1. Subdivision (2) of § 5 of the Transportation Act empowers the
Interstate Commerce Commission, when of the opinion that
acquisition by one carrier of control of another,
"either under a lease or by the purchase of stock or in any
other manner not involving the consolidation of such carriers into
a single system for ownership and operation,"
will be in the public interest, to authorize such acquisition,
on such terms and conditions as the Commission finds to be just and
reasonable, etc. Subdivision (6) of the same section permits
carriers, with the approval of the Commission,
"to consolidate their properties or any part thereof into one
corporation for the ownership, management, and operation of the
properties theretofore in separate ownership, management, and
operation,"
upon the condition (among others) that the consolidation must be
in harmony with the complete plan, to be adopted by the Commission
under subdivisions (4) and (5), for consolidation of the railway
properties of the United States into a limited number of
systems.
Held:
(1) Under subdivision (2), the Commission may authorize a
carrier that already controls others by stock ownership to have
control also by lease for the purpose of securing greater economy
and efficiency of operation. The disjunctive phrasing, "either
under a lease or by purchase of stock" does not mean that one
method must be exclusive of the other. Pp.
287 U. S.
22-23.
(2) The extent of control allowable by the Commission under
subdivision (2), short of "consolidation," is tested by its
relation to the public interest. That interest is served by economy
and efficiency in operation. P.
287 U. S.
23.
(3) A consolidation within the meaning of subdivision (2) is one
for ownership, as well as operation. The acquisition proposed in
this case was not such a consolidation.
Id.
(4) Whether the authority to lease in this case would interfere
with the plans of the Commission for consolidation of carriers was
an administrative question for the Commission to decide. P.
287 U. S.
24.
Page 287 U. S. 13
(5) "Public interest," the criterion of the Commission's
authority under subdivision (2), is not the public welfare in
general, but the public interest in the adequate transportation
service sought to be secured by the Act. Objection that the
delegation of authority is invalid for lack of definition is not
tenable. P.
287 U. S.
24.
(6) Congress had power to foster interstate commerce by removing
the restrictions of the antitrust laws as respects the control by
one carrier of the parallel and competing line of another, and to
permit such control in aid of the purposes of the Transportation
Act, as provided by subdivisions (2) and (8) of § 5 thereof. P.
287 U. S.
25.
(7) An order of the Commission permitting a lease under
subdivision (2) is permissive, not mandatory, and the question
whether the lease so authorized is beyond the powers of the
carriers because of the laws of the states of incorporation
relating to leasing of competing lines, minimum rentals, and
security for payment and preservation of property, is not a
question which the Commission is required to decide or which can be
raised in a suit to set aside its order. P.
287 U. S.
26.
(8) The authority of the Commission to impose conditions was not
restricted to conditions favored by the carriers, and was not
overstepped in this case by a condition that the lessee acquire
certain short lines that were complementary to its railway system.
P.
287 U. S.
28.
2. By § 20(a) of the Transportation Act, a carrier is forbidden
to assume any liability, as lessor, lessee, or otherwise in respect
of the securities of another unless, and only to the extent that,
the Commission authorizes, and the Commission may make such order
only (among other conditions) when it finds that such
assumption
"is for some lawful object within its corporate purposes, and
compatible with the public interest, which is . . . consistent with
the proper performance by the carrier of service to the public as a
common carrier, and which will not impair its ability to perform
that service."
Subdivision (7) declares that the jurisdiction conferred upon
the Commission by the section shall be exclusive and plenary, and
that a carrier may assume obligations in accordance with the
provisions of the section without securing approval otherwise than
as specified therein.
Held:
(1) That the requirement that the assumption be "for some lawful
object within its corporate purposes" refers not to state
limitations upon corporate powers, but to the general field of
corporate purposes. P.
287 U. S.
27.
Page 287 U. S. 14
(2) That the Commission need not determine whether there has
been compliance with state requirements and the question whether
the assumption permitted by its order is contrary to state law
could not be raised in a suit to set its order aside.
Id.
3. In a suit under U.S.C. Title 28, § 47 ("Urgent Deficiencies
Act") to set aside an order of the Interstate Commerce Commission
permitting a carrier to acquire control by lease of the railway of
another company, questions as to whether the lessee, as majority
stockholder of the lessor company, failed in its fiduciary duty to
the plaintiff, as a minority stockholder,
held not
properly raised in the trial court or open to review on appeal. P.
287 U. S.
28.
4. An order of the Commission permitting a lease under § 5(2)
will not be set aside upon objections going to the adequacy of the
rentals and the propriety of the lease where the parties were fully
heard by the Commission and where there is no basis for contending
that the order was not adequately supported by evidence, or that it
had any confiscatory effect. P.
287 U. S. 29.
54 F.2d 122 affirmed.
Appeal from a decree of the District Court of three judges
dismissing a bill to set aside orders of the Interstate Commerce
Commission. One of the orders authorized the New York Central
Railroad Company to acquire control by lease of the railroad
systems of the "Big Four" and Michigan Central companies; another
permitted the lessee to assume obligation and liability in respect
of certain securities of the lessors. The plaintiff corporation was
a minority stockholder in each of the three railroad companies.
Page 287 U. S. 19
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
On July 2, 1929, the Interstate Commerce Commission made an
order authorizing the New York Central Railroad Company to acquire
control, by lease, of the railroad systems of the Cleveland,
Cincinnati, Chicago & St. Louis Railway Company (known as the
"Big Four") and of the Michigan Central Railroad Company. By order
of December 2, 1929, the Commission permitted the assumption by the
lessee of obligation and liability in respect of certain securities
of the lessors. In this suit, a minority stockholder of each of the
lessors, and of the lessee, sought to set aside these orders upon
the ground that the Commission had exceeded its authority. The
District Court, of three judges, upon pleadings and proofs, and
having filed findings of fact and conclusions of law, denied the
motion for injunction and dismissed the petition upon the merits.
54 F.2d 122. The petitioner appeals. U.S.C. Tit. 28, §§ 47,
345.
The District Court, against objection, sustained its
jurisdiction. The court took the view that the petitioner,
Page 287 U. S. 20
as a minority stockholder of the lessors, alleged an injury not
merely derivative, but independent, being a member of a class
created by the leasing agreements. 54 F.2d at 126;
compare
Pittsburgh & West Virginia Ry. Co. v. United States,
281 U. S. 479,
281 U. S. 487.
While appellees submit that there are certain contentions which
appellant may not properly raise, the correctness of the decision
as to jurisdiction is conceded.
The authority of the Commission to make the orders is rested
upon § 5, subdivision 2, and § 20a of the Interstate Commerce Act.
U.S.C., Tit 49. [
Footnote 1]
After full hearing, and upon consideration of the purpose of the
proposals, of the physical, traffic, and intercorporate
relationships, of investment, income, and dividends, of the
provisions of the proposed leases, of the benefits deemed to accrue
to the public, of the particular situation of certain short lines,
and of the objections raised by minority stockholders,
Page 287 U. S. 21
the Commission found that the "considerations and terms and
conditions" set forth in the proposed leases were "just and
reasonable" and that the contemplated acquisition would be "in the
public interest." The authorization was upon the express condition
that, before the leases became effective, the New York Central
should offer to acquire specified short lines upon terms and
conditions stated. Report, January 14, 1929, 150 I.C.C. 278, 321,
322. Upon proof of compliance with this condition, and upon further
conditions, the acquisition was approved. Supplemental Report and
Order of July 2, 1929, 154 I.C.C. 489, 494, 495. One of the
conditions was that the New York Central and the "Big Four" should
not be relieved from compliance with provisions of law applicable
to any assumption of obligations and liabilities by virtue of the
execution of the leases. On later application
Page 287 U. S. 22
for authority in that respect, the Commission found that the
proposed assumption by the carriers was
"for a lawful object within their respective corporate purposes,
and compatible with the public interest, which is necessary and
appropriate for and consistent with the proper performance by them
of service to the public as common carriers, and which will not
impair their ability to perform that service,"
and was "reasonably necessary and appropriate for such purpose."
Report and Order of December 2, 1929, 158 I.C.C. 317, 323, 328.
Appellant contends (a) that, as the New York Central had already
acquired control of the "Big Four" and Michigan Central by stock
ownership, the Commission could not authorize acquisition of
control by lease; (b) that the proposed acquisition involved a
"consolidation" which could not be authorized under § 5(2); (c)
that the main lines of the lessors are parallel and competing with
those of the lessee, so that competition would be suppressed, and
that the attempt to confer authority upon the Commission to approve
the acquisition of control was an unconstitutional delegation of
power; (d) that the proposed leases transgressed limitations
imposed by state authority, and (e) that the action of the
Commission was unsupported by evidence and was arbitrary and
confiscatory as to the appellant. The questions presented thus
relate, in part, to the construction and validity of the statute
and, in part, to the present application of the statute in view of
the particular terms of the leases.
First. The Commission stated that, while the properties
of the New York Central, the "Big Four," and the Michigan Central
are operated as separate units, the companies are under common
control. This control has existed for many years. The Commission
found that the New York Central held upwards of 99 percent of the
stock of the Michigan Central and upwards of 91 percent and 84
percent, respectively, of the common and
Page 287 U. S. 23
preferred stocks of the "Big Four." The authority to lease was
sought in the view that it would facilitate revision of routes and
physical improvements needed for new routes, and would make
possible important economics in operation which the Commission set
forth in detail. Section 5(2) authorizes the acquisition of control
"to the extent indicated by the commission." The question is not of
the extent of the control, provided it stops short of
"consolidation," but of the public interest in having the control
maintained. The public interest is served by economy and efficiency
in operation. If the expected advantages are inadequately secured
by stock ownership, and would be better secured by lease, the
statute affords no basis for the contention that the latter may not
be authorized although the former exists. The fact that one
precedes the other cannot be regarded as determinative if the
desired coordination is not otherwise obtainable. The disjunctive
phrasing of the statute "either under a lease or by the purchase of
stock" must be read in the light of its obvious purpose, and cannot
be taken to mean that one method must be exclusive of the
other.
The statute refers to "control" in contradistinction to
"consolidation." Subdivision (2) itself indicates that control by
purchase of stock or by lease is not regarded as a "consolidation"
as the word is there used. Its use is in the restricted sense of
the formation of a "single system for ownership" as well as for
"operation." This distinction between control where separate
ownership continues and consolidation where a single ownership is
created is a familiar one in the law.
Railroad Co. v.
Georgia, 98 U. S. 359,
98 U. S. 363.
That the Congress had this distinction in view appears from the
other provisions of § 5. Thus, subdivision (6) permits carriers
"to consolidate their properties or any part thereof, into one
corporation for the ownership, management, and operation of the
properties theretofore in separate ownership, management,
Page 287 U. S. 24
and operation."
This may be effected under stated conditions which contemplate
the ownership by one corporation of the consolidated properties and
the issue of securities upon that basis. The view that the proposed
acquisition does not involve a "consolidation" contrary to the
limitation in subdivision (2) is in accord with the long continued
construction of the statute by the Interstate Commerce Commission.
Control of El Paso & S.W. System, 90 I.C.C. 732; Control of
Alabama & Vicksburg, etc., 111 I.C.C. 161, 169; Lease of Pan
Handle, 72 I.C.C. 128, 133; New York Central Leases, 72 I.C.C. 243;
Control of Central Pacific, 76 I.C.C. 508; Nickel Plate
Unification, 105 I.C.C. 425. And this administrative construction
would be persuasive if the statute could be regarded as ambiguous.
United States v. Jackson, 280 U.
S. 183,
280 U. S. 193;
Louisville & Nashville R. Co. v. United States,
282 U. S. 740,
282 U. S. 757.
Whether the particular authorization, in the light of the situation
of these carriers, would interfere with plans of the Commission for
consolidation was an administrative question with which the
Commission was competent to deal.
Appellant insists that the delegation of authority to the
Commission is invalid because the stated criterion is uncertain.
That criterion is the "public interest." It is a mistaken
assumption that this is a mere general reference to public welfare,
without any standard to guide determinations. The purpose of the
Act, the requirements it imposes, and the context of the provision
in question show the contrary. Going forward from a policy mainly
directed to the prevention of abuses, particularly those arising
from excessive or discriminatory rates, Transportation Act 1920 (41
Stat. 456), was designed better to assure adequacy in
transportation service. This Court, in
New England Divisions
Case, 261 U. S. 184,
261 U. S.
189-190, adverted to that purpose, which was found to be
expressed in unequivocal language: "to attain it, new rights,
new
Page 287 U. S. 25
obligations, new machinery, were created." The Court directed
attention to various provisions having this effect, and to the
criteria which the statute had established in referring to "the
transportation needs of the public," "the necessity . . . of
enlarging [transportation] facilities," and the measures which
would "best promote the service in the interest of the public and
the commerce of the people."
Id., p.
261 U. S. 189.
See also Texas & Pacific Ry. Co. v. Gulf, Colorado &
Santa Fe Ry. Co., 270 U. S. 266,
270 U. S. 277.
The provisions now before us were among the additions made by
Transportation Act, 1920, and the term "public interest" as thus
used is not a concept without ascertainable criteria, but has
direct relation to adequacy of transportation service, to its
essential conditions of economy and efficiency, and to appropriate
provision and best use of transportation facilities -- questions to
which the Interstate Commerce Commission has constantly addressed
itself in the exercise of the authority conferred. So far as
constitutional delegation of authority is concerned, the question
is not essentially different from that which is raised by
provisions with respect to reasonableness of rates, to
discrimination, and to the issue of certificates of public
convenience and necessity.
Intermountain Rate Case,
234 U. S. 476,
234 U. S. 486;
Railroad Commission of California v. Southern Pacific Co.,
264 U. S. 331,
264 U. S.
343-344;
Avent v. United States, 266 U.
S. 127,
266 U. S. 130;
Colorado v. United States, 271 U.
S. 153,
271 U. S. 163;
Chesapeake & Ohio Ry. Co. v. United States,
283 U. S. 35,
283 U. S.
42.
The fact that the carriers' lines are parallel and competing
cannot be deemed to affect the validity of the authority conferred
upon the Commission. The Congress, which had power to impose
prohibitions in the regulation of interstate commerce (
Northern
Securities Co. v. United States, 193 U.
S. 197), had equal power to foster that commerce by
removing prohibitions and by permitting acquisition of control
where that was found to be an aid
Page 287 U. S. 26
in the accomplishment of the purposes in view in the enactment
of Transportation Act, 1920.
See New York v. United
States, 257 U. S. 591,
257 U. S. 601;
Colorado v. United States, 271 U.
S. 153,
271 U. S. 165.
Exercising this paramount power, the Congress expressly provided in
subdivision (8) of § 5, which has direct reference to subdivision
(2), that "the carriers affected by any order made under the
foregoing provisions of this section" are "relieved from the
operation of the
antitrust laws,'" and
"of all other restraints or prohibitions by law, state or
federal, insofar as may be necessary to enable them to do anything
authorized or required by any order made under and pursuant to the
foregoing provisions of this section."
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.
Appellant contends that the provision of subdivision (8) of § 5,
referring to "restraints or prohibitions by law, state or federal"
should be construed as limited to those restrictions which are of
the same general character as the "antitrust laws," and not as
applying to specific limitations imposed by state laws upon
corporate powers with respect to the making of leases. Appellant
invokes the laws of the states of incorporation in relation to
leases of competing lines, and especially the laws of Ohio upon
that subject and with respect to minimum rentals and security for
payment and the preservation of property. It is sufficient for the
present purpose to say that this contention cannot, in any event,
avail the appellant. The question of the right of a state of
incorporation, in a direct proceeding, to challenge the leases as
ultra vires is not before us.
See Cleveland,
Cincinnati, Chicago & St. Louis Ry. Co. v. United States,
275 U. S. 404,
275 U. S. 414.
The order of the Commission under § 5(2) is permissive, not
mandatory.
Page 287 U. S. 27
There is no warrant for concluding that the Congress intended to
fetter the exercise of the Commission's authority by requiring that
the Commission before making its order must determine whether the
acquisition is within the corporate powers of the carrier under
state laws. The Commission has given its approval in the exercise
of the authority conferred, and the question of corporate powers
cannot properly be raised in this suit to set aside the
Commission's order.
Cleveland, Cincinnati, Chicago & St.
Louis Ry. Co. v. United States, supra; Claiborne-Annapolis Ferry
Co. v. United States, 285 U. S. 382,
285 U. S.
391.
Nor is there ground for a different conclusion with respect to
the Commission's order under § 20a, authorizing the assumption of
obligations. Appellant points to the requirement in that section
that the Commission shall make such an order only if it finds that
the assumption by the carrier is "for some lawful object within its
corporate purposes." But that this provision does not refer to
state limitations upon corporate powers, but rather to the general
field of corporate purposes, sufficiently appears from the context
and from the legislative history of the clause. In creating federal
supervision of the issue of securities by interstate carriers, the
Congress, so far from making it necessary for the Commission to
determine whether there had been compliance with state
requirements, expressly provided in subdivision (7) of § 20a that
the jurisdiction of the Commission should be "exclusive and
plenary," and that approval, other than as specified in that
section, should not be necessary. [
Footnote 2]
Page 287 U. S. 28
Another objection, urged against the order under § 5(2), is that
the Commission had no power to make the acquisition of certain
short lines a condition of its approval of the leases. The
condition is asserted to be a burdensome one, opposed by the New
York Central when it made its application and involving the
building up of an enlarged system. But § 5(2) expressly authorized
the Commission to impose conditions, and its action in so doing was
not limited to conditions proposed or favored by the carriers. The
Commission stated the facts as to each of the short lines (150
I.C.C. pp. 294-311), and the Commission found that those lines to
which the condition relates were complementary to the New York
Central System, and that their preservation was "required by public
convenience and necessity and for the maintenance of an adequate
transportation system."
Id., p. 322. It cannot be said
that the consideration of the situation of these short lines was
not appropriate to the determination which the Commission was
called upon to make, or that the condition was arbitrarily
imposed.
Second. Questions as to the alleged stockholder of the
Michigan Central, of its fiduciary duty to the appellant as
minority stockholder, in the light of the terms of the indenture
under which the voted shares had been pledged to secure bonds, are
not properly raised in this suit under the Urgent
Page 287 U. S. 29
Deficiencies Act (U.S.C., Tit. 28, § 47), and hence are not open
to review on this appeal.
Pittsburgh & West Virginia Ry.
Co. v. United States, 281 U. S. 479,
281 U. S.
488.
The remaining questions with respect to the adequacy of the
rentals fixed, the other terms of the proposed leases, and the
public interests involved relate to the propriety of the action of
the Commission in the exercise of its authority under the statute
as construed. As to these matters the parties were fully heard,
pertinent evidence was received and considered, and we find no
basis for a contention that the order of the Commission was not
adequately supported, or had any confiscatory effect.
Virginian
Ry. Co. v. United States, 272 U. S. 658,
272 U. S. 663;
Georgia Commission v. United States, 283 U.
S. 765,
283 U. S.
775.
Decree affirmed.
[
Footnote 1]
The pertinent provisions of these sections are as follows:
"Sec. 5(2).
Acquisition of control of one carrier by
another. Whenever the commission is of opinion, after hearing,
upon application of any carrier or carriers engaged in the
transportation of passengers or property subject to this chapter,
that the acquisition, to the extent indicated by the commission, by
one of such carriers of the control of any other such carrier or
carriers either under a lease or by the purchase of stock or in any
other manner not involving the consolidation of such carriers into
a single system for ownership and operation, will be in the public
interest, the commission shall have authority by order to approve
and authorize such acquisition, under such rules and regulations
and for such consideration and on such terms and conditions as
shall be found by the commission to be just and reasonable in the
premises."
"Sec. 5(8).
Carriers affected relieved from operation of
antitrust laws, etc. The carriers affected by any order made
under the foregoing provisions of this section and any corporation
organized to effect a consolidation approved and authorized in such
order are relieved from the operation of the 'antitrust laws,' as
designated in § 12 of Title 15, Commerce and Trade, and of all
other restraints or prohibitions by law, state or Federal, insofar
as may be necessary to enable them to do anything authorized or
required by any order made under and pursuant to the foregoing
provisions of this section."
"Sec. 20a(2)
Issuance of securities; assumption of
obligations; authorization. It shall be unlawful for any
carrier to issue any share of capital stock or any bond or other
evidence of interest in or indebtedness of the carrier (hereinafter
in this section collectively termed 'securities') or to assume any
obligation or liability as lessor, lessee, guarantor, indorser,
surety, or otherwise, in respect of the securities of any other
person, natural or artificial, even though permitted by the
authority creating the carrier corporation, unless and until, and
then only to the extent that, upon application by the carrier, and
after investigation by the commission of the purposes and uses of
the proposed issue and the proceeds thereof, or of the proposed
assumption of obligation or liability in respect of the securities
of any other person, natural or artificial, the commission by order
authorizes such issue or assumption. The commission shall make such
order only if it finds that such issue or assumption: (a) is for
some lawful object within its corporate purposes, and compatible
with the public interest, which is necessary or appropriate for or
consistent with the proper performance by the carrier of service to
the public as a common carrier, and which will not impair its
ability to perform that service, and (b) is reasonably necessary
and appropriate for such purpose. . . ."
[
Footnote 2]
It appears that in the course of the consideration of the
measure which ultimately became § 20a(2), the words "corporate
purposes" were substituted for "corporate powers." 54 F.2d at 130,
note. It should also be noted that, in connection with the
provision which became subdivision (7) of § 20a, an amendment was
offered in the House of Representatives to strike out that
paragraph and to provide that no security should be issued under
the Act
"except in the manner and form prescribed by the laws of the
state which created such common carrier, and that this section is
not to be construed as a limitation of state authority, but only as
cumulative thereof."
The amendment was defeated. Cong.Rec. 66th Cong., 1st Sess.,
vol. 58, pp. 8673, 8676. Mr. Each, in the report of the measure to
the House of Representatives, stated:
"Without federal control, the carriers would have to be
subjected to the diversified requirements of the several states. .
. . The enactment of the pending bill will put the control over
stock and bond issues exclusively in the hands of the federal
government, and will result in uniformity and greater promptness of
action."
Cong.Rec. 1st Sess., House Report No. 456, p. 21.