United States v. South Buffalo Railway Co., 333 U.S. 771 (1948)

1. See Comment, The Commodities Clause and the Regulation of Industrial Railroads, 46 Yale L.J. 299; 36 Col.L.Rev. 1175.

2. The Holding Company owns substantially all the stock in approximately 57 subsidiaries, including the Steel Company and the South Buffalo Railway Company. Some of these produce ore in Chile, Venezuela, Cuba, and in the Upper Great Lakes regions; others control coal mines in West Virginia and Pennsylvania. Two subsidiaries operate ocean-going steamship lines, hauling raw materials to steel plants controlled by other subsidiaries. A Great Lakes shipping company owned by the Holding Company carries ore from a mining subsidiary to a producing subsidiary. Seven short-line railroads including South Buffalo, each wholly owned by the Holding Company and having common officers and directors, transport products for the various Bethlehem steel plants.

3. The opinion of the Court seems to assume that the purpose of the commodities clause was to prevent the holding company from favoring "its shipping subsidiary at the expense of its carrying subsidiary, or vice versa."

4. Moreover, the conclusion is factually justified by the history of complete domination prior to 1940, plus the fact that former employees of the Steel Company continue to be the principal officers of South Buffalo, as well as the other Bethlehem short-line railroads.

Historical ties and associations, combined with strategic holdings of stock, can on occasion serve as a potent substitute for the more obvious modes of control.

North American Co. v. Securities & Exchange Commission, 327 U.S. 686, 693.

5. S.Rep. No.443, 76th Cong., 1st Sess. 15; Hearings before Senate Committee on Interstate Commerce on S. 2009, 76th Cong., 1st Sess. 427, 590, 772.

6. Senator Reed expressly so stated:

Judge, you remember that Justice Stone, Justice Brandeis, and Justice Cardozo dissented from that majority opinion of the Supreme Court in the E.J. & E. case. . . . I am inclined to think that the Supreme [sic], as presently constituted, would hold with what was the minority view.

Hearings before Senate Committee on S. 2009, 76th Cong., 1st Sess. 68. He later said that he thought the Elgin decision "was a strange construction of the law on the part of the Supreme Court of the United States." Id. at 309.

The views of Senator Wheeler seem clearly to the same effect. When it was first suggested that the proposed commodities clause would overrule the Elgin case, he stated (apparently because he was interested primarily in extending the clause to apply to other types of carriers): "I did not intend such a result." When the effect of the clause was pointed out to him, he expressed doubt whether that case should be overruled, not because he approved it, but, as he explained, because "I am not familiar with the E.J. & E. case." Id. 67, 68.

Three days later, when the point was again under discussion, Senator Wheeler, at this time apparently refreshed in recollection of the Elgin case, frankly stated that one of the purposes of the revised clause was to meet the Supreme Court decision in it. The witness then expressed the view that the revised clause went considerably beyond the decision, because it applied to other types of carriers, and to situations where the shipper owned only ten percent of the carrier’s stock. The witness suggested that, if the intent was merely to reverse the Elgin case, it would be better to leave the clause in its present form, because "I do not believe the decision in the E.J. & E. case is going to be one of the laws of the Medes and the Persians." Id. 385.

After more discussion of the effect of the amended version on water carriers and pipelines, Senator Wheeler remarked:

There are difficulties on that question, in my mind. Suppose we reenacted the law as it is. The question is whether the courts might say, in view of the Supreme Court’s decision, "In reenacting the law, you approved the decision of the Supreme Court."

Id., 386.

The Senator thus was faced with a dilemma. At this point, he was apparently persuaded that the extension of the commodities clause to all carriers was a more drastic change than he had originally realized, but hesitated to reenact the old version lest the reenactment be construed as legislative approval of the Elgin case. His fear has now been justified by today’s decision. It was not until the following week that he reached the conclusion that the drastic nature of the proposed change outweighed the risk that reenactment would be construed as approval of that case. Id., 427, and see statements quoted in note 12 infra. Such a choice hardly can be construed into "approval" of the decision.

7. Id. 236, 284-286, 308-310, 385-387, 427-432, 492, 623, 632, 633, 692, 753, 754, 926-928.

8. Id. 386, 589-597, 606-610, 611, 612, 654-660, 736-742.

9. Id., 127, 432, 433.

10. For example, the petroleum industry strenuously opposed the provision because it would have effected the divorcement of pipeline companies from producers. Seenote 8 supra; cf. id. at 935. Opposition by farm lobbies was directed particularly at the new commodities clause:

Section 12 appears to endanger the activities of more than 100,000 farmers of our area who have cooperatively associated themselves together and who, because of exorbitant rail rates, are transporting increasing tonnage of grain, livestock, and petroleum products both through cooperative trucking associations and by trucks owned by local or regional cooperatives.

Id. 432-433. See also id., 311. The most vigorous opposition, however, came from parties who would be adversely affected by the applicability of the clause to water carriers. Seenote 7, supra. They pointed out, as an instance of the far-reaching effect of the amendment, that 65 percent of the privately owned American merchant marine would be affected by the change.

11. See Hearings 772; cf.note 10, supra.

12. Senator Wheeler explained the basis for the decision to abandon the proposed amendment more than once. To shorten testimony by witnesses interested in the effect of the clause on pipelines and water carriers he stated:

You might as well quit wasting your time, because I made an announcement yesterday with reference to that, and I hope you people will not come here with the idea of taking up a lot of time on that. I have said that pipelines are a subject that ought to be given independent consideration, and we cannot take it up and give it the necessary time and study in this bill. That may be modified or eliminated, so far as pipelines and water carriers are concerned.

Id. 590. Later, he said:

I have felt, frankly, that in this particular legislation, which does divorce, ships from industry, that it was such a broad subject, and one which requires so much independent study, that it ought to be handled by separate legislation. No one in the Government service seems to have made a study of the question. I felt that it ought to be eliminated from the provisions of this bill at this time, and be introduced as separate, independent legislation, as has been done in the past.

Id. 772.

13. Seenote 6.

14. Hearings 541, and see id., 285, 385, 386.

15. Id., 421, 435, 841.

16. Seenote 6.

17. See alsonote 4.