Earl Warren: Number 642, Baltimore and Ohio Railroad Company et al., Appellants, versus United States et al. Number 680, the Delaware and Hudson Railroad Corporation, Appellant, versus United States, et al. Number 691, Erie Lackawanna Railroad Company, Appellant, versus United States. Number 813, Scranton, City of Scranton versus United States et al. Number 814, Milton J. Shapp, versus United States et al. And Number 815, Chicago and Eastern Illinois Railway Company versus United States et al. These cases have been consolidated for argument and six hours has been allotted for argument but we have authorized a rather abnormal number of lawyers to speak 14 in all but I must admonish you to keep track of your time because the six hours of argument will not be extended. Mr. Trienens.
Howard J. Trienens: Yes, Mr. Chief Justice and may it please the Court. My name is Howard Trienens. This is the Penn-Central merger case. It's probably the biggest corporate merger ever. The cases before this Court on appeals from a judgment of the District Court denying injunctive relief against an order of Interstate Commerce Commission which would permit immediate consummation of the Penn-Central merger. I stress immediate because by the very nature of the Commission's action this case was decided by the District Court on the lawfulness of the Commission's order and on appeal, the lawfulness of the Commission's order permitting immediate consummation was necessarily before the Court even though the matter arose on applications for interlocutory injunction. Now, basically this case arose under Section 5 (2) of the Interstate Commerce Act. And that Act enabled the Commission to approve an exempt from the Antitrust laws, merger transactions which are found to be as conditioned by the Commission or found to be consistent with the public interest. The problem here and the problem I will develop through these rather laborious facts is that no one can know today whether this merger transaction as conditioned is or is not consistent with the public interest. And the reason you can't know is because you don't know the conditions. You don't know what kind of a transaction this is yet. The Commission has found that certain conditions are essential that the certain conditions must be attached. They have not been found either for the long term or the short term. Now realistically, we believe that until those conditions are found and passed upon no one can know what the future of competitive rail transportation in the East will be. On stating the facts, the first and dominant fact is the Penn and Central today had half the railroad business in the East. The figures are set forth in our brief and inserted in the end of our brief a series of maps showing the proposed Penn-Central system and showing the remaining roads and the question that has dominated the Commission proceedings, the question before this Court is how the other half of the East is going to live in the face of Penn-Central. Of the hearings before the Commission, Penn and Central showed that they would create a territory-wide single line service serving all major ports, all major gateways and as a single line railroad throughout the East they would provide great operative savings and great improvements in service. A single line service has great advantage. Single line service saves money but it also improved service. And the Commission relying on those improvements in service and efficiencies found at this merger was in the public interest notwithstanding the diminution of competition. But these very same service improvements are the things that caused the problem for the other eastern roads and raised the questions of how they are going to live in the face of this Penn-Central system. Now, following the hearings before the Commission, the examiners found that these improvements would occur. They also found that the merger was necessary because of the survival, save and enable to survive the Penn and Central companies because of the failing company doctrine specifically in those terms, the East was a failing industry. Now the examiners recognized that when you put Penn and Central together they would cause shifts in the traffic patterns. They would attract traffic. But the examiners felt and found that the other half of these could live because by cooperating among themselves they could attract and meet Penn-Central. Now with the other half of the East by working together could offset these shifts in traffic that would attract traffic to Penn-Central. As to New Haven they didn't find --
Earl Warren: -- without regard to additional mergers or does it contemplate additional mergers to accomplish that result.
Howard J. Trienens: I can't answer that specifically, I know it anticipated some additional mergers. I think it contemplated putting some of the roads in at least some of the other systems but the exact form of the restructuring that was contemplated is not spelled out in the examine report.
Potter Stewart: The B & O and C & O had already gotten together.
Howard J. Trienens: B & O and C & O had gotten together at the stage of the Commission's decision.
Potter Stewart: Yes.
Howard J. Trienens: And the N & W-Nickel Plate was --
Potter Stewart: That also (Voice Overlap) --
Howard J. Trienens: -- had gotten together. Now, the important point and it's expressed greatly by the counsel for the Commission in their brief at page 48 where they find or state that B & O-C & O was permitted to go ahead on a specific finding that it would not have any adverse effect on any other eastern railroad. N & W-Nickel Plate was permitted to go ahead as Commission counsel frankly state because it would have no material adverse effect on any other railroad in the area. And in fact, in N & W-Nickel Plate they found that that merger would help of the railroads and yet to bear in mind that putting together N & W-Nickel Plate for example, put together a railroad almost as big but not quite as big as Penn alone already was. That's why with its rather narrower geographic cover, it didn't raise the problems the Penn-Central raises. Now that -- the end of the hearing stage, after the hearing stage that Norfolk and Western which had been enabled the merger with Nickel Plate was set free as a part of that merger. It was set free of control of the Pennsylvania Railroad. Up to that point, Pennsylvania controlled N & W. What N & W is today, Penn-Central wield it. It was part of the three-system plan, part of the Penn-Central's plan for how to carve up the East. And it was after the hearing stage, after the examiner had found that the way to meet Penn-Central's for the other half to get together that N & W and C & O proposed that there be hearings as to whether a merger was the way they should get together. That proposal -- application has been filed. The hearings been held up for a year or so but it's now been set for this winter, this spring. Oh, by the time this case reached the Commission level, this was a very different case. The survival problem, the failing company doctrine was out of it. Penn-Central which between them had earned $7 million in 1961, that earned $122 million in 1965. In 1966, their estimate is $150 million of net income and that's before reflecting any merger savings or other merger benefits. The Commission did not and it could not find that this merger was essential to the survival of Penn or Central. The Commission's theory in its April 6th (Voice Overlap) --
Byron R. White: Well, wasn't the -- was that net operating income or --
Howard J. Trienens: This was total net income of the corporations that are being merged, whole net income.
Byron R. White: Yes. And the -- but how about operate -- the Commissioner addressed itself from that operating income, didn't it whether --
Howard J. Trienens: It addressed --
Byron R. White: -- it was total income.
Howard J. Trienens: It addressed -- well, he mention both in its reports, sir.
Byron R. White: Well, what about the operating income?
Howard J. Trienens: The net railway operating income which is the -- I can't answer that because you have to --
Byron R. White: Well, isn't that a rather significant figure if you're going to use figures?
Howard J. Trienens: I don't believe it is sir for this reason. If you're talking about the total financial strength of the two enterprises that are going to be put together, the stock that's going to be exchanged, the financial strength of the enterprise, you talk about what those enterprises earn. I agree that if you are talking about the earnings from competitive rail service that the rate of return on rail service is important in financial strength. However, if you're talking about their strength as competitors, it's how much of the market they have. How many shoes they had in Brown Shoe, how many grocery sales they had in (Inaudible) grocery. And if that -- that's the reason I give the figures measuring the amount of business they have in the competitive rail area. It's true that Pennsylvania has vast interest outside the railroad business. It's true that N & W has considered on a coal traffic it's not rail competitor to anybody. It's in the competitive area. You look at the competitive market shares and if you're looking at the total corporations, those of the dollar figures I gave, the total earnings of the company.
Byron R. White: Before that?
Howard J. Trienens: Well, the Penn and Central aren't in taxes so it's no difference to them at the moment. Now, the Commission as I say did not rely on this survival problem, this failing company doctrine. The Commission recognized that these service improvements would occur that it was a good thing to have railroad earnings at a higher level. And they approved the merger as outweighing the diminution of competition. Now, with respect to three railroads however, the Commission found that this Penn-Central merger would destroy them. This is what distinguishes Penn-Central. We have a finding that this merger would destroy at least three of the railroads not coming to New Haven. I like to read two sentences that are the key for the Commission's analysis. They first found that unless somehow protected these three railroads would be adversely affected by the proposed merger to a serious degree and would be severely handicapped in providing the required transportation service. Now the Commission then concluded that it is doubtful that without inclusion in a major system, these three carriers could withstand the competition of the applicant's merge. 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. Nor was the Commission drew the line between when you authorized consummation and approval of the merger. And they found that we will let Penn-Central go ahead right away even though we haven't found a home for these railroads. And why because we have worked out some specific traffic and indemnity conditions and they further set our approval for merger, for underlayed consummation shall be subject to the conditions specifically determined by us. However, now we're -- they said we're going to let it go through before we found the home for these roads but we're going to work out something in the interim and are letting it -- this merger go through now is subject to those specific protected conditions. Now, what were those conditions? There are two kinds, one of the traffic conditions which were designed to freeze and tie up Penn-Central in their actual improvement of service so if they just couldn't improve service and couldn't attract traffic. Now that doesn't do the job even if you froze Penn-Central solid, that doesn't do the job because the very fact of putting them together eliminating competition between them causes a diversion of traffic from these other railroads so -- and the Commission didn't stop with the traffic conditions. It went on to these so-called indemnity conditions. Indemnity conditions and that's a misnomer. These aren't indemnities for loss. This is a revenue sharing pool. There's a formula where you put Penn and Central and Erie's money together and they get earnings out of it as a share of that. Erie is guaranteed share. Now, these conditions were critical to the Commission's decision. They were noble. Nobody had ever heard of them before, there was no hearing on them. They came out of the blue. Well after this Commission hearing, the protected carriers, these three protected carriers, they asked for reconsideration. They asked reconsideration on the grounds that these conditions were wholly inadequate. The unprotected carriers who'd been counting on the cooperation of everybody outside Penn-Central were suddenly for -- faced with the problem that there was a pool, a community of interest created where three of these roads were going to be open to Penn-Central orbit at least temporarily. So both the protected and the unprotected carriers asked for reconsiderations. The appellants, Chicago and Eastern Illinois also asked for reconsideration. The Commission had dismissed its claim on the ground that, "Oh well, C & E I will have an offsetting benefit of intensified competition between its connecting carriers in Penn, one of the connecting carriers being Erie. There's no recognition of the effect of this revenue pool on what happens to Erie's competition. Now, C & E I, the Commission also passed off its problem by saying, "Oh, C & E I can provide superior service in that area". No evidence to support that nor there is any evidence that a possible control of another railroad of C & E I would have anything to do with the impact to Penn-Central on C & E I.
Potter Stewart: C & E I is a North -- South railroad running south from Chicago --
Howard J. Trienens: Yes sir.
Potter Stewart: -- primarily?
Howard J. Trienens: Yes sir. It's to St. Louis and then to Louisville.
Potter Stewart: From Chicago?
Howard J. Trienens: From Chicago. Now, these petitions for reconsideration were decided by the Commission in the so-called September 16th report and that report is what created the basic issue before this Court. Because that report undercut the whole premise of the basis on which they left the merger consummated immediately in April. The Commission first acknowledged the valid issues that have been raised with respect to these new conditions and they acknowledged further that as to the unprotected carriers they never had a hearing on its -- from the impact of these conditions on them. Instead of deciding these matters, having a hearing raised -- correcting the conditions, giving a hearing to the unprotected carriers as to what these all did to them. The Commission let Penn-Central go through anyway. It rescinded the indemnity conditions. It set a hearing on whether there should be any indemnity conditions and authorized retroactive reinstatement that a hearing on what the traffic conditions ought to be because nobody knew by that time what they meant. But it permitted immediate consummation to Penn-Central anyway. And it didn't even --
Earl Warren: Do you object to that merger as such or just because your clients have not been protected through it?
Howard J. Trienens: We cannot answer that and I don't -- and I want to answer it in this way Mr. Chief Justice. We cannot answer that because we do not know what Penn-Central is. Now as I'll get to, we don't know whether Penn-Central means a monopoly of New England. In that case, we might be against it. If it means balanced competition with another system or other systems, we'd be for it. We just don't know because we don't know what kind of an animal Penn-Central is until we know what the conditions are. We just don't know. And I don't see how the Commission can know and I don't see how this Court can review it until it knows what -- under what conditions this merger is to exist. That's -- that the --
William J. Brennan, Jr.: Oh, I would take it that you -- that that wasn't -- that that approach would require the Commission to find a home for these three carriers prior to approving the merger because otherwise you would never know what kind of an animal you were dealing with from -- on your own premise.
Howard J. Trienens: I think that's correct sir and I think that's correct.
William J. Brennan, Jr.: So you really think the Penn-Central merger must be held off until the Commission decides with what system these three are going to adjoin.
Howard J. Trienens: That's right. I think they have to find where the place is. I mean, as Boston and Main be part of a (Voice Overlap) --
William J. Brennan, Jr.: So just isn't a question of these protective conditions. In your mind it's a much --
Howard J. Trienens: I think it differ -- yes sir.
William J. Brennan, Jr.: -- more extensive delay of the impact.
Howard J. Trienens: And as -- I think when we analyze just what the problem is, you come to that. This temporary conditions with that basic problem of finding a home.
William J. Brennan, Jr.: And what about the New Haven?
Howard J. Trienens: The New Haven is in the same boat as these other roads. It's threatened by Penn-Central. It too should have a home.
William J. Brennan, Jr.: Well, it's supposed to go under the Commission's plan, was supposed to do anything.
Howard J. Trienens: New Haven and only New Haven, they have found where the home should be.
William J. Brennan, Jr.: But does that depend on something on the bankruptcy court.
Howard J. Trienens: Yes sir. In the case of the New Haven, although they permit immediate consummation of Penn-Central and find that Penn-Central shall be the future home of New Haven. New Haven is not included in Penn-Central along with consummation. They have to go -- when their worry weight through not only Commission hearings, bankruptcy court hearings and what have you and as the vice president of the New York Central said, "We don't know when if ever New Haven will actually be included in the Penn-Central system". We have no assurance that if --
William J. Brennan, Jr.: Anyway its not (Inaudible) not just the (Inaudible), is it?
Howard J. Trienens: Well, yes sir but with the Commission assurance that it is a -- going to require the states to support the passing of business. There's a -- the Commission's assurance that the states are ultimately going to have to support the passing of business although you're right, it goes locked, stocked (Voice Overlap)
William J. Brennan, Jr.: I gather on your argument then you have to wait until we know what's going to happen in New Haven?
Howard J. Trienens: Well, I don't think that we will go that far sir. I think that once you determine the place --
William J. Brennan, Jr.: How do you detail -- distinguish it from the other (Inaudible)?
Howard J. Trienens: Because in the New Haven case, you decided where the place shall be. The New Haven shall be in Penn-Central. Now, it's true that they haven't gotten it in --
William J. Brennan, Jr.: But do you know what animal the Penn-Central is --
Howard J. Trienens: No and (Voice Overlap) --
William J. Brennan, Jr.: -- and know what's going to happen to New Haven, would you?
Howard J. Trienens: I'm assuming that the Penn plus Central plus New Haven is the map that the Commission is striving for but --
Byron R. White: But you don't know that.
Howard J. Trienens: I don't know that and I also don't know what Boston-Maine, Erie and D & H shall be part of that.
Byron R. White: -- that all the Commission has to do is to just divide them -- to make some decision that well, if we can work it out, New Haven is going to be with the Penn-Central, I would think by the same token it would be enough for the Commission to say these three roads need protection. We'll work out the detail.
Howard J. Trienens: I agree that you can't -- all I'm trying to make the distinction between is that whether you have to wait until the last corporate document is signed. Once you've assured where the place is going to be, maybe it is in the New Haven, there some very difficult problems in the New Haven inclusion. The Commission said, "Actual inclusion of New Haven will not be easy".
Speaker: And your position is from the statute that (Inaudible)
Howard J. Trienens: Yes sir. Now, the problem is pointed out. This problem is pointed out by the --
Speaker: (Inaudible)
Howard J. Trienens: -- the assumptions, the basic assumptions that underlie the majority opinion below. The basic assumption was and this is the paraphrase that we know two things. First, we know the time period is going to be short and we know where the home is for these three critical roads. It takes no great clairvoyance to the majority opinion to know that Erie, B & M and D & H are going to be in N & W, that the Commission will order that. Now, we have a vivid insight into the accuracy of that clairvoyance because Commissioner Webb who participated in the decisions below has come out for the report in the very case that Judge Friendly was forecasting as the result. And I'd like to read and tell you for a moment about the analysis that shows you that why this is such a basic problem. The first place, Commissioner Webb said that neither this case, he's talking about the effort to get Erie and so forth, B & M into N & W. Either this case nor Penn-Central can be fully understood, its consideration of one is divorced from the other. Unfortunately a Commission's action deciding the cases separately has tended to blur vital issues common to both proceeding. Now, here's where the trouble comes. Commissioner Webb looked at Penn-Central ad said, what are the alternatives? Alternative one, Boston and Maine for example as an independent railroad, that's out. Penn-Central will destroy Boston and Maine. So consummation of Penn-Central forecloses that possibility. Independence is out. This is why they can't take the thing one jump at a time because Penn-Central forecloses that possibility, never before in these cases. Two, Boston and Maine is forced in N & W. That's a solution. That's the one the lower court assumed what happened. He says that can't be because of the financial facts to life, we cannot force Boston and Maine in N & W. What's left? Number three. The only alternative, B & M goes to Penn-Central where the financial terms can be found because B & M is worth more to Penn-Central. B & M has strategic value to Penn-Central and what is the strategic value? It gives Penn-Central monopoly of New England. Now, how come we -- all of a sudden have a monopoly of New England? Why that's necessarily implied from the decisions before this Court? According to Commissioner Webb, necessarily implied.
Potter Stewart: What happened to those other railroads up in New England, the Rutland and the Central of Vermont?
Howard J. Trienens: The Rutland went broke. They weren't able to reorganize it. The State of Vermont took over that part of the Rutland that it desired to continue operating and that part of it is in operation as the State of Vermont Railroad or the Vermont Railroad or something of that sort.
Potter Stewart: And how about this Central of Vermont?
Howard J. Trienens: What Central of Vermont?
Potter Stewart: Disappeared?
Howard J. Trienens: I just don't know. I don't say it disappeared, I just don't know about that, sorry. What I'm trying to illustrate is that this analysis of what happens to Boston and Maine is a vivid example of the kind of a box the Commission has gotten itself into by letting Penn-Central be consummated immediately. Put the -- by letting this consummation go through at once you force further steps. This is why this is different. He force some more steps. And the Commission simply drifts by implication into a monopoly in New England. Now, you can look at the maps that we've attached to our brief and see what kind of a system Penn-Central would be if you put these three railroads and one of them into Penn-Central. Now the Solicitor General's map number one does that, it puts them all into Penn-Central. And when you examine that, you find the monopoly is --
Potter Stewart: Now, which map are we looking at?
Howard J. Trienens: It's R-Map A plus R-Map B which are put together in the Solicitor General's map number one. Oh, they were simply drawn on top of each other.
Potter Stewart: Certainly a brief or two in this case, isn't it?
Howard J. Trienens: No. Now --
Potter Stewart: Now where is the Solicitor General's?
Howard J. Trienens: Solicitor -- yes, that's the Commission sir, the Solicitor General. The point is that the Commission has done this. Maybe you can look at this map and say someday the Commission might find that map with that monopoly East of Buffalo or that monopoly in New England. That's consistent with the public interest when you weigh this and that and everything. That may be if you look at it. You might find that. The problem here is that they are backing into it by implication. They are backing into it because they got themselves in a box by permitting immediate consummation and the key to this is that the Commission has never given any consideration to whether they should permit a monopoly in New England. The Commission's examiners found them, the Commission adopt this finding that the Commission has made no effort -- that's not my words that's the examiner's, no effort to appraise the competitive impact of putting Erie or D & H or B & M into the Penn-Central system. So at this day, there was no effort having even been made to see whether this resulted what might be the end of the road is in the public interest, or drifting into that by implication because we're taking a step, immediate consummation of Penn-Central that forces more steps. And that's why we say that until you know what the conditions are, you can't do the job under Section 5 (2). You don't know whether the transaction has condition, is there, is not consistent with the public interest. But if --
Byron R. White: But if the -- Commissioner, what's his name, Webb?
Howard J. Trienens: Commissioner Webb. Yes, sir.
Byron R. White: Commissioner Webb is -- correct about the conditions of Boston and Maine, somebody has been after Penn-Central, what to do with the Boston and Maine whether the Penn-Central merger take place or not.
Howard J. Trienens: But the beauty of the Boston and Maine is that it has strategic value to Boston and to the New York Central and Pennsylvania. If they just let it rot away because they have a parallel line, they get a monopoly in that area, they can pick off the industries they want.
Byron R. White: I know but this doesn't have anything to do with -- let's assume that Penn-Central merger doesn't occur, Boston and Maine still in top shape.
Howard J. Trienens: Yes, sir.
Byron R. White: And it's still is a viable carrier apparently before Commissioner Webb or at least it doesn't worth anything to N & W or do --
Howard J. Trienens: That's right. But not over to Penn-Central because he finds --
Byron R. White: I know but let's assume that Penn-Central doesn't take -- doesn't work, he doesn't have to.
Howard J. Trienens: That it doesn't have to (Inaudible)
Byron R. White: Yes.
Howard J. Trienens: Well, there's nothing that Penn-Central -- well, first place, the only problem --
Byron R. White: We're not talking about Penn-Central, we're talking about the Pennsylvania or the New York Central, what about the Boston and Maine?
Howard J. Trienens: Yes, what about the Boston and Maine? What is there to say that the Boston and Maine could not continue today as an independent railroad indefinitely?
Byron R. White: Oh, I said if Commissioner Webb was right.
Howard J. Trienens: All he said, he only foreclosed the continued operation of Boston and Maine as an independent because Penn-Central would destroy it. If there were no Penn-Central, you would have the opportunity to let Boston and Maine go on as an independent railroad.
Byron R. White: Oh, I know and that's an assumption nobody would say that it's improper to put it in within N & W.
Howard J. Trienens: On that assumption --
Byron R. White: If it were a live viable carrier with some earnings, why would you -- why would anyone say it isn't improper to include it with the Norfolk and Western?
Howard J. Trienens: Because it's just right on the margin. Its -- has a small deficit. It drifts along -- and it drifts along from day to day and there's nobody has suggested -- there's nobody suggested that Boston and Maine won't drift along.
Byron R. White: It doesn't sound like a very strong point though but --
Howard J. Trienens: Well, the thing that forces this and I think that the outstanding facts --
Byron R. White: I mean either way you've got it, you've got the problem on the Boston and Maine at some point.
Howard J. Trienens: I don't believe so sir. The reason I said that and I'll quote one more sentence from the -- Commissioner Webb's analysis. An important fact is that the inability of Erie, D & H and D & M to survive as an independent carrier is not a direct consequence of C & O or B & O or Nickel Plate and Wabash but is a direct and inevitable result of what Penn-Central will do to them. That's why the fuss. That's why we're here. It's what Penn-Central will do to them. And that's what the Commission found. I'm not here arguing that the Commission should have found it. I'm saying as a fact the Commission did find them and that's what we start with and that's why we are in the box and that's why all these ramifications. Now, there's one other critical issue that was left wide open by the Commission and that's this problem of whether Penn-Central should be required to pay what's called the capital indemnity. Now, this is important because it may be the key, the Penn-Central pays some capital indemnity may be the key to enabling the Commission to put Erie and D & H in N & W. In fact, Commissioner Webb said that if you reflected the losses Penn-Central would impose on Erie and D & H in the value of those two roads in N & W, it will not be possible to construct equitable terms unless Erie or N & W receive capital loss indemnification from Penn-Central. So that may be the key to getting Erie and D & H. And how was that left? That's left wide open. The -- Central is arguing that the Commission has no power even to impose it. The Commission or the Central has left -- reserved the right of judicial reviews to that power so this key to putting even Erie and D & H might be the key to putting them in N & W and saving them. That's left wide open until these conditions are decided. And the only way to do that is now decide it. Well why didn't the Commission finish its task under 5 (2)? Why is all this left wide open? There must be some compelling reason, what is it? We have a discussion to that on the Commission's September 16th report? The Commission dealt first with this problem, should we wait or we find a home. Should we defer consummation until we find a home and they said, "No, that might take several years and it would delay the savings of over $80 million a year that Penn-Central would produce". Now, you get it -- an impression from reading Commission's report that if you put Penn-Central in immediately great savings will flow, great benefits will flow, great service improvements will flow but there's a trick to this. And the trick is you got to level on the question of under what circumstances would Penn-Central go into effect tomorrow if you let it go and that's because of these traffic conditions again. They'd go in subject to these traffic conditions and they would be tied up as to what they could do. It wouldn't stop them from hurting other railroads because -- just put them together. The diminution of competition would hurt other railroads. But they would be stopped from improving service and saving money. Now, is this my idea, my interpretation? No, this is the interpretation of the Pennsylvania's vice president of traffic. He said if you put this merger through subject to the conditions, these traffic conditions that would go into effect, we'd be so tied up that it would deprive the shipping public of any improved service. There is no chance of any substantial savings in the next two years.
Speaker: Does the (Inaudible)
Howard J. Trienens: Oh, yes and that's what this all comes down to. This is -- Penn-Central is to get through because -- not what it'll do for New Haven but -- that it gives a tree to hang a New Haven ornament on, maybe. That's what its all coming down to because there isn't any service improvement while these conditions are in effect. There isn't any saving five years away under these conditions. And even if there were any savings, you've got to get over the idea of these promises that it would be reflected in lower rates because the Penn vice president cannot conceive of that happening. So there's nothing in this for the public in terms of savings, service or rates. You put it in under these conditions. What does happen of course is that there is a diminution of competition between Penn and Central but there's something else happens if the Commission has not even put in the scales.
Hugo L. Black: Is that the only diminution of competition to which you're referring between --?
Howard J. Trienens: Between Penn and Central?
Hugo L. Black: Yes.
Howard J. Trienens: No sir. The next -- the other point the Commission never even leveled on was the diminution and competition inherent in these very traffic conditions and indemnity conditions. Now, we put in some evidence which we've attached to our reply brief by a Dr. Baker (ph), Professor of Economics at Yale. He shows that these very conditions would have further additional anticompetitive effects as market sharing and revenue sharing devices. Now, the Commission has never weighed that. It admitted that it never had the hearing on it. It hasn't had a hearing yet. So there has been no weighing and balancing of what this does, the competition through these conditions. What if any benefits you could ever get out of these conditions because there have been no hearing on the -- there's no hearing of it. It can't have been weighed and balanced because it wasn't even before the Commission at the time of the September 16th report. Well now, the Commission went even further in saying why we aren't going to let this consummation be delayed at least for six or 12 months until we have a hearing on what these temporary conditions are like. That was the last point they can do. Why shouldn't we at least hold this up till we have a hearing to see what kind of temporary conditions even if we're going to forget what happens to Boston and Maine and Erie, C & J and the others but --
Speaker: What's the status of the hearing?
Howard J. Trienens: We completed on these temporary traffic and indemnity conditions. We completed the hearing on December 16th. Briefs are to be filed January 16th and reply briefs February 6th. The matter will end -- be taken under advisement by the Commission without oral argument.
William J. Brennan, Jr.: Was this the result?
Speaker: Record is closed.
Howard J. Trienens: The record -- the hearing record is closed, yes sir.
William J. Brennan, Jr.: This is only under temporary indemnity.
Howard J. Trienens: The hearing on the temporary indemnity is what I was referring to with Mr. Justice Harlan.
William J. Brennan, Jr.: Yes.
Howard J. Trienens: The hearing on the capital indemnity was begun on October 31st, concluded on November 15th, 16th somewhere in there argued before the whole Commission on November 28th and now under advisement.
Hugo L. Black: When you anticipate it, that's it?
Howard J. Trienens: No way of knowing it. I'm a mere practitioner, defensive body.
William J. Brennan, Jr.: I thought perhaps your expertise would.
Howard J. Trienens: Well, directing ourselves right at this question on why don't you hold it up for six or 12 months why you at least work out the temporary condition? The Commission said we won't take the chance because of the New Haven. Now in this connection, I think it is important to recreate the atmosphere surrounding that connection. They were barraged with telegrams -- letters. Senators wrote that immediate consummation was essential to save the continued operation of the -- they got a wire from a Governor. The public interest requires prompt inclusion of New Haven, therefore prompt consummation of Penn-Central. They all equated prompt consummation of Penn-Central with prompt inclusion of New Haven without realizing they didn't match. There was going to be a long hiatus and nobody knew when if ever New Haven would get in even if Penn-Central were consummated yesterday.
Speaker: But why do you say this?
Howard J. Trienens: I say that's what the New York Central traffic vice president said, "When do you expect to have New Haven in?" We don't know whether it would be in if ever assumed you consummate because who knows at the least, the bankruptcy problems they've got, the problem of whether they even had a vote to the creditors.
Speaker: If ever, I mean they're required to be taken into this merger.
Howard J. Trienens: If they can work it out. Get some great New York law firms who are contending that without a vote of the creditors who might prefer to take another route to -- they can't work it on that's being litigated now in the Second Circuit.
Speaker: (Inaudible)
Howard J. Trienens: But these problems were all laid up in the District Court and here's the point the District Court was unanimous on. The District Court did not decide this on the New Haven problem, either the delay or the risk. And as a matter of fact, under administrative law, you'd think that when the District Court unanimously rejected the decisive ground on which the Commission puts this that'd be the end of the case. It's a Cheney doctrine. You got to uphold the Commission order on the ground stated by the Commission or you not uphold it all. It should've been sent back to them. The District Court went on.
Speaker: (Inaudible)
Howard J. Trienens: No, it's in this Court despite that unanimous holding below that the appellees are saying that we want this Court to hold -- to let Penn-Central go through right away because of the New Haven problem. Now, what is the New Haven problem? The problem is as they say it, this merger is going to fall apart. There'll be no place to put the New Haven. That's what this case now comes down to. This Court has to believe in effect that Penn and Central, they don't really want this merger very badly. They're willing to do it for the public interest to have a place for New Haven but have left to themselves they just soon walk away and leave the whole thing if you -- if they're made to wait any longer. Now this is nonsense for reasons that we've given some details. Major railroad mergers were far less saving the needs if held together much longer. And the glue that keeps Penn-Central stuck together is the fact that whenever they get these problems resolved they got $81 million a year or maybe $120 million, there's evidence to that effect. But at least $81 million a year in savings, that's what keeps the stock together. Quite apart from an addition to all the service benefits that will crack out of business. Only last July, July of 1966 these Pennsylvania and New York Central stockholders voted 99.9, 99.2 respectively percent of those voting, or 87% of all stocks to reaffirm these merger subject to all these conditions and despite the fact that -- be these delays and get any saving. But why did they do that? Well even with their improved earnings of $120 million a year this merger is going to increase their earnings about two-thirds to a double. Here you're owning stock in a company that's earning about 550 a share and these merger savings alone are going to give you another $3.50 to $5 of shared earnings. Of course they are going to hold together. Of course they want it. And I might also add that there is no evidence whatever before the Commission on this whole scare tactic of falling apart. No evidence whatever for the Commission on this September 16th report. The only evidence that has come in lately and N & W has been denied the opportunity even to rebut it. So there has been no hearing on it. This is all something that you're asked to believe that Penn-Central is just going to come apart with all these attractions ultimately. It's just going to fall apart before your very own --
Speaker: You mean to say that agreement is merger agreement?
Howard J. Trienens: No, sir. In the Nickel Plate - Norfolk and Western there was a six-year limit put in at the insistence of Pennsylvania. In this Penn-Central agreement there is no time limit. Penn-Central is as fragile as everybody in this side says it is, it can't be as good as everybody's been led to believe.
William J. Brennan, Jr.: You are going to get around in saying what should be (Inaudible)?
Howard J. Trienens: The N & W in --
William J. Brennan, Jr.: And others in -- I will just --
Howard J. Trienens: These railroads have a double interest on these. We have a double interest in it and I'm counsel for N & W and I'll tell you exactly what our double interest is. One of them is that were parties to a fraternity suit that's going on. We got two ways in which Erie, D & H and B & M are going to be part of an N & W system. Commission found that that was our interest. We want to have a balanced system in the East. We're going to be stuck with these railroads in some form or another we think. And we're very much concerned with what happens to them. But we have a very great interest quite apart from our obligations ever to take these railroads on. N & W in effect is at the crossroads in this business. It's been a coal carrier which isn't a rail competitor with anything. It was owned by the Pennsylvania Railroad and now was cut loose with the Nickel Plate and the Wabash. We are just emerging as a competitive rail carrier in the East and by competitive, I mean from merchandised traffic. The question we face is whether we're going to go back to holding coal and have Penn-Central dominating the East which they would under this -- to no we are headed or whether we're going to be a competitive factor for merchandised traffic in the East whether we're going to be in the balanced competition or whether we're just not going to be in the team at all. That is our critical interest within the --
William J. Brennan, Jr.: What really goes to these -- to the merger, why not? Now, it sounds pretty much as in the way -- this goes to whether the merger ought to be approved on any terms.
Howard J. Trienens: It goes -- I don't think it goes quite that far. Its true that if we wanted to force the hand of the Commission and just wanted to get into N & W seeing all through, maybe the best thing for us would be to let Penn-Central go through right now.
William J. Brennan, Jr.: But you didn't during the hearings put in any evidence of the impact of the merger on you.
Howard J. Trienens: We were controlled. We were -- we're -- we were owned by Pennsylvania Railroad. They were all over our board and over our executive committee. Nobody in N & W could have gone down there and entered an (Inaudible) All -- what we did -- what N & W did the first crack out of the box right after the examiner's report where they said, "Well, you're --
William J. Brennan, Jr.: What's happened that turned you loose?
Howard J. Trienens: What's happened to turn us loose is that its (Voice Overlap) --
William J. Brennan, Jr.: But why are you here?
Howard J. Trienens: Is part of the three-system plan which the Pennsylvania sponsored in its proposing were to be one of the three systems were to be half to their side. And that part -- as part of the -- of a move to create that system they cut us loose. That's how we got through.
William J. Brennan, Jr.: Well, B & O and the C & O, they could have done something?
Howard J. Trienens: They could've done something, yes sir. And they --
William J. Brennan, Jr.: They didn't do anything (Voice Overlap) --
Howard J. Trienens: They were in this position as we are now, state the -- the parallel situation of N & W and that also. We were in the position at the time of the hearings in examiner's reports. We don't want to be in the position of against improved service. We don't want to be in a position of against savings. What we don't want to do is say, "Well, let's have Penn-Central it will produce all that", and how do we solve the problems, well like the examiner said the rest of the East is somehow got to get along together and cooperate and we tried to work out a plan which were -- still hoping to get the hearing. Hearings are set now after a years delay. We undertook to try and work out the other half of the East so it could live with Penn-Central.
William J. Brennan, Jr.: Now you're talking B & O and C & O now or you're talking in the --
Speaker: Both.
William J. Brennan, Jr.: Both?
Howard J. Trienens: Well, this is a matter that's common in N & W. N & W and C & O --
William J. Brennan, Jr.: Alright.
Howard J. Trienens: -- are merger partners in that.
William J. Brennan, Jr.: They were locked and bribed also or the --
Howard J. Trienens: What -- excuse me.
William J. Brennan, Jr.: Is this merger being pushed upon them or are they anxious for it or what?
Howard J. Trienens: They feel --
William J. Brennan, Jr.: I mean they're a merger --
Howard J. Trienens: The B & O and C & O?
William J. Brennan, Jr.: Yes.
Howard J. Trienens: Well, the B & O and C & O --
William J. Brennan, Jr.: That's already been merged but I mean indicative in the three lines.
Howard J. Trienens: The N & W and three lines was found to have benefits and service, benefits in savings and not to hurt another soul in the East and was to gain those benefits and Pennsylvania permitted that because it was part of a three-system need.
Byron R. White: But how about the N & W and B & O and C & O that merger proceeding. That -- is that actively being pursued by --
Howard J. Trienens: That was --
Byron R. White: -- by your clients --
Howard J. Trienens: Yes sir.
Byron R. White: -- and by the B & O and C & O?
Howard J. Trienens: We've been trying to get a hearing since October 1965 on whether our plan of a balanced system is in the public interest. That has been opposed by Pennsylvania. We have now on -- December 30th as a matter of fact, we've now gotten an order setting ours down for a hearing. So that's moving also. That one's under way. We'll serve the evidence this winter and have it by this spring.
Earl Warren: What was the opposition of Penn to this action of yours?
Howard J. Trienens: Didn't comport with the Pennsylvania plan for a three system in the East which they were dominating. I asked Mr. -- the Penn board chairman, I say, “Do you still oppose even letting N & W seeing -- will have a hearing and whether there poses in the public interest. It sure does. He opposes even the hearing. So it departs from the Penn plan.
Tom C. Clark: Say, your position and I take it as if -- and that if C & O permitted to go through, you would not approve of the --?
Howard J. Trienens: If we think that the way to get off the benefit and the balance competition which is the trip. And if you're going to let Penn go through with territory wide system with half the East we think that the -- an alternative should be explored is a N & W-C & O C as the nucleus for the other half of the East to survive balanced competition.
Byron R. White: As a nucleus, what else would you inquire?
Howard J. Trienens: Well, Erie, D & H, B & M, Central, New Jersey and (Inaudible). Or would do -- it'd be the other half as shown in our maps at two -- our maps B and C, the other of the East, so-called unprotected carriers.
Tom C. Clark: You'd include B & M, would you?
Howard J. Trienens: Yes, sir. And we've offered to do that and we think we can do it because with the strength and the competitive balance that would give us, we could do it. We've afford to do that.
Tom C. Clark: And you haven't -- what was this -- the (Inaudible), 21 by 10?
Howard J. Trienens: Yes, that's the area --
Tom C. Clark: That allows you -- that allows what? That allows --
Howard J. Trienens: If it --
Tom C. Clark: -- N & W to take in these reasons.
Howard J. Trienens: What it would do Your Honor, it would require N & W as it presently exist that the present N & W would require to take in Erie and D & H. It would not require to take in Boston and Maine. If Boston and Maine, it says, we -- they couldn't work out terms that should go to Penn-Central.
Speaker: Once authorized and directed and the other are not directed.
Howard J. Trienens: And that's the report in which they say, let that go to Penn-Central. I'd like to reserve a few minutes for rebuttal.
Speaker: Can I ask you one question?
Howard J. Trienens: Yes, sir.
Speaker: Is you're basic -- do you mean (Inaudible)?
Howard J. Trienens: No, I don't ask this Court --
Speaker: (Inaudible)
Howard J. Trienens: Our position is first, that there are number of findings with respect to material issues which weren't made but basically is that Section 5 (2) of the Act, this is a statutory argument. Section 5 (2) in the Act says, “That transactions as conditioned by the Commission shall be appraised, decide whether those transactions as conditioned are in the public interest”. We say it as a matter of applying that statute and so you know the essential terms of the transaction, you don't know what you're approving.
Speaker: That's in effect claiming (Inaudible)
Howard J. Trienens: Where in this case, they have found that the essential conditions and this is their finding that they're essential not collateral. That they have found the central conditions have not been formulated and their hand is forced as it is forced.
Earl Warren: Mr. Cutler.
Lloyd N. Cutler: Mr. Chief Justice, may it please the Court. I have been allotted ten minutes to present to you the unique position of the Central Railroad of New Jersey, one of the appellant railroads, the Number 642. C & J is a relatively small railroad but it is an important one and there are those who depend upon it even though they might not love it. It carries 18% of all the railway freight tonnage originating or terminating in the Port of New York area. And it's second only in this respect only to the Pennsylvania and its affiliates. C & J believes that it will be unable to survive the impact of Penn-Central. In this respect, its position is identical to that of E-L, D & H and B & M, I'm really sorry for all of these initials, which have been referred to as the three protected roads. But unlike the three protected roads, C & J has been unable to obtain a hearing before the Commission as to how seriously it will be injured by a merge to Penn-Central. As a result, the Commission has made no finding as to the ability of C & J to survive Penn-Central and it has made no provision looking toward the inclusion of C & J in any other major system or for protecting it in some way during the interim. And C & J has been asking so far without success that only that it be given such a hearing before Penn-Central is allowed to consummate. Under this Court's opinion in McLean Trucking there can be no doubt as to the Commission's duty before approving a merger as large as Penn-Central to consider its effect on other competing Eastern railroads and in fact the Commission expressly recognizes this obligation in its original report in order. Nor is there any dispute as to the failure of the Commission to consider the effect of Penn-Central on C & J. Indeed the Commission in its report on reconsideration made an expressed finding that there had been no showing of record on this point one way or the other. For the past two and a half years, C & J has been trying to present evidence to the Commission showing that continuation to -- of its service is essential. That it will probably be unable to survive Penn-Central and that it should be protected from the impact of Penn-Central, pending its inclusion in some other railroad in the same way that the Commission intends to protect the three protected roads. But the Commission has turned all of these efforts aside either on the ground that they are too late because it has found C & J guilty of latches or on the grounds that they are too early and that C & J will be given an opportunity in some other proceeding at some other time after Penn-Central has been consummated to obtain the protection it needs. There are two reasons why the period of latches does not stand up. First, it doesn't fit the facts of this case. It's true that C & J did not take part in the first round of hearings which terminated on October 2nd of 1963.
William J. Brennan, Jr.: Tell me Mr. Cutler, C & J want to get in to one of these?
Lloyd N. Cutler: Yes, sir. The N & W, C & O, B & O merger plan contemplates the inclusion of C & J and C & J has petitioned for an inclusion. And that's the only proposal to date that would take care of C & J. After the original -- during the original hearings Penn and Central were vigorously opposing the inclusion of the New Haven the point that was going to cause the most injury to C & J because the New Haven is one of C & J's major interchange partners. But in June of 1964 after the hearings -- at the first days of the hearing had closed, Penn and Central soften there opposition to inclusion of the New Haven and indicated that they would be willing to work out some arrangement with the New Haven. And at this point which was two and one half years ago, C & J petitioned to intervene and to offer evidence showing how badly it would be damaged. The Commission allowed the petition for intervention but it did not allow C & J to introduce it evidence saying that it had stood by during the first round of hearings and that it was too late. At the very same time the Commission in it same order did reopened these hearings for September of 1964 to hear some evidence on the labor conditions. And as it turned out, hearing C & J at that time would not have done any harm at all or delay in the process because the examiners did not file their report until March of 1965, some eight months later. So that the Commission was simply wrong when in its decision on reconsideration, it lumped C & J with N & W, B & O and C & O instead of all four that their expressions of discontent now more than four years after the merger application was filed come to late for theory of consideration herein. For more than two of those four years, the C & J was doing it's very best to be heard and the Commission would not hear it. The theory of latches is even weaker as applied to the other Penn-Central terms that are merged even later and also injures C & J. For example, the indemnity arrangements that are provided for the three protected roads did not come to light until they first appeared in the Commission's original report and order of April 1966. C & J promptly requested reconsideration and asked for such protective indemnity terms for itself. But the Commission again refused on the same theory of latches and even applied that theory of latches to the notion of a capital indemnity which had been introduced as an idea for the very first time in the petitions of reconsideration of the other railroads. In any event, we would submit that the theory of latches does not fit the framework of an administrative agency that is suppose to find where the public interest lies. To illustrate the point, we need only look at what the Commission did for the three protected roads. It found that they provided essential services. That they could not survive Penn-Central and that as the Commission said, “Unless they are protected during the period necessary to determine their future we would not authorize consummation at this time”. Now let's assume that one of those three protected roads had also been late in presenting its evidence. Could the Commission as the guardian of the public interest say that, “Even though this evidence had they heard it would have convinced them of the above conclusions that they would nevertheless deprive the public of this essential service because the applicant had been too late”. We think the answer is obviously not. And yet that's precisely the way the Commission has treated C & J. Mr. -- so much for the argument that C & J is too late.
Hugo L. Black: Is your entire position that this whole merger should be held up until a hearing is given to C & J?
Lloyd N. Cutler: Our position Mr. Justice Black is that the merger should be held up until a hearing is given into C -- to C & J. And if the Commission determines that C & J service is essential and that it will be damaged seriously and may not be able to survive Penn-Central. That some protective condition should be devised for us until we can be included in a major system in the same way as the three protected roads.
Byron R. White: Though there -- there was no attention given to C & J by the Commission except they made no findings with this (Voice Overlap) --
Lloyd N. Cutler: They made no findings and its literally true Mr. Justice White. They paid no attention whatever other than the saying you're late and don't bother. They also said we were too early and that we could be heard at some later face for example in the New Haven inclusion proceedings in order to protect our interchange relationships with the New Haven. But as we've shown in the briefs of the appellants in this case, conditions devised at a later time may never work out and provide the kind of protection that we need. Moreover, they may come far too late to do us any possible good. In the brief moment that I have left I'd like to read to you from one authority on page 14 of our reply brief which is through the looking glass from the speakers, the white queen. And she said, ”The rule is jam tomorrow and jam yesterday but never jam today. It must come sometime to jam today”, Alice objected. “No, it can't,” said the Queen. “It's jam every other day. Today isn't any other day, you know”. Now all that C & J asks is a small taste of jam today. The hearing on the injury of the Penn-Central will inflict and a decision about its future while it's still alive. Thank you very much.
Earl Warren: Mr. Bourne.
Edward W. Bourne: Mr. Chief Justice and may it please the Court. I represent the Erie-Lackawanna which is the largest and usually the first named of the three so-called protected railroads. Now our case here, and our case below, is very, very narrow as been the case that was put to you by Mr. Trienens. We are in the anomalous position here in that the Norfolk & Western and those affiliated with it have a very broad program with which the Erie-Lackawanna and the D & H and counsel for the D & H who will follow on me do not agree. So it is not surprising that while Mr. Trienens said higher in the Court in thinking that the Commission should not have been sustained. Mr. Trienens and I disagree a great deal about many of the things that he had said to you. Another thing that I want to emphasize is that we have -- we stand on specific findings. We stand on a specific course that was followed. We stand on specific statutes as made -- seen to be a dry approach to this case. But Erie-Lackawanna is an important railway. It isn't as if it was some trolley line that had to die so that progress should go ahead. It serves the country from the Port of New York to Chicago on its own lines with Buffalo and immediate cities. It serves -- it go -- it reaches to St. Louis through connections and then of course its traffic to interchange all over the country. Its revenue last year -- in 1965 were approximately $230 million neither is the D & H who were following the -- a railroad that is to be looked upon as unemployed. I will say no more about their importance because the Commission unanimously found that they were essential unanimously and I don't see why since nobody challenges those findings. I should take the time of this Court to say that they're supported by the record. I want to mention two other points of explicit disagreement with Mr. Trienens. But first of all, we do not agree that the provisions for and indemnification condition was an illegal pool under Section 5 (1) of the Interstate Commerce Act. I would like to call your attention to the fact that testimony on that subject at the adjourned hearings for which the condition provided has been taken. Mr. Trienens introduces a testimony of an Emily Gail, Professor and does not introduce cross examination of the (Inaudible). Briefs haven't yet been filed. The question is to whether that's an illegal pool hardly seems to me the day before the Court because actually at the present time there is no indemnification condition. Any decision by this Court on that subject would be a many of something that doesn't yet exist in the light of inadequate argument. He spoke also of the capital indemnity issue. I would like to say on that that while I do not minimize its importance it is not been mention in any document filed by Erie-Lackawanna with this Court. Our appeal has been based squarely and exclusively on points that were raised below and our emphasis has been on the so-called protective conditions. And what happen to them and I will tell you that as briefly as I can. I want to assure you that I'm going to come to the New Haven but in the way I have lined things up here I don't come to it right off of the bat --
Hugo L. Black: Pardon me?
Edward W. Bourne: -- because it seems --
Hugo L. Black: Pardon me but you said your appeal was based squarely and exclusively on something and I didn't (Voice Overlap) --
Edward W. Bourne: On findings of the Commission and on statutes of the United States.
Hugo L. Black: Well, do you now --
Edward W. Bourne: Now --
Hugo L. Black: Okay.
Byron R. White: Excuse me. Could I ask you just --
Edward W. Bourne: Yes sir.
Byron R. White: -- before you were urge -- do you agree with Mr. Trienens that this proceeding to approve that the merger must await -- find -- as he put it, finding a home for the P & L?
Edward W. Bourne: Our position on that is this Mr. Justice White. That's what we would like and we think that would be just but our ancestors in our pages has been on the protective conditions. Is that a fair answer? I don't want to give up the position that we wouldn't like to be included?
Byron R. White: Well, yes but that isn't the --
Edward W. Bourne: All that -- we aren't asking for it. But we have not argued that any --
Byron R. White: Mr. Trienens said that it was -- that the Commission must find a home for the E & L before the merger to be consummated. Do you agree with that or not?
Edward W. Bourne: We have not argued that. I think --
Byron R. White: That any either one of them --
Edward W. Bourne: I don't like -- I think I don't --
Byron R. White: -- that you (Voice Overlap) argue with it?
Edward W. Bourne: What?
Byron R. White: You don't want to argue it?
Edward W. Bourne: No, I don't want to argue it. I want to say that we would be very happy with that and we've asked for it. But our argument is based upon what the Commission did with respect to the protective conditions. Now, those are -- you've been told something about them, two of the lawyers -- by both lawyers mentioned what is perhaps the most important of all three. And that is the one on page -- the bottom at page 18 of our brief which says, "It is doubtful there without inclusion that a major system, these three carries that withstand the competition of the applicants converged and unless they are protected during the period necessary to determine there future we would not authorize consummation of merger at this time even though approving the merger". Then the Commission went on to say, “Our pool other than merger for undelayed consummation shall be subject therefore to the conditions specifically described in Appendix G”. Now, an argument is made by one of the counsels for one of the appellees that all the Commission said is, “Well, they've got to be protected in some way or other". That is not correct. And isn't there that there are pool was subject to the conditions specifically described in Appendix G and it then went on to make the mandatory statutory findings that obvious relations, direct relation to what it had previously found. So long the basis of the appendices had found the conditions to be just and reasonable which is the statutory language. Now, what happened? When we have an opportunity to study what they had done and Mr. Trienens is completely direct in saying that the were no advance nor was there any kind whatsoever that this type of thing was even under consideration with no hearing, no opportunity for argument, nothing was done within the walls of the building where the Commission sit as its offices by whoever did it. We've studied them and we felt that they were very seriously defective both in substance and in form. On July 8, reason to believe we filed a petition for reconsideration in which after untold hours of work we tried to refrain in such a way as to do what we thought should be done. Answers were due at least to two of those petitions. There are a lot of other petitions on the first of August. The last come in on the 8th of August, a very short one. Commission did nothing. They just -- the papers just sat there. Then many times we have this sort of damage at least to the effective date. If and when the order became effective, the merger could go right -- quite through and it was announced to the papers that they have established sixty or more men getting already to put it to. Our first effort to get -- or one of our efforts to get an extension of the effective date was successful because the Commission said that it immediate -- have time to consider these petitions. It said nothing about allowing us time for judicial review which was what we asked for. By the 8th of September we were in this position. Our petition was on file, nothing had happen. We have the September 30 effective date. We had to figure out how much time is -- was going to take to protect our rights and we decided we couldn't wait anymore and we filed papers and that's how this suit started. After the suit has started, two days before the argument in the three-judge court, two days before the argument in the three-judge court out came the Commission's further order. The September the 16th actually released on September 19th. The last further order said and I think I should read this because I -- this is very, very important.
Hugo L. Black: What kind of order did you call it?
Edward W. Bourne: Sir?
Hugo L. Black: What kind of order did you call it?
Edward W. Bourne: Further --
Hugo L. Black: Further order?
Edward W. Bourne: Further order, further. The Commission said that the petitioners had raised valid issues. The three protected carriers, that's the Erie-Lackawanna, D & H and whom you hear and B & M to whom we won't hear. The three protected carriers on petition have raised valid issues as to the interpretation, application, scope and other aspects of the protection. So the Commission provided that there should be further hearings and they said that until the traffic conditions which were extraordinarily complex extremely important and in our view, very defective. They were to remain operative until or further ordered. The other condition, the indemnification condition which was the Mr. Trienens has mentioned was ascended in its entirety. And the Commission said, “Though or indicative that if it were reinstated or if any were reinstated that would be retroactive to the days of consummation”. And then the Commission said, “Go ahead with the consummation”. And our position is that there are no findings in that September 16 report which can conceivably be cited as justifying what the Commission did. Even if it -- he had assumed that the fact that the Commission did what it thought had, what it had to do implied that it thought that was the right thing to do. It gave no reasons at all to amount anything certainly not as to the protected conditions except to say that all these issues has been raised. Now, I think that the -- that our case -- by our case I am talking to the Erie-Lackawanna case and the D & H case was magnificently summarized in an opinion of Judge Weinfeld who dissented below. This is not an opinion. In this case this is an opinion in a following case which I think is now before this Court brought by New Haven's farm holders. He concurred there with it, Judge Brody and Judge Levet. But he distinguishes between that case and this case in these words and these sums up our case better than I can do it. In the Erie case, the Commission has found that the public interest required protection of the three carriers against the adverse effect of a merger and as a condition of consummation imposed specific protective terms which are subsequently revoked ex parte in my view without adequate supporting findings as to one condition and lesser future determination as to others. The terms and conditions as originally delineated by the Commission where a city quite known of the merger. Now, where are we now? We have the Appendix G traffic condition. I'm assuming for example that this Court reverses, the -- affirms the lower court and the merger goes through on February 1, where would we be? We would have these Appendix G traffic conditions. How good are they? We say they are no good, practically. And nobody has ever answered our criticisms that its statement includes the Commission. It includes that the court below. It includes the appellees. They don't want to take to answer them. Is our main -- to our main brief rather than bore the Court with a great long discussion of this topic, this subject. We dealt with it very deeply in the bottom of -- body of the brief, pages 41 and 43. And then in Appendix D, we discussed some of the major defects, no answer. Now, Mr. Silleck has dealt with this subject in his briefs more fully than I have. So, I'm not going to go on with that on with that. I am confident as to what you -- that you get the whole story before the deal is over. Now, as to the -- as the indemnification condition, where we stand on that?
Hugo L. Black: As to what?
Edward W. Bourne: The indemnification conditions. Judge Weinfeld says, "None can define what will happen". Nobody can define what would happen. We think we're entitled to it. We didn't -- we thing we've made it a good case for it at these hearings which are recently been held. They were held before, an examiner who had no authority. He didn't undertake to express any opinion. These are going to be filed, what do we going to have?
Speaker: (Inaudible) these are together as to when (Inaudible)?
Edward W. Bourne: Of the most recent hearings? Well, I was really expect the decision -- I think that the first decision it will be on so-called capital indemnity which is heard first. And then the second decision would be on items 1 and 2 and I would be really surprised if that was not down by let say, the first of April. The second -- the reply briefs are due -- the sixth of February -- to the sixth of February. I would be surprised if it wasn't down with it by the first of April. You realize of course Mr. Justice Harlan that Mr. Trienens and his (Inaudible) may challenge it, indemnification condition even if we're entirely content with it. There may be a connection say you can have this going. Now, I think you just tolerate to ask whether the question of power was raised. The answer is yes. We questioned the Commission's power to do what it did in this case. Now, the -- appellees say that we are arguing that every detail of every condition in every by to transaction has to be put down the last of defining debt. We make no such argument. We say that then -- and I think they must agree that the limit beyond this recognition can't go.
William J. Brennan, Jr.: But you do agree, don't you Mr. Bourne that -- Mr. Bourne, you do agree that the -- that if the merger is to be postponed until these conditions are determined that it is also must await judicial review of the condition?
Edward W. Bourne: Well, I would think so, yes, for this one. I've seen two lights. I think that means I'm done with the (Inaudible).
Speaker: (Inaudible)
Earl Warren: The --
Edward W. Bourne: What --
Earl Warren: That's your decision but you have a moment or two before we adjourn.
Edward W. Bourne: They cite authorities with --
Earl Warren: We'll recess now for lunch.
Edward W. Bourne: I am -- Mr. Chief Justice, I'm reserving 10 minutes to reply, I have four minutes now and I will try to cover my ground in four minutes. I would simply like to refer to the discussions of our briefs of the re -- statements by the Commission that these two railroads were invulnerable and highly sensitive financial condition to railroads, it made a $122 million in 1965. I would like also call attention to the point that deals with all the reasons the Commission gave for prompt consummation. And finally to the point -- the effect of the court below really base its decision to a considerable degree on suppositions and conjectures that had absolutely no support in the record. Now as to the New Haven, I cannot tell you and I don't think it's my -- really my job to tell you all about New Haven. I will come to that. Our position is this, they requested deferment until the protected conditions are determined even if judicial review is involved, involves no threat to the New Haven as you could measure, no treat to the New Haven. I think the threat to the New Haven if even deferring until we are included in the Norfolk and Western would be very slight. The reason the Commission did what it did was because it would not find out what the facts were. And in our petition to reconsideration we asked them to find out more about New Haven. All they were told was that New Haven was in a desperate condition. That it had to be a Penn-Central merger to save the New Haven, repeated and repeated, repeated with no explanation of the connection between the Penn-Central merger and the New Haven. And they decided that was right and refused to find out. Now, I feel that since the New Haven Trustees and the four states have a total of an hour and a quarter they together have an obligation to tell this Court, first, what is really required to bring about the inclusion of New Haven? Mr. Justice Harlan wondered whether they were only procedural points. The answer isn't they're not only procedural points. They are very substantive points involving both this proceeding and Section 77 of the Bankruptcy Act, the reorganization proceeding. How long will it take to guesses below were up to two years. Well, my own view is that's optimistic. And finally in this I think is crucial, why and how and to what extent will a deferment of Penn-Central merger have any effect on the solution to the New Haven problem. Now, there's no answer to say that the New Haven is in desperate condition. It's out of cash. It may not have enough cash to survive and so forth. Unless you show that by jeopardizing the Erie-Lackawanna and the Delaware and Hudson, you're going to save the New Haven or at least help to save New Haven very substantially. There is a complete lack of any showing and I think the burden is on them to make the showing in specifics not in statements about the desperate conditions of the New Haven and how everybody wants the New Haven. I'm a native of New Haven, grew up in New Haven, and lived -- a resident now of Connecticut. I'm not going to stand here and try to box something that is required by the New Haven. But I have yet after months and months, and months, and months of work on this case to find any intelligible statement on the other side or by the Commission as to why -- what we are trying to do to protect the Erie-Lackawanna is going to hurt to New Haven.
Earl Warren: Mr. Silleck.
Harry G. Silleck, Jr.: Thank you Mr. Chief Justice, may it please the Court. I speak for the Delaware and Hudson Railroad Corporation, appellant in Number 680. It has been stated by the Commission in its brief that the truly unique feature of this case is a fact that there is no outright opposition to the merger by any railroad and language to this general effect appears in Judge Friendly's opinion below. The impression that this creates is that conditions which other railroads have requested are perhaps of a collateral and certainly relatively unimportant nature. That is a very wrong impression about this case because the truly unique feature about it is not the fact that there's been no outright opposition by another railroad. The truly unique feature is the reason why there has been no outright opposition. And that reason is this, in the three merger cases that we had have in the East so far, C & O, B & O, and the N & W-Nickel Plate, Penn-Central. There has been a remarkably constructive approach by the management so the other railroads affect it. They have not as in other parts of the country sat back and said, “No, we oppose and flatly will obstruct any merger". They have not as they might have done all sought inclusion in Penn-Central at the same time thereby creating even more of a dilemma for the Commission than it now have. What they did was to seek to work out a rational approach to the whole merger picture in the East realizing that mergers was desirable as a matter of the economics of the industry, realizing further that the policy of the law supports and wishes to facilitate rail mergers. Now that is where the matter of conditions come in. How to advance the railroad merger movement without obstruction and without real injury to essential railroads? Now, it's been said already as you know that the Commission has found that these three so-called “Protected Roads, E-L and D & H and B & M are essential in public interest. Their service must be preserved. They further found that without inclusion in one of the systems they could not withstand or it was doubtful that they could withstand competition in Penn-Central. They further said there were only two ways they could see to protect them. One was by inclusion and the other by some interim protective conditions until they finally decided in which system they should be included. Now, the injury to the D & H is so well documented before the Commission and I don't really have to go into it but I would like to make this one point in connection with that. The D & H is a perfectly buyable railroad on its own today. It has been a profit making railroad for many years. What is the trouble in this merger situation so far as D & H is concern is Penn-Central and Penn-Central only? We had no cause to complain about the other two mergers. But Penn-Central would as the Commission found make it impossible in all likelihood for D & H to survive as an independent road. And D & H is the key to further continuance of rail competition in New England because it provide the connection with the roads to its West and South with the Boston and Maine which is the only railroad that will be left of any significance to provide competition in New England. Now, we have said to the Commission, "Yes, we would like to have inclusion if we can". But we've also said if you think you can find conditions that really will protect us in the interim we'll go along with that but we've got to be sure that the conditions are satisfactory because as you yourself have found. You would not let this merger go to consummation unless there is protection. Now, I can't think of a clearer way for the Commission to have found that this kind of protected condition or the condition precedent to the consummation of the merger. And being a condition precedent and being also as they found in the September 16 report that it was necessary to have a hearing with respect to these conditions. It seems to me essential as a matter of principles of administrative law that that hearing must be held first before the merger goes through. And now with respect to these conditions, there are two difficulties. One relates to the recession of the indemnity. The indemnification provision as we viewed it was inadequate but nevertheless it did provide substantial protection in addition to the so-called traffic restrictions. The Commission by rescinding that has as Judge Weinfeld dissenting below said, undermined its whole finding that undelayed consummation of the merger was consistent with the public interest. And it does no good to say that these conditions may be retroactively reinstated. The point is they may not be retroactively reinstated. We do not know until the Commission finishes the task of coming up with these conditions and is able to itself way the significance of those conditions against the desirability on other grounds for going ahead with the merger. In that connection, it is important to realize as Judge Friendly's opinion makes clear below that the court below was of the view that if we didn't even get the indemnity provisions, the traffic conditions would probably be sufficient. And that was a view which was undoubtedly concluded by the court below in the light of what was said by the Penn-Central people in the court below. Now, what they said was that these conditions are very broad, very extensive. You could not even devise a restraining order that would be even -- that would be anymore prohibitive on their conduct. They said we simply will not be able to improve our service. We cannot divert any traffic from these three roads. So, the traffic conditions on there face as construed in the court below would appear and that certainly the court below was impressed by this would appear to provide sufficient protection with the matter of indemnity being perhaps a box stop as they call it. But the trouble is that in the hearings that if the just recently been concluded a totally different interpretation has been placed on those conditions by the Pennsylvania's own witness. When I say that, I do not in any sense mean to charge either counsel or the witness with an attempt to mislead either the Court or the Commission. The difficulty stems from the facts that these conditions despite their apparent clarity are not clear at all. What has happened is this, the Pennsylvania witness in these further hearings has said, contrary to the opinion of counsel that was expressed below, he has said, "We will not be banned as I read these conditions from soliciting traffic for Penn-Central against the Erie-Lackawanna, D & H and D & M. We won't be banned from soliciting traffic and conjunction with our future partner the New Haven against these three roads despite the fact that Judge Friendly very clearly in the court below was interested in this matter of solicitation. I have quoted in out reply brief the good portion of the record to show what was said there and to show what Judge Friendly's interest in this matter was. What we have in other words today is the unhappy situation of a very unclear set of traffic conditions requiring it nothing else, a clarification by the Commission as a result of this further hearing which was recently concluded. We have at the most only a possibility of getting an indemnity provision. We know we have some questions raised which I like -- Mr. Bourne do not agree with but nevertheless questions have been raised by the N & W, B & O, C &O group as to the legality of such conditions. It does not seem under these circumstances possible to me for anyone to conclude that the conditions which we will have in effect if this merger were to go through tomorrow would be in any sense adequate to protect us. And it is on that ground principally the Delaware and Hudson relied so far as the reversal of the court below is concern. We think this proceeding is in the state where remand is required at least until the Commission had issued its decision on these conditions so that the parties can determine whether or not they merely have any protection. Whether the Commission itself -- so that the Commission itself, I should say can determine the significance of those conditions as finally determined in the light of the other considerations which they think lead to the desirability of undelayed consummation. Now in that connection, Judge Friendly referred below through the fact that the Commission had a duty to avoid prejudgment. I fully agree, I think that a judicial or quasi-judicial body must avoid prejudgment. Therefore it must not determine that these conditions that are in existence today are adequate until they have heard the evidence and heard the arguments about the evidence and they've reached a conclusion in that light. In that respect I would also like to point out another difficulty with the Commission's report of September 16 as we see it. The Commission in that report laid out as it thought the factors alongside and the other on whether or not to proceed with merger. And among of those factors was the thought that because a delay and the merger might delay the ultimate accomplishment of savings and benefits to the public, the merger ought not to be delay because there would be a very substantial benefit to the public ultimately from this merger. The difficulty is again, that until we know what Appendix G conditions, traffic conditions really mean for Penn-Central you cannot determine whether -- a days delayed now with Appendix G in operation is any worse to the Penn-Central than delay of the merger entirely until these conditions are finally determined. In that connection, I would simply point out this as an example. The Penn-Central in their briefs said what they thought the Commission meant by this talk about the days delay at the beginning, being days delay at the end was that Capital Improvement Programs by Penn-Central could at least be initiated during the period of Appendix G was in effect and if this would necessarily hasten in the long run the benefits to the public which the merger would permit. That is an excellent example of the problem that is involved in these Appendix G conditions. If as the Pennsylvania's traffic witness construed them in these recent hearing as not in effect prohibiting construction of new facilities on the lines of the present Penn or the lines of the present Central just so long as you didn't use both lines for your new facilities. If that's what Appendix G really means then of course they'll begin their capital improvement program. But that very situation will deprive us of what little protection the traffic conditions will afford. The principal thing that we are worried about is the const -- or a principal thing is the construction of a yard at Selkirk, New York right on the D & H doorstep which will be the focal point for the handling of all traffic moving East and West over this new Penn-Central system. Now, if they are allowed to build that yard for dimensions for ultimate use by Penn-Central which under the Pennsylvania witness' interpretation as I understand that they would do. All of the traffic that we are worrying about that would move through that yard and take traffic away from us or the advantages of having it move it through that yard would accrue even while this Appendix G conditions were in effect assuming that we never included before the yard is finished. Now, if on the other --
Potter Stewart: The yard, where is it -- the yard, where did you say Mr. (Voice Overlap)?
Harry G. Silleck, Jr.: Selkirk, New York. It's near Albany. And it's the -- is the point where the New York Central's lines from New York City to Albany, from Boston to Albany, and from the west to Albany all converge. If on the other hand Appendix G has any real teeth in it and means what we thought the Commission thought it was suppose to mean then we doubt very seriously that Penn-Central would construct to any substantial degree a large of these additional facilities because until they know how long Appendix G is going to be in effect. It would probably be against there interest to construct facilities and then have to let them lie idle until Appendix G went off and they could use it. So, the principle problem at the moment is getting far -- a far as to what Appendix G means. I'm getting assurance as to whether there is to be anything in addition to traffic conditions. Now it may well be that when we see those conditions, we would be reasonably satisfied. We would go along and say, "Yes, we'll work with this until our own inclusion is effective". But until we know what they are, until the Commission itself and my judgment knows what they mean we cannot take that chance in the light of their own findings and their own findings as I said before are completely documented by the record. The difficulty with traffic conditions I might say is recognized really by all the people really associated in the traffic business. I might refer for instance to the testimony of the traffic vice president of the New Haven Railroad in this proceeding some years back before we knew what these conditions were. But at that time the New Haven was putting in its case to show the real harm Penn-Central would cause to it. And he said, "I know of no conditions which the Commission could impose which could in any way prevent the diversion of traffic to which I have testified". Now, I'm not saying that he would say that quite that strongly if he knew at the time that these conditions were in line. But it does show that the novelty of these conditions. The untried character of these conditions and at this point, the completely unclear nature of the conditions in concrete application justified the very real concern as Judge -- as -- is apparent from what we have said in the brief that we do not believe that anyone can say that these conditions provide adequate protection which the Commission by its own finding that it said its absolutely necessary to undelayed consummation of the merger. Thank you.
Earl Warren: Mr. Keyserling.
Leon Keyserling: Mr. Chief Justice and may it please the Court. I realize the difficulty in the Court of law of reconstructing a railroad reorganization proposal. And therefore in representing Scranton and I will try to get back from the problems of small railroads or even their squabbles, the large problems of a great nation. For it is my considered view that no matter what may be done about these smaller railroads in the near future or on the longer future. The basic merger of Penn-Central on the basis proposed, on the basis approved by the Commission, on the basis projected with due violence to the prime criterion of an adequate transportation service for the people and the country. Would do this damage not only in the eastern district and therefore throughout the nation because of the importance of that districts. And of course would do even more damage to particularly vulnerable sectors of the eastern districts such as the State of Pennsylvania and the City of Scranton. Now, the reasons why these injuries are of legal significance are threefold. First, the findings of the Commission, not the findings they may make in some speculative future proceedings but the findings they did make in this proceeding where unsupported by the evidence on the record as a whole. Second, the Commission substituted its own policies for those of the Congress. And third, the Commission found no countervailing benefits in the public interest to outweigh the general applicability of the antitrust laws. Now, the heart of this merger proposal requires a little history. In 1960 -- 1953, the country started on the period of low economic growth that probes problems to many industries. The railroads like others were hit. But unlike other industries which sought to work out their salvation through becoming more competitive and through investing in modernization to meet the challenge of better times when they came. These two roads did two things. They drastically slash their services, railroads, locomotives, freight cars to the tune of 26% to 48%. And second, they allowed their prices in the face of advancing it to motor competition to remain 37% higher than those that they have been in 1947. Then, when these two roads were hurt most in their income by their own misguided policies, they sought to the merger to find salvation through a further extension of the same policies that it hurt them this far because the heart of a merger proposal was not to achieve savings by expansion, by modernization. The heart of the merger was to achieve $80 million in savings primarily by further slashes in facilities and services. And this of course had to be defended first on the ground that these slashed services would comport with the needs of the nation in terms of economic growth and in terms of the traffic carriers particularly ten miles it would impose upon the two-mile roads. Now, the very heart of this case is found in one little chart at the very end of my appendix brief which compares the findings on which the Commission approves this merger not with hypothesis but with one that actually happened when they approved the merger. Because the railroads has estimated and the examiners had based approval of the merger or recommended approval upon traffic in this forecast in 1961 through 1970 because no comprehensive data late of 1961 were available and the case was prepared in 1962. But when the case was before the Commission in early 1966 it knew that when is very forecast which is still accepting were based upon an economic growth rate of 3% in 1961 to 1970. The actual growth rate from 1961 to 1965 have been 5.4% or 80% higher than the very forecast upon which the Commission itself acted. Second, with respect to traffic, the Commission's decision was founded and the projection that from 1961 traffic were declined 6 1/2% by 1965, at 9% by 1970 when the Commission acted, traffic had actually gone up 22% since 1965. Since 1961 and 1966, it was 43% higher than the Commission's forecast for 1970. And similarly is to find answers, the Commission's finding were rooted in the minus $9 million of net income in 1961, whereas in 1965, it was $75 million and consolidated income was about $100 million, and cash flow which is more important that year was about $166 million. Now, I've come to other reasons why income isn't really relevant at all but there it was. Now, how did the Commission get around the fact that in itself was adopting findings which the fact before it shown had already been refuted by 5 years of experience? It said, “maybe”, over the years between 1966 and 1970 there's going to be such a cataclysmic decline of the economy of United States that over the whole period of 1961-1970 the railroads and the examiners will turn out to be right. Now, this was not only irrational in terms where were in 1966. It was not only irrational in terms of the whole record from 1922 and 1961 where you have a much higher rate of growth than they have hypothesize even including the great depression. And it violated the requirements that the Commission not substituted philosophy of who invest for the emphasis of transportation legislation upon adequacy of service and growth because if the railroads are permitted to budget their facilities upon the average of the trust, of the peaks of the business cycle, they will always militate against full prosperity and always be short with the actual prosperity. And frequent -- and many items of congressional legislation recognizes as of now that they are seriously shown on the eastern district and indeed throughout the nation. Furthermore, let us look at what would have to happen for the forecast upon which the Commission acted to come through in the future eventhough they have been so outrageously wrong at the time when the Commission acted. We would have to have in the next three years a decline in the U.S. economic growth rate about 1%. We would have to have a decline in traffic of these roads at about 30% and this could happen only in the event of a national economic calamity that would wreck us both at home and overseas. And if Regulatory Commission out of predicate, the budgeting of the facilities of great industries of this gloomy hypothesis, they will have to propitiate the very thing that they should be seeking to avoid. Now, these wrong findings as to traffic collapse all of the findings out of financial basis because the examiners fail and the Commission has approved that their primary concern was the financial condition of the railroads. Now, even aside for the fact that minus 9 if they change to a 120 -- plus a 122 by the time the Commission acted, aside from that, the mandate of the Congress is the prime test if the adequacy of needs and no savings plan. Predicated upon saving the investor by starving the public can't pass on the congressional legislation. My findings as to traffic needs which were before the Commission which is turn out to be precise and be right where they acted to the decimal point were consistent with the need more facilities by 1970 not less. And the Congress by that time, in many ways, and the Commission has found for in many ways. And re -- and the administrative agencies in many ways and the tax reductions had help the railroads to the tune of the of hundreds of millions of dollars in income for the purpose of enabling to meet the criterion of adequacy of service rather than to be guided by the criterion of how the railroads could save themselves by starving the public. Now, in 1967, the proponents of the railroad merger come forward and say, “We want modernization, this is what we're going to us these savings for”. We want to compete. We want to expand services. But this is not the purpose on which the savings -- the savings will projected. This is not the basis on which they were examined by the Commission. This is not the basis on which they were supported by the findings of the Commission and this is not the basis on which the merger was approved. The history from 196 -- from 1953 to now shows, from 1961 shows that without benefit of merger the two roads have increased their carriage by 25% per ten miles. They haven't met the shortages that they themselves created but then if -- if they could increase carriage by 25% without the merger, they can increase it still more without merger and their internal income is sufficient for this purpose and their external income is sufficient for this purpose as indicated by the fact of security markets it apprised. There are common stocks tremendously and the rate of return is irrelevant although it will be argued to contrary because the rate of return is merely a commentary upon whether it is feasible for them to borrow money. And the benefits to that is the valuation of their stocks with the security markets and in any event just as the Commission was wrong in all of its income findings, it was equally wrong on its rate of return findings because rate of return depends ultimately on the income. Now, the Commission says, “They will be able to compete better with in the modal transportation if they merge”. The first requirement of competing in the modal is to compete among ourselves. We can't play tennis against the Australians if we don't practice amongst ourselves and the automobile industry couldn't compete with other modes of transport if they didn't compete among themselves. Every legitimate purpose of expansion of modernization of competition does not require this merger and therefore, there is no justification whatsoever for this merge around the ground that conditions of the public interest outweigh the limited applications of the Antitrust Laws to corporate mergers of railroads. This merger if a comp -- if accomplished would put it of the hands of Penn-Central about 40% of the total gross revenues of the district. This is very close to General Motors. Some people think General Motors is too high. In any event General Motors wasn't achieved by an official Government sanction. And in any event, when General Motors occupies 40% of the markets, it has 60% competition everywhere throughout the country. When Penn-Central occupied 40% of the markets, their preemption of the market at 150 communities which they both serve may run up for 40%, 60% to 80%, to a 100%. An opponent of the merger asks the Commission to study this question which it refused to do, but even compared with the 40 -- with a 39%. The preemption of the market runs only from 29% to 8% by such corporations as U.S. Steel, Alcoa, Dupont, Bank of America, Metropolitan Life, Standard Oil of New Jersey and all except to one of them are below 19%. If we need a reorganization of railroads in the eastern district, there can be no balance based upon these months to come by. In fact, by showing on Chart 23 of my joint appendix in view of the tremendous acquisitions, the tremendous mergers and the tremendous acquisitions of non-railroad properties which these two roads have already undertaken, if they couldn't work themselves out of their troubles by all of that growth, they got into trouble because they were already to swollen and rather than too small. Finally, I would point out that this merger was opposed until 1966 by the counsel of economic advisers and part of the Inter-Agency Committee and by the Department of Justice. I would like to analyze why a merger repose with the railroads were allegedly in financial crisis in 1961. It's in Court in the 1967. This merger was wrong in 1961, it's more wrong today. It is based upon their contraction and restriction of the transportation based in our economy in the nation which we now know with all the economic growth to date can hardly meet its great domestic and international responsibilities. To survive and prosper, we must grow. Nothing would be gained by setting this merger back. I respectfully submit it should be denied.
Earl Warren: Mr. MacDougall.
Gordon P. Macdougall: Mr. Chief Justice, may it please the Court. I appear here today on behalf of Milton J. Shapp, appellant in Number 814. The relief we seek is that this merger be set aside in a note in total. This is not just a railroad merger. Over 200 corporations are being merged, if this merger is approved. This merger of a truck lines, pipelines, and vast real estate holdings would be the larger merger ever accomplished in the history of United States. Mr. Shapp has been a persistent opponent of this merger ever since 1962 and appeared actively in the proceedings at the Interstate Commerce Commission. He and representatives of various Pennsylvania communities testified as to the harm of this merger with this is it upon citizens of the State of Pennsylvania. The Commonwealth of Pennsylvania testified, cities of Philadelphia, Pittsburgh, Erie dozen of towns along the Pennsylvania Railroad mainline. Now, what does this record show? It showed that the basic plan for operating these two parallel roads will reduce present Pennsylvania Railroad freight miles -- train miles by one-third. One-third of all the present Pennsylvania Railroad freight trade miles will be eliminated. Mr. Shapp and the commonwealth have testified -- the Commonwealth of Pennsylvania showed that 35% of the through freight trains operated in State of Pennsylvania will be eliminated. The Commission on that found 9%. But even 9% of all through freight trains in the State of Pennsylvania will be eliminated. Now, what is the basic plan of merger? The plan of merger is to divert all traffic originating or terminating west of Youngstown in Columbus, Ohio on the one hand and north and east of Linden, New Jersey on the other hand divert this traffic which now moves across State of Pennsylvania from Pittsburgh, Philadelphia and set it up to Cleveland to Buffalo and across the so-called water level route of the New York Central to Albany, passing through Rochester and Syracuse. Then from Albany then Selkirk just below, Albany, a huge new classification yard will be built and this traffic would come down to New York and the Jersey metropolitan area or it could go into New England, the Boston before the New York Central. So the basic plan of merger is to take away this traffic now moving across Pennsylvania and route it over the New York Central. And in every major town on the Pennsylvania Railroad mainline oppose this at the ICC and introduced testimony. But this merger does not only hurt towns located on the Pennsylvania Railroad mainline. Traffic will no longer move between Pittsburgh and Philadelphia up to New York. It hurts towns located off the main land of Pennsylvania. The City of Scranton is one example. Commissioner Webb's report in this plan in stock of 21510 mentioned Moosic and North Hampton in Pennsylvania. They're located off the Pennsylvania Railroad. The technician finds that the Erie-Lackawanna and Delaware and Hudson can survive this merger. Now, Scranton served by the E-L, D & H, and C & J and this suppose to be included in some other merger. So, if that happens, Scranton instead of having three railroads today will have two railroads today and then what happens? The Norfolk and Western and C & O, they filed there application for merger and the C & J, the Jersey Central is suppose to go into that. So instead of Scranton now enjoined three competitive railroads, it's going to have one. But none of this adequate competitive impact which the lower court says it's going to be with clairvoyance was evaluated in passing upon the Penn-Central merger. Therefore, we have the case-by-case approach where towns like Scranton, Moosic and I might say that Mr. Webb didn't mention it but there are eight counties in Pennsylvania who participates -- who are parties in that report that he issued in December and three cities. You'll only find two, you have mentioned. There's a lot of people throughout Pennsylvania very much interested in this merger. Now, the fact --
Potter Stewart: -- how about the question of the standings of your client in this proceeding?
Gordon P. Macdougall: Well, the Commission --
Potter Stewart: I understand, he is not a -- he's a stockholder and a businessman, and a citizen of Pennsylvania --
Gordon P. Macdougall: That's right.
Potter Stewart: -- is that it?
Gordon P. Macdougall: That's correct sir.
Potter Stewart: Not a shipper, not a carrier?
Gordon P. Macdougall: No, he's not a shipper. He's not a carrier. The Commission announced they were going to have hearings in Philadelphia and in Pennsylvania, was open to the public and a lot of members of the public came. There's a few retired railroad workers and other people, and these are citizens because he's going to be damaged. And no one has ever challenged his standing anywhere. We got these briefs last Friday and it's impossible for me to go through Professor Jacques' works and other citations and to answer the legal arguments raised on his standing to sue. I can say it was not raised in the lower court. It was specifically brought up to the lower court. Judge asked nobody made an objection but one all the way up here to the Supreme Court. He does have standing. Any merger that's going to have this impact on the State of Pennsylvania where you're going to loss 9 or 35% of your freight train miles, where your two traffics is going to be send up to another state, where your citizens are -- and the shippers and the whole economies is going to have to subsidies the commuters in Fairfield County, Connecticut to get to the jobs and rival New York. Any merger of this type is very damaging to the citizens of Pennsylvania and the fact that the Commonwealth and the City of Philadelphia, City of Pittsburgh, do their act of opposition indicates the pressure or not the pressure but the influence of the Pennsylvania Railroad and not that the witnesses, these expert witnesses at the Commonwealth put on are anyway wrong. I might say, it's quite Mr. Keyserling already mention it, the Department of Justice, two-and-a-half years ago filed a 270-page brief. Opposing this merger in its entirety, 270 pages and on the basis of that 270-page brief, they made an argument and all argument 14 months to go in complete opposition of this merger. And I still don't know eventhough he's on the same side what United States thinks about the appeals raised by Mr. Shapp or City of Scranton. They've deferred any comment on it. They have footnotes on it. We don't know what their position is. We'd like to know why. Well, maybe they won't take a position but we don't know why the Department of Justice isn't still fighting this merger because certainly today is less -- there is much less justification for it than it was before. Now, I like to talk a little bit about a word that hasn't been mention and that's the public interest. And the basic legal reason why we think this merger is erroneous was that the ICC, deploy -- employed the test of the Transportation Act of 1920. The test that you construed in 1932 in the New York City Security Corporation tests, but that test is out of date in our judgment because the Transportation Act of 1940 which is construed in McLean decision pose that they're different criteria. But before it was a judicially construed for criteria the public interest which is 1932 are now statutory and these four criteria are different. And the Commission has not considered the impact of this merger upon the employees of railroads that it will be heard by employees of Erie-Lackawanna, D & H, C & J instead the fourth criteria doesn't apply. It's not that to -- it's too remote. Yet, it's very remote from security holders, I mean its remote for the security holders of these railroads they get elaborate conditions that's suppose to be included indemnity, all sorts of things. Yet the employees are not to be considered. We don't know what the total fix charges are going to be from this merger. If that's specific criteria at the present Section 5 (2) of the Act because the New Haven -- we don't know what the price of the New Haven is going to be. Then we have the National Defense. They didn't solicit testimony from the Department of Defense. Yet, we -- here we are at war in Vietnam and we're going to have a drastic collapse in railroad facilities at budgeting ton miles from the present 89 billion according to the Commission. 66 billion or 64 billion have tremendous drop in traffic or the defense implications. Yet the national transportation policy exists today or did not exist in 1920. We have according to the opinion of McLean to look at other legislation. We have the passenger train Discontinuance Act of 1958 which says that the shippers afraid are not to subsidized passenger service. If what else is this New Haven inclusion? We have the Commission saying that the impact of this merger on towns and communities with respect to employment, taxation, and local businesses is not to be included at all. It's irrelevant. When we have hundreds of communities that have opposed this merger, hundreds of them. You look and examine the report and even though they're not here today, they are in opposition and to suggest in view of the Appalachian Regional Development Act which involved City of Scranton, it was in it, means it doesn't apply that we could just have a merger and not even consider employment or taxation were the effect on local business. So our main point, I'd like to leave with you is that the standard which the Commission used in this case. The New York Central Security's Corporation test as they referred on in the briefs to you is just erroneous as the matter of law. The last thing I like to briefly mention is competition. And in addition to not considering the addressed impact on these other railroads as part of the competition to be appraised and the lost of service to towns like Scranton by inclusion in the Norfolk and Western System. The Commission failed to include market competition and that derives from the opinion that in the Seaboard case a year ago. And this in some thought the transportation standards rather than the Brown Shoes standard should apply. Well, if transportation standards are involved, we have them at the Commission. We have market competition and carrier corporate competition. We have them for a number of Section 7 cases. But the Commission is going to appraise the extent of competition they're going to use market competition. An example of that is Wheat Cargo Co. How about the basing point decisions? The cement industry up in the Lehigh Hudson Valley District versus the Cement Industry in Pennsylvania in the Hudson -- in the Lehigh District both of these two cement producing areas located on different railroads competing for common markets. Commission holds as a matter of law in this report on reconsideration that this competition need not be considered. Well, in our judgment this merger should be anulled and set aside. I'd like to leave some time for rebuttal.
Earl Warren: Mr. Marshall.
Thurgood Marshall: Mr. Chief Justice, may it please the Court. The position of the United States Government is that the United States is concerned in this case primarily with the question of sound administrative procedures in general. And the possible harm caused by the Commission's departure from such procedure that all of these might be pulled a smaller yet essential railroads in the East, notably the three-railroad everybody has been talking about. The question in our mind is that some procedure would require the Commission to withhold the immediate consummation of this particular one Penn-Central merger because in particular effect, that accomplishes an irreversible event before attempting to solve the great problems which the merger would create for the smaller railroads. We rely very heavily on Judge Weinfeld's dissenting opinion. Starts on 840 in the B & O's brief. And he points out one thing that this is very difficult to each time of this argument to find something that hasn't been said. But Judge Weinfeld on 44 put some stress on the fact. Then in the Commission's quote, “statutory findings and ultimate conclusions”, it points out these needs for these railroads. And when you read that in conjunction with the conclusion they made that this would not work unless the three railroads were protected. I agree that this was a condition precedent and once the Commission adopted that. It was not the normal procedure to go back and take out the particular appendices. After Commission had adopted this Appendix G, which they called protective condition for Erie-Lackawanna, Delaware and Hudson in Boston and Maine, the Commission itself considered this necessary and made it quite clear that without them, the Commission stated that would not authorize immediate consummation of the merger. And despite what appears in all of the briefs of appellees that United States raised the point that they never raised before, United States Government did raise it in the petition for reconsideration before the Commission itself that's one of the places it was raised. And it appears on page 17 of the exemption filed by the United States Government. If the Commission determines to approve this merger, a minimum condition of such approval should be that consummation be delayed for at least 18 months in order to give the Erie, D & M, and D & H time to apply for the inclusion in the N & W system and C & O system are in until actual inclusion in either is effectuated if the latter should become sooner. I take the position that the appellees take which is at the United States' Government has no right to comment on a merger of this type which they the same breadth say, it's the largest merger that would ever occur and it is the most urgent one that would ever occur. I think the United States Government still has the right as a party to present its side. And in these particular exemptions that we file, we pointed to the Commission had acquiesced to the failure of those two rail system to present evidence of the adverse effect of the Penn-Central merger on them. Notwithstanding that on the separate proceeding these very railroads would rely on the change and the competitive balance in the northeast represented by the Penn-Central merger to support their own merger application, especially if the smaller roads were not included in the Norfolk and Western system. As has been noted however, the Commission decline to delay consummation of Penn-Central merger without giving the reason and the District Court declined to preserve the status quo pending judicial review. The majority opinion by Judge Friendly seem to put great emphasis on what could be done in the future and also emphasis on rightfully so on the New Haven railroad but to the exclusion of the other problems. Now, the District Court by refusing to enjoin the merger, in effect ascended to the Commission's procedure. Once the merger is consummated, some of the principal issues raised will be mooted and that goes for most of the argument this morning when to put on detail as to each one of these three railroads. Before discussing the procedure the Commission itself, I wish to emphasize that the United States does not oppose the Penn-Central merger itself. So long as the merger can be effected with adequate concern for and protection of the three smaller roads that were most keenly feel its effects, the so-called offense.
Potter Stewart: How do you feel about the new entry in the orphanage this morning, the Central Railroad of New Jersey?
Thurgood Marshall: Get three large groups. We would have no objection at all if the Court adopts our suggested way of handling this matter and it goes. The Commission continues to proceed and the Commission itself decides to let Central of New Jersey in. It's perfectly alright but I don't think at this stage that this Court should order the Commission to let Central of New Jersey in. I don't know about how good the claim of latches is one way or the other. There is, it appears from a reading of the record that the D & O had control of some form of control over them at all. But that's where the real expertise of the Commission comes into. But I don't see that well insofar as the Government is concerned, we have three orphans and if anything that we get for our three orphans. If some other orphan can use it, it would help because our primary interest is to see to it that the end result of the merging of the railroads in the east is in the best public interest. I hope that's best.
Hugo L. Black: (Inaudible)
Thurgood Marshall: Absolutely right Mr. Justice Black. That is my -- because the New Jersey railroad didn't come in on time when it had a chance to come in. The proceedings are still there but and I said, when it goes back then the Central of New Jersey can't put in its renewed position. But I don't think it would be for this Court to pre --
Hugo L. Black: (Inaudible)
Thurgood Marshall: No, sir because I don't know whether they are or not. It appears that they are but if that's a matter that has -- if the -- it develops that the central of New Jersey --
Hugo L. Black: (Inaudible)
Thurgood Marshall: That's without what I was get right to say sir. I don't think they should be bothered, they destroyed or if it is in the public interest that you have that railroad included in some family. That can be decided when that point comes up but as of the Penn-Central merger when this was moved, these other two mergers that going off and that emphasizes the real problem in the uniqueness of the Penn-Central merger because this is the one after this one. Nobody knows what's going to happen to any remaining orphans. That's why the Government suggests that the Court retain jurisdiction over this and let the Commission work of all these out to see where these orphans are going. Whether you're going to be protected and indeed how there going to be protected? And I wouldn't exclude anyone from that -- from the right to go in.
Tom C. Clark: Let's see if I understand this Mr. Solicitor. Is it your argument that this ought not to go through until there's a home found for these orphans?
Thurgood Marshall: Yes, sir.
Tom C. Clark: Not alternatively if no home adequate protective condition.
Thurgood Marshall: We are not convinced that adequate protective conditions can be put in. But if it is shown that the adequate protective conditions are what they say, adequate protection, then that would be a different problem. But as we see it now, there is no adequate protection there.
Tom C. Clark: Well, Mr. Solicitor General, the -- the conditions are in entered many way, aren't they?
Thurgood Marshall: They said, we have any --
Tom C. Clark: The only -- they're only suppose to be interim until it is decided into which system these three roads --
Thurgood Marshall: That's exactly right.
Tom C. Clark: But your position is that the -- as this Court should not make a final decision until the Commission itself decide into which system these three should go ultimately.
Thurgood Marshall: That's it and I would say any other railroad which comes in --
Tom C. Clark: Well, why do you say 18 months? That might be 18 years?
Thurgood Marshall: Then I'm back at somebody said earlier this morning. I have no expertise in that field.
Tom C. Clark: Yes, but you did say 18 months or?
Thurgood Marshall: Until --
Tom C. Clark: How ever longer time that needs to or that needs to --
Thurgood Marshall: I would say that I personally can see no reason why the Commission couldn't get the basic details done within the end of this year and far before the end of this year.
Tom C. Clark: But (Voice Overlap) --
Thurgood Marshall: They've got move -- it's moving along now.
Tom C. Clark: But there maybe judicial review involve, couldn't it?
Thurgood Marshall: There may very well be judicial review. And if the judicial review does not have to extend over an extraordinary period. Indeed this very case shows it.
Tom C. Clark: But it has to, I admit doesn't have to?
Thurgood Marshall: And -- well, I would say that it could be assumed that there would be an application for judicial review and it could -- it be consumed that the District Court would look at the record find and not to support the Commission and that's it.
Tom C. Clark: Well -- and in the mean time I gather, you want us to hang on to the case and come back to it maybe two, three whatever number of years to the fact?
Thurgood Marshall: Well, I would -- yes, sir. That's what we want.
Tom C. Clark: What about the New Haven?
Thurgood Marshall: The New Haven will -- the New Haven is in a very good position because you got both the bankruptcy proceeding going along and this going along together.
Tom C. Clark: Well, I know but do we know where the New Haven's going to find a home?
Thurgood Marshall: No, sir. I don't. But I --
Tom C. Clark: Do we have to wait --
Thurgood Marshall: -- it seems to be that the New Haven is going to Penn-Central --
Tom C. Clark: But should we wait till we find out that facts?
Thurgood Marshall: Oh, with Penn -- well, I understand it that New Haven is only one its pretty safe on where they're going.
Tom C. Clark: Well, it may not be an orphan but its strikes me that it's got a lot of the attributes?
Thurgood Marshall: Well, no it's really coming up because I was up there a couple of months ago and I went up on the train to New Haven and came back and both of them got in on time. Alright, as an old experienced New Haven traveler, I think things are looking up. You see, that's --
Tom C. Clark: Does the -- is there an attempt to rest on whether they approve the D & O and C & O merger proposal?
Thurgood Marshall: Mr. Justice Clark, the most I have tied down is that the Government supports this merger.
Tom C. Clark: That's within --
Thurgood Marshall: Sir?
Tom C. Clark: Penn-Central?
Thurgood Marshall: Yes, sir.
Tom C. Clark: If you don't reach the other one?
Thurgood Marshall: I don't but it is my understanding these are not certain of is that there is no our position to the others. You see our original position of the Government, we didn't oppose the others but the reason was that they didn't affect other railroads. They didn't impinge on anybody. So, so far as I know our position is that we are not opposing them. Now, I have to --
Tom C. Clark: Not where there the Court went through, would that be satisfactory?
Thurgood Marshall: I don't -- that's not for me to pass on. The --
Tom C. Clark: But isn't the --
Thurgood Marshall: Sir?
Tom C. Clark: (Inaudible)
Thurgood Marshall: I don t know sir. I missed what it means, do you know. No, he'd say he doesn't believe it. No, I actually don't know. The one thing -- the only thing I want to make clear and I think that is rather important. We realized in this case the position that we took in the District Court and that the United States Attorney from the Southern District filed a letter which each of the judges and said did the Government did not support or oppose the action for the preliminary injunction and I do know the position that the Government takes as of now. And I do say on behalf of the Government that we realize the difficulty in a Court holding a case and holding jurisdiction without passing on the merits as soon as possible. And the idea in this case was that with the open railroad sitting out there and with the growing uncertainty as to what appendix -- the remaining part of Appendix B, G that was left was not understood. And the final point that the Commission was proceeding with its hearings on the capital -- the investment and indeed the inclusion that it would be wise at this stage of this case which should come up so rapidly here would be for this Court to hold it with the indeed fond hope that the Commission would promptly complete the hearings including Norfolk and Western, including B & O if you please, including Penn-Central and that eventually a concrete report would come down taking care of these smaller railroads, taking care of the actual conditions as they come up. Then it would be time if necessary, it could be returned to the District Court or could be left there.
Speaker: General what is your position as to whether there was power Commission to do what it did?
Thurgood Marshall: We say -- we take both positions. We say that Court Commission like our, because under 5 (2) they did not find that this -- they did not have basis for concluding that this was in the best of the public interest. And secondly, if you don't take that position then we urge that you take reason and the valley the discretions in changing the -- or the conditioning upon Appendix G and the second hearing when they destroyed Appendix G for all intents and purposes. We rely on both but I think a very good argument can be make for the first one and that's the one we think would be the most important in determining what must be done in administrative hearings. It's just on their one phrase, the public interest.
Byron R. White: Mr. Solicitor General, could I ask you -- as I understand at United States opposed this merger before the Commission.
Thurgood Marshall: Yes, sir.
Byron R. White: A very, very stoutly and that at that time as the United States has changed its position in that respect.
Thurgood Marshall: It has.
Byron R. White: Even though the railroads are in much better position than they were when you were opposing the merger. Is there some phases of that public interest which you haven't thought of --?
Thurgood Marshall: I was -- no, sir. I was told by the different agencies and Government that the whole changing in the economic structure etcetera of the whole business was analyzed, reanalyzed by the agencies of Government responsible for such and they did con -- now conclude that this particular merger was good, was essentially and should be carried through.
Byron R. White: So you -- the United States did not agree with the City of Scranton or Mr. Shapp?
Thurgood Marshall: Not it -- completely opposed that position that it should be scrapped. We don't think the merger should be scrapped at all.
Byron R. White: Right.
Thurgood Marshall: We are for the merger. This particular merger, the Penn-Central merger on the conditions as I said that the little railroads be, you know, protected.
Byron R. White: Would you -- I take it from your brief and what you said, you'd also support the merger even if -- even if the Commission decided that these three orphans should go into the Penn-Central?
Thurgood Marshall: So long as its us -- so long as the orphans finds a home. We want (Voice Overlap) --
Byron R. White: You wouldn't care about the monopolistic situation on the New England where you can --
Thurgood Marshall: The monopolistic part would come in if Boston and Maine then I as a non-expert on -- in the field would say I would have some problems with that. But I would assume the Commission would handle that problem as such. But I think the concrete answer is I know of no position we have taking at this time at the hearings and the -- I just don't know because I'm not advised of the hearings on the Commission level until afterwards. If there are no further questions I leave with the --
Tom C. Clark: Just one last moment.
Thurgood Marshall: Yes, Mr. Justice.
Tom C. Clark: Now, did I understand you amended with -- you answered me earlier not with the New Haven is on time that the -- you -- the Government is also suggesting that the Commissioner wrap up the Norfolk and Western and C & O, B & O merger matter before we do anything further.
Thurgood Marshall: Oh, not wrap -- not wrap them up.
Tom C. Clark: Do what then?
Thurgood Marshall: We want the pairings C & O, Norfolk and Western and Penn-Central to end up on deciding what's going to be done about this unaccounted for errors. Now, whether they end up in Norfolk and Western, to C & O or Penn-Central, that's not our job.
Speaker: How do you want us to do this case in the mean time?
Thurgood Marshall: To hold it and let --
Speaker: To hold it in for what?
Thurgood Marshall: Yes, sir.
Tom C. Clark: Why wouldn't we send it back the three-judge court? (Inaudible)
Thurgood Marshall: This -- that's -- that was the first to -- the real problem is that if there's a proceeding about Norfolk and Western and I don't know about B & O and they want to get judicial review. They couldn't get it up there. They have to go to the office where they are. That's one problem that we sought. We were not too close to. I don't know. The -- it seems to me that the District Court will still be there if the Commission finds that it is unable to determine this in a satisfactory fashion. You still -- the District Court would be there. That was our whole purpose. The primary one was we don't know which court this will end up in.
William O. Douglas: Now, let's go back. Could you give me the reasons why they couldn't go into Court today?
Thurgood Marshall: Because I didn't able to track.
William O. Douglas: Could they go in the -- they're in the Court here, aren't they?
Thurgood Marshall: Yes, sir.
William O. Douglas: And they're in the Court, this case came from that three-judge court. Why shouldn't we send it back to it?
Thurgood Marshall: Well, I -- the railroad lawyer say that if you have an objection to exceptions or what have you -- you filed before the Commission and then I understand the losing party has to go but where they have their office.
William O. Douglas: Well, how could B & O start this suit up in the Second Circuit (Voice Overlap) --
Thurgood Marshall: With the Pennsylvania Central, the Central I think should be --
William O. Douglas: Oh, but didn't --
Speaker: They intervened, I guess.
Thurgood Marshall: They're you have -- they're in the briefs.
William O. Douglas: Is that it?
Speaker: Now they're going to separate --
Thurgood Marshall: Who is in New York Central? Your -- it's the Erie-Lackawanna, the original one is Erie-Lackawanna, that's their office.
William O. Douglas: Well, all of these railroads are in this suit, aren't they?
Thurgood Marshall: Yes, sir.
William O. Douglas: And though (Voice Overlap) --
Thurgood Marshall: They've intervened.
William O. Douglas: I'll understand if you present it back to the trial court, I couldn't hold it. They could come in there and get their objections whatever they want.
Thurgood Marshall: But the -- I'm reminded that the inclusion case is not here. The one that was ordered to be taken up by Norfolk and Western which Norfolk and Western is now handling, right now.
William O. Douglas: Where is it?
Thurgood Marshall: It's in the Commission.
William O. Douglas: Oh, where would this one go if -- what -- what's the -- what the -- District Court would this one go to? This is the one in which --
Thurgood Marshall: You mean --
Tom C. Clark: The Commission --
Thurgood Marshall: -- Commission where else -- where is --
Tom C. Clark: Yes, that's inclusion case.
Thurgood Marshall: That's inclusion case.
Tom C. Clark: Now, is --
Thurgood Marshall: That's the one who have to go whether --
Tom C. Clark: Can't -- back over into the Second Circuit?
Thurgood Marshall: I think it's Virginia where I have to go.
Tom C. Clark: It can't go in the Second Circuit?
Thurgood Marshall: We couldn't. It might be but we haven't been able to find a way. I'm talking about the -- the railroad lawyers on one side of the case maybe that's my problem but -- are there any other questions?
Speaker: Exactly, you can get a more expeditious hearing if you had it in the trial court where they could present the objections, put on the evidence, do whatever they want to do about it.
Thurgood Marshall: Well, the whole -- the whole risk before it was that if this Court will hold the jurisdiction and the Commission properly acts, then what you send back to the District Court is it will be practically done. The Commission will have completed the job that everybody is pretty well satisfied with. That was our hope. We didn't think that the Commission should be reversed as such. We didn't think that the District Court should be reversed. I mean remand maybe but I don't know as I see it now. You see a lot that's been argued now about Commissioner Webb and all of these hearings that were held. The District Court didn't know about that.
Tom C. Clark: That's happened to suddenly?
Thurgood Marshall: Yes, sir. It's after you suffer --
Tom C. Clark: I suppose it could go into the same Court, couldn't it?
Thurgood Marshall: On that but what would we do with the inclusion point, the one that Commissioner Webb just passed upon it. I don't know how you could get that in there, I don't know. Thank you, sir.
Earl Warren: Mr. Ginnane.
Robert W. Ginnane: May it please the Court. I am sharing the argument with counsel for the appellees, New York Central and Pennsylvania Railroads.
William J. Brennan, Jr.: Mr. Ginnane, I hope you don't mind if I -- this last question we were discussing with the Solicitor General. Is it impossible to get the Norfolk and to see -- that's the inclusion case into the Second Circuit?
Robert W. Ginnane: That would be determined by which party took it to Court.
William J. Brennan, Jr.: If the Erie-Lackawanna did it, it could go for?
Robert W. Ginnane: It could go if Delaware and Hudson were taken at the Court --
William J. Brennan, Jr.: Yes.
Robert W. Ginnane: -- because their headquarters are in New York.
William J. Brennan, Jr.: Yes.
Robert W. Ginnane: In the other hand Norfolk and Western, if they took it to Court. Their headquarters are in the Rondo, Virginia.
William J. Brennan, Jr.: I see.
Robert W. Ginnane: It would depend upon the residents of the original plan, the first plan.
Byron R. White: The others could then intervene them.
Robert W. Ginnane: The others can intervene. And what happen to this case up to the southern district of New York --
William J. Brennan, Jr.: For example, Norfolk and Western is in this case?
Robert W. Ginnane: That's right.
William J. Brennan, Jr.: Yes.
Robert W. Ginnane: But the original plaintiff are up was Erie-Lackawanna.
William J. Brennan, Jr.: Yes.
Robert W. Ginnane: And they'd clearly have the right venue to go into New York. Then everybody else happily intervened.
Tom C. Clark: But if everybody was still happy then we can send it back then.
Robert W. Ginnane: There are two issues in this case. We contend that the court below correctly decided both of them. We believe that the court below correctly refused to enjoin consummation of the Penn-Central merger until the problems of all the Eastern railroads could be worked out. Now, some of the appellants seem to be withdrawing from that position but that's what they put in their briefs. And secondly, we contend that the court below correctly refused to stay consummation of the merger while the Commission had a limited further proceeding and interim protective conditions for Erie-Lackawanna, Delaware and Hudson, and Boston and Maine. Perhaps it'd be useful to review briefly the pattern of related proceedings and the pattern of participation of these various appellants in those proceedings. In 1962, the Commission authorized C & O to acquire control of the Baltimore and Ohio Railroad and at that time, by getting them the Commission was rejecting suggestions from the Department of Justice and other persons for consolidation of the C & O, B & O proceeding with the Norfolk and Western-Nickel Plate and Penn-Central proceedings which were just getting underway. B & O owns a 38% voting interest in the Reading and the Reading in turn controls Central New Jersey to ownership of 49% of its stock. It should also be noted that C & O and B & O are the beneficial owners of 65% of the voting stock of Western Maryland and that they now have pending an application before the Commission for authority to assume actual control of Western Maryland. So if all of the railroad appellants except Erie-Lackawanna, Delaware and Hudson, Boston and Maine all have close ties. They are not strangers.
Potter Stewart: What are -- they came with the Lehigh Railroad?
Robert W. Ginnane: The Lehigh is an almost wholly owned subsidiary of the Pennsylvania Railroad.
Potter Stewart: With Pennsylvania.
Robert W. Ginnane: The present Norfolk and Western is the product of Commission orders first authorize yet, to merge with the Virginia Railroad and then later, in 1964 authorizing Norfolk and Western to merge into itself. The Nickel Plate it takes over the extensive Wabash by lease and some related but still significant transactions. The effect was to extend Norfolk and Western from a regional coal line with its western terminal line in Ohio to a much larger system reaching to Chicago, Dumont, Peoria and Saint Louis. Then a little bit more than regional coal carrying railroad now. In the Norfolk and Western-Nickel Plate proceeding, Erie-Lackawanna petitioned that during hearings that pursuant to Section 5 (2) (d) of the Interstate Commerce Act that it be included in the Norfolk and Western-Nickel Plate System. And similar petitions were filed by Delaware and Hudson and by Boston and Maine. During the hearings, Erie-Lackawanna withdrew its petition for inclusion for various reasons. One of which was admittedly, is a very poor financial position was admittedly to improve its earning position and posture if possible and therefore have a better bargaining position with Norfolk and Western on the terms of inclusion. So that meant that the Delaware and Hudson, and Boston and Maine lacking a physical connection with Norfolk and Western since Erie-Lackawanna have got out that meant that their inclusion at that time was impossible. But the Commission recognized that while those three lines were also petitioning for inclusion of the Penn-Central system. But there was an obvious reasons, competitive reasons generally recognizing the industry that it might well be probable -- probably would be probable for those three carriers to be included in the Norfolk and Western system. So it provided in condition of this -- of its order approving Norfolk and Western-Nickel Plate merger that for a period of five years, anyone of those three lines could file an application for inclusion in the Norfolk and Western system upon terms to be -- to be prescribed by the Commission. And that condition provided that consummation by Nickel -- by Norfolk and Western-Nickel Plate of any transaction approved here in that is there own merger shall constitute on the part of such applicants, acquiescence in and irrevocable ascent to a condition stated in the appendix. Thereafter that merger was consummated without any person seeking judicial review of that order. Later Erie-Lackawanna, Delaware and Hudson, and Boston and Maine pursuant to the condition had filed the petitions for inclusion. Hearings have been completed and as you heard Commissioner Webb as a hearing officer has issued his recommended report. In that recommended report, he recommends that the Commission require the Norfolk and Western system to take in Erie-Lackawanna and Delaware and Hudson. As to Boston and Maine, he would not require inclusion. He would not require Norfolk and Western to take them in because of Boston and Maine's financial and traffic position. But however he would authorize Norfolk and Western to take them in. But not now --
Potter Stewart: What's the next stage in that proceeding?
Robert W. Ginnane: Exceptions, briefs and presumably oral argument before the entire Commission.
Potter Stewart: Any time table is here?
Robert W. Ginnane: No, but I would offer a careful estimate but that would be entirely possible for that to be completed including the decisional stage by the first of July or the first of August.
William J. Brennan, Jr.: And if there were judicial review?
Robert W. Ginnane: Well, it could -- depending upon how it was pushed and where it could run and incidents of judicial review from six months to two years. When the last big card was laid in the table in October 1965, when the Norfolk and Western and C & O filed to the Commission an application for approval of their merger. That would be the Nor -- the old Norfolk -- with the Norfol and Western-Nickel Plate plus the C & O and B & O combination into a single system. And they offered to include on specified terms which have not yet been accepted, Erie-Lackawanna, Delaware and Hudson, Boston and Maine, the Reading, and the Central New Jersey, all of the orphans. Of course it was subject to significant conditions -- qualifications. One, being modification of present federal tax law to permit Norfolk and Western to obtain the benefit of the operating laws carry overs of the Erie-Lackawanna, Boston and Maine, Reading and Central New Jersey. Now those would have a tax value of something in the dimension of a $100 million or more. So you can see that while this latest merger plan which would include all five of the so-called orphan lines were considerably it maybe found that be in the public interest. It is still a very complicated transaction and the date that it could be put it into effect even if the level of Commission decision to say nothing of court review. There's an imponderable period. We may be talking about two years. We may be talking about five. Finally, returning to --
Speaker: It's conceivable.
Robert W. Ginnane: -- the contentions of ches -- of Chicago and Eastern Illinois, I call the attention that in February of this year, February of 1965. The Commission authorized Missouri Pacific to acquire stock control of appellant C & E I upon condition that Mopac and C & E I negotiate with the Louisville and Nashville Railroad with the latter to operate over C & E I, Chicago to Evansville branch subject to the subsequent approval of the Commission. Commission's order was sustained by a three-judge court and it was affirmed today by this Court. So C & E I apparently or that one can tell is on its way to inclusion in the considerably larger Missouri Pacific System. In March 1962, Pennsylvania and New York Central file their merger application to the Commission and there followed extensive hearings, a 129 days of hearings in a large number of Cities for the convenience of witnesses. And it's important to note the role these present appellants to plead in that litigation and some of the appellees. The trustees of the New Haven in the reorganization under Section 77 of the Bankruptcy Act participated actively and urged that approval of any merger be conditioned upon the inclusion of New Haven pursuant to the inclusion of the Section 5 (2) (d) of the Interstate Commerce Act. They contented that continuance of New Haven's vital services in Southern New England could be insured only by inclusion in a larger rail system and this was the only possibility for inclusion which they could see. Erie-Lackawanna, Delaware and Hudson, and Boston and Maine, they participated actively. Asserting that as independent carriers they couldn't withstand the enhanced competition that would result from a merged Penn-Central and so there, except the merger be disapprove if they could not be included in the larger system. And specifically they asked the Commission provide to their subsequent inclusion of the Penn-Central merger for their inclusion of them in a Penn-Central merger in the event they were unable to obtain inclusion of the Norfolk and Western system. Now, turning to the others now before the Court, Norfolk and Western did not participate in the hearing or otherwise until they filed a petition for reconsideration. Now, we are told that that was because they were under Pennsylvania control. Alright, I'll accept that. When they filed this petition for reconsideration, they were not under Pennsylvania control and the petition for reconsideration simply did not asked the Commission for the relief they are now seeking from the Court. Chesapeake in Ohio, Baltimore in Ohio and ready intervened their request that they offered no evidence in opposition to the merger or to the effects of the inclusion of New Haven, Erie-Lackawanna, Boston and Maine, Delaware and Hudson. William and Mary -- Western Maryland participated and presented evidence in a specific competitive angle which is no longer involved in the litigation. Central New Jersey did not petition at least to intervene in the proceedings until after they closed the hearing. The City of Scranton offered only a single witness. The purport of whose prepared testimony was to the effect that Erie-Lackawanna was of vital importance to that locality. No brief was filed to the hearing examiner by Scranton. Shapp testified and introduced an exhibit in opposition to the merger. The Railway Labor Executive Association withdrew its opposition to the merger after the applicants had entered into an agreement for the protection of employees through attrition. Generally speaking under attrition, nobody looses his job unless he dies or retires. There are other qualifications to it. But it roughly -- its employees are adversely affected only through attrition. So labor is out of the case. And the Department of Justice strongly opposed the merger both in hearing and on brief. The Commission in its final report issued after exceptions the examiner's report and oral argument. The Commission adopted as its own, the report of the hearing officers except as otherwise indicated. So that the Commission's decision in this case consists not merely of this document but of the larger a -- but by the larger examiner's report, copies of which have been made available to the Court. The Commission's unanimous conclusion that Penn-Central merger appropriately conditioned would be consistent with the public interest is supported by such basic findings as these, that during the period 1960 and 1964, Penn and Central could not make a profit out of transportation operations. The annual savings from the merger will exceed $80 million after eight years. And the merger with and because of its resulting savings will result and substantially improve transportation service to a large shipping public.
William J. Brennan, Jr.: Mr. Ginnane, what would you -- perhaps you don't want to address yourself with this. What if the Commission had found that the -- that there was not a -- that there 1960 to 1964 operations were unprofitable, railroad transportation alike? But that from 1964 on the prediction was that both railroads would have probable transportation operation?
Robert W. Ginnane: And in the petitions for reconsideration that was put to the Commission.
William J. Brennan, Jr.: Yes.
Robert W. Ginnane: And the Commission's reaction was we are not going to assume from the short period of time that our earlier finding based upon a longer period should be scrapped.
Byron R. White: Well, do you mean to say, that if they -- if they have accepted the those propositions have continued prosperity of the -- they would have changed their minds on the merger?
Robert W. Ginnane: Oh, I think they could have. Yes, a very broad discretion under Section 5 as to whether to approve or disapprove. I have no doubt if the Commission could have changed this one.
Byron R. White: But you wouldn't -- are you suggesting that it would have?
Robert W. Ginnane: No. It didn't, it refused to change his mind.
Byron R. White: Yes, but that's because --
Robert W. Ginnane: -- the petition --
Byron R. White: -- because they wouldn't accept the predictions of the continued prosperity?
Robert W. Ginnane: They are unwilling to avail -- were unwilling to assume that the business that they'll be no further business cycle and that Penn-Central earnings were going to continue indefinitely to the 1965, 1966 (Inaudible) And we have already seen slight intonations that perhaps the Commission wasn't justified in its skepticism. As to the service improvements, they were described better than I can do it, in the petition for reconsideration filed by C & O, B & O. They said, a merged Penn-Central will generate large savings and touch off a significant drive to the type of broad gauge service improvements which is the very purpose of the merger. There will be funds available for the acquisitions of additional equipment including special equipments and so on. C & O, B & O believed that basically the merger will be consistent with the public interest notwithstanding this substantial adverse effect that will have on our traffic and revenues. Now of course the merger will produce better service to the public. That's where its for -- that where produces is competitive bite. Therell be more to the merger than many adjust the internal savings. It will produce better service and that's why all these appellant carriers are in here.
Speaker: What is that for (Inaudible), combination to this rule (Inaudible)?
Robert W. Ginnane: No, it produces much more single line movements. And in this merger, what is going to take place although Shapp complains of it, there will be a concentration of track and the longer and heavier trains.
Speaker: (Inaudible)
Robert W. Ginnane: All you -- or you -- all you can think of really is just traffic in one particular area. But it -- it is true that here. There'll be a concentration of traffic from certain areas over New York Central's water level route. Now, its not just shifting of traffic, it's the fact that's its concentrated into longer and heavier trains that produces very large operating economies and faster service in many, many cases.
Speaker: (Inaudible)
Robert W. Ginnane: Sir?
Speaker: Under one minute.
Robert W. Ginnane: Under one minute?
Speaker: (Inaudible)
Robert W. Ginnane: I don't know whether it would be true or not Your Honor. I know -- I do know that this is -- this is about the only country in the world where that has not happen. That this is the -- that we have -- what we have the only privately owned railroad system in the world operating with the considerable degree of competition, paying heavy taxes and so on, and many, many people believe. And is reflected this Commission's decision that is the right type of rail merger are necessary to keep our system going the way we want it and indeed to improve it. The right type of merger is necessary to not only keep the kind of railroad service we have but to improve. As to the New Haven, the Commission found that its services were essential to the public and that New Haven not only had no other place to got than in a larger rail line but that it would be injured by a merged Penn-Central. So the Commission imposed as a condition subsequent to consummation of the Penn-Central merger that all of New Haven's operations freight and passenger be included. Of course the terms with inclusion will be subject to this further proceeding before the Commission and to the approval of Bankruptcy Court. As to Erie-Lackawanna, Delaware and Hudson, and Boston and Maine, the Commission noted that it had reserved an opportunity for their inclusion for the Norfolk and Western system. At the same, the Commission recognized that the very savings an improved service which would justify finding a Penn-Central merger to be consistent with the public interest. It meant that a substantial amount of traffic could be diverted from Penn -- from Delaware and Hudson, Boston and Maine and Erie-Lackawanna. So it did two things. First, it provided a second opportunity for inclusion of those three lines in a major system. What provided that if the applicant -- if the petitioner one of them for inclusion in Norfolk and Western was denied then it could apply for inclusion in the Penn-Central system and the Commission reserved jurisdiction to require its inclusion on the prescribed terms?
Hugo L. Black: What about the Central? I believe (Inaudible)?
Robert W. Ginnane: They have several opportunities. I'd be glad to divert very briefly. They now say that the reason they didn't show up in the hearing before the Commission was that they didn't know that New Haven was going to be included in the merger. Now, that won't hold up. New Haven's application for inclusion in Penn-Central was widely and publicly supported, noisily supported by all the public bodies to northeast. And for anyone to assume, for any railroad management to assume that New Haven would not be included merely because Penn-Central said they didn't want to be included was simply naive. Anyway in authorizing New Haven's into -- in requiring New Haven's inclusion, Commission has provided that in this hearing which was -- which starts in January on the terms of New Haven inclusion, Central New Jersey and Reading can have an opportunity to testify, to be heard on what condition should attest to the New Haven inclusion to protect their roots with New Haven. Now, as you -- of course you also have been told that this New Haven inclusion isn't going to happen tonight.
William J. Brennan, Jr.: Happened when?
Robert W. Ginnane: Is not going to happen overnight. It'll be a good two years everybody now that raised there can be an actual inclusion of New Haven and before Central New Jersey could feel this anticipated injury. Central New Jersey also says they didn't know that the Commission was going to reserve jurisdiction to require Pennsylvania, to give traffic rights to Delaware and Hudson over a stretch between Wilkes-Barre and Hagerstown. That's just a second string to the bow which the Commission has reserved to provide Delaware and Hudson with the physical connection with Norfolk and Western. It may never occur. In any event, if it does, it will be only after a further opportunity before the Commission and Central New Jersey can be heard on that.
Byron R. White: Are these the only ways it'd be -- it is suggested that the merger would have an impact to Central New Jersey?
Robert W. Ginnane: That seems to be. There is another which I do not specifically recall and that too would be -- is the -- would be the subject of a further hearing before it took place.
Hugo L. Black: Then if you --
Robert W. Ginnane: Oh, these interim protected conditions. They complained about the impact of the interim protective conditions Your Honor and they have -- and the --
Byron R. White: They -- send them in.
Robert W. Ginnane: -- and they had their opportunity each of them -- to call them in.
Byron R. White: Had they -- have they had a chance to be in on these cases -- hearings of interim protection?
Robert W. Ginnane: I believe they were. I believe they were present --
Byron R. White: Oh, I understood that they had not had an opportunity to be in -- to present evidence on these interim protective --
Robert W. Ginnane: The -- they were there and they presented evidence.
Byron R. White: They do?
Robert W. Ginnane: And they'll have an opportunity to present evidence as to -- effect of a New Haven inclusion upon them in the very near future.
Speaker: I see Mr. Cutler over here very exagerate -- excited by what you just said.
Lloyd N. Cutler: May I direct to the record on that moment Mr. Chief Justice. Our objection was that we were not provided protective conditions of our own or capital indemnity conditions within the office. Our evidence on that subject in this free open hearing was denied, was refuse entry and that decision upheld by Commission. We were permitted to offer evidence that protected conditions offered to other railroads might cause conditional injuries to us and that matters are still pending to the Commission.
Robert W. Ginnane: These appellants filed a various petitions for reconsideration in the Commission's report and order. I would like to refer a layer to the extent that which their petitions did not raised the contentions which they now present to the courts. But for present purposes, it should be noted that all of the railroad appellants requested opportunity for a hearing on the admittedly noble interim protective conditions. So on the commission's report on reconsideration September 1966, the Commission did two things. It reopened the proceedings for further hearings limited to this special traffic and indemnity provisions in Appendix G. It provided that the traffic conditions would remain in effect assuming a consummation until change after hearing. It rescinded the indemnity condition but provided that any indemnity provision which might be devised would be imposed retroactive to the date of the consummation of the merger. At the same time, notwithstanding its action in reopening the proceeding for further hearing on the traffic and indemnity conditions, the Commission concluded that the public interest requires prompt consummation of the proposed merger. Now, the complaints have been filed in the court below before the Commission had issues report on reconsideration and with that report issued, the principal issue and the view of the court below was whether the Commission had authorized in erring cons -- in authorizing consummation of the merger while conducting these further hearings on special commissions. In a detailed analysis, the court below held that the Commission had not heard. Secondarily, although little argued in the court below, the court below held that was no merit in contentions that consummation of the merger should be deferred until conclusion of all pending rail merger proceedings relating to the Northeastern United States. Turning to the position of the Department of Justice, they tell the Court that the agencies are the executive branch that had substantive responsibilities for the formulation of economic and transportation policies, believe that the merger is in the public interest and that its consummation should be promptly affected. They point out that the railroad industry of the Northeast is an urgent need of rapid modernization and believe that as a practical matter, substantial consolidation among existing systems will be necessary to achieve this end. Thus, those federal agencies enjoin the States of Pennsylvania, New York, Connecticut, Rhode Island, and Massachusetts in supporting this merger. It is unprecedented support for such a transaction by public bodies responsible to the welfare of the large segments of the country. It is clear that the department is urging delay and consummation until the Commission determines the inclusion petitions of Erie-Lackawanna, Delaware and Hudson, and Boston and Maine for inclusion of Norfolk and Western. We have been uncertain, I still am, as to whether they are also urging delay until the Commission determines the Norfolk and Western, C & O merger application and the precise terms and until it determines the precise terms for the inclusion of New Haven. Because that the more of those things you will put in as a bar to consummation, the more we are talking about years. Just the -- not just the few friendly months, we're talking about years. In any event at that point the Department says, “This Court should not now decide whether the Commission and the court below were in error”. There is just at this Commission hold the case while the Commission completes the related proceedings so that this Court won't have to decide, the case now before the Court. And it seems to us that I -- they requested really which ask this Court to simply stay consummation on the merger without determining whether the court below erred in refusing it to do so. But at that point, the Court is asking -- the Department is asking this Court to engage in the administrative and non-judicial function of regulating the Commission's docket. So that the things that this Court has repeatedly held that the Court should not do. We submit that the Commission and the many parties and indeed the court below are entitled to a decision. And there is no doubt at all particularly in the reply briefs that the railroad appellants in Number 642, Norfolk and Western et al. and the Central New Jersey in its reply brief, although it had the original brief are now asking this Court to hold that approval and consummation of the Penn-Central merger must be deferred until a solution is found for all the lines in the East. We submit that the --
Earl Warren: Mr. Ginnane, what assurance New Haven (Inaudible) with that -- any of these protective -- you were saying they will -- would be given to them in the least of the length in time.
Robert W. Ginnane: Of the interim protective conditions?
Earl Warren: Yes.
Robert W. Ginnane: Well, the Commissioner -- the Commission has completed this hearing in those. The briefing process will be completed by February 6.
Earl Warren: Why can't (Inaudible)?
Robert W. Ginnane: I like to be careful on these matters particularly in -- I like to be very careful in expressing an opinion on this matter. But I would have no doubt that the Commission could finally determine those protective conditions not later than the first of June. Possibly earlier but I would not want to express an earlier date not later in the first of June in my judgment.
Earl Warren: Well, wouldn't that -- would that delay if the -- it should be that the Government asked (Inaudible) delay serious impairs? Are you assuming if you (Inaudible)?
Robert W. Ginnane: I have to answer to that in two ways. That's just the administrative process. Now, certainly the whole posture of this litigation strongly suggests that no matter what the Commission proscribes, one -- one of these carrier factions will take it to Court. So the next question will be to the merger be -- accept consummation be further deferred until judicial review of the interim protected conditions. Then secondly, that's only the first half of the court ruling. They say, that the consummation should be deferred clearly until the inclusion of Erie-Lackawanna, Delaware and Hudson, Boston and Maine is settled and presumably with judicial review of fact. There is -- there's just no way we -- anybody can be sure that this merger could possibly go into -- that this -- that the delay of consummation involved in differing it until the Commission comes out to its report on this interim special conditions would involved only a few months. It depends upon what happens to the next stage. Will the Courts -- will the courts stay up further pending judicial review of the conditions.
Tom C. Clark: Well, we have to --
Earl Warren: Then we would know the for of public interest to how it exist in in favor of Penn-Central? Now, that the -- even if the others are waiting for -- as part of the Commission to determine what their rights are and then have it determined.
Robert W. Ginnane: Well --
Earl Warren: The questions of this (Inaudible).
Robert W. Ginnane: Now, the reasons given by the rather the Commission boil down to this. It had found that the merger would produce improved transportation to public and substantial benefits to appellees, $80 million a year when the merger is fully implemented. Secondarily, it had found that that inclusion of the Penn-Central merger is the only solution that anybody has really proposed for continuance of New Haven services. And the Commission articulated it that if consummation of the Penn-Central merger is deferred for several years or indefinitely, that the Commission, neither the Commission or the courts can it -- can have any assurance that it will ever take place and if something happens that it doesn't take place, nobody has any solution in mind for continuation of New Haven's services. Then on the other hand --
Speaker: Is that putting altogether (Inaudible)?
Robert W. Ginnane: No. On the other hand the Commission pointed out, that we're talking about the interim protection now, not the long wage. Commission pointed out that putting together a merger of this size is a vast complex and slow task. For example, Mr. White depressed in the Erie-Lackawanna in speaking with the further authority of a former Vice President of New York Central, so he had seen both side of this competitive relationship. He testified to the Commission even before the Commission had announced any interim protective conditions that would be the second year before a Penn-Central merger could have a significant impact upon Erie-Lackawanna, that it would have no effect of the first year so that there -- so that these conditions don't have to be affected the first day at the consummation of the merger. Secondly, Penn-Central have pledged themselves not to seek judicial review of the Appendix G conditions which the Commission have revised.
Speaker: Did what?
Robert W. Ginnane: They'll accept it.
Earl Warren: In part the (Inaudible).
Robert W. Ginnane: As the -- as to the Appendix G conditions. They have not waived judicial review on capital -- on indemnity for capital loss. Result is that in a fairly short period of time, certainly this spring or early summer. As far as the Commission and Penn-Central are concerned, a set of protective condition can be in effect. Now, perhaps others can go to Court and get them stayed that as far as the applicants and the Commission are concerned, there will be a set of conditions in effect long before this merger could have a real competitive bite. Secondly, there is no principle of law that anyone of these appellant railroads has to be guaranteed 100% protection against diversion of traffic. As the court below said, what they're entitled to is protection against such diversion of traffic as will impair their viability, their ability to provide adequate service to their service areas. Erie-Lackawanna has testify -- has advised the Commission in its reply brief, in the inclusion proceeding that it is confident that the Commission can device reasonable -- reasonably adequate protective conditions. Now, the --
Earl Warren: When the time the -- for whom did -- from reading the facts to these protected rights and in during the time their moneys (Inaudible)? How are they going to (Inaudible)?
Robert W. Ginnane: To this and -- the kind of indemnity we're talking about, interim indemnity, if the Commission should prescribed one.
Earl Warren: If --
Robert W. Ginnane: Is -- it would be on a scale the only fraction of the merger savings because the indemnity would be phrased not in terms of a reduction in gross revenues but the reduction in net earnings. And we're talking about a sum which even is applied to all three railroads would be a few million dollars a year. A small fraction of the merger savings and that's why Penn-Central are so confident of that, that's why they committed themselves to accept the -- any temporary indemnity provision that they know what's a manageable sum that's involved. One brief point sir, the Norfolk and Western C -- Central of New Jersey group of appellants, C & O and B & O, are insist -- have been urging before the lower court and this court that any kind of indemnity provision if adopted will create a community of interest between Erie-Lackawanna, Delaware and Hudson, and Boston and Maine on the one hand and a merged Penn-Central on the other hand which will cause them to divert traffic to each other and away from Norfolk and Western, C & J and so on. This to which they now attach which they view as such great alarm was not even mentioned by C & J and Norfolk and Western in their petitions for reconsideration to the Commission. From which I conclude and it was barely mentioned by C & O, B & O from which I conclude that since they have so recently foreseen the stature that it must be one with which the Commission can cope in the formulation of conditions after a hearing. And one further point on the efficacy of these conditions to protect these three carriers pending consummation of this merger and their inclusion in another system and this might -- frankly, this might be more important in the right to judicial review. They will be subject to constant revision by the Commission on the light experience pursuant to Section 5 (9) of the Interstate Commerce Act. Admittedly, they're noble and we might learn quite a good deal by experience with them as we go along. And the Commission would have to retain jurisdiction to modify those conditions to ensure that they give adequate protection to the three without causing undue injury to the others. I would like to discuss very seriously, the other issue in the case. It's been muted today but it's here and that is that consummation of this merger should be deferred not merely until protected conditions are prescribed in a few months by the Commission. But that consummation should be deferred until act -- until the inclusion of the three protected lines and is finally determined. Thank you.