In Grand Rapids I. R. Co. v. Osborn, 193 U.S. 17, 24 S.Ct. 310, 314, 48 L.Ed. 598, the court held that a railroad company "Having voluntarily accepted the privileges and benefits of the incorporation law of Michigan the company was bound by the provisions of existing laws regulating rates of fares upon railroads, and it is estopped from repudiating the burdens attached by the statute to the privilege of becoming an incorporated body."Summary of this case from St. Louis Pub. Serv. Co. v. City of St. Louis
Argued November 6, 1903. Decided February 23, 1904.
Where the determination by the state court of an alleged ground of estoppel embodied in the ground of demurrer to an answer necessarily involves a consideration of the claim set up in the answer of a contract protected by the Constitution of the United States, a Federal question arises on the record which gives this court jurisdiction. Provisions in the railway law of Michigan of 1873, for the creation of a new corporation upon the reorganization of a railroad by the purchaser at a foreclosure sale, did not constitute a contract within the impairment clause of the Constitution of the United States. New York v. Cook, 148 U.S. 397. Purchasers of a railroad, not having any right to demand to be incorporated under the laws of a State, but voluntarily accepting the privileges and benefits of an incorporation law, are bound by the provisions of existing laws regulating rates of fare and are, as well as the corporation formed, estopped from repudiating the burdens attached by the statute to the privilege of becoming an incorporation.
Mr. Thomas J. O'Brien, with whom Mr. James II. Campbell was on the brief, for plaintiff in error:
The rate in question is unreasonable as matter of fact. It is admitted by the demurrer to the answer. Covington Lexington T.R. Co. v. Sanford, 164 U.S. 578, 592.
The enforcement of that rate upon the plaintiff in error would deprive it of its property without due process of law, and deny to it the equal protection of the laws, in violation of the Fourteenth Amendment, section 1. Chicago, Mil. St. P.R. Co. v. Minnesota, 134 U.S. 418; Minneapolis Eastern R. Co. v. Minnesota, 134 U.S. 467; Reagan v. Farmers' Loan Trust Co., 154 U.S. 362, and the cases following it in 154 U.S.; Smith v. Ames, 169 U.S. 466; L.S. Mich. S.R. Co. v. Smith, 173 U.S. 684; Chicago, Mil. St. P.R. Co. v. Tompkins, 176 U.S. 167; Chicago G.T.R. Co. v. Wellman, 143 U.S. 339.
The statute prescribing maximum rates of passenger fares as construed by the Supreme Court of that State is repugnant to the Fourteenth Amendment. Wellman case, 83 Mich. 592; Wabash case, 123 Mich. 669; S.C., 126 Mich. 113, held that the legislature is the final and exclusive judge of what are reasonable rates and that the reasonableness of rates fixed by statute is not open to review or inquiry in the courts. The law is that reasonableness of rates prescribed by statute is one for judicial determination. C.M. St. Paul R. Co. v. Minnesota, 134 U.S. 418, 457; Reagan v. Farmers' L. T. Co., 154 U.S. 362, 397; St. L. S.F.R. Co. v. Gill, 156 U.S. 649, 657; Smyth v. Ames, 169 U.S. 466, 527.
The method of establishing rates, undertaken by the Michigan statute, has all the features of the Minnesota plan, for which the latter was condemned, and to a more objectionable degree. The Michigan statute neither contemplates nor allows any inquiry regarding the reasonableness of the rates.
The statute violates the commerce clause of the Constitution and attempts to regulate interstate commerce. In estimating earnings interstate fares earned are included. Commissioner v. Wabash R. Co., 126 Mich. 113.
It is not competent to consider interstate business in determining the reasonableness of statutory rates for local fares, and it is much less competent to actually include interstate earnings, or any part of them, in the computation which is the basis of the local rate to be charged. Louisville Nashville R. Co. v. Eubank, 184 U.S. 27; Wabash c. R. Co. v. Illinois, 118 U.S. 527; Hanley v. Kansas City Southern Ry. Co., 187 U.S. 617; Fargo v. Michigan, 121 U.S. 230; Lyng v. Michigan, 135 U.S. 161; Phila. Southern S.S. Co. v. Pennsylvania, 122 U.S. 326, and cases cited; Leloup v. Port of Mobile, 127 U.S. 640.
A state statute, requiring the payment of a license fee for the privilege of doing business in the State by a corporation engaged in interstate business, and at the same time in local business within the State, is invalid; the exaction of a license fee is a tax on the occupation, and therefore on the business; the fact that part of the business is internal to the State does not remove the difficulty, because the tax affects the whole business, interstate and local, without discrimination. Leloup v. Port of Mobile, 127 U.S. 640; Crutcher v. Kentucky, 141 U.S. 47; Caldwell v. North Carolina, 187 U.S. 622; Gloucester Ferry Co. v. Pennsylvania, 114 U.S. 204.
Provisions in a state law, which impose upon foreign corporations conditions which are in conflict with the constitution, cannot be enforced against a corporation which avails itself of the law, even after the enactment of such a provision. Barrow v. Burnside, 126 U.S. 186; Southern Pacific Co. v. Denton, 146 U.S. 202.
Rights under the Constitution of the United States, and objections to the constitutionality of the statute, were expressly and in due time asserted, and the effect of the judgment was to deny those rights and overrule the objections. This court has jurisdiction to review the judgment, although the state court did not, in express terms, pass upon the Federal constitutionality of the law. Andrews v. Andrews, 188 U.S. 14; Detroit, Ft. Wayne c. R. Co. v. Osborn, 189 U.S. 383; Chicago Life Ins. Co. v. Needles, 113 U.S. 574; Consolidated Coal Co. v. Illinois, 185 U.S. 203; Home Ins. Co. v. Morse, 20 Wall. 445.
Mr. Horace M. Oren, with whom Mr. Charles A. Blair, Attorney General of the State of Michigan was on the brief, for defendant in error.
The provisions of the Fourteenth Amendment authorize no interference with the operation of rates or schedules established by railway charters or incorporation laws in cases where the corporation complaining accepted the charter or voluntarily organized under the act establishing the rate or schedule. San Diego, L. T. Co. v. National City, 74 F. 79; Dow v. Electric Co., 31 A. 22; S.C., 116 U.S. 489; Pitkin v. Springfield, 112 Mass. 509; Deverson v. Railroad Company, 58 N.H. 129, 131, and cases cited; Dodge v. Stickney, 61 N.H. 607, 610; People v. Murray, 5 Hill, 468, 472.
The provision for the graduation of rates of fare by the per mile passenger earnings of roads subject to the act, is not violative of the provision of the Constitution of the United States, which inhibits a State from denying to any person within its jurisdiction the equal protection of the laws. The classification is not arbitrary, unjust or unreasonable, and its operation does not result in unequal privileges to different corporations that in justice should be on the same basis. Magoun v. Ill. Trust S. Bank, 170 U.S. 283.
The classification made in the act, by fixing a graduated rate, based upon earnings per mile, has been held valid. Chicago Grand Trunk R.R. Co. v. Wellman, 143 U.S. 339; 83 Mich. 606, and see also Railroad Company v. Iowa, 94 U.S. 155; Dow v. Biedelman, 125 U.S. 680; Clark v. Titusville, 183 U.S. 329.
Nor is the commerce clause of the United States Constitution infringed by the provisions of the state law for the adjustment of passenger rates.
As incident to the power to create corporations to engage in interstate commerce, the State has authority in the charter or by the terms of the incorporation acts to prescribe the terms and conditions upon which such commerce shall be engaged in. Camden Amboy R. T. Co. v. Briggs, 22 N.J.L. 623, 651; Railroad Company v. Maryland, 21 Wallace, 456, 473; Cov. Cin. Bridge Co. v. Kentucky, 154 U.S. 204, 223.
A purchaser of a railroad on foreclosure who incorporates under the general railroad law of Michigan must be held to have done so voluntarily, and a corporation thus created is bound to conform to the schedule of fares therein provided the same is a company incorporated thereunder to construct and operate a new road.
A corporation is subject to, and cannot question the validity of, the statute under which it has been voluntarily incorporated. Louisville N.R. Co. v. Kentucky, 183 U.S. 503, 512, 513 ( 161 U.S. 703); Reagan v. Farmers' L. T. Co., 154 U.S. 362, 409, 411; Ashley v. Ryan, 153 U.S. 436, 443.
The statute, fixing the maximum rate of charge, is not unconstitutional because declared by the state Supreme Court to be conclusive upon the courts and to allow no judicial investigation as to the reasonableness of the rates fixed.
The cases on brief of plaintiff in error are inapplicable. See Venice v. Murdock, 92 U.S. 494; Genoa v. Woodruff, 92 U.S. 502; Michigan Central R. Co. v. Myrick, 107 U.S. 102; Clark v. Bever, 139 U.S. 96; Norton v. Shelby County, 118 U.S. 425.
The statute is not void by reason of not providing for a judicial investigation as to reasonableness of rates fixed. Budd v. New York, 143 U.S. 517; Brass v. North Dakota, 153 U.S. 391; San Diego L., etc., Co. v. National City, 174 U.S. 739; St. L. San Fran. R. Co. v. Gill, 156 U.S. 649.
As to the right to be a corporation, see Meyer v. Johnson, 53 Ala. 237, 325; Eldridge v. Smith, 34 Vt. 484, 489.
It was not intended that the reorganized company should have any franchise rights or powers or privileges which did not have their source in, or which were not held pursuant to, the act under which the reorganizing company was incorporated.
The right to invoke the protection of the Fourteenth Amendment of the Constitution of the United States is not a franchise or right originating in laws permitting incorporation, and hence cannot be claimed to have been assigned or transferred by the operation of such laws. Ches. Ohio Ry. Co. v. Miller, 114 U.S. 181; Wilson v. Gaines, 103 U.S. 417; Ala. Vicksburg Ry. Co. v. Odeneal, 73 Miss. 34, 39.
The judgment of the Supreme Court of Michigan was not based upon any Federal question and this court is without jurisdiction to review it. Clay v. Smith, 3 Peters, 411; Beaupre v. Noyes, 138 U.S. 397; Eustis v. Bolles, 150 U.S. 361.
The court passed not upon questions of a Federal or general commercial character, but upon questions of purely local Michigan law, involving the construction of the state statute and the application of the principles of the Michigan common law. The decision of a state court, upon questions of this character, is conclusive and binding upon this court. Luther v. Borden, 7 How. 40; Bucher v. Cheshire R. Co., 125 U.S. 555; Pittsburg, etc., R. Co. v. Backus, 154 U.S. 421; McElvaine v. Brush, 142 U.S. 155; Millers' Exrs. v. Swann, 150 U.S. 132; Nor. Cen. Railway Co. v. Maryland, 187 U.S. 258, 261.
A jurisdictional question which was raised by the defendant in error requires first to be disposed of. It was objected that the judgment of the Supreme Court of Michigan in the case at bar was not based upon a Federal question, and hence this court is, it is urged, without jurisdiction to entertain this writ of error. The objection, however, is not well founded. It is plain from the averments of the answer of the railroad company to the petition in mandamus that the company relied upon the provisions of the general railroad law of 1873, authorizing the incorporation of the purchasers of a railroad after sale in the foreclosure proceedings, as constituting a contract protected by the Constitution of the United States. The determination of the alleged estoppel embodied in the ground of demurrer to the answer of the railroad company, and which was sustained by the Supreme Court of Michigan, necessarily involved a consideration of this claim of a contract right, protected from impairment by the Constitution of the United States. In substance, if not in express terms, such question was passed upon by the court below. A Federal question which gives this court jurisdiction therefore arises on the record.
That the section of the general railroad law of 1873, making provision for the creation of a new corporation upon the reorganization of a railroad by the purchaser at a foreclosure sale, did not constitute a contract protected by the Constitution of the United States, is concluded by the decision in People ex rel. Schurz v. Cook, 148 U.S. 397. There the purchasers of railroad property in the State of New York under a sale upon foreclosure of a mortgage sought to escape the payment of an incorporation fee laid by the authority of certain statutes of the State of New York enacted after the execution of the mortgage. The claim was made that the statutes of the State of New York authorizing the purchasers of railroads sold upon foreclosure to incorporate, which were in force when the mortgage was executed, constituted a contract between the State of New York and the bondholders and their privies, and that the enforcement of the subsequent statute providing for the payment of an incorporation fee violated the obligation of the alleged contract. The Court of Appeals of New York held to the contrary, and its judgment was affirmed by this court. In the course of the opinion of this court it was said (p. 410):
"The plaintiffs in error acquired the properties and franchises of these corporations, which were subject to the taxing power of the State, after the act of 1886 was passed and went into effect. There is no provision of the law under which they made their purchase requiring them to become incorporated, but desiring corporate capacity, they demanded the grant of a new charter under which to exercise the franchises so acquired, without compliance with the law of the State existing at the time their application for incorporation was made. We are clearly of the opinion that the act of 1874, as amended in 1876, set up and relied upon by them, does not sustain such a claim. The provisions of that act do not constitute a contract on the part of the State with either the corporations, or the mortgagees, bondholders or purchasers at foreclosure sale. They are merely matters of law instead of contract, and the right therein conferred upon purchasers of the corporate properties and franchises sold under foreclosure of mortgages thereon, to reorganize and become a new corporation, is subject to the laws of the State existing or in force at the time of such reorganization and the grant of a new charter of incorporation. Memphis c. Railroad Co. v. Commissioners, 112 U.S. 609."
It results from the foregoing that Sims — the purchaser of the railroad property in question at the sale under foreclosure — and his associates could not demand to be incorporated under the statutes of Michigan as a matter of contract right. Possessing no such contract right, they or their privies cannot now be heard to assail the constitutionality of the conditions which were agreed to be performed when the grant by the State was made of the privilege to operate as a corporation the property in question. Having voluntarily accepted the privileges and benefits of the incorporation law of Michigan the company was bound by the provisions of existing laws regulating rates of fares upon railroads, and it is estopped from repudiating the burdens attached by the statute to the privilege of becoming an incorporated body. Daniels v. Tearney, 102 U.S. 415, and cases cited. That a railroad corporation may contract with a municipality or with a State to operate a railway at agreed rates of fare is unquestionable. And where the provisions of an accepted statute respecting rates to be charged for transportation are plain and unambiguous, and do not contravene public policy or positive rules of law, it is clear that a railroad company cannot avail of privileges which have been procured upon stipulated conditions and repudiate performance of the latter at will. Whether if a condition in a statute is couched in ambiguous language and is susceptible of two constructions, as it is claimed is the case before us in respect to the basis upon which the gross receipts per mile of operated road were to be calculated, a construction should be adopted which will not render the condition repugnant to the Constitution of the United States, we need not determine. The statute in question, in its entirety, has been construed by the Supreme Court of Michigan and held valid, and its decision as to the proper interpretation of the language of the act in respect to the mode of ascertaining the gross receipts per mile does not render the statute repugnant to the Constitution of the United States, within the ruling recently made by this court in Wisconsin Michigan Railway Company v. Powers, 191 U.S. 379.