THE PEOPLE WIN---ONE MAN BEATS 150
Fraser, Hugh Russell
The People Win---One Man Beats 150 Donald R. Richberg, of Chicago, and His Fight in the Greatest Lawsuit of Our Times—The Railroad Valuation and Rate Case. By HUGH RUSSELL FRASER (Reprinted by...
...According to the-terms of that Act, all railroads making earnings in excess of 0 per cent on their original investment value were required to turn the excess earnings over to the Government to be used to help less prosperous railroads...
...I am here representing a considerable fraction of that public, including several great States and cities...
...Directly in front of the Commission bench was a long table...
...And the railroads, in attempting to shoulder the public with the "reproduction new" valuation, are doing precisely what Jones would have tried to do ha.d he tried to compel Smith to pay $15,000 for the original $10,000...
...It represents the highest possible amount of money that the public utilities could earn...
...But—and here is the basic point—the dollars Jones gave to Smith in 1914 were worth more to Jones in purchasing power than the same dollars he receives from Smith in 1924...
...the railroads, of monopoly...
...The company, however, appealed the case higher, and now it is...
...The ultimate verdict, therefore, is vital...
...They cannot with immunity threaten that public welfare as they do here with this theory of reproduction—a game of guessing...
...He strode heavily up and down the length of the bench and in imposing tones warned the Commission of the consequences should they fail to sustain the "reproduction new" theory...
...If the courts undertake to legislate by judicial fiat, then the courts will have become tyrannical, and you, at least, may defend yourselves to the people that you have endeavored to safeguard their interests...
...Zeal for Justice SO FAR victory rests with Richberg...
...On the other side of the table sat that one man—Donald R. Richberg, of Chicago...
...And he was enough to carry the day...
...The three arms of our liberal Government—legislative, executive, and judicial— were endowed by the people with equal and independent strength...
...Richberg, Senator Norris is contemplating the introduction of a bill to make the "original cost" or ''prudent investment" theory mandatory as the basis of railroad valuation, rates and earnings...
...Therefore I must have more for my services...
...Method of Valuation TO UNDERSTAND the specific nature of the case of the St...
...And I represent practically all of those employes...
...Jones owns his own house...
...He concluded by declaring finally that the railroads would not be satisfied with anything less than the full cost of "reproduction" as the basis of rates and eari.ings...
...Next came W. G. Brantley, rate counsel for the Eastern railroads...
...Brantley's successor was Leslie Craven, rate counsel for the Western railroads...
...To imagine that is to imagine an intellectual monstrosity...
...But the major victories he has obtained are more remarkable still...
...At the next session of Congress, according to Mr...
...No one values a motor car at the cost of 'reproducing' it," he said...
...Why," they said, "should the railroads be forced to charge rates and make earnings based on the dollar originally invested in the property when those dollars have since declined one-third or one-half in value...
...The argument is most plausible...
...It appeals to the average man, the salary-earner of war times who knew, though he was paid ¦ the same number of dollars as before the war, that, measuring that dollar by its purchasing power, his salary had been cut...
...Besides his public utility achievements, Richberg is the author of his Alma Mater's song and of three novels, and is a frequent contributor of verse to the magazines...
...The fact is that every time a legislature moves it destroys or enhances the value of property...
...Independent ThinMng Needed THE challenge was dramatic...
...It would call in another airplane company, and turn over the contract to it...
...mitted to raise rates to the tune of some $800, 000,000 or $1,000,000,000 yearly...
...But, in a larger sense, the case involves more than that: it involves the market price of all commodities bought and sold in the country...
...Then it brought suit against the St...
...And the courts themselves have so held time and time again...
...Declare yourselves...
...This is known as the "original cost" or "prudent investment" theory...
...So, when 1924 rolls around, Smith comes to Jones and repays him exactly $10,000...
...Should they lose, they will be obliged to turn enormous sums of money in excess earnings back to the Government, a procedure which they allege will impair the credit of the railroads and lessen the efficiency of their service to the public...
...On no less than six different occasions the Supreme Cpurt of the United States had upheld the "reproduction new" theory in test cases brought by public utility corporations, such as the Indianapolis Water Company, the Consolidated Gas Company, the Bluefield Water Company, and others...
...This much about it is certain: Richberg will not be under the disadvantage of .appearing alone against, such overwhelming odds...
...The railroad company was apparently on sound lega[ ground in taking this position...
...W. D. Lambert, of U. S. Geodetic Survey, says it has now been proved that the crust of the earth rises and falls in tides as a result of the attraction of moon and sun...
...Yet by "reproduction new" the utilities are seeking to capitalize the people's gift against themselves...
...It is not...
...Bullfrogs will eat only living organisms, which they swallow whole...
...If I reproduce my air-fleet at present prices, I would have to charge more...
...Quite a simple illustration will suffice: Smith and Jones are neighbors...
...Likewise the emancipation of the slaves confiscated the property of the Southern landowner—that is, if these railroad gentlenjen are to be accepted in their interpretation of the law...
...So he set about his work methodically...
...He did not, however, go into- the theory of "reproduction new...
...What, then, does he do...
...It will turn a new page in American history and—more significant still— it will establish the first basic nconomie interpretation of the Constitution of the United States...
...The railroad and public utility corporations say that, in view of th2 "decreased value of the dollar, they should be allowed to charge rates and make earnings based, not on the "original cost" of production, but on what it would cost to reproduce their properties at present-day prices...
...Certainly it is proper for the Commission to seek light from the courts...
...Richberg's fight, however, obtained for the gas consumers of Chicago a reduction of 15 oents per thousand cubic feet—in itself no little achievement...
...Does he go to court and demand that Smith repay him $15,000...
...Louis and O'Fallon Railroad the Court will not be able to put off the all-important verdict, as the latter Toad will no doubt claim a specific injury...
...It is in effect that the dollars which the railroads have invested have declined in purchasing power and that hence their invested dollar should be made $1.50 or more to represent its present purchasing power...
...It will not only affect the price of everything • bought and sold in the country, but, should t"he railroads win, automatically boost the cost of living...
...There the true issues of the case were revealed: Richberg for'the public against one hundred and fifty shrewd trained attorneys for the corporations...
...Then," according to Richberg, "in the face of any unmistakable expression of public opinion, it is inconceivable that the Supreme Court would make a flat declaration in favor of 'reproduction new.'" But, whatever that decision proves to be, it . is going to have a tremendous effect on American economic life...
...resting in the State Supreme Court...
...He pointed out to the Commissioners that property—all property—was a bundle of rights created by the legislative power of the people and subject to modification by the people, even to confiscation by the same legislative authority...
...Third, he effected the virtual destruction of the Railroad Labor Board, which had reduced the wages of the railway brotherhoods by some $300,000,-000...
...He went on to cite how time and time again State and Federal courts overruled the decisions of State Com* merce Commissions which had upheld the validity of the "original cost" or "prudent investmen...
...It creates the highest possible earning power, whereas the fundamental purpose of public control is to limit earning powe£ to a reasonable compensation...
...This basic, succinct, and yet comprehensive exposition of the political-legal character of property impressed the Commission and prepared rhe way for Richberg's final attack on the argument of tie railroad regarding the "decreasing value of the dollar...
...He is not unaccustomed to victories, however...
...It is the duty of this administrative body, imposed upon it by the legislative...
...The opposing attorneys had stressed this argument as the basis of the plea for the "reproduction new" theory of railroad valuation...
...Louis and O'Fallon Railroad...
...The field of conflict was the chamber of the Interstate Commerce Commission, and the issue at stake was the basis on which the railroads of the United States shall be valued for the purpose of fixing rates...
...His manner was solemn and ponderous...
...In dollars and cents, profit and losses, it will be a momentous issue...
...Louis and O'Fallon Railroad, which is to be appealed to the Supreme Court, we must go back to the Transportation Act of 1920...
...M. L., JR...
...A second great interest arc the employes of the railroads...
...not been clearly shown...
...He was there to speak for the people and the National Conference on Railroad Valuation, a nationwide organization of shippers, public officials, and representatives of the public at large...
...The theory of "reproduction new" is the only method the utilities have been able to devise to obtain an excessive profit...
...Long ago—before the spell of the legal argument was woven—the courts declared that the regulation of all public utilities was a legislative function, and that, if injustice were done, recourse was tn the polls and not to the courts...
...He was -impressive...
...The automobile, he said, stands as the symbol of competition...
...And the verdict to be handed down then will profoundly affect the economic life of the American people...
...No wonder the State and Federal courts listened to it with a good deal of respect, and that the Supreme Court went so far as to uphold it in the case of six different public utilities...
...This the road denied, contending that the "reproduction new" theory was the true theory of railroad valuation, and on that basis the valuation was nearly double $850,000...
...But in the ease of the St...
...The regular representative of the Government, the Chief Counsel to the Commission, was somewhere in the room, but for this particular case lie had begged to be excused...
...They prey chiefly on crayfish, water bugs, beetles, small fish, small frogs, tadpoles, but will take butterflies, dragon-flies and other insects on the wing, if opportunity presents...
...The bill will have little likelihood of immediate passage, the Chicago lawyer admits, but it will at least help to arouse public opinion to the importance of the case...
...F'irst of all, he disabused the Commission's mind of the idea stressed by the railroad attorneys that, since the courts 1 aned towards the "reproduction new" theory, therefore that constituted a precedent for the Interstate Commerce Commission ti do likewise...
...But it is typical of the man who single-handed fought the greatest lawsuit of our day successfully...
...Second, he established by unanimous decision of the Supreme Court, the right of any citizen cited for contempt of a picketing injunction to a trial by jury...
...The right of the railroads in property exists subject to the public welfare...
...First, he broke and demolished the labor injunctions secured by Attorney-General Daugherty under the Harding Administration...
...He admonished the members of the Commission that the principles and administration of law involved in the case were of profound magnitude...
...While our brother Clark, who just concluded, did not so identify himself, yet I am quite sure that you recognize that he, too, belongs to the happy family of the friends of the Commission...
...Now it concerns an investment of some $20,-000,000,000—a sum greater than the total wealth of the Japanese Empire, greater than the total of the National debt, and more than the original cost of building all the railroads in the United States...
...Listened With Respect THE PROPOSITION is imposing...
...He had all afternoon for his argument...
...He persuaded the Supreme Court to decide that the Labor Board had no power to compef testimony before it, and, robbed of its authority, it rapidly fell into decay...
...On the other hand, if the public were furnishing its own railroad service, it would • charge rates based on the original $15,000,-000.000 that may have gone into their construction and maintenance...
...By HUGH RUSSELL FRASER (Reprinted by Permission of The Outlook) The following article, reprinted by permission of The Outlook, presents a dramatic picture of the contest over railroad valuation which is now proceeding before the United States Courts...
...The victory that lone attorney gained was not final...
...Eyes on Richberg FINALLY, however, the big guns ceased and all eyes turned to Richberg to see-what he had to say, what he could say...
...The movements have not yet been measured, but he says that the same tides that affect the Atlantic Ocean have been charted at Williams Bay, Wis., 800 miles inland...
...This is the view of Senator Norris, of Nebraska, Chairman of the National Conference on Railroad Valuation and its representative in the Senate...
...In most of the country frogs are now fast asleep a foot or two in mud...
...Louis, argued before the Interstate Commerce Commission for the purpose of securing excess earnings of the railroad...
...Proceed...
...The one constitutional provision that must be fulfilled, he added, however, is that such confiscation must be done by process of law—else, he pointed out, prohibition would be confiscation without due process of law...
...The Supreme Court, however, realizing the far-reaching import of the matter, has so far avoided a decision...
...Should the railroads win, they will be per...
...It would not...
...Apparently, he was lecving that to his colleagues, contenting himself with the duty of impressing on the Commission the solemnity of their task...
...A ruling was expected when the Los Angeles and Salt Lake Railroad case came to it recently on appeal from the Interstate Commerce Commission...
...With short, incisive words he exploded this notion: This Commission does not sit here to listen with reverent ears to hear the courts tell it what its duty is...
...His first achievement was made at the age of thirty-four, when he was appointed attorney for a non-partisan commission selected by Mayor William Hale Thompson to collect a refund of $10,000,000 from the local gas company in Chicago, which Thompson and the people claimed as a refund on exorbitant illegal gas rates...
...This is called the "reproduction new" theory...
...If this were not so, then any one could step in, reproduce the plant, and take the business...
...The young Chicago lawyer was speaking slowly and deliberately...
...This was the intent of Congress, he declared, and of the statute that created the Commission: Richberg then assailed the concept of "property rights" as raised by the opposing attorneys, as a mere juggling of words...
...The Los Angeles and Salt Lake road appealed on the ground that the Commerce Commission had allotted to it traffic rates based on the "original cost" or "prudent investment" theory, and not on the "reproduction new" basis...
...Jones is wealthy and, in neighborliness, lends Smith $10,000 and tells him he will not have to pay him until 1924...
...Born in Chicago forty-six years ago, he was graduated from the University of Chicago and the Harvard Law School, and quickly went into public utility battles...
...Opposing this contention of the railroads and denying its validity is the National Conference on Railroad Valuation, an organization composed of shippers, public officials, and representatives of the public generally...
...It is the story of a young attorney who, for the sake of his ideals, defies the courts and thereby falls into destruction...
...It is the people who have given to utilities the right to serve exclusively in their respective fields...
...A Complete Victory RICHBERG'S victory was complete—as far as the Commission was concerned...
...While the Interstate Commerce Commission in its decision did not apply the theory of prudent investment as concretely as the late Senator La Follette would have desired, nevertheless that decision constitutes a great victory for the people as contrasted with the extravagant claims of the railroads.—R...
...The railroads are public highways and the public pays the bills that, support them...
...After him came lesser lights of the legal counsel, following him in rapid succession— each lawyer pointing out some new phase of the "reproduction new" theory...
...From there it will be taken, sooner or later, to the Supreme Court, for which it was originally intended...
...u.uory...
...Louis and O'Fallon Railroad, a little nine-mile coal-bearing road outside of St...
...His string Oi legal precedents was likewise impressive...
...Is it the problem of the Supreme Court to determine what the railroads shall earn...
...Actually, however, the issue at stake was more far-reaching than that...
...On one side of this table, touching elbows, man by man, row by row, sat the one hundred and fifty or mere counsel for the railroads and public utility corporations...
...They furnish the actual service...
...They keep the railroads going...
...A verdict is inevitable by the Supreme Court, for in perfectly legal form the case will come to it on appeal from the Interstate Commerce Commission...
...The Government is now turning its air mail over to private contractors...
...O NE MAN, quiet, deliberate, grim-faced, against one hundred and fifty expert lawyers, won the first encounter in the greatest legal fight of our time...
...It was the deep-rooted question that has puzzled Congress, the railroads, and the people for twenty years: Shall the railroads and public utilities of the United States be allowed to xcharge rates based on what it cost originally to produce their properties, or shall rates be charged and earnings made on the basis of what it would cost to reproduce their properties at present-day prices...
...New Question Involved ON THE other hand, the railroad company was making the somewhat risky assumption that the "reproduction new" theory, which the Supreme Court had upheld in the case of public utility corporations, would likewise be upheld in the case of ajvaluation of a railroad...
...No one seemed to believe he had a chance...
...Louis and O'Fallon Railroad had no case in court, but that the "original cost" or "prudent investment" theory is the true basis of railroad valuation...
...But it is wholly inappropriate for this Commission, representing the legislative power, to go to the courts for lights on question of public policy...
...But there is both injustice and( fallacy in the railroad claim...
...He began cordially: "I am glad indeed this morning to be among so many of your good friends to appear before you...
...In making the decision the Court will find itself in a singular position: if if upholds the Interstate Commerce Commission decision of last March, that "original cost," and not "reproduction new," is the true basis of railroad valuation, then the Supreme Court must reverse itself so far as its public utility verdicts are concerned...
...The fight must be carried to the Supreme Court...
...For two days the barrage fire of denunciation of the "original cost" theory kept up...
...No one was to follow him...
...If you have here a question of public policy, social and economic issues of justice and injustice, submitted to you, the source of your public policy is the legislative power which created you, and not the courts...
...Louis and O'Fallon Railroad, claiming that the road had made excess earnings for the years 1921, 1922, 1923, of $226,000 under an "original cost" property valuation of $850,000...
...Prices of airplanes have gone up...
...A Dramatic Scene THE drama of the case, in its final scene, will not be less than at the original hearing before the Interstate Commerce Commission a year ago last July...
...The court-room was called to order...
...Smith wants to buy his house—say, in 1914...
...There is a third interest, however—the owners of the railroads—and others have spoken here as representing them...
...The first speaker was for the railroads-Edgar E. Clark, formerly Chairman of the Commission, and now special counsel for the railroads...
...Yet the utilities are asking just that—reproduction of the existing plant, not of a plant designed to embody the progress of the art or a plant better adapted to serve a community whose needs have shifted since the plant actually was built...
...Richberg then entered into a comparison of_ the public attitude of two great transportation agencies—the automobile and the railroads...
...All his life has been spent in public utility fights, and this is his greatest achievement...
...The Supreme Court, however, declared that it would not consider the merits of the case unless the railroad claimed some specific injury, and that this had...
...Despite the heavy odds against him, the Commerce Commission—genuinely impressed by Richberg's arguments—determined by a 6-to-4 decision last spring, not only that the St...
...His is an interesting personality...
...Suppose that five years hence a contractor should say: "I can no longer carry the mail at-$1.25 per pound...
...He sat alone...
...Accordingly, the road argued that it owed the Government nothing, since its earnings on that basis were not: even the 6 per cent allowed them by the Government...
...The Commission goes to the words of the Congress of the United States, and tries to do its duty according to that law...
...The Interstate Commerce Commission has appointed a special prosecutor, Walter Fisher, Secretary of the Interior under President Taft, to represent the Commission, while Richberg will represent the National Conference on Railroad Valuation, founded by the late Senator La Follette, of which Senator Norris is now Chairman...
...Instantly came the reply in short, terse syllables: Sir, my clients may be listed as two great interests...
...The utilities now, however, have succeeded in weaning the courts away somewhat from that early dictum, but it is nevertheless as sound today as when uttered by Justice Waite in 1872...
...Set for argument this morning," rumbled the chairman, "is Finance Docket 3908, excess income of the St...
...Every Home Affected WHAT the case involves today is as nothing to what it will involve tomorrow...
...No one will deny that great* property rights were destroyed by-prohibition...
...Jn the hope of obtaining a favorable ruling on it, the great railroads of the United States have united forces with the little nine-mile St...
...Smith does not...
...Ix)uis and O'Fallon Railroad...
...But the roads now seek to affix rates on nearly three times that original investment...
...Only a lawyer with a passionate zeal for justice could have written this remarkable story...
...Would the Government comply with this demand and boost the rate per pound for carrying air mail on the basis of what it would cost the contractor "to reproduce" his fleet of airplanes...
...Richberg entered the fight with such vigor, that in a comparatively short time a verdict for a refund of $10,000,000 was obtained in the lower courts...
...Scarcely anything can be said to be exempt from the after-effects of the decision...
...It sent ringing into the ears of the Commissioners a call to be themselves, to hold themselves erect and independent as representatives of the legislative powers of the Government...
...They say that the only fair basis for earnings and rates is the amount of the original investment, plus improvements that the railroads have put into, their properties...
...But the sledge-hammer blows of Richberg's simple, homely logic shattered this bogy of the railroads...
...In beginning his attack on it, however, Rkhle/g admits its "impressive" character: It is an argument that, until plumbed, persuades the casual citizen and frequently snares a court...
...He takes the $10,000 and the debt is wiped cff...
...One of his novels is especially significant...
...Great Issue Involved TECHNICALLY, it was the case of the Government of the United States against the St...
...The Government has never sought to test this provision of the Act until over a year ago last July...
...Say the price is $1.25 a pound...
...This question has never yet been tested...
...He was in no hurry...
...Of course not...
...The case now goes to a three-judge Court of Appeals in Kansas City...
...Even one of the Commissioners, when the railroads had closed their case, inquired, somewhat ironically: "And whom do you represent, Mr...
...Let the Court tell you, if it chooses, that you have misused your authority or misinterpreted your responsibility, but then let the consequence rest on the Court...
...What could one man do against one hundred-and fifty...
...But I thought it ought to be well understood at the outset that you are not now listening to an opponent of the railroads, but that you are listening to one properly accredited as the representative of two interests in them that are greater, even, than ownership...
Vol. 20 • January 1928 • No. 1
