Deutsch v. Flannery, 88-2629
| Decision Date | 21 August 1989 |
| Docket Number | No. 88-2629,88-2629 |
| Citation | 883 F.2d 60 |
| Parties | Fed. Sec. L. Rep. P 94,552 Samuel DEUTSCH, Plaintiff-Appellant, v. Robert G. FLANNERY, Robert C. Marquis; Richard W. Stumbo, Jr., Walter G. Treanor; John G. Bannister; Wayne T. Donnels, John G. McDonald; Justin M. Roach, Jr.; Joseph Rosenblatt; The Western Pacific Railroad Company; Union Pacific Corp., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Richard M. Meyer, Milberg, Weiss, Bershad, Specthrie & Lerach, New York City, for plaintiff-appellant.
John F. Collins, Dewey, Ballantine, Bushby, Palmer & Wood, New York City, Kurt W. Melchior, Nossaman, Guthner, Knox & Elliott, San Francisco, Cal., T. Barry Kingham, Curtis, Mallet-Prevost, Colt & Mosle, New York City, for defendants-appellees.
Appeal from the United States District Court for the Northern District of California.
Before NORRIS, BEEZER and BRUNETTI, Circuit Judges.
In 1980 Union Pacific Corporation ("Union Pacific") and Western Pacific Railroad Company ("WesPac") entered into an Agreement of Merger which provided that Union Pacific, which already owned 10% of WesPac stock, would make a tender offer for the remaining 90% of WesPac stock at $20 per share. The Agreement of Merger further provided that the tender offer would be followed by a back-end cash out merger of non-tendering shareholders, also at $20 per share. In response to the tender offer, 77% of the WesPac stock was tendered, leaving 13% in the hands of nontendering shareholders. Union Pacific and WesPac then applied to the Interstate Commerce Commission ("ICC") for approval of the merger transaction pursuant to the Interstate Commerce Act, which prohibits the acquisition of one rail carrier by another without ICC approval. 49 U.S.C. Sec. 11343(a)(3) (1982). The ICC approved the transaction in 1982, finding, inter alia, that "the terms of the UPRR-WPRR transaction are just and reasonable" and that the $20 per share price for WesPac shares was "fair and reasonable." Union Pacific Corp., Pacific Rail System, Inc. and Union Pacific R.R.--Control--Missouri Pacific Corp. and Missouri Pacific R.R., 366 I.C.C. 459, 638 (1982). In Southern Pacific Transp. Co. v. I.C.C., 736 F.2d 708 (D.C.Cir.1984), cert. denied, 469 U.S. 1208, 105 S.Ct. 1171, 84 L.Ed.2d 322 (1985), the ICC order approving the transaction was reviewed and upheld.
Appellant Samuel Deutsch is a former shareholder of WesPac who tendered his shares in response to Union Pacific's tender offer. In 1984 he brought this action in the Northern District of California claiming that Union Pacific, WesPac and WesPac's former directors violated sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rule 10b-5 by designing and executing a scheme to allow Union Pacific to acquire WesPac at a dishonestly low price. 1 Specifically, appellant alleges (1) that the tender offer did not disclose the true market value of certain WesPac real estate holdings not used for railroad operations, and (2) that WesPac's decision to forgo dividends for the last three quarters of 1979 was intended to depress the value of WesPac stock.
The district court dismissed the action for lack of subject matter jurisdiction, 2 holding that Sec. 11341(a) of the Interstate Commerce Act exempted the transaction from attack under all other laws, including the federal securities laws, once it had been approved by the ICC. 3 We have jurisdiction under 28 U.S.C. Sec. 1291 (1982), and we affirm.
We agree with the district court that this case is controlled by Schwabacher v. United States, 334 U.S. 182, 68 S.Ct. 958, 92 L.Ed. 1305 (1948). The plaintiffs in Schwabacher were a group of former shareholders of the Pere Marquette Railway Company who were dissatisfied with an ICC-approved railroad merger plan between Pere Marquette and the Chesapeake & Ohio Railway Company. Relying upon a provision in the Pere Marquette charter, plaintiffs claimed that under Michigan law they were entitled to more per share than the amount the ICC had determined to be just and reasonable. The Supreme Court held that the Michigan law claims could not be maintained if their resolution might lead to a share price that exceeded that which the ICC had found to be just and reasonable. We see no principled basis for distinguishing Schwabacher from this case. 4 Both this case and Schwabacher involve attempts by former shareholders to obtain higher prices for their shares than the prices approved as fair and reasonable by the ICC.
Appellant's attempt to distinguish Schwabacher is to no avail. Appellant argues that Schwabacher was a Supremacy Clause case--that the plaintiffs' claims in Schwabacher were rejected only because they were based upon state law, which was trumped by the federal Interstate Commerce Act. We find this reading of Schwabacher untenable. Nowhere does the Schwabacher Court suggest that its analysis would have been different had the plaintiffs' claims been based upon federal law. Moreover, the statutory provision upon which the Schwabacher Court relied drew no distinction between state and federal law for the purposes of exemption. To the contrary, the statute explicitly provided that parties to an ICC-approved transaction were relieved of "restraints, limitations and prohibitions of law, Federal, State, or municipal...." Interstate Commerce Act, ch. 722, Title I, Sec. 7, 54 Stat. 905 (1940) (current version at 49 U.S.C. Sec. 11341(a)).
Appellant's reliance upon City of Palestine, Texas v. United States, 559 F.2d 408 (5th Cir.1977), cert. denied, 435 U.S. 950, 98 S.Ct. 1576, 55 L.Ed.2d 800 (1978), is misplaced. In City of Palestine, the plaintiff municipality sued to enforce a contract it had made with MoPac, a railroad carrier, in 1954. MoPac claimed that it no longer had any obligations to the City because the ICC had abrogated the contract while approving a merger between MoPac and two of its subsidiaries in 1976. The Fifth Circuit rejected this argument, holding that Congress did not intend to give the ICC the power to relieve MoPac of preexisting contractual obligations that were unrelated to the merger transaction under ICC review. This holding clearly has no application to the instant case. Appellant here does not seek to enforce any preexisting contracts with Union Pacific or WesPac that are unrelated to the Union Pacific-WesPac merger. Rather, he is directly challenging the terms of the merger transaction itself--a transaction which the ICC undeniably had the power to review and approve. See 49 U.S.C. Sec. 11343(a)(3).
Appellant also relies upon Plaine v. McCabe, 797 F.2d 713 (9th Cir.1986), a case which is clearly inapposite. In Plaine, we held that a...
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Railway Labor Executives' Ass'n v. I.C.C.
...enumerated in section 11343. A section 11343 merger may be comprised of a series of integrally related transactions. Deutsch v. Flannery, 883 F.2d 60, 63 (9th Cir.1989). SFSP sought ICC approval for its plan of merger, of which the voting trust was an integral part. The ICC imposed conditio......
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