A-26319, MARCH 12, 1929, 8 COMP. GEN. 484

A-26319, MARCH 12, 1929, 8 COMP. GEN. 484

TRANSPORTATION - LAND-GRANT DEDUCTIONS - EXPRESS SHIPMENTS UNDER THE REORGANIZATION PLAN OF EXPRESS SERVICE PURSUANT TO WHICH THE RAILWAY EXPRESS AGENCY, INC., WAS ORGANIZED TO PERFORM EXPRESS SERVICE AS AN AGENCY OF PARTICIPATING RAILROADS BEGINNING MARCH 1, 1929, CHARGES FOR EXPRESS SERVICES BY SUCH AGENCY ARE SUBJECT TO LAND-GRANT DEDUCTIONS THE SAME AS IF THE SERVICE BY SUCH AGENCY WERE PERFORMED BY THE PARTICIPATING RAILROADS SUBJECT TO LAND-GRANT LAWS.

DECISION BY COMPTROLLER GENERAL MCCARL, MARCH 12, 1929:

THERE IS BEFORE THIS OFFICE FOR CONSIDERATION THE QUESTION WHETHER CHARGES FOR SERVICES RENDERED THE GOVERNMENT BY THE RAILWAY EXPRESS AGENCY, INC., ARE SUBJECT TO LAND-GRANT DEDUCTIONS WHEN THE TRANSPORTATION OF GOVERNMENT EXPRESS SHIPMENTS IS OVER LAND-GRANT RAILROADS.

THE MATTER RELATING TO LAND-GRANT DEDUCTIONS FROM THAT PORTION OF THE CHARGES ACCRUING TO CARRIERS UPON EXPRESS SHIPMENTS WAS RECENTLY CONSIDERED BY THIS OFFICE, AND BY LETTER OF NOVEMBER 21, 1928, A-22965, THE CHAIRMAN, UNITED STATES SHIPPING BOARD, WAS ADVISED IN PART AS FOLLOWS:

YOU SET FORTH THAT THE MATTER WAS CONSIDERED BOTH BY THE ATTORNEY GENERAL IN 1878, 16 OP.ATTY.GEN. 610, AND BY AN ASSISTANT COMPTROLLER OF THE TREASURY IN 1901, 7 COMP. DEC. 334, AND TWICE SUBSEQUENTLY BY THE COMPTROLLER OF THE TREASURY IN 1911 AND 1913. EACH OF THESE OPINIONS NEGATIVES MAKING SUCH DEDUCTIONS, THE REASON FOR NEGATIVING DIFFERING IN SOME ASPECTS. IT APPEARS ALSO FROM SENATE DOCUMENT NO. 39, 63D CONGRESS, A REPORT WAS MADE BY THE SECRETARY OF THE TREASURY TO THE PRESIDENT OF THE SENATE MAY 9, 1913, IN RESPONSE TO SENATE RESOLUTION OF APRIL 15, 1913, RELATIVE TO PAYMENTS TO THE EXPRESS COMPANIES FOR SHIPMENTS OVER LAND- GRANT RAILWAY LINES. THE MATTER IS THUS LIKEWISE DISCLOSED TO HAVE BEEN BROUGHT TO THE ATTENTION OF THE CONGRESS BUT WITHOUT ACTION THEREON. THE PRACTICE APPEARS TO HAVE CONTINUED UNDISTURBED AT LEAST FROM THE TIME OF THE ATTORNEY GENERAL'S OPINION OF 1878 TO THE PRESENT DATE. THERE IS NO PARTICULAR REASON SUGGESTED FOR NOW REQUIRING MY ACTION THEREON BEYOND THE SUGGESTION THAT IF THESE LAND-GRANT DEDUCTIONS AS A MATTER OF LAW MAY PROPERLY BE MADE BY THE UNITED STATES THERE WILL BE A LARGE SAVING OF MONEYS TO THE UNITED STATES IN PAYMENTS FOR EXPRESS SHIPMENTS. APPARENTLY THERE IS DOUBT OF THE CORRECTNESS OF THE VIEWS AS EXPRESSED IN THE SEVERAL OPINIONS CITED NEGATIVING SUCH DEDUCTIONS, BUT IT HAVING FOUND ITS PROPER LODGMENT WITH THE CONGRESS, I AM CONSTRAINED TO THE VIEW THAT ANY QUESTION THEREON SHOULD NOT BE VIEWED AS EITHER PENDING BEFORE THE CONGRESS OR AS FOR AGAIN BRINGING TO THE ATTENTION OF THE CONGRESS.

I HAVE, THEREFORE, TO SUGGEST THAT IN VIEW OF THE LONG-CONTINUED PRACTICE AND THE FACT THAT THE QUESTION HAS HERETOFORE BEEN A NUMBER OF TIMES CONSIDERED, ALWAYS WITH THE SAME CONCLUSION, I BELIEVE THE SITUATION CREATED IS ONE IN WHICH THE MATTER IS FOR ATTENTION ONLY OF THE CONGRESS AND NOT ELSEWHERE.

BEGINNING MARCH 1, 1929, THE EXPRESS SERVICE THERETOFORE PERFORMED BY THE AMERICAN RAILWAY EXPRESS CO. IS TO BE PERFORMED BY A NEW CORPORATION, THE RAILWAY EXPRESS AGENCY, INC., WHICH WAS AUTHORIZED BY THE INTERSTATE COMMERCE COMMISSION, FINANCE DOCKET NO. 7322 OF FEBRUARY 11, 1929, TO ISSUE 1,000 SHARES OF CAPITAL STOCK WITHOUT NOMINAL OR PAR VALUE AND $32,000,000 OF 5 PERCENT SERIAL GOLD BONDS, SERIES A, SAID STOCKS AND BONDS TO BE SOLD FOR CASH AT NOT LESS THAN $100 A SHARE FOR THE STOCK AND 97 3/4 PERCENT OF PAR AND ACCRUED INTEREST FOR THE BONDS, AND THE PROCEEDS USED TO PAY FOR THE PROPERTIES TO BE ACQUIRED FROM THE AMERICAN RAILWAY EXPRESS CO. AND FOR WORKING CAPITAL.

THE PLAN OF ORGANIZATION OF THE NEW EXPRESS COMPANY HAD ITS INCEPTION IN THE AGREEMENT OF SEPTEMBER 1, 1920, AS AMENDED TO BECOME EFFECTIVE MARCH 1, 1923, BETWEEN THE SO-CALLED PARTICIPATING RAILROADS AND THE AMERICAN RAILWAY EXPRESS CO. IT WAS PROVIDED IN ARTICLE XX THEREOF THAT IN THE EVENT THE EXPRESS COMPANY SHOULD NOT CONTINUE EXPRESS OPERATIONS AFTER MIDNIGHT OF FEBRUARY 28, 1929, THEN AT THAT TIME THE RAILROADS SHOULD PURCHASE FROM THE EXPRESS COMPANY ALL PROPERTY USED IN ITS EXPRESS OPERATIONS. THE AGREEMENT TO CONTINUE OPERATIONS BY THE AMERICAN RAILWAY EXPRESS CO. WAS NOT RENEWED; INSTEAD, THE PARTICIPATING RAILROADS ADOPTED A PLAN FOR THE FUTURE CONDUCT OF THE EXPRESS BUSINESS THROUGH A SEPARATE AGENCY, BUT IN EFFECT A JOINT FACILITY OF THE RAILROADS CONTROLLED BY THEM THROUGH STOCK OWNERSHIP.

THE 1,000 SHARES OF STOCK AUTHORIZED TO BE ISSUED BY THE NEW EXPRESS COMPANY ARE TO BE OWNED EXCLUSIVELY BY THE RAILROADS IN SUCH PROPORTIONS AND AT SUCH RATIO AS THE EXPRESS BUSINESS IS HANDLED ON EACH COMPANY'S LINE, MEASURED BY RECEIPTS AS BEARING ON THE GROSS BUSINESS HANDLED BY ALL THE PARTICIPATING RAILROADS USING AS BASIS FOR SUCH COMPUTATIONS THE AVERAGE FOR THE YEARS 1923 TO 1926, INCLUSIVE. THE EARNINGS OF THE EXPRESS AGENCY ARE NOT TO BE DISTRIBUTED TO THE STOCKHOLDERS AS DIVIDENDS BUT THE NET REVENUES WILL BE PAID OVER TO THE PARTICIPATING RAILROADS UPON THE BASIS OF THE GROSS REVENUES FOR EACH RAILROAD COMPANY.

THE RULINGS OF THE ACCOUNTING OFFICERS MANY YEARS AGO THAT CHARGES ON GOVERNMENT EXPRESS SHIPMENTS WERE NOT SUBJECT TO LAND-GRANT DEDUCTIONS WERE BASED PRIMARILY UPON THE THEORY THAT THE EXPRESS SERVICE WAS PERFORMED BY AN AGENCY DISTINCT AND SEPARATE FROM THE RAILROADS, AND FOR THAT REASON, THE GRANT SUBJECTING THE RAILROAD TO DEDUCTIONS BEING TO THE RAILROAD ITSELF, THERE WAS NO PRIVITY IN SO FAR AS THE EXPRESS AGENCY WAS CONCERNED TO SUBJECT IT TO SUCH DEDUCTIONS, REGARDLESS OF THE FACT THAT UNDER AGREEMENTS EXISTING BETWEEN THE RAILROAD COMPANY AND THE EXPRESS COMPANY A PART OF THE EXPRESS CHARGES WAS A REVENUE OF THE RAILROAD. UNDER THE NEW ARRANGEMENT THERE IS STILL A SEPARATE AGENCY FOR EXPRESS OPERATIONS BUT SUCH AGENCY IS DIRECTLY UNDER THE CONTROL OF THE RAILROADS, AND IN THE FINAL ANALYSIS THE NEW EXPRESS AGENCY IS IN FACT OPERATING THE EXPRESS BUSINESS FOR THE BENEFIT OF THE RAILROADS.

IT IS A WELL-ESTABLISHED RULE OF LAW THAT TWO CORPORATIONS MAY BE TREATED AS ONE IN DISREGARD OF FICTIONAL LEGAL DISTINCTIONS (1) WHEN NECESSARY TO CIRCUMVENT FRAUD, OR (2) WHERE A CORPORATION IS SO ORGANIZED AND CONTROLLED AND ITS AFFAIRS ARE SO CONDUCTED AS TO MAKE IT MERELY AN INSTRUMENTALITY OR ADJUNCT OR ANOTHER CORPORATION. 34 OP.ATTY.GEN. 353; IN RE WATERTOWN PAPER O., 169 FED.REP. 252; CHICAGO MILL, ETC., CO. V. BOATMEN'S BANK, 234 FED.REP. 41; HUNTER V. BAKER MOTOR VEHICLE CO., 225 FED.REP. 1006; CLERE CLOTHING CO. V. UNION TRUST AND SAVINGS BANK, 224 FED.REP. 363; JOSEPH R. FOARD CO. V. MARYLAND, 219 FED.REP. 827. SEE ALSO AMERICAN CHAIN CO. V. STEWART WARNER SPEEDOMETER CORP., NO. E 45-33, DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FEBRUARY 23, 1929, OPINION BY THACHER, J.

IN THE PRESENT MATTER THERE APPEARS TO BE NO QUESTION THAT THE RAILWAY EXPRESS AGENCY, INC., IS MERELY AN INSTRUMENTALITY OR ADJUNCT NOT ONLY OF THE ORGANIZED PARTICIPATING RAILROADS, BUT OF EACH PARTICIPATING RAILROAD SUBJECT TO LAND-GRANT LAWS AND UNDER THE PLAN OF DISTRIBUTION OF THE EARNINGS THE EXPRESS SERVICE IS IN FACT PERFORMED BY THE PARTICIPATING RAILROAD, THE EXPRESS AGENCY BEING MERELY THE AGENT OF THE RAILROAD FOR HANDLING AND OPERATING PURPOSES. UNDER SUCH CIRCUMSTANCES THERE APPEARS NO REASON WHY, IN SO FAR AS CONCERNS LAND-GRANT DEDUCTIONS FROM EXPRESS CHARGES, THE CORPORATE ENTITY OF THE EXPRESS AGENCY SHOULD NOT BE DISREGARDED AND THE MATTER TREATED AS IF THE EXPRESS SERVICE ACTUALLY WERE PERFORMED BY THE LAND GRANT RAILROAD INSTEAD OF THROUGH THE AGENCY OF THE EXPRESS COMPANY. THERE CAN NOT BE ACCEPTED AS ANY AUTHORITY IN CARRIERS SUBJECT TO LAND GRANT, SO ORGANIZING FOR THE PERFORMANCE OF A SERVICE OFFERED BY THE CARRIERS TO THE PUBLIC GENERALLY, AS WOULD PREVENTOR DEPRIVE THE UNITED STATES FROM HAVING THE SERVICE PERFORMED FOR IT, SUBJECT TO LAND GRANT.

ACCORDINGLY, EXPRESS CHARGES ON GOVERNMENT SHIPMENTS HANDLED BE SUBJECT TO LAND-GRANT DEDUCTIONS WHEN TRANSPORTATION IS OVER LAND-GRANT RAILROADS AND SETTLEMENT OF SUCH CHARGES HEREAFTER WILL BE MADE ON THAT BASIS.