Source: http://openjurist.org/389/us/486
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389 US 486 | OpenJurist
389 U.S. 486 - Home
389 US 486 389 U.S. 486
88 S.Ct. 602
19 L.Ed.2d 723
Nos. 433, 778, 779, 830, 831, 832, 833, 834, 835, 836, 668 Misc., and 664 Misc. PENN-CENTRAL MERGER AND N & W INCLUSION CASES.* Argued Dec. 4, 1967. Decided Jan. 15, 1968. ----------* No. 778, Baltimore & Ohio Railroad Co. et al.
v.United States et al.; No. 779, Norfolk & Western Railway Co. v. United States et al.; No. 830, Oscar Gruss & Son v. United States et al.;
No. 831, New York, New Haven & Hartford Railroad Co. First
Mortgage 4% Bondholders Committee et al. v. United States et al.; No. 832, Erie-Lackawanna Railroad Co. et al. v. United States et al.; No. 833, Boston & Maine Corp. v. United States et al.; No. 834, Reading Co. v. United States et al.; No. 835, City of Scranton et al. v. United States et al.; and No. 836, John Hancock Mutual Life Insurance Co. et al. v. United States et al., on appeal from the United States District Court for the Southern District of New York, argued December 4, 1967. No. 433, City of Pottsville v. United States et al., on appeal from the United States District Court for the Middle District of Pennsylvania; No. 663, Misc., Borough of Moosic v. United States District Court for the Middle District of Pennsylvania et al.; and No. 664, Misc., City of Scranton et al. v. United States District Court for the Middle District of Pennsylvania et al., on motions for leave to file petitions for writs of mandamus and/or certiorari to the United State District Court for the Middle District of Pennsylvania.
[Syllabus from pages 486-490 intentionally omitted]
Howard J. Trienens, Chicago, Ill., Myron S. Isaacs, New York City, Edward A. McDermott, Washington, D.C., Ernest R. von Starck, Philadelphia, Pa., Gordon P. MacDougall, Washington, D.C., Malcolm Fooshee and Lester C. Migdal, New York City, for appellants.
Solicitor General, Erwin N. Griswold, Thomas D. Barr, Harry G. Silleck, Jr., New York City, Joseph Auerback and Hugh B. Cox, Washington, D.C., for appellees.
[Argument of Counsel intentionally omitted from pages 490-491]
These cases again bring before us problems arising from the program to merge the Pennsylvania and New York Central railroads and related problems proceeding from an Interstate Commerce Commission order that certain railroads be included in the Norfolk & Western (N & W) system. The merger and the inclusion orders are part of a vast reorganization of rail transportation implementing the congressional policy of encouraging consolidation of the Nation's railroads into a 'limited number of systems.' Section 407 of the Transportation Act of 1920, amending § 5(4) of the Interstate Commerce Act, 41 Stat. 481 (1920). That policy has been with us, in one form or another, for more than 45 years. The original idea of the 1920 Act, that the ICC would formulate a national plan of consolidation, proved unworkable. It ran into heavy opposition from carriers and eventually had to be abandoned. The 1920 Act was replaced by the Transportation Act of 1940, 54 Stat. 898. Section 5(2)(b) of the Interstate Commerce Act, as amended by the 1940 Act, 54 Stat. 906, 49 U.S.C. § 5(2)(b), which governed the Commission's examination of the present transactions. Under the 1940 Act, the initiation of merger and consolidation proceedings is left to the carriers themselves, and the Commission possesses no power to compel carriers to merge. However, the congressional directive for a limited number of railroad systems has not been changed. The only change has been in the means of achieving that goal. See generally St. Joe Paper Co. V. Atlantic Coast Line R. Co., 347 U.S. 298, 315 321, 74 S.Ct. 574, 584—587, 98 L.Ed. 710 (Appendix) (1954).
The Pennsylvania and the New York Central dominate rail transportation in the Northeast. Their freight operations extend over some 20,000 miles of road in 14 States and Canada. They are the two largest passenger carrying railroads in the United States. In 1965 their combined operating revenue surpassed $1,500,000,000 and their combined net income was more than $75,000,000. As independent lines, Pennsylvania and New York Central are, to some extent, in direct competition for rail traffic. There are 32 urban areas in which the two lines are in competition with each other and in which no other rail facilities are available. The two roads operate at 160 common points or junctions and have a substantial amount of parallel trackage and routes. The proposed merger which the ICC has approved contemplates the unification of these vast roads and, as time goes on, the rationalization and elimination of some of the dual facilities and services in various areas and in various respects. The merger will result in 'enormous savings in transit time.' It is estimated that in eight years, the savings in expense will amount to more than $80,000,000 annually. See Baltimore & Ohio R. Co. v. United States, 386 U.S. 372, 379—381, 87 S.Ct. 1100, 1103—1105, 18 L.Ed.2d 159 (1967).
In brief, the antecedents of the issues before us are as follows: the Penn-Central merger has been under consideration by the parties and the Commission for about 10 years. It was preceded by the vast N & W-Nickel Plate merger, which the Commission approved in 1964. That transaction, which, it is anticipated, will eventually produce savings for the N & W system of over $29,000,000 annually, resulted in a large rail network covering some 7,000 miles of track and extending in the north from Des Moines and Kansas City to Buffalo and Pittsburgh, and in the southern tier from Cincinnati to Norfolk. See Norfolk & Western Railway Co. and New York, Chicago & St. Louis Railroad Co.—Merger, etc., 324 I.C.C. 1 (1964). The transaction was not presented to this Court for review.
In 1962 the parties to the Penn-Central transaction signed an agreement of merger including 36 rail carriers. The merger agreement did not include the New York, New Haven & Hartford Railroad (NH), although that road requested inclusion.
Following the merger agreement, the parties submitted the proposal to the Commission for approval under § 5(2) of the Interstate Commerce Act. Exhaustive hearings were held in which States, municipalities, railroads, shippers, and public bodies some 200 parties, in all—took part. The Commission's own staff participated extensively as did the Department of Justice acting for affected interests of the United States other than the regulatory functions of the Commission. All participants, with relatively minor exceptions to which we shall later advert, agreed that the merger itself would be in the public interest. There were sharp differences, however, with respect to certain issues. These primarily concerned the provisions to be made for three smaller lines affected by the proposed merger: the Erie-Lackawanna (E—L), Delaware & Hudson (D & H), and Boston & Maine (B & M) railroads. The Commission approved immediate consummation of the merger, subject to a reservation of jurisdiction to establish protective provisions for the three roads. Pennsylvania Railroad Co.—Merger—New York Central Railroad Co., 327 I.C.C. 475 (1966). Its order was approved by a three-judge court in the Southern District of New York. Erie-Lackawanna R. Co. v. United States, 259 F.Supp. 964 (1966).
At the last Term of Court, we reversed. We noted that the Commission itself had found that the survival of the E—L, D & H, and B & M was essential to the public interest and that these roads would be so seriously affected by the competition of the merged company that they might not be able to survive unless adequate protective arrangements were made. In these circumstances we concluded that the Commission should have determined the means to preserve the 'protected roads,' on both an interim and a permanent basis, before permitting consummation of the merger. We expressly stated that we were not passing upon the validity of the merger or the 'peripheral points posed by the various parties.' Baltimore & Ohio R. Co. v. United States, supra, 386 U.S. at 378, 87 S.Ct. at 1103.
The Court noted that in 1965 each of the three 'protected roads' had filed applications for inclusion in the N & W system, and that these were pending before the Commission in the N & W-Nickel Plate merger case pursuant to the Commission's continuing jurisdiction over those proceedings. We further noted that the Commission, pursuant to its power under § 5 of the Act to require as a condition of approval of a merger that other railroads be included in the merger, had obligated the merged N & W system to include the E—L, D & H, and B & M if the Commission should so direct, upon such equitable terms as the Commission might prescribe. We stated that if the three protected roads were ordered to be included in the N & W system, 'such action would provide the solution to the problem of the necessary and indispensable protection to the three railroads that the Commission found prerequisite to the merger.' 386 U.S., at 390, 87 S.Ct., at 1109.
In accordance with our remand of the Penn-Central merger case, the Commission conducted further proceedings in the N & W case on the pending petitions of the three roads. On June 9, 1967, it issued its decision to the effect that 'inclusion of the petitioners in the N & W system is preferable to their inclusion in the Penn-Central,' and ordered N & W to acquire the stock of the three roads on prescribed terms. Norfolk & Western Railway Co. and New York, Chicago & St. Louis Railroad Co.—Merger, etc., 330 I.C.C. 780, 796 (1967). At the same time, in the remanded Penn-Central merger proceedings, the Commission reconsidered certain protective conditions it had previously devised to aid the three roads, imposed amended protective conditions to operate in the interim between consummation of the Penn-Central merger and the protected lines' inclusion in a major railroad system,1 and again authorized the immediate consummation of the Penn-Central merger. Pennsylvania Railroad Company—Merger—New York Central Railroad Company, 330 I.C.C. 328 (1967).
On July 3, 1967, on application of parties opposing the Commission's merger order, the three-judge District Court for the Southern District of New York enjoined implementation of that order pending the decision of that court on review. Actions were also filed by several parties in the same court to set aside the order of the Commission requiring the N & W to include the three protected roads in its system. Suits challenging both the merger and inclusion orders were instituted in other courts, but were stayed so as to permit orderly disposition of the basic issues in the Southern District of New York.2 After expedited proceedings in that court, all complaints attacking the merger and the inclusion orders were dismissed3 and the decisions of the Interstate Commerce Commission in both the merger and the inclusion proceedings were sustained. Erie-Lackawanna R. Co. v. United States, 279 F.Supp. 316. Various of the parties then sought relief in this Court. Because of the importance and urgency of the matter, we granted a further stay of the merger order, consolidated all proceedings that were before us relating to the merger and inclusion decisions, and expedited consideration thereof. See 389 U.S. 946, 88 S.Ct. 311, 19 L.Ed.2d 356.
The particular contentions urged upon us, in this multiplicity of proceedings, are many and varied. In general, however, the issues may be articulated as follows: Has the mandate of this Court been fulfilled, in that appropriate provision has now been made for the three smaller roads? Are the terms of the order providing for inclusion of the protected roads in the N & W system fair and equitable and in the public interest? Did the District Court err in refusing to enjoin consummation of the Penn-Central merger? Has adequate provision been made for resolution of the 'peripheral' issues presented by the parties, which would not be foreclosed by a decision authorizing the consummation of the merger and inclusion of the protected roads in the N & W?
Most of the parties before us are in accord that the merger is in the public interest and should be consummated as promptly as possible. Those urging immediate consummation before this Court include the Department of Justice and the Commission, the States of Pennsylvania, Connecticut, Rhode Island, New York, Massachusetts, and New Jersey; the Railway Labor Executives' Association; the trustees of the NH; the Pennsylvania and New York Central railroads; B & M; and, in substance, the E—L, D & H, and N & W and its allies. While this consensus has reduced the attacks upon the merits of the merger to a minimum, considering the vast size and implications of the transaction, we must nevertheless address ourselves to the basic merits of the merger as well as to the specific objections that are before us.
With respect to the merits of the merger, however, our task is limited. We do not inquire whether the merger satisfies our own conception of the public interest. Determination of the factors relevant to the public interest is entrusted by the law primarily to the Commission, subject to the standards of the governing statute. The judicial task is to determine whether the Commission has proceeded in accordance with law and whether its findings and conclusions accord with the statutory standards and are supported by substantial evidence. See, e.g., Illinois Central R. Co. v. Norfolk & W.R. Co., 385 U.S. 57, 69, 87 S.Ct. 255, 262, 17 L.Ed.2d 162 (1966).
Section 5 of the Interstate Commerce Act, as amended by the Transportation Act of 1940, 54 Stat. 905, 49 U.S.C. § 5, sets forth the national transportation policy that is to guide the Commission in its scrutiny of mergers proposed by railroads. The Commission is to approve such proposals, pursuant to the terms of § 5(2)(b) of that Act, when they are made upon just and reasonable terms and are 'consistent with the public interest.' In reaching its decision, the Commission is to give weight to a number of factors, such as: '(1) The effect of the proposed transaction upon adequate transportation service to the public; (2) the effect upon the public interest of the inclusion, or failure to include, other railroads in the territory involved in the proposed transaction; (3) the total fixed charges resulting from the proposed transaction; and (4) the interest of the carrier employees affected.' 49 U.S.C. § 5(2)(c).
It is, of course, true that the policy of Congress, set forth in the Transportation Act, to consolidate the railroads of this Nation into a 'limited number of systems' is a variation from our traditional national policy, reflected in the antitrust laws, of insisting upon the primacy of competition as the touchstone of economic regulation. Competition is merely one consideration here. See Seaboard Air Line R. Co. v. United States, 382 U.S. 154, 86 S.Ct. 277, 15 L.Ed.2d 223 (1965). This departure from the general and familiar standard of industrial regulation emphasizes the need for insistence that, before a rail merger is approved, there must be convincing evidence that it will serve the national interest and that terms are prescribed so that the congressional objective of a rail system serving the public more effectively and efficiently will be carried out. Obviously, not every merger or consolidation that may be agreed upon by private interests can pass the statutory tests.
The Commission carefully considered the implications of the fact that the Pennsylvania and the New York Central, as individual systems, have operated at a profit, and that there are reasonably good prospects for a continuation of such operation. But it was impressed by the fact that, as individual systems, these profits are not sufficient to put the roads in a position to make improvements important to the national interest, including the maintenance of services which, although essential to the public, are not self-supporting, and furnishing assistance to other roads serving public needs in their general territory. The Commission emphasized that the merger would enable the unified company to 'accelerate investments in transportation property and continually modernize plant and equipment * * * and provide more and better service.' 327 I.C.C. 475, 501—502. And it pointed out that only by permitting the merger would it be possible for the Commission to compel Penn-Central to come to the rescue of the New Haven, as we shall describe.
With respect to the lessening of competition where it now exists between the roads to be merged, the Commission pointed out that it will retain containuing power over reductions of service and facilities which are not specifically approved in the merger plans. Such consolidations and abandonments will have to be presented to the Commission for its approval and may be subjected to public criticism and hearings and to conditions or disapproval. It also noted that the rail wervice by the merged company will remain subject to vigorous competition from other roads, including the N & W and the C & O—B & O systems, and from motor, water, and air carriers. The Commission summarized some of the factors which would act as a restraint upon the merged company as follows:
'The power of shippers to direct the routing, the availability of numerous routes in a dense network of interline routes, the influence of connecting carriers in preventing a deterioration in service on the joint routes in which they participate, the growing strength of the N & W and C & O—B & O systems, all stand to provide a check against any abuse of economic power by the merged applicants.' 327 I.C.C., at 514.
Considering the record, and the findings and analysis of the Commission, we see no basis for reversal of the District Court's decision that the Commission's 'public interest' conclusions are adequately supported and are in accordance with law. We find no basis, consonant with the principles governing judicial review, for setting aside the Commission's determination, approved by the District Court, that the 'public interest' directives of the governing statute have been reasonably satisfied: that the transaction is likely to have a beneficial and not an adverse effect upon transportation service to the public; and that, as we shall discuss, appropriate provisions have been made with respect to other railroads that are directly affected by the merger.
B. OBJECTIONS OF CERTAIN PENNSYLVANIA INTERESTS
The action in the Middle District of Pennsylvania, in which Shapp and Scranton intervened, was filed by the Borough of Moosic on June 26, 1967, to set aside the Commission's orders, entered after our remand, approving the Penn-Central merger and the inclusion of the three protected roads in the N & W system. The Pennsylvania court stayed the Moosic proceeding by order of July 11, 1967, on the request of the United States and the Commission, for the sound purpose of preventing a multiplicity of litigation regarding the Commission's merger and inclusion decisions. Cf. Kansas City Southern R. Co. v. United States, 282 U.S. 760, 51 S.Ct. 304, 75 L.Ed. 684 (1931). Petitions for mandamus or certiorari, on behalf of Moosic (No. 663, Misc.) and Scranton and Shapp (No. 664, Misc.), seeking to challenge the stay of proceedings entered by the Pennsylvania court, have been filed in this Court. Since it now appears that the Middle District of Pennsylvania has dissolved its stay and commenced hearings, it would be pointless for us to review the stay order. Accordingly, the petitions for mandamus or certiorari are dismissed as moot.
Scranton, Shapp, and Moosic attack the Commission's merger and inclusion decisions along a broad front and claim error in the Commission's basic findings that the Penn-Central merger and inclusion of the protected lines in N & W are in the public interest. The thrust of this argument is that the Commission failed to consider or properly to evaluate the adverse effect of the Penn-Central merger, considered in light of the order requiring inclusion of the three protected roads in the N & W system, upon certain affected communities in the State of Pennsylvania. We do not agree. In its April 6, 1966, opinion approving the Penn-Central merger, the Commission examined the arguments made by participating communities in great detail and stated that the 'contentions regarding the adverse effect of the merger on Pennsylvania's economy are not substantiated by the evidence. On this record, the prospects clearly import that the merger will benefit rather than harm the Commonwealth.' 327 I.C.C. 475, 492. At the time it made this finding, the Commission was committed to the proposition enunciated in the April 6, 1966, opinion, that the three protected roads would be included in one of the larger systems because of their inability to survive as independent lines. This Court in its decision last Term emphasized the importance of such inclusion. The Commission's conclusion that the net result of the merger would be beneficial to the State of Pennsylvania is bolstered by the strong position taken by the State in this Court that the decision of the District Court for the Southern District of New York should be affirmed.
As we discuss, infra, apart from the general and theoretical argument that the Penn-Central merger and the inclusion of the three roads in the N & W system may harm some Pennsylvania interests, complainants' fears of specific injury resulting from reduction of competition by specific curtailments of service now provided by the three protected lines may be asserted in appropriate proceedings when such curtailment is specifically proposed.
All other complaints of these parties relate broadly and generally to the fundamental and underlying economic problems that are involved in the merger and inclusion decisions: for example, the anticompetitive consequences of these decisions and the financial situation and prospects of the Pennsylvania and New York Central as independent lines. They were all the subject of extensive evidence and were analyzed at length by the Commission. In dismissing the complaints of Scranton and Shapp for failure to go forward, Judge Friendly noted that '(w)hile we entertain no doubt of the sufficiency of this (procedural) ground, we think it well to add that * * * we find no merit in the complaints of Shapp and The City of Scranton.' The court remarked that, for the most part, 'the attacks (of Scranton and Shapp) simply represent disagreement with procedural and policy determinations which Congress has committed to the Commission.' 279 F.Supp., at 326, n. 6. We find no reason to reverse the judgment of the District Court for the Southern District of New York for dismissing the complaints of Scranton and Shapp for failure to prosecute, or to set aside its conclusions as to the lack of merit of their claims, particularly in light of the limited function of judicial review of decisions such as those now before us and the opportunity open to them to challenge proposals which may be made for specific curtailment of service.
Scranton and Shapp, like the Borough of Moosic, wish now to go forward with their complaints in the Middle District of Pennsylvania, in which they seek an injunction against consummation of the Penn-Central merger and the effectiveness of the inclusion order. But Shapp and Scranton were parties to the New York proceedings and the Borough of Moosic had an adequate opportunity to join in the litigation in that court following the stay of proceedings in the Middle District of Pennsylvania. As we noted, supra, n. 2, all district courts in which actions to review the Commission's findings or for injunctive relief were filed continued their proceedings in deference to the New York court. All parties with standing to challenge the Commission's action might have joined in the New York proceedings.4 In these circumstances, it necessarily follows that the decision of the New York court which, with certain exceptions, we have affirmed, precludes further judicial review or adjudication of the issues upon which it passes. While it is therefore no longer open to the parties to challenge the Commission's approval of the Penn-Central merger and inclusion of the three protected lines in N & W, or its order that immediate consummationof the merger should be permitted, any claims for specific relief, such as particularized objections which may arise from specific proposals for consolidation or reduction of facilities or services, are unaffected by the decision in the present cases. Claims not precluded by the present decision may be pursued before the Commission or in the courts or both, as may be appropriate. This applies to Shapp, to the City of Scranton, and to the Borough of Moosic as well as to any other affected interests. The proceedings in the Middle District of Pennsylvania are not before us, except as we have dismissed as moot the petitions challenging that court's stay of its proceedings, and it will be the task of that court to determine the effect of the present decision upon the proceedings before it. Scranton, Shapp, and Moosic may, of course, seek such relief, if any, in that court as may be available and appropriate in light of our decision herein.
Finally, we must mention the City of Pottsville, which has appealed to this Court (No. 433). Pottsville's request to intervene in the Moosic action, upon a complaint similar to that of Moosic, was denied by the Middle District of Pennsylvania. Like Moosic, Pottsville had the opportunity—which it failed to seize—to litigate in the Southern District of New York. It appears that a principal basis for denial of Pottsville's request to intervene was the objection interposed by the United States and that this objection will, after our decision in the instant cases, be withdrawn. Upon this representation by the United States, without reference to or any attempt to consider the scope or content of the action in which intervention is sought, or the issues, if any, which may remain for adjudication in that proceeding, we vacate the decision of the District Court for the Middle District of Pennsylvania denying intervenion and remand Pottsville's case to that court for further consideration in light of our decision today.
Two appeals, Nos. 830 and 831, have been taken on behalf of bondholders of the New York, New Haven and Hartford Railroad Company (NH). Since 1961 the NH has been in reorganization proceedings under § 77 of the Bankruptcy Act, 11 U.S.C. § 205. Despite the shelter of the bankruptcy court, it has been on the verge of financial collapse with the attendant risk to continuance of its rail service. The Commission has found that passenger as well as freight service by the NH is a national necessity and that termination of either would lead to distress in Connecticut, Massachusetts, and Rhode Island, and would severely damage New York City and the Nation generally. See New York, New Haven & Hartford Railroad Co., Trustees, Discontinuance of All Interstate Passenger Trains, 327 I.C.C. 151 (1966).
The NH competes in a relatively small part of its service area with the New York Central; but in the NH's financial condition, diversion of even a small amount of the Pennsylvania's connecting traffic from the NH to the Central would inflict consequential injury. Even without reference to the hazard of such diversion, inclusion of the NH in the Penn-Central combination is the only possibility that has been advanced by any of the parties including the complaining bondholders—for continued operation of NH, short of the sheer speculation that the States concerned or the Federal Government might take over the road and its operations.
In June 1962, with permission of the bankruptcy court, the New Haven's trustees requested the ICC to make provision under § 5(2)(d) of the Act for its inclusion in the proposed Penn-Central merger. When the Commission first considered the merger, it stated that 'we will require all the New Haven railroad (both passenger and freight operations) to be included in the applicants' transaction'; and in its initial report it provided that 'our approval of the merger is conditioned upon such inclusion.' 327 I.C.C., at 524, 527. It required that the parties to the merger irrevocably stipulate that they would consent to inclusion upon such terms as might be agreed between the NH and the merger parties or, failing this agreement, upon such terms as the Commission might prescribe with the approval of the bankruptcy court. 327 I.C.C., at 553.
The trustees of the NH and the two companies conducted lengthy negotiations and finally arrived at an agreement as to inclusion terms dated April 21, 1966, amended October 4, 1966. In July 1967 the NH bankruptcy court warned that New Haven's cash depletion was 'so serious that, if the present rate of loss continues, there will be insufficient left by late September to meet the payroll.' Subsequent improvement of cash position permitted amendment of this dire prediction so that it was expected that operation could be financed to January 1968.
The Commission on August 3, 1967, directed the negotiation of a lease between the New Haven trustees and Penn and Central, to be 'immediately available upon consummation of the Penn-Central merger.' The parties, however, reported that preparation of a lease in time to meet the New Haven's needs was not possible. Thereupon, the Commission ordered a hearing as to whether a lease, loan, or other arrangement should be made to assure the NH's continued operation until its acquisition by Penn-Central. On November 21, 1967, the Commission issued an order, subject to the approval of the bankruptcy court providing (a) terms for the inclusion of the New Haven in the Penn-Central system upon effectuation of the Penn-Central merger; (b) for the Penn-Central to lend $25,000,000 to the New Haven over a three-year period in return for trustees' certificates; and (c) for the Penn-Central to bear 100% of the operating losses of the New Haven during the first year after the merger, 50% in the second, and 25% in the third, subject to a ceiling of $5,500,000 in each year on the total amount that Penn-Central could be required to absorb and subject to termination upon transfer of the New Haven assets. Acceptance of these terms by Penn and Central is a required condition of approval of their merger. The Commission has retained jurisdiction 'for the purpose of making such further order or orders in these proceedings as may be necessary or appropriate.'
The merits of these provisions are not before us. They have not been reviewed by the bankruptcy court or by a statutory district court under the applicable statute. The New Haven trustees and the States of Connecticut, Massachusetts, Rhode Island, and New York, as well as the United States, have filed briefs urging this Court to affirm approval of the Penn-Central merger, citing the urgent need for this in order to salvage the New Haven's operations. The attack, so far as the New Haven is involved, has been launched by Oscar Gruss & Son, a holder of approximately 14% of the NH's first and refunding mortgage bonds and by the Protective Committee for that issue, which intervened in Gruss' action below. (Nos. 830 and 831.) The claim is that because continued operation of the New Haven at a loss involves progressive erosion of the bondholders' security and because the interim arrangement does not assure that Penn-Central will absorb all of the operating losses, we should not permit the Penn-Central merger to be consummated without simultaneous inclusion of the NH. In view of the probable difficulties in reaching agreement for inclusion of the NH which will satisfy its bondholders, it is virtually certain that this would mean lengthy delay during which the NH would not have access to the interim Penn-Central financial aid, and might be faced with collapse of its operations.
The Commission, after hearing the bondholders' contention, pointed out that '(i)t is a fundamental aspect of our free enterprise economy that private persons assume the risks attached to their investments, and the NH creditors can expect no less because the NH's properties are devoted to a public use. Indeed, the assistance the creditors are receiving from the States and would receive from Penn-Central through the sharing of operating losses would raise some of that burden from their shoulders.' Pennsylvania Railroad Company—Merger—New York Central Railroad Company, 331 I.C.C. 643, 704 (1967). The District Court, putting aside questions of the standing of the NH bondholders to attack the Penn-Central merger, affirmed the Commission's rejection of the attack.
Continuation of the operations of the NH, which the Commission has found to be essential, can be assured only upon and after effectuation of the merger of the Penn-Central. The bondholders agree that to delay the Penn-Central merger until all proceedings necessary to include the NH have taken place may well mean the end of NH operations. The only realistic way to avoid this is to permit prompt consummation of the Penn-Central merger subject to appropriate conditions respecting the New Haven which Penn-Central will perforce accept by its act of merger. While the rights of the bondholders are entitled to respect, they do not command Procrustean measures. They certainly do not dictate that rail operations vital to the Nation be jettisoned despite the availability of a feasible alternative. The public interest is not merely a pawn to be sacrificed for the strategic purposes or protection of a class of security holders whose interests may or may not be served by the destructive move.
While we reject the appeals of the NH bondholders, acceptance or rejection of the terms and conditions on behalf of the NH remains to be determined. The bondholders' objections may be registered and adjudicated in the bankruptcy court or upon judicial review as provided by law. Furthermore, as noted above, the Commission has retained jurisdiction to make further appropriate orders, if necessary, and has provided both that inclusion of the NH in Penn-Central and the making of the loan arrangement on such terms as are prescribed by the Commission, are conditions of approval of the merger.
We affirm the District Court's dismissal of the appeals in No. 830 and No. 831. D. OBJECTIONS BASED ON THE PROVISIONS MADE FOR THE PROTECTED ROADS.
The N & W and roads associated with its position (the Chesapeake & Ohio (C. & O), Baltimore & Ohio (B & O), and Western Maryland) have filed an appeal (No. 778). In brief and upon argument they stated that they do not object to the Penn-Central merger itself. Their stated position is that they oppose 'immediate consummation'—that is prior to the actual inclusion of E—L, D & H and B & M in the N & W. They also assail the specific operation and effect of the protective conditions and urge mo