Erie-Lackawanna Railroad Company v. United States

• Decision Date: 29 December 1966
• Docket Number: 66 Civ. 2914.,No. 66 Civ. 2860,66 Civ. 2903,66 Civ. 2860
• Parties: ERIE-LACKAWANNA RAILROAD COMPANY, Plaintiff, v. UNITED STATES of America and Interstate Commerce Commission, Defendants. The BALTIMORE AND OHIO RAILROAD COMPANY, the Chesapeake and Ohio Railway Company, Norfolk and Western Railway Company, Plaintiffs, v. UNITED STATES of America, Defendant. The CENTRAL RAILROAD COMPANY OF NEW JERSEY and Reading Company, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of New York

259 F. Supp. 964

ERIE-LACKAWANNA RAILROAD COMPANY, Plaintiff, v. UNITED STATES of America and Interstate Commerce Commission, Defendants.

The BALTIMORE AND OHIO RAILROAD COMPANY, the Chesapeake and Ohio Railway Company, Norfolk and Western Railway Company, Plaintiffs, v. UNITED STATES of America, Defendant.

The CENTRAL RAILROAD COMPANY OF NEW JERSEY and Reading Company, Plaintiffs, v. UNITED STATES of America, Defendant.

Nos. 66 Civ. 2860, 66 Civ. 2903, 66 Civ. 2914.

United States District Court S. D. New York.

October 4, 1966.

Appeal Dismissed in Part December 29, 1966.

Edward W. Bourne, J. Kenneth Campbell and John T. Rafferty, New York City (Alexander & Green, New York City), for plaintiff Erie-Lackawanna Railroad Co.

Howard J. Trienens, Chicago, Ill., and Edward K. Wheeler, Washington, D. C. (Kelley, Drye, Newhall, Maginnes & Warren, New York City), for plaintiffs Baltimore and Ohio Railroad Co., The Chesapeake and Ohio Railway Co., and Norfolk and Western Railway Co.

William P. Quinn (Thomas E. Tisza, New York City), for plaintiffs Central Railroad Co. of New Jersey and Reading Co.

Harry G. Silleck, Jr., New York City (Nixon, Mudge, Rose, Guthrie & Alexander, New York City), for intervening plaintiff Delaware & Hudson Railroad Corp.

Francis P. Bensel, New York City and James H. Durkin, Chicago Heights, Ill. (Martin, Clearwater & Bell, New York City), for intervening plaintiff Chicago & Eastern Illinois Railroad Co.

Norman C. Melvin, Baltimore, Md. (Thomas E. Tisza, New York City), for intervening plaintiff Western Maryland Railway Co.

Edward A. McDermott, Francis Casey, Jr., Washington, D. C., and Richard C. Casey, Washington, D. C. (Hogan & Hortison, Washington, D. C.), for intervening plaintiff Boston & Maine Railroad Co.

Gordon P. MacDougall, Washington, D. C. (Arthur Arsham, New York City), for intervening plaintiff Milton J. Shapp.

Arthur Arsham, New York City, for intervening plaintiffs Borough of Freedom and City of Scranton.

Robert M. Morgenthau, U. S. Atty., for the S. D. of New York, for defendant, the United States.

Robert W. Ginnane, Gen. Counsel, for defendant, the Interstate Commerce Commission.

Edward F. Butler, New York City, Windsor F. Cousins and Richard R. Bongartz, Philadelphia, Pa. (Conboy, Hewitt, O'Brief & Boardman, New York City), for intervening defendant Pennsylvania Railroad Co.

James B. Gray and Jerome H. Shapiro, New York City (Gerald E. Dwyer, New York City), for intervening defendant New York Central Railroad Co.

Joseph Auerbach, Arthur Blasberg, Jr., Robert G. Bleakney, Jr., Boston, Mass., Robert M. Peet, New York City, James Wm. Moore, and Robert W. Blanchette, New Haven, Conn. (Sullivan & Worcester, Boston, Mass.), for intervening defendants Richard Joyce Smith and William J. Kirk, as Trustees for New York, New Haven & Hartford Railroad Co.

David Berman, Asst. Atty. Gen. (Edward Brooke, Atty. Gen), for the Commonwealth of Massachusetts, intervening defendant.

J. Lee Rankin, Corp. Counsel, for intervenor City of New York, by Norman Redlich and Samuel Mandell.

Walter J. Myskowski (Asst. Atty. Gen., Charles A. LaTorella, Jr.), for intervening defendant, State of New York.

Herbert Smolen, Philadelphia, Pa. (Edward G. Bauer, Jr., City Sol.), for intervening defendant, the City of Philadelphia.

Donald L. Wallace, New York City (Clark, Carr & Ellis, New York City), for intervening defendants Chambers of Commerce of Greater Philadelphia & Pittsburgh.

Robert M. Schacht, Asst. Atty. Gen. (J. Joseph Nugent, Atty. Gen.), for intervening defendant, the State of Rhode Island.

Samuel Kanell, Sp. Asst. Atty. Gen. (Harold M. Mulvey, Atty. Gen.), for intervening defendant, the State of Connecticut.

Howard Lionel Toft, Newark, N. J., for intervening defendant, the City of Jersey City.

Before FRIENDLY, Circuit Judge, and WEINFELD and LEVET, District Judges.

Appeal Dismissed in Part December 29, 1966. See 87 S.Ct. 612.

FRIENDLY, Circuit Judge:

These are motions for a temporary injunction in three consolidated actions wherein various plaintiffs and intervenors seek to enjoin orders of the Interstate Commerce Commission authorizing the merger of the New York Central Railroad Company (NYC) with the Pennsylvania Railroad Company (PRR) the proposed merged company being hereafter referred to as the Transportation Company and the issuance of securities and assumption of obligations by PRR in accordance with numerous conditions therein set forth and others that may later be imposed. The orders were to become effective on September 30, 1966.

On September 21 we heard argument on the motions, granted leave until September 27 to file additional briefs addressed to new issues raised by the Commission's report on reconsideration served September 19, and because of the impracticability of concluding our deliberations and preparing an opinion before September 29 under the circumstances, entered an order temporarily restraining consummation of the merger pending further order of this court. We have concluded that a temporary injunction should be denied.

The proceedings before the Commission, F.D. 21989 and 21990, were initiated by applications filed March 9, 1962. After extensive hearings, the examiners rendered a recommended report and order on March 29, 1965. In a document of 446 pages with many appendices, they advised the Commission to find the transactions consistent with the public interest, 49 U.S.C. §§ 5(2) (b) and 20a (2), subject to numerous conditions primarily for the protection of other carriers and of labor. In a report dated April 6 and served April 27, 1966, which fully complied with the directions of the Supreme Court in such recent decisions as Minneapolis & St. Louis R. Co. v. United States, 361 U.S. 173, 186, 80 S. Ct. 229, 4 L.Ed.2d 223 (1959), and Seaboard Air Line R. Co. v. United States, 382 U.S. 154, 86 S.Ct. 277, 15 L.Ed.2d 223 (1965), the Commission accepted their ultimate recommendation but with conditions differing in several respects.

The Commission's report attracted many petitions for reconsideration. Only one, by Milton J. Shapp, an industrialist and PRR stockholder, questioned the desirability of the merger. The petitions went rather to its consummation before certain other merger or control proceedings had been finally determined; to the sufficiency of special protective traffic and financial provisions fashioned by the Commission for the benefit of Erie-Lackawanna (E-L), Delaware & Hudson (D & H) and Boston & Maine (B & M); to the lack of similar or other provisions in favor of other carriers; and to a fear that the financial provisions for the protection of E-L, D & H and B & M might lead to manipulation of traffic favorable to the Transportation Company or the protected lines and adverse to others. Complaint was made also that the novel protective provisions had been imposed without the hearing required by § 5(2) (b) of the Interstate Commerce Act, § 5 of the APA and the due process clause of the Fifth Amendment, and that the financial provisions constituted a pooling arrangement under § 5(1) of the Interstate Commerce Act.

In order to consider these petitions the Commission deferred the effective date of the merger from May 31 to September 30, 1966, but, on August 29, declined to postpone this further although its report on reconsideration had not yet been filed. E-L thereupon brought an action to enjoin the merger; and two other actions were brought and later consolidated, one by the Baltimore & Ohio (B & O), Chesapeake & Ohio (C & O), and Norfolk & Western (N & W), the other by the Central of New Jersey (CNJ) and the Reading. D & H and B & M, also beneficiaries of the special protective conditions, intervened as plaintiffs in E-L's action; two other railroads, the Chicago & Eastern Illinois (C. & E. I.) and Western Maryland (WM), intervened in the others. Shapp and the Borough of Freedom and City of Scranton also intervened as plaintiffs. PRR, NYC and the Trustees of the New Haven (NH) intervened as defendants. Numerous public bodies and chambers of commerce also intervened as defendants.

We interrupt the narrative at this point to describe the special protective conditions in favor of E-L, D & H and B & M and the background for them.

Transportation Act, 1920, which in returning the railroads to private management placed them "more completely than ever under the fostering guardianship and control of the Commission", Dayton-Goose Creek Ry. v. United States, 263 U.S. 456, 478, 44 S.Ct. 169, 172, 68 L.Ed. 388, 33 A.L.R. 472 (1924), directed the Commission to "prepare and adopt a plan for the consolidation of the railway properties of the continental United States into a limited number of systems"; once the plan was adopted, all consolidations must be in harmony therewith. 41 Stat. 481 (1920). Despite the expenditure of vast amounts of time and effort, nothing came of this grand design, and the provision was later eliminated. Congress has "consistently and insistently denied the Interstate Commerce Commission the power to take the initiative in getting one railroad to turn over its properties to another railroad in return for assorted securities of the latter." St. Joe Paper Co. v. Atlantic Coast Line R.R., 347 U.S. 298, 305, 74 S.Ct. 574, 579, 98 L.Ed. 710 (1954). Railroad consolidation has thus proceeded on a voluntary case by case basis and, until recently, with less than even deliberate speed. However, the intensified competition from other forms of transportation after World War II gave a new impetus to railroad consolidation, and the Commission has freely utilized its power under § 5(2) (d) to insist that carriers avid for matrimony should adopt some disfavored children.

This process has already resulted in a considerable realignment of the railroads serving the northeastern states. We here refer only to the two most important of these steps, the control of the B & O by the C & O authorized in 1962, 317 I.C.C. 261, and the...