Earl Warren: Number 352 Betty Levin, et cetera Petitioner, versus Mississippi River Fuel Corporation et al., and number 359 Alleghany Corporation et al., Petitioner versus Mississippi River Fuel Corporation. Mr. McAllister.
Breck P. Mcallister: Mr. Chief Justice, May it please the court. The central issue I’ll come to it at once is whether these shareholders in Missouri Pacific Railroad MoPac as it is generally called, there are 39,000 outstanding shares and petitioners here represent a majority of them. Whether these petitioners have --
Byron R. White: Do you know how many shareholders there are?
Breck P. Mcallister: I don’t Mr. Justice White. We really don’t have those records, the railroad would have those records, we hold a majority. The question is whether we have the right to vote separately as a B class on a proposed consolidation proposed by the Board of Directors of the railroad and filed with the Interstate Commerce Commission. Whether we have this right to vote separately under Section 5 and the parenthetical clause of paragraph 11 of the Interstate Commerce Act, the A shareholders numbered 1,800,000 in each of these shares has one vote. We’re constantly told by the respondents and I want to make this clear at the outset that we have sort of a tiny minuscule interest because we have only 2% of the number of the votes, but the fact of the matter is that our participating interest in the company even three years ago exceeded that of the A shareholders. Today, we have an interest of some $260 million compared to the interest, fixed interest of the A group of a $180 million.
Byron R. White: Do you mean by that if the company were liquidated you’d have distributed rights of that much --
Breck P. Mcallister: Yes, precisely. And that brings me at once really Mr. Justice White what is this A & B business, what are these A and B shares, how do they come about? And they came about as a result of the final plan and reorganization of MoPac under Section 77 of the Bankruptcy Act back in 1954 and this plan was approved by the Interstate Commerce Commission. It was approved and confirmed by the District Court for the Eastern District of Missouri and by the Court of Appeals for the Eighth Circuit. Now it is this plan that created these two groups of stock, the A shares, the 1,800,000 of them were provided for in the plan to compensate fully, the former preferred shareholders not only for the par of their preferred stock, but also for unpaid cumulative dividend, they’d pay it in full and their dividend under the A shares is a $5 maximum and their interest is $100.
William O. Douglas: These were securities issued under a Section 77, reorganization plan?
Breck P. Mcallister: Yes, Mr. Justice.
William O. Douglas: And approved by the commission?
Breck P. Mcallister: And by the, and confirmed by the reorganization court.
William O. Douglas: Yeah.
Breck P. Mcallister: That is correct. Each of these shares is entitled to one vote, each of the 1,800,000 shares and a maximum dividend of $5. And these A shares have the characteristics, we submit of a preferred stock. Now the B shares were issued to the old common stockholders and these B shares have the characteristics of a common shareholder. The situation that developed under this plan was that with the A group holding 98% of the number of shares than the B group, they may have 2%. It was perfectly obvious that the A, -- the B group was at the mercy of the A group and here comes the protective clause that the Interstate Commerce Commission directed, they included in the charter of MoPac and this was part of the reorganization plan and it was inserted at the direction of commission. And the essence of this protective clause is that the company shall not do certain things without a majority vote of each class of stock to protective clause and the point that we passing on is that the company shall not offer or change the preferences and the special or relative rights of the A or the B. Now this is where our claim for a separate vote begins in the charter, in this protective clause. Now the respondents say that this generally voted clause doesn’t apply to us because this is a consolidation and the clause doesn’t use the word consolidation.
William O. Douglas: Did the ICC rule on this?
Breck P. Mcallister: Yes, Mr. Justice Douglas, the ICC required that this protective clause be included.
William O. Douglas: I know but in this new consolidation did they --?
Breck P. Mcallister: No, no, no, Mr. Justice Douglas.
William O. Douglas: Is that still before the ICC?
Breck P. Mcallister: It’s pending there, awaiting the outcome of this litigation. Now our first question of course is, does this propose a plan, and let me put the plan in a capsule, this is no Penn Central, this is a plan under which MoPac proposes to consolidate its properties, and the properties of a 83% owned subsidiary Texas Pacific and create a new corporation which these properties would be transferred, a new Delaware Corporation and that’s all it is. And in a moment, I want to show now how this plan, there’s a little more to it than that that does affect an alteration or change in our relevant right. What the plan does is to issue new shares of the new corporation to the old shareholder, the A and B as though their interest were identical. I suggested the A is a really preferred stock and B is a common stock and they treat us as though we were one, we are not, as I indicated already. And this is where the alteration or change takes place. The District Court thought this was so obvious it wasn’t worth talking about; I wanted to speak it to this court so that the full impact of this plan would be apparent and perfectly clear. Now, this is the issue --
Potter Stewart: In other words in the new company, in the proposed new consolidated company -- Each, they’re now about a 1,800,000 A shares outstanding, about 40,000 B shares outstanding?
Breck P. Mcallister: Right.
Potter Stewart: Is that right?
Breck P. Mcallister: Exactly.
Potter Stewart: And then, and each is going to, for each share whether it would be an A share or B share they’re going to get the same number of shares, but is it four --
Breck P. Mcallister: It’s four to one, yes, Mr. Justice.
Potter Stewart: For each one with the – of a one class stock, is that it?
Breck P. Mcallister: That is correct, exactly, $25 for common stock.
Potter Stewart: And that’s going to be the only equity security in the new formulated corporation--
Breck P. Mcallister: Correct. Now, this issue comes before this Court, now I’d like to say it very briefly in this way, and at this time because MoPac submitted its plan to the Interstate Commerce Commission, this plan and in December of 1963 before filing it, it held a meeting of its Board and authorized a plan and all of that and in January of 1964 it filed a plan with the commission. And in that filing, it announced that this would be submitted to the shareholders of MoPac that the forthcoming annual meeting in May of 1964 or at a special meeting to be called sooner, at which the plan would be submitted to the aggregate vote of all of the shareholders. Now this made it very clear to us that the requirement of a separate vote of these shareholders in the charter which I shall come to in one moment was being disregarded, that we would better get busy and go to court and find out what our rights were and we did. This announcement by MoPac precipitated the action of which the jurisdiction of the District Court is based on diversity of the citizenship and we filed our action in the District Court of Missouri. These complaints adequately stated the facts apparently because they were met with motions to dismiss so the cases hereon motions to dismiss the complaints, the District Court denied these motions, upheld our position and the Court of Appeals reversed and I like to state now what it is about this decision of the Court of Appeal that we believe requires reversal and the important policy considerations that were ignored we think by the Court of Appeals and our claim is parallel of the Court of Appeals in its treatment of Section 511 and really only the parenthetical clause of Section 511 which gives effect to applicable state law to determine the vote that is required, the assent of the shareholders as its put to accomplish a consolidation really any consolidation. This Court has had occasion often to refer to the Federal policy of the Interstate Commerce Act to facilitate consolidation emergence in the national transportation system, but this Court has also adverted to the further requirement of Section 511 that there be assent of the shareholder.
Hugo L. Black: Be what?
Breck P. Mcallister: The assent of the shareholders and if that vote of the shareholders in favor of the merger or consolidation is not forthcoming, there will be no such consolidation and it really doesn’t matter whether we are talking about Penn Central or whether we are talking about this rather limited operation of MoPac. This is a conventional policy, it stands with the same dignity we submit as the policy to facilitate consolidation and it is an integral part of the national transportation policy as provided by the Congress in the Interstate Commerce Act and we stand on it and submit that it should be given effect which the Court of Appeals did not do. Now, our case of course starts with this charter that I’ve talked about before. We think this charter is perfectly straight forward in giving us a right to vote separately in the event of any operation or change of our relative rights. We think it is. We think the Missouri Statutes which give effect to that charter requirement are straightforward and we think Section 511 seems to us to be a simple enough requirement that applicable state law shall be applied here and this is the error we claim, we claim that the Court of Appeals reached its decision of by taking the first policy that I mentioned, that is the overall policy to facilitate consolidations and mergers in the transportation system of this country, took that policy to smother the -- we think equally important policy of giving effect to applicable state law to determine the assent of shareholders. This part of our policy. This is not a compulsory system of consolidation. It requires the assent of the shareholders. Now the Court of Appeals was very clear in saying that it was its concept of the Federal policy that moved it to the decision it reached it said so very plainly and I should like to read only a sentence from the very end of the judgment of the Court of Appeals. The Court of Appeals of course, we think the District Court decided the question of state law that was what it was called upon to do what is the applicable state law here. What is the Law of Missouri on this point? But the Court of Appeals said this, they said that the question before them was primarily a matter of the interpretation of Section 511, rather than of Missouri Law, and they said that our difference with the District Court relates to this statute, Section 511 and the National Transportation Policy and we think this was the error of the Court of Appeals that requires reversal. Now, I want to come now to what are we asking of this Court. If I were you --
Lewis F. Powell, Jr.: Would you agree with that interpretation of the statute, if that was governed by federal law?
Breck P. Mcallister: No I think that they --
Lewis F. Powell, Jr.: Board is governed by Federal Law, would you agree with them that they construed it correctly.
Breck P. Mcallister: No, we would not Mr. Justice Black, because they did not give effect to the recognition of what is called applicable state law at all. They were so impressed if you like with the importance as they saw it of the national -- yes, Mr. Justice Brennan.
William J. Brennan, Jr.: You said they gave no, if I understood you, gave no effect of the court applicable to state law, I rather read that opinion as differing with the District Judge as to what applicable, as to what the Missouri Law, am I wrong?
Breck P. Mcallister: We thought not Mr. Justice Brennan.
William J. Brennan, Jr.: Well, certainly the Court of Appeals seemed to have I thought the opinion reflects some difficulty in determining precisely what the state law was that I rather than indicating that whatever it was -- certainly it was what the District Court had said with Missouri Law, am I wrong in that?
Breck P. Mcallister: Well, in our view the -- yes Mr. Justice Brennan, we rated it differently, but I should like to call the attention of the Court to the point where they seem to be resolving the various points, the Court of Appeals speaks at length of this consideration and that consideration and so on and I would think that on the record of page 157 Mr. Justice Brennan the end of that long paragraph, the Court there says that they are compelled to resolve that doubt that they seem to be expressing on the side of those provisions of the statute which --
William J. Brennan, Jr.: Meaning this was 511.
Breck P. Mcallister: 511, yes Mr. Justice Brennan, of the statute which speak the rule and that is the majority vote now I have not mentioned Section 511 provides for a majority vote unless applicable state law provides.
Byron R. White: Well, on this question, what significance do you attach to the sentences just above this Mr. McAllister, while there are significant contrary arguments, we are not persuaded either A that MoPac’s articles ” requires full consolidation” or B and if they do Section 35127 by its reference to the article demands the class vote or that even if it does class voting is required for state law, particularly B is that, does that indicate some disagreement of the District Court?
Breck P. Mcallister: Well, maybe. I think it’s very difficult to tell just what the Court of Appeals is doing here and that’s our trouble with it.
Byron R. White: Maybe the Court of Appeals, just was deciding what the state law was.
Breck P. Mcallister: But the District Court did Mr. Justice White and we don’t find here that the Court of Appeals has overturned the decision of the District Court on the state law because the Court of Appeals went off, we think on the points of Federal Law which we believe were erroneous.
Byron R. White: I don’t suppose the Court of Appeals would have decided the way it did that the state law had said in case of the consolidation there shall be a separate code of each class of stock?
Breck P. Mcallister: Well, that would have been obvious, in the easy case, but we think of course that -- to turn to the state law point --
Byron R. White: Well, if it would have decided that way and that it would have recognized the state law, that it had to be said consolidation, why wouldn’t it do so here. If the District Court said this statute is -- it is just as though, this section had the word consolidation in it, just as though. Now, if that were true the Court of Appeals would have gone along with it you say, but it didn’t go along with it so it must have decided that state law isn’t what the District Court said about it.
Breck P. Mcallister: Well, we just don’t read it that way because and I’d like to refer --
Byron R. White: And what about just the result, result of the case.
Breck P. Mcallister: Yes, Mr. Justice White, but if you look at the very last paragraph of the opinion of the Court of Appeals, which appears on page 158 of the record, the very last paragraph number two, the Court of Appeals says that this -- the question here is a matter which primarily concerns the interpretation of 511 a Federal Statute. And despite its interplay with Missouri Laws, the Court says very plainly I think there that our difference with the District Court relates to this statute that’s 511 and the national transportation policy.
Byron R. White: Well, they could have differed with them on that and they could also differed with them on state laws.
Breck P. Mcallister: Well, I think --
Byron R. White: Let’s assume the Court of Appeals is absolutely wrong on 511 and it’s impact on this state law question.
Breck P. Mcallister: Well, I think this Mr. Justice White, the District Court didn’t really consider the federal points at all, it applied itself to the state law point.
Byron R. White: Well, that might force the provision of 511.
Breck P. Mcallister: Yes, as the, as indeed --
William J. Brennan, Jr.: Well, what Mr. Justice White said, Mr. McAllister, suppose we do propose that in what you referred to in the concluding paragraph 158, the Court of Appeals was just dead wrong and then it becomes question what is the Missouri Law.
Breck P. Mcallister: Now this is --
William J. Brennan, Jr.: What are we to do in that circumstance?
Breck P. Mcallister: This is precisely what I want to come to Mr. Justice Brennan.
Hugo L. Black: Well, have you thought about a (Inaudible) that this case might be governed in part by the state law and in part by the federal law, and it is basic positive fact that half of it should not be taken away from one group and given to another, but that the value should be saved as it were, that Federal Law would control all that points. Have you thought about that?
Breck P. Mcallister: No, I have not Mr. Justice Black because I think Section 5(11) really precludes that, I think --
Hugo L. Black: You think that the basic principle in Federal Law said no merger or consolidation could be done in such ways, to take away the validators of one group  of stockholders and give it (Inaudible) to the other. You would think then that Federal Law would -- that the Federal Statute the basic premise of Federal Law wouldn't control it.
Breck P. Mcallister: Oh, I think that would if the statute was like that, there is --
Hugo L. Black: Suppose, the statute was construed, that meaning and a division of the stock in the new company on the basis by one person’s property value that wouldn’t be bodily lifted away from him for that reason and given to the other group, why would that not be the controlling norm.
Breck P. Mcallister: I would answer that this way Mr. Justice Black, that is not our case because we asking here for a right to vote.
Hugo L. Black: If you’ll pardon me, that seems to me like it’s a little early to renounce that not being your case. What you have is a claim for stockholders who had passed the stock with large amount of money, that was the value, that was their property. Another group had a class of stock that wasn’t worth anything like that, but tremendously less that. Then it is emerged, it’s emerged in such a way that when it gets through (Inaudible), so that when they get through the values of the one group of stockholder would have been finally taken over and given to the other for no reason in world except the number of shares which happen to represent that difference respective value.
Breck P. Mcallister: And that is precisely why we’re in court.
Hugo L. Black: What I thought and that precisely is one of the problems we have to decide whether a Federal Law permits taking of one group of stockholders value, giving them to another simply because they were represented by different numbers, that is not too difficult.
Breck P. Mcallister: I would indeed agree with that Mr. Justice Black. With this additional point, I think and that is that we find here a Federal Statue that does in Section 5(11) recognize the requirement of stockholder assent.
Hugo L. Black: Stockholder what?
Breck P. Mcallister: The assent, the consent or the vote of the stockholders and this vote is to be whatever applicable state law maybe and this is all we are asking, we are asking --
Speaker: Would you raise a provisions of 5(11) and not --
Breck P. Mcallister: Yes. It is -- it appears on appendix A page 1(a) of our main brief. The relevant provision is that this consolidation and so forth shall not take place, without the vote of a majority. Now, this is a Federal rule and the important part that we stress is unless a different vote is required under applicable state law.
Speaker: Those are the words of the statute?
Breck P. Mcallister: Those are the words of Section 5(11) Mr. Justice Harlan.
Hugo L. Black: Do you think that necessarily refers to the number of stock certificates even though had originally created –- was created in a manner where some stocks certificates were wholly disparate from their value?
Breck P. Mcallister: Yes, we do and if the word be singular --
Hugo L. Black: How could that be a valid statute? If that was the Federal statute how could it be valid? How could it be valid by law of the Federal Government or the state government said that you could use a device a number of shares, so as to take away in a merger or consolidation a tremendous value of one group of stockholders and turn it bodily over to another.
Breck P. Mcallister: We object, we’re not claiming it’s unconstitutional, but we’re claiming that --
Hugo L. Black: Do you assert that it’s constitutional if construed like they say the state law requires it.
Breck P. Mcallister: Well, I don’t think it would be.
Hugo L. Black: Well, that’s in your case.
Breck P. Mcallister: Yes, the statue 5(11) refers to the number so required and I think Mr. Justice Black if I understood you correctly you were concerned less the A shares were in a position to vote the entire aggregate vote and we could --
Hugo L. Black: If the number of A shares which went the majority were in a condition to take away the property of the other shareholders how could that withstand the scrutiny of due process of law?
Breck P. Mcallister: Well that is -- we think that the construction urged by the respondents here bumps right into that kind of a point.
Potter Stewart: Mr. McAllister I take it that question would perhaps -- would be arguing that issue if you didn’t have the clause unless the different voters required under applicable state law, so that without that provision a majority vote, in the instance, it might suggest, as far as the statute is concerned to do this sort of thing then the constitutional question may arise, well I gather what you are doing is you don’t have to reach that.
Breck P. Mcallister: No we do not.
Potter Stewart: Because the statute does say unless the different vote is required under applicable state law and you say Missouri Law does require a different vote, that being a vote by classes.
Breck P. Mcallister: Certainly.
Potter Stewart: That what’s your position is?
Breck P. Mcallister: And this --
Potter Stewart: Well, then I do hope you come back and tell me what we’re supposed to do if this gets down to --
Breck P. Mcallister: I am going to right now.
Potter Stewart: To part of Missouri Law and if and I must say to you again so far at least I will have to read the Court of Appeals opinion as differing with the District Court to what is state law?
Breck P. Mcallister: Well, what we asked and our postulate is as we read the opinion of the Court of Appeals and particularly that very last sentence a being the second paragraph, paragraph number 2 at the very end of the opinion, what we asked this Court to do is this, we asked this Court to reverse, of course the judgment of the Court of Appeal and on remand we ask that the order of the District Court be affirmed and we say this for several reason. These state law points were fully briefed fully, argued before the District Court and before the Court of Appeals and our position is Mr. Justice Brennan that the Court of Appeals did not overturn the decision of the District Court on the state law question. Now this position we --
Byron R. White: But if had it been in deep trouble.
Breck P. Mcallister: Not in deep trouble no. If it had --
William J. Brennan, Jr.: Do you mean then you would just ask us to reverse the Court of Appeals on a state law question?
Breck P. Mcallister: We would have to, we would have no other choice.
William J. Brennan, Jr.: You know when we’ve done that?
Breck P. Mcallister: I -- we do not ask you and that is why.
William J. Brennan, Jr.: If I have to reach -- if I have to disagree with you and saying that indeed the Court of Appeals did disagree with the District Court on what Missouri Law was and then I really --
Breck P. Mcallister: Well --
William J. Brennan, Jr.: I don’t see that we up here, I can’t recall, that was second guess, the Court of Appeals when it differed with the District Court on what state law was.
Breck P. Mcallister: Well, this is why we do not ask this Mr. Justice Brennan because we don’t think it’s necessary.
William J. Brennan, Jr.: It didn’t overturn it.
Breck P. Mcallister: Didn’t overturn it and we don’t think it’s necessary that this Court should do that because the points were fully briefed and fully argued below and I call that Court’s attention again to the point where they -- one of the –- If I may say so one of the few perfectly explicit things the Court did say was that’s its difference with the District Court relates to the Federal Statute and the National Transportation Policy.
William J. Brennan, Jr.: So we can go ahead of that?
Breck P. Mcallister: I’m trying.
William J. Brennan, Jr.: Go ahead
Breck P. Mcallister: Yes--
Potter Stewart: We’ve all interrupted you in a very big deal, and I apologize for doing so further except that it seems evident that the members of the Court have differing views or impressions as to this case and I just wanted to tell you mine so that you can direct your argument -- It seems to me that the Court -- that the District Court did emphasize and decide mainly what the law of Missouri was.
Breck P. Mcallister: Right.
Potter Stewart: And if the Court of Appeals ultimately said we really don’t need to decide the details of the Law of Missouri because the Federal statues says required by state law not permitted by state law and whatever this is, this is just what the law of Missouri permits, whatever it is rather than requires and therefore we are construing the Federal Statute primarily and this is how it comes out -- I am just telling that’s why I understand what the Court of Appeals said during the course --
Breck P. Mcallister: I would like to say as the Mr. Justice Stewart that the -- on that score I think that we come right back to the charter required by the Interstate Commerce Commission as part of the reorganization in which the protective clause is found.
Potter Stewart: Then aren’t we talking meaning of the Federal Statute?
Breck P. Mcallister: Well I don’t think so because I think the charter is a matter of state law of Missouri state law surely.
Potter Stewart: Yes, whether this is required by state law or whether this is something permitted by state law, i.e., what is the meaning of 511 those words of Section 511?
Breck P. Mcallister: Well.
Potter Stewart: But though as I say, we’ve all taken too much of time I don’t want to take any.
Breck P. Mcallister: No, I am glad that you have I am not sure that my time is up, but what we are really focusing on Mr. Justice Stewart is the integrity of this protective provision which was inserted in the charter and we ask that it be given effect and we further say that by only by giving 511 and the charter and the state law the most restrictive interpretation can, our position we think would be defeated, and we ask that if we give --
Speaker: (Inaudible)
Breck P. Mcallister: Certainly.
Speaker: That the provision of 511, that you read, means state law as found in statutes of the state or whether a body of state law in the sense that if state law requires – that the charter provision be given effect, that is embraced within the composite of 511, is that right?
Breck P. Mcallister: That is correct Mr. Justice Harlan and on that point I should say that the Congress simply used the word law.
Speaker: I am not arguing I am just trying to sort out the issue here.
Breck P. Mcallister: I think that’s correct.
Speaker: I know if we decide that in your favor, what you’re saying is well the District Court held the Missouri law was that you claim it to be.
Breck P. Mcallister: Yes.
Speaker: And although the Court of Appeal did not decide it, we should bypass the Court of Appeals and either accept the District Court’s view what Missouri law was or -- which I suppose amounts to the same thing to review it without passing it back to the court of Appeals.
Breck P. Mcallister: That is correct Mr. Justice Harlan and I hope to state again my reasons in support of that position, but that is our position, we didn’t find that the Court of Appeals have overturned the decision of the District --
Speaker: (Inaudible)
Hugo L. Black: Assuming that one should believe as I tend to believe at present, the Court of Appeals did upset the ruling as to state law and we are called on to review that ruling, are we authorized in reaching a construction as to what sate law is, the decision, the probability of proving what the Court of Appeals said to state law might be -- might make the state law unconstitutional.
Speaker: The state law unconstitutional?
Hugo L. Black: Assuming that the Court -- we should agree -- we should decide, fine that they did hold, the Court of Appeal did hold that the state law meant what the other side said and the result of which would be to transfer bodily, the values of one group of people to another people in merger, are we authorized in considering which state view to adopt, to consider the probability that the other construction might make the law unconstitutional.
Speaker: I should think so, because this court has often said that it favors a construction of the law on the side that avoids a constitutional question, thank you.
John Lowenthal: Mr. Chief Justice, may it please the court. I represent Betty Levin and other individual class B stockholders. There are just Mr. Justice White there are about 1,200 individual class B stockholder who own approximately one half of the Class B stock the other half being owned by Alleghany Corporation. My client --
Byron R. White: Did that Class A stock go to some creditors and former --
John Lowenthal: No the Class A stock went to the old preferred stockholder, several years after that --
Byron R. White: They had a fixed, they had –- class A went to class of stockholders that had fixed right in the company that was that –- I mean, a fixed distribution rights and fixed dividend rights?
John Lowenthal: Yes, standard preferred stock and the class A is likewise the standard preferred --
Byron R. White: Where the creditors paid off 100%?
John Lowenthal: Creditable were paid off in full and the old preferred stockholders were paid off in full, they got a lot of new -– they got two-and-a-half times as many shares of new preferred stock of class A for their old preferred stock. So they all got paid in full and what was left, the residual earnings went to the Class B, the common stockholders. Mr. Justice Black suggests what seems to me to be clearly the case, that where the preferred stockholders here able to take over everything that belongs to the common stockholders, the Class B merely by calling it a plan of merger or consolidation, it clearly would be unconstitutional and it had been so held. I find one lower court Federal case, the Wood case which flatly held that if one class of stockholder tries to do that to another under the Interstate Commerce Act, it would be unconstitutional and it cannot be done.
Potter Stewart: (Inaudible) as these stockholders voted in favor of this plan, do you have any constitutional violation?
John Lowenthal: If they have voted in favor of it by virtue of their class vote --
Potter Stewart: By virtue of their class vote.
John Lowenthal: No, it would not be unconstitutional.
Potter Stewart: I wouldn’t explain that –
Byron R. White: What about the -- he didn’t say 100% in majority.
John Lowenthal: I quite agree it would be unconstitutional as to the defenders, it could not be done that goes too far if the vote, the hypothetical vote in favor of the plan is designed to deprive a minority of what they are entitled to, then the Wood case makes perfectly clear, it’s unconstitutional. Now here we don’t face the problem because the charter provision for class voting Mr. Justice Black which was imposed by the interstate commerce commission. The charter provision requires a class vote to do any of these things. Now obviously the common stockholders, the class B are not going to consent to it, they won’t vote for it, so it can’t be done. Now this charter imposed by the commission on the bankruptcy ordinance also operates under Missouri Law in view of the provision of Section 511 of the Interstate Commerce Act that requires the observance or any of these deals under the Interstate Commerce Act, requires the observance of whatever vote is required under state law. Now this federally imposed charter for class voting also operates and is valid under state law. There is absolutely no question of it despite the fact that Court of Appeals did express some doubts about it. I don’t read the decision as deciding contrary to the District Court’s conclusion that there is a class voting under state law.
Byron R. White: Well now, who had the burden, you have the burden of case didn’t you?
John Lowenthal: No sir we are plaintiffs, the respondents moved to dismiss the complaints on the ground that we have no class vote. The District Court held against them dismissed their motions or overruled their motion to dismiss the complaints and asked the court, District court to certify the question.
Byron R. White: But you say the articles called for a class vote.
John Lowenthal: Yes sir.
Byron R. White: And the Court of Appeals ruled dead against you, he said the MoPac articles, we are not persuading that the MoPac articles called for a class vote on consolidation. They say that class B stockholders must surmount this problem and they have not. Now what do you do about that?
John Lowenthal: Your Honor if the Court of Appeals had held that the charter does not require a class vote which I don’t they held, they would be, I submit dead wrong in interpreting that charter because as you can see on the face of the charter it says any change of class rights requires a class vote and that’s the charter that the commission and the bankruptcy court imposed in this plan of reorganization. Now I don’t think that Court of Appeals went so far as to say that. I think they expressed doubts and went over and said we’ll resolve these doubts not by deciding what the charter says and not by deciding what state law gives you, we’ll resolve them by disregarding the state law entirely and going to the majority vote that’s set out in Section 511 of the Interstate Commerce Act and which applies -- when there is no different vote under state law, they I think the Court of Appeals finessed the charter and the state law questions after saying that they though the vote was doubtful. The district court did not find it doubtful.
Potter Stewart: Now how do you explain the language on the top of page 157 of the record as to the -- that seems to me is the -- seems to me and I guess me alone as the key to Court of Appeals reason --
John Lowenthal: Mr. Justice Stewart if the -- I think the Court is saying two things, it is saying we are not sure what the charter and the state law provide and because we are not sure instead of following the District Court’s conclusions on that we will simply disregard it entirely.
Potter Stewart: This much is clear isn’t it that no statute of Missouri, no statute of Missouri requires this kind of a class vote and this kind of a consolidation.
John Lowenthal: No sir that is not clear and that is not correct. The statutes of Missouri are as emphatic as any state statutes are in requiring a class vote in this case.
Potter Stewart: Well, but please just so we can see it, so I can try to see what this case is about, is there any general statute of Missouri requiring with respect to railroad corporations or corporations generally that there be a class vote in this kind of a consolidation.
John Lowenthal: Yes sir there is. Section 351.055 requires the charter to set forth the class rights, the class rights. MoPac’s charter sets forth the class rights using that statutory language including in those class rights, the class voting rights. Another Missouri Statute 351.270 says that whenever the charter sets forth a class voting rights, those charter requirements shall control.
Potter Stewart: Now that would be true under the ordinary law of contract.
John Lowenthal: Of course, and it’s true in practically every state union.
Potter Stewart: Well, of course.
John Lowenthal: That is to say the statutory pattern in the state law is your charter may upgrade or augment --
Potter Stewart: We are going to uphold your corporate charter.
John Lowenthal: Of course.
Potter Stewart: That’s not what I asked you.
John Lowenthal: Oh, I beg your pardon.
Potter Stewart: No, I don’t. Well, I’ve asked you twice, but I think --
John Lowenthal: If the question then whether that is a required vote or a permitted vote?
Potter Stewart: Whether any statute of Missouri without reference to what a corporate charter might have, whether any statute of Missouri says that in case of the consolidation of this kind, you have to have this kind of a class vote.
John Lowenthal: Only if your charter so requires it not if the charter is silent.
Potter Stewart: The Missouri statutes say we are going to uphold we are going to permit --
John Lowenthal: Yes.
Potter Stewart: The corporate charter to say what it wants about --
John Lowenthal: Absolutely.
Potter Stewart: This and then we are going to enforce the charter.
John Lowenthal: Absolutely.
Potter Stewart: That’s what the Missouri Law is.
John Lowenthal: That’s what the Missouri Law is. The Missouri Law say if your charter requires a class vote that’s the vote required for consolidations in Missouri.
Potter Stewart: Right.
John Lowenthal: And that’s what the charter here did pursuant to the commission in the bankruptcy court. That becomes the vote required under Missouri Law. Now this has been decided before, and there is no problem about a charter vote, once you put it in your charter, class voting, being the vote required under state law. The fact that your charter may or may not do it, cuts no ice once the charter has done it. Once it’s in there the state law says that’s controlling, that’s the vote required. Now there is an absolutely straightforward interpretation of this exact charter under Missouri Law. Just two years before this litigation began, MoPac went before the commission and insisted that the class B stockholders have the right to a class vote on mergers and consolidations of MoPac. They flatly stated that and the reason they did it was this. MoPac was then holding merger discussion with other railroads. Alleghany Corporation came before the commission and said let us out of our voting trust, we want the direct class vote on these mergers, it’s too important to have it through a trustee, and MoPac opposed and said no, because they have that class voting right on mergers of MoPac. Same charter, same federal statute, same Missouri State Law because they have that class voting right, keep it with the trustee, MoPac won that case. The commission denied Alleghany’s request. Now, they’re in here the other way around, and telling you exactly the opposite that the Class B does not have a class voting right. I submit that’s going too far and the courts don’t take to it either, they call it double-dealing the administration of justice. They’re arguing both sides of the principle issue. They took the advantage and won by insisting on MoPac’s class voting right, just a few years ago. Now, they come in here and tell you, just the other way around. Now, with this plan of bankruptcy reorganization that imposed the class voting requirement in the charter, that was the deal, without that class voting right, there would have been no deal because the common stockholders have nothing without that class voting right to protect themselves. If they didn’t have it, they could unconstitutional or it would be unconstitutional to swamp them, to take everything away from them just because the preferred stock has so many more votes.
Hugo L. Black: Mr. Lowenthal, in Missouri law what would have happened if a recapitalization has been proposed in this company to this same effect?
John Lowenthal: The same thing Mr. Justice Black. The statutes in Missouri require that the charter provision control the vote and a recapitalization that would change the class right.
Byron R. White: Would the same provision have been governing here in your view on a recapitalization?
John Lowenthal: Absolutely because the charter requires the class vote for any change of class rights.
Byron R. White: So if the -- on the Missouri law point if this can happen in railroad reorganization, it could happen under Missouri law in just an ordinary recapitalization.
John Lowenthal: Absolutely.
Byron R. White: If the Court of Appeals did say what Missouri law is and they’re right. This same thing could happen and this -- it could happen in this company on a recapitalization.
John Lowenthal: Yes.
Byron R. White: Even if the merger is turned was down by the Commerce Commission?
John Lowenthal: It could not happen constitutionally.
Byron R. White: Well, I know but under Missouri Law this could happen on just a recap.
John Lowenthal: If the Court of Appeals construed Missouri Law to deny the class vote it could happen, yes. But I don’t so read the Missouri --
Byron R. White: I understand.
John Lowenthal: Court of Appeals decision. I don’t think it can possibly dispute the class voting right under the Missouri Law. May I reserve my time on that?
Earl Warren: You may. Mr. Lyons.
Dennis G. Lyons: Mr. Chief Justice, May it please the Court. I shall address myself to the federal law questions in the case. Questions having to do with the interpretation of the section 5(11) of the Interstate Commerce Act and also having to do with the interpretation of section 5(2) of the Interstate Commerce Act, which was not mentioned by the petitioners. Mr. McRoberts will address himself to the questions relating to the interpretation of the Articles of Association of MoPac and to the other state law questions and generally where they fit in to this litigation. During the course of my segment of the oral argument, I will make certain assumptions in the petitioner’s favor, certain assumptions that they approved for the sake of argument, certain things. First, that the articles do apply to a consolidation, second that section -- that Chapter 351 of the Missouri statutes is the applicable state law and second -- thirdly, the provision that they have to rely on the Enabling Act provision 351.270 that, that would enforce here the vote that we are assuming the charter provides for.
Potter Stewart: Actually in your brief, you take issue with at least two of those.
Dennis G. Lyons: We take issue of all three of those proposition Your Honor and we say that the -- of course, the petitioners have to prove all three of those; they have to prove the two federal law propositions. We also say that on two of the three state law propositions that the Court of Appeals held that they had not made out their case. Now the result of accepting the petitioners claim here I’d like to talk about that just briefly because I don’t think it’s been fully stated. The petitioners have suggested to you that the terms of the plan of consolidation have something to do with whether their position leads them to a class vote on a consolidation. As a matter of fact if their position is correct and what they assert, they would have a class vote on every merger or consolidation to which MoPac might be a party. This is because there is a provision in this very same section of the articles, if they rely on and if these articles apply to a consolidation with respect to sub-items B and C and D, C and D as they suggest there is no reason why sub-item A doesn’t apply and that says that there is a class vote, we say not applicable to consolidation, they say applicable to a consolidation. If the company shall issue any shares of stock of the company of any class now or hereafter authorized in addition to the shares authorized at the time of the reorganization. In other words, if there is any increase in the capital stock of MoPac, on a consolidation and it’s impossible to think of a consolidation except with the wholly owned subsidiary where that wouldn’t be the case. Then, if that’s true, if their position is true, they have a class vote on every merger or consolidation to which MoPac would be a party.
Potter Stewart: Are you suggesting that, that would be an outrageous or absurd result? I think the law of good many state requires just that.
Dennis G. Lyons: Well, we suggest that when the proposition is seen in that extent, the inconsistency of Section 5(11) with that proposition becomes more manifest. The fact of the matter here is that the stockholder vote does not approve or finally approve any of these mergers. The stockholder vote and I think this is particularly relevant to Mr. Justice Black’s question. The stockholder vote is just a ticket of admission to the interstate commerce commission.
Byron R. White: But it would certainly stop it in its track?
Dennis G. Lyons: Yes, if you require a class vote --
Byron R. White: With the particular commission or but the statute 5(11) does say that the commission has defined a majority of approved merger, so stockholders can kill any merger.
Dennis G. Lyons: They can and the question is what vote did Congress provides for the stockholders as a ticket of admission to the Interstate Commerce Commission. Now, if this plan of consolidation is all the things, that the petitioners say it is and incidentally we dispute them, but they are not we submit in this case. If it’s all that the petitioners say it is, presumably the Interstate Commerce Commission would not find under Section 5(2) that the terms of the consolidation where just and reasonable and that would be the end of the consolidation. The purpose then of the narrow issue of law, federal law and the state law that we’re discussing today is whether this plan will even go to the Interstate Commerce Commission for its review of the public interest factors, and for its review of whether the terms both as between the different classes of stockholders and with respect to the public stockholders of Texas and Pacific, those terms are just unreasonable. Now, we’ve heard considerable amount of discussion as to the terms of the class voting here being required by the I.C.C. or imposed into the articles of the I.C.C. Systems. Mr. McRoberts will address himself to that, he was there at that time and we believe, he will show that is not the case. However, even if it were the case, it’s a little hard to imagine why the I.C.C. would have been intended this class voting provision to apply to consolidations when rail consolidation are subject to the most plenary of I.C.C. jurisdiction. I.C.C. jurisdiction to examine the terms of the fairness of the plan and then of course judicial review of the I.C.C.’s order after the I.C.C.’s order is made. The first thing that I think we have to look to in construing Section 511 is its language and the critical word we submit is the word that counsel kept leaving out until Mr. Justice Harlan asked him to read the statute and that is the word required. Congress provided in Section 511 that it would be sufficient to submit a merger to the Interstate Commerce Commission for its scrutiny, if the merger or consolidation was approved by a majority of the votes of the holders of the shares entitled to vote of the capital stock of the carrier. Unless, and this is the only unless clause. Unless a different vote is required under applicable state law in which case the numbers so required shall assent of the votes of the holders of the shares entitled to vote. Now, we start with the general proposition that Congress in passing the 1940 Transportation Act, which is where this language came into the statute, the prior version of the statute clearly differed to state charters, to state law and state charters and to any provision that would be enforceable under any authority against the carrier. The purpose of Congress was to facilitate consolidations and mergers in the rail industry. This Court has repeatedly said that. We submit that in order to fulfill that interpretation, the more literal meaning of the statute would coincide with the federal policy. The least complicated the vote is, the simpler it is the more in the direction of a simple majority vote and only a narrow exception from that. The more the federal policy would be fulfilled of getting these mergers to the commerce commission where the commissioner could take a look at them. Now, it’s a strange use of language we submit to say that Missouri Law requires even if we assume that the articles in Missouri Law are what the petitioners say they are, that it requires a class vote here. If I make a contract with a man to paint my fence, it’s a strange way of saying that Virginia Law requires him to paint my fence and I think a more normal way of putting that would be that the contract required him to paint my fence and that Virginia Law presumably would give effect to that contract. That is the literal we submit meaning of this federal statute. The interpretation of the petitioners violates not only the underlying policy of the whole statute, but the usages in common speech and --
Earl Warren: Would a carry your hypothetical little farther to say that if in Virginia you made a contract to the man to paint your fence and he did paint your fence for a consideration, would you say that the law did not require him to require you to pay for it?
Dennis G. Lyons: I say the contract required and that the law will enforce that contract. There is an there is --
Earl Warren: Well, isn’t that a distinction without a difference?
Dennis G. Lyons: Well it’s a distinction we submit that Congress made in the statute and they very easily could have left the old language of the statute in. It’s a distinction we submit that Congress made and there are good reasons for it in terms of the background, the legislative history of the statute which we’ll come to in a moment.
Earl Warren: You mean that we should infer that they wipe out a property right by sub silentio.
Dennis G. Lyons: Your Honor, the property rights of the stockholders here will be amply protected by the I.C.C. and we assume by the District Court when it reviews the I.C.C.’s order and by this Court should an appeal be taken from the District Court’s order.
Earl Warren: Well, if they have a property right, don’t they have a right to enforce it in courts?
Dennis G. Lyons: We submit that the federal statute here overrides the contract rights, assuming that they have a contract right, just as in the Schwabacher case under state law therein, actually this was a requirement of state law, there were dissenter’s appraisal rights, the stockholders who didn’t like the merger there or if state law were governing, were entitled to be paid off in cash and this Court said that maybe the case under state law, but Section 511 --
William J. Brennan, Jr.: No, but the difficult with that I suggest is that Section 511 did not differ at all the state law in the area in which the Schwabacher case dealt, but Section 511 does differ to state law in connection with voting.
Dennis G. Lyons: Your Honor, it certainly does differ as to the requirements of state law and it uses that word required twice -- required under a state law.
Abe Fortas: How is that going to be different?
Dennis G. Lyons: From required by there maybe, Your Honor there maybe some slight difference, the Court of Appeals do not think it material. I think the --
Potter Stewart: But I’m just wondering if Court of Appeals has d said that about that.
Dennis G. Lyons: It would have been easy enough for Congress to have made the distinction between that which was required by state law that -- and on that which was required by corporate charters. Actually in order to do that they could have left the law alone. Could have left it the way it was under the 1920 statute. In essence what the petitioners are saying here is that this very distinct change of language from Section 56(c) later Section 54 of the 1920 Act means nothing at all, that you have a plenary reference into the articles wherever the articles are not denied in enforcement by state law.
Byron R. White: Well your case doesn’t depend on this, does it?
Dennis G. Lyons: Actually my case doesn’t depend -- the petitioner’s case depends on --
Byron R. White: If you lose on this issue of the required and then still --
Dennis G. Lyons: Because we have the three state law points, actually there’s a second federal law point that I’ll come to shortly.
Byron R. White: But the basic federal law question seems to be as if just unreasonable for a fair plan.
Dennis G. Lyons: Yes Your Honor that is the basic federal law point, and that is the point.
Byron R. White: Maybe I have missed --
Dennis G. Lyons: Which we haven’t come to yet.
Byron R. White: Yes, maybe I’ve misread this. If I understand that this is one of the most notorious pieces of predatory finesse I’ve seen, and I’ve seen quite a few, is the appropriation of this tremendous asset value of one -- by one block stock to another block stock.
Dennis G. Lyons: Your Honor --
Byron R. White: How can you -- how could we possibly conceive of that as a fair and just and reasonable? But those -- maybe I have misread it, but that’s the way I’m --
Dennis G. Lyons: Well, that’s what the complaint says certainly, Your Honor, we’re here on a motion to dismiss. Now let me say that the -- most of the methods of valuation that the plaintiffs, the petitioners here would insist on we find totally irrelevant in the context. They are --
Potter Stewart: Excuse me, that -- those question suggested by Mr. Justice Douglas’ questions and the Chief Justice and Mr. Justice Black, those issues, those issues would be present in this case would they not? Whether or not that these shares had any voting right and even if it were clear that the B shares did not have any voting rights, still the A shares wouldn’t be allowed to steal their property.
Dennis G. Lyons: Well that is correct Your Honor, let’s assume that this was a monstrous fraud as the complaints say. Let’s assume then that we made a deal with Alleghany to go along with it for some backhanded consideration and there is an approving class vote, you go to the commission and assume the commission starts the hearings, then you have that issue. You have the issue as to whether the plan is just and reasonable and that the parties could put evidence on it at that time. The only question here is whether this plan will go to the Interstate Commerce Commission. If the Court recalls that in effect this class of stock has a veto, any provision in any articles of incorporation, let’s say that a particular class is to have a class vote on consolidations. Any such provision will have to be honored under Section 511 and those consolidations involving those railroads would never even be started without the approval not only of the general vote of the stockholders and of the Board of Directors, but of each class that in the corporate charter had back prior before the 1940 Act perhaps obtained such a concession.
Hugo L. Black: Why haven’t the ICC already approved that method of counting the vote.
Dennis G. Lyons: Your Honor, the I.C.C. has taken no view on this. The application has not been pressed by the petitioners, by the respondents as long as this case has been going--
Potter Stewart: How about back in 1954 when the commission approved these charter provisions?
Dennis G. Lyons: Your Honor, if we get back to the position then that the charter provisions don’t talk about consolidation at all, and it would be rather odd to say that the commission -- one of the aids to interpretation that they don’t apply the consolidations is that there’d be no purpose for the commission to protect the parties against the commission, since the commissions review of the terms of the consolidation as plenary. It’s unlike some of the other things that are provided for in the articles where either the commission has no reviewing power at all or where it’s reviewing power is limited to issues like stock watering matters of that, sort of --
Hugo L. Black: The (Inaudible) that the I.C.C. has already has approved the submission of vote, on this vote.
Dennis G. Lyons: The I.C.C. has taken no action whatsoever in this case Your Honor.
Hugo L. Black: Issue no order?
Dennis G. Lyons: It’s issued no order at all. The application has been filed.
Hugo L. Black: What action has been taken?
Dennis G. Lyons: The I.C.C. Is -- the only action that has been taken I believe by the I.C.C’s file room is let us file the application and there have been no proceedings on the application. This suit was brought --
Hugo L. Black: And yet file a bill for injunction.
Dennis G. Lyons: Yes, the private parties here brought a bill for injunction in the District Court before a single district judge involving the diversities of jurisdiction. And the only question tended to this Court on that bill is not the justice and the reasonableness of the plan which the --
Hugo L. Black: Well, I’m not talking about -- I’m talking about this method of voting, giving each owner of each share stock.
Dennis G. Lyons: Well the I.C.C. in terms of the vote that would generally apply for election of directors say, the I.C.C. insisted that the election of directors and the general corporate matters, the general voting power be the way that it is. They -- the class B stock then said we should have twice as many shares as you’re proposing to give us and that would give us 4% of the vote. Wouldn’t it be fair to give us 4% of the vote and I.C.C. said absolutely not. They have only a minuscule interest in this corporation; they’re being treated generously enough by being given 2% of the vote.
Byron R. White: May I ask you Mr. Lyons would the I.C.C. under 5(2) application have to decide first, at the outset of a proceeding whether this provision 5(11) had been satisfied?
Dennis G. Lyons: I suppose they would Your Honor, that’s a condition pursuant to the exercise of their jurisdiction.
Byron R. White: Well if that -- no one has raised the question of primary jurisdiction in this case?
Dennis G. Lyons: No one ever has, we have not. The petitioners --
Byron R. White: The Court of Appeals referred to it.
Dennis G. Lyons: I don’t believe -- sorry Your Honor I maybe mistaken but no party has seriously pressed this and actually what we have here is a naked question I believe of statutory interpretation.
Byron R. White: But Mr. Lyons, what if the motion -- what if the injunction suit by these plaintiffs had attacked the plan as not being just unreasonable?
Dennis G. Lyons: Oh it did also, but those issues were separate Your Honor.
Byron R. White: Well I know, but what if they had and some court, some state court reported to decide that it was just unreasonable over some objection, that this was a matter of primary jurisdiction for the commission under 511.
Dennis G. Lyons: Well, I think that’s perfectly a clear case of primary jurisdiction.
Byron R. White: But along with the finding of just unreasonable --
Dennis G. Lyons: That would have to be reversed.
Byron R. White: But the commission also has defined along with the just unreasonable finding that a plan has been approved by the requisite number of shareholders.
Dennis G. Lyons: I’m not sure that the statute provides that as one of their findings, the statute provides that that’s one of things that has to take place, that there has to be the approval of the commission and the assents of the stockholders.
Byron R. White: Well, that’s the authority conferred shall be exclusive and plenary and then it goes on to say full power with the assent and so forth. Do you suppose it’s too late for us (Inaudible).
Dennis G. Lyons: Well, Your Honor, I wouldn’t attempt to suggest what you might do, but I believe that this does not partake of the sort of the questions of the Court has generally held to be within the primary jurisdiction rationale, it’s a pure question of -- for the three points, the interpretation of state law and what the I.C.C. would know about that as problematical.
Byron R. White: No more than we do.
Dennis G. Lyons: And the -- quite right. And the --
Byron R. White: No but this is the question, the first thing you’ve argued is a matter of federal law, what was required here.
Dennis G. Lyons: It’s only when you pass through the state law questions that you come to the federal law questions. So if the I.C.C. was to attempt to determine this, it could not even reach the federal law questions, but we contend that the federal law questions here are pure issues of law and that they could be decided by the Federal Courts and an action of bill and equity, unlike as Your Honor quite rightly points out the question of justice and reasonableness which is reserved for another day.
Abe Fortas: Is there anything in the legislative history of 511 Mr. Lyons that would shed any lights on your interpretation of that Act as far as this is concerned?
Dennis G. Lyons: I believe there is Your Honor, we set it forth an extensive in our briefs. One of the --
Abe Fortas: Did you set forth here in brief?
Dennis G. Lyons: Yes, I will Your Honor. The basic problems with the 1920 Transportation Act, which clearly said what the petitioners say the 1940 Act says. One of the basic problems of course was that it had this requirement of a master plan. The other problem that was found and the commentators speak to this, is the fact that minority groups were able to tie up consolidations and mergers and prevent them from proceeding and all during the 20s and 30s there were bills introduced in effect to do away with the old provision of Section 56(c) which made this deference to the corporate charters and to provide a federal voting standard. Some of the bills provided a majority general vote, some of them provided a two-thirds general vote. The comment was made of all these bills were being considered under the 1920 Act, that maybe a majority vote was too low and a lot of the states required a general two-thirds vote. Now nothing directly and immediately came out of these bills. The interest died to a certain extent during the depression, interest died in rail consolidations. But these problems were very much there, they had been repeatedly put forward by the Railroad Trade Associations that the deferring to state law that was the old practice created deferring to the charters and the state law that was the previous practice, created a considerable problem and permitted what one commentator called troublesome minorities to block these plans. Now, we submit that when and again the last committee reports, when we come to the 1939, when this bill was finally, virtually passed, it’s funny enacted the next year. The committee reports don’t say anything one way or the other on this point, but we submit that on the basis of the classical theory of interpreting a statute that you look to the problem, that the prior law presented and this was a problem that was generally recognized, that the preferable interpretation of the statute against the light of that problem and against the light of this congressional concern is that it made a minimal reference to state law simply to the affirmative expressions of state public policy. The state law requirements, the most typical one being for a two-thirds general vote. Then in effect this provision is compromised between the old provisions of federal bills that had been introduced over the years, some of which provided for a majority vote, some of which provided for two-thirds vote. This Act we submit says that the general rule is a majority vote if the state law imposes a positive requirement for more that will be accepted. Now, our second point on the Federal Law is that even if the provisions of Section 511 are broad enough --
Earl Warren: Now that’s the extent that the legislative history --
Dennis G. Lyons: That’s the high spots of it Your Honor, we have of course in more detail in our brief, one of the important things I think further is that there were very few provisions of the sort that the petitioners are now relying on in 1940, when Congress thought about required under state law, it was thinking about the affirmative requirements of state law to the effect that you have to have two-thirds or three-fifths vote on a merger. These statutes giving effect to provisions of corporate charters were not general then, they were only four at that time. They did not really begin to come into the picture in great number until the Model Business Corporation Act was promulgated in 1950. We say further as our second point of federal law that even if the statute is read as giving effect to, well I call it voluntary or permissible vote under state law; it would never give effect to a class vote. First, we refer again to the language of the statute. The statute talks about votes required under state law varying the Federal standard, but the only way in which the Federal standard, which is for a majority general vote can be varied is with respect to the number of the votes of the holders of the shares entitled to vote of the capital stock of such corporation. We say that on its face this means that you can vary the number, you can say and so the majority of that shall be two-thirds or three-fourths or three-fifths that says nothing at all about class voting or about giving any effect to state laws that permit the vote to be taken other than on a general basis. Now, there were in the late 30s bills before Congress, which would have done just that. I.C.C. Commissioner Eastman’s Bill provided for a class vote and certainly Congress at that time was what Commissioner Eastman produced a very respectful hearing, but what Congress came out with did not provide for a class vote. Moreover, there are other provisions --
Earl Warren: Then those were the years when everybody sort of abandoned this because of the economic condition.
Dennis G. Lyons: Well, there were some, there were fewer bills in the late 30s, but Eastman’s bill did come out in ‘36 and is forth report as coordinator of transportation. Now, there are other provisions of the Interstate Commerce Act Section 20b is the example, which provide for a class vote. These provisions show that when Congress wanted there to be a class vote, it provided so in terms. We submit that one of the reasons why Congress did not provide for a class vote here was the fact that a class vote in the ordinary corporation is simply a guarantee of the fairness of the plan that it affects all classes of the stockholders fairly. Here we have an administrative control over the fairness of the fund. So we submit that on both these grounds of Federal law, one of which the Court of Appeals expressly went on. The other one at which it didn’t have to reach the Court of Appeals judgment should be affirmed. Mr. McRoberts will now address himself to the other issues of the case.
Earl Warren: Mr. McRoberts.
Robert H. McRoberts: Mr. Chief Justice and may it please the Court. Let me say at the very outset and particularly to Mr. Justice Black that we do not contend that any law State or Federal gives to us or to any party power to take away the property and rights of one group of stockholders and turn them over to another. If this plan does that, which we emphatically deny, of course the Interstate Commerce Commission will say that it is not just and reasonable. And it is to the Interstate Commerce Commission that Congress has delegated the authority, to their expertise to decide whether or not regardless of vote majority, class vote, two-thirds vote or any vote, whether a plan is just and reasonable so far as a few remaining minority stockholders are concerned. If it is not just and reasonable, then presumably and I am sure they will, the Interstate Commerce Commission would say so.
Hugo L. Black: Is there is any importance at all to the vote of the stockholder on the approval or disapproval of a Court mention?
Robert H. McRoberts: Not so far.
Hugo L. Black: Do you think that has a bearing in it?
Robert H. McRoberts: It has no bearing upon whether a plan is just and reasonable.
Hugo L. Black: Do you think that is important or unimportant in the process of merger?
Robert H. McRoberts: The kind of vote, yes Your Honor, no question about it.
Hugo L. Black: Do you see anything fair and good in a vote which allows neither to be submitted, the vote by those that are very, very, very, small parts that people can override the vote of others who have a greater valuation.
Robert H. McRoberts: Mr. Justice, I think that is true in any plain majority vote or in two-thirds vote.
Hugo L. Black: But then, if you defend the method of voting here, how can you do it, if it is having any possibility of fairness?
Robert H. McRoberts: I’ll tell you there is just as fair, where there is just as much possibility of unfairness in any provision whether it be for a majority of vote or a two-thirds vote or a three-fourth vote, or a 90% vote --
Hugo L. Black: If you had 100 stockholders, in that 98 of them, that two of them value a certain amount of security, that those two decide on whether or not a plan would be submitted.
Robert H. McRoberts: And that is exactly what the petitioners are contending, their 2% decides not on the fairness or unfairness.
Hugo L. Black: What is the value, value, value, one value, one vote you might say, but certainly does not sound better.
Robert H. McRoberts: Perhaps --
Hugo L. Black: You have a substantial step of great importance, connection with the merger and you’ve submitted to us, which would permit and the (Inaudible) would require that they be squeezed to death by the vote of the other groups.
Robert H. McRoberts: Mr. Justice they can no more be squeezed by this vote than they can if there is no class vote and the statute requires as of the third statute requires a two-thirds vote. The two-thirds can squeeze the one-third, except that the Interstate Commerce Commission must find a plan just and reasonable or it will not be passed in the Interstate Commerce Commission --
Hugo L. Black: Why is that a plan is submitted to the Interstate Commerce Commission, being sent to him by a vote that would not be so offensive to the ordinary ideas or facts of any man who believes in preserving the rights of that.
Robert H. McRoberts: I think the only thing that I suspect -- the only thing that is troubling Your Honor is the allegation here that this is an unfair plan.
Hugo L. Black: But as it is our understanding, it is (Inaudible) it could be no more uncertain, unless you just said that they can take it all away from you.
Robert H. McRoberts: Then Mr. Justice the same principles would apply if there were no class vote. If 99% of --
Hugo L. Black: Maybe it was.
Robert H. McRoberts: If 99% of the stockholder vote in favor of this plan and 1% vote against it and it goes to the Interstate Commerce Commission, the Interstate Commerce Commission must protect that 1% against this vote of the 99%. And all I am suggesting is that this question of class vote has nothing to do with the merits of this plan.
Hugo L. Black: It is just the device used for the competency purpose or just desire to be accomplished, I agree to that.
Robert H. McRoberts: It is the class vote, which the petitioners are seeking to use to prevent this plan being submitted to the Interstate Commerce Commission --
Hugo L. Black: On the ground that it had anything – anything fair come out of it--
Robert H. McRoberts: Your Honor, please they do not want the Interstate Commerce Commission to have an opportunity to pass upon the fairness of the plan. We want to go --
Hugo L. Black: I am saying this could be so unfair that one might not even be willing to trust.
Robert H. McRoberts: But, I might say that --
Hugo L. Black: The Interstate Commerce Commission should decide here.
Robert H. McRoberts: May I suggest here Your Honor that very issue was raised in the petitions in this case was not decided by the District Court, but was reserved and that the Court of Appeals said that is not within our jurisdiction to decide that is for the Interstate Commerce Commission.
Hugo L. Black: And what you are defending here, the idea that that the way of submitting that plan is not unfair.
Robert H. McRoberts: The way of submitting a plan is not unfair, no it’s not unfair in any sense Your Honor.
Hugo L. Black: You say it’s not unfair, so that’s got really --
Robert H. McRoberts: I am saying not only the way of submitting it is not unfair, but the plan itself is alleged to be unfair, we do not concede that and if it is unfair the commission will throw it up, instead. Now, if I may turn to the question that Mr. Justice Stewart asked, whether or not there is any statute in Missouri calling for a class vote on consolidation of emergency, the answer is possibly, no. And I want to come back to that in just a moment to show just what Missouri did do in that respect and why Missouri rejected expressly and possibly rejected the idea of a class vote on a merger or consolidation. Now, several of the justices have indicated that it is not for this Court to consider. The questions of state law and I simply point out that in order for the petitioners to be upheld in their claim for a class vote. There are six hurdles which they must overcome. This Court or some court must hold that these articles of incorporation although they don’t mention mergers or consolidations apply to mergers and consolidations. The Court of Appeals as we read the decision, said it did not so provide. The next thing that petitioners have to --
Potter Stewart: Pardon me, that’s hardly a matter of Missouri law, that’s just a matter of reading --
Robert H. McRoberts: Well, it’s a matter of simply just --
Potter Stewart: Of reading the language --
Robert H. McRoberts: Of contract law, shall we call it, State or Federal or whatever it maybe.
Potter Stewart: Fine.
Robert H. McRoberts: The next question that must be decided in favor of the petitioners is that Chapter 388 of our Missouri statute which deal with Railroad Corporation does not apply, because if it does it calls only for a simple majority vote. That issue was ruled in favor of the petitioner. Court of Appeals ruled out definitely that question of state law.
Byron R. White: I mean just by assuming, they ruled definitely.
Robert H. McRoberts: No they ruled definitely that Chapter 351 and not 358 applies.
Byron R. White: I thought they just said they just got to be assuming.
Robert H. McRoberts: The word maybe assume.
Byron R. White: It’s okay.
Robert H. McRoberts: And any of that the effect of it was to say we think Chapter 351 applies. Chapter 351 must apply if the petitioners are to have a class vote, because they don’t get it under 388. The railroad statute which governs consolidations of Railroad Corporation we’ve discussed at great length in our brief but time will not permit me to go into now. It’s not enough for them to come under 351, they must come under this Section 270 or 351 and to come under 351 and make the statement far simply and it cannot be in that category, that until July the 18th, 1961 neither chapter 351 nor any of its predecessors back to 1807 could have been applicable state law applying to this or any of railroad merger in Missouri. And that because chapter 351 and its predecessors expressly excluded Railroad Corporations and other types of corporations from its provisions. The first statute in Missouri authorizing the merger and consolidation of corporations, not railroad corporations but generally was enacted in 1807 and that statute expressly decided said, that it should apply only to manufacturing corporations and that was allowed until 1921, when it was expanded slightly, but not to include railroad corporations, they were still excluded. In 1943, our Legislature, our General Assembly revised the entire general and business corporation law in Missouri and put in merger and consolidation provisions and those provisions expressly said, they shall apply only to corporations organized for a purpose for which the corporation maybe organized under this Act, under this chapter. And Railroad Corporation by express provisions to the chapter could not be organized. So, did I say up until 1961 there could not have been a class vote under the sections on which they now rely. What occurred in 1961, there was an amendment and the reason for that amendment, the purpose of that amendment was this. Back when our 1943 law was first enacted it defined the word ‘corporation’ as used in the chapter so as to exclude foreign corporations. And our Secretary of State held that the merger and consolidation provisions could not apply to any foreign corporation merging with the Missouri Corporation unless the Missouri Corporation is a survival. They undertook to correct that defect in our law. The Borrower Corporations Committee and the Borrower Association drafted and introduced a bill, had introduced a bill in our General Assembly in ‘59 correcting this among the other things, it failed to pass it. It was reintroduced in ‘61, the defects that has been described and this is all set forth in our brief. The very purpose for which was merely to correct this one provision in our general corporation law, which has nothing to do with railroads. And so, the petitioner’s position must be that when in 1961 for the first time they came under Chapter 351, the legislature aiming at this one problem inadvertently hit railroads over here and unknowingly amended the railroad code so as to make this section apply to Railroad Corporations. We say it did not accomplish the purpose and the only --
Potter Stewart: Court of Appeals deal with that question.
Robert H. McRoberts: They did not deal with that specific question because Mr. Justice, because and I must confess it, it was pointed out at that time and we did not do our home work.
Potter Stewart: What about that statement of 157, what does that mean?
Robert H. McRoberts: In 157.
Potter Stewart: It says I gather were not persuaded to pay, if MoPac Articles Court for class vote were consolidated or B, that if they do – that is if the Articles requires class vote on consolidation 351,270 --
Robert H. McRoberts: It is yes that part of 351.
Potter Stewart: By its reference to the articles, demands class vote, what does that mean?
Robert H. McRoberts: That means this, if Your Honor please, it is not enough that they come within Chapter 351 per se, because Chapter 351 per se in 425 prescribes a simple, a straight two-thirds vote of all the stockholders for merger and consolidation, that’s all. And I would like to point out how that section came into our law. Our 1943 law was copied in large part from the 1933 law, the State of Illinois. This particular section calling for a two-thirds vote was copied from the Illinois statute, which would be found if you care to look at it in 11-A of the appendix to our brief. And the Missouri statute copied it down to the point, down to the end as it appears in our statute. It provides, it goes on down and copies two-thirds vote of the outstanding share for a period. Now Illinois statute went on to provide for a class vote and Missouri expressly refused to carry that over into its statute. I point this out on page 88 of our brief and cite no authority as indicating the intention of the General Assembly just before leaving to St. Louis, it came to my attention a decision of our Supreme Court en banc, unanimous handed down last month in Missouri, in which it had occasion to consider another statute of Missouri, copied from Illinois in which they had copied part of it and had left out certain sections. And I would like, if I may, to leave with the clerk, copies of this opinion of our Supreme Court to show the significance that they attached to the fact that Missouri had refused to follow Illinois in this respect. I think that goes perhaps to this question of significance of Section 311 and the permissive word in their requirement, because here is Missouri affirmatively refusing to provide for a class vote on mergers and consolidations that does not become a policy of the state in Missouri to have class votes. Now they come to 270 and they say that 270 they must, must come under 270 of this is the another hurdle they have to overcome. And the Section to which Your Honor referred in the opinion says that 270 doesn’t accomplish the purpose, because all 270 does and read the literal language of it, is to say that if in your articles, you provide for a greater vote than that provided in this chapter.
Potter Stewart: Well, may I just ask a (Inaudible) structure of this sentence -- it is susceptible to construction that even though Articles calls for a class vote, 370 by its reference doesn’t demand it, maybe that means even if it permits it?
Robert H. McRoberts: I think what the court was saying and to really construe that you have to go back earlier in this opinion and time will not permit me to do it here.
Potter Stewart: Don’t bother I just --
Robert H. McRoberts: To go to the questions which the court propounded for itself. If you go back, the petitioners say that the court didn’t overturn the District Court, but they go back to 142 you see they say the District Court held us and so in this posture it comes to us. We reverse, they overturned it as definitely and possibly as I know how. Then the Court undertook to go through the process of reasoning why it reversed and how it arrived at this conclusion of reversing the District Court and in the course of doing so it outlined the questions which were presented to it and one of the questions that this particular language is directed to, if I can turn to it, I can’t at the moment turn to it, but we find before that Mr. Justice Brennan that the Court phrased these three questions which it answered on page 157. It phrased the questions which were presented to it, it certainly had doubts about it they are difficult questions, but I submit it finally resolved and what petitioners are really objecting to is not that they didn’t resolve them as a matter of fact the Alleghany brief says that they finally resolved their doubts. They are objecting to the reasoning which the Court of Appeals followed in resolving. The fact the Court of Appeals looked to the national law and the national policy to facilitate mergers and said we are going to resolve these doubts in a way which is going to facilitate mergers and consolidations not put hurdles in the place of them, we leave it to the Interstate Commerce Commission to decide whether it is fair and that --
Abe Fortas: The deal goes as far as Mr. Lyons in making a distinction between what is required under state law by state law and what is applicable, required under applicable state law, remember he had a little --
Robert H. McRoberts: He makes a distinction.
Abe Fortas: He had a little hypothetical which I chose to amend a bit, if a man hiring someone to pay defense in court and the man didn’t pay the defense or compensation, is he entitled to compensation under state law or does that work. Mr. Lyons fails to understand that he did not, but the outcome --
Robert H. McRoberts: Well, I think and I think if – May, I answer your question this way, Mr. Chief Justice. I think what Congress was doing here.
Byron R. White: No that is kind -- that is what Congress was doing, I’m asking, we’re talking about state law.
Robert H. McRoberts: I think this is an answer I may to the question. Congress was differing in this unless a different vote is required by the state law to the policy as expressed by the law of the state as embodied in the statutes of the state. I think that is what Congress was differing to when it put that qualifying language in the statute and not to what the parties might do by private contract even though it would be enforced and given effect to by the courts of the state. Now --
Abe Fortas: Then where do you get that out of the legislated history?
Robert H. McRoberts: I’m not as familiar with that legislative history as Mr. Lyons is and I cannot point to a specific sector.
Abe Fortas: If you’re going to give a different wording to these words under state law; it seems to me you ought to have some legislative history or something to indicate that we should change the normal effect of those words.
Robert H. McRoberts: Well, I cannot cite, I cannot cite legislative history in Congress, but I can say that in doing my brief a decision of our Supreme Court that says that in another situation where they’re talking about state law, their main state statutory law. And our Supreme Court has also held that these private provisions such as voting rights, although it wasn’t that in articles of association are a matter of private contact and not public law and that is what our Supreme Court has held in the Shapiro case.
Earl Warren: Mr. Lowenthal you are going to --
John Lowenthal: Mr. Chief Justice and Mr. Justice Stewart, I would draw your attention to what the Court of Appeals said about this problem that’s required on page 8 of my reply brief, that buff colored job, number 352 on page 8. I quote what the Court of Appeals said that it can see no difference for purposes of section 5(11), between a statutory provision for a class vote and a charter provision for it pursuant to statutory authority.
Byron R. White: And then why did they later say they had done --
John Lowenthal: I don’t know, Your Honor.
Byron R. White: In fact they ruled on.
John Lowenthal: Your honor I don’t know, the best that I can make out of it is that, they --
Byron R. White: You are on Page 8 of our --
John Lowenthal: Page 8 of my replied brief, your honor the buff job in number 352.
William O. Douglas: Also in the record 156.
John Lowenthal: 156 in the record thanks, Justice Douglas. Mr. Justice While I am not sure, they did go on to express doubt, but what seems to me what they did is this, they said we will resolve these doubts not by deciding these questions, but by disregarding all state law and going instead to the majority of vote provision in section 5(11) will simply override or ignore these doubtful state law matters or what they thought were doubtful state law questions. They are so full of doubt that we won’t say anything at all about them, we will simply look.
Potter Stewart: Yes, but right ahead of that in our view the Class B shareholders must surmount each and all of these work hurdles in order to prevail, we are not convinced they’ve surmounted any of them.
John Lowenthal: Yes, Your Honor but if that had been what they held, they would then have held that the required vote in Missouri is a two-thirds vote for mergers, but they did not so hold. They held instead that the vote here should be the majority vote under the federal statute section 5(11), so they disregarded whatever the state, whatever they thought the state law to be and went instead to section 5(11) disregarding the congressional mandate to observe the state’s voting requirements.
Byron R. White: But they said they were also to make, they were driven the word required and didn’t they rule on what they thought requires man under 5(11)?
John Lowenthal: I don’t see that they ruled on it, Your Honor. They said --
Byron R. White: They ruled on it, and ruled on it because it is a matter of federal law and not the state law.
John Lowenthal: Yes, Your Honor it is.
Byron R. White: If it’s required means something mandatory not something permitted by agreements.
John Lowenthal: Yes, but right before that they said what I have just quoted about they see no difference, if the charter requires it pursuant to statutory authority which makes the charter provision controlling so I am not sure --
Byron R. White: Well, while you put the two together that means that at most this does it, that certainly under Missouri Law it’s permissive to do it this way, but the federal statute uses the word required and that required implies something mandatory, not something permissive --
John Lowenthal: Yes, Your Honor.
Byron R. White: Wasn’t that out of it.
John Lowenthal: Yes, Your Honor. When they say that they see no difference if the charter does it, then it would seem from their language I quoted to be the vote that has become required by reason of the state statute that authorizes the charter to do that. Now that’s the most I can get out of it, but I want to mention this Your Honor, it has until now been the consistent practice of the commission and the carriers and of MoPac itself to observe a charter requirement for class voting on mergers. Last week, this Court unanimously affirmed MoPac’s bid for control in the Chicago and Eastern Illinois Railroad, last week. Now MoPac’s success in that case rested squarely on MoPac’s right to a class vote under the charter of the Chicago and Eastern Illinois Railroad.
Potter Stewart: In which state?
John Lowenthal: Indiana, with state law absolutely indistinguishable from Missouri state law and the charter of Chicago and Eastern Illinois Railroad just like MoPac’s charter came out of a bankruptcy organization, it provides a class vote on mergers for a small class of the preferred stock and MoPac bought just enough of that preferred stock to block other roads from merging with CNI and --
Potter Stewart: Is there any argument about the -- about the right to a class vote in that case?
John Lowenthal: Your honor, MoPac and Mississippi River Fuel both respondents here were parties before the commission in that preceding that you affirmed last week. They asserted that right and the commission agreed with it, the commission said of that class voting right for mergers based on the CNI charter, commission said Missouri Pacific clearly possessed the power to block stockholder assent to mergers and thus prevent CNI from accomplishing mergers and consolidations. I refer to this again this reply brief at page 4, foot note 3; I just managed to get it in after you affirmed it last week. Now, this is correct, it has been the consistent practice of the commission and the carriers, that for any merger under the act, under the Interstate Commerce Act, charter provisions whether for class voting or not. Charter provisions will be observed and if under state law the charter provision for class voting sets the vote that state law chose you, you must observe for your stockholders that has been the vote that the commission and the carriers have always (Inaudible) question observed.
Byron R. White: Why didn’t you wait for the commission to decide this instead of coming into Court with a separate suit?
John Lowenthal: Your honor, this is, this voting question is not within the primary jurisdiction under the commission, and I have noted by the way in my principle brief.
Byron R. White: It’s just within its jurisdiction.
John Lowenthal: It’s within its jurisdiction, but not primary. The reason we didn’t wait is if we have a class vote, clearly we are not going to vote for this plan which confiscates all our rights so that would obviate many years of commission proceedings on the plan, the respondents agreed with this approach, but settled the voting issue first so we don’t have to go through long commission proceedings. The voting issue not being within the primary jurisdiction as I had indicated in my principle brief, I think it’s page 4 footnote.
Byron R. White: You have some cases on that?
John Lowenthal: Yes, sir.
Byron R. White: Well that’s all right, it’s in your brief?
John Lowenthal: It’s in my brief, so all agreed since this is not within the primary jurisdiction, let’s get it over with and not first go through years of commission proceedings and we are not for this, this entire case on the respondents’ position would make a dead letter of the bankruptcy act because this charter provision just like CNI’s charter provision came in under the Bankruptcy Act and a plan --
Byron R. White: Mr. Lowenthal, at the time that charter provision came in upon the bankruptcy act, the law of Missouri was to the effect that a majority of vote only is required.
John Lowenthal: No, sir it was not --
Byron R. White: I understand from the other side that this provision was in the Missouri law of 1961.
John Lowenthal: No, sir may I please refer you to pages 12 to 14 of my reply brief and number 352 for the Missouri statutes which makes it absolutely clear that it has always been the practice in Missouri that charter provisions incorporate charters for class voting will always be observed and required.
Byron R. White: Even in railroad reorganizations?
John Lowenthal: Even in railroad reorganizations and Missouri Pacific itself had such a class voting provision in it’s old charter of 1917. I refer to that likewise in my replied brief. There is no question, but what under Missouri state law class voting provisions in charters.
Byron R. White: Up until 1961, the applicable statutes for the railroad consolidation – is that where?
John Lowenthal: Mostly they were not -- both lower Courts held that they were chapter 351, the general business statutes.
William J. Brennan, Jr.: That’s even before 61.
John Lowenthal: Even before 61 has nothing to do with the date of 61. I think my time is up, Your Honor. Thank you. Very well.