New York Central Securities Corporation v. United States 14 8212 17, 1932

• Citation: 77 L.Ed. 138,287 U.S. 12,53 S.Ct. 45
• Decision Date: 07 November 1932
• Docket Number: No. 5,5
• Parties: NEW YORK CENTRAL SECURITIES CORPORATION v. UNITED STATES et al. Argued Oct. 14—17, 1932
• Court: United States Supreme Court

287 U.S. 12

53 S.Ct. 45

77 L.Ed. 138

NEW YORK CENTRAL SECURITIES CORPORATION

v UNITED STATES et al.

No. 5.

Argued Oct. 14—17, 1932.

Decided Nov. 7, 1932.

Appeal from the District Court of the United States for the Southern District of New York.

[Argument of Counsel from pages 12-14 intentionally omitted] Messrs. Frederick A. Henry, of Cleveland, Ohio, and Wm. J. Hughes, Jr., and Wm. E. Leahy, both of Washington, D.C., for appellant.

[Argument of Counsel from pages 14-19 intentionally omitted] The Attorney General and Mr. Daniel W. Knowlton, of Washington, D.C., for the United States and the Interstate Commerce Commission.

Mr. Jacob Aaronson, of New York City, for appellees New York Central R. Co. and others.

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

On July 2, 1929, the Interstate Commerce Commission made an order authorizing the New York Central Railroad Company to acquire control, by lease, of the railroad systems of the Cleveland, Cincinnati, Chicago & St. Louis Railway Company (known as the 'Big Four') and of the Michigan Central Railroad Company. By order of December 2, 1929, the Commission permitted the assumption by the lessee of obligation and liability in respect of certain securities of the lessors. In this suit, a minority stockholder of each of the lessors, and of the lessee, sought to set aside these orders upon the ground that the Commission had exceeded its authority. The District Court, of three judges, upon pleadings and proofs, and having filed findings of fact and conclusions of law, denied the motion for injunction and dismissed the petition upon the merits. 54 F.(2d) 122. The petitioner appeals. U.S. Code tit. 28, §§ 47, 345 (28 USCA §§ 47, 345).

The District Court, against objection, sustained its jurisdiction. The court took the view that the petitioner as a minority stockholder of the lessors, alleged an injury not merely derivative, but independent, being a member of a class created by the leasing agreements. 54 F.(2d) at page 126; compare Pittsburgh & West Virginia Railway Co. v. United States, 281 U.S. 479, 487, 50 S.Ct. 378, 74 L.Ed. 980. While appellees submit that there are certain contentions which appellant may not properly raise, the correctness of the decision as to jurisdiction is conceded.

The authority of the Commission to make the orders is rested upon section 5, subdivision 2, and section 20a of the Interstate Commerce Act. U.S. Code, tit 49.¹ After full hearing, and upon consideration of the purpose of the proposals, of the physical, traffic, and intercorporate relationships, of investment, income, and dividends, of the provisions of the proposed leases, of the benefits deemed to accrue to the public, of the particular situation of certain short lines, and of the objections raised by minority stockhold- ers, the Commission found that the 'considerations and terms and conditions' set forth in the proposed leases were 'just and reasonable' and that the contemplated acquisition would be 'in the public interest.' The authorization was upon the express condition that before the leases became effective, the New York Central should offer to acquire specified short lines upon terms and conditions stated. Report, January 14, 1929, 150 I.C.C. 278, 321, 322. Upon proof of compliance with this condition, and upon further conditions, the acquisition was approved. Supplemental Report and Order of July 2, 1929, 154 I.C.C. 489, 494, 495. One of the conditions was that the New York Central and the 'Big Four' should not be relieved from compliance with provisions of law applicable to any assumption of obligations and liabilities by virtue of the execution of the leases. On later appli- cation for authority in that respect, the Commission found that the proposed assumption by the carriers was 'for a lawful object within their respective corporate purposes, and compatible with the public interest, which is necessary and appropriate for and consistent with the proper performance by them of service to the public as common carriers, and which will not impair their ability to perform that service' and was 'reasonably necessary and appropriate for such purpose.' Report and Order of December 2, 1929, 158 I.C.C. 317, 323, 328.

Appellant contends (a) that as the New York Central had already acquired control of the 'Big Four' and Michigan Central by stock ownership, the Commission could not authorize acquisition of control by lease; (b) that the proposed acquisition involved a 'consolidation' which could not be authorized under section 5(2); (c) that the main lines of the lessors are parallel and competing with those of the lessee so that competition would be suppressed, and that the attempt to confer authority upon the Commission to approve the acquisition of control was an unconstitutional delegation of power; (d) that the proposed leases transgressed limitations imposed by state authority; and (e) that the action of the Commission was unsupported by evidence and was arbitrary and confiscatory as to the appellant. The questions presented thus relate, in part, to the construction and validity of the statute and, in part, to the present application of the statute in view of the particular terms of the leases.

First. The Commission stated that, while the properties of the New York Central, the 'Big Four' and the Michigan Central are operated as separate units, the companies are under common control. This control has existed for many years. The Commission found that the New York Central held upwards of 99 per cent. of the stock of the Michigan Central and upwards of 91 per cent. and 84 per cent., respectively, of the common and preferred stocks of the 'Big Four.' The authority to lease was sought in the view that it would facilitate revision of routes, and physical improvements needed for new routes, and would make possible important economies in operation which the Commission set forth in detail. Section 5(2) authorizes the acquisition of control 'to the extent indicated by the commission.' The question is not of the extent of the control, provided it stops short of 'consolidation,' but of the public interest in having the control maintained. The public interest is served by economy and efficiency in operation. If the expected advantages are inadequately secured by stock ownership and would be better secured by lease, the statute affords no basis for the contention that the latter may not be authorized although the former exists. The fact that one precedes the other cannot be regarded as determinative if the desired co-ordination is not otherwise obtainable. The disjunctive phrasing of the statute 'either under a lease or by the purchase of stock' must be read in the light of its obvious purpose and cannot be taken to mean that one method must be exclusive of the other.

The statute refers to 'control' in contradistinction to 'consolidation.' Subdivision (2) itself indicates that control by purchase of stock or by lease is not regarded as a 'consolidation' as the word is there used. Its use is in the restricted sense of the formation of a 'single system for ownership' as well as for 'operation.' This distinction between control where separate ownership continues, and consolidation where a single ownership is created, is a familiar one in the law. Atlantic & G.R. Co. v. Georgia, 98 U.S. 359, 363, 25 L.Ed. 185. That the Congress had this distinction in view appears from the other provisions of section 5. Thus, subdivision (6) permits carriers 'to consolidate their properties or any part thereof, into one corporation for the ownership, management, and operation of the properties theretofore in separate ownership, man- agement, and operation.' This may be effected under stated conditions which contemplate the ownership by one corporation of the consolidated properties and the issue of securities upon that basis. The view that the proposed acquisition does not involve a 'consolidation' contrary to the limitation in subdivision (2) is in accord with the long-continued construction of the statute by the Interstate Commerce Commission. Control of El Paso & S.W. System, 90 I.C.C. 732; Control of Alabama & Vicksburg, etc., 111 I.C.C. 161, 169; Lease of Pan Handle, 72 I.C.C. 128, 133; New York Central Leases, 72 I.C.C. 243; Control of Central Pacific, 76 I.C.C. 508; Nickel Plate Unification, 105 I.C.C. 425. And this administrative construction would be persuasive if the statute could be regarded as ambiguous. United States v. Jackson, 280 U.S. 183, 193, 50 S.Ct. 143, 74 L.Ed. 361; Louisville & Nashville R.R. Co. v. United States, 282 U.S. 740, 757, 51 S.Ct. 297, 75 L.Ed. 672. Whether the particular authorization, in the light of the situation of these carriers, would interfere with plans of the Commission for consolidation was an administrative question with which the Commission was competent to deal.

Appellant insists that the delegation of authority to the Commission is invalid because the stated criterion is uncertain. That criterion is the 'public interest.' It is a mistaken assumption that this is a mere general reference to public welfare without any standard to guide determinations. The purpose of the Act, the requirements it imposes, and the context of the provision in question show the contrary. Going forward from a policy mainly directed to the prevention of abuses, particularly those arising from excessive or discriminatory rates, Transportation Act 1920 (41 Stat. 456), was designed better to assure adequacy in transportation service. This Court, in New England Divisions Case, 261 U.S. 184, 189, 190, 43 S.Ct. 270, 273, 67 L.Ed. 605, adverted to that purpose, which was found to be expressed in unequivocal language: 'to attain it, new rights, new obligations, new machinery, were created.' The Court directed attention to various provisions having this effect, and to the criteria which the statute had established in referring to 'the transportation needs of the...