II. "SECTION 214" OF THE TRANSPORTATION ACT OF 1920 A. Early railroad law The first form of systematic railroad regulation was the enactment of general incorporation laws and the creation of railroad regulatory commissions in some New England States during the 1830's and 1840's, the initial years of railroad building. All of the early railway companies had received individual charters from the States by special legislative enactment.1 The power granted to the commissions was usually supplementary to the issuance of State charters, and served to overcome the futility and confusion of contradictory charter regulation. These "free railway laws" actually exerted very little control. They concerned themselves mostly with matters of safety, taxation, and the gathering of accounting and statistical data; and in but few cases were there attempts at ratemaking. A great disadvantage of these pre-Civil War statutes was that projects could be undertaken without their effect on other lines, thus increasing the risks and speculation inherent in the trade. Before the adoption of the railway laws, this danger had been an important consideration in the assignment of charters. The corporation had been. obliged to insure that the project at issue was in the interest of the State as a whole and that it would not injure other railroads. In some jurisdictions an attempt was made to remedy this situation by requiring a certificate of public convenience and necessity from a court or commission before a new railroad could be constructed. The neglect on the part of the framers of most State laws to include this type of provision was one factor which contributed to the great deal of overinvestment during the railroad building period in the United States. One other noteworthy cause for this extravagence was the incidence of substantial subsidy of construction. Beginning in 1850, land grants were the most important form of Federal aid, contributing to the finish, in 1869, of the first transcontinental railroad. A common form of local financial aid was subscription to railroad stock. Many private citizens went so far as to mortgage their farms and homes for railroad investment. Railroad corporations were also granted outright donations in the form of cash, securities, rights-of-way, material, equipment, and labor. Furthermore, county and municipal governments offered loans and the guaranty of bonds, which were usually financed by public debt. 1D. Philip Locklin, The Economics of Transportation, 6th ed. (Homewood, Ill.: Richard D. Irwin, Inc., 1966), p. 100. 2 Id., p. 101. See, e.g., People of the State of New York ex rel. New York Central and Hudson River Railroad et al. v. Public Service Commission of the State of New York, 227 N.Y. 248 (1895): "The provision added to the Railroad Law in 1892, requires a railroad corporation to secure from the railroad commissioner a certificate *** before construction *** The object was to permit the railroad commissioners to prevent wasteful competition and public disaster by the construction of public roads through localities which already were adequately served ***". (Reference omitted.) A not uncommon circumstace was that of Watertown, Wis. With a population of 7,553, the township incurred a railroad debt of $750,000, nearly $100 per capita. Stuart Daggett, Principles of Inland Transportation, revised ed. (New York: Harper & Brothers, 1934), p. 102. For the purpose of these endeavors, the interests of the public and the corporations were considered to be the same. The public wanted railroads, and the firms wanted to build them. Railroads were becoming a vital part of the infrastructure of the national economy, and of the economic future of communities of every size. Consequently, people were willing to pay almost any price for them. Following closely on their completion, however, the private corporations evidently began to demonstrate ruthless procurement instincts. The public, of course, expected the lowest possible rates from these enterprises whom it had so generously aided; and its benevolence soon shattered. Public outcry followed on such methods as inflated rates, preference to favored dealers, and regional discrimination, especially against noncompeting points. "Absentee ownership" by eastern capitalists aggravated the situation, as did the conduct of unscrupulous promoters as stock values declined to as low as worthless. Part of this strong anti-railroad feeling manifested the "agrarian” ideology of the Granger movement. While corporate prejudice had existed in parts of the country as early as 1850, it was the Granger movement that resulted in the first positive legal control over the railroad industry, particularly in Illinois, Iowa, Wisconsin, and Minnesota.* The experience of the Granger States and of those that passed laws in imitation of them became a fund of knowledge to the Congress that drafted and passed the original Interstate Commerce Act (ICA).5 The act of 1887 was significant as an assertion by the Federal legislature of the legitimacy of the doctrine that the railroads were subject. to public control. The notion that private business was to submit to external authority was still fairly "radical" during this period; but its constitutionality had been repeatedly upheld by the Federal courts. 6 The 49th Congress was motivated by factors additional to court. pronouncement and the precedent of State initiative. The immediate reason was evidence that, in the absence of Federal law, State-by-Stateregulation would allow a great deal of traffic to escape legislative control. Another source of instruction lay in England, where a respectable body of statutory law existed. Finally, the Congress was pushed forward by an aroused public opinion offended by monopolistic railroad practices. Resolutions calling for study of the idea of interstate regulation were presented to Congress throughout the 1870's and 1880's, the time that the State laws were being debated and passed. Proposals for legislation appeared in every session since as early as 1868, although none were acted on for years. 4 Locklin, op. cit., n. 1, p. 198. 5 Act of Feb. 4, 1887, ch. 104, 24 Stat. 379. See Munn v. Illinois, 94 U.S. 113 (1876); Chicago, Burlington and Quincy Railroads v. Iowa, 94 U.S. 155 (1876); Piek v. Chicago and Northwestern Railroad Co., 94 U.S. 164 (1876); Winona and St. Peter Railroad Co. v. Blake, 94 U.S. 180 (1876). 7 See Wabash, St. Louis and Pacific v. Illinois, 118 U.S. 557 (1886). While the Court did not deny its previous rulings that there were instances in which State rules might be applied to freight crossing its boundaries, it decided here that regulation of rates on interstate carriage must be regarded as exclusively within the field of Federal authority, and could not safely be remitted to local action. 8 Long before Federal legislation was even thought about in the United States, the Railway and Canal Traffic Act of 1854 was enacted with much the same type of provisions as the ICA was to contain. 6 Beside endowing discretionary, although limited, administrative authority to the new Interstate Commerce Commission (ICC), the act prohibited pooling arrangements in reflection of the popular view that enforced competition was the best protection against unreasonable rates. There was considerable opposition to this provision from those who saw that pooling was necessary to prevent destructive competition. The legislature, however, fearing railroad monopoly, was unwilling to permit it.10 It was to this enactment that additional provisions were attached by the predecessor language of the Communications Act of 1934, and, of particular interest, of section 214 of that statute. What follows is a presentation of evidence demonstrating the intent of the 1920 amendments to the Interstate Commerce Act, and tracing the conversion of section I(18)-(22) to section 214. Included is a brief discussion of the history and purpose of the attending legislation, with an emphasis on that related to communications. B. Section I(18)-(22) The passage of the new railroad legislation was a response to the reasoning, slowly evolved after 1887, that competition might be extravagant and wasteful, and that it could result in unnecessary duplication of railway facilities and the impairment of the revenues of needed lines. The occasion for its enactment was the transition of railroad ownership from wartime operation by the Federal Government back to the private sector. The English used the same opportunity to nationalize their entire inland transport system. Likewise, the U.S. Congress at this time reviewed its entire policy of rail regulation. The total scheme of the act was designed to answer complaints that the regulatory system was restrictive, did not do justice to conditions of rising costs, and encouraged destructive competition among the railroads. The main intent of the act was to improve the financial position of the railroads as a group, while avoiding conferring unnecessarily high returns on the strong companies. The primary method was a directive to the ICC from Congress that a plan be drafted for the consolidation of the Nation's railroads into a limited number of systems of comparable efficiency, profitability, and financial strength.11 It was not true, however, that a complete reversal of policy occurred. The Commission was to allow pooling arrangements when they did not "unduly restrain competition." 12 Consolidation was to take place in accordance with the plan, during the preparation of which Congress specifically required that "competition shall be preserved as fully as possible." 13 As mentioned, pooling had previously been forbidden for fear of allowing groups of firms to attain an unseemly amount of market power; similarly, mergers had been attacked under antitrust laws. The changes initiated by the Transportation Act do indicate, despite their qualifications, a significant reversal of the prior faith in the market 11 Alfred E. Kahn, "The Economics of Regulation: Principles and Institutions" (New York: John Wiley & Sons, Inc., 1971), II, 79. 12 Loc. cit. See act of Feb. 28, 1920, ch. 91, 41 stat. 481. 13 Id. place to induce fair practices and earnings sufficient to attract investment. The act directed the Commission to take a more active role in directing both the industry's structure and its performance. The inclusion of a provision giving control to the ICC over extensions and abandonments of lines was consistent with this design. The report of the Interstate Commerce Commission to the Congress, submitted in 1918, recognized a need for a new railroad competition policy. One of its four recommendations was "the limitation of railway construction to the necessities and convenience of the government and of the public and assuring the construction to the point of these limitations." 14 This option was provided for in "a new provision which prohibits the construction or abandonment of lines of railway except upon the authority of the regulating tribunal." 15 The amendment of Section I of the Interstate Commerce Act by Section 402(18)(22) of the Transportation Act invested control to the Commission over the construction and abandonment of railway property. It was patterned after such certification requirements as existed in state law. The scope of the Commission's authority was the issuance of certificates of public convenience and necessity after application, hearing, and notice to the appropriate State authority. Its proceedings were to relate to the construction of new lines, to the acquisition or operation of any line of railroad or its extension, and to the abandonment of all or any portion of a line of railroad or its extension. This include those lines which, although lying wholly within one State, still affected interstate commerce, even though built by corporations not previously subject to the ICA.16 These provisions applied only to railroads even though section 400 (3) of the same amending act specifically defined common carriers to include, inter alia, telegraph, telephone, and cable companies operating by wire or wireless.17 The purpose of the certification requirement was to prevent the needless duplication of existing routes and the construction of unprofitable lines. Senator Cummins, chairman of the Interstate Commerce Committee and sponsor of the Senate's version of the bill, defended the language of the provision in the following manner: I do not remember how many States have legislation of this character, but there is a very considerable number of States which for the protection of their people and the better regulation of their commerce have adopted provisions substantially like the one now sought to be eliminated from the bill. It presents to the country a question which ought to be considered and ought to be decided without passion or prejudice, and ought to be decided without respect to the effect which it is supposed it would have upon any particular part of the United States. If there is any one thing which the transportation system of the country taken as a whole, is now 14 Testimony of Edgar Clark, Commissioner, Interstate Commerce Commission, U.S. House of Representatives. Committee on Interstate and Foreign Commerce, Hearings on H.R. 4378, Return of the Railroads to Private Ownership, 66th Cong., 1st Sess., I, 53 (1919) citing 15 Id., p. 54; see Act of Feb. 28, 1920, ch. 91, 41 Stat. 477-78; 49 U.S.C. I 18(a)-(e), Ia (1)-(11). 16 See Texas & New Orleans Railroad Co. v. Northside Belt Railway Co. 276 U.S. 475, 479 (1928). The court felt that as long as the railroad confined its operations to intrastate commerce, construction without a certificate would not violate federal law. 17 Act of Feb. 28, 1920, op. cit., n. 12, at 474. suffering, it is from the unguided, uncontrolled right of own- The railways of the United States are not built where they John J. Esch, the chairman of the House of Representatives' Interstate and Foreign Commerce Committee, also articulated the purpose of Federal review of railroad construction: [O]ne cause of the so-called "weak sister" has been the unrestricted right of railroads to be built wherever their proprietors thought fit. As a result of this unrestricted right we find in all States of the Union cases where, after a road has been built and well maintained and has gotten its traffic well established, another road puts in a parallel line with a result that instead of one strong road doing the traffic we have two weak roads, so they have to charge the same rate between competitive points and we burden the public by compelling it to sustain two weak roads when one strong road would have been sufficient. How does the bill stop that? In this way: Before a road or an extension thereof can be built it must get what is called in this bill a certificate of convenience and necessity from the Commission as a condition precedent to the building of a single rod [sic] or the extension of a new line***. This is not a new law. Several of the States have this kind of law now, notably the State of New York and the State of Wisconsin, and in other States the law has worked successfully. It has prevented the construction of new lines that could not by any possibility have any hope of meeting operating expenses, not to say anything about profits. It would prevent the construction of some of these short lines which may have no hope of ultimate financial success. In every way we have felt that this provision would lessen the number of "weak sisters," would prevent the creation of any new ones, and would strengthen the existing lines. We can get better service by strengthening the existing lines than by creating a rival or parallel line which would diminish the ability of the first line to make further improvements or betterments.19 18 59 Cong. Rec. 748 (1919); see also Rogers MacVeagh. "The Transportation Act of 1920, Its Sources, History, and Text" (New York: Henry Holt & Co., 1923), p. 221. 19 58 Cong. Rec. 8316 (1919); MacVeagh, id., p. 220. |