In 1967, the Interstate Commerce Commission (ICC) approved a
merger plan filed by the Great Northern Railway Co. (GN) and the
Northern Pacific Railway Co. (NP) (collectively the Northern
Lines), and three of their subsidiaries, the Pacific Coast Railroad
Co., the Chicago, Burlington & Quincy Railroad Co.
(Burlington), and the Spokane, Portland & Seattle Railway Co.
(SP&S). The Northern Lines operate largely west from St. Paul,
Minneapolis, and Duluth, across the Northern Tier of States to
Spokane, Tacoma, and Portland. NP, with about 6,200 miles of track,
runs generally to the south of GN, which operates about 8,200 miles
of track. The Northern Lines jointly own and control the Burlington
and the SP&S. The Burlington has 8,648 miles of track extending
from Chicago to the Twin Cities and southwesterly to Missouri,
Kansas, Colorado, and Montana, and, by its subsidiaries, reaches
Houston and Galveston. The SP&S has more than 500 miles of
mainline road in Oregon and Washington which provides the most
direct route from Spokane to Portland and is of strategic
importance to the Northern Lines. Rail competition in the Northern
Lines' area is provided by GN and NP (the principal competitors),
and the Chicago, Milwaukee, St. Paul & Pacific Railroad Co.
(Milwaukee), which has not been an effective long-haul competitor,
never having had adequate access to the Pacific Northwest gateways.
Truck competition, present in the area for some time, is growing.
GN's and NP's merger efforts span three-quarters of a century. The
present merger plan was disapproved by the ICC in 1966 by a vote of
6 to 5, the ICC finding that: although the estimated annual savings
would approximate $25 million by the tenth year after merger, a
significant source of
Page 396 U. S. 492
the savings would be the elimination of jobs; the merger would
eliminate substantial competition between GN and NP; even with
protective conditions for the benefit of the Milwaukee, it would
remain a weak competitor, and the plan did not afford benefits of
such scope and importance as to outweigh the lessening of rail
competition in the Northern Tier. The ICC reopened the proceedings
in 1967 and considered new evidence on savings to be realized from
the merger, and the additional evidence resulting in the changed
position of some of the major objectors to the plan. The ICC found
that: the savings would be more than $40 million a year by the
tenth year; agreements with the employees had removed union
objections to the merger and provided that no jobs would be
eliminated except by attrition, and the applicants had accepted all
protective conditions sought by Milwaukee, and acknowledged that it
had failed to give appropriate weight to § 5 of the Interstate
Commerce Act to facilitate rail mergers "consistent with the public
interest." The ICC then reexamined the anticompetitive effects of
the merger, weighing them against the savings and benefits to the
public, shippers, and the roads, and, emphasizing the strengthened
position of the Milwaukee, approved the plan because its benefits
outweighed its anticompetitive effects. The three-judge District
Court sustained the ICC, holding that the ICC was guided by the
applicable legal principles and that its findings were supported by
substantial evidence. Four appeals were taken: (1) the United
States, through the Antitrust Division of the Department of
Justice, argues that the ICC did not properly apply the standard of
§ 5 in determining that the merger was consistent with the public
interest. It contends that, when a merger will substantially
diminish competition between two financially healthy, competing
roads, the anticompetitive effects should preclude approval absent
a clear showing that a serious transportation need will be met or
important public benefits will be provided beyond the normal
savings and efficiencies deriving from a merger; (2) the Northern
Pacific Stockholders' Protective Committee challenges the exchange
ratios agreed upon by the companies for their stock on the basis
that NP's land holdings were insufficiently valued; (3) the City of
Auburn, Washington (the western terminus for NP's transcontinental
trains whose yard would be closed if the merger were approved),
supports the Department of Justice's brief, and contends that the
ICC failed to assess adequately the impact of the merger on
affected communities, and (4) the Livingston Anti-Merger Committee
urges that the ICC had no authority to
Page 396 U. S. 493
approve the merger because the NP, the successor by purchase in
1896 to the Northern Pacific Railroad Co. (Railroad) does not own
the franchise and right of way involved in the merger, as Congress
did not authorize the sale, as required by Railroad's charter, and
Railroad is not a party to the merger, and that, if it is held that
NP does own the franchise, no merger can take place without
approval of Congress.
Held:
1. The ICC's conclusion that the merger, as conditioned,
comported with the public interest under the standards of § 5 of
the Interstate Commerce Act, as amended by the Transportation Act
of 1940, is supported by the findings which the ICC made on the
basis of substantial evidence after measuring the competitive
consequences of the merger against its resulting benefits. Pp.
396 U. S.
506-516.
(a) Congress intended by the 1940 amendments "to facilitate
merger and consolidation in the national transportation system,"
and that the industry "proceed toward an integrated transportation
system" (
County of Marin v. United States, 356 U.
S. 412,
356 U. S. 416,
418), and the congressional objective is not to be read as
confining mergers to situations where weak carriers are preserved
by combining with those that are strong. Pp.
396 U. S.
508-511.
(b) Congress vested in the ICC the task of
"apprais[ing] the effects of the curtailment of competition
which will result from [a] proposed consolidation and consider them
along with the advantages of improved service, safer operation,
lower costs, etc., to determine whether the consolidation will
assist in effectuating the over-all transportation policy."
McLean Trucking Co. v. United States, 321 U. S.
67,
321 U. S. 87.
Pp.
396 U. S.
511-513.
(c) The ICC's determination that the conditions agreed to by the
applicants, the attrition agreements with the employees, the
enhanced savings, and manifold service improvements to shippers and
the public, outweighed the loss of competition between the Northern
Lines, is supported by substantial evidence. Pp.
396 U. S.
513-516.
2. The ICC's determination that the stock exchange ratio
applicable to Northern Pacific stockholders and Great Northern
stockholders, which was established, after protracted arm's-length
negotiations, with the approval of the companies and the large
majority of their stockholders, is just and reasonable, is
supported by substantial evidence, and the ICC's refusal to reopen
the record for evidence to update it was not an abuse of
discretion. Pp.
396 U. S.
516-522.
Page 396 U. S. 494
3. The ICC found on the basis of substantial evidence that the
merger's long-run effect would benefit the Northern Tier
communities, including Auburn, even if that city's yard closed if
the merger was approved. Since it now appears that the Auburn yard
will remain open, the anticipated principal harm to the city
because of the merger has disappeared, and,
a fortiori,
the ICC's refusal to take further evidence on the merger's impact
on the city was not an abuse of its discretion. Pp.
396 U. S.
522-524.
4. The ICC did not err in refusing to disapprove the merger
because of the Livingston Anti-Merger Committee's contention that
acquisition by NP of its railroad property resulted from invalid
foreclosure proceedings, as the ICC could, for purposes of the
merger proceeding, properly rely on "existing judicial records
supplemented by opinions of two Attorneys General" on the title
question which were adverse to the Committee's challenge; nor do
the charter provisions of NP's predecessor in interest foreclose
the ICC's approval of the merger. Pp.
396 U. S.
524-530.
296 F.
Supp. 853, affirmed.
Page 396 U. S. 495
MR. CHIEF JUSTICE BURGER delivered the opinion of the Court.
The Interstate Commerce Commission orders that give rise to
these appeals grow out of applications seeking approval of a merger
plan filed by the Great Northern Railway Company and the Northern
Pacific Railway Company (collectively the Northern Lines), and
three of their subsidiaries -- the Pacific Coast Railroad Company,
the Chicago, Burlington & Quincy Railroad Company (Burlington),
and the Spokane, Portland & Seattle Railway Company (SP&S).
The Commission approved the merger, and a three-judge Federal
District Court for the District of Columbia affirmed the orders of
the Commission. [
Footnote 1] We
affirm the judgment of the District Court.
The factual and historical setting of the merger is important to
an understanding of our disposition of these appeals. Great
Northern operates some 8,200 miles of road located in 10 States and
two Canadian provinces. Northern Pacific has approximately 6,200
miles of track in seven States and one Canadian province. The
Northern Lines operate largely in the area west of St. Paul,
Minneapolis, and Duluth, running from these points
Page 396 U. S. 496
across the Northern Tier of States (Minnesota, North Dakota,
Montana, Idaho, and Washington) to Spokane, Tacoma, and Portland.
The Northern Pacific's tracks run generally somewhat to the south
of the Great Northern's. The Northern Lines jointly own and control
the Burlington and the SP&S, while the Great Northern owns and
controls the Pacific Coast Railroad Company. The Burlington's 8,648
miles of track extend from Chicago to the Twin Cities and generally
southwesterly to Missouri, Kansas, Colorado, and Montana. By its
subsidiaries, [
Footnote 2] the
Burlington reaches the Gulf of Mexico at Houston and Galveston. The
SP&S has 599 miles of road in Oregon and Washington, of which
515 are mainline. This mainline provides the most direct route from
Spokane to Portland, and is of strategic importance to the Northern
Lines because Spokane lies on their main transcontinental routes
and Portland is an important West Coast terminal for both roads.
The Pacific Coast has 32 miles of track, all in King County,
Washington; its rolling stock and motive power are leased from the
Great Northern.
Rail competition in the areas served by the Northern Lines is
principally between three carriers: the Great Northern, the
Northern Pacific, and the Chicago, Milwaukee, St. Paul &
Pacific Railroad Company (Milwaukee). Because the Burlington's
routes largely complement those of the Northern Lines, there is no
substantial competition between the Burlington and its corporate
parents. The Great Northern and the Northern Pacific overshadow the
Milwaukee, and are each the principal competitor of the other. The
Northern Lines carry the lion's share of traffic between the Twin
Cities
Page 396 U. S. 497
and Duluth and the Pacific Northwest, both roads having good
access to the Pacific Northwest through control of certain vital
gateways in the area. Although the Milwaukee was designed and
constructed to be a competitor of the Northern Lines, it has never
accounted for a large percentage of the carriage across the
Northern Tier States to the Pacific Northwest; it has never become
a ratemaking railroad. The explanation for this is that, although
possessing superior grades and a shorter route west of the Twin
Cities, it has never had adequate access to the gateways of the
Pacific Northwest, largely because of the Northern Lines' control
of the SP&S. As a result, its role has been that of a
short-haul carrier feeding much profitable long-haul traffic to the
Northern Lines at St. Paul and Minneapolis.
The population of the Northern Tier region traversed by the
Northern Lines and the Milwaukee is concentrated largely in its
easterly and westerly extremities. The Northern Tier is rich in
agricultural and mineral resources, and embraces the country's
richest timber reserves. However, the markets for the products of
the Northern Tier are limited in number and distant from the
region; the major shipments must move east. Thus, transportation
capable of carrying its bulk products at a rate low enough to
permit participation in those markets is of extreme importance to
the region. Rail transportation well serves this need. There has
been historically, however, an imbalance between the low-rated
agricultural, mineral, and forest produce traffic flowing out of
the region and high-rated manufactured goods flowing into the
region. The former is traffic inherently suited to rail transport,
but the latter is subject to incursions from other modes of
carriage. Although water traffic in the Northern Tier is virtually
nonexistent, truck competition has been present for some time, and
is growing.
Page 396 U. S. 498
Northern Pacific and Great Northern have long sought to merge
into a single unified transportation system. In
Pearsall v.
Great Northern R. Co., 161 U. S. 646
(1896), this Court ruled that an attempt to consolidate the
operation of the two roads was contrary to a Minnesota statute
prohibiting the consolidation of parallel and competing railroads.
The next merger attempt was struck down in
Northern Securities
Co. v. United States, 193 U. S. 197
(1904), as contrary to the Sherman Act, 26 Stat. 209, 15 U.S.C. § 1
et seq. [
Footnote 3]
Then the declining fortunes of rail carriers led Congress to enact
the Transportation Act of 1920, 41 Stat. 456, which charged the
Interstate Commerce Commission with the affirmative responsibility
to formulate plans for simplifying the Nation's rail transport
"into a limited number of systems." 41 Stat. 481. This engendered a
third effort, under the Commission's auspices, to merge the
Northern Lines. [
Footnote 4]
However, this effort foundered on the Commission's requirement that
the Burlington be excluded from the Northern Lines system, and the
Northern Lines were unwilling to consolidate without the
Burlington.
I
The Present Merger
In 1955, the Northern Lines began investigating anew the
possibility of a merger that would combine five roads -- the
Burlington, the SP&S, the Pacific Coast, and the Northern Lines
-- to form a New Company. Extensive negotiations dealing with all
phases of the proposed merger were commenced. Five years later, in
1960, an agreement was finally reached. It provided that the
Northern Lines, the Burlington, and the Pacific Coast
Page 396 U. S. 499
be merged into New Company, which was to acquire the
subsidiaries of the merged companies as well as all their
leasehold, trackage, and joint-use rights in other carriers and the
terminals incident thereto. New Company would lease the SP&S,
thereby acquiring that road's subsidiaries and trackage rights.
The merger agreement further provided that Northern Pacific
shareholders would receive common stock of New Company on a
share-for-share basis. Great Northern stockholders would receive
one share of New Company common for each share of Great Northern
and, in addition, one-half share of New Company $10 par 5 1/2%
preferred for each share of Great Northern held at the date of the
merger, this preferred stock to be retired over a 25-year period,
beginning at the fifth anniversary of the merger, and to be
redeemable at the option of New Company any time after the fifth
anniversary of the merger. The Burlington stock held by the
Northern Lines, amounting to 97.18% of the total shares
outstanding, would be canceled, and the remaining shareholders
given 3.25 shares of New Company common for each share of
Burlington.
Commission Proceedings
First Report. -- As a result of these renewed merger
negotiations between 1955 and 1960, applications were filed in 1961
under § 5 of the Interstate Commerce Act, 24 Stat. 380, as amended,
49 U.S.C. § 5, seeking approval of the merger and authorization for
the issuance of stock and securities, the assumption of obligations
and other authority necessary to effectuate the merger. [
Footnote 5] Extensive public hearings
were held in 1961 and 1962 at
Page 396 U. S. 500
which the Department of Justice, the Department of Agriculture,
various railway employee groups, nine States or state regulatory
agencies, and the Milwaukee and the Chicago & North Western
Railway Company (North Western),
inter alia, actively
opposed the merger as proposed. Shippers and related interest
groups appeared in support of the proposal. The Hearing Examiner
submitted a report in 1964 recommending approval of the merger and
the related transactions, subject to certain protective conditions.
The Commission heard oral argument, and, in a report dated March
31, 1966 (First Report), rejected the Examiner's recommendation and
disapproved the merger by a vote of 6 to 5. [
Footnote 6]
The applicants petitioned for a reconsideration, asserting that
they were willing to accept all protective conditions sought by the
Milwaukee and another affected road, the North Western, that they
had entered into attrition agreements with the objecting unions for
the protection of the employees, and that the merger would yield
dollar savings greater than those estimated in the First Report.
While this petition was pending before the Commission, the
applicants entered into agreements with the North Western and the
Milwaukee which provided that the merger applicants would agree to
all the conditions sought by those roads; the Milwaukee and the
North Western then agreed to support the merger. [
Footnote 7] Thereafter, these roads withdrew
their opposition to the merger and urged the Commission to approve
it. Approval was advocated or objections withdrawn by a number of
parties who had previously either completely opposed the merger or
opposed it absent imposition of
Page 396 U. S. 501
adequate protective conditions. These included the Department of
Agriculture, the Public Utility Commissioner of Oregon, and the
States of North Dakota, South Dakota, Iowa, Wisconsin, and
Michigan. [
Footnote 8]
Second Report. -- On January 4, 1967, the Commission
granted the application and reopened the proceedings for
reconsideration and further hearings. Although the order, by its
terms, reopened the proceedings on all issues, the hearing was
limited to taking evidence on the question of the amount of savings
the merger would produce in light of the agreement between the
applicants and the Milwaukee and the North Western, and the other
changes relevant to savings which had occurred after the close of
the first hearing. Oral arguments followed. On November 30, 1967,
the Commission handed down a report and order (Second Report)
approving the proposed merger by a vote of 8 to 2 as consistent
with the public interest and imposing certain conditions to protect
other carriers. [
Footnote 9] On
April 11, 1968, the Commission denied an application for
reconsideration. [
Footnote
10]
Page 396 U. S. 502
District Court Proceedings
The United States, acting through the Department of Justice,
filed a complaint on May 9, 1968, in the United States District
Court for the District of Columbia challenging the Commission order
approving the merger. Other parties intervened, some as plaintiffs
[
Footnote 11] and some as
defendants. [
Footnote 12]
After preliminary proceedings had resulted in a stay of the
Commission's order
pendente lite, the case was submitted
on the merits to the three-judge court designated in accordance
with 28 U.S.C. §§ 2325 and 2284. The court, in an opinion by Senior
Circuit Judge Charles Fahy, unanimously sustained the Commission,
holding that, in approving the merger and the related transactions,
the Commission was guided by the applicable legal principles, and
that its findings were supported by substantial evidence. The court
dismissed the complaints, vacated the stay
pendente lite,
and then stayed its order pending appeal to this Court. Upon the
filing of appeals with this Court, we ordered a further stay
pending final disposition.
II
The Appeals Here
Four appeals were taken from the District Court's judgment; the
Department of Justice (No. 28), the Northern Pacific Stockholders'
Protective Committee
Page 396 U. S. 503
(No. 38), the City of Auburn, Washington (No. 43), and the
Livingston Anti-Merger Committee (No. 44).
Each of the four appellants attacks the approval of the merger
on different grounds. Because these challenges cover every aspect
of the merger, and because of the rather complex expositions of
fact necessary to the disposition of each objection, these appeals
will be dealt with
seriatim. With the cases in this
posture, the Court must review the proceedings before the
Commission 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."
Penn-Central Merger and N&W Inclusion Cases,
389 U. S. 486,
389 U. S. 499
(1968). It should be emphasized, however, as Mr. Justice Fortas
noted, speaking for the Court in a similar context,
"[w]ith respect to the merits of the merger . . . , our task is
limited. We do not inquire whether the merger satisfies our own
conception of the public interest. 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."
Id. at
389 U. S.
498-499.
The governing statute here is § 5 of the Interstate Commerce
Act, as amended by the Transportation Act of 1940, 54 Stat. 905, 49
U.S.C. § 5. The Act provides that the Commission is to approve a
proposed merger when it is "consistent with the public interest"
and the terms of the proposal are "just and reasonable." In
determining whether this standard is met, the Commission is to
"give weight to the following considerations, among others: (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
Page 396 U. S. 504
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). In addition to the four factors listed
above, the Commission must also consider the anticompetitive
effects of any merger or consolidation, because, under § 5(11) of
the Interstate Commerce Act, any transaction approved by the
Commission is relieved of the operation of the antitrust laws.
McLean Trucking Co. v. United States, 321 U. S.
67,
321 U. S. 83-87
(1944).
In its First Report the Commission found that the merger would
result in improved service to shippers in areas served by the
Northern Lines because it would enable the roads to make more
efficient use of their facilities and would permit the use of the
shortest and swiftest internal routes available. In addition, the
merger was found to afford estimated savings of approximately $25
million per year by the tenth year after merger. However, the
Commission also found that as a consequence of the merger more than
5,200 jobs would be eliminated, this being a significant source of
the reduced operating costs. The Commission then analyzed the
anticompetitive impact of the proposal and found it would eliminate
substantial competition between the Northern Lines in the Northern
Tier. The Commission reasoned that even with protective conditions
attached to the merger for the benefit of the Milwaukee, it would
remain a weak carrier in the Northern Tier when compared with New
Company. The Commission, by a vote of 6 to 5, as noted earlier,
concluded that the proposed merger plan did not afford benefits of
such scope and importance as to outweigh the lessening of rail
competition in the Northern Tier; the merger was disapproved.
When the Commission reopened the proceedings in
Page 396 U. S. 505
1967, it considered additional evidence, including the changed
positions of some of the major objectors, and new evidence on the
savings to be realized from the merger; the Second Report was then
issued. The Commission found that, rather than the $25 million
previously estimated, in fact, more than $40 million per year in
savings would be realized by the tenth year after merger. It also
noted that agreements entered into by the applicants and their
employees had removed objections of various unions to the merger
and that no jobs would be eliminated except in the normal course of
attrition. Aside from these change, and the acceptance by the
merger applicants of protective conditions sought by the Milwaukee,
the record before the Commission was the same as that, on which the
First Report was based. The Second Report acknowledged that the
First Report had failed to give appropriate weight to one of the
aims of the national transportation policy and § 5 of the
Interstate Commerce Act, to facilitate rail mergers "consistent
with the public interest" in the development of a comprehensive
national transport system, and that this had led the Commission to
view the merger proposal too stringently. It then went on to
reexamine the anticompetitive effects of the merger, weighing them
against the savings and benefits to the public, shippers, and the
roads, and, accentuating the new and strengthened competitive
posture of the Milwaukee, it concluded that the merger proposal
should be approved because its benefits outweighed its
anticompetitive effects in the Northern Tier region.
That this was not an easy problem for the Commission is attested
by the lengthy history of attempts to merge these lines which dates
back three-quarters of a century. The efforts to establish a more
unified rail transportation system in the Northern Tier represent a
20th
Page 396 U. S. 506
century phase of the development of the American West; it
brackets a period of enormous growth and change, and of new
developments in transportation and public needs. Against this
background, it is not surprising that the members of the Commission
were divided 6 to 5 against the merger on the First Report in 1966
and 8 to 2 in favor of the merger on the Second Report in 1967
after changes had been made in the plan to meet many of the
objections raised. Nor is it remarkable that two great departments
of government, each charged with responsibility to protect the
public interest, took opposing positions; vigorous advocacy of
divergent views on this difficult problem has narrowed and
sharpened the issues and aided the Court in their resolution,
ensuring that no factor which ought to be considered would elude
our attention.
Appellants' Contentions
(a)
No. 28, Department of Justice. -- The United
States, through the Antitrust Division of the Justice Department,
challenges the Commission's approval of the merger primarily on the
ground that the Commission in the Second Report did not properly
apply the standard of § 5(2)(b) of the Interstate Commerce Act in
determining that the merger is consistent with the public interest.
The Department contends that under the statute when a proposed
merger will result in a substantial diminution of competition
between two financially healthy, competing roads, its
anticompetitive effects should preclude the approval of the merger
absent a clear showing that a serious transportation need will be
met or important public benefits will be provided beyond the
savings and efficiencies that normally flows from a merger. The
Department urges that the instant case presents a merger between
two financially healthy carriers, each of which is the prime
competitor of the
Page 396 U. S. 507
other in the area served. Admittedly the Commission found in its
First Report that the merger would result in a "drastic lessening
of competition." The Department argues that, because no benefits
are shown to flow from the merger beyond the economics and
efficiencies normally resulting from unified operations, the
Commission has not satisfied the statutory standard, and that the
District Court erred in refusing to enjoin the merger.
The Department maintains that, prior to 1920, the antitrust laws
and their underlying policies applied with full force to railroads,
and that the Transportation Act of 1920, which commanded an
affirmative development by the Commission of a nationwide plan "for
the consolidation of the railway properties of the continental
United States into a limited number of systems," 41 Stat. 481, was
primarily intended to promote the absorption of financially weak by
strong carriers. To the extent that the 1920 Act did not intend to
encourage rail mergers producing only the usual or "normal" kinds
of merger benefits, the Department contends that the policies of
the antitrust laws remain the guiding standard by which these
consolidations are to be judged. The Transportation Act of 1940,
according to the Department, did not alter this policy, but only
eliminated the Commission's duty to formulate a national plan and
to confine mergers to the four corners of this plan. The Department
suggests that, when the Commission is determining whether a merger
or consolidation is consistent with the public interest, it must
analyze the merger in terms of its anticompetitive impact, and, if
that impact would be great, then determine whether the merger is
required by a serious transportation need or necessary to secure
important public benefits. This standard, it urges, is
"consistent with both the legislative history of [§ 5] and, more
generally, with the goal of substantial
Page 396 U. S. 508
simplification of railroad systems that underlay the
Transportation Acts of both 1920 and 1940. [
Footnote 13]"
The Department of Justice is correct in stating that one focal
point of concern throughout the legislative consideration of the
problems of railroads has been the weak carrier and its
preservation through combination with the strong. Congress saw that
as one -- but only one -- means to promote its objectives. The 1920
statute as a whole also embodied concern for economy and efficiency
in rail operations.
See Railroad Commission of California v.
Southern Pacific Co., 264 U. S. 331,
264 U. S. 341
(1924);
Texas & Pacific R. Co. v. Gulf, Colorado &
Santa Fe R. Co., 270 U. S. 266,
270 U. S. 277
(1926);
Texas v. United States, 292 U.
S. 522,
292 U. S. 530
(1934);
United States v. Lowden, 308 U.
S. 225,
308 U. S. 232
(1939). Thus, a rail merger that furthers the development of a more
efficient transportation unit and one that results in the joining
of a "sick" with a strong carrier serve equally to promote the
long-range objectives of Congress and, upon approval by the
Commission, both are immunized from the operation
Page 396 U. S. 509
of the antitrust laws. The policy of the 1920 Act has been
consistently interpreted in this way. We find no basis for reading
the congressional objective as confining these mergers to
combinations by which the strong rescue the halt and the lame.
In
New York Central Securities Corp. v. United States,
287 U. S. 12
(1932), this Court cautioned that
"[t]he fact that the carriers' lines are parallel and competing
cannot be deemed to affect the validity of the authority conferred
upon the Commission. . . . The question whether the acquisition of
control in the case of competing carriers will aid in preventing an
injurious waste and in securing more efficient transportation
service is thus committed to the judgment of the administrative
agency upon the facts developed in the particular case."
Id. at
287 U. S. 25-26.
Although this decision was prior to the passage of the
Transportation Act of 1940, that Act in no way altered the basic
policy [
Footnote 14]
underlying the 1920 enactment. We recognized in
St. Joe Paper
Co. v. Atlantic Coast Line R. Co., 347 U.
S. 298,
347 U. S. 319
(1954), that Congress adopted the recommendations of the Committee
of Six when it passed the 1940 Transportation Act and relieved the
Commission of its duty to promulgate a national railroad
consolidation plan. That Committee's report recognized economics
and efficiencies of operation, as well as the elimination of
circuitous routing, to be benefits that could
Page 396 U. S. 510
flow to the public through consolidations. [
Footnote 15] As recently as
County of Marin
v. United States, 356 U. S. 412
(1958), this Court observed:
"The congressional purpose in the sweeping revision of § 5 of
the Interstate Commerce Act in 1940 . . . was to facilitate merger
and consolidation in the national transportation system. In the
Transportation Act of 1920, the Congress had directed the
Commission itself to take the initiative in developing a plan 'for
the consolidation of the railway properties of the continental
United States into a limited number of systems,' 41 Stat. 481, but
after 20 years of trial, the approach appeared inadequate. The
Transportation Act of 1940 extended § 5 to motor and water
carriers, and relieved the Commission of its responsibility to
initiate the unifications."
"Instead, it authorized approval by the Commission of
carrier-initiated, voluntary plans of
merger or
consolidation if, subject to such terms, conditions and
modifications as the Commission might prescribe, the proposed
transactions met with certain tests of public interest, justice and
reasonableness. . . ."
"(Emphasis added.)
Schwabacher v. United States,
334 U. S.
182,
334 U. S. 193 (1948). .
."
"In short, the result of the Act was a change in the
means, while the
end remained the same. The very
language of the amended 'unification section' expresses clearly the
desire of the Congress that the industry proceed toward an
integrated national
Page 396 U. S. 511
transportation system through substantial corporate
simplification."
Id. at
356 U. S.
416-418. (Emphasis in original.) (Footnotes
omitted.)
We turn now to consider the appropriate weight to be accorded by
the Commission to antitrust policy in proceedings for approval of a
merger. The role of antitrust policy under § 5 was discussed
comprehensively and dispositively in
McLean Trucking Co. v.
United States, 321 U. S. 67
(1944), a case dealing with a merger of several large trucking
companies. Since this Court has nowhere else dealt so definitively
with this issue, the analysis by Mr. Justice Rutledge in the
opinion for the Court merits extended quotation:
"The history of the development of the special national
transportation policy suggests, quite apart from the explicit
provision of § 5(11), that the policies of the antitrust laws
determine 'the public interest' in railroad regulation only in a
qualified way. And the altered emphasis in railroad legislation on
achieving an adequate, efficient, and economical system of
transportation through close supervision of business operations and
practices, rather than through heavy reliance on the enforcement of
free competition in various phases of the business,
cf. New
York Central Securities Corp. v. United States, 287 U. S.
12, has its counterpart in motor carrier policy. . .
."
"[T]here can be little doubt that the Commission is not to
measure proposals for all-rail or all-motor consolidations by the
standards of the anti-trust laws. Congress authorized such
consolidations because it recognized that, in some circumstances
they were appropriate for effectuation of the national
transportation policy. It was informed that this
Page 396 U. S. 512
policy would be furthered by 'encouraging the organization of
stronger units' in the motor carrier industry. And, in authorizing
those consolidations ,it did not import the general policies of the
antitrust laws as a measure of their permissibility. It in terms
relieved participants in appropriate mergers from the requirements
of those laws. § 5(11). In doing so, it presumably took into
account the fact that the business affected is subject to strict
regulation and supervision, particularly with respect to rates
charged the public -- an effective safeguard against the evils
attending monopoly, at which the Sherman Act is directed. Against
this background, no other inference is possible but that, as a
factor in determining the propriety of motor carrier
consolidations, the preservation of competition among carriers,
although still a value, is significant chiefly as it aids in the
attainment of the objectives of the national transportation
policy."
"Therefore, the Commission is not bound . . . to accede to the
policies of the antitrust laws. . . ."
"Congress however neither has made the antitrust laws wholly
inapplicable to the transportation industry nor has authorized the
Commission in passing on a proposed merger to ignore their policy.
Hence, the fact that the carriers participating in a properly
authorized consolidation may obtain immunity from prosecution under
the antitrust laws in no sense relieves the Commission of its duty,
as an administrative matter, to consider the effect of the merger
on competitors and on the general competitive situation in the
industry in the light of the objectives of the national
transportation policy."
"In short, the Commission must estimate the scope and appraise
the effects of the curtailment of competition which will result
from the proposed
Page 396 U. S. 513
consolidation and consider them along with the advantages of
improved service, safer operation, lower costs, etc., to determine
whether the consolidation will assist in effectuating the over-all
transportation policy. Resolving these considerations is a complex
task which requires extensive facilities, expert judgment and
considerable knowledge of the transportation industry. Congress
left that task to the Commission. . . . 'The wisdom and experience
of that commission,' not of the courts, must determine whether the
proposed consolidation is 'consistent with the public interest.'
[Citations omitted.] If the Commission did not exceed the statutory
limits within which Congress confined its discretion and its
findings are adequate and supported by evidence, it is not our
function to upset its order."
Id. at
321 U. S. 83-88.
(Footnotes omitted.)
Accord, Minneapolis & St. L.R. Co. v.
United States, 361 U. S. 173,
361 U. S.
186-188 (1959);
Seaboard Air Line R. Co. v. United
States, 382 U. S. 154,
382 U. S.
156-157 (1965);
see Florida East Coast R. Co. v.
United States, 259 F.
Supp. 993 (D.C.M.D. Fla.1966),
aff'd per curiam,
386 U. S. 544
(1967).
The Department urges that the Commission failed to give
sufficient weight to the diminution of competition between the
Northern Lines -- in short, that it failed to strike the correct
balance between antitrust objectives and the overall transportation
needs that concern Congress. This contention tends to isolate
individual factors that are to enter into the Commission's decision
and view them as the controlling considerations. "Competition is
merely one consideration here,"
Penn-Central Merger and N&W
Inclusion Cases, 389 U. S. 486,
389 U. S. 500
(1968). And, we might add, it is a consideration that is implied,
and is in addition to the four specifically mentioned
Page 396 U. S. 514
in § 5(2)(c) of the statute. In our view, the Commission, in
both reports, exhibited a concern and sensitivity to the difficult
task of accommodating the regulatory policy based on competition
with the long-range policy of achieving carrier consolidations.
Indeed, this led the Commission to disapprove the merger by a
margin of one vote in 1966, after five years of study, because of
specified infirmities in the plan. The Commission reached a
different conclusion by a decisive vote in 1967 on a supplemental
record which reflected substantial changes in the merger plan. Our
review, like that of the District Court, reveals substantial record
evidence to support the Commission's determination that the
conditions agreed to by the applicants, the attrition agreements
with the employees, the enhanced savings found in the Second
Report, and the service improvements to shippers and the public
found in both the First and Second Reports outweighed the loss of
competition between the Northern Lines. Striking the balance is for
the Commission, and we cannot say that it did so improperly.
The benefits to the public from this merger are important and
deserve elaboration. The Commission found that substantial service
benefits would flow from the merger. Shippers will benefit from
improved car supply, wider routing, better loading and unloading
privileges, and improved tracing and claims service. New Company
will be able to use the shortest and most efficient routes while
eliminating yard interchange delays, thus providing shippers with
faster service. The Commission found that the economics New Company
will realize as a result of consolidating yards, repair facilities,
and management, eliminating duplicate train services and pooling of
cars and trains will result in lower rates to shippers and
receivers. In addition, the opening of strategic gateways to the
Milwaukee will remove artificial barriers to
Page 396 U. S. 515
the development of new markets, sources of supply, and
services.
The Milwaukee objections prior to the First Report were based on
the adverse impact of the merger on its competitive position and,
in turn, on shippers and the public. Following the First Report,
the Northern Lines accepted conditions urged by the Milwaukee.
Under the new conditions, the posture of the Milwaukee, lying
largely between the two Northerns and handicapped by limitations at
both eastern and western terminals, will be greatly improved.
Absent the protective conditions, it would continue to be virtually
strangled by the unified system; with them, the Milwaukee gives
prospect of affording substantial competition to the merged lines,
and will be placed in the position that, at its inception, it hoped
to achieve. Its past failure to become a meaningful competitor came
in large part because its lines did not reach into Portland,
Oregon, or into the southwest terminal of the Northern Lines in
California. In a strictly competitive situation, it is
understandable that neither of the Northern Lines would interchange
traffic with the Milwaukee except on its own terms, and this
destined that the Milwaukee would fail to become a true
transcontinental line even though its western terminus lay within a
few miles of Portland with the latter's access to the sea.
The Milwaukee north-south traffic on the West Coast was limited
to the short run from Seattle to Longview, barely half the distance
from the Canadian border to Washington's southern border. Moreover,
westbound traffic destined for points on one of the Northern Lines
was taken over by one of them at St. Paul or Minneapolis
notwithstanding Milwaukee's line from there deep into Washington.
In the proceedings prior to 1966, many objecting shippers joined
the Milwaukee in pointing out that rates and limitations on
Milwaukee's service
Page 396 U. S. 516
precluded full use of the Milwaukee to the disadvantage of both
shippers and the carrier.
The conditions imposed by the Commission's Second Report will
alter that situation and substantially enlarge the Milwaukee's
competitive potential between St. Paul and Minneapolis and the West
Coast due to enlargement of its long-haul capability. Shippers will
be afforded more flexible service. Another condition attached to
the Commission's approval will permit the Milwaukee to run lines
from its present western terminus into Portland, giving it a link
with the Southern Pacific. All this will enable the Milwaukee to
compete with the Northern Lines for east-west traffic and some
north-south traffic as well as linkage with Canadian carriers to
the north, which was previously the exclusive domain of one or both
of the Northerns. Other conditions of lesser consequence will
buttress the newly designed competitive posture of the
Milwaukee.
The contention that the Commission failed to project an analysis
of the relative position of the Milwaukee
vis-a-vis the
merged Northerns discounts the difficulty of precise forecasts and
tends to overstate the need for such projections. The Commission
can deal only in the probabilities that will arise from the
Milwaukee's improved posture as a genuine competitor for traffic
over a wide area, something it had never been able to achieve.
After the merger, it will afford shippers a choice of routes and
service negating the idea that all rail competition will disappear
in the Pacific Northwest.
(b)
No. 38, The Northern Pacific Stockholders' Protective
Committee. -- The Northern Pacific Stockholders' Protective
Committee [
Footnote 16] has
appealed the District Court's affirmance of the Commission's
approval of the proposed
Page 396 U. S. 517
merger's stock exchange provisions. To put each of the
Committee's contentions in perspective requires that we describe
the source of the Committee's concern and how the applicants dealt
with it in reaching the present merger terms.
The Committee's continuing opposition to the merger relates to
Northern Pacific's land holdings. The Northern Pacific Railway
Company holds more than two million acres in fee, and has mineral
rights in another six million acres. These lands are rich in
natural resources, including coal, oil, and timber, and are
important sources of income. The negotiations between the parties
centered to a large extent on these lands. Northern Pacific's
financial adviser had suggested that, although Great Northern had a
better history of earning power and its stock had generally sold at
a level above that of Northern Pacific's, the large land holdings
of the Northern Pacific with their vast resources were of
sufficient worth to justify a share-for-share exchange ratio
between the Great Northern and the Northern Pacific. The Great
Northern, however, insisted on a 60-40 stock exchange ratio because
of its traditional rail strength. After further negotiations, the
roads realized that the lands were a stumbling block to the merger,
and considered several modes of segregating them from Northern
Pacific's rail properties. One was to create two classes of New
Company stock, one being issued to Northern Pacific shareholders
and representing the natural resource properties, and another being
issued to both Great Northern and Northern Pacific shareholders and
representing Northern Pacific's rail properties. The second
solution considered was spinning off the natural resource lands
into another corporation and using the proceeds from an issuance of
its stock as a Northern Pacific contribution to the merger. Neither
of these solutions was acceptable to the negotiators, the former
because of the problems inherent in
Page 396 U. S. 518
administering a corporation for two classes of stockholders with
divergent interests, and the latter because of potential litigation
with bondholders and adverse tax consequences to Northern Pacific.
The negotiators concluded that the merger plan must include the
land holdings of Northern Pacific.
Thereafter, both roads made concessions, the Great Northern
abandoning its claim for a permanently larger share for its
stockholders and the Northern Pacific abandoning its claim for
immediate equality. The result was an exchange ratio giving
immediate recognition to Great Northern's greater earning power and
historically higher market price while giving Northern Pacific's
shareholders equal participation in the earnings of the enterprise
on a long-term basis. The terms of the merger, as worked out by the
negotiators over a five-year period, were approved by both roads'
financial advisors, their boards of directors and their
stockholders. [
Footnote 17]
Shortly thereafter, the Northern Pacific Stockholders' Protective
Committee was formed.
When the merger proposal was submitted to the Commission for
approval, the Stockholders' Committee opposed the exchange ratio,
pressing its claim that the natural resource lands were undervalued
and that the Commission either should adjust the exchange ratio in
accordance with the Committee's estimates of the property's worth
or, preferably, should order the lands segregated and placed in a
separate corporation, the stock of
Page 396 U. S. 519
which would be available to Northern Pacific shareholders. The
Hearing Examiner's report reviewed the extensive negotiations
between the parties and the modes by which they reached a valuation
of the contribution each road's shareholders were making to New
Company, concluding that there had been good faith arm's-length
bargaining and that the result of this bargaining fairly reflected
each group of stockholders' contribution to New Company. The
Examiner found the Committee's contention on value to be
unsupported by record evidence and its spinoff proposal to be
unfair to Northern Pacific shareholders. He recommended approval of
the terms of the exchange.
The Commission's First Report, which disapproved the merger, did
not reach the issue of the exchange ratio. When, in 1967, the
Commission reconsidered its earlier decision, it refused the
Committee's request that it reopen the record for the taking of new
evidence on the exchange ratio, but did hear oral argument on the
matter. The Committee again pressed its contentions. The
Commission's Second Report rejected the Committee's arguments upon
basically the same grounds given by the Hearing Examiner in his
1964 Report.
The Committee continued its attack on the stock exchange ratio
in the District Court, and urged that the Commission had abused its
discretion in refusing to reopen the record to receive updated
evidence on the exchange ratio. The District Court ruled that the
Commission's finding that the terms were just and reasonable was
supported by substantial evidence. It also held that the evidence
the Committee proffered was not of sufficient importance to have
affected the ultimate fairness of the Commission's finding. The
discretion exercised by the Commission in refusing to reopen the
record was, therefore, found free from abuse.
The Committee now contends that the record lacks substantial
evidence to support the Commission's determination
Page 396 U. S. 520
that the exchange ratios are just and reasonable; that the
Commission failed to consider the whole record before it; that the
Commission erred, abused its discretion, or denied appellant due
process of law in not permitting the record to be updated
respecting the 1967 worth of the contributions being made by each
group of shareholders, especially respecting Northern Pacific's
natural resource properties; that the record does not contain
substantial evidence to support the determination of the Commission
that the proposed segregation of the natural resource lands is a
proposal lacking merit and is unfair to Northern Pacific
shareholder, and that the District Court erred in upholding the
Commission's action. Our review leads us to reject these
contentions.
Under § 5(2) of the Interstate Commerce Act, the Commission is
to approve only such merger terms as it finds to be just and
reasonable. The Commission, as had the negotiators and the Hearing
Examiner, fully considered the proposed segregation of the natural
resource properties and concluded that it was neither feasible nor
fair to Northern Pacific stockholders. That determination is
supported by substantial record evidence. In passing, we note that,
although the Commission in fulfilling its statutory
responsibilities is to carefully review all of the terms of a
merger proposal and determine whether they are just and reasonable,
it is not for the agency, much less the courts, to dictate the
terms of the merger agreement once this standard has been met. It
can hardly be argued that the bargaining parties were not capable
of protecting their own interests.
The Commission's unwillingness to reopen the record in 1967 for
the taking of new evidence on the exchange ratio was not an abuse
of discretion, nor did it deny the appellant due process of law.
What this Court said in
Page 396 U. S. 521
Interstate Commerce Commission v. Jersey City,
322 U. S. 503
(1944), is applicable here:
"Administrative consideration of evidence -- particularly where
the evidence is taken by an examiner, his report submitted to the
parties, and a hearing held on their exceptions to it -- always
creates a gap between the time the record is closed and the time
the administrative decision is promulgated. This is especially true
if the issues are difficult, the evidence intricate, and the
consideration of the case deliberate and careful. If, upon the
coming down of the order, litigants might demand rehearing, as a
matter of law because some new circumstance has arisen, some new
trend has been observed, or some new fact discovered, there would
be little hope that the administrative process could ever be
consummated in an order that would not be subject to reopening. It
has been almost a rule of necessity that rehearings were not
matters of right, but were pleas to discretion. And likewise it has
been considered that the discretion to be invoked was that of the
body making the order, and not that of a reviewing body."
Id. at
322 U. S.
514-515. Moreover, as this Court noted in
United
States v. Pierce Auto Freight Lines, 327 U.
S. 515 (1946),
"it has been held consistently that rehearings before
administrative bodies are addressed to their own discretion. . . .
Only a showing of the clearest abuse of discretion could sustain an
exception to that rule."
Id. at
327 U. S.
535.
We find nothing in the Committee's arguments to persuade us that
such an abuse occurred when the Commission refused to take further
evidence on the question of each group of shareholders'
contribution to the merger.
Schwabacher v. United States,
334 U. S. 182
(1948), relied upon by the Committee, is not to the contrary.
Page 396 U. S. 522
That decision requires that the value of a stockholder's
contribution to a merger be determined in accord with the "current
worth" of his equity. That does not mean there must be a repeated
updating of the evidence before the agency; in a complex merger
such as this that would lead to interminable delay. A determination
that the terms of a merger proposal fairly reflect the current
worth of each shareholder's contribution meets the standards of
Schwabacher if the agency had before it evidence as to the
worth of the shareholders' contributions at the time of the
submission of the proposal, and there is no showing that subsequent
events have materially altered the worth of the various
shareholders' contributions to the merger. The evidence the
appellant Committee presents to this Court, purporting to show that
Northern Pacific's stock is presently worth considerably more,
vis-a-vis Great Northern's, than was the case at the time
of the initial hearings, does show fluctuations in the worth of the
two companies' stock. But we cannot say that those fluctuations, in
the context of this merger proposal, are sufficient to show that
the worth of the various shareholders' contributions to the merger
has been materially altered. We agree with the District Court that
the Commission's refusal to reopen the record for further evidence
was not an abuse of discretion.
(c)
No. 43, City of Auburn. -- The City of Auburn,
Washington, opposes the merger for the reasons set out in the brief
of the Department of Justice, and, in addition, contends that the
Commission failed to adequately assess the impact of the merger
upon affected communities and explain why the benefits of the
merger convincingly outweigh its adverse effects on these
communities. Auburn also objects to the refusal to open the 1967
hearings for further testimony concerning the impact of the merger
upon Auburn.
Auburn is a city of 19,000 inhabitants in western Washington,
halfway between Seattle and Tacoma,
Page 396 U. S. 523
which serves as the western terminus for the Northern Pacific's
transcontinental trains. A substantial part of the city's economy
is dependent upon that road's activity there. The record before the
Commission indicated that, if the merger were approved, the Auburn
yard would be closed, and that the town of Everett, on the other
side of Seattle, would become the western terminus for all of New
Company's transcontinental trains.
Insofar as the city challenges the Commission's action on the
same grounds as the Department of Justice, our disposition of the
appeal in No. 28 applies here. As for the 1967 hearings, the city
failed to object to the scope of the Commission's reopened hearings
and made no attempt to present evidence at those hearings. Neither
did it challenge the Commission's findings concerning the impact of
the merger upon Auburn. Only when it came before the District Court
did it raise its contentions. This alone might preclude its attack
on the merger. But we need not decide that issue, because we find
that the Commission did not abuse its discretion in refusing to
take evidence in 1967 as to the impact of the merger on Auburn.
In the record upon which the Second Report is based, the
Commission had evidence of the impact of the yard's closing on the
city. Thus, even assuming the closing, the Commission found that
the long-run effect of the merger would be to benefit communities
in the Northern Tier, such as Auburn, and that the brief and
transitory dislocations the merger would occasion were not
sufficient to outweigh the merger's benefits. We find this to be a
justifiable conclusion supported by substantial evidence on the
record. We can hardly imagine any merger of substantial carriers
that would not cause some dislocations to some shippers, some
communities, and some employees.
The plans for the Auburn yard now seem to be altered; the
applicants stated before the District Court, and again
Page 396 U. S. 524
before this Court, that they now intend to maintain the Auburn
yard. As a result, employment in Auburn will be largely unaffected
by the merger. Since we conclude that the Commission properly
determined that Auburn's hardships and those of communities
similarly situated, as posited on the record, did not warrant
disapproval of the merger, it is difficult to imagine any basis
upon which we might find the Commission to have abused its
discretion in not taking further evidence on the merger's impact on
Auburn when the principal harm of which the city earlier complained
has disappeared.
(d)
No. 4, Livingston Anti-Merger Committee. --
Citizens of Montana, living in and about Livingston, Helena, and
Glendive, who appear here as the Livingston Anti-Merger Committee,
attack the merger on several grounds. As a prelude to discussing
these contentions, the historical facts upon which the Committee's
attack is based should be stated.
In 1864, Congress created the Northern Pacific Railroad Company
(Railroad) and granted it authority to build a railroad from Lake
Superior to Puget Sound. To subsidize this enterprise, Congress
granted Railroad a right-of-way and alternate sections of land
along that right-of-way. According to the terms of Railroad's
charter, it could not encumber its franchise or right-of-way
without congressional approval, and was not authorized to merge
with another road, except under limited conditions not relevant
here. [
Footnote 18] In 1870,
Congress passed a resolution allowing Railroad to issue bonds
secured by its property and subject to foreclosure for default.
Shortly thereafter, a mortgage was pledged, only to be foreclosed
in 1875. After the foreclosure proceedings, the property was struck
off to a committee of bondholders. Later, however, the property was
returned to Railroad pursuant to a reorganization plan. Although
Congress did not further authorize
Page 396 U. S. 525
mortgaging of the franchise or right-of-way, Railroad again
encumbered its property by pledging several mortgages. In 1896,
after these mortgages had been defaulted upon and foreclosure
proceedings had been commenced, a negotiated settlement was made
which resulted in the property of Railroad being sold to the
Northern Pacific Railway Company (Railway), which has operated
under Railroad's franchise and upon its right-of-way ever since.
Railway presently owns 97% of the stock of Railroad, which is no
longer an operating company.
On the basis of these facts, Livingston contends that the
Interstate Commerce Commission had no authority to approve the
proposed merger, because Railway does not own the franchise and
right-of-way involved in this merger, and Railroad is not a party
to the merger. Livingston argues that the 1896 foreclosure was a
sham, and it actually was a sale of Railroad property to Railway;
because Congress never authorized that sale, it is void. In
addition, Livingston contends that the mortgages that led to the
1896 foreclosure were not authorized by Congress; therefore, they
could not constitute the basis for a valid foreclosure and
liquidation. The claimed consequence is that the title to the
franchise and right-of-way remains in Railroad. Livingston argues
that, even if it should be held that Railway does own the franchise
and right-of-way, under the 1864 charter of Railroad, to which
Railway succeeded, no merger involving these properties can take
place without congressional approval, and such approval has not
been procured. Finally, Livingston urges that the Commission and
the District Court failed to properly deal with these contentions
and make specific findings as to the Commission's jurisdiction.
The Commission was presented with these arguments, and found
them to be without merit. The District Court affirmed the
Commission, ruling that it had not erred in refusing to disapprove
the merger because of appellant's
Page 396 U. S. 526
claims, and had not erred in refusing to litigate their merits.
We affirm the District Court. Section 5(2)(a) of the Interstate
Commerce Act provides in pertinent part:
"(a) It shall be lawful, with the approval and authorization of
the Commission, as provided in subdivision (b) of this paragraph --
"
"(i) for two or more carriers to consolidate or merge their
properties or franchises, or any part thereof, into one corporation
for the ownership, management, and operation of the properties
theretofore in separate ownership. . . ."
49 U.S.C. § 5(2)(a).
The premise of Livingston's position is that, under this
statute, before the Commission can assume jurisdiction over a
merger application, it must determine that the applicants have
proper legal title to the rights and property which they seek to
bring into the merger. This is an erroneous assumption. The
Commission is not required to deal with the subtleties of "good
title" before assuming jurisdiction over a § 5 matter.
Cf. O.
C. Wiley & Sons v. United States, 85 F. Supp.
542, 543-545 (D.C.W.D. Va.),
aff'd per curiam, 338
U.S. 902 (1949);
Walker v. United States, 208 F.
Supp. 388, 396 (D.C.W.D.Tex.1962);
Interstate Investors,
Inc. v. United States, 287 F.
Supp. 374, 392 n. 32 (D.C.S.D.N.Y.1968),
aff'd per
curiam, 393 U. S. 479
(1969). And because a Commission order under § 5(2) "is permissive,
not mandatory,"
New York Central Securities Corp. v. United
States, 287 U. S. 12,
287 U. S. 26-27
(1932), the approval of a merger proposal does not amount to an
adjudication on any such questions. These are matters for the
courts, not for an agency that has responsibility in the realm of
regulating transportation systems.
In the instant case, there were ample grounds for the
Commission's assumption of jurisdiction over the applicants.
Page 396 U. S. 527
Although the validity of Railway's claim that it is Railroad's
successor in interest and has good title to all of Railroad's
rights and properties has never been judicially determined, this
Court has impliedly recognized it several times. In
Northern
Pacific R. Co. v. Boyd, 228 U. S. 482
(1913), we held that a creditor of Railroad had an assertable claim
against the equity of Railroad's shareholders represented by
Railway's assets because the foreclosure amounted to little more
than a judicially approved reorganization in which the shareholders
of the old company became the shareholders of the new. As against a
bona fide creditor of Railroad, we found the judicial sale
ineffective to bar his rights. However, we also stated that
"[a]s between the parties and the public generally, the sale was
valid. . . . [T]he Northern Pacific Railroad was divested of the
legal title [to its properties]. . . ."
Id. at
228 U. S. 506.
In
United States v. Northern Pacific R. Co., 311 U.
S. 317 (1940), we described some of the history of the
appellee company as follows:
"Pursuant to foreclosure proceedings the Northern Pacific
Railway Company acquired title to the railroad, the land grant, and
all other property of the original corporation, and has since
operated the road and obtained patents for millions of acres under
the land grants."
Id. at
311 U. S. 328.
In addition, Attorney General Harmon, in 1897, advised the
Secretary of the Interior that Railway had a right, as successor in
interest of Railroad, to patents on land grants made to Railroad.
21 Op.Atty.Gen. 486. The Secretary of the Interior thereafter
treated Railway as Railroad's legal successor, and patented large
amounts of land to Railway. When, in 1905, the then Secretary of
the Interior asked then Attorney General Moody, later an Associate
Justice of this Court, about the right of
Page 396 U. S. 528
Railway to Railroad's land grants, Mr. Moody, after
investigating the matter, reaffirmed his predecessor's conclusion
that Railway was Railroad's legitimate successor in interest. 25
Op.Atty.Gen. 401. In 1954, a committee of Railroad's minority
shareholders sued Railway seeking to have the 1896 foreclosure set
aside and all titles and franchises declared to be in Railroad and
to obtain an accounting from Railway for all properties and profits
received from 1896 through 1954. In an exhaustive opinion, Judge
Edward A. Tamm of the United States District Court for the District
of Columbia held the action barred by laches and dismissed the
complaint.
Landell v. Northern Pacific R.
Co., 122 F.
Supp. 253 (D.C. D.C.1954),
aff'd, 96 U.S.App.D.C. 24,
223 F.2d 316,
cert. denied, 350 U.S. 844 (1955). In this
context, we think the Commission did not err in assuming
jurisdiction over the applicants while refusing to adjudicate the
merits of Railway's title. As the District Court stated, "[f]or
purposes of merger proceedings it could rely on the existing
judicial records . . . supplemented by the opinions of two
Attorneys General." [
Footnote
19]
We are then faced with the contention of Livingston that Railway
is prohibited from participating in the merger, and that the
Commission is barred from approving it by the terms of Railroad's
charter. That charter does not authorize Railroad to merge with the
applicant companies and prohibits the mortgaging of its property in
the absence of congressional consent. If Railway is Railroad's
successor in interest, Livingston contends, it is bound by the
provisions of Railroad's charter, and those provisions would be
violated by the proposed merger and issuance of securities incident
thereto. Livingston argues that, because the Act chartering
Railroad is a law as much as it is a grant,
see Oregon &
California R. Co. v. United States, 238 U.
S. 393,
238 U. S. 427
(1915), it is binding
Page 396 U. S. 529
upon the Commission and makes the Commission's approval of the
merger unlawful. Livingston relies upon
Union Pacific R. Co. v.
Mason City & Fort Dodge R. Co., 199 U.
S. 160 (1905), as standing for the proposition that
statutory restrictions on a predecessor federal railroad company
survive a foreclosure sale and apply to a successor private
railroad company operating on the original company's rights and
franchise.
We do not find the Mason City decision to be controlling,
despite its somewhat similar legal and factual context. In 1862,
Congress chartered the Union Pacific Railroad Company and
authorized it to build a transcontinental railroad. In 1865,
Railroad, pursuant to congressional authorization, pledged a
mortgage secured by its right-of-way and franchise to gain monies
necessary for construction. In 1871, Congress granted Railroad
authority to issue bonds for the construction of a bridge over the
Missouri River, that grant being conditioned upon the bridge's
being open for the use of all roads for a reasonable compensation,
to be paid to the owner of the bridge. This condition was one
generally inserted by Congress in statutes authorizing bridge
construction. Sometime after the bridge was built, the 1865
mortgage was foreclosed and the Union Pacific Railroad Company, a
Utah corporation, purchased the assets of the federal corporation.
It thereafter refused to allow any but its own trains to use the
bridge, contending that as purchaser under the foreclosure of the
1865 mortgage, it was not bound by the 1871 statute's conditions.
This Court rejected that contention and concluded that the
conditions applied to the Utah corporation, reasoning that the
purpose of Congress in authorizing the construction of the bridge
required that the conditions appended to that authorization attach
to the bridge and bind its owner.
The instant case is quite different. Here, the provisions of the
charter of Northern Pacific Railroad Company which are urged to bar
this merger were directed only to
Page 396 U. S. 530
the operations of the federal corporation, not to the operation
of the railroad. Thus, when the corporation's property was sold to
another, the conditions of which Livingston speaks did not follow
that property into the hands of the successor corporation. It
therefore follows that the statute creating the Northern Pacific
Railroad Company did not bar the Interstate Commerce Commission
from authorizing a merger involving the Northern Pacific Railway
Company, a Wisconsin corporation. [
Footnote 20] We find that the Commission acted within its
authority in assuming jurisdiction over the instant merger
proposal, and that Railway is not barred by the statute from
participating in that merger. We have considered Livingston's other
contentions, and find them to be without merit.
Conclusion
On the entire record, we cannot say that the District Court
erred in upholding the order set forth in the Second Report or that
the Commission has done other than give effect to the
Transportation Act of 1920 as amended in 1940, which vested in the
Commission the responsibility of balancing the values of
competition against the need for consolidation of rail
transportation units.
The judgment of the District Court is therefore affirmed, and
the stay granted by this Court pending the resolution of these
appeals is hereby vacated.
[Appendixes A and B (maps) omitted.]
MR. JUSTICE DOUGLAS took no part in the decision of these
cases.
* Together with No. 38,
Brundage et al. v. United States et
al., No. 43,
City of Auburn v. United States et al.,
and No. 44,
Livingston Anti-Merger Committee v. Interstate
Commerce Commission et al., on appeal from the same court.
[
Footnote 1]
The three-judge court decision is reported as
United States
v. United States, 296 F.
Supp. 853 (D.C. D.C.1968).
[
Footnote 2]
The Colorado & Southern Railway Company and the Fort Worth
& Denver Railway Company are both controlled by the
Burlington.
[
Footnote 3]
The vote in this historic case was 5 to 4, with one of the
majority, Mr. Justice Brewer, joining on narrower grounds.
[
Footnote 4]
See Great Northern Pacific R. Co. Acquisition, 162
I.C.C. 37 (1930).
[
Footnote 5]
Among the allied transactions were the issuance of certain
securities and the assumption of obligations and liability in
respect of securities under § 20a of the Interstate Commerce Act,
and the obtaining of certain extensions and abandonments of
railroad lines under §§ 1 (18) to 1(20), inclusive, of the Act.
[
Footnote 6]
328 I.C.C. 460 (1966). The majority included Commissioners Bush,
Tucker, Webb, Tierney, Brown, and Deason. Commissioners Tuggle,
Freas, Murphy, Walrath, and Goff dissented.
[
Footnote 7]
The Northern Lines also agreed not to oppose the authorization
of a proposed Milwaukee-North Western merger.
[
Footnote 8]
Petitions were also filed by the Northern Pacific Stockholders'
Protective Committee seeking further hearings with respect to the
justness and reasonableness of the terms of the merger agreement,
and the Denver & Rio Grande Railroad seeking an investigation
into the agreements entered into by the applicants with the
Milwaukee and the North Western. These petitions were denied.
[
Footnote 9]
31 I.C.C. 228 (1967). Commissioners Tuggle, Murphy, Walrath,
Bush, Tucker, Deason, Stafford, and Syphers voted to approve the
merger, while Commissioners Tierney and Brown dissented.
Commissioner Hardin did not participate in the decision.
[
Footnote 10]
In this order, the Commission modified one of the conditions
placed on the merger by the order of November 30, 1967. On June 17,
1968, a further order was issued, ruling that the Milwaukee must be
allowed to bring grain traffic through 11 gateways opened to it by
conditions contained in the Second Report. Neither the order of
April 11 nor that of June 17 was challenged in the District Court.
Hence, they are not before us.
[
Footnote 11]
Attacking the merger were the following: the Northern Pacific
Stockholders' Protective Committee; the City of Auburn, Washington;
the State of Washington; the Board of Railroad Commissioners of
Montana; the Livingston Anti-Merger Committee, and the Public
Service Commission of Minnesota.
[
Footnote 12]
The intervening defendants included the applicant, the
Milwaukee, the Public Utility Commissioner of Oregon, and 230
Pacific Northwest shippers.
[
Footnote 13]
We might note that the substance of the Department's position
with respect to the Commission's power to approve consolidations
was presented to this Court by the Secretary of Agriculture in No.
31, O.T. 1943,
McLean Trucking Co. v. United States,
321 U. S. 67
(1944), Brief for Secretary of Agriculture of the United States 38,
40, and to the three-judge court in the Seaboard-Coast Line merger
litigation,
Florida East Coast R. Co. v. United
States, 259 F.
Supp. 993, 1012-1013 (D.C.M.D. Fla.1966),
aff'd per
curiam, 386 U. S. 544
(1967). In both of these cases, one decided in 1944 and the other
in 1966, the Department's position was rejected. In addition, in
1962, a bill was before the Senate that would have imposed a
moratorium on the Commission's approval of large railroad mergers
that would otherwise violate § 7 of the Clayton Act, 38 Stat. 731,
15 U.S.C. § 18. The Department actively supported the bill. It was
not reported out of committee.
See Hearings on S. 3097
before the Subcommittee on Antitrust and Monopoly of the Senate
Committee on the Judiciary, 87th Cong., 2d Sess. (1962).
[
Footnote 14]
The Commission apparently had no difficulty in approving a
merger of the Northern Lines under a plan similar to that held
violative of the Sherman Act in
Northern Securities Co. v.
United States, 193 U. S. 197
(1904). The Commission gave as one of the considerations leading it
to approve the proposed merger, "the feasibility of making large
operating economics."
Great Northern Pacific R. Co.
Acquisition, 162 I.C.C. 37, 47 (1930).
[
Footnote 15]
Report of Committee appointed September 20, 1938, by the
President of the United States, to Submit Recommendations upon the
General Transportation Situation, December 23, 1938, in Hearings on
H.R. 2531 before the House Committee on Interstate and Foreign
Commerce, 76th Cong., 1st Sess., 259-308 (1939).
[
Footnote 16]
Appellant Committee represents about 3% of Northern Pacific's
stockholders, who hold approximately 5% of the outstanding shares
of Northern Pacific.
[
Footnote 17]
Northern Pacific's shareholders approved the merger terms in
1961 by a vote of 73.81% to 6.64%, the remainder of the stock not
being voted. In 1968, the shareholders again approved the merger's
terms, as conditioned by the ICC's Second Report, 73.2% voting for
and 2.57% voting against, the remainder not voting. Prior to both
of these votes, the members of the appellant Committee vigorously
urged the shareholders to reject the merger as being unfair because
of the low value given the natural resource properties.
[
Footnote 18]
See Act of July 2, 1864, § 3, 13 Stat. 367.
[
Footnote 19]
296 F.
Supp. 853, 877 (D.C. D.C.1968).
[
Footnote 20]
Appellees contend that, under §§ 5(11) and 20a(7) of the
Interstate Commerce Act, 49 U.S.C. §§ 5(11), 20a(7), the approval
of a consolidation proposal operates to relieve the applicants from
any inhibiting state or federal laws, that the charter of Railroad
is such a law, and that approval of the instant merger proposal
modifies any conflicting provisions in that charter. Since we do
not find Railroad's charter to be binding upon Railway, we need not
reach that contention.