Last Term this Court concluded (
386 U. S. 386 U.S.
372) that the Interstate Commerce Commission (ICC) erred in
permitting immediate consummation of the Penn-Central merger
without determining the ultimate fate of the Erie-Lackawanna,
Delaware & Hudson, and Boston & Maine railroads (the
"protected roads"). The ICC then conducted proceedings on the
petitions of those three lines for inclusion in the Norfolk &
Western (N & W) system and ordered N & W to acquire the
stock of the three "protected roads" on prescribed terms. In the
remanded Penn-Central proceedings, the ICC reconsidered certain
protective conditions previously devised to aid the three roads,
imposed amended protective conditions for the interim period
between consummation of the Penn-Central merger and the protected
lines' inclusion in a major system, and again authorized the
immediate consummation of the Penn-Central merger. A three-judge
district court for the Southern District of New York enjoined
implementation of the merger order pending
Page 389 U. S. 487
review. Actions were also filed in that court to set aside the
ICC's order to include the protected roads in the N & W system.
Suits challenging the merger and inclusion orders in other courts
were stayed to permit orderly disposition of the issues in the
Southern District of New York. The District Court for the Southern
District of New York dismissed all complaints attacking the merger
and inclusion orders and sustained the decisions of the ICC. The
Borough of Moosic filed an action in the Middle District of
Pennsylvania to set aside the ICC's orders, in which action the
City of Scranton and one Shapp intervened. The City of Pottsville's
request to intervene was denied. The action was stayed, and Moosic,
Scranton and Shapp filed petitions for mandamus or certiorari
seeking to challenge the stay, which has since been dissolved.
Held:
1. The ICC properly and lawfully discharged its duties with
respect to the Penn-Central merger, as its findings and conclusions
accord with § 5 of the Interstate Commerce Act, as amended by the
Transportation Act of 1940, and are supported by substantial
evidence. Pp.
389 U. S.
498-502.
(a) Under the congressional policy, set forth in the Act, of
consolidating railroads into a "limited number of systems,"
competition is only one of many considerations in determining the
public interest in the merger. Pp.
389 U. S.
499-500.
(b) The evidence before the ICC, with negligible exceptions,
attested to the probability of significant benefit from the merger
not only to the railroads and their investors, but also to shippers
and the general public. P.
389 U. S. 500.
(c) The ICC retains authority over reductions of service and
facilities not specifically approved in the merger plans. P.
389 U. S.
501.
(d) Rail service by the merged company will remain subject to
restraining pressures and vigorous competition from other railroads
and from motor, water, and air carriers. P.
389 U. S.
501.
2. The attack on the orders by certain municipalities and Shapp
based on the ICC's alleged failure to consider or properly evaluate
the adverse effect of the merger considered in light of the
inclusion order does not warrant reversal of the judgment of the
District Court for the Southern District of New York. Pp.
389 U. S.
502-506.
(a) These complainants' petitions for mandamus or certiorari
challenging the stay order of the District Court for the Middle
District of Pennsylvania are dismissed as moot, since the stay
order has been dissolved. P.
389 U. S.
503.
Page 389 U. S. 488
(b) In its April 6, 1966, opinion approving the merger the ICC
considered arguments made by participating communities and stated
that the "merger will benefit, rather than harm, the Commonwealth."
Pp.
389 U. S.
503-504.
(c) Claims of specific injury resulting from reduction of
competition by curtailment of service now provided by the
"protected roads" may be asserted in appropriate proceedings when
such curtailment is proposed. P.
389 U. S.
504.
(d) The City of Scranton and Shapp were parties to the New York
proceedings, and the Borough of Moosic had adequate opportunity to
join in that litigation following the stay of proceedings in the
Pennsylvania court, and accordingly the New York court's decision
which, with certain exceptions, is affirmed, precludes further
judicial review of the issues on which it passes. Pp.
389 U. S.
505-506.
(e) Since the proceedings in the Pennsylvania court are not
before this Court, except for the petitions challenging the stay
order which have been dismissed as moot, it will be that court's
task to determine the effect of the present decision upon the
proceedings before it. P.
389 U. S.
506.
3. The decision of the District Court for the Middle District of
Pennsylvania denying intervention to the City of Pottsville is
vacated. Pp.
389 U. S.
506-507.
4. The appeals of bondholders of the New York, New Haven &
Hartford Railroad Company (NH), which has been under reorganization
since 1961, challenging the ICC's order of November 21, 1967,
providing terms for NH's inclusion in the Penn-Central system and
for a loan arrangement to keep NH operating, are rejected. Pp.
389 U. S.
507-511.
(a) The merits of the provisions of that order are not before
this Court; they have not been reviewed by the bankruptcy court or
by a statutory district court under the applicable statute. P.
389 U. S.
509.
(b) Continuation of NH's operations can be realistically assured
only upon effectuation of the merger, and, while the rights of
bondholders are entitled to respect, they do not dictate that vital
rail operations be jettisoned for this reason alone. Pp.
389 U. S.
510-511.
Page 389 U. S. 489
(c) The bondholders' objections may be adjudicated in the
reorganization or upon proper judicial review, and the ICC has
retained jurisdiction to make further necessary orders. P.
389 U. S.
511.
5. The New York court's conclusion that the interim provisions
for the "protected roads" are adequate and conform to the purposes
insisted on by the ICC and which this Court sought to ensure by its
decision last Term is affirmed. Pp.
389 U. S.
511-518.
(a) The protective conditions do not constitute a pooling
arrangement within the meaning of the applicable statute, and the
ICC's holding may be sustained by the substantial evidence that,
even if these provisions established a pooling arrangement, "this
record clearly supports findings . . . that to protect these
carriers clearly is in the interest of better service to the
public" and "will not unduly restrain competition." Pp.
389 U. S.
513-514.
(b) The ICC has reserved jurisdiction under which it could
modify these provisions should improper traffic diversions develop
or if the conditions should otherwise prove inequitable. Pp.
389 U. S.
514-515.
(c) This Court's decision last Term was based on the ICC's
failure to decide the question of the ultimate home of the
"protected roads," and does not forbid consummation of the merger
until the three roads are actually included in a larger system. Pp.
389 U. S.
516-518.
6. The ICC's refusal to permit the Reading Company to reopen the
merger record and submit evidence supporting its claim for
protection similar to that given the "protected roads" is
sustained, without prejudice to any proceeding by Reading, based on
actual experience, for relief from undue prejudice caused by the
merger. Pp.
389 U. S.
519-520.
7. The New York court's disallowance of the claims of those
appellants who challenge the ICC's order for inclusion of the
"protected roads" in the N & W system is affirmed. Pp.
389 U. S.
520-526.
(a) If, after inclusion of Erie-Lackawanna (E-L) in the N &
W system by stock acquisition, E-L bondholders feel that N & W
has engaged in conduct invading their rights, they may apply to the
ICC for relief under its reserved jurisdiction. P.
389 U. S.
522.
(b) The financial terms and property valuations involved in the
inclusion of the "protected roads" were established by the ICC
within the area of fairness and equity, were reviewed in
Page 389 U. S. 490
detail by the District Court and sustained, and there is no
basis for reversing the judgment of that court. Pp.
389 U. S.
523-526.
(c) The inclusion order has no compulsive or coercive effect on
the roads to be included, and unless and until modified by the ICC,
it remains available to the protected lines upon the terms
specified. P.
389 U. S.
526.
(d) The conditions prescribed by the ICC to protect employees of
the roads to be included in the N & W system are sustained.
They are similar to those set by the ICC for N & W's employees
at the time of the N & W-Nickel Plate merger. P.
389 U. S.
526.
Nos. 778, 779, 830 836,
279 F.
Supp. 316, affirmed, subject to modifications and conditions
stated in the opinion, and remanded; Nos. 663, Misc., and 64,
Misc., petitions for mandamus or certiorari denied; No. 433,
jurisdiction noted, 272 F. Supp. 513, vacated and remanded.
Page 389 U. S. 492
MR. JUSTICE FORTAS delivered the opinion of the Court.
These cases again bring before us problems arising from the
program to merge the Pennsylvania and New York Central railroads
and related problems proceeding from an Interstate Commerce
Commission order that certain railroads be included in the Norfolk
& Western (N & W) system. The merger and the inclusion
orders are part of a vast reorganization of rail transportation
implementing the congressional policy of encouraging consolidation
of the Nation's railroads into a "limited number of systems."
Section 407 of the Transportation Act of 1920, amending § 5(4) of
the Interstate Commerce Act, 41 Stat. 481. That policy has been
with us, in one form or another, for more than 45 years. The
original idea of the 1920 Act, that the ICC would formulate a
national plan of consolidation, proved unworkable. It ran into
heavy opposition from carriers, and eventually had to be abandoned.
The 1920 Act was replaced by the Transportation Act of 1940, 54
Stat. 898. Section 5(2)(b) of the Interstate Commerce Act, as
amended by the 1940 Act, 54 Stat. 906, 49 U.S.C. § 5(2)(b),
governed the Commission's examination of the present transactions.
Under the 1940 Act, the initiation of
Page 389 U. S. 493
merger and consolidation proceedings is left to the carriers
themselves, and the Commission possesses no power to compel
carriers to merge. However, the congressional directive for a
limited number of railroad systems has not been changed. The only
change has been in the means of achieving that goal.
See
generally St. Joe Paper Co. v. Atlantic Cast Line R. Co.,
347 U. S. 298,
347 U. S.
315-321 (Appendix) (1954).
The Pennsylvania and the New York Central dominate rail
transportation in the Northeast. Their freight operations extend
over some 20,000 miles of road in 14 States and Canada. They are
the two largest passenger carrying railroads in the United States.
In 1965, their combined operating revenue surpassed $1,500,000,000
and their combined net income was more than $75,000,000. As
independent lines, Pennsylvania and New York Central are, to some
extent, in direct competition for rail traffic. There are 32 urban
areas in which the two lines are in competition with each other and
in which no other rail facilities are available. The two roads
operate at 160 common points or junctions, and have a substantial
amount of parallel trackage and routes. The proposed merger which
the ICC has approved contemplates the unification of these vast
roads and, as time goes on, the rationalization and elimination of
some of the dual facilities and services in various areas and in
various respects. The merger will result in "enormous savings in
transit time." It is estimated that, in eight years, the savings in
expense will amount to more than $80,000,000 annually.
See
Baltimore & Ohio R. Co. v. United States, 386 U.
S. 372,
386 U. S.
379-381 (1967).
At the same time, the combination of these two roads will
directly and adversely affect various smaller railroads in the
service area because of the more effective competitive service that
the combined system will offer and
Page 389 U. S. 494
because of the tendency of the combined roads, unless restrained
by law, to favor their own system, rather than to share traffic by
interchange with nonsystem roads.
In brief, the antecedents of the issues before us are as
follows: the Penn-Central merger has been under consideration by
the parties and the Commission for about 10 years. It was preceded
by the vast N & W-Nickel Plate merger, which the Commission
approved in 1964. That transaction, which, it is anticipated, will
eventually produce savings for the N & W system of over
$29,000,000 annually, resulted in a large rail network covering
some 7,000 miles of track and extending in the north from Des
Moines and Kansas City to Buffalo and Pittsburgh, and in the
southern tier from Cincinnati to Norfolk.
See Norfolk &
Western Railway Co. and New York, Chicago & St. Louis Railroad
Co. -- Merger, etc., 324 I.C.C. 1 (1964). The transaction was
not presented to this Court for review.
In 1962, the parties to the Penn-Central transaction signed an
agreement of merger including 36 rail carriers. The merger
agreement did not include the New York, New Haven & Hartford
Railroad (NH), although that road requested inclusion.
Following the merger agreement, the parties submitted the
proposal to the Commission for approval under § 5(2) of the
Interstate Commerce Act. Exhaustive hearings were held in which
States, municipalities, railroads, shippers, and public bodies --
some 200 parties in all -- took part. The Commission's own staff
participated extensively, as did the Department of Justice acting
for affected interests of the United States other than the
regulatory functions of the Commission. All participants, with
relatively minor exceptions to which we shall later advert, agreed
that the merger itself would be in the public interest. There were
sharp differences, however, with respect to certain issues. These
primarily concerned the
Page 389 U. S. 495
provisions to be made for three smaller lines affected by the
proposed merger: the Erie-Lackawanna (E-L), Delaware & Hudson
(D & H), and Boston & Maine (B & M) railroads. The
Commission approved immediate consummation of the merger, subject
to a reservation of jurisdiction to establish protective provisions
for the three roads.
Pennsylvania Railroad Co. -- Merger -- New
York Central Railroad Co., 327 I.C.C. 475 (1966). Its order
was approved by a three-judge court in the Southern District of New
York.
Erie-Lackawanna R. Co. v. United
States, 259 F.
Supp. 964 (1966).
At the last Term of Court, we reversed. We noted that the
Commission itself had found that the survival of the E-L, D &
H, and B & M was essential to the public interest, and that
these roads would be so seriously affected by the competition of
the merged company that they might not be able to survive unless
adequate protective arrangements were made. In these circumstances,
we concluded that the Commission should have determined the means
to preserve the "protected roads," on both an interim and a
permanent basis, before permitting consummation of the merger. We
expressly stated that we were not passing upon the validity of the
merger or the "peripheral points posed by the various parties."
Baltimore & Ohio R. Co. v. United States, supra, at
386 U. S.
378.
The Court noted that, in 1965, each of the three "protected
roads" had filed applications for inclusion in the N & W
system, and that these were pending before the Commission in the N
& W-Nickel Plate merger case pursuant to the Commission's
continuing jurisdiction over those proceedings. We further noted
that the Commission, pursuant to its power under § 5 of the Act to
require as a condition of approval of a merger that other railroads
be included in the merger, had obligated the merged N & W
system to include the L, D & H,
Page 389 U. S. 496
and B & M if the Commission should so direct, upon such
equitable terms as the Commission might prescribe. We stated that,
if the three protected roads were ordered to be included in the N
& W system,
"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."
386 U.S. at
386 U. S.
390.
In accordance with our remand of the Penn-Central merger case,
the Commission conducted further proceedings in the N & W case
on the pending petitions of the three roads. On June 9, 1967, it
issued its decision to the effect that "inclusion of the
petitioners in the N & W system is preferable to their
inclusion in the Penn-Central," and ordered N & W to acquire
the stock of the three roads on prescribed terms.
Norfolk &
Western Railway Co. and New York, Chicago & St. Louis Railroad
Co. -- Merger, etc., 330 I.C.C. 780, 796 (1967). At the same
time, in the remanded Penn-Central merger proceedings, the
Commission reconsidered certain protective conditions it had
previously devised to aid the three roads, imposed amended
protective conditions to operate in the interim between
consummation of the Penn-Central merger and the protected lines'
inclusion in a major railroad system, [
Footnote 1] and again authorized the immediate
consummation of the Penn-Central merger.
Pennsylvania Railroad
Company -- Merger -- New York Central Railroad Company, 330
I.C.C. 328 (1967).
On July 3, 1967, on application of parties opposing the
Commission's merger order, the three-judge District Court for the
Southern District of New York enjoined implementation of that order
pending the decision of that court on review. Actions were also
filed by several
Page 389 U. S. 497
parties in the same court to set aside the order of the
Commission requiring the N & W to include the three protected
roads in its system. Suits challenging both the merger and
inclusion orders were instituted in other courts, but were stayed
so as to permit orderly disposition of the basic issues in the
Southern District of New York. [
Footnote 2] After expedited proceedings in that court, all
complaints attacking the merger and the inclusion orders were
dismissed, [
Footnote 3] and the
decisions of the Interstate Commerce Commission in both the merger
and the inclusion proceedings were sustained.
279 F.
Supp. 316. Various of the parties then sought relief in this
Court. Because of the importance and urgency of the matter, we
granted a further stay of the merger order, consolidated all
proceedings that were before us relating to the merger and
inclusion decisions, and expedited consideration thereof.
See
post, p. 946.
We have before us nine appeals, on behalf of 17 parties, from
the decision of the District Court. Also docketed are two related
petitions for mandamus or certiorari to the District Court for the
Middle District of Pennsylvania, and one appeal from that
court.
Page 389 U. S. 498
The particular contentions urged upon us in this multiplicity of
proceedings are many and varied. In general, however, the issues
may be articulated as follows: Has the mandate of this Court been
fulfilled, in that appropriate provision has now been made for the
three smaller roads? Are the terms of the order providing for
inclusion of the protected roads in the N & W system fair and
equitable and in the public interest? Did the District Court err in
refusing to enjoin consummation of the Penn-Central merger? Has
adequate provision been made for resolution of the "peripheral"
issues presented by the parties, which would not be foreclosed by a
decision authorizing the consummation of the merger and inclusion
of the protected roads in the N & W?
I
. THE MERGER DECISION.
A. IN GENERAL.
Most of the parties before us are in accord that the merger is
in the public interest and should be consummated as promptly as
possible. Those urging immediate consummation before this Court
include the Department of Justice and the Commission, the States of
Pennsylvania, Connecticut, Rhode Island, New York, Massachusetts,
and New Jersey; the Railway Labor Executives' Association; the
trustees of the NH; the Pennsylvania and New York Central
railroads; B & M; and, in substance, the E-L, D & H, and N
& W and its allies. While this consensus has reduced the
attacks upon the merits of the merger to a minimum, considering the
vast size and implications of the transaction, we must nevertheless
address ourselves to the basic merits of the merger, as well as to
the specific objections that are before us.
With respect to the merits of the merger, however, our task is
limited. We do not inquire whether the merger satisfies our own
conception of the public interest.
Page 389 U. S. 499
Determination of the factors relevant to the public interest is
entrusted by the law primarily to the Commission, subject to the
standards of the governing statute. The judicial task is to
determine whether the Commission has proceeded in accordance with
law and whether its findings and conclusions accord with the
statutory standards and are supported by substantial evidence.
See, e.g., Illinois C. R. Co. v. Norfolk & W. R. Co.,
385 U. S. 57,
385 U. S. 69
(1966).
Section 5 of the Interstate Commerce Act, as amended by the
Transportation Act of 1940, 54 Stat. 905, 49 U.S.C. § 5, sets forth
the national transportation policy that is to guide the Commission
in its scrutiny of mergers proposed by railroads. The Commission is
to approve such proposals, pursuant to the terms of § 5(2)(b) of
that Act, when they are made upon just and reasonable terms and are
"consistent with the public interest." In reaching its decision,
the Commission is to give weight to a number of factors, such
as:
"(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
affected."
49 U.S.C. § 5(2)(c).
We find no basis for reversing the decision of the District
Court that the Commission's approval of the merger is in compliance
with law and the statutory standards, and is based on adequate
findings supported by substantial evidence. We shall first discuss
considerations which are basic to the statutory standards, and we
shall then turn to certain particular objections which have been
made.
It is, of course, true that the policy of Congress, set forth in
the Transportation Act, to consolidate the railroads
Page 389 U. S. 500
of this Nation into a "limited number of systems" is a variation
from our traditional national policy, reflected in the antitrust
laws, of insisting upon the primacy of competition as the
touchstone of economic regulation. Competition is merely one
consideration here.
See Seaboard Air Line R. Co. v. United
States, 382 U. S. 154
(1965). This departure from the general and familiar standard of
industrial regulation emphasizes the need for insistence that,
before a rail merger is approved, there must be convincing evidence
that it will serve the national interest and that terms are
prescribed so that the congressional objective of a rail system
serving the public more effectively and efficiently will be carried
out. Obviously, not every merger or consolidation that may be
agreed upon by private interests can pass the statutory tests.
Examination of the record and of the findings in the present
case, however, satisfies us that the Commission has properly and
lawfully discharged its duties with respect to the merits of the
merger. In these elaborate and lengthy proceedings, the Commission
has considered evidence tendered by others and compiled by its own
staff. Upon the aggressive suit of parties representing conflicting
interests, it has analyzed every pertinent aspect of the merger and
the inclusion order. It has weighed conflicting viewpoints on all
of the fundamental issues and many that are tangential. As the
Commission concluded, the evidence before it, with negligible
exceptions, attested to the probability of significant benefit from
the merger not only to the railroads and their investors, but also
to shippers and the general public.
The Commission carefully considered the implication of the fact
that the Pennsylvania and the New York Central, as individual
systems, have operated at a profit, and that there are reasonably
good prospects for a continuation of such operation. But it was
impressed by the fact
Page 389 U. S. 501
that, as individual systems, these profits are not sufficient to
put the roads in a position to make improvements important to the
national interest, including the maintenance of services which,
although essential to the public, are not self-supporting, and
furnishing assistance to other roads serving public needs in their
general territory. The Commission emphasized that the merger would
enable the unified company to "accelerate investments in
transportation property and continually modernize plant and
equipment . . . and provide more and better service." 327 I.C.C.
475, 501-502. And it pointed out that only by permitting the merger
would it be possible for the Commission to compel Penn-Central to
come to the rescue of the New Haven, as we shall describe.
With respect to the lessening of competition where it now exists
between the roads to be merged, the Commission pointed out that it
will retain continuing power over reductions of service and
facilities which are not specifically approved in the merger plans.
Such consolidations and abandonments will have to be presented to
the Commission for its approval, and may be subjected to public
criticism and hearings and to conditions or disapproval. It also
noted that the rail service by the merged company will remain
subject to vigorous competition from other roads, including the N
& W and the C & O-B & O systems, and from motor, water,
and air carriers. The Commission summarized some of the factors
which would act as a restraint upon the merged company as
follows:
"The power of shippers to direct the routing, the availability
of numerous routes in a dense network of interline routes, the
influence of connecting carriers in preventing a deterioration in
service on the joint routes in which they participate, the growing
strength of the N & W and C & O-B & O systems,
Page 389 U. S. 502
all stand to provide a check against any abuse of economic power
by the merged applicants."
327 I.C.C. at 514.
Considering the record and the findings and analysis of the
Commission, we see no basis for reversal of the District Court's
decision that the Commission's "public interest" conclusions are
adequately supported and are in accordance with law. We find no
basis, consonant with the principles governing judicial review, for
setting aside the Commission's determination, approved by the
District Court, that the "public interest" directives of the
governing statute have been reasonably satisfied: that the
transaction is likely to have a beneficial and not an adverse
effect upon transportation service to the public, and that, as we
shall discuss, appropriate provisions have been made with respect
to other railroads that are directly affected by the merger.
B. OBJECTIONS OF CERTAIN PENNSYLVANIA INTERESTS.
The only objectors in this Court to the public interest findings
with respect to the merger are certain interests in the State of
Pennsylvania. Appeal No. 835 was taken by the City of Scranton and
Milton J. Shapp, a stockholder in the Pennsylvania Railroad
Company. These parties filed complaints in the Southern District of
New York challenging the Commission's original merger decision.
After this Court's remand last Term, they were ordered by the
District Court to file supplemental complaints. They declined to
comply because, having intervened as plaintiffs in a proceeding
challenging the merger in the Middle District of Pennsylvania, they
chose to rely upon their asserted right to challenge the
Commission's merger and inclusion decisions in the Pennsylvania
action. After several warnings, their complaints in the New York
court were dismissed with prejudice.
The action in the Middle District of Pennsylvania, in which
Shapp and Scranton intervened, was filed by the
Page 389 U. S. 503
Borough of Moosic on June 26, 1967, to set aside the
Commission's orders, entered after our remand, approving the
Penn-Central merger and the inclusion of the three protected roads
in the N & W system. The Pennsylvania court stayed the Moosic
proceeding by order of July 11, 1967, on the request of the United
States and the Commission, for the sound purpose of preventing a
multiplicity of litigation regarding the Commission's merger and
inclusion decisions.
Cf. Kansas City Southern, R. Co. v. United
States, 282 U. S. 760
(1931). Petitions for mandamus or certiorari, on behalf of Moosic
(No. 3, Misc.) and Scranton and Shapp (No. 664, Misc.), seeking to
challenge the stay of proceedings entered by the Pennsylvania
court, have been filed in this Court. Since it now appears that the
Middle District of Pennsylvania has dissolved its stay and
commenced hearings, it would be pointless for us to review the stay
order. Accordingly, the petitions for mandamus or certiorari are
dismissed as moot.
Scranton, Shapp, and Moosic attack the Commission's merger and
inclusion decisions along a broad front, and claim error in the
Commission's basic findings that the Penn-Central merger and
inclusion of the protected lines in N & W are in the public
interest. The thrust of this argument is that the Commission failed
to consider or properly to evaluate the adverse effect of the
Penn-Central merger, considered in light of the order requiring
inclusion of the three protected roads in the N & W system,
upon certain affected communities in the State of Pennsylvania. We
do not agree. In its April 6, 1966, opinion approving the
Penn-Central merger, the Commission examined the arguments made by
participating communities in great detail and stated that the
"contentions regarding the adverse effect of the merger on
Pennsylvania's economy are not substantiated by the evidence. On
this record, the prospects clearly import that the
Page 389 U. S. 504
merger will benefit, rather than harm, the Commonwealth."
327 I.C.C. 475, 492. At the time it made this finding, the
Commission was committed to the proposition, enunciated in the
April 6, 1966, opinion, that the three protected roads would be
included in one of the larger systems because of their inability to
survive as independent lines. This Court, in its decision last
Term, emphasized the importance of such inclusion. The Commission's
conclusion that the net result of the merger would be beneficial to
the State of Pennsylvania is bolstered by the strong position taken
by the State in this Court that the decision of the District Court
for the Southern District of New York should be affirmed.
As we discuss
infra, apart from the general and
theoretical argument that the Penn-Central merger and the inclusion
of the three roads in the N & W system may harm some
Pennsylvania interests, complainants' fears of specific injury
resulting from reduction of competition by specific curtailments of
service now provided by the three protected lines may be asserted
in appropriate proceedings when such curtailment is specifically
proposed.
All other complaints of these parties relate broadly and
generally to the fundamental and underlying economic problems that
are involved in the merger and inclusion decisions: for example,
the anticompetitive consequences of these decisions and the
financial situation and prospects of the Pennsylvania and New York
Central as independent lines. They were all the subject of
extensive evidence, and were analyzed at length by the Commission.
In dismissing the complaints of Scranton and Shapp for failure to
go forward, Judge Friendly noted that,
"[w]hile we entertain no doubt of the sufficiency of this
[procedural] ground, we think it well to add that . . . we find no
merit in the complaints of Shapp and The City of Scranton."
The court remarked that, for the most part,
"the attacks [of Scranton and Shapp] simply
Page 389 U. S. 505
represent disagreement with procedural and policy determinations
which Congress has committed to the Commission."
279 F. Supp. at 326, n. 6. We find no reason to reverse the
judgment of the District Court for the Southern District of New
York for dismissing the complaints of Scranton and Shapp for
failure to prosecute, or to set aside its conclusions as to the
lack of merit of their claims, particularly in light of the limited
function of judicial review of decisions such as those now before
us and the opportunity open to them to challenge proposals which
may be made for specific curtailment of service.
Scranton and Shapp, like the Borough of Moosic, wish now to go
forward with their complaints in the Middle District of
Pennsylvania, in which they seek an injunction against consummation
of the Penn-Central merger and the effectiveness of the inclusion
order. But Shapp and Scranto were parties to the New York
proceedings, and the Borough of Moosic had an adequate opportunity
to join in the litigation in that court following the stay of
proceedings in the Middle District of Pennsylvania. As we noted
supra, n 2, all
district courts in which actions to review the Commission's
findings or for injunctive relief were filed continued their
proceedings in deference to the New York court. All parties with
standing to challenge the Commission's action might have joined in
the New York proceedings. [
Footnote
4] In these circumstances, it necessarily follows that the
decision of the New York court which, with certain exceptions,
Page 389 U. S. 506
we have affirmed, precludes further judicial review or
adjudication of the issues upon which it passes. While it is
therefore no longer open to the parties to challenge the
Commission's approval of the Penn-Central merger and inclusion of
the three protected lines in N & W, or its order that immediate
consummation of the merger should be permitted, any claims for
specific relief, such as particularized objections which may arise
from specific proposals for consolidation or reduction of
facilities or services, are unaffected by the decision in the
present cases. Claims not precluded by the present decision may be
pursued before the Commission or in the courts or both, as may be
appropriate. This applies to Shapp, to the City of Scranton, and to
the Borough of Moosic, as well as to any other affected interests.
The proceedings in the Middle District of Pennsylvania are not
before us except as we have dismissed as moot the petitions
challenging that court's stay of its proceedings, and it will be
the task of that court to determine the effect of the present
decision upon the proceedings before it. Scranton, Shapp, and
Moosic may, of course, seek such relief, if any, in that court as
may be available and appropriate in light of our decision
herein.
Finally, we must mention the City of Pottsville, which has
appealed to this Court (No. 433). Pottsville's request to intervene
in the Moosic action, upon a complaint similar to that of Moosic,
was denied by the Middle District of Pennsylvania. Like Moosic,
Pottsville had the opportunity -- which it failed to seize -- to
litigate in the Southern District of New York. It appears that a
principal basis for denial of Pottsville's request to intervene was
the objection interposed by the United States and that this
objection will, after our decision in the instant cases, be
withdrawn. Upon this representation by the United States, without
reference to or any attempt to consider the scope or content of
the
Page 389 U. S. 507
action in which intervention is sought, or the issues, if any,
which may remain for adjudication in that proceeding, we vacate the
decision of the District Court for the Middle District of
Pennsylvania denying intervention and remand Pottsville's case to
that court for further consideration in light of our decision
today.
C. OBJECTIONS OF THE NEW HAVEN'S BONDHOLDERS.
Two appeals, Nos. 830 and 831, have been taken on behalf of
bondholders of the New York, New Haven and Hartford Railroad
Company (NH). Since 1961, the NH has been in reorganization
proceedings under § 77 of the Bankruptcy Act, 11 U.S.C. § 205.
Despite the shelter of the bankruptcy court, it has been on the
verge of financial collapse, with the attendant risk to continuance
of its rail service. The Commission has found that passenger as
well as freight service by the NH is a national necessity, and that
termination of either would lead to distress in Connecticut,
Massachusetts, and Rhode Island, and would severely damage New York
City and the Nation generally.
See New York, New Haven &
Hartford Railroad Co., Trustees. Discontinuance of All Interstate
Passenger Trains, 327 I.C.C. 151 (1966).
The NH competes in a relatively small part of its service area
with the New York Central; but, in the NH's financial condition,
diversion of even a small amount of the Pennsylvania's connecting
traffic from the NH to the Central would inflict consequential
injury. Even without reference to the hazard of such diversion,
inclusion of the NH in the Penn-Central combination is the only
possibility that has been advanced by any of the parties --
including the complaining bondholders -- for continued operation of
NH, short of the sheer speculation that the States concerned or the
Federal Government might take over the road and its operations.
Page 389 U. S. 508
In June, 1962, with permission of the bankruptcy court, the New
Haven's trustees requested the ICC to make provision under §
5(2)(d) of the Act for' its inclusion in the proposed Penn-Central
merger. When the Commission first considered the merger, it stated
that "we will require all the New Haven railroad [both passenger
and freight operations] to be included in the applicants'
transaction", and in its initial report it provided that "our
approval of the merger is conditioned upon such inclusion." 327
I.C.C. at 524, 527. It required that the parties to the merger
irrevocably stipulate that they would consent to inclusion upon
such terms as might be agreed between the NH and the merger parties
or, failing this agreement, upon such terms as the Commission might
prescribe with the approval of the bankruptcy court. 327 I.C.C. at
553.
The trustees of the NH and the two companies conducted lengthy
negotiations, and finally arrived at an agreement as to inclusion
terms dated April 21, 1966, amended October 4, 1966. In July, 1967,
the NH bankruptcy court warned that New Haven's cash depletion was
"so serious that, if the present rate of loss continues, there will
be insufficient left by late September to meet the payroll."
Subsequent improvement of cash position permitted amendment of this
dire prediction so that it was expected that operation could be
financed to January, 1968.
The Commission, on August 3, 1967, directed the negotiation of a
lease between the New Haven trustees and Penn and Central, to be
"immediately available upon consummation of the Penn-Central
merger." The parties, however, reported that preparation of a lease
in time to meet the New Haven's needs was not possible. Thereupon,
the Commission ordered a hearing as to whether a lease, loan, or
other arrangement should be made to
Page 389 U. S. 509
assure the NH's continued operation until its acquisition by
Penn-Central. On November 21, 1967, the Commission issued an order,
subject to the approval of the bankruptcy court, providing (a)
terms for the inclusion of the New Haven in the Penn-Central system
upon effectuation of the Penn-Central merger; (b) for the
Penn-Central to lend $25,000,000 to the New Haven over a three-year
period in return for trustees' certificates, and (c) for the
Penn-Central to bear 100% of the operating losses of the New Haven
during the first year after the merger, 50% in the second, and 25%
in the third, subject to a ceiling of $5,500,000 in each year on
the total amount that Penn-Central could be required to absorb and
subject to termination upon transfer of the New Haven assets.
Acceptance of these terms by Penn and Central is a required
condition of approval of their merger. The Commission has retained
jurisdiction "for the purpose of making such further order or
orders in these proceedings as may be necessary or
appropriate."
The merits of these provisions are not before us. They have not
been reviewed by the bankruptcy court or by a statutory district
court under the applicable statute. The New Haven trustees and the
States of Connecticut, Massachusetts, Rhode Island, and New York,
as well as the United States, have filed briefs urging this Court
to affirm approval of the Penn-Central merger, citing the urgent
need for this in order to salvage the New Haven's operations. The
attack, so far as the New Haven is involved, has been launched by
Oscar Gruss & Son, a holder of approximately 14% of the NH's
first and refunding mortgage bonds and by the Protective Committee
for that issue, which intervened in Gruss' action below. (Nos. 830
and 831.) The claim is that, because continued operation of the New
Haven at a loss involves progressive erosion of the bondholders'
security, and
Page 389 U. S. 510
because the interim arrangement does not assure that
Penn-Central will absorb all of the operating losses, we should not
permit the Penn-Central merger to be consummated without
simultaneous inclusion of the NH. In view of the probable
difficulties in reaching agreement for inclusion of the NH which
will satisfy its bondholders, it is virtually certain that this
would mean lengthy delay during which the NH would not have access
to the interim Penn-Central financial aid, and might be faced with
collapse of its operations.
The Commission, after hearing the bondholders' contention,
pointed out that
"[i]t is a fundamental aspect of our free enterprise economy
that private persons assume the risks attached to their
investments, and the NH creditors can expect no less because the
NH's properties are devoted to a public use. Indeed, the assistance
the creditors are receiving from the States and would receive from
Penn-Central through the sharing of operating losses would raise
some of that burden from their shoulders."
Pennsylvania Railroad Company -- Merger -- New York Central
Railroad Company, 331 I.C.C. 643, 704 (1967). The District
Court, putting aside questions of the standing of the NH
bondholders to attack the Penn-Central merger, affirmed the
Commission's rejection of the attack.
Continuation of the operations of the NH, which the Commission
has found to be essential, can be assured only upon and after
effectuation of the merger of the Penn-Central. The bondholders
agree that to delay the Penn-Central merger until all proceedings
necessary to include the NH have taken place may well mean the end
of NH operations. The only realistic way to avoid this is to permit
prompt consummation of the Penn-Central merger subject to
appropriate conditions respecting the New Haven which Penn-Central
will perforce accept by its act of merger. While the rights of
Page 389 U. S. 511
the bondholders are entitled to respect, they do not command
Procrustean measures. They certainly do not dictate that rail
operations vital to the Nation be Jettisoned despite the
availability of a feasible alternative. The public interest is not
merely a pawn to be sacrificed for the strategic purposes or
protection of a class of security holders whose interests may or
may not be served by the destructive move.
While we reject the appeals of the NH bondholders, acceptance or
rejection of the terms and conditions on behalf of the NH remains
to be determined. The bondholders' objections may be registered and
adjudicated in the bankruptcy court or upon judicial review as
provided by law. Furthermore, as noted above, the Commission has
retained jurisdiction to make further appropriate orders, if
necessary, and has provided both that inclusion of the NH in
Penn-Central and the making of the loan arrangement on such terms
as are prescribed by the Commission are conditions of approval of
the merger.
We affirm the District Court's dismissal of the appeals in No.
830 and No. 831.
D. OBJECTIONS BASED ON THE PROVISIONS MADE
FOR THE PROTECTED ROADS.
The N & W and roads associated with its position (the
Chesapeake & Ohio (C & O), Baltimore & Ohio (B &
O), and Western Maryland) have filed an appeal (No. 778). In brief
and upon argument, they stated that they do not object to the
Penn-Central merger itself. Their stated position is that they
oppose "immediate consummation" -- that is prior to the actual
inclusion of E-L, D & H, and B & M in the N & W. They
also assail the specific operation and effect of the protective
conditions, and urge modifications thereof, and attack the basic
legality of the conditions as a revenue pool.
The assailed protective provisions appear as Appendix G to the
Commission's order in the merger case. They
Page 389 U. S. 512
are essentially of two types: traffic conditions that require
the merged Penn-Central not to change routes, rates, or service in
such a way as to divert traffic from the protected lines, and
revenue indemnity conditions establishing a formula whereby
Penn-Central is to compensate the protected lines in the event of
adverse revenue results following the merger. [
Footnote 5] At the time the case was before us
last Term, the Commission had withdrawn the revenue indemnity
conditions pending further consideration. After our remand, the
Commission further considered all the conditions, amended them in
some respect not here material, and restored the revenue indemnity
condition. None of the protected roads has lodged objections
against these provisions, nor has Penn-Central, and we affirm the
District Court's conclusion that they appear to provide adequate
interim protection for the three roads in conformity with the
purposes insisted upon by the Commission and which this Court
sought to ensure by its decision last Term. [
Footnote 6]
Page 389 U. S. 513
The objectors, however, attack the protective provisions on
three grounds: first, they claim that the revenue indemnity
provisions create a pooling agreement proscribed by § 5(1) of the
Interstate Commerce Act, 49 U.S.C. § 5(1). Second, they say that
the conditions give each of the protected lines an incentive to
divert traffic to Penn-Central and vice versa. Such traffic
diversion, they argue, would be at the expense of the objecting,
"unprotected," lines. Third, they also assert that the shield which
these provisions give the protected lines dilutes their incentive
to join the N & W, permits them or some of them unfairly to
"shop around" for better terms of inclusion, and may delay or abort
their inclusion in the N & W.
We first address ourselves to the argument assailing the
indemnity provisions as an illegal pool. As the District Court
pointed out, the legislative history of § 5(1) leads to the
conclusion that the section was not intended to apply to cases such
as this one, in which the putative revenue pool is not the creation
of private parties, but is imposed by the Commission itself as a
condition to consummation of a merger. Additionally, even if we
consider the section applicable in these circumstances, there is no
merit to the contention that the protective conditions must be
struck down. Section 5(1) proscribes
"any contract, agreement, or combination [among] . . . carriers
for the pooling or division of traffic, or of service, or of gross
or net earnings, or of any portion thereof"
unless the Commission finds that such pooling or division "will
be in the interest of better service to the public or of economy in
operation, and will not unduly restrain competition."
Page 389 U. S. 514
The Commission has held that, even if the conditions it
established were a pooling arrangement, "this record clearly
supports finding's . . . that to protect these carriers clearly is
in the interest of better service to the public'" and "`will
not unduly restrain competition.'" 330 I.C.C. 328, 345, n. 8. We
agree with the District Court that this finding is supported by
substantial evidence in the record. The interim protection of the
protected lines is, in the Commission's view and under the decision
of this Court last Term, essential. These conditions have been
adopted for that purpose and we see no reason on the present record
to conclude that they are unlawful. In the event that actual
experience reveals that the provisions operate inequitably,
recourse may be had to the Commission for relief pursuant to its
reserved jurisdiction, subject to judicial review.
With respect to the contention that, regardless of whether the
indemnity provisions constitute a revenue pool, those provisions
will induce the protected carriers and Penn-Central improperly to
divert traffic to one another and thereby to injure the unprotected
roads, the District Court correctly concluded that there is no
basis for rejecting the Commission's findings that neither the
protected roads nor Penn-Central "would have either the motive or
the ability to engage in such diversion on any substantial scale."
279 F. Supp. at 328. This conclusion was reached largely because of
the ability of the N & W to retaliate and the limitations
imposed by economic conditions and geographic facts. The Commission
included in its findings "a provision that would prohibit the
protected carriers from engaging in manipulation, with sanctions if
they do," 330 I.C.C. at 356, and it specifically reserved
jurisdiction to reopen proceedings and modify the protective
conditions "in the light of experience." The Commission has also
included a general
Page 389 U. S. 515
reservation of Jurisdiction, under which it could revise the
protective conditions. [
Footnote
7] If, in light of experience, improper traffic diversions
should develop or, as noted above, if these conditions should
otherwise prove to be inequitable, recourse may be had to the
Commission under these reservations, subject to judicial review as
appropriate. [
Footnote 8]
N & W expresses the fear that the traffic and revenue
indemnity provisions will be so attractive that the three lines or
some of them will prefer to continue under their umbrella, and will
not promptly accept the Commission's ticket of admission to the N
& W system. The Commission's reserved power appears to be
adequate to deter such conduct if and when it becomes abusive.
Further, one of the protected lines, the largest of the three
(E-L), already has accepted, by stockholder vote, its inclusion in
N & W. The board of directors of
Page 389 U. S. 516
another (D & H) has recommended to stockholders that
inclusion be accepted. [
Footnote
9] In view of these circumstances, the fears expressed by N
& W and the other protestants as to the dangers which
perpetuation of these provisions will pose must be regarded as
speculative. Clearly, if one or more of the protected roads should
decline to accept the terms for inclusion specified by the
Commission's order, the Commission could be called upon to examine,
pursuant to its reserved power, the appropriate action to be taken
to terminate or modify the interim protective provisions or
otherwise to ensure that the shield supplied to the roads is not
converted into a sword. The fears expressed by the protestors fall
far short of furnishing a reason for rejecting the District Court's
approval of the Commission's order that the Penn-Central merger be
immediately consummated. Nor is there merit to N & W's
contention that it was error for the Commission to fail to rule,
now and forever, that the protected roads may not be included in
Penn-Central. Whether or not such permission appears likely, there
is no occasion for such contingent foreclosure.
Finally, we reject the contention that this Court's prior
opinion in this matter now precludes us from permitting
consummation of the merger until actual inclusion of the three
roads in a larger system. With respect to the inclusion problem,
our criticism of the original Commission order ran to the ICC's
failure to decide the question over which it had undoubted
jurisdiction and which
Page 389 U. S. 517
the Commission itself had found to be important to the public
interest: the determination, so far as the Commission was
empowered, of the ultimate home of the three roads. As this Court
said:
"we can only conclude that it is necessary that the
[Commission's] 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."
386 U.S. at
386 U. S. 390.
Our decision was not intended to require an indeterminate delay in
the consummation of the merger, pending the resolution of the
jockeying, negotiating, and fighting among all of the parties
concerned and completion of the multitudinous procedures
necessarily involved. This would place the public interest as well
as the vast majority of the affected private interests at the mercy
of decisions not merely of certain corporations whose interests
are, in fact, secondary or derivative, but of classes of security
holders. It was our intention that the public interest should be
served with fairness to all private parties concerned, not that it
should be the captive of parties some of whom are understandably
engaged in maneuvering solely for the purpose of improving their
competitive, strategic, or negotiating positions.
There is no provision of law by which the Commission or the
courts may compel the three protected roads to accept inclusion in
the N & W, as ordered by the Commission, or in any other
system: Section 5(2)(d) of the Act provides:
"The Commission shall have authority in the case of a proposed
transaction under this paragraph involving a railroad or railroads,
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
Page 389 U. S. 518
such inclusion, and upon a finding that such inclusion is
consistent with the public interest."
It does not make provision for compelling an unwilling railroad
which is not itself a party to a merger agreement to accept
inclusion under the terms the Commission prescribes. Our opinion on
the first appeals commanded the Commission to specify the
opportunity provided for the smaller roads to be included in a
major system, before approving consummation of the Penn-Central
merger. It was not intended to give the protected corporations or
the creditors or stockholders of each of them, or the N & W
relying on their position, a veto over the public interest which
the Commission has found to inhere in this merger.
We need not pause to discuss in detail N & W's contention
that the Commission's findings do not support a conclusion that N
& W must proceed with inclusion of fewer than all three of the
protected roads, if, for example, B & M does not accept the
terms. The original decision in the N & W-Nickel Plate merger
proceedings clearly contemplates action by the Commission upon a
"petition or petitions" of one or more of the three roads. 324
I.C.C. 1, 148. Separate petitions were, in fact, filed by each of
these roads. As the District Court concluded, in light of the
favorable action already taken by E-L stockholders and the D &
H Board of Directors, the possibility of noninclusion of B & M
would not be cause for setting aside the Commission's order.
[
Footnote 10]
Page 389 U. S. 519
E. THE POSITION OF READING CO.
No. 834 is an appeal on behalf of the Reading railroad. Reading
does not ask that the consummation of the merger be stayed. Its
complaint is directed to the District Court's affirmance of the
Commission's refusal to permit Reading to reopen the record and
submit evidence in support of its claim that it should receive
protective conditions similar to those the three "protected roads"
were given in Appendix G to the merger order.
Reading is controlled by the C & O-B & 0 system through
stock ownership. It has been suggested under the so-called Dereco
plan, that the proposed N & W-C & O merger should include
the Reading, as well as certain other small roads. Reading did not
and does not ask for inclusion in Penn-Central, or for inclusion at
this time in N & W along with E-L, D & H, and B & M. It
did not offer evidence in the Penn-Central proceedings as to
possible traffic diversion, until its tender made after the record
had been closed. It now claims, however, that, since much of its
trackage is paralleled by lines of the Pennsylvania, it will be
injured by the merger and should have the benefit of the Appendix G
provisions.
Reading requests that we remand its case to the Commission for a
decision as to whether protective conditions should be established
for it. The Commission found, in its original report, that Reading
would not be harmed
Page 389 U. S. 520
by the merger and that protective conditions were therefore
unnecessary. This finding was based in part on a letter submitted
by Reading itself to the Commonwealth of Pennsylvania and
introduced, without objection from Reading, in evidence before the
Commission. Only after the Commission issued its report did Reading
object to the finding of no adverse impact upon it as a result of
the merger, and then Reading's fear appears to have been chiefly
that a finding of no adverse impact might prejudice its eventual
attempt to join in the N & W-C & O merger. The Commission
held Reading to its "original concession that the effect of the
merger transaction (without the indemnity conditions) upon them
would be inconsequential." 330 I.C.C. 328, 357. In response to
Reading's specific concern, the Commission modified its finding of
no adverse impact to a finding that no adverse impact had been
shown. The District Court upheld this decision and, in addition,
concluded that Reading's claim of substantial adverse impact as a
result of the Penn-Central merger was unpersuasive on the
merits.
Ordinarily, we would, without more, concur with the District
Court's view. Because of the vastness and complexity of this
matter, however, and in order to ensure that whatever substance
there may be to Reading's claim is not sacrificed, we sustain the
Commission's denial of Reading's submission on condition that it is
without prejudice to any proceeding which Reading may hereafter
institute, based on actual experience, for relief from undue
prejudice caused by the merger.
II
. INCLUSION DECISION.
Three appeals, No. 779, No. 833, and No. 836, relate to the
Commission's order, entered in the N & W-Nickel Plate merger
proceedings, prescribing that N & W accept inclusion of the
E-L, D & H, and B & M in the N & W system and
specifying the terms thereof.
Norfolk &
Page 389 U. S. 521
Western Railway Co. and New York, Chicago & St. Louis
Railroad Co. -- Merger, etc., 324 I.C.C. 1 (1964),
supplemented, 330 I.C.C. 780 reconsidered, 331 I.C.C. 22 (1967). In
1964, the Commission approved the N & W-Nickel Plate merger
subject, among other conditions, to the Commission's retention of
jurisdiction for five years to permit the filing of petitions by
E-L, D & H, and B & M for inclusion in the N & W
system. The Commission's approval was also subject to the condition
that N & W give its irrevocable consent to inclusion of the
three roads on terms that the ICC would itself prescribe in the
absence of agreement among the affected parties. 324 I.C.C. 1, 148.
The three lines in due course filed petitions for inclusion.
Hearings were held, and, on June 9, 1967, following our remand in
the Penn-Central merger case, the Commission made findings and
entered its order requiring N & W to include the three roads in
its system under terms it prescribed.
Appellants are the N & W, the B & M, and a number of E-L
bondholders. As we shall discuss, only the N & W appeal raises
issues which go broadly to the merits of the Commission's order
implementing N & W's duty to accept inclusion of the three
roads. B & M seeks remand on the grounds that the terms fixed
by the Commission for N & W's offer to acquire the stock of the
B & M are inadequate to reflect B & M's value as part of
the N & W system. The third appeal, brought by E-L bondholders,
turns on the question whether the Commission should have
specifically retained jurisdiction to protect the E-L bondholders
in the event that N & W attempts after inclusion improperly to
divert E-L traffic to itself. We affirm the District Court's action
in disallowing the claims of all of these appellants. Reference is
made to preceding sections of this opinion for discussion of the
bearing of claims respecting the inclusion order upon the
Penn-Central proceeding.
Page 389 U. S. 522
We first address ourselves to the demands of E-L bondholders for
assurance that the reservation of jurisdiction by the Commission
would enable them to obtain consideration of unwarranted traffic
diversion by N & W, if that should develop. Since N & W
will be acquiring stock control of E-L and E-L's bondholders will
look to E-L's fortunes for payment and security, the bondholders
fear that N & W may not be entirely solicitous of E-L's
welfare. Appellants themselves note that the Commission, in
adopting the report and order of the officer presiding over the
original hearing, has reserved jurisdiction
"to receive such petitions, institute such investigations, and
make such orders to accomplish the objectives and purposes of the
plan for inclusion and other terms and conditions prescribed
herein. . . ."
The Commission has also retained jurisdiction
"for the purpose of making such further order or orders in these
proceedings as may be necessary or appropriate, in addition to
those orders under jurisdiction expressly retained in the prior
reports and orders of the Commission and to those orders which may
be issued under section 5(9) of the Interstate Commerce Act.
[
Footnote 11]"
Supplemental Order issued June 9, 1967. We have no doubt that,
if, after inclusion of E-L, N & W should engage in a course of
conduct which invades the rights of E-L bondholders, the
bondholders may apply to the Commission for relief and the
Commission's reservation of jurisdiction will enable it to rule
upon this complaint and to grant relief, if warranted, subject to
judicial review.
The other two appeals require somewhat more extended comment. We
first note that our opinion at the
Page 389 U. S. 523
last Term found adequate support for the Commission's conclusion
that the public interest requires inclusion of the three roads in a
larger system. As we have previously noted,
see supra at
389 U. S.
503-505, the Commission's findings and order with
respect to the "public interest considerations" involved in the
inclusion of these lines in the N & W system are in conformity
with the statute and are supported by substantial evidence.
The attack of N & W and B & M upon the Commission's
order centers, not upon the fundamental issues, but upon the
particular terms of that order. In brief, the Commission has
provided that N & W will purchase stock control of E-L and B
& M through wholly owned subsidiaries. It has fixed the basis
for such purchase in relation to the experienced income of the
lines, their earnings having been adjusted for various factors
including savings and gains which the Commission found would result
from inclusion in the N & W system. The Commission has
satisfied itself that traffic losses to the merged Penn-Central
would be offset by benefits to N & W not otherwise taken into
account. The shareholders of these roads are to receive stock of a
newly created subsidiary of N & W, which will eventually be
convertible into N & W common stock. In the case of D & H,
the means of valuation was the same as for the other protected
lines, but N & W is to pay for D & H assets either in cash
or with a note and N & W stock.
This is the first time in the Commission's history that it has
undertaken to "replace the bargaining session." It did so here
pursuant to the N & W stipulation, which was accepted by N
& W as a condition to the N & W-Nickel Plate merger, and in
response to the exigencies of the situation emphasized by this
Court's decision at our last Term.
As we have noted above, the E-L stockholders have voted approval
of the inclusion terms. The D & H Board
Page 389 U. S. 524
of Directors has recommended approval to its stockholders. N
& W complains that the price set for inclusion of the three
lines is too high, and that some other aspects of inclusion are
arbitrary. B & M, on the other hand, complains that the price
set for its inclusion is too low. The District Court affirmed the
Commission's findings and conclusions, and in the exercise of our
reviewing function we find no basis for reversing that court's
decision.
The method for determining the value and exchange ratio which
the Commission adopted, and which we have briefly described, is not
attacked. It is a method that is reasonably conventional and
generally accepted, always subject to the modifications and
adaptations required by individual cases, and we see no basis for
holding it erroneous as a matter of law. The attack that is
launched is upon factors of particularized judgment and the weight
to be ascribed to various values. These are matters as to which
reasonable men may reasonably differ in detail, and we see no basis
for setting aside the Commission's conclusions as sustained by the
District Court. In setting inclusion terms, the Commission was
dealing with complicated and elusive predictions about probable
traffic patterns following the Penn-Central merger and the
inclusion decision. We are no more competent than the Commission
and the District Court to ascertain the accuracy of those
predictions. We deem it our function, in the complexities of cases
such as these, to review the judgment of the District Court with
respect to agency actions to make certain that those actions are
based upon substantial evidence and to guard against the
possibility of gross error or unfairness. If we find those
conclusions to be equitable and rational, it is not for us to
second-guess each step in the Commission's process of
deliberation.
Page 389 U. S. 525
N & W's attack upon the inclusion order centers upon its
disagreement with the Commission's findings as to prospective
earnings of the three roads as part of the N & W system. It
argues that the Commission had no basis for concluding that the
earnings of E-L, D & H, and B & M, as subsidiaries of N
& W, would be adequate to assure their "viability." [
Footnote 12] It asserts that the
Commission has made various invalid adjustments of actual earnings
and failed to make others. This, N & W says, is "the principal
area of dispute in these proceedings."
On the other hand, the B & M contends that the Commission's
finding substantially underestimate the savings which should be
credited to it as an earnings adjustment, and that, therefore, the
terms for its inclusion are unjust. Specifically, it urges that the
Commission underestimated the probable amount of savings resulting
from N & W control and the coordination of operations and
equipment repair facilities and reduction of administrative
expenses. The Commission, however, accepted and relied on figures
submitted by B & M's own witness. B & M now assails these
figures, but obviously the Commission was entitled to rely upon
them.
The District Court examined in some detail the contentions of
the parties attacking the financial terms of the inclusion order.
We have reviewed the findings of
Page 389 U. S. 526
the Commission in light of the evidence of record and the
District Court's analysis, and we find no basis for reversing the
District Court's judgment. The terms fixed by the Commission are
clearly within the area of fairness and equity. Although B & M
argues forcefully that the Commission underestimated the savings
that should redound to its credit, we cannot say in the
circumstances that the order should be reversed and remanded in
this respect. It must be noted, as we have discussed in connection
with appeals relating to the Penn-Central merger decision, that the
inclusion order has no compulsive or coercive effect upon the roads
to be included. Unless and until modified by the Commission, it
remains avail able to the protected lines upon the terms which it
specifies and which the District Court found to be fair and
equitable. [
Footnote 13]
Only one other point of the N & W attack upon the inclusion
order requires comment. N & W objects to the conditions
prescribed by the Commission to protect the interests of the
employees affected by the order. We note that those conditions,
protecting employees of the protected lines, are the same as the
conditions set by the Commission for N & W's employees at the
time of the N & W-Nickel Plate merger. As the District Court
held,
"[t]he Commission acted within its powers in requiring N & W
to protect employees of the three roads as thoroughly as those of
the roads it was permitted to absorb only on the condition that it
would accept these lines if the Commission so directed."
279 F. Supp. at 337. [
Footnote 14]
Page 389 U. S. 527
III
. CONCLUSION.
The judgment of the District Court for the Southern District of
New York is affirmed, subject to the modifications and conditions
stated in this opinion. Nos. 778, 779, 830 836 are remanded to that
court for the entry of such orders and for such further action as
may be consistent with our opinion and judgment herein and as may
be appropriate with respect to the exercise of that court's
jurisdiction in the premises.
The applications of Scranton, Shapp, and Moosic for mandamus or
certiorari (Nos. 663, Misc. and 664, Misc.) are denied without
prejudice to further proceedings in the District Court for the
Middle District of Pennsylvania, consistent with this opinion.
In No. 433, jurisdiction is noted, the judgment of the Middle
District of Pennsylvania with respect to Pottsville
Page 389 U. S. 528
is vacated, and the cause is remanded to that court for further
proceedings in light of our decision today.
MR. JUSTICE MARSHALL took no part in the consideration or
decision of these cases.
* No. 778,
Baltimore & Ohio Railroad Co. et al. v.
United States et al.; No. 779,
Norfolk & Western
Railway Co. v. United States et al.; No. 830,
Oscar Gruss
& Son v. United States et al.; No. 831,
New York, New
Haven & Hartford Railroad Co. First Mortgage 4% Bondholders
Committee et al. v. United States et al.; No. 832,
Erie-Lackawanna Railroad Co. et al. v. United States et
al.; No. 833,
Boston & Maine Corp. v. United States et
al.; No. 834,
Reading Co. v. United States et al.;
No. 835,
City of Scranton et al. v. United States et al.,
and No. 836,
John Hancock Mutual Life Insurance Co. et al. v.
United States et al., on appeal from the United States
District Court for the Southern District of New York, argued
December 4, 1967. No. 433,
City of Pottsville v. United States
et al., on appeal from the United States District Court for
the Middle District of Pennsylvania; No. 663, Misc.,
Borough of
Moosic v. United States District Court for the Middle District of
Pennsylvania et al., and No. 664, Misc.,
City of Scranton
et al. v. United States District Court for the Middle District of
Pennsylvania et al., on motions for leave to file petitions
for writs of mandamus and/or certiorari to the United States
District Court for the Middle District of Pennsylvania.
[
Footnote 1]
See infra at
389 U. S.
511-512.
[
Footnote 2]
See Memorandum Order of the District Court, issued July
3, 1967. Circuit Judge Friendly, for the District Court, noted that
"litigation in six or more different district courts has seemingly
been averted, and all issues concentrated in a single court of
first instance." We agree that this is commendable. If review of
the inclusion decision and of the merger decision were in different
courts, the difficulties presented by these cases would be
multiplied.
[
Footnote 3]
The Central Railroad of New Jersey (CNJ) asked and was granted a
dispensation from the District Court's schedule for briefs and
argument. The CNJ has reserved the right to assert that the
Commission's order should contain certain protective conditions for
it. It has waived the right to argue that the Penn-Central merger
should be delayed. The complaint of the CNJ was not dismissed with
the others, and the Southern District of New York has yet to
consider the position of this line.
[
Footnote 4]
The process of the New York court ran throughout the Nation. 28
U.S.C. § 2321. In addition, the United States waived possible
objections on venue grounds to appearances by any party in the New
York litigation. In these circumstances, it would be senseless to
permit parties seeking to challenge the merger and the inclusion
orders to bring numerous suits in many different district courts.
See, for the provision governing review of orders of
administrative agencies in the courts of appeals, 28 U.S.C. §
2112.
[
Footnote 5]
The formula is directed to compensation for an approximation of
the revenues which may be lost by the protected lines to
Penn-Central. Revenue ratios are determined by dividing the
combined 1965 freight revenues of Penn and Central into the 1965
freight revenues of each of the protected lines. For any given
subsequent year, the total freight revenue of the merged
Penn-Central and of the protected line in question is then
multiplied by that line's revenue ratio. The actual earned freight
revenue of the protected line for the given year is then subtracted
from the figure obtained by this multiplication. If the result is a
positive figure, it is multiplied by an indemnification ratio of
50%, which yields the total amount of indemnity owed. The
Commission has indicated that the indemnity conditions are to
supplement the traffic conditions, not to replace them;
Penn-Central is not given a choice of obeying the traffic
conditions or paying liquidated damages, in the form of
indemnity.
[
Footnote 6]
E-L and D & H unsuccessfully sought from the Commission a
provision for "capital loss indemnification" to be paid them by
Penn-Central in the event that the price for their inclusion in N
& W was reduced because of the effect of the Penn-Central
merger on their traffic. Although E-L and D & H have presented
an appeal (No. 32) on this issue to this Court, the appeal is
contingent on our reversal of the Commission's inclusion terms or
our upsetting of the protective conditions. Because we today make
neither of these decisions, the appeal of E-L and D & H is
dismissed.
[
Footnote 7]
In establishing the protective conditions, the Commission has
ordered
"[t]hat the jurisdiction of this Commission be, and it. is
hereby, retained for the purpose of making such further order or
orders in these proceedings as may be necessary or appropriate, in
addition to those orders under jurisdiction expressly retained in
the prior reports and orders of the Commission and to those orders
which may be issued under section 5(9) of the Interstate Commerce
Act."
See n 11,
infra.
[
Footnote 8]
The "protected period" during which the conditions are to be in
effect will run from the date of consummation of the merger until
the date of actual
"inclusion of [the] protected carrier in a Railway System which
includes Norfolk & Western Railway Company or any successor
thereto, or in the Railway System to be operated by the merged
company . . . ; provided, however, that, if, as to any such
protected carrier, no such inclusion shall have been effected
within 1 year [of] the final determination of (i) the petitions
which such protected carrier now has pending for inclusion in such
Railway Systems, and (ii) any new or supplemental petition or
petitions which such protected carrier may seasonably file for
inclusion in any such Railway System then, as to that protected
carrier, the protective period shall end when this Commission shall
so order."
330 I.C.C. at 362.
[
Footnote 9]
N & W places emphasis on a letter written to stockholders by
the President of D & H, who is a director and a large
stockholder, to the effect that he is formulating an alternative
proposal to inclusion in the N & W. But, at oral argument,
counsel for D & H reiterated that road's desire that this Court
affirm the inclusion order and the merger judgment, and there is no
basis in the record before us for concluding that the D & H
Board of Directors has changed its position.
[
Footnote 10]
The remaining arguments by appellants in No. 778 may be briefly
noted and answered. There is no substance to appellants' contention
that the Commission failed to find that the consummation of the
merger under the protective conditions would be in the public
interest. As the District Court concluded, this finding is
"implicit in the very concept of devising conditions permitting
consummation prior to actual inclusion of the protected roads in a
major system and was made explicit when the Commission said that
only some of the merger benefits would be prevented, and that the
conditions would not work 'an undue hardship upon applicants either
in their operations or merger implementation.' 327 I.C.C. at 532;
see also 330 I.C.C. at 361. To deny evidentiary basis for
this finding would defy common sense."
279 F. Supp. at 329. And appellants' attack upon the District
Court's opinion on the basis of
SEC v. Chenery Corp.,
332 U. S. 194
(1947), totally misconceives the limited office of that decision.
See n 14,
infra.
[
Footnote 11]
Section 5(9) provides that
"the Commission may from time to time, for good cause shown,
make such orders, supplemental to any order made (under its power
to authorize railroad consolidations) . . . as it may deem
necessary or appropriate."
[
Footnote 12]
N & W contends that, for this reason, the Commission should
have considered alternatives to inclusion as possible means of
saving the service of the protected lines. We believe N & W is
considerably embarrassed, in making these arguments, by the fact
that the Commission has contemplated inclusion of the protected
lines in N & W ever since 1964, when N & W was permitted to
consummate its highly successful merger with the Nickel Plate, and
when N & W consented in principle to the inclusion of the three
roads in N & W. The protected lines were scarcely faring better
in 1964 than they are now. Despite the Commission's recognition
that these lines are "weak," it has found their inclusion in N
& W to be in the public interest.
[
Footnote 13]
There is no substance to N & W's argument that the
Commission failed to consider the possibility that one or more of
the protected lines would not join N & W. The Commission
plainly did consider this possibility. It was not required to set a
scale of terms for inclusion depending on the various hypothetical
consequences of its order.
[
Footnote 14]
We reject N & W's argument that the District Court was
guilty of a violation of the rule of
SEC v. Chenery Corp.,
332 U. S. 194
(1947). N & W attempts to extend the principle of that case far
beyond its limits. But even if we were to accept N & W's
construction of the case, N & W's conclusion would not follow.
N & W relies on a statement by the District Court to the effect
that
"our discussion has revealed many ways by which, in our view,
the Commission could support terms as favorable as it has
established even if the Court should have held some of its
subsidiary findings to be insufficient."
279 F. Supp. at 355. But that statement does not indicate that
the court was basing its affirmance of the Commission on grounds
other than those relied on by the Commission itself. On the
contrary, the District Court appears to have agreed in substance
with all the major findings of the Commission. To the Commission's
analysis it added several points that it believed would also
support the Commission's conclusions. The ultimate terms for
inclusion were, of necessity, approximations based on the probable
value of the protected lines to N & W. The District Court found
that these values had been properly computed but that, even if they
were not, N & W was protected by several adjustments that had
been made by the Commission in order to ensure that inclusion was
fair to N & W.
MR. JUSTICE DOUGLAS, dissenting in part in Nos. 433, 663, Misc.,
and 664, Misc.
In my opinion, these cases present important questions
concerning the "public interest" which I feel the Commission should
be required to answer before judicial review can be feasible.
The Pennsylvania District Court proceedings were initiated by
the Borough of Moosic (petitioner in No. 663, Misc.), located in
Lackawanna County, Pennsylvania. The Borough brought its action on
June 26, 1967, to annul and set aside the orders of the Commission
authorizing the Penn-Central merger and requiring the inclusion of
E-L, D & H, and B & M in the N & W system. [
Footnote 2/1] Those orders by the
Commission had been issued on June 9, 1967, following our remand
last Term on March 27, 1967.
Baltimore & Ohio R. Co. v.
United States, 386 U. S. 372.
Moosic, whose complaint is dated June 26, 1967, was joined by
intervenors City of Scranton and Milton J. Shapp (petitioners in
No. 664, Misc.) [
Footnote 2/2]
and
Page 389 U. S. 529
the City of Pottsville (appellant in No. 433). [
Footnote 2/3] On July 11, the court granted the
application of Shapp and the City of Scranton to intervene, but
denied that of the City of Pottsville.
Before the Pennsylvania action was initiated, the District Court
for the Southern District of New York, in which the original action
to set aside the Commission's order allowing consummation of the
Penn-Central merger had been filed (
i.e., the action
reviewed by this Court
Page 389 U. S. 530
last Term), was asked to enjoin consummation of the merger
authorized by the Commission's June 9 order until the validity of
the inclusion order had been finally determined. On July 3, the New
York court temporarily enjoined the merger, and ordered all
plaintiffs and intervening plaintiffs in the original action to
file supplemental complaints by July 17, attacking the June 9,
1967, order of the Commission in the Penn-Central Merger Case, or
their complaints would be dismissed with prejudice.
Also before the Pennsylvania action was filed, N & W (on
June 13) filed an action in a federal district court in Virginia to
set aside the inclusion order, and, on June 23, D & H filed a
similar action in the Southern District of New York. Other
interested parties had apparently indicated that they were
contemplating filing additional actions in still other district
courts, and the Government and the Commission urged all parties to
present their challenges to the original District Court in New
York. In a hearing before that court on June 28, two days after the
filing of Moosic's complaint in Pennsylvania, it was stated that no
objections to venue would be interposed by the Government against
any party choosing to litigate in the New York forum. Thereafter,
the United States and the Commission moved in the Virginia and
Pennsylvania courts to stay proceedings pending the final
determination of the New York actions. The Virginia court continued
its proceedings until after the decision of the New York court
should become available to it. The Pennsylvania court issued a stay
until October 1, 1967.
Upon failing twice to have the stay order dissolved by the
Pennsylvania court, the Borough of Moosic and Shapp and the City of
Scranton petitioned this Court to vacate the stay order and command
the District Court
Page 389 U. S. 531
to proceed with their complaints. The Court today dismisses
those two petitions. [
Footnote
2/4]
The three communities involved -- the Borough of Moosic and the
cities of Scranton and Pottsville, make a broadside attack on many
aspects of the merger in their actions in the Pennsylvania court.
Among those many issues tendered is at least one that has never
been considered by any court, namely, whether the inclusion of E-L,
D & H, and B & M into N & W would have such a serious
detrimental impact on their communities -- in terms of services,
employment, and business -- as to make their inclusion against the
"public interest" within the meaning of the Interstate Commerce
Act. The communities also contend that they have not been afforded
an adequate opportunity to present their arguments to the
Commission.
This Court quotes the conclusion of the Commission that the
"contentions regarding the adverse effect of the merger on
Pennsylvania's economy are not substantiated by the evidence. On
this record, the prospects clearly import that the merger will
benefit, rather than harm the Commonwealth."
This statement, however, is taken from an earlier (April 6,
1966) opinion by
Page 389 U. S. 532
the Commission in the merger case.
Pennsylvania Railroad Co.
-- Merger -- New York Central Railroad Co., Finance Docket No.
21989, 327 I.C.C. 475, 492. In other words, the Commission was
there directing its attention to the effects which the merger of
the Penn and Central railroads itself would have on various
Pennsylvania communities. It was not concerned with the community
impact of the
inclusion of E-L, D & H, and B & M into
the N & W system. That issue was not then even before the
Commission, but was presented only at a later date in the
separately docketed
N & W Inclusion case, in which the
Commission issued its order on June 9, 1967.
Norfolk &
Western Railway Co. and New York, Chicago & St. Louis Railroad
Co. -- Merger, etc., Finance Docket No. 21510, 330 I.C.C.
780.
The Court seems to suggest that, because the Commission in its
April 6, 1966, order, also contemplated that E-L, D & H, and B
& M would eventually be included in some major system, it must
have been taking into account the impact of such inclusion on the
communities served by those roads when it made the statement quoted
above. But this assumption flies in the face of the Commission's
case-by-case approach. It ignores the fact that the evidence before
the Commission in Finance Docket No. 21989 (the
Penn-Central
Merger Case) relating to the community impact of the
Penn-Central merger was not addressed to the impact which the
eventual inclusion of E-L, D & H, and B & M into N & W
would have on communities served by those roads.
See
Recommended Report, Finance Docket No. 21989, at 229-286; 327
I.C.C. 475, 489-493. And if the Court were correct in divining the
Commission's hidden intent, I would have no doubt that the
Commission did not provide adequate opportunity to the communities
which would be affected by the inclusion of the three roads in any
major system to participate in the proceedings.
Infra at
389 U. S.
535-536.
Page 389 U. S. 533
Congress has, of course, committed all questions of policy under
§ 5 to the Commission; but, on judicial review, we must be able to
say that the Commission has made the necessary findings in
determining policy -- in this instance, that the inclusion will be
in the "public interest." I do not find in the opinion of the
District Court, or in the Court's opinion, a searching inquiry into
the Commission's conclusions regarding the community impact of its
orders in the
Inclusion Case to ascertain whether they are
adequately supported by "basic or essential findings."
Florida
v. United States, 282 U. S. 194,
282 U. S. 215;
United States v. Carolina Carriers Corp., 315 U.
S. 475,
315 U. S. 489.
A few words about the community impact of this case -- the
Inclusion Case -- will point up what I mean.
In the Recommended Report of Commissioner Webb, served on
December 22, 1966, in the
Inclusion Case, scant attention
was paid to the issues tendered by the community interests.
Commissioner Webb noted that many representatives of various
shipper and community interests testified concerning the vital need
for the services of the three roads. He then disposed of the
assertions of Milton J. Shapp and certain Pennsylvania interests in
one sentence:
"Contrary to the assertions of Shapp and other Pennsylvania
interests, intramodal competition would not be significantly
lessened."
An accompanying footnote reads:
"Shapp's contentions that competition would be substantially
curtailed and that rail facilities in the eastern and western
portions of Pennsylvania would be contracted are predicated on the
merger of both E-L and D & H into N & W. However, the
merger of E-L into N & W is not authorized herein [only control
was authorized]. Moosic submitted testimony
Page 389 U. S. 534
through its Mayor and Northampton through the Chairman of its
Board of Commissioners, in which opinions were expressed that
inclusion of E-L and D & H in the N & W system would be
injurious to shippers and receivers and the economics of their
areas. No evidence was offered to support these opinions and they
are not sustained by any other evidence in the record."
This cursory treatment of the allegations of Shapp and other
Pennsylvania interests is not an analysis of the merits of their
assertions sufficient for judicial review. This is hardly a
considered treatment of the effects which inclusion would have on
communities presently served by more than one of the roads to be
included in the N & W system. [
Footnote 2/5]
The parties in the Pennsylvania court argue that the Hearing
Examiner and Commission failed to relate the various pieces of
evidence which were available concerning the community impact of
any reduction in services or facilities likely to result from the
inclusion order in the communities involved. In particular, the
parties note that Moosic would be a prime candidate for the pruning
of facilities, since it has a substantial amount of E-L and D &
H track, and that Scranton would be reduced to a two-railroad town
with E-L and D & H also having duplicating facilities in the
area. It was noted that, even though the Commission stated that its
inclusion order did not authorize the abandonment of facilities,
the evidence introduced by E-L in support of inclusion demonstrated
clearly that the avowed purpose underlying the entire transaction
was substantially to reduce facilities in the Wilkes
Barre-Scranton-Binghamton
Page 389 U. S. 535
area, and thereby effect economics. It was further alleged that,
according to E-L's own plan presented to the Commission, inclusion
of E-L and D & H into N & W would lead to the tearing up of
the main line double track between Binghamton and Scranton, and
would thus take Scranton off the main line between Chicago and New
York.
The communities also contend that their opportunity to
participate meaningfully in the
Inclusion proceedings was
seriously limited: the Commission and its Hearing Examiner denied
all requests by Moosic to hold hearings in the Scranton area so
that its citizens, businessmen, and civic leaders could be heard
concerning the railroad proposals. And the City of Scranton
describes the difficulty of meaningful participation by community
interests in the following manner:
"The April 6, 1966 report of the Commission in the
PRR-NYC
Merger Case stated that its decision is related to the
'inclusion' proceeding, F.D. 21510, whereby E-L, D & H and B
& M seek to be absorbed by N & W. The Commission stated
that it took official notice of F.D. 21510
and that it had a
bearing on its decision. [327 I.C.C. 475, 487-489.] Yet the
fact was that the Commission, on April 6, 1966, did not and could
not have considered the evidence of the nonrailroad parties to F.D.
21510, because such evidence from the nonrailroad parties was not
circulated until April 13, 1966, and was not received in evidence
prior to June 16, 1966. The Commission could not in its April 6,
1966, report have considered the public interest aspects of the
inclusion case, but could only have based its PRR-NYC decision in
this regard strictly upon consideration of railroad evidence,
railroad positions, and railroad arguments. "
Page 389 U. S. 536
It is not at all clear to me that the Commission offered a
meaningful opportunity in the
Inclusion Case to local and
regional interests to present their arguments. That is a matter for
the Pennsylvania court to determine in this
Inclusion
Case.
As respects the question of "public interest" in the
N &
W Inclusion Case, the Commission concluded:
"On the positive side, inclusion of the petitioners in N & W
will strengthen railroad competition, enhance the adequacy of the
transportation service provided by N & W as well as the three
petitioners by opening new routes and instituting new service,
produce the economics and efficiencies inherent in single-line
operation, and permit the joint use where possible, of facilities,
equipment and routes. . . ."
"Our order herein does not authorize the abandonment of lines,
operations or facilities by N & W or the petitioners.
Applications for such abandonments are to be filed in appropriate
proceedings. We expect N & W to maintain proper divisions with
the petitioners."
330 I.C.C. 780, 827.
Despite the Commission's disclaimer that the inclusion order
"does not authorize the abandonment of lines, operations or
facilities," it appears that some abandonment will almost certainly
result, given the geographical location of the lines of the four
roads involved and the companies' desire for efficiency. In
addition, the Commission itself, in the first paragraph quoted
above, indicates that it contemplates "economics and efficiencies
inherent in single-line operation," and "the joint use where
possible, of facilities, equipment and routes" -- all of which
portend significant effects on the local communities stretched
along the routes of the roads. Deferral of the question of
community interests until a subsequent hearing on abandonments will
not ensure
Page 389 U. S. 537
adequate protection of those interests; for, at the subsequent
hearing, the Penn-Central merger would be a fact, and the pressures
would be great for increased economics on the part of the N & W
system to make it a more efficient competitor of Penn-Central.
Communities which depend heavily on the railroad industry for
employment, such as the City of Scranton, would be affected
significantly by any loss of jobs. In its opinion in the
N
& W Inclusion Case, the Commission noted that, in the
earlier phase of this proceeding, N & W had entered into
agreements with certain labor unions which provided that
elimination of jobs resulting from the N & W-Nickel Plate
unification would be accomplished only through normal attrition
(
i.e., "principally by death, retirement, discharge for
cause, or resignation." 330 I.C.C. 780, 822, n. 26); the agreements
were apparently modified at a later date to prohibit transfer of
employees to other jobs beyond their general locality. For those
employees not covered by the agreements, the Commission imposed
certain protective conditions prescribed in
Southern Ry. Co. --
Control -- Central of Georgia Ry. Co., 317 I.C.C. 557, as
supplemented and clarified in 317 I.C.C. 729 and 320 I.C.C. 377.
The Commission concluded that the employees of E-L, D & H, and
B & M should be protected in the same manner as their
counterparts involved in the N & W-Nickel Plate proceedings.
For all employees not covered by attrition agreements, the
protection would consist of the following: either N & W's
existing agreements had to be modified to cover employees of the
included roads or similar new agreements were to be drafted; and,
if no agreement was concluded within 60 days, the Commission would
impose appropriate conditions. The Commission denied the requests
of D & H and B & M to extend this employee protection to
their supervisory, professional, and executive personnel.
Page 389 U. S. 538
Whether the use of attrition agreements to eliminate jobs has a
substantial adverse impact simply because jobs are eliminated is a
question not free of doubt.
The Commission outlined the importance of the service of the
three protected roads to the public, but limited this to a showing
that, as a geographical matter, the lines of all three roads
supplied needed services. 330 I.C.C. 780, 793-794. As far as
appears from its decision, the Commission did not consider the
unfavorable impact on the communities now served by more than one
of the protected roads when the three roads are put into a single
system.
Under a heading in its opinion entitled "Advantages to
petitioners and to the public," the Commission noted that, under N
& W control, the three protected roads could achieve
substantial savings, and it observed further that:
"The petitioners as well as the public will benefit from the
unified management of what is now several separate companies
operating independently. Among others, such benefits will include
joint routes of affiliated lines, the prospect of single-line
service, elimination of interchanges, improved schedules, and a
more flexible distribution of equipment. Such benefits will
increase the petitioners' ability to preserve and improve their
present services and meet the needs of the shipping public. Through
expanded piggyback operations, petitioners will be in a better
position to meet the competition of motor carriers. Because many
industries prefer to locate plants where a single-line
through-route service will be available, more opportunities for
industrial development will be created. As part of the large N
& W system, the use of more modern equipment and facilities
will be justified, resulting in greater efficiency, improved
operations and better service to the public."
330 I.C.C. 780, 795.
Page 389 U. S. 539
These general conclusions are not addressed to the objections
made by the communities affected. Moreover, the Commission's
references to "joint routes," "elimination of interchanges," and a
"more flexible distribution of equipment," suggest that community
fears of eventual abandonment or scaling down of facilities are
well founded.
The issues tendered by the parties in the Pennsylvania court,
touching on the questions just described, are substantial, and are
not now before this Court for review. They have not been briefed or
argued, and I fail to understand how the Court can presume to
decide them.
The Court suggests that the community interests involved can
obtain adequate protection from possible curtailment of service by
asserting their challenges "in appropriate proceedings when such
curtailment is specifically proposed." Yet it seems clear that
postponing review of this question until a subsequent proceeding on
proposed abandonments will not protect the communities adequately.
The inclusion of the three protected roads into the N & W
system surely portends significant curtailment and rerouting of the
facilities of one or more of the four roads involved. Once the
Penn-Central merger is consummated, N & W and its three
included roads will face competitive injury unless their operations
are streamlined and economized. The interests of the communities
stretched along the routes of E-L, D & H, B & M, and N
& W might well weigh less against the threat of Penn-Central
competition once the merger has been consummated than those
interests would if they were considered and evaluated before actual
competition from a merged Penn-Central system is felt.
I do not suggest that we can now decide whether the impact on
community interests justifies disapproval by the Commission of the
inclusion of the three protected roads into N & W. The question
of the adequacy of the Commission's
Page 389 U. S. 540
findings on this point has not been presented either to this
Court or to the New York District Court, and as pointed out
previously, I have grave doubts that the Commission's opinion in
the
Inclusion Case contains adequate findings on the issue
to permit responsible judicial review.
The cases presently pending in Pennsylvania present,
inter
alia, the question whether the Commission failed to evaluate
the adverse impact of the inclusion of the E-L, D & H, and B
& M into the N & W system upon the communities served by
the carriers involved.
In the action before the New York District Court, here for
review in Nos. 778 and 779, that court dismissed the complaints of
Shapp and the City of Scranton, with prejudice, for failing to file
supplemental complaints attacking the Commission's June 9, 1967,
order in the
Penn-Central Merger Case. But the complaints
of Shapp and Scranton that were dismissed with prejudice dealt only
with the merits of the Commission's approval of the Penn-Central
merger in its April, 1966, decision in Finance Docket No. 21989.
They did not attack the Commission's later (June 9, 1967) order in
the separately docketed
Inclusion proceedings. Thus, there
is no question of
res judicata present with regard to
those parts of Shapp's and Scranton's complaints in the
Pennsylvania court which attack the Commission's June 9 order in
the
Inclusion Case. And, of course, no question of
res
judicata arises with respect to the complaints of Moosic and
Pottsville. Even if the
Penn-Central Merger and
N
& W Inclusion Cases are regarded as inseparable, it is
clear that the community impact aspect of the
Inclusion
Case was not considered by the New York court. It is evident
from the record and that court's opinion that the primary concern
of the court related to various aspects of the merger and inclusion
orders tendered by the railroad parties which were unrelated to at
least some of the
Page 389 U. S. 541
attacks leveled by the parties in the Middle District of
Pennsylvania, including the question of community impact. [
Footnote 2/6]
The Court seemingly declares, however, a new rule of
res
judicata in its effort to prevent the parties in Pennsylvania
from proceeding with their actions challenging the basic validity
of the Commission's inclusion order on the ground,
inter
alia, that the Commission has not made adequate findings on
the issue of the community impact of that order. Because the
Borough of Moosic,
Page 389 U. S. 542
which had properly filed a suit in the Middle District of
Pennsylvania but saw its action stayed, refused to accept the
invitation of the New York District Court (a court in which Moosic
was never a party, and which neither assumed jurisdiction over
Moosic nor attempted to do so by making it an involuntary
plaintiff) to come to New York and litigate, the Court holds that
Moosic is bound by the decision of the New York court in the
Inclusion Case. The New York court itself did not attempt
to hold that its orders in the
Inclusion Case would bind
Moosic if it did not join in the New York proceedings. And I am at
a loss to discover any such principle in the law of
res
judicata.
A party is entitled to its day in court; [
Footnote 2/7] and I cannot fathom how a party can be
deprived of that right or waive it by refusing an invitation -- not
even an order -- to litigate in another court located in another
State. [
Footnote 2/8] The Court
could reach its conclusion under the doctrine of
res
judicata only if Moosic could be termed in "privity" with one
of the parties litigating in the New York action.
See, e.g.,
Lawlor v. National Screen Service Corp., 349 U.
S. 322;
Bank of Kentucky v. Kentucky,
207 U. S. 258;
Mutual Benefit Life Ins. Co. v. Tisdale, 91 U. S.
238;
In re Howard,
9 Wall. 175. But Scranton and Shapp were the only community
interests in the New York court who challenged the Commission's
basic finding that the Penn-Central merger was in the public
interest;
Page 389 U. S. 543
and, as pointed out, their allegations were not directed to the
Commission's order in the
N & W Inclusion Case. The
Borough of Moosic is a separate community, with distinct interests
based on the facilities and lines of the various roads located
within the Borough, or serving the Borough. Under such conditions,
Moosic cannot properly be called in privity with Scranton or Shapp.
[
Footnote 2/9]
The Court states that "further judicial review or adjudication
of the issues upon which [the New York District Court] passes" is
precluded by its decision. But,
Page 389 U. S. 544
as I have already pointed out, the New York court did not pass
on at least some of the contentions, including the question of the
community impact of the inclusion order, which are raised by the
parties in Pennsylvania; nor were those questions even presented to
the New York Court for review.
Congress might, of course, channel all complaints against an
administrative agency order to a particular court. It has indeed
done so in many instances through provisions that a person
aggrieved by a certain type of order should seek review in a
designated court of appeals. 28 U.S.C. §?341
et seq. (1964
ed., Supp. II). Where review of an agency order is lodged in a
court of appeals and review of the same agency order is also sought
in other such courts, the court of appeals where review was first
sought is the one to which all other courts are directed to
transfer all proceedings with respect to the agency order. 28
U.S.C. § 2112(a) (1964 ed., Supp. II). That has the obvious
advantage of centralizing and consolidating judicial review and
avoiding conflicts which might obtain if the parties could go to
any court that had venue. Congress, however, has made no such
provision respecting ICC orders. Section 2112, on which the Court
relies, provides in subsection (d) that its provisions are not
applicable to review of agency orders in the district courts. ICC
orders are reviewable by three-judge district courts. 28 U.S.C. §
1336(a), § 2325. The general provision for transfer of actions from
one district court to another is 28 U.S.C. § 1404(a). But 28 U.S.C.
§ 1398 provides, with exceptions not relevant here, that actions
challenging ICC orders "shall be brought only in the judicial
district wherein is the residence or principal office of any of the
parties bringing such action." And where the jurisdiction of more
than one three-judge district court has been invoked and a motion
to transfer the proceedings from one to another has been made, the
motion
Page 389 U. S. 545
is denied if venue would not have been proper for an original
action in the district court to which transfer is sought. [
Footnote 2/10] When a three-judge
district court in New York was asked to transfer proceedings
challenging an ICC order to the district court in Maryland, where
another like challenge was being made, it declined, saying, "None
of the plaintiffs in the actions in the Southern District of New
York has its residence or principal office in the District of
Maryland."
New York Central R. Co. v. United
States, 200 F.
Supp. 944, 947 (D.C.S.D.N.Y. 1961). The New York District
Court, speaking through Judge Friendly, refused to invoke the
procedure provided for in 28 U.S.C. § 2112(a), since that section
applies, as already noted, only to review of agency orders in the
courts of appeal.
Id. at 949-950. That court was much more
faithful to the system of review which Congress has provided than
we are today. Moosic and Scranton by no stretch of the imagination
have their "residence" in New York. By 28 U.S.C. § 1398, venue
plainly lies in Pennsylvania, and Congress has provided no method
of transferring those suits to New York. [
Footnote 2/11]
Page 389 U. S. 546
It is not only hard cases which make bad law. Cases surcharged
with the pressure for instant and immediate decision do the same,
[
Footnote 2/12] and create
precedents which plague us.
It seems clear to me that we must permit the parties to litigate
in the Pennsylvania court whether E-L, D & H and B & M
should be included in the N & W system. By no stretch of the
imagination can it be argued that the question of the adverse
impact on the Pennsylvania communities of the inclusion of the
three roads in the N & W system, as now posed by the parties in
Pennsylvania, was here for review or was before the New York
District Court.
See Erie-Lackawanna R. Co. v. United
States, 279 F. Supp. at 325-326.
Last Term we held that the ultimate fate of the three protected
roads must be determined before the Penn-Central merger could be
consummated. This surely means that judicial review must first be
had at least
Page 389 U. S. 547
with respect to the contentions which bear on
the basic
validity of the inclusion order -- that is, whether the order
is in the "public interest," as required by 49 U.S.C. § 5(2)(d) --
as distinguished from collateral questions about the order which
need not delay the Penn-Central merger. The basic validity of the
inclusion order certainly involves the impact of the inclusion on
the communities served by the three lines in question. Whether
other questions of like character have survived need not now be
determined. It is certain that at least the community impact issue
has not been resolved. And it intimate connection with our holding
last Term is evident. For what if it were found that, by reason of
the impact on the communities, the inclusion order was not in the
public interest? Our "protected" roads would then have no home.
The stay order of the Pennsylvania court has expired, and that
court is now proceeding with these cases. For purposes of review by
this Court, the petitions in Nos. 663, Misc. and 664, Misc.,
seeking review of the stay order or mandamus to compel the
Pennsylvania court to proceed with the cases, can be dismissed. But
those petitions did not present to this Court any question
concerning the merits of the parties' actions in Pennsylvania;
rather they attacked the validity of the order staying their
actions in deference to proceedings then being conducted in the New
York District Court. And, as already pointed out, at least the
question of the community impact of the inclusion order, which is
raised in Pennsylvania, has not been presented either to this Court
or the New York District Court for review. I therefore dissent from
the Court's holding that all of the parties now litigating in
Pennsylvania are precluded from challenging "the Commission's basic
findings that the . . . inclusion of the protected lines in N &
W [is] in the public interest." If the Pennsylvania court
believes
Page 389 U. S. 548
that the allegations of the plaintiffs are substantial, it
should be free to enjoin the merger until questions concerning the
basic validity of the inclusion order, at least so far as impact on
the Pennsylvania communities is concerned, have been resolved.
[
Footnote 2/1]
The Borough of Moosic was a party to the N & W Inclusion
Case before the Commission, in which it offered testimony and
submitted exceptions. It was not, however, a party before the
Commission in the Penn-Central Merger Case, reviewed by this Court
last Term. Moosic, however, seeks to challenge the merger order in
the Pennsylvania action. Since Moosic is served only by E-L and D
& H, the Borough notes that it became concerned with the
proposed Penn-Central merger only after it learned that the merger
was in part responsible for the petitions of E-L and D & H for
inclusion into N & W.
[
Footnote 2/2]
The City of Scranton and Milton J. Shapp were parties to both
proceedings before the Commission, and were intervenors in the
previous action commenced in the Southern District of New York,
which was reviewed by this Court last Term. They were the only
parties before the New York court last Term that challenged the
basic validity of the Penn-Central merger. (
See Baltimore &
Ohio R. Co. v. United States, 386 U.
S. 372,
386 U. S. 462
(dissenting opinion of MR. JUSTICE FORTAS).) Their original
complaint in the New York court was dismissed with prejudice by
that court on October 19, 1967, pursuant to Rule 41(b), Fed.Rules
Civ.Proc., for failure to file a supplemental complaint attacking
the Commission's order of June 9, 1967, in the
Penn-Central
Merger Case. Scranton and Shapp were never parties to the
N & W Inclusion Case in the New York court.
Milton J. Shapp is a stockholder of the Pennsylvania Railroad
Company, and a citizen of Pennsylvania. The City of Scranton is
served by E-L, D & H and the Central Railroad of New Jersey.
The city's interest stems both from the fact that the Penn-Central
merger has necessitated the inclusion of E-L and D & H into N
& W, thus making Scranton a two-railroad town, and from its
fears that the proposed N & W-C & O merger will be approved
along with the inclusion of CNJ therein, which would reduce
Scranton to a one-railroad town. Since Scranton is a part of the
Scranton-Wilkes Barre industrial and distribution complex of
northeastern Pennsylvania, it also has an interest in the other
railroads serving that economic area -- the Reading Company, Lehigh
Valley, and the Pennsylvania Railroad, together with their
switching lines. The city and its surrounding area constitute one
of the most important centers of railroad activity in the Eastern
District.
[
Footnote 2/3]
City of Pottsville was a party to the Commission proceedings
involving the Penn-Central merger. The city is a municipal
corporation located in Schuylkill County, Pennsylvania, and is
served by the Reading Company and the Pennsylvania Railroad
Company.
[
Footnote 2/4]
Pottsville (No. 433) seeks review of the order of the
Pennsylvania court denying its application for intervention in the
Moosic case on the ground that the city was not located in
the Middle District of Pennsylvania and "the defendant has objected
to parties raising their objections to these I.C.C. Orders other
than in the Southern District of New York. . . ." The Government,
however, has no objection to the intervention of Pottsville below,
and concedes that the court was in error in assuming that the
Government's desire to have all actions challenging the
Commission's orders brought in the New York court constituted an
objection to Pottsville's formally becoming a party in the
Moosic case. I therefore concur with the Court and agree
to vacate the order denying Pottsville's application for leave to
intervene and to remand to the District Court where Pottsville may
renew its application.
[
Footnote 2/5]
This brusque treatment of the community allegations contrasts
sharply with the lengthy discussion of certain community interest
aspects of the Penn-Central merger found in the Recommended Report
in Finance Docket No. 21989, at 229-286.
[
Footnote 2/6]
With respect to the
N & W Inclusion action, the
court below noted that only "two points come even close to the
larger public interest in the transaction. . . ." Those points
were: first, N & W's complaint that the Commission should have
considered the desirability of including the three protected roads
along with the Reading Co. and the Central of New Jersey as wholly
owned subsidiaries, not in the N & W system, but in the
proposed N & W-B & O-C & O system, and second, N &
W's assertion that the Commission erred in failing to find that
inclusion of any of the three protected roads in the Penn-Central
system, rather than the N & W system would not be in the public
interest. N & W has pursued the latter argument in this Court,
asserting that, by failing to make the suggested finding the
Commission has left open the possibility that one or more of the
three protected roads can eventually obtain inclusion in the merged
Penn-Central system if inclusion in the N & W system is not
voted by shareholders. The court rejected both of these
contentions, holding that the Commission was not required to inject
the N & W-B & O-C & O proposal into the instant
proceeding or to make the negative finding requested by N & W
to preclude the possibility of eventual inclusion of one or more of
the three roads in the Penn-Central system. The court directed the
remainder of its opinion dealing with the
N & W Inclusion
Case to examining the financial terms of the inclusion order,
the employee protective conditions imposed by the Commission, the
Commission's general standard for, and method of, valuation,
certain attacks by E-L, D & H and B & M on matters of
valuation peculiar to each road, and the possibility of
non-inclusion of D & H and/or B & M in the N & W system
-- none of which involved the community impact problem.
Erie-Lackawanna R. Co. v. United States, 279 F. Supp. at
336-352 (D.C.S.D.N.Y.1967).
[
Footnote 2/7]
Hansberry v. Lee, 311 U. S. 32.
[
Footnote 2/8]
Moosic states in its petition (No. 663, Misc.) that it did not
wish to litigate in New York because that court had decided to
treat the
Penn-Central Merger Case and the
N & W
Inclusion Case as "separate proceedings for judicial review
purposes," and such an approach would prejudice Moosic, "since the
adverse impact of
N & W Inclusion must be considered
as an integral part of any judicial review of PRR-NYC, and vice
versa." Moosic also notes that "the community public interest
issues inherent in [its] case . . . are clearly outside the scope
of the litigation in the other forums."
[
Footnote 2/9]
In
Hansberry v. Lee, 311 U. S. 32,
311 U. S. 43, we
stated that even "when the only circumstance defining the class is
that the determination of the rights of its members turns upon a
single issue of fact or law," it might be possible for a State
constitutionally to adopt a procedure whereby the judgment could be
made binding on all members of the class; but only if
"the procedure were so devised and applied as to insure that
those present are of the same class as those absent and that the
litigation is so conducted as to insure the full and fair
consideration of the common issue."
This Court in the instant case makes no inquiry, however,
whether Moosic can be termed a member of the "same class" as one or
more of the parties in the New York court; or whether the issues
are "common," and if they are, whether the proceedings have been
conducted to ensure their "full and fair consideration."
The Court does not appear to argue that the action in the New
York court was a "class action" within Rule 23, Fed.Rules Civ.Proc.
Indeed, the court below did not treat it as such, nor make the
findings (Rule 23(a) and (b)) or give the type of notice (Rule
23(c)) required by that Rule for class actions.
I can find no authority for a rule which would require a party
not under the jurisdiction of the inviting court to respond
affirmatively to an invitation to intervene or else be bound by an
adverse decision. Indeed,
Chase Nation Bank v. Norwalk,
291 U. S. 431,
would suggest that the rule is to the contrary. The Court stated in
that case that
"[t]he law does not impose upon any person absolutely entitled
to a hearing the burden of voluntary intervention in a suit to
which he is a stranger. . . . Unless duly summoned to appear in a
legal proceeding, a person not a privy may rest assured that a
judgment recovered therein will not affect his legal rights."
Id. at
291 U. S.
441.
[
Footnote 2/10]
Our decisions in
Hoffman v. Blaski, 363 U.
S. 335, and
Van Dusen v. Barrack, 376 U.
S. 612, indicate that § 1404(a) permits transfer only to
a district court in which the plaintiff would have been entitled,
without regard to consent by the defendant, to bring his action
originally. Moosic and Scranton could not have brought an original
action in New York.
[
Footnote 2/11]
If statutory provisions provide that a person aggrieved must
litigate his contentions in a specific federal court, fair notice
has been given that, if he does not appear and present his claims
in the designated court, he will forfeit his right to be heard. But
when there is no such statutory provision and when indeed the
applicable statute provides for review in the Pennsylvania District
Court, the place of residence, is due process satisfied when an
aggrieved person, who was never a party in the New York court or in
privity with any party there, is deprived of a right to be heard on
an issue not litigated in that court, simply because he was invited
to participate and the United States waived objections? That, I
submit, is not a wholly frivolous question.
Nationwide service of process was available to the New York
court. 28 U.S.C. § 2321. The United States and the ICC had waived
all objections to venue against any party seeking to litigate in
New York. But although the United States and the Commission moved
successfully in the New York court under Rule 19, Fed.Rules
Civ.Proc., to join N & W as an involuntary plaintiff in D &
H's action challenging the inclusion order, they made no effort to
join Moosic pursuant to that Rule.
[
Footnote 2/12]
"Great cases, like hard cases, make bad law. For great cases are
called great not by reason of their real importance in shaping the
law of the future, but because of some accident of immediate
overwhelming interest which appeals to the feelings and distorts
the judgment. These immediate interests exercise a kind of
hydraulic pressure which makes what previously was clear seem
doubtful, and before which even well settled principles of law will
bend."
Holmes, J., dissenting, in
Northern Securities Co. v. United
States, 193 U. S. 197,
193 U. S.
401.
MR. JUSTICE DOUGLAS, dissenting in part in Nos. 778, 779,
830-836.
These cases present at least one serious problem under 49 U.S.C.
§ 5(2). Section 5(2)(a) authorizes two or more carriers to
consolidate provided that the Commission finds under subdivision
(b) that the "terms and conditions" are "just and reasonable" and
"will be consistent with the public interest." Moreover, under
subdivision (d) of § 5(2), the Commission "as a prerequisite to its
approval" of the merger may require the inclusion of another
railroad in the territory "upon equitable terms."
I do not think the Commission has made those necessary findings
under § 5(2).
The majority opinion adopts a piecemeal approach to judicial
review of the Commission's orders which, as I view it, does not
conform with our duty of judicial review in one respect.
In the majority opinion last Term, Mr. Justice Clark noted
that
"[o]ur experience with other mergers, and common sense as well,
indicate that the 'scrambling' goes fast, but the unscrambling is
interminable, and seldom effectively accomplished."
Baltimore & Ohio R. Co. v. United States,
386 U. S. 372,
386 U. S. 392.
Because of this, we refused to allow the Penn-Central merger to be
consummated before the fate of the three protected roads (the
Erie-Lackawanna, Delaware & Hudson, and Boston & Maine) had
been determined. Some aspects of the Commission's merger and
inclusion order -- those which do not go to the heart of the
Commission's decision (that is, its determination that the merger
or inclusion is in
Page 389 U. S. 549
the "public interest") -- can await later judicial review.
Examples would be the contentions of Reading and the E-L
bondholders. But I fail to see how we can affirm the Commission's
decision that this entire transaction is in the "public interest"
without considering those points raised by the parties which do go
to the heart of the controversy. I refer specifically to the
contentions of the parties in the Middle District of Pennsylvania
(
see my partial dissent in Nos. 433, 663, Misc., and 664,
Misc.), and to Nos. 830 and 831, which involve claims of the New
Haven creditor interests, to which I now turn.
Certain bondholder interests of the New York, New Haven &
Hartford Railroad Company (New Haven) attack the Commission's
failure to provide for actual inclusion of the New Haven in the
Penn-Central system as a condition simultaneous with, or precedent
to, consummation of the merger. Following the filing of these
appeals, the Commission, on November 16, 1967, issued a decision
concerning the treatment of the New Haven in the merger plan,
styling the opinion as a supplemental order in the
Penn-Central
Merger Case. Pennsylvania Railroad Co. -- Merger -- New
York Central Railroad Co., Finance Docket No. 21989, 331
I.C.C. 643. On that date, the Commission approved as a first step
in the New Haven's reorganization a conveyance of its assets to
Penn-Central; it fixed terms for interim financing on the basis of
a $25,000,000 loan commitment from Penn-Central, and it provided
for the sharing of New Haven's operating losses by Penn-Central, on
a sliding scale, pending New Haven's inclusion in the merged
system. The Commission also specifically provided that consummation
of the merger would constitute irrevocable assent by Penn-Central
to enter into the interim financing arrangement.
The sale agreement proposed by the New Haven trustees provided
for New Haven's physical assets and investments to be purchased by
Penn-Central free and
Page 389 U. S. 550
clear of liens and other encumbrances. The lien of the New Haven
creditors' interests would shift from New Haven's present assets to
the assets held by the trustees as the proceeds of the sale.
Provision for the preservation of priorities and rights of
claimants was made in the plan. The trustees originally submitted,
pursuant to § 77 of the Bankruptcy Act, [
Footnote 3/1] a plan of reorganization to be
accomplished in two steps. Initially, only the first step,
providing for the sale of the New Haven to the merged Penn-Central
system, was presented to the Commission for approval. After that
part of the plan had been completed, the trustees intended to
implement the second step, relating to distributing the assets of
the New Haven estate or issuing new New Haven securities.
Certain bondholder interests contested the legality of the
two-step plan. But, in a decision rendered in May, 1967, the Court
of Appeals held that a decision on the legality of such a plan
would be premature.
In the Matter of the New York, New Haven
& Hartford R. Co., 378 F.2d 635 (C.A.2d Cir.1967). In
September, 1967, the New Haven trustees filed the second part of
their plan, but requested the Commission to make immediate findings
required under § 5(2)(d) of the Interstate Commerce Act with
respect to the first part of the plan rather than await completion
of the reorganization proceedings. Creditor interests opposed this
request by arguing that creditor claims, in the order of priority,
would have to be considered by the Commission before it could
arrive at "equitable terms" within the meaning of § 5(2)(d). The
Commission chose to adopt the procedure suggested by the trustees,
and approved the plan for the sale of assets independently of a
complete reorganization plan.
In short, the Commission concluded that an immediate decision on
the question under § 5(2)(d) of "equitable
Page 389 U. S. 551
terms" for the sale of assets would satisfy "a legal preliminary
to NH inclusion without delay once the Penn-Central merger is
consummated." [
Footnote 3/2] On the
other hand, it said, delay of such a decision until completion of
New Haven's reorganization would prevent a timely rescue of the New
Haven as an operating common carrier. Thus, the Commission opted in
favor of
"improved service through a consummated Penn-Central merger
including an operational NH, while the NH creditors are freed to
litigate at will the distribution of their estate. [
Footnote 3/3]"
The bondholder interests before this Court contend that, under
either the majority or dissenting opinions in
St. Joe Paper Co.
v. Atlantic Cost Line R. Co., 347 U.
S. 298, any sale of the New Haven to the merged
Penn-Central system would require at least its submission to a vote
of bondholders.
See also Reconstruction Finance Corp. v. Denver
& Rio Grande Western R. Co., 328 U.
S. 495. The bondholders also argue that the Commission
ignored the admonition of this Court in
Palmer v.
Massachusetts, 308 U. S. 79,
308 U. S. 88,
that the powers of the Commission and courts under § 77 of the
Bankruptcy Act can properly be exercised only in the context of "a
complete plan of reorganization for an insolvent road."
In justifying its action, the Commission noted that, except for
subsections (b)(1), (4), and (5), of § 77, there is no provision in
§ 77 that deals specifically with the form or content of a
reorganization plan. Therefore, no language of § 77 was believed to
prohibit evaluation of the New Haven properties and the approval of
their sale before approval of a plan for restructuring the New
Haven. The Commission noted the doctrine
Page 389 U. S. 552
of "wasting assets" employed under Chapter X of the Bankruptcy
Act to permit two-step plans of reorganization, and analogized that
doctrine to the instant case -- since, in the view of the
Commission, the New Haven could properly be classified as a
"wasting asset." [
Footnote 3/4]
With respect to interim financing of the New Haven, the
Commission approved a loan proposal under which Penn-Central would
make available to the New Haven a total of $25,000,000 over three
years to enable the New Haven to continue its operations until its
assets were conveyed to Penn-Central. The Commission noted that the
loan authorization did not impair the jurisdiction of the
reorganization court, since that court would still have to approve
issuance of trustees' certificates to evidence those advances.
[
Footnote 3/5]
The loan provisions approved by the Commission provided further
that any time the cash balance of the New Haven fell below
$5,000,000, the trustees could borrow
Page 389 U. S. 553
from the $25,000,000 commitment enough money to equal a
$5,000,000 cash balance plus $2,500,000. The Commission set an
interval of at least three months between loan takedowns, and
provided that any reduction in the aid which New Haven was
receiving from the New England States would reduce correspondingly
the amount that could be borrowed from Penn-Central. The interest
rate on the loans was declared to be the prime rate of the Morgan
Guaranty Trust Company of New York City prevailing at the time the
loan is taken down. December 13, 1971, was designated as the
maturity date for the trustees' certificate. Finally, the loan
provisions would be terminated upon the occurrence of any of the
following events: (1) acquisition of the New Haven by Penn-Central;
(2) a final and effective order by a regulatory authority or court
granting permission to liquidate the New Haven or to dispose of it
to someone other than Penn-Central; (3) cessation of the New Haven
operation as a going railroad; (4) a determination that
Penn-Central shall not acquire the New Haven; (5) the expiration of
three years from the date of the Penn-Central merger.
Although the New Haven creditors argued before the Commission
that their interests would be reduced by the issuance of the
trustees' certificates, which would acquire precedence over their
claims against the New Haven estate, the Commission reasoned
that:
"We consider such a result part of the process of distributing
the burdens of the NH's operations. It is a fundamental aspect of
our free enterprise economy that private persons assume the risks
attached to their investments, and the NH creditors can expect no
less because the NH's properties are devoted to a public use.
Indeed, the assistance the creditors are receiving from the States
and would
Page 389 U. S. 554
receive from Penn-Central through the sharing of operating
losses would raise some of that burden from their shoulders."
[
Footnote 3/6]
The Commission did not place all of New Haven's operating losses
on Penn-Central during the period of the loan agreement. The amount
to be absorbed by Penn-Central is governed by a specific formula
approved by the Commission. [
Footnote
3/7] With respect to deciding how much of the loss was to be
assumed by Penn-Central under the formula, the Commission noted two
main factors: (1) the admonition of the reorganization court that
safeguards against endless litigation by New Haven creditors should
be established, and (2) in the interim period before conveyance of
New Haven's assets to Penn-Central, the opportunities to integrate
New Haven's operations into the Penn-Central system would be
restricted, so that many operating economics and efficiencies could
not be realized until complete inclusion of the New Haven. The
Commission felt that the existence of these factors tended to limit
the portion of New Haven losses which Penn-Central should have to
absorb under the formula. The final amount decided upon was 100% of
the loss during the first year, 50% during the second, and 25%
during the third. Further, the Commission set $5,500,000 as the
maximum Penn-Central share of operating losses in any one year.
Finally, the Commission provided that, under the purchase
agreement, the trustees' certificates evidencing the loans were to
be offset in an amount equal to the operating loss absorbed by
Penn-Central. The Commission asserted that the burdens on the New
Haven creditors caused by the loan loss absorption agreement would
be relatively small -- and not significantly different from the
Page 389 U. S. 555
burdens under a lease agreement. The Commission expected that
the total amount loaned by Penn-Central over three years would
probably be "substantially less than $25 million." [
Footnote 3/8] It noted that the requirements for
loans would increase in relation to the operating losses of the New
Haven, but, as the operating losses increased, Penn-Central would
absorb a part of the increase. At the same time, the Commission
pointed out that, since the amount of losses to be assumed by
Penn-Central would decline each year (from 100% to 50% to 25%), the
creditors would have much to gain by speedily completing the
reorganization proceedings.
The bondholder interests attack the operating loss provisions of
the Commission's order -- contending that Penn-Central should be
required to absorb all the operating losses of the New Haven. They
also assert that the purchase price approved by the Commission for
the sale of New Haven assets to Penn-Central ($125,000,000, being
the value of the consideration to be received by the New Haven) is
too low. Further, as indicated above, they contend that the
Commission is without authority to adopt a two-step reorganization
plan which prevents the bondholders from voting on the first aspect
of the plan -- the sale of assets.
The New Haven trustees argue that the bondholders will have the
opportunity to object to these actions of the Commission in the
reorganization court, and to seek judicial review of its action.
Indeed, Oscar Gruss & Son (appellant in No. 830) and the
Bondholders' Committee (appellant in No. 831) have indicated that
they intend to seek judicial review of the November 16 order. The
trustees also suggest that the questions presented involve only the
quantum of consideration to be paid by Penn-Central in
implementation of its eventual
Page 389 U. S. 556
take-over of the New Haven, and do not merit postponing
consummation of the Penn-Central merger.
On the other hand, the bondholders contend that their objections
to the Commission's November 16 order are so substantial that, even
if they have only partial success on judicial review, the
feasibility of inclusion would be open to serious question. If
inclusion of the New Haven in the Penn-Central system could not be
accomplished, a major underpinning in the Commission's finding that
the merger was in the public interest would be removed. [
Footnote 3/9] The New Haven might then have
to be liquidated in the reorganization court. Perhaps eventual
operation by the Federal Government, or by the States concerned,
would be the outcome. In fact, appellant in No. 831 has pending
before the reorganization court a petition for immediate
liquidation of the New Haven. The bondholders, of course, seek to
recover as much of their investment as possible. To the extent that
any loans from Penn-Central to the New Haven would not be offset by
Penn-Central's obligation to absorb a portion of the New Haven
operating losses, the bondholders' equity would be diluted.
The Commission is commanded by § 5(2)(d) of the Act to authorize
inclusion of a road only on "equitable terms." [
Footnote 3/10] Are the operating loss provisions,
as they
Page 389 U. S. 557
now stand, "equitable terms"? The provisions may well constitute
a prelude to the slow bleeding or squeezing out of creditor
interests as their equity is diminished by loans.
High finance has a great inventive genius, and one does not have
to be sophisticated to see how Penn-Central, with the use of this
loan, device can pick up New Haven for a song.
The Commission has itself stated that the Penn-Central merger
would not be in the public interest without the complete inclusion
of the New Haven. [
Footnote 3/11]
Clearly we should not approve this merger and decide that the
mandate of § 5(2)(b) has been fulfilled without at the same time
concluding that the loan agreement and the sharing of the New Haven
deficit are "equitable."
On its face, the requirement that Penn-Central share the
operating losses of the New Haven on a decreasing scale each year
-- from 100% to 50% to 25% -- seems inequitable. Why a 100-50-25
formula? Why not 100-10-1 or 50-25-10 or 25-50-100? The Commission
does not clearly indicate how it arrived at its 100-50-25 formula.
Of the two factors mentioned by it in making its determination
(preventing endless litigation by New Haven creditors and the
inability to realize many economics during the interim period
before the sale of New Haven's assets to Penn-Central), only the
first would appear to have any relation to the adoption of a
sliding-scale formula.
On its face, this formula for sharing of losses seems inherently
coercive. It would indeed appear that the
Page 389 U. S. 558
Commission sought to force the creditors to accede to its
proposal within a year. The pressure would indeed be great, for
once the merger between Penn and Central is consummated, the New
Haven creditors would have to absorb the losses of the New Haven at
an increasing rate if they did not accept the Commission's
proposal.
If that is the purpose and effect of this provision concerning
Penn-Central's sharing of the operating losses of the New Haven,
the issue may well have spent itself, unless we grant judicial
review prior to the consummation of the merger. Of course, if the
merger is approved, one way in which the coercive effect of this
provision of the plan could be eliminated would be to undo the
merger. But that gets back to the problem of unscrambling mergers
of this kind and intricacy, once they are consummated -- the
difficulty emphasized by Mr. Justice Clark when the case was here
before.
386 U. S. 386 U.S.
372,
386 U. S.
392.
The Court, while not presuming to approve the November 16, 1967,
order of the Commission as prescribing "equitable terms" for
inclusion, takes the position that the Commission has done all that
is required at this point with respect to the inclusion of the New
Haven. But I am unable to reconcile this position with the
requirements of the statute, which directs in § 5(2)(d) that a road
may be included in another only upon "equitable terms."
The coercive nature of the operating loss provision may well
frustrate effective judicial review once the Penn-Central merger is
a fact.
On the other hand, if the creditor interests do challenge the
Commission's order in the courts, and are successful, inclusion in
the Penn-Central system on "equitable terms" at the time of that
decision might well be impossible. The Commission itself seemed to
recognize the possibility that the New Haven might not be
included
Page 389 U. S. 559
in the Penn-Central system in its November 16 report, [
Footnote 3/12] although it evidently
believed that the possibility of noninclusion did not justify
delaying consummation of the Penn-Central merger. Such an approach
is not permissible under the statutory scheme, when the Commission
has stated that the Penn-Central merger would not be in the public
interest unless the New Haven were included in that merged system.
And, as the bondholders have noted, there exists a substantial
doubt whether the inclusion of the New Haven on equitable terms as
required by § 5(2)(d) has been provided.
Is such a coercive provision an "equitable" term within the
meaning of § 5(2)(d)? Is "equitable" to be taken to mean what is a
"fair" distribution of losses, risks, and burdens between the old
creditor interests and the acquiring company? These are old and
perennial problems in the reorganization and merger field. They
involve a delicate weighing of legal rights and practical
realities. How we can approve the merger under the statutory system
without determining whether the loan provision and the provision
for sharing of losses are "equitable" remains a mystery.
[
Footnote 3/1]
11 U.S.C. § 205.
See also 49 U.S.C. § 20b.
[
Footnote 3/2]
Pennsylvania Railroad Co. -- Merger -- New York Central
Railroad Co., Finance Docket No. 21989, 331 I.C.C. 643,
653.
[
Footnote 3/3]
Id. at 653-654.
[
Footnote 3/4]
Id. at 112. With respect to. the "wasting asset"
doctrine in Chapter X proceedings,
see, e.g., In re The Sire
Plan, Inc., 332 F.2d 497 (C.A.2d Cir.1964);
In re v.
Loewes Gambrinus Brewery Co., Inc., 141 F.2d 747 (C.A.2d
Cir.1944).
[
Footnote 3/5]
By an order dated December 19, 1967, the reorganization court
(D.C. Conn.) authorized the New Haven Trustees to issue up to
$25,000,000 in trustees' certificates to evidence any loans from
Penn-Central obtained pursuant to the Commission's November 16,
1967 order. The court ordered that each certificate issued was to
constitute an expense of administration equal in priority to other
expenses of administration, and that the proceeds derived by the
Trustees from the issuance of the certificates could be expended by
them for purposes deemed necessary within their discretion
(including current maintenance and operation expenses), subject to
the supervision of the court. The court provided that the Trustees
would not be required to seek any further authorization to make
borrowings under the Penn-Central loan agreement; but it directed
them to notify the court and the other parties concerned when they
intended to take down a loan, and reserved jurisdiction to modify
its order with respect to any of these future borrowings.
[
Footnote 3/6]
331 I.C.C. 643, 704
[
Footnote 3/7]
See id. at 717-720.
[
Footnote 3/8]
Id. at 719.
[
Footnote 3/9]
The Commission authorized the Penn-Central merger, subject to
the express condition (Condition No. 8, in Appendix A to its Report
and Order dated April 6, 1966,
Pennsylvania Railroad Co. --
Merger -- New York Central Railroad Co., 327 I.C.C. 475, as
modified in 328 I.C.C. 304 and 330 I.C.C. 328), that the merged
system include the properties and operations of the New Haven. The
Commission found that the merger would effectively destroy the
ability of the New Haven to survive, and would not be in the public
interest without the complete inclusion of the New Haven.
[
Footnote 3/10]
49 U.S.C. § 5(2)(d). Section 5(2)(b) authorizes acquisition of
one carrier by another on terms which are "just and reasonable."
See, e.g., Schwabacher v. United States, 334 U.
S. 182;
Cleveland, C., C. & St. L.R. Co. v.
Jackson, 22 F.2d 509 (C.A. 6th Cir.1927);
Stott v. United
States, 166 F.
Supp. 851 (D.C.S.D.N.Y.1958).
[
Footnote 3/11]
Pennsylvania Railroad Co. -- Merger -- New York Central
Railroad Co., 327 I.C.C. 475, 524.
[
Footnote 3/12]
In its summary of the contingencies upon which the obligation of
Penn-Central to loan $25,000,000 to the New Haven would be
terminated, the Commission included: "if a regulatory authority or
court by a final and effective order grants permission to liquidate
the NH or to dispose of it to someone other than Penn-Central", and
"if it should be determined that Penn-Central shall not acquire the
NH."