In the conduct of its transportation business defendant did not discriminate against or in favor of any of its patrons either in service or in charges, but treated all alike and in accordance with its filed and published tariffs.

"6. The defendant did not contribute any property or labor or exercise any authority in, or take any part in manufacturing, mining, or producing any of the commodities transported by it, or own, in whole or in part, or acquire any interest direct or indirect in any of the commodities transported by it (other than timber and the manufactured products thereof and such articles and commodities as were necessary and intended for its use in the conduct of its business as a common carrier).

"7. All transactions and communications between United States Steel Corp. and defendant were carried on in the form of transactions and communications between two separate and distinct corporations and in such transactions and communications neither the two corporations nor their affairs were merged or

mixed.

"S. Defendant conducted all of its affairs in its own name for itself and in the manner and form of a corporation.

"9. The United States Steel Corp. did not conduct for defendant any of its business affairs between defendant and any other persons or corporations, but defendant conducted all of its business affairs through and by its own officers and employees and not through, or by anyone acting as an officer or employee of, the United States Steel Corp.

"10. Neither the president, secretary, treasurer, manager, or superintendent of defendant nor any of its executive or managing operatives is an officer of or employee of the United States Steel Corp.

"11. Whenever any information concerning the affairs of defendant or any other action by defendant was desired by United States Steel Corp., the United States Steel Corp. never obtained such information or took such action directly by its own officers or agents, but always made request for such information or action through the officers of defendant, in the way which is customary and usual between corporations which are separate and distinct corporations.

"12. Neither the money, accounts, or properties of defendant were commingled with the moneys, accounts, or properties of United States Steel Corp., but the moneys, accounts, and properties of each company were kept separate and distinct from the moneys, accounts, and properties of the other and the identity and integrity of the moneys, accounts, and properties of each company were preserved without any mixture, commingling, or confusion."

Based upon these findings of fact, the district court made the following conclusions of law, as shown at pages 498-499 of the printed record of that case before the Supreme Court of the United States:

"1. On the facts stated in the foregoing findings of fact the Elgin, Joliet & Eastern Railway Co. as a matter of law is not guilty of violating section 1 (8) Interstate Commerce Act (34 Stat. 584, U. S. C., title 49, sec. 1 (8)) herein referred to as the commodities clause of the Interstate Commerce Act.

"2. The mere ownership of all of the stock of an industrial corporation by a railroad company, or of the stock of a railroad company by an industrial corporation, or of the stock of both a railroad corporation and an industrial corporation by a holding corporation does not create a violation of said commodities clause of said Interstate Commerce Act even when such railroad corporation transports in interstate commerce commodities produced or owned by such industrial corporation.

"3. The transportation in interstate commerce by a railroad corporation whose stock is owned by an industrial corporation, of commodities produced or owned by such industrial corporation, is not a violation of said commodities clause of said Interstate Commerce Act, but is sanctioned by, and subject to, regulation under section 15 (13) of said Interstate Commerce Act."

It is fair to say, therefore, that in the Elgin case the Court held:

1. It is not, ipso facto, a violation of the commodities clause for a holding company to acquire ownership of both a carrier and a producer.

2. A company whose shares are owned by a holding company does not, as a matter of law, necessarily become an agent, instrumentality, or department of the latter. Whether such relation exists is a question of fact to be determined by the evidence.

3. The evidence in this case does not warrant a holding that the railroad company and the producing subsidiaries involved are under the domination, control, direction, and management of the United States Steel Corp. in the sense that they

are

mere departments, branches, adjuncts, and instrumentalities of that corporation. 4. The railroad company does not have any interest, direct or indirect, legal or equitable, in the articles or commodities which it transports for the producing subsidiaries of the steel corporation.

The Government, and particularly the Interstate Commerce Commission, felt that the Elgin case was erroneously decided. Mr. Justice Stone, Mr. Justice Brandeis, and Mr. Justice Cardoza had dissented in an opinion written by Mr. Justice Stone.

One of the most prominent members of the Interstate Commerce Commission at that time frankly stated to me that the earliest opportunity would be taken to present to the Supreme Court another case in the hope that the Elgin case would be reversed, and that the views expressed in the dissenting opinion of Mr. Justice Stone would become law. So, the Commission immediately began to look for a "sitting duck." It thought it had found it in the South Buffalo Railway. The Elgin Case was decided on May 25, 1936. In Ex Parte 128-Investigation of South Buffalo Railway Co., the Interstate Commerce Commission, on November 7, 1938, on its own motion, instituted an investigation concerning the practices and operations of the South Buffalo Railway Co. The "log" of that case is interesting. There is a great temptation to go into details. and that temptation is resisted only by reason of the desirability for reasonable brevity in this statement.

The order of investigation was in very broad terms. It was not possible for the South Buffalo to ascertain or determine, in spite of repeated endeavors so to do, what specific things, if any, were complained of. Following the entry of the order of investigation, representatives of the Bureau of Service of the Interstate Commerce Commission conducted an extensive investigation of the affairs of the South Buffalo, extending through the entire year 1939 and the early part of 1940. Hearings, before examiners of the Interstate Commerce Commission, were held in June 1940, at which time the results of the Commission's field investigation were put in the record. Further hearings were held on September 17-20, 1940. On April 13, 1942, a proposed report was issued by the examiners, to which voluminous exceptions were filed, and with respect to which oral arguments was had on November 4, 1942. The examiners, throughout the hearings and in the proposed report, exhibited a fixed and unalterable belief that there was some iniquity in the relations between the South Buffalo Railway Co. on the one hand, and the Bethlehem Steel Co. and Bethlehem Steel Corp. on the other. The prejudicial conduct of the examiners in that case, with the commingling of the prosecution and adjudicative functions, gave much impetus to the movement for the enactment of the Administrative Procedure Act. In all fairness, it may be said that their conduct of the case was not typical of the conduct of cases by examiners of the Interstate Commerce Commission. The exceptions filed by the South Buffalo on August 29, 1942, give the details. By the time the case was argued orally before the entire Interstate Commerce Commission, on November 4, 1942, it was clear that there was need for further hearings, and a reexamination of the record by the examiners. There were further hearings in May 1943, September 1944, and April 1945. A new proposed report was issued by the examiners on July 19, 1946. Exceptions were again filed, and again there was oral argument before the entire Commission, on April 1, 1947. Further proposed reports were issued by examiners on May 27, 1949, to which voluminous exceptions were again filed. Oral argument was scheduled to be heard by the entire Commission on October 6, 1949, but on October 3, 1949, the Commission entered an order discontinuing the investigation.

In its order discontinuing the investigation, the Interstate Commerce Commission recognized the fact that if a subsequent investigation should show any unlawfulness with respect to the terminal services performed by the South Buffalo, the subject could be taken care of as a part of its proceeding in Ex Parte 104-Part II-Terminal Services. In other words, the Commission has ample power to deal with the subject, without any amendment of the commodities clause.

In the meantime, and on June 4, 1943, at the request of the Interstate Commerce Commission, the United States attorney for the western district of New York filed an equity suit in the District Court of the United States for the Western District of New York, at Buffalo, against South Buffalo Railway Co., Bethlehem Steel Co. and Bethlehem Steel Corp., charging violation of the commodities clause and requesting that the South Buffalo be enjoined from further transporting commodities produced by the Bethlehem Steel Corp. On March 28, 1947, after full hearing, the action was dismissed upon its merits. The opinion of the

district court is reported at 69 Federal Supplements 456. The case was appealed to the Supreme Court of the United States, and decided by that Court on April 26, 1948. It is reported at 333 United States Reports, 771. The Court divided 5 to 4, with Mr. Justice Jackson delivering the majority opinion of the Court. Chief Justice Vinson and Justices Frankfurter, Reed, and Burton joined with him to constitute the majority. The minority opinion was written by Mr. Justice Rutledge, with whom Justices Black, Douglas, and Murphy joined. It is, I believe, a fair summary of that case to say that the Court held:

1. United States v. Elgin, Joliet and Eastern R. Co. (298 U. S. 492 (1936)) should not be overruled.

2. The commodities clause, as construed by the Court in the Elgin case, does not prevent a railroad company from transporting commodities of a corporation whose stock is wholly owned by a holding company which also owns all of the stock of the railway, unless the control of the railway is so exercised as to make it the alter ego of the holding company. (Italics supplied.)

3. When the Transportation Act of 1940 was under consideration, the Congress refused to amend the commodities clause so as to overrule the Elgin case, and the Court should not now legislate into law by judicial decision what the Congress deliberately refused to do.

4. The finding of the trial court that Bethlehem has not so exercised its power over the South Buffalo (since 1940) as to reduce the railroad to a mere department of Bethlehem, is accepted and agreed to.

5. The decision in this case is to be based upon the facts as they existed at the time of the hearing, subsequent to 1940, since which time Bethlehem has not disregarded, in either the legal or economic sense, the separate entity of the South Buffalo or treated it as its own alter ego.

As noted in the opinion of the Court, efforts to override the Elgin case by legislation by the Congress had been unsuccessful when the Transportation Act of 1940 was under consideration. The history of that effort will be briefly stated. During the first session of the Seventy-sixth Congress, consideration was given to S. 2009, Seventy-sixth Congress, first session, which eventuated into the Transportation Act of 1940, approved September 18, 1950 (54 Stat. L. 898). Hearings on S. 2009, and associated bills, were held by the Senate Committee on Interstate Commerce on April 3 to 14, 1939. At the beginning of these hearings, Chairman Wheeler said one of the purposes of the bill was:

"To make effective the intent of Congress in prohibiting railroads, or other carriers after January 1, 1941, from transporting products not utilized in the conduct of their transportation business but in which they have an interest direct or indirect."

Later, on April 10, 1939, Chairman Wheeler said:

"I think the commodities clause will have to be changed; and if we are going to make such drastic changes in the commodity clause as this bill would suggest, I think it ought not to be incorporated in this particular subject. This would so change the economic structure of a lot of industries that I think it is something that would have to have particular consideration in a separate piece of legislation." (Hearings on S. 2009, 76th Cong., 1st sess., before Senate Committee on Interstate Commerce, p. 427.)

There was, therefore, no further discussion of the commodities clause during the consideration of S. 2009, or the Transportation Act of 1940.

What the Government failed to get from the Congress by way of legislation, it attempted to get from the Supreme Court of the United States by judicial legislation. It is greatly to the credit of the Supreme Court of the United States that this effort failed.

The Court stressed the fact that subsequent to its decision in the Elgin case, the Bethlehem Steel Corp. made a study of the relations between itself, the South Buffalo Railroad Co. and the Bethlehem Steel Co. in the light of that decision, and revised its intercorporate relationship, with the advice of counsel, so as to comply with the principles of the Elgin case. It may be here noted, also, that this was done by a number of other industries owning railroads.

With respect to the contention of the Government that the commodities clause was misconstrued in the Elgin case, the Court said that the Congress had considered this alleged mistake and decided not to change it.

So, as the law now stands, the commodities clause does not prevent a railroad company from transporting commodities of a corporation wholly owning its stock, or whose stock is wholly owned by a holding company which also owns all of the stock of the railway, unless the control of the railway is so exercised as to make it the alter ego of the holding company. In other words, violations 96347-50-ser. 14, pt. 4b

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of the commodities clause are not dependent upon the ownership of the stock of the railway, but are dependent upon the operations of the railway. So long as the railway is operated as a transportation agency, and not as the alter ego of the producing or holding company, there is no violation of the commodities clause.

Questions relating to the ownership of carriers, in whole or in part. by large shippers over their lines, have been many times before the Interstate Commerce Commission. So far back as 1904, in Divisions of Joint Rates (10 I. C. C. 355,

399), it was said: "While there may be grave objections to allowing shippers to build and operate railroads over which their traffic moves, the Interstate Commerce Act contains no prohibition of that kind."

To the same effect, see Crane R. R. Co. v. P. & R. Ry. Co. (15 I. C. C. 249, 252); Crane Iron Works v. C. R. R. Co. of N. J. (17 I. C. C. 514, 518); Stonega Coke & Coal Co. v. L. & N. R. R. Co. (23 I. C. C. 17, 23).

I believe I should call to your special attention what the majority of the Court said in the South Buffalo case respecting the proposal of the Government that the South Buffalo be perpetually enjoined from transporting commodities in which the Bethlehem Steel Co. or the Bethlehem Steel Corp. owns an interest. This statement is found at pages 783-784, and is as follows:

66* * * There is no other rail route by which inbound raw materials or outbound products of this huge industry can reach trunk-line railroads. And the traffic that we are asked thus to prohibit yields 70 percent of the railroad's revenues, and if taken away would doubtless substantially increase the cost of service to the unaffiliated industries that would remain to be served. Of course, what is literally asked is probably not what is ultimately desired. To forbid the physical operation as now conducted would be needlessly damaging to both shipper and carrier. What is aimed at, we suppose, is to force such a change of financial structure as will divorce shipper interest from all transportation interest. It seems clear, however, in the light of the legislative history, that this is the kind of operation that Congress did not want to prohibit because the prohibition was thought too drastic. If an independent ownership could be found for South Buffalo, it might be desirable. But independent owners' ip of a dependent facility wedged in between shippers, one of whom controls 70 percent of its revenues, and the trunk-line railroads, is not shown to be likely. Under the Government's theory, no other shipper or group of shippers any more than Bethlehem could own the road. Nor is it clear that any evils exist or are threatened which would be eliminated if this operation were transferred to control of one of the trunk-line railroads or to a pool of them. This road, despite its shipper ownership, is bound by both Federal and State law to serve all shippers without discriminations or unreasonable charges. The Commission has power to exact compliance with these duties. The argument, however, is that a situation exists which presents opportunity and temptation for abuse and for concealed evasions of duty. But to forestall possible abuses we are asked to apply a remedy which there is indication failed of congressional approval because its application to many situations would be too drastic and would do greater injury to shipper and transportation interests than could result from its withholding. In the light of the history of this clause since the Elgin decision and the equitable considerations involved in this case, we decline to overrule the interpretation Congress has not seen fit to set aside."

The incalculable effect of any drastic changes in the commodities clause was recognized by the Congress during the course of the enactment of the Transportation Act of 1940, to which the Court made reference.

Again, on May 5, the spokesman for the Interstate Commerce Commission, during the course of his testimony before this committee, said that the basic question to be considered is whether Congress wants to reach the evils aimed at by a statute that carries a heavy penalty, or by providing for a system of administrative regulation. He describes "the evils aimed at" as being "the results of control of railroads by large corporations, depriving others of equal shipping advantages." Yet, in the Elgin case and in the South Buffalo case the Government did not show that any shipper had in any way been harmed or discriminated against by reason of the fact that the railroads there involved were owned by "large corporations."

Both the Federal Coordinator of Transportation and the Board of Investigation and Research, to which references were made by the representative of the Interstate Commerce Commission, made extensive investigations of various phases of transportation. But the reports submitted by them contain no discussion of the commodities clause, and no recommendation for any change in it.

The House Committee on Interstate and Foreign Commerce has been making a general study of transportation, and the Senate Committee on Interstate and Foreign Commerce, through a subcommittee, has been conducting a very extensive investigation of domestic land and water transportation. Yet, there has been not the slightest suggestion presented to these committees that there is any need for a study of the commodities clause or for its amendment. In other words, shippers are not complaining that they are being discriminated against by virtue of the ownership of railroads by large corporations. The representative of the Interstate Commerce Commission made it perfectly clear that the Commission has ample power to eliminate any "evils" that may be found to exist in the railroad transportation industry so far as industrially owned railroads are concerned, and pointed to the fact that the Commission now makes no recommendation for the amendment of the commodities clause. He also pointed to the need for great caution in any consideration of this subject.

There is much more that might be said with respect to this subject. However, reasonable brevity is desiged. I, therefore, want to give you a short summary of the views of our association, which are as follows:

1. There is not now, and never has been, any law prohibiting an industry from owning a railroad over which its traffic moves.

2. Those industrially owned railroads which are common carriers are, as such, subject to the regulation of the Interstate Commerce Commission.

3. Except in the cases of a few large coal-carrying railroads, the Government has never proved that any industrially owned railroad discriminates against its shippers in favor of its parent company.

4. The Interstate Commerce Commission has ample power to deal with any disgressions of the law by any industrially owned railroad.

5. Millions of dollars have been invested in industrially owned railroads, and such an investment should not in any way be jeopardized by any hasty or illconsidered legislation.

6. There should be no amendment of the commodities clause unless it can be shown, by facts, that there is a need therefor to remedy evils.

7. This committee, upon the record before it, should make no recommendation for the amendment of the commodities clause.

I appreciate the fact that this statement is too long. Had I not been so hard pressed for time, it could, perhaps, have been made shorter. I know it could have been made better. But, I did the best I could, under the circumstances. I thank you for the opportunity to present this statement. I hope you will give it consideration, and that you find it convincing.

RECONSTRUCTION FINANCE CORPORATION,

Washington, June 20, 1950.

Hon. EMANUEL CELLER,

Chairman, Committee on the Judiciary.

Subcommittee on Study of Mononoly Power,

House of Representatives, Washington, D. C.

DEAR MR. CELLER: Accompanying this letter are two tables prepared as part of our reply to your request of May 24, 1950, regarding the steel firms and facilities financed by the Reconstruction Finance Corporation.

Table I is a summary listing of all loans authorized to members of the iron and steel industry through June 9, 1950. For one reason or another, many of these authorizations were not consummated by disbursement of the funds authorized; details of the disposition and purpose of the loan authorizations listed in table I will be shown in a series of supplementary tables, one of which is the attached table II.

Table II gives details of the authorizations made since January 1, 1945; other tables, to be forwarded as completed, will give the details of loans authorized prior to June 30, 1940, and those made during the defense and war periods. The Compilations for the periods mentioned have been delayed by the fact that most of our detailed records on authorizations made in earlier years were deposited in the National Archives and had to be recalled for examination.

It is felt that the work of your Committee could be expedited through submission of a reply in this fashion rather than by delaying until all of the information requested had been assembled.

Sincerely yours,

Attachments.

HARLEY HISE, Chairman.