Gilbertville Trucking Co v. United States, 40

• Citation: 371 U.S. 115,9 L.Ed.2d 177,83 S.Ct. 217
• Decision Date: 03 December 1962
• Docket Number: No. 40,40
• Parties: GILBERTVILLE TRUCKING CO., Inc., et al., Appellants, v. UNITED STATES et al
• Court: United States Supreme Court

371 U.S. 115

83 S.Ct. 217

9 L.Ed.2d 177

GILBERTVILLE TRUCKING CO., Inc., et al., Appellants,

v UNITED STATES et al.

No. 40.

Argued Oct. 15, 1962.

Decided Dec. 3, 1962.

Loyd M. Starrett, Boston, Mass., for appellants, pro hac vice by special leave of Court.

Lionel Kestenbaum, Washington, D.C., for appellees.

Mr. Chief Justice WARREN delivered the opinion of the Court.

This case concerns disapproval by the Interstate Commerce Commission of a proposed merger on the ground that 'control and management in a common interest' over the two applicant-carriers had been unlawfully effectuated prior to the merger application in violation of § 5(4) of the Interstate Commerce Act, as amended, 54 Stat. 907, 49 U.S.C. § 5(4), 49 U.S.C.A. § 5(4).¹

The applicant-carriers are L. Nelson & Sons Transportation Co. and Gilbertville Trucking Co., both of whom are certificated by the Commission as common carrier motor carriers. The principal stockholders of Nelson Co. are two half brothers, Charles Chilberg and Clifford Nelson; Gilbertville Co. is wholly owned by a third brother, Kenneth Nelson.

The merger application was filed October 6, 1955, by the two carriers and their stockholders pursuant to § 5(2) of the Act. Two and a half months later the Commission initiated an investigation into the possibility of a § 5(4) violation pursuant to authority granted by § 5(7) of the Act. The two proceedings were consolidated for hearing. The trial examiner determined that § 5(4) was being violated, but recommended that the merger be approved on the ground that the violation was neither intentional nor flagrant. Division 4 affirmed the finding of a violation, but disapproved the merger, and ordered the violation terminated. 75 M.C.C. 45. On reconsideration, the full Commission affirmed the Division, but further ordered that Kenneth Nelson divest himself of Gilbertville Co. 80 M.C.C. 257. A suit before a three-judge United States District Court for the District of Massachusetts to enjoin and set aside the Commission's orders was dismissed on the ground that the orders were reasonable and supported by substantial evidence. D.C., 196 F.Supp. 351. An appeal was taken to this Court contesting (1) the finding of a § 5(4) violation, (2) the denial of the merger, and (3) the order of divestiture. We noted probable jurisdiction. 368 U.S. 983, 82 S.Ct. 597, 7 L.Ed.2d 522.

The factual issue in this case turns upon the development of family, management, and operational relationships between Nelson, Gilbertville, and a third carrier, R. A. Byrnes, Inc., which is owned by the principal stockholders of Nelson.

The Nelson transportation business was first organized in 1930 as a partnership. In 1947 it was incorporated as L. Nelson & Sons Transportation Co. and stock issued to Mrs. Nelson (formerly Mrs. Chilberg) and four of her seven children (including Kenneth Nelson, Clifford Nelson, and Charles Chilberg). Upon Mrs. Nelson's death in 1950, equal numbers of shares of her stock in Nelson Co. were devised to her seven children. In 1951, Kenneth Nelson sold his original shares received in 1947 to Charles Chilberg and Clifford Nelson, and agreed to sell to them the remainder to which he was entitled on distribution of the estate. The distribution and transfer were made on January 23, 1953. Since that date, Charles and Clifford have been the principal stockholders in Nelson Co. Charles is now president and treasurer; Clifford is secretary and assistant treasurer.

Upon the sale of his stock in 1951, Kenneth Nelson resigned as an officer and director of Nelson Co. However, he kept his office at Nelson Co. headquarters in Ellington, Connecticut, and was retained by the company as a 'free-lance tariff consultant.' In such capacity he was paid approximately $15,000 in 1952 and $13,000 in 1953. While he claims to have been an independent contractor, his only client was Nelson Co. In the third week of January 1953, Kenneth Nelson wrote to Nelson Co.'s accountant, Mr. Sanol Solomon, requesting advice on the acquisition of Gilbertville Trucking Co. Soon thereafter Kenneth began negotiations with Gilbertville's owner, and on March 3, 1953, took over control. Since July 1953, all the stock in Gilbertville has been controlled by Kenneth.

In April of 1954 Charles Chilberg and Clifford Nelson obtained temporary authority from the Commission to take over the operations of R. A. Byrnes, Inc.; their acquisition of Byrnes stock was approved in August 1956.

The routes of these three carriers form a cohesive network along the eastern seaboard from Massachusetts to the District of Columbia. Gilbertville is presently certificated by the Commission as a common carrier for general commodities over regular and irregular routes between points in Massachusetts, Connecticut, Rhode Island, and New York City. Byrnes is certificated as a common carrier for general commodities over irregular routes between New York City, Philadelphia, the District of Columbia, and points adjacent to these cities. It is also certificated as a contract carrier of canned goods in Masachusetts Connecticut, and Rhode Island. Nelson is certificated as a common carrier for textile commodities over irregular routes between points in Massachusetts, New Hampshire, Rhode Island, Connecticut, and areas adjacent to New York and Philadelphia. It is also certificated for general commodities in intrastate traffic in Connecticut and Massachusetts. Thus, the Gilbertville and Byrnes general-commodity routes complement each other perfectly and overlap to a considerable degree the textile routes of Nelson.

Soon after his acquisition of Gilbertville, Kenneth Nelson instituted a number of permanent changes in the carrier's operations tending to integrate the terminal facilities of Nelson and Gilbertville; he received where necessary the cooperation of Nelson Co. Kenneth obtained permission from the Commission to move the business records and head offices of the acquired company from Gilbertville, Massachusetts, the place of incorporation, to Ellington, Connecticut, and took over the second floor of the nelson Co. office building. Where possible Gilbertville used the Nelson terminals, subletting from Nelson in Ellington, Connecticut; New York City; Newton, Massachusetts; and Woonsocket, Rhode Island. Its only other terminal was at Gilbertville, Massachusetts. In seven cities, Gilbertville and Nelson were listed under the same telephone number, and they shared interterminal telephone lines. Almost identical changes took place in 1954 upon Commission approval of Charles Chilberg and Clifford Nelson's acquisition of Byrnes. Byrnes' offices were moved from Mullica Hill, New Jersey, to the Nelson, Co. headquarters in Ellington, Connecticut; Byrnes shared the Nelson terminal in New York; it listed under the Nelson telephone number; it shared interterminal telephone lines. Since the Byrnes changes were the direct result of control and management in a common interest of Byrnes and Nelson in the hands of Charles and Clifford, it might be inferred that the Gilbertville changes were similarly indicative of control and management in a common interest of Nelson and Gilbertville.

Further substantiation of this terminal integration is provided by a fourth corporation, Bergson Company, a real estate corporation formed to receive the residual properties of Mrs. Linnea Nelson's estate. Bergson owns the terminals leased to Nelson Co. at Philadelphia, Ellington, Woonsocket, and Newton, three of which are sublet to Gilbertville. Since Bergson is owned in equal shares by all seven children, all of whom are directors, it provides a direct corporate tie-in between Kenneth Nelson and his brothers.

While it is not unusual for independent carriers to share terminal facilities, as indeed Gilbertville and Nelson do with unrelated carriers in New York and Woonsocket, the repetition of such practices throughout their respective systems makes their alleged independence suspect. When these practices are then supplemented by further day-to-day practices integrating business, equipment, and managerial policies, the Commission is justified in concluding the carriers are in fact being managed and controlled in a common interest. Such additional practices are readily found in the record of this case.

Most significant is the equipment interdependence between Nelson and Gilbertville. When acquired for $35,000 in 1953, Gilbertville had a deficit about equal to the purchase price, assets of only $69,000, and a 1953 operating revenue of only $75,000. By 1956 Kenneth Nelson had increased the operating revenue to a sevenmonth figure of $444,777. This impressive growth was made in the face of a continual short-term credit squeeze and lack of working capital and equipment. Nelson Co., however, was operating in a declining textile market in the Northeast with highly periodic demands for carriage. As a result, Nelson had a fluctuating overcapacity in equipment which was leased only to Gilbertville and occasionally Byrnes. Kenneth Nelson estimated that Gilbertville and from one to six tractor-trailer units on trip-lease from Nelson Co. every day and up to five other pieces of equipment on permanent lease, an amount equal at times to over onehalf of Gilbertville's own carriage capacity. Added to this equipment interdependence between Nelson and Gilbertville were certain interlining practices.² Gilbertville interlined between 25% and 30% of its business. Over one-third of this interline business was with Nelson Co. and Byrnes, the majority being in truckload quantities. Owing to its equipment shortage, Gilbertville interlined with Nelson pursuant to a practice whereby a trip-lease was made out at the start of a run to take effect at the point of transfer to Gilbertville routes so that the Nelson tractor-trailer operated throughout the trip; moreover, the same driver might stay with the unit, changing employers at the point of transfer.³

Finally, the record...