Full opinion text
PARKER, Circuit Judge. This suit was brought by coal producers engaged in mining and shipping coal from southern West Virginia, western Virginia, eastern Tennessee, and eastern Kentucky, against the United States and a number of railroad companies engaged in the transportation of coal from that territory to ports on Lake Erie. Its purpose is to enjoin the enforcement of an order of the Interstate Commerce Commission, entered February 21, 1928, which directs that the carriers cancel certain rate schedules which they have filed, reducing by 20 cents per ton the freight rate on “lake cargo” coal from the territory named to the lake ports. A special court of three judges has been convened pursuant to statute to hear the ease, intervention has been allowed on the part of various interested parties, and it has been agreed that the court shall determine finally the rights of the parties with respect to the relief prayed, instead of hearing only the application for an interlocutory injunction. The controversy before us, as already indicated, has relation to “lake cargo” coal, a term used to designate coal shipped to ports of the Great Lakes for transshipment by vessel t,o various lake and river ports in tbe United States and Canada, whence it is distributed by rail. The rates on such coal are, in the nature of proportional rates to the lake ports for part of a through movement to across-lake destinations. The coal is transported across the lakes only during the months from- April to November; and, as this movement occurs during the summer months, when the coal trade is slack, it is of great importance to the- mine operators, since it enables them to keep their mines in operation during the dull season. All of the lake cargo coals are more- or less competitive, particularly for steam and domestic purposes; and those produced in the Pittsburgh district are highly competitive with those produced in th'e territory of complainants, so much so that a difference in price of a few cents will determine a sale. Pittsburgh Coal Producers’ Ass’n v. Ashland Coal & Iron R. Co., 126 I. C. C. 344, 345. The importance of the trade to the producers may be judged from the fact that in 1925 the volume of the across-lake .movement was 26,333,000 tons. In 1923 it was 29,840,000 tons. Its importance to complainants is shown by the fact that in 1925 they furnished practically 82 per cent, of this tonnage (126 I. C.. C. 362), and that in 1924 it constituted 12.6 per cent, of their total production (126 I. C. C. 354). As ability to compete in the sale of lake cargo coal depends in large measure upon the freight rate applied to shipments to the Lake Erie ports,' there has been a long history of controversy over these rates. This controversy has been carried on by the operators in the coal producing region around Pittsburgh, Pa., which we shall refer .to generally as the northern field, and by those operating in territory of complainants, which we shall refer to as the southern field. The haul from the southern field to the lake ports is considerably longer than that from the northern field (see map, 101 I. C. C. 516), and the rate has always been higher than from the northern field. The difference in rate, however, has never been so greát as the difference in distance, due in part tó the fact that the carriers from the southern field, being especially well equipped for carrying coal, could transport it at a lower cost, distance, considered, than those serving the northern field, and in part to the necessity of fixing a low rate if they were to get any coal to haul.' A rate' based on anything like a mileage basis would have excluded the southern coal from the lake cargo market. These rates were fixed, originally under competitive conditions, and, until the supervisory power of the Interstate Commerce Commission was invoked, the differential between them was very small, only 9 cents per ton between the Pittsburgh and Kanawha districts; the rate being 88 cents per ton from Pittsburgh and 97 cents from Kanawha. In 1912, for the first time, the Commission took a hand in the fixing of the rates. In that year it denied the petition of the Chesapeake & Ohio that it be allowed to increase its rates from the southern field, 22 I. C. C. 604; and reduced by 10 cents the rates from the northern field, Boileau v. Pittsburg & Lake Erie R. Co., 22 I. C. C. 640, and Pittsburg Vein Operators’ Ass’n v. Pa. Co., 241. C. C. 280. The effect of this was to spread the differential from 9 to 19 cents as between the two fields. In subsequent rate adjustments the differential was further increased to 25 cents, which was preserved in the various changes by which the rates were increased until those from the Pittsburgh district were $1.66 per ton and those from the Kanawha district were $1.91 'per ton. This was the differential between the rates from the northern and southern fields at the time of the passage of the Transportation Act of 1920, and it was continued as the differential until the order of the .Commission of May 9, 1927, which increased it to 45 cents per ton. If the proposed rates by the carriers from the southern field are allowed to go into effect, the reduction of 20 cents per ton will reduce the differential to 25 feents again. The question before us, therefore, is whether we shall enjoin the Commission from preventing a reduction of rates the effect of which will be to restore the old differential, which the Commission itself established. The orders of the Commission, by which the differential between the northern and southern fields was increased from 25 to 45 cents, and by which the southern carriers were ordered to cancel schedules which would not only reduce rates, but would also restore the old differential of 25 cents, afford an interesting study, and present a question fraught, we think, with the gravest consequences to the future of the country, if the power asserted by the Commission can be sustained. To understand, however, exactly what the power is which the Commission has assumed to exercise, it is necessary that we go behind its merely formal conclusions that rates are reasonable or unreasonable, and ascertain exactly what it is that it has done, and upon what facts and upon the application of what principles it has arrived at its conclusions. This it is our duty to do. Southern Pacific Co. v. Interstate Commerce Commission, 219 U. S. 433, 31 S. Ct. 288, 55 L. Ed. 283; U. S. v. N. Y. Central Railroad, 263 U. S. 603, 44 S. Ct. 212, 68 L. Ed. 470. And, in the performance of this duty, it is necessary that we analyze not only the report of the Commission accompanying the order whose enforcement we are asked to enjoin, but also the reports made in 1925 and 1927 with regard to the reductions of rates from the northern field, in the latter of which the differential between the two fields was increased from 25 to 45 cents. In the ease from the northern field, the first decision in which was rendered July 16, 1925 (Lake Cargo Coal Rates 1925, 101 I. C. C. 513), coal producers of the northern field had filed petitions alleging that the rates charged them on lake cargo coal were unjust and unreasonable per .se, relatively unreasonable, and unduly prejudicial as compared with rates on this traffic from all other districts in the Appalachian region, and that the rates from other districts were unduly preferential, the other districts referred to being particularly the districts which wo have referred to as the southern field. An extended hearing was had and the petitions were denied. The Commission summed up its conclusion in the last paragraph of its report as follows (101 I. C. C. 548) : “After full consideration and upon the entire record, we find that the present rates on lake cargo coal from the Pittsburgh, Ohio No. 8, Cambridge, and Fairmont districts do not exceed the maximum of reasonableness and are just and reasonable rates, and that the rates assailed on lake cargo coal from these and other districts are not unduly prejudicial, unduly preferential, or otherwise unlawful.” (Italics ours.) An examination of the report will show that the Commission compared the ton mile earnings of the carriers from the northern and southern fields (101 I. C. C. 522); compared the lake cargo rates with "the local rates on coal (523) and with the rates on commercial coal (547); compared various differentials with the differentials involved and with the increased haul for which the differentials were imposed (524 to 525); considered the movement of ore in the cars returning to the northern field (526); considered transportation characteristics of the various hauls (527 to 529); considered costs of transportation from the various districts, computed according to various theories (529 to 531); compared lake cargo rates charged by carriers from southern fields with rates charged by them on coal to tidewater (537); considered the rate relationship of the northern and southern fields and how their competition was affected by the rates (540, 542); and fully discussed the relation of these various matters to the rates involved. On the contention that the existing rate adjustment was prejudicial to the carriers from the northern field, the Commission said (101 I. C. C. 545): “It is apparent that the carriers controlling the rate adjustment from the southern West Virginia and Kentucky districts are not the same as those which control the adjustment from the complaining districts. The basis for a finding of undue prejudice is thus lacking, even if the facts adduced to support such a finding would in other respects support it, as they do not.” After thus disposing of the contention as to prejudice, the Commission proceeded to refuse to prescribe minimum rates for the carriers from the southern field as follows (101 I. C. C. 545, 546): “Realizing this, complainants invoke our power to prescribe minimum rates. In Sugar Cases of 1922, 81 I. C. C. 448, 472, we said: ‘No doubt the power to fix such minimum rates can in some situations be employed to advantage and with propriety, for the purpose of averting rate wars, which are always injurious to the carriers and ordinarily, in the long run, to the public interest, or for the purpose of preventing an unjust burden upon other forms of traffic or upon other parts of the country. We believe, however, that this power should be sparingly exercised and only in cases where it clearly appears that its exercise is necessary in order that substantial public injury may be avoided.’ “No rate war is imminent. Allegations in the Ohio complaints that rates from the southern districts were unduly low were withdrawn at the hearing. Regulatory commissions of the states where most of this coal is consumed contend vigorously and earnestly that grave public injury would be caused by a widening of these differentials, and that the public interest would be promoted by narrowing them. In no proceeding before us have consumers and their representatives insisted more earnestly and forcibly than they have here that their interests be not submerged in the struggle between competing coal districts. “In Galloway Coal Co. v. A. G. S. R. R. Co., 40 I. C. C. 311, we said: ‘Consumers may properly have- the widest possible markets consistent with justice to the carriers, and to that end and also in their own interests carriers may, within reasonable limits, as a matter of traffic policy, accord competing producing centers located at different distances from common centers of consumption identical rates.’ “And in Andy’s Ridge Coal Co. v. Southern Ry. Co., 18 I. C. C. 405, we said: ‘Differentials between competing coal mines to various markets of consumption cannot be established upon distance alone; nor can one ease be safely made the precedent for another. Much depends upon competitive conditions, and each situation must be considered and disposed of by itself. * * * In determining these differentials we must consider the interest of the consumer as well as the producer. Rates should be so adjusted as to permit the widest possible competition. * * * Coal rates are usually highly competitive. * * * The differentials from these different mines are the outgrowth of years of experiment and ought not to be disturbed by us unless we ara certain that justice requires it.’ “The differentials here are not only the result of years of éxperiment, but in fact are those prescribed by us. They have not been shown to result in undue prejudice to the complainants.” After this decision was rendered the-petitioners from the northern field asked for a rehearing, which was granted, and on May 9, 1927, an order was entered, concurred in by a majority of the Commission, reducing the rates on lake cargo coal from the northern field 20 cents per ton, and thereby widening the differential between the northern and southern field to 45 cents. The report which accompanied the order, while going into a comparison of the lake cargo rates from the northern field with local rates on coal and other commodities, went at great length into a comparison of the rates between the northern and southern fields and the shift in the lake cargo tonnage to the southern field. At the end of its long report, the Commission summarizes its conclusions (126 I. C. C. 360 to 365), from which we think it is apparent that the reduction in rate was allowed because of the holding that the rates from the northern' field were “relatively” higher than those from the southern field (i. e., as compared with length of haul), although actually lower; that the shift of tonnage to the southern field, although due to the higher cost of producing and marketing coal in the northern field, justified the lowering of the rates to the northern field; and that it was thei duty of the Commission to give consideration to such conditions in the industry because of the provisions of the Hoch-Smith resolution. After calling attention to the fact that further study had convinced the Commission that lake cargo coal was entitled to lower rates than commercial coal, the report proceeds (126 I. C. C. 361 to 364): “Upon the more complete record now before us, we are of the opinion that the rates on the same class of traffic from other districts in the same region shipping a large amount of lake cargo coal are entitled to more weight in passing upon the reasonableness of the rates assailed than any other rate comparisons, although we take into consideration that such rates from the southern districts may not be reasonable maxima in all instances. In reaching our original decision, there was no doubt in the minds of at least some of those constituting the majority that the rates from the Pittsburgh and Ohio districts were relatively much higher than those from the southern districts; but, as stated, the majority did not then regard the rates assailed as unreasonable largely because of the comparisons with rates on commercial coal, the record did not justify the prescribing of minimum rates from the southern districts, and no undue prejudice or preference could be found because the rates from the complaining districts and from the southern districts were controlled by different carriers. “The record on further hearing differs materially from the Original record in respect to the trend of the movement of lake cargo coal from the,various districts. In our original report we pointed out that in 1923 Ohio No. 8 shipped more lake cargo coal than all the Kentucky districts combined, but on further hearing it is shown that in 1924 Ohio No. 8 shipped 663,000 tons less than Kentucky, and in 1925, Kentucky shipped 5,291,-000 tons more than Ohio No. 8, or about four times as much as the latter. Likewise, we pointed out that the rate of increase in the tonnage shipped from Ohio No. 8 and Cambridge up to 1923 was much greater than for southern West Virginia, but it is now shown that the combined tonnage from the two Ohio districts declined in 1924 and for 1925 was less than one-third that in 1923, while the tonnage from southern West Virginia increased in 1924 and for 1925 was nearly double that in 1923. Ohio No. 8 and Cambridge shipped more than one-half as many tons as southern West Virginia in’ 1923, but in 1925 southern West Virginia shipped ten times as much as the two Ohio districts. The tonnage shipped from the Pittsburgh district has continued to fall off since the original hearings but at a much more rapid rate, that for 1924 being less than one-half of 1923 and for 1925 less than one-third of 1923. In our original report wo stated that of the total lake cargo tonnage of high-vola-tile coal in 1923, Pennsylvania and Ohio districts taking rates of $1.66 or less shipped 60.4 per cent., while all of West Virginia and Kentucky shipped 39.6 per cent. In contrast to those figures, it now appears that in 1925 all of Ohio and Pennsylvania shipped only about 18 per cent, of the total tonnage, while West Virginia and Kentucky shipped practically all of the remaining 82 per cent. This marked change in conditions is evidently due principally to the higher cost of producing and marketing coal in the Ohio and Pennsylvania districts. The higher cost is no doubt due to various causes, hut it is apparent that the freight rates contribute to the cost of producing and marketing coal in the complaining districts, and as stated, those from the Pittsburgh and Ohio districts are relatively much higher than those from the southern districts. “At the time of the original hearings the coal-mining industry in Ohio and Pennsylvania was in a comparatively prosperous condition. Since then 12,000 to 15,000 miners have left the Ohio mines, there has been a large increase in the number of vacant houses in the mining communities, and merchants have large amounts of unpaid accounts upon their books. In the Pittsburgh district miners have been given help in getting transportation to the southern fields; from 1921 to 1925 the number of employees engaged in coal mining decreased 20 per cent., while employees in other industries increased 40 per cent., and the coal business is in a depressed condition. It does not appear that all this is due solely to the rate adjustment, but if that adjustment is improper it is our duty to correct it so far as possible, and we must give consideration to the conditions existing m the industry under the provisions of the HoehSmith Resolution. * * * “Briefly summarizing, in reaching our conclusions upon the question of reasonableness, we ■ have taken into consideration the unusually favorable circumstances and conditions surrounding the movement of lake cargo coal, whieh make the rates thereon in a class by themselves; the relatively much lower rates from the southern districts, whieh the carriers serving those districts find profitable to maintain; the very decided change ini the relative tonnage of lake cargo coa\ shipped from the complaining Pittsburgh and Ohio districts and, the southern districts, respectively; the present depressed condition, of the coal-minmg industry in the Pittsburgh and Ohio districts; and the fact that the cost of the service warrants a substantial reduction in the rates. We have taken into eomideraation particularly the changed conditions since our previous decisions regarding• these rales, also to some extent the rates on ore from the ports to points in or near the complaining Pittsburgh and Ohio districts, and other evidence whieh need not be specifically referred to in tbe comprehensive record now before us.” (Italics ours.) As bearing upon the subsequent action of the Commission, the following extracts relating to the rates from the southern field and the question of the differential are significant (126 I. C. C. 365): “We do not regard the present relationships between the rates from the complaining Pittsburgh-Ohio districts and the southern districts as proper, but the reductions required in the rates from the Pittsburgh and Ohio districts will go far toward removing the alleged undue prejudice to those districts, and following the principle of the Ashland Eire Brick Case, we adhere to our previous findings on the question of undue prejudice and preference. * * * Under the issues now presented, it is unnecessary for us to consider whether the rates from the southern districts are lower than reasonable minima, hut we are of the opinion that the carriers would not be justified in reducing the present rates from those districts.” The reduced rates from the northern field were to become effective August 10, 1927. After the decision of the Commission fixing them was announced, the defendant carriers serving the southern field filed tariff schedules under the statute reducing their rates on lake cargo coal from the southern field 20 cents per ton and thereby restoring tbe old differential. The Commission at once suspended the operation of the schedules upon protests from certain of the operators in the northern field and ordered a hearing on the rates embraced therein. Upon this hearing certain of the complainants hero intervened and opposed the cancellation of the schedules. On February 21, 1928, the Commission entered the order complained of directing that the schedules be canceled, and accompanying the order filed a report in which it set'forth the grounds upon which it had proceeded. This report begins with a resume of the decisions rendered on the petitions of the operators from the northern field, summing up the effect of these decisions as follows (Lake Cargo Coal Case, 139 I. C. C. 371): “In the original report in that case, decided July 16, 1925, we found that the rates assailed did not exceed the maximum of reasonableness and were just and reasonable, and that those! and the rate's from the districts alleged to be preferred were not unduly prejudicial, unduly preferential, or otherwise unlawful, and dismissed the complaints. The evidence of the complaining Pittsburgh and Ohio districts in that case in respect of the issue of undue prejudice and preference was practically limited to the principal districts in southern West Virginia, eastern Kentucky, and Tennessee from which reduced rates are here proposed, referred to herein as the southern districts. As to that issue we stated at page 545 of our original report that many of the coal-carrying roads did not participate in the rates from both those complaining districts and the districts in southern West Virginia, eastern Kentucky, and Tennessee alleged to be preferred, and that a basis for a finding of undue prejudice was lacking even if the facts adduced to support such a finding would in other respects have sustained it, which they did not. “In our report on further hearing, made May 9,1927, we adhered to our previous finding that there was no legal basis for a finding' of undue prejudice and prefererbce, but found unreasonable the rates from the Pittsburgh district and from the Ohio No. 8 and Cambridge districts to the extent that they, respectively, exceeded $1.46 and $1.43. , We said that we did not regard the relationships then existing between the rates from the complaining Pittsburgh-Ohio districts and the southern districts as proper, and expressed the opinion that the carriers would not be justified in reducing the rates then, and now, in effect from the latter districts.” (Italics ours.) After adverting to the, contention of the southern carriers that it was their right as well as their duty to stockholders and patrons to initiate rates with a view to meeting competitive conditions; and that in publishing rates they were exercising a managerial function which belonged to them, and to the Contention of the southern operators that the reduced rates were necessary to insure to them their fair share of the lake cargo market,' the Commission stated that it was not within its power- to adjust rates to allow competing-shippers to market their products and that although rates found lawful might have that effect,'they-must be based fundamentally upon conditions surrounding the transportation. It then considered the shift in tonnage of lake cargo coal to the southern' field, and said that this shift appeared to have been due in large measure to lockouts; miners’ strikes, and- to' higher cost of producing eoal in the northern than in the southern field, and that these conditions still prevailed. It stated the position of the southern carriers with respect to the proposed rates as follows (139 I. C. C. 374, 375): “The position of the southern respondents is that the proposed rates, although admittedly low and hence not reasonable maximum rates, are not unreasonably low per se or less than reasonable minimum rates, and would not east a burden on other traffic. In support of that position respondents Chesapeake & Ohio, Hocking Valley, and Norfolk & Western rely upon comparisons of the earnings under the proposed rates with either the average revenues or expenses on all eoal or on all freight traffic on their respective lines and upon operating and cost statistics, and, as does also respondent Louisville & Nashville, upon comparisons with divisions of certain rates on coal, with rates and earnings on coal from some of the same and other coal-producing districts to various destinations, and with the rates and earnings on oth\er commodities.” After analyzing these contentions of the southern carriers, and comparing the proposed rates with earnings on other traffic, in the course of which it was shown that in this territory in 1926 the eoal traffic constituted 82 per cent, of the total tonnage of the Chesapeake & Ohio, 80 per cent, of that of the Hocking Valley, 88.72 per cent, of that of the Norfolk & Western, and 59.5 per cent, of that of the Louisville & Nashville, the Commission did not find that the rates proposed were unreasonably low per se or that they would cast a burden upon other traffic, but came to what it evidently considered the controlling factor in the situation in the following language (139 I. C. C. 381 to 382): “The rates on coal with which the proposed rates have heretofore been compared are not parts of the lake cargo coal-rate structure, but of other and different rate structures, and hence- in the nature of collateral comparisons. The rates on lake cargo coal from the southern and other districts in the Appalachian region to Lake Erie ports constitute a definitely interrelated rate structure in which the rates on this traffic are, and for many years have been, made independently of those in other coal-rate structures generally. As demonstrating that interrelationship it may be noted that counsel for the Norfolk.& Western and Virginian stated at the hearing that the reduced rates here proposed by those respondents would be withdrawn if the former higher rates in effect pri- or to August 10,1927, from the northern districts to Lake Erie ports were restored.- It remains to be determined whether the pro posed rates are just and reasonable measured by other rates on like traffic in the same rate structure.” (Italics ours.) After comparing the length of haul and the ton mile earnings on the lake cargo traffic from the various districts, the Commission still further narrowed the basis of its action in the following language (139 I. C. C. 385): “It is clear from the evidence that the publication of the proposed rates from these southern districts was actuated primarily by the reduction in the rates on like traffic from the Ohio No. 8, Cambridge, and Pittsburgh districts established pursuant to our report and order on further hearing in Lake Cargo Coal Rates, 1925, and not by the reduction in the rate from these four southern Ohio districts. The southern operators admit that they are little concerned with competition from the Hocking district, and that commercially it makes no difference to them what the rate is from that district. It is apparent, therefore, that the primary concern in this proceeding is the rate relation between the Ohio No. 8, Cambridge, and Pittsburgh districts, on the one hand, and the southern districts, on the other.” (Italics ours.) The Commission then laid down the principle upon which its denial of the proposed rate reduction was based as follows (139 I. C. C. 386 to 387): “Little or no effort was made by the southern respondents to prove that the proposed rates are just and reasonable, measured by tJie rates on like traffic from the Ohio No. 8, Cambridge, and Pittsburgh districts. Their position, in substance, is that in the absence of und/ae prejudice and preference the only limitation on the measure of the proposed rates is that they shall not be less than mirúmum reasonable rates per se or be so low as to cast a burden on other traffic. That eoiistruetion of the law, as we view it, is too narrow. Section 1 [49 USCA § 1; Comp. St. § 8563] declares that rates shall he just and reasonable, and prohibits every unjust and unreasonable rate. In other words, it requires that rates shall not only be reasonable per se, but just and reasonable in their relation to other rates on like traffic in the same territory that afford a proper standard of comparison, and applies to instances in which rates are below that standard, distance and transportation conditions considered, no less than to those in which the rates exceed that standard. Prior to the enactment of the transportation act, 1920, violations of section 1 could be corrected only by the prescription of maximum reasonable rates. Under the interstate commerce act, as amended by the Transportation Act of 1920, we' are empowered, whenever, after full hearing, we find that any rate is or will be unjust or unreasonable, or otherwise in violation of any of the provisions of that act, to determine and prescribe what will be the just and reasonable rate to be thereafter observed, or the maximum or minimum, or the maxinjum and minimum, to be charged. The provisions of section 1 are as broad in scope as the power conferred for its administration. * * * “The rates on lake cargo coal from these districts are, as previously explained, parts of a definitely interrelated rate structure on like traffic. The rates from the Ohio No. 8, Cambridge, and Pittsburgh districts were prescribed by us as maximum reasonable rates. There is no contention that those rates exceed that limit. They afford, therefore, appropriate and fair standards for determining whether the proposed rates are just and reasonable, distance and transportation conditions considered.”1 (Italics ours.) That the real basis for denying the proposed reduction was the fact that the southern carriers had a much longer haul, and that the differential of 25 cents was considered too small as compared with the haul, even though the rates from the northern field were lower, and this because of the shift of traffic from the northern to the southern field, clearly appears from the following paragraph of the report (139 I. C. C. 389 to 390): “We have frequently said that distance alone is only one of the elements which must „ be considered in determining upon a lawful rate adjustment; and in competitive adjustments the carriers may disregard distance even in substantial degree, so long as the competitor whose geographical location is largely disregarded is not injured thereby, but where it is made to appear in am interrelated adjustment such as that with which we are here dealing that such a competitor is injured and is complaining, we believe that a proper interpretation of the law which we ¡administer demands a remedy. This does not mean that even then distance may not he to some extent disregarded, particularly in coal-rate adjustments, hut it does mean that differences in distance such as those before us, which are 115.5 per cent, and 88.4 peí cent., respectively, of the straight average distances' from the Pitts-* burgh district and from the Hocking, Jackson county, and Pomeroy districts to the lake, require greater recognition than the proposed1 differences in rates, which are only 17.1 per cent, and 19.6 per cent., respectively, of the rates from'the same districts, would accord to them.” (Italics ours.) Another principle laid dotra by the Commission as controlling its action was that the burden of justifying the reduced rates was upon the carrier proposing them (139 I. C. C. 390), and it stressed the fact that the southern carriers did not show that the low differential for increased distance was justified by lower cost of operation than that of the northern carriers (387 to 388). It justified the testing of the reasonableness of a minimum rate by comparison of same with a maximum by comparing differentials established on other routes for other traffic. The Commission pointed out that, under section 15 (a), par. 2, of the Interstate Commerce Act, as added by section 422 of the Transportation Act of 1920 (49 USCA § 15a, par. 2; Comp. St. § 8583a, par. 2), it had adjusted the rates from the Appalachian coal districts and had grouped the carriers as required by the act; that the reduction to the northern field was authorized by the proviso of that paragraph; but that the reduction to the southern field would create no new traffic and would reduce the aggregate income of the earners. It held, further, that the carriers had not shown justification for the rates under the Hoch-Smith Resolution (49 USCA § 55; Comp. St. § 8583aa), saying (139 I. C. C. 395): “To accord to a carrier the right to transport a substantial portion of its tonnage at rates upon the obviously low level here proposed, while giving no relief to the agricultural industry, including live stock, which Congress has declared to be in a depressed condition and entitled to the lowest possible lawful rates consistent with the maintenance of an adequate transportation system, is-counter to that mandate. The Hoeh-Smith Resolution is not directed to the carriers; it is directed to us. Carriers who seek owr approval of rate proposals will be expected to show that a flndmg of justification can be made consistently with the policies outlined for us im the resolution. This has not been done in this proceeding. * * * We find that the proposed rates have not been justified. We shall require the cancellation of the suspended schedules and discontinue this proceeding.” (Italics ours.) On March 8th, the report of the Commission was amended so as to insert a finding that the proposed rates were unjust and unreasonable, which was not contained in the original report, the finding there being merely that the rates had not been justified. It is perfectly evident from a study of the foregoing reports of the Commission that, in reducing the rates from the northern field, and in directing the cancellation of the reduction from the southern field, the Commission was primarily concerned, not in fixing rates, but in fixing the differential which was to prevail between the two fields, and that, in expanding the differential to 45 cents and in refusing to allow the old differential of 25 cents to be restored, the Commission based its action upon the shift of tonnage from the northern to the southern field and the industrial conditions resulting therefrom. That this was the basis of the Commission’s action appears not only from the language of the reports which we have quoted, but also from an analysis of the existing situation and the necessary effect of the order. The rates proposed were not so low as to burden other traffic or prevent the carriers realizing a reasonable return on invested capital or value, and the Commission did not order their cancellation on any such ground. Even after the reduction they would be 25 cents higher than the rates from the northern field; consequently, considered independently of such matters as the cost of production of coal, they could not have interfered with the traffic of roads having a rate 25 cents per ton lower. The only way in which they could be said to interfere with the traffic from the northern field, would be that on account of the difference in industrial conditions in the two fields, the southern field would be able to undersell and get the business even though paying a rate 25 cents per ton higher, whereas it would not be able to undersell (if the differential were made higher than that. But it must be manifest that increasing the differential to meet such a situation is not regulation of rates, but regulation of industrial conditions under the guise of regulating rates. It means nothing more nor less than that, because one community is able to produce coal more cheaply than another, and thereby get a large share of the business which has been going to the other, even though paying a considerable differential in freight, the Commission is placing upon it a handicap by increasing the differential in rates and thereby equalizing the advantage which it has in a low cost of production. It matters not what this may be called, it is in essence a regulation of industrial conditions through manipulation of rates. It is said that the increase of the differential resulting from the lowering of the rates from the northern field and the cancellation of the reduced rates from the southern field is justified by the longer haul from the southern field; but rates are not fixed upon a mileage basis, and the rate for the longer haul, if higher than the rates of competing roads or rates from competing communities, cannot- be of consequence to any one except tHe carriers concerned, unless they result in such impairment of earnings as to make the rates unreasonably low per se; that is, so low as not to yield a reasonable return upon the investment of the carrier or throw an undue burden upon other traffic. The Commission recognizes that length of haul is not in itself a sufficient reason for increasing the differential or refusing a reduction which would leave the rate higher than rates from competing communities, and comes back to the proposition that the change is justified because of conditions in such communities. In a passage previously quoted it says: “In competitive adjustments the carriers may disregard distance, even in substantial degree, so long as the competitor whose geographical location is largely disregarded is not injured thereby; but where it is made to appear in an interrelated adjustment, such as that with which we are hero dealing, that such a competitor is injured and is complaining, we believe that a proper interpretation of the law which we administer demands a remedy.” How could a competitor who is complaining be injured by a rate higher than his rate ? The question answers itself. He could not be injured by the higher rate. If there be injury, it is because of difference in other conditions, not rates; and if the differential be increased in favor of the community enjoying the lower rates, it is not the baneful effect of rates which is removed, hut the effect of unequal industrial conditions, which is obviated by increasing the difference in rates in favor of the community already enjoying the lower rate. In this connection it is of interest to noto that in proceedings under section 3 of the Interstate Commerce Act (49 USCA § 3; Comp. St. § 8565), where it is unquestionably proper to consider length of haul in determining whether the rates fixed by the same carrier for different communities are unduly prejudicial, the Commission will not condemn rates on that ground, even where the rate relationship may appear improper measured by distance, in the absence of proof of injury. Boston Port Differential Case, 95 I. C. C. 539; Perry County Coal Corp. v. East St. Louis Ry. Co., 80 I. C. C. 711. As shown above, a rate relationship cannot be injurious to a community, where the rate which that community enjoys is lower than the rate from a competing community with which it is compared. Much has been said as to the binding effect of the order entered by the Commission, but the law with regard thereto is well settled. If the determination of the Commission finds substantial support in the evidence, the courts will not weigh the evidence, nor consider the wisdom of the Commission’s action, which, within the scope of its jurisdiction, is conclusive, unless thero be some irregularity in the proceeding or some error in the application of rules of law. Chicago, R. I. & Pac. Ry. v. U. S., 274 U. S. 29, 33, 47 S. Ct. 486, 71 L. Ed. 911; Virginian Ry. Co. v. U. S., 272 U. S. 658, 47 S. Ct. 222, 71 L. Ed. 463; Western Paper Makers’ Chem. Co. v. U. S., 271 U. S. 268, 46 S. Ct. 500, 70 L. Ed. 941. If, however, in making the order complained of, the Commission has exceeded its powers, or has proceeded upon an erroneous theory of law, or if its action is so manifestly arbitrary and unreasonable as virtually to transcend the authority conferred upon it, the courts are not bound by its action. Southern Pacific Co. v. I. C. C., 219 U. S. 433, 31 S. Ct. 288, 55 L. Ed. 283; I. C. C. v. Union Pacific Co., 222 U. S. 541, 32 S. Ct. 108, 56 L. Ed. 308; U. S. v. N. Y. C. R. R., 263 U. S. 603, 44 S. Ct. 212, 68 L. Ed. 470; U. S. v. New River Co, 265 U. S. 533, 540, 44 S. Ct. 610, 68 L. Ed. 1165. We think that the enforcement of the order here complained of should be enjoined: (1) Because the Commission exceeded its-powers, in that its action was based, in part, at least, upon industrial conditions, and was essentially an effort to equalize industrial conditions or offset economic advantages through adjustment of rates; (2) because it proceeded upon an erroneous theory of law, in holding that the burden was upon the southern carriers to justify a reduction of rates by a comparison of the reduced rates with lower maximum rates prescribed for a competing field; and (3) because it proceeded upon an erroneous theory of law, in holding that the burden was upon the carriers here to justify the proposed reduction of rates under section 15 (a) (2) of the Interstate Commerce Act, as added by section 422 o£ the Transportaton Act of 1920 and the Hoeh-Smith Resolution. We shall consider these in order. If we are correct in our analysis of the reports of the Commission, there can he no doubt that it exceeded its powers. Of course, since the passage of the Transportation Act of 1920 (49 USCA § 71 et seq.; Comp. St. § 10071% et seq.), the Commission has the right to prescribe minimum rates, and we agree with the Commission that a construction of the law is too narrow which limits its right to prescribe such rates to eases where the rates proposed are unreasonable per se, or are so low as to east a burden on other traffic. It has the right to prescribe minimum rates also to prevent ruinous rate wars and to guarantee reasonable earnings, not only to the carriers affected, but also to competing carriers, who may labor under a higher cost of -doing business. New England Divisions Case, 261 U. S. 184, 43 S. Ct. 270, 67 L. Ed. 605; Dayton-Goose Creek R. Co. v. U. S., 263 U. S. 456, 44 S. Ct. 169, 68 L. Ed. 388, 33 A. L. R. 472. And where the Commission fixes a rate or prescribes a minimum in the exercise of the powers conferred upon it, the courts will not interfere with its action, however much they may disagree with its reasoning. The Commission does not have the right, however, to regulate industrial conditions under the guise of regulating rates. And in a case like this, where there is no rate war, where there is no finding that the rates condemned will deprive the carriers of a fair return, and where they cannot injure competing carriers or carriers from a competing locality because they are actually higher than the maximum rates which such carriers may charge, the Commission does not have the right under the law to prohibit the reduction because of a shift in traffic which has occurred from the locality having the lower to the locality having the higher rate. ' As pointed out above, for the Commission to fix rates upon such a basis is for it to assume the task of equalizing industrial conditions through rate adjustments. We do not think that Congress could give such power to the Commission. Hammer v. Dagenhart, 247 U. S. 251, 38 S. Ct. 529, 62 L. Ed. 1101, 3 A. L. R. 649, Ann. Cas. 1918E, 724. We are perfectly certain that it has not attempted to do so. It is provided that carriers shall establish “just and reasonable rates.” U. S. C. tit. 49, § 1 (4), 49 USCA § 1 (4); Comp. St. § 8563(4). It is made unlawful for any carrier “to make or give any undue or unreasonable- preference or advantage to any particular person • * * or locality” section 3 (1), 49 USCA § 3 (1), Comp. St. § 8565 (1). The Commission is given power to determine and prescribe “what will be the just and reasonable * * * rate * * * to be thereafter observed * * * or the maximum or minimum, or maximum and minimum, to be charged.” Section 15 (1), 49 USCA § 15 (1); Comp. St. § 8583(1). But nowhere is it provided that in doing so the Commission may prefer one section of the country over another, or that it may fix rates, or may 'prevent the fixing of rates by the carriers, with a view of placing competing producers upon an equality or of compensating for disadvantages under which competing communities may labor. . Manifestly such a power is not conferred by the statutes referred to, for rates fixed with such an end in view are not “reasonable,” b.ut are unreasonable and constitute an unprecedented interference with the industrial conditions of the country. In the Ashland Fire Brick Case, 22 I. C. C. 115, 121, Commissioner Franklin K. Lane said: “It seems unnecessary here to state that the power has not been lodged with this tribunal to equalize economic advantages, to place one market in competition with another, or to treat all railroads as a part of one great whole.” And in I. C. C. v. Diffenbaugh, 222 U. S. 42, 46, 32 S. Ct. 22, 24, 56 L. Ed. 83, Mr. Justice Holmes Says that the Interstate Commerce Act “does not attempt to equalize fortune, opportunities or abilities.” In the Willamette Valley Rate Case, 14 I. C. C. 61, So. Pac. Co. v. I. C. C., 219 U. S. 433, 31 S. Ct. 288, 55 L. Ed. 283, the Commission held a $5 rate on lumber unreasonable. Its report showed that the holding was based primarily on the view that the rate would be unjust to lumber dealers who had established their business in the Valley on the faith of a $3.10 rate. There was some evidence bearing upon the reasonableness of the $3.10 rate; but in that ease, as we think in this, the report of'the Commission showed that its action was based primarily upon a consideration of the effect of the rate on industry. The Circuit Court (177 F. 963) refused to enjoin the order of the Commission, but this was reversed by the Supreme Court in a unanimous decision, the opinion being written by Chief Justice White. What he said in that ease is pertinent here. Said he: “What was the nature and character of the order made by the Commission? That is, what, in substance, was the power which the Commission exerted in making the order? Coming to the consideration of that subject, we are of opinion that the court below erred in not restraining the enforcement of the order complained of, because we see no escape from the conclusion that the order was void because it was made in consequence of the assumption by the Commission that it possessed the extreme powers which the railroad companies insist the’ order plainly manifests. We proceed very briefly to state the reasons which compel us to this conclusion. In the first place, when the complaint which was made to the Commission and the answer of the railroad companies to that complaint are considered they give rise to the inference that in substance the subject complained of was not the intrinsic unreasonableness of the new rate which the railroad companies.substituted for the former rate, but the injury it was thought would be suffered from not continuing the old rate in force, an injury arising from circumstances extrinsic to the new rate; that is, a loss which would be suffered by substituting the higher rate, even if that rate was in and of itself reasonable and just. * * * While it is true that the opinion of the Commission may contain some sentences which, when segregated from their context, may give some support to the contention that the order was based upon a consideration merely of the intrinsic unreasonableness of the rate which was condemned, we think when the opinion is considered as a whole in the light of the condition of the record to which we have referred it clearly results that it was based upon the belief by the Commission that it had the right under the law to protect the lumber interests of the Willamette Valley from the consequences which it was deemed would arise from a change of the rate, even if that change was from an unreasonably low rate which had prevailed for some time to a just and reasonable charge for the service rendered for the future.” Although this decision was rendered prior to the passage of the Transportation Act of 1920, there is nothing in the Transportation Act which justifies the assumption of the power to raise and lower rates or to prevent rates being lowered in order that industries may be put upon a competing basis or that those near a market may enjoy the advantage of their location. That act does provide that in the exercise of its power to prescribe just and reasonable rates the Commission shall establish them so that carriers as a whole or in rate groups will earn a fair return upon the value of their property. Section 15 (a) (2). And in the exercise of this power the Commission can undoubtedly establish minimum rates higher than required for a fair return to the carriers mpre favorably situated in order that a fair return may be realized by competing carriers less favorably situated and that an efficient transportation system may be thus afforded to the sections served. Dayton-Goose Creek Ry. v. U. S., 263 U. S. 456, 44 S. Ct. 169, 68 L. Ed. 388, 33 A. L. R. 472; New England Divisions Case, 261 U. S. 184, 43 S. Ct. 270, 67 L. Ed. 605. But we are satisfied that it was never intended by the act that, in exercising this power, the Commission should consider the loss of business of one community due to industrial conditions and attempt to restore it by increasing the differential in the freight rates between tha t community and others which compete with it. As said by the Supreme Court, in construing section 3 of this act (49 USCA § 3; Comp. St. § 8565), in the Swift Lumber Company Case, U. S. v. Ill. Cent. R. Co., 263 U. S. 515, 524, 44 S. Ct. 189, 193, 68 L. Ed. 417: “The law does not attempt to equalize opportunities among localities; * * * the difference in rates cannot be held illegal, unless it is shown that it is not justified by the cost of the respective services, by their values, or by other transportation conditions.” Of course, in that case the Supreme Court was dealing with a ease of undue prejudice under section 3, where the rates were those of the same carrier; but the rule stated would seem to apply with greater force where the inquiry is merely as to reasonableness and the rates are offered .to different communities by different carriers. The Commission seems to have thought that it was justified in considering industrial conditions and the shift in traffic as a reason for widening the differential because of the provisions of the Hoch-Smith Resolution. 126 I. C. C., bottom page 362. And in condemning the reduced rates which would have restored the old differential it says that the carriers have not shown that they are justified under that resolution. We do not think, however, that the Hoch-Smith Resolution, 43 Stat. 801, c. 120, was intended to confer, or did confer, any such power upon the Commission. That resolution declared it to be the true policy in rate making that the Commission should consider the conditions which at any given time prevail in our several industries, in so far as it is legally possible to do so, “to the end that commodities may freely move.” It then provided: “That the Interstate Commerce Commission is authorized and directed to make a thorough investigation of the rate structure of common carriers subject to the Interstate Commerce Aet, in order to determine to what extent and in what manner existing rates and charges may he unjust, unreasonable, unjustly discriminatory, or unduly preferential, thereby imposing undue burdens, or giving undue advantage as between the various localities and parts of the country, the various classes of traffic, and the various classes and kinds of commodities, and to make, in accordance with law, such changes, adjustments, and redistribution of rates and charges as may be found necessary to correct any defects so found to exist. In making any such change, adjustment, or redistribution the commission shall give due regard, among other factors, to the general and comparative levels in market value of the various classes and kinds of commodities as indicated over a reasonable period of years to a natural and proper development of the country as a whole, and to the maintenance of an adequate system of transportation. In the progress of such investigation the commission shall, from time to time, and as expeditiously as possible, make such decisions and orders as it may find to be necessary or appropriate upon the record then made in order to place the rates upon designated classes of traffic upon a just and reasonable basis with relation to other rates. Such investigation shall be conducted with due regard to other investigations or proceedings affecting rate adjustments which may be pending before the Commission. “In view of the existing depression in agriculture, the Commission is hereby directed to effect with the least practicable delay such lawful changes in the rate structure of the country as will promote the freedom of movement by common carriers of the produets of agriculture affected by that depression, including live stock, at the lowest possible lawful rates compatible with the maintenance of adequate transportation service: Provided,” etc. So far as it affects the question here, this resolution does no more than authorize the Commission to grant relief against rates found to be unjustly discriminatory or unduly preferential, thereby imposing “undue burdens or giving undue advantages.” But, as pointed out above, a rate could not be said to give an undue advantage to a locality as against a competing locality or to impose an undue burden on such competing locality where it is actually higher than the rate which the competing locality enjoys. So fat as the general language' of the resolution is concerned, to the effect that the conditions which prevail in industry should be considered in adjusting freight rates, to the end that commodities may freely move, this is no more than a general declaration that freight rates shall be adjusted in such way as to provide the country with an adequate system of transportation, and Congress certainly did not intend by this language to create in the Commission an economic dictatorship over the various sections of the country, with power to kill or make alive. If the Commission has the right in a rate adjustment to consider the shift in traffic to a community already paying a higher rate, and act upon it as one of the factors in still further widening the rate differential, its power to control the economic development of the country is practically unlimited. / The shift in cotton manufacturing, in fruit growing, in furniture manufacturing, in short in every branch of industry, will become a matter for consideration by the Commission; for all depend upon freight rates, all have rates in which the differential between long and short hauls is narrow, and all experience periods when there are shifts of traffic'from one section to an-, other, due to varying industrial conditions. We feel perfectly certain that Congress did not intend to vest such power in the Commission. And the fact that- the Commission seemed to consider that the Hoch-Smith resolution required it to consider or give effect to industrial conditions and the shift of traffic, or at least showed a spirit and purpose in that regard which should be deferred to, is of itself sufficient to invalidate the order complained of. U. S. v. N. Y. Cent. R. R., 263 U. S. 603, 610, 44 S. Ct. 212, 68 L. Ed. 470. 2. Coming to the second ground of invalidity, which is that the Commission proceeded upon an erroneous theory of law in holding that the burden was upon the southern carriers to justify the proposed reduction by comparison of‘the proposed rates with lower maximum rates from another field, we would observe that an error as to the burden of proof in the sense of the duty to go forward with the evidence or to produce the preponderance thereof would not be ground to-interfere with the action of the Commission, for, of course, we do not attempt to control matters of procedure before it. Here, however, the failure to meet the burden imposed to show certain things meant adverse action by the Commission on the proposed reduction of rates, and it therefore becomes a vital question as to whether it was legally necessary that these things be shown. In the first place, the Commission placed upon the carrier the burden of justifying the proposed reduction and ordered the cancellation of the rates because they were not justified. (We are attaching no importance to the mere verbiage of the concluding portion of the report; for the finding that the rates were unjust and unreasonable because’ the carriers had not met the burden of justifying them is the same thing as finding that they were not justified.) In' this we think there was error. Carriers still have the right to initiate rates. U. S. C. tit. 49, § 1 (4), 41 Stat. 475 (49 USCA § 1 (4); Comp. St. § 8563(4); U. S. v. Ill. Cent. R. Co., 263 U. S. 515, 522, 44 S. Ct. 189, 68 L. Ed. 417. The Commission, it is true, upon the filing of a new rate, has the right to suspend it and enter upon a hearing as to its lawfulness. U. S. C. tit. 49, § 15 (7), 41 Stat. 486 to 487 (49 USCA § 15(7); Comp. St. § 8583(7). But upon such hearing the burden is upon the carrier to justify an increased rate, not to justify a rate reduction. The portion of the statute applicable thereto is as follows: “At any hearing involving a rate, fare, or charge increased after January 1, 1910, or of a rate, fare, or charge sought to be increased after the passage of this act, the burden of proof to show that the increased rate, fare, or charge, or proposed increased rate, fare, or charge, is just and reasonable shall be upon the carrier.” (Italics ours.) It will thus bo seen that, in the very act which for the first time gave to the Commission the power to establish minimum rates and prevent reductions, there was incorporated a provision placing upon carriers the burden of justifying only an increased rate. This is of importance, not only upon the principle “Expressio unius est exclusio alterius,” but also because it expresses a legislative poliey favoring low rates. There is all of the difference imaginable between a proposition to raise and one to lower rates. In the former ease, the natural presumption is that the carrier will charge what the traffic will bear, and before he is allowed to increase his charges he should show that the increase proposed is justified by cost of operation or other valid criterion. Furthermore, the matters justifying the increase are matters peculiarly within the knowledge of the carrier proposing it. In the case of a reduction of rates, however, the self-interest of the carrier can ordinarily be depended on to guard against too great a reduction; and the reasons for denying the reduction, such as the effect on other carriers, are matters which are not peculiarly within the knowledge of the carrier offering the reduction, and