Substantive Review of Price Controls.

Ironically, private busi-nesses, once they had been found subject to price regulation, seemed to have less protection than public entities. Thus, unlike operators of public utilities who, in return for a government grant of virtually monopolistic privileges must provide continuous service, proprietors of other businesses receive no similar special advantages and accordingly are unrestricted in their right to liquidate and close. Owners of ordinary businesses, therefore, are at liberty to escape the consequences of publicly imposed charges by dissolution, and have been found less in need of protection through judicial review. Thus, case law upholding challenges to price controls deals predominantly with governmentally imposed rates and charges for public utilities.

In 1886, Chief Justice Waite, in the Railroad Commission Cases,157 warned that the “power to regulate is not a power to destroy, and . . . the State cannot . . . do that which in law amounts to a taking of property for public use without just compensation, or without due process of law.” In other words, a confiscatory rate could not be imposed by government on a regulated entity. By treating “due process of law” and “just compensation” as equivalents,158 the Court was in effect asserting that the imposition of a rate so low as to damage or diminish private property ceased to be an exercise of a state’s police power and became one of eminent domain. Nevertheless, even this doctrine proved inadequate to satisfy public utilities, as it allowed courts to intervene only to prevent imposition of a confiscatory rate, i.e., a rate so low as to be productive of a loss and to amount to taking of property without just compensation. The utilities sought nothing less than a judicial acknowledgment that courts could review the “reasonableness” of legislative rates.

Although as late as 1888 the Court doubted that it possessed the requisite power to challenge this doctrine,159 it finally acceded to the wishes of the utilities in 1890 in Chicago, M. & St. P. Railway v. Minnesota.160 In this case, the Court ruled that “[t]he question of the reasonableness of a rate . . . , involving as it does the element of reasonableness both as regards the company and as regards the public, is eminently a question for judicial investigation, requiring due process of law for its determination. If the company is deprived of the power of charging reasonable rates for the use of its property, and such deprivation takes place in the absence of an investigation by judicial machinery, it is deprived of the lawful use of its property, and thus, in substance and effect, of the property itself, without due process of law. . . .”

Although the Court made a last-ditch attempt to limit the ruling of Chicago, M. & St. P. Railway v. Minnesota to rates fixed by a commission as opposed to rates imposed by a legislature,161 the Court in Reagan v. Farmers’ Loan & Trust Co.162 finally removed all lingering doubts over the scope of judicial intervention. In Reagan, the Court declared that, “if a carrier . . . attempted to charge a shipper an unreasonable sum,” the Court, in accordance with common law principles, would pass on the reasonableness of its rates, and has “jurisdiction . . . to award the shipper any amount exacted . . . in excess of a reasonable rate . . . . The province of the courts is not changed, nor the limit of judicial inquiry altered, because the legislature instead of the carrier prescribes the rates.”163 Reiterating virtually the same principle in Smyth v. Ames,164 the Court not only obliterated the distinction between confiscatory and unreasonable rates but contributed the additional observation that the requirements of due process are not met unless a court further determines whether the rate permits the utility to earn a fair return on a fair valuation of its investment.


116 U.S. 307, 331 (1886). [Back to text]
This was contrary to its earlier holding in Davidson v. New Orleans, 96 U.S. 97 (1877). [Back to text]
Dow v. Beidelman, 125 U.S. 680 (1888). [Back to text]
134 U.S. 418, 458 (1890). [Back to text]
Budd v. New York, 143 U.S. 517 (1892). [Back to text]
154 U.S. 362 (1894). [Back to text]
154 U.S. at 397. Insofar as judicial intervention resulting in the invalidation of legislatively imposed rates has involved carriers, it should be noted that the successful complainant invariably has been the carrier, not the shipper. [Back to text]
169 U.S. 466 (1898). Of course the validity of rates prescribed by a State for services wholly within its limits must be determined wholly without reference to the interstate business done by a public utility. Domestic business should not be made to bear the losses on interstate business and vice versa. Thus a state has no power to require the hauling of logs at a loss or at rates that are unreasonable, even if a railroad receives adequate revenues from the intrastate long haul and the interstate lumber haul taken together. On the other hand, in determining whether intrastate passenger railway rates are confiscatory, all parts of the system within the state (including sleeping, parlor, and dining cars) should be embraced in the computation, and the unremunerative parts should not be excluded because built primarily for interstate traffic or not required to supply local transportation needs. See Minnesota Rate Cases (Simpson v. Shepard), 230 U.S. 352, 434–35 (1913); Chicago, M. & St. P. Ry. v. Public Util. Comm’n, 274 U.S. 344 (1927); Groesbeck v. Duluth, S.S. & A. Ry., 250 U.S. 607 (1919). The maxim that a legislature cannot delegate legislative power is qualified to permit creation of administrative boards to apply to the myriad details of rate schedules the regulatory police power of the state. To prevent a holding of invalid delegation of legislative power, the legislature must constrain the board with a certain course of procedure and certain rules of decision in the performance of its functions, with which the agency must substantially comply to validate its action. Wichita R.R. v. Public Util. Comm’n, 260 U.S. 48 (1922). [Back to text]