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.

Terre Haute, 1854

The mid-19th Century in Indiana was both a traveler’s nightmare and dream. At that time, the state was criss-crossed, or soon would be, with multiple railroads and several canals. And Terre Haute found itself at the crossroads of both. Today, I want to look at Terre Haute through the use of a map that is available at the Indiana State Library online. That maps is at the following link: http://cdm16066.contentdm.oclc.org/cdm/singleitem/collection/p15078coll8/id/1064/rec/7.

First, the National Road came to the town. The idea was that the National Road would be an improved highway, in good condition throughout the state. By the time of this map, it had already been sold to toll road companies. Those companies, in exchange for keeping the road in good condition, would be allowed to charge people to use it. The National Road would connect to Wabash Street in Terre Haute, but didn’t cross the Wabash River along that path. There was a Terre Haute Draw Bridge that crossed the river along the Ohio Street corridor.

The second method of transport that would enter the town was the Wabash & Erie Canal. This canal was the longest such facility in the United States, connecting Fort Wayne to Evansville. It entered the city from the north, separating from the river near where Florida Street is, then finding itself next to the river again around Sycamore Street. At Eagle Street, the canal made a turn back to the north in a loop that would carry it back to a point along what would be Spruce Street, then Canal Street. This section is now part of the Indiana State University campus. It would turn south again just past Ninth Street, cross the National Road, then head off to the southeast as it continued its way to Evansville.

The Terre Haute & Richmond Railroad, planned to connect the two title cities through Indianapolis, came into town from the northeast, with the railroad itself ending in a station on the north side of National Road at what is now 10th Street. The railroad that would become the Vandalia connected to the TH&R near what is now 13th Street, making a looping turn to head out along the Tippecanoe Street corridor to cross the Wabash River.

The other railroad in town, the Evansville & Crawfordsville, had its station on the southside of the National Road, across the street from the TH&R station. This railroad continued north out of town, following the current rail corridor on its way toward Crawfordsville. It, too, followed the 10th Street corridor before turning west, following the same Tippecanoe Street corridor up to and crossing the Wabash.

The area between 9th and 10th Streets at the National Road would, ultimately, include all four of these transportation facilities. Today, only the path of the old E&C still exists, although part of the old TH&R is available for use as a rail trail. The old canal bed has been removed for many years.

The Pennsylvania Railroad in Indiana After the Civil War

The United States Civil War, or War Between the States, had a very profound effect on the railroads in place at the time. The Union had a vast railroad network, and used it to help in the war effort. Indiana saw a large increase in rail traffic as troops and war materials went one way, and prisoners of war came the other. But after the war, there were some questions as to what was going to happen to the rail industry.

During the four years of the war, maintenance was put off as long as it could be, and rolling stock had been beat to almost death. There was some hope that the post-war era would lead to a “quieter” time along the lines. But like every war since, that quieter time almost led to the collapse of some of the rail lines due to overbuilding…and a lot of consolidations to make stronger, supposedly more financially secure, roads.

Between 1861 and 1865, rail capacity had increased due to the traffic demands. While this helped during those years, afterwards, it would be a hinderance to the companies that spent that money for that capacity.

The first thing that happened after the war was the companies started plowing their war profits back into getting the rail lines in shape. This would take a lot of that money. Add to that the almost expectant recession as industrial output had to slow down from war time highs. Passenger rates were rising due to the increased costs. The railroads were taking a public relations hit due to those rate hikes.

Competition for traffic between Chicago and the east coast (whether New York or Philadelphia) had already brought on a series of freight rate cuts as early as 1861. The traffic was there, the question was which railroad was willing to do what it took to get it. By 1865, the Pennsylvania Railroad was already telling its investors that eastern railroad mileage was far outpacing the business requirements for the area.

Indiana found itself in the middle of the consolidations. One railroad, the Cincinnati & Chicago Air Line, had a working relationship with the Baltimore & Ohio to bring traffic from the east coast to as far as Valparaiso, where it had to depend on the Pittsburgh, Fort Wayne & Chicago to carry that traffic into Chicago. The building of a new road, the Chicago & Great Eastern, let the C&CAL have a second, and preferred, route into the Windy City. This would bring the C&CAL out of its poverty, and allowed, as stated in the Lafayette Journal, the railroad to “rival and damage her own haughty mistress, the Pittsburgh, Fort Wayne & Chicago.”

One railroad, which had depended on handshake deals and friendly connections to expand its own traffic across Indiana was the Pennsylvania Railroad. A lot of this was due to the management in Philadelphia that balked at investing in any road that would be outside the scope of its mandate – to connect Philadelphia and Pittsburgh. Yes, the company did invest in other routes. But most of the time, it was to allow agreements between those independent routes and the Pennsy. But that attitude in Philadelphia was about to not only be tested, but thrown out the window when the age of the robber baron started.

Speculator Jay Gould forced the Pennsylvania to wake up from its conservative slumber. Gould had swept in to buy the Erie, a weak road that ended in New York. Gould knew that he would have to increase the footprint of his railroad if he was to salvage a massive investment in his company. He set his sights on the Indiana Central. Traffic along that road mostly came from the Panhandle, a Pennsylvania company that connected to Columbus, Ohio. The Indiana Central carried that traffic on to Indianapolis. The Panhandle found itself dependent on the IC, but they did have a handshake agreement between the two companies.

At this time, the IC not only connected the capitals of Indiana and Ohio, but had purchased other routes that could carry traffic to Logansport, and from there, to Chicago. The IC had also acquired the Great Eastern and the C&CAL. The entire line, in 1868, had become known as the Columbus, Chicago & Indiana Central.

Gould swept in to purchase large blocks of stock in the CC&IC. So much so that the management of the line agreed to, if Gould wanted, allow the Erie to lease the road. The Pittsburgh, Columbus and St. Louis Railway, known as the Panhandle, was basically controlled by the Pennsylvania. But this was not by ownership, the PRR didn’t actually own it. The PRR did, however, have a large amount of the company’s bonds as investment in the building of the line. Gould’s possible lease of the CC&IC scared the PRR into action.

But Gould would not be defeated. While his financial resources were limited compared to the Pennsylvania, he would do what it took to put the PRR on its knees. While playing around with the CC&IC, he also showed interest in the PFtW&C. When the PRR took over the CC&IC, Gould tried to pry the already restless PFtW&C from the PRR’s hands. Again, it was a friendly agreement between the PRR and the PFtW&C. And the PFtW&C blamed the PRR for diminished value due to traffic congestion at Pittsburgh. Gould had acquired controlling interest of the shareholder votes.

PRR management in Philadelphia, which still saw their city as the most important city on the east coast, feared that control of the PFtW&C by the Erie would route traffic to New York instead of Philadelphia, worked with the management of the Fort Wayne to lease the road out from under Gould for 999 years starting in July 1869. This would require the PRR to pay a 12% dividend on Fort Wayne stock for the duration of the lease. It didn’t come cheap, but the PRR saved its connection to Chicago.

By 1871, the Pennsylvania had acquired control of both the Panhandle and the Fort Wayne. The Panhandle had already leased the Jeffersonville, Madison & Indianapolis, allowing its traffic to connect, via the only bridge across the Ohio at the time, into Louisville…and the southern traffic that ended there.

The major stumbling block, at this point, was west of the Hoosier Capital. Traffic was routed onto the Terre Haute & Indianapolis, which was staunchly independent. The Pennsylvania had invested heavily into a line that connected Terre Haute to St. Louis, Missouri. But the fear that the TH&I would not cooperate with the dreaded PRR when it came to traffic led the PRR to team up with interests that would become the Big Four to build a separate line connecting Indianapolis to Terre Haute. That line would be called the Indianapolis & St. Louis, and would leave Indianapolis on a due west route through Danville.

If the Terre Haute & Indianapolis would not play ball with the Pennsy, it would still have a route to get to the Mississippi River. The TH&I would later fall into the Pennsylvania fold, but that was after a merger with the Pennsy controlled St. Louis, Alton & Terre Haute, known as the Vandalia.

The Pennsylvania also invested, in 1869, in another company that would have, were it built to its intended extent, connect Indianapolis to Cairo, Illinois. But that company only made it as far as Vincennes. While the Pennsylvania had members of the Board of Directors as early as 1872, the formal lease wouldn’t occur until 1879.

Most of the Pennsylvania Railroad holdings in Indiana were added to that company by 1870. Those companies would operate as separate entities until the 1920’s, when they were all consolidated into the Pennsylvania itself.