Pennsylvania Company v. Towers/Opinion of the Court
This was an action in the circuit court No. 2 of Baltimore City, Maryland, to enjoin the Public Service Commission of Maryland from enforcing an order to sell commutation tickets at certain rates specified. The injunction was refused, and on appeal the Court of Appeals of Maryland affirmed the decree and held that although the order fixing the rates declared the same to be in force for ten years, there should be reserved to the railroad company the right to apply to the Commission after the lapse of a reasonable time for a rescission or modification of its order if experience demonstrated that the revenue derived under the tariff as established by the Commission was not properly compensatory for the services performed. 126 Md. 59, 94 Atl. 330, Ann. Cas. 1917B, 1144.

The order of the Commission required the Pennsylvania Railroad Company, lessee of the Northern Central Railway, to sell tickets for the transportation of passengers between Baltimore and Parkton within the state of Maryland on the line of the Northern Central Railway.

A table appearing in the opinion of the Court of Appeals shows the relative rates under the former schedules and the new order of the Public Service Commission to be as follows:

Rates Prior toRates as per schedule   Rates under Order

Nov. 25, 1914.Filed Nov. 25, 1914.    P. S.C.om. Dec.

23, 1914.

1. Round trip, 10 day,  Round trip, no limit,   Round trip, 2 1/4¢

2 1/4¢ per M.      2 1/2¢ per M.     per M.

2. Exc. 2-10 days, 2 1/4¢       Discontinued.   No ruling made.

per M.

3. 10-trip ticket, 1  10-trip, 3 mos., 2 1/4¢   10-trip, 3 mos.

yr., 1 8/10¢ per M.  per M.   2¢ per M.

4. 60-trip 1 mo., 2¢ for60-trip, 1 mo. former   60-trip, 1 mo. former

first 3 M., 1/4¢ for rate plus 25¢ flat.   rate plus 25¢.

ea. addl. 1/2 M.

5. 100-trip 1 yr. at  Discontinued.     100-trip, 4 mos.,

double 60-trip.      former rate, plus $1.

6. 180-trip 3 mos. same 180-trip, 3 mos. at 3   180-trip, 3 mos.,

as 4, less 10%.    times 60-trip.    former rate plus 75¢.

7. 46-trip School, 1 mo.,       46-trip School, 1 mo.,   46-trip School, 1 mo.,

46/60 of 60-trip.  46/60 of 60-trip. 46/60 of 60-trip.

The attack upon the order of the Commission in this court, is based upon the contention that its effect is to take the property of the railroad company without due process of law, contrary to the Fourteenth Amendment to the Constitution of the United States. It is also averred in the bill that the order, if enforced, will work a discrimination against interstate travel in favor of travel within the state, and is otherwise unreasonable and void.

The Court of Appeals of Maryland stated the question to be whether it is within the power of the Public Service Commission to require the establishment of a schedule of commutation rates by the railroad company, not where no such rates had therefore been established, but where a new system of commutation rates had been proposed by the railroad company and submitted to the Commission. Whether commutation rates should be established was declared to be a question of policy to be decided by the company. The court found authority in the Commission under the statutes of Maryland to revise commutation rates where such rates had already been established by the action of the company. We must accept this definition of authority in the Commission, so far as the state law is concerned, and direct our inquiry to the federal question presented.

The question, as counsel for plaintiff in error states it, is whether a state Legislature, either directly or through the medium of a Public Service Commission, under the guise of regulating commerce, may compel carriers engaged in both interstate and intrastate commerce to establish and maintain intrastate rates at less than both the interstate and intrastate standard and legally established maxima. It is asserted that there is no constitutional authority to compel railroad companies to continue the sale of commutation or special class tickets at rates less than the legally established standard or normal one-way single passenger fare upon terms more favorable than those extended to the single one-way traveler.

To maintain this proposition plaintiff in error relies upon and quotes largely from the opinion of this court in Lake Shore & Michigan Southern Ry. Co. v. Smith, 173 U.S. 684, 19 Sup. Ct. 565, 43 L. Ed. 858. In that case a majority of this court held a statute of the state of Michigan to be invalid. A previous statute of the state had fixed a maximum passenger rate of three cents per mile. The statute in controversy required the issuing of mileage books for a thousand miles, good for two years, at a less rate. This court held that a maximum rate for passengers having been established, that rate was to be regarded as the reasonable compensation for the service, and that the fixing of the less rate to particular individuals was an arbitrary exercise of legislative power and an unconstitutional interference with the business of the carrier, the effect of which was to violate the provisions of the Fourteenth Amendment to the federal Constitution by depriving the railroad company of its property without due process of law and denying to it the equal protection of the law.

The Lake Shore Case did not involve, as does the present one, the power of a state commission to fix intrastate rates for commutation tickets where such rates had already been put in force by the railroad company of its own volition, and we confine ourselves to the precise question presented in this case, which involves the supervision of commutation rates when rates of that character have been voluntarily established by the carrier. The rates here involved are wholly intrastate. The power of the states to fix reasonable intrastate rates is too well settled at this time to need further discussion or a citation of authority to support it.

In Interstate Commerce Commission v. B. & O. R. R., 145 U.S. 263, 12 Sup. Ct. 844, 36 L. Ed. 699, this court held that a 'party rate ticket' for the transportation of ten or more persons at a less rate than that charged a single individual did not make a discrimination against an individual charged more for the same service or amount to an unjust or unreasonabel discrimination within the meaning of the act to regulate commerce. In the course of the opinion the right to issue tickets at reduced rates good for limited periods upon the principle of commutation was fully recognized. See 145 U.S. 277, 278, 279, 280, 12 Sup. Ct. 844, 36 L. Ed. 699.

Having the conceded authority to regulate intrastate rates, we perceive no reason why such power may not be exercised through duly authorized commissions and rates fixed with reference to the particular character of the service to be rendered.

In Norfolk & Western Ry. v. West Virginia, 236 U.S. 605, 608, 35 Sup. Ct. 437 (59 L. Ed. 745), after making reference to Northern Pacific Ry. v. North Dakota, 236 U.S. 585, 35 Sup. Ct. 429, 59 L. Ed. 735, Ann. Cas. 1916A, 1, this court said:

'It was recognized [in the North Dakota case] that the state      has a broad field for the exercise of its discretion in      prescribing reasonable rates for common carriers within its      jurisdiction; that it is not necessary that there should be      uniform rates or the same percentage of profit on every sort      of business; and that there is abundant room for reasonable      classification and the adaptation of rates to various groups      of services.'

That the state may fix maximum rates governing one-way passenger travel is conceded. Having the general authority to fix rates of a reasonable nature, we can see no good reason for denying to the state the power to exercise this authority in such manner as to fix rates for special services different from those charged for the general service. In our opinion the rate for a single fare for passengers generally may be varied so as to fit the particular and different service which involves, as do commutation rates, the disposition of tickets to passengers who have a peculiar relation to the service. The service rendered in selling a ticket for one continuous trip is quite different from that involved in disposing of commutation tickets where a single ticket may cover 100 rides or more within a limited period. The labor and cost of making such tickets as well as the cost of selling them is less than is involved in making and selling single tickets for single journeys to one-way passengers.

The service rendered the commuter, carrying little baggage and riding many times on a single ticket for short distances, is of a special character and differs from that given the single-way passenger.

It is well known that there have grown up near to all the large cities of this country suburban communities which require this peculiar service, and as to which the railroads have themselves, as in this instance, established commutation rates. After such recognition of the propriety and necessity of such service, we see no reason why a state may not regulate the matter, keeping within the limitation of reasonableness.

On the strength of these commutation tariffs, it is a fact of public history that thousands of persons have acquired homes in city suburbs and nearby towns in reliance upon this action of the carriers in fixing special rates and furnishing particular accommodations suitable to the traffic. This fact has been recognized by the courts of the country, by the Interstate Commerce Commission, and quite generally by the Railroad Commissions of the states. 

The question of the power of the Public Service Commission of the State of New York in this respect was before the Appellate Division of the Supreme Court of that state in People ex rel. New York, New Haven & Hartford Railroad Co. v. Public Service Commission, 159 App. Div. 546, 145 N. Y. Supp. 513. In that case it was said:

'Subdivision 4 of section 33 of the Public Service      Commissions Law (Consol. Laws, c. 48 [Laws of 1910, c. 480],      as amended by Laws of 1911, c. 546) empowers the Commission      to fix reasonable and just rates for such service. It is      urged, however, that the statute is invalid under the rule of      Lake Shore, etc., R. Co. v. Smith, 173 U.S. 684 [19 Sup. Ct.      565, 43 L. Ed. 858]. In that case the statute of Michigan had      fixed a maximum passenger rate at three cents per mile. A      subsequent enactment required the issuing of mileage books      for 1,000 miles, good for two years, at a less rate. The      court held that having fixed a uniform maximum rate as to all      passengers, such rate was the reasonable compensation for the      service, and that the fixing of a less rate to particular      individuals was an unreasonable and arbitrary exercise of      legislative power; that it was not for the convenience of the      public and thus within the police power, but was for the      convenience of certain individuals who were permitted to      travel upon the railroads for less than the reasonable rate      prescribed by law; that the law was, therefore, in violation      of the Fourteenth Amendment of the federal Constitution in      depriving the company of its property without due process of      law and by depriving it of the equal protection of the laws.

'In Beardsley v. N. Y., L. E. & W. R. R. Co., 162 N. Y. 230      [56 N. E. 488], the Court of Appeals felt constrained by the      Smith Case to declare the Mileage Book Law of this state      invalid as to companies in existence at the time of its      passage, but in Purdy v. Erie R. R. Co., 162 N. Y. 43 [56 N.      E. 508, 48 L. R. A. 669], that law was held valid as to      companies organized after the statute was passed.

'In Louisville & Nashville R. R. Co. v. Kentucky, 183 U.S.      503 [22 Sup. Ct. 95, 46 L. Ed. 298], after citing the Smith      Case and like cases, the court says (at page 511): 'Nor, yet,      are we ready to carry the doctrine of the cited cases beyond the limits therein      established.'

'In the Minnesota Rate Case (Simpson v. Shepard) 230 U.S.      352 [33 Sup. Ct. 729, 57 L. Ed. 1511, 48 L. R. A. (N. S.)      1151, Ann. Cas. 1916A, 18], the legality of an order of the      Commission of that state was recognized which fixed a maximum      freight rate and passenger rate, the latter at two cents a      mile as the maximum fare for passengers twelve years of age      or over, and one cent a mile for those under twelve years of      age.

'In Interstate R. Co. v. Massachusetts, 207 U.S. 79 [28 Sup.      Ct. 26, 52 L. Ed. 111, 12 Ann. Cas. 555], the Massachusetts      law prescribing special rates less than the maximum for      school children was held valid. These cases indicate that the      Smith Case is not to be extended beyond the facts upon which      it rests.

'The Smith Case distinguishes itself from this case where the      court (at page 693 [of 173 U.S., at page 569 of 19 Sup. Ct.,      43 L. Ed. 858]) says: 'This act is not like one establishing      certain hours in the day during which trains shall be run for      a less charge than during the other hours. In such case it is      the establishing of maximum rates of fare for the whole      public during those hours, and it is not a discrimination in      favor of certain persons by which they can obtain lower rates      by purchasing a certain number of tickets by reason of which      the company is compelled to carry them at the reduced rate,      and thus, in substance, to part with its property at a less      sum than it would be otherwise entitled to charge. The power      to compel the company to carry persons under the      circumstances as provided for in this act, for less than the      usual rates does not seem to be based upon any reason which      has hitherto been regarded as sufficient to authorize an      interference with the corporation, although a common carrier      and a railroad.'

'Our flourishing cities owe their position and prosperity, in      part, to the commutation rates for suburban service; the      health and welfare of the public are concerned that people      doing business in the large cities may live in the country where the surroundings are pleasanter, more healthy      and to the advantage of themselves and their families. It is      a known fact that such rates exist upon all railways entering      large cities, and have usually been established by the      companies voluntarily in the interest of themselves and the      public. The service is different in its nature from the other      passenger service. It is so universal, of such large      proportion, has become so necessary to the public that it      cannot be said that the fixing of reasonable and just rates      for it is unusual or unreasonable, or the granting of a      benefit to individuals and not for convenience to the public.

'Nearly one-half of the passengers handled by the relator at      the Grand Central Terminal were of this class. Perhaps the      same ratio would exist upon the other railroads serving the      city. We conclude that the statute in question is valid as      conferring a power on the Commission to regulate rates for      the public convenience and welfare.'

That decision was affirmed by the Court of Appeals of New York on the opinion of the Appellate Division. 215 N. Y. 689, 109 N. E. 1089.

The subject was elaborately considered by the Interstate Commerce Commission in the Commutation Rate Case, 21 Interst. Com. Com'n R. 428, in which the authority of the Commission to fix reasonable rates was sustained. In the course of the opinion, Commissioner Harlan, speaking for a unanimous Commission, said:

'Another case strongly relied upon by the defendants is L. S.      & M. S. R. R. Co. v. Smith, 173 U.S. 699 [19 Sup. Ct. 565,      43 L. Ed. 858]. It there appeared that the Legislature of the      state of Michigan had fixed the maximum passenger fare to be      charged by railroad companies for local journeys within the      state. By a subsequent enactment it required the carriers to      sell 1,000-mile tickets for use within the lower peninsula at      a price nor exceeding $20 and in the upper peninsula at a      price not exceeding $25. Various conditions affecting the use of the tickets were also fixed by the act, and among      others that they should be valid for two years after the date      of purchase. It was held that in the exercise of its general      police power a state may fix maximum fares, but that it may      not fix a rate for 1,000-mile tickets that involves a      discrimination in favor of those who buy them. The statute      was held to be invalid. The case, however, involved mileage      tickets which, we must repeat, differ very essentially in      character from commutation tickets.

'We have been referred to no other adjudication by the courts      and are left to conclude that the precise point now before us      has not been passed upon by the courts.

'It will not be necessary to dwell here upon the importance      of the question not only to the particular suburban      communities involved on the record before us, but to many      other such communities throughout the country, the prosperity      and growth of which largely depend upon an efficient and      reasonable commutation service. Many such communities have      not only been encouraged by the carriers, but were, in fact,      originally established largely on their initiative. Suburban      property has been bought, homes have been established,      business relations made, and the entire course of life of      many families adjusted to the conditions created by a      commutation service. This may not have been done on the      theory that the fares in effect at any particular time would      always be maintained as maximum fares, but countless homes      have been established in suburban communities in the belief      that there would be a reasonable continuity in the fares and      that the carriers in any event would perform the service at      all times for a reasonable compensation.

'Nor need we stop to point out the distinction between      commutation tickets on the one hand and excursion and mileage      tickets on the other. Compared with the normal one-way fare      all such tickets may be said to be abnormal. But the      resemblance stops at that point. Although they are mentioned together in section 22, the force and effect of      that provision must necessarily differ with the differing      character of the several kinds of tickets. It seems to be      settled under that section that a carrier may enter upon the      policy and practice of issuing mileage books and excursion      tickets at less than its regular normal fare for the one-way      journey, and, having adopted such a policy, may subsequently      withdraw from it and refuse longer to issue such tickets.      That has been the view of this Commission, and is the view      generally entertained, although there may be exceptional      circumstances where a different conclusion would be required.      It by no means follows, however, that a carrier under section      22 may exercise the same scope and freedom of action with      respect to commutation tickets.'

The reasoning of these decisions is sound Constitution. True it is that it may not be possible to reconcile these views with all that is said in the opinion delivered for the majority of the court in the case of Lake Shore & Michigan Southern Ry. Co. v. Smith, supra. The views therein expressed which are inconsistent with the right of the states to fix reasonable commutation fares when the carrier has itself established fares for such service, must be regarded as overruled by the decision in this case.

We find no error in the decree of the Court of Appeals of Maryland, and the same is

Affirmed.

The CHIEF JUSTICE, Mr. Justice McKENNA, and Mr. Justice McREYNOLDS dissent. 

Notes