Court Opinion

ID: 9456098
Source: CourtListenerOpinion
Date Created: 2023-08-04 19:41:55.094765+00
Date Added: 2024-06-11T17:34:50.858133
License: Public Domain

FRIENDLY, Circuit Judge
(concurring) :
I thoroughly agree that the complaint should have been dismissed. But I reach that conclusion on bases more simple and direct than those of my brother LUMBARD.
While it may be that the transaction here can be brought within the strict letter of § 10 of the Clayton Act, 15 U.S.C. § 20, rigid adherence to that way of reading a statute was condemned four centuries ago in the wise observation, “Sometimes the Sense is more confined and contracted than the Letter, and sometimes it is more large and extensive.” Eyston v. Studd, 2 Plowden 459, 465 (1573). This case is of the former sort. I should have thought the time long since past when a merely literal approach would be taken by a court whose most illustrious member wrote, in a famous passage: “[t]here is no surer way to misread any document than to read it literally,” Guiseppi v. Walling, 144 F.2d 608, 624 (2 Cir. 1944) (L. Hand, J., concurring), aff’d sub nom., Gemsco, Inc. v. Walling, 324 U.S. 244, 65 S.Ct. 605, 89 L.Ed. 921 (1945).
Section 10 of the Clayton Act was a narrowly drawn statute designed to meet a particular set of experienced evils. It was addressed, not to citizens at large, but to a small class who knew its history, railroads and people dealing with them, and should be read accordingly. If the United States Code Annotated can be relied upon, it has been the subject of judicial construction on only six prior occasions in the 56 years it has been on the statute book. I doubt there is a railroad lawyer in the country, including those in the employ of the Interstate Commerce Commission, who would have thought § 10 applied to the winding up of a jointly owned terminal or other joint facility simply because the interest *517of an affiliated selling railroad took the form of “securities” of a company organized for the purpose and having no dealings with the outside world, rather than an undivided interest in the land and improvements. Over the past half century there must have been scores of transactions between affiliated railroads like this one, but if competitive bidding has ever been used, plaintiffs have not brought it to our attention. A court should not apply a prohibitory statute in a manner that would make it a trap for persons who have been dealing in good faith.
The limited objective of § 10 emerges clearly from its legislative history. A leading proponent of the bill was Louis D. Brandéis, who had obtained a liberal education on the dangers of transactions between railroads and other companies having a common director as a result of his service as special counsel to the Interstate Commerce Commission in The Five Per Cent Case, 31 I.C.C. 351 (1914).1 In testimony before the House Judiciary Committee he spoke of the evils of a railroad’s borrowing at excessive interest rates from a commercial bank or issuing securities at too low a price to an investment bank that had a director on the railroad’s board, and also of its buying equipment from a supplier with such a common director.2 The bill as passed by the House prohibited any person who was engaged as an individual, a partner or director in the conduct of a bank or trust company from acting as a director, officer or employee of a common carrier “for which he or such partnership or bank or trust company acts, either separately or in connection with others, as agent for or underwriter of the sale or disposal by such common carrier of issues or parts of issues of its securities, or from which he or such partnership or bank or trust company purchases, either separately or in connection with others, issues or parts of issues of securities of such common carrier,” H.R. Rep. 627, 63d Cong. 2d Sess., 3. The Senate Committee broadened the House bill to include transactions in supplies or other articles of commerce and narrowed it by substituting the competitive bidding requirement for an absolute prohibition, Sen.Rep. No. 698, 63d Cong. 2d Sess., 47-48, and the conference accepted the Senate version. But the objective remained the same. As stated by Senator Chilton, one of the Senate conferees, 51 Cong.Rec. 16002-03 (1914):
if a common carrier has bonds to sell, it can not sell them to a bank which has as its director or manager or purchasing officer anyone who at the same time occupies a trust capacity or is interested in another corporation with *518which the dealings may be had, unless the transaction is open and fair, and the common carrier, after competition, gets the best price for the bonds, and in case the transaction is a purchase by the common carrier, unless it gets the lowest price for the articles purchased.
Such scant judicial expression as there is supports the view that the “securities” provision is limited to sale of a carrier’s own securities — the evil at which § 10 was aimed. In Minneapolis & St. L. Ry. v. United States, 361 U.S. 173, 190, 80 S.Ct. 229, 4 L.Ed.2d 223 (1959), the Court footnoted the passage quoted by Chief Judge Lumbard as follows:
“The legislative history of § 10 of the Clayton Act, though meager, supports the view stated in the text. In fact, the language of the several drafts of § 10, together with the types of abuses cited in support of its enactment, suggests strongly that the words ‘dealings in securities’ were intended to cover only a carrier’s dealings with related persons in its own securities,” 361 U.S. 173 at 190 n. 13, 80 S.Ct. 240 (Emphasis supplied.)
See also Independent Iron Works, Inc. v. United States Steel Corp., 322 F.2d 656, 668-669 fn. 16 (9 Cir.), cert. denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d 165 (1963). Although, as at present advised, I would subscribe to that reading, we are not required to decide that issue here. We need hold only that Congress did not mean to require competitive bidding in the case of “securities” which represent a share in a joint venture with an affiliated railroad and by their very nature could not be expected to elicit a substantial competitive bid. Congress meant to require competitive bidding when that would servé a useful purpose, not to demand a mere formality. The complaint should therefore have been dismissed on the defendant’s motion for summary judgment.
If I were to reach the question of proof of injury, I would hold that plaintiffs completely failed to establish this, without having to engage in the close computations made by the Chief Judge. After having persuaded the district court that the transaction came within the statute as being a sale of securities of the Terminal Company, plaintiffs dextrously shifted ground on the issues of injury and damages and treated the Reading’s interest as if it were in the underlying assets. The Chief Judge’s computations likewise proceed on that basis. But there was no evidence that anyone would have made a substantial competitive bid for the securities, as one sentence of the opinion recognizes. Meltzer’s $2,100,000 valuation was for the land and buildings as a whole, and his testimony that a hypothetical bidder would have offered $600,000 for a half interest in the land reflected only the discount, estimated at 20%, which the market would make for lack of control in the usual situation where the owners have a common interest in maximum realization in the land as such but might have normal disagreements on how to achieve it. That was not at all the situation here, where the B & O’s interest lay in its continued use of the property as a produce terminal. A purchaser wishing to realize on the underlying assets would first have had to persuade an equity court to appoint a receiver to resolve the different objectives of the two owners in the purchaser’s favor, and then to have the receiver induce the Interstate Commerce Commission to sanction an abandonment over the opposition of the B & O and, almost certainly, of users of the Terminal and city and state authorities. I should not suppose the prospects of success in either endeavor would have been bright. More important, anyone would have been out of his mind to offer the Reading $1,440,000 under these circumstances in the hope of obtaining exactly that amount at the end of this tortuous, uncertain and costly road. This is especially clear when it is realized that this sum comes from the judge’s having raised the value of the Reading’s half interest in the land more *519than $100,000 over the figure reached by the Reading’s own expert, who had devoted his life to Philadelphia real estate, without any regard to the discount the expert thought appropriate for sale of a half interest, and having included $272,000 of “receivables” from the B & O which that company disputes on substantial grounds and, at very best, could not have been collected without further litigation. There was equally little chance of such a bid from a person who would be attracted by the prospect of ultimately collecting a rental representing a fair return upon that figure, from a railroad whose bonds were selling at discounts at 25% to 30% — a theory suggested by plaintiffs’ counsel at oral argument in an effort to overcome the considerations just mentioned but entirely without record support. People had better things to do with their money in 1963, or at least thought they had. The B & O would have had no reason to be concerned about the possibility of bidders so irrational as this. Speculations by a trial judge which defy business sense cannot be made impregnable by calling them “findings of fact.”
In light of all this it is entirely natural that, as an officer of the Reading testified, “it simply would not have occurred to me as a railroad man that you could sell it [Reading’s interest in the Produce Terminal] to anybody else other than this partner in the joint facility.” The Reading received a good deal more for its “securities” in the Terminal than it ever could have obtained on competitive bidding. The B & O deserved to be commended for its fairness in bailing out it hard-pressed affiliate at the very price requested; it should not have had the burden of defending against a complaint whose ingenuity considerably outran its merit.

. The Commission’s report had this to say concerning the problem, 31 I.C.C. at 413-14:
We suggest that an investigation be made with a view to determining to what extent the cost of construction, or of acquiring properties or capital, or of operation, is being increased through the holding by directors, officers, or employees of interests in other concerns with which the carrier has dealings. The Commission has prepared a compilation from answers to our question on the subject which shows that a considerable proportion of the officers and directors of railroad companies have interests in such concerns, including locomotive works, car-manufacturing companies, steel and iron works, coal mines, wireworks, bridge companies, manufactories of railway appliances, oil companies, electric machinery companies, glass companies, cement companies, warehouse companies, surety companies, railway publishing houses, and trust companies. The answers of carriers to the Commission’s questions on this subject are in many respects incomplete and unsatisfactory, but the compilation by the Commission will be of service in an inquiry into this important subject. Further investigation is being conducted independently by the Commission.

. Hearings before the House Judiciary Committee, 63d Cong. 2d Sess., Trust Legislation, 1913-14, 679-80. With respect to purchase of cars, coal and locomotives from companies with a common director, see also In re Financial Transactions of the New York, N. H. & H. R. R., 31 I.C.C. 32, 61 (1914).