Opinion ID: 107576
Heading Depth: 2
Heading Rank: 4

Heading: objections based on the provisions made for the protected roads.

Text: The N & W and roads associated with its position (the Chesapeake & Ohio (C & O), Baltimore & Ohio (B & O), and Western Maryland) have filed an appeal (No. 778). In brief and upon argument they stated that they do not object to the Penn-Central merger itself. Their stated position is that they oppose immediate consummation that is prior to the actual inclusion of E-L, D & H, and B & M in the N & W. They also assail the specific operation and effect of the protective conditions and urge modifications thereof, and attack the basic legality of the conditions as a revenue pool. The assailed protective provisions appear as Appendix G to the Commission's order in the merger case. They are essentially of two types: traffic conditions that require the merged Penn-Central not to change routes, rates, or service in such a way as to divert traffic from the protected lines; and revenue indemnity conditions establishing a formula whereby Penn-Central is to compensate the protected lines in the event of adverse revenue results following the merger. [5] At the time the case was before us last Term, the Commission had withdrawn the revenue indemnity conditions pending further consideration. After our remand, the Commission further considered all the conditions, amended them in some respects not here material, and restored the revenue indemnity conditions. None of the protected roads has lodged objections against these provisions, nor has Penn-Central, and we affirm the District Court's conclusion that they appear to provide adequate interim protection for the three roads in conformity with the purposes insisted upon by the Commission and which this Court sought to ensure by its decision last Term. [6] The objectors, however, attack the protective provisions on three grounds: First, they claim that the revenue indemnity provisions create a pooling agreement proscribed by § 5 (1) of the Interstate Commerce Act, 49 U. S. C. § 5 (1). Second, they say that the conditions give each of the protected lines an incentive to divert traffic to Penn-Central and vice versa. Such traffic diversion, they argue, would be at the expense of the objecting, unprotected, lines. Third, they also assert that the shield which these provisions give the protected lines dilutes their incentive to join the N & W, permits them or some of them unfairly to shop around for better terms of inclusion, and may delay or abort their inclusion in the N & W. We first address ourselves to the argument assailing the indemnity provisions as an illegal pool. As the District Court pointed out, the legislative history of § 5 (1) leads to the conclusion that the section was not intended to apply to cases such as this one, in which the putative revenue pool is not the creation of private parties but is imposed by the Commission itself as a condition to consummation of a merger. Additionally, even if we consider the section applicable in these circumstances, there is no merit to the contention that the protective conditions must be struck down. Section 5 (1) proscribes any contract, agreement, or combination [among] . . . carriers for the pooling or division of traffic, or of service, or of gross or net earnings, or of any portion thereof, unless the Commission finds that such pooling or division will be in the interest of better service to the public or of economy in operation, and will not unduly restrain competition. The Commission has held that, even if the conditions it established were a pooling arrangement, this record clearly supports findings . . . that to protect these carriers clearly is `in the interest of better service to the public'  and  `will not unduly restrain competition.'  330 I. C. C. 328, 345, n. 8. We agree with the District Court that this finding is supported by substantial evidence in the record. The interim protection of the protected lines is, in the Commission's view and under the decision of this Court last Term, essential. These conditions have been adopted for that purpose and we see no reason on the present record to conclude that they are unlawful. In the event that actual experience reveals that the provisions operate inequitably, recourse may be had to the Commission for relief pursuant to its reserved jurisdiction, subject to judicial review. With respect to the contention that, regardless of whether the indemnity provisions constitute a revenue pool, those provisions will induce the protected carriers and Penn-Central improperly to divert traffic to one another and thereby to injure the unprotected roads, the District Court correctly concluded that there is no basis for rejecting the Commission's findings that neither the protected roads nor Penn-Central would have either the motive or the ability to engage in such diversion on any substantial scale. 279 F. Supp., at 328. This conclusion was reached largely because of the ability of the N & W to retaliate and the limitations imposed by economic conditions and geographic facts. The Commission included in its findings a provision that would prohibit the protected carriers from engaging in manipulation, with sanctions if they do, 330 I. C. C., at 355, and it specifically reserved jurisdiction to reopen proceedings and modify the protective conditions in the light of experience. The Commission has also included a general reservation of jurisdiction, under which it could revise the protective conditions. [7] If, in light of experience, improper traffic diversions should develop or, as noted above, if these conditions should otherwise prove to be inequitable, recourse may be had to the Commission under these reservations, subject to judicial review as appropriate. [8] N & W expresses the fear that the traffic and revenue indemnity provisions will be so attractive that the three lines or some of them will prefer to continue under their umbrella, and will not promptly accept the Commission's ticket of admission to the N & W system. The Commission's reserved power appears to be adequate to deter such conduct if and when it becomes abusive. Further, one of the protected lines, the largest of the three (E-L), already has accepted, by stockholder vote, its inclusion in N & W. The board of directors of another (D & H) has recommended to stockholders that inclusion be accepted. [9] In view of these circumstances, the fears expressed by N & W and the other protestants as to the dangers which perpetuation of these provisions will pose must be regarded as speculative. Clearly, if one or more of the protected roads should decline to accept the terms for inclusion specified by the Commission's order, the Commission could be called upon to examine, pursuant to its reserved power, the appropriate action to be taken to terminate or modify the interim protective provisions or otherwise to ensure that the shield supplied to the roads is not converted into a sword. The fears expressed by the protestors fall far short of furnishing a reason for rejecting the District Court's approval of the Commission's order that the Penn-Central merger be immediately consummated. Nor is there merit to N & W's contention that it was error for the Commission to fail to rule, now and forever, that the protected roads may not be included in Penn-Central. Whether or not such permission appears likely, there is no occasion for such contingent foreclosure. Finally, we reject the contention that this Court's prior opinion in this matter now precludes us from permitting consummation of the merger until actual inclusion of the three roads in a larger system. With respect to the inclusion problem, our criticism of the original Commission order ran to the ICC's failure to decide the question over which it had undoubted jurisdiction and which the Commission itself had found to be important to the public interest: the determination, so far as the Commission was empowered, of the ultimate home of the three roads. As this Court said: we can only conclude that it is necessary that the [Commission's] decision as to the future of the protected railroads and their inclusion in a major system be decided prior to consummation of the Penn-Central merger. 386 U. S., at 390. Our decision was not intended to require an indeterminate delay in the consummation of the merger, pending the resolution of the jockeying, negotiating, and fighting among all of the parties concerned and completion of the multitudinous procedures necessarily involved. This would place the public interest as well as the vast majority of the affected private interests at the mercy of decisions not merely of certain corporations whose interests are, in fact, secondary or derivative, but of classes of security holders. It was our intention that the public interest should be served with fairness to all private parties concerned, not that it should be the captive of parties some of whom are understandably engaged in maneuvering solely for the purpose of improving their competitive, strategic, or negotiating positions. There is no provision of law by which the Commission or the courts may compel the three protected roads to accept inclusion in the N & W, as ordered by the Commission, or in any other system: Section 5 (2) (d) of the Act provides: The Commission shall have authority in the case of a proposed transaction under this paragraph involving a railroad or railroads, as a prerequisite to its approval of the proposed transaction, to require, upon equitable terms, the inclusion of another railroad or other railroads in the territory involved, upon petition by such railroad or railroads requesting such inclusion, and upon a finding that such inclusion is consistent with the public interest. It does not make provision for compelling an unwilling railroad which is not itself a party to a merger agreement to accept inclusion under the terms the Commission prescribes. Our opinion on the first appeals commanded the Commission to specify the opportunity provided for the smaller roads to be included in a major system, before approving consummation of the Penn-Central merger. It was not intended to give the protected corporations or the creditors or stockholders of each of them, or the N & W relying on their position, a veto over the public interest which the Commission has found to inhere in this merger. We need not pause to discuss in detail N & W's contention that the Commission's findings do not support a conclusion that N & W must proceed with inclusion of fewer than all three of the protected roads, if, for example, B & M does not accept the terms. The original decision in the N & W-Nickel Plate merger proceedings clearly contemplates action by the Commission upon a petition or petitions of one or more of the three roads. 324 I. C. C. 1, 148. Separate petitions were in fact filed by each of these roads. As the District Court concluded, in light of the favorable action already taken by E-L stockholders and the D & H Board of Directors, the possibility of noninclusion of B & M would not be cause for setting aside the Commission's order. [10]