Court Opinion

ID: 9337980
Source: CourtListenerOpinion
Date Created: 2022-12-15 23:19:18.587513+00
Date Added: 2024-06-11T17:14:47.294054
License: Public Domain

SOPER, Circuit Judge
(dissenting).
It is true, as pointed out in the court’s resume of the relevant history of the statute under consideration, that Congress has *1019recognized the economic desirability or necessity of the merger or combination of carriers in the various fields within the jurisdiction of the Interstate Commerce Commission. Through the years there has been a gradual extension of the Commission’s authority to permit carrier mergers and consolidations. Equally clear, however, has been the purpose of Congress to subject these natural monopolies to regulation, and each extension of the Commission’s power to permit consolidation has involved also the extension of its power and duty to secure and exercise regulatory control.
It is from this viewpoint that we must answer the question whether Union, a non-carrier which already controls through stock ownership one motor carrier, to wit, Refiners, may secure control of another carrier, that is, Transport, by causing Refiners to purchase and operate Transport’s property and privileges, and may do this without subjecting itself to the Commission’s authority. It is conceded that if the transaction were to be consummated through the acquisition by Union of stock control of Transport, Union would be required by the statute to make application to the Commission.
But, it is said that if Union secures substantially the same extension of its influence in the carrier field through the instrumentality of Refiners, its subsidiary, Union, may lawfully remain free from the Commission’s control; or, in other words, that without subjecting itself to the Commission’s control Union may extend its operations in the motor carrier field indefinitely provided only that it does not act directly as the purchaser of the property or the controlling stock interest of another carrier but secures the property or stock control thereof through the medium of its subsidiary.
This conclusion is reached very largely by centering attention upon the terms of Section 5(2) (a) of the statute which inter alia authorize the Commission to approve, either the purchase by one carrier of the properties of another, or the acquisition by a non-carrier, which has control of a carrier, of another carrier through ownership of its stock or otherwise. Since the application of Refiners to the Commission for the approval of its purchase of Transport satisfies the first alternative, it is said that it is not necessary for Union to comply with the second alternative by joining in the application. It happens in this instance that the same transaction will accomplish both alternatives, for not only will Refiners thereby acquire the property of Transport, but Union will secure control of Transport, if a liberal rather than a strict interpretation is given to the term. It does not seem reasonable to believe that Congress intended to exempt from the Commission’s control the dominant actor in such a situation; and this becomes more clear when the provisions of Section 5(4) are given effect. Therein it is made unlawful for any person to accomplish the control in common interest of two or more carriers in any manner whatsoever except as provided in Section 5(2). Paragraph (a) thereof requires the approval of the Commission to the transaction; and paragraph (b) thereof requires a person seeking authority to engage in such a transaction to present an application to the Commission and gives the Commission power to approve it, if it finds that it is within the scope of paragraph (a) and will be consistent with the public interest. It seems obvious, therefore, that it will be unlawful for Union to enter into the proposed transaction unless it applies for and receives the Commission’s approval; and it becomes the duty of the Commission to refuse to consider the proposed transaction unless Union joins in the application, for otherwise the Commission’s approval will countenance the participation of Union in the formation and management of the proposed consolidation contrary to the terms of the statute.
We are told that this construction of the statute involves the basic misconception that Section 5(2) (a) is restrictive of the Commission’s power when history shows that the section was intended to be permissive. This conclusion also is reached by centering attention upon this sub-section without sufficient consideration of the other statutory provisions. The fact is that the Commission’s interpretation actually augments its power and authority. If its view is adopted neither the holding company nor the subsidiary may proceed without its approval. Moreover, if, as in this case, the interested person is not a carrier, and if he is authorized to acquire control of a carrier, he must thereafter, to the extent provided by the Commission, be considered a carrier and subject to certain carrier provisions which are enumerated in Section 5(3) of the statute. Clearly the Commission’s interpretation confers upon *1020it a control of all the persons involved which is co-extensive with the merger or consolidation that is to be effected; and nothing else would effectuate the salutary-purpose of Congress to permit consolidations of carriers that are economically desirable and at the same time to subject them to the authority of its appointed agent.
This interpretation of the statute depends upon the breadth to be given the term “control,” as used in Section 5(2) (a) of the Transportation Act of September 18, 1940, under which the Commission now operates. Fortunately the legislative history clearly indicates the meaning which Congress had in mind. The conference report on the Transportation Act of 1940, H.R. 2832, 76th Congress, 3rd Sess., p. 63, contains the following passage:
“Section 2(b). Definition of Control.
“This subsection inserts in paragraph (3) of Section 1 of the Interstate Commerce Act a definition of ‘control’ which will apply in certain specified sections of the Act where that term is used in referring to a relationship between any person or persons and another person or persons. Since the term ‘person’ is defined to include artificial as well as natural persons, the definition of control will cover relationships between corporations, companies, associations, etc.
“The definition of control was made to apply only in the specified sections because it was thought undesirable to make any change in the interpretation of present law in certain other provisions of the Act, notably Section l(l)-(a) and Section 15 (4). The application of this definition of control will in most cases be in connection with the use in the sections to which it applies of the phrase ‘controlling, controlled by, or under common control with’ a carrier. This phrase has been used because it has recently had the benefit of interpretation by the Supreme Court in the case of Rochester Telephone Corp. v. United States, 307 U.S. 125, 59 S.Ct. 754, 83 L.Ed. 1147, decided April 17, 1939.”
Section 1(3) (b) of the Act of 1940 heretofore quoted in the opinion of the court provides that control, as used in Section 5 and other sections, shall be construed to include actual as well as legal control whether exercised through circumstances surrounding organization or operation, through common directors, officers or stockholders, voting trusts, holding companies, "or through or by any other direct or indirect means.” This language was used because, as the conference report shows, language of like breadth in Section 2 of the Communications Act of 1934, 48 Stat. 1064, 47 U.S.C.A. § 152(b), had been recently interpreted by the Supreme Court in Rochester Telephone Corp. v. United States, 307 U.S. 125, 145, 59 S.Ct. 754, 764, 83 L.Ed. 1147, where the court said:
“The record amply justified the Communications Commission in making such findings. Investing the Commission with the duty of ascertaining ‘control’ of one company by another, Congress did not imply artificial tests of control. This is an issue of fact to be determined by the special circumstances of each case. So long as there is warrant in the record for the judgment of the expert body it must stand. The suggestion that the refusal to regard the New York ownership of only one third of the common stock of the Rochester as conclusive of the former’s lack of control of the latter should invalidate the Commission’s finding, disregards actualities in such intercorporate relations. Having found that the record permitted the Commission to draw the conclusion that it did, a court travels beyond its province to express concurrence therewith as an original question. ‘The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body’.”
The opinion of the Supreme Court also referred to House Report 1850, 73rd Congress, 2nd session 4-5, which considered the proposal to make use of the terms “parent,” “subsidiary" and “affiliated” in respect to the corporate relations of common carriers in the Communication Act of 1934. The report contained the following passage:
“Many difficulties are involved in attempting to define such terms. It is believed that a more satisfactory result will be reached by referring to such persons as in the Senate bill and the amendment. No attempt is made to define ‘control’ since it is difficult to do this without limiting the meaning of the term in an unfortunate manner. Where reference is made to control the intention is to include actual control as well as what has been called legally enforceable control. It would be difficult, if not impossible, to enumerate or to anticipate the many ways in which actual control may be exerted. A few examples *1021of the methods used are stock ownership, leasing, contract, and agency. It is well known that actual control may be exerted through ownership of a small percentage of the voting stock of a corporation, either by the ownership of such stock alone or through such ownership in combination with other factors.”
The intent of Congress to include within the purview of Section 5(2) (a) all means by which control of a carrier may be acquired is further shown by contrasting the terms of that section with those of the corresponding section, to wit: Section 213(a), of the Motor Carrier Act of August 9, 1935, 49 Stat. 543, 555. In the earlier statute the acquisition of control which subjected the transaction to regulation by the Commission was such as occurs in corporate consolidation or merger, or in purchase, lease or contract to operate carrier property, or in purchase of the stock of a corporate carrier. When the same subject was treated in Section 5(2) (a) of the latter Act, Congress was careful to add the words “or otherwise” to the description of specific methods by which carrier control might be acquired. Clearly Congress desired to avoid the limitation of control to that acquired through any particular method.
If these guides to the intention of Congress are observed, it seems impossible to give to the statute the literal and narrow construction for which the plaintiffs contend; and the prior reports of Division 4 of the Commission, in which this construction was adopted without contest, lose their significance. Keeping in mind that the test is actual rather than legal control, whether exercised directly or indirectly, it is futile to point out that the pending transaction contemplates the purchase of Marshall’s property and its extinction as a corporate carrier. The reality is that Refiners will acquire the property and operating rights of Marshall, and thereupon, through the instrumentality of Refiners, Union will acquire control of another carrier. The same conclusion must be reached, if the purpose of Congress to subject motor carriers to the jurisdiction of the Commission is to be carried out, when Union, through its subsidiary, indirectly accomplishes the same result by the purchase of carrier property or by corporate merger or by other means. Under any other view, Union could expand its control over the motor carrier field indefinitely without itself submitting to the regulatory power of the Commission.
The pertinence of these observations to the peculiarities of the business of motor transport with which the Commission is familiar is shown by the following passage from its final report:
“There can be no more direct or positive manner of obtaining control than by outright purchase. It is inconceivable that the outright purchase of another company’s franchise and properties through the medium of the already owned subsidiary would have been exempted while the mere purchase of stock control of the other company through the same subsidiary would activate the statute. As a matter of fact, acquisition of control of many motor carriers could be obtained only by purchase of the properties because many motor carriers are owned by individuals alone or by partnerships. Such individuals and partnerships often possess extensive operating rights. It further is to be noted that the financial and business structures of many motor carriers are quite simple even when incorporated. Their stock usually is closely held, and they rarely have securities outstanding evidencing long-term debt. Their terminals in many instances are rented; their equipment if not fully paid for is covered by some form of a purchase money contract; their other assets often consist of a relatively small amount of furniture, some spare tires and parts, together with accounts ‘receivable’ representing outstanding freight bills, etc. Their ‘liabilities’ often consist principally of unpaid equipment balances, bills for tires, parts, and fuel, etc. It often is quite simple under these circumstances to acquire for cash the ‘assets’ including certificate and good will, and to assume or pay the ‘liabilities’, and to-liquidate the concern. Proceeding thus through a controlled subsidiary, a non-carrier holding company, or others, may expand at will without becoming subject to our jurisdiction under the construction adopted by the division. We cannot agree to that construction of ‘control’ as used in the Act.”
The decision of the Commission should be sustained and the bill of complaint should be dismissed.