Source: http://openjurist.org/386/us/372/baltimore-ohio-co-v-united-states-delaware-and-hudson-r-corp
Timestamp: 2015-11-25 10:41:55
Document Index: 581453415

Matched Legal Cases: ['§ 5', '§ 5', '§ 5', '§ 8', '§ 2284', '§ 77', '§ 205', '§ 5', '§ 5', '§ 5', '§ 5', '§ 17', '§ 5', '§ 5', '§ 1', '§ 5', '§ 5', '§ 5']

386 US 372 Baltimore Ohio Co v. United States Delaware & Hudson R Corp | OpenJurist
386 U.S. 372 - Baltimore Ohio Co v. United States Delaware & Hudson R Corp Homethe United States Reports386 U.S.
386 US 372 Baltimore Ohio Co v. United States Delaware & Hudson R Corp 386 U.S. 372
87 S.Ct. 1100
18 L.Ed.2d 159
BALTIMORE & OHIO R. CO. et al., Appellants,v.UNITED STATES et al. The DELAWARE & HUDSON R. CORP., Appellant, v. UNITED STATES et al. ERIE-LACKAWANNA R. CO., Appellant, v. UNITED STATES et al. CITY OF SCRANTON, Appellant, v. UNITED STATES et al. Milton J. SHAPP, Appellant, v. UNITED STATES et al. CHICAGO & EASTERN ILLINOIS R. CO., Appellant, v. UNITED STATES et al.
Nos. 642, 680, 691, 813—815.
Argued Jan. 9 and 10, 1967.
Howard J. Trienens, Chicago, Ill., Lloyd N. Cutler, Washington, D.C., Edward W. Bourne, Harry G. Silleck, Jr., New York City, Leon Keyserling and Gordon P. MacDougall, Washington, D.C., for appellants.
Sol. Gen. Thurgood Marshall for the U.S.
Robert W. Ginnane, Hugh B. Cox, Washington, D.C., Joseph Auerbach, Boston, Mass., Walter J. Myskowski, Washington, D.C., Samuel Kanell, Hartford, Conn., David Berman, Boston, Mass., and John H. Chafee, Providence, R.I., for appellees.
These six appeals involve the validity of an order of the Interstate Commerce Commission permitting the merger of the Pennsylvania Railroad Company and the
[Argument of counsel intentionally omitted] New York Central Railroad Company (Penn-Central) pursuant to § 5(2) of the Interstate Commerce Act, as amended, 41 Stat. 481, 49 U.S.C. § 5(2). In its original order of April 6, 1966, the Commission found that the merger might divert a substantial amount of traffic from the Erie-Lackawanna Railroad Company (E—L), the Delaware and Hudson Railroad Company (D & H) and the Boston and Maine Corporation (B & M), three smaller competing carriers designated as the 'protected railroads' by the Commission. These protected railroads had filed under § 5(2)(d) of the Act applications for inclusion in both this merger and in Norfolk & W. Ry. Co. and New York, C. & St. L.R. Co.—Merger, 324 I.C.C. 1. In the latter case inclusion of E—L and D & H has been recommended and, together with B & M, is pending before the Commission. The applications of the protected roads in the Penn-Central proceeding have been held in abeyance pending decision in the Norfolk proceeding.
On the merits of the Penn-Central merger, the Commission found that the service the protected railroads 'render their shippers is essential and the public interest dictates that (such service) be preserved.' The Commission concluded 'that immediate consummation of the proposed merger would be consistent with the public interest, if conditions are imposed to obviate impairment or serious weakening' of the three lines. Without such conditions or the inclusion of the protected roads in a major system, the Commission further found, it would be doubtful if the 'three carriers could withstand the competition of the applicants merged, and, unless they are protected during the period necessary to determine their future, we would not authorize consummation at this time, even though approving the merger.' 327 I.C.C. 475, 532. It, therefore, applied, sua sponte, certain conditions to the immediate consummation of the merger which were 'designed to prevent any loss of revenue over the three railroads (the protected railroads) as a direct result of immediate consummation of this merger.' Its 'approval of the merger for undelayed consummation' was made 'subject * * * to the conditions specifically described in appendix G,' ibid., which was attached as an appendix to the April 6, 1966, order, and which we likewise attach as an Appendix here. The Commission, apparently because of the necessity for the conditions and the urgency of the merger, required compliance with Appendix G even though it had neither the benefit of a report from a Hearing Examiner thereon, nor the advantage of a hearing before the Commission itself. These conditions detailed the protection which must be given the protected railroads and made them a prerequisite to the consummation of the merger.
The Commission, therefore, not only found that protection of the three railroads was necessary, but fixed the terms thereof and required compliance prior to permitting the merger. There was nothing tentative about Appendix G. The conditions were divided into two general categories and provided that: (1) On traffic for which the protected railroads are 'competitive factors'1 the merged company shall not, pending final determination of the inclusion proceedings, provide any new or changed routing practice, freight rates, or service which would divert or tend to divert traffic from routes in which the protected railroads, or any of them, participates or participated at the time of the merger. And (2) the protected railroads would be indemnified by the merged company against revenue losses by reason of the merger. Appendix G to the order detailed the manner in which such indemnity would be calculated and provided for the accelerated processing of complaints as to new or changed routes, practices, rates, or services. Section 7 of Appendix G provided that if the merged company did not accede to all of the conditions, the merger would be deferred for two years or 'such time as the Commission may determine to be necessary to protect the interests of D & H, B & M and E—L.' And § 8 provided that the conditions 'shall be construed, administered and enforced with the view to protecting the E—L, D & H and B & M and the shipping public which depends upon them for transportation, against the effects of the merger for the period and purposes set forth above.'
Thereafter, and without a hearing, but apparently on the objection of most of the parties, the Commission on September 16, 1966, modified its April 6 order and reopened the hearing. 328 I.C.C. 304. The objectors, among other things, pointed to the fact that the conditions of Appendix G were made without any notice or hearing and would create irreconcilable conflicts between the protected carriers and others adversely affected by the merger. In reopening the hearing the Commission limited it to the conditions imposed in Appendix G, the prevention of possible manipulation of such conditions and the enlargement of the indemnity provision to include capital loss. In the reopening order of September 16, 1966, the Commission left intact its order of April 6, 1966, as to the undelayed consummation of the merger, continued in effect the ban on new or changed routes, practices, and rates as to traffic in which any of the protected railroads participated, but lifted the indemnification condition until further order, at which time any such provision found necessary could be made retroactive to the date of the merger. None of the previous findings, as to the necessity for the immediate imposition of the conditions included in the original order, were amended or withdrawn. The traffic conditions alone were left in effect.
This suit was filed on September 7, 1966, and arose upon the complaint of E—L and other railroads seeking an interlocutory injunction to restrain the consummation of the merger. A three-judge court was convened, 28 U.S.C. § 2284, and thereafter it declined, by a divided vote, to grant the interlocutory injunction. Erie-Lackawanna Railroad Co. v. United States, D.C., 259 F.Supp. 964. The appellants sought a stay from Mr. Justice Harlan who referred the application to the Court and it was granted on October 18, 1966. At the same time we expedited the case for consideration. 385 U.S. 914, 87 S.Ct. 224, 17 L.Ed.2d 18. The sole question before us is whether, in light of the findings as to the necessity for interim protection for the so-called protected railroads, the Commission erred in permitting the consummation of the merger prior to and without awaiting determination of the inclusion proceedings. We believe that the Commission erred in approving the immediate consummation of the merger without determining the ultimate fate of the protected roads. We, therefore, reverse the judgment and remand the case to the District Court with instructions to remand the matter to the Commission for further proceedings in accordance with this opinion.
At the outset we make it clear that we do not pass on the validity of the merger, the special conditions of Appendix G, the modified order of the Commission, or the peripheral points posed by the various parties. We hold only that under the uncontradicted findings of the Commission it was necessary for it to conclude the inclusion proceedings, as to the protected railroads, prior to permitting consummation of the merger.
The Penn-Central merger has been under study and discussion by the Commission for some 10 years. After the initial study was completed in 1959, Central withdrew from the plan and began negotiations for a merger with the Chesapeake and Ohio Railway Company (C & O) for joint control of the Baltimore and Ohio Railroad Company (B & O). However, when at a later date C & O had contracted for the purchase of some 61% of B & O stock, Central gave up its plan and renewed negotiations with Penn. The two roads signed an agreement of merger in 1962. The New York, New Haven and Hartford Railroad Company (NH) approached Penn and Central for inclusion in the plant but was given a deaf ear. The merger agreement provided that all properties, franchises, etc. (permitted by respective state law), would be transferred to the merged company and appropriate stock exchange, debt arrangements, etc., effected.
As the Commission found, the merger would 'create an hour-glass shaped system flared on the east from Montreal, Canada, through Boston, Mass., to Norfolk, Va., and on the west from Mackinaw City, Mich., through Chicago, Ill., to St. Louis, Mo.' 327 I.C.C., at 489. It would operate some 19,600 miles of road in 14 States between the Great Lakes, with a splash in Canada on the north, and the Ohio and Potomac Rivers on the south. After the two systems are connected as planned and new and expanded yards are provided, the merger will consolidate trains now moving separately between the same points. The combined systems will have a substantial amount of parallel trackage and routes, with 160 common points or junctions. Terminals will be consolidated, present interchanges between the two systems will be eliminated and only the most efficient yards and facilities of the respective systems will be utilized. The merger plan calls for 98 projects that will intermesh their long-haul traffic at key points, creating a nonstop service between the principal cities with 'locals' covering the multiple-stop routes and branch lines. It is estimated that enormous savings in transit time can be effected. Certain chosen yards—such as Selkirk—will be remodeled and modernized into electronically operated yards with capacities of from 5,000 to 10,000 cars per day. The through trains to the West will be formed at Selkirk and those from the West broken up for dispatch to terminals or consignees in New England, New York, and northern New Jersey. The plan calls for some New York City traffic to be routed over Central's Hudson River East Shore line to lessen cost. By consolidating traffic on fast through lines, filling out trains, rerouting over the most efficient routes, eliminating some interchanges and effecting other improvements, the merged company will reduce by 6,000,000 the number of train miles operated. A single-line service will be operated between more points, with less circuity and less switching. The plan also calls for 31 daily trains to be withdrawn from the Pennsylvania with seven new ones added, leaving a total of 319 trains daily.
The Pennsylvania is the largest and Central the third largest railroad in the Northeastern Region. Together the operating revenue of the two roads was over $1,500,000,000 in 1965. Their net income in 1964 totaled almost $57,000,000 and in 1965 ran in excess of $75,000,000. In 1963 the total net was barely $16,000,000. The cost of operation of the two systems runs $90,000,000 a month and their working capital was some $72,000,000 in 1965. As of December 31, 1963, their combined investments were $1,242,000,000. The Pennsylvania and Central systems are each made up of underlying corporations. As of the date of the Examiners' Report the merged company would have ownership interest in 182 corporations and 10 railroads under lease. Thirty-six of the corporations are rail carriers, in six of which the merged company would have a voting control. All six are Class I railroads. It would likewise control six Class II railroads, five switching and terminal railroads, a holding company, five car-leasing companies, four common carriers and 34 noncarrier corporations.
The NH2 is the sixth largest railroad in the Northeastern Region and the largest in New England. On a national basis it ranks fourth among passenger-carrying railroads and is one of the largest nontrunkline freight roads. It has some 1,500 miles of railroad in four States—Massachusetts, Rhode Island, Connecticut, and part of New York. NH has been in reorganization under § 77 of the Bankruptcy Act, 47 Stat. 1474, as amended, 11 U.S.C. § 205, since 1961.3 While its gross revenues have run in excess of $120,000,000, it has run deficits since 1958. During the trusteeship its deficits have run from $12,700,000 in 1962 to $15,100,000 in 1965.
Altogether some 200 parties participated in the proceedings before the Commission, some in support of and others in opposition to the merger. None of the appellant railroads challenge the merits of the merger; however, appellants Milton J. Shapp and the City of Scranton both attack the merger on its merits. Aside from PennCentral and NH, there are 10 other carriers involved in this proceeding.
Three of these are the protected carriers—B & M, D & H and E L. B & M operates a freight and passenger service in Maine, New Hampshire, Vermont, Massachusetts and New York over some 1,500 miles of road. It has suffered consecutive deficits in net income for some years and has not appealed from the decision of the District Court. D & H operates about 750 miles of road with some 600 in New York, less than 50 in Vermont and the balance in Pennsylvania. Its net income in 1965 was $5,000,000, its highest year since 1960. E—L operates some 3,000 miles of railroad located in New Jersey, New York, Pennsylvania, Ohio, Indiana and Illinois. Its net income was over $3,000,000 in 1965 but it suffered heavy deficits in the seven preceding years. As we have previously noted, these three railroads have filed applications for inclusion in both this case and in Norfolk & W. Ry. Co. and New York, C. & St. L.R. Co.—Merger, 324 I.C.C. 1.4 The Commission has withheld action on the inclusion of E—L, B & M and D & H, in Penn-Central until there is a final determination of their inclusion proceeding with Norfolk and Western (N & W). In the latter proceeding Commissioner Webb filed his report on December 22, 1966, recommending the inclusion of E—L and D & H in the N & W system but was unable to prescribe terms for inclusion of B & M—this was left to private negotiation between the railroads. On argument here the Commission has indicated that it anticipated entering a final order in the matter by July or August 1967. If this is favorable these three roads would be included in the N & W system, which has indicated its acquiescence in such a plan.
Six additional railroads involved here are the C & O, B & O, the Central of New Jersey (CNJ), the Reading Company, the Norfolk and Western, and the Western Maryland Company (WM). The C & O—B & O system is the result of a control proceeding in 1962. See Chesapeake & O. Ry. Co.—Control—Baltimore & O.R. Co., 317 I.C.C. 261, sustained, sub nom. Brotherhood of Maintenance of Way Employees v. United States, D.C., 221 F.Supp. 19, aff'd, per curiam, 375 U.S. 216, 84 S.Ct. 341, 11 L.Ed.2d 270 (1963). Together these two roads operate some 10,000 miles of railroad. Their lines extend from Michigan through Ohio and West Virginia to Virginia and from Chicago, Ill., and St. Louis, Mo., to Rochester, N.Y., and Washington, D.C. Their net operating income in 1965 totaled over $80,000,000. In addition, B & O owns 38% voting control of Reading which in turn controls CNJ. Reading has 1,200 miles of railroad in eastern Pennsylvania with net operating revenue of some $8,000,000 in 1965. CNJ has 514 miles of railroad extending from Scranton, Pa., to Jersey City, N.J. In 1965 it had a net operating deficit in excess of $3,000,000. C & O—B & O also own jointly 65% of the voting stock of WM. The latter has 741 miles of railroad extending from Connellsville, Pa., and Webster Springs, W. Va., to Baltimore, Md. In 1965 its net operating income was nearly $8,500,000.
N & W has 7,000 miles of railroad extending in a double prong from Des Moines, Iowa, and Kansas City, Mo., on the west to Buffalo, N.Y., and Pittsburgh, Pa., on the east and from Cincinnati, Ohio, and Bristol, Va., on the west to Hagerstown, Md., and Norfolk, Va., on the east. Its net operating income for 1965 was approximately $118,000,000. As we have noted, an inclusion proceeding is now pending under which B & M, D & H and E—L seek inclusion in the N & W system.
On October 11, 1965, C & O—B & O and N & W filed an application with the Commission asking approval of their merger into a single system and offering to include B & M, D & H, E—L, the Reading and CNJ therein, subject to various conditions. If this were effected and the Penn-Central—NH merger were effected, the Northeastern Region would then have two giant systems i.e., Penn-Central and C & O—B & O—N & W.
The only other appellants are the City of Scranton, Pa., and Milton J. Shapp. Scranton is served by E—L, D & H and CNJ. It fears that the merger will have adverse effects upon the city and therefore opposes the merger. Shapp sues as a citizen and stockholder of Penn and is likewise in opposition to the merger.
The United States has filed a memorandum in which it does not 'quarrel with the merits of the Penn-Central merger proposal itself.' The agencies of the Executive Branch, the Solicitor General reports, 'believe that the merger is in the public interest and that its consummation should be promptly effected.' This view, however, is based on the assumption 'that a place in the emerging pattern of consolidation in the Northeast can be found for the lesser roads of the region.' It is the Commission's approval of the immediate consummation of the merger prior to the completion of the proceedings to determine the place of the lesser roads to which the United States objects. It contends that since the very survival of the three protected railroads is threatened by the Penn-Central merger, the Commission must first provide protection for them until their absorption by 'a major system like Norfolk and Western.' To this end the United States suggests that we hold the case to enable the Commission to conclude the related proceedings which it now has under consideration. The United States concludes that: 'Only if the Commission is unable to promptly resolve the problems resulting from the merger would we deem it appropriate to urge this Court to reach the merits of the appeals and reverse the judgment below.'
The appellant railroads take varying positions all short of attacking the merits of the merger. The three protected railroads contend that the merger should not be consummated prior to the final determination of their inclusion in some major system or the enforcement of effective protective conditions in the interim. Judicial review, they say, of the protective conditions would otherwise be illusory. The C & O—B & O group and the N & W system maintain that the conditions of the April 6, 1966, order give the protected railroads a vested interest in the Penn-Central merger which would result in the protected railroads diverting traffic to Penn-Central which would normally have gone to them. They say, as does the United States, that the conditions were drawn without the benefit of notice and hearing, are deficient and enforcement thereof would be to their detriment. C & E I points to what it calls inconsistent findings as to the benefits it will have 'of intensified competitive effors' by its connecting carriers on routes in competition with Penn-Central. It contends that the indemnity conditions would 'compound the economic injury' which would befall the C & E I as a result of the merger and which prompted it to request protective measures.
This Court has often pointed out that the national transportation policy 'is the product of a long history of trial and error by Congress * * *.' McLean Trucking Co. v. United States, 321 U.S. 67, 80, 64 S.Ct. 370, 377, 88 L.Ed. 544 (1944). In that case it found that the Transportation Act of 1920 'marked a sharp change in the policies and objectives embodied in those efforts.' Ibid. In that Act the Congress directed the Commission to adopt a plan for consolidation of the railroads of the United States into 'a limited number of systems.' 41 Stat. 481 (1920). Consolidation would be approved by the Commission upon a finding that the transaction was in harmony with and in furtherance of the complete plan of consolidation and that the public interest would be promoted. But the Commission was warned that 'competition shall be preserved as fully as possible.' Ibid. The initiation of this unification, however, the Congress left wholly with the carriers. The Commission was given no power to compel mergers. This pattern was carried forward in the Transportation Act of 1940, 54 Stat. 898; however, § 5 of the former Act was amended to authorize the Commission to approve carrier-initiated proposals which it found to be consistent with the public interest and upon just and reasonable conditions. Under § 5(2)(d) additional power was given the Commission to condition its approval of a merger upon the inclusion, upon request, of other railroads operating in the territory involved. As we said in County of Marin v. United States, 356 U.S. 412, 78 S.Ct. 880, 2 L.Ed.2d 879 (1958), 'the result of the (1940) Act was a change in the means, while the end remained the same. The very language of the amended 'unification section' expresses clearly the desire of the Congress that the industry proceed toward an integrated national transportation system through substantial corporate simplification.' Id., at 417—418, 78 S.Ct. at 883. The Commission has, therefore, not proceeded by or under 'a master plan' for consolidation in the various regions. Following this procedure the Commission has refused to consolidate the Northeastern Region railroad merger or control proceedings into one case. See Chesapeake & O. Ry. Co.—Control—Baltimore & O.R. Co., supra, at 265—266, and Norfolk & W. Ry. Co. and New York, C. & St. L.R. Co.—Merger, supra, at 18. Also Brotherhood of Maintenance of Way Employees v. United States, D.C., 221 F.Supp. 19, at 29—31; aff'd per curiam, 375 U.S. 216, 84 S.Ct. 341, 11 L.Ed.2d 270 (1963).
It is contended that the order here is fatally defective for failure to comply with § 5(2)(b) of the Act which requires the Commission to 'enter an order approving and authorizing such transaction, upon the terms and conditions, and with the modifications, so found to be just and reasonable'. The claim is that by leaving the indemnity provisions open for future determination the Commission did not meet the requirements of the section. Once a valid order is entered by the Commission, it, of course, has the power to retain jurisdiction for the purpose of making modifications that it finds necessary in the light of subsequent circumstances or to assist in compliance with prior conditions previously required or, of course, to correct any errors. The Commission also has power under § 5(9) of the Act to make certain supplemental orders and under § 17(3) may correct clerical errors in certificates. We do not find it necessary to pass upon the question of naked power in the Commission to do what has been done here. Even assuming that it does have that power, we find that its order approving immediate consummation of the merger is insupportable on its findings.
The Commission found in its April 6, 1966, order that the protected railroads would be adversely affected to a 'serious degree' by the Penn-Central merger; that they would be 'severely handicapped' in providing required transportation to the highly industrialized areas that they serve, which service is 'essential' and 'the public service dictates that it be preserved.' It then held that immediate consummation of the merger would be consistent with the public interest only if the conditions of Appendix G were immediately imposed. And significantly, it concluded that even though it approved the merger, consummation of it would not be permitted unless the protected railroads 'are protected during the period necessary to determine their future * * *.' 327 I.C.C., at 529, 532. But after this suit was brought and strong opposition to Appendix G was voiced, the Commission, on September 16, 1966, withdrew all of the conditions of Appendix G save the traffic ones. This left the protected railroads without sufficient protection according to the Commission's own findings. This was done apparently because of the vehement objections of the appellant railroads that Appendix G would cause havoc rather than give shelter. We cannot say, as did the District Court, that the September 16, 1966, order meant nothing more than that the traffic conditions left imposed by it were in themselves sufficient to protect the three protected railroads during the interim between the merger and the decision as to their future in one of the major railroad systems. This interpretation runs in the face of not only the prior findings enumerated above but the specific terms and conditions of Appendix G found to be necessary to prevent 'impairment or serious weakening' of the three carriers. Id., at 532. Indeed, rather than being tentative, the requirements of Appendix G were rigidly fixed and established for the entire period preceding inclusion of the protected roads in some major system. The finding of consistency with the public interest was predicated entirely upon the unqualified acceptance of Appendix G by Penn-Central. Otherwise the merger would be put off for two years. In its effort to expedite the merger the Commission failed to provide the very protection that it at the same time declared indispensable to the three roads. This leaves the ultimate conclusion—that prompt consummation of the Penn-Central merger clearly would be in the public interest—without support and it falls under the Commission's own findings.
In view of these facts and since none of the findings of the Commission were disturbed, attacked, or amended, we believe it was error to permit the merger to be effected. And we also note that even in the ultimate order of approval dated September 16, 1966, the Commission pointed out that its 'finding (as to the merger being consistent with the public interest) was that, if the immediate consummation were to be authorized E—L, D & H and B & M would require special protection during the pendency of their petitions for inclusion in a major system.' Nevertheless, in spite of this confirmation of its finding, the Commission ordered the merger immediately consummated without the 'special protection' afforded by Appendix G. Having found that the finding of consistency with the public interest could only be sustained by the imposition of the Appendix G 'special protection,' the Commission failed to meet its statutory obligation when it arbitrarily removed the special conditions of Appendix G while leaving the prior finding standing.
In view of the patent invalidity of the order permitting immediate consummation of the merger and in light of the present status of the proceeding before the Commission, we can only conclude that it is necessary that the decision as to the future of the protected railroads and their inclusion in a major system be decided prior to consummation of the Penn-Central merger. This is especially true since the findings and recommendations of Commissioner Webb, as to the inclusion of the three protected railroads, are now under submission to the full Commission and a decision should be reached thereon by July or August 1967, we are advised by counsel. This short time would have little effect upon the ultimate consummation of the merger—which has been in the making for some 10 years now—and if it resulted in the future of the protected railroads being finally decided, serious losses to them would be obviated. Furthermore, there would be no occasion for the conditions of Appendix G to be imposed and hearing and decision on this highly controversial matter would not be necessary insofar as the three protected railroads are concerned. Finally, 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.
Furthermore, the serious charge that the conditions of Appendix G were imposed without notice and hearing would in a large part be dissipated by this course of action. As to the three protected roads it would be entirely obviated if and when their fate is determined. As to the other railroads affected, the Commission could more quickly conclude its present hearing and make a decision as to the effect of the merger upon them and the protection, if any, required.5
This disposition is also buttressed by the fact that should the immediate consummation of the merger be permitted and at a later date neither the interim conditions nor the inclusion proceedings be disposed of favorably to the continued existence of the merger, the only remedy remaining would be to set it aside and unscramble the consolidation. It is said that this does not follow since only the indemnity terms are at issue and they involve only money. This is blinking at reality. The fact is that traffic, trackage, terminals, etc., as well as financial and corporate structures can and will, beyond doubt, be quickly combined, changed, abandoned, or consolidated. The only condition now imposed for the maintenance of the status quo is the provision against any change of routes, traffic, rates, etc., as to business in which the three protected roads participate. They are comparatively small lines located for the most part in northeastern coastal States and would, percentage wise, be a small part of the total routes, traffic, rates, etc., of the whole Penn-Central system. There would be no restriction as to other routes, traffic, rates, etc., as well as all other operations of the merged company, including terminals, warehouses, etc., financial and corporate structures. The plan that the Penn-Central proposes to follow, as we have briefly sketched it, indicates not only major changes but quick action. Our experience with other mergers, and common sense as well, indicate that the 'scrambling' goes fast but the unscrambling is interminable and seldom effectively accomplished.
The Penn-Central merger has been studied for a decade. Indeed, the parties to the merger agreed to it over five years ago and it has been under Commission consideration ever since that time. This is, of course, the more reason for expedition. We note and give weight to the estimates of the Commission that the inclusion proceedings of the three roads in the N & W should be concluded in 'a relatively short time.' Our remand should, therefore, entail only a very short delay before the Commission. If its order is attacked in court the hearing there can be expedited, as was this one, and an early determination made. We do not believe that this is too high a price to pay to make as certain as human ingenuity can devise, a just and reasonable disposition of this matter for all of the parties. After all, it is the largest railroad merger in our history and if not handled properly could seriously disrupt and irreparably injure the entire railroad system in the northeastern section of the country—to the great detriment not only of the parties here but to the public convenience and necessity of the entire Nation.
APPENDIX G.*
1. Pending final determination of the petitions for inclusion filed by E—L, D & H, and B & M in this proceeding and in Finance Docket No. 21510 et al., or such other period of time as the Commission may prescribe, hereinafter called the protective period, and on traffic for which E—L, D & H and B & M are competitive factors, the merged company shall not publish or provide for any new or changed routing practice and/or freight rates or services, either locally or jointly with other carriers, which would divert or tend to divert traffic from routes in which E—L, D & H or B & M, now participates, or participated at the time this merger application was filed, or take any action or engage in any practice or conduct contrary to the purpose and general objectives of this condition as explained in this report.
For the purpose of illustrating—but in no way limiting—the application of this condition, the following specific provisions are prescribed:
C. Where through routes and joint rates are now in existence via any component railroad of the merged system and E—L, D & H or B & M, the participation therein of such components shall be maintained during the protective period with the same vigor as such components have heretofore exercised in competition with each other and other carriers, to the end of preventing noticeable diversion from such routes to any other route in which the merged company participates.
D. The merged company for the protective period shall agree to joint rates and divisions thereof on its freight traffic interlined with E—L, D & H or B & M under terms no less advantageous to E—L, D & H and B & M than are the terms which those three carriers now have with the component carriers of the merged system, and, in the event of any changes in such joint rates, the divisions shall not be changed in any manner which will result in E—L, D & H or B & M receiving proportionally less than they now receive on joint rates with such component carriers.
E. In conjunction with E—L, D & H and B & M, the merged company shall, during the protective period, keep open all routes now in force for the transportation of freight over the lines of the three companies and the component carriers of the merged system; shall maintain thereon service equal to or better than that being given on the date this merger application was filed; shall improve such service, to the extent within its power, at least as necessary to make the said through routes fully competitive with other routes in which the merged company participates; and, where joint rates are now in effect or were in effect when this merger application was filed, it shall maintain such rates; and where change in those rates becomes appropriate, changes shall conform to the requirement of provision D above.
2. The term 'competitive factor' shall be construed to mean that at the date of this order or at the time this merger application was filed, E—L, D & H or B & M was both participating in the particular route, rate or service and was handling traffic thereon.
3. E—L, D & H and B & M shall be indemnified by the merged company under the circumstances and according to the plan specified in the report, supra.
4. This appendix constitutes a plan for protection against the effects of the applicants' merger and does not apply to loss caused by: (a) hostile or warlike action by (1) any government or sovereign power (de jure or de facto) or (2) military, naval or air forces; (b) insurrection, rebellion, civil war, et cetera; (c) national disaster; (d) economic depression; (e) strikes; (f) act of God; or (g) other similar state of affairs.
B. (1) Except as to section 3, supra, whenever E—L, D & H or B & M considers that these protective conditions are being violated, or that a violation will result from the effectuation of a tariff publication in which the merged company participates, they may (individually or collectively) file a complaint with the Commission, Board of Suspension, and with the merged company, specifying the rate, route, practice, privilege, or such matters constituting the alleged violation and setting forth in a statement verified by an appropriate official of the complainant all the data giving rise to the complaint.
(2) In the event the Board of Suspension shall determine that, as to the matter complained of, E—L, D & H or B & M is a competitive factor (as defined in these conditions), it shall in the case of a tariff publication not yet effective, suspend the tariff forthwith for the protective period (as defined in these conditions), and shall conduct an investigation into the matter complained of; and if the alleged violation is found not to exist, the Board shall thereupon order the suspension removed; and, in all matters not involving a tariff not yet in effect, the Board shall investigate the matters complained of; and, if in any investigation, it finds that these protective conditions are being violated, it shall order the cancellation of the violative tariff provisions or, where a tariff is not involved, the termination of the violative conduct. Orders of the Board shall have force and effect as orders of this Commission and shall be enforced as such.
D. (1) All determinations as to whether E—L, D & H or B & M is a competitive factor shall be made within 10 days after a complaint is filed; and final decisions as to issues raised by a complaint shall be rendered within 90 days after the complaint is filed.
6. Notwithstanding the provisions of sections 1, 2, 3, 4, and 5, an agreement pertaining to the interests of E—L, D & H and/or B & M may be hereinafter entered by the merged company and the protected carriers, or any of them, which shall supersede the protection provided by such sections to the extent the agreement does not violate the provisions of the Interstate Commerce Act or the Commission's rules and regulations thereunder.
7. In the event applicants fail to accede to the above-named conditions, consummation of the proposed merger will be deferred for 2 years or such time as the Commission may determine to be necessary to protect the interests of D & H, B & M and E—L.
8. These conditions shall be construed, administered and enforced with the view to protecting the E—L, D & H, and B & M and the shipping public which depends upon them for transportation, against the effects of the merger for the period and purposes set forth above.
I join the Court's opinion. In its determination whether the merger is consistent with the public interest, the ICC did not discharge its statutory duty to consider the effect upon that interest of the inclusion, or failure to include, the E—L, D & H and B & M. The ICC order authorizing immediate consummation of the merger as consistent with the public interest must therefore be set aside.
The ICC's approval of the Penn-Central merger is the last of three authorizations for consolidation of major eastern roads. In the first, the C & O was allowed to control the B & O.1 In the second, the N & W was permitted to merge with the Nickel Plate.2 The ICC has been confronted with the problem of what to do with the E—L, D & H and B & M since they petitioned for inclusion in the proposed N & W-Nickel Plate system as a condition of approval. E—L's precarious financial condition led to that carrier's withdrawal of its petition in favor of inclusion by negotiation, 324 I.C.C. 1, 21, and as a consequence of the denial of the D & H and B & M petitions, 324 I.C.C., at 31—32. In the meantime, the Penn-Central proposal had come before the Commission, and D & H, fearful that the Penn-Central merger might be approved and consummated before its inclusion in a major system was assured, argued that approval of Penn-Central be held up by consolidating the two proceedings, or that immediate consummation of N & W-Nickel Plate should be made contingent on inclusion upon equitable terms of the three roads in the event Penn-Central is later approved. 324 I.C.C., at 30—31. The ICC denied these requests, but recognizing there was substance to D & H's fears, it retained jurisdiction for five years to permit the roads to file petitions for inclusion in the N & W system. Inclusion was to be required upon equitable terms if 'found consistent with the public interest,' and consummation of the merger would constitute 'irrevocable assent' by N & W to the condition. 324 I.C.C., at 148.
Before N & W-Nickel Plate was approved, the Penn-Central proposal had been filed. The three roads, appreciating the danger Penn-Central would pose to their survival, sought inclusion, conditioned upon denial of their inclusion in N & W. Soon after, negotiations between E—L and N & W for voluntary inclusion apparently broke down, because at approximately the same time the three roads filed petitions for inclusion in N & W, and N & W and C & O filed applications to merge with each other, stating that only such a merger could support the inclusion of the three roads in N & W on equitable terms and consistently with the public interest. The three roads urged in their applications both for inclusion in Penn-Central and for inclusion in N & W, that Penn-Central be delayed until their inclusion in one of the systems was assured. This was tantamount to a request that the two proceedings be consolidated for decision, and the Department of Justice supported their position.
The ICC found, as the three roads alleged, (1) the service rendered by the three roads 'is essential and the public interest dictates that it be preserved,' and (2) it is 'doubtful that, without inclusion in a major system, these three carriers could withstand the competition of the applicants merged * * *.' 327 I.C.C. 475, 529, 532. All the parties concerned recognized, however, that inclusion of the roads in N & W would be preferable to inclusion in Penn-Central, and that it would be some time before the N & W inclusion proceeding was completed. Rather than delay consummation of Penn-Central, which the ICC found would result in substantial savings and improved service, the ICC ordered immediate consummation. It pointed out that the three roads had petitions for inclusion in N & W pending, and provided that, in the event inclusion in N & W was denied, the three roads could petition the ICC for one year following the judgment of denial to allow or require inclusion of the roads in Penn-Central, on equitable terms, if found to be in the public interest. 327 I.C.C., at 553. Meanwhile, in addition to usual conditions for preserving existing routes and gateways, the ICC prescribed 'unprecedented' conditions of two kinds: (1) traffic conditions requiring Penn-Central to continue existing practices and route patterns with respect to traffic competed for by the three roads; (2) conditions guaranteeing the three roads an indemnity computed on the basis of a fixed share of the combined total of the revenues realized by them and Penn-Central; this was to compensate the roads for income lost from diversion of their traffic to Penn-Central. 327 I.C.C., at 532. These conditions were acceptable to Penn and Central but not to the three roads or to N & W and C & O—B & O.
Proceedings to set aside the ICC order were brought in the District Court and petitions for reconsideration were also filed with the ICC. Some of the latter attacked the validity of the conditions on the ground that they were imposed without hearing. E—L and D & H, however, renewed their complaint against the approval before assurance of their inclusion in a major system and alternatively attacked the conditions as indefinite and inadequate, demanding in addition to be indemnified for capital loss. C & O—B & O and their family lines for the first time introduced evidence that the merger would adversely affect them, and argued that the indemnification condition of the original order would create a community of interest between the protected roads and Penn-Central. The Department of Justice urged postponement to consider the questions raised concerning the conditions and the evidence of adverse effect offered by C & O—B & O.3
The ICC rescinded the indemnity conditions pending a hearing on whether they should be modified and whether a capital loss indemnification condition should be added, but refused on the ground of laches to hear the evidence offered by the C & O. 328 I.C.C. 304, 318. The ICC reaffirmed its approval of the merger subject to Penn-Central's acceptance of the conditions as finally formulated, although not foreclosing Penn-Central from seeking judicial review of any provision for capital loss indemnification. 328 I.C.C., at 329. The District Court denied interlocutory relief enjoining Penn and Central from going forward with the merger.4
The statutory duty of the ICC is clear. Section 5(2)(b) of the Interstate Commerce Act, as amended by the Transportation Act of 1940, authorizes the agency to approve only those consolidations it finds 'will be consistent with the public interest * * *.' 54 Stat. 906, 49 U.S.C. § 5(2)(b). The statute creates no presumption that mergers generally are either consistent or inconsistent with that interest; rather, it requires that each proposal be examined in depth to determine its effects upon the national transportation system. Thus, the ICC is explicitly directed to consider '(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). The National Transportation Policy is the controlling guide, McLean Trucking Co. v. United States, 321 U.S. 67, 82, 64 S.Ct. 370, 378, 88 L.Ed. 544, and that policy requires the Commission 'to promote safe, adequate, economical, and efficient service and foster sound economic conditions in transportation and among the several carriers * * * to the end of developing, coordinating, and preserving a national transportation system by water, highway, and rail, as well as other means, adequate to meet the needs of the commerce of the United States, of the Postal Service, and of the national defense.' 49 U.S.C., note preceding § 1. These provisions call for the application of discerning judgment to a wide range of factors, and preclude the position that the purpose of the 1940 Act is simply to promote railroad consolidation.5 The ICC has recognized that inquiry into a proposed transaction does not end with the possibilities for increased economies, but extends to 'the effect of the transaction upon adequate transportation service to all parts of the public which would be so affected,'6 which encompasses the 'duty, as an administrative matter, to consider the effect of the merger on competitors and on the general competitive situation in the industry in the light of the objectives of the national transportation policy.' McLean Trucking Co. v. United States, supra, at 87, 64 S.Ct. at 380. 'The public interest is the prime consideration, and in making that determination we must have regard for all relevant factors.' Toledo, P & W.R. Co.—Control, 295 I.C.C. 523, 547.
A critical factor, not in my view properly applied in this case, is 'the effect upon the public interest of the inclusion, or failure to include, other railroads in the territory involved in the proposed transaction * * *.'7 The Commission is authorized, 'as a prerequisite to its approval of the proposed transaction, to require, upon equitable terms, the inclusion of another railroad or other railroads in the territory involved, upon petition by such railroad or railroads requesting such inclusion, and upon a finding that such inclusion is consistent with the public interest.' 49 U.S.C. § 5(2)(d). The ICC recognizes that it is required to consider the issue of inclusion even when no petition is filed,8 because if a proposed transaction 'would endanger or impair the operations of other carriers contrary to the public interest,' Chicago, B. & Q.R. Co.—Control, supra, 271 I.C.C., at 157, inclusion of the affected carriers is required by and not merely consistent with the public interest.
In this case the ICC, although determining that the three roads perform an essential service and that their inclusion in some major system is required by the public interest, takes the position that its duty as to inclusion is sufficiently discharged when it provides for the possibility of inclusion in either N & W or Penn-Central, and meanwhile promises to impose protective conditions. My disagreement is not with the proposition that the Act vests wide discretion in the agency to allow a merger to go forward while conditions as to inclusion are worked out. The Commission has broad authority to approve transactions 'subject to such terms and conditions and such modifications as it shall find to be just and reasonable * * *,' § 5(2)(b), and 'may from time to time, for good cause shown, make such orders, supplemental to any order made under paragraph (1), (2), or (7), of this section, as it may deem necessary or appropriate,' § 5(9). It has in fact occasionally reserved jurisdiction (1) to work out equitable terms for an inclusion it has already determined is required by the public interest, New York Central Unification, 154 I.C.C. 489, 493 494;9 and even (2) to determine after consummation whether inclusion will be consistent with or required by the public interest, Union Pac. R. Co. Unification, 189 I.C.C. 357, 363.10 But decisions of this sort proceed upon the assumption that inclusion will later be possible, and that therefore the finding that the proposed consolidation is in the public interest will not be undermined. This assumption is not always warranted. An inclusion may turn out to be impossible, either because of inability to work out equitable terms, a circumstance upon which inclusion orders have invariably been conditioned, or because upon full consideration the effects of the contemplated inclusion might be regarded as so detrimental that the proposed merger which made necessary the inclusion would be against the public interest.
The Commission must decide, in the first instance, whether the risk of such ultimate developments is acute enough to counsel against approval of a consolidation subject to the working out of the terms of an inclusion or to the working out of both the terms and the inclusion. See Jaffe, Judicial Control of Administrative Action 565—567 (1965). But resort to the practice of deferring the accomplishment of inclusions or other ends required by the public interest must be carefully weighed and reviewed. Where there is little or no danger that inclusion consistent with the public interest and upon equitable terms might turn out to be impossible, it is sufficiently likely, despite deferral, that the Commission will have fulfilled its basic statutory duty. Where there is a significant possibility, however, that a deferred inclusion upon which a finding of public interest is premised will be unattainable or attainable only by setting into motion new forces which have not been weighed in evaluating the basic proposal, then the Commission's statutory duty to consider all the relevant factors has not been properly discharged. And ICC action of this sort generally creates dangers far greater than those which normally accrue when an agency or court fails to apply the governing standard to all the relevant facts, since the decision to allow consummation is often irreversible, as it concededly is in this case, or reversible only at enormous expense.
Prior authorizations deferring decision on inclusions held to be required by the public interest entailed no significant risk that the ICC had approved a consolidation without fulfilling its statutory duty. When, in New York Central Unification, supra, the Commission authorized immediate consummation but retained jurisdiction to assure that terms would be worked out for the purchase of lines whose purchase it had required because their preservation was found to be essential to the public interest, there was no doubt that equitable terms could be arranged. The roads to be included were short lines, complementary to the New York Central system, so consummation of the proposed unification created no reason to expect a detrimental effect. Moreover, the roads were required to submit the issue of value to arbitration in the event they failed to agree. 154 I.C.C., at 493. When, in Union Pac. R. Co., supra, the Commission deferred until after consummation both the question whether the public interest required inclusion and the matter of working out terms, there was no indication that inclusion might be impossible because of its effects without rendering the proposed transaction against the public interest, or that equitable terms or inclusion might be unattainable, or that the short lines involved would be subjected to danger from traffic diversion or otherwise during the period between consummation and inclusion. The transaction authorized only accounting changes; no change in operation was either contemplated or possible. 189 I.C.C., at 363.11
This case is in striking contrast. Allegations are made by the Department of Justice and numerous other parties that inclusion of the protected roads in either of the major systems contemplated by the Commission might not be possible consistent with the public interest or upon equitable terms. These arguments demonstrate that, because of possible difficulties involved in the inclusion proceeding and in establishing acceptable interim conditions, the 'opportunities for the ultimate inclusion of E—L, D & H and B & M in a major rail system * * *' which the Commission has endeavored to preserve create serious uncertainties.
The first and more obviously uncertain alternative is inclusion in Penn-Central itself. The Commission retained jurisdiction to allow the three carriers to seek inclusion in Penn-Central within one year after final denial of any of their petitions for inclusion in N & W. All concerned recognize that inclusion in N & W is the preferable solution, since inclusion of the roads in Penn-Central would create a virtual monopoly of all rail traffic in most of New England and New York.12 (See Appendix A for a map depicting this result.) It is true that Commissioner Webb said in the N & W inclusion proceeding that 'the Penn-Central reports indicate that the merger would be consistent with the public interest notwithstanding any lessening of intramodal competition resulting from inclusion of EL, D & H, and B & M,' Norfolk & W.R. Co.—Merger, F.D. No. 21510, p. 27, but this statement is refuted by the Penn-Central reports themselves. Both the Examiners and the Commission expressly reserved for a later time the question whether inclusion of the roads in Penn-Central would be consistent with the public interest,13 and rather than implying that the merger would be in the public interest despite inclusion of the protected roads, the Examiners' Report and the Commission's opinions indicate that the merger was approved under the assumption that the protected roads would be included in N & W.14
The 'opportunity' for inclusion in the N & W hardly presents a less risky alternative. The N & W proceeding has gone to hearing and Commissioner Webb, acting as Presiding Officer, has issued a report recommending inclusion in N & W of E—L and D & H, and authorizing inclusion of B & M if the parties are able to agree to terms. There has as yet been no action by the ICC on the report; and based upon its contents and the objections raised in this Court, there is a significant possibility, given the present state of circumstances, that inclusion in N & W might be unattainable or attainable only at the price of rendering the Penn-Central merger against the public interest, and that, even if inclusion could be accomplished consistent with the public interest, it might be impossible to work out equitable terms. Appellees make much of the fact that N & W, by consummating its merger with Nickel-Plate, 'irrevocably agreed to include these three petitioners in their system upon terms agreed upon among themselves or, if necessary, prescribed by (the ICC), provided such inclusion is found to be consistent with the public interest.' 327 I.C.C., at 529. But this condition expressly assumes a favorable resolution of both of the questions in dispute. As Commissioner Webb said in the N & W inclusion report:
'the only obligation expressly imposed on N & W * * * was to include the petitioners if the Commission found such inclusion to be consistent with the public interest and if the Commission also found that the inclusion could be effected on terms 'equitable to all parties involved,' both findings to be subject to full judicial review.' N & W Inclusion Report, at 16.