Action by the United States to recover a penalty against the Southern Pacific Company and another. Judgment for the United States.
The plaintiff seeks to recover penalty provided by section 307, title 18, USCA. A trial by jury has been waived in writing and filed with the clerk. It is stipulated that on the 3d of March, 1927, United States post office inspector at Tucson, Ariz., seized from the Southern Pacific Company's train a sack, under official label Form 3933, No. 936714, addressed "Aud. S.P. de M., Tucson, Arizona," which had a total weight of 46 pounds, and which contained five different packages of mail, addressed as stated.
Package No. 1 contained interline freight claims from freight claim agent Southern Pacfic Ralroad Company of Mexico, Guaymes, Mexico, together with a memorandum, "Joint business, R.R. Service Mail, from Nogales, to Auditor S.P. de M., Tucson, Ariz.," which also contained a letter relating to railroad tickets. Also one document transmittal covering invoices from traffic associations in the United States, and two document transmittals covering invoice from firms in Mexico.
Package No. 2 contained certain labels together with demurrage reports from Southern Pacific de Mexico at Naranjo, Sinaloa, Mexico, dated February 24, 1927, covering car of tomatoes from Naranjo, Sinaloa, to Tucson. Also seven labels of Mexican government freight from points in Mexico to points in Mexico, accompanied by a telegram from the agent of the Southern Pacific de Mexico at Hermosillo, Sonora, to the agent of the Southern Pacific de Mexico at Guaymas, Sonora, Mexico, dated February 21, 1927, in Spanish, "Secretary of Agriculture and Fomento request that you have a box car placed in Guaymas for loading from Guaymas to Hermosillo at the disposition of the inspector of weights and measures here. R.I. 99."
Package No. 3 contained conductors' train collection reports, showing tickets and cash fares collected on freight, local, and through passenger trains, and some other matters.
No. 4 contained claims and reports of group life insurance of employees of Southern Pacific de Mexico, covered by the master policy with the Southern Pacific Company. Also reports by the bridge foreman and two letters relating to the reports.
No. 5 contained one bound volume of tickets and baggage reports of all agents of the Southern Pacific Railroad Company of Mexico for the month of June, 1926.
The evidence shows that defendant Southern Pacific Company is a Kentucky corporation, and at the instant time and for a long time prior was engaged in the operation of a large continental system of railroads in Oregon, California, Missouri, Utah, Arizona, New Mexico, Louisiana, and Texas, in interstate and intrastate commerce, and it has for a long time owned nearly all the capital stock of certain railroads in Texas and Louisiana. The properties of the Texas New Orleans Railroad Company and its twelve leaseholds, comprising the Texas Louisiana Lines, are operated by the Texas New Orleans Railroad Company as a separate unit of the Southern Pacific Lines. It also owns all of the stock, except qualifying shares for the board of directors, of the Southern Pacific Railroad Company of Mexico.
Tucson is located on the main line of the Southern Pacific Company. At Tucson a line is extended to Nogales, Ariz. The line of railroad of the Southern Pacific Railroad Company of Mexico extends from the town of Nogales, Sonora, Mexico, immediately across the boundary line between the United States and the republic of Mexico, and immediately across the line from the town of Nogales, Ariz., to Guaymas on the Gulf of California, thence along the coast to the town of Guadalajara, a total distance of 1,377 miles. At Nogales the two lines are physically joined by connecting tracks.
The board of directors of the Southern Pacific Railroad Company of Mexico consists of 15 persons, all except 4 of whom are officers of the defendant Southern Pacific Company. The defendant Southern Pacific Company furnished all the money to construct the railroad of the Southern Pacific Railroad Company of Mexico, and is the financial backer thereof. The assistant secretary of the Southern Pacific Company is the secretary of the Southern Pacific Railroad Company of Mexico. The Southern Pacific Company exercises no corporate relation or dominion over the Southern Pacific Railroad Company of Mexico, except through its stock ownership, by the election of the board of directors of the Southern Pacific Railroad Company of Mexico. On the 3d day of March, 1927, the general offices of the Southern Pacific Railroad Company of Mexico were maintained at Tucson, Ariz. There is no leasing or operating agreement between the Southern Pacific Company and the Southern Pacific Railroad Company of Mexico.
The mail matter charged in the amended information was transported over the Southern Pacific Company lines from Nogales, Ariz., to Tucson, without the payment of United States postage. All of the documents and papers transported pertain to the business of the Southern Pacific Railroad Company of Mexico as a common carrier by rail.
The operation by the Southern Pacific Company of the properties of the Texas New Orleans Railroad and of its 12 leaseholds and other lines in the United States, not directly owned by it, is pursuant to regulations by the Interstate Commerce Commission. The Southern Pacific Railroad Company of Mexico is operated as a separate corporate entity, distinct and independent, under the law and regulations of the Mexican government. All settlements of "carrier transportation" balances between the Southern Pacific Company and the Southern Pacific Railroad Company of Mexico are made in the same manner as with other railroad systems, such as the Santa Fé and the Union Pacific.
The defendant Southern Pacific Company contends that, as an owner of all of the stock, except qualifying shares for directors, for the Southern Pacific Railroad Company of Mexico, and as financial backer, and by reason of the interlocking directorate, it was financially interested in each and all of the transactions and within its right in carrying the matter without the payment of postage.
NETERER, District Judge (after stating the facts as above).
The corporate relation or status of the Southern Pacific Railroad Company of Mexico as a distinct unit was not in any sense lessened or modified by the stock ownership of the Southern Pacific Company. The stock ownership does not of itself make the Southern Pacific Railroad Company of Mexico a subsidiary of the Southern Pacific Company or necessary to its operation.
The relation of debtor and creditor between the Southern Pacific Company and the Southern Pacific Railroad Company of Mexico does not change the entity status, or make it a part of the Southern Pacific Lines. The Southern Pacific Company has not in its forty-fourth annual report listed the Southern Pacific Railroad Company of Mexico as of its "transportation system" companies, aggregating a capital valuation of $379,306,040 (see Exhibit 4, page 46), but lists it with the "solely controlled affiliated companies," approximate capital valuation of $150,000,000.
While an affiliated company does not lose its identity or suffer extinguishment (Allison v. Smith, 16 Mich. 405), it does require more than mere stock ownership to affiliate a corporate entity with owner proprietorship, each operating under different rules, laws, and jurisdictions. United States v. Erie Railroad, 235 U.S. 513, 35 S. Ct. 193, 59 L. Ed. 335, relied on by the defendant, is not in point. In that case the companies were operating under stipulations with respect to each, and, while the entity of the companies was not merged, the court stated: "It will be observed that, while the companies in many respects are independent, they are also, in some respects at least, dependent. The telegraph is a facility of the railroad company and necessary to its operations, the telegraph company doing what the railroad company did for itself before the agreement, and but for the agreement with the telegraph company would have to do. The railroad company has an interest in the receipts of the other company, and is concerned in their amount and the maintenance and increase of the telegraph business. The control of the telegraph company's instrumentalities and its offices and operators is in a `competent joint superintendent of telegraph,' in whose appointment the railroad company has a voice, and whom it also may discharge."
Such "operation was the purpose of the two letters which are the basis of the indictment, and the business comes within the description of the statute and is `current.'" In the instant case we have mail matter addressed by a representative of the Southern Pacific Railroad Company of Mexico to an officer of the same company at Tucson, Ariz. The matter was carried over the Southern Pacific Railroad Company of Mexico, and then carried by the defendant Southern Pacific Company over its line, a post route, without the payment of postage for delivery to the addressee.
In United States v. Erie Railroad Co., supra, the interests of the railroad company and the telegraph company were united. There was a common interest in the receipts and in the maintenance and increase of business. In the instant case there was no common corporate direct interest. The only remote interest was that the Southern Pacific Company is and was a creditor of the Southern Pacific Railroad Company of Mexico, and the financial power back of the Southern Pacific Railroad Company of Mexico, and a stockholder.
While all lines operated by the Southern Pacific Company under leasehold interest, including sole stock ownership, in the United States, has the sanction and approval of Interstate Commerce Commission, the record is barren of any such approval of unity of interest of the defendant companies and conclusively shows the contrary. Whether a domestic corporation operating lines of railroads in the United States may enter into operating agreements with a corporation engaged in exclusively foreign territory, and without the jurisdiction and control of the Interstate Commerce Commission, is not in issue.
The Southern Pacific Company and the Southern Pacific Railroad Company of Mexico are not united in a common operative system of railways but are independent units, and the Southern Pacific Company has no more right to carry the mail matter without the payment of postage than would any other stockholder of a corporation similarly placed; and, if it can, by the same token it can carry like mail of all its stockholders, of whom it has more than 58,000, and the same privilege would apply to all carrying corporations over post routes and their stockholders throughout the United States.
A judgment finding defendant Southern Pacific Company guilty as charged will be entered, and December 10th next ensuing is appointed for assessing the penalty provided by law, and entering final judgment.