Opinion ID: 423893
Heading Depth: 1
Heading Rank: 2

Heading: the validity of a temporary independent voting trust

Text: 46 To determine whether the ICC's construction is consistent with congressional intent, we must review the Panama Canal Act's adoption and its subsequent interpretation by the ICC and amendment by Congress.
47 Prior to 1912, the Interstate Commerce Act did not restrict the merger of two carriers, nor did the ICC regulate water [230 U.S.App.D.C. 113] carriers. The railroads used this freedom to engage in a variety of schemes to drive competing water carriers out of business. One popular tactic was to buy a water carrier, price its service so low that other water carriers were forced to close down, and then raise prices again. 13 48 In 1912, in § 11 of the Panama Canal Act, Congress acted to preserve rail-water competition by barring railroads from owning or controlling competing water carriers: 49 [After July 1, 1914], it shall be unlawful for any railroad company ... to own, lease, operate, control, or have any interest whatsoever (by stock ownership or otherwise, either directly, indirectly, through any holding company, or by stockholders or directors in common, or in any other manner) in any common carrier by water ... with which said railroad ... does or may compete .... 50 Congress gave the ICC jurisdiction to decide the factual question whether actual or potential competition existed: 51 Jurisdiction is hereby conferred on the Interstate Commerce Commission to determine questions of fact as to the competition or possibility of competition, after full hearing, on the application of any railroad company or other carrier. Such application may be filed for the purpose of determining whether any existing service is in violation of this section ... or for the purpose of asking an order to install new service not in conflict with the provisions of this paragraph. The commission may on its own motion ... inquire into the operation of any vessel in use by any railroad ... which has not applied to the commission and had the question of competition ... determined as herein provided. 52 Finally, Congress included a grandfather provision permitting railroads that already owned barge lines to continue to do so if continued ownership was in the public interest and water competition would not be reduced thereby: 53 If the Interstate Commerce Commission shall be of the opinion that any such existing specified service by water ... is being operated in the interest of the public and ... that such extension will neither exclude, prevent, nor reduce competition on the route by water under consideration, the Interstate Commerce Commission may, by order, extend the time during which such service by water may continue to be operated beyond July [1, 1914]. 54 There is no firm evidence, either in the statutory text or the legislative history, that Congress focused on the question of when --before or after the acquisition--the ICC would determine the existence or absence of competition in the event a rail carrier proposed to buy a water carrier. The second paragraph of the statute (quoted above) contemplates an application with regard to existing service, which suggests the possibility of acquiring first and applying for ICC approval later. On the other hand, this language may refer only to service existing at the time the Act was passed. It is likely that Congress gave little thought to new acquisition (though it clearly contemplated new service by existing carriers); its primary focus was on providing for divestiture where past mergers had reduced competition. 14 55 There was also no significant discussion of what the term interest might mean. The debate proceeded almost entirely in terms of the pros and cons of railroad ownership [230 U.S.App.D.C. 114] or control of water carriers. 15 It seemed to be agreed that a railroad could own neither all nor part of the stock of a competing water carrier. 16 But the one attempt in the debate to delineate what other relationships might be permitted ended inconclusively with the sponsor of the railroad provision urging the representative who had pointed out an ambiguity (concerning the same stockholders owning shares in both a railroad and a water carrier) to give that careful study and correct it if he can. 17
56 In 1920, Congress gave the ICC authority to regulate carrier mergers generally. The Transportation Act of 1920, ch. 91, sec. 407, § 5(2), 41 Stat. 456, 481 (current version at 49 U.S.C. § 11,343), provided that the ICC could approve mergers that will be in the public interest: 57 Whenever the Commission is of opinion, after hearing, upon application of any carrier ... that the acquisition ... of the control of any other such carrier or carriers either under a lease or by the purchase of stock or in any other manner ... will be in the public interest, the Commission shall have authority by order to approve and authorize such acquisition .... 58 Congress did not change the Panama Canal Act, merely renumbering its three paragraphs as §§ 5(9)-(11) of the revised § 5 of the Interstate Commerce Act. 59
60 The Interstate Commerce Commission, during the 1920s and 1930s, gave the Panama Canal Act a liberal interpretation that the 1912 Congress may not have contemplated. The ICC's interpretation is important because it was endorsed by a later Congress. 61 In Southern Pacific Company's Ownership of Atlantic Steamship Lines, 77 I.C.C. 124 (1923), the ICC found that Southern Pacific's proposed new water service would compete with Southern Pacific's rail lines, id. at 137, but nevertheless approved the new service. The Commission construed the Canal Act to permit new service under the same standard that governed continuance of existing service--whether the new service would be in the public interest and would not reduce water competition. Id. at 128-29. The Commission explained: 62 The purpose of the Panama Canal amendment ... was not to forbid railroad ownership, operation, or control of steamship lines, but to forbid the use of such ownership [230 U.S.App.D.C. 115] or control in such a manner as to restrict movement of interstate commerce.... 63 Id. at 137. 64 Investigation of Seatrain Lines, Inc., 206 I.C.C. 328 (1935), extended the Southern Pacific holding to railroad investment in new water carriers as well as new service by existing rail-owned water carriers. Seatrain, 15% owned by two railroads, was formed in 1932 to carry railcars by boat up and down the Eastern seaboard. At roughly the same time, the railroads applied to the Commission to determine whether their stock holding violated the Panama Canal Act. The Commission found that the railroads' minority ownership of Seatrain fell within the Canal Act's prohibition of any interest whatsoever and that the new company competed with the two railroads. Id. at 333, 335. Nevertheless, the Commission approved continued stock ownership by the railroads because Seatrain's service was in the public interest and would not reduce water competition. Id. at 335-36. Significantly, the Commission did not suggest that it was improper for the railroads to acquire an interest in a competing water carrier first and ask the Commission's approval later.
65 Against this background, Congress in 1940 enacted major amendments to the Interstate Commerce Act. 18 Economic times had changed and the railroads were in poor financial shape and were beset by strong competition from unregulated water carriers. At the railroads' urging, Congress brought water carriers under ICC control with the purpose, among other things, of protecting railroads against unrestrained water carrier competition. 19 66 Congress also amended the Panama Canal Act with the specific purpose of endorsing the ICC's interpretation of the Canal Act, in the Southern Pacific and Seatrain Lines cases, to permit railroad acquisitions of water carriers that were in the public interest and would not reduce competition. 20 The Canal Act (codified at 49 U.S.C. § 5(14)-(16)) now provided (significant changes italicized): 67 (14) Notwithstanding [the predecessor to § 11,343], from and after [July 1, 1914], it shall be unlawful for any [rail] carrier ... to own, lease, operate, control, or have any interest whatsoever (by stock ownership or otherwise, either directly, indirectly, through any holding company, or by stockholders or directors in common, or in any other manner) in any common carrier by water ... with which such carrier aforesaid does or may compete .... 68 (15) Jurisdiction is hereby conferred on the Commission to determine questions of fact ... as to the competition or possibility of competition, after full hearing, on the application of any railroad company or other carrier. Such application may be filed for the purpose of determining whether any existing service is in violation [230 U.S.App.D.C. 116] of [§ 5(14) ] ... or may pray for an order under the provisions of [§ 5(16) ]. The Commission may on its own motion ... inquire into the operation of any vessel in use by any railroad ... which has not applied to the Commission and had the question of competition ... determined as herein provided .... 69 (16) Notwithstanding the provisions of [§ 5(14) ] the Commission shall have authority ... to authorize [a rail] carrier to own or acquire ownership of, to lease or operate, to have or acquire control of, or to have or acquire an interest in, a common carrier by water ... if the Commission shall find that the continuance or acquisition ... will not prevent such common carrier by water ... from being operated in the interest of the public ... and that it will not exclude, prevent, or reduce competition on the route by water under consideration .... 70 Congress clearly expected rail carriers to be able, with ICC approval, to acquire competing water carriers. However, the congressional debate again failed to focus on when--before or after the acquisition took place--the ICC would determine whether competition existed under § 5(15) or if the acquisition was in the public interest under § 5(16). The language of § 5(16) does, however, seem to contemplate both advance inquiry by a railroad that wants to acquire a Commission review of an existing arrangement if the railroad buys first and asks permission later. 21 71 If Congress did not consider the timing of the ICC's inquiry, far less did it consider the subtler question whether an advance approval requirement, coupled with § 5(14)'s ban on any interest whatsoever, would interdict financial arrangements that a rail carrier and a water carrier might want to or need to make pending ICC review of a merger. 72 Congress has not amended the Panama Canal Act since 1940. The differences between the current version in § 11,321 (quoted in part I.A supra ) and the 1940 version arise from a 1978 recodification of the Interstate Commerce Act that was intended to be without substantive change. 49 U.S.C. note preceding § 10,101. Congress has, however, substantially deregulated the railroad industry (notably rate-setting practices) in the Railroad Revitalization and Regulatory Reform Act of 1976 22 and the Staggers Rail Act of 1980. 23 The Staggers Act, moreover, establishes the policy of the United States ... to minimize the need for Federal regulatory control over the rail transportation system. 49 U.S.C. § 10,101a(2). 24 [230 U.S.App.D.C. 117] B. ICC Cases Involving Water Carrier Acquisitions 73 Only five reported ICC decisions in the 43 years since the 1940 revision of the Panama Canal Act involve railroad acquisition of a water carrier. Of these, only two are directly relevant. Both involved purchase contracts contingent on ICC approval. In Illinois Central Railroad--Control--John I. Hay Co., 317 I.C.C. 39 (1962), Illinois Central agreed to purchase John Hay for $9,000,000 plus earnings from date of agreement to date of closing, less any dividends paid. Id. at 62 (hearing examiner's report). John Hay promised to continue its business without substantial change until closing, agreed not to enter into contracts with other carriers unless required to do so by law, and agreed to various other conditions. Id. at 63. This binding purchase contract obviously gave Illinois Central a substantial stake in John Hay's future profitability and concomitant incentive to steer traffic to John Hay from competing water carriers. It also gave Illinois Central the power, through enforcing the provisions of the contract, to restrict John Hay's freedom to engage in the full range of corporate activities. Nevertheless, no one suggested that Illinois Central, by signing the purchase contract, had illegally acquired an interest in the barge line within the meaning of § 5(14)'s prohibition on any interest whatsoever. The Commission considered on the merits and disapproved the proposed takeover. Id. at 53-54. 74 Similarly, in Chicago, Milwaukee, St. Paul & Pacific Railroad Control, Bremerton Freight Car Ferry, Inc., 312 I.C.C. 553 (1961), Bremerton Ferry agreed to sell its business for $105,000, to incur no obligations except in the usual course of business until closing, and to maintain its physical properties in substantially as good condition as they were in at time of agreement. Id. at 556. Once again, no one questioned whether the railroad had acquired a forbidden interest in the water carrier. This time, the ICC approved the transaction on the grounds that the two carriers did not compete. Id. at 557. 25 75 C. Is This Voting Trust an Interest? 1. Standard of Review 76 We preface our analysis by noting the limited scope of our review. As a general rule, courts must give great deference to the interpretation given the statute by the officers or agency charged with its administration. [230 U.S.App.D.C. 118] EPA v. National Crushed Stone Association, 449 U.S. 64, 83, 101 S.Ct. 295, 307, 66 L.Ed.2d 268 (1980) (citation and footnote omitted); see National Wildlife Federation v. Gorsuch, 693 F.2d 156, 166-67 (D.C.Cir.1982). 26 Of course, if the ICC's interpretation is inconsistent with the language of the [Canal Act], as interpreted in light of the legislative history, or if it 'frustrate[s] the policy that Congress sought to implement,' no amount of deference can save it. National Wildlife Federation, 693 F.2d at 171 (quoting Federal Election Commission v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 32, 102 S.Ct. 38, 42, 70 L.Ed.2d 23 (1981)). However, we should not lightly assume that the plain language of the statute forecloses the Commission's interpretation, for, in Learned Hand's words, it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary, but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning. Cabell v. Markham, 148 F.2d 737, 739 (2d Cir.), aff'd, 326 U.S. 404, 66 S.Ct. 193, 90 L.Ed. 165 (1945) (quoted in Watt v. Alaska, 451 U.S. 259, 266 n. 9, 101 S.Ct. 1673, 1678 n. 9, 68 L.Ed.2d 80 (1981)). 77 If the statutory language and legislative purpose permit the agency's construction, that construction must be upheld if it is 'sufficiently reasonable,' even if it is not 'the only reasonable one or even the reading the court would have reached' on its own. National Wildlife Federation, 693 F.2d at 171 (quoting FEC v. Democratic Senatorial Campaign Committee, 454 U.S. at 39, 102 S.Ct. at 46). 78 2. The Short Step From Purchase Contract to Voting Trust 79 The John Hay and Bremerton Ferry cases can be taken to implicitly hold that a purchase contract contingent on ICC approval is not an interest in a water carrier within the meaning of the Canal Act. Moreover, the ICC could not reasonably have held otherwise. A railroad and a water carrier are unlikely to embark on the long and costly process of seeking ICC approval without a definitive merger agreement. Such an agreement, however, necessarily gives the acquiring railroad a stake in the future earning power of its prospective partner. One could reasonably call this stake, even though it is contingent on ICC approval, an interest in the water carrier. See Black's Law Dictionary 729 (5th ed. 1979) (Interest. The most general term that can be employed to denote a right, claim, title, or legal share in something.). Nevertheless, such a right or claim must be permissible because Congress contemplated that railroads could acquire water carriers. 80 Thus, unless, contrary to the Commission's interpretation, the statute does not require advance approval of acquisitions, 27 we are forced to conclude that the statutory phrase any interest whatsoever cannot be taken literally. 28 Moreover, the legislative [230 U.S.App.D.C. 119] history is of scant help in deciding which interests are permitted and which forbidden. Congress expressly considered neither the scope of the term interest nor the tension between a literal reading of the term and the express authorization in § 11,321(b) for rail-water mergers. 81 To decide which interests are permitted, we must refer to the basic Canal Act policy to preserve rail-water competition and thus consider the ability and incentive of the railroad to influence the water carrier or water competition and the ability and incentive of the water carrier to compete with the rail carrier. 82 If it be conceded--and WTA concedes it--that a purchase contract contingent upon ICC approval of the underlying transaction is not an interest within the meaning of § 11,321(a)(1), 29 it is but a short step to hold that the temporary ICC-approved independent voting trust used by CSX is not an interest either. 30 The purchase contracts in John Hay and Bremerton Ferry and the voting trust in the present case share two critical features. Both are strictly limited in time duration and both insulate the water carrier from railroad control pending a full ICC hearing. 83 Either way the rail carrier has some incentive to influence the water carrier's operations because the rail carrier may reap the benefit of the water carrier's future profitability. But in both cases, the incentive is diluted because the ICC may disapprove the transaction, thus eliminating any anticipated future profits. 31 In addition, [230 U.S.App.D.C. 120] the potential for influence is limited by the short duration of the purchase contract or voting trust. Moreover, the rail carrier lacks the control over the water carrier needed to embark on major anticompetitive actions such as predatory pricing. 32 84 As for the water carrier, it may lack an incentive to compete vigorously with its potential future master. But again, this possible lack of incentive would exist no matter how the deal is structured. Moreover, the water carrier has greater ability to compete with full managerial authority vested in an independent trustee than with management's hands tied by a restrictive purchase contract. Cf. Lamoille Valley Railroad v. ICC, 711 F.2d 295 at 330-31 (D.C.Cir.1983) (finding it a close question whether a purchase contract gave one railroad premature control over another railroad). 85 Moreover, the ICC's interpretation is consistent with the dual purpose of the Canal Act to permit some rail-water mergers while preserving vigorous water competition and with the congressional policy, stated in the Staggers Act, to minimize the need for Federal regulatory control over the rail transportation system. 49 U.S.C. § 10,101(a)(2). An ICC ruling that a voting trust violates the Canal Act would foreclose the common acquisition device of the tender offer. This would force railroads to use less desirable alternative means if they could, and foreclose acquisition entirely if it could not be made by purchase contract (a likely consequence in this case because of the competing tender offer from Coastal Corp.). In addition, such a ruling might, as in this case, disrupt a much larger merger of which the water carrier acquisition is only a small part. The Canal Act purpose to permit the ICC to approve rail-water mergers that are in the public interest would be frustrated, at minimal gain in preventing anticompetitive railroad practices. D. The ICC's Enforcement Discretion 86 Even if the present voting trust violated the Panama Canal Act, we would be unable to award WTA the relief which it seeks. The dissent is doubtless correct when it states, see dissenting op. at 603 n. 33, that the Commission has no discretion not to enforce the Panama Canal Act prohibition--and cases such as Adams v. Richardson, 480 F.2d 1159 (D.C.Cir.1973), adequately support that proposition. The present case, however, is two steps short of that situation. First, the Commission is not saying that it will not enforce the prohibition against all violations, or even against all violations involving a voting trust, but only against this particular voting trust. No case we are aware of supports the unlikely proposition that an agency must proceed against every single violator--and indeed Moog Industries v. FTC, 355 U.S. 411, 78 S.Ct. 377, 2 L.Ed.2d 370 (1958), holds precisely the contrary. 87 Second, in denying WTA's petition (and still assuming that the present voting trust is a violation) the Commission would not even be saying that it declines to enforce the Act's prohibition against this particular violation--but only that it declines to enforce it through the particular means that WTA seeks, namely, the extreme remedy of an injunction. The Commission could have explored other remedies, such as a daily fine for violation or an order to sell the [230 U.S.App.D.C. 121] barge line or spin it off to shareholders either promptly after completing the tender offer or after a full hearing. The Commission's choice among these options would presumably depend largely on its assessment of the likelihood that it would permit the merger after full hearing (either because the two carriers do not compete or because the merger is in the public interest) and of the injury to competition in the interim. The Commission's weighing of these factors and its consequent exercise of its enforcement discretion, if reviewable at all, 33 would be reviewable only under the arbitrary and capricious standard of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A). We do not see how, in the application of such a test, the dissent can conclude that the Commission had no choice except to select the remedy of injunction. That is especially so since one of the central considerations governing that choice, the adverse effect on competition that might result from [a particular enforcement strategy] is clearly within the special competence of and call[s] for the discretionary determination by the agency. Moog Industries v. FTC, supra, 355 U.S. at 413, 78 S.Ct. at 379. 88 Even assuming, then, the correctness of the dissent's position on the meaning of the statute, the outcome would not be what the dissent proposes, an order requiring the Commission to seek injunctive relief; but at most a remand for the somewhat quixotic purpose of enabling the Commission to decide whether it wishes to seek that extreme remedy against an arrangement which it has found to be essentially harmless.