such rates for a period of 2 years in the past, the economic impact on the industry would be serious if not disastrous.

Freight forwarders do not own the facilities which they use to provide transportation service. Instead, they employ the services and facilities of the phyhical carriers, rail, motor, and water. More than 75 percent of the entire gross revenues of forwarders is paid over to the carriers which they use. But if reparations should be awarded in connection with forwarder rates the forwarders could not, except perhaps in rare instances, recoup themselves against the carriers they utilize.

First, the rates of the underlying rail and water carriers would in most instances be immune to reparations under the doctrine of the Arizona Grocery case, and second, the statute of limitations would run against the forwarders while suits or claims against their own rates were being processed.

Being indirect carriers, whose costs are largely fixed by the charges which they pay to the underlying direct carriers and whose rates are limited by competitive factors, freight forwarders traditionally operate on very thin margins of profit. Statistics published by the ICC show that historically freight forwarders realize only 1 cent on each dollar of their revenue after all expenses and income taxes are paid. Obviously they could not build up large reserves to withstand possible reparations awards on such a margin of profit, nor could they afford to pay such awards out of current income.

ENACTMENT OF BILL WOULD RESULT IN INJUSTICES AND BAD PRACTICES

I would like now to review briefly for the committee some of the unfortunate results of the reparations provision in part I of the act about which the Interstate Commerce Commission complained vigorously for many years.

Beginning with its annual report to Congress for the year 1916, and continuing through many other reports up to 1932, the Commission consistently recommended to Congress that the reparations provision in part I of the act be repealed or substantially modified. We think the Commission's reasons were cogent. Certainly they would be applicable today with regard to reparations under part IV of the act, even though the Arizona Grocery case has rendered the subject relatively unimportant as concerns railroads.

In its 1916 report the Commission, after an exhaustive analysis of the subject of reparations, recommended a change in the law the effect of which would have been to reduce or eliminate reparations suits on past shipments. The subject was again reviewed in the annual report for 1919, and the recommendation was renewed. For the information of the Committee, I have attached to my statement a copy of the Commission's comments on reparations from its 33d report, for the year 1919.

The Commission disagreed with the theory of damages established by the Supreme Court which permitted the person seeking reparations in cases involving unreasonable rates to recover without proof of injury. (See Southern Pacific Co. v. Darnell-Taenzer Lumber Co. (245 U. S. 531).) Of this decision the Commission said to Congress:

"The fact suggested by the Court in the Darnell-Taenzer case, that in the end the public probably pays the damages in most cases of compensated torts and that the ultimate consumer who may have been actually damaged by the unreasonable charge cannot recover, appears to be an insufficient reason upon principle why the shipper, who eventually has not been damaged, should be allowed to recover. The exaction of an unreasonable charge by a carrier is a public wrong but there is a clear distinction between a public wrong and private damages" (33d Annual Report, ICC, p. 20).

The result of this established principle regarding recovery of reparations is well illustrated by a decision of the Supreme Court in Adams v. Mills (286 U. S. 397).

In that case the plaintiffs were commission merchants who received livestock from their principals, sold the livestock, and deducted the freight charges from the selling price before remitting the balance to their principals. The defendants pointed out that under the reparations clause the responsibility of the carriers is to "the person or persons injured." But the Court said the exaction of the unreasonable rate was a tort and:

"Neither the fact of subsequent reimbursement by the plaintiffs from funds of the shippers, nor the disposition which may hereafter be made of the damages recovered, is of any concern to the wrongdoers."

The Commission recommended to Congress, in its 34th annual report, in 1920, as follows:

"That the power to award reparation be placed wholly in the courts; that a condition precedent to an award of reparation by a court for unreasonable rates or charges be that we have found such rates or charges unreasonable as of a particular time; that the law affirmatively recognize that private damages do not necessarily follow a violation of the act; that provision be made that sections 8, 9, and 16 of the Interstate Commerce Act shall be construed to mean that no person is entitled to reparation except to the extent that he shows he has suffered damage; and that the law should provide that if a rate is found to be unreasonable the rule of damages laid down in the International Coal case (230 U. S., 184) should control."

The rule laid down in the International Coal case, referred to above, requires the person seeking damages to prove that he suffered a loss in a pecuniary sense. But it applies only in cases where unjust discrimination has been found to exist. In the vast majority of cases, where unreasonableness of the carriers' rates was alleged, the courts applied the rule established in the Darnell-Taenzer case, and require no proof of pecuniary loss or damage as a condition of recovery The ease with which reparation cases could be brought, and the liberal construction of the statute with regard to recovery of damages without proof of loss, led to many bad practices which imposed heavy burdens on the carriers and the Commission. The Commission described some of these practices in its 1916 Annual Report to Congress as follows:

"During somewhat recent years numerous agencies have been established in different parts of the country whose principal or sole business is to secure from shippers or consignees their paid freight bills and power of attorney to bring complaints in the name of the one from whom the bills were secured. Usually an agreement is entered into that whatever reparation is recovered will be divided on a percentage basis, but in some instances expense bills are purchased outright for insignificant sums." (30th Annual Report, ICC, p. 76.) In its report to Congress in 1930 the Commission again referred to the foregoing practices and added:

"The practices to which we there referred have not diminished but have greatly increased. These and many other questionable practices are often resorted to." (44th Annual Report, ICC, p. 93.)

Again, in its report to Congress in 1931, the Commission called attention to the reprehensible practices attendant upon the reparations clause and said: "The burden upon our time caused by such cases has become so heavy that some measure of relief is required in the public interest. In approximately 69 percent of all rate cases considered by us since the transportation act, 1930, became effective, reparation has been sought." (45th Annual Report, ICC, p. 94.)

We can only suppose that the decision in the Arizona grocery case heretofore referred to, limiting reparations to rates that have not been prescribed by the Commission, caused a cessation or diminution of the bad practices which in 1930 were threatening to break down the Commission's administrative machinery. I say that because the Commission's reports since that time have been silent on the subject.

But if reparation provisions are imposed on freight forwarders we may expect to see a great new crop of agencies who buy or solicit freight bills on a percentage basis for the sole purpose of stirring up litigation and making a profit at the expense of the carriers without showing any loss to the claimants.

CONCLUSION

I submit that the facts I have recited conclusively indicate that the bill S. 378 should not be enacted. No need or justification for the bill has been shown. The fact that similar provisions now appear in parts I and III of the act is no reason why they should be incorporated in part IV.

The reparations provisions as they now appear in parts I and III of the act are of little significance because of decisions of the courts holding that reparations may not be awarded where rates have been approved or prescribed by the Commission. Freight forwarder rates have not been so approved or prescribed, and hence would be subject, in their entirety, to reparations actions.

Reparation provisions were consistently opposed by the Interstate Commerce Commission up to the time when the subject became relatively inactive because of the interpretations just referred to. The Commission deplored the fact that recovery of reparations could be had by a simple showing that an unreasonable rate was paid, with no proof that the complainant either ultimately bore the

rate or suffered any pecuniary loss or damage at all. This resulted in such a tremendous amount of litigation that the Commission was almost overburdened with work and called upon Congress for relief in the public interest.

Finally, the economic burdens which would be imposed upon freight forwarders by litigation and reparations awards on a scale that history indicates we could expect from enactment of the bill might well spell financial ruin to the industry. APPENDIX.-EXCERPT PROM 33D ANNUAL REPORT OF THE INTERSTATE COMMERCE COMMISSION TO CONGRESS, FOR THE YEAR 1919

REPARATION

In our 30th annual report to Congress, in December 1916, we said:

In connection with the question of reparation on account of an unreasonable rate charged it should be borne in mind that the standard of reasonableness under our act is not a definite fixed standard. That is to say, whether a certain rate is reasonable or not often can not be known by the carrier until the Commission has passed upon it.

Now, in seeking reparation on account of an unreasonable rate, complainants frequently invoke the common law in support of their claims, but we have been referred to no common-law case where the standard exceeded by the carrier was not a fixed definite standard which the carrier knew and was bound to observe. The act contemplates that we shall find rates reasonable or unreasonable according to whether, in our opinion, the rate bears a proper relation to the service rendered. But this is preeminently a question upon which opinions of the Commission and of the carriers may differ, and the act contemplates an original exercise of the carriers' judgment.

We also pointed out that as its awards of reparation are only prima facie evidence in the court and as they must be enforced in the courts, if not paid by the carrier, the rights of a shipper might be sufficiently protected by amending the law so as to place the power to award reparation exclusively with the courts. The Supreme Court has since dealt with the rights of shippers to reparation where the rates are found to be unreasonable in Southern Pacific Co. v. DarnellTaenzer Lumber Co. (245 U. S. 531). The defense of the carriers in that case was that the complainant was not damaged and that it had in fact passed the unreasonable charge along to the consumer in the price of his goods. As to this the Court said:

The general tendency of the law, in regard to damages at least, is not to go beyond the first step. As it does not attribute remote consequences to a defendant so it holds him liable if proximately the plaintiff has suffered a loss. The plaintiffs suffered losses to the amount of the verdict when they paid. Their claim occurred at once in the theory of the law and it does not inquire into later events. *** If it be said that the whole transaction is one from a business point of view, it is enough to reply that the unity in this case is not sufficient to entitle the purchaser to recover, any more than the ultimate consumer who in turn paid an increased price. He has no privity with the carrier. *** The carrier ought not to be allowed to retain his illegal profit, and the only one who can take it from him is the one that alone was in relation with him, and from whom the carrier took the sum. *** Behind the technical mode of statement is the consideration well emphasized by the Interstate Commerce Commission, of the endlessness and futility of the effort to follow every transaction to its ultimate result (13 I. C. C. 680). Probably in the end the public pays the damages in most cases of compensated torts.

The cases, like Pennsylvania R. R. Co. v. International Coal Mining Co. (239 U. S. 184), where a party that has paid only the reasonable rate sues upon a discrimination because some other has paid less. are not like the present.

There the damage depends upon remoter considerations. But here the plaintiffs have paid cash out of pocket that should not have been required of them, and there is no question as to the amount of the proximate loss. See Meeker v. Lehigh Valley R. R. Co. (236 U. S., 412, 429), Mills v. Lehigh Valley R. R. Co. (238 U. S. 473).

Under the act to regulate commerce there are three principal public wrongs: (a) To exact an unreasonable rate is unlawful under section 1; (b) to unjustly discriminate is unlawful under section 2; (c) to practice undue preference or undue prejudice is unlawful under section 3. Section 8 of this act provides that the carrier

"✶ ✶ ✶ shall be liable to the person or persons injured thereby for the full amount of damages sustained in consequence of any such violation of the provisions of this act. ✶ ✶ ✶"

Section 16 provides:

That if, after hearing on a complaint made as provided in section 13 of this act, the Commission shall determine that any party complainant is entitled to an award of damages under the provisions of this act for a violation thereof, the Commission shall make an order directing the carrier to pay to the complainant the sum to which he is entitled on or before a day named.

Section 9 gives the persons claiming to be damaged the right to file his suit for the damages in a court. These provisions empower us and the courts to award damages growing out of violations of the act.

That damages in a pecuniary sense must be proven upon an allegation of unjust discrimination or undue preference under section 2 and 3 of the act, and that no such proof is required upon an allegation of unreasonableness under section 1 of the act allows the cause, character, and measure of the wrong rather than the proof of injury to determine whether damages should be awarded.

That is to say, damages are presumed by the payment of an unreasonable charge, and the measure of damage is a question of law instead of a question of fact.

The statute does not fix the measure of damages to be the difference between a reasonable and an unreasonable rate, as a matter of law or otherwise (211 Fed., 810). On the contrary, it was decided in L. & N. v. Ohio Valley Tie Co. (242 U. S. 277), that the damage resulting from the payment of unreasonable rates might be the difference between the rates or it might be the damage to the complainant's business "following as a remoter result of the same cause;" and that the latter "must be taken to have been considered in the award of the Commission and compensated when that award was paid."

We have often said that there is no presumption of damage under the act, and that the distinction is plain between a carrier's unlawful act and the shipper's right to damage, if any, caused thereby. Oregon Fruit Co. v. S. P. Co. (50 I. C. C. 719).

The distinction between the rule of damage of the International Coal case in respect to the discriminatory rates and the rule of damage in the DarnellTaenzer case in respect to unreasonable rates is apparently based upon what is said to be the common-law principle that an unreasonable charge is equivalent to an "extortion" or "overcharge." But there appears to be no real analogy between an action to recover an extortion or overcharge at common law and an action to recover an unreasonable charge under the act to regulate commerce.

The common-law action is more nearly analogous to an action to recover a charge over and above the published rate. At common law the overcharge was often in fact an extortion. But the exaction of a published charge which is legal under the statute, and which is afterwards found to be unreasonable, is in no proper sense an extortion, inasmuch as the law itself requires the payment of the published rate or charge. In publishing rates in the first instance carriers have no way of knowing that a regulating commission will subsequently find a particular rate to be unreasonable. It is understood that common-law cases were rare and were usually based upon a breach of contract, i. e., where the carrier forced the shipper to pay a rate or price that exceeded the contract rate or price and was thereby guilty of extortion.

In Anadarko Cotton Oil Co. v. A. T. & S. F. Ry. Co. (20 I. C. C., 43), cited by the Supreme Court in Baer v. D. & R. G. (233 U. S., 479), we said:

"A rate reasonable in view of the circumstances and conditions when it is established may, in the course of time, become unreasonable by virtue of changed circumstances and conditions. It is manifestly impracticable for the carriers and the Commission in such a case to determine at what exact time in the gradual process of changes a rate becomes unreasonable.

It follows that the Commission is not justified in awarding damages in any case except on a basis as certain and definite in law and in facts as is essential to the support of a final judgment or decree requiring the payment of a definite sum of money by one party to another."

The fact suggested by the court in the Darnell-Taenzer case, that in the end the public probably pays the damages in most cases of compensated torts and that the ultimate consumer who may have been actually damaged by the unreasonable charge can not recover, appears to be an insufficient reason upon principle why the shipper, who eventually has not been damaged, should be allowed to recover.

The exaction of an unreasonable charge by a carrier is a public wrong; but there is a clear distinction between a public wrong and private damages. International Coal case. If the law provided that no recovery shall be allowed for any violation of the act unless the party claiming reparation can show that he suffered pecuniary loss or damage, it would probably result that in some cases the damages could not be proved and the unreasonable charge would be retained by the carrier. If it be felt that it would be against public policy to permit carriers to retain charges found to be unreasonable, it would seem preferable that the carrier be required to pay the unreasonable charge into the public treasury than to continue the policy which permits a private individnal who has not really suffered damage to recover.

Incidentally, the law now permits carriers to retain certain unreasonable charges. Where rates are found to be unreasonable, reparation is awarded only to parties claiming it within the statutory period. The unreasonable charges exacted from others are retained by the carrier.

And as already pointed out, an unreasonable rate under existing conditions is in the last analysis a matter of judgment, and in a legal sense is not generally an extortion. If the amendment suggested by us in 1916 were adopted, provisions should be made to the effect that reparation for unreasonable rates or charges should be awarded in the courts only upon finding by the Commission that such rates or charges were unreasonable as of a particular time and during a particular period.

Otherwise, different courts might reach different conclusions as to the amount of the reparation, and the results would be unfortunate.

The law might well affirmatively recognize that private damages do not necessarily follow a violation of the act; and provide that sections 8, 9, and 16 of the act shall be construed to mean that no person is entitled to reparation except to the extent that he shows that he has suffered damage. The close analogy between a relatively unreasonable or unjust rate and an unjustly discriminatory or unduly prejudicial rate, and the difficulty of determining just when a rate becomes unreasonable or that it is unreasonable per se, suggest that the law should provide that if a rate is found to be unreasonable the rule of damages laid down in the International Coal case should control.

What is said herein is not intended to relate to discriminations knowingly planned or practiced which may be the subject of prosecutions before the courts. Senator LAUSCHE. Mr. Moloney.

If you will proceed, Mr. Moloney.
Mr. MOLONEY. Yes, sir.

STATEMENT OF WILLIAM M. MOLONEY, GENERAL ATTORNEY, ASSOCIATION OF AMERICAN RAILROADS

Mr. MOLONEY. Mr. Chairman and members of the committee: My name is William M. Moloney. I am general attorney for the Association of American Railroads. My remarks are addressed solely to the matter of the railroad passenger train service deficit, upon which subject this committee announced it would receive statements.

The Interstate Commerce Commission has instituted and now has pending before it an extensive and detailed investigation of the passenger deficit.

Chairman Clarke, of that Commission, has described to you the scope of that investigation and its present status. There is little I could add in that respect. I thought perhaps it would be helpful to this committee if instead I discussed the attitude and the cooperative spirit with which the railroads have responded to and are participating in the investigation before the Commission.

The railroads recognize that the passenger deficit problem is one of tremendous importance, not only to them but in the national interest. They, as only those who live with the matter can be, are cognizant of the tremendous complexity of the problem. The interlocking and