The Southern Pacific Transportation Company Witness Murders

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River Lines, Inc. v. Public Util. Com.

Annotate this Case

[S. F. No. 21743. In Bank. Jan. 21, 1965.]

THE RIVER LINES, INC., et al., Petitioners, v. PUBLIC UTILITIES COMMISSION, Respondent; SOUTHERN PACIFIC PIPE LINES, INC., et al., Real Parties in Interest.

COUNSEL

William W. Schwarzer, McCutchen, Doyle, Brown, Trautman & Enersen, Philip C. Wilkins, Wilkins, Little & Mix, Frank Loughran, Berol, Loughran & Geernaert, Noel J. Dyer, [62 Cal. 2d 246] Robert M. Westberg and Pillsbury, Madison & Sutro for Petitioners.

Richard E. Tuttle, Mary Moran Pajalich and Lawrence Q. Garcia for Respondent.

Charles W. Burkett, Herbert A. Waterman and John MacDonald Smith for Real Parties in Interest.

OPINION

MOSK, J.

Three Northern California barge lines engaged in hauling petroleum and other commodities commenced these proceedings before the Public Utilities Commission against the Southern Pacific Company (hereinafter referred to as Southern Pacific) and its wholly-owned subsidiary, Southern Pacific Pipe Lines, Inc. (hereinafter referred to as Pipe Lines). The barge lines claimed that Pipe Lines was charging unreasonably low rates for transporting petroleum products from San Francisco Bay Area refining points to Stockton, Sacramento, and Chico.

The commission found that the rates charged by Pipe Lines were not unreasonable and denied the barge lines any relief. By petition for writ of review, the barge lines claim that the commission erred in determining that section 727 of the Public Utilities Code fn. 1 had no application to the instant proceedings fn. 2 and that the commission abused its discretion in failing to establish minimum rates under section 726.

Section 726 provides: "... In any rate proceeding where more than one type or class of carrier, as defined in this part [§§ 201-2113, known as the Public Utilities Act], or in the Highway Carriers' Act [§§ 3501-3812], is involved, the commission shall consider all such types or classes of carriers, and, pursuant to the provisions of this part or the Highway Carriers' Act, fix as minimum rates applicable to all such types or classes of carriers the lowest of the lawful rates so determined for any such type or class of carrier. This provision does not prevent the commission from granting to carriers [62 Cal. 2d 247] by water such differentials in rates as are permitted under other provisions of law." (Italics added.)

Section 727 states: "It is the policy of the State that the use of all waterways, ports, and harbors of this State shall be encouraged, and to that end the commission is directed in the establishment of rates for water carriers applying to business moving between points within this State to fix those rates at such a differential under the rates of competing land carriers that the water carriers shall be able fairly to compete for such business. In fixing the rates there shall be taken into consideration quality and regularity of service and class and speed of vessels. 'Competing land carriers' includes all land carriers as defined in this part, and includes a highway contract carrier and a radial highway common carrier as defined in the Highway Carriers' Act." (Italics added.)

[1] Notwithstanding the assumption in sections 726 and 727 that the Public Utilities Act or the Highway Carriers' Act contains definitions for the terms "carriers" and "land carriers," definitions are not found in either of the acts. That omission, however, does not require us to ignore the terms. Unless effect is given to them, section 726, which relates solely to "carriers," would be rendered totally inoperative, an intent we cannot reasonably attribute to the Legislature. Accordingly, the term "carriers" as used in section 726 should be interpreted in accordance with applicable principles of statutory construction. [2] It is obvious that the provisions of section 727 are directly related to those of section 726, and the term "carriers" should be given the same meaning in both sections.

[3] A pipeline carrying petroleum products comes within the ordinary concept of a carrier. (See Webster's New Internat. Dict. (3rd ed. 1961) p. 343; Black's Law Dict. (4th ed. 1951) p. 269; Schmitt v. War Emergency Pipelines (1949) 175 F.2d 335, 336; State Tax Com. v. Petroleum Exploration (1934) 253 Ky. 119 [68 S.W.2d 777, 779]; Hall v. Cumberland Pipe Line Co. (1922) 193 Ky. 728 [237 S.W. 405, 408]; Giffin v. South West Pennsylvania Pipe Lines (1896) 172 Pa. 580 [33 A. 578, 580].) [4] Moreover, statutes are to be interpreted to give a reasonable result consistent with the legislative purpose (Kusior v. Silver (1960) 54 Cal. 2d 603, 620 [7 Cal. Rptr. 129, 354 P.2d 657]), and in furtherance of the purpose of the sections to regulate competition, a pipeline should be subject to the statutory regulation when it competes with other carriers. [62 Cal. 2d 248]

The fact that pipelines are not included in the businesses specified as common carriers in section 211 is not determinative, for the term is not limited to enumerated businesses. (People v. Western Air Lines, Inc. (1954) 42 Cal. 2d 621, 639 [268 P.2d 723].) [5] Although pipelines were at one time specifically defined by statute as common carriers and the definition was repealed in 1953 subsequent to the adoption of sections 726 and 727 (Stats. 1913, ch. 327, p. 657; Stats. 1953, ch. 596, p. 1844), the repeal cannot be said to show a legislative intent to exclude pipelines from the operation of sections 726 and 727 since those sections use the term "carrier" and not "common carrier."

Even though it appears that the provisions of sections 726 and 727 are applicable to the activities of Pipe Lines, it does not necessarily follow that the petitioning barge lines are entitled to relief in this proceeding.

The barge lines have not sought to obtain permission to reduce their rates to compete with Pipe Lines but have requested the commission to require Pipe Lines to raise its rates for the avowed purpose of encouraging competition. [6] Under section 727 the direction to the commission to fix rates so that water carriers will be able to compete fairly against land carriers, as we have seen, is applicable only to "the establishment of rates for water carriers."

[7a] The language of the code section does not compel the commission to adjust the rates of land carriers in order to permit water carriers to compete. If we were to conclude that to encourage competition the commission was required to raise rates of competing land carriers where the costs of water carriers exceeded those of the land carriers, water carriers by engaging to transport any commodity could require land carriers to raise rates no matter how ill-equipped or inefficient the water carriers might be in transporting the commodity. Such a construction of the section would not only create an administrative aberration, but would be economically unsound at the expense of the consuming public, for land carriers would be deprived of the incentive to improve efficiency and to economize if competing water carriers were not similarly motivated.

Furthermore, a construction of section 727 to require the adjustment of the rates of land carriers for purposes of competition would be contrary to the policy set forth in section 726 where the minimum rate to be fixed by the commission is to be the "lowest of the lawful rates" for any [62 Cal. 2d 249] carrier. [8] Although an exception to the provisions of section 726 is made for water carriers, the exception extends only to "granting to carriers by water such differentials in rates" as are permitted by other provisions, and the exception does not extend to requiring land carriers to increase rates.

[7b] For the foregoing reasons, the commission, under section 727, need not and indeed cannot require land carriers to adjust their rates upward for the purpose of permitting water carriers to compete. The commission found that Pipe Lines' rates were not unreasonable, and we recognize no compulsion to reach a contrary conclusion. [9] As noted above, a majority of the commission, although concluding that section 727 was inapplicable, was unable to agree as to the reason for the inapplicability. Since the question is one of law and one of the reasons offered by the commissioners is valid, the inability to obtain a majority does not require annulment of the commission's order.

[10] The commission's refusal to fix a minimum rate under section 726 did not constitute an abuse of discretion. The record shows that the barge lines sought relief under section 727 and did not request the commission to fix its minimum rate under section 726 until after the commission's decision herein.

The order of the commission is affirmed.

Traynor, C. J., McComb, J., Peters, J., Tobriner, J., Peek, J., and Burke, J., concurred.

FN 1. All section references herein are to the Public Utilities Code.

FN 2. The commissioners were unable to agree as to the reason for the inapplicability of section 727. Two commissioners concluded that section 727 was inapplicable because Pipe Lines was not a "competing land carrier" within the meaning of the section, and two other commissioners reasoned that the section is applicable only to proceedings to establish "rates for water carriers" and that no such proceeding was involved. Each opinion reserved the question considered crucial by the other. The fifth member of the commission concluded in a dissenting opinion that section 727 was applicable and that the commission should determine whether the barge lines were entitled to relief under that section.

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The Southern Pacific/Union Pacific Railyards. This project involved the redevelopment of the historic Southern Pacific/Union Pacific Railyards in Sacramento. This urban infill project will combine 10,000 residential units along with adaptive reuse of historic rail marshalling yard buildings to create a city within a city.

Southern Pacific Transportation Company

List of Deals

• 1972 $50,000,000 7 3/8% equipment trust certificates, series 56, due February 1, 1987

Southern Pacific Transportation Company originated with the efforts of Theodore D. Judah to build an earlier railroad, the Central Pacific. Together with Collis P. Huntington, Leland Stanford, Charles Crocker, Mark Hopkins, and other investors, he created the Central Pacific Railroad of California in 1861. The majority of the funds used to build the railroad were provided by the U.S. government, which agreed to loan a varying amount of government bonds for every mile of road built, depending on the difficulty of terrain traversed, and to grant the company a checkerboard pattern of land on alternate sides of the railroad. An important caveat deprived the railroad of most mineral rights to this land, a category generally interpreted by the courts to include oil.

The company attempted to raise capital by selling its stocks and bonds, but few buyers could be found in the early years of the industry. To ease its chronic financial burden, Central Pacific persuaded municipalities to buy its bonds, threatening bluntly that if such support were not forthcoming the railroad would simply be built around the town in question, destroying its economic viability. Further blackening Central Pacific's reputation was the widespread belief that the promoters of the road were skimming profits. They awarded lucrative contracts to construction companies owned by themselves, contracts calling for payments in the form of both cash and Central Pacific stock and so liberal in terms that by the time the road was completed in 1869 the construction company was, in effect, its owner. The net result was that a railroad had been built over the Sierra Mountains to Ogden, Utah, with government funds, but was now owned by four individuals.

The promoters decided to remain in the railroad business after the road was finished. Central Pacific's attention was drawn to a new government railroad venture known as the Southern Pacific, chartered by Congress in 1866 to build rail lines from the San Francisco Bay area to San Diego, California, then eastward to California's eastern boundary. The Central Pacific promoters gained control of this new road in 1868. During the following fifteen years, Southern Pacific spread its lines from Sacramento to New Orleans, having effected a number of mergers in the process. By 1877 the Central Pacific-Southern Pacific combination controlled 85 percent of all rail traffic in the state of California. That year, the companies had sales of $22.2 million and a capital of $225 million.

By 1884 the three remaining promoters had sold the bulk of their holdings in Central Pacific and formed a new corporation, Southern Pacific Company of Kentucky, with which they acquired all of the stock of the old Southern Pacific and its subsidiaries while agreeing to lease the use of Central Pacific's roads. Southern Pacific and its owners remained extremely unpopular for many years. The railroad's early bullying of municipalities, its discriminatory pricing, suspected trafficking in legislative votes by means of bribery, and monopoly power fueled popular resentment. In the 1890s the federal government became increasingly involved in the regulations of railroads. The transcontinental railroads owed the U.S. government a great deal of money in the form of the thirty-year bonds they had borrowed for construction and that were due to mature in the mid-1890s. None of the railroads, including Southern Pacific, had made provision for the repayment of these huge debts. Partly in response to this crisis, the Interstate Commerce Commission (ICC) was created in 1887 as a federal agency charged with general regulation of the railroads. So unpopular was Southern Pacific in California that a San Francisco newspaper gathered 195,000 signatures (more than 10 percent of the state population) on a petition asking the government to foreclose on the railway and to run it as a public service. The government refunded the company's debt until 1909; by that time, the company was able to pay off debt and then became financially independent of the government.

In 1901 Southern Pacific's rival Union Pacific bought a controlling interest in the road and, in effect, merged the two great western rail systems. An ICC investigation was followed in 1911 by a federal antitrust suit against the Union Pacific-Southern Pacific combination. In 1913 the Supreme Court ordered the sale of Southern Pacific stock, much of which ended up in the hands of the Pennsylvania Railroad. As of that date, then, the Southern Pacific Railroad was restored to the general configuration it had had before the 1901 merger, its three principal routes being those between San Francisco and Portland, San Francisco and Ogden, Utah, and San Francisco and New Orleans. A second antitrust action deprived Southern Pacific of its Ogden lines for a number of years, but these were eventually restored. Other litigation forced Southern Pacific to give up most of the oil-producing land included in its original grants, oil falling under the rubric of mineral rights, as well as its timberland.

Southern Pacific survived and enjoyed a decade of unbroken prosperity in the 1920s. Southern's net income steadily rose to its 1929 peak of $48 million, despite having lost to the ICC the right to fix its own freight rates. Truck and auto traffic increased threefold during the 1920s, and along with the airplane would soon wrest from the railroads most long-distance passenger service and many types of freight, except those bulk items for which rail transport is ideal. The impact of these changes was not really felt by Southern Pacific until the Depression brought to an end the era of plentiful business for all. Reeling from these double blows, Southern Pacific watched its net decline to $4 million in 1931 and then disappear altogether for the next four years. Southern Pacific began to respond more to the needs of its customers, offering a much more flexible schedule of service and the use of the railroad's own short-haul trucking company, Pacific Motor Trucking Company. Southern Pacific also fought a well-publicized if losing battle for passenger business, offering low-priced tickets on a number of famous routes between California and the East. It ultimately proved to be impossible to move passengers by rail as cheaply and directly as by car and airplane.

Despite such problems, Southern Pacific remained a giant among U.S. corporations. Its 1936 assets of $1.95 billion were exceeded by only two other U.S. industrial corporations. With $200 million in annual sales, Southern Pacific was among the three largest U.S. railroads. When World War II erupted, the railroad industry boomed along with many other industrial segments, and Southern Pacific's net income reached an all-time high of $80 million in 1942.

Revenue rose from $650 million to $840 million through the 1950s and mid-1960s, and the company expanded its trucking service and added a profitable oil pipeline along a segment of its track in the Southwest. The company spent liberally on maintenance of track and rolling stock, and Southern Pacific built a reputation as one of the country's soundest railroads. The tremendous growth of California's population and agricultural production, along with the rapid increase in intermodal (rail-to-truck and truck-to-rail) transport and a booming oil business in Texas and Louisiana, kept Southern Pacific healthy. By 1969 the entire railroad was under the guidance of a computerized information system that helped to cut down on idle cars and switching delays. By means of such changes, Southern Pacific was able to reduce its labor force from 76,000 in the mid-1950s to 45,000 by 1970, while substantially increasing its volume of rail traffic. In 1972 Southern Pacific diversified into telecommunications. Using its existing network of microwave transmitters, the company became a carrier of long-distance telephone and data communications, first to large corporate users and later to the general public under the Sprint name.

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Southern Pacific Paint Schemes

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