Source: http://www.chanrobles.com/usa/us_supremecourt/334/182/case.php
Timestamp: 2017-10-20 10:48:10
Document Index: 106025289

Matched Legal Cases: ['§ 5', '§ 5', 'art. 6', '§ 5', '§ 20', '§ 5', '§ 5', '§ 77']

Appellants are owners of 2,100 shares of $100 par 5% cumulative preferred stock of Pere Marquette. Their interests aggregate a little less than 2% of the outstanding stock of this class. Dividends on this stock have been unpaid since 1931, and, as of the commencement of this chanroblesvirtualawlibrary
When application was filed with the Interstate Commerce Commission under § 5 of the Interstate Commerce Act as amended (49 U.S.C. § 5), for approval and authorization of the merger, [Footnote 1] as well as for other relief, chanroblesvirtualawlibrary
appellants intervened and asked that body to determine, recognize, and protect their asserted right to the full legal liquidation figure. The Commission approved the merger and the merger terms, finding them just and chanroblesvirtualawlibrary
The Commission did not question that the stockholders, on liquidation, dissolution, or winding up of Pere Marquette, would be entitled to be paid in full the par value of their shares and accumulated dividends before any payment to holders of common stock. It did not undertake to determine chanroblesvirtualawlibrary
The disposition of appellants' claims, as well as the nature of the claims themselves, requires consideration of the relative function and authority of federal and state law in regulating and approving voluntary railroad mergers. The appellants contend that their share in the merged company is to be measured by, or their remedies chanroblesvirtualawlibrary
It is not for us to adjudicate the existence or the measure of any rights that Michigan law may confer upon dissenting stockholders. Neither the Commission nor this Court can make a plenary and exclusive decision as to what the law of a state may be, for the function of declaring and interpreting its own law is left to each state of the Union. But the effect of the state law in relation to a constitutional Act of Congress, in view of the constitutional provision, art. 6, cl. 2, that the latter shall be "the supreme Law of the Land," "Laws of any State to the Contrary notwithstanding," is for us to determine. Our first inquiry here, therefore, is whether the Interstate Commerce Act accords recognition to those state law rights, if any exist. To determine this federal question, we assume, but do not decide, that Michigan law would consider this merger to be a liquidation, and would regard the recognition given to the common stock as entitling these dissenters to "full payment" in cash or its equivalent for both the par value of their preferred shares and accrued unpaid dividends thereon. Assuming such to be their rights under the law of the State, we must decide whether approval of a railroad merger under the Transportation Act of 1940 [Footnote 5] is conditioned upon observance of chanroblesvirtualawlibrary
The demand for an integrated, efficient, and coordinated system of rail transport, equal to the needs of our national economy and defense, resulted in the Transportation Act of 1920. [Footnote 6] In a series of decisions on particular problems, this Court defined the general purposes of that Act to be the establishment of a new federal railway policy [Footnote 7] to insure adequate transportation service by means of securing a fair return on capital devoted to the service, restoration of impaired railroad credit, and regulation of rates, security issues, consolidations, and mergers in the chanroblesvirtualawlibrary
As a means to this end, the 1920 Act required [Footnote 9] the Commission to prepare and adopt a plan for nationwide consolidations of the railway properties of the country. It made this master plan the governing consideration in approving voluntary consolidations of railroads chanroblesvirtualawlibrary
(§ 5(11).) When these conditions have been complied with, the Commission-approved transaction goes into effect without need for invoking any approval under state authority, and chanroblesvirtualawlibrary
The Commission, under this Act as well as the Act of 1920, was also given complete control of the capital structure to result from a merger. [Footnote 15] The carrier, even if permitted chanroblesvirtualawlibrary
It appears to us inconsistent with the Interstate Commerce Act [Footnote 18] for the Commission to leave claims growing out of the capital structure of one of the constituent companies to be added to the obligations of the surviving carrier, contingent upon the decision of some other tribunal or agreement of the parties themselves. We think chanroblesvirtualawlibrary
Apart from meeting the test of the public interest, the merger terms, as to stockholders, must be found to be just chanroblesvirtualawlibrary
The appellants here, although the enterprise is to continue, insist on a valuation according to the letter of the charter. By this method, the longer their stock is in default of dividends or earnings, the greater interest it chanroblesvirtualawlibrary
Since the federal law clearly contemplates merger as a step in continuing the enterprise, it follows that what Michigan law might give these dissenters on a winding-up or liquidation is irrelevant, except insofar as it may be reflected in current values for which they are entitled to an equivalent. It would be inconsistent to allow state law to apply a liquidation basis to what federal law designates as a basis for continued public service. Federal law requires that merger terms be just and reasonable to all groups of stockholders, in contemplation of the continued use of their capital in the public calling to which it has been dedicated. Congress has made no provision by which minority stockholders, dissatisfied with a proposed railroad merger, may block it or compel retirement of their capital, as statutes often permit to be done in the case of private corporations where the public interest is not much concerned with its effect on the enterprise. And since Congress dealt with the subject of stockholders' consent, its failure to provide for withdrawal of nonconsenting chanroblesvirtualawlibrary
We therefore hold that no rights alleged to have been granted to dissenting stockholders by state law provision concerning liquidation survive the merger agreement approved by the requisite number of stockholders and approved by the Commission as just and reasonable. Any such rights are, as a matter of federal law, accorded recognition in the obligation of the Commission not to approve any plan which is not just and reasonable. In making that determination, those rights are to be considered to the extent that they may affect intrinsic or market values. While the Commission has found that what the appellants are given in this plan is just and reasonable, the record indicates that it may have declined to consider these claims, even if they are found to have chanroblesvirtualawlibrary
In an early case (Pittsburgh & W.V. R. Co. v. Interstate Commerce Commission, 54 App.D.C. 34, 293 F.1d 01, 1004, appeal dismissed, 266 U.S. 640) in which the constitutionality of § 20a had been upheld, the Court said:
The railroads of this country are operated by not less than 693 corporations. These exist by virtue of charters granted by the several States, * the laws of which govern their internal affairs, and, more particularly, the rights and liabilities of their stockholders. The Chesapeake & Ohio is chartered by Virginia, the Pere Marquette by Michigan. The laws of Virginia and Michigan respectively determine the conditions under which each may combine with other corporations. The votes of sufficient stockholders of these two corporations to satisfy the laws of their respective States were in favor of a voluntary agreement for the absorption of the Pere Marquette by the Chesapeake & Ohio. To consummate this agreement, however, required the authorization of the Interstate Commerce Commission under the terms of § 5(2) of the Interstate Commerce Act, as amended by the chanroblesvirtualawlibrary
The Chesapeake & Ohio is capitalized at $191,433,919. An additional $28,949,745 of stock is to be issued, under the merger plan, for Pere Marquette shareholders, making a total capitalization for the Chesapeake & Ohio, after merger, of $220,383,595. The appellants own 2,100 shares of Pere Marquette cumulative preferred. The merger agreement offered them securities found by the Commission to be worth $111.60 per share, or $234,360. If their claim for full book value of $172.50 per share were honored, it would amount to $362,250. This contingent liability of $127,890, the Commission concluded, did not chanroblesvirtualawlibrary
Until the Transportation Act of 1920, carriers, while subject to the Sherman law, could combine without leave of the Interstate Commerce Commission. See Northern Securities Co. v. United States, 193 U. S. 197. The Transportation Act of 1920 required the authorization of the Commission for acquisition by one carrier of the control over another, to the extent defined by § 5 of the Interstate Commerce Act, as amended. By the Transportation Act of 1940, the voluntary merger of the properties of two or more carriers into one corporation was chanroblesvirtualawlibrary
The Court now holds that State law governing the relations between State-chartered carriers and their stockholders is impliedly supplanted as to those who have refused to assent to a merger, even when the Commission finds that to leave the adjudication of those rights to the law that created them in nowise touches the "public interest" that is the sole condition to carrying out a wholly voluntary arrangement, and even though such a voluntary arrangement, by itself, could not affect the rights of dissenters. I have no doubt that Congress could compel the unification of railroad properties theretofore in separate ownership, and, in so doing, override State-created legal rights of stockholders of the constituent carriers. In the case of financially embarrassed carriers, Congress, in the exercise of its bankruptcy powers, has empowered the Interstate Commerce Commission to formulate plans of reorganization the terms of which, if fair and equitable, may override State-created legal rights of stockholders who do not assent. In the interests of a more efficient national railroad system, Congress may accomplish like results under the Commerce Clause. But that is precisely what Congress has refused to do. It was besought to eliminate the waste and inefficiencies due to the congeries of corporate instrumentalities through which the railroads of the United States operate by providing for compulsory consolidations. It was also besought to do away with the complexities and confusion resulting from State corporations' conducting the country's interstate railroad business by requiring federal incorporation. Congress rejected both demands. See H.R.Rep. No. 650, 66th Cong., 2d Sess., pp. 63-64. It chanroblesvirtualawlibrary
Appropriate accommodation between federal and State interests in the construction of the Interstate Commerce Act is needlessly sacrificed by adding to the detailed provisions whereby the Commission is merely authorized to approve voluntary mergers an implied abrogation of State law in no respect inconsistent with such limited power of authorization, since the Commission found that survival of a claim under State law would not impinge chanroblesvirtualawlibrary
This paragraph further contains an expressed disclaimer of authorization of federal incorporation. The prohibition of federal incorporation surely implied a desire to retain to the fullest possible extent the chanroblesvirtualawlibrary
The considerations relevant to voluntary railroad mergers sharply differ from those that control liquidations and reorganizations under § 77 of the Bankruptcy Act. (See also Railroad Reorganization Act of 1948 Pub.L. No. 478, 80th Cong., 2d Sess., April 9, 1948, 62 Stat. 162.) A railroad in reorganization is administered by a bankruptcy court, which has control of all its assets. The power of dealing with all claims is inevitably concentrated in that court. In merger proceedings, however, there is no obstacle to the practice pursued by the Commission of deciding what is "just and reasonable" and in "the public interest" as to each class of securities, while at the same time permitting any dissenter to stand on the terms of the particular stock issue, leaving to State law to determine what those terms are, provided only that the function of the new corporation, as part of an economic and efficient national railroad system, would not be affected by allowance of such claims. The Commission has here ruled that the appellants assert an unliquidated claim against the Pere Marquette sufficiently negligible not to affect the financial position of its successor, even if it be ultimately allowed in full. I fail to see that the effect on the Chesapeake & Ohio will be any different than that of negligence claims for the same amount. Every operating railroad is likely to have such claims outstanding against it at all times. Their existence does not interfere with the consummation of a voluntary merger. A reasonable amount of contingent obligations may easily be allowed for. In any event, the determination whether or not eventual liability for contingent claims of dissenting stockholders are such as to affect "the public interest" required to be protected by authorization chanroblesvirtualawlibrary
The Court is holding, in essence, that, while State law governs the rights of railroad stockholders before and after voluntary merger proceedings, it is supplanted during such proceedings. In thus thrusting upon the Commission a jurisdiction which it itself has rejected, the Court is depriving the States of a measure of control over their own corporations when this is not required by a fair reading of chanroblesvirtualawlibrary