State Companies

[kevarc]

The discussion on rates made me think of another question that I have and never understood.

For many years, if you operated a railroad in a state, you had to have a corperate structure in that state. This lead to the formation by railraods of seperate corperate structures in each state.

My question is - how did the states get around the Interstate Commerce clause? I would have thought that the RR's would have been in the federal courts to kill this as a hinderance to interstate Commerce. But it appears that they never did.

[MP57313]

Possibly the state requirement pre-dated the Interstate Commerce Clause?

Years back Texas had this requirement. An old atlas I have shows different RR abbreviations within Texas: MKTT (Missouri-Kansas-Texas of Texas), P&SF (Panhandle & Santa Fe), etc.

[kevarc]

The Interstate Commerce clause is Article I, Section 8, Clause 3 of the constitution so I do think it has been around longer.

I am thinking under the "the Dormant Commerce Clause, even when Congress has not acted (i.e. Congress’s power to regulate commerce lies dormant) the Supreme Court may find certain state and local laws unconstitutional if they unduly burden interstate commerce" that while not specifically stated in the Constitution, it has been inferred by the Court and Congress that the federal gov't hs this power. I just wondered why the RR's never pushed for it.

[mudchicken]

It was and is still is a matter of state sovereignty and charter to operate within the state (i.e. accountability). Texas quit the separate corporate entities (G&SF, P&SF, T&NO, MKTT, etc.) incorporated in Texas after it was made abundantly clear to them that it was driving up the cost of transportation in Texas. In the 1980's, the separate corporate structure accomplished nothing and industry was avoiding Texas if it needed rail transportation in its business plan.

[Overmod]

MP, the Commerce Clause is an interpretation of the Constitution, and has nothing to do per se with the ICC. I'm sure that LC can give us a full rundown on the history of state vs. Federal interpretation. One 'sure bet' based on ancient history with Walter Murphy is that no legislation by US Senators and Representatives regarding railroads (in the ICC era) would have gone against states' prerogatives... unless it actually affected train operations in PROVIDING interstate commerce (e.g., I'd think that local restrictions on traffic or car types on an interstate mainline might apply). This becomes a bit less, or perhaps a bit more, self-serving when you consider who elects the abovementioned Senators and Representatives -- it's harder to get votes if people think you're a tool of bloated special interests (and the Congressmen who in fact ARE well-heeled with railroads generally don't have to worry about appearances ;-})

The issue with corporate structure is a bit more complicated. Texas is a special case because it MANDATED that railroads within the state be owned by a Texas company (again, LC can give you the precise statute and the setup of the Railroad Commission of Texas -- its right name, see http://www.rrc.state.tx.us/) My impression was that most other states simply required the normal provisions for a foreign corporation (meaning one from out-of-state in this context) to do business -- that usually involved having at least one registered office and agent in that state. I seem to remember this being necessary only if actual business was being transacted in that state --merely having track passing through didn't normally 'count' -- but of course you can guess how the lawsuit would be filed on these...

[gabe]

Predating the Interstate Commerce Clause ("ICC") would not really affect things. I am not aware of a "grandfather clause" exception to the Supremacy Clause. Furthermore, the ICC is older than most states.

Besides what you are actually referring to is not the ICC but the "Dormant" or "Negative Commerece Clause," which prohibits states from enacting legislation that "unjustifiably . . . discriminates against or burdens the interstate flow of articles of commerce."

The dormant commerce clause--is actually becoming a fairly interesting topic of debate, as some of the more libertarian Supreme Court Justices are starting to take note that the "Dormant Commerce Clause" is nowhere in the Constitution.

Nonetheless, the Dormant Commerce Clause does exist in practice. The theory supporting it is that, since the Consititution gave the Federal Government the power to regulate interstate commerce, the States cannot abidge this power with its own regulations.

However, the States regulate interstate commerce all of the time--whether it is Iowa saying semis cannot use two trailors, Arizona limiting the length of freight trains, speed limits, highway, rail or air safety, state corporate law, etc. There is probably just as much, if not more, state regulation of interstate commerce as federal.

Such regulation is perfectly permissible. The real concern of the Dormant Commerce Clause is that the States will use their regulatory power to favor their own local industries at the expense of out-of-state industries.

When this is the case, the State regulation/favoritism is struck down unless the State can prove a very important and necessary reason for the regulation. Also, if the State regulation "significantly" hinders interstate commerce, but does not really favor in-State industry to out-of-state industry, the law can still be struck down--but the State does not have as heavy of burden proving the need for the regulation and regulations are rarely struck down under this circumstance.

To answer your question, the corporate structure regulation to which you refer does not strike me as favoring in-state industry at all, does not strike me as significantly hindering interstate commerce, and probably has a pretty good purpose behind it. For this reason, I imagine that railroads never even wasted their time challenging it.

Arizona telling railroads that their trains could only be so long did not meet the same fate (smile).

Gabe

[kevarc]

Thanks Gabe.

[gabe]

No problemo. I love setting down my law books for a minute to talk about trains . . . oh, wait a minute . . . . doph!

I better get back to the Salt Mine.

Gabe

P.S. Good topic

[CSSHEGEWISCH]

After seeing all of these postings by lawyers, I'm a bit wary of stepping in but I'll try anyway. I may be mistaken, but I believe the Texas requirement regarding incorporation in Texas was found to be unconstitutional state regulation of interstate commerce during the Missouri Pacific bankruptcy reorganization.

Arizona's restriction of trains to 70 cars was stricken by the US Supreme Court in 1915 as improper state regulation of interstate commerce. I learned about this case in an undergraduate class in American Constitutional Development which I took in my college days in De Kalb.

[Wdlgln005]

I'd like to chime in here. It seems to me that most states chartered a railroad to connect local areas. Many more were chartered than ever built. Some began as a project by the state government with bonds & etc.
I think the Illinois Central was the first one to break this mold & get a federal charter. Those regulations would have no effect on a big state like Texas.

I bet the second question comes up with taxes. Greedy states killed the goose. Smart ones kept taxes low.

[gabe]

QUOTE: Originally posted by CSSHEGEWISCH

After seeing all of these postings by lawyers, I'm a bit wary of stepping in but I'll try anyway. I may be mistaken, but I believe the Texas requirement regarding incorporation in Texas was found to be unconstitutional state regulation of interstate commerce during the Missouri Pacific bankruptcy reorganization.

Arizona's restriction of trains to 70 cars was stricken by the US Supreme Court in 1915 as improper state regulation of interstate commerce. I learned about this case in an undergraduate class in American Constitutional Development which I took in my college days in De Kalb.

I know nothing about Texas' incorporation requirement. However, you are absolutely right about the SP; hense my statement of "limiting the size of freight trains in Arizona did not meet the same fate (smile)".

Gabe

[Anonymous]

The Texas charter requirement was a reaction by the citizens of the state, and particularly by Atty Gen Jim Hogg (later governor) to the shenanigans and double dealings being pulled by Jay Gould and his cronies, that were threatening to bankrupt and severely disrupt the railroad companies then operating in Texas (who accounted for most of the transportation and, hence, nearly all of the commerce, in one way or another). The situation had become so bad that Hogg was elected AG in 1886 on a specific platform to require railroads operating in the State to maintain general offices there, to keep their track and equipment in good condition, and to provide adequate service, in line with an Act of the Texas Legislature passed in 1870. Two good references regarding this issue are V. V. Masterson's The Katy Railroad and the Last Frontier, and T. S. Reed's A History of the Texas Railroads (both out of print but still available in libraries and thru hist. societies). At the time, Gould owned the MP, Cotton Belt, Katy, Texas & Pacific, International & Great Northern (MP) and Galveston Houston & Henderson, accounting for a substantial fraction of the trackage in the state at the time. Gould had, in a word, raped these roads, nearly destroying their infrastructure and ability to move traffic, and that was killing the economy. The straw that broke the camel's back was Gould's lease (through the Katy) of the narrow gauge East Line & Red River, which ran from Jefferson (then head of navigation on the Red River) to Greenville where it connected with the Katy. The line had been allowed to fall apart by Gould to the extent that (according to Reed, p. 383) "a tramp was afraid to ride its best passenger coach" (this same sentiment was echoed by other contemporaries, one of whom is said to have compared riding the decrepit and rickety EL&RR to "tempting God"). After several precedent-setting Texas Supreme Court battles, all won by the State, charters were forfeited, and the Legislature in 1891 chartered the Katy of Texas and the other roads whose charters had been revoked by the court. From that point in time, based on the court decisions, railroads operating in the state had to have general offices there, leading to the formation of separate Texas subsidiary companies that lasted almost 100 years.

To my knowledge, MC is correct. The right of charter is a basic state right that still stands today. The Texas law was never overturned by the USSC to my knowledge, and the state was convinced in the 1980's that this practice was running up costs and driving off business, so it was dropped.