BALTIMORE & OHIO R. CO. V. UNITED STATES, 386 U. S. 372 (1967) -- US Supreme Court Cases from Justia & Oyez

By order of April 6, 1966, the ICC permitted the merger of the Pennsylvania and the New York Central railroads, the largest and third largest railroads in the Northeast, pursuant to § 5(2) of the Interstate Commerce Act. The ICC found that the merger might divert substantial traffic from the Erie-Lackawanna, Delaware and Hudson, and Boston and Maine railroads, three smaller carriers designated as "protected railroads." These protected lines had filed applications for inclusion not only in the Penn-Central merger, but also in the Norfolk & Western-Nickel Plate merger, which the ICC had previously approved. In the latter case, the ICC retained jurisdiction to consider inclusion of the three lines upon equitable terms if "found consistent with the public interest," and it provided that consummation of the merger would constitute "irrevocable assent" by Norfolk & Western to such inclusion. The applications for inclusion in the Penn-Central system have been held in abeyance pending decision on inclusion in Norfolk & Western-Nickel Plate, presently under consideration by the ICC. On the merits of the Penn-Central merger, the ICC found that the protected railroads rendered essential service which required preservation, and concluded that immediate consummation of the merger would be consistent with the public interest if "conditions are imposed to obviate impairment or serious weakening" of the three lines. Without such conditions or the inclusion of the protected roads in one of the major rail systems, the ICC found that it was doubtful if the

"three carriers could withstand the competition of the applicants merged, and, unless they are protected during the period necessary to determine their future, we would not authorize consummation at this time,

Page 386 U. S. 373

even though approving the merger."

The ICC, sua sponte, specified in Appendix G certain conditions to the immediate consummation of the merger "to prevent any loss of revenue over the three [protected] railroads." These conditions concerned traffic practices and indemnification for loss of income. On September 16, 1966, the ICC modified its order, apparently on the objection of most of the parties, and, though retaining the traffic practices condition, it lifted the revenue indemnification condition until further order. Erie-Lackawanna and other railroads filed suit seeking an interlocutory injunction restraining the consummation of the merger. A three-judge court declined to grant the injunction.

Held: In the light of its findings as to the necessity for interim protection for the three "protected railroads," the ICC erred in withdrawing all of the protective conditions of Appendix G save the traffic ones, and permitting immediate consummation of the Penn-Central merger without determining the ultimate fate of the three protected roads. P. 386 U. S. 378-392.

259 F.Supp. 964, reversed and remanded.

Page 386 U. S. 374

MR. JUSTICE CLARK delivered the opinion of the Court.

These six appeals involve the validity of an order of the Interstate Commerce Commission permitting the merger of the Pennsylvania Railroad Company and the

Page 386 U. S. 375

New York Central Railroad Company (Penn-Central) pursuant to § 5(2) of the Interstate Commerce Act, as amended, 41 Stat. 481, 49 U.S.C. § 5(2). In its original order of April 6, 1966, the Commission found that the merger might divert a substantial amount of traffic from the Erie-Lackawanna Railroad Company (E-L), the Delaware and Hudson Railroad Company (D & H) and the Boston and Maine Corporation (B & M), three smaller competing carriers designated as the "protected railroads" by the Commission. These protected railroads had filed under § 5(2)(d) of the Act applications for inclusion in both this merger and in Norfolk & W. Ry. Co. and New York, C. & St. L.R. Co. -- Merger, 324 I.C.C. 1. In the latter case, inclusion of E-L and D & H has been recommended, and, together with B & M, is pending before the Commission. The applications of the protected roads in the Penn-Central proceeding have been held in abeyance pending decision in the Norfolk proceeding.

On the merits of the Penn-Central merger, the Commission found that the service the protected railroads "render their shippers is essential, and the public interest dictates that [such service] be preserved." The Commission concluded

"that immediate consummation of the proposed merger would be consistent with the public interest if conditions are imposed to obviate impairment or serious weakening"

of the three lines. Without such conditions or the inclusion of the protected roads in a major system, the Commission further found, it would be doubtful if the

327 I.C.C. 475, 532. It therefore applied, sua sponte, certain conditions to the immediate consummation of the merger which were

"designed to prevent any loss of revenue over the

Page 386 U. S. 376

three railroads [the protected railroads] as a direct result of immediate consummation of this merger."

Its "approval of the merger for undelayed consummation" was made "subject . . . to the conditions specifically described in appendix G," ibid., which was attached as an appendix to the April 6, 1966, order, and which we likewise attach as an 386 U. S. The Commission, apparently because of the necessity for the conditions and the urgency of the merger, required compliance with Appendix G even though it had neither the benefit of a report from a Hearing Examiner thereon nor the advantage of a hearing before the Commission itself. These conditions detailed the protection which must be given the protected railroads, and made them a prerequisite to the consummation of the merger.

The Commission, therefore, not only found that protection of the three railroads was necessary, but fixed the terms thereof and required compliance prior to permitting the merger. There was nothing tentative about Appendix G. The conditions were divided into two general categories, and provided that: (1) On traffic for which the protected railroads are "competitive factors" [Footnote 1] the merged company shall not, pending final determination of the inclusion proceedings, provide any new or changed routing practice, freight rates, or service which would divert or tend to divert traffic from routes in which the protected railroads, or any of them, participate or participated at the time of the merger. And (2) the protected railroads would be indemnified by the merged company against revenue losses by reason of the merger. Appendix G to the order detailed the manner in which

Page 386 U. S. 377

such indemnity would be calculated and provided for the accelerated processing of complaints as to new or changed routes, practices, rates, or services. Section 7 of Appendix G provided that, if the merged company did not accede to all of the conditions, the merger would be deferred for two years or "such time as the Commission may determine to be necessary to protect the interests of D & H, B & M and E-L." And § 8 provided that the conditions

"shall be construed, administered and enforced with the view to protecting the E-L, D & H and B & M and the shipping public which depends upon them for transportation, against the effects of the merger for the period and purposes set forth above."

Thereafter, and without a hearing, but apparently on the objection of most of the parties, the Commission, on September 16, 1966, modified its April 6 order and reopened the hearing. 328 I.C.C. 304. The objectors, among other things, pointed to the fact that the conditions of Appendix G were made without any notice or hearing, and would create irreconcilable conflicts between the protected carriers and others adversely affected by the merger. In reopening the hearing, the Commission limited it to the conditions imposed in Appendix G, the prevention of possible manipulation of such conditions, and the enlargement of the indemnity provision to include capital loss. In the reopening order of September 16, 1966, the Commission left intact its order of April 6, 1966, as to the undelayed consummation of the merger, continued in effect the ban on new or changed routes, practices, and rates as to traffic in which any of the protected railroads participated, but lifted the indemnification condition until further order, at which time any such provision found necessary could be made retroactive to the date of the merger. None of the previous findings, as to the necessity for the immediate imposition of the conditions included in the original order, were

Page 386 U. S. 378

amended or withdrawn. The traffic conditions alone were left in effect.

This suit was filed on September 7, 1966, and arose upon the complaint of E-L and other railroads seeking an interlocutory injunction to restrain the consummation of the merger. A three-judge court was convened, 28 U.S.C. § 2284, and thereafter it declined, by a divided vote, to grant the interlocutory injunction. Erie-Lackawanna Railroad Co. v. United States, 259 F.Supp. 964. The appellants sought a stay from MR. JUSTICE HARLAN, who referred the application to the Court, and it was granted on October 18, 1966. At the same time, we expedited the case for consideration. 385 U. S. 914. The sole question before us is whether, in light of the findings as to the necessity for interim protection for the so-called protected railroads, the Commission erred in permitting the consummation of the merger prior to, and without awaiting determination of, the inclusion proceedings. We believe that the Commission erred in approving the immediate consummation of the merger without determining the ultimate fate of the protected roads. We therefore reverse the judgment and remand the case to the District Court with instructions to remand the matter to the Commission for further proceedings in accordance with this opinion.

I

Questions not here decided.

At the outset, we make it clear that we do not pass on the validity of the merger, the special conditions of Appendix G, the modified order of the Commission, or the peripheral points posed by the various parties. We hold only that, under the uncontradicted findings of the Commission, it was necessary for it to conclude the inclusion proceedings, as to the protected railroads, prior to permitting consummation of the merger.

Page 386 U. S. 379

II

The merger, its background, its participants and relative position.

The Penn-Central merger has been under study and discussion by the Commission for some 10 years. After the initial study was completed in 1959, Central withdrew from the plan and began negotiations for a merger with the Chesapeake and Ohio Railway Company (C & O) for joint control of the Baltimore and Ohio Railroad Company (B & O). However, when, at a later date, C & O had contracted for the purchase of some 61% of B & O stock, Central gave up its plan and renewed negotiations with Penn. The two roads signed an agreement of merger in 1962. The New York, New Haven and Hartford Railroad Company (NH) approached Penn and Central for inclusion in the plan, but was given a deaf ear. The merger agreement provided that all properties, franchises, etc. (permitted by respective state law), would be transferred to the merged company, and appropriate stock exchange, debt arrangements, etc., effected.

As the Commission found, the merger would

"create an hour-glass shaped system flared on the east from Montreal, Canada, through Boston, Mass. to Norfolk, Va., and, on the west, from Mackinaw City, Mich. through Chicago, Ill., to St. Louis, Mo."

327 I.C.C. at 489. It would operate some 19,600 miles of road in 14 States between the Great Lakes, with a splash in Canada on the north and the Ohio and Potomac Rivers on the south. After the two systems are connected as planned and new and expanded yards are provided, the merger will consolidate trains now moving separately between the same points. The combined systems will have a substantial amount of parallel trackage and routes, with 160 common points or junctions. Terminals will be consolidated, present interchanges between

Page 386 U. S. 380

the two systems will be eliminated, and only the most efficient yards and facilities of the respective systems will be utilized. The merger plan calls for 98 projects that will intermesh their long-haul traffic at key points, creating a nonstop service between the principal cities, with "locals" covering the multiple-stop routes and branch lines. It is estimated that enormous savings in transit time can be effected. Certain chosen yards -- such as Selkirk -- will be remodeled and modernized into electronically operated yards with capacities of from 5,000 to 10,000 cars per day. The through trains to the West will be formed at Selkirk, and those from the West broken up for dispatch to terminals or consignees in New England, New York, and northern New Jersey. The plan calls for some New York City traffic to be routed over Central's Hudson River East Shore line to lessen cost. By consolidating traffic on fast through lines, filling out trains, re-routing over the most efficient routes, eliminating some interchanges, and effecting other improvements, the merged company will reduce by 6,000,000 the number of train miles operated. A single-line service will be operated between more points, with less circuity and less switching. The plan also calls for 31 daily trains to be withdrawn from the Pennsylvania, with seven new ones added, leaving a total of 319 trains daily.

The Pennsylvania is the largest, and Central the third largest, railroad in the Northeastern Region. Together, the operating revenue of the two roads was over $1,500,000,000 in 1965. Their net income in 1964 totaled almost $57,000,000, and, in 1965, ran in excess of $75,000,000. In 1963, the total net was barely $16,000,000. The cost of operation of the two systems runs $90,000,000 a month, and their working capital was some $72,000,000 in 1965. As of December 31, 1963, their combined investments were $1,242,000,000. The Pennsylvania and Central systems are each made up of underlying corporations.

Page 386 U. S. 381

As of the date of the Examiners' Report, the merged company would have ownership interest in 182 corporations, and 10 railroads under lease. Thirty-six of the corporations are rail carriers, in six of which the merged company would have a voting control. All six are Class I railroads. It would likewise control six Class II railroads, five switching and terminal railroads, a holding company, five car leasing companies, four common carriers and 34 noncarrier corporations.

The NH [Footnote 2] is the sixth largest railroad in the Northeastern Region, and the largest in New England. On a national basis, it ranks fourth among passenger-carrying railroads, and is one of the largest non-trunkline freight roads. It has some 1,500 miles of railroad in four States -- Massachusetts, Rhode Island, Connecticut, and part of New York. NH has been in reorganization under § 77 of the Bankruptcy Act, 47 Stat. 1474, as amended, 11 U.S.C. § 205, since 1961. [Footnote 3] While its gross revenues have run in excess of $120,000,000, it has run deficits since 1958. During the trusteeship, its deficits have run from $12,700,000 in 1962 to $15,100,000 in 1965.

III

The protesting parties, their setting in the Northeastern Region, and their position on the merger.

Altogether some 200 parties participated in the proceedings before the Commission, some in support of and others in opposition to the merger. None of the appellant railroads challenges the merits of the merger; however, appellants Milton J. Shapp and the City of Scranton both attack the merger on its merits. Aside from Penn

Page 386 U. S. 382

Central and NH, there are 10 other carriers involved in this proceeding.

Three of these are the protected carriers -- B & M, D & H and E-L. B & M operates a freight and passenger service in Maine, New Hampshire, Vermont, Massachusetts and New York over some 1,500 miles of road. It has suffered consecutive deficits in net income for some years, and has not appealed from the decision of the District Court. D & H operates about 750 miles of road, with some 600 in New York, less than 50 in Vermont, and the balance in Pennsylvania. Its net income in 1965 was $5,000,000, its highest year since 1960. E-L operates some 3,000 miles of railroad located in New Jersey, New York, Pennsylvania, Ohio, Indiana and Illinois. Its net income was over $3,000,000 in 1965, but it suffered heavy deficits in the seven preceding years. As we have previously noted, these three railroads have filed applications for inclusion in both this case and in Norfolk & W. Ry. Co. and New York, C. & S. L.R. Co. -- Merger, 324 I.C.C. 1. [Footnote 4] The Commission has withheld action on the inclusion of E-L, B & M and D & H, in Penn-Central until there is a final determination of their inclusion proceeding with Norfolk and Western (N & W). In the latter proceeding, Commissioner Webb filed his report on December 22, 1966, recommending the inclusion of E-L and D & H in the N & W system, but was unable to prescribe terms for inclusion of B & M -- this was left to private negotiation between the railroads. On argument here, the Commission has indicated that it anticipated

Page 386 U. S. 383

entering a final order in the matter by July or August, 1967. If this is favorable, these three roads would be included in the N & W system, which has indicated its acquiescence in such a plan.

Six additional railroads involved here are the C & O, B & O, the Central of New Jersey (CNJ), the Reading Company, the Norfolk and Western, and the Western Maryland Company (WM). The C & O-B & O system is the result of a control proceeding in 1962. See Chesapeake & O. Ry. Co. -- Control -- Baltimore & O. R. Co., 317 I.C.C. 261, sustained, sub nom. Brotherhood of Maintenance of Way Employees v. United States, 221 F.Supp. 19, aff'd per curiam, 375 U. S. 216 (1963). Together, these two roads operate some 10,000 miles of railroad. Their lines extend from Michigan through Ohio and West Virginia to Virginia, and from Chicago, Ill., and St. Louis, Mo., to Rochester, N.Y. and Washington, D.C. Their net operating income in 1965 totaled over $80,000,000. In addition, B & O owns 38% voting control of Reading, which, in turn, controls CNJ. Reading has 1,200 miles of railroad in eastern Pennsylvania, with net operating revenue of some $8,000,000 in 1965. CNJ has 514 miles of railroad extending from Scranton, Pa. to Jersey City. N.J. In 1965 it had a net operating deficit in excess of $3,000,000. C & O-B & O also own jointly 65% of the voting stock of WM. The latter has 741 miles of railroad extending from Connellsville, Pa., and Webster Springs, W.Va., to Baltimore, Md. In 1965, its net operating income was nearly $8,500,000.

N & W has 7,000 miles of railroad extending in a double prong from Des Moines, Iowa, and Kansas City, Mo., on the west to Buffalo, N.Y. and Pittsburgh, Pa., on the east, and from Cincinnati, Ohio, and Bristol, Va., on the west to Hagerstown, Md., and Norfolk, Va., on the east. Its net operating income for 1965 was approximately $118,000,000. As we have noted, an inclusion proceeding

Page 386 U. S. 384

is now pending under which B & M, D & H and E-L seek inclusion in the N & W system.

On October 11, 1965, C & O-B &.0 and N & W filed an application with the Commission asking approval of their merger into a single system and offering to include B & M, D & H, E-L, the Reading, and CNJ therein, subject to various conditions. If this were effected and the Penn-Central-NH merger were effected, the Northeastern Region would then have two giant systems, i.e., Penn-Central and C & O-B & O-N & W.

Only one additional railroad remains a party here, the Chicago and Eastern Illinois Railroad Company (C & E I). It has approximately 750 miles of railroad operating between Chicago, Ill., St. Louis, Mo., and Evansville, Ind., with a net operating income of nearly $3,500,000 in 1965. The Missouri Pacific Railroad Company has already been authorized by the Commission to make C & E I a part of its system. The fear of C & E I here was that the Penn and Central merged would be a more formidable competitor than the Central alone, and it, accordingly, sought the imposition here of special routing and traffic conditions.

The only other appellants are the City of Scranton, Pa., and Milton J. Shapp. Scranton is served by E-L, D & H and CNJ. It fears that the merger will have adverse effects upon the city, and therefore opposes the merger. Shapp sues as a citizen and stockholder of Penn, and is likewise in opposition to the merger.

The United States has filed a memorandum in which it does not "quarrel with the merits of the Penn-Central merger proposal itself." The agencies of the Executive Branch, the Solicitor General reports, "believe that the merger is in the public interest, and that its consummation should be promptly effected." This view, however, is based on the assumption

"that a place in the emerging pattern of consolidation in the Northeast can be found

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for the lesser roads of the region."

It is the Commission's approval of the immediate consummation of the merger prior to the completion of the proceedings to determine the place of the lesser roads to which the United States objects. It contends that, since the very survival of the three protected railroads is threatened by the Penn-Central merger, the Commission must first provide protection for them until their absorption by "a major system like Norfolk and Western." To this end, the United States suggests that we hold the case to enable the Commission to conclude the related proceedings which it now has under consideration. The United States concludes that:

"Only if the Commission is unable to promptly resolve the problems resulting from the merger would we deem it appropriate to urge this Court to reach the merits of the appeals and reverse the judgment below."

The appellant railroads take varying positions, all short of attacking the merits of the merger. The three protected railroads contend that the merger should not be consummated prior to the final determination of their inclusion in some major system or the enforcement of effective protective conditions in the interim. Judicial review, they say, of the protective conditions would otherwise be illusory. The C & O-B & O group and the N & W system maintain that the conditions of the April 6, 1966, order give the protected railroads a vested interest in the Penn-Central merger which would result in the protected railroads diverting traffic to Penn-Central which would normally have gone to them. They say, as does the United States, that the conditions were drawn without the benefit of notice and hearing, are deficient, and enforcement thereof would be to their detriment. C & E I points to what it calls inconsistent findings as to the benefits it will have "of intensified competitive efforts" by its connecting carriers on routes in competition with

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Penn-Central. It contends that the indemnity conditions would "compound the economic injury" which would befall the C & E I as a result of the merger and which prompted it to request protective measures.

IV

The national transportation policy and practices of the Commission thereunder.

This Court has often pointed out that the national transportation policy "is the product of a long history of trial and error by Congress. . . ." McLean Trucking Co. v. United States, 321 U. S. 67, 321 U. S. 80 (1944). In that case, it found that the Transportation Act of 1920 "marked a sharp change in the policies and objectives embodied in those efforts." Ibid. In that Act, the Congress directed the Commission to adopt a plan for consolidation of the railroads of the United States into "a limited number of systems." 41 Stat. 481 (1920). Consolidation would be approved by the Commission upon a finding that the transaction was in harmony with and in furtherance of the complete plan of consolidation, and that the public interest would be promoted. But the Commission was warned that "competition shall be preserved as fully as possible." Ibid. The initiation of this unification, however, the Congress left wholly with the carriers. The Commission was given no power to compel mergers. This pattern was carried forward in the Transportation Act of 1940, 54 Stat. 898; however, § 5 of the former Act was amended to authorize the Commission to approve carrier-initiated proposals which it found to be consistent with the public interest and upon just and reasonable conditions. Under § 5(2)(d), additional power was given the Commission to condition its approval of a merger upon the inclusion, upon request, of other railroads operating in the territory involved. As we said in County of Marin v. United States, 356 U.S.

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412 (1958),

"the result of the [1940] Act was a change in the means, while the end remained the same. The very language of the amended 'unification section' expresses clearly the desire of the Congress that the industry proceed toward an integrated national transportation system through substantial corporate simplification."

Id. at 356 U. S. 417-418. The Commission has, therefore, not proceeded by or under "a master plan" for consolidation in the various regions. Following this procedure, the Commission has refused to consolidate the Northeastern Region railroad merger or control proceedings into one case. See Chesapeake & O. Ry. Co. -- Control -- Baltimore & O. R. Co., supra, at 265-266, and Norfolk & W. Ry. Co. and New York, C. & St. L.R. Co. -- Merger, supra, at 18. Also Brotherhood of Maintenance of Way Employees v. United States, 221 F.Supp. 19, at 29-31; aff'd per curiam, 375 U. S. 216 (1963).

It is contended that the order here is fatally defective for failure to comply with § 5(2)(b) of the Act, which requires the Commission to

"enter an order approving and authorizing such transaction, upon the terms and conditions, and with the modifications, so found to be just and reasonable."

The claim is that, by leaving the indemnity provisions open for future determination, the Commission did not meet the requirements of the section. Once a valid order is entered by the Commission, it, of course, has the power to retain jurisdiction for the purpose of making modifications that it finds necessary in the light of subsequent circumstances or to assist in compliance with prior conditions previously required, or, of course, to correct any errors. The Commission also has power under § 5(9) of the Act to make certain supplemental orders and under § 17(3) may correct clerical errors in certificates. We do not find it necessary to pass upon the question of naked power in the Commission to

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do what has been done here. Even assuming that it does have that power, we find that its order approving immediate consummation of the merger is insupportable on its findings.

V

Conclusions

The Commission found in its April 6, 1966, order that the protected railroads would be adversely affected to a "serious degree" by the Penn-Central merger; that they would be "severely handicapped" in providing required transportation to the highly industrialized areas that they serve, which service is "essential" and "the public service dictates that it be preserved." It then held that immediate consummation of the merger would be consistent with the public interest only if the conditions of Appendix G were immediately imposed. And, significantly, it concluded that, even though it approved the merger, consummation of it would not be permitted unless the protected railroads "are protected during the period necessary to determine their future. . . ." 327 I.C.C. at 529, 532. But after this suit was brought and strong opposition to Appendix G was voiced, the Commission, on September 16, 1966, withdrew all of the conditions of Appendix G save the traffic ones. This left the protected railroads without sufficient protection according to the Commission's own findings. This was done apparently because of the vehement objections of the appellant railroads that Appendix G would cause havoc, rather than give shelter. We cannot say, as did the District Court, that the September 16, 1966, order meant nothing more than that the traffic conditions left imposed by it were, in themselves, sufficient to protect the three protected railroads during the interim between the merger and the decision as to their future in one of the major railroad systems. This interpretation runs in the face of not only the prior findings enumerated above, but the specific terms and conditions of Appendix G found

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to be necessary to prevent "impairment or serious weakening" of the three carriers. Id. at 532. Indeed, rather than being tentative, the requirements of Appendix G were rigidly fixed and established for the entire period preceding inclusion of the protected roads in some major system. The finding of consistency with the public interest was predicated entirely upon the unqualified acceptance of Appendix G by Penn-Central. Otherwise, the merger would be put off for two years. In its effort to expedite the merger, the Commission failed to provide the very protection that it at the same time declared indispensable to the three roads. This leaves the ultimate conclusion -- that prompt consummation of the Penn-Central merger clearly would be in the public interest -- without support, and it falls under the Commission's own findings.

In view of these facts, and since none of the findings of the Commission was disturbed, attacked, or amended, we believe it was error to permit the merger to be effected. And we also note that, even in the ultimate order of approval dated September 16, 1966, the Commission pointed out that its

"finding [as to the merger's being consistent with the public interest] was that, if the immediate consummation were to be authorized, E-L, D & H and B & M would require special protection during the pendency of their petitions for inclusion in a major system."

Nevertheless, in spite of this confirmation of its finding, the Commission ordered the merger immediately consummated without the "special protection" afforded by Appendix G. Having found that the finding of consistency with the public interest could only be sustained by the imposition of the Appendix G "special protection," the Commission failed to meet its statutory obligation when it arbitrarily removed the special conditions of Appendix G while leaving the prior finding standing.

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In view of the patent invalidity of the order permitting immediate consummation of the merger, and in light of the present status of the proceeding before the Commission, we can only conclude that it is necessary that the decision as to the future of the protected railroads and their inclusion in a major system be decided prior to consummation of the Penn-Central merger. This is especially true since the findings and recommendations of Commissioner Webb as to the inclusion of the three protected railroads are now under submission to the full Commission. and a decision should be reached thereon by July or August, 1967, we are advised by counsel. This short time would have little effect upon the ultimate consummation of the merger -- which has been in the making for some 10 years now -- and if it resulted in the future of the protected railroads being finally decided, serious losses to them would be obviated. Furthermore, there would be no occasion for the conditions of Appendix G to be imposed, and hearing and decision on this highly controversial matter would not be necessary insofar as the three protected railroads are concerned. Finally, such action would provide the solution to the problem of the necessary and indispensable protection to the three railroads that the Commission found prerequisite to the merger.

Furthermore, the serious charge that the conditions of Appendix G were imposed without notice and hearing would, in a large part, be dissipated by this course of action. As to the three protected roads, it would be entirely obviated if and when their fate is determined. As to the other railroads affected, the Commission could more quickly conclude its present hearing and make a decision as to the effect of the merger upon them and the protection, if any, required. [Footnote 5]

Page 386 U. S. 391

This disposition is also buttressed by the fact that, should the immediate consummation of the merger be permitted, and, at a later date, neither the interim conditions nor the inclusion proceedings be disposed of favorably to the continued existence of the merger, the only remedy remaining would be to set it aside and unscramble the consolidation. It is said that this does not follow, since only the indemnity terms are at issue, and they involve only money. This is blinking at reality. The fact is that traffic, trackage, terminals, etc., as well as financial and corporate structures, can and will, beyond doubt, be quickly combined, changed, abandoned, or consolidated. The only condition now imposed for the maintenance of the status quo is the provision against any change of routes, traffic, rates, etc., as to business in which the three protected roads participate. They are comparatively small lines, located for the most part in northeastern coastal States, and would, percentage-wise, be a small part of the total routes, traffic, rates, etc., of the whole Penn-Central system. There would be no restriction as to other routes, traffic, rates, etc., as well as all other operations of the merged company, including terminals, warehouses, etc., financial and corporate structures. The plan that the Penn-Central proposes to follow, as we have briefly sketched it, indicates not only

Page 386 U. S. 392

major changes, but quick action. Our experience with other mergers, and common sense as well, indicate that the "scrambling" goes fast, but the unscrambling is interminable, and seldom effectively accomplished.

The Penn-Central merger has been studied for a decade. Indeed, the parties to the merger agreed to it over five years ago, and it has been under Commission consideration ever since that time. This is, of course, the more reason for expedition. We note and give weight to the estimates of the Commission that the inclusion proceedings of the three roads in the N & W should be concluded in "a relatively short time." Our remand should, therefore, entail only a very short delay before the Commission. If its order is attacked in court, the hearing there can be expedited, as was this one, and an early determination made. We do not believe that this is too high a price to pay to make, as certain as human ingenuity can devise, a just and reasonable disposition of this matter for all of the parties. After all, it is the largest railroad merger in our history, and, if not handled properly, could seriously disrupt and irreparably injure the entire railroad system in the northeastern section of the country -- to the great detriment not only of the parties here, but to the public convenience and necessity of the entire Nation.

The judgment of the District Court is reversed, and the cause is remanded with instructions that it be remanded to the Commission for further proceedings not inconsistent with this opinion.

It is so ordered.

|386 U.S. 372app|

APPENDIX TO OPINION OF THE COURT

APPENDIX G*

Provisions for the Protection of E-L, D & H, and B & M.

1. Pending final determination of the petitions for inclusion filed by E-L, D & H, and B & M in this proceeding

Page 386 U. S. 393

and in Finance Docket No. 21510 et al., or such other period of time as the Commission may prescribe, hereinafter called the protective period, and on traffic for which E-L, D & H and B & M are competitive factors, the merged company shall not publish or provide for any new or changed routing practice and/or freight rates or services, either locally or jointly with other carriers, which would divert or tend to divert traffic from routes in which E-L, D & H or B & M, now participates, or participated at the time this merger application was filed, or take any action or engage in any practice or conduct contrary to the purpose and general objectives of this condition as explained in this report.

For the purpose of illustrating -- but in no way limiting -- the application of this condition, the following specific provisions are prescribed:

A. During the protective period, and as to the described traffic, the railroads which shall make up the merged system will be considered separate railroads, as they now are, for the purposes of establishing new routes or rates or privileges and changes in present routes, rates or privileges.

B. When any of the described freight traffic is delivered to carriers of the merged system, it shall be allocated among the routes of the system in accordance with practices employed by the system's railroads at the time this merger application was filed.

C. Where through routes and joint rates are now in existence via any component railroad of the merged system and E-L, D & H or B & M, the participation therein of such components shall be maintained during the protective period with the same vigor as such components have heretofore exercised in competition with each other and other carriers, to the end of preventing noticeable diversion from such routes to any other route in which the merged company participates.

Page 386 U. S. 394

D. The merged company for the protective period shall agree to joint rates and divisions thereof on its freight traffic interlined with E-L, D & H or B & M under terms no less advantageous to E-L, D & H and B & M than are the terms which those three carriers now have with the component carriers of the merged system, and, in the event of any changes in such joint rates, the divisions shall not be changed in any manner which will result in E-L, D & H or B & M receiving proportionally less than they now receive on joint rates with such component carriers.

E. In conjunction with E-L, D & H and B & M, the merged company shall, during the protective period, keep open all routes now in force for the transportation of freight over the lines of the three companies and the component carriers of the merged system; shall maintain thereon service equal to or better than that being given on the date this merger application was filed; shall improve such service, to the extent within its power, at least as necessary to make the said through routes fully competitive with other routes in which the merged company participates; and, where joint rates are now in effect or were in effect when this merger application was filed, it shall maintain such rates, and where change in those rates becomes appropriate, changes shall conform to the requirement of provision D above.

2. The term "competitive factor" shall be construed to mean that, at the date of this order or at the time this merger application was filed, E-L, D & H or B & M was both participating in the particular route, rate or service and was handling traffic thereon.

3. E-L, D & H and B & M shall be indemnified by the merged company under the circumstances and according to the plan specified in the report, supra.

4. This appendix constitutes a plan for protection against the effects of the applicants' merger, and does not

Page 386 U. S. 395

apply to loss caused by: (a) hostile or warlike action by (1) any government or sovereign power (de jure or de facto) or (2) military, naval or air forces; (b) insurrection, rebellion, civil war, et cetera; (c) national disaster; (d) economic depression; (e) strikes; (f) act of God; or (g) other similar state of affairs.

5. The interpretation, application and enforcement of the conditions in this appendix shall he governed exclusively by the following provisions:

A. All controversies arising under this appendix shall be determined with finality by the Interstate Commerce Commission in the manner indicated below.

B. (1) Except as to section 3, supra, whenever E-L, D & H or B & M considers that these protective conditions are being violated, or that a violation will result from the effectuation of a tariff publication in which the merged company participates, they may (individually or collectively) file a complaint with the Commission, Board of Suspension, and with the merged company, specifying the rate, route, practice, privilege, or such matters constituting the alleged violation and setting forth in a statement verified by an appropriate official of the complainant all the data giving rise to the complaint.

(2) In the event the Board of Suspension shall determine that, as to the matter complained of, E-L, D & H or B & M is a competitive factor (as defined in these conditions), it shall in the case of a tariff publication not yet effective, suspend the tariff forthwith for the protective period (as defined in these conditions), and shall conduct an investigation into the matter complained of, and if the alleged violation is found not to exist, the Board shall thereupon order the suspension removed; and, in all matters not involving a tariff not yet in effect, the Board shall investigate the matters complained of; and, if in any investigation, it finds that these protective

Page 386 U. S. 396

conditions are being violated, it shall order the cancellation of the violative tariff provisions or, where a tariff is not involved, the termination of the violative conduct. Orders of the Board shall have force and effect as orders of this Commission and shall be enforced as such.

C. All controversies arising under section 3 above, shall be determined by the Commission, Finance Board No. 2. Complaints, verified by an appropriate officer of the complainant, shall be addressed to such Board and the merged company, specifying both the basis of the complaint and the relief sought.

D. (1) All determinations as to whether E-L, D & H or B & M is a competitive factor shall be made within 10 days after a complaint is filed, and final decisions as to issues raised by a complaint shall be rendered within 90 days after the complaint is filed.

(2) Appeal shall lie to the Commission, division 2, from orders of the Board of Suspension, and to the Commission, division 3, from orders of Finance Board No. 2.

(3) Special rules for proceeding before the Boards and appealing therefrom shall be promulgated by this Commission at a future time.

6. Notwithstanding the provisions of sections 1, 2, 3, 4, and 5, an agreement pertaining to the interests of E-L, D & H and/or B & M may be hereinafter entered by the merged company and the protected carriers, or any of them, which shall supersede the protection provided by such sections to the extent the agreement does not violate the provisions of the Interstate Commerce Act or the Commission's rules and regulations thereunder.

7. In the event applicants fail to accede to the above-named conditions, consummation of the proposed merger will be deferred for 2 years or such time as the Commission may determine to be necessary to protect the interests of D & H, B & M and E-L.

Page 386 U. S. 397

8. These conditions shall be construed, administered and enforced with the view to protecting the E-L, D & H and B & M and the shipping public which depends upon them for transportation, against the effects of the merger for the period and purposes set forth above.

9. These conditions are to be applied in addition to the standard conditions set out in Appendix I hereof.

* Together with No. 680, Delaware & Hudson Railroad Corp. v. United States, et al., No. 691, Erie-Lackawanna Railroad Co. v. United States, et al., No. 813, City of Scranton, et al. v. United States, et al., No. 814, Shapp v. United States, et al., and No. 815, Chicago & Eastern Illinois Railroad Co. v. United States, et al., also on appeal from the same court.

* 327 I.C.C. 475, 561.

[Footnote 1]

"Competitive factor" was defined as any particular route, rate, or service on which any of the "protected railroads" were handling traffic at the time the merger application was filed or at the date of the order.

[Footnote 2]

We include it in this discussion since the Commission intends to include it in the Penn-Central system as soon as terms and conditions are agreed to or fixed.

[Footnote 3]

In the matter of the New York, New Haven, and Hartford Railroad Company -- Debtor, No. 30226, U.S.D.C.Conn.

[Footnote 4]

This proceeding involved the merger of the Nickel Plate. E-L sought inclusion in this proceeding, along with B & M and D & H. After E-L had withdrawn its application the Commission found that the merger "should have no harmful effects" on B & M and N & H. The Commission retained jurisdiction for five years to permit E-L, B & M and D & H to again petition for inclusion. See 324 I.C.C. 1, 19-31. Each of the roads so petitioned, and it is this inclusion proceeding that is now before the Commission.

[Footnote 5]

Among these, CNJ claims it has been deprived of a hearing on the effect on it of the inclusion of the NH in the Penn-Central merger. As the Commission points out, however, the terms and conditions of the NH's inclusion are subject to further proceedings, and the Commission has specifically given to CNJ leave "to seek protection for [its] traffic and gateways," at that time. 327 I.C.C. at 527. Moreover, CNJ also says, it has not been afforded a hearing on its claim that the merger will also deprive it of important overhead coal traffic now delivered by CNJ to D & H at Wilkes-Barre, Pa. This might be lost, it alleges, because of the direct connection between D & H and N & W which will be available over the trackage rights that Penn-Central is being required to grant D & H. We know nothing of the merits of these claims, and, of course, indicate no decision thereon. However, we assume that the Commission will in each instance afford the CNJ an opportunity to be heard concerning them.

MR. JUSTICE BRENNAN, concurring.

I join the Court's opinion. In its determination whether the merger is consistent with the public interest, the ICC did not discharge its statutory duty to consider the effect upon that interest of the inclusion, or failure to include, the E-L, D & H and B & M. The ICC order authorizing immediate consummation of the merger as consistent with the public interest must therefore be set aside.

I

The ICC's approval of the Penn-Central merger is the last of three authorizations for consolidation of major eastern roads. In the first, the C & O was allowed to control the B & O. [Footnote 2/1] In the second, the N & W was permitted to merge with the Nickel Plate. [Footnote 2/2] The ICC has been confronted with the problem of what to do with the E-L, D & H and B & M since they petitioned for inclusion in the proposed N & W-Nickel Plate system as a condition of approval. E-L's precarious financial condition led to that carrier's withdrawal of its petition in favor of inclusion by negotiation, 324 I.C.C. 1, 21, and, as a consequence, of the denial of the D & H and

Page 386 U. S. 398

B & M petitions, 324 I.C.C. at 31-32. In the meantime, the Penn-Central proposal had come before the Commission, and D & H, fearful that the Penn-Central merger might be approved and consummated before its inclusion in a major system was assured, argued that approval of Penn-Central be held up by consolidating the two proceedings, or that immediate consummation of N & W-Nickel Plate should be made contingent on inclusion upon equitable terms of the three roads in the event Penn-Central is later approved. 324 I.C.C. at 30-31. The ICC denied these requests, but recognizing there was substance to D & H's fears, it retained jurisdiction for five years to permit the roads to file petitions for inclusion in the N & W system. Inclusion was to be required upon equitable terms if "found consistent with the public interest," and consummation of the merger would constitute "irrevocable assent" by N & W to the condition. 324 I.C.C. at 148.

Before N & W-Nickel Plate was approved, the Penn-Central proposal had been filed. The three roads, appreciating the danger Penn-Central would pose to their survival, sought inclusion, conditioned upon denial of their inclusion in N & W. Soon after, negotiations between E-L and N & W for voluntary inclusion apparently broke down because, at approximately the same time, the three roads filed petitions for inclusion in N & W, and N & W and C & O filed applications to merge with each other, stating that only such a merger could support the inclusion of the three roads in N & W on equitable terms and consistently with the public interest. The three roads urged in their applications both for inclusion in Penn-Central and for inclusion in N & W, that Penn-Central be delayed until their inclusion in one of the systems was assured. This was tantamount to a request that the two proceedings be consolidated for decision, and the Department of Justice supported their position.

Page 386 U. S. 399

The ICC found, as the three roads alleged, (1) the service rendered by the three roads "is essential, and the public interest dictates that it be preserved," and (2) it is "doubtful that, without inclusion in a major system, these three carriers could withstand the competition of the applicants merged. . . ." 327 I.C.C. 475, 529, 532. All the parties concerned recognized, however, that inclusion of the roads in N & W would be preferable to inclusion in Penn-Central, and that it would be some time before the N & W inclusion proceeding was completed. Rather than delay consummation of Penn-Central, which the ICC found would result in substantial savings and improved service, the ICC ordered immediate consummation. It pointed out that the three roads had petitions for inclusion in N & W pending, and provided that, in the event inclusion in N & W was denied, the three roads could petition the ICC for one year following the judgment of denial to allow or require inclusion of the roads in Penn-Central, on equitable terms, if found to be in the public interest. 327 I.C.C. at 553. Meanwhile, in addition to usual conditions for preserving existing routes and gateways, the ICC prescribed "unprecedented" conditions of two kinds: (1) traffic conditions requiring Penn-Central to continue existing practices and route patterns with respect to traffic competed for by the three roads; (2) conditions guaranteeing the three roads an indemnity computed on the basis of a fixed share of the combined total of the revenues realized by them and Penn-Central; this was to compensate the roads for income lost from diversion of their traffic to Penn-Central. 327 I.C.C. at 532. These conditions were acceptable to Penn and Central, but not to the three roads or to N & W and C & O-B & O.

Proceedings to set aside the ICC order were brought in the District Court, and petitions for reconsideration were also filed with the ICC. Some of the latter attacked

Page 386 U. S. 400

the validity of the conditions on the ground that they were imposed without hearing. E-L and D & H, however, renewed their complaint against the approval before assurance of their inclusion in a major system, and alternatively attacked the conditions as indefinite and inadequate, demanding in addition to be indemnified for capital loss. C & O-B & O and their family lines for the first time introduced evidence that the merger would adversely affect them, and argued that the indemnification condition of the original order would create a community of interest between the protected roads and Penn-Central. The Department of Justice urged postponement to consider the questions raised concerning the conditions and the evidence of adverse effect offered by C & O-B & O. [Footnote 2/3]

Page 386 U. S. 401

The ICC rescinded the indemnity conditions pending a hearing on whether they should be modified and whether a capital loss indemnification condition should be added, but refused on the ground of laches to hear the evidence offered by the C & O. 328 I.C.C. 304, 318. The ICC reaffirmed its approval of the merger subject to Penn-Central's acceptance of the conditions as finally formulated, although not foreclosing Penn-Central from seeking judicial review of any provision for capital loss indemnification. 328 I.C.C. at 329. The District Court denied interlocutory relief enjoining Penn and Central from going forward with the merger. [Footnote 2/4]

II

The statutory duty of the ICC is clear. Section 5(2)(b) of the Interstate Commerce Act, as amended by the Transportation Act of 1940, authorizes the agency to approve only those consolidations it finds "will be consistent with the public interest. . . ." 54 Stat. 906, 49 U.S.C. § 5(2)(b). The statute creates no presumption that mergers generally are either consistent or inconsistent with that interest; rather, it requires that each proposal be examined in depth to determine its effects upon the national transportation system. Thus, the ICC is explicitly directed to consider

"(1) The effect of the proposed transaction upon adequate transportation service to the public; (2) the effect upon the public interest of the inclusion, or failure to include, other railroads in the territory involved in the proposed transaction; (3) the total fixed charges resulting from the proposed transaction, and (4) the interest of the carrier employees

Page 386 U. S. 402

affected."

49 U.S.C. § 5(2)(c). The National Transportation Policy is the controlling guide, McLean Trucking Co. v. United States, 321 U. S. 67, 321 U. S. 82, and that policy requires the Commission

"to promote safe, adequate, economical, and efficient service and foster sound economic conditions in transportation and among the several carriers . . . to the end of developing, coordinating, and preserving a national transportation system by water, highway, and rail, as well as other means, adequate to meet the needs of the commerce of the United States, of the Postal Service, and of the national defense."

49 U.S.C. note preceding § 1. These provisions call for the application of discerning judgment to a wide range of factors, and preclude the position that the purpose of the 1940 Act is simply to promote railroad consolidation. [Footnote 2/5] The ICC has recognized that inquiry into a proposed transaction does not end with the possibilities for increased economics, but extends to "the effect of the transaction upon adequate transportation service to all parts of the public which would be so affected," [Footnote 2/6] which encompasses

Page 386 U. S. 403

the

"duty, as an administrative matter, to consider the effect of the merger on competitors and on the general competitive situation in the industry in the light of the objectives of the national transportation policy."

McLean Trucking Co. v. United States, supra, at 321 U. S. 87. "The public interest is the prime consideration, and, in making that determination, we must have regard for all relevant factors." Toledo, P. & W. R. Co. -- Control, 295 I.C.C. 523, 547.

A critical factor, not, in my view, properly applied in this case, is

"the effect upon the public interest of the inclusion, or failure to include, other railroads in the territory involved in the proposed transaction. . . . [Footnote 2/7]"

The Commission is authorized,

"as a prerequisite to its approval of the proposed transaction, to require, upon equitable terms, the inclusion of another railroad or other railroads in the territory involved, upon petition by such railroad or railroads requesting such inclusion, and upon a finding that such inclusion is consistent with the public interest."

49 U.S.C. § 5(2)(d). The ICC recognizes that it is required to consider the issue of inclusion even when no petition is filed, [Footnote 2/8] because, if a proposed transaction

Page 386 U. S. 404

"would endanger or impair the operations of other carriers contrary to the public interest," Chicago, B. Q. R. Co. -- Control, supra, 271 I.C.C. at 157, inclusion of the affected carriers is required by, and not merely consistent with, the public interest.

In this case, the ICC, although determining that the three roads perform an essential service and that their inclusion in some major system is required by the public interest, takes the position that its duty as to inclusion is sufficiently discharged when it provides for the possibility of inclusion in either N & W or Penn-Central, and meanwhile promises to impose protective conditions. My disagreement is not with the proposition that the Act vests wide discretion in the agency to allow a merger to go forward while conditions as to inclusion are worked out. The Commission has broad authority to approve transactions "subject to such terms and conditions and such modifications as it shall find to be just and reasonable . . . ," § 5(2)(b), and

"may from time to time, for good cause shown, make such orders, supplemental to any order made under paragraph (1), (2), or (7), of this section, as it may deem necessary or appropriate,"

§ 5(9). It has, in fact, occasionally reserved jurisdiction (1) to work out equitable terms for an inclusion it has already determined is required by the public interest, New York Central Unification, 154 I.C.C. 489, 493-494; [Footnote 2/9] and even (2) to determine after consummation whether inclusion will be consistent with or required by the public interest, Union Pac. R. Co. Unification, 189 I.C.C. 357, 363. [Footnote 2/10] But

Page 386 U. S. 405

decisions of this sort proceed upon the assumption that inclusion will later be possible, and that, therefore, the finding that the proposed consolidation is in the public interest will not be undermined. This assumption is not always warranted. An inclusion may turn out to be impossible, either because of inability to work out equitable terms, a circumstance upon which inclusion orders have invariably been conditioned, or because upon full consideration the effects of the contemplated inclusion might be regarded as so detrimental that the proposed merger which made necessary the inclusion would be against the public interest.

The Commission must decide, in the first instance, whether the risk of such ultimate developments is acute enough to counsel against approval of a consolidation subject to the working out of the terms of an inclusion or to the working out of both the terms and the inclusion. See Jaffe, Judicial Control of Administrative Action 565-567 (1965). But resort to the practice of deferring the accomplishment of inclusions or other ends required by the public interest must be carefully weighed and reviewed. Where there is little or no danger that inclusion consistent with the public interest and upon equitable terms might turn out to be impossible, it is sufficiently likely, despite deferral, that the Commission will have fulfilled its basic statutory duty. Where there is a significant possibility, however, that a deferred inclusion upon which a finding of public interest is premised will be unattainable or attainable only by setting into motion new forces which have not been weighed in evaluating the basic proposal, then the Commission's statutory duty to consider all the relevant factors has

Page 386 U. S. 406

not been properly discharged. And ICC action of this sort generally creates dangers far greater than those which normally accrue when an agency or court fails to apply the governing standard to all the relevant facts, since the decision to allow consummation is often irreversible, as it concededly is in this case, or reversible only at enormous expense.

Prior authorizations deferring decision on inclusions held to be required by the public interest entailed no significant risk that the ICC had approved a consolidation without fulfilling its statutory duty. When, in New York Central Unification, supra, the Commission authorized immediate consummation but retained jurisdiction to assure that terms would be worked out for the purchase of lines whose purchase it had required because their preservation was found to be essential to the public interest, there was no doubt that equitable terms could be arranged. The roads to be included were short lines, complementary to the New York Central system, so consummation of the proposed unification created no reason to expect a detrimental effect. Moreover, the roads were required to submit the issue of value to arbitration in the event they failed to agree. 154 I.C.C. at 493. When, in Union Pac. R. Co., supra, the Commission deferred until after consummation both the question whether the public interest required inclusion and the matter of working out terms, there was no indication that inclusion might be impossible because of its effects without rendering the proposed transaction against the public interest, or that equitable terms for inclusion might be unattainable, or that the short lines involved would be subjected to danger from traffic diversion or otherwise during the period between consummation and inclusion. The transaction authorized only accounting changes; no change in

Page 386 U. S. 407

operation was either contemplated or possible. 189 I.C.C. at 363. [Footnote 2/11]

This case is in striking contrast. Allegations are made by the Department of Justice and numerous other parties that inclusion of the protected roads in either of the major systems contemplated by the Commission might not be possible consistent with the public interest or upon equitable terms. These arguments demonstrate that, because of possible difficulties involved in the inclusion proceeding and in establishing acceptable interim conditions, the "opportunities for the ultimate inclusion of E-L, D & H and B & M in a major rail system . . ." which the Commission has endeavored to preserve create serious uncertainties.

The first and more obviously uncertain alternative is inclusion in Penn-Central itself. The Commission

Page 386 U. S. 408

retained jurisdiction to allow the three carriers to seek inclusion in Penn-Central within one year after final denial of any of their petitions for inclusion in N & W. All concerned recognize that inclusion in N & W is the preferable solution, since inclusion of the roads in Penn-Central would create a virtual monopoly of all rail traffic in most of New England and New York. [Footnote 2/12] (See Appendix A [omitted] for a map depicting this result.) It is true that Commissioner Webb said in the N & W inclusion proceeding that

"the Penn-Central reports indicate that the merger would be consistent with the public interest notwithstanding any lessening of intramodal competition resulting from inclusion of EL, D & H, and B & M,"

Norfolk & W. R. Co. -- Merger, F.D. No. 21510, p. 27, but this statement is refuted by the Penn-Central reports themselves. Both the Examiners and the Commission expressly reserved for a later time the question whether inclusion of the roads in Penn-Central would be consistent with the public interest, [Footnote 2/13] and, rather than implying that the merger would be in the public interest despite inclusion of the protected roads, the Examiners' Report and the Commission's opinions indicate that the merger

Page 386 U. S. 409

was approved under the assumption that the protected roads would be included in N & W. [Footnote 2/14]

The "opportunity" for inclusion in the N & V hardly presents a less risky alternative. The N & W proceeding has gone to hearing, and Commissioner Webb, acting as Presiding Officer, has issued a report recommending inclusion in N & W of of E-L and D & H, and authorizing inclusion of B & M if the parties are able to agree to terms. There has as yet been no action by the ICC on the report, and, based upon its contents and the objections raised in this Court, there is a significant possibility, given the present state of circumstances, that inclusion in N & W might be unattainable, or attainable only at the price of

Page 386 U. S. 410

rendering the Penn-Central merger against the public interest, and that, even if inclusion could be accomplished consistent with the public interest, it might be impossible to work out equitable terms. Appellees make much of the fact that N & W, by consummating its merger with Nickel-Plate,

"irrevocably agreed to include these three petitioners in their system upon terms agreed upon among themselves or, if necessary, prescribed by [the ICC], provided such inclusion is found to be consistent with the public interest."

327 I.C.C. at 529. But this condition expressly assumes a favorable resolution of both of the questions in dispute. As Commissioner Webb said in the N & W inclusion report:

"the only obligation expressly imposed on N & W . . . was to include the petitioners if the Commission found such inclusion to be consistent with the public interest and if the Commission also found that the inclusion could be effected on terms 'equitable to all parties involved,' both findings to be subject to full judicial review."

N & W Inclusion Report at 16.

Commissioner Webb's recommended disposition reveals clearly that the dangers stemming from deferral exist even as to inclusion in N & W. He rejected an argument of C & O that its plan for absorption of the three roads into a merged C & O-N & W system was mutually exclusive with inclusion of the roads into an independent N & W, and the contentions of C & O and others that they would be adversely affected by the inclusion. He found inclusion of all three roads consistent with the public interest, pointing out that the roads would be able to survive in N & W despite significant losses to Penn-Central, and that greater intramodal and intermodal competition and better services would become possible. N & W Inclusion Report at 31-32. However, he found substance to arguments relating to each of the three roads

Page 386 U. S. 411

that their required inclusion would be against the public interest. Since authorization of the Penn-Central merger is premised on a finding that the roads must be included in a major system, these arguments are of great relevance here, and I address myself to them.

As to E-L, N & W argued inclusion would be too great a burden in light of its financial condition, for, although E-L showed a modest profit in 1965 for the first time in years, N & W contended it was too soon to draw any optimistic conclusion, and that it was no more able now to absorb E-L than it had been a few years before, when the Commission refused to require E-L's inclusion in N & W because of E-L's "precarious financial plight" and "the burden another railroad would assume if it absorbed the Erie-Lackawanna now. . . ." 324 I.C.C. at 25. Commissioner Webb recognized that this argument had some merit, and characterized E-L's growth as "erratic." N & W Inclusion Report at 17, 10. So enormous is E-L's debt, in fact, that the parties themselves agreed it "precludes a merger of N&W and E-L now or at any time in the near future." Id. at 84. As a consequence, the Commissioner recommended that only control of E-L by N & W be required, looking to eventual merger with assumption of liabilities when circumstances would permit. D & H has no financial problem which would interfere with immediate merger, but Commissioner Webb found that the only sufficient connection between D & H and N & W was E-L, and therefore recommended that an order requiring inclusion of D & H in N & W be conditioned on inclusion of E-L, id. at 139, which consequently makes the arguments relating to E-L applicable to D & H as well. With respect to B & M, Commissioner Webb agreed with N & W, and refused to recommend that its inclusion in any form be required, because of B & M's poor financial condition and limited prospects for recovery. He recommended only that inclusion be

Page 386 U. S. 412

authorized in the unlikely event N & W saw fit to agree to pay, within five years of the inclusion, a minimum rate for B & M shares equal to almost twice their value under Commissioner Webb's own appraisal. Id. at 153, 156.

It is not entirely clear, therefore, that E-L and D & H will be ordered included in N & W, and the likelihood that B & M will not be included under present circumstances is great. Therefore, it is reasonably possible that the premise upon which the Commission has proceeded in authorizing consummation of Penn-Central -- that all three must be included in a major system -- may be unattainable through inclusion in N & W, because the required inclusion of at least one and possibly all three may not be consistent with the public interest. Neither is it a sufficient answer to this uncertainty that B & M could be included in Penn-Central, since its value to that system because of the monopoly it would make possible in large areas of New England would make inclusion economically feasible at equitable terms. As we have seen, whether Penn-Central would be worth the price despite this result is a matter of some dispute, which the ICC has never considered.

The Commission's duty to consider all the relevant effects of a consolidation before authorizing it extends, moreover, not only to whether an inclusion necessary to make the proposed transaction consistent with the public interest is in fact attainable, but also to whether such an inclusion, even though attainable, might set in motion events which could put the basic transaction proposed in a less favorable light. Thus, even if it is assumed that inclusion of E-L and D & H in N & W will occur, and that leaving B & M temporarily independent would not undermine the consistency of the Penn-Central merger with the public interest, it is incumbent upon the ICC to consider the potential effects on the public interest of

Page 386 U. S. 413

such an outcome before authorizing consummation. Clearly, the ICC has not done so, and, on this record, there is a substantial likelihood that effects of enormous significance to the public interest might result.

Commissioner Webb refused to consider N & W and C & O's plan for merger with inclusion of the smaller roads, because he concluded the issue of inclusion could be settled without regard to the plan. It is clear, however, from the Commissioner's recommendations, that adoption of the N & W-C & O plan may well be a consequence of the Penn-Central merger both through its effect on the smaller roads and its effect directly upon N & W and C & O. The uncertainties with respect to inclusion of the roads in N & W will be highly probative evidence when the Commission gets around to considering the N & W-C & O proposal. E-L's large debt, for example, which now prevents its outright merger in N & W, would be less of an obstacle if N & W and C & O were combined, and thereby strengthened. Even more significant is the fact that B & M's inclusion, presently regarded as impossible in N & W, would probably be possible if N & W were combined with C & O-B & O. [Footnote 2/15]

Page 386 U. S. 414

There is no doubt, moreover, that C & O and N & W will, in addition to offering a solution to the inclusion problem, allege that they stand to be seriously hurt by the Penn-Central system unless they are allowed to combine. Although Commissioner Webb refused to hear evidence offered by C & O to prove such allegations, and although the Commission also refused, on the ground of laches, to grant C & O's petition to reopen Penn-Central to introduce evidence of traffic diversion, the ICC agreed to modify the finding of the Examiners in this case, Penn-Central Report at 305, that the net effect of Penn-Central will not be detrimental to C & O, CNJ, and other carriers, or to their ability to provide general transportation service. Instead, the Commission substituted the finding that a detrimental effect "has not been shown of record . . . ," 328 I.C.C. at 318, and thereby left it open to C & O to allege and prove at some later time that its merger with N & W is in the public interest at least in part because of traffic diversion caused by Penn-Central. With respect to N & W, some evidence of adverse effect from Penn-Central seems probable in light of Commissioner Webb's refusal to deduct from the value of the three roads the losses anticipated through diversion of traffic to Penn-Central, because

"N & W has resisted corresponding adjustments in its own earnings despite its admissions that it would suffer serious losses of traffic to Penn-Central. . . ."

N & W Inclusion Report at 44. The refusal to deduct any of the anticipated losses meant, in effect, that Commissioner Webb proceeded upon the assumption that N & W would lose the same proportion of traffic to Penn-Central as E-L expected to lose. [Footnote 2/16]

It therefore appears that Penn-Central will increase the likelihood of, and may actually cause, an affiliation

Page 386 U. S. 415

of N & W and C & O. The ICC has given no thought to whether such an affiliation would be in the public interest. It would create a virtual rail monopoly in some southeastern States (see Appendix B [omitted] for a map depicting this result), which includes important traffic in coal between the border States and the Norfolk port area, from where it is exported abroad, and it is strongly opposed by both Penn and Central. Had the ICC faced the problem of inclusion, it might have been led to consider the possibility that Penn-Central could cause or increase the likelihood of an N & W-C & O affiliation. Only by considering this possibility could the ICC fulfill its obligation to consider all the relevant factors before approving the merger.

The "opportunity" reserved by the ICC for inclusion of the roads in N & W is, therefore, like the "opportunity" reserved for inclusion in Penn-Central, shrouded in doubt as to whether inclusion could be required consistent with the public interest. Concededly, there is far more reason to believe that voluntary inclusion in N & W could at least be accomplished consistent with the public interest than could inclusion in Penn-Central. But, on the other hand, while equitable terms could probably be arranged for inclusion in Penn-Central, it is open to serious controversy whether equitable terms will be attainable for inclusion of the roads in N & W. Commissioner Webb has found, of course, that equitable terms for B & M's inclusion in N & W cannot be worked out, and a possible consequence of this will be to create pressure in favor of the N & W-C & O plan, or compel inclusion of B & M in Penn-Central. But even as to E-L and D & H (because its inclusion will probably be dependent on E-L's), the present controversy surrounding the conditions designed for interim protection makes considerably uncertain whether equitable terms will be possible once Penn-Central is consummated.

Page 386 U. S. 416

The purpose of the traffic and indemnity conditions originally imposed but now being reconsidered is to maintain the pre-consummation status quo between Penn-Central and the three roads. One obvious end inferred from this purpose is to prevent irreparable harm to the three roads. But inherent in the finding that the public interest requires eventual inclusion of the roads in a major system, and in the fact that the protective conditions are interim only, is the purpose of keeping the roads intact so their inclusion on equitable terms will be possible. There is substantial controversy, however, over the validity and effectiveness of each of the proposed conditions. The Commission has, in fact, reopened the Penn-Central proceeding for hearings to determine in what respects the conditions originally imposed should be modified, and whether or not a capital loss indemnity should be imposed. 328 I.C.C. at 328. Modifications are to be applied retroactively, and Penn-Central is to have judicial review only on the capital indemnity issue. But, despite these assurances, the three carriers and other nonprotected carriers attack the conditions on several grounds, at least some of which cannot lightly be dismissed.

There are three types of conditions involved: (1) traffic conditions; (2) indemnity for loss of revenue, and (3) indemnity for capital loss. The traffic conditions are expressly devised to prevent Penn-Central from increasing its competition with the protected roads. In brief, they restrain Penn-Central from taking any action or engaging in any practice "which would divert or tend to divert traffic . . . ," either directly or indirectly, from the protected roads. 327 I.C.C. at 561. While the ICC's authority to impose this restriction is unquestioned, great controversy exists concerning its intended scope. The three roads, relying upon the ICC's expressed intention to prevent "any" loss of revenue "as a direct result" of consummation,

Page 386 U. S. 417

327 I.C.C. at 532, claim that Penn-Central may take no step to improve service on routes in which they participate, even if the improvement is designed, for example, to meet truck competition. They also claim that the conditions should be applied retroactively to April 27, 1966, when the ICC released its original decision, in order to eliminate the possibility that Penn and Central could defeat the purpose of the conditions by continuing competitive practices begun between April 27 and consummation, or by instituting changes during the intervening period. Penn and Central, on the other hand, take a far more limited view of the conditions' scope, despite their assurances before the District Court that the conditions prevent even solicitation of shippers. [Footnote 2/17] Their position at the reopened proceeding, based upon the Commission's reference to maintaining the pre-consummation "status quo," 327 I.C.C. at 532, is that they should be free to offer any amount or quality of service after merger which they could perform individually or jointly before merger. This interpretation apparently would leave Penn-Central free, for example, to reduce rates on any route which was formerly all-Central or all-Penn, or on any presently existing joint route of Penn and Central, or to pool their cars for better flexibility, even though these actions might result in diversion of traffic from a protected line. See generally Brief for the United States on Appendix G Conditions, F.D. Nos. 21989 and 21990, Jan. 16, 1967, pp. 8-12. Whether the traffic conditions will succeed in preventing the deterioration of the three roads to the point at which equitable terms may be unattainable is a question of some difficulty.

Page 386 U. S. 418

Traffic conditions are limited in their usefulness because they cannot eliminate entirely the more general benefits often obtainable through consolidation (such as unified management, better schedules, simplified tracing of cars, less switching and inspection of cars, and greater advertising resources), and because they cannot be operative upon the shipper. Since the ICC deemed the traffic conditions imposed essential to protect the roads, and since even the most rigid traffic conditions are of limited value, the question whether the view of the three roads or that of Penn and Central should be adopted is as important as it is difficult, and its unsettled state contributes to the doubt as to inclusion.

The indemnity for loss of revenue, now being reconsidered by the ICC, is to be payable to any of the three threatened lines in the event that it fails to realize, during the indemnity period, gross revenues in the same proportion to the combined gross revenues of Penn-Central and the protected line as the indemnity formula fixes for the protected line in the base period. The indemnity is obviously designed to make up for losses of traffic to Penn-Central despite the traffic conditions. The three roads have argued that the indemnity should be modified to increase payments, but take the position that, even as modified, the conditions would be inadequate. The nonprotected roads claim the indemnity condition is unlawful. Quite clearly, the indemnity would provide a financial interest to the protected lines to divert to Penn-Central traffic they would normally handle in connection with other carriers, such as N & W and C & O, in order to increase Penn-Central's proportion of their combined revenues and thereby to increase their own indemnities. Correspondingly it would provide an interest to Penn-Central to divert traffic to the protected lines to increase their proportion of combined revenues and thereby to reduce or avoid indemnity payments.

Page 386 U. S. 419

Whether this community of interest is unlawful or would otherwise be against the public interest has not definitively been settled, since the ICC is still in the process of reconsidering its position. It is relevant here, however, simply to note that the indemnity, viewed by the ICC as essential to interim protection, is meaningfully challenged both as unlawful and as inadequate, and therefore that it too cannot be relied upon to eliminate the doubt concerning whether the protected roads may be damaged during the interim to an extent that would make equitable terms unattainable.

The indemnity for capital loss is advanced by the three roads as essential if the merger is to be consummated prior to inclusion. It is directly related to the problem of assuring that equitable terms for inclusion in N & W can later be reached. Commissioner Webb's definition makes clear the proposed condition's purpose:

"The term 'capital loss,' as used by N & W, E-L, D & H and B & M in their petitions for reconsideration in the Penn-Central case, refers to losses of E-L, D & H, and B & M traffic to Penn-Central to the extent not offset by traffic gains attributable to their inclusion in the N & W system, with the net annual loss of income, if any, capitalized at an appropriate rate."

N & W Inclusion Report at 25, n. 21. In effect, this condition would guarantee the three roads the difference between what they would lose to Penn-Central and what they would gain by inclusion in N & W. Unquestionably, its adoption would facilitate inclusion, but the fact is that it has not been adopted, and its adoption in any form would be subject to judicial review at the request of Penn and Central. Moreover the usefulness of the capital indemnity approach has been vigorously challenged by C & O and N & W. They assert that the indemnity will not succeed in keeping the three

Page 386 U. S. 420

roads in viable condition, since traffic, once diverted, is likely to stay diverted. The ICC should not, they claim, rely upon an indemnity provision which fails to accomplish the continuation of service it has found to be so essential. C & O-B & O Brief on Capital Loss Indemnification, F.D. No. 21989, November 28, 1966. In this connection, they raise once again the specter of an N & W-C & O merger, arguing that their proposal is the only acceptable solution to the inclusion problem.

There appears to be some merit in the arguments that some sort of capital indemnity is necessary to assure the attainability of equitable terms for inclusion. While Commissioner Webb left to the ICC in the Penn-Central case the issue whether capital loss indemnification should be paid, he did conclude that inclusion of the three roads

"in the system chosen by the Commission in the furtherance of national transportation objectives should not be on terms which reflect any diminution of capital value attributable to the traffic diversion impact of the other system. In other words, the petitioners should not be penalized for anticipating the Commission's desire to preserve rail competition in the territory they serve."

N & W Inclusion Report at 28. His valuation of the smaller roads, therefore, did not reflect the diminution of value anticipated to be caused by Penn-Central, and his apparent conviction was that equitable terms could not be worked out on any other basis unless a capital indemnity were granted. See id. at 43. [Footnote 2/18] In light of these conclusions, it can

Page 386 U. S. 421

readily be seen that the unresolved issue of capital indemnity is important, and therefore that the objections to it create uncertainty on this score, as well as over whether equitable terms are possible.

What the ICC has done here by deferring inclusion of the three roads is to defer confronting numerous difficult and important issues which cast substantial doubt upon whether the roads can be included in any major system contemplated for the purpose consistent with the public interest and on equitable terms. In the process, it has approved an irreversible consolidation which it found to be in the public interest only upon the premise that the affected roads would be included in a major system. By proceeding in this manner, the ICC has, in my view, failed to fulfill its fundamental duty to determine whether consolidations are in the public interest on the basis of all the relevant facts. The problems created by a required inclusion obviously are relevant to the question whether the proposal which makes their inclusion necessary is in the public interest. And where, as here, the many problems created are serious and far-reaching, the Commission must consider them before arriving at and implementing with finality its ultimate conclusion.

While I consider it the ICC's responsibility to weigh the feasibility and effects of an inclusion it deems required by the public interest, I recognize the importance of leaving great flexibility with the agency to deal with emergency situations in order to avoid serious damage to the national transportation system. But it is clear there is no pressing need here which could justify the ICC's action. Commission counsel represent in this Court that the ICC has found

"that the merger would

Page 386 U. S. 422

result in substantially improved service for the shipping public and in annual savings of at least $80 million for the merged company. . . ."

Brief of the I.C.C., p. 52. Improved service and economics are commonly the claimed results of rail consolidations, and proportionately the improvements and savings anticipated in this case are no more substantial than in many other mergers. Moreover, the anticipated $80,000,000 annual saving is to be reached about eight years after consummation, 327 I.C.C. at 501, and even this estimate does not take into account the sharp curtailment that would result from the interim protective conditions which were formulated with the avowed intention of maintaining the pre-consummation status quo, see 327 I.C.C. at 532. [Footnote 2/19] The ICC stressed the financial condition of Penn and Central, including their "persistently low rates of return" and their need for improved equipment, as a ground for authorizing immediate consummation, 327 I.C.C. at 501-502, but, once again, this is a stock reason for merger, usually alleged by at least one party. The fact that a merger will provide financial assistance militates in favor of approval, but it is only one of the many important factors which must be considered, and, in the case of Penn and Central, this point has lost much of its force, since both have had substantial and consistent increases in their earnings in recent years. See Brief of the I.C.C., p. 55. While this does not necessarily lessen the long-term

Page 386 U. S. 423

need for consolidation, it does show there is little need for immediate consummation on this ground.

The argument that the survival of the New Haven depends upon undelayed consummation is not pressed here with the same intensity with which it was embraced at the agency level. See 328 I.C.C. at 312. Judge Friendly's opinion put this matter in proper perspective by pointing out that it is

"unrealistic to suppose that inclusion of NH in the Transportation Company can be accomplished before conclusion of the Commission's reconsideration in this case. . . ."

259 F.Supp. at 973. The tenable argument here is that the longer consummation is delayed, the more difficult will become the task of NH's Trustees in reorganizing the company and the more possible it becomes, due to some unanticipated change of circumstance, that the merger may fall through entirely. While every effort consistent with the public interest should be made to protect the invaluable services the NH performs, the difficulties anticipated are largely speculative. If this merger is to benefit its proponents as greatly as they contend, it is no fragile package. And although no unnecessary risks should be taken even with a plan so enthusiastically supported and elaborately designed, a proper concern for the public interest and for the protection of the roads threatened by this merger should have led the ICC to delay consummation.

The projected effects of Penn-Central on E-L, D & H and B & M are anything but speculative. Those roads unquestionably will be destroyed unless included in a major system, and the fact that inclusion somewhere is implicitly assured us may be further cause for concern, in light of the contemplated alternatives and of the difficulty and consequences involved in the adoption of either of them. If the ICC should ever be allowed to depart from its statutory duty to consider all the relevant factors before determining the public interest, it certainly should

Page 386 U. S. 424

not be upon the mere recitation of factors favorable to the plan's adoption and of speculative dangers and the inconveniences of private parties. The reason Congress has ordered that all factors, including the effects of inclusion or failure to include, be considered is to avoid danger to the public interest caused by precipitate action, and there is more than ample evidence of danger to the public interest in this case to warrant unhesitating enforcement of Congress' directive.

III

The ICC argues that to delay the merger until the three roads are assured inclusion would amount to a consolidation of the proceedings in Penn-Central with the N & W inclusion proceeding, at least for decisional purposes, and that this would constitute a return to the "master plan" approach for railroad unification

"unsuccessfully tried under the Transportation Act of 1920, and would probably preclude the consummation of any major rail unification, regardless of its merits."

Brief of the ICC, pp. 43-44. The Commission points out that it "consistently has refused to consolidate the Eastern railroad merger or control proceedings," id. at 48, and that the Government's position here is the same as its unsuccessful contentions for consolidation in the C & O-B & O and N & W-Nickel Plate proceedings.

It is difficult to understand exactly what the ICC is arguing. Certainly no one contends that the Commission is required, as it was by the Act of 1920, to

"prepare and adopt a plan for the consolidation of the railway properties of the continental United States into a limited number of systems."

41 Stat. 481. Nor is it argued that the ICC is required to draw up regional plans for consolidation.

On the other hand, it can hardly be said that the ICC is powerless to consolidate proceedings, or for that matter,

Page 386 U. S. 425

to plan or to take any other reasonable step to enable itself to perform its statutory obligation as custodian for the development in the public interest of a national transportation system; that the ICC is no longer told to plan does not mean it is unable to do so when planning is necessary to fulfill its duties. The ICC is told in the 1940 Act to

"conduct its proceedings under any provision of law in such manner as will best conduce to the proper dispatch of business and to the ends of justice,"

49 U.S.C. § 17(3), and it has, in fact, recognized that it possesses

"the power in appropriate circumstances either to consolidate proceedings in which the issues are similar or closely related, or to postpone a particular decision when so required by the public interest."

C & O -- Control, supra, 317 I.C.C. at 266. But, apart from this explicit power, it is clear from a close appraisal of the 1920 and 1940 Acts that the ICC's responsibilities are far broader now, and, therefore, that it would be anomalous to find in a comparison of these two pieces of legislation a basis for the sweeping contention that the Commission can no longer plan.

The 1920 and 1940 Acts are similar in several respects. Under both, applications for consolidation are initiated by the parties and approved if found to be in the public interest, and under neither may a consolidation be compelled. The salient difference is that, under the 1920 Act, the ICC was required to draw up a plan for all the Nation's railroad properties, and was called upon to judge the proposals for railroad consolidation filed with it by private parties in terms of the master plan it had created. Proposals that advanced the plan's fulfillment stood a far greater chance of approval than those that did not, and only in this sense could it be said that parties were unable to initiate plans of their own choice. While the planning function is broad procedurally, however, it was designed to serve only limited ends. Congress'

Page 386 U. S. 426

concern was "largely with financial problems," its chief aim being to overcome the problem which arose from the fact that

"rates which would provide reasonable returns for strong systems would not permit weak lines to survive, and, if rates were raised to take care of the weak roads, the more prosperous roads would enjoy excessive returns."

Leonard, Railroad Consolidation Under the Transportation Act of 1920, at 57, 59 (1946). The decision to encourage consolidation into a limited number of systems was, of course, designed to establish a stronger railroad industry, but it

"was not grounded on the premise that economics from operation and the avoidance of competitive wastes would be the principal means of insuring an efficient and economic railway system . . . , but, rather, on the conclusion that the financial prosperity of rail carriers would be promoted and effectuated if the weak and the strong railroads which exist side by side in the same territory were to be consolidated into balanced railroad systems with respect to earning power."

S.Rep. No. 445, Report on the National Transportation Policy by the Special Study Group of the Committee on Commerce, 87th Cong., 1st Sess., p. 234 (1961). In fact, the Act specifically directed the ICC, in drawing up the plan, to preserve competition as fully as possible and to maintain existing routes and channels of trade wherever practicable. In other words, although the ICC was directed to draw up a national plan against which it was to judge whether applications for consolidation were in the public interest, the judgment was to be made rather mechanically, and the plan itself was to be designed to achieve limited, primarily financial goals.

In contrast, as we have seen, the purposes sought through consolidation under the 1940 Act are wide-ranging, and the public interest includes consideration of all factors relating to the National Transportation

Page 386 U. S. 427

Policy. Financial manipulation was deemed inadequate, and the ICC was ordered to weigh numerous, often conflicting, considerations. In light of this "enlarging of the factors or values which an agency must take into consideration," Reich, The Law of the Planned Society, 75 Yale L.J. 1227, 1248 (1966), it seems incongruous to assert that the change from the 1920 Act approach to that of the 1940 Act signifies a change from planning to strictly ad hoc adjudication.

It should be clear, in fact, from a full consideration of the ICC's powers, and of the consequences of failing to use those powers, that consolidation and the use of other procedural techniques is not only within the agency's authority, but is often essential if it is to fulfill its function as guardian of the public interest. Section 17(3), referred to above, appears sufficient to authorize the Commission to adopt procedures calculated to develop complete records with respect to the public interest in particular merger proceedings, and to coordinate separate merger proceedings when necessary to secure the best possible results. Tucker & O'Brien, The Public Interest in Railroad Mergers, 42 B.U.L.Rev. 160, 184 (1962). Within the context of a case-by-case approach, the Commission is authorized under § 16(11) to

"employ such attorneys as it finds necessary . . . for proper representation of the public interests in investigations made by it or cases or proceedings pending before it, whether at the commission's own instance or upon complaint . . . ,"

and it has done so. [Footnote 2/20] It may and often has called upon its staff to develop information in pending cases. In the N & W-Nickel Plate proceeding, for example, it called upon its Bureau of Inquiry and Compliance to study

Page 386 U. S. 428

and report on which railroads would be affected by the merger. It possesses, with appropriate safeguards, broad powers of official notice, [Footnote 2/21] and, in recent merger cases, it has frequently referred to facts and arguments in other, related merger cases. Moreover, like most other agencies assigned similar functions, it has broad investigative power, which may be used in the context of adjudication or simply to provide background. Section 13(2) confers

"full authority and power at any time to institute an inquiry, on its own motion, in any case and as to any matter or thing . . . concerning which any question may arise under any of the provisions of this chapter, or relating to the enforcement of any of the provisions of this chapter,"

which includes § 5. The ICC has resorted to various forms of investigations and studies to enable itself to perform its obligations. See generally S.Doc. No. 10, Monograph of the Attorney General's Committee on Administrative Procedure, Part 11: Interstate Commerce Commission, 77th Cong., 1st Sess., pp. 93-96 (1941). Particularly noteworthy is the Staff Study on Railroad Consolidations and the Public Interest, by the Commission's Bureau of Transport Economics and Statistics, which contains an analysis of the Commission's decisions in railroad consolidation cases. Reprinted as Exhibit 11, Hearings before the Subcommittee on Antitrust and Monopoly on S. 3097, 87th Cong., 2d Sess., pt. 2 (1962).

Finally, although the ICC does not promulgate general plans for consolidation, it has the power under § 5(2)(b) to approve consolidations "subject to such terms and conditions and such modifications as it shall find to be just and reasonable. . . ." This authority encompasses the power under § 5(2)(d) to make inclusion of a railroad a prerequisite to approval of a merger, and it does

Page 386 U. S. 429

not depend upon the request of any private party involved. It has been broadly construed to enable the ICC to implement previously found conditions and to cope with changed circumstances, e.g., United States v. Rock Island Motor Transit Co., 340 U. S. 419; American Trucking Assns. v. United States, 355 U. S. 141; American Trucking Assns. v. Frisco Co., 358 U. S. 133, and the Commission has applied this power, when it has seen fit to do so, with great liberality. It has even gone to the point of conditioning its approval of applications to consolidate upon actions to be taken by railroads not even party to the proceeding. [Footnote 2/22] In sum, the Commission's practice certainly is not consistent with its assertion here that its "only planning' power" under the 1940 Act is to include railroads in the region. Brief of the ICC, p. 46.

The ICC is preeminently an agency

"directly and immediately concerned with the outcome of virtually all proceedings conducted before it. It is not intended to be a passive arbiter, but the 'guardian of the general public interest,' with a duty to see that this interest is at all times effectively protected."

H.R.Doc. No 678, Practices and Procedures of Governmental Control of Transportation, 78th Cong., 2d Sess., p. 53 (1944); see Southern Class Rate Investigation, 100 I.C.C. 513, 603. It is empowered to investigate and gather evidence beyond that presented by the parties where exercise of that power will advance the determination of what best

Page 386 U. S. 430

serves the public interest. [Footnote 2/23] To the same end, the agency has wide latitude in fashioning procedures, and a broad power to condition its approval of proposals. In other words, the ICC is not the prisoner of the parties' submissions. [Footnote 2/24] Rather, the agency's duty is to weigh alternatives and make its choice according to its judgment how best to achieve and advance the goals of the National Transportation Policy. [Footnote 2/25]

Page 386 U. S. 431

I am therefore not reassured by the ICC's representation that it has "consistently" refused to consolidate the eastern railroad merger proceedings for any purpose or to any degree. The ICC's prior refusals to consolidate are entirely distinguishable, since none of them entailed the risk under the Commission's own findings that a railroad performing essential public service could be destroyed. [Footnote 2/26] But, more generally, while consolidated consideration provides no simple answer to the ICC's problems, see generally Shapiro, The Choice of Rulemaking or Adjudication in the Development of Administrative Policy, 78 Harv.L.Rev. 921 (1965), the very complexity of its task suggests that consolidated consideration may be a useful procedural device, short of an investigation or prearranged plan, for offsetting at least in part the disadvantages inherent in the isolated case-by-case approach, both in formulating and applying policy.

Although a case-by-case adjudication may offer advantages in flexibility and continual exposure to concrete situations, "the disadvantages of developing policy through a sequence of limited cases are both numerous and impressive." H.R.Doc. No. 678, supra, p. 81. A significant disadvantage is that individual proceedings "seldom if ever produce sufficiently comprehensive records for the adequate solution of questions of major importance." Id. at 82. Obviously, without all the relevant facts, the chance of a satisfactory disposition is diminished. Although the ICC has tools to assemble complete factual records, it employed virtually none of them in these highly interrelated proceedings, [Footnote 2/27] including the

Page 386 U. S. 432

power to consolidate the proceedings on common issues. Rather, the cases have been rigidly segregated, leading the ICC to resort to extraordinary interim conditions instead of resolving definitively the fate of the three threatened roads. This has had the undesirable effect of enabling each of the major carriers to control the basis for judgment by deciding what evidence to offer or withhold, depending on which course best served its own interest. Evidence of competitive impact has been withheld in one proceeding only to appear at later proceedings

Page 386 U. S. 433

in the form of evidence that the company affected must be permitted to merge with another company to protect itself, or that the anticompetitive impact of the later merger will be limited in light of the increased strength and ability to compete of the companies already allowed to merge. [Footnote 2/28] The carriers have been well aware of the opportunity the Commission's practice provides them, as is illustrated by the statement of the Chairman of the Board of Pennsylvania that,

"if the C. & O.-B. & O. is approved, that is going to help the Nickel-Plate case, and if that is approved, it is going to help our case, going to go right around the circle."

Hearings, supra, n. 24, at 397

Page 386 U. S. 434

It is not that the ICC has been unaware of what has been going on. Commissioner Tucker, in the first of the recent trilogy, pointed out that the

"failure of the large eastern railroads to present evidence against consolidation is . . . a natural consequence of their own self-interest, which dictates a reciprocity of silence."

C & O -- Control, supra, 317 I.C.C. at 326. The fact is that, despite some lip service to the contrary, [Footnote 2/29] the Commission has proceeded under the assumption that competitive impact is to be evaluated with the position of the railroads affected very much in mind. Thus, the Examiners in this case, when called upon by the Justice Department to weigh the possibly serious adverse effect of Penn-Central upon N & W, C & O-B & O and others, pointed out that the roads allegedly affected had introduced no evidence of adverse effect. They added, realistically and revealingly:

"We are fully cognizant of the fact that, in the evolving merger picture in the northeast section of the nation, the carriers involved may well have refrained from participation in these proceedings or influenced their subsidiaries not to participate on the grounds that they did not desire to upset their own merger program. Such action, however, infers a managerial decision by each that the anticipated benefits from its individual merger program will

Page 386 U. S. 435

outweigh any injury or harm which may result from other merger plans."

Penn-Central Report at 304. [Footnote 2/30]

The approach which this statement and many of the Commission's rulings and practices reveal is based upon a series of unacceptable assumptions. It is simply unrealistic, for example, to believe that all the railroads will always be correct in their estimate even of their own best interests. When a railroad has incorrectly estimated its self-interest, moreover, its reaction may well upset the private agreements or understandings upon which the Commission has in effect allowed its findings to rest. Thus, when E-L realized that Penn-Central might be approved before it had secured voluntary inclusion in N & W, it abandoned its agreement with N & W, upon which the Commission relied, and petitioned for inclusion in Penn-Central, thereby setting into motion the controversy in this case. See 324 I.C.C. at 61-62 (representation of counsel quoted in dissenting opinion). Most recently, C & O-B & O, and their family lines, sought to reopen Penn-Central to introduce evidence of traffic diversion. The Commission observed, in refusing to hear the evidence, that the Examiners' findings that the net

Page 386 U. S. 436

effect of the merger would not be detrimental to these carriers or to their ability to provide adequate service

"are as much based on a failure of the several petitioners to come forward with assertions or proof of injurious traffic diversion as on any affirmative showing of no effect."

328 I.C.C. at 317. For the first time revealing indignation toward a practice long condoned, the ICC stated that the "measured and deliberate silence" of the railroads at the hearing supports

"the inference that they saw more to be gained thereby in their own system-building aspirations than would result from forceful opposition likely to arouse counter opposition. Now, with the N & W-Nickel Plate merger and the C & O-B & O control transactions safely beyond challenge, . . . petitioners have nothing to lose, and perhaps much to gain, by breaking their silence."

Ibid.

Ultimately, however, the reason reliance upon the estimates of railroads of their own best interests is objectionable is simply that the best interests of the railroads are not necessarily consistent with the public interest, and it is the latter which the Commission is directed to advance. It may be, as Commissioner Tucker stated early in this "gigantic game of dominoes" the Commission has been playing, 327 I.C.C. at 550,

"that each carrier has the unalienable private right to abdicate its prerogatives to oppose any consolidation. It is the primary responsibility of the Commission, however, to preserve the development of a sound transportation system in the public interest, and, where an application may offer the possibilities of public injury, the Commission must strive to obtain a record which comprehensively covers public considerations."

C & O -- Control, 317 I.C.C. at 326. See generally The Railroad Merger Problem, Report of the Subcommittee on Antitrust and Monopoly of the Senate

Page 386 U. S. 437

Judiciary Committee, 88th Cong., 1st Sess. (Comm.Print 1963). The commendable industrial statesmanship demonstrated by the railroads on many occasions in these recent proceedings only serves, because of the cohesion this demonstrates, see Jaffe, op. cit. supra, p. 405. at 11-13, to aggravate the danger that "grows out of the tendency of these giant corporations to compromise their own differences at the expense of the unorganized public," 2 Davis, op. cit. supra, 386 U. S. 103. See Scenic Hudson Preservation Conference v. F.P.C., 354 F.2d 608 (C.A.2d Cir.), cert. denied, 384 U.S. 941.

This merger may well be in the public interest, as well as in the interests of the railroads involved. But the Commission has failed to go about deciding this question in a manner designed to accomplish its statutory responsibility. "Deference to administrative decisionmaking assumes procedures which assure a fair hearing to the affected interests. . . ." Jaffe, op. cit. supra at 566.

"As soon as the search for the public interest, even seemingly, becomes a secondary consideration in cases involving more than the adjudication of private rights, no matter how conclusive the exigencies of the situation

Page 386 U. S. 438

appear, the independent Commission is doomed to impotency as an instrument of government."

C & O -- Control, 317 I.C.C. at 297 (dissenting opinion). [Footnote 2/32]

[Appendices A and B follow this page. (Omitted)]

[Footnote 2/1]

Chesapeake & O. Ry. Co. -- Control -- Baltimore & O. R. Co., 317 I.C.C. 261, sustained sub nom. Brotherhood of Maintenance of Way Employees v. United States, 221 F.Supp. 19 (D.C.E.D. Mich.), aff'd per curiam, 375 U. S. 216.

[Footnote 2/2]

Norfolk & W. Ry. Co. and New York, C. & St. L.R. Co. -- Merger, 324 I.C.C. 1.

[Footnote 2/3]

Pennsylvania and Central claim we should not pass upon the Department of Justice's contention that the Commission should have delayed consummation until inclusion of the smaller roads in a major system was assured. The issue is, however, presented by the ICC itself, in its statement of Questions Presented, where it recites that whether the District Court erred in refusing to enjoin consummation pending assurance of inclusion is a question embraced within the general question presented on these appeals. Brief of the ICC, p. 4. A number of the railroad appellants, moreover, claim they have properly presented the question of delay pending inclusion. These representations amply fulfill the requirement of this Court's Rule 15(1)(c)(1), and the point has, in fact, been fully briefed and argued.

Neither is there merit to the claim that this issue, clearly raised before the ICC, 327 I.C.C. at 528, was not raised before the District Court. Counsel for D & H complained that the Commission found

"the only way the D & H could be protected is through inclusion in some system, but they have not yet made a finding . . . as to whether our inclusion in any system is consistent with the public interest,"

Transcript, p. 58, and counsel for C & O was unable to answer meaningfully Judge Friendly's comment that his "position is really that the merger cannot be consummated until all these other proceedings are carried to a conclusion . . . ," id. at 80. The District Court explicitly rejected "the claims that consummation of the merger should be deferred until conclusion of all pending rail merger proceedings. . . .

259 F.Supp. 964, 972.

[Footnote 2/4]

Although this case arises as an appeal from the District Court's denial of motions for interlocutory injunction, the parties recognize that the lawfulness of the ICC's order permitting immediate consummation of the merger is in issue before this Court.

[Footnote 2/5]

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BALTIMORE & OHIO R. CO. V. UNITED STATES, 386 U. S. 372 (1967)

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U.S. Supreme Court

Baltimore & Ohio R. Co. v. United States, 386 U.S. 372 (1967)

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