MINIMUM RAIL-WATER RATES

In our annual reports for 1935 and 1936 we called attention to the fact that section 15 (1) has the effect of exempting from our control minimum rates in the case of a through route where one of the carriers is a water line. We recommended that the act be amended to include the power to regulate minimum rates of water carriers otherwise within our jurisdiction. For the reasons there stated we renew that recommendation.

STANDARD TIME ZONE INVESTIGATION

By our twenty-third supplemental report in this proceeding, effective April 25, 1937, we authorized an additional operating exception to the central time zone covering the line of the Pennsylvania Railroad Co. between Richmond and Adams, Ind., so as to permit that road to operate its trains between Cincinnati, Ohio, and Fort Wayne, Ind., on a single standard of time. This exception was allowed for operating purposes only, and the railroad is required to observe central time in its published advertisements, public time cards, and bulletin boards.

In recent years we have directed the attention of Congress to the complete failure of the Standard Time Act (40 Stat. 450) to accomplish its stated purpose; namely, "to provide standard time for the United States." In our 1936 report we recommended that Congress amend the act so as fully to occupy the legislative field respecting standards of time. We renew that recommendation.

APPENDIX E

ADMISSIONS TO PRACTICE

During the year ended October 15, 1938, 1,378 applicants were admitted to practice before the Commission. This exceeded by 71 the number of applicants admitted in the preceding year, ending October 15, 1937, which was considerably in excess of the number admitted in any preceding year since the first following setting up a roll of practitioners, 1929-30. Of the number admitted during this period, 1,144 were members of the bar of the Supreme Court of the United States or the highest court of some State, and 234 were admitted upon a showing of qualifications under rule I-B 2 (b) of the Rules of Practice. Since the establishment of the register of practitioners, September 1, 1929, a total of 10,254 persons have been admitted to practice, of whom 60.8 percent were members of the bar, and 4,023, or 39.2 percent, were nonlawyers found to be qualified.

In our preceding reports we have pointed out the growing tendency for lawyer applicants to outnumber materially the nonlawyers who seek admission. This tendency has strengthened in the past year. Since the passage of the Motor Carrier Act, 1935, about 2,500 practitioners have been added to our roll above the normal number which might have been expected, based on the averages for preceding years. Of the total number admitted in the last 3 years, 82.5 percent have been members of the bar of some of the high courts.

During the year we have pursued the policy outlined in prior reports of securing the benefit of the independent investigation of individual applications by committees of the Association of Practitioners before the Commission, and have received the recommendations of those committees.

Experience has shown that it has become desirable to subject the nonlawyer applicants to examinations as to their qualifications. Such examinations will be conducted three times a year, at the offices of the Commission in Washington, or upon request, at some field office. The examinations will test the applicant's knowledge of (1) the structure and history of the Interstate Commerce Act and related acts, (2) the Rules of Practice, (3) the general rules of evidence, (4) the leading cases involving the commerce clause of the Constitution and the Interstate Commerce Act, and their significance, and (5) the principles of legal ethics. We expect to continue to receive the cooperation of the committees of the Association of Practitioners in investigating the standing of applicants, both lawyers and nonlawyers.

The passing upon applications for admission to practice has become somewhat of a burden, and appropriate provision of law should be made to enable us to impose a reasonable fee, to be covered into the miscellaneous receipts of the Public Treasury, which would compensate for the time and expense involved, and would suffice to deter those who have no intention of making use of the privilege. Admissions might well be made to run for limited periods, with the privilege of

renewal upon a showing of continued possession of the qualifications initially required as prerequisites to admission. The roll of practitioners would thereby be made up of persons who were active and who preserved good standing.

Senator TRUMAN. After receiving the letter from Commissioner Eastman dated February 9, 1939, Senator Wheeler introduced a bill which followed the draft enclosed with the letter, and that bill was S. 1310. Subsequently, on June 15, 1939, the legislative committee of the Commission recommended some changes in the bill in a letter from Commissioner Mahaffie to Senator Wheeler. I will also put a copy of that letter into the record. The bill S. 2610, on which these hearings are to be held, embodies those changes.

(The letter of June 15, 1939, from Commissioner Mahaffie, is here printed in full in the record as follows:)

Hon. BURTON K. WHEELER,

INTERSTATE COMMERCE COMMISSION,
Washington, June 15, 1939.

Chairman, Committee on Interstate Commerce,

United States Senate, Washington, D. C.

MY DEAR SENATOR WHEELER: This will have further reference to our letter of February 9, and your letter of February 15, 1939, relating to S. 1310, introduced by yourself "to amend the Interstate Commerce Act, and for other purposes.' This bill has had further consideration of the legislative committee of our Commission, and we think certain changes could be made to improve the bill. The attached memorandum contains the suggested changes, which are submitted for your consideration.

Respectfully submitted.

CHARLES D. MAHAFFIE, Acting Chairman, Legislative Committee. [Copy]

PROPOSED CHANGES IN S. 1310

1. On page 2, at line 6, strike out "owned, controlled, or held with power to vote," and insert "held with power to vote, owned, or controlled,".

2. On page 2, at line 20, strike out the first "or" and the period at the end of the line, and insert at the end of the line ", or by any other person or persons having such control under any indenture, trust, or other agreement or arrangement with, or by means of the assets of, one or more such persons or carriers."

3. On page 2, at lines 23 and 24, strike out "owns, controls, or holds with power to vote," and insert "holds with power to vote, owns, or controls,".

4. On page 3, at line 15, strike out, "owned, controlled, or held with power to vote" and insert "held with power to vote, owned, or controlled,".

5. On page 4, at line 1, strike out "or", and at line 3, strike out the period and insert", or by any other person or persons having such control under any indenture, trust, or other agreement or arrangement with, or by means of the assets of, one or more such persons or controlling persons."

6. On page 4 at line 12 strike out the first "or", and in line 13 strike out the period and insert ", or by any other person or persons having such control under any indenture, trust, or other agreement or arrangement with, or by means of the assets of, one or more such carriers or subsidiaries.'

The foregoing changes are all intended to cover situations where the control of a holding company over a carrier (or over an affiliate), or the control of a carrier over a subsidiary may have been lost, and the control is actually exercised by some other person such as a bank or a trustee. Such situations would be similar to those existing under the bond indentures of Alleghany Corporation. The Alleghany Corporation pledged its controlling stock holdings in railroads under these collateral bond trust issues, under an arrangement whereby, if the value of the collateral fell to less than 150 percent of the face amount of the bonds the trustee of the bond issues (the Guaranty Trust Co.) would obtain the right to vote the stock pledged under the bonds. This actually occurred, and the Guaranty Trust Co. came into actual control of the railroads formerly controlled by Alleghany Corporation, exercising such control "by means of the assets of" and under an indenture with, the Alleghany Corporation.

A similar situation might arise if, for instance, The Pennsylvania Railroad Co. should pledge its holdings of Pennsylvania Co. stock under an agreement whereby, should there be a default in interest, the pledgee would obtain the right to vote the stock of Pennsylvania Co., which controls the Wabash and Lehigh Valley Railroads. In such a case, The Pennsylvania Railroad Co. would lose its actual control of the Wabash and Lehigh Valley, but such control could be exercised by the pledgee of the Pennsylvania Co. stock.

7. On page 5, at line 7, strike out "to include the power to exercise the control," and insert specifically but not exclusively, to include the power to exercise, directly or indirectly, control or any substantial influence over policies or actions." The foregoing change is intended to make the definition of "control" in S. 1310 conform to the definition which has been adopted by the Senate in passing S. 2009. The revised definition of "control" appears in S. 2009 on page 166, in lines 13 to 17. This definition is deemed preferable to the one which now appears in S. 1310, and the validity and propriety of the new language is supported by the decision of the United States Supreme Court in National Gas Company v. Slattery (302 U. S. 300 (1937)).

8. On page 6, at line 13, strike out "carriers" and insert "carrier."

The foregoing change rectifies a typographical error in S. 1310.

9. On page 10, at the end of line 20, insert "trust company, trustee under any indenture."

This addition is intended to make it clear that the Commission shall have authority to examine the relevant books and records of trust companies and of trustees under indentures.

10. On page 11, at line 14, strike out "or", and insert after the word “affiliated” the following: 66 or other person.'

11. On page 11, at line 19, strike out "or" and insert after the word "affiliate” the following: ", or other person."

The foregoing two changes are intended to make the penalty provisions of paragraph 6 of section 20 of the Interstate Commerce Act coextensive with the previous sections of section 20 as amended by S. 1310.

12. On page 12, at line 14, insert after "Commission," the following: "or shall knowingly or wilfully file with the Commission any false report or other document required to be filed by it,".

The foregoing new language carries into S. 1310 language which has already been adopted by the Senate in passing S. 2009. This language appears in S. 2009 on page 182 at lines 22 to 24. This language makes it a misdemeanor to knowingly or wilfully file a false report or document with the Commission.

13. On page 13 at line 15 strike out "the approval" and insert "the prior approval.'

14. On page 13, insert a comma at the end of line 22, insert a parenthesis at the beginning of line 23, and insert a comma at the end of the parenthesis at line 24. The foregoing changes merely rectify typographical errors in S. 1310. 15. On page 14, insert a comma at the end of the parenthesis which ends at line 16, and insert "in" before the word "property" in the same line.

16. On page 14, strike out all of line 18 and insert the following: "or intangible property, but not including securities) unless such property is to be used for the.' The foregoing changes are intended to tighten up the provisions of new section 20 b which is to be added to the Interstate Commerce Act under S. 1310. This new section, as it now stands, would prohibit carriers, unless they obtain the approval of the Commission, from spending more than $50,000 in any one year for any acquisition of securities or property "unless such acquisition is for the operation, maintenance, or improvement" of the carrier's "existing transportation facilities and existing noncarrier property needed and used in connection therewith." The proposed changes (aside from the $50,000 exemption) would prevent carriers from making any acquisition whatsoever of securities, unless the approval of the Commission be obtained.

Senator TRUMAN. I would like to say before we hear the witnesses that of course it is getting late in the session, but that we are going to make every effort to complete the hearings on this bill before adjournment. We want to give everybody a chance to be heard on this bill, but we hope the witnesses will cooperate by giving their testimony with reasonable expedition.

This morning we are going to hear from Commissioners Eastman and Mahaffie, and later on, after we have heard the other witnesses,

we will probably want to call one or both of them back to deal with any questions which may be raised about the bill. Commissioner Eastman will be the first witness.

STATEMENT OF JOSEPH B. EASTMAN, MEMBER OF THE INTERSTATE COMMERCE COMMISSION AND CHAIRMAN OF ITS LEGISLATIVE COMMITTEE, WASHINGTON, D. C.

Mr. EASTMAN. My name is Joseph B. Eastman. I am a member of the Interstate Commerce Commission and chairman of its legislative committee. But I appear this morning in behalf of the Commission together with Commissioner Mahaffie. Commissioner Mahaffie will make the major statement in regard to this bill because he had much more to do with drafting it than I did, and is much more familiar with the details of the bill, and he will go into the details and I will indulge in generalities.

Senator TRUMAN. You may proceed.

Mr. EASTMAN. This bill is based on recommendations which have been made in the last two annual reports of the Commission, but if you go through the annual reports of the Commission in the past and various special reports which it has made to Congress from time to time you will find that dating way back to 1906 there have been recommendations which bear upon this same general matter, urging the Congress to enact legislation enabling effective dealing with it.

The general purpose of the bill is to prevent wasteful use of railroad funds or credit in ways over which the Commission now has no adequate control and which have in the past resulted in financial injury to the railroads, from which a considerable number of them are now suffering.

For the moment there is comparatively little danger from this source because most of the railroads at the present time, as you know, lack both funds and credit. But we are all looking forward with hope to better railroad conditions and this seems to be an excellent time to lock the stable door for the future so far as these matters are concerned.

The essential duty of a railroad company, as everybody knows, is to serve the public in the operation of a railroad system. However, there are two main ways in which many of them can go beyond this duty and wander into other fields. and the most important of these ways is through their power to own stock in other companies. Most railroads have very wide power to own stock in other companies, and in that way they can acquire control of subsidiary companies, or create subsidiary companies, controlled through stock ownership, which may be of any character, and in this way the power of railroads to enter indirectly into other forms or businesses is almost unlimited.

I think it might be of interest to you to read a short quotation from a report which the Commission made to the Senate on June 11, 1914, reported in 31 I. C. C. 32, in regard to its investigation of the New Haven Railroad system.

Senator TOBEY. Is that "the other expenses investigation," socalled?

Mr. EASTMAN. Well, it covered the "other expenses" among other things, but this was a very broad investigation into the financial operations of the New Haven Railroad system.

Senator TOBEY. All right.

Mr. EASTMAN. The quotation is as follows:

It was found in the investigation of the New Haven system that there were 336 subsidiary corporations, and the books of the New Haven road proper reflect only a small part of the actual financial transactions of the railroad. Many of the subsidiary corporations served no purpose save an evil one. They were used to cover up transactions that would not bear scrutiny, and to keep from the eyes of public officials matters that were sought to be kept secret.

Senator TRUMAN. That was also true of the Van Sweringen railroads.

Mr. EASTMAN. It was. I continue the quotation:

The Commission should have the power to examine not only the books, records, papers, and correspondence of interstate carriers, but of subsidiary companies as well.

You see that was a recommendation made in a report to the Senate way back in 1914, and that recommendation is being carried out in this bill.

Now, I think it would be interesting also

Senator TOBEY (interposing). And there has been no effort made in the interim, from 1914 down to the present time, to cover this thing. In other words, it has taken 25 years to get this matter up to some action.

Mr. EASTMAN. The Commission has spoken from time to time on the subject.

Senator TOBEY. But apparently to deaf ears.

Mr. EASTMAN. Yes.

Senator TRUMAN. You made recommendation after recommendation and the only outcome resulting are the hearings had on a bill offered by Senator Wheeler and myself.

Mr. EASTMAN. Apparently so. One of the reasons for the recommendation of the Commission in its annual reports in the past 2 years was the further investigation of the New Haven Railroad system which was made when that railroad went into bankruptcy and which investigation was conducted by Commissioner Mahaffie; and it was in the report of that investigation that this recommendation was expanded, going into details.

Senator TRUMAN. That is right.

Mr. EASTMAN. I think it would be of interest as indicating the extent to which railroad companies do have subsidiary companies which can be used as holding companies for general purposes throughout the country, to cite some of these companies. You will recall that an investigation was made of the "Regulation of Stock Ownership in Railroads," which was printed as House Report No. 2789, Seventyfirst Congress, third session. That was in charge of Dr. Splawn, who is now Commissioner Splawn, and was made to the House. Committee on Interstate and Foreign Commerce.

In that report

Senator TRUMAN (interposing). What was the date of that report? Mr. EASTMAN. That report was referred to the House Calendar and ordered to be printed February 20, 1931. That report contains, and this is only one of the three volumes, very complete information in regard to holding companies which controlled railroads, and also the holding companies which were controlled by railroads. I will just give you some typical illustrations of the latter companies without in any way attempting to name them all.