the railroad and the producing and manufacturing companies, cement companies and steel mills, that in point of fact there was no domination or exercise of control existing to such an extent that the railroad and the steel company became alter egos of each other. Mr. WILLIS. Well, in that case the steel company owned stock in both the railroad and the mine? Mr. AITCHISON. Owned it all, you see. Mr. WILLIS. Now, the commodities clause would bar a railroad from transporting ore from a mine owned by the railroad, would it not? Mr. AITCHISON. I had perhaps better read the syllabus, which is short, of the South Buffalo case, the latest opinion of the Supreme Court: The commodities clause of the Interstate Commerce Act does not prevent a railroad from transporting commodities of a corporation substantially all of whose stock is owned by a holding company which also owns substantially all of the stock of the railroad, unless the control of the railroad is so exercised as to make it the alter ego of the holding company. The CHAIRMAN. On page 13, at the bottom thereof, it might be well to read, for the benefit of the members, what you state concerning the decision and your recommendations to Congress. That is at the bottom of page 13 and on the top of page 14. Mr. AITCHISON (reading): The decision of the Supreme Court, May 25, 1936, in the test case brought against the Elgin, Joliet & Eastern, was called to the attention of Congress in the Commission's annual report for that year, page 50. The Commission said— now this is not a quotation-Page 30 of the same report: We have reason to believe that some railroads subject to our jurisdiction evade the intent of the commodities clause, section 1 (8) of the act, by having subsidiaries not subject to the act serve as vehicles for carrier investments. We recommend that Congress, in the light of the facts already made available in our reports and in the reports of the investigations conducted by congressionable committees, shall determine the appropriate limit of our jurisdiction in such cases and whether further legislation to extend that jurisdiction is necessary. The CHAIRMAN. Will you read the next sentence, too. I think it accurate to say the members of the Commission and its legal staff were of the same view as the minority of the Supreme Court in that case the minority consisting of Justice Stone, Justice Brandeis, and Justice Cardozo. The CHAIRMAN. Thank you. Mr. AITCHISON. I was starting to say that we have had twice before us the relation of the steel line railroad at the head of the Lakes. First, before the Elgin decision, when a lease was up for Commission approval, and there were a number of general objections made by some gentlemen who didn't put in any testimony, and the Division. of the Commission held that there was no violation shown of the act. We were not persuaded by the record. Later, after the Elgin, Joliet & Eastern decision, the Duluth, Missabe & Iron Range Railroad Co. control came before the Commission under the appropriate provisions of section 5 of the Interstate Commerce Act, which required a finding and approval by the Commission and we pointed out in that case, that in the lease case we had said that there was not sufficient merit shown to prevent an affirmative finding, and then cited the Elgin, Joliet & Eastern case and said: There is nothing on this record to indicate that the applicant is the alter ego of the steel company, that the carrier and the steel company had no common directors and the former does not employ the applicant's officers. We think there is no warrant for reversing our previous conclusions. I think it would be unfortunate to get the impression that the commodities clause did not have positive effect during these years, because it did; there were a number of roads which complied with the commodities clause quite literally with the full spirit; some of them took time to do it. For instance, the Pennsylvania Railway Co. was in the steel business, and owned the Pennsylvania Steel Co. and the Cambia Steel Co. Both of those properties were disposed of in 1915 and 1916, but there had been a number of indictments against the Pennsylvania for violations of the commodities clause. The CHAIRMAN. I take it if the Pennsylvania Railroad Co. devised the method of a holding company which, in turn, held the stock of the Cambia Steel, the Elgin, Joliet & Eastern case would absolve the Pennsylvania Railroad Co. from any violation of the act. Mr. AITCHISON. Well, provided the Pennsylvania Railroad Co. was willing to let the directors have the freedom which the steel companies Bethlehem and United-succeeded in persuading the courts they had given to the Elgin, Joliet & Eastern and South Buffalo. If they had exercised the control that had been established in the Reading case beyond a reasonable doubt they might have been found guilty. Mr. WILLIS. You said there were three stages: First, debates on the constitutionality of the act; and secondly, cases involving clear violations of the act. You have been talking about the exceptions to these cases. Well now, cite us, please, a case where the Supreme Court found that the operation of the railroad was offensive to the law. Give us a clear-cut case where they held that violation was involved. Mr. AITCHISON. That is quite clearly discussed under the Reading case. Mr. WILLIS. Yes, but I would like to have you tell me. Mr. AITCHISON. I will have to abbreviate it very much. At that time the anthracite companies were in the business of maintaining mining operations before there were any railroads; they first constructed the mines, and then built the railroads. The constitution of Pennsylvania even had a provision which seemed to deal with this subject. Then along came the commodities clause, and there had to be a choice made of a road to act as a guinea pig to get an interpretation of it, because even at that time in the Delaware & Hudson case, the first to be decided-and that was in this interval between the enactment of the Hepburn and Mann-Elkins Act-the Supreme Court sustained the constitutionality of the commodities clause, but in doing so felt that constrained to give a construction to it which related the ownership or interest to the time when the relation of the common carrier to the product began. So, if there had been an actual divestment of interest prior to that time, the commodities clause was not violated. Well, of course, that gave the cue to all of these anthracite companies, and they immediately set up sales agencies, insurance, separate boards of directors, and all that sort of thing, and seemingly got away with it for a while, and that was the situation at the time the debates under the Mann-Elkins Act were fought, because it all related to avoiding the test which the Supreme Court had made with respect to time being the important element. Now, the cases kept going to the courts and, finally, the Reading case was brought, and there the record showed that there was in fact a domination of the sales company and the railroad by the common Reading Co., and consequently an injunction was issued under the Sherman Antitrust Act. The situation was one which powerfully appealed to the Court, because of the so-called squeeze which is discussed in the opinion. The railroad was being used as a medium for compelling the mine owners to sell anthracite mined by them at the pit mouth, and then, as they had all of the product, they were able to make their own price at tidewater, that being the great market. And they were able to recoup themselves for what they were obliged to pay to the independent operators whom they had squeezed out. That was stopped by the decision of the Supreme Court under the Sherman Antitrust Act. Mr. Chairman, one feature about both the Elgin, Joliet & Eastern and the South Buffalo cases which I think we are likely to overlook, and which I have not covered in my statement-it is all purely a fact proposition, and how the Court looks at it, whether there is such a domination, whether with a given state of facts the Court concludes that these companies are alter egos of the holding company. One court might look at it one way, and one another. That is the reason we have reversals and have the Supreme Court, and states of fact also change from time to time. So, I take it, that if, in fact, it could be shown or developed at a later date that the United States Steel Corp. or Bethlehem do in fact dominate the control of operation of the South Buffalo or the Elgin, Joliet & Eastern, and that fact should be shown as of that date, then, the commodities clause, and possibly the Antitrust Act might apply. The CHAIRMAN. Do you think Congress should change the commodities clause so as to avoid, or prevent, if possible, these different interpretations by the various courts? Mr. AITCHISON. I shall come to that, but I will anticipate it by saying I would rather make a more complete presentation of that. The CHAIRMAN. I will hold it. I didn't know you were coming to that. Mr. AITCHISON. Yes, sir; I shall come to that. During the last 5 years, it might be of interest to know that there have been no complaints, formal or informal lodged with the Commission. We have had four investigations made by the Commission's Bureau of Inquiry of alleged violations of the commodities clause. These cases seemed to fall within the scope of the decision in the Elgin, Joliet & Eastern case, and the investigations were closed. Two other investigations of the relations of the Union Pacific Railroad. Co. with certain subsidiaries were concluded, when it appeared that the operations complained of were not within the prohibition of the commodities clause as presently interpreted. One that seemed governed by the Elgin decision was a small road in Oklahoma, and the other the Butte, Anaconda & Pacific. Strangely enough, the Butte, Anaconda & Pacific was cited in the original debates on the Hepburn Act in the Senate, as being a sort of a beneficent operation by an industry that it would not have been in the public interest to stop. Anyway, we felt we were constrained to discontinue those investiga tions because of the decision of the Elgin, Joliet & Eastern and we are not prosecuting them noW, Mr. Levi. I just wanted to ask this one question: In the administration of the Literstate Commerce Act, it is important, is it not to Lave shippers complain to the Commission when they feel that the rates are unfair! Mr. AITCHISON. Well, of course, it is important, but we have the power to initiate investigations on our own motion, and everything I have been talking about this morning has been on our own motion. Mr. Levi. But it is important; it is an important aspect of the act that shippers may complain! Mr. ATCHISON. They may complain. They could complain of any violation of the Interstate Commerce Act. As stated by Commis sioner Harlan as quoted in my statement, when our attention is directed to a violation of the law, it is our duty to investigate it, and if violation appears, to report it to the proper authority, which is another body of the Government. Mr. Lavi. Now, if the holding company dominates the shipper and controls the shipper in the sense that it appoints the directors and it controls the policies of the shipper, that might affect whether the ship per files a protest with your Commission, might it not ! Mr. AITCHISON. For instance, the Steel Corp. I shouldn't expect it would file very much of a complaint against the Duluth, Missabe & Iron Range, but I expect the independents would do as they have done, bring it to our attention, as they repeatedly have done. Mr. Levi. Bat the fact of ownership might remove an area where complaints might be expected, if it had independent ownership? Mr. AITCHISON. Certainly nobody complains of himself. If he thinks the rate is too high, he has the power to decrease it. But only taking one aspect, take either Bessemer & Lake Erie, or the Eigin, Jolet & Eastern, both steel roads, they are important arteries of commerce and they are used by rivals as well, and rivals have the power to bring complaints and do so. But neither the Elgin, Joliet & Eastern or the Bessemer & Lake Erie would be probably a controlling element in either the rate adjustment with respect to coal or iron ore, and they probably would be considered as merely bridge lines with respect to a great volume of trathe which flows over theni. The CHAIRMAN. I just want to point out that you have put in the record certain figures which indicate that the Elgin, Joliet & Eastern carries to Chicago, roughly, over 1,000,000 tons, and that of that total, 76 percent is of the product of United States Steel and subsidiaries and only 24 percent of companies not affiliated with United States Steel. Mr. AITCHISON. Probably that is right. We could give the exact figures if you desire. I assume that includes incoming raw materials as well as the finished product? The CHAIRMAN. That is correct. Mr. AITCHISON. Well, the incoming raw material may not be corered by the commodities clause. The CHAIRMAN. That is correct. Mr. AITCHISON. Now, one of the things which I think may be of interest, in the light of questions asked me, is whether or not the Commission has been able to give vitality to the principles underlying the commodities clause under the act as it stands. The CHAIRMAN. Just a minute, Mr. Commissioner. Won't ore be covered in the commodities clause? Mr. AITCHISON. Oh, yes; ores mined by them. The CHAIRMAN. What is covered then? The CHAIRMAN. Semifinished products? The question may arise as to the extent to which the Commission has been able to give vitality to this principle, regardless of the commodities clause itself. I have cited at pages 18 and 19 of the statement some very important cases where, in dealing with the proposed construction or proposed operation of new lines of railroad, or change of control of existing railroads, where the Commission's consent was necessary, and we have endeavored to see that the approval was so conditioned when granted-and it was not always granted-that the lines would be as completely independent of industry domination as possible. The latest report of that sort is the Kingsport operation case, a line of railroad owned by the United States Government being involved. That case is now pending before the Commission on petition for rehearing. I think a review of the cases which I have cited, but have not had the temerity to ask the committee to listen to me read, shows that under the other provisions of the act there are delegated to the Commission powers which make it possible to anticipate or forestall, or at least mitigate greatly, the undesirable features of industry ownership, especially in the cases of new construction, or when necessary approval of change in control or ownership is sought. As I said, there is no commodities clause that relates to motor carriers, but we have refused in a number of cases to grant operating rights to applicants having individual connections or proposing to engage in both private and for-hire motor transportation. There have been some exceptions. The second subject indicated by the subcommittee is the factual situation with respect to the ownership of railroads by steel companies, particularly by the United States Steel Corp. This situation will be shown in two tables prepared by the Commission's Bureau of Transport Economics and Statistics, as of December 31, 1948, copies of which I have already submitted. The first relates to the steel companies and steam railways controlled by them.1 The second is a general list of operating railroads controlled by industries as of the same date.2 The object of all this is to show the large number of and diversity of geographical locations. Now, I stress this diversity, for right here is the great difficulty which this committee has to face, for it seems clear to me now, as it was in 1906, that there is so great a diversity of industrially owned and operated lines that any sweeping prohibition of the right to transport object of commerce aimed at particular carriers would certainly do much undesired harm to others in unexpected as well as visible ways. The Senate and conferees accepted this as established and cut 1 This table appears as exhibit S-329 in Steel Exhibits, pp. 684-685. This table appears as exhibit S-330 in Steel Exhibits, pp. 686-689. |