THE COLORADO FUEL REBATES AND OTHER CASES.
In the Colorado Fuel and Iron Case, investigated by the Commission in
1904 and 1905, it was shown that the Santa Fe has persistently violated
the Interstate Act, the Elkins Act, and the injunctions issued by the
United States Circuit Court. The Santa Fe tariff filed with the
Interstate Commission May 24, 1903, and in effect till November 27,
1904, made the rate on coal from the Trinidad district, Colorado, to
Deming, N. M., $4.05 a ton; but Mr. Biddle, General Traffic Manager of
the Santa Fe, testified that during all this time $1.15 of the $4.05 was
always paid back by the railroad to the Colorado Fuel and Iron Company,
a concern in which the Standard Oil people are largely interested.
Similar favors were shown the Colorado Company in respect to shipments
from its mines at Gallup, N. M., giving that company a decided advantage
over competitors, who were obliged to pay the full rate.[180]
It made a difference, also, who was to get the coal. The Santa Fe
carried Colorado Fuel and Iron Company coal to the El Paso and
Southwestern for $2.90 a ton, while charging $3.45 a ton for hauling the
same coal from the same mine to the same point, Deming, when the billing
was to the Southern Pacific. The El Paso could get coal on a rate of
$2.90, while the Southern Pacific must pay $3.45 and the published
tariff rate was $4.05. Anybody on the line of the El Paso who stood in
with the management could get the $2.90 rate, while his competitors
might be paying $4.05.
Mr. Biddle testified as follows, December, 1904, in answer to the
questions of Mr. Field: “I say the freight rate we got from the Southern
Pacific was $3.45 at the time we were accepting $2.90 on coal destined
to the El Paso and Southwestern.”
“MR. FIELD. That is to say, at that time you were charging the Southern
Pacific Railroad Company $3.45 per ton for transporting coal (to
Deming), when you were charging the El Paso and Southwestern Railroad
Company only $2.90?
“MR. BIDDLE. Yes, sir.
“MR. FIELD. And all upon a published tariff which showed a rate of $4 to
Deming?
“MR. BIDDLE. No; the arrangement we had with the Southern Pacific was an
agreement as to what they would pay for their coal.
“MR. FIELD. You paid no attention whatever to the published tariffs?
“MR. BIDDLE. I don’t know that we published a tariff on Southern Pacific
coal at all.
“MR. FIELD. When you published a tariff for the information of the
public and the Interstate Commerce Commission, it was with the
reservation that you might modify that tariff to certain consumers as
suited your business?
“MR. BIDDLE. It didn’t apply to coal when destined to the Southern
Pacific.
“MR. FIELD. That is another way of saying that it didn’t apply when you
didn’t want it to apply.
“MR. BIDDLE. It means just exactly what I said it meant. I said that the
rate we published to Deming on coal was published with the full
knowledge that it did not apply on coal destined to the Southern
Pacific, or coal going to points on the El Paso and Southwestern.
“MR. FIELD. With whose full knowledge?
“MR. BIDDLE. With my full knowledge.”
That is to say: The law requires all rates to be published and adhered
to, so that the Commission and the public may know what rates are being
charged. The traffic manager publishes a rate on coal, knowing that he
intends to give a secret cut rate to special customers, and then
testifies that the secret rate is no breach of the published tariff or
violation of law because the tariff was published with his full
knowledge that he wasn’t going to stick to it. The law in such case
depends entirely on what the railroad manager whispers to himself when
he issues the tariff. If the manager says to himself, “I intend to
follow this tariff which I’m sending to the Interstate Commerce
Commission,” then a rate lower than the tariff is in violation of the
law; but if the manager says, “I intend to give the Southern Pacific and
the El Paso lower rates than this tariff shows,” then the tariff is
issued with full knowledge that it doesn’t apply to Southern Pacific and
El Paso, and cut rates to Southern Pacific and El Paso and their
customers constitute no violation of law.
The Caledonian Company was organized in 1888 to operate a coal mine at
Gallup, N. M., on the Santa Fe.
The company sold large quantities of engine coal to the Santa Fe. The
contract expired in 1898 or 1899, and was not renewed, the parties not
being able to agree on the price; but the Santa Fe continued to buy more
or less coal from the Caledonian till 1901. Some time previous to the
expiration of the contract, the other mines at Gallup came under the
control of the Colorado Fuel Company. An agent of the Colorado Company
asked the Caledonian manager to name a price on his property, but he
declined to do so. “Soon after the Colorado Company took possession of
these mines, the Santa Fe system stopped receiving engine coal from the
Caledonian Company.” The Caledonian had a contract for engine coal with
another road, the majority of whose stock was owned by the Santa Fe.
This contract was also terminated in 1903, the manager of the road
stating that he did it, not because of any dissatisfaction, but by
direction of the purchasing agent for the Atchison.[181]
The Caledonian sought other markets, but found itself handicapped by
discriminating freight rates. Coal from the Colorado Fuel Company’s
mines at Trinidad and at Gallup was being supplied at a price which just
about equalled the freight rate alone from the point of production to
destination. For example, the rate on lump coal from Gallup to Las
Cruces was $5.65, and the coal was selling at the mine for $1.60 to
$2.50 per ton; yet Gallup lump coal from the Colorado Fuel Company’s
mines was being sold in Las Cruces for $5.65 a ton, exactly what the
rival company, the Caledonian, would have to pay in freight. The
Caledonian shipped coal to Silver City, N. M., paying the published
rate, $5.90 a ton, while the Colorado Company was able to deliver Gallup
coal at Silver City at $5.75 total for freight and cost of coal. This
was in April, 1900. Later, the Caledonian shipped to Silver City at a
rate of $5.75 per ton, just what the Colorado sold for, freight and all.
As Gallup, Silver City, and Las Cruces are all in New Mexico, the
Interstate Act does not apply to traffic between those points; but “Mr.
Bowie (manager of the Caledonian) testified that he had made many
shipments from Gallup to El Paso, Tex., upon which he paid the published
rate, and that he found the same competitive conditions at El Paso and
at points in Arizona and Mexico which existed at Silver City.”[182]
The result was that the Caledonian and other mines were practically
driven from the market, their business brought to a standstill, and the
Colorado Fuel Company obtained a virtual monopoly of the trade that
should have been divided with these companies.
Before the Senate Committee, 1905, in answer to a question by Senator
Kean about the so-called discriminations in the matter of the Colorado
Fuel and Iron Company and the Santa Fe Railroad, Mr. Hearne of the
Colorado Fuel Company said: “This matter has been brought about largely
by sensational newspapers.... The coal produced by the Gallup people is
inferior,[183] carrying not more than half the heating power of our
high-grade bituminous. If the railroads have not extended to them the
same rate they have extended to us, I presume it is because the people
at Deming and El Paso, etc., do not want that fuel at any price.”[184]
In other words, the Gallup coal was so poor that the people at Deming
did not want it anyway, and so the railroad put a prohibitive rate on it
to keep the people at Deming from buying it instead of the far superior
Colorado coal which the people were determined to buy anyway.
The Santa Fe used to own and operate coal mines, but in 1896 leased them
to the Colorado Fuel and Iron Company under a contract[185] supposed to
cover the question of freight rates. Afterward a circular in reference
to coal rates was issued from the central office of the Santa Fe in
Topeka.[186] It stated that coal originating at certain points (where
the Colorado Fuel and Iron Company had mines) would be delivered when
consigned to certain specified industries or parties at prices covering
both freight and cost of the coal, which total prices might be, as we
have seen, no greater than the published freight rate alone. The
circular was headed: “This publication is for the information of
employees only, and copies must not be given to the public.”[187] And it
gave notice to Santa Fe agents that the Colorado Company’s coal shipped
to points on the Santa Fe was “to be billed at figures furnished by the
Colorado Fuel and Iron Company which will include the freight rate and
the price of coal.”[188]
The following questions of the I. C. C. counsel, Mr. Field, and answers
by Mr. Biddle, the general traffic manager of the Santa Fe, are of
interest in this connection:
“MR. FIELD. You did not advise the Commission that the rate you made (on
the Colorado Company’s coal) included the price of the commodity?
“MR. BIDDLE. No.
“MR. FIELD. Why didn’t you?
“MR. BIDDLE. I didn’t consider it necessary.
“MR. FIELD. I ask you categorically if you didn’t do it with the
intention of deceiving the Interstate Commerce Commission and the
competitors of the Colorado Fuel and Iron Company as to that rate.
“MR. BIDDLE. No, sir.
“MR. FIELD. What was your purpose, Mr. Biddle?
“MR. BIDDLE. Well, we did it for business reasons.
“MR. FIELD. What were the business reasons? I want you to tell me the
reasons.
“MR. BIDDLE. We did it for reasons we did not consider necessary to
tell; on coal to intermediate points—the rate that we found it necessary
to make to points reached by the El Paso and Southwestern.
“MR. FIELD. You say upon your oath now, that you did not do it for the
purpose of deceiving the Interstate Commerce Commission or the
competitors of the Colorado Fuel and Iron Company?
“MR. BIDDLE. Whatever answer I may make here I am making under oath.
“MR. FIELD. Do you say that is so?
“MR. BIDDLE. I repeat what I said.
“MR. FIELD. You did not intend to conceal from the Interstate Commerce
Commission the fact that that rate as published included the price of
the commodity?
“MR. BIDDLE. We did it for business reasons.
“MR. FIELD. I ask you for a categorical answer. Did you or did you not
intend to conceal from the Interstate Commerce Commission the fact that
that rate included the price of the commodity?
“MR. BIDDLE. I decline to answer.”
In another part of the hearing, Mr. Field said to Mr. Biddle: “Can you
say, Mr. Biddle, how it happened that you issued a circular to your
subordinates in which you said, with reference to these coal rates, ‘To
be billed at figures furnished by the Colorado Fuel and Iron Company,
which include the freight rates and the price of coal; the rates issued
in the regular tariffs to be the minimum’?”
“MR. BIDDLE. Yes, sir.
“MR. FIELD. Will you tell us?
“MR. BIDDLE. It is because the railroads—the Western railroads
particularly—I don’t know whether the Eastern roads do it or not—have
been engaged in the reprehensible occupation of serving as a collecting
agency for the coal companies, and those particular instructions were
given so that the Colorado Fuel and Iron Company could sell coal to John
Smith at a given place and charge him $1.25 and somebody else $1.50 for
that same coal.”[189]
When the document was presented in evidence before the Interstate
Commerce Commission, counsel for the railway objected to its
introduction on the ground that it had been stolen.
Morawetz says that the rate agreement in respect “to shipments to the El
Paso and Southwestern was a three-cornered arrangement made in New York
in 1901 between the Colorado Fuel Company, the Santa Fe, and Phelps,
Dodge & Co., who operated large copper mines and controlled the El Paso
and Southwestern Railway.”[190]
Paul Morton, who was then the head of the Santa Fe traffic department,
says that in 1901 the people interested in smelting and mining in
Southern Arizona and Northern Mexico threatened to use Eastern coke or
build a coal railroad of their own unless lower prices were made on the
coal and coke they were receiving at El Paso and Deming. They were large
consumers, and their threat menaced a traffic worth nearly a million
dollars a year to the Atchison system. To protect its interests the
Santa Fe entered into an agreement with the Fuel Company and the El Paso
and Southwestern people the terms of which were that the Fuel Company
was to supply coal at $1.15 a ton, and the Santa Fe was to haul the coal
to El Paso and Deming “at the very low rate of $2.90 per ton, which was
in reality a division of rate, not usually published.” And “the
Southwestern people were to pay $4.05 for the coal which was to be used
by the railroad itself and the industries along its line.”[191]
This arrangement was, in view of the rates charged shippers from other
points and other consignees at El Paso and Deming, a clear violation of
the common law and the Interstate Commerce Act. A Federal injunction was
served on the Santa Fe in March, 1902, forbidding departure from the
published rates, and the Elkins Bill was passed in February, 1903. The
El Paso arrangement was not at the start a defiance of injunction or the
law of 1903, but became such by its continuance after their issue.
General Traffic Manager Biddle and General Freight Agent Gorman sent out
general orders in March, 1902, and February, 1903, that the law was to
be obeyed, and that “no departure therefrom will be permitted so far as
this company is concerned,” but the law was not obeyed nevertheless. A
general order of a railroad manager counter to the financial interests
involved does not seem to count any more than a Federal injunction.
The El Paso agreement was by no means the only breach of law in the
case. Even the discriminations in respect to shipments between New
Mexico points were in direct violation of settled principles of the
common law.
The Commission found that the Santa Fe acted as agent for the Colorado
Fuel Company in collecting from its customers the price of the coal
itself along with the freight rate;[192] that for over five years (July,
1899, to Nov. 27, 1904) the railroad had paid the Colorado Fuel Company
a rebate of $1.10 to $1.25 per ton on shipments to Deming; that the
railroad and the Coal Company have “systematically and continuously”
violated the Interstate Commerce Act of 1887 and also the Elkins Act of
1903; and that from March 25, 1902, till Nov. 27, 1904 the railway had
been in “continuous disregard” of the order of the United States Circuit
Court (in a suit begun at the instance of the Interstate Commission)
enjoining the railway to observe its published schedules of rates.[193]
Commissioner Prouty says: “In all my experiences with railway operations
I never saw such barefaced disregard of the law as the Santa Fe railroad
and the Colorado Fuel and Iron Company have manifested in this coal
case. For years the railroad company has received less than its
published rates from the Colorado Fuel and Iron Company while its
competitors have paid higher rates.”
The counsel, Judson and Harmon, employed by the Government to examine
into the “alleged unlawful practices of the Santa Fe in the
transportation of coal and mine supplies” reported to the Attorney
General, February 28, 1905, as follows: “From August, 1902, until
December, 1904, the railway company continuously transported coal for
the Colorado Fuel and Iron Company at less than the published rates then
in force, from various points in Colorado and elsewhere to El Paso,
Tex., Deming, N. M., and other places, to which such transportation was
interstate commerce.
“This was done by secret arrangement between the two companies, under
which the coal was apparently billed at the published rate of freight,
although in fact the price of the coal was included. The railroad
company collected the amount shown by the billing, and paid over part of
it to the fuel company as the price of the coal, making the real charge
for transportation less than the published rate by just that amount. At
the same time the rates given and charged other shippers were the
published tariff rates without any deduction.
“This plan, and the way it was carried out, plainly indicate an
intention to deceive the Government and the public, and to enable the
fuel company to gain a monopoly of the coal supply at the points
involved by giving them a strong advantage over competitors in the
actual cost of transportation. The motive for thus favoring the fuel
company does not appear in the evidence thus far taken, but the fact is
clear.
“This secret arrangement with the fuel company involved the carriage of
hundreds of cars per month. The concessions from the established rates
must have amounted to about a million dollars for the two and one-half
years during which they were granted; and it is incredible that this
scheme was devised and carried out by any authority but that of the
chief officers of the railway company, who were in control of its
traffic department. And it was the duty of each and all of these
officers to see that the injunction (of March, 1902) was obeyed.”
The special counsel recommended that “the Atchison Company and all its
principal officers and agents who had, during the period above named or
any part thereof, power and authority over traffic agreements and
freight rates, be arraigned for contempt of court.”
President Roosevelt has directed that proceedings for contempt be taken
against the companies in the Colorado Fuel Case and the International
Harvester Case, but will not proceed against individual officers
personally in any case until the department is in possession of “legal
evidence of wilful and deliberate violation” of law on their part.
I went over the Santa Fe while these secret discriminations were in full
blast, and met President E. P. Ripley, Vice-President Paul Morton, and
other high officials, who impressed me so favorably in our talks about
rates, discriminations, etc., that I wrote in my notebook: “I believe I
have found one honest railroad in America, honest at least in intent,
whatever deviations from principle the system may force upon it.” Mr.
Spearman evidently got a similar impression, for he says: “The Santa Fe
has eliminated preferential rates entirely from its own traffic
problems; and this sturdy determination to put all shippers on a just
and equal footing, to maintain open and even rates, is the keynote of
President Ripley’s successful strategy.”[194]
This is stronger than the impression I received, which was that
discriminations did exist and it was not thought possible that they
should cease to exist, so long as competition continues, but that there
was an earnest purpose to eliminate them so far as possible.
Notwithstanding the Colorado Case and others mentioned hereafter I still
think that the present administration of the Santa Fe is on the whole
relatively very honest and very admirable.[195]
President Roosevelt was led to a similar conclusion by the frank and
manly stand taken by Paul Morton in his testimony in the Dressed-meat
Hearings, Jan. 7, 1902. In a letter to Mr. Morton, June 12, 1905, the
President says: “At the time when you gave this testimony the Interstate
Commerce Law in the matter of rebates was practically a dead letter.
Every railroad man admitted privately that he paid no heed whatever to
it, and the Interstate Commerce Commission had shown itself absolutely
powerless to secure this heed. When I took up the matter and endeavored
to enforce obedience to the law on the part of the railroads in the
question of rebates, I encountered violent opposition from the great
bulk of the railroad men and a refusal by all of those to whom I spoke
to testify in public to the very state of affairs which they freely
admitted to me in private. You alone stated that you would do all in
your power to break up this system of giving rebates.” It was this, the
President says, that led him to invite Mr. Morton to take a place in the
Cabinet.
The high character and ability of Mr. Morton and President Ripley and
the fact that the Santa Fe management seems to represent high-water mark
in railroad honesty, gives great importance to the Santa Fe cases, and
the attitude of her leading officers towards the law, and the principle
of impartial treatment of shippers.
Paul Morton is reported to have said to a representative of the Chicago
_Daily News_, December 31, 1904: “What Mr. Biddle did was exactly right,
in my judgment, and if I had been in his place I should have done the
same thing.” And President Ripley is stated to have said to a reporter
for the _Inter-Ocean_, “It was not rebating. It was simply a figure
agreed upon by private contract. Mr. Paul Morton was cognizant of it,
and though his name may not be affixed to the order, he was the man from
whom Mr. Biddle, the freight traffic manager, got authority to haul coal
for the Colorado Fuel and Iron Company on the terms named.”
“Did you also know of it, Mr. Ripley?”
“Why, yes, as I know of all of our business. I consider it absolutely
legitimate, and will do it again to-morrow if I like.”
Knowing that serious misrepresentations have appeared in the papers,—for
example, that Mr. Morton was a stockholder in the Colorado Fuel Company,
and recreant to Atchison interests, which was untrue, as Mr. Morton had
sold his stock in the Fuel Company and all its auxiliaries when he left
its employ before entering the service of the Atchison in 1895—knowing
the frailty of newspaper reports I wrote to President Ripley and Paul
Morton asking if it were true that they had said Mr. Biddle did right in
making the arrangement with the Colorado Fuel Company in respect to the
rates to Deming, etc. They replied as follows:
THE ATCHISON, TOPEKA & SANTA FE RAILWAY SYSTEM.
_President’s Office._
CHICAGO, August 22d. 1905.
DEAR SIR,—I did say to the Press that Mr. Biddle’s action in making
the rate was exactly right. The whole trouble arose from a mistake in
our tariff printing department in confusing the actual rate charged
with the amount to be collected at destination. It was our custom, and
that of all the other fuel roads in Colorado, to collect at
destination the price of the coal as well as the freight rate.
Inasmuch as the tariffs printed are a guide intended quite as much for
the information of our own agents as for the public, the clerks
included the price of coal in the tariff as a guide to collecting
agents, but it did not occur to them that the information was liable
to mislead the public, especially as it was a well-known fact that no
shipper except the Colorado Fuel and Iron Company could possibly be
interested. The whole transaction was a perfectly innocent one so far
as regards any intent to injure any interests or to deceive the public
in any way, nor was any person injured by the transaction. I think
that all this will transpire and be recognized by the court in the
case now pending at Kansas City, though, of course, I am not in
position to anticipate a court decision. The trouble with the whole
matter was the fact that Mr. Morton was a member of the Cabinet and
that certain portions of the Press made use of the incident for the
purpose of discrediting the Administration.
The matter was unfortunate in so far as it may have constituted a
technical violation of the Interstate Commerce Law and of the
Injunction, but that is the worst that can be said of it.
(_Signed_) E. P. RIPLEY.
THE EQUITABLE LIFE ASSURANCE SOCIETY.
_President’s Office._
NEW YORK, August 24, 1905.
DEAR SIR,—Referring to your query relative to the remarks alleged to
have been made by me on December 31, 1904, to a reporter of the
Chicago _Daily News_, I have to say that although I do not now recall
everything that may have been said by me in conversations which were
not intended for publication, it is quite possible that I did remark
to some newspaper men that in my judgment Mr. Biddle’s personal action
in the case was entirely justifiable, and exactly what I or any other
railroad man would have done under similar circumstances. The contract
between the Railroad Company and the Fuel Company was of itself
neither unlawful nor unbusinesslike. On the other hand, it was
perfectly defensible from a legal standpoint, as well as being good
business ethics.
The fault lay with the Railroad Company’s tariff bureau, which failed
to properly publish the tariff, which should have shown that the
published rate of $4.05 per ton included the price of the coal ($1.15
per ton). There was no discrimination in favor of the Colorado Fuel
and Iron Company; in fact, discrimination was impossible, because
there was no other shipper of coal in that territory.
(_Signed_) PAUL MORTON.
There were, however, other mining companies in adjacent territory, along
the line of the Santa Fe in New Mexico, and at Gallup there were
competitors in the same field. The same day that the Commission began to
investigate the Colorado Case complaint was made about the rates from
San Antonio, N. M. San Antonio lies 150 miles north of El Paso on the
Santa Fe line from Trinidad, which is 500 miles from El Paso. The rate
paid by the Fuel Company from Trinidad was $2.90 and the rate from San
Antonio had been $1.25. “Under this adjustment of rates a coal operator
at Carthage whose product reached the iron of the Santa Fe at San
Antonio had been able to compete with the Colorado fields, and had
entered into a contract for furnishing the Mexican Central Railway
Company with its fuel. While that contract was pending the Santa Fe
advanced the freight rate from San Antonio to El Paso from $1.25 to
$1.50. By this action the operator at San Antonio was forced to give up
his contract and go out of business.”[196]
It seems clear that even our best railroads, while unwilling to
countenance graft and desiring to avoid all criminal practices, see
nothing immoral in granting whatever favors or imposing whatever
disadvantages may be deemed necessary to forward the financial interests
of the road.
The Santa Fe is by no means the only railroad that has been kicking over
the traces since the Elkins Bill was passed. Mr. Hendrickson, Secretary
of the Associated Merchants of Cumberland, Maryland, told the Senate
Committee that he came “to complain of coal discriminations. We are
charged 15 cents more a ton to tide water for our coal than is charged
other mines in more distant regions (50 to 75 miles further from market
on the same road), and we have a large amount of bituminous coal that
cannot be developed at the 15 cents differential.”
“SENATOR DOLLIVER. Why do they make this differential against you?
“MR. HENDRICKSON. I can only state that the Baltimore and Ohio
officials, when they were petitioned, said that other districts have
poorer coal than ours, a compliment we did not appreciate under these
circumstances; and they object to letting our coal reach market as
cheaply as these districts which they claim have poorer coal.
Nevertheless, it shuts our region out entirely. It is practically a
confiscation of our coal values, not our coal, but coal values, and that
amounts practically to the same thing.”[197]
The B. & O. made certain charges when coal was loaded by tipple and
exacted more if it was loaded in any other way. This is an unreasonable
discrimination against all who do not load by tipple.[198] The Pere
Marquette Railway has been selling ice to the Armour Car-Line at $2 a
ton while charging other shippers $8 to $12 per ton.[199]
The absorption of switching charges in some cases and not in others
constitutes an easy method of discrimination. For example, at Cincinnati
there is a large buyer of lumber whose yard is on what is called
“Hazen’s Switch.” To get to this switch from the Louisville and
Nashville Railroad, cars must go over part of the tracks of the P. C. C.
and St. Louis Railway and the Cinn. L. & N. Railway. These roads charge
the Louisville and Nashville $6.50 to $9 a car for switching. On lumber
originating at some points the shipper has to pay these switching
charges in addition to the freight; while on lumber from other points
the Louisville railroad pays the switching charges and the shipper is
favored to that extent.[200]