INTERSTATE INVEST., INC. v. Transcontinental Bus Sys., Inc.

• Decision Date: 26 March 1970
• Docket Number: No. 66 Civ. 3004.,66 Civ. 3004.
• Citation: 310 F. Supp. 1053
• Parties: INTERSTATE INVESTORS, INC., Plaintiff, v. TRANSCONTINENTAL BUS SYSTEM, INC., now known as TCO Industries, Inc., defendant (formerly intervenor-defendant), Queen City Coach Company, General Realty & Insurance Corporation, M. E. Moore, N. W. Scheitel, Estate of L. A. Love, added defendants, Defendants.
• Court: U.S. District Court — Southern District of New York

310 F. Supp. 1053

INTERSTATE INVESTORS, INC., Plaintiff, v. TRANSCONTINENTAL BUS SYSTEM, INC., now known as TCO Industries, Inc., defendant (formerly intervenor-defendant), Queen City Coach Company, General Realty & Insurance Corporation, M. E. Moore, N. W. Scheitel, Estate of L. A. Love, added defendants, Defendants.

No. 66 Civ. 3004.

United States District Court, S. D. New York.

March 26, 1970.

Royall, Koegel & Wells, New York City, Frederick W. P. Lorenzen, William S. Greenawalt, New York City, of counsel, for plaintiff.

Lord, Day & Lord, New York City, John W. Castles, 3d, Wendell Davis, Jr., New York City, of counsel, for all defendants other than Estate of L. A. Love.

Richard J. Burke, New York City, for L. A. Love, Jr., et al., as Executors of Estate of L. A. Love.

OPINION

LASKER, District Judge.

The defendants move to dismiss the complaint or, in the alternative, for summary judgment in this antitrust action which constitutes the latest assault on the validity of an interstate bus merger which occurred in 1964. In that year Transcontinental Bus System, Inc. ("Transcon") acquired control of Queen City Coach Company ("Queen") and certain of its subsidiaries. The plaintiff, Interstate Investors, Inc. ("Investors"), whose efforts to acquire Queen had been rejected, sued Queen in the United States District Court for the Western District of North Carolina. That suit was settled and releases were given by Investors not only to Queen and others, but to Transcon. During the course of the North Carolina action, Investors intervened in proceedings before the Interstate Commerce Commission ("I.C.C." or "the Commission") which had been brought by Transcon to secure approval of the Queen acquisition. The hearing examiner rejected Investors' attack on the Transcon-Queen marriage; the I.C.C. affirmed the examiner. Investors then sued before a three-judge court in this District to enjoin or set aside the Commission's orders, filing a complaint which contained as item VI a section entitled "Antitrust Aspects of the Complaint." The three-judge court affirmed the Commission's orders and dismissed the antitrust aspect of the complaint "without prejudice to the filing within sixty days of an amended complaint stating the private claims for relief only to be heard before a single district judge." Interstate Investors, Inc. v. United States of America, Interstate Commerce Commission and Transcontinental Bus System, Inc., 287 F.Supp. 374, 385 (S.D.N. Y.1968). The Supreme Court affirmed without opinion. Interstate Investors, Inc. v. United States et al., 393 U.S. 479, 89 S.Ct. 707, 21 L.Ed.2d 687 (1969).

The present motion is addressed to the amended complaint authorized in the opinion of the three-judge court. It alleges violations of the antitrust laws founded on overt acts, including the making of a written contract by Transcon and defendant Queen by which the former would acquire the latter; the formation of an unwritten, secret agreement between Transcon and certain shareholders of Queen by which Transcon would purchase for cash from the shareholders certain deposit receipts evidencing stock interest in Queen; the submission of false and misleading misrepresentations to the Internal Revenue Service; the giving of false testimony before the Interstate Commerce Commission by defendants Moore and Scheitel, who are officers of Transcon, and by defendant Love, who was an officer of Queen; and the unlawful acquisition of control by Transcon over Queen prior to I.C.C. approval of the proposed agreement between the two.

Defendants Transcon, Queen, Moore, and General Realty and Insurance Company have moved to dismiss the complaint or, in the alternative, for summary judgment, on the grounds of general release; lack of jurisdiction; improper venue; failure to bring this action within the time prescribed by the three-judge court which previously heard this case; res judicata; and immunity from liability, conferred by Section 5 (11) of the Interstate Commerce Act ("the Act"), 49 U.S.C. § 5. I hold that the latter provision, which is set forth infra, entitles defendants to summary judgment. This holding is premised upon the fact that the I.C.C., which approved the acquisition of Queen, properly took into account the precise ingredients of this action — i. e., the above mentioned overt acts — and thus its approval bars recovery here.

In order to understand the "precise ingredients" of the case it becomes essential to review in detail the factual background and history of the litigation. The picture that emerges is that of an aggrieved suitor whose rejected advances have become an obsession. Investors and Transcon both wooed Queen. Transcon won. Investors lost. Stung by its rejection, Investors has engaged in a continuous campaign to undo the Transcon-Queen marriage. However, Transcon and Queen and the remaining defendants are entitled under Section 5(11) of the Act to protection from further attack. The motion for summary judgment is granted.¹

I. FACTUAL BACKGROUND AND HISTORY OF THE LITIGATION

In 1964, the Greyhound System dominated the nationwide, intercity bus industry.² At that time, and now, Transcon was Greyhound's major competitor, although it was only one-fifth the size of Greyhound. Transcon was the largest member of the National Trailways Bus System ("N.T.S."), a non-profit association of separate and independent bus carriers which have adopted Trailways as a common name, use uniform symbols for identification, share joint terminals, and coordinate many essential business functions, including advertising and purchasing. For several years prior to 1964, Transcon had sought control of other N.T.S. members, and had conducted negotiations with the major stockholders of defendant Queen City Coach Company, which itself controlled subsidiary bus carriers. Queen had routes in the southeastern United States, the only region where Transcon lacked through northsouth connections.

Investors and its president, William Burt, also engaged in negotiations with Queen stockholders, beginning in August 1963. Investors was not then a bus operator, but it hoped to acquire existing carriers running along the Eastern seaboard and weld them into the foundation for what Burt described as a "third force" to compete with Greyhound and Trailways. Investors maintains that the Burt-Queen negotiations culminated in late March, 1964, in an oral agreement for Investors to purchase all of the stock of Queen and defendant General Realty and Insurance Corporation ("GRIC")³ for approximately $8,000,000, in cash.

When Transcon learned of the possible Queen-Investors deal, it "immediately started negotiating in earnest" with Queen.⁴ The president of Queen, Mr. L. A. Love (whose estate is a defendant here) by a letter to Transcon dated April 28, 1964, proposed an arrangement by which Transcon would purchase Queen for approximately the same price which Interstate had offered — $8,000,000. But whereas Investors had offered cash, the Queen-Transcon transaction would be effectuated by an exchange of stock and would be contingent upon four conditions, one of which was a commitment by Transcon to buy back its stock from those Queen stockholders who wanted cash.

On May 21, 1964, the Queen board accepted a counter offer by Transcon, dated May 16, 1964, which did not mention any of the conditions specified in Queen's April 28 letter. The May 21 purchase agreement provided for a depositary receipts arrangement by which Queen's stockholders were to deliver their Queen shares to a named bank which would then issue a receipt reflecting the number of shares owned by that stockholder. The bank would hold the stock pending determination of Transcon's application to the Interstate Commerce Commission for approval of control over the Queen group. If the I.C.C. approved the acquisition, the deposited stock would be transferred to Transcon, which in turn would issue to the Queen shareholders 7.25 shares of its common stock for each share of Queen stock. During the period of the deposit, the voting and dividend rights to the Queen stock remained in the holders of the receipts. Pending approval, Queen could only engage in transactions within its ordinary course of business, while Transcon was barred from taking any action which would dilute the value of its common stock. It is this deposit receipts arrangement which forms the core of Investors' suit here. Investors claims that it enabled Transcon illegally to control Queen even before the Commission approved the formal acquisition, that it prevented others, including Investors, from entering the industry, and that it led to false misrepresentations before the Commission and the Internal Revenue Service.

Both the deposit receipts arrangement and Transcon's application to the I.C.C. for approval of control, under Section 5 of the Act, were conditioned upon a ruling from the Internal Revenue Service that the exchange of stock was tax-free. Transcon applied to the I.C.C. for control of Queen on June 5, 1964. The application was consolidated with another Transcon request for authorization to acquire control of certain other bus companies. The I.C.C. examiner began hearings on Transcon's control application on September 9, 1964.

In August 1964, Investors had already filed two actions against Queen and several major Queen stockholders, including L. A. Love, in the United States District Court for the Western District of North Carolina. Investors charged breach of its alleged contract with Queen and tortious interference with that contract. It did not allege any antitrust violations, and did not name Transcon as a defendant.

In an affidavit submitted on the instant motion, Investors' president, William Burt, asserts that "at the time plaintiff commenced these actions i. e., the August 1964 breach of contract actions neither plaintiff nor its President had any knowledge that Transcon had acted in contravention of the...