Court Opinion

ID: 9456099
Source: CourtListenerOpinion
Date Created: 2023-08-04 19:41:55.098162+00
Date Added: 2024-06-11T17:34:50.860632
License: Public Domain

HAYS, Circuit Judge
(dissenting):
I agree with Chief Judge Lumbard’s conclusion that B & O violated a duty imposed upon it by Section 10 when it purchased Reading’s interest in the terminal land and facilities without competitive bidding. In addition, however, I would hold that Reading was damaged in that it received less than the fair market value for its interest. Nevertheless since I believe that the trial court underestimated the value of the consideration received by Reading, I would remand for recomputation of damages.
As Chief Judge Lumbard points out, Section 10 was enacted to insure that common carriers would be treated fairly in the purchase and sale of goods and securities where the purchaser and seller had interlocking directorates.1 The *520House version of the Bill proposed to cure the vice of insider leverage by prohibiting direct dealing between a common carrier and a corporation with interlocking directorates.2 The Senate felt that this provision was too harsh and replaced it with a requirement of competitive bidding. The relevant Senate Report states in pertinent part:
“The prime object of this provision is to prevent common or interlocking directors in corporations which occupy the relations to each other which are thus described; and is mainly intended to arrest the practice of the same persons occupying conflicting and incompatible relations in the corporate dealings of common carriers, often being practically both seller and purchaser, lessor and lessee and trustee and beneficiary of the trust. While this evil is fully appreciated, the committee nevertheless recognize that, especially in the case of railroads, emergencies may arise when absolutely prohibitory law against such dealings would be most injurious to the public. In the case of railroads calamities of fire and flood might make it necessary in the shortest possible time and to a certain extent regardless of lesser consequences to replace engines, cars and bridges. The Committee have, therefore, recommended a substitute for the House paragraph on this subject, which, with the publicity, competitive bidding and the supervision of the Interstate Commerce Commission provided for, will, it is believed, minimize if not wholly cure the evil to be reached.”
S.Rep.N. 698, 63d Cong. 2d Sess., pp. 47-78.
The device of competitive bidding has had a long history of use by public, quasi-public and private enterprises. The theory supporting the requirement of competitive bidding, of course, that it will tend to assure that the seller will receive the fair value of the property that is to be sold. The procedures specified under Section 10 are designed to provide this protection. The I.C.C. regulations 3 require extensive publicity, uniform specifications, review by the Commission of the bidding procedure and award, and preservation of relevant documents.
In light of the reasons for requiring competitive bidding and the evils which Congress intended to control by enacting Section 10, the absence of competitive bidding is per se injurious. In a situation like that presented here where the issues of proof are difficult and the lines between seller and purchaser are not clearly drawn there is a distinct possibility of overreaching and competitive bidding is particularly important.
The trial court found that:
“[I]f it be assumed that competitive bids were sought in this sale, almost certainly B&O would have been concerned to submit a sufficiently high bid so as to maintain its control of Terminal. Conversely, a third party may well have been tempted to submit a sufficiently high bid in order to become a joint owner of the property with B&O, exercising at least negative control over operations of the company. In short, it is too easy to conceive of a number of bidding possibilities which almost certainly would require a bid figure equal at least to one-half *521of the fair market value of Terminal’s assets.”
Klinger v. Rose, 302 F.Supp. 818, 826 (S.D.N.Y. 1969). These findings were certainly not clearly erroneous.4
The cases which hold that defendants may not escape liability by subjecting plaintiffs to impossible burdens of proof of damages are directly applicable. See, e. g., Zenith Radio Corp. v. Hazeltine Research Inc., 395 U.S. 100, 123-125, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969); Bigelow v. RKO Radio Pictures Inc., 327 U.S. 251, 66 S.Ct. 574, 90 L.Ed. 652 (1946); Story Parchment Co. v. Patterson Parchment Paper Co., 282 U.S. 555, 562-566, 51 S.Ct. 248, 75 L.Ed. 544 (1931); Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359, 378-379, 47 S.Ct. 400, 71 L.Ed. 684 (1927). Precise proof of damages is not required where there is “a just and reasonable estimate of the damage based on relevant data” Bigelow v. RKO Radio Corp., supra, 327 U.S. at 264, 66 S.Ct. at 580. One-half the fair market value of the property was a reasonable basis for valuation of Reading’s interest.
I agree with Chief Judge Lumbard that it was error for the trial court to appraise the consideration passing from B & O to Reading as of the time the transaction was executed and to ignore B & O’s subsequent payment in full a year after the closing. I would, therefore, remand for recomputation of damages.

. The impetus for Section Ten came from President Wilson’s message to Congress of January 20, 1914 in which he said:
“We are all agreed that ‘private monopoly is indefensible and intolerable,’ and our program is founded upon that conviction. It will be a comprehensive but not a radical or unacceptable program, and these are its items, the changes which opinion deliberately sanctions and for which business waits:
“It waits with acquiescence, in the first place, for laws which will effectually prohibit and prevent such interlockings of the personnel of the directorates of great corporations — banks and railroads, industrial, commercial, and public-service bodies — as in effect result in making those who borrow and those who lend practically one and the same, those who sell and those who buy but the same persons trading with one another under different names and in different combinations, and those who affect to compete in fact, partners and masters of some whole field of business. Sufficient time should be allowed, of course, in which to effect these changes of organization without inconvenience or confusion.
“Such a prohibition will work much more than a mere negative good by correcting the serious evils which have arisen because, for example, the men who have been the directing spirits of the great investment banks have usurped the place which belongs to independent industrial management working in its own behoof. It will bring new men, new energies, a new spirit of initiative, new blood, into the management of our great business enterprises. It will open the field of industrial development and origination to scores of men who have *520been obliged to serve when their abilities entitled them to direct. It will immensely hearten the young men coming on and will greatly enrich the business activities of the whole country.”
51 Cong.R.1963 (1914). See United States v. Boston & Maine R. Co., 380 U.S. 157, 160-161, 85 S.Ct. 868, 13 L.Ed.2d 728 (1965).

. See S.Dock. No. 584, 63d Cong., 2d Sess., p. 10.

. 49 C.F.R. § 1010 (1970).

. “In applying the clearly erroneous standard to the findings of a district court sitting without a jury, appellate courts must constantly have in mind that their function is not to decide factual issues de novo. The authority of an appellate court, when reviewing the findings of a judge as well as those of a jury, is circumscribed by the deference it must give to decisions of the trier of the fact, who is usually in a superior position to appraise and weigh the evidence. The question for the appellate court under Rule 52(a) is not whether it would have made the findings the trial court did, but whether ‘on the entire evidence [it] is left with the definite and firm conviction that a mistake has been committed.’ United States v. United States Gypsum Co., 333 U.S. 364, 395 [68 S.Ct. 525, 542, 92 L.Ed. 746] (1948). See also United States v. National Assn. of Real Estate Boards, 339 U.S. 485, 495-496 [70 S.Ct. 711, 717, 94 L.Ed. 1007] (1950) ; Commissioner of Internal Revenue v. Duberstein, 363 U.S. 278, 289-291 [80 S.Ct. 1190, 1198-1199, 4 L.Ed.2d 1218] (1960).”
Zenith Radio Corp. v. Hazeltine Research Inc., 395 U.S. 100, 123, 89 S.Ct. 1562, 1576, 23 L.Ed.2d 129 (1969).