EFFECT OF PRESIDENTIAL DIRECTION OF RAIL¬
ROAD OPERATION UPON THE REGULATIVE
POWERS OF STATE COMMISSIONS
Necessity of Application by Railroad Corporations Affected by the
President's Proclamation of Décember 26, 1917, for Commission Approval
of an Agreement Between Themselves for Trackage Rights and Through
Traffic
AN OPINION RENDERED TO THE NEW YORK STATE
PUBLIC SERVICE COMMISSION FOR
THE FIRST DISTRICT
By
William L. Ransom
Counsel to the Commission
Commissioners
Oscar S. Straus, Chairman
Travis H. Whitney
Charles S. Hervey
Frederick J. H. Kracke
Charles Bulkley Hubbell
James B. Walker,
Secretary,
120 Broadway,
New York City
January 2i, 1918
OPINION OF COUNSEL TO THE COMMISSION
January 21, 1918.
Public Service Commission
for the First District
Re Effect of Presidential Direction of Railroad Operation and
National Rehabilitation of Railroad Finances Upon the Regu¬
lative Powers of State Commissions: Necessity of Appli¬
cation by Railroad Corporations Affected by the President's
Proclamation of December 26, IÇ17, for Commission Ap¬
proval of an Agreement Between Them for Trackage Rights
and Through Traffic.
Dear Sirs :—
I am in receipt of the Secretary's letters of January 15th and
i6th, transmitting for the consideration of Counsel certain corres¬
pondence relative to the proposed trackage agreement of The Long
Island Railroad Company, the New York, New Haven and Hart¬
ford Railroad Company, the Pennsylvania Railroad Company, and
the Pennsylvania Tunnel and Terminal Railroad Corhpany, with
the New York Connecting Railroad Company, whereby through
freight movement may be operated over the tracks of The Long
Island Railroad Company and the New York Connecting Railroad
Company from Port Morris via the Sunny Side Yards and Fresh
Pond Junction to the Bay Ridge Yards, from which point a float
service will be operated to Greenville, on the Jersey Shore. The
Secretary's letter states that the Commission desires to be advised
as to the legal questions arising in connection with this agreement.
First among these is the question whether such an agreement should
be submitted, by the companies concerned, for the approval of this
Commission, under Section 54 of the Public Service Commissions
Law. 'With that question and certain of its inevitable implications
this memorandum will deal.
The Public Service Commissions Law of the State of New York
provides, in Section 54 thereof, that no railroad corporation shall
lease or use the tracks or operate under the franchises of another
railroad corporation or corporations, "nor shall any contract or
agreement with reference to or affecting any such franchise or
right be valid or of any force or effect whatsoever, unless the as¬
signment, transfer, lease, contract or agreement shall have been ap-
z
proved by the proper Commission." This explicit expression of the
public policy of the State of New York was enacted in pursuance
of the legislative power of the commonwealth- and in furtherance
of its well-defined policy respecting public service corporations. As
the agreement under consideration would relate, in part, to the ex¬
ercise of the rights, and the use of the tracks, of a railroad located
wholly within the City of New York, which constitutes the terri¬
torial jurisdiction of the Public Service Commission for the First
District, there can be no doubt that this valid requirement of the
legislative power of the State calls for the submission of this agree¬
ment for the approval of this Commission, unless it be found that
something has taken place in the National sphere, affecting these
railroad corporations, their franchises, any agreement between them
for trackage rights, or the nature and necessity of the operation to
take place under this particular agreement, which is to be deemed
to remove it from the authority and scrutiny of the legislative power
of this sovereign State. The constitutional and legal questions
which are presented in this connection are fundamental and vital;
they concern the. fabric of our whole Federal system of government
and are fraught with the most far-reaching consequences as to the
future relationship of the National Government to franchise-holding
public services.
The Proci.amation of Decemrer 26, 1917
The existence of the state of war between the United States and
the Imperial German Government was recognized by Resolution of
the Congress on April 6, 1917, and similar action was taken as to
the Imperial and Royal Austro-Hungarian Government on Decem¬
ber 7, 1917. At noon on December 28, 1917, under circumstances
and for purposes to which I shall presently refer, the President by
proclamatiorl took possession and control of the systems of trans¬
portation throughout the Continental United States, directed that
this control be exercised, and the operation and utilization of the
transportation agencies thus taken over be conducted, through Mr.
William G. McAdoo as Director-General of Railroads, and gave in¬
structions as follows :
"Said Director may perform the duties imposed upon him
so long, and to such extent, as he shall determine, through
the Boards of Directors, receivers, officers and employees of
said systems of transportation. Until and except so far as
3
said Director shall from time to time by general or special
orders otherwise provide, the Boards of Directors, receivers,
officers and employees of the various transportation systems
shall continue the operation thereof in the usual and ordinary
course of the business of common carriers in the names of
their respective companies."
One of the instrumentalities of railroad management and oper¬
ation thus continued, though subjected to the authority of the Di¬
rector-General, was the so-called Railroad War Board, an organiza¬
tion made up of executives of the various railroad corporations,
who had been co-operating closely and patriotically, at the instance
of the President, in an effort to obtain from voluntary and concerted
endeavors of the railway executives something of that unity of
operation and maximum utilization of facilities which were deemed
necessary for the prosecution of the war. ' The Chairman of the
Executive Committee of the Railroad War Board is Mr. Fairfax
Harrison, President of the Southern Railway Company. On De¬
cember 31, 1917, Mr. Harrison, acting under the authority of the
Director-General of Railroads, sent to The Long Island Railroad
Company and other affected carriers the following instructions:
"Washington, D. C., December 31, 1917.
"We understand that the New York Connecting Railroad
is completed and ready for freight traffic and that the por¬
tion of the Long Island over which the New Haven is to
operate under trackage is ready, as well as the Bay Ridge
Yard, and the float service between there and the Jersey side,
and that the use of it is awaiting adjustment of a contract.
"Please proceed to put this facility into use at once and
advise that you have done so. Fairfax Harrison."
A "Through Route" for War Purposes
The joint operation directed by the communication of De¬
cember 31, 1917, was started on January 15, 1918, but the agree¬
ment has not been completed. The facts relative to the matter
in this respect are, in brief; The 19.63 miles of railroad tracks
to which the necessary agreement will relate lie wholly within
the State and City of New York. From the point of intersection
with the New York, New Haven and Hartford Railroad Com¬
pany's tracks at Port Morris to Sunnyside Yards and thence to
Fresh Pond Junction, a net distance of 8.3 miles, the tracks used
will be those of the New York Connecting Railroad Company.
4
From Fresh Pond Junction to the Bay Ridge Yards and car-
float terminals, a distance of 11.33 miles, the tracks of The Long
Island Railroad Company will be used. On March 28, 1917, this
Commission granted an application of the New York Connecting
Railroad Company, the New York, New Haven and Hartford
Railroad Company, the Pennsylvania Tunnel and Terminal Rail¬
road Company, and the Pennsylvania Railroad Company, for the
approval of an essentially temporary agreement for the operation
,of passenger trains by the New York, New Haven and Hartford
Railroad Company over the tracks of the New York Connecting
Railroad Company from Port Morris to the Sunnyside Yards and
thence over the Pennsylvania Tunnel and Terminal Railroad
Company's tracks to the Pennsylvania Terminal Station in Man¬
hattan, pending the execution of formal contracts for such opera¬
tion, including the use of the Terminal Station. The temporary
agreement thus approved provided that :
"Said operation and use by the New Haven Company
to be on such basis as may be determined between the
parties hereto, in order that the payment to be made by
the New Haven Company therefor shall not at any time
be greater than it now pays for the movement of its
trains between Woodlawn Junction and Grand Central
Station and for the use of the latter station. Such basis
when actually determined to be submitted for approval to
the Public Service Commission for the First District of
the State of New York."
The requisite agreement between the various railroad corpora¬
tions for the use of the tracks of the New York Connecting Railroad
Company for freight and passenger service had not been executed
or completed when, at the end of December, the President as-
' sumed possession and control of thé railroad systems of the
country and a subordinate of the Director-General gave instruc¬
tions for the earliest possible starting of a through operation
which would bring freight cars from New England directly to
tidewater at a point in the less congested portion of the harbor
and enable such cars to be conveniently taken by barges to the
car-float terminals of the Pennsylvania and other railroad systems
along the Jersey shore and on Staten Island. In view of the fact
that the loading of munitions and supply ships takes place at
points adjacent to the Bay Ridge Yards, and the importance that
direct, expeditious transport be available between New England
5
manufactories and the mines, oil resources, and timber supply
reached by the Pennsylvania and other transportation systems
which come to tidewater on the Jersey and Staten Island shore,
it will be seen that the through route ordered established by the
mandate of December 31, 1917, has a direct bearing on the con¬
duct of the war. The port and harbor of New York, and all its
adjacent net-work of transportation systems which carry sup¬
plies or carry workers to and from points where functions of
transportation, material-supply, ship-building, and similar war¬
time concerns, are advanced, are little less than a base-depot of
the firing-line in France.
Contemplated Teems of the Agreement of the Carriers Be¬
tween Themselves
No agreement fixing the compensation to be paid the several
carriers for the use of their-facilities under through operation
having been perfected by the companies, it is proposed to apply
to the Director-General to fix the compensation as well as the
general nature of the through operation. The negotiations be¬
tween the companies are stated to have contemplated an arrange¬
ment whereby the New York, New Haven and Hartford Rail¬
road Company, as the operating agent of the New York Connect¬
ing Railroad Company, will move its own trains, with its own
power, manned with its own crews, and in all respects at its own
expense, over the lines of both the New York Connecting Rail¬
road Company and The Long Island Railroad Company, from
Port Morris to Bay Ridge, so far as the handling of through
traffic is concerned, whether in connection with governmental or
other needs or not. AH traffic for local delivery in the territory
covered by the trackage agreement is to be delivered by The
Long Island Railroad Company and handled by it at its regular
rates, so that The Long Island Railroad Company may continue
to receive the revenue from its local territory, including any
interchange with the Bush Terminal Railroad, on the Brooklyn
water-front. The contemplated terms of compensation to The
Long Island Railroad Company had been a rental of one-half of
the interest at per annum on the cost of the completed
property devoted to the joint arrangement, and also one-half of
the interest on the agreed cost of all additions, extensions and
betterments. In addition to this, the cost and expense of opera-
6
tion (covering only the joint expense of supervising, signalling,
policing, accounting, and directing the operations of the facilities
jointly used, and not including the crews and engines devoted
exclusively to the traffic of each company), together with the
cost and expense of maintenance, including renewals and re¬
placements of said railroad and property, the taxes, cost of in¬
surance, and any other expenditure imposed by law or regula¬
tion, chargeable to operating expense, to be pro-rated on the
basis of number of cars and engines moved over the road, the
proportions difïering on various sections of the road. The cost
of the improvements and development of the property, properly
chargeable to the joint facility, is between $11,500,000 and $12,-
000,000, the exact figure not yet having been agreed upon be¬
tween the companies. The foregoing comprises the basis of the
application to the Director-General of Railroads for ascertaining
and fixing the compensation. When this has been determined,
the agreement between the companies will be completed and exe¬
cuted. The question is therefore presented whether such an
agreement, made under the circumstances indicated, can be "valid
or have any force or effect" until it has been approved by this
Commission. This in turn depends on the effect of the Presi¬
dential action upon the enactments and declared policy of the
legislative power of a State. There is also suggested the inquiry
as to the precise nature and limitations of the Presidential act in
taking over the railroads, because at least The Long Island Rail¬
road Company has indicated its belief that because the compen¬
sation to be paid it by the other companies under the contemplated
trackage agreement for through traffic had not been determined
before December 28, 1917, the amount of this compensation, as well
as the amount of the compensation to be paid to any of the com¬
panies by the National government for the movement of govern¬
mental traffic over the through route, must now be determined by the
Director-General of Railroads.
The National Legislative Power As to Railroads
The powers of the National Government over railroad trans¬
portation are derived from Article I, Section 8, sub-division 3, of
the Constitution, which vests the Congress with "power to * * *
regulate commerce * * * among the several States." Rail¬
roads being regarded as a specialized form of highway and fa-
7
cility of commerce, their interstate operations were looked upon
as within the purview of Federal power. The constitutional
grant being to the Congress, it was early established that the
Federal authority over interstate transportation is legislative in
character; "is complete in itself, may be exercised to its utmost
extent, and acknowledges no limitations other than are prescribed
in the Constitution." This "plenary" power was held to be vested
in the Congress as absolutely and as broadly and exclusively "as
it would be in a single government". In times of peace, therefore,
the regulation of railroad transportation and its agencies is in
all respects a legislative function ; the President and other ad¬
ministrative officers have powers and duties as to the railroads
only to the extent that the legislative power has been delegated
and they have been entrusted with the task of carrying out the
legislative rules enacted by the Congress. The coming of war
and the necessity of providing for the common defense bring new
exigencies and new aspects of the exercise of the power of the
National Government over the avenues of transport for troops
and supplies ; new emergencies and necessities have to be dealt
with through new expedients, and new courses of action, un-
thought of or even outside the pale of legal sanction yesterday,
are found suddenly to constitute the direct, and even the neces¬
sary, mode of dealing with to-day's situation. At the same time,
it cannot accurately be said that there is constitutional sanction
or precedent for the conception that the existence of a state of
war transfers to the President legislative powers respecting rail¬
roads. He is Commander-in-Chief of the Army and Navy ; he
has plenary power of direction and command as to them, their
movements, and the conduct of campaigns. The most perfect
phrasing ever put to paper to express the historic relation of the
Executive power to war is probably that contained in the
LXXIVth paper of the Federalist, where Hamilton wrote:
"Of all the cares or concerns of government, the direc¬
tion of war most peculiarly demands those qualities which
- distinguish the exercise of power by a single hand. The
direction of war implies the direction of the common
strength ; and the power of directing and employing the
common strength forms a usual and essential part in the
definition of the executive authority."
s
"War Powers" of The President -,
According to the emergency, the President has power in time
of war to take and utilize such private property as may be neces¬
sary for the supply and maintenance of troops in the field or the
seasonable movement of the Army and Navy to such places as
he deems necessary to the conduct of the campaigns. The com¬
ing of war greatly intensifies and broadens his powers, in extent
and in freedom of action and ability to deal summarily with new
conditions as the military or naval emergency may demand ; but
war does not change his powers as to their kind and nature or
operate automatically to transfer to him power essentially legis¬
lative in character, even concerning matters with some aspects
of which he deals by virtue of the exigencies of military com¬
mand. He continues to be, even as to military matters, the
official charged supremely with seeing to it that the laws are
faithfully executed. The power "to provide ways and means"
for carrying on the war, to promulgate "the legislation essential
to the prosecution of the war with vigor and success", remains
in the Congress, which is clothed with plenary authority to make
all laws which shall be necessary and proper for carrying into
execution the powers vested in the Congress and in other de¬
partments of the Government. It is the Congress which is vested
with the "power to * * * raise and support armies" and this
extends to all the facilities of their equipment, maintenance,
transportation to muster-point camp or battle-field and their gen¬
eral effectiveness in the field. The authority and duty of the Con¬
gress in respect to provision for these things incident to the
"support" of the Army, and the Congress's "control over the sub¬
ject," has been said by the Supreme Court to be "plenary and
exclusive." Ordinarily and as a matter of general provision and
rule, it is indubitably the function of the Congress to make avail¬
able to the President the monies, sujiplies, facilities of transport,
and other instrumentalities requisite for the carrying on of the
war; the President's power as to such facilities and instrumentali¬
ties are based upon the requirements of a military or naval emer¬
gency, and not upon the mere existence of a state of war.
"War Powers" of The Congress
It is of course true that the coming of the greatest stress and
need which can confront a Nation brings far-reaching expansion
9
of the powers of government and gives sanction to many acts
and measures for which, in times of peace, it would be difficult
to find warrant or reasonable relationship to the carrying out of
the objects of the Federal Union under peace conditions; The
"war power" of government is plenary, and it would be difficult,
and usually unsafe, to try to formulate generalizations defining its
metes and bounds. Within and through its organic frame-work, the
National Government becomes vested with well-nigh absolute
powers of decision and action, and the necessities of defense and
common preservation may dictate, and the means adopted for the
carrying out of the constitutional objectives may be selected for,
and adapted to, the emergency. At the same time, it is con¬
stitutionally unsound to assume the "war powers" of the President
to be identical and co-terminus with the "war powers" of gov¬
ernment. Congress may, and usually does, make sweeping
grants of power to the President, whereby he is for the emer¬
gency vested with great freedom of action in carrying out "war
powers" of Congress as well as his own powers as Commander-
in-Chief, but this, again, does not mean that the President or his
appointees acquire legislative powers or administer legislative
concepts pf policy, except in pursuance of Congressional graiU.
The sweeping character of the "war powers" of the Congress,
even in limitation on those of the Executive, were long ago ex¬
pressed by Chief Justice Chase, who ruled that
"Congress has the power, not only to raise and support
armies, but to declare war. It has, therefore, the power to
provide by law for carrying on war. This power neces¬
sarily extends to all legislation essential to the prosecution
of war with vigor and success, except such as interferes with
the command of the forces and the conduct of campaigns.
That power and duty belong to the President as the Com¬
mander-in-Chief."
Chief Justice Taney said that the legislative authority "is not
a part of the power conferred upon the President by the declara¬
tion of war. His duty and his power are purely military. As
Commander-in-Chief he is authorized to direct the movements ot
the naval and military forces placed by lazv at his command, and to
employ them in the manner he may deem most effectual to
harass and conquer and subdue the enemy."
10
The Basis for the Proclamation of December 26, 1917
Turning from these fundamental observations to the Presi¬
dential proclamation of December 26, 1917, we find that the
President undertook and purported to "take possession and as¬
sume control of" the railroad-system "through Newton D. Baker,
Secretary of War", and that he stated that he did this "under and
by virtue of the powers vested in me by the foregoing resolutions
and statute, and by virtue of all other powers thereto enabling." The
"foregoing resolutions" were those declaring a state of war to e.xisr
between the United States of America and the Imperial German Gov¬
ernment and the Imperial and Royal Austro-Hungarian Govern¬
ment, and reciting that "to bring the conflict to a successful termina¬
tion all of the resources of the country are hereby pledged by the
Congress of the United States." The "statute" referred to and
quoted in the Presidential proclamation was the provision of
Section I of the Act approved August 29, 1916, entitled "An Act
Making Appropriations for the Army for the Fiscal Year End¬
ing June 30, 1917, and for Other Purposes", as follows:
"The President, in time of war, is empowered, through
the Secretary of War, to take possession and assume control
of any system or systems of transportation, or any part there¬
of, and to utilize the same, to the exclusion as far as may be
necessary of all other traffic thereon, for the transfer or
transportation of troops, war materiál and equipment, or
for such other purposes connected with the emergency as may
be needful or desirable."
The quotation of this provision of the 1916 Army Appropriation
bill is followed, in the proclamation of December 26, 1917, by the
following recital :
"And, whereas, it has now become necessary in the na¬
tional defense to take possession and assume control- of cer¬
tain systems of transportation and to utilize the same, to the
exclusion as far as may be necessary of other than war traffic
thereon, for the transportation of troops, war material and
equipment therefor, and for other needful and desirable pur¬
poses connected with the prosecution of the war."
The proclamation thus stated the purpose of the taking over of
the "systems of transportation" by the President through the Sec¬
retary of War :
II
"To the end that such systems of transportation be util¬
ized for the transfer and transportation of troops, war mate¬
rial and equipment to the exclusion so far as may be necessary
of all other traffic thereon, and that so far as such exclusive
use be not necessary or desirable, such systems of transporta¬
tion be operated and utilized in the performance of such
other services as the national interest may require and of the
usual and ordinary business and duties of common carriers."
"Purposes Connected With the Emergency"
It will be noted that the Presidential action is stated to be pre¬
dicated on the two-fold ground : first, the exercise of the "war
power" vested in the Executive by virtue of the declaration of war,
and, secondly, the iitilization of the legislative power which the
Congress had in advance conferred upon the President if and when
"time of war" should come. The action taken and the procedure
and phraseology followed, conforms closely to that set out in the
Act of August 29, 1916, and it is palpably upon that statute that
the Presidential action leans most heavily for support. In fact, the
President's address to the Congress on January 4, 1918, referred
only to the statute as conferring and constituting the authority under
which action was taken, and said that "this step seemed to be im¬
peratively necessary in the interest of the public welfare, in the
presence of the great tasks of the war." Examination of the stat¬
ute, however, discloses that its purport is little, if any broader, than
an explicit formulation and legislative confirmation of the emergency
"war powers" inherent in the Presidential office through the Presi¬
dent's status as the Commander-in-Chief responsible for the move¬
ments and the efficient conduct of the Army and Navy. Were the
war against German autocracy already being fought on American
soil, with the troops of the invaders gathering in serried ranks to
overwhelm vital centers of our National life, few would question
the power of the President, irrespective of Congressional sanction,
to take possession of the railroad lines requisite for the movement
of troops, supplies or other incidentals of maximum National effi¬
ciency in the war ; to operate and utilize these lines as a unit, to se¬
cure the best possible results in the handling of troops and the main-
tenance of adequate supplies ; and to exclude from the railroads all
other traffic, so far as might be necessary to enable the most advan¬
tageous meeting of the emergency. At least that power would be¬
long to the Commander-in-Chief of the Army and Navy in such
12
an emergency, irrespective of Congressional delegation ; and I con¬
ceive that it belongs to the President no less, under the conditions
of the present war, which make it clear that unless from our At¬
lantic ports our Navy secures continuous and adequate supplies of
coal and ammunition, and unless a steady stream of troops, food,
aeroplanes, munitions, and other supplies to France can be kept
going in adequate proportions, the sure alternative will be an igno-
minous peace or an eventual struggle with the German invader on
our own soil, or both. Examination of the Act of August 29, 1916,
discloses that, except possibly in two respects, its language is that
of legislative confirmation of "war powers" of the President, rather
than Congressional delegation of additional or gwaif-legislative
powers. The two possible exceptions are: (i) the President is
authorized by the statute to take possession of the transportation
systems "in time of war" ; his executive powers as Commander-in-
Chief would sanction such a course only when and as a military
emergency dictated, and not merely because of the existence of a
state of war; and (2) the President is authorized "to utilize" the
systems of transportation "for such other purposes connected with
the emergency as may be needful or desirable." What is "the emer¬
gency"? If it is the "transfer or transportation of troops, war
material or equipment", then clearly the executive power is in no
respect broadened. If "the emergency" is the war, and Congress
has undertaken to empower the President to "utilize" the railroads
"for such other purposes connected with the" war "as may be need¬
ful or desirable", there may be here a delegation of a measure ot
Congressional powers. On the whole, I do not believe that powers
vested essentially in the Congress have yet been granted to the
President or the Director-General of Railroads. That powers of
administering legislative directions and authorizations as to the rail¬
roads will later be delegated by Congress seems likely, in view of the
provisions of the bill now pending in Congress, prepared under the
general oversight of the Director-General.
Congressional Authority Over the "Compensation" of the
Carriers
As bearing upon the nature of the powers in pursuance of which
the President acted, it is of interest to note that, rather contrary
to the common impression, he did not undertake to fix by proclama¬
tion the "just and reasonable compensation" to be paid to the carriers
>3
by the Federal Government for. the "possession, use and control oí
the respective properties". He only gave instructions that the Direc¬
tor-General "shall, as soon as may be after having assumed such
possession and control, enter upon negotiations with the several com¬
panies looking to agreements for just and reasonable compensation
for the possession, use, and control of the respective properties on
the basis of an annual guaranteed compensation above accruing de¬
preciation and the maintenance of their properties, equivalent, as
nearly as may be, to the average of the net operating income thereof
for the three-year period ending June 30, 1917, the results of such
negotiations to be reported to me for such action as may be appro»
priate and lawful. But nothing herein contained, expressed or im¬
plied, or hereafter done or suffered hereunder shall be deemed in
any way to impair the rights of the stockholders, bondholders, cred¬
itors, and other persons having interests in said systems of trans¬
portation or in the profits thereof, to receive just and adequate com¬
pensation for the use and control and operation of their property
hereby assumed." Examination of. the Administration bill, intro¬
duced in Congress on the day of the President's address and re¬
ferred to by him as drafted to carry out the purposes of his procla¬
mation, discloses that the whole matter of compensation to the car¬
riers is treated as within the purview of legislative powers. A rule
and basis of payment is set up ; the President is "authorized" to
administer and apply it, by contract and guarantee; the determina¬
tion of the "amount of the standard return", which underlies the
legislative rule of compensation, is entrusted to the Interstate Com¬
merce Commission, whose finding and certificate is made "for the
purpose of such agreement and guaranty," final and conclusive ; and
elaborate provisions are made and special machinery set up for the
judicial determination of the amount of compensation to be paid
any carrier whose claim is not adjusted on a contract basis. Careful
reading of these and other provisions of the proposed law lead to
the conviction that although the taking possession and assuming con¬
trol of operation of the railroads was predicated on the "war power",
a great deal more is now contemplated which will find validity, if
at all, in the ordinary powers of Congress over the instrumentalities
of inter-state commerce. For example, as we have seen, the Con¬
gressional power and duty to make provision for the "support" of
armies includes provision for their transportation to localities pre¬
scribed by the Commander-in-Chief and the transportation of the
14
supplies requisite for their military efficiency. But the Constitution
provides that "no appropriation of money to that use shall be for a
longer term than two years." If the Congressional appropriátioit
of monies in connection with the taking over of the railroads is to
be deemed predicated solely, or even principally, on "war powers"
of either the President or the Congress, may any such law validly
contain provisions for indefinitely "revolving funds" and the use of
appropriated monies for railroad purposes "until the Congress shall
otherwise direct"? The absence of compliance with the constitu¬
tional limitation on the period of the use of appropriations for mili-
ftry purposes tends strongly, as do other provisions of the bill, to
my belief that no small part of its contents is builded and based
upon "the power to regulate commerce among the States", and so
could not operate to suspend or abrogate the application of the
State legislative power to intra-state operations, franchises, and
statutory conditions.
"The Interest of the Public Welfare"
The President's address of January 4, 1918, seems to recognize
a purpose to go considerably beyond the requirements of the Presi¬
dential administration of the railroads for the movement of troops
and supplies, and seems also to recognize the authority of Congress
over the subject, because, in addition to stating that the action taken
"seemed to be necessary in the interest of the public welfare" the
President's address to Congress declared :
"While the present authority of the Executive suffices for
all purposes of administration, and while, of course, all pri¬
vate interests must for the present give way to the public
necessity, it is, I am sure you will agree with me, right
and necessary that the owners and creditors of the rail¬
ways, the holders of their stocks and bonds, should receive
from the Government an unqualified guarantee that their prop¬
erties will be maintained throughout the period of Federal
control in as good repair and as complete equipment as at
present, and that the several roads will receive under Federal
management such compensation as is equitable and just alike
to their owners and to the general public. I would suggest
the average net railway operating income of the three years
ending June 30, 1917. I earnestly recommend that these
guarantees be given by appropriate legislation, and given as
promptly as circumstances permit."
15
In fact, the whole scope and plan of the Administration measure
seems to sustain the fundamental point of view hereinbefore ex¬
pressed. The title of the bill is "An act to provide for the opera¬
tion of transportation systems while under Federal control, for the
just compensation of their owners, and for other purposes." The
duration of the application of the provisions of the bill is stated in
its last section as follows:
"Section 13. The Federal control of transportation sys¬
tems herein and heretofore provided for shall continue foi-
and during the period of the war and until Congress shall
thereafter order otherwise."
Scope of the Pending Bill
The bill undertakes to make provision on the following matters
which seem to me to fall clearly within the legislative powers of the
Congress, most of them within its regulative powers under the "com¬
merce clause" :
Authorization to contract for payments to the carriers of
"just compensation" "during the period of such Federal con-
trol."
Provision of a rule of compensation based on "average
net railway operating income for the three years ending June
30, 1917* (called herein standard return)," and provision that
the President and Director-General shall be bound by the In¬
terstate Commerce Commission's determination of the amount
of the standard return of each carrier.
Provision that during the period of Federal control, ade¬
quate depreciation and maintenance of properties shall be
deemed a part of operating expenses or provided for through
a reserve fund.
Creation of a machinery for the ascertainment of the
"compensation" of such carriers as enter into no agreement.
Regulation of dividends "while under Federal control."
Creation of a "revolving fund" out of Congressional ap-
* Sub.sequently to the rendering of the above opinion, it was announced
(on January 24, 1918) that the "compensation" sections of the Adminis¬
tration bill has been re-written in large part, by Interstate Commerce Com¬
missioner Anderson, who prepared the original draft, so as to make the "stand¬
ard return" depend on the net railway operating income for the calendar
years 1915-16-17, and alter also in certain other respects the basis of "com¬
pensation" indicated in the President's proclamation and message. That
this change in plan and basis is to be brought about legislatively, rather than
by Executive proclamation, tends to confirm the conclusions expressed in
the above opinion.
i6
propríations, to be used in paying any deficits below the
standard return, the cost of improvements ordered by the
President, and the like.
Delegation of power to the President "to make or order
any carrier to make any additions and improvements neces¬
sary or desirable for war purposes or in the public interest."
Authorization of the issuance of such securities "as the
President may approve as consistent with the public interest."
Authorization of the purchase of corporate securities out
of the "revolving fund."
Provision respecting the indemnity of carriers' employees
as to accidents, etc., "while carriers are under Federal con¬
trol."
Regulation of the issuance and service of process against
carriers.
Provision of penalties and fine and imprisonment for vio¬
lation of the act or interference with railroad property.
Appropriation of $500,000,000. as nucleus for the "re¬
volving fund", to be held and used "until disposed of as Con¬
gress may hereafter provide by law."
An Exercise of Legislative Powers
It is noteworthy that unlike the Act of August 29, 1916, the pro¬
posed bill contains no reference to the use of the railroads for the
movement of troops or supplies, no provisions relate to the exclusion
of ordinary traffic to give precedence to troops or to war freight, no
reference to the war at all in its title, and no evidence of intent to
base the measure on "war powers" alone.* "While under Federal
control" and "as the public interest may require",, seem to be its two
underlying concepts of authority. The measure in entirety seems
to have been conceived and drafted as a plan for the rehabilitation
of railroad finances and rolling-stock, under Presidential direction,
* On January 24, 1918, subsequently to the submission of the foregoing
opinion to the Commission, announcement was made in Washington, that
the Administration bill has been amended, with the sanction of the Director-
General, so as to contain, in its last section, the following provision, which
can hardly be regarded as resolving any of the matters discussed, or ad¬
versely affecting any of the conclusions reached, in this memorandum :
"That the Federal control of transportation systems herein and
heretofore provided for shall continue for and during the period of the
war and until Congress shall thereafter order otherwise. But this act
is expressly decla ed to be emergency legislation enacted to meet condi¬
tions growing out of war ; and nothing herein is to be construed as
expressing or prejudicing the future policy of the Federal Government
concerning the ownership, control, or regulation of carriers or the
method or basis of the capitalization thereof."
17
during an indefinite period of Federal control, rather than as an
emergent measure for the better military handling of troops and sup¬
plies.
On December 29, 1917, the Director-General of Railroads issued
General Order No. i, which provided, among other things, as fol¬
lows ;
"Until further ordered, directed that:
"I. All officers, agents and employees of such transpor¬
tation system may continue in the performance of their pres¬
ent regular duties, reporting to the same officers as thereto¬
fore and on the same terms of employment. * * *
"3. All transportation systems covered by such procla¬
mation and order shall be operated as a national system of
transportation, the common and national needs being in all
instances held paramount to any actual or supposed corporate
advantage. All terminals, ports, locomotives, rolling stock
and other transportation facilities are to be fully utilized to
carry out this purpose without regard to ownership. * * »
"6. Through routes which have not heretofore been es¬
tablished 'because of short hauling or other causes are to be
established and used whenever expedition and efficiency of
traffic will thereby be promoted ; and if difficulty is experi¬
enced in such through routing notice thereof shall by car¬
riers or shippers or both be given at once to the Director by
wire."
No doubt in detailed furtherance of this general order, the direc¬
tions of December 31, 1917, regarding this particular through rout¬
ing and trackage arrangement, were promulgated.
Conclusions
Turning, then, to the question particularly before this Commis¬
sion in relation to the Port-Morris-Bay Ridge operation, I am of
the opinion that the foregoing summary of the constitutional prin¬
ciples which seem to be derivable from the decided cases leads to the
following conclusions :
( i ) The President was fully empowered, both by Act of Con¬
gress and by inherent "war powers", to "take possession and assume
control of, and operate" the railroad transportation systems of the
country.
(2) In so doing, the President, through the Director-General of
Railroads and such subordinates and assistants as the Director-
i8
General may select, is empowered to bring about the operation of
the railroads in such a way as will best utilize them for the trans¬
portation of troops, munitions, and supplies. To this end, he is
empowered to exclude other traffic, passenger or freight, from the
railroads or any part of them, so far as seems necessary in order
to have the functions of war transportation most quickly and ade¬
quately fulfilled. Ordinary traffic and ordinary "peace" uses of
railroads may be subordinated and required to await the passing of
the military exigency. To the same end, the Director-General has
plenary power to disregard usual routings, distinctions as to owner¬
ship of tracks or equipment, and the like, and establish such through
operation, over whatever lines and with whatever available rolling-
stock and employees, as shall seem to him to afford the most expe¬
ditious transportation for troops and essential supplies.
(3) Neither the Congress nor the inherent powers of the Com¬
mander-in-Chief have yet vested the President or his Director-Gen¬
eral with authority to do essentially more than this. Questions of the
compensation to be paid to the owners of property taken for war pur¬
poses are legislative and judicial, not executive, and I do not believe
that anything has yet been done which empowers the President or the
Director-General to fix the compensation to be paid to the owners
of the railroad properties for the rental or use of their lines or the
damage they are to be deemed to have sustained therefrom.* Those
questions as to these railroads, even in war-time, are in the last
analysis determinable pursuant to ordinary rules of private and pub¬
lic right, through such machinery as the Constitution or the Congress
may establish for the purpose. Congress may, and probably will,
* Of significance in this connection is the information conveyed by an
Associated Press dispatch from Washington under date of January 28th:
"Because of the importance of the question to all railroads in adjusting
the amount of compensation which they will receive under Government
operation, the Supreme Court was asked today to give an early opinion in the
suit of the Baltimore & Ohio Railroad against the Western Union Telegraph
Company, involving an interpretation of the Interstate Commerce Commis¬
sion orders which fix the basis of pay for exchange of services between
railroads and telegraph companies. In the lower court the Western Union
was restrained from violating a contract made with the Baltimore & Ohio in
1887 providing for the use of the railroad company's right of way by the tele¬
graph company's lines and for the exchange of services between them. The
telegraph company refused to transmit messages on the agreed terms, assert¬
ing that the commission's order interfered," Evidently there is not univer¬
sality of view that even questions as to the amount of Compensation to be
paid by the Government to the carriers, or compensation inter se, are to be
resolved by the ready method of application to the Director-General.
19
legislate on the subject, declare the basic plan of the carriers' corn'
pensation, authorize adjustment of the matter by agreement where
possible, and perhaps set up some special machinery for the deter¬
mination of claims not thus adjusted, as is contained in the Admin¬
istration bill. Pending such an enactment, however, I do not believe
the President or the Director-General has been vested with authority
to determine any of these legislative matters, or any matter relating
to the ordinary rights, franchises, operations, and arrangements of
the carriers between themselves, except to the extent that ope-ration
may be controlled and service adjusted so as to best serve the war
needs.
State Laws Still Applicable to the Proposed Agreement
(4) From this I conclude that the Director-General had power
to require the New York, New Haven and Hartford Railroad Com¬
pany, The Long Island Railroad Company, and the New York Con¬
necting Railroad Company, to establish through operation from Port
Morris to Bay Ridge and continue it during the war. For this, no
agreement between the companies is requisite; it arises from Fed¬
eral mandate. The rates to be charged by the companies for pri¬
vately-owned freight carried over this new through route, and the
compensation to be paid to any of the companies by the National
Government, remain for legislative and judicial consideration. No
power to determine these matters, or the payment which one carrier
shall make to another, has yet been vested in the Director-General,
although of course it is entirely competent for the carriers to agree
that the amount or basis of such payment to be inserted in the pro¬
posed agreement shall be determined for them by the Director-
General. I am of the opinion that no power to fix rates, inter¬
state or intra-state, has yet been conferred by Congress, and, inde¬
pendently of such submission and consent by the carriers, no
power to fix the compensation of the carriers inter se or other terms
of any trackage agreement the companies may see fit to make. These
matters remain subject to the usual legislative power and policy oí
the United States and the several States ; train operation and service
for war purposes have been committed to the Director-General and
his subordinates.
20
Instrumentalities at the Command of The Director-General
(5) The Director-General may exercise his powers through
such assistants and auxiliaries as he may determine and designate.
He may act in part through existing officials, boards and committees
brought into being by the railroad corporations prior to December
28, 1917; he may utilize, and act through, the members and stafts
of the Interstate Commerce Commission and the various State Com¬
missions. He has in fact been proceeding along both these lines,
and has thus gained the benefit of existing organizations and accu¬
mulated data and experience, on both the carriers' and the public's
side of railroad matters. Except in so far as concerns the movement
of trains and the adjustment of traffic methods to meet the Nation's
emergency, the transportation affairs of the companies, including
rates, service to private consignees, adequacy of facilities, and the
like, remain in the hands of the companies themselves and remain
likewise subject to the ordinary regulative authority, Federal and
State, in the public interest. Congress may confer on the Director-
General, the Interstate Commerce Commission, or even the State
Commissions, additional powers, legislative in character and adapted
to the present emergency. Until this is done, the usual powers of
the Interstate Commerce Commission and the State Commissions
continue unimpaired, except as to~such matters as directly or in¬
directly involve the objects specified in the Act of August 29, 1917,
and the Presidential proclamation. As to the matters so specified,
the military mandate of the Executive would, unless otherwise di¬
rected by the Executive, ipso facto supersede or be paramount to
any provision of State laws or Commission orders regulating pri¬
vately-operated railroads. As to matters outside of the military
necessity, I do not believe that the Executive power could authorize
the disregarding of State regulative measures. In point of fact, the
Presidential proclamation thus explicitly recognizes and sanction.-»
the continuing effect of existing statutes and Commission orders :
"Until and except so far as said Director shall from time
to time otherwise by general or special orders determine, such
systems of transportation shall remain subject to all existing
statutes and orders of the Interstate Commerce Commission,
and to all statutes and orders of regulating commissions of
the various states in which said systems or any part thereof
may be situated. But any orders, general or special, here¬
after made by said Director, shall have paramount authority
and be obeyed as such."
21
It is at least true, therefore, that this agreement should be sub¬
mitted -for the approval required by the State laws, for the reason
that the Director-General has not undertaken to order otherwise.
Undiminished Powers of the State
(6) As to the proposed agreement of the companies for track¬
age rights and compensation inter se, I am of the opinion, however,
that any such agreement falls within the scope of the undiminished
power of the State over its franchises and corporate creatures. The
compensation to be paid by the National Government for its use of
the through facilities will be determined in such manner as the Con¬
gress will prescribe, but if the companies establish a general through-
traffic agreement, I think there can be no doubt that, under the terms
of the Presidential proclamation of December 26, 1917, or irre¬
spective of those terms, the agreement which these companies are
negotiating should be submitted for approval of this Commission
and will have no validity, force or effect until so submitted and ap¬
proved. I do not believe that the Director-General would have,
under the Presidential proclamation or any authority yet delegated
by the Congress, power to take this proposed agreement out of the
operation of the State laws and policy. I do not believe that any¬
thing has taken place to supersede the necessity of Commission ac-'
tion as to a proposed voluntary agreement of carriers inter se, as to
the operation of a railroad located wholly within the City of New
York, for the carriage of the freight of ordinary consignees pur¬
suant to published tariffs, the duration of such agreement to be for
a period considerably in excess of any probable duration of the war.
Current Discussion in Washington
For the information of members of the Commission, I may say
that I have recently been in Washington and have conferred on the
general subject with members of the Interstate Commerce Commis¬
sion, including Commissioner Anderson, the distinguished member
of the Boston Bar who is understood to have taken a principal part
in the drafting of the proclamation of December 26, 19171 and the
Administration bill now pending in Congress with the general ap¬
proval of the Director-General. I was also present one of the days
on which Commissioner Anderson was under examination by the
Senate Committee on Interstate Commerce concerning the procla¬
mation and bill, and had the benefit of hearing the questions and
'22
cofnments of Senators Cummins, Underwood, Ponierene and otliei"
eminent Congressional authorities cn the "commerce clause"- of the
Federal Constitution. I have also been in touch with members of
the Legislative Committee of the National Association of Railroad
and Public Utility Commissioners, who have been much in Wash¬
ington lately and had a conference a few days since with Director-
General McAdoo. It is" my information that in this .conference
the Association's Legislative Committee were assured by the
Director-General that he desires the fullest aid and cooperation of
the State Public Service Commissions and has no thought of under¬
taking to suspend or supersede their exercise of, or the railroad
corporations' compliance with, the regulatory powers hitherto vested
in these state bodies, respecting the rates, franchises, and rights of
the railroad corporations. Testimony given by the Director-General
before the Senate and House Committees on Interstate Commerce
a few days later leaves a degree of doubt whether the Director-
General has so broadly conceived the continued exercise of the
regulatory powers and duties of the Interstate Commerce Com¬
mission and the State Commissions. In the foregoing communica¬
tion, I have not undertaken to state the views of any of those with
whom I have talked, or any consensus of opinion reached in Wash¬
ington; I have only set forth my own conclusions from the decided
cases, with the aid and benefit of the discussions which have been
currently taking place in Wáshington.
State Cooperation With the Director-General
Two things remain with propriety to be said : In the first place,
this is no time for controversy or joinder of issue as to the
respective confines of Federal and State power. Any present in¬
quiry as to the scope of the powers thuj far vested, or to be vested, in
the President and Director-General of Railroads and the effect of
those powers upon the established public policy of the several States,
involves no suggestion of the hampering of the Director-General
in the great task to which the emergency has summoned him. Upon
the part of each and all of the State regulative agencies, there has
been manifested only a desire to cooperate and help, and to place at
the command of the Director-General the existing staffs and powers
of the State Commissions, to be utilized by him in any needful way,
even as he has wisely utilized the staffs and the experience of ex¬
isting railroad organizations. The instinctive patriotism of those
^3
trained in public service will dictate co-operation on their part with
Federal authorities; and, in case differences of opinion develop as
to the constitutional aspects of anything deemed vital to the prose¬
cution of the Nation's task, there will be broad willingness to sub¬
ordinate independent judgment for the time being to the views of
the President and his assistants in the great work of "directing
and employing the common strength" for war. Fortunate indeed
will it be if those who ordinarily have represented the forces of
opposition to public control come now to act with equal deference
to the paramount need. Those who would clamorously insist now
upon meticulous observance of the ordinary confines of governmental
action should recall for guidance the historic language of Chief
Justice Chase, in speaking of another era of war :
"The time was not favorable to considerate reflection
upon the constitutional limits of legislative power or executive
authority. If power was assumed from patriotic motives,
the assumption found ready jusfification in patriotic hearts.
Many who doubted yielded their doubts; many who did not
doubt were silent."
At the same time, in dealing even with the supreme tasks of
the war, it is practicable to take care that the channels and con¬
cepts of official action shall not needlessly be made such as to do
violence to fundamentals of our policy. There is danger lest these
bases of the protection of. public interests be unnecessarily sacrificed,
or the opportunity utilized to do them irreparable harm. The present
inquiry, therefore, is directed to the wholesome task of ascertainment
whether such powers have been, or should be, conferred and exer¬
cised as would result in the summary abandonment of the progress
made in regulative matters during the hard struggle of the past'
thirty years and leave much of the contest for the public right to be
fought all over again, once the railroads are returned to private
operation, should that time come, at the end of the war or afterwards.
For example, irrespective of any question of the power of the Di¬
rector-General to suspend the-operation of State laws, would it not
be preferable that even as to the formal and highly technical matter
of the filing of tariffs, existing methods for the public protection,
carefully built up over a long period of years, should be continued,
rather than that so much of progress should be discarded? The
State Commissions, even as the Interstate Commerce Commission,
can make available to the Director-General a wealth of information
24
and a kind of assistance, as to local conditions and operating possi¬
bilities, such as he could procure from no other source. In the
second place, it would be a rash counsellor who, at the opening of
suçh a struggle as that in which this Nation is now preparing to
engage, would undertake to indicate the metes and bounds of the
"war powers" of either the President or the Congress, or to say that
any particular method of employing and directing "the common
strength" will not be later found to be essential to the carrying on
of the war. It is by no means inconceivable that with respect to
many matters, including all aspects of railroad operation and finance,
the Congress will make President Wilson virtually a dictator, as it
did Abraham Lincoln. In the ultimate analysis, there may be no
limitations on the power of government to do what seems most in
the interest of the common cause, and dire need and new conditions
may not improbably make short shrift of existing precedents and
concepts. But as matters stand to-day, I have confidence in the
correctness of the conclusions hereinbefore set out.
I return to you herewith the papers transmitted by the Secretary,
and suggest that the railroad companies concerned be advised of the
view of the Commission that the agreement referred to should be
speedily completed and submitted for the approval of this Commis¬
sion, pursuant to Section 54 of the Public Service Commissions Law,
such agreement, any action of the Commission thereon, and all
operation thereunder, to be specifically made subject to all lawful
orders and directions of the President and Director-General during
the period of the war.
Respectfully yours,
William L. Ransom,
Counsel