Opinion on N&W Durham District Trains

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CASE NO. 11452

In re: Petition of Norfolk and Western Railway Company to operate trains 35 and 36, Durham District, as mixed trains and to change schedules.


The applicant seeks authority to operate Trains 35 and 36 between Lynchburg, Virginia, and Durham, North Carolina, as mixed trains. The trains, as now operated, are comfortable and convenient. There is not much local passenger traffic on them, but these north-south trains connect with the east-west trains of the applicant. This branch line serves as a feeder to their main line trains, and brings in revenue in addition to that which is allocated in the testimony to the branch line on a mileage basis.

One of the most serious financial problems faced by the railroads is the “Passenger Deficit.” There are enough private automobiles in this country to carry every man, woman and child at the same time, and the number of people who wish to ride a train for a short distance has dwindled rapidly in recent years. Some railroads have sought to reduce the Passenger Deficit by providing more attractive service. Others have sought to reduce the deficit by curtailing service.

Railroads file with us numerous applications to take off passenger trains, and deciding these cases is perhaps the most difficult and perplexing duty imposed on us by the constitution and laws of Virginia. Section 156(b) of the constitution charges the State Corporation Commission with the duty of requiring railroads to “maintain all such public service facilities and conveniences as may be reasonable and just.” After weighing the evidence we have decided it is reasonable and just to make the Norfolk & Western continue to operate these trains.

The railroad does not claim the right to discontinue all passenger service between Lynchburg and Durham, but seeks permission to take off its present comfortable trains and put the passengers in a car coupled to the rear of a freight train. One of the railroad officials testified that they wanted to furnish this quasi-caboose service not to make money but to keep good will. We find as a fact that the proposed service will not generate any good will. The proposed service does not differ materially from no service.

In Southern Railway V. Com., 193 Va. 291, the court sustained us in our refusal to let the railway take off a train between Richmond and Danville.

The present case differs from that case in three important respects.

1. In the present case the money losses are greater. In considering the financial data in these cases, it must be borne in mind that there are three types of expenses: first, the so-called “actual” expenses; second, the so-called “apportioned” expenses; and third, the so-called “allocated” expenses.

The “actual” expenses are the crew wages and fuel. As to these there can be no dispute.

The “apportioned” expenses are the costs of repairs and maintenance of rolling stock that are not ascertainable separately for the trains in question, but which are computed on the basis of system-wide averages.

The “allocated” expenses are made Tip of costs most of which would remain even if all passenger service were discontinued.

The expenses that we have to weigh in the balance against the public need are all the actual expenses plus a proper proportion of the apportioned expenses.

The Norfolk & Western did not claim as many items under the heading of apportioned expenses as the Southern did. The Southern included passenger car maintenance but the N. & W. did not.

The Southern’s “actual” expenses were less than its revenues. The N. & W.’s “actual” expenses exceed its revenue by $34,000 a year. Southern claimed a total loss of $64,000 a year. N. & W. claims a total loss of $91,000 a year. Southern failed to satisfy us that its loss was as great as $64,000 a year, but N. & W.’s evidence discloses a loss in the neighborhood of $91,000 a year. Therefore, on the money side of the scales, N. & W. has a stronger case than Southern.

2. In the Southern case, the public need was greater. We are here dealing with imponderables, so that it is merely a metaphor to say that we weigh them, but it is the same metaphor that serves in the case of all evidence that cannot be measured quantitatively in dollars or miles or seconds or other weights and measures. In terms of human needs, the public would have suffered more from the discontinuance of the Richmond-Danville night train.

3. This is the last train. Since we regard the proposed mixed service as inferior to no service, we look on this petition as an application to take the last train off an important run. If it were the next-to-the-last train, we would be bound to let the railroad take it off.

If the Norfolk & Western were losing money system-wide, or were losing money in Virginia, we would let them take off this train; but the Norfolk & Western is one of the most prosperous railroads in America. It is one of the “Pocahontas Lines,” the others being the C. & O., the Virginian and the R. F. & P. Those lines are so fortunately situated that they are in a class by themselves. The Interstate Commerce Commission, in compiling nation-wide financial data on railroad operations, divides the country into Eastern, Southern, Western and Pocahontas.

It was urged at the hearing that the shippers of freight have to make good the Passenger Deficit and that this is unfair to shippers. In the case of the Norfolk & Western, however, it does not work that way. Railroad rates are and must be based on the earnings of all railroads. It is not possible to fix railroad rates on the basis of the rate base, the earnings and the expenses of each company, as is done in the case of electric, gas, water and telephone companies. The rates must be high enough to keep the marginal railroads in existence as part of the nation-wide transportation system, and the rates must be uniform. It would not improve the financial condition of the poorer roads to let them charge higher rates than the richer roads, because freight would then leave the poorer roads. Congress attempted unsuccessfully to solve this problem in the Recapture Clause of the Transportation Act of 1920.

In Dayton-Goose Creek Railway V. United States, 263 U. S. 456, the court described the operation of the Recapture Clause and the need for it (p. 476):

“Paragraph 5 declares that, because it is impossible to establish uniform rates upon competitive traffic which will adequately sustain all the carriers needed to do the business, without giving some of them a net income in excess of a fair return, any carrier receiving such excess shall hold it in the manner thereafter prescribed as trustee for the United States.”

At page 479:

“Uniform rates enjoined for all shippers will tend to divide the business in proper proportion so that when the burden is great, the railroad of each carrier will be used to its capacity. If the weaker roads were permitted to charge higher rates than their competitors, the business would seek the stronger roads with the lower rates, and congestion would follow. The directions given to the Commission in fixing uniform rates will tend to put them on a scale enabling a railroad of average efficiency among all the carriers of the section to earn the prescribed maximum return. Those who earn more must hold one half of the excess primarily to preserve their sound economic condition and avoid wasteful expenditures and unwise dividends. Those who earn less are to be given help by credit secured through a fund made up of the other half of the excess. By the recapture clauses Congress is enabled to maintain uniform rates for all shippers and yet keep the net returns of railways, whether strong or weak, to the varying percentages which are fair respectively for them.”

At page 481:

“The carrier owning and operating a railroad, however strong financially, however economical in its facilities, or favorably situated as to traffic, is not entitled, as of constitutional right, to more than a fair net operating income upon the value of its properties which are being devoted to transportation. By investment in a business dedicated to the public service the owner must recognize that, as compared with investment in private business, he cannot expect either high or speculative dividends, but that his obligation limits him* to only fair or reasonable profit.”

The Recapture Clause was not a success and has been repealed. To the stronger roads have been returned the natural advantages that Congress sought to take from them. When one of the stronger railroads saves money by curtailing unprofitable services, the saving is reflected not in reduced freight rates but in increased dividends. It should be a matter of pride to every citizen of the state that Virginia’s railroads are among the strongest and most prosperous in the nation. So long as that strength and prosperity continue, it is just and reasonable that they be required to give better passenger service, even at a loss, than less fortunately situated roads. The Congress of the United States, in the Recapture Clause experiment, took money from the strong railroads and used it to improve the facilities of their weaker competitors. That was more drastic treatment than our present decision which requires this strong railroad to spend its money on keeping up its own facilities.

The result of our decision is not “confiscatory.” All federal constitutional issues involved in the case before us were resolved in favor of the public by the unanimous decision of the Supreme Court in Missouri Pacific V. Kansas, 216 U. S. 262. That case, like this one, involved passenger service on a branch line of a strong and prosperous railroad. The line was 108 miles long, 89 miles in Kansas and 19 in Missouri. The company had been operating a passenger train on the branch. The train lost money and the company substituted a mixed train. The state commission ordered the railroad to restore the passenger train. In holding the commission’s order valid, the court said (p. 279):

“It may not be doubted that the road, by virtue of the charter under which the branch was built, was obliged to carry passengers and freight, and therefore, as long as it enjoyed its charter rights, was under the inherent obligation to afford a service for the carrying of passengers. In substance, this was all the order commanded, since it was confined to directing that the road put on a train for passenger service. True it is that the road was carrying passengers in a mixed train, that is, by attaching a passenger coach to one of its freight trains. Testing the alleged unreasonableness of the order in the light of the inherent duty resting upon the corporation, it follows that the contention must rest upon the assumption that the discharge of the corporate duty to carry passengers was so completely performed by carrying them on a mixed train as to cause an order directing the running of a passenger train to be so arbitrary and unreasonable as to deprive of rights protected by the Constitution of the United States. But when the necessary result of the contention is thus defined, its want of merit is, we think, self-evident, unless it can be said as a matter of law that there is such an identity as to public convenience, comfort, and safety between travel on a passenger service train and travel on a mixed train,—that is, a train composed of freight cars with a passenger car attached,—as to cause any exertion of legislative authority for the public welfare, based on a distinction between the two, to be repugnant to the Constitution of the United States. The demonstration as to the want of foundation for such a contention might well be left to the consensus of opinion of mankind to the contrary.”

And at page 282:

“The contention that the order is unreasonable in and of itself, irrespective of whether there is profit in the operation of the train service which the order commands to be operated, because it directs the movement of the passenger train directed to be run to the state line, where, it is said, there are no terminal facilities, and no occasion for the termination of the transit, is disposed of by the considerations previously stated. We say this because its unsoundness is demonstrated by the reasoning which has led us to conclude that there was no merit in the contention that the fact of pecuniary loss was of itself alone adequate to show the unreasonableness of the order.”

And at page 284:

“It is said that, as the state line may be but a mere cornfield, and great expense must result to the railway from establishing necessary terminal facilities in such a place, it must follow that the road, in order to avoid the useless expense, must operate the passenger service directed by the order, not only to the state line, but 20 miles beyond, to Butler, on the Joplin line, where terminal facilities exist. From these assumptions, it is insisted, that the order must be construed according to its necessary effect, and therefore must be treated as imposing a direct burden upon interstate commerce by compelling the operation of the passenger train, not only within the state of Kansas, but beyond its borders. But under the hypothesis upon which the contention rests, the operation of the train to Butler would be at the mere election of the corporation, and, besides, even if the performance of the duty of furnishing adequate local facilities in some respects affected interstate commerce, it does not necessarily result that thereby a direct burden on interstate commerce would be imposed.”

We cannot, of course, compel the N. & W. to run its train all the way to Durham, but it is possible to believe that the company will find that more economical and convenient than halting at the state line.

HOOKER, Commissioner, concurs.

KING, Chairman, not sitting.

ORDER OF NOVEMBER 30, 1953, O. B. 42, p. 194

The following order of dismissal having been received, it is ordered that the same be here recorded, and is in the following words and figures:


In the Supreme Court of Appeals held at the Supreme Court of Appeals Building in the City of Richmond on Monday the 23rd day of November, 1953.

Norfolk and Western Railway Company, Appellant,
Commonwealth of Virginia, Appellee.

Upon an appeal as of right from an order entered by the State Corporation Commission on the 8th day of April, 1953.

This day came the parties, by counsel, and upon their motion it is ordered that this case be, and the same is hereby dismissed without prejudice and stricken from the docket.

Which is ordered to be certified to the State Corporation Commission.

A Copy,