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Penn Central Merger Cases - Citation 102118 - Court Judgment | LegalCrystal
Penn-central Merger Cases - Court Judgment
LegalCrystal Citation legalcrystal.com/102118
Case Number 389 U.S. 486
Appellant Penn-central Merger Cases
penn-central merger cases - 389 u.s. 486 (1968) u.s. supreme court penn-central merger cases, 389 u.s. 486 (1968) penn-central merger and n & w inclusion cases decided january 15, 1968 * 389 u.s. 486 syllabus last term this court concluded ( 386 u. s. 386 u.s. 372) that the interstate commerce commission (icc) erred in permitting immediate consummation of the penn-central merger without determining the ultimate fate of the erie-lackawanna, delaware & hudson, and boston & maine railroads (the "protected roads"). the icc then conducted proceedings on the petitions of those three lines for inclusion in the norfolk & western (n & w) system and ordered n & w to acquire the stock of the three "protected roads" on prescribed terms. in.....
Penn-Central Merger Cases - 389 U.S. 486 (1968)
U.S. Supreme Court Penn-Central Merger Cases, 389 U.S. 486 (1968)
Decided January 15, 1968 *
1. The ICC properly and lawfully discharged its duties with respect to the Penn-Central merger, as its findings and conclusions accord with § 5 of the Interstate Commerce Act, as amended by the Transportation Act of 1940, and are supported by substantial evidence. Pp. 389 U. S. 498 -502.
(a) Under the congressional policy, set forth in the Act, of consolidating railroads into a "limited number of systems," competition is only one of many considerations in determining the public interest in the merger. Pp. 389 U. S. 499 -500.
(b) The evidence before the ICC, with negligible exceptions, attested to the probability of significant benefit from the merger not only to the railroads and their investors, but also to shippers and the general public. P. 389 U. S. 500 .
(c) The ICC retains authority over reductions of service and facilities not specifically approved in the merger plans. P. 389 U. S. 501 .
(d) Rail service by the merged company will remain subject to restraining pressures and vigorous competition from other railroads and from motor, water, and air carriers. P. 389 U. S. 501 .
2. The attack on the orders by certain municipalities and Shapp based on the ICC's alleged failure to consider or properly evaluate the adverse effect of the merger considered in light of the inclusion order does not warrant reversal of the judgment of the District Court for the Southern District of New York. Pp. 389 U. S. 502 -506.
(a) These complainants' petitions for mandamus or certiorari challenging the stay order of the District Court for the Middle District of Pennsylvania are dismissed as moot, since the stay order has been dissolved. P. 389 U. S. 503 .
(b) In its April 6, 1966, opinion approving the merger the ICC considered arguments made by participating communities and stated that the "merger will benefit, rather than harm, the Commonwealth." Pp. 389 U. S. 503 -504.
(c) Claims of specific injury resulting from reduction of competition by curtailment of service now provided by the "protected roads" may be asserted in appropriate proceedings when such curtailment is proposed. P. 389 U. S. 504 .
(d) The City of Scranton and Shapp were parties to the New York proceedings, and the Borough of Moosic had adequate opportunity to join in that litigation following the stay of proceedings in the Pennsylvania court, and accordingly the New York court's decision which, with certain exceptions, is affirmed, precludes further judicial review of the issues on which it passes. Pp. 389 U. S. 505 -506.
(e) Since the proceedings in the Pennsylvania court are not before this Court, except for the petitions challenging the stay order which have been dismissed as moot, it will be that court's task to determine the effect of the present decision upon the proceedings before it. P. 389 U. S. 506 .
3. The decision of the District Court for the Middle District of Pennsylvania denying intervention to the City of Pottsville is vacated. Pp. 389 U. S. 506 -507.
4. The appeals of bondholders of the New York, New Haven & Hartford Railroad Company (NH), which has been under reorganization since 1961, challenging the ICC's order of November 21, 1967, providing terms for NH's inclusion in the Penn-Central system and for a loan arrangement to keep NH operating, are rejected. Pp. 389 U. S. 507 -511.
(a) The merits of the provisions of that order are not before this Court; they have not been reviewed by the bankruptcy court or by a statutory district court under the applicable statute. P. 389 U. S. 509 .
(b) Continuation of NH's operations can be realistically assured only upon effectuation of the merger, and, while the rights of bondholders are entitled to respect, they do not dictate that vital rail operations be jettisoned for this reason alone. Pp. 389 U. S. 510 -511.
(c) The bondholders' objections may be adjudicated in the reorganization or upon proper judicial review, and the ICC has retained jurisdiction to make further necessary orders. P. 389 U. S. 511 .
5. The New York court's conclusion that the interim provisions for the "protected roads" are adequate and conform to the purposes insisted on by the ICC and which this Court sought to ensure by its decision last Term is affirmed. Pp. 389 U. S. 511 -518.
(a) The protective conditions do not constitute a pooling arrangement within the meaning of the applicable statute, and the ICC's holding may be sustained by the substantial evidence that, even if these provisions established a pooling arrangement, "this record clearly supports findings . . . that to protect these carriers clearly is in the interest of better service to the public" and "will not unduly restrain competition." Pp. 389 U. S. 513 -514.
(b) The ICC has reserved jurisdiction under which it could modify these provisions should improper traffic diversions develop or if the conditions should otherwise prove inequitable. Pp. 389 U. S. 514 -515.
(c) This Court's decision last Term was based on the ICC's failure to decide the question of the ultimate home of the "protected roads," and does not forbid consummation of the merger until the three roads are actually included in a larger system. Pp. 389 U. S. 516 -518.
6. The ICC's refusal to permit the Reading Company to reopen the merger record and submit evidence supporting its claim for protection similar to that given the "protected roads" is sustained, without prejudice to any proceeding by Reading, based on actual experience, for relief from undue prejudice caused by the merger. Pp. 389 U. S. 519 -520.
7. The New York court's disallowance of the claims of those appellants who challenge the ICC's order for inclusion of the "protected roads" in the N & W system is affirmed. Pp. 389 U. S. 520 -526.
(a) If, after inclusion of Erie-Lackawanna (E-L) in the N & W system by stock acquisition, E-L bondholders feel that N & W has engaged in conduct invading their rights, they may apply to the ICC for relief under its reserved jurisdiction. P. 389 U. S. 522 .
detail by the District Court and sustained, and there is no basis for reversing the judgment of that court. Pp. 389 U. S. 523 -526.
(c) The inclusion order has no compulsive or coercive effect on the roads to be included, and unless and until modified by the ICC, it remains available to the protected lines upon the terms specified. P. 389 U. S. 526 .
(d) The conditions prescribed by the ICC to protect employees of the roads to be included in the N & W system are sustained. They are similar to those set by the ICC for N & W's employees at the time of the N & W-Nickel Plate merger. P. 389 U. S. 526 .
merger and consolidation proceedings is left to the carriers themselves, and the Commission possesses no power to compel carriers to merge. However, the congressional directive for a limited number of railroad systems has not been changed. The only change has been in the means of achieving that goal. See generally St. Joe Paper Co. v. Atlantic Cast Line R. Co., 347 U. S. 298 , 347 U. S. 315 -321 (Appendix) (1954).
The Pennsylvania and the New York Central dominate rail transportation in the Northeast. Their freight operations extend over some 20,000 miles of road in 14 States and Canada. They are the two largest passenger carrying railroads in the United States. In 1965, their combined operating revenue surpassed $1,500,000,000 and their combined net income was more than $75,000,000. As independent lines, Pennsylvania and New York Central are, to some extent, in direct competition for rail traffic. There are 32 urban areas in which the two lines are in competition with each other and in which no other rail facilities are available. The two roads operate at 160 common points or junctions, and have a substantial amount of parallel trackage and routes. The proposed merger which the ICC has approved contemplates the unification of these vast roads and, as time goes on, the rationalization and elimination of some of the dual facilities and services in various areas and in various respects. The merger will result in "enormous savings in transit time." It is estimated that, in eight years, the savings in expense will amount to more than $80,000,000 annually. See Baltimore & Ohio R. Co. v. United States, 386 U. S. 372 , 386 U. S. 379 -381 (1967).
At the last Term of Court, we reversed. We noted that the Commission itself had found that the survival of the E-L, D & H, and B & M was essential to the public interest, and that these roads would be so seriously affected by the competition of the merged company that they might not be able to survive unless adequate protective arrangements were made. In these circumstances, we concluded that the Commission should have determined the means to preserve the "protected roads," on both an interim and a permanent basis, before permitting consummation of the merger. We expressly stated that we were not passing upon the validity of the merger or the "peripheral points posed by the various parties." Baltimore & Ohio R. Co. v. United States, supra, at 386 U. S. 378 .
386 U.S. at 386 U. S. 390 .
In accordance with our remand of the Penn-Central merger case, the Commission conducted further proceedings in the N & W case on the pending petitions of the three roads. On June 9, 1967, it issued its decision to the effect that "inclusion of the petitioners in the N & W system is preferable to their inclusion in the Penn-Central," and ordered N & W to acquire the stock of the three roads on prescribed terms. Norfolk & Western Railway Co. and New York, Chicago & St. Louis Railroad Co. -- Merger, etc., 330 I.C.C. 780, 796 (1967). At the same time, in the remanded Penn-Central merger proceedings, the Commission reconsidered certain protective conditions it had previously devised to aid the three roads, imposed amended protective conditions to operate in the interim between consummation of the Penn-Central merger and the protected lines' inclusion in a major railroad system, [ Footnote 1 ] and again authorized the immediate consummation of the Penn-Central merger. Pennsylvania Railroad Company -- Merger -- New York Central Railroad Company, 330 I.C.C. 328 (1967).
parties in the same court to set aside the order of the Commission requiring the N & W to include the three protected roads in its system. Suits challenging both the merger and inclusion orders were instituted in other courts, but were stayed so as to permit orderly disposition of the basic issues in the Southern District of New York. [ Footnote 2 ] After expedited proceedings in that court, all complaints attacking the merger and the inclusion orders were dismissed, [ Footnote 3 ] and the decisions of the Interstate Commerce Commission in both the merger and the inclusion proceedings were sustained. 279 F.Supp. 316. Various of the parties then sought relief in this Court. Because of the importance and urgency of the matter, we granted a further stay of the merger order, consolidated all proceedings that were before us relating to the merger and inclusion decisions, and expedited consideration thereof. See post, p. 946.
I . THE MERGER DECISION.
Determination of the factors relevant to the public interest is entrusted by the law primarily to the Commission, subject to the standards of the governing statute. The judicial task is to determine whether the Commission has proceeded in accordance with law and whether its findings and conclusions accord with the statutory standards and are supported by substantial evidence. See, e.g., Illinois C. R. Co. v. Norfolk & W. R. Co., 385 U. S. 57 , 385 U. S. 69 (1966).
Scranton and Shapp, like the Borough of Moosic, wish now to go forward with their complaints in the Middle District of Pennsylvania, in which they seek an injunction against consummation of the Penn-Central merger and the effectiveness of the inclusion order. But Shapp and Scranto were parties to the New York proceedings, and the Borough of Moosic had an adequate opportunity to join in the litigation in that court following the stay of proceedings in the Middle District of Pennsylvania. As we noted supra, n 2, all district courts in which actions to review the Commission's findings or for injunctive relief were filed continued their proceedings in deference to the New York court. All parties with standing to challenge the Commission's action might have joined in the New York proceedings. [ Footnote 4 ] In these circumstances, it necessarily follows that the decision of the New York court which, with certain exceptions,
are essentially of two types: traffic conditions that require the merged Penn-Central not to change routes, rates, or service in such a way as to divert traffic from the protected lines, and revenue indemnity conditions establishing a formula whereby Penn-Central is to compensate the protected lines in the event of adverse revenue results following the merger. [ Footnote 5 ] At the time the case was before us last Term, the Commission had withdrawn the revenue indemnity conditions pending further consideration. After our remand, the Commission further considered all the conditions, amended them in some respect not here material, and restored the revenue indemnity condition. None of the protected roads has lodged objections against these provisions, nor has Penn-Central, and we affirm the District Court's conclusion that they appear to provide adequate interim protection for the three roads in conformity with the purposes insisted upon by the Commission and which this Court sought to ensure by its decision last Term. [ Footnote 6 ]
reservation of Jurisdiction, under which it could revise the protective conditions. [ Footnote 7 ] If, in light of experience, improper traffic diversions should develop or, as noted above, if these conditions should otherwise prove to be inequitable, recourse may be had to the Commission under these reservations, subject to judicial review as appropriate. [ Footnote 8 ]
another (D & H) has recommended to stockholders that inclusion be accepted. [ Footnote 9 ] In view of these circumstances, the fears expressed by N & W and the other protestants as to the dangers which perpetuation of these provisions will pose must be regarded as speculative. Clearly, if one or more of the protected roads should decline to accept the terms for inclusion specified by the Commission's order, the Commission could be called upon to examine, pursuant to its reserved power, the appropriate action to be taken to terminate or modify the interim protective provisions or otherwise to ensure that the shield supplied to the roads is not converted into a sword. The fears expressed by the protestors fall far short of furnishing a reason for rejecting the District Court's approval of the Commission's order that the Penn-Central merger be immediately consummated. Nor is there merit to N & W's contention that it was error for the Commission to fail to rule, now and forever, that the protected roads may not be included in Penn-Central. Whether or not such permission appears likely, there is no occasion for such contingent foreclosure.
386 U.S. at 386 U. S. 390 . Our decision was not intended to require an indeterminate delay in the consummation of the merger, pending the resolution of the jockeying, negotiating, and fighting among all of the parties concerned and completion of the multitudinous procedures necessarily involved. This would place the public interest as well as the vast majority of the affected private interests at the mercy of decisions not merely of certain corporations whose interests are, in fact, secondary or derivative, but of classes of security holders. It was our intention that the public interest should be served with fairness to all private parties concerned, not that it should be the captive of parties some of whom are understandably engaged in maneuvering solely for the purpose of improving their competitive, strategic, or negotiating positions.
We need not pause to discuss in detail N & W's contention that the Commission's findings do not support a conclusion that N & W must proceed with inclusion of fewer than all three of the protected roads, if, for example, B & M does not accept the terms. The original decision in the N & W-Nickel Plate merger proceedings clearly contemplates action by the Commission upon a "petition or petitions" of one or more of the three roads. 324 I.C.C. 1, 148. Separate petitions were, in fact, filed by each of these roads. As the District Court concluded, in light of the favorable action already taken by E-L stockholders and the D & H Board of Directors, the possibility of noninclusion of B & M would not be cause for setting aside the Commission's order. [ Footnote 10 ]
II . INCLUSION DECISION.
"for the purpose of making such further order or orders in these proceedings as may be necessary or appropriate, in addition to those orders under jurisdiction expressly retained in the prior reports and orders of the Commission and to those orders which may be issued under section 5(9) of the Interstate Commerce Act. [ Footnote 11 ]"
last Term found adequate support for the Commission's conclusion that the public interest requires inclusion of the three roads in a larger system. As we have previously noted, see supra at 389 U. S. 503 -505, the Commission's findings and order with respect to the "public interest considerations" involved in the inclusion of these lines in the N & W system are in conformity with the statute and are supported by substantial evidence.
N & W's attack upon the inclusion order centers upon its disagreement with the Commission's findings as to prospective earnings of the three roads as part of the N & W system. It argues that the Commission had no basis for concluding that the earnings of E-L, D & H, and B & M, as subsidiaries of N & W, would be adequate to assure their "viability." [ Footnote 12 ] It asserts that the Commission has made various invalid adjustments of actual earnings and failed to make others. This, N & W says, is "the principal area of dispute in these proceedings."
the Commission in light of the evidence of record and the District Court's analysis, and we find no basis for reversing the District Court's judgment. The terms fixed by the Commission are clearly within the area of fairness and equity. Although B & M argues forcefully that the Commission underestimated the savings that should redound to its credit, we cannot say in the circumstances that the order should be reversed and remanded in this respect. It must be noted, as we have discussed in connection with appeals relating to the Penn-Central merger decision, that the inclusion order has no compulsive or coercive effect upon the roads to be included. Unless and until modified by the Commission, it remains avail able to the protected lines upon the terms which it specifies and which the District Court found to be fair and equitable. [ Footnote 13 ]
279 F.Supp. at 337. [ Footnote 14 ]
See infra at 389 U. S. 511 -512.
The Pennsylvania District Court proceedings were initiated by the Borough of Moosic (petitioner in No. 663, Misc.), located in Lackawanna County, Pennsylvania. The Borough brought its action on June 26, 1967, to annul and set aside the orders of the Commission authorizing the Penn-Central merger and requiring the inclusion of E-L, D & H, and B & M in the N & W system. [ Footnote 2/1 ] Those orders by the Commission had been issued on June 9, 1967, following our remand last Term on March 27, 1967. Baltimore & Ohio R. Co. v. United States, 386 U. S. 372 . Moosic, whose complaint is dated June 26, 1967, was joined by intervenors City of Scranton and Milton J. Shapp (petitioners in No. 664, Misc.) [ Footnote 2/2 ] and
the City of Pottsville (appellant in No. 433). [ Footnote 2/3 ] On July 11, the court granted the application of Shapp and the City of Scranton to intervene, but denied that of the City of Pottsville.
Before the Pennsylvania action was initiated, the District Court for the Southern District of New York, in which the original action to set aside the Commission's order allowing consummation of the Penn-Central merger had been filed ( i.e., the action reviewed by this Court
to proceed with their complaints. The Court today dismisses those two petitions. [ Footnote 2/4 ]
The Court seems to suggest that, because the Commission in its April 6, 1966, order, also contemplated that E-L, D & H, and B & M would eventually be included in some major system, it must have been taking into account the impact of such inclusion on the communities served by those roads when it made the statement quoted above. But this assumption flies in the face of the Commission's case-by-case approach. It ignores the fact that the evidence before the Commission in Finance Docket No. 21989 (the Penn-Central Merger Case ) relating to the community impact of the Penn-Central merger was not addressed to the impact which the eventual inclusion of E-L, D & H, and B & M into N & W would have on communities served by those roads. See Recommended Report, Finance Docket No. 21989, at 229-286; 327 I.C.C. 475, 489-493. And if the Court were correct in divining the Commission's hidden intent, I would have no doubt that the Commission did not provide adequate opportunity to the communities which would be affected by the inclusion of the three roads in any major system to participate in the proceedings. Infra at 389 U. S. 535 -536.
Congress has, of course, committed all questions of policy under § 5 to the Commission; but, on judicial review, we must be able to say that the Commission has made the necessary findings in determining policy -- in this instance, that the inclusion will be in the "public interest." I do not find in the opinion of the District Court, or in the Court's opinion, a searching inquiry into the Commission's conclusions regarding the community impact of its orders in the Inclusion Case to ascertain whether they are adequately supported by "basic or essential findings." Florida v. United States, 282 U. S. 194 , 282 U. S. 215 ; United States v. Carolina Carriers Corp., 315 U. S. 475 , 315 U. S. 489 . A few words about the community impact of this case -- the Inclusion Case -- will point up what I mean.
This cursory treatment of the allegations of Shapp and other Pennsylvania interests is not an analysis of the merits of their assertions sufficient for judicial review. This is hardly a considered treatment of the effects which inclusion would have on communities presently served by more than one of the roads to be included in the N & W system. [ Footnote 2/5 ]
Communities which depend heavily on the railroad industry for employment, such as the City of Scranton, would be affected significantly by any loss of jobs. In its opinion in the N & W Inclusion Case, the Commission noted that, in the earlier phase of this proceeding, N & W had entered into agreements with certain labor unions which provided that elimination of jobs resulting from the N & W-Nickel Plate unification would be accomplished only through normal attrition ( i.e., "principally by death, retirement, discharge for cause, or resignation." 330 I.C.C. 780, 822, n. 26); the agreements were apparently modified at a later date to prohibit transfer of employees to other jobs beyond their general locality. For those employees not covered by the agreements, the Commission imposed certain protective conditions prescribed in Southern Ry. Co. -- Control -- Central of Georgia Ry. Co., 317 I.C.C. 557, as supplemented and clarified in 317 I.C.C. 729 and 320 I.C.C. 377. The Commission concluded that the employees of E-L, D & H, and B & M should be protected in the same manner as their counterparts involved in the N & W-Nickel Plate proceedings. For all employees not covered by attrition agreements, the protection would consist of the following: either N & W's existing agreements had to be modified to cover employees of the included roads or similar new agreements were to be drafted; and, if no agreement was concluded within 60 days, the Commission would impose appropriate conditions. The Commission denied the requests of D & H and B & M to extend this employee protection to their supervisory, professional, and executive personnel.
attacks leveled by the parties in the Middle District of Pennsylvania, including the question of community impact. [ Footnote 2/6 ]
A party is entitled to its day in court; [ Footnote 2/7 ] and I cannot fathom how a party can be deprived of that right or waive it by refusing an invitation -- not even an order -- to litigate in another court located in another State. [ Footnote 2/8 ] The Court could reach its conclusion under the doctrine of res judicata only if Moosic could be termed in "privity" with one of the parties litigating in the New York action. See, e.g., Lawlor v. National Screen Service Corp., 349 U. S. 322 ; Bank of Kentucky v. Kentucky, 207 U. S. 258 ; Mutual Benefit Life Ins. Co. v. Tisdale, 91 U. S. 238 ; In re Howard, 9 Wall. 175. But Scranton and Shapp were the only community interests in the New York court who challenged the Commission's basic finding that the Penn-Central merger was in the public interest;
and, as pointed out, their allegations were not directed to the Commission's order in the N & W Inclusion Case. The Borough of Moosic is a separate community, with distinct interests based on the facilities and lines of the various roads located within the Borough, or serving the Borough. Under such conditions, Moosic cannot properly be called in privity with Scranton or Shapp. [ Footnote 2/9 ]
is denied if venue would not have been proper for an original action in the district court to which transfer is sought. [ Footnote 2/10 ] When a three-judge district court in New York was asked to transfer proceedings challenging an ICC order to the district court in Maryland, where another like challenge was being made, it declined, saying, "None of the plaintiffs in the actions in the Southern District of New York has its residence or principal office in the District of Maryland." New York Central R. Co. v. United States, 200 F.Supp. 944, 947 (D.C.S.D.N.Y. 1961). The New York District Court, speaking through Judge Friendly, refused to invoke the procedure provided for in 28 U.S.C. § 2112(a), since that section applies, as already noted, only to review of agency orders in the courts of appeal. Id. at 949-950. That court was much more faithful to the system of review which Congress has provided than we are today. Moosic and Scranton by no stretch of the imagination have their "residence" in New York. By 28 U.S.C. § 1398, venue plainly lies in Pennsylvania, and Congress has provided no method of transferring those suits to New York. [ Footnote 2/11 ]
It is not only hard cases which make bad law. Cases surcharged with the pressure for instant and immediate decision do the same, [ Footnote 2/12 ] and create precedents which plague us.
The City of Scranton and Milton J. Shapp were parties to both proceedings before the Commission, and were intervenors in the previous action commenced in the Southern District of New York, which was reviewed by this Court last Term. They were the only parties before the New York court last Term that challenged the basic validity of the Penn-Central merger. ( See Baltimore & Ohio R. Co. v. United States, 386 U. S. 372 , 386 U. S. 462 (dissenting opinion of MR. JUSTICE FORTAS).) Their original complaint in the New York court was dismissed with prejudice by that court on October 19, 1967, pursuant to Rule 41(b), Fed.Rules Civ.Proc., for failure to file a supplemental complaint attacking the Commission's order of June 9, 1967, in the Penn-Central Merger Case. Scranton and Shapp were never parties to the N & W Inclusion Case in the New York court.
Hansberry v. Lee, 311 U. S. 32 .
In Hansberry v. Lee, 311 U. S. 32 , 311 U. S. 43 , we stated that even "when the only circumstance defining the class is that the determination of the rights of its members turns upon a single issue of fact or law," it might be possible for a State constitutionally to adopt a procedure whereby the judgment could be made binding on all members of the class; but only if
I can find no authority for a rule which would require a party not under the jurisdiction of the inviting court to respond affirmatively to an invitation to intervene or else be bound by an adverse decision. Indeed, Chase Nation Bank v. Norwalk, 291 U. S. 431 , would suggest that the rule is to the contrary. The Court stated in that case that
Id. at 291 U. S. 441 .
Our decisions in Hoffman v. Blaski, 363 U. S. 335 , and Van Dusen v. Barrack, 376 U. S. 612 , indicate that § 1404(a) permits transfer only to a district court in which the plaintiff would have been entitled, without regard to consent by the defendant, to bring his action originally. Moosic and Scranton could not have brought an original action in New York.
Holmes, J., dissenting, in Northern Securities Co. v. United States, 193 U. S. 197 , 193 U. S. 401 .
Baltimore & Ohio R. Co. v. United States, 386 U. S. 372 , 386 U. S. 392 . Because of this, we refused to allow the Penn-Central merger to be consummated before the fate of the three protected roads (the Erie-Lackawanna, Delaware & Hudson, and Boston & Maine) had been determined. Some aspects of the Commission's merger and inclusion order -- those which do not go to the heart of the Commission's decision (that is, its determination that the merger or inclusion is in
the "public interest") -- can await later judicial review. Examples would be the contentions of Reading and the E-L bondholders. But I fail to see how we can affirm the Commission's decision that this entire transaction is in the "public interest" without considering those points raised by the parties which do go to the heart of the controversy. I refer specifically to the contentions of the parties in the Middle District of Pennsylvania ( see my partial dissent in Nos. 433, 663, Misc., and 664, Misc.), and to Nos. 830 and 831, which involve claims of the New Haven creditor interests, to which I now turn.
clear of liens and other encumbrances. The lien of the New Haven creditors' interests would shift from New Haven's present assets to the assets held by the trustees as the proceeds of the sale. Provision for the preservation of priorities and rights of claimants was made in the plan. The trustees originally submitted, pursuant to § 77 of the Bankruptcy Act, [ Footnote 3/1 ] a plan of reorganization to be accomplished in two steps. Initially, only the first step, providing for the sale of the New Haven to the merged Penn-Central system, was presented to the Commission for approval. After that part of the plan had been completed, the trustees intended to implement the second step, relating to distributing the assets of the New Haven estate or issuing new New Haven securities.
terms" for the sale of assets would satisfy "a legal preliminary to NH inclusion without delay once the Penn-Central merger is consummated." [ Footnote 3/2 ] On the other hand, it said, delay of such a decision until completion of New Haven's reorganization would prevent a timely rescue of the New Haven as an operating common carrier. Thus, the Commission opted in favor of
"improved service through a consummated Penn-Central merger including an operational NH, while the NH creditors are freed to litigate at will the distribution of their estate. [ Footnote 3/3 ]"
The bondholder interests before this Court contend that, under either the majority or dissenting opinions in St. Joe Paper Co. v. Atlantic Cost Line R. Co., 347 U. S. 298 , any sale of the New Haven to the merged Penn-Central system would require at least its submission to a vote of bondholders. See also Reconstruction Finance Corp. v. Denver & Rio Grande Western R. Co., 328 U. S. 495 . The bondholders also argue that the Commission ignored the admonition of this Court in Palmer v. Massachusetts, 308 U. S. 79 , 308 U. S. 88 , that the powers of the Commission and courts under § 77 of the Bankruptcy Act can properly be exercised only in the context of "a complete plan of reorganization for an insolvent road."
of "wasting assets" employed under Chapter X of the Bankruptcy Act to permit two-step plans of reorganization, and analogized that doctrine to the instant case -- since, in the view of the Commission, the New Haven could properly be classified as a "wasting asset." [ Footnote 3/4 ]
With respect to interim financing of the New Haven, the Commission approved a loan proposal under which Penn-Central would make available to the New Haven a total of $25,000,000 over three years to enable the New Haven to continue its operations until its assets were conveyed to Penn-Central. The Commission noted that the loan authorization did not impair the jurisdiction of the reorganization court, since that court would still have to approve issuance of trustees' certificates to evidence those advances. [ Footnote 3/5 ]
The Commission did not place all of New Haven's operating losses on Penn-Central during the period of the loan agreement. The amount to be absorbed by Penn-Central is governed by a specific formula approved by the Commission. [ Footnote 3/7 ] With respect to deciding how much of the loss was to be assumed by Penn-Central under the formula, the Commission noted two main factors: (1) the admonition of the reorganization court that safeguards against endless litigation by New Haven creditors should be established, and (2) in the interim period before conveyance of New Haven's assets to Penn-Central, the opportunities to integrate New Haven's operations into the Penn-Central system would be restricted, so that many operating economics and efficiencies could not be realized until complete inclusion of the New Haven. The Commission felt that the existence of these factors tended to limit the portion of New Haven losses which Penn-Central should have to absorb under the formula. The final amount decided upon was 100% of the loss during the first year, 50% during the second, and 25% during the third. Further, the Commission set $5,500,000 as the maximum Penn-Central share of operating losses in any one year.
burdens under a lease agreement. The Commission expected that the total amount loaned by Penn-Central over three years would probably be "substantially less than $25 million." [ Footnote 3/8 ] It noted that the requirements for loans would increase in relation to the operating losses of the New Haven, but, as the operating losses increased, Penn-Central would absorb a part of the increase. At the same time, the Commission pointed out that, since the amount of losses to be assumed by Penn-Central would decline each year (from 100% to 50% to 25%), the creditors would have much to gain by speedily completing the reorganization proceedings.
On the other hand, the bondholders contend that their objections to the Commission's November 16 order are so substantial that, even if they have only partial success on judicial review, the feasibility of inclusion would be open to serious question. If inclusion of the New Haven in the Penn-Central system could not be accomplished, a major underpinning in the Commission's finding that the merger was in the public interest would be removed. [ Footnote 3/9 ] The New Haven might then have to be liquidated in the reorganization court. Perhaps eventual operation by the Federal Government, or by the States concerned, would be the outcome. In fact, appellant in No. 831 has pending before the reorganization court a petition for immediate liquidation of the New Haven. The bondholders, of course, seek to recover as much of their investment as possible. To the extent that any loans from Penn-Central to the New Haven would not be offset by Penn-Central's obligation to absorb a portion of the New Haven operating losses, the bondholders' equity would be diluted.
The Commission is commanded by § 5(2)(d) of the Act to authorize inclusion of a road only on "equitable terms." [ Footnote 3/10 ] Are the operating loss provisions, as they
The Commission has itself stated that the Penn-Central merger would not be in the public interest without the complete inclusion of the New Haven. [ Footnote 3/11 ] Clearly we should not approve this merger and decide that the mandate of § 5(2)(b) has been fulfilled without at the same time concluding that the loan agreement and the sharing of the New Haven deficit are "equitable."
If that is the purpose and effect of this provision concerning Penn-Central's sharing of the operating losses of the New Haven, the issue may well have spent itself, unless we grant judicial review prior to the consummation of the merger. Of course, if the merger is approved, one way in which the coercive effect of this provision of the plan could be eliminated would be to undo the merger. But that gets back to the problem of unscrambling mergers of this kind and intricacy, once they are consummated -- the difficulty emphasized by Mr. Justice Clark when the case was here before. 386 U. S. 386 U.S. 372, 386 U. S. 392 .
in the Penn-Central system in its November 16 report, [ Footnote 3/12 ] although it evidently believed that the possibility of noninclusion did not justify delaying consummation of the Penn-Central merger. Such an approach is not permissible under the statutory scheme, when the Commission has stated that the Penn-Central merger would not be in the public interest unless the New Haven were included in that merged system. And, as the bondholders have noted, there exists a substantial doubt whether the inclusion of the New Haven on equitable terms as required by § 5(2)(d) has been provided.
49 U.S.C. § 5(2)(d). Section 5(2)(b) authorizes acquisition of one carrier by another on terms which are "just and reasonable." See, e.g., Schwabacher v. United States, 334 U. S. 182 ; Cleveland, C., C. & St. L.R. Co. v. Jackson, 22 F.2d 509 (C.A. 6th Cir.1927); Stott v. United States, 166 F.Supp. 851 (D.C.S.D.N.Y.1958).