Indiana Vs. Terre Haute and Indianapolis Railroad

In 1899, the state of Indiana brought forth a lawsuit against the Terre Haute & Indianapolis Railroad for tax money due for the school fund. It started with a charter. In the early days of Indiana, to create a railroad company (and basically any company, as far as that goes), a charter for the company and its goals would have to be written and taken before the Indiana General Assembly for approval. I would love to say that these things were basically rubber stamped…but I truly have no way of knowing without extensive research.

The Terre Haute & Indianapolis Railroad was issued it original charter by the Indiana General Assembly in 1831. The name on the charter was the Terre Haute & Indianapolis. The TH&I was then issued a special charter as the Terre Haute & Richmond Rail Road on 24 January 1847. The company was to build a railroad between the two title cities, through Indianapolis. The official name of the company had changed twice between the special charter of 1847 and the court case of 1899. First, in 1850, the space was taken out between rail and road, making it the Terre Haute & Richmond Railroad legally. Then, in 1865, the name was changed to suit the actual extent of the railroad company. It became the Terre Haute & Indianapolis Railroad Company.

Newspapers of the time often refer to the legal action against the Terre Haute & Indianapolis as the Vandalia Case. By the time of the legal action, the TH&I was already leasing the St. Louis, Vandalia & Terre Haute, the only line (for a while) connecting Indianapolis to St. Louis. The St. Louis, Vandalia & Terre Haute was known most of the time as the Vandalia. The Vandalia was in financial trouble while under construction. Money was floated from five railroad companies to complete the route in 1870: Terre Haute & Indianapolis, Pennsylvania, Panhandle, Steubenville and the Indiana Central. The last three being consolidated later into the Pittsburgh, Cincinnati, Chicago & St. Louis Railway, also nicknamed the Panhandle. The Pennsylvania would gain control of the Panhandle and the Vandalia…although the Terre Haute & Indianapolis would fight it the entire way.

The whole case stemmed from how the charter for the TH&I was read, and who was doing the reading. The State of Indiana was of the opinion that the TH&I owed the School Fund somewhere between $1.2 and $2 million dollars. Obviously, the TH&I was of the opposite opinion. The entire case stemmed from a special charter that had been issued for the company in 1847, give or take a year. The new charter, keeping a provision from the old one, would allow the railroad to set its own passenger and freight rates, and allow for a 15% profit to be split among its shareholders after all of the construction bills have been paid.

The state, in its case, claimed that the TH&I was setting its rates to a point where it was earning 18% to 35% profits. Since the limit was 15%, the rest, the state continued, would be required to be paid to the state school fund. Vandalia saw things differently.

The South Bend Tribune of 4 October 1899 describes the beginning of the case as such: “Noble C. Butler, as master in chancery, began taking testimony, Monday afternoon (2 October 1899), in the case of the state against the Vandalia railroad for money due the school fund on account of the special charter under which the road operated 20 years ago.”

“Experts have been examining the company’s books to ascertain the exact earnings and the proportionate amount due the state, and their testimony is expected to be interesting. About $2,000,000 is claimed to be due the school fund from the railroad.” (Source: South Bend Tribune, 4 October 1899, pp 1 via newspapers.com.)

When the time came to defend itself, the Vandalia brought out John G. Williams, a man, according to the Indianapolis News of 17 January 1900, “who is said to know more about the affairs of the road than any other man.” Attorney Williams started talking about the charter of the Terre Haute & Richmond, the charters of other railroads, and the fact that when the original charters were written for the early railroads, the company had a choice between building a railroad and building a toll road. The state saw no real difference between the two.

He also mentioned that, according to the News, “one of the first roads built in the State was the Baltimore & Ohio. In the beginning, its cars were moved by horses and, when the wind was favorable, sails were hoisted on the cars to help propel them.” I would be that the News meant in the United States, as the Baltimore & Ohio wouldn’t have been in Indiana in 1831.

Reference is also made by the attorney for the railroad that in the beginning, the B&O charged 4 cents a ton a mile for moving of freight. “Modern railroads” (1900) are lucky to get one half cent per ton/mile. And passengers were actually weighed and charged essentially a pro-rated charge of 4 cents per ton/mile. If I am reading this right, since I weigh 200 pounds, it would cost me eight cents to travel by train from Indianapolis to Greenfield in those days. If I lived then…and the train actually was built to connect the two.

Mr. Williams went on to argue that the ability to regulate tolls by the state was left out of the charters of seven of the eight railroads that were incorporated in 1832. All eight of these charters allowed for the company to build a railroad or turnpike. Also in 1832, a company applied for a charter to build a bridge across the Ohio River at the Falls, the location of New Albany and/or Jeffersonville, and Louisville on the Kentucky side.

In 1832, five more railroads were incorporated, including the Evansville & Lafayette. It, like the Terre Haute & Indianapolis (1831 charter), had a clause stating that the State of Indiana could purchase the road after a certain period. Very few railroad company charters included the state regulation of the amount of dividends to its shareholders.

Ultimately, the Vandalia won the original case. Special Master Butler determined that the state was owed nothing by the Vandalia. The State appealed to the Superior Court, in which it was determined that the Vandalia owed the state of Indiana $913,000.

According to the Indianapolis Journal of 18 June 1902, as the case was being brought before the Indiana Supreme Court, “the charter provided that the company should pay the State its surplus earnings over the operating expenses and 10 per cent to the stockholders. The company surrendered its special charter in 1873 and has since operated under the general railroad law.” The company claimed that the surplus money was spent to improve the road, and there was no money left to pay the state.

The case before the Indiana Supreme Court lasted three days, ending on 19 June 1902. When the ruling went against the Vandalia, the Pennsylvania Railroad announced that they would appeal the decision to the United States Supreme Court. That decision was made on 28 November 1902.

The Indiana Supreme Court judgement ruled that the Vandalia must pay $913,905, and a six percent interest from the date of the Superior Court judgement. This brought to total to $1,028,143. Of course, the state was to only receive $771,107 of that, with the rest going to attorney’s fees. The Vandalia would fall into receivership after the ruling, and arguments between Illinois and Indiana receivers would follow.

31 May 1904, and the United States Supreme Court ruled, after much deliberation, that the Vandalia Railroad owed a grand total of nothing to the state of Indiana School Fund. This would go on to allow the Vandalia to consolidate the following railroads into one corporate entity: Terre Haute & Indianapolis, Indianapolis & Vincennes, Logansport & Toledo, Terre Haute & Logansport, and the St. Louis, Vandalia & Terre Haute. A consolidation which created the Vandalia Railroad Company on 1 January 1905.

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