Denver and Rio Grande Western Railroad Co v. United States

Decision Date05 June 1967
Docket NumberNo. 305,305
Citation87 S.Ct. 1754,387 U.S. 485,18 L.Ed.2d 905
PartiesThe DENVER AND RIO GRANDE WESTERN RAILROAD CO. et al., Petitioners, v. UNITED STATES et al
CourtU.S. Supreme Court

[Syllabus from pages 485-486 intentionally omitted] William H. Dempsey, Jr., Washington, D.C., for appellants.

Thomas D. Barr and Robert S. Rifkind, New York City, for appellees.

Mr. Justice BRENNAN delivered the opinion of the Court.

The question in this case is whether the Interstate Commerce Commission complied with its statutory responsibilities under § 20a of the Interstate Commerce Act1 when it approved without consideration of control or anticompetitive consequences the issuance to appellee Greyhound Corporation of 500,000 shares of the common stock of appellee Railway Express Agency, Inc. (REA).

REA provides railroad express service and is also a motor common carrier. The approximately 2,000,000 shares of REA common stock outstanding are entirely owned by railroads and no railroad stockholder may dispose of its shares without first offering them to the other railroad stockholders. REA also is authorized, however, to issue 500,000 additional shares of common stock without first offering them to its stockholders. Greyhound, which operates an express carrier service through its wholly owned subsidiary Greyhound Lines, Inc., a motor carrier of passengers and express subject to the Interstate Commerce Act, agreed to purchase these 500,000 shares. REA thereupon applied to the ICC for an order under § 20a approving the transaction. Minority railroad REA stockholders, motor bus competitors of Greyhound, motor carriers, and freight forwarders intervened in the proceeding to protest against approval of the transaction. They alleged, among other things, the necessity of a hearing on the questions whether Greyhound's acquisition of the stock was in the 'public interest' and for a 'lawful object' as those terms are used in § 20a. The ICC approved the acquisition without a hearing. A three-judge District Court for the District of Colorado sustained the ICC order. 255 F.Supp. 704. We noted probable jurisdiction. 385 U.S. 897, 87 S.Ct. 201, 17 L.Ed.2d 129. We reverse with direction to the District Court to enter a new judgment remanding the case to the ICC for further proceedings consistent with this opinion.

I.

REA was organized in 1929 and until 1961 operated on a nonprofit basis under a pooling agreement with the railroads. See Securities and Acquisition of Control of Railway Express Agency, Inc., 150 I.C.C. 423. Financial difficulties forced abandonment of the nonprofit operation and REA was converted to a profit and loss basis in order to effect more efficient and economic operation. See Express Contract, 1959, 308 I.C.C. 545, 549—550. In addition, REA was released from restrictions against use of carriers other than railroads. In 1963 REA's by-laws were amended to eliminate a limitation against stock ownership except by railroads; the disposition of shares by a railroad, however, was made subject to the right of first refusal of the other railroad stockholders. The issuance of 500,000 additional shares not subject to the right of first refusal was also authorized, but only upon the consent of two-thirds of the railroad stockholders.

Greyhound, principally a passenger carrier, became interested in expanding its growing express business. In January 1964 Greyhound offered to purchase, subject to ICC approval, at least 67% of REA's stock, of which Greyhound intended to offer 16% to major airlines. Greyhound also agreed to finance part of REA's capital requirements as part of a plan to coordinate the express services of both companies. This proposal was defeated by railroad stockholders.

REA and Greyhound persisted in their efforts to coordinate their operations. Greyhound proposed to acquire a 20% interest in REA through acquisition of REA's 500,000 authorized but unissued shares, stating that its 'interest in REA * * * stems primarily from our views as to the improvements * * * which could be realized through combination and correlation of certain of our facilities and services.' Greyhound offered to pay $16 per share if permitted to name one-fifth of the REA Board of Directors and if the REA Board would declare its intention 'to consider seriously and work toward a long-term agreement between REA and Greyhound to consolidate operating functions and facilities * * *,' and if, further, the REA Board would agree 'to consider seriously at a later time * * *'th e sale of REA stock to airlines and the general public. Finally, Greyhound offered, if permitted to acquire the 500,000 shares, to purchase enough additional shares at $25 each to give it 50% of the stock of REA, the offer to remain open for 60 days following Greyhound's acquisition of the 500,000 shares. It expressed willingness, however, to purchase the 500,000 shares and leave 'to the future the question of the acquisition of additional shares by Greyhound and giving the railroads an opportunity to reconcile their views on this question.'

REA countered with an offer to sell the 500,000 shares at $20 per share provided Greyhound would agree to offer within the 60-day period to purchase an additional 1,000,000 shares of the outstanding stock at the same price. The agreement was consummated on this basis subject to ICC approval.

REA's application to the ICC sought approval only of the issuance to Greyhound of the 500,000 shares. The application was supplemented with detailed data reviewing the negotiations, a statement of REA's financial condition and a statement of the purposes to which the $10,000,000 realized from the sale of the 500,000 shares would be applied. The burden of the protests of numerous intervenors was that the transaction was not in the 'public interest' and for a 'lawful object,' but rather was the first step toward establishing a virtual monopoly of express transportation, and would result in 'control' by Greyhound of REA, necessitating a hearing under § 5 of the Act.2 The Department of Justice also intervened. It urged the ICC to conduct a hearing to determine whether the transaction would violate § 7 of the Clayton Act,3 suggesting that, while a § 5 proceeding might be unnecessary, one might be instituted and consolidated with the recommended Clayton Act § 7 proceeding, since the anticompetitive issues involved would be virtually identical.

Division Three of the ICC approved the application without hearing, ruling that investigation into the 'control' and 'anticompetitive' issues 'would not be appropriate at this time * * *.' After the ICC denial of petitions for reconsideration this action to enjoin and set aside the ICC order was filed. The full Commission meanwhile reconsidered and affirmed the action of Division Three but postponed the effective date of the order pending the conclusion of judicial proceedings.

In the District Court the parties adhered basically to the positions maintained before the ICC, except that the Department of Justice abandoned its position urging a hearing on the § 7 question and declined either to support or to oppose the ICC order. In sustaining the order the District Court reasoned that, while the ICC might be required i § ome circumstances to consider 'control' and 'anticompetitive' issues before approving a stock issuance under § 20a, the ICC properly exercised discretion to defer consideration of such questions in this case until after it was determined whether and to what extent Greyhound would succeed in purchasing additional shares from railroad stockholders; only then would the 'chain of events started by the stock issuance * * * (be) ascertainable rather than conjectural.' 255 F.Supp. 704, 709.

In this Court the Government concedes, and the other appellees assume arguendo, that important issues of 'control' and 'anticompetitive' effects were involved in the application before the ICC. The Government has completely reversed its position from what it was before the ICC, arguing here that § 20a was designed to accomplish only the limited objective of protecting stockholders and the public from fiscal manipulation, and that, in any event, postponement of consideration of 'control' and 'anticompetitive' issues was justified in this case because the facts relevant to both issues might be wholly different at the end of the 60-day period, and because no prejudice to any party's interests could result from the delay.

II.

We do not agree that Congress limited ICC consideration under § 20a to an inquiry into fiscal manipulation.4 Even if Congress' primary concern was to prevent such manipulation, the broad terms 'public interest' and 'lawful object' negate the existence of a mandate to the ICC to close its eyes to facts indicating that the transaction may exceed limitations imposed by other relevant laws. Common sense and sound administrative policy point to the conclusion that such broad statutory standards require at least some degree of consideration of control and anticompetitive consequences when suggested by the circumstances surrounding a particular transaction. Both the ICC and this Court have read terms such as 'public interest' broadly, to require consideration of all important consequences including anticompetitive effects. Thus the ICC is required to weigh anticompetitive effects in approving applications for merger or control under § 5 of the Act, authorizing the ICC to grant such applica- tions only if 'consistent with the public interest.' McLean Trucking Co. v. United States, 321 U.S. 67, 64 S.Ct. 370, 88 L.Ed. 544. And similarly broad responsibilities are encompassed within like broad directives addressed to other agencies. E.g., National Broadcasting Co. v. United States, 319 U.S. 190, 224, 63 S.Ct. 997, 1013, 87 L.Ed. 1344, FCC v. RCA Communications, Inc., 346 U.S. 86, 94, 73 S.Ct. 998, 1004, 97 L.Ed. 1470; People of State of California v. FPC, 369 U.S. 482, 484—485, 82 S.Ct. 901, 903, 8...

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