Earl Warren: Number 12, Minneapolis and Saint Louis Railway Company versus United States of America, number 27, South Dakota et al., versus United States and number 28, Minnesota et al., versus United States. Mr. Soderberg, you may continue your argument.
Harold J. Soderberg: Mr. Chief Justice and Honorable Members of this Court. In order to preserve sometime for a rebuttal by the appellants, I wish to conclude my argument at this time. For the reasons partially developed in my arguments yesterday, I wish to express the opinion of the States of Minnesota and South Dakota that the order of the Interstate Commerce Commission here seriously threatens the economy of the State of Minnesota and South Dakota, and secondly, for the reasons developed at length in our brief and in the brief of my colleague of State of South Dakota and then the brief of the (Inaudible) that the order of the Interstate Commerce Commission is also legally defective and should be overturned. Thank you.
Earl Warren: Mr. Ginnane.
Robert W. Ginnane: Mr. Chief Justice, may it please the Court. I am appearing on behalf of the United States and the Interstate Commerce Commission. I'm sharing the oral argument with Mr. Thomas who represents the Pennsylvania and Santa Fe Railroads. We are supported, but in brief only, by the State of Illinois and by the shippers and communities along the line of the Toledo -- Toledo, Peoria & Western Railroad. At the outset, I would like to bring out a few additional and geographical and transportation facts from the appellants' map, because this is truly a case in which a map maybe worth a volume of testimony and logic. Your Honors may follow it -- find it easier to follow in a rather simpler map which appears at page 148 of the record, that's in volume 1. First, I'd like to refer to the appellants' historical reference yesterday that joint control of Western by Burlington and Pennsylvania brought it to ruin. Well at that point, the suggestion was left that this happened, the Burlington connecting with Western only at the Western end as to Santa Fe. Actually then and now, Burlington connected with Western not only at (Inaudible) but by this route just North of Minneapolis route coming right into Peoria, with the result that Burlington was directly competitive with the Western half -- of the Western -- Western route just as Minneapolis would be under its application. Secondly, I'd like to point out that this Pennsylvania route here, which is colored so heavily simply is not a competitive service route. By that I mean in terms of the condition of the track, the grace, the curves the bridges and the proof of that in the record is that in 1955, Western interchanged with Pennsylvania at Peoria 240 carloads at Effner Western exchanged with Pennsylvania 55,000 carloads. I'd like to point out also that two real competitors service routes coming from the East and the Peoria are Nickel Plate coming all the way east of Buffalo and New York Central. Now they are real competitive service routes coming from the east in the Peoria. Competitive routes in the practical sense that they are fourth and fifth respectively in Western's interchange of freight.
Felix Frankfurter: What is the relation between the Central and Pennsylvania now?
Robert W. Ginnane: Well Pennsylvania -- Pennsylvania and Santa Fe are first and second --
Felix Frankfurter: I'm not talking about Santa Fe. I'm talking about (Inaudible) Central and Pennsylvania. They have no inter corporate relations (Inaudible)
Robert W. Ginnane: No sir. They were -- they were talking loosely about a -- about a merger and this, Your Honor --
Felix Frankfurter: It is a follow up, is it?
Robert W. Ginnane: -- and according to newspapers that broke up in a bitter dispute.
Felix Frankfurter: And that was -- had not -- had not been in the past. There were no stockholdings by Pennsylvania in Central.
Robert W. Ginnane: Nothing of any consequence and I don't know of any. They are independent competitive carriers. The Commission found that Western now is a well-managed independently operated railroad furnishing a valuable rail transportation service to the public, and had found that the policy of Western has been and now is to maintain strict neutrality between all connections, and to participate in any haul of traffic long or short. Commission characterized Western as an overhead carrier through Peoria as an alternative route bypassing the congested terminals of Saint Louis and Chicago. It found that Western provides a vital direct way essential to the type of true service which is increasingly important to shippers. More than two-thirds of Western revenues are derived from overhead or bridge traffic, that is traffic which both originates and terminates on other lines and much of its remaining traffic is interline traffic, that is traffic which originates or terminates on other lines. The Commission found that much of Western's conspicuous success as a bridge line dates from 1927, and for the first time it acquired a connection with Santa Fe at Lomax and since then the cooperation between Santa Fe, Western, and Pennsylvania has provided a highly successful competitive through route. And the result of that cooperation through the years was that by 1955, Western derived 70% of its total revenues from faith interchanged with Santa Fe and/or Pennsylvania. Now Mr. McNear, the former owner and President of Western died in 1947. This entire case arises out of the fact that the trustees of his estate for the diversification purposes desired to sell most or all of the Western stock. Apart from that fact practically everybody concerned with Western's existence and operation would be quite content to see at State and the status in which it was under Mr. McNear's leadership. It was against this background that the Commission had before it three proposals, the proposal of Santa Fe and Pennsylvania for 50-50 joint control through stock ownership, the proposal of Minneapolis for sole control of Western and the application of Nickel Plate in Rock Island to be included in multiple ownership with any successful applicant. A consolidated hearing was held on all of these matters. Ultimately the Commission authorized acquisition of control by Santa Fe and Pennsylvania. Minneapolis and Nickel Plate, which is no longer in the litigation, challenged the Commission's order before a three-judge court in Minneapolis and that court after a thorough review of the Commission's order, sustained it. Now, I'd like to emphasize here, contrary to the suggestion in the appellants' briefs, that the District Court's action was not perfunctory, nor wasn't it an abdication of the judicial function. That court in Minneapolis patiently heard all of us for six hours and we submit that its opinion goes to the heart of the issues presented to that court. Now, the issues have shifted from time to time. For example, the principal issue litigated in -- in the District Court was the contention that there was a violation of Section 10 of the Clayton Act. Here the principal contention seems to be that the Commission denied Minneapolis of fair hearing by determining that the public interest requires so far as possible, that continued separate and independent operation of Western under its present policies be assured and Minneapolis contends that that approach deprived it -- deprived it of a fair comparative hearing on its application. We contend that the Commission proceeded properly under the statutory standards and the standard in Section 5 where one or more carriers seek to acquire a control of another carrier is consistent with the public interest. That is defined somewhat further in Section 5 which says, “The Commission shall give weight to the following considerations among others. First, the effect of a proposed transaction upon adequate transportation service to the public, the effect of the public interest upon the public interest to the inclusion or failure to include other carriers -- other carriers in that same general territory, total fix charges resulting from the proposed transaction and for the interest of the carrier employees affected. Stated briefly under the National Transportation Policy, the Commission must take into account every relevant interest of shippers, carriers, employees and the nation. The Commission's report starts out by discussing Western's physical facilities, its traffic, its roll in the transportation system, and its revenues. Then the Commission describes the applicants and the intervening carriers, and their positions, and the -- and the respective applications. The Commission noted that the Santa Fe, Pennsylvania proposal contemplated that Western would continue to be operated as a separate and independent carrier with its separate management continuing to be at Peoria. The Commission found that the Minneapolis proposal contemplates the disappearance of Western as a separate carrier. For all practical purposes, the Commission said, “Western will be integrated, consolidated, and merged into the Minneapolis for ownership, management and operation. Western's headquarters would be removed to -- from Peoria to Minneapolis and the combined railroad operation would be run from Minneapolis.
Felix Frankfurter: Would that fact humanly operate adversely to economic interest of Western?
Robert W. Ginnane: I'll answer it this way. The people are shippers along the Western route, its employees and particularly, the shipper is another interested parties and the Western half of the route which would be in direct competition with the Minneapolis present route would firmly convince that it would.
Felix Frankfurter: Would you mind indicating in a minute or two why that (Inaudible)
Robert W. Ginnane: Well, as the Commission found, it's important to shippers, sometimes for real reason, sometimes for imaginary reasons. Shippers consider it important to have ready access to responsible carrier officials. Under the Minneapolis plan, there would be an operation superintendent in Peoria. All the other officers of the combined operation would be hundreds of -- hundreds of miles in Minneapolis. It's -- as the Commission found, it is a factor in shipper thinking, shipper fears.
Earl Warren: Did the Commission specifically find that -- that this -- that the Pennsylvania and Santa Fe purchase was more on the interest of a public and that of --
Robert W. Ginnane: Yes.
Earl Warren: -- Minneapolis --
Robert W. Ginnane: And may I lead up to that in the moment (Voice Overlap) -- the factors -- it's by --
Earl Warren: To me it's alright.
Robert W. Ginnane: -- by enumerating the factors which lead the Commission to that conclusion, that waiver.
Earl Warren: They made the conclusion.
Robert W. Ginnane: They make -- they did indeed, sir and that finding is as follows. On page 39 of the record --
Earl Warren: 39.
Robert W. Ginnane: And the top of the -- at the top of page, we are convinced that the benefits to be derived from the operation of Western under the control of the Santa Fe and the Pennsylvania as proposed will be in furtherance of the overall National Transportation Policy declared by the Congress and its consummation will not unduly curtail competition in connection with the other carriers.
Earl Warren: Well does that --
Robert W. Ginnane: And conversely --
Earl Warren: -- does that finding hold that the Western would not be in the -- I mean that the Minneapolis one would not be in the public interest?
Robert W. Ginnane: And on conversely the Commission found -- at the top of page 32.
Earl Warren: 32.
Robert W. Ginnane: That the Minneapolis proposed policy of establishing new routes and connections with other carriers would as the Commission found be extremely harmful to other carriers.
Felix Frankfurter: 32?
Robert W. Ginnane: Yes, sir at the top of the page 32.
William O. Douglas: Those words such a policy, Mr. Ginnane refers to what?
Robert W. Ginnane: That refers to the -- to the description on the prior page on page 31 of what Minneapolis would do under its proposal by way of establishing new routes and interchange points for the other carriers. Much of the -- much of the case is tried before the Commission and is considered by the Commission. It was reflected in its report. It was comparison of the competitive effects on the various competing carriers, under the one proposal or the other. The Commission also found that under Minneapolis proposal an estimated 256 jobs, most of them on Western would be affected by the plan. And as I've just pointed out, the Commission found that the benefits to Minneapolis of establishing additional connection -- connections with more eastern carriers would result in harmful diversion of traffic from other competing carriers. And turning to Minneapolis estimate that its acquisition of Western would produce economies of about $1,800,000 a year, the Commission noted that most of the savings would be at the expense of Western's employees. Of course that's true in any of these combinations. Now, the average in -- in carrier combinations, two-thirds of the economy is the saving from the combination or in terms of labor cost.
Felix Frankfurter: But (Inaudible)
Robert W. Ginnane: I'm sorry I don't have the figure in mind.
Felix Frankfurter: (Inaudible) 265 that you say.
Robert W. Ginnane: It was estimated that 256 --
Felix Frankfurter: 256.
Robert W. Ginnane: -- jobs would be eliminated.
Felix Frankfurter: Is that a sizable fraction of the total?
Robert W. Ginnane: It would be -- it would sizeable.
Felix Frankfurter: Sizeable.
Robert W. Ginnane: And that -- the Commission also noted --
Felix Frankfurter: The problem is confronting the distance coming on the railroad only unrelated to this problem.
Robert W. Ginnane: It is indeed. The Commission also noted that the Minneapolis proposal was opposed by the communities served by Western and by Western's employees naturally, and above all by all of the shipper witnesses who appeared. And it's not quite fair as the appellants do to dismiss these shipper witnesses as uninformed persons. They included, for example, such persons as the traffic manager for the Sunkist Orange Cooperative which ships thousands of cars of oranges and fruit into the East each year. Such people -- such people obviously were competent to appraise their -- these interests. And all of the shipper witnesses including these professional traffic people were opposed to the Minneapolis proposal. There all -- they we're all preferred so far as possible separate operation of Western under its present policies and all supported the Santa Fe, Pennsylvania proposal as the best way to continue that.
Felix Frankfurter: Of course every litigant comes up all the witness and he can't say it side but what extent -- is there anything in the record to indicate the shipper witnesses for not dealing to appropriate fractions or influences I don't mean anything (Inaudible) to use powerful (Inaudible).
Robert W. Ginnane: In the case of Sunkist shipper for -- for example, Your Honor, I think that -- I think the railroads are in competition for that huge chunk of -- of high value traffic. There are a number of -- there are a number of routes by which they can move across the Mississippi and into the North Eastern consuming area, but that's -- that's the problem in all of these cases because as the Commission runs to it in every competing carrier cases. The -- the competing carriers of -- bring in witnesses and here every shipper witness who appeared favored continuation of Western under its present policies and as a separate carrier organization. Now the Commission specifically recognized that all of the carriers seeking to control Western were in competition with it.
William J. Brennan, Jr.: (Inaudible) to this Court of the Minneapolis proposal outside of the route itself.
Robert W. Ginnane: The States of Minnesota and Northern South Dakota.
William J. Brennan, Jr.: And no shippers (Inaudible)
Robert W. Ginnane: No shipper at all.
William J. Brennan, Jr.: And only the two States?
Robert W. Ginnane: Very well -- three States - Minnesota, and North, and South Dakota. Now, the Commission specifically took into account --
William J. Brennan, Jr.: And what was the nature of that testimony?
Robert W. Ginnane: The nature -- the nature of that testimony was primarily that the thin traffic lines serving -- the rural Dakota areas needed to be supported by a strong, a strengthened Eastern end of the -- of Minneapolis line.
William J. Brennan, Jr.: (Inaudible)
Robert W. Ginnane: Yes.
William J. Brennan, Jr.: In its presence.
Robert W. Ginnane: The -- the -- well, as the Commission found Minneapolis is not in desperate financial condition. Minneapolis is in rather healthy financial condition. It's a modernized railroad, its finances are sound, it has a small debt, it has no debt maturities coming up for years. There was no urgent financial need of Minneapolis to be met anymore there was any urgent need of -- Western to be met. The -- the Commission dealt with the misgivings which I'm sure were sincere and the States -- States of Minnesota and particularly North and South Dakota by its conclusion that there would be very little diversion of traffic as a result -- the diversion of traffic from Minneapolis as a result of the Santa Fe Pennsylvania acquisition. The matter is specifically discussed. Now the Commission specifically recognized the potential problem relying in the fact that every one of these applicants more or less competes with Western. Minneapolis is in direct competition, parallel competition with the Western half of Western line. Nickel Plate is in direct compet -- parallel competition with the Eastern half of Western and of course, Santa Fe and Pennsylvania are in competition with Western by -- by route -- by route up to the Chicago, but under every -- under each application there were competitive problems. After a detail analysis of those competitive consequences, they appear in -- that analysis, it appears in the Commission report in the record of pages 33 to 39, the Commission concluded that the public interest, the interest or shippers and competing carriers a like would be best serve by the continuation of Western as a separate railroad under its present policies and that this could be best be accomplished by joint control by Santa Fe and Pennsylvania. Now when arriving at this conclusion, the Commission didn't rely upon the promises of Santa Fe and Pennsylvania, that they would continue Western as an independent neutral well maintained carrier even though were against their self interest. That would be asking too much. Rather, the Commission relied upon its further conclusion that such would be in the self interest of both Santa Fe and Pennsylvania. And that's the core of the Commission's conclusion analysis of this case, its reliance upon the self-interest of Santa Fe and Pennsylvania. And some of this -- and some of the factors upon which the Commission based this conclusion such a continued operation of Western was assured by the self-interest of Santa Fe and Pennsylvania (Voice Overlap) --
Speaker: Where does that appear in the Commission's report that what you're referring to now?
Robert W. Ginnane: For example at 34, the Commission states that considering the greater expense of operating through a large congested terminal, Santa Fe and Pennsylvania are just about as well off financially when handling traffic by Western as they would be on the long haul through Chicago. Of course, that means taking into account, the -- the earnings they would get from 50-50 ownership in Western.
Earl Warren: I understood counsel to say though there were extensive modernization improvements of Chicago that would -- would make that traffic of that way much more -- more attractive to other customers and that that might detract from their interest in -- in Western, is there anything in the record on that, Mr. Ginnane?
Robert W. Ginnane: That -- that's a subsequent development. That's a -- that's a development subsequent to the closing of this record, but may I address myself to that. That is a development which happily is going on the good many railroads. Now what this $20,000,000 railroad is? It‘s one of this so-called push button railroads, push button yards which it sold -- produce a such savings to railroads that on the average they pay for themselves in five to seven years and one railroad after another throughout the country is installing them, New York Central has two or three under construction. Southern has put them under construction. It seems to me that the -- that the appellants' argument there is, that its competing carriers should cease to make improvements. Certainly from the Interstate Commerce Commission's point of view, we are delighted to see -- to see that's -- that's sort of a technical progress. It produces huge savings for the ultimate benefit of the shipping public.
Earl Warren: Well, isn't (Voice Overlap) --
Robert W. Ginnane: And there are other such (Voice Overlap) --
Earl Warren: You didn't charge me that way but the only thought I had in mind is this. Suppose -- suppose if they would put their -- their real money into -- into the Chicago situation in order to keep the traffic going over those two lines of Pennsylvania and the -- and the Santa Fe and we put no comparable improvements into the Western, would it not thereby make the Chicago route more acceptable to transcontinental shippers than -- than this one and if that were the situation might that not be an inducement to them not to keep up the -- the Western in good shape?
Robert W. Ginnane: Let me put it this way. If that -- if that factor had been in the record before the Commission, it should have taken into -- into account. Now, I --
Earl Warren: Well I don't -- I'm just asking --
Robert W. Ginnane: Surely.
Earl Warren: -- what was in the record all the time, I don't know.
Robert W. Ginnane: Now that's a subsequent development. Now a similar development in the general traffic area New York Central is doing the same thing in Elkhart, Indiana competitively. For all the record shows that might more or less offset competition wise. What Santa Fe is doing in Chicago? This is going out all over the country.
Earl Warren: One thing that struck me was that they -- they give the benefit to Pennsylvania and the Santa Fe of doing that in determining whether the -- it would be in the public interest but when Minneapolis goes to cutoff 265 employees in order to -- in order to reduce the cost of operation and then it said $100,000 that's just brushed off, isn't it?
Robert W. Ginnane: No, Your Honor.
Earl Warren: Well where?
Robert W. Ginnane: Under Section --
Earl Warren: Did a --
Robert W. Ginnane: -- under Section.
Earl Warren: -- was there any finding -- was -- was there any finding as to how cheaply it could be operated under Minneapolis and how cheaply it could be operated under Pennsylvania and Santa Fe?
Robert W. Ginnane: Well in terms of cost per ton mile for example, no such record was made by the parties.
Earl Warren: Well, did they make any on -- did they make any general on it? Did they -- they make any finding as to whether Pennsylvania and Santa Fe would operate that railroad more officially and more cheaply than Minneapolis would?
Robert W. Ginnane: I don't recall a finding on those terms. Of course both the record and the Commission's report is -- is in -- is full of the fact that since 1930, the cooperation between Santa Fe, Western, and Pennsylvania has -- has produced an efficient modern competitive route by Western, mostly in overhead traffic transcontinental traffic.
William J. Brennan, Jr.: Mr. Ginnane, may I ask if the (Inaudible) Santa Fe, Western, and Pennsylvania (Inaudible)
Robert W. Ginnane: On pages 40 and 41 of the record in the Commission's report, there are set forth the seven conditions which the condition -- which the Commission attached to the Santa Fe and Pennsylvania acquisition. I should say that these same conditions have been attached to a number of carrier acquisitions. They can be enforced at least in part. For example, the first condition is that under the control of Santa Fe and Pennsylvania, Western shall contain and keep open all routes and channels of trade. There was case in this Court in which the Commission was upheld in enforcing such a condition. Some years before the Commission had authorized, the Atlantic Coast Line to acquire control the Clinchfield and for the benefit of some small carriers down there connecting with Clinchfield, the Georgia and Florida and one or two others, the Commission put in this condition and there came a day when the Atlantic Coast Line published some reduced tariffs, reduced rates which -- which were specifically made inapplicable to the through routes with Georgia and Florida on the other carriers intended to be protected by just a few condition. The Commission canceled the rates. The Coast Line took us to Court and finally the -- this -- the Commission's action in enforcing that condition was sustained by this Court. The Commission took into account that the Santa Fe cooperation with Western and Pennsylvania had resulted in Western obtaining 70% of its gross revenues from interchange with Santa Fe and Pennsylvania. And as I had pointed out, the Commission also concluded that as joint owners of Western in sharing its earnings, Santa Fe and Pennsylvania would be up just about as well of financially in handling traffic by Western as they would be on the longer haul via congested Chicago.
Earl Warren: Did they compare that that finding was a fact that Pennsylvania once owned this through subsidiary and that result did not obtain?
Robert W. Ginnane: The -- the Commission referred to that prior ownership of Western and found that Western's recent prosperity under the McNear management was due in large part to the opening up in 1927 as Mr. McNear acquired control, of Western's first contact connection with Santa Fe at Lomax. Though the Commission took into account that most traffic is routed by shippers and that the shipper's service is the most important factor, that maintaining that --
Felix Frankfurter: Does that do generally throughout the country in this manner, that the shipper determine the route?
Robert W. Ginnane: Yes, there are other variations of that. Now, ship -- shippers determined most to the routing of freight, but they can do it in different ways. They can leave the junctions unspecified. That would mean that the -- the originating carrier is entitled to run with it to the last point at which he connects with the second carrier. But a big shipper like the Sunkist exchange, where there was with this traffic department, they often specify the junctions, because they know enough about the rate structure that they -- that they aren't taking the risk of getting into a rate trap by specifying the junctions.
Felix Frankfurter: (Inaudible) --
Robert W. Ginnane: Of course, if the shipper doesn't --
Felix Frankfurter: And also sales differences.
Robert W. Ginnane: That's right. In maintaining the present service of Western, it means that Santa Fe and Pennsylvania, so the Commission found, will share in the revenues of traffic which otherwise would be diverted to other competing carriers. Finally, the Commission found that continuation of Western's present policies of neutrality and service and solicitation with interchanging carriers could be best assured by having the ownership divided equally between its largest connecting carrier on the west and its largest connecting carrier in the east. It was the Commission's judgment, “Under this built-in system of checks and balances, it is inconceivable for the Santa Fe to permit impairment of service, or discriminatory solicitation with respect to Eastern connections, or for Pennsylvania to permit Western to do so with respect to the -- the Western connections.” For example, if Santa Fe is a joint owner permits Western to discriminate in the east in favor of Pennsylvania and against such competitors of Pennsylvania as Nickel Plate and New York Central. Nickel Plate and New Central have ways to retaliate against Santa Fe and the same as through if Pennsylvania should permit Western to discriminate in favor of -- in favor Santa Fe and against Western's other -- Western connections such as Burlington, Rock Island, and Minneapolis.
Earl Warren: Would that same thing hold true as to Minneapolis?
Robert W. Ginnane: No, the checks on -- because there is no check and balance there. Minneapolis is the sole owner. Check -- checks and balances assumes an owner at each into the line not in the middle as Burlington was before at each end. Now these railroads, these Western Railroads solicit traffic for themselves. They don't solicit it for their eastern connections, or particular eastern connections. They want friendship for all the -- their eastern connections. The same is true -- the same is true for the Eastern Railroads. If they start discriminating in favor of a particular Western connection or particular Eastern connection, the case maybe, it simply invites retaliation. The Western line is generally play a game of neutrality as against -- as between their eastern connections and vise versa. Now, we submit that the three-judge court correctly held that these findings provided a rational basis for the Commission's order. And Mr. Thomas in our division the argument will point out some of the evidence supporting those findings. Now, we submit that in terms of the purposes of the Act, the Interstate Commerce Act, there was a true comparative evaluation as to which of the competing applications would best serve the public interest. Now, it was a subtle and a difficult task. Honest men can decide these things under Section 5, usually either way. The two applications contemplated entirely different dispositions of the strategic Western property. The Commission was required (Inaudible) to get through talking about requirements of findings and so on, the Commission was required to make a broad judgment a value judgment based upon the realities of carrier competition. It couldn't adopt that task. It couldn't hide from the burden of making that on your judgment by hiding behind a mechanical comparison of different features of the applications, such as the appellant contends for. Now that kind of a mechanical comparison, we realize, maybe quite appropriate. For the task is to choose between two substantially identical applications for radio, or T.V. licenses. We don't think it had any part in a case of this type. I'd like to refer briefly to Minneapolis antitrust arguments. Minneapolis contends that Pennsylvania, Santa Fe could not sustain their application without an affirmative showing that the antitrust laws would not be transgressed and that the Commission's order is invalid in the absence of -- absence of an inquiry into whether the acquisition would violate the antitrust laws, findings respecting the nature and scope of such alleged antitrust violations, and findings of advantages to the public outweighing to harm attendant upon violation of the antitrust laws. We will submit as our brief on that point, this Court's decision in the McLean case which contains a careful review of the relationship between the Special and National Transportation Policy with respect to -- to railroad consolidations and the general antitrust laws. Briefly, I resist the temptation a quote from that opinion because if fits this case Minneapolis contentions like a half. Briefly this Court said that in authorizing railroad consolidations, Congress did not import the general policies of the antitrust laws as a measure of their permissibility. Now, the Court said there that also, that the Commission may not ignore entirely the policies of the antitrust laws. It said the Commission must conceder the effect in competitors, now the general competitive situation of the industry. And it must estimate the scope and appraise the effects of the curtailment of competition of which will result from the proposed consolidation. And we submit that a reading of the Commission's report shows that it did just that.
William J. Brennan, Jr.: (Inaudible)
Robert W. Ginnane: It did not make findings in terms of antitrust considerations. It waved the competitive consequences as this Court said in the McLean case that it must. The Commission made no findings as to whether without its approval this acquisition would involve a violation of the Sherman Act. The Commission isn't empowered to enforce the Sherman Act or to determine what would violate it, as this Court pointed out in McLean.
William J. Brennan, Jr.: (Inaudible) are those findings which import that these considerations to the antitrust proceedings were given?
Robert W. Ginnane: No, sir. There were no such findings.
William J. Brennan, Jr.: (Inaudible) --
Robert W. Ginnane: The Commission made this decision in terms of Section 5 of the Interstate Commerce Act. It's qualified by this Court's conclusion in the McLean case that in so doing, the Commission must take into effect the competitive consequences upon competing carriers and upon the general competitive situation.
Felix Frankfurter: What are the terms of Section 5 and that's in -- in taking -- taking these approvals by the permission out of the Sherman Act?
Robert W. Ginnane: They're strictly Your Honor, strictly and detailed and the Court gave full venue to them in the McLean case, that the authority conferred by this section shall be exclusive of plenary and the carrier who is participating may carry out the transaction, freed from the operation of the antitrust laws and of all other restraints, limitations, and prohibitions of law, federal, State, or municipal and this Court has given again full length to that in the McLean case. So that --
William J. Brennan, Jr.: Doesn't McLean require that Commission do something, do something with the consideration of the antitrust laws.
Robert W. Ginnane: No sir.
William J. Brennan, Jr.: Not for --
Robert W. Ginnane: Your Honor said specifically that Congress did not import into its real consolidation policy.
William J. Brennan, Jr.: Well, you suggest --
Robert W. Ginnane: It's the policies of -- the policies of the Sherman Act.
William J. Brennan, Jr.: Are you suggesting that McLean holds then that the Commission may wholly ignore all antitrust laws?
Robert W. Ginnane: No, not quite because the Court made it very clear that the Commission must consider the competing consequences upon competing carriers upon -- and upon the general competitive situation.
Felix Frankfurter: Well, isn't that the point?
Robert W. Ginnane: And it did so.
Felix Frankfurter: You must take into account competitive factors but not interdiction of the Sherman Act.
Robert W. Ginnane: Correct sir.
William J. Brennan, Jr.: Now was there any finding to show us this fact?
Robert W. Ginnane: That -- that finding is at page 39.
William J. Brennan, Jr.: The one you pointed out before.
Robert W. Ginnane: On page 39 of the record. We are convince that the benefits to be derive from the operation of Western under the control of Santa Fe and Pennsylvania will be in furtherance of the overall National Transportation Policy declared by the Congress and its consummation will not unduly curtail competition in connection with the other carriers.
William J. Brennan, Jr.: And that's the only --
Robert W. Ginnane: It's citing McLean Trucking.
William J. Brennan, Jr.: And that is the only route?
Robert W. Ginnane: That --
William J. Brennan, Jr.: The only thing in the Court bearing on this question?
Robert W. Ginnane: No. That is the general conclusion. That in turn is based upon pages of prior discussion as to the specific competitor -- competitive effects upon each of five or six carriers, Rock Island, Nickel Plate, Minneapolis, and so on. That's the conclusion based upon detailed prior discussion.
William J. Brennan, Jr.: Is there any reference in the in the findings to the testimony that the Mr. Swiren mentioned yesterday at the question of the Pennsylvania, they were not interested in this acquisition to they foresaw of possible strong competitor from that area --
Robert W. Ginnane: Not on the findings, no. The Commission did not explore the Pennsylvania motives. It wasn't relying upon Pennsylvania motives. It assumed that Pennsylvania's motives for self interest. That -- in the test under Section 5 is not what Pennsylvania wants, it's the public interest.
Earl Warren: Well, but when they rely -- when they rely on the promise that Pennsylvania and the Santa Fe to carry on the same policies that Mr. McNear carried on do not motives come into play?
Robert W. Ginnane: Yes. And that -- and -- and there the -- there the Commission came to the conclusion it did only because of its further conclusion that continuation of those policies was in the self interest of Santa Fe and Pennsylvania. It was not relying upon promises.
Earl Warren: Well, did they -- but wouldn't the Commission be obliged to -- to look into their -- their motives if there was -- there was a reason to believe that they might not be interested in carrying on -- on those same policies. It became affected with their financial interest to otherwise. Wouldn't the Commission be interested in looking into those motives whatever they might be? You see -- you said that the Commission wasn't interested in the motives of -- of the Pennsylvania. It seems to me that they could hardly avoid it if they --
Robert W. Ginnane: Well --
Earl Warren: -- if they relied --
Robert W. Ginnane: I suppose --
Earl Warren: -- if they relied --
Robert W. Ginnane: I suppose -- I suppose it's broadly, of course.
Earl Warren: -- on Pennsylvania to -- to carry on.
Robert W. Ginnane: I met in this --
Earl Warren: -- just through promise --
Robert W. Ginnane: -- I mean if --
Earl Warren: -- the policies of Mr. McNear.
Robert W. Ginnane: I met in the sense but the Commission had to assume that all of Pennsylvania's motives would be in the direction of self interest and it was on that, that it was relying. It wasn't trying to determine whether -- it was -- Pennsylvania's motives were just understood. It had to assume that they weren't. May I turn briefly to the con – Minneapolis' further contention that the Santa Fe, Pennsylvania purchased a Western stock was a violation of Section 10 of the Clayton Act which precluded the Commission from approving the transaction. I think I should discuss it briefly if only because of the novelty of the contention. Now Section 10 of the Clayton Act provides that no carrier shall have dealings in security supplies or other articles of commerce with another cooperation with which the carrier has interlocking officers or directors unless and except such purchases shall be made from or such dealings shall be with the bidder whose bid is the most favorable to such common carrier, the bid most favorable to the carrier. Now, we submit that there was no violation of Section 10 and then that if there was the Commission, under Section 5 (11), still had the power to authorize the transaction. First, the Commission found that when Santa Fe bought Western stock from the trustees it did so without any commitment to share it with Pennsylvania or anybody else. Secondly, Section 10, on its face, is intended to give a railroad protection of competitive bidding. Now --
William J. Brennan, Jr.: But the statute let us refer in our own alone the purchasers, which refers to dealing when they had their dealing in Western to Pennsylvania?
Robert W. Ginnane: That's right. That there were four interlocking -- there were four interlocking directors and there had been a prior aborted sale.
William J. Brennan, Jr.: Which would be dealings within statutory meaning, isn't it?
Robert W. Ginnane: We don't think so, because this bidding which is to take place is to be in terms of the bid most favorable to the carrier. In other words, the bidding is to protect the carrier against -- against being built, against paying higher prices. And it's -- it's not the purpose of the bidding under face of Section 10 is not to subject the carrier to higher prices by forcing it into competitive bidding with competing carriers. It's to protect the carrier not to subject at higher prices.
William J. Brennan, Jr.: What did you say, a (Inaudible) something like that --
Robert W. Ginnane: Yes.
William J. Brennan, Jr.: -- which means --
Robert W. Ginnane: And that the Wilmington Trust Company.
William J. Brennan, Jr.: It does not remain still to be decided because I thought that was in litigation.
Robert W. Ginnane: Pennsylvania has reserved --
William J. Brennan, Jr.: Are you talking about the dollar --
Robert W. Ginnane: That's right. Pennsylvania has reserved its right to litigate with the trustees and it is doing so. Santa Fe washed the thing out, simply paid a higher price of $135 a share.
William J. Brennan, Jr.: Well I thought that under the agreement between Pennsylvania and Santa Fe if Pennsylvania were to win the litigation, kept 26% of stock at $100, there would be some kind of adjustment than the contract with Santa Fe (Inaudible)
Robert W. Ginnane: An adjustment so that the stock will still in that being divided 50-50 between. Other than that, Santa Fe has -- has no interest in the litigation and is not suing the trustees.
Charles E. Whittaker: Do I understand that the (Inaudible) regardless of the result of that case, Santa Fe has purchased the whole 82% of the stock owned by the trustee.
Robert W. Ginnane: And later contracted to sell half of it --
Charles E. Whittaker: Yes.
Robert W. Ginnane: -- to Pennsylvania --
Charles E. Whittaker: Yes.
Robert W. Ginnane: -- at the same price it paid of $135?
Charles E. Whittaker: Yes. Is that right?
Robert W. Ginnane: That's correct sir.
Charles E. Whittaker: Now, then do I understand you moreover to say that an approval by the Commission that even if the sale of securities were to Pennsylvania and did violate Section 10 of the Clayton Act was subsequent approval of the transaction by the Commission under Section 5 would eliminate that vice?
Robert W. Ginnane: Yes sir in that Section 10 of the Clayton Act as we show in our brief is a part of the antitrust laws to which Section 5 (11) refers.
Charles E. Whittaker: And that even though it's specific, a subsequent approval of the transaction by the Commission under Section 5 eliminates any sanctions for the violation of 10.
Robert W. Ginnane: Oh, I know, I don't go that far. If it's a violation of 10 and 10 is a criminal statute and that's administered by the United States not by the Interstate Commerce Commission.
Charles E. Whittaker: The criminal features would still be applicable?
Robert W. Ginnane: Commission would have no authority to absolve a prior criminal violation.
William J. Brennan, Jr.: But as I understand it, still notwithstanding that violation approve the acquisition by Pennsylvania stock –
Robert W. Ginnane: If otherwise found to be consistent with the public interest.
Earl Warren: Is it customary in the proceedings of this bearing to have competitive bidding, Mr. Ginnane?
Robert W. Ginnane: In this situation, the trustees had, I think it was 82% of the stock. There was only one with a unique commodity, the controlling block of stock in Western. How could railroad get the benefit of competitive bidding? There was only one source of supply. Either they -- either they could get it from the trustees in that McLean state or they couldn't get from anybody.
Earl Warren: Well, but the -- the only reason I ask that was because I understood counsel yesterday to suggest that they -- that they wanted to have it submitted to competitive bidding and that the Commission did not do so and I thought he said also that they were now going to pay more money than -- than this $135 a share for the stock and that they would be willing to pay -- they thought they would be able to pay more than either Pennsylvania or the Santa Fe could afford to pay because by the organizing the line as they saw -- saw fit organize it that they could save money on -- on operation to come and save for them. Now, I may or misunderstood it but that's the way I understood it.
Robert W. Ginnane: But we replied that Section 10 doesn't fit there. The purpose of Section 10 is to give the carrier the purpose of the protection of the lowest bid resulting from competitive bidding. What the appellants do would turn Section 10 around put the carriers competing against each other in competitive bidding to produce the highest possible price for the trustees whereas Section 10 is intended to protect the carriers not somebody else.
Earl Warren: Well you mean by that that if a small line of this kind is for sale that it's the business of the Commission to -- to prevent it from getting the best price that it can get for its stock in the interest of the big companies that might want to buy it.
Robert W. Ginnane: That -- I'm saying that Section 10 is not concerned with -- with protecting the selling person. Section 10 is -- is intended to protect the selling carrier -- the purchasing carrier, to give it the benefit of lowest bid resulting from competitive bidding. Now, the Commission under Section 5 place --
William O. Douglas: How can you -- get that restrict that -- I could see how that would be one of purposes the point you say that is the sole for it.
Robert W. Ginnane: Because that's the way Section 10 is phrased.
William O. Douglas: Well, I've been reading it and I can't quite --
Robert W. Ginnane: It's on page 77 of our brief.
William O. Douglas: Yes, I --
Robert W. Ginnane: And -- and such --
William O. Douglas: Since --
Robert W. Ginnane: -- and such purchases --
William O. Douglas: -- it said -- it speaks about all right at selling or -- purchasing or selling officer or agent --
Robert W. Ginnane: And then --
William O. Douglas: -- is this it -- let's look in both either side of the transaction that it might arise.
Robert W. Ginnane: It doesn't -- in the middle of Section except such purchases shall be made from or such dealing shall be made with, the bidder whose bid is the most favorable to such common carrier, the whole purpose of it is to protect the carrier from being noted, it's one interlocking relationship, not to insure higher prices for the non-carrier persons with whom -- with whom the carrier is dealing.
Earl Warren: (Voice Overlap) --
Robert W. Ginnane: This is solely a carrier a common carrier protection section.
Earl Warren: Would it be carried to the extent that you could put a small line like this and in the nut factor between two big -- big railroads and -- and prevent the small line from getting a reasonable value for its -- its stock.
Robert W. Ginnane: It's not the small line that's involved here. It's the owners of the small line.
Earl Warren: Well, what's the difference?
Robert W. Ginnane: Well, the --
Earl Warren: What did they say, the owners?
Robert W. Ginnane: The difference between the corporation and the stockholder.
Earl Warren: Yes, well, is it the -- is it the purpose of the Commission to – submit it to -- to get into a squeeze of this kind where -- where two big railroads can get it at the cheapest possible price?
Robert W. Ginnane: Not particularly sir. The Commissions --
Earl Warren: All right.
Robert W. Ginnane: -- the Commission's roll under Section 5 is to determine whether the price is a fair and reasonable one.
Earl Warren: Well, is it fair and reasonable if there are other people who are necessarily, if there are other people who are -- are legitimately offering to buy it and -- and they'll offer considerably more?
Robert W. Ginnane: Well the ultimate test, is -- is which this position is consistent with the public interest.
Earl Warren: That I understand, but you can eliminate that factor either can you?
Robert W. Ginnane: No, indeed sir and in this case the Commission specifically found that $135 per share was a fair and reasonable price.
Earl Warren: Well, do they -- do they know how -- do they know how much Minneapolis and some of these other companies had wanted to be on it, might -- might possibly bid for it.
Robert W. Ginnane: A Rock Island --
Earl Warren: Do they -- do they take any -- did they take any evidence to determined that?
Robert W. Ginnane: For example Rock Island and Nickel Plate asked for inclusion of the same price.
Earl Warren: Yes, whatever -- whatever price that you purchase.
Robert W. Ginnane: That's right.
Earl Warren: Yes, but is there any -- do they have any hearing to determine what -- what Minneapolis for instance might be willing to pay for this in the last analysis?
Robert W. Ginnane: No, They did -- they did not approach it, frankly. They did not approach it from the point of view of what procedure would achieve the highest price for the trustees.
Felix Frankfurter: Well, couldn't Minneapolis come before the Commission and make it all? Couldn't it make a proposal that the Commission had to pass on?
Robert W. Ginnane: They did have a proposal before the Commission.
Felix Frankfurter: And the matter was before the Commission. And on --
Robert W. Ginnane: But -- but of course the big question was who is to be allowed to acquire.
Felix Frankfurter: Yes, (Voice Overlap) --
Robert W. Ginnane: Minneapolis was going to pay the same price.
Felix Frankfurter: They allowed -- who's to be allowed to acquire under what conditions, is that right?
Robert W. Ginnane: And that all it can be is an authorization or approval. The Commission has no power to require -- to require the trustees to sell to anybody.
Felix Frankfurter: No, but the condition of whole scheme of the Interstate Commerce Act is to make the Commission an agency for determining what the public interest is subject to the term to the statute. It has to determine not only the responsibility or the qualities of the offer, but the proponent with also the terms under which the proposal is made, isn't that right?
Robert W. Ginnane: That's correct sir.
Felix Frankfurter: And that's equally true of the Minneapolis -- Minneapolis, Minnesota with it, with the other road, is that true?
Robert W. Ginnane: But the question of which -- of a competing applicant would under some form of competitive bidding pay the highest price to the owners of the Western stock.
Felix Frankfurter: Well, that's not within the -- I don't -- suppose even the Commission -- I'm not sure the Commission has power to require competitive bidding.
Robert W. Ginnane: I -- I don't think they would. May I yield the balance of our time to Mr. Thomas?
Earl Warren: You may.
William O. Douglas: Well, there is a -- there is a -- the shares of a -- of a common carrier is subject to the judicial Commission being sold here.
Robert W. Ginnane: Yes, that's right.
William O. Douglas: But your contention is that if -- only Section 10 applies only when -- when a carrier is -- is -- it is selling shares not when a -- selling shares -- not when a carrier – carrier is acquiring the shares is that -- is that it?
Robert W. Ginnane: We suggest that really is a secondary point in our brief. Now, I recognize freely that to take that position, you have to read something under the statute which isn't -- which isn't clear there. I was troubled by the --
William O. Douglas: It's easier -- it's easier for me to take that argument than it is to take your further argument that the -- assuming a violation of Section 10 which is a penal statute the Commission can waive it or condone it or -- what -- erase it or forgive or wipe it out.
Robert W. Ginnane: But our basis for that argument is that language which I called to Your Honor's attention before, the whole mechanism is hinged in terms of the bidder whose bid is most favorable to the carrier.
William O. Douglas: As I -- I --
Robert W. Ginnane: The whole thing seems to be in terms of protecting the carrier from being exploited, not to protect anybody else with whom the carrier is dealing. So we don't -- in terms of that apparent purpose, we don't see how competitive bidding would fit the congressional purpose here without really just turning Section 10 around. To put the carriers bidding against each other resulting in a higher price rather than the carriers' getting the benefit of lower prices through competitive bidding. I have to tell you also the legislative history is rather confusing and it just doesn't help on this, at least we couldn't get any help on it.
Potter Stewart: (Inaudible) even if -- even assuming a violation the subsequent approval by the Commission obliterated it so far as --
Robert W. Ginnane: Not obliterate any criminal violation.
Potter Stewart: I understand that. You -- you would say they're still liable to criminal prosecution, but the -- that the approval by Commission erased the -- any effects so far as this acquisition goes. You say that because the contract of purchase was conditioned upon Commission approval and would you make the same argument if that --
Robert W. Ginnane: In part on?
Potter Stewart: -- had not been.
Robert W. Ginnane: In part sir, and the -- and the further conclusion of the Court -- of the three-judge court. The three-judge court pointed out, that the trustees, including the Wilmington Trust Company, were not acting on their own behalf. The Wilmington Trust Company was not acting on its behalf, it was acting as trustee, as fiduciary of an estate.
Potter Stewart: Whether or not there was a violation?
Robert W. Ginnane: From which the three-judge court concluded that there was not -- there was not the possibility of in Richmond, Richmond of the Trust Company but through this interlocking relationship.
Potter Stewart: But that goes --
Robert W. Ginnane: But the statute -- that -- that the statute was directed at.
Potter Stewart: I'm assuming a violation that there was involved at least of technical violation, if you will, under Section 10. Now, your position is that the subsequent approval of the Commission made this acquisition --
Robert W. Ginnane: Yes.
Potter Stewart: -- proper even assuming the violation --
Robert W. Ginnane: Yes.
Potter Stewart: -- depends upon what? Does it depend exclusively upon the fact that the purchase of the stock was conditioned upon Commission approval?
Robert W. Ginnane: No. Even but were not sir because -- because we pointed out that Section 10 is a part of the antitrust laws, and Section 5 (11) that the Interstate Commerce Acts provide, that the parties to a transaction authorized by the Commission may go ahead and consummate that transaction without regard to the antitrust laws.
Potter Stewart: Doesn't it -- doesn't speak in Futuro, where is the statute – it's on -- to the appendix to your brief.
Robert W. Ginnane: The 77? No, I'm sorry that's in 73, “I hereby relief from the operation of the antitrust laws and of all restraints, limitations, and prohibitions of law.” Now, I give you a dramatic illustration of the contrary. Prior to the enactment of Section 5 (11), this Court sustained the application of the Sherman Act to force the Southern Pacific to give up the Western Pacific, at least I think it would be Western Pacific, as a violation of the Sherman Act. After the enactment of Section 5 (11) in 1920, the carriers applied under Section 5 for authority to merge or acquire control and that -- that the Commission granted that application and -- and the Court's held that despite the prior violation of the Sherman Act sustained in this Court, that transaction could be consummated without regard to the Sherman Act under the 19 -- under this Section (5) as enacted in 1920.
Felix Frankfurter: Mr. Ginnane whether -- whether transactions are within any of the antitrust law that Section 5 (Inaudible), are usually complicated frankly to fact, that's certainly point but it's determination, is that right?
Robert W. Ginnane: Certainly -- certainly are sir.
Felix Frankfurter: Well, I gather from the McLean, it isn't a business of the ICC to determine whether something here is not in fraction of any in the Sherman Law, not the business of the ICC --
Robert W. Ginnane: No, is it our business --
Felix Frankfurter: To know --
Robert W. Ginnane: -- to determine what would be a violation of Section 10 which is the criminal statute enforced by the United States, the Department of Justice in the Court --
Felix Frankfurter: (Voice Overlap) I don't think the Commission can (Inaudible) and tell me a words none of the -- business of the Sherman Law to design where there's any practice with any of the antitrust the business of his property (Inaudible)
Robert W. Ginnane: Mr. Justice, So that maybe -- so that maybe the Commission shouldn't discuss Section 10 and 3 for at all.
Felix Frankfurter: Well, I don't -- I don't think it can say either it's different of violation. So that to discuss whether it can approve of something which maybe a violation of it eminently, if it will, potentially a violation is irrelevant to the job of -- within the function and the jurisdiction and the scope of the authority of the Commission --
Robert W. Ginnane: Your Honor --
Felix Frankfurter: -- as I understand that --
Robert W. Ginnane: As Your Honors so said in the McLean case.
Earl Warren: Mr. Ginnane what -- well what is the legal situation if this case has affirmed and the Pennsylvania wins in this litigation against the trustees and that $100,000 would the -- would the Commission then be in the same position? Would it say that the $100,000 was a reasonable bid?
Robert W. Ginnane: Oh, yes. Look -- looking at it from the point of view of a healthy transportation system --
Earl Warren: As I understand --
Robert W. Ginnane: -- in the interest of the carriers.
Earl Warren: As I understand then in this proceeding, the -- the price that is paid for this stock is not the business of the Commission law.
Robert W. Ginnane: As a maximum, yes. The Commission is -- is to determine whether the carrier or price is just unreasonable, but the carriers are not disobeying -- are not disobeying their assets in paying excessive prices.
Felix Frankfurter: But isn't there another -- isn't there another fact of relevance in price element if the acquiring roads -- that the price which acquiring roads pay is part of the pressure upon them in the use of that which they acquire, if they say x dollars to return there to get from this property is one thing, but if they say x+y dollars it is another thing. Isn't that true?
Robert W. Ginnane: That's correct.
Felix Frankfurter: But those are relevant factors --
Robert W. Ginnane: It can show pressure on the rate structure.
Earl Warren: Mr. Thomas.
Starr Thomas: Mr. Chief Justice, may it please the Court. I was planning to direct most of my argument to this question of motivation and economic interest. Mr. Ginnane has covered it at some extent and we discussed a great deal yesterday. The appellant says that the economic motivations of the Santa Fe and Pennsylvania are adverse to Western's route. We say that they are not. We say that those economic interests of Santa Fe and Pennsylvania will lead to the future development of Western's route, and that they will lead to its preservation as a bridge line working closely with all its connections and therefore avoid harm to the other carriers now interchanging traffic with Western. Mr. Ginnane said the motive of the Santa Fe and Pennsylvania were selfish and they quite agree. The Commission, of course, has to assume that, but the Commission was aware of the fact and it said so in this report that the Santa Fe had established the interchange at Lomax in 1927 and the success of Western dated from that time. And the Commission knew that Santa Fe had cooperated with Western on the west and the Pennsylvania on the east and that that had developed a large volume of interchanged traffic between those two roads in Western. Now, it's quite natural when the Santa Fe and Pennsylvania learned that Western stock was going to be sold, they wanted to buy it. To buy that stock to submit, they're already close relationship with Western, it's not for self interest. They didn't want that relationship disturbed or destroyed. It was a good thing and it was going well. As a matter of fact the president of the Santa Fe seriously considered purchasing Western as far back as 1942 when it was shutdown by a strike and they noted the effects of the lost of the Western service. So the thing was in their minds for a long time and the mind of the Santa Fe's president. The Pennsylvania was less interested in purchasing Western more satisfied with things as they were, but when the time came and the stock was available, they felt they wanted to purchase it purely out of self interest. The Commission fairly understood that because it said in substance that it had recognized in other cases the fact that they desire to protect interchanged traffic was a valid reason for purchasing a carrier.
Potter Stewart: That's not the reason that the President of Pennsylvania gave, that was his testimony.
Starr Thomas: I think you can equate too. I want to say about this other -- outer belt line. It was not in this case. At the time of the hearings in this case the friendly interests so-called to the Minneapolis and Saint Louis had sold their stock in Monon. No plan client for an outer belt was presented to the Commission. There was no evidence to show that it was feasible economically that these any shippers would desire it or use it. It was just that Mr. Sims had not wanted to have such a line competing with Pennsylvania and the reason he didn't is obvious and it goes right to this protection of interchange. The Monon which would be part of that plan comes down here in (Voice Overlap), down here crossing in Pennsylvania. Now, the idea was for Minneapolis to be combined with Western and to have a route over here to Monon and on up here. Now, this line between Logan Port which isn't well shown on this map that is right here, and after -- under Pennsylvania, exists solely to maintain Western's connection with Pennsylvania. There are 58,000 carloads a year going over that line, that was figure for 1955 and Pennsylvania spent a million and a quarter dollars, in recent year upgrading that line to provide faster service solely in connection with Western. Now, if Western is connected with this line over here, this line just goes out the window. At least, there's a serious danger that enough traffic would be lost so it wouldn't pay to maintain Logan Port line. So really that opposition can be equated with the desire to protect that interchange of Western.
Felix Frankfurter: What do say to the -- or what proof is there in the claim that when Pennsylvania had its prior connection with Western, if -- if I mean is above there is in (Inaudible) Western and there is a momentum in that kind of disfavoring interest.
Starr Thomas: I think that is a very unfair characterization. I understand that isn't your that you're simply opposing the question and that for this reason, Mr. Ginnane talked a bit about it. It was a line across here and at this time there was no connection to Santa Fe. The Burlington, with its main line in the Peoria, was the other end of this connection between Pennsylvania and the Burlington which was Western. Exhibits -- there a exhibit in the record here that shows that the -- what the real story there was financially, it was nothing when Burlington and Pennsylvania first acquired it. Its revenues increased substantially but not enough to make it an economic success. It finally went bankrupt, but actually its revenues increased during that period of ownership. They didn't decline but its -- no go was made of it and the reason was that Burlington, with a direct line into Peoria wouldn't have any interest into supporting this west end of the line and if you want to get interchange here. It also has a line in Chicago and a line of Saint Louis. So the Burlington just didn't have the incentive and in the decision in which the Commission approved the Santa Fe's construction with Western of the Lomax interchange, it said that the proposed construction would aid in sustaining the west end of Western's line. And the story we have today, the history of the development of that interchange of the Santa Fe shows that it did. And we contend that Santa Fe is the factor that prevents this thing from repeating itself.
Felix Frankfurter: What was the date of --
Starr Thomas: The bankruptcy was in 1917.
Felix Frankfurter: What?
Starr Thomas: 1917.
William O. Douglas: What's was the -- what would the Commission in --
Starr Thomas: Oh, pardon me.
William O. Douglas: (Inaudible)
Starr Thomas: That's in construction by -- construction by T.P. & W. 124 I.C.C. 278 at 279. That was --
Felix Frankfurter: And what was the date of that?
Starr Thomas: 1927.
Felix Frankfurter: 1927.
Starr Thomas: Yes. That was the date of the construction of the Lomax interchange. Now, I want to go into little detail about the interest of the Santa Fe and the Pennsylvania in Western. Mr. Ginnane and everyone who's spoken before has described it as a vital and strategic route and there's no question about it. It's a --
William O. Douglas: Before you do that interchange that would be the fact whoever comes in this.
Starr Thomas: It might or might not.
William O. Douglas: It's a -- it's a physical --
Starr Thomas: It's a physical interchange.
William O. Douglas: -- information --
Starr Thomas: Yes.
William O. Douglas: -- the shipper -- on the shipper I can take it like that way --
Starr Thomas: Yes.
William O. Douglas: -- or north or south.
Starr Thomas: That's right.
William O. Douglas: -- can it?
Starr Thomas: You can. Now that Santa Fe is concerned about the feature of that basically because it has a working relationship with Western. It's gotten the connecting service from Western, it's made that route successful, it rather not take a chance. Now, this route means a lot as I said to these lines particularly to the Santa Fe because of the transcontinental traffic that has been developed over the route and that development came after the construction of the Lomax interchange. And the Santa Fe in 1930s started things off by working out the system of guaranteed schedules for perishable traffic with Western and Western as a part of that plan constructed icing facilities at Peoria, so that the service could be properly handled. And today a heavy volume of that traffic is moving from the Santa Fe over Western to the East. Now, the Pennsylvania --
Potter Stewart: There is a connection at Nimmo too, isn't there with the --
Starr Thomas: I could say no.
Potter Stewart: -- with Minneapolis?
Starr Thomas: Yes. I suppose there are other ways to Santa Fe could get down to Western. It could connect to the Burlington here at Monon and get down or Galesburg to get down to Western. The point those are not routes that are handling any volume of traffic and the service isn't -- hasn't been set up to handle it. It's --
Felix Frankfurter: The rates are the same, I take it overall?
Starr Thomas: Oh there are no rate problems here at all. I want to say something about the Pennsylvania. I mentioned that its Logan's Port line simply exists to supply the connection here at Effner with Western. I want to say also comparing after the Chicago that even today the division that Pennsylvania receives that after are not substantially less than Chicago and on transcontinental traffic they're almost the same and as a matter fact, if Pennsylvania were to acquire half interest in Western on the basis of an exhibit presented by appellant which shows the divisions of Effner increase to reflect half of Western's division to reflect that half interest in almost every instance shown, there are about 170, Pennsylvania would do better via Effner than via Chicago.
Potter Stewart: Divisions as I understand it as carrier --
Starr Thomas: The money --
Potter Stewart: -- share of a total freight rate.
Starr Thomas: Yes. It's what they get from rolling traffic on their share of the haul. Now, the Santa Fe is not in that position. The Santa Fe interchanging traffic at Lomax does take a lesser division. Santa Fe has a reason for regarding that desirable nevertheless on a substantial volume of traffic. The reason is that Santa Fe serves only Chicago from the West. Its competitors the Burlington and the Rock Island serves Saint Louis and Peoria and Chicago directly. Now, the Eastern Railroads generally favor a haul to Saint Louis because they get their greatest divisions there. Now, when the route -- traffic is hauled to Saint Louis, it goes west from Western -- on Western Railroad serving Saint Louis. The first place they get to the Santa Fe is Kansas City and most of them run West of Kansas City. The chances are in many cases and in great numbers of cases that traffic -- whatever comes to the Santa Fe will come to it somewhere in Colorado or Texas or New Mexico, Arizona. It may not come to the Monon and that's why the Santa Fe has this interest in Western's route. It gives it a chance to get traffic away from Saint Louis and that also relates to the divisional situation. On transcontinental traffic, Peoria divisions are equal to Saint Louis. There are lines like the Nickel Plate and the New York Central running into Peoria connecting with Western there which serves Saint Louis. They're willing easy about having traffic move through Peoria just as well as Saint Louis. Western solicits that traffic and the Santa Fe on the other end has a chance to get a haul from Lomax all the way say to California as compared to -- maybe not getting the traffic at all from if it went by Saint Louis and certainly not getting it East of Kansas City. So that Santa Fe is interested -- its principle interest in Western other than the basic one that applies to both that a lot of important shippers like the route and they like the service on it and so they're using it. And -- and that service is definitely the result of Santa Fe's and Pennsylvania's cooperation with Western and it's been going on for 30 years. Now, the appellants' counsel says that the -- this business over Western's route is entirely the result of solicitation by Western. It is certainly true that when George McNear took over that road he did a magnificent job in building it up and in soliciting traffic for it. But that road has developed into bridge line primarily. Two-thirds of its traffic is bridge traffic coming from one railroad and going to another. Now, you can't run that kind of a road if you don't get connecting service and the connecting service of the Santa Fe and Pennsylvania is absolutely essential to that success. And the --
Potter Stewart: Wouldn't that be -- wouldn't that be true in who say -- in -- in whatever hands this road was?
Starr Thomas: It might or might not.
Potter Stewart: But why wouldn't it, I mean why might it not be?
Starr Thomas: Well, one of the reasons well maybe -- maybe Western from Peoria East would be just as acceptable in the hands of the Minneapolis. This ends the lines many of those were interest in the case about would not be so successful. It might not route to Santa Fe. The traffic could be interchanged here and go down to Peoria, but in the past we've -- we've interchanged Western was struck for a long periods beginning in the end or World War II. I mean we'd experience with that traffic there. It hasn't filled the gap in -- in early 1950s. The schedule, one of the shippers in California Mr. Yuri Sunkist testified that they haven't said at all -- haven't maintained the connecting schedules to provide the necessary service on the perishable traffic. Its uncertainty, but we are not -- we did not ask the permission --
Potter Stewart: My question -- excuse me, my question is upon a base on this understanding that because of its location Western is by offering nation -- nature, a railroad that is going to have to succeed by handling bridge traffic --
Starr Thomas: Yes.
Potter Stewart: -- over head traffic, because of where it is and this would be true and whatever it has it were not might well be managed or badly managed but apart from such considerations wouldn't it be to the interest of whoever owned the railroad to promote and solicit this bridge traffic from all carriers and all connections.
Starr Thomas: It would be in interest as to which --
Potter Stewart: And that's kind of where it is.
Starr Thomas: Yes. I agree. The -- the interest of Santa Fe and I'm speaking of here though is from a different approach. In other words, I'm trying to show the Court that the Santa Fe has a selfish interest and it's been demonstrated by providing this connecting service. They didn't have to do that. They went on to their way. They've done things like -- well they have big terminal here to Port Madison. Some times they -- they run special cut of priors just over here to Lomax and back just to make a connection and to keep that service going, because they sold it to the shippers and the shippers like them. So we say and the Pennsylvania has been providing the service all time on the East as shown by the volume of traffic that moves there. And we say that Santa Fe and that Pennsylvania wouldn't have been doing this for 30 solid years if they weren't interested in Western's route and we say that gives reason for confidence that in -- their ownership of Western if that's approved, Western will be secured.
Felix Frankfurter: Aren't you -- this is merely by way of -- by way of negation or rebuttal to the suggestion that the -- that -- that the Santa Fe and Pennsylvania having interest in hostility to Western will dry up that contented --
Starr Thomas: Yes.
Felix Frankfurter: -- value of Western --
Starr Thomas: Surely.
Felix Frankfurter: -- to the shippers, that's your point, isn't it?
Starr Thomas: Yes. Well, why did we go on this way for 30 years if our interest were hostile, that's our point, that's our position?
Potter Stewart: Now, then wouldn't that also follow that in whatever hands Western's ownership might be, it would be the Pennsylvania's and Santa Fe's self interest to continue cooperating with that railroad.
Starr Thomas: We would cooperate as long and giving it good service as long as the inner connection was provided.
Felix Frankfurter: In other words, you don't need to acquire it in order to protect your interest.
Starr Thomas: We don't know. The Minneapolis plan, as I've said, had the aspect here in service within Pennsylvania. We also know that it -- it seems to be aimed more at bringing traffic of this way and then using only the Eastern end of the line and -- and larding traffic up this way. Conceivably, the Minneapolis could interchange traffic with lines like the Rock Island at Des Moines or somewhere, conceivably, they could let the connection with Santa Fe at Lomax be less efficient to connection, we don't know and we don't want to take the chance.
Felix Frankfurter: Well, unless the -- the Minneapolis they want to take a chance.
Starr Thomas: That's right sir.
Earl Warren: I -- I wanted to ask you was it decided on that basis who wants to take the chance because if they -- it's only on the promise that you folks will operate it according to the McNear policies that the Commission did if he gives you the railroad? Now, -- now, do they have -- just have to take the chance instead of you because you don't -- you don't want to take it?
Starr Thomas: Mr. Chief Justice, it wasn't just on our promises although I think our promises -- promises of our top executives under oath at a hearing before a Commission that regulates everything we do from year to year and then the presence of a large number of the -- of important shippers who were supporting us, those promises mean something. But --
Earl Warren: Of course they do. Of course they do and I wonder if -- if --
Starr Thomas: The Commission --
Earl Warren: -- Minneapolis would mean the same thing.
Starr Thomas: The Commission, as I've said, its finding showed our cooperation in developing the route, and those findings reflect our self interest. It's more than just a cooperation, I beg pardon, more than just the promises and these findings on the question of neutrality, the checks and balances findings of Mr. Ginnane outlined, that finding is based entirely on self interest. It isn't has -- it's no connection at all with -- with reliance on any assurances of ours. There were assurances, but the checks and balances, the Commission said afforded the protection. The fact you have an Eastern and a Western railroad foreseeing to it, each one of its interest with it the Western road seem that its interest with the Eastern's connections are protected, and the Eastern Road seeing that its interest with Western's connections are protected working together to prevent anybody getting hurt. The Commission analyzed this evidence relating to the question of neutrality and relating to the question of the effect on other carriers of our acquisition did made findings, they're detailed findings. And we contend without any question of a doubt bearing in mind that this Court's function as to such matters is to determine whether they are supported by substantial evidence. This is not a trial de novo here before the Supreme Court. The Court's function is to determine if there's any rational basis for the Commission's conclusion and if the findings are supported by substantial evidence, it's not a determination on the merit. The Commission is supposed to have that function as this Court has said any number of times.
Earl Warren: Mr. Thomas, would you mind addressing yourself just a moment to -- to the argument that counsel yesterday as to the attitude of (Inaudible) which he said consisted of a person trying to get things routed the -- the Chicago way, and secondly to get it routed Saint Louis way and then neither of those were effectuated to permit it without -- without any ill feeling to go across Western. You said -- argued something --
Starr Thomas: That was the --
Earl Warren: -- on the part, didn't he?
Starr Thomas: Roughly, that was the traffic policy of the Pennsylvania.
Earl Warren: Yes and that was the terminal.
Starr Thomas: Yes.
Earl Warren: And that still will be?
Starr Thomas: No.
Earl Warren: I thought they're going to maintain the same --
Starr Thomas: They are not.
Earl Warren: -- policy as before.
Starr Thomas: Mr. Chief Justice, the discussion on this -- this is the parity policy as it was called. That parity policy is pretty much -- I think mixed up on -- in this argument so far and I intended to say something about it. The counsel for appellant said that this whole concept of parity was a hoax designed to mislead the Commission. And the Commission was lead to believe that Santa Fe and Pennsylvania were going to solicit for Western and actually they wouldn't solicit a pound of freight for Western and counsel said that the Commission relied on our brief for making its parity finding. This is not the precise answer to your question, Mr. Chief Justice, but I'll get to it in a second -- I do want to bring it out since the question came up.
Earl Warren: Yes.
Starr Thomas: I want to read from our brief. This is the brief before the Commission on parity. In explaining the proposed change in policy, it begins, now, the policy that you've mentioned was in effect on the Pennsylvania, and on the Santa Fe the policy was to solicit for Chicago but not to make any objection if the shipper decided he'd give it to Western. In substance if Santa Fe solicitor said, “Give us the freight to Chicago” and the shipper said, “I've got -- I want to give it -- I'll give it to you at Lomax” and then Western and Santa Fe says, “Alright” that was the past policy. Under the new policy I'd better describe it before I read this. It's in this description. I'll come to it just after I read it. In explaining the proposed change in policy, Traffic Vice President Duffy stated that shippers will be advised that the Santa Fe will be satisfied with routing either via Chicago or Lomax. In other words no choice, it's up to the shipper. This does not mean that the Santa Fe will solicit traffic for the T.P & W. That would otherwise move by the Santa Fe to Chicago, but what it does mean that the T.P & W. and its connections will be in a better position in soliciting for that traffic against the Santa Fe's Eastern connections at Chicago. Now, I think that pretty well kills this hoax idea. This does not mean that the Santa Fe will solicit traffic for T.P. & W. -- for Western. Certainly the Commission was not mislead and it didn't find that Santa Fe or the Pennsylvania would solicit for Western. What it found was that the parity policy would make it powerful for Western solicitors to secure more traffic and that is what the policy means. We've covered it at pages 34 and 35 of our brief where we have reviewed the testimony that's supposed to be in contradiction of what Mr. Duffy said and in view of the time I refer you to that. And then I think if you read all the testimony about parity and read the -- the transcript references are shown we'll find that it supports Mr. Duffy's position. The -- the situation is simply that when the shipper knows that Santa Fe is satisfied with either Lomax or Chicago and that Pennsylvania is satisfied with either Effner or Chicago then when the T.P. & W., the Western solicitors comes to this shipper and says, “Give it to us at Lomax” they will go Lomax. Maybe a shipper -- maybe a solicitor from the Erie Railroad at Chicago comes and says, “Don't give it -- give in T.P & W. at Lomax, give it to us, because we don't connect to the T.P. & W.” Maybe the shipper will give some of that to the Erie but it's up to solicitation by the railroads of beyond and any pressure of the Santa Fe or Pennsylvania to route -- to get the traffic routed to Chicago and not available for Lomax and Effner is gone. That is the substance of parity. Before I close, I want to comment very briefly on the public support to the Santa Fe-Pennsylvania application. Two briefs as Mr. Ginnane said were filed here, one, by the State of Illinois, and one by the municipalities and shippers along the line -- my time is up.
Earl Warren: You may finish your statement.
Starr Thomas: And along the line of T.P. & W. Mr. Harry Begley, Assistant -- Special Assistant Attorney General for Illinois is here -- Illinois is here at the counsel table and he would have participated in this argument but we deferred to our understanding of the Court's preference for only two counsels to a side. Thank you.
Earl Warren: Thank you, Mr. Thomas.
Max Swiren: Your Honors I --
Earl Warren: Mr. Swiren.
Max Swiren: I would like at the outset to lay one ghost, and that's the matter of reprisals by other lines for breach of neutrality. If those are sufficient to restrain the powerful Pennsylvania and Santa Fe Railroads, how can they be less effective on the little line like the Minneapolis? And let me say to that these fine built-in checks and balances and these assurances did not prevent the Santa Fe from announcing from the witness stand that it would degrade, degrade the connection and service at Nimmo so that it can get more out of the divisions on the Lomax connection and it would cost the Minneapolis well over $1 million and subject to another $6 million of traffic to pair with. Now, the testimony given by Vice President Duffy was that he -- that Nimmo would cease to be on a parity with Lomax in his colorful words, “Service wise and every otherwise”. And if that's equality, if that's preservation of rights, I don't understand this. And let me say to, that the only two items of our application upon which the Commission made any findings, they didn't make on -- on service, they didn't make any -- that is on service on the public interest, they made -- a finding that on this Western, Peoria to Lomax are studies confirmed the usefulness of the property and we had no intention of abandoning it. And there isn't an intimation in the report that we intend to degrade it in any way and we wouldn't have any purpose for doing it, it is much, much denser. There are many of the lines in South Dakota and Minnesota, the counsel for those States are here to defend. I'd like to in the brief time I have answer three questions that you, Mr. Chief Justice put, that I don't think were met. First, was there a comparative finding? Did the Commission say, the -- the Pennsylvania-Santa Fe application is more in the public interest than the Minneapolis? The answer is no and my friend of Minnesota called attention to that in the briefs and got no response. Secondly, with respect to the prior ownership, there was no comment by the Commission whatever and all this loose talk in the Commission report, in this Court and in the briefs about how the progress of Western dates and that's the word they used from the Lomax connection is contrary to the facts. Now Mr. McNear told the Commission what happened when he asked for approval. He said, not that they didn't have a good Western connection, but he said, “It was against the interest of the controlling companies and I interpolate Pennsylvania-Burlington to develop the property because it competed for traffic with their lines. That was the reason and that was the history”. Now, there wasn't any testimony in the figures that justified the conclusion. Mr. McNear came in, in 1927 and by 1928 Western was moving 68,000 cars as against 38,000 in 1926. And the total contribution of the Santa Fe at this very important Lomax connection was less than 6000 cars and those figures simply belie any notion with the rate change that took place with the Santa Fe connection and I may say that those figures do not show how much traffic had been carried by the Burlington on its Western connection and which was then lost by the replacement. A third question raise by -- by the Chief Justice that required answer and that was the finding on savings. The Commission never evaluated the proposed saving program. It never said that it was wise or unwise to -- to stop using two yards and triplicate switching and duplicate facilities for repairs and so on. It never said that the figures we gave were not correct. It made no effort to meet the standard of the Interstate Commerce Act, Transportation Policy which seeks efficient economical transportation. With regard to this degrading at Nimmo, let me say that this is a -- this was a matter of tremendous importance and yet the Commission satisfied itself with two statements. The first was that it did not know the basis for the percentage of loss which our witness testified to. Let me illustrate that. There are $700,000 worth of traffic between Peoria and Nimmo on Minneapolis. The witness testified that he expected a loss of 75% and that went into the total of a million one and then he expected a lost of 50% on certain shipments from the territory of Santa Fe and the territory of Pennsylvania and then as to the bulk of the rest he expected 10%, 5% and so on. Now, the Commission -- the counsel didn't cross examine on that, he presented the figures as they asked him to, no word of cross-examination and obviously if there ever were an area in which the Commission's expertise cried out for utilization it was here. If they didn't think it was 75%, they could have a judgment as to whether it were 80 or 50 or 40. That was a field in which it could function. Obviously, this is opinion, it can't be anything else. Secondly the Commission says, “Let's not worry about this.” Although, they were worried about the Wabash possibly losing minute amount of traffic the details of which the Wabash did not elect to furnish, they said, “Let's not worry about this because the service is inferior.” Well the truth of the matter is that Western the service at that time was 15 minutes faster on Minneapolis, Saint Louis and it made the connection was with the same train 59 on Santa Fe that Western met. It was bad coming eastward insofar as the connection with Western's concerned. They have difficulty integrating their schedules, but that -- represented a very small part of the traffic. Indeed it represented only 13% of the total connections at Peoria. So that the amounts involved so far as the greater sums were concerned were clearly related to traffic that moved competitively and I might say that the schedules been improved so that the (Inaudible) movement is two hours faster which shows what can be done under -- under the pressure of competition. I may say too that this fear of what the great Pennsylvania and Santa Fe could do is not without foundation in the record. The president of Santa Fe said that in solicitation their effort -- their utmost effort as he would it -- would be tremendous, and of course it is. With respect to Section 10, I should like to say that the Government went -- went to great lengths quoting from the legislative history and the court below. Today they abandoned that and the reason is perfectly simple. The statute first of all was directed as the President's statement shows and the report show to strike at the concentration of economic power. This wasn't to protect one carrier or purchase price or anything of that kind. And one of the features of that attack on concentrated power was to attack inter corporate directorships and the first draft of the bill simply prohibited transactions between related corporations. There were proposals prohibited of -- interlocking directors and finally they put in a -- a saving clause. They put in the $50,000 limit and of saving clause in order to meet the special emergencies but that did not change the purpose of the act which taints this transaction from its very inception.