Baltimore Ohio Co v. United States Delaware Hudson Corp v. United States Co v. United States City of Scranton v. United States Shapp v. United States Chicago Eastern Illinois Co v. United States 8212 815

• Decision Date: 27 March 1967
• Docket Number: ERIE-LACKAWANNA,680,Nos. 642,813,691,s. 642
• Parties: BALTIMORE & OHIO R. CO. et al., Appellants, v. UNITED STATES et al. The DELAWARE & HUDSON R. CORP., Appellant, v. UNITED STATES et al.R. CO., Appellant, v. UNITED STATES et al. CITY OF SCRANTON, Appellant, v. UNITED STATES et al. Milton J. SHAPP, Appellant, v. UNITED STATES et al. CHICAGO & EASTERN ILLINOIS R. CO., Appellant, v. UNITED STATES et al. —815
• Court: U.S. Supreme Court

386 U.S. 372

87 S.Ct. 1100

18 L.Ed.2d 159

BALTIMORE & OHIO R. CO. et al., Appellants,

v UNITED STATES et al.

The DELAWARE & HUDSON R. CORP., Appellant,

v. UNITED STATES et al.

ERIE-LACKAWANNA R. CO., Appellant,

v. UNITED STATES et al.

CITY OF SCRANTON, Appellant,

v. UNITED STATES et al.

Milton J. SHAPP, Appellant,

v. UNITED STATES et al.

CHICAGO & EASTERN ILLINOIS R. CO., Appellant,

v. UNITED STATES et al.

Nos. 642, 680, 691, 813—815.

Argued Jan. 9 and 10, 1967.

Decided March 27, 1967.

[Syllabus from pages 372-373 intentionally omitted]

Howard J. Trienens, Chicago, Ill., Lloyd N. Cutler, Washington, D.C., Edward W. Bourne, Harry G. Silleck, Jr., New York City, Leon Keyserling and Gordon P. MacDougall, Washington, D.C., for appellants.

Sol. Gen. Thurgood Marshall for the U.S.

Robert W. Ginnane, Hugh B. Cox, Washington, D.C., Joseph Auerbach, Boston, Mass., Walter J. Myskowski, Washington, D.C., Samuel Kanell, Hartford, Conn., David Berman, Boston, Mass., and John H. Chafee, Providence, R.I., for appellees.

Mr. Justice CLARK delivered the opinion of the Court.

These six appeals involve the validity of an order of the Interstate Commerce Commission permitting the merger of the Pennsylvania Railroad Company and the

[Argument of counsel intentionally omitted]

New York Central Railroad Company (Penn-Central) pursuant to § 5(2) of the Interstate Commerce Act, as amended, 41 Stat. 481, 49 U.S.C. § 5(2). In its original order of April 6, 1966, the Commission found that the merger might divert a substantial amount of traffic from the Erie-Lackawanna Railroad Company (E—L), the Delaware and Hudson Railroad Company (D & H) and the Boston and Maine Corporation (B & M), three smaller competing carriers designated as the 'protected railroads' by the Commission. These protected railroads had filed under § 5(2)(d) of the Act applications for inclusion in both this merger and in Norfolk & W. Ry. Co. and New York, C. & St. L.R. Co.—Merger, 324 I.C.C. 1. In the latter case inclusion of E—L and D & H has been recommended and, together with B & M, is pending before the Commission. The applications of the protected roads in the Penn-Central proceeding have been held in abeyance pending decision in the Norfolk proceeding.

On the merits of the Penn-Central merger, the Commission found that the service the protected railroads 'render their shippers is essential and the public interest dictates that (such service) be preserved.' The Commission concluded 'that immediate consummation of the proposed merger would be consistent with the public interest, if conditions are imposed to obviate impairment or serious weakening' of the three lines. Without such conditions or the inclusion of the protected roads in a major system, the Commission further found, it would be doubtful if the 'three carriers could withstand the competition of the applicants merged, and, unless they are protected during the period necessary to determine their future, we would not authorize consummation at this time, even though approving the merger.' 327 I.C.C. 475, 532. It, therefore, applied, sua sponte, certain conditions to the immediate consummation of the merger which were 'designed to prevent any loss of revenue over the

three railroads (the protected railroads) as a direct result of immediate consummation of this merger.' Its 'approval of the merger for undelayed consummation' was made 'subject * * * to the conditions specifically described in appendix G,' ibid., which was attached as an appendix to the April 6, 1966, order, and which we likewise attach as an Appendix here. The Commission, apparently because of the necessity for the conditions and the urgency of the merger, required compliance with Appendix G even though it had neither the benefit of a report from a Hearing Examiner thereon, nor the advantage of a hearing before the Commission itself. These conditions detailed the protection which must be given the protected railroads and made them a prerequisite to the consummation of the merger.

The Commission, therefore, not only found that protection of the three railroads was necessary, but fixed the terms thereof and required compliance prior to permitting the merger. There was nothing tentative about Appendix G. The conditions were divided into two general categories and provided that: (1) On traffic for which the protected railroads are 'competitive factors'¹ the merged company shall not, pending final determination of the inclusion proceedings, provide any new or changed routing practice, freight rates, or service which would divert or tend to divert traffic from routes in which the protected railroads, or any of them, participates or participated at the time of the merger. And (2) the protected railroads would be indemnified by the merged company against revenue losses by reason of the merger. Appendix G to the order detailed the manner in which

such indemnity would be calculated and provided for the accelerated processing of complaints as to new or changed routes, practices, rates, or services. Section 7 of Appendix G provided that if the merged company did not accede to all of the conditions, the merger would be deferred for two years or 'such time as the Commission may determine to be necessary to protect the interests of D & H, B & M and E—L.' And § 8 provided that the conditions 'shall be construed, administered and enforced with the view to protecting the E—L, D & H and B & M and the shipping public which depends upon them for transportation, against the effects of the merger for the period and purposes set forth above.'

Thereafter, and without a hearing, but apparently on the objection of most of the parties, the Commission on September 16, 1966, modified its April 6 order and reopened the hearing. 328 I.C.C. 304. The objectors, among other things, pointed to the fact that the conditions of Appendix G were made without any notice or hearing and would create irreconcilable conflicts between the protected carriers and others adversely affected by the merger. In reopening the hearing the Commission limited it to the conditions imposed in Appendix G, the prevention of possible manipulation of such conditions and the enlargement of the indemnity provision to include capital loss. In the reopening order of September 16, 1966, the Commission left intact its order of April 6, 1966, as to the undelayed consummation of the merger, continued in effect the ban on new or changed routes, practices, and rates as to traffic in which any of the protected railroads participated, but lifted the indemnification condition until further order, at which time any such provision found necessary could be made retroactive to the date of the merger. None of the previous findings, as to the necessity for the immediate imposition of the conditions included in the original order, were

amended or withdrawn. The traffic conditions alone were left in effect.

This suit was filed on September 7, 1966, and arose upon the complaint of E—L and other railroads seeking an interlocutory injunction to restrain the consummation of the merger. A three-judge court was convened, 28 U.S.C. § 2284, and thereafter it declined, by a divided vote, to grant the interlocutory injunction. Erie-Lackawanna Railroad Co. v. United States, D.C., 259 F.Supp. 964. The appellants sought a stay from Mr. Justice Harlan who referred the application to the Court and it was granted on October 18, 1966. At the same time we expedited the case for consideration. 385 U.S. 914, 87 S.Ct. 224, 17 L.Ed.2d 18. The sole question before us is whether, in light of the findings as to the necessity for interim protection for the so-called protected railroads, the Commission erred in permitting the consummation of the merger prior to and without awaiting determination of the inclusion proceedings. We believe that the Commission erred in approving the immediate consummation of the merger without determining the ultimate fate of the protected roads. We, therefore, reverse the judgment and remand the case to the District Court with instructions to remand the matter to the Commission for further proceedings in accordance with this opinion.

I.

Questions not here decided.

At the outset we make it clear that we do not pass on the validity of the merger, the special conditions of Appendix G, the modified order of the Commission, or the peripheral points posed by the various parties. We hold only that under the uncontradicted findings of the Commission it was necessary for it to conclude the inclusion proceedings, as to the protected railroads, prior to permitting consummation of the merger.

II.

The merger, its background, its participants and relative position.

The Penn-Central merger has been under study and discussion by the Commission for some 10 years. After the initial study was completed in 1959, Central withdrew from the plan and began negotiations for a merger with the Chesapeake and Ohio Railway Company (C & O) for joint control of the Baltimore and Ohio Railroad Company (B & O). However, when at a later date C & O had contracted for the purchase of some 61% of B & O stock, Central gave up its plan and renewed negotiations with Penn. The two roads signed an agreement of merger in 1962. The New York, New Haven and Hartford Railroad Company (NH) approached Penn and Central for inclusion in the plant but was given a deaf ear. The merger agreement provided that all properties, franchises, etc. (permitted by respective state law), would be transferred to the merged company and appropriate stock exchange, debt arrangements, etc., effected.

As the Commission found, the merger would 'create an hour-glass shaped system flared on the east from Montreal, Canada, through Boston, Mass., to Norfolk, Va., and on the west from Mackinaw City, Mich., through Chicago, Ill., to St. Louis, Mo.' 327 I.C.C., at 489. It would operate some 19,600 miles of road in 14 States between the Great Lakes, with a splash in Canada on the...