member of such association, whether the same exists by virtue of a definite agreement or not, shall be deemed guilty of a misdemeanor and shall, upon conviction thereof, bé subject to a penalty of $5,000 for each day said carrier or representative continues a
member thereof or so acts, which penalty shall be enforced in the manner provided for the enforcement of those penalties imposed by the tenth section of said act.
The CHAIRMAN. Section 16 of the law of 1887, the original interstatecommerce act, formerly overlooked, has been interpreted by Judge Groscup, where they were unable to punish shippers and carriers for violating the law as to rebates or discriminations.
Mr. KERNAN. Under that act the shippers could not be punished at all, whereas they ought to be punished just as well as the railroads.
The CHAIRMAN. The present law is:
That whenever any common carrier, as defined in and subject to the provisions of this act, shall violate, or refuse or neglect to obey or perform, any lawful order or requirement of the Commission created by this act, not founded upon a controversy requiring a trial by jury, as provided by the seventh amendment to the Constitution of the United States, it shall be lawful for the Commission, or for any company or person interested in such order or requirement, to apply in a summary way, by petition, to the circuit court of the United States.
I want to draw your attention to that. It seems now that the provisions of section 16 had been overlooked, limiting the power to compel all railroads, whether in associations or not, to observe the fixed rates and maintain them, by injunction on petition to the circuit court of the United States in equity. Has your attention been drawn to that decision?
Mr. KERNAN. I know that decision.
Mr. KERNAN. As to whether that gives us a sufficient remedy? It is partial only. You will find that this is the present condition and difficulty: That owing to the methods of United States courts, the delays, the waiting, practically you can not get anything decided in time to be of use.
Take, for instance, the import-rate case that I carried through for the New York Board of Trade and Transportation before the Interstate Commerce Commission, involving a very important question, the question whether the rate upon imports should be the same as the domestic rate between the seaboard and interior points or whether it should be lower. It also involved the same question as to exports, whether there could be a lower export rate than the domestic rate to the seaboard, in order to meet the conditions of foreign markets. All the trunk lines made defense before the Commission. It took a year and a half to get that case through the Interstate Commerce Commission. We took a great deal of testimony and heard everybody.
The Commission finally made an order in our favor, and eighteen railroads, including the great trunk lines, obeyed the order; one or two disobeyed it. Then I took the case to the United States court in 1892; it was expedited and carried through the circuit court of appeals, and then to the Supreme Court. After the first argument before the Supreme Court they ordered a reargument. reargued, and then decision was delayed for sixteen months. It actually took four years and a half to get a decision of that question.
This shows that this question of whether the original act is in force is a very serious one. The Commission itself, all the railroads, and all the shippers supposed for ten years, until that decision was rendered, that Congress had given the Commission all the power asked for.
In that import-rate case, how was it decided against us? I had Wallace, circuit judge; I had the three judges unanimously in the circuit
court of appeals; I had Harlan, Brown, and the Chief Justice in the Supreme Court. In other words, I had seven out of the twelve judges who passed upon the question holding that the power was given. But five happened to be in the court of last resort, where they could finish me, and so it was decided that the interstate-commerce act could not be construed as containing any of these powers. So you see it has been a pretty close question among lawyers and judges whether this act did not originally give the power which ought to have been given.
Another thing I want the committee to remember, bearing upon the danger of giving to a commission the power sought here. There has never been a decision of any United States court, where the question was made, that the order of the Commission was not decided to be intrinsically fair and just, so far as the amount, the rate, or the discrimination was concerned. It has all finally turned simply on the question whether the Commission had the
power. I thank you, gentlemen, for your attention. The committee adjourned.
At the sitting of the committee on Friday, May 23, 1902, the following-named gentlemen appeared: H. H. Porter, of New York; Albert W. Sullivan, of Chicago, assistant second vice-president of the Illinois Central Railroad Company; H. R. Fuller, representing the Brotherhood of Locomotive Engineers and other organizations of railroad employees; Hon. C. J. Faulkner, representing the Southern Railway Company; Hon. Martin A. Knapp and Hon. James D. Yeomans, members of the Interstate Commerce Commission; Edward A. Moseley, secretary of the Interstate Commerce Commission; Col. John Cassells, representing the Pennsylvania Railroad Company; W. B. Thompson, of Thompson & Slater, Washington, D. C.; A. B. Browne (of Britton & Gray, Washington, D. C.), representing the Atchison, Topeka and Santa Fe Railroad Company; and F. G. Gannon, third vice-president of the Southern Railway Company.
STATEMENT OF H. H. PORTER.
The CHAIRMAN. Please state your name, present place of residence, and your business.
Mr. PORTER. H. H. Porter; now resident in New York; connected with railroads.
The CHAIRMAN. I sent you copies of the three bills under consideration by this committee, and we should be glad to have a full and free expression of your views as to what ought to be done by this Congress.
Mr. PORTER. From having been connected more or less with railroad operations under the interstate-commerce law, my conclusion is that the first thing to do is to repeal that law from beginning to end. By that I do not mean that it has been entirely a mistake, for the people have learned something, and the railroad officials have learned something since that law was originally enacted; and I think there is a general desire on all sides to have the present law repealed and a new and simplified law enacted in its place. There is in the present law too much detail, so that I think the best thing to do is just what a new management in a corporation often has to do when starting out under