Opinion ID: 1483191
Heading Depth: 1
Heading Rank: 4

Heading: 1a Diversion of Traffic

Text: The source of the claimed diversion of freight from Debtor is the control over Debtor by other railroads secured through ownership of stock in Debtor. Prior to March 11, 1925, Edwin Gould (son of Jay Gould) held the dominant stock interest in Debtor. On this date, the Chicago, Rock Island and Pacific Railway Company acquired this Gould stock. This stock, with other held by interests friendly to the Rock Island, gave it practical control of Debtor. May 4, 1925, the Rock Island applied to the Commission for authority to acquire control of Debtor under par. 2 of section 5 of the Interstate Commerce Act, 49 U.S.C.A. § 5(2). This application was referred to the Bureau of Finance of the Commission. Faced with a proposed adverse report by the Assistant Director of the Bureau, the Rock Island sold this stock to the Kansas City Southern Railway Company, in October, 1925. In July, 1926, the Southern applied to the Commission for authority to acquire stock control of the Debtor and also of the Missouri-Kansas-Texas Railroad Company. In 1927, the Commission denied this application  stating that the acquisition of stock controls of Debtor and of M-K-T without our approval, appear to have constituted violation of section 7 of the Clayton Anti-trust Act [15 U.S.C.A. § 18] and perhaps also of the Sherman Act unless section 5 of the Interstate Commerce Act, as amended by the Transportation Act, 1920, by implication allows such acquisitions in advance of the granting of authority to acquire control. In 1928, the Commission brought proceedings to compel the Southern to divest itself of its stock interests in these two roads. On April 15, 1929, and while this proceeding was pending, the Southern holdings in Debtor's stock was acquired by a syndicate composed of New York Investors, Inc., and others. From late in 1929, the Southern Pacific Company began buying stock in the Debtor on the market until, by April, 1930, it had acquired 42,600 shares of common, of which 171,861 shares were outstanding. July 15, 1930, Southern Pacific purchased 87,200 preferred stock in Debtor from the Syndicate  the outstanding preferred being 198,936 shares  and contracted with Kuhn, Loeb and Company (as intermediary) to purchase further from the Syndicate 59,380 preferred and 24,700 common stock in Debtor. All of the above purchases gave Pacific about 57% of the outstanding stock of Debtor. Also, Pacific applied to the Commission for authority to acquire stock control of Debtor which was granted. Under this grant of authority, Pacific was required to exchange its own stock, on a stated ratio, for outstanding stock of the Debtor not held by it. The final result was that, at the time of this reorganization proceeding, Pacific had acquired 87.37% of Debtor's outstanding stock for which it had paid approximately $19,493,000 and had exchanged 49,110 shares of its own stock. In addition thereto, Pacific had made good its guaranty of a loan from the Reconstruction Finance Corporation to Debtor by taking over the loan and paying $17,882,250  a total cash outlay of approximately $37,375,000. The claimed diversions of freight traffic are alleged to have resulted from and during these controls of Debtor, successively, by the Rock Island, the Southern, the Syndicate and the Pacific. Unless one is an expert in railroad traffic matters or unless one has studied a record such as this it is highly difficult, if not impossible, to have much comprehension of the very great complexity of the subject. An understanding of such traffic involves so many and various elements which, alone or in some co-action, may influence the amount, character or revenue-producing value. Among these elements, may be stated: whether the traffic is purely local to the particular road, is interline (either originating or terminating on the road) or is bridge or overhead (where the road is an intermediate carrier); whether it is long or short haul on the road; whether there is a high or low return or a loss per ton mile in revenue; who controls the routing. Purely local traffic may be passed by as it is entirely moved on the one road. Where traffic originates or terminates upon a road, the existence of different junction points with other roads enters into the problem. Bridge traffic depends, within certain physical or geographical limitations, upon the route chosen at origin or destination. Debtor is largely dependent upon bridge traffic. Bridge traffic is the most susceptible to diversion where the bridge road has competitive routes between the termini of any shipment. Debtor has immediate (North and South) and connecting competitors who, one or the other, reach most of the important points on its road. Two maps are inserted  one showing the more immediate competitors in the Southwest or Gulf region and the other showing the larger picture of connecting lines which might use or might avoid use of Debtor as a bridge or as a terminal receiving line. [9] From these maps and from the statement in the footnote, it is clear that Debtor is so located as to other lines that it is naturally subject to much competition whether the traffic originates distantly or not. Within these competitive areas, Debtor is naturally open to diversion of traffic both as to its important bridge traffic and, to a much less degree, as to traffic terminating upon its own line even though every effort be made by it or those controlling it to secure traffic. If this be true because of natural location, it is obvious that this situation might be much more precarious where Debtor was controlled by some other road or by those more interested in some other road. In short, such control affords opportunities for diversion when it is to the interest of the controller. But opportunity to do harm is alone not proof of harm done, although clearly it requires closer scrutiny of acts done. That the Rock Island, the Southern, the Syndicate and the Pacific had such opportunities to harm Debtor during the successive periods of control is true. Whether they, or any of them, took advantage of those opportunities and used such control to harm Debtor is the question. [10] Our immediate concern is whether the showing before the Commission justified its determination that no improper material diversions of traffic resulted from such controls of Debtor occurred. In determining this matter, we act under definite limitations. We cannot, as would a court in an equity suit, take the evidence before the Commission and declare an opposite conclusion if, in our judgment, the weight of the evidence was against the determination of the Commission. The Commission is the agency selected by the Congress to determine such fact matters. If there is substantial support in the evidence for its determination, we must accept it as settled. Reconstruction Finance Corporation, et al., v. The Denver & Rio Grande Western R. Co., 66 S.Ct. 1282; Ecker et al. v. Western Pacific R. Co., et al., 318 U.S. 448, 473, 512, 63 S.Ct. 692, 87 L.Ed. 892. Our examination involves, of course, a test comparison of the various essential fact statements of the Commission with the evidence bearing upon each material statement to ascertain whether there is substantial support for the finding in the evidence or the action of the Commission was arbitrary. Considering the great number of separately advanced particulars in each of which Mr. Meyer urges positive proof of diversion and the several thousand pages of evidence involved, these testing comparisons have required an enormous burden of reading, study and classification of the evidence. This burden has in no respect or particular been avoided. We have reached the conclusion that the results stated by the Commission are in every instance supported by substantial evidence and, therefore, the capitalization value of the Debtor as determined by the Commission must be sustained as of the time it was announced and, by supplemental report, later affirmed. In the footnote, [11] is set out most, but not all, of the discussion by the Commission in its report and supplemental report on this subject of diversion of traffic by the four controllers of Debtor up to the filing of the supplemental report on March 9, 1942, on a submission as of October 8, 1941. We adopt this method of presentation in this opinion for several reasons. These extracts show the care, thoroughness and detail with which the Commission examined every one of the numerous matters bearing upon traffic diversion urged by Mr. Meyer. They show the great variety of elements presented and the complexity of the entire contention. When the character of our examination  to test the evidence to determine whether the findings of the Commission have substantial support therein  is considered and in view of our determination that there is such support, we think these extracts show ample reason why an unduly long and involved opinion treating separately each of these elements is not called for. In many instances, there was conflict in the evidence which the Commission might have ruled either way but such conflicts are for it, with its greater expert training and experience, to resolve and not for us. In other instances, suspicion, inference and possibility appeared in place of evidence of diversion. We desire to add but an observation concerning one matter of evidence which seems impressive to us and which was not accented by the Commission. These are the graphs or charts made part of Exhibit 322, and evidence related thereto, which show the comparative monthly movement of bridge and of terminated traffic over the Debtor and over the Southern originated by each of the forty-nine railroads in the United States from which Debtor received as much as $25,000 of freight revenue during the years 1924 to 1927, inclusive. These graphs and this evidence are convincing that there was no material diversion during the part of this period that Southern had control.