As the question under inquiry, although purely hypothetical, deals rather with the establishment of a policy than the determination of a particular case, it is permissible for the Attorney General to call the attention of the Secretary of Commerce and Labor to the state of the law on the subject. DEPARTMENT OF JUSTICE, SIR: I have your favor of 26th instant, in which you ask my opinion with respect to the legality of the transfer of certain coal-mining leases which you are asked to approve, and which embrace lands in the segregated coal and asphalt lands of the Choctaw and Chickasaw Nations in the Indian Territory, now Oklahoma, from the Western Coal & Mining Co., (the present lessee under assignment with your approval, from the Atoka Coal & Mining Co., the original lessee), all of whose capital stock is owned by the Missouri Pacific Railway Co., to the Folsom Morris Coal Mining Co., a corporation, all of whose capital stock is owned by the Cherokee and Pittsburgh Coal & Mining Co., all of whose capital stock is in turn owned by the Atchison, Topeka & Santa Fe Railway Co. (excepting in each case directors' qualifying shares). You further say that, from statements made to you, you are convinced that the Atchison, Topeka & Santa Fe Railway Co. desires control of these mines for the purpose of obtaining a supply of coal to be used in its locomotive engines, largely on account of the prospective shutdown on the supply of fuel oil in the Southwest; and you call attention further to the fact that the parties to the assignment point out that the approval of the assignment will not affect the situation as to railroad ownership, inasmuch as in both cases the stock of each of the mining companies is owned by the railroad company. Upon this state of facts you ask my opinion as to the legality of the proposed assignment. The specific inquiry arises out of the possible application to the case of the fifth paragraph of the first section of the act to regulate commerce, as amended on June 29, 1906, usually referred to as the commodities clause of the Hepburn act. That clause is as follows: "From and after May first, nineteen hundred and eight, it shall be unlawful for any railroad company to transport from any State, Territory, or the District of Columbia, to any other State, Territory, or the District of Columbia, or to any foreign country, any article or commodity, other than timber and the manufactured products thereof, manufactured, mined, or produced by it, or under its authority, or which it may own in whole, or in part, or in which it may have any interest direct or indirect except such articles or commodities as may be necessary and intended for its use in the conduct of its business as a common carrier." (34 Stat. 585.) It is to be first noted that the statute has no effect whatever upon the acceptance by the railroad company, directly or indirectly, of a lease or assignment of lease of mining property. The prohibition is against transportation only, under the circumstances specified in the act; and the only possible illegality of the transportation, under the statute quoted, would arise if, after the approval by you of the assignment of the lease, coal mined out of the demised premises by the Folsom Coal Mining Co. should be transported over the railroads of the Atchison, Topeka & Santa Fe Railway Co. There Addressing the inquiry to that point therefore, the statute expressly excepts from its prohibition commodities necessary or intended for the use of the railroad company in the conduct of its business as a common carrier. fore the railroad company, even if it should itself be the assignee of the lease, might freely mine and carry the coal for its own uses as fuel for its locomotives. The only remaining question, therefore, is whether or not the statute would operate to prohibit the railroad company from transporting over its line coal mined and shipped by the coal company for sale and delivery to any customer other than the railroad company. In view of the statement in your letter as to the main purpose of the assignment, this question is not one actually arising in the course of the business of your Department, and I should perhaps refrain from giving an opinion upon a purely hypothetical question, according to the well-settled rule of the department (28 Op. 129, 239). But as you are dealing rather with the establishment of a policy than the determination of a par ticular case, it is permissible to call your attention to the state of the law on the subject under inquiry. In the cases known as the Commodities Clause Cases (reported 213 U. S. 366), the Supreme Court held that the above-cited commodities clause- “* * * has solely for its object to prevent carriers engaged in interstate commerce from being associated in interest at the time of transportation with the commodities transported, and it therefore only prohibits railroad companies engaged in interstate commerce from transporting in such commerce commodities under the following circumstances and conditions: "a. When the commodity has been manufactured, mined, or produced by a railway company or under its authority and at the time of transportation the railway company has not in good faith before the act of transportation parted with its interest in such commodity; "b. When the railway company owns the commodity to be transported in whole or in part; "c. When the railway company at the time of transportation has an interest direct or indirect in a legal sense in the commodity, which last prohibition does not apply to commodities manufactured, mined, produced, owned, etc., by a corporation because a railway company is a stockholder in such corporation. Such ownership of stock in a producing company by a railway company does not cause it as owner of the stock to have a legal interest in the commodity manufactured, etc., by the producing corporation." (213 U. S. 369.) In the later case of United States v. Lehigh Valley Railroad Company (220 U. S. 257) it appeared that after the mandate on the decision in 213 U. S. had been entered in the Circuit Court, the Government asked leave to amend its bill by averring in detail facts which tended to establish that there was no distinction in practice between the coal company and the railway company, the latter using the coal company as a mere device to enable the railroad company to violate the provisions of the commodities clause, and that owning all of the stock of the coal company, and thereby controlling its acts, the production, shipment, and sale of all of the coal within the territory served by the railroad company was brought within the dominion of that company practically to the same extent as if it were the absolute owner of the same. The Circuit Court refused leave to file this amendment and entered a decree dismissing the bill absolutely upon the allegations of the original bill and answer, which were before the Supreme Court in 213 U. S. The Supreme Court reversed this judgment, holding that the amendment should have been allowed. Referring to the earlier decision, the court said: "While that decision expressly held that stock ownership by a railroad company in a bona fide corporation, irrespective of the extent of such ownership, did not preclude a railroad company from transporting the commodities manufactured, mined, produced or owned by such corporation, nothing in that conclusion foreclosed the right of the Government to question the power of a railroad company to transport in interstate commerce a commodity manufactured, mined, owned or produced by a corporation in which the railroad held stock and where the power of the railroad company as a stockholder was used to obliterate all distinctions between the two corporations. That is to say, where the power was exerted in such a manner as to so commingle the affairs of both as by necessary effect to make such affairs practically indistinguishable and therefore to cause both corporations to be one for all purposes." (220 U. S. 271–2.) In summing up the Chief Justice said: 66* ** in view of the express prohibitions of the commodities clause, it must be held that while the right of a railroad company as a stockholder to use its stock ownership for the purpose of a bona fide separate administration of the affairs of a corporation in which it has a stock interest may not be denied, the use of such stock ownership in substance for the purpose of destroying the entity of a producing, etc., corporation and of commingling its affairs in administration with the affairs of the railroad company, so as to make the two corporations virtually one, brings the railroad company so voluntarily acting as to such producing, etc., corporation, within the prohibitions of the commodities clause. In other words, that by operation and effect of the commodities clause there is a duty cast upon a railroad company proposing to carry in interstate commerce the product of a producing, etc., corporation in which it has a stock interest not to abuse such power so as virtually to do by indirection that which the commodities clause prohibits, a duty which plainly would be violated by the unnecessary commingling of the affairs of the producing company with its own, so as to cause them to be one and inseparable." (220 U. S. 274.) Whether or not in a given case a railroad company has used or employed its stock ownership in another corporation in substance to destroy the entity of that corporation and commingle its affairs in administration with those of the railroad company so as to make the two virtually one, is a question of fact which must be determined by the evidence in that case. The report in 220 U. S. gives in detail the allegations made in the amendment to the bill there tendered which the Supreme Court accepted as satisfactory prima facie proof of such identity. In the case which you have under consideration the determination whether or not the commodities clause as construed by the Supreme Court in 220 U. S. would apply to the shipment of coal over the Atchison, Topeka & Santa Fe road by the proposed assignee of a lease, being a corporation all of whose stock it owns, must depend upon whether or not the railroad company uses the coal company merely as an artificial legal entity which it completely dominates and controls, operating the coal company as an integral part of its own business, the corporation being a mere artificial division of the work which is in effect carried on by the railroad company; or whether, although the owner of all its stock, the coal company is operated separately and distinct from the railroad, and is not used by it merely as a part or department of its general business, and is not in effect a mere device to escape the prohibition of the statute. Respectfully, yours, GEORGE W. WICKERSHAM. The SECRETARY OF THE INTERIOR. |