Denver and Rio Grande Western Railroad Co. v. United States

• Decision Date: 11 April 1966
• Docket Number: Civ. A. No. 9205.
• Citation: 255 F. Supp. 704
• Parties: The DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY, the Atchison, Topeka and Santa Fe Railway Company, St. Louis Southwestern Railway Company, St. Louis Southwestern Railway Company of Texas, and Southern Pacific Company, Plaintiffs, and Ringsby Truck Lines, Inc., et al., Intervening Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission, Defendants. and Railway Express Agency, Incorporated, and the Greyhound Corporation, Intervening Defendants.
• Court: U.S. District Court — District of Colorado

255 F. Supp. 704

The DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY, the Atchison, Topeka and Santa Fe Railway Company, St. Louis Southwestern Railway Company, St. Louis Southwestern Railway Company of Texas, and Southern Pacific Company, Plaintiffs, and Ringsby Truck Lines, Inc., et al., Intervening Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission, Defendants. and Railway Express Agency, Incorporated, and the Greyhound Corporation, Intervening Defendants.

Civ. A. No. 9205.

United States District Court D. Colorado.

April 11, 1966.

Lee, Bryans, Kelly & Stansfield, Robert S. Gast, Jr., Royce D. Sickler, and T. A. White, Denver, Colo., R. K. Knowlton, Chicago, Ill., Harry B. LaTourette and C. W. Fiddes, Tyler, Tex., and

Jeremiah C. Waterman, Washington, D. C., for plaintiffs.

David Axelrod, Axelrod, Goodman & Steiner, Chicago, Ill., Berl L. Bernhard, Eugene T. Liipfert (of Verner, Liipfert & Bernhard) and Ronald B. Natalie, Washington, D. C., and Edward T. Lyons, Jr., Jones, Meiklejohn, Kehl & Lyons, Denver, Colo., for intervening plaintiffs Ringsby Truck Lines, Inc., Navajo Freight Lines, Inc., Denver Chicago Trucking Company, Inc., Illinois-California Express, Inc., Pacific Intermountain Express Co., Transcon Lines, Watson-Wilson Transportation System, Inc., Western Gillette, Inc., and Consolidated Copperstate Lines.

Richard J. Sigmon, Peter T. Beardsley, Harry J. Jordan, R. Edwin Brady, Roland Rice, and Rice, Carpenter & Carraway, Washington, D. C., for intervening plaintiffs American Trucking Ass'ns, Inc., and Regular Common Carrier Conference.

William H. Dempsey, Jr., Martin J. Flynn, Harry C. Ames, and Giles Morrow, Washington, D. C., and Edward T. Lyons, Jr., Denver, Colo., Shea & Gardner, Washington, D. C., of counsel, for intervening plaintiff Freight Forwarders Institute.

Warren A. Goff, Dallas, Tex., and John R. Barry, Denver, Colo., for intervening plaintiffs Transcontinental Bus System, Inc., American Buslines, Inc., Arkansas Motor Coaches Ltd., Inc., Bayshore Bus Lines, Inc., Continental Bus System, Inc., Continental Crescent Lines, Inc., Continental Panhandle Lines, Inc., Continental Southern Lines, Inc., Continental Tennessee Lines, Inc., Denver-Colorado Springs-Pueblo Motorway, Denver-Salt Lake-Pacific Stages, Inc., Continental Pacific Lines, Inc., Midwest Buslines, Inc., Smoky Mountain Stages, Inc., Tennessee Trailways, Inc., Union Bus Lines, Inc., and Muscatine, Davenport & Clinton Bus Co.

Robert L. Wright, Acting Asst. Atty. Gen., and John H. D. Wigger, Atty., Dept. of Justice, Washington, D. C., and Lawrence M. Henry, U. S. Atty., Denver, Colo., filed an answer for defendant United States neither supporting nor opposing the action of the Interstate Commerce Commission.

Robert W. Ginnane, Gen. Counsel, and Robert S. Burk, Atty., I. C. C., Washington, D. C., for defendant Interstate Commerce Commission.

Hodges, Silverstein & Harrington, Denver, Colo., Cravath, Swaine & Moore, and William J. Taylor, New York City, for intervening defendant Railway Express Agency, Inc.

Winston S. Howard and Dawson, Nagel, Sherman & Howard, Denver, Colo., William W. Schwarzer, Stephen R. Grant, and McCutchen, Doyle, Brown, Trautman & Enersen, San Francisco, Cal., for intervening defendant Greyhound Corp.

Before BREITENSTEIN, Circuit Judge, and ARRAJ and CHILSON, District Judges.

BREITENSTEIN, Circuit Judge.

This suit concerns the validity of an order of the Interstate Commerce Commission authorizing the issuance of stock by Railway Express Agency, Incorporated (REA), for sale to The Greyhound Corporation.¹ Various carriers and associations protested the Commission action. The plaintiffs are five railroads, all of which are stockholders of REA. Twenty-nine motor carriers, or associations of motor carriers, have intervened as plaintiffs. REA and Greyhound have intervened on the side of the defendants. We have jurisdiction under 28 U.S.C. § 1336. A three-judge district court is required by 28 U.S.C. § 2325.

REA, Greyhound, and the plaintiff railroads are all subject to the Interstate Commerce Act (the Act). REA is a common carrier by express on railroads and a common carrier by motor vehicle. It competes with Greyhound in the transportation of property between points in all states of the United States, except Alaska and Hawaii.

REA filed an application under §§ 20a and 214 of the Act² for authority to issue 500,000 shares of its common stock to Greyhound at $20 per share upon certain terms and conditions. Various protests, none of which challenged the facts stated by the applicant, alleged that Greyhound was trying to get control of REA in violation of § 5 of the Act,³ that the issuance of the stock would not conform to the standards of § 20a, and that an evidentiary hearing should be held. The United States Department of Justice intervened asserting that the Commission should act under § 11 of the Clayton Act⁴ to determine if the proposed transaction violated § 7 of that Act.⁵ Southern Pacific Company, one of the protestants and a plaintiff herein, filed with the Commission a complaint against Greyhound and REA asserting that the transaction encompassed control or management of REA by Greyhound and requesting action by the Commission under § 5 (7) of the Act to forbid the consummation of the proposal.

The Commission held no evidentiary hearing. Its March 15, 1965, order recited the background of the transaction, the corporate situation of REA, and the procedures which had been followed. It said that the filing of a § 5 application is "permissive and may not be required;" that an investigation of possible violations of § 5 of the Act and § 7 of the Clayton Act "would not be appropriate at this time;" and that a hearing was not necessary "for a determination of the application for authority to issue said stock under the provisions of sections 20a and 214." The Commission specifically found that the REA stock issue was lawful, compatible with the public interest, reasonably necessary, and consistent with its intended purpose. The complaint of the Southern Pacific under § 5(7) was dismissed and the stock issue was authorized. This action was then brought to set aside and vacate the order. The Commission has stayed the order until the completion of judicial review.

From 1929 to 1961 REA was operated on a nonprofit basis and either leased facilities or used facilities owned by other carriers. In 1961 it changed to a profit-and-loss basis and embarked on a program of capital expenditures to acquire and modernize terminals and equipment. The financing of such program was difficult because of a short history of profitable operations and an unfavorable ratio of debt to equity. Before 1963 only railroads could be stockholders of REA. Although this requirement was then removed, the charter provision that all sales of outstanding shares are subject to a right of first refusal by the railroad shareholders was retained.

In February, 1964, Greyhound submitted a proposal to REA which in essence covered acquisition of control of REA by Greyhound subject to Commission approval. The offer was not accepted. Thereafter meetings of executives of the two companies produced a "Memorandum of Understanding" which outlined "potential savings or advantageous arrangements" which would result from the merger of the companies or the consolidation of certain activities. These included joint use of terminals, garages, communication facilities, and sales solicitation.

In July, 1964, Greyhound made a second offer which, with some modifications, was approved by the REA Board of Directors and stockholders.⁶ The terms of the agreement appear in the resolution adopted by the REA Board. The important provisions are:

(1) Greyhound will acquire a 20% stock interest in REA through purchase, at $20 a share, of 500,000 shares of authorized but unissued stock not subject to the right of first refusal;

(2) Greyhound will have a 20% representation on the REA Board;⁷

(3 If the transaction is approved by the Commission and consummated, Greyhound, for a period of 60 days, will stand ready to purchase, at $20 a share, up to 1,000,000 shares of the outstanding REA stock, subject to the right of first refusal;

(4) The REA Board will seriously consider the sale of REA stock to the airlines and the public; and

(5) "The REA Board shall adopt a resolution declaring the intention to consider seriously and work toward a long-term agreement between REA and The Greyhound Corporation to consolidate operating functions and facilities, and to cooperate in all lawful, feasible and jointly advantageous ways to effect economies, improve service and increase public receptivity and patronage."

The main thrust of the plaintiffs' arguments is that the Commission should not have approved the stock issuance without a hearing. Consideration of this issue requires an analysis of the statutes upon which reliance is placed.

The REA application was filed under §§ 20a and 214.⁸ Section 20a(2) declares that a carrier shall not issue stock without Commission authorization. Section 20a(6) says: "The commission may hold hearings, if it sees fit, to enable it to determine its decision upon the application for authority." Accordingly, on a § 20a(2) application the Commission has the discretion to determine whether a hearing shall be held.

Section 5(2) (a) (i) covers, among other things, acquisitions of control of one carrier by another through stock ownership and makes such acquisition lawful if approved by the Commission. Section 5(2) (b) requires a carrier seeking authority for such a transaction to present an application to the Commission. Section 5(4) makes it unlawful for a person to enter into a transaction within the scope of § 5(2) (a) without compliance therewith. Section 5(7) authorizes but does not require the Commission on complaint or on its own initiative, but after notice and hearing, to investigate and determine whether any person...